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ORGANIZATIONAL BEHAVIOR MIDTERM – FALL 2001

BA 205: Organizational Behavior

MIDTERM EXAM

Instructions: You may be somewhat aggressive in your interpretation of the question, but

write a coherent and analytical essay that deals with all the issues to which the

question pertains.

The exam is open-book: there is no restriction on the materials (course or otherwise) you

may refer to. However, it is an individual assignment. Do not consult with other

class members or any one else in preparing your answer.

You are limited to five double-spaced pages. Return a hard copy to F470, Charles

Montague's work station, by 1pm, Friday, October 13. (Alternatively, you may email

the essay as an MS Word attachment to [email protected] by the deadlineonly if it is a genuine hardship for you to be on Campus at that time).

Analyze the structure, culture, and leadership of People Express. What were their

strengths and weaknesses? Were they internally consistent; i.e., well aligned? Were

they a good fit to PE's business environment, competitive strategy, and human

resource practice? What changes in PE's structure, culture, and leadership might

have strengthened the company and improved its odds of long-term success?

EXECUTIVE SUMMARY

The case study of Booz-Allen Hamilton (“the firm”) presents various challenges experienced by

the firm over the past 20 years. This essay is an analysis of Booz-Allen’s primary problem as

described by the case: the firm’s inability to commercialize its product innovations. While there

are some people within the firm that feel that a product-oriented strategy is undesirable, my

assumption (based on the plane ride discussion between Mr. Dickie and Varasano) is that the top

management of the firm wishes to pursue a product commercialization strategy. As such, this

paper will: i) identify the challenges/problems that inhibit the firm in this regard, ii) analyze the

causes of such problems, iii) discuss the firm’s initiatives in addressing these problems, iv)



recommend alternative solutions designed to enhance congruency, and v) present ideas on how

such solutions might be implemented for maximum effectiveness.

PROBLEM IDENTIFICATION

As a result of a change in corporate strategy, a primary focus of the firm is the development of a

product innovation and development capability that will yield scalable product offerings that the

firm may efficiently deploy across its client base. However, significant problems exist in this

regard, namely: i) the firm’s tendency to reject ‘packaged’ offerings and instead seek to develop

new and innovative solutions, ii) difficulty in transferring relevant knowledge and product

expertise/experience to other employees within the firm, and iii) the reluctance of partners to

bring unrefined/untested solutions to their clients.

CAUSES OF PROBLEMS

Competitive Environment

With other consulting firms adopting Booz-Allen’s strategy of “custom” solutions, the firm’s

competitive solution differentiation has eroded. The increase in competition has made it

increasingly difficult for Booz-Allen to maintain its growth rate – a top priority due to the

impact of growth on the retention of talented employees. As a result, the firms top

managers decided to embrace a new solution strategy.

Formal Structure

The formal structure of the firm is not in strong alignment with a product-oriented strategy. First,

the establishment of multi-functional client teams does not provide for the development of

product specific expertise. Second, there were few formal incentives for employees to develop

product expertise. Because playing “a key role in building major client relationships” was the

evaluation criterion for promotion to partner, few junior employees sought to develop product



expertise. Lastly, the Special Interest Groups (SIGs) were informal in structure, and not part of

the formal structure.

Informal Structure and Impact of History

As a result of the firm’s history in developing custom solutions for clients, the culture of the firm

is not compatible with the strategy of commercializing product offerings. Many of the firm’s

partners and employees pride themselves on developing entirely customized solutions, and the

firm’s partners are accustomed to acting independently. As a result, many partners reject such

initiatives and ‘play by their own rules.’ The lack of a united vision or leadership presence, such

as in the case of Mary Kay or Anita Roddick of the Body Shop, only contributes to this problem.

Another cultural barrier is that many of the junior employees of the firm are particularly attracted

to the diversity of work assignments offered by a custom solution strategy. With an environment

characterized by routine products, turnover of junior employees could be problematic in this

regard.

Lastly, there is significant risk aversion in the firm’s culture. The partners are reluctant to

introduce unrefined ideas to clients due to the risks of unsuccessful deployment. This reluctance

is however congruent with the firm’s focus on serving fewer clients. With greater reliance on

fewer clients, it is imperative that the partners maintain credibility in their client relationships.

People

As mentioned, many of the firm’s partners act independently and problematically reject the

firm’s initiatives.

FIRM’S INITIATIVES IN ADDRESSING PROBLEMS

The company’s restructuring in 1987 was successful in reshaping the formal incentive and

compensation structure. Based on the case it appears that the restructuring was successful in



influencing behavior and aligning partner incentives toward cooperation. However, the

restructuring failed to reshape the conservative and custom-product oriented culture of the firm.

The three thrusts of company’s 1994 “V2K” initiative were somewhat ineffective in supporting

the product commercialization initiative of the firm. First and foremost, a focus on a small client

base conflicts with a product oriented strategy of deploying scalable products across as many

clients as possible. This strategy is also inconsistent with supporting risk-taking culture where

client engagements are concerned. Second, the multifunctional teams that were created were

targeted to serving specific clients, as opposed to specific products. Lastly, the Knowledge

Engine: i) created a matrix structure where assignment rotation was the norm – which is not

conducive to developing specialized product skills and knowledge, ii) established the SIGs under

informal structure, and thereby reduced its importance in the daily prioritization of employees,

and iii) provided a useful online tool for associates in background data gathering, but failed to

provide a mechanism for the partners to communicate and exchange product ideas.

RECOMMENDED ALTERNATIVE SOLUTIONS

Tasks

In order to accomplish scalability in deploying solutions and further prevent the “recreation of

wheels,” I would establish a solutions marketing group within each product area and give them

responsibility for developing reusable sales tools, such as PPT presentations, value creation

models, industry overviews, etc. This would help speed the firm’s time-to-market of product

offerings. Allentown Materials is a great example of how critical time-to-market can be in a

competitive environment. Most importantly, this group would edit and distribute a monthly

newsletter highlighting newly developed products and evolutions of existing products, based on

content received from the Client Solutions Committee.



Formal Structure

The establishment of a formal Client Solutions Committee (CSC), comprised of the firm’s most

highly respected and innovative employees would accomplish numerous objectives, namely: i)

proliferating and developing innovative products, ii) providing internal visibility to the

importance of product specialization, and iii) creating a cross functional team that is focused on

the business process of developing, enhancing and commercializing innovative product ideas. I

would also recommend making the SIGs part of the formal structure and re-establishing well-

defined evaluation criteria for employees of all levels at the firm. Such criteria would include an

emphasis on contributions to the product development processes, and contributions to the CSC.

People

I would strongly recommend eliminating those partners or employees that resist the new product

commercialization initiatives. As one of the biggest barriers to this strategy is the firm’s culture,

it is imperative that cultural consensus exist, one of the main themes presented in Charles

O’Reilly’s “Corporations, Culture and Commitment” article.

IMPLEMENTATION OF RECOMMENDED SOLUTIONS

I would recommend that the firm’s employees select the members of the CSC through a voting

system for two reasons: i) participation increases commitment (Ancona p. 41, reference to

Nadler and Tushman article) and ii) the “prestige” of such positions would help reshape the

culture to place high value on product specialization.

I would recommend that the newly defined evaluation criteria be made transparent across all

levels of the organization. A highly transparent reward system would reduce the ability of rogue

partners to influence the behavior of junior employees. In a system where measurement is highly



subjective, relationships with superiors become critical, thereby giving the partner’s tremendous

influence over the behavior of junior employees. By contrast, in a system where measurement is

well defined and transparent, performance becomes the primary focus of junior employees. In

this system, it is imperative that the criteria for promotion to partner include contributions to

product development / commercialization.

Lastly, employees should be publicly rewarded ‘on the spot’ for taking risks (O’Reilly

emphasizes ‘spot’ rewards p148). Some possibilities include circulating firm-wide memos giving

recognition to deserving employees, or highlighting such an event on the front page of the newly

created monthly newsletter.



Outline

Problem: Unable to commercialize product offerings

Identification

Packaging scalable offerings w/o redundant recreation of wheels

Communicating offerings

Transfering knowledge, expertise/experience

Incentivising partners to use product offerings

Causes

History & Culture

• Historic focus on developing new ideas as opposed to commercializing existing ones

• Variety of assignments – employees need for diversity

• Conservativism of partners

♦ Credibility with clients is key, particularly with strategy to serve fewer clients with more $$

Competitive Environment

• Competing firms adopting Booz-Allen strategy thereby reducing its competitive differentiation• Growth rate increasingly difficult to maintain

♦ Necessary to retain talented employees

Formal Structure

• Multifunctional client teams were inconsistent with developing product expertise

• Lack of formal incentives for people to develop product expertise

♦ Criteria for promotions to partner – “key role in building major client relationships”

• SIGs were not formal structure – they were informal structure

Informal Structure

• History of partner fiefdoms – partners used to making their own decisions and playing by their own rules

♦ Lack of united vision or leadership presence to overcome this

♦ Don’t have a strong leader like Mary Kay or Anita Roddick (Body Shop)• Cultural tendency toward conservatism

People

• Reluctant partners are preventing the adoption of the product commercialization strategy

Firm’s Strategies for Addressing Problem

1987 Reoganization

• Successful in Reshaping Formal Structure

♦ Restructured partner compensation

♦ Performance evaluated on 5 dimensions, not just revenue

♦ Peer appraisals

♦ Change of ethic from independent model to cooperative model

• Unsuccessful in Reshaping Informal Structure

♦ Partners still conservative

♦ Partners still resist product focus

1994 “V2K” Reorganization

• Fewer, More Expansive Client Relationships

♦ Conflicts with product strategy

♦ Conflicts with a risk-taking strategy

• Multifunctional Client Service Teams

♦ Focus on clients, not products. Does not support product commercialization objective



• Knowledge Engine

♦ Matrix structure but still unclear how much rotation occurred (limits ability to developspecialization)

♦ Special Interest Groups – under informal structure, receive low priority in the field

♦ Knowledge online – only associates use it

Proposed Alternative Solutions Tasks

• Establish a solutions marketing groups within the key functional areas

• Creates reusable sales tools such as PPT presentations, value creation models, etc. for functional product groups

♦ Helps speed time to market with new products (Allentown Materials is a good example of slow time-to-market process)

• Monthly newsletter highlighting new product information

Formal

• Establish client solutions committee comprised of the firms most highly respected and innovativeemployees

♦ This creates a cross functional team designed to focus on the business process of productdevelopment and commercialization

• Establish well defined measurement criteria for all staff members

♦ Including partners contributions to KOL

• Make SIGs a formal structure

• Allow partners to discount client fees for ‘unrefined’ solutions

Informal

• Encourage and promote risk-taking

People

• Eliminate partners who don’t adapt

• This as much about changing the culture and as such, consensus is critical and the values need to be reinforced across divisions and mgmt levels

Implementation of Alternative Solutions

Formal• Client Solutions Committee

♦ Employees select committee members through voting system

Participation increases committment

♦ Employees rewarded based on contributions to committee

Choice of assignments

Portion of their bonus determined by this

Early promotion

• Re-Establish measurement criteria for promotion to partner

♦ Needs to include contributions to product/practice areas

♦ Growth of product group – promotion of partners to product group

Measured by new client engagements

Measured by total product revenue growth Informal

• Encourage risk-taking

♦ Monthly newsletter with the front-page article featuring an employee taking risk anddelivering value

As discussed in reading by Charles O’Reilly – people want to be accepted by others andwant to live up to expectations

♦ All principles and partners asked to recommend one of their employees for this honor



• Establish and consistently apply highly transparent formal measurement criteria for all employees,thereby reducing the incentives of staff members to follow and support the preferences of individual partners

♦ Transparency and consistency avoids cynicism, as pointed out by Charles O’Reilly, resultsfrom inconsistencies

• Senior partners need to talk about success stories at annual corporate retreat – this leads to water

cooler conversations about what is valued

Tie-In of Course Work

Similar problems

Similar mgmt solutions

Similarly proposed solutions

Similarly proposed implementation

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