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PROBLEMS Chair President Product diversification Increased size and the relationship of size to managerial compensation Reduction of managerial

nagerial employment risk

Use of Cash Flows Managers prefer to invest these funds in additional product diversification Shareholders prefer the fund as dividend, so they control how the funds are invested Managerial opportunism Prevents the maximation of shareholders wealth (the primary goal of owner/principal)

Shared Value Unclear vision and mission (corporate strategy) Mostly based on shareholder value (one perspective), which is supposed to be base on corporate value Strategy: Consolidation when there was a good opportunity, but lack of support from the internal as they have weak capacity Structure: Need to restucture when doing acquisition

System: No appropriate Human Resource Management System No integrated marketing information system between business unit and corporate level. Style: Leadership style based on one man power, did not match with the organization size. Considering the organization size, the appropriate leadership style is no longer telling, but would be better if Wallace use participating or delegating leadership style. Skill: Not enough skill to do their jobs (management skill for technical people and vice versa)

Staff Overlap jobs Lack of technical people as most of them recruited as management Low earning power (reflected in the inability of companys debt structure to afford acquisition by themself) Failed to conduct transference pricing system as the materials price higher than outsider supplier No good corporate governance

Other

ANALYSES The Wallace Group needs to have its organizational structure that is changed inside out to create an environment that will attract, motivate and retain top-quality employees. The plan for change should provide strong evidence that the change will make a very significant improvement in the companys competitive position.

The Strategic Analysis Triangle


WANT Management Preference Individual

Reach out into new market wherever possible


Competences in the areas of microelectronic, electromagnetic sensors, antennas, microwave, and microcomputers CAN Resource Capabilities and Organization Firm NEED Environment Industry

Business Performance a. Financial


Net Sales Income (pre-tax) Income (after-tax) Sharholders Equity Total Assets Long-term Debt Net Income per Share Cash Dividend per Share Last Year ($) 70.434.000 3.521.000 2.760.500 39.000.000 59.869.000 4.350.000 0.37 0.15 2 Years Ago ($) 69.950.000 3.497.500 1.748.750 38.647.000 59.457.000 3.500.000 0.36 0.25

b. Ratios
Profit margin ROI ROE Working capital Debt ratio Last year 3,92% 117,65% 180,60% $16.200.000 0,11 2 years ago 2,50% 117,65% 181 % $16.088.500 0,09

c. Groups
Electronics Accounts for 70% of groups net income and 50% of groups revenues. Small growth despite large potential Narrow focus: countermeasure equipment for aircraft for defense sectors Plastics 25% of groups net income 28,6% of groups revenues Chemical 5% of groups net income

21,4% of groups revenues Small growth, while the market Main customer is the is expanding Plastic business unit A commodity Not profitable

Customized system business Serves multiply industry model Preference to supply from Make-to-order business model sister companies despite higher prices

Many unresolved problem

old

SWOT Analysis

S Vertical integration Diverse technical competence Running projects in electronics and plastics business unit s, with guaranted sales

W Harold wallace Corporate vision, mision, and business strategy are not clear BU operates like separated island Boundaries between the roles of corporate stuff and BU staff are not well defined All BU are not growing Group revenues depend mainly on defense No R&D function in any BU Workforce problem

O Creating more vertical integration synergies Growing markets of electronics and plastics Diversification to other markets or business

T Reputation damage due to slow respone to bid requests Failure to deliver on currentproject Bad financial performance, especially in chemicals

PROBLEM ROOTS Unsuitable Wallaces leadership style (considering the size of the company) Unclear corporate strategy

ALTERNATIVE SOLUTIONS The recommended strategy for Mr. Wallace to achieve this goal is listed below in order of priority: Examine his personal management style, priorities, direction for the company, and future goals for growth and development. Restructure the departments based upon the needs of the new organizational structure and the company goals. Utilize Rampar Associates to evaluate the strengths and weaknesses of the existing operation. The outsiders will have fewer reasons to pull punches than staff members that can be promoted or fired. Valuable criticism may come from specialized consultants, owners or board members other than the president or CEO, and even customers. Change and develop the personnel services department into a fully operational a HR department.

BEST SOLUTION Restructuring the departments based upon the needs of the new organizational structure and the company goals.

IMPLEMENTATION Hire an independent investigation team to examine the company situation and seek for potential external leader. Based on the analyzes, then the team recommend the things that should be done by the company completed with its priorities. The company then implement the solution completed with close monitoring by both investigation team and the company. After the implementation, they both evaluate the outcome and make some adjustment or improvement to eliminate future failure. The implementation is could be done as the following steps: a. Define the companys existing and propose structure. Is it functional, departmental or matrix?

b. Establish a mission statement, goals and objectives with input put from the VPs and Directors. c. Complete a strategic analysis and develop a strategic plan, to include everything from each area within the organization and any other external and internal issues. d. Conduct meetings at each level to get feedback regarding the concerns of the employees, their ideas, strengths and weaknesses and any other issues. This should begin with the VPs, then the Directors, and so forth for each department. e. Encourage a continuous flow for the exchange of information. f. Involve the entire staff in every stage of the evaluation project. The lowest-level employees not only have a different perspective on the strengths and weaknesses of the present system, their team membership and support will make or break the present system, as well as any new one. The management-labor relationship is by far the most important element in the success or failure of any organizational structure. Internal Governance Mechanism: a. Ownership concentration Large Block Shareholders means greter profitbility than strategic decisions will be focused on maximazing shareholders wealth. Minority groups b. Board of directors Representing the firms owner by monitoring top-level managers strategic decision Background diversity and independence Auditing, Compensation, and Nomination Committes Financials vs strategic control Strenghtening of Internal Management and Accounting Control System Establishment and use of formal processes to evaluate the boards performance Creation of a Lead Director role Director election by majority rather than by a plurality c. Executive compensation Use of salary, bonuses, and long-term ncentives to align managers interest with shareholders interest.

CONCLUSION Companies need strategy. Organizations have to think about their future and how they will compete. Competing effectively requires investment commitment to capabilities, assets, people and customers. The problem is that effective commitment requires accurate prediction assumptions of how the future will unfold: what the customers will want, what the government will require, what the companys competitors will do, and how the organizations own people will perform. The problem is that accurate prediction is impossible. In order for The Wallace Group to achieve continued success, the organization must take an approach that allows it to prepare effectively for a future they cannot predict. The plan for strategic flexibility requires that companies anticipate multiple scenarios; formulate strategies for each; acquire the capabilities to execute those strategies; execute the most likely strategy; and be prepared to rapidly adopt one of the alternatives if market forces dictate. This seems to be a viable solution for The Wallace Group.