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PROBLEMS

Chair President

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

Other

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

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

b. Ratios

Last Year ($)


70.434.000
3.521.000
2.760.500
39.000.000
59.869.000
4.350.000

2 Years Ago ($)


69.950.000
3.497.500
1.748.750
38.647.000
59.457.000
3.500.000

0.37
0.15

0.36
0.25

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

Plastics
25% of groups net income

Chemical
5% of groups net

c. Groups
Electronics
Accounts for 70% of groups
net income and 50% of

income

groups revenues.
Small growth despite large

28,6% of groups revenues

21,4% of groups

potential
Narrow focus:

Small growth, while the market

revenues
Main customer is the

countermeasure equipment

is expanding

Plastic business unit

sectors
Customized system business

Serves multiply industry

A commodity

model
Preference to supply from

Make-to-order business model

Not profitable

for aircraft for defense

sister companies despite


higher prices
Many unresolved old
problem

SWOT Analysis
S

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

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

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

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.