DRIVING GROWTH AT STONE FINCH

How Jim Billings can manage the delicate balance of sustaining a

mature business while funding innovation necessary for survival

Nancy Sagar

Individual Case Writeup

Management 469, Professor David Lewin

May 20, 2011

Executive Summary

Jim Billings has led a phenomenal growth spurt since taking the CEO position at Stone

Finch, a mature, family-founded water/wastewater product manufacturer. In just four

years, he had tripled revenues to more than $5 billion by spurring innovation that led to

exciting new products. Yet instead of celebrating success, A-level talent was suddenly

leaving; morale had plummeted. Why? Using an inventive leadership style [Anconas

Leadership Compass, reference 1], Billings had formulated and executed major

organizational changes with the support of the board. The problem: he failed at

visioning and relating [both Ancona] to the 20,000 domestic fowl in the company.

He didnt sell his vision, lead the organization to change, or attempt to align his new

strategy, subsidiary structure, and falcon culture with the rest of the long-tenured

employees.

To plug the talent drain, dissolve high cholesterol (e.g. Eli Saunders), overcome cultural

inertia and inspire his organization to travel the transformative path together, the most

critical action Billings can take is to carefully implement Kotters Eight Steps to

Transforming Your Organization [2]. Billings is following the right strategy driving

innovation to create new, high-potential products -- for a mature company in a mature

industry to stay alive and grow. But he still has a $2.2 billion cash cow to milk, and he

cannot allow the Water Products division to sink any further. The problem is not Beth

Suarez the blame belongs to Billings and his lack of leadership through massive

organizational upheaval.

Blending old and new: the delicate balance

Tushman and OReilly[3] remind us that a successful organization is naturally larger

and older variables that contribute to cultural and structural inertia. Stone Finch

certainly falls within this category. And it is incredibly difficult to 1) successfully inject

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such an organization with a new innovation mindset and 2) manage that organization

once it is competing in different markets, potentially with different customer bases and

different value propositions.

Shift in competitive strategy requires different core competencies

This change is also difficult because it shifts Stone Finchs competitive strategy from

that of a fast follower to a product leader. As a fast follower, Stone Finchs expertise is in

quickly improving the innovations of competitors, then beating them through cost

advantages borne from expertise in large-scale production and distribution. The

organizational skill in that model is completely different from a product leader, a model

that requires creativity, speed, risk-taking, failures, and a high volume of high-quality

ideas. Billings needs to ambidextrously manage both groups. But before he can manage,

he has to keep his top talent and energize the organization to change.

The Eight Steps framework: Analysis of Billings previous

mistakes and recommendations to implement now

Before launching into his next transformation effort, Billings would be wise to stop

blaming Beth Suarez and analyze what he did well and what he missed in leading change

at Stone Finch to date. He should then implement the concepts that he missed

faithfully and persistently -- in the order presented below.

1. Establishing a sense of urgency

Billings was handicapped from the time Richard Stone acquired his company, Goldfinch

Technologies. Stone surprised his entire executive team and family with the move, and

the quote provided in the case only refers to a goal of creating additional revenue

streams for growth. Growth is great, but its not a powerful sense of urgency, especially

in a company whose board calls it complacent. Billings appointment as CEO in 2004

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was another surprise, and once again, the rationale was given as profitable growth and

diversification.

As Kotter points out, successful transformation (like Billings goal to build a culture of

experimentation among a staid group of comfortable lifers) requires the coordinated

efforts of many people, and they must have a powerful motivation to change. Billings

doesnt appear to have attempted to communicate the importance of innovation to

ensure a continued bright future. He should have championed his cause with the stories

of other mature companies that marched along until an innovative young competitor

came along with a disruptive technology. He could have rallied the company around the

solutions concept as the next generation, but one that relies on its adult parent (the

Water Products division) for expertise and support as it grows up.

Instead, Billings just ran the numbers, got board approval, and made his deal with the

EnzaClean engineers with no explanation to the rest of the employees.

Fortunately, this sense of urgency can be even more powerful today since the Water

Products division is suffering and morale is low. The urgency is to regain leadership and

to catapult the company into new categories to achieve X goals by Y time. Billings can

also make the urgency more personal by tying success or failure to stock price, which

offers even greater motivation for older, long-term employees who may be relying on

their stock for retirement.

2. Forming a powerful guiding coalition

Based on Eli Saunders email, it appears that Billings did seek the support of his senior

management team for the subsidiary concept. But numerous discussions doesnt

create a powerful team with a shared vision and commitment a team that will keep the

urgency high and their employees engaged. Perhaps Billings didnt think he needed such

support, since he seems to lack Anconas visioning and relating skills.

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Billings should create a team of at least 50 people representing all major groups in the

company. It should include all of the VPs, several subsidiary presidents, the director of

technologies and product engineers, marketing and salespeople from both divisions,

researchers, and the companys best superconnectors. Billings must lead this team to

consistently communicate the sense of urgency, identify barriers, understand and

overcome the difficulties that come with implementing change, and driving solutions.

3. Creating a vision
Billings had a vision of Stone Finchs future as a diversified, highly profitable product

leader. But the subsidiary concept is confusing, especially when the fowl see the

falcons disappear to create new products and then reappear as millionaires. Billings

needed to find a simple, clear way to explain the concept to employees in

straightforward English something they could truly grasp and support because they

understood the urgency (step 1) that was being well reinforced by the powerful coalition

(step 2). But its not too late he needs to do this now.

4. Communicating the vision

Billings should plaster Kotters page 7 on his desk and study it each day. A vision is

useless unless the entire organization understands it, why its important, and how their

role supports it. The case offers powerful evidence on this topic: Eli Saunders complaint

that using my manufacturing division as a cash cow to feed a proliferating number of

subsidiaries is an unsustainable strategy. Apparently Saunders hasnt looked the

companys financials his cow is smaller and less profitable than the rest of the

organization. If an SVP doesnt understand his relative financial contribution or share

the CEOs vision, his Water Products division certainly wont either. No wonder his

salespeople are leaving.

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5. Empowering others to act on the vision
The subsidiary structure is an excellent solution that eliminates barriers for engineers

to develop innovative products for Stone Finch. In fact, the structure creates an

incredible motivator for engineers to collaborate and work on side projects that could be

accepted into the program. Billings did well here. However, the mystery and jealousy

experienced by the rest of the organization is an obstacle to the companys success if the

culture becomes so stratified that employees leave in droves. Billings cant let rich new

employees sour the environment; if he had effectively executed steps 1-4, employees

would better understand how subsidiary success was worth celebrating.

6. Planning for and creating short term wins

Continuing the previous analysis, subsidiary successes like launching a new venture,

achieving certain milestones, and reacquisition by the parent are all short-term wins

that the entire company can celebrate. After all, their fellow employees are creating

exciting new products for new markets, thereby bolstering the stock price and

employees portfolios. Billings should also specifically create achievable short-term wins

for the Water Products division as well, perhaps showering them with stock to help

spread the wealth and keep focus and energy high.

7. Consolidating improvements and producing still more change

Innovation isnt a destination but a journey, and if Stone Finch allows the urgency to

dissipate or the vision to become muddied, the company can easily slide back into the

situation it faces today. Billings didnt fail at this step in his first transformation attempt

because he never declared an urgent vision and drove the organization toward it. But

looking ahead, he has to recognize that his organizations systems, structure, processes,

even people must constantly evolve. He doesnt appear to have a VP HR, and he would be

wise to have an HR team tasked with monitoring, driving, and evolving the organization

alongside the rest of the senior management team and innovation coalitions. The HR

team could also support the consistent communication of the clear vision and help

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eliminate the rest of the noisy company messages that bury the most critical concept --

future vision -- under less important, task-oriented, routine communications.

8. Institutionalizing new approaches

Stone Finchs board made the right decision to select Billings for the CEO. By doing so,

they took the first step in institutionalizing Richard Stones idea to innovate for growth.

Billings took another step to institutionalize innovation through the subsidiary concept.

Yet the cultural divide that has emerged between the Solutions Group and the Water

Division demonstrates that these changes arent anchored into the organization

theyve just been planted in half of it.

Once again, this step requires consistent, clear communication about the vision and how

structure, people and processes support the strategy that Billings and his guiding

coalition have defined. More simply, they have to connect the dots for employees.

The case doesnt provide any detail about the slide in the Water Divisions market share

or brand equity, nor does it indicate whether the market for those products is growing or

contracting. Its still worth over $2 billion in revenue with 10.6% net margins, so Billings

must engage Eli or replace him with someone who can apply the appropriate elements of

the Solutions Group innovation model in his division. Could the Water Division evolve

from a fast follower into a product leader? Or could some additional engineering prowess

improve their me-too products so that they offer even more incremental performance

improvement and thus higher margins? Certainly they can find a way to motivate

certain engineers to work on water products innovations. Its the perfect opportunity for

Stone Finch to test job sculpting based on DELIs!

References
[1] Deborah Ancona et al, The Sloan 4 Capabilities Leadership Framework, aka Aconas Compass from Leadership Foundations I.
[2] Kotter, John P., Leading Change: Why Transformation Efforts Fail, Harvard Business Review, January 2007.
[3] Tushman, Michael L. and Charles A. OReilly III, Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change, California
Management Review, volume 38, number 4, summer 1996.

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