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 company’s debt structure to afford
acquisition by themself)
 Failed to conduct transference pricing system as the material’s 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 company’s 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
NEED ?
Environment Industry
Organization Firm

Business Performance
a. Financial
Last Year ($) 2 Years Ago ($)
Net Sales 70.434.000 69.950.000
Income (pre-tax) 3.521.000 3.497.500
Income (after-tax) 2.760.500 1.748.750
Sharholder’s Equity 39.000.000 38.647.000
Total Assets 59.869.000 59.457.000
Long-term Debt 4.350.000 3.500.000

Net Income per Share 0.37 0.36

Cash Dividend per Share 0.15 0.25
b. Ratios
Last year 2 years ago
Profit margin 3,92% 2,50%
ROI 117,65% 117,65%
ROE 180,60% 181 %
Working capital $16.200.000 $16.088.500
Debt ratio 0,11 0,09

c. Groups
Electronics Plastics Chemical
Accounts for 70% of group’s 25% of group’s net income 5% of group’s net income
net income and 50% of groups
revenues.
Small growth despite large 28,6% of group’s revenues 21,4% of group’s
potential revenues
Narrow focus: countermeasure Small growth, while the market Main customer is the
equipment for aircraft for is expanding Plastic business unit
defense sectors
Customized system business Serves multiply industry A commodity
model
Preference to supply from Make-to-order business model Not profitable
sister companies despite
higher prices
Many unresolved old
problem

SWOT Analysis

S W O T

•Vertical integration •Harold wallace •Creating more vertical •Reputation damage due
•Diverse technical •Corporate vision, mision, integration synergies to slow respone to bid
competence and business strategy •Growing markets of requests
•Running projects in are not clear electronics and plastics •Failure to deliver on
electronics and plastics •BU operates like •Diversification to other currentproject
business unit s, with separated island markets or business •Bad financial
guaranted sales •Boundaries between the performance, especially
roles of corporate stuff in chemicals
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
PROBLEM ROOTS
 Unsuitable Wallace’s 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 company’s 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 shareholder’s wealth.
 Minority groups
b. Board of directors
 Representing the firm’s 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 board’s 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 company’s competitors
will do, and how the organization’s 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.