The Paradoxical Twins: Huo and Shui Electronics*

Your consulting firm has been hired by Michael Zhou, president of Shui
Electronics, to help him with issues with his organization. The firm’s partner in
charge of Shui’s account will be meeting with president Zhou in four hours to
present your diagnosis of the situation as well as your recommendations.
When president Zhou hired your firm, he explained why he was turning to outside
consultants for help.
I asked you to get together with me to help solve a problem. We have been competing with
Huo for many years and have always been able to win our share of contracts. However, over
time we seem to be have been having more difficulties to attract new contracts and our profit
margins always seem to be lower than those of Huo. Furthermore, Huo just took a contract from
us that we should have been able to keep. Could you help me understand why Huo eventually
managed to win the contract and what I could do in order to prevent this from happening in the
future?

What follows is a summary of Shui and Huo’s background as well as an account of

Shui’s missed opportunity.

Background

In 2001, Imperial Technological Products of Guangzhou, was bought out by a large

firm based in Nanjing. The Nanjing firm had no interest in the electronic
components design and manufacturing division of Imperial Technological Products
and subsequently sold to different investors two plants which manufactured
electronic components. One of the plants, located in Shenzen, was renamed Huo
Electronics and the other plant, in Guangzhou, was renamed Shui Electronics.

Huo retained its original management and upgraded its general manager to
president. Shui hired a new president who had been a director of a large electronic
research laboratory and upgraded several of the existing personnel within the
plant. Huo and Shui often competed for the same contracts. As subcontractors, both
firms had benefited from the immense increase in manufacturing of electronic
devices in mainland China, such as mobile phones, PDAs, and personal music and
video players. Both firms looked forward to future growth and expansion. Huo had
annual sales of 1.2 billion RMB and employed 480 people. Shui had annual sales of
950 million RMB and employed 440 people. Huo regularly achieved greater net
profits much to the chagrin of Shui’s management.

*
This imaginary case is adapted from “The Paradoxical Twins: Acme and Omega” by Veiga and Yanouzas. All
names are fictitious. First names have been westernized.

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Inside Huo

The president of Huo, William Chang, was confident that, had the demand not been
so great, Huo’s competitor would not have survived. “In fact”, he said, “we have
been able to beat Shui regularly for the most profitable contracts.” Chang credited
his firm’s greater effectiveness to his managers’ abilities to run a “tight ship”. Huo
had detailed organization charts and job descriptions. Chang believed everyone
should have clear responsibilities and well-defined jobs, which would lead to
efficient performance and high company profits. People were generally satisfied
with their work at Huo; however, some of the managers voiced the desire to have
a little more latitude in their jobs. One manager characterized the president as a
“one-man band.” He said, “while I respect William’s ability, there are times when
I wish I had a little more information about what is going on."

Inside Shui
Shui’s president, Michael Zhou, did not believe in organizational charts. He felt his
organization had departments similar to Huo’s, but he thought Shui’s plant was small
enough that things such as organizational charts just created artificial barriers for
specialists who should be working together. Written memos were not allowed since,
as Michael Zhou expressed it, “the plant is small enough that if people want to
communicate, they can just drop by and talk things over.”

Other members of Shui complained that too much time was wasted “filling in”
people who could not contribute to problems and solutions. As the Head of the
Mechanical Engineering Department expressed it: “Michael spends too much of
his time and mine making sure everyone understands what we’re doing and
listening to suggestions.” Zhou was concerned with employee satisfaction and
wanted everyone to feel part of the organization. The top management team
reflected Zhou’s attitudes. They also believed that employees should be familiar
with activities throughout the organization so that cooperation between
departments would be increased. A newer member of the Design Engineering
Department said, “When I first got here, I wasn’t sure what I was supposed to do.
One day I worked with some design engineers and the next day I helped the
shipping department design some packing cartons. The first months on the job
were hectic but at least I got a real feel for what makes Shui tick.”

The Opportunity

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In 2011, a European
electronics firm that had
once been highly
competitive in the mobile
phone market was
preparing to launch a new
handheld PDA to compete
with Apple’s highly
successful I-Phone, the
Motorola Droid, and new
offerings from HTC and
LG. This new product was
a last-ditch effort to bring
the firm back into a
competitive position in
the industry. The key
difference between this
phone and the
competition would be the
operating system: not Apple’s proprietary IOS, nor Google’s Android, but a
platform from Microsoft: Windows Phone OS.

Because a key competitive feature of the IPhone 4 was its high-resolution “Retina”
display, this new phone had to have a screen that would be just as “eye-popping”
as anything that the competition could offer. The firm had a basic design; the
challenge was to develop and refine the design, create prototypes, and eventually
manufacture integrated circuits compatible with the Windows Phone operating
system and a state-of- the-art AMOLED screen.

Both Shui and Huo had submitted highly competitive bids for the production of one
hundred prototypes of the integrated circuit array. Huo’s bid was slightly lower than
Shui’s; however, both firms were asked to produce one hundred units. The
electronics company manager told both firms that speed was critical because their
president had boasted to the industry that they would have a finished PDA available
for sale sometime in the first quarter of 2012. This boast, much to the manager’s
dismay, required pressure on all subcontractors to begin prototype production
before final design of the PDA was complete. This meant that Shui and Huo would
have at most two weeks to produce the prototypes or delay the production schedule
of the PDA.

Huo’s Response

As soon as William received the CAD design files (Monday, July 11, 2011), he sent
an e-mail to David of the Purchasing Department requesting them to move forward
on the purchase of all necessary materials. At the same time, he sent the design
files to Shelley, head of the CAD Group, and asked that they work together to
prepare electronic manufacturing drawings. Jimmy, head of the Design
Engineering Department, was told to begin methods design work for use by the
fabrication group foremen (Steven, Chelsea, and Sunny). William also sent an e-

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mail to all department heads and executives indicating the critical time constraints
of this job and how he expected that everyone would perform as efficiently as they
had in the past.

The departments had little contact with one another for several days, and each
seemed to work at its own speed. Each department also encountered problems.
David (Purchasing) discovered that a particular component used to mount a
processor could not be purchased or shipped for two weeks because the
manufacturer had shut down for summer vacations. Alicia (Mechanical
Engineering) did not take the deadline seriously and parceled its work to vendors
so the engineers could work on other jobs scheduled previously. William made it a
point to stay in touch with the electronics manufacturer to let it know things were
progressing and to learn of any new developments.

On Friday, July 15, William learned from Alicia that mechanical engineering was
way behind it its development work. He was extremely angry, and yelled at her in
front of other members of her group. To make things worse, because purchasing
could not obtain all the parts on time the engineers decided to assemble the
product without one part - which would be installed in the prototypes as soon as it
was received from the vendor.

On Thursday, July 21, after several additional delays, the last units - minus the
missing part were being assembled. On Friday July 22, the last units were coming
off the assembly line while William paced around the plant pushing people to hurry
up. William wanted all the prototypes ready for installation of the missing part,
followed by shipment to the electronics manufacturer early the next week.

Late Friday afternoon, as the last units were coming out of production, William
received a phone call from the head designer of the electronics manufacturer. He
told William that he had received a call on Wednesday from Michael Zhou of Shui.
He explained that Zhou’s engineers had found an error in the design of a connector
and taken corrective action on their prototypes. He told Chang that he checked out
the design error and that Michael Zhou was right. William, a bit overwhelmed by
this information, told the designer that he had all of the integrated circuit array
prototypes ready for shipment and that soon as they received the missing
component, on Monday or Tuesday, they would be able to deliver the final units.
The designer explained that the design error would be rectified in a new CAD
design file he was about to e-mail to Chang and that he would hold Chang to the
delivery deadline on Tuesday.

When the CAD design file arrived, William called Edward, the Production Manager,
in to assess the damages. The alterations in the design would call for total
disassembly and the unsoldering of several connections. William told Edward to
put extra people on the alterations first thing on Monday morning and try to finish
the job by Tuesday. Late Tuesday afternoon the alterations were finished and the
missing components were delivered. Wednesday morning, Robert from Quality
Control told Edward more bad news: he had discovered that the units would have
to be torn apart again to install the missing components. When William was told
this he again became extremely angry, this time screaming at Edward. He called in

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Jimmy from Design Engineering and asked if they could help out - and Jimmy told
William that his people would study the situation and get back to him first thing in
the morning.

William decided to wait for their study because he was concerned that tearing
apart the prototypes again would weaken several of the soldered contacts and
increase their potential rejection. Thursday, after several heated debates between
the Production Manager (Edward), Jimmy (Industrial Engineering), Alicia
(Mechanical Engineering), and Simon (Electrical Engineering), William settled the
argument by ordering that all prototypes be taken apart again and the missing
component installed. He told Judy, the head of the Shipping group, to prepare
cartons for delivery on Friday afternoon.

On Friday, July 29, fifty prototypes were shipped from Huo without final inspection.
William was concerned about his firm’s reputation, so he waved the final inspection
after he personally tested one prototype and found it operational. On Tuesday,
August 2, Huo shipped the last fifty units.

Shui’s Response

On Friday, July 8, Michael Zhou called a meeting that included department heads
to tell them about the potential contract they were about to receive. He told that as
soon as he received the CAD design files, work could begin. On Monday, July 11,
the files arrived and again the department heads met to discuss the project. At the
end of the meeting, the CAD group, led by Liz, had agreed to prepare manufacturing
files while the Design Engineering group (Morgan) would begin methods design
with the help of Stella, the Plant Manager, and Heather, Daniel and Jesse, the
fabrication process leaders.

Two problems arose within Shui that were similar to Huo. Certain parts necessary
for the prototypes could not be delivered on time, and the assembly sequence was
especially difficult to engineer. The departments proposed ideas to help one
another, however, and department heads and key employees had daily meetings to
discuss progress. The head of Electrical Engineering (Diane) was able to find an
alternative source for the components that were not available when needed from
their regular supplier. Most problems were solved by Saturday, July 16.

On Monday, July 18, several engineers and the Production Manager (Stella)
formulated the assembly plans and production was set to begin on Tuesday
morning. On Monday afternoon, people from Mechanical Engineering, Electrical
Engineering, Fabrication, and Design Engineering got together to produce a short
run of products just to ensure that there would be no snags. While they were
building the first prototype they discovered an error in the connector design. All of
the engineers agreed, after checking and rechecking the blueprints, that the
design of the connector was flawed. People from Mechanical Engineering and
Electrical Engineering spend Monday night redesigning the connector and, on
Tuesday morning, the Design Engineering Department finalized the changes in the
manufacturing design files. On Tuesday morning, Michael was a bit apprehensive
about the design and decided to get formal approval. He received word on

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Wednesday from the head designer of the electronics firm that he could proceed
with the design changes as discussed on the phone. On Friday, July 22, the final
units were inspected by Quality Control and were then shipped.

Figure 1. Simplified Organizational Structure for Huo

Figure 1. Simplified Organizational Structure for Shui†

†
Although Michael Zhou did not like ‘organization charts,’ Shui did have Departments much like
those at Huo.