Stone Finch, Inc, Case Study Example

Stone Finch, Inc. (Stone Finch) is the result of Stone Water Products, Inc.’s (Stone Water) acquisition of Goldfinch Technologies (Goldfinch) in 2000. Stone Water specialized in products for water/wastewater industry and had built a reputation for quality products and unrivaled customer service. The company’s business model was built around improving upon competitors’ products and gain edge through economies of scale. Unlike, Stone Water, GoldFinch was a biochemical research firm whose organizational culture encouraged innovation. When Stone Finch’s CEO Richard Stone stepped down, Jim Billings who was heading the Solutions Department and previously led Goldfinch, became Stone Finch’s CEO. The original operations of the company were organized under the Water Products Division, headed by Eli Saunders, 1 25-years company veteran(Hamermesh & Collins, January 22, 2010, Pg. 1-4).

Under Billings’ leadership, Solutions Department became the center of innovation while Water Products Division was the cash cow that funded Solutions Department’s activities. This led to frustration and lower morale in the Water Products Division and even resulted in departure of talented sales associates. In order to discourage talented employees in the Solutions Department from leaving the company, Billings’ allowed them to form entrepreneurial subsidiaries. Successful subsidiaries would be integrated back into the main company and employees of those subsidiaries would also benefit from attractive equity stakes. When former employees would return to Solutions Department, their work relationship with former colleagues would not be the same due to changed economic circumstances. This negatively affected overall morale in Solutions Department as well as some felt left out (Hamermesh & Collins, January 22, 2010, Pg. 1, 4-6).

Jim Billings has so far exhibited autocratic leadership style (Cherry). Eli Saunders had been trying to persuade Billings to change his strategy for quite a time but Billings paid little attention until now due to strong confidence in his vision even as the problems kept growing. Now he has been forced to take action because of the severity of the circumstances. Billings did a good job at Goldfinch and believes in innovation and risk taking. Unlike Goldfinch, Stone Water used to play safe and its core competencies were competent sales force and cost advantages. Billings want Stone Finch to embrace innovation and build new core competencies but he failed to understand the differences between Goldfinch and Stone Water’s organizational cultures. He tried to promote new values without laying proper foundation. He didn’t communicate with different stakeholders in order to secure their cooperation and also didn’t try to understand their concerns. He also did nothing to explain his rationale behind his strategy of using Water Division as a cash cow for Solutions Department and how it will ultimately benefit the organization as well as all stakeholders in the long term. Billings may be a capable leader but his people and communication skills have been a disappointment so far.

Entrepreneurial subsidiary is a good idea because it will help build new core competencies and keep the company ahead of the competition. Stone Finch’s original core competencies are economies of scale and competent sales force but they are easier to copy than core competencies built through proprietary technologies and innovation. By introducing new technologies regularly, Stone Finch will stay ahead of the competition.

The companies can take several approaches to managing the contradictions between existing products and innovation. First of all, the companies should ensure that existing products are allocated required resources because any neglect may turn off the clients and allow the competition to gain market share. Existing products can be used to build loyal client base to which new innovative products and services can be marketed. The companies should also ensure that the benefits from innovation are evenly enjoyed by all the stakeholders. Existing products often serve as cash cows for innovation activities, thus, it is only fair that employees managing existing products also benefit when innovative products and services finally become profitable. The leadership should also communicate the strategy to all shareholders so that they understand it and get behind the overall corporate strategy.

Jim Billings currently face several issues. First of all, morale is low among employees in both Water Products Division and Solutions Department. Second, his strategy doesn’t have widespread support in the organization, even not from his trusted colleagues, Eli Saunders. There is also lack of coordination among different departments which may be preventing Billings’ strategy from showing results. Another issue with Billings’ leadership is that he is ignoring current core competencies such as competent sales force which could hurt firm’s client base and reduce the size of market to which the new innovative products could be marketed to. Billings also has not taken any efforts to groom the talent and take measures to prevent them from leaving the organization. All of these problems are quite serious and require immediate attention. Even Billings realize this which is why he decided to try IBM’s strategy to understand the cause of lower employee morale and performance within the organization. If Billings doesn’t address this issue, some of his best employees will leave the organization and the declining performance of Water Products Division will also reduce the cash flow that supports the Solutions Department. In addition, the distances between departments will only grow, leading to further operating inefficiencies.

First of all, Jim Billings should take steps that align employees’ compensation awards with the overall interests of the organization. This means employees in other departments should also share in the success of entrepreneurial subsidiaries. Billings should also communicate more with his colleagues and subordinates and secure their cooperation before implementing any major strategy. Cooperation from different stakeholders within the organization will improve the success of strategies outlined by the leadership. Billings should also allocate more resources to Water Product Department because he should not ignore existing core competencies in the pursuit of new competencies. In fact, strong sales team will increase the probability of success of new products since they will already have an established and satisfied client base to which the new products could be marketed to.

Jim Billings new strategy is not bad but he made the mistake of not creating the appropriate conditions such as communicating with different stakeholders and securing their cooperation. Billings also ignored existing core competencies such as competent sales force and his generous compensation plan for employees of successful entrepreneurial subsidiaries led to growing dissatisfaction among other employees. If I were Jim Billings, I would have adopted Democratic leadership style. I would have taken steps to ensure close collaboration between different departments such as Solutions Department and Water Works Division and would have designed a compensation plan that makes all departments a participant in the success of the company. I would also have taken steps to further strengthen existing core competencies while trying to create new ones through innovation.

References

Cherry, K. (n.d.). What Is Autocratic Leadership? Retrieved November 10, 2012, from http://psychology.about.com/od/leadership/f/autocratic-leadership.htm

Hamermesh, R. G., & Collins, E. (January 22, 2010). Stone Finch, Inc.: Young Division, Old Division. Harvard Business School.