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 [Ancona’s 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 didn’t 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 Kotter’s “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 O’Reilly[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 Finch’s competitive strategy from that of a fast follower to a product leader. As a fast follower, Stone Finch’s 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 it’s 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 doesn’t 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” doesn’t create a powerful team with a shared vision and commitment – a team that will keep the urgency high and their employees engaged. Perhaps Billings didn’t think he needed such support, since he seems to lack Ancona’s 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 company’s 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 Finch’s 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 it’s not too late – he needs to do this now.
4. Communicating the vision Billings should plaster Kotter’s page 7 on his desk and study it each day. A vision is useless unless the entire organization understands it, why it’s 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 hasn’t looked the company’s financials – his “cow” is smaller and less profitable than the rest of the organization. If an SVP doesn’t understand his relative financial contribution or share the CEO’s vision, his Water Products division certainly won’t 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 company’s success if the culture becomes so stratified that employees leave in droves. Billings can’t 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 isn’t 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 didn’t 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 organization’s systems, structure, processes, even people must constantly evolve. He doesn’t 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 Finch’s board made the right decision to select Billings for the CEO. By doing so, they took the first step in institutionalizing Richard Stone’s 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 aren’t “anchored” into the organization – they’ve 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 doesn’t provide any detail about the slide in the Water Division’s market share or brand equity, nor does it indicate whether the market for those products is growing or contracting. It’s 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. It’s 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 “Acona’s 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. O’Reilly III, “Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change,” California Management Review, volume 38, number 4, summer 1996.
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