Heavy Construction Systems Specialists, In. (HCSS) July 2011

Transcription

1 Heavy Construction Systems Specialists, In. (HCSS) July 2011 INSTRUCTOR S MANUAL 1. Intended Course(s) and Audience: Instructors can use this case at the undergraduate level with students majoring in management. Instructors also can use the case at the graduate (MBA) level with participants interested in human resources and/or the growth strategy of a medium sized / privately owned company. 2. Synopsis of the case: Heavy Construction Systems Specialists, Inc. (HCSS) is a small company located near Houston (Texas). The company designs and sells hitech software to the heavy/highway construction industry. The case describes a unique corporate culture that has made HCSS a business success in this highly competitive industry. The Company s employees discuss in details why they bought into the concept of employee s ownership while Mike Rydin, the company s CEO, explains the advantages but also the limits of this very successful business model. 3. Assignment questions: Prior to the session, participants should prepare an answer to the following questions: - What are the strengths and weaknesses of HCSS as well as the opportunities and threats facing the company? - How would you define the competitive advantage of HCSS? - What is the business model of the company? - In terms of strategic options for growth, what are the alternatives available to Mike? What would be the main challenges to achieve these objectives? 4. Teaching plan / flow of discussion: - Would you like to work for HCSS? Why or why not? This first question is more than just an icebreaker to jump-start the conversation. It actually goes into the heart of the case. In this industry, attracting and keeping the best of the best employees is essential for the survival of the organization. The instructor should record the answers on a white/blackboard, electronic tablet or flip chart where all can view them. Throughout the session, the students will be invited to reflect on their initial answers and/or add new items. Most of the participants will highlight the facts that employees are well treated, respected and rewarded for their hard work. The company is, indeed, very generous to its employees. It is also a place where an employee 1

2 can achieve a balance between his/her work and his/her family life. Finally, it is also a great place for self-starters and employees who like to be challenged. There are no job descriptions. By definition, an employee is a problem solver who will adjust the content of his workload to address the changing needs of the company. By changing the content of their daily tasks, employees maintain a high level of interest in their job (i.e. less routine). Having said that, more experienced participants may point out also a few drawbacks. For instance, the company is very small and the structure is flat. For new and ambitious employees, there is very little potential to move up the ladder. The company is giving an employee the opportunity to change his/her job description but the limits are quickly reached. In other words, the employee promotion is lateral (e.g. adding new skills, changing the scope of his/her job) and not vertical (e.g. learning management skills). Ultimately, this explains the paucity of employees who have the capability to manage others at more senior levels. HCSS does not seem to have enough employees who have been groomed to assume managerial responsibilities. Indeed, to grow further, HCSS will have to attract managers from the outside. Participants (especially the ones who have worked for a family owned business) will highlight the fact that working for a CEO/owner is very different from working for the CEO of a listed company. In a listed company, the CEO has to answer to the board and the shareholders. In a family owned business, the CEO/owner has an unquestioned authority. Over time, this difference shapes the leadership style of an organization. So far, the company has grown organically and any new comers will have to blend into HCSS s strong corporate culture -- Not an easy task for an outsider. - Why do you think human resources are particularly important in the case of HCSS? - To develop its strategy, HCSS follows a bottom-up/ top-down model. New product ideas come from employees contacts with clients. HCSS s senior management team will then analyze, review and implement some of these ideas depending on the current and anticipated changes in the industry as well as the broader context of the overall economic situation in the markets serviced by the company. - To implement its strategic plans, HCSS needs employees who know how to manage themselves. There is no job definition. Employees job content changes with the company s growth. Employees must be smart, selfstarters and flexible. This is necessary to keep the company efficiency (high output limited number of employee s ratio). - Finally, HCSS is a small company. If one employee does not perform, his/her colleagues must assume his/her responsibilities. This is one of the reasons current employees are extensively involved in the interview process of new hires. 2

3 - What are the intangible benefits provided by the company to attract and keep its employees? This question is asked at this stage of the discussion to complete the list of the reasons that motivate employees to work for HCSS. When answering the first question, Why would you like to work for HCSS? undergraduate students or graduate students with limited professional experience tend to focus on the tangible benefits of working for HCSS (i.e. bonuses, rewards etc.). Here, the instructor is asking them to focus on the intangibles. In this regard, it is worth noting that during the interview process, employees emphasized how important these intangibles had been in their decision to join and remain in the company. To some extent, HCSS seems to attract employees who would not really be satisfied to work in a more traditional environment. Indeed, the same characteristics that make them so valuable to HCSS could be considered a problem in a more traditional organization (e.g. no particular respect for the chain of command in order to improve communication when needed or taking the initiative to improve process and systems even when it is not particularly needed because at HCSS, employees do not settle for good when there is still the possibility to reach excellence etc.). The intangibles can be regrouped in 5 categories: 1) Helping the employee to be a part of the HCSS family : New employee orientation program, mentorship program and after work activities would fall into that category. 2) Involving the employee in the decision making process: Regular interactions with senior management, access to information and voting on all the major decisions affecting the organization. 3) Providing the employees with opportunities to develop a job content that emphasizes his/her strengths and minimizes stress attached to an employee s weaknesses. Support and finance training and attendance to conferences 4) Reducing the level of bureaucracy and rewarding/recognizing the can do attitude of an employee. An employee is a problem solver. An organization structure should not impede the communication flow between employees within the organization and between HCSS employees and clients employees. 5) Promote a healthy approach to life (healthy food and sports) as well as a balanced integration of the corporate / family lives of an individual. An 3

4 employee can bring his children to the company premises and spouses are frequently invited to corporate events. - How about the ownership program (ESOP), SARS and cash bonuses? Considering the pluses and minuses of these programs, do you think that they play an important role to motivate employees? Employees were quite candid on the subject. Money does motivate them to work harder and to achieve the common goals of the organization. However, the intangibles are considered as important. Many employees mentioned the fact that the senior management is listening to their suggestions. Being a part of the decision-making process and being recognized publicly for achievements during the company s employees meetings is equally important. This recognition and the money have a positive impact on their motivation to work harder for the company. Employees also mentioned that having a fair and transparent process to allocate monetary rewards is critical. Some employees deserve and do receive more than others but the rules are clear. Employees know what to expect. The gap between the employees compensation package and the senior management bonuses is perceived as justified. It makes the employees buy into the concept that we are all in this business together. Mike (the CEO) recognizes that HCSS is generous with its employees but the remuneration package is not what makes HCSS so special and so successful. Money by itself would not deliver the same results without the intangibles. An organization exists to facilitate and motivate individuals to communicate efficiently with each other in order to solve problems and meet clients needs. The remuneration package is only a part (albeit an important one) of the overall system that facilitates and motivates these special interactions. - What are the strengths and weaknesses of HCSS as well as the opportunities and threats facing the company? Strengths: HCSS is a top-notch company that has always been profitable, even during the downturns of the business cycles. The company s strengths include the following: 1) In depth knowledge of the industry; 2) Lean and cost effective structure that facilitates inter-departmental communication; 3) Responsive customer support /closeness with its customers; 4) A loyal, motivated and highly capable work force; 5) Family owned business with a clear and steady long-term strategy and 6) The financial resources to finance its growth. It already owns a 45,000 square foot state-of-the-art facility that 4

5 can host the additional employees needed to achieve its medium term strategy. Weaknesses: If human resources is the main strength at HCSS, it is also its main weakness. At the entry/junior level, the hiring process is very slow even during the downturn of the business cycle when many people are looking for jobs. At a more senior level, the problem is the same with the added difficulty that a senior manager will have to be compensated. At that level, ESOP and bonuses may not be good enough. The candidate may request stock options and HCSS has a closed capital structure. Opportunities: HCSS is about to launch a new safety software product with applications not only for companies in the construction industry where most of HCSS s current customers operate, but also for other industries, especially the large manufacturing segment. This new software offers tremendous growth potential and the opportunity to create real value not only to clients but to employees and shareholders as well. Threats: HCSS operates in a highly competitive environment. In addition to large companies offering standardized software with an established brand, such as the traditional Microsoft Excel software package, there are also a host of small companies, such as BID2WIN or Hard Dollar, offering customized software. - How would you define the competitive advantage of HCSS? As the company s software development manager Minh likes to repeat: Our software is developed by our customers. The customers tell us what they need and we simply deliver what they want. The most important part of the work actually takes place between the phase of listening to what the customers want and that of delivering the right product. The company s competitive edge lies in the implementation of this inventive phase where the employees translate a customer s needs into software that meets or exceeds their requirements. No doubt the skillful communication and good relationships among the marketing, sales, development, and support departments are major factors in this seamless service delivery. To achieve this level of coordination, employees have to be responsive, creative and flexible. They must be able to address customers needs at the same time they are team players, looking beyond their own department s interests to look at those of the company as a whole. In a nutshell, the competitive advantage of HCSS is its business model which allows the development and implementation of a bottom up top down strategy. The overall assessment of the competitive environment by HCSS senior management team is enhanced by the input of HCSS employees who are able to assess clients needs on a timely basis and quickly discuss any emerging trend with the management. To some extent this emerging 5

6 strategy is continuously adjusted. This model is based on the following premises: 1) Hire technically savvy employees who are self-starters and need little supervision (i.e. the employee / entrepreneur ); 2) Keep a flat structure that facilitates communication and a smooth coordination during the implementation phase and; 3) Facilitate a direct interaction between HCSS employees and the clients employees to assess needs, implement a solution, and handle after sale services. The HCSS employee deals directly with the customer s employee. In that context, the HCSS employee is probably perceived more as a colleague facilitating the use of new software rather than an external consultant. At a more senior level, there is an understanding that a corporation is only a legal structure necessary to run operations and deal with other organizations. However, the company s real business and competitive advantage resides one level below. That is where the relationship between HCSS employees and the customer s employees develops and the problems of the latter are understood and resolved. Tom (Vice President of Technical Services emphasized the fact that HCSS had reverse modeled as a business. HCSS wanted to be the kind of company that its customers and its employees would have relations with and know each other. This employee-to-employee relationship approach focuses on people s needs and not simply on business needs. Tom summarizes it well when he said: It always sounds kind of old and stale to say your people are your competitive advantage, but I think that it s not just the people here, it s the combination of the people without the restrictive rules that keep them from connecting with customers. The major plus of this business model is that it would be quite difficult to duplicate by existing competitors and new comers. However, the key issue here is: Can such a business model be expanded without losing the very characteristics that have made it such a success? - In terms of strategy for the short to medium term, what are the CEO s options and the risks/issues attached to their implementation? Indeed, what makes HCSS so efficient and so appreciated by its clients is its responsiveness to their needs. HCSS employees are very close to their clients counterparts and the company s flat structure allows them to quickly communicate information both laterally (with other colleagues in other departments) and vertically (with the senior management team). Can the company grow from 100 employees to 200 or 300 while maintaining an open door policy and the same level of communication and collaboration? 6

7 Mike seems to have few options. The option to operate at the same level and do business as usual is available. However, the opportunity to expand the use of their software to other industries offers tremendous potential for growth. In addition, being the first mover is very important in this industry. Should HCSS decide not to move in this new direction, the competitors will probably go for it and HCSS may potentially lose its leadership in its own niche. The other option (fast growth) to take advantage of its strengths and meet market needs offers a different set of challenges: - In this business, the golden rule is Hire slow, fire fast. The company has a few positions open and has had difficulties in the past recruiting employees at both junior and senior levels. If HCSS wants to double its size, it will have to change its recruitment procedures. By the same token, if the company decides to hire fast, it may not be in a position to keep the same quality level of its human resources. - The existing organizational structure is too flat to accommodate a large number of new employees. The open door policy is challenging with 100 employees. How about with 200? How about the communication flow between departments that is already difficult? A third option would be to implement the organization growth strategy via a new/parallel structure. A start up that would allow HCSS to keep its existing structure. It s an option. HCSS has the financial means to finance such an endeavor. However, it would not solve two issues: 1) the recruitment of new employees and senior manager and 2) Mike would have to divide his time between the two organizations. If time is available, during the last few minutes of the session, the instructor could ask the following question: - Would Mike s options be different if the company was listed? Mike is between a rock and a hard place. That said, his position is not as difficult as the position of a CEO in a listed company. In a listed company, Mike would be under pressure (from Institutional investors, shareholders or venture capitalists etc.) to grow the company at a fast pace and take more risks. A more conservative option would be more difficult to justify. On the other hand, being listed would allow Mike more alternatives to remunerate senior managers coming from outside of the company s ranks. The strategic options are clearly different between listed and family owned businesses. 7