APPEX CORPORATION Case 2 CIS 410. By: Bradley Erickson

Transcription

1 APPEX CORPORATION Case 2 CIS 410 By: Bradley Erickson

2 Mission Statement To provide Management information systems and inter-carrier network services to cellular telephone companies as well as credit scoring systems for financial service companies. Introduction Appex Corporation was founded in May 1986 from the merger of Appex Inc. and Lunayach Communications Consultants (LCC). LCC specialized in design and engineering of cellular radio networks for cellular companies. Appex Inc. was founded in 1984 by Brian E. Boyle and focused on management information systems for the cellular industry and credit scoring systems for financial service companies. The consolidated company, which was named Appex Lunayach Systems Corporation (ALS), integrated LCC s engineering expertise and Appex Inc. s business and systems expertise. ALS soon changed its name to Apex Corporation in May Appex was rated as the fastest growing high-technology company in the United States by Business Week in Revenues grew around 1,600 percent between FY1987 and FY1990 (Fiscal Year September 1-August 31). Total revenues grew from $1 million in 1987 to $16.6 million in As of April 30, 1990, Appex employed 172 people, of whom 153 were salaried and 19 were compensated on an hourly basis. With its rapid growth, Appex added about 10 people every month. In May 1988, Shikhar Ghosh decided to accept a position as chief operating officer (COO) of Appex Corporation, with the understanding that shortly thereafter he would be made Appex s chief executive officer (CEO). Ghosh was a partner at the Boston Consulting Group, where when he left he had many ideas on how to structure organizations. Appex at the time when Ghosh accepted the position was a relatively small company having only 25 employees and $2 million in revenues. Appex was entrepreneurial, technology-driven and loosely structured and they were losing money very rapidly. The venture capitalist who had invested in the firm was hoping that Ghosh would be able to turn it around. Summary Appex provided service to cellular carriers to allow them to manage their customers in their home and roam territories. Appex s products could be divided into two different categories: inter-carrier services (ICS) and cellular management information systems (IS). The ICS business consisted of a set of on-line services that managed the information required for carriers to provide service to cellular subscribers to and from other markets ( Roamers ). The primary services included an on-line national verification system that was used by carriers to authorize roamer calls (Positive Roamer Verification), a national financial clearinghouse for settlement of roamer charges between carriers (Inter-carrier Settlement Services) and a national location and call forwarding system for automatically locating roamers and forwarding their cellular calls to them (Roaming America). ICS was a high volume transaction processing service that contributed approximately 60 percent of total company revenues in The IS business was very different. It consisted of an integrated software system designed to manage the primary functions of a cellular carrier in its home market. CMIS (Appex Cellular Management Information Systems) was an on-line software system that included customer information, billing information, accounts receivable, credit and collection

3 information, equipment inventory control, and cellular network engineering analysis. ABA (Apex Billing Service) was offered to customers that were either too small for the full CMIS system or preferred to have a professional IS service organization managing their systems. Appex would operate the software for the customer and charged a fixed fee per subscriber of $3.00 to $4.00 per month. IS products contributed approximately 40 percent of total company revenues in As of April 1990, Appex had approximately 75 customers, including BellSouth, Cellular Communications Inc. and Southwestern Bell. Contracts with customers generally were multimarket, multiproduct, multiyear service agreements that ranged in value from $100,000 to over $2 million. Appex served 250 markets in the United States and 34 markets in Canada. Situation The first CEO of Appex was Brian E. Boyle. He had been the CEO before the merger with Lunayach Communications Consultants. As Appex s CEO, Boyle instituted few business procedures. Formal procedures seemed unnecessary, given the relatively small size of the company. The key executives made all decisions, and all other employees were involved in developing and selling products. Ted Baker, presently vice president of operations and service management, described the culture of the company when he joined in October 1988: If you were interested in something, you just did it. Nobody had any sense of what their job description was. The structure of Appex was very informal and fluid. Employees were focused, committed, hardworking and worked in close interaction with each other. As a result, Appex was very responsive and effective at getting things done quickly and relatively cheaply. This along with Boyle s innovative technical solutions enabled the company to compete against established firms that had an abundance of resources, such as GTE. The market was growing quickly and so was Appex. The company was project-based, meaning work was organized around projects. As the number of projects increased, people worked on more and more projects at once. When the workload began to seem overwhelming, the company just hired more people. Appex was spending money quickly and wasn t monitoring its expenses. Shikhar Ghosh was recruited in May 1988 to head Appex because Appex s investors believed that the company was spending cash too haphazardly. Ghosh realized early on that the atmosphere at Appex was changing from entrepreneurial to chaotic. People would arrive to work and would react to whatever crisis the company happened to face that day. Basically, it was a fire-fighting mentality. There was really no planning structure within the company. Anything a week away had no priority. Nobody had time to plan schedules or meetings. Eventually, it became difficult to accomplish basic tasks, such as the preparation of price analyses of new products. Appex began to lose customers due to the lack of structure. Ghosh recognized that the way in which Appex functioned had become unproductive. Ghosh believed that Appex needed to address both long-term planning issues and immediate issues, such as who should attend which meetings, how to pay people and how to begin employees on a career path. Appex just needs a better structure.

4 Porter s five forces Threat of New Entrants: Low The threat of new entrants is low because Appex is in a business that is expensive to enter and there are a limited number of cellular carriers to do business with. Threat of Substitutes: High The services that Appex provide can be easily provided by other companies. The roam and billing services that Appex provide are intangible and any telecom company that is well-equipped can potentially provide the same services. This can be done in such a way that customers wouldn t be able to tell the difference. Supplier Power: Low Appex is in a business in which does not require raw materials. With this, Suppliers have very little power over Appex. Buyer Power: High There are a limited number of buyers and they are all High-Volume Buyers. Degree of Rivalry: Growing Appex has been known to beat competitors to the market with its new innovations in the past when it was a smaller company. They are not, however, as quick to respond as a larger entity. This gives Competitors more of an opportunity to reach the market quicker with new ideas. Stakeholders Stakeholder 1: Customers These would include Cellular service providers such as BellSouth and Cellular Communications Inc. Stakeholder 2: Shikhar Ghosh Stakeholder 3: Shareholders/Board of Directors Stakeholder 4: Employees of Appex Corporation Courses of Action/Alternatives 1. Do Nothing (Remain in an Informal Structure) The CEO does nothing to change the structure so it stays as an informal structure. Although the structure that the company began with was almost nonexistent the empowerment of the employees and a sense of a team effort produced excellent results. Employees were focused, committed, hardworking and worked in close interaction with each other. There was only a fire-fighting mentality in this structure. Anything that was a week away had no priority. This will begin to cause chaos because it will become difficult to accomplish basic tasks.

5 a. The customers will potentially start to complain if the CEO doesn t change the structure. If customers aren t able to get the technical assistance that is needed, they will begin to start and look elsewhere for a different company to do business with. b. Shikhar Ghosh could potentially lose his job if nothing is done to change the structure. If Appex begins to lose customers, they will begin to lose money and if that happens, Ghosh could be blamed and lose his job. c. The shareholders/board of Directors could eventually be affected because if this structure continues to be used, the employees who can t handle the chaos will quit Appex and if all the employees begin to quit, Appex will no longer be able to operate and could go out of Business. This will cause the shareholders to lose money and the Board of Directors will be without a job. d. The employees will potentially quit if Appex sticks with an Informal structure. Sticking with this structure, basic tasks will begin to become difficult to accomplish. Employees who couldn t withstand the chaos would end up quitting. 2. Use one of the Two Innovative Structures (Circular or Horizontal) Ghosh implements one of the two innovative structures. The circular structure meant that there were concurrent circles expanding out from a middle circle. At Appex, the innermost circle contained the senior executives. The intention was to create a nonhierarchical organization in which information flowed continuously and freely within the organization and between the organization and the environment. The horizontal structure was just a traditional vertical organization chart turned on its side. a. The customers won t really be affected by this change. They will continue to get service from the company but could be delayed due to the confusion the employees have with the new structure. b. Shikhar Ghosh could be affected based on employee feedback and feedback from the board of directors. If the structure doesn t work, he must act quickly and try to implement a better structure. His Reputation as well as his job could be on the line, depending on if the structure works and how fast he can implement a new one. c. The shareholders/board of Directors probably won t be affected by this change too much. The company will still run, but will run with a different organizational structure. d. The employees will be affected because they can t really relate to a circular structure because they are unfamiliar with it. It could potentially make their job more difficult or confusing which isn t desirable. Some employees might be confused on whom to talk to in order to get things done. 3. Go with a Hierarchical, Functional Structure Using this structure, the functions were organized as teams: there was a sales/marketing team, a software development and services team, engineering and technology team, an operations team and a finance, human resource and administrative team. Basically, the company makes separate teams (Departments)

6 so that process will flow smoothly. This structure succeeded in focusing the company on completing tasks. The sales people now focused on sales and the financial people focused on financial planning. This structure improved the company s basic capabilities. There was a system of accountability, in which the team heads reported regularly to Ghosh. Ghosh wanted to diagram the structure in a way that minimized the sense of hierarchy. He illustrated the functions as reporting to him in a horizontal fashion. One problem with this structure was that the source of authority was functional, not managerial, expertise. a. The customers won t be affected too much by this change. If anything, they might benefit due to the fact that this structure allows for the employees to complete tasks more efficiently so they will be better at giving service to the customers. b. Shikhar Ghosh will be affected based on how this structure works. Since it is a well-known, widely used structure, it should work well with Appex. c. The shareholders/board of Directors will be affected because the future of the company will be affected based on how well the structure does. The Board of Directors was not happy that Ghosh wanted to diagram the structure in a way that minimized the sense of hierarchy. d. The employees will be affected because this structure will determine who they report to and their daily tasks. This structure does help them in completing daily tasks for the company. 4. Implement a Divisional Structure Two divisions would be established. These would be Inter-carrier Services (ICS) and Cellular Management Information Systems (IS). The divisional structure has presented some advantages for Appex. This structure improved accountability, budgeting and planning. Employees focused on meeting financial targets. Within each division, there was a great deal of cooperation. This structure also had some disadvantages. One major problem was resource allocation. The problem of shared resources has led to antagonism between the divisions. Another problem with this structure was that while there was cooperation within each division, there were walls between them. There was little communication flow across divisions, and little cross-pollination of ideas. a. The customers really won t be affected by this change. It could potentially change who they talk to whenever they need assistance. b. Shikhar Ghosh would be at the top of the chain meaning that the divisions would have to report to him. He will be affected because he will have a better outlook on each division. He would be able to have a good eye on each division. He is able to spend less time addressing the day-to-day operations of the company and more time planning its strategic direction. c. The shareholders/board of Directors will be affected because this structure will be hard for the Board to gain an accurate sense of the financial status of the company. The shareholders may be affected depending on how well this structure works.

7 d. The employees will be affected because they will be assigned to different divisions depending on their expertise. They will report to a division head who will then report to Ghosh. This will make it easier on the employees because they will be able to focus on one task instead of many at once. It will be less confusing causing the employee turnover rate to potentially go down. Recommendation I would recommend that Appex go with a hierarchical structure because Appex has grown to be a very large company and needs a top-down hierarchy with a clear chain of command is a good way to go. If Appex wants to achieve common goals then it needs to clearly set those goals. Some advantages of the classic top-down hierarchy structure are clear communication lines and allow the stakeholders and Board of Directors a clear view of the company. With having a clear CEO, it gives the Board of Directors someone to hold responsible directly and can communicate their wishes to this person, being Ghosh, who then sends the appropriate instructions down the line. Between the Divisional structure and the Hierarchal structure, I feel that the Hierarchal structure has more benefits for Appex. With Appex growing at a rapid place, this structure will allow for them to have clear lines of communication and should cut down on confusion within the company.

8 Bibliography 1: Case 2-1: Appex Corporation Management of Information Systems, CIS 401 Course pack, Professor Barker