Harold Wallace, founder, serves as Chairman and President of the Wallace Group. He owns 45% of the outstanding stock. The company consists of three operating groups’ electronics, plastics and chemicals which generate sales of $70 million. Mr. Wallace continues direct operational control over the Electronics Group. Several years ago, Wallace and the Board decided on a strategy of diversification into plastics and chemicals in order to decrease the company’s dependence on defense-related business.
The current morale within The Wallace Group has deteriorated to the point where some of the employee stockholders made an attempt to force Mr. Wallace’s resignation. As a result of this crisis, Mr. Wallace has hired Frances Rampar, consultant, to conduct management interviews to find out the problems facing The Wallace Group. Rampar and Associates is tasked with developing a set of priorities for Mr. Wallace to use to stem the negative tide within his corporation.
Solid performance from the plastics and electronics divisions in the past. Being a public corporation provides the firm with flexibility to attract equity capital vs. long or short term debt. The company is able to supply many of its own component parts and raw materials. Diversification of Organizational Structure
Conflict and power struggles among managers
Ineffective board of directors who haven’t become involved in this company issues. The acquisition has moved The Wallace Group away from its area of distinctive competence in electronics into areas where it does not have distinctive competence. Tendency not to effectively utilize scarce technical personnel which also contributes to lack of morale of employees. Firm does not have a clear mission.
IV. POSSIBLE SOLUTIONS OR ALTERNATIVES
Deal with issues in corporate governance.
Review the corporations’ diversification plan from an area of expertise (electronics) into areas (plastics and chemicals) where it has little core competence. The company needs an organized approach to strategic planning which would involve both the commitment of Mr. Wallace and the involvement of key employees within the company.
Rectify problems resulting from being heavily dependent on defense-related contracts by using the acquisitions contacts to gain private sector non defense contracts. Eliminate the Electronics Group need to use the Plastics Group as its major supplier, which increases costs for one group making them less competitive. Think of breaking these companies into separate companies so they don’t usurp each other. Hire more managers.
More oversight by executive management.
Implement the necessary training program.