Delux Tool Company Case
Assume you are a management consultant hired by I.M. Tycoon, the President of Delux Tool. He wishes you to make a recommendation on the following organization problem. Last month his brother Harold and sister Jane died in an airplane crash. The family accountant/lawyer Alex Blockhead had suggested they name each other as beneficiaries in their wills. Thus, IM now owns the two companies that had belonged to Harold arid Jane. Harold had owed the Sale-Buy Insurance Company and Jane owned Microage Software. Under the terms of the will IM must provide from the companies a cash payment to the families of Harold and Jane equal to the average monthly profit from their respective companies over the past three years. Therefore, for at least the next three years selling any of the companies is not an option.
IM has asked you as his management consultant if reorganization would be helpful now that the three companies are in the same ownership. Summary information about the three companies is listed below. Use the principles of organization structure from the readings as the basis for your analysis.
Delux Machine Tool
This company has made customized machine tools for the auto industry for 40 years. They have been very successful with a specialized line of products and have a 35% share of the market. The plant and headquarters is located in Middletown, Ohio, which is a suburb of Cleveland. They sell their tools to about 20 firms. They have four salespersons with regional responsibilities. The sales manager personally handles the two biggest accounts.
Their Research and Development Unit has recently developed a potentially significant new computer automated piece of equipment. It is called RoboTool.
The Director of Research Dr. Rolly Davis believes RoboTool has great potential. The initial production of RoboTool has been twice delayed because of the production schedule for the regular line of machine tools. Joe Standpatti is Director of Production. He thinks RoboTool is a high tech toy that will be expensive to produce, and will not meet market demands for a durable and proven product. Two of the four sales people have expressed reservations that any of the current clients will be interested in RoboTool.
IM recently hired a young engineer, Tom Terrific, to be project manager for RoboTool, Standpatti did not agree with the need for such a position and seems to ignore him. IM hired him on the urging of Rolly Davis. Terrific reports to Davis, but IM is not sure that is the best permanent arrangement.
Tycoon has been directly involved in the management of the company since he inherited the company from his father 16 years ago. The company has grown and prospered under his leadership from a small regional company to one with a national reputation in the industry for quality workmanship and a good product.
Safe Buy Insurance Co.
IM's brother Harold took over his uncle's Insurance agency in University Heights Ohio (a suburb of Cleveland) soon after graduating from college. It was a solid agency that had declined somewhat in the last year or two before he took over because of his uncle's failing health. Within three years Harold had brought the agency to a new level of success. Several years ago he began to use some of the cash generated by the agency to acquire new agencies, then, he made a large profit as a result of an early stock purchase. He used the cash this generated to buy additional agencies. He now owns 14 other agencies in Ohio and western Pennsylvania. He has three in Columbus and two in Cincinnati. The rest are in small towns in Ohio and Pennsylvania.
His strategy has been to buy moderately successful agencies from owners who were about to retire. He has kept the former name for each, and has installed a manager, in each. Sometimes the managers were local people who had worked for the agency. None of the offices is as successful as his original agency. His approach has been to let each agency continue to operate as before with Harold entitled to a share of the profit each year. Each agency handles its own paperwork for its clients. The efficiency of the processing of the back office paperwork varies greatly from agency to agency.
About a week before his death Harold and IM had dinner and Harold was lamenting that many of the agencies were not producing as much profit as a few years ago. IM was surprised to learn the only link among there was the common ownership. As a manufacturer IM is always trying to achieve standardization, but Harold said insurance agencies are a service business that must adapt to local markets.
Jane, the youngest in the family, developed an early interest in computers while attending Ohio State. With a college classmate she authored a very popular word processing program, WriteStuff. It is a simple program to use, and has always sold for a small price. She formed a small company to market it called MicroAge Software.
WriteStuff is now the fifth best selling software in its category (down from second two years ago), and accounts for 80% of the company's revenue. Some other packages with new features have appeared on the market in the last six months, and the company has a small group of programmers working on development of an upgrade with additional features, including an add-on module for doing page layouts directly from the word processor.
Jane recently formed a new unit in the company called the new product development division. She has assembled ten talented programmers and software developers. They have been working on a new anti-virus program that would protect home computers from viruses that were attached to email messages. There are fifteen software developers who are working on the next upgrade of WriteStuff.
Two of Jane's most active projects in recent months were an arrangement with MicroWarehouse (a software mail order house) to feature her products in their catalog at a special discount, and looking at possible arrangement with a major Internet Service Provider (ISP) to bundle their new anti-virus program with a consumer signs up for a high speed connection.
One of Jane's programmers, Mike Webb, has a keen interest in websites. Shortly before Jane died he proposed to her that the company move in a different direction. He thought many small businesses wanted to have their own website, but needed help. Mike idea is to use their technical talent to start a small business website consulting function within the company. They could not only help the small business design the site, but host it on their server, and maintain the site.
This small company has never been very formal about structure. They have an open office physical structure. Their office is the upper floor of an old loft building. All employees including Jane had a relatively small workstation and desk surrounding a large open area with tables and various moveable sofa and chair arrangements. There are always conversations going on among the staff.
Jane went to college with Johnny Knowitall. He is now a business consultant and he recently spent the day with Jane and gave her a report that indicated the problem with her business is that she has not organized it enough like a bureaucracy. He suggested a clearer chain of command and a taller organization structure. Jane reportedly laughed and said, My organization chart is the oldest piece of paper in the organization, and the least important. We just work together here. But, IM wants to know if Knowitall's proposal is sound advice for the company.
The company has a small sales staff, some direct mail/website sales, and small marketing/advertising staff. Susy Friendly has been with Jane since the beginning of the company. Jane said she had a good sense of the software market and could be a terrific programmer when she was interested in the challenge. Her title is VP for Operations, but her skills are in the technical rather than the business side. It is not clear what her real duties have been other than to be Jane's friend and partner in the business.
IM has asked you as his management consultant to recommend an organization structure for the company now that he is the owner of all three parts. One legal constraint is a feature of the will prohibiting any sale of the assets of SafeBuy or MicroAge for three years. Therefore, IM is not asking for a strategic plan for dealing with potential asset disposal. However, if he can achieve operating savings by a better organization this will help meet his financial obligations to the families of Jane and Howard.
IM likes his consultants to have good reasons for their recommendations, and therefore your advice ought to be based on material from the course readings.
Safebuy Insurance Company Organization Chart
MicroAge Computer Organization Chart
Organization structure for Delux Tool and Safe Buy Insurance are examined.