Stone Finch Inc.: Young Division, Old Division

Stone Finch Inc.: Young Division, Old Division

was a company that was created after the merger of Stone Water Products Inc. with Goldfinch Technologies in 2000. Stone Water Products manufactured products for the water/wastewater industry. It had built its reputation on the quality of its products as well as the excellent services that the company’s sales force provided. Goldfinch Technologies on the other hand, was a five-year biochemical firm that provided solutions for the water/wastewater processing market. It was considered a company with high perspectives and could serve as a great opportunity for Stone Water Products to add additional streams of revenue. After the CEO of Stone Finch retired Jim Billings, who was the former leader of Goldfinch Technologies and was running the solutions department of the integrated company, became the new CEO.

Jim Billings as a leader

As a leader Jim Billings had a clear vision and the ability to inspire employees. He was energetic and he was comfortable with taking risks. He believed in the power of innovation and the constant pursuit of new opportunities. Billings had played a key role in the profitable growth and the diversification of the new company but as a new CEO he lacked the ability to “merger” the two departments and built a common culture. He had also a participative leadership style as he was taking his employees’ opinions into account but he could not built a common culture for the defender part and the prospector part of the company. He wanted the company to take innovative steps but the water products division was not fully on board with this idea as its strategy and goal was to produce high quality products and product innovation was not a part of its business model. So Jim Billings was a very good leader for the solution department but as a CEO he had to take the old division’s perspective into account and build a common mission and a common culture; one that would define the company as an Ambidextrous Organization.

The entrepreneurial subsidiary concept appeared in an effort of Jim Billings to build an innovation pipeline for the company. After a meeting with three employees from the solutions department, who had developed a new system for nuclear power plants, Billings decided to create the idea of the “strategic subsidiaries”. According to his plan, promising innovative ideas from Stone Finch’s employees would be the new project of a subsidiary. These employees would also have the right to hire one or three high players outside the company. The subsidiary would be partly financed from Stone Finch but would not operate as a part of the company. After four years, if the subsidiary was successful Billings had the right to include it in the parent company.

The first subsidiary became part of the company and by 2004 Billings had signed 12 contracts for these kinds of organizations. However, Billings’s plan had not the support that he believed as Eli Sanders, the head of the Water Products department, expressed some complaints about the subsidiaries. After this Billings organized an Internet “jam” where employees could express their opinions about the subsidiaries. According to some employees the subsidiaries were very successful but other’s employees morale was not so high. They were disappointed by the attitude of employees working there and they were also disappointed about Billings’s attitude towards the rest of the company. It is clear that Billings’s problem was that he could not manage the existing products and innovation simultaneously. Although it is difficult, companies can develop radical innovations and protect their traditional businesses at the same time. The way to achieve that is by becoming an ambidextrous organization. An ambidextrous organization has separates units that operate with different cultures, structures and processes but is integrated at the senior level. All business units report to the top management team that is tightly integrated and share a common culture that allows innovation and existing excellence as well.

The challenges and the solutions

Billings was devoted to build innovative subsidiaries and attract falcons like himself to run these small companies. As a result of overlooking the other parts of the company the sales were dropping down, client relationships were fading away and valuable employees were leaving the
company. According to some workers there have not been meaningful investments in Stone Water’s production facilities in the past 20 years.

Further the culture of the organization had been torn apart. Officers who were spun-off to run the subsidiaries have developed a different attitude when they merged back. There was no contact between these employees for five years and now they are back much richer and more entitled. The infusion of suddenly rich and intellectually energized people into Solution Division was driving down moral among others. Additionally, the subsidiary people bring in a nonstandard platform that makes problematic for others to collect data on time. Another problem is that Billings put too much faith on the subsidiary people after they merged back and faith was completely misplaced. For example, Betty Suarez, one of the three founders of a subsidiary was named as vice president of Solution Division. She seemed incapable of fulfilling her task properly. So far the subsidiaries have had a dilution effect on the Stone Finch’s shares. Billings had acknowledged that the core solution division had to be strong for the subsidiary organizational structure to work.

In order to find a solution to the above mentioned problems Billings has to focus more on building a resilient strategy for the whole company which can be recognizable in the subsidiaries as well. It is essential to invest more in Stone water’s innovation processes and employees in order to make the company more attractive to the stakeholders and the employees. The innovation can be minor improvement in the existing operations to higher the efficiency or investing in new systems in order to deliver greater value to the clients. As mentioned earlier Stone Water’s has an ambidextrous organizational structure and research has shown that an ambidextrous structure is superior for innovation. It allows cross-fertilization among units while prevents cross-communication. That is why the subsidiaries have developed their own culture and people were not able to mingle after merging back.

The company should not give the subsidiaries immense autonomy and promise rewards and company shares to motivate them. They should not be treated differently that can lead to demoralization of the other employees. Moreover, the founders of the subsidiaries should provide more responsibilities toward the management of Stone water’s. There should be a significant amount of communication between the employees of the company and its subsidiaries. A possibility can be that the people who are assigned to a subsidiary should also fulfill assignments in Stone Water. Additionally, when a founder of a subsidiary deliver a successful project it does not necessarily mean that he can also be as successful operating in a higher position in Stone Waters. Billings should take it into consideration that a more so-called “falcon” does not have to be also a good leader. Read about The Strong Culture Perspective

References

Miles, R.H., & Snow, C.C. (1984). Designing strategic human resource systems, Organizational Dynamics, 13 (1), 36-52.

Birkinshaw, J., & Gibson, C., (2004). Building Ambidexterity into an Organization. MIT Sloan Management Review, 45 (4): 47-55.

O’Reilly, C. A., & Tushman, M. L. (2004). The ambidextrous organization. Harvard Business Review, 82 (4): 74-81.