The Wallace Group; Laurence J. Stybel

Case 2

The Wallace Group, Inc.

I. CASE ABSTRACT

Harold Wallace, founder, serves as Chairman and President of the Wallace Group. He owns 45 percent 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 embarked on a strategy of diversification into plastics and chemicals in order to decrease the company's dependence on defense-related business.

Presently, the morale within The Wallace Group has deteriorated to the point where some of the employee stockholders made an attempt to force Wallace's resignation. As a result of this crisis, Wallace has hired Frances Rampar, a management consultant, to conduct a management survey into the problems facing The Wallace Group. Her task is to develop a series of priorities for Wallace's consideration.

Decision Date: No Date Sales: $70,000,000

Net Income: $ 1,760,000

II. CASE ISSUES AND SUBJECTS

Corporate Governance Morale and Culture

Diversification Organizational Structure

Stages of Corporate Development Top Management Responsibilities

Vertical Integration Modes of Strategy Formulation

Transfer Pricing Distinctive Competence

Suboptimization Entrepreneurship

III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS

O = Emphasized in Case X = Covered in Case

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Copyright © 2001, 2003 and 2005 by Thomas L. Wheelen and J. David Hunger. Reprinted by our permission only for the Eighth, Ninth and Tenth Editions of Strategic Management and Business Policy and Cases in Strategic Management.

IV. CASE OBJECTIVES

1. To acquaint the students with a CEO's management of a company that leads to conflict and power struggles among managers. To deal with an issue in corporate governance: Why hasn't the board of directors become involved in this issue?

2. To have the student act as a consultant. As such, the student should develop a list of the most important problem(s) facing The Wallace Group, and specific action plans to deal with each specific problem.

3. To discuss how to convey potentially negative information to the person who hired you, especially if that person is the principal cause of this negative information.

4. To review the corporation diversification plan from an area of expertise (electronics) into areas (plastics and chemicals) where it has no distinctive competence.

V. SUGGESTED CLASSROOM APPROACHES TO THE CASE

1. Dr. Laurence J. Stybel, the case author, suggests

- students individually formulating a response to the following questions:

* What is the most important problem facing The Wallace Group?

* Develop a specific action plan to deal with these problems.

This option typically involves 1.5 to 2 hours for class discussion.

Special note from the case author

Regardless of the option selected, the key element of this case is that the acquisition strategy of The Wallace Group has been disastrous in producing the following problems:

A. The acquisition strategy has moved The Wallace Group away from its area of distinctive competence in electronics into areas where it does not have distinctive competence. In a small firm such as The Wallace Group, this has resulted in a tendency to not effectively utilize scarce technical personnel. It also contributes to lack of morale on the part of employees because the firm does not have a clear mission.

B. The acquisition strategy has locked the electronics group into using the plastics group as its major supplier, thus increasing costs for one group and making them less competitive. Presumably, the Plastics Group is also locked into using the Chemicals Group and is faced with a similar situation.

C. A complex MIS apparatus has been constructed by central office to collect data from three very different operational groups. In addition, the central office appears "staff heavy" for such a small firm. This analysis is based on an examination of the organization chart.

D. Problems resulting from being heavily dependent on defense-related contracts have not been solved.

Mr. Wallace was once heard to have remarked, "We'll get organized tomorrow. But we've got to deal with today's needs today." This all too common approach to management must be challenged by the students. This company desperately needs an organized approach to strategic planning which involves both the commitment of Mr. Wallace and the involvement of key employees within the company.

Designing such a process would not be easy. But the case does seem to indicate that this is the most pressing need faced by The Wallace Group.

2. We have used it as a written paper. The students find the case somewhat difficult to handle because of Mr. Wallace's direct involvement in the company's problems.

VI. DISCUSSION QUESTIONS

1. What is (are) the most important problem(s) facing The Wallace Group?

2. What recommendation(s) would you (as a consultant) make to Mr. Wallace, and in what order of priorities?

3. How do you educate a Stage I manager (entrepreneur) to become a Stage II or III professional manager? What impact does this problem have on this case?

4. How do you handle the transfer