AERO Group’s Aftermarket Case Analysis

In this case, the internal organizational problem has been the main issue. The lack of synergy, functional connectivity, and control within the finance function of Aero Aftermarket arose many challenges within the company. The employees even disregarded the code of conduct which emphasizes the expected behavior and way of doing business in the company. This created a very expensive consequences where the informal transactions and huge accounting fraudulence happened without being known who should be responsible; which affected the whole business performance. Things need to be settled down before the investors start to lose their confidence and the condition is getting worse. In order to be able to analyze this case thoroughly, we make a framework which isInput
Input
shown by the picture below:Process
Process
Output
Output

* Aero Aftermarket Organizational Structure * Aero Aftermarket Organizational Culture * Aero Aftermarket Organizational Structure * Aero Aftermarket Organizational Culture * The Mc Kinsey 7S * The Mc Kinsey 7S * Business Sustainability * Investor and Stakeholder Trust * Business Sustainability * Investor and Stakeholder Trust

Gap Analysis & Recommendation
Gap Analysis & Recommendation

The objective of this analysis is mainly to improve the business performance and effectiveness, so that it could be competitive as well as sustainable in the future. Meanwhile, the company should be able to maintain the confidence and trust of the investors and stakeholders of their business performance. Therefore, these become the output in our framework. Whilst in order to find the output, we will use the relevant data as the input, which are the Aero Aftermarket organizational data, especially their culture and the organizational structure. As the problem occurs mainly because of the internal factor, we will use Mc Kinsey 7S framework as the analysis tool to bridge between the input and the output. By using this tool, we will find the gap between the current state of the company and the goal that they want to achieve, then provide some recommendations. Input In running their business, Aero Aftermarket unit relied heavily on divisional and distributed business structure so that they could easily adapt the local market needs and gain the competitive advantage (see the picture below).

This type of organizational structure enables them to address the customer issue quickly, providing them with low price and reliable service that could minimize the amount of time an aircraft was grounded. This organizational structure also brings other advantages such as efficient alterations, so that each function such as finance can be coordinated on a product-by-product basis. This organizational structure is also the best when each division has a product with different life cycle across regions, so that each location can respond appropriately. However, this organizational structure creates a minimum functional connection to the Headquarter which could loosen the control of each site too much. In this case, the Finance Director also rarely discussed the performance of the site controllers. As the result, they were lack of priority setting and working direction which makes the goals and objective of the site controllers and the finance division different. Each site could even hire their own staff without being known or approved by the Headquarter. This created different sets of skills and capabilities of the hired employees which might not fit with the company’s standard. This lack of coordination and teamwork might create the informal transactions and write-offs happen more easily, and no one should be really accountable for what they do. In addition, by having a headquarters finance team and a distributed network of finance groups within the business, the groups were not connected nor were they driving for consistent goals. They also have duplication facilities and staff personnel within each division. In short, this organizational structure is not effective and needs to be improved. As for the organizational culture, based on the criteria of Trompenaars’ organizational culture model, Aero Aftermarket unit is more to the Guided Missile where the organization emphasizes more on the task instead of the personal relationship and where there is less hierarchy in the organization which is proven by the lack of control or authorization of the top management and the Headquarter.

Source: Adapted from Fons Trompenaars, Riding the Waves of Culture: Understanding Diversity in Global Business (Burr Ridge, IL: Irwin, 1994), p. 154. This type of organizational culture commonly has a fast change and the loyalties to one’s profession and project often are greater than loyalties to the organization itself. Therefore, the employees might often disregard the code of conduct. Moreover, in this organizational culture, people need one each other in order to perform well. Therefore in this case the controllers should be able to work well with the financial and accounting analysts, and vice versa. However, what happened in the company is the divisions within the company do not seem to work coherently. Even the horizontal finance function within the Aero Aftermarket unit was essentially nonexistent.
Process
Using the Mc Kinsey 7S framework, we will assess how well the company in achieving their objectives. * Strategy
The company’s main strategy is adaptation, where the company tries to fulfill the local needs and addresses the customer issues with low price and reliable service. The company also places bulk of resources in several countries such as US, Canada, Asia, and Europe which is consistent with their strategy. * Structure
The structure of the organization enables them to respond to the local market faster, however there is no strong connection across the financial division and tight control from the Headquarters to address the significant matters. As the result, many violations happen in the company and no leaders were held accountable for their performances and actions * Systems
The company does not have clear system in monitoring any fraud, documentation, authorization, and employee hiring. Therefore it is quite hard for them to do the fraud investigation. * Shared Values
The shared values should be coherent within all layers in the organization. However, in Aero Aftermarket unit especially, the values between the top management and the bottom layer employees were different. For the example, when Mick was trying to dealing with the Germany issue, no progress was really made, partly due to very defensive site leader. Another example is when Mick confronted the manager and sales representative about the unauthorized agreement issue, instead of apologizing and make everything clear, the response was a flippant. In addition, when the top management was trying hard to improve the performance and to meet the financial target, the employees were doing fraudulence and uncalculating risk-taking which violating the company policy. * Style
While decentralization sometimes could be a good thing, however, at a certain point, it needs some control as well. The frauds could happen due to the lack of control of the top management team. Moreover, the Finance Director rarely did the site controller performance assessment which creates disconnection within the division and reduce the overall business performance. Whilst for the site leaders and managers, they should have monitored their subordinates and made sure that whatever they or their subordinates do should be accountable. If anything happens, they should be helpful to provide any information needed. Nevertheless, the managers and site leaders seemed to run away from the problem and not being really helpful. * Staff
The local site could hire their own employees without having the same standard as the global finance organization. * Skills
As the result of the poor staffing system in the company, the employees in the sites have different sets of skills and capabilities which might be not fit with the company’s core competencies and expectations.

Gap Analysis and Recommendation From the analysis using McKinsey 7S framework now we can spot the problems that happen within the company more thoroughly, which is summarized as below:McKinsey 7S Analysis Result of Aero Aftermarket Unit
McKinsey 7S Analysis Result of Aero Aftermarket Unit
Strategy
Shared Values
Strategy
Shared Values

The orange circles indicate the elements that the company needs to improve. In this case, all of the elements except the strategy have become the barriers to create an effective collaboration and teamwork within the finance division of Aero Aftermarket. These problems have to be fixed in order to increase the company’s competitiveness and sustainability in the future. The main keys to build an effective business team in this kind organization is by increasing the sense of belonging and the sense of significance of the people in the organization. However, the company should provide platform for the employees beforehand, such as improving the structure, the systems, and the shared value. These are several of our recommendations: 1) Improve the systems and the organizational structure in the short term In order to overcome current problems where there are many accounting fraudulent and violations within the company, at first the company should create or install a system that enables the Headquarter or the people in authority to monitor the business process so that it could run transparently and safely. The authorization and the proof of documentation should be provided before any transaction occurs. In order to support this, the structure of the organization should also be improved. The job description and the organizational structure should be clear so that whenever a problem exist, the related parties know who are involved and who should be responsible. 2) Share the organizational values and improve the employee recruitment process The company should emphasize the importance of having the same value within the organization. By having the same values and goals, the company could move forward coherently, creating a bigger impact in the end. However, there are some people who are just not fit the overall organizational goal. Some of them are just fit with the local needs. In order to tackle this problem, the company should evaluate their recruitment process, where they should have a standardized system and requirement in recruiting new employees which should be both fulfilling the local needs and fit with the organizational goals. The Headquarter should also monitor the local site’s employees performance. One of the ways is by submitting the performance evaluation to the Headquarter in order to make sure that all the employees in the organization have performed based on the company’s standard and code of conduct. 3) Improve the organizational structure in the long term Because the finance team has not connected horizontally, the company should improve the organizational structure such as providing the supervisor who could connect from one division to another division. The company should also make a new business standard procedure where the site controller and the financial analysis should share their information to every related party in a short briefing several times in a week. By having regular meeting, both parties do not only gain crucial information from each other, but could also synchronize their goal and objectives. 4) Provide the hard skill and soft skill trainings in the long term As the human factor is one of the most important factors in a company, the company should develop their skills continuously. For the finance unit, the hard-skill training is still important. The employees should have the standardized skills which are suitable with the global organization’s core competence. This training could reduce the human error and improve the reliability of the finance division which is crucial for the entire organization. Besides the hard skills, the soft skills training such as the leadership or the communication skills training could improve the horizontal communication and the business process within the organization. 5) Increase the sense of belonging and sense of significance of the employee In order to leverage the employees’ performance and enables them to work effectively in a team, the company should increase their sense of belonging by creating a comfortable environment in the company. Providing sufficient facility, creating simple gathering, or providing the employee stock incentive program could be some alternatives. Whilst to increase the sense of significance, the company could involve the employees in a heavier or more significant project, reward them appropriately, then give more challenging task to spur their motivation.