Lunch Break with Winston

Joint paper based on case study:
„Campbell and Bailyn's Boston Office: Managing the Reorganization“

Stefan Ulrich

810004 Strategic Human Resource Management (Gruppe 08A)

Content

1. Introduction 3
2. Industry Situation 3
3. Winston’s dilemma 3
4. Explaining himself 4
4.1 Key Accounts Team (KAT) 4
4.2 Performance management system (PMS) 4
5. Problems with the KAT 5
5.1 Recommendations concerning KAT 6
6 Problems with PMS 6
6.1 Recommendations concerning PMS 7
7. Winstons team 8
7.1 Callahan 8
7.2 John Oates 8
8. Consulting Winston 9
9. Blind Carbon Copy 10
10. Bibliographical References 12

1. Introduction

It was a couple of days ago that I ran into my old friend Winston while taking my lunchbreak at the Harvard club in Boston. I knew Winston back from college, where we shared rooms back then. Because of our adverse backgrounds, his in finance and mine in human resources, we have quite a history in discussing cases across disciplines often consulting each other until late into the night. So it came natural as I asked him why he was looking so troubled and as he started to explain it all felt like college again.
He started telling me about his concerns regarding the annual year-end meeting which he was about to have. The underlying situation for his dilemma was as follows:

2. Industry Situation

I knew that the brokerage industry wasn't doing so well. Over the last 10 years with the rising number of competitors, new complicated products and at the same time narrowing margins “due to the entrance of low-service, low-priced brokers”[1] it looked everything but bright. Yet still Winston had managed to pull off an amazing career with Campbell and Bailyn (C&B). After 20 years of bond sales and a successful track record, senior management had appointed him regional sales manager about four years ago.
But the market pressure didn't seize. Currently C&B were basically more busy helping customers to minimize their losses instead of making profit for them. Changes were happening in the industry and also within C&B.

3. Winston’s dilemma

As we ordered first drinks I noticed Bartletts quotations sticking out of his bag. I immediately knew there was something going on. Winston has kept this habit of consulting Bartletts quotations for critical and important situations ever since college. To my question if what troubled him was important or critical he answered both. He then continued to explain that he had to report on two big change projects that took place at C&B within the last year. But the problem was not the report itself, the problem was that she couldn't figure out if the changes should be considered a success or failure. In addition he also felt that his judgment was crucial for the continuation of these projects and he was torn between the responsibility for his company or for the individual members of his team.

4. Explaining himself

He talked about the projects and changes and the problems that came with it. All of that sounded very familiar to me. He knew I was the right person to give him some advice with my prior experience in change projects and as a consultant specialized in human resource management. After I got a good overview I asked him to focus on the details, because as with most change projects, it's the details that matter.

4.1 Key Accounts Team (KAT)

The first change project that he had talked about was the KAT which was implemented about half a year ago. It can be understood as a natural reaction to the changing financial markets. Actually it wasn’t a top down project, but a project initiated by Winston himself and his most important staff -the generalists.[2]
After changing their perspective on C&B’s current situation by sharing sensitive competitor data with them it became a collective decision that something like the key accounts team was needed to respond to the changing financial markets. It was common sense that selling futures and options with higher margins required a significant amount of more expertise to market and sell. The KAT transformed the generalists into specialists meaning that in the future each one of them would focus on one bond type and one bond type only. But that wasn’t the only change. Also the generalist would strongly reduce client contact, basically start working from a desk and they would start to have to share customers for the first time in many of their careers. But still the KAT was considered to be the most favourable option out of the choices that they had come up with. Lengthy discussions with the New York headquarters followed but ultimately Winston succeeded in convincing them that the KAT was indeed the way to maintain C&B’s market share.

4.2 Performance management system (PMS)

While the KAT was born in Boston the PMS was thought of in C&B’s headquarter in New York. As I heard Winston talk about it, it seemed as if he wasn't all too happy with the new approach. Under the previous system his team member’s annual bonus was basically based on his personal assessment of their teamworking skills and their professionalism as well as their sales figures. With the new performance management system a feedback questionnaire for each team member was filed in by traders, product managers and researchers in New York headquarters. This input was then combined with his observations and the salespersons totally achieved sales volume to generate a final annual compensation.

We had just finished our first round of drinks and were deep in the discussion. What was yet unclear to me was how these changes were implemented and dealt with within B&C, so I ordered another round of drinks and investigated further and Winston started to explain the problems the two changes had caused.

5. Problems with the KAT

After he finished telling me about the situation prior to the KAT it started to sound as if the generalists were basically able to run their own little businesses within the company. They could rely on the constant support of specialists with the larger deals and they kept intense contact to their clients establishing close relationships over the years. Large expense accounts to join popular sport events, dine in expensive restaurants, volume based bond bonuses, all together it made it sound like an independent luxurious position -the sweet life. Winston agreed as I noted that these benefits must have created the impression within the rest of the team as if there existed quite an intense pecking order. But still he said, everybody agreed to that as they kept business coming.
He continued to explain how the specialization of the generalists has lead to frustration within the team. Some of the members have expressed their concern that the new structure will force them to specialize in a way it would limit their career possibilities and most important their annual compensation the new system would mean that “commissions would be driven by sales volume in that area of specialization rather than the swings in demand within their client base.”[3]
As Winston explained it seemed as if the team did only see the possibility of the decrease in their annual compensation whereas there was also an enormous upside potential if they would increase the sales of their new specialty products. He attributed this negativism to the fact that change always doesn't come easy. Partly I did agree with him, yet still I had some recommendations for him.

5.2 Recommendations concerning KAT

Winston had told me before that the specialists make about half as much salary as the generalists did prior to the KAT. Also they did not enjoy as much privileges as the generalists. So to start off, and I know this sounds very simple, I told him that it was probably a mistake to rename the “generalists” into “specialists”. Nomen est Omen. In that sense it was a public downgrading in front of the whole company. Just “experts” would've been sufficient to set them apart from the normal specialists that form a generalist’s point of view served nothing more but a supporting role. Status by title is a also a matter of culture which is often underestimated by managers.
Also I considered Winston's decision to appoint Callahan, one of his generalists, as team leader for the KAT not wisely. The generalists are the backbone of the Boston office so he really depends on every one of them. A change project that profound cannot be taken lightly. It is his responsibility to oversee this change constantly and motivate his team members to stick to it and see the positive aspects. Even more so as he is already considered to be a fair-minded boss who is willing to listen to his stuff and their complaints. This would have been the moment for him to be “the coach” and see them through this change. I told Winston he would have to understand that some of the team members had established business contacts and trust to individual clients for more than 15 years. Just giving them up from one day to another is nothing that comes easy. It is not just a change within the company; it is a change within the individual lifestyle for every generalist.
So I concluded that the two major resistances within the team came about because the fear of loss of money and independence -in that order. Winston agreed and said that he felt both of these issues were very sensitive during the implementation of the performance management system as well.

6 Problems with PMS
Because of the size and its importance the Boston office has often been referred to as being in a bellwether situation. Now with the implementation of the new performance management system Winston jokingly said as he finished his second drink it has felt more like being the guinea pig for New York to find out how far they were able to go.
Even though he agreed with the overall goal to sell higher margin bonds to the clients which had to happen one way or the other to remain a profitable venture, he believed it was terrible timing to implement these two changes parallel to one another. I fully agreed.
As if the team didn't have enough to deal with the change in position they would now also feel the total loss of independence as the feeling grew of being under surveillance by the New York headquarter.
In addition to that the explicit demands of New York was to sell higher-margin bonds to their clients which also means lower volumes which in turn means lower annual compensation because the teams’ bonuses still remained connected to volume.
I couldn't help to be sarcastic as I summed it all up saying that basically New York is telling the team to make less (individual) money and if they don't succeeded in doing so they would be judged accordingly which would ultimately also result in them making less money. So we're talking about a cut in independence and privileges and at the same time a cut in annual compensation? You're killing the backbone of the Boston office! Winston grinned bitter as he stirred around ice-cubes in his empty glass.

6.1 Recommendations concerning PMS

The new performance management system had moved the annual compensation decision out of Winston’s hands into the hands of the New York. What has been a decision based on a personal assessment in a culture of trust and familiarity has now become the result of various different factors -“multisource assessment”. This has generated a whole new situation for the team that was used to working very independent before.
Just out of my human resource perspective I had to tell him what was obvious. There has been a major shortfall in aligning the individual interests of the generalist’s team (that was of such importance for the company!) with the interest of BC itself. While at the same time compensation would've been so easy. Just for starters I recommended to take the average margin of all annual bond sales done by each generalist (future specialist) and to use it within the calculation for the individual annual compensation. This way selling higher-margin products would also become a major interest of the new specialist’s team.

Don’t misunderstand me, I told him, I believe multisource performance appraisal is a good thing as it helps each team member to grow and develop their strengths but at the same time the different sources can, and should be weighted differently.
From my perspective it was time for Winston to step up to the New York headquarters and make it very clear that apart from the sales figures it was to be his final judgment of how the team performed which should remain to be the most influential within the assessment of the annual compensation.
From what Winston told me there is a very familiar atmosphere in his office. To keep this spirit especially in times of change it is important for the team to see that their boss stands up for them, to preserve not just their bonuses but also their culture. This would be a sign.

7. Winstons team

I could see in Winstons face that I had struck a cord there and therefore asked him to explain to me how his team was dealing with the changes.

7.1 Callahan

We spent quite some time talking about a guy named Callahan who was appointed team leader of the KAT by Winston. He seem to be yet undecided of what to think about the change. Even though he had made sarcastic remarks every now and then, he was one of the people who initially voted for KAT so one could assume that he is very well aware of the fact that something has to change. On the other hand his behaviour and sceptiscism made it look as if Callahan was not fully aware of the significance of the situation and the change that had to take place. Which is absolutely critical considering the fact that he is team leader of the KAT.
He still seems to cling to the good old days when business was still “peoples business” as he puts it. And 10 years ago Winston said he would have agreed to that. But things had changed over the years. It’s not only peoples business anymore, and soon there will be neither business nor people if they continued like before.

Winston sighed and said that one way or the other they would probably lose people along the way. I asked him what he was referring to and he started talking about John Oates.

7.2 John Oates

John Oates seemed to be an independent guy, not a great teamworker by all means, so someone who was foremost “mathematically inclined”[4] and not socially. To him the new compensation model and the cooperation which was enforced on him had apparently caused a lot of frustration. Callahan even expected him to jump ship to another firm.
Winston seemed to take that matter rather lightly as he said that Rome wasn't built in a day. It was then that I almost lost it. I asked him how he could be so ignorant. If John Oates was to leave the company, most likely he would not only take a significant number of his clients with him, even worse it could send a sign to all the other new specialists causing a chain reaction of people leaving. Not to mention all the rumors that could start to spread and have a negative impact on the image of the company.
Winston looked surprised but understood what I was talking about and asked for my advice on how to continue. Here is what I said.

8. Consulting Winston

I asked Winston if he’d remember how people bond to companies in general. Often it’s either money, or the identification throughout the work itself and the culture that goes with it, or both such as in his case. Now if you do change one, the other one has to be strong enough to keep the talent within the company. In your case you have changed both. As a (necessary) reaction to the changing conditions of the financial markets you have adjusted the internal companies’ structures. So far so good. But forcing a team of successful, independent entrepreneurs to become downgraded to a desk and work in line with all the others has been a poor choice of using their potential.
There would have to be a way in between to retain the generalists independence and keep them working at what they do best while still selling the more profitable bonds. A suggestion could have been to set up independent specialists sales teams with one generalist as a team leader.
Also I believed he underestimated the social factors of this change. Pooling customers and “destroying” personal relations has a huge impact -not just on the team. Some clients have had one face from C&B dealing with them for more than 15 years, changing something like that from one day to the other isn’t merely an internal change. It’s a cultural change on a broad scale also facing the outside of the company even repositioning it, this is major strategy stuff. Issues like this have to be made top priority company wide, and cannot be done at half measures –or “tested” in one office.
Also as the word has been that clients are yet unclear about the good or bad of the change[5] this is a critical situation that cannot go unattended, a lot of efforts of persuasion have to be done! If not, C&B could find themselves in a situation where they loose half of their clients who are currently undecided to competition fast. He will need support form NewYork on this.

I remembered Winstons from college, he has always has been a great leader but in crisis he lacked a certain toughness. I told him that now was not the time for being timid. He had an ambassador for the changes already, Jen Ulin understood that it was necessary move and she had already arranged herself with the facts. Callahan could be convinced rather easy I believe and maybe he and his enthusiasm could help to persuade John Oates to focus on the potential upside of things.
In the sandwich position that Winston finds himself in he feels responsible for the fulfilment of all the different motivations, and actually this holds great potential. I recommended him to string this together and avoid to have two change programs running disregarding one another, instead find a way to align them or yet better let’s make them complement one another. At the end of the day had the impression all of the parties involved more or less want the same thing.

It was hours (and many drinks) later as we left the clubhouse. In the end Winston and I agreed that New York apparently doesn’t know which way is best, they seem to want to try stuff out but lack an awareness for the consequences of their actions. In my opinion it was his duty as a “Coach” to his team and his duty as a regional sales manager to B&C to moderate a productive discussion and not get caught in the middle.
Later that afternoon I received a short email in BCC.

9. Blind Carbon Copy

Dear gentlemen,

Concerning our Division Leadership meeting I am very much looking forward to see all of you tomorrow in Manhattan. Along with me I will bring a selected number of colleagues from our former generalist-team.
Please excuse this unorthodox approach and the fact that it is on such short notice. I do believe there is a number of issues of highest priority that should be discussed within the group, and there’s simply no substitute when it comes to direct feedback.

With kind regards,

Ken Winston

10. Bibliographical References

Donnellon, Anne/Gifford, Dun (April 2008): Campbell and Bailyn’s Boston
Office: Managing the Reorganization, in Harvard Business Publishing,
Number 2182, Boston 2008

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[1] Harvard Business Publishing, Number 2182, Boston 2008, page 3

[2] Harvard Business Publishing, Number 2182, Boston 2008, page 4
[3] Harvard Business Publishing, Number 2182, Boston 2008, page 5
[4] Harvard Business Publishing, Number 2182, Boston 2008, page 5
[5] Harvard Business Publishing, Number 2182, Boston 2008, page 5