Tuesday, December 13, 2011

IBAX--A Management Organization Study

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Background


The strategy behind the IBAX venture was to combine Baxter¡¦s experience in software applications with IBM¡¦s expertise in the computer related business. This partnership, however, failed to produce the financial and strategic aims of both Baxter and IBM. In order to turn IBAX around the partnership sought out a new CEO who could affect the kind of changes necessary to make the company a success. As a result, IBAX hired Jeff Goodman, a MBA graduate from the University of Virginia with a background from GE.


As the case reported, the problems with the company were substantially understated. In order to better analyze IBAX and make appropriate recommendations, we performed a SWOT analysis detailed below


Strengths


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¡P IBM reputation brings credibility to partnership


¡P Market Leader with 1% market share


Weakness


¡P Poor product quality (Series 000, 4000, 5000)


¡P Poor customer service


¡P Low employee moral


¡P Overstaffed with 750 employees


¡P Void of senior level management team (only 1 lawyer and 1 Human Resources)


¡P Lack of cooperation between different departments


¡P No homogeneous corporate culture


¡P Adversarial customer relationship


¡P IBAX Sales people amateurs


¡P Organization geographically dispersed (Corporate HQ - NY, Operating Facility


- FL, Business Units - IL, Business Units - RI


¡P Project Staff - CA, Service Center - OH)


Opportunity


¡P Domestic client base, opportunity for international growth


¡P Sources of revenue software sales, installation, customization services,


¡P On-going maintenance and support


¡P IBAX develops and markets department-based info systems for


¡P Pharmacy management


¡P Billing operations


¡P Operating room scheduling


¡P Products that network physician offices to hospitals


Threats


¡P Small hospitals merging with other hospitals


¡P Installations decreased from 85 to 0


¡P Contract disputes b/c unrealistic client expectations for Series 4000


¡P Disk capacity


¡P Response time


¡P Product upgrades and add-ons





Group Analysis


The challenges facing Jeff Goodman as CEO of IBAX are three fold. First, poor product quality, low customer satisfaction, and the inability to manage the changing market paradigm within the healthcare industry compromised IBAX¡¦s reputation as a reliable provider of systems solutions and hurt its ability to compete in the marketplace. Second, the geographic dispersion of IBAX offices, the fragmented nature of its work force and the existence of low employee moral pose significant organizational and employee relations challenges. Lastly, despite initial favorable financial projections, the venture¡¦s financial position became volatile resulting in significant financial losses even in the first year of operation.


In the proceeding section, we will offer sample solutions on how Jeff Goodman can remedy the challenges before him. We acknowledge that there is a wide spectrum of solutions at Jeff¡¦s disposal and that the recommendations advocated in this report will only be a sampling that our team (Team C) felt would best address the company¡¦s ailments.


Issue #1 Problems with Marketing and Customer Management


The biggest problem facing Jeff is poor product quality. Problems associated with product quality stem, for the most part, from inadequate communications between sales staff and product developers. As stated in the case


-¡§The IBAX sales forces had made commitments to the customers regarding such things as the disk capacity used by the system, response time and the availability of product upgrades and add-ons. Unfortunately, such commitments had not been discussed with developers of product and were impossible to meet¡K¡¨-


This break down in communications between sales and product development not only causes the alienation of customers, but it also results in low customer satisfaction, as customer expectations are not adequately satisfied.


Furthermore, the changing market dynamic within the healthcare industry began to change with larger hospitals acquiring or merging with smaller hospitals. This shifting market paradigm eroded away IBAX¡¦s market share within the small hospital segment and shrank the revenue and profit potential of the Series 000 line of products.


Clearly, the triple onslaught of poor product quality, low customer morale, and a changing market paradigm compound Jeff¡¦s mandate for change. The solutions we propose to remedy these problems are as follows


¡P Create customer teams where product developers and sales staff coordinate the acquisition of new book business. By uniting the sales and development staff into teams, IBAX can align the sales promises made by sales staff with the abilities of product developers. Lastly, a customer team format can serve to enhance communications between sales and product development staff.


¡P Leverage customer input in the design and manufacture of products. By incorporating customer input into the development phase of products, IBAX can better position its products in the market and ensure that the product sold meets/exceeds customer expectations.


¡P As part of sales and product development training, place sales and product develop staff within customer site to acclimatize them on customer i.e., hospitals needs. This approach will demonstrate commitment to customers and educated IBAX employees on how to position, develop, and sell its products


¡P Base commissions on long-term metrics like customer satisfaction and net profits instead of gross sales. This will incentivize sales staff to generate ¡§quality¡¨ sales and not ¡§dollar-only¡¨ sales





Issue # Organizational and Employee Challenges


Probably the most significant problems Jeff will address are that of poor organizational control and low employee morale. As reported in case, IBAX lacks a clearly defined corporate culture. Its offices and its work force are fragmented across geographically dispersed locals with little senior management to bind/coordinate the numerous locations together. These negative agents cause low employee morale and turn the simplest molehills into mountains.


The fact that IBAX grew from acquisitions rather than organic growth does not simplify the problems of low employee morale either. Growth by acquisition does foster community in the same way that organic growth cements employees together. We infer from the case that that most IBAX employees are products of different corporate cultures with very little in common with each other. This might be one of the sources of low employee morale. Also, we infer that IBAX management did not attempt to merge/assimilate these acquisitions in a proper fashion. Instead, management opted to continue to acquire organizations without investing time in to assimilate the acquired groups. As a result, these acquired populations were left to simply orbit within the IBAX universe with no real ties to each other outside of the IBAX name.


The lack of adequate senior management compounds the effects of this fragmented workforce. Without adequate spans of control from senior most to front-line management dictating company policy and culture, the over populated IBAX workforce can never expect to feel apart of a single unite. Simply stated IBAX lacked leadership. Leadership of thought, of management, of culture all were absent from IBAX. It is for this reason that many employees felt disenfranchised, alienated, and unmotivated; a dangerous combination that can have dire results.


Jeff needs to start by improving employee moral and ensuring that IBAX employees feel a sense of belonging to the company. Our recommendations for achieving this goal are as follows


¡P Consolidate office locations to few locals situated near airports and other transport centers. This relocation effort can serve the following ends. First, as with most corporate relocations, companies¡¦ experience voluntary employee attrition during relocations, which in the IBAX case would reduce its overstaffed employees population hence reducing a portion of operating expenses. Second, it will bring the disparate employee groups closer together making physical interactions easier,


¡P Create an intra-office portal where employees can glean information about company events, promotions, performance, job openings, etc. This internal IBAX portal would serve two purposes; First it would keep its employees abreast of recent events across the company and second bring employees together through a common platform through they can inter connect with each other.


¡P Reorganize the company into a matrix organization so that all staff is domiciled within one of three dominant product lines. For the company¡¦s other products, and separate organizational structure might be considered. For the Series 000, 4000, and 5000, a matrix organization will enable IBAX to best leverage a customer team structure recommended in section I, keep abreast of the shifting paradigms within target markets, and consolidate sales, development, and administrative staff under each Series product line. A diagram of this matrix idea is briefly illustrated on the proceeding page





¡P Develop job rotation programs where employees from different locals and/or positions can perform another job for a short period. A rotational program can serve to boost employee moral by rejuvenating ¡§burnt-out¡¨ employees by allowing them to perform learn new tasks, but it also encourage intra-departmental fertilization of ideas. At the very least it brings employees that would otherwise not have worked together to meet.


¡P Sponsor certification programs and continuing education programs to provide staff-technical staff in particular-a sense of achievement and the feeling that ¡§the company is vested in them¡¨. This will engender employee tenure and improve morale resulting in enhanced productivity across the board.


¡P Develop 60 performance review procedures that outline the expectation of each job family and holds individuals accountable to each job expectations. This will serve to ensure that employees are clear about the expectations of the job and that managers and direct reports are working together to mutual succeed as part of the 60 review. Also, as part of the performance review management should subscribe a common list of attributes/expectations each employee must achieve regardless of job family. These ¡§ten commandments¡¨ of corporate citizenship will help foster the seeds of a common culture across IBAX.





Issue # Poor Financial Performance


The result of the preceding top-line marketing and organizational problems is poor financial performance. As reported in the case, IBAX lost $11 million during its first year and borrowed $40 million from parent companies to cover annual cash flow losses. Without a doubt, low employee morale, lack of leadership/management, and inefficient organization structures all hinder the ability of IBAX to turn a profit.


An immediate solution to IBAX¡¦s financial woes is to trim its employee population so that is in line with the company¡¦s current level of need. As mentioned in previous sections, a corporate relocation will result in some voluntarily attrition, but some redundant employees will remain. Unfortunately, downsizing is the only alternative to reduce operational overhead stemming from excess employees. After a carefully managed downsizing is executed , additional savings from consolidating office space, reorganization into a matrix organization and the aligning of incentive and performance pay along long-term metrics as detail previously, should reduce cash outflows significantly.


Lastly, a more cooperative relationship with the parent companies (Baxter & IBM) will only serve to benefit IBAX. These parent companies should agree to commit to the IBAX venture for the long-term. As is, the parent companies expect too much from IBAX and refuse to involve themselves in the day to day operations of the venture. This long-term commitment should be manifested in the form of low cost capital made available to fund IBAX¡¦s working capital and fixed asset needs. Also, since IBAX is owned entirely by Baxter and IBM, these two companies should contribute to the payment of incentives to sales staff and share resources with IBAX like office supplies, office space, etc.


Conclusion


Our group feels that many of the problems at IBAX will not be solved with money alone. Instead, we feel that a combination of solutions is necessary. First, a corporate restructuring to reorganize and downsize unproductive employees and populate vital management positions will improve the spans of control at IBAX allowing Jeff to coordinate mandate/activity across the now fragmented workforce, optimize operational efficiency in line with industry standards to generate profits, and create a leaner, more productive enterprise. The most significant aspect of this restructuring is to adopt a matrix organizational structure in which customer teams populated jointly by sales, product development, and administration staff working together to generate sales. This will improve intra-department communications, increase customer satisfaction, and, hopefully, improve product quality.


Second, a renewed focus on employee relations via rotation programs, 60-degree performance reviews, and an internal employee portal interface will foster a sense of community across disparate employee groups. The 60 performance reviews consisting of general job family specific expectations and a common set of values necessary for successful IBAX citizenship will create a common platform that promotes consistency across employee groups and defines corporate identity. Furthermore, these performance reviews will also outline accountability mandates to incent successful/profitable employee behavior in line with the guidelines of corporate citizenship.


Lastly, an earnest attempt to achieve organic growth instead of growth by acquisition will allow existing employees to acclimatize to existing and emerging IBAX procedures and enable them to grow comfortable with corporate culture and contribute productively to the new IBAX¡¦s financial success.


1. By carefully managed we mean after management has screened employees for performance issues, assessed corporate needs in relation to company reorganization efforts, and exhausted all other attempts to relocate/realign employee to other areas of the organization.


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