Over the years, the company had developed an outstanding enterprise project management methodology with a proven record of success. Now, each satellite office was still asked to use the methodology but could make its own modifications to satisfy its customer base.
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BACKGROUND
Coronado Communications, Inc. (CCI) was a midsized consulting company with corporate headquarters in New York City and satellite divisions in more than twenty-five of the largest cities in the United States. CCI was primarily a consulting company for large and small firms that wished to improve their communication systems, including computer hardware and networking systems. Each of the twenty-five divisions serviced its own geographical areas. Whenever a request for proposal was sent to CCI, corporate decided which satellite office would bid on the job. In 2009, Fred Morse took over as president and CEO of CCI. Although CCI was successful and won a good portion of its contracts through competitive bidding, Morse felt that CCI could win more contracts if he created a climate of internal competition. Prior to Morse coming on board as the CEO, CCI corporate would decide which satellite office would bid on the job. Morse decided that any and all CCI branches could bid on each and every contract. This process meant that each satellite office would be competing with other satellite offices.
COMPETITIVE SYSTEM
In the past, CCI encouraged the satellite office that would be bidding on the job to use internal resources whenever possible. If the office in Chicago were bidding on a contract and were awarded the contract, then the Chicago office could use resources from the Boston office to fulfill the contract. The workers in the Boston office would then bill the Chicago office a fully loaded or fully burdened hourly rate, but excluding profits. All profits would be shown on the financial statement of the office that won the contract. This technique fostered cooperation between the satellite offices because the Chicago office would get credit for all profits and the Boston office would be able to keep some of its employees on direct charges against contracts rather than on overhead account if they were between jobs. With the new competitive system, Boston would have the right to charge Chicago a profit for each hour worked, and the profit on these hours would be credited to Boston’s financial statement. In effect, Chicago would be treating Boston as though it were a contractor hired by Chicago. If Chicago felt that it could get resources at a cheaper rate by hiring resources from outside CCI, then it was allowed to do so. The bonus system also changed. In the past, bonuses were paid out equally to each satellite office based upon the total profitability to CCI. Now, the bonuses paid to each satellite office would be based entirely upon the profitability of each satellite office. Salary increases would also be heavily biased toward individual satellite office profitability. Over the years, the company had developed an outstanding enterprise project management methodology with a proven record of success. Now, each satellite office was still asked to use the methodology but could make its own modifications to satisfy its customer base.
TWO YEARS LATER
The following facts appeared after using the new competitive system for two years:
- The gross revenue to the corporation had increased by 40 percent but the profit margin was only 9 percent, down from the 15 percent prior to the implementation of the new competitive system.
- Satellite offices were lowering their profit margins in order to win new business.
- Most satellite offices were outsourcing some of their work to low-cost suppliers rather than using available resources from other satellite offices.
- Some of the satellite offices had to lay off some of their talented people because of lack of work.
- Employees were asking for transfers to those satellite offices where greater opportunities existed.
- The cooperative working relationships that once existed between satellite offices was now a competitive relationship with hoarding of information and lack of communications.
- There was no longer a uniform process in place for promotions and awards; everything was based upon yearly satellite office profitability.
- Each satellite office created its own project management methodology. The modifications were designed to reduce paperwork and lower the overall cost of using the methodology.
- Clients that had become accustomed to seeing the old methodology were somewhat unhappy with the changes because less information was being presented to the clients during status review meetings. The clients were also unhappy that updates and changes to the methodology were not being made as fast as necessary, and CCI appeared to be getting further behind in project management capability.
Could you have anticipated that these results would have occurred?
Given the changes that Fred Morse, the new CEO, implemented at CCI, several of the results observed two years post-implementation could have been anticipated. The introduction of internal competition among satellite offices was a catalyst for them to strive harder to win contracts, explaining the surge in gross revenue. However, the freedom for each office to set its pricing, potentially undercutting other satellite offices, would naturally depress profit margins. This competitive “race to the bottom” in bidding would predictably squeeze profits.
Furthermore, the new framework that allowed offices to charge a markup when utilizing resources from fellow satellite offices made such collaborations less appealing. As a result, the inclination to outsource work to cheaper external vendors, rather than using internal talent, was foreseeable. This shift not only led to underutilization of talented internal resources but also subsequent layoffs in some offices.
The spirit of collaboration, which once permeated through CCI’s satellite offices, was clearly jeopardized by the new system. The transformed landscape from cooperative to competitive made it logical to anticipate a decline in inter-office cooperation, with offices potentially withholding resources or insights to secure an edge over their internal competitors.
Additionally, granting satellite offices the autonomy to modify their methodologies could only lead to a divergence from the central standard. Such a decentralization would inevitably result in service inconsistencies, risking confusion and dissatisfaction among long-standing clients who had become accustomed to a particular approach.
What happened to the corporate culture?
The corporate culture at CCI underwent significant transformations due to the changes introduced by Fred Morse. Previously characterized by cooperation and unity across satellite offices, the introduction of the new competitive system shifted the atmosphere from one of collaboration to internal rivalry. Satellite offices, once bound by a shared objective, were now competing against each other for contracts. This significant shift not only altered the daily dynamics but also led to a sense of disconnection from the central corporate identity as satellite offices began exercising their newfound autonomy to adjust methodologies and practices.
Trust, a cornerstone of any thriving corporate culture, began to erode. The very nature of this new competitive landscape discouraged open communication and encouraged information hoarding. Such behaviors created silos within the company, obstructing collective growth and progress. Employee transfers and the unfortunate necessity of layoffs in some sectors fostered anxiety and potential feelings of resentment, detracting from the sense of stability and belonging that staff may have previously cherished.
Finally, the new bonus structure and the direct tie of salary increments to the profitability of individual satellite offices ratcheted up performance pressures. While a bit of competition can indeed be a catalyst for innovation and growth, excessive pressure can also be a recipe for employee burnout and dissatisfaction. In essence, what CCI witnessed was a shift from a unified, client-focused corporate culture to one that was fragmented, highly competitive, and internally driven, with profound implications for employee morale, collaboration, and overall company cohesion.
Can project management practices be improved with a major repair to the corporate culture?
Project management practices are inherently connected to the corporate culture of an organization. An environment that values collaboration, open communication, and continuous learning is more likely to foster effective project management. Alternatively, a culture steeped in silos, competition, and lack of transparency can hinder the successful execution of projects. If there are evident flaws in the corporate culture, addressing and repairing these can subsequently lead to improvements in project management practices.
For instance, a corporate culture that emphasizes teamwork can better facilitate cross-functional projects, where diverse teams come together to achieve a common goal. By repairing a culture that might have previously pitted departments or teams against one another, we can ensure that there’s improved coordination, resource sharing, and collective problem-solving – all essential for successful project management.
Moreover, a culture that prioritizes continuous improvement and learning would encourage teams to review and learn from past projects, leading to iterative improvements in project management methodologies. In contrast, a culture that doesn’t recognize or address past mistakes might find itself repeating them.
Is it realistic to expect each satellite office to have its own project management methodology? What happens when two or more satellite offices must work together?
It is not entirely realistic to expect each satellite office to have its own unique project management methodology. While some level of customization might be necessary to cater to local or specialized client needs, having entirely distinct methodologies across satellite offices can introduce complications, especially in terms of consistency, efficiency, and collaboration.
When two or more satellite offices need to work together on a project, differences in methodologies can lead to challenges. These challenges may include misaligned expectations, inconsistent reporting structures, variations in processes, and potential misunderstandings regarding roles and responsibilities. Such inconsistencies can result in inefficiencies, increased project durations, and a higher likelihood of errors.
Furthermore, for clients who engage with multiple satellite offices, encountering different methodologies can be confusing and may give the impression of a lack of standardization and professionalism within the company. It could undermine the brand consistency and trust that clients expect when dealing with different branches of a single organization.
Can CCI be fixed? If so, what would you do and how long do you estimate it would take to make the repairs?
Yes, CCI can be fixed, but the process will require a systematic, strategic approach that addresses the root causes of its current challenges. The key is to find a balance between competition and collaboration, while reinstating consistency and unity across the company.
First, the internal competition model would need to be revisited. While competition can drive innovation and growth, it should not come at the cost of organizational cohesion. A hybrid model that rewards both competitive excellence and collaborative efforts might be introduced. For instance, while satellite offices can still be rewarded for their individual profitability, there should also be incentives for collaborative projects or shared resources that lead to overall company growth.
Next, a standardized project management methodology should be reintroduced. Satellite offices can have some leeway for minor customizations, but the core principles and processes should remain consistent across the board. This will ensure uniformity in service delivery and client interactions.
Thirdly, to address the erosion of trust and communication, team-building exercises, inter-office workshops, and company-wide training sessions can be initiated. These initiatives will not only upskill the workforce but also foster a renewed sense of unity and collaboration.
Lastly, regular feedback sessions with both employees and clients will be essential. Employees can provide insights into what’s working and what’s not, while clients can offer feedback on the quality and consistency of service delivery.
In terms of time, initial changes, especially in terms of policy and methodology revisions, can be rolled out within a few months. However, cultural changes, trust-building, and seeing tangible improvements in operations and client satisfaction may take a more extended period, likely anywhere from 18 months to 3 years. The full repair and return to optimal functionality is a journey and will require patience, continuous evaluation, and iterative adjustments.
This case, and questions, is take from the book “Project Management Case Studies – Sixth Edition” – 2022, by Harold Kerzner.
