UVA-BP-0399

This case was updated and revised by L. J. Bourgeois, III, Professor of Business Administration. All names and financial
data are disguised. This case was written as a basis for class discussion rather than to illustrate effective or ineffective
handling of an administrative situation. Copyright 1999 by the Darden Graduate Business School Foundation,
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School Foundation. Rev. 5/02.





THE OSIM GROUP (A)


On Thursday, June 12, 1997, Tom Stark was walking toward the office of Bob Cedarholm,
OSIM Groups chairman of the board, contemplating the alleged internal revolt to overthrow Dave
Wright, the president. Tom was wondering what and how much to say to Bob during their
impending meeting.

Tom had returned to work at OSIM Group just three days earlier, following a one year in-
residence Executive Management Program at a prestigious Eastern business school. Prior to this
time, Tom had earned a Ph.D. in industrial engineering from MIT, and had spent nine years at OSIM
Group. Now, at age 37, he was OSIM Groups first Director of Strategic Planning and had the task
of introducing strategic planning to the company. From the first day, however, in addition to the
technical task of strategic planning, Tom had also been confronted with this highly charged political
situation. It was made even more complicated for Tom because Dave Wright had acted as Toms
mentor during much of Toms time at OSIM Group and had sponsored him in the Management
Program. The situation had implications for the future of the firm, Toms relationship with Dave,
his career, and his personal ethics.

In his mind, Tom was going over his first days back at OSIM Group:

I came back to work on June 9, a Monday, and I had a conversation with the
president about start-up tasks and priorities. Then on Wednesday, Frank Lewisburg,
the Marketing Director, invited me out to lunch. We spent about two and one-half
hours together. During this lunch period, he brought up a number of points rather
forcefully. The first one was that there is a conspiracy going on in the company.
Frank and other members of the group feel that company goals are not being
achieved because of Dave Wrights ineffective leadership and they are meeting
nightly, essentially to discuss how to remove Dave or to make him ineffective so that
the company can move ahead on its growth plans. He announced that, in essence, he
was lined up with Bob, the chairman of the board; that they had pressured Bob in the
past into making some organizational changes (some of which would increase
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Franks responsibilities); that the chairman of the board was himself lined up with
management at Shilo [OSIM Groups parent company] in New York; and there was
an impending reorganization, at which time these problems would be taken care of.
He predicted the reorganization would take place around the first of August and
advised me to state my preferences and alliances now, because when that
reorganization took place, things were going to be different. He said if I wanted to
be on the right side of things, Id better get on the chairmans team.

My initial reaction was disbelief. I knew Frank was prone to hyperbole, and I felt
maybe this was a combination of that characteristic and two glasses of wine. And
then my next reaction was, Wow, these guys are playing hardball, and they seem to
be playing for keeps. This is not a nice cozy academic problem you can ponder for
awhile but something in the middle of the swirl of events. I was sort of resenting
thisbeing placed in such a position so quickly. And dammit, I hardly have my feet
on the ground. I dont even know where my office is, and here I am being invited to
join a palace revolt.

Then Frank ended up by saying that he would make an appointment for me with the
chairman of the board; he would talk to the chairman before I went to see him and
would tell him that he had had this conversation with me. Then he told me that I
should go in and pledge my allegiance if I knew what was good for me. I agreed to
talk to the chairman, because I was already committed to meet with him that week.


History of The OSIM Group

The OSIM Group was a medium-sized consulting firm located in Sunnyvale, California.
Founded in the l940s following the Great Depression, OSIM Group had prospered and grown slowly
but steadily by providing engineering services to local businesses. In the l950s, OSIM Group
entered the commercial real estate business to capitalize on the beginning westward population
migration. During the l960s, OSIM Groups growth accelerated as the economy in Silicon Valley,
based on high technology businesses, boomed. To service the new companies, OSIM Group
instituted financial advisory services and combined business services, which provided small and
emerging companies with a wide range of services. Finally, OSIM Group began providing
specialized litigation support in response to existing client demand for such services. By 1996,
OSIM Group had revenues of $150 million, although both revenues and profits had fluctuated in the
previous few years as the nature of the consulting business changed (see Exhibit l).

The OSIM Group had five basic services areas, with many types of subservices (see Exhibit
2):

Engineering: The Engineering Services Division provided a broad range of services to a
wide variety of client organizations, both industrial and governmental. The divisions
distinctive competence lay in developing and implementing innovative approaches to
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engineering problems through the use of operations research, process control, network
analysis, information processing, and computer system development. OSIM Group bid
almost solely on one-off type projects that required sophisticated technical competence
and creativitythe staffs power alleys. Engineering Services accounted for
approximately 55% of OSIM Group revenues in l996 and exerted substantial influence on
the company as a whole, partly because it was the oldest business within the company and
partly because it was the largest.

Real Estate: The Real Estate Division developed and managed commercial real estate,
particularly shopping centers and industrial parks. OSIM Group entered the real estate
business during the l950s when commercial and industrial growth began to accelerate
throughout Silicon Valley. Having operated in Sunnyvale since the l940s, OSIM Group had
developed a strong reputation for high quality work and had accumulated a great deal of
knowledge about the local area, which aided the Real Estate Division immeasurably.

Financial: The Financial Advisory Services Division provided financial consulting,
investment banking services, and seed capital to local firms. It originated in the l960s as a
follow-on to the engineering and real estate businesses, since financing was a central element
in both. Having the financial services capability in addition to engineering and real estate
expertise allowed OSIM Group to meet a substantial portion of many organizations outside
consulting-service needs.

Combined Business Services: The CBS Division provided a full range of financial and
consulting services to small, privately held businesses. While these companies did not
require major investment banks or accounting firms, they did need professional advice across
a wide spectrum of their activities. The CBS group employed CPAs, MBAs, financial
analysts, and lawyers. OSIM Group was well positioned to serve the small company market
in Silicon Valley because it was so well known and respected in the area. OSIM Groups
strategy was to develop strong relationships with emerging companies, with the idea of
providing additional services as the companies expanded. CBS grew rapidly during the
l970s as small companies flourished in the Sunnyvale area.

Litigation Support: OSIM Group also had consultants who worked solely on providing
litigation support to firms needing expert testimony and witnesses. Most of this business
arose through San Francisco Bay area law firms that drew on OSIM Groups expertise and
reputation in the engineering area. Client development was particularly haphazard in this
group, although litigation support was both OSIM Groups fastest growing and most
profitable (per hour) service area. Because many consulting firms appeared to be ready to
enter this business within the next couple of years, a group of people at OSIM Group wanted
to invest in the Litigation Support Division and rationalize client development in order to
capitalize on the fields apparent attractiveness.

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OSIM Groups work was project oriented and technical in nature. Each project involved
delivering a service, but the services varied greatly among divisions and types of clients. OSIM
Groups revenue was usually generated by one-off types of projects, with little follow-on work.

OSIM Groups customers could include almost any organization. Business clients ranged
from small start-ups to large, established Fortune 500 firms. Most industries were represented,
including electronics and other high-technology areas, chemicals, construction, defense, and
agriculture. OSIM Group also worked for non-profit organizations, especially hospitals, and some
local governments.

The kind of people OSIM Group believed would succeed at consulting, and whom OSIM
Group had to hire and retain, were highly skilled, professional, energetic, willing to work long hours,
independent and entrepreneurial, on the one hand, but able to work as a member of a team, on the
other. Most of the professional staff were attracted to OSIM Group because of the intellectual
stimulation, financial compensation, and flexibility it offered. Virtually everyone had an advanced
degree, either in a technical or engineering specialty or from a business school. Many could have
worked independently, but they benefited from OSIM Groups reputation, from contact with other
talented people, and from the financial resources OSIM Group could apply to support their work.
After a few years at OSIM Group, they could expect to be able to choose their own work.

The culture at OSIM Group strongly reflected the characteristics of the consulting profession
and the types of people attracted to it. It was a loosely coordinated corporation that had had virtually
no central planning. The name of the game was chargeable hours. Projects were bid on the basis
of total revenue or hourly billing rate, but in either case, hours were closely tracked. An hour
not billed was an hours revenues lost forever. Compensation and advancement at OSIM Group
were linked to chargeable hours, although technical competence, ability to generate new business,
and ability to get along with people also entered into the picture.

Exhibit 2 shows OSIM Groups organizational structure. Below the vice presidents, who
were heads of divisions, were project managers, senior associates, and junior associates.
Background information on the primary protagonists with Tom in this situation is given in the
appendix. The VPs and the project managers were accustomed to choosing the type of work they
wanted to do and to structuring it themselves in order to complete it. Not much corporate focus
characterized this approach, but the professional staff enjoyed their independence.


History of Swiss Financial Services/Shilo Investment Bank, and the Acquisition of The OSIM
Group

Shilo Investment Bank, based in New York, was a wholly owned subsidiary of the huge
international financial conglomerate, Swiss Financial Services (SFS). SFS owned several dozen
companies in just about as many countries, which gave it a strong world wide presence in the
expanding financial-services arena. With Switzerland as a base, SFS could provide clients with a
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broad array of services and make the most of increasing global interdependence and easing
regulatory restrictions.

Shilo was SFSs U.S. investment banking arm. It was one of the dominant U.S. investment
banks and provided a full range of financial services. At SFSs request, and consistent with its own
objectives, Shilo embarked on a plan of acquisitions during the late l980s and early l990s. Shilo
intended to secure and bolster its position in the U.S. market, where financial-service and consulting
competition was fierce, mergers were occurring, and inefficient firms were starting to disappear.

The decision to sell OSIM Group to Shilo was made in January l997 and announced in
March. Tom was at the Management Program but learned of it sometime during February.
Although OSIM Group was a corporation, four people maintained most of the control: Chairman
Cedarholm, President Wright, Michael Liu (VP, Engineering Services), and Isabelle Abbey (VP,
Real Estate). These four people benefited financially from the acquisition, while the other VPs and
the directors of OSIM Group did not. The result was some bad feelings, particularly from officers
who had spent many years at OSIM and felt they had not been adequately compensated for their
time and efforts.

Most people within OSIM Group realized that being part of Shiloand even more
significantly, SFSwould provide OSIM Group with financial resources to compete effectively in
the changing world of consulting and financial services. Some also worried, however, that Shilo and
SFS would impose additional structure and control on OSIM Group, thus detracting from their
individual independence. In addition, some people were contemplating the potentially lucrative
move of leveraging the investment made in previous R&D work by selling solutions over and over
again. Such a step could lead to two groups within OSIM Group: those who would design and
create solutions to client problems and those who would be charged with merely repeatedly
implementing already-developed, cookie-cutter products.


The OSIM Group Strategy Evolution to Date

OSIM Groups strategy had evolved over time to include provision of a wide range of
services to an ever wider range of clients. The majority of OSIM Groups business came from small
and middle-sized companies and some government agencies, and the company had developed some
specialization in electronics and construction.

In general, OSIM Groups strategy evolved implicitly rather than through any explicit,
centrally planned process. Basically, whatever technical problem, real estate project, or deal-
making opportunity any officer wanted to pursue, he or she could. The expansion of services arose
from several factors: (l) OSIM Groups high level of technical competence, (2) the industry trend of
an increasing overlap of consulting and financial-service suppliers, (3) the independent,
entrepreneurial characteristics of the staff, and probably most importantly, (4) the desire on the part
of OSIM Groups staff for intellectual and creative challenge, which was more likely to occur with
new types of services, projects, and client industries than with repetitive projects.
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OSIM Group had also been influenced by Dave Wrights objectives and management style.
As Tom described it,

The management style of the president could be characterized as decentralized
management over the years. Hes an inspirational-type leader but not at all an
operations manager. He had let the organization runthe divisions run
independently and autonomously. On the other hand, he is now talking strategic
management strongly.

Some of the officers who were upset about the terms of OSIM Groups acquisition by Shilo
were also unhappy with Dave Wrights objectives and style. Again, from Tom:

Frank Lewisburg [the Marketing Director] told me that a good company is one where
theres structure and discipline and a style of each person playing his role, a team
approach, and so on; whereas this company has really been run on an entrepreneurial
basis, very informal communications, lack of decision making, delegation of
everything to the divisions, and a resulting protective, highly autonomous behavior
on the part of the divisions. Frank found this bothersome, and he didnt think it was
going to work in the long run. He felt a company couldnt develop to any size with
that, and I think thats absolutely right. He comes from a very large company
background, so hes very familiar with that culture. He doesnt understand a small-
company, entrepreneurial culture and found it very uncomfortable to work with the
lack of structure and lack of rules; he just had a general uneasiness about who is he
and what role is he playing. The only disagreement that I have with Frank is that
Dave Wright brought the company to where it is today, and its kind of hard to argue
with the fact that its been very successful. It doesnt mean that we dont have
growth problems and challenges from here on out, but lets not ignore the strength of
the approach that Dave used. It may have outlived its usefulness, but it did work up
to this point.

Strategic planning had been tried on occasion in the past at OSIM Group, but to no avail.
Tom explained,

In our case, planning is viewed as a nuisance task that is separate from management,
and there has been no breakthrough on the several attempts that have been made. In
fact, the very title or term strategic planner has been contaminated.


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The Outlook for Strategic Planning and Strategic Change at The OSIM Group

Tom had to consider several key factors in initiating strategic planning at OSIM Group. The
first was the attitudes toward planning, which varied at different levels of the firm. Tom recalled,

The general attitude that I got from talking to any vice president was, Oh, you want
to know about what were doing and what kind of business were in? Ask me
anything you want to know and Ill tell you, but dont bother my people. Its the
autonomy and chargeable hours business again. There was a definite crust in the
organization at the vice president level through which it was difficult to move.
Whereas if I talked to managers or senior associates, they were all enthusiastic about
planning, talked about what they were doing, saw a critical need for planning in the
organization, and were willing to support it. This was generally true, firmwide.
There may have been pockets of resistance, but generally there was a lot of energy
and enthusiasm at the lower levels.

The second factor was the degree and form of support from top management. Tom
explained,

The president, Dave Wright, may be intellectually committed to the process but may
not actually give firm backing to the planning sequence as we go through it. The
chairman, Bob Cedarholm, will be bottom up and pragmatic. This affects my posture
regarding the division heads and other officers: in particular, it defines the level of
formal or implicit authority that I have. The view is that, if the chairman and
president publicly endorse and support this effort and are willing to make it happen,
it makes my job easier and I have more implicit and formal authority. If they are not
going to back it up, if they are just going to talk strategic planning, then Ive got to
do much more persuasion, particularly of the division heads and other officers.

I think I designed my own job to a large extent. When I was in the Management
Program and learning of the acquisition, I was having discussions with the president
about playing some sort of planning role when I got back. We talked extensively
about that because, under the acquisition, the planning function was even more
important and more complex, especially with the interaction with the other parts of
the SFS group. Through a series of discussions at the end of May, we shaped plans
for a strategic-planning staff position which I would move into when I came back to
OSIM Group. During that time, I also had one conversation with the chairman of the
board. He was very enthusiastic about this role and thought it was very important for
OSIM Group. I guess I contributed most of the initiative in terms of defining it.

A third factor was Toms own credibility as a planner with OSIM Group:

On the positive side, I come from the ranks and have had experience with different
parts of the company, so I understand their problems. The extent to which I appear
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to be using this position for my advantage is important, so I am very careful to
present the image of putting OSIM Group first, that planning isnt everything and
that no one should get the idea that this could come out big for me in the short run.
That is what I need to be sensitive to, I believe. The planners own personal style
will influence his acceptability also, whether he is directive in nature or more of a
facilitator.

Another part is my detachment from previous associations. If they think Im partial
to the Engineering Services VP, I will lose credibility, and I have to be careful about
that. My previous job was manager in the Engineering Services Division, and I
reported to the vice president.

Finally, and very important I think, is the credibility of my formal education, and
whether or not they believe there is something to that. But Im not going to explain
to them the full scope and extent of what I know, because that always remains a
competitive advantage in promoting and implementing strategic planning.

The fourth issue was the integration with Shilo planning:

To the question, Are OSIM Groups changes being dictated by New York? I
would say that, in an implicit way, the perception is that if we dont get our act
together, New York will get it together for us, and so its our chance to do it on our
own. Theres a definite influence, but its indirect.

One factor in this is the conscious attempt on our part to use to our advantage in
planning the fact that nobody knows what Shilo expects from us. So wed better get
our act together before Shilo comes swooping in and lays goals on us, and the way to
get our act together is through planning. Nobody can say, Well, Ive talked to those
guys; I know what they want and they are not going to do any planning for five years
and forget it. It is the anxiety about what the new owners are going to do to us that
can be used to our advantage. The director of Operations and I will consciously be
using that anxiety as we go through the budgeting cycle and then into the planning
cycle with the VPs. You might go to them and say that we need to get our act
together; we need to put our plans together. Shilo will probably require that from us,
so we better design our own system. Some of that may be true or not, but we can use
that as part of the internal selling process on the stick end. Another uncertainty is
whether or not our system is compatible with the Shilo planning process. I know that
it is, because Shilo doesnt have a planning process, so thats no problem. And
another political factor is Shilos belief in the effectiveness of planning. Particularly,
the chairman of the board of Shilo is an ex-planner and believes in it; so weve got
his support and it helps.

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The fifth issue was OSIM Groups previous experience with planning, mentioned earlier.
Because most people viewed planning as nonsense and didnt believe anything would happen, Tom
had to deal with this bias:

There was the whole set of issues having to do with how to sell this process to the
vice presidents, and the use of small wins early on to overcome their concern about
whats going to happen to them when you start planning. Are we going to plan them
out of a job? Are we going to cut up their organization and give parts to someone
else? And just the cultural inertia against planning and the focus on operationsthe
general resistance to change.


Personal Challenges and Risks for Tom

Toms intellectual challenge involved the technical issues of instituting strategic planning at
OSIM Group. To begin, he organized his thoughts and asked a series of questions;

How am I going to plan my attack on my firm? Is an incremental strategy right for
the organization, or a so-called synoptic strategy? Do we start with a set or statement
of corporate goals, or do we start with a business definition? How do we organize
people into planning groups in the company, and at what level? Implicit in that
question is how to get around the vice presidentsthis crust level I was
encountering? What portfolio-analysis tools are appropriate for our kind of
business? How should competitor analysis be done? How about industry analysis?
At what levels do you do portfolio analysis in the organization? How do you
organize into business units? Is the current organization appropriate? Are charters
well enough defined? And there are other specific issues having to do with the
planning relationship between us and Shilo and the planning relation between us and
the rest of SFS. Then we get into issues like performance measurement, computer-
based support systems for monitoring progress, reporting systems, and so on

Tom was looking forward to his position at OSIM Group:

Coming into the job, it looked like an ideal set-up. Id been with the company for
nine years; I knew the style of business, the customers, the people. I had watched it
grow over the years. As part of a network in the company, I had a lot of contacts. I
had been working in the technical areas and had a technical background similar to
the people in the company. On the other hand, going through the Management
Program and seeing how things might be done, I could see a lot of payoff in bringing
some of the strategic management techniques to this company. Also, the president
and the chairman, but particularly the president, were talking strategic management
strongly. The acquisition had provided capitalization and the potential for working
towards a world-class international consulting and financial-services firm. So, it was
all very exciting and timely and fortuitous.
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However, Tom,

...saw the problem of dealing with a consulting-type culture and moving that into a
planning mode as a significant implementation problem, as well as a significant
challenge in the area of how you define businesses, how you think about planning in
the consulting and financial-services industries, how you might structure a rational
planning process. That part was to be a challenge. It was further complicated by the
passive management style of the president.

So already there was substantial challenge requiring a good deal of clear-headed
thinking. But then things were further complicated by the political intrigue that I
walked into in the first week. Here I was, with a formidable technical task, and now
I had to deal with politics as well. My reaction was, Oh, shit. I thought this was
going to be fun. Now its going to be work.

Then there were the calculations of personal risk:

There was discussion on several levels. One was with the Marketing director at
lunch my first week back at OSIM Group. He said, You know, if we dont get our
act together, this place could fail. You and I cant be hired by A. D. Little or others,
because were too old. If we dont make it here.... We can sit around five years from
now and laugh about this, but nows the time to take action. We all want to get rich
and that kind of thing. And, Youve got a family to support; youd better think
about them. Talking later to my wife Janet, I said, I have to think about you and
the kids.

So you know theres self-preservation there. I dont know to what extent that enters
inmaybe at an unconscious level. I did not sit down and calculate what the odds
are. Another concern is that Im possibly going to be thrown out on my ass, and
therefore I had better go talk to the chairman....

During the lunch with Frank Lewisburg, Tom was startled to learn that Patricia Thompson,
director of Operations, and Doug Robb, director of Administration, were Franks co-conspirators.
My general reaction to this whole thing was disbelief. Like, oh come on, this cant be real.

These thoughts, and the ones described previously, were running through Toms mind as he
headed for his meeting with Bob Cedarholm.


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Toms Meeting with the Chairman

Tom went in to see the chairman on Thursday, June 12, the morning after his discussion with
Frank. The meeting started out interestingly; Bob closed the door and said, Well, Tom, how candid
do you want to be?
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Exhibit 1

THE OSIM GROUP (A)

Financial Highlights
($ in millions)


1996 1995 1994 1993

Revenue $150.4 $131.8 $120.6 $90.0

Net income .8 3.6 3.0 2.2

Total assets 93.6 69.8 55.2 48.8

Shareholders equity $18.2 $17.4 $13.8 $10.8

Number of employees
at year end 1,322 1,230 1,206 1,056
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Exhibit 2

THE OSIM GROUP (A)

Organizational Structure

SWISS FINANCIAL SERVICES

SHILO
Investment Bank
Hugh Larsen
Chairman of Board
Bob Cedarholm
Chairman of Board
Jarvis McQueen
Director of
Finance
Patricia Thompson
Director of
Operations
Frank Lewisburg
Director of
Marketing
Doug Robb
Director of
Administration
Ann Michelis
Director of
Personnel
Dave Wright
President
Tom Stark
Director of
Strategic Planning
Michael Liu
Vice President
Engineering
Services
Isabelle Abbey
Vice President
Real Estate
Sara Leopold
Vice President
Financial Advisory
Services
John Smith
Vice President
Combined Business
Services
Larry Sobetzer
Vice President
Litigation
Support
$80 MM $30MM $20 MM $10MM $10MM
1940s 1950s 1960s 1970s 1980s

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Appendix


Histories of Key Players

Hugh Larsen. Chairman of the board of Shilo Investment Bank, OSIM Groups parent
company. Hugh had extensive consulting and financial-analysis experience and had been a
strategic planner. As such, he believed in the process of strategic planning and could be
expected to encourage and push it at OSIM Group.

Bob Cedarholm. Chairman of the board of The OSIM Group. Bob was a financial
wheeler-dealer and a business type of person. He was beginning a talk strategic
management.

Dave Wright. President of The OSIM Group. Dave held a Ph.D. and was very technically
oriented. He had been with OSIM Group for many years and had risen through the
Engineering Services Division. Dave was Tom Starks mentor.

Patricia Thompson. Director of Operations.
Doug Robb, Director of Administration. Patricia and Doug had been with The OSIM Group
for many years, including the high-growth years of the l980s. Because of the length of their
terms with OSIM Group, they were unhappy not to have benefited financially from the
acquisition. They performed staff functions and were administrative, non-technical types
who were more naturally inclined to work with the chairman than the president.

Frank Lewisburg. Director of Marketing. Frank was an administrative, non-technical, big-
company business-type person. He believed he could lead OSIM Group to higher growth
but felt held back by OSIM Groups president and the presidents unstructured management
style.

Michael Liu. VP, Engineering Services Division. Michael had worked for OSIM Group for
over 20 years and was a major financial beneficiary of OSIM Groups acquisition by Shilo.
His power in the organization stemmed from his long tenure there and his competent control
of OSIM Groups largest division.

Isabelle Abbey. VP, Real Estate. Isabelle joined OSIM Group in the mid-l970s and was
responsible for solidifying and expanding OSIM Groups Real Estate Division. As a result,
she exercised substantial influence within the company and was rewarded financially for her
achievements at the time of the acquisition.