With a string of good results in his degree, John Ross was confident that he would get a job easily after graduation. As the top student in the Bachelor of Commerce in his graduating year, and the best performer in the accounting major throughout the three-year course, he went out into the world in search of a job. He was quickly accepted as an audit trainee in a reputable audit firm, Anderson and Pierson.
Anderson and Pierson offered the best salary in its field to its audit trainees. It is small wonder that Ross was delighted, as his former colleagues from university received lower pay for similar jobs in other organisations.
During peak periods, audit assignments were extremely demanding for Ross. He had to be away from the head office for a week or two depending on the size of the client company. He soon proved himself to be a competent trainee, becoming more and more involved in his job, and he earned a reputation for painstaking effort and excellent results.
After a year and a half with the firm, Ross became restless and requested a transfer to other duties, although he realised that as an audit trainee he had little choice. Since the firm did not wish to lose his services, it responded by appointing him as a junior audit supervisor. He was not really enthusiastic about the promotion, and when a leading manufacturing company, Barnes Manufacturing Corporation, offered him a job as a financial analyst in, he immediately accepted.
The new job was totally different from the previous one. Ross was responsible for the analysis of capital budgeting requests, establishing budgets, reviewing divisional performance reports, financial accounting and internal auditing. He admitted openly to his friends that the job was tough.
The financial analyst of each of the seven divisions of Barnes reported to Ross monthly. Although Ross specified the accounting systems to which the divisions were expected to conform and the general procedures they were to follow in connection with budgeting and reporting performance, he foresaw increasing difficulties with his relationship with the financial analysts of the various divisions. The financial analysts primary loyalties were to their division managers and the chance that the analysts would give frank and unbiased reports to him every month were slim. He felt that it would be a better idea if reports on divisional activities came directly from financial analysts working for him, rather than from the divisional manager.
After discussion with his immediate superior, they came up with the idea of introducing a more modern control technique into the accounting system. However, since Ross’s relationship with the financial analysts of the seven divisions was not close, he felt that it was wise to develop the new technique on a step-by-step basis. Furthermore, he realised that he was not getting adequate information about what was actually happening in the divisions. He felt that he should visit each division and try to sort out their problems on the spot. The division managers, on the other hand, felt Ross’s direct approach as a threat and accused him of undue interference in their departments.
Frustrated with what was going on, Ross decided to leave the organisation and go into private practice. Convinced that organisation problems would not be as complex as those he had encountered previously, he ventured into partnership with a friend, Ray Krebbs. As management consultants in accounting and taxation, Ross felt that they could define their own personal development boundaries, retain the profits earned and channel their resources into a wide variety of business endeavors.
After a slow start and heavy expenditure on promotion, work started to flow in. To cope with the work, Ross and Krebbs decided to appoint two associates with experience in accounting and taxation. Sue Ellen and Mitch Cooper were both paid equal wages and had identical status within the company. Cooper had a good knowledge of computing as he had studied information systems when he was at university. He also had worked with computers before joining John Ross and Ray Krebbs and Associates.
The two associates proved to be particularly effective consultants. With the deadline for filing tax returns coming soon, all of them were forced to work overtime. Ross spent most of his time on financial planning consultancies while Krebbs was involved with feasibility studies to install a computer in their business. Realising that their associates have made a great contribution to the business, Ross and Krebbs gave them substantial salary increases as a form of recognition for their efforts.
By the end of 1995, Krebbs’s feasibility study was completed. A computer with a central processing unit and four terminals was installed to ease the workload and reduce reliance on manual work.
Without prior consultation with their associates, the two partners appeared at the office and introduced a new associate whom they had hired. The new associate, Joe Morris, was a computer programmer with experience in the Rank Xerox Corporation. Nothing was said about how much he was being paid, but he was to have equal status with the other associates.
The associates were annoyed with the two partners over Morris’s appointment. After being with the organisation for some time, they felt that they should have been consulted before a new position was created. As they exercised a high degree of autonomy in their work, they had become used to speaking on behalf of the business on a variety of topics. Cooper felt he could have easily accepted the offer if the position had been offered to him. After all, with the computer taking over a huge chunk of their manual jobs there would not be enough work to keep both Ellen and him busy. Ellen agreed with his argument and commented that the amount of money paid out for Morris’s salary could have been used more productively.
Both associates agreed that their salary increases were part of a scheme the partners had devised to defuse in advance their expected unhappiness over not being consulted about Morris’s appointment. Both Ross and Krebbs seemed to have overlooked the importance of their associates within the organisation.
Morris carried out his duties diligently and competently, to the chagrin of the two associates. They excluded him from their social life and, eventually, Ross and Krebbs realised the tension between the three. The partners came up with the idea of organising an outing to the seaside. Morris reluctantly accepted the invitation. By sheer chance, an accident happened at the beach. Ellen got into difficulties when she tried to swim out to sea. Morris’s quick thinking saved her life. The others congratulated him wholeheartedly and he felt he was on his way to being accepted by his colleagues.
Before the Easter holidays, Ross and Krebbs called a meeting and announced that a senior consultant post had been established. The associates were glad to hear this, thinking that one of them would be called to take up the appointment. To their dismay, the two partners further announced that the position had already been advertised and that the interviews would be conducted two weeks after they came back from the Easter break. To conclude the meeting they announced that the associates would receive salary increases with effect from May 1, 1996.
Was history about to be repeated?
What was the central problem facing Ross in the Barnes Manufacturing Corporation? Do you think that it would have been wise if John Ross and Ray Krebbs had consulted their two associates prior to Morris’s appointment? If so, why? Comment on the leadership style shown by Ross in John Ross and Ray Krebbs and Associates. Are professional employees likely to respond well to this style? What do you think is likely to happen when work resumes after the Easter break if things go on as they have been?
Dianne Watts is a senior lecturer in management in the School of International Business, Division of Business and Enterprise, at the University of South Australia. She specialises in teaching management of technology, management for engineers and scientists, and management for information technology and telecommunications. Prior to joining the university she held senior management positions in chartered accounting and sharebroking, and was the Business Manager of the Adelaide Festival Centre Trust.
Her recent research has involved Australian CEOs, organisational change and information technology.
Thanks to Stanley Petzall of the School of Management at Deakin University for permission to use this case study, which comes from his publication on management case studies.
The central problem Ross had was his lack of knowledge of management principles, resulting in his failure to understand the inherent conflict associated with matrix reporting structures, and his oversight of the human issues that influence the analysts behavior.
Ross’s history of achievement was based more on individual effort rather than teamwork or managerial competence. Unlike the promotion to audit supervisor that he walked away from, the position at Barnes was suited more to his analytical rather than people skills.
Not being aware of the difficulty placed on the divisional analysts from having to report to two bosses, Ross ignored their conflict and their need to be accepted at the divisional level. He also over-estimated his power to solve the problem by structural means alone. Ross’s inability to establish good working relationships with the analysts and the divisional managers left him restricted in proposing alternative strategies or in arriving at a collaborative solution.
Whether Ross and Krebbs should have consulted with their associates before making the appointment of Morris depends on their ultimate objectives.
Ross and Krebbs can choose to continue their business as a two-person operation attracting bright graduates or experienced staff on a “just-in-time” basis by paying higher than normal salaries. This would obviate the need for costly staff training and development, succession planning, and improved leadership skills. High turnover of staff due to lack of growth opportunities would be accepted as normal. The decision not to consult associates on business decisions, would then be the appropriate strategy.
If, however, they are interested in building a business that will grow in its ability to serve clients needs with a variety of knowledge and skill bases, enable Ross and Krebbs and Associates to invest in their own professional development rather than having to continually supervise new staff, and be capable of not only generating income but creating wealth, then failing to consult their associates prior to Morris’s appointment was unwise.
The view of many academics and business leaders is that learning and learning faster than the competition constitute the only sources of real competitive advantage today. If Ross and Krebbs undervalue or under-utilise their associates knowledge, experience, and judgment, they are wasting a most precious resource.
If leadership is judged by the achievement of organisational goals through others, then Ross appears to have been successful in providing services of value to his organisation’s clients through his associates. That they are in a position to pay generous salary increases is one measure of their success. So despite the associates unhappiness, it could be said that Ross’s leadership style was effective.
If the focus is on inspiring followers to reach new levels of performance or service, or to produce extraordinary results, then Ross’s leadership style is not effective. According to traditional behavioral theories, Ross’s style tended to be autocratic rather than democratic (or participative) as demonstrated by: his taking unilateral decisions; being task rather than employee-oriented; and his tendency to “initiate structures”, that is, the extent to which Ross defined and structured his and his subordinates roles instead of building relationships of trust. It would also be possible to peg him into a position on Blake and Mouton’s managerial grid, somewhere between Middle-of-the-Road and Task Management.
Professional staff are not likely to respond well to Ross’s style of leadership for a number of reasons. Ross over-estimated the importance of pay as a motivator and under-estimated his associates desire for achievement and need for esteem, growth, and participation in decision-making. He seemed to be oblivious to the potential loss of his associates to competitors, or the loss of their motivation due to being continuously frustrated in their attempts to become valued members of the firm.
A situation of discontent is likely to occur again, next time with three disgruntled employees instead of two. Morris’s entry into the associates group, initiated by his rescue of Sue, combined now with his own experience of exclusion from decision-making, will increase the group’s numbers and fortify their power to act counter-productively to Ross and Krebbs’s business objectives.
Equity theory suggests that people expect that, for a given input, such as hard work or professional accomplishments, outcomes such as promotion or access to decision-making, should be equal to those for a “relevant other”. Inequalities create tension. Energy is then directed toward reducing the tension, rather than the work at hand. Ross and Krebbs and Associates will be in danger of losing competent professional staff, if not from the firm, then from their commitment to client service and quality performance.
John King is Managing Director of AJK Consulting Pty Ltd, a Perth-based business strategy consultancy. John provides strategy, planning and profit improvement advice and training to a wide range of Australian and international organisations. John is a Fellow of the Australian Institute of Management, Australian Society of Certified Practising Accountants and Australian Institute of Company Directors.
Focus on the Business
The primary purpose of any business is to satisfy its customers and maximise the long term return on the shareholders investment. Operating managers are responsible for production, customer service and profitability.
At Barnes Manufacturing, the reporting of financial results to corporate headquarters is the responsibility of the seven division managers.
Ross is making two major mistakes. He is not focusing on the primary purpose of the business; he has not developed an understanding of the business. And he does not understand that the divisional managers (not Ross) are responsible for reporting their performance.
Ross has focussed on “how” divisions report results (i.e. procedures) rather than “why” and “what” divisions report to corporate headquarters. The primary role of the divisional analysts is to assist divisional managers to budget, monitor and improve the performance of their divisions. Reporting divisional performance once a month to corporate headquarters is a minor part of their role. Therefore, divisional financial analysts should report to the division managers.
Ross views the reporting role as the primary, if not only, reason for the analysts existence.
Ross should develop an understanding of the business. This would enable him to specify the information needed by corporate management to manage the whole business. He would then explain his information requirements to divisional management in terms of assisting corporate management to manage its portfolio of divisions, rather than interfering in the detailed operations of those divisions.
Ellen and Cooper have been critical to the success of John Ross and Ray Krebbs and Associates. They expect more than financial reward. Recognition of their importance to the business, and involvement in important decisions is a normal expectation of professionals.
Professional employees are at least as capable as their employers. Due recognition of their abilities is central to a professional’s job satisfaction. Ross and Krebbs have recognised the value of the associates contribution with financial rewards, but not in any other manner.
In an office of only four professionals, Ellen and Cooper should expect full consultation on significant decisions. The message that they have been receiving, however, is that they can perform technical tasks and represent the firm, but have no contribution to make on important management decisions.
The lack of consultation prior to Morris’s appointment would always make it difficult for him to work with the associates. As professional employees are very mobile, they will not respond well to an exclusive leadership style. They will leave rather than accept this style of leadership.
Ross should recognise the problem with this leadership style. It seems to have been one of the reasons he left Anderson and Pierson.
There is a lack of communication between the owners and the associates. Ellen and Cooper have been passed over once again. The message they are getting is that they are not good enough, even though they have received substantial salary increases.
Ellen and Cooper should have been consulted on the new position. If they are not suitable, they should be counselled on their shortcomings, so that these can be addressed. The associates need an opportunity to present their case to Ross and Krebbs.
Following the Easter break the office environment is likely to deteriorate. Ellen and Cooper will not be as enthusiastic in the performance of their duties. Where they routinely took initiative in the past, this is less likely in the future. They are likely to be looking for another position, or accept an offer when approached by a competitor.
The associates will not be as enthusiastic to perform the overtime and weekend work which they performed in the past.
With the taxation season approaching (July to December), Ross and Krebbs would be in serious difficulties if either associate were to leave in the near future.
The pattern of ignoring the associates in making major appointments has started a downward spiral in morale that will be difficult to arrest. This needs to be resolved immediately. The first step would be to consider each associate for the new senior consultant position.