ResourcesRead/review the following resources for this activity:Textbook: Chapter 11 IntroductionInnovation climate: Using the company that you work for currently or a company from the past and a comp

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Richard L. Daft VANDERBILT UNIVERSITY Organization Theory and Design NINTH EDITION Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

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RR Donnelley Willard, OH Organization Theory and Design, Ninth Edition Richard L. Daft With the Assistance of Patricia G. Lane COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.

No part of this work covered by the copy- right hereon may be reproduced or used in any form or by any means—graphic, electronic, or mechanical, including pho- tocopying, recording, taping, Web distri- bution or information storage and re- trieval systems, or in any other manner—without the written permission of the publisher.

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Thomson Learning Academic Resource Center 1-800-423-0563 Thomson Higher Education 5191 Natorp Boulevard Mason, OH 45040 USA Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

About the Author Richard L. Daft, Ph.D., is the Brownlee O. Currey, Jr., Professor of Management in the Owen Graduate School of Management at Vanderbilt University. Professor Daft specializes in the study of organization theory and leadership. Professo\ r Daft is a Fellow of the Academy of Management and has served on the editorial boar\ ds of Academy of Management Journal, Administrative Science Quarterly,andJournal of Management Education. He was the Associate Editor-in-Chief of Organization Science and served for three years as associate editor of Administrative Science Quarterly .

Professor Daft has authored or co-authored 12 books, including Management (Thomson Learning/South-Western, 2005), The Leadership Experience(Thomson Learning/South-Western, 2005), and What to Study: Generating and Developing Research Questions (Sage, 1982). He recently published Fusion Leadership: Un- locking the Subtle Forces That Change People and Organizations (Berrett-Koehler, 2000, with Robert Lengel). He has also authored dozens of scholarly art\ icles, papers, and chapters. His work has been published in Administrative Science Quar- terly, Academy of Management Journal, Academy of Management Review, Strategic Management Journal, Journal of Management, Accounting Organizations and \ Society, Management Science, MIS Quarterly, California Management Review, and Organizational Behavior Teaching Review . Professor Daft has been awarded several government research grants to pursue studies of organization design, org\ anizational innovation and change, strategy implementation, and organizational infor\ mation processing. Professor Daft is also an active teacher and consultant. He has taught m\ anage- ment, leadership, organizational change, organizational theory, and organizational behavior. He has been involved in management development and consulting for many companies and government organizations, including the American Bank\ ing Association, Bell Canada, National Transportation Research Board, NL Baroid, Nortel, TVA, Pratt & Whitney, State Farm Insurance, Tenneco, the United States Air Force, the United States Army, J. C. Bradford & Co., Central Parking System, Entergy Sales and Service, Bristol-Myers Squibb, First American National\ Bank, and the Vanderbilt University Medical Center. iii Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

v Preface xv Part 1: Introduction to Organizations 1 1. Organizations and Organization Theory 2 Part 2: Organizational Purpose and Structural Design 53 2. Strategy, Organization Design, and Effectiveness 54 3. Fundamentals of Organization Structure 88 Part 3: Open System Design Elements 135 4. The External Environment 136 5. Interorganizational Relationships 170 6. Designing Organizations for the International Environment 204 Part 4: Internal Design Elements 243 7. Manufacturing and Service Technologies 244 8. Information Technology and Control 286 9. Organization Size, Life Cycle, and Decline 319 Part 5: Managing Dynamic Processes 357 10. Organizational Culture and Ethical Values 358 11. Innovation and Change 398 12. Decision-Making Processes 441 13. Conflict, Power, and Politics 481 Integrative Cases 517 1.0 It Isn’t So Simple: Infrastructure Change at Royce Consulting 518 2.0 Custom Chip, Inc. 522 3.0 W. L. Gore & Associates, Inc. Entering 1998 528 4.0 XEL Communications, Inc. (C): Forming a Strategic Partnership 543 5.0 Empire Plastics 549 6.0 The Audubon Zoo, 1993 552 7.0 Moss Adams, LLP 566 8.1 Littleton Manufacturing (A) 577 8.2 Littleton Manufacturing (B) 589 Glossary 591 Name Index 601 Corporate Name Index 610 Subject Index 614 Brief Contents Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

vii Chapter 1: Organizations and Organization Theory 2 A Look Inside: Xerox Corporation 3 Organization Theory in Action 6 Topics, 6 •Current Challenges, 6 Leading by Design: The Rolling Stones 7 Purpose of This Chapter, 10 What Is an Organization? 10 Definition, 10 •Types of Organizations, 11 •Importance of Organizations, 12 Book Mark 1.0: The Company: A Short History of a Revolutionary Idea 12 Perspectives on Organizations 14 Open Systems, 14 •Organizational Configuration, 16 Dimensions of Organization Design 17 Structural Dimensions, 17 •Contextual Dimensions, 20 In Practice: W. L. Gore & Associates 21 Performance and Effectiveness Outcomes, 22 In Practice: Federal Bureau of Investigation 24 The Evolution of Organization Theory and Design 25 Historical Perspectives, 25 •Contemporary Organization Design, 27 •Efficient Performance versus the Learning Organization, 28 In Practice: Cementos Mexicanos 32 Framework for the Book 33 Levels of Analysis, 33 •Plan of the Book, 34 •Plan of Each Chapter, 36 Summary and Interpretation 36 Chapter 1 Workbook: Measuring Dimensions of Organizations 38 Case for Analysis: Perdue Farms Inc.:

Responding to 21 stCentury Challenges 39 Contents Preface xv Part 1: Introduction to Organizations 1 Part 2: Organizational Purpose and Structural Design 53 Chapter 2: Strategy, Organization Design, and Effectiveness 54 A Look Inside: Starbucks Corporation 55 Purpose of This Chapter, 56 The Role of Strategic Direction in Organization Design 56 Organizational Purpose 58 Mission, 58 •Operative Goals, 59 Leading by Design: Wegmans 61 The Importance of Goals, 62 A Framework for Selecting Strategy and Design 62 Porter’s Competitive Strategies, 63 In Practice: Ryanair 64 Miles and Snow’s Strategy Typology, 65 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

viiiContents viii Part 3: Open System Design Elements 135 Chapter 4: The External Environment 136 A Look Inside: Nokia 137 Purpose of This Chapter, 138 The Environmental Domain 138 Task Environment, 138 •General Environment, 140 •International Context, 141 In Practice: Ogilvy & Mather 142 Environmental Uncertainty 142 Simple–Complex Dimension, 143 • Stable–Unstable Dimension, 144 Book Mark 4.0: Confronting Reality: Doing What Matters to Get Things Right 144 Framework, 145 Adapting to Environmental Uncertainty 147 Positions and Departments, 147 •Buffering and Boundary Spanning, 147 Book Mark 2.0: What Really Works:

The 4 2 Formula for Sustained Business Success 66 How Strategies Affect Organization Design, 67 •Other Factors Affecting Organization Design, 69 Assessing Organizational Effectiveness 70 Contingency Effectiveness Approaches 70 Goal Approach, 71 In Practice: Chevrolet 72 Resource-based Approach, 73 •Internal Process Approach, 74 An Integrated Effectiveness Model 75 In Practice: The Thomson Corporation 78 Summary and Interpretation 79 Chapter 2 Workbook: Identifying Company Goals and Strategies 80 Case for Analysis: The University Art Museum 81 Case for Analysis: Airstar, Inc. 84 Chapter 2 Workshop: Competing Values and Organizational Effectiveness 85 Chapter 3: Fundamentals of Organization Structure 88 A Look Inside: Ford Motor Company 89 Purpose of This Chapter, 90 Organization Structure 90 Information-Processing Perspective on Structure 91 Book Mark 3.0: The Future of Work: How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life 92 Vertical Information Linkages, 93 In Practice: Oracle Corporation 94 Horizontal Information Linkages, 95 Organization Design Alternatives 99 Required Work Activities, 99 •Reporting Relationships, 100 •Departmental Grouping Options, 100 Functional, Divisional, and Geographical Designs 102 Functional Structure, 102 In Practice: Blue Bell Creameries, Inc. 103 Functional Structure with Horizontal Linkages, 104 •Divisional Structure, 104 In Practice:Microsoft 106 Geographical Structure, 107 Matrix Structure 108 Conditions for the Matrix, 109 •Strengths and Weaknesses, 110 In Practice: Englander Steel 111 Horizontal Structure 113 Characteristics, 114 In Practice: GE Salisbury 115 Strengths and Weaknesses, 116 Virtual Network Structure 117 How the Structure Works, 117 In Practice: TiVo Inc. 118 Strengths and Weaknesses, 118 Hybrid Structure 120 Applications of Structural Design 122 Structural Alignment, 122 •Symptoms of Structural Deficiency, 123 Summary and Interpretation 124 Chapter 3 Workbook: You and Organization Structure 126 Case for Analysis: C & C Grocery Stores, Inc. 126 Case for Analysis: Aquarius Advertising Agency 129 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Contentsix In Practice:Genesco 149 Differentiation and Integration, 149 • Organic versus Mechanistic Management Processes, 151 •Planning, Forecasting, and Responsiveness, 152 Leading by Design: Rowe Furniture Company 153 Framework for Organizational Responses to Uncertainty 154 Resource Dependence 154 Controlling Environmental Resources 156 Establishing Interorganizational Linkages, 156 In Practice: Verizon and SBC Communications Inc. 157 Controlling the Environmental Domain, 159 In Practice:Wal-Mart 160 Organization–Environment Integrative Framework, 161 Summary and Interpretation 161 Chapter 4 Workbook: Organizations You Rely On 164 Case for Analysis: The Paradoxical Twins:

Acme and Omega Electronics 165 Chapter 5: Interorganizational Relationships 170 A Look Inside: International Truck and Engine Corporation 171 Purpose of This Chapter, 172 Organizational Ecosystems 172 Is Competition Dead? 173 In Practice: Amazon.com Inc. 173 The Changing Role of Management, 174 • Interorganizational Framework, 176 Resource Dependence 177 Resource Strategies, 177 •Power Strategies, 178 Collaborative Networks 178 Why Collaboration? 179 •From Adversaries to Partners, 180 Book Mark 5.0: Managing Strategic Relationships:

The Key to Business Success 181 In Practice: Bombardier 182 Population Ecology 183 Organizational Form and Niche, 184 • Process of Ecological Change, 185 Leading by Design: Shazam—It’s Magic! 186 Strategies for Survival, 187 In Practice:Genentech 188 Institutionalism 188 In Practice:Wal-Mart 189 The Institutional View and Organization Design, 190 •Institutional Similarity, 190 Summary and Interpretation 193 Chapter 5 Workbook: Management Fads 195 Case for Analysis: Oxford Plastics Company 195 Case for Analysis: Hugh Russel, Inc. 196 Chapter 5 Workshop: Ugli Orange Case 199 Chapter 6: Designing Organizations for the International Environment 204 A Look Inside:Gruner Jahr 205 Purpose of This Chapter, 206 Entering the Global Arena 206 Motivations for Global Expansion, 206 • Stages of International Development, 209 • Global Expansion through International Strategic Alliances, 210 Designing Structure to Fit Global Strategy 211 Model for Global versus Local Opportunities, 211 •International Division, 214 •Global Product Division Structure, 215 •Global Geographical Division Structure, 215 In Practice: Colgate-Palmolive Company 217 Global Matrix Structure, 218 In Practice:Asea Brown Boveri Ltd. (ABB) 219 Building Global Capabilities 220 The Global Organizational Challenge, 220 In Practice: Sony 223 Global Coordination Mechanisms, 224 Cultural Differences in Coordination and Control 227 National Value Systems, 227 •Three National Approaches to Coordination and Control, 227 Book Mark 6.0: Cross-Cultural Business Behavior:

Marketing, Negotiating and Managing Across Cultures 228 The Transnational Model of Organization 230 Summary and Interpretation 233 Chapter 6 Workbook: Made in the U.S.A.? 235 Case for Analysis: TopDog Software 235 Case for Analysis: Rhodes Industries 236 Chapter 6 Workshop: Comparing Cultures 239 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Part 4: Internal Design Elements 243 xContents Chapter 7: Manufacturing and Service Technologies 244 A Look Inside:American Axle & Manufacturing (AAM) 245 Purpose of This Chapter, 247 Core Organization Manufacturing Technology 248 Manufacturing Firms, 248 •Strategy, Technology, and Performance, 250 In Practice: Printronix 251 Book Mark 7.0: Inviting Disaster:

Lessons from the Edge of Technology 252 Contemporary Applications 253 Flexible Manufacturing Systems, 253 •Lean Manufacturing, 254 In Practice: Autoliv 255 Leading by Design: Dell Computer 256 Performance and Structural Implications, 257 Core Organization Service Technology 259 Service Firms, 259 •Designing the Service Organization, 262 In Practice: Pret A Manger 263 Non-Core Departmental Technology 264 Variety, 264 •Analyzability, 264 • Framework, 264 Department Design 266 In Practice: Parkland Memorial Hospital 268 Workflow Interdependence among Departments 269 Types, 269 •Structural Priority, 271 • Structural Implications, 272 In Practice: Athletic Teams 273 Impact of Technology on Job Design 274 Job Design, 274 •Sociotechnical Systems, 275 Summary and Interpretation 276 Chapter 7 Workbook: Bistro Technology 278 Case for Analysis: Acetate Department 280 Chapter 8: Information Technology and Control 286 A Look Inside:The Progressive Group of Insurance Companies 287 Purpose of This Chapter, 289 Information Technology Evolution 289 In Practice: Anheuser-Busch 290 Information for Decision Making and Control 291 Organizational Decision-Making Systems, 291 •Feedback Control Model, 293 • Management Control Systems, 293 In Practice: eBay 295 The Balanced Scorecard, 296 Adding Strategic Value: Strengthening Internal Coordination 298 Intranets, 298 •Enterprise Resource Planning, 299 •Knowledge Management, 300 Book Mark 8.0: The Myth of the Paperless Office 302 In Practice: Montgomery-Watson Harza 303 Adding Strategic Value: Strengthening External Relationships 304 Leading by Design: Corrugated Supplies 304 The Integrated Enterprise, 305 •Customer Relationship Management, 307 • E-Business Organization Design, 307 In Practice: Tesco.com 308 IT Impact on Organization Design 309 Summary and Interpretation 311 Chapter 8 Workbook: Are You Fast Enough to Succeed in Internet Time? 313 Case for Analysis: Century Medical 315 Case for Analysis: Product X 316 Chapter 9: Organization Size, Life Cycle, and Decline 319 A Look Inside: Interpol 320 Purpose of This Chapter, 321 Organization Size: Is Bigger Better? 321 Pressures for Growth, 321 •Dilemmas of Large Size, 322 Book Mark 9.0: Execution: The Discipline of Getting Things Done 325 Organizational Life Cycle 326 Stages of Life Cycle Development, 326 In Practice: Nike 329 Organizational Characteristics during the Life Cycle, 330 Organizational Bureaucracy and Control 331 What Is Bureaucracy? 332 In Practice: United Parcel Service 333 Size and Structural Control, 334 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Contentsxi Bureaucracy in a Changing World 335 Organizing Temporary Systems for Flexibility and Innovation, 336 •Other Approaches to Reducing Bureaucracy, 337 Leading by Design: The Salvation Army 338 Organizational Control Strategies 339 Bureaucratic Control, 339 •Market Control, 340 In Practice: Imperial Oil Limited 341 Clan Control, 341 In Practice:Southwest Airlines 342 Organizational Decline and Downsizing 343 Definition and Causes, 343 •A Model of Decline Stages, 344 In Practice: Brobeck, Phleger & Harrison LLP 346 Downsizing Implementation, 346 In Practice:Charles Schwab & Company 348 Summary and Interpretation 348 Chapter 9 Workbook: Control Mechanisms 350 Case for Analysis: Sunflower Incorporated 351 Chapter 9 Workshop: Windsock, Inc. 352 Part 5: Managing Dynamic Processes 357 Chapter 10: Organizational Culture and Ethical Values 358 A Look Inside:Boots Company PLC 359 Purpose of This Chapter, 360 Organizational Culture 361 What Is Culture? 361 •Emergence and Purpose of Culture, 361 •Interpreting Culture, 363 Book Mark 10.0: Good to Great: Why Some Companies Make the Leap . . . And Others Don’t 364 Organization Design and Culture 367 The Adaptability Culture, 368 •The Mission Culture, 368 In Practice: J.C. Penney 369 The Clan Culture, 369 •The Bureaucratic Culture, 369 •Culture Strength and Organizational Subcultures, 370 In Practice: Pitney Bowes Credit Corporation 371 Organizational Culture, Learning, and Performance 371 Leading by Design: JetBlue Airways 372 Ethical Values and Social Responsibility 374 Sources of Individual Ethical Principles, 374 •Managerial Ethics and Social Responsibility, 375 •Does It Pay to Be Good? 377 Sources of Ethical Values in Organizations 378 Personal Ethics, 378 •Organizational Culture, 379 •Organizational Systems, 379 •External Stakeholders, 380 How Leaders Shape Culture and Ethics 381 Values-based Leadership, 381 In Practice: Kingston Technology Co. 382 Formal Structure and Systems, 382 In Practice:General Electric 385 Corporate Culture and Ethics in a Global Environment 386 Summary and Interpretation 387 Chapter 10 Workbook: Shop ‘til You Drop:

Corporate Culture in the Retail World 389 Case for Analysis: Implementing Change at National Industrial Products 390 Case for Analysis: Does This Milkshake Taste Funny? 392 Chapter 10 Workshop: The Power of Ethics 394 Chapter 11: Innovation and Change 398 A Look Inside:Toyota Motor Corporation 399 Purpose of This Chapter, 400 Innovate or Perish: The Strategic Role of Change 400 Incremental versus Radical Change, 400 • Strategic Types of Change, 402 Leading by Design: Google 403 Elements for Successful Change 405 Technology Change 407 The Ambidextrous Approach, 407 • Techniques for Encouraging Technology Change, 408 In Practice: W. L. Gore 411 New Products and Services 412 New Product Success Rate, 412 •Reasons for New Product Success, 412 • Horizontal Coordination Model, 413 In Practice: Procter & Gamble 415 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

xiiContents Achieving Competitive Advantage: The Need for Speed, 416 Strategy and Structure Change 417 The Dual-Core Approach, 417 • Organization Design for Implementing Administrative Change, 418 In Practice: Tyco International 419 Culture Change 420 Forces for Culture Change, 420 In Practice: X-Rite Inc. 421 Organization Development Culture Change Interventions, 422 Strategies for Implementing Change 424 Book Mark 11.0: The Change Monster:

The Human Forces That Fuel or Foil Corporate Transformation and Change 424 Leadership for Change, 425 •Barriers to Change, 426 •Techniques for Implementation, 426 Summary and Interpretation 429 Chapter 11 Workbook: Innovation Climate 430 Case for Analysis: Shoe Corporation of Illinois 432 Case for Analysis: Southern Discomfort 436 Chapter 12: Decision-Making Processes 441 A Look Inside:Maytag 442 Purpose of This Chapter, 443 Definitions 443 Individual Decision Making 445 Rational Approach, 445 In Practice: Alberta Consulting 448 Bounded Rationality Perspective, 448 Leading by Design: Motek 450 Book Mark 12.0: Blink: The Power of Thinking without Thinking 452 In Practice: Paramount Pictures 453 Organizational Decision Making 453 Management Science Approach, 453 In Practice: Continental Airlines 454 Carnegie Model, 456 In Practice:Encyclopaedia Britannica 457 Incremental Decision Process Model, 458 In Practice:Gillette Company 461 The Learning Organization 462 Combining the Incremental Process and Carnegie Models, 462 •Garbage Can Model, 463 In Practice: I♥ Huckabees 466 Contingency Decision-Making Framework 467 Problem Consensus, 467 •Technical Knowledge about Solutions, 468 • Contingency Framework, 468 Special Decision Circumstances 471 High-Velocity Environments, 471 • Decision Mistakes and Learning, 472 • Escalating Commitment, 473 Summary and Interpretation 473 Chapter 12 Workbook: Decision Styles 475 Case for Analysis: Cracking the Whip 476 Case for Analysis: The Dilemma of Aliesha State College: Competence versus Need 477 Chapter 13: Conflict, Power, and Politics 481 A Look Inside: Morgan Stanley 482 Purpose of This Chapter, 483 Intergroup Conflict in Organizations 483 Sources of Conflict, 484 Leading by Design: Advanced Cardiovascular Systems 486 Rational versus Political Model, 487 Power and Organizations 488 Individual versus Organizational Power, 489 •Power versus Authority, 489 • Vertical Sources of Power, 490 •Horizontal Sources of Power, 494 In Practice: University of Illinois 496 In Practice: HCA and Aetna Inc. 498 Political Processes in Organizations 498 Definition, 499 •When Is Political Activity Used? 500 Using Power, Politics, and Collaboration 500 Tactics for Increasing Power, 501 •Political Tactics for Using Power, 502 Book Mark 13.0: Influence: Science and Practice 504 In Practice: Yahoo! 505 Tactics for Enhancing Collaboration, 505 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

In Practice:Aluminum Company of America/ International Association of Machinists 506 Summary and Interpretation 508 Chapter 13 Workbook: How Do You Handle Conflict? 510 Case for Analysis: The Daily Tribune 511 Case for Analysis: Pierre Dux 512 Integrative Cases 517 1.0 It Isn’t So Simple: Infrastructure Change at Royce Consulting 518 2.0 Custom Chip, Inc. 522 3.0 W. L. Gore & Associates, Inc. Entering 1998 528 4.0 XEL Communications, Inc. (C): Forming a Strategic Partnership 543 5.0 Empire Plastics 549 6.0 The Audubon Zoo, 1993 552 7.0 Moss Adams, LLP 566 8.1 Littleton Manufacturing (A) 577 8.2 Littleton Manufacturing (B) 589 Glossary 591 Name Index 601 Corporate Name Index 610 Subject Index 614 Contents xiii Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

xv Preface My vision for the Ninth Edition of Organization Theory and Designis to integrate contemporary problems about organization design with classic ideas and t\ heories in a way that is interesting and enjoyable for students. Significant change\ s in this edi- tion include updates to every chapter that incorporate the most recent i\ deas, new case examples, new book reviews, new end-of-chapter cases, and new end-o\ f-book integrative cases. The research and theories in the field of organizatio\ n studies are rich and insightful and will help students and managers understand their\ organiza- tional world and solve real-life problems. My mission is to combine the \ concepts and models from organizational theory with changing events in the real w\ orld to provide the most up-to-date view of organization design available. Distinguishing Features of the Ninth Edition Many students in a typical organization theory course do not have extens\ ive work experience, especially at the middle and upper levels, where organizatio\ n theory is most applicable. To engage students in the world of organizations, the Ninth Edi- tion adds and expands significant features: Leading by Design boxes with\ current examples of companies that are successfully using organization design co\ ncepts to compete in today’s complex and uncertain business world, student experiential ac- tivities that engage students in applying chapter concepts, new Book Mar\ ks, new In Practice examples, and new end-of-chapter and integrative cases for stud\ ent analy- sis. The total set of features substantially expands and improves the bo\ ok’s content and accessibility. These multiple pedagogical devices are used to enhance student in- volvement in text materials.

Leading by Design The Leading by Design features describe companies that have undergone a major shift in organization design, strategic direction, val\ ues, or cul- ture as they strive to be more competitive in today’s turbulent global environment.

Many of these companies are applying new design ideas such as network or\ ganiz- ing, e-business, or temporary systems for flexibility and innovation. Th\ e Leading by Design examples illustrate company transformations toward knowledge shar\ ing, empowerment of employees, new structures, new cultures, the breaking dow\ n of barriers between departments and organizations, and the joining together\ of em- ployees in a common mission. Examples of Leading by Design organizations\ include Wegmans Supermarkets, Google, The Salvation Army, JetBlue, Corrugated Supplies, Shazam, the Rolling Stones, and Dell Computer. Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Book Marks Book Marks, a unique feature of this text, are book reviews that re- flect current issues of concern for managers working in real-life organi\ zations. These reviews describe the varied ways companies are dealing with the challeng\ es of to- day’s changing environment. New Book Marks in the Ninth Edition include The Fu- ture of Work: How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life; Execution: The Discipline of Getting Things Done; What Really Works: The 4 2 Formula for Sustained Business Success; Blink: The Power of Thinking without Thinking; The Company: A Short Hist\ ory of a Revolutionary Idea; andConfronting Reality: Doing What Matters to Get Things Right.

New Case Examples This edition contains many new examples to illustrate theo- retical concepts. Many examples are international, and all are based on \ real organ- izations. New chapter opening cases for the Ninth Edition include Gruner\ Jahr, International Truck and Engine Company, Morgan Stanley, Ford Motor Company, Boots Company PLC, Maytag, Toyota, and American Axle & Manufacturing. New In Practice cases used within chapters to illustrate specific concepts i\ nclude TiVo Inc., General Electric, J.C. Penney, Genentech, Ryanair, Charles Schwab and Com- pany, Nike, Verizon Communications, eBay, Tyco International, Sony, and the Fed- eral Bureau of Investigation.

A Look Inside This feature introduces each chapter with a relevant and interesting organizational example. Many examples are international, and all are bas\ ed on real organizations. New cases include Boots Company PLC, International Truck and Engine Company, Gruner Jahr, Morgan Stanley, Toyota, and American Axle & Manufacturing.

In Practice These cases also illustrate theoretical concepts in organizational setti\ ngs.

New In Practice cases used within chapters to illustrate specific concep\ ts include J.C. Penney, Charles Schwab and Company, eBay, the Federal Bureau of Investiga- tion, Ryanair, Chevrolet, Genentech, Tyco International, and Sony.

Manager’s Briefcase Located in the chapter margins, this feature tells students how to use concepts to analyze cases and manage organizations.

Text Exhibits Frequent exhibits are used to help students visualize organizational relationships, and the artwork has been redone to communicate concepts m\ ore clearly.

Summary and Interpretation The summary and interpretation section tells stu- dents how the chapter points are important in the broader context of org\ anizational theory.

Case for Analysis These cases are tailored to chapter concepts and provide a vehi- cle for student analysis and discussion.

Integ rative Ca ses The integrative cases at the end of the text are positioned to encourage student discussion and involvement. These cases include Royce \ Consulting; Custom Chip, Inc.; W. L. Gore & Associates, Inc.; XEL Communications, Inc.; Empire Plastics; The Audubon Zoo; Moss Adams, LLP; and Littleton Manufac\ turing. xvi Preface Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

New Concepts Many concepts have been added or expanded in this edition. New material \ has been added on culture, learning, and performance; virtual network organizatio\ n struc- tures; applying ethics to create socially responsible organizations; out\ sourcing; lean manufacturing; customer relationship management; political tactics for i\ ncreasing and using manager power; applying business intelligence; and the use of \ global co- ordination mechanisms for transferring knowledge and innovation. Many id\ eas are aimed at helping students learn to design organizations for an environme\ nt charac- terized by uncertainty; a renewed emphasis on ethics and social responsi\ bility; and the need for a speedy response to change, crises, or shifting customer e\ xpectations.

In addition, coping with the complexity of today’s global environment is explored thoroughly in Chapter 6. Chapter Organization Each chapter is highly focused and is organized into a logical framework\ . Many or- ganization theory textbooks treat material in sequential fashion, such a\ s “Here’s View A, Here’s View B, Here’s View C,” and so on. Organization Theory and De- sign shows how they apply in organizations. Moreover, each chapter sticks to the essential point. Students are not introduced to extraneous material or c\ onfusing methodological squabbles that occur among organizational researchers. Th\ e body of research in most areas points to a major trend, which is reported her\ e. Several chapters develop a framework that organizes major ideas into an overall \ scheme. This book has been extensively tested on students. Feedback from student\ s and faculty members has been used in the revision. The combination of organi\ zation the- ory concepts, book reviews, examples of leading organizations, case illu\ strations, experiential exercises, and other teaching devices is designed to meet s\ tudent learn- ing needs, and students have responded favorably. Supplements Instructor’s Manual with Test Bank (ISBN: 0-324-40543-X) The Instructor’s Man- ual contains chapter overviews, chapter outlines, lecture enhancements, \ discussion questions, discussion of workbook activities, discussion of chapter case\ s, Internet activities, case notes for integrative cases, and a guide to the videos \ available for use with the text. The Test Bank consists of multiple choice, true/false, and short answer questions.

PowerPoint Lecture Presentation Available on the Instructor’s Resource CD- ROM and the Web site, the PowerPoint Lecture Presentation enables instructors to customize their own multimedia classroom presentations. Prepared in conj\ unction with the text and instructor’s resource guide, the package contains approximately 150 slides. It includes figures and tables from the text, as well as out\ side materials to supplement chapter concepts. Material is organized by chapter and can\ be mod- ified or expanded for individual classroom use. PowerPoints are also eas\ ily printed to create customized transparency masters.

ExamView A computerized version of the Test Bank is available upon request.

ExamView contains all of the questions in the printed test bank. This program\ is easy-to-use test creation software compatible with Microsoft Windows. Instructors can add or edit questions, instructions, and answers and can select ques\ tions (ran- domly or numerically) by previewing them on the screen. Instructors can\ also cre- ate and administer quizzes online, whether over the Internet, a local ar\ ea network (LAN), or a wide area network (WAN).

Instructor’s Resource CD-ROM (ISBN: 0-324-40579-0) Key instructor ancillaries (Instructor’s Manual, Test Bank, ExamView, and PowerPoint slides) are provided on CD-ROM, giving instructors the ultimate tool for customizing lectures\ and presentations.

WebTutor ™Toolbox (0-324-43106-6 on WebCT or 0-324-43109-0 on Black- Board) WebTutor is an interactive, Web-based student supplement on WebCT and/or BlackBoard that harnesses the power of the Internet to deliver innovativ\ e learning aids that actively engage students. The instructor can incorporate WebTutor as an integral part of the course, or the students can use it on their own as a study g\ uide.

Web Site (http://daft.swlearning.com) The Daft Web site is a comprehensive, resource-rich location for both instructors and students to find pertine\ nt informa- tion. The Instructor Resources section contains an Instructor’s Manual download, Test Bank download, PowerPoint download, and case material.

Experiential Exercises in Organization Theory and Design, Second Edition By H. Eugene Baker III and Steven K. Paulson of the University of North Flo\ rida Tailored to the Table of Contents in Daft’s Organization Theory and Design, Ninth Edition, the core purpose of Experiential Exercises in Organization Theory and Design is to provide courses in organizational theory with a set of classroom exercises that will help students better understand and internalize the \ basic princi- ples of the course. The chapters of the book cover the most basic and wi\ dely cov- ered concepts in the field. Each chapter focuses on a central topic, suc\ h as organi- zational power, production technology, or organizational culture, and provides all necessary materials to fully participate in three different exercises. S\ ome exercises are intended to be completed by individuals, others in groups, and still\ others can be used either way. The exercises range from instrumentation-based and assessment questionnaires to actual creative production activities.

Acknowledgments Textbook writing is a team enterprise. The Ninth Edition has integrated i\ deas and hard work from many people to whom I am grateful. Reviewers and focus gr\ oup participants made an especially important contribution. They praised man\ y fea- tures, were critical of things that didn’t work well, and offered valuable suggestions.

David Ackerman University of Alaska, Southeast Michael Bourke Houston Baptist University xviii Preface Suzanne Clinton Cameron University Jo Anne Duffy Sam Houston State University Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Cheryl Duvall Mercer University Patricia Feltes Missouri State University Robert Girling Sonoma State University John A. Gould University of Maryland Ralph Hanke Pennsylvania State University Bruce J. Hanson Pepperdine University Guiseppe Labianca Tulane University Jane Lemaster University of Texas–Pan American Steven Maranville University of Saint Thomas Rick Martinez Baylor University Janet Near Indiana University Julie Newcomer Texas Woman’s University Prefacexix Asbjorn Osland George Fox University Laynie Pizzolatto Nicholls State University Samantha Rice Abilene Christian University Richard Saaverda University of Michigan W. Robert Sampson University of Wisconsin, Eau Claire Amy Sevier University of Southern Mississippi W. Scott Sherman Pepperdine University Thomas Terrell Coppin State College Jack Tucci Southeastern Louisiana University Judith White Santa Clara University Jan Zahrly University of North Dakota Among my professional colleagues, I am grateful to my friends and collea\ gues at Vanderbilt’s Owen School—Bruce Barry, Ray Friedman, Neta Moye, Rich Oliver, David Owens, and Bart Victor—for their intellectual stimulation and feedback. I also owe a special debt to Dean Jim Bradford and Senior Associate Dean J\ oe Black- burn for providing the time and resources for me to stay current on the \ organiza- tion design literature and develop the revisions for the text. I want to extend special thanks for my editorial associate, Pat Lane. Sh\ e skill- fully drafted materials on a variety of topics and special features, fou\ nd resources, and did an outstanding job with the copyedited manuscript and page proof\ s. Pat’s personal enthusiasm and care for the content of this text enabled the Ni\ nth Edition to continue its high level of excellence. The team at South-Western also deserves special mention. Joe Sabatino did a great job of designing the project and offering ideas for improvement. E\ mma Gut- tler was superb as Developmental Editor, keeping the people and project on sched- ule while solving problems creatively and quickly. Cliff Kallemeyn, Production Editor, provided superb project coordination and used his creativity and manag\ e- ment skills to facilitate the book’s on-time completion. Finally, I want to acknowledge the love and contributions of my wife, Dorothy Marcic. Dorothy has been very supportive of my textbook projects and has\ created Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

an environment in which we can grow together. She helped the book take a giant step forward with her creation of the Workbook and Workshop student exercises.

Perhaps best of all, Dorothy lets me practice applying organization desi\ gn ideas as co-producer of her theatrical productions. I also want to acknowledge th\ e love and support of my daughters, Danielle, Amy, Roxanne, Solange, and Elizabeth, who make my life special during our precious time together. xxPreface Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

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Integrative Cases Integrative Case 1.0 It Isn’t So Simple: Infrastructure Change at Royce Consulting Background Infrastructure and Proposed Changes Work Patterns Organizational Culture Current Situation The Feasibility Study The Challenge Integrative Case 2.0 Custom Chip, Inc.

Introduction Company Background The Manufacturing Process Role of the Product Engineer Weekly Meeting Coordination with ApplicationsEngineers Coordination with Manufacturing Later in the Day Integrative Case 3.0 W. L. Gore & Associates, Inc.

Entering 1998 The First Day on the Job Company Background Company Products W. L. Gore & Associates’ Approach to Organization and Structure The Lattice Organization Features of W. L. Gore’s Culture W. L. Gore & Associates’ Sponsor Program Compensation Practices W. L. Gore & Associates’ Guiding Principles and Core Values Research and Development Development of Gore Associates Marketing Approaches and Strategy Adapting to Changing Environmental Forces W. L. Gore & Associates’ Financial Performance Acknowledgments Excerpts from Interviews with Associates Integrative Case 4.0 XEL Communications, Inc. (C):

Forming a Strategic Partnership XEL Communications, Inc.

The XEL Vision Which Path to Choose Staying the Course Going Public Strategic Partnership The Case Against StrategicPartnership Choosing a Partner Going Forward Integrative Case 5.0 Empire Plastics A Project to Remember Conﬂict Ahead Failing . . . Forward Integrative Case 6.0 The Audubon Zoo, 1993 The Decision Purpose of the Zoo New Directions Operations Financial Management The Zoo in the Late 1980s The Future Integrative Case 7.0 Moss Adams, LLP Company Background The Industry and the Market The Wine Industry Niche The Aftermath Integrative Case 8.1 Littleton Manufacturing (A) The Problems The Company The Financial Picture The Quality Improvement System How Different Levels Perceived the Problems Top Management Recommendation Time Integrative Case 8.2 Littleton Manufacturing (B) 517 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

518Integrative Cases The lights of the city glittered outside Ken Vin- cent’s twelfth-ﬂoor ofﬁce. After nine years of late nights and missed holidays, Ken was in the exec- utive suite with the words “Associate Partner” on the door. Things should be easier now, but the proposed changes at Royce Consulting had been more challenging than he had expected. “I don’t understand,” he thought. “At Royce Consulting our clients, our people, and our reputation are what count, so why do I feel so much tension from the managers about the changes that are going to be made in the ofﬁce? We’ve an- alyzed why we have to make the changes. Heck, we even got an outside person to help us. The administrative sup- port staff are pleased. So why aren’t the managers enthusi- astic? We all know what the decision at tomorrow’s meet- ing will be—Go! Then it will all be over. Or will it?” Ken thought as he turned out the lights. Background Royce Consulting is an international consulting ﬁrm whose clients are large corporations, usually with long-term con- tracts. Royce employees spend weeks, months, and even years working under contract at the client’s site. Royce consultants are employed by a wide range of industries, from manufacturing facilities to utilities to service busi- nesses. The ﬁrm has over 160 consulting ofﬁces located in 65 countries. At this location Royce employees included 85 staff members, 22 site managers, 9 partners and associate partners, 6 administrative support staff, 1 human resource professional, and 1 ﬁnancial support person. For the most part, Royce Consulting hired entry-level staff straight out of college and promoted from within.

New hires worked on staff for ﬁve or six years; if they did well, they were promoted to manager. Managers were re- sponsible for maintaining client contracts and assisting partners in creating proposals for future engagements.

Those who were not promoted after six or seven years gen- erally left the company for other jobs. Newly promoted managers were assigned an ofﬁce, a major perquisite of their new status. During the previous year, some new managers had been forced to share an of- ﬁce because of space limitations. To minimize the friction of sharing an ofﬁce, one of the managers was usually as- signed to a long-term project out of town. Thus, practically speaking, each manager had a private ofﬁce.

Infrastructure and Proposed Changes Royce was thinking about instituting a hoteling office system—also referred to as a “nonterritorial” or “free- address” office. A hoteling office system made offices available to managers on a reservation or drop-in basis.

Managers are not assigned a permanent office; instead, whatever materials and equipment the manager needs are moved into the temporary office. These are some of the features and advantages of a hoteling office system:

• No permanent ofﬁce assigned • Ofﬁces are scheduled by reservations • Long-term scheduling of an ofﬁce is feasible • Storage space would be located in a separate ﬁle room • Standard manuals and supplies would be maintained in each ofﬁce • Hoteling coordinator is responsible for maintaining ofﬁces • A change in “possession of space” • Eliminates two or more managers assigned to the same ofﬁce • Allows managers to keep the same ofﬁce if desired • Managers would have to bring in whatever ﬁles they needed for their stay • Information available would be standardized regardless of ofﬁce • Managers do not have to worry about “housekeeping issues” The other innovation under consideration was an up- grade to state-of-the-art electronic ofﬁce technology. All managers would receive a new notebook computer with up- dated communications capability to use Royce’s integrated and proprietary software. Also, as part of the electronic of- ﬁce technology, an electronic ﬁling system was considered.

The electronic ﬁling system meant information regarding proposals, client records, and promotional materials would be electronically available on the Royce Consulting network. The administrative support staff had limited experi- ence with many of the application packages used by the managers. While they used word processing extensively, they had little experience with spreadsheets, communica- tions, or graphics packages. The ﬁrm had a graphics de- partment and the managers did most of their own work, so the administrative staff did not have to work with those application software packages.

This case was prepared by Sally Dresdow of the University of Wisconsin at Green Bay and Joy Benson of the University of Illinois at Springﬁeld an\ d is intended to be used as a basis for class discussion. The views represented here are those of the case authors and do not necessarily reﬂect the views of the Society for Case Research. The authors’ views are based on their own professional judgments. The names of the organization, individuals, and location have been disguised to preserve the organization’s request for anonymity. Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases519 Work Patterns Royce Consulting was located in a large city in the Mid- west. The ofﬁce was located in the downtown area, but it was easy to get to. Managers assigned to in-town projects often stopped by for a few hours at various times of the day. Managers who were not currently assigned to client projects were expected to be in the ofﬁce to assist on cur- rent projects or work with a partner to develop proposals for new business.

In a consulting ﬁrm, managers spend a signiﬁcant por- tion of their time at client sites. As a result, the ofﬁce oc- cupancy rate at Royce Consulting was about 40 to 60 per- cent. This meant that the ﬁrm paid lease costs for ofﬁces that were empty approximately half of the time. With the planned growth over the next ten years, assigning perma- nent ofﬁces to every manager, even in doubled-up arrange- ments, was judged to be economically unnecessary given the amount of time ofﬁces were empty. The proposed changes would require managers and ad- ministrative support staff to adjust their work patterns. Ad- ditionally, if a hoteling ofﬁce system was adopted, managers would need to keep their ﬁles in a centralized ﬁle room.

Organizational Culture Royce Consulting had a strong organizational culture, and management personnel were highly effective at communi- cating it to all employees.

Stability of Culture The culture at Royce Consulting was stable. The leadership of the corporation had a clear picture of who they were and what type of organization they were. Royce Consulting had positioned itself to be a leader in all areas of large business consulting. Royce Consulting’s CEO articulated the ﬁrm’s commitment to being client-centered. Everything that was done at Royce Consulting was because of the client.

Training New hires at Royce Consulting received extensive training in the culture of the organization and the methodology em- ployed in consulting projects. They began with a structured program of classroom instruction and computer-aided courses covering technologies used in the various industries in which the ﬁrm was involved. Royce Consulting recruited top young people who were aggressive and who were will- ing to do whatever was necessary to get the job done and build a common bond. Among new hires, camaraderie was encouraged along with a level of competition. This kind of behavior continued to be cultivated throughout the train- ing and promotion process.

Work Relationships Royce Consulting employees had a remarkably similar out- look on the organization. Accepting the culture and norms of the organization was important for each employee. The norms of Royce Consulting revolved around high perfor- mance expectations and strong job involvement.

By the time people made manager, they were aware of what types of behaviors were acceptable. Managers were formally assigned the role of coach to younger staff people, and they modeled acceptable behav- ior. Behavioral norms included when they came into the ofﬁce, how late they stayed at the ofﬁce, and the type of comments they made about others.

Managers spent time checking on staff people and talking with them about how they were doing. The standard for relationships was that of professionalism. Managers knew they had to do what the partners asked and they were to be available at all times. A norms survey and conversations made it clear that people at Royce Consulting were expected to help each other with on-the-job problems, but personal problems were outside the realm of sanctioned relationships. Personal problems were not to interfere with performance on a job.

To illustrate, vacations were put on hold and other kinds of commitments were set aside if something was needed at Royce Consulting.

Organizational Values Three things were of major importance to the organization:

its clients, its people, and its reputation. There was a strong client-centered philosophy communicated and practiced.

Organization members sought to meet and exceed cus- tomer expectations. Putting clients ﬁrst was stressed. The management of Royce Consulting listened to its clients and made adjustments to satisfy the client. The reputation of Royce Consulting was important to those leading the organization. They protected and en- hanced it by focusing on quality services delivered by qual- ity people. The emphasis on clients, Royce Consulting per- sonnel, and the firm’s reputation was cultivated by developing a highly motivated, cohesive, and committed group of employees.

Management Style and Hierarchical Structure The company organization was characterized by a directive style of management. The partners had the ﬁnal word on all issues of importance. It was common to hear statements like “Managers are expected to solve problems, and do whatever it takes to ﬁnish the job” and “Whatever the partners want, we do.” Partners accepted and asked for managers’ feedback on projects, but in the ﬁnal analysis, the partners made the decisions. Current Situation Royce Consulting had an aggressive ﬁve-year plan that was predicated on a continued increase in business. Increases in the total number of partners, associate partners, managers, and staff were forecast. Additional ofﬁce space would be required to accommodate the growth in staff; this would 1.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

520Integrative Cases increase rental costs at a time when Royce’s ﬁxed and vari- able costs were going up.

The partners, led by managing partner Donald Gray and associate partner Ken Vincent, believed that something had to be done to improve space utilization and the productivity of the managers and administra- tive personnel. The partners approved a feasibil- ity study of the innovations and their impact on the company.The ultimate decision makers were the part- ner group who had the power to approve the con- cepts and commit the required ﬁnancial invest- ment. A planning committee consisted of Ken Vincent; the human resources person; the ﬁnancial ofﬁcer; and an outside consultant, Mary Schrean.

The Feasibility Study Within two working days of the initial meeting, all the partners and managers received a memo announcing the hoteling ofﬁce feasibility study. The memo included a brief description of the concept and stated that it would include an interview with the staff. By this time, partners and man- agers had already heard about the possible changes and knew that Gray was leaning toward hoteling ofﬁces.

Interviews with the Partners All the partners were interviewed. One similarity in the comments was that they thought the move to hoteling of- ﬁces was necessary but they were glad it would not affect them. Three partners expressed concern about managers’ acceptance of the change to a hoteling system. The conclu- sion of each partner was that if Royce Consulting moved to hoteling ofﬁces, with or without electronic ofﬁce tech- nology, the managers would accept the change. The reason given by the partners for such acceptance was that the managers would do what the partners wanted done. The partners all agreed that productivity could be im- proved at all levels of the organization: in their own work as well as among the secretaries and the managers. Partners acknowledged that current levels of information technol- ogy at Royce Consulting would not support the move to hoteling ofﬁces and that advances in electronic ofﬁce tech- nology needed to be considered. Partners viewed all ﬁling issues as secondary to both the ofﬁce layout change and the proposed technology improve- ment. What eventually emerged, however, was that owner- ship and control of ﬁles was a major concern, and most partners and managers did not want anything centralized.

Interviews with the Managers Personal interviews were conducted with all ten managers who were in the ofﬁce. During the interviews, four of the managers asked Schrean whether the change to hoteling of- ﬁces was her idea. The managers passed the question off as a joke; however, they expected a response from her. She stated that she was there as an adviser, that she had not generated the idea, and that she would not make the ﬁnal decision regarding the changes.

The length of time that these managers had been in their current positions ranged from six months to ﬁve years.

None of them expressed positive feelings about the hoteling system, and all of them referred to how hard they had worked to make manager and gain an ofﬁce of their own.

Eight managers spoke of the status that the ofﬁce gave them and the convenience of having a permanent place to keep their information and ﬁles. Two of the managers said they did not care so much about the status but were concerned about the convenience. One manager said he would come in less frequently if he did not have his own ofﬁce. The man- agers believed that a change to hoteling ofﬁces would de- crease their productivity. Two managers stated that they did not care how much money Royce Consulting would save on lease costs; they wanted to keep their ofﬁces. However, for all the negative comments, all the man- agers said that they would go along with whatever the partners decided to do. One manager stated that if Royce Consulting stays busy with client projects, having a perma- nently assigned ofﬁce was not a big issue. During the interviews, every manager was enthusiastic and supportive of new productivity tools, particularly the im- proved electronic ofﬁce technology. They believed that new computers and integrated software and productivity tools would deﬁnitely improve their productivity. Half the man- agers stated that updated technology would make the change to hoteling ofﬁces “a little less terrible,” and they wanted their secretaries to have the same software as they did. The managers’ responses to the ﬁling issue varied. The volume of ﬁles managers had was in direct proportion to their tenure in that position: The longer a person was a manager, the more ﬁles he or she had. In all cases, man- agers took care of their own ﬁles, storing them in their of- ﬁces and in whatever ﬁling drawers were free. As part of the process of speaking with managers, their administrative assistants were asked about the proposed changes. Each of the six thought that the electronic ofﬁce upgrade would beneﬁt the managers, although they were somewhat concerned about what would be expected of them. Regarding the move to hoteling ofﬁces, each said that the managers would hate the change, but that they would agree to it if the partners wanted to move in that direction.

Results of the Survey A survey developed from the interviews was sent to all partners, associate partners, and managers two weeks after the interviews were conducted. The completed survey was returned by 6 of the 9 partners and associate partners and 16 of the 22 managers. This is what the survey showed. Work Patterns. It was “common knowledge” that managers were out of the office a significant portion of their time, but there were no figures to substantiate this belief, so the respondents were asked to provide data on where they spent their time. The survey results indicated 1.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases521 that partners spent 38 percent of their time in the office; 54 percent at client sites; 5 percent at home; and 3 percent in other places, such as airports. Managers reported spending 32 percent of their time in the office, 63 percent at client sites, 4 percent at home, and 1 percent in other places.

For 15 workdays, the planning team also visually checked each of the 15 managers’ ofﬁces four times each day: at 9 a.m., 11 a.m., 2 p.m., and 4 p.m. These times were selected because initial observations indicated that these were the peak occupancy times. An average of six ofﬁces (40 percent of all manager ofﬁces) were empty at any given time; in other words, there was a 60 percent occupancy rate. Alternative Ofﬁce Layouts. One of the alternatives out- lined by the planning committee was a continuation of and expansion of shared ofﬁces. Eleven of the managers re- sponding to the survey preferred shared ofﬁces to hoteling ofﬁces. Occasions when more than one manager was in the shared ofﬁce at the same time were infrequent. Eight man- agers reported 0 to 5 ofﬁce conﬂicts per month; three man- agers reported 6 to 10 ofﬁce conﬂicts per month. The type of problems encountered with shared ofﬁces included not having enough ﬁling space, problems in directing telephone calls, and lack of privacy. Managers agreed that having a permanently assigned ofﬁce was an important perquisite. The survey conﬁrmed the information gathered in the interviews about managers’ attidues: All but two managers preferred shared ofﬁces over hoteling, and managers believed their productivity would be negatively impacted. The challenges facing Royce Consulting if they move to hoteling ofﬁces centered around tradition and managers’ expectations, ﬁle accessibility and organization, security and privacy issues, unpredictable work schedules, and high-trafﬁc periods. Control of Personal Files. Because of the comments made during the face-to-face interviews, survey respon- dents were asked to rank the importance of having per- sonal control of their ﬁles. A 5-point scale was used, with 5 being “strongly agree” and 1 being “strongly disagree.” Here are the responses. Electronic Technology. Royce Consulting had a basic network system in the ofﬁce that could not accommodate the current partners and managers working at a remote site. The administrative support staff had a separate net- work, and the managers and staff could not communicate electronically. Of managers responding to the survey, 95 percent wanted to use the network but only 50 percent could actually do so.

Option Analysis A ﬁnancial analysis showed that there were signiﬁcant cost differences between the options under consideration:

Option 1: Continue private ofﬁces with some ofﬁce sharing • Lease an additional ﬂoor in existing building; annual cost, $360,000 • Build out the additional floor (i.e., construct, furnish, and equip offices and work areas): one-time cost, $600,000 Option 2: Move to hoteling ofﬁces with upgraded ofﬁce technology • Upgrade ofﬁce electronic technology: one-time cost, $190,000 Option 1 was expensive because under the terms of the existing lease, Royce had to commit to an entire floor if it wanted additional space.

Hoteling offices showed an overall financial ad- vantage of $360,000 per year and a one-time savings of $410,000 over shared or individual offices. The Challenge Vincent met with Mary Schrean to discuss the upcoming meeting of partners and managers, where they would pre- sent the results of the study and a proposal for action. In- cluded in the report were proposed layouts for both shared and hoteling ofﬁces. Vincent and Gray were planning to recommend a hoteling ofﬁce system, which would include storage areas, state-of-the-art electronic ofﬁce technology for managers and administrative support staff, and cen- tralized ﬁles. The rationale for their decision emphasized the amount of time that managers were out of the ofﬁce and the high cost of maintaining the status quo and was built around the following points:

1. Royce’s business is different: ofﬁces are empty from 40 to 60 percent of the time.

2. Real estate costs continue to escalate.

3. Projections indicate there will be increased need for of- ﬁces and cost-control strategies as the business develops.

4. Royce Consulting plays a leading role in helping orga- nizations implement innovation.

“It’s still a go,” thought Vincent as he and the others returned from a break. “The cost figures support it and the growth figures support it. It’s simple—or is it? The de- cision is the easy part. What is it about Royce Consulting that will help or hinder its acceptance? In the long run, I hope we strengthen our internal processes and don’t hin- der our effectiveness by going ahead with these simple changes.” 1.0 Respondents Sample Rank Partners 6 4.3 Managers:

522Integrative Cases Introduction It was 7:50 on Monday morning. Frank Questin, product engineering manager at Custom Chip, Inc., was sitting in his ofﬁce making a TO DO list for the day. From 8:00 to 9:30 a.m., he would have his weekly meeting with his staff of engi- neers. After the meeting, Frank thought he would begin developing a proposal for solving what he called “Custom Chip’s manufacturing documentation problem”— inadequate technical information regarding the steps to manufacture many of the company’s products. Before he could ﬁnish his TO DO list, he answered a phone call from Custom Chip’s human resource manager, who asked him about the status of two overdue performance appraisals and reminded him that this day marked Bill Lazarus’s ﬁfth-year anniversary with the company. Following this call, Frank hurried off to the Monday morning meeting with his staff. Frank had been product engineering manager at Cus- tom Chip for fourteen months. This was his ﬁrst manage- ment position, and he sometimes questioned his effective- ness as a manager. Often he could not complete the tasks he set out for himself due to interruptions and problems brought to his attention by others. Even though he had not been told exactly what results he was supposed to accom- plish, he had a nagging feeling that he should have achieved more after these fourteen months. On the other hand, he thought maybe he was functioning pretty well in some of his areas of responsibility given the complexity of the prob- lems his group handled and the unpredictable changes in the semiconductor industry—changes caused not only by rapid advances in technology, but also by increased foreign competition and a recent downturn in demand. Company Background Custom Chip, Inc., was a semiconductor manufacturer specializing in custom chips and components used in radars, satellite transmitters, and other radio frequency de- vices. The company had been founded in 1977 and had grown rapidly with sales exceeding $25 million in 1986.

Most of the company’s 300 employees were located in the main plant in Silicon Valley, but overseas manufacturing facilities in Europe and the Far East were growing in size and importance. These overseas facilities assembled the less complex, higher-volume products. New products and the more complex ones were assembled in the main plant. Ap- proximately one-third of the assembly employees were in overseas facilities. While the specialized products and markets of Custom Chip provided a market niche that had thus far shielded the company from the major downturn in the semiconduc- tor industry, growth had come to a standstill. Because of this, cost reduction had become a high priority. The Manufacturing Process Manufacturers of standard chips have long production runs of a few products. Their cost per unit is low and cost control is a primary determinant of success. In con- trast, manufacturers of custom chips have extensive product lines and produce small production runs of spe- cial applications. Custom Chip, Inc., for example, had manufactured over 2,000 different products in the last five years. In any one quarter the company might sched- ule 300 production runs for different products, as many as one-third of which might be new or modified products that the company had not made before. Because they must be efficient in designing and manufacturing many product lines, all custom chip manufacturers are highly dependent on their engineers. Customers are often first concerned with whether Custom Chip can design and manufacture the needed product at all; second, with whether they can deliver it on time; and only third, with cost. After a product is designed, there are two phases to the manufacturing process. (See Exhibit 1.) The first is wafer fabrication. This is a complex process in which cir- cuits are etched onto the various layers added to a silicon wafer. The number of steps that the wafer goes through plus inherent problems in controlling various chemical processes make it very difficult to meet the exacting spec- ifications required for the final wafer. The wafers, which are typically “just a few” inches in diameter when the fab- rication process is complete, contain hundreds, sometimes thousands, of tiny identical die. Once the wafer has been tested and sliced up to produce these die, each die will be used as a circuit component. If the completed wafer passes the various quality tests, it moves on to the assembly phase. In assembly, the die from the wafers, very small wires, and other compo- nents are attached to a circuit in a series of precise oper- ations. This finished circuit is the final product of Custom Chip, Inc. Each product goes through many independent and del- icate operations, and each step is subject to operator or machine error. Due to the number of steps and tests in- volved, the wafer fabrication takes eight to twelve weeks *Copyright Murray Silverman, San Francisco State University. Reprinted by permission. Integrative Case 2.0 Custom Chip, Inc.* 2.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Pre-production • •Application engineers design and produce prototype Product engineers translate design into manufacturing instructions Production • Wafer fabrication • Assembly Circuits are etched onto layers added to . . .

. . . a silicon wafer.

Wafer is tested and then cut up into “die.” Die, wires, and other components are attached to circuits. 8 – 12 weeks 4 – 6 weeks Integrative Cases 523 and the assembly process takes four to six weeks. Because of the exacting speciﬁcations, products are rejected for the slightest ﬂaw. The likelihood that every product starting the run will make it through all of the processes and still meet speciﬁcations is often quite low. For some products, average yield 1is as low as 40 percent, and actual yields can vary considerably from one run to another. At Custom Chip, the average yield for all products is in the 60 to 70 percent range. Because it takes so long to make a custom chip, it is es- pecially important to have some control of these yields. For example, if a customer orders one thousand units of a product and typical yields for that product average 50 per- cent, Custom Chip will schedule a starting batch of 2,200 units. With this approach, even if the yield falls as low as 45.4 percent (45.4 percent of 2,200 is 1,000) the company can still meet the order. If the actual yield falls below 45.4 percent, the order will not be completed in that run, and a very small, costly run of the item will be needed to com- plete the order. The only way the company can effectively control these yields and stay on schedule is for the engi- neering groups and operations to cooperate and coordinate their efforts efﬁciently. Role of the Product Engineer The product engineer’s job is deﬁned by its relationship to applications engineering and operations. The applications engineers are responsible for designing and developing pro- totypes when incoming orders are for new or modiﬁed products. The product engineer’s role is to translate the ap- plications engineering group’s design into a set of manufac- turing instructions and then to work alongside manufactur- 2.0 EXHIBIT 1Manufacturing Process Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

President VP Operations VP Engineering Sam Porter Applications EngineeringPete Chang Manager Manufacturing Rod Cameron Manager Brian Faber et al. Jerry West et al. Sharon Hart Bill Lazarus Facilities Production Scheduling Product Engineering Frank Questin Manager 524 Integrative Cases ing to make sure that engineering-related problems get solved. The product engineers’ effectiveness is ultimately measured by their ability to control yields on their assigned products. The organization chart in Exhibit 2 shows the en- gineering and operations departments. Exhibit 3 summa- rizes the roles and objectives of manufacturing, applications engineering, and product engineering.

The product engineers estimate that 70 to 80 percent of their time is spent in solving day-to-day manufacturing problems. The product engineers have cubicles in a room directly across the hall from the manufacturing facility. If a manufacturing supervisor has a question regarding how to build a product during a run, that supervisor will call the engineer assigned to that product. If the engineer is avail- able, he or she will go to the manufacturing ﬂoor to help answer the question. If the engineer is not available, the production run may be stopped and the product put aside so that other orders can be manufactured. This results in delays and added costs. One reason that product engineers are consulted is that documentation—the instructions for manufacturing the product—is unclear or incomplete.

The product engineer will also be called if a product is tested and fails to meet specifications. If a product fails to meet test specifications, production stops, and the en- gineer must diagnose the problem and attempt to find a solution. Otherwise, the order for that product may be only partially met. Test failures are a very serious prob- lem, which can result in considerable cost increases and 2.0 EXHIBIT 2Custom Chip, Inc., Partial Organization Chart Department Role Primary Objective Applications Engineering Product Engineering Manufacturing EXHIBIT 3Departmental Roles and Objectives Designs and develops prototypes for new or modiﬁed products Translates designs into manufac- turing instructions and works alongside manufacturing to solve “engineering- related”problems Executes designs Satisfy customer needs through innovative designs Maintain and control yields on assigned products Meet productivity standards and time schedules Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases525 schedule delays for customers. Products do not test prop- erly for many reasons, including operator errors, poor materials, a design that is very difficult to manufacture, a design that provides too little margin for error, or a com- bination of these.

On a typical day, the product engineer may respond to half a dozen questions from the manufacturing ﬂoor, and two to four calls to the testing stations. When interviewed, the engineers expressed a frustration with this situation.

They thought they spent too much time solving short-term problems, and, consequently, they were neglecting other important parts of their jobs. In particular, they felt they had little time in which to:

• Coordinate with applications engineers during the de- sign phase . The product engineers stated that their knowledge of manufacturing could provide valuable in- put to the applications engineer. Together they could im- prove the manufacturability and thus, the yields of the new or modiﬁed product.

• Engage in yield improvement projects . This would in- volve an in-depth study of the existing process for a spe- ciﬁc product in conjunction with an analysis of past product failures.

• Accurately document the manufacturing steps for their assigned products, especially for those that tend to have large or repeat orders. They said that the current state of the documentation is very poor. Operators often have to build products using only a drawing showing the ﬁnal circuit, along with a few notes scribbled in the margins.

While experienced operators and supervisors may be able to work with this information, they often make in- correct guesses and assumptions. Inexperienced opera- tors may not be able to proceed with certain products because of this poor documentation.

Weekly Meeting As manager of the product engineering group, Frank Questin had eight engineers reporting to him, each respon- sible for a different set of Custom Chip products. Accord- ing to Frank:

When I took over as manager, the product engineers were not spending much time together as a group. They were re- quired to handle operations problems on short notice. This made it difﬁcult for the entire group to meet due to con- stant requests for assistance from the manufacturing area. I thought that my engineers could be of more assis- tance and support to each other if they all spent more time together as a group, so one of my ﬁrst actions as a manager was to institute a regularly scheduled weekly meeting. I let the manufacturing people know that my staff would not respond to requests for assistance during the meeting.

The meeting on this particular Monday morning fol- lowed the usual pattern. Frank talked about upcoming company plans, projects, and other news that might be of interest to the group. He then provided data about current yields for each product and commended those engineers who had maintained or improved yields on most of their products. This initial phase of the meeting lasted until about 8:30 a.m. The remainder of the meet- ing was a meandering discussion of a variety of topics. Since there was no agenda, engineers felt comfortable in raising issues of concern to them.

The discussion started with one of the engi- neers describing a technical problem in the as- sembly of one of his products. He was asked a number of questions and given some advice. An- other engineer raised the topic of a need for new testing equipment and described a test unit he had seen at a recent demonstration. He claimed the savings in labor and im- proved yields from this machine would allow it to pay for itself in less than nine months. Frank immediately replied that budget limitations made such a purchase unfeasible, and the discussion moved into another area. They brieﬂy discussed the increasing inaccessibility of the applications engineers and then talked about a few other topics. In general, the engineers valued these meetings. One commented that:

The Monday meetings give me a chance to hear what’s on everyone’s mind and to ﬁnd out about and discuss company- wide news. It’s hard to reach any conclusions because the meeting is a freewheeling discussion. But I really appreciate the friendly atmosphere with my peers. Coordination with Applications Engineers Following the meeting that morning, an event occurred that highlighted the issue of the inaccessibility of the appli- cations engineers. An order of 300 units of custom chip 1210A for a major customer was already overdue. Because the projected yield of this product was 70 percent, they had started with a run of 500 units. A sample tested at one of the early assembly points indicated a major performance problem that could drop the yield to below 50 percent. Bill Lazarus, the product engineer assigned to the 1210A, ex- amined the sample and determined that the problem could be solved by redesigning the wiring. Jerry West, the appli- cations engineer assigned to that product category, was re- sponsible for revising the design. Bill tried to contact Jerry, but he was not immediately available, and didn’t get back to Bill until later in the day. Jerry explained that he was on a tight schedule trying to ﬁnish a design for a customer who was coming into town in two days, and could not get to “Bill’s problem” for a while. Jerry’s attitude that the problem belonged to product engineering was typical of the applications engineers.

From their point of view there were a number of reasons for making the product engineers’ needs for assistance a lower priority. In the first place, applications engineers 2.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

526Integrative Cases were rewarded and acknowledged primarily for satisfying customer needs through designing new and modified products. They got little recognition for solving manufac- turing problems. Second, applications engineering was perceived to be more glamorous than product en- gineering because of opportunities to be credited with innovative and groundbreaking designs. Fi- nally, the size of the applications engineering group had declined over the past year, causing the workload on each engineer to increase con- siderably. Now they had even less time to re- spond to the product engineers’ requests.When Bill Lazarus told Frank about the situa- tion, Frank acted quickly. He wanted this order to be in process again by tomorrow, and he knew manufacturing was also trying to meet this goal. He walked over to see Pete Chang, head of applications engineering (see the organiza- tional chart in Exhibit 2). Meetings like this with Pete to discuss and resolve interdepartmental issues were common. Frank found Pete at a workbench talking with one of his engineers. He asked Pete if he could talk to him in pri- vate, and they walked to Pete’s ofﬁce.

Frank: We’ve got a problem in manufacturing in getting out an order of 1210As. Bill Lazarus is getting lit- tle or no assistance from Jerry West. I’m hoping you can get Jerry to pitch in and help Bill. It should take no more than a few hours of his time.

Pete: I do have Jerry on a short leash trying to keep him focused on getting out a design for Teletronics. We can’t afford to show up empty-handed at our meet- ing with them in two days.

Frank: Well, we are going to end up losing one customer in trying to please another. Can’t we satisfy every- one here?

Pete: Do you have an idea?

Frank: Can’t you give Jerry some additional support on the Teletronics design?

Pete: Let’s get Jerry in here to see what we can do.

Pete brought Jerry back to the ofﬁce, and together they discussed the issues and possible solutions. When Pete made it clear to Jerry that he considered the problem with the 1210As a priority, Jerry offered to work on the 1210A problem with Bill. He said, “This will mean I’ll have to stay a few hours past 5:00 this evening, but I’ll do what’s re- quired to get the job done.” Frank was glad he had developed a collaborative re- lationship with Pete. He had always made it a point to keep Pete informed about activities in the product engi- neering group that might affect the applications engi- neers. In addition, he would often chat with Pete infor- mally over coffee or lunch in the company cafeteria. This relationship with Pete made Frank’s job easier. He wished he had the same rapport with Rod Cameron, the manu- facturing manager. Coordination with Manufacturing The product engineers worked closely on a day-to-day ba- sis with the manufacturing supervisors and workers. The problems between these two groups stemmed from an in- herent conﬂict between their objectives (see Exhibit 3). The objective of the product engineers was to maintain and im- prove yields. They had the authority to stop production of any run that did not test properly. Manufacturing, on the other hand, was trying to meet productivity standards and time schedules. When a product engineer stopped a manu- facturing run, he or she was possibly preventing the manu- facturing group from reaching its objectives. Rod Cameron, the current manufacturing manager, had been promoted from his position as a manufacturing supervisor a year ago. His views on the product engineers:

The product engineers are perfectionists. The minute a test result looks a little suspicious they want to shut down the factory. I’m under a lot of pressure to get products out the door. If they pull a few $50,000 orders off the line when they are within a few days of reaching shipping, I’m liable to miss my numbers by $100,000 that month. Besides that, they are doing a lousy job of document- ing the manufacturing steps. I’ve got a lot of turnover, and my new operators need to be told or shown exactly what to do for each product. The instructions for a lot of our products are a joke.

At ﬁrst, Frank found Rod very difﬁcult to deal with. Rod found fault with the product engineers for many problems and sometimes seemed rude to Frank when they talked. For example, Rod might tell Frank to “make it quick; I haven’t got much time.” Frank tried not to take Rod’s actions per- sonally, and through persistence was able to develop a more amicable relationship with him. According to Frank:

Sometimes, my people will stop work on a product because it doesn’t meet test results at that stage of manufacturing.

If we study the situation, we might be able to maintain yields or even save an entire run by adjusting the manufac- turing procedures. Rod tries to bully me into changing my engineers’ decisions. He yells at me or criticizes the compe- tence of my people, but I don’t allow his temper or ravings to inﬂuence my best judgment in a situation. My strategy in dealing with Rod is to try not to respond defensively to him. Eventually he cools down, and we can have a reason- able discussion of the situation.

Despite this strategy, Frank could not always resolve his problems with Rod. On these occasions, Frank took the issue to his own boss, Sam Porter, the vice president in charge of engineering. However, Frank was not satisﬁed with the support he got from Sam. Frank said:

Sam avoids confrontations with the operations VP. He doesn’t have the inﬂuence or clout with the other VPs or the president to do justice to engineering’s needs in the organization. 2.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases527 Early that afternoon, Frank again found himself trying to resolve a conﬂict between engineering and manufactur- ing. Sharon Hart, one of his most effective product engi- neers, was responsible for a series of products used in radars—the 3805A–3808A series. Today she had stopped a large run of 3806As. The manufacturing supervisor, Brian Faber, went to Rod Cameron to complain about the impact of this stoppage on his group’s productivity. Brian felt that yields were low on that particular product because the production instructions were confusing to his operators, and that even with clearer instructions, his operators would need additional training to build it satisfactorily. He stressed that the product engineer’s responsibility was to adequately document the production instructions and pro- vide training. For these reasons, Brian asserted that prod- uct engineering, and not manufacturing, should be ac- countable for the productivity loss in the case of these 3806As. Rod called Frank to his ofﬁce, where he joined the dis- cussion with Sharon, Brian, and Rod. After listening to the issues, Frank conceded that product engineering had re- sponsibility for documenting and training. He also ex- plained, even though everyone was aware of it, that the product engineering group had been operating with re- duced staff for over a year now, so training and documen- tation were lower priorities. Because of this stafﬁng situa- tion, Frank suggested that manufacturing and product engineering work together and pool their limited resources to solve the documentation and training problem. He was especially interested in using a few of the long-term experi- enced workers to assist in training newer workers. Rod and Brian opposed his suggestion. They did not want to take experienced operators off of the line because it would de- crease productivity. The meeting ended when Brian stormed out, saying that Sharon had better get the 3806As up and running again that morning. Frank was particularly frustrated by this episode with manufacturing. He knew perfectly well that his group had primary responsibility for documenting the manufacturing steps for each product. A year ago he told Sam Porter that the product engineers needed to update and standardize all of the documentation for manufacturing products. At that time, Sam told Frank that he would support his ef- forts to develop the documentation, but would not in- crease his staff. In fact, Sam had withheld authorization to fill a recently vacated product engineering slot. Frank was reluctant to push the staffing issue because of Sam’s adamance about reducing costs. “Perhaps,” Frank thought, “if I develop a proposal clearly showing the ben- efits of a documentation program in manufacturing and detailing the steps and resources required to implement the program, I might be able to convince Sam to provide us with more resources.” But Frank could never find the time to develop that proposal. And so he re- mained frustrated. Later in the Day Frank was reﬂecting on the complexity of his job when Sharon came to the doorway to see if he had a few moments. Before he could say “Come in,” the phone rang. He looked at the clock. It was 4:10 p.m. Pete was on the other end of the line with an idea he wanted to try out on Frank, so Frank said he could call him back shortly. Sharon was upset, and told him that she was thinking of quitting because the job was not satisfying for her.

Sharon said that although she very much enjoyed working on yield improvement projects, she could ﬁnd no time for them. She was tired of the applications engineers acting like “prima donnas,” too busy to help her solve what they seemed to think were mundane day-to-day man- ufacturing problems. She also thought that many of the day-to-day problems she handled wouldn’t exist if there was enough time to document manufacturing procedures to begin with. Frank didn’t want to lose Sharon, so he tried to get into a frame of mind where he could be empathetic to her.

He listened to her and told her that he could understand her frustration in this situation. He told her the situation would change as industry conditions improved. He told her that he was pleased that she felt comfortable in venting her frustrations with him, and he hoped she would stay with Custom Chip. After Sharon left, Frank realized that he had told Pete that he would call back. He glanced at the TO DO list he had never completed, and realized that he hadn’t spent time on his top priority—developing a proposal relating to solving the documentation problem in manufacturing.

Then, he remembered that he had forgotten to acknowl- edge Bill Lazarus’s ﬁfth-year anniversary with the com- pany. He thought to himself that his job felt like a roller coaster ride, and once again he pondered his effectiveness as a manager.

Note 1. Yield refers to the ratio of ﬁnished products that meet speciﬁcations relative to the number that initially en- tered the manufacturing process. 2.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

528Integrative Cases “To make money and have fun.” W. L. Gore The First Day on the Job Bursting with resolve, Jack Dougherty, a newly minted M.B.A. from the College of William and Mary, reported to his ﬁrst day at W. L. Gore & Associates on July 26, 1976. He presented himself to Bill Gore, shook hands ﬁrmly, looked him in the eye, and said he was ready for anything. Jack was not ready, however, for what happened next.

Gore replied, “That’s ﬁne, Jack, ﬁne. Why don’t you look around and ﬁnd something you’d like to do?” Three frustrat- ing weeks later he found that something: trading in his dark blue suit for jeans, he loaded fabric into the mouth of a ma- chine that laminated the company’s patented GORE-TEX® 1 membrane to fabric. By 1982, Jack had become responsible for all advertising and marketing in the fabrics group. This story is part of the folklore of W. L. Gore & Associates. Today the process is more structured. Regardless of the job for which they are hired, new Associates 2take a journey through the business before settling into their own positions.

A new sales Associate in the fabrics division may spend six weeks rotating through different areas before beginning to concentrate on sales and marketing. Among other things the newcomer learns is how GORE-TEX fabric is made, what it can and cannot do, how Gore handles customer complaints, and how it makes its investment decisions. Anita McBride related her early experience at W. L. Gore & Associates this way: “Before I came to Gore, I had worked for a structured organization. I came here, and for the ﬁrst month it was fairly structured because I was going through training and this is what we do and this is how Gore is and all of that. I went to Flagstaff for that training. After a month I came down to Phoenix and my sponsor said, ‘Well, here’s your ofﬁce; it’s a wonderful of- ﬁce,’ and ‘Here’s your desk,’ and walked away. And I thought, ‘Now what do I do?’ You know, I was waiting for a memo or something, or a job description. Finally after an- other month I was so frustrated, I felt, ‘What have I gotten myself into?’ And so I went to my sponsor and I said, ‘What the heck do you want from me? I need something from you.’ And he said, ‘If you don’t know what you’re supposed to do, examine your commitment, and opportunities.’” Company Background W. L. Gore & Associates was formed by the late Wilbert L. Gore and his wife in 1958. The idea for the business sprang from his personal, organizational, and technical experiences at E. I. DuPont de Nemours, and, particu- larly, his discovery of a chemical compound with unique properties. The compound, now widely know as GORE- TEX, has catapulted W. L. Gore & Associates to a high ranking on the Forbes1998 list of the 500 largest private companies in the United States, with estimated revenues of more than $1.1 billion. The company’s avant-garde culture and people management practices resulted in W. L. Gore being ranked as the seventh best company to work for in America by Fortunein a January 1998 article. Wilbert Gore was born in Meridian, Idaho, near Boise in 1912. By age six, according to his own account, he was an avid hiker in the Wasatch Mountain Range in Utah. In those mountains, at a church camp, he met Genevieve, his future wife. In 1935, they got married—in their eyes, a partnership. He would make breakfast and Vieve, as every- one called her, would make lunch. The partnership lasted a lifetime. He received both a bachelor of science in chemical en- gineering in 1933 and a master of science in physical chem- istry in 1935 from the University of Utah. He began his professional career at American Smelting and Reﬁning in 1936. He moved to Remington Arms Company in 1941 and then to E. I. DuPont de Nemours in 1945. He held po- sitions as research supervisor and head of operations re- search. While at DuPont, he worked on a team to develop applications for polytetraﬂuoroethylene, referred to as PTFE in the scientiﬁc community and known as “Teﬂon” by DuPont’s consumers. (Consumers know it under other names from other companies.) On this team Wilbert Gore, called Bill by everyone, felt a sense of excited commitment, personal fulﬁllment, and self-direction. He followed the de- velopment of computers and transistors and felt that PTFE had the ideal insulating characteristics for use with such equipment. He tried many ways to make a PTFE-coated ribbon ca- ble without success. A breakthrough came in his home basement laboratory while he was explaining the problem to his nineteen-year-old son, Bob. The young Gore saw some PTFE sealant tape made by 3M and asked his father, “Why don’t you try this tape?” Bill then explained that everyone knew that you cannot bond PTFE to itself. Bob went on to bed. Bill Gore remained in his basement lab and proceeded to try what everyone knew would not work. At about Integrative Case 3.0 W. L. Gore & Associates, Inc. Entering 1998* *Prepared by Frank Shipper, Department of Management and Marketing, Franklin P. Perdue School of Business, Salisbury State University and Charles C. Manz, Nirenberg Professor of Business Leadership, School of Management, University of Massachusetts. Used with permission. 3.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases529 4 a.m. he woke up his son, waving a small piece of cable around and saying excitedly, “It works, it works.” The fol- lowing night father and son returned to the basement lab to make ribbon cable coated with PTFE. Because the breakthrough idea came from Bob, the patent for the cable was issued in Bob’s name.

For the next four months Bill Gore tried to persuade DuPont to make a new product—PTFE-coated ribbon ca- ble. By this time in his career Bill Gore knew some of the decision makers at DuPont. After talking to a number of them, he came to realize that DuPont wanted to remain a supplier of raw materials and not a fabricator. Bill and his wife, Vieve, began discussing the possibility of starting their own insulated wire and cable business. On January 1, 1958, their wedding anniversary, they founded W. L. Gore & Associates. The basement of their home served as their ﬁrst facility. After ﬁnishing dinner that night, Vieve turned to her husband of twenty-three years and said, “Well, let’s clear up the dishes, go downstairs, and get to work.” Bill Gore was forty-ﬁve years old with ﬁve children to support when he left DuPont. He put aside a career of sev- enteen years, and a good, secure salary. To ﬁnance the ﬁrst two years of the business, he and Vieve mortgaged their house and took $4,000 from savings. All their friends told them not to do it. The ﬁrst few years were rough. In lieu of salary, some of their employees accepted room and board in the Gore home. At one point eleven Associates were living and work- ing under one roof. One afternoon, while sifting PTFE pow- der, Vieve received a call from the City of Denver’s water department. The caller indicated that he was interested in the ribbon cable, but wanted to ask some technical ques- tions. Bill was out running some errands. The caller asked for the product manager. Vieve explained that he was out at the moment. Next he asked for the sales manager and ﬁ- nally, the president. Vieve explained that they were also out.

The caller became outraged and hollered, “What kind of company is this anyway?” With a little diplomacy the Gores were able eventually to secure an order for $100,000. This order put the company on a proﬁtable footing and it began to take off. W. L. Gore & Associates continued to grow and de- velop new products, primarily derived from PTFE. Its best- known product would become GORE-TEX fabric. In 1986, Bill Gore died while backpacking in the Wind River Mountains of Wyoming. He was then Chairman of the Board. His son, Bob, continued to occupy the position of president. Vieve remained as the only other ofﬁcer, secretary- treasurer.

Company Products In 1998, W. L. Gore & Associates has a fairly extensive line of high-tech products that are used in a variety of applica- tions, including electronic, waterprooﬁng, industrial ﬁltra- tion, industrial seals, and coatings. Electronic & Wire Products Gore electronic products have been found in unconven- tional places where conventional products will not do— in space shuttles, for example, where Gore wire and ca- ble assemblies withstand the heat of ignition and the cold of space. In addition, they have been found in fast computers, transmitting sig- nals at up to 93 percent of the speed of light.

Gore cables have even gone underground, in oil- drilling operations, and underseas, on sub- marines that require superior microwave signal equipment and no-fail cables that can survive high pressure. The Gore electronic products di- vision has a history of anticipating future customer needs with innovative products. Gore electronic products have been well received in industry for their ability to last under adverse conditions. For example, Gore has be- come, according to Sally Gore, leader in Human Re- sources and Communications, “one of the largest manu- facturers of ultrasound cable in the world, the reason being that Gore’s electronic cables’ signal transmission is very, very accurate and it’s very thin and extremely flex- ible and has a very, very long flex life. That makes it ideal for things like ultrasound and many medical electronic applications.” Medical Products The medical division began on the ski slopes of Col- orado. Bill was skiing with a friend, Dr. Ben Eiseman of Denver General Hospital. As Bill Gore told the story:

“We were just to start a run when I absentmindedly pulled a small tubular section of GORE-TEX out of my pocket and looked at it. ‘What is that stuff?’ Ben asked.

So I told him about its properties. ‘Feels great,’ he said.

‘What do you use it for?’ ‘Got no idea,’ I said. ‘Well give it to me,’ he said, ‘and I’ll try it in a vascular graft on a pig.’ Two weeks later, he called me up. Ben was pretty ex- cited. ‘Bill,’ he said, ‘I put it in a pig and it works. What do I do now?’ I told him to get together with Pete Cooper in our Flagstaff plant, and let them figure it out.” Not long after, hundreds of thousands of people throughout the world began walking around with GORE-TEX vas- cular grafts.

GORE-TEX’s expanded PTFE proved to be an ideal replacement for human tissue in many situations. In pa- tients suffering from cardiovascular disease the diseased portion of arteries has been replaced by tubes of ex- panded PTFE—strong, biocompatible structures capable of carrying blood at arterial pressures. Gore has a strong position in this product segment. Other Gore medical products have included patches that can literally mend broken hearts by sealing holes, and sutures that allow for tissue attachment and offer the surgeon silk-like handling coupled with extreme strength. In 1985, W. L. Gore & Associates won Britain’s Prince Philip Award for Poly- 3.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

530Integrative Cases mers in the Service of Mankind. The award recognized es- pecially the lifesaving achievements of the Gore medical products team.

Two recently developed products by this division are a new patch material that is intended to incorpo- rate more tissue into the graft more quickly and the GORE™ RideOn® 3Cable System for bicy- cles. According to Amy LeGere of the medical di- vision, “All the top pro riders in the world are us- ing it. It was introduced just about a year ago and it has become an industry standard.” This prod- uct had a positive cash ﬂow very soon after its in- troduction. Some Associates who were also out- door sports enthusiasts developed the product and realized that Gore could make a great bicycle cable that would have 70 percent less friction and need no lubrication. The Asso- ciates maintain that the proﬁtable development, produc- tion, and marketing of such specialized niche products are possible because of the lack of bureaucracy and associated overhead, Associate commitment, and the use of product champions.

Industrial Products The output of the industrial products division has included sealants, ﬁlter bags, cartridges, clothes, and coatings. In- dustrial ﬁltration products, such as GORE-TEX ﬁlter bags, have reduced air pollution and recovered valuable solids from gases and liquids more completely than alternatives— and they have done so economically. In the future they may make coal-burning plants completely smoke-free, con- tributing to a cleaner environment. The specialized and critical applications of these products, along with Gore’s reputation for quality, have had a strong inﬂuence on in- dustrial purchasers. This division has developed a unique joint sealant—a flexible cord of porous PTFE—that can be applied as a gasket to the most complex shapes, sealing them to pre- vent leakage of corrosive chemicals, even at extreme tem- perature and pressure. Steam valves packed with GORE- TEX have been sold with a lifetime guarantee, provided the valve is used properly. In addition, this division has in- troduced Gore’s first consumer product—GLIDE® 4—a dental floss. “That was a product that people knew about for a while and they went the route of trying to persuade industry leaders to promote the product, but they didn’t really pursue it very well. So out of basically default al- most, Gore decided, Okay, they’re not doing it right. Let’s go in ourselves. We had a champion, John Spencer, who took that and pushed it forward through the dentists’ of- fices and it just skyrocketed. There were many more peo- ple on the team but it was basically getting that one cham- pion who focused on that product and got it out. They told him it ‘couldn’t be done,’ ‘It’s never going to work,’ and I guess that’s all he needed. It was done and it worked,” said Ray Wnenchak of the industrial products division. Amy LeGere added, “The champion worked very closely with the medical people to understand the medical market like claims and labeling so that when the product came out on the market it would be consistent with our medical products. And that’s where, when we cross divi- sions, we know whom to work with and with whom we combine forces so that the end result takes the strengths of all of our different teams.” As of 1998, GLIDE has cap- tured a major portion of the dental floss market and the mint flavor is the largest-selling variety in the U.S. market based on dollar volume.

Fabric Products The Gore fabrics division has supplied laminates to manu- facturers of foul weather gear, ski wear, running suits, footwear, gloves, and hunting and ﬁshing garments. Fire- ﬁghters and U.S. Navy pilots have worn GORE-TEX fab- ric gear, as have some Olympic athletes. The U.S. Army adopted a total garment system built around a GORE-TEX fabric component. Employees in high-tech clean rooms also wear GORE-TEX garments.

GORE-TEX membrane has 9 billion pores randomly dotting each square inch and is feather-light. Each pore is 700 times larger than a water vapor molecule, yet thou- sands of times smaller than a water droplet. Wind and water cannot penetrate the pores, but perspiration can escape. As a result, fabrics bonded with GORE-TEX mem- brane are waterproof, windproof, and breathable. The laminated fabrics bring protection from the elements to a variety of products—from survival gear to high-fashion rainwear. Other manufacturers, including 3M, Burlington Industries, Akzo Nobel Fibers, and DuPont, have brought out products to compete with GORE-TEX fabrics. Earlier, the toughest competition came from firms that violated the patents on GORE-TEX. Gore successfully challenged them in court. In 1993, the basic patent on the process for manufacturing ran out. Nevertheless, as Sally Gore ex- plained, “what happens is you get an initial process patent and then as you begin to create things with this process you get additional patents. For instance we have patents protecting our vascular graft, different patents for protect- ing GORE-TEX patches, and still other patents protecting GORE-TEX industrial sealants and filtration material.

One of our patent attorneys did a talk recently, a year or so ago, when the patent expired and a lot of people were saying, Oh, golly, are we going to be in trouble! We would be in trouble if we didn’t have any patents. Our attorney had this picture with a great big umbrella, sort of a para- chute, with Gore under it. Next he showed us lots of little umbrellas scattered all over the sky. So you protect certain niche markets and niche areas, but indeed competition in- creases as your initial patents expire.” Gore, however, has 3.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases531 continued to have a commanding position in the active- wear market.

To meet a variety of customer needs, Gore introduced a new family of fabrics in the 1990s (Exhibit 1). The in- troduction posed new challenges. According to Bob Win- terling, “we did such a great job with the brand GORE- TEX that we actually have hurt ourselves in many ways. By that I mean it has been very difﬁcult for us to come up with other new brands, because many people didn’t even know Gore. We are the GORE-TEX company. One thing we de- cided to change about Gore four or ﬁve years ago was in- stead of being the GORE-TEX company we wanted to be- come the Gore company and that underneath the Gore company we had an umbrella of products that fall out of being the great Gore company. So it was a shift in how we positioned GORE-TEX. Today GORE-TEX is stronger than ever as it’s turned out, but now we’ve ventured into such things as WindStopper® 5fabric that is very big in the golf market. It could be a sweater or a ﬂeece piece or even a knit shirt with the WindStopper behind it or closer to your skin and what it does is it stops the wind. It’s not wa- terproof; it’s water resistant. What we’ve tried to do is po- sition the Gore name and beneath that all of the great products of the company.” W. L. Gore & Associates’ Approach to Organization and Structure W. L. Gore & Associates has never had titles, hierarchy, or any of the conventional structures associated with en- terprises of its size. The titles of president and secretary- treasurer continue to be used only because they are re- quired by the laws of incorporation. In addition, Gore has never had a corporate-wide mission or code of ethics statement, nor has Gore ever required or prohibited busi- ness units from developing such statements for them- selves. Thus, the Associates of some business units who have felt a need for such statements have developed them on their own. When questioned about this issue, one As- sociate stated, “The company belief is that (1) its four ba- sic operating principles cover ethical practices required of people in business; (2) it will not tol- erate illegal practices.” Gore’s management style has been referred to as unmanagement. The organization has been guided by Bill’s experi- ences on teams at DuPont and has evolved as needed.

For example, in 1965 W. L. Gore & Associ- ates was a thriving company with a facility on Pa- per Mill Road in Newark, Delaware. One Monday morn- ing in the summer, Bill Gore was taking his usual walk through the plant. All of a sudden he realized that he did not know everyone in the plant. The team had become too big. As a result, he established the practice of limiting plant size to approximately two hundred Associates. Thus was born the expansion policy of “Get big by staying small.” The purpose of maintaining small plants was to accentuate a close-knit atmosphere and encourage communication among Associates in a facility. At the beginning of 1998, W. L. Gore & Associates consisted of over forty-ﬁve plants worldwide with approx- imately seven thousand Associates. In some cases, the plants are grouped together on the same site (as in Flagstaff, Arizona, with ten plants). Overseas, Gore’s man- ufacturing facilities are located in Scotland, Germany, and China, and the company has two joint ventures in Japan (Exhibit 2). In addition, it has sales facilities located in ﬁf- teen other countries. Gore manufactures electronic, med- ical, industrial, and fabric products. In addition, it has nu- merous sales ofﬁces worldwide, including ofﬁces in Eastern Europe and Russia. 3.0 Brand Name Activity/Conditions Breathability Water Protection Wind Protection GORE-TEX® Immersion™ technology Ocean technology WindStopper® Gore Dryloft™ Activent™ EXHIBIT 1Gore’s Family of Fabrics rain, snow, cold, windy for ﬁshing and paddle sports for offshore and coastal sailing cool/cold, windy cold, windy, light precipitation cool/cold, windy, light precipitation very breathable very breathable very breathable very breathable extremely breathable extremely breathable waterproof waterproof waterproof no water resistance water-resistant water-resistantwindproof windproof windproof windproof windproof windproof Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

532Integrative Cases The Lattice Organization W. L. Gore & Associates has been described not only as unmanaged, but also as unstructured. Bill Gore referred to the structure as a lattice organization (Exhibit 3). The char- acteristics of this structure are:

1. Direct lines of communication—person to person—no intermediary 2. No ﬁxed or assigned authority 3. Sponsors, not bosses 4. Natural leadership deﬁned by followership 5. Objectives set by those who must “make them happen” 6. Tasks and functions organized through commitments The structure within the lattice is complex and evolves from interpersonal interactions, self commitment to group- known responsibilities, natural leadership, and group- imposed discipline. Bill Gore once explained the structure this way: “Every successful organization has an under- ground lattice. It’s where the news spreads like lightning, where people can go around the organization to get things done.” An analogy might be drawn to a structure of con- stant cross-area teams—the equivalent of quality circles go- ing on all the time. When a puzzled interviewer told Bill that he was having trouble understanding how planning and accountability worked, Bill replied with a grin: “So am I. You ask me how it works? Every which way.” The lattice structure has not been without its critics. As Bill Gore stated, “I’m told from time to time that a lattice organization can’t meet a crisis well because it takes too long to reach a consensus when there are no bosses. But this isn’t true. Actually, a lattice by its very nature works particularly well in a crisis. A lot of useless effort is avoided because there is no rigid management hierarchy to conquer before you can attack a problem.” The lattice has been put to the test on a number of oc- casions. For example, in 1975, Dr. Charles Campbell of the University of Pittsburgh reported that a GORE-TEX arter- ial graft had developed an aneurysm. If the bubble-like protrusion continued to expand, it would explode. Obviously, this life-threatening situation had to be re- solved quickly and permanently. Within only a few days of Dr. Campbell’s ﬁrst report, he ﬂew to Newark to present his ﬁndings to Bill and Bob Gore and a few other Associ- ates. The meeting lasted two hours. Dan Hubis, a former policeman who had joined Gore to develop new produc- tion methods, had an idea before the meeting was over. He returned to his work area to try some different production techniques. After only three hours and twelve tries, he had developed a permanent solution. In other words, in three hours a potentially damaging problem to both patients and the company was resolved. Furthermore, Hubis’s re- designed graft went on to win widespread acceptance in the medical community. Eric Reynolds, founder of Marmot Mountain Works Ltd. of Grand Junction, Colorado, and a major Gore cus- tomer, raised another issue: “I think the lattice has its prob- 3.0 EXHIBIT 2International Locations of W. L. Gore & Associates Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases533 lems with the day-to-day nitty-gritty of getting things done on time and out the door. I don’t think Bill realizes how the lattice system affects customers. I mean, after you’ve estab- lished a relationship with someone about product quality, you can call up one day and suddenly ﬁnd that someone new to you is handling your problem. It’s frustrating to ﬁnd a lack of continuity.” He went on to say: “But I have to admit that I’ve personally seen at Gore remarkable ex- amples of people coming out of nowhere and excelling.” When Bill Gore was asked if the lattice structure could be used by other companies, he answered: “No. For exam- ple, established companies would ﬁnd it very difﬁcult to use the lattice. Too many hierarchies would be destroyed.

When you remove titles and positions and allow people to follow who they want, it may very well be someone other than the person who has been in charge. The lattice works for us, but it’s always evolving. You have to expect prob- lems.” He maintained that the lattice system worked best when it was put in place in start-up companies by dynamic entrepreneurs. Not all Gore Associates function well in this unstruc- tured work environment, especially initially. For those ac- customed to a more structured work environment, there can be adjustment problems. As Bill Gore said: “All our lives most of us have been told what to do, and some peo- ple don’t know how to respond when asked to do some- thing—and have the very real option of saying no—on their job. It’s the new Associate’s responsibility to ﬁnd out what he or she can do for the good of the operation.” The vast majority of the new Associates, after some initial ﬂoundering, have adapted quickly.

Others, especially those who require more structured working conditions, have found that Gore’s ﬂexible work- place is not for them. According to Bill, for those few, “It’s an unhappy situation, for both the Associate and the spon- sor. If there is no contribution, there is no paycheck.” As Anita McBride, an Associate in Phoenix, noted:

“It’s not for everybody. People ask me do we have turnover, and yes we do have turnover. What you’re seeing looks like utopia, but it also looks extreme. If you ﬁnally ﬁgure the system, it can be real exciting. If you can’t handle it, you gotta go. Probably by your own choice, because you’re go- ing to be so frustrated.” Overall, the Associates appear to have responded positively to the Gore system of unman- agement and unstructure. And the company’s lattice orga- nization has proven itself to be good from a bottom-line perspective. Bill estimated the year before he died that “the proﬁt per Associate is double” that of DuPont. Features of W. L. Gore’s Culture Outsiders have been struck by the degree of informality and humor in the Gore organization. Meetings tend to be only as long as necessary. As Trish Hearn, an Associate in Newark, Delaware, said, “No one feels a need to pontiﬁ- cate.” Words such as “responsibilities” and “commit- ments” are commonly heard, whereas words such as “em- 3.0 EXHIBIT 3The Lattice Structure Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

534Integrative Cases ployees,” “subordinates,” and “managers” are taboo in the Gore culture. This is an organization that has always taken what it does very seriously, without its members tak- ing themselves too seriously.

For a company of its size, Gore has always had a very short organizational pyramid. As of 1995 the pyramid consists of Bob Gore, the late Bill Gore’s son, as president and Vieve, Bill Gore’s widow, as secretary-treasurer. He has been the chief executive officer for more than twenty years. No second-in-command or successor has been designated. All the other members of the Gore organization were, and continue to be, re- ferred to as Associates. Some outsiders have had problems with the idea of no titles. Sarah Clifton, an Associate at the Flagstaff facility, was being pressed by some outsiders as to what her title was. She made one up and had it printed on some business cards: SUPREME COMMANDER (see Exhibit 4). When Bill Gore learned what she did, he loved it and recounted the story to others.

Leaders, Not Managers Within W. L. Gore & Associates, the various people who take lead roles are thought of as being leaders, not man- agers. Bill Gore described in an internal memo the kinds of leadership and the role of leadership as follows:

1. The Associate who is recognized by a team as having a special knowledge, or experience (for example, this could be a chemist, computer expert, machine opera- tor, salesman, engineer, lawyer). This kind of leader gives the team guidance in a special area .

2. The Associate the team looks to for coordination of individual activities in order to achieve the agreed- upon objectives of the team. The role of this leader is to persuade team members to make the commitments necessary for success (commitment seeker). 3. The Associate who proposes necessary objectives and activities and seeks agreement and team consensus on objectives . This leader is perceived by the team members as having a good grasp of how the objectives of the team ﬁt in with the broad objective of the enterprise. This kind of leader is often also the “commitment-seeking” leader.

4. The leader who evaluates relative contribution of team members (in consultation with other sponsors), and re- ports these contribution evaluations to a compensation committee. This leader may also participate in the com- pensation committee on relative contribution and pay and reports changes in compensation to individual Asso- ciates. This leader is then also a compensation sponsor.

5. Product specialists who coordinate the research, man- ufacturing, and marketing of one product type within a business, interacting with team leaders and individ- ual Associates who have commitments regarding the product type. They are respected for their knowledge and dedication to their products.

6. Plant leaders who help coordinate activities of people within a plant.

7. Business leaders who help coordinate activities of peo- ple in a business.

8. Functional leaders who help coordinate activities of people in a “functional” area.

9. Corporate leaders who help coordinate activities of people in different businesses and functions and who try to promote communication and cooperation among all Associates.

10. Entrepreneuring Associates who organize new teams for new businesses, new products, new processes, new devices, new marketing efforts, new or better methods of all kinds. These leaders invite other Associates to “sign up” for their project.

It is clear that leadership is widespread in our lattice organization and that it is continually changing and evolving. The situation that leaders are frequently also sponsors should not imply that these are different ac- tivities and responsibilities. Leaders are not authoritarians, managers of people, or supervisors who tell us what to do or forbid us to do things; nor are they “parents” to whom we transfer our own self-responsibility. However, they do often advise us of the consequences of actions we have done or pro- pose to do. Our actions result in contributions, or lack of contribution, to the success of our enterprise. Our pay depends on the magnitude of our contributions.

This is the basic discipline of our lattice organization.

Egalitarian and Innovative Other aspects of the Gore culture have been aimed at pro- moting an egalitarian atmosphere, such as parking lots with no reserved parking spaces except for customers and 3.0 SARAH CLIFTON W. L. GORE & ASSOCIATES, Inc.

SUPREME COMMANDER 1505 NORTH FOURTH STREETFLAGSTAFF, ARIZONA 86001 PHONE: 602-774-0611TWX 910-972-0969 G ORE EXHIBIT 4The Supreme Commander Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases535 disabled workers or visitors and dining areas—only one in each plant—set up as focal points for Associate interaction.

As Dave McCarter of Phoenix explained: “The design is no accident. The lunchroom in Flagstaff has a ﬁreplace in the middle. We want people to like to be here.” The location of a plant is also no accident. Sites have been selected on the basis of transportation access, a nearby university, beautiful surroundings, and climate appeal. Land cost has never been a primary consideration. McCarter justiﬁed the selection by stating: “Expanding is not costly in the long run. The loss of money is what you make happen by stymieing people into a box.” Bob Gore is a champion of Gore culture. As Sally Gore related, “We have managed surprisingly to maintain our sense of freedom and our entrepreneurial spirit. I think what we’ve found is that we had to develop new ways to communicate with Associates because you can’t communi- cate with six thousand people the way that you can com- municate with ﬁve hundred people. It just can’t be done. So we have developed a newsletter that we didn’t have before.

One of the most important communication mediums that we developed, and this was Bob Gore’s idea, is a digital voice exchange which we call our Gorecom. Basically everyone has a mailbox and a password. Lots of companies have gone to e-mail and we use e-mail, but Bob feels very strongly that we’re very much an oral culture and there’s a big difference between cultures that are predominantly oral and predominantly written. Oral cultures encourage direct communication, which is, of course, something that we en- courage.” In rare cases an Associate “is trying to be unfair,” in Bill’s own words. In one case the problem was chronic ab- senteeism and in another, an individual was caught stealing. “When that happens, all hell breaks loose,” said Bill Gore.

“We can get damned authoritarian when we have to.” Over the years, Gore & Associates has faced a number of unionization drives. The company has neither tried to dissuade Associates from attending an organiza- tional meeting nor retaliated when ﬂyers were passed out. As of 1995, none of the plants had been organized. Bill believed that no need existed for third-party representation under the lattice structure. He asked the question, “Why would Associates join a union when they own the com- pany? It seems rather absurd.” Commitment has long been considered a two- way street. W. L. Gore & Associates has tried to avoid lay- offs. Instead of cutting pay, which in the Gore culture would be disastrous to morale, the company has used a system of temporary transfers within a plant or cluster of plants and voluntary layoffs. Exhibit 7 at the end of this case example contains excerpts of interviews with two Gore Associates that further indicate the nature of the cul- ture and work environment at W. L. Gore & Associates. W. L. Gore & Associates’ Sponsor Program Bill Gore knew that products alone did not a company make. He wanted to avoid smothering the company in thick layers of formal “management.” He felt that hierar- chy stiﬂed individual creativity. As the company grew, he knew that he had to ﬁnd a way to assist new people and to follow their progress. This was particularly important when it came to compensation. W. L. Gore & Associates developed its “sponsor” program to meet these needs. When people apply to Gore, they are initially screened by personnel specialists. As many as ten references might be 3.0 1200 11 0 0 1000 900 800700 600 1989 1990 1991 1992 1993 1994 1995 1996 1997 4000 5000 6000 7000 8000 9000 Years Gore’s Sales in Millions Billions n i .

P .

D .

G Gore (Y1) G.D.P. (Y2) Gore G.D.P. 60 5438.7 660 5743.8 700 5916.7 750 6244.4 804 6553 828 6935.7 958 7265.4 1064 76361160 8079.9 EXHIBIT 5Growth of Gore’s Sales vs. Gross Domestic Product Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

536Integrative Cases contacted on each applicant. Those who meet the basic crite- ria are interviewed by current Associates. The interviews have been described as rigorous by those who have gone through them. Before anyone is hired, an Associate must agree to be his or her sponsor. The sponsor is to take a personal interest in the new Associate’s con- tributions, problems, and goals, acting as both a coach and an advocate. The sponsor tracks the new Associate’s progress, helping and encouraging, dealing with weaknesses, and concentrating on strengths. Sponsoring is not a short-term commit- ment. All Associates have sponsors and many have more than one. When individuals are hired initially, they are likely to have a sponsor in their immediate work area. If they move to another area, they may have a sponsor in that work area. As Associates’ commitments change or grow, they may acquire additional sponsors. Because the hir- ing process looks beyond conventional views of what makes a good Associate, some anomalies have occurred. Bill Gore proudly told the story of “a very young man” of 84 who walked in, applied, and spent ﬁve very good years with the company. The individual had thirty years of experience in the industry before joining Gore. His other Associates had no problems accepting him, but the personnel computer did. It insisted that his age was 48. The individual success stories at Gore have come from diverse backgrounds. An internal memo by Bill Gore described three roles of sponsors:

1. Starting sponsor —a sponsor who helps a new Associ- ate get started on a ﬁrst job, or a present Associate get started on a new job.

2. Advocate sponsor —a sponsor who sees that an Associ- ate’s accomplishments are recognized.

3. Compensation sponsor —a sponsor who sees to it that an Associate is fairly paid for contributions to the suc- cess of the enterprise.

A single person can perform any one or all three kinds of sponsorship. Quite frequently, a sponsoring Associate is a good friend and it is not unknown for two Associates to sponsor each other.

Compensation Practices Compensation at W. L. Gore & Associates has taken three forms: salary, proﬁt sharing, and an Associates’ Stock Ownership Program (ASOP). 6Entry-level salary has been in the middle for comparable jobs. According to Sally Gore: “We do not feel we need to be the highest paid. We never try to steal people away from other companies with salary. We want them to come here because of the oppor- tunities for growth and the unique work environment.” As- sociates’ salaries have been reviewed at least once a year and more commonly twice a year. The reviews are con- ducted by a compensation team at each facility, with spon- sors for the Associates acting as their advocates during the review process. Prior to meeting with the compensation committee, the sponsor checks with customers or Associ- ates familiar with the person’s work to ﬁnd out what con- tribution the Associate has made. The compensation team relies heavily on this input. In addition, the compensation team considers the Associate’s leadership ability and will- ingness to help others develop to their fullest.

Proﬁt sharing follows a formula based on economic value added (EVA). Sally Gore had the following to say about the adoption of a formula: “It’s become more for- malized, and in a way, I think that’s unfortunate because it used to be a complete surprise to receive a proﬁt share. The thinking of the people like Bob Gore and other leaders was that maybe we weren’t using it in the right way and we could encourage people by helping them know more about it and how we made proﬁt-share decisions. The fun of it before was people didn’t know when it was coming and all of a sudden you could do something creative about passing out checks. It was great fun and people would have a won- derful time with it. The disadvantage was that Associates then did not focus much on, ‘What am I doing to create an- other proﬁt share?’ By using EVA as a method of evalua- tion for our proﬁt share, we know at the end of every month how much EVA was created that month. When we’ve created a certain amount of EVA, we then get an- other proﬁt share. So everybody knows and everyone says, ‘We’ll do it in January,’ so it is done. Now Associates feel more part of the happening to make it work. What have you done? Go make some more sales calls, please! There are lots of things we can do to improve our EVA and every- body has a responsibility to do that.” Every month EVA is calculated and every Associate is informed. John Mosko of electronic products commented, “...(EVA) lets us know where we are on the path to getting one (a proﬁt share). It’s very critical—every Associate knows.” Annually, Gore also buys company stock equivalent to a ﬁxed percent of the Associates’ annual incomes, placing it in the ASOP retirement fund. Thus, an Associate can become a stockholder after being at Gore for a year. Gore’s ASOP en- sures Associates participate in the growth of the company by acquiring ownership in it. Bill Gore wanted Associates to feel that they themselves are owners. One Associate stated, “This is much more important than proﬁt sharing.” In fact, some long-term Associates (including a twenty-ﬁve-year veteran machinist) have become millionaires from the ASOP. W. L. Gore & Associates’ Guiding Principles and Core Values In addition to the sponsor program, Bill Gore articulated four guiding principles:

1. Try to be fair.

2. Encourage, help, and allow other Associates to grow in knowledge, skill, and scope of activity and responsibility.

3. Make your own commitments, and keep them.

4. Consult with other Associates before taking actions that may be “below the water line.” 3.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases537 The four principles have been referred to as Fairness, Freedom, Commitment, and Waterline. The waterlineter- minology is drawn from an analogy to ships. If someone pokes a hole in a boat above the water line, the boat will be in relatively little real danger. If someone, however, pokes a hole below the water line, the boat is in immediate danger of sinking. “Water line” issues must be discussed across teams and plants before decisions are made. The operating principles were put to a test in 1978. By this time word about the qualities of GORE-TEX fabric was being spread throughout the recreational and outdoor markets. Production and shipment had begun in volume.

At ﬁrst a few complaints were heard. Next some of the clothing started coming back. Finally, much of the clothing was being returned. The trouble was that the GORE-TEX fabric was leaking. Waterprooﬁng was one of the major properties responsible for GORE-TEX fabric’s success. The company’s reputation and credibility were on the line. Peter W. Gilson, who led Gore’s fabrics division, re- called: “It was an incredible crisis for us at that point. We were really starting to attract attention; we were taking off—and then this.” In the next few months, Gilson and a number of his Associates made a number of those below- the-water-line decisions. First, the researchers determined that oils in human sweat were responsible for clogging the pores in the GORE-TEX fabric and altering the surface tension of the membrane. Thus, water could pass through. They also dis- covered that a good washing could restore the waterproof property. At ﬁrst this solution, known as the “Ivory Snow solution,” was accepted. A single letter from “Butch,” a mountain guide in the Sierras, changed the company’s po- sition. Butch described what happened while he was lead- ing a group: “My parka leaked and my life was in danger.” As Gilson noted, “That scared the hell out of us. Clearly our solution was no solution at all to someone on a moun- taintop.” All the products were recalled. Gilson remem- bered: “We bought back, at our own expense, a fortune in pipeline material—anything that was in the stores, at the manufacturers, or anywhere else in the pipeline.” In the meantime, Bob Gore and other Associates set out to develop a permanent ﬁx. One month later, a second- generation GORE-TEX fabric had been developed. Gilson, furthermore, told dealers that if a customer ever returned a leaky parka, they should replace it and bill the company. The replacement program alone cost Gore roughly $4 million. The popularity of GORE-TEX outerwear took off.

Many manufacturers now make numerous pieces of ap- parel such as parkas, gloves, boots, jogging outﬁts, and wind shirts from GORE-TEX laminate. Sometimes when customers are dissatisﬁed with a garment, they return them directly to Gore. Gore has always stood behind any prod- uct made of GORE-TEX fabric. Analysis of the returned garments found that the problem was often not the GORE- TEX fabric. The manufacturer, “...had created a design ﬂaw so that the water could get in here or get in over the zipper and we found that when there was something nega- tive about it, everyone knew it was GORE-TEX. So we had to make good on products that we were not manufactur- ing. We now license the manufacturers of all our GORE- TEX fabric products. They pay a fee to obtain a license to manufacture GORE-TEX products. In return we oversee the manufacture and we let them manufacture only designs that we are sure are guaranteed to keep you dry, that really will work. Then it works for them and for us—a win- win for them as well as for us,” according to Sally Gore.

To further ensure quality, Gore & Associates has its own test facility including a rain room for garments made from GORE-TEX. Besides a rain/storm test, all gar- ments must pass abrasion and washing machine tests. Only the garments that pass these tests will be licensed to display the GORE-TEX label. Research and Development Like everything else at Gore, research and development has always been unstructured. Even without a formal R&D de- partment, the company has been issued many patents, al- though most inventions have been held as proprietary or trade secrets. For example, few Associates are allowed to see GORE-TEX being made. Any Associate can, however, ask for a piece of raw PTFE (known as a silly worm) with which to experiment. Bill Gore believed that all people had it within themselves to be creative. One of the best examples of Gore inventiveness oc- curred in 1969. At the time, the wire and cable division was facing increased competition. Bill Gore began to look for a way to straighten out the PTFE molecules. As he said, “I ﬁgured out that if we ever unfold those molecules, get them to stretch out straight, we’d have a tremendous new kind of material.” He thought that if PTFE could be stretched, air could be introduced into its molecular struc- ture. The result would be greater volume per pound of raw material with no effect on performance. Thus, fabricating costs would be reduced and proﬁt margins would be in- creased. Going about this search in a scientiﬁc manner, Bob Gore heated rods of PTFE to various temperatures and then slowly stretched them. Regardless of the temperature or how carefully he stretched them, the rods broke. Working alone late one night after countless failures, Bob in frustration stretched one of the rods violently. To his surprise, it did not break. He tried it again and again with the same results. The next morning Bob demonstrated his breakthrough to his father, but not without some drama. As Bill Gore recalled: “Bob wanted to surprise me so he took a rod and stretched it slowly. Naturally, it broke. Then he pretended to get mad. He grabbed another rod and said, ‘Oh, the hell with this,’ and gave it a pull. It didn’t break—he’d done it.” The new arrangement of mol- ecules not only changed the wire and cable division, but led to the development of GORE-TEX fabric. 3.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

538Integrative Cases Bill and Vieve did the initial ﬁeld-testing of GORE- TEX fabric the summer of 1970. Vieve made a hand-sewn tent out of patches of GORE-TEX fabric. They took it on their annual camping trip to the Wind River Mountains in Wyoming. The very ﬁrst night in the wilderness, they encountered a hail storm. The hail tore holes in the top of the tent, and the bottom ﬁlled up like a bathtub from the rain. Undaunted, Bill Gore stated: “At least we knew from all the water that the tent was waterproof. We just needed to make it stronger, so it could withstand hail.” Gore Associates have always been encour- aged to think, experiment, and follow a poten- tially proﬁtable idea to its conclusion. At a plant in Newark, Delaware, Fred L. Eldreth, an Associate with a third-grade education, designed a machine that could wrap thousands of feet of wire a day. The design was completed over a weekend. Many other Associates have contributed their ideas through both product and process break- throughs. Even without an R&D department, innovation and creativity continue at a rapid pace at Gore & Associates.

The year before he died, Bill Gore claimed that “the cre- ativity, the number of patent applications and innovative products is triple” that of DuPont. Development of Gore Associates Ron Hill, an Associate in Newark, noted that Gore “will work with Associates who want to advance themselves.” Associates have been offered many in-house training op- portunities, not only in technical and engineering areas but also in leadership development. In addition, the company has established cooperative education programs with uni- versities and other outside providers, picking up most of the costs for the Gore Associates. The emphasis in Associ- ate development, as in many parts of Gore, has always been that the Associate must take the initiative.

Marketing Approaches and Strategy Gore’s business philosophy incorporates three beliefs and principles: (1) that the company can and should offer the best-valued products in the markets and market segments where it chooses to compete, (2) that buyers in each of its markets should appreciate the caliber and performance of the items it manufactures, and (3) that Gore should be- come a leader with unique expertise in each of the product categories where it competes. To achieve these outcomes, the company’s approach to marketing (it has no formally organized marketing department) is based on the following principles:

1. Marketing a product requires a leader, or product champion . According to Dave McCarter: “You marry your technology with the interests of your champions, since you’ve got to have champions for all these things no matter what. And that’s the key element within our company. Without a product champion you can’t do much anyway, so it is individually driven. If you get people interested in a particular market or a particular product for the marketplace, then there is no stopping them.” Bob Winterling of the Fabrics Division elabo- rated further on the role and importance of the product champion.

The product champion is probably the most important resource we have at Gore for the introduction of new products. You look at that bicycle cable. That could have come out of many different divisions of Gore, but it really happened because one or two individuals said, “Look, this can work. I believe in it; I’m passionate about it; and I want it to happen.” And the same thing with GLIDE ﬂoss. I think John Spencer in this case— although there was a team that supported John, let’s never forget that—John sought the experts out throughout the organization. But without John making it happen on his own, GLIDE ﬂoss would never have come to fruition. He started with a little chain of drug- stores here, Happy Harry’s I think, and we put a few cases in and we just tracked the sales and that’s how it all started. Who would have ever believed that you could take what we would have considered a commod- ity product like that, sell it direct for $3–$5 apiece.

That is so unGorelike it’s incredible. So it comes down to people and it comes down to the product champion to make things happen.

2. A product champion is responsible for marketing the product through commitments with sales representa- tives . Again, according to Dave McCarter: “We have no quota system. Our marketing and our sales people make their own commitments as to what their fore- casts have been. There is no person sitting around telling them that is not high enough, you have to in- crease it by 10 percent, or whatever somebody feels is necessary. You are expected to meet your commit- ment, which is your forecast, but nobody is going to tell you to change it. . . . There is no order of com- mand, no chain involved. These are groups of inde- pendent people who come together to make unified commitments to do something and sometimes when they can’t make those agreements...you may pass up a marketplace...but that’s OK, because there’s much more advantage when the team decides to do something.” 3. Sales Associates are on salary, not commission . They participate in the proﬁt sharing and ASOP plans in which all other Associates participate. As in other areas of Gore, individual success stories have come from di- verse backgrounds. Dave McCarter related another 3.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases539 success of the company relying on a product champion as follows:

I interviewed Sam one day. I didn’t even know why I was interviewing him actually. Sam was retired from AT&T. After twenty-ﬁve years, he took the golden parachute and went down to Sun Lakes to play golf.

He played golf a few months and got tired of that. He was selling life insurance. I sat reading the application; his technical background interested me. . . . He had managed an engineering department with six hundred people. He’d managed manufacturing plants for AT&T and had a great wealth of experience at AT&T. He said, “I’m retired. I like to play golf but I just can’t do it every day, so I want to do something else. Do you have something around here I can do?” I was thinking to myself, “This is one of these guys I would sure like to hire but I don’t know what I would do with him.” The thing that triggered me was the fact that he said he sold insurance and here is a guy with a high degree of technical background selling insurance. He had mar- keting experience, international marketing experience.

So, the bell went off in my head that we were trying to introduce a new product into the marketplace that was a hydrocarbon leak protection cable. You can bury it in the ground and in a matter of seconds it could detect a hydrocarbon-like gasoline. I had a couple of other guys working on the product who hadn’t been very success- ful with marketing it. We were having a hard time ﬁnd- ing a customer. Well, I thought, that kind of product would be like selling insurance. If you think about it, why should you protect your tanks? It’s an insurance policy that things are not leaking into the environment.

That has implications, big-time monetary. So, actually, I said, “Why don’t you come back Monday? I have just the thing for you.” He did. We hired him; he went to work, a very energetic guy. Certainly a champion of the product, he picked right up on it, ran with it single- handed.

Now it’s a growing business. It certainly is a valuable one too for the environment. In the implementation of its marketing strategy, Gore has relied on cooperative and word-of-mouth advertising. Cooperative advertising has been especially used to promote GORE-TEX fabric prod- ucts. These high-dollar, glossy campaigns include full- color ads and dressing the sales force in GORE-TEX gar- ments. A recent slogan used in the ad campaigns has been, “If it doesn’t say GORE-TEX, it’s not.” Some retailers praise the marketing and advertising efforts as the best.

Leigh Gallagher, managing editor of Sporting Goods Busi- ness magazine, describes Gore & Associates’ marketing as “unbeatable.” Gore has stressed cooperative advertising because the Associates believe positive experiences with any one prod- uct will carry over to purchases of other and more GORE- TEX fabric products. Apparently, this strategy has paid off.

When the Grandoe Corporation introduced GORE-TEX gloves, its president, Richard Zuckerwar, noted: “Sports activists have had the beneﬁt of GORE-TEX gloves to protect their hands from the elements....

With this handsome collection of gloves ...you can have warm, dry hands without sacriﬁcing style.” Other clothing manufacturers and distrib- utors who sell GORE-TEX garments include Ap- parel Technologies, Lands’ End, Austin Reed, Hudson Trail Outﬁtters, Timberland, Woolrich, North Face, L.L. Bean, and Michelle Jaffe.

The power of these marketing techniques extends be- yond consumer products. According to Dave McCarter:

“In the technical end of the business, company reputation probably is most important. You have to have a good rep- utation with your company.” He went on to say that with- out a good reputation, a company’s products would not be considered seriously by many industrial customers. In other words, the sale is often made before the representa- tive calls. Using its marketing strategies, Gore has been very successful in securing a market leadership position in a number of areas, ranging from waterproof outdoor cloth- ing to vascular grafts. Its market share of waterproof, breathable fabrics is estimated to be 90 percent. Adapting to Changing Environmental Forces Each of Gore’s divisions has faced from time to time ad- verse environmental forces. For example, the fabric divi- sion was hit hard when the fad for jogging suits collapsed in the mid-1980s. The fabric division took another hit from the recession of 1989. People simply reduced their purchases of high-end athletic apparel. By 1995, the fabric division was the fastest-growing division of Gore again. The electronic division was hit hard when the main- frame computer business declined in the early 1990s. By 1995, that division was seeing a resurgence for its products partially because that division had developed some elec- tronic products for the medical industry. As can be seen, not all the forces have been negative. The aging population of America has increased the need for health care. As a result, Gore has invested in the development of additional medical products and the med- ical division is growing.

W. L. Gore & Associates’ Financial Performance As a closely held private corporation, W. L. Gore has kept its financial information as closely guarded as proprietary information on products and processes. It has been esti- mated that Associates who work at Gore own 90 percent of the stock. According to Shanti Mehta, an Associate, 3.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

540Integrative Cases Gore’s returns on assets and sales have consistently ranked it among the top 10 percent of the Fortune500 compa- nies. According to another source, W. L. Gore & Associ- ates has been doing just fine by any financial measure. For thirty-seven straight years (from 1961 to 1997) the company has enjoyed profitability and posi- tive return on equity. The compounded growth rate for revenues at W. L. Gore & Associates from 1969 to 1989 was more than 18 percent, discounted for inflation. 7In 1969, total sales were about $6 million; by 1989, the figure was $600 million. As should be expected with the in- crease in size, the percentage increase in sales has slowed over the last seven years (Exhibit 6). The company projects sales to reach $1.4 billion in 1998. Gore financed this growth without long-term debt unless it made sense.

For example, “We used to have some industrial revenue bonds where, in essence, to build facilities the government allows banks to lend you money tax-free. Up to a couple of years ago we were borrowing money through industrial revenue bonds. Other than that, we are totally debt-free.

Our money is generated out of the operations of the busi- ness, and frankly we’re looking for new things to invest in.

I know that’s a challenge for all of us today,” said Bob Winterling. Forbesmagazine estimates Gore’s operating profits for 1993, 1994, 1995, 1996, and 1997 to be $120, $140, $192, $213, and $230 million, respectively (see Ex- hibit 6). Bob Gore predicts that the company will reach $2 billion in sales by 2001. Recently, the company purchased Optical Concepts Inc., a laser, semiconductor technology company, of Lom- poc, California. In addition, Gore & Associates is invest- ing in test-marketing a new product, guitar strings, which was developed by its Associates.

When asked about cost control, Sally Gore had the fol- lowing to say:

You have to pay attention to cost or you’re not an effective steward of anyone’s money, your own or anyone else’s. It’s kind of interesting, we started manufacturing medical products in 1974 with the vascular graft and it built from there. The Gore vascular graft is the Cadillac or BMW or the Rolls Royce of the business. There is absolutely no con- test, and our medical products division became very suc- cessful. People thought this was Mecca. Nothing had ever been manufactured that was so wonderful. Our business expanded enormously, rapidly out there (Flagstaff, Ari- zona) and we had a lot of young, young leadership. They spent some time thinking they could do no wrong and that everything they touched was going to turn to gold. They have had some hard knocks along the way and discovered it wasn’t as easy as they initially thought it was.

And that’s probably good learning for everyone somewhere along the way. That’s not how business works. There’s a lot of truth in that old saying that you learn more from your failures than you do your successes. One failure goes a long way toward making you say, Oh, wow! Acknowledgments Many sources were helpful in providing background mate- rial for this case. The most important sources of all were the W. L. Gore Associates, who generously shared their time and viewpoints about the company. They provided 3.0 EXHIBIT 6Operating and Net Proﬁts of W. L. Gore & Associates Data from ForbesMagazine’s Annual Report on the 500 Largest Private Companies in the U.S. Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases541 many resources, including internal documents, and added much to this case through sharing their personal experi- ences as well as ensuring that the case accurately reﬂected the Gore company and culture.

Excerpts from Interviews with Associates The ﬁrst excerpt is from an Associate that was formerly with IBM and has been with Gore for two years:

Q. What is the difference between being with IBM and Gore?

A. I spent twenty-four years working for IBM, and there’s a big difference. I can go ten times faster here at Gore because of the simplicity of the lattice organization. Let me give you an example. If I wanted to purchase chem- icals at IBM (I am an industrial chemist), the ﬁrst thing I would need to do is get accounting approval, then I would need at least two levels of managers’ approval, then a secretary to log in my purchase and the purchase order would go to Purchasing where it would be as- signed a buyer. Some time could be saved if you were willing to “walk” the paperwork through the approval process, but even after computerizing the process, it typically would take one month from the time you ini- tiated the purchase requisition till the time the material actually arrived. Here they have one simple form. Usu- ally, I get the chemicals the next day and a copy of the purchase order will arrive a day or two after that. It happens so fast. I wasn’t used to that.

Q. Do you ﬁnd that a lot more pleasant?

A. Yeah, you’re unshackled here. There’s a lot less bu- reaucracy that allows you to be a lot more productive.

Take Lab Safety, for example. In my lab at IBM, we were cited for not having eyewash taped properly. The ﬁrst time, we were cited for not having a big enough area taped off. So we taped off a bigger area. The next week the same eyewash was cited again, because the area we taped off was three inches too short in one di- rection. We retaped it and the following week, it got cited again for having the wrong color tape. Keep in mind that the violation was viewed as serious as a pail of gasoline next to a lit Bunsen burner. Another time I had the dubious honor of being selected the functional safety representative in charge of getting the function’s labs ready for a Corporate Safety Audit. (The function was a third level in the pyramidal organization—[1] de- partment, [2] project, and [3] function.) At the same time I was working on developing a new surface mount package. As it turned out, I had no time to work on de- velopment, and the function spent a lot of time and money getting ready for the Corporate Auditors who in the end never showed. I’m not belittling the importance of safety, but you really don’t need all that bureaucracy to be safe. The second interview is with an Associate who is a re- cent engineering graduate:

Q. How did you ﬁnd the transition coming here?

A. Although I never would have expected it to be, I found my transition coming to Gore to be rather challenging. What attracted me to the company was the opportunity to “be my own boss” and determine my own commit- ments. I am very goal-oriented, and enjoy tak- ing a project and running with it—all things that you are able to do and encouraged to do within the Gore culture. Thus, I thought, a perfect ﬁt! However, as a new Associate, I really struggled with where to focus my efforts—I was ready to make my own commitments, but to what?! I felt a strong need to be sure that I was working on something that had value, something that truly needed to be done. While I didn’t expect to have the “hottest” project, I did want to make sure that I was helping the company to “make money” in some way. At the time, though, I was working for a plant that was pretty typical of what Gore was like when it was originally founded—after my ﬁrst project (which was designed to be a “quick win”—a project with meaning, but one that had a deﬁnite end point), I was told, “Go ﬁnd something to work on.” While I could have found something, I wanted to ﬁnd something with at least a small degree of priority! Thus, the whole process of ﬁnding a project was very frustrating for me—I didn’t feel that I had the perspective to make such a choice and ended up in many conversations with my sponsor about what would be valuable.... In the end, of course, I did ﬁnd that project—and it did actually turn out to be a good investment for Gore.

The process to get there, though, was deﬁnitely trying for someone as inexperienced as I was—so much ground would have been gained by suggesting a few projects to me and then letting me choose from that smaller pool. What’s really neat about the whole thing, though, is that my experience has truly made a difference. Due in part to my frustrations, my plant now provides college grads with more guidance on their ﬁrst several projects.

(This guidance obviously becomes less and less critical as each Associate grows within Gore.) Associates still are choosing their own commitments, but they’re doing so with additional perspective, and the knowledge that they are making a contribution to Gore—which is an important thing within our culture. As I said, though, it was deﬁnitely rewarding to see that the company was so responsive, and to feel that I had helped to shape someone else’s transition! 3.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

542Integrative Cases Notes 1. GORE-TEX is a registered trademark of W. L. Gore & Associates.

2. In this case the word Associatesis used and capitalized because in W. L. Gore & Associates’ literature the word is always used instead of employeesand is capitalized. In fact, case writers were told that Gore “never had ‘employees’—always ‘Associ- ates.’” 3. GORE RideOn is a registered trademark of W. L. Gore & Associates.

4. Glide is a registered trademark of W. L. Gore & Associates.

5. WindStopper is a registered trademark of W. L. Gore & Associates.

6. Similar legally to an ESOP (Employee Stock Ownership Plan). Again, Gore simply has never allowed the word employee in any of its documentation.

7. In comparison, only 11 of the 200 largest companies in the Fortune 500 had positive ROE each year from 1970 to 1988 and only 2 other companies missed a year. The revenue growth rate for these 13 companies was 5.4 percent, compared with 2.5 percent for the entire For- tune 500.

References Aburdene, Patricia, and John Nasbitt. Re-inventing the Corporation (New York: Warner Books, 1985).

Angrist, S. W. “Classless Capitalists,” Forbes(May 9, 1983), 123–124.

Franlesca, L. “Dry and Cool,” Forbes(August 27, 1984), 126. Hoerr, J. “A Company Where Everybody Is the Boss,” Business Week (April 15, 1985), 98.

Levering, Robert. The 100 Best Companies to Work for in America . See the chapter on W. L. Gore & Associates, Inc. (New York: Signet, 1985).

McKendrick, Joseph. “The Employees as Entrepreneur,” Management World (January 1985), 12–13.

Milne, M. J. “The Gorey Details,” Management Review (March 1985), 16–17.

Posner, B. G. “The First Day on the Job,” Inc. (June 1986), 73–75.

Price, Debbie M. “GORE-TEX style,” Baltimore Sun (April 20, 1997), 1D & 4D.

Price, Kathy. “Firm Thrives Without Boss,” AZ Republic (February 2, 1986).

Rhodes, Lucien. “The Un-manager,” Inc. (August 1982), 34.

Simmons, J. “People Managing Themselves: Un-manage- ment at W. L. Gore Inc.,” The Journal for Quality and Participation (December 1987), 14–19.

“The Future Workplace,” Management Review(July 1986), 22–23.

Trachtenberg, J. A. “Give Them Stormy Weather,” Forbes (March 24, 1986), 172–174.

Ward, Alex. “An All-Weather Idea,” The New York Times Magazine (November 10, 1985), Sec. 6.

Weber, Joseph. “No Bosses. And Even ‘Leaders’ Can’t Give Orders,” BusinessWeek (December 10, 1990), 196–197.

Integrative Cases543 In the fall of 1995, Bill Sanko, president of XEL Communi- cations, Inc., strolled around in the new 115,000-square-foot facility with its spacious conference rooms and computer- based skills training center, into which the company had just moved. Their former facility had been a 53,000-square-foot building that just could not accommodate XEL’s growth.

During the upcoming round of strategic planning sessions, Bill wondered how XEL and its management team would de- cide to grapple with the two-edged sword of rapid growth.

Would it be possible for XEL to maintain its entrepreneurial culture while it experienced rapid growth? Would it ﬁnd the resources necessary to sustain growth without harming its culture? From where?

XEL Communications, Inc.

XEL Communications, Inc. 1—located in the outskirts of Denver, Colorado—designed and manufactured various telecommunications products for a number of compa- nies—primarily large U.S. telephone operating companies.

Originally a division within GTE headed by Bill Sanko, it was in the process of being closed when Bill and a few key managers persuaded GTE to sell the division to them. In July 1984, Sanko and fellow managers signed a letter of in- tent to buy the division from GTE. Two months later, the bill of sale was signed, and XEL Communications, Inc., be- came an independent company. Ironically, GTE remained as one of XEL’s major customer accounts. In terms of overall ﬁnancial performance, XEL was proﬁtable. Its revenues increased from $16.8 million in 1992 to $23.6 million in 1993 and $52.3 million in 1994— over a threefold increase in three years. In 1996, XEL em- ployed approximately 300 people. XEL designed and manufactured more than 300 indi- vidual products that enabled network operators to upgrade existing infrastructures and cost-effectively enhance the speed and functionality of their networks while reducing operating expenses and overhead costs. The ﬁrm’s products provided access to telecommunications services and auto- mated monitoring and maintenance of network perfor- mance, and extended the distance over which network op- erators were able to offer their services. 2For example, XEL produced equipment that “conditioned” existing lines to make them acceptable for business use and sold products that facilitated the transmission of data and information over phone lines. Driving the need for XEL’s products was the keen interest in electronic data transference: “Busi- nesses are more and more dependent on the transfer of in- formation,” Bill Sanko noted. In addition, more businesses, including XEL, were operating by taking and ﬁlling orders through electronic data exchanges. Instead of di- aling in to inside salespeople, businesses often ac- cessed databases directly.

One of XEL’s strengths was its ability to adapt one manufacturer’s equipment to another’s.

XEL provided the bits and pieces of telecommu- nications equipment to the “network,” allowing the smooth integration of disparate transmission pieces.

XEL also sold central ofﬁce transmission equipment and a full range of mechanical housings, specialty devices, power supplies, and shelves. In 1995, XEL began developing a hybrid fiber/cable broadband modem for use by cable television firms seek- ing to provide enhanced data communication services over their network facilities. Cable modems were one of the hottest new products in telecommunications. The de- vices would enable computers to send and receive infor- mation about one hundred times faster than standard modems used with phone lines. Given that 34 million homes had personal computers, cable modems were seen as a surefire way to exploit the personal computer (PC) boom and the continuing convergence of computers and television. Media analysts estimated that cable modem users would rise to 11.8 million by the end of 2005 from a handful in 1996. 3 “Business customers and their changing telecommuni- cations needs drive the demand for XEL’s products. That, in turn, presents a challenge to the company,” said Sanko.

Sanko cited the constant stream of new products developed by XEL—approximately two per month—as the driving force behind the growth. Throughout the industry, product life-cycle times were getting even shorter. Before the breakup of the Bell System in 1984, transmission switches and other telecommunications devices enjoyed a thirty- to forty-year life. In 1995, with technology moving so fast, XEL’s products had about a three-year to ﬁve-year life. XEL sold products to all of the Regional Bell Operat- ing Companies (RBOCs), as well as such companies as GTE and Centel. Railroads, with their own telephone net- works, were also customers. In addition to its domestic Integrative Case 4.0 XEL Communications, Inc. (C): Forming a Strategic Partnership* 4.0 *This case was prepared by Professors Robert P. McGowan and Cynthia V.

Fukami, Daniels College of Business, as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1995 by the authors: © 1997 \ by the Case Center, Daniels College of Business, University of Denver. Published by South-Western College Publishing.

For information regarding this and other CaseNet* cases, please visit CaseNet* on the World Wide Web at http://casenet.thomson.com. Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

544Integrative Cases business, products were sold in Canada, Mexico, and Cen- tral and South America. 4XEL’s ﬁeld salespeople worked with engineers to satisfy client requests for speciﬁc services.

Over a period of time, the salespeople developed a rapport with these engineers, providing XEL with new product leads.With all the consolidations and ventures in telecommunications, those who watched the in- dustry often concluded that the overall market would become more difﬁcult. Sanko believed, however, that “out of change comes opportunity.

The worst-case scenario would be a static situa- tion. Thus, a small company, fast to respond to cus- tomer needs and able to capitalize on small market niches, will be successful. Often, a large company like AT&T will forsake a smaller market and XEL will move in. Also, XEL’s size allows it to design a project in a very short time.” Sanko watched federal legislation keenly. The Telecommunications Act of 1996, which removed numer- ous barriers to competition, had clearly changed the rules of the game. Consequently, said Sanko, “we need to ex- pand our market and be prepared to sell to others as the regulatory environment changes.” The joint venture be- tween Time Warner and US West also signaled that tele- phone and cable companies would be pooling their re- sources to provide a broader array of information services.

As for the future, Sanko saw “a lot of opportunities we can’t even now imagine.” The XEL Vision A feature that set XEL apart from other companies was its strong, healthy corporate culture. Developing a culture of innovation and team decision making was instrumental in providing the results XEL prided itself on. 5An early at- tempt to deﬁne culture in a top-down fashion was less suc- cessful than the management team had hoped, 6so the team had embarked on a second journey to determine what their core values were and what they would like the company to look like in ﬁve years. The team had then gone off-site for several days and ﬁnalized the XEL Vision statement (Ex- hibit 1). By the summer of 1987, the statement had been signed by members of the senior team and been hung up by the bulletin board. Employees were not required to sign the statement, but were free to do so when each was ready. Julie Rich, vice president of human resources, described the management team’s approach to getting the rest of the organization to understand as well as become comfortable with the XEL Vision: “Frequently, organizations tend to take a combination top-down/bottom-up approach in insti- tuting cultural change. That is, the top level will develop a statement about values and overall vision. They will then communicate it down to the bottom level and hope that re- sults will percolate upward through the middle levels. Yet it is often the middle level of management which is most skep- tical, and they will block it or resist change. We decided to take a ‘cascade’ approach in which the process begins at the top and gradually cascades from one level to the next so that the critical players are slowly acclimated to the process.

We also did a number of other things—including sending a copy of the vision statement to the homes of the employees and dedicating a section of the company newspaper to com- municate what key sections of the vision mean from the viewpoint of managers and employees.” The vision statement became a living symbol of the XEL culture and the degree to which XEL embraced and empowered its employees. When teams or managers made decisions, they routinely brought out the XEL Vision doc- ument so workers might consult various parts of the state- ment to help guide and direct decisions. According to Julie, the statement was used to help evaluate new products, em- phasize quality (a speciﬁc XEL strategic objective was to be the top quality vendor for each product), support teams, and drive the performance-appraisal process. The XEL Vision was successfully implemented as a key ﬁrst step; but it was far from being a static document. Key XEL managers continually revisited the statement to ensure that it became a reﬂection of where they wanted to go, not where they had been. Julie believed this regular appraisal was a large factor in the success of the vision. “Our values are the key,” Julie explained. “They are strong, they are truly core values, and they are deeply held.” Along with the buy- in process, the workers also saw that the managers experi- mented with the statement, which reﬂected the strong entre- preneurial nature of XEL’s founders—a common bond that they all shared. They were not afraid of risk, or of failure, and this spirit was reinforced in all employees through the vision itself, as well as through the yearly process of revisit- ing the statement. Once a year, Bill Sanko sat with all em- ployees and directly challenged (and listened to direct chal- lenges to) the XEL Vision. From 1987 to 1995, only two relatively minor additions had altered the original statement. Which Path to Choose When the 1995 annual strategic planning process got un- der way, XEL was in good shape on any one of a number of indicators. Proﬁts were growing, new products were be- ing developed, the culture and vision of the company were strong, employee morale was high, and the self-directed work teams were achieving exceptional quality. 7Rapid growth, however, was also presenting a challenge. Would it be possible for XEL to maintain its entrepreneurial culture in the face of rapid growth? Could they sustain their growth without harming their culture? Would they ﬁnd the resources necessary to sustain the growth? From where? As the strategic planning retreat progressed, three op- tions seemed apparent to the team. First, they could stay the course and remain privately held. Second, they could initiate a public offering of stock. Third, they could seek a strategic partnership. Which would be the right choice for XEL? 4.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases545 Staying the Course The most obvious option was to do nothing. Bill Sanko in- dicated that the management team did not favor staying the course and remaining privately held. “We had a venture capitalist involved who, after being with us for ten years, wanted out. In addition, the founders—ourselves—also wanted out from a ﬁnancial standpoint. You also have to understand that one of the original founders, Don Don- nelly, had passed away; and his estate was looking to make his investment more liquid. So, there were a lot of things that converged at the same time.” Once they determined they would not remain privately held, Bill mentioned that the decision boiled down to two main avenues: XEL would do an initial public offering and go public, or it would ﬁnd a strategic partner. “To guide us in this process, we decided to retain the services of an out- side party; we talked to about a dozen investment houses. In October 1994, we decided to hire Alex Brown, a long time investment house out of Baltimore. What we liked about this ﬁrm was that they had experience with doing both options—going public or ﬁnding a partner.” Going Public One avenue open to XEL was initiating a public offering of stock. Alex Brown advised them of the pluses and minuses of this option. Sanko reviewed their recommendations:

The plus side for XEL doing an initial public offering was that technology was really hot about this time [October 1994]. In addition, we felt that XEL would be valued pretty highly in the market. The downside of going public was that XEL was really not a big ﬁrm, and institutional investors usually like doing offerings of ﬁrms that generate revenues of over $100 million. Another downside was that 4.0 XEL will become the leader in our selected telecommunications markets through inno- vation in products and services. Every XEL product and service will be r\ ated Number One by our customers.

XEL will set the standards by which our competitors are judged. We will be the best, most innovative, responsive designer, manufacturer and provider of quality products and services as seen by customers, employees, competitors, and suppliers.* We will insist upon the highest quality from everyone in every task.

We will be an organization where each of us is a self-manager who will:

• initiate action, commit to, and act responsibly in achieving objectives • be responsible for XEL’s performance • be responsible for the quality of individual and team output • invite team members to contribute based on experience, knowledge and abi\ lity We will:

• be ethical and honest in all relationships • build an environment where creativity and risk taking is promoted • provide challenging and satisfying work • ensure a climate of dignity and respect for all • rely on interdepartmental teamwork, communications and cooperative probl\ em solv- ing to attain common goals** • offer opportunities for professional and personal growth • recognize and reward individual contribution and achievement • provide tools and services to enhance productivity • maintain a safe and healthy work environment XEL will be proﬁtable and will grow in order to provide both a return to our investors and rewards to our team members.

XEL will be an exciting and enjoyable place to work while we achieve suc\ cess.

EXHIBIT 1The XEL Vision *Responsiveness to customers’ new product needs as well as responding to customers’ emergency delivery requirements have been identiﬁed as key strategic strengths. Therefore, the vision statement has been updated to recognize this important element.

**The importance of cooperation and communication was emphasized with th\ is update of the Vision Statement. Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

546Integrative Cases you had to deal with analysts, and their projections be- come your plan, which really turned me off. Also, share- holders want a steady and predictable rate of return. Tech- nology stocks are not steady—there are frequent ups and downs in this marketplace—caused by a number of factors, such as a major telecommunications company deciding not to upgrade at the last minute or Congress considering sweeping regula- tory changes. Finally, Alex Brown felt that the stock would have traded thinly. This, coupled with SEC restrictions on trading, made the option of going public less desirable.

Strategic Partnership After taking these factors into account, Sanko said, . . . we decided to take the third path and look for a po- tential partner. But you have to also note that there was al- ways the first option available as a safety valve. We could not do anything and stay the way we were. That’s the nice thing about all of this. We were not under any pressure to go public or seek a partner. We could also wait and do one of these things later on. So, we had the luxury of taking our time.In terms of ﬁnding a potential partner, there were cer- tain key items that we wanted Alex Brown to consider in helping us in this process. The ﬁrst was that we, manage- ment, wanted to remain with XEL. We had really grown XEL as a business and were not interested in going off and doing something else. The second key item was that we were not interested in being acquired by someone who was interested in consolidating our operations with theirs, clos- ing this facility and moving functions from here to there.

To us, this would destroy the essence of XEL. The third item was that we wanted a partner that would bring some- thing to the table but would not try to micromanage our business.

The Case Against Strategic Partnership In the 1990s, “merger mania” swept the United States. In the ﬁrst nine months of 1995, the value of all announced mergers and acquisitions reached $248.5 billion, surpass- ing the record full-year volume of $246.9 billion reached in 1988. This volume occurred in the face of strong evidence that over the past thirty-ﬁve years, mergers and acquisi- tions had hurt organizations more than they had helped. 8 Among the reasons for failure in mergers and acquisitions were the following:

• Inadequate due diligence • Lack of strategic rationale • Unrealistic expectations of possible synergies • Paying too much • Conﬂicting corporate cultures • Failure to move quickly to meld the two companies Nevertheless, there had been successful mergers and acquisitions. Most notably, small and midsized deals had been found to have a better chance for success. Michael Porter argued that the best acquisitions were “gap-ﬁlling,” that is, a deal in which one company bought another to strengthen its product line or expand its territory, including globally. Anslinger and Copeland argued that successful acquisitions were more likely when preacquisition man- agers were kept in their positions, big incentives were of- fered to top-level executives so that their net worths were on the line, and the holding company was kept ﬂat (that is, the business was kept separate from other operating units and retained a high degree of autonomy). 9 More often than not, however, the deal was won or lost after it was done. Bad post-merger planning and inte- gration could doom the acquisition. “While there is clearly a role for thoughtful and well-conceived mergers in Amer- ican business, all too many don’t meet that description.” 10 Choosing a Partner “With these issues in mind, Alex Brown was able to screen out possible candidates,” said Sanko. “In January, 1995, this plan was presented to our board of directors for ap- proval, and by February, we had developed the ‘book’ about XEL that was to be presented to these candidates.

We then had a series of meetings with the candidates in the conference room at our new facility. The interesting aside on these meetings was that, often, senior management from some of these ﬁrms didn’t know what pieces of their busi- ness that they still had or had gotten rid of. We did not see this as a good sign.” One of the firms with which XEL met was Gilbert As- sociates, based in Reading, Pennsylvania. Gilbert Associ- ates was founded in the 1940s as an engineering and con- struction firm, primarily in the area of power plants. They embarked on a strategy of reinventing themselves by di- vesting their energy-related companies and becoming a holding company whose subsidiaries operated in the high- growth markets of telecommunications and technical ser- vices. Gilbert also owned a real estate management-and- development subsidiary. After due diligence and due deliberation, Gilbert was chosen by the management team as XEL’s strategic partner. The letter of intent was signed on October 5, 1995, and the deal was closed on October 27, 1995. Gilbert paid $30 million in cash. 11 Why was Gilbert chosen as the partner from among six or seven suitors? Not because they made the highest bid.

XEL was attracted to Gilbert by three factors: (1) Gilbert’s long-term strategy to enter the telecommunications indus- try; (2) its intention of keeping XEL as a separate, au- tonomous company; and (3) its willingness to pay cash (as opposed to stock or debt). “It was a clean deal,” said Sanko. The deal was also attractive because it was structured with upside potential. XEL was given realistic performance 4.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases547 targets for the next three years. If these targets were achieved, and Sanko had every expectation that they would be, approximately $6-$8 million would be earned. Gilbert did not place a cap on the upside.

In spite of the attractive ﬁnancial package, more was necessary to seal the deal. “At the end of the day,” said Sanko, “culture, comfort, and trust—those were more im- portant than money.” It was important to XEL’s board that Gilbert presented a good ﬁt. Sanko was encouraged be- cause he felt comfortable with Gilbert’s chief executive of- ﬁcer. Vice president of Human Resources Julie Rich also noted, “The management team was to remain intact.

Gilbert recognized that the XEL Vision was part of our success and our strength. They wanted to keep it going.” As one way of gaining conﬁdence in Gilbert, Bill Sanko personally spoke with the CEOs of other companies Gilbert had recently acquired. In these conversations, Sanko was assured that Gilbert would keep its promises. Timothy S. Cobb, chair, president, and CEO of Gilbert Associates, commented at the time of the acquisition: “This transaction represented the ﬁrst clear step toward the at- tainment of our long-term strategy of focusing on the higher margin areas of telecommunications and technical services. XEL’s superior reputation for quality throughout the industry, its innovative design and manufacturing ca- pabilities, and its focus on products aimed at the emerging information highway markets, will serve us well as we seek to further penetrate this important segment of the vast communications market.” 12 Cobb continued, “We see long-term growth opportu- nities worldwide for XEL’s current proprietary and Origi- nal Equipment Manufacturer [OEM] products as well as for the powerful new products being developed. These products fall into two families: (1) ﬁber-optic network in- terfaces designed speciﬁcally to meet the needs of telephone companies, interexchange carriers (e.g., AT&T, Sprint, MCI), and specialized network carriers installing ﬁber- optic facilities; and (2) a hybrid ﬁber/cable broadband mo- dem for use by cable television ﬁrms seeking to provide en- hanced data communications services over their network facilities. Going forward, we expect to leverage Gilbert’s knowledge and relationships with the RBOCs to signiﬁ- cantly increase sales to those important customers, while also utilizing our GAI-Tronics subsidiary’s established in- ternational sales organization to further penetrate the vast global opportunities which exist. As a result, revenues from Gilbert Associates’ growing telecommunications segment could represent over half of our total revenues by the end of 1996.” Timothy Cobb had come to Gilbert from Ameritech, an RBOC which covered the Midwestern United States. He had been president of GAI-Tronics Corporation, an inter- national supplier of industrial communication equipment, a subsidiary of Gilbert, prior to his appointment as Gilbert’s CEO. Bill Sanko offered, “When all the dust had settled, the one ﬁrm that we really felt good about was Gilbert....

Gilbert is an interesting story in itself. Ironically, they had contacted us in August, 1994, based on the advice of their consultant who had read about us in an Inc.

magazine article. Unfortunately, at the time, they did not have the cash to acquire us since they were in the process of selling off one of their divi- sions. In the intervening period, Gilbert Associ- ates divested itself of one of its companies, Gilbert/Commonwealth. This sale provided needed funds for the acquisition of XEL.” Once Sanko was confident that the deal would go, but before the letter of intent was signed, the pending acquisition was announced to the management team, and a general meeting was held with all employees.

SEC regulations prohibited sharing particular information (and common sense seconded this directive), but Sanko and his associates felt it was important to keep employees in- formed before the letter was signed. During the meeting, Sanko told the employees that the board was “seriously considering” an offer. Sanko assured the employees that the suitor was not a competitor, and that he felt that the suitor was a good ﬁt in culture and val- ues. Sanko reiterated that this partnership would give XEL the resources it needed to grow. Questions were not al- lowed because of SEC regulations. Employees left the meet- ing concerned and somewhat nervous, but members of the management team and Julie Rich were positioned in the audience and made themselves available to talk. During the closing of the deal, Sanko held another gen- eral meeting, attended by Timothy Cobb, where more de- tailed information was shared with employees. Managers had been informed in a premeeting so that they would be prepared to meet with their teams directly following the general meeting. Employees wanted to know about Gilbert. They wanted to know simple information, such as where Gilbert was located and what businesses it was in. They also wanted to know strategic plans, such as whether Gilbert had plans to consolidate manufacturing operations. Fi- nally, they wanted to know about the near future of XEL— they wanted to know if their beneﬁts would change, if they would still have proﬁt sharing, and if the management team would stay in place. “We have a track record of be- ing open,” says Sanko. “Good news or bad is always shared. This history stemmed much of the rumor mill.” In the next few weeks, Tim Cobb returned to hold a se- ries of meetings with the management team and with a fo- cus group of thirty employees representing a cross-section of the organization. Cobb also met with managers and their spouses at an informal reception. Sanko wanted to ease the management team into the realization that they were now part of a larger whole in Gilbert. He asked Cobb to make the same presentation to XEL that he was cur- 4.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

548Integrative Cases rently making to stockholders throughout the country—a presentation that emphasized the role XEL would play in the long-term strategy of Gilbert. Going Forward The human resource systems remained in place with no changes. The management bonus system would change slightly because it included stock options, which were no longer available. XEL’s internal advisory board, the “management team,” remained intact, but XEL’s external advi- sory board was disbanded. Bill Sanko reported to Gilbert’s chairman.

XEL’s strategic plan was to follow the process it al- ready had in place, and which was not unlike Gilbert’s. The cycle did not change: Gilbert expected XEL’s next strategic plan in early November 1996. XEL’s strategic objectives also remained the same.

Nothing was put on hold. Plans were still in place to pen- etrate Brazil, Mexico, and South America. 13Sanko hoped to capitalize on the synergies of Gilbert’s existing interna- tional distribution network. XEL met with Gilbert’s inter- national representatives to see if this was an avenue for XEL to gain a more rapid presence in South America. Fi- nally, XEL was planning to move into Radio Frequency (RF) engineering and manufacturing, potentially opening the door for wireless support. Whether XEL would grow depended on the success of these new ventures. In 1996, slight growth was forecasted.

But if these new markets really took off, Julie Rich was con- cerned about hiring enough people in Colorado when the labor market was approaching full employment. Julie con- sidered more creative ways of attracting new hires: for ex- ample, by offering more ﬂexible scheduling, or by hiring un- skilled workers and training them internally. A new U.S.

Department of Education grant to test computer-based training systems was being implemented. Nevertheless, em- ployment was strong in the Denver metro area in 1996, and migration to Colorado had slowed. It would be a challenge to staff XEL if high growth became the business strategy. Approximately six weeks after the acquisition, Sanko noted that few changes had taken place. Now that they were a publicly held company, there was a great deal more interest in meeting quarterly numbers. “If there has been a change,” said Sanko, “it is that there is more attention to numbers.” Julie Rich noted that there had been no turnover in the six-week period following the acquisition.

She took this calm in the workforce as a sign that things were going well so far. One reason things went well was that the management team had all worked for GTE prior to the spin-off of XEL.

Having all worked for a large public company, they did not experience a terrible culture shock when the Gilbert acqui- sition took place. Time would tell if the remaining XEL employees would feel the same way.

As Sanko awaited Cobb’s upcoming visit, he wondered how to prepare for the event and for the year ahead. He wondered whether XEL would attempt new ventures into RF technology, or how the planned ﬁber/cable broadband modem would progress. He wondered whether Gilbert’s experience in selling in South America would prove valu- able for XEL’s international strategy. In addition, he won- dered how he could encourage XEL and its employees to become members of Gilbert’s “team.” Would XEL’s vision survive the new partnership? Finally, according to one study of CEO turnover after acquisition, 80 percent of acquired CEOs left their compa- nies by the sixth year after the acquisition, but 87 percent of those who did leave, did so within two years. The key factor in their turnover was post-acquisition autonomy. 14 After nearly twelve years as the captain of his own ship, Sanko wondered what his own future, and the future of the XEL management team, would hold.

Notes 1. For additional information on XEL Communi- cations, Inc., and the key strategic issues facing XEL, see Robert P. McGowan and Cynthia V. Fukami, “XEL Communications, Inc. (A),” Daniels College of Business, University of Denver © 1995, published by South-Western Publishing.

2. PR Newsletter (October 5, 1995).

3. Bill Menezes “Modern Times,” Rocky Mountain News (April 28, 1996).

4. PR Newswire (October 5, 1995).

5. John Sheridan, “America’s Best Plants: XEL Commu- nications,” IndustryWeek (October 16, 1995).

6. See McGowan and Fukami, “XEL Communications, Inc. (A),” for a larger discussion of corporate culture at XEL.

7. Sheridan, “America’s Best Plants.” 8. Philip Zweig “The Case Against Mergers,” Business- Week (October 30, 1995).

9. Patricia Anslinger and Thomas Copeland, “Growth Through Acquisitions: A Fresh Look,” Harvard Busi- ness Review (January–February 1996).

10. Zweig, “The Case Against Mergers.” 11. Dina Bunn “XEL to be Sold in $30 Million Deal,” Rocky Mountain News (October 27, 1995).

12. PR Newswire (October 5, 1995).

13. For more information on XEL’s global penetration, see McGowan and Allen, “XEL Communications, Inc. (B): Going Global.” 14. Kim A. Stewart, “After the Acquisition: A Study of Turnover of Chief Executives of Target Companies,” doctoral dissertation, University of Houston, 1992. 4.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

A Project to Remember In June 1991, Ian Jonesa production manager with Empire Plastics Northern (EPN) was pondering the latest project to increase the production rate of oleic acid. This was the third project in 6 years targeting the oleic acid plant for im- provement and arose from the policy followed by the group’s directors. This was to identify proﬁtable plants and invest in improving their productivity and proﬁtability, thus avoiding the need for investment in new facilities. The installation of the “wet end” went well and no problems were experienced. However, the “dry end” was a different story. It wasn’t working a year after practical completion, except in short bursts. They were still making changes to it. Jones had known all along that the technol- ogy on the dry end was relatively new and might prove troublesome, but the procurement department at Empire Consultants in their wisdom recommended its use.

Granted, they did send a couple of guys over to Italy to see some similar plants ﬁrst. Jones constructed an organizational chart and set about examining the key issues raised by this project (Exhibit 1). Jones had been appointed as commissioning manager at the commencement of the project. He remembered some of the nightmares experienced by colleagues during two earlier oleic acid projects and ﬁrmly resolved to make this one dif- ferent; it was going to be “his” to manage on completion, and he was going to make his presence felt from the outset. The execution of the project had been overseen by the group’s engineering arm, Empire Consultants (EC), headed up by Henry Holdsworth as site project manager and John Marshall as construction engineer. It was a good team. The project was ambitious, but there were several signs of progress in the beginning. What did perplex him, though, was Marshall’s apparent lack of enthusiasm. Holdsworth described the project as a double manage- ment contract, and in this respect it was an unusual project.

Empire Consultants traditionally assumed the role of man- agement contactor and directly organized the trade contrac- tors and discipline consultants. Times were changing, though, and both Holdsworth and Marshall had com- mented on the increasing frequency with which projects were now being tendered as complete packages to outside management contractors. This was their ﬁrst project that in- volved two management contractors simultaneously, and neither Marshall nor Holdsworth was happy. Their own in- volvement had not been clearly deﬁned. Western Construc- tion had a £3.1 million contract for the “wet end” and Teknibuild a £6.0 million contract for the “dry end.” These two contractors provided all the design and management ef- Integrative Cases 549 fort during the project. EC’s role was effectively re- duced to acting as construction policemen; check- ing that design and construction were being carried out in accordance with the original process dia- gram and that EPN’s demanding process control and safety requirements were being maintained.

Selecting the management contractors turned out to be extremely protracted and Holdsworth, encouraged by Jones, went ahead and ordered reactors for the wet end and a ﬂuidized bed dryer for the dry end. Over 50% of the total material requirements were in order before either con- tractor had been formally appointed. Jones was conﬁdent that by doing this they could cut the project duration by sev- eral months. Nobody had asked Marshall for his opinion.

Conﬂict Ahead The ﬁrst line breaks were in October 1988. Site operations were supervised by Marshall and the two contractor site managers: Bob Weald from Western and Vic Masonfrom Teknibuild. As a construction engineer, Marshall was familiar with the antics of clients and client representatives, espe- cially regarding their tendency to try to make changes. He commented:

Clients always try and change things! When they see the job in the ﬂesh as it were they go “Oh, we need some ex- tra paving round here, or extra railings there!” But if they didn’t ask for that at the start, they won’t get it. If they want an extra 100 metres of paving they have to pay for it.

In this project we had about £500k set aside for contin- gency purposes, that is unforeseen eventualities over and above the price ﬁxed with the management contractors. If that is not used up by the end of the contract, as in this case, then we can give the clients some extras.

Jones recalled that by June 1989 relationships were not going at all well at the dry end. EC had procured a ﬂu- idized bed dryer, a cooler, and more than 300 associated parts, and, as the purchasers of this equipment, they were Integrative Case 5.0 Empire Plastics* 5.0 *This case was prepared by Dr. Paul D. Gardiner, Department of Business Organisation, Heriot-Watt University, Edinburgh. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

The case was made possible by the cooperation of an organization which wishes to remain anonymous.

550Integrative Cases the ones responsible for chasing up design drawings from the supplier, Sultan Engineering.

Unfortunately, Teknibuild, who, as management con- tractors, were supposed to design and build the plant, had problems getting the necessary information from Sultan to design the steelwork and foundations. As Marshall had noted earlier:

They [Teknibuild] were constantly at our doors and throats looking for more information to get on. They didn’t seem to have enough data to design properly, which led to con- ﬂict very early on. We got off to a bad start and that feel- ing carried on right to the end of the job. I think in every discipline we had problems with Teknibuild. Our discipline engineer against their discipline engineer.

The only exception to this was with the electrical and instrumentation (E & I) work. Marshall had put that down to the E & I subcontractor coming in at the end of the log jam of information, giving them more time to get it right.

While this was going on, Jones got more and more frustrated. In his opinion a lot of time was wasted between Teknibuild and EC for no good reason. He was sure that Teknibuild had more than enough design information to do their job. When confronted by Jones, Marshall remarked that the truth probably lay somewhere in between, but added that he was “particularly dismayed at Teknibuild’s unwill- ingness to spend man-hours on the design until they had 100% deﬁnition from Sultan Engineering,” almost to the point where they knew where every nut and bolt was. It was a real mess . . . and Marshall was accepting none of the blame. On the other hand, things went ﬁne with Western Con- struction. Their approach was much more relaxed; they Empire Plastics Group PLC Empire Plastics Northern Empire Consultants Site Project Manager Henry Holdsworth Commissioning Manager Ian Jones Construction Engineer John Marshal Key Management Issues?

Dry End Wet End Organizational Relationships Contractual Relationships Western Const.

(Management Contractor) Teknibuild (Management Contractor) Site Manager Bob Weeks Site Manager Vic Mason Suppliers Sultan Eng. Subtrades Subtrades Suppliers EXHIBIT 1 Organizational and Contractual Relationships 5.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

Integrative Cases551 had a design ofﬁce on site with low overheads, whereas Teknibuild worked from the head ofﬁce in a large design ofﬁce with high overheads.

On one occasion Marshall asked for Teknibuild’s plan- ner to come down and take some site measurements. The reply he received was not very constructive: “I don’t know if I can do that, it’s at least a couple of hours to get down there.” Holdsworth agreed that Teknibuild were constantly watching their man-hours:

You felt all the time that they were looking for proﬁt rather than trying to get the job done. Even Teknibuild’s con- struction man, Vic Mason, had internal conﬂict with his own designers. But with Western it was the other way round, you really felt they were seeking to set a good im- pression.

Jones thought that perhaps communication with West- ern had been good because their design and construction people operated side by side, communication was just across the corridor; whereas Teknibuild’s site men had dif- ﬁculty getting answers out of their Head Ofﬁce. Marshall had always maintained that the best-run jobs are the ones in which you get a good design-construction liaison, par- ticularly by having the designers on site with you.

Failin g...Forward Jones considered that in the future it might be a good idea to insist that management contractors set up a local design team on site. Current practice was to leave it up to the con- tractor, but these days EC had few designers of their own to help.

The trouble with management contractors, he sur- mised, is that you create an extra link in the communica- tions chain—a large link that can easily break down, and, in his experience, did break down. Relationships had been better at the wet end, he felt, because Marshall and Weald had worked together before. Marshall knew Weald, knew how he worked and where he was coming from.

They could trust each other. At the Teknibuild end, Vic Mason, their site manager, caused no end of conﬂict. He was a bit belligerent; thought he knew best, had done it all before, and couldn’t be told anything. It never really got out of hand . . . just a bit heated at times. At the end of the day, Marshall maintained that Mason’s intentions were ulti- mately to get the job built. But Jones remained unim- pressed, even if Mason’s main trouble was his own design- ers and suppliers. Driving home, Jones wondered what the effect of the company’s new policy on managing projects would be on people like Harry Holdsworth and John Marshall. He couldn’t help remembering what Marshall had said about Teknibuild and Western independently setting up their own enquiries and going out for bids separately; there did seem to be a lot of repetition—maybe Marshall was right in viewing the new system as “a very inefﬁcient way of doing projects.” 5.0 Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

552Integrative Cases The Audubon Zoo was the focus of national con- cern in the early 1970s, with well-documented stories of animals kept in conditions that were variously termed an “animal ghetto,” 1“the New Orleans antiquarium,” and even “an animal con- centration camp.” 2In 1971, the Bureau of Gov- ernmental Research recommended a $5.6 million zoo improvement plan to the Audubon Park Commission and the City Council of New Orleans. The local Times Picayune commented on the new zoo: “It’s not going to be quite like the Planet of the Apes situation in which the apes caged and studied human beings but something along those broad general lines.” 3The new zoo conﬁned people to bridges and walkways while the animals roamed amidst grass, shrubs, trees, pools, and fake rocks. The gracefully curving pathways, generously lined with luxuriant plant- ings, gave the visitor a sense of being alone in a wilderness, although crowds of visitors might be only a few yards away. The Decision The Audubon Park Commission launched a $5.6 million development program, based on the Bureau of Govern- mental Research plan for the zoo, in March 1972. A bond issue and a property tax dedicated to the zoo were put be- fore the voters on November 7, 1972. When it passed by an overwhelming majority, serious discussions began about what should be done. The New Orleans City Planning Commission ﬁnally approved the master plan for the Audubon Park Zoo in September 1973. But the institution of the master plan was far from smooth.

The Zoo Question Goes Public Over two dozen special interests were ultimately involved in choosing whether to renovate/expand the existing facilities or move to another site. Expansion became a major com- munity controversy. Some residents opposed the zoo expan- sion, fearing “loss of green space” would affect the secluded character of the neighborhood. Others opposed the loss of what they saw as an attractive and educational facility. Most of the opposition came from the zoo’s afﬂuent neighbors. Zoo Director John Moore ascribed the criticism to “a select few people who have the money and power to make a lot of noise.” He went on to say, “[T]he real basis be- hind the problem is that the neighbors who live around the edge of the park have a selﬁsh concern because they want the park as their private backyard.” Legal battles over the ex- pansion plans continued until early 1976. At that time, the 4th Circuit Court of Appeals ruled that the expansion was le- gal. 4An out-of-court agreement with the zoo’s neighbors (the Upper Audubon Association) followed shortly.

Physical Facilities The expansion of the Audubon Park Zoo took it from fourteen to ﬁfty-eight acres. The zoo was laid out in geo- graphic sections: the Asian Domain, World of Primates, World’s Grasslands, Savannah, North American Prairie, South American Pampas, and Louisiana Swamp, according to the zoo master plan developed by the Bureau of Gov- ernmental Research. Additional exhibits included the Wis- ner Discovery Zoo, Sea Lion exhibit, and Flight Cage. Ex- hibit 1 is a map of the new zoo. Purpose of the Zoo The main outward purpose of the Audubon Park Zoo was entertainment. Many of the promotional efforts of the zoo were aimed at creating an image of the zoo as an enter- taining place to go. Obviously, such a campaign was nec- essary to attract visitors to the zoo. Behind the scenes, the zoo also preserved and bred many animal species, con- ducted research, and educated the public. The mission statement of the Audubon Institute is given in Exhibit 2.

New Directions A chronology of major events in the life of the Audubon Zoo is given in Exhibit 3. One of the ﬁrst signiﬁcant changes made was the institution of an admission charge in 1972. Admission to the zoo had been free to anyone prior to the adoption of the renovation plan. Ostensibly, the ini- tial purpose behind instituting the admission charge was to prevent vandalism, 5but the need for additional income was also apparent. Despite the institution of and increases in admission charges, attendance increased dramatically (Ex- hibit 4). Operations Friends of the Zoo The Friends of the Zoo was formed in 1974 and incorpo- rated in 1975 with four hundred members. The stated pur- pose of the group was to increase support and awareness of the Audubon Park Zoo. Initially, the Friends of the Zoo tried to increase interest in and commitment to the zoo, but its activities increased dramatically over the following Integrative Case 6.0 The Audubon Zoo, 1993* 6.0 *By Claire J. Anderson, Old Dominion University, and Caroline Fisher, Loyola University, New Orleans. © 1993, 1991, 1989, 1987, Claire J. Anderson and Caroline Fisher. This case was designed for classroom discussion only, not to depict effective or ineffective handling of administrative situations. Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

AustraliaFlamingo Pool Louisiana Swamp South American Pampas North American Prairie Savannah s d n a l s s a r G s ’ d l r o W World of Primates Children’s Zoo Asian Domain Bird House Administration Sea Lion Pool Reptile House Aquarium Parking Entrance Integrative Cases 553 years to where it was involved in funding, operating, and governing the zoo.

The Friends of the Zoo had a 24-member governing board. Yearly elections were held for six members of the board, who served four-year terms. The board oversaw the policies of the zoo and set guidelines for memberships, con- cessions, fund-raising, and marketing. Actual policy mak- ing and operations were controlled by the Audubon Park Commission, however, which set zoo hours, admission prices, and so forth. Through its volunteer programs, the Friends of the Zoo staffed many of the zoo’s programs. Members of the Friends of the Zoo served as “edZOOcators,” education volunteers who were specially trained to conduct interpre- tive educational programs, and “Zoo Area Patrollers,” who provided general information at the zoo and helped with crowd control. Other volunteers assisted in the com- missary, the Animal Health Care Center, and the Wild Bird Rehabilitation Center or helped with membership, public relations, graphics, clerical work, research, or horticulture. 6.0 EXHIBIT 1The Audubon Park Zoo Copyright 2007 Thomson Learning, Inc. All Rights Reserved. May not be co\ pied, scanned, or duplicated, in whole or in part. Licensed to:

554Integrative Cases 6.0 The mission of the Audubon Institute is to cultivate awareness and appreciation of life and the earth’s resources