Question

INTRO

• NewForm IT is a seven-year-old IT consulting company founded in 2012 that provides services to small businesses in their local and regional area.
• NewForm employs 83 people, 61 of whom are IT professionals/ consultants.
• NewForm is struggling financially; it has not met its revenue projections in the last five quarters.
• NewForm has suffered excessive leadership turnover in the past three years.
  • The original founders sold NewForm in 2015; one of them, James Stanton, remained on as CHRO but sold his interest in the company.
  • Rodney Collier purchased the firm in 2015 and became CEO.
  • Stanton departed nine months ago.
  • Collier sold NewForm to Sheila Jones (new CEO) and Ronnie McMillan (new CHRO) three months ago.
  • Morale is suffering at NewForm.
• You and your team members formed a startup HRM consulting organization 15 months ago.
  • You are comprised of:
    • Recent HRM graduates from a local university, all undergraduate or graduate students, depending on the degree level attained. You are one of those recent graduates. All team members are SHRM certified and the more senior HRM team members serve or have served as mentors to the recent graduates.

Jones stormed into McMillan’s office. “I’ve had it! We’ve been here three months and nothing changes. Why aren’t they listening? Why do they keep leaving? What’s wrong?”

BACKGROUND

NewForm IT, founded in 2012 by four friends, provides IT consulting services to small businesses in the local and regional area. Three of the founders left the firm in 2014/2015, selling their interests at a handsome profit. The remaining founder and former CHRO, James Stanton, left nine months ago after clashing with the second owner, Rodney Collier, who purchased the company in 2015.

Sheila Jones and Ronnie McMillan recently purchased NewForm; Jones became its third CEO.

Three of the founders loved playing with computers and systems. While in college and in the early years of their careers, they created websites, developed computer games, played with mainframes, and made spare cash by solving individual and corporate IT problems. Systems and IT came easily for them, and they discovered that what other people feared were simple problems to them. They knew that they could make money by doing what they knew best. Their vision was to help small organizations solve their IT problems, and they discovered that they could charge exorbitant fees for doing so.

• The first founder to leave sold to her partners in 2014.

• Two founders—including the CEO—sold their shares to a group led by Collier in 2015 and left at that time.

• Stanton also sold his shares to Collier in 2015 but remained at his job.

• All four founders became multimillionaires when they sold the company.

• At the time of the 2015 sale, the company employed 53 IT consultants, most working 60-hour weeks and earning large bonuses.

Stanton and Collier had problems with each other from the outset. They differed on how to price consulting jobs, how to pay consultants, work hours, benefits (401k, leave policy, health insurance, etc.), among other things. Stanton saw little need to change what was successfully working; Collier wanted a fresh new corporate image. Corporate culture slowly began to move away from its original entrepreneurial style. Stanton and Collier continued to clash until nine months ago when Stanton walked away. Collier and his group sold NewForm six months later to a group led by Jones.

Jones is a senior executive with 23 years of industry experience, mostly with large, high- tech firms. When the founders formed the company they had asked her to join their team as a partner, but she declined. She had neither the time nor the inclination to do so. Today is different; she has made money in the industry, and her newly earned Ph.D. in leadership dynamics has given her the spirit and the insight to run the show. Because Collier wanted to sell and get out, Jones bought into NewForm at a discount and was ready to roll up her sleeves and get to work. McMillan, a long-term colleague, joined her as an equal partner and CHRO.

NewForm employs 83 people today, 61 of whom are IT consultants. These are highly skilled professionals, well paid and sought after in their field. While most have significant corporate experience, 49 have been with NewForm less than three years. Only four have been with NewForm for five years, and two have been with NewForm since its inception.

YOUR HRM CONSULTING FIRM

As a recent graduate, you have joined a 15-month-old startup HRM Consulting firm. You are excited about the opportunity this presents. Some of your team members are recent HRM graduates just like you, while others are SHRM-certified senior leaders who serve as mentors to the recent grads. The senior leaders, led by Patrick Conroy, have a financial stake in the firm and have established a plan that allows junior leaders to eventually earn the right to purchase a percentage of the firm and become a partner.

Early Monday mornings are set aside for virtual corporate meetings. This is when the partners and employees meet to focus on the firm no matter where they are in the world. These meetings are a combination of strategic think tanks, corporate planning sessions with problem analysis, mentoring, financial discussions, and discussions of any strategic decision that needs to be made. After 15 months, it is apparent that that these Monday meetings are the key that is leading to the team’s success.

This Monday morning is no different. Last week Conroy received a message from a company called NewForm IT and spent 30 minutes on the phone with McMillan, it’s CHRO. Conroy prepared an internal memo for the firm describing NewForm’s problems, and the group is prepared to discuss the issue at length.

As the conversation begins you consider your role in the firm. You know you try to do your best for your clients, yet one of your colleagues called you in for a brief but intense conversation about a recent client. Yes, you recognize that you may have missed a few social cues, might not have found the right words and advice for the client, and did not leave the client completely satisfied. But their challenge was particularly tough, and you probably should have had help from someone else in the firm. That job had been underbid, and the fee did not leave enough room for two consultants. You begin to wonder if this is the right career for you, or whether the senior team will ask you to leave. Your mind wanders.

While you muse on this, barely hearing the conversation in the room, Conroy looks directly at you and says, “You’ve worked with IT people, what do you think about the situation?” Panic sets in.

TODAY’S ISSUES AT NEWFORM

From 2012 until 2015, NewForm IT grew to 53 consultants. It had virtually no turnover during that time; two consultants were terminated for cause, one for discipline, and two left voluntarily when their spouses received out-of-state job offers. Stability was one of NewForm’s strengths; many consultants worked numerous jobs with one client, making it easier to produce quality results because they understood their clients’ needs and nuances; clients were satisfied. Employee compensation was higher than the market, and NewForm was making money for everyone.

The 2015 sale brought shock and change. As the only remaining founder, Stanton attempted to reassure everyone that nothing would change, but consultants identified subtle variations from the beginning. In the midst of changing internal rules, Stanton tried to maintain the status quo. Yet he had no real authority, and his suggestions fell on deaf ears. Early in 2018, he commissioned the Gallup Company to do its formal twelve question engagement survey. The results confirmed what he already knew: morale was suffering, and employees were no longer engaged. He wished he had done the survey and received baseline data 3-5 years ago.

Metrics are also down. Repeat clients, one of the company’s strengths, fell from a high of 57 percent (that is, 57 percent of clients engaged NewForm for a second job) in 2014 to 31 percent in 2017. Billable hours per consultant have also dropped, from 54 to 37 hours per week. 2018 numbers are not yet available but are trending a similar direction to 2017. NewForm is barely making a profit.

Stanton did what he knows best. With 17 years of HR experience, including 10 at the senior level, he thought he had seen it all. His techie friends had known that he was the perfect one to join them when they began the company, and no one was disappointed. In the early years at NewForm, he did everything that he wanted to do without anyone looking over his shoulder. Life changed when they sold the company, but he couldn’t imagine how wrong things would go or how fast. After commissioning the Gallup Survey, he believed he had the ammunition to return to the previous climate. But Collier had other ideas and a different perspective on how to view the survey results. Nine months ago Stanton decided to leave the firm.

Six months later, Collier, willing to take a small loss, decided to sell. Jones and McMillan, long-time friends of Stanton and the other founders, became willing buyers. They opened the books, spoke to Stanton, found a strong employee base, identified initial problems and saw nothing severe. This became their opportunity of a lifetime. Opportunity? Or endless problems?

THE MEETING

When Jones stormed into McMillian’s office, they had a long conversation about what was really going on. They decided to meet with Stanton to get his perspective. Stanton was more than happy to provide his views.

Stanton: Let me reiterate what I told you when you were deciding to purchase NewForm. This is a great company. When we founded it, we hired the best of the best. I used my contacts, years of experience and friends I knew in the recruitment field to hire great talent. The other owners did the same. We brought in people who loved the work, were independent and understood clients. When we gave them a job, we left them alone to do it. And they did it well.

Jones: How did the rest of the executive team fit in?

Stanton: We all (owners/executive team) bid on contracts, sometimes individually, sometimes in pairs. Since I was in charge of staffing, they looked to me both for scheduling needs and for identifying specific talent. Many of our clients had unique needs, and we sought to find that perfect match. Whoever the key bidder was oversaw our consultant and was ultimately responsible for results. After a while, each owner had built relationships with individual consultants; these relationships made reporting and bidding easier. While this may seem like an unrealistic utopia, it really worked here. Our productivity and turnover figures bear this out.

McMillan: What happened?

Stanton: My three very close friends decided to head for new challenges— it was as simple as that. It was cost prohibitive for me to buy them out, so I decided to sell at that point. The offer was great, I would be set for life, and although I would no longer have any controlling interest, I would retain my title and the ability to do my job. I loved…I STILL love…this company, and in 2015, I couldn’t see any other place to go. I was a little concerned about how I would get along with Rodney Collier, but we had a few good meetings, and I thought he would listen and was open to keeping the company as it was. Employees met him, we vetted him and his associates as carefully as we could, and we decided to do the deal. I knew that things would change, but we didn’t really see any red flags.

Jones: I know from my own experience that a lot can be hidden when you look to buy a company. What did……

Stanton: (Interrupting) I’ll say. He came in with two senior vice presidents and within a week everything was different. For the first time in my NewForm career, people came in to my office and closed the door; we NEVER had the need for a closed-door meeting. I can’t begin to describe the nature of the complaints; some were style, some were content; some were specific, some were general. I did my best to calm them down, give them platitudes of “things change, and we couldn’t have this forever,” or “we all have to get used to a new way of doing things,” and “I’ve spoken to Rodney and I can see that it’s already getting better.” Sometimes I found myself simply listening for half an hour.

And then the parade started. Slowly at first, but it was clear. Our best people started leaving. They would come into my office carrying a wrapped bottle of scotch for me. After a while they would just walk in, put my present on my desk, and sit down…. and tell me about their new opportunity. Some took pay cuts, some left the area, but it was clear. Their career here was no longer what they wanted it to be. I have a great collection of scotch…but I don’t want it.

McMillan: Is that when you went to Gallup?

Stanton: I had to do something. Collier wasn’t listening to me. He couldn’t HEAR me. When we would meet, he seemed to get angrier and angrier, wondering why I couldn’t do anything about the turnover, as if it were my fault. I know that he’s a data guy, so I thought that good information about the lack of engagement would help him see some of the issues. But by then it was too late. I didn’t want to be fired, so I left.

Jones: Thank you, this is very helpful. Ronnie and I already understood that employees suffered under the previous regime, but your insight helps clarify the situation. Ronnie, did we know what we were getting into? Maybe we want to sell it to you, James?

Stanton: Oh, I’ve moved on. But I love many of those people and can help wherever you need me.

Jones: You have already been more than kind. Ronnie, your thoughts?

McMillan: James, do you know that new HRM consulting firm across the river? They have a great group of senior and junior people. I’m thinking of contacting them. What do you think?

Stanton: Yes, I’ve known a few of them for years, and they’ve got some bright young kids working for them. I’m sure they’ll have some ideas for you.

ANSWER THE FOLLOWING:

1. Identify the underlying problems at NewForm. What are they key dimensions of the problem, what are the causes, and what other information do you need? Be certain to move beyond symptoms on the surface.
2. Describe the relationship among leadership changes, turnover, engagement and what you learned from the interview with Stanton. How does this impact overall problems?
3. Jones and McMillan need help now, with observable results within six months. Provide your recommendations for 30/90/180 days.

Answer 1

1. Underlying problems at NewForm

- Changing corporate culture : Work environment and culture changed drastically with the first buy-out/sale to Collier.

- No change management processes/policies in place to effectively manage the transition for employees : The change create an uncertain atmosphere and resulted in low morale which negatively impacted productivity.

- Change management for clients not addressed : Major changes in an organisation can impact clients as well and must be communicated and handled at the earliest. The lower productivity of employees should have been anticipated and mitigated. The impact was considerable to some clients who chose not to renew their contracts resulting in fewer repeat clients.

- Entrepreneurial way of working was abandoned : High autonomy was given to workers earlier, and this lead to a good employee morale resulting in high productivity.

-Leadership was retained but not supported : Stanton's way of working was geared towards the highly technical teams in the firm, however post the buy-out he was given no real authority which lead to him not being able to effectively lead the firm into the major change.

- New way was chosen over older tried and trusted operational methods : Collier wanted a fresh new corporate image however this was at odds with the currently high-functioning organisation. The change was not communicated or managed effectively leading to employees feeling disengaged with the firm.  

- High degree of instability within the firm with too many changes : Employees can feel insecure in their jobs and be more prone to quit the firm.

2. The changes in leadership and the new work order created an inefficient work atmosphere that lead to employees becoming disconnected with the firm. The sudden change in leadership or new way of working left the employees feeling left out or disengaged with the firm and its activities. The change in the way of working, change in benefits and manner of working etc. are all major components of daily job activities and a major change in these can cause unrest and uncertainty within the workforce. These factors can lead to low morale and high attrition if not checked. The low morale lead to lower productivity and a drop in revenues from repeat clients. Employee complaints to Stanton were also not addressed as he was given no real authority to fix problems anymore. This further created a negative work atmosphere leading to employees choosing to leave the firm. The lower client satisfaction and higher attrition in turn created a more stressful environment for the new management who were unable to understand or resolve the issues. Collier chose to blame Stanton but did nothing to provide actual help or to aid his efforts to resolve the situation, even after seeing the Gallup report showing a lack of preparedness and knowledge of how to deal with change management within the organisation. The new owners need to reinforce a strong and stable leadership image to the company to ensure the prior uncertainty is dispersed.

3. Recommendations :

30 days

- communicate directly to employees about the new leadership and changes that are now taking place. talk about the changes that are yet to come - any new work culture changes, salaries etc.

- conduct townhalls, seminars etc. to showcase the new leadership to the employees and to build a good rapport from the earliest

- ask for and address any immediate concerns of employees that directly impact productivity

- talk to clients to reassure them of continued business operations, while collecting and discussing any feedback, questions they may have

- launch morale building campaigns to engage employees with new owners, reinforce the idea of longevity

90 days

- create and deploy policies that are more suited to this group of employees - change management, entrepreneurial way of working

- request and review feedback from employees and clients again to check if the morale and satisfaction has improved. showcase how earlier feedback has been incorporated if any.

- reiterate the idea of a strong and stable leadership so employees can feel secure in their jobs

- continue to communicate with clients so they feel comfortable with the new leadership

180 days

- request and review feedback from employees and clients again to check if the morale and satisfaction has improved. showcase how earlier feedback has been incorporated if any.

- conduct leadership meet and greets etc. to encourage employees to network within the firm, use it to reinforce the long-term vision of the leaders (and that they won't sell again within months)

- review policies implemented and collect feedback on what is and isn't working. Incorporate employee engagement ideas submitted or launch new ones to ensure employees feel like they have a voice within the firm