Reality of Use and Nature of Change in Small Business: A Case Study in Inefficient Compromise

Reality of Use and Nature of Change in Small Business: A Case Study in Inefficient Compromise Wita Wojtkowski and J. Craig Hardesty

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Reality of Use and Nature of Change in Small Business: A Case Study in Inefficient Compromise Wita Wojtkowski Boise State University, USA J. Craig Hardesty Hewlett-Packard Company, USA

Through this case we ponder an inescapable issue faced by all small businesses. Of interest are both the positive and negative roles information technology plays when affecting organizational change. We tell a story of a small successful business that is evolving into a larger organization. While this subject brings with it myriad facets, we evaluate the actions taken in terms of technology, staff, and procedures. What learning difficulties did this enterprise face? How did management address these challenges? Why did the original entrepreneur not want to let go when the next generation attempted to implement support mechanisms? What was the outcome? Our case concerns a small service enterprise located in the western United States. There are numerous organizational issues presented in this case. • Case Industry: Temporary Staffing and Service Business, OTI • Major Technical Issue: Appropriate use of database technology • Major Strategic Issue: Sustainable expansion when undergoing technological change • Major Players/Leaders: CEO-owner (CO), operational manager (OM), IT technical manager (TM) • Case Conclusion/ Recommendation: Inefficient compromise may result when small businesses employ IT to meet an increasingly competitive business environment.

BACKGROUND Most case studies one encounters ponder successes and failures of large and complex organizations. The successes and failures of small businesses are by and large ignored. However, small enterprises are a major economic driver, not only in the United States, but Copyright © Idea Group Publishing. Copying without written permission of Idea Group Publishing is prohibited.

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all over the world. With the majority of small businesses in the US failing within the first few years, and the majority of the early survivors closing within ten years, one can conclude that there is a problem sustaining long-term growth in small business. How does a closely held, owner-managed, small local business take the next evolutionary step and grow into a professionally managed, geographically distributed, competitive enterprise? Even in small business, in order for meaningful change to occur, learning must be engaged at all levels. Most importantly, the behavior and attitudes of the small business owner may provide enormous leverage for successful change. Likewise, the behavior and attitudes of the owner can exert destructive pressures, and compel anti-learning defenses throughout the organization.

g n i h lis b u P p u ro G a e d I t h g g i n r i y SETTING THE ST A GE STA h s i l b Cop u P up o r G a e d I t h g i r y p o C g n i h s i l b u P up o r G a e d I t h g i r y p o g C CASE DESCRIPTION n i h lis b u P p u ro G a e d I t h g i r y Cop OTI is a full-service staffing company, providing jobs for workers and workers for assignments lasting a few hours to many months. The company provides a number of employment-related services including testing, screening, interviews, payroll provision, and so on. In brief, employees register with OTI and are tested, interviewed, and screened. When a client calls for a temporary employee, the staff at OTI reviews the office list of employees and dispatches qualified employees to the client. OTI began operations in 1980 with the owner running the business out of a one-room office. As with many small businesses, OTI experienced significant, rapid growth. By 1990, OTI had grown into the region’s largest privately owned temporary service, consisting of seven remote offices, nearly 40 staff employees, and reaching annual revenue in excess of US $10 million. In spring of 1995, the CEO and sole owner of OTI (referred throughout this case as CO) decided to change the way her company operated. While successful, OTI had reached a critical point in its development, both in size and in its ability to provide consistent, quality customer service. The owner believed that in order to compete in a rapidly changing service industry, increased efficiency in customer service was vital. After meeting with a consultant, she determined that an increased focus on technology and employee development as a good way to increase this efficiency and make sure the company remained competitive through the next decade.

Beginning in the mid-1980s, the entire temporary service industry began experiencing a boom, as a result of U.S. companies “rightsizing” and utilizing temporary employees as a flexible, variable cost. Since that time, the industry has maintained a growth rate that well exceeds the average for U.S. industries (20-30% per annum). The 1990s were a time for continued prosperity and growth for OTI, and labor shortages that began in the 1990s, continue to create additional challenges and opportunities. In order to meet these challenges, CO recognized a need for new staff that was familiar with information technology and with managing change. Recently retired from a large electronics firm, CO’s daughter was brought into OTI as its operations manager (OM), who would be responsible for coordinating business processes enterprise-wide. Additionally,

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the firm hired a technical manager (TM) to develop both the technical aspects of the company’s strategy and manage employee development. This dual role was viewed as optimal for OTI: Administration of employee development and strategic use of information technology would be essential for the new way of doing business.

g n i h s i l b u P p u o FFAACING CHALLENGES AND PR OBLEMS PROBLEMS r G a e d IORGANIZA t THE TION ORGANIZATION h g i r y Cop The Challenge g n i h s i l b u P up o r G a e d I t h g i r y p o g C n i h s i l b u P up o r G a e Id t h rig y p Co g n i h lis b u P p u ro G a e d I t h g i r y Cop The task facing OTI’s new management was clear: Prepare OTI for continued growth, using information technology, improved work processes, and emphasis on internal employee development. OTI’s management instinctively understood the critical nature of these three elements. The STEP model (Wysocki & De Michiell, 1998) concentrates on these same issues. By correctly manipulating the variables of staff, technology, and processes (STEP), a company can successfully integrate IT into its organization. This effort was motivated by CO’s perception that OTI needed to evolve as the industry evolved, or risk being left behind. But there was another issue, how does a closely held, hierarchically managed small company take the next evolutionary expansion step? Upon initial examination, the new Operation’s Manager found that one barrier to growth facing the company was that the autocratic management style that was successful in developing OTI in the past, was not adequate to sustain future growth. In other words, CO could no longer manage the whole company by herself. In the new environment of geographically dispersed but localized offices, maintaining a narrow hierarchy of management was unwieldy. It was clear to all that during periods of initial, dramatic growth, such authoritarian leadership promotes direction, focus, and continuity. However, at a certain point (in this case, when seven dispersed offices were fully functional), it became impossible to provide informed, meaningful direction solely from the top. The organizational structure was already showing signs of weakness through symptoms such as diminished attention given to each office, personal stress, and delayed decisions. The organization needed to cultivate more diverse leadership that would enable the company to quickly respond to localized needs and contingencies. The first challenge in addressing this problem was to identify aspects of the organization that could and should be centrally coordinated, while promoting autonomous decision-making at the remote office level. This began by developing a corporate policy manual, which coordinated many procedural requirements, forms, and other basic business activities designed to provide the company with a procedural backbone from which to control growth. To encourage remote office autonomy in decision-making, the office managers were given the tasks of budget preparation and goal setting for their offices. To provide a means of control, the managers were to set specific, measurable goals and provide weekly manager’s reports to include the activities of the office and any accomplishments or challenges being faced. Other than expecting compliance with the standardized policies and procedures, remote office managers were given the freedom to act as autonomous heads of their respective offices, that is, to run as profit centers.

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Information Technology

g n i h lis b u P p u ro G a e d I t h g g i n r i y h The Nature of Problems and Solutions blis Cop u P up o r G a e d I t h g i r y p o C g n i h s i l b u P up o r G a e d I t h g i r y p o g C n i h lis b u P p u ro G a e d I t h g i r y Cop Technologically (as is often the case with small, closely held enterprises), the company was in the mid-1980s in terms of integration of computers and automated work processes. The corporate systems, which included accounting, invoicing, and payroll functions, were the most current (technology of the ’90s), but poorly designed. Data communication between remote offices and corporate took place in the form of file transfers using a simple remote access program. Each week, the remote office staff would enter payroll data into their office’s PC and upload the data to the corporate office. The corporate staff would then review the data, process the payroll, and prepare a check file to be transferred back to the remote offices for printing. Other than phones, faxes, and copy machines, that was the extent of information technology use.

After evaluation, it was determined that an enormous amount of effort was being spent on manual processes in the remote offices. Primarily, the processes involved in locating qualified applicants were labor intensive and chaotic. The staff employees manually browsed through each applicant’s materials in order to determine appropriate skill sets for open job postings. This was inefficient enough, but the materials were not always together or organized in a way to promote efficiency. Time was wasted and job orders went unfilled. Since the corporate systems were deemed to be adequate, it was decided (by CO, OM, and TM) to focus IT attention on remote office processes. This decision led to the design and development of the Up Front Office System (UFOS). This DBMS was written in Microsoft Access and provided several benefits. First, the system organized remote office data, including data related to clients, employees, and jobs. Second, it maintained that data in one place, accessible to all remote office staff employees (within each office). Third, it automated several manual processes including the search for qualified employees. UFOS was met with a range of reviews. Since this application represented a major departure from traditional methods and processes, it was not surprising that tenured employees tended to be more skeptical and resisted the process change. On the other hand, newer employees accepted the change gladly, and were relieved by the automation. These disparate responses occurred even though the system was developed with deliberate and detailed, individual and group involvement at all levels of the organization over a period of 6-12 months. Neither consensus, nor timing completely addressed the conflict brought about by change, when the system was finally implemented. UFOS tacitly exposed a wide range of other processes ripe for change. UFOS required multiple PCs and local area networks in the remote offices. While this represented a substantial learning curve for many employees, the advent of office automation software such as word processors and spreadsheets, which were available in the Microsoft Office suite, gave OTI the look of a modern organization, if not yet the substance. Moving from manual to automated processes, reports, and other communication and task coordination activities was a significant technological and cultural step for OTI. This move cleared the path for greater use of IT. However, the decision to implement more IT moved the processes away from the staff’s skill level, which produced a gap between the available technology and the skills needed to capitalize on its potential.

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Employee Development In order to prepare the company for growth, it was felt that an orchestrated, enterprisewide infrastructure needed to be developed. One tool employed to accomplish this was a company-wide policy manual designed to provide procedural continuity throughout the firm. Included in this manual were guidelines for formal employee evaluations and development plans. Formal, written evaluations had not previously been performed at OTI. The company valued its “family” identity and never saw the need to formalize relationships with ongoing evaluations. However, the new policy not only required annual performance evaluations, but also instituted an employee development plan. Based largely on ideas of personal mastery and educational theories (Senge, 1990), introduced to OTI by the new staff members, the employee development plan sought to galvanize employee creativity, morale, and dedication by committing OTI to the personal growth of each employee. The idea was that management and individual employees would discuss an employee’s ambitions and interests, relate them to the company’s goals, and encourage the employee to participate in activities which would promote personal growth and interest. The employee development plan would then be used in the annual evaluation process, for judging both accomplished tasks and quality of results.

g n i h s i l b u P p u o r G a e d I t h g i r y Cop g n i h s i l b u P up o r G a e d I t h FFAACING THE ORGANIZA g CHALLENGES TION: i ORGANIZATION: r y THE REALITY g Cop n i h s i l b u P up o r G a e Id t h rig Organization and Process y p Co g n i h lis b u P p u ro G a e d I t h g i r y Cop Change, however pure and noble its intentions, is still change. And often, a call for change is motivated by external considerations rather than personally acknowledged need. Such was the case with CO and OTI. The conflict that resulted from changes instituted during late 1990s took many people by surprise and left the company struggling in a wasteland of good intentions. The changes made in technology, processes, and staff each constituted threats to CO’s traditional role and authority. The consequences of this dissonance were apparent in the ensuing outcome.

The organizational change resulting from hiring an operations manager was significant. Theoretically, the operations manager was to act as a representative of a new level of management between the office managers and the CEO. This organizational structure was designed to alleviate the hands-on management activities performed by the CEO in order to allow her time to focus on business expansion. The operations manager would perform the routine management tasks associated with running the day-to-day business. In theory, this sounds worthy and logical. But CO was in no way prepared for the forfeited direct control associated with this move, neither were many of the remote office managers. The more the new OM pushed, the more resistance came from CO and the managers. When the OM decreased her efforts, she was criticized for not doing enough. While CO did make an effort to curb her own involvement with the office managers, the effort was largely unsuccessful due to the previously dominant “family” culture. The situation was like this: For some of the managers, it was as if you suddenly asked

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them to stop contacting their mother or sister unless they first went through a stepchild. Likewise, CO felt removed from her responsibilities and marginalized. Her freestyle, hands-on approach to management clashed badly with the OM’s new hands-off, “let the managers manage” style and reliance on the new policy manual for control. Although the enterprise continues to function, many years later this conflict is still unresolved.

g n i h lis b u P Information Technology p u ro G a e d I t h g g i n r i y h s i l b Cop u P up o r G a e d I t h Inefficient Compromise g i r y p o C g n i h s i l b u P up o r G a e d I t h g i r y p o g C n i h lis b u P p Employee Development u ro G a e d I t h g i r y Cop While the technology in place prior to 1996 was vital as a support mechanism, it had little to do with the everyday activities of the business. However, the adoption of UFOS changed this and took away CO’s ability to freely modify office processes, as had been her custom. Even though she had been involved in setting the procedural standards by which UFOS was designed, and agreed that the processes were correct, the surrender of flexibility was perceived as an enormous problem. CO had previously been able to freely move between the corporate environment and the remote office environment, which allowed her to keep a hands-on feel for the business at her convenience. Automation of office procedures meant that she could no longer function in the offices without a reasonable working knowledge of the new technology. This was a change she supported in theory, but one she was not willing to accept when the change effected her in practice.

Instead of resolution, this conflict led to an inefficient compromise. So that CO (and other employees who were uncomfortable with the change) could continue working in familiar ways, the office staff was required to perform both the traditional manual process as well as the processes that utilized the UFOS database. This compromise had a locational component that distributed it unevenly throughout the company. The offices which were physically further away from corporate headquarters, where CO visited less frequently, used UFOS almost, exclusively—maintaining few traditional processes, and in some cases, abandoning them altogether. The offices closer to corporate eventually stopped using UFOS except for payroll functions, which was the norm for offices prior to 1996. Other offices began using hybrid processes that maximized the benefits of both systems while minimizing exposure to criticism. This situation negatively affected plans for future IT projects and business planning. The OM hoped to utilize data supplied by the offices to analyze business trends, implement forecasting, and aid in business planning. Because the use of UFOS was compromised, the data was not dependable, except for rudimentary baseline analysis of payroll data (since all offices were required to use the system for this function).

The idea of employee development at OTI never really took off. Several things kept the company from experiencing any real benefits that may have come from this effort, even though, initially, there was a strong voice of support and gratitude from the employees and managers, and everyone was excited about learning and developing areas of interest. To work, employee development requires two essential things: time and support. The company, for the most part, supported the development effort, but not all of the managers fully understood the idea and did not implement the program very well. The notion of

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spending money on “soft” staff development was new to many and, frankly, seemed almost unnatural. Many managers felt that such development added nothing to the monthly profit and Loss measures, nor did it produce immediate production or cost benefits. Instead, setting up employee development takes away from the bottom line and increases costs, at least in the short term. The time element at OTI had two aspects. Many of the workers at OTI are entry-level employees. Those performing entry-level jobs do not often have the time to spend on thinking about development. Actually discussing the issue in the open was difficult, because it seemed so foreign to many. Moreover, when they discovered that development was something they may have to do outside of regular business hours, they balked. These hourly workers were reluctant to commit to anything beyond what they were paid for, and many did not wish to consider the value associated with continual, personal improvement. The second aspect related to time is the employee turnover experienced by OTI. Because many staff jobs are entry-level, turnover is quite high, sometimes reaching as much as 100% annually. In practice, this level of turnover defeats any effort in sustained staff development, because few of the people who benefit from such development stay with the company long enough for the company to reap any returns. Even if the individuals benefit, the company as a whole does not. Needless to say, in the OTI organization the employee development initiative has fallen into something of a quagmire. Few, if any, substantive evaluations are performed and no one in the firm actively pursues a meaningful employee development plan.

g n i h s i l b u P p u o r G a e d I t h g i r y Cop g n i h s i l b u P up o r G a e d I t h g i r y p o g C n i WHA T HA VE WE LEARNED? WHAT HAVE h s i l b u P up o r G a e Id t h rig y p Co g n i h lis b u P p u ro G a e d I t h g i r y Cop Simply put, introducing IT into small service organizations should be approached cautiously. Even when arguments for the use of IT are persuasive and challenging, change itself has many dimensions and levels of complexity. For instance, CO sincerely believed, at a superficial but actionable level, that her company needed change to continue its growth. However, she was not prepared for the fundamental shift in her approach to business that resulted on a more substantive level. The situation created an atmosphere of forced compliance rather than cooperative progress. Forced change breeds additional resistance. Not only did the new management face the intrinsic resistance to change that is a natural tendency, but they faced additional resistance due to the perceived forced nature of the change (Lannon, 1995). In order to minimize the resistance to change, people must honestly see the need to change and understand why it must be. Successful change cannot occur from entirely extrinsic pressures. It must be fundamentally tied to, and become a natural response to, an overarching organizational vision. Without a shared understanding of why the change is important, where it will allow the business to go, and what the outcome is to be, resistance cannot be minimized (Sange, 1990; Agryris, 1992). Change requires constant monitoring and sensitivity to feedback of many kinds. From the inception of this project, the new management was aware of the dissonance between what the owner was saying and her steadfast adherence to traditional processes and procedures. However, the assumption was that, while change would be the hardest for her, CO would eventually be caught up in the transformation and the outcome would justify a period of discomfort.

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In larger organizations, change may acquire a certain critical mass that makes change possible. Individuals who cannot or will not change with the organization are left behind while growth and change occur. A large organization may renew itself and the inevitable casualties must find different opportunities. In the case of OTI, no such crucial mass existed. The influence of a sole proprietor and the surprisingly well established corporate culture were too great to allow change without significant carnage. In small business, the owner tends to dictate the culture. Even when an organization appears to be culturally bankrupt, a sincere effort to bring cultural factors to light is highly recommended. Again, the new management was aware that a certain feeling of “family” existed in the company but felt that the proposed changes would be tolerable. What was underestimated, repeatedly in many relevant areas, was the essential, fundamental way CO was tied to the organization. In a real sense, CO was the organization. She was its heart and its mind. Without real change first occurring in CO, any peripheral change in the makeup of the organization was strictly cosmetic. Just as in individuals who experience great change, if the mind refuses to accept it, life becomes a struggle between reality and perception. Just so, OTI adopted dual personalities, both fighting for control of the mind. Does this sound overly dramatic? Four years of participation in dysfunctional, highly emotional meetings, and soul-wrenching “off-line” discussions tends to make one rather animated and rather depressed. In order for change to be successful, it must be aligned with the organization’s culture. In this case, CO’s desire to remain a “family” with herself as the matriarch was in direct conflict with the idea of formalized procedures and automated, less flexible processes. Regardless of what individuals— even the owner of a small business— may espouse, ideals and cultural norms are not easily set aside. Before IT can be utilized to produce effective change, time and effort must be spent understanding and carefully moving the dominant culture toward adaptive change in itself. Getting people to adjust their mental models and world (or at least organizational) views can be an enormous task. It is likely that we could spend all our time addressing issues related to people’s assumptions and never get anything else done. On the other hand, if we spend no time seriously evaluating and discussing the impact of an organization’s shared views, we risk setting in motion changes that are inconsistent with this model. At OTI, a lack of preparation and addressing deeply held beliefs, caused a rift between ideas and individuals and resulted in stagnation instead of progress. In the end, small business remains a very personal thing. Attempts at change can easily be construed as accusations of failure. No one likes to face such accusations, especially a person who has spent 20 years building a successful company. But just as individuals in a large organization who refuse to change are often left behind, businesses within industries are as much at risk. CO and the new management team were not mistaken in their professed understanding that change was necessary to experience further growth and successfully compete in a technology-rich business environment. However, neither was CO’s underlying desire to maintain a culture that she valued. In fact, in small business the measure of success is not always directly related to competitive advantage or even outstanding profits. It is important to realize that the success of a small business is often measured in terms of how well the organization meets the needs and aspirations of the owner. If, as in the case of OTI, continued growth is at odds with the owner’s feeling of success (a paradox?), extrinsically pushing for change will not achieve the desired results. It will, in fact, result

g n i h lis b u P p u ro G a e d I t h g g i n r i y h s i l b Cop u P up o r G a e d I t h g i r y p o C g n i h s i l b u P up o r G a e d I t h g i r y p o g C n i h lis b u P p u ro G a e d I t h g i r y Cop

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in turmoil, hurt feelings, and eventually weaken the firm.

EPILOGUE

g n i h s i l b u P p u o r G a e d I t h g i r y Cop g n i h s i l b u P up o r G a e d I t h g i r y p o g C n i h REFERENCES s i l b u P up o r G a e Id t h rig y p Co g n i h lis b u P p u ro G a e d I t h g i r y Cop Until recently, the questions of using technology to improve OTI’s own value chain was unquestionable.. It now seems that merely ‘throwing technology at it’ may actually produce more harm than good. Considering the business model currently employed by OTI, there are areas that may not benefit greatly from the injection of technology, for example, the highly personal and high-touch process of assigning employees to clients. There are, however, some areas of operation that can still benefit from increased use of technology. For example, internal communication has benefited, and will continue to benefit, from electronic mail. But e-mail is simply one technological tool used to facilitate better communication. ‘Chat-room’ type forums, in which managers share best practices as well as concerns, would go a long way toward unifying the company in more than name only. These ‘fora’ could produce a common, shared history of communication and problem solving. What is more, the technology would help facilitate not only processes and practices, it could help resolve many cultural issues described in this case that have recently made OTI a troublesome work environment. OTI operates in a specialized niche, offering mostly services for temporary help and providing temporary workers who, by and large, do not use information technology to do their work. Is it possible that companies such as OTI are part of and contribute to the technological divide (Department of Commerce Report, 1999) that is emerging?

Agryris, C. (1992). Overcoming Organizational Defenses, Journal for Quality and Participation, 12 (3), 29-35. Department of Commerce Report (1999). Falling Through the Net: Defining the Digital Divide, http:/ /www.ntia.doc.gov/ntiahome/fttn99/contents.html Lannon, C. P. (ed.) (1995). Leading Learning Organizations, MIT COLR Monograph (www.pegasuscom.com/article1.html) Senge, P. (1990). The Fifth Discipline: The Art and Practice of Learning Organization, New York: Doubleday Wysocki, R. and De Michiell R. (1998). Managing Information Across the Enterprise, New York: John Wiley and Sons.

Wita Wojtkowski is a professor in the department of Computer Information Systems and Production Management at Boise State University, Boise, Idaho. She received her PhD degree from Case Western Reserve University (Engineering) and her MS degree from University of Warsaw, Poland (Physics). Her current research interests are in systems development (especially for the web-centric applications), examination of the relationships and interactions between information technology and organizations (especially object-oriented technology), and implementations of electronic commerce. J. Craig Hardesty is a Quality Information Engineer at Hewlett-Packard Company in Boise, Idaho. Hewlett-Packard is a leading global provider of computing and imaging solutions and services for business and consumer markets. J. Craig Hardesty’s current projects involve quality information engineering in Total Customer Experience Group. He received Masters Degree in Business Administration from Boise State University and a Bachelors in History from the University of Arizona.