ORGANIZATIONAL BEHAVIOR MIDTERM – FALL 2001
BA 205: Organizational Behavior
MIDTERM EXAM
Instructions: You may be somewhat aggressive in your interpretation of the question, but
write a coherent and analytical essay that deals with all the issues to which the question
pertains.
The exam is open-book: there is no restriction on the materials (course or otherwise) you
may refer to. However, it is an individual assignment. Do not consult with other class
members or any one else in preparing your answer.
You are limited to five double-spaced pages. Return a hard copy to F470, Charles
Montague's work station, by 1pm, Friday, October 13. (Alternatively, you may email the
essay as an MS Word attachment to lincoln@haas.berkeley.edu by the deadline only if it is
a genuine hardship for you to be on Campus at that time).
Analyze the structure, culture, and leadership of People Express. What were their
strengths and weaknesses? Were they internally consistent; i.e., well aligned? Were they a
good fit to PE's business environment, competitive strategy, and human resource practice?
What changes in PE's structure, culture, and leadership might have strengthened the
company and improved its odds of long-term success?
EXECUTIVE SUMMARY
The case study of Booz-Allen Hamilton (“the firm”) presents various challenges experienced by
the firm over the past 20 years. This essay is an analysis of Booz-Allen’s primary problem as
described by the case: the firm’s inability to commercialize its product innovations. While there
are some people within the firm that feel that a product-oriented strategy is undesirable, my
assumption (based on the plane ride discussion between Mr. Dickie and Varasano) is that the top
management of the firm wishes to pursue a product commercialization strategy. As such, this
paper will: i) identify the challenges/problems that inhibit the firm in this regard, ii) analyze the
causes of such problems, iii) discuss the firm’s initiatives in addressing these problems, iv)
recommend alternative solutions designed to enhance congruency, and v) present ideas on how
such solutions might be implemented for maximum effectiveness.
PROBLEM IDENTIFICATION
As a result of a change in corporate strategy, a primary focus of the firm is the development of a
product innovation and development capability that will yield scalable product offerings that the
firm may efficiently deploy across its client base. However, significant problems exist in this
regard, namely: i) the firm’s tendency to reject ‘packaged’ offerings and instead seek to develop
new and innovative solutions, ii) difficulty in transferring relevant knowledge and product
expertise/experience to other employees within the firm, and iii) the reluctance of partners to
bring unrefined/untested solutions to their clients.
CAUSES OF PROBLEMS
Competitive Environment
With other consulting firms adopting Booz-Allen’s strategy of “custom” solutions, the firm’s
competitive solution differentiation has eroded. The increase in competition has made it
increasingly difficult for Booz-Allen to maintain its growth rate – a top priority due to the impact
of growth on the retention of talented employees. As a result, the firms top managers decided to
embrace a new solution strategy.
Formal Structure
The formal structure of the firm is not in strong alignment with a product-oriented strategy. First,
the establishment of multi-functional client teams does not provide for the development of
product specific expertise. Second, there were few formal incentives for employees to develop
product expertise. Because playing “a key role in building major client relationships” was the
evaluation criterion for promotion to partner, few junior employees sought to develop product
expertise. Lastly, the Special Interest Groups (SIGs) were informal in structure, and not part of
the formal structure.
Informal Structure and Impact of History
As a result of the firm’s history in developing custom solutions for clients, the culture of the firm
is not compatible with the strategy of commercializing product offerings. Many of the firm’s
partners and employees pride themselves on developing entirely customized solutions, and the
firm’s partners are accustomed to acting independently. As a result, many partners reject such
initiatives and ‘play by their own rules.’ The lack of a united vision or leadership presence, such
as in the case of Mary Kay or Anita Roddick of the Body Shop, only contributes to this problem.
Another cultural barrier is that many of the junior employees of the firm are particularly attracted
to the diversity of work assignments offered by a custom solution strategy. With an environment
characterized by routine products, turnover of junior employees could be problematic in this
regard.
Lastly, there is significant risk aversion in the firm’s culture. The partners are reluctant to
introduce unrefined ideas to clients due to the risks of unsuccessful deployment. This reluctance
is however congruent with the firm’s focus on serving fewer clients. With greater reliance on
fewer clients, it is imperative that the partners maintain credibility in their client relationships.
People
As mentioned, many of the firm’s partners act independently and problematically reject the
firm’s initiatives.
FIRM’S INITIATIVES IN ADDRESSING PROBLEMS
The company’s restructuring in 1987 was successful in reshaping the formal incentive and
compensation structure. Based on the case it appears that the restructuring was successful in
influencing behavior and aligning partner incentives toward cooperation. However, the
restructuring failed to reshape the conservative and custom-product oriented culture of the firm.
The three thrusts of company’s 1994 “V2K” initiative were somewhat ineffective in supporting
the product commercialization initiative of the firm. First and foremost, a focus on a small client
base conflicts with a product oriented strategy of deploying scalable products across as many
clients as possible. This strategy is also inconsistent with supporting risk-taking culture where
client engagements are concerned. Second, the multifunctional teams that were created were
targeted to serving specific clients, as opposed to specific products. Lastly, the Knowledge
Engine: i) created a matrix structure where assignment rotation was the norm – which is not
conducive to developing specialized product skills and knowledge, ii) established the SIGs under
informal structure, and thereby reduced its importance in the daily prioritization of employees,
and iii) provided a useful online tool for associates in background data gathering, but failed to
provide a mechanism for the partners to communicate and exchange product ideas.
RECOMMENDED ALTERNATIVE SOLUTIONS
Tasks
In order to accomplish scalability in deploying solutions and further prevent the “recreation of
wheels,” I would establish a solutions marketing group within each product area and give them
responsibility for developing reusable sales tools, such as PPT presentations, value creation
models, industry overviews, etc. This would help speed the firm’s time-to-market of product
offerings. Allentown Materials is a great example of how critical time-to-market can be in a
competitive environment. Most importantly, this group would edit and distribute a monthly
newsletter highlighting newly developed products and evolutions of existing products, based on
content received from the Client Solutions Committee.
Formal Structure
The establishment of a formal Client Solutions Committee (CSC), comprised of the firm’s most
highly respected and innovative employees would accomplish numerous objectives, namely: i)
proliferating and developing innovative products, ii) providing internal visibility to the
importance of product specialization, and iii) creating a cross functional team that is focused on
the business process of developing, enhancing and commercializing innovative product ideas. I
would also recommend making the SIGs part of the formal structure and re-establishing welldefined evaluation criteria for employees of all levels at the firm. Such criteria would include an
emphasis on contributions to the product development processes, and contributions to the CSC.
People
I would strongly recommend eliminating those partners or employees that resist the new product
commercialization initiatives. As one of the biggest barriers to this strategy is the firm’s culture,
it is imperative that cultural consensus exist, one of the main themes presented in Charles
O’Reilly’s “Corporations, Culture and Commitment” article.
IMPLEMENTATION OF RECOMMENDED SOLUTIONS
I would recommend that the firm’s employees select the members of the CSC through a voting
system for two reasons: i) participation increases commitment (Ancona p. 41, reference to
Nadler and Tushman article) and ii) the “prestige” of such positions would help reshape the
culture to place high value on product specialization.
I would recommend that the newly defined evaluation criteria be made transparent across all
levels of the organization. A highly transparent reward system would reduce the ability of rogue
partners to influence the behavior of junior employees. In a system where measurement is highly
subjective, relationships with superiors become critical, thereby giving the partner’s tremendous
influence over the behavior of junior employees. By contrast, in a system where measurement is
well defined and transparent, performance becomes the primary focus of junior employees. In
this system, it is imperative that the criteria for promotion to partner include contributions to
product development / commercialization.
Lastly, employees should be publicly rewarded ‘on the spot’ for taking risks (O’Reilly
emphasizes ‘spot’ rewards p148). Some possibilities include circulating firm-wide memos giving
recognition to deserving employees, or highlighting such an event on the front page of the newly
created monthly newsletter.
Outline
 Problem: Unable to commercialize product offerings

Identification
 Packaging scalable offerings w/o redundant recreation of wheels
 Communicating offerings
 Transfering knowledge, expertise/experience
 Incentivising partners to use product offerings

Causes
 History & Culture
 Historic focus on developing new ideas as opposed to commercializing existing ones
 Variety of assignments – employees need for diversity
 Conservativism of partners
 Credibility with clients is key, particularly with strategy to serve fewer clients with more $$
 Competitive Environment
 Competing firms adopting Booz-Allen strategy thereby reducing its competitive differentiation
 Growth rate increasingly difficult to maintain
 Necessary to retain talented employees
 Formal Structure
 Multifunctional client teams were inconsistent with developing product expertise
 Lack of formal incentives for people to develop product expertise
 Criteria for promotions to partner – “key role in building major client relationships”
 SIGs were not formal structure – they were informal structure
 Informal Structure
 History of partner fiefdoms – partners used to making their own decisions and playing by their
own rules
 Lack of united vision or leadership presence to overcome this
 Don’t have a strong leader like Mary Kay or Anita Roddick (Body Shop)
 Cultural tendency toward conservatism
 People
 Reluctant partners are preventing the adoption of the product commercialization strategy

Firm’s Strategies for Addressing Problem
 1987 Reoganization
 Successful in Reshaping Formal Structure
 Restructured partner compensation
 Performance evaluated on 5 dimensions, not just revenue
 Peer appraisals
 Change of ethic from independent model to cooperative model
 Unsuccessful in Reshaping Informal Structure
 Partners still conservative
 Partners still resist product focus
 1994 “V2K” Reorganization
 Fewer, More Expansive Client Relationships
 Conflicts with product strategy
 Conflicts with a risk-taking strategy
 Multifunctional Client Service Teams
 Focus on clients, not products. Does not support product commercialization objective
 Knowledge Engine



Matrix structure but still unclear how much rotation occurred (limits ability to develop
specialization)
Special Interest Groups – under informal structure, receive low priority in the field
Knowledge online – only associates use it

Proposed Alternative Solutions
 Tasks
 Establish a solutions marketing groups within the key functional areas
 Creates reusable sales tools such as PPT presentations, value creation models, etc. for functional
product groups
 Helps speed time to market with new products (Allentown Materials is a good example of
slow time-to-market process)
 Monthly newsletter highlighting new product information
 Formal
 Establish client solutions committee comprised of the firms most highly respected and innovative
employees
 This creates a cross functional team designed to focus on the business process of product
development and commercialization
 Establish well defined measurement criteria for all staff members
 Including partners contributions to KOL
 Make SIGs a formal structure
 Allow partners to discount client fees for ‘unrefined’ solutions
 Informal
 Encourage and promote risk-taking
 People
 Eliminate partners who don’t adapt
 This as much about changing the culture and as such, consensus is critical and the values need to
be reinforced across divisions and mgmt levels

Implementation of Alternative Solutions
 Formal
 Client Solutions Committee
 Employees select committee members through voting system
 Participation increases committment
 Employees rewarded based on contributions to committee
 Choice of assignments
 Portion of their bonus determined by this
 Early promotion
 Re-Establish measurement criteria for promotion to partner
 Needs to include contributions to product/practice areas
 Growth of product group – promotion of partners to product group
 Measured by new client engagements
 Measured by total product revenue growth
 Informal
 Encourage risk-taking
 Monthly newsletter with the front-page article featuring an employee taking risk and
delivering value
 As discussed in reading by Charles O’Reilly – people want to be accepted by others and
want to live up to expectations
 All principles and partners asked to recommend one of their employees for this honor
 Establish and consistently apply highly transparent formal measurement criteria for all employees,
thereby reducing the incentives of staff members to follow and support the preferences of
individual partners


Transparency and consistency avoids cynicism, as pointed out by Charles O’Reilly, results
from inconsistencies
Senior partners need to talk about success stories at annual corporate retreat – this leads to water
cooler conversations about what is valued
 Tie-In of Course Work
 Similar problems
 Similar mgmt solutions
 Similarly proposed solutions
 Similarly proposed implementation