Whitman at eBay Running head: Whitman at eBay Meg Whitman at eBay Inc. Joseph V. Bellino Katie Gleason Kat Valladares HRD501: Organizational Theory and Behavior 1 Whitman at eBay 2 Pierre Omidyar began eBay in 1995, simply as a pet project. He wanted to create an environment where all people had equal access to information and where everyone could be treated with honesty and respect. Two years later, eBay had become the largest and most popular site of its kind on the Internet. Because of this unexpected growth, Omidyar felt that it was time to bring in a more experienced and company-oriented Chief Executive Officer (CEO). After much searching and several meetings, Omidyar hired Meg Whitman to take the place of President and CEO of eBay, Inc. (Hill & Farkas, 2005). Whitman jumped into eBay headfirst and began making improvements. While she both understood and supported the eBay culture, she knew that there were parts of the company that would need to be changed. With that in mind, she developed her initial priorities, established a close working relationship with Omidyar and made sure to keep clear communication lines open with the company staff. Because of the communication, Whitman was aware of growing problems within the company. Whitman approached the growing technical problems with an eye to the future, as well as other issues that arose. Eventually, she decided that to provide the strongest core for the organization possible, a few more experienced executives would need to be brought in (Hill & Farkas, 2005). Whitman, in conjunction with Omidyar and other top eBay executives, brought in Brian Swette as the marketing executive, Michael Jacobsen as general counsel, and Scott Cook and Howard Schultz as board members. With these new faces, Whitman hoped to help strengthen and promote growth within the company. This growth was soon to be seen in the form of the company’s initial public offering (IPO). Despite odds against it, the company had a very successful IPO in third-quarter 1998. This successful IPO seemed to mark a point in time where eBay began to take more criticism than before (Hill & Farkas, 2005). Whitman at eBay 3 After the IPO, eBay began to receive criticism for policies regarding user fraud, sale of illegal items, etc. The nature of eBay was that users were responsible for their own items and eBay was completely hands-off; however, the company was starting to realize that there may be a necessary policy change. Because of the corporate culture at eBay, though, Whitman knew that a heavy-handed executive response was not the answer. Through much debate and explanation, Whitman made the decision to change the company’s policies regarding community safety and such things as the sale of firearms (Hill & Farkas, 2005). Even while making the decisions to change policies, Whitman was considering how best to help the eBay community and began to work on an expansion program for customer support. The company created an off-site facility dedicated to customer support, in addition to keeping the practice of employing its own users as support technicians. The company also expanded the technical aspects of maintaining the site, allowing for heavier volume (Hill & Farkas, 2005). These changes to eBay policy and improvements to service and website were all done in a very short time period. Whitman continued to press on and entered a partnership with AOL, allowing for limited marketing on eBay’s site. Whitman went directly from that partnership, seemingly, to acquiring the auction house Butterfield & Butterfield. These changes angered many members of the eBay community at the same time as they increased revenues for eBay and gained support of industry analysts and investors. These changes also created an environment in which acquiring Kruse International was an extremely controversial decision, simply because so much unrest had been happening within the community and the company as a result of the previous changes (Hill & Farkas, 2005). One of the most determining factors of eBay’s success is the company’s distinct culture, a culture based on a strong sense of community among its users and employees. As Whitman Whitman at eBay 4 states, eBay is a site “of the people, by the people, for the people” (Hill & Farkas, 2005, p.1). The internal culture was designed based on the community sense they portrayed on their external culture (Hill & Farkas, 2005). Pierre Omidyar “designed eBay to be an efficient market where all users had equal access to information and treated one another with honesty and respect” (Hill & Farkas, 2005, p.2). He understood and externalized his vision of the company, that the most important element of their culture should be their respect for their community. “It goes far beyond “the customer is always right” because eBay wouldn’t exist if it weren’t for our community,” he explains, “at eBay, our customer experience is based on how our customers deal with our other customers. They rarely deal directly with the company. So how do you control the customer experience? The only thing we can do is to influence the customer behavior by encouraging them to adopt certain values” (Hill & Farkas, 2005, p. 4). He wanted a culture based on trust, respect, autonomy, equality and empowerment, not only among their users but also among their employees. Their success was going to be based on how their customers treated each other and the performance of their business (Hill & Farkas, 2005). Omidyar has portrayed those values for the company through his own actions, like always being honest with his employees and communicating with them about his management decisions and actions to take. An example of this is when he decided to hire Whitman as the new CEO. He was very careful to communicate to the employees the reasons for hiring Whitman, the positive outcomes from it, the actual situation of the company, etc. He immediately delegated responsibility to her, was always respectful of her position, and teamed up with her to achieve the company’s goals (Hill & Farkas, 2005). Whitman at eBay 5 eBay is a type of boundaryless organization (Robbins & Judge, 2007), which follows the characteristics of the organic model of organizations, with a low formalization, nonhierarchical structure, encouragement of ideas and feedback from all employees and clients as well, through the Feedback Forum where users are encouraged to submit feedback on his/her trading partner (Hill & Farkas, 2005), wide spans of control, cross-hierarchical teams, etc. The informal, open communication channel structure reflects not only their internal culture but it also mirrored many of the characteristics of its external culture as everybody is empowered to give their opinions, recommendations, participate in problem-solving and decision-making processes based on teambased approaches, etc. They have urged everyone in their company to embrace the values of the company, and to be a guardian of the culture (Hill & Farkas, 2005). “eBay users frequently formed “neighborhood watch groups” to help guard against misuse or violations of site etiquette and also were known to organize grass-roots movements to improve the eBay environment.” (Hill & Farkas, 2005, p. 12). Even though the company has this informal structure and environment, the organization’s core values are both intensely held and widely shared. Employees perceive the company as a place where their opinions are highly valued with open channels of communication and a “no penalty culture,” where there is no penalty for being wrong or changing your mind on a decision. This is a culture with a high people orientation as their employees and users are an important factor for every single management decision made. There is a striking connection between eBay users and the site. Having a strong culture has been a determining factor on eBay’s success and popularity among employees and users, reaching high levels of loyalty and organizational commitment. On the other hand, this same intensity and strength had made it difficult for clients and employees to Whitman at eBay 6 respond to the organizational changes the company was going through in order to keep pace with the rapidly changing environment and to remain competitive. To face this growth, the company members have worked really hard to preserve the unique internal culture of the company, by hiring only individual who fit with the company’s culture. As Omidyar explains: “We not only look for someone who brings experience to the table, but also someone who really understands the importance of the community here. If I interview someone who says, “Wow. You’ve got a really loyal community of users. We can extract a lot of value out of them,” I know that’s the wrong type of person. On the other hand, if that person says, “Wow. You have a really loyal community of users. They are the real foundation of this company” - that’s the right tone of respect towards our community” (Hill & Farkas, 2005, p. 10). Now, the company is facing a new challenge with this rapid growth they have suffered. Even though they have made sure that they are hiring only quality employees that fit with the culture to maintain the internal culture stability, it is a fact that they can not control the external culture in the same manner. At the rate they are growing, with exponentially more new users than what they had before, it has become a major issue to figure a way to communicate the values of the community to everyone. Before, that communication process was easily person-toperson, when most users came on as buyers and interacted with experienced sellers who would communicate to them the right values. These are becoming some of the major issues the senior management personnel are taking into consideration before taking actions for development such as acquisitions like Kruse. Communication was not the only issue faced due to growth. The eBay community had begun to feel as though they are not as important due to the acquisition of larger companies, such as Butterfield & Butterfield (Hill & Farkas, 2005). This outrage in the eBay online community Whitman at eBay 7 created an environment where it was difficult to introduce more change, as the community may not be in the best mindset to accept change. According to Robbins & Judge (2007), “people often resist change due to individual reasons…perceptions, personalities and needs” (p. 269). While the addition of companies such as Butterfield & Butterfield provides a broader selection of inventory, therefore more buyers, therefore more sellers, the majority of the community members could not see this because of their own interests (Hill & Farkas, 2005). Before the company began acquiring outside companies, there were still the issues of technical growth. eBay essentially outgrew itself. They faced several site outages within a year’s time, the most critical of which being an outage of over eight hours. This led Whitman to realize that she had to invest in the system capacity, as the loss of capacity cost the company too much in customer satisfaction (Hill & Farkas, 2005). Other issues questioning the status quo at eBay were such moral dilemmas as selling firearms on the site. The company lacked strict regulations, which meant that it was not very hard for minors to purchase guns. Because of the company policy to be as hands off as possible, it was unable to monitor the sale of firearms. This eventually led to what seemed to be a moral business decision – the choice to ban the sale of firearms. Fraud became an issue with growth, as the company was based on trust. This led to more policy changes, such as eBay employees monitoring some items for sale on the site (Hill & Farkas, 2005). Meg Whitman represented new thinking to eBay, and was a change agent for the company during the company’s large growth spurt. Robbins & Judge (2007) define a change agent as someone who is responsible for managing change activities. All of the growth the company was experiencing represented some type of change, and Whitman was there to pull the company through. She successfully applies Lewin’s three-step change process to eBay. Lewin’s Whitman at eBay 8 theory requires unfreezing the status quo, changing or moving, then refreezing the change (Robbins & Judge, 2007). Every decision she makes, she clearly indicates to her executive staff the reason for the change in status quo. She helps develop the plan and vision for the change, them implements it. She continues to support the change and rallies her employees around the change to help the refreezing step. Despite her clear attempts at involving others in the change process, Whitman would not accomplish her goals without the support of those around her. John Kotter (1996) states that “In successful transformations, the president, division general manager, or department head plus another five, fifteen, or fifty people with a commitment to improved performance pull together as a team” (p. 446). From the start, Whitman had the support and backing of Pierre Omidyar. This was very clear from the beginning, a point that Omidyar was emphatic about. He gave a presentation to the employees letting them know that he had confidence in Whitman and her decisions, and proceeded to delegate responsibility to her right away (Hill & Farkas, 2005). This led the company to see that she was trusted. With the eBay culture being based on trust, both corporately and within the community, this was an extremely important part of making the transition to her leadership smooth. Kotter (1996) also states that “Vision plays a key role in producing useful change by helping to direct, align and inspire actions on the part of large numbers of people” (p. 447). Whitman was emphatic about having a clear vision for the company and having that vision articulated to everyone. She knew how important it was to the company’s growth to have everyone on board with her (Hill & Farkas, 2005). All of the aforementioned tactics eased the changes in eBay. Lewin’s change theory allowed for the changes to be able to take place, while the efforts of Whitman and Omidyar Whitman at eBay 9 allowed the employees to feel valued and keep their trust in management intact. By continuing to show a united front to the company as well as giving real consideration to the culture and values of the company, Whitman can continue to make good decisions for eBay. When Omidyar made the decision to bring in a new CEO, this was the type of person he was looking for. For Pierre Omidyar, the two most important criteria in selecting eBay’s future CEO were marketing experience and cultural fit with the eBay organization. Meg Whitman had both (Hill & Farkas, 2005). Normally the trigger for change in an organization is an impending bankruptcy or fear that the organization may lose its competitive advantage (Robbins & Judge, 2007). In eBay’s case the trigger was that Omidyar made the decision that if eBay was to achieve its true growth potential it would need a successful seasoned professional to lead the changes necessary for eBay to succeed. Meg Whitman was the choice, as evident by her resume. She had a proven track record of successfully implementing change which resulted in profitability. Additionally, Whitman was able to understand the connection of eBay users and the site – the site being the eBay organization and therefore, Whitman was the right fit for eBay (Hill & Farkas, 2005). So then, who is Meg Whitman and what type of leadership will she bring to eBay? Let’s define leadership as the use of noncoercive influence to direct and coordinate the activities of a group toward accomplishing a goal (Werner & DeSimone, 2006). Whitman has clearly demonstrated her ability to lead organizations to very successful outcomes. We know there are wide arrays of leadership theories and leadership skills necessary to effective management, especially for organizations that are trying to implement change. We believe that Meg Whitman’s leadership style is primarily that of “Transformational Leadership.” Whitman at eBay 10 The transformational “leader is someone who captures our attention, presents us with a vision of what could be, inspires us to pursue the vision, and shows us the way to get there”(Werner & DeSimone, 2006, p.544). Bernard Bass refers to these ideas as the heart of transformational leadership (Werner & DeSimone, 2006). Elements of transformational leadership include charisma, intellectual stimulation, and individualized consideration. This theory seems to fit most people’s idea of what real leaders do, especially when leading an organization through change (Werner & DeSimone, 2006). We can also see that Trait Theories also define Whitman’s leadership style. Trait theories of leadership differentiate leaders from non-leaders by focusing on personal qualities and characteristics (Robbins & Judge, 2007). The qualities and characteristics Whitman possessed as a transformational leader are evident by her professional accomplishments, clearly indicated on her resume and subsequent experience at eBay. Whitman began at eBay in 1998 and realized, through past experience, the importance of understanding and being respectful of the organization’s culture and past achievements. Whitman immersed herself into the organization to learn and understand as much as she could about her senior executive’s responsibilities, priorities, thoughts, and perspectives on the future of the company. She quickly realized that the culture at eBay was significantly different from her previous work experiences. Whitman was to encounter both a technical system resistance and a cultural system resistance to change (Robbins & Judge, 2007). As an example, we believe that Whitman, while trying to initiate structure (referring to the extent a leader is likely to define and structure his or her role and those employees in the search for goal attainment. It includes behavior that attempts to organize work, work relationships and goals (Robbins & Judge, 2007)) Whitman at eBay 11 received push back as the culture was such that appointments for scheduled meetings were not part of eBay’s culture. Whitman realized that eBay was a transactionally lead company that was entirely engineering driven with virtually no marketing, and its organizational structure was in its early stages of development (Hill & Farkas, 2005). By the end of week two Whitman was ready to transform eBay. Transformational leadership “comes down to charting a course-having the ability to articulate for your employees where you’re headed and how you’re going to get there. Even more important is choosing people to work with who have that same level of passion, commitment, fear, and competiveness to drive toward those same goals”(Robbins & Judge, 2007, p. 90). Whitman did this by establishing a “set of short-term priorities: to develop a strategy for the level of investment the company should make in system capacity, to define and develop eBay’s marketing strategy, to streamline and strengthen the organization, and to prepare the company for its IPO”(Hill & Farkas, 2005, p.6). Additionally, “Whitman believed that familiarity bred comfort and trust, which in turn contributed to a more effective team” (Hill & Farkas, 2005, p.6). Whitman held numerous team meetings counter to eBay’s culture, but believed it was time well spent – eventually resulting in short and focused discussions to determine points of view and make decisions quickly. This also resulted in a smooth transition from Omidyar to Whitman as a result of the confidence Omidyar had in Whitman. It was also due to careful communication to the organization by Omidyar (Hill & Farkas, 2005). In order for Whitman to develop a strategy for investing in system capacity she needed to bridge technical system resistance, which was brought upon as a result of her not communicating in a language that her senior person in charge of systems capacity understood. Together they Whitman at eBay 12 bridged that communications gap and Whitman made the strategic decision to significantly increase eBay’s investment in system capacity (Hill & Farkas, 2005). This is another example of transformational leadership. We could go into much more detail defending our position that Whitman was a transformational leader, in short she transformed the following at eBay: pursued grass root marketing and print advertising, branded eBay as personal trading community for individuals, clear corporate vision to be the world’s largest on-line personal trading community, she then executed the vision by streamlining the organization and strengthening the senior management team (Hill & Farkas, 2005). Whitman was also careful to maintain the eBay culture and was successful in doing so during its transformation and rapid growth. “eBay was careful to hire only individuals who fit with the culture” (Hill & Farkas, 2005, p. 10). Meg Whitman made many changes as leader of eBay. Her newest possible acquisition, that of Kruse International, has many possible repercussions. As previously discussed, the company is already feeling affected by the rapid changes that have taken place since Whitman’s introduction to the company. “Whitman knew she needed to think through the stress that growth placed on the internal and external cultures, but the pace of activity has been so brisk since she joined eBay that it had been hard…” (Hill & Farkas, 2005, p. 17). As CEO, she was aware that the culture was already under stress from the changes. Growth, and increasing the number of employees due to that growth, would only increase the stress more. In addition to the stress on the eBay culture, both internally and externally, Whitman was concerned with the company’s abilities to keep up with the technological demands of increasing the user database. The risk of not maintaining a capable system was an important point to consider as the company’s reputation Whitman at eBay 13 could be destroyed by frequent glitches (Hall & Farkas, 2005). These are all valid concerns on Whitman’s mind when considering the Kruse acquisition. Whitman was aware that the acquisition of Kruse International would be good for the company by bringing in more buyers, creating an environment which attracted more sellers and a larger community. She also knew that the investors and industry analysts were pleased with the company’s growth (Hill & Farkas, 2005). Using Lewin’s change model (Robbins & Judge, 2007), the company was ripe for more change as the new changes had not been refrozen yet. The company was still in a state of movement, which meant that the company should still be more receptive to change. The rapid pace of growth the company is having is a large factor in the Kruse decision. eBay counts on the support and the same time handles the pressure of high expectations from investors that are expecting the company to grow (Hill & Farkas, 2005). This support, along with the increasing and rapid popularity eBay had among users helped its rapid growth, “eBay’s net revenue grew from $604,000 in the first quarter (Q1) of 1997 to $34 million in Q1 1999, and gross merchandise sales grew from $9 million in Q1 1997 to $541 million in Q1 1999” (Hill & Farkas, 2005. p. 1). In order to face this explosive growth, Whitman and the senior management team had to institute a number of corporate policies and took a number of proactive measures to deal with challenges and take the company up to the next level. Although changes were applauded by investors, some of the eBay users bristled at them. With all this, Whitman started to wonder if the Kruse acquisition might be “too much, too fast” (Hill & Farkas, 2005). When Whitman arrived at eBay, the company was only 35 employees and was almost entirely engineering driven. The company had done no virtually marketing and its structure was Whitman at eBay 14 only emerging. So, by the end of the second week, she developed a set of short-term priorities. Among these priorities, there were actions related to investing in system capacity, to design and develop a marketing strategy, to streamline and strengthen the company and to prepare it for its IPO. She also knew that during this time a lot of new issues and opportunities were going to arise for them to face, thus, she needed to train her management staff to prepare them to make the best decisions about these facts in “Internet time”. As part of her marketing strategy, Whitman conducted focus groups in San Francisco and Boston, where she and colleagues experienced first hand the high level of commitment users had with the company. They divided the groups of users, and developed the PowerSellers Program for heavy users and collectors to give them some benefits for their sales. On the other hand, they wanted to achieve eBay’s brand positioning, which was centered “on the idea that eBay was a “personal trading community” where you can trade “practically anything on earth” and “be successful” doing it.” (Hill & Farkas, 2005, p. 9). Whitman tried to prepare the company for future challenges due to their growth. Even though eBay did not have any legal issues at the moment, she decided to recruit general counsel, along with specialists for the management positions in marketing, etc. She increased her investment in technology; however, eBay continued to face periodic system outages throughout the year (Hill & Farkas, 2005). The company also had to deal with problems such as fraud on its site, but Omidyar was very careful not to impose many policies on the site as he has preferred to trust users and give them the responsibility to safeguard the site themselves (Hill & Farkas, 2005). In response to this community safety issue, internal policy changes were included and new optional protection services were introduced. They had staff members checking out several items on the site which Whitman at eBay 15 they decided if they were illegal or not, and decided to take them out of the site or leave them. They had to make a number of judgment calls, which angered users in many occasions. (Hill & Farkas, 2005). One of the most important factors influencing eBay’s position regarding the Kruse acquisition is the pressure of competition. In the last few years, major companies such as Amazon had entered the auction market and had included bidding and other services on their sites. eBay had tried to keep focus on maintaining their actual users and, most of all, attracting new ones because they know they have a loyal community. “To that end, they engaged in a series of organizational changes, strategic partnerships, and acquisitions in a brief period of time” (Hill & Farkas, 2005, p. 15). They decided to enter into one of the largest partnerships on the Internet. They made an agreement to jointly develop auction sites for AOL’s flagship online service and all of its other properties. AOL would be promoted as eBay’s “preferred online service” and in return, eBay would be the exclusive auction site featured on AOL. This was without a doubt the smartest move, applauded by investors (Hill & Farkas, 2005). Another acquisition eBay made was that of Butterfield & Butterfield, one of the world’s oldest and most prestigious auction houses. This acquisition would be like the Kruse acquisition because eBay was also benefiting from the profits made from the final auction prices, which in this case were high-priced items. This was another great move applauded by analysts and investors (Hill & Farkas, 2005). In 1998, Whitman succeeded in taking the company public at $18 a share. By 1999 the stock had risen to $195 per share after a three way split. Whitman faced her first serious challenge due to criticism over its policy on community safety; the policy that dealt with the sale of illegal items, fraud, and other issues. Whitman knew how damaging these issues could be for Whitman at eBay 16 eBay as trust was the foundation on which eBay business was built. She knew she needed to take action, but the culture was such that the user community and eBay staff would regard any action as heavy handed top down management. Whitman met with the board and discussed her concerns; Howard Shultz, a member of the board, stopped Whitman and said, “Meg, it’s about the character of the company” (Hill & Farkas, 2005, p. 12). Five days later Whitman changed strategy and was proactive, simply because it was the right thing to do. She implemented internal policy changes and the introduction of optional protection services for users (Hill & Farkas, 2005). Whitman also ceased the sale of firearms and ammunition, a significant change in strategy which was also carefully communicated as a change in policy for the long term health of the company – because it was the right thing to do. Whitman continued to grow eBay by providing greater customer support capabilities in order to provide the eBay community a high degree of personalized attention. The strategic partnership with AOL and the acquisition of Butterfield & Butterfield strategically positioned eBay as it attempted to achieve its unknown potential (Hill & Farkas, 2005). “Whitman knew she needed to think through the stress that growth (transformation of eBay) placed on the internal and external cultures, but the pace of activity had been so brisk since she had joined eBay that it had been hard to find time to step back and reflect” (Hill & Farkas, 2005, p. 17). Her task was to determine whether to pursue the acquisition of Kruse or not. In conclusion, we believe that in spite of the rapid growth, flurry of activity, internal and external pressures and that Whitman was successfully transforming eBay the acquisition of Kruse International was a good business decision. The acquisition of Kruse International would Whitman at eBay 17 financially benefit eBay, as Kruse International was a high-priced, high-end auctioneer of collector automobiles where profits were garnered from the final auction prices. Analysts and investors alike approved of eBay’s proposed acquisition of Kruse International, it was a sound business deal. eBay’s performance expectations were so high, from both internal forces and the forces of its community, as well as the support of its communities, that it was obvious the Kruse International acquisition was also a good decision for eBay. eBay was a financially stable and profitable company and therefore could financially afford the Kruse International acquisition. Finally, in order to fend off its competitors and to remain the largest person-person trading site on the internet, eBay had to acquire Kruse International (Hill & Farkas, 2005). After completing this paper, we wanted to ascertain what Whitman decided. In reviewing eBay’s web site, eBay Motors was founded in 1999. Meg Whitman is still President/CEO and eBay, as of 2006, had a gross merchandise volume of $52.5 billion dollars, 222 million registered users, and 13, 200 employers. Whitman recently stated in Boston, MA that eBay will experience more changes in the next six months than in the previous six years (eBay, 2007). It appears Whitman is not quite done transforming eBay as she has not found the time to step back and reflect. Whitman at eBay 18 References eBay (2007, December 6). Retrieved December 6, 2007, from http://news.ebay.com/history.cfm Hill, L. A., & Farkas, M. T. (2005). Meg Whitman at eBay Inc. (a). Harvard Business School, 9, 401-424. Kotter, J. P. (1996). Transforming organizations: Why firms fail. In J. S. Ott, S. J. Parkes, & R. B. Simpson (Eds.), Classic readings in organizational behavior (4th ed.) (pp. 445-451). Belmont, CA: Thomson Wadsworth. Robbins, S. P., & Judge, T. A. (2008). 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