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Published: 
Sunday, March 1, 2015
Case preparation guide: Top Rig Ltd

The following guide is intended to aid readers in analysing the case Top Rig Ltd. When analysing a case, remember that there are many possible approaches and solutions and the goal is to develop your analytical and problem-solving skills rather than figure out “the one right answer.”

Synopsis

Eric Nayar is about to retire as CEO from the family firm and the company will need to find a suitable replacement. He is concerned that selecting the wrong person for the CEO position could jeopardise the future of the business but feels the time had come for him to step aside. The company has experienced major changes to the organisational structure in recent years but sales continue to be stagnant while a number of larger competitors have aggressively entered the market.

Case analysis

Q1. What qualifications should a suitable candidate for the position of company CEO possess?

It is apparent that the incoming CEO will have to not only possess considerable experience managing a manufacturing business but also be adept at managing the human resources of the organisation. 

The company provides very specialised products to business clients in the oil and gas sector so knowledge of the industry and the decision making processes of customers in this sector would be a major asset. Experience derived from working as a senior manager for a company in the industry would also assist in maintaining the personal contacts that are vitally important for driving sales of the company’s products.

A critical requirement is that the candidate be able to handle the dynamics of family members being intrinsically involved in the business. 

A certain degree of diplomacy and tact is needed in order to ensure that Eric’s influence over the operations of the company is limited after his retirement. The CEO will also be responsible for managing the careers of other family members still employed by the firm and must be able to manage the competition for resources among managers that currently exists. People skills are thus extremely important if the culture of the organisation is going to be changed and new policies implemented.

In addition to having strong leadership skills, the new CEO must recognise that this is a family run firm and there is the likelihood that one of Eric’s children may wish to occupy this position in the future. 

The candidate would thus need to be reasonably comfortable operating in an environment where job security is not guaranteed and be prepared to relinquish their position in favour of a family member. This might be more easily accomplished if the candidate is older or closer to retirement and willing to accept a role as a caretaker manager until the next generation is ready to lead the company.      

  

Q2. How effective is the existing business model and design of the organisation?

Although the company continues to be profitable, flat sales and intensifying competitive pressures suggest that the founder’s goal of 10 per cent annual growth may no longer be realistic. A reassessment of the company’s growth potential and realignment of sales goals with the current environmental conditions is imperative.  The overall strategy of focusing on a limited number of product lines and providing a high degree of customisation appears suitable for the business market in which the company operates. 

The decision to match competitor’s prices may help the company to maintain market share in the short run but may not be sustainable over time due to the economies of scale that the larger firms can benefit from. 

Unless the company continues to bring innovative new products to market it will find it increasingly difficult to compete solely on the basis of price since this is an area where it is at a competitive disadvantage relative to its larger rivals. 

The current organisational structure is suboptimal and characterised by competition for resources among managers and employee confusion stemming from multiple reporting lines. There is also no evidence that employees are working towards a common goal with a shared vision of how to take the company forward. The CEO’s efforts to empower employees and get them to work across their functional silos is a step in the right direction. 

The problem, however, seems to be the failure to recognise the entrenched corporate culture which has favoured a centralised command and control system in which all major decisions were made by the owner. Changing the structure without recognising the need for cultural change is contributing to the internal conflicts being experienced. The company may thus have adopted a structure that is overly complex given the limited range of products that it sells. 

The fact that Top Rig is a family business which employs several of the CEO’s children means that advancement for non-family members will always be an issue. Unless there are clear paths for advancement within the company, the exodus of middle management talent will continue. 

The challenge for senior managers and the incoming CEO is to find space to accommodate family members in a transparent way that is based on competence and not purely family affiliation. The delegation of responsibility for operational decisions to a working group is likely to slow down the decision making process and leaves the company vulnerable to faster moving competitors. 

While useful in the short run to manage the transition, the emphasis should be on finding a replacement for Eric as quickly as possible in order to end the leadership vacuum that currently exists.     

Q3. What strategies should the new CEO pursue in order to ensure the viability of the business?

The incoming CEO needs to start by setting realistic goals for growth and then aligning all the company’s resources to achieve these targets. The current organisational structure appears overly complex and there should be consideration given to creating business units for each product line which would be supported by the marketing and production departments. 

This structure would establish clear lines of authority and reporting and eliminate some of the confusion experienced by employees. It is absolutely critical, however, that systems be developed to more fully share information within the company so that managers do not simply retreat to their silos as obtained previously.

It should also be recognised that this restructuring may require that resources be reallocated among the managers and the CEO should prepare for the exit of some of the managers who may be unwilling to accept the constraints imposed on them by the new structure.

Provision also needs to be made for the family members who are currently employed by the company. A clear set of guidelines regarding promotion needs to be developed and widely circulated so that perceptions of nepotistic preferences are minimised and there is transparency in the HR practices of the firm. 

This should provide depth among the middle management ranks and put a halt to the steady loss of talented personnel. The CEO will need to actively engage with the family members to provide guidance on managing their careers over time. This is particularly important for the two family members that Eric has requested be promoted upon his departure. 

Team-building strategies are necessary in order to overcome the tensions that exist among the senior managers in the company. Implementing a profit sharing system based on achievement of team goals would be one way to foster a more cohesive approach to conducting operations. It may be necessary to hire an external consultant to assist in changing the current independent mindset and allow employees an opportunity to more freely ventilate their issues to what they may perceive as a neutral third party.

Finally, the CEO will need to be politically astute in managing the influence of the former CEO who remains the company’s largest shareholder and clearly wants to play a role post retirement. It is important that Eric supports the efforts to change the way the company does business and does not become an obstacle to progress. To this end it may be advisable to retain him in an ex-officio advisory capacity for the short run while the transition is taking place and perhaps engage him on a specific project assignment such as leveraging his contacts in the industry to open new business for the firm.  

Dr Barney Pacheco is a lecturer in the Department of Management Studies at The University of the West Indies, St Augustine

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