Managing Innovation

Stone Finch, Inc: Young Division,

Old Division
PGDM (GM) 2016-17
Group 2
21st March 2017

Submitted by:
Yugandhar Garde (G16061)
Aniket Mukkherjee(G16069)
Aritra Roy (G16075)
Megha Chaturvedi (G16091)
Siddharth Lunia (G16110)

Overview:
The case revolves around Jim Billings, the CEO of Stone Finch Inc, wondering
over the decisions made in the past and how that has impacted the
company. Post-acquisition of GoldFinch Technologies, the Stone Water
Products was renamed to Stone Finch, and along with the change in name,
also came the change in approach of the top management. With the owners
son stepping down, Jim Billings was handed over the baton to take the
company to newer heights. Billings, was an entrepreneur at heart and was a
risk taker by attitude. He understood early on that the core products of the
water products have reached maturity and would be a steady source of
income for the company in the coming years, however it was essential for
the company to innovate further to stay relevant ad competitive. With this
thought as the motivation, Billings setup multiple subsidiaries to have
concentrated efforts of innovation of newer products and then integrated
back into the organization. However, there were issues in the
implementation and the radical change had repercussions.
There were primarily three problems which were to be addressed by the
management.
1. Stone Finchs growth model
For any company, in order to flourish over the long run, a number of
innovation efforts need to be pursued. Currently, the Stone Finch
company follows the architectural innovations model wherein they
have concentrate on new innovations while they have neglected
incremental innovation on their existing products.
2. Stone Finchs interdivisional conflicts
While, the policy of subsidiary helped concentrate on innovation, the
integration of subsidiaries went awry in terms of people issues.
3. Use of company stock (Resource allocation)
The organization was divided into the solutions division and the
subsidiaries, with the innovative products coming from the subsidiaries
deriving investments from the stable water and solutions division. The
increasing number of subsidiaries and the corresponding company
stock used for finding them had a diluting effect on the Stone Finch
shares. This had caused less capital to be available for investment in
the Water Products Division.

Analysis:
Organizational hierarchy:
Billings has tried to convert Stone Finch into an ambidextrous organization
which would be able to explore new innovative opportunities and exploit
existing capabilities at the same time. For this, the new subsidiary
organization structure was created where in each emerging business would
have its own processes, structures, and cultures. However, they were not
successfully integrated into the existing management hierarchy. Ideally, they
should have been kept physically separate, with totally different staffing
models and hiring policies. As the recruits of the subsidiaries were a part of
the original solutions division earlier, there was a sudden shift with the
transition of their responsibilities, growth prospects, and pay scales which
the ones staying back with the solutions division were witness to and
unsatisfied with. So the organizational integrity of the subsidiaries and the
solutions division along with the conventional water division was not
maintained. Had the hiring policies been kept separate and people be hired
from altogether different sources, there would have not been any overlap or
any kind of unhealthy information exchange leading to discontent among the
existing employees.
Resource allocation
Also, the finance issues came up only because the budgets were shared. As a
whole, with increasing subsidiaries more and more capital was invested in
their growth. Attempting to manage these projects under the constraints of
the older organization would not be conducive. The conflicts over allocation
of human and financial resources caused a slowdown and disruption of the
focus needed for innovation. Hence, it would have been better if the
autonomous units created (subsidiaries) would have their own R&D, finance
and marketing functions.
Recommendations/options to consider:
1. Decrease the high stock ratio for subsidiary employees, raise the
commissions for regular salespersons.
This would provide incentives for the employees who are not a part of
the subsidiary program. It would better the client employee relations
as the previous relationships would be maintained.
2. Keep all the sub functions like marketing, finance and HR separate for
the subsidiaries so that there is no cannibalism for financial and human
resources.
3. Make heads of all subsidiaries report to a single executive who would
have deep knowledge of the existing business and tight relationships
with executives throughout the firm. This would be to specifically
manage tradeoffs and conflicts.
4. Change the vision statement to make it meaningful to all parts of the
business. It would justify the actions of the company, cover the new
direction and would give license to continue the innovation