BAVC Intro & Strategic Issue 1

Introduction

Bay Area Video Coalition (BAVC) was founded in 1976 as a non-profit media service organization.  Its’ mission was to serve the Bay Area by providing access to video equipment and offering technical assistance with video production for non-commercial purposes.  BAVC currently employs a best-cost provider strategy in the niche Bay Area market.  Its’ goal as an organization is to keep up with the rapid changes in technology and provide media services at reasonable prices.  The difficulty with holding this market position is attaining the funding required to maintain it.

Strategic Issues

We have performed a thorough analysis of your company and have identified three issues that need to be dealt with immediately in order to ensure BAVC’s long-term success.  The first issue is that your company is overly reliant on donors for funding.  The second issue is that your company’s employee retention rate is low in comparison to for-profit organizations because you are unable to offer salaries of the same caliber.  The final issue facing your company is the rapidly decreasing job placement rate of your MediaLink program graduates because of the recent swell of laid-off talent in the Bay Area Market.  The following sections will provide detailed information about each of these critical issues.

Strategic Issue #1

BAVC is currently relying too heavily on funding from donors, which is dangerous due to the shrinking number of donors and the short life-span of donor relationships.

BAVC was established with seed money from the Rockefeller Foundation, which offered five years of full monetary support.  This money was used up very quickly in an attempt to keep up with rapid technological advancements in the mid to late 1980s.  By the early 1990s, BAVC needed to decide whether or not to position itself at the forefront of technological change; in essence, this meant choosing what market position to occupy.  This choice would greatly affect the amount of capital requirements that would be necessary for the organization to continue running effectively.  Sally Fifer, Executive Director of BAVC, decided that her company would pursue the high-end market by continuing to offer the newest technologies.

Since BAVC is a non-profit organization, there are no sales.  BAVC’s revenue comes from earned income and contributed income.  Earned income represents revenue generated by BAVC’s services.  Support income is revenue given to BAVC by outside organizations, such as corporate sponsors, businesses, and the government.  In the early 1990s, BAVC’s earned income was eighty percent, as compared to its contributed income of twenty percent.  This was great because it meant that BAVC was supporting more than three quarters of its services by its own means.  Between 1992 and 2000, BAVC’s earned income declined from eighty percent to forty percent, forcing the company to rely more heavily on outside support.  As a result, BAVC increased support income from twenty percent to sixty percent of total revenue.  This change represented a dangerous shift away from self-reliance.

BAVC’s strategy requires a tremendous amount of capital because the company must constantly have the newest technology available.  BAVC cannot continue to rely as heavily as it does on support income because it is highly variable from year to year.  BAVC has remained in the Bay Area of San Francisco since its foundation in 1976.  Aside from a few potential donors moving into the Bay Area each year, the number of donors is limited because the majority of them have already contributed to your company.  Donors typically invest in one particular program or technology that your company offers.  For example, in 1997, the Mayor’s Office granted BAVC $200,000 to begin its MediaLink program; although the grant was helpful, it lasted only one year.  This means that in order for donors to grant BAVC more money, existing programs would have to be expanded or new programs would have to be created.

In regard to the life-span of donor relationships, the average foundation grant to a non-profit organization lasts less than three years.  Even worse, more than fifty percent of those grants last only one year.  This means that BAVC loses at least fifty percent of its support income at the end of each year and must then search for new donors, which are becoming increasingly scarce.  If your company continues to rely so heavily on support from donors, it will fail, because eventually there will be no donors left in the Bay Area.

How BAVC Handled Strategic Change

Introduction

BAVC was founded as an ethical, non-profit media service organization with the mission serving the Bay Area by providing access to video equipment and offering technical assistance with video production for non-commercial purposes.  BAVC currently employs a best-cost provider strategy in the niche Bay Area market, which makes it difficult to attain the funding required to live up to its mission.  We have identified three strategic issues that you company must face in order to remain successful in the future.

Strategic Issues

BAVC is currently relying too heavily on funding from donors, which is dangerous due to the shrinking number of donors and the short life-span of donor relationships.  BAVC’s revenue comes from either earned or contributed income.  Between 1992 and 2000, BAVC’s support income shifted from 20% of total revenue to 60%, forcing the organization to more heavily on support income.  This is a dangerous shift because donors typically invest in only one program or technology, and more than 50% of foundation grants last only one year.  If BAVC continues to rely so highly on support income, it will fail because eventually there will be not be enough donors left in the Bay Area to financially support the organization.

BAVC is finding it hard to retain experienced technicians and trainers due to the low salary it offers in comparison to organizations in the private sector.  BAVC’s inability to provide competitive salaries makes recruiting qualified technicians and trainers very difficult.  In addition, it is tough for BAVC to keep its’ current employees because at any moment, they can leave BAVC for a similar job at a for-profit organization, which has the ability to offer a higher salary.  BAVC must find a way to retain its’ current employees and attract new qualified applicants in order to continue providing low-cost media services.

BAVC’s job placement for its MediaLink program has decreased substantially as of late because of the increase in laid-off talent in the Bay Area market.  At its’ peak in 2000, the placement rate for graduates of the program was 95%.  The market tightening in 2001 saturated the Bay Area market with laid-off talent, causing MediaLink’s placement rate of its’ graduates to drop to 68%.  People will not enroll in the MediaLink program unless they believe it will help them find a job.

Recommendation/Implementation

BAVC currently performs its’ ethical mission by using a niche, best cost provider strategy.

Its’ key arena is the Bay Area, which it serves by providing low cost media services.  We have made three recommendations that we believe will support your company’s current strategy if implemented now: (1) Expand into the Silicon Valley region, (2) Institutes an evaluation process for all applicants seeking employment at BAVC, (3) Increase web-design training in the MediaLink program.  These changes require hiring new personnel, renting a building in Silicon Valley, and increasing classes in web-design, which is very costly.  In order to pay for these changes, BAVC must increase its’ earned income very quickly in the next few years.

Conclusion

These recommendations support BAVC’s current strategy of rapid expansion, while maintaining its’ ethical character.  It requires a heavy financial investment early on, but will pay for itself in the next five years by allowing the organization to expand its’ services and continue future growth

Big thanks to the owner at www.banishpestcontrol.com for the financial support to keep our site going.

Change Leader Needed: Exploding Ford Pinto

Exploding Ford Pinto

In the textbook Business and Society, by Anne T. Lawrence and James Weber, a crisis is defined as any event with the potential to negatively impact the health, reputation, or credibility of an organization.  More specifically, a corporate crisis is a significant business disruption that generates extensive news media coverage (423).  Ford Motor Company faced a corporate crisis in 1970, shortly after the introduction of its newest vehicle, the Ford Pinto (“Ford Pinto Fuel-Fed Fires” 1).

exploding ford pinto

Lee Iacocca, the President of Ford Motor Company at the time, decided that in order to keep up with the increasing demand for foreign, imported cars, his company needed to create a small vehicle that was very inexpensive.  His specifications for the soon to be called Ford Pinto were later known as the “Rule of 2,000.”  Iacocca stated that the new car had to weigh less than 2,000 pounds and cost less than $2,000 (Hearit 22-23).  Ford’s car designers began building the Pinto, but in order to keep its weight under 2,000 pounds, they positioned the gas tank above the car’s rear axle.  This meant that a rear-end collision could rupture the gas tank, causing it to explode (“The Ford Pinto Case” 1).

Iacocca suggested the use of cost-benefit analysis to determine whether or not to fix the gas tank, which would be hazardous to not only the driver and the passengers of the Pinto, but to surrounding vehicles as well.  The chart on page three was taken from a Ford inter-office memo dated September 19, 1973.  It was published by the popular magazine, Mother Jones, and was used in the prosecution of Ford Motor Company.

This chart shows that it would cost $137.5 million to fix the gas tank in the cars and light trucks, and only $49.5 million to leave the vehicles as they were and pay any law suits that arose from burned vehicles, serious burn injuries, and burn deaths.  This analysis suggests that the cost of repairing the vehicles significantly outweighs the benefit of their improved safety features; as a result, the design change was not approved (Viscusi 570).  The decision to not make design changes to the vehicles was Ford Motor Company’s biggest mistake.  Not only did this analysis represent an extreme lack of social responsibility, but it also demonstrated the company’s lack of ethics; Ford Motor Company had put a price on the value of human life.

The first problems with the Ford Pinto appeared in April of 1974, when several attorneys reported three deaths and four serious injuries resulting from explosions and the resulting fires (“Ford Pinto Fuel-Fed Fires” 1).  These reports prompted the Center for Auto Safety to petition the National Highway Traffic Safety Administration to recall Ford Pintos due design defects in the gas tanks that allowed gas seepage and fires in low to moderate speed collisions.  According to The Center for Autosafety, the petition reached the NHTSA office, but faded into the background, remaining untouched until 1977 (1).

In 1972, Lilly Gray was driving with Richard Grimshaw when her Ford Pinto suddenly stalled in the middle of a highway.  The Pinto was hit from behind by another vehicle, causing the gas tank to rupture and explode.  Lilly Gray was killed in the crash, and Richard Grimshaw suffered very severe burns (Viscusi 569).  This case did not appear in court until late 1977.  In the meantime, Mark Dowie of Mother Jones Magazine published an article exposing the design defects in the Ford Pinto gas tanks and shedding light on a number of internal documents from Ford Motor Company that showed the cost-benefit analysis that had been performed (“Ford Pinto Fuel-Fed Fires” 1).  Soon after the publication of the article, Grimshaw was awarded $2.5 million in compensatory damages and also received $3.5 million as a punitive award in court (Viscusi 569).  The publication of the article drove the Center for Auto Safety to resubmit its claim against the Ford Pinto.  Finally, the NHTSA had tests done on the Ford Pintos created between 1971 and 1976; the tests proved that the gas tanks were unsafe (“Ford Pinto Fuel-Fed Fires” 1).  In May of 1978, after an incredible amount of press coverage and a drastic decrease in Ford’s sales, the Department of Transportation announced that the Pinto fuel system was unsafe and called for a recall (“Ford Pinto”).

On June 9, 1978, Ford Motor Company recalled 1.5 million Pintos.  Unfortunately, the company’s reputation had already been shattered, and many of its key people in the creation of the Pinto were brought up on criminal charges.  Ford Motor Company did absolutely nothing right during this disastrous chain of events.  Many experts in the field of crisis management recommend that companies create a crisis management plan in case of an unforeseen crisis (Lawrence, Weber 434).  Ford Motor Company had no such plan in place, and therefore, was completely and utterly unprepared for what would happen next.

The way that Ford Motor Company handled the Pinto crisis is a perfect example of what not to do.  The crisis could have been avoided very early on in the production of the Pinto.  First, Iacocca made a mistake in creating “The Rule of 2,000” because rules are not meant to be broken.  Instead of telling his employees that the car absolutely needed to weigh less than 2,000 pounds and cost less than $2,000, Iacocca should have used his “rule” as a goal.  That way, if the car designers exceeded the weight limit or cost by a small margin, modifications could have been made and there would not have been any problems.

The second mistake was made when Iacocca neglected common sense and ethics, and allowed his company to use cost-benefit analysis to determine whether or not to make critical safety changes to the vehicles.  The safety of a vehicle’s passengers is the most important aspect to consider during its creation; if the vehicle is not safe, changes must be made.  This was not the only issue though.  The true issue lied within the cost-benefit analysis.  The employees who drew up the analysis placed a value on human life.  Even more disconcerting is the fact that no one in the company who looked at the analysis criticized it.  When all was said and done, the analysis suggested that the most profitable choice would be to not make changes to the vehicles and just sell them as they were.

Ford Motor Company’s final mistake was not recalling the Pinto soon enough.  When Ford heard about the first death related to the Pinto, the company should have immediately ordered a recall of all Ford Pintos between the year 1971 and 1976.  Instead, Ford did nothing because profits were still steadily increasing from Pinto sales.  The recall did not come until the National Highway Traffic Safety Administration’s test results of the Ford Pinto hit the news.  The results caused a great deal of negative publicity, which led to a severe drop in Ford Motor Company’s sales (“The Ford Pinto Case” 1).  By this time, more than fifty people had been killed in accidents involving a Ford Pinto.  It seemed that Ford was more interested in making profits than protecting its customers.

The Ford Pinto crisis serves as a great example of why companies should institute crisis management plans.  The idea of these plans is to be prepared for the worst, so that if something occurs, everyone in the company knows what to do.  The first step in creating a crisis management plan is establishing an internal communication system; key employees need to be alerted and be ready to address any issues that arise (Lawrence, Weber 434).  The next step is to communicate quickly, but accurately; this means that the company should tell the truth about what has happened and how they are going to remedy the situation.  The third step is to let the public know what they company is doing about the problem through mediums like the internet.  The fourth step is to do the right thing, meaning that the company needs to take responsibility for its actions and work towards a solution to the problem.  The final step in a crisis management plan is to follow up and help anyone affected by the crisis.

Ford Motor Company did not follow any of the steps of a crisis management plan.  Ford did fix the gas tanks on the cars that had been recalled, but did not willingly give any kind of compensation to those parties affected by the Pinto-related accidents (“The Ford Pinto Case” 2).  On August 27, 2009, the Ford Pinto was mentioned on National Public Radio.  A drag racer, Mike Willmon, was quoted as saying, “I tore it all down, took the engine – the infamous exploding gas tank is gone” (“Scalding A Quarter-Mile In An Electric Ford Pinto”).  More than thirty years after the Pinto crisis occurred, Ford remains infamous because of its management team’s poor decisions and lack of a plan.

What Could Ford Motor Company Have Done Better?

Simple Change Process

Simple Change Process

  1. We’ll start with an outline of the change process.  First, we determine the underlying problem.  Second, we develop a solution.  Third, we help you with the change.  After this, if we have not solved the problem, we must go back through the change process.
  2. Most of the time, when a manager states a problem, it’s actually a symptom of a deeper, underlying issue.  Some managers make the mistake of attempting to fix the symptom, which tends to have only a short term impact.  So, we begin with diagnostic questions that will help us determine what level the problem exists at.
  3. There are three possible levels the problem can exist at: the individual level, the team level, or the organization level.  If the problem is at the individual level, we’ll decide whether it stems from the organization’s design, team’s design, or individual issues.  If the problem is at the team level, we’ll decide if it stems from the team as a whole or the organization as a whole.  Lastly, if the problem is at the organization level, we’ll decide whether it stems from the environment or the organization design.  Depending on our findings, we’ll select the appropriate data gathering methods and collect more detailed data
  4. After analyzing the data we’ve collected, we’ll generate possible solutions and weigh the advantages and disadvantages of each.  We’ll select the solution we feel best fits the situation and present our findings to your department
  5. If the client chooses to use the solution, you help them through the change
  6. We should at least see some improvement with the implementation of the solution.  If the solution is effective, great.  If the solution is ineffective at solving the problem, we’ll revisit the data and determine whether we identified the wrong underlying problem or chose the wrong solution
  7. You should also create a contract that briefly outlines what they can expect of you, what you expect of them, a general timeline of events, and the outcomes you expect from the change process.

Tufts Medical Center Change

Tufts Medical Center is the number hospital in Boston, MA, leading the way in top quality care and education, but even the best university hospital isn’t without it’s problems.

Strategic Issues

The 1st issue is that Tufts-NEMC is lagging behind industry benchmarks in numerous financial measures – days in accounts receivable, accounts payable, average length of stay, operating margin, and cash on hand.  This means that the hospital is taking too long to be paid, not paying their bills early enough, and having patients stay longer than they should.

The 2nd issue is the relative size of the academic medical center compared to its competitors in the Boston area, like Partners and CareGroup.  For comparison, Tufts-NEMC had 450 beds and Partners had 2,000.

  • This size hinders its fundraising ability. In 2005, Tufts-NEMC raised $10 million, while Partners raised $200 million.
  • Its small size also makes it difficult to maintain a high level of services because it just doesn’t get the high volume of cases (and revenue) that its competitors get

The 3rd issue is brand recognition.  Tufts-NEMC has not done a good job of promoting its brand in the Boston area.  Brand recognition is more important than ever since Tufts is such a small competitor.  People know individual doctors that work there, but wouldn’t associate the brand with them.

How did these come about? 

The Boston area was home to several high-profile academic medical centers, and was world-renowned for its health care services.  The hospitals employed 12.2% of the total labor pool and made up 11.7% of the gross state product.  Because of the cutting edge research and high quality of services, health care in the Boston area was much more expensive on average in comparison to other states.  Severe underfunding by federal and state government caused the hospitals to amass a large amount of debt when they upgraded their facilities and services.  In 1991, hospital deregulation strived to get them to use more cost effective practices, while threatening their survival.  In order to stay afloat, many hospitals began to merge.  Eventually, there would be four major hospital systems: Partners, Caritas Christi, CareGroup, and Boston Medical Center.  Tufts-NEMC stood alone as a much smaller, private hospital.  Hoping to find a “rich uncle” Tufts merged with Lifespan Corporation, a non-profit hospital system; the main benefit of the merger to Tufts was Lifespan’s financial ability.  However, the hospitals were very different, and the change occurred without much planning.  The merge would eventually fail, which is when Ellen Zane stepped in as the first non-physician, permanent, female CEO.

What are the drivers of change? 

The first driver of change was staff improvements.  Within 2 weeks of starting, Zane fired the SVP of Strategy and the VP of Fundraising and Development; in total, she replaced half of the senior management team with new people that she thought fit to help her turn around the hospital.  The new SVP was a networking building expert and the new VP had a proven track record of success.

The second driver of change was communication and outreach.  Zane was fully transparent about the situation the hospital was in, what she planned to do to get the hospital out, and how the employees could help.  One way she did this was by holding “town meetings” where she presented financial facts and identified initiatives the hospital could begin to spur its recovery and future growth.  One of the key factors in the meetings was that Zane talked to every single employee, no matter what their job was; this ensured that everyone was included and their ideas and concerns were taken into account.  Zane also sent out regular emails to her staff, updating them on the change on progress toward their goals.

The third driver of change was the identification of weak areas in the hospital’s performance and management.  Zane identified failing financial measures, missed benchmarks, poor contracts, and a lack of network building, and then created a plan to fix each item.

What are the objectives?

The overarching objective of the change is to turn around the hospital by decreasing its debt and generating more revenue.  (1) Zane wanted to improve each of the financial measures and benchmarks to get the hospital back to the average industry levels. (2) Zane wanted to increase insurance rates by reopening negotiations with major health plans; this would increase revenue dramatically. (3) Zane wanted to rekindle Tufts’ past affiliation to build a support network for the hospital and to enhance its current services.