Coronado Communications

BACKGROUND

Coronado Communications, Inc. (CCI) was a midsized consulting company with corporate headquarters in New York City and satellite divisions in more than twenty-five of the largest cities in the United States. CCI was primarily a consulting company for large and small firms that wished to improve their communication systems, including computer hardware and networking systems. Each of the twenty-five divisions serviced its own geographical areas. Whenever a request for proposal was sent to CCI, corporate decided which satellite office would bid on the job.

In 2009, Fred Morse took over as president and CEO of CCI. Although CCI was successful and won a good portion of its contracts through competitive bidding, Morse felt that CCI could win more contracts if he created a climate of internal competition. Prior to Morse coming on board as the CEO, CCI corporate would decide which satellite office would bid on the job. Morse decided that any and all CCI branches could bid on each and every contract. This process meant that each satellite office would be competing with other satellite offices.

COMPETITIVE SYSTEM

In the past, CCI encouraged the satellite office that would be bidding on the job to use internal resources whenever possible. If the office in Chicago were bidding on a contract and were awarded the contract, then the Chicago office could use resources from the Boston office to fulfill the contract. The workers in the Boston office would then bill the Chicago office a fully loaded or fully burdened hourly rate, but excluding profits. All profits would be shown on the financial statement of the office that won the contract. This technique fostered cooperation between the satellite offices because the Chicago office would get credit for all profits and the Boston office would be able to keep some of its employees on direct charges against contracts rather than on overhead account if they were between jobs.

With the new competitive system, Boston would have the right to charge Chicago a profit for each hour worked, and the profit on these hours would be credited to Boston's financial statement. In effect, Chicago would be treating Boston as though it were a contractor hired by Chicago. If Chicago felt that it could get resources at a cheaper rate by hiring resources from outside CCI, then it was allowed to do so.

The bonus system also changed. In the past, bonuses were paid out equally to each satellite office based upon the total profitability to CCI. Now, the bonuses paid to each satellite office would be based entirely upon the profitability of each satellite office. Salary increases would also be heavily biased toward individual satellite office profitability.

Over the years, the company had developed an outstanding enterprise project management methodology with a proven record of success. Now, each satellite office was still asked to use the methodology but could make its own modifications to satisfy its customer base.

TWO YEARS LATER

The following facts appeared after using the new competitive system for two years:

• The gross revenue to the corporation had increased by 40 percent but the profit margin was only 9 percent, down from the 15 percent prior to the implementation of the new competitive system.
• Satellite offices were lowering their profit margins in order to win new business.
• Most satellite offices were outsourcing some of their work to low-cost suppliers rather than using available resources from other satellite offices.
• Some of the satellite offices had to lay off some of their talented people because of lack of work.
• Employees were asking for transfers to those satellite offices where greater opportunities existed.
• The cooperative working relationships that once existed between satellite offices was now a competitive relationship with hoarding of information and lack of communications.
• There was no longer a uniform process in place for promotions and awards; everything was based upon yearly satellite office profitability.
• Each satellite office created its own project management methodology. The modifications were designed to reduce paperwork and lower the overall cost of using the methodology.
• Clients that had become accustomed to seeing the old methodology were somewhat unhappy with the changes because less information was being presented to the clients during status review meetings. The clients were also unhappy that updates and changes to the methodology were not being made as fast as necessary, and CCI appeared to be getting further behind in project management capability.

QUESTIONS

1. Could you have anticipated that these results would have occurred?

2. What happened to the corporate culture?

3. Can project management practices be improved with a major repair to the corporate culture?

4. Is it realistic to expect each satellite office to have its own project management methodology? What happens when two or more satellite offices must work together?

5. Can CCI be fixed? If so, what would you do and how long do you estimate it would take to make the repairs?

From Project Management: Case Studies Fourth Edition ©2010 by Harold Kerzner.