Case Study: The Fall of Quest

Note: This case study is based on the troubles (1999) of Compaq, a personal computer manufacturer.

1997 was a banner year for Quest Computer Corporation, a leading manufacturer of personal computers. The company surpassed $15 billion in sales, nearly seven times its revenues in 1992, the year John Clarke took over as CEO.

Clarke is a hard-driving, no-nonsense leader. His vision was to create a $30 billion enterprise by the year 2000, but things were slowly started to crumble around him. What once had been an open and productive atmosphere that cultured teamwork and performance, was now deteriorating under the strains of political infighting, cronyism, and allegations of sexual harassment.

In the eye of the storm was Samuel Anderson, vice president of human resources. Anderson and Clarke worked together in the eighties at another corporation before Clarke came to Quest in 1992. Three years later Anderson joined Clarke at Quest. Anderson immediately started using his relationship with Clarke to influence business decisions. Anderson also leveraged his ties to discreetly resolve two allegations of sexual harassment against him.

Although the majority of senior executives and managers believed Clarke was an extremely tenacious and good executive, they also believed he was getting bad advice from Anderson and accepting it.

Clarke, when asked about the sexual harassment complaints against Anderson, replied, “People make things up. There is no way of knowing. People spread rumors.” This and other incidents further strained relations between Clarke and the rest of the senior executive team. Busy with the task of running one of the world's leading PC manufacturing organizations, Clarke began relying heavily on three senior executives — Anderson, Senior Vice President Tim Hunt, and Chief Financial Officer Barry Lynn.

The rest of the team felt increasingly alienated. Over a three-year period, starting in 1996, 10 top executives left the company and following them were several essential managers and supervisors. At the center of this exodus was the bizarre dynamics between Clarke and Anderson. Many believed that Clarke empowered Anderson to do things way beyond his role in human resources.

For example, Anderson had significant influence on changing the organizational structure of the company, determining what divisions ought to sell into what markets, and which products should be sold through various departments. He also took steps to drive a wedge between senior executives, strengthening his position with Clarke while inducing a communications breakdown throughout the organization.

Anderson had a list of people whom he would constantly campaign against by advocating organizational changes to lower their profile. Once he lowered their profile, he would start a process of easing them out of the door. As one executive put it, “Anderson was instrumental in deciding which people to bring in and which were no longer acceptable in the company.”

Clarke's reliance on Anderson baffled and angered other executives. Anderson was very close to Clarke, and he had a huge impact on the business. Human resource professionals usually do not play that kind of a role, as they are supposed to bring the team together, however; all anyone saw Anderson doing was creating divisiveness. Instead of working together to fine-tune a coherent growth strategy, Quest's senior executive team became disjointed and increasingly detached from the rest of the company. Their inability to lead soon had an effect on the morale of almost every employee within the company.

Two of Anderson's initiatives drove home the point of an executive team that was out of touch with its workers. The first initiative was the building of a multimillion-dollar on-campus cafeteria that included reserved underground parking for senior executives. Prior to that, executives shared parking space with the rest of the company's employees.

The second initiative was the increased security on the eighth floor of the corporate building. Here the executives and several key managers had their offices; even though every other executive objected to the idea by arguing that it created a hierarchical environment not conducive to a free exchange of ideas with subordinates.

Anderson was at the center of almost every bit of chaos that existed within the company. Clarke denied that Anderson had undue influence. “Every executive has the same access to me,” Clarke said. He continued, “I have always had an across-the-board relationship with everybody. I always maintained a high degree of equality. There was no favoritism.”

Clarke also maintains that Anderson had “very good relations with just about everybody. Anyone who says otherwise must have an ax to grind.” Former executives said they were reluctant to complain to Clarke about Anderson because Clarke took personal offense, as if he were being criticized, and because they feared winding up on Anderson's list.

The erosion of the executive team came at a very bad time. Its main competitor was starting to grab big chunks of PC market share by proving the viability of the direct-sales model. When Clarke replaced the former CEO in 1992, his aggressive price-cutting initiatives reversed Quest's direction and led the company to the top of the PC market. But now, Clarke was much less decisive. As one former executive noted, “He was paralyzed by the speed with which the market was changing, and he couldn't make the difficult decisions.”

For example, Clarke failed to see the opportunity of the web. Its main rival was now selling over $2 million worth of products per day over the Web. In 1998, its rival surpassed Quest in desktop PC sales to U.S. businesses for the first time.

The high turnover in the sales divisions led to instability that caused several high profile corporate accounts to take their business elsewhere. As people left the organization, performance of the company started to degrade. Quest attempted to construct its own build-to-order strategy by purchasing a rival company. This endeavor failed as it had no vision to guide its direction.

Finally, things came to a head. Quest could not significantly reduce distribution and manufacturing costs or boost PC revenues. Huge oversupplies of inventory adversely affected Quest. While its main competitors grew at about 55 percent from the first quarter of last year to the first quarter of this year, Quest's business fell by 11 percent over the same period. By the end of this year's first quarter, Quest's stock lost almost half its value, and the company's first-quarter earnings fell far short of analysts' estimates.

Then came the kicker, the forced resignations of both Clarke and Anderson. The new CEO, Paula White, now has the massive job of turning the infighting rank and file into a cohesive organization. The leadership structure was severely damaged due to the large number of people leaving Quest. Although a large number of replacements were found, it is extremely hard to replace the collective experience of that many people leaving in such a short time. To help rebuild the leadership structure, Paula White has charged the interim human resource vice president, Samuel Wines, with rebuilding the leadership structure. Samuel created a leadership task force team by hiring several new human resource specialists. You were brought on as a training analyst to be a part of that team.

Discussion - Competencies

The team's first decision is a long-term strategy of implementing a competency based performance appraisal system.

  1. What are competencies and how are they related to performance?
  2. How do Skills, Knowledge, and Attitudes (SKA) fit into competencies?
  3. What is leadership and how do competencies fit in with it?
  4. What are the differences between job based performance models and competency based performance models?
  5. How can implementing a competency based performance model help Quest?
  6. If a competency based performance model was implemented years earlier at Quest, do you think it would have prevented its present troubles? Why?
  7. What are the three key leadership competencies that you believe are most important for Quest's leaders to have in order to ensure its survival?

Discussion - Building the Competency Model

  1. What methods could you use to determine the required competencies?
  2. How could you validate your competency model?
  3. How can you help to ensure the competency model will be accepted by all the members of Quest?
  4. Who do think will be most resistant to the implementation of a competency model at Quest - the executives, upper management, middle management, supervisors, or the workers? Why? Who might be the least resistant?

Discussion - Building the Leadership Appraisal Model

  1. How and why should you trial the leadership appraisal model?
  2. What pitfalls do you think the leaders at Quest might be most susceptible to when performing an evaluation?
  3. How can you help them to perform the performance appraisal correctly once it is implemented?

Discussion - Other Topics

  1. What are some short term human resource strategies that can be implemented to help Quest become more competitive?
  2. What role should the human resource department perform in an organization? Why did the last regime go out of bounds?
  3. How can you help the departments' managers to determine when they are meddling in other departments affairs, and when the are actually helping other departments?
  4. How do you approach an executive who you believe is not performing in the best interest of the organization?

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