Wallace Group Inc. Business Issues and Analysis

Frances Rampar, President of Rampar Associated, a management consultant, who conducted a management survey into the problems facing the Wallace Group. Her task is to develop a series of priorities for Wallace’s consideration. She had to make an effective sales representation to Harold Wallace. Harold Wallace was the president of the Wallace Group. He has asked Rampar to conduct a series of interviews with some key Wallace Group employees, in preparation for a possible consulting assignment for Rampar Associates.


At a glance the central problem seems to be the absence of cooperation between each group. Since the group is consisted of three independent outfits that are not keen to share information and cooperate with each other. The thorough examination of the case reveals that the main problem is not only the absence of it’s but a worse the group is out rightly affected by negative synergy.

Synergy is the cooperative interaction among groups, especially among the acquired subsidiaries or merged parts of Wallace group that creates an enhanced combine effect is the central problem. Top management should understand the difference in organizational cultures, and understand of how diversification activities will “fit” or to be coordinated with the existing business.

The problem regarding the cooperation between the groups was a result of the diversification strategy. The Wallace group attempted to vertically integrate plastics production but Wallace cannot manage the acquisition, so he instead opted to attract equity capital and formed a closed corporation. Prior to this acquisition, several years back, Wallace acquired a chemical company on the verge of bankruptcy by means of public stock offering.

The diversification that was undertaken by Wallace is referred to as conglomerate diversification. It occurs when a firm diversifies into areas that are unrelated to its current line of business. Synergy may result through the application of management expertise or financial resources. The primary purpose of conglomerate diversification is improved profitability of the acquiring firm. Little, if any, concern is given to achieving marketing is to diversify further because two thirds of Wallace’s business is dependent on defence related contracts.

The most common reason for pursuing conglomerate growth strategy lies with a firm’s limited current line for business. That is why the original set up of Wallace, the electronics group, was made to merge with two acquired non related businesses which are the plastics and chemical components. Firms may also pursue a conglomerate diversification strategy as a means of increasing the firms growth rate. Growth in sale may make a company more attractive to investors especially for those firms who are publicly listed.

This strategy goes without certain repercussion; the biggest disadvantage of a conglomerate diversification strategy is the increase in problems associated with operating unrelated businesses. Managers from different divisions or components may have different backgrounds and may be unable to work together effectively.

Competition between strategic business units for resources may entail shifting resources away from one division to another. Such move may create manifestation in the Wallace group. This materialized in what the Wallace group is experiencing as stated in the case, the erosion of corporate governance.

Wallace group’s corporate governance is in question and is most often viewed as both associated to corporate structure and the relationships which determine corporate direction and performance. The board of directors is typically central to corporate governance. Its relationship to the other primary participants, typically include employees, customers, suppliers, and creditors. The corporate governance framework also depends on the legal, regulatory, institutional and ethical environment of the community.

It addresses control of corporations but governance has always required an examination of the underlying purpose. Corporate governance is a field in economics that investigates how to secure/motivate efficient management of corporations by the use of incentive mechanism, such contract, organizational designs and legislation. It is also the system by which companies are directed an controlled. The aim of corporate governance is to align as nearly as possible the interest of individuals, corporations and society. Corporate governance is about how companies are directed and controlled.

Good governance is an essential ingredient I corporate success. Corporate governance is what you do with something after you acquire it. Corporate governance describes all the influences affecting the institutional arrangements that determine what public corporations , who controls them, how that control is exercised, and how the risks and return from the activities they undertake are allocated.


Must:To be able to address corporate governance issueWant:To be able to infuse positive synergy in all levels of the firm within 3 years.


Strength:1. Electronics and Plastics groups of Wallace Groups, Inc. are stable and profitable, they turned I a profit of $3.5 million before taxes, which was a growth over previous year’s earning, and declared a dividend for the fifth consecutive year. 2.Offers competence in the areas of microelectronics, electromagnetic sensors, antennas, microwave, and minicomputers.

3.45% of the company stocks are owned by Harold Wallace which can be good and bad thing. Good side of it that organization is run by somebody who actually created the business has been with it the entire time and knows it very well. 4.They adopted growth strategy and they are committed to pursue it.

5.They adopted hybrid structure which includes product divisions , each serving a different market. 6.Management positions have been promoted from within the company. Those are people who know what is going on, they the knowledge. 7.They share skills, expertise and resources.

8.They invested in backward integration which helped them grow. Weaknesses: 1.Chemicals Group is not performing well. It has shown some level of decline. 2.Wallace Group mostly depends on defense-related contract. 3.Harold Wallace holds 45% of the Wallace group’s stocks- also president and Chairman, he has majority of votes on the Board of directors and his personal interest effect his decisions.

4.Centralized decision making. Howard Wallace is running the organization like a one man operation. While it has grown and got too big for that. 5.Work morale is poor. Managers lack the authority to make the decisions, but they do not lack the responsibilities. 6.Technical people are promoted to management position without any managerial experience 7.Some of the employees functions were added recently and many of the job accountabilities are still being defined.

They lack of job description. Vice President of Finance, Secretarial/Legal, Marketing, Industrial Relation staff has assumed many functions formerly associated with the group officer. 8.Employees are very frustrated and upset high dissatisfaction. People are no managed right. 9.Candidates for the position have been rejected o n the basis of discrimination, which led to law suit. 10.Tremendous recruiting backlog. Too high qualification standards, mismatching the pay rates. 11.Shortage of technicians and engineers

12.Low pay scale13.Lack of training14.Low specialization, electronics engineers work on chemical project 15.Poor Planing resulting in reacting to situations rather than acting . 16.Poor inner-departments communicating. Goals and reason are not communicated and clearly explained. 17.Lack of marketing function at the group level to develop a strategy to define markets, and research and development product opportunities.

18.Lack of sale force or representative network to sell the product. 19.Poor Coordination between departments rather than good organization and cooperation. 20.Company has its supplier with (Plastics supplies Electronics, Chemicals supplies Plastics) but the transfer pricing is too high, higher that competition. 21.Each of the three groups functions as an independent company. Opportunities

1.Gain of private market share. Grow in non-defense oriented markets and products. 2.Development of new products. Using existing production methods, they could develop end-use products such as motors, traffic control device, microwave transceivers for high emergency communications as well as components such as LCD displays , police radar tracking devices, word processing systems memory and control devices (page 2-10) 3.Being their own supplier gives them chance to have price competitive advantage (page 2-10)

4.Working on government contacts that are secured guaranteed payments may result in expanded and continuous contracts.

5.Opportunity for ongoing sales upon testing of final product under defense department contracts Navy –A Program , Air Force B. (exhibit 8)

6.Chance for five year contract with Lombard which can result on $56 million sales

7.Developing management development program group

8.Better training of the employees9.Unqualified candidates are cheaper labor force. Good training can make them experts valuable to the organization 10.New Director of Advancement Systems (to replace Matt Smith who is retiring) who could bring new ideas in. 11.Development of Group/Marketing/sales function to lead expansion effort 12.Establishing a management planning system

Threats:1.Groups are very dependent on each other as their primary and only supplier, if one of the group goes into bankruptcy, the whole organization will be in trouble. 2.Transfer pricing is very high. Eventually groups may supply from competition to gain competitive materials cost (page 2-9) 3.Pressured from unions concerning lay-offs and pay level as well as the law suit caused by rejecting new candidates.

4.Any problems with law put Wallace Group on vulnerable position, concerning the amount of government work they are involved in. 5.Because of the slow response to market need they could loose their reputation as trustful business which gives room for competition to step in. page 2-9


ACA #1Advantage:-Thoroughly address organization problem-Will encourage enthusiasm among employees and officers.-Will boost up employee morale-Will establish a system by which Wallace Group are directed and controlled -Will establish teamwork and close coordination-Will able to meet the long term objective.Disadvantage-Costly and time consuming-Resistance to change of upper and lower managementACA #2Enhance the management efficiency and effectivenessAdvantages:-Will increase productivity among employees-Will increase profit and salesDisadvantages:-Resistance to change of employees-Required strict monitoring of employees performanceACA #3Replace the PresidentAdvantages:-Immediate morale booster for the employees-New goals and direction can be established-Prelude to a harmonious relationship within the organization Disadvantages:-Power struggle among the Board of directors-Adjustment to new management style.

RECOMMENDATION:I chose ACA #1. To properly address the organizational problem. It will encourage enthusiasm among employees and officers, boost up employees morale, will establish a system by which Wallace group are directed and controlled, develop teamwork and close coordination of managements from the top level down the line and will be able to meet the long term objective of the company.


1.Needs a clear defined mission statement and goal. The mission statement defines the fundamental, unique purpose that sets a company apart from other firms of its type and identifies the scope of the company’s operations in terms of product offered and market served.

Once a mission statement has been established, the team must move on to established objective. 2.All division directors need to be involved in formulating this statement so that starting at the top, the company can begin to head in a direction that all understand and agree with. 3.Required to re-orient its approach to handle the growing needs of the organization.

This will involved a major adjustment in the personnel management style of Mr Wallace, his priorities, vision and future objectives for growth of the company 4.Mr. Wallace will need to make changes in the organizational structure of the group to create a conducive environment for a motivated and diversified workforce. 5.Set up a management team in order to execute programs related to organizational development. 6.Upgrade a management development program for the employees in terms of trainings related to their new job positions.

7.Develop Group marketing/sales team to lead the company in business expansion effort. 8.Integrate marketing planning efforts to successfully grow in con defense oriented markets and products. 9.Develop marketing planning, supply and distribution, manufacturing, technology, research and development. 10.Give employees more authority that would bring the morale, satisfaction and motivation to higher level. 11.Benchmarking of salary structure, benefits and hiring process.