exhibit ii 1997 organizational structureexhibit iii 1998 organizational structure W r i t i n g

exhibit ii 1997 organizational structureexhibit iii 1998 organizational structure W r i t i n g


For this assignment, read the case study, “Acorn Industries” starting on page 180 of your textbook. Once you have read and reviewed the case scenario, respond to the following questions with thorough explanations and well-supported rationale.

§Looking at the historical organizational changes of Acorn industries, describe how you would organize the business now for greater effectiveness. Include a new (updated) organizational chart, and explain your rationale for making these changes.

§Explain the risks associated with your new organizational structure on the overall organization and the effectiveness of a project management system, including discussion around project scope and structure.

§Describe the Key Management Incentive Program (KMIP) and how it would be impacted by your new organizational structure. Address any challenges that might arise with the implementation of the new organizational structure.

§Describe how changes in organizational structure and scope might impact the overall project management process at Acorn.

Your case study response should be at least two pages in length and follow APA guidelines. References should include your textbook plus a minimum of one additional credible source. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations in APA style.

The following case describes a firm struggling with its organizational structure as it expands its successful commercial business into the governmental contracts arena. This new source of business, however, requires extensive competence in project management, which is new to the firm. As the governmental business grows, the firm has continued to alter its organizational structure, but its performance and incentive systems also need to be changed now, and the impact of those changes on the commercial business is unclear.


Acorn Industries2 Harold R. Kerzner, PhD

Acorn Industries, prior to July of 1996, was a relatively small Midwestern corporation dealing with a single product line. The company dealt solely with commercial contracts and rarely, if ever, considered submitting proposals for government contracts. The corporation at that time functioned under a traditional form of organizational structure, although it did possess a somewhat decentralized managerial philosophy within each division. In 1993, upper management decided that the direction of the company must change. To compete with other manufacturers, the company initiated a strong acquisition program whereby smaller firms were bought out and brought into the organization. The company believed that an intensive acquisition program would solidify future growth and development. Furthermore, due to their reputation for possessing a superior technical product and strong marketing department, the acquisition of other companies would allow them to diversify into other fields, especially within the area of government contracts. However, the company did acknowledge one shortcoming that possibly could hurt their efforts—it had never fully adopted, nor implemented, any form of project management.

In July of 1996, the company was awarded a major defense contract after four years of research and development and intensive competition from a major defense organization. The company once again relied on their superior technological capabilities, combined with strong marketing efforts, to obtain the contract. According to Chris Banks, the current marketing manager at Acorn Industries, the successful proposal for the government contract was submitted solely through the efforts of the marketing division. Acorn’s successful marketing strategy relied on three factors when submitting a proposal:

  1. Know exactly what the funder wants.
  2. Know exactly what the market will bear.
  3. Know exactly what the competition is doing and where they are going.

The contract awarded in July 1996 led to subsequent government contracts and, in fact, eight more were awarded amounting to $80 million each. These contracts were to last anywhere from seven to ten years, taking the company into early 2009 before expiration would occur. Due to their extensive growth, especially with the area of government contracts as they pertained to weapon systems, the company was forced in 1997 to change general managers. The company brought in an individual who had an extensive background in program management and who previously had been heavily involved in research and development.

Problems Facing the General Manager

The problems facing the new general manager were numerous. Prior to his arrival, the company was virtually a decentralized manufacturing organization. Each division within the company was somewhat autonomous, and the functional managers operated under a Key Management Incentive Program (KMIP). The prior general manager had left it up to each division manager to do what was required. Performance had been measured against attainment of goals. If the annual objective was met under the KMIP program, each division manager could expect to receive a year-end bonus. These bonuses were computed on a percentage of the manager’s base pay, and were directly correlated to the ability to exceed the annual objective. Accordingly, future planning within each division was somewhat stagnant, and most managers did not concern themselves with any aspect of organizational growth other than what was required by the annual objective.

Because the company had previously dealt with a single product line and interacted solely with commercial contractors, little, if any, production planning had occurred. Interactions between research and development and the production engineering departments were virtually nonexistent. Research and Development was either way behind or way ahead of the other departments at any particular time. Due to the effects of the KMIP program, this aspect was likely to continue.

Change within the Organizational Structure

To compound the aforementioned problems, the general manager faced the unique task of changing corporate philosophy. Previously, corporate management was concerned with a single product with a short-term production cycle. Now, however, the corporation was faced with long-term governmental contracts, long cycles, and diversified products. Add to this the fact that the company was almost devoid of any individuals who had operated under any aspect of program management, and the tasks appeared insurmountable.

The prime motivating factor for the new general manager during the period from 1997 to 1999 was to retain profitability and maximize return on investment. In order to do this, the general manager decided to maintain the company’s commercial product line, operating it at full capacity. This decision was made because the company was based in solid financial management and the commercial product line had been extremely profitable. According to the general manager, Ken Hawks,

The concept of keeping both commercial and government contracts separate was a necessity. The commercial product line was highly competitive and maintained a good market share. If the adventure into weaponry failed, the company could always fall back on the commercial products. At any rate, the company at this time could not solely rely on the success of government contracts, which were due to expire.

In 1996, Acorn reorganized its organizational structure and created a program management office under the direct auspices of the general manager (see Exhibit I).

EXHIBIT I 1996 Organizational Structure

Expansion and Growth

In late 1996, Acorn initiated a major expansion and reorganization within its various divisions. In fact, during the period between 1996 and 1997, the government contracts resulted in the acquiring of three new companies and possibly the acquisition of a fourth. As before, the expertise of the marketing department was heavily relied upon. Growth objectives for each division were set by corporate headquarters with the advice and feedback of the division managers. Up to 1996, Acorn’s divisions had not had a program director. The program management functions for all divisions were performed by one program manager whose expertise was entirely within the commercial field. This particular program manager was concerned only with profitability and did not closely interact with the various funders. According to Chris Banks,

The program manager’s philosophy was to meet the minimum level of performance required by the contract. To attain this, he required only adequate performance. As Acorn began to become more involved with government contracts, the position remained that given a choice between high technology with low reliability, and vice-versa, the company would always select an acquisition with low technology and high reliability. If we remain somewhere in between, future government contracts should be assured.

At the same time, Acorn established a Chicago office headed by a group executive. The office was mainly for monitoring for government contracts. Concurrently, an office was established in Washington to monitor the trends within the Department of Defense and to further act as a lobbyist for government contracts. A position of director of marketing was established to interact with the program office on contract proposals. Prior to 1997, the marketing division had always been responsible for contract proposals. Acorn believed that marketing would always, as in the past, set the tone for the company. However, in 1997, and then again in 1998 (see Exhibits II and III), Acorn underwent further organizational changes. A full-time director of program management was appointed with further subdivisions of project managers responsible for the various government contracts. It was at this time that Acorn realized the necessity of involving the program manager more extensively in contract proposals. One faction within corporate management wanted to keep marketing responsible for contract proposals. Another decided that a combination between the marketing input and the expertise of the program director must be utilized. According to Chris Banks,

We began to realize that marketing no longer could exclude other factors within the organization when preparing contract proposals. As project management became a reality, we realized that the program manager must be included in all phases of contract proposals.

EXHIBIT II 1997 Organizational Structure

EXHIBIT III 1998 Organizational Structure (10/1/1998)

Prior to 1996, the marketing department controlled most aspects of contract proposals. With the establishment of the

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