NOTE: Please write 2-3 pages paper.

Case # 275

The memorial service was a sellout. Jack Dodson had been a colossal figure who commanded a lot of respect, if not affection. He'll be a hard act to follow, Francesca Fortas thought as she strained to make sense of the eulogy, delivered in a thick Irish accent by the same priest who had married Jack and Moira Dodson 40 years ago. Moira must be feeling especially lost, Francesca thought. A deferring, uncomplaining woman, Moira had apparently taken second place to Interboro all her married life, and just when it seemed that she would soon have Jack all to herself, he up and died.

But it wasn't just Moira and her five children who looked lost, Francesca thought. Everyone seemed bewildered. As the CEO appointed by the board to succeed Jack just before his untimely death, Francesca knew that a lot of people would be looking to her for answers. She edged forward to pay her respects to Moira, aware that a lot of curious eyes were fixed on her.

"I've heard so much about Jack," Francesca said, offering her condolences to Moira. "I'm going to do my best to protect his legacy."

A One-Man Show

That legacy was formidable. Boston-based Interboro was very much Jack Dodson's creation. He had transformed the company from a small local manufacturer of scalpels and other surgical equipment into the world's best-known maker of prosthetic limbs and surgical implants. Sales had reached more than $2 billion, with the company employing more than 5,000 people at locations in Boston, Los Angeles, and Dublin, Ireland. Interboro also had sales and marketing country organizations around the world. A pharmacist's son from the rough-and-tumble Irish American stronghold of South Boston - Southie to the locals - Jack had joined Interboro as a salesman right after completing a tour of duty in Vietnam as a medical orderly. His unit had been in the thick of some of the worst action, and he always said afterward that his passion for the company and its products came from that experience.

Under Jack's leadership, Interboro built a reputation for technological innovation and manufacturing quality. That was, on the face of it, surprising, since Jack had majored in history at the University of Massachusetts and liked to say that he had no head for "science talk." But the truth was, he loved to spend time talking to surgeons and researchers. He had that special skill that merged an interest in technology with an understanding of what customers needed and wanted. He typically came back from his travels full of ideas for new products. He would go straight to the head of R&D and get him started on a project, rarely engaging Interboro's senior team in discussions of these ideas and how they fit in to the company's broader strategy. Consequently, marketing never developed as a strong function, and R&D, though technologically sophisticated, never developed marketing savvy.

Despite his primary focus on new product ideas, Jack was also acutely conscious that health care products had to be error free, and he had always kept a close eye on manufacturing. Frank Tambor, the self-effacing head of production recruited from Toyota, had introduced many of the car company's quality practices, which had helped the firm win a Baldridge prize.

But in the three years before Jack's retirement, Interboro's performance had declined dramatically, and the company was facing strong competitive challenges in its key markets. The firm's once generous margins had narrowed as other companies found ways to engineer around Interboro's patents and develop competitive products of their own. Worse, the company seemed to have lost its innovating edge. After a string of new offerings in the 1990s, which delivered annual growth in revenues and profits of more than 15% a year, Interboro had not launched any major new products for the past four years, yet they were essential for profitable growth.

Francesca had not been Jack's choice for a successor. He had strongly pleaded the case for Frank to the board. But three years of falling results and growing pressure from Wall Street had prompted the board to look for an outsider. The directors settled on Francesca because of her technical background. A 1989 PhD from Stanford, she had also received an MBA from MIT's Sloan School in the early 1990s, and then headed back West to join the marketing department of Razar, a medical technology company. Francesca's combination of technological skills and business savvy had marked her as a highflier, and within ten years she had become the company's chief operating officer. In that role, she worked closely with Razar's chief science officer to ensure that the company's R&D efforts were focused on commercially viable products.

The headhunter had caught Francesca at the perfect moment - right after a messy divorce. She was eager to put California behind her, and a professional challenge offered just the kind of distraction she needed. There was no doubt that Interboro would present that challenge. It seemed to have completely lost the ability to innovate, and investors were starting to question whether the company actually had a strategy. Long term, Francesca knew that she would have to radically alter the way the firm innovated. But she wasn't sure that Interboro was in any shape to survive a major change initiative.

The Walk by the River

Francesca believed in tackling big challenges head-on. Her first priority was to figure out how Frank felt about her and whether she could work with him. They had met at her hotel in Harvard Square the day after her appointment was announced, and Frank had proposed a stroll along the Charles. It was a warm, early October day, and the university crew teams were out on the river practicing for the Head of the Charles regatta later in the month. As they walked, Francesca and Frank struggled to find common ground.

"Where do you plan on living?" Frank asked.

"Back Bay, probably," Francesca said. "I don't have kids, so I don't need a big house. Anyway, I like the buzz of city life."

"I know what you mean," Frank agreed. "I miss Back Bay. Cathy and I had a place there until the kids came along. Now we're in the suburbs. The schools are good, and the commute is fairly short. But I miss the edge of city life sometimes."

Frank shuffled his feet. "Look, Francesca," he said. "You have a lot of problems in this company, and I'm not one of them. I know everyone thinks of me as Jack's boy, and I was. But I'm not such a fool that I can't see that the company needs to change." He caught Francesca's eye. "We got way too dependent on Jack for ideas," he said, "and, to be honest, he didn't have much faith that anyone in the company could come up with them, so he didn't really develop the capability. He was always talking to people outside the company for ideas. And now we've got a real problem on our hands."

Francesca listened intently. "And what would you do if you had my job?" she asked pointedly.

Frank paused for a moment. "Well, to begin with," he said, "we've got to take a look at why people are not thinking beyond their immediate functional departments. People around here are focused only on making their numbers within their own units, so they don't have much reason to respond to product development initiatives from R&D. Besides, they don't believe R&D's estimates of market potential. So why invest time and money on a promise they don't believe? When Jack pushed an idea, we all responded because Jack was the boss, and he was just that kind of guy. But with him gone, who's going to stick their necks out now?"

"Did you ever talk to Jack about this?" Francesca asked more abruptly than she had intended.

"I didn't," Frank acknowledged. "But we did get a report from PK Henderson a year ago. The board got Jack to call them in for a consult. They came up with this reorg idea. Most of us thought it was a little crazy and that a massive reorganization was not the answer. Personally, I still believe that the problem is motivation, that the company needs more powerful incentives to get people thinking out of the box. Jack didn't see it, though, and he buried the report. He said that really good ideas don't need incentives, they need passion, and that he was the chief passion officer."

Company or Career

Francesca put the question to Teddy Adler, her executive coach. Francesca had first consulted Teddy for career advice shortly after joining Razar. A fellow Sloan alum had recommended him: "He's a bit domineering but very smart," the alum had said. "He can give you a real political edge." Teddy had more than lived up to the billing.

After Francesca read the report, she and Teddy met at a small restaurant in Cambridge, one of Francesca's favorite haunts when she had been a student at MIT. The restaurant was part of a popular, upmarket local chain, and Francesca remembered having a farewell meal there with some friends after her business school graduation. She ordered a small Caesar salad and a glass of Diet Coke as she settled down to talk with Teddy, who was fairly dismissive of the Henderson report. "There's no way you can win doing a wholesale reorg," he said, leaning in and lowering his voice. "You just don't have the people to make it work fast enough. It'll take five years minimum. If he'd wanted to, Jack might have made it work, but not you, not yet. You've got to build some capital with the board to make that kind of change, and to do that you're going to have to rack up some successes."

Francesca pushed back. "Suppose I don't turn out to have any great ideas for products, or the ones I do develop and push through just don't pan out? Then we're back to square one - and at that point, the honeymoon, such as it is, will be over."

"Look, Francesca, that's just the risk you take with this kind of job. What this board wants is new products, and they're not worried about how they get them. They've made you CEO because they think you can give them what they want. Remember, they saw the report, too, and they buried it. If they'd wanted to do what the report recommended, they would have hired some reorg expert instead of you. Your strong suits are technology and marketing. That makes you the best person to spot new products that will work - products that you can then drive through the organization. In this respect, your biggest problem will be Tambor because, whatever he says, he'll resent the fact that you got the job and he didn't. The other people will fall in line. Pappas is near the end of his career and won't want to move, so he'll ultimately knuckle under. And Chuck Bukowski over there at R&D is used to playing a supporting role anyway. With limited time at your disposal, you've got no choice but to repeat the Jack Dodson leadership formula. Create your own senior team, pick a product, and be forceful in moving it through to conclusion, even if that means more top-down management than is typically your style."

At that point, friends joined them, and the conversation shifted to the Red Sox. Francesca listened with only half an ear; baseball bored her, and her head was full of the conversation she and Teddy had just had. On one level, everything he said made sense. A massive reorg carried a lot of risks. The noncollaborative culture of the company made it hard to see how a complex matrix like cross-functional organization could possibly work. Moreover, there was the question of who in the company could lead the new strategic marketing group. As Teddy had pointed out, she could find herself out on her ear before the results came in. If the company survived after she left, it would be the next CEO who got the glory. And that was supposing Interboro could even stay independent. It was obvious that the board knew that, too. Why else would it be in such a hurry?

But Francesca wasn't so sure that Teddy was giving her good advice. Her experience and values instinctively told her that developing the organization and its people so that the company would possess the capability for sustained innovation was the way to go. Interboro has shown that it can't dream up new products on its own. Shouldn't she be looking for ways to fix that? Wasn't a CEO supposed to look to the long term? Or was she just cooking her goose?

Then again, she had never been in this type of turnaround situation before. Frank had said that the problem in the company was motivation. People needed an incentive. Why not make a larger percentage of managers' compensation contingent on sales and profits? This, together with strong leadership from her, might be just the solution. Maybe Teddy was right after all.

"Guys," Francesca said to Teddy and those who had joined them, "I have to go. I have an early morning meeting tomorrow." She suggested they stay and enjoy the rest of the evening. She walked out of the restaurant into the cool fall air. "Let's see, which way?" she said out loud, speaking to no one in particular.

What strategy should Francesca pursue: institute a basic reorganization, or recreate the Jack Dodson model of strong leadership? Give detailed reasons for your answer based on the circumstances of the case.