Write an action plan for following case study : The San Jose office is one of Automated Consulting Services' main offices, accounting for roughly $15\%$ of total revenue. The San Jose office is the only office in the firm that was acquired rather than built from the ground up$.$ With the acquisition closing less than a year ago and Kyle Ross acting as the managing partner, ACS is facing several issues stemming from the office's billing practices. Staff at the San Jose office are regularly engaging in $$cross$-$subsidizing$$ where they bill clients who are under budget from other projects that are running over budget.

$3\mathrm{.}2.$ Discussion$/$analysis about the situation of San Jose Office

The San Jose office is a revenue center with a decentralized control system headed by the managing partner, Kyle Ross. The situation facing the executive committee is complex as the issue of cross$-$subsidizing has several implications and potential courses of action. Given the fact that the San Jose office was acquired rather than built up$,$ it is to be expected that business practices will not be entirely aligned with ACS$$s standards. It is critical that the actions taken to reprimand the cross$-$subsidizing be perceived as fair and just by other members of the firm. Especially given the fact that the founders had never articulated guidelines for partners in terms of their billing practices. If the consequences of cross$-$subsidizing are perceived to be excessively harsh by others, it has the potential to kill ambition within the firm that has allowed us to come this far.

Further, it is worthwhile to note that the members of the San Jose office did not consider cross$-$subsidizing to be unethical. In fact, the principal who informed Angela about the practice had told her that it is a regular occurrence and helps the office meet revenue targets. While the ethics of cross$-$subsidizing are questionable $($discussed in part $5)$ the issue boils down to a difference of standards rather than a deceitful scandal as those involved were not trying to hide their actions from the rest of the firm. This should play a part in the decision to take disciplinary action against those involved.

Finally, the executive committee is faced with the decision of how to proceed with the clients that have been overbilled. In principle, the founders agree that the fee should be returned. However, this could cause significant damage to the firm's reputation and could potentially cost them millions in future lost work if not done correctly. The best course of action will be to issue a notice to the affected clients maintaining ambiguity on the matter. In issuing a refund to the clients citing a clerical error $($or something of the like$),$ the clients will not think twice about the issue and will likely just be happy to receive a portion of their bill back. If ACS provides too much detail on the matter, the long$-$term integrity of the firm could come into question even though cross$-$subsidizing had only been a practice at one of ACS$$s offices for less than a year.

$3\mathrm{.}3.$ Evaluation of alternatives for San Jose office:

Alternative $1$ Make no changes.

Pros:

Stronger revenues generated from cross subsidizing

Low risk of clients ever finding out

Employee moral will be maintained and no arduous process to reprimand needed

Cons:

The fundamental values on which the firm was built will be compromised

Depending on the attitude and reception to changes some staff may need to be fired

Long term client relationships may be put at risk

Making no changes to the current cross$-$subsidizing taking place in the San Jose office would be the easy way out as the firm would be able to keep all the overbilled funds with little risk of clients ever finding out. However, it is a matter of ethics and core values of the firm that will lead to the decision.

Alternative $2$ Implement appropriate management controls.

Pros:

Clients will be pleased to receive a refund for overbilled work will and will likely not ask too many questions if the firm maintains ambiguity in their approach

Actions taken to reprimand those involved and will echo throughout the firm, cementing the values on which the firm was founded and will likely prevent others from trying to do the same or something of the like

Reactions to changes by the San Jose office can be interpreted by management to assess the long$-$term viability of the San Jose office as it operates now

Alternative $2$ Implement appropriate management controls.

Cons:

The autonomy of the offices will be compromised

The reaction of management could kill future ambitions of individuals and entire offices to defy the status quo $($ethically$)$

Loss of overbilled revenue

In Summary, implementing the decision to return overbilled funds and discipline those involved will result in lost revenue to the firm and can divide those who do not approve of the decision.

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