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Contrast in Management Styles: Management by consensus V/S Laissez Faire

SAS International emerged because of the thought out growth strategy for expanding operations of SAS which had been the brainchild of Jim Goodnight who had managed to create a culture and management style in SAS which had not only lowered employee turnover to just 5%, which was 15% less than that of the industry, but had also worked towards creating a work environment where the organization was taking its employees as vital resources which he believed contributed to 95% of the organization’s success.

SAS International was a totally different concept all together. Where SAS originally had worked with a flat organizational structure with only four levels in the chain of command, SAS International had expanded into several countries and was not following a centralized management style. SAS had been a smaller organization and so the management style of the leader was more personalized and a laissez faire approach to leadership worked well in the US market at that time. SAS international focused on a ‘Management by consensus’ approach. The best ideas were selected and no standardization was seen in either management styles or organizational structures.

Criticism of the Management style

Although in this case study it seems like an idea which is even more flexible that the original style of leadership of Jim Goodnight who had brought in the best form of laissez faire approach to the organization, with an organization which had expanded across the globe, this led to chaos and organizational cultural differences across the globe.

SAS international lacks the concept of a global leader whereas entrepreneurial leadership was needed to drive the business across the globe especially in the age of intense competition where brands were not only known by their solutions but ‘branding’ itself played a great role in marketing.

There is no doubt that SAS has encouraged creativity through flexibility but this approach needs to be more structured with the help of entrepreneurial leadership so that all ideas can be spread across the organization through one centralized management head. Of course people should be given the liberty to give their ideas as originally SAS had allowed its customers to give suggestions for improvement. Quality circles and teambuilding should be practiced but the management should focus more on creating a standardized culture across the globe.

In this case study, SAS International currently has the approach which suggests that leadership doesn’t have to be restricted to a single person, country or organization. This is probably because the organization has expanded globally and the idea of a ‘Hybrid Franchise’ has allowed each region to have its own style of management. However, for a firm to create an impact globally, especially at a time when leadership styles and brand names are creating brand loyalty worldwide, an unstructured organizational structure with hazy leadership can create doubts in the minds of customers. Situational leadership may have some benefits too but for an organization like SAS which has expanded globally multiple hierarchical structures would be beneficial.

Currently SAS international has two key clusters, a functional cluster which manages strategy and a professional cluster which handles legal services which is also the key operation of the organization.  The functional cluster is in Heidelberg while the key clusters are in the countries of operations.  The first level of management in each country has been strengthened by a local head for managing the country’s operations.  This has its advantages too since SAS initially had problems in expanding its operations globally because of lack of multi-country knowledge. However, this has led to issues of extreme decentralization such as vast differences in management styles and business context in all regions.  Plus in this way the organizational culture can never be standardized to be labeled as a ‘strength’ for SAS International as originally SAS had been known by its leader’s management style.

Looking at Global examples in the software industry, companies like Microsoft and Apple have been known throughout for their distinct cultures and strong leaderships. So SAS international would do well if the culture of SAS is brought into the subsidiaries to some extent. This can be done by bringing in senior management in the global offices so that the culture can at least be standardized to some extent before the local management can make their mark.

SAS international has adopted the policy of information sharing and in believes that countries should specialize in what they are best at and then share that information with the rest of the teams in other countries. However, if the management is not strong enough and is not focused on a specific vision or ideology, this can create problems for the organization as it would fail to get the best out of the resources.

Such an approach may also fail in the sense that it believes what works in one country can be copied and brought to another country. However, if there are cultural and management differences in the offices worldwide, implementing a standardized practice or solution would get difficult in any case.

6. What is the outlook for SAS? Can it maintain its entrepreneurial model and culture in face of the evolution of the industry? Should it once again reconsider going public? If so, what would be the benefits and drawbacks? What would an IPO entail? What is the outlook for SAS when Goodnight no longer manages the firm?

 Outlook for SAS in this case:

SAS is part of a fast paced market where technological changes are taking place rapidly and any company which fails to do so would lose out. It’s not a matter of making software products for customers anymore but a matter of providing complete industry solutions and so smaller companies would eventually need to expand and grow with the help of acquisitions, mergers and partner alliances.

SAS would eventually need to change its entrepreneurial model of being handled by Goodnight’s laissez faire approach with immense flexibility and exceptional employee loyalty.

With the fast paced technological changes in the industry, employees may need to move from organization to organization as technical mobility and the ease of geographical mobility would make it easier to get go for better opportunities globally.

The Decision to Go Public

Back in the late 1990s when the company had decided to go public, there were several apprehensions which Jim Goodnight had and eventually the decision to go ahead with the decision to go public was postponed. Even during those days there were several reasons for going public as discussed below.

Jim Goodnight had a very progressive and positive approach to handling business decision making. Although he was not in favor of going public personally, he was willing to go ahead with it because of the advantages it seemed to offer to the business as a whole and the wellbeing of the employees at that time.

The competition had started growing and there was a need to grow as a company and going public was the approach which was being followed by other big companies in the industry.

Goodnight changed his approach of being an introvert and started accepting public interviews and increased public exposure for the sake of taking the company public. He felt there was a need to do so for reasons such as:

  • Tech Stock had increased tremendously because of the increasing internet craze.
  • Startup companies were trying to attract the technical staff of SAS because of the earnings that public limited companies were offering to their employees.
  • Microsoft, one of the main competitors of SAS had managed to make individuals earn in millions because of the rising stock prices
  • SAS was not offering any stock program to its employees back then and even if it had done so as a private limited company, it would not have had as much of an impact as a public limited company would have had.
  • Going public seemed like a good idea for employee retention.
  • SAS could have used the finance generated through going public for any further acquisitions.

Similarly, there were reasons why Jim didn’t want the company to go public in 2000.

  • The hype that had earlier been created because of the tech stocks was no longer there and stock prices were going down.
  • 87% of the  employees of SAS were against the idea of going public

If we look at the current scenario, going public is a good option for SAS in several ways. The company has expanded globally and is offering hybrid franchises to different countries. At this point, going public would create brand recognition and would help in solving the issues that SAS is currently facing such as its International subsidiaries not having a universal brand recognition. Going public would have several advantages as discussed below:

  • It would give SAS access to capital which can be used for further acquisitions as that seems like a good strategy for growth in the current scenario. Jim Goodnight had looked upon acquisition as a strategy for acquiring ‘skills’ and not for growth purposes but in the current scenario when software companies are offering complete solutions and are becoming customer-needs focused, focusing on ‘skill acquisitions’ is not enough and growth is needed for expanding market share.
  • Going public would make it easier to sell shares as IPOs would attract potential customers because of the speculation of rising stock prices in the future.
  • SAS’s public profile would be enhanced through this decision as currently it is being seen as a company which has very little multi-country knowledge and is relying on the management of host countries to expand its operations.
  • SAS has already become a multinational with the emergence of SAS international and so going public should be the next milestone that it should be looking at.
  • As the company is currently not offering stock options to employees, going public would be an even better approach to creating employee retention and for repaying employees for their loyalty with the company in the past.

The decision can however have several implications too and those should be looked upon before the decision can be taken. For instance

  •  Jim Goodnight currently held 2/3rd of the shares of the company and going public would mean that he would lose control of the company. This would also mean that the culture that he had created in the organization would no longer prevail.
  • The employees of SAS would get the options of owning stocks in the company but may have to lose out on the perks that the private company was offering to its employees. These perks had worked well to create employee retention and decrease employee turnover in the past.
  • SAS had been investing in R&D which may not be possible if it went public for shareholders would be more interested in personal gains rather than in the growth of the company and innovation of new products. This may even mean that the way the company had been hiring in the past may not be possible any more as the board of directors may decide against the polices that Jim Goodnight had been following in the past.

On the whole though it is a good strategy for further expansion and Jim Goodnight should go for it if he plans to expand his business further.

For turning the private limited company into a public limited company, SAS would have to hire the services of an investing bank which would start the process of an initial public offering, the IPO.  The investment bank would then work on what the public would be offering for shares in the company. A predetermined price would be set for the SAS’s shares and the company’s shares would be offered in the stock exchange at that price.

Outlook for SAS after Going Public

Going public would certainly change the way the company works. Currently the main focus of the company is its employees and customer. Because of Goodnight’s management style, employees had enjoyed privileges such as recreation, fitness, day care, individual offices, flexible working hours etc. However, going public would bring about a new board of directors who would be responsible for the decision making of the company. The privileges that the employees had availed may not be possible when Goodnight is no longer responsible for the company’s decision making. The shareholder’s would look at the impact of the decisions on the company and all of its stake holders and they may not see the employees as the main priority of the company whereas Goodnight had considered the employees as 95% of the reason for the company’s success.

 

 

References

 

Olu, Ojo .Hybrid franchise model FRANCHISING: HYBRID ORGANISATIONAL ARRANGEMENT FOR FIRM GROWTH AND NATIONAL DEVELOPMENT

Source: Lex ET Scientia International Journal (LESIJ) issue: XV2 / 2008, pages: 113120,

Thomas J. ChemmanurA Theory of the Going-Public Decision. Boston College

Mr Youth and Intrepid .What your company will look like when Millennials call the shots

http://www.millennialinc.com/Millennial_Inc_PRINTPDF.pdf

 

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