The case of the downsizing decision

New CEO Charles Rampart's decision to make deep across-the-board cuts at Universal Products Company, Ltd. presents division manager Andrew Jordan with a thorny problem. Plagued by slow growth, a declining stock price, and an increasingly skeptical investment community, UPC needs to control costs and control them fast. But Jordan's division is the most profitable in the company, and the 11% cut proposed by Rampart could destroy already shaky morale and seriously threaten the division's ability to compete. "There comes a time in every manager's career when he has to fight a bad decision made by his boss," argues Sam Godwyn, Jordan's vice president for marketing and sales. "To cut across the board is to take a blunt axe to the company when a surgeon's scalpel is called for." He suggests it is better to line up support for an alternative plan that links cuts to a long-term strategy and that differentiates between successful and unsuccessful divisions. "It would be a terrible mistake for us to focus only on the narrow needs of the division when the future of the whole company is at stake," counters Mary Wyatt, Jordan's vice president for finance. Yes, the downsizing will hurt the division in the short term, but the real issue is getting behind the new CEO. Supporting the downsizing decision is a necessary investment in this future credibility and effectiveness--whatever the short-term costs. Four commentators debate Jordan's dilemma and how he should resolve it.     

The case of the unhealthy hospital

On a cold March morning, Bruce Reid, Blake Memorial Hospital's new CEO, visited the Lorris housing project clinic, one of six off-site clinics operated by Blake Memorial. He was not encouraged by what he saw: peeling paint, leaking pipes, and cramped conditions. When he asked Renée Dawson, the clinic's primary care physician, how she endured the conditions, she just stared at him. "What are my options?" she asked. That was a good question. Blake Memorial was in poor financial health, due to rising costs and stagnating revenue. The hospital's quality of care was also a major problem. In addition, the clinics were losing over $250,000 a year. As Reid worked on Blake Memorial's 1992 budget, he saw he would have to cut some services in order to fund others. One of the services he was considering cutting was the clinic program. But there were a number of conflicting forces that Reid had to consider. On the political front, the recently appointed commissioner of health services said she would challenge Blake Memorial's tax-exempt status if Reid dismantled the clinics. Within the hospital were two warring factions. One wanted more high-tech services for the hospital and favored closing the clinics. "Instead of clinics, we should have a shuttle bus from the housing projects to the hospital," one doctor suggested. The other faction wanted to expand the clinics. "Wherever the service is most needed, that is where the hospital should be," argued the clinics' director. Reid must decide what to cut and what to keep. But to do so, he must first settle on Blake Memorial's long-term mission.(ABSTRACT TRUNCATED AT 250 WORDS)     

The case of the hidden harassment

The past year has seen a growing public awareness of sexual harassment in the workplace. The question of what constitutes sexual harassment and how to recognize it has been debated in the news, the courts, and Congress. This HBR case study is less concerned with defining it than with examining what a manager should do about it. When Filmore Trust manager Jerry Tarkwell found out one of his employees was being sexually harassed on the job, he thought he knew exactly what to do. Following company policy, he immediately notified the bank's equal employment office. Then he called Jill McNair, the employee being harassed. Her response dumbfounded him. "You had no right to call EEO before talking to me," McNair said angrily. Do you have any idea what could happen to me and to my career if people find out about this?" Tarkwell didn't understand; McNair wasn't to blame. He believed the only person who should be worried was the harasser. Tarkwell tried to spell out the procedure for her. "All you have to do is write a letter and ..." McNair cut him off. "If this gets investigated by EEO, everyone in the building could be questioned. I'll probably get transferred, and then I won't have a chance at promotion. And who'd want to work with me? Every man in the company would be afraid I'd report him if he so much as opened a door for me."(ABSTRACT TRUNCATED AT 250 WORDS)     

The case of the machinists' mutiny

"You can't be serious!" Mike Trail, the president and fourth-generation owner of Trail Manufacturing, stared at five older men standing in his office. "I'm afraid we are, Mike." Sandy, the most senior of the five, was polite but firm. "We won't switch over to the new equipment." Trail Manufacturing was a small Midwestern company trying to define itself in a new world of competition. Working with engineering chief Marco Duncan, Mike Trail, its young CEO, developed a program to revolutionize the company's manufacturing capability by installing six computerized machining centers. The $4 million automation program was proceeding smoothly, or at least it seemed to be, until the sixth of eight production teams, whose members included the company's most respected machinist, refused to continue participating. Mike canvased his colleagues for suggestions. "We can't let any screw machines remain in operation," Marco insisted. "The problem wasn't just old machines. The problem was--and is--the whole company. We need a clean break with the past." Shop manager Darrell Montgomery didn't necessarily disagree, but he worried about alienating Sandy. "You know what Sandy means to this place," he said. "If it wasn't for him, we never would have survived the startup." Bob Block, the company's CFO, went a step further. He questioned Marco's all-or-nothing vision and counseled compromise. "With half the new cells up, the screw machines are running a lot fewer jobs," he noted. "But they still account for over half our sales and even more of our profits. Maybe these guys are right." Four experts on change examine the crisis at Trail Manufacturing and debate Mike Trail's next step.     

The case of the combative CFO

Minute Publishing Chairman and CEO Neil Harcum has a right to be proud of his new national newspaper, America Today. It has won three Pulitzer Prizes and attracted one million readers in just three years of publication. But, as CFO Peter Rawson points out, it's also losing $100 million a year and has broken Minute's 20-year string of earnings gains. In the process, the company has been split between two warring factions: one is backing Harcum and favors continuing the paper. The other agrees with Rawson that the project must be stopped. The board of directors has been assembled to decide the newspaper's fate. In his speech to the board, Rawson says it's time to cut Minute's losses and put an end to America Today. And Wall Street agrees. Several brokerage houses have taken Minute off their buy lists, and rating agencies are about to down-grade the company's debt. "America Today is not a good investment," Rawson argues. "Certainly, it isn't in keeping with our commitment to deliver maximum value to our shareholders." But Harcum thinks Rawson is way out of line. "We cannot allow our bean-counters to set policy," he claims. Harcum sees the newspaper as a product of the future that has created its own market. It's only a matter of time before America Today attracts enough advertising to put it in the black. He has a successful track record, and he doesn't want the board to lose faith in him now.(ABSTRACT TRUNCATED AT 250 WORDS)     

The case for case management

An effective case management program can help healthcare organizations: Position the organization for changes under healthcare reform with coordination of care across the healthcare continuum. Enhance quality of care with an interdisciplinary team focus on the progression of the plan of care. Increase payment and decrease costs by expediting patient discharge. Improve the revenue cycle process by ensuring accurate coding for prompt billing, reducing denials, and improving contracting terms with managed care payers. Proactively prepare for Recovery Audit Contractor audits and protect against unfavorable results.     

The case of the unpopular pay plan

Three years after launching the team-based Quality For All program, Top Chemical Company CEO Sam Verde was searching for a team-based compensation system that would reflect his company's new philosophy. With a committee gathered to discuss the issue, Verde confronts the fact that changing pay plans is an issue few people can agree on. "Very simply," explains vice president for compensation Gilbert Porterfield, "the plan is designed to give employees working on teams real incentives for constant improvement and overall excellence. The variable aspect of the system pays employees for the performance of their group." This doesn't sit well with the others. "It's going to punish teams like mine for the failings of others instead of rewarding us for the work we do and have already done," says packaging team representative Ruth Gibson. Another committee member feels that team-based anything is a "motivational happy land that doesn't square with how people really work." While Verde likes the proposed pay plan, he has doubts over whether his employees will accept the risk. Upper management has no problem basing 60% of its pay on TopChem's performance. But getting line employees to risk part of their salaries--even as little as 4%--on the ups and downs of the chemical industry may be more trouble than it's worth. Four experts on compensation reveal where Top Chemical went wrong in its plan and how Sam Verde might bring about change successfully.     

The case of the high-risk safety product

After several days of meetings, J.F. Winchester, president of MDC Industries, felt no closer to a decision. MDC, a manufacturer of wall and ceiling panels, was considering whether to exercise an option to buy a new and safer wallboard technology. The product was being touted as revolutionary, but, Winchester wondered, could MDC afford to carry the flag? According to its inventor, Robert Goerner, Smoke-Safe would be a vast improvement over standard safety-rated wallboard. With almost the same flame-retardant properties, Smoke-Safe had the advantage of giving off almost no fumes or smoke in fire tests. And, Winchester knew, most fire-related deaths are from smoke, not flames. Indeed, the numbers were grimly persuasive: 82% of fire-related injuries involving standard panels were caused by smoke inhalation. What's more, Smoke-Safe would cost about the same to manufacture as MDC's current wallboard. But MDC had several other good options for spending the $5 million Goerner was asking; building plastics was only one of its profit centers. And the prospect of launching a campaign to change building codes in order to market Smoke-Safe, which could spark a fight with competitors, was daunting. Since its current wallboard gave MDC only 18% of the wallboard market, many industry insiders speculated whether MDC had the market clout to influence major cities to revise their codes. Six experts in marketing, law, and ethics advise MDC Industries on how it can balance ethical and business imperatives in making its decision.     

The curious case of Panama

A small country in Central America offers some interesting ideas on how the insurance industry can handle the COVID‐19 pandemic and crisis.     

The curious case of converts

We document negative abnormal returns and abnormally high short selling in the trading days immediately before the private placements of U.S. convertible bonds. Issues experiencing greater post-placement short selling have more intense pre-placement short selling. In contrast, there are no pre-placement negative abnormal returns and less pre-placement abnormal short selling for issuers who also engage in share repurchases. Pre-placement findings are related to specific terms of the converts and related buybacks. While other potential explanations exist, the overall weight of the evidence suggests that the most plausible explanation is front-running.     

Time-varying risk The case of the American computer industry

A bivariate GARCH-in-mean model for individual stock returns and the market portfolio is designed to model volatility and to test the conditional Capital Asset Pricing Model versus the conditional Residual Risk Model. We find that a univariate model of volatility for individual stock returns is misspecified. A joint modelling of the market return and the individual stock return shows that a major force driving the conditional variances of individual stocks is the history contained in the market return variance. We find that a conditional residual risk model, where the variance of the individual stock return is used to explain expected returns, is preferred to a conditional CAPM. We propose a partial ordering of securities according to their market risk using first and second order dominance criteria.     

The case of tropical forests

The insensitivity of market mechanisms towards very long-term issues, external effects, and public rather than private costs, represents a threat to stocks of nonrenewable resources. In this discussion of the potential of two practical responses to the problem, the author examines the case of one such threatened resource, the world's tropical forests. As a means of limiting the effects of market discount rates upon such important assets, he puts forward the idea of a conservation rate of discount; as an alternative means of husbanding them, he proposes a tax on nonrenewable resources. He argues that, despite the obvious difficulties involved in this form of community action, the danger of depletion demands a broader response than the present fragmentary efforts. The costs of protecting the tropical forests and other such resources need not be exceptional in comparison with the benefits to present society and future generations.     

Political images of the future: The Dutch case

The Netherlands Scientific Council for Government Policy is responsible for supplying, for use in deciding government policy, scientifically sound information on developments which may affect society in the long term. It also draws attention to anticipated anomalies and bottlenecks, defines major policy problems, and indicates alternatives. This article describes the Council's future survey and its use of various normative perceptions discernible in the political system. Six characteristic sociopolitical orientations are identified and the likely consequences of each are depicted, with the goal of stimulating future-oriented policies. Finally, the Dutch approach is compared with the approaches in other surveys of the future.     

The welfare case for the European Monetary System

This paper argues that the European Monetary System can be interpreted as a cooperative game yielding benefits to its members. A simple model is set up in which it is shown that the EMS solution is superior to Nash. If the menber countries differ, this superiority to Nash may require an occasional realignment. It will also then require that there be no sterilization of foreign exchange interventions, since otherwise the system would collpase. The EMS is interpreted in this paper as an arrangement manner, and not o Bretton-Woods type of arrangement when there is a leader-follower relationship inside.     

The measurement of risk perceptions: the case of smoking

Climate change is a threat to human health and life, both now and in the future. Despite this, studies show that the public typically do not consider the issue a priority concern or a direct, personal threat. Furthermore, few are taking any preventive or protective action. Previous studies identify direct experience as a major influence on risk perception, learning and action. Drawing on such evidence, this paper focuses on the intangibility of climate change as a key impediment to personal engagement and explores whether relevant experiences of flooding and air pollution influence individuals' knowledge, attitudes, risk perception and behavioural responses to climate change. Perhaps surprisingly, interviews and a survey conducted in the south of England indicate flood victims differ very little from other participants in their understanding of and responses to climate change, but that experience of air pollution does significantly affect perceptions of and behavioural responses to climate change. Air pollution victims are no more likely to cite pollution as a cause of climate change than non‐victims; but they do have higher pro‐environmental values. Respondents with these values are significantly more likely to consider climate change a salient risk and to take action in response to it. Therefore the relationship between air pollution experience and responses to climate change may be indirect and mediated by environmental values. The paper concludes by highlighting implications of this research for developing climate change policies and strategies for public engagement.     

The economics of delegated regulation: The EEC and the case of insurance

It is the stated objective of the European Commission to open hitherto protected industries to international competition by the end of 1992. To this end, national governments have ceded regulatory authority over insurance to the Commission. Rather surprisingly however, the Commission in its turn appears to delegate this authority to insurance associations in EEC member countries. In this contribution, an attempt is made to explain why a supranational government might take the dual decision not to wield newly-won powers and to choose industry associations rather than governments as its partners in the regulatory process. The paper also sheds some light on the implications of such delegated regulation both for the Commission and insurers.     

Efficiency and the trading system: The case of SETSmm

This paper studies the impact that a change from a dealer system to a market-maker supported auction system has on market quality. We study the impact that the introduction of SETSmm at the London Stock Exchange had on firm value, price efficiency and liquidity. We discover a small SETSmm return premium associated with the announcement that securities are to migrate to the new trading system. Moreover, securities that migrate to SETSmm are characterized by improvements to liquidity and pricing efficiency. We find that these changes are related to the return premium.     

On the determination of the external debt: The case of Israel

This paper pursues the econometric implementation of an intertemporal optimization model of the foreign debt with Israeli data. In this model the private sector faces perfect capital markets and maximizes utility from consumption over an infinite horizon. The intertemporal budget constraint recognizes the intertemporal finance equation of the government. Under these conditions the effect of current disturbances (in output, government spending, and unilateral transfers) on private consumption and foreign borrowing is determined by their perceived future persistence. The model passes a formal econometric test. However, some results are also suggestive of omitted considerations.     

Stealth trading: The case of the Tokyo Stock Exchange

The stealth trading hypothesis asserts that informed traders trade strategically by breaking up their orders so as to more easily hide among the liquidity traders. Using data for the Tokyo Stock Exchange (TSE), a pure order-driven market, we find evidence that price changes are driven by small- and medium-size trades, with small trades making the greatest contribution to price change relative to their contribution to trading volume. We also find that large trades explain a greater portion of the cumulative price change on high volatility days. Hence, our results support the stealth trading hypothesis for the TSE.