Stone Finch, Inc: Young Division, Old Division

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Stone Finch, Inc.: Young Division, Old Division
In January 2008, Jim Billings, president and CEO of Stone Finch, Inc., sat back in his office chair, contemplating his next move. A crisis was brewing, as an email from Eli Saunders, senior vice president and head of the Water Products Division, confirmed. Water Products was the foundation of the company, and Saunders had been with the company more than 25 years. Billings read the email again: Jim, I must register my grave concerns with the way things are operating. In considering my perspective, bear in mind that I’ve supported you in the past. When the firm purchased your company, Goldfinch Technologies, in 2000 and integrated it as a second division, focused on consulting “solutions,” I told R. L. Stone that I thought the decision was appropriate and that you looked like a talented, even inspiring leader. Then in 2004 you embraced the incubator concept of “strategic subsidiaries.” I gave my support with a strong note of caution, fearing that the concept presented too many unanswered questions for our organization. My caution was well founded. Since 2004, you and I have had numerous discussions about the funding and basic tenets of the strategic subsidiaries. I agree with you that these subsidiaries do represent an engine of innovation, and they do create a buzz in the industry. But in the long term, using my manufacturing division as a cash cow to feed a proliferating number of subsidiaries is an unsustainable strategy for Stone Finch. I write this email because I am staring at the resignations of three of my top salespeople. Morale is plummeting because, as I’ve said for the past two years, the Water Products division is no longer a leader in any of our markets. Our brand, built over three decades of delivering superior products, lies in tatters. The sales force is speaking with their feet. What should I tell those who remain? Saunders’s concerns were legitimate, Billings realized, and these latest departures from Water Products were worrisome. A-level talent was also leaving the Solutions Division, which Billings had run before taking the CEO’s job. Just that morning, he had seen a report indicating that eight people fast-tracked for advancement in Solutions had resigned in the past three months. ________________________________________________________________________________________________________________ HBS Professor Richard G. Hamermesh and writer Elizabeth Collins prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. Copyright © 2008 Harvard Business School Publishing. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business Publishing. Harvard Business Publishing is an affiliate of Harvard Business School. 3214 NOVEMBER 11, 2008

3214 | Stone Finch, Inc.: Young Division, Old Division
Billings had always believed that the experimental subsidiaries were critical for Stone Finch’s future. As Water Products passed through its maturity, the Solutions Division needed to be continuously nourished by new talent and fresh ideas. Billings had set up the subsidiaries partly to attract and retain star talent whose products, when fully developed, could be exploited by Solutions. Even though Stone Finch was a substantial firm, with decades under its belt and 20,000 employees in 12 countries, Billings wanted the...
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