I.CURRENT SITUATION RLK Media built its reputation on brilliant innovation in high-end consumer electronics. But with customers defecting to mass-market products, RLK has to rethink its approach. Keith Herrington, RLK’s chairman directed Lars Inman CEO of RLK Media to “Find out what the customers want and give it to them.” Furthermore, Herrington threatened Inman, “if you can’t stop this slow bleed and turn the company around in a year, we’re going to bring in someone who can.” (Nohria, 2005, p. 20).
Ray Ketner, RLK’s founder and chief scientist, developed a video headset with directional sound which is a new direction and a new technology that is going to completely change the game. However RLK lacks the software firepower to get out of the starting gate which would approximately cost over $6 million. If RLK outsourced R&D software engineers, which could save them time and money that they don’t have. The outsourcing alternative will require fewer upfront investments and has the possibility to provide a greater return. The outsourcing alternative demonstrates the prospective for a long term approach that will generate short term and long term gains.
II. CORPORATE GOVERNANCE: RLK Media is a fabricated business and consequently information concerning their Corporate Governance is not available similar to real organizations. The Case Study reading, mentions some key players to the organization. Fresh out of MIT in 1985, Ray Kelner launched RLK Media; he is the founder and chief scientist. Ray recruited the company’s first CEO, who rapidly parlayed RLK’s single-minded focus on pricey, handcrafted highly branded products into a billion dollar business.
After expanding the company’s offerings into other high-end consumer electronics – amplifiers, receivers, and audio- and videodisc players – he had left RLK at the top of its game for a better package at a bigger company. Lars Inman filled the vacancy in 1998, moving east from a Silicon Valley peripherals business. Soon after taking the helm, he led the acquisition of Opticon LCD Labs, positioning RLK to compete at the high end of the emerging home theater market. Though it is not mentioned specifically it is assumed there is a Board of Directors, because the reading mentions Denise Tan, RLK’s Chief Financing Officer, and Keith Herrington, RLK’s as the Chairman.
III.STRATEGIC ISSUES FACING RLK MEDIA RLK’s is a billion dollar business based on a single minded focuses on pricey, handcrafted branded products. With their brand equity, People still recognize the quality synonymous with high-end audio-video design. Consumers get that RLK designs and build their own products in their own facilities right here in the U.S. Though Keith views that brand equity isn’t going to save the brand. “The extent to which the general public (or an organization’s target market) is able to identify a brand by its attributes. Brand recognition is most successful when people can state a brand without being explicitly exposed to the company’s name, but rather through visual signifiers like logos, slogans and colors” (Brand Recognition, 2013).
According to Nohria, Lars needs to lead a massive culture change at RLK and create an environment where external ideas are invited to compete with, or supplement, internal ones. To do this, he has to change the metrics by which performance is measured, rewarding people not for the innovativeness of the ideas they find or develop but for the success of those ideas in the marketplace (2005, p. 22). Lars must mitigate the undesirable effects by positively reinforcing desired behavior and explore what types of behavior are currently being rewarded and ensure employees care about doing their job and producing products that are beneficial to the organization. “For an organization to act upon its members, the formal reward system should positively reinforce desired behavior, not constitute an obstacle to be overcome” (Kerr, 1995, p.13).
Nohria, 2005 points out that the biggest potential obstacle to this essential change may be Ray, who has long resisted outside involvement in his R&D operation. He’s not going to take well to a flood of external ideas competing with his own. Probably Lars’s best bet is to appeal to Ray’s devotion to the company and try to convince him that RLK’s survival depends on radical change. (p.22) “Strategic dreams often turn into nightmares if companies start engaging in expensive and distracting restructurings. It’s far more effective to choose a design that works reasonably well, then develop a strategic system to tune the structure to the strategy” (Kaplan, R., & Norton, D. 2006) I think all strategies are disruptive in some way. Some are less disruptive than others but at some point a change in strategy will affect Ray or someone within the organization.
There are strategies that are meant to have transitions and for the most part are relatively not to be faulted. “If Ray can get behind the new strategy, he should be pulled out of the day-to-day operations of the R&D labs and put into an executive role to help implement it, If Ray can’t fully embrace the new strategy, he should be moved into a role that takes him out of the management ranks but still taps his considerable expertise, Ray won’t be happy about the reassignment, but Lars should do what he can to keep Ray’s skills in the company” (Nohria, 2005, p.22). From what I view, Ray is a B, ‘players’ and must correspond and placed with B, ‘position’. For example, B Player “Has an indirect strategic impact by supporting strategic positions and minimizes downside risk by providing a foundation for strategic efforts. Or has a potential strategic impact, but exhibits little performance variability among those in the position” (Huselid, Beatty & Becker, p. 115).
Although Lars will want to do more due diligence regarding Inova’s capabilities, since he’ll need to be very compelling in selling them to his own R&D team. What’s uncertain is whether such dissimilar teams can muster the mutual respect that productive friction requires. It’s encouraging that Inova describes the relationship as a give-and-take process. But unless the RLK team adopts the same approach, friction is all they’ll get. “Managers simply do not have time to watch everyone all the time. They must find ways to encourage employees to think for themselves, to create new processes and methods, while still retaining enough control to ensure that employee creativity will ultimately benefit and improve the company” (Simons, R., 1995) Finally, in my opinion Mr. Inman should submit back to RLK’s mission statement, strategy, and revisit their vision statement. By doing so, the CEO could consider the organization’s products, services, markets, values, and concern for public image, and their priorities of activities for survival.
Their vision is RLK’s motivational tool, to include highly idealistic phrasing and activities in which the organization can aspire to spark ideas and innovation from their employees. “Values represent the core priorities in the organization’s culture, including what drives members’ priorities and how they truly act in the organization, etc. Values are increasingly important in strategic planning. They often drive the intent and direction for “organic” planners” (McNamara, C., 1999).
IV.KEY ISSUES IN OUTSOURCING Outsourcing R&D may be undertaken to provide MLK a competitive advantage by delegating business process to lnova Laboratories realizing the benefits of low labor, better quality and improved innovation. While this provides a good picture of the fair side of the coin, Lars however need to feel around with the possible inadequacy of the process and the corresponding blow on the MLK’s core processes. To best analyze the opportunities presented Lars must reveal the advantages versus the disadvantages of outsourcing. “By outsourcing, RLK will engage in collaborative learning, never a smooth process but one that has a huge potential upside-productive friction” (Nohria, 2005, p.24).
Lars has pros of outsourcing that can be positively reflected by MLK’s future. Outsourcing with Inova can provide better revenue realization and enhanced returns on investment. Inova Laboratories has lower labor cost which may provide increased realization of economics of scale. Inova claims their engineers are the best in the world, twenty of the 100 engineers have doctorates and their company has a global reputation for innovation in which MLK should tap into their knowledge base. By outsourcing MLK can free management time, enabling companies to focus on core competencies while not being concerned about outsourced routine activities. MLK can have increased speed and the quality of delivery of outsourced activities and have reduced cash outflow and which optimizes resource utilization. Lars should consider before MLK outsourcing is undertaken with Inova Laboratories, he should dwell on some of the possible disadvantages.
Possible loss of control over a company’s business processes. Though Inova Laboratories charge much less than their competitors, Inova already demands they take a 5% royalty on the products they develop with MLK. Nohria states that “Lars risks falling into the trap that many Western executives encounter when they evaluate offshore outsourcing options. Too often, they think narrowly of outsourcing as a way to achieve near term operating results like cost savings. Instead, they should evaluate this option from a strategic perspective: Lars should ask whether outsourcing will help RIK accelerate the building of its own distinctive capability” (2005, p.24). MLK may also consider problems related to quality, turnaround time, sluggish response times coupled with slow issue resolutions, and issues pertaining to lingual accent variation due to the overseas/foreign location. Lower than expected realization of benefits and results.
However, “Inova’s capability and talent aren’t at issue here: It’s done cutting-edge work for RLK’s main rival, Pycosonics. What is at issue is whether RLK, with no prior outsourcing experience, can make the relationship work. Not only is the chief scientist hostile to such collaboration, the R&D team lacks the process-oriented mind-set that’s necessary for smooth collaboration” (Nohria, 2005, p.28). A major issue also is an irate customer base coupled with enraged employee unions. Outsourcing to Inova would violate this valued cultural and branding expectation, further destabilizing the hot group, sowing anxiety about job security throughout the firm, and depriving customers of an important basis for differentiating RLK’s products. (Nohria, 2005, p.26)
V.IMPLICATIONS OF OUTSOURCING FOR MIDDLE MANAGEMENT Outsourcing change may come hard to many middle managers. Middle managers may experience their efforts to hold on to their jobs during transition. In any corporate change, it’s generally the guys in the middle managers who are trying to maintain their maintaining the status quo which is paramount of importance. For example this typically means loss of prestige, control, position, or creates a need to be retrained, or puts a hard-earned pension at risk. In my opinion middle managers have much more at stake than any position in the organization during the consideration of outsourcing.
Nohria explains that, ‘although Lars will want to do more due diligence regarding Inova’s capabilities, since he’ll need to be very compelling in selling them to his own R&D team. What’s uncertain is whether such dissimilar teams can muster the mutual respect that productive friction requires. It’s encouraging that Inova describes the relationship as a give-and-take process. But unless the RLK team adopts the same approach, friction is all they’ll get” (2005, p.24). Lars should restructure or integrate teams once outsourcing occurs to have members with complementary skills generate synergy through a coordinated effort which will allow members to maximize strengths and minimize weaknesses. Therefore MLK and Inova team members will help one another of mutual commitment that creates synergy and an environment that allows everyone to go beyond their limitations and providing greater performance.
In turn, for outsourcing of RLK’s software requirements to be victorious, middle management must work to acquire acceptance from the employees. Lars needs to be the “benevolent-autocratic leader is described as powerful and prestigious but one who can be communicated with and is interested in his subordinates’ problems. He structures the activities of his subordinates, makes policy decisions affecting them, and enforces discipline. He may encourage participation in planning, but in executing he is the “chief” (Dean, 1976, p. 2). The management team should have the same opinion as the demands of the situation which in turn will develop of an organized team linking RLK and Inova.
VI.CONCLUSION RLK Media’s success is based on Lars need to decide where RLK’s distinctive edge will be in the future and structure any outsourcing relationship with that in mind. To regain leadership in product innovation, one option would be to focus on product design and seek world-class capabilities in software engineering outside. Another would be to develop a distinctive capability n software design, in which case Lars ultimately will want to bring the software engineering talent in. RLK Media is in a situation that troubles many companies considering outsourcing and the morale of the organization, organization’s commitment to systems of control and empowering employees. Lars must revisit RLK’s reward, benefits and employee development systems aligned with the mission, strategy, and values within his organization to ensure a beneficial outcome for both Inova as well as RLK for the iVid project.