TriVacIndustries Ltd., a Kitchener, Ontario-based manufacturer ofcentralized vacuum systems, was facing severe cash flow problems dueto increasing demand for its products and rapid expansion ofproduction facilities. Although the company’s prospects were brightthey had overextended their finances and the banks were ready toforeclose their loans, which would put TriVac out of business.
SteveHeinrich, TriVac`s founder and majority shareholder, flew to Germanyto meet with the management of Rohrtech GMB to discuss the Germancompany`s willingness to become a majority shareholder of TrivacIndustries in exchange for an infusion of much-needed cash. Rohrtech,who have been gradually expanding its worldwide market share incentral vacuum systems, believed that buying a stake in TriVac wouldgive them a valuable foothold in the lucrative North American marketwhere it did not have a presence. The deal could also be valuablefor TriVac shareholders as it would give some of TriVac productsaccess to new markets.A deal was struck whereby Rohrtech wouldbecome majority shareholder while Heinrich would remain TriVac`spresident. One of Rohrtech`s senior executives would become thechairperson of TriVac`s Board of Directors and Rohrtech would appointtwo other board members.
WhileHeinrich had been fully informed of Rohrtech’s strategic rationalefor purchasing the company, he was only interested in partnering withRohrtech for their money. He was desperate to maintain control ofTriVac and kept Rohrtech at arm’s length, even though it meantTriVac would not increase its market reach beyond North America. AsGerman companies tend to have a top-down management style, they hadonly ever dealt with Heinrich: other managers at TriVac were unawareof the opportunities that being part of Rohrtech could bring to thecompany. While Heinrich held a number of meetings with TriVac andmanagement and employees to keep them informed, he stressed theimportance of maintaining TriVac’s independence and never informedthem about the potential benefits of integrating with Rohrtech. Heinrich reinforced an “us against them” mentality and lashed outand marginalized anyone who spoke positively about Rohrtech. Afterawhile employees kept their opinions to themselves and only voicedsupport for the strategy to maintain TriVac’s independence.
Thisrelationship worked well until two years later when Rohrtechappointed a new CEO who was concerned that the TriVac purchase wasnot bringing the benefits they had imagined when they bought thecompany. The new CEO insisted that TriVac provide more precisefinancial information and share its innovative technology with otherRohrtech companies. Heinrich resented this imposition and refused toprovide the necessary information and share TriVac’s technology.Relations between Rohrtech and TriVac Industries quickly soured tothe point where Heinrich refused to let Rohrtech representatives intothe TriVac Indus­tries plant. He also instituted legalproceedings to regain control of the company.
Accordingto the original agreement between TriVac and Rohrtech, any party whopossessed over one-half of the company`s shares could force theothers to sell their shares to the majority share­holder.Heinrich owned 29 percent of TriVac`s shares whereas Rohrtech owned36 percent. The remaining 15 percent of TriVac Industries shares wereheld by Tex Weston, TriVac`s vice-president of sales and marketing.The remaining shares were held by TriVac’s management andemployees. Weston was one of TriVac`s original investors and along-time executive at TriVac Industries, but he had remained quietthroughout most of the battle between Rohrtech and Heinrich. However,Weston, who shared Heinrich’s attitude toward Rohrtech, finallyagreed to sell his shares to Rohrtech to solve some personalfinancial difficulties he was having. Heinrich lost his bid forcontrol and was forced to sell his shares. TriVac`s Board ofDirectors (now domi­nated by Rohrtech members) fired Heinrich aspresident. The Board immediately appointed Weston as TriVacIndustries` new president.
Searchingfor a New COO
Severalmonths before Heinrich was fired as pres­ident, the chairman ofTriVac`s board of directors privately received instructions fromRohrtech to hire an executive search firm in Toronto to identifypossible outside candidates for the new position of chief operatingofficer (COO) at TriVac Indus­tries. The successful candidatewould be hired after the conflict with Heinrich had ended(pre­sumably with Heinrich`s departure). The COO would report tothe president (the person eventu­ally replacing Heinrich) andwould be responsible for the day-to-day management of the company andliaison with head office. Rohrtech`s management correctly believedthat most of TriVac`s current managers were loyal to Heinrich andWeston and by hiring an outsider the German firm would gain moreinside control over its Cana­dian subsidiary (TriVac).
Theexecutive search firm recruited Kurt Devine for the position. Devinewas vice-president of sales at an industrial packaging firm inMontreal, Quebec and was considered a rising star in Canadianindustry.The Rohrtech representatives explained the currentsituation and said the mandate for the position was to promote betterintegration between TriVac and Rohrtech. When Devine expressed hisconcern about rivalry with internal candidates, the senior Rohrtechmanager stated: "We have a controller, but he is not our choice.The sales manager is capable, but he is located in British Columbiaand doesn`t want to move to Ontario." Devine who demonstratedthroughout his career his ability to manage conflict and buildbridges between opposing factions took the job.
Oneweek after Heinrich was fired and Weston was appointed president,TriVac`s chairman invited Devine to a meeting at a posh hotelattended by the chairman, another Rohrtech manager on TriVac`s Boardof Directors, and Weston. The chairman explained the recent events atTriVac Industries and formally invited Devine to accept the positionof Chief Operating Officer. After discussing salary and details aboutjob duties, Devine asked the oth­ers whether he had theirsupport, the two Rohrtech representatives said "Yes" whileWeston remained silent. When the chairman left the room for a bottleof wine to toast the new COO, Devine asked Weston how long he hadknown about the decision to hire him. Weston replied: "Just lastweek when I became president. I was surprised….I don`tthink I would have hired you." Devine told Weston that while heknew that Rohrtech bringing in an outsider was not a populardecision, that he was hoping that he and Devine could work togetherto bring the interests of the two sides together. Again, Weston wassilent. When the Chairman returned he went into a long speech aboutDevine’s commitment to Rohrtech’s goals for Trivac and how he wasjust the man to bring TriVac into the Rohrtech family.
Confrontationwith Tom O`Grady
Devinebegan work at TriVac Industries in early October and, within a fewweeks, noticed that the President and two other TriVac Industriesman­agers were not giving him the support he needed to accomplishhis work. For example, Weston would call the sales people almostdaily yet spoke to Devine only when Devine approached him first. TheVice-President of Sales, who lived in Vancou­ver, rarelycommunicated with Devine whereas Tom O`Grady, the vice-president offinance and administration, seemed to resent his presence the most.
O`Gradyhad been promoted from the position of controller in October and nowheld the highest rank at TriVac Industries below Devine. AfterHeinrich`s departure, TriVac`s Board of Direc­tors had placedO`Grady in charge of day-to-day operations until Devine took over. This decision was well received by other management staff at TriVacas O’Grady had been with TriVac since the early days and was likedand respected by all. O’Grady was extremely close and loyal toSteve Heinrich and was a confidante in Heinrich’s attempts to keepTriVac independent of Rohrtech.
SensingO’Grady’s status in the organization and knowing that buildinggood relationships with the “old guard” at TriVac was critical tohis success as COO, Devine made several attempts to build rapportwith O’Grady and Weston. After a number of unsuccessful attempts,O’Grady told Devine that while they had to work together it did notmean that he had to like him.
Devinedepended on O`Grady for general Opera­tions information becausehe had more knowledge than anyone else about many aspects of thebusiness. However, O`Grady provided incomplete information on manyoccasions and would com­pletely refuse to educate the COO on somemat­ters. O`Grady was also quick to criticize many of Devine`sdecisions and made indirect statements to Devine about hisappropriateness as a COO. He also mentioned that he and other TriVacmanagers didn`t want the German company to interfere with theiroperations. When Devine outlined the benefits of integrating withRohrtech to O’Grady he was told that independence was moreimportant to TriVac’s employees that the financial benefits thatintegration with Rohrtech could bring.
Devinewould later learn about other things O`Grady had said and done toundermine his posi­tion. For example, O`Grady actively spoke tooffice staff and other managers about his problems with Devine andencouraged them to tell the president about their concerns. He alsosuggested to his friends in management that “keeping Devine in thedark” when he needed information would lead to a short career forDivine at TriVac and enable TriVac to maintain their independence. Devine once overheard O`Grady telling another manager that Devine`smemoranda were a "complete joke" and that "Devinedidn`t know what he was talking about most of the time." On oneoccasion, O`Grady let Devine present incorrect information toresellers (companies that sold TriVac products to customers) eventhough O`Grady knew that it was incorrect "just to prove what anidiot Rohrtech had hired."
Justsix weeks after joining TriVac Industries, Devine confronted O`Gradywith his concerns. O`Grady was quite candid with the COO, sayingeveryone felt that Devine was a "plant" by Rohrtech and wastrying to turn TriVac Industries into a branch office of the Germancompany. He said that some employees would quit if Devine did notleave because they wanted TriVac Industries to maintain itsindependence from Rohrtech. In a later meeting with Devine andWeston, O`Grady repeated these points and added that Devine`smanagement style was not appropriate for TriVac Industries. Devineresponded that he had not received any support from TriVac Industriessince the day he had arrived even though Rohnech had sent explicitdirections to Weston and other TriVac Industries managers that he wasto have complete support in managing the company`s daily opera­tions.Weston told the two men that they should work together and that, ofcourse, Devine was the more senior person.
Decisionby TriVac`sBoard of Directors
Asa member of TriVac`s board of directors, Weston included Devine`sperformance on the Jan­uary meeting`s agenda, and invited O`Gradyto provide comments at that meeting. Based on this testimony, theboard decided to remove Devine as COO job and give him a specialproject instead. O`Grady was immediately named acting COO. Thechairman and other Rohrtech represen­tatives on TriVac`s Boardwere disappointed that events did not unfold as they had hoped, butthey agreed to remove Devine rather than face the mass exodus ofTriVac managers that Weston and O`Grady had warned about.
Inlate April, Devine attended a morning meeting of TriVac`s board ofdirectors to present his interim report on the special project. Theboard agreed to give Devine until mid-June to complete the project.However, the board recalled Devine into the boardroom in theafternoon and Weston bluntly asked Devine why he didn`t turn in hisres­ignation? Devine replied: "I can`t think of a singlereason why I should. I will not resign. I joined your company sixmonths ago as a challenge. I have not been allowed to do my job. Mydecision to come here was based on support from Rohrtech and on agreat product." The next day, Weston came to Devine`s officewith a letter of termination signed by the chairman of TriVac`s boardof directors.
SHORTANSWER ESSAY QUESTIONS
Answer all of the following 3 questions.
Make sure your answer demonstrates your understanding of relevant theories.
Each answer should be approximately two pages.
1.(a) Did Rohrtech’s Board use the rational decision-making paradigmat the end of the case when it decided to replace Devine with O’Gradyas COO?Support your answer with facts from the case and a thoroughknowledge of the rational decision-making paradigm.
(b)Do you believe that Devine committed an Escalation of Commitment to alosing course of action. Be sure to give reasons that show yourunderstanding of this concept.
2.Identify one factor from within 3 of the following 4 components ofthe Team Effectiveness Model that contributed to the failure of theTrivac’s new senior management team after Devine joined thecompany.The components of the model are: (1) Organizational andTeam Environment, (2) Team Design, (3) Team States and (4) TeamProcesses.
3.Use Expectancy Theory of Motivation to explain why O’Grady wasreluctant to help Devine succeed. Be sure to show your understandingof the entire theory and its key components.