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Intersect Investments Benchmarking

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Intersect Investments Benchmarking


February 13, 2007

Intersect Investments Benchmarking

Organizational change is usually inspired by external factors, and in the case of Intersect Investment Services, the every changing financial market after September 11, 2001 led the company to implement a new overall vision. The company is taking the necessary steps to ensure the successful implementation of its goals. However, a change of this magnitude usually incurs problems, such as resistance to change and communication issues. Intersects leadership is being questioned due to the rising issues which are hindering the implementation of the company's new vision. The following text will briefly examine companies with similar issues to those of Intersect Investment's in relation to the course concepts. This paper will also provide an overall analysis of the benchmark companies' experiences as they apply to the situation at Intersect Investment Services.

John Hoffler - Individual Research, Procter and Gamble

When Alan Lafley was promoted to CEO of Procter and Gamble in 2000, he took over a company with shrinking market share and slowing earnings growth (Markels, 2006, para. 4). Procter and Gamble's corporate culture focused on how to "gain another half a share point and another half a margin point" (Lafley, 2006, para. 5). Lafley's predecessor, Durk Jager, had tried to change the Procter and Gamble's insular culture through reorganizations. Jager also tried to recover market share by investing research and development funds into dozens of new products. However, the result was "sinking morale, escalating costs, and an earnings shortfall" (Markels, 2006, para. 5) that significantly depressed the company's share price.

Lafley refocused Procter and Gamble around a saying, "the customer is boss" (Lafley, 2006, para.16). According to Lafley:

[T]here are two moments of truth - when consumers make their purchase decision, and when they use the product. If they're delighted at the second moment of truth, they'll repurchase our brands and use our products regularly. (Lafley, 2006, para. 16)

Continuing his focus on the consumer, Lafley defined the core businesses that would receive the majority of Procter and Gamble's attention. He established objective criteria regarding global industry leadership, growth rate, and cash flow return on investment so everyone in the company understood what was necessary to become a core business.

Lafley believed that Procter and Gamble was over-emphasizing traditional product research and development, pushing technology into the market rather than responding to consumer needs. He sought to obtain half of Procter and Gamble's new product ideas from outside the company. To get buy-in from Procter and Gamble scientists, Lafley and the Chief Technology Officer had a series of meetings with the scientists. Among the results of these meetings was a new "plan to reward employees regardless of where a new product idea originates-particularly because outside ideas often get to market faster" (Markels, 2006, para. 23).

Since becoming CEO, Lafley has eliminated over a dozen Procter and Gamble brands. He reduced the number of research and development projects by two thirds. Yet, Procter and Gamble has doubled its portfolio of billion-dollar brands (Markels, 2006, para. 24). The company's stock price also doubled.

John Hoffler - Individual Research, Merrill Lynch

During the 1990s, Merrill Lynch had narrowed its focus to such an extent that by 2000 it was essentially a "one-trick pony", 75% of the company's income resulting from equity-related business (Horwood, 2006). Merrill Lynch's lack of diversification magnified the negative impact of the technology bubble burst of 2000. The terrorist attack of September 11, 2001, which killed three employees and forced the evacuation of the company's headquarters caused more disruption and further damaged morale. Merrill Lynch was then embroiled in a Wall Street research scandal. When Stan O'Neal was named Merrill Lynch president in 2001, the company was clearly approaching the nadir of its existence. As one senior executive said, "When Stan O'Neal took over the firm, he was the only person for the job. Without him, Merrill's businesses would have survived - only we'd be owned by someone else now" (as cited in Horwood, 2006).

O'Neal felt that Merrill Lynch had lost discipline. He reorganized parts of the business to restore diversification of revenue. Diversification would have mitigated some of the impact of the company's losses during the technology stock market correction. Under O'Neal's leadership, Merrill Lynch cut its losses on expansion plans that were not bearing fruit. To deal with lower revenue, O'Neal instituted major cost-cutting initiatives (Nadler, 2007).

By 2003, O'Neal had restored discipline at the company. His cost-cutting measures saved the company $7.5 billion (Horwood, 2006). Merrill Lynch posted its best first-half results in its history (Nadler, 2007). O'Neal, now chairman and CEO of the company, moved into the next phase of his leadership tenure. Since Merrill Lynch's situation had changed substantially since 2001, its executives would be required to provide substantially different leadership.

O'Neal and his senior management team worked with an outside consultant to create the Merrill Lynch Leadership Model "to clarify what they expected of themselves and other leaders at the firm" (Nadler, 2007). Over one thousand Merrill Lynch leaders received feedback and coaching. Corporate processes, such as performance evaluation, talent reviews, and rewards programs, were changed as required to support the new leadership model.

O'Neal's transformation of Merrill Lynch's leadership allowed the company to successfully navigate the transition from the cost-cutting phase of 2001-2003 to the post-2003 controlled expansion phase. The company's first quarter 2006 revenues were 28% above the previous year, surpassing most of its competitors (Horwood, 2006). Global markets and investment banking revenues were up 37% (Horwood, 2006).

Kendall Johnson - Individual Research, Nextel Communications




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