Campbell and Bailyn’s Boston Office: Managing The Reorganization
Situation Analysis
My name is Ken Winston I’m the regional sales manager for the Campbell and Bailyn’s
(C&B ) Boston office since 2003. Prior to that I was bonds salesman for 20 years. Because of recent trends that have been happening. I introduced two changes in 2007 that were designed to make the firm more competitive and improve sales: 1). Key Account Team (KAT) 2). Performance Management System (PMS).
The investment firm Campbell and Bailyn (C&B) was founded in the 1900’s and by 2007 has grown to be one of the five largest investment banks in the world. Headquartered in New York City, the firm was organized into six segments of the investment banking industry, including corporate finance, investment management, mergers and acquisitions, and securities sales and trading. With seven regional sales offices each reporting up to the national sale manager Paul Trimble located in New York. In the past ten years the banking industry has undergone significant changes with the entry of new low-priced-services and brokers. Resulting in a decline profit margin within the fixed income brokerage industry.
In recent years the fixed income division fueled the growth for C&B that could generate profits up to 20%. The Boston offered three fixed income sales group supported by salespeople broken into five generalists and four specialists. The generalist were the high flyers of the office, they led multiple trades within a given day and could make up to a million dollars in a given year. They relied upon the specialists and office staff to complete the trades. The specialist worked on smaller accounts with fewer trades in smaller quantities per trade.
Change 1. Key Account Team (KAT)
In the beginning of 2006, I recognized the need to address the problem of losing market share to competitors. To address the first issue, I engaged the team to explain that change was needed to maintain their market share and brainstorm on how to increase sales for the office. The ideas generated by the team ranged from new hires, extensive training, and increased reliance on New York specialists. The team’s engagement in this process was vital to the on-going success of the Boston office
In June of 2007, I announced a re-structuring of the salespeople organization with the backing of senior management. The new structure called the Key Account Team (KAT) would revamp the Boston office to support its customer with more in-depth knowledge within its product lines. He believes the organizational change would realign its business with the changing business environment. That triggered by the difficulty the salespeople were having mastering the new stream of complicated debt instruments. As both KAT and PMS changes were being rolled out another event was unfolding that would affect global financial markets 2007 and C&B. The sub-prime meltdown of billions mortgage-backed securities dollars also affected C&B’s sales and its customers base.
The reorganization affected all the generalist role who would be moved into the specialist role. And, clients who were used to having a salesperson meet or socialize with them of a regularly basis. Jim Callahan quoted Jim Harrington at Ashland Capital “He says he wanted to have coffee before the markets open. He would like to know why I don’t come around as much anymore over there. It seems things are more complicated now for them, not less.” The KAT change highlighted that half the customers enjoyed the specialization but half were wary of it due to the fact that they had to deal with more than one person and then go into how the office handled the change
The generalist role was the one that had the breath of product knowledge while the specialist had the depth of the product knowledge. The office had hierarchical culture where the generalists put themselves on top in the organization structure. The generalist had latitude to manage their accounts since they managed their own group of accounts totally 60. All in all, the generalist accounted for 75% of the total taxable bond sales. The investment industry was trending towards more specialization as new products like options and future required more expertise to market.
As part of the reorganization Paul Callahan was appointed to head the transition. I believe that Paul’s salesman extrovert personality would carry over into the specialist role. The desired effect of this organizational change was having an unforeseen grumbling from the staff and customers. One customer in favor of the change stated generalist were “jack of all trades and master of none”. However, the overall customer feedback the favoring the was split down the middle.
For example, the salesperson John Oates within complex futures feared under his new role as a corporate debt desk specialist that his career prospects and compensation would be negatively impacted. Another consequence of mine decision during the sub-prime crisis was the allocation of resources to resolve customer issues. Salespeople were assisting customers to minimize the loses on their bond portfolios. While Jen Ulin, one the most best salespeople who became mortgage-backed specialist was focused exclusively on that product line during a period when more trading capacity was needed.
Change 2. Performance Management System (PMS).
The second change that was introduced in the beginning of 2007 as part of New York initiative was the Performance Management System (PMS). Under the new PMS every salesperson bonus payouts would no longer be tied to their annual sales volumes but rather to feedback and softer skills, lie customer satisfaction and responsiveness to the New York traders.
The New York office had been trying to persuade the regional office to promote the most profitable fixed income securities they carried. For example, if C&B was the underwriter on a new bond issue, it was more important for the salespeople to close smaller deals with higher-margin bond than larger bond deals with smaller margins. The changed was aimed at improving the intra-office communication and focus on higher margin products at expense of sales volumes. The director of the C & B bond division Paul Cowan was pleased with the change, “great news” that for the year 2007, it looked as if the Boston office was going to have a “major up-tick” in profit margins versus 2006. Time that I could use to spend with clients has been diverted mediator between the Boston and New York, rather than spending time with clients.
The change affected profits margins for the Boston office, but salesperson compensation was based on the dysfunctionality of PMS not on volumes sales volumes.
I’m preparing my final review of the changes that were implemented in Boston for review at the annual year-end bond leadership meeting. The meeting is well represented across the firm with all the regional sales manager, senior and national managers.
Problem Analysis and Diagnosis
The bond market was changing outside the organization and the change was compounded by a global financial market meltdown. Traditional bond products were being replaced by increasingly complicated debt instruments. The organizational re-structuring made peers equal that they once considered to be higher in the organization structure.
The feedback from some of the salespeople was not positive with the role change. A valid concern which would affect their career growth and earning potential under the new role. The top generalist that fueled the growth feared risk of a decrease in the compensation as a specialist. If a team member was to leave, it would not only affect sales it would impact the team chemistry as evident by their gathering prior to the daily 7:45am conference call. Replacing a good salesman is not an easy task, they are highly skilled individuals with a high degree of financial knowledge of complicated investment instruments, outgoing, enthusiast and skilled with building relationships with customers.
The loss of customer relationships was noted by Jim Harrington of Ashland Capital. I believed that some customers were accustomed to dealing with only one salesperson may have felt slighted. The success of C&B was depended upon the long-term relationship with their clients. Adding to the frustration was Callahan belief that larger multiproduct deals became more complicated.
In principle I agreed with the new PMS application, but I’m not convinced that it addressed the root cause the problem which was losing customer due to specialization. The PMS placed more emphasis high margin products and improvement intra-office communication. Under PMS sales commissions were based on the annual sales volume and the regional manager’s assessment. Employee assessment would be extended to the researchers from New York which was geared to building relationships which does not happen by itself.
Alternative Solutions KAT
1). 3. Keep the new KAT system
| Pros | Cons |
| Half of the customer’s expressed their satisfaction, they see the value-add of the specialist is valued by the customers | Bonus compensation takes a hit and employees may leave |
| Focus on high-margin products | Lose disgruntled employees because of decrease salary |
| Newer products such as
futures and options, sold at higher margins Profits increased that required specialist knowledge |
Career options are limited to specialization fields, take it or leave it approach. |
| The next generation of complicated
“synthetic” debt instruments, the sales team, and the firm’s customers, were having a hard time keeping pace. .
|
Half of the customers expressed their dissatisfaction, they prefer the social relationships |
| C&B competitors were becoming
specialized
|
Ken’s time spent mediating between New York and Boston. |
2). Keep organization structure with incentives for high margin products
| Pros | Cons |
| The organization structure worked as demonstrated by the bond profits | The industry trend towards specialization |
| Maintains customer focus and fosters long term relationship building | Specialist are required to provide the knowledge that customers need on complicated financial products
|
| This model provides the career options and earning potential | |
| The restructuring was not mandated decision from New York headquarters | |
| The incentives provides the impetus to focus on higher margin products |
3). Manage the customer account by Tiers, break them down into three groups by sales revenue.
| Pros | Cons |
| More concentrated focus on key accounts to develop relationship and sales | It’s not the firm’s strategy to focus on single customer |
| Allows to focus attention on revenue generating accounts | Customer like the deep product knowledge of financial instruments |
| Develop strategy for bottom tier accounts to move them into other financial instruments | Does not focus on high margin products |
Alternative Solutions PMS
1 Keep the New PMS system
| Pros | Cons |
| It is the firm’s strategic direction for performance management | Penalizes top producing salesperson from reaching their earning potential |
| Improves intra-office communication, fosters employee relationships and networks for sharing knowledge and opportunities to grow the business. | The firm and salespeople success were built on relationships and broad knowledge of product portfolio |
| Focuses on high-margin products | Loses long-term customer relationship and risk losing customer |
| Improves firm’s competitiveness in the marketplace as knowledge is shared about trends and opportunities | Office hierarchy is removed with all salespeople having the same role as specialist |
| Lower sales volumes and commissions | |
| No incentives to exceed sales quota |
- Use some Features of the PMS system which limits feedback to regional office
| Pros | Cons |
| Web-based application available internally | Does not achieve firms goal of networking and build team relationships |
| Feedback is confidential | |
| Provides a mechanism to track employee performance and give quarterly reviews. | |
| Team would feel better if assessment was local only. | |
- Keep the old performance management system and add incentives for high margin products and team building.
| Pros | Cons |
| It works, the Boston office is top performance | Industry direction towards specialization |
| These are top tier high producing selling people that can manage their accounts | |
| Salespeople are outgoing and focused, and sales volume driven | |
| It maintains a focus on high margin product with the incentive |
Recommendation
The recommendation is to keep the KAT organization structure (option 1) and option 1 for PMS for the Boston office. The Boston office has demonstrated its command of the bond market by leading C&B profits. The knowledge of the specialist has demonstrated their value-add to the customers during the sub-prime crisis and on higher-margin products such as futures and options. These higher-margin products required more expertise to market and sells newer products, such as futures and options, sold at higher margins but also required considerably more expertise to market. With the previous organization structure the salespeople and our customer were having a difficult time keeping up with new investment products. I will
meet with each customer and explain why the changes good for them and for C&B. And, address their individual concerns with an action plan to ensure our mutual success.
I believe that PMS will benefit C&B if it can be tailored to meet the needs of the individual regional office. The value of PMS is more than an appraisal system, it has potential to improve intra-office communication and relationships between the regional offices and New York in the long run. I choice not to recommend not keeping the existing performance evaluation as an alternative despite the potential to impact of losing high earnings leaving the organization. The New York bond division reported that 2007 had a “major up-tick” in profit versus 2006.
Implementation
- Early thorough planning and close relationships with the team
- Regional office and team acceptance is essential
- Feedback from customers and commitment to address the concerns
- Audit team’s performance for continued improvements
- Feedback on PMS is essential to deliver the desired goals of communication and improving the firm’s competitive advantage
