Decision Making and Business Transition Recommendations for Onetech

Introduction to Onetech's Transition Challenge

Onetech is a publicly funded organization specializing in the provision of development services for staff employed in the Information Technology sector. The organization is currently considering a transition from its current model of public funding to self-funding. The principle of this new business model would be that client firms pay an annual membership fee, based on which they would continue to benefit from the services provided by Onetech.

The dilemma raised at this stage concerns the nature of the services still to be provided by the firm, any downsizing processes that would be required, and the appropriate size of the membership fee. Three alternatives have been put forward for consideration:

• The maintenance of the same services and the request for a €6,000 membership fee per year;
• The reduction of services provided and the request for a membership fee of €4,000 per annum; and
• The provision of specific services as required by customers, with charges based on the services provided.

Aside from the services component, the organization must also decide on the most effective means of implementing the change process and addressing the budgetary concerns associated with it. Three options have been devised in this regard and are presented and analyzed below.

Option 1 — Moving to a more cost-effective facility:

• Costs associated with the move: €10,000
• Organizational savings per year: €100,000 in rent (current rent of €120,000 minus new rent of €20,000)
• No downsizing
• Additional costs for marketing, research, and other expenses: €150,000
• Investment to be recuperated through sponsorship; revenue structure as follows:
  • €900,000 in an optimistic scenario, with a probability of 30%
  • €600,000 in a medium revenue scenario, with a probability of 60%
  • €300,000 in a pessimistic scenario, with a probability of 10%

Option 2 — Moving to an even smaller premise:

• Costs associated with the move: €10,000
• Savings from rent: €120,000 − €10,000 = €110,000
• Staff costs: reduced by €60,000 initially, with a prospect of reduction by half
• Additional costs for marketing, research, and other expenses: €100,000
• Investment to be recuperated through sponsorship; revenue structure as follows:
  • €600,000 in an optimistic scenario, with a probability of 30%
  • €400,000 in a medium revenue scenario, with a probability of 60%
  • €200,000 in a pessimistic scenario, with a probability of 10%

Option 3 — Massive downsizing:

• 30% of current staff would be retained
• Initial outlay of €100,000
• Additional costs for marketing, research, and other expenses: €200,000, to be covered through sponsorships
• Revenue structure as follows:
  • €720,000 in an optimistic scenario, with a probability of 30%
  • €360,000 in a medium revenue scenario, with a probability of 60%
  • €140,000 in a pessimistic scenario, with a probability of 10%

In order for the analysis to be conclusive, it must be conducted along two specific directions. The first involves assessing the three alternative options, and the second involves assessing the revenue structures for the most desirable alternative. The analysis of the three alternatives is conducted through a systematic review of the pros and cons of each option.

Three Strategic Options: Analysis of Pros and Cons

Option 1 — Moving to a more cost-effective facility:

Pros:

• Maintaining the same staff structure, thereby avoiding a negative impact on employee morale
• Reducing costs by moving to a more cost-effective location

Cons:

• Losing a central location that is easily reachable by clients
• Potential disruption to the relationship between the firm and its customers due to the change in location, as the new premises may be more difficult for customers to find

Option 2 — Moving to an even smaller premise:

Pros:

• Additional savings on rent as well as through the elimination of redundancies
• Emphasis on operational efficiency through the elimination of redundancies (Cologon and Cohen, 2008)
• Decreased costs for marketing, research, and other adjacent expenditures — the lowest costs of all three alternatives

Cons:

• The location would be even smaller than that considered in Option 1
• It implies downsizing of staff, which negatively affects employee morale as well as stakeholder perception. In such a setting, stakeholders such as business partners or customers may perceive Onetech as less stable and therefore less trustworthy (Jacobs, 2000)
• Increased marketing and adjacent costs relative to Option 1

Option 3 — Massive downsizing:

Pros:

• Ability to start over in terms of personnel needs
• Focus on operational efficiency
• Substantial savings through the elimination of redundancies

Cons:

• Loss of organizational credibility
• Loss of human and intellectual capital
• Loss of capabilities and capacity to complete operational projects, including the delivery of services
• Damage to organizational reputation in the eyes of various stakeholder groups, such as business partners, customers, current and potential employees, and the general public (Hage, 2007)

The costs associated with Options 2 and 3 are more than Onetech can reasonably bear, and the advantages of Option 1 are necessary to ensure a successful transition. It is therefore recommended that the firm focus on moving into a more cost-effective facility, preserving its staff and their intellectual capital, and striving to consolidate its position.

Based on the analysis conducted, it becomes clear that the best alternative for Onetech is to preserve its current staff structure and relocate to a more cost-effective facility. With this decision made, the analysis moves on to the revenue structure to be implemented throughout the change process.

The table below analyzes the three revenue scenarios through the lenses of optimism, pessimism, and regret.

References

Cologon, D. R., & Cohen, D. R. (2008). FileMaker Pro 9 Bible. John Wiley and Sons.

Hage, M. (2007). A stakeholder concern towards an economic theory on stakeholder governance. Uitgeverij Van Gorcum.

Jacobs, P. K. (2000). Minding the muse: The impact of downsizing on corporate creativity. Harvard Business School. Retrieved November 30, 2011, from

Markides, C. C. (2007). Diversification, refocusing and economic performance. MIT Press.

Tybout, A. M., & Calder, B. J. (2010). Kellogg on marketing (2nd ed.). John Wiley and Sons.

Wreden, N. (2007). Profit brand: How to increase the profitability, accountability and sustainability of brands. Kogan Page Publishers.

The Happy Manager. (2011). Rational decision making model. Retrieved November 30, 2011, from

Tools for decision analysis: Analysis of risky decisions. University of Baltimore. Retrieved November 30, 2011, from http://home.ubalt.edu/ntsbarsh/opre640a/partix.htm