Gov

Nomura Electronics – CASE #2PRIVATE

Ricardo Salcedo, Information Systems manager of Nomura Electronics, is concerned about the implementation problems caused by the changeover to a new computer system. Nomura Electronics (formerly Chamblis Electronics Inc.) is a subsidiary, newly acquired by Nomura Telecommunications Company. (NTC), of Japan. Ever since NTC took over Chamblis in August 2016, it seemed that nothing but problems had occupied his time.

Only the day before, Tadashi Takehara had been critical of him about the sad state of Chamblis’ financial accounting system audit capability - and he should have been given his extensive financial auditing background. In fact if the former Chamblis Electronics management had been more concerned about its financial difficulties sooner, the company might not have been acquired by NTC. Salcedo had always known that a real financial audit function would be needed eventually, but even more pressing in his opinion was the need for a complete audit of the company’s information systems, especially on security issues. And he would have advised his Japanese superiors of information system and network security shortcomings - with recommended changes - but he had not been asked, and he knew when to keep his mouth shut. He knew the company’s existing security policies and procedures had not kept up with the rapid pace of change in technology, even though the company networks were protected from outside threats by the latest and best firewall hardware and software. However, extremely serious security threats exist within an organization as well as from outside, and without well thought out policies and procedures, the best firewall hardware and software would be ineffective. He thought this was most strange for a company that thought of itself as being on the leading edge of network technologies.

Above all, Salcedo was disturbed by his loss of status within his own department. He felt it, and his employees sensed it. He didn't know how to deal with his damaged ego. He had to work with and try to manage his people as he had before the acquisition, all the while knowing he was no longer really in charge.

The Information Systems staff used to feel like a vital part of a team. They were usually well informed about their department's goals and responsibilities. Their involvement, togetherness, and camaraderie was a thing of the past, in Ricardo's opinion.

Nor was he used to the constant feeling of pressure to work extremely long hours to meet what seemed to be arbitrarily set schedules and deadlines. He was much more comfortable with the old Chamblis company approach which seemed to have respect for employees’ personal lives.

_________________________________________________________________________

Names, locations, dates and financial data in this case have been disguised.

Telecommunications Industry Sales

NTC, based in Japan, is a multinational company that now manufactures all types of telecommunications equipment. NTC purchased Chamblis Electronics to facilitate its expansion into the U.S. market and to gain entry into the data communications networking business. Data communications equipment has been the fastest growing segment of the telecommunications industry. Total world-wide sales for data communications equipment was growing at a rate of 50 percent per year in the 2000s, reaching $32.9 billion in 2013 and $72 billion in 2017. Due to slower projected growth in the sale of PCs, data communications equipment sales are also expected to slow in the future.

Data Communications Network Equipment

The main hardware components of data network communications networks are cable and DSL modems, which are typically used by home-computer users, and network adapter cards, switches, routers (wired and wireless), and firewalls which are typically used to build corporate computer networks.

World-wide unit sales of modems grew from 17 million in 2003 to 53 million in 2015. Again, due to slowing growth in PC sales, especially to first-time buyers, modem sales are expected to reach only 59 million units in year 2018. In fact, as the trend continues in wireless broadband, more modems are needed to receive high speed data transfer via 5G.

In a typical corporate network each device has a network adapter card (sometimes built into the motherboard) which provides the hardware link between the device and its connection to all the devices on the network. Switches are used to create large, segmented networks, and routers and firewalls are typically used for connecting the corporate network to the Internet such that all users on the network can share a single high-speed connection.

In 2015, world-wide sales of all these devices combined was $54 billion. The demand for new equipment to support both new applications and for replacement of older equipment, is expected to expand at a 15 to 18 percent annual rate for the foreseeable future.

Industry Background

The data communications equipment industry is not monopolized in every sector by any one company. However, the market is controlled by several large companies which have typically grown and established their positions by acquiring other technology companies. Some of the largest companies are Cisco Systems, Huawei, Nortel Networks, Juniper Networks and 3Com. All companies in the industry face a number of key risks. The first is failure to react to changes in the marketplace, especially the convergence of data, voice and video communications, and to evolve new products. The result can be product obsolescence and loss of market share. Steadily declining prices and increased competition create other risks. Rapid technological innovation in product development and cost-competitive manufacturing are very important. A successful data communications company must also have established distribution channels and strong support and servicing capability. Another key factor is the ability to offer a broad line of high-quality, reliable products. Finally, a large installed base of equipment is necessary for a company to gain and maintain the momentum to grow and prosper in the long run.

Company Background

Nomura Telecommunications, Inc., is a telecommunications equipment manufacturer and supplier which has traditionally operated in Asia. It is rapidly establishing a presence in the United States, which is the world's largest single marketplace for telecommunications equipment. Although NTC is a relatively small company, its network equipment and network management systems provide a total networking capability, allowing the construction of networks ranging from simple point-to-point connections to multi-node, switching networks that can span a country, a continent, or the world.

NTC was founded in 1986 by Kesi Nomura, Hideri Shigatsu, and Tadashi Takehara, all current directors of the company. Nomura is chairman of the board, Shigatsu is managing director, and Takehara is the chief financial officer.

Initially, NTC manufactured switching equipment for the Japanese telephone industry. The company established sales and customer engineering operations throughout Japan. In the early 1990s, the company began to design, develop, and manufacture data communications systems consisting primarily of multiplexers. A multiplexer is a device which effectively condenses several low-speed telephone lines into one high-speed line. These products were very successful. As a result, NTC grew rapidly and began to move into new markets. The company now has equipment operating in 14 countries.

In the rest of the Far East, outside of Japan, NTC operates through a network of distributors who provide the necessary sales and customer support to cover the market. NTC also owns a 30 percent share in Nomura Telecom Systems (MTS) of Singapore, which was established in 1995. A London office was opened in 1999 to service the European telecom markets.

Chamblis Electronics (Now Nomura Electronics)

The Chamblis Electronics management philosophy historically centered around employee involvement. The company was committed to fully involving employees in the affairs of the company. There was "freedom of information" at Chamblis Electronics. All employees were encouraged to take a close interest in the performance of the company, and there was an open-door policy at all levels of management. Management theorists would say that Chamblis Electronics employed a bottom-up, Theory Y approach to management.

Chamblis Electronics Company, originally Hightech Inc., was formed in 1965 to develop and manufacture microwave communications equipment. In 1974, the company expanded its product line to include the manufacture of modems. The company was purchased by Chamblis Industries in 1990 and was renamed Chamblis Electronics Inc. Shortly thereafter the company began a transition to the exclusive manufacture of data communications equipment. NTC purchased Chamblis Electronics in August 2016 and became Nomura Electronics, a wholly owned subsidiary of NTC at the beginning of 2017.

Currently, Nomura Electronics is concentrating on marketing its product lines to small and medium sized businesses. The company does not feel that it can be successful competing head-on with major companies like Cisco Systems for large enterprise network business. Before being acquired by NTC, Chamblis Electronics' main focus was on quality control and manufacturing. This shift in focus from manufacturing to marketing is needed to meet NTC's goal of rapid penetration of the U.S. market for data communications networking equipment. The sales force at Nomura Electronics has almost tripled in size since the acquisition.

Nomura Electronics also has a strong commitment to research and development and invests approximately 10 percent of sales revenues in research and development and expects to increase this figure in the future. Chamblis, on the other hand, had been investing only about eight percent.

Nomura Electronics employs approximately 650 people. The headquarters of the company, employing 96 people, is located in Richardson, Texas. The manufacturing facility is a short distance away in Fort Worth. A new 210,000 square foot manufacturing plant, in Dallas, is scheduled to be completed in mid-year 2020. About 40 percent of sales are through distributors; the remainder is through 12 regional sales offices which also provide network installation and training services.

The acquisition of Chamblis Electronics should prove beneficial to both companies since their product lines are complementary. NTC is especially strong in circuit-switched telephone network technology, and Nomura Electronics' strength lies in packet-switched data networking technology. With the United States representing about 50 percent of the total worldwide telecommunications equipment market, Chamblis Electronics provides NTC with a manufacturing facility in the United States plus an established sales, support and service network covering most of the United States and Canada. On the other hand, Nomura Electronics will be able to use NTC's well-established international distribution channels to market its products outside of North America. Exhibits 1 and 2 show the financial results of NTC and Chamblis Electronics for the years 2016 and 2017.

Information Systems at Chamblis Electronics (Pre-acquisition by NTC)

The Information Systems department of Chamblis Electronics, before NTC took over, consisted of 18 employees (see Exhibit 3). The department was headed by Ricardo Salcedo, who reported to Jeff Daly, the director of Finance.

The 2016 IS budget of $1,961,000 was approximately 3.3 percent of sales. All training was done internally. The training budget was $93,000, or 5 percent of the IS budget. Most major business applications were run on a previously owned, large Hewlett Packard (HP) ProLiant DL500 servers, which was acquired shortly before the company was sold to NTC. Salcedo convinced Jeff Daly that used computer hardware offered a very attractive price-performance ratio. He always bought hardware, new and used, that he thought would be able to handle growth anticipated over a four years planning horizon.

The application software running on the HP server was varied because the company had always followed a “best-of-breed” strategy in software acquisition. Most of the programs had been developed in-house over a several year time period stretching back to around 1995. However, some of the newer applications were purchased from outside vendors. The software was arranged in four independent groups: financial, sales, manufacturing, and inventory. However, all individual systems in each group were fully integrated. An Ethernet network was installed in both the company headquarters and in the manufacturing facility. The two networks were tied together by a secure, high-speed T4 line which gave everyone in the company access to the applications running on the HP server as well as other applications including e-mail, collaboration tools and Internet access.

Two of the financial systems were purchased from outside vendors. The general ledger system was purchased from McCormack Corporation in 2001 and the payroll system was purchased from Payroll Plus, Inc. in 2003. Accounts payable, accounts receivable, and fixed asset systems were developed in-house. The sales and marketing systems were in-house systems, also. In contrast, the complete manufacturing and inventory systems were purchased from Sterling Software and Invensys Systems in 2013.

The systems that were bought from outside vendors have been heavily modified to meet

the specific needs of the users. Those developed in-house were designed specifically for Chamblis Electronics needs. Several unsuccessful attempts had been made in the past to integrate the majority of systems into a home-grown enterprise resource planning system, the last attempt with a Web Browser user interface; however, the required technical and financial resources had proved far greater than the company expected.

Information Systems at Nomura Telecommunications Company

Shortly after the acquisition of Chamblis Electronics, a decision was made by NTC to install new systems at Chamblis Electronics. The various in-house developed and purchased application software systems were to be scrapped and replaced by a vendor-supplied, fully integrated enterprise resource planning software package called InformationFlo. It was to be identical to the one used by NTC in Japan, and it is the software used by several of NTC's major international subsidiaries. Plans were also laid to replace the single HP server with four smaller Fujitsu servers, one to run each major InformationFlo application group, again similar to other NTC InformationFlo installations.

These planned changes in the hardware/software environment forced a great deal of organizational change on the Information Systems department. Three programmer/analysts, a system conversion project leader, and a telecommunications manager (see Exhibit 4) have been added. Saburu Noguchi and Kazuko Ishimura were "loaned" by NTC, Japan to help with the Fujitsu/InformationFlo implementation project. Salcedo now reports to Saburu Noguchi. Noguchi reports to Tadashi Takehara, also loaned from NTC, Japan.

Tadashi Takehara

Takehara is the chief financial officer of NTC, Japan. He was one of the original founders of the company and has been a driving force behind the company throughout his career. With a stubborn, strong, hard-nosed attitude, he is used to getting his way. Takehara was often heard to say, "My way or no way."

Takehara's tight controls over NTC's financial operations were seldom challenged because everyone in Japan believed he had the knowledge and experience required to keep NTC in good financial condition. He is one of the most respected and feared members of senior management. He is responsible for audit procedures, mergers and acquisitions, financial reporting, and information systems. He oversaw the committee that chose the Fujitsu/InformationFlo system and managed the installation in the firm's headquarters in Tokyo. Takehara also was the main force behind the acquisition of Chamblis Electronics when NTC decided to expand into the U.S. market.

Takehara expected to be “on loan” to Nomura Electronics’ U.S. operations for two years. He estimated it would take that long to turn the company around and make it into a growing and profitable company. The company bought a house for him in Richardson, but his family did not move from Tokyo. They spoke frequently by phone but saw each other only on major holidays. This caused some emotional strain for the 54 year old executive. Takehara wanted to get the project completed as quickly as possible. He went about this task in his usual brusque manner.

Budget Changes

The 2017 Information Systems budget was increased to $4.1 million, or 4.4 percent of planned sales. Training was $410,000 which was 10 percent of the total Information Systems budget. Outside training represented a large part of the training budget. For 2018, Takehara is holding the Information Systems budget to $4.2 million, with no more than $250,000 allocated for outside training. He has already said that he expects and demands no increase for year 2019 as well.

Hardware Changes

The new Fujitsu servers are based on the latest CMOS multiprocessor technology. These servers are ideal for computationally intensive application such as Computer Aided Design, Computer Aided Manufacturing, and Computer Aided Engineering in a distributed processing environment. Fujitsu claims the total system, once networked and optimized, will have much more processing capacity than the single HP server. Salcedo agrees that is true for number crunching; however, he still believes that the HP can process typical business data transactions faster than the Fujitsu due to its faster channel connection to its disk drives.

Interaction, Inc.

Interaction began in February 1986 as a systems integration consulting firm and has a solid foundation of technical people with many years of experience. Based in Bonn, Germany, the company has branch offices in Los Angeles, London and Tokyo. Its systems are installed in over 150 sites around the world.

Interaction's products are in three categories: equipment, application software, and consulting services. The company's equipment products include complete computer systems and peripheral equipment from computer hardware manufacturers such as IBM, Hewlett Packard, Sun Microsystems and Fujitsu. Interaction's only major software product is InformationFlo. Its consulting services include installation and configuration plus systems analysis, design, and programming for clients who desire custom modifications to their InformationFlo system.

Interaction assists in all phases of implementation. It provides pre-installation service to ensure that the hardware and network environment is physically prepared prior to the arrival of any new equipment. Interaction is also involved in system orientation. Regular meetings are scheduled with the client to explain the installation, capabilities, and features of each system. Initial meetings are held with top level management. Subsequent discussions are with middle managers and those responsible for supervising the various application areas.

Interaction routinely performs a user survey before each installation. The survey is designed to identify any necessary and/or desired modifications to the base system. Interaction training for Information Systems support personnel and users includes operation of the servers, a review of the operating system software, and the use and capabilities of the various program modules.

The servers are usually installed by a Fujitsu field engineer, who then runs diagnostic tests to verify the proper operation of the overall system. After the basic InformationFlo software is installed, consultants and/or the users configure and implement the subsystems and modules in a phased schedule over a period of time according to a formal project plan.

Interaction, Inc., also has the resources to coordinate Nomura Electronics' data conversion and write any needed conversion programs. Its staff will provide continued monitoring and support on a daily or weekly basis during and following conversion and will isolate and correct any problems. Interaction also assists in the definition and planning of enhancements or new applications afterwards. The above activities are available in the services portion of every InformationFlo contract.

InformationFlo

InformationFlo is a large, integrated software package consisting of approximately 200 relational database tables and 700 program modules linked together with a proprietary Windows-like user interface. The program modules are divided into four application groups or categories: financial, sales/marketing, manufacturing, and inventory (see Exhibit 5).

The financial group includes general ledger, accounts receivable, accounts payable, asset management, and payroll. The general ledger subsystem provides for the maintenance of the financial database. The accounts receivable subsystem enables users to maintain customer accounts receivable data on an open-item basis. The accounts payable subsystem accommodates data entry and maintenance of vendor and accounts payable data. The asset management subsystem accepts data entry and facilitates management of the fixed asset database. The payroll subsystem maintains on-line payroll and personnel data.

The sales/marketing group includes job order processing, sales order processing, service order processing and sales force management. The job order subsystem facilitates the entry of the initial order and uses the product definition and production/costing modules from the manufacturing group to calculate total manufacturing costs and arrive at a target selling price. The sales order subsystem assists users in tracking the progress of customer order fulfillment and prepares summary reports of on-time deliveries. The service order processing subsystem allows the users to record, dispatch, track, invoice, and analyze the cost-effectiveness of work associated with the installation and servicing of equipment. The sales force management subsystem tracks sales over time by customer, product line and territory and produces management reports on sales force productivity. It also prepares detailed sales forecasts by customer, product line and territory under "what if" conditions.

The manufacturing group includes materials requirements planning, product definition, and production/costing. The materials requirements planning subsystem allows users to create and maintain purchasing and production scheduling in real-time. The product definition subsystem allows for the entry and maintenance of bills-of-material for each product, production standards, and job assembly routings. The production/costing subsystem assists users in maintaining the shop order-scheduling database and in finding the least costly production schedule.

The inventory group includes purchasing, inventory control and shipping. The purchasing subsystem facilitates maintenance of the purchasing database on an open-item basis. The inventory control subsystem provides for the entry and maintenance of the inventory database. The shipping module produces the necessary shipping documents, tracks shipments and feeds the accounts payable database.

Ricardo Salcedo

NTC management needs Ricardo Salcedo's know-how to make a smooth transition from the old HP/Chamblis system to the new Fujitsu/InformationFlo system. Even so, both Takehara and Noguchi have heard from other personnel that Ricardo is unhappy with the switch to Fujitsu servers. They are worried that opposition or "foot dragging" on his part may cause added difficulties and delays in the project.

Ricardo Salcedo, now in his mid-40s, was the first Mexican-American hired to fill a management slot at Chamblis Electronics. He has been with Chamblis Electronics since 1994. He started as a programmer and worked his way up to his current position as Information Systems manager in 2014. He is a very methodical person, who likes to see that all major decisions are carefully planned. He has been involved in all major information system projects of the last 15 years. As project manager in 2015, which resulted in the selection and installation of the current HP server, he performed a detailed feasibility study to be certain it would be flexible, compatible with most major application software, and scalable (expandable to cover future growth). He even researched all of the competing vendors' experience and reputation, trying to measure reliability and quality of long-term support. Subsequently, he was a major force in the decision to buy the HP server. In 1997 Ricardo updated his education by completing a master's degree in Computer Science at the University of Houston's part-time evening program.

Salcedo had enjoyed his powerful position as manager of Information Systems in Chamblis Electronics, and now feels his position is threatened by the NTC buyout.

Ricardo’s Misgiving

In May 2017 NTC management presented Ricardo with a timetable for the installation of the InformationFlo software system (see Exhibit 6). As Salcedo examined the schedule, he questioned several factors and became more and more agitated. He wondered how his staff was going to react to all these projects that needed to be completed in such a short time. It had taken years to gather and train his loyal staff, and he worried that this major system overhaul would create heavy turnover. He also secretly doubted that all of his current people could be easily taught to work with the new hardware and software. He would hate to fire some of the fine people he had put together over the years and hire unknown replacements.

Salcedo was especially concerned about where he might find additional programmers and analysts sufficiently experienced with the Fujitsu operating system. Fujitsu was not used extensively for business applications in the United States, and such people would probably be hard to find and expensive to hire and retain. Ricardo pulled out and reread an old article he had downloaded and saved from Information Week Online:

Tuesday, July 28, 2015

Study: Follow-up On Employee Issues Would Help Solve Skills Shortage

IT organizations that want to effectively tackle the technical skills

shortage need to address the entire life cycle of five key

employee-related issues: recruitment, retention, deployment,

compensation, and development, says a study released today by

research firm Concours Group of Kingwood, Texas.

Over the last several months, Concours studied the ways 40

companies, including 20 with the "best run IT organizations" in a

variety of industries, handle the management of their "human IT

capital," says Nick Vitalari, a Concours manager involved with the

research. Concours found that many companies try to address

some of the five employee issues, but few have life-cycle programs

that address all of them.

"Few companies are doing anticipatory and follow-up activities" to

prevent problems down the line or to gauge the success of current

programs, Vitalari says. For instance, while many companies have

well thought-out recruitment programs to attract new IT employees,

few companies have efforts under way to avert shortages of skills

they expect to need later. Also, once employee programs are

launched, few companies follow up to see how well the programs

are working.

Other findings in the study include:

It's cheaper to keep employees than replace them. In fact, it costs

more just to find a replacement than the employee's annual salary.

For instance, to replace a programmer earning $80,000, the

company will need to spend between $90,000 and $100,000 in

headhunter fees, temporary worker pay, and management time.

IT employees in companies with well-managed IT organizations

and low turnover aren't likely to accept an offer for another job

unless the pay is 15% to 20% more than the person's current salary.

However, the otherwise satisfied person is likely to stay at his job if

the employer makes a counter offer of only a 10% to 15% pay

increase.

Workers in poorly managed organizations with high turnover tend

to accept pay increases of only 10% to 15% to change jobs. They

also often refuse retention bonuses to stay at their current job.

Companies need to do a better job in maintaining employee skills

databases, which can help promote knowledge transfer.

--Marianne Kolbasuk McGee

Ricardo's other major reservation was servicing. HP had always given outstanding service in the past, but Fujitsu's nearest service center is in Oklahoma City. Interaction does have a toll-free 800 number to help solve software problems. "I hope there's a solution to this dilemma," Ricardo thought, "or all my past efforts will have been wasted."

Another problem for Ricardo is project costs. Noguchi gave him the estimate shown in Exhibit 7. Ricardo thought about all the things he could have done with the additional $1.4 million in his Information Systems department. He couldn't understand why these headquarters types were so hardheaded. "Why even switch to Fujitsu/InformationFlo if Nomura Electronics will still act as a separate, decentralized entity?" he asked himself.

Salcedo calculated that if Nomura kept the HP server, the IS department could be expanded to provide much better service at an annual increase in cost of only $560,000. The $560,000 total included three additional programmers at $280,000, a telecommunications manager for $135,000, and other system improvement software costs at $145,000. Why wouldn't the Japanese managers listen to him? Why had they dismissed the rough feasibility study he had prepared for them (shown in Exhibit 8).

In addition to preparing the feasibility study, Salcedo collected user feedback. Mechiko Mitsubi, a financial analyst, examined some sample output from the Japanese InformationFlo financial package. She said the output was not as detailed as from the old HP/Chamblis systems, and the general ledger package did not seem to be as flexible. The major problem with the financial package was the payroll system, which needed major modifications. However, Mechiko did feel the accounts payable subsystem was a bright spot within the financial package. It provided better summary reports and had more on-line capabilities as well as the capability to accept electronic payments.

Harvey Keene, the new Controller, felt both the new and old software packages were adequate for his needs. He said, "I just have a problem justifying all the additional expense. Also, manually converting all my U.S. dollar figures into Japanese yen and converting my financial statements to support both U.S. and Japanese accounting standards is going to be challenging until the new release of InformationFlo is available next year."

Ricardo also received feedback from the Marketing department. Helen Willoughby, sales manager, added the following: "From the preliminary report, it appears the InformationFlo output is going to be just what we need. Now that our sales force has more than doubled, and we're expanding into new areas, we are going to need the sales force management tools they provide. I just hope they can deliver the package soon enough for us to take advantage of it."

Next, Ricardo spoke with Mel Tempkin, Materials manager, who asserted, "The manufacturing and inventory systems I saw at NTC in Japan are far superior to the one we're using now."

Also, the Purchasing manager claimed the InformationFlo purchasing package was excellent; it had e-business capabilities to connect to suppliers for electronic submission of purchase orders and for electronic payment. It was also very flexible in the type of reports that could be generated by end-users, important characteristics the old HP/Chamblis system lacked.

Saburu Noguchi

Saburu Noguchi is 38 years old and has been in the United States for two years. It is his responsibility to direct Ricardo Salcedo in the Fujitsu/InformationFlo implementation project. Noguchi has an extensive, impressive information processing background, including seven years as a computer auditor for Coopers & Lybrand, Tokyo and six years as an MIS manager for a multinational insurance company that used Fujitsu computers provided by Fujitsu of Tokyo.

Three years ago, NTC hired Saburu away from Fujitsu of Tokyo to help install the Fujitsu/InformationFlo system at NTC, Japan. Saburu has always been reserved, task-oriented, and technically competent. He gets the task at hand accomplished and is not deterred by obstacles or concerned about the feelings of anyone standing in his way. He is also highly regarded and respected by NTC's top management.

Kazuko Ishimura

In only four years at NTC, Kazuko had become a rising star; quite a rarity for a woman in Japan, particularly for someone as young as she was, now in her mid 30s. Ishimura was open-minded, objective, and inclined to speak up when she did not agree with policy or procedures which is another rarity among Japanese women.

She had made her mark as a sales and marketing specialist at NTC's home office in Japan. Subsequently, Ishimura became an important liaison between manufacturing and sales in a company that, at that time, needed more emphasis on sales. However, neither her undergraduate studies in computer science nor her Harvard MBA had prepared her for the difficulties she faced at Nomura Electronics.

Sales training, marketing studies, and strategic planning had been low-priority activities at NTC when Ishimura arrived. Under her direction a full-fledged sales and marketing plan was formulated. Partially as a result of Kazuko's efforts, emphasis at NTC has turned from manufacturing to marketing.

Last year, when all the U.S. managers had been invited to NTC's Japan headquarters for a preliminary review of the Fujitsu/InformationFlo system, their initial reaction was mixed. As a result, Ishimura, because of her technical, managerial and interpersonal skills, was drafted to act as a liaison between the Nomura Electronics U.S. managers and NTC's loaned Japanese managers.

Appreciative of the value of Ishimura's training and interpersonal skills as a liaison link, Saburu Noguchi had insisted that Ishimura be part of the U.S. project team. As Noguchi's right hand, her job was to strike a balance between the way things were done at NTC as opposed to the American way of doing business.

Progress of the Project

As of April 2018, only the general ledger, accounts payable/purchasing and asset management systems are running satisfactorily. The sales/marketing system is well behind schedule, and the manufacturing system has not yet been started.

Nomura Electronics has been rapidly expanding its sales force. Having up-to-date sales, marketing, and production data is essential to operations. As the sales force increased from 30 to 65, the training of the new salespeople has become seriously handicapped. The slow training, as well as the dismissal of many long-term sales personnel, did not help Nomura Electronics' marketing efforts. Customers used to dealing with certain sales personnel were turned off by the more aggressive, newer sales staff. The new salespeople appeared more interested in making the sale and their own performance than in the customer's true needs. Delayed or incorrect reports on sales, marketing and production have caused mistakes in promised delivery schedules. Some customers had to wait nearly twice as long as promised.

There has been little consideration given to the differences between programming in the HP and the Fujitsu environments. NTC management assumed there would be no problems until the programmers began to complain about their lack of training in the Fujitsu version of the Unix operating system. The sales/marketing software in particular was more complex and was taking far longer to customize than had been estimated.

Prior to the takeover, Chamblis Electronics Information Systems annual staff turnover had averaged 15 percent. Over the last six to seven months, it had nearly doubled to 29 percent. After a little research and several exit interviews with former staff members, Salcedo uncovered two primary reasons for the turnover upswing. The most important reason was career misgivings. The programmers were very concerned that their skills would erode over time and make them less employable. Several stated that if they were to go to the trouble to acquire new skills, they would not be in the relatively rare Fujitsu environment. In addition, the IS system staff had been working frequent overtime with 70-hour workweeks not uncommon. The pressure to keep up with an unrealistic project schedule was also cited as an additional reason for leaving.

Information Systems personnel were not accustomed to working under conditions of constant confusion and pressure. The chaotic environment implied poor planning and an obviously altered management style from the "good old days" at Chamblis Electronics. Poor planning was suspected when staffers were told that several additional programmers would need to be hired immediately in order to get the project schedule back on target. Then, because technical people familiar with Fujitsu and InformationFlo were not easy to locate, two programmers from NTC corporate headquarters in Japan had to be “borrowed” - and housed - at Nomura Electronics expense.

Salcedo, usually well thought of as a manager, was blamed by his people for the chaotic changes. The IS staffers believed he was now merely safeguarding his Information Systems manager position instead of protecting them. And he had done that so well in the past. Actually, Salcedo had been excluded from the planning process and could not advise his staff. Had he been included, he could have warned NTC management about the tightness of the project schedule and expressed his doubts about its timely completion. As a result he didn't understand why Takehara and Noguchi were in such a rush to get rid of the HP/Chamblis system, and he felt that his opinion had no value to the Japanese managers.

Tadashi Takehara, at the insistence of Saburu Noguchi, finally agreed to contract for services from an outside MIS auditing firm. Noguchi did not want to see the system compromised in any way after it was cut over to production. Serious control problems were uncovered by the audit. Most serious of all the deficiencies found was a lack of password controls. For systems that did not store critical data, all users were sharing the same password, for others passwords had not been changed for many months, and even then there seemed to be no regular procedure for doing so. Many users seemed unaware that security was something to be taken seriously all the time. Network firewall software had not been updated to the latest version which made the auditors surprised that the company had not been subjected to a serious hacking event or denial of service attack. As a result of the audit report, Takehara insisted on implementing new internal security and control procedures immediately, as part of the implementation project. The impact, of course, was an added interruption and extension of the original implementation process. The Information Systems staff found themselves even further "behind the eight ball". The scheduled completion date slipped a few more months.

Salcedo and Noguchi were also having problems. They disagreed about almost everything - plans, procedures, processes, and personnel. Their relationship appeared to be a classic personality conflict because Noguchi intended to wield his power as overseer of the project, regardless of what Salcedo thought.

Salcedo didn't like the heavy-handed approach. He sensed more could be accomplished through planning and cooperation. But Noguchi's temperament didn't allow for time to be wasted on what he thought were unnecessary trivia. On several occasions, Noguchi commented that Chamblis Electronics should not have been acquired because its people were the type who spent too much time planning, rather than doing.

Noguchi knew what his responsibilities were because he had received specific directions from Takehara. Since both men had worked together before, each knew how the other thought.

Salcedo, on the other hand, was left out in the cold. He was given no guidelines, other than a schedule, and ordered to meet it. Deadlines seemed to be the only thing Takehara and Noguchi understood.

Kazuko Ishimura was about the only person in the Japanese takeover team who seemed to appreciate Salcedo's quandary. Because of her involvement and experience in the sales and marketing realignment of Nomura Electronics, she began to suspect that the home office team's style might not be the most efficient. Ishimura felt and expressed some sympathy for Salcedo's plight but she encouraged him to give consideration to what NTC wanted to accomplish. During several short discussions, Salcedo had told Ishimura, "I've lost control of my department. Saburu Noguchi has stepped in and taken over. Thank God, the man is technically competent, because he is so arrogant," and "My study heavily favors the continued use of the existing HP/Chamblis system. Why didn't they even consider it? We’ve always been an HP shop." Salcedo also repeated some critical end-user comments about Noguchi's heavy-handed management methods. Ishimura agreed to approach Noguchi on Ricardo's behalf.

In mid June 2018, Noguchi listened to Kazuko's comments and even made some notes. But he quickly ended the discussion, saying he did not have the time to respond immediately.

Final Meeting

During the last week of April 2018, a meeting was called by Takehara to check Nomura Electronics' progress against the project plan's deadlines. Noguchi, Ishimura, Salcedo, and Helen Willoughby attended. It wasn't until Noguchi and Salcedo met face-to-face that their differences were confronted directly. The small talk eventually turned to angry discussions, supposedly about business. This time, the hostility between Noguchi and Salcedo erupted and shattered the conventional courtesies. Their mutual dislike was evident. Noguchi blamed Salcedo for the delayed schedule and poor management. Salcedo accused Noguchi of being pigheaded, unrealistic, and a poor planner. He couldn't understand why Noguchi failed to act when Ishimura had talked to him over a month ago.

Takehara suddenly realized he had a major problem. He wondered if and how he could get these people to work together. Maybe they should have done some things differently.

EXHIBITS

EXHIBIT 1. NTC Consolidated Income Statement

NTC

Combined Income Statement

Fiscal Years 2017 and 2018

(in thousands of dollars)

2018 2017

Total NTC Nomura Total NTC Chamblis

Electronics Electronics

_________ _________ _________ _________ _________ _________

Sales 190,280 114,168 76,112 124,134 74,480 49,654

Cost of sales 105,178 60,707 44,471 75,480 43,488 31,992

_________ _________ _________ _________ _________ _________

Gross profit 85,102 53,461 31,641 48,654 30,992 17,662

Period expenses:

Research and 20,456 12,274 8,182 9,870 5,922 3,948

Engineering

Marketing and 35,234 21,140 14,094 18,538 11,123 7,415

Selling

General and 13,904 8,342 5,562 11,712 5,227 6,485

Administrative

_________ _________ _________ _________ _________ _________

Total expenses 69,594 41,756 27,838 40,120 22,272 17,848

Operating income 15,508 11,705 3,803 8,534 8,720 (186)

Other income 1,494 896 598 (42) (25) (17)

(expense)

_________ _________ _________ _________ _________ _________

Income 17,002 12,601 4,401 8,492 8,695 (203)

before taxes

Taxes 5,610 4,158 1,452 2,779 2,894 (115)*

_________ _________ _________ _________ _________ _________

Net income 11,392 8,443 2,949 5,713 5,801 (88)

*Net tax effect due to carryforward from prior year’s losses.

EXHIBIT 2. NTC Consolidated Balance Sheet

NTC

Combined Balance Sheet

Years 2017 and 2018

(in thousands of dollars)

2018 2017

Total NTC Nomura Total NTC Chamblis

Electronics Electronics

_________ _________ ___________ _________ _________ ___________

Assets

Current assets:

Cash and short 25,952 15,571 10,381 24,890 14,934 9,956

term investments

Accounts receivable 61,010 36,606 24,404 39,696 23,818 15,878 Inventories 49,832 29,899 19,933 27,876 16,726 11,150 _________ _________ _________ _________ _________ _________

Total current assets 136,794 82,076 54,718 92,462 55,478 36,984

Total long-term assets* 68,982 41,389 27,593 83,612 50,167 33,445

_________ _________ _________ _________ _________ _________

Total assets 205,776 123,465 82,311 176,074 105,645 70,429

Liabilities and Equity

Current liabilities:

Accounts payable 75,567 45,340 30,227 63,513 38,108 25,405

Employee payables 25,189 15,113 10,076 21,171 12,703 8,468

_________ _________ _________ _________ _________ _________

Total current 100,756 60,453 40,303 84,684 50,811 33,873

liabilities

Long-term liabilities 442 265 177 442 265 177

Stockholders equity:

Common stock 25,326 15,196 10,130 25,326 15,195 10,130

Paid-in capital 44,676 26,805 17,870 44,676 26,806 17,871

Retained earnings 34,576 20,746 13,831 20,946 2,568 8,378

_________ _________ _________ _________ _________ _________

Total equity 104,578 62,747 41,831 90,948 54,569 36,379

_________ _________ _________ _________ _________ _________

Total liabilities 205,776 123,465 82,311 176,074 105,645 70,429

and equity

*This line contains only property, plant, and equipment.

EXHIBIT 3. Chamblis Electronics Information Systems Department Organization Chart

Director of Finance

Jeff Daly

Information Systems

Manager

Ricardo Salcedo

Telecommunications Systems Computer PC

and Networking Development Operations Support

Supervisor Supervisor Supervisor Supervisor

Network Senior Computer User

Specialist Programmer/ Operator Support

(3) Analyst (2) Specialist

(2) (4)

Programmer/

Analyst

(3)

Programmer

(3)

EXHIBIT 4. Nomura Electronics IS Department Organization Chart

Chief Financial Officer - Japan

Tadashi Takehara

Controller MIS Manager - Japan

Harvey Keene Saburu Noguchi

Sales/Marketing Information Systems Telecommunications

Coordinator - Japan Manager and Networking

Kazuko Ishimura Ricardo Salcedo Manager

Conversion Systems Computer Personal

Project Development Operations Computer

Leader Supervisor Supervisor Supervisor

Senior Programmer/ Computer User Network

Programmer/ Analyst Operator Support Specialist

Analyst (2) (2) Specialist (3)

(3) (4)

Programmer/ Programmer

Analyst (3)

(3)

EXHIBIT 5. InformationFlo - Overview of Subsystems

Financial Sales/Marketing Manufacturing Inventory

_________________ _______________ _________________ ______________

General ledger Job order Material requirements Purchasing

Accounts processing planning Inventory control

receivable Sales order Product definition Shipping

Accounts payable processing Production/costing

Asset management Service order

Payroll processing

Sales force

management

EXHIBIT 6. Nomura Electronics InformationFlo Installation Schedule as of May 2019 - Original Estimates made in May 2018

Original Original Current

Estimated Actual Estimated Actual Percent of

Subsystem Start Date Start Date Finish Date Finish Date Completion

_____________ __________ __________ ___________ _________ __________

General ledger 06/01/19 06/01/19 09/15/19 11/18/19 100

Accounts receivable/ 09/16/19 11/19/19 10/31/19 02/09/20 100

Accounts payable/

Purchasing*

Asset 11/01/19 02/10/20 12/15/19 05/09/20 100

management

Sales/marketing 12/16/19 05/10/20 01/30/20 40

(all modules)

Manufacturing 02/01/20 07/31/20 0

(all modules)

Inventory control 05/01/20 10/15/20 0

Payroll 5/10/20 12/31/20 0

* When he was given the installation schedule, Ricardo was told to treat accounts receivable, accounts payable and purchasing as one system and to "bring them along together."

EXHIBIT 7. Project Costs (in dollars) – HP/Chamblis to Fujitsu/InformationFlo

Item Cost

_____________________________________ __________

New Fujitsu hardware 449,100

InformationFlo software 167,500

InformationFlo training/installation/customization 100,000

Four additional programmers 200,000

Data conversion (hiring of temps) 40,000

Conversion project supervisor (new) 55,000

Telecommunications manager 55,000

Temporary housing for Japanese personnel 100,000

_________

1,166,600

EXHIBIT 8. Feasibility Study - HP versus Fujitsu

Category HP Fujitsu

________________ ________________ _______________________

Cost $360,000 (annual) $1,266,600

Vendor Very reliable; Fujitsu - Engineering oriented;

Number one in Small market in U.S.

market Interaction - small firm

with little capital

Performance Very good; excel- Good performance; serv- lent support and icing weak; vendor help

servicing good

Output Good output for Very good output; flexible user; very flexible

Programmer Many available Few available

availability

Expandability Handle projected Handle projected growth growth for at least for up to three years

three years