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LEADERSHIP CRISIS: HOW CAN CIRCLE 6 SURVIVE? Keith Charles Perry and George L. Whaley San Jose State University

This case was prepared by the authors (Perry and Whaley) and is intended to be used as a basis for class discussion. The views represented here are those of the case authors and do not necessarily reflect the views of the Society for Case Research. The views are based on professional judgment. Introduction Laird Jennings, a senior software engineer at Circle 6 Corporation, was worried about facing another six months of unemployment as he had the last time a company he worked for closed its doors. Even though he was not a manager at Circle 6, his concern about possible unemployment had prompted him to draft an email at home regarding the imminent departure of all of Circle 6s board and management team. Jennings retrieved the draft from his printer for one last review before he sent it to his remaining co-workers: Circle 6, Inc. Situation: The situation as I see it is as follows. Phil, Greg, and Tom are ready to move on. Phil has a family back east which he wants to get nearer to. Greg has already retired and we are only a distraction. Tom has a daughter who needs him and he needs to get on in his life. They have stated this. Phil in particular said that he needs to move on. As he reread the email, Jennings thought about the phone call he received from Greg Daily stating that all three board members intended to resign from the board as well as from their respective Circle 6 management positions. Daily was a board member and former employee, Phil Kabob was the chief executive officer and chairman of the board, and Tom Brown was the third board member and president. Jennings then recalled an engineers only luncheon at a nearby restaurant in Oakland after Brown came on board the previous year where Jennings and the other engineers had discussed What we need to worry about in the future. The y had not been involved in the companys strategic direction and this was the point when Jennings started to worry about Circle 6s viability and his own employment. He recalled watching the customer base dwindle from fifteen when he joined the company in 1994 to its current four. He recognized that Circle 6 had faced many obstacles during this timeframe, but the customer attrition, shrinking revenue, lack of profitability, downsizing and low morale made the problems a multi-faceted crisis. Co-workers had grumbled, but avoided taking any direct action. Jenningss thoughts came back to the draft e-mail and he wondered how it might appear to others. He had written the e-mail at home as he was unsure if it was appropriate for him to perform non-engineering activities at work. He thought to himself about a previous manager:

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I wish I could create a to-do list for each employee like our past de facto chief operating officer, Phone Jack Rather, did for us every day. Tom Brown has such a different style with no direction on the day-to-day operations of the company and only a high level strategy to make Circle 6 wireless. This is such a departure from what we were used to at Circle 6 that we were never sure what we should be working on. The e-mail was a turning point, and even though he was not a company executive, the departing board encouraged him to take a more direct role in operations. As he did, one of Jenningss coworkers asked him why he was taking such direct action and Jennings responded: I am not a visionary, mover, or shaker, but something needs to be done right away. If no one steps up in this critical instance, we might all go down the drain. This emerging leadership role made Jennings uncomfortable; however, the uncertain company vision, leadership, brand, financial situation, management/board vacuum, and especially the prospect of becoming unemployed made him even more uncomfortable. Industry Background Computer telephony integration (CTI), as its name implies, connects computer data with phone calls. The integration shares an incoming calls phone number with a computer that uses it to search for that associated customers records and simultaneously displays that information on a computer screen as the phone rings. By having this information available, a customers experience is improved with personalized service, and the company also benefits by reducing each call by 20-30 seconds. For large companies with thousands of agents in call centers, this productivity increase is a dramatic financial advantage given the number of calls they receive. CTI was gaining widespread adoption in markets such as North America and Europe and by the beginning of 2004, globalization and outsourcing were key contributors to the CTI market which consisted of over 60 countries. Outsourcing contact centers to India was especially popular due to its low costs of operation and the availability of educated employees. Technology Evolution The Personal Computer (PC) was the first disruptive technology that significantly affected the CTI space. By the 1990s, many large enterprises had adopted a PC client server platform as an alternative, or even as a replacement, for their large IBM servers. Because of this, CTI companies modified their software to work with PC client servers to remain competitive. Using the new platform enabled CTI vendors to expand their customer base to include medium sized businesses rather than only large enterprises. Another disruptive change was the introduction of Open Source which uses peer collaboration to create free software. The GNU (a recursive definition that stands for GNU is not Unix) Project used this approach to create the first free operating system in 1992 when the last gap in the GNU system was filled by a third-party called Linux which opened their software to be available to anyone at no charge. A third disruptive change in telephony was the introduction of Voice over Internet Protocol (VoIP). VoIP enabled phone calls to be routed over the Internet instead of through the Page 103

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traditional phone system infrastructure. Similar to the shift from large IBM servers to PC client servers, VoIP dramatically increased user functionality while substantially lowering overall costs. VoIP was truly a disruption technology as the circuit based infrastructure had been the backbone of communicating over the phone for 100 years (Osterman, 2004). By combining disruptive technologies, an Open Source VoIP solution called Asterisk paved the way for new startups in the CTI space to emerge. The first Asterisk users and developers conference was scheduled for 2004 to improve awareness and adoption of this offering (Johansson, 2004). In early 2004, only small customers that had the most to gain from VoIP with its large company features at small company prices had embraced the technology while medium sized companies and large enterprises were uncertain, or unaware of this technology change. There was also increasing awareness of a fourth and a fifth disruptive technology in early 2004. Employees from IBMs prestigious research center presented a paper that January in Berkeley, CA on Unified Communication at the Institute of Electrical and Electronics Engineers (IEEE) conference. Unified Communication allows a user to interact with others using the most convenient device at the time (Lei, Ranganathan, 2004, p. 176). Separately, advocates of Web 2.0 were in the midst of planning their own first conference for later that year in San Francisco, CA to explore how the Web has developed into a robust platform for innovation across many media and devices from mobile to television, telephone to search (OReilly Media, 2004). The management and staff at Circle 6 were unaware of these changes to the general environment. Competition Evolution By the early 1990s, competition in the CTI space included the dominant supplier, Genesys and a number of small companies. Genesys purchased a number of these small companies that were technical innovators or had developed market niches. One unique competitive advantage that Genesys featured was the ability to re-route phone calls between call centers without manual intervention. In 1999, Alcatel-Lucent, announced their intent to purchase Genesys (n.d.) which gave them access to the vast resources of this new parent company; allowing them to scale their CTI offering and customer base while maintaining reasonable profit margins. That same year CISCO added CTI to its offerings by purchasing a small company called GeoTel. Circle 6 Company Background Circle 6, a CTI pioneer, started out as CTI Corporation (CTIC) when it was incorporated in California as a spin off from Electronic Data Systems (EDS) who provided financial backing of approximately $5M, five employees and three customers. The office and staff were located just east of the San Francisco Bay. The board of directors consisted of three positions: chairman of the board, president, and corporate secretary. Table 1 describes the companys milestones. CTICs initial attempts to integrate voice (telephony) and data (information stored on computers) failed but the firm soon developed their core product. This ground breaking software was very creative and by 1990, their CTI offering had gained significant market acceptance. Besides being a pioneer in this market space, the software was robust and they soon adapted it to work with seven of the largest phone vendors. An example of an industry leading feature CTIC developed was the ability to transfer the data information at the same time a call was transferred. Page 104

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End customers avoided being exasperated by having to repeat themselves every time their call was transferred and CTICs customers enjoyed a strong return on investment by addressing t heir end customers in a shorter time period which in turn reduced their staffing costs. Table 1. Company Milestones
1988 CTI Corporation formed in November by five EDS employees. Developed product to integrate voice with data and connect directly to a large IBM server. After a founder attempted to convince others to connect to the Internet instead, he was let go and joined Ascend who developed and sold an Internet based CTI product. CTIC became a pioneer in computer telephony middleware software for call centers. CTIC peaked with twenty-four customers. Key customers included the IRS, Sally Mae, Caterpillar, Fujitsu, First Card, Universal Card, Kawasaki, Whirlpool, PEPCO, Union Electric, Washington Gas, MBNA and Nations Bank. Laird Jennings hired as senior software engineer. Fifteen customers remained. Blue Shield of California was the only new customer added. Victorias Secret was the only new customer added and was the last customer to purchase the IBM server product. Last sales person resigned. Last version of IBM server code was released. Blue Shield of North Carolina became a customer and used the companys software product that was PC client server based. One of Blue Shield NCs key managers still preferred the industrys dominant competitor, Genesys, and as a result they did not renew their agreement after the initial year. CTI Corporation changed its name to Circle 6, Inc. in recognition of their new focus on the client server platform and to address their poor brand as demonstrated by the continued customer attrition. The company created its first vision statement. Circle 6 obtained a new customer called TeleInterpreters. This startup had an annual revenue of a half a million dollars and provided language interpretation over the phone. Circle 6 staff modified their client server platform to address TeleInterpreters need to bill customers for each call.
\

1990 1992

1994 1995 1996 1997 1998

1999

2000

2001 2003

Last profitable year. Only four customers had renewed their maintenance for 2003. Blue Shield of California, Victorias Secret & MBNA used the IBM server call center software product and TeleInterpreters used the client server software that included an integrated billing system. February layoff included replacing the Hands On de facto chief operating officer with a president who was a board member and friend of the chairman/chief executive officer. The new presidents strong preference was to delegate and not communicate regularly with non-management. December layoff reduced the staff to six individual contributors as well as the two managers who were board members, and one person who was only a board member. A board member called Jennings to say the board/management would like to depart from any active involvement in the company and that the staff should consider taking control of their own destiny.

2004 Jan

As CTICs revenue grew through innovation early in the product/companys development, the firm hired new employees and attracted some outside investors who purchased shares in this private company. By 1992, CTIC reached its peak with twenty-four customers, however, little Page 105

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effort had been invested in new features, and industry competitors caught up and surpassed CTIC with additional features and better marketing. Dave Allen, a founder and key engineer, provided a representative view that the decision making process associated with the organizational culture was smooth, respectful and by consensus during the time period of 1988-1994 when he was employed by CTIC. Other engineers from that era supported his comments agreeing that the organizational and task cultures of the technical employees were inherited from the founders experiences at EDS and supported this decision-making style. However, Allen told the chief executive officer as he left CTIC in early 1994, the CTIC technical solutions are neat but the revolving leadership door of seven chief executive officers since 1988 let some of the really creative ideas go out the door to competitors. Allen left CTIC because he felt the engineers were treading water and management did not want to continue the growth they had experienced while in start-up mode. The companys contraction was apparent in 1994; however, fifteen loyal customers remained because of CTICs rich legacy as a CTI innovator. Later that same year when Jennings joined, Jack Rather, Circle 6s de facto chief operating officer, provided the following perspective: We reached our peak revenue a couple of years ago and now are in a bit of a slump but trying to bounce back. We are probably entering a new phase for the company and we want it to go up rather than down from here. Jennings was surprised to find so many substantial companies had been customers and created a list to keep track of them that he kept in his top desk drawer. When he created the list in 1994, it consisted of the first fifteen entries in Table 2 but he never listed the names of all twenty-four customers the company had in 1992. He made a point of adding to his list any time the company obtained a new customer and over the years, it grew to nineteen customers. The first eighteen entries were substantial companies in their own right and provided CTIC with significant purchase and maintenance revenue but by this point, because every new customer was key, Jennings added the nineteenth customer to the list as well. With little to no sales, annual maintenance fees became the primary source of revenue. As customer service and a lack of new functionality became more of an issue, customers departed and revenues declined further. Table 2. Top 19 Key Customers (1988-2004) 1. Washington Gas 11. Fujitsu 2. The Signature Group 12. Kawasaki 3. Universal Card 13. PEPCO 4. Union Electric 14. Nations Bank (departed as a result of 5. Whirlpool its 1998 merger with B of A) 6. Resort Condo Intl. 15. MBNA (present customer) 7. Sally Mae 16. Blue Shield NC (1998-1999) 8. IRS 17. Blue Shield CA (1995-present) 9. Caterpillar 18. Victorias Secret (1996-present) 10. First Card 19. TeleInterpreters (2000-present)

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The companys revenue from the new PC client server platform was short lived with their first customer, Blue Shield NC, not renewing their initial contract. In researching the companys background, Jennings found out that CTICs customer support was poor during this timeframe, their brand was tarnished and internal friction among technical employees and managers alike became more apparent. He found that management and staff realized they lacked a coherent business plan to address the changes in the CTI market place with their client server platform and management struggled to create a clear vision for the future. In 1999, the vision statement provided in Table 3 was developed to reflect the companys new direction. Management also changed the company name to Circle 6 hoping to provide a fresh start while retaining the existing IBM server customer base and corresponding maintenance revenue stream. Table 3. Circle 6 Vision Statement To provide leading edge products that enhance the access to information and enable people to make faster and more informed decisions.

However, when management announced a new product strategy, no clear implementation plan followed. Key decisions were not implemented and employees, investors and customers were left with the impression that no one was in charge. Customers continued to leave Circle 6 in favor of other solutions. Innovation dwindled to a standstill except for minor customer funded changes. The company had a layoff in February, 2003 which included the de facto chief operating officer, Phone Jack Rather whom the engineers respected. An existing board member, Tom Brown, was given the position of president. Employees worried about increased customer complaints and the lack of focus on customer support for the core IBM server platform that provided the maintenance revenue. Management announced a second layoff at the end of the same year in December 2003 even though all four customers renewed their maintenance agreements for 2004. After Jennings disclosed to the other five individual contributors that Greg Daily had called him about the board/managements decision to resign, many rumors started to float around the office and morale declined further. Jennings realized that the consensus organizational culture quickly evolved into an avoidance and compromising culture. Employees grumbled and engaged in rumor mill type discussions but avoided taking any direct action. Jenningss need for survival and order caused him to take action by calling meetings to make things happen and he emerged as the de facto leader with a directive, Theory X style. Non-management employees were surprised to find out that the chief executive officer had stipulated a retirement salary for himself during the April 16th board meeting. This galvanized Jennings into action as discussed in The Decision section as the chief executive officers retirement stipulation was not listed in the company guidelines nor was part of the companys 401-k retirement plan. Structure and Staffing The total number of employees had grown from five to twenty-four employees by the time Jennings joined CTIC in 1994. Over ten years, the headcount dropped and, following the two Page 107

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2003 reductions in force, the new total consisted of six non-management staff, two executives who were also on the board, and a third board member. The three board members, Phil Kabob, Tom Brown and Greg Daily, had each indicated they would be resigning from their respective positions. Figure 1 lists all of the employees in January 2004 along with their key functional responsibilities. It also shows the structure of the board and how the individual contributors reported to management through the president. Figure 1. Organizational Chart (January, 2004) Chairman & Chief Executive Officer Phil Kabob President & Board Member Tom Brown Corporate Secretary & Board Member Greg Daily

Sr. Software Engineer Laird Jennings

Sr. Software Engineer

Sr. Software Engineer

Eastern Systems Manager

Customer Support Manager

Controller/ Administrator

Board of Directors Composition At this point, the boards directors included: Kabob (chairman/chief executive officer), Brown (president), and Daily (corporate secretary). Jennings had recognized the imminent departure of the current board directors would create a vacuum which alarmed him enough to send the e-mail to co-workers in January 2004. He then began to investigate the composition of the board in the past and its activity as well as the relationships between board members, managers, and the number of stockholders in relationship to the number of customers. Jennings found out that the chief executive officer always had held one of the board positions and from its inception in 1988 to 2004, the company had experienced a high turnover of chief executive officers. Later on, he found the chief executive officer had sometimes held all three positions. However, it was difficult for Jennings to obtain complete information from board meeting minutes because management usually also held board positions and did not see any need to hold many board meetings. When board meetings did occur, minutes were not recorded and saved. When Jennings talked with past employees such as Dave Allen, he received consistent feedback that there seemed to be a new chief executive officer every year prior to when Jennings joined in 1994. Since the board had three documented member positions, this accounted for at least a 33.3% turnover annually on the board. Although other managers changed frequently, after 1994 Page 108

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Phil Kabob was the chief executive officer and a board member from 1994-2003. In addition to serving as chief executive officer, he was also simultaneously president of the company and chairman of the board during the latter years of this period. Jennings realized that board membership was based primarily on personal friendships. Only one board member, Greg Daily, was now an outsider (given that he had retired from his staff position as CTICs lawyer in 2001), but Daily was also Phil Kabobs friend. Earlier, the only tension at the board and management levels appeared to be between Kabob and Phone Jack Rather. Kabob did not like Rather. Even though Rather had come from EDS, he joined Circle 6 after it was incorporated so was not a founder. He was not accepted as part of the inner management circle and never held a board position. He served as vice president, sales, support, and development and ran the operations of the company as the de facto chief operating officer until he was let go as part of the February, 2003 lay-offs. Tom Brown was on the board and managed an IT consulting firm prior to becoming president when Rather was let go. The board did not start with a formal company vision or strategy nor did the board insist that management develop and implement realistic, attainable and measurable goals. Although the vision statement in Table 3 was developed in 1999, no attempt was made to develop a product strategy to match this vision statement. The bottoms up ideas that were generated by the companys engineers at the 2003 Oakland lunch meeting were not developed as a business strategy nor were any implemented. For example, a senior software engineer had said, We should sell interactive voice response systems and phone systems. Nothing happened. As the new president, Brown articulated his wireless strategy in 2003 and touted wireless applications were the next big thing. He tasked the senior software engineers to come up with a new wireless product. Without being able to receive any further direction, the engineers created some wireless concepts that worked on paper and in the lab, but with no practical application. One approach included joint work with engineers from some Eastern Block countries but the code did not work well. Organizational Culture and Leadership According to Dave Allen, who was a company founder and engineer, CTIC had a self described organizational culture based on teamwork among the technical staff and a task-oriented leadership style among management during the early years. He stated that he and his fellow engineers enjoyed the teamwork aspect of solving technical problems inherited from their experience with EDS. However, they understood that the execution called for a more taskoriented approach that was consistent with their detailed orientation as engineers. Each technical professional was strong in a functional area of CTI and was equally strong in terms of personality. Since each engineer had important experience in the CTI design area, the engineering tasks were not daunting. They continued to use the consensus decision-making process. Allen found it to be time consuming and conflict oriented in terms of ideas but the respect for each others ideas and experience made the process work with a task oriented management team that had only one basic product. As the founding engineers left the company over time and the business environment became more complex, the lack of a coherent business plan and matching management style often turned Page 109

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teamwork into turmoil. Jennings saw the internal friction become more pronounced as the customer base dwindled to four shortly before Tom Brown became president in 2003. Brown used the hands-off style across all situations, which was confusing for the engineers who were familiar with Rathers hands-on or task-oriented style earlier in the product life cycle when the product was state of the art. Brown delegated key decisions to his technical professionals who were expected to take on more task responsibilities after the downsizings. He delegated without clear goals, strategic direction and resources that resulted in additional turmoil for the engineers who had expanded job duties, but were not necessarily equipped to perform them. Jennings guessed that his own style was Theory Y and he was more of a delegator, but he found himself acting more as a taskmaster to get things done. Therefore, he identified with the style of both past presidents and sensed that the move from task oriented leadership approach by Rather to a delegating approach by Brown might fit the consensus culture of the experienced engineers on the surface. However, he also recognized this move contributed to increased latent conflict over their need for product direction and the lack of a coherent business plan. Rather repeatedly shared his management philosophies with Jennings and other engineers. One philosophy was: If there arent things wrong with it, then they wont call and wont pay for maintenance. Another was: If you deliver a solid product, the customer will assume the new stuff will work. As part of his sales efforts, he asked for many software demos such as convert everything to Linux (the first open source operating system mentioned earlier) to meet the needs of a Linux based prospect. A senior software engineer took a book home to read up on Linux and made it happen. The company retained a strong legacy Quality Assurance (QA) process for testing the minor changes they created but it sometimes caused delays in delivering these features. The lack of new features coupled with the strong QA process resulted in a very stable product and one customer, Victorias Secret (Listed as #18 in Table 2), joked that CTICs product was as reliable as dial tone. With Rathers departure and Browns appointment as president, Jennings sensed that communication from senior management dwindled. After the second set of layoffs in December, 2003, management became silent and rumors became the major source of communications. Jennings felt that no one was in charge so he started asking questions and calling meetings. He noticed that most of his co-workers did not like to confront issues directly and he wondered if they were thinking who put you in charge? even though no one said it. He thought about his self-identified Theory Y style and the more directive Theory X style that he had switched to in order to keep things moving at Circle 6. He wondered which one was his true leadership style and which approach was more effective. During work hours he tried to complete tasks but he continued to ask Brown about the product direction when the opportunity arose. When he was able to confront managers, there always seemed to be conflicting opinions and conflict avoidance left key issues unresolved with little action taken. Jennings reluctantly emerged as a leader of this remaining group of one administrative and five professional employees. Decision-Making Process After CTICs first couple of formative years, the engineers remained involved in tactical decisions around the technical tasks but were seldom involved in any strategic decision-making process. As CTIC grew in size and increased its customer base, strategic decision-making Page 110

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became the exclusive domain of management. The engineers grumbled that management was out of touch with the customers as they stayed with the familiar IBM server CTIC strategy. Table 4 lists Circle 6 strengths and weaknesses that the engineers discussed at their special lunch in 2003 where they focused on how Circle 6 could survive. Even the engineers that Jennings thought were conflict avoiders contributed to the brainstorming exercise because their ideas were not openly challenged and everyone felt a sense of urgency to help the company survive. Table 4. Circle 6 Engineers 2003 Brainstorming List
Strengths: CTI pioneers Primary technical skills in IBM server programming. One person understands client server platforms Feeling of professionalism, belief in product Ability to support IBM server product Strong direction from Jack Rather (until departure in 2003) Strong cash management Strong personalities Well connected with industry leaders: Avaya, Aspect, AT&T Wireless IVRs (Interactive Voice Response) PBXs (Private Branch Exchange) Weaknesses: No direction from Tom Brown except wireless vision Strong Personalities. Heated arguments to the point of being dysfunctional Customer base dwindled from fifteen when Jennings joined in 1994 to four in 2003 No processes such as bringing a new customer on board, tracking a problem so that if it occurs again, the solution can be easily located QA was at its infancy with only a skeleton test bed Only customer documentation. No internal documentation of how things worked Financials Spinning our wheels Wasted time building sales demos for Jack Rather (until departure in 2003) Not selling anything. Had been running out of money since Jennings joined General Industry consolidation Genesys

Crisis Development After Jennings was asked to take a leadership role in January 2004 by the departing board directors in order for non-management staff to take charge of their own destiny, he began to explore the problems he thought had brought the company to the point of crisis. It was more comfortable to view these problems one at a time; however, the deeper he looked, the more it became clear to him these problems were interrelated and did not happen overnight. Jennings was not sure how gradually these multi-faceted problems surfaced over time (See Appendix A) but the financial crisis at Circle 6 became apparent without any sophisticated financial analysis of the five year financials released after a 2004 pro-forma was developed (see Appendix B). He then recalled the statements made to him when he joined in 1994 regarding how the revenue and number of customers peaked in 1992 and how they hoped to start a new growth phase for the company.

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Jennings decided to look for patterns in company documents such as the number of customers, the number of employees, the number of managers, cash, revenue, and profit that related to the myriad of problems. Although no individual document spelled out distinct phases, he noticed that time-based stages emerged as patterns across several documents and were used in discussions among employees. The small company grew rapidly in the early years and peaked in 1992 so he reviewed company issues together for the time period of 1988 to 1992. Since a full blown crisis was clear to everyone in January 2004, Jennings created a stage in between that covered 1993-2003. This he saw as a period of decline that led to a crisis stage in 2004. This time interval approach to key events aligned with how employees seemed to shift feelings about the future of the company. As a result, he categorized the key events within the three time periods for the purpose of discussing how unresolved issues led to further problems. Appendix A provides information on Jenningss findings investigating these three time-based stages while Appendix B provides an overview of the financials for the most recent five years including income statements and balance sheets for that period. The Decision After the April 16, 2004 board meeting (where Phil Kabob had stipulated his request for a retirement salary that the company could ill afford), all the talking, interviewing, and soul searching came to an end. Circle 6 held steady for the moment with four customers in an industry dominated by another company (Genesys). No one seemed to be in charge of Circle 6, especially with the absence of a functioning board which added to the crisis. At this point, Jennings became less concerned about his true doubts regarding his own leadership capabilities and fit to Circle 6 and focused more on what was needed for Circle 6 to survive. With a nonfunctioning board of directors, everybody looked for a leader. Since Jennings found himself in a de facto leadership position and the need for action had become a reality, he rallied the remaining staff to exercise their options and obtain the support of other stockholders who combined, held 50%+1 of both preferred and common shares. He then drafted a letter highlighting that no annual meeting had occurred for over a year, and calling for a special meeting of the shareholders on May 11 to replace the three existing board directors with Jennings and two other individual contributors. The six individual contributors signed the letter and it was sent to all shareholders which included the current board directors. As the meeting approached, Jennings discussed his innermost concerns with another senior software engineer: No more excuses, no one to hide behind, and the companys destiny will be in our hands. Now, what should we do? On May 11, the three proposed directors replaced the non-functioning board members and passed a resolution stipulating that former and current board members had no claim to any new retirement wages. Jennings was also elected chairman of the board. As the newly appointed leader, how could Jennings lead Circle 6 out of this crisis and place the company on a sustainable path? Page 112

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References Genesys (n.d.). Genesys and Alcatel-Lucent. Retrieved from http://www.genesyslab.com/about/genesys_and_alcatel-lucent.asp Johansson, O. (2004). Asterisk Users: Astricon 2004 Call for Speakers. Retrieved from http://lists.digium.com/pipermail/asterisk-users/2004-April/036295.html Lei, H. & Ranganathan, A. (2004). Context- Aware Unified Communication. Proceedings of the 2004 IEEE International Conference on Mobile Data Management, 176-186. Osterman (2005). Enterprise VoIP Market Trends, 2004-2007. Retrieved from Osterman Research website: http://www.ostermanresearch.com/execsum/or_voip04es.pdf OReilly Media (2004). Web 2.0 Conference. Retrieved from http://www.web2con.com/web2con/

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Appendix A: Jenningss Three Time Based Stages 1988 1992 Innovation and Growth Startup Phase Connecting the PSTN to large IBM servers was a novel development with little market place competition for call center customers. The original employees received founders stock and morale was high. The rent for the office was inexpensive, engineers did not draw large salaries and both management and engineers marketed the product. Jennings realized from his research that there was a high turnover of chief executive officers during this phase but the board of directors and management remained steady while CTIC experienced its greatest growth in customers, employees and revenue. CTIC experienced the typical financial and infrastructure problems that small start-up ventures face but the firm eventually turned a profit, and peaked in 1992 with twenty-four customers. The decision making style by technical employees and organizational culture were based on the consensus approach inherited from EDS. Jennings was informed that the chief executive officers management and leadership styles varied widely from hands-on to hands-off. 1993 2003 New Vision, Maturity and Decline Phase When Jennings joined CTIC in 1994, his investigations into the past revealed that significant marketplace competition existed at this point and the companys IBM server strategy did n ot address the industrys move to the PC client server platform nor did it address the value of connecting to the Internet. He recalled the financial picture did not look as bright as previous years, but management was convinced CTIC could weather the storm by porting the IBM server software to a client server platform with minimal engineering expense. In the face of new CTI technologies and call center applications, CTIC management had been reluctant to move away from the original IBM server product and the company became an increasingly less relevant player in the marketplace. Management recognized that Trouble was brewing and changed the company name from CTIC to Circle 6 in 1999 developing the first mission statement (see Table 3). Jennings recalled that when employees developed new ideas, they were either ignored or not implemented. Management centralized any strategic decision-making that existed. Less contact was made with customers and the employees began to grumble. Nothing was implemented from the engineers luncheon brainstorming session (see Table 4) and voluntary turnover in the management and non-management employee ranks increased. The two downsizings in 2003 created more conflict within the remaining ranks of engineering and management employees. More time was spent on reacting to rumors, leaving less time to focus on product development, sales and expense control. The 2000-2004 financial reports in Appendix B indicate that cash and other key metrics were headed in the wrong direction and the company could no longer afford to invest in innovation. A downward spiral seemed to affect all aspects of the business, and morale plummeted. January April, 2004 Crisis Phase Jennings and the other engineers sensed the company was in severe trouble when the new president came on board in 2003 which is why they had the special brainstorming lunch. The fact that all three board members had decided to leave in 2004 and that the company financials had obviously deteriorated, it was abundantly clear to all that the situation was now a crisis. There were six full time employees remaining and a few other former employees performed partPage 115

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time work on an intermittent basis. At Jenningss urging, one of the board members spoke with the sole Circle 6 employee located in the east, Dan Ranaman, who expressed an interest in a senior management position with the company. When Jennings discussed with his peers the Situation at Circle 6 e-mail he had sent, one of his repeated comments was I just want to get things done. As Jennings held meetings with employees and talked to management, he received signals from board members that the remaining employees should consider Putting together a slate of directors to present to the board for running the company. One ensuing suggestion from a non-manager was that the employees should rise or fall as a group rather than jettisoning one of us if times get short. The board of directors meeting on April 16 did not proceed as Jennings had hoped when Phil Kabob made his request for a retirement salary instead of resigning.

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Appendix B: Five Year Financials (2000-2004) Five years of income statements and balance sheets immediately follow this overview. Data for years 2000-2003 reflect the final numbers as of December 31st and 2004 data reflects the pro forma plan for the year based on an estimate made in its first quarter. The development of the 2004 pro-forma reports began in late 2003 as part of the normal annual financial planning cycle revenue for the four remaining customers that all had annual service agreements which were paid at the beginning of each year. As a result, the day-to-day accounting was extremely simple and predictable but the planning process forced management to review the numbers and take action by invoking a second 2003 layoff. The costs were then updated in May 2004 to reflect the departure of the existing board members and this change was reflected in the 2004 income statements and balance sheet. During this five year period, the primary source of revenue was from six figure (i.e. more than $100,000) maintenance contracts. While the software was very stable and required little effort to support from Circle 6 employees, paying for annual maintenance was a form of insurance for customers who wanted to make sure they could call for support if this critical software ever failed. In 2000, Circle 6 lost almost $90,000 as shown in Appendix B, however it acquired a new small customer. While it was dramatically smaller than Circle 6s other customers and the ongoing maintenance was four figures typical of client server companies rather than six figures which were provided by large IBM server customers, Jennings added Teleinterpreters as the nineteenth key customer to his running list in Table 2 by justifying to himself that this company: 1) became Circle 6s only customer to use their client server platform, 2) was the catalyst for Circle 6 to add functionality (a billing system that tracked and charged for each phone call), and 3) was Circle 6s last new customer. All years except 2001 on the P&L showed an after tax loss and the balance sheet reflected a significant year-over-year decline in cash. Circle 6 closed 2001 with $378K in profit which was the result of a loss carry forward from previous years. This profit was subsequently used to increase payroll and related expenses in 2002. However 2002s revenue declined by 6% and the company had to post a loss that matched the amount of revenue that had declined. To make matters worse, in 2003, some customers informed Circle 6 that they would not renew their maintenance agreements and the company had a layoff in February of that year. The remaining four customers in 2003 are listed among the last five entries in Table 2. Three customers used IBM servers while Teleinterpreters was on the companys PC client server platform. As the year closed, management realized that even though they had cut back the payroll to 2001 levels, they had not cut deep enough and would have a loss that was over a half million dollars more than the previous years loss. This understanding resulted in another layoff that December. Jennings shared with others that since he did not have a financial background, he viewed the company financials like a family budget. How solvent you were was based on how much you Page 117

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bring in and how fast you spend it. Jennings noted that revenue was generally declining with the largest drop in 2003 when the company had to downsize twice. He concluded that little was left to cut in a future downsizing and the large percentage of financial resources were now devoted to meet payroll allowing far fewer for the company to invest in any new product development. Jennings did not have access to this level of financial detail when he developed his memo in January 2004, but he was not surprised when he gained access later because rumors indicated key financial numbers were trending downward for the last four years whenever he brought up questions about the value of the stock. He wondered whether the steady reduction in cash flow or lack of profits was the best metric to predict the future of Circle 6. He was not sure whether the management issues since 2000 were caused by declining cash flow or whether the issues caused the decline in cash flow. However, he was sure in his gut that further large reductions in cash flow would not sustain a company of six people and allow new product development in their changing marketplace. Income Statements

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Balance Sheets

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