Dave Kvederis stood looking out the window of his office in San Francisco's financial district. Driving rain had slowed traffic and flooded the streets. But on the morning of February 15, 2005, Kvederis was more concerned with the storm he was about to unleash at his financial services and technology firm, BankServ.
Kvederis had called an all-hands meeting for 8:30 to break the news that BankServ would be undergoing a major reorganization--for some of the 47 employees, the second one in a year. Naturally, he was uneasy. Was he heading off an inevitable crisis, or creating an unnecessary one? The hardest time to make a big change, after all, is when none is required. As a dot-com survivor, he also knew that big changes are easier to make when a company is healthy.
Kvederis had founded his automated payments, wire transfer, and check-processing firm in 1996, after noting the popularity of online airline tickets. He thought more sophisticated transactions were likely to go paperless, as well. His hunch proved correct, and though BankServ nearly flamed out during the dot-com bust, by late 2004 the company had 300-plus customers--mostly banks, brokerages, and thrifts--in 51 countries. Revenue was in the neighborhood of $15 million.
But despite the growth, something was wrong at BankServ. Kvederis had noticed his formerly happy employees seemed less content. In October 2004, a key technical manager jumped ship to a competitor. Two months later, another top manager announced that she was leaving for a vice president post at a financial services start-up. He managed to convince her to stay but was shaken by the incident. Compensation wasn't the issue for either of the two disaffected employees. Their main beef? There was no room for career development at BankServ.
That struck Kvederis as odd. BankServ was a two-time Inc. 500 company and he was expecting revenue to grow 30 percent in the last quarter of 2004. The company's board was satisfied with the trajectory. But long discussions with the unhappy manager and subsequent conversations with other BankServ execs caused Kvederis to scrutinize the operational structure of the company.
It wasn't the first time he had done so. In the fall of 2004, BankServ's chief operating and financial officer, Peter Hosokawa, had proposed a plan to reorganize the company's product-development efforts, consolidating technology teams working on three different product lines in an effort to get the entire company behind new initiatives. Kvederis, who spent most of his time running the sales side of the organization, approved the idea, and Hosokawa began laying the groundwork for the plan, which would take several months to implement. Kvederis had faith in his COO, whom he credited with saving the company from oblivion during the dark days of the dot-com bust by making hard decisions about where to cut and instituting strict spending rules that called for the CEO or COO to sign off on just about everything.
BankServ had survived and begun to grow again. In 2004, the company acquired two London-based companies to expand its global presence. Now that the crisis had passed, the spending strictures and centralized decision making started to feel counterproductive. Some of this was because of the increasingly global nature of BankServ's business. California tends to be asleep when Europe is awake and vice versa. "A sales guy who needed to buy a $90 plane ticket to get from London to Barcelona to call on a customer had to get clearance from the CEO," Kvederis says. "It sometimes took two or three days."
Ambitious employees subjected to this heavy-handed treatment began to feel that the company was slowing them down. Even worse, they started to harbor thoughts that their drive would better serve them at other companies where they might be rewarded with enhanced responsibilities, something that BankServ seemed unable to provide.
And that wasn't the only problem. In the wake of Hosokawa's new plan, a schism had developed between managers dictating product development and some of the company's technology troops. The tech staffers felt excluded from important decisions and argued the company was focusing too much on flashy Web projects and not enough on nuts-and-bolts technology development. Kvederis, who was busy running sales, didn't learn about the problems until the exit interview with his erstwhile tech manager. When Kvederis asked his own sales teams, they too felt that many product-development decisions were being made without their input.
Rather than intervening in the dispute, he stepped back and examined his company's organizational structure. It seemed clear that decision-making power was concentrated in too few hands. Perhaps BankServ needed a major restructuring.
Of course, a major reorganization could lead to complete chaos. Strict controls have benefits--namely, keeping costs in line. Several of his most trusted top managers, including Hosokawa, expressed misgivings, particularly with the company performing so well in its existing form. BankServ's board also expressed strong doubts. Why, they asked him, was he trying to fix something that wasn't broken? If the reorganization offended more than it helped, employee morale, already low, would get even worse. Only one key manager had left thus far. What would happen if the new organizational structure caused other key senior executives to quit? Would the chaos caused by their departure outweigh the potential creativity and productivity benefits of a reorganization?
The Decision
The meeting began promptly at 8:30. It was standing room only as BankServ's San Francisco staffers crowded into the company's long, narrow conference room and spilled out into the next room through open double doors; others were conferenced in from London. The mood was tense. Kvederis got straight to the point. BankServ would be reorganized into three separate units built around the company's three strongest customer segments: international banking, wire transfer, and enterprise payment services.
