Case Study: His Board and His COO Advised Against It, but Dave Kvederis Felt He Had to Act Fast

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The unit heads would have profit-and-loss responsibility and would be able to hire employees and spend money as they chose as long as they remained within budget. The company also created a separate CFO position for the first time. Kvederis would assume a more strategic role and step back from the day-to-day management of sales. This would allow each unit to run its own sales team and, theoretically, foster stronger connections between sales and product development. Top managers would take a larger percentage of their salaries as performance bonuses, and their salaries would go up or down based on the P&L of their unit. Hosokawa would head the enterprise payment services unit. The former CEO of one of the London-based acquisitions would head the international unit. And a third manager would head wire services.

At first, Kvederis's fears of chaos seemed to come true. The plan was a difficult pill to swallow for some managers, who were accustomed to doing their jobs across the entire organization rather than for a specific department. Salespeople were unhappy that they'd no longer be reporting directly to Kvederis. And the new business-unit heads struggled to get their footing, especially when it came to customer contract negotiations, something that Kvederis had handled himself. "They were very uncomfortable and unsure of themselves," he says.

Within four months, two of the five new senior managers had left the company. One was the head of the international unit. The other was Hosokawa, who had argued that by splitting into three small units, BankServ would lack the critical mass needed to compete against larger rivals. He also felt that his own reorganization plan had never been given the chance to succeed. Hosokawa took a job as CFO at a fast-growing mobile-payments start-up called Obopay. The move was painful for Kvederis. "When the dot-com meltdown happened and we were in our darkest hour," he says, "Pete was crucial to our survival." All told, about 10 percent of the BankServ work force left, and Kvederis was worried. "It wasn't clear that the reorganization was the smartest thing to do," he says.

Fortunately, his board members were supportive. They understood that it took time for reorganizations to work. And by June 2005, things seemed to be falling into place. To head the enterprise payment unit, Kvederis tapped a former colleague he had known for 25 years, and he hired an executive at a longtime supplier to head the international division. It didn't take long for the new unit heads to settle into a rhythm.

To be sure, the new structure created some inefficiencies. Salespeople from the three different business units, for example, might call on the same customer. But Kvederis says the positives far outweigh the negatives. Product development gathered a new head of steam. Long stalled projects--including a currency swapping tool and a way for Quicken users to export data from BankServ transactions directly into QuickBooks ledgers--were put on the front burner. And since he freed himself from daily sales chores, Kvederis has been able to think more strategically about customers and products. He expects BankServ's growth rate to climb to 40 percent in 2007. "I don't think we would have sustained our growth rate had we not made the change," he says. "The company might have continued doing well, but today there is a whole new level of excitement."

The Experts Weigh In

Too much, too soon

Typically, you don't do these things all at once, especially when the business is doing well. You usually spring off one unit and let it run separately. You find a good manager to head it, and you use it as a model. When you do everything at once, a lot of people get indigestion. Reorganizing may have been the right solution, but Kvederis did it rather awkwardly. That's why he had some problems and lost some good people.

Larry Greiner
Professor of management and organization
USC Marshall School of Business

Open the kimono more

It was definitely a sound business decision, especially from an employee-empowerment perspective. It's just the way that he went about it that could have been done better. Kvederis could have solicited more input and really involved all his employees. He could have opened up his kimono a little bit and said, "People are leaving and I'm concerned." If he would have more effectively communicated ahead of time, they would not have had to speculate on what this reorg meant and there would have been less confusion and perhaps less turnover."

Sara Roberts
President
Roberts Golden Consulting
San Francisco

Good for growth

When an organization hits a particular point in its growth curve, it needs to adapt and become more sophisticated. That's clearly something Kvederis identified. And I am very much an advocate of trying to push decision making out to the field. It's a key factor I've seen in successful growing companies. Regarding the COO who left, usually someone who is good at pulling you through a crisis is not the best guy to put in charge of expansive growth.

Grant Patrick
COO of global sales
Citigroup Alternative Investments
New York City

What do you think? Was Kvederis right about reorganizing his company? Sound off at casestudy@inc.com.