Smith and Jones Engineering Services, Inc. had just successfully been awarded a new government contract after clever marketing and cost cutting. The client agency had been putting increasing pressure on contractors to cut costs. S&J inherited the existing worIcforce, some of whom bad been at the facility for 30 years. The new proposal centered on the promise that the contracting organization was to be more productive. This should have meant that the people employed by S&J were going to work to streamline procedures, cut out non-value added processes, and deliver mote meaningful engineering services, hopefully with fewer resources expended. This would necessitate that colt competencies (those basic skills and knowledge that made S&J competent to offer such engineering services) be improved and experts in the various service areas be developed. This also meant that innovative approaches to services like design and testing should be encouraged and supported. Because of the marketing approach and the promises made of immediate productivity improvements several things waled. To start with, on the day of the new contract 10% of the existing employees with S&J no longer bad a job on the new government contract. Next an incentive program to encourage early retirement was launched and another 10% left. The next thing to occur was a flurry of outsourcing, since there was no longer enough staff available for the immediate design and testing problems which typically surface in a dynamic environment such as this particular government mission. Although outsourcing solved the immediate problem of getting the work done, this meant the outsourced designs were no longer housed internally. Quality problems began to emerge from a lack of detailed oversight by the existing S&J employees and due to outside subcontractors not having intimate knowledge of the systems on which they were working. This resulted in more time being needed to review. oversee, and inspect the work of the subcontractors. This further strain on the already reduced resources of Sad sent a crush to morale throughout the organization. People who once identified with the government mission of the facility now had little enthusiasm for their work or the success of the mission. The situation was bad and getting worse. The design engineers and test engineers were frustrated with the outsourcing situation. They see it as a move to reduce their contribution and ultimately do away with those services internal to the organization. Top management views the contracting environment as hostile and reacts to the competitive pressures the only way they know, to cut costs and respond to the customer whims without thought to long tarn ramifications. Neither group is sharing information about their frustrations or reactions. There is a disconnect causing a feeling of isolation at each level. Top management is pointing to government pressures as the cause of their troubles. The workforce is complaining that management is mining the morale. Management’s reaction to the morale problem is to outsourcc more.

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