9 -4 8 3 -0 9 8

REV: JULY 31, 2007

VIJAY SATHE

CHIN B. HO

Mat MacGregor (A)

In November 2004, Mat MacGregor, vice president for research of the Diagnostic Imaging
Division of McKenzie Higgins, Inc., decided to accept the additional assignment of project manager
of the VIP project (Exhibit 1). VIP had been losing money for eight consecutive years, and Buddy
March, DID’s general manager and Mat’s boss, mentor, and friend, had urged Mat to take on the
challenge of turning VIP around, something Buddy said he felt no one else could do. Mat was aware
of the personal risks involved in accepting this additional responsibility, but he also knew that
considerable rewards and recognition awaited the successful project manager in McKenzie-Higgins.
The position was the traditional stepping stone to general management. Besides, Mat felt he really
had no choice but to accept this request from his trusted sponsor.

The Business and its Problems

The Video Image Processing (VIP) system was designed for use with two of the division’s major
product lines, nuclear scanners and nuclear cameras. Both products were used in nuclear medicine to
produce a “picture” of human tissue for use in diagnosis. The VIP system combined computer
hardware with advanced multimedia software to analyze the images generated by nuclear diagnostic
equipment. Comparing the “picture” with programmed information about normal tissue, the VIP
was able to perform preliminary diagnoses almost immediately. Buddy March, DID’s general
manager, viewed the VIP as a significant weapon in a highly competitive market characterized by
extremely rapid technological change. It allowed DID to offer a “total systems approach” to nuclear
diagnostics; furthermore, Buddy believed it could stimulate demand for nuclear cameras and
scanners, and hoped eventually to use it to sell highly profitable multimedia software packages.

At first, DID practically gave away VIPs to promote its nuclear diagnostic software; they were
thus priced below traditional McKenzie-Higgins’ profit margins. Several DID executives, including
Mat MacGregor, believed busy corporate officers tended to overlook this pricing strategy when
reviewing the project’s performance via the standard monthly reports on divisional operating results
submitted to corporate. DID executives felt that this had been to the detriment of DID in general and
VIP in particular.

Mat was familiar with the VIP and its technical, business, and corporate problems. But more
difficult than these, Mat believed, was the question of how to deal with DID’s powerful vice
president of sales, John Hypes. Mat felt that John had slandered him several years earlier, and that he
________________________________________________________________________________________________________________

Professor Vijay Sathe and Research Associate Chin B. Ho prepared this case. HBS cases are developed solely as the basis for class discussion.
Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 1983, 1984, 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-
545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may
be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School. Edited 09/17/2013.

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 483-098 Mat MacGregor (A)

had continued to snipe at Mat. Nevertheless, Mat needed the full cooperation of John and his 500
person sales force to succeed with the VIP project. He wondered how he should deal with John and
the other problems associated with the VIP.

Personal Background and Career

Joining DID in 1993 as a technical specialist in the research area, Mat had caught the attention of
division general manager Buddy March. Mat and Buddy hit it off well, shared a common interest in
golf, and soon became good friends. Buddy said he admired Mat’s energy, dedication, and ambition,
but advised Mat to exercise more patience, and told him that he had a bright future. Mat felt flattered
to know he was being accepted into DID’s close-knit management group.

In 1996, DID developed its first VIP device. Buddy appointed the division’s vice president for
research as the first VIP project manager, and brought in Ray Thorngate as the division’s new VP for
research. It was Ray who helped Mat round out his technical experience by asking him in that same
year to set up a product enhancement group within DID. This assignment gave Mat a fair amount of
visibility. Less than four years later, in 2000, Mat was promoted to research manager for some of
DID’s major product lines.

In March 2001, Bill English, vice president of the Consumer Products Group, invited Mat to join
him as a senior manager for an important new venture. Mat had met English five years earlier on a
business assignment. English had been impressed with Mat’s energy and enthusiasm, and had
promised to keep him in mind for a suitable opening in the future.

Before Mat left DID to assume his new job, his mentor Buddy March, a man who Mat knew
expected “100% loyalty,” told Mat that he was disappointed that Mat was leaving. Mat replied that
he regarded his lateral transfer as a sabbatical, and that he intended to come back to DID. Buddy said
nothing further. Despite this apparent rift, the two friends continued to play golf from time to time.
To his pleasant surprise Mat found that Ray Thorngate, his immediate boss, was very supportive of
Mat’s move.

In his new position, Mat became a “one-man gang” trying to coordinate manufacturing for the
Consumer Products Group, which did not have dedicated production facilities for all its products.
English had also asked Mat to look around within McKenzie-Higgins for technologies and products
that could be converted into consumer items. Energetic in fulfilling his duties, Mat discovered that
two or more salespersons from different groups were sometimes selling identical consumer products
to the same customers. In early 2003, about two years into this assignment, Mat prepared a
comprehensive report highlighting these redundancies and explaining that they could be eliminated
if the Consumer Products Group undertook the marketing, distribution, and sales of these products.
Several of the products in question were under the jurisdiction of David Tinsley, vice president of the
Pharmaceuticals Group. Tinsley had been with the company a long time and was known to be a
powerful executive. When Tinsley got wind of the matter, he “blew his stack” and voiced his
displeasure regarding what he called “Mat’s interference.” English advised Mat to back off.

In May 2003, just over two years after he had transferred out of DID, Buddy agreed to Mat’s
request to return to DID and appointed him vice president for research. Mat would be replacing Ray
Thorngate, who was leaving to take the same job in MEG’s X-Ray Division. MEG group vice
president Dave Devine, who was Buddy’s boss, approved the lateral transfers because he was
supportive of both Mat and Ray.

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 Mat MacGregor (A) 483-098

VIP Project History: Rebirth Via Acquisition in 2003

As head of research, and at Buddy’s request, Mat helped put together a proposal to acquire Alpha
Instruments in Palo Alto, California. [At this time, the VIP Project had just been resuscitated after its
dissolution in 1999 (Exhibit 2)]. Buddy had done this despite a lack of enthusiasm for it within DID
management because Buddy believed the VIP not only represented excellent long-term potential in
its own right, but also that it allowed DID to position itself as a full-line producer in the marketplace,
something Buddy felt helped DID’s image. Mat had been Buddy’s chief supporter in this because,
like Buddy, he saw a fit between Alpha and DID’s interest in VIP. Alpha had developed a nuclear
scanner data processing device and both Mat and Buddy felt that, with Alpha’s multimedia software
and computer people, DID could develop a similar high-speed device for the nuclear camera. More
important, Alpha would allow DID to expand its market base. In October 2003, after several weeks of
negotiation, DID acquired Alpha.

Things did not go well from the very beginning. Having acquired Alpha, Buddy expressed no
interest in its day-to-day operations. As usual, he left the details to his top management team. Mat
knew that Buddy had to implement a corporate edict requiring all technical personnel in Alpha to
move to the centralized facilities in Chicago. Also, as a matter of policy, these people would have to
sign a “no work” contract under which they would be ineligible for related technical employment for
three years if they left McKenzie-Higgins. The young Californians were not prepared to leave the Bay
area for Chicago. Although there were fewer jobs in the Bay Area than at the height of the Internet
boom in early 2000, the technical skills of the Alpha personnel remained very much in demand. So
they refused to sign the “no work” contract.

Mat and Buddy lobbied against these measures. They spoke to several corporate lawyers and tried
to convince them to reword the contract, but to no avail. As a compromise, it was agreed that oral
assurances would substitute for a tightly written contract. In December 2003, three months after the
Alpha acquisition, Buddy, Mat, and other DID top managers flew to California to reassure the
anxious Alpha employees. By then, however, several key technical personnel had already quit.
Buddy promised those that remained that they would not have to move to Chicago for at least three
years, and that they could take up to six months before signing the contract. Although Buddy had
stemmed the exodus, Mat, as VP for research, still had to visit Palo Alto every six weeks to replace
technicians that Alpha continued to lose.

Us versus Them
Each DID functional department sent its people to Palo Alto to help their Alpha counterparts.
Alpha employees were wary of the “sound advice” that they were receiving from Chicago, however.
They believed that DID personnel could never understand the VIP marketplace. The Alpha sales
force, in particular, resented interference from its step-parent. By March 2004, six months after the
Alpha acquisition, everyone in the original Alpha sales force had quit, and VIP was left with DID
salespeople who were unfamiliar with the VIP marketplace. No new devices were sold for several
months thereafter. The Alpha technicians who elected to move to Chicago found themselves isolated
from DID employees, and a “we-they” attitude developed.

Upon Mat’s recommendation that “we had better do something about our Alpha acquisition,”
Buddy appointed Ken Smail, the division’s new product development manager, as the project’s
acting program leader. No one in DID apparently wanted to take charge of VIP, however, and Smail
was no exception. Although his job as VP for research kept him very busy, Mat continued to keep
tabs on VIP because he believed Smail did not have the background or personality to bring the

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 483-098 Mat MacGregor (A)

program together. Later, in June of 2004, Mat proposed to Buddy that Bill Hogan, sales manager for
Alpha under the previous ownership, be made the new program leader in place of Smail. Buddy
agreed but suggested that Mat talk it over with John Hypes, DID’s vice president of sales, who he
knew was considering retaining Hogan as a sales manager.

Clash with John Hypes

John’s appointment as VP for sales had come as quite a surprise to DID personnel. Mat could still
remember that day in December 2000 when Buddy had informally but publicly mentioned at the
company’s annual Christmas party that he was appointing Ben Moss, a DID sales manager, to replace
the outgoing VP for sales, Dan Parr. Along with other DID managers, Mat was flabbergasted when,
two weeks later, John Hypes was named VP for sales instead. It was widely believed that MEG vice
president Dave Devine had chosen John Hypes in order to “bring some sanity” to DID. Rumors flew
that Hypes, 45, a 23-year veteran at McKenzie-Higgins, had been ordered to end the “wild sales
schemes” of his predecessor and temper the “risky business practices” of Buddy March.

John Hypes proceeded to effect drastic reductions in DID’s sales organization, instituted spending
controls, and brought tremendous discipline to the sales organization. These actions were generally
regarded as painful but necessary, and Buddy March acknowledged that John had made a major
contribution at DID by reshaping the sales force. John’s power base, people felt, were his contacts and
relationships with others two and three levels above him, including with a couple of McKenzie-
Higgins top executives, and his success at building a lean staff of what many considered to be John
loyalists.

Mat’s relationship with John dated back to March 2001, when Mat had received the offer from Bill
English, vice president of the Consumer Products Group. Mat had gone to John for information and
advice because Mat knew John had worked under English during an earlier assignment. John had
told Mat to take the job. Although initially convinced of John’s goodwill, Mat was deeply concerned
when he later heard that John was circulating false rumors about him. Evidently, John had told
several people, including some of Mat’s friends in DID, that Mat had known of his offer from Bill
English before going on a three-week business trip to Australia and had undertaken the trip as a
vacation on company expense. Mat had considered arranging a meeting with John to clear this up
and to let him know that the purpose of the Australia trip was to pursue licensing possibilities, and
that he had received the offer from Bill English after his return from Australia. But Mat got busy in his
new job and did not pursue this matter any further.

Upon returning to DID as VP for research in May 2003, Mat got the impression that John was
completely supportive of him. But Mat soon heard from the gossip mill that John was attacking Mat’s
budget behind his back and referring to him as “Buddy’s boy.” When Mat confronted John with
these allegations he categorically denied them and said, “Who told you that? Let’s meet face-to-face
with whoever is spreading these rumors and clear this up.” But Mat was reluctant to mention any
names, because he had heard the rumors from some of the sales people who reported to John Hypes,
so he simply said, “I don’t want to get into names. I just want you to know about these rumors.”
John assured Mat: “I would do nothing, absolutely nothing, to stand in your way, or stand in the way
of VIP’s success—why, I have even supported you openly on a number of issues.”

Reassurances notwithstanding, Mat was beginning to regard John as his biggest problem. For
instance, John had seemed exceptionally arbitrary in billing the time that his sales force spent on VIP
devices. John was charging the VIP project the full-time equivalent (FTE) of 55 salespeople when Mat
believed it was receiving at the most 25 FTEs of selling effort. He believed that his deteriorating
relationship with John was responsible for the excess billings, and was hindering VIP’s success.

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 Mat MacGregor (A) 483-098

In June 2004, Mat approached John, as Buddy had suggested, and spoke to him about naming Bill
Hogan as VIP project leader. Mat said he believed Hogan was the only manager who truly
understood the VIP and its marketplace. John was unwilling to commit himself, however, and told
Mat he agreed tentatively but wanted Mat to get back to him.

Before doing so, Mat made another proposal to Buddy aimed at bolstering the project’s sales
effort. Since no new VIP devices had been sold for several months, Mat suggested forming a separate
sales force for VIP. When John got wind of this proposal, he protested vehemently to Buddy that
Hogan would be needed as a DID sales manager. Furthermore, John suggested to Mat that he “kill
that money-loser VIP and lay it to rest.” Mat and Buddy felt otherwise, and decided to keep looking
for a suitable program leader for VIP.

Buddy’s Solution
By November 2004, 13 months after the Alpha Instruments acquisition, the VIP project had been
losing money for eight consecutive years (Exhibit 2). In a bid to salvage the project, Buddy March
proposed making the VIP a “Business Development Unit” (or BDU). Although the new set-up would
still impact DID’s profit and loss statement, as a BDU, VIP would not be required to meet stringent
profitability criteria. John Hypes remained skeptical of VIP’s prospects and expressed concern about
the adverse impact on his annual bonus, which was tied to DID’s profitability.

Although Ken Smail had up to this point reluctantly continued as VIP project manager (Exhibit 1)
because a suitable replacement had not been found, he made it clear he would not head up the newly
formed BDU. Since John had earlier blocked the appointment of Bill Hogan as VIP project leader, Mat
proposed as an alternative that the national sales manager reporting to John Hypes take over the job.
When Buddy forwarded this nomination to MEG vice president Dave Devine, however, Dave
rejected it. As Mat later learned, Dave told Buddy he would only accept either Jim Agnew, a DID
sales manager, or Mat MacGregor, to head up the newly created VIP BDU.

One Friday evening in November 2004, Buddy called Mat at his home and asked if Mat could
meet him in his office the next day. When Mat and Buddy met in Buddy’s office the next morning,
Buddy asked Mat to head up the newly formed VIP BDU in addition to his responsibilities as VP for
research. Mat told Buddy he would think about it. Buddy went on to say that Mat was the only
person who could turn VIP around. Mat felt flattered by this and the notion that he could really do it
began to sink in.

Nevertheless, Mat felt somewhat uncomfortable with the VIP because of its bad track record. He
also believed his technical background was not ideally suited to the project’s sales and marketing
needs. Moreover, VIP was under corporate pressure—despite the formation of the BDU—to cut costs,
and harsh decisions such as drastic personnel reductions would have to be made. Mat was also
concerned about the impact of this additional assignment on his wife and children. As it was, he felt
overworked as VP for research. Aware of the pressure that he was under, Mat’s wife advised him
against accepting the additional assignment.

But Mat felt he could not pass up this chance to make his mark. If he succeeded, he could become
the youngest general manager ever at McKenzie-Higgins. He also felt it would be very difficult to
refuse this request from his boss, mentor and friend, Buddy March. He thought about his
organization if he became head of the newly formed BDU—and the project manager for VIP (Exhibit
3)—and wondered what he could do differently to secure the cooperation of John Hypes in order to
succeed, if he took this job.

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 483-098 -6-

Exhibit 1 DID Division Organization, November 2004

Division
General Manager

Buddy March

Division
Controller

Mark Hallinan

VIP Project VP VP VP VP
Manager (Acting) (Sales) (Marketing) (Research) (Production)

Ken Smail John Hypes Sy Marshall Mat MacGregor Stan Merrell

Research Plant National Regional Market Market Product Advanced Cone Blue
Manager Manager Major Sales Planning Development Control Research City City
Acounts Managers Plant Plant
Sales Manager Manager

Sales Sales Product New Product Mount

Manager Administration Enhancement Development Vernon
Plant
Manager

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 Mat MacGregor (A) 483-098

Exhibit 2 Vidipro (VIP Project) History

1996 Introduced first VIP device

1999 Project dissolved

2002 Introduced new model VIP

2003 Purchases Alpha Instruments

2004 Formed Business Development Unit

Exhibit 3 Mat MacGregor’s organization if he became Project Manager for VIP

Project
Manager

Mat MacGregor

DID
Marketing
Managers

Sales Research Plant

Manager Manager Manager

Eastern Western Marketing Field Software Hardware Material Quality

Area Area Manager Support Development Development Control Control
Sales Sales Supervisor
Manager Manager

Technical Quality Admin Purchasing

Service Assurance Services and
Procurement

DID Sales Force Reporting to

John Hypes, VP (Sales)

500 Salespeople

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