Case Study: The Fall of Quest

1997 was a banner year for Quest Computer Corporation, a leading manufacturer of personal
computers. The company surpassed $15 billion in sales, nearly seven times its revenues in 1992, and the
year John Clarke took over as CEO.
Clarke is a hard-driving, no-nonsense leader. His vision was to create a $30 billion enterprise by
the year 2000, but things were slowly started to crumble around him. What once had been an open and
productive atmosphere that cultured teamwork, was now deteriorating under the strains of political
infighting, cronyism, and allegations of sexual harassment.
In the eye of the storm was Samuel Anderson, vice president of human resources. Anderson and
Clarke worked together in the eighties at another corporation before Clarke came to Quest in 1992.
Three years later Anderson followed. Anderson immediately started using his relationship with Clarke to
influence business decisions. Anderson also leveraged his ties to discreetly resolve two allegations of
sexual harassment against him.
Although the majority of senior executives and managers believed Clarke was an extremely
tenacious and good executive, they also believed he was getting bad advice and accepting it. Clarke,
when asked about the sexual harassment complaints against Anderson, replied, ―People make things
up. There is no way of knowing. People spread rumors.‖ This and other incidents further strained
relations between Clarke and the rest of the senior executive team. Busy with the task of running one of
the world's leading PC manufacturing organizations, Clarke began relying heavily on three senior
executives — Anderson, Senior Vice President Tim Hunt, and Chief Financial Officer Barry Lynn.
The rest of the team felt increasingly alienated. Over a three-year period, starting in 1996, 10
top executives left the company and following them were several essential managers and supervisors.
At the center of this exodus was the bizarre dynamics between Clarke and Anderson. Many believed
that Clarke empowered Anderson to do things way beyond his role in human resources. For example,
Anderson had significant influence on changing the organizational structure of the company,
determining what divisions ought to sell into what markets, and which products should be sold through
various departments. He also took steps to drive a wedge between senior executives, strengthening his
position with Clarke while inducing a communications breakdown throughout the organization.
Anderson had a list of people whom he would constantly campaign against by advocating organizational
changes to lower their profile. Once he lowered their profile, he would start a process of easing them
out of the door. As one executive put it, ―Anderson was instrumental in deciding which people to bring
in and which were no longer acceptable in the company.‖
Clarke's reliance on Anderson baffled, and angered, other executives. Anderson was very close
to Clarke, and he had a huge impact on the business. Human resource professionals usually do not play
that kind of a role, as they are supposed to try to bring the team together, but all anyone saw Anderson
doing was creating divisiveness. Instead of working together to fine-tune a coherent growth strategy,
Quest's senior executive team became disjointed and increasingly detached from the rest of the
company. Their inability to lead soon had an effect on the morale of almost every employee within the
company.
Two of Anderson's initiatives drove home the point of an executive team that was out of touch
with its workers. The first initiative was the building of a multimillion-dollar on-campus cafeteria that
included reserved underground parking for senior executives. Prior to that, executives shared parking
space with the rest of the company's employees. The second initiative was the increased security on the
eighth floor of the corporate building. Here the executives and several key managers had their offices;
even though every other executive objected to the idea by arguing that it created a hierarchical
environment not conducive to a free exchange of ideas with subordinates.
Anderson was at the center of almost every bit of chaos that existed within the company. Clarke
denied that Anderson had undue influence. ―Every executive has the same access to me,‖ Clarke said.
He continued, ―I have always had an across-the-board relationship with everybody. I always
maintained a high degree of equality. There was no favoritism.‖ Clarke also maintains that Anderson had
―very good relations with just about everybody.‖ Anyone who says otherwise, Clarke added, must
―have an ax to grind.‖ Many former executives said they were reluctant to complain to Clarke about
Anderson because Clarke took personal offense, as if he were being criticized, and because they feared
winding up on Anderson's list.
The erosion of the executive team came at a very bad time. Its main competitor was starting to
grab big chunks of PC market share by proving the viability of the direct-sales model. When Clarke
replaced the former CEO in 1992, his aggressive price-cutting initiatives reversed Quest's direction and
led the company to the top of the PC market. But now, Clarke was much less decisive. As one former
executive noted, ―He was paralyzed by the speed with which the market was changing, and he couldn't
make the difficult decisions.‖ Clarke failed to see the opportunity of the web. Its main rival was now
selling over $2 million worth of products per day over the Web. In 1998, its rival surpassed Quest in
desktop PC sales to U.S. businesses for the first time.
The high turnover in the sales divisions led to instability that caused several high-profile
corporate accounts to take their business elsewhere. As people left, the performance of the company
started to degrade. Quest attempted to construct its own build-to-order strategy by purchasing a rival
company. This failed as it had no vision to guide its direction.
Finally, things came to a head. Quest could not significantly reduce distribution and
manufacturing costs or boost PC revenues. Huge oversupplies of inventory adversely affected Quest.
While its main competitors grew at about 55 percent from the first quarter of last year to the first
quarter of this year, Quest's business fell by 11 percent over the same period. By the end of this year's
first quarter, Quest's stock lost almost half its value, and the company's first-quarter earnings fell far
short of analysts' estimates.
Then came the kicker, the forced resignations of both Clarke and Anderson. The new CEO, Paula
White, now has the massive job of turning a lot of infighting rank and file into a cohesive
organization. The leadership structure was severely damaged due to the large number of people leaving
Quest. Although a large number of replacements were found, it is extremely hard to replace the
collective experience of that many people leaving in such a short time. To help rebuild the leadership
structure, Paula White has charged the interim human resource vice president, Samuel Wines, with
rebuilding the leadership structure. Samuel created a special leadership task force team by hiring several
new human resource specialists. You were brought on as a training analyst to be a part of that team.

Questions:
1. What are competencies and how are they related to performance?
2. How do Skills, Knowledge, and Attitudes (SKA) fit into competencies?
3. What is leadership and how do competencies fit in with it?
4. What are the differences between jobs based performance models and competency based
performance models?
5. How can implementing a competency based performance model help Quest?
6. If a competency based performance model was implemented years earlier at Quest, do you
think it would have prevented its present troubles? Why?
7. What are the three key leadership competencies that you believe are most important for
Quest's leaders to have in order to ensure its survival?