Cerner Corporation: Stinging Office Memo Boomerangs By EDWARD WONG We are getting less than 40 hours from a large number of our KC- based employees. The parking lot is sparsely used at 8am; likewise at 5pm. As managers - you either do not know what your EMPLOYEES are doing. Or you do not CARE The only things missing from the office memo were expletives. It had everything else. There were lines berating employees for not caring about the company. There were words in all capital letters like "SICK" and "NO LONGER." There were threats of layoffs and hiring freezes and a shutdown of the employee gym. The memo was sent by e-mail on March 13 by the chief executive of the Cerner Corporation, a health care software development company based in Kansas City, Mo., with 3,100 employees worldwide. Originally intended only for 400 or so company managers, it quickly took on a life of its own. The e-mail message was leaked and posted on Yahoo. Its belligerent tone surprised thousands of readers, including analysts and investors. In the stock market, the valuation of the company, which was $1.5 billion on March 20, plummeted 22 percent in three days. Now, Neal L. Patterson, the 51-year-old chief executive, a man variously described by people who know him as "arrogant," "candid" and "passionate," says he wishes he had never hit the send button. "I was trying to start a fire," he said. "I lit a match, and I started a firestorm." That is not hard to do in the Internet age, when all kinds of messages in cyberspace are capable of stirring reactions and moving markets. Late last year, for example, a young California investor pleaded guilty to criminal charges that he made $240,000 by sending out a fake news release that resulted in a sharp drop in the stock of Emulex, a communications equipment manufacturer. But in this case, Mr. Patterson was certainly not trying to manipulate the market; he was simply looking to crack the whip on his troops. That sometimes requires sharp language, he said, and his employees know how to take it with a grain of salt. Business professors and market analysts apparently need more convincing. They are criticizing not only Mr. Patterson's angry tone, but also his mode of communication. Mr. Patterson ran afoul of two cardinal rules for modern managers, they say. Never try to hold large- scale discussions over e-mail. And never, ever, use the company e-mail system to convey sensitive information or controversial ideas to more than a handful of trusted lieutenants. Not unless you want the whole world looking over your shoulder, that is. In Mr. Patterson's case, this is what the world saw: "We are getting less than 40 hours of work from a large number of our K.C.-based EMPLOYEES. The parking lot is sparsely used at 8 a.m.; likewise at 5 p.m. As managers you either do not know what your EMPLOYEES are doing; or you do not CARE. You have created expectations on the work effort which allowed this to happen inside Cerner, creating a very unhealthy environment. In either case, you have a problem and you will fix it or I will replace you. "NEVER in my career have I allowed a team which worked for me to think they had a 40-hour job. I have allowed YOU to create a culture which is permitting this. NO LONGER." Mr. Patterson went on to list six potential punishments, including laying off 5 percent of the staff in Kansas City. "Hell will freeze over," he vowed, before he would dole out more employee benefits. The parking lot would be his yardstick of success, he said; it should be "substantially full" at 7:30 a.m. and 6:30 p.m. on weekdays and half full on Saturdays. "You have two weeks," he said. "Tick, tock." That message, management experts say, created an atmosphere of fear without specifying what, if anything, was actually going wrong at the company. Moreover, it established a simplistic gauge of success measuring worker productivity by the number of cars in a parking lot is like judging a book by its word count. "It's the corporate equivalent of whips and ropes and chains," said Jeffrey Pfeffer, a professor at the Stanford University Graduate School of Business. "It puts you at war with your employees and with your basic tendencies in human nature." But the more costly error was releasing such an inflammatory memo to a wide audience. Whenever a company does that these days, it is practically inviting a recipient to relay it to friends or even corporate rivals. At that point, a message of even the mildest interest to others will start churning through the farthest corners of the Internet. "Sadly, there is a tendency to overuse e-mail," said E. Ralph Biggadike, a professor at the Columbia University Graduate School of Business. "I would not advocate the use of e-mail for a problem-solving discussion. E-mail does not really promote dialogue." For Cerner, it apparently promoted a market upheaval. On March 22, the day after the memo was posted on the Cerner message board on Yahoo, trading in Cerner's shares, which typically runs at about 650,000 a day, shot up to 1.2 million shares. The following day, volume surged to four million. In three days, the stock price fell to $34 from almost $44. It closed at $30.94 yesterday. "While the memo provided some much-needed laughter on Wall Street after a tough week, it probably got overblown as an issue," said Stephen D. Savas, an analyst with Goldman, Sachs who rates the stock a market performer, which is relatively low. "But it did raise two real questions for investors. One: Has anything potentially changed at Cerner to cause such a seemingly violent reaction? And two: Is this a C.E.O. that investors are comfortable with?" Mr. Patterson said that the memo was taken out of context and that most employees at Cerner understood that he was exaggerating to make a point. He said he was not carrying out any of the punishments he listed. Instead, he said, he wanted to promote discussion. He apparently succeeded, receiving more than 300 e-mail responses from employees. Glenn Tobin, chief operating officer at Cerner, said he had read several. "Some people said, `The tone's too harsh, you've really fouled this one up,' " he said. "Some people said, `I agree with your point.' " Mr. Patterson, who holds an M.B.A. from Oklahoma State University and worked as a consultant at Arthur Andersen before starting Cerner with two partners in 1979, attributes his management style to his upbringing on a 4,000-acre family wheat farm in northern Oklahoma. He spent day after day riding a tractor in the limitless expanse of the fields with only his thoughts for company, he said, and came to the conclusion that life was about building things in your head, then going out and acting on them. "You can take the boy off the farm," he said, "but you can't take the farm out of the boy." And his directness with subordinates is not necessarily a management liability. Cerner is a fast-growing company that had $404.5 million in revenue last year and met earnings projections for the last five quarters. The company said recently that it expected to meet analysts' earnings projections of 15 cents a share for the first quarter. It made Fortune magazine's lists in 1998 and 2000 of the 100 best companies to work for in America. "He has opinions," Mr. Tobin, Cerner's No. 2 executive, said. "He gives his opinions. He can have a blunt style with people who he thinks don't get it, who don't understand the challenges they're facing." The Day of the Memo March 13 began like any other day. Mr. Patterson said he woke up at 5 a.m. and did some work at home. Then he drove the 30 miles to Cerner's corporate campus, seven brick-and-glass buildings surrounded by 1,900 parking spaces atop a hill in northern Kansas City. In the elevator, he spoke with the receptionist, a woman who had been with the company for 18 years. She remarked that the work ethic had been declining at the company, he said, reinforcing his own fears. At 7:45 a.m., he walked into his sixth-floor office and typed up a draft of the memo. He met with a client downstairs, then had two managers and his assistant read over the memo. At 11:48 a.m., he sent it. It went up on the Yahoo message board a week later. Analysts began getting calls from investors. They in turn called Cerner to verify the authenticity of the memo, then exchanged a flurry of calls and e-mail messages, trying to divine the tea leaves of Mr. Patterson's writings. "The perception was that they have to work overtime to meet their quarter," said Stacey Gibson, an analyst with Fahnestock & Company, who rates the stock a buy and was among the first to post a warning on Thomson Financial/First Call about the memo. "Whether that's true or not, I don't know. This is how it was taken on the Street." Some analysts say that other factors could have contributed to the drop in the stock price. The overall market was shaky. There were investors who wanted to sell the stock short, betting that it was ready for a fall. One analyst was especially bearish about the company. But even Mr. Patterson acknowledged that his memo "added noise" to what was already out there. At the end of the week, as the stock fell, Mr. Patterson sent out another e-mail message to his troops. Unlike the first memo, it was not called a Management Directive, but rather a Neal Note. It was both an apology to those he offended and a confirmation of the work-ethic problem within the company. It began this way: "Please treat this memo with the utmost confidentiality. It is for internal dissemination only. Do not copy or e-mail to anyone else." You can only submit a single document! Submit the memo and letter as a single document, with one document on each page. Memo: To Neal Patterson, to persuade him to follow your communication strategy on how to address the fallout from the leak of his memo. This strategy will include sending a letter to the employees that you crafted (the attached letter). Letter: To employees, in response to the fallout from Patterson's initial memo that caused the crisis. This will be for Mr. Patterson's signature. Your role: communications consultant hired by the company Hints: Think about how you would characterize various aspects of the crisis (see Week 6 lecture notes) before starting the assignment. The strategy should focus on communication. Avoid recommending actions that will ring false, such as suggesting that he suddenly start publicly giving to charity. Because of the complexity of the situation, the memo to Patterson can be as long as 1 (750 words single space). But try to keep to one page if you can. No need to beat him up by rehashing the bloody details of the fiasco. Letter to employees should be no longer than one page. Management Communication Overview, Strategy, & Ethics Eccles & Nohria \"the essence of what management is all about is the effective use of language to get things done.\" Characteristics of managerial work. Fragmented time. Competing values. Competing roles. Work overload. Need for efficiency. What roles do managers play? Mintzberg's model: 3 core roles. - Interpersonal: figurehead, leader, liaison. - Informational: monitor, disseminator, spokesperson. - Decisional: entrepreneur, crisis handler, resource allocator, negotiator. Key managerial skills. Technical skills: most valuable at entry level, quickly become outdated, and lose value as you move up the hierarchy. Relating skills: Valuable throughout your managerial career. EQ (emotional intelligence) now realized to exceed IQ in importance for career success. Conceptual skills: More valuable as you move up the ladder. Predictors of career outcomes. Best predictor of managerial effectiveness: - good human resource management skills, including organizing, motivating, and communicating with your staff. Best predictor of managerial success (promotion): - Networking with peers and higher levels of management. The Role of Writing Writing is a career sifter. Managers do most of their own writing and editing. Documents take on lives of their own: Don't mail your first draft. Don't ever sign your name to a document you're not proud of. Stop, read, and think before you hit \"send\" on an email. The Social Context of Communication Information is created, shared, and interpreted by people. Information never speaks for itself. Context drives meaning. A messenger always accompanies a message. Communication is a Process that is Dynamic Complex Unrepeatable Irreversible: you can explain, apologize and elaborate, but you can never take it back! Basic Model of Communications Sender Encodes message Transmits Within cultural context, with noise and competing messages Received Interpreted by receiver Levels of Communication Intrapersonal. Interpersonal. Intragroup. Intergroup. Organizational. Mass or Public. Issues related to managerial communication. Communication has to travel through vertical and horizontal layers. Cultures differ in assumptions about reality and preferences for modalities. Power differences encourage distortion and softening of messages. Personal preferences and styles will differ. Distortions caused by sending messages through the hierarchy Leveling: - Smaller, but critical details are lost. Sharpening: - Salient features become overblown. Developing a Communication Strategy Know the purpose of your communication: Multiple objectives for a single communication are common: informing, building support, and creating visibility, for example. Be aware of organizational context factors that could impact on the communication process. Know your audience. Successful Strategies Link message to organizational goals. Attract the attention of the audience. Explain in terms audience will understand and accept. Motivate your audience to accept and act on the message. Inoculate against contrary messages. Manage audience expectations