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Week 2: IT and organization

• Main idea: Companies used to be hierarchical, whereas today the relationships are more like a network

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Challenges

• How does a small (startup) company become an organized enterprise?

• Is it really possible to operate without a hierarchy of roles?

• “We want to be global and local, big and small, and radically decentralized with centralized reporting and control. If we resolve thoe contradictions, we create real competitive advantage” (Percy Barnevik, ABB, page 59)

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Fig 2.1 Organizational Design Challenge

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Fig 2.2 Building Lean, yet agile enterprises

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Fig 2.3 Streamlining operating and management processes

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Fig 2.4 redefining control systems

© Lynda M. Applegate, 2005

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Hierarchical Enterprises vs. networked enterprises

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Building a management team

• Understand multiple functions

• Relate interdependencies between processes

• … learning and integrative approach (page 68)

• ‘information literate’

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Accountability and Collaboration

• Teams

• Defining structures, responsibilities and incentives

• See figure 2.5

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Fig 2.5 Building Authority Systems

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Does redefining roles create or remove clarity?

• Boards and teams become responsible for end-to-end process performance

• However, individuals still need to be evaluated for their roles– Is this really much different?

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Networked Computing to compliment networked organizations

• Scalability– Computing resources can be scaled up quickly to

match increasing demand– These need to be networked appropriately

• Administration– Who owns and operates each application and

infrastructure supporting it?– Salaries are a significant cost!– Sometimes makes sense to over-provision support

to simplify and protect

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Administrative justifications for networked computing

• Specialization– Each department administers own dedicated infrastrastructure

• Compartmentalization– When 2 companies collaborate, it is generally to have each company

manage own hosts

• Locality– Information where it is captured and presentation where it is needed

• Sharing– Maintaining multiple versions and copies becomes complex

• Security– Reliable, available information easier to manage and protect

• Availability– Organizations often set objectives for availability of whole network. Use

redundant hosts for backup

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General Motors

• Multidivisional structure

• “Decentralization with coordinated control”

• Coordination = efficiencies

• Decentralization = initiative, responsibility, development

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General Motors• One general manager per car division

– Chevrolet, Buick, Cadillac, etc.– Each as an autonomous company

• Self-contained functions for engineering, assembly, production, sales• Assembly plants in 15 countries• Divisions aggregated into groups, headed by executive

– CEO and committee above executives• Management committee had policy groups to set standards and

policies• Eg. Plant design, new technologiies, grades for materials, labor

contracts etc.

– Each division as a profit center– Major expenditures through formal reviews

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Why did this not work into 1990s?

• Major duplication of functional areas• Tighter regulations from government

added to complexity• Couldn’t move resources quickly

between divisions• Goal of market share led to proliferation

of car platforms, models, components, brand confusion

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Compare organizational models

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Large but Flexible: IBM

• 1990:– 2nd most profitable company in world– $6 billion profit on $69 billion sales

• BUT– Deep structural problems– Products not making profit long term

• 1991 – 1993– Loss of $16billion

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Early signs of trouble

• Profits high but returns on sales, assets and equity going down

• Leasing business becoming sales business– Previously sell a system for $100,000 per

month– Now sell $5 million system plus $10,000

per month in support

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IBM Response

• Initially, make managers more responsible for results, and decentralized authority

• Accelerating decision-making– Strategic planning cycle cut in half

• Voluntary retirements

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Ongoing challenges

• Losing demand for mainframe computers• Revenues going down, costs not getting much less• “At the heart of the company’s problems was its

evolved complexity…– 20 separate business units– 5000 hardware, 20,000 software products– Different designs serving same purpose– 125 separate data centers worldwide, and 128 CIOs– 31 private and separate networks– Hundereds of different configurations of PC installations– Data processing cost 3 times industry average.

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IBM’s managerial traditions

• CEOs always came from within company• Brought in circle of associates• Senior management decisions made by

committee – needed unanimous agreement• Each executive had large staff who did

presentations at each meeting• Meetings preceded by pre-meetings

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Lou Gerstner, CEO 1993

• Renewed CEO role as customer-focused

• Involved people in decision recommendations

• Hired key people to handle cost cutting• Focused on IBM delivering whole

solutions for customers – not just software

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Organizational Change

• Sales started local generalists with slow response time to make a bid

• Moved to sales organization with both customer relationship managers (geographical) and product specialists

• “Matrix” now aligned to products, industries and global processes

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Case Thursday: LeapFrog

• Founded in 1995• On basis of innovative technology and sound

educational principles, reached #3 in global toy industry– Mattel (#1) and Hasbro (#2)

• 2003: Struggle between growth and creative spirit– Difficulties in preserving creative spirit as company

challenged the industry giants

• What can we learn from this case?– Excitement, energy and spontaneity vs. rigor, accountability,

and formal structure

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What to look for

• How they adapted to new ideas an opportunities– New products– New markets

• How the company structure evolved

• Partnerships and competitors

• Vision and implementation