ORGANIZATIONAL THEORY, DESIGN, AND CHANGE - Case for Analysis

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CASE FOR ANALYSIS – Case 1 Kinko’s New Operating Structure Kinko’s Inc. was the largest retailer of copying stores, but it had to change its operating structure in response to competitive pressures from Quick Copy and OfficeMax. Kinko’s had an informal management process and difficulty managing growth. The founder, Orfalea, used franchising to launch growth, but this approach did not assist Kinko’s in controlling costs or improving customer service. Consultants recommended centralized control and a set of internal authority relationships. 1.

What were the problems facing Kinko’s managers?

Kinko’s structure was too decentralized, making it difficult for top managers to implement changes rapidly. The structure was informal with decisions left up to Kinko’s franchisees, and no sharing of ideas on customer service. 2.

What steps did managers take to solve these problems?

Kinko’s centralized operating systems such as purchasing and finance to reduce costs. Kinko’s developed a more formal organizational structure. It may take time for the store owners to relinquish control, but this structure should help Kinko’s to respond more quickly to competition and develop consistent procedures and services to meet customer needs. CASE FOR ANALYSIS – Case 2

Kinko’s Inc. was the largest retailer of copying stores, but it had to change its operating structure in response to competitive pressures from Quick Copy and OfficeMax. Kinko’s had an informal management process and difficulty managing growth. The founder, Orfalea, used franchising to launch growth, but this approach did not assist Kinko’s in controlling costs or improving customer service. Consultants recommended centralized control and a set of internal authority relationships. 1.

Why did the managers at the two organizations have different ethical stances towards their customers? (Hint go to J&J’s website and look at its Code of Ethics).

It is clear from looking at J&J’s credo that they really focus on stakeholders and making ethical decisions. The credo can be viewed at http://www.jnj.com/our_company/our_credo/index.htm. It might be worthwhile to either print this out or bring up the website during class. In contrasting the stance, you might discuss how at Dow Corning, the management behavior seemed “out of character.”

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Kinko’s New Operating Structure

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What this shows is that organizations must put forth effort to manage ethically, it does not just come naturally to so called “good managers.” Johnson and Johnson does this, and this is illustrated quite well by their credo. 2.

Outline a series of steps Dow Corning’s directors and managers should have taken to have prevented this problem.

The point is that they should have had some sort of ethical system in place to help guide them in making decisions. Had they had a system like J&J, this would have never happened. CASE FOR ANALYSIS – Case 3 How Ford Manages Its Environment This case illustrates the various ways in which Ford has managed its environment over the years. 1.

List the various ways in which Ford has attempted to manage its environment over time.

This is a good illustration of the many different ways that the environment can be managed. Early on, Ford used contracts. As the environment got more complex, they began producing their own parts. This is a good application of resource dependency theory in that they managed their environment by reducing their dependency on suppliers. When the environment became even more complex in the 1980s, Ford developed some keiretsu-type arrangements in order to manage this. 2.

Why did Ford change the methods it used to manage the environment?

To manage these environments, AT&T participated in strategic alliances and engaged in acquisitions; it eventually split into three divisions. CASE FOR ANALYSIS – Case 4 Where Should Decisions Be Made? Until 1995, decision-making at Procter & Gamble was decentralized; managers in each country made their own decisions. This structure impeded managers of similar divisions from cooperating. Thus, top management divided global operations into North America,

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The key here is to make sure students understand that the management strategy needs to fit the environmental situation. They didn’t just change from contracts to keiretsu’s because it was a new management technique, but rather they did this in response to the environment, or, in this case, the competition.

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Europe, the Middle East, and Asia; each area was assigned a global executive vice president. Vice presidents were responsible for cooperation among divisions; authority was centralized. The balance between centralization and decentralization can be changed to make better use of resources. 1.

Why did Procter & Gamble move to centralize control?

Top managers believed that highly decentralized global decision-making prevented cooperation in similar divisions in different counties (soap and detergent divisions) and in different divisions in the same country or world regions. This new structure reduced costs and allowed for rapid innovation. This change was made in 1995, and in 1996 P&G earned record operating profits on record global sales. 2.

When would managers realize that they had gone too far and “centralized” control too much?

When P&G does not respond to customers as quickly as competitors, it will need more innovation and move towards decentralization. Decentralization promotes flexibility and responsiveness by allowing lower-level managers to make on-the-spot decisions. Managers can demonstrate their personal skills and will be more motivated. CASES FOR ANALYSIS – Case 5 A New Approach at Hewlett-Packard This case demonstrates how organizational structure becomes a critical focus when a company begins to decline or lose its market share to competitors. HP was not able to keep up with competitors who were able to introduce new products much quicker than it could, and much of this was attributed to the structure.

She flattened the hierarchy by cutting two layers of management, created crossfunctional teams instead of centralized decision making, and she assigned each team to its own sales staff in order to speed the introduction of the products to market. 2. How should Fiorino make use of new kinds of information technologies to help its hierarchy of authority work better? The key point is that this is a continuous process. She is already taking advantage of technologies by creating teams and flattening the structure. In general, this is possible because of technology.

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1. What kind of changes did Fiorino make to its structure to help HP increase the speed of innovation?

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CASE FOR ANALYSIS – Case 6 A New Caterpillar Emerges Caterpillar was a low-cost manufacturer in the construction equipment industry, but competition from the Japanese threatened its position. Caterpillar’s functional approach was outdated, and structural changes were needed to remain globally competitive. By observing Japanese manufacturers, the CEO saw that their success resulted from cross-functional teams, decentralized control, and updated factories. Caterpillar had slow decision-making, high costs, and a long production time. Caterpillar restructured into 14 product and 4 support divisions, making managers responsible for all activities and coordination with centralized support functions. R&D teams were assigned to specific products, but shared information, as products were related. This structure was more effective. 1. What were the problems with Caterpillar’s old organizational structure? Decision-making process was highly centralized; department heads such as manufacturing made decisions and sent them down the hierarchy. Decisions were removed from those making the product, and functional managers coordinated poorly. The result was higher costs, slow development time, and lower productivity. These problems eroded Caterpillar’s market share. 2. How did Fites change Caterpillar’s structure to improve its effectiveness?

CASE FOR ANALYSIS – Case 7 A Tale of Two Cultures Values, determined in part by the CEO, impact effectiveness. To achieve excellent customer service, a terminal value, Southwest Airlines maintains a flat structure, and managers cooperate with employees. Value Line under CEO Jean Buttner monitors employees closely and gives meager raises because being frugal is the main instrumental value.

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Fites created 4 centralized support divisions and 14 product divisions. Each was a profit center with responsibility for profits and losses, and return-on-investment goals. Each division had cross-functional product teams responsible for marketing, product design, and manufacturing to increase productivity. Requiring marketing, engineering, and manufacturing to work together reduced product development time by 50 percent. Marketing decisions were decentralized to the regional level for rapid response time. Manufacturing upgraded its facilities, used product teams, and increased productivity 30 percent. These changes made Caterpillar compete more effectively.

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1. List the reasons why Southwest’s and Value Line’s cultures differ so sharply. Southwest’s culture is marked by good customer service and management cooperation with employees. A flat, informal structure encourages innovation, and the stock ownership system rewards employees for company performance. On the other hand, Value Line’s culture fosters employee turnover and customer dissatisfaction. Management does not cooperate with employees; CEO Jean Buttner values frugality so much that employees sign in every day and raises are limited. Managers file daily reports on the neatness of employees’ desks. 2. Could Value Line’s next CEO copy Southwest’s culture? Although Value Line could certainly benefit from copying Southwest’s culture, it is not as simple as changing CEOs. Culture becomes entrenched and is very difficult to change, so a new CEO would have to be patient and accept that change would come over a long period of time. CASE FOR ANALYSIS – Case 8 Levi Strauss’s Goes Global This case demonstrates how a company can pursue a transnational strategy. Levi Strauss has located production facilities around the globe and customizes its products to local tastes. Foreign subsidiaries are responsible for marketing. It is also transferring knowledge abroad. To implement its strategy, Levi’s established a network structure. Design is performed in the U.S. and foreign partners produce and distribute products.

Levi Strauss is pursuing a transnational strategy. Levi’s is seeking to both reduce costs and provide customer responsiveness. Production facilities are located around the world to take advantage of low cost foreign labor. However, Levi’s wants to tailor its jeans to local customers; foreign subsidiaries are responsible for marketing. For example, Asia may offer more smaller size jeans. Other countries desire various colors. Moreover, Levi’s transfers knowledge to its subsidiaries. For example, marketing knowledge learned on Decker’s in the U.S. was transferred to Europe. 2. What structure does Levi Strauss use to implement its strategy? To implement its transnational strategy, Levi Strauss uses a network structure. Design is performed in the U.S. and foreign partners produce and distribute products. A partner will be replaced if it doesn’t meet Levi’s standards.

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1. What global strategy is Levi Strauss pursuing? Is it effective?

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CASE FOR ANALYSIS – Case 9 The Shape of Things to Come Japanese companies used mass production but realized that there was excessive handling time. Thus, they adopted production forms called “cell layouts.” Layouts provide for customer responsiveness. 1. How do the new “cell” designs change the level of technical complexity, task variability and task analyzability, and task interdependence? Cell designs are small-batch rather than mass-production technology. They have lower technical complexity because processes are not programmed in advance and workers have more skills. Task variability is higher, and task interdependence increases from sequential to reciprocal because workers perform more tasks. Task analyzability is lower because tasks are nonroutine, and less search time is needed to handle exceptions. 2. Based on this analysis, what type of technology discussed in the chapter does the new system remind you of? This system is similar to small-batch technology with lower costs. 3. What are the advantages associated with the use of the new technology? Reduced handling time, handling costs, and inventory costs are achieved due to faster production and employee motivation. The cell layout enables organizations to be responsive to customer needs by making production of small quantities feasible. CASE FOR ANALYSIS – Case 10

This case details some major structural and market changes that Sears underwent in the early 1990s. This case shows how dynamic the retail market is. 1. What were the major changes that Sears made over time? The major changes involved altering dramatically the strategy and structure. Martinez sold off unprofitable ventures, including the famous Sears Tower. He also dramatically changed the target market, attempting to sell women’s clothes and market to the “middle-American mom.” When the CEO changed in 2000, the new CEO made more dramatic changes, including emphasizing “hard side” appliances and tools as opposed to clothing.

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Sears Changes Again and Again

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2. Search for recent articles on Sears that describe the impact of these changes. How effective have its recent change efforts been? Answers will vary. This allows students to see how dynamic the retail environment is. You could also have them examine how the competitors respond to the changes that Sears makes. CASE FOR ANALYSIS – Case 11 The Body Shop Gets Middle Aged The Body Shop, founded in 1976 by Anita Roddick, grew to over 700 stores by 1993 but did not franchise in the United States as it did in Europe. The owner wanted to maintain control over U.S. stores. 1. What strategy did the Body Shop use to grow in Europe? The Body Shop developed natural cosmetics and grew rapidly throughout Europe using franchising and alliances. 2. What strategy did the Body Shop use in the United States, and what problems did it encounter? In the United States, the owner decided to maintain control over the stores, so the Body Shop missed out on the rapid growth achieved through franchising. Large U.S. cosmetic companies like Estee Lauder imitated the Body Shop and had more name recognition. These competitive threats propelled Roddick to franchise in the U.S. CASE FOR ANALYSIS – Case 12

To change the culture and attitudes, CEO Loucks rewarded managers on company not divisional performance. This new environment promoted learning. 1. What factors impeded organizational learning at Baxter? Until 1990, division managers had complete decision-making authority and received rewards based on the performance of their divisions. They focused on their divisions and did not take a company wide perspective. This environment did not foster innovation. Divisions lacked any incentive to cooperate with one another. 2. What steps did CEO Loucks take to promote organizational learning at Baxter?

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Encouraging Learning at Baxter International

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Loucks changed the reward system to promote organizational learning. He rewarded managers on company, not divisional, performance. He mandated that top managers purchase seven times their annual salary in stock. Middle managers received stock options tied to company performance. This new environment promoted learning because divisions shared knowledge. Decision-making was improved because divisional managers questioned decisions. New ideas were discussed, and everyone contributed opinions. This new approach resulted in a stock price that has doubled since 1990. 3. How could it have made use of IT and knowledge management? Loucks has most of the systems in place that would allow them to focus more on learning. The final step in getting the divisions to take a company wide view would seem to be to take advantage of a knowledge management system. This would allow managers across divisions to share ideas and insights, resulting in faster, high quality decisions. CASE FOR ANALYSIS – Case 13 Big Changes at Boeing Boeing faced competitive forces that made increased quality and reduced costs necessary. Boeing responded to change by altering its structure and culture.

Boeing shifted to a product team structure and established cross-functional teams. Employees from engineering and production were given responsibilities. Boeing had traditionally been secretive about its designs; with the 777, Boeing invited representatives from 18 suppliers and 8 airlines to meet with the product development team. Making customers an integral part of the innovation process was a dramatic change for Boeing. The 777 was the first airliner to be designed completely by a computer. Boeing engineers developed a 3D computer aided design technology to design and test parts, and shortened development time from six to four years. 2. How easy would it be for other organizations to follow Boeing’s lead? It would not be easy for others to make changes in structure and culture to compete in the fierce battle of commercial jet aircraft. Others would have to realize that technological changes and innovation are related. Boeing changed its technology and operating systems to raise the speed of new product innovation to develop a product that customers wanted.

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1. Chart the major steps that Boeing took to encourage innovation and new-product development.

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CASE FOR ANALYSIS – Case 14 The Shakeup in GM’s Hierarchy Tall hierarchies have problems. With too many levels and managers, GM experienced communication and motivation problems, leading to conflict and high operating costs. Top management impacts organizational effectiveness, so top managers were replaced in 1992 with individuals who made tough design decisions. Under the new CEO, GM laid off 74,009 workers. Jack Smith flattened the hierarchy by eliminating levels and cutting managers. GM will lay off 50,000 hourly and 24,000 salaried workers. Decisions will be made by managers close to customers. GM hopes to speed up decision-making, increase responsiveness to customers, and reduce bureaucratic costs. 1. What kind of power did GM’s board use to oust the company’s old management team? Why were they able to succeed? The main source of power in this case is authority. The board has full authority to act in the shareholders’ best interests, which is what they did in this case. They were able to succeed by empowering managers better, which meant that decisions were made much quicker and with the customer in mind. 2. How could organizations better achieve a balance of power at the top of the organization to ensure that politics benefits, rather than harms an organization?

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The main issue is that when an organization gets too tall, it is easy to lose sight of what the customer really wants. When too much power is concentrated at the top, it is often difficult for the organization to effectively respond to the customer.