Case 2: Appex Corporation

Transcription

1 Case 2: Appex Corporation Benjamin Spalding

2 1 Case 2: Appex Corporation Ben Spalding Identify the Problem Appex Corporation is having two problems: the first is that their CEO, Shikhar Ghosh has poor environmental awareness as demonstrated by deciding on a functional structure for Appex Corporation. Second being that they will not let their organization structure settle. Industry Competitive Analysis Mission Statement Appex Corporation is a high technology company specializing in providing payment services to approximately 75 cellular carrier to help them manage their home and roaming territories. As of April, 1990 Appex Corporation serves 250 markets in the United States and 34 markets in Canada. With its two products, ICS and IS, Appex Corporation hopes to secure more contracts in more markets the future. Five Forces Analysis The first force is bargaining power of suppliers, and the suppliers here are the investors and labor, let us look at them one by one. Investors definitely have the upper hand here because last time the investors were unhappy they put changed the CEO of Appex Corporation to Shikhar Ghosh. Labor is a supplier and here is the status of their bargaining power. Employees can choose to quit Appex Corporation at any moment. What this means for Appex Corporation is that there is a low switching cost for employees to just leave the company and work elsewhere.

3 2 In addition, Appex Corporation has to train their employees and because of this has a vested interest in keeping them. These two factors mean the Appex Corporation does not have strong bargaining power with its suppliers. The second force is the bargaining power of consumers. Appex Corporation sells its services to over 75 cell phone carriers via contracts. The contracts are usually multimarket, multiyear, and multiproduct agreements that ranged anywhere from $100,000 to over $2 million. Because the market is changing and growing so much, the innovation that Appex Corporation offers is valuable, and because many of the cellular carriers are in contract, the switching cost is very high. However, once those contracts end, the switching cost becomes very low and Appex Corporation will have to encourage repeat purchasing behavior. The third force is intra industry competition. There are not many competitors mentioned by name and how they bear on Appex Corporation right now, however earlier Appex Corporation was competing against organizations that were much larger than itself with many more resources and much more capital like GTE, Cincinnati Bell, and McDonnell Douglas. There is not a way for Appex Corporation to weaken them enough to gain an advantage. The fourth force is the barrier for new entrants. Because Appex Corporation is ultimately a software development company that works in the cell phone service industry. The barrier to entry is relatively low due to the state of how Appex Corporation was run when it started up. Appex Corporation only had 26 employees at the end of 1989 which is a very small company. This means that a small company can get in anytime. The fifth force is the threat of substitutes. The environment is dynamic due to the nature of software development, therefore a substitute for IS and ICS is very high. This means that there is nothing that Appex Corporation can do against the threat of substitutes other than watch the market and be responsive.

4 3 Identify Stakeholders The stakeholders are part of the business and have a stake in the problem. This means that any solution that can be identified must take into account the stakeholders, so first they must be identified. Everyone usually feels in some degree hemmed in by forces within the organization or in terms of requirements posed by the environment. (Morgan, 2006) It is important to understand that even though general management is at the top, they may not feel they are in charge of everything. EDS - Owned by General Motors and is likely a very large company. EDS recently purchased Appex Corporation. Most importantly EDS would like for Appex Corporation to make them money. EDS uses a divisional structure and Shikhar Ghosh would like to fit the current divisional structure at Appex Corporation to the one at EDS. General Management - This comprises Shikhar Ghosh, and the division managers who report to him. What they want is for company restructures every 6 months or when the company has grown 50%. Divisions Employees - The employees that work in each division. They do not like to work with each other and do not like sharing resources with each other as evidenced by the fact that general management had to buy each of the three divisions a database manager. They believe that there is some political motivations to certain actions as evidenced by the CFO being in charge of IS* Customers - Wants their service done on time and for Appex Corporation to be responsive Stockholders - Wants to get paid their dividends Bondholders - Wants to get paid their bonds. If Appex Corporation does poorly and is unable to pay bonds, this will make this stakeholder unhappy.

5 4 Identify Alternatives The first alternative is always do nothing. In this context what it means is for Appex Corporation to continue with Shikhar Ghosh s plan of changing the organization structure approximately every six months or when the company has grown 50%. Now let us look at how this impacts the stakeholders individually. EDS may not be thrilled constant restructures because that is money that is being spent on restructuring Appex Corporation instead of investing in marketing, innovation, and service. EDS may also not be happy when one of Appex Corporation s restructures puts them out of line with the structure set up at EDS. General management would be thrilled with this decision because they were the ones who came up with it. The division employees would be not too happy with it because the current planned trajectory has the divisions sharing a lot of their resources. The next stakeholder are customers, they are affected because constant reorganizing means that Appex Corporation has fewer resources to put towards service, and marketing which means that there is a chance they could not be happy. The next stakeholders are stockholders, they will be happy as long as they get paid. The last stake holders on this list are bondholders, and they will be happy as long as they get paid. The second alternative is to not change from the current divisional structure. The advantages of this are that the company is still growing fast. Let's look at how it impacts the stakeholders one at a time. The first stakeholder is EDS, they will be happy because they bought Appex Corporation because they like it right now and the company is still making money. General management will not be happy because the divisions are not talking to each other. The division employees will be happy because they do not have to share their resources. Customers are happy because their orders are getting in on time. Stockholders and bondholders are both happy because they are getting paid. The third alternative is to go back to matrix structure. This involves restructuring the entire organization to regain the speed of innovation they had when they first started. For the stakeholders, EDS is not happy because Appex Corporation does not fit the EDS corporate

6 5 structure at all. General management is happy because employees are talking to each other again. Division employees are not happy because the divisions get dismantled and the resources they have in triplicate are wasted. Customers are not happy because orders start becoming very late again. Stockholders are not happy because customers not getting orders means less revenue means less money to pay the stockholders. Bondholders are very unhappy because less revenue means they might not get paid. Pick Alternative and Defend It Appex Corporation should choose the second alternative, do not change current organizational structure. The reason for this is because Appex Corporation is already growing fast and any more changes would be overkill and useless. The reason that a divisional structure works is because The divisional structure works well when coordinated action is required to develop innovative products, satisfy client expectations, or maintain a market segment. (Cash, 1994) Shikhar Ghosh has already taken steps to make the division employees work with each other and spur innovation and any further structural change is general management changing for the sake of change. A reason that the general management of Appex Corporation needs to stop what they are doing and listen to the wants of the division employees is because...owners and employees codetermine the future of their organizations by sharing power and decision making power. (Morgan, 2006) This is quoted from the organizations as political systems chapter, the reason this is brought up is because many of the division employees believe that senior management is violating some equity code and playing interests with putting the CFO as the division manager of the IS division and telling him early. The main reason that Appex Corporation should not do nothing is because Shikhar Ghosh is not good at identifying an appropriate organizational structure for the environment. After the experimental organizational structures, Shikhar Ghosh decides that a functional structure is the most appropriate structure for Appex Corporation. Appex Corporation is in the

7 6 cell phone market, which is a rapidly changing, dynamic environment. According to Cash The weakness of a functional structure is its inability to respond to a differentiated environment or one in which the firm must respond differently in each product category or customer segment in which it operates. (Cash, 1994) Shikhar Ghosh s specialty was organizational structure and he should have been aware of this. Shikhar Ghosh also believes that changing the organization structure will have certain ramifications for Appex Corporation and its employees, what he needs to keep in mind is that No structure guarantees that desired actions will follow. Structure is but one useful tool that managers can employ... (Cash, 1994) Shikhar Ghosh is using organizational structure as a silver bullet and not as a way to answer problems. He is answering problems that do not exist by changing the organization structure after the company has grown 50%. Appex Corporation should not choose the third option, switch back to matrix structure, because as seen in the stakeholder analysis it makes no one happy. The company starts losing money because customers get unhappy and switch to a competitor s service. The only advantage is that Appex Corporation is that they are able to make software innovations very quickly and cheaply. However, Appex Corporation was unable to get their customer s orders on time, customers were always nagging to get their order done. They had innovation but lacked the capacity to meet the demand of the market because their employees did what they wanted. The basic problem with a matrix structure, according to Cash, is...determining responsibility and authority relationships between, for instance, functional and project managers. (Cash, 1994)

8 7 Bibliography Cash, J. I. (1994). Building the Information-Age Organization: Structure, Control and Information Technologies. New York City: McGraw Hill Publishing Co. Morgan, G. (2006). Images of Organization. Thousand Oaks: Sage Publications, Inc.