Summary Appex corporation has spent the last 3 years developing and trying out new organizational structures as it changes from a small organization of only 25 employees to a large one which grows an estimated 50 percent every six months. T o do this they have recruited Shikhar Ghosh to the position of COO with the promise of the CEO position in the future. Each of these structures implemented by Ghosh has revealed strengths and weaknesses after they were implemented and as 1991 approaches it is time for another change. The purpose of this paper is to show that a move to a more bureaucratic system is needed more and more as the company reaches larger sizes. When the company is later incorporated into a larger organization this would also facilitate such a move by more easily integrating into the new parent company s existing bureaucracy. The key problem facing Shikhar Ghosh upon arriving at Appex is the chaotic condition of the company s current structure. What was once a tight-knit group of employees is now a group of people with no clear-cut job responsibilities or work ethic. He reports that Everybody just did what they felt like. For instance, customer service people were supposed to start at 8:00 AM. They wouldn t arrive until 10:00 AM, but they would work until 2:00 AM. Everybody did things on their own time, and the attitude toward the customer was- we ll call you back. (CoursePak) The cellular industry was beginning to explode and Appex found themselves having to add new employees at a rate of ten new employees per month. Ghosh restructured the company about every six months each time that the company grew by fifty percent. He started by trying a circular structure with the senior executives in the middle with each group of descending importance on each outward concentric circle ending with the customer. He followed this with a more hierarchical, functional structure with the intent of eventually breaking the system down into something less formal. He formed teams based on function and them later added teams based on products independent of the original teams. By 1991 Appex was a rather large company which had expanded into a divisional structure with each different division being responsible for their part of the business. One was responsible for ICS (inter-carrier settlement services) and one was responsible for IS 1
(Information Systems) with another (broader) division in charge of operations. Appex was in a business that was very necessary to the cell phone industry but not one that you or I, the end customer would hear about. At the time of this recommendation (1991) Appex was positioned in such a way as to be a fairly strong company with little threat from competition and room to grow. An analysis with Porter s five forces reveals the following: Threat of new entries: low Appex is in a business that is very expensive to enter and there is a limited amount of large cellular carriers to do business with. Threat of substitutes: high The service that Appex provides is one that could be provided by other companies. The roam and billing services provided by Appex are intangible and a well-equipped telecom company could provide these services in such a way that customers would not be able to tell a difference. Supplier Power: low Appex deals in a business that does not require raw materials and very little new equipment etc. For this reason suppliers have very little power over Appex. Buyer Power: high -Appex s customers have a great deal of power over Appex as there is a limited amount of them and they are all high volume buyers. Degree of Rivalry: growing (medium) Appex has been known to beat competitors to the market with its new innovations in the past when it was a small company (an example of this is the ACT system) but is not as quick to respond as a larger entity giving other companies more of an opportunity to beat Appex to the market with new ideas. Stakeholders Shikhar Ghosh Appex Corporation (employees of) Shareholders/Board of Directors Customers (BellSouth etc.) 2
Alternatives 1) Do nothing. Remain in a divisional structure. The divisional structure has presented some advantages to Appex, for instance this structure improved accountability, budgeting, and planning. It kept employees focused on financial targets and allowed for co-operation between the divisions. This structure also brought with it some disadvantages that would have to be addressed should Appex remain on this path. Some of the problems from the attempt at a functional organization persisted and sharing the company s resources (eg: a database manager) caused antagonism between the divisions. Appex would likely have to hire separate managers for each division which would raise costs. Smaller amounts of new product ideas are generated under this system of management as there are high walls between the divisions despite their co-operation. 2) Return to a team structure. The team structure could be used to attempt to re-create the camaraderie and loyalty displayed by the small group of employees that were the driving force behind Appex s early success. Although the structure that the company began with was almost non-existent the empowerment of the employees and sense of a team effort produced excellent results. As the company grew this structure did not work and the team structures that were tried were based around products or functionality. Combining these ideas and creating teams based on interpersonal relationships (as well as job skills of course) so that the teams feel that sense of loyalty and camaraderie again could spark new product ideas along with other benefits. Some of these other benefits could be seen in training new hires, if employees who are happy and proud of their work train new hires placed on their team, these new hires may begin to feel as the older employees do and become productive members of the group. As stated in Morgan s Images of Organization, Individuals and groups tend to operate more efficiently when their needs are satisfied. (Morgan) Possible disadvantages could include a breakdown into the chaotic form the company took at the time Ghosh took the helm. A clear command structure may also be hard to implement in such a structure. While it is important to consider the employees happiness I would not recommend this action as I believe too much emphasis is placed on the employees and not enough on the company s goals. 3
3) Implement a matrix structure. Similar in some ways to the divisional structure described in action one, a matrix structure can benefit from the functional divisions formed in the divisional structure but also supplement these divisions with divisions based on products as well. Employees are grouped by both function and product in a matrix and frequently teams of employees will be assigned to a project to accomplish a specific goal. This type of structure can take advantage of the best parts of divisional and team based structures. If Appex were to consider a matrix format I would recommend a balanced/functional matrix. This form of a matrix structure is one in which a project managers are assigned to oversee projects and these project managers must share power with the functional managers who are the normal chain of command. One of the disadvantages of this arrangement is the division of power between the managers but if Appex s managers could overcome the difficulty inherent in such a power sharing scheme then this could be a beneficial way to structure the company. 4) A classical hierarchy. I believe that this time-tested structure is what Appex needs as it has grown too large and complex to operate efficiently in any of the structures described above. Although some consider this to be an impersonal form which would not allow for the employees of Appex to operate in the unstructured way that they did at the beginning, the simple fact of the matter is that the employees of Appex had already slipped out of that productive mode long before Mr. Ghosh arrived on the scene. Although they began as a cohesive group, that cohesiveness had become chaotic by 1988. The company is large and getting larger. If it wants to achieve common goals then it needs to clearly set those goals and communicate its wants to its employees so they can work towards these ultimate goals. I think that at this point a top-down hierarchy with a clear chain of command is the only way to go. This does not mean that Appex cannot use teams, they can still incorporate teams into the structure so long as the team leaders know who to report to, when and why. Advantages of the classic top-down hierarchy are the clear communication lines. This works well in large organizations as every employee knows who to report to and what their job description is. A hierarchy also allows the stakeholders and board of directors a clear view of the company. It is hard to distinguish what is going on from outside the company when the structure is comprised of many separate groups working on their own projects. A clear CEO on down the line structure gives these outside participants someone to hold 4
responsible directly and can communicate their wishes to this person who then sends the appropriate instructions down the line. To take advantage of Appex s good employee team history it can still appoint teams of employees who have proven to work well as teams to jobs that are appropriate for that format. As the company grows larger it would truly be impossible to maintain the structure that worked in the beginning as much as some employees might wish it could. The disadvantages of a hierarchy would be worth their price if such a structure could succeed in keeping such a large, growing company together. This classical structure is my recommendation for Appex in 1991. 5
Bibliography 1: case2-1: Appex Corporation CIS 410-01 CoursePack. Author and original book title unknown. 2:Morgan, Gareth Images of Organization. SAGE publications, CA, 1986 6