Week 2: IT and organization

Main idea: Companies used to be

hierarchical, whereas today the
relationships are more like a network

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

Fig 2.2 Building Lean, yet agile

enterprises

Fig 2.3 Streamlining operating and

management processes

Fig 2.4 redefining control systems

Lynda M. Applegate, 2005

Hierarchical Enterprises vs. networked

enterprises

Building a management team

Understand multiple functions
Relate interdependencies between
processes
learning and integrative approach
(page 68)
information literate

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
Couldnt 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 companys 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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IBMs 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 customerfocused
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
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