1 Week 2: IT and organization Main idea: Companies used to be hierarchical, whereas today the relationships are more like a network

2 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)

3 Fig 2.1 Organizational Design Challenge

4 Fig 2.2 Building Lean, yet agile enterprises

5 Fig 2.3 Streamlining operating and management processes

6 Fig 2.4 redefining control systems © Lynda M. Applegate, 2005

7 Hierarchical Enterprises vs. networked enterprises

8 Building a management team Understand multiple functions Relate interdependencies between processes … learning and integrative approach (page 68) ‘information literate’

9 Accountability and Collaboration Teams Defining structures, responsibilities and incentives See figure 2.5

10 Fig 2.5 Building Authority Systems

11 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?

12 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

13 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

14 General Motors Multidivisional structure “Decentralization with coordinated control” Coordination = efficiencies Decentralization = initiative, responsibility, development

15 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

16 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

17 Compare organizational models

18 Large but Flexible: IBM 1990: –2 nd 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

19 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

20 IBM Response Initially, make managers more responsible for results, and decentralized authority Accelerating decision-making –Strategic planning cycle cut in half Voluntary retirements

21 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.

22 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

23 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

24 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

25 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

26 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