Case

Studies
General Motors:Its Changing Organizations Design

The trials and tribulations of General Motors (GM) during the

1980s and 1990s mirror those of organizations in the United
States and around the world. GM's position of market leader in
automobile production and sales began to falter in the early
1980s along with market leaders in other industries. Competitive
forces throughout the world were forcing US firms to rethink their
strategies and their organization designs. As more and more
competitors from Asia and Europe challenged GM's market
supremacy and as technological developments in manufacturing
and information processing challenged GM's production
advantages, GM's management responded by implementing
changes in its organization design that continue into the second
half of the 90s.

The first signs of problems began to appear in 1981 when the

company reported its first loss since 1921. This report coincided
with the appointment of Roger Smith as CEO, the sixth GM CEO
since Alfred P Sloan, Jr., who served from 1937 to 1956. Sloan
created the modern version of GM through the development of
the divisional organizational structure, which consisted of five
independent divisions Chevrolet, Pontiac, Oldsmobile, Buick,
and Cadillacand the competing product strategy. The competing
product strategy encouraged each division to compete for
customers by delegating complete authority to each division to
design, produce, market, and sell its own particular line of cars.
The only limitation placed on the division was the overall
corporate strategy of encouraging car buyers to think of "trading
up" as each year's new models hit the show floors. Thus, the
'Chevrolet Division produced the starter cars, relatively
inexpensive and within the price range of the first-time car buyer.
But with increases in income the car buyer would be
encouraged through promotion and selling efforts to consider the
more expensive Pontiac and Oldsmobile vehicles, and ultimately
the Buick and Cadillac.

This traditional divisional design was in place throughout the post-

World War II period when General Motors grew into the largest
manufacturing organization in the world. But something
happened along the way. The divisional structure as it evolved
over time began to be identified as an impediment to progress
and market response. One of the outgrowths of the structure was
the development of a massive corporate support staff, which
when created was supposed to provide expert advice and
consultation to the divisions. But over time these staff members
began to take over me decision making of the line units, and the
decision making began to grind to a halt in endless discussions in
endless committee meetings at corporate headquarters. As these
corporate staff units increased their influence through the
provision of valued information, they sought and received formal
authority over many of the day-to-day decisions.

Thus, when Roger Smith took the reins in 1981, he began the
process that continues even to this day: redesigning GM's
organizational structure with the specific purpose of pushing
decision making down into the operating divisions and reducing
the number of staff at corporate headquarters. In 1984, he
announced his first move: the creation of two autonomous
groups, BOC and CPC. BOC consisted of what had been the Buick,
Oldsmobile, and 'Cadillac divisions, and CPC consisted of what
had been Chevrolet, Pontiac, and GM of Canada. Smith delegated
complete authority to each of the groups to organize in whatever
way the managers thought was necessary to get GM back on
trackto regain its competitive, growing, and profitable status.
BOC decided to organize around four completely autonomous
product groupsstrategic business units (SBUs). Each product
group would operate as Sloan had envisioned his divisional
structure would operate, exercising complete authority to design,
produce, and sell cars. By contrast, CPC organized around
functional lines with centralized authority, but with a matrix
overlay to facilitate communication across functional lines.

When 1993 rolled around, GM had replaced Robert Stempel, who

had replaced Roger Smith, with Jack Smith. Stempel had been in
office barely two years, yet the board of directors was unhappy
with his deliberate management style. He simply was moving too
slowly in carrying out the turnaround that Roger Smith had begun.
The new CEO responded to the news that GM's market share had
dropped to its lowest point in 23 years, 29 percent, by creating a
single operating division, North American Operations (NAO);
paring corporate staff from 13,500 to 2,500; reducing the number
of car models from 62 to 54; combining 27 different purchasing
departments into one; and eliminating nearly 16,500 hourly jobs
by offering early retirement. These seemingly harsh measures
were necessary according to Jack Smith to assure GM's very
survival as an automaker.

The organizational design that GM now counts on to enable it to

survive and compete identifies the five traditional divisions
Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillacas marketing
units. But all production, product design, and purchasing will be
done in one separate unit. The story of GM's reorganization efforts
remains unfinished. In fact, what progress the company makes
will depend upon'; Jack Smith's success at eliminating the
remaining vestiges of bureaucracy that persist even in the midst
of massive efforts to make the company more responsive to
market conditions" and technological developments.
Centralization or Decentralization? Which is the appropriate
response: centralize some functions, such as purchasing and
production, and decentralize other functions such as marketing?

Despite all the efforts of its CEOs from Roger Smith to Jack Smith,
GM continues its long slide down the profitability curve. The
efforts to reverse this slide through organization redesign and
other measures seem to have yielded little gain. If General Motors
cannot cope with the rigors of global competition, can the
country?

1. Identify the environmental forces that have driven General

Motors to change its organizational design.

2. Have the changes in structure been in the appropriate

direction? Have they been misguided? Explain your answer
and your reasoning.

3. Discuss the possibility that redesigning the organizational

structure is actually an irrelevant response: to what ails
General Motors.
MicroAge Undergoes Massive Structural Change

In April 2000, MicroAge Technology Services transformed itself to an

e-Business infrastructure services company that operates as a
virtual organization, with an agile and mobile sales force able to
reach broader geographic markets. "The rapidly-changing climate
of the technology industry, primarily due to the growth of the
Internet and emphasis on reducing operating and technology costs
through e-Business, has made it clear that we must make
significant changes to our business to meet the demands of the
new digital marketplace," said MicroAge Technology Services
President, Jeff Swanson.

"As a virtual organization, our sales teams will no longer be tied

to physical brick-and-mortar facilities. They will be able to cover
broad geographic areas to meet the needs of clients wherever
they do business. At the same time, we will continue migrating
clients to MicroAge Direct for product procurement so MicroAge
Technology Services sales associates can focus their full attention on
relationship management of their clients in fulfilling their
infrastructure services needs."

Swanson continued, "As a client-centric organization the need

for physical locations is minimized so that we can work more
directly with clients to help them profit from technology in the
internet economy."

The company's strategic initiatives, aimed at transforming

MicroAge Technology Services into a flexible and agile organization
fully .capable-of providing the e-Business infrastructure services its
clients require, included:
 Expansion of market coverage through the establishment of
a field structure composed of thirteen broad geographic
market areas, eliminating in three phases the costly network
of thirty-five branch offices.

Centralization of operations and, processes to lower costs and

increase efficiency as MicroAge Technology Services moved
to a virtual, field organization."Branch inside sales functions
will transition to centralized sales support and client site
based sales teams as appropriate.

Completion of centralized service dispatch for all branches.

MicroAge launched plans to centralize service dispatch in order
to implement consistent quality standards and enhance overall
client satisfaction.

Migration of all clients to MicroAgeDirect for product

procurement. Sales support for major clients will continue to be
provided by existing client-site teams or by a centralized team
operating from the company's Tempe offices.

MicroAge Inc., President Christopher Koziol noted that the

restructuring of ,the procurement function allows the MicroAge
Technology Services sales force to focus their full attention on
serving the needs of clients and meet the demands of the new
connected economy. "This strategy allows our associates to focus
their full attention on managing client relationships and releases
them from the burden of managing product transactions, which are
more efficiently handled by automated procurement systems such
as MicroAge Direct. We will also be able to reduce the costs of deliv-
ering services and products, significantly streamline operations and
ensure consistent, high-quality service delivery to all clients. The
most significant benefits of this new structure will be improved
sales productivity and growth increased profitability, and client
satisfaction," he said.

Questions for Discussion

1. The changes in organizational structure discussed in this case

were initiated in April 2000. Go on-line and look up MicroAge
today(Till last time). Do you think the company has prospered as
a result of these changes? Explain. What is the status of the
company today?
2. MicroAge made several organizational changes at the same time.
What problems might be encountered by making so many
changes at once? How can managers deal with this type of
massive structural change?

3. The MicroAge sales force will work independently for much of

their time with the elimination of the thirty-five field offices. How
can managers at corporate headquarters keep track of sales
Activity? What technologies might be used to ensure that sales
goals are being met?

4. Compare organisation/structure of any Indian company involved

in e Commerce with Microage
Organizing For Innovation At Raytheon Company.

Raytheon Company depends upon innovation for survival. The

company competes in the highly technical and volatile electronic
based product industry. Its business with the government includes
missile systems, radar, and underwater surveillance products
which account for more than half of its $7 billion annual sales. The
other half comes from business groups including such well-known
consumer products as Amana appliances, speed Queen laundry
products, and Caloric cooking appliances. In this environment the
importance of development of new products and new technology
becomes crucial to the firms very survival and it is imperative to
design an organization that facilitates new product development.
Typically, firms create research and development (R&D) units to
do product and process development research and, Raytheon
uses this organizational form but supplements it with a
centralized, corporate level, New Products Center.

The New products Centre (NPC) is a 35 person group located at a

corporate headquarters in Burlington. Massachusetts. Since its
formation in 1969, it has participated in the early development of
39 products which have become mainstays in the firms product
line. The NPC stands alone and works with all the divisions and
subsidiaries of the company including those R&D units that are
parts of the divisions and subsidiaries. The company also uses
other ways to initiate and sustain innovation including external
consultants as well as internal and external ventures groups. The
NPC plays the special role in this configuration of approaches to
innovation because it views the entire organization as both a
source of clients and a source of resources. All the expertise in all
the divisional R&D groups can be made available to the NPC
during the course of developing new products.
 The NPC serves as a way to cross functional and divisional
boundaries so as to tap all the skills and abilities in Raytheon. The
primary goal of the NPC is to develop profitable products. New
products are worthless if they do not generate profits, no matter
how brilliant or interesting the underlying idea. Thus the bottom-
line criterion for evaluating the performance of the NPC is its
contribution to profit. Its basic operating procedure is to develop
the first functioning model of a new product that can then be
turned over to the appropriate product or business center. If the
product is successful, it will extend the product line and will be
manufactured with existing facilities and distributed through
existing channels.

The center is staffed by both generalists and specialists. The

generalists are capable of working on a variety of products and
fields simultaneously. Three major categories of specialists in
Raytheon's NPC focus on: (1) computer applications for electronic
controls, (2) materials design and development, and (3) product
engineering which transfers the product manufacturing
responsibility to a product or business group. However, even the
ablest of research and technical talent will go untapped if a sat-
isfactory relationship with the client group is not established. In
Raytheon every organizational unit is a potential client group of
NPC, and the development of satisfactory working relationships
requires mutual trust. A satisfactory working relationship includes
agreement on which market to target with what product, the scale
of company investment, the role of each person involved, and
who will get credit for success and blame for failure. These are
important issues that must be negotiated before the real work of
developing the product can begin.

The internal operations, organization, staffing, and interpersonal

skills are critical to the success of the NPC. But its place in the
overall organizational structure is also critical. In recognition of
the possibility that the center could be the first victim of hard
times when revenues and cash flows require retrenchment,
Raytheon funds the center's $3 million annual cost entirely out of
the executive office resources. This practice means that no
operating division or group will be assessed any cost for using the
center's resources for product development. In addition, the
director of the center reports to the CEO thus emphasizing the
support of top management for the center's importance.
Raytheon's experience with its NPC indicates that it is one
approach to organizing for innovation that other firms could
adopt.

Questions

I. Evaluate Raytheon's approach to organizing for innovation.

What alternatives come to mind? Would any of these
alternatives be appropriate for Raytheon to consider?

II. Select an Indian company known for Innovation. Justify

choice.

III. Compare their approach with Raytheon

Krispy Kreme: Where Growth Is Really Sweet

At Krispy Kreme's 324th store opening in late October 2003, a

crowd began gathering early outside the store. Close to 100
people huddled under a tent and umbrellas on that cold, rainy
morning" waiting for the store's opening. With the local media
present, the store opened at 5:30 A.M. to the crowd's chanting
"Doughnuts! Doughnuts!" One customer who had been in line
since 3:00 A.M. admitted to getting up early to see Presidents and
Governorsand now to purchase Krispy Kreme doughnuts. As
admirableor crazyas this may seem, it's tame compared to
the doughnut dedication shown by others. Some people will even
camp out at the stores in the final days of construction and set up
before the opening. Rob Perugini camped outside of the 324th
Krispy Kreme for 1 7 days before the opening, breaking the old
record of 13 days. What does Krispy Kreme do to produce such
devotion to its doughnuts?

The Founding and Early Growth of Krispy Kreme

Krispy Kreme Doughnuts, founded in 1937, has grown from a

small doughnut shop in a rented building into "a leading branded
specialty retailer, producing more than 5 million doughnuts a day
and over 1.8 billion a year." After purchasing a yeast-raised
doughnut recipe from a French chef in New Orleans, Vernon
Rudolph, Krispy Kreme's founder, began making doughnuts in a
rented building in Winston-Salem, North Carolina, and selling
them to local grocery stores. Soon Rudolph began selling hot
doughnuts directly to customers. In the ensuing years, Krispy
Kreme grew into a small chain of stores, all using the same
recipe. Product quality varied, however, and the company
established a dry-mix plant and distribution system to ensure a
 consistent product. Krispy Kreme continued to expand and
enjoyed steady growth until the mid-1970s when the company
was sold to Beatrice Foods subsequent to Rudolph's death.

The sale to Beatrice Foods ushered in an era in which Krispy

Kreme stores sold ice cream, sausage biscuits, and other food
products in addition to doughnuts. Even the doughnut recipe was
changed. Horrified by what was happening, a group of Krispy
Kreme franchisees repurchased the company from Beatrice foods
a few years later.

With the 1982 repurchase, Krispy Kreme refocused on making

the hot doughnut experience a company priority. The company
continued expanding throughout the Southeastern United States,
and then in 1996 it opened its first unit outside the Southeast.
This store was in New York City. In 1999, Krispy Kreme opened its
first store in California. National expansion has accelerated rapidly
since then. In December 2001, the company opened a store in
Canada, its first outside the United States.

Growth Through Excellence

Krispy Kreme has a strategic philosophy that is oriented toward

growth through excellence. The company's strategic philosophy
revolves around the following beliefs:

"All products we make in our stores will have a taste and quality
that are second to none."

"The starting point in controlling product quality is controlling the

quality and freshness of the ingredients."
 "We will be thoroughly prepared to execute growth
inineeded."

"We view quality, service, and innovation as keys to creating

and maintaining a competitive advantage."

We view our company as a set of capabilities, not just a

product or brand."

"We view our growth and success as a company as a natural

result of the growth and success of our people." 7

Krispy Kreme's growth has been partly fueled by the company's

obsession with product consistency. Krispy Kreme strives for such
consistency that a doughnut purchased anywhere in the world at
any time will taste exactly the same. This is accomplished by
testing all raw ingredients before delivery is accepted. If a test
sample of a shipment does not meet the company's standards,
the entire shipment is rejected. Krispy Kreme also makes sample
doughnuts from every single 2,500-pound batch of mix to ensure
that each batch is blended correctly.

Krispy Kreme is more like a factory than a bakery. Krispy Kreme

stores typically operate around the clock, producing doughnuts
for walk-in customers as well as for wholesale purchase by
supermarkets and grocery stores.

National expansion through franchising has driven a good portion

of Krispy Kreme's growth, particularly since the mid-1990s.
Significant growth has occurred even though a Krispy Kreme
franchise is the most costly food franchise availablebeing about
five times the standard cost for most operations, as estimated by
the International Franchise Association. A Krispy Kreme franchise
costing $2 million per location on average, is both extraordinarily
difficult to obtain and in great demand. Krispy Kreme requires its
franchisees to have "$5 million in net worth to apply and . . .
ownership and operating experience with multi-unit food service
operations." Krispy Kreme also seeks "area developers"
franchisees who will open at least 10 stores in a region.

Krispy Kreme stores are high-volume operations with higher

profit margins than other fast-food business. A typical McDonald's
franchise has revenues of about $1.5 million annually and a typi-
cal Dunkin Donuts averages about $744,000. In fiscal 2001,
Krispy Kreme franchisees had average revenue of $2.2 million per
location. This jumped to $2.8 million in fiscal 2002 and $3 million
in fiscal 2003. Company stores had even higher annual sales
volume, reaching about $4 million in fiscal 2003.

"Krispy Kreme now takes an ownership stake in all new

franchisees, claiming anywhere from 33% to 75%," a strategy
that increasingly is being adopted by other franchising
companies. 'The parent companies engage in such partnerships
because they lead to higher earnings and faster expansion."
Krispy Kreme takes an ownership stake even though franchisees
"have the money and desire to open as many stores as the
company will allow."

While fueling growth, this joint-partnership strategy has not been

a smooth road. A lawsuit over the terms of an alleged contract
was filed by two franchisees in northern California. An equity fund
that was formed by 35 Krispy Kreme executives to invest in
franchise stores was disbanded in the aftermath of the Enron
scandal so "that no individual's personal gain would conflict with
the overall good of the company."

Krispy Kreme's rapid growth has also been facilitated by its

use of information technology. The company uses the Internet as
well as a corporate intranet to aid national and international
expansion. Using its information technology, Krispy Kreme has
made more and more of its services and information accessible to
corporate staff, stores, franchisees, and suppliers. The vast
majority of orders from individual units are placed over the
company's intranet. Using the Internet and intranet, individual
stores from anywhere in the world can train employees around
the clock.

Krispy Kreme continues to expand into new markets, both in the

United States and overseas. In fiscal 2003, the company entered
17 new U.S. markets as well as one in Canada. It also opened its
first store outside of North America, which is in Sydney, Australia.
At the end of fiscal 2003, the company is also preparing for a
store opening in London. In addition, the company acquired
Montana Mills Bread Company and successfully introduced Krispy
Kreme Signature Coffeesan outgrowth of its earlier acquisition
of Digital Java, Inc. Krispy Kreme has developed a roasting
process for coffee beans that ensures the same high level of
quality and consistency with its coffees as it has with its dough-
nuts.

In line with its emphasis on product consistency, Krispy

Kreme's opening of a new store engenders highly consistent
customer behavior. A Krispy Kreme store opening attracts a lot of
attention. The experience of James Consentino, a West Palm
Beach, Florida, franchisee is typical on the morning of a store
opening and in the ensuing days. "At 5:30 A.M. that morning, he'll
let in a mob of people who've been waiting outside for hours for
the warm doughnuts streaming from his ovens at a rate of 2,640
per hour. The event will probably be covered by a TV news crew
most Krispy Kreme openings areand in his first week Consentino
will take in almost as much in revenue as the typical Dunkin'
Donuts store makes in a year."

Review Questions
1. What are the key elements of Krispy Kreme's philosophy'? How
do these elements relate to the organizing trend of balancing
decentralization with centralization?

2. What type of organizational structure does Krispy Kreme

appear to be using?

3. What is the potential for developing a network structure at

Krispy?

4. Based on its recent growth history, (Including expected entry in

India),what type of organizational structure should be used to
accommodate the growth in the next 5 years?
Tata Electric Locomotive Company(Now Tata
Motors)

Tata Electric Locomotive Company started functioning at J'Pur in

1955 and was engaged in manufacture and supply of electric
engines to the Indian Railways. Known as TELCO; it soon began
to make diesel trucks in collaboration with World renowned
Mercedes- Benz at the same location. TELCO duplicated the
facility near Pune in 1965 and 1985 initiated a third facility at
Lucknow. Today it is known as Tata Motors.

The main activities at Telco consisted of manufacturing the spare

parts and assembling these parts into Engine, transmission and
the Truck: selling Trucks and accessories: procurement of raw
materials required for manufacture of these parts as well as other
indirect items: making drawings and designs of product, spare
parts, equipment etc; maintaining a check on quality; ensuring
proper upkeep of various equipments etc. In addition to these
activities, TELCO management started as Engineering Research
Centre (ERC) at Pune in early 70's.

Automobile policy changes initiated by Government in 1978,

enabled TELCO to design and develop four wheel products other
than trucks to which TELCO was initially restricted. TELCO soon
developed smaller Trucks, which could successfully compete with
Japanese products. Encouraged by this success, TELCO came into
market with products like Tata Mobile and others which were
serving as passenger cars also. This range of vehicles known as
Tata Family' was manufactured at Pune. However, these products
did not enjoy a great success. The other two Jeep like offerings
Tata-Sumo and Safari were however, a great success initially.
TELCO started working on design and development of a car in
1995. ERC was briefed to make a car which could compete with
Zen, but should have diesel engine. With help from French &
Italian designers, TELCO successfully launched Indica car by
1998. Later on, a large version Indigo was introduced.

Unfortunately for TELCO, however the environment had changed

and many other cards like Matiz, Santro etc were available to the
customer, in addition to new models introduced by Maruti. So
initially the car model failed. After a series of quality
improvement, car model Indica succeeded.

In 2004, TELCO became Tata Motors. In 2008/09 of company

launched a small car at Rs.1 lac price - Nano, which would be
produced at a new location. It also introduced several variants of
models already existing. Also Tata Motors also brought car models
with engines procured from FIAT. Nano plant in Gujarat has been
activated recently.Tata Motors has also taken over Rovers which
produces high end cars.They have a factory in China.

Recently company is facing problems in sales

Q.1: How do you think TELCO activities were organized initially?

Q2Trace organization structure through years

Q.3: In light of the current situation, do you think Tata Motors

needs to charge its organization structure?

Q 4: How would you like to effect this change? Why?

Recently Tata Motors is s

ABCL Petrochemical Company

ABCL is a Petrochemical company, which was founded as

collaboration between a UK Company and an Indian Management
Group in the late 60's (The collaboration agreement expired in
the 70's).

Almost from the inception, the company manufactured and sold

three products - P, A and T- at the only facility near Pen in Raigad
district. These products found applications in Resins, Industrial
salt, Paints, Dyes respectively. During the next two decades, when
the Industrial activity in the country and particularly around
Thane- Belapur belt, was expanding rapidly, the company found
theses products (known collectively as Commodity products) to
be in short supply with the supply far outstripping the demand.
The financial performance was exceptionally well (It may be
mentioned that till 1991, any company had to get Government
license to increase volume, add any new product and to get
collaboration).

Basic activities within the company consisted of manufacturing

these products in the facility (the equipment had been installed
with the help of the foreign collaborators, and was capital
intensive and complicated) maintaining and repairing / replacing
the facility, modifying the manufacturing process to suit Indian
conditions, purchasing raw materials (which were standard
outputs of other petrochemical companies in the vicinity and
spare parts required for the equipment importing critical auxiliary
material, distribution the finished products though 10
wholesalers/ Distributors located across India. Due to the
restrictions mentioned earlier the company started an in-house
R&D activity in the mid 80's and successfully developed 10 new
products for applications in pharmaceutical perfumery, pesticides,
Agrochemicals etc. these products were required in low volumes
but fetched higher prices. This portfolio was known as specialty
chemicals. Due to very little competition and low volumes, these
products were also sold through some distribution channels.
Company kept on doing something exceptionally well tell 90's.

However, with liberalization and globalization the import duty

protection provided on all the company products vanished and
import of all company products from abroad became a reality,
thereby squeezing the margins. The company also began to feel
the need for development of higher value added products, reduce
costs etc.

Q1. How do you think the activities of the company were

arranged initially?

Q2. With which changing environment is there a need to change

the organization structure? Why?

Q3. How would you re-organize? Why?

 Lucent: Clean Break, Clean Slate?

The company that could seemingly do no wrong in the first three

years after it was spun off from AT&T in 1996 seriously lost its way
in 2000. Worst of all, it has been completely bested by archrival
Nortel Networks Corp. in the key market for optical-fiber telephone
switches.

The contrast with Nortel is what stings Lucent execs the most. It
was only a few years ago that Nortel was the industry dog. But to-
day, Nortel has 45 percent of the exploding optical-transmission-
switch market. That compares with just 15 percent for Lucent,
which decided in 1996 to develop a slower switch precisely be-
cause its customers weren't asking for anything faster. Lucent
now rues the decision to settle for less transmission speed. And
CEO Henry Schacht is quick to acknowledge that he is as much at
fault as former CEO Richard McGinn. Schacht says he is planning
one-on-one meetings with Lucent's customers and is reviewing all
the processes now in place with an eye to streamlining Lucent's
cumbersome structure.

Under McGinn, Lucent embarked on an organizational overhaul

in September 2000. To head up key divisions, it has appointed
some aggressive new outsiders who are not mired in the
company's bureaucratic mindset. One of those, CFO Deborah C.
Hopkins, is putting in place a companywide standard for
evaluating a product's profitability, replacing the piecemeal,
business-by-business standard used before. The company is also
chopping away at management layers, more closely tying
compensation to performance, and trying to better integrate its
vaunted Bell Labs with product-development teams. But the
world's largest telecom-equipment maker actually has a more
cosmic task: It must remake itself into a company that can be
quick to respond to needs, quick to deliver new technology, and
far less bureaucratic. And it has to do all of this while suffering
from a 20 percent turnover rate that is siphoning off top talent.

Granted, such an overhaul has been prescribed for just about

every lumbering old economy behemoth. Lucent is determined to
pull itself apace with that market. And it may have a secret
weapon: In September, Lucent named Jeong Kim to head its
optical-networks business. Clearly different from the Lucent lifers
around him. Kim has reorganized the group into 17 small divisions
based on product lines, with managers closely matched to
customers and compensation tied to performance. His goal: to
improve time to delivery by 30 percent. "I have a 100-day plan,"
he says.

Kim's entrepreneurial spirit is sorely needed at Lucent, and he is

convinced he already has had a positive effect on morale. He re-
cently visited a Lucent plant in North Andover, Massachusetts, and
found general managers there very involved in suggesting ways the
operation could he improved. "They were really taking ownership
of their operation. And morale was running really high. I was very
encouraged."

Lucent must also start regaining the trust of its employees if it

wants to stem the flood of talent that started rushing out the door
as soon as executives' pre-IPO options were excersid on October
1, 1999. And it hasn't done any better at hanging on to the
employees who came on board with its many acquisitions.
Adopted employees who have headed for the doors regularly
complain that they found them selves stifled by Lucent's many-
layered management. "There are a lot of top-level people trying
to get out of Lucent right now," our Silicon Valley headhunter
says.

Lucent's executives are sounding all of the right turnaround

noises. William T. O'Shea, vice president for corporate strategy
and business development, is in charge of a massive effort that
kicked off this past summer to streamline Lucent's businesses. The
goal: in encourage entrepreneurship. "We are putting new people
in charge and organizing groups to focus their energy in small
teams." he says, rather than structuring the company in large,
often uncommon inactive divisions. And the company is including
Bell Lab researchers in these teams, to make sure that their
invention are properly promoted. "We are bringing a much broader
collection of people to the table internally to make strategic
decisions," he says.

Questions:
1What are the reasons behind these changes in strategy?

2 How would you characterize the changes in Lucent's vertical and

horizontal structures?

3What other management issues do you see in this case? How do

they combine with issues of org structure?
DECENTRALIZATION AT CURTICE-BURNS, INC.

Curtice-Burns, Inc., consists of seven food manufacturing

divisions with sales in excess of $270 million. The company
grew primarily through acquisitions of food companies which
then became divisions of the company. The management
philosophy at Curtice-Burns, Inc., emphasizes decentralization
and autonomy. Each division is completely responsible for its
own businesswith the exception of major capital
investments. To underscore the importance of
decentralization, the company has a headquarters staff of
only 12 people.

President and CEO Hugh Cumming is committed to

decentralization and can readily identify the advantages and
disadvantages of the approach. The primary advantage is the
clearly defined responsibility of each division's CEO for that
division's performance. A CEO whose division's-performance is
below planned performance cannot blame headquarters for
meddling in division matters. Instead, he alone makes all the
strategic and operational decisions.

A second advantage derives from the company's incentive

plan. Because of the cyclical nature of the food business,
Curtice-Burns does not tie its incentive plan to the
performance of a single division. Rather, the plan is based
upon overall corporate results and allocated to the divisions on
the basis of payroll. The incentive plan creates positive peer
pressure because a poorly performing division will reduce the
bonus for all divisions.

Decentralization stimulates and sustains the entrepreneurial

spirit so often found in small business, but often missing in
large corporations. All the top-management personnel began
their careers in small business, and they tend to continue to
manage entrepreneurially. For example, when one division
decided it was time to get into the natural potato chip
business, it did so in less than a month. By contrast, Pepsico's
Frito-Lay Division took 15 months to bring out the product.

The decentralized concept is not without difficulties. For

example, the emphasis on divisional marketing of regional brands
does little to promote the visibility of Curtice-Burns stock.
Consequently, the stock sells at prices lower than what the
company's board of directors thinks is appropriate. Investors
simply are not familiar with Curtice-Burns.

A second disadvantage of decentralization is the inherent

duplication of functions such as accounting, sales, and marketing.
A corollary problem is that some divisions (acquired companies)
are too small to operate independently. Small divisions often
cannot provide the full range of functional support required to
operate as an independent unit.

A third problem is difficult to define. But it relates to the

managerial question of knowing when headquarters should assist
or even overrule division decision. Constant interference in division
affairs obviously ruins the concept, but total disregard is likewise
ruinous. Striking a balance between the two extremes is a
problem only because it is a matter of managerial judgment.

Cumming believes the advantages of decentralization outweigh

its disadvantages. In fact, he sees the practice as the primary
cause for the company's steady growth.

Questions
 1. Evaluate Curtice-Burns, Inc.'s policy of decentralization.

2. What specific company strategies facilitate the use of

decentralized authority?

3. At what point should Cumming consider centralizing certain

functions?Which are the function most likely to be centralized
when and if that point is reached?

FORD'S GLOBAL STRATEGY: CENTERS OF EXCELLENCE

In 1986 Ford passed its bigger competitor, General Motors, with

earnings of $3.3 billion. Ford's market share is about 20 percent.
But success, in many instances, may be only temporary, and Ford's
chairman, Donald E. Petersen, is concerned about complacency.
Indeed, the company has to work hard to maintain its reputation
for stylish, aerodynamic cars and high quality.

Under the former leadership of Henry Ford II, the company was
very centralized. But Petersen's plan is to make Ford an integrated
global enterprise. Thus, a great deal of authority for the
development of specific models or components is now centralized
in the company's various technical centers around the world
rather than in Detroit. Under this plan, the car or its components
are developed in the technical center with the best expertise in a
particular field, anywhere in the world. This could save the
company a lot of money by avoiding duplication in development
and reducing tooling costs. For example, Ford of Europe, located in
England, is the center for developing the platform for the new
model that will replace the European Sierra and the American
Tempo and Topaz. Ford will sell the new cars in Europe and in the
United States. Similarly, in Japan Mazda (Ford owns 25 percent of
the company), which has much experience in building small cars,
will be the center for developing the platform for the replacement
car for the Escort. The North American center of excellence will
focus on midsize cars. Similar centers are planned for major
component, such as transmissions and engines. While these
centers of excellence develop platform and key components,
exterior and interior styling will be the responsibility of companies
in various regions.

The concept of the centers of excellent may seem promising,

yet a previous attempt in the early 1980s to build a "world car in
Europe failed. It is said that the American car Escort, shared only
one part with European counterpart, namely, a seal in water
pump.

Question :

1. What do you think of Ford's overall decentralization with centralized

authority for development of specific cars and components at the
technical centers?

2. Why does Ford think that the concept of having centers of

excellence located in various part the world will be the correct
organization structure for the twenty-first century?
Stopping the Sprawl at HP

When Randy Mott joined Wal-Mart fresh out of college in 1978, its
in-house tech staff had only 30 members and company founder
Sam Walton had not yet become a believer in the power of
computing to revolutionize retailing. But Mott and his cohorts
developed a network of computerized distribution centers that
made it simple to open and run new stores with cookie-cutter
efficiency.

Then in the early 1990s, Mott, by this time chief information

officer, persuaded higher-ups to invest in a so-called data
warehouse. That let the company collect and sift customer data to
analyze buying trends as no company ever had, right down to
which flavor of Pop-Tarts sells best at a given store.

By the time Mott took his latest job last summer, as CIO of HP,
he had become a rock star of sorts among the corporate techie
set as an executive who not only understood technology and how
it could be used to improve a business but how to deliver those
benefits. Besides his 22-year stint at Wal-Mart, Mott helped Dell
hone its already huge IT advantage. By Welding nearly 100
separate systems into a single data warehouse, Mott's team
enabled Dell to quickly spot rising inventory for a particular chip,
for instance, so the company could offer online promotions for
devices containing that part before the price fell too steeply.

Now Mott, 49, is embarking on his boldest and most challenging

project yet: a three-year, $1 billion plus makeover of HP's
internal tech systems that will replace 85 loosely connected data
centers around the world with six cutting edge facilitiestwo
each in Austin, Atlanta, and Houston. Mott is pushing sweeping
changes in the way HP operates, slashing thousands of smaller
projects at the decentralized company to focus on a few corporate
wide initiatives
including scrapping 784 isolated databases for one companywide
data warehouse. Says Mott: "We want to make HP the envy of the
technology world. If it works, Motts makeover could have more
impact than any new HP advertising campaign, printer, or PC and
could turbocharge the companys already impressive turnaround.
HP posted profits of $1.5 billion in its second quarter, up 51%
from the year before, on a 5% increase in sales. If Mott is
successful, HPs annual spending on tech should be cut in half in
the years ahead, from $3.5 billion in 2005, say insiders.

More important, a Wal-Mart style data warehouse could help HP

make headway on its most vexing problem in recent years: how
to capitalize on its vast product breadth. While HP sells everything
from $10 ink cartridges to multimillion dollar supercomputers, the
company has operated more like a conglomerate of separate
companies than a one-stop tech superstore. We shipped 55
million printers, 30 million PCs, and 2 million servers last year,
says CEO Hurd. If we can integrate all that information, it would
enable us to know exactly how were doing in Chicago on a given
day, or whether the CIO of a big customer also happens to own
any of our products at home.

Motts initiatives may well stir up a hornets nest within HP. They
will likely require thousands of layoffs, while requiring the support
of remaining staffers in a company that has long resisted
centralized control. Mott is testing the limits of the HP culture,
taking away the right of thousands of IT workers to purchase their
own tech equipment.

But Mott has the absolute backing of Hurd, who began recruiting
him shortly after arriving at HP in February 2005. The pair have
known each other for years. At both Wal-Mart and Dell, Mott
bought data warehousing gear from Hurd, who was a leading
evangelist for the technology during his years at NCR Corp. Hurd
eventually wooed Mott in July on the strength of a $15 million pay
package and a promise to support him if hed sign on for the
aggressive three year transformation.

Still, Motts greatest strength may be that while a technologist,

he has the management skills to actually make IT take root in a
companys culture. Linda M. Dillman, a onetime Wal-Mart CIO and
now its executive vice president for risk management and
benefits administration, recalls how Mott championed the
deployment of IT by showing how it achieved Wal-Marts business
goals. Underlings say Motts low-key Southern charm belies an
intensity that typically brings him into the office by 6:15 a.m. He
has no patience for quick summaries during grueling two day long
business reviews he convenes once a month. That certainly jibes
with Hurds view of the world which is why hes centralizing HPs
balkanized information systems, even while working to
decentralize operational control. The idea is to make sure all of
HPs businesses are working off the same set of data, and to give
them the tools to quickly make the best decisions for the entire
company say, a single customer management system, so
executives can know the full breadth of what any account buys
from HP.

Questions

1. In what ways is Randy Mott trying to change HPs structure

and the way it works?

2. In what ways has he been trying to change HPs Culture?

3. How will the changes he has made affect HPs competitive

advantage and performance?
Organisation Structure of Saxe Realty Company

Saxe Realty Company, Inc,. located in the San Francisco bay area,
was founded in 1938 by Jules and Marion Saxe. For most of its
history, the company was a single office agency run by its history,
the company was a single-office agency run by its founders. Over
time, the company grew in size and sales revenue, which
increased from 41 million in 1973 to over 10 million in 1979.
Rather than a single office, the company had six branches in the
San Francisco and Marin County areas.

The firm grew for many reasons. An important reason was the
founders ability to do certain things very well. They knew how to
select location, time moves, and design offices. They recruited
and hired people with above-average ability and trained them to
be effective salespeople. The rewards of growth were enjoyed by
the Saxe family and employees of their firm.

But with growth came problems stemming from the mismatch

between the firms organization structure, management practices,
and the requirements of a large firm compared to a small one. In
the early days, Saxe Realty could handle its business matters in
simple and informal ways. After all, its business matters in simple
and informal ways. After all, it was a family corporation, and
family members ran it as a family, not as a business.

Some of the problems that surfaced with growth included the

absence of clearly defined roles and areas of responsibility. People
were in jobs because of family relationship rather than skills.
Important decisions were made by relatively few people, who
often did not have knowledge of all available information. The
firm, moreover, had no strategic plan. It responded. The firm,
moreover, had no strategic plan. It responded and reacted to
opportunities rather than being responded. In a sense, the firms
success had simply outgrown its organization.

Saxe consequently had to make many changes in its operations

and organization structure, the overriding goal being to move
Saxe away from an entrepreneurial style firm toward a
professionally managed one. The change itself involved a process
of preparation and implementation.

The organization structure that Saxe adopted relies on geography

as the basis for departmentalization. There is a central office and
the branch offices report to it. Geographic departmentalization
encourages decentralization. One of the outcomes sought by
Saxes top management. Branch management are responsible for
the day to day activities of their offices. The central office
maintains overall direction through planning and controlling
processes. For example, all branch offices participate in the
annual planning process, during which objective for each branch
are developed. These objectives are then the targets and the
responsibility of branch managers.

Saxes top management developed formal descriptions for all key

positions, defining the responsibilities of each job with special
attention to avoiding overlap and duplication of effort. The
companys experience during its entreneurial stage was that
things were often left undone because everyone assumed that
someone else was doing them. In other instances, several people
would assume responsibility for a task when it required the
attension of only one person. A key consideration in the new
organization structure was to define explicitly and formally the
work expected from each individual job.

The new structure provides for reporting channels from each

branch associate to the chief executive officer. The chain of
command is the channel for progress reports on planned
objectives, financial and sales reports, and other informational
needs. In comparison with the previous organization, the chain of
command is much more explicit and formal. Individuals are
encouraged to go through channels.

The entire change at Saxe has been both extensive and time
consuming. Nearly every aspect of the firms operations has been
affected, and the changes took two years or more to fully
implement.

Questions for Analysis

1. Draw an organization chart that depicts the structure being

implemented at Saxe.

2. Which alternative structures could Saxe have implemented

and what would be the advantages of each in comparison to
the Saxe did implement?

3. What are the relationships between the planning function

and the organization function as depicted in the Saxe case?

4. How is Hiranandani real estate organized in India?

NUCOR
It was about 2 p.m. on March 9 when three Nucor Corp. electri-
cians got the call from their colleagues at the Hickman (Ark.) plant.
It was bad news: Hickman's electrical grid had failed. For a
minimill steelmaker like Nucor, which melts scrap steel from
autos, dishwashers, mobile homes, and the like in an electric arc
furnace to make new steel, there's little that could be worse. The
trio immediately dropped what they were doing and headed out to
the plant. Malcolm McDonald, an electrician from the Decatur (Ala.)
mill, was in Indiana visiting facility. He down arriving at 9 o'clock
that night. Lss Hart and Bryson Trumble, from Nucor's facility in
Hertfore County N.C., boarded a plane that anded in Memphis at 11
p.m. Then they drove two hours to the troubled plant.
No supervisor has asked them to make frit trip, are no one had
to. They went on their own. Camping out in the electrical
substation with the Hickman staff, the team worked 20-hour shifts
to get the plant up and running again in three days instead of the
anticipated full week. There wasn't any direct financial incentive
for them to blow their weekends, no extra money in their next
paycheck, but-for the company- their contribution was huge.
Hickman went on to post a first-quarter record for tons of steel
shipped.
What's most amazing about this story is that at Nucor it's not
considered particularly remarkable. Says Executive Vice President
John J. Ferriola, who oversees the Hickman plant and seven
others, "It happens daily." In an industry as Rust Belt as they
come, Nucor has nurtured one of the most dynamic and engaged
workforces around. The 11,300 nonunion employees at the Char-
lotte (N.C.) company don't see themselves as worker bees waiting
for instructions from above. Nucor's flattened hierarchy and
emphasis on pushing power to the front line lead its employees to
adopt the mindset of owner-operators. It's a profitable formula as
Nucor's 387% return to shareholders suggests. Nucor gained
renown in the late 1980s for its radical pay practices, which base
the vast majority of most workers' income on their performance.
An upstart nipping at the heels of the integrated steel giants,
Nucor had a close-knit culture that was the natural outgrowth of
its underdog identity. Legendary leader F. Kenneth Iverson's
radical insight: that employees, even hourly clock-punchers, will
make an extraordinary effort if you reward them richly, treat
them with respect, and give them real power.
Nucor is an upstart no more, and the untold story of how it has
clung to that core philosophy even as it has grown into the
largest steel company in the U.S. is in many ways as compelling
as the celebrated tale of its brash youth. Iverson retired in 1999.
Under CEO Daniel R. DiMicco, a 23-year veteran, Nucor has
snapped up 13 plants over the past five years while managing to
instill its unique culture in all of the facilities it has bought, an
achievement that makes him a more than worthy successor to
Iverson,
At Nucor the art of motivation is about an unblinking focus on
the people on the front line of the business. It's about talking to
them, listening to them, taking a risk on their ideas, and
accepting the occasional failure. It's a culture built in part with
symbolic gestures. Every year, for example, every single
employee's name goes on the cover of the annual report. And like
Iverson before him, DiMicco flies commercial, manages without an
executive parking space, and really does make the coffee in the
office when he takes the last cup.
Although he has an Ivy League pedigree, including degrees
from Brown University and the University of Pennsylvania,
DiMicco retains the plain-talking style of a guy raised in a middle-
class family in Mt. Kisco, N.Y. Only 65 peopleyes, 65work
alongside him at headquarters.
Money is where the rubber meets the road. Nucor's unusual pay
system is the single most daring element of the company's model
and the hardest for outsiders and acquired companies to
embrace. An experienced steel-worker at another company can
easily earn $16 to $21 an hour. At Nucor the guarantee is closer
to $10. A bonus tied to the production of defect-free steel by an
employee's entire shift can triple the average steelworker's take-
home pay.
With demand for steel scorching these days, payday has
become a regular cause for celebration. Nucor gave out more
than $220 million in profit sharing and bonuses to the rank and
file in 2005. The average Nucor steelworker took home nearly
$79,000 last year. Add to that a $2,000 one-time bonus to mark
the company's record earnings and almost $18,000, on- average,
in profit sharing. Not only is good work rewarded, but bad work is
penalized. Bonuses are calculated on every order and paid out
every week. At the Berkeley mill in Huger, S.C., if workers make a
bad batch of steel and catch it before it has moved on, they lose
the bonus they otherwise would have made on that shipment. But
if it gets to the customer, they lose three times that.
Managers don't just ask workers to put a big chunk of their pay
at risk. Their own take-home depends heavily on results as well.
Department managers typically get a base pay that's 75% to 90%
of the market average. But in a great year that same manager
might get a bonus of 75% or even 90%, based on the return on
assets of the whole plant. "In average-to-bad years, we earn less
than our peers in other companies. That's supposed to teach us
that we don't want to be average or bad. We want to be good,"
says James M. Coblin, Nucor's vice president for human resources.
Compared with other U.S. companies, pay disparities are
modest at Nucor. Today, the typical CEO makes more than 400
times what a factory worker takes home. Last year, Nucor's chief
executive collected a salary and bonus precisely 23 times that of
his average steel-worker. DiMicco did well by any reasonable
standard, making some $2.3 million in salary and bonus (plus
long-term pay equaling $4.9 million), but that's because Nucor is
doing well. When things are bad, DiMicco suffers, too.
 Executive pay is geared toward team building. The bonus of a
plant manager, a department manager's boss, depends on the
entire corporation's return on equity.
So there's no glory in winning at your own plant if the others are
failing. But to focus only on pay would be to miss something spe-
cial about the culture Nucor has created. There's a healthy
competition among facilities and even among shifts, balanced
with a long history of cooperation and idea-sharing. Since there's
always room for improvement, plant managers regularly set up
contests for shifts to try to outdo one another on a set goal,
generally related to safety, efficiency, or output. Ryan says
Nucor's Utah plant is the benchmark these days. It is the most
profitable, with the lowest costs per ton. "They've got everything
down to a science," says Ryan admiringly. "It gives you
something to shoot for."

Questions

1. What is Nucor's managers' approach to organizing?

2. In what ways has this approach affected its organizational

structure?

3. Study Tata Steels India operation and Compare its

organization structure with Nucor.What are the differences
and what is the reason for those differences?