(1) When a company has grown to the extent that it has a number of successful products in different regions, it may structure the organization into business units or divisions, which may be based on product, brand, or geographical region/area, as indicated in the figure below.
(2) Known as the multidivisional structure, this has been one of the major structural innovations of modern corporations, seeking to solve the problems of how to decentralize a large company, while still maintaining overall co-ordination of the parts. In the early 1990s General Motors and the American chemical corporation Du Pont adopted the multidivisional structure. The principle is that each division is headed by a division manager who has responsibility for managing the division as a profit centre in its own right. The division itself may be a separate company, known as a subsidiary company, whose major shareholder is the parent company. The company’s executives at head office concentrate on the broader corporate aims, leaving functional departments, such as finance, for the group as a whole.
(3) The area division is a way of addressing different regional conditions. In this type of organization structure, country or region managers preside over area divisions, and are responsible for all the company’s activities in that area.
(4) The holding company may also be said to be based on divisions, in that a parent company is the owner of a diverse array of subsidiary companies. However, unlike multidivisional companies, holding company exerts little control over the separate companies and provides few general functions for the group as a whole. The companies within the group operate, in effect, as independent organizations.
1. What are the reasons for a company to turn to the divisional structure?
2. What are principles of the multidivisional structure?
3. What is the difference between a holding and a multidivisional company?
►Go to www.dupont.com, learn about Du Pont’s present multidivisional structure comprising divisions by product/activity and fill in the empty boxes with their names. Explain in short each division’s activity. Who is Du Pont’s CEO?
►Go to www.ge.com, learn about General Electric’s present multidivisional structure comprising divisions by product/activity and fill in the empty boxes with their names. Explain in short each division’s activity. Who is GE’s CEO?
‘PROS & CONS-2’ POINT
►Fill in the table with the information you have come up with and learned so far:
Table. Advantages and disadvantages of the divisional structure
►The examples below are taken from ‘Theory-2 Point’:
1. The principle is that each division is headed by a division manager who has responsibility for managing the division as a profit centre in its own right.
2. The companies within the group operate, in effect, as independent organizations.
►Translate the examples into Russian and explain:
Is it correct to use ‘like’ instead of ‘as’ without a change in meaning? If not, why?
►Fill in the blanks with ‘like’ or ‘as’:
1. ___ Rupert Murdoch, John Smith is getting his hands on widely acclaimed newspapers, magazines and TV channels.
2. They buy shares ___ an investment only.
3. ___ a founder of the Virgin Group, Richard Branson has been keeping a firm control of his company for more than 30 years.
4. Harry Flint joined the company ___ a Finance Manager only a month ago, but he behaves ___ a Managing Director.
5. Incorporated businesses exist ___ legal entities in their own right, with identities quite separate from those of their owners.
6. ZetZ, ___ almost any Ltd aspiring to expand its operations abroad, is going to start functioning ___ a public limited company.
(1) The matrix is a way of structuring the organization to incorporate the benefits of other types of structure, such as the functional organization, product divisions and area divisions. It involves two lines of management, as indicated in the figure below.
(2) The product manager must coordinate with the area manager for the launch of a new product in that region. In theory, this allows the company to respond to local trends, and also derive the benefits of globally coordinated product management. In practice, however, it is difficult to reconcile these different lines of authority, and the system can lead to deadlock in decision-making. Thus, although the matrix theoretically should provide flexibility, it can lead to inefficiency. Some companies adopt a compromise, using product divisions, but adding country management where it is specifically needed, for example in developing countries such as China.
(3) Another example of the matrix structure in use is a chocolate manufacturer which may be developing a new chocolate bar. Instead of development being passed from the R&D department to the production department to finance to marketing, a team with different departmental expertise could be put together. In a traditional development process, the R&D department would create a new product. The production department would then comment on whether it was technically possible to produce it. Accounts would comment on what price and sales volumes would be needed for it to be profitable. Marketing would comment on whether the new bar could be marketed effectively in the current market. Doing this in order could take time as it passes form department to department. By putting a team together, there can be almost instant feedback between those involved. Development time could be reduced greatly.
►Below is the schematic business structure of Unilever (taken from its corporate website www.unilever.com), one of the world’s leading suppliers of fast moving consumer goods (FMCG) across foods, home and personal product categories. Explain how control is carried out in the company. How does Unilever benefit from different organizational structures you have learned so far?
HPC = Home and personal product categories
►In the aerospace industry (manufacture and development of airplanes and spacecraft) the government might ask for a space shuttle type aircraft to be developed and manufactured. Another government department might ask for a spacecraft to go to Mars. Obviously these craft would be very different. How could an organization set itself up to complete both projects?
‘PROS & CONS-3’ POINT
►Fill in the table with the information you have come up with and learned so far:
Table. Advantages and disadvantages of the matrix structure
For a more precise understanding of its markets and in order to establish the best possible strategy to meet – and to anticipate – its customers’ needs, the Michelin Group is organized into product lines, each one dedicated to an area of activity, with its own marketing, development, production and marketing resources.
►Go to www.michelin.com, learn about the details of Michelin organization structure and prepare a scheme-presentation of it.
When plans for future company growth go wrong and the competition is catching up fast, what should a business do? In a retailing firm, many would expect costs to be cut - involving shop closures and staff redundancies. But does this also represent an opportunity? Let's consider the following example.
►Fill in the blanks:
flatter accelerating informal feedback
chain of command hierarchy formal
reduced pyramid removing
In an attempt to speed up plans to turn the company around, Mr. Smith, a chief executive, is trying to make the company’s organization structure ______________. By _______________ layers from the firm's central staff, the length of their ____________ will be _____________. Cutting levels out from an organization's _____________ is a way of ____________ decision making speed.
Slimming down the company’s central team and leadership structure is one thing; getting the new message across to existing staff and keeping them motivated is quite another. The firm will need to use its _______________ channels of communication to keep staff informed. It will also need to remember that ______________ channels will be used as fears spread about where the cuts will end.
It may be possible that the company might merely be removing levels from its ____________ or the re-organization might lead to a new approach to working at its HQ. Creating project teams from existing staff and _____________ its organization, could have big benefits in terms of staff motivation, as workers often benefit from being given more ____________. But whatever happens, the company will have to be careful to listen out for and respond to ______________ from its staff.
Do you justify the steps Mr. Smith has taken to turn the company around?
Will Mr. Smith manage to keep the staff motivated? What would feedback from the staff be like and how would the company’s senior management respond to it?
Restructuring at Procter & Gamble
(1) Procter & Gamble (P&G), formed by William Procter and James Gamble in Cincinnati in 1837, is one of the oldest global companies. Its brands include Ivory soap, Crest toothpaste and Ariel detergent, along with many others. For much of its history, the company has been innovative in producing new consumer products and new marketing techniques, such as the soap opera. However, despite its record of reliable profit growth, by the 1990s P&G had become weighed down by bureaucratic hierarchy. According to Richard Tomkins, ‘the company became formula-driven, risk-averse and inbred. Even the smallest decisions had to be referred to senior management. Individuality was frowned upon: employees learnt how to write memos, how to speak and how to think.’ Times became harder for the well-known brands, which were losing sales to copycat products and supermarket own brands. The big supermarket chains, such as Wal-Mart, grew more powerful, and were able to demand lower prices from manufacturers.
(2) In a restructuring in 1990, P&G’s chief executive closed 30 plants worldwide, cutting 13,000 jobs. This move brought down prices, but damaged employee morale. The need was for more innovative products, as Ivory soap had fallen behind Unilever’s Dove moisturizing soap, and Crest toothpaste had been overtaken by Colgate’s Total. In 1999, a new chief executive, Durk Jager, took radical measures to dismantle the company’s multilayered bureaucracy. Aiming to recreate entrepreneurial spirit, he took power away from country-based divisions and created global product managers, with greater control over their budgets. But the change from country-based divisions to product divisions proved very expensive, and the costs did not translate immediately into greater sales. Further, the radical changes had a disorienting effect on employees. It has been estimated that of P&G’s 200-300 top managers, only 29 per cent were left doing the same job they had done 18 months previously.
(3) Arguably, Jager did what was necessary to drag the company into the twenty-first century, and the company’s turnaround would have come over time. But shareholders expected a speedy recovery, which was not forthcoming. After only 18 months in office, in which three profit warnings had to be issued, he was forced to go.
►Translate the underlined into Russian. Make up a couple of sentences of your own for your classmates to translate from Russian into English.
1. Why was it necessary to change P&G’s organizational culture and structure?
2. In what ways did P&G’s organizational culture and structure need to be changed?
3. Did Jager try to do too much too quickly, or was shock therapy necessary in the circumstances?
►The example below is taken from ‘Case-1 Point’:
The big supermarket chains, such as Wal-Mart, grew more powerful, and were able to demand lower prices from manufacturers.
► Is it correct to use ‘could’ instead of ‘were able to’? If not, why?
►Fill in the blanks with ‘was/were able to’ or ‘could’:
1. So successful was the e-order operation that by 1997 Steve Brolin ___ open his first store in Glasgow.
2. After a long conversation with her boss, Laura ___ get a promotion.
3. Since Larry has acquired a broad experience in finance, he ___ do various accounting ‘tricks’ quite easily and quickly. This is a habit that ___ sometimes turn into a fraud.
4. When the company was about to collapse, Mr. Schlesinger, the CEO, ___ pull it up by the boot strings and put it on the move again.
Arguments allow you to go in different ways and look at things from different perspectives - how will you argue your case? This is an activity for you to work on in pairs. Label yourselves ‘#1’ and ‘#2’.
· #1 will be given a statement, which will be read out to your partner.
· #2 will then try to offer an argument against the point #1 has just given.
· #1 will then respond and so on. See if you can continue your ‘argument’ for five minutes.
It might be useful to record your argument so you can listen back to what you have both said and then think about the ‘quality’ of your argument.
Let’s take a simple example to illustrate this:
And so on! Hopefully this and the list of useful phrases below give you some ideas to start.
If you agree you say:
· You are (perfectly) right.
· That’s (exactly) what I think.
· I couldn’t agree more.
If you disagree you say:
· I think you are mistaken/wrong.
· Your point/opinion is wrong/ambiguous.
· That’s not really how I see it.
If you want to interrupt, you say:
· If I could just make a point here…
· Could I make a suggestion?
· Sorry to interrupt you, but…
If you want to check whether you are understood, you say:
· Do you see what I mean?
· Don’t you think so?
If you want to check whether you understood correctly what has just been said, you say:
· If I understand you correctly, …
· So you say that… . Is that what you mean?
If you don’t understand what has just been said and want it to be repeated, you say:
· I am sorry? I did not catch what you said. Could you repeat, please?
· Sorry, could you say that again?
►Now start to develop your arguments about the following statements:
· A centralized organizational structure is the most effective for large and complex businesses.
· The most important function in a business is human resources - without good human resource management the business would not survive.
· Good communications are the most important aspect of running a large business.
People who actually own a company are often not the ones running it on a day-to-day basis. The board of directors and executive officers are usually listed on corporate web pages for several reasons. For one thing, they put a human face and name to what otherwise would be only a corporate public image. For another, they provide information about who is actually ‘behind the wheel’ steering corporate behavior. For instance, everyone knows Bill Gates runs and owns most of Microsoft, but what about IBM?
►Explore the corporate websites of the following companies from the computer industry:
· Hewlett Packard
►Search each site for information on the company’s ownership and senior management. Describe the makeup of the board of directors and senior management. Summarize their character in terms of average age and gender.
►Now investigate the structure of your school. Write notes identifying the type of structure, and explaining how this affects:
· communications within this organization
· how well the organization is able to achieve its aims and objectives which you identify beforehand.