The study and importance of organizational context has been increasing with socio-economic development. The organizational context of an entity discusses to the scope of the entity such as a mother organization owning one or more companies, a company, departments within the overall organization, work units as a sub-sub-organization and a work role of a person within the organization (Urgo). The organizational structure of an organization is used to define the order of the numerous parts, their contact information and the interaction between the various elements (Robbins). Organizational context and structure simply show how an organization is organized and how it functions in daily activities based on its organization.
This paper will examine the background structure and organizational structure of Innovative Electronics. It will also examine the main problems facing Innovative Electronics from its internal and external factors with priority. The causes of these problems will also be examined. Finally, this paper will recommend possible changes to improve the situation and future of Innovative Electronics.
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Innovative Electronics is a fictitious name of a major subsidiary of a United States (US) multinational well-known Fortune 500 company operating in Europe. They produce high tech electronic control equipment, used by other major firms in testing and measuring mobile phones, chemicals and laboratory equipment. Innovative Electronics' parent company has interests in many countries and is regarded as the "Best place to work" in many of the countries. Innovative is an important member of its parent company. The company is well known for its breakthrough s in the test and measurement field, based on extensive research and development. Employees at Innovative were treated well, enjoying benefits and privileges, internal career development, and adequate time off for training and further education. There was a high level of employee commitment and identification with the organization due to the strong internally focused promotion and benefit system adopted by the organization. Over the last five (5) years, the performance of the company dropped because their core products lost competitiveness in the market.
There are two (2) main reasons for the failing trend over the past five (5) years; the socio-economic factor which is continuously changing with time and becoming more competitive and the other reason for the failing trend is the organisational structure and strategies adopted by the company.
I will now describe the current strategy and organizational structure of the company.
2.1 Strategy and Organizational Structure of Innovative Electronics
The major strategy of the parent company is consistency. The parent company insisted on the use of centralised research and development services and keeping local research to a barest minimum. Marinating the norms and consistency of the parent company caused Innovative to ignore regional differences. U.S products were not always suited to the mainly European markets served by Innovative, particularly in respect to calibration into metric measures and different standards used in mobile telephony. In the case of Innovative Electronics and its parent company, a traditional bureaucracy was adopted set within a global matrix structure. This meant that Innovative Electronics as well as other subsidiary companies were given charge of different regions but replicating the U.S parent company's functional structure which wasn't appropriate for specific geographical areas and indigenous cultures. People at the top levels of the organisation dominated and power was concentrated in the hands of the chief executive officer (CEO).
Organizational structure entails the coordination, supervision and allocation of tasks which are directed towards the achievement of an organization (Pugh). An organization can be structured in several ways, depending on their goals. Organizational structure enables the allocation of duties for different functions and processes to different units such as branch, department, workgroup and individual. Organizational actions are affected by organizational structure in two (2) major ways. It provides the basis on which standard operating routines rest. It determines which person participates in which decision-making procedure (Jacobides.). The organizational structure of Innovative Electronics if a functional structure, functional structure of an organization is when workers perform specialized set of tasks, for instance the engineering department would be staffed only with software engineers. This aids operational efficiency within that group. It could also lead to lack of communication between the functional groups within an organization, making the organization slow and inflexible (Baligh). It is also not conducive for product development. E. H. Schein states that "An organization is the rational coordination of activities of a number of people for the achievement of some common explicit purpose or goal, through division of labour and function and through a hierarchy of authority and responsibility". Most commercial companies fall under this structure because it is efficient and effective. Power being centralised at the top in an organization is the most important feature of a rational organization and this can tell other forms of organizations apart.
Always on Time
Marked to Standard
I will now take a look at the internal and external problems and their causes in Innovative Electronics.
3.0 Internal Problems and their Causes
The most obvious problem of Innovative Electronics is its organizational structure which is a bureaucratic structure where all the power is in the hands of the CEO. The US multinational parent company expects Innovative Electronics to replicate its functional structure. Innovative and the other subsidiaries of the parent company are expected to adopt the organizational structure in whatever region they are.
Before the downturn in the market for certain of Innovative Electronics' products in 2000, they experienced success due to the stable environment and limited environmental interaction which promoted bureaucratic based structure and centralized decision making and standardization of work processes which were adequate to handle the basic and steady market.
Using the same organizational structure as its multinational parent company by Innovative Electronics in Europe was the biggest problem. The organizational structure needed to be changed to suit the region the company was in, according to the demands of the market. Subsidiary companies maintained the bureaucratic organizational structure from the parent company which exposed it to so many strategic problems.
Since the 1950s, Innovative Electronics had seen success, with employees benefiting well from financial success. Highly talented people were recruited at all levels in the company and were paid well. Due to the downturn in the market since early 2000, Innovative Electronics was forced to rationalize its activities and introduce a small number of compulsory layoffs for the first time in its fifty five (55) year history. Head count management from the US parent company, which was also experiencing problems, made the situation worse a year or so later, when more layoffs were implemented. It was also impossible to maintain maximum employee benefits due to the downturn. Ensuring new technology and development of products was impossible because the labour cost could not be effectively controlled. The technical developments by Innovative didn't really seem to be attractive to existing and new customers, and the company became ever more open to threats from new competitors. The mixture of less innovative developments due to the layoff and new competition resulted in losses being posted. The layoffs seriously affected new product research and development because the layoffs occurred in the areas of technical staff.
Innovative Electronics' management team were mainly highly technically competent scientists and engineers. Scientists and engineers doing the managerial jobs, making decisions for the company without proper managerial training could have added to the problems.
Fox became CEO of Innovative with substantial experience in the US parent company in marketing. He realised that one of the problems of Innovative was its ageing product range and planned to make a comeback, but didn't want to do anything outrageous that would rock the boat. Fox began to make changes in the bureaucratic structure of Innovative by trying to create closer relations between marketing, research and development and traditionally powerful production, sales and engineering functions.
New appointees to the human resource (HR) and finance departments were given mandates to work towards a more cooperative organization. Fox tried to be a good team player but when under pressure and in difficult times, he reverted to authoritarian behaviours and a bottom-line performance mentality.
Due to a lack of resources in the US parent company, departments had to compete against each other and this led some members of the management team to pursue their own departmental interests and those of staff in their departments at the expense of overall company cohesion and team spirit.
The management team at Innovative decided to embark on a continuous Improvement (CI) programme, which they labelled 'Project 2006'. Project 2006 gave rise to a number of project teams that looked at issues such as quality improvement, six sigma, production improvement schemes, suggestion schemes, organizational development and HR activities. Many problems arose in the continuous improvement project because of the bureaucratic organizational structure.
In the first year of the CI project, excellent outcomes were experienced but not many of the recommendations were taken up, except in a watered-down fashion. The problems the CI project faced were not the main issues of the company. The most important problem which was organizational structure was neglected. In trying to implement recommendations from the CI, changes are implemented in a watered-down fashion. The main focus of the continuous improvement project is to train and educate promising employees to give professional recommendations for the development of the company. Most of the recommendations were praised by management, but they usually found reasons not to implement these recommendations usually because of budgetary reasons, the time not being right, or that they did not quite fit the strategic plans. The decisions were still made by the CEO. The CI team had no authority of any sort to implement any of their recommendations. The senior managers had all control over the CI team. Mistrust due to the lack of implementation of the recommendations grew not only among the middle managers on the project groups but also among the members of the management team, because they felt that the project teams were pursuing personal interests and not company interests. They felt nearly all improvements were bids for resources. The bids for resources were as a result of the resource constraints by the parent company. Still due to the bureaucratic organizational structure, the continuous improvement team members did not have the necessary information or policy guidelines to do their jobs effectively.
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Other problems which related to leadership and staff relations were caused by the bureaucratic organizational context.
One of the most obstinate of the problems which are faced in organizations is the resistance to change. Resistance may take several different forms; increase in number of "quits" and requests for transfer, sullen hostility, chronic quarrels, slowdown strikes and the expression of a lot of reasons why the change will not work (Lawrence). When people are faced with change, they try to make rational decisions to protect their own interests (Gandz).
Fox, on becoming CEO of Innovative Electronics saw that the greatest problem at Innovative was its organizational structure. Instead of tackling the major problem head-on, he chose to embark on a continuous improvement program which was of no help to the structure of the organization. The CI program was embarked upon to make Fox seem like a team player, gathering suggestions from other employees meanwhile he was doing different from he was saying. His true character came out when he found himself in an uncertain and difficult situation.
When the downturn occurred in 2000, Innovative turned to compulsory layoffs instead of facing the problem with the products being aged. With a solution that does not solve the situation only gets worse.
Decision making in an authoritative manner by a CEO in a bureaucratic organization may lead to distrust between senior management and the CI working group. Due to the lack of implementation of recommendations by the senior management, employees started to have a negative attitude towards the CI program.
3.1 External Problems and their Causes
The requirement from the US parent multinational company for all subsidiary companies to adopt their corporate culture and organizational structure and the lack of funds are the main external problems of Innovative. Consistent messages through a variety of media are a way of managing corporate images and reputations of organizations. Corporate reputation is made by an organization's various publics based on information and experience. Maintaining consistency is advantageous to management and corporate image (Caruana).
Innovative Electronics had to follow the requirements of the US parent company for designing products and these specifications were not suitable to the European market Innovative was in. Innovative lost the direction of production and development with this strategy on consistence. The US parent company urging Innovative to maintain greater control of variable costs, mainly labour costs, and set tis targets for increased sales revenue. Innovative could not follow the criteria of the local market and the company's own ideas and so they lost the basic conditions for market sharing. Innovative was making US products for the European market, particularly regarding calibration into metric measures and different standards used in mobile telephony.
Innovative Electronics didn't stand a chance in the European market because of its production of US products and the new competition emerging in the market. This was the cause of the downturn at Innovative in 2000.
4.0 Changes to Improve Innovative Electronics
Change is inevitable. It is a common thread that occurs through all businesses no matter the size, industry and age. The world and the environment around us are in constant change and as such organizations must change too to survive.
Kurt Lewin in the 1940s suggested a three stage theory for change (change management model); unfreeze, change and freeze (or refreeze).
4.1 Unfreeze Stage
Kurt Lewin refers to this stage as unfreezing is possibly the most important of all stages to understand. The unfreezing stage is about preparing the organization, employees, management before the change. Identify what needs to be changed in the organization, understand the current state of the organization and then understand the reason why the changes need to occur. Innovative Electronics needs to establish an appropriate means of communication between the parent company, its subsidiary companies and all the employees of the organization in order to properly prepare for change (Al-Sedairy).
Innovative Electronics needs to recognize that the bureaucratic structure of the organization is the basis of all the problems in the organization. Change requires universal thinking from strategy's point of view because the basic strategy will influence and be implemented in the entire organization. The US parent company needs to globalize and the subsidiaries need to localize their development. With the implementation of the global strategy by the parent company, the characteristics of different markets in different regions will not be ignored. The bureaucratic style of leadership should be abandoned by the US parent company. Focus should be on the global picture and guiding the subsidiary towards localizing development.
4.2 Change Stage
Kurt Lewin refers to this stage is where people start to resolve their uncertainties created from the unfreeze stage and they look for new ways to do things. People start to believe and act in ways that follow the new direction. The shift from unfreeze to change is not achieved overnight. It takes time to embrace the new ways and participate proactively in the change. Understanding how changes benefit employees and management contributes to making the change successful. Not everybody benefits from change all the time. Some people will be hurt by the change while others will benefit strongly. Some may take longer period of time to see the benefits that the change brings. Room for all these situations has to be made. The two (2) main things that are key to success are time and communication (Al-Sedairy).
Employees at Innovative Electronics need to start believing and acting in the manner that follows the new direction. The organizational structure at Innovative which is centralized, stiff and simple should be changed to decentralized, flexible and complex. Customers should be made the main priority of the organization and not the staff.
Two methods to complete change are; Organizational Development (OD) and the other is using A Change Agent.
Cumming and Huse (1988, P. 1) defined OD as "A system wide application of behavioural science knowledge to the planned development and reinforcement of organizational strategies, structure and process for improving organization's effectiveness". OD is a study that discourses change and the impact it has on individuals within organizations. Proper organizational development help employees and organizations cope with change. Organizational functioning can be improved by introducing planned change such as team-building efforts (Tallman).
The organizational structure of Innovative could be changed from the organizational level to achieve participative organizational structure which is the best solution for the organization such as decentralization and empowerment; redefining job descriptions of individuals and departments, creating guide lines for decision making and adjusting the leadership style.
The second method uses a change agent. Steve Martin states that "A change agent is a person who directly or indirectly causes change. A change agent may initiate change, assist others in understanding the need for change and what is entailed, recruit support, manage the process and/ or assist in resolving conflict. In some cases, the agent of change may be a team on a mission".
The continuous improvement programme was a change agent generated from within the organization and it failed because of the bureaucratic organizational structure. An external agent should be used to assist change so that the Innovative Electronics will be seen from a professional point of view and all levels in the organisation will be taken into consideration.
4.3 Refreeze Stage
Kurt Lewin refers to this stage as freeze but a lot of people refer to it as "refreeze". At this stage, the changes are accepted and become the new standard. Support and training should be made available to assist employees in coping with the changes.
This paper looked at problems facing innovative Electronics; a subsidiary of a US multinational company. The major problem was that Innovative was in Europe but was running as if it were in America. The organizational context, organizational structure and strategies were some of the management problems analysed. The main problem was the bureaucratic organizational context and structure of the organization and they were the major causes of many of the problems. The use of an organizational development model and an external change agent could change the structure from bureaucratic to a divisional structure where power is spread to all levels and from centralized decision making to decentralized decision making. To guarantee good foundation for development in the future, Innovative Electronics should implement effective management on their organizational context.