Organisational Structure of IT Company

Executive SummaryIntroduction

This report aims to provide an in-depth analysis on the current business issues that MDIT has been experiencing and provide some suggestions for the co-owners in order to solve them. To get a closer look at those issues, an evaluation on MDIT’s current organizational structure is conducted, and the applicant of the Competing Values Framework is done on the company. The results of the analysis have pointed out that being a tall organization has widened MDIT’s distance among its departments, preventing cross-functional collaboration while allowing red tape and poor decision-making process to exist. Additionally, the hierarchy culture has damaged employee’s job satisfaction and their desire for innovations, making current as well as prospective employees of MDIT to have a bad impression towards the company. As such, two recommendations to solve these issues are provided at the end of the report.

1.0.            Body

1.1.            Organizational Structure of MDIT

The employee survey conducted by Ian has pointed out several features of MDIT’s current organizational structure. The main characteristic of the structure is that the staff-to-manager ratio is reasonably low. In other words, there are too many managers and assistant managers, but there are few numbers of employees at lower levels. In addition, employees of the company also reported that there are too many hierarchies currently existing in MDIT, which poses as a huge obstacle for many procedures that need authoritative approvals of the company. The above features seem to align with those of tall organizations, where there are many layers of hierarchy, power is mostly assigned to managers, individuals are considered as separate economic components with little to no interactions, and that decisionmakers are reluctant to make changes (María Martínez‐León and Martínez‐García, 2011). Therefore, it can be concluded that MDIT is currently following a tall organizational structure.

1.2.            Structural Issues

Although firms following this type of structure are often granted a number of benefits, Lam and Lundvall (2006) has already stated that this structure is only suitable for mass manufacturing firms operating in a stable environment. As such, there are a number of disadvantages in tall organizations’ business operations in comparison with firms applying a flat organizational structure.

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Firstly, due to the fact that power mostly lies in the higher positions, employees in these firms will be stricter in following laws and regulations set out by managers than employees of vertical ones. However, the degree of horizontal differentiation is also higher, leading to the larger distance among departments, with specialization and responsibilities being more clearly divided (Ahmed, 1998). This obstacle can be seen in MDIT’s employee feedbacks, which stated that there is an extremely low amount of interdepartmental assistance and collaborations happening inside the company. On the other hand, flat organizations – organizations that have few hierarchies and authoritative positions – often have a low level of formalization and differentiation, creating various opportunities for employees to collaborate with each other (Nonaka and Takeuchi, 1995).

Secondly, it has been pointed out that tall organizations are not able to adapt to changes, and their managers also lack the motivations to do so (Lam and Lundvall, 2006). This disadvantage can be seen in the current organizational health of MDIT; it has been reported that the company’s performance as well as service standards have not been matched with the industry growth as well as customer expectations recently. In a century where technological breakthroughs and improvements are constantly happening all over the world, firms that do not put a reasonable amount of efforts into innovating its products and processes will definitely stay behind (Leavy, 1998; Marshal, Smith and Buxton, 2009). In other words, tall organizations’ power centralization is the top factor that leads to the hindering of innovative capabilities. For an IT company like MDIT, lack of innovation hugely damages the company’s competitive position, product quality as well as profitability.

Another disadvantage of tall organizations can be indicated from the soaring number of hierarchy levels, which takes the organizational vision longer times to get down to lower subordinates; and when it does, agents only get to understand a portion of it (Ouksel and Vyhmeister, 2000). Employees of MDIT also pointed out that the decision-making processes usually take long, as there are too many approvals from higher authorities to be obtained. In contrast, information flow in flat organizations are more fluid and faster, thanks to the nonexistence of departmental barriers, which eases the process of information dissemination inside the firm (Mintzberg, 1979).

Last but not least, due to the excessive level of distinction among departments, it usually takes managers and decisionmakers much more efforts in steering all of its business operations and activities toward a single vision and plan. Moreover, they need to continuously intervene in most of the problem resolution, decision-making and management procedures of each individual departments (Hankinson, 1999). This creates a hole in the organizations that allow red tape to occur with little to no prevention from top management, as reported by MDIT’s employees. On the contrary, the simple structure of flat organizations leaves little to no holes for red tape to become a norm, as there are too few management layers for the activities to be conducted successfully.

1.3.            Cultural Issues

In order to have a detailed analysis of MDIT’s presented cultural issues, it is appropriate to evaluate the company using the Competing Values Framework by Quinn and Rohrbaugh (1983). The Competing Values Framework is used to assess the effectiveness of an organization’s cultural values through two dimensions: internal-external focus and flexibility-control, and are divided into four main models: Human Relations Model, Open System Model, Internal Process Model and Rational Goal Model (Quinn and Rohrbaugh, 1983).

Figure 1: Competing Values Framework. Adapted from Quinn and Rohrbaugh (1983).

The first step of conducting the model is to look at the current features of MDIT’s organizational culture, then evaluate them based on the two stated dimensions of the framework.

For the first dimension, MDIT will be assessed on whether it takes more concentration on its internal element, which is the overall development of its employees, or the external element, which is its well-being and the progression of the outside environment. In MDIT’s organizational structure, there is not a marketing department existing in the company. One of the main functions of the marketing department is to regularly perform market research, so that information about changes and new trends of the market could be provided to decisionmakers to take appropriate actions on time (Morris and Paul, 1987). As such, MDIT has been experiencing a slower business growth in comparison with others in the industry. Moreover, the fact that the company has failed to keep up with the increasing product standards of the markets shows that managers of MDIT have not been paying close attention to the industry’s competition. MDIT’s hierarchy has been about having an unrealistic staff-to-manager ratio, implying that the company is more about individual gains instead of the sustainability of the whole company. This is also seen in the fact that managers of MDIT often conduct red tape activities, which complicate the approval processes across all departments. Therefore, it can be concluded that MDIT’s organizational culture is more internal-oriented, which focuses more on internal processes without much awareness of external factors.

For the second dimension, different factors relating to MDIT’s flexibility as well as its innovation capabilities will be thoroughly evaluated. Most of the employee feedbacks have been stating that there is an extreme lack of interdepartmental collaboration in the company. According to Madhavan and Grover (1998), interdepartmental collaboration is essential in the process of developing a product that can satisfy customer needs, as the exchanging of information from various business aspects can increase the quality of decision-making as well as internal knowledge flow among team members. In addition, Menon, Jaworski and Kohli (1997) has indicated that cross-functional cooperation does have a positive impact on the quality of products in a changing market. The fact that MDIT lacks the cross-functional collaboration have proven that the company’s current innovative capabilities are relatively weak. The low level of flexibility and innovation can also be seen in the evidence that the company does not possess a market research team, as stated above. McEvily and Chakravarthy (2002) and Prabhu, Chandy and Ellis (2005) has stated that by having an adequate amount of knowledge on the current market, firms could gain highly idiosyncratic information about new products of others, boosting their flexibility to formulate future courses of actions for the adoption new complex knowledge into their business processes. As a result, it can be seen that MDIT is a company that prefers stability and control over flexibility and being innovative in its products and operations.

Based on the two conclusions above, it can be indicated that MDIT’s cultural model is Internal Process Model with high levels of Controls and Internal. The most notable issue is that the company could be overly bureaucratic in its business operations, leading to the lack of employee’s trust in the managers’ decision-making (Weber and Henderson, 2012). This cultural issue is seen in one of the employee feedbacks; the combination of the lack of cooperation and bureaucracy has caused MDIT to not be able to recruit any new talents, and if it does, they only stick around for a short period of time. This is aligned with Lund’s (2003) research that firms with a hierarchy culture often have a lower level of job satisfaction. The second issue within hierarchy firms like MDIT is that a culture of imitation will be fostered over time instead of an innovative one. By forcing departments to work independently from each other, their creativity levels will have limited opportunities to grow, leading to the solution for creating new products to be of imitating existing ones instead (Burns and Stalker, 1994; Detert et al., 2000). The imitation work culture will be damaging to the company’s product standards as well as sustainability in the future (Menzel et al., 2007).

2.0.            Recommendations

To sum up, through the analysis of the feedbacks from the employees, it can be seen that there are multiple structural as well as cultural issues that MDIT is facing currently. In particular, the tall organizational structure has created a high level of distance between departments of the firm, hindering its innovative capabilities and interdepartmental collaborations. Moreover, the fact that the company has many managerial positions has greatly slow down all approval processes, creating an environment for red tape to become a norm. Another structural obstacle occurs on the higher levels of the firm; as each department of MDIT operates more like an individual identity, it takes much more effort for the top management to be able to steer all of them towards on single goal and plan, with more frequent intervention into each operation when a cross-functional issue happens. In terms of culture, the Competing Values Framework has pointed out that MDIT follows a hierarchy model, which results in a low job satisfaction level among employees and nurtures a culture of imitation in its operations.

As such, there are two recommendations that managers of MDIT need to follow in order to overcome these issues in the future. Firstly, MDIT should begin to simplify their business layers by start implementing a “hypertext structure”, which is a combination of both tall and flat organizational structure (Nonaka and Takeuchi, 1995). It is reported that hypertext firms are able to reap the benefits of both of the aforementioned structure; their employees can still operate efficiently and dynamically under a relatively stable organizational hierarchy (Nonaka and Takeuchi, 1995).

The second recommendation is aimed towards solving cultural issues; it is necessary that MDIT goes through a seven-step cultural change model created by Cameron (2008) in order to perform a total cultural shift. After performing all of the steps, including clarifying meaning, identifying stories, determining strategic initiatives, identifying small wins, crafting metrics, measures and milestones, communication and symbols, and leadership development, MDIT’s organizational culture will be steered towards the elimination of negative activities such as red tape, the prevention of departmental isolation as well as the promotion of continuous improvements, so that the company could regain its competitive position and profitability in the future.

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