Differentiation versus Integration

The tension between assigning work and synchronizing sundry efforts creates a classic dilemma, as seen in Chapter 3. The more complex a role structure (lots of people doing many different things), the harder it is to sustain a focused, tightly coupled enterprise. Recall the challenge facing Larry Summers as he tried to bring a higher level of coordination to a highly decentralized university. As complexity grows, organizations need more sophisticated—and more costly—coordination strategies. Lateral strategies need to supplement top-down rules, policies, and commands.

Gap versus Overlap

If key responsibilities are not clearly assigned, important tasks fall through the cracks. Conversely, roles and activities can overlap, creating conflict, wasted effort, and unintended redundancy. A patient in a prestigious teaching hospital, for example, called her husband and pleaded with him to rescue her. She couldn't sleep at night because hospital staff, especially nurses' aides and interns, kept waking her, often to repeat a procedure or administer a medication that someone else had done a short time before. Conversely, when she wanted something, pressing her nurses' call button rarely produced any response.

The new cabinet-level Department of Homeland Security, created in the wake of the 9/11 terrorist attacks, was intended to reduce gaps and overlaps among the many agencies responsible for responding to domestic threats. Activities incorporated into the new department included immigration, border protection, emergency management, and intelligence analysis. Yet the two most prominent antiterrorism agencies, the FBI and the CIA—with their long history of mutual gaps, overlaps, and bureaucratic squabbling—remained separate and outside the new agency (Firestone, 2002).

Underuse versus Overload

If employees have too little work, they become bored and get in other people's way. Members of the clerical staff in a physician's office were able to complete most of their tasks during the morning. After lunch, they filled their time talking to family and friends. As a result, the office's telephone lines were constantly busy, making it difficult for patients to ask questions and schedule appointments. Meanwhile, clients and routine paperwork swamped the nurses, who were often brusque and curt because they were so busy. Patients complained about impersonal care. Reassigning many of the nurses' clerical duties to office staff created a better structural balance.

Lack of Clarity versus Lack of Creativity

If employees are unclear about what they are supposed to do, they often tailor their roles to fit personal preferences instead of shaping them to meet system-wide goals. This frequently leads to trouble. Most McDonald's customers are not seeking novelty and surprise in their burgers and fries. But when responsibilities are over-defined, people conform to prescribed roles and protocols in “bureaupathic” ways. They rigidly follow job descriptions, regardless of how much the service or product suffers.

“You lost my bag!” an angry passenger shouted, confronting an airline manager.

The manager responded, “How was the flight?”

“I asked about my bag,” said the passenger.

“That's not my job,” the manager replied. “Check with baggage claim.”

The passenger did not leave as a satisfied customer.

Excessive Autonomy versus Excessive Interdependence

If the efforts of individuals or groups are too autonomous, people often feel isolated. Schoolteachers may feel lonely and unsupported because they work in self-contained classrooms and rarely see other adults. Yet efforts to create closer teamwork have repeatedly run aground because of teachers' difficulties in working together. In contrast, if too tightly connected, people in roles and units are distracted and spend too much time on unnecessary coordination. IBM lost an early lead in the personal computer business in part because new initiatives required so many approvals—from levels and divisions alike—that new products were overdesigned and late to market. The same problem hindered Hewlett-Packard's ability to innovate in the late 1990s.

Too Loose versus Too Tight

One critical structural challenge is how to hold an organization together without holding it back. If structure is too loose, people go astray, with little sense of what others are doing. But rigid structures stifle flexibility and encourage people to waste time trying to beat the system.

We can see some of the perils of a loose structure in the former accounting firm Andersen Worldwide, indicted in 2002 for its role in the Enron scandal. Efforts to shred documents and alter memos at Andersen's Houston office went well beyond questionable accounting procedures. At its Chicago headquarters, Andersen had an internal audit team, the Professional Standards Group, charged with reviewing the work of regional offices. Unlike other large accounting firms, Andersen let frontline partners closest to the clients overrule the internal audit team. This fostered local discretion that was a selling point to customers but came back to haunt the firm. As a result of the lax controls, “the rainmakers were given the power to overrule the accounting nerds” (McNamee and Borrus, 2002, p. 33).

The opposite problem is common in managed health care. Insurance companies give clerks far from the patient's bedside the authority to approve or deny treatment or to review medical decisions, often frustrating physicians and patients. Doctors lament spending time talking to insurance representatives that would be better spent seeing patients. Insurance providers sometimes deny treatments that physicians see as urgent. In one case, a hospital-based psychologist diagnosed an adolescent as likely to commit sexual assault. The insurer questioned the diagnosis and denied hospitalization. The next day, the teenager raped a five-year-old girl.

Goal-less versus Goal-bound

In some situations, few people know what the goals are; in others, people cling closely to goals long after they have become irrelevant or outmoded. In the 1960s, for example, the Salk vaccine virtually eradicated polio. This medical breakthrough also brought to an end the existing goal of the March of Dimes organization, which for years had championed finding a cure for the crippling disease. The organization rebounded by shifting its strategy to focus on preventing birth defects.

Irresponsible versus Unresponsive

If people abdicate their responsibilities, performance suffers. However, adhering too rigidly to policies or procedures can be equally harmful. In public agencies, “street-level bureaucrats” (Lipsky, 1980) who deal with the public are often asked, “Could you do me this favor?” or “Couldn't you bend the rules a little bit in this case?” Turning down every request, no matter how reasonable, alienates the public and perpetuates images of bureaucratic rigidity and red tape. But agency workers who are too accommodating create problems of inconsistency and favoritism.

Mintzberg's Fives

As the two-dimensional lines and boxes of a traditional organization chart have become increasingly archaic, students of organizational design have developed a variety of new structural images. One influential example is Mintzberg's five-sector “logo,” depicted in Exhibit 4.1. Mintzberg's model clusters various functions into groupings and shows their relative size and influence in response to different strategies and external challenges. His schema provides a rough atlas of the structural terrain that can help managers get their bearings. It assists in sizing up the lay of the land before assembling a structure that conforms to the prevailing circumstances. One of the distinctive features of Mintzberg's image is expanding the typical two-dimensional view of structure into a more comprehensive portrayal. In doing this, he is able to capture more of the complexity and issues in formal dealings.

At the base of Mintzberg's image is the operating core, consisting of workers who produce or provide products or services to customers or clients: teachers in schools, assembly-line workers in factories, physicians and nurses in hospitals, and flight crews in airlines.

Directly above the operating core is the administrative component: managers who supervise, coordinate, control, and provide resources for the operators. School principals, factory supervisors, and echelons of middle management fulfill this role. At the top of Mintzberg's figure, senior managers in the strategic apex track developments in the environment, determine the strategy, and shape the grand design. In school systems, the strategic apex includes superintendents and school boards. In corporations, the apex houses the board of directors and senior executives.

Two more components sit alongside the administrative component. The technostructure houses specialists, technicians, and analysts who standardize, measure, and inspect outputs and procedures. Accounting and quality control departments in industry, audit departments in government agencies, and flight standards departments in airlines perform such functions.

The support staff performs tasks that support or facilitate the work of others throughout the organization. In schools, for example, the support staff includes nurses, secretaries, custodians, food service workers, and bus drivers. These people often wield influence far greater than their station might suggest.

From this basic blueprint, Mintzberg (1979) derived five structural configurations: simple structure, machine bureaucracy, professional bureaucracy, divisionalized, and adhocracy. Each creates a unique set of management challenges.

Divisionalized Form

In a divisionalized organization (see Exhibit 4.2), the bulk of the work is done in quasiautonomous units, such as freestanding campuses in a multi-campus university, areas of expertise in a large multispecialty hospital, or independent business units in a Fortune 500 firm (Mintzberg, 1979). Johnson and Johnson, for example, is among the largest companies in the world (#39 on the Fortune 500 in 2016). It has 250 operating companies lodged in virtually every country. Its medical device division is the world's largest. Its pharmaceutical division is even bigger. Its consumer products division produces a wide assortment of well-known brands, such as Neutrogena, Tylenol, Band-Aids, and Rogaine. It also makes contact lenses and tuberculosis medicines.

Although J&J's divisions often have little in common, the company's executives argue that there is a level of shared synergy and stability that have paid off over time. Despite setbacks in the Tylenol crisis of 1982 and a series of product recalls in 2010 and 2012, J&J had raised its dividend for 53 consecutive years and was one of only two U.S. companies with an AAA credit rating.

One of the oldest businesses in the United States, Berwind Corporation began in coal-mining in 1886. It now houses divisions in business sectors as diverse as manufacturing, financial services, real estate, and land management. Each division serves a distinct market and supports its own functional units. Division presidents are accountable to the corporate office in Philadelphia for specific results: profits, sales growth, and return on investment. As long as they deliver, divisions have relatively free rein. Philadelphia manages the strategic portfolio and allocates resources based on its assessment of market opportunities.

Divisionalized structure offers economies of scale, resources, and responsiveness while controlling economic risks, but it creates other tensions. One is a cat-and-mouse game between headquarters and divisions. Headquarters wants oversight, while divisional managers try to evade corporate control:

Our top management likes to make all the major decisions. They think they do, but I've seen one case where a division beat them. I received…a request from the division for a chimney. I couldn't see what anyone would do with a chimney…[But] they've built and equipped a whole plant on plant expense orders. The chimney is the only indivisible item that exceeded the $50,000 limit we put on plant expense orders. Apparently they learned that a new plant wouldn't be formally received, so they built the damn thing (Bower, 1970, p. 189).

Another risk in the divisionalized form is that headquarters may lose touch with operations. As one manager put it, “Headquarters is where the rubber meets the air.” Divisionalized enterprises become unwieldy unless goals are measurable and reliable information systems are in place (Mintzberg, 1979).

Helgesen's Web of Inclusion

Mintzberg's five-sector imagery adds a new dimension to the conventional line-staff organization chart but retains some of the traditional image of structure as a top-down pyramid. Helgesen argues that the idea of hierarchy is primarily a male-driven depiction, quite different from structures created by female executives:

The women I studied had built profoundly integrated and organic organizations in which the focus was on nurturing good relationships; in which the niceties of hierarchical rank and distinction played little part; and in which lines of communication were multiplicitous, open, and diffuse. I noted that women tended to put themselves at the center of their organizations rather than at the top, thus emphasizing both accessibility and equality, and that they labored constantly to include people in their decision making (Helgesen, 1995, p. 10).

Helgesen coined the expression “web of inclusion” to depict an organic social architectural form more circular than hierarchical. The web builds from the center out. Its architect works much like a spider, spinning new threads of connection and reinforcing existing strands. The web's center and periphery are interconnected; action in one place ripples across the entire configuration, forming “an interconnected cosmic web in which the threads of all forces and events form an inseparable net of endlessly, mutually conditioned relations” (Fritjof Capra, quoted in Helgesen, 1995, p. 16). Consequently, weaknesses in either the center or the periphery of the web undermine the strength of the natural network.

A famous example of web organization is “Linux, Inc.,” the loose organization of individuals and organizations that has formed around Linus Torvalds, the creator of the open-source operating system Linux, whose many variants power most of the world's supercomputers, cell phones, stock markets, and Web domains. “Linux, Inc.” is anything but a traditional company: “There's no headquarters, no CEO, and no annual report. It's not a single company, but a cooperative venture. More than 13,000 developers from more than 1,300 companies along with thousands of individual volunteers have contributed to the Linux code. The Linux community, Torvalds says, is like a huge spider web, or better yet, multiple spider webs representing dozens of related open-source projects. His office is ‘near where those webs intersect’” (Hamm, 2005).

Freewheeling web or lattice structures may encounter increasing challenges as an organization gets bigger. When Meg Whitman became CEO of Internet phenomenon eBay in 1998, she joined an organization of fewer than 50 employees configured in an informal web around founder Pierre Omidyar. When she tried to set up appointments with her new staff, she was surprised to learn that scheduled meetings were a foreign concept in a company where no one kept a calendar. Omidyar had built a company with a strong culture and powerful sense of community but no explicit strategy, no regular meetings, no marketing department, and almost no other identifiable structural elements. Despite the company's phenomenal growth and profitability, Whitman concluded that it was in danger of imploding without more structure and discipline. Omidyar agreed. He had worked hard to recruit Whitman because he believed she brought the big-company management experience that eBay needed to keep growing (Hill and Farkas, 2000).

Why Restructure?

Restructuring is a challenging process that consumes time and resources with no guarantee of success, as the BBC and Harvard cases at the beginning of the chapter illustrate. Organizations typically embark on that path when they feel compelled to respond to major problems or opportunities. Various pressures can lead to that conclusion:

• The environment shifts. At American Telephone & Telegraph, once the telephone company for most of the United States, a mandated shift from regulated monopoly to a market with multiple competitors required a massive reorganization of the Bell System that played out over decades. When AT&T split off its local telephone companies into regional “Baby Bells,” few anticipated that eventually one of the children (Southwest Bell) would swallow up the parent and appropriate its identity.
• Technology changes. The aircraft industry's shift from piston to jet engines profoundly affected the relationship between engine and airframe. Some established firms faltered because they underestimated the complexities; Boeing rose to lead the industry because it understood the issues (Henderson and Clark, 1990).
• Organizations grow. Digital Equipment thrived with a very informal and flexible structure during the company's early years, but the same structure produced major problems when it grew into a multibillion-dollar corporation.
• Leadership changes. Reorganization is often the first initiative of new leaders. It is a way for them to try to put their stamp on the organization, even if no one else sees a need to restructure.

Miller and Friesen (1984) studied a sample of successful as well as troubled firms undergoing structural change and found that those in trouble typically fell into one of three configurations:

• The impulsive firm: A fast-growing organization, controlled by one individual or a few top people, in which structure and controls have become too primitive and the firm is increasingly out of control. Profits may fall precipitously, and survival may be at stake. Many once-successful entrepreneurial organizations stumble at this stage because they have failed to evolve beyond their simple structure.
• The stagnant bureaucracy: An older, tradition-dominated organization with an obsolete product line. A predictable and placid environment has lulled everyone to sleep, and top management is slavishly committed to old ways. Management thinking is too rigid or information systems are too primitive to detect the need for change, and lower-level managers feel ignored and alienated. Many old-line corporations and public agencies fit into this group of faltering machine bureaucracies.
• The headless giant: A loosely coupled, divisional organization that has turned into a collection of feudal baronies. The strategic apex is weak, and most of the initiative and power resides in autonomous divisions. With little strategy or leadership at the top, the firm is adrift. Collaboration is minimal because departments compete for resources. Decision making is reactive and crisis-oriented. WorldCom is an example of how bad things can get in this situation. CEO Bernie Ebbers built the company rapidly from a tiny start-up in Mississippi to a global telecommunications giant through some 65 acquisitions. But “for all its talent in buying competitors, the company was not up to the task of merging them. Dozens of conflicting computer systems remained, local network systems were repetitive and failed to work together properly, and billing systems were not coordinated. ‘Don't think of WorldCom the way you would of other corporations,’ said one person who has worked with the company at a high level for many years. ‘It's not a company, it's just a bunch of disparate pieces. It's simply dysfunctional’” (Eichenwald, 2002, p. C-6).

Miller and Friesen (1984) found that even in troubled organizations, structural change is episodic: Long periods of little change are followed by brief episodes of major restructuring. Organizations are reluctant to make major changes because a stable structure reduces confusion and uncertainty, maintains internal consistency, and protects the existing equilibrium. The price of stability is a structure that grows increasingly misaligned with the environment. Eventually, the gap gets so big that a major overhaul is inevitable. Restructuring, in this view, is like spring cleaning: We accumulate debris over months or years until we are finally forced to face up to the mess.

Making Restructuring Work: Three Case Examples

In this section, we look at three case examples of restructuring. Some represent examples of reengineering, which rose to prominence in the 1990s as an umbrella concept for emerging trends in structural thinking. Hammer and Champy promised a revolution in how organizations were structured: “When a process is reengineered, jobs evolve from narrow and task oriented to multidimensional. People who once did as they were instructed now make choices and decisions on their own instead. Assembly-line work disappears. Functional departments lose their reason for being. Managers stop acting like supervisors and behave more like coaches. Workers focus more on customers' needs and less on their bosses' whims. Attitudes and values change in response to new incentives. Practically every aspect of the organization is transformed, often beyond recognition” (1993, p. 65).

More than half of all Fortune 500 companies jumped on the reengineering bandwagon in the mid-1990s, but only about a third of those efforts were successful. Champy admitted in a follow-up book, Reengineering Management (1995), that reengineering was in trouble, and attributed the shortfall to flaws in senior management thinking.

Some reengineering initiatives have indeed been catastrophic, a notorious example being the long-haul bus company Greyhound Lines. As the company came out of bankruptcy in the early 1990s, a new management team announced a major reorganization, with sizable cuts in staffing and routes and development of a new, computerized reservation system. The initiative played well on Wall Street, where the company's stock soared, but poorly on Main Street as customer service and the new reservations system collapsed. Rushed, underfunded, and insensitive to both employees and customers, it was a textbook example of how not to restructure. Eventually, Greyhound's stock crashed, and management was forced out. One observer noted wryly, “They reengineered that business to hell” (Tomsho, 1994, p. A1). Across many organizations, reengineering was a cover for downsizing the workforce, often with disappointing results.

Nevertheless, despite the many disasters, there have also been examples of notable restructuring success. Here we discuss three of them, drawn from different eras and industries.

The Citibank restructuring was strongly driven from the top down and focused primarily on internal efficiencies. This has been true of many, but by no means all, restructuring efforts.

Principles of Successful Structural Change

Too many efforts to change structure fail. The Citibank, Beth Israel, and Ford Motor Company initiatives succeeded by following several basic principles of successful structural change:

• They did the hard work of carefully studying the existing structure and process so that they fully understood how things worked—and what wasn't working. (Many efforts at structural change fail because they start from an inadequate picture of current roles, relationships, and processes.)
• The change architects developed a new conception of the organization's goals and strategies attuned to the challenges and circumstances of the time.
• They designed the new structure in response to changes in strategy, technology, and environment.
• Finally, they experimented as they moved along, retaining things that worked and discarding those that did not.