Regarding Organisational Effectiveness Theories - Case Study Example

Case study The purpose of this essay is to provide an analysis of a case study that concerns the company Philips. Discussing the issues that have been a part of the organizational structure of the company, the paper tries to elaborate on the effects that some organizational and environmental changes have had on the performance and profitability of the company. Also, analysing the parameters of each issue, the paper seeks to provide solutions as to what is deemed necessary to help the company achieve its objectives. The issues According to Hill (1998), Philips is one of the largest companies of the world as far as electronics are concerned. Built in 1891, the company had high potential in the past. However, despite the numerous subsidiaries and an enormously large work force, the company failed to maintain a good performance level. In the 1990s, the company lost around $2.2 billion although a lot of focus had been on the improvement of performance. There are a number of reasons that are responsible for the failure of the company. The first and foremost reason for the dwindling for the progress of Philips was the fact that there had always been the problem of the relative distribution of power between the national organizations and the product divisions of the company. The product divisions were responsible for the manufacturing and the Research & Development sector while the national organizations were to monitor the day to day business of the company in different countries. Technically, the product divisions should have been given more importance, as they focused on and acted globally; though the same did not hold valid when it came to the real scenario. Since the company originally was from Netherlands, most of the managers of the company were Dutch. The Board of members belonging to a particular region posed a risk to the working of the national organizations. The national organizations were basically designed to work autonomously so that the needs of different countries, being different from each other, could be served. At times, the purpose of providing of autonomy was not really fulfilled. Yet the national organizations were still more important than the product divisions. There were attempts that had been made to give more power and credit to the product divisions, which acted universally, rather than the national organizations, which differed across countries. However there was little that changed the situation. Along with structural issues that the company was facing, there were environmental issues too. The increased focus on fair trade in the 1960s increased the number of competitors that Philips had to face. Previously, it had faced Western Europe competitors. Now, as the barriers on trade were removed gradually, competitors from Japan, who could operate at lower average costs and who had already achieved economies of scale, posed greater risks. The competitiveness of the company fell in the global market as the products offered by other companies were far too cheaper than those of Philips. Things also worsened for Philips when the nationalised markets changed to global ones. Philips, that had already spent a lot of resources on the building of national organisations, could not really afford this change. To make matters worse, the cost of Research & Development had also increased due to technological changes. This meant that the product divisions of the company, which were specifically built for the purpose of the R&D, were to face a lot of financial problems as far as the efficient allocation of resources was concerned. Although Philips faced many problems since its creation, the primary focus of the paper would be on the organizational issues that the enterprise faced. The Analysis The major problem with the progress of the company, as mentioned before, has been the organizational and strategic structure that the company has been subjected to from the very beginning. The distribution of power and the allocation of other resources between the national organizations and the product divisions has been one of the major concerns for Philips. According to Spulberg (2007), the costs of a company increase enormously when it has to operate at an international level. This is because the company is not just restricted to one particular region. Rather it operates across many international borders and has to compete with every domestic market separately. It is likely that the competition faced by a company is higher in one country as compared to others. The same is true for costs and profits. For this purpose, generally, companies that operate globally do so through national organisations. Philips is no exemption. The introduction of national organizations has not really helped the company though. From the very beginning, the costs of Philips had been high essentially because of the duplication across national organizations. The operation of the company as national organisations required that the products and strategies designed by the main head office were to be followed, which meant that a lot of resources were to be spent to make sure that all the national organizations were at the same level. For Galbraith et al. (2001), the duplication process was not very profitable because ‘without strong lateral processes to re-create the benefits of functional structure, a lot of energy was wasted.’ Also, as mentioned above, the national organizations were to be answerable to the main head office in Netherlands. This, however, did not mean that the national organizations were all willing to work according to the main head office. The great amount of autonomy given to the national organizations meant that there was often a possibility of conflict between the organizations and the head office. An example is that of the refusal of the North America’s national organization to use a product that was itself designed by Philips itself. The result was a lack of unity among the different units of the same company. In accordance with Rothwell et al. (2009), a networked structure, as the one Philips had, has many advantages. First it is usually flexible and there are lesser layers of management involved for the company. Secondly, each unit specializing in a certain task (like the product divisions specialising in the Research and Development department and the national organizations specializing in national markets) means that there is a higher level of coordination and ‘information flow’ throughout the entire network. The employees may also be able to develop lateral relations with each other and the work environment can become more productive. But this can only be possible if the central has enough control over the networked structure. Unfortunately, for Philips, the autonomy of the national organizations usually created problems. Although it has not been written explicitly in the case study, but the relative distribution of authority (or for that matter autonomy) may have led to the difficulty of maintaining lateral relationships across the different organisations. Also, as Rothwell et al (2009) relates, it would have been very hard to maintain member commitment over the networked structure therefore the working environment might have been affected adversely. Attempts were made by different CEOs to create a balance between the product divisions and the national organisations from time to time. But to no avail. Dekker, for instance tried to tilt away the focus from the national organizations to the product divisions. Klugt had followed Dekker by shifting the focus towards the product divisions entirely. The product divisions that had been previously responsible for just carrying out research were now given the responsibility of creating profits. Also, the main Board of managers was replaced by a new management committee that included the heads of the product divisions with no importance given to the national organizations. But still when the workforce was to be reduced by thirty percent, it was reduced by just ten percent. The reason again here was the enormous amount of autonomy the national organizations possessed. They were not in reality answerable or accountable to the new management committee because they were not willing to leave the power that they had exercised for so long. According to Elleuch (2008), an abrupt shift in the power from one part of an organization to the other might not serve the intended purpose well because of the level of discomfort the action may lead to. The same was the case with Philips. The previous bureaucratic nature of the company resisted any change that could have occurred. Solutions and Recommendations According to many analysts, there should be a balance between the autonomies that have been assigned to various units of an organization. A balance means that no unit overpowers the decisions of the other and every unit is answerable to the central head office. Sadly, this has not been the case with Philips. The national organizations have been given far more importance than the rest of the organization and so it has affected even the decisions of the newly made management committee even the reduction of the work force. From the case study, it can be observed that the attempts to reduce the autonomy of the national organizations have also failed. The reason for this may be the abrupt change led by Klugt. Before Klugt, Dekker tried to change the organizational structure little. He attempted to ‘tilt’ the focus from the national organizations to the product divisions. Klugt, however, was keen on moving the entire autonomy of the national organizations to the product divisions as soon as possible. This was not a very wise move, particularly because the sudden change would have caused many of the heads of the national organizations to be offended. Therefore they were forced to use their allies in the bureaucracy of the management committee. A lesson that can be learned from this example is that the company should transfer the power from the national organisations to the public divisions in a more organized and slow manner. Timmer seemed to realise this and his policies were more effective because of this. The hierarchical structure of an organisation cannot be changed overnight. It requires proper planning and ample amount of time. Also, as Grossi et al. (2007) believe, the concept of responsibility should be applied more to the Philips enterprise by its managers. In an organisation, different units work together for some collective objectives. Usually plans are made collectively but when it comes down to the fulfilling of certain tasks, not all the units of an organization are held responsible or accountable for that matter. Rather each and every unit is assigned a certain task and then is held responsible if the task is not completed properly. This is not the case with Philips. Philips mostly has had problems with holding appropriate units responsible. It is true that the national organizations were established to look after the day to day business in different countries while the product divisions were to look after the research and development and more importantly ‘manufacturing rationalization.’ However it seems that the units have not been held accountable. The reason again is the great level of autonomy possessed by the national organizations. In accordance with Grossi et al. (2007), responsibility is important because it may lead to a decreased level of autonomy. For instance, if the national organizations are held accountable for their actions and their performance is assessed from time to time, they may not be very keen to exercise a great deal of authority because with authority comes responsibility. Hence, it is important to create a mechanism whereby the different units of the organization could be held responsible. Conclusion According to the case study, Philips, being an international enterprise, has faced a lot of problems but most of them are the ones related to its own organizational structure. The increased level of autonomy exercised by the national organisations is not just detrimental to the unity of the different units of the organization but is also likely to lead to the empowerment of irrational decisions. Something has to be done about the issue so that the problem is not aggravated further. References Elleuch, S. (2008). Organisational Structure and Development of Structure Relationships with SMFs: A Study of the Strategies of Tunisian Banks. International Research Journal of Finance and Economics: Euro Publishing. Galbraith, J. Downey, D. and Kates, A. (2001). Designing Dynamic Organizations: A Hands-on Guide for Leaders at All Levels. UK: AMACOM. Grossi, D. Royakkers, L. and Dignum, F. (2007). Organizational structure and responsibility. UK: Springler. Rothwell, W. Stavros, J. and Sullivan, R. (2009). Practicing Organization Development: A Guide for Leading Change (J-B O-D (Organizational Development). US: Pfeiffer. Spulber, D. (2007).Global Competitive Strategy. UK: Cambridge UP. Read More