Applied Organisational Theory: The of General Electric - Case Study Example

Organisational Theory Introduction This essay seeks to critically assess and discuss the idea of an organization’s structure affecting its productivity and economic efficiency and also influencing the morale and job satisfaction of the workforce. A critical discussion of this statement would be carried out with reference to different situations that have been faced by a real world company with regard to its structure. The organisation in question is GE which is a global company operating in 150 companies with more than 300,000 employees. Constant organizational restructuring certainly has some effect on the performance of a company but the effect does not have to be negative. In fact, some companies such as GE use the process of restructuring to motivate and reward employees through promotions and career development. It must be noted that in the case of GE, the restructuring comes from performance evaluation and individual selection rather than continual process change. GE does not change the organisational structure of the company every quarter, but it does change the faces which hold leadership positions and create new leadership positions quite frequently (Welch, 2005). The Structure at GE The structure of the company as well as the process of establishing the structure at GE appears to be following the Functionalist Paradigm. This paradigm suggests in brief that human beings as well as organisations can largely be expected to act in ways which are rational. The supporters of this paradigm also say that organizational behaviour can be understood through experimental observation and hypothesis evaluations (Burrell, 1979). This paradigm is certainly useful because GE acts in a manner which is very rational for the most part and the methods used for controlling employees, establishing or changing the structure of the company and keeping GE running as well as profitable are founded in rational thought. The concept of organizational structure systems has received much attention in recent years (Friesen, 2005). Within the wide literature on organizational theory and organizational behaviour, a number of writers have stressed the importance of organizational structure. For example, Mckenna (2000), emphasises that there are the significant links between an organization’s age, size, strategy, technology, environment and culture and its structure. Miller (1989) sketches out the relationship that must exist between structure and strategy, while Burns and Stalker (1961) describe the critical interrelationships between structure, environmental change and organizational performance. For GE, as recommended by Mullins (1993), the company structure works towards improving the way in which individual and groups are arranged to achieve the specific tasks that they have been given. This approach is supported by Bartol and Martin (1994) who say that the organizational structure is nothing more than the formal patterns of interactions and coordination designed by management to link the tasks of individuals and groups in achieving organizational goals. In a situation where such goals are not being met, the company may respond by changing the structure to ensure that the desired response is created. Without effective structures and good structural management, a company could end up with bad leadership and a bad leader will not only bring down his/her own output but also of those who fulfil the role of subordinates (Armstrong, 1999). As a case in point, Welch (2005) reports that GE saw high turnover in their international communications department and even though the department was not one of the primary departments of the company, significant junior level turnover caused the senior managers to get worried. After making some inquires and revaluations of exit interviews, the company discovered that the position of the line manager within the structure of the department was causing problems for others. To make the department productive, that position had to be taken out of the picture and GE did so without regret (Welch, 2005). The resulting improvements in the performance of the department were immediately obvious to the leaders of the company and they continued to seek other positions which could be altered within the structure of the department. This restructuring was also evaluated for other departments where it could be useful and throughout the company wherever the restructuring helped, it was used to the greatest advantage of the company (Welch, 2005). Clearly, GE understands the recommendations given by Mullins (1993) who informs us that the purpose of the organization structure is serving to allocate work and responsibilities in order to direct activities and achieve the organization’s goals. Structure and Size It must be noted that the basic structure of many large organizations in the 20th century was founded on linear, segmented, and hierarchical systems which followed the governmental structures that had been created in older times. In the middle of the 20th century, there was a trend for organizations to create huge organizational structures, often composed of many different businesses coming from both the private and public sectors. In recent years however, the trend for larger structures was passed out because it was seen as more expensive and as a hindrance to the flow of information from one end of the company to the other end (Ashkenas et al, 1995). To make companies smaller and leaner, downsizing was used by many organisations as a way of changing their structures in order to be fitter and more effective. With restructuring, many companies have won certain benefits such as an increased level of productivity, improved profitability and enhanced flexibility. At the same time, such steps have also created and added to the need for outsourcing and caused increased insecurity amongst employees and in some cases, a loss of expert knowledge (Thomas and Coe, 1991). According to Proctor (2001) these changes together have a direct affect on the knowledge contained within the company and can negatively affect workforce structures with regard to the skills that some of the employees possess. Many of these restructuring exercises have led companies to experience issues of work overload, high employee stress levels, distortion of the company vision, poor decision making routes and corporate in fighting. Employees can perceive their jobs to be much less secure and less rewarding than they are and this can mean that their loyalty, morale and motivation evaporates (Thomas and Coe, 1991). GE counters this by making the company act like a small company and by making the company informal (Welch, 2005) Informality in terms of management policies does not mean that a company like GE simply ignores the issues it faces when it comes to employee discipline or insubordination. The idea of informality is only useful if the line managers and the general environment of the company push the idea of the company structure where senior members of the team act as mentors, coaches and strong supporters of those who are the followers. The structure of GE was discussed by Byrne (1998) who says that: “Making the company informal means violating the chain of command, communicating across layers, paying people as if they worked not for a big company but for a demanding entrepreneur where nearly everyone knows the boss (Byrne, Pg. 1, 1998)”. Restructuring is Rewarding In such cases, when restructuring does take place, reward management and retention may become key points for a company like GE. Welch (2005) makes it quite clear that the GE is focused on career building and does all that it can to retain individuals even if restructuring takes place within the company. However, room for new employees must be made when older employees cannot handle the changes coming to the structure of the company especially when the vision of the company is changed. Welch (2005, Pg. 16) says that “Every decision or initiative was linked to the mission. We publicly rewarded people who drove the mission and let go of people who couldn’t deal with it for whatever reason.” Those who were rewarded were also given higher positions within the company to further enhance the structure which GE wanted to create. The creation of the structure and the power relationships between the individual and the company begin as soon as an individual is marked for recruitment by the company (Colvin, 2006). This relationship is taken to higher levels as the power relationship turns itself into a partnership structure between the employee and the company with continual promotions coming to the individual who performs for GE (Grote, 2002). Thus the process of rewarding and retaining employees who perform adds to the structural value of the organisation. Of course the establishing process for such a structure requires a significant investment in the form of time spent on managing people. When GE ranks employees into various categories, it splits them into three groups which include the top 20%, the middle 70% and the least performing bottom 10% (Welch, 2005). This system of differentiation removes the bottom ten percent of the company ranks on a yearly basis. Welch (2005) notes that GE’s system for restructuring the company has been criticised by some as being draconian and cruel but other business giants such as SUN, Microsoft, HP and PespiCo have followed the same method to the letter (Grote, 2002). Welch (2005) summarized the differentiation and restructuring process of rewarding performers and handling underperformers at the company by saying: When all is said and done, differ­entiation is just resource allocation, which is what good leaders do and, in fact, is one of the chief jobs they are paid to do. A company has only so much money and managerial time. Winning leaders invest where the payback is the highest. They cut their losses everywhere else. (Welch, 2005, Pg. 38) In this manner, the structural management of a company like GE enables the managers of the company to plan, direct, organise and control the activities of the organization (Mullins 1993). McMillan (2002) also expresses the view that too often; structure is not given enough consideration in strategy and organizational development. This means that some managers can have a shortcoming in understanding this area of organisational development. Such issues are handled by GE through the extensive use of training sessions for their line managers and other employees in key positions (Welch, 2005). Changing the GE Structure in Hungary According to Burns and Stalker (1961), if an organization is to achieve maximum performance then its structure must fit with the rate of change with the environment it is placed in. This theory was aptly applied by GE when it came to restructuring and rebuilding their operations in Hungary. GE had a structure of local managers who were resisting change in their Hungarian operations with regard to the leadership and organisation of the company. The cultural norms which were in place at the Hungarian operations supported the idea of length of service and seniority for establishing a top level structure of the company while GE internationally focused on how the employee brought returns to the company when it came to placements at the top (Welch, 2005). GE was also aware of the bad press which restructuring the organisation could bring since if it simply removed a lot of the employees from Hungarian arm the trade unions could give a strong negative reaction. The company could also lose a lot of money if it the operations were closed down due to legal actions coming from former employees. Thus the decisions to make changes to the structure of the company had to be taken very carefully and with a lot of thought. However, GE lacked local managers who could understand the position of the company in terms of where it was and where it wanted to be in terms of the corporate structure. This weakness could only be removed if such employees could be taken out of the picture and replaced with others to bring change to the structure of the company (Welch, 2005). As noted by Burns and Stalker (1961), it is very important for any organization to select the most appropriate and suitable structure for their firm. In the simplest of terms, good organization structure acts as a catalyst for performance since it helps communications, productivity, and employee innovation. To change the structure of their Hungarian operations, GE found several opportunities and they started by expanding their Hungarian operations to put their employees in contact with and in competition with the regional and European markets. GE also improved their structural situation by taking in new recruits who were screened for being more accepting to change. Such recruits were given quick promotions to bring them in step with middle managers who were refusing to accept the changes that were coming to the structure of the company (Welch, 2005). To balance the rewards side for motivating employees who were willing to accept the changes that were coming to the company’s structure, a threat of termination was used by the company for those who were not willing to accept the same. As a part of rational behaviour given under the functionalist paradigm, fear can be used as a motivational factor so while behaving like a small company; GE in Hungary behaved as a meritocracy with the structure of the company in which there was no room for poor performers. As per the rules followed by GE around the world, the bottom 10% of the company is removed from service every year, which allows fresh blood to take replace outgoing individuals and continually updates the faces within the organisational structure (Welch, 2005). Welch insists that the removal of the bottom ten percent is a critical part of the continual change in structure of the company and in his final letter to the company’s stock holders he wrote quite clearly that in his opinion, “A company that bets its future on its people must remove that lower 10 percent, and keep removing it every year, always raising the bar of performance and increasing the quality of its leadership (Grote, 2002, Pg. 41-41)”. Such structural adjustments keep all those on their toes who survive the process of being weeded out. It must be noted that only the final threat for employees in Hungary the threat of termination since there were other ways found by GE to manage the structure of the company. Employees could be transferred to other departments or given other responsibilities and all replacements were connected with the merit of the employee. This meant that the company was replacing individuals on the basis of their performance alone and the changes to the structure of the company became a secondary consideration for the employees. In such a case, there could be no objections from the press or from any other groups since the employment levels of the company were kept almost the same (Welch, 2005). While some theorists may seek to discover a perfect structure which fits all organizations, Peters (1993) and Mintzberg (1989) believe that no single structure can be used for all companies at all times. There are several variables within an organisation and the situation an organisation may be placed in which make it difficult to say that one predefined structure would work for the company. This view is also supported by Drucker (1999) who states that each structural choice comes with distinct advantages as well as limitations. A company that chooses to remain small may be seeking different strategic advantages as compared to a company which seeks the position of market leadership and decides to increase its size and structure quickly. In essence, companies like GE have the capital and the resources to experiment in situations like the one they faced in Hungary. They can often afford to learn from their mistakes of the past. On the other hand, fledging companies or firms that are not that strong in financial terms may have to think long and hard before they make any structural change or even consider an individual for a promotion within the company. This creates a considerable challenge for managers as they have to perform a deep analysis and theorise the structure that best fits the situation of the company before implementing it (Drucker, 1999). While such processes may be required more in a smaller company, GE also incorporates these processes simply because it behaves like a small company. Within the company, different departments may have their own structural requirements and reporting lines to create the highest level of efficiency and this means that as per the recommendations of Drucker (1999), several structures can coexist and overlap in the company. The needs based structuring helps GE become more agile and it also allows the company to respond quickly to changing business scenarios. Conclusions It is evident that the statement is true because the structure of a company can have both positive and negative effects on any given company’s productivity and employee morale. However, the effect does not always have to be negative if the effects of the structure are managed. As exemplified by the case of GE, the changes in structure can be quite important to the survival of an operation and if they are brought in through the correct means, they can help the company improve its productivity and profitability while keep the employees motivated enough to work harder. However, to do that, a company should follow the path of scientific principles by applying the idea of differentiation between employees and create good leadership controls. These two elements would go a long way towards establishing employee morale for the majority of the company since a merit based system would permit the best performing employees to rise to the top and thus create a structure where the best are rewarded while the worse are removed. A more economically efficient system would be hard to find. Word Count: 3,168 Works Cited Armstrong, M. 1999, A Handbook of Human Resource Management Practice, Kogan Page. Ashkenas, R. et. al. 1995, The Boundary less Organization, Jossey -Bass. 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