Organization Analysis on the Example of Dell Inc - Case Study Example

Assignment 2 Case study of an organisation that has undergone a change and analysis of organisational behaviour 1. Introduction/Background Dell Inc, an American Computer maker formerly known as Dell Computer Corporation was founded on a simple business concept (direct selling of personal computers to consumer) way back in 1984 in Texas, USA. In 2001, Dell became the world’s largest personal computer vendor selling 90% of its PCs directly to the final customer. Its direct customer relationship provide Dell with opportunities to tailor its products to customer needs and become a top performing organisation in the PC industry in terms of inventory turnover, reduced overheard, cash conversion, and return of investment (Kraemer & Dedrick, 2002). In 2012, Dell has approximately 109,400 total employees consisting of 106,700 regular and 2,700 temporary employees. 37% of the regular employees are located in the United States while the rest are working in other countries. As of March 2012, the organisation is headed by its Chairman and Chief Executive Officer Michael S. Dell and ten other executive officers managing the global corporate headquarters in Round Rock, Texas (Dell Inc, 2012). 2. The Organisation Before the Change and How it was altered with change Dell is an organisation that expanded exponentially during its first years and by 1986 it had already earned around $73 million. As it went public and becomes a corporation in 1988, Dell experienced several critical organisational changes but the most important in terms of restructuring was in 2007. Before, Dell has a widespread and flat organisational hierarchy where five committees support the board of directors and monitor critical areas of operation. This structure also provides lower level managers and employees the opportunity to take part in the decision making process and impart their knowledge and innovative thinking (Shirani, 2012). As demands for computers grew in early 1990s, Dell hired more workers including strategic managers that can manage different functional areas such as marketing, finance, and manufacturing. Employees were grouped by their common skills or tasks in order to maximise the value chain activities of the company. Dell’s organisational structure was further divided into several levels including management hierarchy to ensure full control of different business activities. This structure enable functional managers to have complete control of the company resources and cost while employees developed norms and values emphasizing the importance of hard work and innovation in keeping production cost low and improving employees reliability (Hill & Jones, 2009). Realising the difficulties faced by his employees in meeting the needs of increasingly demanding customers, Michael Dell in late 1990s changed his company structure into a market oriented one and divided the marketing and sales force into several divisions and sections based on the needs of different group of customers. For instance, there is a consumer section that is responsible for the servicing needs of one specific group of customer (ex. branches of government or home users). These changes resulted to the development of unique subculture among managers and employees particularly in obtaining in-depth knowledge of market needs and increasing customer satisfaction. This change in structure gave Dell $35 billion in revenue by the end of year 2000 and competitive advantage over competitors like Apple and HP (Hill & Jones, 2009). In 2004, Michael Dell stepped down as CEO and replaced by Kevin Rollins who in his first year as CEO brought new enthusiasm to the organisation. However, Dell Computers suffered tremendous difficulties with Rollins as profits, stock prices, sales targets, market share, and customer satisfaction deteriorated and fell significantly. In 2007, Michael Dell returned and rebuilt his company but this time he overhauled the company from top to bottom, functions and operation, and terminating a significant number of employees. By 2008, Dell eliminated about 3,200 jobs but hired around 2,000 more to reinforce the customer service division (Griffin & Moorehead, 2009). The activities across divisions soon become standardised and more focus on reducing cost. Dell’s once tall organisational hierarchy started to shrink as managers increasingly delegates most decisions to employees while some of customer service functions were outsourced to India. Consequently, the smaller United States workforce becomes even more cost-conscious resulting to further drop in competitive advantage (Hill & Jones, 2009). 3. Analysis of the Management Structure within the Organisation As shown below, the Dell Computer Inc. management structure changed significantly when it was transformed from function-oriented organisation into a market oriented global company in 2007. According to Hill & Jones (2009), Dell’s functional structure work well because it provides managers more control over cost and encourage lean organisational culture where employees developed norms and values important to the success of the company (p.259). As discussed earlier, the move to a market structure was encouraged by the fact that Dell by the late 1990s was already dealing with a large number of different customers who demands different Personal Computer configuration and servicing. According to Flamholtz (1996), a centralised organisational structure often benefit from employees with expertise in certain functional area of the business but this same advantage can lead to lesser business emphasis on the market. In contrast, decentralised structure as shown in Figure 1 has greater emphasis on the market and profit but more costly as cost is duplicated by having similar functional specialist in each division (p.121). For instance, Dell has several enterprises, small & medium, and public groups that in essence employ similar functional expertise which is marketing, sales, and technical services. In terms of organisation change, market-oriented management structure dramatically changes the way the organisation behave as according to Kazmi (2009), the organisation have to take a totally different perspective of its business and conduct its activities in a manner consistent with its new goals. For instance, a market-oriented company culture gives more emphasis on producing sustainable competitive advantage, undertake exhaustive analysis of both customers and competitors, and integrate organisational resources in order to provide excellent services rather than concentrate on developing functional areas of the business (p.58). In Dell, the evident effect of market oriented structure was the elimination of thousands of jobs in customer service discussed earlier. It is important to note that Dell before 2007 was a company focusing on speed of manufacturing or the functional areas that provide customer satisfaction based on timely delivery (Griffin & Moorehead, 2009). Figure 1- Dell Computer Inc. Management Structure By analysis, Dell’s management structure reflects its readiness and effectiveness to do business despite changing needs of customers and provide sustainable level of satisfaction (Panda, 2009). According to Pride & Ferrell (2007), centralised management structure is irrelevant to market-oriented company because marketing decisions coming from the top level or the organisation cannot possibly respond quickly to customer needs. Decentralised management such as the current Dell management structure allow lower level authorities to decide and respond on their own resulting to quicker delivery of services (p.42). 4. Analysis of the Relationship Between Motivation and Performance By analysis, it is somewhat clear that the current management structure and orientation of Dell Computer Inc. is giving more emphasis on group activities. This group or team-based structure according Gitman & McDaniel (2008) increases employee’s motivation and performance because groups are social units of two or more people sharing the same goals and cooperate to achieve their goals. For instance, the sales department of Dell operates within the larger organisational system with strategies, policies, procedures, resources, and culture that motivates every individual in the department (p.247). In seeking higher level of performance, Dell motivates its employees by providing incentives. For instance, the Management Incentive Bonus Plan is not merely goodwill but awards tied to achieving corporate initiatives. Similarly, bonuses paid to certain managers are based on predetermined targets such a profitability and operational cost. There is also profit sharing program, stock option plans, and other initiatives that can help Dell retain motivated employees and achieve its performance goals (Sinha, 2007). In 2001, Michael Dell and Kevin Rollins both realised that they cannot move without a motivated workforce and therefore created an organisational structure were thousands of employees feel empowered and contributing the competitive advantage of the company (Griffin & Moorehead, 2009). According to Griffin & Moorehead (2009), an organisation is a goal-directed social entity where people work together in to achieve the organisation’s goals. More importantly, goals are objectives that motivate people to work together and keep the organisation on track. In Dell, these objectives make each workers build computers that he or she thought would sell, affordable, and competitive (p.409). 5. Change Management Strategies To succeed in managing change, an organisation according to Pugh (2012) must have the ability to encourage a broad spectrum of inputs into strategy (p.52). In other words, managing change is not a separate activity but part of the business strategy which is somewhat evident in Dell’s attempt to change the function and operation of the company in line with its strategy to focus more on the market. For instance, the idea to eliminate around three thousand jobs but hiring two thousand more was undoubtedly to improve customer service while the idea behind IdeaStorm.com and Direct2Dell.blog campaign is to link customers with Dell marketing staff (Griffin & Moorehead, 2009). Strategic change according to Sekhar (2009) is about alteration in organisation strategies involving relevant changes in objectives, goals and strategies, procedures, and so on. It can be re-engineering, restructuring, and innovation (p.76). In examining Dell’s organisational change and the behaviour shown by management, it is somewhat clear the Michael Dell chose restructuring as method of change to improve the company performance. For instance, restructuring include shrinking the hierarchy, downsizing, and reducing the number of employees (Sekhar, 2009) which as discussed in the previous section were actually implemented in Dell. Clearly, Michael Dell in 2007 exploits the potential of strategic change in improving company performance, increase competitive advantage; attain greater adaptability and viability in the ever-changing business environment. The choice was made in the midst of plummeting profits, stock prices, market share, and deteriorating customer satisfaction which by analysis is somewhat timely and an appropriate decision. For instance, it will be irrelevant to re-engineer the business process because quality and speed of delivery are not the issue. Similarly, encouraging innovation is inappropriate because Dell as a whole is an organisation known for innovative products and services (Shirani, 2012). However, restructuring in Dell’s case is somewhat quick and extreme in the sense that it had affected thousands of employees. According to Armstrong (2004) such changes can lead to a number of problems such resistance to change, low stability, high levels of stress, misdirected energy, conflict, loss of momentum, and others (p.174) but its seems so easy for Michael Dell to ignore these facts and proceed with his plan. Note that it only took him a year to decide and change the company from function to market-oriented company despite thousands of motivated and innovative employees that made Dell a giant in the industry. Along with restructuring, Dell could have used incremental turnaround strategy by gradually introducing a new management strategy and maintain a patient but persistent approach. This strategy according to Parr (2009) allows the organisation to improve in a natural and steady pace while avoiding the problems identified by Armstrong (2004) earlier. Since “there is no single change strategy” (Sengupta & Bhattacharya, 2006, p.10), Michael Dell could have considered the possibility of mix strategies addressing the critical factors associated with change but this never happen in 2008 as he was very occupied by the notion that outsourcing inexpensive overseas contractors can revive the company. Consequently, Dell suffered several problems associated with employee’s motivation and performance such as unfashionable and poor personal computer design and performance, damaged customer relationship due to technical support provided by overseas contractors, reduced sales of high-end products due, higher cost of production, and so on. (Griffin & Moorehead, 2009). 6. Conclusion Dell Computer Inc. started as an innovative company and became the world’s larger personal computer. However, the change in business orientation and subsequent alteration in management structure affected a significant number of employees particularly those in the marketing and sales division. Michael Dell implemented a strategic change using the restructuring process in a drastic and radical manner that had resulted to a number of problems including damage reputation, low employee motivation, reduced sales, and deteriorating customer relationship. The changes could have been more effectively if it was gradually implemented and conducted in manner that employee motivation are retained. 7. References Armstrong M, (2000), Strategic Human Resource Management: A Guide to Action, US: Kogan Page Publishers Dell Inc, (2012), Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, US: Dell Inc. Flamholtz E, (1996), Effective Management Control: Theory and Practice, US: Springer Gitman L. & McDaniel C, (2008), The Future of Business: The Essentials, US: Cengage Learning Griffin R. & Moorehead G, (2011), Organisational Behaviour, US: Cengage Learning Hill C. & Jones G, (2009), Strategic Management: An Integrated Approach: Theory, US: Cengage Learning Kazmi S, (2009), Marketing Management, India: Excel Books Kraemer K. & Dedrick J, (2002), Dell Computer: Organisation of a Global Production Network, US: University of California Press Panda T, (2009), Marketing Management, India: Excel Books Parr E, (2009), Natural Born Manager: A Handbook for Accountability Management, US: Dog Ear Publishing Pride A. & Ferrell N, (2007), Pride-Ferrell Foundations of Marketing, US: Cengage Learning Pugh L, (2012), Change Management in Information Services, US: Ashgate Publishing Ltd. Sekhar G, (2009), Business Policy and Strategic Management, India: I.K. International Pvt. Ltd. Sengupta N. & Bhattacharya M, (2006), Managing Change in Organisations, India: PHI Learning Pvt. Ltd. Shirani M, (2012), Strategy Creation and Change- Dell Corporation, Germany: GRIN Verlag Sinha P, (2007), Management Control Systems, India: Nirali Prakashan Publishing Read More