Multinational Company and Its Organizational Goals - Case Study Example

1. INTRODUCTION In today's business environment, where strategies of each organization are not much different from those of others, it is difficult to develop big-bang strategies that will hit the gold mine. Organizational structure - how the organization is arranged to facilitate decision-making and execute its strategies, is what sets one business apart from another. The purpose of this case study is to gain an insight into how the organization is structured in order to execute its strategies. 2. DEFINITION OF STRUCTURE Organization structure is the formal pattern of interactions and coordination designed by management to link the tasks of individuals and groups in achieving the organizational goals and executing the organizational strategies. There are two main types of organization structures - mechanistic and organic structures. The mechanistic organization structure functions like a bureaucracy where proper channels are used and efficiency is emphasized. The organic structure is free flowing, has numerous communication channels, and emphasizes quick response and innovation (Bartol and Martin, 1998, p. 251 - 278). 2.1 Mechanistic Structure According to Bartol and Martin (1998, p. 251 - 278), the mechanistic structure is characterized by: (1) a tall structure with more levels of hierarchy; (2) high managerial control; (3) centralization, whereby power and decision making authority are retained at the top; (4) formalization, that is, rules and procedures such as manuals and formal job descriptions; (5) much written communication; (6) low worker autonomy; (7) hierarchy of authority is well defined; (8) unity of command, whereby the subordinates report to only one boss; (9) high individual accountability; and (10) individual specialization, whereby employees work separately and do only one task. 2.2 Organic Structure On the other side of the continuum, the organic structure is characterized by: (1) a flat structure with fewer levels of hierarchy; (2) low managerial control; (3) decentralization, whereby decision making authority and resources are delegated to subordinates; (4) mutual adjustment, whereby face-to-face contact is used for coordination as work process is unpredictable; (5) much verbal communication; (6) higher worker autonomy; (7) horizontal coordination is used to coordinate tasks, such as direct contact between managers, the assumption of liaison roles by individuals, task forces and teams, and integrators; (8) multiple lines of command; (9) high group accountability; and (10) joint specialization ,whereby employees work together to coordinate tasks. 3. ALIGNMENT OF ORGANIZATIONAL STRUCTURE TO STRATEGY Organization structure should be chosen based on its strategy (Bartol and Martin, 1998, p. 251 - 278). For example, suppose an organization is making or delivering large volumes of only a few products or services in the same geographical area, and these are very similar to each other. All the organization needs to do is co-ordinate the various departments, then departmentalized or functional structure works best. Departmentalization allows people to specialize in a function, and achieve economies of scale. Suppose the organization is producing or delivering several products or services in the same geographical area, and these products are very dissimilar from each other. Then, it is better to organize along product lines. This is because one product does not have anything to do with the other, there are no economies in functional structure for this case. On the other hand, giving each product its independent departments lets the product managers serve their customers more efficiently. Suppose the organization is producing or delivering several products or services to several different customers whose demands are very different. Then it is better to organize along customer lines so that the managers can work towards satisfying each customer according to his or her needs. The same logic goes for organizing on the basis of country or region. If the organization is making products in several places with different tastes and demands, the organization should organize along geographical lines. Also, if the environment in which the organization operates is uncertain, it should adopt an organic structure for quicker response. Furthermore, organization structure should match production technology. The three types of production technologies are unit and small batch production, large batch and mass production, and continuous process production. Unit and small batch production technology is expensive to operate, involves an unpredictable work process, and adopts low if any automation. An organic structure with a flat hierarchy, low span of control, and small number of managers is likely to be adopted. Latch batch and mass production is relatively cheap to operate and adopts automation. A mechanic structure with a tall hierarchy and a large number of managers is likely to be adopted. Continuous process production, whereby the machine performs all the tasks, applies to the production of liquids and powders. A tall and thin structure or an inverted pyramid structure is likely to be adopted (Woodward, 1965, p. 76 - 77). Lastly, organizations should be structured to facilitate decision-making in the event of exceptions. Exceptions may be classified along the two continuums of frequency and type. A mechanic structure with a high degree of centralization and formalization is best suited for organizations with formed and few exceptions. An organic structure with a high degree of decentralization and informal means of coordination is best suited for organizations with unformed and many exceptions (Perrow, 1967, p. 194 - 208). 4. CASE STUDY OF UPS SUPPLY CHAIN SOLUTIONS UPS Supply Chain Solutions is selected as the company for the case study as it is an industry leader in the logistics industry. It was touted as the industry leader and received numerous accolades awarded by numerous industrial magazines (United Parcel Service of America a, 2006). According to a report by Anonymous (2005, p. 18), its third party logistics division bags the highest gross revenue among 50 logistics firms. In the logistics industry, the strategies are similar, which are to leverage on technology to offer innovative solutions, finding low cost vendors to be price-competitive, and responsive to changes in the global environment. The factor underpinning success in the logistics industry then must be the organization rather than the strategies. In order to gain an insight into the structure and strategies of UPS Supply Chain Solutions to see how its structure enables the execution of its strategies, an interview was conducted with Mr. Brad Mitchell, the president of UPS Supply Chain Solutions, Canada. The main products and services of UPS Supply Chain Solutions are logistics, transportation and freight, international trade, and consulting (UPS Supply Chain Solutions, 2006). It operates in around 200 territories worldwide (United Parcel Service of America b, 2006). Its customers include a few large and important customers such as Hitachi Global Storage Technologies that comprise 60% of its revenue and other small accounts that altogether comprise 40% of its revenue. UPS Supply Chain Solutions is firstly organized by geographical regions, including the USA, Europe, Middle East, Southeast Asia including Australia, and North Asia, with offices in each region. This helps it to execute its strategy as stated in its mission statement to "treat every customer as if they are only [its] only one" (United Parcel Service of America c, 2006). Each region can be more responsive to the needs of customers in that region. Next, within UPS Supply Chain Solutions in Canada, the office has 9 functional departments including the operations department (in turn divided into air freight and ocean freight), the service parts logistics department, the transportation department, the customer solutions department, the project department, the sales department, the finance department, the human resources department, and the warehouse department. Within each department, there may be country staff or regional staff. For example, a financial analyst in the finance function is a regional staff performing financial analysis for the whole region, but a billing specialist in the finance function is a country staff doing billing for revenue generated by UPS Supply Chain Solutions, Canada. The functional structure seeks to achieve co-ordination among the various departments while still meeting the needs of customers in the California region. Moreover, some of the departments, such as the operations department (in turn divided into air freight and ocean freight) and the service parts department, are actually the product lines of UPS Supply Chain Solution, California. The reason is that the products are very dissimilar from each other. The ocean freight specialists liase with mainly the shipping lines such as Neptune Orient Lines to arrange sailing schedules and contract port services such as loading, wharfage, forklift, stuffing, unstuffing, container freight stations operations for loose shipments, container yard operations for full containers, and documentation such as bills of lading. The air freight specialists liase with mainly airlines to arrange flights and contract airport services such as custom inspection, documentation such as airway bills. The service parts logistics department deals with time-critical shipments that customers such as GE Medical require. This department needs to have knowledge of warehouse operations such as warehouse tracking systems and forklifts and also the ability to quickly arrange for the transportation of time-critical parts in a timely fashion. For the large and important customers, a project manager is assigned to each customer. Also, within each function, there may be designated staff to take care of the customer. For example, within the air freight department, there may be a specialist to handle all shipments of Hitachi Global Storage Technologies, a whole warehouse and the entire staff of the warehouse, called the North America Logistics Centre, is dedicated to Hitachi Global Storage Technologies. When problems such as delivery to the wrong destination or consignments are damaged in the process of transportation, the project manager makes the decision such as whether to incur cost to engage a third party to independently assess whether the fault is caused by the airline or present before the shipment. The air freight specialist will take the instruction of the project manager, perhaps with the knowledge of the operations manager to whom he or she reports. The organization is structured by customers for the large and important customers because the needs of such customers, called the major accounts are very different. For example, Hitachi Global Storage Technologies requires logistics centers in America, Europe, Singapore, and Taiwan, hubs all around the world, reconfiguration service, kitting service, disk-drive scanning service, airfreight, ocean freight, and surface freight for its hard disk drives and defective products in two service levels. But Seagate only requires airfreight, ocean freight, and warehousing. The legal environment in which UPS Supply Chain Solutions, California operates is quite stable, being regulated by customs rules and regulations. Therefore, the job of the operations department is specialized and divided into air and ocean freight specialists and supervisors. Formalization also exists in the department such as customs rules and procedures. The requirements and needs of air and sea freight customers are also stable and routine. There is also high managerial control and centralization. The sea freight manager revealed that he instructed his team of 10 staff (4 of which are supervisors and the rest are specialists) to copy him in e-mail correspondence requiring decision-making or out of the ordinary such as damage to containers. Suppliers such as airlines and shipping lines change rates frequently. This is because fuel prices are volatile and strikes occur in some countries driving rates up tremendously. To handle this instability, the financial analyst is responsible for scanning the external environment to set the rates and disseminating the rates to all parties concerned. Hence, to execute the strategy of quickly incorporating the costs into the prices, the structure of this function is flat. The regional financial analyst reports to the regional financial controller and has no subordinates under him. The financial analyst also has decision-making authority on the prices. However, other than the kind of routine shipments described in the preceding paragraph, a strategy of UPS Supply Chain Solutions is to offer customized, innovative, and industry-specific solutions to exploit the higher margin for this group of customers. It currently has one customer, Slumberjack, which is in the oil drilling industry, that requires ad-hoc shipments of mammoth drilling equipment require innovative solutions. The shipments are few - but each shipment requires an innovative solution and earns high margins, as compared to the many small and routine shipments handled by the operations department. Hence, the project department was formed to handle the requirements of such customers. The project department only has a staff size of 3 as compared to dozens of staff in the air and ocean freight department. This team consists of the project manager, the project executive, and a support staff who supports the project executive in billing and administration functions. It could be said to be a self-sufficient team, with its own marketing and administration function due to the specialized knowledge in this line of business. The project executive has much autonomy and decision-making authority. He negotiates with the customers, designs the solution, decides on the shipping lines and airlines to use, source for the low-cost vendors for services such as stuffing, and sets the price for each project. Much communication is also verbal as the project manager is always in the field developing relationships with customers. By the time the project manager reads the e-mail communications, it might be too late to be able to response to customers' needs or the problems on hand. Lastly, the operations department serves customers whose shipments are routine. Exceptions, such as delay in shipments due to custom inspection, are few and formed. On the other hand, the key accounts and the major customers experience unformed and a higher number of exceptions. For example, the wrong parts may be shipped out from the warehouse to the destination, communication might break down between the various departments of the customers themselves, and a number of other few and unformed exceptions. UPS SCS Supply Chain Solutions, California has to deal with it by forming a cross-functional team to deal with the key customers. Decision-making in this cross-functional team is decentralized and fast. For example, suppose the parts are to be shipped from San Jose to China, but was instead shipped to Australia via Hong Kong instead. The project manager could quickly decide before the shipment reaches Australia and while the shipment was en-route to halt the shipment in Hong Kong. Instead of incurring the transportation costs from San Jose to Australia then from Australia to China, the transportation costs incurred are now much lower for the leg from San Jose to Hong Kong to China. He then quickly disseminates this piece of information to the project team. The project team will take his instruction, perhaps with e-mail copy to their supervisors. Furthermore, he may instruct the warehouse staff at the Hong Kong hub to await the shipment and execute the necessary documentation such as to amend the destination in the commercial invoice and airway bill. The warehouse staff at the Hong Kong hub takes his instruction even if overtime charges for labor are incurred without the knowledge of the hub manager in Hong Kong. 5. CONCLUSION The above case study shows how a large, multinational company is organized to achieve its strategies, co-ordinate its tasks and make decisions that align with the organizational goals. It is organized by regions, departments, product lines, and matrix structure with an organic structure and a mechanic structure as appropriate to achieve its strategies of worldwide operation, economies of scale in routine shipments, offering a full line of products, launching the high margin products, responding swiftly to its environment, and decision-making in the face of exceptions. References Anonymous 2005, 'The top 50 3PLs by North American Revenues', Supply Chain Management Review, July/August 2005, p. 18. Bartol, KM & Martin, DC 1998, Management, Mc-Graw Hill, New York. Perrow, C 1967, 'A framework for the comparative analysis of organizations', American Sociological Review, vol. 32, no. 2, pp. 194 - 208. United Parcel Service of America a 2006, Fact sheets. Retrieved 6 October, 2006, United Parcel Service of America b 2006, Welcome to UPS. Retrieved 6 October, 2006, United Parcel Service of America c 2006, The UPS Charter. Retrieved 6 October, 2006, UPS Supply Chain Solutions 2006, Welcome to UPS Supply Chain Solutions. Retrieved 6 October 2006, . Woodward, J 1965, Industrial organisation: theory and practice, Oxford University Press, Oxford. Read More