Organizational Structure Can Make or Break a Company - Essay Example

Very few corporations are as loved or hated, or as thoroughly scrutinized for every success and misstep, as Microsoft Corp., whether it is by the tech insider, the knowledgeable consumer or the U.S. government. The same company that made a billionaire out of a college dropout, that started in a suburban garage and now operates in more than 100 countries, has gone from hip newcomer to aging frump suffering from what Forbes Magazine (Murphy, 2005) recently labeled a "Midlife Crisis." This paper will review the company's organizational structure, including recent reorganizations, its corporate culture and select human resources practices that have helped Microsoft change the world, for better and worse, and the challenges it faces in the future in these areas. Organizational structure can make or break a company, as it dictates how well individual elements can work with each other. "How a company organizes itself is as important as-if not more important than-its strategy," write Bateman and Snell (2003, p. 244). An organization's structure is most often displayed through an organizational chart that shows how tasks are divided and who reports to whom. Organizations are also measured by how much operations are differentiated or integrated: Differentiation is the extent to which jobs are specialized, whereas integration shows the extent to which different work units cooperate. Organizations can also be measured by their hierarchical structure, or the ranked structure of how authority is distributed throughout the organization. If that authority, such as over hiring and spending, is concentrated in the upper echelons, the organization is known as being centralized; if it is spread out, it is considered decentralized. No one organizational scheme is better than another; the contingency approach to studying structure deems that "successful organizations develop a structure consistent with the pattern of goals and the strategy established by senior management" (Schermerhorn et al., 2005, 516). During the Reagan era, Microsoft was the scrappy underdog whose staff openly laughed at the moribund IBM. The company went public in 1986. The Office suite of productivity applications for the workplace first appeared in 1989; Windows 3.0 operating system debuted the next year. The young Microsoft fostered an aggressive business environment centered on the personal computer both in the home and in businesses. When the market exploded in the 1990s, the company quickly became so large and so dominant that in 1998, the U.S. Department of Justice sued the company for monopolistic practices. The settlement in 2001 split operations along the Windows and Office lines and forced the company to accept partnerships with rivals like Sun and Netscape (Greene, et al. 2004). The case in and of itself did not hinder Microsoft's growth: The Windows operating system runs on 330 million personal computers around the world, about 90 percent of the PC operating system market. Windows is installed by more than 300 PC manufacturers and helps run thousands of peripherals like printers, scanners and increasingly, portable music players. Thousands of software programs by independent developers run on Windows (Lohr & Markoff, 2006). New versions of Windows and Office are scheduled to debut in the near future and the company's new entry into the console gaming market, X-Box 360, debuted last year to generally good reviews. The company is still dealing with antitrust charges in the European Union, though it has recently promised to deal more fairly with competitors (Buck, 2006). Microsoft's policy has been to go through periodic reorganizations, sometimes as often as every two years. Founder and Chairman Bill Gates has said this is a necessary part of the company's strategy. "Even though reorganizations are expected, they still create anxiety for almost everyone, including me," (Bateman & Snell, 2003, p. 267). Though Gates stepped down as chief executive officer in 2000 and handed the reins to current CEO Steve Ballmer, he remains the face of the company and its chief visionary. His official title is Chairman and Chief Software Architect. He justifies the constant chart-shifting by saying it mirrors the constant changes in the tech industry and can help keep the company nimble enough to respond to the market, despite its size. The reorganization announced in September 2005, however, may have been more than just a periodic adjustment. The company subdivided into three distinct work units, known as divisions, headed by a president, down from seven divisions. One division is devoted to Windows and the online MSN portal and headed by co-presidents, one to business applications and the other to entertainment and devices (Microsoft, 2005). Chief Technology Officer Ray Ozzie's role was expanded across the three divisions. The company also re-reorganized the top executives in its Platforms & Services Division, responsible for Windows products in March 2006 to cope with the delays in releasing its new Vista operating system, a key to the company remaining current in the OS wars. Already several years late, Vista was to have shipped by this fall, but instead has been pushed back to early 2007 (Langberg, 2006). Microsoft's official position is that these reorganizations will enhance communication and decision-making processes "as well as help us continue to deliver the types of products and services our customers want most," CEO Ballmer said in September (Microsoft, 2005). Some analysts agree, saying the previous division structure prevented cooperation and communication between divisions and was a sign of managerial flabbiness. "The company had become almost unmanageable. In the past two and a half years, it felt like you just couldn't get anything done. The turf wars became more pronounced," analyst Rob Enderle told InfoWorld.com (McCarthy & Montalbano, 2005). This constantly shifting structure, especially the March 2006 change that accompanied news of Vista's delay, spawns considerable criticism from insiders and outsiders alike. BusinessWeek followed news of Microsoft's September 2005 reorganization with an extensive look at widespread employee discontent, including several key experts who left the company -- or "defected," as BusinessWeek labeled the departures -- to arch-rival Google (Greene et al., 2005). The magazine also featured an interview with an unnamed Microsoft employee whose online weblog or "blog," has fast become the place for company and industry employees to sound off about Microsoft's missteps, a modern-day water cooler of sorts (at http://minimsft. blogspot.com). Yet, the magazine is quick to note that Microsoft's annual attrition rate is 9 percent among its 63,000 employees, lower than the industry average. Business columnist Mike Langberg (2006) explains the Vista situation as a problem of "too many cooks spoil(ing) the soup." The company, he says, threw too many software developers at the problem rather than diagnosing and fixing the development process. He calls on the classic work of computer science professor Frederick P. Brooks Jr. In 1975, the same year Microsoft was founded, Brooks predicted that adding new personnel to solve a software problem wastes precious development time and can even lead to gridlock. Langberg saw in Brooks' writings a lesson for Microsoft. In Microsoft's press release announcing the March changes, the company trumpeted the changes once again as a way to be more innovative and deliver more services to customers (Microsoft, 2006). Clearly, whether it is in praise or criticism, Microsoft's organizational structure has become highly meaningful in the ongoing debate about the company's future. Blogging employees, high-profile defections and other signs of discontent are a far cry from the company that embraced the slacker culture and casual dress codes and turned it into what is still the industry's leading earner. Microsoft's organizational culture is still a thing of legend, from officially sanctioned pranks to insider jargon to latte carts rolling through company hallways. Motivational author Bob Nelson calls it a "culture of fun" and recommends other companies taking note and lightening up (2002, p. 38). Organizations have distinct cultures just as people do outside of the workforce. Organizational culture can be defined as "the shared beliefs and values that influence the behavior of organizational members" (Schermerhorn et al., 2005, p. 25). Just as different social and political cultures clash, so can organizational cultures. Researchers have identified different types of organizational cultures, usually divided into four types (as in Gibson et al., 2003): bureaucratic, clan, entrepreneurial and market. Bureaucratic cultures emphasize rules and procedures and tend to be highly centralized. Clan cultures emphasize traditions and socialization by other employees to form a family-like culture. Entrepreneurial cultures emphasize innovation, creativity and risk taking, while market cultures emphasize sales and grabbing larger market share. Microsoft is most often described as first and foremost fostering an entrepreneurial culture. Because Microsoft is so deeply steeped in the technology industry, it can be said that the programmers, software developers and other "computer geeks" at the company form coherent subcultures as well, often with values that transcend the company's and mesh with others in the same field. When a subculture is in line with the dominant culture, it can result in greater productivity (Gibson et al., 2003). At Microsoft, that should mean that the company's overall entrepreneurial culture and spirit of innovation are appreciated by the tech subcultures, forming what Gibson et al. call a "congruency." Other divisions in the culture are enforced by the company through a simple identification process: employee badge colors. Full-time, salaried employees wear blue badges; temporary or contract employees who are not "full fledged members" wear orange badges (Bishop, 2005). Former "orange badge" Howard Wu created a web forum for current and former "orange badges" to network, gripe and share tips for surviving as independent contractors (http://orangebadges.com/toast.asp). However, as Microsoft gets older and its relative position in various industry sectors changes, the tech subcultures in particular seem to be resentful of the more bureaucratic aspects of management. Two Microsoft researchers sent out a cautionary list of "Ten Crazy Ideas to Shake Up Microsoft" (BusinessWeek, 2005) last year, saying the company's bureaucracy was stifling its very nature. CEO Ballmer told the magazine he was not worried by the uproar; rather, the document showed how healthy the company's culture really was. "It's a culture that encourages and fosters criticism and constructive suggestion. People criticize everything That's a fantastic thing because that kind of strong culture drives self-improvement." But the BusinessWeek examination of the employee defections and reorganizations of September 2005 showed that Microsoft employees (mostly "blue badges") generally wish there was less to complain about, even those who consider themselves loyal employees. The innovation that Microsoft is supposed to embrace and encourage in employees might be what is driving employees to competitors like Google and Yahoo, a BusinessWeek columnist theorized in an earlier article (Elgin et al. 2005). When Microsoft's main business problem was focused in its early days on personal computing, it was able to grab the most talented employees. Now, however, those same employees cannot create new products that would undermine the company's bread-and-butter products like Windows and Office. Instead, the cutting-edge development is being done by the competitors on the new tech focus, the Internet. Google may even have "out-funned" Microsoft, encouraging some employees to spend one day a week on pet projects they get to choose, or allowing pick-up hallway hockey games, the authors note. While other companies tuck and trim budgets, Google employees get healthy, gourmet meals for free in the company cafeteria. Still, not all is gloom and doom in Redmond. Microsoft employees use the same blogging portals to praise the company as well. "Microsofthas always had as one of its strengths that it gives enormous freedom to its employees," wrote software developer Chris Pratley in 2004 over the company's developers' network (http://blogs.msdn.com/chris_pratley/archive/2004/ 04/29/123619.aspx). He praises the lack of time cards and idealizes the company's lax dress code: "As long as we deliver results, it doesn't matter if you come in at 2pm and don't wear shoes (both of which I do occasionally, although less often than I used to)." Like many Microsofties, he enjoys working with smart people, solving problems and being a part of a product that millions will get to use. He describes the structure and culture within product development groups as feeling more like a small startup company rather than an industry behemoth. "I mean, I LOVE my job," he glows. Microsoft was an early adopter of employee blogging (Daniel, 2005). Clearly, employee attitudes vary widely within the Microsoft universe. Perceptions can go a long way toward creating those patterns of beliefs, values and expectations that make up the organizational culture (Gibson, et al., 2003). Management theorist Edgar Schein (2004) defines different layers of cultural behavior as expressing themselves at different levels of employee consciousness. Artifacts like the blue badge, or jargon unique to the company, are at Level I, and though visible, not always easily or frequently interpreted by employees for their cultural relevance. Underlying values are at Level II, and include ideas important to employees, such as a devotion to the entrepreneurial spirit or recognizing the freedom to express critical viewpoints. Level III is where the most basic assumptions are stored and generally taken for granted, such as collective views on how to treat people or the environment. Challenging those assumptions is most stressful, Schein maintains. Most employees in firms do not openly realize they are participants in a culture; Microsoft employees' penchant for self-examination may be a result of the highly intelligent and educated nature of its staff and the constant media exposure. As Microsoft matures into middle age, its human resources policies also change, most notably in benefits offered. Stock options once offered as part of employment contracts or bonuses made millionaires out of many employees; as of 2003 they are no longer offered. Discounts on employee stock purchases were lowered the next year, at the same time prescription co-pay charges were increased. (Peterson, 2004). The "fun" perks that Nelson praised may still be there, but in recent years, the company has lowered compensation packages for the rank-and-file while promising $1 salaries to top management if certain goals are met. How all these changes will play out over time, in terms of employee morale, will at least in part be controlled by the company's human resources policies. Human resource management "is the function performed in organizations that facilitates the most effective use of people (employees) to achieve organizational and individual goals" (Ivancevich 2004 p. 4) It has morphed from the personnel department of the 1950s to an important strategic planning partner in the 21st century firm. The main functions include: job analysis; employee recruitment, retention and motivation; performance evaluations; training; labor relations; government compliance such as equal employment opportunity and safety issues. It is often how a company defines "most effective" that causes strife with employees. Is the profit-making mission more important than staff retention rates How much money should be spent on benefits, and does that money yield a return on the investment by increasing productivity Modern, smart HR departments are just as concerned with identifying and solving people problems to help further the organization's needs and goals. On the other side of the coin, HR needs to be concerned with what employees' needs and goals are as well. Many companies, not just Microsoft, have cut benefits and salaries as well as jobs. Others have reorganized for efficiency, though likely not as often as Microsoft does. So why all the uproar over cuts in benefits many American workers do not even get Microsoft's position as the industry leader and integral player in the Information Age economy make it a bellwether company in many respects. Employees clearly feel a stake in the company, if the blogger opinions run true to those of their colleagues. If Microsoft's most recent reorganizations are to truly get at fundamental problems with corporate structure, it should be able to maintain or improve on growth comparable to companies of its size and market share. The need to cut benefits would naturally decrease if profit growth continues at rates that benefit an entrepreneurial and innovative company. Preserving the culture it had during the 1990s may not be feasible or even desirable, as the nature of the way it does business has changed. However, the company needs to continue to ensure that employees understand the benefits of change, while understanding they are hyper-aware of Microsoft's dealings. 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