Evaluate how organizational design, reporting lines and decision authority shape coordination, control and flexibility in IB Business Management HL cases.
Transfer
Transfer is a publicly traded shipping business. Its success has been built on its ambitious mission statement:
"Our shipping business will always be about providing a first class service to our customers and making it last. Whatever it takes."
Managers at individual regional profit centres were empowered to make their own decisions in response to local market conditions. Transfer's financial reward package allowed employees to share in their regional profit centre's performance through an employee share-ownership scheme. Transfer had consistently won awards for its excellent customer service. Management and staff turnover was very low.
However, after years of profits that were low by industry standards, Transfer suffered a significant financial loss. The current chief executive officer (CEO) claimed it was due to increased global competition and rising direct costs. Transfer's non-employee shareholders, who owned 60 % of Transfer, demanded that immediate action be taken. At the most recent annual general meeting (AGM) the CEO was forced to resign. A new CEO, Heather Davies, was appointed.
Heather had a reputation as an autocratic leader. She had a successful record of returning loss making companies to high profits, but only after making significant changes. At her first press conference, Heather announced her plan to:
- reduce two-way communication and create a much higher degree of centralization within Transfer
- remove all profit centres.
Immediately, Heather dismissed many managers who were, in her opinion, unproductive.
She defended her actions by arguing that Transfer had become inefficient, with poor decision making at regional levels. Heather argued that regional profit centre managers were setting their own objectives which did not follow the mission statement.
At the same time, an unknown manager gave a national newspaper interview which was highly critical of Heather's leadership style, with examples of workplace unrest. When Heather found out, she threatened to dismiss any manager who questioned her authority or the new plan. Six months later, Transfer's share price had grown by 15 % and profits had begun to significantly increase.
Identify two characteristics of a company with a high degree of centralization.
Kos Palouk’s own business It was clear that the construction of a new facility would create a number of opportunities for local entrepreneurs in a range of different markets. Kos had already started to think about the future of his own small produce distribution business. Should he expand it? He knew that he could increase the scale of his business operations with the UWP Mission without any additional marketing. This would also allow for significant economies of scale, but the logistics would be more complex. He would have to drive and collect produce using dangerous remote unpaved roads outside the protection of the UWP Mission. These remote communities might perceive Kos as collaborating with the UWP troops. He would also have to dedicate all his time to his business and would no longer be able to work in the officers’ dining hall. Although that job did not pay particularly well, it was in a safe environment and provided a regular source of income. To collect larger quantities of produce in remote areas, Kos would need to purchase a large lorry (truck). He discussed potential sources of finance with his bank. The bank manager indicated as a condition for the granting of a loan that the bank would require the lorry as collateral. Secondly, the poor quality of the roads meant that the lorry would lose value quickly.
| Source of income ($ per month) | Option 1 | Option 2 |
|---|---|---|
| (i) Produce distribution business (from Appendix 5a above) | 150 | 1500 |
| (ii) Salary from job at the officers’ dining hall | 500 | 0 |
| Total income from all sources | 650 | 1500 |
To support himself and his family, Kos needs an income of $550 per month.
The UWP Mission to Loyka was based in Beral, the capital of the country. The autocratic General Ron Meiri was appointed by the UWP as Commander. The organizational structure of the UWP Mission was tall and centralized, with several levels of hierarchy and a narrow span of control (Appendix 1). This structure fitted well with the organizational culture of the military. This organization was not flexible, but it ensured that orders were clearly understood and always followed. As a consequence the security of the UWP troops was maintained.
UWP Mission organizational chart
N.B. Battalions are divided into companies, companies into platoons, and platoons into squads (as is demonstrated with the second battalion). These subdivisions would apply to all other battalions in the organizational chart.
"The organizational structure of the UWP Mission was tall". Explain one advantage and one disadvantage of this type of structure.
Healthy Nation (HN)
Healthy Nation (HN) is a pharmaceutical organization that used to operate in the public sector, selling its medicines (drugs) to hospitals at very low prices.
With increasing government funding over several years, HN increased the number of employees in its Research and Development Department, which was staffed by scientists, and in the Manufacturing Department. However, both departments were inflexible and inefficient. Resources were significantly under-utilized, and innovation limited.
HN's structure used to be hierarchical, with a very long chain of command and channels of communication. Senior management made the decisions and set the production levels. Consequently, the scientists in the Research and Development Department never developed decision-making skills, and development of new medicines was slow. In 2021, after many years of losses, the government sold HN to a profit-maximizing global pharmaceutical manufacturer, Global Pharma (GP).
To improve productivity, efficiency and flexibility, the management of GP reorganized HN as a shamrock organization by:
- outsourcing the production function to a well-known manufacturer
- retaining the Research and Development Department, along with its scientists and support staff, and employing additional staff when required.
In addition, two major changes were announced:
- Establishing performance-related pay for the scientists based on a new appraisal system to increase productivity levels.
- Using an expensive external company to provide cognitive training to the scientists to develop innovative decision-making and improve teamwork.
These changes have proved to be very unpopular, and the scientists in particular are resisting the changes and the short time frame in which they will be implemented.
Explain one benefit and one limitation for GP resulting from the implementation of the shamrock organization structure for H N.