IB Business Management HL 2.2 Organizational structure Question Bank

3. 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, H N 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 H N 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.

5. Thorns Hill (TH)
Thorns Hill (TH) is a hotel. Its mission statement is "to provide the highest standard of customer service and to be the best employer". TH has three profit centres, each with its own manager:
- sleeping accommodation
- restaurant
- function room for weddings, conferences and other events.
The function room offers entertainment facilities and purchases catering from the hotel restaurant. The function room employees are mostly students working in their spare time. They have flexible contracts that do not guarantee hours of work nor provide benefits such as paid sick leave or holidays.
The use of flexible contracts has reduced the function room's annual wage cost by 40 % over the last five years. The de-layering of supervisory posts (positions) has further reduced the cost of wages. With these cost savings, the profits of the function room have increased significantly. Recently, issues with punctuality, absenteeism and labour turnover increased.
30 % of the restaurant's sales revenue comes from catering for the function room. The restaurant recently won an award and, in the summer season, is always full of diners. In summer the restaurant has difficulty meeting the catering demands of the function room. Meals ordered often arrive late from the restaurant.
Competition in the market for function rooms is high. The owners are considering a proposal to improve the reputation of the function room by outsourcing all the services of the function room to a private contractor. The private contractor will charge TH more than the direct cost of the function room.

3. 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.

3. Turners
Turners is a famous hotel located in a large city. It is positioned as having the highest quality of customer service and most of the employees have worked for Turners for over ten years. Regular customers like knowing the employees at reception and other areas of the hotel. Many customers have commented on the unique style of customer service at Turners. They like the fact that the people in the photographs used in promotional materials are actually the people they interact with when staying at Turners.
Turners has an expensive, award-winning restaurant. Turners had used a price skimming strategy with room rates at over $ 1000 per night. However, new competition from three other recently opened hotels and other changes in the external environment have resulted in revenue becoming more cyclical. Profits are falling.
Surprisingly, the General Manager, Shane Peterson, also received some negative customer feedback from a random sample of customers. Firstly, they claim that Turners' online booking system is slow and unreliable. Customers complain of an overbooked restaurant and untidy leisure facilities. Business customers argue that the newer competing hotels offer better customer service, high-speed internet and other business services for no extra charge. As a result, Shane is reviewing Turners' marketing mix.
Shane has to focus on improving customer service as well as reducing costs. He is considering two options:
- Reducing labour costs by implementing Handy's shamrock organization.
- Outsourcing Turners' staff training programme. Currently, it uses an internal, on-the-job staff training programme where experienced staff train new employees.
The cost savings from using Handy's shamrock organization would reduce salaries and wages by 7 %. Outsourcing Turners' staff training programme would reduce training costs by 9 %. These combined savings could allow Turners to offer high-speed internet and other business services for no extra charge to customers.

4. Creative Bleu (CB)
Creative Bleu ( C B ) is an Australian media private limited company which has produced many innovative television (TV) commercials. Jennifer Joyce, the Chief Executive Officer (CEO), set up the company with three college friends. C B now employs 24 people.
The organizational culture is technological, collaborative, innovative and task-orientated. Flexible project teams of four are created and rotated to generate new and creative ideas. On occasions, decisions are made intuitively. All employees have equal input into the decision-making process. C B has an employee share-ownership scheme, and profits are shared among all of the shareholders. Jennifer has a democratic leadership style. Staff turnover at C B has been very low.
C B has received a substantial contract to produce a TV commercial. The commercial will be for a new product. The commercial will also help C B gain entry into a new international market: South Korea. The long-term financial benefits for C B could be significant, but Jennifer is worried that C B will use all its working capital on this operation. Moreover, C B does not have a Korean speaker amongst its staff.
Jennifer and the staff see the production of the TV commercial as an opportunity for C B to enter a new market and grow. Jennifer has two strategic options for C B :
- grow internally by producing the TV commercial in Australia. CB would finance the whole operation and employ additional staff: translators, local Korean actors, and technical support staff.
- form a joint venture with a Korean media company. C B would share the costs of the operation with them. The TV commercial would be produced in Seoul, South Korea. Given the size of the operation, C B would relocate one of their teams to Seoul.

5. Metro Town (MT)
Metro Town (MT) is a football (soccer) club that has exceeded all expectations by winning a national football cup competition. M T is managed by Dave Mater and the football team is captained by his son Wayne. MT had faced closure in 2012 due to cash-flow problems. However, the cup win has provided much needed revenue to pay players' wages and also profit to finance working capital. MT's stadium is old and needs repair. The club had faced bankruptcy because Dave had not followed budgets. For example, as part of its commitment to corporate social responsibility, MT spent too much on social marketing to encourage healthy eating and youth sport participation in the local area.
Dave had created an open informal organizational culture at M T. He had introduced a matrix structure with Wayne conducting most of the training sessions. Player turnover at the club was very low. However, a few high profile players, disliking Dave's management approach, have threatened to leave M T. However, the cup success and the possibility of a joint venture with another club has encouraged them to stay.
MT's cup success has attracted the interest of a larger club Dynamo. Last year Dynamo lost many games and as a result ticket sales fell. Dynamo's Chief Executive Officer (CEO), Gary Driver, has proposed to Dave a joint venture. Dynamo and MT would share a new stadium financed by Dynamo. It would provide both clubs with modern training facilities, which would help all players to become more skilled. Dave was interested and at a team meeting at his home he proposed the idea. However, he argued that the Dynamo culture, which is more centralized and autocratic, could lead to cultural clashes. Then unexpectedly, without consulting Dave, his son Wayne decided to sign a two-year contract to play (work) for Dynamo's football team.