Advance Topics in Change Management Lecture 11: Organizational Size, Growth and Decline

Objectives To consider how the size of an organization affects its structure. To explore the ‘organizational life cycle’. To examine the need for bureaucracy as a means of control in large organizations. To explore ways in which organizations can be revitalized.

SIZE AND STRUCTURE Increasing number of employees leads to: –Increasing formalisation of procedures –Increasing role specialisation –More delegation to senior managers And to: –Proportionately fewer top managers but more professionals –Especially in organizations with between 100 and 2000 employees

An Example of Moving from Stage 1 to Stage 2 and then to Stage 3 April 2003 Development of wave-energy device begins Researchers at Queen's University Belfast begin developing Oyster wave power technology. February 2005 Aquamarine Power established Aquamarine Power is established to commercialise Oyster wave power technology. October 2007 Aquamarine Power joins forces with SSE Scottish and Southern Energy, a large UK utility firm, buys a stake in Aquamarine Power. August 2008 Appointment of management team Aquamarine Power appoints an experienced management team led by CEO Martin McAdam. August 2010 Company expands to about 100 employees Divisional managers (different engineering functions, manufacturing, marketing) appointed

CHARACTERISTICS OF DEVELOPMENT STAGES I IIIIIIIV ENTREPRENEUR’LCOLLECTIVITYFORMALIZATIONELABORATION CHARACTERISTICNON- BUREAUCRATIC PRE- BUREAUCRATIC BUREAUCRATICDECENTRALIZED BUREAUCRATIC STRUCTUREINFORMAL, ONE- PERSON SHOW MOSTLY INFORMAL SOME PROCEDURES FORMAL PROCEDURES DIVISION OF LABOUR ADD NEW SPECIALITIES TEAM-WORK WITHIN BUREAUCRACY, SMALL COMPANY THINKING PRODUCT/ SERVICE SINGLE PRODUCT/ SERVICES MAJOR PRODUCT/ SERVICES LINE OF PRODUCT/ SERVICES MULTIPLE LINES REWARD AND CONTROL SYSTEMS PERSONAL, PATERNALISTIC PERSONAL, CONTRIBUTION TO SUCCESS IMPERSONAL, FORMALISED SYSTEMS EXTENSIVE, TAILORED TO PRODUCT AND DEPARTMENT

CHARACTERISTICS OF DEVELOPMENT STAGES II IIIIIIIV ENTREPRENEUR’LCOLLECTIVITYFORMALIZATIONELABORATION CHARACTERISTICNON- BUREAUCRATIC PRE- BUREAUCRATIC BUREAUCRATICDECENTRALIZED BUREAUCRATIC INNOVATIONBY OWNER / MANAGER BY EMPLOYEES AND MANAGERS BY SEPARATE INNOVATION GROUP BY INSTITUTIONAL’D R&D DEPT GOALSURVIVALGROWTHINTERNAL STABILITY, EXPAND MARKET ENHANCE REPUTATION TOP MANAGEMENT STYLE INDIVIDUALISTIC, ENTREPRENEUR’L CHARISMATIC, GIVES DIRECTION DELEGATION WITH CONTROL PARTICIPATION TEAM APPROACH

GlaxoSmithKline - Questions Read the FT article on GSK. Where would you place it on the organizational life cycle and why? How would you describe GSK’s reward and control systems? What ‘routines’ can you identify in the article? How are these related to its objectives?

GSK Moving into elaboration (decentralized teamwork) phase The unit, a semi-autonomous business with an entrepreneurial culture more typical of a small biotechnology company than a drug multinational, became their reference point for the creation in early 2001 of seven "centres of excellence for drug discovery" (CEDDs) in Europe and the US, of which Stevenage houses two. The heart of his strategy was the creation of "fully empowered, multi-disciplinary teams" of no more than 300 people - the size of many of the successful biotech companies with which GSK and its rivals have signed alliances. "I only rigidly control the headcount," he says. "300 is a human size where people can hold each other accountable."

GSK Moving into elaboration phase However, CEDDs have made a big difference. The first has been the ability to stop and start research projects more quickly than in the past, saving substantial research costs. "Before, we could be stuck for years with a project that was not viable, because the visibility was not there. The layers of management between me, the leadership team and the bench scientists have been compressed." A second change has been tighter integration of chemistry and biology, creating an approach dubbed "medicinal chemistry". In the same way, the CEDD co-operates closely with other parts of GSK. That has led to early co-operation as specialists from both sites discuss how far ideas developed in the laboratory are practicable for large- scale manufacture. each CEDD has its own finance director

GSK – Pay Extensive – presumably; tailored – hard to say: A final factor with the CEDDs is performance-linked remuneration, which accounts for about 20 per cent of the scientists' pay. But, as in any company, Mr Rapeport concedes that devising individual targets for team members is difficult. Social control

GSK – Routines Multidisciplinary teams – finance, manufacturing, chemists, biologists "nodes" on each floor where staff sit and are encouraged to sip free coffee while exchanging ideas. –Underpins idea that collaboration and teamwork are important All to increase the speed of drug development

FIVE PHASES OF ORGANISATIONAL DEVELOPMENT I 123 BIRTHGROWTHMATURITY FREQUENT INNOVATIONBROADEN PRODUCT LINESFEW CHANGES FINDING UNFILLED NICHES INCREMENTAL INNOVATIONFOLLOW COMPETITION USE OF MIDDLEMENMARKET SEGMENTATIONBROADER MARKETS VERTICAL INTEGRATIONLOBBYINGLARGE SMALLRELATED ACQUISITIONSENLARGED OWNERSHIP ONE, OR FEW, OWNERSINCREASED SIZEDIVERSE BOARD SIMPLE, CENTRALISEDBROADER OWNERSHIPFUNCTIONAL RISK TAKINGFUNCTIONALSALARIED MANAGERS INCREASED STAFFLESS DELEGATION LESS RISK TAKINGEFFICIENCY FOCUS CONSERVATIVE DECISIONS

FIVE PHASES OF ORGANISATIONAL DEVELOPMENT II 45 REVIVALDECLINE MANY INNOVATIONSPRICE CUTS DIVERSIFICATIONOUTDATED PRODUCTS NEW MARKETSSHRINKING MARKETS MANY OWNERSNO CLEAR STRATEGY DIVISIONALRESTRICTED OWNERSHIP CENTRALISED STRATEGYSIMPLE STRUCTURE DECENTRALISED OPS.CENTRALISED INCREASED SCANNINGLITTLE SCANNING RISK TAKINGEXTREME CONSERVATISM LITTLE INNOVATION RISK AVERSE

Phases of Organisational Decline: Problems and Remedies Problem phasesRemedies BlindedGood information InactionDiagnose and implement change Faulty ActionCorrect mistakes and maintain commitment CrisisEffective re-organisation DissolutionNone

Corporate Turnaround: Phases in Revitalisation Facing the crisis: retrenchment and cost cutting: reactive phase Reinvestment: focusing on core skills and investing in them for the future Rebuilding: reshaping the organisation around the new goals and skills for the future

Leadership in Corporate Turnaround Situations New Visions Mobilising Commitment Changing routines and structures to support the new strategy

Corporate Turnarounds: Fiat - Marchionne’s gamble and One Way to Mobilise Commitment! The reason for the unions’ anger was Mr Marchionne’s [CEO of Fiat and Chrysler] great gamble. In a last-ditch attempt to fix Fiat’s loss-making Italian manufacturing base, he is promising to invest €20bn ($27bn) to double the country’s vehicle production by 2014.unions’ anger But it comes at a price: in return, Italian workers, who are among the world’s most protected, must adopt US-style flexible contracts. If they refuse, Mr Marchionne will pull Italy’s biggest private employer out of the country altogether. Industrial jobs seen as a birthright in Fiat’s home market could go to lower-cost sites in Poland, Serbia – where Fiat owns the vast former Zastava plant that once made the cheap Yugo car – or elsewhere.US-style flexible contracts 30 September 2010http://

Other Ways to Prevent Corporate Decline Acquire emerging companies –But potentially risky Diversify into unrelated areas Radically alter the focus of the company Establish joint ventures/strategic alliances to learn!

REQUIREMENTS FOR LEARNING FROM JOINT VENTURES AND ALLIANCES Recognition of the value of joint venture as a mechanism of learning Willingness to collaborate openly, whilst being aware of ‘no-go’ areas Making learning an explicit goal Focus on long-term learning, not short-term outputs Capacity to learn –Transferability of the knowledge –Receptivity of employees to learning –Absorptive capacity of the firm –Previous experience in learning

Conclusions There are general patterns to the ways in which organizational structures change as firms grow. These are not, however, set in stone. There are several ways in which companies can try to fight off decline and dissolution. These may be easier to achieve in theory than in practice.