Background and Issues
In 1985 G.J Coles, primarily a Melbourne-based supermarket chain, merged with Myer Ltd, an upmarket Melbourne department store, becoming Coles Myer Ltd. The merger was brought on by an expectation of significant cost savings from sharing services and overheads such as purchasing, warehousing, information technology and property. However these benefits never occurred. Coles Myer was burdened with poor management, bad strategic decisions, and internal conflict. Their share price was faltering, and lagging behind their biggest competitor Woolworths, and profit had been stagnant for three years. In September 2001 the board appointed John Fletcher as chief executive, well known for his part in turning Brambles into a successful international company. Fletcher’s first priority was to do something about Coles Myer’s share price, however he recognised that to be able to change it he must first deal with the companies strategic and structural problems.
This analysis of organisational design and effectiveness will discuss the issues experienced by Coles Myer, discussion of theories related to the these problems and possible solutions, an examination of what is being done, and what else could be done to improve the situation.
One of the biggest problems facing Coles Myer was organisational culture. With the Coles and Myer target markets being downmarket and upmarket respectively, compatibility of their cultures became an obstacle after merging. In order to achieve the anticipated merger benefits, Coles with their mass merchandising mentality would have to find a way to amalgamate many of their functions, tasks and processes with Myer’s, who dealt with chic, and more expensive luxury items.
In addition to this, Fletcher believed the Coles Myer culture had become too bureaucratic. A clear demonstration of this bureaucracy was in the headquarters of Myer in Melbourne, which was built as a statement of purpose, place and status. Also, since the merger, the Coles Myer bureaucracy had allowed several uncooperative silos to develop. This problem was worsened by the recent appointment of overseas managers to head the main businesses.
As a conglomerate, Coles Myer had the difficulty of having to coordinate a diverse range of businesses including Coles, Red Rooster, Target, and Myer. This was not helped by various newly appointed managers would change business strategies confusing employees and consumers. The result of this was that each business struggled to find its position in the marketplace and in the Coles Myer business family. Myer also struggled to find its place, it was continually under-performing, and it wasted a substantial amount of management’s time. Fletcher also initiated considerable organisational change upon his appointment, including standardisation IT throughout the company. He also worked towards developing a coherent strategy for each of the Coles Myer businesses, breaking down the bureaucracy, and developing a common culture.
The Machine Bureaucracy
Coles Myer demonstrates many of the characteristics of a machine bureaucracy. “It is an organisation with very routine and formalised operating tasks, rules and regulations, which is highly centralised” (Robbins & Barnwell, 2006, pp. 123). Being such a large organisation it has to rely on these formalised tasks, rules and regulations for coordination and control. The main strength of a machine bureaucracy is its highly efficient ability to perform standardised tasks. Like specialties within the organisation are grouped together to achieve economies of scale and reduce the duplication of personnel and equipment (Robbins & Barnwell, 2006, pp. 124). Many employees have the sole purpose of maintaining standardisation, and a large number of these would have been included in the 1000 back-office staff that was made redundant by Fletcher in his progress towards making Coles Myer less bureaucratic....