After reading this chapter, you should be able to:
1 2 Discuss the factors that influence a firm’s organizational structure. Explain specialization and departmentalization as two of the building blocks of organizational structure. Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design. Describe the informal organization and discuss intrapreneuring.
COOKING UP A NEW STRUCTURE
For years, the Sara Lee Corporation grew by buying an amalgam of different businesses and piecing them together under its corporate umbrella. And for years, the firm’s senior managers have struggled with how best to structure the various Sara Lee holdings. One former long-term CEO, John Bryan, presided over growth that took Sara Lee far beyond 172
ORGANIZING THE BUSINESS
its foundation in food products to encompass dozens of business lines—everything from cake mixes to insecticide to lingerie. The various businesses were acquisitions, but their original managers still controlled each one as if it were a separate company. Hence, each business retained its own legal department, human resource staff, administrative units, accounting departments, and so forth. Calculating the cost of all this duplication, Bryan reached the conclusion that the company could not afford such high costs at a time when price compe—Consumer-products analyst on one of the drawbacks tition was heating up. In an effort to fix things, starting in 1997, Bryan of extensive reorganization sold or eliminated about one-quarter of the firm’s 200 products. He cut redundant factories and the workforce, reduced the number of products, and standardized companywide processes. His goal was to remove Sara Lee from manufacturing while strengthening its focus and effectiveness as a marketer. In the meantime, though, he continued to acquire rival firms in order to sustain the company’s growth. However, despite Bryan’s efforts, Sara Lee still suffered from high costs and remained unfocused and inefficient. Said one industry analyst about Bryan’s strategy: “Sometimes, the more chairs you move around, the more dust you see behind the chairs.” In 2000, Bryan retired and was replaced by C. Steven McMillan. McMillan knew that Bryan’s moves had had little impact on the firm’s performance and that he himself would need to start making some big changes. Borrowing a page from rival Kraft Foods, he began by merging the sales forces that specialized in various brands to create smaller, 173
Sometimes, the more chairs you move around, the more dust you see behind the chairs.
Part II: The Business of Managing
customer-focused teams. In meats alone, for instance, Sara Lee had 10 different brands, including Ball Park, Hillshire Farms, Bryan, and Jimmy Dean. “So if you’re . . . a Kroger or a Safeway [supermarket],” explained McMillan, “you’ve got to deal with 10 different organizations and multiple invoices.” The new customer-focused teams reduced duplication and were more convenient for buyers—a win-win situation. National retailers responded by increasing their orders for Sara Lee products. McMillan also centralized decision making at the firm by shutting down 50 weaker regional brands and reorganizing the firm into three broad product categories: Food and Beverage, Intimates and Underwear, and Household Products. He abolished several layers of corporate hierarchy, including many of the middle managers the firm had inherited from its acquisitions. He created category managers to oversee related lines of business, and the flattened organizational structure led to improved accountability and more centralized control over Sara Lee’s far-flung operations. McMillan also borrowed some tactics from his...
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