Bertelsmann AG, the parent company of BMG International, is one of the largest media enterprises. It has subsidiaries that do business in several different areas from Music to Printing and Manufacturing. It promoted autonomous and entrepreneurial business divisions. We can say the Bertelsmann AG runs its company as a "Decentralized Federation", which means that the organization pattern is a loose federation of independent national subsidiaries, each focused primarily on its local market. Each business had performance linked compensation as a source of motivation to meet their target. By 1992, Bertelsmann became the second largest media enterprise in the world.
After creating Bertelsmann Music Group (BMG) in 1986, Michael Dornemann, CEO of BMG, divided the company in two divisions, creating BMG International led by Rudi Gassner. Unlike its parent company, BMG International was mostly set up as a "Coordinated Federation". Even though Rudi Gassner thinks that he adopted to run BMG International the same way as the parent company, he still adopted to keep a centralized control of its subsidiaries. Exhibit 2 of the case gives us an organizational chart of BMG International. The Managing Directors had the freedom to decide on the strategy to adopt for the local market they were responsible for, however, the regional directors were used as a control system to make sure that Rudi Gassner's decisions were followed. The system set by Gassner was very strict and inflexible. The tensions between centralized corporate control and decentralized local management in a global organization
Before the creation of BMG International, all employees were used to the parent company's management style, the culture was very entrepreneurial. All of the Managing Directors are used to that style of management. Rudi Gassner carefully selected its Regional Directors, mixing different background, some from inside the company, others from RCA corporate staff were all from outside BMG. I believe that Rudi Gassner set up his organization that way to be able to better control its organization to break away from the parents culture and set up a more centralized system. However, there is a disconnect in BMG International Structure. The corporate staff and the RDs are used as a system of controls to oversee the MDs to provide leadership and to manage them. On the other hand, Rudi Gassner is sending a message to the MDs that they are responsible for their own territories, as Gassner said "You are Mr. France, You are Mr. Belgium, etc " But encouraging an entrepreneurial environment and having tight control at the same time are two contradictory systems. An entrepreneurial and decentralized system allows quick responsiveness and high flexibility on the local level, while a centralized system inhibits that as the have a tight business plan that they have to conform to, or else. Rudi Gassner is trying to implement a strategy that is global, while each MD's are more focused on their local market. However, as Henn,the head of A&R management, describes Gassner's management style as "Autocratic". Gassner tends to push down his strategy on his employees. An example is the Executive committee. The committee was set up to decide on business issues jointly. However, as time passed by and as many Executive Committee Meetings passed by, the business decision that was relevant was the one Rudi Gassner chose.
So far Gassner's...