Company Restructure

Introduction

In the modern working environment, the organisational structure occupies an integral part in the management of the organisations. The organisational structures are seen as vital components of organisations as a result of their significance of the operations’ effectiveness and performance of goals (Armstrong & Rasheed, 2013). The organisational structure can be defined as a mechanism that connects and coordinates employees within the framework of their duties, power, and authority. The organisational structure makes a representation of a useful tool, which directs the behaviour of the individuals within the organisation through goals, values, and norms (Liao, Chuang, & To, 2011). Tran and Tian (2013) describes the organisational structure as a tool that organisations use so as to differentiate and integrate through the allocation of work roles and activities. In the recent past, there has been an increased attention from the researchers who seek to determine which structures are the most advantageous to the organisations and those that may be disadvantageous. The general conclusion has been that the organisational structures ought to be responsive to a variety of individual needs of the businesses (Bourhis & Dube, 2010). The possibility of the existence of some organisational structures that may be deemed tools of success leads to the need for institutions to change their organisational structures. In addition, some organisations change their structures in order to adjust to changes in the business world or market in which they operate. In order to understand different aspects of organisational structures, this essay will investigate the concept of organisational structure, the advantages and disadvantages of its change with a focus on various theories and case studies.

Organizational Structure

The organisational structure gives the individuals an opportunity to realise the objectives of the organisations as it enables their coordination and management. Moreover, it enables the identification of the reporting structure and delineates formal channels of communication. It also describes how different actions of the individuals are interconnected. The organisations are able to perform within various structures that possess distinct advantages and disadvantages (Burns & Hewitt-Dundas, 2010). Furthermore, any structure that is not well managed will be plagued with issues that will lead to its failure, but some of the organisational structures are well suited for specific tasks and environments. The organizational structures enable the division of work through departments, control, and decision-making.

Among different structures that organisations use one may outline the most widely used structure, which is described by Burns and Hewitt-Dundas (2010) as mechanistic and organic. The functions in this form of organisational structure are highly formal, standard, and centralised (Mehrabi, Alemzadeh, & Jadidi, 2013). As such, the individuals who work under this kind of structure understand their responsibilities clearly, and it is expected that they will follow certain guidelines, which are specified by the policies, procedures, and practices. There is also the organic organisational structure, which is relatively flat, adaptable to the situation, and flexible. In this case, the behaviour of the individuals is guided by their mutual goals and values (Mehrabi, Alemzadeh, & Jadidi, 2013). In addition, the organisations that have the organic structure have various characteristics, such as informal networks of authority and communication. There is also informality in the opportunities of individuals to participate in the decision-making processes (Gao, 2011). Therefore, it is important for the institutions to design their structures according to their strategies, and the internal and external environmental conditions (Agar, 2012). The researchers have also identified that the organisational structure affect the leadership styles, performance, job satisfaction, employees’ trust, participation, fairness, and learning in the organisations (Hao, Kasper, & Muehlbacher, 2012).

There are blocks that build the organisational structure as depicted in literature; and they include the formalisation, centralisation, and complexity. Thus, these building blocks and their combinations determine the form of organisational structure that any organisation possesses.

Centralisation

Centralisation refers to the degree to which power of making decisions is concentrated on the high levels of the organisation. In centralised organisations, all important decisions are made by high ranking persons; while in decentralised companies, the decisions and problem solving are made within the low levels by the individuals who are close to the existing problem. Next, there is more authority in the lower levels of the decentralised organisation, and the employees have a high level of empowerment. In addition, decisions are made quickly, and the employees feel that there is higher procedural fairness. In some instances, it has been seen as though the centralised organisations tend to be inefficient due to greater demand caused by the judgement capabilities of the CEOs and high-level managers. The amount of pressure that is put on the top level managers results in poor decision-making.

For example, in the 1980s, Caterpillar, the industrial equipment manufacturer, suffered heavily due to its centralised decision-making structure. During this time, all the purchasing decisions of the multinational corporation were made at its headquarters in Peoria, Illinois (Goh & Anderson, 2007). Consequently, if a sales person working in Asia or Africa wanted to give a discount for a given product, they had to consult the headquarters. Sometimes, the headquarters did not respond timely or satisfactorily, or they did not have adequate information that would enable making the appropriate decisions (Goh & Anderson, 2007). Subsequently, the company did not have competitive advantage over its rivals such as Japan’s Komatsu, and it started losing its market share. In order to regain its market position and competitive advantage, the company has been restructured and reorganised in the 1990s and the 2000s (Goh & Anderson, 2007).

However, the centralisation is also advantageous in some instances. For example, some employees feel comfortable when the management gives firm instructions and makes decisions confidently (Holtz & Harold, 2013). It may also lead to operational efficiencies especially when the organisation is operating in a stable environment (Holtz & Harold, 2013). Decentralisation could also have its disadvantages when done to extreme levels. For instance, there are analysts who believe that the Federal Bureau of Investigations suffers some setbacks due to its structure that is based on the assumption that investigations ought to be conducted after the crime has been committed. Over time, this assumption has led to a situation where each of the FBI units is decentralised; as a result, the field agents make determinations on the approaches to be used in conducting the investigations (Carpenter & Krause, 2012). However, due to the changes in the nature of crimes, it is necessary for the FBI to gather intelligence prior to the occurrence of crimes, and it requires centralised decision-making (Carpenter & Krause, 2012). Therefore, it is necessary to fully understand whether the organisation should be centralised on decentralised.

Formalisation

It relates to the extent to which the policies, job descriptions, rules, and procedures of the organisation are overtly enunciated. The formalised structures include those that have numerous written rules and regulations, and they control the behaviour of the individuals, which reduces their autonomy to make decisions based on individual cases (Sakowski, Vadi, Merikull, & Merikull, 2015). The formalised structure has its advantages as it makes the behaviour of the individuals predictable. Moreover, whenever there is a problem at the workplace, the employees understand the procedure of dealing with it (Garicano & Wu, 2012). Consequently, there is uniformity in the ways that individuals respond to issues throughout the organisation, and it results in behavioural consistency.

However, formalisation also has its set of disadvantages.Among them, there is the reduced innovation due to strict procedures set aside (Garicano & Wu, 2012). Obviously, in the organisations that have formalised structures, strategic decisions are only made in cases where a crisis arises. In the organisations that have formal structures, there is reduced motivation as well as reduced pace of decision-making process. It is a form of organisational structure that would not be ideal for the service industry as the employees are sometimes expected to take immediate actions when listening to the problems of clients, and the response may not be given in written procedures. For example, the lower level employees who deal directly with the passengers in airplanes should have the capability to make decisions and resolve problems when facing complaints. In addition, due to the wide range of problems that clients may present, it would not be ideal to have a set of responses that might not cover the current situation (Garicano & Wu, 2012).

Hierarchical Levels

It is also important to note the number of levels that exist in the hierarchy of a company’s structure. The company with multiple layers has a tall structure, while the one that has a few layers only is known to have a flat structure. In tall structures, there are a small number of employees reporting to each of the managers, which increases the opportunities for the management to supervise and monitor the activities of the subordinates (Charbonnier-Voirin, El, & Vandenberghe, 2010). On the other hand, the flat structures consist of a large numbers of employees reporting directly to the same manager, and, as a result, the manager may be unable to provide direct and close supervision. Consequently, the employees have a high level of freedom in their actions and completion of tasks. The research has indicated that organisations with the flat structure provide their employees with the satisfaction of needs and high levels of self-actualisation (Charbonnier-Voirin, El, & Vandenberghe, 2010). However, when the manager has to supervise a large number of employees, it may lead to the development of some level of ambiguity in terms of the employees’ roles and job expectations. It may be disadvantageous for the employees who require close guidance from their supervisors (Wickramasinghe, 2016). In addition, the flat structure does not provide many opportunities for advancement as there are few levels of management. The employees indicate that the tall structures are better than the flat ones in the satisfaction of their employment security needs (Wickramasinghe, 2016). For example, most large and well-established companies such as Cargill have a tall organisational structure, which improves a sense of job security.

In accordance to Mintzberg’s five organisational structures, the described building blocks act as the main determiners of different types of the structures. Lunenburg (2012) describes different structural configurations as presented by Mintzberg. They include simple structure, machine bureaucracy, professional bureaucracy, divisional form, and adhocracy. The simple structure involves direct supervision, and the strategic apex is the critical organisation’s key part. It has vertical and horizontal centralisation. Machine bureaucracy has standardised work processes, and the key part of the organization is the technostructure (Lunenburg, 2012). This form of structure has a limited horizontal decentralisation. Professional bureaucracy has standardised skills, and its most important part is the operating core. There is also vertical and horizontal decentralisation. Divisional form has standardised outputs, and the middle line is the most critical part of the organisation (Lunenburg, 2012). It has limited vertical decentralised structure. Finally, the adhocracy involves mutual adjustment of the coordinating mechanisms, and the support staffs play a significant role within the organisation. Hence, its decentralisation is selective (Lunenburg, 2012). In line with the described parts of the organisation, Figure 1 below shows these different parts.

Organisational Structure Change

The organisational structure change is an extremely delicate process that organisations might have to go through sometimes. It impacts on numerous people, processes, technologies, systems, departments, and business areas among others. Corporate restructuring may be advantageous or disadvantageous to the organisation, and it is necessitated by the changes either internally or externally. Changing the structure of an organisation may take a variety of approaches, and one of them is delayering. The latter is the reduction of the levels that exist in an organisation’s hierarchy. Although there is the reduction of the layers and reporting lines, it does not necessarily mean that employees will be laid-off, but it means that there is an increase in the average control span of the senior management within the organisation. It is a process that entails radical redesigning of an organisation’s structure by taking into account technological development, client demands, and education. Consequently, the organisational pyramid is flattened, and it becomes more horizontal. However, the process is not easy to attain, and some of the common causes of failure include a change in the reward system that emanates from the structural change. An example of delayering took place when Hewitt Packard (HP) management restructured its organisation before the merger with Compaq. Prior to the restructuring, the company had a culture of encouraging career progression through promoting individual responsibility and effort. However, the management recognised that delayering the structure would mean that their ability to control would be cumbersome and bureaucratic and that they would have less time to devote towards employee development.

The process has been associated with various advantages, which include:

· The need for fewer managers

· Reduced bureaucracy

· Quicker decision-making processes

· Encouragement of innovation

· Taking the management closer to the clients

· Production of cross-functional employees

However, it also has some disadvantages, which include:

· In some cases, some of the employees, especially in middle management, have to leave the organisation, which leads to the loss of valuable knowledge and human capital. It may also result to survivor syndrome for the remaining employees, which reduces their motivation due to heavy workload, stress, and burnout that they have to withstand.

· As a result of fewer layers in the structure, the employees understand that there will be reduced opportunities for promotions. In relation to the tournament theory, the promotions are regarded to as prizes by employees, and when the opportunities to get the prize are reduced through delayering, demotivation ensues (Connelly, Tihanyi, Crook, & Gangloff, 2013).

The advantages and disadvantages of the changes in the structure of the organisation depend on various factors including the reasons for restructuring and the features of old and new structures. Therefore, understanding different advantages and disadvantages of each of the structures will be the ideal approach to enhance knowledge.

Advantages of Organisational Structure Change

Corporate restructuring is essential in organisations as they set up their business for sale. It is one of the reasons why companies are restructured in order to divide up different business units rather than selling them as a conglomerate, which would attract low offers from the investors. When the company is restructured based on product lines or regions, it can receive better offers for individual businesses. It can increase its value as a whole, and, finally, it will receive higher prices for its business.

It is also a beneficial process to the organisation as it promotes merging with other companies in order to be competitive in the industry. Organisations may be restructured in an attempt to deal with new rivals in the field as it is documented in the case of Qantas Airways (it operates as different business units to its subsidiaries such as Jetstar). It is a process that has enabled it to take advantage of the low operational costs of its subsidiary, Jetstar, in order to compete against other players such as Virgin Blue in the Australian aviation industry (Oxenbridge, Wallace, White, Tiernan, & Lansbury, 2010).

Restructuring is also an essential tool, and it benefits an organisation by reducing the business costs. For instance, the restructuring could involve the scrapping of some of the positions and flattening the hierarchical structure through downsizing. Therefore, some duties are merged, and some employees are released from the organisation. There could also be the restructuring through the cutback of some equipment in order to streamline business operations. As such, the reorganisation can focus on its main goal and expand its outreach without too many additions to its overheads. If the process is handled well, it can add value for its shareholders.

Disadvantages of Organisational Structure Change

The cost of restructuring is significant although it is aimed at reducing long-term costs within the organisation. The restructuring process entails consultations and legal issues that include additional costs for the company. In addition, in situations where some of the employees are laid-off, the company has to pay their dues in relation to the layoff. Moreover, if the company is restructured in order to increase its resale value, the failure to attain this goal could lead to its ultimate demise due to the hefty costs associated with the process. Next, similar to other change initiatives, the employees are likely to be resistant to the process, and once it becomes apparent that it must be implemented, they might become demotivated, which, in its turn, might cost the company their loyalty.

The organisational restructuring process impacts all levels of the employees. As the process takes place, the employees might be fearful of losing their jobs. However, once the process is complete, the survivors may still be demotivated due to the increased burden that they must carry as a result of the downsizing process. Consequently, they might have to do more work for the same level of remuneration, and it might impact their loyalty. In case the restructuring process involves delayering, the employees will understand that their opportunities to get promotions are also reduced. On the other hand, if the process involves increased levels in the structure, it will eliminate the autonomy of the employees in terms of their duties as there will be more supervision. Therefore, the process may be detrimental to the welfare of the organisation in the long run.

Conclusion

Organisational restructuring is a process that requires strategy from the organisation in order to be successful. In the modern work environment, the organisational structure plays a critical role in the realisation of the organisational goals. There are different organisational structures that an organisation may embrace. The factors that build the structure of a company include centralisation, formalisation, and hierarchical levels. Centralisation refers to the organisation’s decision-making process, and it is retained by a few individuals in the top management or it is decentralised to the lower levels of the structure. Formalisation relates to the rules and procedures in the organisation; and in the formal organisation, the employees have outlined procedures on how to deal with any issues. Consequently, their freedom to make decisions is compromised as well as their ability to innovate. The hierarchical levels of the structure also play a critical role as there could be tall and flat structures. In flat structures, there is more decentralisation. An organisation may opt for restructuring in order to meet its goals, and there are various advantages and disadvantages of the process. The advantages include the reduction of costs in terms of running the organisation, and an increase in the sale value in case the shareholders are looking for selling the company. However, there are disadvantages associated with the process, and they include loss of talent through downsizing and high costs of the restructuring process. In conclusion, the process of restructuring may be beneficial or detrimental to the organisation.