One of the oldest businesses in the United States, Berwind Corporation began in coal- mining in 1886. It now houses divisions in business sectors as diverse as manufacturing, “nancial services, real estate, and land management. Each division serves a distinct market and supports its own functional units. Division presidents are accountable to the corporate of”ce in Philadelphia for speci”c results: pro”ts, sales growth, and return on investment. As long as they deliver, divisions have relatively free rein. Philadelphia manages the strategic portfolio and allocates resources based on its assessment of market opportunities.
Divisionalized structure offers economies of scale, resources, and responsiveness while controlling economic risks, but it creates other tensions. One is a cat-and-mouse game between headquarters and divisions. Headquarters wants oversight, while divisional managers try to evade corporate control:
Our topmanagement likes tomake all the major decisions. They think they do, but I’ve seen one case where a division beat them. I received . . . a request from the division for a chimney. I couldn’t see what anyone would do with a chimney . . .
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[But] they’vebuilt andequippedawholeplantonplantexpenseorders.Thechimney is the only indivisible item that exceeded the $50,000 limit we put on plant expense orders. Apparently they learned that a new plant wouldn’t be formally received, so they built the damn thing (Bower, 1970, p. 189).
Another risk in the divisionalized form is that headquarters may lose touch with operations. As one manager put it, “Headquarters is where the rubber meets the air.” Divisionalized enterprises become unwieldy unless goals are measurable and reliable information systems are in place (Mintzberg, 1979).
Adhocracy Adhocracy is a loose, !exible, self-renewing organic form tied together primarily through lateral means. Usually found in a diverse, freewheeling environment, adhocracy functions as an “organizational tent,” exploiting bene”ts that structural designers traditionally regarded as liabilities: “Ambiguous authority structures, unclear objectives, and contradictory assignments of responsibility can legitimize controversies and challenge traditions. Incoherence and indecision can foster exploration, self-evaluation, and learning” (Hedberg, Nystrom, and Starbuck, 1976, p. 45). Inconsistencies and contradictions in an adhocracy become paradoxes whereby a balance between opposites protects an organization from falling into an either-or trap.
Ad hoc structures thrive in conditions of turbulence and rapid change. Examples are advertising agencies, think-tank consulting “rms, and the recording industry. A successful and durable example of an adhocracy is W. L. Gore, producer of Gore-Tex, vascular stents, dental !oss, and many other products based on its pioneering development of advanced polymer materials. When he founded the company in 1958, Bill Gore conceived it as an organization where “there would be no layers of management, information would !ow freely in all directions, and personal communications would be the norm. And individuals and self-managed teams would go directly to anyone in the organization to get what they needed to be successful” (Hamel, 2010).
Half a century later, Gore has more than 10,000 employees (Gore calls them “associates”) and some $3 billion in annual sales but still adheres to Bill Gore’s principles. In Gore’s “lattice” structure, people don’t have bosses. Instead, the company relies on “natural leaders”—individuals who can attract talent, build teams, and get things done. One test: If you call a meeting and no one comes, you’re probably not a leader. When Gore’s CEO retired in 2005, the board polled associates to “nd out whom they would be willing to follow. They weren’t given a slate—they could nominate anyone. No one was more surprised than Terri Kelly when she became the people’s choice. She acknowledges that Gore’s approach
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carries a continuing risk of chaos. It helps, she says, that the culture has clear norms and values, but “Our leaders have to do an incredible job of internal selling to get the organization to move. The process is sometimes frustrating, but we believe that if you spend more time up front, you’ll have associates who are not only fully bought-in, but committed to achieving the outcome. Along the way, they’ll also help to re”ne the idea and make the decision better” (Hamel, 2010).
Helgesen’s Web of Inclusion Mintzberg’s “ve-sector imagery adds a new dimension to the conventional line-staff organization chart but retains some of the traditional image of structure as a top-down pyramid. Helgesen argues that the idea of hierarchy is primarily a male-driven depiction, quite different from structures created by female executives:
The women I studied had built profoundly integrated and organic organizations� in which the focus was on nurturing good relationships; in which the niceties of� hierarchical rank and distinction played little part; and in which lines of� communication were multiplicitous, open, and diffuse. I noted that women� tended to put themselves at the center of their organizations rather than at the� top, thus emphasizing both accessibility and equality, and that they labored� constantly to include people in their decision making (Helgesen, 1995, p. 10).�
Helgesen coined the expression “web of inclusion” to depict an organic social architec- tural form more circular than hierarchical. The web builds from the center out. Its architect works much like a spider, spinning new threads of connection and reinforcing existing strands. The web’s center and periphery are interconnected; action in one place ripples across the entire con”guration, forming “an interconnected cosmic web in which the threads of all forces and events form an inseparable net of endlessly, mutually conditioned relations” (Fritjof Capra, quoted in Helgesen, 1995, p. 16). Consequently, weaknesses in either the center or the periphery of the web undermine the strength of the natural network.
A famous example of web organization is “Linux, Inc.,” the loose organization of individuals and organizations that has formed around Linus Torvalds, the creator of the open-source operating system Linux, whose many variants power most of the world’s supercomputers, cell phones, stock markets, and Web domains. “Linux, Inc.” is anything but a traditional company: “There’s no headquarters, no CEO, and no annual report. It’s not a single company, but a cooperative venture. More than 13,000 developers from more than 1,300 companies along with thousands of individual volunteers have contributed to the
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Linux code. The Linux community, Torvalds says, is like a huge spider web, or better yet, multiple spider webs representing dozens of related open-source projects. His of!ce is ‘near where those webs intersect’” (Hamm, 2005).
Freewheeling web or lattice structures may encounter increasing challenges as an organization gets bigger. When Meg Whitman became CEO of Internet phenomenon eBay in 1998, she joined an organization of fewer than 50 employees con!gured in an informal web around founder Pierre Omidyar. When she tried to set up appointments with her new staff, she was surprised to learn that scheduled meetings were a foreign concept in a company where no one kept a calendar. Omidyar had built a company with a strong culture and powerful sense of community but no explicit strategy, no regular meetings, no marketing department, and almost no other identi!able structural elements. Despite the company’s phenomenal growth and pro!tability, Whitman concluded that it was in danger of imploding without more structure and discipline. Omidyar agreed. He had worked hard to recruit Whitman because he believed she brought the big-company management experience that eBay needed to keep growing (Hill and Farkas, 2000).
GENERIC ISSUES IN RESTRUCTURING Eventually, internal or external changes force every structure to adjust, but structural change is rarely easy, When the Roman Catholic Church elevated a new pope, Francis, in March, 2013, many hoped that he would represent a breath of fresh air after the troubled reign of his predecessor. But a well-placed insider noted how dif!cult this would be, even for a supposedly absolute ruler: “There have been a number of Popes in succession with different personalities, but the structure remains the same. Whoever is appointed, they get absorbed by the structure. Instead of you transforming the structure, the structure transforms you” (Donadio and Yardley, 2013).
When the time for restructuring comes, managers need to take account of tensions speci!c to each structural con!guration. Consultants and managers often apply general principles and speci!c answers without recognizing key differences across architectural forms. Reshaping an adhocracy, for example, is different from restructuring a machine bureaucracy, and reweaving a web is very different from nudging a professional bureauc- racy. Falling victim to the one-best-system or one-size-!ts-all mentality is a route to disaster. But the comfort of a well-de!ned prescription lulls too many managers into a temporary comfort zone. They don’t see the iceberg looming ahead until they crash into it.
Mintzberg’s depiction suggests general principles to guide restructuring across a range of circumstances. Each major component of his model exerts its own pressures. Restructuring
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triggers a multidirectional tug-of-war that eventually determines the shape of the emerging con!guration. The result may be a catastrophe unless leaders acknowledge and manage various pushes and pulls.
The strategic apex—top management—tends to exert centralizing pressures. Through commands, rules, or less obtrusive means, top managers continually try to develop a uni!ed mission or strategy. Deep down, they long for a simple structure they can control. By contrast, middle managers resist control from the top and tend to pull the organization toward balkanization. Navy captains, school principals, plant managers, department heads, and bureau chiefs become committed to their own domain and seek to protect and enhance their unit’s parochial interests. Tensions between centripetal forces from the top and centrifugal forces from middle management are especially prominent in divisional struc- tures but are critical issues in any restructuring effort.
The technostructure exerts pressures to standardize; analysts want to measure and monitor the organization’s progress against well-de!ned criteria. Depending on the circumstances, they counterbalance (or complement) top administrators, who want to centralize, and middle managers, who seek greater autonomy. A college professor who wants to use a Web-based simulation game, for example, may !nd that it takes weeks or months to negotiate the rules and procedures that the university’s information technology units have put in place. Issues that seem critical to ITmay seem like trivial annoyances to the professor and vice-versa. Technocrats feel most at home in a machine bureaucracy.
The support staff pulls in the direction of greater collaboration. Its members usually feel happiest when authority is dispersed to small work units. There they can in”uence, directly and personally, the shape and “ow of everyday work and decisions. In one university, a new president created a new governance structure that, for the !rst time, included support staff along with faculty and administrators. The staff loved it, but when they came up with a proposal for improvements to the promotion and tenure process, the faculty was not amused. Meanwhile, the operating core seeks to control its own destiny and minimize in”uence from the other components. Its members often look outside—to a union or to their professional colleagues—for support.
Attempts to restructure must acknowledge the natural tensions among these competing interests. Depending on the con!guration, any componentmayhavemore or less in”uence on the !nal outcome. In a simple structure, the boss has the edge. In machine bureaucracies, the techno structure and strategic apex possess the most clout. In professional bureaucracies, chronic con”ict between administrators and professionals is the dominant tension, while members of the techno structure play an important role in the wings. In the adhocracy, a variety of actors can play a pivotal role in shaping the emerging structural patterns.
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Beyond internal negotiations a more crucial issue lurks. A structure’s effectiveness ultimately depends on its !t with the organization’s strategy, environment, and technology. Natural selection weeds out the !eld, determining survivors and victims. The major players must negotiate a structure that meets the needs of each component and still enables the organization to survive, if not thrive.
Why Restructure? Restructuring is a challenging process that consumes time and resources with no guarantee of success, as the BBC and Harvard cases at the beginning of the chapter illustrate. Organizations typically embark on that path when they feel compelled to respond to major problems or opportunities. Various pressures can lead to that conclusion:
• The environment shifts. At American Telephone & Telegraph, once the telephone company for most of the United States, a mandated shift from regulated monopoly to a market with multiple competitors required a massive reorganization of the Bell System that played out over decades. When AT&T split off its local telephone companies into regional “Baby Bells,” few anticipated that eventually one of the children (Southwest Bell) would swallow up the parent and appropriate its identity.
• Technology changes. The aircraft industry’s shift from piston to jet engines profoundly affected the relationship between engine and airframe. Some established !rms faltered because they underestimated the complexities; Boeing rose to lead the industry because it understood the issues (Henderson and Clark, 1990).
• Organizations grow. Digital Equipment thrived with a very informal and “exible structure during the company’s early years, but the same structure produced major problems when it grew into a multibillion-dollar corporation.
• Leadership changes. Reorganization is often the !rst initiative of new leaders. It is a way for themto try toput their stampontheorganization, even ifnooneelse seesaneed torestructure.
Miller and Friesen (1984) studied a sample of successful as well as troubled !rms undergoing structural change and found that those in trouble typically fell into one of three con!gurations:
• The impulsive !rm: A fast-growing organization, controlled by one individual or a few top people, in which structure and controls have become too primitive and the !rm is increasingly out of control. Pro!ts may fall precipitously, and survival may be at stake.
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Many once-successful entrepreneurial organizations stumble at this stage because they� have failed to evolve beyond their simple structure.�
• The stagnant bureaucracy: An older, tradition-dominated organization with an obsolete� product line. A predictable and placid environment has lulled everyone to sleep, and top� management is slavishly committed to old ways. Management thinking is too rigid or� information systems are too primitive to detect the need for change, and lower-level� managers feel ignored and alienated. Many old-line corporations and public agencies !t� into this group of faltering machine bureaucracies.�
• The headless giant: A loosely coupled, divisional organization that has turned into a� collection of feudal baronies. The strategic apex is weak, and most of the initiative and� power resides in autonomousdivisions.With little strategy or leadership at the top, the!rm� is adrift. Collaboration is minimal because departments compete for resources. Decision� making is reactive and crisis-oriented.WorldCom is an example of how bad things can get� in this situation. CEO Bernie Ebbers built the company rapidly from a tiny start-up in� Mississippi to a global telecommunications giant through some 65 acquisitions. But “for all� its talent in buying competitors, the company was not up to the task of merging them.� Dozens of con”icting computer systems remained, local network systems were repetitive� and failed to work together properly, and billing systems were not coordinated. ‘Don’t� think of WorldCom the way you would of other corporations,’ said one person who has� worked with the company at a high level for many years. ‘It’s not a company, it’s just a � bunch of disparate pieces. It’s simply dysfunctional’” (Eichenwald, 2002, p. C-6).�
Miller and Friesen (1984) found that even in troubled organizations, structural change is episodic: Long periods of little change are followed by brief episodes of major restructuring. Organizations are reluctant to make major changes because a stable structure reduces confusion and uncertainty, maintains internal consistency, and protects the existing equilibrium. The price of stability is a structure that grows increasingly misaligned with the environment. Eventually, the gap gets so big that a major overhaul is inevitable. Restructuring, in this view, is like spring cleaning: We accumulate debris over months or years until we are !nally forced to face up to the mess.
Making Restructuring Work: Three Case Examples In this section, we look at three case examples of restructuring. Some represent examples of reengineering, which rose to prominence in the 1990s as an umbrella concept for emerging trends in structural thinking. Hammer and Champy promised a revolution in how
