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organizations were structured: “When a process is reengineered, jobs evolve from narrow and task oriented to multidimensional. People who once did as they were instructed now make choices and decisions on their own instead. Assembly-line work disappears. Func- tional departments lose their reason for being. Managers stop acting like supervisors and behave more like coaches. Workers focus more on customers’ needs and less on their bosses’ whims. Attitudes and values change in response to new incentives. Practically every aspect of the organization is transformed, often beyond recognition” (1993, p. 65).
More than half of all Fortune 500 companies jumped on the reengineering bandwagon in the mid-1990s, but only about a third of those efforts were successful. Champy admitted in a follow-up book, Reengineering Management (1995), that reengineering was in trouble, and attributed the shortfall to “aws in senior management thinking.
Some reengineering initiatives have indeed been catastrophic, a notorious example being the long-haul bus company Greyhound Lines. As the company came out of bankruptcy in the early 1990s, a new management team announced a major reorganization, with sizable cuts in staf!ng and routes and development of a new, computerized reservation system. The initiative played well onWall Street, where the company’s stock soared, but poorly on Main Street as customer service and the new reservations system collapsed. Rushed, underfunded, and insensitive to both employees and customers, it was a textbook example of how not to restructure. Eventually, Greyhound’s stock crashed, and management was forced out. One observer noted wryly, “They reengineered that business to hell” (Tomsho, 1994, p. A1). Across many organizations, reengineering was a cover for downsizing the workforce, often with disappointing results.
Nevertheless, despite the many disasters, there have also been examples of notable restructuring success. Here we discuss three of them, drawn from different eras and industries.
Citibank’s Back Room
The “back room” at Citibank—charged with processing checks and other !nancial instruments—was in trouble when John Reed took charge in 1970 (Seeger, Lorsch, and Gibson, 1975). Productivity was down, errors were frequent, and expenses were rising almost 20 percent every year. Reed soon determined that the area needed dramatic structural change. Traditionally, the department was a service for the bank’s customer-contact of!ces, structured as a machine bureaucracy. Reed decided to think of it as an independent factory— a free-standing, high-volume production facility. He imported high-level executives from the automobile industry. One was Robert White, who came from Ford to become the primary architect of the new structure for the back room.
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White began by cutting costs, putting in new computer systems, and developing a !nancial control system to forecast and measure performance. In effect, the strategy tightened the machine bureaucracy. Later on, White concluded that “we hadn’t gone back to the basics enough. We found that we did not really understand the present processes completely” (Seeger, Lorsch, and Gibson, 1975, p. 8).
They embarked on a detailed study of how the back room’s processes worked and developed a detailed “owchart. This helped them realize that the current structure was, in effect, one very large functional pipeline. Everything “owed into “preprocessing” at the front end of the pipe, then to “encoding,” and on through a series of functional areas until it eventually came out at the other end. Reed and White decided to break the pipe into several smaller lines, each carrying a different “product” and supervised by a single manager with responsibility for an end- to-end process. The key insight was to change the structure from machine bureaucracy to a divisionalized form. Along with the change, White instituted extensive performance measures and tight accountability procedures—69 quality indicators and 129 different standards for time lines.
As Mintzberg’s model predicts, the operating core strongly resisted this intrusion. Reed and White implemented the new structure virtually overnight, and the short-term result was chaos and a major breakdown in the system. It took two weeks to get things working again, and !ve months to recover from the problems generated by the transition. Once past that crisis, the new system dramatically improved operating results: Production was up; costs and errors were down. The back room became a major source of competitive advantage.
The Citibank restructuring was strongly driven from the top down and focused primarily on internal ef!ciencies. This has been true of many, but by nomeans all, restructuring efforts.
Beth Israel Hospital
Boston’s Beth Israel Hospital illustrates a health care restructuring effort that sought to move toward greater autonomy and teamwork. When Joyce Clifford became Beth Israel’s director of nursing, she found a top-down pyramid common in many hospitals:
The nursing aides, who had the least preparation, had the most contact with the patients. But they had no authority of any kind. They had to go to their supervisor to ask if a patient could have an aspirin. The supervisor would then ask the head nurse, who would then ask a doctor. The doctor would ask how long the patient had been in pain. Of course, the head nurse had absolutely no idea, so she’d have to track down the aide to ask her, and then relay that information back to the doctor. It was ridiculous, a ludicrous and dissatisfying situation, and one in which it was impossible for the nurse to feel any satisfaction at all. The system was hierarchical, fragmented, impersonal, and [overmanaged] (Helgesen, 1995, p. 134).
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Within units, responsibilities of nurses were highly specialized: some were assigned to handling medications, others to monitoring vital signs, still others to taking blood pressure readings. Add to the list specialized housekeeping roles—bedpan, bed making, and food services. A patient received repeated interruptions from virtual strangers. No one really knew what was going on with any individual patient.
Clifford instituted a major structural revamp, changing a pyramid with nurses at the bottom to an inclusive web with nurses at the center. The concept, called primary nursing, places each patient in the charge of a primary nurse. The nurse takes information upon admission, develops a comprehensive care plan, assembles a team to provide round-the-clock care, and lets the family know what to expect. A nurse manager sets goals for the unit, deals with budget and administrative matters, and makes sure that primary nurses have ample resources to provide quality care.
As the primary nurses assumed more responsibility, connections with physicians and other hospital workers needed reworking. Instead of simply carrying out physicians’ orders, primary nurses became professional partners, attending rounds and participating as equals in treatment decisions. Housekeepers reported to primary nurses rather than to housekeeping supervisors. Housekeepers assigned to speci!c patients made the patient’s bed, attended to the patient’s hygiene, and delivered food trays. Laundry workers brought in clean items on demand rather than making a once-a-day delivery. Sophisticated technology gave all personnel easy access to patient information and administrative data.
Primary nurses learned from performing a variety of heretofore menial tasks. Bed making, for example, became an opportunity to evaluate a patient’s condition and assess how well a treat- ment plan was working. Joyce Clifford’s role also transformed, from top-down supervisor to web- centered coordinator:
A big part of my job is to keep nurses informed on a regular basis of what’s going on out there—what the board is doing, what decisions are confronting the hospital as a whole, what the issues are in health care in this country. I also let them know that I’m trying to represent what the nurses here are doing—to our vice-presidents, to our board, and people in the outside world . . . to the nursing profession and the health care !eld as a whole (Helgesen, 1995, p. 158).
Beth Israel’s primary nursing concept, initiated in the mid-1970s, produced signi!cant improvement in both patient care and nursing morale. Nursing turnover declined dramatically (Springarn, 1982), and the model’s success made it highly in”uential and widely copied both in the United States and abroad. But even successful change won’t work forever. Over the years, changes in the health care system put Beth Israel’s model under increasing pressure. More patients with more problems but shorter hospital stays made nurses’ jobs much harder at the same time that cost pressures forced reductions in nursing staff. Beth Israel chose to update its approach by creating interdisciplinary “care teams.” Instead of assembling an ad hoc collection of care providers for each new patient, ongoing teams of nurses, physicians, and support staff provided interdisciplinary support to primary nurses (Rundall, Starkweather, and Norrish, 1998).
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Ford Motor Company
In 2006, after Ford Motor Company chalked up a $13 billion loss, Chairman William Ford III concluded that the way to save the company his great-grandfather had founded was to hire a strong and experienced outsider who could take on the entrenched mind-sets and in!ghting among executives and divisions at Ford. He took a gamble on a noncar guy, Alan Mulally, an engineer with a long career at Boeing and a reputation for turning around struggling businesses.
Arriving at Ford, Mulally encountered many surprises. Bureaucracy was so entrenched and top-down that it was considered bad form for a subordinate to invite a superior to lunch. Ford was struggling, but no one wanted to admit it, so executives brought thick books of minutiae to meetings, using a “urry of details to obfuscate problems or shift blame to someone else. They resorted to doublespeak to avoid admitting that they didn’t know the answers to questions.
Mulally soon concluded that Ford needed a major overhaul of a “convoluted management structure riddled with overlapping responsibilities and tangled chains of command” (Hoffman, 2012, p. 142). He “attened the hierarchy, cut out two layers of senior management, and increased his number of direct reports. He sold off secondary brands like Volvo and Land Rover and streamlined Ford’s product line to aim for fewer models with higher quality. He implemented what had worked at Boeing: a matrix structure that crisscrossed the already-strong regional organizations with upgraded global functional units. So, for example, the head of communi- cations or purchasing in Ford Europe would report to both the regional president in Europe and to a corporate vice-president back at headquarters in the United States.
Mulally believed this structure would bring the balance Ford needed: “It made each business unit fully accountable, but also made sure that each key function, from purchasing to product development, was managed globally in order to maximize ef!ciencies and economies of scale” (Hoffman, 2012, p. 143). He emphasized teamwork, collaboration across divisions, and an end to blaming, hiding mistakes, and hoarding cost !gures. Division presidents were instructed to act as one company, not as airtight silos.
It worked. After losing market share for 13 straight years, Ford gained share in 2009, turned a pro!t in 2010, and achieved its highest pro!ts in more than a decade in 2011. Mulally turned 65 in 2011 amid speculation about when he would retire. Board chair William Ford III expressed the hope that he would stay forever, but Mulally chose to retire two years later in 2014.
Principles of Successful Structural Change Toomany efforts to change structure fail. TheCitibank, Beth Israel, andFordMotorCompany initiatives succeeded by following several basic principles of successful structural change:
• They did the hard work of carefully studying the existing structure and process so that� they fully understood how things worked—and what wasn’t working. (Many efforts at� structural change fail because they start from an inadequate picture of current roles,� relationships, and processes.)�
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