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Consider the contrasting structures of McDonald’s and Harvard University (highly regarded organizations in two very different industries), and Amazon and Zappos (two successful Internet retailers with very different structures).
McDonald’s and Harvard: A Structural Odd Couple
McDonald’s, the company that made the Big Mac a household word, has been enormously successful. For 40 years after its founding in the 1950s, the company was an unstoppable growth engine that came to dominate the worldwide fast-food business. McDonald’s has a relatively small staff at its world headquarters near Chicago; the vast majority of its employees are salted across the world in more than 36,000 local outlets. But despite its size and geographic reach, McDonald’s is a highly centralized, tightly controlled organization. Most big decisions are made at headquarters.
Managers and employees of McDonald’s restaurants have limited discretion about how to do their jobs. Their work is controlled by technology; machines time the preparation of French fries and measure soft drinks. The parent company uses powerful systems to ensure that customers get what they expect and a Big Mac tastes about the same whether purchased in New York, Beijing, or Moscow. Cooks are not expected to develop creative new versions of the Big Mac or Quarter Pounder. Creative departures from standard product lines are neither encouraged nor tolerated on a day-to-day basis, though the company has adapted to growth and globalization with a mantra of “freedom within a framework,” increasing its receptivity to new ideas from the !eld. The Big Mac and Egg McMuf!n were both created by local franchisees, and burgers-on-wheels home delivery was pioneered in traf!c-choked cities like Cairo and Taipei (Arndt, 2007b).
All that structure might sound oppressive, but a major McDonald’s miscue in the 1990s resulted from trying to loosen up. Responding to pressure from some frustrated franchisees, McDonald’s in 1993 stopped sending out inspectors to grade restaurants on service, food, and ambience. When left to police themselves, some restaurants slipped badly. Customers noticed, and the company’s image sagged. Ten years later, a new CEO brought the inspectors back to correct lagging standards (David, 2003).
Year after year, Harvard University appears at or near the top of lists of the world’s best universities. Like McDonald’s, it has a small administrative group at the top, but in most other respects the two organizations diverge. Even though Harvard is more geographically concentrated than McDonald’s, it is signi!cantly more decentralized. Nearly all of Harvard’s activities occur within a few square miles of Boston and Cambridge, Massachusetts. Most employees are housed in the university’s several schools: Harvard College (the undergraduate school), the graduate faculty of arts and sciences, and various professional schools. Each school has its own dean and its own endowment and, in accordance with Harvard’s philosophy of “every tub on its own bottom,” largely controls its own destiny. Schools have !scal autonomy, and individual professors have enormous discretion. They have substantial control over what courses they teach, what research they do, and which university activities they pursue, if any. Faculty meetings are typically sparsely attended. If a dean or a department head wants a faculty member to chair a committee
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or offer a new course, the request is more often a humble entreaty than an authoritative command.
The contrast between McDonald’s and Harvard is particularly strong at the level of service delivery. Individual personality is not supposed to in”uence the quality of McDonald’s hamburgers, but Harvard courses are the unique creations of individual professors. Two schools might offer courses with the same title but different content and widely divergent teaching styles. Efforts to develop standardized core curricula founder on the autonomy of individual professors.
Structural Differences in the Same Industry
Harvard and McDonald’s operate in very different industries, but you will sometimes !nd very different structures among enterprises operating in a similar business environment. Take Amazon and Zappos.
Both companies are online retailers who ship a variety of goods to customers across America. Both are successful and known for their customer service. We have noted that Amazon gets it done with a tight structure that relies on sophisticated technology, precise measurement, close supervision, and zealous focus on customers, often to the exclusion of employees’ satisfaction and welfare.
Contrast this with the Zappos structure, erected on a “culture of happiness” rather than a “culture of metrics.” Tony Hsieh, Zappos CEO, is just as focused on the customer as Amazon CEO Jeff Bezos, but he has chosen a very different structure to get there. Structurally, Amazon and Zappos are mirror images of one another. Amazon steers customers toward interaction with its website rather than its employees. Zappos wants highly motivated, happy employees, immersed in an environment of “weirdness and fun,” who will create a personal, emotional contact with customers.
Zappos ful!llment operations take place in two large warehouses in Kentucky where goods are received and merchandise is shelved, picked, packed, and shipped. Work is fast paced, intense, and often strenuous. Amazon workers have been known to say they are “treated like a piece of crap” (Soper, 2011, p. 1), but Zappos makes working conditions a primary concern. The warehouses are air-conditioned, and lunch breaks are embellished with free food, video games, and karaoke—the equivalent of adding several dollars to the hourly rate. One employee summed it up: “It’s a hot boring job, and we may not get paid top dollar, but with our bene!ts and free food, it really makes a difference.”
In 2013, Hsieh concluded that Zappos was developing too much bureaucracy and proposed a “holocratic” form that eliminated jobs and the organization chart. Managers were replaced by “lead links” of self-managing teams, and individuals were charged to use the “Role Marketplace” (Bernstein et al., 2016, p. 10) to look for work that interested them and needed to be done. The new system turned off some employees, and Zappos lost almost a !fth of its workforce. The transition to holocracy required major investments of time and energy as everyone struggled to !gure out how the new system was supposed to work. Things got worse before they got better, as is typical of structural change. But, working
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within the holocracy framework in 2015, Zappos achieved a 75 percent year-over-year increase in pro!ts (Bernstein et al., 2016). The long-term impact on Zappos’ free-wheeling culture remains to be seen, but, despite a rocky start, there are signs that this experiment may not be as crazy as it seems.
Zappos and Amazon achieve customer satisfaction through entirely different structural arrangements. What makes the story even more interesting is that Amazon paid over $1 billion to buy Zappos in November 2009. More than a year later, Zappos CEO Tony Hsieh sent a memo to employees saying the culture was still intact, Zappos was still in charge of its own destiny, and business was better than ever (Zappos Blogs, 2011). That was still true !ve years later in 2016.
Structural Imperatives Why doMcDonald’s and Harvard or Zappos and Amazon have such different structures? Is one more effective than the other? Or has each evolved to !t its unique circumstances? In fact, there is no such thing as an ideal structure. Every organization needs to respond to a universal set of internal and external parameters (outlined in Exhibit 3.2). These parameters, or contingencies, include the organization’s size, age, core process, environment, strategy and goals, information technology, and workforce characteristics. All these combine to point toward an optimal social architecture.
Exhibit 3.2. Structural Imperatives.
Dimension Structural Implications
Size and age Complexity and formality typically increase with size and age.
Core process Structure must align with core processes or technologies.
Environment Stable environment rewards simpler structure; uncertain, turbulent environment requires a more complex, !exible structure.
Strategy and goals Variation in clarity, suitability, and consistency of strategy requires appropriate structural adaptations.
Information Information technology permits !atter, more !exible, and more technology decentralized structures.
Nature of the More educated and professional workers need and want greater workforce autonomy and discretion.
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Size and Age Size and age affect structural shape and character. Problems crop up if growth (or downsizing) occurs without !ne-tuning roles and relationships. A small, entrepreneurial organization typically has simple, informal architecture. Growth spawns formality and complexity (Greiner, 1972; Quinn and Cameron, 1983). If carried too far, this leads to the suffocating bureaucratic rigidity often seen in large, mature enterprises.
In the beginning, McDonald’s was not the tightly controlled company it is today. It began as a single hamburger stand in San Bernardino, California, owned and managed by the McDonald brothers. They virtually invented the concept of fast food, and their stand was phenomenally successful. The two tried to expand by selling franchise rights, with little success. They were making more than enough money, disliked travel, and had no heirs. If they were richer, said one brother, “we’d be leaving it to a church or something, and we didn’t go to church” (Love, 1986, p. 23).
The concept took off when Ray Kroc arrived on the scene. He had achieved modest success selling milk shake machines to restaurants. When many of his customers began to ask for the McDonald’s milk shake mixer, he decided to visit the brothers. Seeing the original stand, Kroc realized the potential: “Unlike the homebound McDonalds, Kroc had traveled extensively, and he could envision hundreds of large and small markets where a McDonald’s could be located. He understood the existing food services businesses, and understood how a McDonald’s unit could be a formidable competitor” (Love, 1986, pp. 39–40). Kroc persuaded the McDonald brothers to let him take over the franchising effort. The r