Case

M2-28 ANALYTICS " TEAMS • ORGANIZATIONS , SKILLS

Strategic Design at Oynacorp

"We Yc too slonÿ, too um,e.ÿjÿousivc to the market, and too uÿtdiscipliued abot, tt costs. Aÿtd the ntaiÿz reaÿvn is how lye"re owaÿizcd--it just isÿr't toothing any more. Wc"vc outgrowJ.z the old desÿflÿ M so many ways, bttt weS'e still to,itÿg to mtrÿ¢ÿ¢ with the same strltctztre n,e had whet1 wc st tÿrtcd the cotÿqÿaÿ),. ÿ'

--Dyÿacorp prodÿtct maÿlager

aThcre's a lot of' tMk ÿJow about chtrngiÿq our o&alJizatio7l desigÿl, BI,tt m," should bc carcfitl that we're trot throwiÿlg the bÿb), out with the bath- watt1: We're fixatMg o3z what's wrol,ÿj with the orqaÿdzatioTt itÿstetrd of" thinking aboÿtt how to make it work bcttcÿ:"

--Dyÿacorp rÿ(qiÿzeeriÿzg ÿJÿaÿzageÿ,

The Dyna Corporation, known in the industry as Dynacorp, is a major global information systems and communications company. Originating in an of'rice equipment company that moved into high- technolo%, applications in the 1960s and 1970s, Dynacorp had, by the 1980s, established a position as an industry leader, known tbr its technological innovation. Dynacorp was first to the market with innovative and high-quality products that were sig- nificant advances on anyflaing its competitors were offering. Customers would gladly wait months, and even a year or so, to take delivery of'products bear- ing the Dynacorp logo. The customers were typi- cally sophisticated users who were willing to do some of flaeir own applications work and to ligure out how to integrate Dynacorp's new products with the rest of'their operations. During this period, the company grew at a very fhst rate, and expanded its market to Europe, Asia, and Latin America.

The 1990s were a much more difficult period for the company. It continued to grow, but at a slower rate, and experienced pcriods of significantly reduced earnings. Critics both inside and outside the company attributed Dynacorp's difficulties to a loss of'leadership in getting new products to mar- ket, costs that were tOO high, and changes in the marketplace that Dynacorp was slow to recognize. Competitors were closing the technology gap, and were often tÿster getting products to market. In a gro\\,ing number of product areas, Dynacorp had been surprised by competitors who, although they had started working on a new product much later than Dynacorp, were t:aster at getting the product to the custorner at an attractive price, in addition, a growing number or" infi)rmation technology and

communications (ITC) consulting firms were cap- turing the relationship with the large customer by offering "value-added services and solutions." The consulting firms acted as intermediaries, supervis- ing the purchase of ITC hardware and sot:tware, providing integration services, and capturing much of the high-margin business.

A growing number or" executives in Dynacorp were coming to believe that the problems could not be addressed ettÿ'cti\.ely with Dynacorp's current organizational structure. Like most companies, Dynacorp had been established \\,ith a fimctional organization. As the company' expanded its actMties across five continents and greatly increased its prod- uct range, top management began to ask whether Dynacorp needed a major redesign.

,ÿ a first step, the CEO appointed a small internal task three to make preliminary recommendations on organization design to the top management team. The CEO personally launched the task [brcc with a company-wide communication listing the challenges Dynacorp was tÿ\cing: high costs, being too slow to get new products to the market, and a need to increase the value created fbr customers. The CEO emphasized that the current task tbrce's mandate was driven by Dynacorp's commitment to maintain- ing its leadership position in its industry, and asked all Dynacorp employees to cooperate fifily and frankly with the task [brcc's inquiries,

A number of" the task three members traveled around the company conducting interviews with managers at multiple levels across the three major divisions of the company, while others embarked on an "external benchmarking" exercise to look at how other companies in the industry were organized. As they consolidated their findings, they [bund themselves in agreement that Dynacorp's current organization had serious' shortcomings, but they disagreed vehemently on what the best design solu- tion might be. The CEO had made it clear, how- ever, that he did not want a simple listing of alternatives; he wanted the task Ii?rce, at the very least, to provide a ranking of the alternative choices.

Dynacorp's Design: The Functional Organization

Since its earliest days or" operation, Dyuacorp had been organized ['unctionally. The three line di\'i-

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M2-30 ANALYTICS • TEAMS ÿ ORGANIZATIONS " SKILLS

ever, nitre and illO1"e companies were taking system purchasing out of tile hands o[" their technical enthusiasts, and Dynacorp's marketing people increasingly fbund themseh:es selling to business unit purchasing groups--of'ten backed up by, or e\'en represented by, consulting firms with special practices in ITC. This shift meant a high demand fbr technical support, lower customer tolerance of" early stage problems with new product lines, the need to integrate Dynacorp products with other systems to provide solutions, and more polished marketing pitches. It also meant that it became more difficult to cultivate the close personal reD- tiÿmships with buyers that had been a long-stand- ing element ol: D vnacorp's marketing strategy.

Dynacorp's top management was justifiably proud of" what their f'unctional organization had accomplished. Its engineering division had an excellent technical reputation and was able to attract top technical talent and to develop the close working relationships with leading scientists and engineers at major research universities that enabled it to stay on the cutting edge of new tech- nology. Its manufacturing division had built strong capabilities in quality manufacturing at a time when U.S. industry overall was widely criti- cized for [hlling behind in production systems. It could also boast of a dedicated and knowledgeable marketing ['unction whose people had built close working relationships with 'customers who were fiercely loyal to Dynacorp products.

Top managelnent recognized that the comped- tire environment was changing, and that Dyna- corp's high costs, slow pace of getting new products to market, and the need to generate value-added services for customers made the con> pany \,ulnerable. Dynacorp was not facing an immediate crisis--it was still profitable, growing, and highly respected in its industry. But the indus- try was changing, and Dynacorp's top manage- ment believed that rlÿe), had a window of a year or two to address the problems before the current trends I,,}d to really serious problems.

Internal Investigation: Diagnosing the Organizational Problems

The task force ['ound widespread agreement on the importance of the problems that Dynacorp was facing, but considerable variation of opinion on what was causing them or on how to fix them. The engineering division's managers were convinced that the primary responsibility ÿbr high costs and delays in getting prod ucts to market lay with man- tffhcturing. One senior engineering manager said that even though his people tried to hand the manul'acturing site a detailed and complete set of

specifications, the manuf:acturing manager kept coming back with questions or objections; he wanted to substitute standard parts that would mean reconfiguring the design or lowering the product functionality, or to change elements of'the design to make it easier to. produce, or to clarify things simply because his.people didn't understand something about the design. Each iteration took time, because the engineers on the project had by that time gone on to other activities and had to be hauled back "kicking and screaming" to work on something they thought they'd finished.

Manufhcturing managers recognized the prob- lem, but the}, believed it was due to the fact that engineering cared more about the design than the product. They complained that engineering liked to design "from the ground up," instead of using standard components that could considerably lower the product cost. One complained that "ira few engineers get really good at designing widgets, then they want to design a better, cooler widget f'or every product they work on, instead of accept- ing that some other engineer's widget would do the job just fine." But one manufhcturing manager put the problem in the context of" Dynacorp's

growth:

When I first joined the compan3; we were all still basically in the same town, aÿ'ÿd we got to ktÿow each othm< So if I had a problem with the design, I'd just walk over to eÿfineeritag and grab o,le of the guys to give me a hand. Of col#'se hHd grl,,mble aboat l.ÿs maÿ,ÿlfactuHÿJg gÿo,s beitÿ a &ÿl,ÿch ÿf idiots, but he'd either sit down with us or fiÿ,ÿd oT,ÿe ofl thc elÿtiÿteering team who would help ot,tt--a1"l.d half the time thcÿ,'d realize that ÿve had a poitat, and we'd work things out. Now I'm iÿ'ÿ a plant that's in a different state and I do**'t real!,y know any of the bench engineers the same way. They hand tÿs a spcc [specificatio,ts] file that's handrcds of pages loÿ{q, and they think their job'vfinished. By the time wdve identified a problem, they're all qff oÿl new projects, aÿl.d fiudiÿg the ones respond- ble for that part of the design, getting their atteJ'> tiotb convincitÿfl them that we aren't nÿimbskulls a,ÿd that there really is a problem--ÿ,ell, that all takes a lot oflti.me. And changing the specs is a big deal, becaase everyo,ÿe has signed off on them, so eve,ÿ a mi,ÿor change becomes a major time sink.

The only thing on which engineering imd man- ufacturing people unanimously agreed was that one reason for Falling profits was marketing's eagerness to cut prices to make a sale. The view that "those [marketing] guys are measured on sales volume, and to make their targets they'll let the customer squeeze the margins" was wide- spread. Several engineers also expressed the view that marketing also bore some of the responsibility

cts coming late to market, because they to add features or functions during tile

iOpment process, even ill the late stages, when es were increasingly difficult and costly.

rding to one engineer, "They come in when nearly at tile last gate to say, 'He),, we've

d:about tl)is product to one of our best cus- rs and they think it would be cool if we had a

that would yodel the Star-Spangled Banner he Fourth of July' or some other crazy idea.

usually talk them out of it, but it can sure down while we sort them out. The

em is that those marketing guys have no idea ..... much engineering is needed to change the

1 pore 111 ell t.even by a small " "

17To meet the challenge of linldng the fimctions product developnlent, Dynacorp relied heavily two linldng nleclaanisms: cro.ÿ:ÿ':f),tnctional prod-

oment teams, with representatives fi'om mu[:acturing and marketing as well as engineer-

ing, and the position of product ,naÿtager, who had le formal responsibility of overseeing the entire

process from initial conception to product launch.

In their interviews inside the company, the design task three members heard widespread com- plaints about the cross-fimctional teams, especially fi'om nÿamffacturing and marketing. One manu- t:acturing manager put his misgMngs this way:

As one product manager (who was widely regarded as very successfiH) pointed out, the job itself was a very difficult one.

>

Another manager pointed out that rile conl- pany did not have an easy time identiÿ,ing and developing good product managers:

Ideall); a product tnanwcr woald have some expe- rience in each function. Btÿt herr at Dynacorp we all move ÿqÿ within a J)ÿnction, aÿd veo, few peo- ple move acroa:r the f!ÿnetio,ta/ bontÿdaries in their careers. So the prodact manÿcrs come to tÿe job with a fMrly narrow c.vpcrie,ÿce base. Theÿ,"vc all beeÿ on eross-fuÿtctional tcama; bÿt iÿt a .f)¢nc- tional }'ole. They have to learn on the job--fiÿst. The fi'w rcally good prodnct massagers that n,e have arc itÿ high demaÿM, a,ÿd are too b,Lry ,na,ÿ-

gi,ÿg product teams to traiÿ aÿo,bo,g, else. 1,1& burn otct a lot of good ÿanetional peWlc who get promoted to be product ;na,tÿget's aÿd theft find they areÿt"t up to the job.

The internal investigation also collected a num- ber of more general criticisms of Dynacorp's organization design. Younger members of the organization complained that tile organization had too many layers of managers, and even some of the older managers who had benefited by the proliferation of steps in tile career ladder looked back nostalgically on the fiat, speed), organization of their earl), ),ears in the company. Information seemed to take a long time to travel up and down tile company. Several managers complained of a growing tendency to push problems up the hierar- chy for resolution, instead of tackling problems when and where the), arose. One relatively junior marketing manager said that he had grown dis- couraged by the amount of time it took to get a response to his suggestions for ways of improving the customer database:

I went to my ÿanager with a prWosal, and she sent it on to he; manageÿ; and I don"t l'ÿow where it went fi'om there. !deas and s,qÿestions go t.t,o, aÿd othiÿ ever seems to come down, or {{" anything

comes down it's" a rcquest.[br f!ÿrther stÿdy. Iÿ,e gfi,en ntÿ tÿTing to clsaÿge aÿo,thing aroÿ¢nd herc.

On the other hand, many of the employees expressed some apprehension about the mandate of the task fi)rce, fearing that a major redesign of Dynacorp would damage rather than improve the company. As one engineer said,

1'14" all con.ÿplaiÿt aboÿ,ÿt the otÿla,ÿizat}oÿ, Bÿ,t I have 3q'icÿMs who llÿork iÿ other high-tech coÿnpa-

M2-32 ANALYTICS • TEAMS • ORGANIZATIONS • SKILLS

nits, grad their problems arc el,en worse than ours. One fi'iend's compmO, has a product div#ion structm'c, and thO, can't secm to tran.fer ezÿqi- ricers or mannfiÿcturiJqT capaciU across prodzÿct lines without hJoc fights about who"s goiÿl to pay for it and how much, If we're mmniug late on one product deÿJelopment project, )be cxample, senior ¢zÿineeritÿg maÿltÿgell,ÿeÿlt ctrÿz .¢/Jlttÿt in good ¢tÿ#i- neet:r f!,'om other less importam projects at a moment's notice. Or if one product is in unexpect- edly high demand, a plant manÿTer can switch lines quickly to get the product voh.tmes out the dool: I woMdn't wtÿnt to scc us lose that.

A marketing executive who had been hired fi'om the outside made a similar point:

My old company was olflanized by product divi- siom; and me were stepping all over each other sdl- iug di3ÿycrent product liras to the same customers. Sometimes ÿvc were ore' omn ficrccst competitor: the small .9,stems customer representatives were push- ing one solution, the lmÿqc .9,stems people a di3f!'r- ent one. That was one reason I left, and I don't ll'aÿt tO see Dyuacorp get into the same dih'mma.

External Investigation: Identifying Alternative Designs

Some members of the task force focused on the search for alternative organization designs. They surveyed the leading companies in information technology and communications (ITC) industry, talked with executives in some of those companies, and interviewed a set of consultants who specialized in organization design (and who were eager to sell Dynacorp their services). They also talked with some of Dynacorp's own managers who had been hired out of other companies in the industry to get their views on the strengths and weaknesses of the organization design at their previous emplwer compared to Dynacorp's. From these investiga- tions, task three lnembers identified five models that they tÿ:lt were viable alternatives tbr the company. • Pmdt,tct dil,isiou structure: This design would

divldc Dyn£ÿcorp's functional divisions into product-based mtÿlrifunctional product divi- sions based on the product technology, with a general manager in charge of the entire value chain (from technology development through after-sales service) tbr each major product line. Related product divisions would be grouped into business divisions (e.g., large systems) headed by an executive vice president. Shared corporate services would include not only the current set of activities but also advanced tech- nology developlnent, which would be in effect a corporate R&D center providing cutting- edge technology for future product lines.

. Customer dil,ision structure: Dynacorp's ['tlnc- tional divisions would bc divided into multi- functional divisions, but the criteria for creating the divisions would be primarily the customer segment they served (c.g., small business division), rather than the technology of the product.

• Fmictional/prodÿ/ct matrix." This structure would man'ix the existing fimctional structure with a product division structure, so that indi- viduals would report both to a fimctional man- ager and a product manager. Only one company in the industry was using this structure success- fifily, and several companies that had adopted this structure had abandoned it after a [ÿw ),ears. However, rather than regarding it as a tSilure, two or three had employed it as a transitional structure to develop the people and the systems to move more easily li'om a functional to a prod- uct-based organization design.

• Front/back:This newest structure, adopted by. a very small ntunber of companies, was strongly advocated by several of the consultants as the "cutting edge" of organization design in the ITC field. The structure would keep the mar- keting division as a separate front-end strtlc- rare, responsible fbr selling the entire range of Dynacorp products and systems. However, it would enhance its technical support capabilities to enable it to deliver systems and solutions rnore effectively to customers. Engineering and manuthcmring would be divided into product- based business traits that would be responsible fbr design and production.

• Functional stm.tcture with stronger linki*ÿT mechauisms: This most conservative alterna- tive would keep Dynacorp's fi|nctiolml struc- ture, but would set up a much stronger array of cross-functional linking mechanisms and alignment systems to support cross-fimctional linkage.

None of the designs seemed to have been suc- cessful in every company that tried it; eacln had success and fhilurc cases within the industry. The fi'ont/back structure was so new that no obvious "failure" cases had yet a,'isen, but even some of its strongest advocates in the industry admitted that it had proved more challenging to implement than the), had initially expected.

After the task force had digested both the infof mation on the problems of" Dyna&)rp's current structure and the mapping of the five design alter- natives, the task f'orce began the discussion with a quick show of hands on each member's first and second choice for a new design. The result showed a wide distribution across the fivÿ alternatives, and it was clear that no quick consensus would point to the best way forward for the company.