international business unit VI Article Critique and DQ question

TRANSFORMING A MULTI-NATIONAL CORPORATION FROM A CENTRALIZED ORGANIZATION TO A DECENTRALIZED ORGANIZATION

Dezaree Seeds, California State University, Stanislaus, Turlock, CA, USA Alan S. Khade, California State University, Stanislaus, Turlock, CA, USA

ABSTRACT “One thing that business, institutions, governments and key individuals will have to realize is spiders and starfish may look alike, but starfish have a miraculous quality to them. Cut off the leg of a spider, and you have a seven-legged creature on your hands; cut off its head and you have a dead spider. But cut off the arm of a starfish and it will grow a new one. Not only that, but the severed arm can grow an entirely new body. Starfish can achieve this feat because, unlike spiders, they are decentralized; every major organ is replicated across each arm” (Beckstrom and Brafman 2008). There has been an ever going battle on which organizational structure is the most effective and profitable in today’s business world… centralized, decentralized, or hybrid. Each model definitely has its own pros and cons. This paper will detail each structure and give examples. We conclude with the fact that we believe the decentralized way of life is the best. I will provide a detailed process on the steps needed to change a centralized organization into a decentralized organization. 1. INTRODUCTION

Innovation is an important part of any organization; it is a key to success. Two structural dimensions of the firm that affect innovation are centralization and decentralization. Centralization is defined as, “the degree to which decision-making authority is kept at top levels of management.” Decentralization is defined as, “the degree to which decision making authority is pushed down to lower levels of the firm” (Schilling 2008).” Many experts disagree which form of organization is truly better. Centralization and decentralization can refer to two types. There is geographical centralization. An example of geographical centralization would be having one mega headquarter for your firm. A decentralized example would be many headquarters scattered over the country or world even. Another form of centralization/decentralization is knowing where the authority and decision making processes are held. Many factors affect the need for a centralized or a decentralized organization. Type of industry is important in the decision. Later we will go into detail how automobile manufactures are primarily decentralized while computer manufacturers have more of a decentralized feel. Experts have disagreed for decades over which organization structure is better. 2. LITERATURE REVIEW Learning in the Large Enterprise: Centralized vs. Decentralized (Ellis and Mauldin 2003 ) “The debate over the centralization versus decentralization of operations within a large enterprise is a never-ending one. It is an age-old battle of standardization versus autonomy, corporate efficiency versus local effectiveness and pressure on costs and resources versus accommodation of specific local needs.” Some experts believe that a complete transformation from a centralized to a decentralized organization or visa versa takes at least a minimal amount of time of three years. Experts agree that when you step into a centralized organization there is sometimes a sense of slow timing to get new ideas or creative ways implemented. When there is a strict form of command flow charts to follow sometimes creativity is indered. At this point in time decentralization would be the easiest way to block the dam and allow thoughts to flow freely. There is another side to the centralized vs. decentralized organization debate. Sometimes you can step into an organization that is already decentralized. Sometimes organizations that have been severely decentralized can seem to be fragmented and do not appear to be a company that is whole and complete. Decentralization between different departments can create a loss of company values and a

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vision. In this case centralization would be the only way to conform the entire company into one goal oriented and passion driven alliance.

http://www.12manage.com/images/picture_centralization_decentralization.gif

www.tbs-sct.gc.ca/.../images/appendixDa_e.gif Benefits of Centralized Learning To achieve centralized learning, an organization will utilize one central learning management system with one central database. Such a system can manage many functions. In general terms, the main benefit of

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centralized learning is the cost savings that result from standardization, central reporting and record keeping and quality control (Ellis and Mauldin 2003). The advantages of such a system include:

• Reduction in number of systems required to handle corporate learning. • Reduction of infrastructure requirements via consolidation of IT resources. • Immediate population of the company’s central database with course completions and

certifications. • Promotion of standardization via reduction in the number of duplicate courses. • Realization of significant cost savings advantages. • Reduction in number of administrators. • Standardization of content. • Standardization of certifications and competencies. • Ability to easily align employee objectives with corporate objectives. • Simplified reporting (from one system versus many). • Accuracy in reporting (from one system versus many).

Benefits of Decentralized Learning To achieve decentralized learning, an organization may utilize several learning management systems, each with its own database. These systems can also manage many functions. In general terms, the main benefit of decentralized learning is the ability to deploy and manage large amounts of content, all of which can be localized. The advantages of such a system include:

• Increased control at the local level. • Local training departments tend to understand the specific needs of their areas of responsibility

much better than corporate. • Local training departments see efficiencies in creating their own courses versus depending on

corporate. • Local training departments can manage their own costs. • Ease of creation of desired local reports. • Control over local resources. • Ability to manage more content. • Ability to localize courses and learning events. • Ability to add spot training instantly when needed.

3. THE HYBRID MODEL There is always the old saying “the best of both worlds,” a Hybrid model for organizations is exactly that. Most experts agree that and organization that takes the positive attributes of both options and puts them together in one mega organization. This would ensure a corporate feel as well as a more local training type of environment. There are however two issues that a corporation must address in order to implement they hybrid form. The first is to infiltrate the technical infrastructure of the system in order to make it centralized and decentralized friendly. The must also execute the plan in a way that shifts the old system into a new place with the least amount of disruption.

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Percentage of Companies in a Centralized, Decentralized or Hybrid type of Organization:

www.benchdb.com/.../amex1/images/at10.gif EXAMPLES OF SUCCESSFUL CORPORATIONS TODAY: General Motors For the past six decades the automotive industry has been very standardized when it came to the organization structure. When it comes to the assembly line part of the production the focus was primarily on a centralized level. Today, many automobile manufacturers are changing their ways. General Motors was one of the first to implement the change for their industry and are considered a revolutionary company. Both have their pros and cons when it comes to the strict and unique field of industry. “Centralized operations benefit from economies of scale, better utilization, and flexibility. However, decentralized plants may have lower logistics costs and are more responsive to the dedicated assembly plant. Which arrangement is better for quality? Centralized operations make quality control easier by reducing a source of variability, while decentralized operations could have less inventory and quicker feedback from assembly (inman 2003).” Diagram of a Decentralized Organization:

http://www.vs.uni-kassel.de/systems/index.php/Architectural_Model Intel Corporation: Today Intel is considered the leading producer of microchips, computing and communications products. In the late 1980’s when Intel was just beginning to thrive they started out with a decentralized view for their corporation. Many technological companies such as Mac feel like the average employee fits better with a decentralized way of life but Intel faced problems. “Intel realized that, as a result of the rising complexity and information processing demands in the semiconductor industry, its decentralized process (which was scattered across diverse business groups) was resulting in serious delays and cost overruns.”

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Intel realized that something needed to be done and it needed to be done quickly. During the 1990’s Intel reshaped and redefined their company into a completely centralized organization. The process generation was given to a single facility in charge of fabrication instead of multiple facilities. Once tested at one facility Intel made the leap and converted all remaining facilities. Diagram of a Centralized Organization:

http://www.vs.uni-kassel.de/systems/index.php/Architectural_Model eBay: eBay is a unique and extremely successful form of a hybrid organization. Just looking from the outside you may see the eBay enterprise as centralized or decentralized organization but in fact it is a wonderful combination of both, the very meaning of hybrid organization. The hub of the corporation is extremely centralized where major decisions and ideas are held to the higher management and team members. What makes the organization a hybrid approach is the decentralized customer approach that they are famous for. Diagram of a Hybrid Organization:

http://www.vs.uni-kassel.de/systems/index.php/Architectural_Model 4. HOW TO IMPLEMENT THE CHANGE The first step to implementing the change is for the management to realize a change is needed and must be implemented in the first place. The experts say that a complete change from centralized to decentralized will take at the minimum three years. This is a big step and this is a long commitment. Management needs to be 100% committed to the change and the results it will bring in order for the employees to get behind the change as well. The second step would be to make sure that employees know the change that is about to take place and make sure that they embrace the change. Change in the work environment can be scary as well as threatening to employees that are set in their ways. Decentralizing a company will be forcing the important decisions and company information down the chain of command. This mean front line employees will hold greater responsibility as well as authority. Employees should be aware of this change and be willing to grasp this new form of power. A meeting should be held of some kind to ensure that all employees are on board and ready. Getting insight from your frontline managers can also be helpful in a faster and more effective implementation process.

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It is a proven fact that decentralized organizations needs glue that holds them together in an almost segregated world. They need one strategy and ideology to hold the limbs of a scattered organization together. It’s almost like tree. Each department of a decentralized organization has its own separate tree limb that is unique and separate form the other branches. At the very bottom of the tree is one common root that started it all and gave life to the existing limbs. This glue can be as simple as a common goal or mission statement that proves to the company that an organizational melting pot can be obtained. You need to also look at the managers you have on hand. Managers have different personality traits which may benefit a decentralized organization better than a centralized organization. The decentralized manager as I like to call it has more of a free spirited and creative way of thinking. They like the free flow of communication and do not feel threatened by the authority shifting downward towards the lower level employees. They embrace the fact that information and ideas will be able to surge through every level of the organization, not just the higher level. Follow-up after the implementation is the biggest step of all. Any change in an organization takes time, patience, feedback, and follow-up. A major problem in a decentralized organization is the presence of repeated information. If the managers continue to communicate and follow-up on the change at hand the implementation should be nothing but a success. 5. CONCLUSION We believe each structural dimension whether it is centralized, decentralized, or hybrid has its own set of amazing advantages and disappointing disadvantages. We think the future lies n a decentralized organization. It seems like corporations today have a freer flowing and laid back approach and are gaining success from this nonchalant way of life. Decentralization takes creativity from every level of employee and gives it a place for output. In a decentralized organization this current of communication and ideas is an excellent recipe for success. In the future we believe biggest companies of our time will be transforming into a decentralized way of life if they haven’t already started. REFERENCES: Argyns, N.S., and B. S. Silverman, “R&D, organization structure, and the development of corporate technological knowledge,” Strategic Management Journal 25 (2004). Beckstrom, Rod and Ori Brafman. The Starfish and the Spider. http://www.starfishandspider.com/index.php?title=About_the_Book. February 2008. Ellis, Joe and Todd Mauldin. Learning in the Large Enterprise: Centralized vs. Decentralized. http://www.clomedia.com/content/templates/clo_feature.asp?articleid=128. March 2003. Hagel, J., and J. Singer, “Unbundling the corporation,” Harvard Business Review, March-April 1999. http://www.vs.uni-kassel.de/systems/index.php/Architectural_Model Inman, Robert. Designing Production Systems for Quality: Research Opportunities From an Automotive Industry Perspective. 2003, vol. 41, no. 9, 1953–1971. http://66.102.9.104/search?q=cache:QckfvJ42bZMJ Schilling, Melissa. Strategic Management of Technological Innovation (2nd Edition). Boston: McGraw- Hill/Irwin, 2008. www.benchdb.com/.../amex1/images/at10.gif www.tbs-sct.gc.ca/.../images/appendixDa_e.gif

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