Architecture does not
people. It does so by
enabling very ordinary
people to perform in
- John Kay
Organizational structure: It defines how job
tasks are formally divided, grouped and
A good organizational structure and
• Improve communication.
• Increase productivity, and inspire innovation.
• Create an environment where people can work
Factors affecting organizational design
• Strategy: No matter what strategy the organization
pursues, the structure must support it to be successful.
• Size: The design must take into account the size of the
organization. The larger an organization grows, the
more there is a need for formal structure, defined work
assignments, and clear lines of authority.
A design aligned
strategy and the
people, and the
o Wide spans of control
o Authority centralized in a single person
o Fast, flexible and inexpensive to operate
o Increase in size leads to slower decision
o Formalized rules and regulations
o Centralized authority, narrow spans of control
o Decision making that follows the chain of
Types of Organization Design
o Combines product
o Breaks the unity of
o Employees have
and product managers
oEarlier known as Siemens & Halske, it was
founded by Werner von Siemens on 12
oHeadquartered in Munich, Germany.
oIt is organized into five main divisions: Industry,
Energy, Healthcare, Infrastructure & Cities, and
Siemens Financial Services (SFS)
oLargest Europe-based electronics and electrical
oHas around 427,000 employees.
oAnnual revenue of 73.5 billion euros in 2011
oAlthough it was respected for its engineering
prowess ,it was derided for its sluggishness.
Took over as CEO in 2005
Restructured company along
lines of Jack Welch.
Tried to make system less
Spun off underperforming
Profits increased by 35% during
his tenure of two years.
Labor force was not pleased
with changes-allegations were
leveled against him.
Forced to quit in June 2007
oAppointed as CEO on May 20, 2007
oSold VDO to Continental Corporations-
generated revenue of 16.7 billion
oIn 2008,he announced elimination of
oPlans of boosting growth with energy-
saving and infrastructure products .
oCompany experienced its share of ups
oEfforts to restructure generated less
you about the
• Chairman and Chief
Executive Officer of
Alcoa since April 2010
• He was elected to the
Board of Trustees in May
• Chairman of the U.S.-
Russia Business Council
• American business culture
stint in Siemens' U.S.
• Chief executive of U.S.
• Strategic product manager
at the CIBA-GEIGY
• Worked at Siemens About
• Dramatic transformation of
the company, reshaping
the company’s portfolio
14Restructuring the Organization
Kleinfeld tried to do the following
o Low degree of
o Wide span of control
o Make quicker decisions
o Develop the under performing
o Less formalization
50% board of members are
Labor representative did not
positively react to
Conflict between labor
representatives and bank
rolled business friendly
Kleinfeld was forced out and
replaced by Peter Loscher.
Difficulties in Restructuring
People do not like to change, the really don’t like
uncertainty, and anyone coming in to change things
will be quickly disliked by the employees.
Organic model of restructuring is not positively
Simplifying group structure might cause conflict
between roles in organization.
Dominant culture v/s subculture.
Why was Kleinfeld replaced ?
It is appropriate to make it rational with
employees’ voice as well as company’s financial
American way of restructuring was not apt for
Allegations against Kleinfeld about undermining
Germany’s main industrial union.
Why was Kleinfeld replaced?
Why do you
Loscher faced the same tension as Kleinfeld, in
terms of restructuring the company.
Loscher had to take a decision to spin off an
underperforming 10 billion-euro auto parts unit,
He had to weigh the forces for stability, which
wanted to protect worker interest, against U.S.
style pressures for financial performance
One of VDO’s possible buyers was a U.S.
company, TRW, a U.S. private equity firm.
But German labor representatives derided such
private equity firms as “locusts”.
Loscher decided to sell VDO to German tire
giant, Continental Corporation thereby acquiring
the support of workers.
He announced plans to consolidate more
Reorganized the company’s operations
Loscher was more supportive of German
employees with his ideology where as Kleinfeld
was more American in his thinking.
The decision of the company’s supervisory
board was unanimous, with trade union
representatives supporting the decision.
In mid-2008,although he announced elimination
of nearly 17,000 jobs, yet he managed to
downsize the organization efficiently.
Assume a colleague
read this case and
concluded “This case
efforts do not improve a
How would you respond
to this statement?.
oA business organization makes changes in
personnel and departments and can change how
workers and departments report to one another
to meet market conditions.
oSome companies shift organizational structure
to expand and create new departments to serve
o Other companies reorganize corporate
structure to downsize or eliminate departments to
conserve overhead. Often new owners or
managers rearrange business structure to create
a familiar business model.
What is Restructuring?
o Restructuring efforts of Kleinfeld were along
the lines of what Jack Welch did at General
Electrics. His efforts were to make Siemens less
o He has got little applause for boosting 2006
sales by 16% and profits by 35%.
oHe had pushed Siemens' 475,000 employees to
make decisions faster and focus as much on
customers as on technology. He spun off
businesses and simplified the company's
oSiemens shares have risen 26% in the two
years since he took over, vs. 6% for GE during
oBut in spite of all this Kleinfeld was not
accepted at the organization by the employees.
His downsizing acts were not accepted by the
employees and the board of directors at
Siemens’ who represented the employees.
Kleinfeld had angry employees demonstrating
outside his window very often.
He had to face questions about a bribery
scandal that had sapped his authority even
though he was not personally implicated.
On the other hand Peter Loscher’s restructuring
was more along the lines of German corporate
vision. Loscher joined the organization after
Loscher spun off an underperforming 10 billion
–Euro auto part unit named VDO.
Instead of selling it to an American business
giant named TRW, he sold it to German tire
Though his actions often incorporated employee
interests Loscher ,in mid 2008 eliminated 17000
jobs world wide in attempt to reorganize the
During Loscher’s tenure the company did face a
lot of ups and downs. Its stock price fell in the
European stock exchange and New York stock
exchange but did better than its contemporaries
like Alcatel and GE.
Do you think a
CEO who decides
to restructure or
the well being of
employees in to
he or she do so?
Why or why not?
Downsizing refers to a process where a
company or a firm simply reduces its work force
in order to cut the operating costs and improve
The following are the reasons for downsizing a
a) Merging of two or more firms
c) Economic crisis
d) Strategy changes
e) Excessive workforce.
Yes, a CEO should consider the
well being of employees while
downsizing the company.
a)Productivity and Creativity Drops- The
employees may reserve ideas in case they
too are downsized. Lower creativity
sometimes translates into lower
b) Potential for Legal Issues- Unjustified
layoffs leave employees exposed to
expensive lawsuits .Company also stands
to earn a bad reputation which could
further harm business.
Reasons for considering well -being of
c)Decrease Morale- After the downsizing takes
place, remaining employees may face greater work
responsibilities without extra pay, so it will lead to
decrease in the morale of employees.
d) Social Media - Former employees may share
their experiences on YouTube, Twitter, Facebook or
a blog. If the comments are negative, it will
seriously harm company’s reputation and also
affect ability to attract new clients or employees.
Reasons for considering well -being of
e) Advance Notice- According to the Worker
Adjustment and Retraining Notification Act (WARN)
requires employers to give employees, a 60 days
notice to mass layoffs when reducing their
workforce by 33 percent or more.
f) Severance Packages- It refers to the pay and
benefits an employee receives when he or
she leaves a company. Severance packages also
include extended benefits, such as health
insurance and outplacement assistance to help the
employee secure a new position.
Reasons for considering well-being of
Making it less
Kleinfeld Vs. Loscher.
Loscher’s efforts caused less
controversy, but did not go well
with all constituents.
Example of IBM, which had never laid off staff
ever since its incorporation.
Had to layoff 85,000 employees to stay in
This type is tough to manage and is mostly
adopted to overcome adverse situations.
Not always a result of business losses.
May be needed in cases of acquisitions and
No business can continue to function in the
same way forever.
Restructuring is one of the options for a
business to stay on track with changing times
and business conditions .