PMC CASE STUDY, ORGANIZATIONAL THEORY

1. THE RISE & FALL OF PMC-AG
“I couldn’t find the sports car
of my dreams, so I built it
myself”.
- Ferdinand Porsche
PRESENTED BY :-
AMIT KUMAR
KARAMJEET SINGH
DIPANWITA MOHANTY
PREETAM PRAVAT MALLA
RAJU PADRA
TIGMASHU

2. PMC background
 Ferdinand Porsche founded the company in 1931, with main offices in the centre of
Stuttgart, Germany.
 Initially, the company offered motor vehicle development work and consulting, but did not
build any cars under its own name.
 During his 20-month imprisonment, Ferdinand Porsche's son, Ferry Porsche, decided to
build his own car, because he could not find an existing one that he wanted to buy.
 In 1948, the first PMC prototypes rolled out of the small manufacturing facility.
 By 1960s however, PMC begun to design and build its own parts and launched first car.
 Rapidly grew period 1960-1980. 1986 the year of highest production.
 In 1972, the company’s legal form was changed Kommanditgesellschaft (KG) or limited
partnership, to Aktiengesellschaft (AG), or public limited company.
 Early 1990 cost inefficiency hit, sales decreases. 1995 sales around 20000.

3. PMC’s craft tradition
 PMC workers were encouraged to master long work cycles.
 engineers worked independently & occasionally redesigned the
product to fit the manufacturing capabilities
 a moving track system assembly system was introduced to improve
efficiency
 Employees were encouraged to quickly put all the parts on the car.
 PMC vehicles were known to have few defects when sold to
customers

4. ELEMENTS OF ORGANIZATION
Top level managers, who are
charged with the overall
responsibility for the
organization
Employees who perform
the basic work related to
the production of
production services
Managers, who connect
the operating core to the
strategic apex
Analysts, who have the
responsibility for
effecting certain forms
of standardization in the
organization
People who fill the staff
units, who provide indirect
support services for the
organization

5. Structural changes
 Started with a simple structure & evolved into a classic hierarchical
functional structure
 Simple structure consisted of engineering and production department.
 By 1980’s, employees were divided into more than 10 functional
departments, represented various stages of the production process as
well as upstream and downstream.
 In hierarchical structure,
 Front line employees reported to work group leaders, who reported to
supervisors, who then reported to group supervisors in each area.
Group supervisors reported to production managers, who reported to
production directors, who reported to PMC’s executive vice president
of manufacturing
 In the early 1990s, for example, there were 48 group supervisors, 96
supervisors, 162 work group leaders supervising about 2500 front line
production employees.

6. PMC- SIMPLE STRUCTURE
Different Structural Dimensions :
 Complexity : Low
 Formalization : Low
 Centralization : High
Design dimensions :
Apex - Small
Middle Line - Small
Operating Core - Large
Key Part - Apex
Simple Structure

7.  At the beginning the size of PMC is small and it was in its formative stage, so the structure
at that time was simple.
 As we know a simple structure emerges when the control is in the strategic apex similarly at
PMC the control of the decision making lies on the founder Ferdinand Porsche.
 Complexity was low because the structure was not elaborated and there is no horizontal as
well as vertical exists.
 Initially Porsche was on to motor car development and consulting and there was no
manufacturing of cars, so formalization was very low.
 As there was less no of employees, there was no middle line so the authority was centralized
on a single person that was Porsche.
 At that time environment was organic, as they were relatively flexible and adaptive.

8. PMC-PROFESSIONAL BEAUREACRACY
Different Structural Dimensions :
 Complexity : High
 Formalization : High
 Centralization : Low
 Design Dimensions :
Apex-Small
Middle Line- Moderate
Techno-structure- Small
Operating Core- Large
Support- Large
Key Part – Operating Core

9.  In 1948, the structure started shifting to professional bureaucracy because the company size
started to increase from medium to big.
 First PMC prototype was rolled out of the small manufacturing facility.
 Complexity started increasing because highly skilled people were being employed to make
the products.
 With increase in the number of employees horizontal and vertical centralisation decreased.
 There is high formalisation and standardisation.
 Economies of scale and economies of scope started increasing with the introduction of new
products in th market and the expansion of market.

10. PMC- DIVISIONAL STRUCTURE
Different Structural Dimensions :
 Complexity : High
 Formalization : High
 Centralization : High
 Design Dimensions : Apex - Small
Middle Line - Large
Operating Core - Large
Techno-structure - Small
Support - Large
Key Part – Middle Line

11.  In late 1980’s PMC move from professional to Divisional Structure.
 As in divisional structure a set of autonomous units exists, similarly in PMC
departmentalization happened and thus emerges a functional design.
 In early 1990’s there were 48 group supervisors, 96 supervisors, 162 work group leaders
supervising about 2500 front line production employees.
 The complexity is high as the employees are divided into more than 10 functional
departments representing different stages downstream (quality control, marketing etc) and
upstream (design , purchasing).
 That time PMC assembling and manufacturing cars so in assembly operation where
employees work in teams they must abide by the strict guidelines of assembling parts onto
the vehicles.
 Centralization was high as the power lies with the middle management and coordinated by a
central head quarter.

12. Strengths and weakness of
divisional structure.
 Strengths:
 Ineffective performance has little effect in other divisions.
 It free’s the headquarter staff from being concerned with the day to
day operating details so they can pay attention long term goal.
 Weaknesses:
 Duplication of activities and resources
 Functional division may create co-realtions as well .

13. The end of success
 Mainly targeted a small niche of everyday use sports car.
 The cost of manufacturing was slowly increasing.
 Japanese sports car cost of manufacturing were cheaper than PMC.
 German currency appreciated against the American dollar, which make car more expensive
in the north American market.
 1990 PMC’s sales reduced by half and also due to recession in North America sales reduced
further.
 In 1993 its sales dropped to 14000 vehicles compared to 54000 in 1987.
 Also high price tag put PMC out of reach of many potential customers.