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Osdc group 8_project_-_part_1


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Osdc group 8_project_-_part_1

  1. 1. Organization Structure, Design and Change PGCBM-22 Professor – Dr. Gloryson Chabil Submitted by – Group 8 members Meghna Govil 2224276 Saurabh Singhal 2224364 Sachin Suri 2224214 Manoj Kumar 2224302Ravi Pratap Singh Tomar 2224997 Esha Kalia 2224236 20/11/2012
  2. 2. Chapter 1 – Organizations and Organization EffectivenessQ1 – How do organizations create value? What is the role of entrepreneurship in this process?Answer:Organizations create value at three stages – input, conversion and output.Inputs to an organization can comprise of raw materials, money and capital, human resources,information and knowledge etc. Outputs can be finished goods, services, dividends, salaries etc andconversion process can be machinery, computers and human skills.The way an organization chooses and obtains from its environment the inputs it needs to producegoods and services determines how much value the organization creates at the input stage. The waythe organization uses human resources and technology to transform inputs into outputs determineshow much value is created at the conversion stage. The amount of value the organization creates is afunction of the quality of its skills, including its ability to learn from and respond to theenvironment.The result of the conversion process is an output of finished goods and services that theorganization releases to its environment, where they are purchased and used by customers to satisfytheir needs. The organization uses the money earned from the sale of its output to obtain newsupplies of inputs, and the cycle begins again.Each stage is affected by the organizational environment which is a set of forces and conditions thatoperate beyond an organization’s boundaries but affect its ability to acquire and use resources tocreate value.An organization that continues to satisfy people’s needs would be able to obtain increasing amountsof resources over time and will be able to create more and more value as it adds to its stock of skillsand capabilities.A value creation model is useful in describing how organizations create value. It has 4 steps – Organization’s Inputs Organization’s Conversion Process Organization obtains inputs from its Organization transforms inputs and environment. adds value to them. Organization’s Environment Organization’s Outputs Sales of outputs allow organization to Organization releases outputs to its obtain new supplies of inputs. environment.
  3. 3. Entrepreneurship is about bringing value in by being flexibility and focusing toward customeroriented value addition in either of stage to satisfy needs and gather and use resources to meet thoseneeds. This is how organizations are born by one or more enterprising persons who believe that theypossess the necessary skill and resources to produce goods and services. Sometimes several peopleform a group to respond to a perceived need by creating an organization. Therefore role ofentrepreneurship in value creation process is that it gives rise to organizations that, in turn, createfurther value as described above. In more flexible / entrepreneurship or startup business exhibits more readiness in changes at anystage of resource utilization and / or output generation. Core focus of such organization is based onresource acquisition at all levels, but more on output stage, where customer is easily able todistinguish the superior value.Q2 – What is the relationship among organizational theory, design, change, and organizationalstructure and culture?Answer:.Organizational structure can be defined as two broad compositions of it one is formal part of itwhere the skeleton of organization hierarchy , divisions the authority and task relations are presentedby RACI (Responsible ,accountable , consulted and Informed) flow / charts , which are jointlycommitted to achieve the common , and other is the Informal part of it where set of shared valuesway of interactions , cross functional relations with internal and external resources are shared anddirected to achieve the overall win-win situation and the common goal.The Formal part can be classified as the Organization structure and the Informal part can benominated as Organizational culture , Design of any organization is done in composition andbalancing both the formal and informal component of it.As any organization needs to change its shape and strategy to compete with dynamic forces of theexternal and internal environment it becomes very vital to clearly distinguish the formal andinformal part of organization and the change in both results the required and most competent tomaintain the progressive growth stated Mission / vision under change.Bigger changes are observed when organization is becoming more flexible and more orientedtoward specialized talent utilization.
  4. 4. The relationship among organizational theory and organizational structure, culture and design andchange can be depicted by the following diagram Organizational Theory The study of how organizations function and how they affect and are affected by the environment in which they operate. Organizational Structure Organizational Design and Organizational Culture Change The formal system of task The set of shared values and and authority relationships The process by which norms that controls that controls how people are managers select and manage organizational members’ to cooperate and use various dimensions and interactions with each other resources to achieve the components of organizational and the people outside the organization’s goals structure and culture so that organization an organization can control the Controls coordination and activities necessary to achieve Controls coordination and motivation; shapes behavior its goals motivation; shapes behavior of people and the of people and organization organization Balances the need of the organization to manage Is shaped by people, ethics, Is a response to external and internal pressures and organizational structure contingencies involving so that it can survive in the environment, technology Evolves as organization long run and human resources grows and differentiates Allows the organization to Evolves as organization Can be managed and continually redesign and grows and differentiates changed through the transform its structure and process of organizational culture to respond to a Can be changed through design changing global environment. Organizational design
  5. 5. Q3 – What is organizational effectiveness? Discuss three approaches to evaluating effectiveness andthe problems associated with each approach.Answer:Organizational effectiveness is the concept of how effective an organization is in achieving theOutcomes it intends to produce. An organization is said to be effective if it can 1. Secure scarce and valued skills and resources from outside the organization (external resource approach) 2. Coordinate resources with employee skills creatively to innovate products and adapt to changing customer needs(internal systems approach) 3. Convert skills and resources efficiently into finished goods and services (technical approach).Control, Innovation and Efficiency are the 3 important processes to measure organizationaleffectiveness.Control means having control over the external environment and having the ability to attractcustomers and resources.Innovation means developing an organization’s skills and abilities so the organization can discovernew products and processes. It also means designing and creating new organizational structures andcultures that enhance a company’s ability to change, adapt, and improve the way it functions.Efficiency means developing modern production facilities using new information technologies thatcan produce and distribute a company’s products in a timely and cost-effective manner.There are 3 approaches to measuring organizational effectiveness:- 1. External resource approach – Evaluates the organization’s ability to secure, manage, and control scarce and valued skills and resources. Problems – a) Taking a strictly external resource approach could lead to too much focus on stock price and market share, and lead to inefficiencies and missed market opportunities that would have been discovered using a technical or internal systems approach. b) In many not-for-profit organizations it is hard to measure output goals or internal efficiency. c) In a fast changing organizational environment, companies have to focus closely on customers and decide how best to meet their changing needs.
  6. 6. 2. Internal Systems approach – Evaluates the organization’s ability to innovate and function quickly and responsively. Problems – a) In inflexible organizations, with a long decision making process and long length of time to market a product can lead to internal conflicts and the organization’s effectiveness is reduced if measured using this approach. b) No improvements to internal systems that influence employee coordination or motivation can have a direct impact on an organization’s ability to respond to its environment.3. Technical approach – Evaluates the organization’s ability to convert skills and resources into goods and services efficiently. Problems – a) Reduced product quality b) Lot of defects in the product c) High production costs d) Poor customer service e) High delivery time to customer f) Involvement of more Non value added works then value added works. g) Lack of technology renewal / advancement.
  7. 7. Chapter 02Chapter 2 - Question 1Draw a stakeholder map that identifies your organization’s major stakeholder groups. What kind of conflicts betweenits stakeholder groups would you expect to occur the most?Answer:
  8. 8. The stakeholder’s at American Express can be classified into two main groups: Inside Stakeholders andOutside Stakeholders.Map of Inside Stakeholders at AMEX Shareholders Business Units Management Board of Team Directors Local/Global Employees OperationsMap of Outside Stakeholders at AMEX Customers Vendors/Suppliers Channel Partners Corporate Government Partners Educational Auditors Various Employee Institutions Communities FamiliesThe conflicts can possibly occur within the inside stake holders group and outside stakeholdergroups and also between various groups between the inside the and outside stakeholder groups.There could be various reasons and sources of conflict in any organization. However the most likelyconflicts occur where the business, organizational, personal goals of groups and or individuals areconflicting in nature. The following examples below further illustrate the point about conflictsbetween different groups. 1. There is always conflict expected between the customers and the company as a whole. In this particular case, the expectations of the customers are always high and keep on increasing even if the previous expectations are met. 2. There is possibly tremendous amount of conflict between the Board of Directors and the Management team. The board of director’s alwys expects the best performance from the company management executives in terms of financial results, increase in share holder values, branding and employee motivation etc. The management team always tries to deliver the best against the promises and business goals however sometimes the results are not as per the expectations which creates conflicts.
  9. 9. 3. There are often conflicts between the management team/managers and the vendors and suppliers of the company. One reason of the conflict is the perceived quality of products and services delivered by vendors and suppliers to the company. Other source of conflict is commercial in nature due to pricing and payment terms and timely release of payments.Q3 - What is the agency problem? What steps can be taken to solve it?Ans- When Shareholders(Principal) appoints Top management (agency) and delegates its power tousing, control and monitor the resources effectively and efficiently . The Shareholders expect thetop management being expert would help them to maximize its wealth. But sometimes topmanagement has its own goals and interest which may not be in line with shareholders goal andinterest. Shareholder through Board of directors judges the actions and its effectiveness of Topmanagement. But many a times , the important information are not made available to Board ofDirectors and thus actions and decisions of top management on overall operation , health andwealth of company is unkown to Shareholders . In order to avoid such kind of situation, a propermanagerial accountability of top management needs to be decided while delegating the authority.This is known as Agency ProblemThe Agency problem can be overcome by using governance mechanism or forms of control thatalign the interest of principal and agent so that both parties have the incentive to work together tomaximis the organization effectiveness.Few such governance mechanism are:- 1. Stock based Compensation schemes :- One way of aligning the agent interest is to award them contingent on their outcomes of their decision that results in improvement in organizational performance. The top management is given large stock as a part of their remuneration. If company does well , then the value of stock options and monetary compensation is much enhanced. This helps in aligning the agent goal to organizational gaol. 2. Promotion Tournaments an career Paths :- The board Of directors has the power of promoting the managers to rise to CEO and its demoting too. This spreads a competition among the managers to work within organizational interest Chapter 03
  10. 10. Draw a chart of your organizations domain. List the organizations products and customers and theforces in the specific and general environments that have an effect on it. Which are the mostimportant forces that the organization has to deal with?(For answering this Keeping ABB as Organization, but for Ques 3 we are answeringkeeping Amex as company, for which Mr. Susanta)2) ABB SummaryABB ( is a leader in power and automation technologies that enable utility andindustry customers to improve performance while lowering environmental impact. The ABB Groupof companies operates in around 100 countries and employs about 145,000 people.History :The history of ABB goes back to the late nineteenth century, and is a long and illustrious record ofinnovation and technological leadership in many industries.Having helped countries all over the world to build, develop and maintain their infrastructures, ABBhas in recent years gone over from large-scale solutions to alternative energy and the advancedproducts and technologies in power and automation that constitute its Industrial IT offering.As Introduced ABB is Technological Driven Company, where technology and operationalexcellence is the key growth factors, the spread is very wide in terms of product / service offerings,geographical presence and human resources, organization is resourceful and continuously investingin R&D as well as changing dynamics of customer demand and competitiveness hence if we try toclassify in corporate matrix it can be:-
  11. 11. General And Specific forces:-ABB is a conglomerate of power and automation products and services, having various industriesand government utilities to serve (Customers), shareholders. channel partners , technology partner ,suppliers / vendors for which Marketing , sales, business development, Engineering , supply chain ,logistics , operational excellence , project planning are the vital governing forces which are giving themomentum of growth in dynamic situations.Broadly Specific Forces are :-Technology, Supply chain, logistics, planning and Operational excellence.General Forces are:-Shareholders, power and automation policy makers, planning commissioning of individual territory,competitors and vendors / channel partners.
  12. 12. Uncertainty Environment:-Since company has wide reach since 100 + years hence reputation is well established. And the policyof creating channel partners with long-term contracts for critical / high value items are done.Company is growing from one small manufacturing in 1859 to more than 109,Mergers, take overs and Joint Ventures.As mentioned above company is more formal and professional in mitigating the risk and keepingindividuality by inventing and exceling in planning and operational which indicates more sustainableand stable growth.Organization chart :-ABB :-Technology Core Team :-
  13. 13. Business Division and Busines unit Verticals :-
  14. 14. Functional and Administrative classifications:-Q2. Analyze the effect of the forces on the complexity, dynamism and rich ness of theenvironment. From this analysis, how would you characterize the level of uncertainty inyour organization’s environment?A. The Company we are discussing is American Express, a global financial Giant which is operatingin multiple continents offering a range of Financial Products for the Premium segment of customer.Let’s understand the environment of American Express;The Organizational Environment: American Express primarily deals in financial products likeCredit Cards, Travel and Traveler’s checks and offers service like Risk Management to otherCompanies.American Express has established itself as a Premium brand by offering premium services only tothe premium Customers in the segment. American Express associates itself to the high earning highspending segment of the society and offers premium value to its customers. It operates in a NicheEnvironment as far as its Credit Card products are concerned. This enable American Express togenerate a high revenue through lesser but high value transactions compared to the competitors likeVisa and Mastercard who offer free credit cards to who so ever is willing to have it. The Targetmarket for American Express is high value customers and it charges a fee to offer the brand productand services.For its travel business American Express targets the Corporates where people travel on businessfrequently and require travel arrangements to be made. This helps American Express to capture alarge number of corporate clients who have huge annual budgets for International Travel.
  15. 15. The Specific Environment: American Express is an American Company and has always maintaineda Niche market for itself, targeting only the premium customers. Now it wants to penetrate deeperinto the market however is facing a lot of challenges. Because of the “premium” tag and thereforethe associated fee that American Express charges from its Merchants (Discount Rate on everyCredit Card Transaction) the Acceptance of American Express is low compared to its competitors,which means the Merchants Prefer other cards over American Express, due to which a considerablevolume of revenue goes to the competitors. Till now American Express used to get a huge revenuethrough 5 star hotels where international travelers generally stay, however since it wants to penetrateinto the Indian market, it is critical for American Express to increase its acceptance.The General Environment: American Express is primarily an American Company with globalfootprint is riding the wave of Outsourcing. Lately all companies have been impacted by rising costs,high interest rates and exchange rates and all companies want to expand their portfolio by reachingout to other markets and expanding their customer base. While most of the cpmpanies start tooutsource most of their back office operations American Express is opening its own businesscenters across the globe. This helps American Express to maintain substantial control yet gives thebenefit of lower costs of operations. Due to the increasing costs American Express is shifting a hugevolume of Customer Servicing operations other centers across the globe. This helps AmericanExpress in considerable reduction of operating costs since the centers in India, Kuala Lumpur andPhilippines etc one third the cost compared to United States and one fourth the cost compared toUK and Australia.The Level of Uncertainty in American Express’s Environment: American Express is largeorganization and is focused on growth and increases its footprint. At the same time it wants to lowerits costs as well. Therefore it is continuously on the lookout of newer markets for growth anddestinations to set up centers from where it can service its customers at a lower cost. At presentIndia is a huge market which offers growth potential as well low cost of operations, however if thecompany gets the same quality of service at a yet lower cost in some other country then AmericanExpress would need to consider shifting to that part of the world.With continuous change in environment American Express has to be ready to embrace change,With more companies coming in there is a certain threat of Attrition of good resources toCompetitors, which means American Express has to keep on investing in training and retaining itsworkforce. Chapter 3 Quest 3:
  16. 16. Draw a chart of the main inter organizational linkage mechanisms (e.g. long-term contracts,strategic alliances, mergers) that your organization uses to manage its symbiotic resourceinterdependencies. Using resource dependence theory and transaction cost theory, discusswhy the organization chose to manage its interdependencies in this way. Do you think theorganization has selected the most appropriate linkage mechanisms? Why or why not?American Express is well known as organization serving in to multinational financialservices. As evolution of organization was in 1850 in US and which has spreader its presenceacross the globe. This growth was Impossible without collective mechanism ofMulti-cultural and multifunctional organization linkages with various terms and its melodies,depending upon business environment, general and specific forces , opportunities,geographical locations and local and global economies.Core competency of American Express is in to Credit cards, Charge cards and traveler`scheques. Emex it has been a deliberate part of DOW 30 since year 1896, company hasalways recognized as “Heavy Industry” and the service is financing and has been growingwith growth of lenders from it hence company has identified the potential and growingcompany information and linkages to offer.As described below , at times and demand Amex has been taking vital decisions ofPurchasing, meregers, Joint ventures , co-options, networking, and reputation buildingthings, With the below histogram (Sourced from Web and Amex Informations) ,one canclearly observe that Amex had taken more flexible methodology and to expand in alldimensions with keeping all general and specific market forces which is helping Amex to stillsurvive after 162 Years of existence and continuous growth.The only part we found can be improved upon is Networking , since in more financialtransection this firm is more possibilities of growth are open to be company ingeneral is very open and having wide offerings in their sector, External Networking (to beprécised) is more valuable to American Express to grow up in market.Since American Express is into financial service provider hence Purchase and merger hasmuch larger Impact than going in to alliance strategy, since they are cash rich company.
  17. 17. Let’s have a brief on Policies American Express has adopted:- A . Mergers and Acquisitions:-American Express extended its presence nationwide by arranging affiliations with other expresscompanies (including Wells Fargo – the replacement for the two former companies that merged toform American Express), railroads, and steamship companies. Railroad express business During the winter of 1917, the US suffered a severe coal shortage and on December 26 President Woodrow Wilson commandeered the railroads on behalf of the US government to move US troops, their supplies, and coal. This ended American Expresss express business, and removed them from the ICC’s interest. The result was that a new company called the American Railway Express Agency formed in July 1918. The new entity took custody of all the pooled equipment and property of existing express companies (the largest share of which, 40%, came from American Express, who had owned the rights to the express business over 71,280 miles (114,710 km) of railroad lines, and had 10,000 offices, with over 30,000 employees)Investment bankingAs a major focus change in 1980s, A remarkable effort to become a financial services supercompany and made a number of acquisitions to create an investment banking arm. In mid-1981 itpurchased Sanford I. Weills Shearson Loeb Rhoades, the second largest securities firm in theUnited States to form Shearson/American Express.In 1984, American Express acquired the investment banking and trading firm, Lehman Brothers,Kuhn Loeb, and added it to the Shearson family, creating Shearson Lehman/American Express. In 1984 Shearson/American Express purchased the 90-year-old Investors Diversified Services,bringing with it a fleet of financial advisors and investment products. In 1988, Shearson Lehmanacquired E.F. Hutton & Co., a brokerage firm founded in 1904, this was merged with theinvestment banking business and the investment banking arm was renamed Shearson LehmanHutton, Inc.[16]American Express in 1993, American Express decided to get out of the investment banking businessand negotiated the sale of Shearsons retail brokerage and asset management business toPrimerica. The Shearson business was merged with Primericas Smith Barney to create SmithBarney Shearson. Ultimately, the Shearson name was dropped in 1994. ]
  18. 18. In 1994, American Express spun off of the remaining investment banking and institutionalbusinesses as Lehman Brothers Holdings Inc which after almost fifteen years of independencewould file for bankruptcy protection in 2008 as part of the Late-2000s financial crisis.B. Sunning of subsidiaries:-Charge card servicesIn April 1992, American Express spun off its subsidiary, First Data Corp., in an IPO. Then, inOctober 1996, the company distributed the remaining majority of its holdings in First Data Corp.,reducing its ownership to less than 5%.C .Strategic alliance:-American Express believes in earning by making people spend on money transections and keepingmedia as Emex , hence it was needed to have border channelization in to organizations , wherebuyers and sellers are meeting at one point and rotating the funds."Boston Fee Party"From early 1980s until the early 1990s, American Express was known for cutting its merchant fees(also known as a "discount rate") to merchants and restaurants if they accepted only AmericanExpress and no other credit or charge cards. This prompted competitors such as Visa andMasterCard to cry foul for a while as the tactics "locked" restaurants into American Express. Thescheme ended in 1991, as several restaurants in Boston started accepting and encouraging the use ofVisa and MasterCard because of their far lower fees as compared to American Express fees at thetime (which were about 4% for each transaction versus around 1.2% at the time for Visa andMasterCard). A few even stopped accepting American Express credit and charge cards. The revolt,known as the "Boston Fee Party" (in reference to the Boston Tea Party), was orchestrated by a PRfirm hired and paid by Discover Card. The campaign spread to over 250 restaurants across theUnited States, including restaurants in other cities such as New York City, Chicago, and LosAngeles. In response, American Express reduced its discount rate gradually to compete moreeffectively and add new merchants such as supermarkets and drugstores to its network. Manyelements of the exclusive acceptance program were also phased out so American Express couldeffectively encourage businesses to add American Express cards to their existing list of paymentoptions.Cable TVAmerican Express formed a joint venture with Warner Communications in 1979 called Warner-Amex Satellite Entertainment, which created MTV, Nickelodeon, and The Movie Channel.The partnership only lasted until 1984. The properties were sold to Viacom soon after.D . Reputation and Co optation:-Cobranding :
  19. 19. American Express has several co-branded credit cards, with most falling into one of three categories: • Airlines: e.g., Air Canada, Air France, Alitalia, British Airways, Cathay Pacific, Delta Air Lines, JetBlue Airways, Qantas, Singapore Airlines, Virgin Atlantic, among others. • Hotels: e.g., Hilton Hotels. Starwood Hotels & Resorts Worldwide • Retailers: e.g., Costco, David Jones, Holt Renfrew, Harrods, Macys, Bloomingdales, Lowes, Mercedes Benz, and others.In 2006, the UK division of American Express joined the Product Red coalition and began to issue aRed Card. With each card member purchase the company contributes to good causes through TheGlobal Fund to Fight AIDS, Tuberculosis and Malaria to help African women and childrensuffering from HIV/AIDS, malaria, and other diseases.