OB-2 Case Discussion

Topic: Appex Corporation

Case Facts

Background

Appex Corporation is a telecommunication product/service provider responsible for

delivering competitively priced management information systems and intercarrier
network services to cellular carriers.

Appex was slated as being one of the fastest growing technology firms in the country,
holding 75 large-scale clients and serving over 250 markets in the United States alone.

Unfortunately, though Appex started out as a small company with a very loose
organizational structure, it grew rapidly and company officials did not implore adaptation
to this structure.

Problems soon arose. Facing customer complaints and a chaotic work setting, a new CEO
was brought in.

Shikhar Ghosh was responsible for implementing several new organizational structures
over time with each successively failing or causing new and complex problems.

Environment

Since its inception in 1986, Appex has been at the forefront of the cellular communications
revolution providing products and services to fuel its growth.

During the past three years Appex has enjoyed revenue growth of over 1600% while watching
the industry expand in volume approximately 613%.

In order to achieve this phenomenal growth rate, Appex has been forced to expand rapidly,
adding personnel at a rate of approximately ten people per month.

In an attempt to absorb these people while maintaining its strategy of being an efficient,
responsive, and low-cost provider of innovative cellular communications infrastructure and
services, the company has been restructured several times.

Unfortunately, each restructuring was applied in a reactive manner in an attempt to address

the problems at hand rather than to create a proactive structure that would enable future
growth in the rapidly evolving cellular telecommunications market.

Problem Identification

During the past three years under the leadership of Shikhar

Ghosh, the Appex Corporation (Appex) has undergone a number
of significant and radical structural changes in an attempt to
respond to its meteoric growth as one of the primary suppliers in
the rapidly expanding and evolving cellular telephone industry.

While each of these structural modifications has generally

improved the operating performance of Appex for a short period
of time, ultimately each different structure has introduced a new
set of inefficiencies and barriers that constrained the innovation,
performance, and growth of the company.

Structural changes

Time

Employees Revenue

frame
86-87

<< 26

Informal - Start-Up

Positive Effects

Negative Effects

Innovative, committed workforce No underlying planning

Fluid, informal organization High-bandwidth communication structure

Strong informal ties

Fast, extensive idea generation

No product accountability

Quick market response

Unclear reporting structure

Fire-fighting mentality

Summer 88 < 26

Late 88

$1M

Structure

Free flow of information

Lack of customer service focus

Employees could not relate

Non-hierarchical

Theoretically customer-based

Aimed at response, not

Concentric circles

Theoretically responsive

planning

expanding out from

structure

Unclear decision hierarchies

Circular

executives to customers
~ 26

$2.3M

Horizontal
Non-hierarchical
Typical org-chart turned

Customer became the

Impression of traditional

enemy
Complete failure

structure

Employees gave no response

Time

Employees Revenue

Structure

Positive Effects

Negative Effects

frame
Feb 89

Aug 89

Nov 89

~ 40

Hierarchical/Functional

Focus on task completion

Extensive politics

Separation into functional

Increased planning

Development of sub-functions

teams (e.g. Sales, Service,

System for assessing

Polarization of teams

Operations)

accountability

Reduction on cooperation
Poor skill/management matches

~ 80

Addition of Product Teams Improved planning

No system of authority

Overlay of functional

Application of management vs.

Extensive executive decision

representatives for each key

skill to products

support

product

No system of priorities between

products

~ 100

$6.8M

Addition of Business Teams Decision making authority

More tail than tooth too many

Intermediaries between

people in overhead

Resource allocation authority

product teams and corporate

Too many layers of management

management

Internal process focus

Loss of customer focus

Time

Employees Revenue

Structure

~ 150

Divisions

Positive Effects

Negative Effects

frame

Aug 90

Improved accountability,

Resource allocations

Separation into three

budgeting, and planning

squabbles

divisions, ICS, IS, and

Extensive communications

Cross-divisional antagonism

Operations

within divisions

Second guessing of Sr.

Management
No cross-divisional
communication or cooperation
Fractal structures
Financial gamesmanship

Various Structure Views:

By Examples

Positive and Negatives of various structure type

An Example of Organisation by Function

Chief Executive
Board of Directors

Production

Marketing

Accounts

Personnel

IT

Functional Structure
Advantages
Specialisation each
department focuses on
its own work
Accountability someone
is responsible for the
section
Clarity know your and
others roles

Disadvantages
Closed communication
could lead to lack
of focus
Departments can become
resistant
to change
Coordination
may take too long
Gap between top and
bottom

An Example of Organisation by Product/Activity

Hewlett Packard

Imaging and
Printing Group

Personal
Systems Group

Enterprise
Systems Group

HP Services

HP Financial
Services

Organisation by Product/Activity
Advantages
Clear focus on market
segment helps meet
customers needs
Positive competition
between divisions
Better control as each
division can act as
separate profit centre

Disadvantages
Duplication of functions
(e.g. different sales force
for each division)
Negative effects of
competition
Lack of central control
over each separate
division

Organisation by Area
Hewlett-Packards Headquarters
Worldwide

Hewlett Packard

Americas
Houston, Texas

Europe, Middle East, Africa

Geneva, Switzerland

Asia Pacific
Hong Kong

Organisation by Area
Advantages
Serve

local needs

better
Positive competition
More effective
communication
between firm and
local customers

Disadvantages
Conflict

between
local and central
management
Duplication of
resources and
functions

Other Organisational Structures

By

Customer:
Similar effects to structuring
by product

By

Process:
Similar to structuring by function

Strategy - Structure
Innovative
Experimental
Bureaucratic
Rapid

Change

Confusion amongst employees

Reinforcement through Incentive and resource
allocation

Keys Problems- Causes at

Appex

Desired Output

Actual Output

Root Cause(s)

Innovative new products and

Very few new products

Lack of communication between divisions (most innovative

services

Incremental additions and extensions

new products came from cross-pollinated ideas)

to existing products and services

NIH syndrome no incentives to apply intellectual capital

generated by other division

Holistic customer focus

Customer focus fragmented by

Separate faces to the customer by division

Rapid response to market and

division
Lethargy

Fragmented customer view

customer demands

Inward orientation

Overly hierarchical organizational structure

Lack of innovation

Lack of resource depth due to duplication of functionality

Duplication of resources and effort

No incentives provided to cross divisional barriers

High-cost

Excessive layers of overhead

Efficient use of shared

resources
Low-cost

Duplication of resources in divisions

Lack of sufficient depth and breadth
Divisional financial manipulations

Proposed Organization
Structure

Matrix Structure

Matrix Structure

A Matrix organizational structure combines the advantages of

functional structure and product structure.

As it groups employees by function and by product. It uses teams of

employees for specific tasks or projects.

There are project managers that are responsible for these teams.
The members of this team are form the functional area as well as
the product area.

Unlike the functional or the product structure the project manager

has complete responsibility and accountability which includes
functional responsibility and product responsibility.

Example:

Advantages of Matrix Structure

improved

ability to access resources across the old functional

and geographic silos.
better coordination on shared technologies across the
organization (such as IT)
Faster decentralized decisions
improved access to a diverse range of skills and perspectives.
improved global or regional projects
broader and more multiskilled people development
increased communication and coordination across the
business
reflects the needs of global or regional customers

Implementation in Appex

This matrix provides both a product line-centric view

of operations as well as a consolidated, functional
view that facilitates the exchange of information, the
cross-pollination of new ideas, and a consistent view
of the customer, enables leverage against duplicated
functionality, and provides a consistent access point
for functions to be provided by EDS.

These renewed capabilities will in turn allow Appex to

regain its customer focus, responsiveness, and
innovative capabilities.