Point/Counterpoint from chapter 16. Take a stand. Do you agree or disagree? Write a minimum of...

Point/Counterpoint from chapter 16. Take a stand. Do you agree or disagree? Write a minimum of one paragraph.

Chapter 16

The Hierarchical Structure: The Superior Format


Yes The hierarchy is the enduring foundation for how MNEs optimally arrange the roles, responsibilities, and relationships of its structure for a simple reason—it is the superior format for doing so. It sets a clear chain of command, functional span of control, effective allocation of authority, and precise assignment of tasks. It specifies the ideal degree of rules, routines, policies, and procedures. Its vertical and horizontal differentiation spells out, as we see in Figure 16.8, who’s who in the organization. It effectively organizes planning, coordination, and control systems. An advocate of the hierarchy, Harold Geneen of ITT, argued correctly that it “makes people as predictable and controllable as the capital resources that they’re responsible for.”65 The hierarchy’s strengths rightly made it the sine qua non of the professional management model since the early twentieth century. Given the strong preference for hierarchical organizations in countries such as India and China, it will flourish through the twenty-first century. While neoclassical structures emerge here or there in the West, the East has many companies whose lofty leader, many rungs removed from the factory floor, uses a hierarchical structure to command and control activity. Ongoing Refinements Contemporary technological, regulatory, and competitive trends, we agree, have interesting implications for organizing a company. We concede that as environments change, so too must companies’ strategies and structures. However, the Counterpoint’s call to discard the classical principles of the hierarchy strikes us as reckless. Yes, gaps emerge in the hierarchy, but managers need only reengineer processes to fill them. Powerful programs, like Total Quality Control, Six Sigma, and the Balanced Scorecard, effectively modernize the hierarchy. Fine-tuning workplace arrangements through these and similar methods equips the organization to meet the challenge of changing markets.66 What then, you ask, do we think of the neoclassical alternative of a heterarchy that the Counterpoint champions? We see radical tinkering with the day-to-day reality of organizing international operations exhibiting commendable courage but questionable judgment. Avoiding failure requires thoughtful adjustment to the way organizations run, not the wistfulness of a brave new cyberworld powered by newfangled social networking tools. Leading Indicator Google, we submit, foreshadows the approach to designing a classical hierarchy that respects the past but engages the future. Google organizes its senior executives and work groups by business function, with the largest functions represented by engineering, product management, and marketing divisions. Despite the founders’ description of Google as engineering-centric, they see virtue in chaos by design. Insiders’ tales of orderly disorder, purposeful disarray, and certain uncertainty signal its plans to thrive on the edge of controlled chaos, all the while firmly anchored in the functional order of a classical hierarchy. Rather than retreat to the hierarchical conventions commonly found in engineering-centric companies, such as DuPont and General Motors in earlier times, Google stretches its hierarchy as much as possible. Asked why, Larry Page (Google’s co-founder, CEO, and unofficial thought leader) explained, “I want to run a company where we are moving too quickly and doing too much, not being too cautious and doing too little. If we don’t have any of these mistakes, we’re just not taking enough risk.”67


no Although imperfect, history is often a useful interpreter of the present and predictor of the future. So, think back to the early 1900s, when emerging technologies signaled to some the superiority of the then-heretical hierarchy. One sees the same today, as emerging technologies endorse new structural heresies. Expanding digital infrastructures allows MNEs to organize their activities in new ways, letting them efficiently diffuse information and effectively integrate its flows. Today, just as a century earlier, astute executives break free of the shackles of the status quo, building organizations that leverage the expanding waves of information flowing in, though, and out of the MNE. The Crux of Change Unquestionably, the tried-and-true classical hierarchy has virtues. Nevertheless, market trends spotlight its increasing limits. It organizes workplace activities and information flows in ways that thwart integration. Even when turbocharged with matrix overlays and mixed adjustments, the hierarchy slows relationships, confuses accountability, and complicates collaboration.68 McKinsey & Company, for example, report that struggling MNEs’ reliance on traditional organization formats imposes a steep penalty. By leashing the intrinsic motivation of employees, stifling adaptation, and squelching entrepreneurialism, hierarchies impede common cause, discourage innovation, and erode relationships.69 The Heterarchy Looking around today one sees examples of networks, virtual organizations, lattice structures, flat formats, or peer-to-peer formats. These neoclassical forms exhibit the general properties of a heterarchy: namely, “a large-scale, self-organizing community that sets free unusually high degrees of energy and engagement— despite the lack of clear or direct economic payoff for participants.”70 The heterarchy is a constellation of actors and relationships that follow from the interactions of technology, knowledge, social relations, administrative routines, and legal ties. Figure 16.9 conveys these properties. A heterarchy is “infinitely large, never balanced, never optimal and has unique perspectives for all members.”71 Agents connect to others through direct and indirect channels. “Information flows along multiple and intermediate paths; this allows for multiple and overlapping points at which information can be sorted and interpreted. It makes it possible to process an abundance of information effectively.”72 By remedying the bias toward instituting bureaucratic boundaries, the heterarchy provides the framework to build a truly integrated enterprise. A notable heterarchy is the open-source model, a software movement in which program source code is given to volunteers who fix bugs and design new features with no compensation. Operationally, it applies basic rules to increase transparency, coordinate efforts, and control performance. Programmers’ ability to monitor peer production encourages collaboration. Similar situations unfold with the ecosystems that power the Apple and Android “app” phenomena. Others point to Technology, Entertainment, Design (TED), a nonprofit devoted to “Ideas Worth Spreading,” which hosts conferences that are then distributed in video format via the Internet. Absent central direction, an informal, loosely coupled network of several thousand volunteers has translated subtitles for thousands of videos into more than 90 languages.73 The Test The standards of organization are fundamentally shifting. The precision of vertical and horizontal differentiation gives way to loosely coupled, less-bounded neoclassical formats.74 Moreover, it’s over-optimistic to think that one need merely apply organizational band-aids, such as Six Sigma or the Balanced Scorecard, to update an increasingly anachronistic, command-and-control classical structure. Quite simply, “today’s big companies do very little to enhance the productivity of their professionals. In fact, their vertically oriented organizational structures, retrofitted with ad hoc and matrix overlays, nearly always make professional work more complex and inefficient.”75 Andy Grove, once CEO of Intel, foreshadows how the apparent chaos of the heterarchy will reset the presumed order of the hierarchy. A structure must encourage and energize constructive confrontation in ways that let workers agree and disagree, but, ultimately, commit to the same goals. The challenge, he advises, is developing a structure that will “let chaos reign and then rein in chaos.”76 In our view, the neoclassical heterarchy, not the classical hierarchy, meets the challenge of changing market situations, shifting technological frontiers, and radical workflow resets.77

Homework Answers

Answer #1

I agree with the counterpoint. Having a hierarchical system unnecessarily complicates the communication channel and slows down the operational activities. This affects the efficiency, productivity of the employees. It is important to understand the mission of the company and train the employees to understand the goals/objectives of the company in an effective manner. This will help in aligning the goals of employees with the company and would help in increasing the productivity by implementing a horizontal structure rather than a stiff hierarchical system to facilitate decision-making skills and leadership development of the employees.

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