Posts Tagged flat organizational structure
About 10 years ago the owner of Bimba Manufacturing Company located in Monee, Illinois decided to sell 90% of his stock to employees through an employee stock ownership plan (ESOP). The company produced aluminum cylinders and had two classes of employees. These classes included the managers who made policies and workers who obeyed the policies and performed the work. Under the ESOP instead of workers just obeying the orders of the managers, the company formed cross-functional teams to address problems and improve quality. The teams decided to meet regularly with customers to consider their needs and improve working relations (Jones, 2004).
The ESOP plan changed the workforce orientation improving working relations, accentuating excellence, and leading to a high quality products. Each cross-functional team hired its own workers and socialized together creating a cooperative new culture in the company. Employees effectively relearned their jobs by actively listening and interacting with each other instead of focusing on managers and workers. Managers acted more like advisers and workers gained a more cooperative spirit. Because of this organizational change the company increased sales 70% and the workforce grew 59% (Jones, 2004).
Although when first starting a business an owner can design a hierarchical organization for expedience, the firm stands to improve performance by reconsidering the organizational form. In my experience, hierarchical organizations in a small business can stymie the growth of the organization. I have personally experienced the difference and realized the benefits of redesigning the organizational form.
A more nimble team orientation can improve performance and cross-functional communication. The organization can respond better to the companies’ customers and better address their needs. The case of Bimba Manufacturing offers a good lesson in organizational change designed to improve worker and customer relations.
Have you reconsidered the organizational design in your firm? I would like to hear your ideas about changes that can benefit the organizational design in your firm. If you need help I urge you to act now and we can start to help you. Learn more.
Jones, G. R. (2004). Organizational theory, design, and change (4th ed.). Upper Saddle River, NJ: Prentice Hall.
Many times people starting a new business find a partner they know little about. Defining the roles partners play in the business at the start is important to avoid problems later. Looking at a live example might help identify the problem and discover some lessons learned from forming a new partnership. This story applies to either a partnership or a small business corporation such as a limited liability company or an S corporation.
Joe and Jerry worked together as real estate agents at a local brokerage and decided they wanted to start their own. Joe had extensive experience in management and finance. Jerry came from the ministry after serving as an Episcopal priest. Joe and Jerry worked well together as real estate agents, but knew little about each other otherwise.
The two men worked together to develop a plan to start their own business. Joe and Jerry decided to divide the business equally and make an equal contribution. Joe and Jerry did not know is the role each would play in the business, but Joe believed Jerry had excellent marketing skills because of his dealings with people. Jerry believed Joe had excellent administrative and financial skills to run operations, but neither man shared their beliefs with the other or formalized the role each would play in running the business.
The men did work together to find a real estate office available at an excellent location and proceeded to lease the building. Jerry wanted to make the office comfortable and professional insisting on first-class furniture and equipment. Joe wanted to find sales Associates as quickly as possible to train and ramp up sales.
After leasing the office space, the two men worked to redecorate the office and lease furniture and equipment. Jerry took the lead on redecorating the space and Joe worked on incorporating a business. Each man did what he thought important to start the business and prepare for the grand opening.
Once the office opened, Joe worked feverishly to recruit sales agents to start finding business. Jerry showed up occasionally and worked from home. Joe quickly recruited 16 new agents and began to train them, while Jerry continued to work from home expecting a paycheck despite not having enough revenue to earn a salary.
Joe and Jerry started having discussions about how to develop enough revenue to meet continuing expenses. Joe continued working feverishly to train agents and teach them how to sell. Jerry continued to work at home contributing little to the operation. Jerry continued to insist he needed a paycheck despite a lack of revenue. Joe argued both he and Jerry should work the plan keeping the vision in mind for the future. Jerry continued to espouse his mission to earn a paycheck.
Although the sales agents started to develop, the revenue did not keep pace with Jerry’s mission for a paycheck. Joe felt good about the developing sales agents who started to ramp up sales. Jerry began withdrawing from the company because his sole mission relied on earning a paycheck. Joe started to feel overwhelmed because he had to do everything himself.
The lesson learned from Joe and Jerry’s experience is to know your partner and decide on their roles before starting a business. In this case, Joe took the role of the visionary leader to follow plan. Jerry’s only role came from his mission to receive a paycheck. A visionary leader needs to have teamwork. The missionary leader has more selfish motives and sits back waiting for business to develop.
Before taking on a partner consider not just how to divide profits, but what role each will play in running the business. Consider the expected time the business needs each partner to devote and what to hold each partner accountable for. Decide how often partners will meet and go over plans to stay on track. A few questions to ask include:
- How does the company track and share information?
- How does the company decide on use of available capital?
- How are organizing goals decided and carried out?
- Who is responsible for carrying out the strategic plan?
- What steps does the company need to seek more assets?
- Does compensation match with the role of the partner?
Are you thinking of taking on a partner? Have you defined the roles of each partner before starting your business? I urge you to do so before problems start to develop. Do you want help in setting up a plan and agreement for your partner? Learn more.
I read an article in Bloomberg Business Week about Andrew Mason. Mason is the headwaiter at a Japanese restaurant in Chicago’s Wicker Park. However, the job is Mason’s part-time evening job as by day he is the chief executive officer and founder of Groupon. What struck me reading the article is that Mason has matured from his playful childlike demeanor, which allowed him to develop the Groupon concept. Mason has become a more seasoned entrepreneur trying to hold on to what he started and run it in a more businesslike manner (Etter & MacMillan, 2012).
Although investors and analysts have challenged Mason’s running of Groupon, he has kept a lock on what he created. Mason wants to improve Groupon without giving it away to suitors offering him large amounts of money to buy the company. Mason turned down an offer by Google to buy the company, which would have allowed Mason to cash out. Mason turned down the offer despite problems it has had with profitability and holding up share value. Mason admitted the company has had problems with its operating system and commented, “we have to get good at this” (Etter & MacMillan, 2012, p. 50)
Meanwhile, executives at Groupon have noted the level of seriousness has notched up and the company now employs more lawyers and accountants. Groupon has even purchased other companies and has set up a location in the Silicon Valley in California. Despite his critics lashing out at him, Mason wants to preserve control over the company he started and claims he is in the business for more than just the money. Mason said his company wants to solve a business problem, which is his main motivation (Etter & MacMillan, 2012).
Although Mason may have much to learn, he has the entrepreneurial spirit to perfect and hold on to what he started. Mason still has a vision and he wants to cement it instead of giving it away to someone else. Mason still studies the disconnect in the operating system as maitre d’ of his part-time job at the Japanese restaurant and has learned from the experience. Even though Mason has learned from his experience, he realizes still has much to learn.
Only time will tell if Groupon can get to the next level, but I admire Mason for his stick-to-itiveness. I believe Mason has the characteristics of a genuine entrepreneur as he loves what he does and wants to perfect it. Money is not his only motivation and his quest for perfection overshadows any thirst to get rich quick. Mason continues to learn from his experience and enjoys every minute of it. Mason does not fear failure, but looks it straight in the eye. I believe more entrepreneurs need to reclaim the entrepreneurial spirit.
What is your take on reclaiming the entrepreneurial spirit? I want to hear from you. If you want to develop the entrepreneurial spirit I suggest learning more about how you can starting now. Learn more.
Etter, L. and MacMillan, D. (2012, July 16-22). Groupon tries to ‘Get Good’ at growing up. Bloomberg Businessweek.
Often I hear the advice the way to improve products and services is to keep all the costs involved to a minimum. Although keeping costs low is a good way to achieve enough of a margin to make a product or service viable, cost cutting can create other problems. For example, the product or service can have less value to the customer or consumer and cause them to select other more desirable products and services. In short, cutting all costs indiscriminately often is counterproductive.
Just yesterday I listened to a video interview of Steve Jobs and he embraced the idea the main goal is to produce products that customers want and need. Jobs commented that when he came back to Apple when it had experienced financial difficulty many of the corporate managers had a hard time understanding the idea of creating value customers want and need. The approach of Apple corporate managers focused more on cost cutting and less on creating value.
Jobs highlighted the idea that one-size-fits-all approaches do not work as well as more reasoned approaches that consider what customers want and need. Jobs said his philosophy to the turnaround of Apple came from thinking like a small company. Jobs found many good people still existed in the company even after he left. What made these people stay is their belief in the product despite the push by management to cut costs at every chance.
Creative people need space to create value and can substitute parts instead of cutting costs at every opportunity. Jobs explained Apple created the I-pod using substitution instead of cost cutting at every turn. Substitution allows creative people to consider consumers needs and wants instead of putting out a product that has less value to them. Job’s philosophy to work like a small company relies on the communications between company employees and consumers unlike big companies focusing strictly on product margins.
My advice is not to let anyone tell you to leave your brains at the door. Cost cutting is desirable when used correctly, but can also have adverse effects. Think of customers and consumers first before demanding cost cuts. Cost cutting is not an end-all solution. Have you had a frontal lobotomy yet? What does your company tell you?
I want to hear your comments. If you want some other ideas I encourage you to get help now. Learn more.
Imagine a world without electricity, refrigerators, cars, highways, water distribution facilities, agricultural equipment, health technologies, and telephones. Add to the list electricity, airplanes, radios, televisions, Internet, computers, air conditioning, and many more innovations invented in the last century. Combine these with the innovations achieved in the current century and the list goes on. Entrepreneurs play an integral role in society and add value by creating economic growth and jobs.
People sometimes question if entrepreneurs matter and I believe the resounding answer is yes. Entrepreneurs are a different breed and enjoy the freedom to think about what is possible instead of what is. Entrepreneurs seek to make the world better by envisaging innovations that will serve unfulfilled needs and working ardently to bring them into fruition. The consummate entrepreneur is not satisfied until he or she achieves a vision and even then works to improve the products and services brought into existence.
Sometimes business people look at entrepreneurs as free spirits and unmanageable, but entrepreneurs transcend this view because they want to lead instead of follow. Entrepreneurs lead us to creations and services often thought unimaginable by others. Creativity breeds followers wanting to take part in creating these innovations and perfecting them.
Entrepreneurs are close to consumers because they understand their needs instead of catering to existing products and services. Consumers have evolving needs and entrepreneurs recognize them where others fear to tread. Consumers appreciate the services entrepreneurs offer when others are unbending or intolerable.
Next time someone puts doubt in your mind about entrepreneurship think about some of the reasons entrepreneurs matter. Entrepreneurs do matter and if you want to become one I suggest visiting us now. Learn more.
Imagine how entrepreneurs differ in their thinking from people running larger businesses. Linear thinking means a person thinks sequentially. Nonlinear thinking is different because no order exists in how a person thinks. I remember a situation I had highlighting the difference in these ways of thinking. Entrepreneurs embrace a more balanced approach employing both linear and nonlinear thinking skills.
To explain, I remember when I went to residency training for my doctoral work when an professor placed us in teams for a project. I had one member of my team with a military background. Although I found my previous experience with military people positive, I had a different experience with this particular person.
In my experience as an educator I taught several classes at Edwards Air Force Base in Southern California and always found the people in my classes ready and willing to learn. I believe the military training these people received made them disciplined and develop good study habits. I found military students usually completed and turned their work in on time.
The gentleman in my residency class, who I shall call Mr. Roboto, gave me a different experience. Although Mr. Roboto eagerly wanted to take on the project, he quickly assumed the leadership, and dictated terms of the project. The suggestions from other people on the team he quickly dismissed in favor of his own ideas. Reflecting on this experience, I found this person’s approach highlighted linear thinking. Everything Mr. Roboto did expressed the “my way or the highway” approach and gave me a new appreciation of military thinking.
As a seasoned entrepreneur, I had a hard time dealing with Mr. Roboto because he dictated and never listened to anyone else on the team unless they agreed with him. Entrepreneurs often have more nonlinear thinking skills and thrive in a team setting, but Mr. Roboto put himself at the top of the chain of command and did not accept ideas from other team members. I found the approach Mr. Roboto took stifled creativity and more in line with the approach taken by a larger business.
In my studies, I found a better balance between linear and nonlinear skills is more desirable in my area of focus on entrepreneurship. Groves, Vance, and Choi (2011) found entrepreneurs have a greater balance between linear and nonlinear critical thinking skills and more education contributes to improving the balance.
My experience highlights some of the differences in how entrepreneurs think, organize a culture conducive to creativity, and lead. Entrepreneurs normally reject command and control settings and value more flexible organic settings. Mintzberg (1980) described entrepreneurs favoring adhocracy. Adhocracy relies on mutual adjustment in a decentralized, lively setting seeking harmonization. Masood, Dani, Burns, and Backhouse (2006) explained leadership in an adhocracy as visionary, innovative, and risk-oriented. Entrepreneurs collaborate and guide workers using continuous feedback loops.
A hierarchy culture stresses more formal setting and policies guiding what workers do. The hierarchy culture focuses on stability, predictability, and efficiency. Formal rules and policies are the glue holding the organization together (Masood et al., 2006). Mr. Roboto embodied the hierarchy culture, which clashed with the adhocracy culture I worked in as an entrepreneur. Mr. Roboto relied on command and control and avoidance of risk. No wonder I had such a difficult time in this group.
Entrepreneurs balance linear and nonlinear thinking and a good education helps the entrepreneur employ the right thinking to the proper problem. Entrepreneurs avoid all or nothing thinking and value collaborating with a team. Are you a linear thinker or do you have what it takes to balance linear thinking with nonlinear thinking? Please leave a comment. Learn more.
Groves, K., Vance, C., & Choi, D. (2011). Examining entrepreneurial cognition: An occupational analysis of balanced linear and nonlinear thinking and entrepreneurship success. Journal of Small Business Management, 49(3), 438-466. doi: 10.2307/259034.1999-08070-001 10.2307/259034 10.1287/orsc.9.5.543.
Masood, S., Dani, S., Burns, N., & Backhouse, C. (2006). Transformational leadership and organizational culture: The situational strength perspective. Proceedings of the Institution of Mechanical Engineers — Part B — Engineering Manufacture, 220(6), 941-949. doi: 10.1243/09544054JEM499
Mintzberg, H. (1980). Structure in 5’s: A synthesis of the research organization design Management Science, 26(3), 322-341. doi: 0825-1909/80/2603/0323^1.25
Once I took a position as the chief financial officer of an organization with a history of over 100 years. The institution in its early years thrived because of its location bordering a city nearly the size of Chicago with a booming coal mining industry. The location bordered on the one of the Great Lakes cutting off half the circumference of the target market.
Eventually, the coal mining industry declined and the city bordering the organization dwindled in population because of lack of other industry in the area. Recreation supplied the next biggest industry in the area because of ideal conditions for snowmobiling, cross-country skiing, and other winter sports. In the summer, the area provided ideal conditions for hunting and fishing. These industries failed to provide enough jobs and opportunities to keep the city alive.
The organization I worked for had its numbers drop by nearly 70% because the organization depended on people within a hundred mile radius of it. When I arrived I found the finances in a shambles and an accumulated deficit resulting in a negative net worth. At first, this condition alarmed me, but I knew I had a calling to turn this ship around.
A turnaround of this magnitude is like starting a new business because it needs a radical transformation. Fortunately, the executive team committed to a radical transformation of finding a new model for the organization that would turn around the organization and create positive cash flows. Weekly we explored new ideas and acted on cutting drains on the organization’s cash flows. In this way, the turnaround is more difficult than starting a new business because a new business does not have to deal with getting rid of existing programs causing a drain on cash flows.
The result of these efforts balanced the organization’s budget and identified new programs capable of producing positive cash flows. When I did my doctoral research I discovered that many companies that go public have accumulated deficits of the same magnitude and about 70% of them eventually fail. This revelation surprised me and I thought about how many companies can use the same help a turnaround expert provides. Big and small companies have similar failure rates. ‘
Although the cause is different, the need to identify a working model is the same. Without transforming an organization by finding a working model that produces positive results any organization will subject itself to failure. This revelation also caused me to think about the benefits of going public versus remaining private. Often, companies go public far before they rightfully should and prematurely remove the founder whose role it is to find a working model.
Public companies start to create more bureaucratic settings, while the organization needs to stay nimble enough to allow the working model to develop and meet consumer needs. Bureaucratization adds costs and reduces flexibility to adapt to make the model work. I believe many companies act too fast to go public because they believe it provides a safety net for raising capital. I believe a slower more deliberate growth may benefit many companies and allow the founders to keep their company and learn how to manage it instead of getting shown the door. Founders work hard and if they are serious should hold on to their creation and learn how to improve it.
I believe other consultants place too much emphasis on getting big too fast. Companies might do well to slow down and grow organically than fall prey to seeking the safety net of a public company. Slowing down allows the founder to start to see the forest from the trees and build a sustainable model without risking the founder’s position.
My company works to build organic growth by building on gaining the experience and education needed to grow organically. I believe a serious entrepreneur has an attachment to his or her creation and needs a different focus to preserve an identity with the company the founder creates.
What is your goal in founding a company? Would you prefer to stay involved in the company you create or do you want to exit and put the company in someone else’s hands? Please leave a comment to let me know your view.
If you are serious about preserving your identity with the company you want to create I urge you to try the services of my company by signing on now.