Reducing Management Layers Reducing management layers, first mentioned in chapter 7, is one popular structural way to help a company

manage change. Eliminating layers can reduce costs and boost productivity by cutting salaries. It may also speed decision making by reducing the number of people whose approvals and reviews are required, and by letting people on the ground actually make the decisions. For example, when he took over the troubled Union Pacific Railroad (UPRR), former CEO Mike Walsh inherited a bureaucratic and slow moving organization. As Walsh said: Suppose a customer was having difficulty [finding] a railroad car, it was either not the right one, or was not where the customer needed it for loading or unloading. The customer would go to his UPRR sales representative, who went up to the district traffic manager, who in turn went up to the regional traffic manager. The regional boss passed the problem from his sales and marketing organization, across a chasm psychologically wider than the Grand Canyon, to the operations departments general manager. The general manager then went down to the superintendent, who went down to the train master to find out what had gone wrong. Then of course, the whole process was repeated in reverse. The information went up the operations chain and then down the sales and marketing chain, until the annoyed customer finally got his or her answer, often several days later. Multiplied hundreds or thousands of times a week, that short of unresponsiveness, Walsh knew, helped explain why UPRR was losing customers, revenues, and profits. The first thing he did therefore was flatten the firms 30000 person operations department, by squeezing out five middle management layers (see figure 8.1). When Walsh arrived, there were nine layers of managers between the executive vice president of operations and the railroaders themselves. After reorganizing, only four levels remained. In about three months, five layers and 800 middle managers were stripped from the chain of command. Yet, delayering can also backfire. For example, several years ago a trader named Nicholas Lesson brought down Barings Bank by losing over $1.4 billion with a series of fraudulent trades. As one observer recently put it, Numerous organizations have been removing layers of management, layers sometimes depicted as performing no useful function, but as [Leeson s book] Rogue Trader underlines, management may also provide experience and judgment, curbing actions on the part of enthusiastic, novice employees that may otherwise have disastrous consequences. Even UPRR hasn t been immune. For example annual losses after Walsh left were approaching $1.3 billion, due to severe traffic delays, a lack of rail cars, congestion problems, accidents. The losses were caused in part by UPRR s merger with another railroad, and in part, one might assume, by the elimination of all those experienced midlevel managers. Establishing Mini Units When it comes to being responsive, many companies have concluded that smaller better. Many managers therefore advocate splitting companies into mini companies. The resulting smaller units then to be more entrepreneurial: Everyone (including the top executive) knows everyone else, layers of management aren t required for an approval, and interactions and communications are more frequent, given the employees close proximity to one another.

Many companies take this route. At ABB the former CEO deorganized his 215,000 employees into 5,000 smaller profit centers averaging about 50 people each. At intuit the new CEO broke the company into eight separate businesses, each with its own general manager and mission. Hal Rosenbluth of Rosenbluth International broke his company into more than 100 business units, each focused on special regions and clients. Reassigning Support Staff to the Divisions Some companies still have large central headquarters support staffs composed of managerial groups engaged in analytical duties like industrial engineering and market research. The original thinking was that these centralized groups could help the firm s top managers better monitor and control what was going on in their farflung enterprises. Today, more and more managers believe that the benefits of control are outweighed by the fact that these big central staffs actually slow decisions by inserting a whole new approval level between the divisions and top management. They thus reduce the firm s ability to respond to competitive pressures. Its therefore better, the thinking now goes, to eliminate many these central staff managers, or to redeploy them to the divisions, where they can give their advice to local executives while being closer to the division s customers and competitors. Reassigning support staff has therefore been a popular way to streamline organizations in order to make companies more responsive. For example, candy maker Mars, Inc., is a $7 billion company with a 30 person headquarters staff. Mars does have staff employees. But as is true in more and more firm, these staff employees are assigned directly to the individual business units. Here they can help their business unit be successful in the marketplace rather than act as gatekeepers who check and recheck divisional managers plans. Similarly, when Percy Barnevik took over as CEO of Sweden s ABB, it had a central staff of 2,000 which he quickly reduce to 200. When his firm then acquired Finland s Stromberg company, its headquarters staff of 880 was reduce within a few years to 25. Reassigning support staff is not without its downside. The employees who are reassigned may have relocate, enter their new positions at the bottom of the promotion system and need extensive training; this can lead to morale problems. And, while reassigning staff may help the company retain experienced employees, it also limits its ability to hire new ones (such as recent college graduates). The dynamism new people bring to the firm is thereby lacking. BUILDING TEAM BASED STRUCTURES Increasingly, steps like delayering, reassigning support staff, and establishing mini units are not enough. Managers have sought additional ways to streamline how decisions are made. New structural approaches are therefore being tried. Specifically, managers are using teams, networks, and boundaryless structures to redesign their organizations so as to better manage change. We will look at these in this and the next few sections. The Building Blocks of Team Based Organizations Many firms today, for example, organize activities around self contained and self managing work teams. A team is a group of people who work together and share a common work objective. For example, at the GE engine plant in Durham, North Carolina, over 170 employees work with only one manager, the plant manager, and are organized into small, self managing teams. At Johnsonville

Foods in Wisconsin, the CEO organized most of the firms activities around self managing, 12 person work teams. At Johnsonville, work teams are responsible for running and maintaining the firm s packaging equipment. But unlike in traditional management structures, suck teams are empowered to manage themselves and make fast, on the spot decisions. For example, the duties of a typical Johnsonville work team include:
y Recruit, hire, evaluate, and fire (if necessary) y Handle quality control, inspections, subsequent troubleshooting, and problem solving y Develop and monitor quantitative standards for productivity and quality y Suggest and develop prototypes of possible new products and packaging

At chesebrough Ponds USA, a functional organization was replaced with a structure built around self directed teams that now run the plant s four production areas. Hourly employees make employee assignments, schedule overtime, establish production times and changeovers, and even handle cost control, requisitions, and work orders. They are also solely responsible for quality control under the plant s Continuous Quality Improvement Challenge, a program in which employees can post suggestions or challenges to improve quality. Team member Sherry Emerson summed up employee sentiments: the empowerment is exciting. If we see something that will affect the quality to customers, we have the freedom to stop a process. They [management] trust us. And the result have been extraordinary. Quality acceptance is 99,25%. Annual manufacturing costs are down $10.6 million; work in process inventory has been reduced 86%; and total inventory is down 65%. As these example suggest, team based organizations are different from the traditional departmentalized and hierarchical organizations described in Chapter 7. Companies were traditionally organized with individuals, functions, or departments as basic work units or elements. This is evident in the typical organization chart, which might show separate boxes for each functional department, and perhaps even separate tasks for individual works at the bottom of the chart. In team based organizations, the team is the basic work unit or element. Employees work together as a team, and do much of the planning, decision making, and implementing required to get their assigned jobs done, while being responsible for thinks like receiving materials, installing parts, and dealing with vendors who ship defective parts. Or, instead of simply organizing around traditional publishing functions like production, editorial, and sales, some publishers create more of a team based organization; they create, for each book in process, a multi disciplined and self managing team whose member work together to develop, produce, and market the book. If you are ever worked on a team (say, to present a project at school), you know that such an approach can have many advantages. Everyone s attention tends to be focused on the teams goal; everyone tends to the more committed to achieving that goal; and everyone generally tends to be more willing to pitch in and get the job done. And since these teams tend to be small and don t have the traditional departmental barriers separating its member, communication and interaction te nds to be open and free flowing. At least, that s the theory. In practice, smoothly functioning team based organizations don t arise spontaneously; instead, they depend on the presence of several supporting mechanisms, which we now turn.