9-5b Organizational Change

allegedly sent employees (with company money!) to buy drugs for company use. Cocaine usage was so prevalent at BMIS that industry insiders regularly referred to the company as the “North Pole”! Madoff allegedly also hired topless entertainers for company parties, encouraged employee affairs, and used company money to pay for sexual “escorts” and masseuses. Ironically, this organizational culture also operated as something of a control mechanism and helped to prevent Madoff from being caught for many years. In part, employees feared that if they “ratted” on Madoff, Madoff could also potentially “rat” on them and their activities.15 For many decades, what went on at BMIS stayed at BMIS. While the New York Times, Google, and (historically) BMIS appear to have clear and uniform organizational cultures, the creation of cultural norms of this kind is often very difficult to accomplish, especially in a multinational or global company. For one thing, many large companies have very different types of operating divisions and business units that make it difficult to have a uniform culture throughout the organization. For example, in 1986 the General Electric Corporation, the well-known maker of Convicted financial swindler Bernie Madoff coordinated a deviant culture at BMIS. lightbulbs, power turbines, and aircraft engines, bought NBC (National Broadcasting Company). According to most observers, NBC was a cultural “odd fit” with its parent company. The “glitz and glamour” culture of a television broadcasting company, with its various “celebrity” employees, is so different from that of an aircraft engine manufacturing company that one inside observer pointed out that “a TV network had no business inside a company like GE.”16 Indeed, GE recently divested its NBC operation. Somewhat similar dynamics have applied to the Washington Post Corporation and its 1984 purchase of (Stanley) Kaplan Educational Centers, the SAT test preparation company. The cultural differences between a newspaper with “star” reporters with fast-moving daily reporting requirements and a slower-moving/ less daily event-pressured testing company that employs graduate students to help high school students prepare for the SAT became more poignant in recent years, as the financial success of the Washington Post newspaper has declined precipitously while the financial success of the Kaplan Centers has risen. Indeed, these dynamics ultimately forced the corporation to sell its renowned newspaper in 2013 to Amazon.com founder Jeff Bezos and renamed itself the Graham Holdings Company.17 Where there are clashes within a given organization’s culture, or even if there are threats to this culture in the future, such culture will generally not work as an effective organizational control system. In such situations, it may be advisable to try to implement some sort of organizational change.

TIMOTHY A. CLARY/AFP/Getty Images/Newscom

organizational change

involves implementation of a different business or cultural path for an organization

Organizational change represents the implementation of a different business or cultural path for an organization. There will often be considerable resistance to such change, even though such change may be very necessary. For example, employees of BMIS probably

wouldn’t have wanted to change its “free cocaine culture” despite its being illegal and ultimately counterproductive. If effective change had occurred in the 1990s at the Madoff firm, billions of dollars of people’s savings might well have been preserved, and the company might still be an ongoing concern.

Many times, organizational change in a business is most effective when pushed from the top by the company’s CEO and other executives. In an important fairly recent book entitled The CEO Within, Harvard Business School Professor Joseph L. Bower argued that the types of CEOs who are often most effective with respect to bringing about positive organizational change are those that he termed “inside-outsiders.” This describes CEOs who rise internally within the company, but who have followed a nontraditional path to the executive suite. For example, Bower cites the famous former CEO of General Electric Corporation, Jack Welch, as a classic “inside-outsider,” given that Welch was a chemical engineer in a company of electrical and mechanical engineers and came from GE’s plastics business, which was traditionally viewed as something of a peripheral operation. Of course, CEO Jack Welch ultimately engendered considerable positive organizational change at GE.18

Somewhat more recently, Nancy McKinstry, another classic “inside-outsider,” was named CEO of the giant Dutch publishing company, Wolters Kluwer NV. McKinstry, who rose through the ranks of Kluwer’s North American operations, became both the first woman and first American to run the venerable 200-year-old Dutch company. Since assuming the top post in 2003, McKinstry has already brought considerable positive organizational change to the company, particularly with respect to moving the publishing company to more of an “open global culture”—for example, appointing a Spaniard to run the firm’s operations in France—something unheard of historically!19 In sum, it seems that a CEO who is both a trusted insider and someone who brings something of an outside or different perspective to the table may be the type of individual most effective in engendering positive organizational change.

Reality Che C k lO-5

What have been the organizational “cultures” of places where you’ve been employed?

Summary

Strategic control is at the heart of all global business. In this regard, corporate mission statements often provide an excellent blueprint with respect to their corporate setting. The shareholder versus stakeholder models of strategy formulation represent two different approaches to the conduct of global business. The latter model purports that businesses have obligations to their employees, customers, communities, and other relevant stakeholders, while the former model views the role of global business as one of maximizing financial returns for its shareholders.

After formulating strategic goals, global businesses then need to put those goals into action. Short-term strategic implementation generally takes the form of implementing operational and strategic plans. In the longer term, companies tend to adopt a more overall typology for strategic implementation. In their classic work, Miles and Snow categorize companies in this regard as prospectors, defenders, reactors, or analyzers.

Regardless of the approach taken, global businesses must navigate around various impediments to coordination using technology and global knowledge management systems as effectively as possible. They must also utilize a variety of different control systems, including bureaucratic, interpersonal, and output controls.

Organizational culture can be an extremely potent type of control system, particularly where cultural norms are fully accepted by an organization’s workforce. Unfortunately,

though, the establishment of strong, clear, and uniform organizational norms can often be a very difficult thing to achieve. Where clashes exist with respect to organizational culture and norms, it may be advisable for the company to try and implement some sort of organizational change.

Key Words

mission statement, p. 220 shareholder model of strategy formulation, p. 221 stakeholder model of strategy formulation, p. 222 operational plans, p. 224 tactical plans, p. 224 prospectors, p. 224 defenders, p. 224 reactors, p. 225 analyzers, p. 225 tacit knowledge, p. 227 explicit knowledge, p. 227 absorptive capacity, p. 228 bureaucratic controls, p. 228 interpersonal controls, p. 229 output controls and measurement, p. 230 organizational culture, p. 233 organizational change, p. 234

Chapter Questions

1. In what ways are corporate mission statements more than just “public relations”? 2. Do you think global businesses should place more emphasis on operational or tactical plans? Why? 3. In what positive and negative ways has the Internet changed the conduct and coordination of global business? 4. Do you think six sigma quality control initiatives really work? 5. In what ways did the organizational culture at Bernard Madoff Investment Services (BMIS) company help lead to Madoff’s success for so many years?

Mini Case: Berkshire hathaway's i nvestment strategy

The Berkshire Hathaway Corporation has almost a “personality cult” organizational culture that essentially revolves around one man and his investing prowess. The man’s name—Warren Buffett, the “Oracle of Omaha.” Historically, Berkshire Hathaway’s business model has been one of buying insurance companies. One great thing about insurance companies is the “cash float,” that works as follows. Suppose, for example, that your parents buy a $100,000 whole life insurance policy from Berkshire Hathaway and pay premiums of $4,000 per year to Berkshire for this policy. While Berkshire Hathaway is obligated to pay the $100,000 death benefit when one or both die, in the meantime it gets to invest the $4,000 per year “float.” Warren Buffett, being a very savvy investor, has made a huge fortune from investing this “float” money. But recently Berkshire Hathaway has been moving away from buying insurance companies with great “floats” and instead buying major industrial-type businesses. The company, for example, fairly recently completed a $44 billion purchase of one of the nation’s largest railroads, Burlington Northern Santa Fe. Berkshire paid for this acquisition with $15.8 billion in cash it had on hand and the rest in Berkshire Hathaway stock. Mr. Buffett, who was born in 1930, is now well past the age when most workers retire.

Mini Case: BERKSh IRE hAT hAWAy’ S Inv ESTME n T STRATE gy

Questions:

1) How does Mr. Buffett’s age perhaps play into

Berkshire Hathaway’s recent strategic moves, such as buying Burlington Northern Railroad instead of another large insurance company? 2) What does Berkshire Hathaway’s purchase of

Burlington Northern Santa Fe Railroad say about what Buffett thinks about global energy conservation trends? (Hint: how does the energy efficiency of shipping goods by rail compare with shipping goods by truck or airplane?)

Milk Prices and Starbucks

PoInt CounteRPoInt

Recently, a decline in milk prices has been helping the Starbucks coffee chain. Indeed, lower milk prices will contribute around five cents per share to Starbucks Corporation’s recent annual earnings. The issue is whether Starbucks should hedge the price of milk in the commodities market so as to lock in this important nickel per share in extra “dairy”-related annual earnings.

Point Starbucks should definitely hedge the price of milk on the commodities markets to the extent possible so as to lock in the extra nickel per share in annual earnings. Starbuck’s stock has traditionally traded at a very high price/earnings ratio, so a nickel a share in extra annual earnings does a lot for its stock price. Higher prices for milk will hurt Starbucks’ profits unless it hedges the cost of milk in the commodities markets, just as it currently hedges the costs of coffee. Hedging is an important strategic control mechanism for Starbucks. Counte RP o I nt While commodities speculators can hedge the type of milk used to make cheese (i.e., Benchmark Class III milk futures), there isn’t currently a well-developed futures market for “drinkable milk.” Thus, unlike pizza companies that use “cheese milk,” Starbucks does not have a perfect hedge for its drinkable milk needs. Moreover, there continues to be a surplus of dairy cows in the United States, making it unlikely that the price of dairy milk will surge any time soon. In addition, the cost of drinkable milk is still a relatively small part of the cost of Starbucks’ products, and, as such, any small increases in the cost of milk might be able to be effectively passed on to the consumer (i.e., Starbucks customers). The bottom line is that the benefits of Starbucks trying to hedge its milk costs are probably not worth the costs involved.

What Do You Think?

Use the Internet and other sources to research these issues and come up with a better understanding of hedging and commodities markets. Do you ever think about the costs of milk when you visit Starbucks?

interpreting global buSineSS neWS

The following relate to Chapter 9. 1) Reynolds American Inc. is the second largest cigarette maker in the United States. It manufactures well-known brands, such as Camel, Pall Mall, and Kodiak (smokeless tobacco). Reynolds American recently purchased a Swedish company called Niconovum AB that makes products that help people stop smoking. Niconovum’s products are mainly in the nicotine-replacement therapy sphere and include nicotine replacement chewing gum. How would you characterize this strategic move by Reynolds American (e.g., prospector, defender) and why? 2) Leaders that are successful in effecting positive organizational change often rank extremely high on “emotional intelligence” (EQ) as opposed to more basic analytical intelligence of the type measured by IQ. What EQ traits do you think are most important in making leaders successful change agents? 3) A major financial magazine once ran a cover article entitled “Obama & Google (A Love

Story).” A number of executives from Google have taken jobs in the Obama administration, and President Obama meets regularly with Google founders Sergey Brin and Larry

Page, as well as with Google CEO Eric Schmidt. Why, given what you know from this chapter about Google, do you think President Obama likes the Google Corporation and its executives so much? What concerns might you have about the “cozy” relationship between Google and President Obama? 4) Many businesses in recent years have shifted their energy needs from traditional oil/ gasoline to traditionally cheaper, cleaner, and more plentiful natural gas. AT&T, for example, recently replaced 8,000 of its regular service vans with natural-gas-powered vehicles. It believes the shift to natural gas service vans will save it the cost of about 49 million gallons of regular gasoline over the next decade. But what are some of the negatives of this cost control measure? Does the fact that less than 1,500 of the U.S. 162,000 vehicle service stations currently sell natural gas have any implications on AT&T’s strategic moves in this regard? What about the fact that oil/gasoline prices have fallen a decent amount recently?

portfolio projeCtS

exploring your own Case in Point: Control of Global Business After reading this chapter, you should be prepared to answer some basic questions about your favorite company. 1) What is the corporate mission statement of your company (assuming it has one—if not, how would you go about writing one for it)? How well do the company’s actions carry out its stated mission?

2) With respect to its strategy formulation, would you categorize your company as having a shareholder model or more of a stakeholder orientation? Why? 3) What are some current or short-term operational and tactical plans that your company is pursuing? How do these plans fit in with the company’s longer-term strategic posture? 4) Describe any quality control, six sigma-type initiatives in which your company is currently involved. If it is not involved in any such initiatives, should it be? Why or why not?

develop an international Strategy for your own Small Business: Strategic Control in your Business Strategic control issues are very important ones for all businesses, but of particular consequence for small businesses with international business operations or aspirations. The following questions will help deepen your understanding of these concerns as they may apply to your own small business: 1) Is your small business currently involved in any joint ventures with other companies or planning such joint ventures? If so, what type of positive control mechanisms do you have, or plan to have, so as to protect your business’ interests vis-a-vis those of your joint venture partner(s)? 2) What role is the Internet playing, or can it potentially play, in helping to coordinate your small business’s global operations? 3) Is your small business active in your community through charitable or other corporate social responsibility activities? If so, how are you measuring the effectiveness of your business’s activities in this regard? 4) How would you characterize the organizational culture or “personality” of your small business? Do you feel good about this culture, and does it act as a positive control mechanism for your organization? If not, what about your culture would you like to change?

Chapter noteS

1 Cathy Gulli, “The Girl Scout Cookie Skirmish,” Maclean’s magazine (Canada), August 31, 2009, p. 57. 2 www.walmartstores.com. 3 Geoffrey A. Fowler and Miquel Bustillo, “Wal Mart, Amazon Gear Up for Holiday Battle,” Wall Street Journal, October 19, 2009, p. B3; Miquel Bustillo and Jeffrey A. Trachtenberg, “Wal Mart Strafes Amazon in Book War,” Wall Street Journal, October 16, 2009, p. A1. 4 www.starbucks.com. 5 www.anadarko.com. 6 www.altria.com. 7 Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p. 133. 8 Jeffrey McCracken, Russell Gold, and Will Connors, “NOOC, Exxon Vying for Stake in Ghana Field,” October 12, 2009, p. B1. 9 Nanete Byrnes, “Smithfield! Not Living So High on the Hog,” BusinessWeek, November 9, 2009, p. 52. 10 Ibid. 11 “Shuanghi International and Smithfield Foods Agree to Strategic Combination,” www.investors.smithfieldfoods.com, May 29, 2013. 12 Christopher Palmer, “The Biggest Gamble in Sin City,” BusinessWeek, November 9, 2009, p. 56. 13 Ken Auletta, “Googled: The End of the World As We Know It” (Penguin Books, 2009). 14 James K. Glassman, “Media’s Bright Spots,” Kiplinger’s Personal Finance magazine, December 12, 2009, p. 18. 15 Chloe Melas, “Lawsuit: Madoff’s Workplace Was Rife with Cocaine, Sex,” www.cnn.com, October 22, 2009. 16 Paul Glader and Jeffrey McCracken, “NBC Has Been Something of an Odd Fit With Its Parent,” Wall Street Journal, October 2, 2009, p. A4. 17 “Washington Post Closes Sale to Amazon Founder, Jeff Bezos,” www.washingtonpost.com, October 1, 2013. 18 Joseph L. Bower, “The CEO Within: Why Inside–Outsiders Are the Key to Succession Planning,” Boston: Harvard Business School Press, 2007. 19 Joann S. Lublin, “Inside-outsiders’ Bring Knowledge, Objectivity,” Wall Street Journal, October 12, 2009, p. B5.

CH 10

The Organization of Global Business

AP Photo/Sunday Alamba © C Miller Design/Getty Images

After studying this chapter, you should be able to:

LO-1 Discuss the concept of stateless corporations.

LO-2 Describe the importance of organizational structures for global businesses.

LO-3 Discuss the role that export departments and international divisions play in the organization of global businesses.

LO-4 Define functional, divisional, hybrid, and matrix structures, and illustrate their advantages and disadvantages for global business.

Cultural Perspective

Organizational Restructuring at Royal Dutch Shell

In the Summer of 2009, Royal Dutch Shell PLC announced to its staff that its organizational restructuring plans would be accelerated, and that the result would be substantial job cuts. These cuts would represent a broadening of the cost-reduction program that Shell’s Chief Executive Peter Voser implemented in May 2009. The primary objective of the cost-reduction program would be to help the Anglo-Dutch oil and gas company adjust to lower oil prices.

Shell made this announcement via an internal email to mid-managers in its upstream business which said “the coming days will bring more information about Shell’s organizational restructuring.” Shell’s upstream business includes the following: exploration and production, oil sands, and gas and power.

Mr. Voser announced the shakeup before becoming Chief Executive on July 1, 2009, which included the merger of the three upstream units into two new geographically focused divisions: Upstream International and Upstream Americas. The organizational restructuring will also expand Shell’s downstream division, which primarily refines and markets oil products, and includes trading, biofuels, and solar energy. A new division, Projects and Technology, will also be created to manage the design of all major projects upstream and downstream.

Shell’s organizational restructuring will cut several layers of management, paralleling Exxon Mobil Corporation’s centralized model and emulating a similar effort launched at BP (British Petroleum) p.l.c. two years ago.

ExxonMobil’s centralized model is organized by global functions such as refining, exploration, and transportation. BP’s organizational structure, in contrast, was dominated by individual business units that operate big oil fields or other assets and enjoy a large degree of autonomy, which often led to waste because business-unit leaders sometimes duplicated each other’s initiatives. In 2007 BP announced the move to a centralized model similar to ExxonMobil’s model. This move came as BP attempted to recover from a string of mishaps and problems that some blamed on an excessively complex organizational structure.

Shell has been heavily criticized for slow decision making, cost overruns, and delays in several of its high-profile oil-and-gas ventures. By simplifying its organizational structure, Shell could avoid some of these maladies.1

Note: In January 2, 2014, Ben van Beurden was named CEO of Shell in lieu of Peter Voser.

LO-1

Discuss the concept of stateless corporations.

stateless corporations

a new phase in the evolution of the multinational corporation, where work is sourced wherever it is most efficient and the corporation transcends nationality altogether

Introduction

To achieve sustainable competitive advantage on a worldwide scale, global businesses have resorted to one of the most basic weapons in their arsenals, namely, the ability to organize people and resources. This ability is reflected in an organizational structure. Global businesses such as Shell, General Motors, Procter & Gamble, and PepsiCo have used different types of organizational structures in order to achieve a sustainable competitive advantage. In this chapter, the concept of stateless corporations, which constitutes a futuristic vision of how global businesses are organizing people and resources around the world, will be presented. Next, the notions of organizations and organizational structures will be formally introduced. We will also argue that organizational structures can help companies fail or succeed.

This chapter will describe different types of organizational structures that global businesses have used. The text will also look at companies that have an export department and use exports as an initial step toward globalization. This initial step is usually followed by an organizational structure that includes international efforts, which concentrate upon an international division. Once a firm becomes a global business, organizational structures will likely be functional and divisional, and the divisions could be related to products, markets, or geographical regions. Hybrid structures and matrix structures are also included as important variations of the functional and divisional structures. The characteristics of all these organizational structures are listed, along with their advantages and disadvantages. The organizational structures of global real-world firms are used as examples throughout this chapter.

10-1 The Stateless Corporation

Some companies are global and so well integrated into the countries where they have a presence, that it is difficult, if not impossible, to identify one country as the home country for these corporations. For this reason, firms like these that transcend international boundaries are called stateless corporations. Consider, for example, Lenovo, the Chinese computer manufacturer, which became a global brand in 2005 when it purchased IBM, one of America’s best known companies, for $1.75 billion. To help with the integration of Chinese and American workers, the chairman of Lenovo, Yang Yuanqing, moved with his family to North Carolina in order to increase his knowledge of American customs and culture. As part of the purchase agreement, Lenovo obtained the right to use the IBM brand for five years, however, Lenovo used it for only three years due to the confidence it had in its own brand. In 2007, Lenovo was included in the exclusive Fortune 500 list, occupying the 499th place, due to worldwide revenues of $16.8 billion. Lenovo’s chairman says: “This is just the start. We have big plans to grow.” Consider now the company Arcelor Mittal and Lakshmi Mittal, its London-based Indian boss, who says that his firm has no nationally, but is “truly global,” and that his multinational team of high-level executives get along so well that when the team meets, Mittal sometimes forgets there are different nationalities in the room.2 3

Lenovo and Arcelor Mittal are two examples of the newest phase in the evolution of global business: stateless corporations. Businesses can become global starting with an export department, followed by overseas sales offices, in order to promote the export of goods that are domestically made. Building manufacturing facilities around the world to cater to local demand may follow. Today businesses aim to create what Sam Palmisano, the CEO of IBM, referred to as the “globally integrated enterprise”—a business organization that sources the work from the most efficient location. For business leaders, building a firm that can seamlessly integrate across different cultures and time zones represents a major

challenge. For instance, how can virtual teams of multinational workers bond? One answer may be that they must spend a lot of time talking. And how does one work with awkward cultural differences? Lenovo, for example, has had to encourage its shy Chinese workers to speak candidly in meetings with American colleagues.4

While many major corporations have a global presence, stateless corporations are different because they attempt to transcend nationality altogether. C.K. Prahalad, an expert in the field and a professor at the University of Michigan Business School, postulates that stateless corporations represent the fourth stage of globalization. In the first stage, global companies produce goods in one country and export them to other countries. In the second state, global businesses establish foreign subsidiaries to handle the exports from their home countries. In the third stage, global firms set up operations in other countries. In the fourth stage, stateless corporations locate their core corporate functions and top executives in different countries in order to achieve competitive advantage via access to talent, capital, low costs, or proximity to their most important customers. For example, the software company Trend Micro has financial headquarters in Tokyo, where it went public; has product development in Taiwan, where there is an abundance of workers with PhD degrees; and has sales in Silicon Valley, giving it access to the giant American market. When stateless corporations organize this way, they are no longer limited to the strengths nor constrained by the weaknesses of a single country. “This is very new, and it is important,” says Prahalad. “There is a fundamental rethinking about what is a multinational company,” he says. “Does it have a home country? What does headquarters mean? Can you fragment your corporate functions globally?” Prahalad asks.5

REALITY CHECK LO-1

More and more global business firms are becoming stateless corporations. Do you think this may benefit to the world economy? Why or why not?

10-2 Organizing Global Business

Organizations exist to enable a group of people to effectively coordinate their efforts in order to achieve a goal. In turn, the structure of an organization refers to the pattern of organizational roles, relationships, and procedures that enable such coordinated action by its members. Consequently, an organization can be defined as a tool that people use to coordinate their actions to obtain something they seek or value. At the same time, an organizational structure can be defined as the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals. The organizational structure serves the following purposes:6 7

• It allows the members of the organization to perform a wide variety of activities based upon a division of labor that leads to the departmentalization, standardization, and specialization of functions and tasks. • It permits to the organization members the coordination of their activities by integration mechanisms such as hierarchical supervision, formal rules and procedures, and training and socialization. • It determines the boundaries of the organization and regulates its interfaces with the environment and its interactions with other organizations.

Organizational structures can allow a company to fail or succeed. In fact, it has been argued that one of the reasons why GM filed for Chapter 11 bankruptcy protection was due to the disastrous reorganization of GM in the 1980s by then-CEO Roger Smith. Under Smith’s organizational structure, eight business units were clustered into two divisions: a big-car

organization

a tool that people use to coordinate their actions to obtain something they seek or value

organizational structure

the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals

division and a small-car division. It was intended that these two divisions would increase productivity and promote unity throughout the company, but unfortunately the result was internal conflicts and lookalike automobiles marketed under different brands. For example, it was hard to differentiate between a $25,000 Cadillac and a $9,000 Pontiac. The luxury market was most severely affected because GM opted for cosmetic and decorative differences such as bumper extensions and exotic colors, rather than real competitive advantages such as better engines and mechanical systems, electronics, safety, and fuel efficiency. When GM’s market share plummeted, its plants were left with significant excess capacity. By 1989, the newly restructured GM was incurring losses of more than $2,000 on every car it sold. When new models were more quickly pushed into production, the quality levels of the new models became substandard.

Smith’s successor, Rick Wagoner, was also criticized for maintaining a faulty organizational structure with too many divisions. A division, or a business subunit consists of a collection of functions or departments that share responsibility for producing a particular product or service. At GM, some of the divisions include North American Operations, GM Acceptance Corporation, International Operations, and Hughes Electronics. Wagoner was CEO of GM when the firm was forced to declare bankruptcy and was taken over by the U.S. government. Wagoner will likely be remembered as the man who lost GM.8

As another example of how organizational structures can affect the success of a company, consider the following edited excerpt of an interview with Carol Bartz, who took over as chief executive of Yahoo, Inc. in January 2009 after a tumultuous year that saw a hostile takeover bid from Microsoft Corp. and the departure of the previous CEO, the company’s co-founder, Jerry Yang. This interview by Kara Swisher of The Wall Street Journal9 shows that Ms. Bartz believes that Yahoo!’s organizational structure prohibited innovation.

Ms. Swisher: I want to ask you: What is Yahoo!?

Ms. Bartz: We are the place that millions and millions of people come every day to check in with the people and things they are interested in. Seventy-six percent of the audience in the United States comes to Yahoo!. Fifty percent of the world-wide audience comes to Yahoo. It is where people find relevant and contextual information.

Ms. Swisher: About?

division

a business subunit that consists of a collection of functions or departments that share responsibility for producing a particular product or service

AP Photo/Paul Sancya

Yahoo headquarters in Sunnyvale, California. Yahoo has had six CEOs in 18 years.

Eliza Snow/iStockphoto.com

Ms. Bartz: About what they care about, whether it is their friends, their associates. It is news, it is sports. We have 11 leading sites: news, sports, finance, home page, mail—twice the number of mail accounts as the next competitor.

Ms. Swisher: What did you think of Yahoo! before you came, and how did you get there?

Ms. Bartz: Jerry (Yang) said, will you please come to my house and talk to me? I want to offer you the Yahoo! CEO job. And I said, Jerry, OK, fine. Upon arrival, I asked Jerry to draw me an organizational chart. He pulls a flip chart out of the closet and starts drawing the organizational structure of Yahoo!. I am looking at this thing and I go, is that really the organizational structure of Yahoo!?

Ms. Bartz: I said, why don’t you show me who on this organization would make the big decision—the big CEO search decision. So he started drawing arrows. And it was like a Dilbert cartoon. It was very odd. I said, you need a better organizational structure here. I could not figure out who was in charge of anything, and he did not explain that part very well. I walked out and said, uh, maybe I am a little bit, 10 percent interested in your job offer.

Ms. Bartz: Yahoo! is such an important property and such a great name, and it needed some structure. And since I am actually quite good at that, I decided to take the CEO job.

Ms. Swisher: Which organizational structure do you think Yahoo! needs?

Ms. Bartz: Organizational structures can get in the way of innovation, because if people are all bound up, and if they do not know if they get to make the decision or somebody else, and if they do, what happens to them, and so on and so forth. There is a freeing when you organize around the idea that you are clearly in charge and go for it.

Note: Yahoo’s board ousted Ms. Bartz as CEO in September 2011.

In the next sections, the various organizational structures that global businesses use as they evolve from domestic firms to stateless corporations will be presented.

REALITY CHECK LO-2

Do you think that there is an “optimal” organizational structure for each company? If no, why not? If yes, how can the company find its optimal organizational structure?