Spaghetti Organization
For Octicon, the spaghetti experiment resulted in a number of product innovations, increased growth and revenue. While innovation is a concern for Appex, growth and revenue increases have already been achieved under the previous organizational structures. The disadvantages seen in Octicon included coordination problems, difficulties in knowledge sharing, as well as influence activities (with a relatively flat structure, subordinates may influence management to make decisions for personal reasons instead of organization economies). As argued by Foss, these problems can be seen as a direct result of creating a market environment within the organization. Appex’s problems with communication and coordination would seem to be exacerbated by adopting a spaghetti structure.
Finally, it is important to note the background and historical differences between Appex and Oticon. Octicon came from a highly organized, traditional functional structure. Adopting the spaghetti structure allowed it “shake things up” in order to achieve new levels of innovation. Appex’s background is nearly the opposite. Originally a highly innovative and fast-paced company, recent organization structures have added much needed control, but at the price of internal communication.
Matrix Organization
A matrix organization is a team-based approach applied to a functional organization. A traditional functional structure is augmented with a project management function. Project managers report directly to the senior management and form teams with members from each of the functional areas. It has the advantages of promoting cross-unit coordination (from effective linkages and relationships), establishing project autonomy, increasing customer focus, and maintaining specialization (through functional areas). A matrix structure brings the breadth of product lines and the depth of people’s skills to bear in order to create customer solutions.
However, matrix organizations have a hierarchical ambiguity between the functional and project dimensions resulting in the so-called “Two-Boss Managers”. Often, this ambiguity is not confined to “Two-Boss Managers” and results in difficulties for the entire organization. In addition, there are examples of power struggles between the dimensions and increased administration costs. An example of a working matrix structure, “Integrated Product Development Model”, implemented by IBM is shown in Appendix 2.
Recommendation
While the spaghetti organization is effective at introducing innovation into a traditional structure, there is fear that Appex would return to its earlier days of chaos. In addition, a spaghetti organization only addresses one of the key difficulties that challenge Appex.
A matrix organization, although not without its difficulties, best serves Appex. It achieves a workable combination of functional elements while promoting cooperation and communication. With careful control of the resulting projects, Appex can achieve renewed customer focus. With the elimination of the competition between divisions, resource allocation problems will be reduced. Because the project leads report to the CEO, visibility will be restored to senior management.
The ambiguity of the matrix organization is a key disadvantage. Ghosh should plan the evolution of Appex carefully with his senior management. The first step is combining the functional areas internal to each division and selecting individuals to head these new functional areas. This will eliminate the current duplication in management across divisions. After selecting the management for the functional areas, the remaining managers should be utilized as project leads when possible. Great care must be taken in identifying the individuals appointed as the project managers, who need to be strong individuals capable of balancing the demands from the different product and functional organizations. Difficulties will exist when establishing the initial projects. Initially, personnel from the same division should be grouped for existing projects to reduce confusion. However, new projects should utilize personnel from both previous divisions to increase cross-pollination.
Before implementing any far-reaching changes, Ghosh will need to communicate his vision to the entire company through a detailed plan with a specific timetable that emphasizes the measurable goals and benefits of the change. This will help to combat the inevitable ambiguity felt by the employees. Finally, a two-tiered compensation plan should compensate employees for corporate success through the functional areas and for project success directly.
As a final observation, matrix organizations are primarily utilized in small companies. If Appex continues growing, it will eventually have to restructure.
Appendix 1: Summary of Appex’s Structural Evolution
(from Columbia Business School, ).
Appendix 2: Example Matrix at IBM
(from IBM, : the website is IBM intranet and not available for the public)
Team 3 – Justin Hunsaker, Kevin Shim, and Vats Vanamamalai