ORGANIZATIONAL BEHAVIOR-II ASSIGNMENT

Case study on Appex Corporation

Group: 1
Section: E

Abhijit S (0305/55)
Praneeth Cheekoti (0323/55)
Naveen K (0342/55)
Pavan Palepu (0345/55)
Raja Sekhar (0353/55)
Saida Naik (0359/55)
 Introduction:

In 1982, the cellular industry began in the United States. Since then the industry grew at a staggering
growth from 92000 subscribers in 1984 to 3.5M subscribers in 1989 and it was expected to grow by
100% in the next 2 years and by 500% in the next 6 years. With government anticipating to establish
over 400 rural service area markets roaming activity was expected to increase tremendously and
cellular telephone system was expected to become primary telephone system. Appex Corporation was
formed by merger of Appex Inc. and Lunayach Communication Consultants and provides services to
cellular carriers. Their services and products were categorised into:
1. Inter-carrier services (ICS): ICS business contributed to 60% of revenues and managed
information required for carriers to provide service to cellular subscribers.
2. Cellular Management Information systems (IS): IS business contributed to 40% of revenues
and handled primary functions like billing, customer information, credit and collection
information etc.
Though Appex was successful as a start-up organization, it faced several issues while scaling up.
Realising the loss, investors had appointed Shikhar Ghosh, who was a partner at BCG with expertise in
organizational structure, to lead Appex and bring control and structure within the organisation.

What is the real problem associated with Appex corporations?

The Company has seen its employee base growing from 25 employees in 1988 to 180+
employees by the start of 1990s. As they adopted the informal and fluid structure, it became difficult
for the organisation to continue with the existing structure. It faced many structural problems leading
to chaos and degradation of productivity. They started downplaying their main strength i.e.,
responding promptly to the customers. There was no sense of direction and planning as people were
attending the problems as they happened instead of foreseeing them. Even though the quality of
service didn’t deteriorate, the number of customers who were attended fell drastically. This can be
attributed to a sudden splurge of customers and orders which proved to be overwhelming for the
limited number of employees. Its excessive spending was also hampering their cash flows and
profitability.

They wanted a new formal structure to meet their business needs. So, they recruited Shikhar
Ghosh, a BCG partner as Chief Operating Officer to design and incorporate the structure to meet the
growing workplace needs. Shikhar Ghosh came with a lot of ideas on how to build organizational
structures.

Ghosh’s Approach towards the problem:

1. Circular Approach:
He first started with a Japanese circular structure. In a rapidly growing organization, he felt the need
for the information flow to be fast and fluid. His intention was to remove excess layers of management
and continuous contact between departments but things didn’t go as planned. This was an alien
concept for many new employees, they expected a traditional hierarchical structure. They were not
aware about the power structure and confused about their appraisals too.

2. Horizontal Approach:
His next approach was to implement horizontal organizational structure to make environment
employee centric and helps them focus on collective organizational goal. This didn’t work as many
employees either were indifferent and not responsive to the implemented structure
3. Hierarchical approach:
In 1989, Ghosh changed his implementation from horizontal structure to the traditional, hierarchical
structure based on functions. Even though he faced issues like how many verticals to create, whom to
give the responsibility of leading the functions, he was strong on his belief to establish hierarchy and
defined role responsibilities due to which company has seen improved basic capabilities and increased
accountability. But the problems started creeping in. Due to the rollout of titles and allocation of desk
locations, politics came into existence.

Polarisation came into existence and teams were further divided into sub groups and source of
authority is functional rather than managerial. Even though Ghosh made an effort of employing the
managerial expertise, hiring new people and demoting people as per the present requirements to
solve the above mentioned problems he was not successful and to top that decision maker was not
clear as there was no authority, autonomy. Structure changed slowly from customer focus to the
concentration of internal process in planning and implementation. Resource allocation problems
increased as there was no system in place to decide the process efficiently and creation of business
teams between corporate management and product teams increased the training cost due to lack of
experience. And finally employees became less concerned about company-wide financial goals and
lost the accountability of profit and loss.

4. Divisional structure:
In Aug, 1990 Ghosh implemented Divisional structure by establishing three broad divisions, IS, ICS and
Operations. This helped in improving the accountability, budgeting and planning and focusing financial
targets. It also helped in improving the cooperation between different functions and focusing on
individual targets that connected to the company’s target as a whole. But the problem of resource
allocation was still intact and there has seen the growth in politics again. Competition started between
divisions and communication flow was little which affected the Appex as a whole in terms of product
development which was always its forte and is the reason why they were in competition. Divisions
started to behave as individual companies and started developing their own business procedures.
Even though Ghosh tried to improve development and communication by setting company theme of
quality and creating multi divisional, multi-functional quality teams and rotation, things did not
improved as expected.

Organisation was used to informal flow of ideas, work was not strictly divided and there was
continuous flow of ideas. This was very effective in new product development and bringing the
product in to market faster than the competitors .So trying out a new system which didn’t compromise
on the existing strengths of the organisation is necessary, which we think is the main reason behind
adopting circular organisational system. Once it failed he resorted to horizontal structure which didn’t
solve the basic

Collaboration between engineering and operations team pre-existed which didn’t have predefined
area of responsibility. They functioned in tandem with each other and incurred least cost on system
development and operations. Due to the hierarchical structure this collaboration was lost and Appex
ended up spending more money.
In pursuit, certain well-oiled systems and synergies evolved over time should have been continued.

Our Analysis & Recommendations:

At the time of Shikar’s appointment, organisation was in growth stage but most of the functions were
not standardized. There was no control over organisational activities. Most of the problems were
dealt on immediate requirement basis and no planning was done to address future problems. The
customer base was growing and company was in requirement of hiring new employees. For this
situation Functional structuring would be best suited because it provides people with ample
opportunity to learn from one another and become more specialised and productive. The most skilled
employees should be given responsibilities to train new recruits and those people should be promoted
to become supervisors and managers. In this way organisation can increase store of skills and abilities.
As the organisation grows further and the complexity increases, certain problems associated with
communications, strategic development and addressing customer problem will also increase
profoundly.
As the specialisation of employees increase and the organization expands in terms of products and
location, the structure could be shifted to divisional based structure. It ensures the vertical and
horizontal differentiation while ensuring greater integration between subunits. In this case the
company has 2 divisions. So a multi divisional approach with each division having separate support
function at the same time centralising the core functions like, marketing, finance, resource allocation,
R&D would ensure that both division works in better collaboration. Adopting this structure would
increase organisational efficiency aided by clear division of labour between corporate and divisional
managers. The extra control provided by corporate office encourages stronger pursuit of internal
organisational efficiency by divisional managers. Each division having its own financial targets the
profitability can be clearly evaluated. The most able divisional managers can be promoted to corporate
managers.

To bring in a structure to the organization, with an intention to create a non-hierarchical structure

Shikhar Ghosh implemented Circular structure initially in which information flowed continuously and
freely. On the same lines, Ghosh tried to bring in a horizontal structure, though these 2 structures
failed individually, they helped in understanding inadequacies of innovative structures.

Later, Ghosh implemented hierarchical functional structure and the Matrix/Product structure which
handled the rapid growth of Appex as a company and made him realize the short-sightedness of the
existing Engineers and Managers. These structures provided an opportunity to learn from one another
and become more specialised and productive, it also helped to train new recruits by more skilled
employees. When the control problem is to reduce product development time, increasing the
integration between support functions & product team structure is generally preferable. These led to
formations of sub-groups automatically and minimised Ghosh’s involvement in every decision, which
was better decentralisation of power. Yet these structures couldn’t address the problem of
accountability due to increase in business.

The implementation of divisional structure created accountability, which is achieved through

manager’s control over individual divisions. Resource allocation and communication barriers were
major problems encountered in divisional structure, which were expected to be countered by
formation of multi-divisional, multi-functional structure and centralised product teams. Though each
of the changes had their own issues, they helped in understanding the underlying problems and evolve
into a better structure.
Change in authority and power dynamics is very much expected post acquisition and key decision
makers earlier might not get to have the same power or authority in making decisions now. EDS being
a larger bureaucratic organisation, it must have its own divisional structure under which Appex is going
to be a new division.

 For smoother functioning the hierarchical levels in Appex must be reduced in order to align
with the overall organization structure of EDS.
 We would recommend to continue with divisional organisational structure as this is similar to
the standard vertical business model and it was effective in organisations. One of the main
benefits of this structure is to create different organisational divisions with leads assigned to
the each division and they are expected to maximise the business in their respective divisions
and to create the balance between control of senior management and freedom of lower level
management and employees.
 At the same time, functions such as Human Resources, Finance, and Customer support/service
must be fully integrated with the acquiring company which will reduce the complexity as well
as cost for the company.
 Best practices should be incorporated from Appex to EDS and vice versa, which will result in
more efficiency and control.
 Systems and policies must be put in place in order to promote harmony, protect the inherent
culture and avoid alienation of Appex employees.