Case E: AT&T

AT&T
Introduction
AT&T Inc. is the largest provider of fixed telephony in the United States, and also provides broadband and subscription television services. AT&T is the second largest provider of mobile telephony service in the United States, with over 85.1 million wireless customers, and more than 210 million total customers. From the smallest changes to the most revolutionary development, AT&T has shaped the world by shaping the way how people communicate. Looked back about 130 years, AT&T always looked forward and searched for the next breakthrough to make communication more convenience. It brought meaningful changes to customers’ live since it wanted to shape the future also.
Background
1876 – Alexander Graham Bell perfects telephone
1877 – Bell’s backers found Bell Telephone 1878 – New England Telephone is founded
1879 – 2 operating units are consolidated into National Bell Telephone
1882 – Bell company gains control of Western Electric which is the no.1 electrical equipment manufacturer in USA
1885 – AT&T is formed as subsidiary company of American Bell. Its mission is “Build the first long distance network.
1890 – Bell’s patents expires
1892 – There was the first line connects New York to Chicago.
1899 – Bell changes its name to AT&T and moves its headquarters to New York
1913 – AT&T agrees to buy no more independent phone companies
1914 – AT&T completes the first transcontinental line.
1917 – AT&T completes the first air to ground/ground to air radio communication.
1922 – AT&T is the first to broadcast commercially.
1935 – AT&T completes the first round-the-world call.
1946 – AT&T starts the first commercial, radio-based phone service. (mobile service)
1968 – FCC regulations strip AT&T of its telephone equipment monopoly in 1968, injecting competition into the long-distance market.
1984 - AT&T spins off its seven regional Bell companies after government lawsuit 1991 - AT&T completes a hostile takeover of National Cash Register (NCR) for $7.5 billion
1993 - AT&T purchases McCaw Cellular for $11.5 billion
1995 - AT&T purchases LIN Broadcasting stock for $3.3 billion
1996 - CEO Robert Allen announces a trivestiture plan that splits AT&T into three operating units
1998 –Sell Universal Card Services to Citibank for $3.5 billion Sell Solutions Customer Care unit to Cincinnati Bell for $625 million
Armstrong buys Teleport Communications Group with AT&T for $11.3 billion
Restructured compensation for AT&T’s top management, closely linking performance to salary

Problem Statement 1. Analyze AT&T’s organization based on functional and divisional structures. 2. Would a matrix structure be more effective for AT&T? 3. What is the purpose of the headquarters staff now that AT&T has split into three businesses?

Theories
Three traditional organization structures
Functional structures
In functional structures, people with similar skills and performing similar tasks are grouped together into formal work units. Members of functional departments share technical expertise, interests, and responsibilities
The major advantages of functional structures include the following: 1. Economies of scale with efficient use of resources. 2. Task assignments consistent with expertise and training. 3. High-quality technical problem solving. 4. In-depth training and skill development within functions. 5. Clear career paths within functions.
However, the common problems of functional structures include difficulties in pinpointing responsibilities for things like cost containment, product or service quality, and innovation. A significant concern is the functional chimneys problem – a lack of communication, coordination, and problem solving across functions. Because the functions become formalized not only on the organization chart, but also in the mindsets of people, cooperation can break down as everyone goes about the daily work. The sense of common purpose gets lost to self-centered and narrow viewpoints. When problems occur between functions they are too often referred up to higher levels for resolution, rather than being addressed by people at the same level. This slows decision making and can harm organizational performance.

Divisional structures
In divisional structures, it groups together people who work on the same product or process, serve similar customers, or are located in the same area or geographical region. Divisional structure can be classified as product structure, geographical structure, customer structure and process structure.
A product structure groups together people and jobs focused on a single product or service.
A geographical structure groups together people and jobs performed in the same location.
A customer structure groups together people and jobs that serve the same customers and clients.
A process structure groups jobs and activities that are part of the same processes.
The potential advantages of divisional structures include: 1. More flexibility in responding to environmental changes. 2. Improved coordination across functional departments. 3. Clear points of responsibility for product or serve delivery. 4. Expertise focused on specific customers. Products, and regions. 5. Greater ease in changing size by adding or deleting division.
However, the can reduce economies of scale and increase costs through the duplication of resources and efforts across divisions. They also create unhealthy rivalries as divisions compete for resources and top management attention, and as they emphasize division needs to the detriment of the goals of the organization as a whole.

Matrix structures It combines the functional and divisional structures. It’s an attempt to gain the advantages and minimize the disadvantages of each. This is accomplished in the matrix by using permanent teams that cut across functions to support specific products, projects, or programs. The potential advantages of matrix structures include: 1. Better cooperation across functions. 2. Improved decision making; problem solving takes place at the team level where the best information is available. 3. Increased flexibility in adding, removing, or changing operations to meet changing demands. 4. Better customer service; there is always a program, product, or project manager informed and available to answer questions. 5. Better performance accountability through the program, product, or project managers. 6. Improved strategic management; top managers are freed from lower-level problem solving to focus more time on strategic issues.
But the two-boss system is susceptible to power struggles, as functional supervisors and team leaders vie with one another to exercise authority. The two-boss system can also be frustrating if it creates task confusion and conflicting work priorities. Team meetings in the matrix can take lots of time, and the teams may develop “groupitis” – strong team loyalties that cause a boss of focus on larger organizational goals. The requirement of adding the team leaders to a matrix structure can also result in higher costs.

Result and Discussion
Review Question 1
Analyze AT&T’s organization based on functional and divisional structures.
AT&T is a company that mainly works on long distance telephone service in the past. It spent a lot of time buying up local phone companies to form Bell System. Before the divestiture in 1984, it operated in functional structure.
Bell Telephone and New England Telephone were founded in 1876 and 1877 and consolidated into National Bell Telephone in 1879. Also, in 1882, Bell gained control of Western Electric. Form these two examples, we can see that the Bell System was still concentrating on the long distance service for the US. All the staff in AT&T was grouped together to provide the long distance telephone service. The company had not separated their staff to focus on different services and customers. Therefore, it used functional structure to operate the company.
As the patents of Bell expired in the 1890s, there was some local telecommunication companies raced into the market. Since the market’s complexity increase which is not suitable for functional structured companies. It is because functional structure is in lack of communication and coordination between different departments, so the decision-making process would be longer and thus affect the response to the market changes.
In 1984, AT&T spun off into seven regional Bell companies known as Baby Bells. It included NYNEX in the Northeast; Bell Atlantic in the Mid-Atlantic states; BELLSOUTH in the South; SBC (Southwestern Bell Corp.) in the Southwest; Ameritech in the Midwest; U.S. West in the Rocky Mountain States; and Pacific Telesis in the West. Obviously, AT&T separated into seven regional companies in different places in the US, it should be the geographical structure. Each company focused on their own specific location to provide service to the customers at that region.
In 1996, the Telecommunications Act of 1996 was introduced to let anyone enter any communications business. In reaction to this law, CEO Robert Allen split AT&T into three operating units, which were AT&T Services, AT&T Network Equipment and AT&T Global Information Systems. It was the product structure of divisional structures. It means that they group together people and jobs focused on a single product andservices. AT&T Services provided the long-distance and cellular operations. AT&T Network Equipment is a telecom equipment manufacturer. AT&T Global Information Systems is a technology company specializing in products for the retail, financial, travel, healthcare, food service, entertainment, gaming and public sector industries.

Review Question 2
Would a matrix structure be more effective for AT&T?
A matrix structure should be more effective for AT&T. It’s a structure that combines the functional and divisional approaches to create permanent cross-functional project teams. The main benefits of matrix structures rest with the teams whose members work closely together to share expertise and information in a timely manner to solve problems. Applying matrix structure would have the following advantages rather than just functional or divisional structure.
In divisional structure, each company that under AT&T may have their own audit unit. However, duplication of resources and efforts may appear across divisions. For audit unit, each unit in different companies do not cooperate well, resources are therefore not well allocated. Thus the expense will increase and will be a vicious cycle towards the development of company. Apart from that, the financial state is discrete for each company and there is a lack of general view of financial state of AT&T. If matrix structure was adopted, a department called audit department may be established and manage all audit unit. Better cooperation for each unit will increase the effectiveness and the efficiency for audit. The performance for audit work will be improved.
Matrix structure can also shorten the decision-making cycles since problem solving takes place at the team level where the best information is available. AT&T had bought lots of companies in the past. In 1991, AT&T completed a hostile takeover of National Cash Register for $7.5 billion. However, NCR has run up billions in losses and untold billions in opportunity cost. AT&T has blown at least $11 billion on NCR. If matrix structure is implemented, AT&T can obtain more information on the market. As a result, AT&T would not make such a bad purchase.
It can also increase the flexibility in adding, removing, or changing operations to meet changing demands. For example, in 1996, the Telecommunications Act of 1996 was introduced to let anyone enter any communications business. The market share of long-distance service of AT&T dropped from 90% to about 60%. It means that the demands for AT&T’s long-distance service decreased. In matrix structure, AT&T can shift or concentrate its services to the other operating units, for example, making better telecom equipment in the AT&T Network Equipment to compensate the market loss in the long-distance service.

Review Question 3 AT&T has split into three businesses in 1996, these three companies provide different services including long-distance and cellular operations, equipment manufacture and the services originally provided by NCR. It seems that the services are totally different and separate them into three is better, however, they came from the same mother company and are needed to manage them together. The headquarters staff now can still manage the three companies together. The headquarters staff can know well about each status of the companies. For example, knowing the financial status of the three companies can enhance the flow of capital. Capital of the three companies can be managed by the headquarters staff at the mother company (AT&T), so the capital of AT&T can be used in a better way since separated companies may have duplication of resources. Headquarters staff can think of a way to minimize the problem. Since the headquarters staff masters the information of the whole company and so they should be more familiarize with the need of the company. Headquarters staff can pay the role of giving advices to the subsidiary companies of the future development. Moreover, headquarters staff can help the three companies to coordinate with each other. For instance, the AT&T Services and the AT&T Network Equipment may coordinate and enhance each other’s profit. Without the headquarters staff, it is hard for them to communicate with each other and understand what others’ need.

Conclusion
To sum up, before 1984, AT&T worked as functional structure. After 1984, AT&T adopted the geographical structure and product structure.
Adopting matrix structure in AT&T can gain the advantages of both functional and divisional structures so as to minimize the administrative cost and the unwanted potential losses of investment. The purpose of the headquarters staff can help managing the company well such as better resources allocation.

References
Book
Introduction to Management – John R. Schermerhorn
Website
AT&T official website
Different search engines
Wikipedia