“Kent chemical: Organizing for Internal Growth” The case “Kent chemical: Organizing for Internal Growth” by Barlett and Wining shows the development of Kent Chemical, a US-based company, from a local rubber producer into a multinational chemical firm which main product divisions are plastic additives, fire protection products and medical plastics. In order to become one of the leading chemical companies in the world, Luis Morales, the president of Kent Chemical, is struggling, after two unsuccessful tries to integrate the regional and the global business, with his decision what the best way to coordinate the company in terms of the organizational change, structure and strategy is.
In theory, organizational change occurs if a company changes from a current non-wanted state into a future desired one. According to Wischnevsky, J. and Damanpour, D. (2006) the company has pass through three different stages during this process; first they have to accept that their present situation is not sufficient anymore, secondly the need to develop a future view for the company and thirdly implementing the necessary measures to succeed. To be able to implement those measure correctly an organizational structure is needed. As Jones, G. R. (2012) states, organizational structure is defined as rules and policies to provide a structure on company level where roles and responsibilities are delegated, controlled and coordinated. The three dimensions of organizational structure according to Hill, C. (2005) are vertical differentiation, horizontal differentiation and the establishment of integrating mechanisms. To Hill, C. (2005) vertical differentiation defines whether the companies should make their decisions on a centralized or decentralized level. Pluses for centralization are that it can alleviate communications and cooperation within a company, further it allows decisions to be persistent, mangers are empower to engineer and execute an organizational change and it helps to avoid redundancies in the company. Hill, C. (2005) also states the arguments for decentralized which can be summarized as follows: With the power lying only at the top managers decision making can be very difficult in centralization, individualism is supported by decentralization which leads to more motivated employees, it’s a more flexible system, it allows more improved decisions and it can help to gain better control over the company. Horizontal differentiation, on the other hand, talks about how to organize a company in terms of their regional and global subunits (Hill, C. 2005). The different structures of horizontal differentiation are the typical functional structure, typical product divisional structure, international divisional structure, worldwide area structure, worldwide product divisional structure and global matrix structure. To align with the here discussed case, we only look at the international divisional structure and the global matrix structure in detail. The international divisional structure is according to Hill, C. (2005) discussed heavily as it can create conflicts, coordination and hierarchical problems between the subsidiaries and the headquarters. Theoretically, the global matrix structure is best concept to work with, but in reality is has its problems as it very complex. Integrating mechanisms are depending on the size of the company. The bigger the company the more integration, e.g. in terms of communication or coordination, is to be made. Furthermore, to be successful globally as a company, a common knowledge base and culture has to be established. Hill, C. (2005) also differentiate between four general criteria to integrate subunits; direct contact, liaisons, teams and matrix structures. The story of Kent Chemicals shows the implementing problem with a new organizational structure very well. After two failed attempts to change CEO Luis Morales faces a major decision how to get the company in the desired future state, not only affecting the company’s but also his own future. In 1998 Kent chemicals changed their strategy for the first time to global integration to make it one of the leading chemical companies. Therefore, they took majority leads in their Joint Ventures, acquired new companies and expanded their global presence in order to increase the control over their subunits. Kent chemicals chose centralization for its vertical differentiation to get one strategy for the whole company steered from US. It allowed to have consistency in the company but created the problems with being inflexible and though decision making. Further, with choosing the international division structure for the horizontal differentiation, Luis Morales faced the problems as stated in theory; conflicts were arising between the managers of the subunits and the managers of the US headquarter making it difficult to gain more control and to turn the company into a successfully working international firm. According to Morales the three main problems with this strategy, which came up after implementing, are that the company’s subsidiaries failed to adapt properly to the new standardized systems (accounting, reporting, etc.), self-interest of their managers especially in markets with long history - e.g. when a Korean subunit started to produce their own fire retardants and not importing in anymore from Germany - and problems of coordinating regional business on a global scale. Thus, the first reorganization failed and so in 2006, a new try to integrate the company successfully was started. Here, Morales and Ben Fisher (chairman and majority family stakeholder) decided to improve the domestic and international relation by introducing Kent Chemical International (KPI), a separate subunit of Kent Chemicals Products (KCP). The three main product divisions, consumer products, protection products and medical plastics, received a global business director (GBD) each to make communication and coordination better. The three GBDs work with different success, the medical one was appreciated as she had good knowledge in international business but the others were not able to help. Therefore, a new adaption to achieve the integrating mechanism goals of the company (as stated in the theory part), took place in 2007. Fisher introduced world boards with mangers from regional subunits and from the US with expertise in all different areas (e.g. geographic and products) to meet the needs of the local markets and to integrate more effective between KCI and KCP. However, the world boards did not work out for all units and now Morales is facing the decision how to implement one last successful try. Kent Chemicals hired Sterling Partners, a management consulting company, to finally adapt to the problems with the horizontal differentiation in their organizational structure and to get an impartial outside view. Sterling Partners showed that a global matrix structure is best for them in order to coordinate the business properly. This structure allowed them to answer the local needs with a global perspective, e.g. a local marketing campaign can help to respond to the individual customer needs or with centralizing the R&D process to get conformity. In my opinion, this proposed structure is very suitable for Kent Chemicals as organizational change is a dynamic process (Miles, R. et al., 1978). Especially if we look at the past, they never could get control over their subunits as they tried to succeed with one general and standardized approach, the international division structure. Kent Chemicals only reacted as problems occurred and adjusted slightly but they never questioned their structure in the first place. Therefore, the matrix structure, will give them a new start, although being very complex and harder to grasp, but it will allow them the catch the regional and global needs within their lines and product portfolio and without losing their identity of being a US-based firm. In my opinion, Kent Chemicals with the matrix structure will be able to become the wanted successful international chemical company with good communication, cooperation, using centralization and correctly integrate their subunits and product divisions.
References
Hill, C. 2005. International Business: Competing in the Global Marketplace. 5th ed. Boston: McGraw-Hill, p. 529ff. Wischenvsky, J. D. and Damanpour, F. 2006. ”Organizational Transformation and Performance: An examination of three perspectives.” Journal of Managerial Issues, p. 104. Jones, G. R. 2012. “Organizational Theory, Design, and Change: Text and Cases”. Pearson 7th ed., p. 295ff. Miles, R.; Snow, C.; Meyer, A.; Coleman, H. 1978. “Organizational Strategy, Structure and Process”. Academy of Management, p. 547.