University Of Texas at Dallas : BPS 6310 - MBC | Strategic Control & Organizational Design – Second Operating System | Bolting in a Hurdles Race | | |

Executive Summary
Every organization has a structure in place that defines the hierarchy and workflow in it. The organizational structure for a company is usually defined keeping business environment and vision in focus. The challenge arises when a company makes a transition to a new business model keeping in view the long term sustainability. The paper explains that there are primarily five major categories of organizational structures, out of which almost all the time one is adopted by a company. We cannot ignore the fact that traditional organizational structures manage the daily activities of running a company well. But with the business getting more and more dynamic, the challenge for a company lies in being flexible and innovative with these conventional structures in place. In this paper we drew inspiration from the award-winning article “Accelerate!” in Harvard Business Review, from global leadership expert John Kotter and came to the conclusion that the existing structures and processed that form the organizations - ” Operating System” need additional elements to overcome the challenges produced by mounting complexity. The solution lies in the implementing a second Operating System with a focus on continuous redefinition of strategy to keep up with market changes. The approach to have second structure emanates out of the idea that an effective organizational structure needs flexibility as essentially as stability. The paper concludes with implementation of the second network like structure. The complete process of implementation is delineated into eight steps called Accelerators.

Organizational Structures and the need for them
Not less than often we read news about corporate failures in today’s business environment. The current business scenario is as dynamic as it can be with many corporations shedding their old skin and getting into a new one. Mergers and splits have become an important business activity in this continuous changing business universe. The question is why almost all the companies divest a portion of their attention from the core business activities to look into the need of a merger or a split. The answer is simple: ill-suited organizational structures. A large number of companies have unsuitable organization structure, which makes it increasingly challenging for them to quickly adapt to the new business dynamics. For instance, it took automobile industry years to adapt to the need of smaller cars (The structuring of Organizations, Prentice-Hall, 1979). An effective and appropriate organizational structure leads to coherence and consistency within components of the organization making it more flexible. For an organization to have effective structure, the control spans, degrees of decentralization, matrix structure and planning systems should be selected according to internal consistent grouping. The characteristics of organizations have internal groupings and when these characteristics are mismatched, the organization does not function effectively.
There are five major configurations in the organizational structuring stream-simple structure, machine bureaucracy, professional bureaucracy, divisionalized form and adhocracy.
The Simple structure: as the name tells, it is a one large unit consisting of few managers and groups of operators to do basic work. There is little planning, training and formalized behavior. The real power lies in the apex i.e. direct supervision by chief. The centralized control enables simple structure organizations to innovate rapidly and flexibly though it falters when it comes to complex innovation. The major drawback of this configuration is centralized power can direct an organization toward dedicated innovation and ignorance of operations or vice versa leading to wipeout.
Machine Bureaucracy: It is an outcome of industrialization with an emphasis on standardization of work. This structure requires analysts for designing and maintaining standardization methodology. There is a middle line hierarchy to look after the specialized work of lower core and handling the conflicts that may arise out of rigid departmentalization. The machine bureaucratic organizations are usually large because of two reasons-size drives the organizations to be bureaucratic and bureaucracy encourages organizations to grow bigger. This configuration is assumed by most governmental agencies as it helps external control. The major drawbacks are dull and repetitive work, alienated departmentalization, massive size leading to inadaptability.
Professional Bureaucracy: This bureaucracy emphasizes on standardization of skills rather than work processes. The structure gives a lot of power and control to professionals by relying for its operations on trained personals thereby coming out as a decentralized power distributed form. The size of operating units for professionals and supporting staff is generally very large because work force operates independently and requires tremendous support. Professional bureaucracy is most effective for organizations in stable yet complex environments as it enables effective decision making via decentralized decision making.
Divisionalized form: The divisional form is a set of independent entities joined together by an administration. Companies with diversified product lines opt for divisionalized structures to grant autonomy to individual divisions. The central administration relies on performance control to exercise power over separate units.
Adhocracy: is called the structure of current age. It is a project based structure in which power is continuously shifting and coordination and control are by mutual adjustment.

Shortcomings of Conventional Organizational Structures
So the big question is - why organizational structures fail. Theoretically, if the organizations follow the aforementioned organizational structures – it should result in better performance by the organization. That is one of the reasons CEOs want to put the best people at the right places and that is why they have so much faith on reorgs. The CEOs wanted to put their best person in the places which needs maximum attention and so most of the CEOs tend to go for a reorg after taking charges. But there are researches which suggest that most of the reorgs have resulted in failures. A recent Bain & Company study of 57 reorgs between 2000 and 2006 found that fewer than one-third produced any meaningful improvement in performance. Most had no effect, and some actually destroyed value (Blenko, Mankins, & Rogers, 2010).So quite clearly there is some gap in the understanding of the link between organizational structure and performance. From the results it is quite evident that performance of an organization is not solely dependent on the nature and disposition of the resources. Yes, that is an important factor, but not the only factor. The organizational structure will be successful and produce results only when that helps the company to execute key decisions in a more effective way and help build strategic capability. As Sir John Browne, former CEO of BP once said – “Our strategy is our organization. In the old days companies had the luxury of stable, long-lived strategies. No longer, strategies continue to shift to reflect changing market conditions. Organizations that succeed have structures that are as supple and adaptable as the strategies they reflect.” So the strategic goal is creating and maintaining flexibility in an organization so that it succeeds in new and changing markets and responds to global competition. With every passing day business is becoming more dynamic. So the traditional organizational structures will not fit in current situation. Today in most of the companies if we see beneath the surface there will be three businesses; a customer relationship business; a product innovation business and an infrastructure business. All these 3 types play a unique and crucial role in the growth of the organization (Hagel & Singer, March 1999). The focus of all three types is different though, it is difficult to map the strategies of these 3 types under one organizational structure. Effective organizations should find a way to achieve coherence among these parts. When making changes to one part of the process, they should consider the impacts it would create in the other parts as well. But even if organizations recognize this and try to do reorganization –as mentioned previously- they fail mostly. Yahoo is an example of a company that reorganized and did not gain any meaningful improvement from the process. Yahoo, founded by Jerry Wang and David Filo in 2004, is an internet corporation widely known for its search engine and many services. It generates the majority of its revenue from online advertising, promotions, sponsorships, direct marketing, and merchandising (ICFAI Center for Management Research 3). With Yahoo’s IPO in April 1996, the company sold 2.6 million shares and raised $38.8 M. Then, in the mid-2000s, the company had 180 million individual users per year (ICFAI Center for Management Research 3). In the midst of this corporate success, Yahoo had some problems. Between June and July 2006, Yahoo’s share in online searches fell from 30.5% to 20.8%. This was coupled with net income falling 38% , from $1,896.2 M to $751M, from 2005 to 2006 (ICFAI Center for Management Research 2). With this poor performance, Yahoo, in December 2006, announced that it would begin reorganizing the company at the start of 2007 (ICFAI Center for Management Research 2). In December 2006, CEO Terry Semel announced that he wanted Yahoo to be more customer centric (Semel 1). In order to do so, Yahoo reorganized the entire company from a product focused structure into an audience and user focused structure. There were 3 groups. The Audience Group was focus on “building the largest audiences and creating more engaging experiences for Yahoo’s valuable through search, media, communities and communications” (Business Wire 1). The Audience Group took on 7 product units. The Advertising Group was focused on the, “transformation of how advertisers connect with their target customers across the Internet, with the goal of driving more value for more advertisers and publishers than any other company (Business Wire 1). The Advertising Group took on the other 7 product units. Finally, the Technology Group was focused on supporting the entire organization by “speeding the development of innovative, next generation advertising platforms to support the expansion of Yahoo!’s global advertising network (Business Wire 1).” Despite Yahoo’s companywide reorganization, Yahoo failed to yield to benefits due to increasing the complexity of the organizational structure and decreasing its ability to make key business decisions (Marcia W. Blenko 2). With the reorganization, Semel believed that Yahoo could now better meet customer needs, but the Audience Group and the Advertising group each needed special products that competed for the scare time of the Technology group (Marcia W. Blenko 4). Because of these increased needs, the company increased its organizational structure into 12 layers to meet product specific needs for each group (Marcia W. Blenko 4). As a result overhead costs increased and decision-making and execution slowed down. After the reorganization, the net income fell from $751M in 2006, to $660M in 2007, and then to $425M in 2008 (John Lowenson 1). Thus, the lack of Yahoo’s focus on the decision-making process led to a well-intended reorganization of assets and structure that didn’t improve company performance (Marcia W. Blenko).
In several major organizations, there is a popular misconception about the relationship between organizational structure and financial success. The concept of organization should be that form follows the function and not in the opposite direction. Several major organizations like Borders, Kodak and RIM that have failed in their businesses, not because they were oblivious of the changes in customer market demands but that they recognized the changes and were unable to transform themselves quickly enough to meet the change. Such lessons placed the urgency on companies like Facebook, Google and Amazon to constantly strive to innovate, to rethink their strategic direction and to evolve their organization to be able to ride the next market wave. This approach taken by the existing Organizational structures prove that the process is less effective in the complex and dynamic business environments of the present.
Need for a second operating system and its benefits
How could large corporations like Amazon or Google manage to be fluid and keep up with the latest trends in the market, is it because they have no solid organizational structure? Successful companies need organizational hierarchy to keep up with the daily demands of keeping the company in a good condition. However the market has constantly been proving that despite their size, they would also need a second operating system focusing on the design and implementation of strategy to keep up with market demands and to constantly innovate. The concept of the secondary operating system was proposed by John P Kotter in his Accelerate! article on the Harvard Business Review. These instances of failure in reorganization do not mean that the traditional organizational structure have not evolved to meet with the challenges of the new market forces. The traditional organizational structures try to tackle the changes in market forces by launching new initiatives to analyze market data. The results from such studies are tackled by launching new task forces, tiger teams, change management teams and executive sponsors for new initiatives. These approaches could win as long as they remain less bureaucratic with few organizational layers, with greater communication and with cross-departmental collaboration. The potential downsides of adopting the rigid structure of an organization are the loss of the flexibility and ability to re-organize and align with the new priorities determined by market forces. These downsides are primarily psychological because of the tendency of managers to avoid risky decisions making. Historically most of the ground breaking innovations were risk laden. The fear of failure causes managers to cling to habits and fear the loss of their power and stature. This tendency to crave stability and default to existing processes tends to defeat the entire initiatives made by the creative few. This means that the traditional organizational structures are necessary but at the same time are not structured to handle rapid changes. The hierarchy and managerial processes that provide the stability needed to preserve an organization, in the end prove to be the stumbling block to innovation and change for the better. In a study published in “The Living Company” (De Geus, 1997) the average life expectancy of multi-national Fortune-500 companies was between 40 to 50 years. This naturally raises the question of what happens to the industrial giants of the old, why is it that they have been unable to keep up with the younger companies that are constantly pushing ahead of them? In the study, De Geus has identified “sensitivity to their environment” as one of the key traits that distinguish those companies that have outlasted their now insignificant peers. The concept of sensitivity to the environment means that these companies have managed to perceive the changes taking place in the market environment and then take timely action to readjust their course to the new societal demands around them. The other characteristics that De Geus found were: “cohesion and identity”, “tolerance and decentralization” and “conservative financing”. In the results from the study on the Fortune 500 companies that outlasted their competition, we found that their organizations had naturally evolved to create a second operating system as suggested by the Accelerate! article. The concept of shedding the rigidity of the organization and embracing networking to maximize value was reflected in the concept of tolerance of new ideas, research and in the concept of decentralization. The networking aspect of the second operating system that brings out the best of the elements within the specialized departments of the traditional organization was reflected in the cohesion factor. The concept of networking within the second operating system does not do away with the individual identities of the contributing factors but instead the Guiding Coalition (GC) empowers them to excel by combining the various partially related factors to bring out an overall positive synergy into the organization. The strategic network formed with a sense of urgency around a single big opportunity and the strategic governing committee would help in keeping the organization decentralized but cohesive at the same time.
Implementation of the second operating system
The need of a second operating system with a network like structure is evident in order to cope up with the rapidly changing business needs and maintain competitive advantage. “Accelerators” are the essential processes required to implement this strategic network, which is vital to exploit the opportunities for the company. The eight accelerators can be described below.
First, constantly looking for new opportunities is an important part of a company’s strategies. However, companies fail to quickly react to the opportunities in sight. Thus, top executives should create a sense of urgency around the foreseen opportunities brought to light by credible members of the network, who are focused on continual growth. Second, we need to build d maintain a guiding coalition (GC), a dream team with diversity, an optimistic approach, and insights of both internals and externals of the company. (Kotter J. P., 2012) There is absolutely no hierarchy in the guiding coalition, which facilitates an excellent quality of information flow. Another accelerator is to create the company’s vision statement to exploit the opportunity. It is GC’s responsibility to draft this vision based on inputs from peers throughout the organization. GC can approach top executives for recommendations. (Kotter, 2012)
The next process is to creatively propagate the vision to the people to buy in their confidence and commitment. GC’s skill in sending the right message out to the right set of motivated people is the key to successful implementation of this process. Fifth, some barriers like time and resources stop us from solving critical problems. This is when one can call out for help and the volunteer army steps in. With more resources dedicated towards the vision, the barriers are removed and we have a network to take the opportunities at an accelerated rate. Sixth, it is a common practice amongst good project managers to celebrate on achieving milestones in order to keep the workforce motivated and rejuvenate them for the next assignment. In this second operating system, it is necessary to display the small wins, which will showcase their credibility in the organization and drive more workforces towards them. In case of delays in wins, GC is always free to rethink the strategy and adopt an altogether new strategy towards an opportunity. (Kotter, 2012).
Seventh and the most important process is to never let up. Accelerate is a continuous learning system and if the GC slows down, the volunteers would no longer be motivated and go back to their hierarchical slumber. Failure at this stage would take us back to the organization structure in place and once again we would be a ground zero. Finally, given the fact that nothing is completed without being institutionalized in the organization, each and every strategic initiative must be dug deep into the company’s culture. (Kotter, 2012) Toyota wouldn’t had been such a big hit, if its lean strategies weren’t been institutionalized.
These processes can be implemented within any function of the organization where there is an opportunity to generate more revenues, save time and resources, etc. In our opinion, it also leads to higher job satisfaction especially for those who are bored of their daily routine and desire to do something differently and more effectively for the company’s needs. With no hierarchy in the system, every individual would be the “owner” of his job and motivated to give his best shot.
Like Kotter, we also believe that the second operating system must be adopted by companies as early as possible. In this dynamic world, not only the optimum efficiency but also the speed at which you reach this level of efficiency is important. If you stay behind in the race, then in no time you will reach your end.

Works Cited
Kotter, John P, (2012). Accelerate! Harvard Business Review.
Blenko, M. W., Mankins, M. C., & Rogers, P. (2010). The Decision-Driven Organization. HBR.
Hagel, J., & Singer, M. (March 1999). Unbundling the Corporation. Harvard Business Review, 151.
Mintzberg, Henry. (Jan 1981). Organizational Design: Fashion or Fit. HBR.
Business Wire. (2006, December 6). Yahoo! Re-Aligns Organization to More Effectively Focus on Key Customer Segments and Capture Future Growth Opportunities. Retrieved October 9, 2014, from Business Wire , A Bershire Hathaway Company: http://www.businesswire.com/news/home/20061205006257/en/Yahoo!-Re-Aligns-Organization-Effectively-Focus-Key-Customer#.VDcGzSldUyd
ICFAI Center for Management Research. (2007). Reorganizing Yahoo! 1-16.
John Lowenson, S. S. (2011, September 6). Yahoo's trials and tribulations since 2008 (timeline). Retrieved October 9, 2014, from Cnet.com: http://www.cnet.com/news/yahoos-trials-and-tribulations-since-2008-timeline/
Marcia W. Blenko, M. C. (2010). The Decision Driven Organization. 1-9.