Tall Organizational Structures VS Flat Organizational Structures!

There is always an argument over which organizational structure is best. Today we are going to closely assess tall structures and flat structures. The most common ones. When we talk about tall structures the term bureaucracy comes to mind which means a non elective body of individuals in charge of certain operations. When we think of bureaucracy we must recall the works of Max Weber, a German sociologist who emphasised how a tall bureaucratic structure was the best one to apply in organizations. Weber believed that companies needed to find specialized people for each task and that those people had to work under a certain set of rules. This is one of the main characteristics of tall structures. Tall structures pay close attention to hierarchy. Organizations with tall structures will usually have one person at the top and a long chain of command. Tall structures have a rules, which are enforced upon the employees. The problem with that is that the business may lack creativity and innovation. The employees do have promotional opportunities. However the pay is only based around the position and not the person. The managers aren't very pressurized as they do not have a large group of people to manage, this allows them to keep a very close watch on the small amount of people they do head. Organizations with tall structures are inflexible, i.e. they find it difficult to adapt to rapidly changing market conditions. Also tall structures are known to have red tape. A very good example of a company that uses a tall structure would be the NHS.

Tall NHS structure

The NHS Structure explained in video

An approach more commonly used nowadays is the flat structure approach. Flat structures do not have a long chain of command. It has a few managers who are in charge of a large amount of people. There is less red tape. Employees have decision making powers. However this can result in chaos for managers as they are under a lot of pressure. Despite that organizations with flat structures are seen to be more creative and innovative. These organizations are flexible, i.e they adapt to changes quickly. Communication is difficult and is done usually via email which slows things down. Employees also have little promotion opportunities. A couple of companies that use this approach are Google and Apple.

Apple's relatively flat structure.

Apple claims to have a cult like culture. Steve Jobs made his employees believe that they had the opportunity to change the world because he said to them that those who are crazy enough to believe they can change the world actually end up doing so. He never set down a set of strict rules. Apple employees are allowed to come and go out the office freely as long as the do 110% of a "good" job. The main point that Steve Jobs was known to emphasis to his employees was to always think different, i.e to be creative, twisted or innovative. 

Steve Jobs's on Thinking Different

Choosing the right structure depends on what source of business environment you are going into. If Google used tall structures it may not be as successful as it today because they rely a lot on creativity and innovative ideas. NHS however is an organization that does not. It's a very straight forward health system and everyone knows what needs to be done. Not any one specific is best. It simply depends. I'd personally prefer a mix of both. I would want creativity and innovation but I would also want some degree of control. If I was the CEO of a major "tech" company I'd ensure my employees would keep secrets. I would not the world to know of my activities. I would instill just enough fear in my employees to prevent them from losing control.  

  

Swot, Porter and Pestle analysis of the coffee industry...

SWOT, Porter and PESTLE are various methods a organization may use to access or predict market conditions. SWOT refers to the internal and external strategies. It aims to provide a basis for decision making and problem solving. It can also be used integrated into the PESTLE analysis.  Porter is used to help organizations understand its competitive strength in current markets and the strength of a position they are considering moving into. PESTLE assess the eternal factors faced by businesses (Political, Environmental, Social, Technological, Legal and Economical). It is used to predict future perspectives.

The coffee industry is said to be highly competitive. There is competition amongst the branded ones and the local ones. Lets conduct a swot analysis for starbuck. It will look assess the strengths, weaknesses, opportunities and threats towards the organization.

Strengths: 1) It has stable financial records. i.e it has a profitability of 14%. People are keen on investing as                       they get a return of 24.54%.
                2) It ranks 1st in the list of most valuable coffee brands. It is worth $4billion.

Weaknesses: 1) It has external suppliers. Supply may vary from time to time thus causing fluctuations in                                  costs.
                     2) It has been shamed by the public for using tax avoidance policies. It had over $400 million                            of sales in the UK alone but had not paid any taxes.

Opportunities: 1) They have the opportunity to penetrate new markets such as India's and China's as both                               countries are experiencing an increase in demand for coffee.
                       2) They can diversify their products. They can also start selling wines, beer an juices.

Threats: 1) Increased competition from local specialized cafe is becoming a bigger threat to Starbucks as                        they progress.
             2) Supply disruptions may occur due to weather or political factors.

A diagram of a SWOT analysis done on Starbucks 

Although the SWOT analysis helps organizations understand its business better or helps in deterring threats or even helps organizations to capitalize on its opportunities it does not provide the solution to the problems. It also does not prioritize the issues the organization faces. It provides many ideas but does not tell organization on how to implement them.

The Porter's 5 forces model looks to assess the supplier power, buyer power, competitive rivalry, threats of substitution and threats of new entrants.

Porter's 5 forces model

In the coffee industry the supplier power is considerably high. This is because it is very difficult to find high quality coffee beans and are also very highly demanded. The supplier is able to set a price. Advancements in technology is causing the use of more coffee beans thus increasing the amount of sales made by the suppliers due to the increased demand resulting in increased power.

The power of the purchaser is relatively low. Big brands like Costa Coffee have fixed prices i.e. they are non negotiable. How ever substitutes do exist. Threats of substitutes would include cheaper brands of coffee such as McCafe, whose prices are relatively lower than those of Costas. Other cheaper substitutes exist such as tea, juices and even soft drinks. Local coffee shops are also cheaper than the branded ones.

There is moderate threat from new entrants. The coffee industry is already very saturated thus has quite low profitability. Also existing food companies diversify to penetrate coffee markets. For example Mcdonalds launching McCafe. 

There is much competition within the industry itself i.e Nero vs Starbucks vs Mcdonalds vs Costa vs Local shops. Currently Costa is the market leader in the UK and the big brands in total have 54% of the market share. 

Although Porters 5 forces analysis shows that the coffee industry is quite risky and has low profitability, it does not take into account the rapidly changing economic or market conditions. It does not consider non market factors such as consumer tastes and recession. The flaw is that the model is based purely on the idea of competition. A challenge to this theory would be the game theory, which considers various variables concerning price and leadership. 

Lets look at what the Pestle analysis suggests about the coffee industry. The main purpose of Pestle analysis is to assess the external factors that can affect the business. Factors such as political, environmental, social, technological, legal and economical. 

Details of what each factor assess

The political factors that the coffee industry faces are that high standards must be maintained in terms of health and safety, imported coffee beans could have restrictions, duties or quotas and the very common fear of terrorism. There is no Starbucks in Conga, one of the major factors would be the dangerous conditions as they are in the midst of a civil war.

Environmental factors are given very serious importance in the UK coffee industry. There are strict laws on CO2 emissions. Coffee houses are expected to fulfill their corporate social responsibilities. There are Legal matters to be aware of such as minimum wage laws, regulations and the very basic: licensing. 

Technological factors have major impacts on the coffee industry. The increase in vending machines is negatively impacting the sales of coffee houses. However technology is also allowing coffee houses to become faster with their service, to be more efficient and less wasteful. 

There is a big coffee culture in places such as the UK and US. Coffee is consumed highly. More importantly people go to coffee houses frequently to socialize, it become part of the culture. Economic factors can both adversely and positively affect the coffee industry. UK is pulling out of a recession, consumers are starting to spend more thus increase in sales due to positive economic factors. Coffee sales in the UK are expected to rise to 8 billion by 2017. Interest rates are currently low at 0.5% but may rise in 2015 thus resulting in more costs for the coffee businesses and increase in prices for the consumers. 

In my opinion, integrating more than one strategy provides a clearer picture. Porter only assess the competitive forces but Pestle assess the external forces that are not necessarily associated with competition. Using them both together could create a clearer picture for organizations. However none of them actually provide solutions for the problems they state. Take care, see you next time.  

 

Going Global: Does everyone do it right?

Globalization is the process of internationally integrating cultures, goods, technology, information and various other things. Today we are going to look at two different organizations attempting to go global and whether they have succeeded or not.

There are two types of strategies that help companies go global: Internal strategies and external strategies. Internal strategies include exporting, direct investment, e-commerce. External strategies include joint ventures, strategic alliances, franchising, mergers and acquisitions. Most big multinational companies use a combination of strategies.

Let's look at the organization known as Tesco first. Tesco had decided to go global but it did not end up doing very well especially in the US. In the US, a new store by the name of Fresh and Easy was established, the store was a joint venture with Tesco. Fresh and Easy's CEO, Mr. Timothy Mason was asked to head all the operations. The investment turned out to fail. Why did this happen? Tesco's timing was unfortunate. The venture launched in 2007 when consumer spending was at an all time low due to the impacts of the recession. People were reluctant to explore new shops and spend more. Another reason was that Tesco was unable to judge the consumer demand properly. The incorporated US recipes into their ready to eat meals but they did not realize that the culture of buying ready to eat meals in supermarkets is fairly low in the US. Finally, Tesco did not assess its competition properly. They made a mistake by opening many stores at the same time in competition to wal-mart. What they should have done is open a few stores so as to have a pilot run and to study the US market and to assess their competition. In the end tesco decided to pull out of the US, a bailout which cost them 1.8billion GBP.

Decline in Tesco's US sales

Tesco's example was seen as an unsuccessful attempt to go global. However there is a company, which in my opinion has been the most successful in terms of going global. Coca Cola is one of the very few organizations whose products are available in every single country in the world with the exception North Korea. Coca Cola uses various strategies when it comes to global expansion. They have invested directly in Pakistan and India. During World War 2 the US military allowed Coca Cola to open 64 bottling plants which were secured by the military. Coke was distributed amongst the forces as they spread across the globe thus exposing it to foreign nations and markets. In 2012 Coca Cola went into a joint venture with France's leading recycler, APPE  by investing 6.5 million euros. The the purpose of the venture was to increase the amount of recycled coke bottles. In 2010, Coca Cola paid $12.3 billion to buy the biggest US bottling company to reduce costs. It has also started franchising in the US. Coca Cola also exports its products. If you buy Coca Cola from a UK supermarket it would be made in the UK but if you buy Coke in a restaurant it would usually be from somewhere else in Europe (such as France). This is done by restaurants as they get a cheaper rate on the imported Coke due the the EU trade agreements thus making it more attractive.

Coca Cola Consumption across the globe

Improvements in stock price as a result of expansion

There is one other thing that further enhances Coca Cola's global image. They have a very strong marketing department. Recently in Pakistan and India they launched a machine called the "small world machine". The objective of the machine was to promote peace between the two neighbouring rivals. The machine connected a random Indian individual to a random Pakistani individual, both individuals could see each other through cameras and would just say hello to each other and ask about their well-being. Another thing I personally like about coke is the amount of passion I think they put in their adverts. After watching their advertisements I feel the urge to have a can of Coke.

   

Coca Cola's Small World Machine

My personal favourite Coca Cola commercial

Coca Cola has achieved an enormous amount of success by going global. They have very simply done a great job in local and global markets. They have perfectly assessed all situations.