2019

Appex Corporation

Analysis of Appex Corporation in terms ARUN SHARMA 0409/56

of organisational structure and design ASHISH GANDHI 0411/56
AYUSH CHAMARIA 0412/56
DEEKSHA SINHA 0419/56
DIGVIJAY TRIGHATIA 0421/56
KANIKA DEV 0428/56
SHUBHAM SRIVASTAVA 0470/56

SUBMITTED AS PART OF ORGANISATIONAL BEHAVIOUR-2 COURSE REQUIREMENT

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What were the challenges Shikhar Ghosh faced when he joined Appex?

Shikhar Ghosh was recruited when Appex investors believed the company was not working
efficiently. He had graduated from Harvard Business School and had spent 8 years as a
consultant in BCG. He was hired to bring more control and structure to the organization.
On arrival Shikhar Ghosh faced several challenges in terms of attitudes and already practiced
norms. For example, he realised there is little hierarchy in the organization and work process
is loose & informal. Focused, committed & hardworking members are habitual of working
closely in an informal setting and the work revolved around projects. System turned
inefficient in the face of multiple projects to be worked upon at once and the atmosphere
would become extremely chaotic. Despite this there were no efforts to address the problem or
develop a planning structure. Work was done with a „damage control‟ or „fire fighting‟ mind-
set. There was no clear job description for the employees. Everyone was doing what they
wanted to and not based on their expertise. This worked well when the organization was
operating as an entrepreneurial venture but with increasing workload efficiency suffered.
Though the quality of customer service was very satisfactory, it was not consistent. In one
instance, the customer got a response on their 150th call. Customer responsiveness was
extremely disappointing. Company was losing money due to absence of planning and due to
the negligent attitude towards monitoring expenses. Information flow was difficult to manage
in the chaotic working atmosphere which was creating backlogs and incidences of missed
deadlines. Concept of long term planning was entirely missing.

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Evaluate the importance of each of the structural changes Shikhar Ghosh

implemented. How important were they? What problems did each new
structure address? What problems, in turn, did it create?

Need for innovative Structures: When Shikhar Ghosh joined Appex he came to the realisation
that a lack of structure and control was a major problem within the organisation. There was a
lack of accountability and planning. Tasks were taken up or allocated randomly. Information
flow and communication between different moving parts of the company was becoming
difficult as the company was expanding. To address this, Ghosh initially put forward two
structures:

Circular Structure:

This circular structure took the form of concurrent circles, with the innermost circle being the
senior executive, the second layer being the managers and the third layers being the
employees. The environment around this structure represented the customers. The idea
behind this structure was threefold:

1. Get some structure in place in the organisation to address the current problems
2. Try and maintain the non-hierarchical nature of Appex
3. Ensure free flowing information within the organisation and between the organization
and its environment

It was soon evident that the circular structure did not address the problems that existed in the
structure that preceded it.

Employees at Appex were not used to circular structure. They could not relate to it at all,
especially the new hires who were expecting a more traditional organizational chart. The new
employees joined the company expecting a more traditional, vertical and hierarchical
structure. The employees were further confused about who was evaluating their performance,
who they needed to reach out to in order to get things done and who held the power and
authority in the organization.

As per Ghosh, one more reason why this particular structure was not working was because of
the development of “Customer is the enemy” mentality in the company. The circular structure
while aimed at improving processes and information flow, failed to solve the problem of a
lack of planning. It was designed to be a reactive and responsive structure. Hence the tasks
that demanded planning in advance did not get done.

Horizontal Structure

Ghosh also tried implementing a flat horizontal structure to replace the circular structure.
This also did not address any of the problems in the organisation. Considering the company
was growing at a fast space, there was a need to establish a structure which instituted a formal

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hierarchy, accountability and authority within the organisation. The horizontal structure was
not what was needed at this juncture in the company‟s lifecycle.

The horizontal structure developed a system of accountability, and all the team heads
reported directly to Ghosh. The team structure put in place also made sure that focus was on
completing given specific tasks. Sales people were now just completely focused on sales,
finance people focused solely on financial planning. However, overtime, the horizontal
structure deployed led to development of the following problems:

1. Subdivisions came up in most of the teams which led to addition of more functions and
sub-functions, and organization chart grew horizontally and vertically.

2. With the rise in specialized functions, different teams became more distant. This led to
poor working relationships among teams, which ultimately resulted in more cost to Appex.

3. Due to addition of hierarchy and further layers, role of personalities became more
pronounced rather than the company's policy.

4. The managers hired by Ghosh struggled to establish credibility among employees. Most of
the outside hires didn‟t have the requisite product knowledge as the internal team members
did. As a result of which their authority was challenged.

Another challenge which Ghosh faced was due to the rise of Appex to a larger corporation.
Ghosh constantly hired new employees, shuffled them between different roles and promoted
and demoted them to cater to the different challenges that come with a large organization.

Divisional Structure

In August 1990 after hierarchical/functional structure seemed to be creating too many

problems, Ghosh introduced the Divisional Structure. He created two broad divisions -
Intercarrier Services (ICS) and Cellular Management Information Systems (IS). The idea was
that the company‟s products could easily be divided between these two divisions. An
additional Operations division was created, which included utility functions servicing the IS
and ICS divisions.

The new divisional structure was able to address several problems:

1. Improving accountability within the company and streamlining decision making

within a division
2. Improving budgeting and planning, and forcing teams to focus on meeting the
company‟s financial targets
3. Better cooperation within divisions
4. Clearly defining the reporting structure such that Ghosh had more time to focus on
high-level company strategy and less time invested in day-to-day operations

However, after a few months, the divisional structure created problems of its own. Resource
allocation, which had previously been a problem, persisted even now. Decisions taken by
senior management with respect to resource allocation were not perceived to be equitable.
Divisions were unwilling to share; each wanted complete control over its own resources.
After a point, the company‟s expenses began to increase due to acquisition of additional
resources as divisions were not able to coordinate the sharing of existing resources.

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The resource allocation problems also created unnecessary politics within the organization.
For instance, the person who had previously been the chief financial officer was now the head
of IS and was accused of acquiring resources for his own division prior to his transfer. To his
credit, Ghosh took steps to address this. The money allotted for development of each division
was withdrawn, and instead, funds were distributed on a case by case basis after a funding
request had been made.

Another problem that this structure created was that teams began to operate in silos. There
was very little communication between divisions, and no cross-pollination of ideas. The
number of new product ideas coming forward began to reduce. This wasn‟t good for Appex,
which relied on its ability to innovate new products.

To address this friction, Ghosh took additional measures. He began rotating employees across
teams in different divisions, trying to create a culture of collaboration and an environment
conducive to generating new ideas. He also created multi-functional, multicultural and high
quality centralized teams, which worked across both divisions.

Ultimately, however, divisions began to operate as their own mini-companies, adopting their
own business practices and creating and working towards their own goals. A principal-agent
problem was created where teams were manipulating their financial statements in order to
inflate their numbers and meet their financial objectives.

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What would you have done in Shikhar’s place? Were all the changes in
structure necessary? How would you address the challenges Shikhar is
facing towards the end of the case?

What would you have done in Shikhar’s place?

Shikhar was right to experiment with different organizational structures, considering it was a
new company seeing rapid growth and incurring losses. He correctly identified organizational
ineffectiveness and knew that he needed to bring in a structure and a system of accountability
in order for the company to grow sustainably. However, he should have gone with a more
traditional approach first, such as a hierarchical, functional structure, and centralized decision
making in the initial stages. After the company had acquired some stability, he could have
eased into some of the innovative structures, such as the circular or the horizontal structures.
Another thing he should have done is talk to the employees to understand what structure
would suit them best. It was almost a year after he had started working that he took input
from an employee who had recently joined - Paul Gudonis and implemented some of his
suggestions with respect to structure. He should have invited feedback right from the
beginning to understand how the employees felt about the company structure and where they
felt they could be most productive.
Were all the changes in structure necessary?
There were inherent advantages in various structures as they came about, which were not
necessary to be removed.
Functional Structure: It helps in providing people with similar functions to learn from each
other and become more productive and efficient. By bringing together the people with same
skills, learning for a task is very efficient. Such employees take care of training these
individuals. It helps in improving the skills and abilities of the employees. There is creation
of norms and values among the workers once they work for extended time. It also gives a
clear sense of accountability which is needed in an organisation which is undergoing changes
from a small team to a full-fledged organisation.
Product Team Structure: This structure ensured there was no bias to a particular division of
the company, members of support functions would work with various divisions but would
ultimately be loyal to their own function. Decision making authority is with the product team
as they know the best about their product, functional control was with heads of each function.
High level of integration enabled quicker decision making in a new market where Appex was
functional
Division Structure: The division structure improved accountability, budgeting and planning.
Development of division structure led to enhanced cooperation among them. There was also a
high level of autonomy involved with these divisions, which allowed Ghosh to focus more on
strategic aspects, instead of day-to-day activities. Employees were also more focused towards

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meeting financial targets. This structure also allowed information flow in a structured way,
with only vital pieces of information reaching Ghosh, promoting autonomy in the divisions.

How would you address the challenges Shikhar is facing towards the end of the case?
As a division of a larger bureaucratic organization, Appex needs to be structured in order to
align with the structure of Electronic Data Systems in such a manner that Appex can make
most use of the financial and operational resources available from EDS.
In terms of establishing Appex‟s own divisional structure, Shikhar should focus upon
continuing with the divisional structure as it helped improve accountability, budgeting and
planning. There was also a high level of autonomy with each division which allowed Shikhar
to focus upon the strategic aspects.
The major issue faced in this case was that of resource allocation. In order to do away with
this issue, Shikhar should introduce an unbiased system of resource allocation on a case to
case basis. This can be achieved by forming a committee to oversee resource allocation
which would comprise one member of each division to represent the division and its needs
and three senior members from the operational division, who anyway serviced both divisions,
to help ensure that decision making is need-based, unbiased and not influenced by any one
division‟s head. Resources once allocated by this committee could only be shared between
the divisions on the discretion of the division the resources were allocated to. Such resource
sharing would reflect upon the respective division‟s performance alongside the division‟s
ability to meet its individual targets. This would help create a very efficient system of
resource allocation.
In order to ensure increased innovation and development of new ideas, a separate Research
and development division can be created. The other two divisions will pitch in their ideas to
this division on the basis of their independent judgement. As the R&D division would be
independent of the two, decisions taken would mostly be unbiased and in the best interest of
the company. This division will play the role of a visionary division that will coordinate the
flow of ideas and resources between the two divisions and at the same time nurture
innovative ideas that could lay foundation for some great products in the future. Thus the
promotion of brand new ideas will be ensured.

The other issue of layers of hierarchy being formed within divisions could be addressed by
Shikhar retaining the authority to allow the divisions to expand their structure based on
specific requirements. He could take calls based on the duration of the issue of resource
scarcity at hand and only recruit further in case this duration comes out to be too large.
Otherwise additional resources could be arranged for on a temporary basis.

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