A decentralised organisation – Business Support, L M Ericsson Data AB
STOCKHOLMS UNIVERSITET1999-01-13
Företagsekonomiska institutionen
Handledare: Bengt Gustavsson
C-Uppsats, HT 98
A decentralised organisation
Business Support, L M Ericsson Data AB
ChanelO´Connor och Henrik Westrell
Acknowledgement
We have performed our research at L M Ericsson Data AB’s Business Support division. It has been a very stimulating environment to work in, and we would like to thank all the managers who have contributed to our study. In particular, we would like to thank Gunnar Ivansson, who has helped us so much, and also provided valuable input to our essay. Further, we would like to thank Kersti Cramne, who has supervised our research at Business Support.
Finally, we would like to thank Bengt Gustavsson, our supervisor at the University of Stockholm.
Chanel O’Connor and Henrik Westrell
Stockholm, January 1999.
Abstract
What is an organisation? What makes an organisation thrive and grow? In the course of our studies in the subject, we read that organisations are neither tents nor pyramids; they are not even physical phenomena. They exist in our minds alone. This served as a salutary reminder to us of the complexity of organisations and their rather mysterious nature.
We have investigated an organisation that had undergone far-reaching changes. It had assumed a flat structure and decision-making authority had been pressed down in the division. We were asked to find out how local managers, in particular, felt about the way the organisation had functioned for the year and a half that it had existed. We gradually recognised that Business Support was exhibiting the classical symptoms of of decentralisation.
The purpose of our study became then, to examine the following:
- The positive and negative effects of decentralisation
- Changes in the roles of local managers and top management in a decentralised organisation, focusing on leadership and strategy creation.
- The need for managers to develop new skills for their roles in the decentralised organisation.
We chose to make a qualitative study, using a hermeneutic approach, which means that we have interpreted the data obtained from in-depth interviews with managers in Business Support.
The results of our study have shown that decentralisation should be seen as a process which affects all members of the organisation. The major disadvantages of decentralisation are twofold: it creates a short-term focus and discourages co-operation between different areas of responsibility in the organisation. It is vital that both local and top management are aware of the implications of decentralisation – the need to create explicit guidelines, emphasise communication, counteract separatism, lead change, encourage learning and maintain long-term development. The overwhelmingly positive effect of decentralisation is that it motivates and inspires the individual to develop her own potential. It is therefore, we believe that decentralisation creates a basis for future organisational forms.
Table of contents
1.1Discussion of the problem
1.2Definition of the problem
1.3Aim of the study
1.4Limitations
1.5Outline
2Methodology and scientific assumptions......
2.1Methodology – Pre-understanding of the problem
2.2 Scientific assumptions
2.2.1Hermeneutics......
2.3Quantitative versus Qualitative
2.3.1Measurement problems associated with the qualitative method......
2.4Comments
3Research Process......
3.1Eneroth’s model
3.1.1Limitations......
3.1.2Method of selection......
3.1.3Collection of data......
3.1.4Theoretical perspective......
3.1.5Our theoretical perspective......
3.1.6Interpretation process......
3.2Comments
4 A Decentralised organisation – Theory......
4.1 What characterises a decentralised organisation?
4.1.1 Decentralisation process model......
4.2 What are the positive effects of a decentralised organisation?
4.2.1 The market......
4.2.2 Financial aspects......
4.2.3 Development and creativity......
4.2.4 Authority and control......
4.2.5 Recruitment of personnel......
4.3 What are the negative effects of a decentralised organisation?
4.3.1 Career and personal development......
4.3.2 Turnover of personnel......
4.3.3 Long-term development......
4.4A decentralised organisation and new management roles and skills – local management perspective
4.4.1Leadership......
4.4.2 Strategy......
4.5A decentralised organisation and new management roles and skills - Top management perspective
4.5.1Leadership......
4.5.2Strategy......
4.6Comments
5Decentralisation process in B – EDT......
5.1Description of the organisation-EDT
5.2Description of the organisation – Business Support
5.2.1Business Plan – B......
5.3 Background to the decentralisation in B-division
5.4The new organisation at Business Support
5.4.1B in the decentralisation process......
5.5Comments
6 Effects of a decentralised organisation – B......
6.1 Effects of a decentralised organisation - Local management perspective
6.1.1 The market......
6.1.2 Financial aspects......
6.1.3 Development and creativity......
6.1.4 Authority and control......
6.1.5 Recruitment of personnel......
6.1.6 Career and personal development......
6.1.7 Turnover of personnel......
6.1.8 Long-term development......
6.2 Effects of a decentralised organisation-Top Management perspective
6.2.1 The market......
6.2.2 Financial aspects......
6.2.3 Development and creativity......
6.2.4 Authority and control......
6.2.5 Recruitment of personnel......
6.2.6 Career and personal development......
6.2.7 Turnover of personnel......
6.2.8 Long-term development......
6.3 Comments
7 A decentralised organisation and new management roles and skills – B......
7.1 Local management perspective
7.1.1Leadership......
7.1.2Strategy......
7.2 Top management perspective
7.2.1 Leadership......
7.2.2 Strategy......
7.3Comments
8 Analysis and Discussion......
8.1 Characteristics of decentralisation......
8.2 Effects of decentralisation
8.3 New roles and skills for managers
9Summary and recommendations......
Sources......
Appendix 1 – Organisational chart for EDT......
Appendix 2 - Organisational chart for Business Support......
Appendix 3 – Interview questions for local managers......
Appendix 4 – Interview questions for top managers......
Charts
Chart no.1: Summary of the characteristics in the decentralisation process model………….51
Chart no. 2: Summary of the results from our study, effects of a decentralised organisation..54
Figures
Figure no.1: Eneroth’s conceptual-inductive model………………………………………….16
1 Introduction
Organisations in the nineties are undergoing constant and rapid change. Fundamental to successful change processes is the establishment of a point of origin, to have a sound knowledge and a healthy understanding of the current state of affairs in an organisation before moving on.
L M Ericsson Data AB (EDT) is a subsidiary of Ericsson Corporation, which is currently undergoingwhat has been described as a huge transformation. From having been a company that delivered equipment to telecommunication-operators, Ericsson is now to become a well-known brand all the way to the end user. EDT’s role is to serve as an antenna and a vanguard - a cyber ”greenhouse,” in the words of Göran Wågström, CEO for EDT.
In their endeavour to meet the demands of the market, Business Support (B), together with EDT, implemented a reorganisation in July 1997. B chose a radical decentralisation and a flat structure consisting of General Manager, two deputy- general managers, 30 local operative sections and a small group of service units. In September 1998, a top management group was also formed though its life was particularly short. The entire Ericsson Corporation underwent a major reorganisation in November, 1998 and B-division in its existing form was dissolved.
It is generally believed that decentralisation can lead to greater efficiency and profitability although no concrete evidence has as yet been produced of a cause and effect relationship. Nevertheless, the trend towards decentralisation has continued in the nineties.
Organisational life is complex. It does not only reside within the visible and tangible components of an organisation; nor can those components be viewed as separate entities. To gain a deeper understanding of an organisation, it is often necessary to examine the interaction of organisational components and the effects of that interaction. Concrete parameters such as structure and strategy give rise to a multitude of processes, mechanisms and relationships within their boundaries. Organisations are malleable entities. In Schmidt’s[1] words, ”…we must improve our insight into the plasticity of societies which are non-hierarchical, and as such, are highly artificial, man-made systems.”
Our intention is to form an understanding of the organisational life of B-division in its decentralised form. The transitional phase from B-division into a new organisation has already begun - what can be learnt from the experience gained in B-division?
1.1Discussion of the problem
We intend studying the decentralisation process which Business Support has undergone and examine how it has affected the division. We will also consider the advantages and disadvantages, which can be identified in the existing structure. We will then analyse and interpret our findings.
According to Barbara Senior[2], a well-structured organisation (i.e. one which functions effectively and efficiently) can be compared to a healthy human being. She makes a comparison in the following terms:
The analogy (here) is that the brain is the organisation’s strategy, the skeleton the structure, the blood supply the financial resources, the nervous system and the muscles, the people and the technology and information systems…All components are required to ensure a fully operating, effective organism.
After the reorganisation of B-division in July 1997, several problems arose. Turnover of local managers was as high as 30%; two deputy general managers left the division. Nevertheless, a marked increase in profitability was achieved. In an attempt to deal with the problems, as top management experienced them, a new management group was formed in September -98. It consisted of the following members: general manager, 3 deputy general managers, heads of Human Resources, Finance, Marketing Development and Operational Development. Not all positions were filled before the new reorganisation took place in November -98.
One of the major aims of the new management group was to provide local managers with contact and coaching. The previous deputies had not been able to meet the needs of all 30 sections. The General Manager also felt uncertain as to the direction the sections were taking - were they moving in the same direction or towards quite different goals? In some respects, local management and top management had become isolated from one another.
We have therefore chosen to analyse the essential components in B-division and to study how these have been influenced by decentralisation. We will investigate how local management interpret the current structure and their roles; what they see as lacking in the organisation; what the concrete effects have been in terms of personnel, market and financial parameters. We will investigate the expectations that local management has formed of top management in the course of the year and a half that B has existed. We will also investigate how top management defines their individual roles and the role of the top management group in terms of leadership and strategy. In short, our intention is to examine the organisation and its state of health.
1.2Definition of the problem
We have defined our problem in the following way:
1. How do local management experience [EU1][EU2]the effects[3] of the decentralised organisation?
2. How do top management experience the effects[4] of the decentralised organisation?
3. How can the existing decentralised organisation be built on; in what ways can the existing organisation be complemented?
1.3Aim of the study
The aim of the study is to investigate the problems and possibilities of the decentralisation process and its effects on management in Business Support. In order to achieve our purpose we will examine the following:
- the positive and negative effects[5] of decentralisation
- changes in the roles of local managers and top management, focusing on leadership and strategy creation
- the need for managers to develop new skills for their roles in the decentralised organisation
1.4Limitations
We have chosen to study Business Support division, one of the four divisions created in EDT in a reorganisation in July 1997. Of the four divisions, B underwent the most far-reaching decentralisation. It was therefore a logical choice for our study.
We have interviewed local managers and members of top management for B-division, including one former deputy general manager. Consultants, champions and other employees within B have not been included in our study.
B-division existed for a period of approximately one and a half years, from July 1997 until November 1998. This constitutes an obvious limitation on our study, also.
1.5Outline
In our introductory chapter we have presented a short background to our study. We have also formulated the problem and the purpose of the study. Chapter two offers a description of B-division’s organisation including an organisation chart. A short background to B’s decentralisation is given followed by a presentation of the organisation in terms of the decentralisation process model.
In chapter three we review the results of our interviews. Firstly, we present the positive and negative effects of decentralisation from the local management perspective and then from top management perspective. Similarly, in chapter four, views of management roles and skills are presented from a local and top management perspective.
In chapter five we analyse and discuss the information presented in chapters three and four, relating our findings to existing theory.
Chapter six contains the essence of our findings - a brief summary of the conclusions we drew in the previous chapter and related recommendations we would like to make concerning the organisation.
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A decentralised organisation – Business Support, L M Ericsson Data AB
2Methodology and scientific assumptions
Science can be defined the following way: “Science is a way of looking at things; a way in which you are always prepared to creatively and critically reconsider opinions and methods that seem truthful today.”[6] Scientific research concentrates on making theoretical contributions by applying scientific methods.[7] Before presenting our approach to the study of decentralisation in Business Support, we have summarised our frames of reference. We include our accumulated experiences, which we consider influence our choice of method. Even our perception of reality affects the way we view knowledge or problems.
2.1Methodology – Pre-understanding of the problem
In our frame of reference is included organisation theory in the form of courses at Stockholm and other universities. There are also our norms, prejudices, modes of action and values that are reflected in our essay – in our attempts to define our problem and in our selection of relevant objects of study. Our essay reflects our view of organisations and the way they function.
Henrik has worked in the finance department at Securitas Bevakning AB, and has experience of employees’ views of different organisational changes. After studying organisational behaviour at an advanced level, in Canada, he has gained a broader perspective of American, Canadian and international companies’ ways of working with organisational problems.
Chanel has worked in both private and public companies, large and small, in several countries. In her current work, she has regular contact with managers from a number of major Swedish companies, including business partners of Ericsson.
2.2 Scientific assumptions
We have defined science as a way of looking at things; a willingness to consider creatively and critically, today’s truths. Science can also be interpreted as the process through which knowledge is created and the state of greater knowledge to which the process leads.[8] An express insistence that science also include method has arisen in the course of the development of science. As a consequence, a new paradigm was introduced. Habermas[9] has distinguished three main disciplines in science: the natural sciences, hermeneutics and the critical sciences. The natural sciences are based on a technical, scientific interest and primarily produce knowledge in the form of information. The hermeneutic sciences seek to advance understanding between human beings. Intuition, insight, a striving for new knowledge, the relationship between the parts and the whole in the study-object, and foremost interpretation and understanding of texts and existential situations – these qualities characterise hermeneutics.[10] The emphasis in hermeneutics does not, however prescribe that human beings be liberated through their newly achieved understanding. Critical science, whose interest in knowledge is related to the emancipation of the individual or of a group in society, does. The choice of a hermeneutic approach to our study of decentralisation in Business Support was made on the basis of the kind of knowledge we were seeking.
We are looking to advance our understanding of a process and its effects on the members of an organisation. Our intention is to avoid viewing B foremost as a structure but rather to examine underlying processes and mechanisms of decentralisation. We are also interested in the interaction of different components in the organisation. Our interviews with managers in B have provided us with information; we are aware that non-information – what has not been said - is also significant. But it is in our interpretation of this data that we can hope to advance our understanding of the functioning of the division. It is therefore relevant to discuss what we mean by interpretation, and its application, in a hermeneutic sense.
2.2.1Hermeneutics
Hermeneutics has its roots in the Renaissance in two, parallel but occasionally overlapping branches of thought – the analysis of the Protestant bible and the humanistic study of antiquity’s classics. The interpretation of texts, exegesis, can therefore be said to be the origin of hermeneutics. The concept of interpretation comprises both practical and philosophical dimensions.[11]
To interpret is to decipher signs. It is also to indicate the meaning of something when we do not immediately understand the reality we are a part of; when our pre-understanding is insufficient. The meaning of a phenomenon does not exist as something fixed. Therefore we interpret. Interpretation is a subjective act in which we always assume a particular position. This means that we can label reality as we please. It is preferable, of course that interpretation be based on knowledge and previous experience of the phenomenon we are interpreting. This leads to different views of reality.
Interpretation is an indivisible act that lays bare and appropriates the meaning of the subject of interpretation. We lay bare that which is realised, the old or the familiar. Appropriation is related to the future aspect of the interpretation. We decide on a phenomenon’s possibilities. This time-dimension in interpretation is particularly relevant to our study.
It is generally agreed that the concepts of interpretation and understanding are intertwined, though not the same. Of the two, understanding is the more fundamental. The object of interpretation is not usually the exact point of interpretation or a particular event but rather the traces of events.[12] Mostly those traces exist in the form of texts. It is then a matter of the interpreter, with the help of the text, deciphering thoughts, sentences, opinions, descriptions etc.
It should be recalled that hermeneutics does not promise the right interpretation or even a good interpretation. Hermeneutics offers, at best, a method of testing how an event can be interpreted. The goal of hermeneutic interpretation, according to Gadamer,[13] is to find the question to which a text or statement provides the answer. Understanding is the origin and the goal of hermeneutic interpretation. Pre-understanding is also a central concept in hermeneutics, not least in the hermeneutic circle.