Coping with Organizational Complexity
When a firm purchases only one raw
material, produces one product, has a simple organization design, and enjoys constant
demand for its product, its managers can maintain control with a very basic and simple
system. But a business that produces many products from myriad raw materials and has
a large market area, a complicated organization design, and many competitors needs a
sophisticated system to maintain adequate control. When large firms merge, the short-
term results are often disappointing. The typical reason for this is that the new enterprise
is so large and complex that the existing control systems are simply inadequate. When
United Airlines and Continental Airlines agreed to merge at the end of 2010, the two
firms faced myriad challenges in how to merge two complex flight operations centers,
their human resource practices, their frequent flyer programs, and so forth. As a result,
it took over two years for the merger to be completed, in large part due to the complex
nature of the two organizations and their industry. And when American Airlines agreed
to merge with US Airways in 2013, experts predicted a similar time frame for completing
the merger.
Minimizing Costs
When it is practiced effectively, control can also help reduce costs
and boost output. For example, Georgia-Pacific Corporation, a large wood products com-
pany, learned of a new technology that could be used to make thinner blades for its saws.
The firm’s control system was used to calculate the amount of wood that could be saved
from each cut made by the thinner blades relative to the costs used to replace the existing
blades. The results have been impressive—the wood that is saved by the new blades each
year fills 800 rail cars. As Georgia-Pacific discovered, effective control systems can elimi-
nate waste, lower labor costs, and improve output per unit of input. Starbucks recently
instructed its coffee shops to stop automatically brewing decaffeinated coffee after lunch.
Sales of decaf plummet after lunch, and Starbucks realized that baristas were simply pour-
ing most of it down the drain. Now, between noon and early evening, they brew decaf only
by the cup and only when a customer orders it.
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Similarly, many businesses are cutting
back on everything from health insurance coverage to overnight shipping to business
lunches for clients in their quest to lower costs.
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The “Tough Times, Tough Choices”
feature highlights how FedEx uses control as a central part of its business model.
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