Summary
Appex corporation has spent the last 3 years developing and trying out new organizational
structures as it changes from a small organization of only 25 employees to a large one which
grows an estimated 50 percent every six months. T o do this they have recruited Shikhar Ghosh
to the position of COO with the promise of the CEO position in the future. Each of these
structures implemented by Ghosh has revealed strengths and weaknesses after they were
implemented and as 1991 approaches it is time for another change. The purpose of this paper
is to show that a move to a more bureaucratic system is needed more and more as the
company reaches larger sizes. When the company is later incorporated into a larger
organization this would also facilitate such a move by more easily integrating into the new
parent company’s existing bureaucracy.
The key problem facing Shikhar Ghosh upon arriving at Appex is the chaotic condition of the
company’s current structure. What was once a tight-knit group of employees is now a group of
people with no clear-cut job responsibilities or work ethic. He reports that “Everybody just did
what they felt like. For instance, customer service people were supposed to start at 8:00 AM.
They wouldn’t arrive until 10:00 AM, but they would work until 2:00 AM. Everybody did things
on their own time, and the attitude toward the customer was-“we’ll call you back.” (CoursePak)
The cellular industry was beginning to explode and Appex found themselves having to add
new employees at a rate of ten new employees per month. Ghosh restructured the company
about every six months each time that the company grew by fifty percent. He started by trying
a circular structure with the senior executives in the middle with each group of descending
importance on each outward concentric circle ending with the customer. He followed this with
a more hierarchical, functional structure with the intent of eventually breaking the system
down into something less formal. He formed teams based on function and them later added
teams based on products independent of the original teams.
By 1991 Appex was a rather large company which had expanded into a divisional structure
with each different division being responsible for their part of the business. One was
responsible for ICS (inter-carrier settlement services) and one was responsible for IS
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(Information Systems) with another (broader) division in charge of operations. Appex was in a
business that was very necessary to the cell phone industry but not one that you or I, the end
customer would hear about. At the time of this recommendation (1991) Appex was positioned
in such a way as to be a fairly strong company with little threat from competition and room to
grow. An analysis with Porter’s five forces reveals the following:

Threat of new entries: low –Appex is in a business that is very expensive to enter and
there is a limited amount of large cellular carriers to do business with.

Threat of substitutes: high –The service that Appex provides is one that could be
provided by other companies. The roam and billing services provided by Appex are
intangible and a well-equipped telecom company could provide these services in such a
way that customers would not be able to tell a difference.

Supplier Power: low –Appex deals in a business that does not require raw materials and
very little new equipment etc. For this reason suppliers have very little power over
Appex.

Buyer Power: high -Appex’s customers have a great deal of power over Appex as there
is a limited amount of them and they are all “high volume buyers.”

Degree of Rivalry: growing (medium) – Appex has been known to beat competitors to
the market with its new innovations in the past when it was a small company (an
example of this is the “ACT” system) but is not as quick to respond as a larger entity
giving other companies more of an opportunity to beat Appex to the market with new
ideas.
Stakeholders

Shikhar Ghosh

Appex Corporation (employees of)

Shareholders/Board of Directors

Customers (BellSouth etc.)
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Alternatives
1) Do nothing. Remain in a divisional structure. The divisional structure has presented some
advantages to Appex, for instance this structure improved accountability, budgeting, and
planning. It kept employees focused on financial targets and allowed for co-operation
between the divisions. This structure also brought with it some disadvantages that would
have to be addressed should Appex remain on this path. Some of the problems from the
attempt at a functional organization persisted and sharing the company’s resources (eg: a
database manager) caused antagonism between the divisions. Appex would likely have to
hire separate managers for each division which would raise costs. Smaller amounts of new
product ideas are generated under this system of management as there are high walls
between the divisions despite their co-operation.
2) Return to a team structure. The team structure could be used to attempt to re-create the
camaraderie and loyalty displayed by the small group of employees that were the driving
force behind Appex’s early success. Although the structure that the company began with
was almost non-existent the empowerment of the employees and sense of a team effort
produced excellent results. As the company grew this structure did not work and the team
structures that were tried were based around products or functionality. Combining these
ideas and creating teams based on interpersonal relationships (as well as job skills of
course) so that the teams feel that sense of loyalty and camaraderie again could spark new
product ideas along with other benefits. Some of these other benefits could be seen in
training new hires, if employees who are happy and proud of their work train new hires
placed on their team, these new hires may begin to feel as the older employees do and
become productive members of the group. As stated in Morgan’s Images of Organization,
“Individuals and groups tend to operate more efficiently when their needs are satisfied.”
(Morgan) Possible disadvantages could include a breakdown into the chaotic form the
company took at the time Ghosh took the helm. A clear command structure may also be
hard to implement in such a structure. While it is important to consider the employees
happiness I would not recommend this action as I believe too much emphasis is placed on
the employees and not enough on the company’s goals.
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3) Implement a matrix structure. Similar in some ways to the divisional structure described in
action one, a matrix structure can benefit from the functional divisions formed in the divisional
structure but also supplement these divisions with divisions based on products as well. Employees
are grouped by both function and product in a matrix and frequently teams of employees will be
assigned to a project to accomplish a specific goal. This type of structure can take advantage of the
best parts of divisional and team based structures. If Appex were to consider a matrix format I
would recommend a balanced/functional matrix. This form of a matrix structure is one in which a
project managers are assigned to oversee projects and these project managers must share power
with the functional managers who are the normal chain of command. One of the disadvantages of
this arrangement is the division of power between the managers but if Appex’s managers could
overcome the difficulty inherent in such a power sharing scheme then this could be a beneficial way
to structure the company.
4) A classical hierarchy. I believe that this time-tested structure is what Appex needs as it has
grown too large and complex to operate efficiently in any of the structures described above.
Although some consider this to be an impersonal form which would not allow for the
employees of Appex to operate in the unstructured way that they did at the beginning, the
simple fact of the matter is that the employees of Appex had already slipped out of that
productive mode long before Mr. Ghosh arrived on the scene. Although they began as a
cohesive group, that cohesiveness had become chaotic by 1988. The company is large and
getting larger. If it wants to achieve common goals then it needs to clearly set those goals
and communicate its wants to its employees so they can work towards these ultimate goals.
I think that at this point a top-down hierarchy with a clear chain of command is the only
way to go. This does not mean that Appex cannot use teams, they can still incorporate
teams into the structure so long as the team leaders know who to report to, when and why.
Advantages of the classic top-down hierarchy are the clear communication lines. This works
well in large organizations as every employee knows who to report to and what their job
description is. A hierarchy also allows the stakeholders and board of directors a clear view
of the company. It is hard to distinguish what is going on from outside the company when
the structure is comprised of many separate groups working on their own projects. A clear
CEO on down the line structure gives these outside participants someone to hold
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responsible directly and can communicate their wishes to this person who then sends the
appropriate instructions down the line. To take advantage of Appex’s good employee team
history it can still appoint teams of employees who have proven to work well as teams to
jobs that are appropriate for that format. As the company grows larger it would truly be
impossible to maintain the structure that worked in the beginning as much as some
employees might wish it could. The disadvantages of a hierarchy would be worth their price
if such a structure could succeed in keeping such a large, growing company together. This
classical structure is my recommendation for Appex in 1991.
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Bibliography
1: “case2-1: Appex Corporation” CIS 410-01 CoursePack. Author and original book title unknown.
2:Morgan, Gareth Images of Organization. SAGE publications, CA, 1986
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