Appex Corporation Understanding Organizational Structure Company Background Founded

Appex Corporation Understanding Organizational Structure

Company Background • Founded in May 1986 by merger of Appex Inc. and Lunayach Communication Consultants (LCC). • Headquartered in Waltham, Massachusetts. • Provided MIS and Inter Carrier network services to Cellular Telephone Companies. • Appex Employed 172 people of whom 153 were salaried and 19 were compensated on an hourly basis.

The Merger • Appex Inc. was founded in 1984 by Brian. E. Boyle. • It focused on MIS for the cellular industry and credit scoring system for financial services companies. • LCC specialized in the design and engineering of cellular radio networks • The consolidated company was named Appex Lunayach Systems Corporation Ltd. (ALS) • This company integrated LCC’s engineering expertise and Appex Inc’s business and systems expertise. • In May 1989 ALS changed its name to Appex Corporation.

Revenue in Million $ Year Amount in Million $ 1987 1. 0 1988 2. 3 1989 6. 8 1990 16. 6

Growth in No. of Employees Year End June 1988 Nov 1988 Aug 1989 Forecast Actual 1988 36 45 26 26 1989 55 75 79 103 1990 66 112 176 180 1991 72 130 265 - 1992 77 134 369 - 1993 83 145 480 - 1994 - 159 586 - 1995 - - 675 -

The US Cell Phone Industry • Began in 1982 with guidelines of Federal commission of communication. • Providing high quality mobile telephone service with vehicle installed or hand held device. • The Cellular services worked through MTSO ( Mobile Telephone Switching Office) • Roaming was also available at a higher mark up to regular per- minute rates. • The cellular telephone industry in the USA had grown from 92, 000 subscribers at the end of 1984 to 3. 5 million at the end of 1989. • Further Exponential growth was expected in the Cell Phone market. • International Markets were expected to expand greatly , particularly in Europe , Latin America and Asia.

Appex Products and Services • The service allowed the consumers to manage their customers in “home” and “roam” territories. • ICS ( Inter Carrier Service) primary service included : online national verification system , a national financial clearinghouse for settlement of roamer charges , a national location and call forwarding system for automatically locating roamers. • IS (Information Systems) included customer information , billing information , accounts receivable , credit and collection information. • IS contributed 40 % of the total company revenues.

Appex Market Reach • As of April 1990 , Appex had 75 customers. • The customers included the likes of Bellsouth , Cellular Communications Inc. And Southwestern Bell. • Contracts with customers were multi- market , multi – product, multi – year service agreements • The contracts ranged from $ 100, 000 to over $ 2 Million. • Appex served 250 markets in the United States and 34 markets in Canada. • The company marketed its services directly to cellular carriers primarily through trade and industry publications.

The Start Up Stage • The Key executives made all the decisions. • Job descriptions were non Existent. • Company’s ability to bring products to the market quickly and Boyle’s innovative technical solutions enabled the company to compete against established players. • The market growth was defining the growth of the Company. • Hiring of people was sporadic. • Appex was spending cash quickly and not monitoring its expenses.

About Shikhar Ghosh • • Ghosh was recruited in May 1988 by Appex. A graduate from Harvard Business School. Eight years of consulting experience in BCG. Ghosh was hired to bring in more control to the Company. At BCG Ghosh’s specialty was Organizational Structure. Ghosh was efficient at creating a rapid – response organization. Ghosh was eager to experiment with new ideas in Appex.

Appex Corporation in May 1988 • • • Appex was a relatively small company. The Company was Entrepreneurial in nature. It was technologically driven and loosely structured. It was losing cash rapidly. The Venture Capitalist’s were hoping that Ghosh will be able to turn it around.

Ghosh’s Realization • Appex was changing from “Entrepreneurial” to chaotic. • People arrived at work and would react to a crisis. • There was only – fire fighting and no development of an underlying planning structure. • It became difficult to accomplish basic tasks. • Customers were complaining for Non responsiveness. • The volumes of customers had increased. • Appex had to fall behind schedule and to miss crucial installation. • The company experienced failures in Product Development. • Flow of information was in jeopardy. • The project – orientation and structural looseness did not work. • Immediate and Long Term issues needed effective attention. • A structure was required.

Circular Structure • A circular structure were a series of concurrent circle expanding out from a middle circle. • The Innermost circle contained the Senior Executives. • The next circular layers out included the managers function and the employees in the functions. • In the environs around the circles were the “Customers”. • The intention was to create a non – hierarchical organization in which information flowed continuously and freely. • The information to flow freely within the organization. • The information to flow freely between the organization and its environment.

Circular Structure Customers Customer Service People Customers Customer Service Manager ( Beverly Watts) Sales People Sales Manager ( Denise Allen) CEO (Brian Boyle) COO (Shikhar Ghosh) Customers Engineering Manager ( Michael Perfit) Customers Operations Manager ( Bill Pistorino) Admin ( Mark Lohr) Admin People Engineering People Customers Operations People Customers

Failure of Circular Structure • The Employees could not relate to the structure for its unfamiliarity. • The new hires did not understand how to fit in the organization. • Employees expected to see hierarchical chart to get defined authority structure. • Employees did not know how the performance was evaluated. • Ghosh thought that Circular structure was creating an atmosphere where “Customers were thought to be enemies”. • Planning got affected due to Circular Structure. • Ghosh’s creative notions of network , non hierarchical, team oriented structures had blown out of the window.

Functional Structure • • • In Feb 1989, Functional Structure was introduced into Appex. Ghosh wanted the functional chart to look in a least hierarchical manner. Informal titles did not work well as people cared about titles a lot. Politics had crept in as desk locations became important. The team structure succeeded in focusing the company on completing the tasks. • The various functions that organization dispersed itself into were : a) Sales and Marketing b) Finance, Administration and Human Resources c) Operations d) Software Development and Services e) Engineering and Technology

Functional Structure SALES & MARKETING Paul Gudonis Information Systems Marketing , Billing Service, Network Product Management FINANCE , ADMIN & HUMAN RESOURCES Bob Lentz Finance/General Accounting , Facilities , Word Processing, Human Resource Administration OPERATIONS Ted Baker AB+ ISS, Computer Ops , AB+ Client Support, Technical Support , N/W Implementation etc. SOFTWARE DEVELOPMENT & SERVICES Jim Driscoll S/W Dev, Product Support Services , Client Support ENGINEERING & TECHNOLOGY Paul Senn Roaming America Dev, NPD , N/w Engg, S/W Dev CHIEF EXECUTIVE OFFICER Shikhar Ghosh

Functional Structure • • The heads of each team showed a natural tendency to create sub – functions. The Sales and Marketing function got subdivided into : a) Sales b) Marketing c) Product Management Each of these functions had a manger and then assistant managers Soon National Sales Managers and Regional Sales Manager were appointed. All these changes in Sales team occurred in 6 months of Functional structure establishment. After every three to four months the Organizational Chart grew vertically and horizontally. The Sales and Marketing Organizational structure was the classical example of the situation as described in the next slide.

Sales and Mktg. Organizational Structure – Aug 1989 Paul Gudonis Sales & Marketing Denise Allen V. . P Sales and A/C Management Tom Wetmore Director Information Systems Mktg. Bruce Linton National Sales Manager Kathy Adams Project Director International Greg Hillman Director Billing Service Kim Obremski 0 Mktg. Communication Manager National A/c Managers Responsible for all APEX accounts Pam Joy Team Leader Product Mgmt. Regional A/c Managers Responsible for all Regional Accounts Product Team Kieth Lietke Director N/W Serv. Mktg. Henry Kowalczyk Director Industry Marketing

Problems with the Functional Structure • The teams started to become polarized. • Operations and Engineering started to define distinctive structures and limiting the roles which made Appex spend more money on system development and operations. • The role of “personalities” became more pronounced. • Standards were being set by individuals than by company policy. • The source of authority became functional and not managerial expertise as head of engineering was the best engineer. • The people hired from outside who had managerial expertise were not respected enough. • Managerial competence was never valued traditionally in the organization. • Ghosh found that measuring Managerial Competence was difficult.

Problems of Expansion • Ghosh needed people with broader functional expertise. • The employees with skills in a smaller company did not fit a larger organization. • Ghosh adapted to the expanding demands by reshuffling people, hiring new people , and promoting new people. • The Company in general had to learn to value new types of aptitudes and to adjust the changes.

Introduction of Product Team Structure • Paul Gudonis suggested the importance of Product Teams. • Each product team to be comprised of Product Team Manager and representatives from the functional areas. • The Product Team wrote the business plans and integrate the functions represented in the Product Teams. • An Example of the structure and the functions of the Product Team of “Roam America” is displayed on the NEXT SLIDE.

Example of Product Team Structure for “Roam America” Product Manager “Roam America” Development Representative Operations Representative Financial Representative • 12 month Business Plan • Master Project Schedule • Integrate The function • Product’s Functional Speculations • Marketing Details Cust. Service Representative Sales Representative Development Speculation Operations Plan Financial Forecasts Cust Service Plan Sales Plan Time Table Procedures Capacity Planning Staffing Sales Forecast Resources Staffing Testing Operational Reporting P&L Reporting Vs Plan Contract Administration Procedures Sales Training CSR’s Proposal Sample Systems Requirement Capacity Planning Training Customers

Problems with Multi-Functional Product Teams • Who had the right to decide a product’s feature? • Should Sales people be allowed to decide discounts? • Should the Product Manager be allowed to tell Engineering what its priorities should be? • The Product Teams became larger and the question of authority became more troublesome. • There were constant battles among the functional representatives in the product teams. • Each Product Team wanted the best of functional team on its team. • The Product Team also generated more resource allocation problems.

Product Team / Business Team Structure • Ghosh created Business Teams in response to authority and resource allocation problems. • Business Teams acted as intermediaries between the Product Teams and the Corporate Teams and had the authority to make decisions. • The Business team took decisions on Resource Allocation , regarding the products. • The Business Team included representatives from Senior Management. • The Product teams that operated on the same Network and shared the same customer base reported to one business team. • The Organizational Structure looked as per the diagram in the following slide.

Product Team / Business Team Structure General Management Team S. Ghosh B. Lentz P. Gludonis T. Baker Business Teams Inter Carrier Services Paul Senn , Denise Allen Pam Joy Information Services Art Zamkoff, Tom Wetmore, Jim Driscoll, Jose Quintana Pam Joy New Products / Markets • Overall Biz Plan and Strategy • Functional Strength • Capital / Resource Allocation • Investor/ Board Issues Mark Lohr , Denise Allen Paul Senn , Jim Driscoll • Product Line Strategy • Annual Operating Plan • Investment Priorities • Actual Vs Planned Results • Key Customer Relationships Product Teams PRV/IS 41 ISS , Quick Collect, Roaming America CMIS , AB+ Roamer Rating , National Accounts , N/w Mgmt, International , JV’s • Functional Coordination • Execution of Plans • Product Development

Shortcomings of Product Team/ Business Team Structure • This structure increased the number of people who were counting and planning rather than tackling customer issues etc. • Layers of Management increased with this structure as well as number of meetings. • The training costs went high as number of new employees increased. • The Customer Focus diminished. • Employees became less interested in meeting the company wide financial goals. • Another major Structural Change was imminent.

Divisional Structure • In August 1990 , Ghosh implemented a Divisional Structure. • He established two broad divisions : Inter Carrier Services (ICS) and Cellular Management information Systems(IS). • A third division of Operations was created to service these two main divisions. • Each division had one head and all the heads reported to Ghosh. • The fourth division of Finance and Administration and director of HR also reported to Ghosh. • This structure improved accountability , planning and budgeting. • Employees focused on meeting financial targets. • The diagram of the Divisional Structure is on the following slide.

Divisional Structure Chief Executive Officer Shikhar Ghosh Inter Carrier Service (ICS) Division Information Systems (IS) Division Operations Finance & HR Mark Lohr Catherine Latham Paul Gudonis Bob Lentz Ted Baker P&L Responsibility for ICS Business P&L Responsibility for IS Business ICS Marketing IS Marketing Customer Services Data Center and Network Services for Businesses Administrative Support

Challenges of the Divisional Structure • Resource Allocation still existed as the problem in the Divisional Structure. • Divisions wanted the control over all resources and not want to share resources. • The divisions were not cooperating within each other. • The divisions began to act like small companies. • The divisions began to “play games” with their financial statements to meet financial objectives. • Accurate sense of financial status of the company was getting difficult to ascertain.

Ghosh’s Structural Philosophy • Ghosh believed that Appex’s structure should be altered regularly , app six months. • He believed if company had grown 50% , it is time to change. • Ghosh was surprised at the behavioral changes occur in reaction to structural changes. • Ted Baker suggested to disband Operations division in the two major divisions of ICS and IS. • Ghosh believed that the anxiety created by structural changes was necessary and warned the people “Whatever you are sure of will Change” • Ghosh believed changing the structure involved more than cosmetic changes to the organizational structure.

Post EDS Acquisition • EDS (Electronic Data Systems) a $6 billion company took over Appex. • Appex had to follow EDS’s requirements , such as financial planning systems , resource allocations and administrative procedures. • Appex’s challenge was to work out its own divisional structure. • The structural change in the context of its role as a division of a larger bureaucratic organization. • Ghosh’s role changed and he spend his time dealing with EDS and planning the strategic direction of Appex within EDS.