Centralizing Varsity Inc.

1. Centralizing Varsity Inc. Managing and Communicating Change BUS/OCOM 610 November 30, 2004

2. Agenda • Introduction • Define centralized and decentralized org structure • Advantages and disadvantages, strengths weakness • Change effects • Changing Varsity Inc.’s structure • Strategy for centralizing Varsity Inc • Mission/Values Analysis • Cost Analysis • Operations Factors • Phased implementation • Communications impact

3. Agenda • Managing resistance to change • Sources • Reactions • Group Dynamics • Managing impact of change on culture • Decision-making • Ethics and Corporate citizenship • Motivation • Marketing impact • Metrics & monitoring • Types of Metrics • Methods • Measurement issues • Conclusion & Q&A

4. Varsity Inc.

5. Decentralized Organizations • Features • Delegated authority • Broad decision-making scope • Advantages • Large companies with heterogeneous product lines, and diverse supply/raw material needs. • Increases delegation and managerial ability to handling larger workload • Improved customer service: Management resources closer to customers • Shorter decision-making timeframe • Promotes creativity

6. Decentralized Organizations • Disadvantages • Not a fit for small to medium-sized organizations • Loss of intra-departmental/intra-divisional coordination • Loss of economies of scale • Reliance on lower-level employee competence • Example: NUCOR Steel • 22 people at corporate headquarters • Purchasing decisions at plant level • Line workers freely suggest ideas for improvements and modifications to policies and practices

7. Centralized Organizations • Features • Authority concentrated with a few key managers • Chain of command decision-making • Strict adherence to policy • Advantages • Better fit for companies with homogenous product lines and less diverse supply/raw materials sources • Most experienced managers drive decision-making • Economies of scale/purchasing power

8. Centralized Organizations • Disadvantages • Increased manager workload • Discourages creativity • Dramatically longer decision-making timeframe • Slower customer service • Higher overhead • Example: SouthTrust/Wachovia • Large bureaucracies with many levels of management • Business areas (e.g. Underwriting) centralize rudimentary decision-making • Chain of command

9. Change Effects: Centralizing • Communication • Flow changes to top-down orientation • Reduces bottom-up feedback • Motivation • Decision-making power stripped from lower levels • Peak performance difficult to maintain or measure

10. Change Effects: Centralizing • Systems • Ensures uniformity of systems and levels of technology • Lowers costs • Simplifies knowledge transfer • Labor • Process orientation • Decision-making shift to management reduces need for independent, competent employees at lower levels • Customers/Marketing • Uniform image and message to customers across geographic areas • Reduced ability to develop relationships at point of contact

11. Changing Varsity Inc • From Decentralized to Centralized • Justifications • Economies of scale • Competition and market factors • Technology decisions

12. Strategy for Varsity Inc Change • Mission/Values analysis • Cost analysis • Operations Factors • Phased implementation • Internal communication • Marketing changes • Measurement / monitoring

13. Mission & Values Analysis • Mission Varsity recognizes that part of being a successful and well-respected company is being socially responsible. Varsity is committed to serve the communities where we do business, to provide our customers with innovative, high-quality widgets and service, and to protect the health of our workers and our environment. • Core values • Employees • Integrity • Innovation/quality • Environment, health and safety • Community

14. Cost/Benefits Analysis • Add up the value of benefits, subtract associated costs. • Benefits are received over time • Basic analysis considers only financial values • Sophisticated analysis considers financial values of intangible costs and benefits • Costs: training, lost sales (due to disruption), lost time for planning • Benefits: improved efficiency and customer service

15. Operations Factors • Human Resources • Health care providers • National vs local • Plant medical staff • Benefits • Global vs. national vs. local • Financial • Vacation/holidays • Job placement and training

16. Operations Factors (cont.) • Infrastructure • Systems Compatibility • Logistics • Shipping • Maintenance • In-house • Sub-contract • Suppliers • Materials • Tooling • Office Supplies

17. Operations Factors (cont.) • Operations • New Functions • Specialization • New lines • Old lines • Reassignments • People • Plant capacities • Restructuring divisions

18. Phased Implementation • Infrastructure • Supplier/Vendor relationships • Employee Issues • Communications • Benefits • Holidays • Small trial runs – closed cell processes • Build to large-scale implementation

19. Communications Impact Five Principles of Communication Strategy • Active Involvement of Senior Leaders • Communications development and deployment • Integrate basic elements of effective communications • Individual is the ultimate audience • Assure credibility

20. Shape the political dynamics Communications Strategies Articulate a compelling case for change Build cohesion through consistency Solidify support and build momentum Reinforce the perceived acceptance of change Communicating Change

21. Communicating Change • Motivate constructive behavior Communications Strategies • Use communication to help people understand • Design communications to build participation • Spotlight performance and behavior that meet the new requirements • Recognize success and celebrate milestones

22. Communicating Change • Manage the transition Communications Strategies • Describe a clear direction and transition process • Constantly update people on change that will directly affect them. • Keep lines of communication open during periods of instability • Actively seek feedback

23. Lewin’s Force Field Analysis Current State Desired State

24. Individual Sources of Resistance • Habit • Security • Economic • Fear of the Unknown • Social

25. Decision Making Structure • Centralized vs. Decentralized Organization

26. Centralized Hierarchy Decisions from Main Headquarters to field units Policies and Procedures Operations Manual Committees Bureaucracy/ Red tape Decentralized Flat organizational structure Autonomous operating units Guidelines Operating principles Decision making at local level Decision Making

27. Centralized Organization Manage Follow the rules and procedures Process environment Execute plans from main office Paperwork/ administrative tasks Decentralized Organization Lead Make business decisions Create work environment Middle/Lower Management Role

28. Pros Standardized processes Consistency Control Resources Cons Less local input Bureaucratic Operate within the “box” Reaction time for issues in gray areas Transition to Centralized

29. Ethics • Centralized Leadership and Communication Improves overall message • Defined Direction of Initiatives • Single Overriding Messages • Consistency • Human Resources • Motivational Initiatives

30. Corporate Citizenship • Better serve the community on a united and centralized Front. • Improve implementation of overall organizational mission and strategy • Higher level of control with public relations with regard to image and branding. • Consistency in corporate citizenship • Structure in various community contribution • Defined set of values shared throughout

31. Motivation • Professional development • Recognition • Quarterly/Annual public recognition • Compensation • Incentives • Non-monetary “perks” • Company-wide benefits

32. Marketing • Implications of change for marketing strategy • Customer relationship management • Vendor/supplier relationships • Advertising • Financial Relations • Public Relations/Public Affairs

33. Metrics & Monitoring • Types of Metrics • Operations • Productivity • Cost Reduction • Staff/Line Performance • Competencies • Satisfaction • Values orientation • Financial • Sales Volume • Return on Assets • Perception • Market Share • Image

34. Metrics & Monitoring (cont.) • Metrics Methods • Financial Analyses • Productivity • Cost Reduction • Sales • Surveys • Baseline internal • Baseline external • On-going

35. Metrics & Monitoring (cont.) • Measurement Frequency • Feedback • Adjustment to plan

36. Summary & Conclusions • Both centralized and decentralized structures have advantages and disadvantages. • Make a strategic decision to change based on analysis of mission, values, operations, human resources, and market factors. • Plan structural change in phases, with go/no-go decision points. • Communicate constantly and consistently, recognizing cultural and group-based limitations, obstacles and potential. • Monitor and modify plans according to results and feedback.

37. Questions & Answers

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