Chapter 11: Organizational Structure and Controls 349
customers and that those operating units within each segment
will have the flexibility they need to innovate in ways that will
create value for customers and, in turn, for the entire corporation.Sources: 2015, McDonald’s announces initial steps in turnaround plan including
worldwide business restructuring and financial updates, McDonald’s Home Page,
http://www.mcdonalds.com, May 4; 2015, McDonald’s challenges: Make it simpler, but
add choices, New York Times Online, http://www.nytimes.com, May 4; L. Baertlein, 2015,McDonald’s reset to change structure, cut costs, boost franchises, Reuters, http://www.
reuters.com, May 4; C. Choi, 2015, McDonald’s to simplify structure, focus on cus-
tomers, Spokesman, http://www.spokesman.com, May 5; A. Gasparro, 2015, McDonald’s
to speed refranchising, cut costs, Wall Street Journal Online, http://www.wsj.com, May 4;
A. Gasparro, 2015, McDonald’s new chief plots counter attack, Wall Street Journal
Online, http://www.wsj.com, Marcy 1; A. Gasparro, 2015, McDonald’s shareholder group
calls for changes to board of directors, Wall Street Journal Online, http://www.wsj.com,
February 13; R. Neate, 2015, McDonald’s plans huge shakeup as CEO admits: ‘Our
performance has been poor,’ The Guardian, http://www.theguardian.com, May 4.flexible organizational structure allows the firm to exploit current competitive advantages
while developing new advantages that can be used in the future.^19 Alternatively, an inef-
fective structure that is inflexible may drive productive employees away because of frus-
tration and an inability to create value while completing their work. Losing productive
employees can result in a loss of knowledge within a firm. This is an especially damaging
outcome when a departing employee, who may accept employment with a competitor,
possesses a significant amount of tacit knowledge.
Modifications to the firm’s current strategy or selection of a new strategy call for
changes to its organizational structure. However, research shows that once in place, orga-
nizational inertia often inhibits efforts to change structure, even when the firm’s perfor-
mance suggests that it is time to do so.^20 In his pioneering
work, Alfred Chandler found that organizations change
their structures when inefficiencies force them to do so.^21
Chandler’s contributions to our understanding of organiza-
tional structure and its relationship to strategies and perfor-
mance are significant. Indeed, some believe that Chandler’s
emphasis on “organizational structure so transformed the
field of business history that some call the period before
Chandler’s work was published ‘B.C.,’ meaning ‘before
Chandler.’” 22
Firms seem to prefer the structural status quo and its
familiar working relationships until their performance
declines to the point where change is absolutely necessary.^23
Moreover, top-level managers often hesitate to conclude
that the firm’s structure or its strategy are the problem
because doing so suggests that their previous choices were
not the best ones. Because of these inertial tendencies,
structural change is often induced instead by actions from
stakeholders (e.g., those from the capital market and cus-
tomers) who are no longer willing to tolerate the firm’s per-
formance. For example, this happened at large department
store operator J. C. Penney, as the former CEO, Myron
Ullman, replaced a relatively new CEO, Ron Johnson,
whose turnaround strategy failed.^24 Additionally, some
believe that Penney has yet to recover from the effects of
the decisions Johnson made during his short 18-month
tenure as the retailer’s CEO.^25 Evidence shows that appro-
priate timing of structural change happens when top-level
managers recognize that a current organizational structure
The New York times
Pictured here is Alfred Chandler, a scholar whose
work enhanced our understanding of organiza-
tional structure and strategy.