Case 15 Rondell Data Corporation Teaching Notes Copyright Gareth R.

. Jones, 1994 Synopsis The Rondell Data Corporation is an innovative electronic products company that manufacturers two major lines of electronic products, broadcast equipment and data transmission equipment. The company has grown from 100 employees in 1947 to over 800 employees in 1978. As it has grown and increased the number of new products developed and manufactured, it is having problems coordinating activities. The company structure is not sufficient to manage the breadth and depth of activities. As functions have grown and differentiated, each has developed subunit orientations. As different functions pursue their own goals and fight for their own interests, the level of conflict in the organization increases, and the engineering department, finds itself in the crossfire. Engineering handles all conflicting demands and interests of the other functions and integrates activities, but without power. Power results from informal working relationships built up over time. The president, Bill Hunt, attributes the lack of cooperation to problems with the head of engineering, not to the failure of organizational structure. The issue is that the company needs a new structure to coordinate its activities and reduce conflict. Teaching Objectives 1. To examine how conflict can emerge between functions because of poor organizational design. 2. To analyze the different sources of conflict in an organization. 3. To analyze how different kinds of structure can be used to reduce conflict and speed product development. This case is best used after the lecture on conflict, so students can pick out the sources of organizational conflict. It shows how the interests of functions differ and defines differentiation. Discussion can fill an entire class period if attention is given to redesigning the structure. Students sympathize with Frank Forbus, Rondells last director of engineering (Rondell has had three directors in four years), who is fired before Christmas because the CEO blames him and not Rondells structure for not resolving the conflict. Pop Quiz Questions 1.What are Rondells main product lines? Answer: Broadcast and data transmission equipment 2.What happened to Frank Forbus at the end? Answer: He was fired

Issues and Discussion Questions 1.What are the goals and subunit orientations of the different functions in Rondell? The five principal functions in Rondell that must work together to produce new products are production, sales, research, engineering services (part of engineering), and the control department (containing accounting, purchasing, and materials control). Each function contributes something unique and has a distinct subunit orientation. a. Production minimizes manufacturing costs. The goal is to obtain products from the engineering design department for easy and inexpensive manufacturing. The manager in charge of production, Dave Schwab, is concerned about protecting his turf, and resists attempts by other departments to interfere with manufacturing. Productions orientation is short-term technical efficiency. b. Sales goal is to supply customers with new and innovative products to retain their business. It also wants new products on time without shipping delays. Sales has a history of optimism about delivering new products quickly, and that optimism pressures other functions. Sales is to supply information to R&D for use in product development. Its orientation is toward meeting the changing needs of Rondells customersit is focused on the environment. c. R&Ds goal is to find innovative ways of improving existing products and creating new products. Some R&D functions try to improve the manufacturing process to reduce costs or increase reliability, but R&D is purely new product oriented. R&D causes problems by introducing new innovations into the design process at an advanced stage. Its orientation is toward long-run product development. d. Engineering services job is to coordinate and integrate activities. Engineering services takes the inputs from sales and R&Dnew customer requests or improved component designsand builds the final product design with production specifications. It sends these plans to production, which designs the assembly process to produce inexpensively and efficiently. Its orientation is to improve the effectiveness of internal systems. e. The control department controls purchasing and materials control. It is a service department to the manufacturing and engineering services and has an internal systems orientation.

2.What are the sources of conflict in Rondell and why is the conflict among functions a major problem? Although engineering services is responsible for product development, other functions, like R&D and sales, influence the new product development process. This causes conflict. Sales can set ambitious targets for introducing new products over engineerings objections. Both sales and R&D can intervene late in the design process and make changes, creating problems for engineering services. The production manager constantly returns the product design plans sent to manufacturing because engineers have not worked out the bugs. More redesign becomes

necessary, and manufacturing is slowed down, causing sales problems as product introductions are delayed. Manufacturing itself contributes, routinely sending flawed plans back to engineering, though many errors could be corrected during the preproduction setup. Each function pursues its goals at the expense of the others. Growing complexity of the companys business and the wide range of products it produces resulted in engineering services as the linchpin of the product development because it coordinates other functions. Yet, this function is considered crucial by top management, which always sides with R&D or sales against engineering. R&D is considered the most important function because the company has been driven by technical developments that result in new products. Just as in the Ramrod Stockwell case, there is a power imbalance, and different functions compete for power and control of resources. It is helpful to use the material on conflict in Chapter 14 and discuss the five main sources of conflict: a. Interdependence. As Rondell has grown, each function pursues its own interests at the expense of the others. Each subunits desire for autonomy conflicts with the organizations desire for coordination, and Rondells structure provides no coordination and integration necessary to pull activities together. b. Heterogeneous goals and priorities. Each functions different goal and subunit orientation causes it to view problems differently. Subunits have become competitive as the attempts of one to achieve goals thwart the attempts of another. c. Bureaucratic factors. Rondells structure has evolved historically and status inconsistencies have developed among different groups and managersbetween the heads of R&D and engineering. Although the head of R&D, Doc Reeves, formally reports to Frank Forbus, the director of engineering, informally Reeves has more status and power. The manufacturing manager is concerned about his lack of a degree, which he believes lowers his status, so he deliberately causes problems for other managers to increase his power and status. d. Incompatible performance criteria. Each function is evaluated according to its goals, so when slow engineering design raises manufacturing costs or results in lost customers or penalty clauses in customer contracts, functions come into conflict. e. Competition for scarce resources. Some functions, such as R&D, can command whatever resources they want. Engineering services is running very lean, its engineers stretched thin, and no resources for an effective preproduction unit. Given that profits have fallen, competition for resources might increase, which will worsen the problems. It is clear that the company needs to take action. Because structure is the source of the problem, the company must understand how structure works and see how it has contributed to problems.

3.What kinds of organizational design choices and structure does Rondell use to control its activities? How do these contribute to the problems it is experiencing? Rondell uses a functional structure to coordinate its activities. It is a relatively small company, with only 800 employees, and it appears to have about five levels in the hierarchy, counting firstline supervisor and shop floor employees. The arrangement of functions has grown rather haphazardly over time. The rationale for having both R&D and engineering services report to the director of engineering is historical precedent, as the head of R&D also has a dotted-line relationship to the president. Similarly, the rationale for having purchasing and materials control in the control department while quality control is in engineering services developed as a temporary wartime need. There is no separate production control department to coordinate manufacturing, engineering services, and sales. Manufacturing seems to do its own scheduling, and preproduction engineering is weak and underdeveloped. Rondells pattern of differentiation contributes to its problems because task and role relationships among functions are not well defined. There are few formal integrating mechanisms, which promotes conflict. Going through Galbraiths list of integrating mechanisms shows few formal links between functions such as task forces and teams. Most cross-functional contact is high up in the organization between the heads of the functions, not between lower level personnel. The single high-level executive committee was the brainchild of the controller and a relatively recent development. It was not working well because the president used it to pass on routine information, not for integrating among the functions. Both differentiation and integration in Rondell promote conflict among functions because the structure is not complex enough to coordinate the growing need for cross-functional communication. Decision-making is centralized, and Hunt is involved in all important decisions between himself and key functional managers. This centralized style prevents lower-level managers from solving their own problems through mutual adjustment. Thus, Rondell is not making the best use of its managers functional skills and abilities. Not much use is made of formalization or standardization except inside manufacturing, where Schwab has developed a very mechanistic structure. In building this barrier between manufacturing and the other functions, Schwab, the production manager, has caused major coordination and communication problems that foster conflict. Rondell uses the informal more than the formal organization to coordinate activities, and this causes conflict. The power of the key managers results from their historical contribution to the company. Even though the organizational chart shows that Doc Reeves reports to Frank Forbus, Reeves has more power and has the ear of the president. Forbus should have considerable formal power, but because of the informal decision-making, he is powerless to resist sales, R&D, or manufacturing when they cause problems at any stage of the design processhence the conflict problem. Many of Rondells problems come from the design choices by top managers and especially by Hunt, who has paid little attention to design.

4.How might you change Rondells structure to reduce conflict and speed product development? There are many ways of changing structure and redefining task and role relationships, and the pros and cons of each of these can be discussed. Rondell could increase integration among functions. It could create product development committees from different functions that discuss product development and solve problems. Higher up the organization, the executive committee could function more effectively with an agenda and by holding the functions accountable for meeting goals. If integration increases, this might coordinate what is still a relatively small organization. This solution would require Hunt to change his management style. He must decentralize authority to functional level managers and avoid siding with one function over another. Given the history of the company, this is unlikely. A more radical solution might be necessary, involving a change in the level of differentiation to change the power of different functions and realign them. Engineering services has become the most central function. How can its power be increased? How can a new power balance be achieved? The company could use cross-functional teams and create a product team, responsible for a new product from development to manufacturing. This would be a radical change. R&D would be split off from engineering design and kept centralized, reporting directly to the president. Members of the R&D department might be assigned responsibility for liaison with each team and for transferring knowledge to each team. An engineering services manager who is responsible for coordinating teams and other functions would head each cross-functional team. Each team would be responsible for new product development activities, including preproduction planning, and would assume many responsibilities of the manufacturing department, which would become a resource. Schwab would supervise the assembly of the final product and not cause problems. Team leaders would report to the executive vice president. In this arrangement, the power of engineering services is increased because its managers lead the product teams, and the power of the other functions is reduced as their members report to the team leaders. The arrangement is flexible because as each product proceeds to the routine manufacturing stage, members can be reassigned to new teams. Such a structure would break down the functional boundaries that cause Rondells present problems, reduce conflict, and speed product development. A third option would be to keep the functional structure and to formalize the product development process by creating written guidelines that govern how a new product passes from stage to stage with minimal intervention from other functions. Here, the goal would be to increase the level of standardization to control cross-functional activities.