McDonald’s, the company that made the Big Mac a household word, has been enormously successful. For forty years after its founding in the 1950s, the company was an unstoppable growth engine that came to dominate the worldwide fast-food business. McDonald’s has a relatively small staff at its world headquarters near Chicago; the vast majority of its employees are salted across the world in more than 31,000 local outlets. But despite its size and geographic reach, McDonald’s is a highly centralized, tightly controlled organization. Most major decisions are made at the top.
Managers and employees of McDonald’s restaurants have limited discretion about how to do their jobs. Their work is controlled by technology; machines time french fries and measure soft drinks. The parent company uses powerful systems like its “Global Restaurant Operations Improvement Process” to ensure that customers get what they expect and a Big Mac tastes about the same whether purchased in New York, Beijing, or Moscow. Guaranteed standard quality inevitably limits the discretion of people who own and work in individual outlets. Cooks are not expected to develop creative new versions of the Big Mac or Quarter Pounder. Creative departures from standard product lines are neither encouraged nor tolerated on a day-to-day basis, though the company has adapted to growth and globalization by increasing its receptivity to new ideas from the field—the Egg McMuffin was created by a local franchisee, and burgers-on-wheels home delivery was pioneered in traffic-choked cities like Cairo and Taipei (Arndt, 2007).
All that structure might sound oppressive, but one of the major McDonald’s miscues in the 1990s resulted from trying to loosen up. Responding to pressure from some frustrated franchisees, McDonald’s in 1993 stopped sending out inspectors to grade restaurants on service, food, and ambience. When left to police themselves, some restaurants slipped badly. Customers noticed, and the company’s image sagged. Ten years later, a new CEO brought the inspectors back to correct lagging standards (David, 2003).
Harvard University is also highly successful. Like McDonald’s, it has a very small administrative group at the top, but in most other respects the two organizations diverge. Even though Harvard is more geographically concentrated than McDonald’s, it is significantly more decentralized. Nearly all of Harvard’s activities occur within a few square miles of Boston and Cambridge, Massachusetts. Most employees are housed in the university’s several schools: Harvard College (the undergraduate school), the graduate faculty of arts and sciences, and various professional schools. Each school has its own dean and its own endowment and, in accordance with Harvard’s philosophy of “every tub on its own bottom,” largely controls its own destiny. Schools have fiscal autonomy, and individual professors have enormous discretion. They have substantial control over what courses they teach, what research they do, and which university activities they pursue, if any. Faculty meetings are typically sparsely attended. If a dean or a department head wants a faculty member to chair a committee or offer a new course, the request is more often a humble entreaty than an authoritative command.
The contrast between McDonald’s and Harvard is particularly strong at the level of service delivery. No one expects individual personality to influence the quality of McDonald’s hamburgers. But everyone expects each course at Harvard to be the unique creation of an individual professor. Two schools might offer courses with the same title but different content and widely divergent teaching styles. Efforts to develop standardized core curricula founder on the autonomy of individual professors.
Why do McDonald’s and Harvard have such radically different structures? Is one more effective than the other? Or has each evolved to fit its unique circumstances? In fact, there is no such thing as an ideal structure. Every organization needs to respond to a universal set of internal and external parameters (outlined in Exhibit 3.2). These parameters include the organization’s size, age, core process, environment, strategy and goals, information technology, and workforce characteristics. All these characteristics combine to dictate the optimal social architecture.
Size and Age
Size and age affect structural shape and character. Problems crop up if growth (or downsizing) is not matched with fine-tuning of roles and relationships. A small, entrepreneurial organization typically has very simple, informal architecture. Growth spawns formality and complexity (Greiner, 1972; Quinn and Cameron, 1983). If carried too far, this leads to the suffocating bureaucratic rigidity often seen in large, mature enterprises.
Exhibit 3.2. Structural Imperatives.
In the beginning, McDonald’s was not the tightly controlled company it is today. It began as a single hamburger stand in San Bernardino, California, owned and managed by the McDonald brothers. They virtually invented the concept of fast food and their stand was phenomenally successful. The two tried to expand by selling franchise rights, with little success. They were making more than enough money, disliked travel, and had no heirs. If they were richer, said one brother, “we’d be leaving it to a church or something, and we didn’t go to church” (Love, 1986, p. 23).
The concept took off when Ray Kroc arrived on the scene. He had achieved modest success selling milk shake machines to restaurants. When many of his customers began to ask for the McDonald’s milk shake mixer, he decided to visit the brothers. Seeing the original stand, Kroc realized the potential: “Unlike the homebound McDonalds, Kroc had traveled extensively, and he could envision hundreds of large and small markets where a McDonald’s could be located. He understood the existing food services businesses, and understood how a McDonald’s unit could be a formidable competitor” (Love, 1986, pp. 39–40). Kroc persuaded the McDonald brothers to let him take over the franchising effort. The rest is history.
Structure is ideally built around an organization’s basic method of transforming raw materials into finished products. Every organization has a core technology that includes at least three elements: raw materials, activities that turn inputs into outputs, and underlying beliefs about the links among inputs, activities, and outcomes (Dornbusch and Scott, 1975).
Core technologies vary in clarity, predictability, and effectiveness. Assembling a Big Mac is relatively routine and programmed. The task is clear, most potential problems are known in advance, and the probability of success is high. Its relatively simple core technology allows McDonald’s to rely mostly on vertical coordination.
In contrast, Harvard’s two core processes—research and teaching—are far more complex and less predictable. Teaching objectives are knotty and amorphous. Unlike hamburger buns, students are active agents. Which teaching strategies best yield desired results is more a matter of faith than of fact. Even if students could be molded predictably, mystery surrounds the knowledge and skills they will need to succeed in life. This uncertain technology, greatly dependent on the skills and knowledge of highly educated professionals, is a key source of Harvard’s loosely coordinated structure.
Core technologies often evolve, and significant technical innovation calls for corresponding structural alterations (Barley, 1990). In recent decades, struggles to integrate new technologies have become a fateful reality for many firms (Henderson and Clark, 1990). Existing arrangements often get in the way. Companies are tempted to mold innovative technologies to fit their existing operations. A change from film to digital photography, slide rules to calculators, or “snail mail” to e-mail gives an advantage to start-ups less committed to the old ways. Christensen (1997) found this in his study of the disk drive industry from 1975 to 1994, for example. Innovation in established firms was often blocked not by technical challenges but by marketers who argued, “Our customers don’t want it.”
Organizations try to insulate internal operations from outside pressures, but changing environments are a potent force. Organizations depend on the environment to provide raw materials and consume products and services. Stable, mature businesses—such as railroads, furniture manufacturers, and elementary schools—deal with slow-changing and predictable external pressures. As a result, they rely on simpler forms of organizing. Organizations with rapidly changing technologies or markets—such as high-technology electronics firms—confront a much higher degree of uncertainty. New products may be obsolete in six months or less. Uncertainty and turbulence press for new roles and more elaborate, flexible approaches to vertical and lateral coordination.
Some organizations are more susceptible to outside influences than others. Public schools, for example, are highly vulnerable to external pressures because they have so little capacity to claim the resources they need or to shape the results they are supposed to produce. In contrast, an institution like Harvard is insulated from such intrusions by its size, elite status, and large endowment. The university can therefore afford to offer low teaching loads, generous salaries, and substantial autonomy to its faculty. A Harvard diploma is taken as sufficient evidence that instruction is having its desired effect.