When Alice Thornton took over as chief executive officer at Cosmo Plastics, the company was in trouble. Cosmo had started out as an innovative company, known for creating a new product just as the popularity of one of the industry’s old standbys was fading, i.e., replacing yo-yo’s with water guns. In two decades, it had become an established maker of plastics for the toy industry.

Cosmo had grown from a dozen employees to four hundred, and its rules had grown haphazardly with it. Thornton’s predecessor, Willard P. Blatz, had found the company’s procedures chaotic and had instituted a uniform set of rules for all employees. Since then, both research output and manufacturing productivity had steadily declined. When the company’s board of directors hired Thornton, they emphasized the need to evaluate and revise the company’s formal procedures in an attempt to reverse the trends.

First, Thornton studied the rules Blatz had implemented. She was impressed to find that the entire procedures manual was only twenty pages long. It began with the reasonable sentence “All employees of Cosmo Plastics shall be governed by the following . . .” Thornton had expected to find evidence that Blatz had been a tyrant who ran the company with an iron fist. But as she read through the manual, she found nothing to indicate this. In fact, some of the rules were rather flexible. Employees could punch in anytime between 8:00 and 10:00 a.m. and leave nine hours later, between 5:00 and 7:00 p.m. Managers were expected to keep monthly notes on the people working for them and make yearly recommendations to the human resources committee about raises, bonuses, promotions, and firings. Except for their one-hour lunch break, which they could take at any time, employees were expected to be in the building at all times.

Puzzled, Thornton went down to the lounge where the research and development people gathered. She was surprised to find a time clock on the wall. Curious, she fed a time card into it and was even more flabbergasted when the machine chattered noisily, then spit it out without registering the time. Apparently R&D was none too pleased with the time clock and had found a way to rig it. When Thornton looked up in astonishment, only two of the twelve employees who had been in the room were still there. They said the others had “punched back in” when they saw the boss coming.

Thornton asked the remaining pair to tell her what was wrong with company rules, and she got an earful. The researchers, mostly chemists and engineers with advanced graduate degrees resented punching a time clock and having their work evaluated once a month, when they could not reasonably be expected to come up with something new and worth writing about more than twice a year. Before the implementation of the new rules, they had often gotten inspiration from going down to the local dime store and picking up five dollars worth of cheap toys, but now they felt they could make such trips only on their own time. And when a researcher came up with an innovative idea, it often took months for the proposal to work its way up the company hierarchy to the attention of someone who could put it into production. In short, all these sharp minds felt shackled.

Concluding that maybe she had overlooked the rigidity of the rules, Thornton walked over to the manufacturing building to talk to the production supervisors. They responded to her questions with one word: anarchy. With employees drifting in between 8:00 and 10:00 and then starting to drift out again by 11:00 for lunch, the supervisors never knew if they had enough people to run a particular operation. Employee turnover was high, but not high enough in some cases; supervisors believed the rules prevented them from firing all but the most incompetent workers before the end of the yearly evaluation period. The rules were so “humane” that discipline was impossible to enforce.

By the time Alice Thornton got back to her office, she had a plan. The following week, she called in all the department managers and asked them to draft formal rules and procedures for their individual areas. She told them she did not intend to lose control of the company, but she wanted to see if they could improve productivity and morale by creating formal procedures for their individual departments.

Questions:

1) What type organizational design do you think is more effective and provide your justification in terms of the different organizational design options?

2) What type of organizational models is being adopted? Provide a detail explanation.

3) What type of factors or determinants should Alice Thornton consider before restructuring or installing formal procedures?