Major Case Issues Addressed

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The major questions that are addressed using this technique are:

• Why did WorldCom, Inc., a seemingly successful company, fail?

• What were the underlying factors which contributed toward its failure?

• What are the corporate issues, business level issues, and functional level issues?

These questions are used to help define the issue of failure and range from very broad

terms to very specific.

Very Strong

Strong

Moderate

Weak

Very Weak

Type of Arrow Relationship

Table 2. Relationship indicators for causal mapping

Issues of Information Dependency

We need to look at this issue from two directions, both independently and simultaneously.

When considering issues of organizational structure, we can see various

instances of dependency discussed earlier. For example, in the case of the various

business units that comprised WorldCom, Inc., as a result of its merger and acquisition

activities, there can be shown instances of being independent and reciprocally dependent.

Although the business units operated independently, a lack of coordination existed

across those business units at both the business and functional/operational levels. This

resulted from a lack of reciprocal dependency in not only competitive and pricing

strategies, but also in the ability to deliver the service through the same backbone. These

units were also sequentially dependent within each business unit as evidenced by the

consistency of competitive strategy within the business units.

From the case we find that in the early days of WorldCom, Inc., the strategy of growth

was via the merger and acquisition of smaller phone companies to increase their customer

base and market coverage. Because of the overriding concern with growth, one of the

problems that WorldCom, Inc. ran into was that the individual systems at the functional

level, i.e., billing systems, were not integrated. Pricing structures differed among the

acquired firms and no attempt was made to integrate these businesses at this level. The

dependencies that existed were of being both sequentially dependent and reciprocally

dependent.

Corporate

Profitability

Corporate Accounting

Department

Billing Systems

Information

Systems

Department

+ + +

-

-

Small Phone

Company A

Billing

System

Small Phone

Company B

Billing system

Small Phone

Company C

Billing

System - -

Causal mapping: Cause and effect of WorldCom’s billing system not being integrated

in determining corporate profitability

Figure 5. Functional level symmetry and independence

There was a high degree of independence at the business level across business units that

necessarily led to a high degree of asymmetry at that level and at the functional and crossfunctional

levels (Figure 5). This is illustrated by the arrows denoting a very weak

relationship between these areas. At these levels reciprocal dependency is needed, as

these business units need to share information regarding types of services offered and

their associated pricing structure. A lack of information sharing resulted in silos being

developed which brought about problems at the business level. The corporate accounting

department therefore was lacking the proper quality of information, such as pricing

policy, costs, etc., needed to get a true picture of the financial condition of WorldCom,

Inc.

Overall, while it can be seen that a high degree of sequential dependence exists toward

corporate accounting in the aggregation of information, there is very little linkage

(reciprocal) among the systems at that functional level, thereby creating a high degree

of information asymmetry. It would appear that a lack of coordination contributed to this

issue of dependency. Coordination is the management of dependencies, and organizational

change is the adaptation to changing dependencies (Tillquist et al., 2002).

From Figure 5 we can also surmise that the lack of integration (a very weak relationship)

between the billing systems at this level had a negative effect on the coordination aspect

among the separate business units concerned. There was, however, individually, a

strong relationship and a high degree of dependency with the IS department. The

relationship between IS and the billing system area of corporate accounting was very

strong, as was that of corporate accounting in determining corporate profitability. The

positive/negative cause-and-effect relationship shows the actual effect. The lack of

systems integration at the functional level had a cumulative negative effect. The billing

system at corporate accounting was not able to produce accurate information concerning

billed revenue, which in turn gave an inaccurate measure of corporate profitability.

Business Level Dependence and Symmetry

Figure 6 shows the change in dependence resulting from integrating the billing systems

at the functional level. You will notice that the cause and effect relationship has changed

from negative to positive for many of the existing relationships, beginning at the

functional level. This represents a movement from independence to sequential dependence.

The relationship of symmetry has moved from asymmetric (very weak) to

somewhat more symmetric (moderate). When systems are initially integrated at this level,

relationships do not become strong immediately. The degree of change will be slow and

is due mainly to the extent to which the systems are integrated. The more complete the

integration, the stronger the relationship that exists between those areas and the IS

department’s ability to deliver quality information. The net effect here is that you are then

able to begin to acquire a much truer picture of the condition of the organization and a

greater ability to make more effective decisions.

Corporate Level Dependence and Symmetry

One of the pitfalls of a high degree of independence and asymmetry in an organization

is that a complete picture of a situation in a given organizational context can rarely or

never be obtained. We are not able to and many times cannot coordinate activities of

various areas to achieve the mission of the organization. This is evident from the

relationships shown in Figures 5 and 6. The mission statement is that vehicle by which

all employees can find the general direction in which the firm is headed and be able to

periodically determine, via performance measures, progress being made toward that end.

Figure 7 shows the relationship of cause and effect due to asymmetry and independence.

From the case, WorldCom’s Senior VP of Customer Service, Richard Hudspeth, along

with Chris Fouts, Pricing Analyst, posed a major question. This question was, “How in

the face of declining revenues, could WorldCom still post large gains,” and “How could

the numbers given investors on Wall Street remain strong?” This was in light of the fact

that revenues in many areas were declining, as a result of a downturn in the economy.

As Hudspeth stated, “Because of the lack of integration we were put into a position where

the numbers were not going to work, so you had to find a way to make them work.” Many

in the organization knew that something was not right. Attempts were made to get access

to information, to bring pieces of the puzzle together from others who had the required

information. This was done in an attempt to gain a clearer picture of what was actually

happening, so that courses of action could be formulated and implemented at the

Corporate

Pro fitability

Co rpo rate A ccounting

D epartment

B illin g S y stem s

Inform ation

System s

Department

+ + +

+

+

Sm all P ho ne

Com pany A

B illin g S y stem

Sm all P ho ne

Com pan y B

B illin g S y stem

Sm all P ho ne

Company C

B illin g

System

Figure 6. Business level symmetry and dependence

Causal mapping: Cause and effect of WorldCom’s billing system being integrated in

determining corporate profitability

business level. When this had gotten back to people in the corporate office, the returning

questions were asked, “Why do you need and why does a certain person need that

information?”

By asking questions in this manner, it can be inferred that a high degree or level of

independence did exist in the organization and with it a new high degree of asymmetry.

A high degree of inferred dependence would have resulted in information being shared

with the lower or equal levels. The level of dependence would move from independent

to reciprocal dependency and a better sense of symmetry resulting.

From Figure 7, information from the Customer Service areas flow into the corporate

accounting office, and in this case was negative in nature although the relationship

remained very strong. Information flowing out concerning profitability levels was

Figure 7. Corporate level symmetry and dependence

WorldCom corporate causal mapping: Cause and effect of information asymmetry on

WorldCom’s mission statement

Profitability

Reporting

External

Reporting

Internal

Reporting

Corporate

Accounting

Customer

Service

Data - A

Customer

Service

Data - B

Customer

Service

Data -C

Corporate

SBU - A

Corporate

SBU - B

Corporate

SBU - C

+

-

-

- - -

+

+

? ? ?

WorldCom Corporate

reported in two ways. The information which was being reported externally was positive

while it was known that the current situation from an internal perspective was negative.

Asymmetry is also found to originate within the corporate accounting area. Asymmetry

arising in this instance is not so much a by-product of the data and information

manipulation of the system itself as it is of the people who are a part of that system.

When incomplete information due to independence and asymmetry is present, it is

extremely difficult to formulate and implement any course of action. This is represented

by the question marks leading from corporate SBU management to the Customer Service

Data generated by those strategies from each SBU. The conflict residing in profitability

reporting arises from both the negative signs leading into the corporate SBU and the

positive signs coming from WorldCom’s Corporate Offices. It can also be seen that the

relationship that exists between the SBUs at the business level is moderate, illustrating

the lack of coordination among the business units. Looking back to Figure 5, we can see

this is true because of the lack of coordination among billing systems at the functional

level. As was stated in the case, “We were underwriting our own business; in effect, we

were competing against ourselves.”

Ineffective decision making as a result of asymmetries can be seen in the comments made

by Bernie Ebbers regarding the execution of the strategy for WorldCom’s growth. The

growth strategy as far as the corporate level was concerned was on track due to the

positive external reporting, but considerably off-target when considering internal reports.

This stems from the failure to adequately address system integration issues at the

lowest level of the organization. Referring to Figure 4, we can see that a breakdown in

the linkages of the EIS due to asymmetry and independence can potentially have negative

consequences in strategy formulation and implementation at all levels.

Summary

This chapter has focused on using causal mapping as an analysis and synthesis tool to

understand the relationships which exist among various areas of a firm. This technique

helps us to determine strategy’s impact on a particular area of a firm as well as its overall

impact. It was found that the effects of a strategy, and in some cases, a non-strategy or

even an abandoned one, can be felt throughout the organization.

In helping understand what it takes for an organization to function well, we introduced

the concepts of symmetry and dependency as they relate to an organization’s growth and

development. These two concepts are highly related to a third, that of organizational

complexity. Organizational complexity itself is defined as the degree of diversification the

firm undertakes in implementing its growth strategy, relative to dependency. Diversification

can take place in both related and unrelated areas, each with its own degree of

symmetry and dependency. In the case of WorldCom, Inc., although the overall degree

of symmetry was high, there should have been a low degree of complexity (the firm had

a high degree of related diversification) as a result of good integration and information

sharing. They became an increasingly complex organization because of the issue of

information dependency. The more the individual business units became information

independent, the more asymmetric and complex the organization became and the more

difficult it became to formulate and execute a coherent and comprehensive strategy. A

growth strategy of merger and acquisition initially suggests a high degree of asymmetry,

independence and complexity. It is through a strategy of integration where we can reduce

these levels. This integration takes place at the functional level of the organization. The

separate billing systems that existed for different businesses which provided the same

service, serves as an example. This, of course, did not happen at WorldCom, Inc.

In order for a firm to execute a strategy effectively several events must occur. First, a good

relationship must exist among the various units of an organization at a given level of the

firm and there must be some relationship that exists among the levels in the corporate

hierarchy. The information generated by these individual units and the extent to which

it is shared and used in the decision-making process, can have a great effect on the

outcome of a particular course of action. A firms’ Executive Information System (EIS)

must function both effectively and efficiently for this to happen. Any breakdown in this

system, no matter how small, will cause the effect of the EIS to decrease dramatically. This

starts out at the most fundamental level of the organization and makes its way up the

corporate hierarchy. As we have seen with WorldCom, Inc., this breakdown did occur.

Systems which should have been integrated at the lowest levels were not, and this

resulted in some very disastrous effects. Those effects were magnified at the business

level where a lack of information sharing (reciprocal dependency) undermined its

competitiveness to the point of cannibalization. WorldCom, Inc. was unable to effectively

execute at this level. The value-addedness which could have existed through its

critical value activities was for the most part non-existent. It was no longer able to deliver

high quality service for the lowest price possible. As a result, service renewals were

decreasing. The lack of reciprocal dependency and information sharing ensured this.

This is somewhat like “shooting yourself in the foot.” When this happens organizational

silos tend to emerge as these units compete for even more limited resources, each trying

to justify their own existence and often times, unknowingly, at the expense of the firm.

As a result, the organization became more asymmetric and increasingly complex. This

occurred at such an alarming rate that new dependencies had to be found in order to give

the appearance that the EIS and the organization were functioning properly. This

occurred at the corporate level when they compiled reports for outside investors and

stockholders. Information that was largely negative in nature was being reported as

positive. The EIS at the corporate level, gave the impression that everything was

operating smoothly, effectively and efficiently.

If the structure of an organization is what gives it its form, then the information system

that is in place helps hold that form together. In the context of the universe, solar systems

and galaxies and they way they are configured, give the universe its form. This is

something we can see, much like an organization chart. However the gravitational pull

of these individual systems and the pull that these systems have on one another is what

helps hold that shape together. This component is unseen, much like the information

system that links (forms a dependency) the various areas together. Here is where we see

the true cause and effect of organizational units and their relationships come to bear.

It is not so much the big things that can cause the demise of an organization, even though

if unplanned for they will. It is the little things, if not done well (e.g. monitoring the

environment, internally and externally; getting systems to talk to each other), that will

have a compounding effect in and throughout the firm. Recognizing the benefits of the

causal mapping approach and using it to help determine the extent of cause-and-effect

relationships in strategy formulation and implementation, can far outweigh the cost

associated with not using it. In other words, the ability to be able to see these

relationships as we understand them in the proper context is the first part of the process.

Then, to be able to use this to determine course(s) of action and monitor their progress

to help achieve the desired level of competitiveness at each level of the organization, and

as a whole, is what completes the process.