Arslan Ahmed

Critical review of Patching: Restitching business portfolios in Dynamic markets A case in favor of Patching Arslan Ahmed 822 MBA 2015 10/21/2016 This critical review of the concept of patching as it is found in the business world of today is discussed here with an argument in favor of having patching practices in a firm. Critical review of Patching: Restitching business portfolios in Dynamic markets Although Kathleen M Eisenhardt and Shona L. Brown introduced a decade ago the concept of patching as a response and survival mechanism in markets in a constant state of flux, this is even more so important in today‟s age than it was ever before. The authors give examples of IT companies such as Dell, Cisco systems, HP, Compaq and also non IT businesses such as 3M, Johnson & Johnson, British Petroleum and Bombardier as well as of other companies in showing how these multi business firms with diversified businesses incorporate the concept of patching to respond to constantly shifting market opportunities. This essay will look at this idea of patching as explained by Eisenhardt and Brown and see how this idea finds favor in the writing of five other writers. Overall, it will be argued that the idea of patching is crucial for multi business firms to respond to shifting business opportunities in dynamic markets. Eisenhardt and Brown argue that in turbulent markets it is essential to have organizational structures and capabilities that are malleable across different scenarios in order to give suitable responses to constant fluctuations in the markets. They describe patching as a business strategy “…by which corporate executives routinely remap businesses to changing market opportunities. It [Patching] can take the form of adding, splitting, transferring, exiting, or combining chunks of businesses.” (Brown and Eisenhardt) These chunks of businesses could be business units such departmental divisions or teams or forced divisions in the business created along specialized agendas. This allows businesses to quickly respond to business opportunities as they arise and in this process find those that may serve to be highly profitable. Next, the authors identify the features that firms who patch well display: patching should make use of usually small scale changes occurring regularly; successful patching needs sizes of teams or business units to be the right fit between being agile and being efficient and finally the patching firms have three more things: they have modular structures along with a suitable system of measurement for gauging business performance and uniform compensation levels across the organization. (Brown and Eisenhardt) As the article moves further, the authors present some principles of patching well and those are explained as moving fast in responding to opportunities; developing four or five different alternatives to decide on the next course for the business and seeking the one that seems better than the others. Another important principle is to actually put into practice the different alternatives to check them or have a test drive before implementation. Also important is to 2 Critical review of Patching: Restitching business portfolios in Dynamic markets choose the right manager for each business unit and finally after a decision has been taken on the right patch having a detailed written plan for the execution of the patch. Like Eisenhardt and Brown, Jay Galbraith also exhorts the same: “If change is constant, why not design our organizations to be constantly and quickly changeable?” Also like them, Galbraith argues that in markets where there is difficulty in finding long sustaining competitive advantages the solution is to find short lived but recurring points of competition. Given this, the successful firm has a „reconfigurable organization‟ meaning a structure that can be shifted to meet the company‟s perpetually changing strategic goals and objectives. (Galbraith) To illustrate, Galbraith gives the example of a manufacturing firm in the baking business making products like cookies and crackers which faced difficulty in the 1980s due to shifting health preferences of its customers and the availability of lower priced substitutes. The company found a low fat substitute that did not alter the taste of its products and used it to make a new line of baked products. To manufacture these new products the company created partnerships with distributors who could provide it with varied packaging and also with manufacturers who could make it the new products. The company did not have to alter the existing setup of distribution as it suited the new products. Most importantly, the company‟s organizational structure allowed this transition to happen easily. The company was organized across six core business functions with cross functional product teams headed by the VP of Marketing. The top management had significant experience with cross functional teams and also had taken company led trainings in project management. The changes made were that four new teams were added, one for the new health segment products, one for overlooking the new distributors who helped with packaging and two more for the new customer segments. Each of these teams except R&D had representation of able managers from each of the six departments. Galbraith further argues that successful reconfiguration requires all of the same things as argued by Eisenhardt and Brown except there are two differences. Galbraith talks about creating partnerships with outsiders while reconfiguring the organization to new opportunities if the company cannot perform the job itself. Another difference is the mention of employees‟ strong networking skills across the various business units inside the company. 3 Critical review of Patching: Restitching business portfolios in Dynamic markets Raymond E. Miles, Charles C. Snow, Alan D. Meyer, Henry J. Coleman and Jr. argue that organizational behavior as they observed in firms that are in dynamic environments can be divided into four typologies of responders: defenders, prospectors, analyzers and reactors. Defenders are the top managers in the organization and they see organization structures as stable and wish to take up a large share of a market. (Miles, Snow and Meyer) In contrast, the prospectors who are much similar to organizations which patch are the complete opposite as they are focused on finding and taking advantage of new product and market opportunities, making sure not to be dependent for too long on a single technology or process and facilitating and coordinating a large number of varied operations. (Miles, Snow and Meyer) The analyzers may seem the smartest as they combine benefits of both the defenders and the prospectors; however they can never become market leaders as they will follow whatever the prospectors do. Finally, the authors explain that the prospector type can successfully match the structure of an organization that needs to respond to dynamic markets. This shows that the prospector organization and an organization that patches have things in common and both can be used for responding quickly to the changes needed for operating successfully in constantly changing market environments. George S. Day argues in his article Market Driven Winners for certain characteristics that make firms understand and keep their customers in a constantly shifting and an unpredictable environment. These characteristics are defined as: possessing a culture that is geared towards giving the customers value, having superior abilities of predicting market changes and for devising suitable market strategies for those changes and also having an organizational structure that is flexible and adaptive to changing market conditions. Like Eisenhardt and Brown the author also calls for a system of measurement that can inform the workers at all levels of the company about where the market is headed and how they should respond. (Day) In the HBR article The Quest for Resilience Gary Hamel and Liisa Välikangas argue: “For all these companies, and for yours, continued success no longer hinges on momentum. Rather, it 4 Critical review of Patching: Restitching business portfolios in Dynamic markets rides on resilience—on the ability to dynamically reinvent business models and strategies as circumstances change.” They argue further that the goal for today‟s organizations should be to have completely flexible strategies so that the organization can well match its responses to opportunities of the future rather than having to support its long standing positions of the past. For that, the company should have pliable organizational structures which can bring about major changes without having to usher in drastic layoffs, asset disposals and severe reorganization; the structure should allow for smooth transitions to revolutionary changes and not see upheavals as they say: “In a truly resilient organization, there is plenty of excitement, but there is no trauma.” (Hamel and Valikangas) However, most recommendations given by Hamel and Valikangas are different from those given by Eisenhardt and Brown yet there are certain things that are common. One is the concept of strategy decay or the eroding power of old strategies over time; countering it requires a constant search for newer and newer strategies through constant experimentation and sourcing of innovative ideas for new business units. Second, it is important to liberate resources from the less functioning or redundant business units to newer ones. Finally, the authors argue that optimization, the ability to get better at a tried and tested method, may no longer be needed. (Hamel and Valikangas) Sull argues in the HBR article How to Thrive in Turbulent Markets for the division of large scale organizations into smaller independent units having their own management and revenue and cost structures. The need for these smaller units exists so that there can be easy to track accountability and transparency meanwhile the presence of numerous units means the ability to explore greater number of potential opportunities. Also, smaller structures allow the managers and employees to feel meaningful in the organization. Sull mentions agility and absorption as two ways of surviving in turbulent markets. (Sull) Agility is the ability to move quickly in response while absorption is the ability to face losses when times get tough. While the idea of agility is what Eisenhardt and Brown also recommend for successful patching they do not talk about the ability to absorb. In a way though, a well-patched organization is one that has good absorption skills as it can deter the failure or losses arising due to a sudden change in a dynamic market. 5 Critical review of Patching: Restitching business portfolios in Dynamic markets In today‟s world, the only thing unchanging is the certainty of change. We live in a world where technological innovation is forever leading to newer ways of doing and creating and also of using services and products. The internet and the smart phones have created a new digital marketplace where lie numerous opportunities for firms. Some firms are in the older manual ways of doing things, while some are in a stage of transition while the most advanced are in the stage of constant and frequent restructuring to respond to changes in the digital environment. The companies that do not change fast enough or fail to recognize the cues for change are bound to fail. A case in point is Nokia‟s downfall from one of the biggest mobile phone companies. Although, Nokia tried and tested the idea for smart phones it unfortunately did not consider it worthy for capitalization, feeling that a major restructuring would have to occur in its business to respond, the result being that other companies like Apple and Samsung took hold of the smart phone concept and became world leaders. Apart from the constant technological change, there is also the change in world population demographics. As we move further the populations are going to age and so will mature their tastes and likings. In order to respond to these changes in tastes, likings and needs organizations will need a structure that can change itself fast enough and easily enough without having to depend on drastic restructuring attempts. Not only that, in future diversification is the way to do business and it is almost looking certain that organizations will try and cater to as many target markets as they can by producing varied products for each. The world‟s biggest organizations are already doing this like Procter and Gamble, Google, Unilever and they serve as ideals for others who attempt to replicate their business models. Given this, it will be necessary for firms to have structures that could resemble Lego block formations. To conclude it is right to say that all of the authors mentioned show that having a flexible organization structure is crucial and surviving in turbulent markets requires strategies of patching or strategies that are quite similar to patching. In the world today the markets and business have to face constant change and for adjusting to this change they have to be flexible, agile and be constantly responsive through changing their organizational structures. 6 Critical review of Patching: Restitching business portfolios in Dynamic markets Bibliography Brown, Shona L. and Kathleen M. Eisenhardt. "Patching: Restitching Business Portfolios in Dynamic Markets." Harvard Business Review May-June 1999 (1999): 73-74. Day, George S. "Market-Driven Winners." Symphona Emerging Issue in Management 2 -): 1415. Galbraith, Jay. "Designing a reconfigurable organization."-. Galbraith Management Consultants. 2016 . Hamel, Gary and Liisa Valikangas. "The Quest for Resilience." Harvard Business Review (2003). Miles, Raymond E., et al. "Organizational Strategy, Structure and Process." The Academy of Management Review 3.3 (1978): 546-562. Sull, Donald. "How to Thrive in Turbulent Markets." Harvard Business Review (2009). 7 Critical review of Patching: Restitching business portfolios in Dynamic markets 8