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Contemporary Management – Organisation Design and Open System Theory

This report is on the organisational design at Dominos Pizza Australia, presented in two parts:

First, the purpose of the organisation design will be examined, including the contingency factors of strategy, environment, technology, organisation size and organisational lifecycle. Discussion will be made as to whether the organisation is mechanistic or organic.

Second, the challenges for Dominos management in ensuring that the organisation design meets current and future strategic imperative will be discussed. How this applies to Open Systems Theory will also be considered.

Purpose of the Organisation Design

Dominos have seen a need for effective change management, after going broke three times. New principles and new management were needed, and the new leadership came from Don Meij (Day 2011).

Strategic management requires the manager to formulate and implement strategies to achieve long term goals (Schermerhorn et al 2010). Meij took the position to find new opportunities within the pizza business, and thought outside the box (Day 2011). To discuss this, each of the major contingency factors will be addressed in turn:

Strategy

Meij put his spotlight on organic growth, by adopting many of the principles of Open Systems Theory (OST) (Katz & Kahn 1978). The company bought existing stores and changed their brand name to Dominos. In so doing, he increased penetration of the market rapidly. He also sold down many of the corporate stores to franchisees (Day 2011).

The company adopted the initiative of Papa Johns Pizzas, which is generally regarded as having the best quality ingredients of any pizza chain in the world (CBS 2008). Dominos increased the quality of the ingredients on it’s products, and expanded the menu to include pasta and dessert options (Day 2011).

The company also saw being in the front position with its use digital technology as a major strategy to achieve sustainable growth (Day 2011). This was in relation to advertising, customer education and operational procedures.

Domino’s operate in a dynamic and changeable business environment. In order to grow in such an environment they need to be highly responsive. Change may come from either internal or external sources. External sources are those over which Domino’s have little or no control. In contrast, Dominos have a high degree of control over internal sources of change.

Environment

Each of the five countries adapts it’s strategies to the local culture and tastes (Day 2011). This is similar to what Pizza Hut has done in China, and KFC in Hawaii (Hill 2011). In contrast, companies such as BHP have abandoned socio-ethnic cultures in favour of corporate cultures (BHP 2007).

Dominos have addressed the requirements of each of the countries it operates in, by listening to the customers (day 2011). The company has realised it must get accurate and meaningful customer feedback to get its strategies right (Mackey et al 2009).

The organisation has been effective in considering market trends such as changing issues relating to personal health, and has changed the menu to reflect this (Day 2011). Customers are more health aware now, and can make a distinction between the quality of foods.

Meij has become a manager rising within the company’s internal environment, and has been able to address the shifting demands and challenges of the industry (Andersson 2010). However, at the same time, he has managed to keep abreast of the ever changing external environment.

The main external influence is the changing nature of markets, ands a need to constantly review offerings to cater for changing customer tastes and needs (Day 2011). Another important external influence are constant economic changes, such as interest rate rises and fuel costs, which can impact on consumer purchases (Schermerhorn et al 2010). In Dominos, it also impacts on costs of ingredients and delivery (Day 2011).

Social influences are closely related to economic influences. Australia largely avoided the Global Financial Crisis, so many people have higher disposable incomes. However, the trend towards working longer hours means less time to cook for Australian families, which in turn leads to greater demand for quick service meals. Dominos can deliver a hot meal for a family at a reasonable price (Day 2011).

Legal influences, such as the different laws in each country, mean that the organisation must adhere to laws such as changes in workplace legislation. Businesses function within a framework of laws that seek to sustain competition, avoid fraud and uphold OHS standards (Schermerhorn et al 2010). Recent changes to the workplace laws have meant that large employers like Dominos have greater flexibility with their labour force. Key areas of regulation include labour laws, contracts and dispute resolution procedures.

Technological influences are constant, and Dominos has been hands-on to technology, most up-to-date cooking technology, EFT and on-line ordering.

Domino’s operates in a very dynamic and changeable business environment and it experiences changes from:

Technology

New technology introduced includes internet and iPhone ordering, which reportedly accounts for more than one third of all orders received (Day 2011). Additionally, the company has introduced a pizza tracker service, that can monitor when the pizza is placed in the oven, when it is cooked, when the driver leaves the store and the expected delivery time.

Dominos also have a customer feedback form online, recognising the importance of customer research (Markey et al 2009). Hot cell technology: keeps food warm and fresh when delivered.

Cell centre re-routing: when a person calls Dominoes their call is sent to the closest store.

Organisation size

The organisation has over 850 stores in 5 countries (Day 2011). They are the market leader in all countries, except Belgium.

As already mentioned, Dominos operates in five countries, and must take into account geographic influences. This means spacing outlets appropriately to ensure market coverage.

Domino’s is a upwardly mobile business which has gone into the global market by the use of acquisitions in Europe. The business is deeing growing profits and has an outstanding brand image, It is seen as an innovative and reliable fast food provider with high quality food and an expanding product range.

When managing change Dominos: identified the need for change; set achievable goals; created a culture of change; and applied change models.

Organisational lifecycle

Domino’s management has a strategic role focusing on the long term and the business as a whole. Effective management strategies aim to achieve goals such as profitability, liquidity and growth (Schermerhorn et al 2010). Efficient management at Dominos spotlights utilizing money for expenses in the best manner possible. There are three management roles at Dominos:

Decisional management has an important focus for Domino’s managers. They must choose between different choices at every point the business faces options, and choose between them. In essence, the best way to globally expand and what system of technology to adopt (Schermerhorn et al 2010).

The interpersonal management role is useful for store managers to effectively manage staff who directly deal with customers, and who effectively perform the day-to-day tasks of the business. This includes communicating with subordinates (Schermerhorn et al 2010).

Informational management processes are internal. Managers need to communicate the business vision and policies to all staff. Externally, managers recognise the need to present the business well by utilising information used in the popular press (Schermerhorn et al 2010).

Challenges for Management – Open System Theory

Traditional theories considered organisations as closed systems; independent and isolated from the outside world. In the last 50 years, these theories, including scientific management, were rejected in favour of more holistic and humanistic philosophies. Traditional theory didn’t take into account environmental influences that affected the efficiency of organisations. Instead, most theorists and researchers embraced an open-systems view of organisations (Schermerhorn et al 2010).

Katz & Kahn (1978) developed a framework for open-systems theory that includes: external influences as inputs into the organisations; transformation of those inputs within the system; external outputs; and recycling. The external inputs, or influences, include resources such as employees, raw materials, and capital. However, they also include ethereal external influences, such as status, recognition, satisfaction, and other personal rewards.

Ten characteristics are seen to define all open systems (Katz & Kahn 1978). This part of the report will explore those ten characteristics, to construe whether Dominos is, indeed, an open system.

Importation of energy

Energy is drawn from the external environment (Katz & Kahn 1978). Dominos draws customers and materials from outside the organisation. The energy is sustained by maintaining growth and finding the best ingredients for all products. Energy is also imported from customers ordering food, or customers interacting with the technology, including customer surveys.

Throughput

The energy input is transformed into a new product (Katz & Kahn 1978). In Dominos case, that is the ingredients being made into a food item for consumption. The work done by the staff is also throughput. It could also be the customer input being processed in the computer (Day 2011).

Output

A product is exported (Katz & Kahn 1978). In this case, the main output is the completed pizza being delivered to the customer (Day 2011). Output can also be the service given to customers, or feedback from customer surveys.

Systems as Cycles of Events

A pattern of activities is generated that will repeat the energy input, throughput and output. The output product fuels the source of the energy for repetition of the cyclic process (Katz & Kahn 1978). If the customer is happy with the quality and taste of the pizza, then it will motivate the customer to buy more pizza at another time. Timeliness is also an important factor. If the customer is happy with the speed that the pizza is delivered, and the accuracy of the pizza tracking system, then the customer will again be motivated to buy from Dominos again (Day 2011).

Additionally, customer satisfaction can generate word of mouth praise of Dominos, and increase the customer input, thus ensuring the company’s growth. This can help the company reach it’s projected growth target (Schermerhorn et al 2010). The more customers that input orders, the more staff needed to process those orders, and the greater the output to the external environment.

Negative Entropy

Reversal of the entropic process is essential for the organisation to survive (Katz & Kahn 1978). In the past, Dominos did not have the sustainability for negative entropy, as evidenced by the fact that they went broke three times (Day 2011). Many external and internal factors can affect the cyclic activity, such as recession, crop failures, dairy production, trade embargoes to name just a few. Internally, industrial action can stop the processing of the inputs, thus affecting the output. Likewise, fire, natural disaster, or even legislative changes can have significant impact (Schermerhorn et al 2010).

As such, Dominos must maintain sufficient reserves of raw materials, product or cash to allow for these setbacks. Given the nature of the business, requiring fresh quality ingredients and fresh quality products, cash reserves are the most suitable form of reserve for dealing with such setbacks (Schermerhorn et al 2010).

Information Input, Negative Feedback and the Coding Process

Inputs into the organisation are not just energic materials that are processed by work done. They also include information about the environment, as well as information about the organisation itself in relation to the environment (Katz & Kahn 1978). As already mentioned, customers complete feedback forms, and Dominos maintain Quality Assurance systems and internal and external procedure audits to monitor all aspects of the organisations operations (Day 2011).

Steady State and Dynamic Homeostasis

Energy can be imported to arrest entropy, and thus maintain some constancy in energy exchange. This in turn keeps a steady state (Katz & Kahn 1978). For Dominos, they have a whole floor of innovation in their Brisbane office, to counteract the Global Financial Crisis (GFC). Meij says “If you’re in the food business right now, and you’re not innovating, you’re probably going to get taken out in the next three years.” In this, he is referring to rise in production costs (Day 2011).

Dominos strategy in this effect was to roll out a whole new menu, with more than twenty new products (Day 2011). This is similar to what Pizza Hut and Papa Johns did in China, and part of how those companies succeeded in the Chinese market when Dominos failed (Hill 2011).

Differentiation

Open system organisations move toward the multiplication and elaboration of more specialised functional roles (Katz & Kahn 1978). Dominos have achieved this by introducing regulated feedback mechanisms, such as customer surveys and market research. This includes addressing market trends, such as rising food costs, rising labour costs, and the trend to healthier foods (Day 2011).

Integration and Coordination

As differentiation proceeds, it is countered by processes that bring the system together for unified functioning (Katz & Kahn 1978). One method by which Dominos have achieved coordination is the pizza tracking system. It was as a result of market research and innpovation, and coordinates the process from the time of input of the customers order, the processing or preparation of the pizza, and the export or delivery to the customer (Day 2011).

Integration is achieved by all aspects of the organisation working together to achieve a common goal. However, with larger organisations such as Dominos, coordination is more important at this step (Katz & Kahn 1978).

Equifinality

The final characteristic refers to the ability of an organisation to move toward a final state, from differing initial state, and differing paths (Katz & Kahn 1978). It is unclear from the case study what the final state of Dominos will be, as it is not known what regulatory mechanisms, if any, control the organisation’ operations (Katz & Kahn 1978). However, it is clear that Dominos have a goal, and are on target to reach that goal (Day 2011).

Conclusion

In summary, the ability of management to anticipate and propose for change depends on the management being proactive or reactive, management skills and implementing change models and also the use of change agents as shown in the Dominos case study. With the above skills the business will continue to grow and implement any change faced In the future of the business.

Additionally, after examining each of the characteristics of an open system, and relating them to Dominos operations, it seems apparent that Dominos are, indeed, an open system organisation.

Reference List

Andersson, T. (2010) Struggles of managerial being and becoming. Journal of Management Development, 29(2), pp. 165-175.

BHP Billiton. (2007).Human Resources Strategy and Standards.

CBS Interactive Business Library (2008) Better Ingredients. Better Pizza. Better Franchisees. Papa John’s partners with franchisees who share the desire to make world-class pizza using superior-quality ingredients. Retrieved from:
http://findarticles.com/p/articles/mi_m3190/is_49_41/ai_n21156956/

Day, J. (2011) Meij’d to order. Management Today, June, pp 8-13

Hill, C. (2011) UNE Workshop Reports

Katz, D., & Kahn, R.L. (1978). The social psychology of organizations (pp. 23-31). New York: Wiley.

Markey, R., Reichheld, F., & Dullweber, A. (2009) Closing the customer feedback loop. Harvard Business Review, December, pp 43-70.

Schermerhorn J, Davidson P, Poole D, Simon A, Woods, P & Chau So Ling 2010, Management foundations and applications, 1st Asia Pacific edn, John Wiley & Sons Australia, Milton.

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