Organization Theory and Practice

 

“Fonterra negotiating 'roadblocks' in China

 

It is pertinent to note that good organizational structure and design help companies and organizations to inspire innovation, increase productivity and improve communication. It usually creates an environment where the organizational workforce can work effectively and efficiently. While on the other hand, low performance and productivity are attributed to poor organizational structure and design.

In the light of organizational theory and practice, the analysis of this article is made on the following focused points:

·         Distinctive features of Fonterra Co-operative Group Limited and Beingmate

·         Distinctive features of contemporary organizational environments

·         Organizational control over its environment

·         Stakeholders of Fonterra Co-operative Group Limited and Beingmate

·         Ethical issues, ambiguities, and dilemmas do organizations face in responding to shifting stakeholder agendas.

 

Following are the dimensions of organization design that are related to the given case study (Daft, R.L., 2020):

·         Structural Dimensions

o   Formalization

o   Specialization

·         Contextual Dimensions

o   Organizational Technology

o   Organization’s goals and strategy

Distinctive features of Fonterra Co-operative Group Limited and Beingmate

Fonterra Co-operative Group Limited is one of the largest multinational dairy organizations based in New Zealand that is owned by more than 10,500 local farmers. It is owned more than 30% of the world’s dairy exports with more than NZ$ 17.2 billion in revenue. The major focus of the company’s top management is to expand its business in the international market like China where there are no trade barriers and higher chances of growth and success. For this, Mr.  John Wilson, the former chairman of the company seeks to acquire the local company Beingmate. It is a Baby & Child Food Company Limited is known as a Chinese food manufacturer, founded in 1992 in Hangzhou, China. It was reported that Beingmate was one of the leading milk powder brands in china but declined expected growth and revenue in the past few years. Thus, Fonterra purchased its 18.8% shares and entered the Chinese market.

 

Major Trends from the Article

 

The main purpose of the Wilson (Former Chairman Fonterra Co-operative Group Limited) is only to have easy access to the China Market to start producing quality of milk through local and international farmers and that is to be sold at good prices. Mr. Wilson was in a view that China is an easier international market to explore and expand a company’s business under good governance structures of that country where there are only hefty trade barriers.

 

Here, Fonterra Co-operative Group Limited needs to follow one of the structural dimensions such as formalization. It needs to make written documentation related to policy manuals, regulations, job descriptions, and other procedures. As Fonterra is already a large organization, therefore it tends to score high on formalization due to having written rules to control and authorize a wide range of activities (Hall, R.H., Johnson, N.J. and Haas, J.E., 1967).

 

Moreover, the company was looking after the Chinese partner (Beingmate) more specifically in the consumer goods like dairy products. This is why Mr. Wilson interest in making investments with the expectations to drive significant revenue and earnings out of china and he was successful in doing this. Further, the founder of Beingmate Mr. Sam Xie was frustrated by Beingmate’s performance disrupted by the rapid transition to e-commerce in China. Therefore, there was no other option other than the acquisition offer by Fonterra and to accept its directors as the company’s key management. It is also notable that the Chinese government also wanted Fonterra to keep investing in Beingmate and become shareholders for each other.

 

The distinctive features of contemporary organizational environments of Fonterra focused more on building partnership relationships with the Chinese commercial leaders, government, and ministers while admitting different roadblocks including biosecurity scares. Further, the organization’s key leadership wanted to be recognized and taken the privilege of operating in the Chinese market. Where the New Zealand farmers will be allowed to sell to that market at a larger scale underlying milk prices with high-quality ingredients.

 

Fonterra has taken influence not control over the Beingmate by acquiring 18.8% shares with the placement of its two directors on the Chinese company’s board. According to Wilson, these two directors were Simon Israel and Clinton Dines who are well experienced especially in the circumstances when things go wrong in China. However, risks are always there even you are having successful entrepreneurs or successful businesses. This acquisition was a strategic partnership between the key founders and leaders of both organizations (Li, J.J., Poppo, L. and Zhou, K.Z., 2010). Both Fonterra and Beingmate need to introduce their mutual goals and strategies to define their competitive techniques and purposes. They need to write down their mutual goals in enduring statements that should not correlate with their actual practices. Like, they should set a goal to increase their target markets, sales, revenue, and growth in China and other international markets. To achieve this, they must have to devise some strategies or plans of action to achieve organizational goals. These mutual goals and strategies will be very helpful for both organizations to define their competitors, customers, relationship with employees, and scope of business operations.

 

Spierings (CEO of Fonterra) and Xie (Founder of Beingmate) were the main stakeholders after Fonterra made its investment in Beingmate. That was a strategic partnership between the key leadership of both companies. Behind this strategic partnership, Fonterra will be having an opportunity to forge a partnership with Alibaba and Starbucks to leverage Omni channels. Further, there will be opportunities for New Zealand and Chinese farmers to build dairy farms in China to start producing the milk and sell it to the developing super fresh market. Hence, both of the companies will be generating dividends from these key tactical and strategic investments. Both of the strategic partners make sure that they are following specialization that one of the main structural dimensions of organization design. They need to subdivide the organizational tasks into separate jobs among their employees. Under this dimension, each employee is equally responsible to perform all the narrow range assigned tasks. As Fonterra is considered as a high level of organization, therefore, it needs to extend its production lines where each worker is responsible to perform repeated tasks followed by a narrow set of skills. Hence, the organization must be equipped with highly specialized laborers and managers (Tyler, W.B., 1973).

 

According to Spierings, the relationship with Beingmate was formed as a strategic partnership between these two companies. However, we have to embrace the change in a drastic way only when the market shifted. Therefore, the biggest shift is to accept the change that often happens quickly. At this point, there is a difference of opinions found between the two stakeholders Spierings and Xie. The main ethical issues, dilemmas, and ambiguities that both organizations have faced in responding to shifting stakeholder agendas are that no doubt Beingmate is the leading infant nutrition brand but it does not evolve with the rapid change in the market conditions and the consumer’s behavior. There are some uncertain situations in the retail stores about to meet the daily sales targets as the behavior of consumers evolves very quickly. Another issue is that Spierings is more focused to shift to e-commerce while Xie was not recognizing that early shift even being a very successful entrepreneur. Due to the emergence of e-commerce, both organizations can take advantage of the techniques, tools, and actions that are used to transform inputs into outputs with the help of organizational technology (Chang, K.C., Jackson, J., and Grover, V., 2003). It is advisable to introduce such technology in producing dairy milk for better smoothness and efficient business operations. It will reduce the cost and time for the production of products and services to the final delivery to the targeted customers. It would only be possible through digitalization, advanced information system, and flexible production and manufacturing (Mohr, L.B., 1971). Thus, both of the organizations are covering one of the main contextual dimensions in organizational design.

 

Conclusion

 

From the above-mentioned analysis of the organization theory and practice, we have learned that organizational design serves as the main founding pillar where the operations of the companies are built including various factors like formal managerial hierarchies and grouping of employees within the organizations. The early stages of organizational design enables firms to create a foundation for success, developing strong organizational culture, adapt to changes, and responsive to increasing demands.

References

Li, J.J., Poppo, L. and Zhou, K.Z., 2010. Relational mechanisms, formal contracts, and local knowledge acquisition by international subsidiaries. Strategic Management Journal, 31(4), pp.349-370.

 

Daft, R.L., 2020. Organization theory & design. Cengage learning.

 

Hall, R.H., Johnson, N.J. and Haas, J.E., 1967. Organizational size, complexity, and formalization. American Sociological Review, pp.903-912.

 

Tyler, W.B., 1973. Measuring organizational specialization: The concept of role variety. Administrative Science Quarterly, pp.383-392.

 

Mohr, L.B., 1971. Organizational technology and organizational structure. Administrative science quarterly, pp.444-459.

 

Chang, K.C., Jackson, J. and Grover, V., 2003. E-commerce and corporate strategy: an executive perspective. Information & Management, 40(7), pp.663-675.