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Tyrone Schiff OS 310 Assignment B
December 12, 2007
Professor Jason Owen-Smith and GSI Danielle Molina
Change, along with death and taxes, is one of the few constants in life. Change has the capacity to affect societies, individuals, and even organizations. As time marches on, organizations work to harness and sometimes even combat the endless onslaught of changing elements in order to maintain their aura of excellence. However, companies often stumble and lose their footing on the path to success. For instance, the Bell and Howell Company (B&H) was a member of the lucrative Fortune 500, a list of businesses with the highest annual revenue, until their sudden departure after 1992. To truly understand why B&H lost their way, an exploratory narrative of significant events in the company’s history will provide us with the necessary clues. Furthermore, these events will be elaborated on and substantiated by organizational theories. These theories will help in revealing the systematic and almost predictive downfall of B&H. B&H, incorporated in 1907, originally focused its efforts on the creation of products for the motion picture industry (Wilson, 2005). With continued success, B&H expanded and began to acquire a diverse array of companies. However, B&H was criticized for being stretched too thin with a hodge-podge of jumbled holdings that offered seemingly unrelated products and services (B&H Company). As a result, new management was brought in with the sole objective of slashing and streamlining corporate processes. The decisions made by B&H at this point depict elements of population ecology, specifically structural inertia (Hannan, 1977). As things progressed, the management made choices that would lead to an eventual buyout of B&H. In the process, B&H was sued by their shareholders and a court case followed. This harks on concepts of institutionalism as they relate to organizational theory (Meyer, 1977). A final blow came to B&H in their acquisition and continued investment in weaker industries,
compounded with the selling of one of their most profitable endeavors. The theory that explains how the legs of B&H were swept right from under them is interdependence (Scott, 1998). Ultimately, these theories combined with the causes given here explain why the Bell & Howell Company fell from the Fortune 500. The management and strategic choices that B&H made is representative of an organizational theory known as structural inertia, which outlines the hardships in adapting a new focus for an organization (Hannan, 1977). Donald N. Frey was appointed chief executive officer of B&H starting in 1971. Frey entered into the company at a time in which it was in need of restructuring (Simon, 1986). One of the first moves he chose to make was to abandon B&H’s core industries of projectors and movie cameras, and instead opted to direct the company into the emerging information technology market (Simon, 1986). There are several significant and severe detriments that are the result of making such a decision. Hannan suggests that, “much organizational knowledge is tacit. It is neither written into procedures nor coded into technology” (1977). This excerpt speaks to the culture within a company. Employees in organizations come to learn what actions are correct and necessary in order to complete a task properly and efficiently (Hannan, 1977). Furthermore, these methods are not necessarily documented, but are rather learned and perceived through years of habit (Hannan, 1977). In changing a company’s foundation, there are enormous costs that result. For example, employees may work to maintain their entrenched traditions, which make the process of reorganizing harder (Hannan, 1977). Additionally, the costs of learning and establishing new organizational traditions detract from the benefits intended in restructuring. An additional harm of structural inertia goes off of the premise that resources are
not perfectly transferable. Hannan and Freeman contend that organizations are composed of core features (Hannan, 1977). One of the core features that they outline is “basic technology” (Hannan, 1977). This includes the methods in which outputs of an organization are produced (Hannan, 1977). Applying this idea to B&H, consider an employee with a specialization in cameras. This same individual cannot become an expert in information technology overnight. Furthermore, the inputs necessary for creating cameras are far different than those needed to satisfy the requirements of information technology. In order to make these transitions, time has to be spent on accumulating the correct resources and finding the right people to perform the tasks. There is a tremendous amount of inefficiency that results as a byproduct of structural inertia. Donald N. Frey engaged in activities that led to the rise of these inefficiencies. The process was slow and tedious as well, taking over fifteen years and accounting for the purchase and sale of over sixty companies (Simon, 1986). These elements, compounded with others, ultimately led to the decline of B&H which was eventually removed from the Fortune 500 list. In late 1987, B&H started to receive a lot of attention from potential buyers of this newly transformed information technology company. Macmillan Inc., a publishing company, Robert Maxwell, a British publisher, and The Bass Group, an investment group led by wealthy Texas financier Robert Bass all bid to assume control of B&H (1987, December 4). Ultimately, The Bass Group beat out the other potential bidders. Following this acquisition, B&H was sued by the shareholders (1988, January 6). The case was made that B&H, “failed to negotiate fairly with all parties during the bidding that developed,” amongst the three companies (1988, January 6). However, these allegations were for the most part unwarranted and the lawsuit did not progress much
further (1988, January 6). Still, the accusations made by the shareholders were taken seriously by the media and the public. This did not help the company’s image, especially after their recent restructuring and change in management. The aforementioned scenario deals primarily with the organizational theory known as institutionalism. The concept behind institutionalism is well articulated by Meyer and Rowan, “[…] organizations are driven to incorporate the practices and procedures defined by prevailing rationalized concepts of organizational work and institutionalized in society. Organizations that do so increase their legitimacy and their survival prospects independent of the immediate efficacy of the acquired practices and procedures” (Meyer, 1977). The underlying argument intrinsic to institutionalism is that organizations ought to function in ways consistent with commonly held beliefs, even if efficiency is lost in the process (Meyer, 1977). Institutionalism is therefore a conquest in attaining as much legitimacy as possible. An organization can gain legitimacy through a number of mediums. For instance, organizations can adopt practices from outside sources that are considered legitimate, employ credible figures in the same field, and develop interdependence with already fixed institutionalized elements (Meyer, 1977). However, there are serious ramifications for the organization if credibility and confidence in them is lost. This was the case with B&H. Going through a trial in a public setting is considered a “ceremonial inspection and evaluation” to institutionalists (Meyer, 1977). The company was put under the microscope in a public forum in a very negative light. This reflects on them poorly and puts their competence as a company into question. As a result, B&H lost a lot of legitimacy. Their employees, shareholders, and the public had their perceptions altered in a harmful way, which hurt the company and helped their fall from the Fortune
500. To further elaborate on the court case that B&H was involved in, consider B&H’s departure from the theory of isomorphism. Isomorphism is an institutional view that predicates that organizations acting within the same environment come to imitate and mirror organizations within that same environment (DiMaggio, 1983). There are three mechanisms in which isomorphism occur: coercive, mimetic, and normative (DiMaggio, 1983). Although these forces primarily work to homogenize organizations, their “adoption provides legitimacy” (DiMaggio, 1983). Therefore, by deviating from these isomorphisms legitimacy is lost. In B&H’s court case, they most explicitly diverged from mimetic isomorphism. Mimetic isomorphism suggests that organizations will come to model the actions of other organizations that are around them, in a sense mimicking them (DiMaggio, 1983). Most companies avoid lawsuits like the plague because of their nature to disrupt legitimacy, as well as, all other company activities. So, due to B&H’s involvement in a court case, they veered off the course of homogenizing through mimetic isomorphism, which ended in catastrophe for the company’s legitimacy. Without legitimacy, a company is sure to fail (Meyer, 1977). This provides yet another theoretical application that clarifies B&H’s drop from the Fortune 500. B&H also reveals organizational theory as it relates to interdependence. One of Donald Frey’s final acquisitions as chief executive officer was University Microfilms International (1985, November 14). By acquiring this company, B&H established themselves as a leader in the microfilm and database publishing industries (Simon, 1986). The problem with this acquisition is that during the mid-1980s, “the market for microfilm had reached its peak and was saturated with competing products” (B&H Company).
Furthermore, B&H relied on this industry for close to 30 percent of their total sales and devoted a great deal of their capital to this division (Anonymous, 1984). B&H was deeply entrenched in an industry that was extremely volatile and with little to no growth potential (B&H Company). By investing themselves even more in the microfilm industry, B&H became dependant upon a market that was not going to help their company. Eventually, B&H’s revenues halted, indicating a complete slowdown in the microfilm industry that they were so heavily reliant upon. This scenario demonstrates a superb empirical example of environmental interdependence. Looking at the B&H example, it does not make much sense that they would invest themselves so heavily in a dying industry and expect large returns. To understand where this flaw in logic occurred, it is necessary to gain a further understanding of what is meant by environmental interdependence. Environmental interdependence articulates the relationship that organizations have with their particular environment, including the factors that go into and accomplishing their outcomes (Scott, 1998). The ultimate and most desired goal in environmental interdependence is arriving at or as close as possible to an understanding of the objective environment (Scott, 1998). The objective environment is the summation of knowledge and information pooled from an organization’s environment that appropriately describes the outputs, whether they be goods or services, that the organization ought to produce (Scott, 1998). In order to arrive at this conclusion, an organization will “think” by assessing many variables in its environment. Organizations must consider what type of company it really is and what goods and services it wishes to produce (Scott, 1998). For B&H, this was probably a
complex task because of their diversified business holdings and adjustment in core organizational features already mentioned. Once this is determined, information is compiled, including “reports, statistics, and facts” on the environment in which the organization is operating (Scott, 1998). B&H probably gathered accurate and factual materials regarding microfilm, however, they were just looking in the wrong place to begin with. Information gathering cannot be an endless task because time spent on collecting information takes away from other company activities (Scott, 1998). This suggests that information is inherently going to be incomplete. Next, this information has to be transferred to a decision maker in the company (Scott, 1998). Similar to the intake of information, the transfer of it can never truly be completed (Scott, 1998). Ultimately, the information is processed down into a tiny bite-size report, is handed to a decision maker, and an enacted environment is finally determined. The enacted environment is therefore the perceived environment in which the organization believes itself to be functioning in (Scott, 1998). B&H was clearly way off in determining their objective environment, because microfilm was an unwise investment that did not utilize their environment fully. Reasons for this may be attributed to a change in core organizational features, faulty information, or a bad decision. Regardless, incorrectly assessing their environmental interdependence contributed to their fall from the Fortune 500. A shift in core organizational features may have also been responsible for the mistaken enacted environment that resulted in the sale of Merrill Publishing. In order to finance a leveraged buyout of B&H, The Bass Group, led by Robert Bass, decided to sell off portions of the company (Merrion, 1989). His investment group began to sell off parts of B&H that they considered to be “non-core” (1988, January 5). Though considered
“non-core” by The Bass Group, the divisions that were put up for sale were some of the most profitable and expensive. Merrill Publishing was considered an integral component of B&H’s publishing activities and contributed to one-sixth of their total revenue (1989, August 31). This raises suspicion about Robert Bass’ intentions with B&H. Bert Boksen, an analyst with Raymond James & Associates said, “I think that it’s been part of the game plan all along, break up Bell & Howell, the parts are worth more than the whole” (1988, January 5). However, Bass stayed with the company for seven years and continued its transformation into an information technology business, which suggests a devotion to the company rather than a merely capitalistic endeavor (B&H Company). What appears more viable is that B&H viewed themselves as an information technology company, and therefore, a publishing company would in fact appear to be “non-core.” This can be attributed to structural inertia and their changing core organizational features. Merrill Publishing was the final piece of the puzzle to remove in order for the transition that Donald N. Frey had initially started in 1971 to be complete. This also happened to the final straw for B&H, and their fall from the Fortune 500 list occurred soon after. By pinpointing specific and significant events in Bell and Howell’s past, organizational theory assists in explaining why in fact the company fell out of the Fortune 500. Initially, we considered how B&H was an old company looking for a fresh start and in dire need of change. As a result, Frey chose to engage in a fifteen year process of restructuring the company. The organizational theory associated with this event was a component of population ecology called structural inertia. This theory explains how it is hard for companies to change their ways, most notably due to core organizational features
and tradition. B&H supports this theory in two ways. First, it took them a great deal of time to change their ways, which cost them efficiency and revenue. Second, they ultimately fell off of the Fortune 500 list, suggesting that companies who engage in structural inertia have to pay a price in order to make the change. Next, B&H was involved in a lawsuit. The organizational theory, institutionalism, explains why B&H was hurt by this incident. Institutionalism deals with concepts of legitimacy and homogenization, and by engaging in a deviant act like a court case, B&H’s reputation was damaged. At this point it is important to address the existence of both organizational theories of population ecology and institutionalism. Organizational theorists argue that only one of these theories hold true (Lecture November 5). However, as evidenced by B&H, in a real-life setting both theories can be at play. This is totally likely, because organizations are dynamic entities that engage in a number of activities. This allows them the opportunity to embody either one of the theories at a given time. To remedy this, organizational theorists need to shift their emphasis from defending theory to applying it. When this is achieved, a bridge between the two theories can be formed, which will be beneficial for everyone. To conclude, remember the final example of organizational theory given of environmental interdependence. This was the case with the acquisition of microfilm technologies and sale of profitable pieces of their company. B&H was confused about their standing within their own environment, which therefore created a significant rift in their conception of their environment, enacted environment, and their true environment, objective environment. By misaligning these two, B&H was lead to produce the wrong
outputs for their market, which ended up hurting their revenue stream. Ultimately, companies are going to try and act in ways to improve their chances of success. Being aware of organizational theories can help those companies succeed.
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Structure as Myth and Ceremony. The American Journal of Sociology. 83(2). 340-363. Scott, W. Richard (1998) “Organizations: Rational, Natural, and Open Systems.” 4th Ed. Upper Saddle River: Prentice Hall. Pp 123-148. Simon, Ruth. (1986). What, All Kidding Aside, Is New? Forbes Magazine, 138(8). Retrieved November 14, 2007, from ProQuest. Wilson, M.R., Porter, S. R., Reiff, J.L. (2005). Bell & Howell Co. In The Encyclopedia of Chicago. www.encyclopedia.chicagohistory.org/pages/2567.html.
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