Case Study Analysis: SHAKING UP EXXON
Submitted to : Prof. Dr. Sumita Mishra
Presented By : GROUP - 6, SEC -D, MBA-I
Pratyush Kumar Sahu (12202207) Prerita Singh
(12202208)
Purwak Sitani
(12202209)
Rahul
(12202210)
Rahul Kumar Jain
(12202211)
Rashmi
(12202212)
KIIT SCHOOL OF MANAGEMENT , BHUBANESHWAR
Company's profile : Exxon is a gas station as well as a brand of motor fuel. Exxon deals in fuels, gasoline, gas , lubricants & exxon mobil cards
. In 1972, it was unveiled as the brand name for all former Enco and Esso outlets. It
was set up in US. It is one of the largest and most prosperous corporations in the world.
Case study analysis : Exxon before Lawrence Rawl as the CEO : Exxon was a conservative company. Consensus was the dominant decision making style prevalent in the organization. This style of decision making was quiet safe because here no single individual or group was blamed for the failure of any project. The company had developed a complex check-and balance system for its far flung operations which complicated the decision making process. Exxon was lagging behind its competitors due to its unsuccessful cost cutting strategy and its stock was also languishing. The formalization in the company was high and there was employment security for the employees.
Exxon after Lawrence Rawl as CEO : Lawrence Rawl had joined Exxon in the year 1952 as a junior employee and he moved up through the ranks. He was made the CEO of the company in January 1987. He was chosen for this position because of his excellent leadership abilities and also because he had a vast experience of about 35 years in the same organization. After taking charge as the CEO , he made certain bold moves to make Exxon an efficient company. Some of those changes are
First of all he emphasized on disengaging from non-energy and chemical businesses and making Exxon smaller.
Rawl focussed on downsizing of the organization. Employment of the organization was reduced by about 30 %. Initially when Rawl took charge as CEO of Exxon, the organization had 1,40,000 employees and then the number was reduced to about 1,00,000. Some 8000 employees left the organization after the downsizing of the organization, nearly 36,000 employees were eliminated as many businesses were sold off and about 3000 employees were reassigned to other jobs.
Vertical levels in the organization was reduced and senior management jobs was cut down to half i.e. their number was reduced from 500 to 250.
Consensus decision making style was no longer used and the decisions were made faster.
Rawl also folded together numerous regional subsidiaries of the company and focussed on reinforcing the worldwide operations.
Lawrence Rawl had introduced a cost- cutting strategy in order to maximize the company's profit. His strategy was quiet successful as it had added about $375 million to Exxon's net profit in 1987. His trimmed-down work force earned about 48,400 dollars per employee in annual profit. Moreover, Exxon also succeeded in cutting the cost of producing synthetic fuels from $60 to $30 per barrel.
By mid 1988, formalization in the organization was low, environmental uncertainty was high and job security for the employees was low.
Demerits of Rawls move : The demerits of Rawl's move are as follows :
The downsizing activity in the organization was done too autocratically without evaluating the negative impacts of such activity.
Senior management jobs was cut down to half because of which grooming of future leaders became difficult. This led to the reduction in bench-strength of the organization.
Employees morale was too low due to job insecurity because the under-performing employees were fired and their pay-raises and promotions were dependent on their performance level.
The downsizing activity of the organization had affected the psychological productivity of the employees.
Workload on the existing employees had increased. Many of the employees had to assume the responsibilities which were previously held by as many as three or four employees. This led to an increased level of workplace stress.
Theoretical Perspective : 1. Climate & Culture Survey : Organizational climate (sometimes known as Corporate Climate) is the process of quantifying the “culture” of an organization. Organizational climate, is often defined as the recurring patterns of behaviour, attitudes and feelings that characterize life in the organization. Organizational climate is briefly defined as the meanings people attach to interrelated bundles of experiences they have at work. Organizational culture is defined as the basic assumptions about the world and the values that guide life in organizations. Organization culture tends to be deep and stable. Corporate Climate and Culture Survey is conducted by many organizations to examine employees opinions about the quality of their organization's work climate and can be used to identify opportunities for workplace improvements. Here in this case, Lawrence Rawl had not conducted any climate and culture survey prior to downsizing of the organizations employment strength.
2. Downsizing : Downsizing occurs when a company permanently reduces its workforce. Corporate downsizing is often the result of poor economic conditions and the company's need to cut jobs in order to lower costs or maintain profitability. Disadvantages of downsizing :
Decrease in the morale of the employees Psychological productivity of the employees drops. Increased absenteeism from work Reduced organizational commitment and employee-engagement. Increased levels of workplace stress.
Here in the given case, Lawrence Rawl had done the downsizing of the organization too autocratically without properly forecasting the appropriate employment strength that was supposed to be cut down. 3. Survival Syndrome : It is a consequence of downsizing and restructuring activity of organizations and denotes the emotional, psychological and organizational repercussions faced by those who remain employed . Survival Syndrome if left unchecked results in significant unwanted outcomes . A survival syndrome survey offers a clear insight into the areas, unit by unit, that must be addressed to minimise inadvertent performance reductions.
Lawrence Rawl had imposed downsizing of the organization without taking into consideration ,the negative aspects of survival syndrome in the remaining employees of the organization.
Questions & Answers : Q.1) Contrast Exxon’s environment in 1968 and 1988.
Ans:
Environment in 1968
Environment in 1988
It was a conservative company
It was no more a conservative company
Vertical differentiation was high because there was more number of vertical levels in the organization.
Vertical differentiation was low because the vertical levels in the organization was reduced.
Formalization was high because there was a high degree of standardization within the organization.
Formalization was low because there was downsizing of the employees strength and the number of meetings were reduced, so the standardization level in the organization had also considerably reduced.
Centralization was high because the top ranked executives examined the proposals and sent them to key corporate committee for decision making and the lower ranked executives never opposed their decisions.
Centralization was low because the senior management job was cut down to half and the vertical levels in the organization was also reduced.
It had a mechanistic structure because complexity was high, formalization was high and centralization was also high.
It had an organic structure because complexity was low, formalization was low and centralization was also low.
Morale of the employee was high due to job security.
Morale of the employee was low due to job insecurity which was a consequence of the downsizing activity of the organization.
Consensus was the prevalent decision making style and the decision making process was a bit slower.
Consensus decision making style was not followed and faster decisions were taken.
Cost cutting strategy of the company was not up to the mark because of which the company was lagging behind its competitors.
Cost cutting strategy of the company was quiet successful as this strategy had maximized the company's profit.
The company had no risk taking leaders .
Lawrence Rawl , the new CEO of Exxon was a risk taking leader and he took certain bold moves to make Exxon an efficient company.
Q.2) What , if anything can Exxon do to manage its environment ? Ans: Exxon can manage its environment in the following ways : It can adopt various internal strategies for managing the environment :
Exxon can broaden its strategy to take a generalist format because the more general an organization's objectives, structure , and activities, the more resources will be available to it and the greater flexibility it will have in responding to the environmental change. So, instead of only focussing on the oil sector , it should also focus on solar and nuclear energy sector.
The recruitment of right people needed to do the desired job must be carefully done i.e. it should focus on selective hiring of the employees because this will help to lessen the influence of the environment on the organization.
Exxon can also hire executives from competing firms to acquire information about their competitor's future plans.
It can also perform environmental scanning which entails scrutinizing the environment to identify actions by the competitors, government, etc, that might impinge on the organization's operations. This scanning can help to get an accurate forecasts of environmental fluctuations and reduce environmental uncertainty.
Political uncertainty for a business firm depends on its location. So, Exxon can lessen this risk by operating in multiple locations.
It can also adopt some external strategies for managing the environment :
Through extensive advertising for its products, Exxon management can reduce the competitive pressures, stabilize demand and allow it the opportunity to set prices with less concern for the response of its competitors.
Exxon's management may agree to a long term-fixed contract with the airlines to supply them fuel.
Exxon may also resort to coopting their uncertainties by absorbing those organizations in the environment that threaten their stability. This can be accomplished through selective appointments to the organization's board of directors.
Q.3) a. How did Rawl carry out his change program ? Ans: Lawrence Rawl carried out his change program in the following manner :
He carried out downsizing activity in the organization due to which the employment strength of Exxon reduced from 1,40,000 to 1,00,000 . The underperforming employees were fired from the organization and their pay raises and promotions were dependent on their performance levels. Vertical levels in the organisation was reduced and the senior management job was cut down to half i.e. their number was reduced from 500 to 250. He folded up numerous regional subsidiaries and focussed on reinforcing worldwide operations of the organization. Many businesses, which were not earning any profit to the company were sold off and the company’s disastrous attempt at office automation was also closed. Rawl gave more emphasis on energy and chemical businesses.
He also abandoned company's investment on nuclear and solar energy.
He adopted a cost cutting strategy in order to compete with the competitors in the market.
b. Do you think the approach could have been improved upon ? Ans: Yes, Rawl's approach could have been improved upon in the following ways:
An appropriate forecast of downsizing should have been done before reducing the employment strength of the organization.
The senior management jobs should not have been cut down too autocratically as it led to the reduction of bench strength in the management talent of Exxon.
The company should have given its employees a better job security. The employees should have been given incentives and perks to boost up their morale.
The company should have also reduced the work-load and stress of the employees in order to avoid a decrease in their psychological productivity as well as reduction in organizational commitment.
Q.4) In downsizing Exxon, what problems did Rawl face that could have been predicted based on research of declining organization ?
Ans: Problems faced by Rawl in downsizing Exxon are:
Due to inappropriate downsizing of senior management jobs, there was a reduction of benchstrength in the management talent of Exxon.
Some 8000 employees left the organization after downsizing. This led to the reduction in the workforce of the organization.
The morale of the employees was too low due to job insecurity . After downsizing of employment strength of the organization , Survival Syndrome was quiet evident among the remaining employees of the organization. The psychological effects on retained employees was quiet deep and the survivors were presented with many changes within their own working environment. This change had reduced the psychological productivity of the employees and it had also affected their organizational commitment .
Due to reduction in the workforce of the organization, the work - load and stress on the remaining employees had increased considerably and this had hindered their performance levels.
The various downsizing problems could have been predicted based on the research of declining organizations in the following manner :
The sudden decisions taken by Lawrence Rawl to improve the prevailing conditions of Exxon should have been taken after doing some research on various aspects.
Lawrence Rawl should have properly analyzed the competitive position of Exxon as well as the impact of the downsizing activity on the organization's future strategy, climate and culture. In other words , they should have conducted a thorough culture and climate survey of the organization prior to the introduction of downsizing.
They should have also focussed on the aspects of survival syndrome that comes into play after the downsizing activity in the organization. This could have helped them to boost up the morale of their employees and reduce their work pressure and stress levels after downsizing.
