28th International Labour Process Conference 15-17 March 2010, at Rutgers University, New Jersey
Understanding corporate restructuring from a business function perspective
Monique Ramioul (HIVA-K.U.Leuven)[1] & Geert Van Hootegem[2] (CESO-K.U.Leuven)
FULL PAPER NOT PUBLISHED – pleas ask permission for citation
Abstract
This paper wants to contribute to a better understanding of corporate restructuring by using the business function concept. Corporate restructuring is often a result of a managerial decision to change the way business functions, such as R&D, IT-support or customer services, that compose the value chain of a good or a service are organised (outsourced or not, relocated or not).By using the organisational structures approach, business functions may be conceived as the result of the division of labour at different levels of the production process, while value chain restructuring may be analysed as changes in the division of labour of these business functions. Based on three case studies of value chain restructuring from the WORKS project, the paper investigates to what extent three specific design principles used in the organisational structures approach enable to better understand changes in the division of labour and their impact on tasks. The analysis shows that this approach proves to be adequate for investigating changes in the division of labour of business functions that are organised beyond the boundaries of a single firm (at the level of the value chain) and for understanding (subsequent) changes in the division of labour of the tasks involved in the restructuring. The cases show how business functions may be fundamentally redesigned due to their outsourcing or relocation and how this may have a deep impact on the task composition of the workers.
1. Analysing global value chain restructuring
1.1Global value chains
The financial and economic crisis of 2008 and the speed with which the economic downturn propagated confirmed one essential characteristic of the economy: the global interconnectedness of regions, sectors and firms reflecting a complex international division of labour. This is also reflected in the growing policy and academic interest of the last decade in offshoring and outsourcing, in particular of IT and business service activities (see for instanceHuws et. al., 2004; Van Welsum & Vickery, 2006). This trend of offshoring and outsourcing, and of corporate restructuring in general, is characterised by the fact that business activities, like production, IT or customer services, are decoupled and relocated elsewhere. As a result, the production of goods and services is realised along complex chains including a multitude of organisations which are linked to each other, either in trade relationships or under the governance of a common mother company. These linked firms can be located either at close proximity or anywhere else on the globe. Production processes are not restricted to the four walls of a single premises but stretch beyond them. As a result, it has become increasingly inadequate to look at organisations as self-contained entities, independent from other organisations in carrying out their primary activity of producing and selling goods and services. When analysing the restructuring of production and labour processesit may berelevant to include the level of what is generally referred to as the global value chain.
The links of one organisation to other organisations can take a variety of forms. Most firms combine in-house organisation of what they define as their core activities with different inter-firm collaboration modes for the other activities of which the value chain of a good or service is composed: joint ventures with universities for R&D projects, relocation of mass production activities to low wage subsidiaries, subcontracting and outsourcing for supporting activities such as maintenance, accountancy or IT services. Organisations decide on the modes of organisingthe different activities that compose the value chain within these interfirm relationships: on their economic governance (will activities be outsourced or made in-house) and on their location (will they be carried out at the same premises or not). In the context of a globalised economy and high competition, organisations systematically reconsider what activities will be organised where and how, leading to corporate restructurings in sometimes rapid succession: they sell subsidiaries and acquire competitors, they externalise certain activities and integrate others, they restructure labour processes, and they move workplaces. Such a decomposition, or fragmentation (Arndt S. & Kierzkowski H., 2001), and recomposition of the different activities along the value chain of a good or service is described as the restructuring of global value chains (Gereffi et. al., 2005; Huws & Ramioul, 2006, Flecker, 2007; Ramioul & Huws, 2009).
1.2Value chain restructuring and the business function concept
As described by Huws (Huws, 2009), theories trying to conceptualise the value chain date back to 18th century and include the work of Smith, Ricardo, Quesnay, Marx and Taylor. These theories encompass and link three different perspectives: theories on the progressing division of labour within and between firms, theories on economic value and theories on regional competitive advantages.
1.2.1The economic approach and the business function
When analysing global value chains from either of these perspectives, a functional approach to understand the relations between the different ‘nodes’ in the chain is mostly adopted. The commodity chain, the predecessor concept of the global value chain, is defined as “a network of labour and production processes whose end result is a finished commodity” (Gereffi & Korzeniewicz, 1994: 2). Theglobal value chain concept emphasises the value creation of these different ‘boxes’ in the production and the distribution of a commodity and includes all the different activities that add economic value to a product or service before it is supplied to the market: “Each step in the value chain involves receiving inputs, processing them and then passing them on to the next unit in the chain with value being added along the way” (Huws et. al., 2009: 25).Today, the different ‘nodes’, ‘boxes’, ‘steps’ or ‘activities’ that compose the value chain are commonly denoted as business functions.Porter (Porter, 1985) introduced the business function as a key concept of economic value creation. Business functions are the technologically and economically distinct activities a company performs to do business and that each add value to the end product (and therefore contribute to the firm’s competitiveness). They are classified into primary activities - production, assembly, transport & distribution, sales, and customer services - and secondary activities, which are supportive to the primary process, - finance and accountancy, HRM, training, product development.
The concept of the business function has recently received renewed academic attention because it provides a promising solution to solve measurement problems in the statistical mapping of the employment impacts related to offshoring and outsourcing. Becauseoutsourcing and relocation typically involves only a shift of specific business functionsbetween different firms, rather than a ‘lift and shift’ of entire companies, traditional industry classifications using units of observations such as ‘the enterprise’ or ‘the sector’ areincreasingly inadequate for the analysis of the structure and development of global value chains (see Huws, 2009:19ff for a summary on the measurement problems). The EU-funded EMERGENCE project used the business function concept empirically in order to map the outsourcing and relocation of telemediated business functions such as software development or customer relation services (; Huws, 2006). The US Bureau of Labor Statistics’ Mass Layoff Statistics program developed a list of business processes and business functions in order to collect data on massive layoffs in the US (Brown, 2008). Further, fourteen EU National Statistics Institutes recently used the business function approach in a Eurostat pilot establishment survey to map international sourcing (Nielsen P.B., 2008) and a national surveyin Belgium did the same (Geurts, 2009).
The described economic and geographic approaches of value chains and business functions are conceived in the first place to identify the economic value of the activities and to map international (trade) relations. Their major contribution is to shift the focus from the physically limited organisation to steps in the production process that are not necessarily organised at one location or in one contractual relationship. Therefore attention can be shifted to the entire value chain and to each of the business functions of which this is composed(Ramioul, 2008: 24). However, they may not providea schemeto analyse how the labour process is (re)organised in these business functions and in the network of organisations that composes the value chain.In order to understand the restructuring of value chains and business functions from the perspective of labour processes, jobs and tasks, a sociological perspective may offer additional insights. The question then is how to analyse organisational varieties in the structures of value chains and business functions from the perspective of the division of labour?How does the restructuring of value chains and business functions changes these labour processes and tasks and with what effects on the quality of work?
1.2.2The technical division of labour in the labour process theory
Analyses on the progressing division of labour go back to Smith, Marx and Taylor. The division of labour based on the standardisation of work has become a key issue in the sociology of labour with Braverman, who used the task as its basic unit of the labour process. Braverman (Braverman, 1975) charted how management has developed strategies to appropriate the knowledge of workers by separating conception and execution through scientific management and Taylorist management techniques. His work became a key reference publication of the labour process theory, which has since generated a huge amount of studies on changes in labour processes and in work.The longstanding theoretical and empirical work of the labour process theory cannot be given full account here. Their insights primarily focus on changes in the labour process within one organisation, emphasizing processes of fragmentation of work into standardised,short cycled tasks. However, the ongoing technical division of labour might also be analysed at the level of the inter-organisational division of labour because it contributes to the growing specialisation of firms and sectors and the acceleration of the globalisation of the economy: “The point is that once any task has been reduced to standard components or modules, these modules can be reconfigured in a huge variety of ways to suit the particular needs of any given organisation at any particular point in time. The greaterthe degree of standardisation, the greater the scope for reconfiguration, and the more potentially complex the global division of labour” (Huws, 2006: 7).
1.2.3The organisational structures approach
Inorganisation theories, the organisational structures approach from de Sitter as described by Achterbergh and Vriens (Achterbergh & Vriens, 2009) may offer a useful framework to analyse business functions from the perspective of the division of labour. Drawing on Ashby’s cybernetics theory and Beer’s Viable System Model, the point of departure is the organisation’s key goal of organising transformation processes in disturbant environments in a sustainable way, that is under the condition of meaningful organisational survival. This key goal is achieved via the organisation of (1) the primary operational transformation process and (2) a regulation structure that has the capacity to attenuate external and internal disturbances (that may impinge on the primary transformation process)and to amplify the regulation potential of the organisation to deal with these disturbances. Three conditions are necessary to realise the transformation and regulatory processes: an adequate organisational structure and division of work, proper human resources (skilful and motivated workers) and the right technical infrastructure (Achterbergh & Vriens, 2009:13). The first condition, an adequate division of labour, concerns theconfiguration of tasks to realise both the transformation and regulation processes. The organisational structure is the grouping and coupling of transformations into tasks and the resulting relations between these tasks relative to orders (ibid: 236) (see figure 1). The production structure contains the network of tasks covering the operational aspect of the transformation while the control structure contains the network of regulatory tasks to dealing with the disturbances in the production structure (ibid.: 232). The design of the organisational structure is the primary condition of the organisation and anticipates the human resources conditionand technological infrastructure condition.
Figure 1The organisational structure: operational and regulatory aspect of a transformation process. Based on Achterbergh & Vriens, 2009: 231.
Leaving the regulatory control structure aside for the moment, the concept of the production structure and its underlying design principles offer an interesting perspective to look at business functions, not only at the level of single organisations but also at the level of a value chain. According to de Sitter (Achterbergh & Vriens, 2009), the division of labour can be based on different design principles. The basis of the theory is the distinction between four generic system functions that can be identified at different levels:the overall production process,its different units and individualjobs. These generic system functions are: preparation (planning, purchase of raw materials,…), execution (the primary transformation process), support (maintenance, financial services, HRM...) and ‘organisation’. At each level, these generic system functions can be identified and they can be organised according to different grouping principles. The production structure is the outcome of thegradually more fine-tuned decisions on the division of labour of these generic functions at the different levels: “through a sequence of decisions with regards to the coupling and decoupling, or the composing and fragmentation, of activities, the aggregate of transactions of an organisation is gradually transformed from an undifferentiated pool of tasks to a network of orders or jobs” (Van Hootegem, 2000:67, own translation). This means that the preparatory, executive, supportive and organisational tasks can be clustered or fragmented in a wide range of possible combinations, which results in a number of organisational varietiesin the division of labour in the the overall production process, the different units and the individual tasks.
At each levelspecific design principlesare underlying the division of labour. Three key design principles are: the level of‘concentration’, the level of ‘differentiation’ and the level of ‘specialisation’.[3]First, functions can be concentrated or deconcentrated. Functional concentration means that all of the operational tasks of the same type are concentrated into specialised functional departments where they are performed for all “orders”. Functional deconcentration, on the contrary, means that all order types have their own specific set of operational subtransformations. These generate parallel flows performing all tasks for one order type (Achterbergh & Vriens, 2009:243). A good example is the function of HRM which can be described in a generic way as all activities aiming at regulating personnel in an organisation: selecting and recruiting, compensation, development and training, industrial relationsand employee involvement practices...In some organisations these tasks are concentrated in a special unit serving all departments of the organisation. However, in a lot of organisations HRM related activities are, on the contrary taken up by a variety of staff, such as hierarchical superiors or foremen, for whom these tasks are incorporated into their day-to-day job. Similar examples can be found with all other kinds of supportive of preparatory activities, such as planning, IT support, sales...which can either be organised in specialised functional departments or be allotted at lower levels of the organisation.Functional concentration may lead to the establishment of separate units that can more easily be hived off through outsourcing or relocation. From the perspective of the overall production process they are still part of the primary process, butthey are now situated at the level of the value chain.
Second, operational transformations can be organised according to the level of differentiation. There are three types of operational transformations: making (producing), preparing (providing the necessary conditions for making) and supporting (Achterbergh & Vriens, 2009: 245). The level of differentiation refers to the extent to which ‘prepare, make and support’ are integrated in one operational task or on the contrary differentiated, this means allotted to different tasks. For instance, selling copy machines includes preparatory tasks: informing the customer (discussing her needs for a specific copy machine, demonstrating different models...) and clarifying the sales contract (specifying maintenance and support arrangements, payment schedules, delivery arrangements); then there is the task of selling the machine (making the contract, delivering the machine at the customer’s premises and receiving the money), and there are supporting tasks (maintenance, technicalsupport...). These tasks can all be assigned to one employee responsible for one (or a number of) customers, or it can be differentiated between a sales representative, a legal person, a truck driver and a maintenance technician.
Third,decisions are made with respect to the degree of specialisation or the task cycle, which is about fragmentation of tasks into short-cycled subtasks.The example given by the authors is to ‘decompose’ the operational task ‘doing the dishes’ into smaller subtransformations: sorting out, cleaning, drying and storing dishes(Ibid.: 245).
Thecombined result of these design principles constitutes the actual labour process. The different principles according to which the labour process is divided implies that the division of labour in organisations with similar primary transformation processes may vary considerably, with a deep impact on the tasks and hence on the quality of work of the employees. And due to the varieties in the design of work processes at the different levels (overall production process, units and tasks), this can result in jobs that range from extremely fragmented, simple tasks to broad, integrated and complex functions (Van Hootegem, 2000: 67ff).
1.2.4The organisational structures approach applied to the business function and the value chain
This organisational structuresmodel can be applied to the concepts of the business function and the value chain. The input-output structure and the aggregate of primary and supportive business functions of an organisation, as analysed in studies on global value chains, can be perceived as the outcome of the decisions with respect to the division of labour of the generic system functions. The way the functions of a production structure, - making, preparing, supporting and organising - are clustered and fragmented results in a specific configuration of physical distinct business functions. In particular the level of functional concentration will result in varieties with respect to the organisation’s ‘set’ of business functions. The generic system functions and the different ways to organising them can quite easily be identified with the generic business functions as classified by Porter: production, assembly, transport & distribution, sales, customer services, finance and accountancy, HRM, training, product development.A specific business function, like IT-helpdesk or accountancy, can in one organisation be concentrated in a specialised functional unit to serve all, but it can also bespread overthe different units which each have their own IT-helpdesk or are each responsible for their own accountancy.Once concentrated to a certain level, business functions can be outsourced to third organisations in a trade relationship or they can be relocated to a specific subsidiary at another location. In other words, business functions can be (re)organised at the level of the value chain rather than within the organisation that is responsible for the primary process. This way, the aggregate of tasks of organisationscan be analysed from the perspective of the division of labour at the level of the overall production process and including both one specific organisation and others at the level of the value chain. But also at a ‘lower level’ theorganisational structuresapproach is interesting. The level of differentiation in the operational transformation structure (making, preparing and supporting)enables to gain insight into the division of work within a specific business function. As is well-known from the wide range of literature on job quality and job design, drawing on the Karacek and Theorell approach, the integration of both preparatory and supportive tasks into a job has a decisive outcome on the quality of work, on stress risks, on involvement and on learning opportunities. Value chain restructuring implying the reorganisation of a business function may also involvea revision of the division of work of different tasks of this business function, with potentially an impact on the job quality. Finally, the level of specialisation of tasks brings us back to the heart of the labour process debate where changes in the division of labour based on standardisation of work at the level of individual tasks are at the core of the interest.