Addressing Organizational Problems from the Rational, Natural, and Open System Perspectives

The following post is adapted from my personal academic coursework.

Addressing Organizational Problems from the Rational, Natural, and Open System Perspectives

Food is big business because food is always in demand. While the cuisine may change across cultures and generations, every person throughout history has had to eat to live. The United States Department of Agriculture valued food, agriculture, and related industries at approximately $1.109 trillion in 2019. Furthermore, they noted that those working in these industries comprised nearly 11% of total employment in the United States. In the 21st century United States, farmers and manufacturers often produce the nation’s food far away from its population centers. Consequently, the food industry supply chain is vital to the industry’s continued operation.

The food industry supply chain moves commodities from producers to regional warehouses and subsequently to grocers and kitchens all over the country. Depending on the nature of the products, food may be frozen, refrigerated, or kept at room temperature. Of these, the refrigerated items – perishable commodities – are the most sensitive to both time and temperature. Fresh produce is one such class of perishable commodities and most consumers want their fresh produce moved “from farm to table” as quickly as possible.

Weersink, et al. discussed how “lean manufacturing and just-in-time production, distribution, and storage strategies have resulted in a low-cost food system.” They noted how these supply chains “operate on production schedules based on well-known customer requirements” and the difficulties with demand changes to “highly perishable products, such as… …produce [which has] a narrow window after it [is] ready for harvest.” Anonymous Produce Company (APC), is part of this supply chain as North America’s largest fresh produce distributor. APC has 23 local operating companies in Canada, Puerto Rico, and throughout the United States. One OpCo, located in Charlotte, North Carolina, is the subject of this paper. APC Charlotte faces several challenges which the rational, natural, and open system organizational perspectives help to explain and address.

Organizational Structure and Environment

Scott and Davis stated that “ownership is an important basis of power in most economic systems.” Parent Company, a global foodservice enterprise, owns APC as part of its specialty business group. As part of the Parent Company family, APC aligns its goals and processes with those of Parent Company. APC and other companies within the Parent Company enterprise cooperate well and work together to maximize operational success and profitability.

While Parent Company owns APC, the specialty company does enjoy some autonomy. APC has its own corporate office, leadership team, and organizational structure. APC divides its local OpCos geographically along the Mississippi River with Puerto Rico going to the east and Vancouver going to the west. Each OpCo and region also have their own leadership teams. Several OpCos service satellite markets from the OpCo’s main location. For instance, APC Charlotte services satellite markets in North Carolina (Asheville, Boone, and Winston-Salem) and South Carolina (Charleston, Columbia, and Greenville).

Parent Company recently restructured all OpCos across the enterprise into three tiers by sales volume. Higher-volume OpCos have more dedicated resources and lower-volume OpCos share more resources between OpCos. APC Charlotte is in the lowest tier of OpCos. While APC Charlotte has an in-house president, operations director, and sales director, they share a procurement director with APC Raleigh, and both organizations share their accounting teams with APC Atlanta. As previously mentioned, OpCos also share their regional leadership teams. This structure indicates that the organization tries to allocate its resources as effectively as possible.

Environment

APC Charlotte originally operated as a family-owned produce company with over 72 years of service to the local community. When APC acquired the OpCo, it also acquired its customers, facilities, fleet, and personnel. Many of the older employees long for the “good ol’ days” of family ownership and their perspective informs the company culture.

APC Charlotte operates in a unique space-time environment. Most of the OpCos function as centralized hubs and serve a dense urban core around the base of their operations. From there, they service the suburbs – the outer portion of the hub – and run shuttles to domicile locations which serve dense areas in smaller cities. These shuttles act as spokes and there are few customers along the spoke, if any. Hubs and rims drive income while spokes generate expenses. The average OpCo may run 25 local routes, ten suburban routes, four shuttles to domicile markets, and four routes from each of these domicile markets. This business model keeps labor and mileage costs low and allocates resources rationally to meet the customer needs.

In contrast to this, APC Charlotte is a small hub with a few semi-dense areas in the immediate vicinity. However, APC Charlotte has one of the largest territorial footprints of all the OpCos with six significant “rim” markets and lots of smaller markets along the “spokes.” APC Charlotte runs six local routes, six suburban routes, twelve “spoke” routes, and one shuttle to two additional routes from a domicile location.

Not only does APC Charlotte operate within a unique space, but also a unique moment in time. There is a worsening global shortage of truck drivers. Thomas et al. noted that “driver shortages and high turnover levels plague the [truck driving] industry” and that “demand for truck drivers continues to grow.” This shortage uniquely impacts delivery drivers because of the physically demanding nature of their jobs. The workload requires a significant amount of physical strength and is nearly impossible beyond a certain age. Those who are willing to do the work gradually lose their ability and acquiring new talent is difficult when other employers demanding less and paying more saturate the job pool.

Problems

Because of its culture and environment, APC Charlotte faces several interrelated challenges with staffing, sales, and corporate mandates. As employees leave the organization, the lack of replacements results in crippling staffing shortages that negatively impact the OpCo’s ability to meet its customers’ needs. This inability to meet customers’ needs negatively impacts sales. Low sales delay hiring which prolongs the shortage and perpetuates this negative cycle.

Despite having its operational base in a rapidly growing urban area and one of the largest territorial footprints of all the OpCo’s, APC Charlotte’s sales growth trails Charlotte’s 2% annual population growth. This statistic serves as a nagging reminder that the OpCo is neither growing nor maintaining its market share, but losing a little more of it each year. Compounding these two problems is the creep of corporate mandates that are detrimental to the OpCo’s success and sustainability.

Organizational Analysis

Scott and Davis stated that evaluating organizations using the rational, natural, and open system approaches permits analysts “to see and learn more about organizations than would [otherwise] be possible.” There is indeed much to know about APC Charlotte or any other organization, but this summary is not exhaustive. As King Solomon cautions his son in Ecclesiastes 12:12 (NKJV): “Of making many books there is no end, and much study is wearisome to the flesh.” The following is a brief analysis of APC Charlotte and its stated problems from the three perspectives.

Rational Perspective

Scott and Davis identified goal specificity and formalization as the defining characteristics of the rational perspective. These characteristics are alive and well within APC Charlotte and across the entire Parent Company family of companies. Parent Company and APC have rationalized produce distribution to the penny and the second.

Organization

APC Charlotte is a highly rational organization, perhaps rational to a fault. The entire Parent Company enterprise is highly structured and goal-focused, but manages to operate this way more profitably and with greater employee satisfaction than APC Charlotte. One likely reason for this difference is the persistent belief that the organization holds a Taylorian view of its employees: “In the past the man has been first, in the future the system must be first.” This belief compounds what Kanigel described as “the fierce, unholy obsession with time, order, productivity, and efficiency that marks our age.”

One example of this rationality run amok is a corporate push to reduce truck idle time. When drivers complained that they were concerned about their safety when turning their trucks off to wait half an hour for customers in sub-freezing conditions, the answer from leadership was “wear a coat.” This response, while perhaps technically defensible, typifies the nature of the relationship between the leadership of APC Charlotte and its employees.

Problems

Mooney stated that “the job is… …antecedent to the man on the job, and the sound co-ordination of these jobs… …must be the first and necessary condition in the effective co-ordination of the human factor.” In other words, the nature of the task determines the number and types of workers needed to accomplish it. Thus, from the rational perspective, the driver shortage is inexcusable. If the existing customer base requires 40 drivers to comply with federal and organizational regulatory requirements, then there must be 40 drivers. If there are only 25 drivers, then the organization must hire more drivers, make less deliveries, or make structural or technological adjustments to mitigate the driver shortage.

The sales problem and driver shortage are rationally interrelated. Addressing the driver shortage by reducing the customers exacerbates the sales shortfalls. Similarly, adding customers when the organization is unable to meet the current expectations exacerbates the driver shortage. Rather than solving these problems, corporate mandates compound them both.

Natural Perspective

Scott and Davis explained that natural theorists view organizations as collectivities whose participants “recognize the value of perpetuating the organization as an important resource.” While this perspective enjoys greater popularity at the ecological level, most employees of APC Charlotte do not share it. They feel some basic human empathy and loyalty to one another, but not to the organization that unites them. The extremely rational nature of the organization and the abundance of opportunities for employment outside of the organization contribute to this phenomenon. In fact, there seems to be greater unity against the organization than seeing at as a valuable resource worth perpetuating.

Organization

While there may be little interest in perpetuating the organization, it does manifest another characteristic of interest to natural theorists – informal structure. Scott and Davis defined informal structures as norms and behavior patterns “based on the personal characteristics and relations of the specific participants.” Barbosa et al. described informal structures as those which concern “a set of relationships and communication channels, …which… [encompass] the practices that actually exist in the organization, and which may escape, to a greater or lesser degree, from what has been previously planned and established.” Until recently, there were at least two informal structures in place at APC Charlotte – the historians and the hopefuls.

The first informal structure – the now-extinct historians – was built upon the formal structure which was in place prior to APC’s acquisition of the family-owned produce business. While this informal structure was in its final stages, several senior employees from each department still participated in it. A nostalgic hope for a return to a bygone era animated this group of “holdovers.” They had invested years of their life into the company, had considerable organizational knowledge, and sincerely wanted the organization to succeed, but the rationality of the organization discounted their contributions.

The other informal structure – the hopefuls – consists of those employees who see potential in the organization. Unsurprisingly, this is a small group. They are just as dissatisfied, if not more, than the other employees. However, this informal structure unites around a shared belief that “if only…,” then things would really be good. Their perspective is rationally based; they see a reason for their hope. They lack political clout, but they are vocal enough to keep the other employees’ collective despondency at bay.

Open System Perspective

Scott and Davis explained that “open systems are capable of self-maintenance on the basis of throughput of resources from the environment… [and] …this throughput is essential to the system’s viability.” APC Charlotte certainly meets these criteria. They require resources from the environment and customers to serve to remain viable.

Organization

APC Charlotte very obviously operates as an open system. A visitor to the facility can easily observe input resources and output resources. However, the organization functions as an open system beyond merely bringing in fresh produce and putting out fresh produce. APC Charlotte also sustains itself by through-putting employees, customers, and money.

Employees come from the environment to help the organization, work within the organization so long as it is mutually beneficial, and return to the environment with financial benefits and increased knowledge when the relationship ceases to be mutually beneficial. Customers come from the environment, receive produce in exchange for payment, and return to the environment when the relationship ends. Money comes from the environment, sustains the organization by meeting its expenses, and returns to the environment via the shareholders.

Problems

While the open system perspective explains how throughput sustains the organization, it also explains some of the organization’s problems. APC Charlotte has a problem retaining drivers. They return to the environment for increased wages, better quality of life, and other reasons. The organization also loses customers to the environment who are seeking better accuracy, delivery times, pricing, or quality.

Finally, the open system perspective explains why the APC corporate team issues mandates that harm the OpCos. The corporate team draws information from the environment. They analyze this information and draw conclusions about best practices. In a rational attempt to maximize profitability throughout the company, they push these “best practices” back out into the environment as mandates for the OpCos. This is well-intentioned, but the one-size-fits-all approach never “fits all.”

Reducing idle time does save money and may be a great practice in a balmy spring day in Los Angeles, but turning off the truck for half an hour on a 110-degree day in Miami or a 10-degree day in the Rocky Mountains is not. Likewise, mandating a 500-case minimum per truck may maximize profitability on a 10-mile route in a customer-dense urban core, but will turn a day’s work into a three-day nightmare for the driver with the 400-mile route averaging 10 cases per stop. The relationships between open systems and their environments sometimes necessitates that similar organizations in different environments operate differently.

Solutions

Addressing APC Charlotte’s problems is not difficult. Grenny et al. suggested that “one or two vital behaviors, well executed, will yield a big difference… …because… …there are moments of disproportionate influence.” While Grenny et al. intended this advice for individuals, the approach applies to organizations as well. APC Charlotte can address each of its problems with the adjustment of one or two vital behaviors.

While proposing solutions to the organization’s problems may not be difficult, gaining the necessary cooperation for the organization to implement these solutions is. Kotter stated that “establishing a sense of urgency is crucial to gaining needed cooperation.” Kotter offered several strategies for establishing this urgency, but Grenny et al. proposed one more. Grenny et al. explained that influencers “overdetermine change… [by] …marshal[ing] a critical mass of all six sources of influence [personal motivation, personal ability, social motivation, social ability, structural motivation, and structural ability] to support change. And when they do, change becomes virtually inevitable.”

Hire and Retain

While the rational approach may rub the employees the wrong way, it does provide solutions. As previously discussed, the solution to the driver shortage is to either cut the workload or hire more drivers. This is not a new proposal, but the organization has never successfully implemented it. The pushback is subtle.

The answer is always that the organization is hiring drivers “as quickly as possible” or that they “only need a couple more” to justify slowing the hiring process. Unfortunately, the attrition rate averages about one driver every two weeks. That means the organization needs to on-board one driver per week to meet its needs. Once the organization is over-staffed by a couple of drivers, then hiring can slow to one new hire every two weeks to keep up with attrition.

Grow Centrally

The sales problem is slightly more complex and best explained from the natural approach. The sales team is heavily incentivized for new accounts. However, once a customer has not ordered for three months, if they order again, they become new accounts. The sales team understands this and exploits this system by bringing the same customers back for a week or so each quarter. These customers are often in areas with little to no operational presence, so meeting their needs is complicated and diverts resources from other, more profitable areas.

Correcting this trend requires incentivizing long-term accounts, which is better for the OpCo’s long-term profitability. Developing long-term accounts requires more cooperation between the sales and operations teams to ensure success, but would yield both short-term and long-term positive results. Such an approach necessitates strategic growth, focusing on areas with greater customer density and high customer demand for more profitable delivery routes. As customer density and case density become entrenched in the OpCo’s culture, it will develop the dense urban core that serves as the hub for other OpCos’ operations.

Because the deficit of drivers is so great, it may be useful to develop customer density by increasing customers in high-volume areas and reducing the OpCo’s footprint in less populated areas around the rim. For instance, over the past four years, the OpCo dropped from seven full truckloads of produce to Charleston each week to two. Based on the expense, the Charleston market now barely breaks even. The same is true for the Columbia market. Meanwhile, there is tremendous growth potential in Charlotte if the OpCo can find the personnel to service those customers. Transitioning the unprofitable rim accounts to Parent Company’s broadline division would not harm Parent Company or the customers, but would help APC Charlotte reallocate its resources to operate more profitably in closer, denser markets.

Educate and Push Back

Finally, APC Charlotte must educate the corporate team about the harm their policies cause the OpCo and push back against harmful corporate mandates. The corporate team is not enacting these maliciously or out of willful ignorance; they are merely unaware of the unintended consequences of their actions. The corporate team is interested in acquiring data from the OpCos. This reflects well on them and shows that they are seeking knowledge and wisdom. Proverbs 18:15 states that “the heart of the prudent acquires knowledge, and the ear of the wise seeks knowledge.” Merida noted that “great growth… …demand[s] great wisdom in organization,” and that “business leaders need wisdom to organize a growing business.”

While the corporate team’s desire to get data from the OpCos is commendable, it is still somewhat likely that they would reject complaints from a small OpCo. The corporate team is looking primarily at quantitative metadata and researchers regularly discount outliers when evaluating data like that. Covey suggested that people tend to listen autobiographically and respond to others by evaluating, probing, advising, or interpreting. The OpCo needs to get data and a satisfactory interpretation of it to the corporate team and explain why a particular mandate works against the OpCo’s success.

Furman Shaharabani and Yarden explained several key reasons why the gap between theory and practice persists: “research is not persuasive enough, …not relevant to practice, …not accessible…, [organizations] lack the ability to change…, …few conclusive results, …few practical results, practitioners believe [results are] not conclusive or practical, [and] practitioners make little appropriate use of… …research.” The gap between the theory-based corporate mandate and the OpCo’s practice likely exists for one of the same reasons. If the corporate team fails to change its position, then the OpCo must exercise other options to remain profitable. For instance, if the corporate team mandates 500 cases per truck, then the OpCo will have to route creatively or drop customers. While neither of these is preferable, they do allow the OpCo to profitably comply with the corporate mandates.

Conclusion

APC Charlotte is a highly rational organization operating as an open system. This rationality has caused some friction between the formal and informal structures, but the formal structures hold most of the power in this organization. The OpCo suffers from three main issues – a driver shortage, sales shortfalls, and harmful corporate mandates – but these problems have simple solutions – hire drivers, grow centrally, and push back against the mandates. If the OpCo will enact these vital behaviors, then it can grow profitably and become one of the premier OpCos within the organization. This is the vision of the “hopefuls.”

References

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