Pfizer's Hierarchy

Improved Essays
Register to read the introduction… Why is the number of hierarchical levels and managers limited?

A. Tall hierarchies face problems.

Communication Problems. As the chain of command extends, communication takes longer, which slows decision making. Information is distorted, accidentally or deliberately, as it goes up and down the hierarchy.

Q. How can information be distorted?

A. A long chain of command leads to misinterpretation of the message. Self-serving managers give selective information to decision makers. Subordinates tell superiors what they want to hear. Distortion leads to poor decisions, because decision makers have incorrect information.
Organizational Insight 5.1: Pfizer’s New Emerging Hierarchy
Through mergers and acquisitions, Pfizer’s hierarchy had become too tall. They cut the number of management layers between top scientists from 14 to seven and drastically reduced the number of committees.

Q. How did Pfizer’s structure contribute to its problems?

A. When organizations get too tall, they cannot respond as well or as quickly to the marketplace, which is what happened to Pfizer. This was fixed by flattening the structure so that the organization could respond better to the
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Tall hierarchies have high bureaucratic costs; a company pays a middle manager an average of $300,000 a year, so a cut of 1,000 extra managers saves $300 million. Layoffs become necessary if management pays no attention to its hierarchy. A company grows and hires managers without considering long-term costs. When the company matures, growth ceases, and cost reduction becomes necessary. To avoid layoffs, a company must continually evaluate its hierarchy.

The Parkinson’s Law Problem
Parkinson observed that from 1914 to 1928, while the British Navy decreased the number of ships by 68 percent, it increased the number of dockyard officials by 40 percent and top managers by 79 percent.

Q. Why did this occur?

A. Parkinson’s theory is that managers want to increase the number of subordinates, not rivals, so they make work for each other. In other words, “Work expands so as to fill the time available.”

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In an attempt to open many restaurants quickly, they lost control of the food quality due to the lack of training and standard preparation procedures. Although they did implement procedures, it was too late to save the restaurant, as word had already spread that they had poor quality and poor service.

In addition to illustrating the value of rules and standard operating procedures, this case also serves as an excellent example of the power of the reputation effect. Although they fixed the quality problem, it was too late in this case to save the organization.

Principle Six: Administrative acts, decisions, and rules should be formulated and put in writing. When written down, rules become official guidelines that can be used even when people leave. Written documents ensure that people can be held accountable.

The Advantages of Bureaucracy
A bureaucratic structure exists when an organization implements Weber’s six principles.

Q. What are the advantages of a bureaucratic

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