Ebay structures its bid for Change
Adoption of an improper organizational structure design that is not flexible enough to the unstable and the rapidly changing external environment in eBay’s domestic and international markets.
Analysis and Evaluation
A functional organizational structure with various operational areas, such as finance, operations, human resources, and legal units was adopted for the eBay during its establishment. In a functional structure, workers and activities are organized into areas of their expertise or units given specific functions. Therefore, the structure promotes efficiency and development of distinctive, specialized organizational capabilities. However, this kind of structure also causes problems in coordination and conflicts across the functions (Lee, Kozlenkova & Palmatier, 2015).
During the Company’s establishment, a system design based on the behavioral model was also integrated into the functional structure design to encourage proper human relations and emphasize on groups’ efforts and interpersonal processes. The objective of this structure was to support the creation of an online community whereby two complete strangers acting as buyers and sellers would engage in open communication, interactions, and trustworthy relationships. The structure would also enhance elimination of bureaucracies, fairness in decisions making, and decentralization. However, this did not materialize as the website is still considered as an online auction and shopping site.
Later, the eBay incorporated three divisional units into its organizational structure including the Marketplace Operations unit, PayPal unit, and Skype unit whereby each unit is headed by its president who reports to eBay CEO. The change in the structure occurred after the issuance of 1998 IPO when eBay acquired other companies. Some of the companies acquired were PayPal, Skype, Butterfield & Butterfield, Half.com, and other online auction companies with the majority of them being foreign startups. With the exception of PayPal and Skype, the other companies joined the Marketplace category that offers eBay main Marketplace activities. The Marketplace operation contributes the largest share of the revenues for eBay, followed by PayPal and Skype with the lowest revenues.
In such a multidivisional structure, there are separate and smaller divisions that perform varying functions. Every unit of the divisions is more focused in a given area, which makes the structure have more ability to adapt to market changes than the functional structure. Nevertheless, this kind of structure leads to duplication of management, administration, and staff activities, thus, there is inefficiency in the use of functional resources, higher costs, and loss of economies of scale. The multidivisional structure that was introduced in eBay was services-centric because it was focused on the kind of services provided in each division (Lee et al., 2015).
The changes that have occurred in eBay’s organizational structure resulted in the current matrix structure. This is because the activities of the Company are aligned along more than one line of authority that is also applying the divisional and functional chains of command. As it is explained in the case study, each of the three divisional units has a president and its functional areas. This kind of structure enhances decision-making, cross-functional cooperation, and flexibility in operations, but it also creates confusion of tasks and power struggles (Lee et al., 2015). The Marketplace unit can co-operate with the PayPal units to use their Internet payment and communication services. However, this is also likely to cause problems in the control of resources and incomes obtained in each unit.
Since 2008, eBay has encountered various changes in the external environment that have led to a decline in its financial performance and lower growth in its projected incomes from Marketplace activities. These changes include the great recession that influenced the ability to buy items on the auction market, lack of popularity in the online auction business strategy, increased competition from other companies like Amazon and Google and pressure from investors to maintain profit levels.
Therefore, eBay made rapid changes in the company in form of rules and regulations to take care of the changing environment and the growing number of buyers and sellers. The rules and regulations were incorporated in a new strategy that would allow eBay to utilize the synergies of Marketplace and PayPal operations. However, this new strategy received a lot of criticism from buyers and sellers in both the domestic and international markets. They were against the introduced policies that would result in increased fees, commissions, and adoption of PayPal as the only payment option, which was criticized for being anticompetitive in online commerce. Therefore, the new plans only resulted in leaving buyers and sellers transacting through the website more dissatisfied with their services.
It is clear from the case study that the organizational structure of eBay that has evolved from a functional structure to a matrix structure does not help in managing the changing environment in an effective manner. Moreover, the structure does not enhance proper interpersonal relationships within and outside the company. To attain superior performance, the structure of organizations should be aligned with the strategy of the firm. Additionally, it is essential to consider the approach used in grouping employees as explained by the type of structure and it characteristics that show its behavioral aspects, while deciding the appropriate structure that a firm should adopt (Mat & Smith 2014).
The environment in which an organization operates is also important in designing its structure. The ability to predict the changes in the environment as well as the stability of the environment have a direct impact on an organization capability to perform its responsibilities. An unstable environment with rapid changes makes it hard to make predictions. Thus, the organization should ensure that it is more compatible with its environment; it should adopt a structure that is flexible to ensure there is more coordination among its units and functional areas (Wahba, 2015).
In the eBay case study, the kind matrix organizational structure that has been applied defines boundaries, limits coordination across functional and divisional units, and is mainly product centric. A recommendable structure should support cooperation between units, have flexible internal and external boundaries, and flatten vertical hierarchies. It should also be customer centric such that it puts into consideration the needs of the customers by finding out their views on the business (Lee et al., 2015).
Therefore, the organization should adopt a more sophisticated and modular form of team structure referred to as ambidextrous structure to improve its existing matrix structure. This type of structure comprises different structurally independent project teams or different business units that are emerging. These units are considered flexible, adaptive, and good for exploration purposes. There is also an existing business unit, which is more formal and improves its performance by exploiting the existing capabilities (Lee et al., 2015). The structure will ensure there is flexibility to the changes in the environment and be able to support future growth of eBay’s business internationally. The presence of teamwork will assist in exploiting the emerging units, Paypal, and Skype in the business activities of Marketplace both in the domestic and international markets.
Lee, J. Y., Kozlenkova, I. V., & Palmatier, R. W. (2015). Structural marketing: using organizational structure to achieve marketing objectives.Journal of the Academy of Marketing Science, 43(1), 73-99.
Mat, T. Z. T., & Smith, M. (2014). The impact of changes in environment and AMT on management accounting practices and organizational strategy, structure and performance. Journal of Applied Management Accounting Research, 12(1), 55.
Wahba, M. (2015). The impact of organizational structure on knowledge management processes in Egyptian context. The Journal of Developing Areas, 49(3), 275-292.