Beautiful Shoe Co

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					                               Beautiful Shoe Company

(*The names of the persons and companies involved in this case study have been
changed by the authors)

Case Study on Organization Structure

The following case study was written by a group of SAV participants under the
advisory of Dr. U. Bumbacher, Basel University of Switzerland, Visiting lecturer at
Swiss-AIT Management Development Program in Vietnam ( SA V). The group of
participants includes Ms. Vo Thi Lan, Mrs. Vo Thi Quy, Mr. Tran Ba Nhan, Mr. Tran
Quang Trung (Ho Chi Minh City University of Economics) and Mr. Nghiem Si Thuong
(Hanoi National University of Technology)


In 1992, Beautiful Shoes company, a state-owned manufacturing company in Vietnam had
just come out of a long economic crisis . To maintain its recent success, especially its
latest achievement, the company was considering reorganizing its organizational
structure.   Through this, the Beautiful Shoes Company wanted to gain greater
effectiveness, increased productivity, and improved quality of life for its employees.
However, there were different opinions on how to proceed and which structure to choose.
Was there a suitable solution at all?

Company history

When it was founded in 1940, the Beautiful Shoes Company, a private company, named
'Canoe Company'. Because of the First Vietnam War (1945-1954) the company had been
officially 'inaugurated only 'in 1950. Its initial premises consisted of one workshop with 50
technological machines, equipment of different types and models and a small sized

Until 1975, the total workforce of the company had been approximately 300 employees
and the turnout of the most productive year was about 100,000 pairs of common shoes
and sandals.     After the Second Vietnam War ended in 1975, the company was
nationalized and renamed Beautiful Shoes Company. Since then it has entered a new
period of development which, according to the words of one of its established employees,
could be called " merely survival

The situation in 1992
In his heart of hearts, Mr. Nguyen Van VI , the General Director of the company, did not
see the past of his company in a positive light. He had been working for the company for
almost 19 years from historic 1975. Therefore, he knew very well everything that had
happened to his Beautiful Shoes.

During the period 1975-1980, the main objective of the company was to turn out a range
of sport shoes, bags and raincoats for the domestic market, fighting with joblessness just
in order to sustain the life of employees. In 1980, the company made its first steps into
the international market by cooperation with PLZOKAD Company from Czechoslovakia.
The new requirements on quantity as well as quality of export products, in fact, stimulated
its business while management was forced to change to adapt to the new expansion.
However, not long afterward, the company had to face another challenge. The economic
crisis overwhelming Eastern Europe affected also Vietnam and caused a difficult period
for Beautiful Shoes Company between 1980 and 1990. The company lost its biggest and
traditional market. The consequences were again Joblessness, turnover of staff, and

Fortunately, along with the economic crisis coming to a halt, new business relationships
between Beautiful Shoes Company and other customers and investors could be
established in the first years of the nineties. Those incentives coming from new markets
in Japan and Western Europe as well as from the former Eastern European countries
then pushed the company a considerably long step forward. At the end of 1992, total
workforce increased to 1,227 employees.        The total capacity reached 1,900,000 -
2,000,000 pairs of shoes per year.

                                                  1990            1991              1992

      Total output ( 1000 DVN)             7,738,044.1     2,116,481.3      3,170,761.05

      Export portion (I 000 DVN)           7,167,183.6     1,675,230.8      2,943,320.55

                                                  93%              79%              93%
Although, the production outputs of the company during 1991-1992 (Table) still fluctuated,
Mr. Nguyen Van VI recognized that it was time to review what had happened so far and to
do something to consolidate the achieved gains. He thought that a long-ten-n strategy for
development should be based on a good foundation.           Recently, the idea became so
pressing that Mr. VI decided to organize a meeting of functional managers from all
departments and the production area.

The meeting

At the meeting Mr. VI asked his people to identify what the problems were with the way
the company organized its business activities and how could they be improved. There
were very serious discussions on the whole picture of the company, especially on the
organizational structure. At first, Mr. VI thought that the discussion would soon give him a
very clear answer to the question he had raised and that it would be not so difficult to find
out the best way to proceed. Unfortunately, to his disappointment, the things became less
and less clear as the discussions went on.

Indeed, it was difficult to have a unique opinion on the situation of the company. At that
time, approximately 85-90% of its products were exported to foreign markets. However, it
had only a few end-of-the-line customers because almost all of its export products were
parts respectively component to other products. The production responsibilities of the
partners were determined by the agreements, according to which Beautiful Shoes was to
produce only some parts of the end products.          Therefore, there was a very strong
argument on the weakness of the company's marketing activities. The situation was the
same concerning Beautiful Shoes' sale activity in the domestic market. When a customer
came to the company with a feasible order, production line began to produce shoes.
Sometimes, domestic orders came from other companies in the same shoes industry such
as Hong Ngoc, or Phuoc Loc and Binh Minh, which were very strong competitors of
Beautiful Shoes, especially in the domestic market with a population of almost 70 millions.
The distribution network of the company included about 12 sales agents mainly located in
Ho Chi Minh City and a limited number of retailers through whom orders were formed.
The research and development activity during recent years had developed some new
models in which the model AOI.Z90.Fi127 was considered the best.

The current management structure presented 'in figure I seemed to include all
departments and production sections suitable and sufficient for the stable operation of the
company. However, Mr. Vi still felt that there was something unsettled in the scheme.
The first department was the Business Department supplying raw materials for production
and taking care of inventories and finished goods. The Department was also in charge of
working out plans for production and sales as well as market research. The Engineering
and Pilot Product Department, was, as its name suggested, in charge of developing
technological processes and new product research. It was also responsible for technical
standards, standard costs, technological rules and procedures for operation and
maintenance of machines and equipment. The Department of Repair and Maintenance
Service, The Department of Health Care, Administration and Personnel Department and
others were well placed in the organizational scheme. Still, Mr. Vi was concerned with the
communication line between departments and between workshops.

At the end of 1992, the Beautiful Shoes Company had simultaneously two joint venture
agreements with foreign partners. The production line of the company consisted of five
workshops. The workshop I was to produce sport shoes and cloth shoes for domestic
demand.      The workshop 2 was in charge of rubber processing and cutting for the
workshop 1. Sometimes, it also supplied work-in-processes made from artificial leather to
workshop 5 which was a specialized organization working in joint-venture with South
Korean investors. The main products of workshop 5 were bags, wallets and purses. The
workshop 3 and workshop 4 were the two joint-venture sections with Taiwanese investors.
The technological processes in the joint-venture workshops were under the control of
foreign investors. Naturally, it was most desirable that a direct relationship between the
subordinates and the General Director should be established and each workshop /
department should serve as an assistant to another workshop /department. However,
given the Beautiful Shoes' organizational structure the desired synergy had not been

While the lines of reporting of the subordinates to the General Director were clear, the
relationships between the departments and between the workshops were still a subject of
endless debate. Almost all of the managers in the company felt that the most important
thing to do was to determine the interrelationships between all departments before talking
about any production plan or development strategy. Some " dynamic " managers, whom
Mr. Vi relied on heavily to develop his new strategy, even said that they could not deal any
longer with this foggy situation. Another group of managers, represented by a young
manager, a recent graduate of the School of Management, argued: " The focus of the
structure is specialization of the human elements of the group. As long as its
organizational structure is sufficient to the tasks imposed on it, the structure tends to
persist. Organization structure is the basis for all activities of a company to achieve its
goals. Therefore, before talking about the new structure of the company, the strategic
objectives should be clearly identified and determined

In reply to the argument, the representative of the first group of managers stated that: " In
order to be effective, every company should be organized in the way so that all its
resources, especially human resources, be mobilized and coordinated. Whatever the
objectives of the company, this requirement is the most worthy to be considered.
Moreover, the company is now in a critical situation. It needs to be changed".

The first group also did go on with the following evidence. At that time, the wages and
salaries were set by each joint-venture agreement in the case of workshop 3,4,5. Each
workshop was an independent organization under the supervision of the Vice-Director,
who reported directly to the General Director.      The problem was not only insufficient
communication between the workshops, but also the gaps and discriminations between
them which existed in reality. Usually products for export had higher requirements on
professional skills or knowledge of workers, technicians and engineers. So, in order to be
accepted in workshops 3,4,5, people had to go through very careful examinations and
tests.   Therefore, it was natural that the higher salaries and wages were offered for
employees working in joint-venture sections. As a consequence, it was also natural that
people were more willing to work for workshops 3,4,5 than for workshop 1,2.            This,
however, did not mean that high levels of skills and knowledge were not required 'in the
workshops for domestic demand. In addition, in long-term development, the company,
should, perhaps, have its own products and related technologies in order to compete in
the marketplace.

The argument also concerned the imbalance in the use of machines and equipment which
were evidenced by a slack or surplus of equipment capacity among different workshops.
At the end, the first group of managers concluded that they preferred a functionally
organized company because of a range of advantages such as maximum flexibility in the
use of staff , utilization of individuals experts by many different projects, sharing of
knowledge and experience, and so on.

In the end, when it seemed that the arguments could no longer continue, one speaker,
who introduced himself as a representative of a liberal group, suggested another solution.
He said that as the company had just come out of the crisis and the gains were not so
sound, a change at the moment was not suitable, because the resistance to the change
might destroy everything the company had done so far. However, on deciding which form
of organizational structure should be chosen, he said he preferred a matrix organizational
form or maybe a mixed organization


The meeting came to the end in that way, without any agreement or consensus. Only
then, Mr. Vi did recall that a couple of weeks before the meeting, one of his closest friends
had come to visit him and had predicted what would happen during such discussions. His
friend also advised him not to hurry because he had accepted the post only two years ago.
Moreover , he was not the owner of the company, so he had to think of himself before his

Of course, at that time, Mr. Vi did not agree with his friend nor had he during the previous
discussion. The company wasn't his , but he was in charge of it !. He had done something
good for the company. He knew he had to do more, and was willing to do everything to
solve the problems. Unfortunately, the only thing he did not know at the moment was how
and where to start. Should he try to solve the problem on its own or go through some
more - probably frustrating - meetings or should he even entrust a team to come up with a
solution ? What different organizational structures were feasible? And was the
organizational structure really the most important problem of the company ?

Mr. Vi did not sleep well at night as questions like these kept going through his mind. And
you, dear reader - Manager! If you had been Mr. Nguyen, what would you have done ?

Ho Chi Minh City, March 1994


1. Interviews

2. CHARLES W.L. HILL, University of Washington GARETH R. JONES, Texas A&M
    University Strategic Management, An Integrated Approach HOUGHTON MIFFLFN
3. THOMAS G. CUMMINGS and EDGAR F. HUSE Organization Development and

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