Cypress Semiconductors was founded in 1982 by Rodgers and 6 others and has grown into a $600 million semiconductor firm in 1994. Cypress semiconductors was forced to rethink on its original niche strategy and decided to compete in higher volume markets through competitive cost structure and rapidly introducing new products.
Rodgers, the CEO believes in a very hands-on style of management. He actively participates in meetings with his strong technical background, is capable of and believes in micromanagement of his employees and is known to be forthright in criticism.His values are very much reflected in the work culture at Cypress.
The organizational structure of Cypress has undergone a change since 1992, after posting its first loss in a year, from a federation of subsidiaries to a division based structure. It also decided to cut its niche product portfolio by half and concentrate instead on only high volume markets where it would constantly try to innovate. Cypress has always recruited extremely competitive and high performance individuals through its rigorous recruiting processes.Its transparent performance management systems and processes allow it to ensure that good performers are given appropriate incentives to work hard, though a system of raises which are correlated with the contribution of the employees.
However, it has discovered that its current system of relative ranking and evaluation of employees has some disadvantages. These mainly relate to a decreased customer sensitivity and lack of coordination among employees, not to mention scope for manipulation of the software system used.Therefore the purpose of this study is to examine whether any changes are needed in its systems and processes to ensure alignment with its values and visions. The semiconductor industry was undergoing a rapid change during the early 90’s in the US. Marked by rapid technological changes, new product introductions and new players entering the scene, the industry was becoming increasingly competitive.
Products which were once niche were fast becoming standard mass produced products thereby getting commoditized and leading to lower margins.The need for faster and more newer products was driving the industry. Cypress semiconductor is currently in such a situation, where its niche focus strategy was not reaping rewards anymore and it was up against industry majors. Cypress was in the cross roads of redefining its strategy into being a high volume player, with need for faster innovations and new product focus. The decision involves aligning structure and organisational systems and processes to fit into this new strategy.
The semiconductor industry is a typical case of a Complex and unstable environment as discussed above.The associated decision making like product strategy decisions, pricing and other market related decisions carry a lot of uncertainty. The ideal fit of the organisational design under such a scenario is an organic and differentiated structure.
Organic refers to a structure where there are low levels of formalization in the work place, higher decentralization and greater flexibility. The need for innovation and the entrepreneurial spirit can be achieved through an Organic structure coupled with high levels of differentiation.Differentiation refers to the presence of different elements of the organization which respond differently to the environment.
In cypress case, New product development team needs to respond to environment in a manner that is different from the way its manufacturing responds. All these years Cypress was more product focused. They need to realign themselves into being more customer and market focused, thus necessitating the above design elements. Organisational model before the mid-life crisis: Cypress during its initial years was organized into a free market subsidiary model with each entity being a profit center.Such a structure was well aligned with its overall strategy of being a niche player. Cypress increasingly faced pressures like longer new product development times and high cost, along with the changing context in the industry and competition from big players. Cypress was undergoing a crisis of control as described in Greiner’s theory of organisational evolution and revolution. The independent subsidiaries took the control away from Rodgers and were not aligned with one another to meet the challenges of the new environment.
Profit sharing programs, Stock options were all tools of motivation during this phase of growth.Rodger’s restricted the activities of the board to decide on the investments for each of these subsidiaries. Cypress had to shift its strategy from being a niche player to a high volume differentiator strategy with focus on new products. This necessitated Rodgers to withdraw the free market subsidiary model and encompass all the units as divisions into a single entity called Cypress.
This divisional structure is a move towards growth through delegation and moving away from the crisis of control. Source: Evolution and Revolution as organizations grow, Larry Greiner, HBR, 1972Strategic type of Cypress Semiconductor: Organizations are broadly classified into three strategic types namely defenders, prospectors and analysers1. Cypress Semiconductor may be classified as prospectors as they are driven more towards innovation and developing new products and in targeting new markets. Prospectors often operate in dynamic and highly unstable environments like the one in which Cypress Semiconductors is operating in. It is imperative for such organizations to constantly look out for new opportunities to launch new products in existing markets or to tap new market segments.They need to continuously innovate to stay ahead of competition.
Strategic types are matter of choice rather than of design. Rodger’s vision of turning Cypress into a monumental company with more than a billion dollars in revenue is matter of choice requiring a Prospective mode of strategy formulation. Source: “Organizational Strategy, Structure & Process”. R E Miles, C S Snow, A D Meyer & H j Coleman Academy of Management Review, 1978, 3(3): 546-62 The entrepreneurial decision involved at the strategic apex level is that of locating and exploiting new product and market opportunities.The engineering problem is that bringing about new products and sustaining innovation, while the administrative problem remains how to coordinate and facilitate the systems and processes to get a fit between these decisions. LEVERS OF CONTROL: Clan Control: People are the Key drivers for Cypress success, which means attracting and retaining talent, is extremely crucial for its success. Clan control is the most suitable control mechanism Cypress.
Clan control is ensured by aligning the roles of the principal and the agent.The principal in this case is Rodgers and the agents are the individual employees. This is in turn is achieved by screening the individuals thoroughly during the recruitment phase to check whether they fit in with the culture of the organization. This is exactly what Cypress is doing.
They are so serious about recruitment that the top management plays a major role throughout the recruitment process and checking whether the individual fits in well with the organizational culture. Is Diagnostic Control appropriate for New Product Development?Right now, diagnostic control, wherein the organization runs in auto pilot mode i. e. it scans for signs of abnormality and monitors whether the critical performance variables are within acceptable limits, is being followed throughout the organization. Cypress currently uses Killer software to check the attainment of goals and to improve goal congruence among its various members.
Cypress is in a stage where it needs to consolidate its growth through coordination between various divisions. Killer software ensures goal congruence and dedicated effort in achieving this priority.But, new product development is a highly complex activity and following diagnostic control for this function can stifle innovation. The team will always have the deliverables in mind and this might make them risk-averse. So, the new product development team might decide to pursue incremental innovation in place of path-breaking inventions. In this industry needing rapid product innovation, it’s worthwhile to ask the “If I want my employees to be creative and entrepreneurial, am I better off telling them what to do or what not to do”.The answer obviously is the latter. “2 So, Boundary Control should be used to control the New Product Development team instead of Diagnostic Control.
Rigorous screening at the entry level should ensure that the individuals are motivated enough to work for the interests of the organization. Also, the employee stock options ensure that there is alignment between the organizational goals and the individual goals. Existing Diagnostic Control can be used to control the other functions in the organization.