United Technologies (UT) Restructuring
The UT's top management decided to split the company into three smaller units. The first unit will be called United Technologies, which will focus more on aerospace. The second unit will be known as Otis, and it will mainly be used to manufacture elevators as well as escalators. The last entity is Carrier that will specialize in manufacturing heating and cooling equipment, including other products (Kitroeff, 2018). According to the company’s CEO, Gregory Hayes, the decision to split UT into small units is aimed at enhancing sustainable growth, innovation, and to maximize value creation. The CEO believes that UT will gain a competitive advantage in the market by splitting up into small entities, especially due to enhanced innovation.
The decision by UT to split into smaller units is a good decision because it will enhance innovation while improving efficiency and effectiveness. Studies have consistently shown that small companies are more innovative than large companies. Large organizations like UT are characterized by organizational hierarchies that slow down decision-making ( Lima & da Silva Müller, 2017) . At the same time, because of organizational hierarchies, large companies are forced to follow a given established process before a final decision is made, leading to a slow speed of innovation. Sometimes innovative ideas appear irrational, and they may be hampered by lengthy procedure or steps of decision-making that is common in large companies. Thus, by splitting UT into three units, the company will improve its decision making, spurring innovative ideas.
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People and culture is another reason why the decision by UT will enhance innovation. Currently, UT has a robust internal culture that is not easy to break or change. People in the company are used to doing things in a certain way, and they may strongly resist any attempt to change the status quo. However, with smaller units, UT will have to worry much about employee resistance to change. Besides, employees in small entities will have an opportunity to share their innovative ideas because of close interaction between employees and the management ( Lima & da Silva Müller, 2017) . Therefore, the argument by Hayes that splitting up the company will increase innovation is valid and rational. However, the company must ensure that smaller entities have enough resources that are required to innovate. UT’s top management should provide resources towards research and development (R&D) activities to enhance innovation. Company restructuring through breaking up in smaller units is a strategy that is now being used by many large companies to gain a competitive advantage in the market.
CEOs’ Compensation
CEO compensation is currently one of the most controversial debates in the business arena. Many CEO receive excessive pay, especially when they are compared to junior staff. One of the reports that were published by the Economic Policy Institute revealed that CEO compensation increased by more than 1,000% between 1978 and 2014 while the average pay for junior employees has stalled or declined for many years ( Guillot, 2016) . CEOs from large companies such as Coca-Cola and Wall Street earn millions of dollars annually. Thus, there is a contentious debate on whether the excessive CEO compensation is justified.
One of the reasons why CEOs are highly paid is to increase the performance of a company. CEOs are always at the helm of companies, and they make critical decisions that determine the success or failure of a firm. Therefore, high or excessive pay is justified because it does not only motivate CEOs but is also improving the company’s performance (Eavis, 2014). According to Eavis (2014), companies like Coca-Cola that pays their CEOs well have enjoyed sustainable success for years. At the same time, excessive compensation is advantageous because it makes companies attract employees with relevant knowledge and skills to fit in the position. The position of a CEO requires a person with specialized knowledge, skills, and experience on management issues. High CEO compensation is a strategy to attract the best talents in a given field. However, excessive CEO compensation may hurt employees. Many subordinate employees feel that excessive CEO compensation is unfair, resulting in high turnover and low job satisfaction in some companies.
Currently, there are two main types of CEO pay model that are used by companies across the globe. The first model is known as a stock-based model, which is increasingly becoming popular. One of the main advantages of using stock-based compensation is that it aligns the interests of CEOs and shareholders (Eavis, 2014). It motivates CEOs to keep stock prices high to benefit from higher pay or compensation. At the same time, stock-based compensation acts as a disincentive to mess up the company’s performance. However, this compensation strategy is disadvantageous because it motivates CEOS to take excessive risks that may lead to the collapse of the firm. Secondly, straight salary model has been used to pay CEOs and top managers, and it is still popular. One of its main advantages is that the compensation can be adjusted based on the performance of managers. However, some people argue that it acts and a disincentive to CEOs and top managers, especially when the salary is fixed (Eavis, 2014). Therefore, stock-based compensation is better than straight salary model, especially regarding motivating CEOs and top managers and improving performance.
Improving Confidence in Social Media
Public confidence in social media has been declining over the last few years, especially due to data breaches. Therefore, to improve public confidence, CEOs from Facebook, Google, Twitter, and Snap should address the problem by taking the following steps.
The companies need to enhance security to protect user’s data from hackers and against any form of online fraudulent activity (Cohen, 2018)
The companies should execute promotional campaigns aimed at regaining public confidence on social media
The companies’ CEOs should act swiftly to address any existing or suspected personal data breaches to boost public confidence
Social media firms should blacklist any user who engages in online fraudulent activities
The companies should compensate users who have suffered from data breaches as a way of improving public image.
Satya Nadella’s Leadership Style
Leadership plays a vital role in determining the success of any business. Satya Nadella can transform and boost the success of Microsoft because of his transformational leadership style that resonates well with young people. Nadella has always embraced collaboration, creativity, and he has stimulated the intellectuality of his employees (Salem, 2018). At the same time, he has been acting as a mentor and a coach to junior employees while providing an opportunity for them to learn. As a result, he had managed to motivate Microsoft employees to be creative and innovative, leading to the sustainable success of the company. On the contrary, Steve Ballmer’s was characterized by a lot of aggressive competitiveness (Salem, 2018). Ballmer was more of a transactional leader because he was interested in following the procedures and rules. His leadership style did not result in a lot of innovation in the company, and he did not motivate employees to increase their performance. Thus, transformational leadership style is better than transactional leadership style, especially in the current business environment.
References
Cohen, S. (2018, March 24). Can Facebook restore public trust after Cambridge Analytica privacy scandal? The Star . Retrieved from https://www.thestar.com/business/2018/03/24/can-facebook-restore-public-trust-after-cambridge-analytica-privacy-scandal.html
Eavis, P. (2014, April 12). Executive pay: Invasion of the super salaries. The New York Times . Retrieved from https://www.nytimes.com/2014/04/13/business/executive-pay-invasion-of-the-supersalaries.html
Guillot, C. (2016, July 29). Does higher CEO pay produce better company performance? Retrieved from https://chiefexecutive.net/higher-ceo-pay-produce-better-company- performance/
Kitroeff, N. (2018, November 26). United Technologies to split into 3 companies, each with a sharper focus. The New York Times. Retrieved from https://www.nytimes.com/2018/11/26/business/united-technologies-split.html
Lima, V. A., & da Silva Müller, C. A. (2017). Why do small businesses innovate? Relevant factors of innovation in businesses participating in the Local Innovation Agents program in Rondônia (Amazon, Brazil). Revista Administration and Innovation Journal, 14 (4), 290-300.
Salem, A. (2018, January 23). Microsoft and the transformational leadership style of Satya Nadella! Retrieved from https://www.linkedin.com/pulse/microsoft-transformational- leadership-style-satya-nadella-ahmed-salem
