Reorganizing AT&T: From Vertically Integrated to Customer-Centric Organization (B)

The company's operating income had nosedived 44% to $4.36 billion for the same period (Refer Exhibit V). By early 2003, AT&T faced fierce competition from local exchange carriers - the RBOCs that were quickly entering into the long distance communication business. The RBOCs provided 'all-distance' services in 35 states in early 2003, and planned to offer the same service in all the 50 states in the US by 2003-end. In the voice services that constituted 80% of AT&T's operating income, the company faced aggressive price competition from RBOCs, resulting in loss of market share. According to industry analysts estimates, the RBOCs were expected to capture 28 million residential long-distance customers constituting 40% of the market by the end of 2003...

After the spin-off of AT&T Wireless and AT&T Broadband, the company had only two divisions left - AT&T Business and AT&T Consumer. The reorganization would reduce the layers of management between the CEO and the line workers from 14 to 7. Dorman felt that several layers of management had made AT&T lethargic and unresponsive to the needs of customers. Dorman described the reorganization as a long-term exercise, and said it was not just prompted by AT&T's poor financial condition. He said that it was a part of the holistic organizational strategy of AT&T to transform its culture by laying less emphasis on business functions and designing a unique horizontal leadership structure. Dorman said, "We've benchmarked ourselves against the best companies in the world and aligned our resources squarely against our top priorities...