DEPARTMENT OF BUSINESS ADMINISTRATION
Ph.D. in Management and Organization
Summary of Organization Theory and Design - Richard L. Daft
Submitted by
Özgür Önday
Submitted to
Prof. Dr. İlhan Atilla Dicle
2013-2014 FALL
Summary of Organization Theory and Design - Richard L. Daft
Page 1
TABLE OF CONTENTS
PART I – INTRODUCTION TO ORGANIZATIONS ................................................................................. 3
Chapter I: Organizations and Organization Theory ............................................................................. 3
PART II – ORGANIZATIONAL PURPOSE AND STRUCTURAL DESIGN ................................................... 9
Chapter II: Strategy, Organization Design and Effectiveness .............................................................. 9
Chapter III: Fundamentals of Organization Structure ....................................................................... 17
PART III – OPEN SYSTEM DESIGN ELEMENTS .................................................................................. 29
Chapter IV: The External Environment .............................................................................................. 29
Chapter V: Interorganizational Relationships.................................................................................... 35
Chapter VI: Designing Organizations for the International Environment ......................................... 41
PART IV – INTERNAL DESIGN ELEMENTS ........................................................................................ 50
Chapter VII: Manufacturing and Service Technologies ..................................................................... 50
Chapter VIII: Information Technology and Control ........................................................................... 57
Chapter IX: Organization Size, Life Cycle and Decline ....................................................................... 64
PART V – MANAGING DYNAMIC PROCESSES.................................................................................. 69
Chapter X: Organizational Culture and Ethical Values ...................................................................... 69
Chapter XI: Innovation and Change................................................................................................... 75
Chapter XII: Decision-Making Processes ........................................................................................... 81
Chapter XIII: Conflict, Power and Politics .......................................................................................... 87
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PART I – INTRODUCTION TO ORGANIZATIONS
Chapter I: Organizations and Organization Theory
Organizations are not static. Not only are they continuously adapting to shifts in the external environment but
they try to control those changes and, in doing so, contribute to changes in the environments of other
organizations. Surveys of top executives indicate that coping with rapid change is the most common problem
facing managers and organizations. Organizations face the challenge of finding ways of changing themselves
and changing their environments to become technically, economically and ethically more responsive and
effective.
Current Challenges
Some specific challengesare:
- Globalization; Environment for companies is becoming extremely complex and extremelycompetitive. Learn to
cross lines of time, culture and geography. Markets, Technologies and organizations are becoming increasingly
interconnected. It is now more feasible for companies to locate different parts of the organization wherever it
makes the most business sense; top leadership in one country, technical brainpower and production in other
locales, depending upon calculations of where is best for cutting costs, generating revenues and thereby
increasing the return on capital invested to shareholders. Companies neither large nor small are searching for the
structures and processes that can help them reap the advantages of global interdependence and minimize the
disadvantages.
- Ethics and Social Responsibility; Corporate executives face tremendous pressure to hold their organizations
and employees to high ethical and professional standards. The sordid story of high-flying Enron, France’s giant
Societe Generale financial services company allowed a junior trader to gamble away over a billion Euros in
company funds and Britain’s Revenue and Customs agency managed to lose personal data on 2.5 million
citizens. While executives and officials are inclined to insist that it is a few bad apples or a single junior
employee involved in all the wrongdoing, the ordinary citizen is quickly forming the opinion that all executives
and senior managers are crooks. The public is disillusioned with such leadership and leaders that corporate and
political are under pressure to hold their organizations and employees to higher standards of ethics and
competency.
- Speed of Responsiveness; Respond quickly to environmental changes, organizational crises, or shifting
customer expectations. Caused by globalization and advancing technology. Financial basis of today’s economy
is information, not machines.
- The Digital Workplace; Disintermediation = eliminating the middleman.In today’s workplace many employees
perform much of their work on computers and may work in virtual teams, connected electronically to colleagues
around the world. In addition organizations are becoming enmeshed in electronic networks. These developments
Summary of Organization Theory and Design - Richard L. Daft
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mean that leadership in organizations increasingly needs to be technologically savvy as well as responsible for
managing a web of relationships that reaches far beyond the boundaries of the physical organization to
employees, suppliers, contract partners and especially customers.
- Supporting Diversity; Demographic diversity, people of all nationalities should be admitted to chairthe
company, as well as women. Try to balance between a strong corporate culture and supporting diversity,
balancing work and family and cultures.
What is an Organization?
Organizations are social entities that are goal-directed, are designed as deliberately structured
andcoordinated activity systems and are linked to the external environment.
Types of Organizations
Organizations are made up of people and their relationships with one another. Some organizations are large,
multinational corporations. Others are small family owned shops. Some manufacture products such as
automobiles or computers, whereas others provide services such as legal representation, banking or medical
services. Another important distinction is between for profit businesses and nonprofit organizations. There are
some important differences to keep in mind. The primary one is that the activities of managers in businesses are
directed primarily at producing goods and services in order to be earning more money for the shareholders of the
company, whereas managers in nonprofits do not face this particular constraint but may encounter many others,
such as difficulty in securing funding or raising capital or competing with profit-making businesses.
Importance of Organizations
Managers deliberatelystructure and coordinate organizational resources to achieve the organization’s purpose.
The modernorganization may be the most significant innovation of the past 100 years.
What contribution doorganizations make:
1) Organizations bring together resources (labor, materials) to achieve desired goals andoutcomes;
2) Produce goods and services efficiently (competitive prices, benefits);
3) Facilitate innovation (e-business, computers, redesigning organizational structures etc);
4) Use modern manufacturing and information technologies (e-business, computers);
5) Adapt to and influence a changing environment (globalization);
6) Create value for owners, customers and employees;
7) Accommodate ongoing challenges of diversity, ethics and the motivation and coordination ofemployees (cope
with growing concerns about ethics and social responsibility).
Perspectives on Organizations
Two important perspectives are the open-systems approach and the organizational-configuration framework.
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Open Systems Approach
An Open System
and Its Subsystems
Environment
Transformation
Raw Materials
People
Information
resources
Financial
resources
Input
Subsystems
Boundary
Spanning
Output
Products
and
Services
Process
Production,
Maintenance,
Adaptation,
Management
Boundary
Spanning
One significant development in the study of organizations was the distinction between closed and open systems.
Closed system: It would not depend on its environment. It’s autonomous, enclosed and sealed of from the
outside world.
Open system: It must interact with the environment to survive. It consumes resources and exportsresources to
the environment. It cannot seal itself off. Every system that must interact with theenvironment to survive is an
open system.
In systems thinking, each system is understood to comprise several subsystems. These subsystems are identified
in relation to the specific functions they are conceived to perform for organizational survival such as production,
boundary spanning, maintenance, adaptation and management.
Organizational Configuration Framework
Mintzberg’s
Five Basic Parts of an Organization
Top
Management
Technical
Support
Middle
Management
Administrative
Support
Technical Core
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According to Mintzberg every organization has five parts: the technical core (people who do the basic work), top
management (provides direction, strategy, goals and policies for the entire organization), middle management
(responsible for implementation and coordination on department level), technical support (R&D,
marketingresearch) and administrative support (responsible for the smooth operation and upkeep of the
organization).
Dimensions of Organization Design
Organizational dimensions fall into two types:
Environment
Culture
Goals and
Strategy
Size
Structure
1.
2.
3.
4.
5.
6.
Technology
Formalization
Specialization
Hierarchy of Authority
Centralization
Professionalism
Personnel Ratios
1) Structural dimensions: Provide labels to describe the internal characteristics of an organization.
They create a basis for measuring and comparing organizations.
a. Formalization: Amount of written documentation/rules etc.
b. Specialization: The degree in which organizational tasks are subdivided.
c. Hierarchy of authority: Who reports to whom and the span of control for managers.
d. Centralization: Refers to the hierarchical level that has authority to make a decision.
e. Professionalism: Level of formal education and training of employees.
f. Personnel ratios: Deployment of people to various functions and departments. It is measuredby dividing the
number employees in a classification by the total.
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Characteristics of Three
Organizations
Formalization
100
Specialization
50
Centralization
Configuration
(%nonworkflow
personnel)
TECHNOLOGY
0
W.L. Gore &
Associates
Wal-Mart
State Arts
Agency
Manufacturing
Retailing
Government
Service
6,000
250,000
35
SIZE (#employees)
2) Contextual dimensions:Characterize the whole organization. They represent both theorganization and the
environment.
a. Size: Organizations are social systems, thus size is measured by the number of people inthe organization.
b. Organizational technology: Tools, techniques and actions used to transform inputs tooutputs.
c. Environment: All elements outside the boundary of the organization.
d. Goals and strategy: Define the purpose and competitive techniques.
e. Culture: The underlying set of values, beliefs, understandings and norms shared byemployees.
Performance and Effectiveness Outcomes
The whole point of understanding varying perspectives and the structural and contextual dimensions of
organizations is to design the organization in such a way as to achieve high performance and effectiveness.
Efficiency = refers to the amount of resources ( materials, money, employees) used to achieve theorganizations
goals.
Effectiveness = meaning the degree to which an organization achieves its goals.
In principle, managers are hired to adjust structural and contextual dimensions and organizational subsystems to
most efficiently and effectively transform inputs into outputs and provide value.
These dimensions provide a basis for the measurement and analysis of characteristics that cannot beseen by the
casual observer. Managers strive, in their company policy, to at least minimally satisfy theinterests of all
stakeholders (stakeholder approach) Stakeholders are: owners and stockholders (financialreturn), employees
(satisfaction, pay, supervision), customers (high-quality goods, service, value),suppliers (satisfactory
transactions, revenue from purchases), community (good corporate citizen,contribution to community affairs),
union (workers pay, benefits), government (obedience to laws andregulations, fair competition), creditors
(creditworthiness, fiscal responsibility), management (efficiency,effectiveness)
The Evolution of Organization Theory and Design
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Organization theory is a way of thinking about organizations. It’s a way to see and analyzeorganizations more
accurately and deeply than one otherwise could. There are general patterns andinsights into organizational
functioning.
Historical perspectives: The classical perspective is associated with the development of hierarchy
andbureaucratic organizations and remains the basis of much of modern management theory and
practice.(Mechanical System Design)
- Efficiency is everything: Scientific management should be based on precise, standard procedures for doing
each job. The role of management is to maintain stability and efficiency, with top managers doing the thinking
and workers doing what they’re told. (1900’s)
- How to get organized: Administrative principles looked at the design and functioning of the organization as a
whole. Unity of command and unity of direction. These principles contributed to the development of
bureaucratic organizations, which worked extremely well in the Industrial Age. The perspective failed to
consider the social context and human needs.
- What about people: The Hawthorne Studies concluded that positive treatment of employees improved their
motivation and productivity. However, the hierarchal and bureaucratic approaches functioned well into the 1970s
and 1980s.
- Don’t forget the environment: Contingency, one thing depends on other things, there must be a constant
‘goodness of fit’ between organizations’ structure and the external environment.
Contemporary Organization Design
Managers and organizations are still imprinted with the hierarchical, bureaucratic approach that arose more than
a century ago. The challenges of today’s environment call for dramatically different responses from people and
organizations. (Natural System Design) Eighteenth-century Newtonian science, which suggests that the world
functions as a well-behaved machine, continued to guide managers’ thinking about organizations through most
of the 20th century. Thescience of chaos theory, however, suggests that relationships in organizations create
unintended effects and are unpredictable. The ideas of chaos theory suggest that organizations should be viewed
more as natural systems than as well-oiled, predictable machines. Bottom-up instead of top-down.
Learning organizations: Many managers are redesigning their companies to become so-called learning
organizations. The principle of the learning organization is for communication and collaboration to be actively
promoted so that everyone is engaged in identifying and solving problems, enabling the organization to
continuously experiment, improve and increase its capability.
Efficient Performance versus the Learning Organization
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Two Organization Design
Approaches
Natural System Design
Mechanical System Design
Vertical
Structure
Routine
Tasks
Formal
Systems
Horizontal
Structure
Rigid
Culture
Organizational Change
in the Service of
Performance
Empowered
Roles
Shared
Information
Competitive
Strategy
Stable Environment
Efficient Performance
Adaptive
Culture
Collaborative
Strategy
Turbulent Environment
Learning Organization
Since managers struggle toward the learning organization, they are engaged in changing the structural
dimensions of organizations. Continuous learning look at five elements of organization design: structure, tasks,
systems, culture and strategy.
- From vertical to horizontal structure: Vertical can be quite effective/efficient. However, in a rapidlychanging
environment, the hierarchy becomes overloaded. Horizontal systems often operate withself-directed teams that
work on specific projects.
- From routine tasks to empowered roles: A task is a narrowly defined piece of work assigned to aperson. A role
is a part in a dynamic social system. A role holder has discretion and responsibility that allowing the person to
use his or her discretion and ability to achieve an outcome or meet a goal.
- From formal control systems to shared information: In mechanical designs, formal systems are often
implemented to manage the growing amount of complex information and to detect deviations from established
standards and goals. In learning organizations in contrast, information serves as a very different purpose. In
principle, much information is accessible and shared in a way that optimizes performance.
- From competitive to collaborative strategy: Traditionally strategy is formulated by top managerswho think
about how the organization can respond to competition etc. In the learning organizationthe accumulated actions
of an informed and empowered workforce contribute to strategydevelopment. Organic design principles demand
the accumulated actions of and informed and empowered workforce to contribute to strategy development.
- From rigid to adaptive culture: Mechanical structures are found to be ill-equipped to respond to new
challenges. Adaptation to the external environment. The culture encouragesopenness, equality, continuous
improvement and change.
PART II – ORGANIZATIONAL PURPOSE AND STRUCTURAL DESIGN
Chapter II: Strategy, Organization Design and Effectiveness
The Role of Strategic Direction in Organization Design
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An organization is created to achieve some purpose, which is decided by the CEO and the top management team.
In a for-profit business this is generally in consultation with board members, investors and creditors. It is this
purpose and direction that shapes how the organization is designed and managed. Indeed, it is widely held that
the primary responsibility of top management is to determine an organization’s goals, strategy and design,
therein adapting the organization to a changing environment.
Top Management Role in
Organization Direction, Design and
Effectiveness
4
Organization design is presented as reflecting the way goals and strategies are implemented. Organization design
is shown as the administration and execution of the strategic plan. Organization direction is seen to be
implemented through learning or efficiency orientation as well as choices about information and control systems,
the type of production technology, human resource policies, culture and linkages to other organizations. This
means that strategies are often made within the structure of the organization, so that current design constraints or
puts limits on goals and strategy.
The choices top managers make about goals, strategies and organization design can have a significant impact.
Remember that goals and strategy are not fixed or immune to change. Top managers and middle managers select
goals for their respective units, and the ability to make these choices can have a major impact on outcomes.
Organization design is used to implement those goals and strategy and thereby influences the prospects of
success.
Organizational Purpose
Organizations are maintained, even if they are not deliberately designed in the first instance, to accomplish
something. This purpose may be referred as overall goal or mission which emerges from discussion rather than
self-evident.
Mission: The organization’s reason for existence. The mission describes the organization’s vision, its’ shared
values and beliefs and its reason for being. It can have a powerful impact on organization. It is also called as
official goals which refers to formally-stated definition of business scope and outcomes that organization tries to
achieve. The mission statement is to serve as communication tool and used to communicate with employees,
customers, investors, suppliers and competitors what the organization stands for and what it is trying to achieve.
3M: "To solve unsolved problems innovatively“
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Walt Disney: "To make people happy“
Whether called a mission statement or official goals, the organization’s general statement of its purpose and
philosophy is often written down in a policy manual
Operative Goals: Specific goals for each primary task provide direction for the day-to-day operations and
decisions within departments. These goals concern;
•
Overall Performance: Profitability is the most widely used benchmark for the overall performance.
Other overall performance goals are growth and output volume. Growth and volume goals also may be
indicators of overall performance for non-profit organizations.
•
Resources: Refers to acquisition of needed material and financial resources from the environment.
•
Market: It is related to the market share or market standing desired by the organization. Market goals
are the responsibility of marketing, sales and advertising departments.
•
Employee Development: Refers to the training, promotion, health, safety and growth of employees. It
includes both managers and employees.
•
Innovation and Change: Refers to internal flexibility and readiness to adapt to unexpected changes in
the environment. Often defined with respect to development of specific new services, products or
processes.
•
Productivity: Concern the amount of output achieved from available resources. Stated in terms of ‘cost
for a unit of production’, ‘units produced per employee’ or ‘resource cost per employee’.
The Importance of Goals
A Framework for Selecting Strategy and Design
A strategy is a plan for interacting with the competitive environment to achieve organizational goals
Managers must select specific strategy design
Models exist to aid in formulating strategy:
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–
Porter’s Competitive Strategies ( Three Generic Strategies)
–
Miles and Snow’s Strategy Typology
Porter’s Competitive Strategies
Porter’s Competitive Strategies
14
Three internally consistent generic strategies are defined to cope successfully with Porter’s 5 forces:
•
Low-cost leadership
•
Differentiation
•
Focus
Those strategies create a defendable position in the long run and outperforming competitors in a market. Some
companies can successfully pursue more than one approach..
Porter’s Competitive Strategies
Differentiation Strategy – to distinguish products or
services from others in the industry
Low-Cost Leadership Strategy – increase market share
by keeping costs low compared to competitors
Focus Strategy – is not a separate strategy and
describes the scope of competing, based on cost
leadership or differentiation
12
With respect to advantage, managers determine whether to compete through lower cost or through the ability to
offer unique or distinctive products and services. Managers then determine whether the organization will
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compete on a broad scope through competing in many customer segments or a narrow scope through competing
in a selected customer segment
Miles and Snow’s Strategy Typology
Another business strategy typology was developed from the study of business strategies by Raymond Miles and
Charles Snow. Miles and Snow’s typology is based on the idea that managers seek to formulate strategies that
will be consistent with the external environment. The four strategies that can be developed are the prospector, the
defender, the analyzer and the reactor.
•
Prospector strategy: To innovate, to take risks, and seek out new opportunities; creativity more
important than efficiency. Fits with a dynamic changing environment.
•
Defender strategy: Opposite of prospector. Seeks to hold on to current customers but it neither
innovates nor seeks to grow; concerned with stability.
•
Analyzer strategy: Seems to lie midway between the prospector and the defender. Seeks to maintain a
stable business while innovating on the periphery.
•
Reactor strategy: This is not much of a strategy! Respond to environmental threats and opportunities
in an ad hoc fashion.
Emerging Concepts in Business Strategy
Emerging Concepts in Business
Strategy
Michael Treacy and Fred Wiersema’s
“Value Discipline Model”
Chan Kim and Renée Mauborgne’s
“Blue Ocean Strategy”
How Strategies Affect Organization Design
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•
Strategy impacts internal organization characteristics
•
Managers must design the organization to support the firm’s competitive strategy
Organization Design Outcomes of
Strategy
Other Factors Affecting Organization Design
Strategy is one important factor that affects organization design. Ultimately, however organization design is a
result of numerous contingencies. Contingencies of strategy includes;
Other (Contingency) Factors Affecting
Organization Design
One responsibility of managers is to design organizations that fit the
contingency factors of strategy, environment, technology, size/life cycle and
organizational culture
Assessing Organizational Effectiveness
Understanding organizational goals and strategies, as well as the concept of fitting design to various
contingencies, is a first step toward understanding organizational effectiveness. Organizational goals are a way
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of representing the reason for an organization’s existence and outcomes it seeks to achieve. Organizational
effectiveness understood as the degree to which an organization realizes its’ goals.
•
Effectiveness: Takes into consideration a range of variables at both the organizational and
departmental levels.
•
Efficiency: is a more limited concept that relates to the internal working of the organization and
amount of resources used to produce output.
Indicators of Organizational
Effectiveness
Contingency Effectiveness Approaches
Contingency approaches to measuring effectiveness focus on different parts of the organization. Organizations
bring resources in from the environment, and those resources are transformed into outputs delivered back into
the environment.
•
Resource-based approach assesses effectiveness by observing the beginning of the process and
evaluating whether the organization effectively obtains resources necessary for high performance
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•
Internal process approach looks at internal activities and assesses effectiveness by indicators of internal
health and efficiency
•
Goal approach to organizational effectiveness is concerned with the output side and whether the
organization achieves its goals in terms of desired levels of output
An Integrated Effectiveness Model
The three approaches goal, resource based and internal process to organizational effectiveness described earlier
all have something to offer. The competing values model tries to balance a concern with different kinds of
effectiveness rather than focusing on one approach.
An Integrated Effectiveness Model
Rational Goal Emphasis:
Productivity, efficiency and profit
Open Systems Emphasis
Growth and resource acquisition
Internal Process Emphasis
Stable organizational setting in
an orderly way
Human Relations Emphasis
Human resource development
•
The model originally was developed by Robert Quinn and John Rorhbaugh to combine the diverse
indicators of performance used by managers and researchers
•
Competing values model combines several indicators of effectiveness into a single framework
•
Model is based on the assumption that there are disagreements and competing viewpoints about what
constitutes effectiveness
•
Model is also known as four competing values model which exist simultaneously, but not all will
receive equal priority
•
It is also known as “Four Approaches to Effectiveness Values”
•
It has two dimensions which are (1) external vs. internal, (2) control vs. flexibility.
•
First two dimensions into four different perspective emphasis:
- (1) the rational-goal perspective (emphasizing external factors and control)
- (2) the open-system perspective (emphasizing external factors and flexibility)
- (3) the human-relations perspective (emphasizing internal factors and flexibility)
- (4) the internal-process perspective (emphasizing internal factors and control)
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Effectiveness Values for Two Organizations Example
Effectiveness Values for
Two Organizations Example
Organization A is a young
organization concerned with
finding a niche and
becoming established in the
external environment
Organization B, in contrast;
is an established business in
which the dominant value is
productivity and profit
Chapter III:Fundamentals of Organization Structure
Organization Structure
There are three key components in the definition of organizational structure:
1.
Organization structure designates formal reporting relationships, including the number of levels in the
hierarchy and the span of control of managers and supervisors.
2.
Organization structure identifies the grouping together of individuals into departments and of
departments into the total organization.
3.
Organization structure includes the design of systems to ensure effective communication, coordination
and integration of efforts across departments.
Organization structure represented visually in organization charts
A Sample Organization Chart
CEO
Vice President
Finance
Chief
Accountant
Budget
Analyst
Vice President
Manufacturing
Plant
Superintendent
Maintenance
Superintendent
Director
Human Resources
Training
Specialist
Benefits
Administrator
The organization chart is the visual representation of a whole set of underlying activities and processes in an
organization. Develop organization charts that describe task responsibilities, reporting relationships and the
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grouping of individuals into departments. Provide sufficient documentation so that all people within the
organization know to whom they report and how they fit into the total organization picture.
Information-Processing Perspective on Structure
In this perspective, the organization design is conceived to provide both vertical and horizontal information flow
as necessary to accomplish the organization’s overall goals. If the structure does not fit the information
requirements of the organization, people either will have too little information or will spend time processing
information that is not vital to their tasks, thus reducing effectiveness. Vertical linkages provide the mechanism
for control, horizontal linkages are designed for coordination and collaboration, processes that can reduce top
management control.
Organizations can choose whether to focus toward a traditional organization design, which emphasizes vertical
communication and control, or toward a contemporary learning organization which emphasizes horizontal
communication and coordination.
The Relationship of Organization Design to
Efficiency vs. Learning Outcomes
Horizontal Organization
Designed for Learning
Dominant
Structural
Approach
Horizontal structure is dominant
• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal, face-to-face communication
• Many teams and task forces
• Decentralized decision making
Vertical structure is dominant
• Specialized tasks
• Strict hierarchy, many rules
• Vertical communication and reporting systems
• Few teams, task forces or integrators
• Centralized decision making
Vertical Organization
Designed for Efficiency
An emphasis on control is associated with specialized tasks, a hierarchy of authority, rules and regulations,
formal reporting systems, few teams or task forces and centralized decision making. An emphasis on learning
organization is associated with shared tasks, a relaxed hierarchy, few rules, face-to-face communication, many
teams and task forces and informal, decentralized decision making.
Managers are always searching for the best combination of vertical control and horizontal collaboration,
centralization and decentralization, taking advantages of communications advances to perfect interaction both
vertically and horizontally.
Vertical Information Linkages
Linkage is defined as the extent of communication and coordination among organizational elements. Vertical
linkages are used to coordinate activities between the top and bottom of an organization and are designed
primarily for control of the organization. Organizations may use any of a variety of structural devices to achieve
vertical linkages including hierarchical referral, rules, plans, and formal management information systems.
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Hierarchical Referral: If a problem arises and employees do not know how to solve it, it can be referred up to
the next level in the hierarchy. The lines of organization chart act as communication channels.
Rules and Plans: Rules provide a standard information source enabling employees to be coordinated without
actually communicating about every task. A plan also provides standing information for employees.
Vertical Information Systems: It is used for increasing vertical information capacity. It includes the periodic
reports, written information and computer-based communications.
Horizontal Information Linkages
Horizontal information linkages refer to the amount of communication and coordination horizontally across
organizational departments. Following devices are structural alternatives:
Information Systems: It is a significant method of providing horizontal linkage in today’s organizations is the
use of cross-functional information systems. Computerized information systems can enable managers or
frontline workers throughout the organization to routinely exchange information about problems, opportunities,
activities or decisions.
Direct Contact: It is a higher level of horizontal linkage is direct contact between managers or employees
affected by a problem. One way to promote direct contact is to create a special liaison role. A liaison person is
located in one department but has the responsibility for communicating and achieving coordination with another
department.
Task Forces: It is a temporary committee composed of representatives from each organizational unit affected by
a problem. Each member represents the interest of a department or division and can carry information from the
meeting back to that department. It is mostly used for temporary issues.
Full-Time Integrator: It has frequently a title such as product manager, project manager or brand manager.
Unlike the liaison person the integrator does not report to one of the functional departments being coordinated.
He or she is located outside the departments and has the responsibility for coordinating several departments.
Teams: Teams are permanent task forces and are often used in conjunction with a full-time integrator. When
activities require long period of time, a cross-functional team is the solution. Also special teams may be used
when organizations have large-scale projects, a major innovation or a new product line.
Virtual Team: is one that is made up of organizationally or geographically dispersed members who are linked
primarily through advanced information and communications technologies. Members frequently use online
collaborative technologies to work together, rather than meeting face-to-face.
Four dimensions of teamwork: (Developed by Ben Kuipers and Marco de Witte)
•
Job enlargement: Encouraging employee multi-functionality and thus eliminate the inefficiency within
the team.
•
Job enrichment: Redesign of supervision system to delegate management responsibilities to the team
members.
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Page 19
•
Cooperation: Members work together and build communication within a sense of shared
responsibility.
•
High performance: Team is able to work together to resolve non-routine issues.
Ladder of Mechanisms for Horizontal Linkage
and Coordination
Teams
Amount of Horizontal
Coordination Required
H IGH
Full-time Integrators
Task Forces
Direct Contact
LOW
Information Systems
LOW
HIGH
Cost of Coordination in
Time and Human Resources
The higher-level provide more horizontal information capacity, although the cost to the organization in terms of
time and HR greater. If horizontal communication is insufficient it will be resulting in inefficiency and
ineffectiveness.
Organization Design Alternatives
Overall, the design of organization structure indicates three things; required work activities, reporting
relationships and departmental groupings.
Required Work Activities
Departments are created to perform tasks considered important to the company. For instance; in a manufacturing
company, work activities are organized into a range of functions such as HR department to recruit and train
employees, a purchasing department to obtain supplies and raw materials, a production department to build
products, a sales department to sell products and so forth.
Reporting Relationships
Often called the chain of command that are represented by vertical lines on an organization chart. The chain of
command is typically an unbroken line of authority that links all persons in an organization and shows who
reports to whom.
Departmental Grouping Options
Options for departmental grouping, including functional grouping, divisional grouping, and multi focused
grouping, horizontal grouping and virtual network grouping.
•
Functional Grouping: Places together employees who perform similar functions or work processes or
who bring similar knowledge and skills.
Summary of Organization Theory and Design - Richard L. Daft
Page 20
•
Divisional Grouping: Means people are organized according to what the organization produces.
•
Multi-Focused Grouping: Means an organization embraces two structural grouping alternatives
simultaneously. These structural forms are often called matrix or hybrid.
•
Horizontal Grouping: Means employees are organized around core work processes, the end-to-end
work, information and material flows that provide value directly to customers or support strategic
development.
•
Virtual Network Grouping: is the most recent approach to departmental grouping. With this grouping,
the organization is a loosely connected cluster of separate components. In essence, departments are
separate organizations that are electronically connected for the sharing of information and completion
of tasks. Departments can be spread all over the world rather than located together in one geographic
location.
Functional, Divisional and Geographical Designs
Functional Structure
In a functional structure design, activities are grouped together by common function from the bottom to the top
of the organization. With a functional structure, all human knowledge and skills with respect to specific activities
are consolidated, providing a valuable depth of knowledge for the organization. This structure is most effective
when in-depth expertise is critical to meeting organizational goals, when the organization needs to be controlled
and coordinated through the vertical hierarchy, and when efficiency is important.
Strengths and Weaknesses of Functional
Organization Structure
• STRENGTHS:
– Allows economies of
scale within functional
departments
– Enables in-depth
knowledge and skill
development
– Enables organization to
accomplish functional
goals
– Is best with only one or
a few products
• WEAKNESSES:
– Slow response time to
environmental changes
– May cause decisions to pile on
top, hierarchy overload
– Leads to poor horizontal
coordination among
departments
– Results in less innovation
– Involves restricted view of
organizational goals
Functional Structure with Horizontal Linkages
During the late years of the 20th century, criticism of extended hiearchical structures promoted a shift toward
flatter, more horizontal structures, as business activities become more complex and companies identified the
potential for restructuring the business processes to achieve synergies.
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Reorganization from Functional Structure
to Divisional Structure at Info-Tech
Info-Tech
President
Functional
Structure
R&D
Manufacturing
Divisional
Structure
Mfg
Marketing
Info-Tech
President
Electronic
Publishing
R&D
Accounting
Acctg
Office
Automation
Mktg
R&D
Mfg
Acctg
Virtual
Reality
Mktg
R&D
Mfg
Acctg
Mktg
Divisional Structure
The term divisional structure is used here as the generic term for what is sometimes called a product structure or
strategic business units. With this structure, divisions can be organized according to individual products,
services, product groups, major projects or programs, divisions, businesses, or profit centers. The distinctive
feature of a divisional structure is that grouping is based on organizational outputs.
Strengths and Weaknesses of Divisional
Organization Structure
• STRENGTHS:
– Suited to fast change in unstable
environment
– Leads to client satisfaction
because product responsibility
and contact points are clear
– Involves high coordination across
functions
– Allows units to adapt to
differences in products, regions,
clients
– Best in large organizations with
several products
– Decentralizes decision-making
• WEAKNESSES:
– Eliminates economies of
scale in functional
departments
– Leads to poor coordination
across product lines
– Eliminates in-depth
competence and technical
specialization
– Makes integration and
standardization across
product lines difficult
Geographical Structure
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Geographical Structure
for Apple Computer
CEO
Steve Jobs
Apple
Products
Apple
Americas
Apple
Europe
Apple
Pacific
Canada
France
Australia
Latin
America/
Caribbean
Sales
Service and
Marketing
to Regions
Japan
Asia
Another basis for structural grouping is the organization’s users or customers. The most common structure in this
category is geography. Each region of the country may have distinct tastes and needs. Each geographic unit
includes all functions required to produce and market products or services in that region. The geographic
division can adapt to specific conditions of its own country or region, and employees may identify with regional
goals rather than with the overall corporate vision. Horizontal coordination within a region may be emphasized
rather than linkages across regions or to the head office and this can detract from overall corporate synergies.
This is true both for national firms with regional divisions, and for multinational firms with national or regional
units around the world.
Matrix Structure
Sometimes, an organization’s structure needs to be multifocused in that both product and function or product and
geography are emphasized at the same time. One way to achieve this is through the matrix structure. The matrix
can be used when both technical expertise and product innovation and change are important for meeting
organizational goals. The matrix structure often is the answer when organizations find that the functional,
divisional, and geographic structures combined withhorizontal linkage mechanisms will not work.
Conditions for the Matrix
•
Condition 1. Pressure exists to share scarce resources across product lines.
•
Condition 2. Environmental pressure exists for two or more critical outputs, such as for in-depth
technical knowledge (functional structure) and frequent new products (divisional structure).
•
Condition 3. The environmental domain of the organization is both complex and uncertain.
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.Many companies have found a balanced matrix hard to implementand maintain because one side of the authority
structure often dominates. As aconsequence, two variations of matrix structure have evolved—the functional
matrixand the product matrix. In a functional matrix, the functional bosses have primaryauthority and the project
or product managers simply coordinate product activities.In a product matrix, by contrast, the project or product
managers have primaryauthority and functional managers simply assign technical personnel to projectsand
provide advisory expertise as needed.
Strengths and Weaknesses of Matrix
Organization Structure
•
STRENGTHS:
• WEAKNESSES:
– Achieves coordination necessary – Causes participants to experience dual
to meet dual demands from
authority, which can be frustrating and
customers
confusing
– Flexible sharing of human
– Means participants need good
resources across products
interpersonal skills and extensive
– Suited to complex decisions and
training
frequent changes in unstable
environment
– Is time consuming; involves frequent
meetings and conflict resolution
– Provides opportunity for both
functional and product skill
sessions
development
– Will not work unless participants
– Best in medium-sized
understand it and adopt collegial
organizations with multiple
rather than vertical-type relationships
products
– Requires great effort to maintain
power balance
Horizontal Structure
A recent approach to organizing is the horizontal structure, which organizes employees around core processes.
Organizations typically shift toward a horizontal structure during a procedure called reengineering.
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Reengineering, or business process reengineering, basically means the redesign of a vertical organization along
its horizontal workflows and processes. A process refers to an organized group of related tasks and activities that
work together to transform inputs into outputs that create value for customers.
A Horizontal Structure
Top
Management
Team
Process
Owner
Team
1
Market
Analysis
Research
Team
2
Product
Planning
Team
3
Testing
Customer
New Product Development Process
Process
Owner
Team
1
Analysis
Purchasing
Team
2
Material
Flow
Team
3
Distrib.
Customer
Procurement and Logistics Process
Characteristics
•
Structure is created around cross-functional core processes rather than tasks,functions, or geography.
Thus, boundaries between departments are obliterated.
•
Self-directed teams, not individuals, are the basis of organizational design and performance.
•
Process owners have responsibility for each core process in its entirety.
•
People on the team are given the skills, tools, motivation, and authority to make decisions central to the
team’s performance. Team members are cross-trained to perform one another’s jobs, and the combined
skills are sufficient to complete a major organizational task.
•
Teams have the freedom to think creatively and respond flexibly to new challenges that arise.
•
Customers drive the horizontal corporation. Effectiveness is measured by end of process performance
objectives (based on the goal of bringing value to the customer), as well as customer satisfaction,
employee satisfaction, and financial contribution.
•
The culture is one of openness, trust, and collaboration, focused on continuous improvement. The
culture values employee empowerment, responsibility, andwell-being.
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Strengths and Weaknesses of
Horizontal Structure
• STRENGTHS:
– Flexibility and rapid response to
changes in customer needs
– Directs the attention of everyone
toward the production and delivery of
value to the customer
– Each employee has a broader view of
organizational goals
– Promotes a focus on teamwork and
collaboration—common commitment
to meeting objectives
– Improves quality of life for employees
by offering them the opportunity to
share responsibility, make decisions,
and be accountable for outcomes
• WEAKNESSES:
– Determining core processes to
organize around is difficult and
time-consuming
– Requires changes in culture, job
design, management
philosophy, and information and
reward systems
– Traditional managers may balk
when they have to give up
power and authority
– Requires significant training of
employees to work effectively in
a horizontal team environment
– Can limit in-depth skill
development
Virtual Network Structure
Recent developments in organization design extend the concept of horizontal coordinationand collaboration
beyond the boundaries of the traditional organization.The most widespread design trend in recent years has been
the outsourcing of variousparts of the organization to outside partners.Outsourcingmeans to contractout certain
tasks or functions, such as manufacturing, human resources, or creditprocessing, to other companies. With a
virtual network structure, sometimes called a modular structure, the firm subcontracts most of its major
functions or processes to separate companiesand coordinates their activities from a small headquarters
organization.
How Structure Works
Rather than being housed under one roof or located within one organization, services such as accounting, design,
manufacturing, marketing, and distribution are outsourced to separate companies that are connected
electronically to a central office.
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Hybrid Structure
Hybrid Structure
Ford Customer Service Division
Vice President and
General Manager
Horizontal Structure
Functional
Structure
Strategy and
Communication
Finance
Director and
Process Owner
Teams
Director and
Process Owner
Teams
Director and
Process Owner
Teams
Human
Resources
Parts Supply / Logistics Group
Vehicle Service Group
Technical Support Group
Most large organizations, in particular,often use a hybrid structure that combines characteristics of various
approachestailored to specific strategic needs. Most companies combine characteristics of functional,divisional,
geographic, horizontal, or network structures to take advantageof the strengths of various structures and avoid
some of the weaknesses. Hybridstructures tend to be used in rapidly changing environments because they offer
theorganization greater flexibility.
Applications of Structural Design
Each type of structure is applied in different situations and meets different needs. Each form of structure—
functional, divisional, matrix, horizontal, network, hybrid—represents a tool that can help managers make an
organization more effective, depending on the demands of its situation.
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Organization Contextual Variables that
Influence Structure
Culture
Chapter 10
Strategy,
Goals
Chapter 2
Size
Chapter 9
Structure
(learning vs.
efficiency)
Technology
Chapters 7,8
Environment
Chapters 4, 6
Structural Alignment
The Relationship of Structure to Organization’s
Need for Efficiency vs. Learning
Functional with
Functional cross-functional Divisional Matrix Horizontal Modular
Structure teams, integrators Structure Structure Structure Structure
Dominant
Structural Vertical:
• Control
Approach
Horizontal:
• Coordination
• Learning
• Innovation
• Flexibility
• Efficiency
• Stability
• Reliability
Ultimately, the most important decision that managers make about structural design is to find the right balance
between vertical control and horizontal coordination, depending on the needs of the organization. Vertical
control is associated with goals of efficiency and stability, while horizontal coordination is associatedwith
learning, innovation, and flexibility. The functional structure is appropriate when the organization needs to be
coordinated through the vertical hierarchy and when efficiency is important for meeting organizational goals.
The functional structure uses task specialization and a strict chain of command to gain efficient use of scarce
resources, but it does not enable the organization to be flexible or innovative. At the opposite end of the scale,
the horizontal structure is appropriate when the organization has a high need for coordination among functions
to achieve innovation and promote learning. The horizontal structure enables organizations to differentiate
themselves and respond quickly to changes, but at the expense of efficient resource use. The virtual network
structure offers even greater flexibility and potential for rapid response by allowing the organization to add or
subtract pieces as needed to adapt and meet changing needs from the environment and marketplace.
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Symptoms of Structural Deficiency
•
Decision making is delayed or lacking in quality.
•
The organization does not respond innovatively to a changing environment.
•
Too much conflict is evident.
PART III – OPEN SYSTEM DESIGN ELEMENTS
Chapter IV: The External Environment
The Environmental Domain
Organizational environment =All elements that exist outside the boundary of the organization and have
the potential to affect all or part of the organization.
Domain =The chosen environment field of action. It defines the organization’s niche and those external
sectors with which the organization will interact to accomplish it’s goals.
Sector =Subdivision of the external environment that contain similar elements. For each organization
there are ten sectors.
Organize elements in the external environment into ten sectors for analysis:
a) Industry: Competitors, industry size and competitiveness, related industries;
b) Raw materials: Suppliers, manufacturers, real estate, services;
c) Human resources: Labor market, employment agencies, universities, training schools, employeesin other
companies, unionization;
d) Financial resources: Stock markets, banks, savings and loans, private investors;
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e) Market: Customers, clients, potential users of products and services;
f) Technology: Techniques of production, science, computers, information technology, e-commerce;
g) Economic conditions: Recession, unemployment rate, inflation rate, rate of investment,economics, growth;
h) Government: City, state, federal laws and regulations, taxes, services, court system, politicalprocesses;
i) Socio-Cultural: Age, values, beliefs, education, religion, work ethics, consumer and greenmovements;
j) International: Competition from and acquisition by foreign firms, entry into overseas markets,foreign customs,
regulations, exchange rate.
Focus on sectors that may experience significant change at any time.
Task Environment:Includes sectors with which the organization interacts directly and that have a direct
impact on the organization’s ability to achieve it’s goals. Task environment typically includes the industry, raw
materials and market sectors, and perhaps the human resources and international sectors.
General Environment:Includes those sectors that might not have a direct impact on daily operations of
a firm but will indirectly influence them. General environment often includes the government, sociocultural,
economic conditions, technology and financial resources sectors. These sectors affect all organizations
eventually.
International Context:Growing importance from the international sector. The environment for all
organizations is becoming extremely complex and competitive.
Environmental
Uncertainty:Several
dimensions
like
stable/unstable,
homogeneous/heterogeneous,Simple/complex, the munifence (= amount of resources available) etc. These
dimensions come togetherin two essential ways the environment influences organizations: need for information
about environmentand need for resources from the environment.
Uncertainty: When decision makers don’t have sufficient information about the environmental factorsand have
a difficult time predicting environmental factors.
Simple-Complex Dimension:Concerns environmental complexity, which refers to heterogeneity, or thenumber
and dissimilarity of external elements relevant to an organization’s operations.Complex environment:
organization is influenced by numerous diverse external elements.Simple environment: organization interacts
with/ is influenced by only a few similar external components.
Stable-Unstable Dimension:Refers to whether elements in the environment are dynamic. Environmental
domains seem to be increasingly unstable for most organizations. Although environments are more unstable
today, an example of a traditionally stable environment is a public utility such as a provider of a water, gas or
electricity.
Stable environment: If it remains the same over a period of months or a year.
Unstable environment: Environmental elements shift abruptly. May occur when competitors react
withaggressive moves.
Framework:For assessing environmental uncertainty which combines the simple-complex and stable-unstable
dimensions.In the simple, stable environment, uncertainty is low. There are only a few external elements to
contend with, and they tend to remain stable. The complex, stable environment representssomewhat greater
uncertainty. A large number of elements have to be scanned,analyzed, and acted upon for the organization to
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perform well. External elementsdo not change rapidly or unexpectedly in this environment.Even greater
uncertainty is felt in the simple, unstable environment.Rapidchange creates uncertainty for managers. Even
though the organization has fewexternal elements, those elements are hard to predict, and they react
unexpectedlyto organizational initiatives. The greatest uncertainty for an organization occurs inthe complex,
unstable environment. A large number of elements impinge upon theorganization, and they shift frequently or
react strongly to organizational initiatives.When several sectors change simultaneously, the environment
becomes turbulent.
Adapting to Environmental Uncertainty
Aspects of organizations that differ as the uncertainty increases:
1) Positions and Departments:As the complexity and uncertainty increases, so do the number of positions and
departments in the organization. This increases internal complexity.
2) Buffering and Boundary Spanning:when environmental uncertainty increases, traditionally, buffer
departments were established. More recently, organizations drop buffers because they believe being well
connected to customers and suppliers is more important than internal efficiency. Opening up the organization
makes it more fluid and adaptable. Boundary-spanning roles areintroduced.
3) Differentiation and Integration:When the external environment is complex and rapidly changing,
organizational departments become highly specialized to handle the uncertainty in their external sector. One
outcome of high differentiation is that coordination among departments becomes difficult. With uncertainty,
frequent changes require more information processing to achieve horizontal coordination so integrators become a
necessary addition to the organization structure.
4) Organic vs. Mechanistic Management Processes:when the external environment is stable, the internal
organization is characterized by rules, procedures and a clear hierarchy of authority = mechanistic organization.
In rapidly changing environments, the internal organization is much looser, free-flowing and adaptive. The
hierarchy of authority is not clear and rules and regulations are often not written down = organic organization.
(2) Buffering Roles:Purpose is to absorb uncertainty from the environment. They support the technical core and
exchange materials, resources and money between the environment and the organization.
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Boundary Spanning Roles:Link and coordinate an organization with key elements in the external environment.
Purpose of boundary spanning is the exchange of information to:
a. Detect and bring into the organization information about changes in the environment;
b. Send information into the environment that presents the organization in a favorable light.Boundary spanners
prevent the organization from stagnating by keeping top managers informed aboutenvironmental changes.
Business Intelligence: It is an approach to boundary spanning. It refers to the high-tech analysis of large
amounts of internal and external data to spot patterns and relationships that might be significant. BI is
related to another important area of boundary spanning, known as competitive intelligence. This gives
top executives a systematic way to collect and analyze public information about rivals and use it to make
better decisions. Use of internet, digging trash cans etc.
(3) Differentiation =The differences in cognitive and emotional orientations among managers in different
functional departments, and the difference in formal structure among these departments.
Integration = Quality of collaboration among departments.
Organization Forms
Mechanistic:
Organic:
• Tasks are broken down into
specialized, separate parts.
• Tasks are rigidly defined.
• There is a strict hierarchy of
authority and control, and
there are many rules.
• Knowledge and control of
tasks are centralized at the
top of the organization.
• Communication is vertical.
• Employees contribute to the
common task of the
department.
• Tasks are adjusted and
redefined through teamwork.
• There is less hierarchy of
authority and control, and
there are few rules.
• Knowledge and control of
tasks are located anywhere in
the organization.
• Communication is horizontal.
(4) Mechanistic Organization Systems:Formalized, centralized organizations. Most decisions are made
at the top. Common system for a stable environment.
Organic Organization Systems:Organizations where the decision-making authority is decentralized.Common
system for an unstable environment with a lot of uncertainty. The organization is more fluid andable to adapt
continually. Organic are: learning organization, horizontal and virtual network structure.
Planning, Forecasting and Responsiveness:The point of increasing internal integration and shifting to
more organic processes is to enhance the organization’s ability to quickly respond to sudden changes.
Planning and forecasting become more important. When the environment is stable, organizations can
concentrate on current problems and day-to-day efficiency. Long-range planning and forecasting are not
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needed because environmental demands will stay the same.Organizations that have unstable environments often
establish a separate planning department. Planningcan not substitute for other actions!! (boundary spanning,
integration etc)
Framework for Organizational Responses to Uncertainty
Resource Dependence: Means that organizations depend on the environment but strive to acquirecontrol over
resources to minimize their dependence. Third (what are one and two?) characteristic of theorganizationenvironment relationship. Companies want to reduce vulnerability with respect to resourcesby developing links
with other organizations, but they also like to maximize their own autonomy andindependence. Dependence on
shared resources gives power to other organizations.
Controlling Environmental Resources
Organizations try to maintain a balance between linkages with other organizations and their own dependence.
They try to maintain this balance through attempts to modify, manipulate or control other organizations. There
are two strategies to manage resources:
a. Establish favorable linkages with key elements in the environment;
b. Shape the environment domain.
Establish Interorganizational Linkages
Ownership: When a company buys a part of or a controlling interest in another company, this gives the
company access to technology, products or other resources. Acquisition: involves the purchase of one
organization by another so that the buyer assumes control. Merger: is the unification of two or more
organizations into a single unit.
Formal Strategic Alliances: When there is a high level of complimentarily between the business lines,
geographical positions, or skills of two companies, the firms often go the route of a strategic alliance
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rather than ownerships through merger or acquisition. Contracts: license agreements (1) that involve the
purchase of the right to use an asset for a specific time or supplier arrangements (2) that contract for the sale of
one firm’s output to another. Joint ventures: creation of a new organization that is formally independent of the
parents, although the parents will have some control. Sharing of risks and
costs with large projects or innovations.
Cooptation, Interlocking Directorates: Cooptation: when leaders from important sectors in the environment
are made part of an organization (board of directors). Interlocking directorate: formal linkage that occurs when a
member of the board of directors of one company sits on the board of directors of another company (can
influence policies and decisions). Direct interlock = this person is the direct link between two companies.
Indirect interlock = When director of company A and B are both in the board of directors from company C.
Executive Recruitment: Transferring or exchanging executives.
Advertising and Public Relations: Traditional way of establishing favorable relationships is through
advertising. Organizations spend large amounts of money to influence the tastes and opinions of consumers.
Advertising is especially important in highly competitive industries and in industries that experience variable
demand. Public relations is similar to advertising, except that stories often are free and aimed at public opinion.
Public relations people cast an organization in a favorable light in speeches, on websites, in press reports, and on
television. Public relations attempts to shape the company’s image in the minds of customers, suppliers, and
government officials.
Controlling the Environmental Domain
Change of Domain: An organization may try to find a domain where there is little competition, no government
regulation, abundant suppliers, affluent customers, and barriers to keep competitors out. Acquisition: deals with
company’s in other domains.
Political Activity, Regulation: Techniques to influence government legislation and regulation, like lobbyists
and working with other organizations, also lobbying by CEO.
Trade Associations: Accomplished jointly with other organizations that have similar interests.
Illegitimate Activities: Certain conditions (low profits, pressure from senior managers, scarce environmental
resources etc) may lead managers to adopt illegitimate behavior.
Organization-Environment Integrative Framework
Two major themes about organization–environment relationships discussed in this chapter. One theme is that
the amount of complexity and change in an organization’s domain influences the need for information and hence
the uncertainty felt within an organization. Greater information uncertainty is resolved through greater structural
flexibility and the assignment of additional departments and boundary roles. When uncertainty is low,
management structures can be more mechanistic, and the number of departments and boundary roles can be
fewer. The second theme pertains to the scarcity of material and financial resources. The more dependent an
organization is on other organizations for those resources, the more important it is to either establish favorable
linkages with those organizations or control entry into the domain. If dependence on external resources is low,
the organization can maintain autonomy and does not need to establish linkages or control the external domain.
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Chapter V: Interorganizational Relationships
Organizational Ecosystems
Interorganizational relationships are the relatively enduring resource transactions, flows and linkages that occur
among two or more organizations. A new view described by James Moore conceives of organizations as
participants in business ecosystems. An organizational ecosystemis a system formed by the interaction of a
community of organizations and their environment. Organizations around the world are embedded in complex
networks of confusing relationships – collaborating in some markets, competing fiercely in others. Indeed,
research indicates that a large percentage of new alliances in recent years have been between competitors. These
alliances influence organizations’ competitive behavior in varied ways.
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Is Competition Dead?Traditional competition, which assumes a distinct company competing for survival and
supremacy with other stand-alone businesses, no longer exists because each organization both supports and
depends on the others for success, and perhaps for survival. In today’s world a new form of competition is
intensifying but it is one that involves clusters of businesses competing with other clusters. Mutual dependencies
and partnerships have become a fact of life. Is competition dead? Companies today may use their strength to
achieve victory over competitors, but ultimately cooperation carries the day.
The Changing Role of Management: Within business ecosystems managers learn to move beyond traditional
responsibilities of corporate strategy and designing hierarchical structures and control systems. In this new
world, managers think about horizontal processes rather than vertical structures. Managers learn to see and
appreciate the rich environment of opportunities that grow from cooperative relationships with other contributors
to the ecosystem. Rather than trying to force suppliers into low prices or customers into high prices, managers
strive to strengthen the larger system evolving around them, finding ways to understand this big picture and how
to contribute.
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Interorganizational Framework
Resource Dependence
Argues that organizations try to minimize their dependence on other organizations for the supply of important
resources and try to influence the environment to make resources available.Organizations succeed by striving for
independence and autonomy. Whenthreatened by greater dependence, organizations will assert control over
external resources to minimize that dependence. When organizations feel resource or supply constraints, the
resource dependence perspective says they maneuver to maintain their autonomy through a variety of strategies.
Resource Strategies:One strategy is to adapt to or alter the interdependent relationships. This could mean
purchasing ownership in suppliers, developing long-term contract, alliances or joint ventures to lock in necessary
resources, or building relationships in other ways. Another technique is to use interlocking directorships, which
means boards of directors include members of the boards of supplier companies. Organizations may also join
trade associations to coordinate their needs, sign trade agreements or merge with another firm to guarantee
resources and material supplies. Some organizations may take political action, such as lobbying for new
regulations or deregulation, favorable taxation, tariffs or subsidies or push for new standards that make resource
acquisition easier.
Power Strategies: In resource-dependence theory, large, independent companies have power oversmall
suppliers. When one company has power over another, it can ask suppliers to absorb more costs, ship more
efficiently, and provide more services than ever before, often without a price increase. Often the suppliers have
no choice but to go along, and those who fail to do so may go out of business.
Collaborative Networks
The collaborative-networkperspective is an emerging alternative to resource dependence theory. Companies join
together to become more competitive and to share scarce resources. Large aerospace firms partner with one
another and with smaller companies and suppliers to design next-generation jets. Large pharmaceutical
companies join with small biotechnology firms to share resources and knowledge and spur innovation.
Consulting firms, investment companies, and accounting firms may join in an alliance to meet customer
demands for expanded services.
Why Collaboration?Why all this interest in inter-organizational collaboration? Some key reasons include
sharing risks when entering new markets, mounting expensive new programs and reducing costs, and enhancing
organizational profile in selected industries or technologies. Cooperation is a prerequisite for greater innovation,
Summary of Organization Theory and Design - Richard L. Daft
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problem solving, and performance.In addition, partnerships are a major avenue for entering global markets, with
both large and small firms developing partnerships overseas.
From Adversaries to Partners: In the new orientation, people try to add value to both sides andbelieve in high
commitment rather than suspicion and competition. Companieswork toward equitable profits for both sides
rather than just for their own benefit.The new model is characterized by lots of shared information, including
electroniclinkages and face-to-face discussions to provide feedback and solve problems.Sometimes people from
other companies are on site to enable very close coordination.Partners develop equitable solutions to conflicts
rather than relying on legalcontracts and lawsuits. Contracts may be loosely specified, and it is not unusual for
business partners to help each other outside whatever is specified in the contract. By breaking down boundaries
and becoming involved in partnerships with an attitude of fair dealing and adding value to both sides, today’s
companies are changing the concept of what makes an organization.
Population Ecology
The population-ecology perspectivediffers from the other perspectives because it focuses on organizational
diversity and adaptation within a population of organizations. A populationis a set of organizations engaged in
similar activities with similar patterns of resource utilization and outcomes. Innovation and change in a
population of organizations take place through the birth of new types of organizations more so than by the
reform and change of existing organizations. Indeed, organizational forms are considered relatively stable, and
the good of a whole society is served by the development of new forms of organization through entrepreneurial
initiatives. New organizations meet the new needs of society more than established organizations that are slow to
change.
Why do established organizations have such a hard time adapting to a rapidly changing environment? Michael
Hannan and John Freeman, originators of the population ecology model of organization, argue that there are
many limitations on the ability of organizations to change. The limitations come from heavy investment in
plants, equipment, and specialized personnel, limited information, established viewpoints of decision makers, the
organization’s own successful history that justifies current procedures, and the difficulty of changing corporate
culture. True transformation is a rare and unlikely event in the face of all these barriers.
The population–ecology model is developed from theories of natural selection in biology, and the terms
evolution and selection are used to refer to the underlying behavioral processes. Theories of biological evolution
try to explain why certain life forms appear and survive whereas others perish. Some theories suggest the forms
that survive are typically best fitted to the immediate environment.
Organizational Form and Niche: The population-ecology model is concerned with organizational forms.
Organizational formis an organization’s specific technology, structure, products, goals, and personnel,which
can be selected or rejected by the environment. Each new organization tries to find a niche(a domain of unique
environmental resources and needs) sufficient to support it. The niche is usually small in the early stages of an
organization but may increase in size over time if the organization is successful. If the organization does not find
an appropriate niche, it will decline and may perish.
Process of Ecological Change: The population-ecology model assumes that new organizations are always
appearing in the population. Thus, organizational populations are continually undergoing change. The process of
change in the population is defined by threee principles that ocur in stages : variation, selection and retention.
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Elements in the Population Ecology Model of
Organizations
Variation
Selection
Retention
Large number
of variations
appear in the
population of
organizations
Some
organizations
find a niche
and survive
A few
organizations
grow large and
become
institutionalized
in the
environment
Variation:Means the appearance of new, diverse forms in a population of organizations. These new
organizational forms are initiated by entrepreneurs, established with venture capital by large
corporations, or set up by a government seeking to provide new services.
Selection: Refers to whether a new organizational form is suited to environment and can survive. Only
a few variations are selected in by the environment and survive over the long term.
Retention: It is the preservation and institutionalization of selected organizational forms.
Institutionalization of an organizational form means that it becomes a general norm in society. Certain
technologies, products and services are highly valued by the environment. The organizational form
associated with those technologies, products or services may become a dominant part of the
environment.
Strategies for Survival: Another principle that underlies the population ecology model is the struggle for
existence, or competition. Organizations and populations of organizations are engaged in a competitive struggle
over resources, and each organizational form is fighting to survive. The struggle is most intense among new
organizations, and both the birth and survival frequencies of new organizations are related to factors in the larger
environment. Factors such as size of urban area, percentage of immigrants, political turbulence, industry growth
rate, and environmental variability, for example, have influenced the launching and survival of newspapers,
telecommunication firms, railroads, government agencies, labor unions, and even voluntary organizations.In the
population ecology perspective, generalistand specialiststrategies distinguish organizational forms in the
struggle for survival. Organizations with a wideniche or domain, that is, those that offer a broad range of
products or services or that serve a broad market, are generalists. Organizations that provide a narrower range of
goods or services or that serve a narrower market are specialists.
Institutionalism
The institutional perspective provides yet another view of inter-organizational relationships. The institutional
perspectivedescribes how organizations survive and succeed through congruence between an organization and
the expectations from its environment. The institutional environmentis composed of norms and values from
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stakeholders (customers, investors, associations, boards, other organizations, government, the community, and so
on). Thus the institutional view believes that organizations adopt structures and processes to please outsiders,
and these activities come to take on rule like status in organizations. The institutional environment reflects what
the greater society views as correct ways of organizing and behaving. Legitimacyis defined as the general
perception that an organization’s actions are desirable, proper, and appropriate within the environment’s system
of norms, values, and beliefs. Institutional theory thus is concerned with the set of intangible norms and values
that shape behavior, as opposed to the tangible elements of technology and structure. Organizations and
industries must fit within the cognitive and emotional expectations of their audience.The notion of legitimacy
answers an important question for institutional theorists: Why is there so much homogeneity in the forms and
practices of established organizations? For example, visit banks, high schools, hospitals, government
departments, or business firms in a similar industry, in any part of the country, andthey will look strikingly
similar. When an organizational field is just getting started, such as in Internet-related businesses, diversity is the
norm. New organizations fill emerging niches. However, once an industry becomes established, there is an
invisible push toward similarity. Isomorphism is the term used to describe this move toward similarity.
The Institutional View and Organization Design: The institutional view also sees organizations as having two
essential dimensions— technical and institutional. The technical dimension is the day-to-day work, technology,
and operating requirements. The institutional structure is that part of the organization most visible to the outside
public. Moreover, the technical dimension is governed by norms of rationality and efficiency, but the
institutional dimension is governed by expectations from the external environment.
Institutional Similarity: Institutional similarity, called institutional isomorphismin the academic literature,
is the emergence of a common structure and approach among organizations in the same field. Isomorphism is the
process that causes one unit in a population to resemble other units that face the same set of environmental
conditions.Exhibit provides a summary of three mechanisms for institutional adaptation.
Three Mechanisms for
Institutional Adaptation
Mimetic
Coercive
Normative
Uncertainty
Dependence
Duty,
obligation
Events:
Innovation
visibility
Political law,
rules, sanctions
Professionalism—
certification,
accreditation
Social
basis:
Culturally
supported
Legal
Moral
Reasons to
become
similar:
Example:
Reengineering, Pollution controls,
benchmarking school regulations
Accounting
standards,
consultant
training
These three core mechanisms are mimetic forces, which result from responses to uncertainty; coercive forces,
which stem from political influence; and normative forces, which result from common training and
professionalism.
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Mimetic Forces: Most organizations, especially business organizations, face great uncertainty. It is not
clear to senior executives exactly what products, services, technologies, or management practices will
achieve desired goals, and sometimes the goals themselves are not clear. In the face of this uncertainty,
mimetic forces, and the pressure to copy or model other organizations occur. Benchmarking means
identifying who’s best at something in an industry and then duplicating the technique for creating
excellence, perhaps even improving it in the process.
Coercive Forces: Theyare the external pressures exerted on an organization to adopt structures,
techniques, or behaviors similar to other organizations.
Normative Forces: They are pressures to change to achieve standards of professionalism and to adopt
techniques that are considered by the professional community to be up to date and effective. Changes
may be in any area, such as information technology, accounting requirements, marketing techniques, or
collaborative relationships with other organizations.
Chapter VI: Designing Organizations for the International Environment
Entering the Global Arena
Only a few decades ago, many companies could afford to ignore the international environment. Today, the
number of companies doing business on a global scale is increasing and the awareness of national borders
decreasing, as reflected in the frequency of foreign participation at the top management level. Why has global
experience at the top become so important to organizations? Because the world is rapidly developing into a
unified global field, and companies need top leaders who have a global outlook.
Motivations for Global Expansion: Economic, technological, and competitive forces have combined to push
many companies from a domestic to a global focus. The importance of the global environment for today’s
organizations is reflected in the shifting global economy. As power continues to shift, organizations are viewing
participation in global business as a necessity. Indeed, in some industries, a company can be successful only by
succeeding on a global scale. In general, three primary factors motivate companies to expand internationally:
economies of scale, economies of scope, and low-cost production factors.
Economies of Scale: Building a global presence expands an organization’s scale of operations, enabling
it to realize economies of scale.
Economies of Scope:A second factor is the enhanced potential for exploiting economies of scope.
Scope refers to the number and variety of products and services a company offers, as well as the number
and variety of regions, countries, and markets it serves.
Low-Cost Production Factors: The third major force motivating global expansion relates to factors of
production. One of the earliest and still one of the most powerful motivations for companies to invest
outside their home country is the opportunity to obtain raw materials and other resources, notably labor
at the lowest possible cost.
Stages of International Development:No company can become a global giant overnight. Managers have to
consciously adopt a strategy for global development and growth. Organizations enter foreign markets in a variety
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of ways and follow diverse paths. However, the shift from domestic to global typically occurs through stages of
development.
Four Stages of International
Evolution
I.
Domestic
II.
International
III.
Multinational
IV.
Global
Strategic
Orientation
Domestically
oriented
Export-oriented,
multidomestic
Multinational
Global
Stage of
Development
Initial foreign
involvement
Competitive
positioning
Explosion
Global
Structure
Domestic
structure plus
export
department
Domestic structure
plus international
division
Worldwide
geographic,
product
Matrix, transnational
Market
Potential
Moderate,
mostly
domestic
Large,
multidomestic
Very large,
multinational
Whole world
In stage one, the domestic stage, the company is domestically oriented, but managers are aware of the global
environment and may want to consider initial foreign involvement to expand production volume and realize
economies of scale.
In stage two, the international stage, the company takes exports seriously and begins to think
multidomestically. Multidomesticmeans competitive issues in each country are independent of other countries;
the company deals with each country individually.
In stage three, the multinational stage, the company has extensive experience in a number of international
markets and has established marketing, manufacturing, or research and development (R&D) facilities in several
foreign countries. The organization obtains a large percentage of revenues from sales outside the home country.
The fourth and ultimate stage is the global stage, which means the company transcends any single country. The
business is not merely a collection of domestic industries; rather, subsidiaries are interlinked to the point where
competitive position in one country significantly influences activities in other countries. Truly global
companiesno longer think of themselves as having a single home country, and, indeed, have been called
stateless corporations.
Global Expansion through International Strategic Alliance: One of the most popular ways companies get
involved in international operations is through international strategic alliances. Companies in rapidly changing
industries such as media and entertainment, pharmaceuticals, biotechnology, and software might have hundreds
of these relationships. Typical alliances include licensing, joint ventures, and consortia. A joint ventureis a
separate entity created with two or more active firms as sponsors. This is a popular approach to sharing
development and production costs and penetrating new markets. Joint ventures may be with either customers or
competitors. Another growing approach is for companies to become involved in consortia, groups of
independent companies—including suppliers, customers, and even competitors—that join together to share
skills, resources, costs, and access to one another’s markets. Consortia are often used in other parts of the world,
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such as the keiretsu family of corporations in Japan. In Korea, these interlocking company arrangements are
called chaebol. A type of consortia, the global virtual organization, is increasingly being used and offers a
promising approach to meeting worldwide competition. The virtual organization refers to a continually evolving
set of company relationships that exist temporarily opportunities or attain specific strategic advantages.
Designing Structure to Fit Global Strategy
An organization’s structure must fit its situation by providing sufficient information processing for coordination
and control while focusing employees on specific functions, products, or geographic regions. Organization
design for international firms follows a similar logic, with special interest in globalversus local strategic
opportunities.
Model for Global versus Local Opportunities:When organizations venture into the international domain,
managers strive to formulate a coherent global strategy that will provide synergy among worldwide operations
for the purpose of achieving common organizational goals. One dilemma they face is choosing whether to
emphasize global standardizationversus national responsiveness. Managers must decide whether they want
each global affiliate to act autonomously or whether activities should be standardized across countries. These
decisions are reflected in the choice between a globalization versus a multi domestic global strategy. The
globalization strategymeans that product design, manufacturing, and marketing strategy are standardized
throughout the world.Globalization strategy can help a manufacturing organization reap economy-of-scale
efficiencies by standardizing product design and manufacturing, using common suppliers, introducing products
around the world faster, coordinating prices, and eliminating overlapping facilities. A multi domestic
strategymeans that competition in each country is handled independently of competition in other countries.
Thus, a multidomestic strategy would encourage product design, assembly, and marketing tailored to the specific
needs of each country. Some companies have found that their products do not thrive in a single global
market.Companies can be characterized by whether their product and service lines have potential for
globalization, which means advantages through worldwide standardization. Companies that sell similar products
or services across many countries have a globalization strategy. On the other hand, some companies have
products and services appropriate for a multi domestic strategy, which means local-country advantages through
differentiation and customization to meet local needs.
when forces for both global standardization and
national responsiveness in many countries are low, simply using an international division with the domestic
structure is an appropriate way to handle international business. For some industries, however, technological,
social, or economic forces may create a situation in which selling standardized products worldwide provides a
basis for competitive advantage. In these cases, a global product structure is appropriate. This structure provides
product managers with authority to handle their product lines on a global basis and enables the company to take
advantage of a unified global marketplace. In other cases, companies can gain competitive advantages through
national responsiveness—by responding to unique needs in the various countries in which they do business.
International Division: As companies begin to explore international opportunities, they typically start with an
export department that grows into an international division. The international division has a status equal to the
other major departments or divisions within the company.
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The international division has its own hierarchy to handle business (licensing, joint ventures) in variouscountries,
selling the products and services created by the domestic divisions, opening subsidiary plants, and in general
moving the organization into more sophisticated international operations.
Global Product Division: In a global product structure, the product divisions take responsibility for global
operations in their specific product area. This is one of the most commonly used structures through which
managers attempt to achieve global goals because it provides a fairly straightforward way to effectively manage
a variety of businesses and products around the world. Managers in each product division can focus on
organizing for international operations as they see fit and directing employees’ energy toward their own
division’s unique set of global problems or opportunities. In addition, the structure provides top managers at
headquarters with a broad perspective on competition, enabling the entire corporation to respond more rapidly to
a changing global environment.
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Global Geographic Division Structure: The global geographic structuredivides the world intogeographic
regions, with each geographic division reporting to the CEO. Each divisionhas full control of functional
activities within its geographic area.
Global Matrix Structure: A global matrix structureis similar to the matrix discussed earlier, except that for
multinational corporations the geographic distances for communication are greater and coordination is more
complex. The matrix works best when pressure for decision making balances the interests of both product
standardization and geographic localization and when coordination to share resources is important.
Building Global Capabilities
There are many instances of well-known companies that have trouble transferring successful ideas, products, and
services from their home country to the international domain. Those that survived had to modify their business
practices to accommodate rapidly changing rules and challenges such as corruption. Managers taking their
companies international face a tremendous challenge in how to capitalize on the opportunities that the possibility
of global expansion presents.
The Global Organizational Challenge: Exhibit illustrates the three primary segments of the global
organizational challenge: greater complexity and differentiation, the need for integration, and the problem of
transferring knowledge and innovation across a global firm.
Increased Complexity and Differentiation: When organizations enter the international arena, they
encounter a greater level of internal and external complexity than anything experienced on the domestic
front. Companies have to create a structure to operate in numerous countries that differ in economic
development, language, political systems and government regulations, cultural norms and values, and
infrastructure such as transportation and communication facilities.
Integration:As organizations become more differentiated, with multiple products, divisions,
departments, and positions scattered across numerous countries, managers face a tremendous integration
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challenge. Integration refers to the quality of collaboration across organizational units. The question is
how to achieve the coordination and collaboration that is necessary for a global organization to reap the
benefits of economies of scale, economies of scope, and labor and production cost efficiencies that
international expansion offers.
Knowledge Transfer: Organizational units in each location acquire the skills and knowledge to meet
environmental challenges that arise in that particular locale. Much of that knowledge, which may be
related to product improvements, operational efficiencies, technological advancements, or myriad other
competencies, is relevant across multiple countries, so organizations need systems that promote the
transfer of knowledge and innovation across the global enterprise. This lack of trust among people
scattered at different locations around the world is one primary reason why many organizations tap only
a fraction of the potential that is available from the cross-border transfer of knowledge and innovation.
Other reasons include:
•
Language barriers, cultural dissimilarities, and geographic distances can prevent managers
from spotting the knowledge and opportunities that exist across disparatecountry units.
•
Sometimes managers don’t appreciate the value of organizational integration and want to
protect the interests of their own division rather than cooperate with other divisions.
•
Divisions sometimes view knowledge and innovation as power and want to hold onto it as
a way to gain an influential position within the global firm.
•
The “not-invented-here” syndrome makes some managers reluctant to tap into the knowhow and expertise of other units.
•
Much of an organization’s knowledge is in the minds of employees and cannot easily be
written down and shared with other units.
Global Coordination Mechanisms: Managers meet the global challenge of coordination and transferring
knowledge and innovation across highly differentiated units in a variety of ways. Some of themost common are
the use of global teams, stronger headquarters planning and control,and specific coordination roles.
Global Teams: Global teams, also called transnational teams, are cross-border work groups made up of multi
skilled, multinational members whose activities span multiple countries. Typically, teams are of two types:
intercultural teams, whose members come from different countries and meet face to face, and virtual global
teams, whose members remain in separate locations around the world and conduct their work electronically. The
most advanced and competitive use of global teams involves simultaneous contributions in three strategic areas.
First, global teams help companies address the differentiation challenge, enabling them to be more locally
responsive by providing knowledge to meet the needs of different regional markets, consumer preferences, and
political and legal systems. At the same time, teams provide integration benefits, helping organizations achieve
global efficiencies by developing regional or worldwide cost advantages and standardizing designs and
operations across countries. Finally, these teams contribute to continuous organizational learning, knowledge
transfer, and adaptation on a global level.
Headquarters Planning: A second approach to achieving stronger global coordination is for headquarters to
take an active role in planning, scheduling, and control to keep the widely distributed pieces of the global
organization working together and moving in the same direction.
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Expanded Coordination Roles: Organizations may also implement structural solutions to achieve stronger
coordination and collaboration.Creating specific organizational roles or positions for coordination is a way to
integrate all the pieces of the enterprise to achieve a strong competitive position. Whereas functional managers
coordinate across countries, country managers coordinate across functions. A country manager for an
international firm has to coordinate all the various functional activities located within the country to meet the
problems, opportunities, needs, and trends in the local market, enabling the organization to achieve multinational
flexibility and rapid response. Some organizations also use business integrators to provide coordination on a
regional basis that might include several countries. These managers reach out to various parts of the organization
to resolve problems and coordinate activities across groups, divisions, or countries. Another coordination role is
that of formal network coordinator to coordinate information and activities related to key customer accounts.
These coordinators would enable a manufacturing organization, for example, to provide knowledge and
integrated solutions across multiple businesses, divisions, and countries for a large retail customers.
Cultural Differences in Coordination and Control
Just as social and cultural values differ from country to country, the management values and organizational
norms of international companies tend to vary depending on the organization’s home country. Organizational
norms and values are influenced by the values in the larger national culture, and these in turn influence the
organization’s structural approach and the ways managers coordinate and control an international firm.
National Value System: Studies have attempted to determine how national value systems influence
management and organizations. One of the most influential was conducted by Geert Hofstede, who identified
several dimensions of national value systems that vary widely across countries. Two dimensions that seem to
have a strong impact within organizations are power distance and uncertainty avoidance. High power
distancemeans that people accept inequality in power among institutions, organizations, and people. Low power
distance means that people expect equality in power. High uncertainty avoidancemeans that members of a
society feel uncomfortable with uncertainty and ambiguity and thus support beliefs that promise certainty and
conformity. Low uncertainty avoidance means that people have a high tolerance for the unstructured, the
unclear, and the unpredictable. The value dimensions of power distance and uncertainty avoidance are reflected
within organizations in beliefs regarding the need for hierarchy, centralized decision making and control, formal
rules and procedures, and specialized jobs. In countries that value high power distance, for example,
organizations tend to be more hierarchical and centralized, with greater control and coordination from the top
levels of the organization. On the other hand, organizations in countries that value low power distance are more
likely to be decentralized. A low tolerance for uncertainty tends to be reflected in a preference for coordination
through rules and procedures. Organizations in countries where people have a high tolerance for uncertainty
typically have fewer rules and formal systems, relying more on informalnetworks and personal communication
for coordination.
Three National Approaches to Coordination and Control
Centralized Coordination in Japanese Companies:When expanding internationally, Japanese companies have
typically developed coordination mechanisms that rely on centralization. Top managers at headquarters actively
direct and control overseas operations, whose primary focus is to implement strategies handed down from
headquarters. A recent study of R&D activities in high-tech firms in Japan and Germany supports the idea that
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Japanese organizations tend to be more centralized. Whereas the German firms leaned toward dispersing R&D
groups out into different regions, Japanese companies tended to keep these activities centralized in the home
country.This centralized approach enables Japanese companies to leverage the knowledge and resources located
at the corporate center, attain global efficiencies, and coordinate across units to obtain synergies and avoid turf
battles. Top managers use strong structural linkages to ensure that managers at headquarters remain up to date
and fully involved in all strategic decisions. However, centralization has its limits. As the organization expands
and divisions grow larger, headquarters can become overloaded and decision making slows. The quality of
decisions may also suffer as greater diversity and complexity make itdifficult for headquarters to understand and
respond to local needs in each region.
European Firms’ Decentralized Approach:A different approach has typically been taken by European
companies. Rather than relying on strong, centrally directed coordination and control as in the Japanese firms,
international units tend to have a high level of independence and decision-making autonomy. Companies rely on
a strong mission, shared values, and informal personal relationships for coordination. Thus, great emphasis is
placed on careful selection, training, and development ofkey managers throughout the international organization.
Formal management and control systems are used primarily for financial rather than technical or operational
control. With a decentralized approach, each international unit focuses on its local markets, enabling the
company to excel in meeting diverse needs. One disadvantage is the cost of ensuring, through training and
development programs, those managers throughout a huge, global firm share goals, values, and priorities.
Decision making can also be slow and complex, and disagreements and conflicts among divisions are more
difficult to resolve.
The United States: Coordination and Control through Formalization:U.S.-based companies that have
expanded into the international arena have taken still a third direction. Typically, these organizations have
delegated responsibility to international divisions, yet retained overall control of the enterprise through the use of
sophisticated management control systems and the development of specialist headquarters staff. Formal systems,
policies, standards of performance, and a regular flow of information from divisions to headquarters are the
primary means of coordination and control. Decision making is based on objective data, policies, and
procedures, which provides for many operating efficiencies and reduces conflict among divisions and between
divisions and headquarters. However, the cost of setting up complex systems, policies, and rules for an
international organizationmay be quite high. This approach also requires a larger headquarters staff for
reviewing, interpreting, and sharing information, thus increasing overhead costs. Finally, standard routines and
procedures don’t always fit the needs of new problems and situations. Flexibility is limited if managers pay so
much attention to the standard systems that they fail to recognize opportunities and threats in theenvironment.
The Transnational Model of Organization
The transnational modelrepresents the most advanced kind of international organization. It reflects the ultimate
in both organizational complexities, with many diverse units, and organizational coordination, with mechanisms
for integrating the varied parts. The transnational model is useful for large, multinational companies with
subsidiaries in many countries that try to exploit both global and local advantages as well as technological
advancements, rapid innovation, and global learning and knowledge sharing. Rather than building capabilities
primarily in one area, such as global efficiency, national responsiveness, or global learning, the transnational
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model seeks to achieve all three simultaneously. Dealing with multiple, interrelated, complex issues require a
complex form of organization and structure.
Several characteristics distinguish the transnational organization from other global organization forms
such as the matrix;
•
Assets and resources are dispersed worldwide into highly specialized operations that are linked
together through interdependent relationships.
•
Structures are flexible and ever-changing. The transnational operates on a principle of flexible
centralization. It may centralize some functions in one country, some in another, yet decentralize still
other functions among its many geographically dispersed operations.
•
Subsidiary managers initiate strategy and innovations that become strategy for the corporation as a
whole.
•
Unification and coordination are achieved primarily through corporate culture, shared vision and
values, and management style, rather than through formal structures and systems.
New Approaches to Global Organizational Design
Dragon Multinationals:In the emerging economies particularly in the Asia-Pacific region, new types of
companies have quickly grown, what the Australian professor John Mathews calls “dragon multinationals”.
Unlike traditional multinationals that build primarily from internal resources, dragon multinationals seek to
profit from external sources through three key strategies: linkage, leverage and learning. Linkage involves
building subordinate role to a better established often western based multinational. Leverage entails building on
global linkages to access necessary knowledge and financial resources for expansion. Learningis the
commitment of the organization to improve business understanding and practice through applying knowledge
gained from the repeated cycles of linkage and leverage.
Value Chains: Cost structures are quite rigid and subject to external downward pressure in a liberalized trading
environment where goods can be purchased from overseas at lower prices. Faced with this competition, firms
seek to break down their business process and identify ways in which parts of the process can be conducted at
lower cost. The US economic sociologist Gary Gereffi has explored the significance of these developments in his
work on global commodity and global value chains. Global chains are a way to look at the creation of value in
the economic system. Originally these value chains were mainly driven by advanced country corporations
through producer and buyer driven chains. Gereffi argues that there are five different types of value chain which
are market, modular, relational, captive and hierarchy. According to Gereffi, the ability to construct a product
across territorial boundaries is a source of instability in both developed countries and emerging economies. Top
corporate managers in international businesses need to pay close attention to their place in the value chains, as
well as the rapidly changing nature of the chains themselves.
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PART IV – INTERNAL DESIGN ELEMENTS
Chapter VII: Manufacturing and Service Technologies
Technology = Work processes, techniques, machines, and actions used to transform organizationalinputs
(materials, information, ideas) into outputs (products and services). Technology is anorganization’s production
process and includes work procedures as well as machinery.
Core Technology = The work process that is directly related to the organization’s mission, such asteaching in a
high school, medical services in a health clinic, or manufacturing at a car company.It can be partly understood by
examining the raw materials flowing into the organization, the variability ofwork activities, the degree to which
the production process is mechanized, the extent to which one taskdepends on another in the workflow, or the
number of new product or service outputs.
Non-Core Technology = Department work process that is important to the organization, but is not
directlyrelated to its primary mission. Human resources, accounting, R&D and marketing transforms
inventoryinto sales, each using a somewhat different workprocess.
Core Organization Manufacturing Technology
Manufacturing Technologies = Traditional manufacturing processes and contemporary applications, such as
flexible manufacturing and lean manufacturing.
Manufacturing Firms:Woodward (1950) developed a scale and organized manufacturing firms according to
technical complexity of the manufacturing process.
Technical Complexity = The extent of mechanization of the manufacturing process. High technical complexity
= most of the work by machines. Low technical complexity = workers play larger role.
Ten categories of technical complexity, in three basic technology groups:
1) Group 1: Small-batch and unit production. Job shop operations that manufacture and assemblesmall orders to
meet specific needs of customers.
a. Production of single pieces to customer orders (1);
b. Production of technically complex units one by one (2);
c. Fabrication of large equipment in stages (3);
d. Production of pieces in small batches (4);
e. Production of components in large batches subsequently assembled diversely (5).
2) Group 2: Large-batch and mass production.
a. Production of pieces in small batches (4);
b. Production of components in large batches subsequently assembled diversely (5);
c. Production of large batches, assembly line type (6);
d. Mass production (7);
e. Continuous process production combined with the preparation of a product for sale bylarge-batch or mass
production methods (8).
3) Group 3: Continuous-process production.
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a. Mass production (7);
b. Continuous process production combined with the preparation of a product for sale bylarge-batch or mass
production methods (8);
c. Continuous process production of chemicals in batches (9)
d. Continuous flow production of liquids, gases, and solid shapes (10).
Small-Batch Production = Relies heavily on the human operator, it is not highly mechanized.
Large-Batch Production = Manufacturing process characterized by long production runs of standardizedparts.
Continuous-Process Production = Entire process is mechanized. No starting or stopping.
Strategy, Technology and Performance: Another portion of Woodward’s study examined the success of the
firms along dimensions such as profitability, market share, stock price, and reputation. Woodward was able to
rank firms on a scale of commercial success according to whether they displayed above-average, average, or
below-average performance on strategic objectives. Below-average firms tended to depart from the structural
characteristics for their technology type. Another conclusion was that structural characteristics could be
interpreted as clustering into organic and mechanistic management systems. Successful small-batch and
continuous process organizations had organic structures, and successful mass-production organizations had
mechanistic structures. Subsequent research has replicated her findings. What this illustrates for today’s
companies is that strategy, structure, and technology need to be aligned, especially when competitive conditions
change.
Contemporary Applications
Woodward’s theories were established in another era.
Flexible Manufacturing Systems (FMS) = Computer integrated manufacturing = smart factories =advanced
manufacturing technology = agile manufacturing = the factory of the future = link togethermanufacturing
processes that previously stood alone. Robots, machines, product, design and engineeringanalysis are
coordinated by a single computer. Flexible manufacturing is the result of threesubcomponents:
1) Computer-aided design = CAD: computers are used to assist in the drafting, design andengineering of new
parts;
2) Computer-aided manufacturing = CAM: computer-controlled machines in materials handling,fabrication,
productions and assembly increase production speed;
3) Integrated information network: computerized system that links all aspects of the firm.
Some advanced factories have moved to product life-cycle management (PLM): software which canmanage a
product from idea through development, manufacturing, testing and even maintenance in thefield.
Lean Manufacturing = Reach the ultimate level in flexible manufacturing systems to improve quality,customer
service, and cost cutting by using all parts interdependently and combining it with flexiblemanagement processes
in a system referred to as lean manufacturing. Highly trained employees,technological elements (CAD/CAM and
PLM) with people at the heart of lean manufacturing, not machines.
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Mass Customization = Caused by flexible and lean manufacturing, using mass-production technology toquickly
and cost-effectively assemble goods that are uniquely designed to fit the demands of individualcustomers.
Performance and Structural Implications:Advantage flexible manufacturing = products of different sizes,
types and customer requirements intermingle freely on the assembly line. When taken to its ultimate level, FMS
allows for mass customization. This highly specialized use of FMS = computer-aided craftsmanship.Interorganizational relationships in FMS firms are characterized by changing demand from customersand close
relationships with a few suppliers that provide top-quality raw materials.
Core Organization Service Technology
Workforce in manufacturing declines, service sector increases.
Service Firms = Accomplish their primary purpose through the production and provision of services.Service
firms have always tended to provide customized output.
Differences between service and manufacturing technologies:
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New Directions in Services:Service firms have always tended toward providing customized output—that is,
providing exactly the service each customer wants and needs. However, customer expectations of what
constitutes good service are rising.
Designing the Service Organization: The feature of service technologies with a distinct influence on
organizational structure and control systems is the need for technical core employees to be close to the
customer.The differences between service and product organizations necessitated by customer contact. The
impact of customer contact on organization structure is reflected in the use of boundary roles and structural
disaggregation.
Hence, service organizations may have an organization structure with fewer boundary roles, greatergeographical
dispersion, decentralization, highly skilled employees in technical core, and generally lesscontrol than in
manufacturing organizations.
Configuration and structural characteristics of service organizations versus product organizations:
Non-Core Departmental Technology
Departmental level of analysis for departments not necessarily within the technical core. Perrow has made a
model for understanding departmental technologies.
1) Variety:First dimension of departmental activity that is relevant to organization structure andprocess. Variety
is the frequency of unexpected and novel events that occur in the conversionprocess. Whether work processes
are performed the same way every time or differ from time totime as employees transform the organization’s
inputs into outputs. High uncertainty = highvariety. Few problems = little variety.
2) Analyzability:When the conversion process of work activities is analyzable, the work can bereduced to
mechanical steps and participants can follow an objective, computational procedure tosolve problems.
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3) Framework: The level of variety and analyzability form the basis of four categories of technology:
Relationship of Department Technology to
Structural and Management Characteristics
Mostly Organic Structure
1. Moderate formalization
2. Moderate centralization
3. Work experience
4. Moderate to wide span
5. Horizontal, verbal
communications
Organic Structure
1. Low formalization
2. Low centralization
3. Training plus experience
4. Moderate to narrow span
5. Horizontal communications
meetings
CRAFT
NONROUTINE
Mechanistic Structure
Mostly Mechanistic Structure
ROUTINE
ENGINEERING
1. High formalization
2. High centralization
3. Little training or experience
4. Wide span
5. Vertical, written
communications
1. Moderate formalization
2. Moderate centralization
3. Formal training
4. Moderate span
5. Written and verbal
communications
1) Routine technologies: Little task variety, high analyzability. The use of computational procedures.Formalized
and standard tasks. Automobile assembly line, bank teller department. Sales,drafting, auditing.
2) Craft technologies: Low variety, low analyzability. fairly stable stream of activities, but theconversion process
is not analyzable or well understood. Extensive training and experience.Performing arts, trades, fine goods
manufacturing.
3) Engineering technologies; High variety, high analyzability. Established formulas, procedures andtechniques.
Well-developed employees. Engineering and accounting.
4) Non-routine technologies: High task variety, little analyzability. Conversion process is notanalyzable or well
understood. Experience and technical knowledge are used to solve problems.Social science research, strategic
planning, applied research.
Department Design
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Relationship of departmental technology to structural and management characteristics. The specific design
characteristics of formalization, centralization, worker skill level, span of control, and communication and
coordination vary, depending on work unit technology.
1.
Formalization. Routine technology is characterized by standardization and division of labor into small
tasks that are governed by formal rules and procedures. For non-routine tasks, the structure is less
formal and less standardized. When variety is high, as in a research department, fewer activities are
covered by formal procedures.
2.
Decentralization. In routine technologies, most decision making about task activities is centralized to
management.In engineering technologies, employees with technical training tend to acquire moderate
decision authority because technical knowledge is important to task accomplishment. Production
employees who have years of experience obtain decision authority in craft technologies because they
know how to respond to problems. Decentralization to employees is greatest in non-routine settings,
where many decisions are made by employees.
3.
Worker skill level. Work staff in routine technologies typically require little education or experience,
which is congruent with repetitious work activities. In work units with greater variety, staff are more
skilled and often have formal training in technical schools or universities. Training for craft activities,
which are less analyzable, is more likely to be through job experience. Non-routine activities require
both formal education and job experience.
4.
Span of control. Span of control is the number of employees who report to a single manager or
supervisor. This characteristic is normally influenced by departmental technology. The more complex
and non-routine the task, the more problems arise in which the supervisor becomes involved. Although
the span of control may be influenced by other factors, such as skill level of employees, it typically
should be smaller for complex tasks because on such tasks the supervisor and subordinate must interact
frequently.
5.
Communication and coordination. Communication activity and frequency increase as task variety
increases.Frequent problems require more information sharing to solve problems and ensure proper
completion of activities. The direction of communication is typically horizontal in non-routine work
units and vertical in routine work units.The form of communication varies by task analyzability. When
tasks are highly analyzable, statistical and written forms of communication (memos, reports, rules, and
procedures) are frequent. When tasks are less analyzable, information typically is conveyed face-toface, over the telephone, or in group meetings.
Workflow Interdependence among Departments
Interdependence = The extent to which departments depend on each other for resources or materials
toaccomplish their tasks.
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Types:Three types of interdependence defined by James Thompson:
Thompson’s Classification of Interdependence
and Management Implications
Demands on
Horizontal
Communications,
Decision Making
Form of
Interdependence
Pooled (bank)
Low
communication
Client
Sequential
(assembly line)
Client
Standardization, rules,
procedures
High
communication
Plans, schedules,
feedback
Interdependence
=
Medium
Task Forces
Mutual adjustment, crossdepartmental meetings,
teamwork
Client
Pooled
Low
Divisional Structure
Medium
communication
Reciprocal (hospital)
Priority for
Locating Units
Close Together
Type of
Coordination
Required
High
Horizontal Structure
Work
does
not
flow
between
units.
Each
department
works
independently.Mediating Technology = Providing products or services that mediate or link clients from
theexternal environment and allow each department to work independently.
Sequential Interdependence = Parts produced in one department become inputs to another department.
Long-Linked Technology = Refers to the combination is one organization of successive stages ofproduction;
each stage of production uses as its inputs the production of the preceding stage andproduces inputs for the
following stage.
Reciprocal Interdependence = Output of operation A is input operation B, and output of operation B isthe input
back again in operation A.
Intensive Technologies = Provide a variety of products or services in combination to a client.Hospitals: patients
move back and forth between different departments.
Structural Priority:First Reciprocal interdependence: first priority because decision making, communication,
and coordination problems are greatest. If reciprocal dependent units are not located close together, the
organization should design mechanisms for coordination, such as daily meetings. Than sequential and
after that, pooled interdependence.
Structural Implications: Most organizations experience various levels of interdependence, and structure can be
designed to fit these needs.In a manufacturing firm, new product development entails reciprocal interdependence
among the design, engineering, purchasing, manufacturing, and sales departments.
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Impact of Technology on Job Design
Job Design = The assignment of goals and tasks to be accomplished by employees.
Job Rotation = Moving employees from job to job to give them a greater variety of tasks.
Job Simplification = The variety and difficulty of tasks performed by a single person are reduced. It is caused
by mass-production technologies.
Job Enrichment = Job provides greater responsibility, recognition, and opportunities for growth and
development. It is caused by advanced technology.
Job Enlargement = Expansion of the number of different tasks performed by an employee. It is caused by
flexible manufacturing technology.
Socio-Technical Systems: Recognizes the interaction of technical and human needs in effective job design,
combining the needs of people with the organization’s need for technical efficiency.
Socio: Refers to the people and groups that work in organizations and how work is organized and coordinated.
Technical: Refers to the materials, tool, machines and processes used to transform organizational inputs
into outputs.
Joint Optimization:An organization functions best only when the social and technical systems aredesigned to
fit the needs of one another.
Chapter VIII: Information Technology and Control
Information Technology Evolution
First-line management is typically concerned with well-defined problems about operational issues and past
events. Top management, by contrast, deals mostly with uncertain, ambiguous issues, such as strategy and
planning. As computer-based IT systems have grown increasingly sophisticated, applications have grown to
support effective management coordination, control, and decision making about complex and uncertain
problems. Initially, IT systems in organizations were applied to operations. These initial applications were based
on the notion of machine-room efficiency—that is, current operations could be performed more efficiently with
the use of computer technology. The goal was to reduce labor costs by having computers take over some tasks.
These systems became known as transaction processing systems(TPS), which automate the organization’s
routine, day-to-day business transactions. In recent years, the use of data warehousing and business intelligence
software has expanded the usefulness of these accumulated data. Data warehousingis the use of huge databases
that combine all of a company’s data and allow users to access the data directly, create reports and obtain
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responses to what-if questions. Business intelligencerefers to the high-tech analysis of a company’s data in order
to make better strategic decisions. Sometimes referred to as data mining, business intelligence means searching
out and analyzing data from multiple sources across the enterprise, and sometimes from outside sources as well,
to identify patterns and relationships that might be significant.
Evolution of Organizational Applications
of Information Technology
3. Strategic Weapon
TOP
(strategy, plans,
non-programmed)
2. Business Resource
MANAGEMENT
LEVEL
1. Operations
• Transaction
processing systems
• Data warehousing
FIRST-LINE
(operational, past, LOW
programmed)
INTERNAL
EXTERNAL
• Knowledge
• Extranets
Management
• E-Commerce
• Intranets
• Integrated
• Enterprise resource Enterprise
planning
• Management Information
systems
• Decision Support Systems
• Executive information
systems
· Management control systems
· Balanced Scorecard
SYSTEM COMPLEXITY
Direction of
Information
System
Evolution
HIGH
Information for Decision Making and Control
Through the application of more sophisticated computer-based systems, managers have tools to improve the
performance of departments and the organization as a whole. These applications use information stored in
corporate databases to help managers control the organization and make important decisions. Management
information systems—including information reporting systems, decision support systems, and executive
information systems—facilitate rapid and effective decision making. Elements for control include various
management control systems, including executive dashboards, and a procedure known as the balanced scorecard.
In an organization, these systems are interconnected, as illustrated by the dashed lines in Exhibit. The systems
for decision making and control often share the same basic data, but the data and reports are designed and used
for a primary purpose of decision making versus control.
Organizational Decision Making Systems: A management information system(MIS) is a computer-based
system that provides information and support for managerial decision making. The MIS is supportedby the
organization’s transaction processing systems and by organizational and external databases. The information
reporting system, the most common form of MIS, provides mid-level managers with reports that summarize
data and support day-to-day decision making. An executive information system(EIS) is a higher-level
application that facilitates decision making at the highest levels of management. These systems are typically
based on software that can convert large amounts of complex data into pertinent information and provide that
information to top managers in a timely fashion. A decision support system(DSS) provides specific benefits to
managers at all levels of the organization. These interactive, computer-based systems rely on decision models
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and integrated databases. Using decision-support software, users can pose a series of what-if questions to test
possible alternatives. Based on assumptions used in the software or specified by the user, managers can explore
various alternatives and receive information to help them choose the alternative that will likely have the best
outcome.
Feedback Control Model
A Simplified Feedback Control Model
Set Strategic
Goals
Take Corrective
Action
as Needed
Establish Standards
of Performance
Measure Actual
Performance and
Compare to
Standards
Management Control Systems: They are broadly defined as the formal routines, reports and procedures that
use information to maintain or alter patterns in organization activities. Control system elements that are often
considered the core of management control systems: the budget and financial reports; periodic nonfinancial
statistical reports; reward systems; and quality-control systems. The budget is typically used to set targets for the
organization’s expenditures for the year and then report actual costs on a monthly or quarterly basis. As a means
of control, budgets report actual as well as planned expenditures for cash, assets, raw materials, salaries, and
other resources so that managers can take action to correct variances. Sometimes, the variance between budgeted
and actual amounts for each line item is listed as a part of the budget. Managers also rely on a variety of other
financial reports. The balance sheet shows a firm’s financial position with respect to assets and liabilities at a
specific point in time. An income statement, sometimes called a profit and loss statement (P&L), summarizes the
company’s financial performance for a given time interval, such as for the week, month, or year. This statement
shows revenues coming into the organization from all sources and subtracts all expenses, such as cost of goods
sold, interest, taxes, and depreciation. The bottom line indicates the net income—profit or loss—for the given
time period.Managers use periodic statistical reports to evaluate and monitor nonfinancial performance, such as
customer satisfaction, employee performance, or rate of staff turnover. For e-commerce organizations, important
measurements of nonfinancial performance include metrics such as stickiness (how much attention a site gets
over time), the conversion rate, the ratio of buyers to site visitors, and site performance data, such as how long it
takes to load a page or how long it takes to place an order-commerce managers regularly review reports on
conversion rates, customer drop-off, and other metrics to identify problems and improve their business. For all
organizations, nonfinancial reports typically are computer based and may be available daily, weekly, or monthly.
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Other elements of the overall control system listed are reward systems and quality control systems. Reward
systems offer incentives for managers and employees to improve performance and meet departmental goals.
Managers and employees evaluate how well previous goals were met, set new goals, and establish rewards for
meeting the new targets. Rewards are often tied to the annual performance appraisal process, during which
managers assess employee performance andprovide feedback to help people improve performance and obtain
rewards. Quality-control systems involve training employees in quality-control methods, setting targets for
employee participation, establishing benchmarking guidelines, and assigning and measuring Six Sigma goals.
Benchmarkingmeans the process of persistently measuring products, services, and practices against tough
competitors or other organizations recognized as industry leaders.Six Sigmaspecifically meansa highly
ambitious quality standard that specifies a goal of no more than 3.4 defects per million parts. However, it has
deviated from that precise meaning to refer to a whole set of control procedures that emphasize the relentless
pursuit of higherquality and lower costs.
The Balanced Scorecard: Itis a comprehensive management control system that balances traditional financial
measures with operational measures relating to a company’s critical success factors.24 A balanced scorecard
contains four major perspectives, as illustrated in Exhibit: financial performance, customer service, internal
business processes, and the organization’s capacity for learning and growth.
Major Perspectives of the Balanced
Scorecard
Financial
Do actions contribute to improving
financial performance?
Examples of measures: profits,
return on investment
Customers
How well do we serve our customers?
Examples of measures: customer
satisfaction, customer loyalty
Internal Business Processes
Mission
Strategy
Goals
Does the chain of internal activities and
processes add value for customers and
shareholders?
Examples of measures: order-rate
fulfillment, cost-per-order
Learning and Growth
Are we learning and changing?
Examples of measures: continuous
process improvement, employee
retention, new product introductions
The financial perspective reflects a concern that the organization’s activities contribute to improving short- and
long-term financial performance. It includes traditional measures such as net income and return on investment.
Customer service indicators measure such things as how customers view the organization, as well as customer
retention and satisfaction. Business process indicators focus on production and operating statistics, such as order
fulfillment or cost per order. The final component looks at the organizations potential for learning and growth,
focusing on how well resources and human capital are being managed for the company’s future. Measurements
include such things as employee retention, business process improvements, and the introduction of new products.
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Adding Strategic Value: Strengthening Internal Coordination
Primary IT applications for internal coordination are intranets, knowledge-management systems, and enterprise
resource planning (ERP).
Intranets:Networking, which links people and departments within a particular building or across corporate
offices, enabling them to share information and cooperate on projects, has become an important strategic tool for
many companies. Today, most companies with intranets have moved their management information systems,
executive information systems, and so forth over to the intranet so they are accessible to anyone who needs
them. In addition, having these systems as part of the intranet means new features and applications can easily be
added and accessed through a standard browser. Intranets can improve internal communications and unlock
hidden information. They enable employees tokeep in touch with what’s going on around the organization,
quickly and easily find information they need, share ideas, and work on projects collaboratively.
Enterprise Resource Planning (ERP):Enterprise resource planning(ERP) systems collect, process, and
provide information about a company’s entire enterprise, including order processing, product design, purchasing,
inventory, manufacturing, distribution, human resources (HR), receipt of payments, and forecasting of future
demand. ERP systems can be expensive and difficult to implement, but when applied successfully, an ERP
system can serve as the backbone for an entire organization by integrating and optimizing all the various
business processes across the entire firm.
Example of ERP Network
Financial and
Accounting
Sales
Human
Resources
Central
Database
Inventory and
Manufacturing
Purchasing
Distribution
Knowledge Management: Knowledge managementis a new way to think about organizing and sharing an
organization’s intellectual and creative resources. It refers to the efforts to systematically find,organize, and
make available a company’s intellectual capital and to foster a culture of continuous learning and knowledge
sharing so that organizational activities build on what is already known. The company’s intellectual capitalis
the sum of its knowledge, experience, understanding, relationships, processes, innovations, and
discoveries.Companies need ways to transfer both explicit knowledge and implicit, or tacit, knowledge across
the organization. Explicit knowledgeis formal, systematic knowledge that can be codified, written down, and
passed on to others in documents or general instructions. Tacit knowledge, on the other hand, is often difficult to
put into words. Tacit knowledgeis based on personal experience, rules of thumb, intuition, and judgment. It
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includes professional know-how and expertise, individual insight and experience, and creative solutions that are
difficult to communicate and pass on to others.
Adding Strategic Value: Strengthening External Relationships
External applications of IT for strengthening coordination with customers, suppliers and partners include
systems for supply chain management and the integrated enterprise, tools for enhancing customer relationships,
and e-business organization design. One basic approach is to extend the corporate intranet to include customers
and partners. An extranetis an external communications system that uses the Internet and is shared by two or
more organizations. Each organization moves certain data outside of its private intranet, but makes the data
available only to the other companies sharing the extranet.
The Integrated Enterprise:Extranets play a critical role in today’s integrated enterprise. The integrated
enterpriseis an organization that uses advanced IT to enable close coordination within the company as well as
with suppliers, customers, and partners. An important aspect of the integrated enterprise is using supply chain
management systems, which manage the sequence of suppliers and purchasers covering all stages of processing
from obtaining raw materials to distributing finished goods to consumers.
•
Information Linkages: Applying supply chain management systems enables organizations to achieve
the right balance of low inventory levels and customer responsiveness. By establishing electronic
linkages between the organization and key partners for the sharing and exchange of data, the integrated
enterprise creates a seamless, integrated line stretching from end consumers to raw materials suppliers.
As products are made by the manufacturer, data about raw materials used in the production process,
updated inventory information, and updated forecasted demand are electronically provided to the
manufacturer’s suppliers, and the suppliers automatically replenish the manufacturer’s raw materials
inventory as needed.
•
Horizontal Relationships: The purpose of integrating the supply chain is for everyone to work closely
together, moving in lockstep to meet customers’ product and time demands. For the integrated
enterprise to work, horizontal relationships such as those between suppliers and customers get more
emphasis than vertical relationships. Enterprise integration can create a level of cooperation not
previously imaginable if managers approach the practice with an attitude of trust and partnership, as in
the inter-organizational relationships.
Customer Relationship Management: These systems help companies track customers’ interactions with the
firm and allow employees to call up a customer’s past sales and service records, outstanding orders, or
unresolved problems.CRM stashes in a database all the customer information that a small-town store owner
would keep in his or her head—the names of customers, what they bought, what problems they’ve had with
purchases, and so forth. The system helps coordinate sales, marketing, and customer service departments so that
all are smoothly working together.
E-Business Organization Design: E-businesscan be defined as any business that takes place by digital
processes over a computer network rather than in physical space. Thus, all of the computer-based technologies
we have discussed so far are aspects of e-business. However, e-business most commonly refers to electronic
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linkages over the Internet with customers, partners, suppliers, employees, or other key constituents. Many
traditional organizations have set up Internet operations to strengthen and improve these external relationships,
but managers have to make a decision about how best to integrate bricks and clicks—that is, how to blend their
traditional operations with an Internet initiative. In the early days of e-business, many companies set up dot-com
initiatives with little understanding of how those activities could and should be integrated with the overall
business. As the reality of e-business has evolved, companies have gained valuable lessons in how to merge
online and offline activities. At one end of the spectrum, companies can set up an in-house divisionthat is closely
integrated with the traditional business. The opposite approach is to create a spin-off company that is totally
separate from the traditional organization. Many companies take a middle road by forging strategic partnerships
with other organizations for their Internet initiative. Each of these options presents distinct advantages and
disadvantages.
•
In House Division: An in-house division offers tight integration between the Internet operation and the
organization’s traditional operation. The organization creates a separate unit within the company that
functions within the structure and guidance of the traditional organization. The in-house approach gives
the new division several advantages by piggybacking on the established company. These include brand
recognition, purchasing leverage with suppliers, shared customer information and marketing
opportunities, and distribution efficiencies. A potential problem with an in-house division, however, is
that the new operation doesn’t have the flexibility needed to move quickly in the Internet world.
•
Spin-Off: To give the Internet operation greater autonomy, flexibility, and focus, some organizations
choose to create a separate spin-off company. Advantages of a spin-off include faster decision making,
increased flexibility and responsiveness to changing market conditions, an entrepreneurial culture, and
management that is totally focused on the success of the online operation. Potential disadvantages are
the loss of brand recognition and marketing opportunities, higher start-up costs, and loss of leverage
with suppliers.
•
Strategic Partnership: Partnerships offer a middle ground, enabling organizations to attain some of the
advantages and overcome some of the disadvantages of the purely in-house or spinoff options. The
biggest disadvantages of partnerships include the time required to manage relationships, potential
conflicts between partners, and a possibility that one company will fail to deliver as promised or go out
of business.
IT Impact on Organization Design
Managers and organization theorists have been studying the relationship between technology and organization
design and functioning for more than half a century. In recent years, the advances in information technology
have had the greatest impact in most organizations.Some specific implications of these advances for organization
design are smaller organizations, decentralized structures, improved internal and external coordination, and new
network organization structures.
1.
Smaller organizations. Some Internet-based businesses exist almost entirely in cyberspace; there is no
formal organization in terms of a building with offices, desks, and so forth. One or a few people may
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maintain the site from their homes or a rented work space. Even for traditional businesses, new IT
enables the organization to do more work with fewer people.
2.
Decentralized organization structures. Although management philosophy and corporate culture have a
substantial impact on whether IT is used to decentralize information and authority or to reinforce a
centralized authority structure, most organizations today use technology to further decentralization.
With IT, information that may have previously been available only to top managers at headquarters can
be quickly and easily shared throughout the organization, even across great geographical distances.
Managers in varied business divisions or offices have the information they need to make important
decisions quickly rather than waiting for decisions from headquarters. Technologies that enable people
to meet, coordinate, and collaborate online facilitate communication and decision making among
distributed, autonomous groups of workers, such as in virtual teams.
3.
Improved horizontal coordination. Perhaps one of the greatest outcomes of IT is its potential to improve
coordination and communication within the firm. IT applications can connect people even when their
offices, factories, or stores are scattered around the world.
4.
Improved inter-organizational relationships. IT can also improve horizontal coordination and
collaboration with external parties such as suppliers, customers, and partners.
5.
Enhanced network structures. The high level of inter-organizational collaboration needed in a network
organization structure would not be possible without the use of advanced IT. In the business world,
these are also sometimes called modular structures or virtual organizations. Outsourcing has become a
major trend, thanks to computer technology that can tie companies together into a seamless information
flow.
Future Trends
The rapid development of internet technologies means that it is very difficult to predict their future business
impact. Just as Amazon has revolutionized bookselling, and eBay has created a whole new breed of small-time
entrepreneurs, it can be expected that new technologies such as Web 2.0 will emerge in the coming years.
Chapter IX: Organization Size, Life Cycle and Decline
Pressures for Growth:
- Companies in all industries strive for growth to acquire the size and resources needed to compete on a global
scale, to invest in new technology and to control distribution channels and guarantee access to markets.
- Firms must grow to stay economically healthy. To stop growing is to stagnate. To be stable means that
customers may not have their demands fully met or that competitors will increase market share at the expense of
the company. In addition, growing organizations are vibrant, exciting places to work, which enables these
companies to attract and keep quality employees.
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Big-Company/Small-Company Hybrid: The advantages of small companies sometimes enable them to
succeed and grow large. They can however become victims of their own success. Giant companies are built for
optimization, not innovation. The big-company/small-company hybrid means combining a large corporation’s
resources and reach with a small company’s simplicity and flexibility.
Organizational Life Cycle
Suggests that organizations are born, grow older and eventually die.
Organizational
Life Cycle
Large
Streamlining,
small-company
thinking
Development of teamwork
Addition of internal systems
S
I
Z
E
Crisis:
Need for
revitalization
Provision of clear direction
Creativity
Crisis:
Need for
leadership
1.
Small Entrepreneurial
Stage
2.
Collectivity
Stage
Crisis:
Need for
delegation
with control
Continued
maturity
Decline
Crisis:
Need to deal
with too much
red tape
3.
Formalization
Stage
4.
Elaboration
Stage
ORGANIZATION STAGES OF DEVELOPMENT
Stages of life cycle development are:
1) Entrepreneurial stage: Organization is informal and non-bureaucratic. Control is based on the owner’s
personal supervision. Creativity causes growth.
a. Crisis: Need for leadership. As the organization starts to grow, the larger number of employees causes
problems. Entrepreneurs must either adjust the structure of the organization to accommodate continued growth
or else bring in strong managers.
2) Collectivity stage: The provision of clear direction causes growth.
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a. Crisis: Need for delegation with control. Lower-level employees find themselves restricted by the strong topdown control. The organization needs to find mechanisms to control and coordinate departments without direct
supervision from the top.
3) Formalization stage: the addition of internal systems (rules, procedures and control systems)
causes growth.
a. Crisis: Too much red tape. The organization seems bureaucratized. Middle managers and innovation may be
restricted.
4) Elaboration stage: The solution to the red tape crisis is a new sense of collaboration and teamwork. Formal
systems may be simplified and replaced by manager teams and task forces.
a. Crisis: Need for Revitalization. A need for renewal may occur every 10 to 20 years.
For technology companies, life cycles are getting shorter; to stay competitive, companies have to successfully
progress through stages of the cycle faster.
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Organizational Bureaucracy and Control
Bureaucracy = A threat to personal liberties, but the most efficient possible system of organizing.
Dimensions of bureaucracy:
Weber’s Dimensions of Bureaucracy and
Bases of Organizational Authority
•
BUREAUCRACY
1.
2.
3.
4.
5.
6.
1. Rules and procedures
Specialization and division
of labor
Hierarchy of authority
Technically qualified
personnel
Separate position and
incumbent
Written communications
and records
•
LEGITIMATE BASES OF
AUTHORITY
1.
Rational-legal
2.
Traditional
3.
Charismatic
1-103
- Rules and procedures;
- Specialization and division of labor;
- Hierarchy of authority;
- Technically qualified personnel;
- Separate position from position holder
- Written communications and records (provides memory and continuity over time).
Size and Structural Control:Large companies are different from small organizations. There is more
formalization and centralization and the ratio of top administration total employees is smaller in large
organizations as the clerical and profession support staff tends to increase. As the organization grows, provide
greater formalization to achieve standardization and control. Guard against excessive overhead by keeping
administrative, clerical and support staff costs low.
Bureaucracy in a Changing World:Bureaucratic characteristics have many advantages and have worked
extremely well for many of the needs of the industrial age. At this time, it doesn’t work that well anymore. Many
organizations need to reduce formalization and bureaucracy. Narrowly define job descriptions, for example, tend
to limit the creativity, flexibility and rapid response needed in today’s knowledge-based organizations.
Organizing Temporary Systems for Flexibility and Innovation:Overcoming problems of bureaucracy.
Incident command system = used by organizations that have to respond rapidly to emergency or crisis
situations. The basic idea behind the ICS is that the organization can glide smoothly between a highly
formalized, hierarchical structure and a more flexible, loosely structure. During times of high uncertainty,
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the loose structure helps solve unanticipated problems within the context of a clearly understood mission and
guidelines. Incident commander = The person who is ultimately responsible for all activities that occur. This
helps maintain order in a chaotic environment.
Other Approaches to Reducing Bureaucracy:Organizations are taking a number of other, less dramatic
steps to reduce bureaucracy.
- Many are cutting layers of the hierarchy, keeping headquarters staff small, and giving lower-level workers
greater freedom to make decisions rather than burdening them with excessive rules and regulations.
- Another attack on bureaucracy is increasing the professionalism: the length of formal training and experience
of employees.
Organizational Control Strategies
1) Bureaucratic control: Three types of authority that could explain the creation and control of a large
organization. The first is rational-legal authority (employees belief in the legality of rules) ,traditional authority
(belief in traditions and in the legitimacy of the status of people), charismatic authority (devotion to the
exemplary character of a person).
2) Market control: Occurs when price competition is used to evaluate the output and productivity of an
organization. It is increasingly used in product divisions.
3) Clan control: We of social characteristics, such as corporate culture, shared values etc.
Organizational Decline and Downsizing
Causes and stages of organizational decline:
Organizational decline = Used to define a condition in which a substantial, absolute decrease in a
organization’s resource base occurs over a period.
Three factors are considered to cause this:
1) Organizational atrophy: Atrophy occurs when organizations grow older and become inefficient and
overly bureaucratized. Often follows after a long period of success.
2) Vulnerability: Reflects an organization’s strategic inability to proper in it’s environment. Often
happens to small organizations who are not yet fully established. They typically need to redefine
their environmental domain to enter new industries or markets.
3) Environmental decline or competition: Refers to reduced energy and resources available to support an
organization. When the environment has less capacity to support organizations, the organization has to
either scale down operations or shift to another domain.
A Model of Decline Stages:There are five stages in which decline can move.
1) Blinded stage: Lack of good information (= solution).
2) Inaction stage: Denial occurs despite signs of deteriorating performance. Prompt action = solution.
3) Faulty action stage: organization is facing serious problems, which can’t be ignored. Failure to adjust to the
declining spiral can lead to organizational failure. Correct action = solution.
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4) Crisis stage: Organization has still not been able to deal with decline effectively and is facing a panic.
Effective reorganization = solution.
5) Dissolution stage: There are no more options. The organization will dissolute.
Downsizing Implementation:A number of techniques can help smooth the downsizing process and ease
tensions for employees who leave and for those who remain.
1) Communicate more, not less: Organizational managers should provide advance notice with as much
information as possible. It is impossible to over communicate in turbulent times. Remaining employees need to
know what is expected of them, whether future layoffs are a possibility and what the organization is doing to
help co-workers who lost their jobs.
2) Provide assistance to displaced workers: Training etc. Counseling services for employees and families. Let
them leave with dignity, saying co-workers goodbye and expressing hurt and anger towards leaders.
3) Help the survivors thrive: Many people experience guilt, anger, confusion and sadness. Help them develop
coping skills such as flexibility, curiosity and optimism.
PART V – MANAGING DYNAMIC PROCESSES
Chapter X: Organizational Culture and Ethical Values
Social Capital (goodwill) = Refers to the quality of interactions among people and whether they share a
common perspective. In organizations with a high degree of social capital, relationships are based on trust,
mutual understandings, and shared norms and values that enable people (inside and outside the organization) to
cooperate and coordinate their activities to achieve organizational goals.
Organizational Culture
Organizational Culture:The set of values, norms, guiding beliefs and understandings that is shared by
members of an organization and is taught to new members. Organizational culture operates on two levels:
Levels of Corporate Culture
Observable Symbols
Ceremonies, Stories, Slogans,
Behaviors, Dress,
Physical Settings
Underlying
Values,
Assumptions,
Beliefs, Attitudes,
Feelings
- Visible artifacts and observable behavior: like ceremonies, stories, slogans, behavior,dress code, physical
settings.
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- Values in the minds of organization members: underlying values, assumptions, beliefs, attitudes,feelings. These
form the true culture.
Emergence and Purpose of Culture: Culture provides members with a sense of organizational identityand
generates in them a commitment to beliefs and values that are greater than themselves.Culture generally begins
with a founder or early leader who articulates and implements ideas and valuesas a vision, philosophy or
business strategy. When these ideas and values lead to success they becomeinstitutionalized.
Cultures serve two critical functions in organizations:
1) Internal integration: To integrate members so that they know how to relate to one another;
2) External adaptation: To help the organization adapt to the external environment.
Interpreting Culture:To identify and interpret culture requires that people make inferences based on observable
artifacts.
1) Rites and Ceremonies: Theyare important artifacts for culture. These are the elaborate, plannedactivities that
make up a special event and are often conducted for the benefit of an audience.
Four types of rites that appear in organizations are:
A Typology of Organizational Rites and Their Social
Consequences
Example
Social Consequences
Passage
Type of Rite
Induction and basic training; US
Army
Facilitate transition of person
into new social roles and
statuses
Enhancement
Annual awards night
Enhance social identities and
increase status of members
Renewal
Organizational development
activities
Refurbish social structures and
improve organization
functioning
Integration
Office holiday party
Encourage and revive common
feelings that bind members
together and commit them to
the organization
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2) Stories and Myths:Storiesare narratives based on true events that are frequently shared among employees
and told to new employees to inform them about an organization. Many stories are about company heroeswho
serve as models or ideals for serving cultural norms and values. Some stories are considered legendsbecause the
events are historic and may have been embellished with fictional details. Other stories are myths, which are
consistent with the values and beliefs of the organization but are not supported by facts.
3) Symbols: Itis something that represents another thing. In one sense, ceremonies, rites, storiesand slogans are
all symbols. The physical artifact is also a symbol; it focuses attention on aspecific item.
4) Language: Many companies use a specific saying, slogan, metaphor or other form of languageto convey
special meaning to employees.
Organization Design and Culture
Corporate culture should reinforce the strategy and structural design that the organization needs to be effective
within its environment.
Two dimensions of culture:
Relationship of Environment and Strategy to
Corporate Culture
Needs of the Environment
Flexibility
Strategic Focus
External
Internal
Adaptability
Culture
Clan
Culture
Stability
Mission
Culture
Bureaucratic
Culture
1-111
1) The adaptability culture: It is characterized by strategic focus on the external environment through
flexibility and change to meet customer needs. This type of company actively creates change. Innovation,
creativity and risk taking are valued and rewarded. Most e-commerce companies, as well as companies in the
marketing, electronics and cosmetics industries, use this type of culture because they must move quickly to
satisfy customers.
2) The mission culture: It is characterized by emphasis on a clear vision of the organization’s purpose and on
the achievement of goals, such as sales growth, profitability, or market share, to help achieve the purpose.
Suitable for an organization concerned with serving specific customers in the external environment, but without
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the need for rapid change. In some cases, mission cultures reflect a high level of competitiveness and a profitmaking orientation.
3) The clan culture: It has a primary focus on the involvement and participation of the organization’s members
and on rapidly changing expectations from the external environment. This culture focuses on the needs of
employees as the route to high performance. Fashion, retail.
4) The bureaucratic culture: It has an internal focus and a consistency orientation for a stable environment.
Personal involvement is lower, but that is outweighed by a high level of consistency, conformity and
collaboration among members. Companies who follow this culture may have difficulties to keep pace with the
demands of the external environment.
Culture Strength and Organizational Subcultures:Culture strength refers to the degree of agreement
among members of an organization about the importance of specific values. If widespread consensus exists, the
culture is cohesive and strong. A strong culture is typically associated with the frequent use of ceremonies,
symbols, stories, heroes and slogans. Employees are selected and socialized. Subcultures: develop to reflect the
common problems, goals and experiences that members of a team, department, or other unit share. An office,
branch, or unit of a company that is physically separated from the company’s main operations may also take on a
distinctive subculture. Subcultures typically include the basic values of the dominant culture plus additional
values unique to members of the subculture.
Organizational Culture, Learning and Performance
A strong culture that encourages constant adaptation and change enhances organizational performance by
energizing and motivating employees, unifying people around shared goals and a higher mission, and shaping
and guiding employee behavior so that everyone’s actions are aligned with strategic priorities. Creating and
influencing an adaptive culture is one of the most important jobs for organizational leaders.
Non-adaptive cultures encourage rigidity and stability. Strong adaptive cultures often incorporate thefollowing
values:
1) The whole is more important than the parts and boundaries between parts are minimized. Peopleare aware of
the whole system. Although subcultures may form, everyone is primary attitudesand behaviors reflect the
organization’s dominant culture.
2) Equality and trust are primary values. The culture creates a sense of community and caring for one another.
Honest and open communication as a way to build trust.
3) The culture encourages risk taking, change, and improvement. A basic value is to question the status quo. The
culture rewards and celebrates the creators of new ideas, products and work processes.
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Ethical Values and Responsibility
Ethics is the code of moral principles and values that governs the behaviors of a person or group with respect to
what is right or wrong. Ethical values set standards as to what is good or bad in conduct and decision making.
Individual Ethics and Actions: First there are historical influences like national culture, religion, philosophy
and geographical environment. History leads to the development of societal morality with it’s norms and values,
laws, codes and regulations. Society shapes the local environment, which concerns organizations, family etc. The
local environment shapes individual behavior.
Managerial Ethics and Social Responsibility: The rule of law arises from a set of codified principles and
regulations that describe how people are required to act, that are generally accepted in society, and that are
enforceable in the courts. Ethical standards for the most part apply to behavior not covered by law, and the rule
of law applies to behaviors not necessarily covered by ethical standards.
Managerial Ethics = Principles that guide the decisions and behaviors of managers with regard to whether they
are right or wrong. The notion of social responsibility is an extension of this idea and refers to management’s
obligation to make choices and take action so that the organization contributes to
the welfare and interest of all organization stakeholders.
Ethical Dilemma: Arises in a situation concerning right and wrong in which values are in conflict. Studies have
provided varying results but generally have found that there is a small positive relationship between ethical and
socially responsible behavior and financial results.
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Does it pay to be good?Why are so many companies embracing corporate social responsibility? For one thing,
customers and the public are paying closer attention than ever before to what organizations do, and managers
recognize that being a good corporate citizen can enhance their firm’s reputation and even its profitability. The
relationship of an organization’s ethics and social responsibility to its performance concerns both managersand
organization scholars. Studies have provided varying results but generally have found that there is a positive
relationship between ethical and socially responsible behavior and financial results.
Sources of Ethical Values in Organizations
Ethics in organizations is both an individual and an organizational matter. Forces that shape managerial ethics,
dealing with the question if decisions and behavior are ethical and socially responsible:
Forces That Shape Managerial Ethics
Personal Ethics
Beliefs and Values
Moral Development
Ethical Framework
Organizational Systems
Structure
Policies, Rules
Code of Ethics
Reward System
Selection, Training
Organizational Culture
Is
Decision
or Behavior
Ethical and
Socially
Responsible?
Rituals, Ceremonies
Stories, Heroes
Language, Slogans
Symbols
Founder, History
External Stakeholders
Government Regulations
Customers
Special Interest Groups
Global Market Forces
1) Personal Ethics: Beliefs and values, moral development, ethical framework;
2) Organizational Culture: Rituals, ceremonies, stories, heroes, language, slogans, symbols, founder, history;
3) Organizational Systems: Structure, policies, rules, code of ethics, reward system, selection, training;
4) External Stakeholders: Government regulations, customers, special interest groups, global market forces.
How Leaders Shape Culture and Ethics
Managers signal and implement values through leadership as well as through the formal system of the
organization.
Values-Based Leadership: It is the relation between the leader and followers that is based on shared, strongly
internalized values that are advocated and acted upon by the leader. Value based leadership develops and
strengthens organizational values. Leaders must formulate and communicate a clear vision.Managers should
remember that every statement and action has an impact on culture and values. Value based leaders engender a
high level of trust and respect from employees.
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Formal Structure and Systems: Theyare a set of tools leaders can use to shape values.
1) Structure: For instance, introducing an ethics committee which is a cross-functional group of executives who
oversee company ethics. Provides ruling on ethics. Ethics departments are headed by a chief ethics officer, who
is a high-level company executive who oversees all aspects of ethics. Ethics offices have confidential ethics
hotlines.
2) Disclosure Mechanisms: Organizations can establish policies and procedures to support and protect whistleblowers. Create an environment in which employees feel free to point out problems and managers take swift
action to address concerns about unethical or illegal activities.
3) Code of Ethics: Formal statement of the company’s values concerning ethics and social responsibility.
4) Training Programs: To ensure that ethical issues are considered in daily decision making.
Corporate Culture and Ethics in a Global Environment
The greater complexity of the environment and organizational domain create a greater potential for ethical
problems or misunderstandings. Corporate culture and national culture are often intertwined. There are specific
components that characterize a global culture. These include an emphasis on multicultural rather than national
values, basing status on merit rather than nationality, being open to new ideas from other cultures, showing
excitement rather than trepidation when entering new cultural environments, and being sensitive to cultural
differences without being limited to them.
Social audit: Itis one of the most useful mechanisms for building global ethics. It measures and reports
theethical, social an environmental impact of a company’s organization.
Chapter XI: Innovation and Change
Innovate or Perish: The Strategic Role of Change
Powerful forces associated with advancing technology, international economic integration, the maturing of
domestic markets, and the shift to capitalism in formerly communist regions have brought about a
globalizedeconomy that affects every business, from the largest to the smallest, creating more threats as well as
more opportunities. To recognize and manage the threats and take advantage of the opportunities, today’s
companies are undergoing dramatic changes in all areas of their operations.
Many organizations are responding to global forces by adopting self-directed teams and horizontal structures that
enhance communication and collaboration, streamlining supply and distribution channels, and overcoming
barriers of time and place through IT and e-business. Others become involved in joint ventures orconsortia to
exploit opportunities and extend operations or markets internationally. Some adopt structural innovations such as
the virtual network approach to focus on their core competencies while outside specialists handle other activities.
In addition, today’s organizations face a need for major strategic and culturalchange and for rapid and
continuous innovations in technology, services, products, and processes.
Incremental versus Radical Change
Incremental Change:It refers to a series of continual progressions that maintain the organization’s general
equilibrium and often affect only one organizational part.
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Radical Change: By contrast, breaks the frame of reference for the organization, often transforming the entire
organization.
Strategic Types of Change
Technology Change: In today’s business world, any company that isn’t continually developing, acquiring,
or adapting new technology will likely be out of business in a few years. Managers can create the conditions to
encourage technology changes.
Product and Service Changes: It involves the product or service outputs of an organization.
Strategy and Structure Changes: It pertains to the administrative domain in an organization. The
administrative domain involves the supervision and management of the organization. These changes include
changes in organization structure, strategic management, policies, rewards systems, labor relations, coordination
devices.
Culture Change: It refer to changes in the values, attitudes, expectations, beliefs, abilities, and behavior of
employees.
Elements for Successful Change
In the research literature on innovation, organizational changeis considered the adoption of a new idea or
behavior by an organization.Organizational innovation, in contrast, is the adoption of an idea or behavior that is
new to the organization’s industry, market, or general environment.10 The first organization to introduce a new
product is considered the innovator, and organizations that copy it are considered to adopt changes. For purposes
of managing change, however, the terms innovation and change will be used interchangeably because the
changeprocesswithin organizations tends to be identical whether a change is early or late with respect to other
organizations in the environment.
For a change to be successfully implemented, managers must make sure each element occurs in the organization.
If one of the elements is missing, the change process will fail.
1.
Ideas. No company can remain competitive without new ideas; change is the outward expression of
those ideas. Creativityis the generation of novel ideas that may meet perceived needs or respond to
opportunities.
2.
Need. Ideas are generally not seriously considered unless there is a perceived need for change. A
perceived need for change occurs when managers see a gap between actual performance and desired
performance in the organization.
3.
Adoption.Adoption occurs when decision makers choose to go ahead with a proposed idea. Key
managers and employees need to be in agreement to support the change.
4.
Implementation.Implementation occurs when organization members actually use a new idea, technique,
or behavior. Materials and equipment may have to be acquired, and workers may have to be trained to
use the new idea. Implementation is a very important step because without it, previous steps are to no
avail.
5.
Resources.Human energy and activity are required to bring about change. Change does not happen on
its own; it requires time and resources, for both creating and implementing a new idea.
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Technology Change
In today’s business world, any company that isn’t continually developing, acquiring, or adapting new technology
will likely be out of business in a few years. Managers can create the conditions to encourage technology
changes. However, organizations face a contradiction when it comes to technology change, because the
conditions that promote new ideas are not generally the best for implementing those ideas for routineproduction.
An innovative organization is characterized by flexibility and empowered employees and the absence of rigid
work rules.
The flexibility of an organic organization is attributed to people’s freedom to be creative and introduce new
ideas. Organic organizations encourage a bottom-up innovation process. Ideas bubble up from middle- and
lower-level employees because they have the freedom to propose ideas and to experiment. A mechanistic
structure, in contrast, stifles innovation with its emphasis on rules and regulations, but it is often the best
structure for efficiently producing routine products.
The Ambidextrous Approach: How does an organization solve this dilemma? One remedy is for the
organization to use an ambidextrous approach—to incorporate structures and management processes that are
appropriate to both the creation and the implementation of innovation.
Techniques for Encouraging Technology Change: Some of the techniques used by companies to maintain an
ambidextrous approach are switching structures, separate creative departments, venture teams and corporate
entrepreneurship.
Switching Structures: Switching structures occurs when for example a mechanistic organization creates an
organic structure for the initiation of new ideas.
Creative Departments:In many large organizations, the initiation of innovation is assigned to separate creative
departments. Another type of creative department is the idea incubator, an increasingly popular way to facilitate
the development of new ideas within the organization. An idea incubator provides a safe harbor where ideas
from employees throughout the organization can be developed without interference from company bureaucracy
or politics.
Venture Teams:They are a technique used to give free rein to creativity within organizations. Venture teams are
often given a separate location and facilities so they are not constrained by organizational procedures. A venture
team is like a small company within a large company. One type of venture team is called a skunk works. A
skunk worksis a separate, small, informal, highly autonomous, and often secretive group that focuses on
breakthrough ideas for the business. A variation of the venture team concept is the new-venture fund, which
provides financial resources for employees to develop new ideas, products, or businesses.
Corporate Entrepreneurship: Corporate entrepreneurship attempts to develop an internal entrepreneurial spirit,
philosophy, and structure that will produce a higher-than-average number of innovations. An important outcome
of corporate entrepreneurship is to facilitate idea champions. These go by a variety of names, including
advocate, entrepreneur, or change agent. Idea champions provide the time and energy to make things happen.
Idea champions usually come in two types: The technical champion or so called product champion, is the
person who generates or adopts and develops an idea for a technological innovation. The management
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champion acts as a supporter and sponsor to shield and promote an idea, such as a new project or change of
structure within the organization.
New Products and Services
Although the concepts just discussed are important to product and service as well as technology changes, other
factors also need to be considered. In many ways, new products and services are a special case of innovation
because they are used by customers outside the organization. Since new products are designed for sale in the
environment, uncertainty about the suitability and success of an innovation is very high.
New Product Success Rate: On the average, only 28 percent of all projects undertaken in the R&D laboratories
passed the testing stage, which means all technical problems were solved and the projects moved on to
production. Less than one-fourth of all product ideas (24 percent) were fully marketed and commercialized, and
only 14 percent achieved economic success.
Reasons for Product Success
1. Successful innovating companies had a much better understanding of customer needs and paid much more
attention to marketing.
2. Successful innovating companies made more effective use of outside technology and outside advice, even
though they did more work in-house.
3. Top management support in the successful innovating companies was from people who were more senior and
had greater.
Horizontal Coordination Model: The organization design for achieving new product innovation involves
threecomponents—departmental specialization, boundary spanning, and horizontal coordination.
Specialization: The specialization component means that the personnel in all three of these departments (R&D,
marketing and production) are highly competent at their own tasks.
Boundary Spanning: This component means each department involved with new products has excellent linkage
with relevant sectors in the external environment.
Horizontal Coordination: This component means that technical, marketing and production people share ideas
and information.
Achieving Competitive Advantage: The Need for Speed: To remain competitive, companies are learning to
turn ideas into new products and services incredibly fast. Time-based competitionmeans delivering products
and services faster than competitors, giving companies a competitive edge. Some companies use what are called
fast cycle teams as a way to support highly important projects and deliver products and services faster than
competitors.
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Strategy and Structure Change
All organizations need to make changes in their strategies, structures, management processes, and administrative
procedures from time to time. In the past, when the environment was relatively stable, most organizations
focused on small, incremental changes to solve immediate problems or take advantage of new opportunities.
However, over the past decade, companies throughout the world have faced the need to make radical changes in
strategy, structure, and management processes to adapt to new competitive demands.
The Dual-Core Approach: The dual-core approachto organizational change compares management and
technical changes. Management changes pertain to the design and structure of the organization itself, including
restructuring, downsizing, teams, control systems, information systems, and departmental grouping. Research
into management change suggests two things. First, management changes occur less frequently than do technical
changes. Second, management changes occur in response to different environmental sectors and follow a
different internal process than do technology-based changes. The dual core approach to organizational change
identifies the unique processes associated with management change. The responsibility of the management core
includes the structure, control, and coordination of the organization itself and concerns the environmental sectors
of government, financial resources, economic conditions, human resources, and competitors. The technical core
is concerned with the transformation of raw materials into organizational products and services and involves the
environmental sectors of customers and technology. The point of the dual-core approach is that many
organizations—especially nonprofit and government organizations—must adopt frequent management changes
and need to be structured differently from organizations that rely on frequent technical and product changes for
competitive advantage.
Culture Change
Organizations are made up of people and their relationships with one another. Changes in strategy, structure,
technologies, and products do not happen on their own, and changes in any of these areas involve changes in
people as well. Employees must learn how to use new technologies, or market new products, or work effectively
in a team-based structure. Sometimes achieving a new way of thinking requires a focused change in the
underlying corporate cultural values and norms. Changing corporate culture fundamentally shifts how work is
done in an organization and can lead to renewed commitment and empowerment of employees, as well as a
stronger bond between the company and its customers.
Forces for Culture Change
Reengineering and Horizontal Organizing: Reengineering involves redesigning a vertical organization along
its horizontal workflows. This changes the way managers and employees need to think about how work is done
and requires greater focus on employee empowerment, collaborative information sharing and meeting customer
needs.
Diversity: Diversity is a fact of life for today’s organizations and many are implementing new recruiting,
mentoring and promotion methods; diversity trainings, tough politics regarding sexual harassment and racial
discrimination and new benefits programs that respond to a more diverse workforce.
The Learning Organization: The learning organization involves breaking down boundaries both within and
between organizations to create companies that are focused on knowledge sharing and continuous learning.
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Organization Development Culture Change Interventions: One method of quickly bringing about culture
change is known as organization development(OD), which focuses on the human and social aspects of the
organization as a way to improve the organization’s ability to adapt and solve problems.Techniques used by
many organizations for improving people skills through OD include the following:
Large Group Intervention:The large group interventionapproach, sometimes referred to as “whole system in
the room, “brings together participants from all parts of the organization—often including key stakeholders from
outside the organization as well—in an off-site setting to discuss problems or opportunities and plan for change.
Team Building: It promotes the idea that people who work together can work as a team!
Interdepartmental Activities:Representatives from different departments are brought together in a mutual
location to expose problems or conflicts, diagnose the causes, and plan improvements in communication and
coordination
Strategies for Implementing Change
Managers and employees can think of inventive ways to improve the organization’s technology, creative ideas
for new products and services, fresh approaches to strategies and structures, or ideas for fostering adaptive
cultural values, but until the ideas are put into action, they are worthless to the organization.
Leadership for Change: The leadership style of the top executive sets the tone for how effective the
organization is at continuous adaptation and innovation. One style of leadership, referred to as transformational
leadership, is particularly suited for bringing about change. Top leaders who use a transformational leadership
style enhance organizational innovation both directly, by creating a compelling vision, and indirectly, by creating
an environment that supports exploration, experimentation, risk taking, and sharing of ideas. Leaders also build
organization-wide commitment by taking employees through three stages of the change commitment process. In
the first stage, preparation, employees hear about the change through memos, meetings, speeches, or personal
contact and become aware that the change will directly affect their work. In the second stage, acceptance,
leaders help employees develop an understanding of the full impact of the change and the positive outcomes of
making the change. When employees perceive the change as positive, the decision to implement is made. In the
third stage, the true commitment process begins. The commitment stage involves the steps of installation and
institutionalization. Installation is a trial process for the change, which gives leaders an opportunity to discuss
problems and employee concerns and build commitment to action. In the final step, institutionalization,
employees view the change not as something new but as a normal and integral part of organizational operations.
Barriers to Change
1.
Excessive focus on costs.
2.
Failure to perceive benefits.
3.
Lack of coordination and cooperation.
4.
Uncertainty avoidance.
5.
Fear of loss.
Techniques for Implementation
1.
Establish a sense of urgency for change.
2.
Establish a coalition to guide the change.
3.
Create a vision and strategy for change.
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4.
Find an idea that fits the need.
5.
Develop plans to overcome resistance to change.
6.
Create change teams.
7.
Foster idea champions.
Chapter XII: Decision-Making Processes
Definitions
Organizational Decision Making = The process of identifying and solving problems. Two stages:
a. Problem Identification stage: Information about environmental and organizational conditions is monitored to
determine if performance is satisfactory and to diagnose the cause of shortcomings;
b. Problem Solution Stage: When alternative courses of action are considered and one alternative is selected
and implemented.
Programmed Decisions = Repetitive and well defined, procedures exist for resolving the problem.
Non-programmed Decisions = Novel and poorly defined, no procedure exists for solving the problem. Many
involve strategic planning, because uncertainty is great and decisions are complex = wicked decisions, because
simply defining the problem can turn into a major task.
Individual Decision Making
Rational Approach:How managers should try to make decisions = ideal, that can’t be achieved. The model
does help managers think about decisions more clearly and rational.
Steps in the Rational Approach to DecisionMaking
Implement
Chosen
Alternative
Choose
Best
Alternative
Evaluate
Alternatives
7
6
Monitor
Decision
Environment
8
1
5
4
Develop
Alternative
Solutions
2
3
Define
Decision
Problem
Specify
Decision
Objectives
Diagnose
Problem
Eight steps:
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1. Monitor the decision environment: internal and external indication that will indicate deviations;
2. Define the decision problem: response to deviations by identifying ‘where, when, who was involved, who was
affected and how current activities are influenced’.
3. Specify decision objectives: what performance outcomes should be achieved;
4. Diagnose the problem: cause of the problem;
5. Develop alternative solutions;
6. Evaluate alternatives: assess the merits of each alternative;
7. Choose the best alternative;
8. Implement the chosen alternative.
1, 2, 3 and 4 = Problem identification stage
5, 6, 7 and 8 = Problem solution stage
Bounded Rationality Approach: How decisions actually have to be made under severe time and resource
constraints. When managers are unable to follow the ideal procedure. Caused by limited time, information,
resources to deal with complex, multidimensional issues.
Organizational constraints: Level of: agreement, shared perspective, cooperation, or support bycorporate
culture and structure, ethical values.
Personal constraints: Personal desire for prestige, success; personal decision style; the desire to
satisfyemotional needs, cope with pressure, maintain self-concept.All these constraints lead to trade-offs in
decision making.
Intuitive decision making: Experience and judgment rather than sequential logic or explicit reasoning
are uses to make decisions. It is not arbitrary or irrational because it is based on years of practice and
hands-on experience. In a situation of great complexity or ambiguity, previous experience and judgment
are needed to incorporate intangible elements at both the problem identification and problem solution
stages.Managers may walk a fine line between two extremes: making arbitrary decisions without careful study
and relying obsessively on numbers and rational analysis.
Organizational Decision Making
Problem identification and problem solution involve many departments, multiple viewpoints, beyond the scope
of an individual manager.
Four primary types of organizational decision-making processes:
1) Management Science Approach: the analogue (=paralel) to the rational approach by individual
managers. MS yielded astonishing success for many military problems, by using mathematical models
for decision making. MS can accurately and quickly solve problems that have too many explicit
variables for human processing. The system is at its best when applied to problems that are analyzable,
measurable and can be structured in a logical way. One problem is that quantitative data are not rich and
do not convey tacit knowledge. Informal cues that indicate the existence of problems have to be indicate
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on a more personal basis by managers. In these situations, MS can be used to supplement decision
making.
2) Carnegie Model: It helps formulate the bounded rationality approach to individual decision making, as
well as provide new insights about organizational decisions. Based on the idea that organization level
decisions involve many managers and that the final choice is based on a coalition between them. Two
reasons why management coalitions are needed:
a) Organizational goals and departmental goals are often ambiguous and inconsistent, managers
disagree about problem priorities. They must bargain about problems and build a new coalition around
the question which to solve.
b) Individual managers intend to be rational but function with human cognitive limitations and other
constraints. They do not have time, resources, mental capacity to identify all dimensions and process all
information relevant to a decision. Managers talk to each other and exchange points of view, this leads
to coalition building behavior. Decisions are made to satisfies, rather than optimize. Search behavior is
just sufficient to produce a satisfactory solution and managers typically adopt the first satisfactory
solution that arises. The Carnagie model is particularly useful at the problem identification stage.
Coalition: An alliance among several managers who agree about organizational goals and problem
priorities.
Satisficing: Organizations accept a satisfactory rather than a maximum level of performance, enabling
them to achieve several goals simultaneously.
Problemistic Search: Managers look around in the immediate environment for a solution to quickly
resolve a problem, without it being a perfect solution.
3) Incremental Decision Process Model: Increment places less emphasis on the political and social
factors described in the Carnagie model, but tells more about the structure sequence of activities
undertaken from the discovery of a problem to its solution.
Three phases:
a) Identification Phase: Begins with recognition, one or more managers become aware of a
problem and the need to make a decision. Second step is diagnosis, more information is
gathered if needed to define the problem situation.
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b) Development phase: First, search procedures are used and screened to seek out alternatives.
Second, the design of a custom solution when a problem is novel.
c)
Selection Phase: Solution is chosen. Three ways of evaluation and choice: Judgment
evaluation, when a final choice falls upon a single decision maker, and the choice involves
judgment based upon experience. In analysis evaluation alternatives are evaluated on a more
systematic base (management science). And bargaining (discussing) occurs when selection
involves a group of decision makers. When a decision is formally accepted, authorization takes
place. The decision ispassed up the hierarchy.
There are dynamic factors that influence decision making. Organizational decisions don’t follow
an orderly progression from recognition through authorization, but in the process, due to
minorproblems, decision making can loop back to an earlier stage. Decision interrupts: barriers in
decision making.
4) Garbage Can Model: It is one of the most recent and interesting descriptions of organizational
decision processes. It’s not comparable with other models because it can deal with the pattern
or flow of multiple decisions, instead of single decision-making. Organized anarchy = highly
uncertain conditions, such as growth and change required in a learning organization. It handles
an extremely organic organization. Organized anarchies do not rely on the normal vertical
hierarchy of authority and bureaucratic decision rules. They result from three characteristics:
a) Problematic preferences: goals, problems, alternatives and solutions are ill-defined;
b) Unclear, poorly understood technology: cause-and-effect is not clear, no explicit database
c) Turnover; participants, limited participation in any given decision.
The environment is rapidly changing, collegial and non-bureaucratic.
Stream of events: decisions are the outcome of independent streams of events within the
organization. Decision making process is not seen in steps that begin with a problem and end
with a solution. There are four streams relevant to organizational decision making:
a) Problems: point of dissatisfaction with current activities and performance;
b) Potential solutions: solution is an idea somebody proposes for adoption;
c) Participants: employees that come and go;
d) Choice opportunities: occasions when an organization usually makes a decision.
With the concept of four streams, problems, solutions, participants and choices all flow through
the organization.
Consequences: Four consequences of the garbage can model for organizational decisions:
a) Solutions may be proposed even when problems do not exist;
b) Choices are made without solving problems;
c) Problems may persist without being solved;
d) A few problems are solved.
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The Learning Organization
Two approaches to decision making have evolved to help managers cope with uncertainty andcomplexity. One
approach is to combine Carnegie and incremental process models. The secondapproach is the garbage can
model.
Combining the Incremental Process and Carnegie Models: Carnegie is especially relevant for the
problem identification stage. The incremental process model tends to emphasize the steps used to reach
a solution. When problem solution is unclear, a trial-and-error solution may be designed. The two mentioned
models do not disagree with each other. They describe how organizations make decisions when either problem
identification or solution is uncertain.
Contingency Decision-Making Framework
There are different approaches in decision making process. The use of an approach is contingent on
theorganization setting. Two characteristics of organizations that determine the use of decision approaches:
1) Problem Consensus: The agreement among managers about the nature of a problem or opportunity and about
which goals and outcomes to pursue. When managers agree => little uncertainty. When managers disagree =>
organization direction and performance expectations are in dispute, creating a situation of high uncertainty. Low
problem consensus: in differentiated organizations. Problem consensus is important for the problem
identification stage.
2) Technical Knowledge about Solutions: Refers to understanding and agreement about how tosolve problems
and reach organizational goals.
Contingency Decision Making Framework: Brings together the two dimensions of problem consensusand
technical knowledge.
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Inspiration: Innovative, creative solution that is not reached by logical means.
Imitation: Adopting a decision tried elsewhere in the hope that it will work in this situation.
Special Decision Circumstances: The way managers actually reach decisions is through a complex interaction
with other managers, subordinates, environmental factors and organizational events.
Three issues of particular concern for today’s decision making:
1) High-velocity environments: Rate of competitive and technological change is so extreme thatmarket data are
either unavailable or obsolete. Criteria for successful decision making:
- Successful: track information in real time to develop a deep and intuitive grasp of the businessintense meetings
between key payers. Unsuccessful: planning, forward-looking.
- Successful: immediately build multiple alternatives. Unsuccessful: slow decision making.
- Successful: seek advice from everyone, trust. Unsuccessful: unable to build trust.
- Successful: seek for consensus, if not, let top management decide. Unsuccessful: delayeddecisions to achieve
uniform consensus.
- Successful: integrate choices with other decisions and overall strategy. Unsuccessful: decisionmaking in
isolation from other decisions.
2) Decision Mistakes and Learning: Organizations must make decisions, and take risks, often in the spirit of
trial and error. If an alternative fails, organizations can learn from it and try another alternative that fits better the
situation. “Chaotic action is preferable to orderly inaction”. Decision learning: by making mistakes.
3) Escalating Commitment: A much more dangerous mistake, to persist in a course of action when it is failing.
Caused by managers blocking of distorting negative information when they are personally responsible. Also
caused by consistency and persistence which are valued in today’s society from managers. Failure to admit a
mistake and adopt a new course of action is far worse than an attitude that tolerates mistakes to encourage
learning.
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Chapter XIII: Conflict, Power and Politics
Intergroup Conflict in Organizations
Conflict is a natural and inevitable outcome of close interaction. It can be a positive force because it challenges
the status quo, encourages new ideas and approaches, and leads to changes.
Intergroup conflicts in organizations:
Three ingredients:
1) Group identification: employees have to see themselves as part of a group;
2) Observable group differences: different floors/buildings, ability to observe as a group;
3) Frustration: if one group reaches it’s goal, the other will be blocked.
Intergroup conflict: The behavior that occurs among organizational groups when participants identify with one
group and perceive that other groups may block their group’s goal or expectations.
Conflict: Groups clash directly, similar to competition, but more severe.
Competition: Rivalry among groups in pursuit of a common prize, whereas conflict presumes direct interference
with goal achievement.
Sources of Intergroup Conflict
1) Goal incompatibility: Greatest cause of intergroup conflict in organizations. The achievement of one
department’s goals often interferes with another department’s goals. Between marketing and manufacturing there
is the greatest potential for conflict:
Areas of Potential Goal Conflict
MARKETING
Operat ive goal is
customer satisfaction
T yp ica l Co m m e nt
Goal Conflict
Co nf li ct Are a
VS.
MANUFACTURING
Operative goal is
pr oduction efficiency
T yp ic al Co m m e nt
Breadth of product line:
—
Our customers
demand variety.“
—
The product line is too
broad, all we get are
short, uneconomical runs.“
New product i ntroduction:
—
New products are our
lifeblood.“
—
Unnecessary design changes
are prohibitively expensive.“
Production schedul ing:
—
We need f aster response.
Lead times are too long.“
—
We need realistic customer
commitments that don‘t
change like the wind direction
Physical distribution:
—
Why don‘t we ever have
the right merchandise
in inventory?“
—
We can‘t af ford to keep huge
inventories.“
Quali ty:
—
Why can‘t we have
reasonable quality
at low cost?“
—
Why must we always offer
opti ons that are too
expensive and offer little
customer utility?“
2) Differentiation: The differences in cognitive and emotional orientations among managers in different
functional departments. Departments or divisions within an organization often differ in values, attitudes and
standards of behavior, and these sub cultural differences lead to conflicts.
3) Task interdependence: Dependence of one unit on another for materials, resources, or information. As
interdependence
increases,
the
potential
for
conflict
increases.
Pooled
interdependence
=
little
interaction/conflict. Sequential and reciprocal interdependence = frequent communication/conflicts.
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4) Limited resources: In their desire to achieve goals, groups want to increase their resources,which are limited,
thus lead to conflict.
Rational versus Political Model:
The degree of goal incompatibility, differentiation, interdependence,
andconflict over limited resources determines whether a rational or political model of behavior is used
withinorganization to accomplish goals.
Rational Model of Organization: When goals are in alignment, there is little differentiation, departments
are characterized by pooled interdependence and resources seem abundant. (Ideal situation)
Political Model: When differences are great, organization groups have separate interests, goals andvalues.
Power and Organizations
Power = The ability of one person or department in an organization to influence other people to bringabout
desired outcomes. Intangible force in organizations, it cannot be seen, but its effects can be felt.
Individual versus organizational power: Five forces of personal power:
1) Legitimate power: authority to the formal position;
2) Reward power: ability to bestow rewards to other people;
3) Coercive power: authority to punish or recommend punishment;
4) Expert power: skill of knowledge;
5) Referent power: derived from personal characteristics.
Power in organizations is often the result of structural characteristics, formal hierarchy.
Power versus authority
Authority = A force for achieving desired outcomes, but only as prescribed by the formal hierarchy and
reporting relationships. Three properties identify authority:
1) Authority is vested in organizational positions: authority isn’t caused by personal characteristics;
2) Authority is accepted by subordinates: legitimate right to exercise authority;
3) Authority flows down the vertical line.
Vertical sources of power:
1) Formal position: legitimate power;
2) Resources: top managers control resources and can determine their distribution;
3) Control of decision premises and information: top managers place constraints on decision made
at lower levels by specifying a decision frame of reference and guidelines. Top managers havemore access to
information.
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4) Network centrally: being centrally located in the organization and having access to informationand people that
are critical to the company’s success. Top executives are more successful at thecentre of a communication
network
5) People: group of loyal executives increases power.
Horizontal sources of power: Relationships across departments or divisions.
1) Strategic contingencies: Events and activities both inside and outside an organization that are essential for
attaining organizational goals. Departments involved with strategic contingencies tend to have greater power.
Departmental activities are important when they provide strategic value by solving problems or crises for the
organization.
2) Power sources: powerful departments may possess one or more power sources:
a. Dependency: Interdepartmental dependency;
b. Financial resources: control over financial resources;
c. Centrality: Role in the primary activity of an organization;
d. Non-substitutability: Department’s functions cannot be performed by other readily
available resources;
e. Coping with uncertainty: Reduce uncertainty to increase power.
Political Processes in Organizations
Power = Available force or potential for achieving desired outcomes.
Politics = The use of power to influence decision in order to achieve outcomes. Two views on politics:
1) Politics is self-serving and involves activities that are not sanctioned by the organization. In this view, politics
involves deception and dishonesty for purposes of individual self-interest and leads to conflict and disharmony
within the work environment = negative view.
2) Politics is a natural organizational process for resolving differences among organizational interest groups.
Politics is the process of bargaining and negotiation that is used to overcome conflicts and differences of opinion
= coalition building decision process
Organizational politics = Involves activities to acquire, develop, and use power and other resources toobtain the
preferred outcome when there is uncertainty or disagreement about choices.
When is political activity used?
Domains of political activity:
1) Structural change: Reorganizations cause bargaining and negotiation;
2) Management succession: Use of hiring and promotion to strengthen network alliances and coalitions by
putting their own people in prominent places;
3) Resource allocation: Political activity helps to obtain agreement about allocation.
Using Power, Politics and Collaboration
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Tactics for Increasing Power
Collective bargaining = The bargaining process is usually accomplished through a union and results inan
agreement that specifies each party’s responsibilities for the next 2 to 3 years.
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