Organisational Structure & Innovation
By:
Savvakis C. Savvides
BSc (Econ) (London), MA (Lancaster)
I.
Introduction
The organisation forms part of (and exists in) the social system. From the
view point of the organisation the social system may be seen as consisting of
two levels. The first level includes all bodies, firms or associations that make
up the immediate external environment of the organisation while the second
level is society in general. The second level encompasses the first which in
turn encompasses the organisation. This is shown in diagrammatical form in
diagram 1.
Diagram 1
International Sector
Society in general
Immediate External
Environment of the
Organisation
Competitors
Suppliers
Customers
The Organisation
Education
Sector
Unions
Technology
Govt, Agencies
Changes in the structure and functioning of either level, but especially in level
one constitute social change. (Rogers (1969), defined social change as “the
process by which alteration occurs in the structure and function of a social
system”. Social changes may create performance gaps.
Performance gaps are discrepancies between what the organisation could do by
virtue of a goal-related opportunity in its environment and what it actually does
in terms of exploiting that opportunity. The performance gap may be
characterised by new marketing opportunities brought about by changes among
consumers, or by loss of market because of new competition, or by any other
change in the organisation’s external environment. A performance gap may
also come about by changes within the organisation, such as when a key expert
leaves the organisation.
It is interesting to note that (an organisational change can both create as well as
close or bridge a performance gap. It is mainly for this reason that it is very
important that an organisation facing a performance gap should firstly be aware
of its existence and be able to locate the change that caused it (which calls for
sound judgement and a good information system), and secondly it should be
able to determine, formulate and implement the correct strategy for closing,
rather than enlarging the gap (which calls for a good understanding of how
different organisational changes can meet different organisational needs.)
The marketer’s job starts by assessing the capabilities of the organisation and
sets its targets by both an examination of itself and the information derived by
looking at its external environment (assessing marketing opportunities). When
this is performed the next step is to try and get the organisation to respond to
these opportunities. This is likely to demand a great deal of innovative activity
on the part of the organisation.
This essay examines how different organisational structures may ease or
impede different stages of the innovative process. A thorough review of the
literature is undertaken and an evaluation of the state of the art is made, the
issue at this stage being whether one form of organisational structure is better
than another as regards the innovative process. The discussion leads us to the
conclusion that there is no – one best – structure but rather that different
organisational structures are best suited to different stages of the innovative
process. The issue then becomes, if it is not possible or practical to change the
structure of the organisation to accommodate change as situations warrant it at
different stages of the innovation process, then what are the alternatives opened
to managers and how can it be provided that the conditions for facilitating
innovation in the organisation are adequately catered for.
II.
Innovation and the Innovative process
a.
What is Innovation
The definition of innovation is not of great practical importance. What is
more important is the changes that are needed in an organisation to close
or minimise its performance gap. It is only because, as it happens, the
vast majority of organisational changes needed in such situations involve
novel solutions and new approaches that the subject of innovation
becomes important.
There are basically three ways that innovation has been defined. First,
there is the school of thought that, strictly speaking, avoids defining
innovation objectively by leaving it on the subjective judgement or
perception of the adopting unit to decide what is new (e.g. Rogers and
Shoe-maker 1974). Zaltman, Duncan, Holbek (1973), Bennet (1969).
Second, there is the school of thought that does not concern itself with
that innovation means and concentrates on specifying different aspects
and stages of the innovative process. An example of these is the one
offered by V.A. Thompson (1969) which states “innovation is the
generation, acceptance and implementation of new ideas, processes and
products or services”.1 Similar definitions are those by Steiner (1965) and
National Academic Sciences (1969). Thirdly, there is the school of
thought that attempts to emphasise objectively measurable qualitative
differences. An example is the one by Barnett (1953)”… any thought,
behaviour or thing that is new because it is qualitatively different from
existing forms.”
The emphasis on different stages of the innovation process in defining
innovation shows that there is more disagreement among academics as to
where the innovation begins and ends rather than on the substance or
essence of the word itself. Perhaps the most practical definition of
innovation for our purposes is the one put forward by Zaltman, Duncan
and Holbek (1973) which states that innovation is “any idea, practice, or
material artifact perceived to be new by the relevant unit of adoption”.
One impli8cation of this definition is the possibility of conflict between
those in the organisation who view the object or practice in question as an
innovation and tend to resist change, and those who perceive of it as not
significantly new and advocate adoption of the product or practice.
I would now like to turn my attention to the process of innovation
whereby I will look at innovation as an unfolding process consisting of
stages in which characteristic factors appear in a certain order of
occurrence. In conceptualising innovation as a process of linked stages I
hope to be cultivating the area for relating innovation to organisational
structures and thereby determining the characteristics of organisations
affecting innovation.
b.
The Innovation Process
The innovation process may be divided into four stages, the generation or
conception of the new idea, the proposal, the adoption or acceptance and
the implementation stage. This is in fact very similar to Wilson’s (1966)
model which is basically the same but groups the last two stages of
adoption and implementation together. Shepard (1967) also has a similar
model but leaves out the proposal stage. Table 1 shows some of these
models for the innovation process. The model I have chosen is some sort
of integration of the Wilson and Shepard models.
Note what is “new” or rather what can be said to be “new”, which distinguishes an innovation from
a mere change remains unexplained.
1
Shepard (1967)
Wilson (1966)
Model used in this
essay
1. Idea Generation
2. Adoption
3. Implementation
1. Conception
2. Proposing
3. Adoption and
Implementation
1. Idea Generation
2. Proposing
3. Adoption
4. Implementation
Milo (1971)
Hage and Aiken
1. conceptualisation
2. Tentative Adoption
3. Resource Getting
4. Implementation
5. Institutionalisation
Evaluation
Initiation
Implementation
Routinisation
Hage and Aiken specify 4 stages of the innovation process. Evaluation
involves the establishing that a performance gap exists and the resetting
of the goals of the organisation. Initiation is concerned with problem
solving to find required job skills and financial support that are required
for the innovation. Implementation is the initial attempt to integrate the
innovation into the organisation, and routinisation follows the initial trial
that took place in the implementation. In routinisation the decision is
made to retain the innovation and fully integrate it into the ongoing
activities of the organisation.
Milo emphasises the importance of resource getting and introduces a fifth
stage of institutionalisation which is the stage whereby an innovation
becomes part of the established after being fully integrated into the
organisation’s activities.
For the model I have chosen I offer the following definitions. First, the
generation of ideal stage is the stage whereby an idea regarding
something new (product, production process, service, system, method,
policy etc) is conceptualised by some individual or group, of persons in
the organisation. The proposing stage is whereby an idea or concept is
transformed into a proposable form. This is where information is
gathered and processed and the concept undergoes through the early
stages of assessment, it reaches the stage where it can be proposed for
official acceptance. The third stage of adoption is the stage whereby the
proposed innovation is legitimated or becomes officially accepted. This
is the stage where the decision for giving the innovation the attention
needed in effort, time and money to be fully developed is made. The final
stage of implementation concerns the actual utilisation of the innovation
by organisational members as they perform their tasks. In the case of new
products this might include the trial of a new product before a
commitment is made for its full establishment.
The following diagram shows the innovation process as it relates to a
dynamic social environment. As it is shown in the diagram innovation
could cause social change as well as being a result of it.
Diagram 2
The Innovation Process
Generation
of Ideas
Proposing
Adoption
Implementation
Search for
Alternatives
Need
Performance
Gap
Social Change
March and Simon (1958) showed that although organisations might feel
the existence of a social change, they might continue on an existing
program of activity, and thus not embark onto the innovative process,
because the organisation does not search or consider alternative courses of
action. However when a social change causes the creation of a
performance gap “a discrepancy between what the organisation is doing
and what its decision makers believe it ought or could be doing” (Downs
1966, P.191), this dissatisfaction increases the search for alternative
courses of action thereby causing the innovation process to take off.
However, the search for alternatives alone is by no means sufficient for
the innovation to take place. The organisation should also have the
necessary room and structure to accommodate the innovation process. In
the remainder of this essay I, therefore, examine the relationship between
the innovation process and organisational structure.
III.
Organisational Structure and Innovation
a. The relationship between Innovation process and Organisational
structure
Organisations can be distinguished by different characteristics such as the
diffusion of authority, the complexity of the task structure and incentive
systems. Wilson (1963), defines task structure as “the sum of all rewards
given to members”, and makes what he calls “diversity” in an
organisation a function of these two; and the probability of innovation
activity taking place at any of the stages of the innovative process a
function of “diversity” in an organisation – diversity being positively
related to the level of complexity in the “task structure” and “incentive
system” in the organisation. He then postulates three hypotheses: (1)
“the greater the diversity of the organisation, the greater the probability
that members will conceive of major innovations”, (2) “the greater the
diversity of the organisation, the greater the probability that major
innovations will be proposed, and (3) “the greater the diversity of the
organisation, the smaller the proportion of major innovative proposals
that will be adopted.”
Taking the diversity characteristics of organisations as defined by Wilson
to correspond or be a near enough approximation to Weber’s bureaucratic
organisation model when diversity is low and to a democratic or freeform organisation when diversity is high, one may derive some useful
conclusions regarding structure of organisations and innovation.
Firstly, it seems that the free-form organisation where “everybody is
expected to work and co-operate in a joint effort” is best suited for the
initiation stage of innovation (i.e. the conception of new ideas and
proposal) while the bureaucratic organisation seems vital in the adoption
and implementation stages.
So, how can management tackle or approach the problem of innovation
best in the light of these findings. The issue here becomes, is it best to go
for one form of organisational structure or another or is it better to aim
towards an interchangeable organisational structure?
In the next sub-section I will try to throw some light on this issue by
reviewing the literature and evaluating the state of the art. In the last subsection a special consideration of the topic of organisational change will
be undertaken.
(b) A review of the literature: The State of the Art
Burns and Stalker (1961) were the first to indicate that different types of
organisational structures might be effective in different situations. They
identify two extreme types or organisational structure. The mechanistic
structure which is found in organisations operating under stable
conditions, and the organic structure which is found, or rather is best
suited, to organisations operating under unstable conditions. They also
suggest nine characteristics or factors of organisational form that vary
between these two extreme forms of organisational structure.
In a somewhat modified form I present these nine factors in what I
believe to be a more easily identifiable and workable manner than their
original presentation (Burns and Stalker (1961), page 120), in diagram 3
below. The diagram also attempts to relate the innovation process to the
two polar forms of organisational structure put forward by Burns and
Stalker, by showing what organisational structure facilitates better which
particular stage of the innovation process. It will be observed that as the
innovation process moves on from the generation of ideas to
implementation, the organisational structure should become less organic
and more mechanistic.
Diagram 3
Mechanistic
Organisation
Organic
Organisation
Organisational Characteristics
Low ----------------------Rigid ---------------------Specific ------------------Strict ---------------------Presumed ----------------Instructive ---------------To Superiors ------------Dependent on
Organisational ---------Status
Stable Environment
Implementation
Task Complexity -----Task Definition -------Responsibility --------Control ----------------Expertness ------------Communication ------Loyalty ----------------Prestige -----------------
High
Flexible
General
Loose
Challenged
Informative
To Organisation
Independent of
Organisational
Status
Unstable
Environment
Adoption
Proposal
Generation of Ideas
The Innovation Process
In explaining why organisations do not change structure form mechanistic
to organic when situations warrant it, Burns and Stalker emphasise the
role of resistance to change. They indicate that the political and status
structures in the organisation might be threatened as the organisation
changes and becomes more organic to deal with innovations. In changing
from one form of organisation to the other, it can be seen from the
characteristics identified, that each one can become a potential source of
conflict. For example, as the organisation becomes more organic there is
more diffusion in decision making. The people that have to give room for
this to happen (through giving up some of their exclusive prerogatives)
are likely to put up resistance to defend their positions, thereby creating
conflict.
Lawrence and Lorsch (1976) have indicated that different parts of the
organisation may be different types of structures. Duncan (1973) goes
one step further by showing that the decision unit in the organisation may
implement different types of organisational structures at different points
in time. Duncan conceptualises and measures structure in terms of five
dimensions: hierarchy of authority, degree of impersonality in decision
making, degree of participation in decision making, degree of specific
rules and procedures, and degree of division of labour. He then links the
generalised concept of organisation to that of information and
communication. He views the organisation as a communication network
held together by the flow of information. When these dimensions are
highly structured, channels of communication and amount of information
available are restricted. By linking the amount of information needed at
each point in time with the level of uncertainty in the environment,
Duncan shows that when information demands are low a decision unit
within an organisation can respond more quickly to its environment by
relying on pre-established rules and procedures, a well specified division
of labour and so on. But when new information inputs are required to
adapt to the uncertainty of the environment, strict emphasis on rules and
procedures and division of labour etc. may prohibit the unit from seeking
new sources of information, which may not have been foreseen when the
rules and procedures were initially developed.
When uncertainty is high the decision unit differentiates, or should be
encouraged to differentiate, its decision making procedures to deal with
the information gathering and processing requirements that accompany
high uncertainty.
In diagram 4, Duncan’s model is related to the innovation process in a
similar fashion as in diagram 3 (Burns and Stalker). The two models are
in many ways similar although there are several distinct differences in
approach. Duncan concentrates on the individual (the decision unit) in
the organisation and shows how different structures affect his impact
towards organisational effectiveness, while Burns and Stalker look at the
notion of differentiation in organisational structure by taking an overall
view of the organisation. Furthermore, Duncan, conducts his analysis
focusing on the uncertainty-certainty environmental situation, while
Burns and Stalker examine the same problem in terms of stable and
unstable environmental situations.
Diagram 4
Dimensions of Organisational Structure
HIGH -
Degree of
“
“
“
“
“
“
Certain
Environment
Implementation
Hierarchy of Authority
Impersonality in Decision making
Participation “
“
“
- LOW
Specific Rules and Procedures
Division of Labour
Uncertain
Environment
Adoption
Proposal
Generation of Ideas
The Innovation Process
Hage and Aiken (1970) specify several characteristics of organisations as
they affect “program change” in organisations. Program change is
defined as “… the addition of new services or products.” They identify
seven organisational characteristics that affect the rate of innovation in
organisations.
“Complexity” (page 33) is defined as “the number of occupational
specialities in the organisation and the degree of professionalism of each.”
They then predict that the greater complexity leads to greater program
change. The second characteristic centralisation (p.38) is defined as “the
concentration of power and decision making in the hands of a small
proportion of individuals.” They argue that the higher the centralisation,
the lower the rate of program change. The third characteristic,
“formalisation” (p.43) is defined as “the degree of codification of jobs in
the organisation”, - the greater the formalisation the lower the rate of
program change. Fourthly, “stratifications” is defined as “the differential
distribution of rewards to the jobs in the organisation” (p.45), - the greater
the stratification, the lower the rate of program change. Fifthly,
“production” (p.49) is defined as “the emphasis on quantity versus
quality” – the higher the volume of production the lower the rate of
program change. Sixthly, “efficiency” (p.50) is defined as “the relative
emphasis on the cost reduction of the product or service, - the greater the
emphasis on efficiency the lower the rate or program change. And
finally, “job satisfaction” (p.52) defined as “the degree of morale among
the job occupants in the organisation”, - the higher the job satisfaction,
the greater the rate of program change.
Hage and Aiken present their hypotheses concerning the relationships
between the different organisational characteristics and the rate of
innovation but do not indicate that these relationships might vary,
depending on the stage of the innovation process. However, as Wilson
(1966) has indicated (see page 11) complexity helps the conception and
proposing of new ideas but can cause problems during the
implementation stage. Hage and Aiken do not indicate how the stages of
the innovation process might affect the relationships between
organisational characteristics and rate of innovation.
In diagram 5 an attempt is made to provide for this deficiency by trying to
relate the innovation process to the organisational factors of Hage and
Aiken in a similar fashion as for Burns and Stalker and the Duncan
models. The diagram tries to show how their static analysis would appear
in the form of a model when related to the dynamic process of innovation.
Taking into consideration the findings of Wilson, Burns and Stalker and
Duncan and my definition of the different stages of the innovation
process, I show that,
Diagram 5
Low
High
High
High
High
High
Low
(Low
Implementation
Complexity
Centralisation
Formalisation
Stratification
Production
Efficiency
Job Satisfaction
Program change
High
Low
Low
Low
Low
Low
High
High)
Adoption
Proposal
Generation of Ideas
The Innovation Process
in terms of what organisational characteristics are relevant to what stages
of the innovation process, the organisation must swing its structure from
right to left as the innovation process progresses. The Hage and Aiken
“program change” relationship fails as regards the final stages of the
process, especially the implementation stage.
The state of the art has reached a point where research must be
undertaken to generate information concerning how managers could
actively facilitate the innovation process by implementing different
changes in the organisation’s structure.
The position as it is at the moment is that different forms of organisational
structure facilitate the innovation process in its different stages.
Specifically in stimulating the initiation of innovations (generation of
ideas and proposals) a higher degree of complexity, lower formalisation
and lower centralisation facilitate the gathering and processing of
information which is crucial at this stage. At the adoption and
implementation stage a higher level of formalisation and centralisation
and a lower level of complexity are likely to reduce role conflict and
ambiguity which could impair implementation. This conclusion therefore
implies that the organisation must shift its structure as it moves through
the various stages of innovation.
(c) Organisational change
It is however true that organisations can not, and do not, change structure
overnight and that the subject of organisational change is one of the most
unresolved areas in the social sciences.
Change in organisational structure implies a change in the pattern of roles
and relationships in the organisation, or part of it, and in the policies and
procedures that affect them to meet new work requirements and new
strategies.
The organisation in effect is made up of the work and the relationships of
people who comprise it. In order to change the organisation one should
aim in altering these relationships in such a way so that the work of the
organisation as determined by its new objectives is better accommodated.
This can be achieved by either changing people in the organisation or by
changing tasks or by changing both. One of the most important issues in
organisational change is whether one should change people or whether it
should change jobs, although the answer in most situations would involve
a careful adjustment and readjustment of both.
Organisational change therefore, is not just the definition of a new state of
affairs but rather a process which takes time and experimentation and
which is thus not easy to direct and control effectively.
By appreciating the fact that work and people have different properties,
one should allow enough room for compromises and resolution of
differences and try to ensure that the possibility of honest communication,
participation, discussion and consultation between the people involved in
change and their superiors exists.
The planning, implementation and control or organisational change is a
matter of the utmost importance to marketing because in many respects
change lies in the heart of the marketing concept. Marketing people have
to face the subject courageously and try to understand its dimensions, its
constraints and determinants and most importantly how to deal with it
effectively.
Unfortunately, the state of the art is only at its infancy stage and a lot
more yet remains to be done and learned. Research should be directed
towards the study of people and their relationships at work, their
aspirations, the incentive systems and job definition of the organisation,
training and conditioning of personnel, the study of groups and role
conflict, etc. Bennis (1966) points out that the existing theories on
change are silent on matters of directing and implementing change. He
notes, “they are theories suitable for observers of social change, not
theories for participants in, or of practitioners of social change. They are
theories of change and not changing”. According to R. Chin (1963) a
theory of changing must include “manipulable variables, which must not
violate the client – system’s2 values”.
Despite the lack of any concrete indications of how to plan and control
change on a continuous basis, theory clearly spells out that “a stable
organisation, facing the need t change, must shake itself loose, become
fluid, in order to allow change to occur, but must then re-stabilise itself in
order to be effective”.
Weick (1969) has indicated that the organisation can solve its stability –
flexibility dilemma by alternating between flexibility and stability in its
structuring of activities and simultaneously expressing these two forms in
different parts of the organisation. The implication is that here may be a
variety of structural configurations that an organisation might implement
contingent on the situation the organisation is facing.
BIBLIOGRAPHY
1. Zaltman Duncan Holbek (1973) “Innovations and Organisations”
Wiley Interscience.
2. Victor A. Thompson (1969) “Bureaucracy and Innovation” University
of Alabama Press.
3. G.A. Steiner (1965) “The Creative Organisation” Chicago Press.
4. Wilson J.Q. (1963) “Innovation in Organisation: Notes towards a
theory”. In “Approaches to Organisational Design” by J.D. Thompson
University of Pittsburgh Press.
5. T. Burns & G. M. Stalker (1966) “The Management of Innovation”
Tavistock Publications.
6. N.P. Mouzelis (1967) “Organisation and Bureaucracy” Routledge and
Kegan Paul Ltd.
7. W.G. Bennis (1966) “Changing Organisations” McGraw-Hill.
8. Down, Anthony, (1966) Inside Bureaucracy Boston: Little Brown &
Company
9. Hage J. and Aiken M. (1970) - Social change in Complex
Organisations: New York: Random House.
10. Lawrence P.R. and Lorsch J.W. – “Organisation and Environment”.
Division of Research – H.B.S.: Boston.
2
Client-system refers to the target of change