Organization Theory & Design - MGT504
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INTRODUCTION
THE EVOLUTION OF ORGANIZATION THEORY AND DESIGN
Organization theory is not a collection of facts: it is a way of thinking about organization. Organization theory is a way to see and analyze organizations more accurately and deeply than one otherwise could. The way to see and think about organizations is based on patterns and regularities, define them, measure them, and make them available to the rest of us. The facts from the research are not as important as the general patterns and insights into organizational functioning.
HISTORY
Organization design and management practices have varied over time in response to change in the larger society you may recall from an earlier management course that modern era of management theory began with the classical management perspective in the late nineteenth and early twentieth century. The earlier of the factory system during the Industrial Revolution posed problems that earlier organizations had not encountered. As work was performed on a much larger scale by a larger number of workers, people began thinking about how to design and manage work in order to increase productivity and help organizations attain maximum efficiency. The classical perspective, which sought to make organizations run like efficient, well-oiled machines, is associated with the development of hierarchy and bureaucratic organizations and remains the basis of much of modern management theory and practice. Two subfields of the classical perspective are scientific management and administrative principles.
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ORGANIZATIONS
WHAT IS AN ORGANIZATION?
Organizations are hard to see. We see outcroppings, such as a tall building or a computer workstations or a friendly employee; but the whole organization is vague and abstract and may be scattered among several locations. We know organizations are there because they touch us every day. Indeed, they are so common that we take them for granted. We hardly notice that we are born in a hospital, have our birth records registered in a government agency, are educated in schools and universities, are raised on food produced on corporate farms, are treated by doctors engages in a joint practice, buy a house built by a construction company and sold by a real estate agency, borrow money from a bank, turn to police and fire department when trouble erupts, use moving companies to change residences, receive an array of benefits from government agencies, spend forty hours a week working in an organization, and are even laid to rest by an undertaker.
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DIMESNIONS OF ORGANIZATION DESIGN
The system view pertains to dynamic, ongoing activities within organizations. The next step for understanding organizations is to look at dimensions that describe specific organizational design traits. These dimensions describe organizations much the same way that personality and physical traits describe people.
Organizational dimensions fall into two types: structural and contextual, Structural dimensions provide labels to describe the internal characteristics of an organization. They create a basis for measuring and comparing organizations. Contextual dimensions, characterize the whole organizations, including its size, technology, environment, and goals. They describe the organizational setting that influences and shapes the structural dimensions. Contextual dimensions can be confusing because they represent both the organization and the environment. Contextual dimensions can be envisioned as a set of overlapping elements that underlie an organization. One must examine both structural and contextual dimensions. These dimensions of organization design interact with one another and can be adjusted to accomplish the purposes listed earlier.
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ORGANIZATIONAL PURPOSE
Primary responsibility of top management is to determine an organization’s goals, strategy, and design, therein adapting the organization to a changing environment. Organization design is the administration and execution of the strategic plan. This is the area where role of organization theory comes in.
Process of Strategic Management
- Goals/objectives:
- Must be SMART
- Vision
- Mission
- External environmental assessment:
- Opportunities and Threats
- Resources availability
- Internal environmental assessment:
- Strengths and Weaknesses
- Distinctive or core competencies
- Leadership style
- Past performance
- Matching of the two assessments
- Generation of strategies
- Internal and External Environment
- SWOT Analysis
- Capability
- Strength threat (ST), strength opportunity (SO) etc.
- Selection of strategies
- Implementation
- Problems in implementation
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MILES AND SNOW’S STRATEGY TYPOLOGY
Another business strategy typology was developed from the study of business strategies by Raymond Miles and Charles Snow. The Miles and Snow typology is based on the idea that managers seek to formulate strategies that will be congruent with the external environment. Organizations strive for a fit among internal organization characteristics, strategy, and the external environment. The four strategies that can be developed are the prospector, the defender, the analyzer, and the reactor.
Prospector: The prospector strategy is to innovate, take risks, seek out new opportunities, and grow. This strategy is suited to a dynamic, growing environment, where creativity is more important than efficiency. Federal Express Corporation, which innovates in both services and production technology in the rapidly changing overnight mail industry, exemplifies the prospector strategy, as do today’s leading high-tech companies, such as Microsoft or AOL.
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MISSION & GOALS
TOP MANAGEMENT STRATEGIC DIRECTION
An organization is created and designed to achieve some end, which is decided by the chief executive officer and / or the top management team. Organization structure and design is an outcome of this purpose, indeed, the primary responsibility of top management is to determine an organization’s goals, strategy, and design, therein adapting the organization to a changing environment. Middle managers do much the same thing for major departments within top managers provide direction and then design.
The direction-setting process typically begins with an assessment of the opportunities and threats in the external environment, including the amount of change, uncertainty, and resource availability, which we discuss in more detail later on. Top management also assesses internal strengths and weaknesses to define the company’s distinctive competence compared with other firms in the industry. The assessment of internal environment often includes an evaluation of each department and is shaped by past performance and the leadership style of the CEO and the top management team. The next step is to define overall mission and official goals based on the correct fit between external opportunities and internal strengths. Specific operational goals or strategies can then be formulated to define how the organization is to accomplish its overall mission.
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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 represent the reason for an organization’s existence and the outcomes it seeks to achieve. The next few sections of the lecture explore the topic of effectiveness and how effectiveness is measured in organizations.
Goals were defined earlier as the desired future state of the organization. Organizational effectiveness is the degree to which an organization realizes its goals. Effectiveness is a broad concept; it implicitly takes into consideration a range of variables at both the organizational and departmental levels. Effectiveness evaluates the extent to which multiple goals--- whether official or operative – are attained.
Efficiency is a more limited concept that pertains to the internal workings of the organization. Organizational efficiency is the amount of resources used to produce a unit of output. It can e measured as the ratio of inputs to outputs, if one organization can achieve a given production level with fewer resources than another organization it would be described as more efficient.
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ORGANIZATION STRUCTURE
The three key components in the definition of organization structure are:
- Organization structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors.
- Organization structure identifies the grouping together of individuals into departments and of departments into the total organization.
- Organization structure includes the design of systems to ensure effective communication, coordination, and integration of effort across departments.
These three elements of structure pertain to both vertical and horizontal aspects of organizing. For example, the first two elements are the structural framework, which is the vertical hierarchy. The third element pertains to the pattern of interactions among organizational employees. An ideal structure encourages employees to provide horizontal information and coordination where and when it is needed.
Organization structure is reflected in the organization chart, it isn’t possible to “see” the internal structure of an organization the way w might see its manufacturing tools, offices, or products. Although we might see employees going about their duties, performing different tasks, and working in different locations, the only way to actually see the structure underlying all this activity is through the organization chart. The organization chart is the visual representation of a whole set of underlying activities and processes in an organization. Exhibit 3.1 shows a sample organization chart. The organization chart can be quite useful in understanding how a company works. It shows the various parts of an organization, how they are interrelated, and how each position and departments fits into the whole.
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ORGANIZATION STRUCTURE (contd.)
FUNCTIONAL, DIVISIONAL, AND GEOGRAPHICAL DESIGNS
Functional grouping and divisional grouping are the two most common approaches to structural design.
FUNCTIONAL STRUCTURE
In a functional structure, activities are grouped by common function from the bottom to the top of the
organization. All engineers are located in the engineering department, and the vice president of engineering is
responsible for all engineering activities. The same is true in marketing, research and development, and
manufacturing.
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. The structure can be quite effective is there is little
need for horizontal coordination. Exhibit 3.7 summarizes the strengths and weaknesses of the functional structure.
One strength of the functional structure is that is promotes economy of scale within function. Economy of scale
means all employees are located in the same place and can share facilities. Producing all products in a single plant,
for example, enables the plant to acquire the latest machinery. Constructing only one facility instead of separate
facilities for each product line reduces duplication and waste. The functional structure also promotes in-depth skill
development of employees. Employees are exposed to a range of functional activities within their own departments.
The main weakness of the functional structure is a slow response to environmental changes that require
coordination across departments. The vertical hierarchy becomes overloaded. Decisions pile up, and to managers
do not respond fast enough. Other disadvantages of the functional structure are that innovation is slow because of
poor coordination, and each employee has a restricted view of overall goals.
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ORGANIZATION STRUCTURE (contd.)
HORIZONTAL STRUCTURE
The most recent approach to organizing is the horizontal structure, which organizes employees around core processes. All the people who work on a particular process are brought together so that they can easily communicate and coordinate their efforts and provide value directly to customers. The horizontal structure virtually eliminates both the vertical hierarchy and old departmental boundaries. Many of today’s organizations are striving to reduce boundaries both within the organization and with other companies. The horizontal structure is largely a response to the profound changes that have occurred in the workplace and the
Business environment over the past fifteen to twenty years: Technological process emphasizes computer-based integration and coordination. Customers except faster and better service and employees want opportunities to use their minds, learn new skills, and assume greater responsibility. Organizations mired in a vertical mindset have a hard time meeting these challenges. Thus, numerous organizations have experimented with horizontal mechanisms such as cross-functional teams to achieve coordination across departments or task forces to accomplish temporary projects. Increasingly, organizations are shifting away from hierarchical, function-based structures to structures based on horizontal processes.
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THE EXTERNAL ENVIRONMENT
THE ENVIRONMENTAL DOMAIN
In a broad sense the environment is infinite and everything outside the organization. However, the analysis presented here considers only the aspects of the environment to which the organization is sensitive and must respond to survive. Thus, organizational environment is defined as all elements that exist outside the boundary of the organizational environment is defined as all elements that exist outside the boundary of the organization and have the potential to affect or part of the organization.
The environment of an organization can be understood by analyzing its domain within external sectors. An organization’s domain is the chosen environmental field of action. It is the territory an organization stakes out for itself with respect to products, services, and markets served. Domain defines the organization’s niche and defines those external sectors with which the organization will interact to accomplish its goals. Barnes & Nobel ignored an important part of its domain when the bookselling environment changed. The company was slow to take advantage of new technology for e-commerce, allowing the competition to gain a huge advantage.
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EXTERNAL ENVIRONMENT (contd.)
FRAMEWORK FOR ORGANIZATIONAL RESPONSES TO UNCERTAINTY
The change and complexity dimensions are combined and illustrate four levels of uncertainty. The low uncertainty environment is simple and stable. Organizations in this environment have few departments and a mechanistic structure. In a low – moderate uncertainty environment, more departments are needed along with more integrating roles to coordinate the departments. Some planning may occur. Environments that are high-moderate uncertainty are unstable but simple; organization structure is organic and decentralized. Planning is emphasized and managers are quick to make internal changes as needed. The high uncertainty environment is both complex and unstable and is the most difficult environment from a management perspective. Organizations are large and have many departments, but they are also organic. A large number of management personnel are assigned to coordination and integration, and the organization uses boundary spanning, planning, and forecasting.
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ORGANIZATIONAL ECOSYSTEMS
ORGANIZATION – ENVIRONMENT INTEGRATIVE FRAME WORK
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.
POPULATION ECOLOGY
This section introduces a different perspective on relationships among organizations. The population ecology perspective differs from the other perspectives because if focuses on organizational diversity and adaptation within a population or organizations. A population is a set of organization engaged in similar activities with similar patterns of resource utilization and outcomes. Organizations within a population compete for similar resources or similar customers, such as financial institutions in the Seattle area.
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MANUFACTURING AND SERVICE TECHNOLOGIES
ORGANIZATION LEVEL MANUFACTURING TECHNOLOGY
Manufacturing technologies include traditional manufacturing processes and new computer-based manufacturing systems.
MANUFACTURING FIRMS
Woodward’s Study: The first and most influential study of manufacturing technology was conducted by Joan Woodward, a British industrial sociologist. Her research began as a field study of management principles in south Essex. The prevailing management wisdom at the time (1950s) was contained in what was known as universal principles of management. These principals were “one best way” prescriptions that effective organizations were expected to adopt. Woodward surveyed one manufacturing firms firsthand to learn how they were organized. She and her research team visited each firm, interviewed managers, examined company records, and observed the manufacturing operations, here data included a wide range of structural characteristics (span of control, levels of management) and dimensions of management style ( written versus verbal communications, use of rewards) and the type of manufacturing process. Data were also obtained that reflected commercial success of the firms.
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MANUFACTURING AND SERVICE TECHNOLOGIES (CONTD.)
ORGANIZATION – LEVEL SERVICE TECHNOLOGY
One of the biggest changes occurring in the technology of organizations is the growing service sector. The percentage of work force employed in manufacturing continues to decline, not only in United States, but in Canada, France, Germany, the United Kingdom, and Sweden as well. In the United States, services now generate 74 percent of the gross domestic product and account for 79 percent of all jobs. Service technologies are different from manufacturing technologies and, in turn, require a specific organization structure
SERVICE FIRMS
Definition: Whereas manufacturing organizations achieve their primary purpose through the production of products, service organizations accomplish their primary purpose through the production and provision of services, such as education, health care, transportation, banking, and hospitality, studies of service organizations have focused on the unique dimensions of service technologies. The characteristics of service technology are compared to those of manufacturing technology in Example.
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INFORMATION TECHNOLOGY
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 the complexity of computer – based information technology systems has increased, application have grown to support effective top management decision making about complex and uncertain problems.
OPERATIONS AND BUSINESS RESOURCE APPLICATIONS
The 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 reduce labor cost by having computers take over some tasks. These systems became known s transaction processing systems (TPS), which automate the organization’s routine, day-to-day business transactions. A TPS collect data from transactions such as sales, purchases from suppliers, and inventory changes and stores them in database. For example, Starbucks Coffee uses a transaction processing system to keep track of sales in all its stores worldwide. As data from transactions accumulate, they may be stored in various company databases.
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IT & ORGANIZATION DESIGN
E – COMMERCE
A primary way many companies are using information technology as a strategic weapon is through electronic commerce, or e-commerce. One only needs to think of Amazon.com, which created huge headaches for bookstores such as Barnes & Noble and Borders---and which has a market value higher than all the bricks-and-mortar bookstores in the world combined – in order to understand the significance of e-commerce in today’s business world. E- Commerce can be useful for either a low –cost leadership or a differentiation strategy.
E-commerce is a very broad term, which basically means any commercial activity that takes place by digital processes over a computer network. E-commerce replaces or enhances the exchange of money and product with the exchange of information from one computer to another. As such, applications such as EDI, extranets, and so forth are all aspects of e-commerce. Today, most e-commerce takes place on the intranet. Two aspect of ecommerce are business-to-business transactions and business – to –customer transactions. Market researchers at International Data Corporation predict that the amount of overall e-commerce will top $ 1 trillion by 2003.
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KNOWLEDGE MANAGEMENT
One primary goal for information technology system today is to support efforts to manage and leverage organizational knowledge. Having greater access to information is useless unless that information is put to use to further the goals and success of the organization. In today’s economy, the basic economic resources are no longer capital, or labor, or natural resources, but knowledge. Peter Drucker coined the term knowledge work in the early 1960s but only in recent year have mangers begun to recognize knowledge as important resource that should be managed, just as they manage cash flow, human resources, or raw materials, Particularly for companies that are striving to be learning organizations, knowledge management is a critical job for organization executives. Learning organizations effectively acquire, create, and transfer knowledge across the company and modify their activities to reflect new knowledge and insight.
Knowledge management is 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 capital is the sum of its information, experience, understanding, relationships, processes, innovation, and discoveries. Although information technology plays an important role by enabling the storage and dissemination of data and information across the organization, technology is only one part of a longer puzzle. A complete knowledge management system includes not processes for capturing and storing knowledge and organizing it for easy access, but also ways to generate new knowledge through learning and to share knowledge throughout the organization. Information technology alone is not enough to handle this complex problem.
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ORGANIZATION SIZE – IS BIGGER BETTER?
The question of big versus small begins with the notion of growth and the reasons so many organization feel the need to grow large.
PRESSURES FOR GROWTH
In the early 1990s America’s management guru, Peter Drucker declared that “the fortune 500 is over”; yet the dream of practically every businessperson is still to have his or her company become a member of the Fortune 500 list --- to grow fast and to grow large. Sometimes this goal is more urgent than to make the best products or show the greatest profits. Some observers believe the United States is entering a new era of “bigness,” as companies strive to acquire the size and resources to compete on a global scale, to invest in new technology and to control distribution channels and guarantee access to markets. For example, more than $ 1.6 trillion in mergers took place worldwide in 1997 alone, with over half of the activity in United States.
There are other pressures for organizations to grow. Many executives have found that firms must grow to stay economically healthy. To stop growing is to stagnate. To be stable means that customers may not have their demands met fully or that competitors will increase market share at the expense of your company. Scale is crucial to economic health in marketing-intensive companies such as Coca-Cola and Anheuser –Busch. Greater size give these companies power in the marketplace and thus increased revenues. In addition, growing organizations are vibrant, exciting places to work, which enables these companies to attract and keep quality employees. When the number of employees is expanding, the company can offer many challenges and opportunities for advancement.
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ORGANIZATIONAL CHARACTERISTICS DURING THE LIFE CYCLE
ORGANIZATIONAL LIFE CYCLE
A Useful way to think about organizational grows and change is the concept of an organizational life cycle. Which suggests that organizations are born, grow older, and eventually die, organizational structure, leadership style, and administrative systems follow a fairly predictable pattern through stages in the life cycle. Stages are sequential in nature and follow a natural progression.
STAGES OF LIFE CYCLE DEVELOPMENT
Recent work on organizational life cycle suggests that four major stages characterize organizational development. Each time an organization enters a new stage in life cycle, it enters a whole new ballgame with a new set of rules for how the organization functions internally and how it relates to the external environment.
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ORGANIZATION BUREAUCRACY AND CONTROL
As organizations progress through the life cycle, they usually take on bureaucratic characteristics as they grow larger a more complex. The systematic study for bureaucracy was launched by Max Weber, a sociologist who studied government organizations in Europe and developed a frame work of administrative characteristics that that would make large organizations rational and efficient. Weber wanted to understand how organization could be designed to play a positive role in the larger society.
WHAT IS BUREAUCRACY?
Although Weber perceived bureaucracy as a threat to basic personal liberties, he also recognized it as the most efficient possible system of organizing. He predicted the triumph of bureaucracy because of its ability to ensure more efficient functioning of organization in both business and government settings. Weber identified a set of organizational characteristics, listed below, that could be found in successful bureaucratic organization. Rules and standard procedures enabled organizational activities to be performed in a predictable, routine manner specialized duties meant that each
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ORGANIZATIONAL CULTURE
Process Controls
- Feed forward control
- Concurrent control
- Feedback control
The popularity of the organizational culture topic raises a number of questions. Can we identify cultures? Can culture be aligned with strategy? How can cultures be managed or changed? The best place to start is by defining culture and explaining how it can identify in organizations.
WHAT IS CULTURE?
Culture is the set of values, guiding beliefs, understandings, and ways of thinking that is shared by members of an organization and taught to new members as correct. It represents the unwritten, felling part of the organization. Everyone participates in culture, but culture generally goes unnoticed. It is only when organizations try to implement new strategies or programs that go against basic culture norms and values that they come face to face with the power of culture.
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MANUFACTURING AND SERVICE TECHNOLOGIES (CONTD.)
FRAMEWORK
The dimensions of variety and analyzability form the basis for four major categories of technology: routine, craft, engineering, and no routine
Routine Technologies are characterized by little task variety and the use of objective, computational procedures. The tasks are formalized and standardized. Examples include an automobile assembly line and a bank teller department.
Craft Technologies are characterized by fairly stable stream of activities, but the conversion process is not analyzable or well understood. Tasks require extensive training and experience because employees respond to intangible factors on the basis of wisdom, intuition, and experience. Although advances in machine technologies seem to have reduced the number of craft technologies in organizations, a few craft technologies remain. For example, steel furnace engineers continue to mix steel based on intuition and experience, pattern makers at apparel firms still convert rough designers’ sketches into salable garments, and gas and oil explorations use their internal divining rod to determine where millions will be spent on drilling operations.
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ORGANIZATIONAL DESIGN AND CULTURE
INTERPRETING CULTURE
To identify and interpret the content requires that people make inferences based on observable artifacts. Artifacts can be studied but are hard to decipher accurately. A ceremony in one company may have a different meaning that in another company. To discipline what is really going on in an organization requires detective work and probably some experience as an insider. Some of the typical and important observable aspects of culture are rites and ceremonies, stories, symbols, and language.
Rites and Ceremonies: Important artifacts for culture are rites and ceremonies. the elaborate, planned activities that make up a special event and are often conducted for the benefit of an audience. Managers can hold rites and ceremonies to provide dramatic examples of what a company values. These are special occasions that reinforce specific values, create a bond among people for sharing an important understanding, and anoint and celebrate heroes and heroines who symbolize important beliefs and activities.
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CULTURE AND LEARNING ORGANIZATION
One of the primary characteristics of learning organization is a strong organizational culture. In addition, the culture of a learning organization encourages change and adaptation. A danger for much successful organization is that the culture becomes set and the company fails to adapt as the environment changes. When organizations are successful, the values, ideas, and practices that helped attain success become institutionalized, as the environment changes; these values may become detrimental to future performance. Many organizations become victims of their own success, clinging to outmoded and even destructive values and behaviors. Durk Jager, the new CEO of Procter & Gamble, is struggling to change a rigid culture that insists on “the P&G way of doing things,” P&G typically is a great American company, but it has stopped growing. Whereas many competitors take only months to move new products from idea to the market, P&G typically takes five years. Jager wants to create a culture that encourages speed, innovation and initiative. In one training video, he admonishes employees to trash their Current Best Approaches Manuals – long a mainstay at P&G – and think for themselves.
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ETHICAL VALUES IN ORGANIZATIONS
Of The values that make up an organization’s culture, ethical values are now considered among the most important. Ethical standards are becoming part of the formal policies and informal cultures of many organizations, and courses in ethics are taught in many business schools. Ethics is the code of moral principles and values that govern 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.
Ethics is distinct from behaviors governed by law. The rule of law arises from a set of codified principles and regulations that described how people are required to act, are generally accepted in society, and are enforceable in the courts.
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ETHICS
Managerial ethics and social responsibility are influenced by a variety of external stakeholders, groups outside the organization that have a stake in the organization’s performance. Ethical and socially responsible decision making recognizes that the organization is part of a larger community and considers the impact of a decision or action on all stakeholders. Important external stakeholders are government agencies, customers, special interest groups such as those concerned with the natural environment, and global market forces.
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INNOVATE OR PERISH; THE STRATEGIC ROLE OF CHANGE
If there is one theme or lesson that emerges from previous lectures, it is that organizations must run fast to keep up with changes taking place all around them. Organizations must modify themselves not just from time to time, but all of the manufacturing firms need to reach out for new computer- integrated manufacturing technology and service firms for new information technology. Today’s organizations must poise themselves to innovate and change, not only to prosper but merely to survive in a world of increased competition. Organizations that invest most of their time and resources in maintaining the status quo cannot hop to proper in today’s world of constant change and uncertainty. Number of environmental forces drives this need for major organizational 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 globalize economy that impacts 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 operation.
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TYPES OF CHANGE
STRATEGIC TYPES OF CHANGE
Managers can focus on four types of change within organizations to achieve strategic advantage; these four types of changes are summarized in examples: products and services, strategy and structure, culture, and technology. These factors provide an overall context within which the four types of change serve as a competitive wedge to achieve an advantage in the international environment. Each company has a unique configuration of products and services, strategy and structure, culture, and technologies that can be focused fro maximum impact upon the company’s chosen markets.
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INNOVATIOAN AND CHANGE
Regardless of the type or scope of change, there are identifiable stages of innovation, which generally occur as a sequence of events, though innovation stages may overlap. In the research literature on innovation, organizational change is 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. The first organization to introduce a new product is considered the innovator, and organizations that copy are considered to adopt changes. For purposes of managing change, however, the terms innovation and change will be used interchangeably because the change process within organizations tends to be identical whether a change is early or late with respect to other organizations in the environment.
Innovations typical are assimilated into an organization through a series of steps or elements. Organizations member first become aware of a possible innovation, evaluate its appropriateness, and then evaluate and choose the idea. The required elements of successful change 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.
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REASONS FOR NEW PRODUCT SUCCESS
The next question to be answered by research was, “why are some products more successful than others?” why did a product such as Frappuccino succeed in the marketplace. While those such as Miller Clear Beer an Frito – Lay’s lemonade failed? Further studies indicated that innovation success was related to collaboration between technical and marketing departments. Successful new products and services seemed to be technologically sound and also carefully tailored to customer needs. A study called Project SAPPHO examined seventeen pairs of new product innovations, with one success and one failure in each pair, and concluded the following
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STRATEGIES FOR IMPLEMENTING CHANGE
LEADERSHIP FOR CHANGE
As the world becomes increasingly complex, the need for change within organization and the need for leaders who can successfully manage change continues to grow, coping with rapid change is one of the greatest challenges facing today’s organizations. Organizations need to continuously change and adapt in response to a turbulent environment. They need leaders who clearly recognize the need for change and make it happen, who can develop and communicate a vision for what the organizations can be and provide the motivation and guidance to take it there. Leaders who an effect the kind of continuous adaptation needed in today’s world recognize that change is painful for employees , and they learn to put themselves in their employee’s shoes and develop partnerships that make successful change possible.
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DECISION MAKING IN TODAY’S ENVIRONMENT
Seen a problem before and may not know to respond. Clear – cut decision criteria do not exist. Alternatives are fuzzy. There is uncertainty about whether a proposed solution will solve the problem. Typically, few alternatives can be developed for a non-programmed decision, so a single solution is custom – tailored to the problem.
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INDIVIDUAL DECISION MAKING
Individual decision making managers can be described in two ways. First is the rational approach, which suggests how manager should try to make decisions. Second is the bounded rationality perspective, which describes how decisions actually have to be made under severe time and resource constraints. The rational approach is an ideal manager may work toward but never reach.
RATIONAL APPROACH
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ORGANIZATIONAL DECISION MAKING
Organizations are composed of managers who make decisions using both rational and intuitive processes; but organization – level decisions are not usually made by a single manager. Many organizational decisions involve several managers. Problem identification and problem solution involve many departments, multiple viewpoints, and even other organizations, which are beyond the scope of an individual manager.
The processes by which decision are made in organization are influenced by a number of factors, particularly the organization’s own internal structures as well as the degree of stability or instability of the external environment. Research into organization – level decision making has identified four types of organizational decision – making processes. The management science approach, the Carnegie models the incremental decision process model, and the garbage can model.
MANAGEMENT SCIENCE APPROACH
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CARNEGIE MODEL
The Carnegie Model of organizational decision making is based on the work of Richard Cyert, James March, and Herbert Simon, who were all associated with Carnegie-Mellon University. Their research helped formulate the bounded rationality approach to individual decision making as well as provide new insights about organization decisions. Until their work, research in economics assumed that business firms made decision as a single entity, as if all relevant information were funneled to the top decision maker for a choice. Research by the Carnegie group indicated that organization – level decisions involved many managers and that a final choice was based on a coalition among those mangers. A coalition is an alliance among several managers who agree about organizational goals and problem priorities. It could include manager from line departments, staff specialist, and even external groups, such as powerful customers, bankers, or union representatives
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INCREMENTAL DECISION PROCESS MODEL
Henry Mintzberg and his associates at McGill University in Montreal approached organizational decision making from a different perspective. They identified twenty – five decisions made in organizations and traced the events associated with these decisions from beginning to end. Their research identified each step in the decision sequence. This approach to decisions making, called the incremental decision process model, places less emphasis on the political and social factors described in the Carnegie model, but tells more about the structured sequence of activities undertaken from the discovery of a problem to its solution.
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GARBAGE CAN MODEL
The garbage can model is one of the most recent and interesting descriptions of organizational decision processes. It is not directly comparable to the earlier models, because the garbage can model deals with the pattern or flow of multiple decisions within organizations, whereas the incremental and Carnegie models focus on how a single decision is made. The garbage can model helps you think of the whole organization and the frequent decision being made by managers throughout.
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CONFLICT, POWER & POLITICS
WHAT IS INTER-GROUP CONFLICT?
Inter group conflict requires three ingredients; group identification, observable group differences, and frustration. First, employees have to perceive themselves as part of an identifiable group or department. Second, there has to be an observable group difference of some form. Groups may be located on different floors of the building, members may have gone to different school, or members may work in different departments. The ability to identify oneself as a part of one group and to observe differences in comparison with other groups is necessary for conflict.
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INDIVIDUAL VERSUS ORGANIZATIONAL POWER
In popular literature, power is often described as a personal characteristic, and a frequent topic is how one person can influence or dominate another person. You probably recall from an earlier management or organizational behavior course that mangers have five sources of personal power. Legitimate power is the authority granted by the organization to the formal management position a manger holds. Reward power stems from the ability to bestow rewards – promotion, raise, pat on the back – to other people. The authority to punish or recommend punishment is called coercive power. Expert power derives from a person’s higher skill or knowledge about the tasks being performed. The last one, referent power, derives from personal characteristics such that people admire the manager and want to be like or identify with the manger out of respect and admiration. Each of these sources may be used by individuals within organization.
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POLITICAL PROCESSES IN ORGANIZATIONS
Politics, like power, is intangible and difficult to measure. It is hidden from view and is hard to observe in a systematic way. Two recent surveys uncovered the following reactions of managers toward political behavior.
- Most managers have a negative view toward politics and believe that politics will more often hurt than help an organization in achieving its goals.
- Managers believe political behavior occurs more often at upper rather than lower level in organizations.
- Most manages think political behavior occurs more often at upper rather than lower levels in organizations.
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THE GLOBAL ENVIRONMENT
As recently as twenty years age, many organizations remained insulated from foreign competition. However, the rapid changes of the 1980s and 19990s and 1990s have led to the development of a highly competitive global economy where worldwide events that change rapidly and unpredictably are forcing companies in all industries to rethink their approach to organization design. Extraordinary advancements in communications and technology have created a new, highly competitive global landscape for organizations. Products can be made and sold anywhere in the world, communications are instant, and product development and life cycles are shorter than ever before. Technology is rapidly replacing manual labor, and the ability to create and leverage knowledge is becoming more important than the control of capital assets.
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STRUCTURAL DESIGN FOR GLOBAL OPERATIONS
STRUCTURAL DESIGNS FOR GLOBAL OPERATIONS
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. Organizations design for international structure follows a similar logic, with special interest on global versus local strategic opportunities.
MODEL FOR GLOBAL VERSUS LOCAL OPPORTUNITIES
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TOWARD LEARNING ORGANIZATIONS
Empowering workers is a key step toward becoming a fluid, adaptable learning organization that can thrive in a world of rapid change. Many organizations leaders cite change as the most common problem they face. Today’s business world is characterized by globalization, intense competition, instantaneous communications, and surprise. Small events may have huge consequences that are difficult or impossible to predict. Today’s best organizations leaders recognize that the organization has to keep pace with what is happening in the external environment. As Jack Welch, chairman and CEO of General Electric, once stated, “When the rate of change outside exceeds the rate of change inside, the end is in sight,”
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REVISION
In this handout only the topics which are covered in this course would be listed so that students know what to take from this course. Following is the summary of the topics discussed in this course:
- What’s an organization?
- Importance of organizations. Can we ignore them? (examples of daily life)
- Organizations as systems, open systems
- Dimensions of organizational design: Structural and Contextual dimensions
- Strategic management
- Organizational purpose, mission, vision, goals
Read more: MGT504 - Organization Theory and Design - Lecture Handout 45
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