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MGT504 - Organization Theory and Design - Lecture Handout 31

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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

  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 authority.

Thus, there is a distinct pattern of tailoring innovations to customer needs, marketing effective use of technology, and having influential top managers support the project, these ideas taken together indicate that the effective design for new product innovation is associated with horizontal linkage across departments.


The organization design for achieving new product innovation involves three components --- departmental specialization, boundary spanning, and horizontal linkages.

Specialization: The key departments in new product development are R & D. marketing and production. The specialization component means that the personnel in all three of these departments are highly competent at their own tasks. The three departments are differentiated from each other and have skills, goals and attitudes appropriate for their specialized functions.

Boundary Spanning: This component means each department involved with new products has excellent linkage with relevant sectors in the external environment. R & D personal are linked to professional associations and to colleagues in other R & D departments. They are aware of recent scientific developments. Marketing personnel are closely linked to customer needs. They listen to what customers have to say, and they analyze competitor products and suggestions by distributors. For example, Kimberly – Clark had amazing success with Huggies Pull- Ups because marketing researchers worked closely with customers in their own homes and recognized the emotional appeal of pull – on diapers for toddlers. By the time competitors caught on, Kimberly – Clark was selling $ 400 million worth of Huggies annually.

Horizontal Linkages: This component means that technical, marketing, an production people share ideas and information, research people information marketing of new technical developments, to learn whether the development are applicable to customers. Marketing people provide customer complaints and information to R & D to use in the design of new products. People from both R & D and marketing coordinate with production because new products have to fit within production capabilities so costs are not exorbitant. The decision to launch a new product is ultimately a joint decision among all three departments.

At General Electric, Members of the R & D department have a greater deal of freedom to imagine and invent, and then they have to shop their ideas around other departments, and division, sometimes finding applications for new technologies that are far from their original intentions. As a result, one study shows that of 250 technology products GE undertook to develop over a four – year period, 150 of them produced major applications, far above the U.S. average. IBM’s market researchers worked side by side with designers, engineers, and manufacturing personnel, as well as representatives from procurement, logistics, and other department’s to produce IBM’s hot – selling Think Pad laptop computer. Famous innovation failures – such as McDonald’s Arch Deluxe, the apple Newton, RJR Nabisco’s Premier smokeless cigarettes, and Gerber’s Singles, a line of meals for adults – usually violate the horizontal linkage model. Employees fail to connect with customer needs, or internal department fail to adequately share needs and coordinate with one another.

Companies are increasingly using cross – functional teams for product development to ensure a high level of communication and coordination from the beginning. The functional diversity increases both the amount and the variety of information for new product development, enabling the design of products that meet customer needs and circumventing manufacturing and marketing problems; Kellogg has revised its approach to new product development to improve horizontal collaboration.

Companies such as Kellogg, IBM, and General Electric are using the horizontal linkage model to achieve competitive advantage in today’s global marketplace.


For many companies, creating new products is critical way to adapt and survive in a rapidly changing environment. Getting new products to market fast and developing products that can compete in a competitive international market are key issues for companies like Xerox, 3M, and Levi Strauss. One authority on time – based competition has said that the old paradigm for success – “provide the most value for the least cost” --- has been updated to “provide the most value for the least cost in the least elapsed time.

To gain business, companies are learning to develop new products and services incredibly fast. Whether the approach is called the horizontal linkage model, concurrent engineering, companies without walls, the parallel approach, or simultaneous coupling of departments, the point is the same – get people working together simultaneously on a project rather than in sequence. Many companies are learning to sprint to market with new products.

Hewlett- Packard has made speed a top priority, getting products out the door twice as fast and using as fast ad urging employees to rethink every process in terms of speed. A printer that once took fifty – four months to develop is now on the market in twenty – two, speed is becoming a major competitive issue and requires the use of cross- functional teams and other horizontal linkages.

Another critical issue is designing products that can compete on global scale and successfully marketing those products internationally. Companies such as Quaker Oats, Hagen Dazs, and Levi’s are trying to improve horizontals
communication and collaboration across geographical regions, recognizing that they can pick up wining product ideas from customers in other countries. A new Haagen Dazs flavor, dulce de leche, developed primarily for sale in Argentina, has quickly become a favorite in the United States, with sales growing by about 27 percent monthly. Ford has boosted its global competitiveness by using its intranet and global teleconferencing to link car design teams around the world into single unified groups. Black & Decker has also been redesigning its product development process to become a stronger international player, to make global product development faster and more effective, new products are developed by cross – functional project delivery teams, which are answerable to a global business unit team.

Failing to pay attention to global horizontal linkages can hurt companies trying to compete internationally. The Dutch giant Philips Electronics NV was certain its compact disk interactive player called. The imagination Machine would be a hit in the Crucial U.S market, and ultimately; the rest of the world. Five years later, the product, which was promoted as an interactive teaching aid and was to complex it required a thirty – minute’s sales demonstration, had all but disappeared from the shelves. Marketing employees, sales people, and major customers had crucial information that would have helped Philips understand the U.S market, but by the time the executives gathered the information and tried to change course, it was too late,” we world isn’t as easy as it seems,” when companies enter the arena of intense international competition, horizontal coordination across countries is essential to new product development.


The preceding discussion focused on new production processes and products, which are based in the technology of an organization. The expertise for such innovation lies within the technical core and professional staff groups, such as research and engineering. This section turns to an examination of structural and strategy changes.

All organization needs to make changes in their strategies and structure 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. Many organizations are cutting out layers of management and decentralizing decision making. There is a strong shift toward more horizontal structures, with teams of front – line workers empowered to make decision and solve problem on their own. Some companies are breaking totally away from traditional organization forms and shifting toward network strategies and structures, others are moving their entire business into cyberspace. Numerous companies are reorganizing and shifting their strategies as the expansion of e- commerce changes the rules, for example, online banking, credit cards, and ATMs are affecting the role of branch banks. Global competition and rapid technological change will likely lead to even greater strategy – structure realignments over the next decade.

These types of changes are the responsibility of the organization’s top managers, and the overall process of change is typically different from the process for innovation in technology or new product.


The dual – core approach compares administrative and technical changes, administrative changes pertain to the design and structure of the organization itself, including restructuring, downsizing, teams control systems, information system’s and departmental grouping. Research into administrative change suggests two things, first, administrative changes occur less frequently than do technological changes, second, administrative changes occur in response to different environmental sectors and follow a different internal process than do technology based changes. The dual – core approach to organization change identifies the unique processes associated with administrative change.

Organizations – schools, hospitals, city government, welfare agencies, government bureaucracies, and many business firms – can be conceptualized as having two cores; a technical core and an administrative core. Each core has its own employees, tasks, and environmental domain. Innovation can originate in either core.

The administrative core is above the technical core in the hierarchy. The responsibility of the administrative core includes the structure, control, and co-ordination of the organization itself and concerns the environmental sectors of government, financial resources, economic conditions, human resources, and competitor, 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 findings from research comparing administrative and technical change suggest that a mechanistic organization structures is appropriate for frequent administrative changes, including changes in goals, strategy, structure, control systems, and personnel. For example, administrative changes in policy, regulations, or control systems are more critical than technical changes in much government organization that are bureaucratically structure. Organizations that successfully adopt many administrative changes often have a larger administrative ratio, are larger in size, and are centralized and formalized compared with organizations that adopt May technical changes. The reason is the top – down implementation of changes in response to changes in the government, financial, or legal sectors of the environment. In contrast, if an organization has an organic structure, lower – level employees have more freedom and autonomy and, hence, may resist top – down initiatives. An organic structure is more often used when changes in organizational technology or products are important to the organization.

The innovation approaches associated with administrative versus technical change are summarized. Technical change, such as changes in production techniques and innovation technology for new products, is facilitated by an organic structure, which allows ides to bubble upward from lower – and middle level employees. Organization that must adopt frequent administrative changes tend to use a top – down process and a mechanistic structure, for example, policy changes, such as the adoption of tough no – smoking policies by companies like Park Nicollet Medical Center in Minnesota, are facilitated by a top – down approach. Downsizing and restructuring are nearly always managed top down, such as when Raymond Lane, president of Oracle Corporation split the sales force into two teams ( one focused on selling database software and the other on selling applications ) , cut out two levels of management, and placed himself directly in charge of U.S. sales.

The point of the dual – core approach is that many organizations especially not – for – profit and government organization – must adopt frequent administrative changes, so a mechanistic structure may be appropriate. For example research into civil service reform found that the implementation of administrative innovation was extremely difficult in organizations that had an organic technical core. The professional employees in a decentralized agency could resist civil service changes, By contrast, organization that were consider more bureaucratic in the sense of high formalization and centralization adopted administrative change readily.

What about business organizations that are normally technologically innovative in bottom – up fashion but suddenly face a crisis and need to reorganize? Or consider a technically innovative high – tech firm that must reorganize frequently or must suddenly cut back to accommodate changes in production technology or the environment. Technically innovative firms may suddenly have to restructure, reduce the number of employees, alter pay systems, disband teams, or form a new division. The answer is to use a top – down change process. The authority of strategy and structure change lies with top management, who should initiate and implement the new strategy and structure to meet environmental circumstances, employee input may be sought, but top managers have the responsibility to direct the change. Downsizing, restructuring, and reorganizing are common terms for what happens in times of rapid change and global competition, often, strong top – down changes follow the installation of new top management, for example, when Carol Bartz first arrived at Autodesk, Inc.., a leading software company, she introduced a first for the company; a management hierarchy. Autodesk had always been an organic organization, but Bartz believed a more mechanistic approach was needed to revive profits and get the struggling company back on track. She recognized that a top – down change process was needed to develop new goals and strategies and firmly direct there structuring needed to help Autodesk survive. Changes such as restructuring and downsizing can often be painful for employees, so top managers should move quickly and authoritatively to make both as humane as possible.

Top managers should also remember that top –down change means initiation of the idea occurs at upper levels and is implemented downward. It does not mean that lower – level employees are not educated about the change or allowed to participate in it, Dan Caulfield, founder of Hire Quality Inc.., learned the hard way that there are right ways and wrong ways to manage top – down administrative change.


Organization 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.

In a world where any organization can purchase new technology, the motivation, skill, and commitment of employees can provide the competitive edge, Human Resources systems can be designed to attract, develop, and maintain an efficient force of employees.

Sometimes achieving a new way of thinking requires a focused change on the underlying corporate culture values and norms. In the last decade, numerous large corporations, including ‘Kodak, IBM, and Ford Motor Company, have undertaken some type of culture change initiative. Changing corporate culture fundamentally shifts how work is done in an organization and generally leads to renewed commitment and empowerment of employees and a stronger bond between the company and its customers.

Some recent trends that generally lead to significant changes in corporate culture are reengineering, the shift to horizontal forms of organizing, and the implementation of total quality management programs, all of which require employees to think in new ways about how work is done.

Organizational development programs also focus on changing old culture values to new ways of thinking, including a learning orientations, greater employees participation and empowerment, and developing a shared companywide vision.


Reengineering is a cross – functional initiative involving the radical redesign of business processes to bring about simultaneous changes in culture, structure, and information technology and produce dramatic performance improvements in areas such as customer service, quality, cost and speed. Reengineering basically means taking a clean – slate approach, pushing aside all the notions of how work is done now and looking at how work can best be designed for optimal performance, the ideas is to squeeze out the dead space and time lags in work flows, such companies as Hoechst Celanese, Union Carbide, BellSouth Telecommunication’s and Dupont are among the dozens of companies involved in major reengineering efforts. After reengineering, Union Carbide cut $ 400 million out of fixed costs in just three years; Hoechst Celanese identified $70 million in cost savings and productivity improvements over a two – year period, without making massive job cuts. Many more organizations have reengineered one or a few specific processes.

Because the focus is on process rather than functional, reengineering generally leads to a shift from a vertical organization structure to horizontal structures. This, in turn requires major changes in corporate culture and management philosophy. In his book the reengineering Revolution, Michael Hammer refers to people change as “the most perplexing, annoying, distressing, and confusing part” of reengineering. Managers may confront powerful emotions as employees react to rapid, massive change with fear or anger, Top leaders at Jaguar of North America copied with resistance to reengineering by putting their loudest dissenters in change of solutions and then getting out of the way. They implemented employee suggestions that corrected so many of Jaguar’s shortcomings that even the most skeptical dealers accepted that the company truly cared about its employees and its customers.

In the horizontal organization, managers and front –line workers need to understand and embrace the concepts of team work, empowerment, and cooperation. Everyone throughout the organization needs to share a common vision and goals so they have a frame work within which to make decisions and solve problems, managers shift their thinking to view workers as colleagues rather than cogs in a wheel; and workers learn to accept not only greater freedom and power, but also the higher level of responsibility --- and stress – that comes with it. Mutual trust, risk taking, and tolerance for mistakes become key cultural values in the horizontal organization. Most top managers have little experience dealing with the complexities of human behavior; yet, they should remember that culture changes are crucial to the success of reengineering and the shift to horizontal forms of organization.

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