Organizations &

Organization Theory

Overview Organizations Importance of Organizations Organization theory Current Challenges Dimensions of Organization Design Historical Perspectives Design of Organizations

What is an Organization? Social entities that are goal-directed Designed as deliberately structured and coordinated activity systems Linked to the external environment Includes large multinational corporations, family owned businesses as well as nonprofits

Importance of Organizations

Organizations are a means to an end The corporation has played a significant role in the last 100 years Produce goods and services efficiently Facilitate innovation Adapt to and influence a changing environment Create value for owners, customers, and employees Accommodate ongoing challenges of diversity, ethics, and the motivation and coordination

of employees Importance of Organizations

Organization Theory

Organization theory helps us explain what happened in the past, as well as what may happen in the future, so that we can manage organizations more effectively.

Organization theory is concerned with the big picture of the organization and its major departments.

Organization Theory in Action Current Challenges

Globalization Intense Competition Ethics and Social Responsibility Speed of Responsiveness The Digital Workplace Diversity

Dimensions of Organization Design

Structural Dimensions• provide labels to describe an organization’s internal characteristics.

Formalization; Specialization; Hierarchy of Authority; Centralization; Professionalism; Personnel Ratios

Contingency Factors• characterize the whole organization and describe the organizational setting.

Size; Organizational technology; Environment; Goals and strategy; Culture Dimensions of

Organization Design Structural dimensions provide labels to describe an organization’s internal characteristics.

Formalization pertains to the amount of written documentation in the organization; Specialization is the degree to which organizational tasks are subdivided into

separate jobs; Hierarchy of authority describes who reports to whom and the span of control; Centralization refers to the hierarchical level that has authority to make a decision.

Dimensions of Organization Design

Contextual dimensions characterize the whole organization and describe the organizational setting. Size is the organization's magnitude as reflected in the number of people in the

organization; Organizational technology refers to the tools, techniques, and actions used to

produce the organization’s products or services; Environment includes all elements outside the boundary of the organization; Goals and strategy define the purpose and competitive techniques that set it apart

from other organizations; Culture is the underlying set of key values, beliefs, understandings, and norms shared

by employees. Interacting Structural Dimensions of Design and Contingency Factors

Organization Chart Characteristics of Three Organizations

Performance and Effectiveness Outcomes

Efficiency – amount of resources used to achieve the organization’s goals Effectiveness – the degree to which an organization achieves its goals Stakeholder Approach – balancing the needs of groups in and outside of the organization

that has a stake in the organization’s performance employees, customers, creditors, management, government, unions, the community,

suppliers, and owners and stockholders. Managers must establish goals that achieve at least minimal satisfaction for multiple

stakeholders. Major Stakeholder Groups

and What They Expect The Evolution of Organization Theory and Design

Historical perspectives provide insight into how organization design and management practices have varied over time in response to changes in society.

Historical Perspectives Efficiency is Everything

Scientific Management: pioneered by Frederick W. Taylor Through scientific procedures in 1898, Taylor identified correct movements and tools

for loading four times as much iron or steel for the Bethlehem Steel plant.

How to Get Organized Administrative Principles pioneered by Henri Fayol

Contributed to Bureaucratic Organizations Bureaucracy was an effective approach for the needs of the Industrial Age,

calling for clearly defined authority and responsibility, formal recordkeeping, and uniform application of standard rules. It remained the primary approach to organization design through the 1980s.

Historical Perspectives What about People?

Hawthorne Studies led to a revolution in worker treatment from findings that positive treatment

improved motivation and productivity. Can Bureaucracies Be Flexible?

Flexible and lean; focused on service, quality, and engaged employees (1980s) It All Depends: Key Contingencies

Contingency: there is no “one best way” One thing depends upon other things, and for organizations to be effective, there must

be a fit between the structure and the conditions in the external environment Evolution of Style

Managers view their world through one or more mental frames of reference. The structural frame of reference sees the organization as a machine. The human resource frame sees the organization as its people. The political frame sees it as a competition for scarce resources. The symbolic frame sees it as theater, with emphasis on symbols, vision, culture, and

inspiration. Mintzberg’s Organizational Types

Every organization has five parts: the technical core does the basic work of the organization; technical support helps adapt the organization to the environment; administrative support takes care of operations, including physical and human

elements; management (top and middle) directs and coordinates the organization.

Mintzberg’s Organizational Types Organic vs. Mechanistic

Mechanistic The organization is characterized by machine-like standard rules and procedures with

clear authority.

Organizations are highly formalized and are also centralized, with most decisions made at the top.

Organic The organization is much looser, free-flowing, and adaptive. Rules and regulations often are not written down or are flexibly applied.

Organic vs. Mechanistic Depends upon:

Structure Tasks/Roles System Formality Communication Hierarchy versus Collaboration

Organizations are shifting toward more organic designs because of the turbulence of the external environment and the need for innovation, adaptability, and a fast response to customers or clients.

Organic and Mechanistic Designs Contemporary Ideas

Today’s organizations are still imprinted with hierarchical, formalized mechanistic approach

Organizations are open systems that must interact with the environment. System means a set of interrelated parts that function as a whole. Open Systems are adaptive and interact with the environment Chaos theory states that relationships in complex systems are nonlinear

Chaos operates with some predictability which is the challenge of today’s managers

Strategy, Organization Design,and Effectiveness

OverviewThe Role of Strategic Direction in Organization Design

Organizational PurposeVision and MissionStrategy

Organizational Operating GoalsThe Importance of Goals

A Framework for Selecting Strategy and DesignPorter’s Competitive StrategiesMiles and Snow’s Strategy Typology

How Strategy Affects Organization DesignContingency Factors Affecting Organization Design

Assessing Organizational EffectivenessThe Role of Strategic Direction in Organization Design

The primary responsibility of top management team (TMT) is to determine an organization’s goals, strategy, and design, therein adapting the organization to a changing environment.

Organizational goal - a desired state of affairs that an organization attempts to reach

Direction setting begins with an assessment of opportunities and threats in the environment and an evaluation of internal strengths and weaknesses. Then, the company can determine its

mission, goals and strategies.

Organizational design reflects the way goals and strategies are implemented.

This is the role of organization theory. Strategic Direction in Organization Design

Organizational PurposeStrategic intent - organization’s energies and resources are directed toward a focused, unifying,

and compelling goal

Organizational Purpose

Purpose may be referred to as the overall goal or mission. Different parts of the organization establish their own goals to help the organization achieve its overall purpose.

Competitive advantage refers to what sets the organization apart from others and provides it with a distinctive edge for meeting customer or client needs in the marketplace.

Core competence is something the organization does especially well in comparison to its competitors.

Vision and MissionThe Vision and Mission statements of a corporation are important anchors that communicate

"what a firm wants to be" and "what the firm does."

These anchors provide a stable identity analogous to a nation's constitution. They are an expression of a firm’s values and beliefs about its responsibility as a corporate citizen.

They clarify the purpose of the organization, help employees bond with the firm, and set a context for understanding management decisions and actions.

VisionA Vision Statement should be inspiring and highlight a firm's aspirations and values.

It should be uplifting and evoke positive emotions.

It defines "what a firm wants to be."

MissionThe firm's mission statement clarifies where the firm will focus its attention and highlights its

core values and beliefs.

The official overall goal for an organization is its mission.

It may emphasize how and why the company plans to compete with a particular range of products and/or services or it may address issues related to the multiple industries in which it

intends to compete.

In brief, it clarifies "what a firm does."

Mission Statement for Machias Savings Bank

StrategyA firm's strategy is the TMTs "how to" plan for fulfilling the organization's mission and

accomplishing its goals and objectives.

It serves as a map for moving the company toward strategic competitiveness.

A firm's strategic plan is an extremely detailed document outlining specific courses of action each with precision and an exact timeline.

It emphasizes performance goalsOrganizational Operating Goals

Operating goals designate the ends sought through operating procedures and describe specific measurable outcomes in the short run.

These goals concern overall performance, resource, market, employee development, productivity, and innovation and change.

Organizational Operating GoalsOrganizational Operating Goals

Overall performance goals may be expressed in terms of profitability, delivery of service, growth, or volume.

Toyota has set performance goals of selling10 million vehicles by the middle of the decade.

Resource goals pertain to the acquisition of needed material and financial resources. The New England Patriots have the resource goal of drafting top-notch players.

Market goals relate to the market share or market standing. L’Oreal SA, the world’s largest cosmetics company, has a goal of doubling its clientele by 2020.

Organizational Operating GoalsEmployee development goals pertain to the training, promotion, safety, and growth of workers.

Productivity goals concern the amount of output achieved from available resources.

Innovation and change goals pertain to internal flexibility and readiness to adapt to unexpected changes in the environment.

The Importance of GoalsA Framework for Selecting Strategy and Design

A strategy is a plan for interacting with the competitive environment to achieve organizational goals.

Goals define where the organization wants to go. Strategies define how the organization will get there.

A Framework for Selecting Strategy and Design

Managers must select specific strategy designModels exist to aid in formulating strategy:

Porter’s Competitive StrategiesMiles and Snow’s Strategy Typology

Porter’s Competitive StrategiesPorter’s Competitive Strategies

With either strategy, the scope of competitive action can be broad or narrow.

An organization can choose to compete in many market and customer segments or to focus on a specific market or buyer group.

Porter’s Competitive StrategiesMiles and Snow’s Strategy Typology

• Managers should seek to formulate strategy that matches the demands of the external environment.

• There must be a fit among internal organization characteristics, strategy, and the external environment.

• Four strategies can be developed:• Prospector; Defender; Analyzer; and Reactor

Miles and Snow’s Strategy TypologyProspector

Involves innovation, taking risks, seeking out new opportunities and growth Learning orientation; flexible, fluid, decentralized structure

DefenderInvolves retrenchment, beyond just stability, by seeking to keep current customers without innovation or growth. Efficiency orientation; centralized authority and tight cost controlEmphasis on production efficiency, low overhead

Miles and Snow’s Strategy TypologyAnalyzer

Lies between the prospector and defender Balances efficiency and learning; tight cost control with flexibility and adaptabilityEmphasis on creativity, research, risk-taking for innovation

ReactorNo clear organizational approach; design characteristics may shift abruptly depending on current needs

How Strategy Affects Organization Design

Managers must design the organization to support the firm’s competitive strategyContingency Factors

Affecting Organization DesignAssessing Organizational Effectiveness

Organizational effectiveness is the degree to which an organization realizes its multiple goals.

Assessing Organizational EffectivenessFour approaches to measuring effectiveness look at different parts of the organization and

measure indicators connected with outputs, inputs, or internal activities.

Measuring Effectiveness:→ The Goal Approach

→ The Resource-Based Approach→ The Internal Process Approach→ The Strategic Constituents Approach

Indicators of Organizational EffectivenessApproaches to Measuring

Organizational EffectivenessAssessing Organizational Effectiveness

The goal approach measures effectiveness by evaluating the extent to which output goals are achieved.

This is a logical approach because organizations do try to attain certain levels of output, profit, or client satisfaction. It is more productive to measure effectiveness using operative goals than using official goals (mission) which are more abstract and difficult to measure.

Assessing Organizational EffectivenessThe resource-based approach evaluates the ability of the organization to obtain valued

resources from the environment. It looks at the input side of the transformation process.

This approach is useful when other indicators of performance are difficult to obtain. such as bargaining position, ability to correctly interpret properties of the environment, maintenance of internal day-to-day activities, and ability to respond to environmental changes.

Assessing Organizational EffectivenessThe internal process approach evaluates effectiveness by examining internal organizational

health and economic efficiency.An evaluation of human resources and their effectiveness is important.

Indicators of effectiveness include a strong, adaptive corporate culture and positive work climate, operational efficiency, undistorted horizontal and vertical communication, and development of

employees.Assessing Organizational Effectiveness

The strategic constituents approach measures effectiveness by focusing on the satisfaction of key stakeholders, those who are critical to the organization’s ability to survive and thrive.

If an organization fails to meet the needs of several constituent groups, it is probably not meeting its effectiveness goals.

An Integrated Effectiveness ModelThe competing values model combines several indicators of effectiveness into a single

framework.

The model is based on the assumption that there are disagreements and competing viewpoints about what constitutes effectiveness.An Integrated Effectiveness Model

A combination of external focus and flexible structure leads to an open systems emphasis.

The rational goal emphasis represents management values of structural control and external focus.

The internal process emphasis reflects the values of internal focus and structural control.

The human relations emphasis incorporates the values of an internal focus and a flexible structure.

Four Approaches to Effectiveness ValuesEffectiveness Values for Two Organizations

Chapter 3Fundamentals of Organization Structure

OverviewOrganization Structure

Organization Chart

Information-Sharing Perspective on StructureVertical Information SharingHorizontal Information Sharing

Organization Design Alternatives

Application of Structural DesignOrganization Structure

Three key components pertaining to both vertical and horizontal aspects of organizing define structure:

Formal Reporting RelationshipsNumber of levelsSpan of control

Grouping of IndividualsCreation of departments

Design of SystemsCommunication, coordination, and integration of efforts

Organization structure is reflected in the organization chart.Organization Structure

The organization chart is the visual representation of a whole set of underlying activities and processes in an organization.

It shows the various parts of an organization, how they are interrelated, and how each position and department fits into the whole.

The hierarchical, functional structure predominated for most of the 20th century.

In recent years, organizations have developed other structural designs, often aimed at increasing horizontal communication.

A Sample Organization ChartInformation-Sharing Perspective

on Structure• The organization should be designed to provide both vertical and horizontal

information flow to accomplish the organization’s overall goals. Traditional organization designed for efficiency

Vertical communication and controlCentralized authority focused on top level decision-making

Learning organization emphasizes horizontal communication and collaboration

A relaxed hierarchy and adaptationDecentralized authority focused on shared tasks and decisions

Efficiency vs. Learning OutcomesVertical Information Sharing

Vertical linkages coordinate activities between the top and the bottom of the organization.

Employees at lower levels should carry out activities consistent with the top-level goals, and top executives must be informed of activities and accomplishments.

Structural devices to achieve vertical linkage:Hierarchical referral: the vertical lines identify the chain of commandThe use of rules and plans create vertical links (e.g. budgets)Vertical information systems including reports, computer systems, and written information make communication more efficient.

Horizontal Information Sharing Horizontal communication overcomes barriers between departments and provides opportunities for coordination among employees to achieve unity of effort and organizational objectives.

Horizontal linkage coordinates activities across organizational departments - not traditionally drawn on the organizational chart-

Information Systems Liaison Roles Task Forces Full-Time Integrator Teams Relational Coordination

Horizontal Information SharingInformation systems

Cross-functional information systems enable employees to routinely exchange information.

Liaison RolesHigher level horizontal linkage is direct contact between employees affected by a problem. The liaison role can be used to identify a person in one department with the responsibility for communicating and achieving coordination with another department.

Task forcesAs a temporary committee composed of representatives from each department affected by a problem, the group links several departments to solve common problems. The task force is disbanded after tasks are accomplished.

Horizontal Information SharingFull-time integrator

This full-time position outside the affected departments is created to achieve coordination between two or more departments. The integrator does not have formal authority over team members, but nevertheless the integrator has responsibility for the entire product.

TeamsTeams can be the strongest horizontal linkage mechanism. Teams are permanent task forces, often used in conjunction with a full-time integrator. Virtual team is made up of organizationally or geographically dispersed members who are linked through advanced information and communications technologies.

Relational CoordinationRelational coordination refers to frequent, timely, problem-solving communication carried out through relationships of shared goals, shared knowledge, and mutual respect.

Project Manager Location in the StructureTeams and Horizontal CoordinationHorizontal Coordination and LinkagesOrganization Design AlternativesRequired Work Activities

Departments are created to perform strategically important tasks.

Reporting RelationshipsThe chain of command, an unbroken line of authority, is represented by vertical lines on an organization flow chart.

Departmental Grouping It affects employees because they share a common supervisor and common resources, and jointly responsible for performance.Departmental grouping options:

FunctionalDivisionalMulti-focused (matrix or hybrid)HorizontalVirtual network grouping

Functional Structure Functional structure consolidates human knowledge and skills with respect to specific

activities in order to provide depth of expertise.

This structure can be effective if there is low need for horizontal coordination between functional departments.

Functional structure with horizontal linkages reflects a shift toward flatter and more horizontal structures.

Horizontal linkages overcome some of the disadvantages of the functional structure.Functional: Strengths & Weaknesses

Divisional Structure Divisional structure, sometimes called product structure or strategic business units,

means that departments are grouped based on organizational outputs.

Decision-making is decentralized.

Good for achieving coordination across functional departmentsDivisional: Strengths & Weaknesses

Reorganization from Functional to Divisional

Geographic Structure Organizing to meet needs of users/customers by geography Many multinational corporations are organized by country Focuses managers and employees on specific geographic regions Strengths and weaknesses similar to divisional organization

Sample Geographic StructureMatrix Structure

Multi-focused with strong horizontal linkage Conditions for the Matrix:

Need for sharing scarce resources across the organization Two or more critical outputs required: products and technical

knowledge Environment is complex and uncertain

Allows organization to meet dual demands Largest weakness is that employees have two bosses and conflicting demands

Sample Matrix OrganizationMatrix: Strengths & Weaknesses

Horizontal Structure The horizontal structure organizes employees around core processes Process refers to an organized group of related tasks and activities that work together

to transform inputs to into outputs that create value for customers

Organizations shift towards a horizontal structure during reengineering redesigning of a vertical organization

Eliminates vertical hierarchy and departmental boundariesSample Horizontal Structure

Characteristics of Horizontal Structure Structure is created around cross-functional processes Self-directed teams, not individuals, are dominant players Process owners are responsible for entire process

People on the team are given authority for decisions Can increase organization’s flexibility Customers drive the organization. Effectiveness is measured by customer satisfaction,

employee satisfaction, and financial contribution Culture is one of openness, trust, and collaboration; focused on continuous

improvementHorizontal: Strengths & WeaknessesVirtual Networks and Outsourcing

Extend horizontal coordination beyond the boundaries of the organization

Most common strategy is outsourcing• Contract out certain tasks/functions

Virtual or modular structures subcontract most of its major functions to separate companies

The virtual network organization serves as a central hub with contracted expertsVirtual Network Example

Virtual Network Strengths and WeaknessesHybrid Structure

Combination of various structure approaches Tailored to specific needs Often used in rapidly changing environments Greater flexibility

Application of Structural DesignEach structure meets different needs and is a tool that can help managers to be more effectiveStructural alignment aligns structure with organizational goalsSymptoms of Structural Deficiency:

Decision making is delayed or lacking in qualityThe organization does not respond innovatively to a changing environmentEmployee performance declines and goals are not being metToo much conflict is evident.Relationship of Structure to Organization’s Need for Efficiency vs. Learning

* The External Environment* Overview

* The Organization Environment* The Task Environment* General Environment* International Environment * The Changing Environment* Dimensions of the Environment * Framework for Assessing Environmental Uncertainty* Adapting to a Changing Environment* Mechanistic and Organic Forms* Environmental Characteristics and Organizational Actions

* The Organization Environment* All the elements that exist outside the boundary of the organization

* Potential to affect all or part of the organization

* Organization’s Domain is the chosen environmental field of action. It defines the organization’s niche and external sectors with which the organization will interact to accomplish its goals The environment comprises several sectors or subdivisions that contain similar elements.

Categorized as the task environment or the general environment* The Task Environment

Sectors that the organization interacts with directly to achieve goals Typically the “industry” and market sectors Human Resources International Sector Raw Materials Sector

* General Environment* Sectors that might not have a direct impact on the daily operations of a firm Government sector: regulation Sociocultural sector: the green movement Economic conditions: global recession Technology sector: massive and constant changes Financial resources Extremely important to entrepreneurs

* International Environment* Can directly affect many organizations* Has grown in importance* Distinction between foreign and domestic operations* All organizations face domestic and global uncertainty

* The Changing Environment* The dimensions of the environment range: Unstable Homogeneous

Heterogeneous Simple Complex* The dimensions boil down to: The need for information about the environment The need for resources from the environment

* Dimensions of the Environment* Simple-complex: heterogeneity; the number of dissimilarity of external elements

* Stable-Unstable: whether elements in the environment are dynamic

* Framework for Assessing Environmental Uncertainty

* Adapting to a Changing Environment* Organizations need the right fit between internal structure and the external environment Adding Positions and Departments Building Relationships

Boundary-spanning roles Business intelligence

Differentiation and Integration the differences in cognitive and emotional orientations among managers in

different functional departments the quality of collaboration between departments

Organic vs. Mechanistic Management Process Planning, Forecasting, and Responsiveness

* Organizational Departments Differentiate to Meet Needs of Sub-environments* Different Goals and Orientations among Departments

* Environmental Uncertainty and Organizational Integrators* Mechanistic and Organic Forms

* Tasks are specialized* Tasks are rigidly defined* Strict hierarchy of authority and control* Knowledge and control of tasks are centralized* Communication is vertical* Employees contribute to the common task of the department* Tasks are adjusted and redefined through teamwork* Less hierarchy of authority and control* Knowledge and control of tasks are located anywhere in the organization* Communication is horizontal

* Contingency Framework for Uncertainty and Organizational Responses* Dependence on External Resources

Resource-dependence perspective means organizations depend on the environment Strive to acquire control over resources to minimize dependence Organizations are vulnerable if resources are controlled by other organizations Minimize vulnerabilities

Will team up with others when resources are scarce* Influencing External Resources

* Balance linkages and independence* Reach out and change or control elements in the environment

• Establish favorable relationships with key elements of the environment• Shape the environment by influencing key sectors

* Organizing Strategies for Controlling the External Environment

* Environmental Characteristics and Organizational Actions

* Design Essentials Change and complexity have major implications for organizations Organizational environment differs regarding uncertainty and resource dependence The goal for organizations is managing efficiencies and survival Managers must understand how the environment influences the structure of an organization When risk is great, organizations can attempt to change or influence the environment Organizations can learn and adapt to the environment

• Interorganizational Relationships• Overview• Organizational Ecosystems• Is Competition Dead?• The Changing Role of Management• A Framework for Interorganizational Relationships

– Resource Dependence– Collaborative Networks– Population Ecology– Institutionalism

• Organizational EcosystemsInterorganizational relationships – resource transactions, flows, and linkages that occur among

two or more organizations

Organizational ecosystem – a system formed by the interaction of a community of organizations and their environment

• Megacommunity approach• Is Competition Dead?• Traditional competition no longer exists

– a single company competing for supremacy with other stand-alone businesses• A new form of competition is intensifying.• Companies must co-evolve with others in the ecosystem so that everyone gets stronger.• The changing pattern of relationships and interactions in an ecosystem contributes to the

health and vitality of the system as a whole.• In an organizational ecosystem, conflict and cooperation exist at the same time.• Organizational Ecosystem• The Changing Role of Management In ecosystems, managers move beyond traditional responsibilities Managers must think about horizontal processes rather than vertical structures

Including linkages with suppliers and customers The old way of management relied on operations roles, defending the organization’s

boundaries, and maintaining direct control over resources. Today, collaborative roles are becoming more important for success

• A Framework for Interorganizational Relationships

• The models and perspectives for understanding interorganizational relationships help managers change their role from top-down management to horizontal management. – Relationships among organizations can be characterized by whether the

organizations are similar or dissimilar, and whether the relationships are competitive or cooperative.

• By understanding these perspectives, managers can assess their environment and adopt strategies to suit their needs

• A Framework for Interorganizational Relationships

• Resource Dependence• Organizations try to minimize their dependence on other organizations for the supply of

important resources and try to influence the environment to make resources available. • In this view, organizations strive for independence and autonomy.• Dependence is based on the importance of the resource and how much discretion those who

control the resource have over its allocation. • Organizations with this awareness tend to develop strategies to reduce dependence on the

environment, and learn how to use their power• Resource Dependence• Many organizations develop close relationships with key suppliers to gain control over

necessary resources. • Supply chain is a network of multiple businesses and individuals that are connected

through the flow of products or services.• Supply chain management refers to managing the sequence of suppliers and purchasers,

covering all stages of processing from obtaining raw materials to distributing finished goods to consumers.

• Formalizing collaborative supply chain relationships can help organizations obtain and use resources more efficiently and improve performance.

• A Basic Supply Chain Model• Resource DependencePower Implications

• Large, independent companies often have power over small suppliers.

• Suppliers are asked to absorb more costs, ship more efficiently, and provide more services than ever before, sometimes without a price increase.

• The suppliers may have no choice but to go along, and those who fail to do so may go out of business.

• Collaborative Networks• Collaborative NetworksFrom Adversaries to Partners • With the push from international competitors, managers are shifting to a new partnership

paradigm on which to base their relationships.

• Trust and interdependence are the base of the new model.

• Partners are involved in each other’s product design and production, and invest for the long term.

• By breaking down boundaries and becoming involved in partnerships with an attitude of fair dealing and adding value to both sides, today’s companies are changing the concept of what makes an organization.

• Changing Characteristics of Interorganizational Relationships• Population Ecology

• This perspective focuses on organizational diversity and adaptation within a population of organizations. – A population is a set of organizations engaged in similar activities with similar

patterns of resource utilization and outcomes.

• According to the population-ecology view, the changing environment determines which organizations survive or fail. – When rapid change occurs, old organizations are likely to decline or fail, and new

organizations emerge that are better suited to the needs of the environment.

• The model is developed from theories of natural selection in biology, and the terms evolution and selection are used to refer to the underlying behavioral processes.

• Population EcologyOrganizational Form and Niche

• The population-ecology model is concerned with organizational forms.

• Form is an organization’s specific technology, structure, products, goals, and personnel, which can be selected or rejected by the environment. – Organizational form must reflect the needs of a changing external environment.

• Each new organization tries to find a niche – Niche is a domain of unique environmental resources and needs sufficient to support

an organization• Population EcologyProcess of Ecological Change • There are three stages in the population ecology model.

– Variation occurs when new organizational forms appear in the population of organizations. • Initiated by entrepreneurs, established with venture capital by large

corporations, or set up by governments seeking to provide new services. – Selection refers to whether a new organizational form is suited to the environment

and can survive. – Retention is the preservation and institutionalization of selected organizational

forms. • The retained organizational form may become a dominant part of the

environment.• Elements in the Population-Ecology Model of Organizations• Population EcologyStrategies for Survival

• Another principle underlying the population ecology model is the struggle for existence, – Each organizational form is engaged in a competitive struggle to obtain sufficient

resources for survival.

• This competition is especially intense among new organizations, many of which fail to survive, but even institutionalized organizations are not necessarily permanent in the long run.

• Population EcologyStrategies for Survival

• A company that offers a broad range of products or services or that serves a broad market is a generalist.

• A company that provides a narrow range of goods or services or that serves a narrower market is a specialist. – Specialists are more competitive than generalists.

• The breadth of the generalist’s domain serves to protect the company from environmental changes.

• Institutionalism• The institutional perspective describes how organizations survive and succeed through

congruence between an organization and the expectations from its environment. – The institutional environment is composed of norms and values from stakeholder.

• This view believes that organizations adopt structures and processes to please outsiders, and these activities come to take on rule-like status in organizations.– Legitimacy is the perspective that an organization’s actions are desirable, proper,

and appropriate within the environment’s system of norms, values, and beliefs. • Institutional theory is concerned with the set of intangible norms and values

that shape behavior. – Once an industry becomes established, there is a push toward similarity.

• Isomorphism

• InstitutionalismThe Institutional View and Organization Design• This view sees organizations as having two essential dimensions—technical and

institutional. – The technical dimension is the day-to-day work, technology, and operating

requirements which is governed by norms of rationality and efficiency. – Institutional structure is that part of the organization most visible to the outside

public which is governed by expectations from the external environment. • InstitutionalismInstitutional Similarity • Institutional similarity (institutional isomorphism) is the emergence of a common structure

and approach among organizations in the same field, causing one unit in a population to resemble other units in the same set of environmental conditions.

• Three forces behind the change toward institutional similarity:

• With unclear goals, technology, and products or services, caused by great uncertainty, mimetic forces occur, which is the copying or modeling of other organizations.

– Benchmarking is a clear example of official copying, although when best practice techniques are duplicated, they may be improved.

• Institutionalism• Coercive forces are the external pressures exerted on an organization to adopt structures,

techniques, or behaviors similar to other organizations--sometimes with the force of law. – It occurs when organizations are dependent on each other, when there are political

factors such as rules, laws, and sanctions involved, or when a contractual or legal basis defines the relationship.

• Normative forces mean that organizations are expected to change for standards of

professionalism and to adopt techniques that are considered by the professional community to be up-to-date and effective.

• Three Mechanisms for Institutional Adaptation

• Design Essentials There has been an evolution in interorganizational relationships Organizations operate within an ecosystem Four perspectives have been developed to explain relationships among organizations Collaboration is an emerging alternative to resource dependence New organizations fill niches left open by established companies The institutional perspective notes that interorganizational relationships are shaped by

legitimacy as well as products/services

• Chapter 6

• Designing Organizations for the International Environment• Overview• Globalization

– Entering The Global Arena– Motivations for Global Expansion

• Stages of International Evolution• Global Expansion Through International Strategic Alliance• Strategies for Global vs. Local Opportunities• Building Global Capabilities• The Global Organizational Challenge• Global Coordination Mechanisms• Cultural Differences in Coordination and Control• National Approaches to Coordination and Control• The Transnational Model of Organization

• Globalization • Globalization by definition means that nations are becoming continuously more

interdependent as the asymmetries of individual countries rapidly disappear.

• The global economy which is an integral part of globalization is characterized by the quick and easy movement of people, knowledge, and ideas from country to country.

• Methods of communicating, managing, and competing are changing rapidly.

• Globalization• Market opportunities not even imaginable a decade ago are now realities.

• However, the global economy is also able to deliver new and more complex commercial threats to every business competing in this domain.

• Companies cannot compete in the 21st Century with 20th Century ideas or technology. • Entering The Global Arena

• Disruptive technologies can emerge with little or no warning and they can effectively convert an industry that was "cutting edge" yesterday into one that is "irrelevant and obsolete" today.

• Companies need top leaders who have a global outlook.

• TMTs must be flexible, objective, creative, and unbiased to new ideas, cultures, and technologies.

• Motivations for Global ExpansionMotivations for Global Expansion:• Economies of Scale• Economies of Scope• Low-Cost Production Factors

• The Global Economy as Reflected in the Fortune Global 500• Stages of International Evolution• Domestic stage

– The company is predominantly domestically oriented, but managers are developing initial international involvement, often to increase market potential.

• International (Multidomestic) stage – Exports are taken seriously and the company deals with the competitive issues of

each country separately.• Multinational

– The company has marketing and production facilities in many countries, worldwide access to capital, and has more than one-third of its sales outside the home country.

• Global stage – The company transcends any single country and does not identify with a single home

country.

• Stages of International Evolution

• Global Expansion Through International Strategic Alliance• Competing companies occasionally join forces in what is termed as a strategic alliance.

• These alliances offer unique opportunities to prosper through collaborative efforts rather than competing activities.

• A strategic alliance is a formal relationship between two or more corporations with a mutual set of goals. – (1) Licensing; (2) Joint Ventures; (3) Consortia

• Global Expansion Through International Strategic AllianceLicensing• Licensing agreements or other forms of short-term, contractually based agreements maintain the greatest individuality or distance between the two or more firms participating in the strategic alliance.• In these alliances the parties do not combine their management team, value chains, primary technologies, or other unique skills sets. • They often involve cross-marketing agreements, sharing outsourcing activities, and some form of mutual customer supply agreements.

– allowing another firm to market your brands• Global Expansion Through International Strategic AllianceJoint Ventures • Joint ventures require more confidence and trust than licensing agreements.• They generally involve sharing technologies, processes, various value-adding assets, and products that more closely align the two firms.

– Other cooperative agreements that are closely related to joint ventures but technically do not qualify as such include: coproduction agreements, research and development, or technology development arrangements, etc.

• Formal joint ventures usually designate the financial and technical commitment each party will contribute to a new entity or project.• Global Expansion Through International Strategic AllianceConsortia• Groups of independent companies join together to share kills, resources, costs, and access to one another’s markets.

– The keiretsu family of corporations - Japan – Chaebol - Korea

• Strategies for Global vs. Local Opportunities

• Global standardization versus local responsiveness– Globalization or multidomestic strategy

• Globalization strategy - products are standardized throughout the world

• Multidomestic strategy - competition is handled in each country independently• Fitting Organization Structure to International Advantages• Global Organization Structure International Division

Global Product Division Global Geographic Division Global Matrix Structure• International Division• When a company is low with respect to developing either a globalization or multidomestic

strategy, simply using an international division with the domestic structure is an appropriate way to handle international business.

• The international division has a status equal to the other major departments, and has its own hierarchy to handle international matters such as sales or opening subsidiary plants.

• Domestic Hybrid Structure with International Division• Global Product Division Structure• The product divisions take responsibility for global operations in their specific product

area.

• This structure works well with the globalization strategy, but often product divisions ignore certain countries and compete instead of cooperating in some countries.

• The use of country coordinators with a clearly defined role can overcome these problems.• Partial Global Product Structure• Global Geographic Structure• Each region reports directly to the CEO and has full control of functional activities in its

geographical area.

• Although this structure lends itself easily to exploiting opportunities for regional competitive advantages, problems may result from the autonomy of each regional division. – It is difficult to plan on a global scale because each division acts to meet only the

needs of its region. – It is difficult to introduce products developed offshore into domestic markets.– There is often duplication of line and staff managers across regions.

• Global Geographic Structure• Global Matrix Structure

• The global matrix structure is similar to the domestic matrix, although distances are greater and coordination is more complex.

• This complicated form would work best when there is balanced pressure for the interests of both product standardization and geographical localization and when coordination to share resources is important.

• Global Matrix Structure• Building Global Capabilities• Movement into the international arena means increased complexity and differentiation,

demanding the development of a structure to fit the numerous countries in which it operates.

More product differentiation = More internal organizational complexity

• As organizations become more differentiated managers face the challenge of coordination,

the quality of collaboration across the organizational units.• The Global Organizational Challenge• The Global Organizational Challenge• Organizations need to learn from their international experiences and exploit that learning to

create and leverage global organizational knowledge.

• Knowledge transfer is hindered by – language, cultural, and geographic distances– protection of one’s own division rather than cooperation– viewing knowledge as power and does not want to give up; – the reluctance to use knowledge from elsewhere due to pride; – much of an organization’s knowledge cannot be written down

• Comparison of Leading Multinational Companies and Selected Countries• Examples of Trickle-Up (Reverse) Innovation• Global Coordination Mechanisms Global Teams Headquarters Planning Expanded Coordination Roles

• Global Coordination MechanismsGlobal Teams (transnational teams)

• Global teams are work groups made up of multiskilled, multinational members whose activities span multiple countries. – Intercultural teams: members come from different countries and meet face to face – Virtual global teams: members conduct their work electronically.

• Cultural and language differences can create misunderstandings, and resentments and mistrust can quickly derail the team’s efforts.

• Global Coordination MechanismsHeadquarters Planning• The global headquarters takes an active role in planning, scheduling, and control to keep

the global organization working together and moving in the same direction.

• Without strong leadership, highly autonomous divisions can act like independent companies rather than coordinated parts of a global whole.

• Global Coordination MechanismsExpanded Coordination Roles

• Creating specific organization roles can help to integrate all the pieces. • Often the role of top functional manager is expanded to include responsibility for

coordinating across countries. – Country managers can coordinate across functions.

– The network coordinator coordinates information and activities related to key customer accounts.

• Benefits: cost savings, better decision making, greater revenues, and increased innovation. • Cultural Differences In

Coordination and Control• National culture is defined as the mental programming of a group of people.

• It is comprised of the values, customs, and belief systems shared by a group of people

• National cultures occasionally clash with Corporate cultures

• TMTs can guard against cultural clashes by developing a better understanding of the national culture of the “new” country in which they wish to compete.

• Hofstede’s 5 Dimensions of National Culture• Power distance: willingness of a culture to accept status and power differences among

members• Organizations tend to be more hierarchical and centralized with greater

control and coordination form the top. • Uncertainty avoidance: discomfort with risk and ambiguity

• Low uncertainty avoidance means that people have a high tolerance for the unstructured, the unclear, and the unpredictable.

• Individualism-collectivism: cultural tendency to emphasize individual or group interests• Masculinity-femininity: assertiveness/ competition versus interpersonal

sensitivity/relationships• Long-term/short-term orientation: the tendency of a culture to emphasize future-oriented

values versus present-oriented values.• Adoption of long-term or short-term performance horizons.

• Threats to Understanding Cultural Differences– Parochialism — assuming that the ways of one’s own culture are the only ways of

doing things

– Ethnocentrism — assuming that the ways of one’s culture are the best ways of doing things

• In Demand: Global Managers• Global managers

• Know how to conduct business in multiple countries• Are culturally adaptable and often multilingual• Think with a worldview and are able to map strategy in the global context• Have a global attitude: willingness to accept good ideas no matter where they

originate• Have a global mindset

• patience, flexibility, and cultural adaptability

• Considerations of Managing A Multicultural Workforce

• Failure rate of Americans in overseas assignments = 25%• Styles of leadership, motivation, decision making, planning, organizing, and controlling

vary from country to country• Domestic multiculturalism• Expatriates

• People who live and work abroad for extended periods of time• Can be very costly for employers• Progressive employers take supportive measures to maximize potential for expatriate

success• National Approaches to Coordination and Control• Centralized Coordination: Japanese Companies• Decentralized Approach: European Firms• Coordination and Control Through Formalization: The United States• Tradition in Chinese companies remains more family-oriented and relatively small• The Transnational

Model of Organization

• The transnational model exists for large multinational firms with subsidiaries in many countries that try to take advantage of both global and local advantages.

• The transnational model is more than just an organization chart.• It is a managerial state of mind, a set of values, a shared desire to make a worldwide

learning system work, and an idealized structure for effectively managing such a system.• International Organizational Units and Interlinkages within Philips NV • Transnational Organizations• Assets and resources are dispersed worldwide • Structures are flexible and ever-changing• Subsidiary managers initiate strategy and innovations that become strategy for the whole

organization• Corporate culture, shared vision, and management style guide the organization• Design Elements Managers must design organizations for complex international coordination Organizations’ international strategies and structures evolve There are diverse options for specific international strategies There are a variety of challenges for global organizations Diverse national and cultural values influence an organization’s approach Companies operating globally require broad coordination

• Chapter 7• Manufacturing and Service Technologies• Overview• Core Organization Manufacturing Technology

– Manufacturing Firms– Strategy, Technology, and Performance

• Contemporary Applications– The Digital Factory– Lean Manufacturing– Performance and Structural Implications

• Core Organization Service Technology– Service Firms– Designing the Service Organization

• Noncore Departmental Technology• Department Design• Workflow Interdependence among Departments• Impact of Technology on Job Design• Service and Manufacturing Technologies• Technology refers to the work processes, techniques, machines, and actions used to

transform organizational inputs into outputs.– Technology influences organizational structure– Technology includes machinery, employee education, and work procedures.

• An organization’s core technology is the work process that is directly related to the organization’s mission.

• A non-core technology is a department work process that is important to the organization but is not directly related to its primary mission.

• Core Transformation Process for a Manufacturing Company• Pressures Affecting

Organization Design• Manufacturing Firms• Joan Woodward discovered that technology was related to structure and performance, and

was based on technical complexity – Technological complexity represents the extent of mechanization of the

manufacturing process• Woodward's classic study classified manufacturing firms into three technology groups:

– small batch production (job shop, single orders)– large-batch or mass production (assembly line)– continuous process production (the entire process is mechanized)

• Woodward’s Classification Based on Systems of Production

• Manufacturing Firms• Mass production firms were formalized and centralized. They had larger span of control

and less-educated workers than small batch or continuous process technologies.

• Successful mass production organizations had mechanistic structures.

• Successful small-batch and continuous process organizations had organic structures. • Relationship between Technical Complexity and Structural Characteristics• Strategy, Technology, and Performance• Woodward studied the success of the firms along dimensions such as profitability, market

share, stock price and reputation.– Firms were ranked on a scale of commercial success according to whether they

displayed above average, average or below average performance on strong objectives.

– The results showed that successful firms had complementary structures and technologies.

• Today’s increased global competition means volatile markets, shorter product lifecycles, and knowledgeable consumers; and flexibility is a strategic imperative for companies. – Manufacturing companies can adopt new technologies to support the strategy of

flexibility. – The technological and human systems of an organization are intertwined.

• Contemporary ApplicationsThe Digital Factory • Computers and information technology have revolutionized all manufacturing - small

batch, large batch, and continuous process. – New manufacturing technologies include robots, numerically controlled machine

tools, RFID, wireless technology, and computerized software for design, engineering analysis, and remote control of machinery.

• Contemporary Applications• The ultimate automated factories are referred to as digital factories. The digital factory is

typically the result of several subcomponents.– Computer-aided design (CAD) uses computers to assist in the drafting, design, and

engineering of new parts. – Computer-aided manufacturing (CAM) increases the speed of manufacturing and

changing production setups by computer-controlled machines. – Integrated information network links all aspects of the firm with a common data

base. – Product life-cycle management (PLM) manages a product from idea through

development, manufacturing, testing, and maintenance in the field.

• Flexible Manufacturing Technology vs. Traditional Technologies• Contemporary ApplicationsLean Manufacturing• Lean manufacturing uses highly trained employees at every stage of the production

process, which take a painstaking approach to details and problem solving to cut waste and improve quality.

• Employees are trained to attack waste and strive for continuous improvement in all areas. • Lean manufacturing requires changes in organizational systems, such as decision-making,

management processes, and organizational culture.• Paved the way for mass customization

– Using mass-production technology to quickly and cost-effectively assemble individual goods for customers

• Performance and Structural Implications• The advantage of the digital factory (flexible manufacturing) is that products of different sizes, types and customer requirements freely intermingle on the assembly line.

• A manufacturer can turn out an infinite variety of products in unlimited batch sizes.

• The digital factory has a narrow span of control, few hierarchical levels, adaptive tasks, low specialization, and decentralization, and the overall environment is organic. • Comparison of Organizational Characteristics• Service Firms• Service technologies are different from manufacturing technologies and require different

organizational design– Education, health care, transportation, and banking all have unique dimensions

• All organizations can be classified along a continuum that includes both manufacturing and service characteristics.

• Service firms have always tended toward providing customized output, that is, providing exactly the service each customer wants and needs.

• Service Firms• Service technology has eight elements

– Services have intangible output• Intangible output means that a service is abstract, such as information or

knowledge. – Simultaneous production and consumption

• Clients of services consume the output of the organization at the same time it is produced, and the product does not exist until it is requested by the customer.

– Labor and knowledge intensive– Interaction between customer and employee– Human element is extremely important– Quality of a service is perceived and cannot be directly measured– Rapid response time affects satisfaction and perception of quality– Site selection is often much more important than with manufacturing

• Core Organization Service Technology• Trend Toward Lean Services

• Customer expectations are rising

• Expectations have required that service firms must become lean to cut waste and improve customer service

• Adopt continuous improvement approach• Structural Characteristics of Service Organizations vs. Product

Organizations• Designing the Service Organization• Boundary roles and structural disaggregation are used less in service firms because a

service is intangible and cannot be passed along by boundary spanners, – Service customers must interact directly with technical employees, such as doctors

or brokers.• Service technology influences internal characteristics that direct and control the

organization. • Service organizations are not necessarily large• Often small locations, close to customers• Service organizations require technical core employees – close to customer• Service customers interact directly with technical employees• The skills of technical core employees must be higher• Employees need knowledge, awareness, and interpersonal skills• Decision making is often decentralized, and formalization is low• Noncore Departmental Technology• Every department in an organization has a production process

– Variety refers to the number of exceptions, problems, or novel novel events that occur in the department's work

– Analyzability refers to the extent to which the work is mechanical, clear cut, and follows an objective, computational procedure. Work that requires intuition and judgment is not analyzable.

• The framework includes four quadrants: – Routine technologies are characterized by little task variety and the use of objective

computational procedures.– Craft technologies are characterized by a fairly stable stream of activities, but the

conversion process is not analyzable or well understood.– Engineering technologies are high in variety but analyzable.– Nonroutine technologies are not analyzable and high in variety.

• Framework for Department Technologies• Department Design• Overall design is either organic or mechanistic.• Routine technologies have a mechanistic structure, with formal rules and rigid management

processes.• Nonroutine technologies have an organic structure, and management is flexible. • Internal variables that can be adjusted to the technology include formalization,

centralization, worker skill level, span of control, and communication and coordination.– Departments differ according to their workflow technology.– Structural and management processes differ based on departmental technology.

• Relationship of Department Technology to Structural and Management Characteristics• Workflow Interdependence

Among Departments

• Interdependence refers to the extent to which departments depend on each other for resources or materials to accomplish their tasks.

• Low interdependence means that departments can do their work independently.• High interdependence means departments depend on each other.• Thompson defined three types of technology interdependence that influence structure:

– Pooled interdependence – Sequential interdependence– Reciprocal interdependence

• Workflow Interdependence Among Departments

• Pooled interdependence – All departments contribute to the organization but do not interact directly with each

other. Pooled interdependence is associated with mediating technology, which mediates or links clients from the external environment (banks, real estate offices).

• Sequential interdependence – The outputs of one department become the inputs to the next department. Sequential

interdependence is associated with long-linked technology in which each stage of production is dependent on the previous stage (assembly lines).

• Reciprocal interdependence – Departments exchange resources and information simultaneously in both directions.

Reciprocal interdependence is found with intensive technology in which the client becomes the object of the conversion process or receives a combination of services (hospitals, universities).

• Interdependence and Management Implications

• Interdependence of Departments Involved in the Flight Departure Process• Structural Priority and Implications Reciprocal interdependence should receive first priority in organization structure because

decision making, communication, and coordination problems are the greatest Reciprocal activities should be grouped together Poor coordination will cause poor performance Organizations should be designed to address interdependence• Coordination for Interdependence• Relationship of Interdependence and Team Play Characteristics• Impact of Technology on Job DesignTechnology impacts:• Job Design• Sociotechnical systems Job Design Job Simplification Job Rotation Job Enrichment Job Enlargement• Impact of Technology on Job Design

• Job design includes the assignment of goals and tasks to be accomplished. • Job rotation involves moving employees from job to job for variety. • Job simplification reduces the variety and difficulty of tasks performed by a single

individual. • Job enrichment uses technology to increase responsibility, recognition, and opportunities

for achievement. – New computer-based manufacturing systems provide many opportunities for job

enrichment, or jobs with higher level mental and social skills requirements. • Job enlargement is an expansion of the number of different tasks performed by an

employee, made possible by technology that demands fewer workers on a given task.• Sociotechnical Systems• The sociotechnical systems approach combines the needs of people with the needs of

technical efficiency.

• The goal of this approach is to design the technology so that the needs of people and efficiency fit one another for joint optimization.

• Scholars today are arguing for an expansion of the sociotechnical approach to capture the chaotic environment and the shift from routine to nonroutine jobs brought about by advances in information technology.

• Sociotechnical Systems Model• Design Essentials Key research notes that technology and structure can be co-aligned Service technologies differ in a systematic way from manufacturing technologies It is important to apply the correct management system to a department Interdependence among departments dictates the amount of communication and

coordination required in design New technologies are enriching jobs to make organizations a happier place to work Sociotechnical system theory attempts to design systems that meet technical and human

aspects