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

Organizations & Organization Theory

Overview

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 organizations 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 organizations 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 organizations 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 organizations 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 organizations 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.

Mintzbergs 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.

Mintzbergs 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

Todays 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 todays managers

Strategy, Organization Design, and Effectiveness Overview The Role of Strategic Direction in Organization Design Organizational Purpose Vision and Mission Strategy Organizational Operating Goals The Importance of Goals A Framework for Selecting Strategy and Design Porters Competitive Strategies Miles and Snows Strategy Typology How Strategy Affects Organization Design Contingency Factors Affecting Organization Design Assessing Organizational Effectiveness The Role of Strategic Direction in Organization Design The primary responsibility of top management team (TMT) is to determine an organizations 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 Purpose Strategic intent - organizations 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 Mission The 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 firms 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. Vision A 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." Mission The 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 Strategy A 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 goals Organizational 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 Goals Organizational 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. LOreal SA, the worlds largest cosmetics company, has a goal of doubling its clientele by 2020. Organizational Operating Goals Employee 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 Goals A 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 design Models exist to aid in formulating strategy: Porters Competitive Strategies Miles and Snows Strategy Typology Porters Competitive Strategies Porters 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.

Porters Competitive Strategies Miles and Snows 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.

Prospector; Defender; Analyzer; and Reactor Miles and Snows Strategy Typology Prospector Involves innovation, taking risks, seeking out new opportunities and growth Learning orientation; flexible, fluid, decentralized structure Defender Involves retrenchment, beyond just stability, by seeking to keep current customers without innovation or growth. Efficiency orientation; centralized authority and tight cost control Emphasis on production efficiency, low overhead Miles and Snows Strategy Typology Analyzer Lies between the prospector and defender Balances efficiency and learning; tight cost control with flexibility and adaptability Emphasis on creativity, research, risk-taking for innovation Reactor No 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 firms competitive strategy Contingency Factors Affecting Organization Design Assessing Organizational Effectiveness Organizational effectiveness is the degree to which an organization realizes its multiple goals.

Four strategies can be developed:

Assessing Organizational Effectiveness Four approaches to measuring effectiveness look at different parts of the organization and measure indicators connected with outputs, inputs, or internal activities. Measuring Effectiveness:

The Strategic Constituents Approach Indicators of Organizational Effectiveness Approaches to Measuring Organizational Effectiveness Assessing 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 Effectiveness The 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 Effectiveness The 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 organizations 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 Model

The Goal Approach The Resource-Based Approach The Internal Process Approach

The 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 Values Effectiveness Values for Two Organizations

Chapter 3 Fundamentals of Organization Structure Overview Organization Structure Organization Chart Information-Sharing Perspective on Structure Vertical Information Sharing Horizontal Information Sharing Organization Design Alternatives Application of Structural Design Organization Structure Three key components pertaining to both vertical and horizontal aspects of organizing define structure: Formal Reporting Relationships Number of levels Span of control Grouping of Individuals Creation of departments Design of Systems Communication, 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 Chart Information-Sharing Perspective on Structure

The organization should be designed to provide both vertical and horizontal information flow to accomplish the organizations overall goals. Traditional organization designed for efficiency Vertical communication and control Centralized authority focused on top level decision-making Learning organization emphasizes horizontal communication and collaboration

A relaxed hierarchy and adaptation Decentralized authority focused on shared tasks and decisions Efficiency vs. Learning Outcomes Vertical 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 command The 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-

Relational Coordination Horizontal Information Sharing Information systems Cross-functional information systems enable employees to routinely exchange information. Liaison Roles Higher 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 forces

Information Systems Liaison Roles Task Forces Full-Time Integrator Teams

As 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 Sharing Full-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. Teams Teams 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 Coordination Relational 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 Structure Teams and Horizontal Coordination Horizontal Coordination and Linkages Organization Design Alternatives Required Work Activities Departments are created to perform strategically important tasks. Reporting Relationships The 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: Functional Divisional Multi-focused (matrix or hybrid) Horizontal Virtual 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 departments

Divisional: 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 Structure Matrix 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 Organization Matrix: 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 boundaries

Sample 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 organizations 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 improvement Horizontal: Strengths & Weaknesses Virtual 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 experts

Virtual Network Example Virtual Network Strengths and Weaknesses Hybrid Structure

Combination of various structure approaches Tailored to specific needs Often used in rapidly changing environments Greater flexibility
Application of Structural Design Each structure meets different needs and is a tool that can help managers to be more effective Structural alignment aligns structure with organizational goals Symptoms of Structural Deficiency: Decision making is delayed or lacking in quality The organization does not respond innovatively to a changing environment Employee performance declines and goals are not being met Too much conflict is evident. Relationship of Structure to Organizations Need for Efficiency vs. Learning

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The External Environment

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The Organization Environment The Task Environment General Environment International Environment The Changing Environment Dimensions of the Environment

Overview

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

Organizations Domain is the chosen environmental field of action. It defines the organizations 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

Government sector: regulation Sociocultural sector: the green movement Economic conditions: global recession Technology sector: massive and constant changes Financial resources
Extremely important to entrepreneurs

Sectors that might not have a direct impact on the daily operations of a firm

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Has grown in importance

International Environment

Can directly affect many organizations

Distinction between foreign and domestic operations All organizations face domestic and global uncertainty

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Unstable Homogeneous Heterogeneous Simple Complex

The Changing Environment

The dimensions of the environment range:

The need for information about the environment The need for resources from the environment

The dimensions boil down to:

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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

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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

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Different Goals and Orientations among Departments

Environmental Uncertainty and Organizational Integrators

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Tasks are specialized Tasks are rigidly defined

Mechanistic and Organic Forms

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

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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

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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 Ecosystems Interorganizational 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 organizations 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 Dependence Power 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 Networks From 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 others 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, todays 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 Ecology Organizational Form and Niche The population-ecology model is concerned with organizational forms. Form is an organizations 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 Ecology Process 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 Ecology Strategies 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 Ecology Strategies 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 generalists 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 organizations actions are desirable, proper, and appropriate within the environments system of norms, values, and beliefs.

Institutional theory is concerned with the set of intangible norms and values that shape behavior. Isomorphism

Once an industry becomes established, there is a push toward similarity.

Institutionalism The Institutional View and Organization Design This view sees organizations as having two essential dimensionstechnical 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.

Institutionalism Institutional 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 Expansion Motivations 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 Alliance Licensing

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. of mutual customer supply agreements.

They often involve cross-marketing agreements, sharing outsourcing activities, and some form

allowing another firm to market your brands

Global Expansion Through International Strategic Alliance Joint 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 Alliance Consortia Groups of independent companies join together to share kills, resources, costs, and access to one anothers 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 ones 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 organizations 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 Mechanisms Global 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 teams efforts.

Global Coordination Mechanisms Headquarters 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 Mechanisms Expanded 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. Hofstedes 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 ones own culture are the only ways of doing things Ethnocentrism assuming that the ways of ones 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 organizations 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 organizations core technology is the work process that is directly related to the organizations 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)

Woodwards 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.

Todays 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 Applications The 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 Applications Lean 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. 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.

Simultaneous production and consumption

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 Organizations Service Organizations vs. Product

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 Design Technology 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