Chapter 17 - Organizational Design, Effectiveness, and Innovation

CHAPTER 17
ORGANIZATIONAL DESIGN, EFFECTIVENESS, AND
INNOVATION

CHAPTER SUMMARY
An organization is defined as a system of consciously coordinated activities or forces of two or more
persons. All organizations have in common: coordination of effort, a common goal, division of labor, and
a hierarchy of authority. These factors represent the organization’s structure. Traditionally, managers
have maintained the hierarchy of authority by adhering to the unity of command principle.

An organization chart is a graphic representation of formal authority and division of labor relationships.
It indicates the hierarchy of authority, division of labor, span of control, and line and staff positions. Span
of control refers to the number of people reporting directly to a given individual. That authority rests with
the line managers. A closed system is a relatively self-sufficient entity. That is, it is closed to the
surrounding environment. An open system must constantly interact with the environment to survive.

A learning organization is one that proactively creates, acquires, and transfers knowledge and that
changes its behavior on the basis of new knowledge and insights. Learning organizations actively try to
infuse their organizations with new ideas by scanning their external environments. New knowledge is
transferred throughout the organization and behavior is changed as a result.

Traditional designs include functional structures, in which work is divided according to function;
divisional structures, in which work is divided according to product or customer type or location; and
matrix structures, with dual reporting structures based on product and function. Organizations also may
be designed horizontally, with cross-functional teams responsible for entire processes. Organization
design also may reduce barriers between organizations, creating hollow organizations that outsource
functions, modular organizations that outsource the production of a product’s components; or virtual
organizations that temporarily combine the efforts of members of different companies in order to
complete a project.

British researchers Burns and Stalker found that mechanistic (bureaucratic, centralized) organizations
tended to be effective in stable situations. In unstable situations, organic (flexible, decentralized)
organizations were more effective. These findings underscored the need for a contingency approach to
organization design. Figure 17-4 illustrates four ways to assess organizational effectiveness, which can be
used in varying combinations. No single approach is appropriate in all circumstances or for all
organizations. The first approach, goal accomplishment, is the most widely used. Key organizational
results or outputs are compared with previously states objectives. Effectiveness is measured by how well
the organization meets or exceeds its goals. According to the second approach, resource acquisition, an
organization is effective if it acquires necessary factors of production. The internal processes criterion
deems the organization effective if information flows smoothly and if employee loyalty, commitment,
job satisfaction, and trust predominate. Finally, the strategic constituencies satisfaction approach
considers the happiness of key strategic constituencies to be the appropriate effectiveness criterion. A
strategic constituency is any group of people with a stake in the organization’s operation or success.
These strategic constituencies generally have competing or conflicting interests and it is up to
management to balance the opposing demands.

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Organizational decline represents a decrease in an organization’s resource base where resources can be
money, talent, customers, or innovative ideas. Decline is almost unavoidable unless deliberate steps are
taken to prevent it, which is possible if one recognizes the early warning signs of decline. However, the
time to prevent organizational decline is when everything is going right. According to the contingency
approach to organization design, organizations are more effective when they are structured to fit the
demands of the situation. This process requires assessing the degree of environmental uncertainty and
then using various organization design configurations to achieve an effective fit with the environment.

LECTURE OUTLINE
00000000I. Organizations: Definition and Perspectives (PPt Slides: 4-11, Supplemental PPt Slides: 34-40, Self-
Exercise: Organization Design Field Study, and Group Exercise: Designing an Organization apply here)
A. What Is an Organization?
1. The four common denominators of all organizations are: coordination of effort, a
common goal, division of labor, and a hierarchy of authority.
B.0 Organization Charts
1. Organization charts depict four basic dimensions of organizational structure: the
hierarchy of authority, the division of labor, spans of control, and line and staff positions.
C. An Open-System Perspective of Organizations
1. Open systems are capable of self-correction, adaptation, and growth due to characteristics
such as homeostasis and feedback control.
D.0 Learning Organizations
1. A learning organization is a group of people working together to collectively enhance
their capacities to create results that they truly care about.
2.0 Learning organizations try to promote new ideas and information by scanning their
external environments, transferring new knowledge throughout the organization,
reducing barriers to sharing information, and changing behavior.
II.00 Organization Design in a Changing World (PPt Slides: 12-14)
A. Traditional Designs
1. Organizations defined by the traditional approach tended to have functional, divisional,
and/or matrix structures
a. A functional structure groups people according to the business functions they
perform,
b. In a divisional structure, the organization groups together activities related to
outputs, such as type of product or type (or location) of customer.
c. Organizations use matrix structures when they need stronger horizontal alignment
or cooperation in order to meet their goals.

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B.0 Horizontal Design

1. The horizontal approach to organizational design tends to focus on work processes.
a. Organize around complete workflow processes rather than tasks.
b. Flatten hierarchy and use teams to manage everything.
c. Appoint process team leaders to manage internal team processes.
d. Let supplier and customer contact drive performance.
e. Provide required expertise from outside the team as required.
C. Designs that Open Boundaries Between Organizations
1. Hollow structure- A hollow organization results from strategic application of the
the trend toward outsourcing.
2. Modular structure- A modular organization uses outsourcing, but instead of outsourcing
processes, it outsources parts of a product.
3. Virtual structure-an organization may identify partners to create a virtual organization
that is often temporary.
III. Mechanistic Versus Organic Organizations PPt Slides: 15-17 apply here)
A. Mechanistic organizations are rigid bureaucracies with strict rules, narrowly defined tasks,
and top-down communication.
B. Organic organizations are flexible networks of multitalented individuals who perform a
variety of tasks.
C. Each of the mechanistic-organic characteristics is a matter of degree.
IV. Organizational Effectiveness (and the Treat of Decline) (PPt Slides: 16-20 apply here)
A. Generic Organizational-Effectiveness Criteria
1. Figure 17-4 illustrates the four ways to assess organizational effectiveness. They are:
goal accomplishment, resource acquisition, internal processes, and strategic
constituencies satisfaction.
2. In the goal accomplishment approach, key organizational results or outputs are compared
with previously states objectives. Effectiveness is measured by how well the organization
meets or exceeds its goals.
3. According to the resource acquisition approach an organization is effective if it acquires
necessary factors of production (e.g., raw materials or labor).
4. The internal processes criterion deems the organization effective if information flows
smoothly and if employee loyalty, commitment, job satisfaction, and trust predominate.
5. The strategic constituencies satisfaction approach considers the happiness of key
strategic constituencies to be the appropriate effectiveness criterion.
B. Multiple Effectiveness Criteria: Some Practical Guidelines
1. Experts recommend a multidimensional approach to assessing organizational
effectiveness. Multiple criteria are necessary to fulfill the requirements of each situation.
C. The Ever-Present Threat of Organizational Decline

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1. Organizational decline is almost unavoidable unless deliberate steps are taken.

2. The early warning signs of decline include excess personnel, tolerance of incompetence,
cumbersome administrative procedures, disproportionate staff power, replacement of
substance with form, scarcity of clear goals and decision benchmarks, fear of
embarrassment and conflict, loss of effective communication, outdated organizational
structure, increased scapegoating by leaders, resistance to change, low morale, special
interest groups are more vocal, and decreased innovation.

OPENING CASE SOLUTION

1. Why is the existence of federations growing?
In federations companies can exchange much more than their knowledge, profits, or workers. They also share
access to parts of their info tech systems. “For the companies that can figure out [how to coordinate
federations],” says Hagel, “it’s a massive opportunity.”

OB IN ACTION CASE SOLUTION

1. Which of the seven organizational designs is Irdeto using? Explain your rationale.

Irdeto is one of a growing number of companies testing new corporate structures as their businesses get too
complex and global to be run from one place. Irdeto has become geographically dispersed and has had to
change its structure to cope with the fact that employees are no longer collocated but now span multiple time
zones and often have essentially zero face time with one another.

2. Is Irdeto moving to a more mechanistic or organic structure? How can you tell?

Mechanistic organizations are rigid bureaucracies with strict rules, narrowly defined tasks, and top-down
communication, whereas organic organizations are flexible networks of multitalented individuals who
perform a variety of tasks. Irdeto has had to become more flexible in a variety of ways given its geographic
dispersion and so has become more organic through the change.

3. Based on the contingency approach to designing organizations, which of the seven designs do you think
is most appropriate for Irdeto? Discuss you rationale.

Student opinions will vary.

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4. Why are employees in Amsterdam resisting the organizational redesign?

Although management is working to make sure employees in the Amsterdam location are assured of their
value, organizational change will almost always lead to some resistance by the affected party as discussed in
detail in Chapter 18 of the textbook.

5. How important is the role of information technology toward the success of Irdeto’s organizational
redesign? Explain.

Information technology is central to how Irdeto is managing its geographic dispersion. Video conferencing
and other tools are being used to offset some of the dilemmas brought about by a lack of fact to face
interaction within the organization.

6. What is your most important take away from this case?

Student takeaways will vary.

INSTRUCTIONAL RESOURCES
1. Some great material for classroom discussion or matrix design issues can be found in: Designing
Matrix Organizations that Actually Work: How IBM, Proctor & Gamble and Others Design for
Success by Jay R. Galbraith, 2008, Jossey-Bass.
2. See “Topic 11: Organizational Structure and Technology” by A. Johnson and A. Kinicki in An
Instructor’s Guide to an Active Classroom, 2006, McGraw-Hill/Irwin.
3. See M. Trefry, “The Carrier Truck: An Exercise Exploring Organizations as Open Systems” in
Journal of Management Education, 2002, Vol. 26 No. 4, pp. 462-481.
4. See M. Tucker and C. Tromley, “The Northern Spotted Owl and the Tragedy of the Commons:
Stakes and Stakeholders” in Journal of Management Education, 2002, Vol. 26 No. 1, pp. 99-
114.
5. See R. Schwering, “The IT Audit Assignment: Viewing Technology in the Organizational and
Strategic Context” in Journal of Management Education, 2002, Vol. 26 No. 4, pp. 344-355.
6. See “Increasing Student Interest and Comprehension of Production Planning and Control and
Operations Performance Measurement Concepts Using a Production Line Game” by J. Cox and
E. Walker in Journal of Management Education, 2005, 29(3), pp. 489-511.

TOPICAL RESOURCES
1. See “The impact of organizational learning on relationship orientation, logistics service
effectiveness and performance.” by: P. Panayides in Industrial Marketing Management, 2007,
36, pp. 68-80.
2. See M. Schilling and H. Steensma, “The Use of Modular Organizational Forms: An Industry-
Level Analysis” in Academy of Management Journal, 2001, Vol. 44 No. 6, 1149-1168.
3. See “Built to Change: How to Achieve Sustained Organizational Effectiveness.” by J. Kohnen in
Quality Management Journal, 2006, 13, p. 50..
4. See “Effect of department structure on the organizational citizenship behavior-department
effectiveness relationship.” by T. DeGroot and A. Brownlee in Journal of Business Research,
2006, 59, p1116-1123.

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5. See J. Child and R. McGrath, “Organizations Unfettered: Organizational Form in an Information-

Intensive Economy” in Academy of Management Journal, 2001, Vol. 44 No. 6, 1135-1148.

VIDEO RESOURCES
1. For this chapter there is an accompanying supplementary video “BP: Building a Global Brand”
(14:03).
2. Contingency organizational design is the theme of the film, "Changing Organizations: Designing
for People and Purpose," (Document Associates).
3. Applying contingency organization design is the subject of the film, "Organizing for Successful
Project Management," (Britannica).
4. The differences between mechanistic and organic designs are explored in “Organizational
Design” (Insight Media).

DISCUSSION QUESTIONS
1. What’s the best size for an organization? Upon what factors did you base your response?
2. Distinguish between new-style and old-style organizations.
3. As a top manager, what would you do to prevent organizational decline? Be specific. When
should you start?
4. Create your own organizational metaphor.
5. Is the unity of command principle applicable in today’s organizations? Explain your response.
SUPPLEMENTAL EXERCISE 1: COMPANY OF IDEAS1
APPLICATION

In the short case presented below, former CEO Jack Welch described his vision of an organization.
Welch operated from an open-system perspective. Discussion questions follow the case.

***

Picture a building. Companies all added floors as they got bigger. Size adds floors. Complexity adds
walls. We all built departments--transportation departments, research departments. That's complexity.
That's walls. The job all of us have in business is to flatten the building and break down the walls. If we
do that, we will be getting more people coming up with more ideas for action items that a business needs
to work with.

Not every idea is a capital idea. A breakthrough in biotech--that's the wrong view of an idea. An idea is
an error-free billing system. An idea is taking a process that requires six days and getting it done in one.
Everyone can contribute--every single person. The people who process the work in general have better
ideas than those in the office, far better ideas. The key is to give them respect, dignity. When you spend
three days in a room with people mapping a process, the ideas just about bubble up inside. Just give them
respect – everybody in the organization – and the improvement is enormous.

1
Excerpted from Jack Welch, “Create a Company of Ideas,” Fortune, December 30, 1991, pp. 25-26.
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What we do is give people the right of voice and demand responsibility. Those two things do wonders
for you. They get rid of gripe sessions. Somebody says, "We didn't do it this way; I told my boss we
should have done it this way." Wait a minute. You participated in the process. You played in the whole
game. It was your responsibility to either win the argument or, if you lost it, go with it, not to complain –
because we gave you voice.

Neatness and orderliness are not what we are after. We are after getting information to people who can
act on it. Think about the regional manager in sales. Why do we have offices for regional managers.
What do they do in those offices? We have all built these things to be neat, because those managers have
to give reports back to somebody else. If instead they were out taking the pulse of that market every
single minute – feeling it, touching it, grabbing it, and getting the information to somebody who could do
something about it rather than read it – then you would have what you want. You would have the ability
to deliver and go head to head with competition and win.

All we have to do is open up, give people a chance, get them in the process, and I am convinced we can
make quantum leaps. But we can't rest. Because while many American companies are improving
dramatically against themselves, globally we still have a hell of a long way to go to win this game.

DISCUSSION QUESTIONS

1. Did Jack Welch operate from a new-style or an old-style organizational perspective? Did
Welch create a mechanistic or an organic organizational structure at GE? Be prepared to
support your responses.

2. Do you think Jack Welch's approach to organizations will help companies compete more
effectively in global markets? Why or why not?

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SUPPLEMENTAL EXERCISE 2: DO YOU BELONG TO A LEARNING

ORGANIZATION?1
APPLICATION

The quiz presented below may be used to determine whether a student’s employer (past or present)
qualifies as a learning organization. Ask students to select an organization to rate. Possible alternatives
include the entire company, department, or work group. The only stipulation is that the organization have
an identifiable leader. The handout presented on the following page includes 20 statements. Quiz-takers
are asked to rate the organization according to how true each statement is relative to the current state of
the organization, from 1 (Not True) to 5 (Very True). Sum each score to obtain an organizational learning
score. A variation would be to include additional ratings of the desirability of each of the 20 statements
and then compare the current state of affairs with the desired state of affairs.

***

1
Adapted from C. Wick and L. Leon, “From Ideas to Action: Creating a Learning Organization,” Human Resource
Management, Summer 1995, Vol. 34 No. 2, pp. 299-311.
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DO YOU BELONG TO A LEARNING ORGANIZATION?

DIRECTIONS: Using the scale provided below, rate the current state of affairs in your selected
organization. Next, sum across all items to obtain an overall organizational learning score.

NOT TRUE VERY TRUE

1 2 3 4 5

1. Our leader has a clear vision. _____

2. Our leader’s vision is clearly communicated and understood by all. _____

3. Our leader is admired by the troops. _____

4. Our leaders walk their talk. _____

5. We have a clear plan to transform our vision into reality. _____

6. We effectively measure our processes, progress, and results. _____

7. Results of our metrics are shared rapidly and widely. _____

8. External and internal customer requirements are clearly understood. _____

9. Our customers are involved in the design and development of our products or services. _____

10. We routinely learn from the best practices of other companies whose capabilities are better than ours
in critical areas. _____

11. We avoid the problem of “not invented here” by using the good ideas of others. _____

12. Other company’s learnings are quickly transmitted and acted on. _____

13. We rapidly identify a best practice in one part of our organization and share it so it can be used by
another part of our organization. _____

14. Our people readily share their good ideas with others to help our organization be more successful.
_____

15. The training we do is actively supported by the work environment. _____

16. We often accept challenges even when not sure how to meet them. _____

17. We are inventive in how we meet our challenges. _____

18. We hold people accountable, but do not punish “mistakes.” _____

19. We are a “make it happen” organization. We have a bias toward action and take pride in our
accomplishments. _____

20. We find work fun. _____

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SUPPLEMENTAL EXERCISE 3: ROBERTA AND THE LAST STRAW1

APPLICATION

This continuing case started in Chapter 1 with "Introduction to Roberta." In order to make this case as
effective as possible, it is a good idea to have students at least read the introductory case. It provides the
background information needed to understand the situation fully. Although the cases are written in
chronological order following the Chapters, only the Chapter 1 case is needed in order to understand
subsequent installments.

In this case, Roberta is caught in the middle during a badly handled downsizing. Problems in top
management's approach, coupled with insensitivity from her direct manager, have created a worst-case
scenario for Roberta. Her employees are upset and hostile, and she herself is feeling both demotivated
and angry.

You may find that it is useful to tie this case in with the lecture outline provided in the following
supplemental lecturettes dealing with downsizing. It is clear that many of the important features in a
successful downsizing are not present in this Roberta case.

In the current case, Roberta needs to enact some damage control through her personal efforts, including
supporting the survivors and herself. Roberta needs to develop some tactics to support herself through
this time. It is clear that there is no support from Hiberley. She needs to focus on reducing stress, as well
as finding other people and developing her own support group.

HRI could use more participative approaches to its problems. Also, it seems that Mr. Martin has
abdicated some or all of his responsibility for HRI to the consultants, Martin and the other top managers
need to look beyond the bottom-line to the impact their decisions are having on the employees and the
long-term good of the organization.

***

1
Co-written by E. Leonard, Jr., Indiana-Purdue University at Fort Wayne, and Maria Muto, Arizona State University.
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ROBERTA AND THE LAST STRAW

The mood of the Customer Service Department at HRI, Inc. was not positive. All over the company,
departments were laying off people. Bob Hiberley, the new Vice President of Operations, seemed to be
living up to his headquarters reputation as a hatchet man.

Roberta was concerned, but did all she could to encourage a team atmosphere and keep the spirits of the
staff up. The department adopted a destitute family for Thanksgiving, providing food, blankets, and
clothing for them. This seemed to provide a lift, making people realize that as tough as the situation was,
they were better off than many people.

Despite the problems, the customer service team was more productive than ever. Many of the ideas they
had discovered from other companies and tried were working well, and as the staff became more
comfortable with the changes, they became more efficient. The staff had even re-designed the work area
to increase interaction among themselves.

Unfortunately, other departments at HRI were not doing as well. With sales down, it appeared that
Christmas bonuses would be eliminated for the first time in 8 years, and cost-saving consultants were
auditing every department, looking at every aspect of the business.

Roberta knew that it would be hard to evaluate the importance of what she and her staff are doing,
because their work was qualitative rather than quantitative. She had been tracking customer retention
rates both before and after the department changes, but with less than a year since she took over, there
was not enough information to prove that her department had a strong positive impact on retention. She
had plenty of customer testimonials, but HRI's new pattern of behavior had strictly a numbers focus.

It had been a tough fall, and Roberta was feeling tired and frustrated. Her father was receiving a special
teaching award at the year-end banquet at the University where he teaches. When he invited her to attend,
she decided she both needed and deserved a break. Roberta planned the trip from Wednesday night
through Sunday morning. The banquet was Thursday night, and then her family planned two days of
skiing before she had to fly back.

When Roberta left the office Wednesday night, her senior customer service rep, Kent, said to her,
"Things are quiet this week. We've got everything under control. You go have a good time and don't even
think about us until Monday morning."

Early Thursday morning, the consultants met with top management and recommended immediate deep
cost-cutting measures if HRI wanted to avoid Chapter 11. Their suggestions included an immediate 20
percent cut in the work force across the board in every department. Selections would be made through a
complicated formula involving seniority, performance evaluations, and protected status. All employees
who had been with the company less than six months would be eliminated, with only a few exceptions
considered on a case-by-case basis.

Based on this formula, the final selections for the layoffs were made by Thursday afternoon. Friday
morning, in a top management meeting, the lists were distributed. The layoffs were to be completed by
the end of the day.

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Mr. Hiberley decided that the best way to handle the cut was to call his managers in for a meeting,
explain the situation, give them their lists, and let them complete the process. Two of his managers were
out of the office. His secretary was able to reach one at home, and he said he would be right in. The
other, Roberta, was on a ski trip and unavailable until Monday morning. Bob Hiberley knew that the
layoffs couldn't wait. He asked one of his assistants to handle Roberta's department. Three people were
eliminated from customer service, Mary Jo, Amanda, and Eugene.

Upon returning to town late Sunday evening, Roberta's telephone answering machine was filled with
messages from concerned employees, the "survivors." They sounded angry and betrayed. They wanted to
meet with her early Monday morning. Among all the messages, Roberta managed to piece the story
together. She felt angry and betrayed herself. "I can't even take two days off," she thought to herself as
she got ready for bed. "How could all this have happened so suddenly?"

Roberta arrived at the office early on Monday morning and found several employees waiting for her.
They were even more angry and upset than she had anticipated from the phone messages.

"Let me tell you what happened," Dolores exclaimed. "One of Hiberley's assistants herded Mary Jo and
Eugene into your office and told them that Friday was their last day. Eugene asked why and the jerk
wouldn't even answer his question. He just said that the layoffs were across the board and someone had
to go."

"Eugene was a good worker, and Mary Jo was getting better," Kent broke in. "I just don't understand.
We've got the smallest staff in the company for our responsibilities, and we are definitely the most
productive. Apparently that doesn't matter when the chips are down. We got the same cuts as everyone
else, 20 percent across the board."

"It's top management's fault that we're in this mess," Andrea commented bitterly. "If they hadn't built
that new plant and they hadn't bought M.C., Inc. we would have plenty of money to weather this slow
period. They were stupid and they're making us pay for it."

Amanda walked into the office while Andrea was talking. It was clear that she was close to tears.
"Roberta, can I talk to you right now in your office please?" She turned to the other employees. "Excuse
me, I need to talk to Roberta now. "

The employees looked uncomfortable and upset, and nodded understandingly as Roberta ushered
Amanda into her office. The tears started rolling down Amanda's face, "I'm sorry, I'm so ashamed," said
Amanda.

"There's nothing to be embarrassed about," Roberta said. "A good cry every now and then is healthy and
normal." Roberta handed her a tissue, "Now, what's the problem."

Amanda answered. "You know that my mother has been very ill and I took last Wednesday through
Friday off to be with her. When I returned home late Friday night, there was a message on my answering
machine from someone who claimed to be an assistant of Hiberley's. He said that my job was eliminated.
Since I was off Friday, I needed to come by this morning to pick up my personal things. Roberta, this
must be a cruel joke. It just doesn't seem possible. You told me just two weeks ago what a great job I was
doing. I know that I was a lot better at it, even after only 6 months, than others who have been here for
years. Since Ed got laid off last month, I really need this job. Tell me it isn't true. Please, tell me I have a
job here at HRI."

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Roberta handed Amanda another tissue. "Amanda, I don't know anything about this. The other
employees told me what happened to Mary Jo and Eugene – that their jobs were eliminated. That's what
the others were telling me about when you arrived. I've been out of town myself and don't know anything
about it. If you'll sit here for a few minutes, I'll see what I can find out from Bob Hiberley." As Roberta
left her office, she sent Dolores in to stay with Amanda.

Mr. Hiberley's secretary told Roberta that he was off-site in a meeting for the rest of the day. "How could
he be in an all-day meeting the Monday after such a huge and unexpected layoff," Roberta fumed. "He
had to know that people would have questions and problems."

"The meeting had been set for several weeks," his secretary replied. "Besides, what's the problem? The
people who lost their jobs are gone by now."

Roberta walked out and went to Sally's office. Sally was the assistant director of Human Resources and a
good friend of Roberta's. "Do you have a minute? What's happening around here?" Roberta asked Sally,
plopping into a chair in Sally's office and closing the door.

Sally explained that top management decided to follow the consultants' suggestions and eliminated 20
percent of the workforce across the board in all departments. "They used some goofy formula for
deciding who to eliminate," Sally explained. "It has created problems in more than one department, but
it is completely legal, so of course top management loves it."

"I don't even have a list of who was eliminated in my department." Roberta exclaimed, frustrated. "I have
one of my best employees in my office right now in tears, who found out she lost her job through a
message on her answering machine."

"There are lots of stories like that floating around here," Sally replied. "The decision of top management
to complete the process so quickly created lots of problems. Let me check the master list to make sure
that she was really eliminated."

As Sally called up the list on her computer, Roberta fumed. "Top management seems to have forgotten
all the things that made working here worthwhile."

Sally nodded, "I know what you mean. My boss argued with Mr. Michaels for over an hour about the
way they handled this layoff. Michaels is running scared, and the company is paying for it." She paused,
hunting through the database.

"I don't even recognize HRI anymore, " Roberta stated. "How can I keep the staff motivated when I don't
like being here myself. This weekend was the first time I've slept through the night in three months. I
have a feeling I won't be sleeping through the night for a good long time.

"A lot of people have been feeling that way lately around here," Sally replied. "Here it is, you lost three
people, Eugene Headley, Amanda Wakefield, and Mary Jo Watson."

"That's it then," said Roberta. "I guess I have to go back and tell Amanda it's true. I feel terrible. She's a
terrific employee and I hate to lose her. Plus, she really needs this job. Her husband has been out-of-work
for a month, and they're barely making ends meet with her job and his unemployment. I'm embarrassed
and upset to be a part of this company."

DISCUSSION QUESTIONS

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1. What is the best way for Roberta to tell Amanda that she really has lost her job?

2. Should Roberta, as a member of the management team, defend the decisions made while she
was gone? If yes, how can she do it? If no, what should she say?

3. There will be a strong residue of ill will against both HRI and Roberta because of the layoffs
and how they were handled. How can Roberta best manage this situation, and keep the
productivity and customer-focus of her department at close to its pre-layoff levels?

4. What should Roberta say to Mr. Hiberley tomorrow? Based on his behavior and the behavior
of his secretary, what type of culture is Hiberley creating?

5. Lately, Roberta has been having problems motivating and managing herself. She finds that the
actions of Hiberley and HRI are making her mad, and she finds it increasingly difficult to
support the decisions of upper management. She knows that she cannot in good conscience
support this layoff process. What can Roberta do to motivate and manage herself?

6. What could the top management at HRI have done, to ensure that HRI as a company did not
lose sight of the importance of its people?

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SUPPLEMENTAL LECTURETTE 1:WHAT’S WRONG WITH REENGINEERING?1

APPLICATION

This lecturette may be used to supplement the chapter’s coverage of organizational decline.

***

Reengineering: Do’s and Don’ts.

Truly successful reengineering attempts are few and far between. So why do so many reengineering
endeavors fail? Here’s a major reason:

The typical reengineering effort is implemented tactically, far removed from company strategy. Existing
only as a stand-alone program, reengineering can few substantive business results. To be successful, it
must be deployed strategically and supported by the highest managerial levels. The differences between
tactical and strategic implementation are numerous:

Tactical implementation is narrowly focused on a single process within a function. It typically targets
process workflow, with the goal of reducing expenses, headcount, and required office space.

In contrast, when reengineering takes place strategically, the scope is the entire business unit. All critical
core processes receive focus. The team in charge takes a holistic view of change, including workflow,
systems, structure, incentive systems, and organizational culture. Successfully implementing sweeping
changes requires extensive communication from top management. Wide spread communication is
necessary to receive commitment from both managerial and other employees. Additionally, the
reengineering team should consider testing the new plan in a small number of sites before implementing
the program company-wide.

It is commonly believed that reengineering necessitates downsizing, decentralization, and automation.

However, when implemented strategically, reengineering may or may not include these aspects.

Reengineering: A Case Example. Shown below is a description of the situation facing AT&T Capital
Leasing Service, a nation-wide provider of leasing and financing for vendors that distribute, manufacture,
and sell medical, office and manufacturing equipment.

In the early 1980s, AT&T Capital Leasing Services…was growing rapidly. Within just a few years,
Leasing Services had opened 18 offices around the country, expanding its staff to nearly 500 and
enjoying a 40 percent to 80 percent annual growth rate. By the mid-‘80s, however, the company was
facing more demanding customers, increased domestic and international competition, and general
consolidation in the leasing industry, … resulting in fewer, but more powerful, leasing firms.

These weren’t the only competitive issues Leasing Services faced. Benchmarking showed that Leasing
Services had a higher cost of doing business than its competitors – this at a time when customers were
demanding increasingly competitive leasing rates. Internally, the company faced additional problems:
Each of Leasing Services’ … offices acted independently and had its own pyramid of arrangement,
creating redundancies and inhibiting operational performance. To make matters worse, customer contact
personnel lacked the decision-making authority to provide satisfactory service.

1
Adapted and excerpted from R. Manganelli and S. Raspa, “Why Reengineering Has Failed,” Management Review,
July 1995, Vol. 84 No. 7, pp. 39-43.
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DISCUSSION QUESTIONS:

1. Is Leasing Services a candidate for reengineering?

2. What factors (internal and external) at Leasing Services need to be considered when
formulating a reengineering plan?

3. How would you go about implementing such a plan?

SUPPLEMENTAL LECTURETTE 2: ORGANIZATIONAL GROWTH1

APPLICATION

This lecturette supplements the chapter’s coverage of organizational effectiveness.

***

Unchecked and uncontrolled growth has caused the demise of a number of promising companies, including
People Express, Victor Technologies, and Osborne Computers. Entrepreneurial firms in particular reach a
point where they have to restructure and adjust or they will be overwhelmed by their own growth.

To help determine when an organization has grown past its ability to function well, here are nine symptoms
of problematic growth drawn from Healthco, a growing firm which manufactures disposable medical
products.

Many employees were unaware of what other people were doing. A substantial number of employees
were unclear about what their actual jobs were, what other employees' jobs were, how they fit in with the
overall operations of the firm. This made it easy to avoid responsibility and caused duplication of efforts.

There didn't seem to be enough time to accomplish the work. Overtime was common, and managers felt
that they had too heavy a workload and unrealistic deadlines.

Employees became "fire fighters". Much of each employee's time was spent on short-term problems,
indicating lack of planning. A standard company joke was "At Healthco, long- range planning means what I
am going to do after lunch." Operating in a crisis began to be the norm.

Not enough good managers. Healthco had management problems for two reasons. One was the promotion
of good technical people who didn’t have adequate preparation for management. Consequently, these
people still focused on their technical roles, didn't delegate, and ignored their managerial responsibilities.
The other problem was the strength of Healthco's founder. His inability to delegate and his need to control
things caused strong managers to leave. The remaining managers had little authority and no real power.
This is a common problem in entrepreneurial firms.

Plans had minimal follow-up. Consequently, a number of things just didn't get done. There were no
monitoring systems in place, and no accountability.

1
Adapted from E. Flamholtz and Y. Randel, “How To Avoid Choking On Growth,” Management Review, May 1987,
pp. 25-29.
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Chapter 17 - Organizational Design, Effectiveness, and Innovation

Employees didn't understand where the company was going. Healthco's management was unable to
present its future plans to the employees. Employees felt anxious about all the unexplained changes, and
many left.

There were too many useless meetings. Meetings were scheduled unexpectedly, had no agendas, and were
much too long. They were commonly described by employees as "free- for-alls."

Employees became insecure about their positions within the firms. A number of the "founding
members" of the organization were fired, and many other changes occurred. Employees were spending
more and more time protecting their own interests.

Sales grew, but not profits. This is a common problem with entrepreneurial firms. With a focus on
revenue, there was an assumption that more sales meant more profits. However, costs were climbing, so
profits were the same, despite rapidly increasing sales.

Fortunately for Healthco its founder, Tony Fletcher, recognized the company's problems. He commissioned
an organizational audit to analyze the situation. This revealed the problems outlined above. To solve these
concerns, the company's management worked to design and implement a program that would provide the
infrastructure needed to support its pattern of rapid growth. The plan was initiated at a management retreat,
and reviewed and evaluated at monthly managerial meetings.

There were four key steps to the plan:

1. Developing and implementing a strategic management plan throughout the organization.

2. Designing a program of management development to help overcome the problems experienced by

technical people who move into management.

3. Recruiting new professionals from outside the firm to provide needed expertise.

4. Developing a formal system of job descriptions coupled with an effective performance appraisal plan.

The plan was a success. Eighteen months after its implementation, a comparison of "organizational growing
pain" survey results moved the company from a "danger zone" of 32 to a more moderate average of 21. In
addition, as operational efficiencies were straightened out, profitability significantly increased. All of this
occurred in spite of the fact that Healthco continued to grow. Due to a careful organizational analysis, and
subsequent changes, Healthco transformed itself from a firm choking on its own growth to one able to cope
well with its growth pattern.

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SUPPLEMENTAL LECTURETTE 3: CREATING A LEARNING ORGANIZATION1

APPLICATION

This lecturette may be used to supplement the chapter’s coverage of organizational learning.

***

Organizational learning provides the foundation for all organizational change attempts (e.g. reengineering
or total quality management). Learning is much more than training and development. Learning is a
mentality that permeates the process and procedures of the organization. The ultimate goal of the learning
experience is to provide the best possible product or service for the consumer. Authors Calhoun Wick
and Lu Leon have developed a formula for creating a learning organization. It is:

LEARNING ORGANIZATION = Leader with Vision x (Plan/Metrics) x Information x Inventiveness x

Implementation

In other words, a learning organization includes “(1) a leader with a clearly defined vision; (2) a detailed,
measurable action plan; (3) the rapid sharing of information; (4) inventiveness; and (5) the ability to
implement it” (p. 300).

A leader committed to learning is essential for success. The leader is in the best position to discern the
performance gap between the organization’s current state of being and desired future state of being.
However, in order for the organization to achieve the desired vision, it must first be clearly
communicated to those who must enact it. A clear vision allows employees to focus their efforts on the
keys to success. The most effective corporate visions are usually simple and direct.

A leader and a vision aren’t enough, however. The next step involves developing a plan of action with
detailed metrics. The larger plan must be broken into specific and measurable action steps. “Planning and
a system of measurement keep the vision grounded in reality and prevent it from becoming an esoteric
exercise.”

Sources of information come from both outside and inside the organization. A lack of information makes
the organization vulnerable to threats existing outside the company and miss opportunities inside the
company. A learning organization feeds upon knowledge. External sources of knowledge include
customers themselves. Additionally, leaders and managers should realize that it’s not necessary to
“reinvent wheel.” Companies today are more willing to share their organizational discoveries and
processes. So, steal shamelessly! Finally, check out the competition and be prepared to act on the new
information.

Internal sources of information are present in your own organization. In other words, know who you are.
Don’t practice double talk. Information is to be shared quickly and accurately with those who are in the
best position to use it for the benefit of the organization. Information should flow freely throughout the
organization. Organizational structure is a tool that can either foster or impede the sharing of information.
Finally, don’t hoard information for personal power or gain. Cultural norms valuing honesty and the
good of the entire company help put information into the hands of those who can use it for the most
good. Finally, the company must be inventive and able to implement action plans.

1
Adapted from C. Wick and L. Leon, “From Ideas to Action: Creating a Learning Organization,” Human Resource
Management, Summer 1995, Vol. 34 No. 2, pp. 299-311.
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