Organization Theory: Strategy Implementation Process

1. Organization Theory: Strategy Implementation Process Steven E. Phelan

2. Introduction

3. Who am I? • Assistant Professor of Strategic Management at UNLV • Formerly at UT Dallas • I have taught MBA students in 5 countries: Australia, Hong Kong, Singapore, Italy, and US. • Taught EMBA students at UT Dallas and UT Austin • Practitioner background: • Telecom Australia • Ansett Airlines • Bridges Management Group (worked on credit cards, loyalty schemes, distribution strategy, new product development, and acquisitions)

4. What is this course about? • Organization Theory • Lots of academic textbooks • Large membership in AOM (2000+) • Dry as dust • Strategy Implementation • No textbook since 1980s • We know a plan is no good unless it is implemented – kind of important then • The chosen path… • Cover the interesting parts from OT and explore something useful in strategy implementation (Org Design & Change).

5. Goals • To be able to view organizational life through different lenses • To develop a critical appreciation of organizational discourse • To have an understanding of the major issues in organizational design and change • To have acquired skills in designing and changing organizations • To gain an appreciation of some of the issues in strategy implementation

6. Assessment • Field Study (20%+5%) • In groups of 3-4, apply as many of the eight metaphors you have learned as possible to describe the functioning of an organization with which you are familiar (Paper Due: 7/10, Presentation 8/13) • Case Solution (25%) • Write a solution to one of the two cases on organizational design (Due: 7/23) • Book Review (25%) • Review a recent book on organizational change in the context of the course material and present your report (Due: 8/13) • Class Participation (25%)

7. Teaching Philosophy • I am not into one-way transmissions of information • I favor a collaborative learning environment: • We learn from each other • We learn from the problems and issues we identify and how we solve them • I see myself as a coach or mentor guiding the learning experience • Thus, the ultimate responsibility for learning is with you • Read the materials • Come to class prepared to discuss relevant aspects of your organizational life (or lives) • PLEASE interrupt, discuss, question, argue, debate, clarify

8. Overview of Today • Metaphor in organizations • Organizations as machines • Exploring the metaphor • Strengths and limitations, implications for strategy • Perrow’s Defense of Bureaucracy • It limits particularism • It limits self-interest • Rules are not so bad • Hierarchy is not so bad • Organizations as organisms • Open systems • Contingency theory • Organizational ecology • Strengths and limitations, implications for strategy • Brains and Cultures

9. Metaphor in organizations • We learn how to see… • Eskimos are able to identify many different types of snow that are indistinguishable to the average person • Asians can identify many different varieties of rice • Can you see the old/young woman?

10. Morgan on Metaphor • What, then, is truth if different people learn to see the same thing in different ways? • Is there value in teaching people to see their organizations in different ways? • “If you only have a hammer, does every problem become a nail?” • “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function” -- F. Scott Fitzgerald • “It is easy to teach anybody a new fact…but it needs light from heaven to enable a teacher to break the old framework in which the student has been accustomed to seeing” -- Arthur Koestler

11. Developing multiple interpretations 1 • A week ago, the grave-diggers at Green Mountain cemetery laid down their tools and declared an indefinite strike. Their spokesman, Norman Babitt, said that they were “fed up with the city council’s stonewalling.” Their demands for a pay increase and improved benefits had been rejected. The effects of the strike were immediate. A number of funerals had to be canceled and replaced with cremations. In two instances, bodies were placed in storage pending a resolution of the strike. No immediate return to work is expected. • Interpret this event from at least 3 different viewpoints or angles… • Share your viewpoints witha class member

12. Developing multiple interpretations 2 • “At Foxboro, a technical advance was desperately needed for survival in the company’s early days. Late one evening, a scientist rushed into the president’s office with a working prototype. Dumbfounded at the elegance of the solution and bemused about how to reward it, the president bent forward in his chair, rummaged through most of the drawers in his desk, found something, leaned over the desk to the scientist, and said, “Here!” In his hand was a banana, the only reward he could immediately put his hands on. From that point on, the small ‘gold banana’ pin has been the highest accolade for scientific achievement at Foxboro.” • Can you develop 3 different angles or viewpoints on this story? • Share your views with a class member

13. Viewing your organization as if you were from a foreign land… • On first joining… • What struck you as being novel, strange, or different about the way things happened compared to your expectations or what you had become used to elsewhere? • Think of another organization with which you are familiar… • What do you consider to be odd, novel, or interesting about the way in which they do things which would be inconceivable in your present organization? • About us… • If you wanted to convey the essence of how things are done in your organization, capturing both the good and bad, can you think of a recent event or happening that seems to sum things up? What would it illustrate to an outside who wanted to learn about your organization?

14. De Bono’s Approach to Creativity • We need to be able to recognize and escape from the dominant ideas that structure a situation, or one’s interpretation of a situation. • The trouble is, these ideas may be so ingrained that they are very hard to see. • It is often difficult to identify the truly fundamental assumption and beliefs that are shaping one’s thoughts and actions but we need to do this to avoid being dominated by them • It is much easier to become aware of alternatives when these dominant ideas are made explicit

15. On metaphors • What are the dominant assumptions and beliefs that shape • How Republicans think of issues in this country? • How Democrats think of issues in this country • How the French think of issues in the US? • How Iraqis think of issues in the US? • Is this sort of analysis useful? • Is it useful to do this sort of thinking about our organizations and about how stakeholders might perceive our organization? • Morgan believes it is very valuable and identifies eight metaphors or ways of thinking about organizations.

16. Organization as machine • Pre-determined goals and objectives • A rational structure of jobs and activities • Its blueprint becomes an organizational chart • People are hired to operate the machine and behave in a predetermined way • When an organization is seen as a machine it is expected to operate in a routinized, efficient, reliable, and predictable way

17. My life as a machine • “Whoever uses a machine does all his work like a machine. He who does his work like a machine grows a heart like a machine” He loses his soul! • The industrial age left its mark on the imagination, thoughts, and feelings of humans • Organizational life is often routinized with the precision demanded of clockwork • People arrive at work at a given time, perform a predetermined set of activities, rest at appointed hours, and then resume their tasks until work is over. • Employees are expected to behave as if they were parts of a machines • Do you agree?

18. Origins • Organon – means a tool or instrument in Greek • Clearly, ancient cultures had sophisticated organizations • But, the use of machines required that organizations be adapted to the needs of machines (was this radical?) • Steam power and division of labor • Enclosure movement and ‘wage slaves’ • Are there many wage slaves today? • Real wages have fallen for bottom 20% of income earners over the last 20 years • Price to wage ratio is at all time post WW2 high

19. Frederick the Great’s innovations • Major Innovations: • Ranks and uniforms • Extension and standardization of regulations • Increased specialization of tasks • Standardized equipment (c.f. Eli Whitney in 1801) • Command language • Systematic training and drilling • Less obvious outcomes: • Standard training made parts interchangeable • Fear of officers led to tight discipline under fire • Distinction between line and staff officers • Decentralization

20. Max Weber • The bureaucratic form routinizes the process of administration exactly as the machine routinizes production. • Bureaucracies provide: • Precision, speed, clarity, regularity, reliability, and efficiency • Through: • A fixed division of tasks, hierarchical supervision, and detailed rules and regulations

21. Perrow and Bureaucracy • Key elements of rational-legal bureaucracy: • Equal treatment for all employees • Reliance on expertise, skills, and experience relevant to the position • No extra-organizational prerogatives – the position belongs to the organization not the individual • Specific standards of work and output • Extensive record keeping • Establishment and enforcement of rules and regulations • Rules and regulations bind managers as well as employees

22. Purging Particularism • According to Perrow, one of the major benefits of bureaucracy is purging particularism (incl. nepotism and favoritism) • Loyalty to the king was once everything, incompetence counted for little • Tenure was a early invention that provided freedom from unjust authority, separating the office from the person further controlled it. • However, nepotism is still a big problem in a lot of countries – e.g. Italy, Mexico, China • Why is it so bad? • Because there is often little relationship between the social criteria for hiring or promoting people and the characteristics that affect performance in the organization • It may even hurt performance (lower morale, motivation etc.)

23. Perrow on corruption • Corruption (or enlightened self-interest) is also a likely accompaniment of favoritism • Perrow argues corruption is good for the individual and sometimes even good for the organization • “one of the best ways to seize or retain control [of an organization] is to surround oneself with loyal people” • It doesn’t hurt to have a sympathetic friend in government • Bureaucracy limits corruption: • “since official goals are proclaimed, unofficial, unpublicized, and unlegitimated uses can be held up to scrutiny when they are found, and action can be taken.” • “The hidden uses of organizations, always present, can be exposed and addressed”

24. Feathering the Nest • Bureaucracy partially solved the problem of separating the interests of the person from the interests of the organization • People still tend to act as if they own their positions • They use them to generate income, status, and other things – free phone calls, show tickets, private jets etc. • Bureaucracy reduces (but doesn’t eliminate) this tendency • The position is seen as independent of the employee • Rules govern acceptable behavior • Records are kept on performance and behavior • Perrow argues: “The growth of bureaucracy was equivalent to putting a label of ‘company property’ on the skills, experience, and creativity of the employee…we no longer question this extraction at all in the case of blue collar workers and most white-collar ones”

25. Rules are good! • Why rules? • Bureaucracies are usually criticized for being rule-laden and ‘bureaucratic’ • Perrow argues that rules are needed to deal with complexity and to make the organization more flexible • Reducing rules makes an organization more impersonal, more inflexible, and more standardized . The last thing you want in complex situations is to let people do their own thing • Perrow makes little distinction between explicit and implicit rules and argues that professionals have ‘built-in’ rules • Good effective rules are rarely noticed, bad rules stand out • The problem is not rules in general but particular ones that need changing • Rules are often scapegoats for poor business models

26. Hierarchy is good! • Downside to hierarchy: • Lack of motivation - ‘not my problem’ • Fear of passing bad news or suggesting changes • Buck passing • Delays and sluggishness • Dictatorial/ignorant decisions by superiors • Stifling of independence and creativity • Perrow argues that: • Lack of coordination between departments, failure to exercise authority or be decisive, and lack of accountability are, in fact, much worse problems. • He also kills a couple of other sacred cows • that a high span of control means more autonomy • that the formal organization is dominated by the informal organization • That there is conflict of professional and bureaucratic values

27. Strengths of the machine metaphor • For Morgan, mechanistic approaches work well when: • There is a straightforward task to perform • The environment is stable and predictable (to enable efficient division of labor) • When one produces the same product time and again • When efficiency and precision are at a premium • When the human parts are compliant and behave as they have been designed • For Perrow: • Bureaucracies limit particularism and self-interest, and promote coordination

28. Limitations of the machine metaphor • Bureaucracies have difficulty adapting to change • They are designed to achieve predetermined goals not innovation • It takes time to get an efficient division of labor through detailed job analysis • Mechanistic approaches result in mindless and unquestioning bureaucracy • Problems can be ignored • Communication can be ineffective • Paralysis and inaction can lead to backlogs • Senior managers can become remote • Specialization creates myopia and NIH syndrome • Employees know what is expected of them but also what is not expected of them • Initiative is discouraged

29. Using the machine metaphor • Discuss how thinking about organizations like machines might help or hinder the strategy implementation process. • How much do practices like business process re-engineering (BPR) rely on a machine metaphor? • Could this be a reason that 70% of BPR projects failed?

30. Organizations as organisms • This metaphor has its roots in biology and natural selection • Perhaps certain organizations are more “adapted” to specific environmental conditions than others • Led to concepts such as: • Open systems • Organizational life cycles • Fit and the process of adaptation to environment • Organizational ecology and different species of organizations

31. Organizational Needs • The Hawthorne studies of the 1920s and 1930s shifted the focus from organization as a technical problem to the human side of organization, especially motivation • Maslow’s hierarchy of needs • Physiological, security, social, ego, self-actualizing needs • The idea of integrating the needs of individuals and organizations became a powerful force • Job enrichment, autonomy, responsibility, recognition, democracy, focus on turnover and absenteeism, HRM • Socio-technical systems (STS) • “The design of a technical system always has human consequences and vice versa” • Optimization involves reconciling human needs and technical efficiency • Isn’t this obvious? Why was it so controversial at theat the time (1950s)?

32. Open systems • Variants of the open systems philosophy became popular with managers in the 1960s with Forrester’s system dynamics and in the 1990s with Senge’s “Fifth discipline” • Defined as a system with input OR an entity that changes its behavior in response to conditions outside its boundaries. • Systems are rarely ever either open or closed but open to some and closed to other influences • Animals are open to food, plants to sunlight • Computers and people are open to information • Organizations and societies are open to structure • Whether or not a system has outputs does not enter the distinction between open and closed systems. • Systems without inputs are not controllable

33. Open systems ctd. • What is: • A closed system? A subsystem? • Homeostasis and positive/negative feedback • Entropy and negative entropy (negentropy) • Equifinality • Holism

34. Practical implications • Open systems theory emphasizes the importance of the environment (not seen in machine metaphor) • Organizations are seen as sets of interrelated subsystems • Molecules, cells, organs, lifeforms, social systems, world, solar system, galaxy, universe • The approach encourages congruencies or alignments between different sub-systems (‘fit’) • This led to the development of contingency theory

35. Contingency theory • There is no best way of organizing. The appropriate form depends on the kind of task or environment – many species of organizations • Management’s job is achieving alignment or fit • Fit applies not only to the org-env but also between sub-systems in an organization

36. First distinction • Mechanistic vs organic (Burns and Stalker) • Changing technology or market conditions pose new problems and challenges that require open and flexible styles of organization and management • Lawrence and Lorsch showed that styles of organization might need to vary between organizational subunits • e.g. R&D departments need to be organized differently from production departments) • How is this different from an ideal bureaucracy?

37. Typologies • This research led to the development of typologies of organizations: • Miles and Snow • Prospectors, analyzers, defenders • Mintzberg • Machine bureaucracy, divisionalized form, professional bureaucracy, simple structure, adhocracy • BCG • Cash cows, dogs, stars, question marks • Porter • Cost leadership, differentiation, focus

38. Other developments • Organization development • The belief that we can diagnose the environment and thus improve internal and external fit • What is the nature of the organization’s environment? • What kind of strategy is being employed? • What kind of technology is being used? • What kinds of people are employed and what is the dominant culture? • How is the organization structured, and what are the dominant management philosophies? • This can be done at the top level or at sub-levels • Expert Systems • Burton and Obel even developed an expert system to choose the right structure for an organization • Conflicts are resolved using fuzzy logic • Why am I suspicious of both these approaches?

39. Organizational Ecology • Researchers have tracked the births and deaths of companies over time • Liability of newness, smallness, oldness • Faced with new types of competition or environmental circumstances, whole industries or types of organizations may come and go • Legitimacy and inertia prevent one type of organization (or species) from changing into another • Debate: How ‘inert’ are companies in the face of competitive or environmental threats?

40. Co-evolution • Evolution is a pattern of a pattern of relations embracing organisms and their environments • Survival of the fitting not just survival of the fittest • Concepts of symbiosis, co-evolution, punctuated equilibrium, co-opetition, business ecosystems • Ford or Yahoo are not single companies – they have a whole web of suppliers and collaborators and alliances

41. Strengths of the Organismic Metaphor • Organizations must always pay close attention to their external environments • Survival and evolution become central concerns • Achieving congruence with the environment becomes a key managerial task • What are the implications for strategy implementation?

42. Limitations of the Organismic Metaphor • Organizations are not organisms • Environments are not concrete • Actual vs perceived vs enacted • Metaphor overstates degree of functional unity and cohesion in most organizations and top management’s ability to choose subsystem settings • Can lead to social Darwinism and other ideological traps • i.e. the best performing organizations are the fittest and thus the ‘best’ • No guarantee the best today will be the best tomorrow

43. Organizations as brains • The brain has both specialized functions (speech) and distributed functions (memory) • Is it possible [and desirable] to design “learning organizations” that have the capacity to be as flexible, resilient, and inventive as the functioning of the brain? • Is it possible [and desirable] to distribute capacities for intelligence and control throughout an enterprise so that the system as a whole can self-organize and evolve along with emerging challenges (holographic organizations)?

44. Applications of this metaphor in strategy • Learning organizations • Knowledge management • E-Commerce, CRM, Data mining, SCM • Virtual Organizations • Self Directed Teams

45. Why is information so important? • Information is needed to coordinate the firm’s resources • faster innovation of new products, • reduced duplication of efforts, • savings in research and development costs, • learning from expensive mistakes • transmission of best practice • enhanced employee satisfaction.

46. Knowledge management • Where should this information come from? • From top management? • Centralization versus decentralization issue • From information systems? • Explicit versus tacit knowledge issue • From people? • Coordination versus cooperation issue • How should this knowledge be collected, stored, used? Who should have access? • How should people be motivated to share information?

47. Garvin • In most discussions of organizational learning, 3 critical issues are left out • a plausible definition of learning organizations • clear guidelines for practice • tools for assessing the rate and level of learning • Definition • an organization skilled at creating, acquiring and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights (Garvin, 1994)

48. Garvin: Distinctive Policies • systematic problem solving • experimentation with new approaches • learning from your own experiences and history • learning from the experiences and best practices of others • transferring knowledge quickly and efficiently throughout the organization

49. Garvin: Distinctive Practices • insisting on data rather than assumptions (PDCA) • an incentive system that favors risk-taking • demonstration projects that start with a clean slate • widely disseminated case studies and post-project reviews of successes and failures - concept of learning from mistakes • training in best practice • transferring and rotating staff - learning by doing

50. Why is effective learning so hard? Argyris and Schon start with 2 theories of action • Theory in use (Model I) • what we actually do in practice • Espoused Theory (Model II) • what we would like others to think we do • Learning occurs when we explore the fit between model 1 and model 2 and correct errors • But we hate doing this! Why?