Creating Effective Organizations

1. 17-1

2. Creating Effective Organizations Organizations: Definition and Perspectives The Changing Shape of Organizations Organizational Effectiveness and the Threat of Decline The Contingency Approach to Organizational Design Three Important Contingency Variables: Technology, Size, and Strategic Choice

3. 17-3 Ch. 17 Learning Objectives Describe the four characteristics common to all organizations, and explain the difference between closed and open systems. Define the term learning organization. Describe horizontal, hourglass, and virtual organizations. Describe the four generic organizational effectiveness criteria, and discuss how managers can prevent organizational decline. Explain what the contingency approach to organization design involves.

4. 17-4 Ch. 17 Learning Objectives Describe the relationship between differentiation and integration in effective organizations. Discuss Burns and Stalker�s findings regarding mechanistic and organic organizations. Define and briefly explain the practical significance of centralization and decentralization. Discuss the effective management of organizational size.

5. 17-5 Characteristics Common to All Organizations Organization: System of consciously coordinated activities of two or more people. These four factors make up the organization�s structure. Coordination of effort � achieved through formulation and enforcement of policies, rules, and regulations. Division of labor � when the common goal is pursued by individuals performing separate but related tasks. Hierarchy of authority: Chain of command � control mechanism dedicated to making sure the right people to do the right things at the right tiem.Organization: System of consciously coordinated activities of two or more people. These four factors make up the organization�s structure. Coordination of effort � achieved through formulation and enforcement of policies, rules, and regulations. Division of labor � when the common goal is pursued by individuals performing separate but related tasks. Hierarchy of authority: Chain of command � control mechanism dedicated to making sure the right people to do the right things at the right tiem.

6. 17-6 Organization Charts Organizational Chart � Boxes and lines illustration showing chain of formal authority and division of labor.Organizational Chart � Boxes and lines illustration showing chain of formal authority and division of labor.

7. 17-7 Organizational Structure Terms Span of control The number of people reporting directly to a given manager Staff Personnel � denoted by dotted lines Provide research, advice, and recommendations to line managers Line managers � denoted by solid lines Have authority to make organizational decisions

8. 17-8 Test Your Knowledge True (A) or False (B) The ideal span of control is 10. Wider spans of control complement employee empowerment trends. Narrower spans of control save costs and are administratively efficient. With wider spans of control, inadequate supervision and less coordination may result True (A) or False (B) The ideal span of control is 10. False, there is no ideal span of control because it is so dependent on the situation. 2. Wider spans of control complement employee empowerment trends. True, as employees become more empowered, less direct day to day supervision is required. 3. Narrower spans of control save costs and are administratively efficient. False, narrower spans of control are more expensive 4. With wider spans of control, inadequate supervision and less coordination may result True.True (A) or False (B) The ideal span of control is 10. False, there is no ideal span of control because it is so dependent on the situation. 2. Wider spans of control complement employee empowerment trends. True, as employees become more empowered, less direct day to day supervision is required. 3. Narrower spans of control save costs and are administratively efficient. False, narrower spans of control are more expensive 4. With wider spans of control, inadequate supervision and less coordination may result True.

9. 17-9 Closed Vs. Open Systems Closed System a relatively self-sufficient entity Open System organism that must constantly interact with its environment to survive Closed System a relatively self-sufficient entity Early views of organizations was that they were fairly closed and operated like a well-oiled machine. Much like a clock that only needs a battery to operate efficiently. More recently, it has been found that organizations are much more like an open system. Open System organism that must constantly interact with its environment to survive For example, the human body is an open system because we need oxygen, food, shelter for survival so we are very dependent on the environment. Organization�s also have permeable boundaries. Let�s look at an open system from an organizational perspective. Go to next slide�. Closed System a relatively self-sufficient entity Early views of organizations was that they were fairly closed and operated like a well-oiled machine. Much like a clock that only needs a battery to operate efficiently. More recently, it has been found that organizations are much more like an open system. Open System organism that must constantly interact with its environment to survive For example, the human body is an open system because we need oxygen, food, shelter for survival so we are very dependent on the environment. Organization�s also have permeable boundaries. Let�s look at an open system from an organizational perspective. Go to next slide�.

10. 17-10 The Organization as an Open System This graphic depicts how and organization is an open system that has to adapt to a changing environment and seek input from external as well as internal sources as feedback.This graphic depicts how and organization is an open system that has to adapt to a changing environment and seek input from external as well as internal sources as feedback.

11. 17-11 Learning Organization Learning Organization proactively creates, acquires, and transfers knowledge throughout the organization Learning Organization proactively creates, acquires, and transfers knowledge throughout the organization These organizations constantly seek new information from the external environment and seek to develop their employees. They also pursue experts to employ and stay up to date on practices that affect their business.Learning Organization proactively creates, acquires, and transfers knowledge throughout the organization These organizations constantly seek new information from the external environment and seek to develop their employees. They also pursue experts to employ and stay up to date on practices that affect their business.

12. 17-12 Profiles of the New-Style and Old-Style Organizations This table contains adjectives to describe new and old-style organizations as conceptualized by Jay Galbraith and Edward Lawler.This table contains adjectives to describe new and old-style organizations as conceptualized by Jay Galbraith and Edward Lawler.

13. 17-13 The Horizontal Organization Rather than functional units operating in vertical silos, horizontal organizations are build around core processes aimed at customer demands. Teams are the core of these organizational designs. Work is more project-focused and training in both technical and teamwork skills will be a top priority. Lateral transfers are more common than vertical promotions.Rather than functional units operating in vertical silos, horizontal organizations are build around core processes aimed at customer demands. Teams are the core of these organizational designs. Work is more project-focused and training in both technical and teamwork skills will be a top priority. Lateral transfers are more common than vertical promotions.

14. 17-14 The Hourglass Organization Small core executive group at the top, few middle managers. The middle managers will be cross-functional problem solvers with technical expertise. Large base employees will be recognized with pay for performance, lateral transfers. Large difference between base and executives could be a breeding ground for labor unions.Small core executive group at the top, few middle managers. The middle managers will be cross-functional problem solvers with technical expertise. Large base employees will be recognized with pay for performance, lateral transfers. Large difference between base and executives could be a breeding ground for labor unions.

15. 17-15 The Virtual Organization In a virtual organization employees are connected by technology rather than physical work space. Key challenges: Alienating telecommuters Lack of commitment, trust, and loyalty Use of independent contractors means they can find work with competitors, too.In a virtual organization employees are connected by technology rather than physical work space. Key challenges: Alienating telecommuters Lack of commitment, trust, and loyalty Use of independent contractors means they can find work with competitors, too.

16. 17-16 Test Your Knowledge Regardless of the specific type, to be effective in tomorrow�s organizations will require: Rigidity Short-term thinking Internal focus Flexibility and adaptability Regardless of the specific type, to be effective in tomorrow�s organizations will require: Rigidity Short-term thinking Internal focus Flexibility and adaptability Answer D � the emphasis on staying in tune with the external environment, realigning to meet strategic objectives and being part of a team all require having an open mind and a flexible and adaptable attitude.Regardless of the specific type, to be effective in tomorrow�s organizations will require: Rigidity Short-term thinking Internal focus Flexibility and adaptability Answer D � the emphasis on staying in tune with the external environment, realigning to meet strategic objectives and being part of a team all require having an open mind and a flexible and adaptable attitude.

17. 17-17 Ways to Organizational Effectiveness In order to determine organizational effectiveness, you need to consider a variety of criteria. These four criteria are generic approaches that broadly apply to both for profit and non-profit organizations. Goal Accomplishment the organization achieves its goals�most widely used effectiveness criterion Does the organizations achieve its publicly stated goals and objectives? Resource acquisition: Does the organization acquire the necessary resources to pursue it�s objectives? Internal Processes the organization functions smoothly with a minimum of internal strain Is the organization a �healthy system� in which information flows freely and employees are loyal, committed, satisfied and trusted. Strategic Constituencies Satisfaction the demands and expectations of key interest groups are at least minimally satisfied Are people who have a stake in the organization's operation or success satisfied. In order to determine organizational effectiveness, you need to consider a variety of criteria. These four criteria are generic approaches that broadly apply to both for profit and non-profit organizations. Goal Accomplishment the organization achieves its goals�most widely used effectiveness criterion Does the organizations achieve its publicly stated goals and objectives? Resource acquisition: Does the organization acquire the necessary resources to pursue it�s objectives? Internal Processes the organization functions smoothly with a minimum of internal strain Is the organization a �healthy system� in which information flows freely and employees are loyal, committed, satisfied and trusted. Strategic Constituencies Satisfaction the demands and expectations of key interest groups are at least minimally satisfied Are people who have a stake in the organization's operation or success satisfied.

18. 17-18 Identifying Strategic Constituencies This figure shows an example set of strategic constituencies of a major auto manufacturer.This figure shows an example set of strategic constituencies of a major auto manufacturer.

19. 17-19 Test Your Knowledge Goal Accomplishment Resource Acquisition Internal Processes Strategic constituencies Team work is important contributor to success Goals are clear and measurable Powerful stakeholders can significantly impact the organization Inputs are directly related to accomplishing objectives It is important to recognize that many times one or more of these effectiveness criteria should be considered at any one time depending on the situation the organization is in. Some effectiveness have more value than others given the particular circumstance. Match the situation with the effectiveness criteria you think is most appropriate. B D A CIt is important to recognize that many times one or more of these effectiveness criteria should be considered at any one time depending on the situation the organization is in. Some effectiveness have more value than others given the particular circumstance. Match the situation with the effectiveness criteria you think is most appropriate. B D A C

20. 17-20 Early-Warning Signs of Decline 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 Organizational decline: Decrease in organization�s resource base (money, customers, talent, innovations) These warning signs may indicate an organization headed for or in decline.Organizational decline: Decrease in organization�s resource base (money, customers, talent, innovations) These warning signs may indicate an organization headed for or in decline.

21. 17-21 Early-Warning Signs of Decline Cont. Loss of effective communication Outdated organizational structure Increased scapegoating by leaders Resistance to change Low morale Special interest groups are more vocal Decreased innovation

22. 17-22 Contingency Approach Assessing Environmental Uncertainty Contingency Approach to Organizational Design - Creating an effective organization-environment fit To use this approach it is first important to assess the level of environmental uncertainty. Then identifying various organizational design configurations that would be necessary to active organization-environment fit. This table provide questions to ask when assessing environmental uncertaintyContingency Approach to Organizational Design - Creating an effective organization-environment fit To use this approach it is first important to assess the level of environmental uncertainty. Then identifying various organizational design configurations that would be necessary to active organization-environment fit. This table provide questions to ask when assessing environmental uncertainty

23. 17-23 Differentiation and Integration are Opposing Structural Forces Differentiation � division of labor and specialization that cause people to think and act differently. For example computer programmers tend to think and act differently that accounting or marketing professionals. Too much differentiation can cause organizational inefficiency. Integration � Cooperation among specialists to achieve a common goal. This is the opposing force of differntiation. According to Lawrence and Lorsch, as environmental complexity increased, successful organizations exhibited higher degrees of both differentiation and integration. They had achieved a successful balance.Differentiation � division of labor and specialization that cause people to think and act differently. For example computer programmers tend to think and act differently that accounting or marketing professionals. Too much differentiation can cause organizational inefficiency. Integration � Cooperation among specialists to achieve a common goal. This is the opposing force of differntiation. According to Lawrence and Lorsch, as environmental complexity increased, successful organizations exhibited higher degrees of both differentiation and integration. They had achieved a successful balance.

24. 17-24 Characteristics of Mechanistic and Organic Organizations Other researchers, Burns and Stalker drew a distinction between mechanistic and organic organizations. Mechanistic organizations � were rigid, command-and-control bureaucracies. These are important when there is a need for uniform product quality, speedy service, and cleanliness (e.g., at McDonalds). Organic organizations � fluid and flexible networks of multitalented people. People in these organizations perform a variety of tasks. Gore is an example of an organic organization because people don�t even have job titles or individuals that they report to. It is a very team-based structure. This table highlights the difference between mechanistic and organic organizations.Other researchers, Burns and Stalker drew a distinction between mechanistic and organic organizations. Mechanistic organizations � were rigid, command-and-control bureaucracies. These are important when there is a need for uniform product quality, speedy service, and cleanliness (e.g., at McDonalds). Organic organizations � fluid and flexible networks of multitalented people. People in these organizations perform a variety of tasks. Gore is an example of an organic organization because people don�t even have job titles or individuals that they report to. It is a very team-based structure. This table highlights the difference between mechanistic and organic organizations.

25. 17-25 Characteristics of Mechanistic and Organic Organizations Decentralized organizations � lower level managers are empowered to make important decisions. Centralized decision making � top managers make all key decisions.Decentralized organizations � lower level managers are empowered to make important decisions. Centralized decision making � top managers make all key decisions.

26. 17-26 Test Your Knowledge Which decision-making approach tends to be used in mechanistic organizations? Decentralized Centralized Which decision-making approach tends to be used in unstable and uncertain environments? Decentralized Centralized 1. Which decision-making approach tends to be used in mechanistic organizations? Decentralized Centralized Answer: B 2. Which decision-making approach tends to be used in unstable and uncertain environments? Decentralized Centralized Answer: A Decentralized decision making � lower level managers are empowered to make important decisions Centralized decision making � top managers make all key decisions Again centralization and decentralization should not be used in extremes. The challenge is to achieve a workable balance between the two extremes.1. Which decision-making approach tends to be used in mechanistic organizations? Decentralized Centralized Answer: B 2. Which decision-making approach tends to be used in unstable and uncertain environments? Decentralized Centralized Answer: A Decentralized decision making � lower level managers are empowered to make important decisions Centralized decision making � top managers make all key decisions Again centralization and decentralization should not be used in extremes. The challenge is to achieve a workable balance between the two extremes.

27. 17-27 The Effect of Technology on Structure The more the technology requires interdependence between individuals and/or groups, the greater the need for coordination �As technology moves from routine to nonroutine, subunits adopt less formalized and centralized structures�

28. 17-28 Test Your Knowledge True (A) or False (B) Larger organizations tended to be less productive The larger the organization, the less efficient. Smaller organizations enjoy less turnover. True (A) or False (B) 1. Larger organizations tended to be less productive False, Larger organizations tended to be more productive 2. The larger the organization, the less efficient. False, There were �no positive relationships between organizational size and efficiency, suggesting the absence of net economy of scale effects� 3. Smaller organizations enjoy less turnover. False, According to a more recent study, turnover was not related to organizational size True (A) or False (B) 1. Larger organizations tended to be less productive False, Larger organizations tended to be more productive 2. The larger the organization, the less efficient. False, There were �no positive relationships between organizational size and efficiency, suggesting the absence of net economy of scale effects� 3. Smaller organizations enjoy less turnover. False, According to a more recent study, turnover was not related to organizational size

29. 17-29 Relationship Between Strategic Choice and Organizational Structure Research has found that strategy influenced structure and vice versa. This was particularly true for larger, more innovative and successful firms. Strategic choice suggests that structure is the result of the environment and the interpersonal power and politics of key decision makers.Research has found that strategy influenced structure and vice versa. This was particularly true for larger, more innovative and successful firms. Strategic choice suggests that structure is the result of the environment and the interpersonal power and politics of key decision makers.

30. Supplemental Slides

31. 17-31 Video Case: BP: Building a Global Brand Does a global organization�s brand and the values it communicates to customers and employees have any impact on the organization�s effectiveness? What implication does the concept of a learning organization have for brand management? Why was it important for BP to change its brand? What was the objective of the rebranding initiative? Could the new brand help prevent organizational decline? Can a brand contribute to complacency? Explain. 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. An organization�s brand may foster the knowledge transfer characteristic of a learning organization or it may foster the complacency that leads to organizational decline. After merging together so many companies, BP was faced with the need to invent a common, unifying future for its employees. The objective of the rebranding initiative was to provide everyone in the company with a coherent image that would allow them to identify with the large new company. The new brand helped to create a sense of belonging through a new set of values. It also presented a unified identity to consumers. 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. An organization�s brand may foster the knowledge transfer characteristic of a learning organization or it may foster the complacency that leads to organizational decline. After merging together so many companies, BP was faced with the need to invent a common, unifying future for its employees. The objective of the rebranding initiative was to provide everyone in the company with a coherent image that would allow them to identify with the large new company. The new brand helped to create a sense of belonging through a new set of values. It also presented a unified identity to consumers.

32. 17-32 5 Stages of Organizational Learning Taken from Harvard Business Review, December 2004, The path to Corporate Responsibility, Simon Zadek, pg. 125 This article describes the journey many organizations, like Nike, face when moving toward corporate responsibility. It is advised that companies look at their internal activities to ensure they are aligned with societal values and then keep abreast of changing societal values and norms to adapt as necessary.Taken from Harvard Business Review, December 2004, The path to Corporate Responsibility, Simon Zadek, pg. 125 This article describes the journey many organizations, like Nike, face when moving toward corporate responsibility. It is advised that companies look at their internal activities to ensure they are aligned with societal values and then keep abreast of changing societal values and norms to adapt as necessary.

33. 17-33 5 Stages of Organizational Learning Taken from Harvard Business Review, December 2004, The path to Corporate Responsibility, Simon Zadek, pg. 125 This article describes the journey many organizations, like Nike, face when moving toward corporate responsibility. It is advised that companies look at their internal activities to ensure they are aligned with societal values and then keep abreast of changing societal values and norms to adapt as necessary.Taken from Harvard Business Review, December 2004, The path to Corporate Responsibility, Simon Zadek, pg. 125 This article describes the journey many organizations, like Nike, face when moving toward corporate responsibility. It is advised that companies look at their internal activities to ensure they are aligned with societal values and then keep abreast of changing societal values and norms to adapt as necessary.

34. 17-34 5 Stages of Organizational Learning Taken from Harvard Business Review, December 2004, The path to Corporate Responsibility, Simon Zadek, pg. 125 This article describes the journey many organizations, like Nike, face when moving toward corporate responsibility. It is advised that companies look at their internal activities to ensure they are aligned with societal values and then keep abreast of changing societal values and norms to adapt as necessary.Taken from Harvard Business Review, December 2004, The path to Corporate Responsibility, Simon Zadek, pg. 125 This article describes the journey many organizations, like Nike, face when moving toward corporate responsibility. It is advised that companies look at their internal activities to ensure they are aligned with societal values and then keep abreast of changing societal values and norms to adapt as necessary.

35. 17-35 Pass it On� General Mills values learning and developing it�s employees General Mills is also committed to aiding it�s community and non-profit institutions Putting these values together, they established a free leadership forums for community leaders Taken from Training June 2005, V. 42. Pass it On, by Kristine Ellis This article describes how organizations can contribute to non-profit organizations, not only through foundations but also by directly assisting their leaders grow and develop. General Mills extended their nationally recognized speaker series to add on a day for leaders in the community to participate for free. They have a requirement that people from one organization do not attend alone so that the learnings can be more easily transferred to their organizations.Taken from Training June 2005, V. 42. Pass it On, by Kristine Ellis This article describes how organizations can contribute to non-profit organizations, not only through foundations but also by directly assisting their leaders grow and develop. General Mills extended their nationally recognized speaker series to add on a day for leaders in the community to participate for free. They have a requirement that people from one organization do not attend alone so that the learnings can be more easily transferred to their organizations.

36. 17-36 The Evolution of Organizational Metaphors Notes: Topic Covered: Organizational Characteristics Background: A metaphor is a figure or speech that characterizes one object in terms of another object. Good metaphors help us comprehend complicated things (such as organization) by describing them in everyday ways Closed Systems: Military/Mechanical Model (Bureaucracy) Metaphorical Comparison: Precision military unit/well-oiled machine Assumptions about organization�s environment: Predictable (controllable impacts) Organization�s Primary Goal: Maximum economic efficiency through rigorous planning and control Biological Model (Resource Transformation System) Metaphorical Comparison: Human Body Assumptions about organization�s environment: Uncertain (filled with surprises) Organization�s Primary Goal: Survival through adaptation to environmental constraints and opportunities For discussion: Which of these metaphors do you find most instructive? Why? Can you think of a better metaphor to describe complex modern organizations? Explain. Source: R Kreitner, and A Kinicki, Organizational Behavior, 5th edition (Burr Ridge, Ill. Irwin/McGraw-Hill, 2001), p. 624 Notes: Topic Covered: Organizational Characteristics Background: A metaphor is a figure or speech that characterizes one object in terms of another object. Good metaphors help us comprehend complicated things (such as organization) by describing them in everyday ways Closed Systems: Military/Mechanical Model (Bureaucracy) Metaphorical Comparison: Precision military unit/well-oiled machine Assumptions about organization�s environment: Predictable (controllable impacts) Organization�s Primary Goal: Maximum economic efficiency through rigorous planning and control Biological Model (Resource Transformation System) Metaphorical Comparison: Human Body Assumptions about organization�s environment: Uncertain (filled with surprises) Organization�s Primary Goal: Survival through adaptation to environmental constraints and opportunities For discussion: Which of these metaphors do you find most instructive? Why? Can you think of a better metaphor to describe complex modern organizations? Explain. Source: R Kreitner, and A Kinicki, Organizational Behavior, 5th edition (Burr Ridge, Ill. Irwin/McGraw-Hill, 2001), p. 624

37. 17-37 The Evolution of Organizational Metaphors Notes: Topic Covered: Organizational Characteristics Open Systems: Cognitive Model (Interpretation and Meaning System) Metaphorical Comparison: Human Mind Assumptions about organization�s environment: Uncertain and ambiguous Organization�s Primary Goal: Growth and survival through environmental scanning, interpretation, and learning Ecosystem Model (Life and Death Struggle in Organizational Communities) Metaphorical Comparison: Natural ecosystems; Darwin�s theory of natural selection (survival of the fittest) Assumptions about organization�s environment: Primary determinant of success/failure Organization�s Primary Goal: Growth and survival through opportunistic cooperation and competition For discussion: Which of these metaphors do you find most instructive? Why? Can you think of a better metaphor to describe complex modern organizations? Explain. Source: R Kreitner, and A Kinicki, Organizational Behavior, 5th edition (Burr Ridge, Ill. Irwin/McGraw-Hill, 2001), p. 624 Notes: Topic Covered: Organizational Characteristics Open Systems: Cognitive Model (Interpretation and Meaning System) Metaphorical Comparison: Human Mind Assumptions about organization�s environment: Uncertain and ambiguous Organization�s Primary Goal: Growth and survival through environmental scanning, interpretation, and learning Ecosystem Model (Life and Death Struggle in Organizational Communities) Metaphorical Comparison: Natural ecosystems; Darwin�s theory of natural selection (survival of the fittest) Assumptions about organization�s environment: Primary determinant of success/failure Organization�s Primary Goal: Growth and survival through opportunistic cooperation and competition For discussion: Which of these metaphors do you find most instructive? Why? Can you think of a better metaphor to describe complex modern organizations? Explain. Source: R Kreitner, and A Kinicki, Organizational Behavior, 5th edition (Burr Ridge, Ill. Irwin/McGraw-Hill, 2001), p. 624

38. 17-38 A Supportive Culture for Organizational Learning Sensitive topics are freely discussed Upper-level managers are approachable Interpersonal interactions are frequent and meaningful A collective responsibility for solving problems Full recognition of expertise and appreciation of existing knowledge Knowledge is freely shared rather than hoarded Teaching is highly valued Everyone is committed to learning from mistakes Notes: Topic covered: Learning Organizations Characteristics of a learning supportive culture (see above slide) For Discussion: What is your personal experience with any of these characteristics? Are two or three of them overriding importance in a quest for learning organizations? Explain. Is the concept of �learning organizations� a valuable one, or just another passing fad? Explain. Source: Characteristics adapted from D W De Long and L Fahey, �Diagnosing Cultural Barriers to Knowledge Management,� Academy of Management Executive, November 2000, pp 113-127Notes: Topic covered: Learning Organizations Characteristics of a learning supportive culture (see above slide) For Discussion: What is your personal experience with any of these characteristics? Are two or three of them overriding importance in a quest for learning organizations? Explain. Is the concept of �learning organizations� a valuable one, or just another passing fad? Explain. Source: Characteristics adapted from D W De Long and L Fahey, �Diagnosing Cultural Barriers to Knowledge Management,� Academy of Management Executive, November 2000, pp 113-127