Organizational Behavior 7Assignment
Whole Foods Case Study Questions
Review the Whole Foods Case Study (pp. 1-6) and answer the questions connected to Chapters 13 and 14 as listed below. Responses to each question should range from 100-200 words. Your paper should reflect scholarly writing and current APA standards (12 point Times New Roman font, double-spacing, 1″ margins, title and reference pages). Be sure to use the text and/or other sources to support your responses and properly cite the use of such.
· Analyze effects of the democratic approach to store operation and hiring new associates on store performance. (Ch 13)
· Whole Foods now faces a significant amount of competition. How should it respond to the changes in the competitive landscape of its industry? What future challenges do you envision for Whole Foods market? (Ch 14)
Organizational Behavior – Week #7 Lecture 1
Structural Characteristics of Organizations
Greetings Class! I hope this note finds you well! As we embark on our first lecture of the week, I want you to do some basic housekeeping with respect to your gradebook. Please review your gradebook and ensure you’ve received grades for all prior assignments (except those submitted less than 48 hours ago). Within Blackboard, there’s a possibility of an “escape” if you’ve been granted an extension on an assignment and the grade is posted at a later date. To mitigate any issues with your final grades in a couple of weeks, it’s paramount that you identify issues this week and send me a private note with the discrepancy for my review and amendment as appropriate. Now, let’s delve into structural characteristics! My goal with this lecture is to explore various structural characteristics that might be worthy of incorporation into your final project 🙂 Let’s start with the basic definition of structural characteristics as defined by Hitt, Miller, and Colella:
Structural Characteristics – The tangible, physical properties that determine the basic shape and appearance of an organization’s hierarchy.
Sounds simple enough but let’s explore some of the more common structural characteristics:
· Height – This refers to the number of hierarchical levels in an organization, from the Chief Executive Officer to the lower-level associates. When talking about height of an organization, you generally hear the terms “tall” and “flat” used. Tall organizations have additional layers of management while flat organizations are leaner and work to minimize management layers. Let’s take a brief look at the Federal government. Would you consider the government a tall or flat organization? Obviously, the government is a somewhat tall organization but should it be? Are there ways to eliminate layers, gain efficiencies, and improve results? Regardless of your opinion here, the height of an organization should periodically be reviewed by leaders of an organization to ensure it’s the best match for achieving the stated goals and objectives of the organization.
· Span of Control – This refers to the number of individuals a manager directly oversees. It’s generally thought that broad spans of control are a good thing if you have skilled associates with the proper motivation to excel. A broad span of control prevents a manager from micromanaging his or her employees.
· Departmentalization – The grouping of human and other resources into units, typically based on functional areas or markets. There are four major types of departmentalization as noted below:
· Functional – In this form, resources are grouped by functions. Exhibit 13-2 on page 414 of the text illustrates a functional organization. Note that each function flows up to a Vice President and those Vice Presidents are held accountable for the success of their respective organizations. Benefits of the functional form include specialized knowledge and economies of scale. The major disadvantage is the isolation from other functions which can oftentimes result in “stove pipe”, or narrow-focused, thinking. If your organization is structured this way, it’s important to make a concerted effort to reach out and mold relationships with others from other functions.
· Divisional – For an organization that operates in different regions or produces a number of products, this form might work best. As can be seen from Exhibit 13-3 on page 415 of the text, the divisional form is grouped by product or service area divisions. Better and more efficient coordination and communication coupled with what the text calls “rapid response time” are often benefits of this structure. The divisional form’s disadvantages include lack of coordination/collaboration across divisions and diseconomies of scale.
· Hybrid – This form is just what the name implies…a mix of functional and divisional structures.
· Network – In this form, the majority of functional work is outsourced to other organizations. The text identifies homebuilders as the prime example of a network organization. Most established homebuilders subcontract much of their work to experts within various fields such as plumbers, electricians, painters, and landscapers to name a few. What might be the advantages or disadvantages of such an organization? One obvious benefit of a network organization is the reduction in employee benefits costs. For instance, healthcare and retirement costs are not a concern because the subs are contracted help and are responsible for their own benefits. A disadvantage might be the lack of control with respect to timing of work. For instance, a builder might want the subcontractor to show up tomorrow to keep the project on schedule, however, the subcontractor chooses to prioritize another job with another general contractor.
This might be a good time to take a sneak peek at the lecture in Week 8. To keep your creative juices flowing, I provided an example organization and intervention. Part of the intervention includes redefining the team across product lines. This would in fact be considered a divisional structure. Now, what about your organization? Might your organization benefit from a different structure? The takeaway here is to be sure to consider structural factors when finalizing your intervention(s).
References
Hitt, M. A., Miller, C. C., & Colella, A. (2015). Organizational Behavior (4th ed.). Hoboken, NJ: John Wiley & Sons, Inc.
Organizational Behavior – Week #7 Lecture 2
Person-Organization Fit
The focus for our second lecture this week is on what the text calls Person-Organization Fit. In simple terms, this concept answers the question, “Is the individual a good “fit” for an organization?”
Goals for this lecture are to:
· give you a common backdrop to reflect on that question regardless of the person or the organization, and,
· arm you with the know-how to evaluate your own personal situation. This lecture should get you thinking analytically about your choice of organization both in the present and the future.
Let’s first talk about values. Formally defined as “abstract ideals that relate to proper life goals and methods for reaching those goals”, values are in essence what’s important to you. For instance, most folks place a certain value on things important in their lives. What’s most important to you…family, money, faith, staying physically fit, having fun, traveling the world? Hopefully you get the point here – we all come from different walks of life and value things differently. I hinted at the start that this might have some interactive components so here we go. Take a blank sheet of paper and draw a line down the middle. Title the left column “Personal Values”. For the next 10-15 minutes or so, please list your personal values, what’s important to you. No value is too small to list. The idea here is to gather a comprehensive list. Don’t worry about the order of listing right now. We’ll worry about that next.
Okay, hopefully you now have a list of 10-15 items. The next step is to prioritize those values. As you work through this exercise, you’re likely to find there is overlap among the items. Don’t worry, that’s perfectly normal. What I recommend doing is “bucketing” the items in 4-5 major buckets. Items that have significant overlap should go in the same bucket. Once you complete this step, you should have a prioritized list of your own personal values. The value at the top of the list is most important to you while the value listed at the bottom is the least important. Now, on to the next step…
At the top of the right-hand column, place the title “Organizational Values”. Take the next 10-15 minutes and list the values of your organization. Feel free to use company literature, vision/mission statements, website research, and your personal experiences to derive the information. Don’t worry if the company’s stated values and what you’ve experienced in the organization differ. What you’ve experienced is your reality and most important for this exercise.
To review what you should have at this point – a single sheet of paper with prioritized personal values on the left side and organization values on the right side. The next step is to compare the two. Do your top 4-5 personal values match up or align with your organization’s values, or, are there huge disconnects between what you value and what your organization values? If the answer is the former, you likely enjoy your work and feel right at home in your organization. If the answer is the latter, you likely experience displeasure at work and are often frustrated. Let’s use an extreme example to illustrate:
Let’s take a twenty-year old male who works at Chick-fil-A, a fast food restaurant that specializes in all things chicken and whose founder is deeply religious and built the organization based on those religious principles. Chick-fil-A’s corporate purpose is, “To glorify God by being a faithful steward of all that is entrusted to us and to have a positive influence on all who come in contact with Chick-fil-A.” The young male lacks religious conviction and values partying and drinking alcohol with his friends at least 4-5 nights a week. Does this sound like a good match of personal and organizational values? I think you get the point.
If your values are not aligned with that of your organization, you’re living in an unsustainable situation. At a minimum if you choose to stay in the situation, you’ll be a disgruntled employee which is not good for you and not good for the organization. Once you understand what your prioritized values are, I empower you to find that perfect person-organization fit and you’ll enjoy going to work every day!
By the way, this technique is a great way to prepare for an interview. In most interviews, you’ll be asked why you want the job. If you can passionately describe how your values are aligned with that of the organization and give a specific example, you’re well on your way to paving your future! Many of you are currently serving in the armed forces or are veterans. Let’s suppose a potential employer asks you why you want the job. You respond, “I personally value faith, family, and service to country. Through my research of your company, I found you take a deep interest in giving back to veterans of the armed forces. I want to be part of an organization that not only has exciting work but also values what’s important to me.”
References
Hitt, M. A., Miller, C. C., & Colella, A. (2015). Organizational Behavior (4th ed.). Hoboken, NJ: John Wiley & Sons, Inc.
Our Giving Tradition. (2015). Retrieved January 30, 2015, from
http://www.chick-fil-a.com/Company/Responsibility-Giving-Tradition
.
CH. 13 organizational structure and culture
? knowledge objectives After reading this chapter, you should be able to:
1. Define key elements of organizational structure, including both structural and structuring dimensions.
2. Explain how corporate and business strategies relate to structure.
3. Explain how environment, technology, and size relate to structure.
4. Define organizational culture, and discuss the competing values cultural framework.
5. Discuss socialization.
6. Describe cultural audits and subcultures.
7. Explain the importance of a fit between individual values and organizational culture.
exploring behavior in action
Growth and Structure Provide an Integrated Portfolio of Services at FedEx
Many companies have goals designed to achieve growth and diversification of the markets they serve, both product and geographical. These long-term goals are often maintained even during economic recessions such as that experienced at the end of the first decade of the twenty-first century. Growth can be achieved by developing new products and services internally or by acquiring other organizations. Growth by external acquisition has been popular because it is often a faster and less risky means of achieving the desired growth. FedEx’s corporate strategy involved both of these approaches.
In 1971, Federal Express Corporation was founded in Little Rock, Arkansas. Early in its history, FedEx used internal development to achieve rapid growth. By 1983, Federal Express had achieved $1 billion in revenue; it made its first acquisition in 1984, Gelco Express International, launching its operations in the Asia Pacific region. Five years later,
Federal Express purchased Flying Tigers to expand its international presence. That same year, Roberts Express (now FedEx Custom Critical) began providing services to Europe. In 1995, FedEx acquired air routes from Evergreen International with authority to serve China and opened an Asia Pacific Hub in Subic Bay, Philippines, launching the FedEx AsiaOne Network. By 1996, FedEx Ground achieved 100 percent coverage in North America.
In 1998, FedEx acquired Caliber Systems, Inc. and cre- ated FDX Corporation. This series of acquisitions made FedEx a $16 billion transportation powerhouse. But the acquisitions and growth continued. In 1999, Federal Express Corporation acquired Caribbean Transportation Services. In January 2000, FDX Corporation was renamed FedEx Corporation. Also in 2000, FedEx Trade Networks was created with the acquisitions of Tower Group International and World Tariff.
In 2001, FedEx acquired American Freightways; in 2004, it acquired Kinko’s for $2.4 billion and also Parcel Direct; and it completed its acquisitions in 2007, with its purchase of Chinese shipping partner DTW Group in order to obtain more control over and access to services in secondary Chinese cities.
As suggested by the large list of acquisitions, FedEx’s strat- egy to achieve growth was realized. It also diversified the com- pany’s portfolio of services. For example, it acquired Kinko’s to expand the company’s retail services through the 1,200-plus Kinko’s stores. In addition, by acquiring Parcel Direct, FedEx was able to expand services for customers in the e-tail and catalog segments. All of the companies acquired by FedEx Corp were carefully selected to ensure a corporate culture with a positive service-oriented spirit, thereby providing a good fit with FedEx.
For several years, FedEx continued to be listed among Fortune’s 100 Best Companies to Work For and in the top 10 of Fortune’s World’s Most Admired Companies. However, it expe- rienced difficult times in the major economic recession and after 2009, it implemented changes to increase efficiency and reduce
costs. Although still on the list in 2013, by 2014, FedEx was not to be found on Fortune’s list of the Best 100 companies to Work For.
Because of the additional services, FedEx adopted a multidivisional struc- ture. FedEx Corporation provides strate- gic direction and consolidated financial reporting for the operating companies that are collectively under the FedEx name worldwide (FedEx Express, FedEx Ground, FedEx Freight, FedEx Office, FedEx Custom Critical, FedEx Trade Networks, and FedEx SupplyChain).
Along with its competitive array of services, FedEx remains innovative and sensitive to its environment. For example, in 2010, it implemented a new service, Senseaware, a sensor-enabled device that provides real-time data on the location and other important informa- tion of a package. The device allows FedEx and customers to monitor the condition and travel of highly impor- tant and sensitive packages. In 2013, it expanded this service with a cryogenic probe that allows precise temperature measurements of heat or cold sensitive shipments. In addition, FedEx also has initiatives to promote a sustainable
environment. In 2013, FedEx achieved $45 billion in annual revenues,
and its stock value appreciated by 53 percent during that year. Analysts predict a bright future with FedEx’s focus on serving the e-commerce market. The global e-commerce market is projected to achieve $1 trillion in sales in 2016. The e-commerce market in the United States is projected to be $371 billion by 2017. FedEx Ground and FedEx SmartPost are poised to gain a significant share of this market.
The growth in the size and scope of the company led FedEx to delegate significant authority to the divisions. Together, the various divisions are FedEx, but independently, each division offers flexible, specialized services that represent an array of logistics, supply chain, transportation, and business and related information services. Operating independently, each FedEx company manages its own specialized network of ser- vices. The FedEx Corporation acts as the hub, allowing its decentral- ized divisions to work together worldwide. FedEx coordinates the activities of operating divisions in ways that integrate them to pro- vide customers a unique and powerful portfolio of services globally
Sources: “About FedEx,” FedEx, at http://www.fedex.com. Accessed 2014; “FedEx Still Going Strong,” Seeking Alpha (January 21, 2014), http://seeking alpha.com; C. Tov, “FedEx: Will the Bullish Trend Continue in 2014?” Seeking Alpha (January 10: 2013), http://seeking alpha.com; “FedEx Expands SensAware Capabilities with Cyrogenic Probe,” FedEx newsroom, (October 16, 2013), http://news.van.fedex.com; T. Team,. “FedEx’s Ground Game Will Carry Earnings,” Forbes (June 17, 2013), http://www.forbes .com; “FedEx Meets Estimates but Gives Cautious Forecast,” New York Times (Dec. 17,
FedEx Ground
© AP World Wide Photos
2009), www.nytimes.com; Cliff Kuang, “If the Delivery Guy Drops Your Package, Sensea- ware Updates You Online,” Fast Company (Nov. 24, 2009), http://www.fastcompany.com; Stephanie N. Metha, “Smart Phones. Smart networks. Smart Packages?” Fortune (Nov.17, 2009), http://www.fortune.com; “FedEx Completes Acquisition of DTW Group,” BusinessWeek (Feb. 28, 2007), http://www.businessweek.com; Sarah Murray, “Putting the House in Order,” Financial Times (Nov. 8, 2006), http://www.ft.com; Dean Foust. “Tak- ing Off Like ‘a Rocket Ship,’” BusinessWeek (Apr. 3, 2006), http://www.businessweek.com.
the strategic importance of Organizational Structure and Culture
When considering the implementation of organizational strategies, we often focus on the roles of strong leaders, talented manag- ers and associates, and effective processes such as communication and conflict manage- ment. Although all these factors are impor- tant, as emphasized in prior chapters, they provide only part of the support to implement an organization’s strategy. The organiza- tion’s structure and culture also play crucial roles in strategy implementation.
Organizational structure refers to the formal system of work roles and author- ity relationships that govern how associates and managers interact with one another.1 To properly implement a strategy, an organ- ization must build a structure ensuring that formal and informal activities and initiatives support strategic goals. Structure influences communication patterns among individuals and groups and the degree to which they have the discretion to be innovative. If, for example, a strategy calls for rapid responses in several dynamic and different markets, it is important to create divisions around those markets and delegate authority to managers in those divisions so that they can act when necessary, similar to the decentralized divi- sions created by FedEx as described in the Exploring Behavior in Action. Firms that fail
to design and maintain effective structures experience problems. FedEx also coordi- nates activities across its divisions in order to achieve synergies among its various ser- vices and geographical markets. Doing this enhances FedEx’s performance.
An appropriate culture is also required to implement strategy effectively and achieve strong overall performance. Organizational culture involves shared values and norms that influence behavior.2 It is a powerful force in organizations. For example, Google’s organizational culture has been touted as one reason for its phe- nomenal success. We examine the specific characteristics of Google’s culture later in this chapter.
FedEx is known to have a special cul- ture as well. FedEx grew rapidly early in its existence by internally expanding its services and especially by reaching new geographi- cal markets. It then began to expand into international markets, partly by acquisition (e.g., its acquisition of Flying Tigers). It also used acquisitions to diversify the services that it offered. An example of this expan- sion was the acquisition of Kinko’s with its 1,200 retail outlets across the United States to support the diversification strategy and divisional structure. Over time, FedEx had to
adopt a new structure in order to manage its diversified portfolio of services and geo- graphical markets. The new divisional struc- ture granted significant autonomy to each operating business (division) with corporate coordination across the divisions to achieve synergy in offering customers integrated ser- vices. FedEx was careful in its acquisitions to ensure that the acquired firms fit well with its positive customer-oriented culture. Both organ- izational structure and culture influence the behavior of managers and associates and therefore play a critical role in the success of an organization’s strategy and its overall organizational performance.
In this chapter, we explore issues related to structure and culture. We open with a discussion of the fundamental ele- ments of structure, emphasizing how they influence the behavior and attitudes of man- agers and associates. Next, we discuss the link between strategy and structure, as well as the structural implications of environmen- tal characteristics, internal technology, and organizational size. In the second part of the chapter, we focus on culture. Cultural topics include the competing values model of culture, socialization, cultural audits, and subcultures. We close with a discussion of person–organization fit.
sometimes subtle. Second, structuring characteristics refer to policies and approaches used to directly prescribe the behavior of managers and associates.5
Structural Characteristics
Structural characteristics, as mentioned, relate to the basic shape and appearance of an organi- zation’s hierarchy. The shape of a hierarchy is determined by its height, spans of control, and type of departmentalization.
Height refers to the number of levels in the organization, from the CEO to the lower-level associates. Tall hierarchies often create communication problems, as information moving up and down the hierarchy can be slowed and distorted as it passes through many different levels.6 Managers and associates can be unclear on appropriate actions and behaviors as decisions are delayed and faulty information is disseminated, causing lower satisfaction and commitment. Tall hierarchies also are more expensive, as they have more levels of managers.7
A manager’s span of control is to the number of individuals who report directly to her. A broad span of control is possible when a manager can effectively handle many individuals, as is the case when associates have the skills and motivation they need to complete their tasks autonomously.
Broad spans have advantages for an organization. First, they result in shorter hierarchies (see Exhibit 13-1), thereby avoiding communication and expense problems.8 Second, they promote high-involvement management because managers have difficulty micromanaging people when there are larger numbers of them. Broad spans allow for more initiative by associates.9 In making employment decisions, many individuals take these realities into consideration.
structuring characteristics The policies and approaches used to directly prescribe the behavior of managers and associates.
height
The number of hierarchical levels in an organization, from the CEO to the lower-level associates.
span of control
The number of individuals a manager directly oversees.
Spans of control can be too broad, however. When a manager has too many direct reports, she cannot engage in important coaching and development activi- ties. When tasks are more complex and the direct reports more interdependent, a manager often requires a relatively narrow span of control to be effective. It has been argued that a CEO’s span of control should not exceed six people because of the complexity and interdependency of work done by direct reports at this level.10
Many older companies have removed layers of management and increased spans of control in recent years, whereas younger companies avoided unnecessary layers and overly narrow spans from the beginning.11 Because of their profound effects on behavior and attitudes among associates and managers, spans of control are of concern to many organizations such as PricewaterhouseCoopers (PwC).12 Through their Saratoga Institute, managers and consultants at PwC track spans of control in various industries and use the resulting insights in various reports and consulting engagements. They reported a few years ago that the median span for all managers in all industries was seven. An earlier Wall Street Journal report indicated an average span of nine. Yet, the Saratoga Institute reports that managerial spans of control have been increasing in recent years due to reductions in the number of managers in the recent global economic recession.13 In order to maintain efficiency and reduce their risks, spans of control have remained at higher levels even after the economy improved.
Departmentalization describes the approach used in grouping resources within an organization. As highlighted in the opening case, one of the two basic options is the functional form of departmentalization, in which resources related to a particular functional area are grouped together (see Exhibit 13-2). The functional form provides several potential advantages, including deep specialized knowledge in each functional area (because functions are the focus of the firm) and economies of scale within functional areas (resources can be shared by all individuals working within each functional area).14 This form, however, also has a potential major weakness: managers and associates in each functional department can become isolated from those who work in other departments, which harms coordinated action and causes slow responses to major industry changes that require two or more func- tional areas to work together.15 Lateral relation mechanisms, discussed in a later section, can
help to overcome this weakness. If an organization has multiple products or services or operates in multiple geographical
areas, it can group its resources into divisions (see Exhibit 13-3). The divisional form offers several benefits, such as better coordination among individuals in functional areas. Functional resources have been divided among the divisions, and associates and managers in the smaller functional departments within each division tend to coordinate with one another relatively
departmentalization
The grouping of human and other resources into units, typically based on functional areas or markets.
easily. With smaller departments, people tend to be closer to one another, and there are fewer barriers (formal or informal) to direct communication.
A second, related benefit is rapid response to changes in the industry that call for a coordination response across function (sometimes referred to as cross-functional). Because associates and managers in the various functional areas coordinate more effectively, response times are often faster. A third benefit is tailoring to the different product/service or geo- graphical markets. This occurs because the people in each division are dedicated to their own markets.16
The divisional form is not without its drawbacks, however. Two of the most important are (1) lack of collaboration across the product/service or geographic markets (individuals in one division can become isolated from those in other divisions) and (2) diseconomies of scale within functional areas (individuals in a given functional area but working on different markets cannot share resources as they can in the functional structure).17 As described in the Exploring Behavior in Action feature, FedEx developed a diverse set of businesses offering a portfolio of services. To manage these businesses efficiently and to offer customers the most effective ser- vices, FedEx implemented a divisional structure.
Hybrid forms also exist, with some functional areas divided across divisions, while others remain intact at the corporate level, often for cost reasons. Network organizations are another option, where many or most functional areas are outsourced to other organizations.18 Home- builders are usually network organizations, as they often do not complete their own architec- tural work and typically outsource to subcontractors much of the actual construction work. Nike is generally considered to be a network organization because it outsources manufacturing and other types of work. Most multinational firms are structured as network organizations with decentralized, autonomous subsidiaries in different countries and multiple suppliers in different regions of the world.19
The network approach has been emphasized by a number of firms in recent years, at least to some degree. Its chief benefit lies in allowing a firm to focus on what it does best while outsourcing the rest.20 Quality control, however, is sometimes an issue, and coordination of internal and external efforts is often a substantial problem. Effective information technology that facilitates coordination across organizational boundaries is crucial.
Structuring Characteristics
Research has shown that organizational structure is a determinant of performance.21 It does so through its influences on behavior, policies, and managerial actions. Whereas, structural char- acteristics indirectly affect behavior, structuring characteristics relate to policies and approaches used to directly prescribe the behavior of managers and associates. This second category of structure includes centralization, standardization, formalization, and specialization.
Centralization refers to the amount of decision-making authority that is held at the top of the organization.22 In centralized organizations, top-level managers retain most authority, leaving less for mid- and lower-level managers and very little for associates. This is not consis- tent with high-involvement management, and research suggests that centralized organizations generally perform less well.23 There are several conditions, however, that call for a significant degree of centralization. We discuss this issue in a later section.
Standardization refers to the existence of rules, standard operating procedures and rou- tines.24 When standardization is high, managers and associates are expected to follow prear- ranged approaches to their work. Under these circumstances, their behavior is very predictable. Although standardization is sometimes necessary for efficiency and safety, it reduces opportu- nities for individual initiative, creativity, and self-directed collaboration with others inside and outside the organization. Thus, it can negatively affect motivation and satisfaction for many.
Formalization is a closely related phenomenon; it is the degree to which rules and proce- dures are documented. Specialization is the degree to which managers and associates have nar- row jobs that use focused skills; usually, these jobs offer little variety. As discussed in Chapter 6, narrow jobs can negatively affect motivation, satisfaction, and performance for individuals who want to be challenged and to grow in the workplace. Yet, in some self-managed teams with associates having higher levels of specialization, some degree of formalization can produce positive results.25 Alternatively, specialization is less appropriate where tasks are interdependent requiring coordination across them to be completed effectively.26
The Modern Organization
Structural and structuring characteristics combine to create very different types of organiza- tions. Some in the field of organizational behavior label the two fundamental types organic versus mechanistic.27 Essentially, many firms desire to have a learning organization that requires a structure more similar to an organic organization.28 Other labels include boundaryless versus traditional to make the similar distinctions.29
In all cases, the more flexible empowering type of structure (i.e., organic, learning, or boundaryless) is associated with fewer management levels; broader spans of control; and lesser amounts of centralization, standardization, formalization, and specialization.
Departmentalization at the top of the firm can be either functional or divisional. The flex- ible approach provides freedom for lower-level managers and associates to think for themselves, to communicate with anyone who could be helpful, and to try new ideas. They also have the autonomy to provide specialized attention to multiple stakeholders (e.g., shareholders, custom- ers, alliance partners, government units, etc.).30 Such learning organizations are ambidextrous, which allows them to exploit the knowledge they currently hold and explore for new knowledge that will help them to either sustain a current competitive advantage or create a new one. Need for Structure
Although substantial freedom may exist, it is not unlimited, nor should it exist without alter- native mechanisms designed to ensure that managers and associates are working for the common good of the organization. First, even in relatively organic firms there is some standardization, and some decisions are made by middle and senior-level managers. At Southwest Airlines, pilots and flight attendants have more freedom than at other airlines, but they still must follow applicable laws and safety rules.32
Interestingly, research shows that new-venture firms need structure and thus often are more successful if their organization structure is less organic.33 In addition, new-venture firms often are “boundaryless” in that they must operate in networks to gain access to needed resources. Although these alliances may be critical to their survival, it can be difficult for them to break into an existing network of relationships.
Working across these organizational boundaries requires that they not be too standardized or formalized. They need flexibility. In addition, the structure should allow for appropriate levels of transparency in associates’ productivity while guarding against too much oversight.34
Need for Values that Benefit the Organization
Alternative mechanisms are used to ensure that individuals are working for the good of the organization. These mechanisms include selection systems, socialization schemes, and leader- ship processes.
Selection systems should be designed to identify individuals who share the values of the organization. Socialization schemes, discussed later in this chapter, should be designed to fur- ther shape values and to promote a shared vision of the organization’s future. Similarly, strong leadership at the top of the firm instills shared purpose among managers and associates. Shared values and vision act as guides to behavior, and reduce the chances of lower-level managers and associates acting in ways that are counterproductive. Reward systems also are used to promote appropriate behavior.
Although lower-level managers and associates may not realize it, powerful forces guide their behavior in organizations characterized by relative freedom of thought and action.
Over time, the value of unleashing human capital throughout an organization became widely recognized. Today, senior leaders in modern organizations tend to favor more organic structures. Although this is positive, given that organic structures are closely aligned with high- involvement management, there are situations in which some aspects of this approach are not appropriate.
Factors Affecting Organizational Structure
Senior managers must choose the structures to use for their firms. Middle and lower-level managers often are involved in these choices and play a key role in the implementation of the choices. Factors that should be considered in designing the structure of the firm include strat- egy, external environment, internal technology, and organizational size.
The Role of Strategy
An organization’s task environment is composed of customers, suppliers, competitors, govern- ment regulatory agencies, and perhaps unions. These are external components with which the organization frequently interacts and that have an effect on the organization.35 Organizations adapt to their environments through formal strategies. In turn, these strategies affect the organization’s structure.
Corporate Strategy
Corporate strategy is the overall, predominant strategy of the organization. It determines the direction for the total organization. Senior managers formulating corporate strategies focus on the organization’s stockholders and other critical external constituents. Their strategies can be oriented toward growth, diversification, or both.
Almost all types of organizations use growth as a measure of success. Awards are given for growth, such as the Growth Strategy Leadership Award given by the consulting firm Frost and Sullivan.37 Under some circumstances, senior leaders are even willing to trade profits for increasing sales. Growth can be achieved through internal development or by external acquisition. Although the internal growth strategy is an attractive option, growth by external acquisition is popular with many companies.38 Cisco Systems, a maker of telecommunication equipment, is known for its frequent acquisitions.39 Acquisition is often a faster method of achieving growth, but it does carry some risk, in part because cultural differences between firms often cause difficulties in the post-acquisition integration of operations.40 Some firms that have diversified through multiple acquisitions later retrenched and sold off prior acquisi- tions because of poor performance.41
Each of these two growth strategies has implications for structure. For example, firms using an internal-growth strategy are likely to have larger marketing and research and develop- ment (R&D) departments. It is also probable that authority for decisions is decentralized to the heads of these departments. In contrast, firms following an external acquisition strategy are likely to have the more well-developed financial and legal functions required to analyze and negotiate acquisitions. These firms may even have a separate specialized planning and acquisi- tions department. For example, given the number of acquisitions completed by FedEx over time, the company likely has enriched these functions.
Diversification has also been a common and popular corporate strategy. Diversifica- tion involves adding products or services different from those currently in the firm. Firms may diversify for several reasons, but the primary one is to reduce overall risk by decreasing dependency on one or a few product markets.42 That is, if demand for one of the firm’s products falls, the other products might continue to sell well, providing protection for the bottom line.43
Firms may also diversify the geographic markets they serve by entering new foreign markets.44 Most companies start out as single-product firms, which are firms where more than 95 percent of annual sales come from one product. Dominant-product firms obtain 70 to 94 percent of their sales from one product. Most companies following a diversification strategy move on to become related-product firms, where less than 70 percent of annual sales come from one product and the various products are related to one another. The most diversified firms are classified as unrelated-product firms. In these firms, less than 70 percent of annual sales come from any one product, and the firm’s various products are unrelated to the pri- mary core business.45
As firms become more diversified, research suggests that they should adopt the divisional form.46 In other words, they should develop divisions for each of their end-product businesses. Also, as firms become more diversified and divisionalized, authority should be delegated to the divisions.47
Matches between diversification and structure are shown in Exhibit 13-4. Single-product and most dominant-product firms should use a functional structure, where the major units of the organization are based on the functions performed (marketing, production, finance) rather than on products. Related-product and most unrelated-product firms should use a divisional- ized structure. Large, highly diversified unrelated-product firms may use a holding company structure, in which the operating divisions are extremely autonomous.48 Firms with functional structures are sometimes referred to as U-form (unitary) organizations and firms with division- alized structures as M-form (multidivisional) organizations.49
Over time, FedEx changed from a single-product firm to a related-product firm. As such, it implemented the divisional structure and decentralized primary authority to make decisions to the heads of each division. Because the businesses are all related, the corporate office coordinated activities across the divisions to offer customers the full portfolio of FedEx’s services (as described in the Exploring Behavior in Action feature).
Business Strategy
Firms must formulate business strategies in addition to corporate strategies. A business strategy is developed for a particular product/service market and is a plan of action describing how the firm will operate in a particular market.50
Business strategies are necessary to ensure effective competitive actions in the different markets in which a firm intends to operate. One popular competitive strategy involves main- taining low internal costs as a basis for low prices offered to customers. Consumers interested in buying the least expensive goods in a particular market are targeted. To effectively imple- ment this strategy, efficiency and control are important inside the firm or division utilizing this approach, and a somewhat more mechanistic structure is useful, if not taken to an extreme.51 The structure used to implement a low-cost strategy often emphasizes functions, and the deci- sions are also centralized to maintain economies of scale in operations.52
A second popular competitive strategy involves product/service differentiation. Consum- ers are targeted who are willing to pay more for a product/service that is different in some meaningful way (higher quality, superior technology, faster availability). To effectively imple- ment this strategy, flexibility and initiative are useful for staying ahead of the competition, and a more organic structure can be helpful in supporting these needs.53 To be effective, each egy requires a unique set of internal resources (e.g., human capital, as illustrated in the Experiencing Organizational Behavior on IDEO) that can be used to effectively implement the strategy.54
In the Experiencing Organizational Behavior segment, IDEO illustrates four key points. First, this firm shows how a differentiation strategy can be used in the business of designing products and services. IDEO has distinguished itself through its unique approach to working with clients, and it promotes the innovation and initiative required to maintain its edge by using an organic structure. Second, the firm highlights the fact that companies occasionally supple- ment their internal human capital as they work to create a competitive advantage in the mar- ketplace. All or most of IDEO’s clients have talented associates and managers. Yet, on occasion they still need outside assistance. Third, IDEO promotes design thinking throughout their and their clients’ organizations. In so doing, innovation is integrated into the organization’s culture and DNA. Finally, the IDEO case again illustrates the value of teams with diverse members, as explained in Chapters 2 and 11. Teams provided invaluable help for IDEO and its client firms to implement a strategy of innovation designed to create or maintain a competitive advantage.
A more advanced form of the divisional structure, strategic business units (SBUs) is some- times used for more complex firms. Large firms with multiple diversified businesses sometimes
EXPERIENCING ORGANIZATIONAL BEHAVIOR
The IDEO Way: Adapting through Innovative Design
IDEO, a design firm based in Palo Alto, California, is used by many organiza- tions to help design their new products and services. For example, IDEO helped to design the Plié wand, a pen-shaped applica- tor on the tops of the Julep Beauty Company’s nail polish bottles. These applicators swivel for any angle needed to apply the polish.
Achievement First, a major charter- school management organization, hired IDEO to radically redesign the traditional school model. The new design will consider how edu- cation process is structured during each day, how technology is integrated into the learning process and how families are involved in their children’s education.
Joie de Vivre’s new Epiphany Hotel in Palo Alto, California, has special meeting places designed by IDEO that includes a work lounge, boardroom, and mezzanine that are designed to facilitate networking, brainstorm- ing, and collaborating. Thus, IDEO works with many types of organizations and on many design problems. What is the secret of IDEO’s success? It might have something to do with the associates and managers at IDEO.
The people of IDEO have a long his- tory of helping firms design award-winning products and services. IDEO also offers con- sulting and training in innovation and cul- ture change. To make a difference, IDEO’s associates and managers rely on a simple concept—empathy. Although this concept may not be conventional, IDEO’s record of success is difficult to question. The purpose of this training and IDEO’s approach more generally is to inculcate “design thinking” even into the top leaders of the organization.
Empathy for the customer is created in clients through a set of time-tested, systematic research methods. First, IDEO forms a diverse team composed of client and IDEO members Team members from IDEO may represent the disciplines of cognitive psychology, environ- mental psychology, anthropology, industrial design, interaction design, mechanical engi- neering, and business strategy. Team members from the client firm are key decision makers. With the team in place, observations in the real world are orchestrated. Team members observe how people use relevant products and services. For a project focused on intimate apparel, team members followed women as they shopped for lingerie, encouraging the shoppers to verbalize everything they were thinking. Team members may even act as customers. For a health-care project, team members received care at various hospitals and documented their experiences by video and other media.
Second, team members engage in brainstorming. After some preliminary work, the designers, engineers, social scientists, and individuals from the client company engage in intense interactions to develop a rich understanding of an existing product/service design or of the needs in a novel product cat- egory. Unlike some group sessions, IDEO’s brainstorming sessions have been compared to managed chaos.
Third, team members engage in rapid prototyping. This is one of the characteristics that have made IDEO famous. IDEO associ- ates and managers believe in the power of trying many different ideas rather than just talking about them. Rudimentary versions of products and services are quickly constructed and examined.
Finally, team members implement the fruits of their labor. Detailed design and engi- neering work is completed, and the team works closely with clients to ensure a success- ful launch. In many other design firms, team members simply turn over their work with little follow-up.
The critical component in this, accord- ing to the president and one of the found- ers and current CEO, Tim Brown, is design thinking. According to Brown, everyone is a designer but must realize it and think like a designer. He suggests that all of the actions just described will not work effectively with- out design thinking. This thinking requires work across functions and combines creative confidence with analytic ability. This type of thinking is now used by a number of organi- zations trying to become highly innovative. The Hasso Plattner Institute of Design at Stan- ford University uses this approach to teach students to rethink traditional boundaries.
IDEO has a highly innovative culture (as one might expect). One of the most interesting attributes of the culture is the focus on helping behavior. When designers encounter a com- plex problem, they can go to anyone in the organization, including members of the top leadership, for help. The structure of the social network within IDEO is highly complex and shows the many connections between people throughout the organization, regardless of level or area of responsibility. Promoting this type of social interaction, IDEO designed and implemented a self-service communal snack kitchen where people not only access snacks but also cook together, brew beer, and develop prototype foods of the future (often for clients).
IDEO has become so popular that many firms send their managers to the firm to observe the organic structure and to be trained in innovative thinking and action. These managers use what they have learned to enhance the operations and structures of their own firms. IDEO’s approach continues to be highly successful, often among the winners of the IDEA awards given for the top designs of the year.
Sources: “About IDEO: Design Thinking,” IDEO, http://www.ideo.com. Accessed February 9, 2014; “Joie de Vivre Hotels to Open 86-key Boutique, The Epiphany Hotel, in Palo Alto, CA Early in 2014;” Hospitality Net, http://www.hospitalitynet .org. Accessed January 25, 2014; “IDEO CEO Tim Brown: Everyone is a Designer” The Huffington Post (January 24, 2014), http://www.huffingtonpost.com; M. Bailey, “City’s Charter Network Hires San Francisco Firm to Design the K-8 Public School of the Future.” New Haven Independent (Jan. 23, 2014), http://www.newhavenindependent.org; C. Tice, “How Social Media Is Fueling the Next $1 Billion Beauty Brand,” Forbes (Jan. 22, 2014). http://www.forbes.com; T. Kelley, “Invite Serendipity to Your Café and Expect innovation,” WIRED (Jan.10, 2014), http://www.wired.co.uk/magazine; T. Amabile, C. M. Fisher, & J. Pillemer, “IDEO’s Culture of Helping.” Harvard Business Review (January 2014), http://hbr.org; IDEA Awards, Industrial Designers Society of America, http://idsa.org.ideas; V. Wong, “How to Nurture Future Leaders,” BusinessWeek (Sept. 30, 2009), http://www.businessweek.com; T. Brown, “Change by Design,” BusinessWeek (Sept. 24, 2009), http://www.businessweek.com; B. Moggridge, Designing Interactions (Boston: MIT Press, 2006).
group their businesses into SBUs. At General Electric, for example, businesses are grouped into SBUs that include GE Advanced Materials, GE Commercial Finance, GE Consumer Finance, GE Consumer and Industrial Products, GE Energy, GE Healthcare, GE Infrastructure, GE Insurance Solutions, GE Transportation, and NBC Universal.55 A business strategy is then for- mulated for each separate SBU, thus allowing the complex organization to be more effectively managed.
The key to developing effective strategies for each SBU is the appropriate grouping of businesses. Each group must have commonalities among its businesses for a coherent strategy to be developed. These commonalities may correspond to market relatedness, shared technol- ogy, or common distinctive competencies.56
The Role of Environment
Environmental forces account for many differences between organizations, and they have a marked effect on the way organizations conduct business.57 Because organizations must obtain their inputs from the external environment, their relationships with suppliers and customers are critical. They also must satisfy governmental regulations, adapt to changes in the national and world economies, and react to competitors’ actions.
Environment and Basic Structure
Managers must closely monitor their organization’s external environment. However, some environments are more difficult to monitor than others because they are more uncertain (com- plex and changing). A number of researchers have found that the degree of environmental uncertainty experienced by managers is related to the type of structure an organization uti- lizes. This is especially important today because of the high uncertainty of environments in which many organizations must operate.58 Classic research indicated that effective organiza-
59
environmental uncertainty The degree to which an environment is complex and changing; uncertain
environments are difficult to monitor and understand.
tions exhibit a match between environmental characteristics and organizational structures. Although the evidence is not entirely consistent, a number of other researchers have found similar results, using mostly small organizations or units of larger ones.60
The classic study reported the following important findings:
• Effective organizations experiencing high environmental uncertainty tend to be more organic because lower-level managers and associates must be able to think for themselves. They must be able to respond to events quickly.
• Effective organizations experiencing low environmental uncertainty tend to be less organic. Middle and senior-level managers, in conjunction with operations specialists, can create efficient and effective rules and operating procedures. They can gain sufficient insight to understand and anticipate most situations that will arise and carefully create procedures to handle those situations.
It is important to understand the reasons for differences in functional departments within an organization. Because separate departments focus on different areas of the external envi- ronment, they often exhibit different types of structure. R&D, for example, is focused on technological advances and the changing pool of knowledge in the world. The relatively high level of uncertainty involved often requires a more organic structure with longer time horizons for decision making and planning and a greater emphasis on interpersonal relationships to promote information sharing and knowledge development. They need to seek information and knowledge from external as well as internal sources.61 In contrast, the accounting function is focused on more slowly evolving developments in accounting standards. The relatively low level of uncertainty generally supports use of a less organic structure, with shorter time horizons and lower emphasis on interpersonal relationships. In effective organizations, then, differences in the level of uncertainty in subenvironments create differences in functional departments.
Recent work suggests that environmental uncertainty also affects the way resources should be managed in organizations. For example, organizations operating in uncertain environments need to constantly enrich their current capabilities and even create new ones. Thus, they con- tinuously train their managers and associates to upgrade their skills and are on the lookout for new associates with “cutting-edge” knowledge that can add to the organization’s stock of knowledge. They also need to search for opportunities in the environment and to engage in entrepreneurial behavior to maximize the use of their capabilities to provide products and services that create value for their customers.62
IDEO, as explained in the Experiencing Organizational Behavior feature, is helping firms to be more entrepreneurial and create products that are valued by their customers. The research suggests that managers must continuously scan their firm’s external environment to identify factors that may affect how the firm should act. Their scanning behavior is even more impor- tant in dynamic environments.63
Environment and Integration
Functional departments within a single-product firm or a division of a larger firm must be integrated. They must share information and understand one another in order to coordi- nate their work.64 Thus, organizations must be structured to provide the necessary informa- tion, or perhaps to reduce the need for it. Structural arrangements that address information needs are particularly important when the environment is uncertain. Useful arrangements include: (1) creation of slack resources, (2) creation of self-contained tasks, (3) investment in information technology, and (4) creation of traditional lateral relations.65 Exhibit 13-5 shows the relationship of these elements of organizational structure and information processing needs.
he creation of slack resources reduces the need for interdepartmental information pro- cessing. Departments can operate more independently. Examples of slack resources include having extra time to complete tasks that other departments need as inputs and maintaining large inventories of raw materials provided by others. Although these extra resources reduce information exchange needs, they are costly.
The creation of self-contained tasks reduces the need for interdepartmental processing of information. This approach provides departments with more of the resources they need to do the job. For example, a department’s tasks might require the help of a design engineer and a process engineer on a part-time basis. So rather than consulting with a group of design engi- neers to whom various departments would come when they needed help, a department would have access to its own design engineer who would also assist with nonengineering work as time permitted. This method reduces the need for coordination between groups (e.g., the engineer- ing group and other groups needing engineering services) and thereby reduces information- processing requirements.
Unlike the two elements of structure just discussed, information technology facili- tates the processing of information rather than reducing the need to process it. This tech- nology can help to transfer information up and down the hierarchy as well as horizontally from department to department. E-mail, web-based discussion boards, chat rooms, and Twitter are examples of simple tools that facilitate communication and coordination. These tools facilitate collaboration among individuals to solve problems and complete tasks, and they help leaders manage the semiformal organization (social networks among associates and managers).66
An information repository is a more complex tool for integration. Such a repository requires individuals in various departments to deposit documents, data, and commentary in an open-access central database. An enterprise resource planning (ERP) system is an even more complex tool. ERP systems provide a common set of planning and analysis capabili- ties across departments, as well as a platform for electronically sharing evolving plans and analyses. This type of system has provided important benefits in the integration of depart- ments,67 particularly when the system has been explicitly designed to support the organiza- tion’s strategy.
In addition to facilitating integration across existing departments in an organization, information technology has helped to flatten organizations and has promoted project-based and team-based structures.68 Shorter hierarchies are consistent with high-involvement man- agement because they push decision authority to the lowest levels of the organization and increase the speed and quality of decisions as a result. Such hierarchies would not be possible, however, without information technology to ensure that associates and lower-level managers have the information they need to make sound decisions.
Project-based structures utilize individuals from various departments to work in teams focused on complex projects requiring intense and integrated efforts. In some cases, these individuals are temporarily assigned to a project on a full-time basis. In other instances, indi- viduals participate part-time as project members and part-time as members of their functional departments. In both cases, information technology ensures that project participants working on different aspects of the overall project understand the goals and activities of those working in other areas.
Without sophisticated information technology, individuals could not integrate the vari- ous aspects of the project as effectively or as rapidly, resulting in some complex projects not being undertaken and others being handled more slowly through the traditional hierarchy.
Relations among departments are based on the need for coordinating their various tasks. Because lateral relations increase information flow at lower levels, decisions requiring interde- partmental coordination need not be referred up the hierarchy. Lateral relations are traditional elements of structure used to help organizations process more information. These relations
may be facilitated by information technology but often are based on face-to-face communica- tion. A number of alternative lateral processes can be used. Listed in order of least complex to most complex, they are as follows:
• Direct contact involves two individuals who share a problem and work directly with one another to solve it.
• Liaison roles are temporary coordination positions established to link two departments that need to have a large amount of contact.
• Task forces are temporary groups composed of members from several departments who solve problems affecting those departments.
• Teams are permanent problem-solving groups for continuous interdepartmental problems.
• Integrating roles are permanent positions designed to help with the coordination of various tasks.
• Managerial linking roles are integrative positions with more influence and decision- making authority.
• Matrix designs establish dual authority between functional managers (e.g., marketing manager, engineering manager) and project or product managers (e.g., working across subsidiaries operating in different countries).69
The Role of Technology
Within an organization, technology refers to the knowledge and processes required to accom- plish tasks. It corresponds to the techniques used in transforming inputs into outputs. The relationship of technology and structure has been described in several ways, as discussed below.
Technology and Structure: A Manufacturing Framework
Early work on the relationship between technology and organization structure focused on manufacturing technology: small-batch production, mass production, and continuous-process production.70 This research found that technological complexity influenced structure and that effective organizations exhibited matches between technology and structure.71
Today, new types of technology are being used in smaller and larger manufacturing opera- tions alike. Technology can equalize the competition between smaller and larger organizations. The use of advanced manufacturing technology (AMT), computer-aided design (CAD), and computer-aided manufacturing (CAM) helps firms of all sizes to customize their strategies by manufacturing products of high variety at lower costs and to commercialize new products in a shorter amount of time.72 These technologies have been integrated to create forms of “mass customization.” Mass customization is a process that integrates sophisticated information technology and management methods in a flexible manufacturing system with the ability to customize products in a short time.73 Organizations using mass customization need a more flexible and organic structure.74
Perhaps one of the newest technologies with potential to transform many industries is 3D printing. This technology allows individuals to design and produce products that they desire. However, businesses can do the same in larger quantities. It easily allows for customization. In fact, some have predicted that this technology has the potential to “revolutionize” the home- building industry.75
Technology and Structure: A Broader Framework
The link between technology and structure using a broader view of technology is useful in both manufacturing and service organizations. In this view, technology is defined as the number
of different problem types that are encountered over time (task variability) and the degree to which problems can be solved using known steps and procedures (task analyzability).76 Based on these two dimensions, he delineated four types of technology:
1. Routine: There is little variation in the fundamental nature of problems encountered over time, but any new problems can be solved using readily available methods.
2. Craft: There is little variation in the fundamental nature of problems encountered over time, but any new problems often require a novel search for unique solutions.
3. Engineering: There is significant variation in the fundamental nature of problems encountered over time, and new problems can be solved using readily available methods.
4. Nonroutine: There is significant variation in the fundamental nature of problems encountered over time, and new problems often require new methods to find unique solutions.
Exhibit 13-6 provides examples of organizations with these types of technologies. To be most effective, firms should match their structure to the technology used. Nonroutine organizations should adopt an organic structure; craft and engineering organizations should adopt a moderately organic structure; and routine organizations should adopt the least organic structure.77 Essentially, as routineness increases, organic structures become some- what less useful.
These technology concepts can be applied to an organization as a whole or to units within the organization. For example, the technology of W. L. Gore, the maker of GORE-TEX fabric, can be described as a mixture of routine and craft technology at the firm level, but its R&D area can be described as nonroutine. Any unit can be assessed with respect to task variability and task analyz- ability and placed into one of the four technology categories. A number of studies have shown that technology influences structure at the unit level and that effective units exhibit a significant match between technology and structure.
The Role of Organizational Size
It is not surprising that size has implications for organizational structure.79 As an organization grows, it generally becomes taller; otherwise, the average span of control for managers becomes too large. As organizations increase in size, formalization also tends to increase to help main- tain order. However, centralization tends to decrease, as senior managers cannot comprehend all of the organization’s work and make all decisions.
The most important measure of size is the number of associates and managers. Research shows that managerial decisions regarding structure are based on the factors that are most salient to managers. Because people are highly important to most managers, managerial decisions on struc- ture are often influenced by the number of people for whom the managers have responsibility.80
A common outcome of larger organizations and the heightened formalization and stan- dardization that accompanies growing size is inertia.81 Large, formal organizations often have more standardized policies and routines for managers and associates to follow. These attributes often produce a resistance to change and thus lower innovation. Yet, innovation is a critical component of competitiveness for most organizations in our current global economic environ- ment. The potential for inertia in large organizations and the need for innovation have led to the development of ambidextrous structures and practices.
Ambidextrous organizations balance the formalization and standardization that help to
achieve efficiency and the flexibility required to explore new ideas and opportunities necessary
to be innovative.82 The intent is to achieve efficiency to exploit the firm’s current capabilities and
simultaneously explore to learn new capabilities, discover new technologies, and develop new
83 products and services. To do so first requires top management to have a shared vision of an
ambidextrous organization and to develop an incentive system to reward the achievement of both exploitation and exploration. This often requires transformational leadership (as discussed in Chapter 8) and design thinking, such as that promoted by IDEO.84 Another dimension involved in building an ambidextrous organization is the structure. Often, firms trying to achieve the needed balance maintain some parts of the organization with formalized routines but then also develop semi-autonomous units that have significant freedom to explore new ideas and unique approaches to problems.85 These approaches allow the organization to unbundle operations and processes to manage the costs of operations but also pursue the development of technological innovations. This type of organization, structure, and leadership is becoming more common.86
Summary Comments on Structure
In summary, corporate strategy and organizational size have strong effects on the structural characteristics of organizations—those that determine the shape and appearance of the hier- archy. Corporate strategy is a particularly strong determinant of departmentalization, and size is an especially strong determinant of height and spans of control. Business strategy, environ- mental uncertainty, and technological nonroutineness have strong effects on unit structuring within organizations, as well as the overall structure of the organization.
An important study has shown how business strategy, environmental uncertainty, tech- nological nonroutineness, and structure work together to influence performance in organiza- tional units as well as in small organizations. In this study, strong performance was associated with consistency among these factors:
• Uncertain environments led to strategies based on differentiation and innovation, which, in turn, led to nonroutine work, all of which were matched by organic structure.
• More certain environments led to strategies based on low costs and efficiency, which, in turn, led to routine work, all of which were matched by a less organic structure.
Other studies have provided similar results, suggesting that managers in effective firms create consistency across strategy, environment, technology, and structure.
Google Culture and High-Quality Associates Produce Innovation
Larry Page and Sergy Brin gradu- ated from Stanford University in 1995 with computer science degrees. They wanted to build a search engine that would retrieve selective informa- tion from the vast amount of data available on the Internet. In 1997, they named their search engine “Backrub,” and in 1998 they renamed it “Google” (Google is a play on googol, the mathematical term for a 1 followed by 100 zeros—a reference to organizing the seem- ingly infinite Web). By 2003, it was the most preferred search engine in the world because of its precision and speed in delivering the desired data in searches. But beyond its soft- ware technology, Google’s success can also be attributed to its organizational culture.
In organizing the firm, Page and Brin avoided unnecessary managerial hierar- chies, creating a decentralized structure and giving their engineers significant autonomy to encourage creative thinking. Google has a small management group and most engi- neers work in teams of three, with project leadership rotating among them. These teams have complete autonomy and freedom to cre- ate, reporting directly to the vice president.
Open communication is encouraged and employees are free to approach top management as desired. They are allowed to communicate with anyone in any depart- ment. Employees were also asked to eat in the cafeteria so they could meet others in the company and create opportunities for them to share and discuss technical ideas or issues.
In addition, every Friday afternoon all employees are provided information about new products and the company’s financial
performance. Google’s emphasis on inno- vation and commitment to cost containment requires that each employee to be a contribu- tor. The decentralized model of management and open lines of communication are essen- tial parts of Google’s organizational culture. And the organizational structure and culture have helped the firm attract and retain the most talented individuals in the field. Although still a young firm, Google’s work culture has become legendary in Silicon Valley.
A few people have criticized Google’s organizational culture and management model. Some believe that Google has out- grown the informal culture and that it will not be able to sustain the growth and still main- tain the informal lines of communication. Crit- ics argue that even though engineers are free topursueindividualprojects,theinformality makes it difficult to coordinate and plan activi- ties. Alternatively, as Google has grown much larger (from 1,000 to approximately 30,000 managers and associates), sustaining its cul- ture has been more challenging. A few associ- ates have complained that they now feel a dis- tance between them and management. They express concerns that the firm has become more bureaucratic. Also, Google has begun losing some of its top talent, especially those who have increased their wealth with Google stock ownership and have departed to estab- lish their own business. Yet, Google continues to be ranked at the top of Fortune’s 100 Best Companies to Work For, taking the number one ranking in 2014. Google also continues to be highly innovative. It generally ranked as the one of the most innovative companies in world (e.g., Fast company’s 2013 rankings).
© Guy Spangenberg/Transtock/Corbis
Walter Isaacson, author of the biography on Steve Jobs, suggested that Google had sur- passed Apple as the most innovative company.
Most analysts attribute Google’s inno- vative productivity to its culture and its high- quality human capital. Clearly, the culture at Googleempowersthemanagersandassoci- ates to develop new ideas and bring them forward. In addition, Google follows some major principles to produce innovation. For example, the focus is on the user; design deci- sions emphasize solving customers’ problems. There is also an emphasis on thinking big. Google refers to this as think 10X—magnify the change. And, among others, the intent is to bet on unique insights. Finally, there is a belief that if one does not fail often, s/he is not trying hard enough to be innovative.
Google continues to engage its asso- ciates, involving them in addressing major issues, maintaining a flat organization, and striving to keep the entrepreneurial spirit alive. The culture, structure, human capital, and inno- vation principles are paying off for Google in innovations that help it to remain one of the most successful companies in the world.
Sources: M. Moskowitz & R. Levering, “The 100 Best Companies to Work For,” Fortune (Feb. 3, 2014), pp. 108–120; M. J. Belvedere, “Google Steals Innovation Crown from Apple: Isaacson,” CNBC.COM (Jan. 15, 2014), http://wwwcnbc .com; P. Walls, “Googles 9 Principles of Innovation for Every Organization,” eCornell, http://blog.ecornell.com (Nov. 18, 2013); A. Waters, “Google’s Innovative Culture: Lars Bratsberg’s Talk on Repetitive Innovation Gives Principled Advice.” TrendHunter (Oct. 2, 2013), http://www.trendhunter.com; L. He, “Google’s Secrets of Innovation: Empowering Its Employ- ees,” Forbes (March 29, 2013), http://www.forbes.com: “Involve Your Employees, Says Google, CEB,” Business Week (Dec. 11, 2009), http://www.businessweek.com; Andrzej Zwaniechi, “Google Aims to Retain Entrepreneurial Spirit as It Grows,” America.gov (Oct. 28, 2009), http://www.america.gov; B-School News, “They Love It Here, and Here, and Here,” BusinessWeek (June 4, 2006), http://www.businessweek.com; Jade Chang, “Behind the Glass Curtain,” Business- Week (July 18, 2006),
http://www.businessweek.com
Organizational Culture
Culture is closely related to most other concepts in the field of organizational behavior, includ- ing structure, leadership, communication, groups, motivation, and decision making.87 Culture is affected by and can also affect these other areas of organizational functioning and it is related to social, historic, and economic issues as well.88 Thus, it is an important and encompassing concept.
Google’s organizational culture is described in the Experiencing Organizational Behav- ior feature. Google’s culture is highly informal, with a decentralized structure designed to enhance associates’ creativity. Google must be doing something right because it is a highly successful company. Its culture and structure, along with its interrelated management model, have attracted significant human capital, which is one of the reasons for its success. Google’s approach is highly similar to a high-involvement organization.
Organizational cultures are based on shared values, as described earlier.89 As noted, culture begins with shared values, which then produce norms that govern behavior. Behavior produces outcomes that are reinforced or punished, thereby bolstering the culture. Thus, any culture, positive or negative, becomes self-reinforcing and difficult to change. The process of culture development and reinforcement is shown in Exhibit 13-7.
The strength of an organization’s culture is based to some degree on the homogeneity of associates and managers and the length and intensity of shared experiences in the organization.90 The longer a culture is perpetuated, the stronger it becomes because of its self-reinforcing nature. An organization’s culture not only reinforces critical values but also important behav- iors. For example, Google’s culture could be described as a learning culture in which new knowledge is created or acquired externally and diffused internally.91 This knowledge is then applied to create innovative services for Google’s markets and customers. Organizational cul- ture also affects an organization’s ability to resolve problems and to create change. For example,
in an open culture in which managers and associates are engaged (i.e., a high-involvement organization), more alternatives are likely to be generated and considered to resolve problems. Also, the open communication can help to resolve conflicts if they exist.92 In addition, the openness of communications between managers and associates (exemplified by Google) and transparency because of the high involvement makes all participants more open to change. And, by participating in creating the change, managers and associates are more likely to be committed to it.93
Competing Values Model of Culture
One of the most popular models of culture in business firms is the competing values model, in which two value dimensions are central.94 The first dimension relates to the value placed on flexibility and discretion versus stability and control. In some organizations, managers and associates believe in the power and usefulness of flexibility and discretion, while in other organ- izations individuals believe in the power of a stable work situation where control is strongly maintained. Ambidextrous organizations, described earlier, achieve a balance in these values through the culture and structure. The second dimension relates to the value placed on an internal focus coupled with integration versus an external focus coupled with differentiation in the marketplace. In some organizations, associates and managers prefer to focus internally; in other organizations, individuals have an external orientation.
Four types of culture result from different combinations of these dimensions (see Exhibit 13-8):
1. Clan. Strong value is placed on flexibility and discretion with a focus inside the organization. Leaders tend to be mentors and coaches. Effectiveness is evaluated in terms of the cohesion and morale of individuals inside the firm and tacit knowledge
held. Overall, the organization tends to be a friendly place to work, with a great deal of commitment and loyalty.
2. Hierarchy. Strong value is placed on control and stability, with a focus inside the organization. Leaders tend to be monitors and organizers. Effectiveness is measured in terms of efficiency and orderly coordination. The organization tends to be a formal and standardized place to work, with emphasis on explicit knowledge.95
3. Market. Strong value placed on control and stability with a focus outside the organization. Leaders tend be driven and competitive. Effectiveness is measured in terms of goal achievement and beating the competition in the marketplace. The organization can be a difficult place to work because there is a constant focus on results and doing better than colleagues.
4. Adhocracy. Strong value placed on flexibility and discretion with a focus outside the organization. Leaders tend to be entrepreneurial and innovative, perhaps even visionary. Effectiveness is evaluated in terms of creativity and leading-edge innovation in the marketplace. The organization tends to be a vibrant place to work, with significant risk taking.
Organizations usually possess elements of all four cultural types. In fact, organizations need all four, because morale, innovation, success relative to competitors in the marketplace, and efficiency are all important for long-term performance and survival.96 In most cases, however, an organization emphasizes one cultural type over another. Each culture can be useful as a point of emphasis, depending on circumstances. Hierarchy, for example, might be emphasized in an organization pursuing a low-cost business strategy in all of its product lines. In such an organization, however, managers must be careful not to allow the emphasis on hierarchy to become too great. If hierarchy is overemphasized, it will be difficult to incorpo- rate the decision- and team-related aspects of high-involvement management.97 Furthermore, research suggests that the hierarchy culture can reduce commitment and satisfaction. Market culture could be useful in industries that are highly competitive. Clan culture is often more useful for organizations operating in regulated industries or in small, new-venture firms where working with good colleagues and positive working relationships are emphasized more than financial compensation. Google has used such a culture since its beginning. However, even as a large, more established organization, Google continues to use this culture successfully. Adhocracy might be emphasized in an organization pursuing the differentiation strategy in its product lines.
Clearly, organizational cultures affect managers’ and associates’ behaviors and thus organizational performance. The core values of an organization serve to attract new associ- ates who share similar values or at least are comfortable with the organization’s values.98 For example, research has shown that organizational culture affects the extent to which associates are willing to accept changes in an organization.99 Specifically, associates who perceive an organizational culture that positively values human relations are more willing to participate in and accept changes made by the organization.100 In addition, other studies have shown that when the organizational culture promotes respect for people, associates are more likely to view relationships with leaders more positively, to trust others, and to perceive that the organization treats associates fairly.101 Therefore, such cultures are likely to support an orga- nization’s competitive advantage because of a motivated workforce and low turnover among associates.102
Cultural Socialization
Newcomers are taught an organization’s culture through socialization—the impart- ing of the organization’s values. Socialization can take several forms. Based on
groundbreaking work by noted culture researchers John Van Maanen and Ed Schein, researchers have focused on three sets of issues: context, content, and social dynamics.103
Context refers to whether newcomers are exposed to key values through a collec- tive or an individual process, and whether they experience a formal or an informal approach. In a collective process, all newcomers experience the same socialization events (videos, senior leadership greetings, exercises, receptions, stories, and so on). In an individual process, the experiences are unique. With a formal approach, new- comers learn about the organization away from the jobs they will be taking (off- the-job learning and training), whereas an informal approach puts them in their jobs immediately (on-the-job learning and training). To maximize absorption of an organization’s values, a collective, formal approach may be best. This approach ensures that newcomers are exposed to a standard set of tactics in a focused manner away from the pressures of the new job. Bain and Company, a management con- sulting firm, illustrates this approach. It uses a formal standard induction program to provide specific training and to build cohesiveness and a sense of identity with the firm. This is supported by excellent materials on the Bain website that explain the company’s culture and provide consultants’ journals with valuable information on the jobs the new recruits will likely hold. In the program and on the website, information is provided to reinforce the idea that senior colleagues serve as mentors and coaches.104
© Goodshoot/Corbis Images
Content refers to whether newcomers are provided information on the probable sequence of development activities and job rotations for the first year or two in the organiza- tion, and whether they are given specific information on the likely duration of each activity. With detailed information on upcoming development activities, newcomers experience less uncertainty. They have a better sense of where they are going in the organization. When infor- mation provided to newcomers conveys a variable and random situation (no set sequence of development activities and no estimates of duration times), newcomers are less able to discern a clear path to success and advancement. This latter situation can create dissatisfaction and commitment issues.
Social dynamics refer to whether newcomers experience serial or disjunctive processes and whether they are exposed to an investiture or a divestiture approach. Newcomers experiencing a serial approach have experienced organizational members as role models. The disjunctive process does not formally establish contact with experienced associates and managers, forcing newcomers to make sense of the situation on their own. With the investiture approach, posi- tive social support is provided from the beginning rather than negative information through a hazing process. The combination of serial and investiture techniques yields better socialization experiences.
In a high-involvement organization, socialization is usually an easier task, as the pro- cess begins before employment, during the selection process. Most applicants are rigorously screened with the purpose of discouraging those who may not fit the culture. For example, at Southwest Airlines, the socialization process begins well before the applicant is hired. Appli- cants are exhaustively screened by a number of interviewers. The interview team does not oversell Southwest but describes both the advantages and disadvantages of working for the firm. The purpose is to make sure that the applicant’s values and objectives mesh with those of the airline.105 The process has been highly effective, as Southwest’s culture is often given credit for the company’s success.
Integrating new associates into the organization’s culture is important, especially for main- taining the culture. Research has shown that organizations with highly integrative cultures, whether they are focused on associate development and harmony or customer orientation and innovation often perform better than organizations that pay less attention to their cultures. Cultural Audits
Managers must understand and monitor their organization’s current culture to develop and effectively manage it.107 Thus, a cultural audit should be conducted periodically. This type of audit is an analysis designed to uncover shared values and beliefs in an organization. It should identify the strengths and weaknesses of the current culture with respect to the support it pro- vides for the achievement of the organization’s goals.108
The following five steps may be used in conducting a cultural audit:109
1. Analyze the process and content of the socialization of new associates and managers (interview those directly involved in socialization).
2. Analyze responses to critical incidents in the organization’s history (construct an organizational biography from documents and interviews of past and present associates and managers).
3. Analyze the values and beliefs of culture creators (founders) and carriers (current leaders) (observe and/or interview the founders and current leaders).
4. Explore anomalies or puzzling features discovered in other analyses (initiate joint problem-solving sessions with current leaders in the organization).
5. Examine the linkage of the current organizational culture to its goals.
A cultural audit is a complex and sometimes lengthy process that should be conducted only after careful planning and preparation. The results of an audit might indicate a culture that is not well developed or might disclose the presence of subcultures. An underdeveloped culture poses less of a problem than one that is dysfunctional, fully developed, and self-reinforcing, because the less-developed culture can be more easily influenced and its path altered if necessary.
Subcultures
It is possible for subcultures to develop in an organization, particularly when no dominant organizational culture exists or when the organization is diverse and geographically dis- persed.110 Subcultures are based on values shared by a group rather than by an organization as a whole. Some of the values of the subculture are similar to and others are dissimilar from the organization’s values and the values of other groups. The existence of subcultures complicates the development and management of an organizational culture.
In large, diverse organizations, some researchers advocate viewing organizational culture as a system of integrated subcultures rather than a unified set of values.111 In such cases, senior managers need to understand each subculture, ensure that it is appropriate for its market seg- ment, and decide whether it fits with critical organizational values. Thus, a manager’s purpose is to encourage the integration of critical organizational values in each subculture.
It is possible for a subculture to include values that are counter to those of the overall organ- ization. Such a counterculture may be difficult to manage. Although a counterculture often cre- ates problems, it can also produce positive outcomes. For example, a counterculture can induce a revolution, forcing change in a staid, outmoded culture. It also may encourage the development of new and creative ideas not allowed by existing norms of the organizational culture.112
It is also possible that some subcultures are related to national culture. This may be even more likely in large countries where there are several regional cultures that differ in some values (e.g., China, United States). Research has shown that attributes of national culture (e.g., extent of collectivism) interact with managerial actions such as rewards provided to affect how associ- ates react to the organization (e.g., their commitment to the organization).113 However, some research has found that national culture has only a small influence on organizational culture.114
The Managerial Advice segment provides an example of a misfit between a key manager and the company’s culture. Bob Nardelli was hired as CEO of The Home Depot to make some
Finding a Fit at The Home Depot: Going from Misfit to Fit
Research indicates that similarity systems and controls, and change was neces- keep the entrepreneurial spirit alive in the
sary in order to accommodate and manage additional growth.
However, Nardelli’s changes conflicted with the Home Depot culture. After five years with Nardelli as CEO, the company felt more
in values and goals attracts indi-
viduals to specific organizations. When an individual’s management style and values are not congruent with the organ- ization’s culture, problems can develop. This
is the reason why problems developed after Home Depot hired Bob Nardelli as CEO in 2000. Home Depot wanted to remain adaptive and make some necessary changes to increase stock prices by bringing in a key individual that the board of directors felt could accomplish these goals. In addition, the board believed that Nardelli’s ideas might prompt reflection and help Home Depot make needed changes to impress investors and “pump up” its stock price.
In the early years, Home Depot founders Bernie Marcus and Arthur Blank took it personally if a customer left without buying something. The Home Depot’s like a military organization. He embarked
company. Some former executives said that
Nardelli had created a “culture of fear” and a demoralized staff, which, in turn, caused customer service to wane. Associates did
not embrace the new culture, and some people think that this was the reason Home Depot struggled with customer satisfaction and performance in the stock market. Thus, the fit between an individual and the organization was unsuccessful and had debilitating effects on the company’s performance. In early 2007, Nardelli departed the company in a disagreement with the board of directors.
Frank Blake was selected as the new CEO, and he had a rough time, especially because of the major recession that started in 2008. Home Depot closed a large number of lower-perform-
ing stores and had to lay off about 11,000 people. Blake, however reinvested in man- agers and associates in the company and
© Scott Olson/Getty Image, Inc.
on an aggressive plan to centralize control, and to support this change Home Depot invested more than $1 billion in new tech- emphasized the importance of customer ser- nology. To help generate the desired data, vice. While Home Depot lost many customers
culture was similar to a clan, as the founders placed strong value on flexibility, leaders tended to be mentors and coaches, and they worked to achieve group cohesion and high morale among the associates. The organization was known to be a friendly place to and inventory management systems. Nardelli
to rivals such as Lowe’s because of the poor customer service during Nardelli’s tenure as CEO, customers have begun returning to the
the company purchased self-checkout aisles
work, and they established a decentralized, entrepreneurial business model. Home Depot was famous for its freewheeling, entrepreneurial spirit, with individual stores operated in a highly autonomous manner. Using that model, it became the fastest-growing retailer in U.S. history. The substantial growth caused the company to struggle with its internal
felt it was important to measure everything that occurred in the company, and he held world’s largest home improvement retailer.
executives accountable for meeting “their numbers.” The culture he was trying to create was similar to a hierarchy culture, emphasizing control, and stability with leaders moni- toring and organizing in an efficient manner. In making these changes, Nardelli failed to
In 2014, The Home Depot had 300,000 managers and associates working in 2,250 stores throughout the United States, Canada, and Mexico. Its stock price has rebounded, and analysts are bullish on its future.
changes. He did so, but went further than desired by the board. His changes strongly revised the culture of the firm, making it control-oriented, thereby losing the entrepreneurial spirit among store managers and associates. While Home Depot likely needed better control systems, Nardelli’s changes went too far. Although Home Depot has made several positive changes since Nardelli’s departure, the effects of his tenure as CEO have been long lasting. The person who replaced him as CEO, Frank Blake, has rejuvenated the firm and appears to be a much better fit. This example shows the importance of a person—organization fit, discussed next.
values
Abstract ideals that relate to
changes. He did so, but went further than desired by the board. His changes strongly revised the culture of the firm, making it control-oriented, thereby losing the entrepreneurial spirit among store managers and associates. While Home Depot likely needed better control systems, Nardelli’s changes went too far. Although Home Depot has made several positive changes since Nardelli’s departure, the effects of his tenure as CEO have been long lasting. The person who replaced him as CEO, Frank Blake, has rejuvenated the firm and appears to be a much better fit. This example shows the importance of a person—organization fit, discussed next.
Person–Organization Fit
As suggested throughout this discussion of structure and culture, the fit between an individual and the organization has important implications for satisfaction, commitment, intent to turn- over, and job performance.115 Values are abstract ideals related to proper life goals and methods for reaching those goals. As such, individual values often underlie groups of attitudes. Although proper life goals and methods people may have thousands of attitudes, most likely they have only a few-dozen values.116 Thus, values are more general than attitudes and form the basis for how we should behave. For example, we could have the underlying value that family time is highly important and a corresponding negative attitude toward a colleague who works most nights and many weekends.
Values emerge as individuals mature and as they develop the ability to form general con- cepts from their accumulated experiences. Also, during value formation, the value judgments of people we respect influence the nature of our values. Finally, as discussed in
Chapter 2, national and ethnic culture affects the development of values.
Once formed, values serve as frames of reference that help guide people’s behavior in many different contexts. Values can be modified or refined as a result of new experiences but are much more resistant to change than are attitudes. Thus, individuals will not change their values to join a particular organization. Rather, they make choices based on the agreement between their personal values and those of the organization. Many organizations try to select new associates who share the values consistent with their organizational culture.
Values develop along two dimensions: (1) the types of personal goals that one ought to have and (2) the types of behaviors that one ought to use in reaching those goals.117 These two dimensions are sometimes referred to as the end–means dimensions of values. Thus, individu- als may develop an end value that they should seek a life of prosperity and a means value that they should be ambitious and hardworking to achieve that goal. These values complement each other by specifying a general goal in life and identifying acceptable behaviors for reaching it. A list of “end” values and “means” values is shown in Exhibit 13-9.
Research has shown that basic personal values affect individual reactions to job situa- tions.118 Our satisfaction with the type of work we do, the rules imposed by the organization, career advancement opportunities, and other organizational factors are evaluated in terms of our values. Workers’ reactions to jobs in different cultures may vary because of differing basic value systems. For example, the basic value systems in the United States emphasize self-reliance and initiative, whereas in Japan, basic value systems emphasize self-sacrifice, obedience, and cooperation. As explained in Chapter 3, this difference has implications for how high- involvement management systems should be designed and implemented in different cultures.
When an individual’s values and preferences do not fit prevailing structural arrangements, she may be a less-satisfied and a less-positive contributor to the organization. Similarly, and perhaps more importantly, when an individual’s values are not congruent with the organiza- tion’s culture, problems are likely to develop. In fact, when the lack of fit is between the CEO and the organization’s culture, the problems are likely to be more severe, as in the case of The Home Depot and Bob Nardelli. The outcomes are consistent with a great deal of research suggesting that similarity in values and goals attracts individuals to one another and to organ- izations.119 Job applicants as well as associates and managers in an organization should assess
Source: Adapted from M. Rokeach, The Nature of Human Values (New York: The Free Press, 1973
applicant fit with structure and culture prior to making final employment decisions. Selection for fit is a key aspect of high-involvement management, as discussed in Chapter 1.
Interestingly, socialization can bridge some differences between newcomer preferences and organizational structure and between newcomer values and organizational culture. Socialization achieves this function by highlighting how a person’s preferences and values may fit in unseen or partial ways. To some small degree, socialization also may alter a newcomer’s preferences. In one study based on the socialization framework presented earlier, individuals exposed to strong social- ization efforts exhibited more congruence between their personal attributes and the organization’s structure and culture. (This was true even after taking into account the initial level of congruence.)120
Although personal fit with structure and culture is important, two issues must be addressed. First, an organization that hires only those who fit existing organizational characteristics may find it difficult to make major changes when they become necessary.121 With individuals throughout the organization sharing preferences and values, the organization may be resistant to change. To remain adaptive, an organization may want to hire a few key individuals who do not fit. Their ideas may prompt reflection and thereby help the organization to change if necessary. These issues are addressed more fully in Chapter 14. Second, an organization that hires only those who fit may inadvertently discriminate against minorities or foreign nationals.122 Such an organization fails to experience the benefits from having a multicultural workforce, as discussed in Chapter 2. Perhaps the best advice is to hire for fit, but with a relatively broad definition of fit, allowing exceptions and a specific plan for nurturing the exceptions, no matter what their differences.
THE STRATEGIC LENS
We have emphasized that an rivals have tried to imitate their strategy but integrate it with their firm. They must also act
have been unable to reproduce their success. These competitors are unable to imitate the culture of Google and IDEO, which takes strong advantage of their high-quality associ- ates and managers. A strategy will be only as effective as its implementation. If the strategy is well formulated, and the structure and the culture fit the strategy well, the organization will achieve higher performance. Congru- ence among strategy, structure, and culture is necessary to achieve the highest possible organization performance.
Culture’s effects on strategy are also often evident in mergers and acquisitions. Many mergers between companies fail. Often, these failures occur not because of financial or technical problems but because the companies involved have vastly different organizational cultures.124 One company may be entrepreneurial and flexible, for example, whereas the other may be tradi- tional and rigid. Merging these two cultures is problematic, at the least.
Therefore, senior managers who plan to acquire another firm should understand the
target firm’s culture and what must be done to
organization’s structure and cul-
ture play important roles in the implementation of its strategy. For example, if an organization’s business strategy is to be a “first mover” in the market, it must be innovative in order to develop and introduce new products before competitors do so. To be entrepreneurial and innovative, the organiza- tion likely needs an organic structure, one that is flexible and decentralized. A centralized mechanistic structure generally does not allow managers and associates the freedom to be
creative and take the risks necessary to iden- tify market opportunities and develop inno- vative products. Similarly, the culture of the organization must allow for the use of intuition and risk-taking behaviors because associates and managers should not be afraid of making errors or failing. To be successful over time, most organizations must be ambidextrous.
In this chapter, we mentioned that Google and IDEO have been highly success- ful because of their culture and their ability to hire new associates and managers who fit well with the culture. These companies are
following a differentiation strategy. Many
immediately after the completion of the acqui- sition to merge the cultures. Doing so will require developing shared values between the two firms. Cisco Systems is well known for its ability to integrate acquisitions.125 Cisco assigns key people to preacquisition integra- tion teams and carefully includes individuals from the firm being acquired.
Critical Thinking Questions
1. Consider an organization of which you are a member or an associate. What is the structure in this organization? Is it centralized or decentralized? Is it organic and flexible? How would you change the structure in this organization to make it more effective?
2. How would you describe the culture in the organization identified in your answer to question 1? How does the culture affect members’ behavior in the organization?
3. When you become a manager, what type of culture will you establish in your unit? What values do you want to emphasize? Why?
? back to the knowledge objectives
1. Compare and contrast the structural and structuring aspects of organizational structure.
2. Assume you manage a firm with three substantially different product lines. A differentiation strategy is used for each
product line. What structure choices would you make, and why?
3. Assume you manage a small R&D department. When making choices concerning structure, would you be more con-
cerned about the external environment, more concerned about technology, or equally concerned about the external
environment and technology? Explain your answer.
4. What are the four types of culture in the competing values model? In which would you prefer to work, and why?
5. What is socialization? Describe a situation in which you were socialized into an organization (a club, a business firm,
a church, or a volunteer organization).
6. What is a cultural audit? Why should organizations conduct cultural audits?
7. How does an organization ensure a fit between its associates’ values and its organizational culture?
What This Chapter Adds to Your Knowledge Portfolio
In this chapter, we described several aspects of structure and explained how strategy, environment, technology, and firm size influence structure. We also discussed the competing values cul- ture framework, as well as socialization, subcultures, and cultural audits. Person–organization fit has also been addressed. In sum- mary, we have made the following points:
• Organizational structure is the formal system of work roles and authority relationships that govern how associates and managers interact with one another. Structure can be described using structural characteristics, which determine the shape and appearance of an organization’s hierarchy. These characteristics include height, spans of control, and departmentalization (functional versus divisional grouping of resources). Structure can also be described using structuring characteristics, which directly prescribe behavior. These include centralization (the amount of decision authority held at the top of the organization), standardization (the existence of rules and standard operating procedures), formalization (the degree to which rules and procedures exist in written form), and specialization (the degree to which associates and managers have narrow jobs). Modern organizations tend to emphasize configurations of structural and structuring characteristics that yield a reasonable amount of freedom for lower-level managers and associates.
• Strategy plays an important role in organizational structure. Corporate strategy corresponds to the emphasis placed on growth and diversification in a firm. An emphasis on growth through internal development suggests the need for substantial research and development and marketing departments. An emphasis on growth though acquisition suggests the need for well- developed financial and legal functions. Diversification must be matched by type of departmentalization, with a single business strategy and a dominant-product strategy calling for a functional structure and higher levels of diversification requiring a divisional structure. Business- level strategies represent the method of competing in a particular product or service market. Low-cost and differentiation are two popular strategies, with the low- cost strategy calling for a less organic structure and differentiation requiring a more organic structure.
• The external environment also plays a role in structure. Uncertain environments (those that are complex and changing) create a need for organic structure. They also increase the need for integration among functional departments focused on the same market. Elements of structure that address integration include slack resources,
•
•
•
•
self-contained tasks, information technology, and lateral relations. Furthermore, different levels of uncertainty may be experienced by different functional departments, resulting in a need to differentiate the departments, with some being more organic than others.
Technology, too, plays a role in structure. An early framework suggests that technological complexity determines the structure required in small manufacturing firms. More recent work demonstrates that mass customization can be used in manufacturing firms of all sizes and that organic structure facilitates this approach. Recent work has also focused on technological nonroutineness in manufacturing and service organizations, suggesting that high levels of nonroutineness in small organizations and units of larger ones should be matched with more organic structures. Finally, organizational size plays a role in structure. Large organizations must be taller and more formalized in order to ensure smooth functioning. Centralization tends to decrease, however, because senior managers cannot make all decisions. However, as organizations grow in size, the potential increases that they will suffer from inertia. To avoid or overcome inertia, organizations must try to develop ambidextrous attributes. Ambidextrous organizations balance formalization and flexibility and thereby are able to maintain efficiency while also being innovative. Organizational culture represents shared values that influence behavior. The competing values culture model is an important and popular framework for analyzing cultural phenomena in organizations. The model is based on two value dimensions: (1) flexibility and discretion versus stability and control and (2) internal focus coupled with integration versus an external focus coupled with differentiation in the marketplace. Based on these two dimensions, four culture types emerge: clan, hierarchy, market, and adhocracy. Socialization involves imparting an organization’s values to newcomers. Socialization is accomplished by exposing individuals to experiences that highlight the organization’s values. In designing socialization activities, managers and associates should consider context (collective and formal versus individual and informal), content (sequential and fixed versus variable and random), and social dynamics (serial and investiture versus disjunctive and divestiture). Cultural audits are formal analyses designed to uncover shared values in an organization. They involve: 1) analyzing the process and content of socialization, (2) analyzing how the organization has responded to critical incidents in its history, (3) analyzing the values and beliefs of founders and current leaders, and (4) exploring any puzzling findings from the earlier analyses. Subcultures can develop in an organization. In large, diverse organizations, the organizational culture can be seen as a system of integrated subcultures rather
than a unified set of values. Although subcultures can sometimes cause problems when they are substantially inconsistent with the overall culture of the organization, they can also help to produce fresh insights and ideas.
• Individuals bring values to the organization. The fit between individual values and organization values can be important. If there is a misfit, individuals are likely to be unproductive or become dissatisfied and leave.
building your human capital An Assessment of Creativity
Many organizations use a differentiation strategy that calls for initiative and creativity. Many of these same organizations have an adhocracy culture, where innovation and risk taking are valued. Not all individuals, however, are equally suited for these organizations. This assessment focuses on creativity. Although an individual’s propensity to be creative can vary from situation to situation, his or her general tendencies provide useful insight.
Instructions
In this assessment, you will read 50 statements that describe people. Use the rating scale below to indicate how accurately each statement describes you. Rate yourself as you generally are now, not as you wish to be in the future; and rate your- self as you honestly see yourself. Read each item carefully, and then circle the number that corresponds to your choice from the rating scale.
an organizational behavior moment
How Effective Is Hillwood Medical Center?
Source: Adapted from D.D. Bowen, R.J. Lewicki, D.T. Hall, & F.S. Hall, Experiences in Management and Organizational Behavior (New York: John Wiley & Sons, 1997).
11 + Item 29 + Item
Sharon Lawson is the administrator of Hillwood Medical Center, a large hospital located in Boston, Massachusetts. She has been its administrator for almost five years. Although it has been a rewarding position, it has not been without its frustrations. One of Sharon’s primary frustrations has been her inability to deter- mine how she should measure the effectiveness of the hospital.
The chief medical officer, Dr. Ben Peters, thinks that the only way to measure the effectiveness of a hospital is the number of human lives saved, compared with the number saved in other,
similar hospitals. But the board to which Sharon reports is highly concerned about the costs of running the hospital. Hillwood is nonprofit but has no outside sponsors, and so it must remain financially solvent without contributions from another major institution.
In order to be reimbursed for Medicare and Medicaid patients, the hospital must meet the licensing requirements of the state health department, as well as the requirements of the U.S. Department of Health and Human Services. Sharon finds that
some of these requirements reflect minimum standards, whereas others are more rigid. She also finds that the demands of the administrative board and those of doctors on the staff frequently are in conflict. She must mediate these conflicting demands and make decisions to maximize the effectiveness of the hospital.
Sharon’s day begins when she arises at 6:00 a.m., exercises, showers, has a quick breakfast, and heads for the office. She usu- ally arrives at the office around 7:15 a.m. She likes to arrive be- fore others so that she can review and plan her day’s activities without interruption. Today she sees that she has an appoint- ment at 8:30 a.m. with a member of the state health depart- ment concerning its recent inspection. At 10:00 a.m., she has an administrative staff meeting. At 2:00 p.m., she has scheduled a meeting with the medical staff, and at 4:00 p.m. she has an ap- pointment with the hospital’s attorney. (She also has a luncheon appointment with an old college friend who is in town for a few days.) It looks as if her day is well planned.
At 8:15, Sharon receives a call from Dr. Ramon Garcia, chief of surgery.
“Sharon, I must see you. Do you have time now so that we could talk about an important matter?”
“Ramon, I have an appointment in fifteen minutes and probably won’t be free until about eleven this morning. Would that be okay?”
“I guess so. I don’t have much choice, do I?” With that, he hangs up.
At 8:30, Sharon ushers in Holly Wedman from the state health department. She learns that Hillwood has passed the gen- eral inspection but that some areas need to be improved. The kitchen meets only minimum standards for cleanliness, and some other areas are questionable. The inspectors also questioned hospital procedures that allow many people access to the drug supplies. (Sharon recalls that she tried to tighten up those proce- dures only two months ago, but the medical staff complained so strongly that she relented and made no change.) The state health department representative requests that appropriate changes be made and notes that these areas will be given especially rigorous scrutiny at the next inspection in six months. As the meeting ends, Sharon looks at her watch. It is 9:55—just enough time to make it to the conference room for her next meeting.
The administrative staff meeting begins normally, but after about 30 minutes, Helen Mathis, controller, asks to speak.
“Sharon, when are we going to get the new software we requested six months ago?”
“I don’t know, Helen. I’ve discussed it with the board, but they’ve been noncommittal. We’ll have to try to build it into next year’s budget.”
“But we need it now. We can’t process our billing efficiently. Our accounts receivable are too large. We’re going to run into a cash-flow problem soon if we don’t find other ways to increase our billing efficiency.”
Sharon thought, “Cash-flow problems. I wonder how those fit into Dr. Peters’s definition of effectiveness.”
It is finally decided that Sharon will make a new and stron- ger request to the board for the new software.
At 11:00 sharp, Dr. Garcia comes stomping into Sharon’s office, exhibiting his usual crusty demeanor. “Sharon, we have a serious problem on our hands. I’ve heard through the grapevine that a malpractice suit will be filed against one of our surgeons, Dr. Chambers.”
“That’s nothing new; we get several of those a year.”
“Yes, but I think this one may have some merit, and the hospital is jointly named in the suit.”
“What do you mean?”
“Well, I’ve suspected for several months that Dr. Chambers has been drinking a lot. He may have performed an operation while under the influence. I’ve talked to several people who were in the operating room at the time, and they believe that he was drunk.”
“Oh, no! If you suspected this why didn’t you do some- thing?”
“What was I supposed to do? Accuse one of the oldest and most respected members of our surgical staff? You just don’t ac- cuse a person like that without proof. We’ve got to meet with Chambers now and confront him.”
“Well, set up a meeting.”
“I already have. His only free time was at lunch, so I took the liberty of scheduling a meeting with him for you and me at that time.”
“I already have an engagement. I can’t do it today. Try to set one up tomorrow.”
Dr. Garcia, obviously feeling a great deal of stress, explodes, “You administrators are never available when we need you. Your only concern is holding down costs. We’re talking about human lives here. Chambers may do it again before tomorrow.”
Sharon seethes at his insinuation. “If that mattered to you, why did you wait until you heard of the malpractice suit to do something about it?”
Garcia leaves, slamming the door.
Sharon goes to lunch with her friend, but she can’t enjoy it. Her mind is on problems at the hospital. She can hardly wait for the 2:00 p.m. medical staff meeting.
The meeting begins with only about half of the doctors in attendance, which is not unusual. Most of them will show up be- fore the meeting is over. Much of the time is taken up discussing why the hospital has not purchased an upgraded piece of stan- dard diagnostic equipment used in body scanning. Of course, it “only” costs $3 million. The meeting ends without resolving the problem. Sharon agrees to buy the equipment next year but does not have the money for it in this year’s budget. The doctors do not fully understand why it cannot be purchased now if it can be purchased next year.
As soon as Sharon gets back to her office, her secretary gives her a message to call Terry Wilson, one of the third-floor pediat- ric nurses. Terry had said it was urgent.
“Terry, this is Sharon Lawson. What can I do for you?”
“Ms. Lawson, I thought you should know. The nurses in pediatrics are planning a walkout tomorrow.”
“What? A walkout? Why?” Sharon is beginning to get a headache.
“Yes, a walkout. The nurses feel that Supervisor Tyson is a tyrant, and they want her replaced.”
“Terry, can you get a group of those nurses together and meet me in my office in 15 minutes? Be sure to leave several to cover the floor while you’re gone.”
“Okay. See you in a few minutes.”
Sharon and the nurses meet and discuss the situation. The nurses are quite adamant but finally agree to give Sharon a week to investigate the situation and attempt to resolve it. A meeting is scheduled for next week to review the situation he hospital’s attorney has to wait for almost 20 minutes because Sharon’s meeting with the nurses runs past 4:00 p.m. Finally they meet, and as Sharon feared, he brings news of the malpractice suit filed against Dr. Chambers and Hillwood. They discuss the steps that should be taken and how the situation with Dr. Chambers should be handled from a legal viewpoint. Obvi- ously, some hard decisions will have to be made.
The attorney leaves at 5:30, and Sharon sits in her office pondering the day’s problems. She also thinks of her original problem: how to measure Hillwood’s effectiveness.
Discussion Questions
1. Describe the culture or cultures at Hillwood. Are there subcultures?
2. How would you recommend that Sharon measure effectiveness at Hillwood? What do you think some of the effectiveness criteria might be?
Words-in-Sentences Company
In this exercise, you will form a “mini-organization” with several other people. You will also compete with other companies in your industry. The success of your company will depend on your planning and organizational structure. It is important, therefore, that you spend some time thinking about the best design for your organization.
STEP 1: 5 MINUTES
Form companies and assign workplaces. The total class should be divided into small groups of four or five individuals. Each group should consider itself a company.
STEP 2: 10 MINUTES
Read the directions below and ask the instructor about any points that need clarification. Everyone should be familiar with the task before beginning Step 3.
You are members of a small company that manufactures words and then packages them in meaningful (English-language) sentences. Market research has established that sentences of at least three words but not more than six words are in demand.
The “words-in-sentences” (WIS) industry is highly com- petitive in terms of price, and several new firms have recently en- tered the market. Your ability to compete depends on efficiency and quality control.
GROUP TASK
Your group must design and participate in running a WIS com- pany. You should design your organization to be as efficient as possible during each 10-minute production run. After the first
production run, you will have an opportunity to reorganize your company if you want to.
RAW MATERIALS
For each production run, you will be given a “raw material word or phrase.” The letters found in the word or phrase serve as the raw materials available to produce new words in sentences. For example, if the raw material word is organization, you can pro- duce the following words and sentence: “Nat ran to a zoo.”
PRODUCTION RULES
Several rules must be followed in producing “words-in- sentences.” If these rules are not followed, your output will not meet production specifications and will not pass quality-control inspection.
1. A letter may appear only as often in a manufactured word as it appears in the raw-material word or phrase; for example, organization has two o’s. Thus, zoo is legitimate, but zoology is not—it has too many o’s.
2. Raw-material letters can be used over again in new, different manufactured words.
3. A manufactured word may be used only once in a sentence and in only one sentence during a production run; if a word—for example, zoo—is used once in a sentence, it is out of stock.
4. A new word may not be made by adding s to form the plural of an already used manufactured word.
5. A word is defined by its spelling, not its meaning.
6. Nonsense words or nonsense sentences are unacceptable. All words must be in the English language.
7. Names and places are acceptable. 8. Slang is not acceptable.
MEASURING PERFORMANCE
The output of your WIS company is measured by the total num- ber of acceptable words that are packaged in sentences in the available time. The sentences must be legible, listed on no more than two sheets of paper, and handed to the quality-control review board at the completion of each production run.
DELIVERY
Delivery must be made to the quality-control review board 30 seconds after the end of each production run.
QUALITY CONTROL
If any word in a sentence does not meet the standards set forth above, all of the words in the sentence will be rejected. The quality-control review board (composed of one member from each company) is the final arbiter of acceptability. In the event of a tie vote on the review board, a coin toss will determine the outcome.
STEP 3: 15 MINUTES
Design your organization’s structure using as many group mem- bers as you see fit to produce your words-in-sentences. There are many potential ways of organizing. Since some are more efficient than others, you may want to consider the following:
1. What is your company’s objective? 2. How will you achieve your objective? How should you plan
your work, given the time allowed? 3. What degree of specialization and centralization is
appropriate? 4. Which group members are more qualified to perform
certain tasks? Assign one member of your group to serve on the quality-
control review board. This person may also participate in pro- duction runs.
STEP 4: 10 MINUTES—PRODUCTION RUN 1
1. The instructor will hand each WIS company a sheet with a raw material word or phrase.
2. When the instructor announces “Begin production,” you are to manufacture as many words as possible and package them in sentences for delivery to the quality-control review board. You will have 10 minutes.
3. When the instructor announces “Stop production,” you will have 30 seconds to deliver your output to the quality- control review board. Output received after 30 seconds does not meet the delivery schedule and will not be counted.
STEP 5: 10 MINUTES
1. The designated members of the quality-control review board will review output from each company. The total output should be recorded (after quality-control approval) on the board.
2. While the review board is completing its task, each WIS company should discuss what happened during Production Run 1.
STEP 6: 5 MINUTES
Each company should evaluate its performance and organiza- tion. Companies may reorganize for Run 2.
STEP 7: 10 MINUTES—PRODUCTION RUN 2
1. The instructor will hand each WIS company a sheet with a raw-material word or phrase.
2. Proceed as in Step 4 (Production Run 1). You will have 10 minutes for production.
STEP 8: 10 MINUTES
1. The quality-control review board will review each company’s output and record it on the board. The totals for Runs 1 and 2 should be tallied.
2. While the board is completing its task, each WIS company should prepare an organization chart depicting its structural characteristics for both production runs and should prepare a description of its structuring characteristics.
STEP 9: 10 MINUTES
Discuss this exercise as a class. The instructor will provide discus- sion questions. Each company should share the structure infor- mation it prepared in Step 8.
Source: Adapted from D.D. Bowen, RJ. Lewicki, D.T. Hall, & F.S. Hall, Experiences in Management and Organizational Behavior (New York: John Wiley & Sons, 1997).
CH. 14 Organizational change and development
? knowledge objectives After reading this chapter, you should be able to:
1. Describe three major internal pressures for change.
2. Identify and explain six major external pressures for change.
3. Describe the three-phase model of planned change.
4. Discuss important tactical choices involving the speed and style of a change effort.
5. Explain the four general causes of resistance to change and the tactics that can be used to address each cause.
6. Discuss the role of the DADA syndrome in organizational change.
7. Describe the basic organization development (OD) model and discuss OD interventions, including relationship techniques and structural techniques.
exploring behavior in action
Continuing to Realize the Dream at Starbucks
Howard Schultz, the entrepreneurial force behind the organization, provided the guiding vision and a golden touch in building Starbucks into a huge company with 189,500 stores. As
noted in Chapter 11, although Starbucks has achieved amazing success, it has expe- rienced some “bumps in the road” along the way. In 2008, Starbucks experienced a reduction in its average sales per store for the first time in its history. The decline con- tinued for 2008 and 2009. There are sev- eral reasons for the weakness in Starbucks’s performance. Among them are increased competition (from national and local cof- fee wholesalers and retailers such as Green Mountain Coffee roasters, and from restau- rants introducing gourmet coffees, such as McDonald’s) and the global recession that caused potential customers to reduce their discretionary purchases (Starbucks coffee is viewed by most as a luxury item).
Because of these problems, Howard Schultz stepped back in as the chief executive
officer (CEO). And, he took several major actions as a part of a planned change. Starbucks closed almost 800 stores and reduced the number of managers and associates by approximately 18,000 across its U.S. and international operations. These actions seemed to stop the performance decline, but more was needed to rejuve- nate Starbucks. So, Starbucks conducted a thorough organizational analysis to identify the problems that precipitated the weak perfor- mance. This analysis identified several problems, chief among them
was the lost focus on customers. Custom- ers wanted coffee that was unique and customized to their tastes. Based on these findings, Schultz initiated other actions, and his changes continue today through a continuous emphasis on innovation to stay ahead of the environmental trends (indeed, lead them, if possible).
In particular, to respond to the con- cerns, Schultz asked the managers and asso- ciates (Starbucks refers to them as partners) to invest energy in attentiveness to custom- ers, providing them excellent service, and to be innovative in adapting their opera- tions to local community values. Schultz is also trying to keep Starbucks ahead of the “sea change” occurring in the retail sector.
For example, during the Christmas holiday season, online sales increased by 14.5 percent while the sales at major retail- ers were lackluster compared to previous
holiday seasons. Technology and opportunities are changing the way consumers are acquiring goods. Starbucks cannot sell lattes online and have them shipped to customers, but the firm is con- sidering a personalized app that allows customers to have their own special drinks ready for them when they arrive at a Starbucks store.
Additionally, to better serve its customers, Starbucks recently acquired three other related businesses, Evolution Fresh
Sources: “Starbucks Looks Towards a More Digital Cup of Coffee,” Wall Street Jour- nal (Jan. 30, 2014), http://blogs.wsj.com/cio: J. Morganteen, “Starbuck’s Schultz: There’s a Sea Change Happening in Retail.” CNBC.COM (Jan. 24, 2014), http:// www.cnbc.com; A. Pierleoni, “Starbucks Is Changing Its Pastry Menu and Expand- ing Lunch,” The Sacramento Bee (Jan. 16, 2014), http://www.sacbee.com; S. Strom, “Starbucks Aims to Move Beyond Beans,” New York Times (Oct. 8, 2013), http:// nytimes.com; B. Horovitz, “Starbucks CEO Schultz on Digital Innovation.” USA
Juices, La Boulange Café and Bakery, and Teavana. Evolution Fresh will provide juices for sale in Starbucks, and many of the bakery goods will come from LA Boulange. As a result, Star- bucks is introducing new food products for sale it its stores. Shultz continues to make Starbucks innovative but does so using a team-based system in each store that recognizes and values the human capital in its managers and associates.
Today (April 25, 2013), http://www.usatoday.com; C. C. Miller, “Now at Star- bucks: A Rebound,” The New York Times (Jan. 21, 2010), http://www.nytimes.com; M. Montandon, “Bean Counters No More: Starbucks Finding Success by Thinking Local,” Fast Company (Jan. 21, 2010), http://www.fastcompany.com; M. Bartiromo, “Howard Schultz on Reinventing Starbucks,” BusinessWeek (April 9, 2008 ; “Starbucks Makes Organizational Changes,” Restaurant News Resource (Feb. 25, 2008), http:// www.restaurantnewsresource.com.
the strategic importance of Organizational Change and Development
Few, if any, organizations can remain the same for very long and survive. A classic case is Polaroid Corporation, which shows the outcome of being too slow to change. Polaroid introduced instant photography to the market and at one time was among the top 50 corporations in the United States.
However, in 2001, it declared bank- ruptcy, and in 2002, what was left of the company was sold to Bank One’s OEP Imag- ing Unit and then sold again in 2005 to the Petters Group. Polaroid’s problem was its failure to adapt in a timely way to techno- logical change. The company lost its market because it was too slow to recognize the importance of digital imaging technology and then too slow to change after competi- tors developed digital cameras.1
The development of a new technol- ogy created the need for change at Pola- roid. Although top managers are responsible for instituting such changes, managers and associates lower in the organization must help because of their knowledge of the envi- ronment (markets, customers, competitors, technology, government regulations, and so forth). All managers should actively scan the environment for changes and help to identify external opportunities and threats. Unfortu- nately, Polaroid’s managers did not perceive the threat to their existing business quickly enough to transform the firm. After learning of the need for a change, these managers began the difficult process of designing and
implementing a new approach, but they were unable to do so in time to avoid fail- ure. Competitors developed and introduced new cameras using digital technology before Polaroid could do so, causing Polaroid to lose a substantial share of its market.
In contrast, Starbucks has achieved considerable success since its founding. As explained in Chapter 11, the company has been recognized for its high-involvement management practices (the manner in which it has valued and managed its human capi- tal), with special emphasis on teams. It also has been recognized for its environmentally conscious policies, accessibility to those with disabilities, and high-quality coffees.
Yet, Starbucks encountered significant competition from such unlikely sources as McDonald’s and Dunkin’ Donuts, a recession- ary economy, and some disgruntled custom- ers. Its sales per store began declining, and its profits followed a similar path. Thus, Howard Schultz stepped back into the CEO position and instituted a number of changes. After downsiz- ing the number of stores and the workforce, the firm made several other very important changes. The company reinstituted its strong focus on customer service and satisfaction.
Many of these changes were imple- mented by engaging managers and associ- ates to give their recommendations, helping to reduce resistance to change. Starbucks’s leaders are now paying special attention to new technologies and changes in the retail
sector. They are preparing for tomorrow, thereby trying to avoid the severe problems experienced by Polaroid’s slow response to the need for changes.
Change often involves an entire firm, as in the Starbucks case. In other instances, a single division or work group must change. The inability to change when needed is likely to have negative effects on performance. Like- wise, carefully planned changes are likely to have positive influences on firm performance.2 To be prepared for either situation, managers must understand and appreciate change and possess the skills and tools necessary for imple- menting it. In high-involvement organizations, associates also play key roles in planning and implementing change, and they, too, must pos- sess appropriate skills and tools.
In this chapter, we discuss organi- zational change and renewal. First, we examine internal and external pressures for change. Such pressures must be properly understood for effective change to occur. Next, we describe the basic process of planned change and consider important tac- tical decisions involved in a change effort. Building on this foundation, we then address the important topic of resistance to change. Individuals and groups often resist change, and the ability to diagnose causes of resis- tance and deal with them effectively is cru- cial. Finally, we discuss a set of assessment techniques and change tactics, collectively known as organizational development.
Pressures for Organizational Change
Organizations constantly face pressure for change; in order to cope, they must be agile and react quickly.3 Organizations that understand and manage change well tend to be the most effective.4 As suggested by Exhibit 14-1, pressures for change can be categorized as internal or external.
Internal Pressures for Change
Although many pressures for change exist in the external environments of organizations, some pressures are more closely identified with internal dynamics. Aspiration–performance discrep- ancies, natural life-cycle forces, and changes in the CEO or top management team are three of the most important pressures.
Aspiration–Performance Discrepancies
aspiration–performance Perhaps the most fundamental pressure for change involves aspiration–performance dis- discrepancies crepancies, or differences between aspirations and current performance.5 When an individual,
Gaps between what an individual, unit, or organization wants to achieve and what it is actually achieving.
work group, division, or organization is not meeting its expectations (often expressed in goals), changes in tactics, strategies, and processes often follow. Failing to live up to expectations is an uncomfortable state that often motivates change. Some changes motivated by failing to satisfy aspirations include divesting poorly performing units or downsizing the workforce6 or acquiring other businesses to access resources that will hopefully allow the firm to achieve its aspirations.7
To fully appreciate the role of aspirations, it is important to understand how they develop. Research has identified three factors.8 First, past aspirations play a role in current aspirations. Thus, if an associate had high expectations of herself yesterday, she is likely to have high expectations today as well. This point underscores an important phenomenon: stickiness in
aspirations. Stickiness exists when individuals, units, and organizations are slow to revise their aspirations even when those aspirations appear to be too high or too low. Companies com- monly adjust performance aspirations less than might be expected in the face of information suggesting that greater change, either up or down, is warranted.
Second, past performance plays an important role. If performance in the recent past was below target levels, aspirations are likely to be reduced, although stickiness places limits on the degree of adjustment in the short run. Conversely, if performance has been above target levels, it is common for aspiration levels to be increased to some degree. For example, in the early days, Starbucks executives learned that it was relatively easy to perform well in a high-growth environment, and thus they increased the firm’s aspiration levels. Although such changes in aspiration levels may seem benign, they can be harmful. Poorly performing individuals, units, and organizations may reduce aspiration levels instead of making changes sufficient to increase performance.9 Alternatively, individuals, units, and organizations that are performing well may increase aspiration levels, causing satisfaction with current performance to be fleeting (e.g., when performance suffers during a major economic recession).
Third, comparisons with others play a role in determining aspirations. A management trainee may compare himself with other management trainees. A firm often compares itself with other firms in the same industry. When comparisons with similar others suggest that bet- ter performance is possible (especially when the firm’s performance is perceived to be below par), aspirations will likely increase and strategies will be formulated to achieve the higher aspirations.10 Similarly, when comparisons suggest that others are performing less well, aspira- tions are likely to decrease. For example, one study found that leaders of retail financial-service units that were performing poorly in comparison with other financial-service units increased their aspirations, whereas leaders of units performing well in comparison with others lowered their aspirations.11 This latter finding is particularly intriguing, because it suggests that many individuals and business units are content to be as good as others but not necessarily better. This obviously did not apply to Howard Schultz, the CEO of Starbucks.
Life-Cycle Forces
Organizations tend to encounter predictable life-cycle forces as they grow.12 Not every organiza- tion experiences the same forces in the same way as others, but most organizations face similar pressures. Although several models of the organizational life cycle have been proposed, an integra- tive model best highlights the key pressures that organizations experience. This model has four stages: entrepreneurial, collectivity, formalization and control, and elaboration (see Exhibit 14-2).
In the entrepreneurial stage, founders and perhaps initially a few managers and associates develop ideas for products or services, acquire financial capital, and take actions to enter a niche in the marketplace. This is an exciting time, but after the market has been entered and success achieved, growth requires founders to add managers and associates. Processes must be intro- duced for selecting, training, and coordinating these individuals. In the collectivity stage, found- ers, managers, and associates continue to emphasize product or service development and fund- raising. Individuals in the young organization tend to feel like a family as they pursue the vision that attracted them to the firm. Individuals often work long hours for relatively low pay, and they tend to be highly committed. Informal communication and coordination are important, but founders often begin to handle more managerial responsibilities and fewer entrepreneurial responsibilities than they would like. As the firm continues to grow, professional managers and formal processes must be incorporated to resolve or prevent coordination and control problems.
In the formalization and control stage, managers and associates are guided by formal pro- cesses and rules, a strict division of labor, and a stable organizational structure. They empha- size efficiency more than innovation. Functional disciplines such as accounting and operations management are elevated in status. As the firm continues to grow, more rules and procedures
Exhibit 14-2 Integrative Life-Cycle Model
are often added, along with a greater number of management levels. Eventually, managers and associates can become dissatisfied, partly because they lose discretion in decision making. Fur- thermore, in larger organizations, newer associates and managers do not have a connection to the original vision, and overall commitment may be lower. To prevent or overcome these problems, a renewed effort to empower both managers and associates should be considered. At Starbucks, Schultz and other leaders maintained their commitment to a high-involvement workplace, which helped the company postpone some of the negative side effects of the for- malization stage. Starbucks grew rapidly and thus reached this stage more quickly than many firms. The firm continued to grow and eventually was unable to prevent the negative effects of this stage and thereby suffered performance declines. However, Schultz responded quickly and Starbucks is again quite successful, as explained in the Exploring Behavior in Action segment.
In the elaboration stage, managers and associates experience a more balanced, mature organization. Formal rules and processes exist alongside empowered lower-level managers and associates. Efficiency concerns coexist with concerns for innovation and renewal. As discussed in Chapter 13, balancing these concerns is challenging but possible. Starbucks currently exem- plifies this stage.
Overall, some firms handle life-cycle forces reasonably well; Starbucks is an example of such firms. Other firms handle these issues less well. In these cases, there is often a change in the leadership of the organization that can trickle down through the organization. If effective leaders are chosen to replace the previous ones and the transition is handled in an orderly man- ner, the organization can experience positive outcomes from the change.13
Changes in Top Management
Changes in top management involve the replacement of top management team members who retire or depart the company for other reasons (e.g., resign). The changes often begin with the selection of a new CEO. When CEOs and other members of the top management team have been in their positions for some time, the organization can experience inertia. In
these cases, it is more difficult to identify, develop, and implement changes. The reason for the inertia is an overly strong commitment to the current strategy and courses of action. Such commitment may be because of high performance in the past or because the managers feel personally invested in the approach they chose and implemented (e.g., feel their reputation is at stake).14 To overcome the inertia caused by the unwillingness of top managers to make needed changes, a change in the CEO and perhaps other members of the top management team may be necessary.15
A new CEO and new members of the top management team, bring unique ideas on how to deal with problems the organization is experiencing. They also have no special commitment to the previous strategies and actions, unless they represent an inside succession. However, to make major changes, it is common for the new top managers to be chosen from outside the organization.16 New top managers often select and implement new strategies that can turn around the organization’s performance.17
Of course, not all new managers will be successful. Some may not make changes and others may make changes that do not adequately meet the challenges faced. As a result, some new managers may be replaced after a short tenure.18 In particular, when an organization needs changes, perhaps they should search for specific types of individuals to undertake the top lead- ership roles. For example, managers with a strong belief in their capabilities have been found to be more entrepreneurial.19 Thus, firms that require more innovation to be competitive might need such individuals in their top management team. Careful selection of a new leader can help an organization create the type of change needed.
External Pressures for Change
Along with internal pressures, organizations face external pressures for change. Organizations must be sensitive to these external pressures, or they may not survive. For example, if an organ- ization does not react to changes in the market for its product, the demand for its product probably will decline. Such was the case for Polaroid, as discussed earlier. The new digital cameras introduced to the market by Polaroid’s competitors greatly reduced the demand for Polaroid’s products. When Polaroid was unable to respond quickly, it filed for bankruptcy and ceased to exist as an independent business.
External pressure for change comes from several sources, including technological advances, the introduction or removal of government regulations, changes in societal values, shifting political dynamics, changing demographics, and growing international interdependency (see Exhibit 14-1).
Technological Advances
Scientific knowledge, produced by both companies and universities, has been developing rapidly over the past 50 years.20 For example, in 2007, there were 23,750 scientific journals that published 1.35 million pages.21 And, with the addition of many new scholarly and open-access journals in recent years, there are likely many more such journals today. Because of the con- tinuing advances in research methods and need for answers to many impor- tant research questions, the rapid development of knowledge is expected to continue.
Technological advances are based on advances in scientific knowledge. Such advances can lead to incremental or radical changes in how services and products are designed, produced, and delivered. Two facts illustrate the point that scientific knowledge drives technology. First, scientific knowledge
is routinely cited in patent applications, with the number of scientific articles cited per patent on the increase in the United States, Germany, France, Britain, and other countries.22 Sec- ond, the number of patents granted by the U.S. Patent Office is increasing at a growing rate, which matches the growth in science. In the first half of the twentieth century, patents granted increased by 50 percent.23 In the second half of the twentieth century, they quadrupled.24 These rapid changes can be seen in technologies of recent origin, such as advancements in wire- less communications technologies, advanced manufacturing technologies, and nanotechnolo- gies.25 New technologies are being developed faster than they can be implemented. A prime example is provided by new developments in microelectronic technology, which occur before previous developments can be fully implemented.
Firms must adapt to technological advances or risk becoming outdated and ineffective.26 Manufacturing firms, for example, must adopt new manufacturing technologies or suffer disadvantages in cost, quality, or speed relative to their competition in the marketplace.27 For computer hardware and handset manufacturers such as Microsoft and Lenovo, the com- petitive rivalry is substantial. In a global handset market once dominated by Nokia and BlackBerry, the competition is fierce. For example, in 2013 Nokia’s market share decreased from 25 percent to 13.8 percent, and BlackBerry, once dominant in the industry, had only a 1.9 percent market share. Google sold its Motorola handset business to Lenova to get out of the market. Analysts believe that Microsoft, once the giant in technology, is in serious trouble in this market.28
Changes in Government Regulations and Other Institutions
The U.S. government has the responsibility to regulate commerce for the common good. Much of the regulation is initiated because of societal pressures. Major regulation has been implemented over the years in areas such as civil rights and equal opportunity, environmental protection, and worker safety and health.
In recent times, regulations have been implemented that establish fuel-efficiency stan- dards for automobile manufacturers, requirements for regional telephone companies to pro- vide competitors access to their hardwired networks, and rules limiting telemarketers’ ability to call people’s homes.29 The Drug-Free Workplace Act was passed to encourage employers to test associates for drugs and to implement employee assistance programs for substance abuse. Additional rules and regulations have been enacted since the original legislation to enhance effects. However, these regulations have been only partially effective in achieving the goals. For one thing, it covers only employers with federal contracts. In addition, the programs imple- mented by employers vary in their effectiveness.30 Without question, however, organizations must adapt to regulatory changes.
Institutional changes such as in the rule of law can have a major effect on economic activity and especially on the willingness of foreign firms to enter markets.31 Often firms are especially interested in the rule of law such as in relation to intellectual property rights (i.e., protection of copyrights and patents) and to corrupt practices (e.g., bribery).32 Clearly, uncertainty related to regulations and the potential for changes may cause firms to post- pone investments or to change their strategies.33 Clearly, regulations can influence firm changes. For example, the U.S. government has implemented regulations on banks, and particularly those receiving funds from the government, to remain solvent. The banks are required to maintain ceilings on executive pay until they pay back all of the monies pro- vided to them.34
Government regulations and other institutional factors such as economic policies and laws affect the manner in which manager make decisions. Indeed, they influence how entrepre- neurs start and operate new ventures.35 Thus, they have a major effect on behavior in organiza- tions and outcomes and the economic development of countries.
Changes in Societal Values
Changes in societal values normally have at least one of four influences. First, changing val- ues influence consumer purchases, affecting the market for an organization’s products or ser- vices. Second, society’s values are evidenced in employee attitudes, behaviors, and expectations. Third, they affect potential investors in the company. Finally, society’s values are represented in government regulations. The changing social values regarding environmental consciousness have had a major influence on organizational strategies and practices, as shown in the Manage- rial Advice segment.
Because of the increasing concerns about global warming, many people throughout the world have become sensitive to environmental issues. The importance of green issues is reflected by consumers’ buying behaviors, by investors’ purchases of stock in companies, and in other ways as well. The interest in green issues has encouraged Hewlett-Packard, Staples, Intel, ExxonMobil, and Kroger to develop environmentally sensitive policies and practices as explained in the Managerial Advice segment. For example, Staples is using solar panels to pro- vide power for number of its business operations and stores.
The influence of societal values on consumer purchases can have a major effect on organi- zations. For example, Americans have become increasingly dissatisfied with products manufac- tured by companies using questionable practices in foreign countries. Such practices include child labor, periods of intense overtime work, and very low wages. In past decades, individuals thought less about these issues, and firms could neglect them as well. Today, firms must be very careful.
Other influences of societal values are more indirect. They affect politicians who enact laws such as the Drug-Free Workplace Act. The employee-assistance programs promoted by the Act are important to save lives and reduce costs to organizations from substance abuse.36 Thus, societal values also influence government regulation, which, in turn, places external pres- sures on the organization.
Shifting Political Dynamics
Political pressures, both national and international, can influence organizational operations. The political philosophy of those elected to office affects legislation and the interpretation of existing legislation and government policies. For example, President Ronald Reagan’s views on U.S. defense spending created massive shifts in government expenditures that affected firms in several industries. These firms had to gear up to meet the government demand.
International politics also influence organizational change. For example, the major changes in the former Soviet Union exemplified by the destruction of the wall separating East and West Germany led to a decline in the Cold War and thereby a reduction in U.S. defense spending (in turn, leading to a downsizing of several industries). Yet, after the attacks on 9/11, the U.S. engaged in wars in Afghanistan and Iraq, which dramatically increased defense spending and government spending on security (e.g., the Department of Homeland Security).
In addition, disagreements over proper tariffs between the European Union and the United States, for example, can cause uncertainty and perhaps higher costs for a firm if tariffs increase. Faced with increased tariffs in an important export market, a firm may need to enhance its efficiency to avoid being forced to raise prices to noncompetitive levels. Alternatively, it may need to shift exports to other markets.
Changes in Demographics
As discussed in Chapter 2, the average age of U.S. citizens has been increasing, along with the proportion of U.S. residents who belong to groups other than non-Hispanic whites. To deal
Social Pressures for “Green” Policies and Practices: The War against Carbon Emissions
While in times past, financing or For example, it uses more than 1,700 solar
regulatory approval were the
most critical concerns for many major investments, in current times a large number of investors are focused on the com- pany’s environmental sustainability policies and actions. Many companies have realized that changing their environmental policies— making them more green—will actually contribute to their bottom line, improve their
panelstoprovidepowerfortheStaplesCenter in Los Angeles, California. In 2013, Staples recycled 67 million printer ink cartridges used by its customers. Intel has reduced its green- house emissions by 30 percent during the period of 2009 to 2013, while Hewlett-Pack- ard reduced its emissions by approximately 50percentoverasimilartimeperiod.Whole Foods has led the way for grocers to operate
public image, and make them more attractive a socially conscious business, showing they to investors. Sustainability, in simple terms, can be profitable while doing so. Following
© ZUMA Press, Inc./Alamy
its line of eco-friendly cleaners (Green Works), which have been highly successful in the market. In fact, sales have exceeded expectations by 600 percent. Slowly but with certainty, the goal to reduce emissions in the United States is being achieved. McKinsey & Co. projected that the many efforts to reduce energy consumption will lead to a 17 percent decline in energy use in 2020, as compared with 2008. Although U.S. regulators do not require companies to quantify the effects of their environmental practices, these practices have become a powerful indicator of future market perfor- mance. Thus, responding positively to envi- ronmental pressures may help companies achieve long-term survival.
means meeting our current human needs with- out harming future generations. It is a major cause among environmentalists, human rights activists, and economic-development experts. And it has become important to many in the global society, such that companies are expected to be environmentally conscious. In the past, sustainability often meant higher costs for companies, but in current times, better environmental and social practices can yield strategic advantages. Customers are shifting their loyalties to companies that embrace the concept of sustainability.
its example, other grocers such as Kroger and Safeway are saving energy by using alterna- tive energy sources and trying to use suppliers that use sustainable foods.
Clearly, many companies are seeking to make significant reductions in carbon emis- sions. Among them are Walmart, Google, and Exxon-Mobil. A major effort is under- way to use low-carbon biofuels for airlines. In fact, in 2013, Virgin Airlines announced that its fuel supplier, LanzaTech, received the seal of approval for the first plant globally to produce low-carbon jet fuel. The seal of approval was provided by the Roundtable on Sustainable Biomaterials, the primary certifi-
Many major companies are making major investments in green projects and pro- mote sustainably conscious actions. For exam- cation organization for biofuels.
ple, Staples uses solar panels for the energy to power 30 of its stores and major operations.
Other companies are providing green products. For example, Clorox is expanding
Sources: V. Valcovici, “Major Companies Plan for U.S. Carbon Emissions Fee, Report Says,” Reuters (Dec. 5, 2013), http:// www.reuters.com; C. Sheffield, “Winning the Battle in the War on Carbon,” Virgin Atlantic (Nov. 14, 2013), http://www .virgin.com; B. Walsh, “ Bye-Bye, Carbon: The U.S. Is (Slowly) Winning the Emissions War,” Time (Oct. 22, 2013); http://www .time.com, N. Knupp, “8 Companies that Have Gone Green,” Small Business Can (Aug. 28, 2013), http://www.smallbusinesscan .com; A. Soichet & M. Frost, “Inside Whole Foods’ Social Conscious Profitable Business,” ABC news (Feb. 7, 2013), http:// abcnews.go.com; L. Kaufman, “NYT: Emissions Disclosure as Business Virtue,” MSNBC (Dec. 29, 2009), http://www.msnbc .msn.com; J. Makower, “In Recession, Business Keeps Going Green,” BusinessWeek (Feb. 2, 2009), http://www.businessweek .com; P. Engardio, “Beyond the Green Corporation,” BusinessWeek (Jan. 29, 2007), http://www.businessweek.com
with these changes, many organizations have altered internal practices to ensure fair treatment for people of all races and ages. Diversity programs designed to increase understanding across different groups have become common. Further changes in the demographic profile of the nation may require additional organizational changes.
Firms also have introduced products and marketing tactics designed to appeal to a broader mix of individuals or to a particular targeted niche that has grown in importance. In states
where the Hispanic population is growing rapidly, retailers and service businesses have added Spanish-speaking associates, and cable companies have created a special TV package targeting Hispanic viewers.
Age and income distribution are additional demographic characteristics of importance for workforce composition and marketplace opportunities. For example, Florida now has the largest percentage of citizens aged 65 or over (18.2 percent). This demographic has significant implications for the type of products and services likely to be in demand in that state. Incomes enjoyed by families are also important for the types of products and services likely important for particular geographic markets. The extent to which the income is produced by dual-career couples also has workforce implications. For example, dual-career couples are often less willing to accept international assignments because of the inability of the spouse to move with them.37
Growing International Interdependence
You have probably heard someone say that “the world is getting smaller.” Or, another common statement is “the world is becoming flatter.” Clichés such as this are frequently used to describe the growing interdependence among countries in the world today. The United States is no lon- ger as self-sufficient as it once was. Growing interdependencies are created by many factors. At the national level, countries may have mutual national defense goals, which are implemented through organizations such as the North Atlantic Treaty Organization (NATO). At the organi- zational level, a company may need natural resources that it cannot obtain in its own country, or a firm from one country may establish operations in another.38
One result of interdependence is that organizations must be concerned about what hap- pens throughout the world, even if they have no operations outside the United States. As such, managers need to develop a global mindset whereby they are attentive to changes around the world, analyzing their potential influences on their organization.39 For example, events in the Middle East have an effect on most major organizations in the United States in some way. International interdependencies provide both opportunities and constraints.40
Many firms have found that international markets present more opportunities for sales growth than U.S. markets, as discussed in Chapter 3. Likewise, organizations have to remain flexible in their international activities, adapting to major events (e.g., acts of terror; major politi- cal changes in a country that likely will lead to changes in important policies) when they occur.41
Planned Change
How does an organization respond to pressures for change? One possibility is planned change, which involves deliberate efforts to transform an organization or a subunit from its current state to a new state. Planned change may be evolutionary over time, or can be more revolutionary, involving major changes in a shorter period of time.42 To effectively move the organization from one state to another, those managing the change must consider a number of issues in three dis- tinct parts of the change process.43 Resistance to change may develop along the way, however.
Process of Planned Change
Change is typically thought of as a three-phase process that transforms an organization from an undesirable state through a difficult transition period to a desirable new state. Although researchers tend to agree on the nature of these three phases,44 different names for the phases have been used by different people.
Kurt Lewin, a noted social psychologist, provided the most commonly used labels: unfreezing, transforming, and refreezing.45 That is, the change process involves unfreezing an
organization from its current state, moving (changing) it to a new state, and refreezing it in the new state (see Exhibit 14-3).
Unfreezing
Unfreezing involves three activities.46 First, change leaders provide a rationale—a reason why individuals in the organization should no longer be committed to the status quo. In particular, they need to motivate managers and associates to break out of the path dependence that cur- rently exists;47 instead of going down the same path, they need to select and start on a new path.48 The leaders may accomplish this by providing information on poor financial perfor- mance, an impending regulatory change, or a new technological development. Second, leaders create at least minor levels of anxiety about not changing. Although causing undue negative emotion is not the intent, creation of psychological discomfort can be motivating to change. Leaders may create such a feeling by discussing the negative outcomes that the organization and its managers and associates will suffer if changes are not made. Third, leaders create a sense of psychological safety concerning the change. Managers and associates must believe they can successfully change.49 Tactics that change leaders might use include the following:
• Reminding individuals that they have successfully changed in the past • Communicating to individuals that managers and associates in other organizations in
similar circumstances have successfully changed • Explaining to individuals that support and training will be available for the specific
changes to be made
Transforming
Transforming involves three key activities: providing information needed for the changes; removing obstacles to change; and implementing the changes.50
First, change leaders must provide information and evidence that supports the proposed changes. Without supporting information, managers and associates may not have faith in what they are being asked to do, and they will not be committed. Pilot tests, outside experts, and data on how others have benefited from similar changes can be effective tactics. Furthermore, as noted in our discussion of transformational leaders in Chapter 8, a compelling vision of the
future also can be useful in building commitment to proposed changes. Indeed, such a vision is likely to be crucial for creating change.
Second, potential constraints to making the change must be eliminated or overcome by the change leaders. This might require investing more money to reduce financial constraints or providing more training to improve associates’ capabilities to make the change.51
Third, change leaders must be able to shift behavior and implement the change.52 They must arrange for the resources required for change, such as new equipment or budgets, and they must ensure that education and training are available. With resources and training in place, the actual change can be implemented.53 Feedback on progress can be used to make necessary adjustments as the change is implemented. Quick and highly visible successes can be helpful to this stage of the change process in order to keep associates motivated to continue to support it.
Refreezing
Refreezing involves three interrelated activities.54 First, change leaders implement evaluation systems that track expected behaviors after the change, and they implement permanent train- ing systems to continuously upgrade relevant knowledge and skills. If, for example, working in teams is part of a new approach used in a particular organization, an individual’s willingness to contribute to a team must be ensured. Second, change leaders arrange for permanent reward structures, involving both monetary and nonmonetary rewards, to positively reinforce the new behaviors. Third, change leaders ensure that new hiring and promotion systems and other forms of support are designed to satisfy the altered demands.55
refreezing
A phase in the change process in which leaders lock in new approaches by implementing evaluation systems that track expected behaviors, by creating reward systems that reinforce expected behaviors, and by ensuring that hiring and promotion systems support the new demands.
he Experiencing Organizational Behavior feature illustrates major changes implemented by Novartis. The changes were substantial and represented a major departure from the ways research was commonly conducted in the industry to identify major new drugs. However, the process used by the CEO to develop and implement the changes did not follow the pro- cess outlined herein. For example, rather than unfreezing the managers and associates in the organization, the CEO decided on the changes and announced them with little input from key managers. As a result, he encountered resistance from managers in the marketing unit (a very important function in the pharmaceutical industry) and from research scientists. The resistance likely produced less-effective changes or at least delayed the firm’s ability to most effectively implement the changes. The end results were that the shareholders were unhappy with the financial performance of the firm and a new CEO was put in place to improve it. Thus, while the changes may have been good ones, a poor process was used to implement the changes in the company. Eventually, the unhappiness with Vasella over these changes led to his demise. He was replaced, and many of his changes were reversed by the new chairman.
The Novartis example emphasizes that the time and attention change leaders spend on the unfreezing phase can have a significant effect on the success of the change. When change leaders fail to treat unfreezing as a distinct and crucial phase, they often encounter problems, as Vasella obviously did. Without explicit attention to unfreezing, resistance to change is likely to be strong. Failure to focus attention on this phase, however, is common and is a source of failure in many change efforts. Two additional points are important. First, managers and asso- ciates should not expect all change activities to occur sequentially. Thus, activities important
In one phase of the process may overlap activities necessary in the next phase.56 For example, change leaders may engage in various activities in the transforming phase while continuing to convince people of the need to change, an activity associated with the unfreezing phase. Although it is very useful to think in terms of three distinct phases, a measure of flexibility is required in actually creating change.
Second, a team of change leaders, rather than a single individual, should guide an organ- ization through a major change effort. Relying on a single leader is risky because there is too much work required for one person to handle.57 Deciding how best to unfreeze people, developing a vision, communicating a vision, generating small wins, and overseeing numerous change projects require more than one key change leader.58
In constructing the team, several factors should be considered. According to a well-known researcher and business consultant, John Kotter, four factors are crucial:59
1. Position power plays a role. Individuals with power based on their formal positions can block change or at least slow it down. Including some of these individuals on the team will leave fewer potential resisters who have the power to slow or resist the change.
2. Informal credibility is important. Individuals who have credibility are admired and respected and can be effective in selling change. Associates often are selected as change leaders based on this criterion.
3. Expertise is a relevant factor. Individuals on the team should possess knowledge related to the problems requiring the change effort and should have diverse points of view on potential solutions.
4. Proven leadership is crucial. The team needs individuals who can lead other managers and associates through the transition.
The size of the team is also a concern. There is little agreement on how large or small the team of change leaders should be, but the size of the organization that will be changed plays a role.60 Six may be sufficient in a smaller organization or in a division of a larger organization. Fifteen or more may be required in a larger organization. However, as the team grows, it will be more difficult to coordinate and manage.
Managerial Change Capabilities
To make major changes, managers need several capabilities.61 As noted earlier, they need the capability to develop a vision and gain others’ commitment to it. Vasella at Novartis had a vision of the changes he wanted, but he took no action to gain commitments to the vision from important stakeholders including managers and associates in the company. This vision often entails taking advantage of entrepreneurial opportunities, leading to a “game changing” strat- egy.62 Gaining commitment to major changes such as new entrepreneurial opportunities often requires political capabilities. Such capabilities entail skills in communication and persuasion, along with the ability to analyze and understand multiple viewpoints regarding a change.63
Essentially, to create changes, managers need what some refer to as dynamic capabili- ties. Dynamic capabilities involve the ability to integrate and configure internal and external resources to shape changes.64 Managerial dynamic capabilities also entail the ability to make effective decisions and implement them, and they are especially important when significant changes are needed (e.g., in conditions of severe environmental turbulence).65 Commonly, managers who carefully delegate authority to implement changes while maintaining oversight are better able to achieve successful changes.66 In particular, the authority to make tactical choices is delegated to those who have the most knowledge and are closest to the changes being made.
Important Tactical Choices
Change leaders must make many decisions. Among these are two important tactical deci- sions, the first involving speed and the second involving style.67 Although these issues have no correct answers for all situations, certain criteria must be considered when making informed choices.
Speed of Change
A fundamental decision in any change effort involves speed. A fast process, where unfreezing, moving, and refreezing occur quickly, can be useful if an ongoing problem will cause sub- stantial damage in the near term.68 Senior managers, for example, often initiate rapid changes when they realize that organizational strategies or structure no longer provide value to cus- tomers. Because of the dissatisfaction of multiple stakeholders, particularly shareholders, Jorg Reinhardt instituted rapid changes to reverse the managerial and strategic practices used by the former chairman at Novartis. Overall, criteria that can be usefully considered when deciding on speed include the following:69
• Urgency: If the change is urgent, a faster pace is warranted. • Degree of support: If the change is supported by a wide variety of people at the outset,
a faster pace can be used. • Amount and complexity of change: If the change is small and simple, a faster pace often
can be used; but if the change is large, more time may be required.70 • Competitive environment: If competitors are poised to take advantage of existing
weaknesses, a faster pace should be considered. • Knowledge and skills available: If the knowledge and skills required by the new
approach exist in the firm or can be easily acquired, a faster pace can be used. • Financial and other resources: If the resources required by the change are on hand or
easily acquired, a faster pace can be considered.
Style of Change
A second fundamental decision involves style. When using a top-down style, change leaders design the change and plan its implementation with little participation from those below them in the hierarchy. In contrast, when using a participatory style, change leaders seek the ideas and advice of those below them and then use many of those ideas. Unfortunately, the former Novartis CEO did not use a participatory style, and his top-down approach likely dulled the effectiveness of the changes he desired to implement. A transformational leadership style would have been more successful in this case.71
In a high-involvement organization, leaders use a participatory style whenever possible. Participation can be useful in generating ideas and developing commitment among those who will be affected by a change.72 Participation, however, can be time-consuming and expensive, as meetings, debates, and synthesis of multiple sets of ideas take significant time. Overall, the following criteria are useful in evaluating the degree to which a participatory approach should be used:73
• Urgency: If the change is urgent, a participatory approach should not be used, as it tends to be time-consuming.
• Degree of support: If the idea of changing is supported initially by a wide variety of people, a participatory approach is less necessary.
• Referent and expert power of change leaders: When change leaders are admired and are known to be knowledgeable about pertinent issues, a participatory approach is less necessary.
Resistance to Change
Although organizations experience both internal and external pressures to change, they fre- quently encounter strong resistance to needed changes. Resistance to change involves efforts to block the introduction of new ways of doing things. Dealing with resistance is one of the most important aspects of a manager’s job. In a high-involvement organization, associates also must take responsibility for helping to motivate change among their peers.
Resistance may be active or passive.74 Individuals may actively argue and use political con- nections in the firm to stop a change. In extreme cases of active resistance, resisters may sabo- tage change efforts through inappropriate means. In other cases, individuals passively resist change, which is more difficult to detect. Resisters may act as though they are trying to make the change a success, but in reality they are not. This often occurs in organizations that have attempted to change too frequently in the recent past, because individuals in these organiza- tions have become tired of change.75
Resistance to change can usually be traced to one or more of the following four causal fac- tors: lack of understanding, different assessments, self-interest, and low tolerance for change.76
Lack of Understanding
The first possible cause is lack of understanding. In some cases, individuals are unsure of what a change would entail. They resist because they do not understand the change.77 For example, change leaders might decide to redesign jobs in a manufacturing facility using job enrich- ment. Such a redesign could result in substantial benefits to associates in the affected jobs, as discussed in Chapter 6. If, however, change leaders fail to explain the expected changes, some associates might begin to make false assumptions. They might, for example, believe that if job enrichment is implemented, their pay status will change from hourly wages to established sala- ries (with no overtime or incentive pay provided). Thus, they resist the change.
The key to avoiding or handling resistance to change based on lack of understanding is to communicate clearly what the change entails.78 Many organizational researchers have emphasized the importance of rich communication for successful change. Meetings, articles in newsletters, and articles on company intranets are examples of possible communication tools.
Different Assessments
A second possible cause of resistance involves differing assessments of the change. Associates and managers who resist on this basis believe that the change would have more costs and fewer benefits than claimed by those who desire the change.79 In this case, it is often not that the resisters have inaccurate or insufficient information; rather, they understand the change but disagree with change leaders about the likely outcome. For example, a mid-level manager may resist an increase in product diversification because she sees more costs from the loss of focus than do those who are encouraging the change. Furthermore, she may see less potential for synergy across product lines than others do. Increased diversification may or may not be ben- eficial to a firm. Many factors are involved, and the situation is usually quite complex. Thus, honest disagreements are common when a firm is considering product-line expansion. Obvi- ously, this is true for many other changes as well.
To prevent or deal with resistance based on different assessments, change leaders should con- sider including potential or actual resisters in the decision-making process.80 This focus on par- ticipation serves two purposes. First, change leaders can ensure that they have all of the informa- tion they need to make good decisions.81 Individuals resisting on the basis of different assessments may have more and better information than change leaders, making their resistance to change positive for the organization. Change leaders must explore why resisters feel the way they do.
Second, by emphasizing participation, change leaders can help to ensure procedural jus- tice for actual or potential resisters.82 In the context of organizational change, procedural justice is defined as perceived fairness in the decision process. Individuals are more likely to
believe the process is fair and are more likely to trust the organization and change leaders if they are included in the decision process. One study showed the potential power of procedural justice. Associates in two U.S. power plants who believed they had input into change-related decisions felt more obligated to treat the organization well, trusted management to a greater degree, and expressed an intention to remain with the organization.83
Self-Interest
Individuals who resist change because of self-interest believe that they will lose something of value if the change is implemented.84 Power, control over certain resources, and a valued job assignment are examples of things that could be lost. For example, the head of marketing in a small, rapidly growing firm might resist the establishment of a unit devoted to new-product development. If such a unit were established, he would lose his control over product develop- ment. Another example of self-interest is when individuals oppose an appointment to a higher- level position on the basis of gender or ethnicity.85 Finally, managers and associates may resist change when they have no incentives to support it and could actually lose resources if changes are made, such as in the current U.S. health-care system (i.e., government payments are tied to specific actions and may not be made if innovations changing the treatments are made).86
To combat this type of resistance, change leaders can try to reason with resisters, explain- ing that the health of the organization is at stake. A positive action that has shown to be valu- able in overcoming resistance is to offer inducements to motivate the associates to accept the change.87 In these cases, the incentives provide a positive outcome for those who accept and help to implement the change. Another option is to adopt a more coercive style and insist on compliance. In rare cases, when the resisters are extremely valuable to the organization and other tactics have failed or are unavailable, change leaders can negotiate in an effort to overcome the resistance.88 Valuable resisters who are managers can be offered larger budgets or a valued new assignment for favored subordinates, for example. In the case of associates, additional vacation time might be offered (other forms of incentives are noted above). These actions, however, should be undertaken only under exceptional circumstances because they might create expectations on the part of other managers or associates.
Low Tolerance for Change
Associates and managers who resist on the basis of low tolerance for change fear the unknown. They have difficulty dealing with the uncertainty inherent in significant change. Such resis- tance leads to higher commitment to the current activities and thus organizational inertia (very slow or no change).89 A manager, for example, may resist a change that seems good for the organization but that will disrupt established patterns. He may not be able to cope emotion- ally with the uncertainty and be concerned about having the capability to perform in the new situation.90 Change leaders should offer support to these resisters.91 Kind words, emotional support, and attention to training and education that properly prepare the individuals for the planned changes are appropriate tactics.92
Research has shown that certain individual characteristics are associated with low tolerance for change. Lack of self-efficacy is perhaps the most important of these characteristics.93 An associate or manager low in self-efficacy does not believe that he or she possesses or can mobilize the effort and ability needed to control events in his or her life. In the workplace, this translates into uncertainty about the capacity to perform at reasonable levels.94 Another factor is low risk tolerance.95 Individuals who do not tolerate risk very well often dislike major change. In a study of 514 managers from companies headquartered in Asia, Australia, Europe, and North America, poor views of self and low risk tolerance were found to harm the ability to deal with change.96 In particular, openness to change is critical for organizations to be innovative.97
Overall, managers and change agents must try to design effective changes for the organiza- tion that are perceived as fair for the other managers and associates affected by them.98 Where
possible, managers need to control the “rhythms of change” such that there are periods of stability that follow the change.99 Over time, this approach creates a balance and allows asso- ciates to adapt prior to engaging in another change. Of course, too little change may lead to inertia, which then makes it more difficult to implement changes when needed. It is important to design effective changes and to implement them well because it is highly difficult to reverse changes even when they are not producing the positive outcomes desired.100
The DADA Syndrome
Beyond the resistance to change discussed above, change leaders must realize that associates and managers can become trapped in the so-called DADA syndrome—the syndrome of denial, anger, depression, and acceptance.101 This syndrome highlights what can occur when individu- als face unwanted change. In the denial stage, individuals ignore possible or current change; in the anger stage, individuals facing unwanted change become angry about the change; and in the depression stage, they experience emotional lows. Finally, in the acceptance stage, they embrace the reality of the situation and try to make the best of it. Not all individuals who experience this syndrome move through all of the stages sequentially, but many do. Some, however, remain in the anger or depression stage, resulting in negative consequences for them and the organization.
In a well-known incident, Donna Dubinsky at Apple Computer experienced the DADA syndrome.102 Dubinsky headed the distribution function at Apple in the mid-1980s. She had performed well in her time at Apple and was considered to be a valuable part of the organiza- tion. Even so, Steve Jobs, chairman of the board at the time, began to criticize distribution and called for wholesale changes in the way this unit functioned. Dubinsky, incredulous that her unit was being questioned, decided the issue would go away on its own (denial stage). But the issue did not go away. Instead, Jobs asked the head of manufacturing in one of the operating divisions to develop a proposal for a new approach to distribution. Dubinsky still could not believe her unit would be changed, particularly without her input. Over time, however, she became defensive and challenged the criticisms (anger stage).
Transforming Cisco to Be the Leader in Supporting the Internet of Everything
Cisco experienced its share of prob- lems during the first decade of the twenty-first century. The two recessions during this time were especially unkind to technology-based firms. Yet, John Chambers, CEO of Cisco, designed and implemented substantial changes in the organ- ization. In his view, he is positioning the firm to be the technology market leader for many years to come. First, Cisco continued to make a number of acquisitions and formed strategic alliances, both of which have the purpose
of broadening Cisco’s reach in attractive markets. For example, Cisco acquired com- panies with products and capabilities in the Internet videoconferencing, web security, and large-data-management markets. It also recently formed a joint venture, partnering with EMC, to expand Cisco’s networking capabilities. Cisco is currently the largest seller of networking equipment in the world.
Cisco managers believe that collabo- ration will play a major role in business operations in the future, particularly to take advantage of human capital in the organi- zation. As such, organizations are likely
to be decentralized networks of managers and associates working to accomplish the broadgoalsoftheorganization.Andthese networks will require tools that facilitate the communication and collaboration. The tools focus on video, collaboration, and virtual- ization.
In addition, Cisco has made substantial changes in its structure and mode of opera- tion. The reorganization has produced a much flatter structure, with people and man- agers organized in teams. The teams are empowered to make decisions that commit resources and act without central manage- ment approval. This approach represents a
high-involvement organization. Interestingly, Chambers suggests that Cisco has made major changes (reinvented according to Cisco) five to six times over the last 20 years.
Chambers expected these latest changes to produce significant growth for his company. And, they helped to produce 16 straight quarters (four years) of posi- tive growth (increases in sales revenue and profits over the same quarter one year previ- ously). This is a longer period of such growth than achieved by any other high-technology equipment manufacturer (e.g., IBM, HP).
Currently, there are approximately 12 billion devices connected to the Internet.
But, Chambers expects this to expand to 50 billion in the not too distant future and 500billionovertime.Thisgrowthwilllead to $19 trillion impact by 2020, according to Chambers. Eventually, almost everything will be connected to the Internet, creating a mega-network. And, given Cisco’s primary business, it stands to benefit greatly from these changes. Yet, in 2014, its early quar- ter revenues and profits were down from the previous year (the first negative growth in some time). Chambers believes that Cisco is positioned well for the future changes com- ing. Only time will tell if Cisco benefits from these changes.
Concerned with the process through which Jobs was attempting to change distribution, senior management in the company protested, which led to the creation of a task force to examine distribution issues. Dubinsky continued to be defensive as a member of this task force. As it became clear that the task force would endorse Jobs’s proposed changes, how- ever, Dubinsky reached an emotional low (depression stage). She was eventually revived by conversations at a retreat for executives. There, Dubinsky realized she had not invested her considerable talents in effectively handling the criticisms and plans for change in the distribu- tion function. She went on the offensive and asked that she be allowed to develop her own proposal for change (acceptance). She was allowed to do so, and after examining the concerns and alternatives, she recommended major changes—changes that were different from Jobs’s original ideas. Dubinsky’s ideas were incorporated in the final plan.
Change leaders should be sensitive to the potential for the DADA syndrome. To prevent associates and managers from entering the DADA stages or to ensure they do not become mired in the anger or depression stage, leaders must monitor their organizations for actual or potential resistance to change. If resistance is discovered, its cause must be diagnosed and addressed.
Organization Development
Leaders must recognize internal and external pressures for change and introduce initiatives designed to cope with them. In addition, leaders can proactively position their organizations to better recognize the need for change and to more easily implement change when necessary. In other words, leaders can develop their organizations so that communication, problem solving, and learning are more effective.
To achieve these goals, organization development (OD) is useful. Although researchers have not always agreed on the specific features of organization development, they agree that its purpose is to improve processes and outcomes in organizations.103 OD has had its share of critics in recent years, but it has produced some worthwhile results.104
OD can be defined as a planned, organizationwide, continuous process designed to improve communication, problem solving, and learning through the application of behavioral science knowledge.105 With its roots in humanistic psychology, OD is grounded in values of individual empowerment and interpersonal cooperation.106 Thus, it is consistent with the high-involvement management approach.
The Basic OD Model
The basic OD model uses a medical approach, in which organizations are treated when they suffer ill health. OD researchers and practitioners diagnose the illness, prescribe interventions, and monitor progress.107 Exhibit 14-4 provides an overview.
Diagnosis
Diagnosis is an important step in organization development. Without effective diagnosis, managers will not understand what their organization really needs, and the chosen course of action will likely be ineffective. Although the diagnostic approaches used by physicians and managers are similar, the tools they use vary. Over the years, physicians’ diagnostic tools have become quite sophisticated (laboratory tests, CT scans, MRIs, electrocardiograms, and so on). Those of the manager, though useful, are less precise. Even so, our knowledge of diagnostic tools has increased rapidly in recent years.
Diagnostic devices for managers include interviews, surveys, social network analyses, process-oriented diagnosis, and accurate records (e.g., performance records). Of these tools, the most frequently used are surveys and individual and group interviews.108 Managers can conduct many different surveys, including job-satisfaction surveys (such as the Job Description Index), organization climate or culture surveys (such as the Organizational Practices Question- naire), job design measures (such as the Job Diagnostic Survey), and assessments of leaders (such as the Leadership Practices Inventory). In many cases, standard survey forms can be used; in other cases, surveys may need to be custom-designed for the situation. These diagnostic tools can be useful in determining needed interventions. Some organizations administer sur- veys to employees on a regular basis, such as annually, to identify problems.
Interventions
After the situation has been diagnosed, interventions can be prescribed. Organization devel- opment interventions include different forms of group training, team building, and job redesign.109 The most appropriate technique will vary with the situational factors involved.
Unfortunately, there are no ready-made answers that can be used for all situations. Several of the more important techniques are described later in this chapter.
Proper implementation is crucial in organization development. For example, job enrich- ment may be useful when individuals desire more challenging jobs and more responsibility. Providing such jobs can enhance intrinsic motivation and satisfaction, yielding empowered individuals who are better positioned for effective problem solving and learning. OD leaders must properly prepare the individuals for job enrichment, however, even though they may have requested it. Overall, the interventions must be well planned. Increased job responsibili- ties often raise the question, “Don’t I deserve more pay if I’m performing a more responsible job?” OD leaders must be prepared to answer such questions.
A well-trained OD specialist should play an important role in any intervention.110 Often, managers who understand only one or two specific OD techniques attempt to use these approaches to solve whatever problem exists. But the techniques must match the situation, or the likelihood of failure is high. Furthermore, people who are not fully knowledgeable about organization development frequently have problems implementing a successful program. For example, only experts in group training, team building, or conflict resolution should imple- ment those particular OD change techniques.
Progress Monitoring
The effects of the interventions must be evaluated after an appropriate interval.111 The evalua- tion is important to ensure that the objectives have been met.112 A common evaluation tech- nique is the survey, which may be used to diagnose a problem and then reused after an OD technique has been implemented to determine what progress has been made toward resolving the problem. Other evaluation tools may be used as well. In any case, the main criterion for evaluation is to determine whether the original objectives have been accomplished. Some OD tools such as process consultation have evaluation processes built into them.113
If the evaluation shows that objectives have not been accomplished, further efforts may be necessary. A new or modified approach may be designed and implemented. The type and degree of these actions depend on why the objectives were not reached and by how far they were missed. Questions such as, “Was the original process correct?” and, “Was it correctly implemented?” must be answered.
Frequently, some modifications are needed to increase the positive benefits of OD work, but if care has been taken in the OD process, wholesale changes are unnecessary at this stage. Because a comprehensive OD program is continuous, the process of sensing the organization’s need for development is continuous. In this way, an organization is in a constant state of renewal and regularly checks its health.
Organization Development Interventions
The interventions used to create organizational change are at the heart of organization develop- ment. Here, we describe several of the more important OD intervention techniques. Research suggests that using more than one technique is generally superior to using a single technique.114 For convenience of discussion, we have placed the interventions into two groups: techniques directly focused on how individuals relate to one another115 and techniques focused on struc- ture and systems116 (see Exhibit 14-5).
Relationship Techniques
Relationship techniques focus on how individuals perceive and respond to one another. Team building, survey feedback, and more general training are among the most important tech- niques in this category.
Team building, a cornerstone of organization development, is a technique that requires
members of a team to work together to understand their problems and implement solutions.117 A team is any group of associates and/or managers who work together to accomplish a task (see Chapter 11 for additional details). The problems faced by teams usually involve substan- tive team tasks (e.g., technical design problems for a new-product-development team), the processes of the team (e.g., weaknesses in problem solving), and interpersonal relationships among team members (e.g., difficulties based on differences in personality).
In successful applications of team building, team members focus mostly on substantive tasks rather than on process and interpersonal issues.118 While team members concentrate on substantive problem solving, a skilled leader can introduce interpersonal and other process guidance as needed.119
Overall, the team-building process can help to positively reinforce relations among team members and may be particularly useful for teams experiencing conflict, lack of cohesiveness, or ambiguous goals. Team building can be important for self-managed teams and teams that have new leaders.120 New leaders taking over the responsibility for a team often find that team building reduces suspicion, increases trust, and promotes a healthy working relationship. At times, the use of a third-party consultant may be necessary to guide the process, particularly when conflict is present.
In summarizing their experiences, two OD researchers offered a useful list of team- building tips:121
1. Get the right people together for 2. a large block of uninterrupted time 3. to work on high-priority problems or opportunities that 4. they have identified and have them work 5. in structured ways to enhance the likelihood of 6. realistic solutions and action plans, which are then 7. implemented enthusiastically and 8. followed up to assess actual versus expected results.
The survey feedback technique emphasizes the collection and use of data from question- naires.122 Although most OD efforts involve collecting data through surveys and interviews as part of diagnosing the organization’s situation, surveys can also be used as an intervention fol- lowing diagnosis. If, for example, the diagnosis suggests that poor motivation among associates
is driven partly by a feeling of lack of input, using surveys more frequently may be helpful in changing this feeling.
The first step in the survey feedback technique involves collecting data on how individu- als feel about various aspects of leadership and interpersonal relations within the unit, as well as broader organizational issues. Each manager in the organization receives a summary of the survey results for her unit. An internal or external OD consultant meets with the manager to discuss the results. A second meeting is then arranged for the manager to present the findings to associates and lower-level managers. The OD consultant often attends this unit meeting to explain any technical aspects of the data. The unit members then work together to interpret the findings, understand problems, and find solutions.
It is important that all information from a survey be discussed. Positive information is crucial in helping to build and maintain a positive climate. Negative information is critical for understanding problems.
Training is a process used in OD to help managers and associates to gain skills and capa- bilities needed to accomplish tasks in their jobs and to build important behavioral skills such as interpersonal skills, listening skills and skills to enrich collaboration.123 It is common, for example, to provide managers leadership training to help them become more effective lead- ers.124 Training can also enrich managers’ and associates’ capabilities that help prepare them for future positions in the organization. Such training provides the organization with more flexibility, allowing it to take advantage of new opportunities that are identified.125 Training is a common tool used universally by all types of organizations. In addition, training is a global phenomenon. For example, most multinational enterprises have their managers and associates participate in training in their subsidiaries throughout the world. However, they have to adjust their processes and content to adapt to local cultural values.126
Structural Techniques
Structural OD techniques, as the name implies, involve adjustments in the organization’s structure. In the field of organization development, some structural interventions are focused on changing tasks; others are focused on changing the method of setting task goals; and still others are broadly focused on communication, problem solving, and learning. Commonly used techniques include job redesign, goal-based leadership (formerly referred to as manage- ment by objectives or MBO), and supplemental organizational elements.
The job redesign technique may include job enlargement, job enrichment, or both.127 As discussed in Chapter 6, job enlargement involves adding tasks that offer more variety and that may require the use of different skills. The additional tasks, however, are not of greater com- plexity. Some refer to this as horizontal loading. Job enrichment involves adding more com- plex tasks, generally by incorporating tasks formerly handled by managers (e.g., scheduling of maintenance on a production machine) and staff specialists (e.g., making quality-control deci- sions). Thus, associates whose jobs are enriched have greater responsibility because they begin to manage their own jobs individually or as members of self-managing teams.
Much of the emphasis on the redesign of jobs in organization development grew out of controversy surrounding boring, repetitive tasks often seen in mass-production systems. Many observers, believing that repetitive tasks led to an alienated workforce, proposed to enrich jobs by providing more challenging tasks. Through enrichment, associates become more engaged problem solvers. Because managers no longer need to closely supervise the routine activities of associates, they can focus more of their attention on helping to solve key organizational prob- lems and helping to establish a learning orientation in their units. In current organizations, jobs are often enriched by assigning coordination responsibilities related to interdependent tasks. And, these tasks frequently require collaboration with people and units based in other coun- tries.128 This approach provides a work context that encourages employees to take responsibility for job outcomes and to be committed to unit performance and achievement of goals. When an organization uses goal-based leadership, individuals negotiate task objectives with their managers/team leaders at each level in the organization. (See Chapter 6 for a more detailed discussion of participation in setting goals and the motivational properties of goals.) This technique changes the goal-setting structure from one determined by a superior to one in which both leader and associates participate. Once set, the goals are used in performance assessments.
As an OD technique, goal-based leadership involves several specific steps.130 First, infor- mation collected from organization members, team leaders, senior managers, and perhaps oth- ers is used to diagnose organizational problems. This diagnosis provides a focus for goal-based efforts. After diagnosis, senior managers and others can define major organizational goals. Next, workshops about the goal-based leadership process generally are conducted for all team leaders and managers to help them understand and use the technique correctly.
Goals for middle managers are then defined by teams of middle and senior managers. Goals for lower-level managers and team leaders are set by teams of lower-level managers/team leaders and middle managers, with senior managers also possibly involved. Finally, goals for associates are established by teams of associates and team leaders and/or managers. The partici- patory approach embedded in goal-based approach often yields associates and managers who are more satisfied with and committed to the organization.131 As a result, they are more likely to be enthusiastic problem solvers who are open to learning.
Goal-based leadership can be a useful technique, but it does carry risks.132 First, goals can be rather static and inflexible, while the environment is constantly changing. People may have to change their focus and what they do in order to meet changing environmental demands. Sec- ond, an associate’s accomplishments are often influenced by factors outside of his control. Thus, performance assessments tied to meeting goals can be unfair. Third, a strong focus on goal attain- ment may mean that intangible aspects of the job for which goals have not been set are ignored.
Finally, senior managers can create supplemental organizational processes to enhance communication, problem solving, and learning. Examples of such processes include quality circles, safety councils, regular union-management meetings, and periodically scheduled man- agement retreats. At the core, these supplemental processes involve ongoing meetings of associ- ates and/or managers for the purpose of understanding and addressing important problems. Team building, with its attention to process and interpersonal issues, sometimes is involved.
Several years ago, senior managers at General Electric used a number of OD interventions to improve honest communication, problem solving, and learning. Their efforts had remarkable results.133 The management–union meetings implemented in the transportation division con- stituted a supplemental organizational process. Workout was also a supplemental process, and it involved aspects of team building as well. The boundaryless organization involved job redesign, as individuals were expected to search across unit lines for ideas—an activity formerly outside their domain. Many analysts believe that the workout and boundaryless organization concepts contrib- uted to GE’s phenomenal performance during the 20 years of Jack Welch’s tenure as CEO. Dur- ing this time, GE created more value for shareholders than any other company in the world.134
Beginning with the efforts of Thomas Edison, over the years GE has provided significant advances in many useful products, including the incandescent light bulb, X-ray equipment, the electric fan, radios, TVs, and turbines. But despite GE’s history of innovation in product development and its overall success, the company had become stale and out of step with its environment by the time Welch took over as CEO in 1981. Many associates and managers were unhappy and unproductive, and financial performance was beginning to decline. Internal processes and structures were hindering rather than helping. But, OD interventions helped to create a healthier company.
Through these interventions, associates and lower-level managers became more motivated to help identify needed changes, middle and senior managers had better forums for informa- tion exchange, and everyone had greater incentives to develop, borrow, and share ideas. The outcome was highly positive for GE’s shareholders, managers, and associates.
Organizational Learning
Most organizational development and change require learning. The changes may be based on learning new capabilities, new processes, or adding new knowledge that helps the organiza- tion more effectively use its current capabilities and processes. Thus, managing organizational change entails managing knowledge transfers and development.135 Learning how to more effectively use current knowledge is referred to as exploitative learning. Alternatively, explor- atory learning involves creating new knowledge and being innovative.136
As explained earlier, some of the OD techniques also involve learning about relationships and building relationship skills.137 Some of this learning can eventually be integrated into and enrich current organizational routines (e.g., regular processes and approaches for problem solving) or create new ones.138 But, it is critical to emphasize that organizational change is successful in the long term only if learning occurs. Firms are most likely to focus on trying to learn when their performance fails to meet expectations. However, it is much better to have systematic process in places that helps the organization to learn on a continuous basis and thereby avoid long-term performance declines.139
In turn, managers and team leaders must help the associates who work with them to learn as well.140 Individual learning is important to solicit creative ideas from associates and to build their capabilities to participate in problem-solving activities important in high-involvement organizations.141 Individual learning is also important because it creates human capital that serves as a base for organizational learning.142
Organization Development across Cultures
The growth of multinational corporations and the global marketplace requires that the cultural implications of OD programs be considered. Behavioral science techniques may not work the same way in different cultures, and methods of managing successful organizations can vary across cultures. Managers hoping to implement an OD program in a culture different from their own must avoid an ethnocentric attitude (assuming that everyone is similar to those back home) as well as stereotyping.
To implement OD successfully in different cultures, those involved should demonstrate the following qualities:
• Flexibility—openness to new approaches, ideas, and beliefs and willingness to change one’s own behavior
• Knowledge of specific cultures—understanding of the beliefs and behavior patterns of different cultures (see Chapter 3 for a discussion of cultural differences)
• Interpersonal sensitivity—the ability to listen to and resolve problems with people from different cultures
? back to the knowledge objectives
1. What are the three major sources of internal pressure for organizational change? In your opinion, which of these three is most difficult to handle? Why?
2. What are the six major sources of external pressure for organizational change? In your opinion, which of these is most difficult to handle? Why?
3. What is involved in each phase of the unfreezing–transforming–refreezing model of planned change?
4. What are the factors to consider in deciding whether a fast or slow approach to change is best? What are the factors to consider in deciding whether a top-down or participatory approach to change is best? Describe a situation in which you were either a change recipient or a change leader and a poor choice was made for at least one of these two decisions (use an example from an organization in which you currently work or formerly worked, or use a voluntary
organization, a church, a sports team, or a fraternity/sorority).
5. Compare the four basic causes of resistance to change. If you had to choose one, which would you prefer to deal with
as a manager, and why?
6. What is the DADA syndrome?
7. What is organization development? Provide a definition as well as a basic model. A number of interventions can be
used in organization development. As a manager, which of these interventions would you prefer to use, and why?
What This Chapter Adds to Your Knowledge Portfolio
In our final chapter, we have discussed change in organiza- tions. More specifically, we have discussed pressures for change, a three-phase change model, two critical tactical decisions, and resistance to change. We have also examined organization devel- opment, offering a definition and basic model, along with a set of techniques. In summary, we have made the following points:
• Organizations experience pressures for change, some of which are internal. Aspiration–performance discrepancies constitute one internal source of pressure. These discrepancies are simply differences between desired and actual performance. Past aspirations, past performance, and comparisons with others affect today’s aspirations.
Life-cycle forces constitute a second internal source of pressure. When organizations grow, pressure tends to build at certain predictable points, forcing organizations to respond. If an organization responds effectively, it tends to move through several stages: entrepreneurial, collectivity, formalization, and elaboration. Changes in the persons occupying top management positions often produce broader organizational changes. First, new managers are not committed to previous strategies and decisions made. Second, new managers bring unique ideas and perhaps a different vision for the organization. In turn, these reduce resistance to change and provide directions for change.
• Organizations experience a host of external pressures for change. Such pressures originate with technological advances, the introduction or removal of government regulations, changes in societal values, shifting political dynamics, changes in demographics, and growing international interdependencies.
• Planned change entails deliberate efforts to move an organization or a subunit from its current state to a new state. Such change is typically thought of as a three- phase process comprising unfreezing, transforming, and refreezing. Unfreezing involves providing a rationale for change, producing minor levels of guilt or anxiety about not changing, and creating a psychological sense of safety concerning the change. Transforming involves providing information that supports the proposed change and creating actual change. Refreezing focuses on implementing evaluation systems to track expected new behaviors and training systems to ensure continuous upgrading of relevant knowledge and skills. It also involves creating permanent reward structures to reinforce the new behaviors, as well as hiring and promotion systems that support the new approaches.
• To make major changes, managers need several capabilities. Importantly, they need the capability to envision, to develop a vision of the future state desired for the organization. Managers must also gain commitments from stakeholders to help achieve this vision. Thus, they need political capabilities, which require effective communication and persuasion skills. The capabilities involved in making changes are referred to as dynamic capabilities. These capabilities entail a manager’s ability to make effective decisions and implement them during the process of change.
• Decisions related to speed and style must be made in all planned change projects. Whether movement toward change should be fast or slow depends on the urgency of the change, the degree of support for changing, the amount or complexity of the change, the competitive
environment, the knowledge and skills available to support the change, and the availability of financial and other resources necessary to implement the change. Style involves using a top-down or participatory approach. Key criteria for this decision are the urgency of the change, the degree of support for changing, the referent and expert power of change leaders, and organizational norms.
• Resistance to change can be traced to a general set of causes: lack of understanding, different assessments, self- interest, and/or low tolerance for change. To address lack of understanding, change leaders should ensure proper communication about proposed changes. To address different assessments, leaders should include actual or potential change resisters in the decision-making process in order to learn as much as possible about their thinking and to create a sense that all voices are being heard. To address self-interest, leaders must consider a host of tactics, including transferring resisters or even terminating their employment, using a coercive style to ensure compliance, and in rare situations, negotiating compliance. Finally, to address low tolerance for change, change leaders should offer emotional support and ensure proper education and training to break the inertia.
• Individuals facing unwanted change may move through a series of stages known as denial, anger, depression, and acceptance. Change leaders must understand this so-called DADA syndrome. To prevent associates and others from experiencing it, they must monitor their organizations for potential and actual resistance to change and deal effectively with resistance when it is identified.
• Organization development is an applied field of study focused on improving processes and outcomes in organ- izations. It can be formally defined as a planned, organizationwide, continuous process designed to improve communication, problem solving, and learning. Because it has roots in humanistic psychology, it is grounded in values of individual empowerment and interpersonal cooperation. The basic OD model has three steps: diagnosis, intervention, and progress monitoring.
• The various interventions used in organization develop- ment can be classified as either relationship techniques or structural techniques. Relationship techniques, which focus on how individuals perceive and respond to one another, include team building, survey feedback, and more general skills training. Structural techniques, which involve adjustments to the structural aspects of an organization, include job redesign, goal-based leadership, and supplemental structural approaches. OD techniques involve organizational learning in order to create the desired change.
• Cultural differences must be considered when organization development techniques are being used. Techniques must be chosen in light of the prevailing
culture. To implement OD successfully in different cultures, those involved should be flexible, understand the various cultures, and possess interpersonal sensitivity.
Thinking about Ethics
1. The entrepreneurial stage of an organization’s life cycle is an exciting time. But while the founders are deciding how they will enter new markets and what products they will offer, do they have any obligation to consider the general public’s interests in these decisions? In this chapter, we suggested that managers can adopt a coercive style to overcome resistance to change when it is based on self-interest. Do managers have any responsibility to people whose resistance is based on self-interest? Explain.
2. When implementing OD interventions, how should managers deal with people who have low self-efficacy?
3. What ethical issues are involved in implementing major organizational changes in which a large number of associates are laid off? How should these issues be handled?
4. Suppose you identify a person going through the DADA process in response to an organizational change. Should you intervene or leave the person alone to move through the stages on his or her own? Explain your answer. If
the person is in the anger stage, how can you intervene successfully?
Human Resource Management Applications
The human resource management (HRM) function likely plays an important role in helping the organization to change as it desires and to achieve the objectives of that change. For example, they should have a small group of people who carefully diagnose the pressures for changes and develop recommendations as to what changes should be made. This activity may be a part of an organization development unit within the HRM function.
In addition, the HRM function is commonly in charge of the organization development techniques used in the organization.
hey either have an internal team to design and implement them or they hire an external consultant to do so. These include team building, survey feedback, and more general skills training (e.g., leadership development).
HRM also commonly guides job redesign programs and helps implement goal-based leadership programs, along with any other techniques designed to help managers and associates learn new capabilities and improve the job per- formance.
building your human capital
An Assessment of Low Tolerance for Change
People differ in their tolerance for change. Low self-efficacy and low risk tolerance are two important factors that affect tolerance for change. Although an individual’s self-efficacy
and risk tolerance may vary from situation to situation, overall scores on these factors provide insight into general tendencies. Understanding these tendencies can help you
to understand how and why you behave as you do. In this installment of Building Your Human Capital, we present an assessment tool for efficacy and risk. Instructions
In this assessment, you will read 19 phrases that describe people. Use the rating scale below to indicate how accurately each phrase describes you. Rate yourself as you generally are now, not as you wish to be in the future, and rate yourself as you honestly see yourself. Keep in mind that very few people have extreme scores on all or even most of the items (a “1” or a “5” is an extreme score); most people have midrange scores for many of the items. Read each item carefully, and then circle the number that corresponds to your choice from the rating scale that follows
an organizational behavior moment
Organization Development at KBTZ
KBTZ is a large television station located in a major metropoli- tan area in the United States. The station is one of the largest rev- enue producers in its market and employs more than 180 people, considerably more than its closest competitors. It is a subsidiary of a large corporation that has diversified interests in other busi- nesses as well as the communications field. KBTZ represents a significant portion of the corporation’s profit base.
Over the past few years, substantial investments have been made in the television station by the parent corpora- tion. These investments have not only resulted in signifi- cant tax advantages but also have established KBTZ as the local television leader in the use of sophisticated electronic
equipment. The station’s physical plant was remodeled at considerable expense to accommodate the new equipment and to boost its image as the leader in the market. KBTZ is a successful business and a respected member of the metro- politan community. However, in part because of the recent changes in the station and in part because of its desire to maintain its established success, the station has requested that a consultant examine important problems. You are the consultant.
In your initial meeting with Valerie Diaz, the president and general manager of KBTZ, she explained her perceptions of key problems facing the station.
One of our biggest problems is the high stress to which our managers and associates are exposed. This is especially true with respect to time deadlines. There is no such thing as slack time in television. For example, when it is precisely six o’clock, we must be on the air with the news. All of the news material, local reporting, news interviews, and so on must be processed, edited, and ready to go at six. We can’t have any half-prepared mate- rial or extended deadlines, or we lose the audience and, most likely, our sponsors. I believe this situation causes a great deal of conflict and turnover among our employees. We have a number of well-qualified and motivated employees, some of whom work here because of the glamour and excitement. But we also have a lot of problems.
Valerie concluded by saying:
I’ve asked you here because I believe the station needs an outside viewpoint. Our employee turnover is about 35 percent, which is too high. We are having trouble hiring qualified people who fit our culture and who can help us deal with the challenges. We must eliminate the conflicts and develop a cohesive organization to retain our profit and market-leading positions. I would like to hire you as a consultant for this job. I want you to monitor our operations and diagnose our problems.
You have now collected data within each department (there are seven departments based on function, as discussed below). All department heads have been interviewed, while other employees have responded to questionnaires concerning organizational cul- ture and job satisfaction. The information collected during this diagnosis phase has been summarized as follows.
Interviews with Department Heads
Business Manager: “I’m very new in this job and haven’t really learned the ropes yet. I previously worked in sales and in the general manager’s office. This is my first managerial position, and I need help in managing my department, because I don’t have any management training.”
News Director: “Let me be frank with you. I’ve worked for the big network, and the only reason I’m here is because I wanted to come back home to live. I don’t think we need you here. We don’t need any new ‘management programs.’ My depart- ment functions smoothly, my people are creative, and I don’t want you messing us up with the latest fad program.”
Operations Manager: “We truly have the best department in the station. I believe in Valerie’s management of the station. I also believe in working my people hard. Nobody lags in this department, or out they go. Our only problems are with the news director’s people, who are confused all of the time, and the engineering group, which is lazy and uncooperative. Our effectiveness depends on these groups. I think the chief engi- neer is incompetent. Get rid of him, shape up the news group and the engineers, and you’ll have done a great job.”
Chief Engineer: “Things go pretty well most of the time, except for the unreasonableness of certain people in other depart- ments. Some people expect us to drop whatever we’re doing and immediately repair some malfunctioning equipment in their area. This is sophisticated equipment, and it can take several hours just to determine the cause of the failure. The news people just have to treat their equipment better, and the operations manager—he’s up here nearly every day screaming about something. One of these days I’m going to punch his lights out!”
Program Director: “My department is okay, but the station is missing a lot of opportunities in other areas. We have a lot of people problems in some departments, especially news and sales. The chief engineer is incompetent, and the opera- tions manager pushes his lower-level managers and associates too hard—never lets them make any decisions or take any responsibilities. The general manager, Valerie Diaz, doesn’t want to face up to these problems.”
Promotion Manager: “We’re a small, friendly group. We have few problems—except with the news group people, who think they know more than we do. But that’s just a small problem. I would like a little training in how to deal with people—motivation, communication, and that sort of stuff.”
Sales Manager: “Things are just great in our department. To be sure, the sales reps complain sometimes, but I just remind them that they’re the highest-paid people in the station. I think Mom [Valerie Diaz] is doing a great job as general manager of the station.”
Survey of Departments
Business Office and Programming Departments. The survey showed individuals in these departments to have generally positive attitudes. Job satisfaction was somewhat mixed but still positive. These individuals did, however, have two impor- tant negative perceptions of their task environment. First, they thought that their department heads and the general manager could handle downward communication better. Second, there were several unsolicited comments about being underpaid rela- tive to other station employees.
News Department. Managers and associates in the news department reported very high satisfaction with their jobs but extreme dissatisfaction with the department head (the news direc- tor) and very negative attitudes toward their overall work envi- ronment. Communication between managers and associates was perceived to be almost nonexistent. Associates complained of very low rewards, including pay, promotion opportunities, and mana- gerial praise. They also complained of constant criticism, which was the only form of managerial feedback on performance. In addition, in spite of their high job satisfaction, they believed that the negative factors led them to be poorly motivated.
he severity of the problems in this department was high- lighted when some associates reported that they weren’t certain who their immediate manager was, because both the assignments editor and the assistant news director gave them assignments. They also reported that creativity (thought to be important in their jobs) was discouraged by the director’s highly authoritarian and structured style. Many employees resented the news direc- tor, referring to him as erratic, caustic, and alcoholic.
Operations Department. Most of the operations associates were satisfied with their jobs and reported pride in their de- partment. However, satisfaction with immediate managers was mixed. Furthermore, some associates had very positive feelings about the department head, but most held him in low regard. The associates tended to feel overworked (reporting an average 74-hour work week) and thought the department head expected too much. They also thought they were underpaid relative to their task demands, and they criticized managerial feedback on their performance. They noted that the department head never praised positive performance—he only reprimanded them for poor performance. They also reported concern over the con- flict with engineering, which they believed should and could be resolved.
Engineering Department. The survey revealed that mem- bers of this department were very dissatisfied with their jobs and immediate managers. Responses also showed that department
members perceived a high level of conflict between themselves and the operations and news departments, especially the opera- tions department. They also believed the department head did not support them and that managers and associates in other de- partments held them in low regard. They noted that they never had department meetings and that they rarely received feedback on their performance from the chief engineer.
Promotions Department. The survey showed this depart- ment to have very positive attitudes. Job satisfaction was high, and everyone viewed the work environment positively. The few negative comments were primarily directed toward the “ineffec- tiveness” of the news department.
Sales Department. Very few individuals from the sales de- partment responded to the survey. To find out why they hadn’t received responses, the consultant approached several salesper- sons for private discussions. Nearly all of them indicated that they couldn’t complete the survey honestly. One person stated, “My attitudes about this place are largely negative, and my de- partment head is the station manager’s son. I’d lose my job today if he knew what I really thought about him.”
Discussion Questions
1. Identify the basic problems at KBTZ. 2. Which OD techniques would you consider using, and why?
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