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Organization Theory & Design 12e

Richard L. Daft Vanderbilt University

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iii

About the Author

Richard L. Daft, Ph.D., is the Brownlee O. Currey, Jr., Professor of Management in the Owen Graduate School of Management at Vanderbilt University. Professor Daft specializes in the study of organization theory and leadership. Professor Daft is a Fellow of the Academy of Management and has served on the editorial boards of Academy of Management Journal, Administrative Science Quarterly, and Journal of Management Education. He was the Associate Editor-in-Chief of Organization Science and served for three years as Associate Editor of Administrative Science Quarterly.

Professor Daft has authored or co-authored 14 books, including The Executive and the Elephant: A Leader’s Guide to Building Inner Excellence (Jossey-Bass, 2010), Building Management Skills: An Action- First Approach (Cengage/South-Western, 2014), Management (Cengage/South-Western, 2016), The Leader- ship Experience (Cengage/South-Western, 2015), and What to Study: Generating and Developing Research Questions (Sage, 1982). He also published Fusion Leadership: Unlocking the Subtle Forces That Change People and Organizations (Berrett-Koehler, 2000) with Robert Lengel. He has authored dozens of scholarly articles, papers, and chapters. His work has been published in Administrative Science Quarterly, Academy of Management Journal, Academy of Management Review, Organizational Dynamics, Strategic Management Journal, Journal of Management, Accounting Organizations and Society, Management Science, MIS Quar- terly, California Management Review, and Organizational Behavior Teaching Review. Professor Daft has been awarded several government research grants to pursue studies of organization design, organizational innovation and change, strategy implementation, and organizational information processing.

Professor Daft is also an active teacher and consultant. He has taught management, leadership, organiza- tional change, organization theory, and organizational behavior. He has been involved in management devel- opment and consulting for many companies and government organizations, including the National Academy of Science, Oak Ridge National Laboratory, American Banking Association, AutoZone, Aegis Technology, Bridgestone, Bell Canada, Allstate Insurance, the National Transportation Research Board, the Tennessee Valley Authority (TVA), State Farm Insurance, Tenneco, the U.S. Air Force, the U.S. Army, Eli Lilly, Central Parking System, Entergy Sales and Service, Bristol-Myers Squibb, First American National Bank, and the Vanderbilt University Medical Center.

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v

Brief Contents

Part 1 Introduction to Organizations 1 1. Organizations and Organization Design 2

Part 2 Organization Purpose and Structural Design 45 2. Strategy, Organization Design, and Effectiveness 46 3. Fundamentals of Organization Structure 86

Part 3 Open System Design Elements 139 4. The External Environment 140 5. Interorganizational Relationships 178 6. Designing Organizations for the International Environment 212

Part 4 Internal Design Elements 257 7. Manufacturing and Service Technologies 258 8. Technology for Control, Social Business, and Big Data 304 9. Organization Size, Life Cycle, and Decline 342

Part 5 Managing Dynamic Processes 383 10. Organizational Culture and Ethical Values 384 11. Innovation and Change 420 12. Decision-Making Processes 466 13. Conflict, Power, and Politics 512

Integrative Cases 553 1.0 W. L. Gore—Culture of Innovation 555 2.0 Rondell Data Corporation 565 3.0 IKEA: Scandinavian Style 572 4.0 Engro Chemical Pakistan Limited—Restructuring the Marketing Division 576 5.0 First Union: An Office Without Walls 588 6.0 Lean Initiatives and Growth at Orlando Metering Company 591 7.0 Sometimes a Simple Change Isn’t So Simple 600 8.0 Costco: Join the Club 605 9.0 The Donor Services Department 608 10.0 Cisco Systems: Evolution of Structure 612 11.0 Hartland Memorial Hospital (A): An Inbox Exercise 616 12.0 Disorganization at Semco: Human Resource Practices as a Strategic Advantage 625

Glossary 635 Name Index 646 Corporate Name Index 657 Subject Index 661

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vii

Contents

Preface xv

Part 1 Introduction to Organizations 1

Chapter 1: Organizations and Organization Design 2 A Look Inside Xerox Corporation 3

What Went Wrong?, 3 • Entering the Digital Era, 4 • The Culture Problem, 5 • Shaking Up a Century-Old Company, 5 • “We No Longer Make Copiers”, 6

Organization Design in Action 6

Topics, 7

Bookmark 1.0: Great by Choice: Uncertainty, Chaos, and Luck—Why Some Thrive Despite Them All 8

Current Challenges, 9 • Purpose of This Chapter, 12

What Is an Organization? 13

Definition, 13 • From Multinationals to Nonprofits, 14 • Importance of Organizations, 15

In PraCtICe: Harley-Davidson 16

Dimensions of Organization Design 17

Structural Dimensions, 18

In PraCtICe: Shizugawa Elementary School Evacuation Center and BP Transocean Deepwater Horizon Oil Rig 20

Contingency Factors, 20

In PraCtICe: Valve Software 21

Performance and Effectiveness Outcomes, 23

The Evolution of Organization Design 24

Historical Perspectives, 25

How Do You FIt tHe DesIgn? Evolution of Style 26

It All Depends: Key Contingencies, 28

The Contrast of Organic and Mechanistic Designs 29

Contemporary Design Ideas: Radical Decentralization 31

In PraCtICe: Morning Star 31

Framework for the Book 32

Levels of Analysis, 32 • Plan of the Book, 33 • Plan of Each Chapter, 35

Design Essentials 35

Chapter 1 workshop: Measuring Dimensions of Organizations 37

Case for analysis: It Isn’t So Simple: Infrastructure Change at Royce Consulting 38

Part 2 Organization Purpose and Structural Design 45

Chapter 2: Strategy, Organization Design, and Effectiveness 46

Purpose of This Chapter, 47

The Role of Strategic Direction in Organization Design 48

Organizational Purpose 51

Strategic Intent, 51

Bookmark 2.0: Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant 53

In PraCtICe: Amazon 54

Operating Goals, 54 • Goal Conflict and the Hybrid Organization, 57

In PraCtICe: Bloomberg LP 57

The Importance of Goals, 58

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viii Contents

Two Frameworks for Selecting Strategy and Design 59

Porter’s Competitive Strategies, 60

How Do You FIt tHe DesIgn? Your Strategy/ Performance Strength 61

In PraCtICe: Allegiant Travel Company 63

Miles and Snow’s Strategy Typology, 63 • How Strategies Affect Organization Design, 65 • Other Contingency Factors Affecting Organization Design, 66

Assessing Organizational Effectiveness 67

Definition, 67 • Who Decides?, 68

Four Effectiveness Approaches 69

Goal Approach, 69 • Resource-Based Approach, 71 • Internal Process Approach, 72

In PraCtICe: BNSF Railway 73

Strategic Constituents Approach, 73

An Integrated Effectiveness Model 75

In PraCtICe: Samsung Group 78

Design Essentials 78

Chapter 2 workshop: Identify Your Goal Preferences 80 Case for analysis: The Venable Museum of Art 80 Case for analysis: Covington Corrugated

Parts & Services 82

Chapter 3: Fundamentals of Organization Structure 86

Purpose of This Chapter, 88

Organization Structure 88

Information-Sharing Perspective on Structure 90

Centralized Versus Decentralized, 90

Bookmark 3.0: The Future of Management 91

In PraCtICe: Toyota 92

Vertical Information Sharing, 93 • Horizontal Information Sharing and Collaboration, 94

How Do You FIt tHe DesIgn?: The Pleasure/Pain of Working on a Team 99

Relational Coordination, 99

In PraCtICe: Southwest Airlines 100

Organization Design Alternatives 101

Required Work Activities, 101 • Reporting Relationships, 102 • Departmental Grouping Options, 102

Functional, Divisional, and Geographic Designs 104

Functional Structure, 104

In PraCtICe: Narayana Hrudayalaya Hospital 105

Functional Structure with Horizontal Linkages, 105 • Divisional Structure, 106

In PraCtICe: Microsoft 109

Geographic Structure, 109

Matrix Structure 111

Conditions for the Matrix, 112 • Strengths and Weaknesses, 113

In PraCtICe: Englander Steel 114

Horizontal Structure 116

Characteristics, 117

In PraCtICe: GE Salisbury 118

Strengths and Weaknesses, 119

Virtual Networks and Outsourcing 120

How the Structure Works, 121

In PraCtICe: Sandy Springs, Georgia 121

Strengths and Weaknesses, 122

Hybrid Structure 124

Applications of Structural Design 126

Structural Alignment, 126 • Symptoms of Structural Deficiency, 127

Design Essentials 128

Chapter 3 workbook: You and Organization Structure 129 Case for analysis: C & C Grocery Stores, Inc. 130 Case for analysis: Aquarius Advertising Agency 133

Part 3 Open System Design Elements 139

Chapter 4: The External Environment 140 Purpose of This Chapter, 141

The Organization’s Environment 142

Task Environment, 142 • General Environment, 144 • International Environment, 145

In PraCtICe: Richard Ginori 146

The Changing Environment 146

Complexity, 147 • Dynamism, 148

In PraCtICe: Fujifilm Holding Corporation 148

Framework, 149

Bookmark 4.0: Confronting Reality: Doing What Matters to Get Things Right 150

Adapting to Complexity and Dynamism 152

Adding Positions and Departments, 152 • Building Relationships, 153 • Differentiation and Integration, 154 • Organic Versus Mechanistic Management Processes, 156

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Contents ix

How Do You FIt tHe DesIgn? Mind and Environment 157

Planning, Forecasting, and Responsiveness, 158

Framework for Adapting to Complexity and Dynamism 159

Dependence on Financial Resources 160

Influencing Financial Resources 161

Establishing Formal Relationships, 161

In PraCtICe: Omnicom and Publicis 162

Influencing Key Sectors, 164

In PraCtICe: Amazon and Walmart 164

In PraCtICe: Huawei Technologies 165

Organization–Environment Integrative Framework 167

Design Essentials 168

Chapter 4 workshop: Organizations You Rely On 169 Case for analysis: CPI Corporation: What Happened? 170 Case for analysis: The Paradoxical Twins: Acme

and Omega Electronics 171

Chapter 5: Interorganizational Relationships 178

Purpose of This Chapter, 180

Organizational Ecosystems 180

Is Competition Dead?, 181

In PraCtICe: Apple and Samsung 183

The Changing Role of Management, 183 • Interorganizational Framework, 185

Resource Dependence 185

Types of Resource-Dependence Relationships, 186 • Power Implications, 188

In PraCtICe: Facebook 188

Collaborative Networks 188

How Do You FIt tHe DesIgn? Personal Networking 189

Why Collaboration?, 189

In PraCtICe: Accelerating Medicines Partnership 191

From Adversaries to Partners, 191

Bookmark 5.0: Managing Strategic Relationships: The Key to Business Success 192

Population Ecology 193

What Hinders Adaptation?, 194

In PraCtICe: Barnes & Noble Versus Amazon 194

Organizational Form and Niche, 195 • Process of Ecological Change, 195 • Strategies for Survival, 196

Institutionalism 197

The Institutional View and Organization Design, 198 • Institutional Similarity, 199

Design Essentials 202

Chapter 5 workshop: The Shamatosi 204 Case for analysis: Why is Cooperation So Hard? 205 Case for analysis: Oxford Plastics Company 206

Chapter 6: Designing Organizations for the International Environment 212

Purpose of This Chapter, 214

Entering the Global Arena 214

Motivations for Global Expansion, 215

Bookmark 6.0: The World Is Flat: A Brief History of the Twenty-First Century 215

In PraCtICe: Amway 218

Stages of International Development, 219

How Do You FIt tHe DesIgn? What Is Your Cultural Intelligence? 221

Global Expansion Through International Alliances and Acquisitions, 222

In PraCtICe: China’s International Expansion 223

The Challenges of Global Design 223

Increased Complexity and Differentiation, 224 • Increased Need for Coordination, 225 • More Difficult Transfer of Knowledge and Innovation, 226

Designing Structure to Fit Global Strategy 228

Strategies for Global Versus Local Opportunities, 228

In PraCtICe: Panasonic 231

International Division, 231 • Global Product Division Structure, 232 • Global Geographic Division Structure, 234

In PraCtICe: Colgate-Palmolive Company 235

Global Matrix Structure, 235

In PraCtICe: ABB Group 237

Additional Global Coordination Mechanisms 238

Global Teams, 238

In PraCtICe: L’Oréal 239

Headquarters Planning, 240 • Expanded Coordination Roles, 240 • Benefits of Coordination, 241

The Transnational Model of Organization 242

Design Essentials 246

Chapter 6 workshop: Made in the U.S.A.? 247 Case for analysis: TopDog Software 248 Case for analysis: Rhodes Indestries 249

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x Contents

Part 4 Internal Design Elements 257

Chapter 7: Manufacturing and Service Technologies 258

Purpose of This Chapter, 261

Core Organization Manufacturing Technology 262

Manufacturing Firms, 262 • Strategy, Technology, and Performance, 265

Contemporary Applications 265

Trends, 266

In PraCtICe: Carnival Cruise Lines 266

Bookmark 7.0: Inviting Disaster: Lessons from the Edge of Technology 267

The Smart Factory, 268 • Lean Manufacturing, 269

In PraCtICe: La-Z-Boy 270

Performance and Structural Implications, 272

Core Organization Service Technology 273

Service Firms, 273

How Do You FIt tHe DesIgn? Manufacturing Versus Service 276

In PraCtICe: Seattle Children’s Hospital 276

Designing the Service Organization, 277

In PraCtICe: Home Depot Inc. 278

Noncore Departmental Technology 279

Variety, 279 • Analyzability, 280 • Framework, 280 • Department Design, 282

In PraCtICe: Memorial Sloan-Kettering Cancer Center 282

Workflow Interdependence Among Departments 284

Types, 285

In PraCtICe: Southwest Airlines 287

Structural Priority, 288 • Structural Implications, 288

In PraCtICe: Athletic Teams 289

Sociotechnical Systems 290

Design Essentials 292

Chapter 7 workshop: Bistro Technology 294 Case for analysis: AV Corporate: Software Tool Project 294

Chapter 8: Technology for Control, Social Business, and Big Data 304

Purpose of This Chapter, 306

Information Technology Evolution 306

The Philosophy and Focus of Control Systems 308

The Changing Philosophy of Control, 308 • Feedback Control Model, 311

How Do You FIt tHe DesIgn? Is Goal-Setting Your Style? 312

Organization Level: The Balanced Scorecard, 313 • Department Level: Behavior Versus Outcome Control, 316

In PraCtICe: University of Tennessee Medical Center 316

Bookmark 6.0: The Checklist Manifesto: How to Get Things Right 318

Facilitating Employee Coordination and Efficiency 318

Knowledge Management, 318 • Social Network Analysis, 320

Adding Strategic Value 322

Social Business, 323

In PraCtICe: General Motors 323

Structural Design for Social Business, 324 • Big Data, 325 • Big Data and Organization Structure, 328

In PraCtICe: Caesars Entertainment 330

Impact on Organization Design 331

Design Essentials 332

Chapter 8 workshop: Balanced Scorecard Exercise 334 Case for analysis: Century Medical 336 Case for analysis: Is Anybody Listening? 337

Chapter 9: Organization Size, Life Cycle, and Decline 342

Purpose of This Chapter, 344

Organization Size: Is Bigger Better? 344

Pressures for Growth, 344

Bookmark 9.0: Small Giants: Companies That Choose to Be Great Instead of Big 345

Dilemmas of Large Size, 346

How Do You FIt tHe DesIgn? What Size Organization for You? 348

In PraCtICe: Dell Inc. 350

Organizational Life Cycle 350

Stages of Life-Cycle Development, 350

In PraCtICe: Google 354

Organizational Characteristics During the Life Cycle, 354

Organizational Size, Bureaucracy, and Control 355

What Is Bureaucracy?, 356

In PraCtICe: United Parcel Service (UPS) 357

Size and Structural Control, 358

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Contents xi

Bureaucracy in a Changing World 360

Organizing Temporary Systems, 361

In PraCtICe: Salvation Army 361

Other Approaches to Busting Bureaucracy, 362

Bureaucracy Versus Other Forms of Control 363

Bureaucratic Control, 363

In PraCtICe: East Resources Inc. and Royal Dutch Shell PLC 365

Market Control, 365 • Clan Control, 366

In PraCtICe: Menlo Innovations, FAVI 367

Organizational Decline and Downsizing 368

Definition and Causes, 368

In PraCtICe: Eastman Kodak 369

A Model of Decline Stages, 370 • Downsizing Implementation, 371

Design Essentials 373

Chapter 9 workshop: Classroom Control 375 Case for analysis: Yahoo: “Get to Work!” 375 Case for analysis: Sunflower Incorporated 376

Part 5 Managing Dynamic Processes 383

Chapter 10: Organizational Culture and Ethical Values 384

Purpose of This Chapter, 386

Organizational Culture 386

What Is Culture?, 386 • Emergence and Purpose of Culture, 387

In PraCtICe: Billtrust 388

Interpreting Culture, 389

Organization Design and Culture 393

The Adaptability Culture, 394

In PraCtICe: Zappos 394

The Mission Culture, 395 • The Clan Culture, 395 • The Bureaucratic Culture, 395 • Culture Strength and Organizational Subcultures, 396

How Do You FIt tHe DesIgn? Corporate Culture Preference 397

In PraCtICe: Pitney Bowes Credit Corporation 397

Constructive Culture, Learning, and Performance 398

In PraCtICe: Box 398

Ethical Values and Social Responsibility 400

Sources of Individual Ethical Principles, 400 • Managerial Ethics, 401 • Corporate Social Responsibility, 403

Bookmark 10.0: Conscious Capitalism: Liberating the Heroic Spirit of Business 404

Does It Pay to Be Good?, 405

How Managers Shape Culture and Ethics 405

Values-Based Leadership, 406

In PraCtICe: Costco 407

Formal Structure and Systems, 408

Corporate Culture and Ethics in a Global Environment 410

Design Essentials 411

Chapter 10 workshop: The Power of Ethics 413 Case for analysis: Implementing Change at National

Industrial Products 413 Case for analysis: The Boys Versus Corporate 415

Chapter 11: Innovation and Change 420 Purpose of This Chapter, 422

The Strategic Role of Change 422

Innovate or Fail, 422 • Strategic Types of Innovation and Change, 424

In PraCtICe: Elkay Manufac turing 425

Elements for Successful Change 426

Technology Change 428

How Do You FIt tHe DesIgn? Are You Innovative? 429

The Ambidextrous Approach, 430 • The Bottom-Up Approach, 431

In PraCtICe: Taco Bell and Frito-Lay 431

Techniques for Encouraging Technology Change, 432

Bookmark 11.0: Creativity Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration 434

New Products and Services 435

New Product Success Rate, 436 • Reasons for New Product Success, 437 • Horizontal Coordination Model, 437

In PraCtICe: Corning, Inc. 439

Open Innovation and Crowdsourcing, 439 • Achieving Competitive Advantage: The Need for Speed, 441

Strategy and Structure Change 441

The Dual-Core Approach, 442 • Organization Design for Implementing Management Change, 443

In PraCtICe: GlaxoSmith Kline 444

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xii Contents

In PraCtICe: Zappos 445

Culture Change 445

Forces for Culture Change, 446 • Organization Development Culture Change Interventions, 447

In PraCtICe: United Health Group 448

Strategies for Implementing Change 449

Leadership for Change, 449 • Techniques for Implementation, 450 • Techniques for Overcoming Resistance, 451

Design Essentials 453