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Richard L. Daft VANDERBILT UNIVERSITY
Organization Theory and Design
TENTH EDITION
Organization Theory and Design, Tenth Edition
Richard L. Daft
With the Assistance of Patricia G. Lane
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iii
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 twelve books, including Management (Cengage/South-Western, 2010), The Leadership Experience (Cengage/South- Western, 2008), 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 Quarterly, California Management Review, and Organizational Behavior Teaching Review. Professor Daft has been awarded several government research grants to pursue studies of organization design, orga- nizational innovation and change, strategy implementation, and organizational information processing.
Professor Daft is also an active teacher and consultant. He has taught man- agement, leadership, organizational change, organizational theory, and organiza- tional behavior. He has been involved in management development and consulting for many companies and government organizations, including Allstate Insurance, American Banking Association, Bell Canada, Bridgestone, National Transportation Research Board, NL Baroid, Nortel, TVA, Pratt & Whitney, State Farm Insurance, Tenneco, Tennessee Emergency Pediatric Services, the United States Air Force, the United States Army, J. C. Bradford & Co., Central Parking System, USAA, United Methodist Church, Entergy Sales and Service, Bristol-Myers Squibb, First American National Bank, and the Vanderbilt University Medical Center.
About the Author
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Part 1: Introduction to Organizations 1 1. Organizations and Organization Theory 2
Part 2: Organizational Purpose and Structural Design 55 2. Strategy, Organization Design, and Effectiveness 56 3. Fundamentals of Organization Structure 88
Part 3: Open System Design Elements 137 4. The External Environment 138 5. Interorganizational Relationships 174 6. Designing Organizations for the International Environment 208
Part 4: Internal Design Elements 251 7. Manufacturing and Service Technologies 252 8. Using IT for Coordination and Control 294 9. Organization Size, Life Cycle, and Decline 332
Part 5: Managing Dynamic Processes 371 10. Organizational Culture and Ethical Values 372 11. Innovation and Change 410 12. Decision-Making Processes 450 13. Conflict, Power, and Politics 371
Integrative Cases 529 1.0 Rondell Data Corporation 531 2.0 It Isn’t So Simple: Infrastructure Change at Royce Consulting 539 3.0 Custom Chip, Inc. 544 4.0 “Ramrod” Stockwell 551 5.0 W. L. Gore & Associates, Inc. Entering 1998 554 6.0 Dick Spencer 569 7.0 The Plaza Inn 574 8.0 Dowling Flexible Metals 578 9.0 The Donor Services Department 582 10.0 Empire Plastics 586
Brief Contents
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11.1 Littleton Manufacturing (A) 589 11.2 Littleton Manufacturing (B) 601 12.0 Hartland Memorial Hospital (A): An Inbox Exercise 603
Glossary 613 Name Index 623 Corporate Name Index 634 Subject Index 639
vii
Contents
Chapter 1: Organizations and Organization Theory 2 Organization Theory in Action 6
Topics, 6 • Current Challenges, 7 • Purpose of This Chapter, 10
What is an Organization? 10
Definition, 11 • From Multinationals to Nonprofits, 11 • Importance of Organizations, 12
BookMark 1.0: The Company: A Short History of a Revolutionary Idea 13
Dimensions of Organization Design 14
Structural Dimensions, 15 • Contextual Dimensions, 17
In Practice: Ternary Software Inc. 18
Performance and Effectiveness Outcomes, 20
In Practice: Federal Bureau of Investigation 22
The Evolution of Organization Theory and Design 22
Historical Perspectives, 23
How Do You Fit the Design? Evolution of Style 24
Don’t Forget the Environment, 26
Organizational Configuration 26
Mintzberg’s Organizational Types, 26 • Contemporary Design Ideas, 30
Efficient Performance versus the Learning Organization 30
From Vertical to Horizontal Structure, 31 • From Routine Tasks to Empowered Roles, 31 • From Formal Control Systems to Shared Information, 33 • From Competitive to Collaborative Strategy, 33 • From Rigid to Adaptive Culture, 33
In Practice: Cementos Mexicanos 34
Framework for the Book 35
Levels of Analysis, 35 • Plan of the Book, 37 • Plan of Each Chapter, 37
Design Essentials 39
Chapter 1 Workbook: Measuring Dimensions of Organizations 40
Case for Analysis: Perdue Farms Inc.: Responding to 21st Century Challenges 41
Part 1: Introduction to Organizations 1
Part 2: Organizational Purpose and Structural Design 55
Chapter 2: Strategy, Organization Design, and Effectiveness 56
Purpose of This Chapter, 57
The Role of Strategic Direction in Organization Design 58
Organizational Purpose 60
Strategic Intent, 60
In Practice: Walgreens 61
Operative Goals, 62 • The Importance of Goals, 64B
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viii Contents
A Framework for Selecting Strategy and Design 65
Porter’s Competitive Forces and Strategies, 65
How Do You Fit the Design? Your Strategy/ Performance Strength 66
In Practice: Apple 68
Miles and Snow’s Strategy Typology, 70
BookMark 2.0: The Strategy Paradox: Why Committing to Success Leads to Failure (And What to Do About It) 71
How Strategies Affect Organization Design, 72 • Other Factors Affecting Organization Design, 73
Assessing Organizational Effectiveness 74
Traditional Effectiveness Approaches 75
Goal Indicators, 75 • Resource-based Indicators, 76 • Internal Process Indicators, 77
The Balanced Scorecard Approach to Effectiveness 77
Design Essentials 79
Chapter 2 Workbook: Identifying Company Strategies and Effectiveness Criteria 81
Case for Analysis: The University Art Museum 81 Case for Analysis: Airstar Inc. 84 Chapter 2 Workshop: The Balanced Scorecard
and Organizational Effectiveness 85
Chapter 3: Fundamentals of Organization Structure 88
Purpose of This Chapter, 90
Organization Structure 90
BookMark 3.0: The Future of Management 92
Information-Sharing Perspective on Structure 92
In Practice: Textron Inc. 94
Vertical Information Sharing, 94 • Horizontal Information Sharing, 95
How Do You Fit the Design? The Pleasure/Pain of Working on a Team 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: Blue Bell Creameries, Inc. 105
Functional Structure with Horizontal Linkages, 105 • Divisional Structure, 106 • Geographic Structure, 109
Matrix Structure 110
Conditions for the Matrix, 110 • Strengths and Weaknesses, 112
In Practice: Englander Steel 113
Horizontal Structure 115
Characteristics, 116
In Practice: GE Salisbury 117
Strengths and Weaknesses, 118
Virtual Networks and Outsourcing 119
How the Structure Works, 120
In Practice: TiVo Inc. 120
Strengths and Weaknesses, 121
Hybrid Structure 122
Applications of Structural Design 123
Structural Alignment, 125 • Symptoms of Structural Deficiency, 125
Design Essentials 127
Chapter 3 Workbook: You and Organization Structure 128
Case for Analysis: C & C Grocery Stores Inc. 129 Case for Analysis: Aquarius Advertising Agency 132
Part 3: Open System Design Elements 137
Chapter 4: The External Environment 138
Purpose of This Chapter, 140
The Organization’s Environment 140
Task Environment, 140 • General Environment, 142 • International Environment, 143
In Practice: Univision 144
The Changing Environment 144
Simple–Complex Dimension, 145 • Stable–Unstable Dimension, 146
BookMark 4.0: Confronting Reality: Doing What Matters to Get Things Right 146
Framework, 147
Contents ix
Adapting to a Changing Environment 149
Adding Positions and Departments, 149
In Practice: Wal-Mart 149
Building Relationships, 150 • Differentiation and Integration, 152 • Organic versus Mechanistic Management Processes, 153 • Planning, Forecasting, and Responsiveness, 155
How Do You Fit the Design? Mind and Environment 155
Framework for Responses to Environmental Change 156
Dependence on External Resources 158
Influencing External Resources 158
Establishing Formal Relationships, 159
In Practice: AT&T 160
Influencing Key Sectors, 162
In Practice: eBay 163
Organization–Environment Integrative Framework, 164
Design Essentials 165
Chapter 4 Workbook: Organizations You Rely On 167 Case for Analysis: The Paradoxical Twins: Acme
and Omega Electronics 168
Chapter 5: Interorganizational Relationships 174
Purpose of This Chapter, 176
Organizational Ecosystems 176
Is Competition Dead?, 177
In Practice: Sony Corporation and Samsung Electronics Company 177
The Changing Role of Management, 179 • Interorganizational Framework, 180
Resource Dependence 181
Supply Chain Relationships, 181 • Power Implications, 182
In Practice: Amazon.com 183
Collaborative Networks 183
Why Collaboration?, 183
How Do You Fit the Design? Personal Networking 184
From Adversaries to Partners, 185
BookMark 5.0: Managing Strategic Relationships: The Key to Business Success 187
Population Ecology 188
Organizational Form and Niche, 189 • Process of Ecological Change, 189
In Practice: Axiom Global Inc. 190
Strategies for Survival, 191
Institutionalism 192
The Institutional View and Organization Design, 193 • Institutional Similarity, 194
Design Essentials 197
Chapter 5 Workbook: Management Fads 199 Case for Analysis: Oxford Plastics Company 199 Case for Analysis: Hugh Russel, Inc. 200 Chapter 5 Workshop: Ugli Orange Case 203
Chapter 6: Designing Organizations for the International Environment 208
Purpose of This Chapter, 210
Entering the Global Arena 210
Motivations for Global Expansion, 211
BookMark 6.0: The World Is Flat: A Brief History of the Twenty-First Century 211
Stages of International Development, 214 • Global Expansion through International Strategic Alliances, 215
Designing Structure to Fit Global Strategy 216
Model for Global versus Local Opportunities, 216 • International Division, 219 • Global Product Division Structure, 220 • Global Geographic Division Structure, 221
In Practice: Colgate-Palmolive Company 222
Global Matrix Structure, 223
In Practice: Asea Brown Boveri Ltd. (ABB) 224
Building Global Capabilities 225
The Global Organizational Challenge, 226
In Practice: IBM 228
Global Coordination Mechanisms, 230
Cultural Differences in Coordination and Control 233
National Value Systems, 233
How Do You Fit the Design? Are You Ready to Fill an International Role? 234
Three National Approaches to Coordination and Control, 235
The Transnational Model of Organization 237
Design Essentials 240
Chapter 6 Workbook: Made in the U.S.A.? 242 Case for Analysis: TopDog Software 242 Case for Analysis: Rhodes Industries 243 Chapter 6 Workshop: Comparing Cultures 246
x Contents
Part 4: Internal Design Elements 251
Chapter 7: Manufacturing and Service Technologies 252
Purpose of This Chapter, 255
Core Organization Manufacturing Technology 256
Manufacturing Firms, 256 • Strategy, Technology, and Performance, 258
In Practice: Printronix 259
BookMark 7.0: Inviting Disaster: Lessons from the Edge of Technology 260
Contemporary Applications 261
Flexible Manufacturing Systems, 261 • Lean Manufacturing, 263
In Practice: Matsushita Electric Industrial Company 263
Performance and Structural Implications, 264
Core Organization Service Technology 266
Service Firms, 267
How Do You Fit the Design? Manufacturing vs. Service 269
Designing the Service Organization, 270
In Practice: Home Depot Inc. 271
Non-Core Departmental Technology 272
Variety, 272 • Analyzability, 272 • Framework, 273
Department Design 275
Workflow Interdependence Among Departments 277
Types, 277
In Practice: Great Ormond Street Hospital for Children 279
Structural Priority, 280 • Structural Implications, 280
In Practice: Athletic Teams 281
Impact of Technology on Job Design 282
Job Design, 282 • Sociotechnical Systems, 283
Design Essentials 285
Chapter 7 Workbook: Bistro Technology 287 Case for Analysis: Acetate Department 288
Chapter 8: Using IT for Coordination and Control 294
Purpose of This Chapter, 296
Information Technology Evolution 296
Information for Decision Making and Control 298
Organizational Decision-Making Systems, 298 • Feedback Control Model, 299 • Management Control Systems, 300
How Do You Fit the Design? Is Goal-Setting Your Style? 301
In Practice: eBay 302
The Level and Focus of Control Systems 305
Organization Level: The Balanced Scorecard, 305
BookMark 8.0: Five Key Principles of Corporate Performance Management 306
Department Level: Behavior versus Outcome Control, 308
In Practice: Best Buy 310
Adding Strategic Value: Strengthening Internal Coordination 311
Intranets, 311 • Web 2.0 Tools, 312 • Knowledge Management, 312
In Practice: ExactTarget Inc. 314
Enterprise Resource Planning, 314
Adding Strategic Value: Strengthening External Coordination 315
The Integrated Enterprise, 315
In Practice: Corrugated Supplies 316
Customer Relationships, 318
E-Business Organization Design 319
In-House Division, 319 • Spin-Off, 319 • Strategic Partnership, 320
It Impact on Organization Design 321
Design Essentials 323
Chapter 8 Workbook: Balanced Scorecard Exercise 325
Case for Analysis: Century Medical 327 Case for Analysis: Product X 328
Chapter 9: Organization Size, Life Cycle, and Decline 332
Purpose of This Chapter, 334
Organization Size: Is Bigger Better? 334
Pressures for Growth, 334
BookMark 9.0: Small Giants: Companies That Choose to Be Great Instead of Big 335
Dilemmas of Large Size, 336
How Do You Fit the Design? What Size Organization for You? 338
Contents xi
Organizational Life Cycle 340
Stages of Life Cycle Development, 340
In Practice: Amazon 343
Organizational Characteristics during the Life Cycle, 344
Organizational Size, Bureaucracy, and Control 345
What Is Bureaucracy?, 346
In Practice: United Parcel Service (UPS) 347
Size and Structural Control, 348
Bureaucracy in a Changing World 349
Organizing Temporary Systems, 350
In Practice: The Salvation Army 351
Other Approaches to Busting Bureaucracy, 351
Bureaucracy versus other Forms of Control 352
Bureaucratic Control, 353 • Market Control, 354 • Clan Control, 354
In Practice: Southwest Airlines 355
Organizational Decline and Downsizing 356
Definition and Causes, 357 • A Model of Decline Stages, 358
In Practice: Herman Miller 359
Downsizing Implementation, 360
Design Essentials 362
Chapter 9 Workbook: Control Mechanisms 363 Case for Analysis: Sunflower Incorporated 364 Chapter 9 Workshop: Windsock Inc. 365
Part 5: Managing Dynamic Processes 371
Chapter 10: Organizational Culture and Ethical Values 372
Purpose of This Chapter, 374
Organizational Culture 374
What Is Culture?, 374 • Emergence and Purpose of Culture, 376
BookMark 10.0: Good to Great: Why Some Companies Make the Leap . . . And Others Don’t 376
Interpreting Culture, 377
Organization Design and Culture 381
The Adaptability Culture, 382
In Practice: Google 382
The Mission Culture, 383 • The Clan Culture, 384 • The Bureaucratic Culture, 384
How Do You Fit the Design? Corporate Culture Preference 385
Culture Strength and Organizational Subcultures, 385
In Practice: Pitney Bowes Credit Corporation 386
Organizational Culture, Learning, and Performance 387
In Practice: Genentech 388
Ethical Values and Social Responsibility 389
Sources of Individual Ethical Principles, 389 • Managerial Ethics, 390 • Corporate Social Responsibility, 392 • Does It Pay to Be Good?, 392
How Leaders Shape Culture and Ethics 393
Values-Based Leadership, 394 • Formal Structure and Systems, 395
Corporate Culture and Ethics in a Global Environment 398
Design Essentials 399
Chapter 10 Workbook: Shop ’til You Drop: Corporate Culture in the Retail World 401
Case for Analysis: Implementing Change at National Industrial Products 402
Case for Analysis: Does This Milkshake Taste Funny? 404 Chapter 10 Workshop: The Power of Ethics 406
Chapter 11: Innovation and Change 410 Purpose of This Chapter, 411
The Strategic Role of Change 412
Innovate or Perish, 412 • Strategic Types of Change, 413
Elements for Successful Change 415
Technology Change 417
How Do You Fit the Design? Are You Innovative? 418
The Ambidextrous Approach, 418 • Techniques for Encouraging Technology Change, 419
BookMark 11.0: Innovation: The Five Disciplines for Creating What Customers Want 422
New Products and Services 423
New Product Success Rate, 423 • Reasons for New Product Success, 424 • Horizontal Coordination Model, 424
In Practice: Threadless 426
Achieving Competitive Advantage: The Need for Speed, 427
xii Contents
Strategy and Structure Change 428
The Dual-Core Approach, 428 • Organization Design for Implementing Management Change, 429
In Practice: Hewlett-Packard 430
Culture Change 431
Forces for Culture Change, 431 • Organization Development Culture Change Interventions, 432
Strategies for Implementing Change 433
Leadership for Change, 434
In Practice: Memorial Hospital 434
Barriers to Change, 435 • Techniques for Implementation, 436
Design Essentials 438
Chapter 11 Workbook: Innovation Climate 440 Case for Analysis: Shoe Corporation of Illinois 441 Case for Analysis: Southern Discomfort 445
Chapter 12: Decision-Making Processes 450
Purpose of This Chapter, 452
Definitions 452
Individual Decision Making 454
Rational Approach, 454
In Practice: Saskatchewan Consulting 456
Bounded Rationality Perspective, 457
How Do You Fit the Design? Making Important Decisions 459
BookMark 12.0: Blink: The Power of Thinking without Thinking 461
Organizational Decision Making 461
Management Science Approach, 462
In Practice: United Airlines 463
Carnegie Model, 464 • Incremental Decision Model, 466
In Practice: Gillette Company 469
Organizational Decisions and Change 470
Combining the Incremental Process and Carnegie Models, 470 • Garbage Can Model, 470
In Practice: I ♥ Huckabees 474
Contingency Decision-Making Framework 475
Problem Consensus, 475 • Technical Knowledge about Solutions, 476 • Contingency Framework, 476
Special Decision Circumstances 478
High-Velocity Environments, 479 • Decision Mistakes and Learning, 480 • Cognitive Biases, 481 • Overcoming Personal Biases, 482
Design Essentials 483
Chapter 12 Workbook: Decision Styles 485 Case for Analysis: Cracking the Whip 485 Case for Analysis: The Dilemma of Aliesha State
College: Competence versus Need 486
Chapter 13: Conflict, Power, and Politics 490
Purpose of This Chapter, 492
Intergroup Conflict in Organizations 492
Sources of Conflict, 493
In Practice: The Purpose-Driven Church 495
Rational versus Political Model, 496
Power And Organizations 497
Individual versus Organizational Power, 498 • Power versus Authority, 498 • Vertical Sources of Power, 499 • The Power of Empowerment, 503
In Practice: Semco 504
Horizontal Sources of Power, 504
In Practice: University of Illinois 507
In Practice: Carilion Health System 509
Political Processes in Organizations 509
Definition, 510 • When Is Political Activity Used?, 511
Using Power, Politics, and Collaboration 512
How Do You Fit the Design? Political Skills 512
Tactics for Increasing Power, 513
BookMark 13.0: Influence: Science and Practice 514
Political Tactics for Using Power, 515
In Practice: World Bank 517
Tactics for Enhancing Collaboration, 517
Design Essentials 520
Chapter 13 Workbook: How Do You Handle Conflict? 522 Case for Analysis: The Daily Tribune 523 Case for Analysis: Pierre Dux 524
Contents xiii
Integrative Cases 529
1.0 Rondell Data Corporation 531
2.0 It Isn’t So Simple: Infrastructure Change at Royce Consulting 539
3.0 Custom Chip, Inc. 544
4.0 “Ramrod” Stockwell 551
5.0 W. L. Gore & Associates, Inc. Entering 1998 554
6.0 Dick Spencer 569
7.0 The Plaza Inn 574
8.0 Dowling Flexible Metals 578
9.0 The Donor Services Department 582
10.0 Empire Plastics 586
11.1 Littleton Manufacturing (A) 589
11.2 Littleton Manufacturing (B) 601
12.0 Hartland Memorial Hospital (A): An Inbox Exercise 603
Glossary 613
Name Index 623
Corporate Name Index 634
Subject Index 639
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xv
My vision for the Tenth Edition of Organization Theory and Design is to integrate contemporary problems about organization design with classic ideas and theories in a way that is engaging and enjoyable for students. Significant changes in this edition include two new features—“Managing by Design Questions” and “How Do You Fit the Design?”—along with updates to every chapter that incorporate the most recent ideas, new case examples, new book reviews, and new end-of-book integra- tive cases. The research and theories in the field of organization studies are rich and insightful and will help students and managers understand their organizational world and solve real-life problems. My mission is to combine the concepts and mod- els from organizational theory with changing events in the real world to provide the most up-to-date view of organization design available.
DISTINGUISHING FEATURES OF THE TENTH EDITION
Many students in a typical organization theory course do not have extensive work experience, especially at the middle and upper levels, where organization theory is most applicable. Moreover, word from the field is that many students today often do not read the chapter opening examples or boxed examples, preferring instead to focus on chapter content. To engage students in the world of organizations, the Tenth Edition adds two significant features. First, “Managing by Design Questions” start each chapter to engage students in thinking and expressing their beliefs and opinions about organization design concepts. Second, a new in-chapter feature, “How Do You Fit the Design?” engages students in how their personal style and approach will fit into an organization. Other student experiential activities that engage students in applying chapter concepts are new “Book Marks,” new “In Practice” examples, and new integrative cases for student analysis. The total set of features substantially expands and improves the book’s content and accessibility. These multiple pedagogi- cal devices are used to enhance student involvement in text materials.
How Do You Fit the Design? The “How Do You Fit the Design?” feature presents a short questionnaire in each chapter about the student’s own style and prefer- ences to quickly provide feedback about how they fit particular organizations or situations. For example, questionnaire topics include: “What Size Organization for You?” “Are You Ready to Fill an International Role?” “The Pleasure/Pain of Working on a Team,” “How Innovative Are You?” and “How Do You Make
Preface
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xvi Preface
Important Decisions?” These short feedback questionnaires connect the student’s personal preferences to chapter material to heighten interest and show relevance of the concepts.
Managing by Design Questions Each chapter now opens with three short opinion questions that engage students in clarifying their thoughts about upcoming material and concepts. These questions are based on the idea that when students express their opinions first, they are more open to and interested in receiving material rel- evant to the questions. Example questions, which ask students to agree or disagree, include:
The primary role of managers in business organizations is to achieve maximum efficiency.
Managers should use the most objective, rational process possible when making a decision.
If management practices and coordination techniques work well for a company in its home country, they probably will be successful in the company’s international divisions as well.
A certain amount of conflict is good for an organization.
As a follow-up to the three “Managing by Design” questions, each chapter contains three “Assess Your Answer” inserts that allow students to compare their original opinions with the “correct” or most appropriate answers based on chapter concepts. Students learn whether their mental models and beliefs about organiza- tions align with the world of organizations.
Book Marks “Book Marks,” a unique feature of this text, are book reviews that reflect current issues of concern for managers working in real-life organizations. These reviews describe the varied ways companies are dealing with the challenges of today’s changing environment. New “Book Marks” in the Tenth Edition include Five Key Principles of Corporate Performance Management; The World Is Flat: A Brief History of the Twenty-First Century; The Strategy Paradox: Why Committing to Success Leads to Failure (And What to Do About It); The Future of Management; Small Giants: Companies That Choose to Be Great Instead of Big; and Innovation: The Five Disciplines for Creating What Customers Want.
In Practice This edition contains many new “In Practice” examples that illus- trate theoretical concepts in organizational settings. Many examples are interna- tional, and all are based on real organizations. New “In Practice” cases used within chapters include Samsung Electronics, eBay, the Salvation Army, Axiom Global, Univision, Google, Semco, AT&T, the World Bank, Threadless, Carilion Health System, Apple, Matsushita Electric, Herman Miller, and Great Ormand Street Hospital for Children.
Manager’s Briefcase Located in the chapter margins, this feature tells students how to use concepts to analyze cases and manage organizations.
Text Exhibits Frequent exhibits are used to help students visualize organizational relationships, and the artwork has been redone to communicate concepts more clearly.
Preface xvii
Design Essentials This summary and interpretation section tells students how the essential chapter points are important in the broader context of organization theory.
Case for Analysis These cases are tailored to chapter concepts and provide a vehicle for student analysis and discussion.
Integrative Cases The integrative cases at the end of the text have been expanded and positioned to encourage student discussion and involvement. The new cases include Rondell Data Corporation; The Plaza Inn; and Hartland Memorial Hospital (A): An Inbox Exercise. Previous cases that have been retained include Royce Consulting; Custom Chip Inc.; W. L. Gore & Associates; Empire Plastics; and Littleton Manufacturing.
NEW CONCEPTS
Many concepts have been added or expanded in this edition. New material has been added on organizational configuration and Mintzberg’s organization forms; strategic intent, core competence and competitive advantage; Porter’s competitive forces and strategies; using the balanced scorecard to measure effectiveness; using strategy maps; the trend toward outsourcing; supply chain management; intelligence teams; collaborative versus operations management roles; applying Web 2.0 tools for internal and external coordination; behavior versus outcome control; execu- tive dashboards; interpreting and shaping culture through organization structures, control systems, and power systems; corporate social responsibility; values-based leadership; collaborative teams for innovation; prospect theory; groupthink; over- coming cognitive biases in decision making; and the power of empowerment. Many ideas are aimed at helping students learn to design organizations for an environment characterized by uncertainty; a renewed emphasis on innovation; public demands for stronger ethics and social responsibility; and the need for a speedy response to change, crises, or shifting customer expectations. In addition, coping with the com- plexity of today’s global environment is explored thoroughly in Chapter 6.
CHAPTER ORGANIZATION
Each chapter is highly focused and is organized into a logical framework. Many organization theory textbooks treat material in sequential fashion, such as “Here’s View A, Here’s View B, Here’s View C,” and so on. Organization Theory and Design shows how they apply in organizations. Moreover, each chapter sticks to the essential point. Students are not introduced to extraneous material or confusing methodological squabbles that occur among organizational researchers. The body of research in most areas points to a major trend, which is reported here. Several chapters develop a framework that organizes major ideas into an overall scheme.
This book has been extensively tested on students. Feedback from students and faculty members has been used in the revision. The combination of organization theory concepts, book reviews, examples of leading organizations, self-insight ques- tionnaires, case illustrations, experiential exercises, and other teaching devices is designed to meet student learning needs, and students have responded favorably.
xviii Preface
SUPPLEMENTS
Instructor’s Resource Guide (ISBN: 0-324-59912-9) The Instructor’s Resource Guide includes an Instructor’s Manual and Test Bank. The Instructor’s Manual contains chap- ter overviews, chapter outlines, lecture enhancements, discussion questions, discussion of workbook activities, discussion of chapter cases, and case notes for integrative cases. The Test Bank consists of multiple choice, true/false, and essay questions.
PowerPoint Lecture Presentation Available on the Instructor’s Resource CD-ROM and the Web site, the PowerPoint Lecture Presentation enables instructors to custom- ize their own multimedia classroom presentations. Prepared in conjunction with the text and instructor’s resource guide, the package contains approximately 150 slides. It includes figures and tables from the text, as well as outside materials to supplement chapter concepts. Material is organized by chapter and can be modified or expanded for individual classroom use. PowerPoint presentations are also easily printed to create customized transparency masters.
ExamView A computerized version of the Test Bank is available on the Instructor’s Resource CD-ROM. ExamView contains all of the questions in the printed test bank. This program is easy-to-use test creation software. Instructors can add or edit questions, instructions, and answers and can select questions (randomly or numeri- cally) by previewing them on the screen. Instructors can also create and administer quizzes online, whether over the Internet, a local area network (LAN), or a wide area network (WAN).
Instructor’s Resource CD-ROM (ISBN: 0-324-59905-6) Key instructor ancillaries (Instructor’s Manual, Test Bank, ExamView, and PowerPoint slides) are provided on CD-ROM, giving instructors the ultimate tool for customizing lectures and presentations.
WebTutor™ Toolbox WebTutor is an interactive, Web-based student supplement on WebCT and/or BlackBoard that harnesses the power of the Internet to deliver innovative learning aids that actively engage students. The instructor can incorporate WebTutor as an integral part of the course, or the students can use it on their own as a study guide.
Web Site (www.cengage.com/management/daft) The Daft Web site is a comprehensive, resource-rich location for both instructors and students to find pertinent information. The Instructor Resources section contains an Instructor’s Manual download, Test Bank download, and PowerPoint download.
Premium Web Site (www.cengage.com/login) This new optional Premium Web site features text-specific resources that enhance student learning by bringing con- cepts to life. Dynamic interactive learning tools include online quizzes, flashcards, PowerPoint slides, learning games, and more.
Video/DVD (ISBN: 0-324-59906-4) This DVD includes video segments related to organization design concepts. They’re designed to visually reinforce key concepts.
Experiential Exercises in Organization Theory and Design, Second Edition By H. Eugene Baker III and Steven K. Paulson of the University of North Florida.
www.cengage.com/management/daft
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Preface xix
Tailored to the table of contents in Daft’s Organization Theory and Design, Tenth Edition, the core purpose of Experiential Exercises in Organization Theory and Design is to provide courses in organizational theory with a set of classroom exercises that will help students better understand and internalize the basic princi- ples of the course. The chapters of the book cover the most basic and widely covered concepts in the field. Each chapter focuses on a central topic, such as organizational power, production technology, or organizational culture, and provides all necessary materials to fully participate in three different exercises. Some exercises are intended to be completed by individuals, others in groups, and still others can be used either way. The exercises range from instrumentation-based and assessment question- naires to actual creative production activities.
ACKNOWLEDGMENTS
Textbook writing is a team enterprise. The Tenth Edition has integrated ideas and hard work from many people to whom I am grateful. Reviewers and focus group participants made an especially important contribution. They praised many features, were critical of things that didn’t work well, and offered valuable suggestions.
David Ackerman University of Alaska, Southeast
Michael Bourke Houston Baptist University
Suzanne Clinton Cameron University
Jo Anne Duffy Sam Houston State University
Cheryl Duvall Mercer University
Patricia Feltes Missouri State University
Robert Girling Sonoma State University
John A. Gould University of Maryland
Ralph Hanke Pennsylvania State University
Bruce J. Hanson Pepperdine University
Guiseppe Labianca Tulane University
Jane Lemaster University of Texas–Pan American
Steven Maranville University of Saint Thomas
Rick Martinez Baylor University
Janet Near Indiana University
Julie Newcomer Texas Woman’s University
Asbjorn Osland George Fox University
Laynie Pizzolatto Nicholls State University
Samantha Rice Abilene Christian University
Richard Saaverda University of Michigan
W. Robert Sampson University of Wisconsin, Eau Claire
Amy Sevier University of Southern Mississippi
W. Scott Sherman Pepperdine University
Thomas Terrell Coppin State College
Jack Tucci Southeastern Louisiana University
Judith White Santa Clara University
Jan Zahrly University of North Dakota
xx Preface
Among my professional colleagues, I am grateful to my friends and colleagues at Vanderbilt’s Owen School—Bruce Barry, Ray Friedman, Neta Moye, Rich Oliver, David Owens, Ranga Ramanujam, and Bart Victor—for their intellectual stimula- tion and feedback. I also owe a special debt to Dean Jim Bradford and Associate Deans Bill Christie and Dawn Iocabucci for providing the time and resources for me to stay current on the organization design literature and develop the revisions for the text.
I want to extend special thanks to my editorial associate, Pat Lane. She skill- fully wrote materials on a variety of topics and special features, found resources, and did an outstanding job with the copyedited manuscript and page proofs. Pat’s personal enthusiasm and care for the content of this text enabled the Tenth Edition to continue its high level of excellence.
The team at South-Western also deserves special mention. Joe Sabatino did a great job of designing the project and offering ideas for improvement. Erin Guendelsberger and Emma Guttler were superb to work with during their respective turns as Developmental Editor, keeping the people and project on schedule while solving problems creatively and quickly. Colleen Farmer, Senior Content Project Manager, provided superb project coordination and used her creativity and man- agement skills to facilitate the book’s on-time completion. Clint Kernen, Marketing Manager, provided additional support, creativity, and valuable market expertise.
Finally, I want to acknowledge the love and contributions of my wife, Dorothy Marcic. Dorothy has been very supportive of my textbook projects and has created an environment in which we can grow together. She helped the book take a giant step forward with her creation of the Workbook and Workshop student exercises. I also want to acknowledge the love and support of my daughters, Danielle, Amy, Roxanne, Solange, and Elizabeth, who make my life special during our precious time together.
Richard L. Daft
Nashville, Tennessee
March 2009
Introduction to Organizations
Chapter 1
Organizations and
Organization Theory
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Organizations and Organization
Theory
Organization Theory in Action Topics • Current Challenges • Purpose of This Chapter
What Is an Organization? Definition • From Multinationals to Nonprofits • Importance of Organizations
Dimensions of Organization Design Structural Dimensions • Contextual Dimensions • Performance and Effectiveness Outcomes
The Evolution of Organization Theory and Design Historical Perspectives • Don’t Forget the Environment
Organizational Configuration Mintzberg’s Organizational Types • Contemporary Design Ideas
Efficient Performance versus the Learning Organization From Vertical to Horizontal Structure • From Routine Tasks to Empowered Roles • From Formal Control Systems to Shared Information • From Competitive to Collaborative Strategy • From Rigid to Adaptive Culture
Framework for the Book Levels of Analysis • Plan of the Book • Plan of Each Chapter
Design Essentials
Chapter 1
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Managing by Design Questions
Before reading this chapter, please circle your opinion below for each of the following statements:
Managing by Design Questions
1 An organization can be understood primarily by understanding the people who make it up. 1 2 3 4 5
STRONGLY AGREE STRONGLY DISAGREE
2 The primary role of managers in business organizations is to achieve maximum effi ciency. 1 2 3 4 5
STRONGLY AGREE STRONGLY DISAGREE
3 A CEO’s top priority is to make sure the organization is designed correctly. 1 2 3 4 5
STRONGLY AGREE STRONGLY DISAGREE
A LOOK INSIDE
XEROX CORPORATION On the eve of the twenty-first century, Xerox Corporation seemed on top of the world, with fast-rising earnings, a soaring stock price, and a new line of computerized copier-printers that were technologically superior to rival products. Less than two years later, many considered Xerox a has-been, destined to fade into history. Consider the following events:
• Sales and earnings plummeted as rivals caught up with Xerox’s high-end digital machines, offering comparable products at lower prices.
• Xerox’s losses for the opening year of the twenty-first century totaled $384 million, and the company continued to bleed red ink. Debt mounted to $18 billion.
• The stock fell from a high of $64 to less than $4, amid fears that the company would file for federal bankruptcy protection. Over an 18-month period, Xerox lost $38 billion in shareholder wealth.
• Twenty-two thousand Xerox workers lost their jobs, further weakening the morale and loyalty of remaining employees. Major customers were alienated, too, by a restructuring that threw salespeople into unfamiliar territories and tied billing up in knots, leading to mass confusion and billing errors.
• The company was fined a whopping $10 million by the Securities and Exchange Commission (SEC) for accounting irregularities and alleged accounting fraud.
What went wrong at Xerox? The company’s deterioration is a classic story of organizational decline. Although Xerox appeared to fall almost overnight, the organization’s problems were connected to a series of organizational blunders over a period of many years.
BACKGROUND Xerox was founded in 1906 as the Haloid Company, a photographic supply house that developed the world’s first xero- graphic copier, introduced in 1959. Without a doubt, the 914 copier was a money-making machine. By the time it was retired in the early 1970s, the 914 was the best-selling industrial product of all time, and the new name of the company, Xerox, was listed in the dictionary as a synonym for photocopying.
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A LOOK INSIDE (continued)
Joseph C. Wilson, Haloid’s longtime chairman and president, created a positive, people-oriented culture continued by his successor, David Kearns, who steered Xerox until 1990. The Xerox culture and its dedicated employees (sometimes called “Xeroids”) were the envy of the corporate world. In addition to values of fairness and respect, Xerox’s culture emphasized risk taking and employee involvement. Wilson wrote the following for early recruiting materials: “We seek people who are willing to accept risk, willing to try new ideas and have ideas of their own . . . who are not afraid to change what they are doing from one day to the next, and from one year to the next . . .” Xerox continued to use these words in its recruiting efforts, but the culture the words epitomize had eroded.
“BUROX” TAKES HOLD Like many profitable organizations, Xerox became a victim of its own success. Leaders no doubt knew that the company needed to move beyond copiers to sustain its growth, but they found it difficult to look beyond the 70 percent gross profit margins of the 914 copier.
Xerox’s Palo Alto Research Center (PARC), established in 1970, became known around the world for innovation— many of the most revolutionary technologies in the computer industry, including the personal computer, graphical user interface, Ethernet, and laser printer, were invented at PARC. But the copier bureaucracy, or Burox as it came to be known, blinded Xerox leaders to the enormous potential of these innovations. While Xerox was plodding along selling copy machines, younger, smaller, and hungrier companies were developing PARC technologies into tremendous money- making products and services.
The dangers of Burox became dramatically clear when the company’s xerography patents began expiring. Suddenly, Japanese rivals such as Canon and Ricoh were selling copiers at the cost it took Xerox to make them. Market share declined from 95 percent to 13 percent by 1982. And with no new products to make up the difference, the company had to fight hard to cut costs and reclaim market share by committing to Japanese-style techniques and total quality manage- ment. Through the strength of his leadership, CEO Kearns was able to rally the troops and rejuvenate the company by 1990. However, he also set Xerox on a path to future disaster. Seeing a need to diversify, Kearns moved the company into insurance and financial services on a large scale. When he turned leadership over to Paul Allaire in 1990, Xerox’s balance sheet was crippled by billions of dollars in insurance liabilities.
ENTERING THE DIGITAL AGE Allaire wisely began a methodical, step-by-step plan for extricating Xerox from the insurance and financial services busi- ness. At the same time, he initiated a mixed strategy of cost cutting and new-product introductions to get the stodgy company moving again. Xerox had success with a line of digital presses and new high-speed digital copiers, but it fumbled again by underestimating the threat of the inkjet printer. By the time Xerox introduced its own line of desktop printers, the game was already over.
Desktop printers, combined with increasing use of the Internet and e-mail, cut heavily into Xerox’s sales of copiers. People didn’t need to make as many photocopies, but there was a huge increase in the number of documents being created and shared. Rebranding Xerox as “The Document Company,” Allaire pushed into the digital era, hoping to remake Xerox in the image of the rejuvenated IBM, offering not just “boxes (machines)” but complete document management solutions.
As part of that strategy, Allaire picked Richard Thoman, who was then serving as Louis Gerstner’s right-hand man at IBM, as his successor. Thoman came to Xerox as president, chief operating officer, and eventually CEO, amid high hopes that the company could regain the stature of its glory years. Only 13 months later, as revenues and the stock price continued to slide, he was fired by Allaire, who had remained as Xerox chairman.
PLAYING POLITICS Allaire and Thoman blamed each other for the failure to successfully implement the digital strategy. Outsiders, however, believe the failure had much more to do with Xerox’s dysfunctional culture. The culture was already slow to adapt, and some say that under Allaire it became almost totally paralyzed by politics. Thoman was brought in to shake things up, but when he tried, the old guard rebelled. A management struggle developed, with the outsider Thoman and a few allies on one side lined up against Allaire and his group of insiders who were accustomed to doing things the Xeroid way. Recognized for his knowledge, business experience, and intensity, Thoman was also considered to be somewhat haughty
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and unapproachable. He was never able to exert substantial influence with key managers and employees, nor to gain the support of board members, who continued to rally behind Allaire.
The failed CEO succession illustrates the massive challenge of reinventing a century-old company. By the time Thoman arrived, Xerox had been going through various rounds of restructuring, cost cutting, rejuvenating, and reinventing for nearly two decades, but little had really changed. Many believe Thoman tried to do too much too soon. He saw the urgency for change but was unable to convey that urgency to others within the company and inspire them to take the difficult journey real transformation requires.
Others doubted that anyone could fix Xerox, because the culture had become too dysfunctional and politicized. “There was always an in-crowd and an out-crowd,” says one former executive. “They change the branches, but when you look closely, the same old monkeys are sitting in the trees.”
THE INSIDER’S INSIDER Enter Anne Mulcahy, the consummate insider. In August 2001, Allaire turned over the CEO reins to the popular twenty- four-year veteran, who had started at Xerox as a copier saleswoman and worked her way up the hierarchy. Despite her insider status, Mulcahy proved that she was more than willing to challenge the status quo at Xerox. Since she took over, Mulcahy has surprised skeptical analysts, stockholders, and employees by engineering one of the most extraordinary business turnarounds in recent history.
How did she do it? One key success factor was giving people vision and hope. Mulcahy wrote a fictitious Wall Street Journal article describing Xerox five years in the future, outlining the things Xerox wanted to accomplish as if they had already been achieved and presenting the company as a thriving, forward-thinking organization. And although few people thought Mulcahy would take the tough actions Xerox needed to survive, she turned out to be a strong decision maker. She quickly launched a turnaround plan that included massive cost cutting and closing of several money-losing opera- tions, including the division she had previously headed. She was brutally honest about “the good, the bad, and the ugly” of the company’s situation, as one employee put it, but she also showed that she cared about what happened to employees. After major layoffs, she walked the halls to tell people she was sorry and let them vent their anger. She personally negotiated the settlement of a long investigation into fraudulent accounting practices, insisting that her personal involvement was necessary to signal a new commitment to ethical business practices and corporate social responsibility. She appealed directly to creditors begging them not to pull the plug until a new management team could make needed changes.
Mulcahy transferred much of production to outside contractors and refocused Xerox on innovation and service. Two areas she refused to cut were research and development and customer contact. Since 2005, Xerox has introduced more than 100 new products and moved into high-growth areas such as document management services, IT consulting, and digital press technology. A series of acquisitions enabled the company to enter new markets and expand its base of small- and medium-sized business customers. Sales in 2007 rose to more than $17 billion, and in November of that year, Xerox announced its first quarterly cash dividend in six years. Mulcahy has also responded to global stakeholders with a firm commitment to human rights and sustainable business practices. “By doing the right thing for our stakehold- ers and the global community, we’re also doing what is right for our business,” she said.
Mulcahy was belittled in the press when she took over as CEO, but she has proved the pundits wrong and regu- larly shows up on various “best manager” lists. In 2008, she became the first woman CEO selected by her peers to receive Chief Executive magazines’s “CEO of the Year” award, which she promptly declared to “represent the impressive accomplishments of Xerox people around the world.” But Mulcahy knows Xerox can’t afford to rest on its laurels. The technology industry is tough, and she has to keep her management team focused on growth while also maintaining the cost controls that stabilized the company.
Eight years after this American icon almost fell, Xerox is once again admired in the corporate world. Has the “perfect storm” of troubles been replaced with a “perfect dawn”? Mulcahy and her top management team believe Xerox is posi- tioned to be resilient in the face of the current economic slowdown, but in the rapidly changing world of organizations, nothing is ever certain.1
Welcome to the real world of organization theory. The shifting fortunes of Xerox illustrate organization theory in action. Xerox managers were deeply involved in organization theory each day of their working lives—but many never realized it. Company managers didn’t fully understand how the organization related to the environment or how it should function internally. Organization theory concepts have helped Anne Mulcahy and her management team analyze and diagnose what is happening and the changes needed to keep the company competitive. Organization theory gives us the tools to explain the decline of Xerox and understand Mulcahy’s turnaround.
Similar problems have challenged numerous organizations. Consider the dramatic organizational missteps illustrated by the 2008 crises in the mortgage industry and finance sector in the United States. Lehman Brothers Holdings, a pillar in the invest- ment banking industry for more than 150 years, filed for Chapter 11 bankruptcy, unable to weather the storm sweeping through the industry. American International Group (AIG) sought a bailout from the U.S. government. And another icon, Merrill Lynch, was saved by becoming part of Bank of America, which had already snapped up struggling mortgage lender Countrywide Financial Corporation. The Merrill Lynch acquisition gave Bank of America a vast reach into nearly every part of the finance industry, from credit cards and auto loans to stock underwriting, wealth manage- ment, and merger advice. Power in the industry took a decided shift away from huge investment firms back toward the basic business of commercial banking, making companies such as Bank of America and Wells Fargo & Company in the United States, Germany’s Deutsche Bank AG, and Banco Santander SA of Spain key players in a new financial landscape.2 The 2008 crisis in the U.S. financial sector represented change and uncertainty on an unprecedented scale, and it would, to some extent, affect man- agers in all types of organizations and industries around the world.
ORGANIZATION THEORY IN ACTION
Organization theory gives us the tools to analyze and understand how a huge, pow- erful firm like Lehman Brothers can die and a company like Bank of America can emerge almost overnight as a giant in the industry. It enables us to comprehend how a band like the Rolling Stones, which operates like a highly sophisticated global busi- ness organization, can enjoy phenomenal success for nearly half a century, while some musical groups with equal or superior talent don’t survive past a couple of hit songs. Organization theory helps us explain what happened in the past, as well as what may happen in the future, so that we can manage organizations more effectively.
Topics
Each of the topics to be covered in this book is illustrated in the Xerox case. Indeed, managers at companies such as Xerox, Lehman Brothers, Bank of America, and even the Rolling Stones are continually faced with a number of challenges. For example:
• How can the organization adapt to or control such external elements as com- petitors, customers, government, and creditors in a fast-paced environment?
• What strategic and structural changes are needed to help the organization attain effectiveness?
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• How can the organization avoid management ethical lapses that could threaten its viability?
• How can managers cope with the problems of large size and bureaucracy? • What is the appropriate use of power and politics among managers? • How should internal conflict be managed? • What kind of corporate culture is needed to enhance rather than stifle innova-
tion and change, and how can that culture be shaped by managers?
These are the topics with which organization theory is concerned. Organization theory concepts apply to all types of organizations in all industries. Managers at Burger King revitalized the once-floundering fast-food chain by revising its menu and marketing approach based on customer analysis. Nokia underwent a major reorganization to improve the organization’s flexibility and adaptability. Hewlett- Packard acquired Electronic Data Systems Corporation to move H-P more aggres- sively into the technology services industry.3 All of these companies are using concepts based in organization theory. Organization theory also applies to nonprofit organizations such as the United Way, the American Humane Association, local arts organizations, colleges and universities, and the Make-A-Wish Foundation, which grants wishes to terminally ill children.
Organization theory draws lessons from organizations such as Xerox, Bank of America, and United Way and makes those lessons available to students and manag- ers. As our opening example of Xerox shows, even large, successful organizations are vulnerable, lessons are not learned automatically, and organizations are only as strong as their decision makers. Organizations are not static; they continuously adapt to shifts in the external environment. Today, many companies are facing the need to transform themselves into dramatically different organizations because of new challenges in the environment.
Current Challenges
Research into hundreds of organizations provides the knowledge base to make Xerox and other organizations more effective. For example, challenges facing orga- nizations today are different from those of the past, and thus the concept of orga- nizations and organization theory is evolving. The world is changing more rapidly than ever before, and managers are responsible for positioning their organizations to adapt to new needs. Some specific challenges today’s managers and organizations face are globalization, intense competition, rigorous ethical scrutiny, the need for rapid response, the digital workplace, and increasing diversity.
Globalization. The cliché that the world is getting smaller is dramatically true for today’s organizations. With rapid advances in technology and communications, the time it takes to exert influence around the world from even the most remote locations has been reduced from years to only seconds. Markets, technologies, and organizations are becoming increasingly interconnected.4 Today’s successful organi- zations feel “at home” anywhere in the world. Companies can locate different parts of the organization wherever it makes the most business sense: top leadership in one country, technical brainpower and production in other locales.
Related trends are global outsourcing, or contracting out some functions to organizations in other countries, and strategic partnering with foreign firms to gain a global advantage. In Bain & Company’s 2007 survey of managers, nearly
Briefcase As an organization manager, keep these guidelines in mind:
Do not ignore the external environ- ment or protect the organization from it. Because the environ- ment is unpredict- able, do not expect to achieve complete order and rationality within the organiza- tion. Strive for a bal- ance between order and flexibility.
50 percent said they saw cross-border acquisitions as crucial to their future com- petitiveness. Moreover, U.S. managers believe developing relationships in India and China will be vital to business success.5 Already, numerous companies from all over the world, including Home Depot, CNA Life, and Sony, use India’s Wipro Ltd. to develop sophisticated software applications, design semiconductors, and manage back-office solutions.6 Other companies turn to China, which is the world’s largest maker of consumer electronics and is rapidly and expertly moving into biotechnol- ogy, computer manufacturing, and semiconductors.7
Intense Competition. This growing global interdependence creates new advantages, but it also means that the environment for companies is becoming extremely competi- tive. Customers want low prices for goods and services. Outsourcing firms in low-wage countries can often do work for 50 to 60 percent less than companies based in the United States, for instance, so U.S. firms that provide similar services have to search for new ways to compete or go into new lines of business.8 In recent years, though, rising fuel costs cut into the cost advantage many manufacturers enjoyed from what has been called the “China price.”9 The higher cost of shipping goods from China or other low- wage countries counteracted the lower cost of production, leaving U.S. manufacturers searching for ways to make up the difference without exorbitant price increases.
Companies in all industries are feeling pressure to drive down costs and keep prices low, yet at the same time they are compelled to invest in research and devel- opment or get left behind in the global drive for innovation. In the United States, high oil prices, the housing slump, mortgage meltdown, crisis in the financial sec- tor, and the soaring costs of materials and supplies created a tough environment for companies in all industries. Consider McDonald’s. Even as managers were seeking ways to expand the menu and draw in new customers, McDonald’s labs were test- ing how to cut the cost of making basic items on the Dollar Menu. With the price of ingredients such as cheese, beef, and buns going up, McDonald’s had to cut internal costs or lose money on its dollar-menu items.10 Auto insurers searched for new ways to compete as drivers faced with steep gas prices looked for ways to cut their trans- portation costs.11 Casual restaurant chains battled to draw in customers as people cut back on eating out. Grocers, too, felt the sting. Managers at Supervalu, the second largest supermarket company in the United States, quickly learned that they couldn’t just pass on their higher costs to shoppers. Sales and profits plunged in early 2008 before managers adjusted their strategy to promote cheaper store brands, work with manufacturers to design innovative promotions and coupons, and intro- duce new lines of products at lower prices.12
Ethics and Social Responsibility. Today’s managers face tremendous pressure from the government and the public to hold their organizations and employees to high ethical and professional standards. Following widespread moral lapses and corporate financial scandals, organizations are under scrutiny as never before. The pervasiveness of ethical lapses in the early 2000s was astounding. Once-respected firms such as Enron, Arthur Andersen, Tyco, and HealthSouth became synonymous with greed, deceit, and financial chicanery. No wonder a public poll found that 79 percent of respondents in the United States believe questionable business prac- tices are widespread. Fewer than one-third said they think most CEOs are honest.13
The sentiment is echoed in other countries. Recent investigations of dozens of top executives in Germany for tax evasion, bribery, and other forms of corruption have destroyed the high level of public trust business leaders there once enjoyed, with just
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15 percent of respondents in Germany now saying they consider business leaders trustworthy.14
The climate of suspicion has spread to nonprofit organizations and colleges and universities as well. For example, the student loan industry has come under close scru- tiny after an investigation found that Student Loan Xpress paid financial aid directors at three universities a total of $160,000 in consulting fees, personal tuition reimburse- ment, and other payments as a gateway to being placed on the universities’ preferred lenders lists. Investigators are seeking to determine whether lenders are being recom- mended to students because of the hidden payments university officials are receiving rather than the fact that they offer the best lending terms to students.15
Speed and Responsiveness. A third significant challenge for organizations is to respond quickly and decisively to environmental changes, organizational crises, or shifting customer expectations. For much of the twentieth century, organizations operated in a relatively stable environment, so managers could focus on designing structures and systems that kept the organization running smoothly and efficiently. There was little need to search for new ways to cope with increased competition, volatile environmental shifts, or changing customer demands. Today, globalization and advancing technology have accelerated the pace at which organizations in all industries must roll out new products and services to stay competitive. Today’s customers want products and services tailored to their exact needs, and they want them now. Manufacturing firms that relied on mass production and distribution techniques must be prepared with new computer-aided systems that can produce one-of-a-kind variations and streamlined distribution systems that deliver products directly from the manufacturer to the consumer. Service firms, as well, are searching for new ways to provide value. Allstate Insurance, for example, enhanced respon- siveness to customers with its Your Choice Auto program, which gives drivers the opportunity to choose the insurance perks they want. Allstate managers recognize that what appeals to drivers can change quickly as gasoline prices shift.16
Considering the turmoil and flux inherent in today’s world, the mindset needed by organizational leaders is to expect the unexpected and be prepared for rapid change and potential crises. Crisis management has moved to the forefront in light of devastating natural disasters and terrorist attacks all over the world; a tough economy, rocky stock market, growing unemployment, and weakening consumer confidence; widespread ethical scandals; and, in general, an environment that may shift dramatically at a moment’s notice.
The Digital Workplace. Many traditional managers feel particularly awkward in today’s technology-driven workplace. Organizations have been engulfed by informa- tion technology that affects how they are designed and managed. In today’s work- place, many employees perform much of their work on computers and may work in virtual teams, connected electronically to colleagues around the world. In addition, rather than competing as independent entities, organizations are becoming enmeshed in electronic networks. More and more of today’s business takes place by digital processes over a computer network rather than in physical space. Some companies have taken e-business to very high levels to achieve amazing performance. The use of end-to-end digital supply-chain networks to keep in touch with customers, take orders, buy components from suppliers, coordinate with manufacturing partners, and ship customized products directly to consumers has spread to all industries.17
These advances mean that organizational leaders not only need to be technologically
savvy but are also responsible for managing a web of relationships that reaches far beyond the boundaries of the physical organization, building flexible e-links between a company and its employees, suppliers, contract partners, and customers.18
Diversity. As organizations increasingly operate on a global playing field, the workforce—as well as the customer base—grows increasingly diverse. Many of today’s leading organizations have an international face. Look at the makeup of consulting firm McKinsey & Company. In the 1970s, most consultants were American, but by the turn of the century, McKinsey’s chief partner was a foreign national (Rajat Gupta from India), only 40 percent of consultants were American, and the firm’s foreign-born consultants came from forty different countries.19
In addition to coping with global diversity, managers in the United States realize the nation’s domestic population is changing dramatically. The minority popula- tion of the United States is now more than 100 million, making about one in three U.S. residents a minority. Roughly 32 million people speak Spanish at home, and nearly half of these people say they don’t speak English very well.20 Today’s aver- age employee is older, and many more women, people of color, and immigrants are seeking job and advancement opportunities. By 2050, it is estimated that 85 percent of entrants into the workforce will be women and people of color. Already, white males, the majority of workers in the past, represent less than half of the work- force.21 This growing diversity brings a variety of challenges, such as maintaining a strong corporate culture while supporting diversity, balancing work and family concerns, and coping with the conflict brought about by varying cultural styles.
Purpose of This Chapter
The purpose of this chapter is to explore the nature of organizations and organiza- tion theory today. Organization theory has developed from the systematic study of organizations by scholars. Concepts are obtained from living, ongoing organiza- tions. Organization theory has a practical application, as illustrated by the Xerox case. It helps managers understand, diagnose, and respond to emerging organiza- tional needs and problems.
The next section begins with a formal definition of organization and then explores introductory concepts for describing and analyzing organizations. Next, the scope and nature of organization theory are discussed more fully. Succeeding sections examine the history of organization theory and design, a framework for understanding organizational forms, the development of new organizational forms in response to changes in the environment, and how organization theory can help people manage complex organizations in a rapidly changing world. The chapter closes with a brief overview of the themes to be covered in this book.
WHAT IS AN ORGANIZATION?
Organizations are hard to see. We see outcroppings, such as a tall building, a com- puter workstation, or a friendly employee, but the whole organization is vague and abstract and may be scattered among several locations, even around the world. We know organizations are there because they touch us every day. Indeed, they are so common that we take them for granted. We hardly notice that we are born in a
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hospital, have our birth records registered in a government agency, are educated in schools and universities, are raised on food produced on corporate farms, are treated by doctors engaged in a joint practice, buy a house built by a construction company and sold by a real estate agency, borrow money from a bank, turn to police and fire departments when trouble erupts, use moving companies to change residences, and receive an array of benefits from various government agencies.22 Most of us spend many of our waking hours working in an organization of one type or another.
Definition
Organizations as diverse as a bank, a corporate farm, a government agency, and Xerox Corporation have characteristics in common. The definition used in this book to describe organizations is as follows: organizations are (1) social entities that (2) are goal-directed, (3) are designed as deliberately structured and coordinated activity systems, and (4) are linked to the external environment.
The key element of an organization is not a building or a set of policies and proce- dures; organizations are made up of people and their relationships with one another. An organization exists when people interact with one another to perform essential functions that help attain goals. Recent trends in management recognize the importance of human resources, with most new approaches designed to empower employees with greater oppor- tunities to learn and contribute as they work together toward common goals.
Managers deliberately structure and coordinate organizational resources to achieve the organization’s purpose. However, even though work may be structured into separate departments or sets of activities, most organizations today are striv- ing for greater horizontal coordination of work activities, often using teams of employees from different functional areas to work together on projects. Boundaries between departments, as well as those between organizations, are becoming more flexible and diffuse as companies face the need to respond to changes in the external environment more rapidly. An organization cannot exist without interacting with customers, suppliers, competitors, and other elements of the external environment. Today, some companies are even cooperating with their competitors, sharing infor- mation and technology to their mutual advantage.
From Multinationals to Nonprofits
Some organizations are large, multinational corporations, others are small, family- owned businesses, and still others are nonprofit organizations or governmental agencies. Some manufacture products such as automobiles, flat-panel televisions, or lightbulbs, whereas others provide services such as legal representation, Internet and telecommunications services, mental health resources, or car repair. Later in this text, Chapter 7 will look at the distinctions between manufacturing and service technologies. Chapter 9 discusses size and life cycle and describes some differences between small and large organizations.
Another important distinction is between for-profit businesses and nonprofit orga- nizations. All of the topics in this text apply to nonprofit organizations such as the Salvation Army, the World Wildlife Fund, the Save the Children Foundation, and Chicago’s La Rabida Hospital, which is dedicated to serving the poor, just as they do to such businesses as Xerox, Sirius XM Radio, Dunkin’ Donuts, and Nintendo. However, there are some important dissimilarities to keep in mind. The primary difference is that managers in businesses direct their activities toward earning money for the company,
whereas managers in nonprofits direct their efforts toward generating some kind of social impact. The unique characteristics and needs of nonprofit organizations created by this distinction present unique challenges for organizational leaders.23
Financial resources for nonprofits typically come from government appropria- tions, grants, and donations rather than from the sale of products or services to cus- tomers. In businesses, managers focus on improving the organization’s products and services to increase sales revenues. In nonprofits, however, services are typically pro- vided to nonpaying clients, and a major problem for many organizations is securing a steady stream of funds to continue operating. Nonprofit managers, committed to serving clients with limited funds, must focus on keeping organizational costs as low as possible and demonstrating a highly efficient use of resources.24 Another problem is that, since nonprofit organizations do not have a conventional “bottom line,” managers often struggle with the question of what constitutes organizational effectiveness. It is easy to measure dollars and cents, but nonprofits have to measure intangible goals such as “improve public health,” “make a difference in the lives of the disenfranchised,” or “enhance appreciation of the arts.”
Managers in nonprofit organizations also deal with many diverse stakeholders and must market their services to attract not only clients (customers) but also vol- unteers and donors. This can sometimes create conflict and power struggles among organizations, as illustrated by the Make-A-Wish Foundation, which is butting heads with small, local wish-granting groups as it expands to cities across the United States. The more kids a group can count as helping, the easier it is to raise funds. Local groups don’t want Make-A-Wish invading their turf, particularly at a time when charitable donations in general are declining with the slowing economy. Small groups are charging that Make-A-Wish is abusing the power of its national presence to overwhelm or absorb the smaller organizations. “We should not have to compete for children and money,” says the director of the Indiana Children’s Wish Fund. “They [Make-A-Wish] use all their muscle and money to get what they want.”25
Thus, the organization design concepts discussed throughout this book, such as dealing with issues of power and conflict, setting goals and measuring effectiveness, coping with environmental uncertainty, implementing effective control mechanisms, and satisfying multiple stakeholders, apply to nonprofit organizations such as the Indiana Children’s Wish Fund just as they do to businesses such as Xerox. These concepts and theories are adapted and revised as needed to fit the unique needs and problems of various small, large, profit, or nonprofit organizations.
Importance of Organizations
It may seem hard to believe today, but organizations as we know them are relatively recent in the history of humankind. Even in the late nineteenth century there were few organizations of any size or importance—no labor unions, no trade associations, and few large businesses, nonprofit organizations, or governmental agencies. What a change has occurred since then! The development of large organizations transformed all of society, and, indeed, the modern corporation may be the most significant inno- vation of the past 100 years.26 This chapter’s Book Mark examines the rise of the corporation and its significance in our society.
Organizations are all around us and shape our lives in many ways. But what contributions do organizations make? Why are they important? Exhibit 1.1 lists seven reasons organizations are important to you and to society. First, organi- zations bring together resources to accomplish specific goals. Consider Northrup
Briefcase As an organization manager, keep this guideline in mind:
Consider the needs and interests of all stakeholders when setting goals and designing the orga- nization to achieve effectiveness.
12 Part 1: Introduction to Organizations
Chapter 1: Organizations and Organization Theory 13
“The limited liability corporation is the greatest single discov- ery of modern times,” is one conclusion of the concise and readable book The Company: A Short History of a Revolutionary Idea by John Micklethwait and Adrian Wooldridge. Companies are so ubiquitous today that we take them for granted, so it may come as a surprise that the company as we know it is a relatively recent innovation. Although people have joined together in groups for commercial purposes since ancient Greek and Roman times, the modern company has its roots in the late nineteenth century. The idea of a limited liability com- pany that was legally an “artificial person” began with the Joint Stock Companies Act, enacted by the London Board of Trade in 1856. Today the company is seen as “the most important organization in the world.” Here are a few reasons why:
• The corporation was the first autonomous legal and social institution that was within society yet independent of the central government.
• The concept of a limited liability company unleashed entrepreneurs to raise money because investors could lose only what they invested. Increasing the pool of entrepreneurial capital spurred innovation and generally enriched the societies in which companies operated.
• The company is the most efficient creator of goods and services that the world has ever known. Without a com- pany to harness resources and organize activities, the
cost to consumers for almost any product we know today would be impossible to afford.
• Historically, the corporation has been a force for civilized behavior and provided people with worthwhile activities, identity, and community, as well as a paycheck.
• The Virginia Company, a forerunner of the limited liability corporation, helped introduce the revolutionary concept of democracy to the American colonies.
• The modern multinational corporation began in Britain in the third quarter of the 1800s with the railroads, which built rail networks throughout Europe by shipping into each country the managers, materials, equipment, and labor needed.
During the past few years, it seems that large corporations have been increasingly in conflict with societies’ interests. Yet large companies have been reviled throughout modern history—consider the robber barons at the beginning of the twentieth century—and the authors suggest that recent abuses are relatively mild compared to some incidents from history. Everyone knows that corporations can be scoun- drels, but overall, Micklethwait and Wooldridge argue, their force has been overwhelmingly for the cumulative social and economic good.
The Company: A Short History of a Revolutionary Idea, by John Micklethwait and Adrian Wooldridge, is published by The Modern Library.
The Company: A Short History of a Revolutionary Idea By John Micklethwait and Adrian Wooldridge
BookMark 1.0 (HAVE YOU READ THIS BOOK?)
Grumman Newport News (formerly Newport News Shipbuilding), which builds nuclear-powered, Nimitz-class aircraft carriers. Putting together an aircraft carrier is an incredibly complex job involving 47,000 tons of precision-welded steel, more than 1 million distinct parts, 900 miles of wire and cable, and more than seven years of hard work by 17,800 employees.27 How could such a job be accomplished without an organization to acquire and coordinate these varied resources?
Organizations also produce goods and services that customers want at competi- tive prices. Bill Gates, who built Microsoft into a global powerhouse, asserts that the modern organization “is one of the most effective means to allocate resources we’ve ever seen. It transforms great ideas into customer benefits on an unimaginably large scale.”28 Companies look for innovative ways to produce and distribute desirable goods and services more efficiently. Two ways are through e-business and through the use of computer-based manufacturing technologies. Redesigning organizational structures and management practices can also contribute to increased efficiency. Organizations create a drive for innovation rather than a reliance on standard prod- ucts and outmoded approaches to management and organization design.
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Organizations adapt to and influence a rapidly changing environment. Consider Google, provider of the Internet’s most popular search engine, which continues to adapt and evolve along with the evolving Internet. Rather than being a rigid service, Google is continually adding technological features that create a better service by accretion. At any time, Google’s site features several technologies in development so that engineers can get ideas and feedback from users.29 Some large businesses have entire departments charged with monitoring the external environment and finding ways to adapt to or influence that environment.
Through all of these activities, organizations create value for their owners, cus- tomers, and employees. Managers analyze which parts of the operation create value and which parts do not; a company can be profitable only when the value it creates is greater than the cost of resources. Vizio Inc., a growing force in the flat-panel television industry, for example, creates value by using existing LCD technology and developing an equity partnership with a contract manufacturer rather than produc- ing televisions in-house. By keeping its costs low, the California-based company has been able to sell flat-panel TVs at about half the cost of those sold by major electronics manufacturers.30
Finally, organizations have to cope with and accommodate today’s challenges of workforce diversity and growing concerns over ethics and social responsibility, as well as find effective ways to motivate employees to work together to accomplish organizational goals.
DIMENSIONS OF ORGANIZATION DESIGN
Organizations shape our lives, and well-informed managers can shape organiza- tions. The first step for understanding organizations is to look at dimensions that describe specific organizational design traits. These dimensions describe organiza- tions in much the same way that personality and physical traits describe people.
1.
2.
3.
4.
5.
6.
7.
Bring together resources to achieve desired goals and outcomes
Produce goods and services efficiently
Facilitate innovation
Use modern manufacturing and information technologies
Adapt to and influence a changing environment
Create value for owners, customers, and employees
Accommodate ongoing challenges of diversity, ethics, and the motivation and coordination of employees
Organizations exist to do the following:
EXHIBIT 1.1 Importance of Organizations
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Chapter 1: Organizations and Organization Theory 15
Organizational dimensions fall into two types: structural and contextual, as illustrated in Exhibit 1.2. Structural dimensions provide labels to describe the internal characteristics of an organization. They create a basis for measuring and comparing organizations. Contextual dimensions characterize the whole organization, including its size, technology, environment, and goals. They describe the organizational set- ting that influences and shapes the structural dimensions. Contextual dimensions can be confusing because they represent both the organization and the environ- ment. Contextual dimensions can be envisioned as a set of overlapping elements that underlie an organization’s structure and work processes. To understand and evaluate organizations, one must examine both structural and contextual dimen- sions.31 These dimensions of organization design interact with one another and can be adjusted to accomplish the purposes listed earlier in Exhibit 1.1.
Structural Dimensions
1. Formalization pertains to the amount of written documentation in the organiza- tion. Documentation includes procedures, job descriptions, regulations, and policy manuals. These written documents describe behavior and activities. Formalization is often measured by simply counting the number of pages of documentation within the organization. Large state universities, for example, tend to be high on formalization because they have several volumes of written rules for such things as registration, dropping and adding classes, student associations, dormitory gover- nance, and financial assistance. A small, family-owned business, in contrast, may have almost no written rules and would be considered informal.
EXHIBIT 1.2 Interacting Contextual and Structural Dimensions of Organization Design
Environment
Goals and Strategy
Size
Culture Technology
The Organization
Structure
1. Formalization 2. Specialization 3. Hierarchy of authority 4. Centralization 5. Professionalism 6. Personnel ratios
Level 1
Level 2
Level 3
Level 4
Level 5
Advisory Committees
Director AAA Director CETA
Director Housing
Director Criminal Justice
Assistant Director Finance
Director Finance
Executive Committee
Board of Directors
Secretary Records Clerk
Secretary SecretaryPayroll Clerk
Administrative Assistant
Administrative Assistant
Staff Clerk
IT Specialist
Housing Coordinator
Alcoh. Coordinator
Public Information Coordinator
Accountant Program
Spec. AAA
Program Planner
AAA
CETA Intake &
Orient
CETA Couns. Devs. Title
II ABC
CETA Couns. Devs. Youth
IV
CETA Couns. Devs. Title
II D & VI & VII
CETA Planner
Director Economic
Dev.
Director Regional Planning
Assistant Executive Director for Community Services
Assistant Executive Director for Human Services
Executive Director
Lead Couns.
Lead Couns.
Contract Fiscal Mgr.
EXHIBIT 1.3 Organization Chart Illustrating the Hierarchy of Authority for a Community Job Training Program
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Chapter 1: Organizations and Organization Theory 17
2. Specialization is the degree to which organizational tasks are subdivided into separate jobs. If specialization is extensive, each employee performs only a narrow range of tasks. If specialization is low, employees perform a wide range of tasks in their jobs. Specialization is sometimes referred to as the division of labor.
3. Hierarchy of authority describes who reports to whom and the span of control for each manager. The hierarchy is depicted by the vertical lines on an organiza- tion chart, as illustrated in Exhibit 1.3. The hierarchy is related to span of con- trol (the number of employees reporting to a supervisor). When spans of control are narrow, the hierarchy tends to be tall. When spans of control are wide, the hierarchy of authority will be shorter.
4. Centralization refers to the hierarchical level that has authority to make a decision. When decision making is kept at the top level, the organization is centralized. When decisions are delegated to lower organizational levels, it is decentralized. Examples of organizational decisions that might be centralized or decentralized include purchasing equipment, establishing goals, choosing suppli- ers, setting prices, hiring employees, and deciding marketing territories.
5. Professionalism is the level of formal education and training of employees. Professionalism is considered high when employees require long periods of train- ing to hold jobs in the organization. Professionalism is generally measured as the average number of years of education of employees, which could be as high as twenty in a medical practice and less than ten in a construction company.
6. Personnel ratios refer to the deployment of people to various functions and departments. Personnel ratios include the administrative ratio, the clerical ratio, the professional staff ratio, and the ratio of indirect to direct labor employees. A personnel ratio is measured by dividing the number of employees in a classification by the total number of organizational employees.
Contextual Dimensions
1. Size can be measured for the organization as a whole or for specific components, such as a plant or division. Because organizations are social systems, size is typi- cally measured by the number of employees. Other measures such as total sales or total assets also reflect magnitude, but they do not indicate the size of the human part of the system.
2. Organizational technology refers to the tools, techniques, and actions used to transform inputs into outputs. It concerns how the organization actually pro- duces the products and services it provides for customers and includes such things as flexible manufacturing, advanced information systems, and the Internet. An automobile assembly line, a college classroom, and an overnight package deliv- ery system are technologies, although they differ from one another.
3. The environment includes all elements outside the boundary of the organization. Key elements include the industry, government, customers, suppliers, and the financial community. The environmental elements that affect an organization the most are often other organizations.
4. The organization’s goals and strategy define the purpose and competitive tech- niques that set it apart from other organizations. Goals are often written down as an enduring statement of company intent. A strategy is the plan of action that describes resource allocation and activities for dealing with the environment and for reaching the organization’s goals. Goals and strategies define the scope of operations and the relationship with employees, customers, and competitors.
Briefcase As an organization manager, keep these guidelines in mind:
Think of the organi- zation as an entity distinct from the indi- viduals who work in it. Describe the organiza- tion according to its size, formalization, decentralization, specialization, profes- sionalism, personnel ratios, and the like. Use these character- istics to analyze the organization and to compare it with other organizations.
5. An organization’s culture is the underlying set of key values, beliefs, understand- ings, and norms shared by employees. These underlying values and norms may pertain to ethical behavior, commitment to employees, efficiency, or customer service, and they provide the glue to hold organization members together. An organization’s culture is unwritten but can be observed in its stories, slogans, ceremonies, dress, and office layout.
The eleven contextual and structural dimensions discussed here are interde- pendent. For example, large organization size, a routine technology, and a stable environment all tend to create an organization that has greater formalization, spe- cialization, and centralization. More detailed relationships among the dimensions are explored in later chapters of this book.
1 An organization can be understood primarily by understanding the people who make it up. ANSWER: Disagree. An organization has distinct characteristics that are inde- pendent of the nature of the people who make it up. All the people could be replaced over time while an organization’s structural and contextual dimensions would remain similar.
These dimensions provide a basis for measuring and analyzing characteristics that cannot be seen by the casual observer, and they reveal significant information about an organization. Consider, for example, the dimensions of Ternary Software compared with those of Wal-Mart and a governmental agency.
Brian Robertson is one of the founders of Ternary Software and holds the title of CEO. But as for having the power and authority typically granted to a top executive, forget
about it. Consider a recent strategy meeting where a programmer criticized Robertson’s plan to replace the company’s profit sharing program with an ad hoc bonus system based on performance. After much discussion, the CEO’s plan was soundly rejected in favor of keeping the profit sharing program and using monthly bonus incentives.
At Ternary, a company that writes software on contract for other organizations, every- one has a voice in making important decisions. A seven-member policy-setting team that includes two frontline workers elected by their peers consults with other teams throughout the company, ultimately giving every employee a chance to participate in decision making. Meetings are highly informal and people are invited to share feelings as well as business ideas. Any time a new item on the agenda is brought up for discussion, each person is asked for his or her gut reaction. Then, people get to state objections, offer alternative ideas, rework proposals, and perhaps throw out management’s suggestions and plans.
Contrast Ternary’s approach to that of Wal-Mart, which achieves its competitive edge through internal cost efficiency. A standard formula is used to build each store, with uniform displays and merchandise. Wal-Mart’s administrative expenses are the lowest of any chain. The distribution system is a marvel of efficiency. Goods can be delivered to any store in less than two days after an order is placed. Stores are controlled from the top, although store
1 An organization can be understood primarily byunderstanding the people who make it up. ANSWER: Disagree. An organization has distinct characteristics that are inde- pendent of the nature of the people who make it up. All the people could be replaced over time while an organization’s structural and contextual dimensions would remain similar.
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managers have some freedom to adapt to local conditions. Employees follow standard pro- cedures set by management and have little say in decision making. However, performance is typically high, and most employees consider that the company treats them fairly.
An even greater contrast is seen in many government agencies or nonprofit organiza- tions that rely heavily on public funding. Most state humanities and arts agencies, for example, are staffed by a small number of highly trained employees, but workers are over- whelmed with rules and regulations and swamped by paperwork. Employees who have to implement rule changes often don’t have time to read the continuous stream of memos and still keep up with their daily work. Employees must require extensive reporting from their clients in order to make regular reports to a variety of state and federal funding sources. Agency workers are frustrated and so are the community-based organizations they seek to serve.32 ■
Exhibit 1.4 illustrates several structural and contextual dimensions of Ternary Software, Wal-Mart, and the state arts agency. Ternary is a small organization that ranks very low with respect to formalization and centralization and has a medium degree of specialization. Professionalism is high, with a number of staff assigned to nonworkflow activities to do the R&D needed to stay abreast of changes in the software and information technology industries. Wal-Mart is much more formal- ized, specialized, and centralized. Efficiency is more important than new products, so most activities are guided by standard regulations. Professionalism is low, and the percentage of nonworkflow personnel is kept to a minimum. The arts agency, in contrast to the other organizations, reflects its status as a small part of a large government bureaucracy. The agency is overwhelmed with rules and standard pro- cedures. Rules are dictated from the top. Most employees are assigned to workflow
100
50
0
Company
Standard Score
Technology
Size
Ternary Software Wal-Mart State arts agency
Software Development Retailing Government service
25 250,000 53
Formalization Centralization
Specialization Configuration: Percent nonworkflow personnel
EXHIBIT 1.4 Characteristics of Three Organizations
activities, although in normal times a substantial number of people are devoted to administration and clerical support.
Structural and contextual dimensions can thus tell a lot about an organization and about differences among organizations. Organization design dimensions are examined in more detail in later chapters to determine the appropriate level of each dimension needed to perform effectively in each organizational setting.
Performance and Effectiveness Outcomes
The whole point of understanding structural and contextual dimensions is to design the organization in such a way as to achieve high performance and effectiveness. Managers adjust structural and contextual dimensions to most efficiently and effectively transform inputs into outputs and provide value. Efficiency refers to the amount of resources used to achieve the organization’s goals. It is based on the quantity of raw materials, money, and employees necessary to produce a given level of output. Effectiveness is a broader term, meaning the degree to which an organiza- tion achieves its goals.
To be effective, organizations need clear, focused goals and appropriate strate- gies for achieving them. Strategy, goals, and approaches to measuring effective- ness will be discussed in detail in Chapter 2. Many organizations are using new technology to improve efficiency and effectiveness. For example, the health care industry is striving to increase efficiency by using information technology to reduce paperwork and streamline procedures. With new technology, one physician’s office in Philadelphia says it can now handle more patients with three fewer office employ- ees. Information technology also helps the staff locate information more quickly and reduce mistakes, leading to a higher quality of care and better customer service.33
Achieving effectiveness is not always a simple matter because different people want different things from the organization. For customers, the primary concern is high-quality products and services at a reasonable price, whereas employees are mostly concerned with adequate pay, good working conditions, and job satisfac- tion. Managers carefully balance the needs and interests of various stakeholders in setting goals and striving for effectiveness. This is referred to as the stakeholder approach, which integrates diverse organizational activities by looking at various organizational stakeholders and what they want from the organization. A stake- holder is any group within or outside of the organization that has a stake in the organization’s performance. The satisfaction level of each group can be assessed as an indication of the organization’s performance and effectiveness.34
2 The primary role of managers in business organizations is to achieve maximum effi ciency. ANSWER: Disagree. Effi ciency is important, but organizations must respond to a variety of stakeholders, who may want different things from the organization. Managers strive for both effi ciency and effectiveness in trying to meet the needs and interests of stakeholders. Effectiveness is often considered more important than effi ciency.
2 The primary role of managers in business organizations is to achieve maximum effi ciency. ANSWER: Disagree. Effi ciency is important, but organizations must respond to a variety of stakeholders, who may want different things from the organization. Managers strive for both effi ciency and effectiveness in trying to meet the needs and interests of stakeholders. Effectiveness is often considered more important than effi ciency.
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Exhibit 1.5 illustrates various stakeholders and what each group wants from the organization. Stakeholder interests sometimes conflict, and organizations often find it difficult to simultaneously satisfy the demands of all groups. A business might have high customer satisfaction, but the organization might have difficulties with creditors or supplier relationships might be poor. Consider Wal-Mart. Customers love its effi- ciency and low prices, but the low-cost emphasis has caused friction with suppliers. Some activist groups argue that Wal-Mart’s tactics are unethical because they force suppliers to lay off workers, close factories, and outsource to manufacturers from low-wage countries. One supplier said clothing is being sold at Wal-Mart so cheaply that many U.S. companies couldn’t compete even if they paid their workers nothing. The challenges of managing such a huge organization have also led to strains in rela- tionships with employees and other stakeholder groups, as evidenced by recent gender discrimination suits and complaints about low wages and poor benefits.35
Research has shown that the assessment of multiple stakeholder groups is an accu- rate reflection of organizational effectiveness, especially with respect to organizational adaptability.36 Moreover, both profit and nonprofit organizations care about their reputations and attempt to shape stakeholders’ perceptions of their performance.37
In reality, it is unreasonable to assume that all stakeholders can be equally satis- fied, but if an organization fails to meet the needs of several stakeholder groups, it is probably not meeting its effectiveness goals. Managers strive to at least minimally satisfy the interests of all stakeholders. When any one group becomes seriously dis- satisfied, it may withdraw its support and hurt future organizational performance. Satisfying multiple stakeholders can be challenging, particularly as goals and priori- ties change, as illustrated by the following example.
EXHIBIT 1.5 Major Stakeholder Groups and What They Expect
EMPLOYEES •
• •
Satisfaction Pay
Supervision
OWNERS AND STOCKHOLDERS • Financial return
SUPPLIERS •
• Satisfactory transactions
Revenue from purchases
COMMUNITY • •
Good corporate citizen Contribution to community affairs
UNION •
• Worker pay
Benefits
CUSTOMERS •
• •
High-quality goods, services Service
Value
CREDITORS • • Creditworthiness Fiscal responsibility
GOVERNMENT •
•
Obedience to laws and regulations
Fair competition
MANAGEMENT •
• Efficiency
Effectiveness
ORGANIZATIONORGANIZATION
Few people deny that homeland security should be a top priority for the United States, and since the attacks of September 11, 2001, the Federal Bureau of Investigation
(FBI) has channeled more and more resources into the domestic war on terrorism. Consider the seven-year investigation into the anthrax attacks that occurred weeks after September 11 and killed five people in the United States. The investigation culminated in mid-2008 by identifying the alleged culprit as an Army biological weapons scientist at Fort Detrick in Frederick, Maryland. The suspect committed suicide after being told he would be charged with murder.
Combatting terrorism sounds good, right? The only problem is, the agency’s new priority means hundreds of agents have been pulled off their regular beats, where they investigated everything from drug smuggling to kidnapping to white collar crime. “Just about everyone here is involved in terror cases, one way or another,” says agent Ron Buckley. “Everything else is on the back burner.”
The FBI’s new focus is putting a heavy burden on police departments and other law enforcement agencies around the country. These organizations don’t have the personnel, investigative resources, or know-how to fight the kinds of crime FBI agents once handled. For example, even when local departments have adequate manpower, crimes often go unsolved because of lack of access to the FBI’s high-tech forensic labs. Local communities are also distressed because they fear more drugs in their neighborhoods and more violent crime on their streets. Although the U.S. public is worried about terrorism, they also want their own little piece of the world protected from criminal activity.
Some FBI agents aren’t particularly happy about the change either. An agent who has spent most of his 25-year career poring over financial statements investigating fraud, for example, has to make a huge mental shift to feel comfortable traveling around town in an unmarked car with submachine guns, stun grenades, body armor—and a toothbrush— prepared for the next long stakeout.38 ■
This example provides a glimpse of how difficult it can be for managers to satisfy multiple stakeholders. In all organizations, managers have to evaluate stake- holder concerns and establish goals that can achieve at least minimal satisfaction for major stakeholder groups.
THE EVOLUTION OF ORGANIZATION THEORY AND DESIGN
Organization theory is not a collection of facts; it is a way of thinking about orga- nizations. Organization theory is a way to see and analyze organizations more accurately and deeply than one otherwise could. The way to see and think about organizations is based on patterns and regularities in organizational design and behavior. Organization scholars search for these regularities, define them, measure them, and make them available to the rest of us. The facts from the research are not as important as the general patterns and insights into organizational functioning. Insights from organization design research can help managers improve organiza- tional efficiency and effectiveness, as well as strengthen the quality of organizational life.39 One area of insight is how organization design and management practices have varied over time in response to changes in the larger society.
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Historical Perspectives
You may recall from an earlier management course that the modern era of manage- ment theory began with the classical management perspective in the late nineteenth and early twentieth century. The emergence of the factory system during the Industrial Revolution posed problems that earlier organizations had not encountered. As work was performed on a much larger scale by a larger number of workers, people began thinking about how to design and manage work in order to increase productivity and help organizations attain maximum efficiency. The classical perspective, which sought to make organizations run like efficient, well-oiled machines, is associated with the development of hierarchy and bureaucratic organizations and remains the basis of much of modern management theory and practice. In this section, we will examine the classical perspective, with its emphasis on efficiency and organiza- tion, as well as other perspectives that emerged to address new concerns, such as employee needs and the role of the environment. Elements of each perspective are still used in organization design, although they have been adapted and revised to meet changing needs. These different perspectives can also be associated with dif- ferent ways in which managers think about and view the organization, called man- ager frame of reference. Complete the questionnaire in the “How Do You Fit the Design?” box on page 24 to understand your frame of reference.
Efficiency Is Everything. Pioneered by Frederick Winslow Taylor, scientific man- agement emphasizes scientifically determined jobs and management practices as the way to improve efficiency and labor productivity. Taylor proposed that workers “could be retooled like machines, their physical and mental gears recalibrated for better productivity.”40 He insisted that management itself would have to change and emphasized that decisions based on rules of thumb and tradition should be replaced with precise procedures developed after careful study of individual situations.41 To use this approach, managers develop precise, standard procedures for doing each job, select workers with appropriate abilities, train workers in the standard proce- dures, carefully plan work, and provide wage incentives to increase output.
Taylor’s approach is illustrated by the unloading of iron from railcars and reloading finished steel for the Bethlehem Steel plant in 1898. Taylor calculated that with correct movements, tools, and sequencing, each man was capable of loading 47.5 tons per day instead of the typical 12.5 tons. He also worked out an incentive system that paid each man $1.85 per day for meeting the new standard, an increase from the previous rate of $1.15. Productivity at Bethlehem Steel shot up overnight. These insights helped to establish organizational assumptions that the role of man- agement is to maintain stability and efficiency, with top managers doing the think- ing and workers doing what they are told.
The ideas of creating a system for maximum efficiency and organizing work for maximum productivity are deeply embedded in our organizations. A recent Harvard Business Review article discussing innovations that shaped modern management put scientific management at the top of its list of twelve influential innovations.42
How to Get Organized. Another subfield of the classical perspective took a broader look at the organization. Whereas scientific management focused primarily on the technical core—on work performed on the shop floor—administrative principles looked at the design and functioning of the organization as a whole. For example, Henri Fayol proposed fourteen principles of management, such as “each subordinate
24 Part 1: Introduction to Organizations
Evolution of Styleyle How Do You Fit the Design?
© W
in g
Ta ng
This questionnaire asks you to describe yourself. For each item, give the number “4” to the phrase that best describes you, “3” to the item that is next best, and on down to “1” for the item that is least like you.
1. My strongest skills are: ___a. Analytical skills ___b. Interpersonal skills ___c. Political skills ___d. Flair for drama
2. The best way to describe me is: ___a. Technical expert ___b. Good listener ___c. Skilled negotiator ___d. Inspirational leader
3. What has helped me the most to be successful is my ability to: ___a. Make good decisions ___b. Coach and develop people ___c. Build strong alliances and a power base ___d. Inspire and excite others
4. What people are most likely to notice about me is my: ___a. Attention to detail ___b. Concern for people ___c. Ability to succeed in the face of conflict and
opposition ___d. Charisma
5. My most important leadership trait is: ___a. Clear, logical thinking ___b. Caring and support for others ___c. Toughness and aggressiveness ___d. Imagination and creativity
6. I am best described as: ___a. An analyst ___b. A humanist ___c. A politician ___d. A visionary
Scoring: Compute your scores according to the following rater. The higher score represents your way of viewing the organization and will influence your management style.
Structure = 1a + 2a + 3a + 4a + 5a + 6a = ________ Human Resource = 1b + 2b + 3b + 4b + 5b + 6b = ________ Political = 1c + 2c + 3c + 4c + 5c + 6c = _________ Symbolic = 1d + 2d + 3d + 4d + 5d + 6d = _________
Interpretation: Organization managers typically view their world through one or more mental frames of refer- ence. (1) The structural frame of reference sees the orga- nization as a machine that can be economically efficient with vertical hierarchy and routine tasks that give a man- ager the formal authority to achieve goals. This manager way of thinking became strong during the era of scien- tific management when efficiency was everything. (2) The human resource frame sees the organization as its peo- ple, with manager emphasis given to support, empower- ment, and belonging. This manager way of thinking gained importance after the Hawthorne studies. (3) The political frame sees the organization as a competition for scarce resources to achieve goals, with manager emphasis on building agreement among diverse groups. This frame of reference reflects the need for organizations to share information, have a collaborative strategy, and to have all parts working together. (4) The symbolic frame sees the organization as theater, with manager emphasis on symbols, vision, culture, and inspiration. This manager frame of reference is important for managing an adaptive culture in a learning organization.
Which frame reflects your way of viewing the world? The first two frames of reference—structural and human resource—are important for newer managers at the lower and middle levels of an organization. These two frames usually are mastered first. As managers gain experience and move up the organization, they should acquire politi- cal and collaborative skills (Chapter 13) and also learn to use symbols to shape cultural values (Chapter 10). It is important for managers not to be stuck in one way of viewing the organization because their progress may be limited.
Source: Roy G. Williams and Terrence E. Deal, When Opposites Dance: Balancing the Manage and Leader Within (Palo Alto, CA: Davies-Black, 2003), pp. 24–28. Reprinted with permission.
Chapter 1: Organizations and Organization Theory 25
receives orders from only one superior” (unity of command) and “similar activities in an organization should be grouped together under one manager” (unity of direc- tion). These principles formed the foundation for modern management practice and organization design.
The scientific management and administrative principles approaches were power- ful and gave organizations fundamental new ideas for establishing high productivity and increasing prosperity. Administrative principles in particular contributed to the development of bureaucratic organizations, which emphasized designing and manag- ing organizations on an impersonal, rational basis through such elements as clearly defined authority and responsibility, formal recordkeeping, and uniform application of standard rules. Although the term bureaucracy has taken on negative connota- tions in today’s organizations, bureaucratic characteristics worked extremely well for the needs of the Industrial Age. One problem with the classical perspective, however, is that it failed to consider the social context and human needs.
What about People? Early work on industrial psychology and human relations received little attention because of the prominence of scientific management. However, a major breakthrough occurred with a series of experiments at a Chicago electric company, which came to be known as the Hawthorne Studies. Interpretations of these studies at the time concluded that positive treatment of employees improved their motivation and productivity. The publication of these findings led to a revolu- tion in worker treatment and laid the groundwork for subsequent work examining treatment of workers, leadership, motivation, and human resource management. These human relations and behavioral approaches added new and important contributions to the study of management and organizations.
However, the hierarchical system and bureaucratic approaches that developed dur- ing the Industrial Revolution remained the primary approach to organization design and functioning well into the 1970s and early 1980s. In general, this approach worked well for most organizations until the past few decades. However, during the 1980s, it began to lead to problems. Increased competition, especially on a global scale, changed the playing field.43 North American companies had to find a better way.
Can Bureaucracies Be Flexible? The 1980s produced new corporate cultures that valued lean staff, flexibility and learning, rapid response to the customer, engaged employees, and quality products. Organizations began experimenting with teams, flattened hierarchies, and participative management approaches. For example, in 1983, a DuPont plant in Martinsville, Virginia, cut management layers from eight to four and began using teams of production employees to solve problems and take over routine management tasks. The new design led to improved quality, decreased costs, and enhanced innovation, helping the plant be more competitive in a changed environment.44 Rather than relying on strict rules and hierarchy, managers began looking at the entire organizational system, including the external environment.
Over the past twenty-five years organizations have undergone even more pro- found and far-reaching changes. More flexible approaches to organization design have become prevalent. Recent influences on the shifting of organization design include the Internet and other advances in communications and information tech- nology; globalization and the increasing interconnection of organizations; the rising educational level of employees and their growing quality-of-life expectations; and the growth of knowledge- and information-based work as primary organizational activities.45
Don’t Forget the Environment
Many problems occur when all organizations are treated as similar, which was the case with scientific management and administrative principles that attempted to design all organizations alike. The structures and systems that work in the retail division of a conglomerate will not be appropriate for the manufacturing division. The organization charts and financial procedures that are best for an entrepreneur- ial Internet firm like Google will not work for a large food processing plant at Kraft or Nabisco.
Contingency means that one thing depends on other things, and for organiza- tions to be effective, there must be a “goodness of fit” between their structure and the conditions in their external environment.46 What works in one setting may not work in another setting. There is no “one best way.” Contingency theory means it depends. For example, some organizations experience a certain environment, use a routine technology, and desire efficiency. In this situation, a management approach that uses bureaucratic control procedures, a hierarchical structure, and formal communication would be appropriate. Likewise, free-flowing management processes work best in an uncertain environment with a nonroutine technology. The correct management approach is contingent on the organization’s situation.
Today, almost all organizations operate in highly uncertain environments. Thus, we are involved in a significant period of transition, in which concepts of organiza- tion theory and design are changing as dramatically as they did with the dawning of the Industrial Revolution.
ORGANIZATIONAL CONFIGURATION
Another important insight from organization design researchers is how organiza- tions are configured—that is, what makes up an organization’s parts and how do the various parts fit together?
Mintzberg’s Organizational Types
One framework proposed by Henry Mintzberg suggests that every organiza- tion has five parts.47 These parts, illustrated in Exhibit 1.6, include the technical core, top management, middle management, technical support, and administrative support.
Technical Core. The technical core includes people who do the basic work of the organization. This part actually produces the product and service outputs of the organization. This is where the primary transformation from inputs to outputs takes place. The technical core is the production department in a manufacturing firm, the teachers and classes in a university, and the medical activities in a hospital.
Technical Support. The technical support function helps the organization adapt to the environment. Technical support employees such as engineers, researchers, and information technology professionals scan the environment for problems, opportu- nities, and technological developments. Technical support is responsible for creating innovations in the technical core, helping the organization change and adapt.
Briefcase As an organization manager, keep these guidelines in mind:
Be cautious when applying something that works in one situ- ation to another situa- tion. All organizational systems are not the same. Use organiza- tion theory to identify the correct structure, goals, strategy, and management systems for each organization.
26 Part 1: Introduction to Organizations
Chapter 1: Organizations and Organization Theory 27
EXHIBIT 1.6 Five Basic Parts of an Organization
Technical Support
Staff
Administrative Support
Staff
Top Management
Technical Core
Middle Management
Source: Based on Henry Mintzberg, The Structuring of Organizations (Englewood Cliffs, N.J.: Prentice-Hall, 1979), 215–297; and Henry Mintzberg, “Organization Design: Fashion or Fit?” Harvard Business Review 59 (January-February 1981), 103–116.
ASSESS YOUR ANSWER
Administrative Support. The administrative support function is responsible for the smooth operation and upkeep of the organization, including its physical and human ele- ments. This includes human resource activities such as recruiting and hiring, establishing compensation and benefits, and employee training and development, as well as mainte- nance activities such as cleaning of buildings and service and repair of machines.
Management. Management is a distinct function, responsible for directing and coordinating other parts of the organization. Top management provides direction, planning, strategy, goals, and policies for the entire organization or major divisions. Middle management is responsible for implementation and coordination at the departmental level. In traditional organizations, middle managers are responsible for mediating between top management and the technical core, such as implement- ing rules and passing information up and down the hierarchy.
3 A CEO’s top priority is to make sure the organization is designed correctly. ANSWER: Agree. Top managers have many responsibilities, but one of the most important is making sure the organization is designed correctly. Organization design organizes and focuses people’s work and shapes their response to cus- tomers and other stakeholders. Managers consider both structural and contex- tual dimensions as well as make sure the various parts of the organization work together to achieve important goals.
In real-life organizations, the five parts are interrelated and often serve more than one function. For example, managers coordinate and direct parts of the orga- nization, but they may also be involved in administrative and technical support.
Mintzberg proposed that the five parts could fit together in five basic types of organization, as illustrated in Exhibit 1.7. The five configurations are entrepreneur- ial structure, machine bureaucracy, professional bureaucracy, diversified form, and adhocracy. The five organizational parts vary in size and importance in each type.
EXHIBIT 1.7 Mintzberg’s Five Organization Types
a. Entrepreneurial Structure b. Machine Bureaucracy
c. Professional Bureaucracy
d. Diversified Form
e. Adhocracy
Source: Mintzberg, Henry, Structuring of Organizations, 1st, © 1979. Electronically reproduced by permission of Pearson Education, Inc., Upper Saddle River, New Jersey.
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art 1 : Introduction to O
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Chapter 1: Organizations and Organization Theory 29
This difference is related to the differences in size, goals, and other characteristics of the organization.
1. Entrepreneurial Structure. The organization with an entrepreneurial structure, as shown in Exhibit 1.7(a), is typically a new, small start-up company. It consists mainly of a top manager and workers in the technical core. The organization is managed and coordinated by direct supervision from the top rather than by middle managers or support departments. Top management is the key part of the structure. Few support staff are needed. The primary goal of the organiza- tion is to survive and become established in its industry. There is little formaliza- tion or specialization. This form is suited to a dynamic environment because the simplicity and flexibility enable it to maneuver quickly and compete successfully with larger, less adaptable organizations.
2. Machine Bureaucracy. The machine bureaucracy in Exhibit 1.7(b) is very large, typically mature, and the technical core is often oriented to mass production. It has fully elaborated technical and administrative departments, including engi- neers, market researchers, and financial analysts who scrutinize, routinize, and formalize work in the high-volume production center. The narrow middle man- agement area reflects the tall hierarchy for control. This form reflects extensive formalization and specialization, with a primary goal of efficiency. This form is suited to a simple, stable environment. It would not do well in a dynamic envi- ronment because the bureaucracy is not adaptable.
3. Professional Bureaucracy. The distinguishing feature of the professional bureau- cracy in Exhibit 1.7(c) is the size and power of the technical core, which is made up of highly skilled professionals, such as in hospitals, universities, law firms, and consulting firms. The technical support staff is small or nonexistent, because professionals make up the bulk of the organization. A large administrative sup- port staff is needed to support the professionals and handle the organization’s routine administrative activities. The primary goals are quality and effectiveness, and although there is some specialization and formalization, professionals in the technical core have autonomy. Professional organizations typically provide services rather than tangible goods, and they exist in complex environments.
4. Diversified Form. Organizations with a diversified form are mature firms that are extremely large and are subdivided into product or market groups, as shown in Exhibit 1.7(d). There is a relatively small top management and a small technical support group for the top level. There is a larger administrative support staff to handle paperwork to and from the divisions. In the exhibit, four independent divisions are shown below the headquarters, and the bulge across the middle indicates that middle management is key. Each of the independent divisions illustrates a machine bureaucracy with its own technical and administrative sup- port staff, but on occasion a division may resemble the entrepreneurial structure, professional bureaucracy, or even adhocracy. The diversified form helps to solve the problem of inflexibility experienced by a too-large machine bureaucracy by dividing it into smaller parts.
5. Adhocracy. The adhocracy develops in a complex, rapidly changing environ- ment. The design goal is frequent innovation and meeting continually changing needs, as in the aerospace and defense industries. Exhibit 1.7(e) shows the vari- ous parts (middle management, technical, and administrative support) merged together into an amorphous mass in the middle. The main structure consists of many overlapping teams rather than a vertical hierarchy. Adhocracies are
Briefcase As an organization manager, keep these guidelines in mind:
When designing an organization, consider five basic parts— technical core, technical support, administra- tive support, top man- agement, and middle management—and how they work together for maximum organizational effec- tiveness. Design the organization to fit one of Mintzberg’s five organizational types.
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