Organization theory and design 2nd edition pdf

Organization Theory & Design 12e

Richard L. Daft Vanderbilt University

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iii

About the Author

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

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

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

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v

Brief Contents

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

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

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

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

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

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

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

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vii

Contents

Preface xv

Part 1 Introduction to Organizations 1

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

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

Organization Design in Action 6

Topics, 7

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

Current Challenges, 9 • Purpose of This Chapter, 12

What Is an Organization? 13

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

In PraCtICe: Harley-Davidson 16

Dimensions of Organization Design 17

Structural Dimensions, 18

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

Contingency Factors, 20

In PraCtICe: Valve Software 21

Performance and Effectiveness Outcomes, 23

The Evolution of Organization Design 24

Historical Perspectives, 25

How Do You FIt tHe DesIgn? Evolution of Style 26

It All Depends: Key Contingencies, 28

The Contrast of Organic and Mechanistic Designs 29

Contemporary Design Ideas: Radical Decentralization 31

In PraCtICe: Morning Star 31

Framework for the Book 32

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

Design Essentials 35

Chapter 1 workshop: Measuring Dimensions of Organizations 37

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

Part 2 Organization Purpose and Structural Design 45

Chapter 2: Strategy, Organization Design, and Effectiveness 46

Purpose of This Chapter, 47

The Role of Strategic Direction in Organization Design 48

Organizational Purpose 51

Strategic Intent, 51

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

In PraCtICe: Amazon 54

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

In PraCtICe: Bloomberg LP 57

The Importance of Goals, 58

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viii Contents

Two Frameworks for Selecting Strategy and Design 59

Porter’s Competitive Strategies, 60

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

In PraCtICe: Allegiant Travel Company 63

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

Assessing Organizational Effectiveness 67

Definition, 67 • Who Decides?, 68

Four Effectiveness Approaches 69

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

In PraCtICe: BNSF Railway 73

Strategic Constituents Approach, 73

An Integrated Effectiveness Model 75

In PraCtICe: Samsung Group 78

Design Essentials 78

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

Parts & Services 82

Chapter 3: Fundamentals of Organization Structure 86

Purpose of This Chapter, 88

Organization Structure 88

Information-Sharing Perspective on Structure 90

Centralized Versus Decentralized, 90

Bookmark 3.0: The Future of Management 91

In PraCtICe: Toyota 92

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

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

Relational Coordination, 99

In PraCtICe: Southwest Airlines 100

Organization Design Alternatives 101

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

Functional, Divisional, and Geographic Designs 104

Functional Structure, 104

In PraCtICe: Narayana Hrudayalaya Hospital 105

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

In PraCtICe: Microsoft 109

Geographic Structure, 109

Matrix Structure 111

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

In PraCtICe: Englander Steel 114

Horizontal Structure 116

Characteristics, 117

In PraCtICe: GE Salisbury 118

Strengths and Weaknesses, 119

Virtual Networks and Outsourcing 120

How the Structure Works, 121

In PraCtICe: Sandy Springs, Georgia 121

Strengths and Weaknesses, 122

Hybrid Structure 124

Applications of Structural Design 126

Structural Alignment, 126 • Symptoms of Structural Deficiency, 127

Design Essentials 128

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

Part 3 Open System Design Elements 139

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

The Organization’s Environment 142

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

In PraCtICe: Richard Ginori 146

The Changing Environment 146

Complexity, 147 • Dynamism, 148

In PraCtICe: Fujifilm Holding Corporation 148

Framework, 149

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

Adapting to Complexity and Dynamism 152

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

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Contents ix

How Do You FIt tHe DesIgn? Mind and Environment 157

Planning, Forecasting, and Responsiveness, 158

Framework for Adapting to Complexity and Dynamism 159

Dependence on Financial Resources 160

Influencing Financial Resources 161

Establishing Formal Relationships, 161

In PraCtICe: Omnicom and Publicis 162

Influencing Key Sectors, 164

In PraCtICe: Amazon and Walmart 164

In PraCtICe: Huawei Technologies 165

Organization–Environment Integrative Framework 167

Design Essentials 168

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

and Omega Electronics 171

Chapter 5: Interorganizational Relationships 178

Purpose of This Chapter, 180

Organizational Ecosystems 180

Is Competition Dead?, 181

In PraCtICe: Apple and Samsung 183

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

Resource Dependence 185

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

In PraCtICe: Facebook 188

Collaborative Networks 188

How Do You FIt tHe DesIgn? Personal Networking 189

Why Collaboration?, 189

In PraCtICe: Accelerating Medicines Partnership 191

From Adversaries to Partners, 191

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

Population Ecology 193

What Hinders Adaptation?, 194

In PraCtICe: Barnes & Noble Versus Amazon 194

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

Institutionalism 197

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

Design Essentials 202

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

Chapter 6: Designing Organizations for the International Environment 212

Purpose of This Chapter, 214

Entering the Global Arena 214

Motivations for Global Expansion, 215

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

In PraCtICe: Amway 218

Stages of International Development, 219

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

Global Expansion Through International Alliances and Acquisitions, 222

In PraCtICe: China’s International Expansion 223

The Challenges of Global Design 223

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

Designing Structure to Fit Global Strategy 228

Strategies for Global Versus Local Opportunities, 228

In PraCtICe: Panasonic 231

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

In PraCtICe: Colgate-Palmolive Company 235

Global Matrix Structure, 235

In PraCtICe: ABB Group 237

Additional Global Coordination Mechanisms 238

Global Teams, 238

In PraCtICe: L’Oréal 239

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

The Transnational Model of Organization 242

Design Essentials 246

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

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x Contents

Part 4 Internal Design Elements 257

Chapter 7: Manufacturing and Service Technologies 258

Purpose of This Chapter, 261

Core Organization Manufacturing Technology 262

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

Contemporary Applications 265

Trends, 266

In PraCtICe: Carnival Cruise Lines 266

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

The Smart Factory, 268 • Lean Manufacturing, 269

In PraCtICe: La-Z-Boy 270

Performance and Structural Implications, 272

Core Organization Service Technology 273

Service Firms, 273

How Do You FIt tHe DesIgn? Manufacturing Versus Service 276

In PraCtICe: Seattle Children’s Hospital 276

Designing the Service Organization, 277

In PraCtICe: Home Depot Inc. 278

Noncore Departmental Technology 279

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

In PraCtICe: Memorial Sloan-Kettering Cancer Center 282

Workflow Interdependence Among Departments 284

Types, 285

In PraCtICe: Southwest Airlines 287

Structural Priority, 288 • Structural Implications, 288

In PraCtICe: Athletic Teams 289

Sociotechnical Systems 290

Design Essentials 292

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

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

Purpose of This Chapter, 306

Information Technology Evolution 306

The Philosophy and Focus of Control Systems 308

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

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

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

In PraCtICe: University of Tennessee Medical Center 316

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

Facilitating Employee Coordination and Efficiency 318

Knowledge Management, 318 • Social Network Analysis, 320

Adding Strategic Value 322

Social Business, 323

In PraCtICe: General Motors 323

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

In PraCtICe: Caesars Entertainment 330

Impact on Organization Design 331

Design Essentials 332

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

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

Purpose of This Chapter, 344

Organization Size: Is Bigger Better? 344

Pressures for Growth, 344

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

Dilemmas of Large Size, 346

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

In PraCtICe: Dell Inc. 350

Organizational Life Cycle 350

Stages of Life-Cycle Development, 350

In PraCtICe: Google 354

Organizational Characteristics During the Life Cycle, 354

Organizational Size, Bureaucracy, and Control 355

What Is Bureaucracy?, 356

In PraCtICe: United Parcel Service (UPS) 357

Size and Structural Control, 358

Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Contents xi

Bureaucracy in a Changing World 360

Organizing Temporary Systems, 361

In PraCtICe: Salvation Army 361

Other Approaches to Busting Bureaucracy, 362

Bureaucracy Versus Other Forms of Control 363

Bureaucratic Control, 363

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

Market Control, 365 • Clan Control, 366

In PraCtICe: Menlo Innovations, FAVI 367

Organizational Decline and Downsizing 368

Definition and Causes, 368

In PraCtICe: Eastman Kodak 369

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

Design Essentials 373

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

Part 5 Managing Dynamic Processes 383

Chapter 10: Organizational Culture and Ethical Values 384

Purpose of This Chapter, 386

Organizational Culture 386

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

In PraCtICe: Billtrust 388

Interpreting Culture, 389

Organization Design and Culture 393

The Adaptability Culture, 394

In PraCtICe: Zappos 394

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

How Do You FIt tHe DesIgn? Corporate Culture Preference 397

In PraCtICe: Pitney Bowes Credit Corporation 397

Constructive Culture, Learning, and Performance 398

In PraCtICe: Box 398

Ethical Values and Social Responsibility 400

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

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

Does It Pay to Be Good?, 405

How Managers Shape Culture and Ethics 405

Values-Based Leadership, 406

In PraCtICe: Costco 407

Formal Structure and Systems, 408

Corporate Culture and Ethics in a Global Environment 410

Design Essentials 411

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

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

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

The Strategic Role of Change 422

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

In PraCtICe: Elkay Manufac turing 425

Elements for Successful Change 426

Technology Change 428

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

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

In PraCtICe: Taco Bell and Frito-Lay 431

Techniques for Encouraging Technology Change, 432

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

New Products and Services 435

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

In PraCtICe: Corning, Inc. 439

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

Strategy and Structure Change 441

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

In PraCtICe: GlaxoSmith Kline 444

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xii Contents

In PraCtICe: Zappos 445

Culture Change 445

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

In PraCtICe: United Health Group 448

Strategies for Implementing Change 449

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

Design Essentials 453

Chapter 11 workshop: Innovation Climate 454 Case for analysis: Shoe Corporation of Illinois 456 Case for analysis: Southern Discomfort 460

Chapter 12: Decision-Making Processes 466

Purpose of This Chapter, 468

Types of Decisions 468

In PraCtICe: McDonald’s 469

Individual Decision Making 470

Rational Approach, 471

In PraCtICe: Saskatchewan Consulting 473

Bounded Rationality Perspective, 474

How Do You FIt tHe DesIgn? Making Important Decisions 477

Bookmark 12.0: Blink: The Power of Thinking without Thinking 479

Organizational Decision Making 480

Management Science Approach, 480 • Carnegie Model, 482

In PraCtICe: The New York Times 482

Incremental Decision Model, 484

In PraCtICe: Ford Motor Company 485

Organizational Decisions and Change 488

Combining the Incremental and Carnegie Models, 488 • Garbage Can Model, 488

In PraCtICe: Nike 492

Contingency Decision-Making Framework 493

Problem Consensus, 493 • Technical Knowledge about Solutions, 494 • Contingency Framework, 494

Special Decision Circumstances 497

High-Velocity Environments, 497 • Decision Mistakes and Learning, 498 • Cognitive Biases, 499 • Overcoming Cognitive Biases, 500

Design Essentials 501

Chapter 12 workshop: Do Biases Influence Your Decision Making? 503

Case for analysis: Cracking the Whip 504 Case for analysis: Medici Mediterranean Restaurant 505 answers to Questions in “workshop” 506

Chapter 13: Conflict, Power, and Politics 512 Purpose of This Chapter, 514

Interdepartmental Conflict in Organizations 514

Sources of Conflict, 515

In PraCtICe: The U.S. Military 518

Rational Versus Political Model, 518 • Tactics for Enhancing Collaboration, 520

In PraCtICe: The Freaky Friday Management Technique 522

Power and Organizations 523

Individual Versus Organizational Power, 524 • Power Versus Authority, 524 • Vertical Sources of Power, 525 • The Power of Empowerment, 529

In PraCtICe: Morning Star 530

Horizontal Sources of Power, 530

In PraCtICe: International Alliance of Theatrical Stage Employees 533

In PraCtICe: Carilion Health System 535

Political Processes in Organizations 536

Definition, 536 • When to Use Political Activity, 537

Using Soft Power and Politics 538

How Do You FIt tHe DesIgn? Political Skills 539

Tactics for Increasing Power, 540 • Political Tactics for Using Power, 541

In PraCtICe: The Vatican 541

Bookmark 13.0: Influence: Science and Practice 543

In PraCtICe: World Bank 544

Design Essentials 544

Chapter 13 workshop: How Do You Handle Conflict? 546 Case for analysis: The Daily Tribune 547 Case for analysis: The New Haven Initiative 548

Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Contents xiii

Integrative Cases 553

1.0 W. L. Gore—Culture of Innovation 555 2.0 Rondell Data Corporation 565 3.0 IKEA: Scandinavian Style 572 4.0 Engro Chemical Pakistan Limited—Restructuring the

Marketing Division 576 5.0 First Union: An Office Without Walls 588 6.0 Lean Initiatives and Growth at Orlando Metering

Company 591

7.0 Sometimes a Simple Change Isn’t So Simple 600 8.0 Costco: Join the Club 605 9.0 The Donor Services Department 608 10.0 Cisco Systems: Evolution of Structure 612 11.0 Hartland Memorial Hospital (A): An Inbox

Exercise 616 12.0 Disorganization at Semco: Human Resource Practices

as a Strategic Advantage 625

Glossary 635

Name Index 646

Corporate Name Index 657

Subject Index 661

Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

xv

Preface

My vision for the Twelfth Edition of Organization Theory and Design is to integrate current organization design problems with significant ideas and theories in a way that is engaging and enjoyable for students. There is an average of 37 new citations per chapter for new findings and examples that make the Twelfth Edition current and applicable for students. In addition, significant elements of this edition include “Managing by Design Questions” and “How Do You Fit the Design?” boxes, along with updates to every chapter that incorporate the most recent ideas, new case examples, new book reviews, and new end-of-book integrative 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 models 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 twelfth 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 Twelfth Edition uses “Managing by Design Questions” at the start of each chapter. These questions immediately engage students in thinking and expressing their beliefs and opinions about organization design concepts. Another 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 include new “BookMarks,” new “In Practice” examples, new end-of-chapter cases, and new integrative cases for student analysis. The total set of features substantially expands and improves the book’s content and accessibility. These multiple pedagogical 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 preferences to quickly provide feedback about how they fit particular organizations or situations. For example, questionnaire topics include “What Is Your Cultural Intelligence?” “Your Strategy Strength,” “Are You Ready to Fill an International Role?” “Corporate Culture Preference,” “Is Goal-Setting Your Style?” “Making Important Decisions,”

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xvi Preface

and “Personal Networking.” These short feedback questionnaires connect the student’s personal preferences to chapter material to heighten interest and show the relevance of chapter concepts.

managing by Design Questions. Each chapter 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 that is relevant to the questions. Example questions, which ask students to agree or disagree, include:

A certain amount of conflict is good for an organization. The best measures of business performance are financial. Savvy organizations should encourage managers to use Twitter. A CEO’s top priority is to make sure the organization is designed correctly. Managers should use the most objective, rational process possible when making a decision.

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 organizations align with the world of organizations.

Bookmarks. “BookMarks” are short book reviews that reflect current issues of concern for managers working in real-life organizations. These reviews, which represent a unique feature of this text, describe the varied ways companies are dealing with the challenges of today’s changing environment. New “BookMarks” in the Twelfth Edition include Great by Choice: Uncertainty, Chaos, and Luck—Why Some Thrive Despite Them All, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, Conscious Capitalism: Liberating the Heroic Spirit of Business, and Creativity Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration.

In Practice. This edition contains many new “In Practice” examples that illustrate theoretical concepts in organizational settings. Many examples are international, and all are based on real organizations. There are 50 new “In Practice” cases used within chapters, including Fujifilm Holding Corporation, Carnival Cruise Lines, Omnicom and Publicis, Amway, Harley Davidson, Morning Star, Valve Software, Amazon, the Freaky Friday Management Technique, Bloomberg PLC, Apple, Taco Bell and Frito Lay, L’Oreal, the U.S. Military, Box, BNSF Railway, Toyota Motor Corporation, Royal Dutch Shell PLC, United Health Group, Allegiant Travel, The Vatican, Nike, Richard Ginori, Caesar’s Entertainment, International Alliance of Theatrical Stage Employees, Dell, Town of Sandy Springs, Georgia, Panasonic, Zappos, and Narayana Hrudayalaya Hospital.

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.

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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 and design.

Case for analysis. These cases are tailored to chapter concepts and provide a vehicle for student analysis and discussion. New cases for analysis include “It Isn’t So Simple: Infrastructure Change at Royce Consulting,” “The Venable Museum of Art,” “CPI Corporation: What Happened?,” “AV Corporate: Software Tool Project,” “Yahoo: Get to Work!,” “The Boys Versus Corporate,” and “Medici Mediterranean Restaurant.”

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 W. L. Gore—Culture of Innovation, Engro Chemical Pakistan Limited: Restructuring the Marketing Division, Sometimes a Simple Change Isn’t So Simple, Rondell Data Corporation, and Disorganization at Semco: Human Resource Practices as a Strategic Advantage. Previous cases that have been retained include IKEA: Scandinavian Style, First Union: An Office Without Walls, Lean Initiatives and Growth at Orlando Metering Company, Costco: Join the Club, The Donor Services Department, Cisco Systems: Evolution of Structure, and Hartland Memorial Hospital.

new Concepts Many concepts have been added or expanded in this edition. New material has been added on the increasing complexity of the organizational environment, social business, goal conflict and the hybrid organization, big data analytics, the green movement and sustainability, the need for collaboration, social network analysis, quasirationality, manager decision-making biases, stages of disruptive innovation, the smart factory and trends in manufacturing, innovation contests and crowdsourcing, types of resource-dependent relationships, radical decentralization and bossless organization design, conscious capitalism, and global teams as a way to resolve the tension between a need for global uniformity and a need for local responsiveness.

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 questionnaires, case illustrations, experiential exercises, and other teaching devices is designed to meet student learning needs, and students have responded favorably.

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

xviii Preface

supplements Companion website. Access important teaching resources on the companion website. For your convenience, you can download electronic versions of the instructor supplements at the password-protected section of the site, including the Instructor’s Manual, Test Bank, and PowerPoint presentations.

To access these additional course materials and companion resources, please visit www.cengagebrain.com. At the CengageBrain.com home page, search for the ISBN of your title (from the back cover of your book) using the search box at the top of the page. This will take you to the product page where free companion resources can be found.

Instructor’s manual. The Instructor’s Manual contains chapter overviews, chap- ter outlines, lecture enhancements, discussion questions, discussion of activities, dis- cussion of chapter cases, and case notes for integrative cases.

Cognero test Bank. The Cognero Test Bank contains easy-to-use test creation software. Instructors can add or edit questions, instructions, and answers and can select questions (randomly or numerically) by previewing them on the screen. Instructors can also create and administer quizzes online.

PowerPoint Lecture Presentation. The PowerPoint Lecture Presentation enables instructors to customize their own multimedia classroom presentations. Prepared in conjunction with the text and instructor’s resource guide, the package contains approximately 150 slides. It includes exhibits 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.

experiential exercises in organization theory and Design, second edition. By H. Eugene Baker III and Steven K. Paulson of the University of North Florida.

Tailored to the table of contents in Daft’s Organization Theory and Design, Twelfth 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 principles 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 questionnaires to actual creative production activities.

acknowledgments Textbook writing is a team enterprise. The Twelfth 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.

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Preface xix

David Ackerman University of Alaska, Southeast

Kristin Backhaus SUNY New Paltz

Michael Bourke Houston Baptist University

Suzanne Clinton Cameron University

Pat Driscoll Texas Woman’s University

Jo Anne Duffy Sam Houston State University

Cheryl Duvall Mercer University

Allen D. Engle, Sr. Eastern Kentucky University

Patricia Feltes Missouri State University

Robert Girling Sonoma State University

Yezdi H. Godiwalla University of Wisconsin-Whitewater

John A. Gould University of Maryland

George Griffin Spring Arbor University

Leda McIntyre Hall Indiana University, South Bend

Ralph Hanke Pennsylvania State University

Bruce J. Hanson Pepperdine University

Thomas Head Roosevelt University

Patricia Holahan Stevens Institute of Technology

Jon Kalinowski Minnesota State University, Mankato

Guiseppe Labianca Tulane University

Jane Lemaster University of Texas–Pan American

Kim Lukaszewski SUNY New Paltz

Steven Maranville University of Saint Thomas

Rick Martinez Baylor University

Ann Marie Nagye Mountain State University

Janet Near Indiana University

Julie Newcomer Texas Woman’s University

Frank Nolan Liberty University

Asbjorn Osland George Fox University

Laynie Pizzolatto Nicholls State University

Paula Reardon State University of New York, Delhi

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

Marjorie Smith Mountain State University

R. Stephen Smith Virginia Commonwealth University

Filiz Tabak Towson University

Thomas Terrell Coppin State College

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xx Preface

Jack Tucci Southeastern Louisiana University

Renee Tyre Wilmington University

Isaiah Ugboro North Carolina A&T State University

Warren Watson University of North Texas

Richard Weiss University of Delaware

Judith White Santa Clara University

Jan Zahrly University of North Dakota

Among my professional colleagues, I am grateful to my friends and colleagues at Vanderbilt’s Owen School—Bruce Barry, Rich Oliver, David Owens, Ty Park, Ranga Ramanujam, and Bart Victor—for their intellectual stimulation and feedback. I also owe a special debt to Dean Eric Johnson and Associate Dean Sal March 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 skillfully 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 Twelfth Edition to continue its high level of excellence. I also thank DeeGee Lester for her work drafting new end-of-chapter and integrative cases. DeeGee’s creative writing skills brought to life key organizational issues that students will enjoy discussing and solving.

The team at Cengage Learning also deserves special mention. Scott Person did a great job of designing the project and offering ideas for improvement. Managing Content Developers Suzanne Wilder and Josh Wells were superb to work with and kept the people and project on schedule while solving problems creatively and quickly. Jennifer Ziegler and Joseph Malcolm, Project Managers, provided superb project coordination and used their creativity and management skills to facilitate the book’s on-time completion. Emily Horowitz, Marketing Manager; Kristen Hurd, Marketing Director; and Christopher Walz, Marketing Coordinator, offered additional support, creativity, and valuable market expertise.

Finally, I want to acknowledge the love and support of my daughters, Danielle, Amy, Roxanne, Solange, and Elizabeth, and my new grandson, Nelson, who make my life special during our precious time together.

Richard L. Daft Nashville, Tennessee January 2015

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Introduction to Organizations Chapter 1 Organizations and Organization Design

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a Look Inside Xerox Corporation What Went Wrong? • Entering the Digital Era • The Culture Problem • Shaking Up a Century-Old Company • “We No Longer Make Copiers”

Organization Design 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 • Contingency Factors • Performance and Effectiveness Outcomes

the Evolution of Organization Design Historical Perspectives • It All Depends: Key Contingencies

the Contrast of Organic and Mechanistic Designs

Contemporary Design Ideas: radical Decentralization Framework for the Book

Levels of Analysis • Plan of the Book • Plan of Each Chapter

Design Essentials

Learning Objectives after reading this chapter you should be able to: 1. Define an organization and the importance of

organizations in society. 2. Identify current challenges that organizations

face. 3. Understand how organization design concepts

apply to a major company like Xerox. 4. Recognize the structural dimensions of

organizations and the contingencies that influence structure.

5. Understand efficiency and effectiveness, and the stakeholder approach to measuring effectiveness.

6. Explain historical perspectives on organizations.

7. Explain the differences in organic and mechanistic organization designs and the contingency factors typically associated with each.

8. Discuss the current trend toward bossless organization design.

Organizations and Organization Design1

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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Chapter 1: Organizations and Organization Design 3

Before reading this chapter, please check whether you agree or disagree with each of the following statements:

1 an organization can be understood primarily by understanding the people who make it up. I agrEE I DIsagrEE

2 the primary role of managers in business organizations is to achieve maximum efficiency. I agrEE I DIsagrEE

3 a CEO’s top priority is to make sure the organization is designed correctly.I agrEE I DIsagrEE

a Look Inside Xerox Corporation Everyone has probably used the term Xerox to refer to copying pages. Xerox Cor- poration built its reputation on the copy machine. On the eve of the twenty-first century, Xerox seemed on top of the world, with fast-rising earnings, a soaring stock price, and a new line of computerized copier-printers that were techno- logically superior to rival products. Less than two years later, however, 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 rose to $18 billion.

• The company’s stock fell from a high of $64 to less than $4, amid fears that Xerox 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.

What Went Wrong?

The company’s deterioration is a classic story of organizational mistakes and decline. Although Xerox appeared to fall almost overnight, the organization’s prob- lems were connected to a series of organizational blunders over a period of many years.

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4 Part 1: Introduction to Organizations

Xerox was founded in 1906 as the Haloid Company, a photographic supply house that developed the world’s first xerographic copier, introduced in 1959. With- out 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 pho- tocopying. Yet, 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 tremen- dous money-making products and services.

Xerox’s 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 to- tal quality management. Through the strength of his leadership, CEO David 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 bil- lions of dollars in insurance liabilities.

Entering the Digital Era

Allaire wisely began a methodical, step-by-step plan for extricating Xerox from the insurance and financial services business. 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 desktop printer.

Desktop printing, combined with the increasing use of the Internet and e-mail, cut heavily into Xerox’s sales of copiers. People didn’t need to make as many photo- copies, but they still needed effective ways to create and share documents. Rebrand- ing 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 serv- ing 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’s chairman.

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Chapter 1: Organizations and Organization Design 5

the Culture Problem

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 manage- ment 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 traditional Xerox way. Recognized for his knowledge, business expe- rience, and intensity, Thoman was also considered to be somewhat haughty and unapproachable. He was never able to exert substantial influence with key manag- ers and employees or to gain the support of board members, who continued to rally behind Allaire.

The failed CEO succession illustrates the massive challenge of reinvent- ing a century-old company. By the time Thoman arrived, Xerox had been going through various rounds of restructuring, cost cutting, rejuvenating, and reinvent- ing for nearly two decades, but little had really changed. Some observers 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.”

shaking Up a Century-Old Company

In August 2001, Allaire turned over the CEO reins to Anne Mulcahy, a popular 24-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. She surprised skeptical analysts, stockholders, and employees by engineering one of the most extraordinary business turnarounds in recent history.

How did she do it? Few people thought Mulcahy would take the tough actions Xerox needed to survive, but she turned out to be a strong decision maker. She quickly launched a turnaround plan that included massive cost cutting and the closing of several money-losing operations, including the division she had previ- ously 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 and she gave them hope for a better future. People knew she was working hard to save the company. After major layoffs, Mulcahy 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. 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. In addition to introducing new products, Xerox moved into high-growth areas such as document management services,

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6 Part 1: Introduction to Organizations

IT consulting, and digital press technology. A series of small acquisitions enabled the company to enter new markets and expand its base of small and medium-sized business customers.

“We No Longer Make Copiers”

Mulcahy also thought carefully about succession plans, and in 2009 she handed the top job to her second-in-command, Ursula Burns, who became the first African- American woman to head a Fortune 500 company. Burns, like Mulcahy, spent de- cades climbing the ranks at Xerox, actually starting her career there as an intern before earning a master’s degree in engineering from Columbia University. Just as Xerox dominated the office of yesterday with its copiers, Burns set a new course to dominate the office of tomorrow. More than half of Xerox’s business now comes from services such as running electronic toll solutions on highways and bridges, processing insurance claims, and managing customer call centers. A services deal in trial mode with municipalities in California will give people a ping on their mobile phones saying “There’s a parking spot a block over” and then charge the appropri- ate amount, which enables cities to maximize parking fees during congested park- ing times. Sophie Vandebroek, Xerox’s chief technology officer, got tired of people ignoring the cool new technology at the Xerox booth at career fairs in favor of what was going on at the Google or IBM booths. So, a few years ago, she put up a sign that said “We no longer make copiers.” It got plenty of attention from people ask- ing, “So, what do you do?”