Schein's four key organizational culture factors

Major Questions You Should Be Able to Answer

8.1

Aligning Strategy, Culture, & Structure

Major Question: Why is it important for managers to align a company’s vision and strategies with its organizational culture and structure?

8.2

What Kind of Organizational Culture Will You Be Operating In?

Major Question: How do I find out about an organization’s “social glue,” its normal way of doing business?

8.3

The Process of Culture Change

Major Question: What can be done to an organization’s culture to increase its economic performance?

8.4

Organizational Structure

Major Question: How are for-profit, nonprofit, and mutual-benefit organizations structured?

8.5

The Major Elements of an Organization

Major Question: When I join an organization, what seven elements should I look for?

8.6

Basic Types of Organizational Structures

Major Question: How would one describe the seven organizational structures?

8.7

Contingency Design: Factors in Creating the Best Structure

Major Question: What factors affect the design of an organization’s structure?

Page 225the manager’s toolbox

How to Stand Out in a New Job: Fitting into an Organization’s Culture in the First 60 Days

“Once you are in the real world—and it doesn’t make any difference if you are 22 or 62, starting your first job or your fifth,” say former business columnists Jack and Suzy Welch, “the way to look great and get ahead is to overdeliver.” 1

Overdelivering means doing more than what is asked of you—not just doing the report your boss requests, for example, but doing the extra research to provide him or her with something truly impressive.

Among things you should do in the first 60 days: 2

Be Aware of the Power of First Impressions

Within three minutes of meeting someone new, people form an opinion about where the future of the relationship is headed, according to one study. 3 “When meeting someone for the first time, concentrate on one thing: your energy level,” advises one CEO, who thinks that seven seconds is all the time people need to start making up their minds about you. Amp it up, he advises. “If you don’t demonstrate energetic attitude on your first day, you’re already screwing up.” 4 (However, don’t be too upset if you feel you’ve blown it with someone on the first meeting. What’s key is to make sure you have other chances to meet that person again so that you can show different sides of yourself. 5 )

Come in 30 Minutes Early & Stay a Little Late to See How People Behave

“Many aspects of a company’s culture can be subtle and easy to overlook,” writes one expert. “Instead, observe everything.” Thus, try coming in early and staying a little late just to observe how people operate—where they take their lunches, for example.

Get to Know Some People & Listen to What They Have to Say

“You’ve got to realize that networking inside a company is just as important as when you were networking on the outside trying to get in,” says a business consultant. 6 During the first two weeks, get to know a few people and try to have lunch with them. Find out how the organization works, how people interact with the boss, what the corporate culture encourages and discourages. Walk the halls and get to know receptionists, mail room clerks, and office managers, who can help you learn the ropes. Your role here is to listen, rather than to slather on the charm. Realize that you have a lot to learn. 7

Make It Easy for Others to Give You Feedback

Ask your boss, coworkers, and subordinates to give you feedback about how you’re doing. Be prepared to take unpleasant news gracefully. 8 At the end of 30 days, have a “How am I doing?” meeting with your boss.

Overdeliver

Because performance reviews for new hires generally take place at 60 to 90 days, you need to have accomplished enough—and preferably something big—to show your boss your potential. In other words, do as the Welches suggest: overdeliver.

For Discussion How does the foregoing advice square with your past experiences in starting a new job? Are there things you wish you could have done differently?

We consider organizational cultures and organizational structures, and how they should be aligned to help coordinate employees in the pursuit of organization’s strategic goals. We then consider the three types of organizations and seven basic characteristics of an organization. We next discuss seven types of organizational structures. Finally, we look at five factors that should be considered when one is designing the structure of an organization.

Page 226

Aligning Strategy, Culture, & Structure

Why is it important for managers to align a company’s vision and strategies with its organizational culture and structure?

THE BIG PICTURE

The study of organizing, the second of the four functions in the management process, begins with the study of organizational culture and structure, which managers must determine so as to implement a particular strategy. Organizational culture consists of the set of shared, taken-for-granted implicit assumptions that a group holds in the workplace. Organizational structure describes who reports to whom and who does what.

“What’s your favorite movie?” the job interviewer asks you. “Your favorite website?” “What’s the last book you read for fun?” “What makes you uncomfortable?”

These are the four most frequently asked interview questions used by hiring managers, according to a survey involving 285,000 kinds of interview questions. 9 For you as a job applicant, these questions might not seem to have much to do with your performance in previous jobs. Rather, they are designed to see whether you will fit in with the company’s culture, or organizational culture, as we’ll explain. 10

What Does It Mean to “Fit”? Anticipating a Job Interview

The kind of fit we are concerned with here is what is called person-organization fit, which reflects the extent to which your personality and values match the climate and culture in an organization.

A good fit of this kind is important because it is associated with more positive work attitudes and task performance, lower stress, and fewer expressions of intention to quit (“I’m gonna tell em, ‘Take this job and . . .’”). 11 How well an applicant will fit in with the institution’s organizational culture is considered a high priority by many interviewers. Indeed, more than 50% of the evaluators in one study considered “fit” to be the most important criterion of the interview process. 12

How can you determine how well you might fit in before you go into a job interview? You should write down your strengths, weaknesses, and values—and then do the same for the organization you’re interviewing with, by researching it online and talking with current employees. You can then prepare questions to ask the interviewer about how well you might fit.

Example: If being recognized for hard work is important to you, ask the interviewer how the company rewards performance. If the answer doesn’t show a strong link between performance and rewards (“Well, we don’t really have a policy on that”), you’ll probably have a low person-organization fit and won’t be happy working there.

How an Organization’s Culture & Structure Are Used to Implement Strategy

How employees fit into an organization’s culture is important to the larger picture of that organization’s strategy. Strategy, as we saw in Chapter 6 , consists of the large-scale action plans that reflect the organization’s vision and are used to set the direction for the organization. To implement a particular strategy, managers must determine Page 227the right kind of (1) organizational culture and (2) organizational structure. Let’s consider these terms.

Organizational Culture: The Shared Assumptions That Affect How Work Gets Done We described the concept of culture in Chapter 4 on global management as “the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people.” Here we are talking about a specific kind of culture called an organizational culture.

According to scholar Edgar Schein, organizational culture, sometimes called corporate culture, is defined as the set of shared, taken-for-granted implicit assumptions that a group holds and that determines how it perceives, thinks about, and reacts to its various environments. 13 These are the beliefs and values shared among a group of people in the workplace that are passed on to new employees by way of socialization and mentoring, which significantly affect work outcomes at all levels. 14 This is the “social glue” that binds members of the organization together. Just as a human being has a personality—fun-loving, warm, uptight, competitive, or whatever—so an organization has a “personality,” too, and that is its culture.

The culture helps employees understand why the organization does what it does and how it intends to accomplish its long-term goals. 3M sets expectations for innovation, for example, by having an internship and co-op program, which provides 30% of the company’s new college hires.

Culture can vary considerably, with different organizations having differing emphases on risk taking, treatment of employees, teamwork, rules and regulations, conflict and criticism, and rewards. And the elements that drive an organization’s culture also vary. They may represent the values of the founder, the industry and business environment, the national culture, the organization’s vision and strategies, and the behavior of leaders. (See Table 8.1 .)

We thoroughly discuss organizational culture in Sections 8.2 and 8.3 .

TABLE 8.1 What Drives an Organizational Culture?

Organizational Structure: Who Reports to Whom & Who Does What Organizational structure is a formal system of task and reporting relationships that coordinates and motivates an organization’s members so that they can work together to achieve the organization’s goals. As we describe in Sections 8.4 – 8.6 , organizational structure is concerned with who reports to whom and who specializes in what work.

Whether an organization is for-profit or nonprofit, the challenge for top managers is to align the organization’s vision and strategies with its organizational culture and organizational structure, as shown in the two orange boxes in the drawing below. (See Figure 8.1 .)

FIGURE 8.1 Drivers and flow of organizational culture

Figure 8.1 shows that the consistency among these elements in turn impacts (see the three green boxes) group and social processes (discussed in Chapters 13 – 15 ), individual work attitudes and behaviors (discussed in Chapters 11 – 12 ), and the organization’s overall performance. As you can see from the diagram, consistency across strategy, culture, and structure leads to higher performance.

Page 228

EXAMPLE

How Strategy Affects Culture & Culture Affects Structure: EndoStim, a Medical Device Start-up, Operates Virtually

Nowadays a firm can be completely international. An example is the medical device start-up EndoStim, nominally based in St. Louis but operating everywhere.

The company, reports New York Times columnist Thomas Friedman, came together as a result of some chance encounters: 15 Cuban immigrant Raul Perez, a physician, came to St. Louis, where he met Dan Burkhardt, a local investor, with whom he began making medical investments. Perez also suffered from acid reflux (abnormal heartburn caused by stomach acid rising in the esophagus) and went to Arizona for treatment by an Indian-American physician, V. K. Sharma. During the visit, Sharma proposed an idea for a pacemaker-like device to control the muscle that would choke off acid reflux.

The Strategy: Creating a New Medical Device. Perez, Burkhardt, and Sharma all agreed they wanted to build such an electrical-stimulation device. They joined forces with South Africa–born Bevil Hogg, a founder of Trek Bicycle Corporation, who became the CEO of the company they named EndoStim and who helped to raise initial development funds. This strategy then began to dictate who they had to work with, which in turn influenced the company’s culture and structure.

The Culture: An International “Adhocracy.” To advance their strategy of building the device, the four principals recruited two Israelis, a medical engineer and a gastroenterologist. The Israelis collaborated with a Seattle engineering team to develop the design. A company in Uruguay specializing in pacemakers was lined up to build the EndoStim prototype. It was arranged for the clinical trials to be conducted in India and Chile. How much more international can you get?

Thus, the culture of the company could be called an adhocracy, which (as we’ll describe a little later in the chapter) is a risk-taking culture that values flexibility and creativity and that is focused on developing innovative products.

The Structure: A Virtual, Boundaryless Company. As a very lean start-up operating all over the world, with the principals rarely in the same office at the same time, EndoStim is clearly very different from, say, the usual top-down organization operating in one locality. To access the best expertise and high-quality materials and obtain low-cost manufacturing anywhere around the globe, EndoStim thus was forced to take advantage of all the technological tools—teleconferencing, e-mail, the Internet, and faxes—to maintain communications.

This EndoStim structure, then, is that of a virtual, boundaryless organization—virtual, because its members are operating geographically apart, connected by electronic means, and boundaryless, because the members (whether coworkers or suppliers) come together in fluid, flexible ways on an as-needed basis. We describe these structures further in another few pages.

YOUR CALL

Are you comfortable enough to work in a virtual, boundaryless organization? Many people like the social interaction that comes with working in a physical office with other people. Others, however, are turned off by the office game playing and time-wasting activities that seem to be a necessary concomitant. They welcome the opportunity to do task-oriented work in a makeshift home office, occasionally having to cope with loneliness and restlessness. Which would you favor?

Culture of risk. At Pfizer Inc., a Connecticut pharmaceutical company, drug discovery is a high-risk, costly endeavor in which hundreds of scientists screen thousands of chemicals against specific disease targets, but 96% of these compounds are ultimately found to be unworkable. The culture, then, is one of managing failure and disappointment, of helping drug researchers live for small victories.

Page 229

What Kind of Organizational Culture Will You be Operating In?

How do I find out about an organization’s “social glue,” its normal way of doing business?

THE BIG PICTURE

Organizational cultures can be classified into four types: clan, adhocracy, market, and hierarchy. Organizational culture appears as three layers: observable artifacts, espoused values, and basic assumptions. Culture is transmitted to employees in symbols, stories, heroes, and rites and rituals.

Want to get ahead in the workplace but hate the idea of “office politics”?

Probably you can’t achieve the first without mastering the second. Although hard work and talent can take you a long way, “there is a point in everyone’s career where politics becomes more important,” says management professor Kathleen Kelley Reardon. You have to know the political climate of the company you work for, says Reardon, who is author of The Secret Handshake and It’s All Politics. 16 “Don’t be the last person to understand how people get promoted, how they get noticed, how certain projects come to attention. Don’t be quick to trust. If you don’t understand the political machinations, you’re going to fail much more often.” 17

A great part of learning to negotiate the politics—that is, the different behavioral and psychological characteristics—of a particular office means learning to understand the organization’s culture. The culture consists not only of the slightly quirky personalities you encounter but also all of an organization’s normal way of doing business, as we’ll explain.

Four Types of Organizational Culture: Clan, Adhocracy, Market, & Hierarchy

According to one common methodology known as the competing values framework, organizational cultures can be classified into four types: (1) clan, (2) adhocracy, (3) market, and (4) hierarchy. 18 (See Figure 8.2 .)

FIGURE 8.2 Competing values framework

Adapted from K.S. Cameron, R.E. Quinn, J. Degraff, and A.V. Thakor, Competing Values Leadership (Northampton, MA: Edward Elgar, 2006)., p. 32.

Page 2301. Clan Culture: An Employee-Focused Culture Valuing Flexibility, Not Stability A clan culture has an internal focus and values flexibility rather than stability and control. Like a family-type organization, it encourages collaboration among employees, striving to encourage cohesion through consensus and job satisfaction and to increase commitment through employee involvement. Clan organizations devote considerable resources to hiring and developing their employees, and they view customers as partners.

Southwest Airlines is a good example of a company with a clan culture. So is online shoe seller Zappos, which encourages managers to spend 10%–20% of their off-work hours with employees. 19

2. Adhocracy Culture: A Risk-Taking Culture Valuing Flexibility An adhocracy culture has an external focus and values flexibility. As we saw with EndoStim in the Example box, this type of culture attempts to create innovative products by being adaptable, creative, and quick to respond to changes in the marketplace. Employees are encouraged to take risks and experiment with new ways of getting things done. Adhocracy cultures are well suited for start-up companies, those in industries undergoing constant change, and those in mature industries that are in need of innovation to enhance growth.

W. L. Gore, maker of Gore-Tex outerwear, is an example of a company with an adhocracy culture. So was Google once, but now it has grown and the enterprise is struggling to avoid losing its adhocracy “Googliness.” In earlier times, all Google engineers were urged to spend 20% of their time on personal projects. As the company grew, however, senior managers concluded that letting thousands of employees work on whatever they wanted would lead to disarray, so now newly hired engineers are forced to wait a while before beginning their passion pursuits. 20

3. Market Culture: A Competitive Culture Valuing Profits over Employee Satisfaction A market culture has a strong external focus and values stability and control. Because market cultures are focused on the external environment and driven by competition and a strong desire to deliver results, customers, productivity, and profits take precedence over employee development and satisfaction. Employees are expected to work hard, react fast, and deliver quality work on time; those who deliver results are rewarded.

Kia Motors, which fires executives who don’t meet their sales goals, is an example of a company with a very aggressive and competitive market culture. 21 Sometimes the culture can be stretched too far: For instance, some Wall Street firms, such as Citgroup Inc., are reported to have such a strong perform-or-die culture—in which executives are pushed to maximize profits and are quickly fired if they fail to deliver—that it is difficult to find talent to promote from within when chief executives leave. 22

4. Hierarchy Culture: A Structured Culture Valuing Stability & Effectiveness A hierarchy culture has an internal focus and values stability and control over flexibility. Companies with this kind of culture are apt to have a formalized, structured work environment aimed at achieving effectiveness through a variety of control mechanisms that measure efficiency, timeliness, and reliability in the creation and delivery of products.

Lots of big organizations, such as General Motors, UPS, and the U.S. Army, have a hierarchy culture. A drawback of such cultures is that they can lead to information “silos” or “stovepipes,” in which different divisions don’t share information—a key cause of GM’s ignition switch scandal. Time magazine described this as “a kind of death from a thousand cuts in which multiple divisions had information that could have prevented the safety issues, which they didn’t share, and for which no one person ultimately took responsibility.” 23

Based on the above descriptions, what type of culture provides the best fit for you? How might you assess the level of fit between your values and those of a potential Page 231employer? If you are interested in answering these questions, take the time to complete Self-Assessment 8.1 .

SELF-ASSESSMENT 8.1

Assessing Your Preferred Type of Organizational Culture

This survey is designed to assess your preferred type of organizational culture. Go to connect.mheducation.com and take Self-Assessment 8.1 . When you’re done, answer the following questions:

1. Do you have a preferred culture type, or is there a combination of types best suited for you? Are you surprised by the results?

2. What are three questions you can ask a recruiter to determine if a company possesses your preferred culture type?

3. Have you ever worked in a company that did not possess your preferred culture type? In what ways did you feel a lack of person-organization fit? Did lack of fit affect your job satisfaction or desire to continue working at the company? Explain.

EXAMPLE

The Corporate Cultures of Pfizer Pharmaceuticals: The Different “Personalities” within an Organization

“What makes culture so important is that it’s unique; it’s something that no one can copy,” says Ian C. Read, chairman and CEO of Connecticut-based Pfizer Pharmaceuticals. “Culture can become your competitive advantage. Get it wrong and you’ll pay dearly for it . . . for years to come.” 24

Read became head of Pfizer in December 2010, after mismanagement (“micro micro” management, indecisiveness) by the previous CEO failed to lift the company’s fortunes. 25 Read has instituted a commitment to “our OWNIT! culture. I challenged Pfizer’s leaders to recognize that they can only own the future if they own change and can make change work for us, not against us.”

Pfizer employees, he asserts, “understand that our ownership culture can differentiate us within our industry. They also understand it requires a willingness to take prudent risks, be accountable for their decisions and results, and understand how their work contributes to the company’s performance.” The success of the culture especially depends on the efforts of first- and second-line managers, who create a climate of trust that is “essential to providing the space employees need to work, take considered risks, and own the results,” he says.

Organizational cultures are nearly as varied as human personalities. What had Pfizer’s culture been like under Read’s predecessors? Actually, there was more than one culture within the company, as follows. Do you recognize the different types?

$2.3 Billion in Fines. In 2009, Pfizer was fined $2.3 billion for improperly marketing drugs to doctors. “The whole culture of Pfizer is driven by sales,” said a former sales representative whose complaint helped the government’s case, “and if you didn’t sell drugs illegally, you were not seen as a team player.” 26 Almost every major drug company has in recent years been accused of giving kickbacks to doctors or shortchanging federal programs.

Free Prescription Drugs to Unemployed. But also in that year, as unemployment hovered around 10% in the United States, Pfizer launched a program in which it offered to supply 70 of its name-brand drugs, such as Lipitor and Viagra, free of charge for up to a year to customers who had lost their jobs and lacked prescription coverage. “We did it because it was the right thing to do,” said Pfizer’s then CEO. “But it was motivational for our employees and got a great response from customers. In the long run, it will help our business.” 27

Ongoing Experimentation. At Pfizer, drug discovery is a high-risk, costly endeavor in which hundreds of scientists screen thousands of chemicals against specific disease targets, but 96% of these compounds are ultimately found to be unworkable. The culture, then, is one of managing failure and disappointment, of helping drug researchers live for the small victories. Thus, says one account, “when a researcher publishes a paper, or when a lab gets some positive results on a new therapy, it’s trumpeted throughout the organization.” 28 Another example of experimentation, aimed at helping remaining employees to be productive after heavy job cuts, is PfizerWorks, in which 4,000 employees pass off tedious and time-consuming parts of their jobs, such as creating PowerPoint slides and riffling through spreadsheets to outsiders in India. 29

YOUR CALL

What cultural types are illustrated in these three examples? Does it make more sense that a company would have one dominant cultural type or an equal mixture of clan, adhocracy, market, and hierarchy? Explain your rationale.

Page 232The Three Levels of Organizational Culture

Organizational culture appears as three layers: (1) observable artifacts, (2) espoused values, and (3) basic assumptions. 30 Each level varies in terms of outward visibility and resistance to change, and each level influences another level.

Level 1: Observable Artifacts—Physical Manifestations of Culture At the most visible level, organizational culture is expressed in observable artifacts—physical manifestations such as manner of dress, awards, myths and stories about the company, rituals and ceremonies, and decorations, as well as visible behavior exhibited by managers and employees.

Example: In a conference room reserved for sensitive discussions, online travel company Kayak has a two-foot-high stuffed elephant named Annabelle—the “elephant in the room”—that is an artifact believed to bring forth more honest and constructive communications among employees. 31 (The expression “elephant in the room” is used in business and politics to mean an obvious truth that is either being ignored or going unaddressed.)

Level 2: Espoused Values—Explicitly Stated Values & Norms Espoused values are the explicitly stated values and norms preferred by an organization, as may be put forth by the firm’s founder or top managers.

Example: The founders of technology company Hewlett-Packard stressed the “HP Way,” a collegial, egalitarian culture that gave as much authority and job security to employees as possible. Although managers may hope the values they espouse will directly influence employee behavior, employees don’t always “walk the talk,” frequently being more influenced by enacted values, which represent the values and norms actually exhibited in the organization. 32

Thus, for example, an international corporation hung signs throughout the hallways of its headquarters proclaiming that “trust” was one of its driving principles (espoused value), yet had a policy of searching employees’ belongings each time they entered or exited the building (enacted value). 33

HP founders. David Packard (left) and William Hewlett created a close-knit organizational culture that gave a lot of responsibility to employees and fostered innovation within the company. What kind of culture is that?

Level 3: Basic Assumptions—Core Values of the Organization Basic assumptions, which are not observable, represent the core values of an organization’s culture—those that are taken for granted and, as a result, are difficult to change.

Example: At insurance giant AIG, people worked so hard that the joke around the offices was “Thank heavens it’s Friday, because that means there are only two more working days until Monday.” 34

Another example: Many founders of start-ups hate rules and red tape. College Hunks Hauling Junk, for instance, was co-founded by Nick Friedman with no formal policies about dress code, vacation, sick days, and other things because he envisioned “a real-life Never Never Land where work is always fun, and the culture is always stress-free.” 35 However, when the enterprise grew from a single cargo van to over 50 franchises, the freewheeling spirit made employees lose focus, and client-service ratings, employee morale, and profitability all declined. The firm had to come up with rules and procedures while at the same time trying to “maintain a healthy balance of fun company culture with an accountable organization and team,” Friedman said.

How Employees Learn Culture: Symbols, Stories, Heroes, & Rites & Rituals

Culture is transmitted to employees in several ways, most often through such devices as (1) symbols, (2) stories, (3) heroes, and (4) rites and rituals. 36

Page 2331. Symbols A symbol is an object, act, quality, or event that conveys meaning to others. In an organization, symbols convey its most important values.

Example: One of the most iconic products of IKEA, maker of inexpensive home furnishings, whose vision is “to create a better life for the many,” is the LACK table, a 22-inch by 22-inch side table that sells for only $9.99. 37

2. Stories A story is a narrative based on true events, which is repeated—and sometimes embellished upon—to emphasize a particular value. Stories are oral histories that are told and retold by members about incidents in the organization’s history.

Example: Marc Benioff is founder of cloud computing business Salesforce.com, a San Francisco company known for its great sense of social responsibility and generosity (and rated No. 7 on Fortune’s 2014 ”Best Companies to Work For” list). 38 Its spirit of philanthropy is embodied in a story called the 1-1-1 rule. “When we started the company,” Benioff says, “we took 1% of our equity [stock value] and 1% of our profit and 1% of all our employees’ time, and we put it into a . . . public charity. At the time, it was very easy because we had no profit, we had no time, we had no equity. But then, it turned out that our company is worth, you know, tens of billions of dollars.” 39 Salesforce.com also runs 10,000 nonprofits for free, doesn’t charge universities for its services, and, says Benioff, delivers “hundreds of thousands of hours of community service.” In its latest philanthropic move, Salesforce .com’s foundation plans to spend $6 million over three years nationally on job training for underemployed adults. 40

3. Heroes A hero is a person whose accomplishments embody the values of the organization. IKEA employees are expected to work hard, inspired by an anecdote from their Swedish founder, Invar Kamprad, in his 1976 “A Furniture Dealer’s Testament.” In that essay he recounts how he was berated by his father for failing repeatedly to get out of bed to milk the cows on his family’s farm. Then one day he got an alarm clock. “‘Now by jiminy, I’m going to start a new life,’ he determined, setting the alarm for twenty to six and removing the ‘off button.’” 41

4. Rites & Rituals Rites and rituals are the activities and ceremonies, planned and unplanned, that celebrate important occasions and accomplishments in the organization’s life. Military units and sports teams have long known the value of ceremonies handing out decorations and awards, but many companies have rites and rituals as well.

Example: Employees of New Belgium Brewery in Fort Collins, Colorado, which makes Fat Tire Ale, are given a cruiser bicycle during their first year. After five years, they get a free brewery-hopping trip to Belgium. Ten years of employment is acknowledged with a tree planted in their name in the campus orchard. (The company boasts a 97% employment retention rate. 42 )

The Importance of Culture

Culture can powerfully shape an organization’s long-term success by enhancing its competitive advantage. For example, a recent study involving 1,100 companies summarized the relationship between three organizational cultures—clan, adhocracy, and market—and eight different measures of organizational effectiveness, such as job satisfaction, organizational commitment, and quality of products and services. 43 (Hierarchy was not included owing to a lack of research in this area.) The results are shown on the next page. (See Figure 8.3 .)

Page 234FIGURE 8.3 What organizational benefits are associated with what organizational cultures?

*Only two bars are shown here because organizational commitment was associated with only clan and market structures, and not adhocracy.

Source: Data from C. A. Hartnell, A. Y. Ou, and A. J. Kinicki, “Organizational Culture and Organizational Effectiveness: A Meta-Analytic Investigation of the Competing Values Framework’s Theoretical Suppositions,” Journal of Applied Psychology, July 2011, pp. 677–694.

Results reveal that the eight types of organizational outcomes had significant and positive relationships with clan, adhocracy, and market cultures. The majority of these relationships were of moderate strength, indicating that they are important to today’s managers.

Five conclusions emerge from this research:

An organization’s culture matters. The type of organizational culture can be a source of competitive advantage.

Employees are happier with clan cultures. Employees are more satisfied with and committed to organizations with clan cultures, which value flexibility over stability and control and which are more concerned with satisfying the needs of employees than those of shareholders or customers.

Elements of these cultures can be used to boost innovation and quality. Managers can build into their organizations characteristics of some or all of these three cultures—clan, adhocracy, and market—to increase innovation and improve the quality of their products.

Changing the organizational culture won’t necessarily boost financial performance (but it might). There are no guarantees that making changes in a firm’s organizational culture will lead to a jump in revenues and profits, although any changes that improve its competitive advantage may produce financial benefits.

Market cultures tend to produce better results. As the chart shows, market cultures tend to lead to better outcomes in employee attitudes, performance, and organizational effectiveness, thereby leading to competitive advantage. Managers are encouraged, therefore, to consider how they might make their cultures more market oriented.

Sometimes culture can be strong enough to take the place of bureaucracy; that is, the expectations of the culture replace formal rules and regulations. In these cases, the sense of orderliness and predictability that employees look to for guidance are provided by the culture rather than by a rule book.

Page 235

The Process of Culture Change

What can be done to an organization’s culture to increase its economic performance?

THE BIG PICTURE

There are 12 ways a culture becomes established in an organization.

A particular culture can become embedded in an organization in many ways, 12 of which are described here. (See Table 8.2 .)

Changing organizational culture is essentially a teaching process—that is, a process in which members instruct each other about the organization’s preferred values, beliefs, expectations, and behaviors. The process is accomplished by using one or more of the following 12 mechanisms: 44

TABLE 8.2 A Dozen Ways to Change Organizational Culture

1. Formal Statements

The first way to embed preferred culture is through the use of formal statements of organizational philosophy, mission, vision, values, as well as materials used for recruiting, selecting, and socializing employees.

Example: At fashion website Polyvore, CEO Jess Lee wrote down three statements she thought represented the company’s distinct culture: (1) “delight the user,” (2) “do a few things well,” and (3) “make an impact.” 45 Walmart founder Sam Walton stated that three basic values represented the core of the retailer’s culture: (1) respect for the individual, (2) service to customers, and (3) striving for excellence. 46

2. Slogans & Sayings

The desirable corporate culture can be expressed in language, slogans, sayings, and acronyms.

Example: David Cote, chairman and CEO of global technology company Honeywell, has adopted the principle “Your job as a leader is to be right at the end of the meeting, not at the beginning of the meeting.” That is, a leader’s job is to flush out all the facts and opinions so at the end he or she can make a good decision. 47

3. Rites & Rituals

As we mentioned earlier, rites and rituals represent the planned and unplanned activities and ceremonies that are used to celebrate important events or achievements.

Example: After a day’s meetings with clients, employees at Boston advertising agency Arnold Worldwide like to meet at a beer-vending machine in the office (nicknamed “Arnie”), where they sip bottles of home-brewed beer, chitchat, and exchange ideas. 48 (Of course, employers need to be cautious about encouraging drinking alcohol at work, for both health and liability reasons.)

4. Stories, Legends, & Myths

A story is a narrative about an actual event that happened within the organization and that helps to symbolize its vision and values to employees.

Example: Until a decade ago, major drug companies treated countries in the developing world as not worth the trouble of marketing to. But Andrew Witty, who in 2008 at age 43 became the youngest CEO of GlaxoSmithKline, the world’s Page 236second-largest pharmaceutical company, is making a name for himself by doing more for the poor people of the world than any other big drug company leader. While working in poor countries Witty found “just unbelievable energy to self-improve, to lift themselves up.” He has promised to keep prices of drugs sold in poor countries to no more than 25% of what is charged in rich ones and to donate one-fifth of all profits made in such countries toward building their health systems. Now Glaxo is ranked No. 1 on the Access to Medicine index, which rates pharmaceutical companies on their stances toward the poor. 49

5. Leader Reactions to Crises

How top managers respond to critical incidents and organizational crises sends a clear cultural message.

Example: Cory Booker (now a U.S. senator from New Jersey) was the mayor of financially struggling Newark in 2010 when a serious snowstorm hit the city. “Throughout the storm,” reports The Wall Street Journal, “those in distress hit up Mr. Booker on Twitter, one of the mayor’s preferred methods of keeping in touch with residents. After they cried out for plows, ambulances, and diapers, he responded, electronically and sometimes by driving to the location, shovel in hand. . . . He ordered his driver to pull over several times to help shovel out or push cars.” 50 His on-the-ground efforts were an answer to critics who accused him of being out of touch.

6. Role Modeling, Training, & Coaching

Many companies provide structured training to provide an in-depth introduction to their organizational values.

Example: Triage Consulting Group, a health care financial consulting firm in California, places a high value on superior performance at achieving measurable goals. New employees are immediately prepared for this culture with a 4-day orientation in Triage’s culture and methods, followed by 15 training modules scheduled in 6-week intervals. After less than a year, the best performers are ready to begin managing their own projects, furthering their career development. Performance evaluations take place four times a year, further reinforcing the drive for results. 51

7. Physical Design

There is constant experimenting going on as to the best office layout that will encourage employee productivity and send a strong message about the culture.

Example: After power producer Dynegy emerged from bankruptcy, the new CEO abandoned his private office and moved into a 64-square-foot cubicle—identical to the ones used by the 235 other employees—signaling his aim “to transform a business previously focused on day-to-day survival into an agile operator poised for growth,” according to one report. 52

Another example: Pharmaceutical company GlaxoSmithKline has embraced an open-space philosophy that abandons individual desks in favor of “hoteling,” where everyone is assigned to “neighborhoods,” or areas of workers engaged in related tasks (you store your personal belongings in a small locker), on the theory that chance encounters among employees will spark conversations and collaboration. 53

8. Rewards, Titles, Promotions, & Bonuses

Rewards and status symbols are one of the strongest ways to embed organizational culture.

Example: At Triage Consulting Group, employees at the same level of their career earn the same pay, but employees are eligible for merit bonuses, again reinforcing the culture of achievement. The awarding of merit bonuses is partly based on Page 237coworkers’ votes for who contributed most to the company’s success, and the employees who received the most votes are recognized each year at the company’s “State of Triage” meeting. 54

9. Organizational Goals & Performance Criteria

Many organizations establish organizational goals and criteria for recruiting, selecting, developing, promoting, dismissing, and retiring people, all of which reinforce the desired organizational culture.

Example: Las Vegas–based Zappos, the online shoe retailer (No. 38 on Fortune’s 2014 “Best Places to Work For” list), spends a great deal of time analyzing applicants to see if they will fit into its clan-based culture. “We spend seven to 10 hours [with potential recruits] over four occasions at happy hours, team building events, or other things outside the office,” says the company’s human resources director. “We can see them, and they can us.” 55 The result of this careful selection process was a low turnover rate of only 20% in 2009, a remarkable statistic for call centers. Employees want to stay not only because Zappos pays full employee benefits but also because of the “wow factor”—part of which is encouraging them to have fun at work.

The wow culture. The “wow” factor that encourages Zappos’s clan-based culture is partly created by encouraging employees to have fun at work, as in playing Nerf basketball. Is this a place you could stick with?

10. Measurable & Controllable Activities

An organization’s leaders can pay attention to, measure, and control a number of activities, processes, or outcomes that can foster a certain culture.

Example: Adam Nash, the CEO of Wealthfront, an online financial management firm, believes that how you keep score on employee progress is important. “If you don’t give people metrics [methods of measurement],” he says, “smart people will make up their own,” and “you’ll get incessant fighting and arguments.” 56

11. Organizational Structure

The hierarchical structure found in most traditional organizations is more likely to reinforce a culture oriented toward control and authority compared with the flatter organization that eliminates management layers in favor of giving employees more power.

Example: The hierarchical structure of a railroad provides a much different culture from that of the “spaghetti organization” formerly employed by Danish hearing-aid maker Oticon, in which employees worked at mobile desks on wheels and were always subject to reorganization.

12. Organizational Systems & Procedures

Companies are increasingly using electronic networks to increase collaboration among employees, to increase innovation, quality, and efficiency.

Example: Molson Coors CEO Peter Swinburn, in knitting together employees of several former companies, made sure they had better tools to interact with each other. One technology he introduced was Yammer, a website for short messages similar to Twitter, on which some 2,000 employees now provide updates and collaborate on projects. 57

Page 238

Organizational Structure

How are for-profit, nonprofit, and mutual-benefit organizations structured?

THE BIG PICTURE

The organizational structure of the three types of organizations—for-profit, nonprofit, and mutual-benefit—may be expressed vertically or horizontally on an organization chart.

Once an organization’s vision and strategy have been determined, as we stated at the beginning of this chapter, the challenge for top managers is, first, to create a culture that will motivate its members to work together and, second, a structure that will coordinate their actions to achieve the organization’s strategic goals. Here let us begin to consider the second part—an organization’s structure.

In Chapter 1 , we defined an organization as a group of people who work together to achieve some specific purpose. According to Chester I. Barnard’s classic definition, an organization is a system of consciously coordinated activities or forces of two or more people. 58 By this wording, a crew of two coordinating their activities to operate a commercial tuna fishing boat is just as much an organization as the entire StarKist Tuna Co.

The Organization: Three Types

As we stated in Chapter 1 , there are three types of organizations classified according to the three different purposes for which they are formed: 59

For-profit organizations. These are formed to make money, or profits, by offering products or services.

Nonprofit organizations. These are formed to offer services to some clients, not to make a profit (examples: hospitals, colleges).

Mutual-benefit organizations. These are voluntary collectives whose purpose is to advance members’ interests (examples: unions, trade associations).

Who sells the electricity? About 80% of U.S. drivers drive 40 miles or less a day—and 38 miles is what the hybrid Chevrolet Volt will drive on a single electric charge. (A small combustion engine cuts in to charge the battery, so the car is always running on the electric motor.) The Volt is made by General Motors, a for-profit organization. What kind of organizations might sell the electricity and the charging stations—for-profit, nonprofit, or mutual-benefit?

Page 239Clearly, you might have an occupation (such as auditor or police officer) that is equally employable in any one of these three sectors. As a manager, however, you would be principally required to focus on different goals—making profits, delivering public services, or satisfying member needs—depending on the type of organization.

The Organization Chart

Whatever the size or type of organization, it can be represented in an organization chart. An organization chart is a box-and-lines illustration showing the formal lines of authority and the organization’s official positions or work specializations. This is the family-tree-like pattern of boxes and lines posted on workplace walls and given to new hires, such as the following for a hospital. (See Figure 8.4 .)

FIGURE 8.4 Organization chart

Example for a hospital.

Two kinds of information that organization charts reveal about organizational structure are (1) the vertical hierarchy of authority—who reports to whom, and (2) the horizontal specialization—who specializes in what work.

The Vertical Hierarchy of Authority: Who Reports to Whom A glance up and down an organization chart shows the vertical hierarchy, the chain of command. A formal vertical hierarchy also shows the official communication network—who talks to whom. In a simple two-person organization, the owner might communicate with just a secretary or an assistant. In a complex organization, the president talks principally to the vice presidents, who in turn talk to the assistant vice presidents, and so on.

Page 240The Horizontal Specialization: Who Specializes in What Work A glance to the left and right on the line of an organization chart shows the horizontal specialization, the different jobs or work specialization. The husband-and-wife partners in a two-person desktop-publishing firm might agree that one is the “outside person,” handling sales, client relations, and finances, and the other is the “inside person,” handling production and research. A large firm might have vice presidents for each task—marketing, finance, and so on.

PRACTICAL ACTION

Transition Problems on Your Way Up: How to Avoid the Pitfalls

Although corporations and managements may make noises about training and support, newly promoted managers may not see any of this and may simply be expected to know what to do. And, as managers move up the ladder, they may encounter other problems that they have not anticipated. How can you avoid some pitfalls as you make your ascent? Some suggestions: 60

Have Realistic Expectations & Think about the Kind of Manager You Want to Be New managers often focus on the rights and privileges of their new jobs and underestimate the duties and obligations. Make a list of all your previous bosses and their good and bad attributes. This may produce a list of dos and don’ts that can serve you well.

Don’t Forget to Manage Upward & Sideways as Well as Downward You not only need to manage your subordinates but also the perceptions of your peers and your own managers above you. In addition, you need to have good relationships with managers in other departments—and be perceptive about their needs and priorities—since they have resources you need to get your job done. Don’t make the mistake of thinking your own department is the center of the universe.

Get Guidance from Other Managers You may not get advice on how to manage from your own manager, who may have promoted you to help reduce his or her workload, not add to it by expecting some coaching. If this is the case, don’t be shy about consulting other managers as well as people in professional organizations.

Resist Isolation If you’re promoted beyond supervisor of a small team and you have to manage hundreds rather than dozens, or thousands rather than hundreds, you may find the biggest surprise is isolation. The way to stay in touch is to talk daily with your senior managers, perhaps have “town meetings” with staffers several times a year, and employ “management by wandering around”—bringing teams together to talk.

YOUR CALL

How would you try to manage the perceptions not only of subordinates but of your peers?

Managing. Being a manager requires a lot of interaction with others—as in “town meetings” with staffers. Do you think you’ll need to resist a tendency toward isolation?

Page 241

The Major Elements of an Organization

When I join an organization, what seven elements should I look for?

THE BIG PICTURE

Seven basic elements or features of an organization are described in this section.

Whether for-profit, nonprofit, or mutual-benefit, organizations have a number of elements in common. We discuss four proposed by an organizational psychologist, and then describe three others that most authorities agree on.

Common Elements of Organizations: Four Proposed by Edgar Schein

Organizational psychologist Edgar Schein proposed the four common elements of (1) common purpose, (2) coordinated effort, (3) division of labor, and (4) hierarchy of authority. 61 Let’s consider these.

1. Common Purpose: The Means for Unifying Members An organization without purpose soon begins to drift and become disorganized. The common purpose unifies employees or members and gives everyone an understanding of the organization’s reason for being.

2. Coordinated Effort: Working Together for Common Purpose The common purpose is realized through coordinated effort, the coordination of individual efforts into a group or organizationwide effort. Although it’s true that individuals can make a difference, they cannot do everything by themselves.

3. Division of Labor: Work Specialization for Greater Efficiency Division of labor, also known as work specialization, is the arrangement of having discrete parts of a task done by different people. Even a two-person crew operating a fishing boat probably has some work specialization—one steers the boat, the other works the nets. With division of labor, an organization can parcel out the entire complex work effort to be performed by specialists, resulting in greater efficiency.

4. Hierarchy of Authority: The Chain of Command The hierarchy of authority, or chain of command, is a control mechanism for making sure the right people do the right things at the right time. If coordinated effort is to be achieved, some people—namely, managers—need to have more authority, or the right to direct the work of others. Even in member-owned organizations, some people have more authority than others, although their peers may have granted it to them.

In addition, authority is most effective when arranged in a hierarchy. Without tiers or ranks of authority, a lone manager would have to confer with everyone in his or her domain, making it difficult to get things done. Even in newer organizations that flatten the hierarchy, there still exists more than one level of management. 62 A flat organization is defined as one with an organizational structure with few or no levels of middle management between top managers and those reporting to them.

Finally, a principle stressed by early management scholars was that of unity of command, in which an employee should report to no more than one manager in order to avoid conflicting priorities and demands. Today, however, with advances in computer Page 242technology and networks, there are circumstances in which it makes sense for a person to communicate with more than one manager (as is true, for instance, with the organizational structure known as the matrix structure, as we’ll describe).

Common Elements of Organizations: Three More That Most Authorities Agree On

To Schein’s four common elements we may add three others that most authorities agree on: (5) span of control, (6) authority, responsibility, and delegation, and (7) centralization versus decentralization of authority.

5. Span of Control: Narrow (or Tall) versus Wide (or Flat) The span of control, or span of management, refers to the number of people reporting directly to a given manager. 63 There are two kinds of spans of control, narrow (or tall) and wide (or flat).

Narrow Span of Control This means a manager has a limited number of people reporting—three vice presidents reporting to a president, for example, instead of nine vice presidents. An organization is said to be tall when there are many levels with narrow spans of control.

Wide Span of Control This means a manager has several people reporting—a first-line supervisor may have 40 or more subordinates, if little hands-on supervision is required, as is the case in some assembly-line workplaces. An organization is said to be flat when there are only a few levels with wide spans of control.

Historically, spans of about 7 to 10 subordinates were considered best, but there is no consensus as to what is ideal. In general, when managers must be closely involved with their subordinates, as when the management duties are complex, they are advised to have a narrow span of control. This is why presidents tend to have only a handful of vice presidents reporting to them. By contrast, first-line supervisors directing subordinates with similar work tasks may have a wide span of control.

Today’s emphasis on lean management staffs and more efficiency means that spans of control need to be as wide as possible while still providing adequate supervision. Wider spans also fit in with the trend toward allowing workers greater autonomy in decision making. Research suggests that, when aided by technology to communicate and monitor, a manager can oversee 30 employees or more. 64

6. Authority, Responsibility, & Delegation: Line versus Staff Positions Male sea lions have to battle other males to attain authority over the herd. In human organizations, however, authority is related to the management authority in the organization; it has nothing to do with the manager’s fighting ability or personal characteristics. With authority goes accountability, responsibility, and the ability to delegate one’s authority.

Accountability Authority refers to the rights inherent in a managerial position to make decisions, give orders, and utilize resources. (Authority is distinguished from power, which, as we discuss in Chapter 14 , is the extent to which a person is able to influence others so they respond to orders.) In the military, of course, orders are given with the expectation that they will be obeyed, disobedience making one liable to a dishonorable discharge or imprisonment. In civilian organizations, disobeying orders may lead to less dire consequences (demotion or firing), but subordinates are still expected to accept that a higher-level manager has a legitimate right to issue orders.