Chapter 16 Making Sense of Organization

Scope of Chapter 16 Organizational forms and strategic needs Adaptability Innovation Efficiency Hybrid organizational forms The social face of organization

Strategic Needs for New Organizational Forms Arise from: Globalization New information and communication technologies Knowledge-based economy Hypercompetition Social accountability [See Chapter 2]

Evidence for Efficacy of New Organization Companies that have created flexible internal organizations based on an enlightened treatment of people – e.g. Southwest Airlines Companies that have defined and kept to core competencies – e.g. Sun Microsystems “Network orchestrators” have outperformed in their industries – e.g. Cisco Systems, Dell Companies that have grown capabilities through strategic alliances – e.g. DuPont and CSC over IT

Problems Created by New Organization Assymetry of power – widening divide between core and periphery Problems of corporate governance Personal costs: destruction of commitment, trust replaced by contract, insecurity and stress

Taking a Closer Look There is a great deal of talk about “flexibility” and “core competencies” in connection with new organization, but these are not always thought through. What lies behind these terms?

Three Needs in Present Conditions Need to adapt Need to innovate Need to maintain efficiency

Importance of Distinguishing between Needs to Adapt and to Innovate Need to Innovate High Low High Need to Adapt Low public emergency services software developers military R&D units taxation authorities

Efficiency is Also a Need The most constant strategic need Can be the overriding need for some categories of organization – e.g. public services Strength of conventional forms of organization lies in their focus on efficiency When it works as intended, bureaucracy can be very efficient

Bureaucracy – The Conventional Organizational Form History of over 2000 years Enduring principles: hierarchy, formalization, standardization, specialization Reinforced for the organization of work by Scientific Management

Claims for Bureaucracy Efficiency, but also: Consistency Economy Equity

Critiques of Bureaucracy Malfuncitoning of bureaucracy in practice (1950s) Superiority of organic form in turbulent, unpredictable environments (1960s) Concern over alienating impact on people – clients and employees (1950s & 1960s) Post-bureaucratic model and new work organization (1970s) Organizing for globalization and the information age (1990s)

Questions to be Asked 1. Is one design need overriding? Efficiency and consistency: conventional organization can be highly effective Innovation: project team mode, operating within a framework of budgets and milestones, with functional support

2. Are different design needs equally important? Adaptability and efficiency: When circumstances are difficult to predict, but their nature is well understood, a conventional organization can cope well so long as it has procedures to allow immediate switching into an “emergency” mode. This flexibility needs to be reinforced by training and culture development.

Adaptability and innovation: A project team mode is often preferred, driven not by pre-specified targets but led by a role that articulates changing requirements of key external parties. An example is the advertising campaign team reporting to an account manager who is the front-line in adapting to the client’s wishes.

3. What kind of governance structure is required? In an information-intensive organization, knowledge workers own assets that are as important as financial capital. In a networked value-adding system, partners, suppliers and customers may be vital owners of knowledge in addition to financial assets. These changing views of “ownership” require new organizational governance systems.

Hybrid Organizational Forms Internal hybrids Infuse hierarchy with elements of market control e.g. semi-autonomous projects teams working under a ‘contract’ to attained an agreed target combined with hierarchical monitoring of their achievement, costs, behavioral standards, etc. External hybrids Market exchanges infused with elements of hierarchical control e.g. outsourcing, virtual value-chains, alliances

Hybrid Forms: Logic and Illustration The logic of hybrid forms lies in an attempt to meet two or more of the three strategic needs identified above Oticon, the Danish hearing-aid company, provides an illustration of the attempt in its mode of organization to achieve this balance between several strategic needs [See also the case of Eli Lilly in Chapter 11]

Social Accountability Interest in new organizational forms is also stimulated by the evident social failings of conventional forms, especially hierarchical ones For instance: critique of corporate governance, growing inequalities of power, rewards and well-being, alienation from large organizations Evidence from companies such as Southwest Airlines and Semco that new approaches to organization can have a positive impact on both people’s quality of life at work and their contribution to a firm’s economic success

In Adopting the New, can we Learn from the Past? 2,000 years of conventional wisdom points to the value of: responsibility and accountability rules as repositories of knowledge standardization of data keeping organization as simple as possible provisions for maintaining equity preserving continuity along with change recognising the benefits of trust and organizational identity (‘esprit de corps’)