Managerial Economics and Organizational Architecture, 5e Managerial Economics and Organizational Architecture, 5e Chapter 20: Leadership: Motivating Change within Organizations McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Managerial Economics and Organizational Architecture, 5e Characteristics of Leadership as “Guidance” Leaders must help organizations choose the right path through vision Leaders must motivate –Emotional—charisma, difficult to learn –Rational—standard agency problem 20-2

Managerial Economics and Organizational Architecture, 5e Decision Making in Firms Organizational politics –Good leadership  initiating good proposals, careful analysis –Politics may hinder ratification, implementation –Must understand organizational politics 20-3

Managerial Economics and Organizational Architecture, 5e Attitudes Toward Change Managers are utility maximizers For a proposal to be supported, it must increase the manager’s utility General managers need to assess the effect of their proposal on their manager’s utility To gain support –Change architecture –Change the proposal –Market the proposal 20-4

Managerial Economics and Organizational Architecture, 5e Framework for Understanding Attitudes Toward Change Standard deviation (in dollars) Expected payoff (in dollars) Favor proposal Oppose proposal Status quo P S Lynn’s current indifference curve Increasing expected utility 20-5

Managerial Economics and Organizational Architecture, 5e Changing Organizational Architecture Increase the decision rights of supporters –Could also reduce decision rights of opponents Changing architecture can be costly 20-6

Managerial Economics and Organizational Architecture, 5e Changing the Architecture to Gain Support for a Proposal Expected payoff (in dollars) P Original indifference curve for status quo (SQ) Increasing expected utility Indifference curve for status quo (SQ’) after changes in the architecture Chris’s proposal Standard deviation (in dollars) S SQ SQ’ 20-7

Managerial Economics and Organizational Architecture, 5e Proposal Design Flexibility –If the proposal has lower risk it is more likely to be supported –Pilot testing the program gives information about its possibilities Credible commitment Distributional consequences –Some employees gain and others lose –Modify the proposal so that all win 20-8

Managerial Economics and Organizational Architecture, 5e Analyzing the Distributional Consequences of a Proposal Increasing expected utility Expected payoff (in dollars) Standard deviation (in dollars) S P Rob’s view of Chris’s proposal Lynn’s view of Chris’s proposal Status quo for both Lynn and Rob 20-9

Managerial Economics and Organizational Architecture, 5e Selling a Proposal Careful analysis and groundwork –Do: communicate and explain to reduce uncertainty –Don’t: spring a proposal for immediate action 20-10

Managerial Economics and Organizational Architecture, 5e Selling a Proposal Create and rely on reputation –Past success as indicator of likely future success –Reputation as assurance of careful analysis –Select battles wisely Employees are more likely to favor change when the organization is in crisis 20-11

Managerial Economics and Organizational Architecture, 5e Organizational Power Employees will respond more to proposal when the sponsor has personal power Sources of power –Formal authority –Budgetary and/or facility control –Information control –Friends and allies Tie proposal to popular initiatives –free riding 20-12

Managerial Economics and Organizational Architecture, 5e Coalitions and Logrolling Give support for a proposal to one sponsor to receive support for your proposal in return –Must have credibility in giving support to future proposals –Identifying those who will logroll may be difficult –The proposal may have to be vague to gain support 20-13

Managerial Economics and Organizational Architecture, 5e Use of Symbols Communication within a corporate culture But must be supported by architecture 20-14

Managerial Economics and Organizational Architecture, 5e Strategic Value of Commitment GSA company $90 $85 Tomoka—High leverage $0 $80 $0 $100 $80 $100 Simon—Invest Tomoka—High leverage Simon—Not invest Tomoka—Low leverage Simon—Invest Simon—Not invest Tomoka—Low leverage 20-15