MNGT 5590 Organizational Behavior Week 8: Chapters 13, 14, 15 Dr MNGT 5590 Organizational Behavior Week 8: Chapters 13, 14, 15 Dr. George Reid

Chapter 13: Designing Organizational Structures Chapter 14: Organizational Culture Chapter 15: Leadership

Designing Organizational Structures Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Valve Corporation’s Organizational Structure Valve Corporation has a flat, organic organizational structure to leverage the creative and entrepreneurial potential of its 300 employees

Organizational Structure Defined Division of labor and patterns of coordination, communication, workflow, and formal power that direct organizational activities Relates to many OB topics (job design, teams, power)

Division of Labor and Coordination Results in specialization, separate jobs for different people Improves work efficiency Coordination of work Value of division of labor is limited to ability to coordinate that work Coordinating work can be costly Three coordinating mechanisms informal communication formal hierarchy standardization

Coordination Through Informal Communication Informal communication coordinates work in all firms Vital in nonroutine and ambiguous situations Easiest in small firms, but technology extends its use in large firms Larger firms also apply informal communication through Liaison roles Integrator roles Temporary teams

Other Coordinating Mechanisms Formal hierarchy Direct supervision Assigns legitimate power to manage others Necessary in most firms, but has problems Standardization – create routine behavior/output Standardized processes (e.g., job descriptions) Standardized outputs (e.g., sales targets) Standardized skills (e.g., training)

Elements of Organizational Structure Department-alization Span of Control Elements of Organizational Structure Formalization Centralization

KenGen’s Flatter Structure KenGen, Kenya’s leading electricity generation company, reduced its hierarchy from 15 layers to just 6 layers. “This flatter structure has reduced bureaucracy and it has also improved teamwork,” explains KenGen executive Simon Ngure.

Span of Control Number of people directly reporting to the next level Wider span of control possible when: Other coordinating mechanisms are present Routine tasks Low employee interdependence

Tall vs Flat Structures As companies grow, they: Build a taller hierarchy Widen span, or both Problems with tall hierarchies Poorer upward information Overhead costs Focus power around managers, so staff feel less empowered

Centralization/Decentralization Centralization – Formal decision making authority is held by a few people, usually at the top Decentralization increases as companies grow Varying degrees of centralization in different areas of the company Example: sales decentralized; info systems centralized Information Systems Production Sales Upper Mgt Middle Mgt Front line Supervisory Upper Mgt Upper Mgt Middle Mgt Middle Mgt Supervisory Supervisory Front line Front line = locus of decision making authority

Formalization Standardizing behavior through rules, procedures, training, etc Increases as firms get older, larger, regulated Problems with formalization Less organizational flexibility Discourages organizational learning/creativity Less work efficiency Increases job dissatisfaction and work stress Rules/procedures become focus of attention

Mechanistic vs. Organic Structures Mechanistic Structure Narrow span of control High centralization High formalization Organic Structure Wide span of control Decentralized decisions Low formalization

Functional Organizational Structure Organizes employees around specific knowledge or other resources (e.g., marketing, production) CEO Finance Production Marketing

Evaluating Functional Structures Benefits Economies of scale Supports professional identity and career paths Easier supervision Limitations Emphasizes subunit more than organizational goals Higher dysfunctional conflict Poorer coordination – requires more controls

Divisional Structure Organizes employees around outputs, clients, or geographic areas CEO Healthcare Lighting Products Consumer Lifestyle

Divisional Structure Best type of divisional structure depends on environmental diversity or uncertainty Geographic structures becoming less common because: Less need for local representation Reduced geographic variation More global clients

Evaluating Divisional Structures Benefits Building block structure – accommodates growth Focuses on markets/products/clients Limitations Duplication, inefficient use of resources Silos of knowledge – expertise isolated across divisions Executive power affected by shifting divisional structure – common with complex environment

Team-Based Structure Self-directed work teams organized around work processes Typically organic structure Usually found within divisionalized structure

Evaluating Team-Based Structures Benefits Responsive, flexible Lower admin costs Quicker, more informed decisions Limitations Interpersonal training costs Slower coordination during team development Role ambiguity increases stress Team leader issues – less power, ambiguous roles/career Duplication of resources

ABB’s* Geographic-Product Matrix Structure Regional Groups Product Groups North America South America Europe Middle East, Africa/ India Asia Pacific Power Products Power Systems Discrete Automation and Motion Low Voltage Products Process Automation *Simplification of ABB’s actual structure Product leader in that region

Project-based Matrix Structure Employees ( ) are temporarily assigned to a specific project team and have a permanent functional unit CEO Game1 Project Leader Game2 Game3 Audio Dept Leader Software Dept Leader Art Dept Leader

Evaluating Matrix Structures Benefits Uses resources and expertise effectively Potentially better communication, flexibility, innovation Focuses specialists on clients and products Supports knowledge sharing within specialty Solution when two divisions have equal importance Limitations More conflict among managers who share power Two bosses dilutes accountability More conflict, organizational politics, and stress

External Environment & Structure Dynamic • High rate of change • Use team-based, network, or other organic structure Stable • Steady conditions, predictable change • Use mechanistic structure Complex • Many elements (such as stakeholders) • Decentralize Simple • Few environmental elements • Less need to decentralize

Effects of Organizational Size As organizations grow, they: Increase division of labor (job specialization) Increase standardization and formal hierarchy as coordinating mechanisms Become more decentralized

Organizational Strategy Structure follows strategy Strategy points to the environments in which the organization will operate Leaders decide which structure to apply Innovation strategy Providing unique products or attracting clients who want customization Cost leadership strategy Maximize productivity in order to offer competitive pricing

Designing Organizational Structures 13-29

Organizational Culture Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Zappos’ Organizational Culture Zappos, the world’s largest online shoe retailer, relies on recruitment, selection, socialization, and other practices to maintain a strong organizational culture

Organizational Culture Defined The values/assumptions shared within an organization Defines what is important Provides direction toward the “right way” of doing things Company’s DNA – invisible to the eye, yet a powerful template that shapes employee behavior

Elements of Organizational Culture Artifacts of organizational culture Elements of Organizational Culture Organizational culture 14-33

Content of Organizational Culture The relative ordering of values. A few dominant values Example: Facebook – creative, proactive, risk-oriented Problems with measuring org culture Oversimplifies diversity of possible values Ignore shared assumptions Adopts an “integration” perspective An organization’s culture is fuzzy: Diverse subcultures (“fragmentation”) Values exist within individuals, not work units

Organizational Culture Profile Org Culture Dimensions Dimension Characteristics Innovation Experimenting, opportunity seeking, risk taking, few rules, low cautiousness Stability Predictability, security, rule-oriented Respect for people Fairness, tolerance Outcome orientation Action oriented, high expectations, results oriented Attention to detail Precise, analytic Team orientation Collaboration, people-oriented Aggressiveness Competitive, low emphasis on social responsibility Source: O’Reilly et al (1991)

Organizational Subcultures Dominant culture – most widely shared values and assumptions Subcultures Located throughout the organization Can enhance or oppose (countercultures) firm’s dominant culture Two functions of countercultures: provide surveillance and critique, ethics source of emerging values

Cultural Artifacts at Goldman Sachs The language of Goldman Sachs employees may be artifacts of underlying cultural values. “Elephant trades” and “muppet” clients suggest that the investment firm values profitability and individual performance more than customer service.

Organizational Culture Artifacts Observable symbols and signs of culture Physical structures, ceremonies, language, stories Maintain and transmit organization’s culture Need many artifacts to accurately decipher a company’s culture

Artifacts: Stories and Legends Social prescriptions of desired (or dysfunctional) behavior Realistic human side to expectations Most effective stories and legends: Describe real people Assumed to be true Known throughout the organization Are prescriptive

Artifacts: Rituals, Ceremonies, Language programmed routines (e.g., how visitors are greeted) Ceremonies Planned activities for an audience e.g., award ceremonies Language How employees address each other and outsiders, express emotions, describe stakeholders, etc. Leaders use language to anchor or change culture Language also differentiates subcultures

Artifacts: Physical Structures/Symbols Building structure – may shape and reflect culture Office design conveys cultural meaning Furniture, office size, wall hangings, art deco

Organizational Culture Strength How widely and deeply employees hold the company’s dominant values and assumptions Most employees understand/embrace the culture Institutionalized through artifacts Long-lasting – possibly back to founder(s) Three functions of strong cultures : Control system Social glue Sense-making

Organizational Culture and Effectiveness Culture strength advantages depend on: Environment fit Moderate strength Adaptive culture Functions of Strong Cultures Control system Social glue Sense-making Organizational Outcomes Org performance Employee well-being

Merging Cultures: Bicultural Audit Part of due diligence in merger Minimizes cultural collision by diagnosing companies Three steps in bicultural audit: Identify cultural artifacts Analyze data for cultural conflict/compatibility Identify strategies and action plans to bridge cultures

Merging Organizational Cultures Assimilation Acquired company embraces acquiring firm’s cultural values Deculturation Acquiring firm imposes its culture on unwilling acquired firm Integration Cultures combined into a new composite culture Separation Merging companies remain separate with their own culture

Changing/Strengthening Organizational Culture

Changing/Strengthening Organizational Culture Actions of founders/leaders Founder’s values/personality Transformational leaders can reshape culture – organizational change practices Aligning artifacts Artifacts keep culture in place

Changing/Strengthening Organizational Culture Introducing culturally consistent rewards Rewards are powerful artifacts Support workforce stability and communication High turnover weakens org culture Strong culture depends on frequent, open communication Attracting, selecting, and socialization of employees Attraction-selection-attrition theory Socialization practices

Attraction-Selection-Attrition Theory Organizations become more homogeneous (stronger culture) through: Attraction – applicants self-select and weed out companies based on compatible values Selection – applicants selected based on values congruent with organization’s culture Attrition – employees quit or are forced out when their values oppose company values

Organizational Socialization The process by which individuals learn the values, expected behaviors, and social knowledge necessary to assume their roles in the organization Learning Process Newcomers make sense of the organization’s physical, social, and strategic/cultural dynamics Adjustment Process Newcomers adapt to new work roles, team norms, etc.

Stages of Socialization Pre-Employment Stage Outsider Gathering information Forming psychological contract Encounter Stage Newcomer Testing expectations Role Management Insider Changing roles and behavior Resolving conflicts

Improving Organizational Socialization Realistic job preview (RJP) A balance of positive and negative information about the job and work context Socialization agents Supervisors – technical information, performance feedback, job duties Co-workers – ideal when accessible, role models, tolerant, and supportive

Organizational Culture 14-53

Organizational Change Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Organizational Change at LG Group LG Group chairman Koo Bon-moo (shown) is creating an urgency to change Korea’s second largest conglomerate into a more proactive, marketplace leader rather than a follower of Samsung

Force Field Analysis Model Driving forces Push organizations toward change External forces or leader’s vision Restraining forces Resistance to change – employee behaviors that block the change process Restraining Forces Driving Forces

Force Field Analysis Model Desired Conditions Driving Forces Restraining Driving Forces Restraining Driving Forces Restraining Current Conditions Before Change During Change After Change

Restraining Forces (Resistance to Change) Many forms of resistance complaints, absenteeism, passive noncompliance View resistance as a resource Symptoms of deeper problems in the change process A form of task conflict – may improve change decisions Form of voice – procedural justice

Why People Resist Change Negative valence of change Negative cost-benefit analysis Fear of the unknown People assume worst when future unknown Perceive lack of control Not-invented-here-syndrome Staff oppose the change to prove their ideas were better successful change threatens self-esteem

Why People Resist Change Breaking routines Cost of moving away from our “comfort zones” Time/effort to learn new routines Incongruent team dynamics Norms contrary to desired change Incongruent organizational systems Systems/structures reinforce status quo rewards, information systems, patterns of authority, career paths, selection criteria

Creating an Urgency for Change Inform employees about driving forces Most difficult when organization is doing well Customer-driven change Human element energizes employees Reveals problems and consequences of inaction Sometimes need to create urgency to change without external drivers Requires persuasive influence Use positive vision rather than threats

Reducing the Restraining Forces Communication Highest priority and first strategy for change Generates urgency to change Reduces uncertainty (fear of unknown) Problems: time consuming and costly Learning Provides new knowledge/skills Includes coaching and other forms of learning Helps break old routines and adopt new roles Problems: potentially time consuming and costly

Reducing the Restraining Forces Involvement Employees participate in change process Helps saving face and reducing fear of unknown Includes task forces, future search events Problems: time-consuming, potential conflict Stress management When previous strategies do not minimize stress enough Potential benefits More motivation to change Less fear of unknown Fewer direct costs Problems: time-consuming, costly, doesn’t help all

Reducing the Restraining Forces Negotiation Influence by exchange – reduces direct costs May be necessary when people clearly lose something and won’t otherwise support change Problems: expensive, gains compliance, not commitment Coercion When all else fails Assertive influence Radical form of “unlearning” Problems Reduces trust May create more subtle resistance Encourage politics to protect job

Alan Mulally: Change Agent Alan Mulally’s “One Ford” vision and his transformational leadership were key factors in the successful turnaround of Ford Motor Company.

Change Agents Change agent – possesses knowledge and power to guide and facilitate the change effort Involves transformational leadership Strategic visions and change Provides a sense of direction Identifies critical success factors to valuate change Links employee values to the change Minimizes employee fear of the unknown Clarifies role perceptions

Coalitions, Social Networks and Viral Change Guiding coalition Representative across the firm Influence leaders – respected Viral change Information seeded to a few people, then transmitted through social networks Social networks influence others due to: high trust referent power behavior observation

Diffusion of Change Begin change as pilot projects Effective diffusion applies the MARS model Motivation Pilot project employees rewarded; motivate others to adopt pilot project Ability Train employees to adopt pilot project Role perceptions Translate pilot project to new situations Situational factors Provide resources to implement pilot project elsewhere

Action Research Approach Action orientation and research orientation Action – to achieve the goal of change Research – testing application of concepts Action research principles Open systems perspective Highly participative process Data-driven, problem-oriented process

Action Research Process Form client- consultant relations Diagnose need for change Introduce intervention Evaluate/ stabilize change Disengage consultant’s services

Appreciative Inquiry Approach Frames change around positive and possible future, not problems. Positive principle focus on positive, not problems Constructionist principle conversations shape reality Simultaneity principle inquiry and change are simultaneous Poetic principle we can choose how to perceive situations (glass half full) Anticipatory principle people are motivated by desirable visions

Four-D Model of Appreciative Inquiry Discovery Discovering the best of “what is Dreaming Forming ideas about “what might be” Designing Engaging in dialogue about “what should be” Delivering Developing objectives about “what will be”

Large Group Interventions Future search, open space, and other interventions that involve “the whole system” Large group sessions May last a few days High involvement with minimal structure Limitations of large group interventions Limited opportunity to contribute Risk that a few people will dominate Focus on common ground may hide differences Generates high expectations about ideal future

Parallel Learning Structure Approach Highly participative social structures Members representative across the formal hierarchy Sufficiently free from firm’s constraints Develop change solutions – then applied back into the larger organization

Cross-Cultural and Ethical Concerns with Managing Change Cross-Cultural Concerns Linear and open conflict assumptions different from values in some cultures Ethical Concerns Privacy rights of individuals Management power Individuals’ self-esteem

Organizations are About People “Take away my people, but leave my factories, and soon grass will grow on the factory floors. Take away my factories, but leave my people, and soon we will have a new and better factory.” Andrew Carnegie (1835-1919)

Organizational Change 15-77