Chapter © 2008The McGraw-Hill Companies, Inc. All rights reserved. Creating Effective Organizations 17 McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Ch. 17 Learning Objectives 1.Describe the four characteristics common to all organizations, and explain the difference between closed and open systems. 2.Define the term learning organization. 3.Describe horizontal, hourglass, and virtual organizations. 4.Describe the four generic organizational effectiveness criteria, and discuss how managers can prevent organizational decline. 5.Explain what the contingency approach to organization design involves.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Ch. 17 Learning Objectives 6.Describe the relationship between differentiation and integration in effective organizations. 7.Discuss Burns and Stalker’s findings regarding mechanistic and organic organizations. 8.Define and briefly explain the practical significance of centralization and decentralization. 9.Discuss the effective management of organizational size.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Characteristics Common to All Organizations Hierarchy of authority Division of labor Common goal Coordination of effort Figure 17-1 Organization: System of consciously coordinated activities of two or more people.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Organization Charts Strategic Planning Officer Legal Counsel Cost-Containment Staff Director of Patient and Public Relations Director of Outpatient Services Figure 17-2

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Organizational Structure Terms Span of control The number of people reporting directly to a given manager Staff Personnel – denoted by dotted lines Provide research, advice, and recommendations to line managers Line managers – denoted by solid lines Have authority to make organizational decisions

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Test Your Knowledge True (A) or False (B) 1.The ideal span of control is Wider spans of control complement employee empowerment trends. 3.Narrower spans of control save costs and are administratively efficient. 4.With wider spans of control, inadequate supervision and less coordination may result

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Closed Vs. Open Systems Closed System a relatively self-sufficient entity Open System organism that must constantly interact with its environment to survive

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Organization as an Open System Goals and Values Subsystem Technical Subsystem Psychological Subsystem Structural Subsystem Managerial Subsystem Feedback Inputs  Material  Money  Human effort  Information Outputs  Products  Services  Human satisfaction  Organiz- ational survival and growth  Social benefit Figure 17-3

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Learning Organization Learning Organization proactively creates, acquires, and transfers knowledge throughout the organization

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Profiles of the New-Style and Old-Style Organizations Job requirements orientedCustomer oriented HierarchicalLateral/networked Command/control orientedInvolvement oriented Individual orientedTeam oriented FunctionalProduct/customer oriented LargeSmall and large LocalGlobal Information is scarceInformation rich StableDynamic, learning OldNew Job orientedSkill oriented Table 17-1

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Horizontal Organization New product development process teams Order fulfillment process teams Account management process teams Strategic and Administrative Process Managers Customer Needs Customer Satisfaction Figure 17-4

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Hourglass Organization Figure 17-4

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Virtual Organization Figure 17-4

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Test Your Knowledge Regardless of the specific type, to be effective tomorrow’s organizations will require: a.Rigidity b.Short-term thinking c.Internal focus d.Flexibility and adaptability

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Ways to Assess Organizational Effectiveness Goal Accomplishment Resource Acquisition Strategic Constituencies Satisfaction Internal Processes Figure 17-5

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Identifying Strategic Constituencies Financial community Environmentalists PressStockholders OPEC Competitors U.S., Foreign State and Local Government Customers Federal Government Auto Dealers Consumer activists Congress Executive Branch Government regulators Suppliers Employees Unions Figure 17-6 Major Auto Manufacturer

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Test Your Knowledge 1.Goal Accomplishment 2.Resource Acquisition 3.Internal Processes 4.Strategic constituencies a.Team work is important contributor to success b.Goals are clear and measurable c.Powerful stakeholders can significantly impact the organization d.Inputs are directly related to accomplishing objectives Match the Effectiveness Criteria on the left with the situation in which it would be most appropriate.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Early-Warning Signs of Decline 1)Excess personnel 2)Tolerance of incompetence 3)Cumbersome administrative procedures 4)Disproportionate staff power 5)Replacement of substance with form 6)Scarcity of clear goals and decision benchmarks 7)Fear of embarrassment and conflict

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Early-Warning Signs of Decline Cont. 8)Loss of effective communication 9)Outdated organizational structure 10)Increased scapegoating by leaders 11)Resistance to change 12)Low morale 13)Special interest groups are more vocal 14)Decreased innovation

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Contingency Approach Assessing Environmental Uncertainty UnstableModerately stable Highly stable 4)How stable is the demand for the organization’s product or service? UnreliableOccasional, predictable shortages Reliable 3)How reliable are resources and supplies? FrequentOccasionalInfrequent 2)How frequent are technological breakthroughs in the industry? IntenseModerateMinimal 1)How strong are social, political, and economic pressures on the organization? HighModerateLow Figure 17-7

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Differentiation and Integration are Opposing Structural Forces Differentiation Fragments the organization through specialization of labor Integration Pulls the organization together through the coordination of specialists Figure 17-8

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Characteristics of Mechanistic and Organic Organizations 4)Specification of techniques, obligations, and rights 3)Task flexibility 2)Linkage between individual’s contribution and organization’s purpose 1)Task definition and knowledge required Organic Organizations Mechanistic Organizations Characteristic Broad; generalNarrow; technical Clear or directVague or indirect Flexible; variedRigid; routine GeneralSpecific Table 17-2

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Characteristics of Mechanistic and Organic Organizations 8)Emphasis on obedience and loyalty 7)Primary decision- making style 6)Primary communication pattern 5)Degree of hierarchal control Organic Organizations Mechanistic Organizations Characteristic LowHigh LateralTop-down Democratic; participative Authoritarian LowHigh Table 17-2 cont.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Test Your Knowledge 1.Which decision-making approach tends to be used in mechanistic organizations? a.Decentralized b.Centralized 2.Which decision-making approach tends to be used in unstable and uncertain environments? a.Decentralized b.Centralized

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Effect of Technology on Structure The more the technology requires interdependence between individuals and/or groups, the greater the need for coordination “As technology moves from routine to nonroutine, subunits adopt less formalized and centralized structures”

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Test Your Knowledge True (A) or False (B) 1.Larger organizations tended to be less productive 2.The larger the organization, the less efficient. 3.Smaller organizations enjoy less turnover.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Relationship Between Strategic Choice and Organizational Structure Organizational objectives Environmental constraints Strategic decisions made by dominant coalition Organizational Strategies  Target markets  Capital sources/uses  Human resources  Technology  Total quality management Decision maker’s personal beliefs, attitudes, values, and ethics Organizational structure Organizational effectiveness Corrective action Figure 17-9

Chapter © 2008The McGraw-Hill Companies, Inc. All rights reserved. Supplemental Slides

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Video Cases 1154 Lill One Smooth Stone

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Management in the Movies Apollo 13 – “The Launch” In this scene, Gene Kranz is moving through his checklist for a go-no-go for launch. Questions What are the different departments involved in making the launch happen? How are these departments organized?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Big Get Bigger Wal-Mart- Largest US employer: 1.9 million workers (approximately the population of Houston, Texas) Large Companies (2007): Exxon-Mobil (#2) - $39.5 billion in profit Ford (#7) – wants to shrink Starbucks (#310) – concerned about increase in stores being a detriment to the “soul” of Starbucks Can an organization get “too” big? Is scale an asset or liability? “Our goal is not just to be big but to use our size to be great” ~ Jeff Immelt, GE Chairman Source: The Big Get Bigger, Fortune, April 30, 2007

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Agony of Victory Competency Trap Focusing on what the org does well Problems: Competitors learn how to do the same thing Environment changes making the competency less relevant Source: Pfeffer, J. The Agony of Victory (2007, Jan/Feb), Business 2.0, Vol 8. pg. 62

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Agony of Victory Avoiding the Competency Trap Avoid excessive specialization Develop peripheral vision – keep abreast of market changes Have mindset of continuous learning – relying too much on a strength can become a weakness Source: Pfeffer, J. The Agony of Victory (2007, Jan/Feb), Business 2.0, Vol 8. pg. 62

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Stages of Organizational Learning StageWhat Organizations Do Why They Do It 1. DefensiveDeny practices, outcomes, or responsibilities To defend against attacks to their reputation that in the short term could affect sales, recruitment, productivity, and the brand 2. Compliance Adopt a policy- based compliance approach as a cost of doing business To mitigate the erosion of economic value in the medium term because of ongoing reputation and litigation risks

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Stages of Organizational Learning StageWhat Organizations Do Why They Do It 3. Managerial Embed the societal issue in their core management processes To mitigate the erosion of economic value in the medium term and to achieve longer-term gains by integrating responsible business practices into their daily operations 4. StrategicIntegrate the societal issue into their core business strategies To enhance economic value in the long term and to gain first mover advantage by aligning strategy and process innovations with the societal issue

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Stages of Organizational Learning StageWhat Organizations Do Why They Do It 5. CivilPromote broad industry participation in corporate responsibility To enhance long-term economic value by overcoming any first mover disadvantages and to realize gains through collective action

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Pass it On… General Mills values learning and developing its employees General Mills is also committed to aiding its community and non-profit institutions Putting these values together, they established a free leadership forums for community leaders

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Evolution of Organizational Metaphors Military/Mechanical Model Closed Systems Maximum economic efficiency through planning and control Survival through adaptation to environmental constraints Org.’s primary goal PredictableUncertain Assumption about org.’s environment Precision military unit/well oiled machine Human Body Metaphorical comparison Biological Model

© 2008 The McGraw-Hill Companies, Inc. All rights reserved The Evolution of Organizational Metaphors Cognitive Model Open Systems Growth and survival through environmental scanning, interpretation, & learning Growth and survival through opportunistic cooperation and competition Org.’s primary goal Uncertain and ambiguous Primary determinant of success/failure Assumption about org.’s environment Human MindNatural Ecosystem; Darwin: survival of the fittest Metaphorical comparison Ecosystem Model

© 2008 The McGraw-Hill Companies, Inc. All rights reserved A Supportive Culture for Organizational Learning Sensitive topics are freely discussed Upper-level managers are approachable Interpersonal interactions are frequent and meaningful A collective responsibility for solving problems Full recognition of expertise and appreciation of existing knowledge Knowledge is freely shared rather than hoarded Teaching is highly valued Everyone is committed to learning from mistakes

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Conclusion Questions for discussion