1. Organizational Agility
CHAPTER 9
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2. Chapter Introduction Quote
“I came to the conclusion long ago that limits to innovation have less to do with technology or creativity than organizational agility. Inspired individuals can only do so much.” Ray Stata

3. Learning Objectives
1 Discuss why it is critical for organizations to be responsive. 2 Describe the qualities of an organic organization structure. 3 Identify strategies and dynamic organizational concepts that can improve and organization’s responsiveness. 4 Explain how a firm can be both big and small. 5 Summarize how firms organize to meet customer requirements. 6 Identify ways that firms organize around different types of technology.

4. The Responsive Organization
Mechanistic organization
Organic structure
A form of organization that seeks to maximize internal efficiency
An organizational form that emphasizes flexibility
Many decades after Max Weber wrote about the concept of bureaucracy as the rational way to run large modern organizations, two British management scholars (Burns and Stalker) described what they called the mechanistic organization. The mechanistic structure they described was similar to Weber’s bureaucracy, but they stated further the modern corporation has a new option: The organic structure, which is much less rigid and, in fact, emphasizes flexibility.

5. Exhibit 9.1 Two Ways to Describe an Organization
Exhibit 9.1 contrasts the formal structure of an organization—epitomized by the organization chart—to the informal structure, which is much more organic.
Jump to Appendix 1 for long description of image.
SOURCE: Adapted from Soda, G.and Zaheer, A., "A Network Perspective on Organizational Architecture: Performance Effects of the Interplay of Formal and Informal Organization," Strategic Management Journal, 33, 2012,

6. Organizational Capabilities
Core capability
The knowledge, expertise, or skill that underlies a company’s ability to be a leader in providing a range of goods or services
Ordinary capabilities
Basic administrative and operational functions needed
Dynamic capabilities
"Higher-level" activities involving adapting rapidly and even proactively shaping the environment
A recent, different, and important perspective on strategy and organization hinges on the concept of core capabilities. Ordinary capabilities pertain to basic administrative and operational functions needed to get tasks done. Dynamic capabilities are "higher-level" activities involving adapting rapidly and even proactively shaping the ever-changing business environment. Whereas ordinary capabilities are about doing basic things right, dynamic capabilities are about doing the right things at the right time.  

7. Managing Resources for Competitive Advantage
Accumulate the right resources.
Combine resources to produce capabilities.
Leverage resources.
It’s not enough to have valuable resources that provide capabilities; those resources have to be managed in a way that provides an advantage over competitors. Managers must do three things. First, they must accumulate the right resources. Next, they combine the resources in ways that give the organization capabilities, such as researching new products or resolving customers' problems. Finally, managers need to leverage or exploit their resources. They do this by identifying the opportunities where their competencies deliver value to.
Copyright Bloomberg/Getty Images

8. Strategic Alliances
Formal relationship created among independent organizations with the purpose of joint pursuit of mutual goals
A strategic alliance is a formal relationship created with the purpose of joint pursuit of mutual goals. Different organizations share administrative authority, form social links, and accept joint ownership. Alliances occur between companies and their competitors, governments, and universities.
Copyright McGraw-Hill Education/John Flournoy, photographer

9. How I’s Can Become We’s The best alliances meet these criteria:
Both partners work hard on developing a positive working relationship.
Metrics: The partners measure how they're going to succeed, not just the end result.
Differences: The partners embrace differences in one another.
Control: Both partners encourage collaborative behavior with less emphasis on formal systems and structures.
Management: The partners manage their internal stakeholders who are involved in the alliance.
Exhibit 9.3 (recreated on this slide) shows some recommendations for how to do this. In fact, most of the ideas apply not only to strategic alliances but to any type of relationship.
SOURCE: Porter, M., Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press, 1985.

10. Learning Organizations
Organizations skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights
A learning organization is an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights.

11. Becoming a Learning Organization
Engage in disciplined thinking and attention to details, making decisions based on data and evidence rather than guesswork and assumptions.
Search for new knowledge and ways to apply it.
Review successes and failures looking for lessons and deeper understanding.
Benchmark to identify and implement best practices.
Share ideas throughout the organization.
How do firms become true learning organizations? They make sure a few important activities are happening at all levels and in all functions.

12. The High-Involvement Organization
Top management ensures that there is consensus about the direction the business is heading. Leaders seek input. Task forces, study groups, and other techniques foster participation. Fundamental to the high-involvement organization is continual feedback to participants regarding how they are doing compared with the competition.
Participative management—involving employees in decision making—can be a good way to create a competitive advantage. In a high-involvement organization, top leaders ensure consensus about the direction in which the business is heading by seeking input from their team and middle managers and sometimes from lower levels, depending on the issue.  

13. The Case for Big and Small Organizations
Larger size helps create economies of scale.
Larger size helps develop economies of scope.
The Case for Small
Large organizations can have difficulty managing relationships.
Large organizations are more difficult to coordinate and control.
Nimble small firms may outmaneuver big bureaucracies.
One of the most important characteristics of an organization is its size. Large organizations are typically less organic and more bureaucratic.
Small is beautiful for unleashing energy and speed. But in buying and selling, size offers market power. The challenge, then, is to be both big and small to capitalize on the advantages of each.

14. Social Enterprise Increasing Impact: Scaling Social Enterprises
Social enterprises typically begin as small, grassroots efforts but success may lead to these enterprises morphing into large organizations.
As social enterprises try to get larger, what unique challenges do they face?
What are some of the drawbacks associated with partnering with governments or big businesses? If you ran a social enterprise, which of these options would you pursue?
As social enterprises try to get larger, what unique challenges do they face?
Social enterprises may face a lack of resources as they get larger. This is why it is important for them to consider alliances with governments and partnerships with big businesses. However, as they grow, social enterprises may forget what they are really fighting for. As small organizations their missions were clearer, but now that they have grown, their missions may be more convoluted.
What are some of the drawbacks associated with partnering with governments or big businesses? If you ran a social enterprise, which of these options would you pursue?
Answers will vary on which option students would choose, but it is important to understand that partnering with governments and big businesses has some drawbacks. First, these entities may not share your social enterprise’s core values and mission. Second, due to their abundant resources, these large units may dictate operations and procedures to the extent that you are not able to run your social enterprise as you want.

15. Regaining Responsiveness
Downsizing
The planned elimination of positions or jobs
Rightsizing
A successful effort to achieve an appropriate size at which the company performs most effectively
As large companies attempt to regain the responsiveness they sometimes consider downsizing.
Downsizing is the planned elimination of positions or jobs. Common approaches to downsizing include eliminating functions, hierarchical levels, or even whole units. Another option is to replace full-time employees with less expensive part-time or temporary workers.
Done appropriately, with inefficient layers eliminated and resources focused more on adding customer value than on wasteful internal processes, downsizing can indeed lead to a more agile firm. In that case, downsizing can be called rightsizing —achieving the size at which the company performs most effectively.

16. Customers and the Responsive Organization
A responsive, agile organization is able to meet and exceed the expectations of its customers.
Managers must stay focused on at least three core players known as the strategic triangle:
The company itself
The competition
The customer
An organization’s strategy and size influence its agility, adaptability, and structure. The point of designing structuring a responsive, agile organization is to enable it to meet and exceed the expectations of its customers—the people who purchase its good or services and whose continued patronage helps drive sustained success.
Any business unit must take into account at least three core players in the strategic triangle: the company itself, the competition, and the customer. Successful organizations use their strengths to create value by meeting customer requirements better than competitors do.

17. Customer Relationship Management
Customer relationship management (CRM)
A multifaceted process focusing on creating two- way exchanges with customers to foster intimate knowledge of their needs, wants, and buying patterns
Value chain
The sequence of activities that flow from raw materials to the delivery of a good or service, with additional value created at each step
Customer relationship management (CRM) is a multifaceted process, typically using information technologies, that fosters two-way exchanges with customers so that firms know "intimately“ their needs, wants, and buying patterns. A value chain is the sequence of activities that flow from raw materials to the delivery of a good or service, with additional value created at each step. You can see a generic value chain in Exhibit 9.3 (next slide). Each step in the chain adds value to the good or service.

18. Exhibit 9.3 Generic Value Chain
Jump to Appendix 2 for long description of image.

19. Quality Initiatives Total quality management (TQM) Six sigma quality
An integrative approach to management that supports the attainment of customer satisfaction through a wide variety of tools and techniques
Six sigma quality
Set of statistical tools to analyze the causes of product defects
At six sigma, a product or process is defect-free percent of the time.
Total quality management (TQM) is a comprehensive approach to improving product quality and thereby customer satisfaction. It is characterized by a strong customer orientation (external and internal) and has become an umbrella theme for organizing work.
An approach called six sigma quality  is one of the most important contributors to total quality management: a set of statistical tools to analyze the causes of product defects. Sigma is the Greek letter used to designate the estimated standard deviation or variation in a process.

20. ISO 9001
Eight principles
Customer focus
Leadership
Involvement of people
Process approach
System approach to management
Continual improvement
Factual approach to decision making
Supplier relationships
A series of quality standards developed by the International Organization for Standardization to improve total quality in all businesses for the benefit of producers and consumers
A company can both improve its responsiveness to customers and convey clearly that it has done via certifications. The International Organization for Standardization (known globally as ISO) sets a wide variety of exacting standards for parts, materials, products, and organizational processes.
The requirements for a quality management system that will ensure such practices are spelled out in ISO Any type or size of organization can improve its total quality and successfully meeting specific standards for eight principles.

21. Reengineering
“If you were the customer, how would you like us to operate?” Processes are redesigned from scratch as if the organization was just starting out. Reengineering often requires a fundamental change in the way the parts of the organization work together.
Extending from TQM and organizing around customer needs, companies embraced reengineering. The goal of reengineering is to revolutionize key organizational systems.
Copyright PAUL SAKUMA/AP Images

22. Types of Technology Configurations
Small batch
Technologies that produce goods and services in low volume
Large batch
Technologies that produce goods and services in high volume
Continuous process
A process that is highly automated and has a continuous production flow
We have discussed the strategic, size, and customer influences on organizational design and agility. We now turn to one more critical factor affecting an organization’s structure and responsiveness: its technology.
Broadly, technology is the methods, processes, systems, and skills used to transform resources (inputs) into products (outputs).
Research by Joan Woodward laid the foundation for understanding technology and structure. According to Woodward, three basic technologies characterize how work is done: small batch, large batch, and continuous process. These classifications are equally useful for describing either service or manufacturing technologies.

23. Exhibit 9.5 Key Features in Mass Customization
Area
High Variety and Customization
Product design
Collaborative design; significant input from customers.
Short product development cycles and Constant innovation
Operations and processes
Flexible processes.
Business process reengineering (BPR).
Use of modules.
Continuous improvement (CI).
Reduced setup and changeover times.
Reduced lead times and production to order and shorter cycle times.
JIT delivery and processing of materials and components.
Quality management
Quality measured in customer delight.
Defects treated as capability failures.
Organizational structure
Dynamic network of relatively autonomous operating units.
Learning relationships and team-based structure.
Integration of the value chain.
Workforce management
Empowerment of employees and broad job descriptions.
High value on knowledge, information, and diversity of employee capabilities.
New product teams.
Emphasis
Low-cost production of high-quality, customized products.
Although volume and variety traditionally required tradeoffs, companies today try to produce both high-volume and high-variety products at the same time. This is mass customization.
Companies want to deliver customization at low cost. They organize (see Exhibit 9.5  recreated here) around a dynamic network of relatively independent operating units. Each unit performs a specific process or task—called a module—such as making a component, performing a credit check, or using a particular welding method. Outside suppliers or vendors may perform some modules.
Reprinted with permission of APICS—The Educational Society for Resource Management, Production and Inventory Management 41, no. 1, 2000, 56–65.

24. Manufacturing Computer-integrated manufacturing (CIM)
The use of computer-aided design and computer-aided manufacturing to sequence and optimize a number of production processes
Flexible factories
Manufacturing plants that have short production runs, are organized around products, and use decentralized scheduling
Lean manufacturing
Operations that eliminate unnecessary steps in the production process and continually striving for improvement
Mass customization is made possible by computer-integrated manufacturing (CIM), which links computerized production efforts. Two major element of CIM, computer-aided design and computer-aided manufacturing, share data for product design, testing, manufacturing, and quality control. CIM enables flexible factories, which serve customers needing fast turnaround on relatively small orders. Another organizing approach, lean manufacturing, strives for the highest possible productivity and total quality, cost-effectively, by eliminating unnecessary steps in the production process and continually striving for improvement.

25. Organizing for Speed Time-Based Competition (TBC)
Logistics
The movement of resources into the organization (inbound) and products from the organization (outbound)
Just-in-time (JIT)
Manufactures in very small lots and delivers them to the next stage in the process precisely at the time needed
Concurrent engineering
A design approach in which all relevant functions cooperate jointly in a maximum effort aimed at producing high-quality products that meet customers’ needs
The movement of resources into the organization (inbound) and products from the organization to its customers (outbound) is called logistics. An additional element of TBC is just-in-time (JIT) operations. JIT manufactures subassemblies and components in very small lots and delivers them to the next stage in the process precisely at the time needed (just in time). Concurrent engineering—also an important component of total quality management—is a major departure from the old development process that did various functional tasks sequentially. In contrast, concurrent engineering uses a team-based approach to incorporate the perspectives of all functions—and customers and suppliers—from the beginning of the process. This results in a higher-quality product that is designed for efficient manufacturing and customer needs.

26. Management in Action GE’S Pursuit of High Quality and Leanness
To improve quality, GE applies six sigma; and to improve efficiency by eliminating waste, it uses the lean initiative methods. These methods are not just for manufacturing, either; six sigma has been used for finance, human resources, and their key areas within the company.
How else might GE become more responsive to its customers?
Based on the information in the case, how would you rate GE’s organizational agility?
GE tries to be responsive in a variety of ways. Among these are the use of six sigma to continually improve quality and lean methods to improve efficiency by eliminating waste. These methods make change a constant part of doing business at GE.
How else might GE become more responsive to its customers?
Other ways to be responsive to customers include using a customer relationships management (CRM) system. It can expand the drive to satisfy customers to include serving “internal customers”—whatever person in the organization who receives the work done by an employee. Other quality initiatives GE might consider are total quality management and ISO 9001.
Based on the information in the three parts of this case, how would you rate GE’s organizational agility? Summarize your reasons for this rating.
Answers will vary. Students should consider GE’s large size; its efforts at continuous improvement in the areas of quality, efficiency, and responsiveness; and its business performance.

27. In Review
1 Discuss why it is critical for organizations to be responsive. 2 Describe the qualities of an organic organization structure. 3 Identify strategies and dynamic organizational concepts that can improve and organization’s responsiveness. 4 Explain how a firm can be both big and small 5 Summarize how firms organize to meet customer requirements. 6 Identify ways that firms organize around different types of technology.
This slide may be used as a review of the lesson and to facilitate discussion.
The next chapter explores human resource management.