1. ORGANIZATIONAL CHANGE: STRATEGIES AND METHODS Craig W. Fontaine, Ph.D. Chapter 6 Reinforcing New Behaviors

2. 6-2 Learning Objectives Identify the major structural choices faced by organizational leaders and the behavioral implications of those choices. Consider the requirement of aligning financial measures with the strategic goals of the firm. Analyze the role of information technology in impacting employee behaviors. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

3. 6-3 Macy’s – Opening Case Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall What was the organization structure at Macy’s before their decision change in 2008? How did that situation come about? What was the problem with the existing structure? What was the “trigger” event which lead to the organizational structure change? What was strategy for making the change? How did Macy’s approach the implementation of organizational change? What was the result of the organizational structure change?

4. 6-4 In all organizations, the activities of employees need to be focused on two separate issues: 1.The functional or technical activities required to achieve the desired outcomes of the organization. 2. Responsiveness to the external marketplace (customers, suppliers, competitors, regulators, etc.)  Organization structure is a mechanism for helping to achieve the desired focus. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Organizational Focus

5. What Is Organizational Structure? Key Elements: Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization Key Elements: Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization Organizational Structure How major organizational work activities are formally divided, grouped, and coordinated.

6. Key Design Questions and Answers for Designing the Proper Organization Structure The Key Question The Answer Is Provided By 1. To what degree are tasks Work specialization subdivided into separate jobs? 2. On what basis will jobs be grouped Departmentalization together? 3. To whom do individuals and groups Chain of command report? 4. How many individuals can a manager Span of control efficiently and effectively direct? 5. Where does decision-making Centralization authority lie? and decentralization 6. To what degree will there be rules Formalization and regulations to direct employees and managers?

7. What Is Organizational Structure? (cont’d) Division of labor: Makes efficient use of employee skills Increases employee skills through repetition Less between-job downtime increases productivity Specialized training is more efficient. Allows use of specialized equipment. Division of labor: Makes efficient use of employee skills Increases employee skills through repetition Less between-job downtime increases productivity Specialized training is more efficient. Allows use of specialized equipment. Work Specialization The degree to which tasks in the organization are subdivided into separate jobs.

8. What Is Organizational Structure? (cont’d) Grouping Activities By: Function Product Geography Process Customer Grouping Activities By: Function Product Geography Process Customer Departmentalization The basis by which jobs are grouped together.

9. What Is Organizational Structure? (cont’d) Chain of Command The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom. Authority The rights inherent in a managerial position to give orders and to expect the orders to be obeyed. Unity of Command A subordinate should have only one superior to whom he or she is directly responsible.

10. What Is Organizational Structure? (cont’d) Narrow Span Drawbacks: Expense of additional layers of management. Increased complexity of vertical communication. Encouragement of overly tight supervision and discouragement of employee autonomy. Narrow Span Drawbacks: Expense of additional layers of management. Increased complexity of vertical communication. Encouragement of overly tight supervision and discouragement of employee autonomy. Concept: Wider spans of management increase organizational efficiency. Concept: Span of Control The number of subordinates a manager can efficiently and effectively direct.

11. What Is Organizational Structure? (cont’d) Centralization The degree to which decision making is concentrated at a single point in the organization. Formalization The degree to which jobs within the organization are standardized. Decentralization The degree to which decision making is spread throughout the organization.

12. Dimensions of Organizational Structures Organizational structures have two dimensions: vertical and horizontal The vertical dimension refers to the number of hierarchical levels in the company: “tall structures” have many more levels then “flat structures” Tall structures typically have a “narrow” (less people) span of control and flat structures have “wider” span of control (more people). Tall structure are characterized by centralized decision making at the top, flat structures normally have more local decentralized decision making. The horizontal dimension is the organization structure element which divides work into specific jobs/tasks and assigns jobs into units such as departments. (These are described in detail later in the presentation)

13. Contrasting Spans of Control

14. Dimensions of Organizational Structures Organizational structures have two dimensions: vertical and horizontal The vertical dimension refers to the number of hierarchical levels in the company: “tall structures” have many more levels then “flat structures” Tall structures typically have a “narrow” (less people) span of control and flat structures have “wider” span of control (more people). Tall structure are characterized by centralized decision making at the top, flat structures normally have more local decentralized decision making. The horizontal dimension is the organization structure element which divides work into specific jobs/tasks and assigns jobs into units such as departments.

15. Tall Dimension (Tall or Flat)

16. Tall or Flat – Advantages and Disadvantages Advantages of Tall StructuresAdvantages of Flat Structures Close supervisory control Flexible and better able to adapt to changes Clearly defined roles and responsibilitiesMore direct and effective communication Obvious chain of commandFaster decision making Decision making centralized at the topGreater autonomy and decision making for staff Clear progression and promotion ladderLess hording of information at the top More mentoringMore democratic Disadvantages of Tall StructuresDisadvantages of Flat Structures High management costsLess clear specific job functions Slow decision makingLess opportunity for promotion Ineffective and slow communicationHigh managerial work load Employees are less motivated, innovation suffersMore difficult to coordinate between subordinates Less rewards are given to staff, de-motivationalLess close relationship between superior & staff Subordinates have less freedom and responsibility Produces more generalists than specialists

17. Horizontal Dimension The horizontal dimension defines how work/jobs are grouped or Departmentalization. Popular approaches to departmentalization are: By function – Functional Departmental Structure By product or service – Divisional Departmental Structure When customers or jobs are scattered over a large geographic area and have similar needs based on their location, a Geographic organizational structure might be appropriate. Less common is the Matrix organizational structure, which combines two structures. In a matrix structure; product, project or client/regional managers, borrow talent from the specialized functional areas in achieve tasks.

18. Functional AdvantagesDisadvantages High degree of efficiencyCross functional communication poor Develops specialized employeesDiminished responsiveness to customers’ needs Allows economies of scale to be achieved Slow response to external environmental changes Fosters a professional identity within functions Fosters restricted view of the organization Accountability and roles are clear Creates allegiance to functions, not the organization Clear career pathDevelops specialists not generalists

19. Divisional AdvantagesDisadvantages Fast response to environmentDuplication of resources Fast response to customer needsReduced specialization Fosters high coordination across functionsCompetition among divisions Develops general managers and executive skillsMakes standardization across divisions difficult Clear responsibility for all activities in the divisionPoor coordination across divisions

20. Geographic AdvantagesDisadvantages Local hiring improves knowledge of local cultureDuplication of personnel (home and regions) Provides greater customer knowledgeCompetition between different areas Customer feels more comfortableDifficult to maintain core company beliefs Faster more nuanced decisionsPotential feeling of division within the company Fosters customized solutionsDifferent metrics and policies for each region

21. Matrix AdvantagesDisadvantages Efficient utilization of scare expensive specialistsDual chain of command repercussions Allows for rapid start of new projects/productsRequires good interpersonal skills Develops cross-functional skills by employeesConflict of between managers over priorities Increased employee involvement in decision makingToo much time spend coordinating Achieves coordination to meet customer needsPlaces stress on individuals

22. 6-22 Horizontally Linked Structure “ Organizations can use cross-functional teams to achieve linkages across the various and interdependent activities of their value chain ” CEO WarehousingDesigning Cutting & Sewing Packaging Horizontally linked structure: an organizational design choice that groups people along the value chain activities and processes that produce, market, deliver, and service the firm’s offerings Value-Chain Teams Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

23. 6-23 The Role of Structural Intervention in Implementing Change Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall  “Think of structural change in terms of Lewin’s refreezing, not in terms of unfreezing.”  Compensation is one of the strongest, perhaps most immediate tools that impact patterns of employee behavior. “When structural change occurs early in a change process, employees can be confused by its purpose, unsure of what new competencies are being required, and unwilling—or unable—to make appropriate alterations in behavioral patterns.”

24. 6-24 Incentives Pay for performance: pay that is tied to the performance in the form of either a merit raise to base pay or an incentive bonus that does not increase base pay. “Individual incentives will be most effective in shaping behavior when the individual controls the outcomes being measured and rewarded, when the outcomes are tied to improved performance, when the evaluation of an employee’s contribution are perceived as being valid, and when the difference between rewards for high and low performance is significant” Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

25. 6-25 Pay-for-Performance Plans PlanHow It Works Piece rate Employee earns all or part of a wage based on number of units produced. Commission Sales person earns all or part of a wage based on number of units sold. Merit pay Employee earns raise to base wage based on performance evaluation. Bonus Employee earns extra payment based on performance evaluation. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

26. 6-26 Factors That May Undermine Pay-for-Performance Plans Performance appraisals are subjective. Individual rather than group goals are emphasized. Encourage short-term orientation at the expense of long-term goals. Merit pay raises become an expected annuity. Lengthy time lag between performance and reward. Many jobs cannot be isolated and precisely measured. Pay differentials between performance levels are small. Payout factors determined by organizational performance not by individual performance. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

27. 6-27 Team-based Bonus Plans Team-based bonuses: o Enhances team performance o Hurts collaboration among and between teams “Organizations call upon team-based performance bonuses to enhance the effectiveness of teams, but the bonus may undermine collaboration between team” “Bonuses based on the overall performance of the organization make a symbolic statement recognizing the shared purpose and responsibility of all employees and organizational units” “Bonuses based on the overall performance of the organization make a symbolic statement recognizing the shared purpose and responsibility of all employees and organizational units.” Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

28. 6-28 Understanding Rewards Extrinsic reward: rewards (pay, promotion, praise, and so forth) provided by the organization to employees Intrinsic reward rewards: (feelings of pride, satisfaction, and self-esteem) that accrue to the individual based on the performance of a task Pay equity: a perception by employees that their pay is fair and equitable in relationship to others: peers inside the organization and out as well as subordinates and superiors in the hierarchy “By relying heavily on extrinsic rewards to shape employee behavior, organizations risk driving out the intrinsic rewards that might be associated with the work; as a result curiosity, creativity, and problem ‐ solving behaviors may be lessened.” “ “Introducing new incentives early in a change implementation process risks negative consequences.” Organizations will not be able to call on intrinsic motivation unless employees feel that they are being paid equitably” Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

29. 6-29 Technology and Behavioral Change Technology: the processes, mechanics, and interactions of human behavior required to convert raw material into finished offerings Choices about how to use technology: Apply technology in a way that automates existing processes. Apply technology in a way that transforms these processes. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall