Chapter 13 – Conflict, Power and Politics

Intergroup Conflict in Organizations

Intergroup conflict requires three things: employees who perceive themselves as part of a group, an observable group difference, and frustration. The frustration does not have to be severe and even the anticipation of one group getting their goals and the other does not, then it starts. Conflict, while similar to competition, is more severe. The conflict can be horizontal among the different groups in the organization or vertical between the layers of management.

Sources of Conflict

Goal Incompatibility

Goal incompatibility happens when one department’s goals conflict with another’s goals. Manufacturing and marketing are often two groups that will have conflicts in goals.

Differentiation

Differentiation is the differences in cognitive and emotional operations among managers in different functional departments. The department that you are part of will often influence what you values, attitudes and behavior will be like.

Task Interdependence

Task interdependence means that one department depends on another for materials, resources, or information. As it increases conflict will increase.

Limited Resources

When there are limited resources like people and money in an organization, one department may try to achieve its goals at the expense of other departments. Resources also indicate that a department had more power if it has more of them and will use that power to get still more.

Rational versus Political Model

When goals are in alignment, then a rational model of an organization can be used. This ideal cannot really be achieved though. When differences are great, then the political model comes in to play. Groups will push and pull for what they want. A pure political model is also something that cannot be reached. Instead, most organizations have a mix of the two and some will even flow between the two at various times.

Power and Organizations

Power is the ability by one part of the organization to influence another part of it to get the outcome that it wants. It must be between two or more people or organizational departments because one has some valued resources that the others need. Because of this the power holder gets compliance with his requests.

Individual versus Organizational Power

There are five sources of personal power:

v Legitimate power – authority granted by the organization

v Reward Power – authority granted by the ability to give rewards

v Coercive Power – authority give by the ability to punish

v Expert Power – authority granted because of the knowledge

v Referent Power - authority because of the charismatic nature of the person

In an organization power is the result of structural characteristics.

Power versus Authority

Anyone in an organization can exercise power to achieve desired outcomes. Authority is a force for prescribing outcomes but only as defined by the hierarchy and reporting relationships.

1. Authority is vested in organizational positions – it is where they are in the organization not who they are

2. Authority is accepted by subordinates – lower level employees comply because the believe that the upper level people have the authority to tell them what to do

3. Authority flows down from a vertical hierarchy – people at the top have more authority then those at the bottom

Power can be exerted in all directions including upward. Authority flows downward and is the same as legitimate power.

Vertical Sources of Power

Formal Position

The higher up the chain of command that you are, the more formal authority you have been given. Often senior management will use symbols or language to remind people underneath them that they have this power. The amount of power that middle and lower level management has in built into the structure of the organization and is necessary because without it they cannot do their jobs. The more access one has to higher level management the more power is bestowed, even though you may be on the same level with other managers. Designing positions for power assumes that there is a limited amount of power to be dealt out, but that is not necessarily the truth. Often to get power you have to give it away.

Resources

Resources are often allocated from the top down, giving those in authority more power over those underneath. They can use these resources to reward or to punish.

Control of Decision Premises and Information

In controlling how a problem is to be solved (resources, etc.) there is a control of decision premise and information. This allows for top level managers to make the big decisions while lower level managers make a lot of little decisions. Information is one of those things that can be hoarded or shared, and it tends to be more shared in learning organizations. Control of information is a source of power and it can be used to influence decisions the way one wants them to be even if they do not have the authority.

Network Centrality

Network centrality is being centrally located in the organization and having access to the organization that is critical and others may need. This is usually where top executives place themselves. Employees also have more power when there jobs are centered on places of concern and opportunity. They can also do this by becoming knowledgeable or taking on difficult or undesirable jobs in the organization.

People

Top people will often fill the areas around them with people that are loyal to them. Lower people can use this to there advantage and become loyal to higher ups and move up in the organization.

Horizontal Sources of Power

All Vice Presidents in an organization are on the same level. Does that mean they all have the same power in the organization? No, certain departments have more pull and therefore more power. Sales department is most commonly the one with more pull. Though difficult to measure, we can analyze horizontal power these ways:

Strategic Contingencies

Strategic contingencies are things that happen internally and externally to the organization that help it reach its goals. Departments can put themselves into places where they are needed strategically.

Power Sources

1. Dependency – power is received if you have something that someone else needs. Sometimes this is a lower department that has something that the higher department needs.

2. Financial Resources – the person with the gold makes the rules. Money generates dependency to the departments that generate it.

3. Centrality – where is the department in the organization. What ever is the focus of the organization is where the centrality usually is.

4. Nonsubstitutability – a department has a function that no other department can duplicate easily. Some of this is based on the skill set a person may have and as the market for those skills changes nonsubstitutability may change.

5. Coping with uncertainty – departments that can reduce uncertainty can increase their power. Ways that departments can cope:

a. Obtain prior information – helps to forecast events

b. Prevention – predicting and forestalling negative events

c. Absorption – a department takes action after an event to reduce negative consequences

Political Processes in Organizations

Politics is hard to measure and often it is hidden from view. Some things about it that managers believe:

1. Most managers thinks politics are negative and damaging

2. Managers think that it is fairly common in all organizations

3. Managers believe that politics happen at a higher level

4. Politics arises in some domains but is absent in others

Definition

Power is the available force to do a job. Politics is the use of power to influence decisions to get desired outcomes. It can be looked on as self-serving or a natural flow of the organization. If we look at it as self serving, then politics becomes dishonest and deceptive and this is the way many people look at politics. On the other hand if we look at politics as being the natural flow of give and take in an organization, then we have a better view of it. Organizational theory looks at it this way. Organizational politics involves activities to acquire, develop, and use power and other resources to obtain the preferred outcome when there is uncertainty or disagreement about choice.

When is Political Activity Used

The area where most political activity takes place in an organization is structural change, management succession, and resource allocation. When reorganization takes place many people will try to retain the power that they have by politicking. New management coming in will often cause people to try to work in ways to keep their position by using political activity. Lastly, when there are limited resources available, people will use the political process to get what they want.

Using Power, Politics, and Collaboration

Position and responsibility, more that personality and style, determine the use of political power. Individual managers will negotiate decisions and adopt tactics that will enable them to acquire and gain more power. To understand power in an organization you need to look at structural components and individual behavior. Some parts of the firm may not be as bold with their use of power but it is there.

Tactics for Increasing Power

1. Enter areas of high uncertainty – identify the uncertainty and then take steps to cope with it. Since trial and error is needed, learning will be taking place that another department will not be able to duplicate.

2. Create dependencies – just the simple act of doing a favor for an organization can put them in your dependency. Another way is to give your department skills that cannot be duplicated in other parts of the organization.

3. Provide scarce resources – if you have resources (money, information, etc.) you will also have power.

4. Satisfy strategic contingencies – find the element in the organization that is critical for its success.

Power is not allocated randomly. It can be easily understood and once achieved can be used to meet helpful outcomes

Political Tactics for Using Power

1. Build coalitions and expand networks – most decisions are made outside of formal meetings so take the time to work with others. Working with others rather than exploiting others is necessary. Also, cooption, or bringing a dissenter over into the group is a good way to expand your networks.

2. Assign loyal people to key positions – put people in authority that are sympathetic that the goals of the department to help achieve departmental goals.

3. Control decision premises – constrain the boundaries of the decision. Let others see the good side and not the bad side. One can also limit the amount of information others receive. Agenda setting, calling attention to specific problems is another example of this.

4. Enhance legitimacy and expertise – work with others to get mutual goals met.

5. Make a direct appeal – do not ask and you cannot receive. Bargaining for what you need and be explicit when presenting needs.

In all this, the use of power should not be obvious. Drawing attention to your power diminishes it. Power works best when it is used quietly.

Tactics for Enhancing Collaboration

1. Create integration devices – bring together people from different departments to jointly solve the problems. Labor-management teams are a good example.

2. Use confrontation and negotiations – there may be some risk, but if able to succeed then there will be new respect for each other. The most useful of this way of doing things is the win-win strategy. No one likes to loose so this is a good way to deal with things, find things that benefit both of you.

3. Schedule intergroup consultations – bring groups together so that they can see how the other group sees them.

4. Practice member rotations – move people around to different departments so that they have the advantage of seeing how the other groups work, operate, and what their values are.

5. Create shared missions and superordinate goals – when goals are linked together, employees will work together.

Summary and Interpretation

Chapter 12 The Decision Making Process

Definitions

Organizational Decision Making is the process of identifying and solving problems. It is broken up into problem identification (figuring out there is a problem) and problem solution (figuring out the course of action to take). Problems can be broken down into programmed decisions (repetitive decisions that are well defined and have procedures to solve them) and non-programmed decisions (ones that are poorly defined and no formal plans ahead of time). Strategic planning is often involved in non-programmed decisions. Extremely complex non-programmed decisions are referred to as ‘wicked’ decisions. Non-programmed decisions are increasing in businesses today.

Individual Decision Making

Rational Approach

The rational approach is a step by step decision making process. It was developed so decisions would be less arbitrary. It is not fully achievable because of uncertainty in the real world. It consists of eight steps:

1. Monitor the decision environment – look for deviations from the normal behavior

2. Define the problem – find out the 5 w’s : Who, What, When, Where, Why. Also add how it influences things now.

3. Specify decision alternatives – what do we need to be done

4. Diagnose the problem – dig into the problem to see what caused it

5. Develop alternative solutions – seek and ideas and solutions from others and develop several alternatives

6. Evaluate alternatives – gauge which ones have the best chance of working, prioritize the solutions

7. Choose the best alternative – select the one that is the best choice

8. Implement the chosen alternative – Carry out the chosen path

Here the first four steps together identify the problem; the last four are the solution stage.

Bounded Rationality Perspective

Often because of limited time or the complexity of the problem the rational abandoned in part.

Constraints and Tradeoffs

Some decisions are hard to make because there are too many things that restrict the decisions to be made. This can be caused by the problem being ambiguous, needing another view, needing social support, culture, ethical values, and decision making styles.

The Role of the Intuition

Intuition is not an arbitrary thing as it is based on years of information and similar decisions that have been made or stored. Very often intangible items can lead an experienced person to see a problem before it develops. It should however not always be trusted. It can lead to total failure. Managers need to learn to walk the line between making the decisions with arbitrary thinking and obsessing over all the possible solutions.

Organizational Decision Making

Management Science Approach

Management Science Approach is used when things are easily gathered and they can be programmed into equations. Increasingly, computers are being used especially when there are many variables to consider. Always remember that in the end, there needs to be some human that oversees the results. Some tacit knowledge cannot be conveyed to a computer program. Let people look at the decisions and discuss the output.

Carnegie Model

The Carnegie model comes from people associated with Carnegie-Melon University. In it, decisions are not made by one person, but, by a coalition of many managers. This works well when the goals are ambiguous as management must bargain about the problem and build a group to support it. It also works well because mangers intend to work rationally but in the end decide to work intuitively. A coalition helps because all interested parties get to put in their input. In working together, the group does a satifice, choosing to find a solution agreeable to all, but not necessarily the optimal solution. Management in this setting and alone will often do a problemistic search; find the first solution that seems to work best for the problem and stop at that point.

Incremental Decision Process Model

The incremental decision making process focuses more on the sequences that must be gone through for a decision to be made. A firm in making a decision does not make one big decision but several series of smaller ones. This process does break down into three categories though:

Identification Phase

The first thing to do is to have recognition or become aware of the problem. Often external or internal environments will change and show a problem when it does. Then the diagnosis takes place. These diagnoses can be very systematic or can be informal based on the problem and the time needed to find a solution.

Developmental Phase

During the development stage the first thing that is done is an alternatives search. People in the organization will look in to their collective knowledge for a way to solve the problem. If a problem can not be resolved by a search then there will be a design of a solution.

Selection Phase

From here we pick a solution in one of three ways.

· Judgment – when a single manager makes a choice based on the information that he has

· Bargaining – when there are several mangers with a stake in the outcome, and conflict arises

· Authorization – once solution found, it is passes up the hierarchy to the person with the authority to get it done, and this is generally done because of the expertise at the lower level

Dynamic Factors

Minor problems may cause a non-linear solution, causing people to go back and re-engineer ideas to resolve the problem.

The Learning Organization

Organizations that have a great deal of change tend to look at the learning organization as a model.

Combining the Incremental and the Carnegie Models

The Carnegie model works well for the problem identification stage. After that the incremental method is best used as it can take you step by step through a way to solve the problem.

Garbage Can Model

The garbage can model makes the whole organization the focus of the decision.

Organized Anarchy

Organized anarchy exists in very organic organizations and have three characteristics’:

1. Problematic preferences – every thing about problem is ill-defined

2. Unclear, poorly understood technology – cause and effect hard to determine

3. Turnover – high rate of change in participants, low amount of time available to resolve a problem

While many organizations may find this happening from time to time, as model it does not exist in its pure form.

Streams of Events

In the garbage can model, there are no sequences to solve a problem; in fact a solution may be present for a problem that does not exist. There are four streams to deal with:

1. Problems – problems are dissatisfaction between current and desired performances. They may or may not lead to a solution, but are solved when given a solution.

2. Potential solutions – a solution is what is proposed for adoption. Sometimes participants will look for problems that will fit there solutions to get them adopted.

3. Participants – the employees in an organization

4. Choice Opportunities – occasions when an organization makes a decision.

The idea is that the four streams get stirred together and when problems, solutions and participants connect, then a decision will be made. Not all problems will get solved and not all solutions have a problem to go with them creating high levels of uncertainty.

Consequences

1. Solutions may be proposed where problem does not exist, causing adoption when there was no need to

2. Choices are made without solving problems because the intention is to solve the problem but the solution is wrong

3. Problems may persist without being solved because people may get used to them or not know how to solve them

4. A few problems are solved

Contingency Decision Making Framework

Problem Consensus

Problem consensus refers to the agreement among managers about the nature of the problem and which goals or outcomes to pursue. When managers disagree the level of uncertainty in the organization becomes high. When there is a high degree of differentiation there is a low level of problem consensus as well. Consensus is really needed at the problem identification stage.

Technical Knowledge about Solutions

Technical knowledge deals with understanding and agreeing on how to solve a problem to reach a goal. When the knowledge to solve the problem is not there, trial and error become the way to solve it.

Contingency Framework

	Problem Consensus
Solution Knowledge		Certain	Uncertain
	Certain	Individual; Rational approach, Computation Organization: Management Science	Individual; Bargaining, Coalition forming Organization: Carnegie Model
	Uncertain	Individual; Judgment, trial and error Organization: Incremental Decision Process Model	Individual; Bargaining and Judgment, Inspiration and limitation Organization: Carnegie and Incremental Decision making process model, Evolving to the Garbage can model

Cell 1 Certain – Certain

Because everything is certain, there is rational ways of solving problems.

Cell 2 Certain – Uncertain

Here we are uncertain of the problem so even though we have the ability to fix it we are unsure of what it is. The Carnegie model works well here because of the bargaining to get the real problem out in the open.

Cell 3 Uncertain – Certain

We know the problem here but are not sure how to solve it. Managers need to rely on intuition and the rational approach to solve the problem. Trial and error is often used here.

Cell 4 Uncertain – Uncertain

Along with trying to use the other approaches, inspiration and imitation can be used. The garbage can model will eventually become prevalent.

Special Decision Circumstances

High-Velocity Environments

Research has gone into how companies that have so much technological change handle theses high-velocity environments and they found:

· Successful managers tracked information in real time, unsuccessful ones looked more to the future

· Successful firms planed many alternatives at a time, unsuccessful ones thought out one at a time

· Success followed decision makers that sought out many people for advice and trusted a select few for key advice, it did not follow those who had a hard time rallying people around them

· Fast companies tried for consensus but when not available would have a key manager make the decision, slower ones delayed till a consensus could be reached

· Successful companies made decisions that meshed well and met objectives of the firm, less success happened when the decisions were abstract from each other and considered in isolation

In these firms a slow decision is as bad as a wrong decision. In order for firms to learn to make decisions quick, they will do count-counterpoint exercises, pitting groups against each other with conflicting goals to reach forcing them to learn how to make concessions to each other.

Decision Making and Learning

When there is great uncertainty there is a harder time in making decisions but this can be good because there is chance to learn from mistakes.

Escalating Commitment

A bad thing is to keep in a plan, escalating commitment to it, even when it is failing. Managers tend to keep in a plan because they do not see the negative reports and focus on what good news that they can find. Managers also will do this because consistency and persistence are things that are valued in people and firms. Failure to admit a mistake and staying on a course of action that will continue to fail is much worse than allowing for a firm to make mistakes and learn from them.

Summary and Interpretation

Chapter 5 – Interorganizational Relationships

Organizational Ecosystems

Interorganizational relationships are the transactions, flows and linkages that occur between two (or more) organizations and have till lately been felt to be a necessary evil in order to survive. The view now is that the organizations form an ecosystem between themselves, some even forming their own ecosystems.

Is Competition Dead?

No one company can exist on its own so it needs to cooperate with others as suppliers and users. Traditional competition will not work in this way, but, that is not to say that there is not any competition going on. Companies have had to learn to co-evolve with each other and like wolves evolve stronger caribou and wolves, companies must learn to do the same thing. They must learn to create an ecosystem and relate with not only those that they work with but compete with as well.

The Changing Role of Management

In this type of environment, it is not advisable to use a top down only approach to things. Horizontal works much better when you are working with suppliers. Rather that force the buyer to a higher price or the supplier to a lower one, it is better to get a picture of the whole thing.

Interorganizational Framework

Basically the four types of types will study will be divided by cooperative/competitive relationships and dissimilar/similar organizational types.

	Organizational Type
Organizational Relationship		Dissimilar	Similar
	Competitive	Resource Dependant	Population Ecology
	Cooperative	Collaborative Network	Institutionalism

Resource Dependence

In this way of looking at things, organizations try to minimize any dependence on any other organization. If one business has a tremendous dependence on another organization, it can wind up being damaged. In this case they have to develop strategies to lessen this dependence.

Resource Strategies

One way that changes can be done is to adapt the relationship that a firm has with another one. Long term contracts, purchasing the firm, or intertwine the board of directors are some ways of doing this.

Power Strategies

In this theory, larger firms have control over smaller firms and can demand and receive ways of doing things. In modern times this would be Wal-Mart and its suppliers, but in years past, suppliers forced their ways on smaller retailers, so what goes around comes back later.

Collaborative Networks

In this way of doing things companies that would be competitors will join together to share scarce resources.

Why Collaboration?

The main reason for doing these things is so cost can be reduced. In cooperating to put standards in place, there is still room for individualism in the company. By combining all the little David’s, Goliath has a harder chance to win.

From Adversaries to Partners

Collaboration started among the first among non-profit organizations as a way to share the scarce resources that were available. Now many firms are moving from adversarial to cooperative ways of doing things and managing these cooperative efforts has become a skill that a manager will need. Very often people from one company will be in the business locations of another company so that the cooperative efforts can be done. Firms seem to think cooperation between firms reduces risk rather than the traditional thoughts of increasing it.

Population Ecology

The population-ecology perspective focuses on organizational diversity and adaptation between select groups of firms. A population refers to a group of organizations engaged in similar activities with similar patterns of resource utilization and outcomes. In this way of looking at things, innovation and changes take place in an industry through new forms and kind of organizations and not the reform or change of existing ones. So what does this mean, the older the organization the more of a dinosaur it is. Why does this happen? Because the more established it becomes, the harder it is for a firm to change things because of what has been invested in the organization and acts as a barrier. When there is rapid change, it is more difficult for an older organization to change and survive. The population ecology theory is based on the biological theory of evolution, survival of the fittest.

Organizational Form and Niche

Organizational form is an organization’s specific technology, structure, products, goal, and personnel, which can be selected or rejected by the environment. In other words, where there niche is in the industry. The niche usually starts small and gets larger as the firm grows. Without a niche the firm cannot exist. While many would feel that luck plays a part in success, it is often the environment that makes a difference.

Process of Ecological Change

• Variation – new firms appear in the industry to solve new problems with new technology
  

• Selection – not all variations are good. In a firm can get funding and/or find their niche, they will be selected in. If they cannot, they will be selected out and die off.
  
• Retention – those that get selected in will go on to preservation and institutionalism
  

Just because a firm can get through all these stages does not mean it will survive. If and institution does not adapt, it can find itself non-competitive (selected out) and out of business.

Strategies for Survival

In order to survive, a firm must take on a generalist or a specialist attitude. In a generalist mode, the appeal is to the widest audience like a toy manufacturing company. The specialist narrows down the field and finds the niche that works well for it, following the above example, a toy manufacturer that focuses on minority dolls only. While the specialist will make inroads into some of the specialist territory, the generalist will be able to absorb the losses with other lines of products.

Institutionalism

Institutionalism perspective describes how organizations survive and succeed through congruence between an organization and the expectations from its environment. The norms and values, the institutional environment, are the norms and values of the stakeholders. These give a firma a legitimacy, without which they cannot do there job. Legitimacy gives a company a reason to keep on doing business. When a new company starts, it may not have much legitimacy, but, once established it will need to have that legitimacy and will morph into an institution.

The Institutional View and Organizational Design

The institutional view shows the organization as having two dimensions. They are the technical and the institutional. While technical deals with the day to day work, the institutional deals with the how the organization is seen by the public and is the one most affected by the public. Some firms may institute changes that although they may not be beneficial, will offer legitimacy to the company.

Institutional Similarity

Because all institutions need to appear legitimate, some degree of institutional similarity happens. How does this occur?

• Mimetic Forces – the pressure to copy or model other organizations. Often these things are done without any real understanding that it will improve things. It happens because often the innovative thing is seen as being beneficial and that can help the organization so it is adopted without any serious thinking about it.
  
• Coercive Forces – external pressure exerted on an organization to adopt to the way that other organizations do things. Government and regulatory agencies are often the cause of this, but other organizations can force it on suppliers.
  
• Normative Forces – pressure to change to get either professional or the image that they are professional. While it is good to have professionalism, acting like you have it is not good and often coercive forces will be introduced to bring it back into line.
  

Summary and Interpretation

Chapter 9: Organization Size, Life Cycle, and Decline

Organization Size: Is Bigger Better?

Pressure for Growth

The goal for many companies is to grow fast and to grow large, sometimes even at the expense of the quality of the products that they make. Though the trend was towards smaller nimbler firms a short time ago, the mega-firm is still the way things are. Even to the extent of many firms merging. There are many reasons for growth: economies of scale, economic health, and fear of stagnation are a few.

Dilemmas of Large Size

Large

Huge resources and economies of scale are needed for global competition. Not only can a large firm handle big projects better (pipelines, airplanes, etc.), but large firms can handle economic and social problems from outside the environment of the company better. If a company is large it also has standardization and can reduce complexity.

Small

Small firms can allow for quick response when an environmental factor changes. A main reason is that in a smaller firm, the management is closer to the nuts and bolts way of doing things. Smaller companies can act bigger now thanks to the internet. Because of the shallow level of the organization a smaller one can act in more of an entrepreneurial way.

Big Company/Small Company Hybrid

So now we have a problem. Small companies need to grow big to be successful, but when they become large they loose their flexibility. So a big company/small company hybrid must develop. This means that a large company must restructure itself into smaller elements that will have the dependability of a larger firm to back it up but the flexibility of a smaller firm to respond to changes.

Organizational Life Cycle

To better understand the way that organizations work, it is a good idea to look at the life cycle of an organization.

Stages of Life Cycle Development

• Entrepreneurial stage
  
• Organization first born, informal and nonbureaucratic, long working hours
  
• Crisis point is a need for leadership, creative and technical people do not know how to deal with management issues
  
• Collectivity stage
  
• Departments are established as well as job assignments and hierarchy, members feel they are part of the organization and work long hours to support it
  
• Crisis point is a need for delegation, if top management does not learn to delegate authority to lower levels and keeps it all to itself, it will have problem
  
• Formalization stage
  
• Rules, procedures and control systems come into play, communications become more formal, linkages may form if firm is effective and needs them, management works on developing strategy
  
• Crisis stage is when there is too much red tape, management feels restricted as well as innovation being restricted
  
• Elaboration stage
  
• Collaboration and teamwork develop, working within the system is created, organization may be split into multiple smaller pieces
  
• Crisis point is when this point is reached the company may go into decline and need to be ‘rebuilt’ from time to time by going through revitalization
  

Summary

Since 84% of the firms that start are in a fail state five years later, it is clear that many of the firms never make it out of the entrepreneurial stage.

Organizational Characteristics during the Life Cycle

Entrepreneurial

Entrepreneurial – Small, non-bureaucratic, one person show, manager is structure and control, organizational energy devoted to survival, in infancy

Collectivity

Collectivity – rapid growth and excited employees, structure still informal, charismatic leaders provide management, in youth

Formalization

Formalization – bureaucracy emerges, innovation set up as separate part of the organization, stability is major goal, mid life stage

Elaboration

Elaboration – large and bureaucratic, rules, systems and procedures are established, team orientation needed to be established, management may attempt to streamline bureaucracy

Summary

Summary – stages of life cycle are directly related to the controls, goals and innovation of an organization

Organizational Bureaucracy and Control

Max Weber, a sociologist, studied the characteristics of bureaucracy and how they act within an organization.

What is Bureaucracy?

A bureaucracy is a threat to personal liberties but it is the most efficient way to run an organization. A bureaucracy had six common elements.

• Rules and procedures
  
• Specialization and division of labor
  
• Hierarchy of authority
  
• technically qualified personnel
  
• Separate position from position holder
  
• Written communications and records
  

Though bureaucracy seems to be a problem, it replaces favoritism as a way of doing things and that in itself makes it more efficient.

Size and Structural Control

Formalization and Centralization

Formalization is the rules, procedure, and written documentation that says what an employee has for rights and duties and are prevalent in large organizations. Centralization refers to how much hierarchy exists to get something done. Centralization can be a problem as organizations need it to be efficient but do not need it so that they can be more responsive to changes.

Personnel Ratios

The ratio of top administrators to total employees is smaller in larger companies. Clerical and professional staff increases in proportion as the size of a firm increases. Line employees though decrease in proportion to the company size.

Bureaucracy in a Changing World

In a changing world, a bureaucracy allows for order and stability. On the other hand layers of bureaucracy can create a problem. This is especially true for organizations like a government that need to respond often to emergency situations.

Organizing Temporary Systems for Flexibility and Innovation

One way for an organization to be able to respond to emergency situations and keep the strength of bureaucracy is to form incident command systems when needed. During a time of emergency an organization can be formed to respond to the crisis without any concern for authority and letting all work together and let their ideas be accepted no matter what their level of authority. There is still some level of authority needed in the organization in the form of the incident commander, but decisions can be made where the level of expertise is until the crisis is over.

Other Approaches to Reducing Bureaucracy

Large organizations can fight bureaucracy by decentralizing authority and making a flatter organization. The increase of professionalism also helps in this effort.

Organizational Control Strategies

Even though organizations want to limit bureaucracy, there still is a need for some sort of control structure in the organization.

Bureaucratic Control

Bureaucratic control is the use of the bureaucracy tools to standardize behavior and access performance. As an organization gets larger, it needs to have these types of controls in place. To make these controls work a manager must have the authority to implement them. Along with the bureaucratic control there are three other types of authority in an organization.

• Rational-legal authority – the authority that exist when employees believe in the rules and that someone has risen high enough to be the one to enforce them
  
• Traditional authority – belief that the organization by its nature has the right to enforce rules
  
• Charismatic authority – the attraction of a certain type of individual induces people to follow him as an authority
  

Market Control

Market controls are an offshoot of using profit and losses in deciding how a company is doing. It is most common for use in the whole organization but has been used recently in the divisions of an organization.

Clan Control

Clan control is used as part of social characteristics in an organization. People are generally hired in an organization if they have a strong commitment to an organization. It is used in small informal organizations for the most part. As an organization gets larger, clan control is harder to use as a control.

Organizational Decline and Downsizing

Like people, organizations are born, grow, decline, come back, and eventually die.

Definition and Causes

A substantial absolute decrease in an organization’s resource base over a period of time is an organizational decline. Things that can cause it are:

1. Organizational atrophy – this happens when an organizations has grown older with many layers of bureaucracy to it. Often they want to stay with what worked before and not adapt as times change.
   
2. Vulnerability – when an organization cannot respond to changes in the environment, they are vulnerable. This is especially so in smaller organizations
   
3. Environmental decline or competition – reduced energy and resources available to maintain an organization. This will happen when the environment cannot support the levels of competition that exist including when new ones come in.
   

A Model of Decline Stages

1. Blinded stage – internal and external changes cause the firm to tighten up. If the firm is not careful it will miss signs that will truly show them how to fix the problem
   
2. Inaction stage – leadership ignores the obvious signs that there is a problem in the organization
   
3. Faulty action stage – at this stage, problems cannot be ignored. An organization can at this point make wrong decisions very easily
   
4. Crisis stage – chaos sets in at this point because the organization has not figured the problem. Major changes in the organization need to take place at this point.
   
5. Dissolution stage – the organization is so bad that the best course is the shut it down
   

Downsizing Implementation

Often massive downsizing does not bring about the desired financial results that an organization wants. What can be done to improve the situation?

• Communicate more, not less – letting employees know why and what is expected of them helps them handle the confusion
  
• Provide assistance to displaced workers – not only let them leave with dignity but help them with training, severance pay and benefits.
  
• Help the survivors thrive – those left behind will feel many emotions including guilt that they are still there or fear that they may be next. Help them know that all will be ok
  

Summary and Interpretation

Organizational Design Chapter 3 Fundamentals of Organizational Structure

Organizational Structure

Three components define organizational structure:

1. Organizational structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors.
   
2. Organizational structure identifies the grouping together of individuals into departments and of departments into the total organization.
   
3. Organizational structure includes the design of systems to ensure effective communication, coordination, and integration of efforts across departments.
   

The organizational chart is a picture of the organizational structure providing us a virtual representation of how people officially react with each other. While the organizational chart dates back many years, it was not till the industrial revolution that it became prominent. The type that formed then was a vertical structure with authority and decision making at the top and physical labor at the bottom and it suited the times quite well.

Information-Processing Perspective on Structure

The organizational structure of a firm should reflect the informational requirements of the organization but this can cause problems because there is a tension between horizontal and vertical mechanisms. Firms will tend to gravitate towards one or the other, vertical reflecting strong control or horizontal (decentralized) reflecting sharing of information and authority at lower levels.

Vertical Information Linkages

Vertical linkage is used to coordinate activities between the top and bottom of an organization with authority and goals at upper levels and activities to meet goals done by lower level employees.

Hierarchical Referral

When a problem arises a lower level employee does not know how to handle, it will climb up the vertical lines till a problem is figured and then the solution will work its way back down for now and future use.

Rules and Plans

Rules, plans and repetition help lower level employees know what they need to do.

Vertical Information Systems

Vertical information systems revolve around the tools used to send reports and communications to managers at upper levels.

Horizontal Information Linkages

Horizontal linkage refers to the amount of communications between the various departments in an organization. Though they may not be drawn on the organizational chart, horizontal linkages are often part of the structure of an organization. Often though they need to be forced in an organization.

Information Systems

Computer information systems provide for information horizontal information sharing easily. By sharing of information people in the organization avoiding making the same mistakes others have made as well as share the successes.

Direct Contact

One way to get horizontal linkage is to have a person in a liaison role. A liaison is a person in one department that has responsibility for creating communications and coordination within an organization. Another way is to locate people close to each other so they will have regular direct contact.

Task Forces

A liaison usually links two departments but a task force will link several departments together. They are by nature formed to solve a problem and then dissolved.

Full-time Integrator

A full time integrator is a person from outside the vertical linkage and does not report to any one in the linkage. This person is outside the departments but coordinates the several departments. In an organizational chart they are drawn off to one side. They often will not have direct authority over the people that they people that they are coordinating. They need excellent people skills to do their job.

Teams

Teams are permanent task forces and are often used with a full-time integrator. A virtual team is made up of people in various places that come together through tools available including the internet.

Organization Design Alternatives

Required Work Activities

As an organization needs it, departments will be created to do things that are strategically important to the organization.

Reporting Relationships

Once activities and departments are defined a chain of command can be created. This would be a line to the person above an employee that he reports to directly. There should be an unbroken line of command for all employees up to the head of an organization.

Departmental Grouping Options

Departmental groupings reflect who employees report to and what resources they share. They can be of many types.

• Functional grouping – brings people together who have similar work functions, knowledge or skills.
  
• Divisional grouping – people are organized according to what they produce.
  
• Multifocused – embraces both of these types and creates a matrix
  
• Horizontal grouping – employees are gathered together around core processes from start to finish
  
• Virtual networking grouping – departments are connected together electronically
  

Functional, Divisional, and Geographical Design

The functional and divisional grouping are the most common approaches to structural design.

Functional Structure

In a functional structure activities are grouped together by common functions (engineering, sales, etc) with a vice president in charge of that group. All information and skills to do a job are kept within the department. The strength of this is the economies of scale that can be produced especially if employees doing the same thing can be located together. The weakness is that it is slow to respond to changes in the environment.

Functional Structure with Horizontal Linkage

The structure that is becoming popular in organizations is the flatter horizontal format. Since it is hard to maintain this it is done with vertical hierarchy with strong horizontal linkages.

Divisional Structure

Divisional structure is another name for product structure or strategic business units and the organization grouping is based on the organizational outputs. Instead of sharing departments, each division gets its own people responsible for the various jobs. This decentralizes the decision making. This type of organization is great for coordination across functional departments. Large organizations can use this to break themselves self-controlled units. Product lines are the most common way that these are done. A disadvantage here is that the economies of scale are lost because each division duplicates many processes. Unless it is forced, horizontal structure is virtually non existent.

Geographical Structure

Another grouping would be geography. Since different areas have different tastes in products or different needs this organization can be helpful. This structure can work well for multinational corporations.

Matrix Structure

When an organization needs both styles, a matrix structure can be used. A matrix is a strong form of horizontal linkage. It is similar to the full time integrator or product manager talked about earlier.

Conditions for the Matrix

1. Pressure exist to share scarce resources across product lines
   
2. Environmental pressure exists for two or more critical outputs requiring a balance of power in the organization
   
3. The environmental domain of the organization is both complex and uncertain
   

When these conditions are met a dual-authority structure is needed. True matrix format is hard to maintain so often one or the other will take precedence. The common variations are the functional matrix and the product matrix.

Strengths and Weaknesses

The matrix works best when there is a high environmental change and goals reflect dual requirements. It also works when unexpected problems rapidly happen. The strength is that it allows employees to meet dual needs. A major disadvantage is that employees have two bosses and get confused who they really report to. Bosses must also spend a lot of time in meetings in this design.

Horizontal Structure

The horizontal structure organizes employees around related tasks and activities which are called processes. An example would be putting together a team to handle insurance claims processing rather than pass from one department to another.

Characteristics

• Structure is created around cross-functional core processes
  
• Self-directed teams are the basis of the organizational design
  
• A process owner has responsibility for each core process
  
• People on the team are given what they need to get the job done and are often crossed trained
  
• Teams are allowed to think creatively and respond flexibly
  
• Customers drive the horizontal corporation
  
• Culture is one of openness, trust and collaboration
  

Strengths and Weaknesses

The major strength is that it can increase flexibility of an organization. It directs everyone’s attention to the customer. Unless management determines the core processes that bring value to a customer, this system can be more harmful. Another weakness is the culture change and resistance to it that needs to take place.

Virtual network Structure

The virtual network structure moves the boundaries out side of the traditional organization. In this format, an organization outsources the work to subcontractors and coordinates activities from headquarters.

How the Structure Works

Networked computers are used to transport information through the contractors so that they can act as one organization. Subcontractors flow in and out of the organization as needed.

Strengths and Weaknesses

Major strength of this type of organization is that can be global no matter how small they are. It also allows for rapid development of a product to market. The major weakness is that it is so decentralized there is a lack of control. Another problem is that a partner can fail to do its job, or even go out of business. There is also a high turnover rate of employees because there job may be the next to go.

Hybrid Structure

Many organizations do not exist in the true forms described here but are a hybrid by nature. One form is to combine the functional and divisional structures. Another is the combination of functional and horizontal structures.

Applications of Structural Design

Structures are applied in different situations to meet different needs.

Structural Alignment

The most important decision managers must make is the right mix of vertical (control, goals) and horizontal (flexibility, innovation) that is right for the firm.

Symptoms of Structural Deficiency

Many organizations try one structure and then may change if it does not work well. Symptoms of deficiency include:

• Decision making is delayed or lacks in quality
  
• The organization does not respond innovatively to a changing environment
  
• Employee performance declines and goals are not being met
  
• Too much conflict is evident
  

Summary and Interpretation

Organizational Design Chapter 2

The Role of Strategic Direction in Organizational Design

An organization is designed to meet some goals and management needs to figure out what they are and some strategy to reach them. The process starts with looking at the opportunities and threats in the external environment but the internal environment is looked at as well. To accomplish these goals the design of an organization needs to be reviewed and changed as necessary. As feedback is given the design can be modified. Top level management often sees things differently so it is there job to get the design right so that the company can flourish.

Organizational Purpose

All organizations are created to do something and this is the goal or mission. Some parts of the organization can have their own individual goals.

Mission

The organization usually has a mission, an official goal that they are to reach, sometimes referred to as a mission statement. This mission statement communicates to stakeholders what the company is to be and give it legitimacy.

Operative Goals

Operative goals deal with the day to day goals that are needed to run the organization.

Overall Performance

For a profit organization the general gauge for performance is profitability. For a non-profit or a government other gauges need to be used like if they have provided a desirable level of service to the clients they want to reach within a set cost level.

Resources

Resource goals deal with getting what is needed from the environment, (finance, raw materials, etc.) so that the organization can so what he needs to do.

Market

Market goals deal with the market share needed to maintain profitability.

Employee Development

Employee development goals deal with the general training that will help the employee do his job better for the customer. It also deals with training in safety for the employee.

Innovation and Change

Innovation goals deal with the ability to be flexible and innovative internally.

Productivity

Productivity goals deal with the amount of output from the available resources. They can be measured in many different ways. While in general profitability is the major goal, it is better for an organization to have a balanced set of goals even if it means a decrease in profits.

The Importance of Goals

Both official and operative goals are important to an organization. Official goals state what the organization is. Operative goals let the employees know what is expected of them so there can be some motivation for them. The goals need to be appropriate and reachable.

A Framework for Selecting Strategy and Design

To reach these goals a strategy is needed. Since a strategy deals with how to reach goals, goals and strategies are not the same. There are two models for strategies: Porter’s and Snow’s.

Porter’s Competitive Strategies

Porter studied many businesses and determined there were three strategies; low-cost leadership, differentiation and focus with focus being divided into focused low cost and focused differentiation. To determine where a firm is, they must analyze if they want to have an advantage of low-cost or uniqueness as well as determine if the competitive scope will be broad or narrow.

Differentiation

Differentiation strategy means that the organization tries to distinguish it self in some way from other organizations in their industry. Rivastrlries are reduced due to customer loyalty.

Low-Cost Leadership

Low-cost strategy means that the organization will do what ever it can to keep costs down. It helps because they are in a better position to survive new entrants because they can keep their market share.

Focus

In a focus strategy the organization decides on a regional or a buyers group to focus on. They also decide if they want to focus on a low-cost or a differentiation strategy.

Miles and Snow’s Strategy Typology

Miles and Snow’s ideas are based on the idea that managers will formulate strategies that will be similar to what the external environment allows. There are four categories: prospector, defender, analyzer and reactor.

Prospector

The prospector strategy is to innovate, and is used in dynamic growing organizations.

Defender

Rather than take risks the defender digs in where they are in an effort to keep its customers and does not seek to grow or innovate. It is not necessarily a bad strategy.

Analyzer

The analyzer strategy is a cross between the protector and the defender. They will innovate but on the peripheral areas.

Reactor

The reactor strategy is not a strategy at all. As the environment presents threats to them they will react to what is happening. Often large well established companies will fall into this strategy.

How Strategies Affect Organizational Design

The strategy that a company chooses will affect its internal design. Low-cost leadership leads to a central authority with high standardization. Differentiation leads to a more fluid and flexible structure. The prospector strategy leads to a mix of the two. Lastly the reactor has no strategy at all.

Other Factors Affecting Organizational Design

While strategy affects the organizations design it is the not the only component that does. If the external environment is fairly stable, the environment would have a more traditional structure. Size and life cycle of the product will also affect the design. Technology also has its influence. It is up to the management to come up with a proper fit for all the factors that affect their company.

Assessing Organization Effectiveness

These things are the first steps in understanding how an organization can be effective. Effectiveness evaluates if goals, official or operative, are attained. Efficiency can lead to effectiveness but it does not necessarily mean that it will. Effectiveness can be very hard to measure in an organization that is large and diverse.

Contingency Effectiveness Approaches

Organizations bring resources in from the environment, transform them, and then release them into the environment again. The contingency effectiveness approach divides approaches into three types: goal approach, resource-based approach, and the internal process approach.

Goal Approach

In the goal approach, an organization looks at its output goals and determines how to reach them. Measurements are then put into place to see if they reach their goals.

Indicators

In the goal approach operative goals are the ones that are considered.

Usefulness

This approach is often used because output goals can be easily measured. But identifying operative goals and measuring performance are not easily done. Multiple goals can be conflicting and hard to measure with just one measurement. Department goals can also be involved. Organizations need to figure out what operative goals it wants to maintain and how to measure them. Subjective goals as well as objective goals may need to be looked at.

Resource-based Approach

Resource-based approach looks at the input side of the transformation process.

Indicators

In order to measure this we need to look at four things:

• Bargaining position – the ability to get scarce and valued resources
  
• The ability of the organization to interpret the external environment
  
• The ability of managers to use resources to achieve superior results
  
• The ability to respond to changes in the environment
  

Usefulness

It is useful to use this approach when performance indicators are hard to obtain. It is commonly used in non-profit organizations. It has one shortcoming in that it does not link output side of the environment.

Internal Process Approach

In this approach effectiveness is measured as internal organizational health and efficiency. It is not concerned with the external environment at all.

Indicators

There are seven indicators:

1. Strong corporate culture an positive work climate
   
2. Team spirit, group loyalty, and teamwork
   
3. Confidence, trust and communications between workers and management
   
4. Decision making near source of information no matter where it is on the organizational chart
   
5. Undistorted horizontal and vertical communications
   
6. Rewards to managers for performance, growth, and development of subordinates and for creating an effective workgroup
   
7. Interaction between the organization and its parts, with conflict that occurs over projects resolved in the interest of the organization
   

Usefulness

Benefits of the internal approach are that happy employees serve their customers better. Shortcomings include the fact that these subjective goals are hard to measure and that it does not deal with the external environment at all.

An Integrated Effectiveness Model

Each of these approaches only tells part of the story. The competing values model tries to balance a concern with the various parts of the organization.

Indicators

The first value that we look at is the focus, internal (employee) or external (environment), that the firm has. The second looks at the structure, stability (top-down) versus flexibility.

External focus and flexible structure lead to an open system emphasis. Structured control and external focus leads to rational goal emphasis. Internal process control deals with internal focus and structural control. Lastly a human relations focus emphasis internal focus and flexibility.

Usefulness

This is useful because it incorporates much of the goals of the organization and also because it calls attention to the effectiveness management uses to measure things as well as the opposing values. These values can change over time.

Summary and Interpretation