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An organization is defined by Senior and Swailes (2016) as a: ‘system that consists of formal aspects of operations and management which are massively covered by informal aspects in the organization that is derived from the relation between people'. An organization operates and interacts with three sorts of environment: temporal, external and internal.
According to Tony Watson (2006) a common factor of organizations is the idea that organizations have goals which act as an adhesive holding together the various systems used to produce things. In this sense, organizations can be seen as people interacting to achieve some defined purpose. Watson (2006) talks about organizational goals, but these goals are often defined by top management. A typical working definition of an organization might say that an organization is a social entity that has a purpose, has a boundary and patterns the activities of participants into a recognizable structure (Daft, 1989). The organization as a system consists of input, subsystems and output. Inputs in the organization are materials and resources. Output consists of achievement of organizational goals and employee satisfaction.
Input --> the organization (formal and informal subsystems) --> output.
So, an organization can be seen as a system of interacting subsystems and components set within wider systems and environment that provide inputs to the systems and receive its outputs. This can be divided into two subsystems: an informal and a forma subsystem. These subsystems identify the main elements of an organization:
Nadler and Tushman (1988) included the informal organization in their system of organizational behaviour. This informal organization exists of patterns of communications, power and influence, values and norms. Next to that, ‘legitimate themes’ are used to explain conversations that people are comfortable having in an open discussion and ‘shadow themes’ to explain that people are not able to have these conversations openly (Stacey, 2007). The informal subsystem is called a shadow system in which the informal subsystems encapsulated the more hidden elements.
According to Silverman (1970) the ‘social action approach’ is known as a contrasting view of organizations being composed of individuals and groups with multiple different interests.
An organization is a complex system incorporates the aspect of unpredictability by highlighting the interactions in and between individuals in different domains. It is important to recognize an organizational system as an open system.
The Industrial Revolution and the industrial age was characterized by a series of inventions and innovations that reduced the number of people needed to work and provided the means of mass productions. Since demand and supply of products and services were predictable, companies were able to structure their organizations. Burns and Stalker (1966) described this as the mechanistic lines. These mechanistic lines are a systems of structure hierarchical structures and lines of control.
Organizations focused on efficiency and effectiveness during the Industrial age and produced as many products (task-oriented/fordism). At the same time, organizations faced increasing international competition and there was a shift from manufacturing to services. In the neo-industrial age, the emphasis has moved towards adding value to goods and services. Goodman (1995) called this the value-oriented time. Adding value means identifying potential customer expectations and them exceeding them. Since economies of the West could no longer rely on mass productions, the knowledge has become increasingly important and through intelligence and creative thinking organizations will improve competitiveness.
In short, the market factors that impacts the operations of Western organizations. It shows the differences between the Industrial age and the Neo-industrial age in the table below.
Industrial age | Neo-industrial age | |
Time | 1944 | 1995 |
Market | Suppliers’ market | Buyers’ market |
Domination | Production dominates people | People dominate production |
Focus | Task-oriented | Value-oriented |
Most commentators on organizations argue that business is becoming ever more uncertain as the pace of change quickens and the future become more unpredictable (Furnham, 2000). Next to that, business conditions are extremely complex. Drucker (1988) claimed that future organizations would be almost completely information-based and that they would resemble more a symphony orchestra than the command and control, managed structures prevalent in the past. Dawson (2003) states that managers should be leaders of change. If they are not, the organization will cease to exist is an increasingly competitive environment.
There were several financial scandals such as the Leman Brothers, the bankruptcy of The Times and other financial communities fell out or were baled-out. In the business community, the confidence decreased, and fear increased. Next to the macro-economic events, change is triggered by events that have an impact on the lines of an individual such as education or healthcare. It seems that a change in organizations is triggered by large and momentous events and by events. Organizational change is influenced by the external environment besides the internal systems (input, conversion, output) and history. An organization consists of several elements which are interrelated and operate in a multi-dimensional environment. Brooks (2011) explains the environments as a general concept which take into account the totality of external environmental forces which may influence any aspect of organizational activity. A common way of grouping different environmental factors uses the PEST mnemonic. PEST stands for:
A political trigger may influence economic environment like government legislation, international law, wars, local regulations, universal rights, trade union activities and taxation. The most important goal for governments is to enhance economic prosperity.
Economic triggers are factors as competitors, suppliers, employment rates, wage rates, government economic policies, currency exchange rates, other countries’ economic policies, leading policies of financial institutions and changes from public to private ownership. Economic and political environments are closely related since political decisions shape economic fortunes and economic changes influence political decisions. Governments in developed countries work to keep four key economic indicators in balance (Cook, 2011):
Social-cultural triggers influence the way in which an organisation is set up, run and managed. It is also about their capacity to attract people within their company. Examples of the socio-cultural triggers are:
Other influences are: trends, lifestyle changes, skills availability, gender issues, concern for the environment, willingness and ability to move, attitude to work, employment and minority groups and business ethics.
Examples of technological triggers include information technology, internet, new production processes, new ways to generate energy, waste management and recycling, computerization of processes and changes in transport technology.
An organization can 1) adopt and use technology to assist in production and delivery of goods and services and 2) exist through the creation of technology itself such as Microsoft or a telecom company.
The authors suggest that organizations operate in three types of environments:
In short, the organizational system operates in a multi-dimensional environment. The external environment is influenced by four factors (economic, technological, socio-cultural and political-legal). The internal environment is the organization with its formal and informal subsystem.
The dynamics of an organization’s environment have also been described in terms of the degree of environmental turbulence. Ansoff and McDonnel (1990) explain that the performance of a company is optimized when its aggressiveness and responsiveness match its environment. They propose five levels of environmental turbulence:
These five levels can be compared to three different kinds of change situation proposed by Stacey (1996) namely closed change, contained change and open-ended change. Stacey’s named two related concepts ‘close to certainty’ and ‘far from certainty. It is important to notice that from level three the time to responds get less. Next to that, the strength of the forces for change can be related to the degree of turbulence. The stronger the force, the more likely that the environment is moving to level 5. If this level increases, managing change becomes more difficult.
Since organization operate in multiple environments, the key task is to work and try to manage the external adaptations and internal integration. They need to be quick on their feet to anticipate to opportunities and threats and the unpredictable surprises.
Within this chapter, different models of organizational change will be discussed. The explanation of some terms within this chapters are summarized below:
Change is not homogeneous but exists and comes in many different forms. A starting point for considering the nature of organizational change is Grundy’s (1993) three varieties of change:
Grundy’s major types of change can be visualized in a graph. The horizontal axis represents the time and the vertical axis represents the rate of change. Smooth incremental change happens at a constant level, so it shows a horizontal straight line. Bumpy incremental change goes up and down in the graph. Discontinuous change is first constant and after a certain period it increases.
The types of change from Grundy (1993) are simplistic. Therefore, Balogun and Hope (2008) go a step further by suggesting four types of change.
These four types of change are categorized in two dimensions:
Transformation Realignment
Evolution | Adaption |
Revolution | Reconstruction |
Tushman, Newman and Romanelli (1988) proposed a model of organizational life that consists of ‘periods of incremental change, or convergence, punctuated by discontinuous changes’. They mention two types of change: fine-tuning and incremental adaptations. Fine-tuning is about doing better what is already done good. Incremental adaption is about little changes as a reaction to small shifts in the environment. Both types of changes focus on performing better and optimize the fit between structure, strategy, people and processes.
A major change in the organization is a frame breaking change (revolutionary, reorganization, new executives, altered power and status, reformed mission and core values).
Organizational change can be mapped in terms of its pace (continuous or episodic) and its scope (convergent or radical) according to Plowman et al. (2007). Each type of change differs on the following dimensions:
The four quadrants portray four types of change:
Continuous and convergent change: Change is slow and channelled into improving systems and practices. Change happens within organizational template. The template itself is not changed.
Driver: minor instability
Form: adaptations
Nature: emergent
Feedback: positive, encouraging deviations and adaptations.
Connections: loose coupling
Episodic and convergent change: Change occurs more quickly and perhaps as a result of a specific shock or crisis. Negative feedback pushes minor changes and keeps the template in shape.
Driver: minor inertia
Form: replacement within an existing frame
Nature: intended and local
Feedback: negative – highlight the need for replacement
Connections: loose coupling
Episodic and radical change: Change happens quickly in response to a major shock or crisis. The template is changed through, for example, a new top management team or new strategy.
Driver: major inertia
Form: replacement
Nature: intended and system-wide
Feedback: negative – highlight the need for replacement
Connections: tight coupling
Continuous and radical change: Change arises out of an accumulation of small changes that gather momentum and lead to a new template being formed. If successful the new template becomes established and is reinforced by new rules, values and norms.
Driver: major system instability
Form: adaptations
Nature: emergent and system-wide
Feedback: positive and negative
Connections: tight coupling
Dunphy and Stacey’s (1993) scale is similar to Grundy’s concepts of change. The benefit of this model is the detailed description of each scale. The four scales are:
Tushman et al. (1998) split the frame-breaking change into two types namely, modular transformation and corporate transformation. Tushman et al. (1998) observe that if organizations are successful and the environment is stable, frame-breaking change is quite dysfunctional.
Different discussions include the idea of organizations striving to maintain a state of equilibrium where the forces for change are balanced by the forces for stability. The organizational system is therefore always changing and making adjustments to maintain its optimum state.
Beck and colleagues (2008) conceptualize change as ‘discrete modification of structural organizational elements’, change today leads to change tomorrow. Experience of change leads to more chances of further change. They identify three commonly analysed change events:
They argue more simply that change lead to more change: the more the organization changes different aspects, the more it learns about how to do it right.
The distinction between emergent and planned change is not clear cut. Wilson (1992) criticizes the idea that change can be planned logically and systematically. According to Jian (2007) unintended consequences are those things that would not have happened if an actor had acted differently and are not what the actor had intended. Quinn (1980) has also criticized the idea of planned change. Stacey (2011) summarizes the key points made by Quinn as follows:
The distribution of responsibilities, the grouping of activities of employees and their coordination and control are basic elements of an organization structure. There is a difference between organizational structure and organizational design. The structure describes the way an organization is configured into work groups and the reporting and authority relationships that connect individuals and groups together (Swailes, 2008). Organizational designs are ‘managerialist responses’ to the contingencies thrown up by the environment and the main framework for understanding organizational design is called contingency theory (Clegg, Kornberger and Pitsis, 2008).
‘Empty restructuring’ is the phrase used by Paul Bate (1995) to describe what happens when managers change designs but disregard the social interaction that are overlaying them.
Organizational structures can differ in many ways. A classic study identified the following six primary dimensions of structure (Pugh, Hickson, Hinings and Turner, 1969):
Pugh et al. (1969) established four underlying dimensions:
John Child (1988) added three more dimensions to support the other four dimensions:
The bureaucratic form of structure is one of the best-known structures. Max Weber (1947) is one of the founding fathers of the bureaucratic structure. Three ideas were central:
Weber (1947) identified several characteristics of bureaucratic form:
Jackson and Carter (2000) argue that structure is not something concrete and objective, but it is abstract. In their post-structuralism approach, they maintain that there is no obvious and natural way of ordering the management activities.
In order to response better to markets and reduce operating costs by removing layers of management, some organization have tried to flatten their core design. Two flatter structures rules are the more similar jobs at any one level, the more people a manager can coordinate and control and the more decision making is decentralized and therefore reducing the burden on each manager, the broader the span of control.
Rajan and Wulf (2006) found that the numbers of managers between the CEO and the lowest managers responsibility fell by over 25 % between 1986 and 1998. The possible explanations are increased competition, better corporate governance and information technology.
Mintzberg and Van der Heyden (1999) use organigraphs to show how organization really function. These organigraphs exists of two basic components:
In addition, there are hubs (where people, things and information move) and webs (show how points in an organization communicate with each other). In this way, organigraphs show the multiple relationships between components of the organizations.
Multifunctional structures are a common structural form particularly in the stages of an organization’s development when the early entrepreneurial phase gives way to a more settled phase of sustained growth: phase two of the Greiner model. This phase will end in the crisis of autonomy. It will be more efficient to organize around products instead of functions. This structure has both advantages, disadvantages and contingency factors mentioned below:
Advantages of functional structures:
Disadvantages of functional structures:
Contingency factors of functional structures based on research of Cummings and Worley (2009):
Multidivisional structures are built around outputs rather than inputs. They allow faster responses to market conditions. This structure has both advantages and disadvantages mentioned below:
Advantages of a multidivisional structure:
Disadvantages of a multidivisional structure:
A matrix organization has a typical vertical hierarchy that is overlaid with a horizontal structure. Organization which adopt a matrix structure usually go through four stages (Barton and Martin, 1994):
Cummings and Worley (2009) suggest that matrix structures are appropriate under three important conditions:
Matrix structures are strongly dependent on teamwork. Team members are managed by two different managers: a functional line manager and a team or project leader. Moreover, different advantages, disadvantages and contingencies can be mentioned:
Advantages of a matrix structure:
Disadvantages of a matrix structure:
Contingencies of a matrix structure:
Project organizations are much more like a network of interaction than a bureaucratic structure, teams are powerful, exciting and dynamic entities (Morgan, 1989). A project organization overlaps with the ‘Adhocracy’ of Mintzberg (1983). Adhocracy is an ad hoc group which mostly consists of professionals who are brought together for a single purpose associated with a particular project. The differences are that a project organization usually employs own staff. The adhocracy may also do this but may additionally have staff who work on a contract basis.
The loosely coupled organic network might be said to be the end furthest from the rigid bureaucracy. It operated in a subcontracting mode and can be a permanent structure.
There are three types of networks, namely an internal, vertical and dynamic network. There are different advantages, disadvantages and contingencies that can be mentioned:
Advantages of a network organization:
Disadvantages of a network organization:
Contingencies of a network organization:
According to Snow et al. (1992), the internal network ‘typically arises to capture entrepreneurial and market benefits without having the company engage in much outsourcing’. The organization owns most or all of the assets that are associated with the business of the organization. It has created businesses within the business. This means that it operates independently. It is similar to the project organization explained by Morgan (1989).
The vertical network is typical of the situation where the assets are owned by several firms but are dedicated to a particular business (Hinterhuber and Levin, 1994). The core organization spreads asset ownership and risk across a number of other independent organizations and gains benefits of dependability of supply and/or distribution.
For Snow et al. (1992), the dynamic network organization is the one that has ‘pushed the network form to the apparent limit of its capabilities’. This form operates with a lead firm that identified and assembles assets which are owned by other companies. Communication in the chain is very important.
For example: supplier à core firm à distributor franchisee.
A virtual organization uses information and communication technology to link people, assets and ideas to create and distribute things without having to rely on conventional organizational boundaries and locations. They are totally dependent on ICT to the point that the people in them seldom if ever meet (Burkhard and Horan, 2006) Key attributes of virtual organizations are: technology, opportunism, no borders, trust and excellence.
The structuration theory is not so much a ‘patterned regularity’ but, as something that emerges from the ‘routine behaviour of people, which in turn influences those behaviours’ (Cunliffe, 2008). Organizations have structures in which it has departments and divisions that have both distinct and overlapping activities. People also named ‘actors’ do their work (Giddens, 1984). According to Giddens (1991), the structuration theory focuses on ‘the complementary nature of interactions between structures and actors within them’ (Senior and Swailes, 2016). So, there is a relation between actors and structures. Actors create a structure and becomes dependent on this structure.
Sarason (1995) explains why organizations differ by using the identity of an organization. By duality, Chu & Smithson (2007) mean that structure is both the medium and outcome of human interaction. According to Giddens the duality of structure is: ‘all social action presumes the existence of structure. But at the same time structure presumes action because structure depends on the regularities of human behaviour”.
The Actor Network Theory (ANT) acknowledges that actors build networks involving other human and non-human (animals/technologies) actors (Latour, 2005). Actors can be human or non-human. an example of a non-human actor is a management system. Actors create networks and therefore, they create themselves. ANT explains how and why the networks that are initiated are more or less successful. Van der Duin and van Marwijk (2006) state that innovation means new patterns of coordination between people, organizations, technology and environment. They use ANT to explain this. According to van der Duim and van Marwijk (2006), a successful innovation calls for ‘translation’. Translation is explaining things in ways that persuade actors to fit with what a network is trying to achieve. If the four stages of translation are achieved the outcome is known as collective. Successful translation includes four stages:
If these four stages of translation are accomplished, the outcome is known as collectif.
Actor-network theorists regard structure as the process of organizing people technology, knowledge and other things into a stable network (Cunliffe, 2008).
Explanation of an actor network. The actor network tries to align the interest between the local community, police and local councils in a social and political context. This lead to drivers in a punitive context.
Institutional theory consists of several similarities with the structuration theory. It emphasizes the cultural influences about design and structure. The people who decide what organizational should look like are ‘suspended in a web of values, norms, rules, beliefs and take for granted assumptions that are at least partially of their own making (Barley & Tobert, 1997). Culture provides an organization with a unique identity and culture influences decision making. Institutions work within bounded rationality due to culture. This institutional theory is not a theory of change, but it is a way of explaining the similarities of arrangements that are often found in a sector. It can also explain why things do not change.
Organizations in the same sector are affected by the same field. This describes why these organizations structure and operate in different manners. An institution is created out of action, but if this institution is created, it tends to restrict actions within this institution. Like grammar brings structure to speech and institutions bring structure and meaning to organizations. Scripts are cognitive schema informing behaviour and routines appropriate in particular contexts (Johnson, Smith and Codling, 2000). Barley and Tolbert (1997) saw scripts as more than cognitive scheme considering them as behavioural regularities. They see scripts as something that can be observed.
As said earlier, the institutional theory explains why particular things exist as they do. However, this theory does not say much about how change to institutions occur. A reason for this is the concept of isomorphism. Isomorphism is the tendency of organizations in the same field to adopt the same or similar structures (Konda & Hinings, 1998). This results in isomorphism of performance. A reason for this is mimetic behaviour. Mimetic behaviour means that organizations copy the behaviour of other organizations. This type of behaviour might occur because of risk aversion or when performance measures are not clearly defined.
Greenwood and Hinings (1996) show how institutional theory connects to theory of change. They propose three characteristics of neo-institutional theory.
To help explain the pace and scope to change two additional concepts are used; tight coupling and sectoral permeability (Greenwood & Hinings, 1996).
When an organization decides to change the strategy, it should change the structure as well. One of the most important links is the relationship between strategy and structure.
The consequences of a deficient organizational structure are (Child, 1988):
“Strategy is the direction and scope of an organization over the long term which achieves advantage for the organization through its configuration of resources within a changing environment, to meet the needs of markets and to fulfil stakeholder expectations” (Johnson, Scholes and Whittington, 2014).
Chandler (1962) found that strategy leads to structure. If the strategy works out well, it has a strongly positive effect on structure. According to Miles and Snow (1984) these organizations have an ‘agency’ structure. The structure follows strategy dictum is widely accepted and the reason why different structures associated with different structures was simple economic efficiency.
Mintzberg (1991) mentioned seven forces and forms that drive the organization:
Out of these forces, Mintzberg (1991) mentioned five organizational forms:
Mitzberg (1991) argues that ‘if the form fits, the organization should wear it’. In other words: the organizational structure should align with the organizational strategy. According to Mintzberg (1991) strategy is not the only factor that influences structure. There are other factors that influence the structure. Examples of other factors are size, technology and information technology.
The influence of size on structure shows that size is positively correlated with overall role specialization and formalization (Pugh et al., 1969). Child (1988) found that the effects of size on organizational performance, for large organizations, the more bureaucratically structured they were, the better they performed.
Within the influence of technology, technology refers to the processes by which an organization transforms inputs into outputs. Woodward (1965) categorizes companies into three groups; small batch (organic), large batch and mass production (mechanic). She found a relationship between the types of technology used and aspects of structure. Woodward (1965) focused on production technologies. Perrow (1967) defined technology more generally and viewed it as a combination of two variables; task variability and problem analysability. A task that is highly routine would be low in task variability and the other way around. Task variety is the number of exceptional or unpredictable cases. Problem analysability is the extent to which problems are well defined and can be solved by using the acknowledged procedures and routines. There is low problem analysability if task completion requires innovative thinking.
The technology classification of Perrow (1967) can be visualized in a matrix of four types of technology:
Information and communication technology provides the possibility for managers to drive information more to the point where it used. Information, communication and technology (ICT) has the following impacts on structure according to Mukherji (2002):
Robbins (2003) talks of the ‘boundary less’ organization where both internal and external boundaries are eliminated.
The authors discuss two types of influences, namely 1) environmental stability and turbulence and 2) socio-cultural influences.
Burns and Stalker studied the effects of environment on the structure of an organization. Burns and Stalker (1961) identified two main structural types:
Lawrence and Lorsch (1967) suggest that all organization should have organic parts and mechanic parts. According to Robbins (2003) environments can be characterized in terms of three key dimensions:
He concludes that the scarcer the capacity and the greater the degree of instability and complexity, the more organic a structure should be; the more abundant, stable and simple the environment, the more mechanistic a structure should be.
Currently, there exist no best way to design an organizational structure that will guarantee a successful performance. It depends on several factors such as the used technology, the size of the firm, the strategy, expectations and lifestyle of employees and more. It is not a formula that can be applied, and that success will be the outcome. Strategy, size, technology and environment, even when combined, can at best explain only 50% of the variability in structure. Successful structural change is difficult to complete without unintended adverse consequences.
An organization scans their environment and changes its design in a suitable way. Organizations are ‘adapting’ to their environments by using ‘social Darwinism’ (Hannan and Freeman, 1979). They argue that not all the variation in structure and can be explained by adaptation. Therefore, they state that organizations can bring about a level of structural inertia. This means slowness or resistance against, for example a change in structure. Internal forces creating inertia include:
External forces creating inertia include:
Inertia theory suggests that because older organizations have more stable and standardized routines they will have higher inertia. So, as the size of a firm increases, the predictability and the inflexibility increase. As a result, inertia increases.
Design is not the same as structure, which has a stronger action perspective. Design change is influences by strategy, size, production technology, ICT and environment.
There can be made a distinction between the formal and the informal organization by using the organizational iceberg (French and Bell, 1990). The iceberg is partly below the water and partly above the water. This metaphor of the iceberg shows a visible part (above water) which explains the formal organization with its goals, strategy, structure, systems and procedures and management. A formal organization is made up of tangible components and it is focuses on planned change. Furthermore, the metaphor shows an invisible part (below water) which is the informal organization with its values, beliefs, leadership style and culture politics and power. Informal organization includes politics, power and culture. It can help or hinder the process of change and ultimately the success of an organization.
Kroeber and Kluckhohn (1952) investigated more than hundred definitions of culture and offered a summary definition: “Culture consists in patterned ways of thinking, feeling and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievements of human groups, including their embodiment in artefacts, the essential core of culture consists of traditional idea and especially their attached values”.
There are a lot of other different definitions of culture. For example, Hofstede (1981) defines culture as: ‘culture is the collective programming of the human mind that distinguishes the members of one human group from those of another. Culture is a system of collectively held values’.
These definitions refer to culture at both national and societal level.
Culture is likely to be resistant to change because it is dee-seated. However, Bate (1996) argues that ‘culture can be changed, in fact it is changing all the time’. There are three perspectives that can be identified:
A plan to change culture:
These steps are logical and rational formulated, but they are difficult to accomplish and to do.
Brown (1995) lists the following ingredients of culture:
Robbins (2013) gives more insight into how these characteristics/ingredients can take shape and these can be ranged from high to low:
Hofstede, Neuijen, Ohayv and Sanders (1990) argue that there are different levels of culture which can be visualized in a circle. From the inside to the outside of the circle:
Schein (2004) suggests three levels from shallowest to deepest:
Dyer’s (1985) four levels model proposes: artefacts, perspectives, values and tacit assumptions.
Alvession (1993), Bate (1996) and Brown (1995) draw attention to the distinction between two classifications of culture:
The cultural web of an organization includes all organizational elements. Johnson et al. (2008) focused on the influence of a dominant organizational paradigms. This is about the beliefs and assumptions that people make which form the organization. A cultural web is a useful tool to disclose organizational cultures. Johnson et al. (2008) explains the different elements of the cultural web as follows:
Alvesson (1993) recommends combining perspectives at three levels:
Hall’s (1995) compass of culture claims two components of behaviour:
These two behavioural components can be combined in four different combinations which will result in different cultural styles.
A disadvantage of this compass model is the very small sample size (211 responses) for such complex nature of what is being analysed.
Quinn and Rohrbaugh (1983) proposed a competing value model as a way of understanding variations in organizational effectiveness. This model is a 2 x 2 matrix. The horizontal axis represents the internal focus (focus on the person) versus the external focus (focus on the organization). The vertical axis represents the flexibility and change versus the stability and control. Each of the quadrants in the matrix represents one of the four culture types:
Culture can be seen as a structure. Charles Handy (1993) refers to organizational culture as atmosphere, ways of doing and he proposed four types of organizational culture by using the Greek gods for inspiration:
Next to Handy (1993), Deal and Kennedy’s (1982) proposed four genetic cultures and link more closely to the external environment. This typology dates from the early 1980’s and Kennedy (2000) agreed that these assumptions needed revising. This model takes the competitive environment of an organization more into account. A new model shows Trompenaars and Prud’homme’s (2004) depiction of these four types with more up-to-date examples of each culture:
The horizontal axis represents the fast feedback versus the slow feedback. The vertical axis represents a high risk versus a low risk.
Scholtz (1987) combined internal and external cultures by using three dimensions: external, internal and evolution. Based on these dimensions he identified five types of culture:
A distinguish can be made between convergent and divergent:
Kluckhohn and Stodtbeck (1961) claim that the cultural orientation of societies can be described using six basic dimensions:
Hofstede (2010) introduced five dimensions of national culture. This was based on his analysis which includes 1116.000 employees in 50 countries. These five dimensions are used to differentiate national cultural groups:
Examples of the culture dimensions for a few countries
China:
The Netherlands:
United States:
There can be made an implicit model of the organization using the culture dimensions of Hofstede. This is a gross simplification of the complexity of distinguishing one country’s culture from another. It shows an implicit model of organizations according to the five dimensions. The horizontal axis represents the power distance ranging from small to large. The vertical axis represents the uncertainty avoidance ranging from strong to weak.
Laurents (1983) identified four dimensions of organizations to show the cultural differences between countries. These four dimensions are:
Global Leadership of Organization Behaviour Effectiveness (GLOBE) framework tried to extend Hofstede’s earlier work and therefore understand how cultural values connected to organizational behaviour. This study found nine dimensions of national culture. These dimensions are:
However, the work of Hofstede and Laurent’s can be criticized in terms of their attempts to ‘objectivize’ culture compared to more qualitative methods. A third method was employed by Calori and De Woot (1994) who used nondirective interviews with 51 human resource director in 40 large international companies with headquarters or major operating units in Europe. The following differences between the UK, southern Europe and Northern Europe are found:
Another attempt to understand cultures and their changes is the World Values Survey. Inglehart and Baker (2000) found from their longitudinal analysis of 65 societies for both ‘massive cultural change and the persistence of distinctive cultural traditions’. They found that economic development promoted a shift away from traditional values to less religious systems will decline. Furnham and Gunter (1993) provided examples of organizations with low scores on Hofstede’s power distance dimension having common organizational structures. National cultures overlay principles, practices and assumptions that affect management practices such as selection, development and reward and as such influence interpersonal relationships and individual performance.
Professional cultures exist in groups of people in similar occupations and develop through education, training, the ways knowledge is generated, and the ways competence is demonstrated.
Organizational culture comes in many forms. The organizational capacity to change is influenced by several factors, for example the attitudes to criticism and the degree to which organization’s structure facilitates change. Figure 4.8 depicts the way elements of organizational culture and support and/or defend against change. Organic structures are more likely to be able to respond to the need for change than mechanic forms.
Kanter (1983) describes two extremes of organizational culture that are not only different in structural characteristics but also differ in underlying attitudes and beliefs of the people working in them:
She offered ten rules for stifling innovation:
Argyris (1964) pointed to the difference between two kinds of learning:
A strong culture implies a commonly understood perspective on how organizational life should happen. It facilitates conflict resolution, coordination and control in a common direction, reduction of uncertainty and complexity, motivation over and above motivation from extrinsic rewards, competitive advantage (most contentious). Weak cultures exist of many different cultures, who are easily conflicting each other.
Culture influences organizational life. Schwartz and Davis (1981) proposed a model to help managers to assess risks and culture conflicts. They developed a corporate culture matrix which provides a summary of culture in relation to tasks and a summary of culture in relation to relationships. They also assessed cultural risks. The horizontal axis represents the level of culture compatibility ranging from high to low. The vertical axis represents the importance of change to organizational strategy ranging from high to low. There can be made a difference in unacceptable risk, manageable risk and negligible risk. For example: a high level of culture compatibility and a low importance of change to organizational strategy is a negligible risk.
Assessing cultural risk helps management pinpoint where resistance to change could occur because of incompatibility between strategy and culture. This allows managers to make choices regarding whether to:
According to Beer (1993) there are six steps to effective change:
Culture is a complex concept. Organizations can be seen as cultures rather as having them. Cultures are unique but exists in many different ways. There can exist different sub-cultures in an organization.
Power concerns the capacity of individuals to exert their will over others, while political behaviour is the practical domain of power in action, worked out through the use of techniques of influence and others (more of less extreme) tactics (Huczynski and Buchanan, 2013). Robbins and Judge (2013) divide politics into ‘legitimate’ and ‘illegitimate’ political behaviour. Legitimate political behaviour means being normal everyday politics; forming coalitions, obstructing policies. Illegitimate political behaviour includes deliberate sabotage or whistle-blowing. Morgan (2006) has an objectivist view of organizational culture and poses organizations as political systems displaying different types of political rules:
‘-cracy’ is derived from kratia. This is a Greek term which means power or a rule. For example, autocracy means the rule of a person. Bureaucracy means people that sit on a bureau or desk and make administering rules.
There are a lot of different definitions for power. Morgan (2006) defines power as ‘power influences who gets what, when and how’. Despite the existence of different definitions of power, they all have one thing in common: power means being able to influence the behaviour of others, sometimes in direction which the person or group would not, otherwise, have chosen. A distinguish can be made between the elasticity and the relativity of power:
Power focuses on both the potential to influence and the actual use of influence. Power is a function of both differences and relations between people, the belief of people and how much a person has relative to the other one.
French and Raven (1959) identified five sources of power and their ideas have had an enormous influence on social power:
Robbins and Judge (2013) suggests two broad categories of power. These two categories are:
Morgans (2006) defined multiple sources of power in organizations. These sources are: formal authority, control of scarce resources, se of organization structure, control of decisions processes, control of knowledge and information, control of boundaries, ability to cope with uncertainty, control of technology, interpersonal alliances and networks, control of counter organizations, symbolism and the management of meaning, gender and the management of gender relations, structural factor that define the stage of action, power one already had.
Weber’s (1947) three types of authority are: tradition, charismatic authority and rational-legal authority. The different types of power are:
Hardy (1993) defined the possible sources of individual powers that give one the ability to influence other are: physical power, resource power, position power, expert power, personal power, negative power. The possible methods to attach themselves to particular types of power are: force, rules and procedures, ecology, exchange, magnetism, persuasion.
A lot of people have relatively less power because they are affected by organizational factors. However, there are people with more power in relation to their minority groups. During these days, the power of women in organizations has been a common subject to discuss. In many sectors the higher the ladder, the fewer women are found and the percentage of women in top jobs in large corporations is very small (ILO, 2012).
The Female FTSE Report showed that there are more female in the board. However, the percentage of women in the board is still very small. There are a few reasons for having more women in the board:
Countries in Europe has a higher percentage of women in the board compared to countries outside Europe. Exceptions are the United States and Australia.
There are barriers to change. There are different reasons why women on average do less than men are:
O’Neill (2004) and Smith et al. (2013) explored whether men and women use different forms of upward influence at work. Upward influence concerns the way that people try to influence the attitudes of people above them in their favour. Tactics include:
Multiple studies state that organizational structures and processes are more influential in gender segregation than supply-side factors including socialization.
Lien (2005) gives feelings of powerlessness among Taiwanese women employees. These feelings came from: structural barriers, behavioural barriers, accommodation and rationalization.
Some groups of employees are powerless because of the positions they occupy. Kanter (1979) identified three lines of organizational power:
Kanter (1979) says that: “Power is most easily accumulated when one has a job that is designed and located to allow discretion (non-routinized action permitting flexible, adaptive and creative contributions), recognition (visibility a notice) and relevance (being central to pressing organizational problems). Power also comes when one had relatively close contact with sponsors (high level people who confer approval), peer network (circles of acquaintanceship that provide reputation & information) and subordinates (who can be developed to relieve managers of some of the burdens and to represent the manager’s point of view).”
The resource power results from scarcity. Therefore, the issue arises whether competition is beneficial for resources or whether it is always dysfunctional. This lead to two ideas: the unitarist view and the pluralist view. Managers with the unitarist view argues people have the same interests and therefore there would be no conflicts. Managers with the pluralist view argue that people can sometimes have a conflict by having both shared and divergent interests. The unitary and pluralist views of interest, conflict and powers are summarized in the table below.
Unitary view (harmony) | Pluralist view | |
Interests | Focus on the accomplishment of common objectives, common goals and striving towards their achievement in the manner of a well-integrated team | Focus on both individual and group interests. |
Conflict | These are rare and can be removed with actions of the management. | Inherent in organization |
Power | Ignores the role of power in organizational life. | Regards power as a variable that is important to understand the activities of an organization. It is the medium to resolve the conflict of interests. |
Conflict must be perceived by the parties to it otherwise it does not exist. One party to the conflict must be seen as about to do or being something that the other party does not want (opposition). Some kind of interaction must take place. Conflicts can happen at different levels. For example, between individuals, between groups or between organizations. Robbins and Judge (2013) define a conflict as ‘a process that begins when one party perceives that another party has or is about to affect something that the first party cares about’. There are different levels and causes of organizational conflict: misunderstandings, differences of values, differences of viewpoints, differences of interests and interpersonal differences.
Conflict is likely because of the power imbalances that prevail in hierarchical structures. There are five factors identified that are seen as the main sources of conflicts in organizations. These five factors are:
Managing conflict will vary according to the managers’ frame of reference. An influential starting point is the Conflict Management Grid (Blake and Mouton, 1970) which has been the basis of much subsequent research. It depends on the organization’s view of conflict (unitary or pluralist). The techniques of conflict management can be categorized in two dimensions: concern for production and concern for people. Each dimension ranges from high to low. There are five styles:
Each conflict-handling style has an outcome in terms of its capacity to tackle the content of the conflict and the relationship with the other party as follows:
These five styles can be visualized in a graph. The horizontal axis represents the cooperativeness which is the focus on the concern of others. It ranges from uncooperative to cooperative. The horizontal axis represents the assertiveness which is the focus on own concerns. This ranges from assertive to unassertive. Accommodating is for example cooperative and unassertive while competing is uncooperative and assertive.
All three are aspects of social systems and organizational change. There are two faces of power (McClelland, 1970). He argues that power has two faces: its positive and negative face. The negative face (destructive) is characterized by a primitive, unsocialized need to have dominance over submissive others. Positive face (constructive) derives from a more socialized need to initiate, influence and lead and recognized other people’s needs to achieve their own goals as well as those of the organization.
A common actor in a change process is the ‘change agent’. The change agent is a person with a special responsibility for planning, implementation and outcome of strategic change (Lines, 2007). Cynthia Hardy (1996) argues that power ‘can provide the energy to drive the organization and its members through the strategic change process’. She identifies:
Nadler (1998) suggests three major problems associated with this transition process: problem of resistance to change, problem of organizational control and problem of power. There are different problems of change which is visualized in figure 5.2. It illustrates interconnections and problems between power, conflict and political action.
Convert political action is a phrase used to describe actions of the most extreme kind witnessed during episode of change. Morrill, Zald and Rao (2003) embrace four interrelated themes to explain change in an organization:
Morrill et al. (2003) see covert political action as follows:
So why does it occur?
There exist a curvilinear or inverted U-shaped relationship between conflict and performance. The horizontal axis represents a conflict ranging from high to low. The vertical axis represents the task outputs ranging from high to low. DeDreu and Beersma (2005) maintain that between a low conflict (a climate of complacency and apathy) and a high conflict (a climate of hostility and mistrust) there is an optimal level of conflict that engenders self-criticism and innovation to increase unit performance.
Robbins (2005) explained the process of a conflict. He argues that there exist a mechanism of a conflict with five stages moving from an initial conflict situation through to alternative positive or negative outcomes:
In short, there are antecedent conditions (communication, structure and personal variables). This lead to 1) perceived conflict and 2) felt conflict. Both types of conflicts lead to conflict handling intentions and includes the five styles (competing, collaborating, compromising, avoiding and accommodating). This leads to overt conflict which lead to an outcome.
Furze and Gale (1996) take an optimistic view of conflict and they list some of their guidelines to deal with conflicts: encourage openness, model appropriate responses, provide summaries and restatements of the position, bring in people who are not directly involves, encourage people to take time to think and reassess, focus on shared goals, use directions and interests to develop areas of new gain, try to build objectivity into the process and adopt an enquiring approach to managing.
To harness conflict to change Lehman and Linsky (2008) recommend the following practices:
Nadler (1988) proposed four action steps for shaping the political dynamics of change.
There exist a model model of the power and motivation to block changes. The axes can be used the other way around: power to support change, motivation to support change. The horizontal axis represents the motivation to block change ranging from low to high. The vertical axis represents the power to block change ranging from high to low. The four quadrants are:
Power and politics are driven by human differences. They are extremely difficult to research. Manager need to be aware of their own sources and levels of power and recognize the power and powerlessness of others.
“The art of leadership is saying no, not yes. It is very easy to say yes.” (Tony Blair)
Mintzberg (1979) grouped managerial roles into three sets:
Interpersonal roles
Figurehead
Leader
Liaison
Informational roles
Monitor
Disseminator
Spokesman
Decision-making roles
Entrepreneur
Disturbance handler
Resource allocator
Negotiator
The differences between leading and managing highlight that management is more about what goes on within the formal structure of the organization while leadership focuses more on interpersonal behaviour in a broader context (Kotter, 1990).
Over the past 100 years, leadership theory had steadily evolved. Trait theory underpins the idea that leaders are born not made. Charismatic-visionary leadership is mostly explained in a negative way. Landrum et al. (2002) defines charismatic leaders as unethical, manipulative, controlling and self-promoting. Charismatic-visionary leaders exhibit the following characteristics:
Charisma works according to Lewin in three stages:
Charismatic authority is enhanced by four additional dimensions that facilitate change:
There are trait theories of leadership. Six traits of successful leaders were put forward:
Dulewicz and Herbert (1996) reported on managers who have been identified as either high-flyers or low-flyers. High-flyers scored higher than the low-flyers on the following: risk-taking, assertiveness and decisiveness, achievement, motivation and competitiveness.
Shin (1999) reveals a sobering contrast to the traits typically proposed for Anglo-Americal leaders:
There exist two famous studies of leadership which identified two independent dimensions of leadership style:
Blake and Mouton used the studies of leadership styles and proposed that the most effective leadership style is the one which is high on both people and task dimensions. The Leadership Grid Model explains five styles:
This leadership grid model is a simplification of the many differences in leadership styles. Other studies have generated longer lists of behaviours of leaders, such as Useem (1996). He researched the characteristics of the most successful CEO:
Although trait and style theories of leadership have some support, there are many things that can influence a leader’s effectiveness over and above a leader’s qualities and behaviour. Tannenbaum and Schmith (1973) suggest that a leader should move along the continuum (directive, participative) and select the style that is most appropriate to the situation prevailing They identify forces that determine the style of leadership to use:
Fiedler (1967) agrees on the fact that leadership is dependent on the situation and this is also the centrepiece of Fiedler’s contingency theory of leadership. The 3 situational variables said to determine the style of leadership to be adopted are:
Hersey and Blanchard (1993) situational theory states that a leader’s behaviour should depend on the maturity and readiness of followers to accept responsibility and make their own decisions. They argue that a leader’s style should be contingent upon characteristics and attitudes of those who are led. A leader’s behaviour falls into one of four quadrants:
Within the contingency model it is hard to mention which variable is most important. House (1971) developed the path-goal theory, which maintains that the leader should use the style of leadership that is most effective in influencing subordinates’ perceptions of the goals they need to achieve and the way in which they should be achieved. Four leader behaviours are suggested:
Two dominant situational factors are relevant: 1) characteristics of followers and 2) the nature of task/job and contexts in which it takes place.
Locus of control: a person’s beliefs about who controls their life. People with an internal locus of control believe that they control their own lives. People with an external locus of control believe other people control their lives.
Quinn (1988) proposed four models distinguished on the basis of two bipolar dimensions:
Contribution of contingency theory is the message that there is not one best way of leading regardless of situation. According to Parry and Bryman (2006) the contingency had serious limitations:
A disadvantage of charismatic leaders is that followers will follow this leader even in pointless directions. Emotional intelligence (EI) focuses on the ability to recognize multiple emotional states in which a human being can be and others and to respond appropriately. Goleman (1998) claims to have found the personal capabilities that drive outstanding performance. He groups the capabilities into 3 categories; 1) purely technical skills, 2) cognitive abilities and 3) competencies demonstrating emotional intelligence (EI). He defines them as having 5 components of:
There is a threshold capability: while being necessary for successful leadership they are not sufficient without the addition of emotional intelligence. Higgs and Dulewicz (2004) suggested that EI is concerned with achieving one’s goals through the capabilities to:
There is a difference between transactional and transformational leadership. Transactional leadership is based on giving people rewards for doing what the leader wants. It makes leaders make minor adjustments to mission and the ways people are managed. The three dimensions are:
Transformational leadership relies on giving followers a purpose, a vision of something to aim for and on creating follower identification with the leader. This style borrows much from Weber’s ideas about charisma.
The four dimensions are:
Disadvantages of transformation leadership theories are:
Authentic leadership is based on the idea that leaders should know themselves and know how their experiences in life have made them what they are. Attributes of authentic leaders (recall the traits approach) include: being true to themselves, humility and modesty, seeing situations from a range of perspectives, knowing one’s own sense right and wrong and adhere to personal standards in decision making.
Leaders can be derailed. There are five early warning signals of derailed managers:
Although the differences are small, studies of gender and management suggest that men are more transactional and rely more on position power to get results whereas women are more likely to be transformational and use relationships rather than power to motivate (Eagly et al., 2003). While opening up leadership positions to women is an important social goal it is far from clear that having more women in top jobs would deliver innovation, creativity and change any better than men.
Stories of change are too often overly simple and sequential stories of heroism would have us overlook the true complexity and true contributions made by largely anonymous cast.
Greiner and Quinn (1988) proposed that multiple leadership stages need various leadership styles to get the organization forward. Dunphy and Stace (1993) designed ways to change on two dimensions: 1) level of environmental readjustment needed and 2) the style of leadership to realign it. Their readjustment categories are: fine-tuning, incremental adjustment, modular transformation and corporate transformation. The categories of leadership are: collaborative, communicative, directive, coercive. The combination of these categories leads to:
The problem with this model is that it implies that managers have a choice of change strategies. It argues that change can be planned and implemented whatever outcomes are desired.
Resistance applies that the employee who is asked to change puts up a fight against it. It is often seen as a negative thing. Piderit (2000) identified different forms of resistance:
Ford and Ford (2009) mentioned five manners to use resistance as feedback in a positive way:
Scepticism towards change is: doubt about the viability of a change for attainment of its stated objectives. Scepticisms do not believe that the intended change will bring about the intended benefits if it is implemented.
Cynicism differs in that is it disbelief about management’s implied or stated motives for a specific organizational change (figure 6.8).
Readiness for change involves shaping, perhaps conditioning, attitudes and beliefs to be favourable. Communication strategies need to emphasize 2 messages:
A figure to combine the readiness for change and urgency leads to the following typology (Harris and Mosshole, 1993):
Graen et al. (1995) introduced the LMX theory (leader-member-exchange) and argued that the different types of social exchanges fall into two types:
The existence of many different leadership theories provides insights in approaches and implication. Furthermore, resistance to change is better understood and good communication is one of the best strategies for dealing with it. Learning how to learn from resistors is a challenge to modern managers and leaders.
Flood and Jackson (1991) classify various methodologies in a similar way but use terms ‘simple system’ and ‘complex system’ instead of difficulties and messes. Three ideological viewpoints, presenting three types of relationships between people:
Unitary. People relating to each other from a unitary perspective:
Pluralist. People relating to each other from a pluralist perspective:
Coercive. People relating to each other from a coercive perspective:
Most people are able to think rationally and logically. Some would say the logical and rational approach is the only way to solve a problem or response to opportunities. These hard approaches rely on the assumption that clear change objectives can be identified in order to work out the best way of achieving them.
The hard system model of change (HSMC) is a method that has been developed for designing and managing change. This method is useful when dealing with situations that lie towards the ‘hard’ end of the hard-soft continuum changes situations. It supplies a precise and systematic way of determining aims for change. The process can be divided into three phases:
Within these three phases a number of stages can also be identified:
Phase 1: Description stage
Stage 1: Situation summary
Stating the commitment to the analysis and the reason for doing it.
Describing in words and with diagrams, the situation within which changes will be set.
Stage 2: Identify objectives and constraints
Listing objectives that are consistent with the themes which emerged from the diagnostic stage.
Arranging the objectives into a hierarchy of objectives (objectives tree).
Listing constraints in term of those that are inviolable and may be modified.
Stage 3: Identify performance measures
Formulate measures of performance, which can be put against the objectives on the objectives tree.
Phase 2: Options
Drawing up a list of options. This can be done by making use of any number of creative thinking techniques such as: brainstorming, ideas writing, focus groups and research.
Stage 4: Generate options
Stage 5: Edit options and detail selected options
Stage 6: Evaluate options against measures
Check that the model you have used is an accurate representation of the system.
Consider whether the model seems to contain any bias or mistake assumptions.
Evaluate each option, or a combination of options, according how well it meets the performance measures.
Phase 3: Implementation
Stage 7: Develop implementation strategies
Pilot studies leading to eventual change
Parallel running
Big bang
Stage 8: Carry out the planned changes
The HSMC model is used for situation with a hard complexity. It can be used to find problems and options in a quick manner. Therefore, the named Q & D (quick and dirty) analysis can be a useful starting point for the change agents tackling a more complex problem (Paton and McCalman, 2008). It will indicate key factors and potential barriers to change, it will highlight the principal players and give an indication of resource requirements. Such an analysis will at any early stage set the scene for things to come and provide the change agents with a valuable insight into the complexities of the transition process.
The hard systems model is particularly useful when an area of the organization may need to be changed but may not infringe on other areas and when choices based on ration decision making can be made.
Ackoff (1993) identifies three kind of things that can be done about problems:
“People do not act rationally, it is to way that they act according to their own view of what is rational for them” (Carnell, 2007). Change in this scenario will only be possible and effective if it is accompanied but processes that address feelings, needs of individuals. Hard systems models of change, are not sufficient to explain organizational messes and are extremely limited in providing a model for planning and implementing change in these situations.
Organization Development (OD) is an umbrella term for a set of values and assumptions about organizations and the people within them that, together with a range of concepts and techniques, are thought useful for bringing about long-term, organizational wide change.
There are different definitions of OD and most of them show the following characteristics:
French and Bell (1999) provide ten OD principles. These ten principles are:
The employees of a company are the building blocks of the organization. The OD approach is an approach that cares about people. This approach believes that people at all levels throughout the organization are both drivers and the engines of change. Paton and McCalman (2008) offer three fundamental concepts with respect to the management of people gaining their commitment to their work and organization:
OD approaches to change assume that work groups and teams are an essential element in the process of designing and implementing change.
The concept of a learning organization is built upon the proposition that there is more than one type of learning. Argyris and Schon (1996) distinguish:
Senge (1990) terms single-loop and double-loop learning as adaptive and generative.
OD functions at all levels of an organization. The process for both initiating and implementing planned change is long-term. OD as a process for instigating and implementing change has two important characteristics:
Lewin’s (1951) model of change is a well-known OD model:
The disadvantages of Lewin’s model are focused on the last phase refreezing. The idea of cementing the changes in place to create a new organizational reality. Thereby, it tends to ignore the increasingly turbulent environment and the need for continuous change.
Change is a continuous process of confrontation, identification, evaluation and action (Paton and McCalman, 2008). The key to this is what OD proponents refer to as an action-research model. Several studies provide detailed descriptions of action research: “A collaborative effort between leader and facilitators of any change and those who have to enact it.” This includes seven steps:
This approach is different from the hard systems model of change. It is not a one-off event which stops if the change is accomplished. Next to that, it is an iterative process that is continuous and which continuous as part of everyday organizational life. Furthermore, each of the components of the model may be used to form each of the phases that make up a typical OD process. Lastly, this approach is firmly embedded in the assumption that all who are of who might be involved in any change should be part of the decision-making process to decide what that change might be and to bring it about.
Two stages are important: the present and future state. The change agent is important, and this person can be internal or external to the organization.
Stage 1a: diagnose the current situation. This stage performs an environmental analyse. A current situation can be diagnosed by 1) detecting strategic drift and 2) gathering data on capacity to response to a change in direction or ways of operating. A more detailed examination of organizational purposes, goals, structure, culture, leadership(styles) and training and development provision is needed.
Stage 1b: develop a vision for change. This is the creative phase. A vision can energize commitment as people will be working towards a common goal.
The second stage of the OD process is to gain commitment to the vision and the need for change. Feedback from the stages 1a and 1b is most important in this phase. It is not easy to gain recruits for change. Pugh’s (1993) show four principles for understanding the process of organizational change:
The third stage of the OD process is to develop an action plan. This is the start to manage the transition from an organization’s current state to its desired future state. Several issues are important to understand in this stage (three steps):
The success of using an OD approach depends on those who act as facilitators of the change: the change agent. The role of the change agent is:
Buchanan and Boddy (1992) explain which five compententies are important for an change agent to be effective:
Kotter (1996) mentions four key characteristics as being essential for it to be effective:
Beckhard & Harris (1987) developed ‘responsibility charting’. This is a technique that determines the alternative behaviours for each person involved in different actions that are designed to bring about change. The actors identified can include:
Certain rules for making a responsibility chart are according to French and Bell (1999):
Pugh (1986) came up with a matrix of change initiatives on the different issues that can restrict change and the level at which they occur. The matrix is useful for type of intervention required (horizontal), level at which it should take place (vertical). Beckhard and Harris (1987) came up with the following organizational subsystems which can be a starting point for change:
The planning of OD interventions must also take account of the degree of change needed that is the scope of the change activities. In terms of Pugh’s OD matrix, it is necessary to consider if:
Beckhard and Harris (1987) concept of the action plan is a ‘road map’ for change and it is a useful one. An effective plan should have characteristics as: relevance, specificity, interaction, chronology, adaptability.
The fourth stage is about the implementation of change. There exist different tools and techniques that can be used to initiate and implement change.
The fifth stage is to assess and reinforce the change change. In hard organizational situations it is relatively easy to assess the extent to which change has been achieved. This is more difficult for soft, messy situations. A number of ways are available for measuring the softer issues associated with change:
According to Farquhar, Evans and Tawadey (1989): “A real danger in the process of organizational change is the failure to carry it through sufficiently far”. It is pointless expecting people’s behaviour to change if this is not reinforcing by concomitant changes in personnel policies and practices, including appraisal, career development and reward systems.
OD as a philosophy and a process can be critiqued according to a number of criticisms:
These points show a depressing picture that OD would succeed in public sector organization. However, since public sector organizations move towards market principles OD models for change become more realistic and easier to apply. Parkes (2008) brought about change to reduce sickness levels across the council workforce. Parkes notes that, what was then a newly team learnt a number of lessons for the future:
Why does OD not ‘work’ in all cultures? OD interventions will struggle to be accepted in societies that score high on the dimensions of Hofstede (1980): power distance, uncertainty avoidance, masculinity and moderate individualism.
A similarity between hard and soft models for change is that they suggest a planned change. If you will follow the described steps, the change will be successful (according to these theories). Soft systems address the issues of soft complexity inherent messy situations.
The purpose of this final chapter is to look more closely at the act of changing and recent thinking on how it happens and how best to catalyse it. The industry, lifestyle and social structure can influence the strategy and structure of an organization.
Internal and external factors can affect the business, lifestyles and social structures.
The social structure can have an influence.
The psychological contract represents ‘an individual’s beliefs regarding terms and conditions of a reciprocal exchange agreement between that person and another party’ (Rousseau and Parks, 1993). The contract is invisible when employees do their work normally. The contract becomes visible when an employee breaks the contract. The psychological contract has a huge influence on the acceptance of the employee and when managers need to be alert to how employees will perceive things when change is in the air.
The trends for the future highlight the importance of innovation, creativity and technologies. These changes can benefit the organization and their employees. However, it can also result in a split in the society. The standard of living of people can diverge. Innovation and creativity are not the same concepts. Some researchers argue that creativity is a component of innovation. Miles et al. (2000) emphasize the importance of innovation. Collaboration is the key to innovation, also known as meta-capability. There are three conditions for collaboration:
Anthony and Christensen (2005) argue that disruptive change and disruptive innovation theory are important concepts in explaining creating value for potential customers. They argue that: ‘existing companies have a high probability of beating entrant attackers when the contest is about sustaining innovations with radical or incremental improvements that target demanding customers at the high end of the market who are willing to pay premium prices for better products’. Examples are the supermarkets Aldi and Lidl who offer basic food for lower prices.
There exists a paradox between the trends because 1) people are more individualistic, independent, communicate more through ICT and 2) researchers argue for more organic, network and virtual organizations were collaboration is required. The question is: ‘do the changing career patterns undermine the key attitudes and behaviour that an employer need?’ Part of the answer is empowerment. However, it does not support the processes and culture that make the managers successful.
Appreciative Inquiry (AI) is an organizational change methodology that takes a radically different view from traditional approaches, being a far more collective method that focuses on the positive psychology generated by asking positive questions rather than concentrating on negative questions and issues. AI is a search for the best in people and what is happening in their organizations. Eight principles how to implement:
AI is a form of action research. The eight principles are used to underpin a four-stage cycle to engage people: discovery (what is done well in a firm), dreaming (on futures based on extraordinary experiences), designing (what should be done), destiny (collective agreement).
Some implications of AI:
Some qualities of AI:
Capacity to change is about their ability to undertake large-scale changes without compromising daily operations or subsequent change processes. Building on the extensive advice there is on successful change
Meyer and Sansaker (2006) offer possibilities how the capacity can be expanded:
By focusing on these prescriptions, capacity for change will increase.
Change capacity is conceptualized as comprising three correlated dimensions; learning, change process and organizational context (World Health Organization).
WHO is the World Health Organization, which is on a mission to see that people all over the world enjoy the best possible health.
Researchers argue that there are gaps and limitations in change research:
Makshak and Gant (2008) argue that there exist trends in organizational development from classic organizational development to new organizational development.
There is no best way to accomplish successful organizational change. There are key areas that should be considered in relation to the diagnosis, implementation and review of change situations.
Change calls for high levels of persistence in the face of an unstable environment.
The organization as a system consists of input, subsystems and output. Inputs in the organization are materials and resources. Remember this as something that goes ‘in’ the organization. Output consists of achievement of organizational goals and employee satisfaction. Remember output as something that comes ‘out’ of the organization.
Input --> the organization (formal and informal subsystems) --> output.
There are two types of subsystems in an organization: 1) formal and 2) informal. Formal subsystems are the strategy, goals, structure, operations, technology etc. Remember this as something which is visible. An informal subsystem is for example the culture or politics. Remember this as a hidden element in the organization which is not directly observable.
Brooks (2011) explains the environments as a general concept which take into account the totality of external environmental forces which may influence any aspect of organizational activity. A common way of grouping different environmental factors uses the PEST: Political, Economic, Socio-cultural and Technological.
There are different models of organizational change. This can be explained by: C – E – R – P – E – R:
Stacey et al. (2002) identified three cornerstones of complexity theory: C – D – C
The competitive cycle argues that there are two basic types of breakpoints: divergent and convergent breakpoints. Divergent breakpoint associated with sharply increasing variety in the competitive offering, resulting in more value for the customer. Divergent means different, various, diverse and therefore can be remembered by ‘increasing variety’.
Convergent breakpoints associated with sharp improvements in the systems and processes used to deliver the offerings, resulting in lower delivered costs à CC: Convergent breakpoints results in lower Costs.
Organizational structures can differ in many ways. A classic study identified the following six primary dimensions of structure: C – C – F – S – S – T
Organizations use flatter organizational structures to response better to markets and reduce operating costs. It is easier for yourself to visualize this. By removing layers of management, the organization becomes flatter. This means that decision making is more decentralized and therefore, the span of control becomes broader instead of larger.
There is a difference between tight and loose coupling. Tight coupling occurs when a sector exerts a high level of influence and control over the templates that organizations in the sector use. Tight means close or strict. So, there is a ‘tight’ influence and control. It is not flexible.
Mintzberg (1991) mentioned five organizational forms that can be remembered as: D – A – M – P – E
Schein (2004) suggests three levels from shallowest to deepest --> B – A – E
There can be made a distinction between two classifications of culture: the objectivist and the interpretive view. The objectivist view places culture alongside structure, technology and environment. The interpretive view interprets the meaning of culture as a metaphor for the concept of organization itself. So, the interpretive view interprets the meaning of culture while the objectivist approach is more open-minded and impartial.
Argyris (1964) pointed to the difference between two kinds of learning: single-loop learning and double-loop learning. Single-loop learning means that there is a situation in which an objective goal is defined, and a person works out the most favoured way of reaching the goal. Double-loop learning means that questions are asked not only about the means by which goals can be achieved, but also the ends, that is, the goals themselves. To remember: double-loop learning can be seen as ‘double learning’ also named relearning.
There are barriers to change. There are different reasons why women on average do less than men are (P – P – C):
There are two types of views: the unitarist view and the pluralist view. Managers with the unitarist view argues people have the same interests and therefore there would be no conflicts. Managers with the pluralist view argue that people can sometimes have a conflict by having both shared and divergent interests. Uni means singular or ‘one-coloured’: there is no conflict because people have the same interests.
The techniques of conflict management can be categorized in two dimensions: concern for production and concern for people. Each dimension ranges from high to low. There are five styles (CCC-AA): Competition, Collaborating, Compromising, Avoiding and Accommodating.
Charisma works according to Lewin in three stages --> Remember: Frame
Emotional Intelligence (EI) has five components according to Goleman (1998): (ME-SSS) à Motivation, Empathy, Self-awareness, Self-regulation and Social skills.
Graen et al. (1995) introduced the leader-member-exchange theory and argued that the different types of social exchanges fall into two types: In-group (employees are involved in decision making and might receive projects to lead) and out-group (employees are kept at arm’s length and only receive information needed to do their job). Remember: in-group type are people who are ‘in’ the group and they can make decisions while out-group members are not involved in the decision-making process. They fall outside the group.
Three ideological viewpoints, presenting three types of relationships between people: 1) Unitary, 2) pluralist and 3) coercive. Unitary means singular or ‘one-coloured’: there is no conflict because people have the same interests, all participate, share values and beliefs.
Pluralist view: ‘plu’ means umbrella in Dutch. All people are under the umbrella: his means that all people participate in decision making, people relate to each other. They do not necessarily agree with each other, but compromise is possible.
Coercive means pressure. People are put under pressure to accept decisions and people do not share the same interests.
The hard system model of change (HSMC) is a method that has been developed for designing and managing change. The process can be divided into three phases: D – O – I
Ackoff (1993) identifies three kind of things that can be done about problems: SOLVE
1) Resolve, 2) Solved and 3) Dissolved.
Statement: ‘Hard systems models of change, are not sufficient to explain organizational messes and are extremely limited in providing a model for planning and implementing change in these situations’.
Because: this model of change is developed for designing and managing change and not for implementing and planning the change.
Buchanan and Boddy (1992) explain which five competencies are important for a change agent to be effective (CGMNR): Communication, Goals, Managing up, Negotiation and Roles.
Researchers argue that collaboration is the key to innovation. Collaboration is an interaction between people. There are three conditions for collaboration that can be remembered as ‘people’.
Appreciative Inquiry (AI) is a form of action research. The eight principles are used to underpin a four-stage cycle to engage people (D – D – D – D): Discovery (what is done well in a firm), Dreaming (on futures based on extraordinary experiences), Designing (what should be done), Destiny (collective agreement).
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Horizontal boundaries: the varieties and quantities of products and services that a firm offers. The optimal horizontal boundaries of a firm depend on economies of scale and scope.
Economies of scale: due to an increase in the production of a given good or service, a firm can decrease its unit-cost.
Average costs curves are U-shaped: costs of small and large firms > costs of medium-size firms. (Graph: figure 2.1 p.75)
Average costs curves are L-shaped: average costs decrease up to the minimum efficient scale (MES) of production and it results that every firms have the same average costs if they produce beyond or at MES (Graph: figure 2.2 p.76).
Economies of scope: due to an increase of variety of goods and services produced, the firm can achieve saving. It is often defined as the fact that producing two or more different products together is cheaper that producing them separately.
Where do scale economies come from?
4 sources related with production:
Indivisibilities and the spreading of fixed costs: spreading of product-specific fixed costs, tradeoffs among alternative technologies.
Indivisibility: an input cannot be scaled down below a certain minimum size, even when the level of output is very small. Indivisibilities are often expected when production is capital intensive.
Economies of scale can be the result of an increase in capacity utilization (short-run economies of scale) with a given product technology and the result of the decision of a firm between different production technologies (e.g., adaptation of a technology with high fixed costs and low variable costs are long-run economies of scale).
Increased productivity of variable inputs
Inventories: inventories costs are proportional to the ratio of inventory holdings to sales. Therefore, inventories can generate economies of scales as a high volume of business allows to sustain a lower ratio of inventory to sales while achieving a similar level of stock-outs and thus, it decreases the average costs of goods sold.
Engineering principles associated with the “cube-square rule”: economies of scale increase due to the physical properties of units.
Special sources of economies of scale and scope:
3 Sources not related with production:
Purchasing
Advertising
Research and Development
Purchasing: buying in bulk allows buying at a better price (eg. 6 packs of milk is cheaper than buying 6 packs separately, discounts for big businesses).
A supplier will care if sales of X units come from one or many different buyers for 3 reasons:
Less costly to sell in bulk if additional fixed costs are involved as writing a contract, delivery the product, etc.
Small price difference is bigger when buying in bulk
If the supplier is unsuccessful making business with a large purchaser, he may face costly disruption to operations or in bankruptcy. The supplier may offer a discount to the larger purchaser to assure a steady flow of business.
Those 3 conditions above need to be hold to allow purchasing economies.
Advertising: the following formula shows the advertising cost per consumer of a product:
Cost of sending a message
Number of actual consumers as a result of a message
In general, larger firms often have lower advertising costs per potential consumer. Even if associated costs are high, they are spread over a lot of potential consumers.
Umbrella branding: a firm offers a broad product line under a single brand name. This strategy is profitable when the advertisement of one product is used in the mind of the consumers to make inference about other products with the same brand name and therefore, decreasing the costs in advertisement.
Umbrella branding can also reduce the risk of launching new products because consumers can refer to the reputation of the brand name.
Research and development: Economies of scope arise when research and development generates positive spillovers to another project.
Sources of diseconomies of scale:
Labor costs and firm size: bigger firms offer better wages and benefits than small firms.
Spreading specialized resources too thin: duplication is not easy and problems to transmit success from one situation to another arise.
“Conflicting out”: a potential client going to a professional services firm would like maybe to know if the firm is also doing business with some of its competitors. This can affect the decision of doing business or not.
Incentive and bureaucracy effects: difficulties in promoting effective worker performance because of communication problems for example.
The learning curve effect:
The learning curve or experience curve: advantages coming from accumulating experiences and know-how. This leads to lower costs, higher quality and more effective pricing and marketing.
Marginal cost of increasing production = expected marginal cost of the last unit of production
that the firm expects to sell
Therefore, even if short-run prices are lower than short-run costs, the learning firm should accept them. This can lead in negative accounting profits in the short-run but will prosper even more in the long run.
Learning and organization: managers should promote firm-specific learning rather than task-specific learning because if the learning is task-specific, employees getting skills while learning may be able to sell their knowledge in the form of higher salaries. When learning is firm-specific, worker knowledge is tied to their current employment, and the firm does not need to increase salaries as the worker become more productive.
The learning curve versus economies of scale: economies of scale can be important even when learning economies are minimal (capital-intensive activities) and learning economies can also be important even when economies of scale are minimal (labor-intensive activities) (see figure 2.10 page 99).
Managers who cannot exactly discern between economies of scale and learning can have incorrect conclusions about the benefits of size in a market. For instance, if a firm has lower unit costs, does it come from economies of scale or from learning? If it comes from economies of scale and the firm cut the current volume of production, unit costs will automatically increase. However, if it comes from learning, unit costs will not increase.
Diversification could be done in many ways: by enlarging the product line, by enlarging markets, etc. and the goal is to reduce costs and improve market effectiveness by exploiting economies of scale and scope.
Why do firm diversify?
There are 2 reasons for this:
Diversification can be a benefit for the owners by increasing the efficiency of the firm.
Diversification could reflect the firm’s manager’s preferences if the owners do not take directly decisions.
Economies of scale and scope: if firms diversify with the aim of pursue economies of scope, usually, large firms would offer a related set of productions to a narrow group of consumers. Evidences have shown that observes patterns of diversification cannot be explicated by economies of scope from shared technologies or shared consumer groups.
Scope economies can be achieved by spreading a firm’s underused organizational resources to new area because a firm can have some particular resources that cannot be used in its current product market. So, instead of doing nothing with those resources, they can be better used in other product markets and will therefore allow economies of scope.
Economizing on transaction costs: important if diversification comes from mergers and acquisitions. Teece says that a firm should be diversified when coordination among independent firms is difficult to achieve due to transaction costs.
Internal capital market: how firms allocate financial and human resources to internal divisions and departments. A problem with internal market is that it is possible to have profitable projects that cannot be financed by external resources because external finance is expensive. If the project is the creation of a business by cash-rich firm and a cash-constrained firm, the cash-rich firm can be used to finance effective investments in the cash-constrained firm. Therefore, both firms do not need to share anything. However, the only condition to be successful is that one firm has cash in excess of its investment opportunities while the other has investment opportunities in excess of its available cash.
Diversifying shareholder’s portfolios:
Advantages:
Decrease risk
Smaller loss if a single firm fails.
Disadvantage: mergers and acquisitions as a tool for diversification can make shareholders worse off because a shareholder can diversify its portfolio himself by buying some shares of another company and does not need the company to acquire the other firms.
Moreover, shareholders would maybe like to diversify their portfolios by having shares of another firm that the one acquired. Therefore, managers do not always act in the interest of shareholders.
Conclusion: diversification is better if shareholders cannot diversify their portfolios by themselves.
Identifying undervalued firms: if managers can recognize firms that are undervalued by the stock market, shareholders can be better off from diversification but this is very difficult to achieve for two reasons:
Market value of the target firm is not correct
No other investors have noticed it.
Therefore, the probability to find an undervalued firm on the stock market is very small.
Potential costs of diversification:
Important influence costs (combining two businesses in a single firm)
Expensive control system (some managers are rewarded on the basis of division profit or by business unit objectives).
Internal capital market may not work very well in practice
Managerial reasons for diversification:
Benefits to managers from acquisitions: 3 potential reasons:
Managers can prefer larger firms (social prominence, public prestige, political power).
Unrelated acquisitions can be achieved because managers want to increase their compensations.
Unrelated acquisitions can be achieved because managers want to protect themselves against risk.
Problems of corporate governance: if shareholders would be able to say which acquisitions are profitable and which one are not, and if management would be able to act only on the behalf of shareholders, few or no problems of corporate governance will arise. However, this is difficult to achieve because:
Shareholders do not have the information and the knowledge to determine which acquisitions are profitable and which one are not.
Difficulties to change the choices of managers
A lot of shareholders in large businesses have only a very small part of the shares of the firm.
Performance of diversified firm: many studies find that the sources of performance gains from diversified firms are unclear. However, they show that efficiencies can be difficult to realize through diversification and poor performance is often linked with extensive diversification into unrelated areas.
Moreover, diverse studies conclude that:
Moderately diversified firms had higher capital productivity. Firms with moderate to high levels of unrelated diversification had moderate or poor productivity (R. Rumelt, C. Montgomery).
Firms with restricted diversification to narrow markets performed better than broader firms, because of their learning particular market demand (N. Capon, L. Palich, L. Cardinal, C. Miller).
Firms pursuing related diversification outperformed those choosing either narrower or broader strategies (L. Palich, L. Cardinal, C. Miller).
Diversification led to a destructive “new toy” effect. After an acquisition, newly acquired plants saw an average productivity increase of 3%.
This improvement, however, occurred at the expense of the firm’s other plants. Incumbent plants’ productivity fell by 2% on average, and since there are typically far more incumbent plants than new ones, this decline implies an overall reduction in efficiency (A. Schoar).
Vertical chain: the act of starting with the acquisition of raw material and finishing with the distribution and sale of finished goods and services.
Market firms: specialists in the market that sell input to other firms and allow a manufacturer to have for example superior marketing program, rapid low-cost distribution, higher sales without performing any of these activities by himself.
However, it is not always an advantage to use market firms. The central question that a manufacturer should ask is “are the costs of making cheaper that the cost of buying”? and therefore, he should compare the costs and benefits from making versus from buying. Those costs and benefits can be fund in table 3.1 page 109.
Some make-or-buy common mistakes:
It is better to make an asset if the asset represents a source of competitive advantage for the firm: if the asset is a source of competitive advantage, the firm can get it easily on the market.
It is better to buy to avoid the costs of making: all associated expenses activities are in charge of the manufacturer and total expenses may be more than the costs of making the input.
It is better to make otherwise the firm will have to pay a profit margin to the market firm: economic profit versus accounting profit, expertise needed can be difficult to obtain, the market firm is the only one to have economies of scale.
It is better to make as a vertically integrated firm to avoid paying high market prices for the input during periods of peak demand or scarce supply: hedge for example.
Firms should tie up a distribution channel to gain market share at the expense of rivals: antitrust laws, can pay too much for the acquisition, how is it difficult for competitors to open new channels of distribution?
Reasons to buy:
Market firms are usually more efficient (economies of scale and learning curve): Firms should make what they do better than competitors and leave other things to market firms.
The advantages of market firms are the following:
Proprietary information / patents that enable them to produce at low costs
Can aggregate the needs of many firms (economies of scale)
Use their experience in producing for diverse firms
See figure 3.3, page 114.
Less bureaucracy:
Agency costs: costs that come from decisions or behaviors that are unprofitable for the firms (e.g. behavior: playing cards or sleeping instead of working / decision: overstaffing, using express mail instead of regular).
Due to common overhead or joint costs with specific allocations, agency costs are difficult to observe and measure.
Influence costs: direct costs of influences activities and costs of bad decisions that increase from influence activities (e.g. resources that are misallocated because an inefficient division is skillful at lobbying for scarce resources).
Reasons to make:
Contracts are valuable because:
List what each party has to do and what each party supposes the other to perform.
Specify remedies if one party does not perform its obligations completely. (This implies that firms do not totally trust their trading partners.)
Protect parties to a transaction from opportunistic behavior.
Complete contracts: allow the elimination of opportunistic behavior but for this, specific requirements are necessary:
Parties to the contract must be able to contemplate all relevant contingencies and they agree on a “mapping” that specifies for each contingency, a set of actions that each party must take.
The parties can specify what represents satisfactory performance and must be able to measure performance.
The contract must be enforceable.
Nevertheless, every contract is incomplete as they do not entirely indicate the “mapping” from every possible contingency to enforceable rights, responsibilities, and actions.
Therefore, they are 3 factors to prevent complete contracting:
Bounded rationality: analysis of information, deal with complexity, and pursuit of rational goals have some capability limits that an individual can face. Bounded rational parties cannot contemplate or enumerate every contingency that might increase during a transaction.
Difficulties specifying or measuring performance: it is impossible to describe rights and responsibilities of each party when performance under a contract is complex or subtle. Language in contracts is thus often vague and open-ended. Therefore, it can be unclear what represent fulfillment of the contract. A related problem is that performance may be ambiguous or hard to measure.
Asymmetric information: a contract may still be incomplete because the parties do not have the same relevant information. If one party knows something more than the other party, information is said to be asymmetric, and the knowledgeable party may distort or misrepresent that information.
Coordination of production flows through the vertical chain: for a good coordination, firms need to make choices that also depend on the choices of others. Good coordination leads to a good fit along all dimensions of production. Examples consist of:
Timing Fit
Size Fit
Color Fit
Sequence Fit
Problems with bad coordination:
Shut down a factory
Undermine a brand’s image
Lead to a significant lost in of their economic value
And therefore, due to those problems, contracts are important in coordination as it specify delivery dates, design tolerances as well as other performances.
Furthermore, coordination is especially important in process with design attributes which areRead more
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