ORGANIZATIONAL DESIGN (THE RIGHT WAY) A Paper Presented in Partial Fulfillment Of the Requirements of[OD-501 Organization and Group Dynamics]December 2002 Abstract A research of organizational theories to develop a usable, verifiable approach for creating and maintaining the right design for any company. Companies seem to not be prepared or poised, to deal with the challenges of a dynamic and constantly changing business environment. Theories of organizational design were examined, a good design structure based on solid principles was formulated, and the design tested and re-tested. Collectively, an effective approach to design the right organization was presented.
When the right approach is used, the right organizational fit is possible. The approach requires leaders to consider all the theories, principles of organization design, and position the organization for change. Table of Contents Table of Contents ii List of Tables iii Introduction 1 Organization Theories 2 Frederick Taylor – Scientific Management 2 Henri Fayol – Classical Management 4 Max Weber – Bureaucracy 6 B. F.
Skinner – Operant Behavior 9 Douglas McGregor – Theory Y 11 Abraham Maslow – Theory Z 12 Frederick Herzberg – Motivation Hygiene Theory 14 Chris Argyris – Goal Congruence Theory 14 Rensis Likert – Participative management theory 15 David McClelland – Motivational Research-Achievement Theory 17 Elton Mayo – The Haw throne Studies 18 Fred Luthans – Contingency Theory 18 Organizational Design 20 Organization Design: Is it Working? 22 The Fit Tests 23 The Good Design Tests 27 The Iterative Process 32 Conclusion 32 List of Tables TABLE 1. PRINCIPLES OF ORGANIZATIONAL DESIGN 21 TABLE 2. ORGANIZATIONAL STRUCTURES 21 TABLE 3. ORGANIZATIONAL CHANGE 22 Introduction What does it take to get the right organizational design for any business? In today’s constantly evolving environment, developing an organization that fits seems to be elusive. Companies are faced with a plethora of internal and external forces threatening their very survival. Yet, they seem to have the inability to design and structure their organization to deal with these challenges.
... York : Amacom. Myers, Paul S., ed. (1996). Knowledge management and organizational design. Boston : Butterworth-Heinemann. Nonaka, Ikujiro and Hirotaka, Takeuchi (1995). The ... , Dr. (2001). Achieving sustainable performance by leveraging on knowledge ?an organization behavioral approach. Kuala Lumpur : JT Frank Management Center, Knowledge Academy Asia ...
This document will provide an effective approach to achieving the most valuable design for any organization. The most valuable design means interjecting the appropriate organizational remedy to respond to challenges posed by external and internal forces. To accomplish this, various theories and management styles are explored; effective organizational design discussing the principles, structures, and the change processes are presented; nine tests to analyze organizational design to determine if changes are needed were examined; and, re-evaluating the design through an iterative process is discussed. Through a synthesis of all the facets of organizational development, a feasible, and thoroughly outlined approach to organizational design will emerge. Keep in mind a perfect design may not be achieved, but this is where being close does count. When many segments of an organization are functioning well, the better the company’s bottom line, and chance of survival.
Organization Theories Organizations are groups of people striving to accomplish common goals. To have the best chance of achieving organizational goals, it makes sense to design the organization in a way most suited for achieving the goals. Goals of organizations vary and so do the theories with which organizations are designed. Morgan (1997), states, It is based on a very simple premise: that all theories of organization and management are based on implicit images or metaphors that lead us to see, understand, and manage organizations in distinctive, yet partial ways. When referring to an organization “running like a well-oiled machine”, a paradox is created. Organizations are made up of people, and people are not machines.
The Term Paper on Organization Structure Effective Organization Structure And Principles Of Organizational Structure
... Classic and Modern organizational structures Numerous organizational structures are used in the management of different organizations in modern times. For an organization to choose its ... . Clegg, S. (2012). Modern organizations. Sage.Cichocki, P., & Irwin, C. (2011). Organization design: A guide to building effective organizations. London: Kogan Page. Goold ...
From this, a conclusion can be drawn that no one organizational theory will suffice for all organizations. If organizations are designed to run like machines, the humanistic aspect is neglected; if organizations are designed totally for the people, then the importance of policies, processes, and meeting goals are ignored. Therefore, it makes sense to use a varied approach for organizational design. Using points of view from various organization theories to design or redesign the perfect organization to meet the challenges of a dynamic and constantly changing environment. Drucker, (1999), states, Organization theory assumes that institutions are homogeneous and that, therefore, the entire enterprise should be organized the same way.
But in any one enterprise, there is need for a number of different organization structures coexisting side by side. Frederick Taylor – Scientific Management Major theories of organization begin with the “scientific management” theory, mostly pioneered by Frederick Taylor. Taylor’s principles of scientific management provided the cornerstone for work designed throughout the first half of the twentieth century (Morgan, 1997).
Taylor used time and motion studies to analyze and standardize work activities. To employ the scientific management approach, subject-matter experts perform detailed observations and measurements of even the most routine work to discover the ideal (optimum) mode of performance. Models of the scientific management approach are found throughout manufacturing, retail, and offices today.
Some well-known, and highly successful companies employing scientific management are McDonald’s and General Motors. One has to look no further than the fast-food hamburger franchises and automotive manufacturing to see the scientific management theory thriving. Any environment where production processes must be tightly controlled and monitored by computer technology lends itself to this approach. Then why does the scientific management theory create organizational problems? The scientific management theory views workers as just cogs in a fast-moving machine (Borg atti, 1996).
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The five principles of scientific management depict the dehumanizing aspect of this approach. Morgan, (1997) summaries those principles: (1) Shift all responsibility for the organization of work from the worker to the manager. (2) Use the scientific management method to determine the most efficient way of doing work. (3) Select the best person to perform the job designed. (4) Train the worker to perform the work efficiently. (5) Monitor the worker’s performance to ensure that appropriate work procedures are followed, and acceptable results are achieved.
The fundamentals of scientific management advocate that managers secure the maximum prosperity for the employer, coupled with the maximum prosperity for the employee. Maximum prosperity in this case translates to render not only large dividends for the company, but the development of every branch of the business to its highest state of excellence, so that the prosperity may be permanent. Scientific management has for its very foundation the firm conviction that the true interests of the employer and employee are the same; that prosperity for the employer cannot exist for an extended period of time unless it is accompanied by prosperity for the employee. In practice, the worker input into design or process is nonexistent and as a result, workers become resistive. For most, earning a wage is not the only need workers have. Henri Fayol – Classical Management The “classical management” theory gave rise to bureaucratic organizations.
The basic concept of classical management is that management is a process of planning, organization, command, coordination, and control. Notable products include management by objectives (MBO), the planning, programming, budgeting system (PPB S), extensively used by military departments, and Department of Defense (DoD), and other methods stressing rational planning and control. The classical theorists, Henri Fayol, F. W. Mooney, and Colonel Lynda ll Urw ick, set out to design a machine-like organizations reminiscent of scientific management. They conceived the organization as a network of parts: functional departments such as production, finance, marketing, personnel, and research and development, which were further specified as networks of precisely defined jobs (Morgan, 1997).
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Jobs complement each other and are linked together through the chain of command producing the “one man, one boss” concept. The motions of the organizational structure operate as precisely as possible through patterns of authority. The 14 principles of the classical management theory further highlight this obsession with control and authority. (1) Unity of command: an employee should receive orders from only one supervisor.
(2) Scalar chain (chain of command): the line of authority from superior to subordinate, which runs from top to bottom of the organization, used as a channel for communication and decision making. (3) Span of control: the number of people reporting to one superior must not be so large as to create problems of communication and coordination. (4) Staff and line: staff personnel can provide valuable advisory services, but must be careful not to violate line authority. (5) Initiative: to be encouraged at all levels of the organization. (6) Division of work: management should aim to achieve a degree of specialization designed to achieve the goals of the organization in an efficient manner. (7) Authority and responsibility: attention should be paid to the right to give orders and exact obedience; and appropriate balance between authority and responsibility should be achieved.
(8) Centralization of authority: always present in some degree, this must vary to optimize the use of faculties of personnel. (9) Discipline: obedience, application, energy, behavior, and outward marks of respect in accordance with agreed rules and customs. (10) Person subordinate to organization: through firmness, example, fair agreements, and constant supervision. (11) Equity: based on kindness and justice, to encourage personnel in their duties. (12) Fair remuneration: encourages morale yet does not lead to overpayment.
(13) Stability of tenure: to facilitate the development of abilities. (14) Esprit de corps: to facilitate harmony as a basis of strength (Choo, 2002).
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These principles, extensively used by military experts to develop armies into “military machines” provide the foundation of management theory. Their use is widespread today. Max Weber – Bureaucracy Max Weber, a German sociologist, began to study these new forms of organization being developed for managing large numbers of people in complex activities. At the same, around the turn of the twentieth century, German industry began to adopt the organizational methods developed in the United States.
He analyzed the situation and attempted to isolate the elements common to all these new organizations. Weber concluded that all these large organizations were similar-each was a bureaucracy. He saw the strengths and limitations in bureaucratic organizations. Weber believed bureaucracies were technically superior to other forms of organizations for coordinating the efforts of large numbers of people working toward specific goals. Bureaucratic organizations could do things with greater precision, speed, and financial efficiency than organization based on tradition. He also realized the negative, and dehumanizing effects bureaucracy had on the people working in them.
Weber (1925) wrote: “Bureaucratic organizations were intended to operate ‘objectively’-that is, according to calculable rules and without regard for persons.” Weber understood the two-sided nature of bureaucratic organizations. Weber developed the “ideal type” of bureaucracy commonly referred to as the “rational bureaucracy.” Per sell (1987) presented the six features of Weber’s bureaucracy: (1) Division of Labor and Specialization: the total work to be done in an organization is divided up into smaller tasks. Each position is responsible for a limited number of these tasks and has no authority for doing other ones. Therefore, positions are highly specialized. (2) Hierarchy: positions in a bureaucracy are arranged in order of rank, in a hierarchy.
People in lower positions are supervised by those in higher positions. Orders and directives are issued from the top down, through a specified chain-of-command. Those at the top have greater authority over more people and more activities than do those further down. (3) Rules and Regulations: formal, written rules govern most activities in a bureaucracy. Decisions are based on these rules. Explicit procedures are spelled out for all actions.
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As a result, the organization operates in an orderly, stable, and predictable way. (4) Impartially: rules, procedures, and decisions are to be carried out in a rational, non-emotional way, without regard to personal feelings. Clients are viewed as cases; subordinates are thought of as replaceable. Relatives and friends are barred from being considered as job applicants or are treated the same way as everyone else. (5) Technical Qualifications: occupants of positions are trained specialists. “The more complicated the work becomes, the more it demands the personally detached and strictly objective expert,” (Weber, 1925).
(6) Records and Files: Bureaucratic organizations rely heavily on records and files. Originally kept in written form, records are increasingly stored in computers. One of the transformations of modern bureaucracies has occurred in the way records are sometimes regarded as official secrets of the organization. One of the legislative thrust in the United States has been to make some of these organizational records available through the Freedom of Information Act and credit information laws.
To Weber, bureaucracy and rationality were two inseparable terms (Weber, 1968).
The features used to make his rational bureaucracy were simple extensions of the features presented above: (1) Ensure expert management: highly trained experts can be properly used as managers. It does little good to train someone to load trucks then have them receive orders from someone whose training is in finance. Rational bureaucracies can be operated only by deploying managers at all levels who have been selected and trained for their specific jobs. (2) Appoint and promote based on merit rather than favoritism: reward those who have achieved and accomplished the most on the job for the organization.
Favoritism can disrupt the order of an organization and lead to rebellion seriously undermining the goals of the organization. (3) Clear lines of authority: there must be clear levels of graded authority so all employees in the organization know who their boss is, and each person should always respect the chain-of-command; that is, people should give orders only to their subordinates and receive orders only through their own immediate supervisor. This way, the people at the top can be sure that directives arrive where they meant to go and know where responsibilities lie. (4) Functional Specialization: applies both to persons within the organization and to relations between divisions or units of the organization. Each division or unit specializes in one or a few tasks in the elaborate process. Weber argued that such specialization is essential to a rational bureaucracy and that specific boundaries separating one functional division or unit from another must be fixed by explicit rules, regulation, and procedures.
(5) Rules and principles: Weber stressed that rational bureaucracy must be managed in accordance with carefully developed rules and principles that can be learned and applied and that transactions and decision must be recorded so that rules can be reviewed. Only with such rules and principles can the activities of hundreds of managers at different levels in the organization be predicted and coordinated. If we cannot predict what others will do, then we cannot count on them. For a long time, Weber’s rational bureaucracy model dominated social science thinking about large, modern organizations. By World War II, sharp criticism of Weber’s ideas began to surface. Social scientists argued that Weber had ignored much of what really went on in organizations-the conflicts, the cliques, and the sidestepping of rules and the chain-of-command.
The problem laid in the fact that bureaucracies were not and could not be like machines because they consisted of human beings. In the final analysis, people will simply not imitate machines. B. F.
Skinner – Operant Behavior The behavioral theories contributed elements of human control in order to conform people to certain behaviors. The behaviorists concluded that people are motivated by stimuli and the ideas of rewards and punishments to either promote or dissuade behaviors. A simplified prospective of behavioral theory is reduced to stimulus and response. The details of behavioral science are Operant Conditioning, Contingency, and Operant Behavior. Operant Behavior is desired by the organization which equates to behavior designed to meet company goals. Reinforcement is used to associate consequences with desired behavior to ensure the behavior is more likely to occur again.
A positive reinforcement strengthens any behavior that produced it, and negative reinforcement strengthens any behavior that reduced or terminated it. Operant Conditioning is relevant to making behavior more or less likely to occur upon a given occasion. One person applies positive or negative contingencies in order to create interests, provide encouragement, instill incentives or purpose, or raise consciousness in another person. In doing so, that person brought the other person under their control. This is the traditional field of rewards and punishments, but much sharper distinctions can be made in taking advantage of what is known about contingencies of reinforcement (B. F.
Reinforcement of behavior is also dependent on whether the required response is demonstrated. In other words, a stimulus achieves a certain behavior, then, the stimulus is conditioned to enhance the possibility of the desired behavior, then a reinforcement given if the desired behavior is demonstrated. Vollmer & Hackenberg, (2001) stated, reinforcement contingencies and social reinforcement contingencies are ubiquitous in applied behavior analysis, and suggests a need for a more fundamental understanding of reinforcement contingencies and social reinforcement. Human relations are important to the development and long-term sustainability of organizations. Tremendous amount of research has been conducted to understand human relations in order to understand motivation.
To understand motivation, one must first understand human nature. And there is where the problem lies. Human nature can be very simple or complex. Those managers who realize this will have a chance to succeed at employee motivation. Research in this field have been undertaken by very notable people such Douglas McGregor, Abraham Maslow, Frederick Herzberg, Chris Argyris, Rensis Likert, David McClelland, Elton Mayo, and others. These researchers tried to fill a void between the un-humanistic ways scientific management and bureaucracy viewed the worker, and the carrot-and-stick ways behaviorism viewed the worker (Levinson, 1973).
The theorists and their theories of human relations school of management were person-centered. The improvement of relations between all levels has long been accepted as a very important element in the development and improvement of any organization. However, human relations should be improved for the fundamental motive of producing a correct and balanced attitude to the personal and social needs of the workers to increase productivity, and not merely to increased productivity. Douglas McGregor – Theory YMcGregor’s Theory Y contrasted Sigmund Freud’s Theory X. Theory X assumes that people are lazy; they hate work to the extent to avoid it; they have no ambition, take no initiative and avoid taking any responsibility; all they want is security, and in order to get them to do any work, they must be rewarded, coerced, intimidated, and punished. McGregor’s theory Y believes that people want to learn and work is their natural activity to the extent that they develop self-discipline and self-development.
They see their reward in the freedom to do difficult and challenging work by themselves. The manager’s job is to perpetuate the wish of self-development into the organization’s need for maximum productive efficiency. The basic objectives of both are therefore aligned and met, and with imagination and sincerity, the enormous potential can be harnessed. Abraham Maslow – Theory Maslow provided a refreshing change to the theory X of Freud.
Maslow totally rejected the dark and dingy Freudian basement and took us into the fresh, open, and cheerful atmosphere (Maslow, 1970).
He is the main founder of the humanistic school, also referred to as the third force, which holds that all good qualities are inherent in people at birth, and later gradually lost. Maslow’s theme revolved around the meaning and significance of human work. He believed that a man’s personality is the sum total of his works and that only his works survive a man at death. This is the essence of Theory Z, commonly known as Maslow’s Hierarchy of Needs. Maslow’s hierarchy of human needs were based on two groupings: deficiency needs and growth needs.
Deficiency needs are positioned at the low end of the hierarchy and these needs must be met before proceeding to the growth needs positioned at the high end of the hierarchy. Maslow stated that an individual will act upon growth needs only after all deficiency needs are satisfied. According to (Norwood, 1996), this principle of Maslow’s theory is the basis of his hierarchy presented below: (1) Physiological Needs (lowest) are basic needs such as air, water, food, sleep, and sex. When any of these needs are not satisfied, the person may feel sickness, pain, discomfort, and irritation. The main focus (motivation) at the point is to satisfy these needs and the exhibited behavior reflected.
(2) Safety Needs are centered on stability and consistency in a chaotic world. The needs for security of a home, feel safe in that home and community, and stability in home life. A recent assault, or pending divorce can be disrupted and subsequent behavior exhibited. (3) Love (Belonging) Needs are a person’s desire to belong to groups: clubs, work and religious groups, family, and gangs. The person needs to feel accepted and needed by others.
The desire to fit in and identify with others is powerful. The person will exhibit behaviors necessary for group identification and acceptance. (4) Esteem Needs are of two types. First is self-esteem resulting from competence or mastery of a task. Second, there is the attention and recognition that comes from others. This person wants to be the expert, the problem-solver, or the go-to-person.
This is the source of their power. Also, when lower needs are satisfied, this is the person that drives the expensive car to raise their level of esteem. (5) Self-actualization Needs (highest) is the desire to become more and more what one is, to become everything that one is capable of becoming. These are the people that have everything and can seek self-fulfillment, true peace, oneness with God, or join the peace corp. Maslow’s humanistic view seems critical in getting individual (personal) goals (needs) to align with organizational goals. The organization, through its managers, aids employees in achieving (satisfying) their needs in order for the employees to concentrate on organizational needs and goals.
Levinson (2002) wrote: The organization task becomes one of first understanding the employee’s needs, and then, with him or her, assessing how well they can be met in this organization, doing what the organization needs to have done. Thus, the highest point of self-motivation arises when there is a complementary conjunction of the individual’s needs and the organization’s requirements. The requirements of both mesh, interrelate, and become synergistic. Frederick Herzberg – Motivation Hygiene Theory Frederick Herzberg contributed to human relation and motivation in the terms of organization development with his two theories motivation; the Hygiene theory and the Motivation theory. The hygiene theory is the first part of the motivation theory and includes the job environment. The hygiene factors include: the company; its policies and its administration; the kind of supervision people receive on the job; working conditions; interpersonal relations; salary; status; and security.
These factors do not lead to motivation but without them there is dissatisfaction. Unsatisfactory hygiene factors can act as de-motivators, but if even satisfactory, their motivational effects are limited. The motivation theory involves what people really do on the job. The motivation factors include: achievement; recognition; growth / advancement ; and interest in the job. These factors result from internal desires in the employee, yielding motivation rather than movement. Both these approaches must be done simultaneously.
Treat people as best you can so they have a minimum of dissatisfaction. Use people so they get achievement, recognition for achievement, interest, and responsibility and they can grow and advance in their work (Herzberg, 1968).
Herzberg exploded several myths about motivators by providing evidence that shorter work week, increased wages, and fringe benefits are not what really motive people and provides job satisfaction. Chris Argyris – Goal Congruence Theory Argyris concluded organizations need to be redesigned for a fuller utilization of the most precious resource, the worker, in particular their psychological energy. The pyramidal (hierarchal) structure should be relegated to the background, and decisions should be made by small groups rather than a single boss.
Satisfaction in work will be valued more than material rewards. Work should be restructured in order to enable individuals to develop to their fullest extent. Simultaneously, work will become more meaningful and challenging through self-motivation. Argyris’ approach seems to be closely aligned with that of Herzberg advocating the importance of motivators (human needs) as opposed to the hygiene factors (animal needs) to achieve job satisfaction along with productivity. Rensis Likert – Participative Management TheoryLikert’s Participative system appears to be the most effective in that it satisfies the whole range of human needs. Major decisions are taken by groups themselves and this results in achieving high targets and excellent productivity.
This is complete trust within the group and the sense of participation leads to a high degree of motivation. Likert conducted extensive research on human behavior with mainly industrial organizations. He examined different types of organizations and leadership / management styles, and asserted that to achieve maximum profitability, good labor relations and high productivity, every organization must make optimum use of their human assets. The organization making greatest use of human capacity will take the form of highly effective work groups linked together in an overlapping pattern by similarly effective work groups. Likert identified four different styles of management prevalent in organizations: exploitative-authoritative; benevolent-authoritative; consultative; and participative. (1) Exploitative-Authoritative System – Decisions are imposed on subordinates, and motivation characterized by threats.
High-level management has great responsibilities but lower-level workers have virtually none. Communication and teamwork are virtually nonexistent. (2) Benevolent-authoritative system – Leadership / management exist in a condescending form of master-servant relationship. Motivation achieved mainly by rewards, and management feels responsible for the tasks and goals, and lower-level workers do not feel responsible.
Communication is relatively nil, and teamwork virtually nonexistent. (3) Consultative System – Leadership / management is done by superiors having substantial but not complete trust in their subordinates. Motivation is by reward, but some is involvement also. A larger number of people feel responsible for achieving organizational goals. Communication exists both vertically and horizontally, and moderate amount of teamwork exists.
(4) Participative System (Group System) – The optimum solution where leadership / management are superiors having complete confidence in the subordinates. Motivation exists as economic rewards based on goals which have been set in participation. Personnel at all levels feel responsible for organizational goals. Communication exists in abundance, and substantial cooperative teamwork exists. Likert believes this system is ideal for profit-oriented and human-centered organizations.
Likert thinks all organization should adopt this system. Changes would be painful and time consuming, but necessary if one is to achieve the maximum rewards for the organization. David McClelland – Motivational Research-Achievement Theory McClelland was fascinated by how some people had an intense need to achieve. He and his associates at Harvard University studied this urge to achieve. McClelland’s research led him to believe that the need for achievement is a distinct human motive that can be distinguished from other needs. More importantly, the achievement motive can be isolated and assessed in any group of people.
He identified characteristics of people with a high need to achieve: they set moderately difficult but achievable goals; concerned more personal achievement rather than rewards of success; they prefer to work on a problem rather than leaving the outcome to chance; they have confidence their abilities can influence the outcome so they take middle ground on issues; money is used as a measure of their performance; they seek concrete feedback on their performance. Achievement – motivated people tend to be the backbone of most organizations. However, when promoted to a position where their success depends on the work of others, they become less effective. They are highly job-oriented and work to capacity and expect others to do the same so their human skills and patience are lacking to be effective managers. McClelland (1961) stated that achievement-motivated workers are needed in organizations but do not always make the best managers unless they develop human skills. Being a high-capacity producer is not sufficient in making an effective manager.
McClelland’s concept of achievement is related to Herzberg’s motivation-hygiene theory. People with high achievement motivation tend to be interested in the motivators (the job itself).
Also, they want feedback and know how well they are doing. Low-achievement people are more concerned about the environment. They prefer to know how people feel about them rather than how well they are doing. Elton Mayo – The Hawthorne Studies Human beings are social animals.
They need to hang around each other, and liked by others. They also like respect, power, and autonomy. There are many needs humans (workers) need to fill besides the needs that money buys. Mayo, Roethlisberger, and Dickson from the Massachusetts Institute of Technology (MIT) discover ed that whenever people get together on a long-term basis, they form informal groups.
What started out being a study to increase productivity became an eye-opening conclusion on the prominence and power of the informal group within organizations. Organizations contained many informal groups based on dominance, friendship relations, perceived importance of work, and relationship (status) with other units. The study also revealed informal groups have an internal social structure based on that dominance and friendship, and have social leaders with substantial influence over others behavior. The Hawthorne studies demonstrated important the influence of group dynamics on organizational success. The main discovery in all three parts of the study was that no matter what the environmental conditions or external forces endured by the group their productivity was overwhelming influenced by the expectations of the group leadership. When individual, group, and organizational goals doesn’t align, informal group or clique influence the organization’s bottom line.
The Hawthorne studies emphasized the importance of implementing human relations theories and management styles. Fred Luthans – Contingency TheoryLuthans’ contingency theory recognized that: (1) Organizations as “open systems”, needing careful management to satisfy and balance the internal needs and to adapt to environmental circumstances. (2) There is no one best way of organizing. The appropriate form depends on the kind of task or environment with which one is dealing. (3) Management must be concerned, above all else, with achieving alignments and good fit of organization strategies and goals with organization designs. (4) Different approaches to management may be necessary to perform different tasks within the same organization.
(5) Different types of organizations are needed in different environments. These are the underlying ideas of the contingency approach to organization, which established itself as a dominant perspective in modern organizational analysis (Katz & Kahn, 1978, and Morgan 1989).
The contingency approach addresses many more facets of the organizational organism than the scientific and classical approaches do. However, neither shall be completely abandoned. Each is used to form the most perfect organizational fit possible.
Luthans advocates the contingency theory on the basis that certain practices work better than others for certain people and certain jobs. Rigid, clearly defined goals, authoritative leadership, and tight controls lead to high productivity and satisfaction among workers in some cases. In other cases, just the opposite seems to work. It is necessary to adapt the leadership style to the particular group of workers and the specific job at hand. Armed with the collective knowledge of the theories discussed above, apply the organizational design steps below to help create the perfect organization.
Organizational Design Organizational effectiveness is directly related to organizational design. The right organizational design adds to organization effectiveness by: reducing duplication of activities; improving decision making; increasing coordination; facilitating efficient use of resources; ensuring proper level of management; and valuing employee’s opinion. An effective organization is critical in today’s dynamic, constantly changing, and highly competitive business environment. Corporate leaders must pay special attention to organization design to give the company the best chances for success. Organizational design is the responsibility of the leaders. Galbraith, Downey, & Kates, (2002), points out, “Organizations can’t be designed from the bottom up.
Those on the front line don’t have the broad perspective necessary for making the trade-offs that will affect the whole organization.” Of course, employee input is needed in the design process to identify problems and provide insight into what the customers want. But, this is one task the leaders can’t empower the employees to do. Only the leadership has the broad knowledge’s to make choices about which organization forms will best support the business strategy; understand the trade-offs and impact of each design decision; introduce flexibility and change without losing the clarity employees need to function effectively. Organizational design encompasses several key areas.
Leaders must address these areas of organizational design with the goals of the organization in mind. When contemplating the design or re-design of any organization, give careful consideration to organizational principles, structures, effectiveness, and change. Table 1 shows the principles of organizational design, Table 2 shows the organizational structures, and Table 3 gives insight on effectively implementing and managing change. Table 1. Principles of Organizational Design Number Principle Areas of Consideration 1 Division of Labor Departmentalization Specialization 2 Unity of Command Line of Command One Superior 3 Authority and Responsibility Line and Staff Authority Authority and Power 4 Spans of Control Level of Control Centralization and Decentralization 5 Contingency Factors Environment and Technology Task Variability and Problem Analysis Table 2.
Organizational Structures Number Structure Areas of Consideration 1 Functional Organization Use: When the organization is small, geographically centralized, and provides few goods and services. Pros: Reduces duplication of activities; Encourages technical expertise. Cons: Creates narrow perspectives; Difficult to coordinate 2 Divisional Organization Use: When the organization is relatively large, geographically dispersed, and / or produces wide range of good / services . Pros: Improves decision making; Increases coordination of functions; Fixes accountability for performance. Cons: Hard to allocate corporate staff support; Loses some economies of scale; Fosters rivalry among divisions.
3 Matrix Structure Use: When the organization needs constant coordination of its functional activities. Pros: Reinforces and broadens technical excellence; Facilitates efficient use of resources; Balances conflicting objectives of the organization. Cons: Increases power conflicts; Increases confusion and stress for 2-boss employees; Impedes decision making 4 Lateral Relations Use: Use lateral relations to offset coordination problems in functional and divisional structures. Dotted-line Supervision Liaison Roles Temporary Task Forces Permanent Teams Integrating Managers Table 3. Organizational Change Number Area Action 1 Organizational Development Set of activities and techniques to manage change Change Agent Change Intervention Unfreezing Movement — ‘a Refreezing 2 Structural Interventions Reorganization New Reward Systems Cultural Change 3 Task-Technology Interventions Job Redesign Socio-technical Systems Quality of Working Life 4 People-Focused Interventions Sensitivity Training Survey Feedback Process Consultation Team Building Inter-group Development Organization Design: Is it Working? Organization leaders apply their best effort to design an effective, successful organization. Yet, the question remains, do we have a well-designed organization? Goold & Campbell, (2002), states: For most companies, organization design is neither a science nor an art; it’s an oxymoron.
Organizational structures rarely result from systematic, methodical planning. Rather, they evolve over time, in fits and starts, shaped more by politics than by policies. The haphazard nature of the resulting structures is a constant frustration to senior executives. Goold and Campbell reviewed the principles of good design, studied the structures of dozens of companies, large and small ones, and observed how executives go about making design decisions. From that, nine tests of organization design were developed. The tests can be used either to evaluate existing structures or to create new a one.
The first four tests, “fit” tests, provide an initial screening for design alternatives, revealing whether the structures support the company’s strategy, talent pool, and situation. The next five are good “design” tests. These tests can help companies refine a prospective design by addressing potential problem areas, including the balance between empowerment and control. Also, this set of test can help establish the right amount of hierarchy, control, and process-enough for the design to work smoothly, but not too much as to dampen initiative, flexibility, and networking. Together, these tests provide a company’s management with a structured approach for analyzing all the key variables of organizational success. The Fit Tests Market Advantage is the first of the Fit tests.
Here, the emphasis is on whether the design directs sufficient management attention to the company’s sources of competitive advantage in each market. In formulating a strategy, companies ask two fundamental questions: Which market should we compete in? And, how can an advantage be gained over competitors in those markets? Ideally, these questions should also drive the company’s organization design. The first and most fundamental test of a design is whether it fits the company’s market strategy. There should be no dispute among senior members on the company’s market segments. If disputes exist, then new strategic thinking must be accomplished before continuing with the design process. Strategy and structure are misaligned when the organization can’t effectively respond to change.
Competitors grabbing market share and the organization doesn’t respond because can’t recognize the threat; downplays the threat; receives information of the threat in its corporately sanitized form; loses innovative ideas to deal with the threat stuck in is own bureaucracy (Levinson, 1994).
Once market share is lost then come the lay-offs, employees signing on with other companies, and innovative accounting to provide good news (Charan & Colvin, 1999; and Glick, 2002).
In addition, determine if the design concentrates sufficient attention to each market segment. A base line for this measure is if a single unit is dedicated to a single segment, the segment is receiving sufficient attention.
However, if no unit has responsibility, or if one unit has responsibility for several segments, then the design may be flawed and needs adjusting. This may be the case with small companies experiencing rapidly growing market segments. In any case, a careful evaluation and subsequent judgment made about whether the division of responsibilities will permit sufficient attention to be focused on the segment. At this stage of the design, it’s equally important to determine whether the design supports the company’s key sources of advantage. For example, key sources of advantages may be speed in introducing new products; flexibility in changing product line; or low-cost manufacturing. List these sources and initiatives, and check how the design addresses them.
The ideal situation is having one unit or department, dedicated to each source and initiative. Reality suggests market advantages often require coordination across units. Coordination across units is always an area of concern. One unit’s focus may not be of any importance to another unit. Collaboration across units is more difficult than collaboration within a unit. However, the confidence must exist that the design will enable managers to give sufficient attention to maintaining the lines of communication across, or with the units.
The Parenting Advantage test is the second of the Fit test. Corporate headquarters play varying roles in different companies. The focus of this test is to confirm the organizational design is tailored to support these roles. First, define and list the company’s parenting roles and corporate-level activities that provide real value to the overall company. These roles may be narrow such as managing government relations, or broad as such as coordinating between divisions, maintaining a research capability across units, or implementing new initiatives. Next, determine whether the design gives sufficient attention to these value-adding tasks and initiatives.
For instance, if the parent key role is spur high-speed innovation, then a design decision must be made to centralize research and development at the corporate unit or disperse it in the business units closer to the market. In any case, the parent advantage test helps companies see more clearly the organizational implications of their strategies. The third Fit test is the People test. Here, the question of “does the design reflect the strengths, weaknesses, and motivations of the people,” must be answered.
When things aren’t going well in an organization, usually the people are the first to be blamed. However, if the organizational design is not suited to the skills and attitudes of its members, the problem lies with the design and not the people. To implement this test, first list key players in top management, and other people throughout the company deemed critical to the business. Then, for those people, determine if the design, especially a new design, provides appropriate responsibilities and reporting relationships to win their commitment. It may be too much for a hands-on person to go to strictly administrative duties, or a supervisor with no supervisory responsibilities with the new design. In these cases, serious conflict may arise.
Then decide what positions in the design need to be staffed by highly talented people if the organization will work well. Now, the main questions to be answered are: do we have the people to staff those critical positions? If not, can we get the people? And, once we have the right people, can we retain them? Any design unable to be staffed by competent managers should be abandoned. In any redesign, there will be losers. Employees forfeiting power, position, or control are the losers. Losers can become roadblocks to change because they become cynical and resistive. Deal with the losers in one of three ways, depending on their influence in the company.
First, buy their support through increased compensation. Second, neutralize their influence by changing their role. Third, neutralize their influence by letting them go. The fourth and final Fit test is the Feasibility test. What can impede the implementation of the organizational design? Identify what constraints may impede or block organizational changes. Government regulations, ties to foreign companies, union contracts, and large stakeholders all hold the potential to impede or block organizational changes.
There may be instances where the desired design has to be altered or abandoned due certain constraints. Goold & Campbell (2002), suggest these constraints be looked at early because of their ability to impede or block any organization changes. The government regulations constraint: Some products and services are tightly controlled / monitored by government agencies. Therefore, disclosure requirements, and approval procedures must adhere to specific standards to prevent certain items, and technology from getting into undesirable hands. Organizational design or structural changes here may cause significant undesirable consequences for the company, and, may subject individuals to legal ramifications… It’s the responsibility of the leaders to ensure all (government and legal) requirements can still be met before any changes to design or structure are implemented.
The company’s stakeholders: company stakeholders, and large stockholders, usually must sign off on major organizational modifications. Their interests must be carefully considered to avoid serious repercussions. Depending on the contract in place, trade unions may have a voice in any planned organizational changes. The information constraint: the company’s information systems could prevent certain organization changes from taking place. Moving from a country-based to a product-based structure may be impossible because the company’s current systems can’t report performance by products.
In this case, the company is faced with an expensive re-tooling decision, or pursuing a difficult design. The company culture constraint: cultural differences can limit the feasibility of design choices, especially true in mergers. Just because companies merge cultures are abandoned. Changing cultures take time and great effort. In a merger situation, it may be prudent to keep the status quo until the change process can take hold.
Morgan (1989), emphasizes the internal political constraint in changing the organization. Changing organization structure disturbs the political balance existing within. Redistributing human resources is inevitable in a reorganization effort, therefore, those likely to be the losers will resist. Resistance comes in the form of overestimating unit cost to reorganize, and submitting less than accurately information in support of the proposed organization. In many cases, these efforts, and others, are successful in derailing the proposed change. To prevent a derailing at this point, leaders should verify (independently) any cost and data information resulting in a “No-Go” decision.
The Good Design Tests The following five tests focus on redesigning the design. The fifth and the first of the “Good Design” test is the Specialist Culture test. The object here is to determine whether the design protects units that need distinct cultures. In many companies, there are units that think and work differently than the rest of the organization. These could include product development teams, government relation teams, or functional service units. When developing or redesigning the organization, special attention needs to be given to ensure these “specialist cultures” are adequately insulated (protected) from the rest of the organization.
First, identify these special culture units in the company. Next, ask whether these units are in danger of becoming dominated by others because of their reporting relationship with a parent unit, or a sister unit. If the cultures special unit and the parent or sister unit cultures are different, the risk of the special unit culture becoming contaminated by the dominant culture definitely exist. This presents a potential problem that must be solved. When a special unit is at risk, first look for a simple, but effective way of solving the problem without an extensive reorganization. For example, put a high-ranking corporate executive in charge of unit to provide resistance for external influences.
Or, grant the unit special privileges freeing it from normal reporting requirements or human resources policies. Another effective way would be to communicate to the rest of the company the unique goals and requirements of the special unit. A redesign is necessary when none of these measures are effective. The Difficult Links test addresses coordination problems between units. Whatever design is decided upon, chances are that coordination between units will be necessary. Links between units are best through self-managed networks among the units.
Imposing a top-down coordination process may meet with resistance, and may not be best process for those units. Often the problem lies with different unit managers. These managers do not realize the benefit of effective collaboration between units. Also, the managers lack the skills and / or resources to make the necessary cooperation happen. Tweaking a design to solve difficult link problems may not always work. In such cases, a substantial redesign is needed to solve the problem.
For example, try bringing the units involved into the same division, or setting up a new, dedicated unit. Together, the specialist cultures test and the difficult link test will guide top management’s judgment about how narrowly or broadly to define unit responsibilities. They allow the design to strike a suitable balance between specialization and coordination. The Redundant-Hierarchy test examines the authority and responsibility aspects of an organization design. It can help answer the question of “Does the organization have too many parent levels and units”? The basic presumption is to favor decentralizing decision to front-line units and retaining decisions at upper levels only if those levels can add value. Here, it’s extremely important to determine if each parent level is needed and, if so, whether it has the resources necessary to do its job.
First, identify each level and unit in the company hierarchy above the operating units. Then ask if whether each has clear and distinct parenting tasks as discussed in the parenting advantage test above. If a level’s or unit’s tasks duplicate the unit above or below, then one of the levels may be redundant and needs to be eliminated. A parent level or unit should add value to and / or improve the performance of, the unit reporting to it.
The redundancy-hierarchy test can provide powerful insight even when conducted at a high level. Companies using this test have eliminated layers of management, reduced corporate and divisional functions, and redirected corporate and divisional managers to areas where they add greater value to the company. The Accountability test can ensure that every unit has appropriate controls over its performance. Controls should fit responsibilities, economical to implement, and motivate managers. To assess accountability, focus on two common sources of problems. First, look at any unit with shared responsibilities, especially if collaboration is mandatory.
Shared responsibilities imposed by the corporate parent blur accountability. It becomes easy for units to blame performance problems on one another and difficult for senior executives to determine who’s at fault. Second, concentrate on any unit whose performance is difficult to measure, either because there are no objective outcomes for comparison, or because of the expense involved with collecting performance data. A good example is a corporate unit doing basic research. It’s hard, virtually impossible, to devise clear-cut, easy-to-collect performance measures. Where possible, implement solutions for units with blurred or fuzzy measures.
Clearer performance measures developed and put into place, and greater clarity provided for overlapping responsibilities. Keep in mind a total solution may not be possible. In such cases, parent managers have no choice but to be subjective in judging performance. To that fact, the control process may end up being unsatisfactory unless the parent managers have extensive knowledge of the units they oversee. If expert managers are not available, a design modification may be in order.
The Flexibility Test is last test, and in today environment extremely important test, to consider. Does the organization’s design facilitates new strategy development, and provide the flexibility required to adapt to change? A well-designed organization is provides flexibility for the future as well as fit for the present. It provides ways for a company to pursue innovation and allows for adaptability to changing circumstances. In today’s business environment, inflexibility can quickly lead to lost markets, small profits, and stagnate growth. Eventually, lead to the death of the company. Heifetz & Laurie (2001), stated, “When businesses cannot learn quickly to adapt to new challenges, they are likely to face their form of extinction.” Drucker (1999) wrote, A management that does not learn how to innovate will not last long.
In fact, business-and every other organization today-has to be designed for change as the norm and create change rather than react to it. Of course it takes more than the organizational design to ensure innovation and flexibility. Innovation and flexibility require eclectic thinking, deep talent, and substantial resources. Therefore, this test aims not to determine whether the company has all the capabilities necessary to innovate and adapt, but whether there will be any major organizational roadblocks on the journey to the future.
Begin by assembling managers from across the company who deep knowledge of products and markets. Ask each to create a list of future opportunities, no matter how far-fetched they may seem. Have them include any opportunities the company is likely to encounter in the future. Then, examine your present organization design and determine whether it would support or impede the pursuit of each opportunity. In no way will this be easy. However, it is possible to get rough idea of whether the organization would be supportive, neutral, or obstructive, and of changes that would reduce any obstructions.
If discovering your present design could obstruct pursuing future opportunities, explore possible design modifications. Keep in mind the opportunities are speculative and don’t make changes destroying the present usefulness of the organizational design, but it’s nice to have a Plan “B” already thought out when needed. The same approach can be used to examine flexibility in the company. First identify a handful or so of major organizational changes that may be required over three to five years. Then, identify any part of the organization posing resistant to the changes. Pockets of resistant will be found throughout the company, top management and tight-knitted sets of units are examples.
Moving top managers around and creating more independent and self-contained business units may be the answer. The Iterative Process Once all the tests have been completed, the organization design realized some minor and major changes. Run the tests for a second time to ensure that changes in one area haven’t caused design failure another area. Organizational decisions are complex, so tweaking one area may indeed produce undesirable result somewhere else. The iterative process provides the checks and balances needed to get it as close to right as possible. The iterative process should be accomplished often.
Even the success of implementing the right design can cause problems. Greiner (2000) developed an organizational development theory to examine the problems associated growth in organizations and developing a proactive framework to deal with such situations. The iterative process can be used because of positive and negative influences. An iteration may be necessary because the company experienced exceptional growth, or lost market share. It’s not an easy process, but it more desirable than having design flaws causing the death of the company.
Conclusion What does it take to get the right organizational design for any business? It takes an understanding of organizational theories so one would know which to apply for that piece of the organization. How familiar are top managers with the various organizational theories? Managers, without thorough knowledge of various organizational theories, are like surgeons attempting to perform an operation with just a scalpel. When a patient (company) needs an operation to correct a problem, the surgical team (managers and staff) brings a plethora of tools (organization theories) to examine, verify, and correct the problem. Once the problem is corrected, the patience is monitored for complications, not just at the site of the surgery, but also on associated organs and systems (organization interrelationships).
Managers must exhibit the same energy and dedication to correcting organizational problems as a surgical team exhibits when correcting health problems. Failure to do so in either instance could be terminal.
Address the principles of a good organizational design founded on a solid structure, and poised for change. Once a good design is in place, rigorously test that design to fine-tune it. This gives insight to possible weakness, and possible fixes, to the design before they become catastrophic to the company. And, remember to check, and re-check the effectiveness, and correctness of the design for a good fit through the iterative process. A road-map to an effective organizational design was presented, but in no way is it complete. Special attention must also be paid the sub-organizations, groups and teams, to ensure the most effective design possible.
These complex, and dynamic entities can make or break a company and should not be neglected. These sub-organizations should be researched and added to the formula for creating the most effective design possible. Large amounts of data were examined in creating this presentation, both pertinent and peripheral data. A careful review of that data resulted in the following conclusions: top managers may not have sufficient knowledgeable organization theories to effect change; top managers can not implement change effectively; managers at all levels in the organization can not effectively lead, manage, or supervise employees; and top managers can not process information adequately enough to make good decisions. ReferencesBorgatti, S.
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