Management 411: Organizational Theory
Thomas G. Goddard
Week 3 -- Tuesday, September 12, 2000
Agenda
® Announcement
of Groups for Projects/Presentations
® Discussion
of first week’s article: Network theory of
stakeholder influences
® Lecture on designing
organizational structure (chapters 4-6)
® Discussion
of as many of the assigned cases as we have time to discuss.
Announcement of Groups for Project/Presentations
Network Theory of
Stakeholder Influences
® Seeks to
move beyond classifying stakeholders and gauging influence.
® Comprehensive
network theory tries to:
® Explain how
firms respond to various stakeholder influences;
® Understand
the multiple and interdependent interactions that simultaneously exist in
stakeholder environments.
Network Analysis:
Principles & Assumptions
Principles
® Structural constraints, not inner forces
® Focus on relations between units
® Pattern’s joint effects on behavior
® Analytical methods deal with patterned relational
nature of social structure
Assumptions
® Actors and actions interdependent
® Linkages are channels for transfer of resources
® Structure gives opportunities and constraints on actions
® Structure is enduring patterns of relations among
actors
Factors Influencing Patterns of Behavior in
Stakeholder Network
Ch 4: Specialization & Coordination -- An Overview
® Functional
structure
® From
functional structure to divisional structure
® Product
structure
® Geographic
structure
® Market
structure
® Matrix
structure
Functional structure
® Def.:
Design that groups people together on the basis of their common expertise and
experience, or b/c they use the same resources.
Functional Structure, cont.
® Advantages
® Learning,
specialization, norm formation
® Experts in
supervisory positions
® Control
problems
® Communications
(“siloing”)
® Measurement
(isolating disparate costs)
® Location
® Customer
problems
® Strategic
problems (no time to plan)
Reengineering to Solve Control Problems
® Processes,
not organizations, are the objects of reengineering.
® Focus is on
dramatic improvement in
® cost
® quality
® service
® speed
Guidelines for Reengineering
® Organize
around outcomes, not tasks.
® Have those
who use the output of the process perform the process.
® Decentralize
decision making to the point at which the decision is made.
From functional structure to divisional structure
® Increasing
control can be attained through:
® Increasing
vertical differentiation.
® Increasing
horizontal differentiation
® Increasing
integration.
® Divisional
Structure: groups functions together according to the specific demands of
markets, products, or customers.
Product structure
® Product division -- a centralized set of support
functions services the needs of a number of different product lines. (Food
mfg.)
® Multidivision -- Support functions are placed in
self-contained divisions. Key is independence of divisions (self-contained) and
corporate HQ staff to help divisions share information. Watch out for transfer
pricing problem.
® Product team -- Specialists from the support functions
are combined into product development teams that specialize in needs of a
particular kind of product. Rapid
decision-making.
Geographic structure
® Def.:
Divisions organized according to the requirements of the different locations in
which an organization operates.
® Helps deal
with such geographic limiting factors as:
® transportation
costs;
® regulatory
constraints (HMO example);
® local
differences.
Market structure
® Def.:
Aligns functional skills and activities with the needs of different customer
groups.
® Particularly
useful for marketing a variety of products to a particular customer group.
Matrix Structure
® Def.: Groups
people and resources in two ways simultaneously: by function and by product.
® Two-boss
employees: product team mgr & functional mgr.
Matrix Structure, cont.
® Advantages:
® Reduce functional barriers.
® Opens communications between functional specialists --
facilitates innovation.
® Maximize use of skilled professionals, who move from
product to product as needed.
® Promotes concern for both cost & quality.
® Disadvantages -- control, authority, require highly
skilled mgrs. and adequate resources.
Multidivisional Matrix
® Def.:
Provides for more integration between corporate and divisional managers and
between divisional managers.
® This is
simply moving the matrix to the top of the organization.
Network Structure & Boundaryless Organizations
® Def.: Cluster
of different organizations whose actions are coordinated by agreements rather
than through a formal hierarchy of authority.
® Outsourcing:
Moving of a value-creation activity from inside the company to outside the
company.
Networks
® Advantages
® Network partner may outperform, and reduce costs.
® Minimize bureaucracy.
® Organic flexibility -- flexibility to respond to
changing environment.
® Disadvantages
® Can be difficult to quickly coordinate activities of
separate organizations.
® Trust may be low.
® Trickier for complex tasks, especially if there is a
limit on uses of technology.
Ch 5: Managing Organizational Culture &
Ethics
® What is Organizational Culture?
® Transmission of Culture Transmitted
® Sources of Culture
® Managing Culture
® The Upside to Ethics
® Causes of Unethical Behavior
® Corporate Social Responsibility
® Creating an Ethical Organization
What is Organizational Culture?
® The set of shared values and norms that control
interactions.
® Culture can be seen as one of the mechanisms for holding
an organization together, along with goal specification, hierarchy,
communications and information systems, and social control.
®
Compare with “Climate”: Shared
perceptions of psychologically important aspects of the work environment. It is thought to be a function of policies,
practices, structure, etc. (Ashforth, 1985)
Dimensions of Culture
® Sheridan (1992) investigated the retention rates in
six public accounting firms. Variation in cultural values had a significant
effect on quitting and job performance.
® Sheridan identified seven dimensions:
· Detail: value=
highly analytical, orientation = precision & accuracy.
· Stability:
norms of predictability, rule orientation.
· Innovation:
risk taking, responsiveness to new opportunities, being experimental
· Team orientation: norms of collaboration and teamwork.
· Respect for people: norms of fairness and tolerance.
· Outcome: norms
of high expectations for performance and personal achievement.
· Aggressiveness:
norms of competition in an organization.
Transmission of Culture: Socialization &
Socialization Tactics
® Institutionalized Orientation
® Collective
® Formal
® Sequential
® Fixed
® Serial
® Divestiture
® Individual Orientation
® Individual
® Informal
® Random
® Variable
® Disjunctive
® Investiture
Transmission of Culture: Stories, Ceremonies,
& Organizational Language
® Rites of
passage
® Rites of
integration
® Rites of
enhancement
® Stories
® Language
® Symbols
Sources of Culture: Characteristics of
People within the Organization
® Schneider’s attraction, selection, attrition (ASA)
theory says that all three promote closer job/organization fit.
® Sometimes, the best solution to changing culture
involves changing people.
Sources of Culture: Organizational Ethics
® Def:
The moral values, beliefs, & rules that establish appropriate way for
stakeholders to deal with each other.
® Societal:
laws, customs, practices, norms, values.
® Professional:
rules and values, often codified.
® Individual:
society, family, religion, etc.
Sources of Culture:
Property Rights
®
Def: The rights the organization gives to its members to
receive & use organizational resources.
Sources of Culture: Organizational Structure
Mechanistic
® Tall
® Centralized
® Standardized
® Little personal autonomy
® Desirable behaviors:
® Caution
® Obedience
® Respect tradition.
Organic
® Flat
® Decentralized
® Mutual adjustment
® Personal choice and control
® Desirable behaviors:
® Creativity
® Courage
® Risk-taking.
The Upside to Ethics
® Regulates
pursuit of self interest -- the “tragedy of the commons.”
® Reduce cost
of deciding propriety of behavior.
® Reputation
effect
® Reduce
exposure to corporate civil and criminal liability.
Causes of Unethical Behavior
® Lapses in
Individual Ethics
® Ruthless
Pursuit of Self-Interest
® Outside
Pressure
Corporate Social Responsibility
® The Narrow Stance:
® We are behaving responsibly as long as we act within
the law and play by the rules of the game.
® Society must create ethical environment.
® The Broad Stance
® Organizations are moral agents: we have a duty to
examine every situation from a moral perspective.
® EVALUATE!
Creating an Ethical Organization
® Designing an Ethical Structure & Control System
(Wilber’s exterior)
® Authority relationships
® Clarity of rules and roles
® Whistle-blowing
® Compliance/ethics officer
® Creating an Ethical Culture (Wilber’s interior)
® Measure
® Intervene
® Commitment from the top
Ch 6: Managing the Organizational
Environment
® What is the Organizational Environment?
® Contingency Theory
® Resource Dependence Theory
® Interorganizational Strategies for Managing Resource
Dependencies
® Strategies for Managing Symbiotic Resource
Interdependencies
® Strategies for Managing Competitive Resource
Interdependencies
® Transaction Cost Theory
What is the Organizational Environment?
® First, it
is useful to know that it is enacted.
® The enacted
environment is what the organizational decision makers attend to.
® Because the
decision makers attend to some things and not others, the enacted environment
is only certain aspects of the environment.
What is the Organizational Environment?
® Environmental factors affect organization’s ability to
secure resources
® The Specific Environment
® Forces from stakeholders
® Look at all stakeholders as potential source of
dynamism
® The General Environment
® Forces shaping the specific environment
® Include economic, technological, political, &
environmental
Sources of Uncertainty in the Environment
® Complexity (strength, number, & interconnectedness
of specific and general forces)
® Dynamism (speed and magnitude of change)
® Richness (poverty and competition can cause low
resource availability).
Contingency Theory
® Def: In
order to manage its environment effectively, an organization should design its
structure to fit with the environment in which the organization operates.
® Internal structure should match external complexity,
dynamism, and richness.
® An uncertain environment produces (or should produce)
differentiation, flexibility, decentralization, and mutual adjustment.
Resource Dependence Theory
® The goal of
an organization is to minimize its dependence on other organizations for the
supply of scarce resources in its environment and to find ways to influence
them to make resources available.
Interorganizational Strategies for Managing
Resource Dependencies
® Two basic
interdependencies cause uncertainty:
® Symbiotic:
between org. and suppliers/distributors.
® Competitive:
among organizations that compete for scarce inputs and outputs.
Managing Symbiotic Resource Interdependencies
® Developing a Good Reputation
® Co-optation (e.g., interlocking directorate)
® Strategic Alliances
® Long-term contracts
® Networks
® Minority ownership (keiretsu)
® Joint venture
® Merger & Takeover
Managing Competitive Resource Interdependencies
® Collusion and Cartels
® Industry standards
® Price leadership
® Third-Party Linkage Mechanisms
® Trade association
® Stock markets
® Quasi-regulatory organizations (URAC, NAIC)
® Strategic Alliances
® Merger & Takeover
Transaction Cost Theory
® TC: Costs
of negotiating, monitoring, and governing exchanges between people.
® TC Theory:
The goal of an organization is to minimize the costs of exchanging resources in
the environment and the costs of managing exchanges inside the organization.
® Jim Clark
and Healtheon.
Sources of Transaction Costs
® Environmental
uncertainty and bounded rationality
® Opportunism
and small numbers
® Risk and
specific assets (investments that create value in one particular exchange
relationship but have no value in any other exchange relationship)
Transaction Costs & Linkage Mechanisms
TCs
are low when:
® Exchanges are of nonspecific goods & services
® Uncertainty = low
® Many possible exchange partners
TCs
rise when:
® Exchanges are of specific goods & services
® Uncertainty = high
® Number of possible exchange partners falls
Using Transaction Cost Theory to Choose an
Interorganizational Strategy
® To decide on a strategy:
® Locate sources of costs
® Decide how high costs will be
® Estimate cost savings from linkage
® Estimate bureaucratic costs of linkage
® Chose linkage with most TC savings at lowest
bureaucratic cost
® Some optimal linkage strategies include:
® Keiretsu
® Franchising
® Outsourcing