Org Behavior Ch 13: Organizational Structure and Culture

Span of Control

A manager's span of control is to the number of individuals who report directly to her. A broad span of control is possible when a manager can effectively handle many individuals, as is the case when associates have the skills and motivation they need to complete their tasks autonomously. Broad spans have advantages for an organization. First, they result in shorter hierarchies (see Exhibit 13-1), thereby avoiding communication and expense problems.8 Second, they promote high-involvement management because managers have difficulty micromanaging people when there are larger numbers of them. Broad spans allow for more initiative by associates.9 In making employment decisions, many individuals take these realities into consideration. Spans of control can be too broad, however. When a manager has too many direct reports, she cannot engage in important coaching and development activities. When tasks are more complex and the direct reports more interdependent, a manager often requires a relatively narrow span of control to be effective. It has been argued that a CEO's span of control should not exceed six people because of the complexity and interdependency of work done by direct reports at this level.10 0 0 Many older companies have removed layers of management and increased spans of control in recent years, whereas younger companies avoided unnecessary layers and overly narrow spans from the beginning.11 Because of their profound effects on behavior and attitudes among associates and managers, spans of control are of concern to many organizations such as PricewaterhouseCoopers (PwC).12 Through their Saratoga Institute, managers and consultants at PwC track spans of control in various industries and use the resulting insights in various reports and consulting engagements. They reported a few years ago that the median span for all managers in all industries was seven. An earlier Wall Street Journal report indicated an average span of nine. Yet, the Saratoga Institute reports that managerial spans of control have been increasing in recent years due to reductions in the number of managers in the recent global economic recession.13 In order to maintain efficiency and reduce their risks, spans of control have remained at higher levels even after the economy improved.

Product Differentiation

A second popular competitive strategy involves product/service differentiation. Consumers are targeted who are willing to pay more for a product/service that is different in some meaningful way (higher quality, superior technology, faster availability). To effectively implement this strategy, flexibility and initiative are useful for staying ahead of the competition, and a more organic structure can be helpful in supporting these needs.53 To be effective, each strategy requires a unique set of internal resources (e.g., human capital, as illustrated in the Experiencing Organizational Behavior on IDEO) that can be used to effectively implement the strategy.54 In the Experiencing Organizational Behavior segment, IDEO illustrates four key points. First, this firm shows how a differentiation strategy can be used in the business of designing products and services. IDEO has distinguished itself through its unique approach to working with clients, and it promotes the innovation and initiative required to maintain its edge by using an organic structure. Second, the firm highlights the fact that companies occasionally supplement their internal human capital as they work to create a competitive advantage in the marketplace. All or most of IDEO's clients have talented associates and managers. Yet, on occasion they still need outside assistance. Third, IDEO promotes design thinking throughout their and their clients' organizations. In so doing, innovation is integrated into the organization's culture and DNA. Finally, the IDEO case again illustrates the value of teams with diverse members, as explained in Chapters 2 and 11. Teams provided invaluable help for IDEO and its client firms to implement a strategy of innovation designed to create or maintain a competitive advantage. A more advanced form of the divisional structure, strategic business units (SBUs) is sometimes used for more complex firms. Large firms with multiple diversified businesses sometimes group their businesses into SBUs. At General Electric, for example, businesses are grouped into SBUs that include GE Advanced Materials, GE Commercial Finance, GE Consumer Finance, GE Consumer and Industrial Products, GE Energy, GE Healthcare, GE Infrastructure, GE Insurance Solutions, GE Transportation, and NBC Universal.55 A business strategy is then formulated for each separate SBU, thus allowing the complex organization to be more effectively managed. The key to developing effective strategies for each SBU is the appropriate grouping of businesses. Each group must have commonalities among its businesses for a coherent strategy to be developed. These commonalities may correspond to market relatedness, shared technology, or common distinctive competencies.56

Divisional Form (Benefits and Drawbacks)

A second, related benefit is rapid response to changes in the industry that call for a coordination response across function (sometimes referred to as cross-functional). Because associates and managers in the various functional areas coordinate more effectively, response times are often faster. A third benefit is tailoring to the different product/service or geographical markets. This occurs because the people in each division are dedicated to their own markets.16 The divisional form is not without its drawbacks, however. Two of the most important are (1) lack of collaboration across the product/service or geographic markets (individuals in one division can become isolated from those in other divisions) and (2) diseconomies of scale within functional areas (individuals in a given functional area but working on different markets cannot share resources as they can in the functional structure).17 As described in the Exploring Behavior in Action feature, FedEx developed a diverse set of businesses offering a portfolio of services. To manage these businesses efficiently and to offer customers the most effective services, FedEx implemented a divisional structure.

Growth

Almost all types of organizations use growth as a measure of success. Awards are given for growth, such as the Growth Strategy Leadership Award given by the consulting firm Frost and Sullivan.37 Under some circumstances, senior leaders are even willing to trade profits for increasing sales. Growth can be achieved through internal development or by external acquisition. Although the internal growth strategy is an attractive option, growth by external acquisition is popular with many companies.38 Cisco Systems, a maker of telecommunication equipment, is known for its frequent acquisitions.39 Acquisition is often a faster method of achieving growth, but it does carry some risk, in part because cultural differences between firms often cause difficulties in the post-acquisition integration of operations.40 Some firms that have diversified through multiple acquisitions later retrenched and sold off prior acquisitions because of poor performance.41 Each of these two growth strategies has implications for structure. For example, firms using an internal-growth strategy are likely to have larger marketing and research and development (R&D) departments. It is also probable that authority for decisions is decentralized to the heads of these departments. In contrast, firms following an external acquisition strategy are likely to have the more well-developed financial and legal functions required to analyze and negotiate acquisitions. These firms may even have a separate specialized planning and acquisitions department. For example, given the number of acquisitions completed by FedEx over time, the company likely has enriched these functions.

Values

As suggested throughout this discussion of structure and culture, the fit between an individual and the organization has important implications for satisfaction, commitment, intent to turnover, and job performance.115 Values are abstract ideals related to proper life goals and methods for reaching those goals. As such, individual values often underlie groups of attitudes. Although people may have thousands of attitudes, most likely they have only a few-dozen values.116 Thus, values are more general than attitudes and form the basis for how we should behave. For example, we could have the underlying value that family time is highly important and a corresponding negative attitude toward a colleague who works most nights and many weekends. Values emerge as individuals mature and as they develop the ability to form general concepts from their accumulated experiences. Also, during value formation, the value judgments of people we respect influence the nature of our values. Finally, as discussed in Chapter 2, national and ethnic culture affects the development of values. Once formed, values serve as frames of reference that help guide people's behavior in many different contexts. Values can be modified or refined as a result of new experiences but are much more resistant to change than are attitudes. Thus, individuals will not change their values to join a particular organization. Rather, they make choices based on the agreement between their personal values and those of the organization. Many organizations try to select new associates who share the values consistent with their organizational culture.

Affect (organizational Cultures)

Clearly, organizational cultures affect managers' and associates' behaviors and thus organizational performance. The core values of an organization serve to attract new associates who share similar values or at least are comfortable with the organization's values.98 For example, research has shown that organizational culture affects the extent to which associates are willing to accept changes in an organization.99 Specifically, associates who perceive an organizational culture that positively values human relations are more willing to participate in and accept changes made by the organization.100 In addition, other studies have shown that when the organizational culture promotes respect for people, associates are more likely to view relationships with leaders more positively, to trust others, and to perceive that the organization treats associates fairly.101 Therefore, such cultures are likely to support an organization's competitive advantage because of a motivated workforce and low turnover among associates.

Organizational Culutre

Culture is closely related to most other concepts in the field of organizational behavior, including structure, leadership, communication, groups, motivation, and decision making.87 Culture is affected by and can also affect these other areas of organizational functioning and it is related to social, historic, and economic issues as well.88 Thus, it is an important and encompassing concept. Google's organizational culture is described in the Experiencing Organizational Behavior feature. Google's culture is highly informal, with a decentralized structure designed to enhance associates' creativity. Google must be doing something right because it is a highly successful company. Its culture and structure, along with its interrelated management model, have attracted significant human capital, which is one of the reasons for its success. Google's approach is highly similar to a high-involvement organization. Organizational cultures are based on shared values, as described earlier.89 As noted, culture begins with shared values, which then produce norms that govern behavior. Behavior produces outcomes that are reinforced or punished, thereby bolstering the culture. Thus, any culture, positive or negative, becomes self-reinforcing and difficult to change. The process of culture development and reinforcement is shown in Exhibit 13-7.

Departmentalization

Departmentalization describes the approach used in grouping resources within an organization. As highlighted in the opening case, one of the two basic options is the functional form of departmentalization, in which resources related to a particular functional area are grouped together (see Exhibit 13-2). The functional form provides several potential advantages, including deep specialized knowledge in each functional area (because functions are the focus of the firm) and economies of scale within functional areas (resources can be shared by all individuals working within each functional area).14 This form, however, also has a potential major weakness: managers and associates in each functional department can become isolated from those who work in other departments, which harms coordinated action and causes slow responses to major industry changes that require two or more functional areas to work together.15 Lateral relation mechanisms, discussed in a later section, can help to overcome this weakness.

Technology (and Structure: A Manufacturing Framework )

Early work on the relationship between technology and organization structure focused on manufacturing technology: small-batch production, mass production, and continuous-process production.70 This research found that technological complexity influenced structure and that effective organizations exhibited matches between technology and structure.71 Today, new types of technology are being used in smaller and larger manufacturing operations alike. Technology can equalize the competition between smaller and larger organizations. The use of advanced manufacturing technology (AMT), computer-aided design (CAD), and computer-aided manufacturing (CAM) helps firms of all sizes to customize their strategies by manufacturing products of high variety at lower costs and to commercialize new products in a shorter amount of time.72 These technologies have been integrated to create forms of "mass customization." Mass customization is a process that integrates sophisticated information technology and management methods in a flexible manufacturing system with the ability to customize products in a short time.73 Organizations using mass customization need a more flexible and organic structure.74 Perhaps one of the newest technologies with potential to transform many industries is 3D printing. This technology allows individuals to design and produce products that they desire. However, businesses can do the same in larger quantities. It easily allows for customization. In fact, some have predicted that this technology has the potential to "revolutionize" the homebuilding industry.75

Business Strategy

Firms must formulate business strategies in addition to corporate strategies. A business strategy is developed for a particular product/service market and is a plan of action describing how the firm will operate in a particular market.50 Business strategies are necessary to ensure effective competitive actions in the different markets in which a firm intends to operate. One popular competitive strategy involves maintaining low internal costs as a basis for low prices offered to customers. Consumers interested in buying the least expensive goods in a particular market are targeted. To effectively implement this strategy, efficiency and control are important inside the firm or division utilizing this approach, and a somewhat more mechanistic structure is useful, if not taken to an extreme.51 The structure used to implement a low-cost strategy often emphasizes functions, and the decisions are also centralized to maintain economies of scale in operations.52

Four Types (of Culture)

Four types of culture result from different combinations of these dimensions (see Exhibit 13-8): Clan. Strong value is placed on flexibility and discretion with a focus inside the organization. Leaders tend to be mentors and coaches. Effectiveness is evaluated in terms of the cohesion and morale of individuals inside the firm and tacit knowledge held. Overall, the organization tends to be a friendly place to work, with a great deal of commitment and loyalty. Hierarchy. Strong value is placed on control and stability, with a focus inside the organization. Leaders tend to be monitors and organizers. Effectiveness is measured in terms of efficiency and orderly coordination. The organization tends to be a formal and standardized place to work, with emphasis on explicit knowledge.95 Market. Strong value placed on control and stability with a focus outside the organization. Leaders tend be driven and competitive. Effectiveness is measured in terms of goal achievement and beating the competition in the marketplace. The organization can be a difficult place to work because there is a constant focus on results and doing better than colleagues. Adhocracy. Strong value placed on flexibility and discretion with a focus outside the organization. Leaders tend to be entrepreneurial and innovative, perhaps even visionary. Effectiveness is evaluated in terms of creativity and leading-edge innovation in the marketplace. The organization tends to be a vibrant place to work, with significant risk taking.

Environment and Integration

Functional departments within a single-product firm or a division of a larger firm must be integrated. They must share information and understand one another in order to coordinate their work.64 Thus, organizations must be structured to provide the necessary information, or perhaps to reduce the need for it. Structural arrangements that address information needs are particularly important when the environment is uncertain. Useful arrangements include: (1) creation of slack resources, (2) creation of self-contained tasks, (3) investment in information technology, and (4) creation of traditional lateral relations.65 Exhibit 13-5 shows the relationship of these elements of organizational structure and information processing needs.

Divisonal Form

If an organization has multiple products or services or operates in multiple geographical areas, it can group its resources into divisions (see Exhibit 13-3). The divisional form offers several benefits, such as better coordination among individuals in functional areas. Functional resources have been divided among the divisions, and associates and managers in the smaller functional departments within each division tend to coordinate with one another relatively easily. With smaller departments, people tend to be closer to one another, and there are fewer barriers (formal or informal) to direct communication.

Socialization (High-involvement Organization)

In a high-involvement organization, socialization is usually an easier task, as the process begins before employment, during the selection process. Most applicants are rigorously screened with the purpose of discouraging those who may not fit the culture. For example, at Southwest Airlines, the socialization process begins well before the applicant is hired. Applicants are exhaustively screened by a number of interviewers. The interview team does not oversell Southwest but describes both the advantages and disadvantages of working for the firm. The purpose is to make sure that the applicant's values and objectives mesh with those of the airline.105 The process has been highly effective, as Southwest's culture is often given credit for the company's success. Integrating new associates into the organization's culture is important, especially for maintaining the culture. Research has shown that organizations with highly integrative cultures, whether they are focused on associate development and harmony or customer orientation and innovation often perform better than organizations that pay less attention to their cultures.106

Summary (Comments on Structure)

In summary, corporate strategy and organizational size have strong effects on the structural characteristics of organizations—those that determine the shape and appearance of the hierarchy. Corporate strategy is a particularly strong determinant of departmentalization, and size is an especially strong determinant of height and spans of control. Business strategy, environmental uncertainty, and technological nonroutineness have strong effects on unit structuring within organizations, as well as the overall structure of the organization. An important study has shown how business strategy, environmental uncertainty, technological nonroutineness, and structure work together to influence performance in organizational units as well as in small organizations. In this study, strong performance was associated with consistency among these factors: Uncertain environments led to strategies based on differentiation and innovation, which, in turn, led to nonroutine work, all of which were matched by organic structure. More certain environments led to strategies based on low costs and efficiency, which, in turn, led to routine work, all of which were matched by a less organic structure. Other studies have provided similar results, suggesting that managers in effective firms create consistency across strategy, environment, technology, and structure.

Socialization

Interestingly, socialization can bridge some differences between newcomer preferences and organizational structure and between newcomer values and organizational culture. Socialization achieves this function by highlighting how a person's preferences and values may fit in unseen or partial ways. To some small degree, socialization also may alter a newcomer's preferences. In one study based on the socialization framework presented earlier, individuals exposed to strong socialization efforts exhibited more congruence between their personal attributes and the organization's structure and culture. (This was true even after taking into account the initial level of congruence.)120 Although personal fit with structure and culture is important, two issues must be addressed. First, an organization that hires only those who fit existing organizational characteristics may find it difficult to make major changes when they become necessary.121 With individuals throughout the organization sharing preferences and values, the organization may be resistant to change. To remain adaptive, an organization may want to hire a few key individuals who do not fit. Their ideas may prompt reflection and thereby help the organization to change if necessary. These issues are addressed more fully in Chapter 14. Second, an organization that hires only those who fit may inadvertently discriminate against minorities or foreign nationals.122 Such an organization fails to experience the benefits from having a multicultural workforce, as discussed in Chapter 2. Perhaps the best advice is to hire for fit, but with a relatively broad definition of fit, allowing exceptions and a specific plan for nurturing the exceptions, no matter what their differences.123

Subcultures

It is possible for subcultures to develop in an organization, particularly when no dominant organizational culture exists or when the organization is diverse and geographically dispersed.110 Subcultures are based on values shared by a group rather than by an organization as a whole. Some of the values of the subculture are similar to and others are dissimilar from the organization's values and the values of other groups. The existence of subcultures complicates the development and management of an organizational culture. In large, diverse organizations, some researchers advocate viewing organizational culture as a system of integrated subcultures rather than a unified set of values.111 In such cases, senior managers need to understand each subculture, ensure that it is appropriate for its market segment, and decide whether it fits with critical organizational values. Thus, a manager's purpose is to encourage the integration of critical organizational values in each subculture. It is possible for a subculture to include values that are counter to those of the overall organization. Such a counterculture may be difficult to manage. Although a counterculture often creates problems, it can also produce positive outcomes. For example, a counterculture can induce a revolution, forcing change in a staid, outmoded culture. It also may encourage the development of new and creative ideas not allowed by existing norms of the organizational culture.112 It is also possible that some subcultures are related to national culture. This may be even more likely in large countries where there are several regional cultures that differ in some values (e.g., China, United States). Research has shown that attributes of national culture (e.g., extent of collectivism) interact with managerial actions such as rewards provided to affect how associates react to the organization (e.g., their commitment to the organization).113 However, some research has found that national culture has only a small influence on organizational culture.114 The Managerial Advice segment provides an example of a misfit between a key manager and the company's culture. Bob Nardelli was hired as CEO of The Home Depot to make some changes. He did so, but went further than desired by the board. His changes strongly revised the culture of the firm, making it control-oriented, thereby losing the entrepreneurial spirit among store managers and associates. While Home Depot likely needed better control systems, Nardelli's changes went too far. Although Home Depot has made several positive changes since Nardelli's departure, the effects of his tenure as CEO have been long lasting. The person who replaced him as CEO, Frank Blake, has rejuvenated the firm and appears to be a much better fit. This example shows the importance of a person—organization fit, discussed next.

Cultural Audits

Managers must understand and monitor their organization's current culture to develop and effectively manage it.107 Thus, a cultural audit should be conducted periodically. This type of audit is an analysis designed to uncover shared values and beliefs in an organization. It should identify the strengths and weaknesses of the current culture with respect to the support it provides for the achievement of the organization's goals.108 The following five steps may be used in conducting a cultural audit:109 Analyze the process and content of the socialization of new associates and managers (interview those directly involved in socialization). Analyze responses to critical incidents in the organization's history (construct an organizational biography from documents and interviews of past and present associates and managers). Analyze the values and beliefs of culture creators (founders) and carriers (current leaders) (observe and/or interview the founders and current leaders). Explore anomalies or puzzling features discovered in other analyses (initiate joint problem-solving sessions with current leaders in the organization). Examine the linkage of the current organizational culture to its goals. A cultural audit is a complex and sometimes lengthy process that should be conducted only after careful planning and preparation. The results of an audit might indicate a culture that is not well developed or might disclose the presence of subcultures. An underdeveloped culture poses less of a problem than one that is dysfunctional, fully developed, and self-reinforcing, because the less-developed culture can be more easily influenced and its path altered if necessary.

Competing Values (Model of Culture)

One of the most popular models of culture in business firms is the competing values model, in which two value dimensions are central.94 The first dimension relates to the value placed on flexibility and discretion versus stability and control. In some organizations, managers and associates believe in the power and usefulness of flexibility and discretion, while in other organizations individuals believe in the power of a stable work situation where control is strongly maintained. Ambidextrous organizations, described earlier, achieve a balance in these values through the culture and structure. The second dimension relates to the value placed on an internal focus coupled with integration versus an external focus coupled with differentiation in the marketplace. In some organizations, associates and managers prefer to focus internally; in other organizations, individuals have an external orientation.

Personal Values

Research has shown that basic personal values affect individual reactions to job situations.118 Our satisfaction with the type of work we do, the rules imposed by the organization, career advancement opportunities, and other organizational factors are evaluated in terms of our values. Workers' reactions to jobs in different cultures may vary because of differing basic value systems. For example, the basic value systems in the United States emphasize self-reliance and initiative, whereas in Japan, basic value systems emphasize self-sacrifice, obedience, and cooperation. As explained in Chapter 3, this difference has implications for how high-involvement management systems should be designed and implemented in different cultures. When an individual's values and preferences do not fit prevailing structural arrangements, she may be a less-satisfied and a less-positive contributor to the organization. Similarly, and perhaps more importantly, when an individual's values are not congruent with the organization's culture, problems are likely to develop. In fact, when the lack of fit is between the CEO and the organization's culture, the problems are likely to be more severe, as in the case of The Home Depot and Bob Nardelli. The outcomes are consistent with a great deal of research suggesting that similarity in values and goals attracts individuals to one another and to organizations.119 Job applicants as well as associates and managers in an organization should assess applicant fit with structure and culture prior to making final employment decisions. Selection for fit is a key aspect of high-involvement management, as discussed in Chapter 1.

Modern Organization

Structural and structuring characteristics combine to create very different types of organizations. Some in the field of organizational behavior label the two fundamental types organic versus mechanistic.27 Essentially, many firms desire to have a learning organization that requires a structure more similar to an organic organization.28 Other labels include boundaryless versus traditional to make the similar distinctions.29 In all cases, the more flexible empowering type of structure (i.e., organic, learning, or boundaryless) is associated with fewer management levels; broader spans of control; and lesser amounts of centralization, standardization, formalization, and specialization. Departmentalization at the top of the firm can be either functional or divisional. The flexible approach provides freedom for lower-level managers and associates to think for themselves, to communicate with anyone who could be helpful, and to try new ideas. They also have the autonomy to provide specialized attention to multiple stakeholders (e.g., shareholders, customers, alliance partners, government units, etc.).30 Such learning organizations are ambidextrous, which allows them to exploit the knowledge they currently hold and explore for new knowledge that will help them to either sustain a current competitive advantage or create a new one.31

Technology and Structure: A Broader Framework

The link between technology and structure using a broader view of technology is useful in both manufacturing and service organizations. In this view, technology is defined as the number of different problem types that are encountered over time (task variability) and the degree to which problems can be solved using known steps and procedures (task analyzability).76 Based on these two dimensions, he delineated four types of technology: Routine: There is little variation in the fundamental nature of problems encountered over time, but any new problems can be solved using readily available methods. Craft: There is little variation in the fundamental nature of problems encountered over time, but any new problems often require a novel search for unique solutions. Engineering: There is significant variation in the fundamental nature of problems encountered over time, and new problems can be solved using readily available methods. Nonroutine: There is significant variation in the fundamental nature of problems encountered over time, and new problems often require new methods to find unique solutions. Exhibit 13-6 provides examples of organizations with these types of technologies. To be most effective, firms should match their structure to the technology used. Nonroutine organizations should adopt an organic structure; craft and engineering organizations should adopt a moderately organic structure; and routine organizations should adopt the least organic structure.77 Essentially, as routineness increases, organic structures become somewhat less useful. These technology concepts can be applied to an organization as a whole or to units within the organization. For example, the technology of W. L. Gore, the maker of GORE-TEX fabric, can be described as a mixture of routine and craft technology at the firm level, but its R&D area can be described as nonroutine. Any unit can be assessed with respect to task variability and task analyzability and placed into one of the four technology categories. A number of studies have shown that technology influences structure at the unit level and that effective units exhibit a significant match between technology and structure.78

Organizational Culture (Strength)

The strength of an organization's culture is based to some degree on the homogeneity of associates and managers and the length and intensity of shared experiences in the organization.90 The longer a culture is perpetuated, the stronger it becomes because of its self-reinforcing nature. An organization's culture not only reinforces critical values but also important behaviors. For example, Google's culture could be described as a learning culture in which new knowledge is created or acquired externally and diffused internally.91 This knowledge is then applied to create innovative services for Google's markets and customers. Organizational culture also affects an organization's ability to resolve problems and to create change. For example, in an open culture in which managers and associates are engaged (i.e., a high-involvement organization), more alternatives are likely to be generated and considered to resolve problems. Also, the open communication can help to resolve conflicts if they exist.92 In addition, the openness of communications between managers and associates (exemplified by Google) and transparency because of the high involvement makes all participants more open to change. And, by participating in creating the change, managers and associates are more likely to be committed to it.93

Information Technology

Unlike the two elements of structure just discussed, information technology facilitates the processing of information rather than reducing the need to process it. This technology can help to transfer information up and down the hierarchy as well as horizontally from department to department. E-mail, web-based discussion boards, chat rooms, and Twitter are examples of simple tools that facilitate communication and coordination. These tools facilitate collaboration among individuals to solve problems and complete tasks, and they help leaders manage the semiformal organization (social networks among associates and managers).66 An information repository is a more complex tool for integration. Such a repository requires individuals in various departments to deposit documents, data, and commentary in an open-access central database. An enterprise resource planning (ERP) system is an even more complex tool. ERP systems provide a common set of planning and analysis capabilities across departments, as well as a platform for electronically sharing evolving plans and analyses. This type of system has provided important benefits in the integration of departments,67 particularly when the system has been explicitly designed to support the organization's strategy. In addition to facilitating integration across existing departments in an organization, information technology has helped to flatten organizations and has promoted project-based and team-based structures.68 Shorter hierarchies are consistent with high-involvement management because they push decision authority to the lowest levels of the organization and increase the speed and quality of decisions as a result. Such hierarchies would not be possible, however, without information technology to ensure that associates and lower-level managers have the information they need to make sound decisions. Project-based structures utilize individuals from various departments to work in teams focused on complex projects requiring intense and integrated efforts. In some cases, these individuals are temporarily assigned to a project on a full-time basis. In other instances, individuals participate part-time as project members and part-time as members of their functional departments. In both cases, information technology ensures that project participants working on different aspects of the overall project understand the goals and activities of those working in other areas. Without sophisticated information technology, individuals could not integrate the various aspects of the project as effectively or as rapidly, resulting in some complex projects not being undertaken and others being handled more slowly through the traditional hierarchy.

Role of Technology

Within an organization, technology refers to the knowledge and processes required to accomplish tasks. It corresponds to the techniques used in transforming inputs into outputs. The relationship of technology and structure has been described in several ways, as discussed below.

Ambidextrous Organizations

balance the formalization and standardization that help to achieve efficiency and the flexibility required to explore new ideas and opportunities necessary to be innovative.82 The intent is to achieve efficiency to exploit the firm's current capabilities and simultaneously explore to learn new capabilities, discover new technologies, and develop new products and services.83 To do so first requires top management to have a shared vision of an ambidextrous organization and to develop an incentive system to reward the achievement of both exploitation and exploration. This often requires transformational leadership (as discussed in Chapter 8) and design thinking, such as that promoted by IDEO.84 Another dimension involved in building an ambidextrous organization is the structure. Often, firms trying to achieve the needed balance maintain some parts of the organization with formalized routines but then also develop semi-autonomous units that have significant freedom to explore new ideas and unique approaches to problems.85 These approaches allow the organization to unbundle operations and processes to manage the costs of operations but also pursue the development of technological innovations. This type of organization, structure, and leadership is becoming more common.86

Standardization

efers to the existence of rules, standard operating procedures and routines.24 When standardization is high, managers and associates are expected to follow prearranged approaches to their work. Under these circumstances, their behavior is very predictable. Although standardization is sometimes necessary for efficiency and safety, it reduces opportunities for individual initiative, creativity, and self-directed collaboration with others inside and outside the organization. Thus, it can negatively affect motivation and satisfaction for many.

Social Dynamics

refer to whether newcomers experience serial or disjunctive processes and whether they are exposed to an investiture or a divestiture approach. Newcomers experiencing a serial approach have experienced organizational members as role models. The disjunctive process does not formally establish contact with experienced associates and managers, forcing newcomers to make sense of the situation on their own. With the investiture approach, positive social support is provided from the beginning rather than negative information through a hazing process. The combination of serial and investiture techniques yields better socialization experiences.

Centralization

refers to the amount of decision-making authority that is held at the top of the organization.22 In centralized organizations, top-level managers retain most authority, leaving less for mid- and lower-level managers and very little for associates. This is not consistent with high-involvement management, and research suggests that centralized organizations generally perform less well.23 There are several conditions, however, that call for a significant degree of centralization.

Height

refers to the number of levels in the organization, from the CEO to the lower-level associates. Tall hierarchies often create communication problems, as information moving up and down the hierarchy can be slowed and distorted as it passes through many different levels.6 Managers and associates can be unclear on appropriate actions and behaviors as decisions are delayed and faulty information is disseminated, causing lower satisfaction and commitment. Tall hierarchies also are more expensive, as they have more levels of managers.7

Context

refers to whether newcomers are exposed to key values through a collective or an individual process, and whether they experience a formal or an informal approach. In a collective process, all newcomers experience the same socialization events (videos, senior leadership greetings, exercises, receptions, stories, and so on). In an individual process, the experiences are unique. With a formal approach, newcomers learn about the organization away from the jobs they will be taking (off-the-job learning and training), whereas an informal approach puts them in their jobs immediately (on-the-job learning and training). To maximize absorption of an organization's values, a collective, formal approach may be best. This approach ensures that newcomers are exposed to a standard set of tactics in a focused manner away from the pressures of the new job. Bain and Company, a management consulting firm, illustrates this approach. It uses a formal standard induction program to provide specific training and to build cohesiveness and a sense of identity with the firm. This is supported by excellent materials on the Bain website that explain the company's culture and provide consultants' journals with valuable information on the jobs the new recruits will likely hold. In the program and on the website, information is provided to reinforce the idea that senior colleagues serve as mentors and coaches.

Content

refers to whether newcomers are provided information on the probable sequence of development activities and job rotations for the first year or two in the organization, and whether they are given specific information on the likely duration of each activity. With detailed information on upcoming development activities, newcomers experience less uncertainty. They have a better sense of where they are going in the organization. When information provided to newcomers conveys a variable and random situation (no set sequence of development activities and no estimates of duration times), newcomers are less able to discern a clear path to success and advancement. This latter situation can create dissatisfaction and commitment issues.

Role of Strategy

An organization's task environment is composed of customers, suppliers, competitors, government regulatory agencies, and perhaps unions. These are external components with which the organization frequently interacts and that have an effect on the organization.35 Organizations adapt to their environments through formal strategies. In turn, these strategies affect the organization's structure.

Structuring Characteristics

Research has shown that organizational structure is a determinant of performance.21 It does so through its influences on behavior, policies, and managerial actions. Whereas, structural characteristics indirectly affect behavior, structuring characteristics relate to policies and approaches used to directly prescribe the behavior of managers and associates. This second category of structure includes centralization, standardization, formalization, and specialization.

Factors (Affecting Organizational Structure)

Senior managers must choose the structures to use for their firms. Middle and lower-level managers often are involved in these choices and play a key role in the implementation of the choices. Factors that should be considered in designing the structure of the firm include strategy, external environment, internal technology, and organizational size.

Fundamental Elements (of Organizational Structure)

The structure of an organization can be described in two different but related ways. First, structural characteristics refer to the tangible, physical properties that determine the basic shape and appearance of an organization's hierarchy,3 where hierarchy is defined in terms of the reporting relationships depicted in an organization chart. Essentially, an organization's structure is a blueprint of the reporting relationships, distribution of authority, and decision making in the organization.4 These characteristics influence behavior, but their effects are sometimes subtle. Second, structuring characteristics refer to policies and approaches used to directly prescribe the behavior of managers and associates

Lateral Relations

elations among departments are based on the need for coordinating their various tasks. Because lateral relations increase information flow at lower levels, decisions requiring interdepartmental coordination need not be referred up the hierarchy. Lateral relations are traditional elements of structure used to help organizations process more information. These relations may be facilitated by information technology but often are based on face-to-face communication. A number of alternative lateral processes can be used. Listed in order of least complex to most complex, they are as follows: Direct contact involves two individuals who share a problem and work directly with one another to solve it. Liaison roles are temporary coordination positions established to link two departments that need to have a large amount of contact. Task forces are temporary groups composed of members from several departments who solve problems affecting those departments. Teams are permanent problem-solving groups for continuous interdepartmental problems. Integrating roles are permanent positions designed to help with the coordination of various tasks. Managerial linking roles are integrative positions with more influence and decision-making authority. Matrix designs establish dual authority between functional managers (e.g., marketing manager, engineering manager) and project or product managers (e.g., working across subsidiaries operating in different countries).69

Environment (and Basic Structure)

Managers must closely monitor their organization's external environment. However, some environments are more difficult to monitor than others because they are more uncertain (complex and changing). A number of researchers have found that the degree of environmental uncertainty experienced by managers is related to the type of structure an organization utilizes. This is especially important today because of the high uncertainty of environments in which many organizations must operate.58 Classic research indicated that effective organizations exhibit a match between environmental characteristics and organizational structures.59 Although the evidence is not entirely consistent, a number of other researchers have found similar results, using mostly small organizations or units of larger ones.60 The classic study reported the following important findings: Effective organizations experiencing high environmental uncertainty tend to be more organic because lower-level managers and associates must be able to think for themselves. They must be able to respond to events quickly. Effective organizations experiencing low environmental uncertainty tend to be less organic. Middle and senior-level managers, in conjunction with operations specialists, can create efficient and effective rules and operating procedures. They can gain sufficient insight to understand and anticipate most situations that will arise and carefully create procedures to handle those situations. It is important to understand the reasons for differences in functional departments within an organization. Because separate departments focus on different areas of the external environment, they often exhibit different types of structure. R&D, for example, is focused on technological advances and the changing pool of knowledge in the world. The relatively high level of uncertainty involved often requires a more organic structure with longer time horizons for decision making and planning and a greater emphasis on interpersonal relationships to promote information sharing and knowledge development. They need to seek information and knowledge from external as well as internal sources.61 In contrast, the accounting function is focused on more slowly evolving developments in accounting standards. The relatively low level of uncertainty generally supports use of a less organic structure, with shorter time horizons and lower emphasis on interpersonal relationships. In effective organizations, then, differences in the level of uncertainty in subenvironments create differences in functional departments. Recent work suggests that environmental uncertainty also affects the way resources should be managed in organizations. For example, organizations operating in uncertain environments need to constantly enrich their current capabilities and even create new ones. Thus, they continuously train their managers and associates to upgrade their skills and are on the lookout for new associates with "cutting-edge" knowledge that can add to the organization's stock of knowledge. They also need to search for opportunities in the environment and to engage in entrepreneurial behavior to maximize the use of their capabilities to provide products and services that create value for their customers.62 IDEO, as explained in the Experiencing Organizational Behavior feature, is helping firms to be more entrepreneurial and create products that are valued by their customers. The research suggests that managers must continuously scan their firm's external environment to identify factors that may affect how the firm should act. Their scanning behavior is even more important in dynamic environments.63

Cultural Socialization

Newcomers are taught an organization's culture through socialization—the imparting of the organization's values. Socialization can take several forms. Based on groundbreaking work by noted culture researchers John Van Maanen and Ed Schein, researchers have focused on three sets of issues: context, content, and social dynamics.103

Structural Characteristics

Structural characteristics, as mentioned, relate to the basic shape and appearance of an organization's hierarchy. The shape of a hierarchy is determined by its height, spans of control, and type of departmentalization.

Self Contained Tasks

The creation of self-contained tasks reduces the need for interdepartmental processing of information. This approach provides departments with more of the resources they need to do the job. For example, a department's tasks might require the help of a design engineer and a process engineer on a part-time basis. So rather than consulting with a group of design engineers to whom various departments would come when they needed help, a department would have access to its own design engineer who would also assist with nonengineering work as time permitted. This method reduces the need for coordination between groups (e.g., the engineering group and other groups needing engineering services) and thereby reduces information-processing requirements.

Slack Resources

The creation of slack resources reduces the need for interdepartmental information processing. Departments can operate more independently. Examples of slack resources include having extra time to complete tasks that other departments need as inputs and maintaining large inventories of raw materials provided by others. Although these extra resources reduce information exchange needs, they are costly.

Values (Two Dimensions)

Values develop along two dimensions: (1) the types of personal goals that one ought to have and (2) the types of behaviors that one ought to use in reaching those goals.117 These two dimensions are sometimes referred to as the end-means dimensions of values. Thus, individuals may develop an end value that they should seek a life of prosperity and a means value that they should be ambitious and hardworking to achieve that goal. These values complement each other by specifying a general goal in life and identifying acceptable behaviors for reaching it. A list of "end" values and "means" values is shown in Exhibit 13-9.

Diversification

has also been a common and popular corporate strategy. Diversification involves adding products or services different from those currently in the firm. Firms may diversify for several reasons, but the primary one is to reduce overall risk by decreasing dependency on one or a few product markets.42 That is, if demand for one of the firm's products falls, the other products might continue to sell well, providing protection for the bottom line.43 Firms may also diversify the geographic markets they serve by entering new foreign markets.44 Most companies start out as single-product firms, which are firms where more than 95 percent of annual sales come from one product. Dominant-product firms obtain 70 to 94 percent of their sales from one product. Most companies following a diversification strategy move on to become related-product firms, where less than 70 percent of annual sales come from one product and the various products are related to one another. The most diversified firms are classified as unrelated-product firms. In these firms, less than 70 percent of annual sales come from any one product, and the firm's various products are unrelated to the primary core business.45 As firms become more diversified, research suggests that they should adopt the divisional form.46 In other words, they should develop divisions for each of their end-product businesses. Also, as firms become more diversified and divisionalized, authority should be delegated to the divisions.47 Matches between diversification and structure are shown in Exhibit 13-4. Single-product and most dominant-product firms should use a functional structure, where the major units of the organization are based on the functions performed (marketing, production, finance) rather than on products. Related-product and most unrelated-product firms should use a divisionalized structure. Large, highly diversified unrelated-product firms may use a holding company structure, in which the operating divisions are extremely autonomous.48 Firms with functional structures are sometimes referred to as U-form (unitary) organizations and firms with divisionalized structures as M-form (multidivisional) organizations.49 Over time, FedEx changed from a single-product firm to a related-product firm. As such, it implemented the divisional structure and decentralized primary authority to make decisions to the heads of each division. Because the businesses are all related, the corporate office coordinated activities across the divisions to offer customers the full portfolio of FedEx's services (as described in the Exploring Behavior in Action feature).

Corporate Strategy

is the overall, predominant strategy of the organization. It determines the direction for the total organization. Senior managers formulating corporate strategies focus on the organization's stockholders and other critical external constituents. Their strategies can be oriented toward growth, diversification, or both.36

Need for Values (That Benefit the Organization)

Alternative mechanisms are used to ensure that individuals are working for the good of the organization. These mechanisms include selection systems, socialization schemes, and leadership processes. Selection systems should be designed to identify individuals who share the values of the organization. Socialization schemes, discussed later in this chapter, should be designed to further shape values and to promote a shared vision of the organization's future. Similarly, strong leadership at the top of the firm instills shared purpose among managers and associates. Shared values and vision act as guides to behavior, and reduce the chances of lower-level managers and associates acting in ways that are counterproductive. Reward systems also are used to promote appropriate behavior. Although lower-level managers and associates may not realize it, powerful forces guide their behavior in organizations characterized by relative freedom of thought and action. Over time, the value of unleashing human capital throughout an organization became widely recognized. Today, senior leaders in modern organizations tend to favor more organic structures. Although this is positive, given that organic structures are closely aligned with high-involvement management, there are situations in which some aspects of this approach are not appropriate.

Need for Structure

Although substantial freedom may exist, it is not unlimited, nor should it exist without alternative mechanisms designed to ensure that managers and associates are working for the common good of the organization. First, even in relatively organic firms there is some standardization, and some decisions are made by middle and senior-level managers. At Southwest Airlines, pilots and flight attendants have more freedom than at other airlines, but they still must follow applicable laws and safety rules.32 Interestingly, research shows that new-venture firms need structure and thus often are more successful if their organization structure is less organic.33 In addition, new-venture firms often are "boundaryless" in that they must operate in networks to gain access to needed resources. Although these alliances may be critical to their survival, it can be difficult for them to break into an existing network of relationships. Working across these organizational boundaries requires that they not be too standardized or formalized. They need flexibility. In addition, the structure should allow for appropriate levels of transparency in associates' productivity while guarding against too much oversight.34

Role of Environment

Environmental forces account for many differences between organizations, and they have a marked effect on the way organizations conduct business.57 Because organizations must obtain their inputs from the external environment, their relationships with suppliers and customers are critical. They also must satisfy governmental regulations, adapt to changes in the national and world economies, and react to competitors' actions.

Hybrid Forms

Hybrid forms also exist, with some functional areas divided across divisions, while others remain intact at the corporate level, often for cost reasons. Network organizations are another option, where many or most functional areas are outsourced to other organizations.18 Homebuilders are usually network organizations, as they often do not complete their own architectural work and typically outsource to subcontractors much of the actual construction work. Nike is generally considered to be a network organization because it outsources manufacturing and other types of work. Most multinational firms are structured as network organizations with decentralized, autonomous subsidiaries in different countries and multiple suppliers in different regions of the world.19 The network approach has been emphasized by a number of firms in recent years, at least to some degree. Its chief benefit lies in allowing a firm to focus on what it does best while outsourcing the rest.20 Quality control, however, is sometimes an issue, and coordination of internal and external efforts is often a substantial problem. Effective information technology that facilitates coordination across organizational boundaries is crucial.

Organizational Size (Role)

It is not surprising that size has implications for organizational structure.79 As an organization grows, it generally becomes taller; otherwise, the average span of control for managers becomes too large. As organizations increase in size, formalization also tends to increase to help maintain order. However, centralization tends to decrease, as senior managers cannot comprehend all of the organization's work and make all decisions. The most important measure of size is the number of associates and managers. Research shows that managerial decisions regarding structure are based on the factors that are most salient to managers. Because people are highly important to most managers, managerial decisions on structure are often influenced by the number of people for whom the managers have responsibility.80 A common outcome of larger organizations and the heightened formalization and standardization that accompanies growing size is inertia.81 Large, formal organizations often have more standardized policies and routines for managers and associates to follow. These attributes often produce a resistance to change and thus lower innovation. Yet, innovation is a critical component of competitiveness for most organizations in our current global economic environment. The potential for inertia in large organizations and the need for innovation have led to the development of ambidextrous structures and practices.

Elements

Organizations usually possess elements of all four cultural types. In fact, organizations need all four, because morale, innovation, success relative to competitors in the marketplace, and efficiency are all important for long-term performance and survival.96 In most cases, however, an organization emphasizes one cultural type over another. Each culture can be useful as a point of emphasis, depending on circumstances. Hierarchy, for example, might be emphasized in an organization pursuing a low-cost business strategy in all of its product lines. In such an organization, however, managers must be careful not to allow the emphasis on hierarchy to become too great. If hierarchy is overemphasized, it will be difficult to incorporate the decision- and team-related aspects of high-involvement management.97 Furthermore, research suggests that the hierarchy culture can reduce commitment and satisfaction. Market culture could be useful in industries that are highly competitive. Clan culture is often more useful for organizations operating in regulated industries or in small, new-venture firms where working with good colleagues and positive working relationships are emphasized more than financial compensation. Google has used such a culture since its beginning. However, even as a large, more established organization, Google continues to use this culture successfully. Adhocracy might be emphasized in an organization pursuing the differentiation strategy in its product lines.

Formalization (and Specialization)

is a closely related phenomenon; it is the degree to which rules and procedures are documented. Specialization is the degree to which managers and associates have narrow jobs that use focused skills; usually, these jobs offer little variety. As discussed in Chapter 6, narrow jobs can negatively affect motivation, satisfaction, and performance for individuals who want to be challenged and to grow in the workplace. Yet, in some self-managed teams with associates having higher levels of specialization, some degree of formalization can produce positive results.25 Alternatively, specialization is less appropriate where tasks are interdependent requiring coordination across them to be completed effectively.26