Organizational Theory, Design, and Change

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Organizational Theory,

Design, and Change

S E V E N T H E D I T I O N

Gareth R. Jones

Texas A&M University

PEARSON

Boston Columbus Indianapolis New York San Francisco Upper Saddle River

Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto

Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

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Preface xvii

Part 1 The Organization and Its Environment 1

Chapter 1 Organizations and Organizational Effectiveness 1

What Is an Organization? 1

How Does an Organization Create Value? 3 Why Do Organizations Exist? 5

To Increase Specialization and the Division of Labor 5 To Use Large-Scale Technology 6

To Manage the Organizational Environment 6 To Economize on Transaction Costs 6 To Exert Power and Control 7

Organizational Theory, Design, and Change 8 Organizational Structure 8

Organizational Culture 9

Organizational Design and Change 9

The Importance of Organizational Design and Change 11 Dealing with Contingencies 11

Gaining Competitive Advantage 12 Managing Diversity 14

The Consequences of Poor Organizational Design 14

How Do Managers Measure Organizational Effectiveness? 16 The External Resource Approach: Control 17

The Internal Systems Approach: Innovation 17 The Technical Approach: Efficiency 18

Measuring Effectiveness: Organizational Goals 19 The Plan of This Book 20

Organizational Design 22 Organizational Change 22

Summary 23 • Discussion Questions 23

Organizational Theory in Action: Practicing Organizational Theory 24 Open Systems Dynamics 24

The Ethical Dimension #1 24 Making the Connection #7 24

Analyzing the Organization: Design Module H 24 Assignment 25

Chapter 2 Stakeholders, Managers, and Ethics 28

Organizational Stakeholders 28

Inside Stakeholders 28 Outside Stakeholders 30

Organizational Effectiveness: Satisfying Stakeholders' Goals and Interests 34

Competing Goals 35 Allocating Rewards 36

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v i i i CONTENTS

Top Managers and Organizational Authority 37 The Chief Executive Officer 39

The Top-Management Team 40 Other Managers 41

An Agency Theory Perspective 41 The Moral Hazard Problem 41 Solving the Agency Problem 42

Top Managers and Organizational Ethics 43 Ethics and the Law 44

Ethics and Organizational Stakeholders 45 Sources of Organizational Ethics 47 Why Do Ethical Rules Develop? 49 Why Does Unethical Behavior Occur? 51 Creating an Ethical Organization 52

Designing an Ethical Structure and Control System 53 Creating an Ethical Culture 53

Supporting the Interests of Stakeholder Groups 53

Summary 54 • Discussion Questions 55 • Organizational Theory in Action: Practicing Organizational Theory 55

Creating a Code of Ethics 55 The Ethical Dimension #2 55 Making the Connection #2 55

Analyzing the Organization: Design Module #2 55 Assignment 55

Chapter 3 Organizing in a Changing Global Environment 59

What Is the Organizational Environment? 59

The Specific Environment 61 The General Environment 63

Sources of Uncertainty in the Organizational Environment 65 Resource Dependence Theory 69

Interorganizational Strategies for Managing Resource Dependencies 70 Strategies for Managing Symbiotic Resource Interdependencies 71

Developing a Good Reputation 71 Cooptation 72

Strategic Alliances 72 Jointventure 75 Merger and Takeover 76

Strategies for Managing Competitive Resource Interdependencies 76 Collusion and Cartels 77

Third-Party Linkage Mechanisms 78 Strategic Alliances 78

Merger and Takeover 78 Transaction Cost Theory 79

Sources of Transaction Costs 80

Transaction Costs and Linkage Mechanisms 81 Bureaucratic Costs 82

Using Transaction Cost Theory to Choose an Interorganizational Strategy 82 Summary 86 • Discussion Questions 87 • Organizational Theory in Action: Practicing Organizational Theory 87

Protecting Your Domain 87 The Ethical Dimension #3 87 Making the Connection #3 88

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CONTENTS ix

Part 2 Organizational Design 92

Chapter 4 Basic Challenges of Organizational Design 92

Differentiation 92

Organizational Roles 94

Subunits: Functions and Divisions 95 Differentiation at the BAR. and Grille 96 Vertical and Horizontal Differentiation 97 Organizational Design Challenges 97

Balancing Differentiation and Integration 99 Integration and Integrating Mechanisms 99 Differentiation versus Integration 102

Balancing Centralization and Decentralization 103 Centralization versus Decentralization of Authority 103 Balancing Standardization and Mutual Adjustment 106

Formalization: Written Rules 106 Socialization: Understood Norms 107 Standardization versus Mutual Adjustment 108

Mechanistic and Organic Organizational Structures 109 Mechanistic Structures 110

Organic Structures 110

The Contingency Approach to Organizational Design 112 Lawrence and Lorsch on Differentiation, Integration, and the Environment 112

Burns and Stalker on Organic versus Mechanistic Structures and the Environment 115

Growing Pains 117

Making the Connection #4 117 The Ethical Dimension #4 117

Chapter 5 Designing Organizational Structure: Authority

and Control 121

Authority: How and Why Vertical Differentiation Occurs 121 The Emergence of the Hierarchy 121

Size and Height Limitations 122 Problems with Tall Hierarchies 124 The Parkinson's Law Problem 127

The Ideal Number of Hierarchical Levels: The Minimum Chain of Command 127 Span of Control 128

Control: Factors Affecting the Shape of the Hierarchy 130 Horizontal Differentiation 130

Centralization 132 Standardization 133

The Principles of Bureaucracy 134 The Advantages of Bureaucracy 137 Management by Objectives 139

The Influence of the Informal Organization 140 IT, Empowerment, and Self-Managed Teams 141

How to Design a Hierarchy 144 The Ethical Dimension #5 / 44

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CONTENTS

Making the Connection #5 144

Chapter 6 Designing Organizational Structure: Specialization

and Coordination 148

Functional Structure 148

Advantages of a Functional Structure 150 Control Problems in a Functional Structure 150 Solving Control Problems in a Functional Structure 151 From Functional Structure to Divisional Structure 152

Moving to a Divisional Structure 154

Divisional Structure I: Three Kinds of Product Structure 154 Product Division Structure 154

Multidivisional Structure 156 Product Team Structure 161

Divisional Structure II: Geographic Structure 163 Divisional Structure III: Market Structure 164 Matrix Structure 166

Advantages of a Matrix Structure 167 Disadvantages of a Matrix Structure 167 The Multidivisional Matrix Structure 168 Hybrid Structure 170

Network Structure and the Boundaryless Organization 171 Advantages of Network Structures 171

Disadvantages of Network Structures 172 The Boundaryless Organization 172 E-Commerce 173

Which New Organizational Structure? 175 The Ethical Dimension #6 175

Chapter 7 Creating and Managing Organizational Culture 179

What Is Organizational Culture? 179

Differences in Global Values and Norms 182

How Is an Organization's Culture Transmitted to Its Members? 184 Socialization and Socialization Tactics 184

Stories, Ceremonies, and Organizational Language 187 Where Does Organizational Culture Come From? 189

Characteristics of People within the Organization 189 Organizational Ethics 191

Property Rights 193 Organizational Structure 196

Can Organizational Culture Be Managed? 197 Social Responsibility 199

Approaches to Social Responsibility 199 Why Be Socially Responsible? 200

Developing a Service Culture 203 The Ethical Dimension #7 203

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CONTENTS x i

Chapter 8 Organizational Design and Strategy in a Changing Global

Environment 207

Strategy and the Environment 207

Sources of Core Competences 208

Global Expansion and Core Competences 210 Four Levels of Strategy 211

Functional-Level Strategy 213

Strategies to Lower Costs or Differentiate Products 213 Functional-Level Strategy and Structure 215

Functional-Level Strategy and Culture 216

Business-Level Strategy 217

Strategies to Lower Costs or Differentiate Products 218 Focus Strategy 219

Business-Level Strategy and Structure 219 Business-Level Strategy and Culture 222

Corporate-Level Strategy 224

Vertical Integration 225 Related Diversification 226 Unrelated Diversification 226

Corporate-Level Strategy and Structure 227 Corporate-Level Strategy and Culture 229

Implementing Strategy across Countries 230

Implementing a Multidomestic Strategy 232 Implementing International Strategy 232 Implementing Global Strategy 233 Implementing Transnational Strategy 234

What Kind of Supermarket? 236 The Ethical Dimension #8 236 Making the Connection #8 236

Chapter 9 Organizational Design, Competences, and Technology 240

What Is Technology? 240

Technology and Organizational Effectiveness 242 Technical Complexity: The Theory of Joan Woodward 244

Small-Batch and Unit Technology 244

Large-Batch and Mass Production Technology 247 Continuous-Process Technology 248

Technical Complexity and Organizational Structure 248 The Technological Imperative 250

Routine Tasks and Complex Tasks: The Theory of Charles Perrow 250

Task Variability and Task Analyzability 251 Four Types of Technology 252

Routine Technology and Organizational Structure 253 Nonroutine Technology and Organizational Structure 255

Task Interdependence: The Theory of James D. Thompson 255

Mediating Technology and Pooled Interdependence 256 Long-Linked Technology and Sequential Interdependence 258 Intensive Technology and Reciprocal Interdependence 259

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From Mass Production to Advanced Manufacturing Technology 261 Advanced Manufacturing Technology: Innovations in Materials Technology 263

Computer-Aided Design 264

Computer-Aided Materials Management 264 Just-in-Time Inventory Systems 265

Flexible Manufacturing Technology and Computer-Integrated Manufacturing 266 Summary 267 • Discussion Questions 268 • Organizational Theory in Action: Practicing Organizational Theory 268

Choosing a Technology 268 The Ethical Dimension #9 269 Making the Connection #9 269

Part 3 Organizational Change 273

Chapter 10 Types and Forms of Organizational Change 273

What Is Organizational Change? 273 Targets of Change 274

Forces for and Resistance to Organizational Change 275 Forces for Change 275

Resistances to Change 278

Organization-Level Resistance to Change 278 Group-Level Resistance to Change 279 Individual-Level Resistance to Change 280 Lewin's Force-Field Theory of Change 280

Evolutionary and Revolutionary Change in Organizations 281 Developments in Evolutionary Change: Sociotechnical Systems Theory 281 Total Quality Management 282

Flexible Workers and Flexible Work Teams 285

Developments in Revolutionary Change: Reengineering 285 E-Engineering 290

Restructuring 290 Innovation 291

Managing Change: Action Research 291 Diagnosing the Organization 292

Determining the Desired Future State 292 Implementing Action 293

Evaluating the Action 294

Institutionalizing Action Research 294 Organizational Development 295

OD Techniques to Deal with Resistance to Change 295 OD Techniques to Promote Change 297

Managing Change 300

Analyzing the Organization: Design Module #10 301

Chapter 11 Organizational Transformations: Birth, Growth, Decline, and Death 305

The Organizational Life Cycle 305 Organizational Birth 306

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CONTENTS X Ü i

A Population Ecology Model of Organizational Birth 309

Number of Births 310 Survival Strategies 311

The Process of Natural Selection 312

The Institutional Theory of Organizational Growth 314

Organizational Isomorphism 315 Disadvantages of Isomorphism 316

Greiner's Model of Organizational Growth 316

Stage 1: Growth through Creativity 317 Stage 2: Growth through Direction 318 Stage 3: Growth through Delegation 318 Stage 4: Growth through Coordination 319 Stage 5: Growth through Collaboration 320

Organizational Decline and Death 321

Effectiveness and Profitability 321 Organizational Inertia 323 Changes in the Environment 324

Weitzel and Jonsson's Model of Organizational Decline 325

Growing Pains 329

Chapter 12 Decision Making, Learning, Knowledge Management,

and Information Technology 334

Organizational Decision Making 334

Models of Organizational Decision Making 335

The Rational Model 335 The Carnegie Model 337 The Incrementalist Model 339 The Unstructured Model 339 The Garbage-Can Model 340

The Nature of Organizational Learning 342 Types of Organizational Learning 342 Levels of Organizational Learning 343

Knowledge Management and Information Technology 347 Factors Affecting Organizational Learning 349

Organizational Learning and Cognitive Structures 350 Types of Cognitive Biases 350

Cognitive Dissonance 350 Illusion of Control 351

Frequency and Representativeness 351 Projection and Ego-Defensiveness 352 Escalation of Commitment 352

Improving Decision Making and Learning 353

Strategies for Organizational Learning 353 Using Game Theory 354

Nature of the Top-Management Team 356 Devil's Advocacy and Dialectical Inquiry 357 Collateral Organizational Structure 358

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Xiv CONTENTS

Store Learning 360

Chapter 13 Innovation, Intrapreneurship, and Creativity 366

Innovation and Technological Change 366

Two Types of Innovation 366

Protecting Innovation through Property Rights 368 Innovation, Intrapreneurship, and Creativity 370

Entrepreneurship as "Creative Destruction" 371 Innovation and the Product Life Cycle 372 Managing the Innovation Process 374

Project Management 374

Stage-Gate Development Funnel 376

Using Cross-Functional Teams and a Product Team Structure 377 Team Leadership 379

Skunk Works and New Venture Divisions 380 Jointventures 381

Creating a Culture for Innovation 381

Innovation and Information Technology 383 Innovation and Information Synergies 384

IT and Organizational Structure and Culture 385

Managing Innovation 387 The Ethical Dimension #13 387 Making the Connection #13 388

Analyzing the Organization: Design Module #13 388

Chapter 14 Managing Conflict, Power, and Politics 391

What Is Organizational Conflict? 391

Pondy's Model of Organizational Conflict 394 Stage 1: Latent Conflict 394

Stage 2: Perceived Conflict 396 Stage 3: Felt Conflict 397 Stage 4: Manifest Conflict 397 Stage 5: Conflict Aftermath 398

Managing Conflict: Conflict Resolution Strategies 399 Acting at the Level of Structure 399

Acting at the Level of Attitudes and Individuals 400 What Is Organizational Power? 401

Sources of Organizational Power 402 Authority 402

Control over Resources 403 Control over Information 404 Nonsubstitutability 404 Centrality 405

Control over Uncertainty 406

Unobtrusive Power: Controlling the Premises of Decision Making 406 Using Power: Organizational Politics 407

Tactics for Playing Politics 407

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Managing Conflict 413

The Ethical Dimension #14 413 Making the Connection #14 413

Case Studies 417

Supplemental Case Map 417 Case 1 United Products, Inc. 419

Jeffrey C. Shuman

Case 2 The Paradoxical Twins: Acme and Omega Electronics 428

John F. Veiga

Case 3 How SAP's Business Model and Strategies Made It the Global Business Software Leader 431

Gareth R. Jones

Case 4 The Scaffold Plank Incident 439

Stewart C. Malone and Brad Brown

Case 5 Beer and Wine Industries: Bartles & Jaymes 441

Per V. Jenster

Case 6 Bennett's Machine Shop, Inc. 447

Arthur Sharplin

Case 7 Southwest Airlines 459

Case 8 The Rise and Fall of Eastman Kodak: How Long Will It Survive Beyond 2011? 463

Gareth R. Jones

Case 9 Philips NV 474

Charles W. L. Hill

Case 10 "Ramrod" Stockwell 476

Charles Perrow

Company Index 480 Name Index 483 Subject Index 485

Organizational Theory, Design, and Change