Chapter 5: New Design Theories and Technology
Changes that affect organizational design strategies
The Canons of organizational structure
The Contingencies that affect Design Choices
Strategies for integrating units
A. Changes that affect organizational designs
1. The Knowledge Society: defined by Drucker
a. Description: a society in which a great portion of the work is not production work, but knowledge work.
Drucker: Knowledge workers will not be the majority in the knowledge society. But in many countries, if not most developed countries, they will be the largest single group in the population and the workforce. And even if outnumbered by other groups, knowledge workers will be the group that gives the emerging knowledge society its character, its leadership, its social profile. They may not be the ruling class of the knowledge society, but they already are its leading class. And in their characteristics, their social position, their values, and their expectations, they differ fundamentally from any group in history that has ever occupied the leading, let alone the dominant, position.
Bartlett and Goshal: “In the benevolent, high-growth environment that followed World War II, strategy, structure, and systems offered much-needed discipline, focus, and control. Today’s economic environment is different. Overcapacity and intense competition are the norm in most global businesses. The lines separating businesses have blurred as technologies and markets converge, creating new growth opportunities where traditional businesses intersect. And, most notably, the scarcest corporate resources are less often the financial funds that top management controls than the knowledge and expertise of the people on the front lines.”
b.
Examples
i. Scientists
ii. Engineers
iii. Attorneys
iv. Financial Analysts
v. X-ray technicians
c.
Characteristics
i. The only tangible output is a document.
ii. Critical for production work
iii. Requires formal education
1.) “Education will become the center of the knowledge society, and schooling its key institution.”—Drucker
2.) “We will redefine what it means to be an ‘educated person.’”—Drucker
3.) Requires continuing education
iv. More competitive
Drucker: The knowledge society will inevitably become far more competitive than any society we have yet known—for the simple reason that with knowledge being universally accessible, there are no excuses for nonperformance. There will be no “poor” countries. There will only be ignorant countries. And the same will be true for individual companies, individual industries, and individual organizations of any kind. It will be true for the individual, too. In fact, developed [307] societies have already become infinitely more competitive for the individual than were the societies of the early twentieth century—let alone earlier societies, those of the nineteenth or eighteenth centuries. Then, most people had no opportunity to rise out of the “class” into which they were born, with most individuals following their fathers in their work and in their station in life.
v. More workers will be knowledge specialists—requiring a group—an organization—to have all the necessary elements of knowledge for the work.
2. Information Work
a. Gathering, entering, formatting and processing information.
b. Clerical jobs, data entry, telemarketing
c. “Pink collar” jobs because usually filled by women
d. Knowledge and information workers account for 40% of mfg jobs and 80% of service jobs.
3. Increased instability, complexity and turbulence of organizational environments
a. Shorter product life cycles. Ford made the Model T from 1903 to 1927 with no significant changes.
b. Time to production reduced.
c. Technology changes are more rapid.
d. Globalization has introduced new competitors.
e. More public awareness leading to greater public oversight and control.
B. Contingency Design Theory
1. Assumptions:
a. A bureaucracy will out-perform other designs in the long-run because it is the most efficient, according to Burns and Stalker. However, in periods of change, it is too slow to adapt. The relational form is better at adapting.
b. Therefore, there is not one best way to structure an organization.
c. The most effective organizational design is contingent upon several environmental and organizational variables
2. The Canons of organizational structure according to contingency design theory. These are the areas in which managers make choices about influential organizational design.
a. Formalization: the degree to which the organization has well-defined roles, strict division of labor into relatively small tasks, and rules and procedures that apply to most activities.
b. Centralization: the degree to which control is centralized in management.
c. Staff Qualifications: the degree to which workers and staff have to obtain specialized training or degrees to carry out their work effectively.
d. Span of Control: the number of employees who report to a single manager or supervisor. Narrow spans of control are important when managers must check for details, special problems, or errors. Wider spans of control are workable when there are not many exceptions and the work is pretty much the same all the time.
e. Communication and Coordination: the frequency, formality, and medium of communication among members.
f. Interorganizational Relationships: the degree to which they form and maintain stable relationships with other groups or organizations.
3. The Contingencies that affect Design Choices
a.
Technology
i. Description
1.) Tools, techniques and actions used to transform inputs into outputs
2.) Can be processes and procedures as well as machinery and computers
ii. Variables
1.) Routine
a.) Well-understood process
b.) Few exceptions or unexpected problems
c.) Good candidate for automation
d.) Worker has little control over definition of the process. Engineers decide how to do the work.
e.) Requires vertical, formal, written, impersonal communication.
2.) Non-routine
a.) Process cannot be broken into parts
b.) Procedure is not well-understood
c.) Many exceptions
d.) Human judgment often necessary
e.) Requires direct, unscheduled, personal communication.
iii. Uncertainty increases as technologies become less routine.
1.) Traditional strategies work best with routine tasks.
2.) Relational strategies work best with non-routine tasks.
3.) Communication must be more direct and intense in uncertain situations.
a.) This increases the cost of the communication.
b.) “The organization should enact the least costly communication system that can adequately meet its needs for communication and coordination.” C&P call this “communication adequacy.”
b.
Interdependence
between Units
i. The degree to which the parts of the process must work together to transform inputs to outputs
ii. Types
1.) Pooled interdependence
a.) Each unit executes the same procedures separately. e.g. each McDonald’s does the same thing without depending on the other locations.
b.) Communication needs are low
i.) create rules
ii.) develop formal written plans that take the place of other forms of communication
iii.) vertical communication between managers and units
iv.) strong links or electronic networks not required
2.) Sequential interdependence
a.) Each unit executes the next step in the process, making each dependent on the previous unit.. e.g. an assembly line.
b.) Communication needs are moderate
i.) active planning by participants, guided by management
ii.) vertical communication between managers and some horizontal communication to achieve coordination
3.) Reciprocal interdependence
a.) Each unit may be involved at several steps in the process. e.g. software development
b.) Communication needs are high
i.) methods used by pooled and sequential interdependence may help, but more is required
ii.) horizontal communication by workers themselves—not just managers
iii.) unscheduled meetings
iv.) face-to-face communication
c.
Organizational
Environment
i. Environment is everything outside the organization’s boundaries
1.) Domestic and foreign competitors
2.) Customers and clients
3.) Government agencies and regulators
4.) General economic conditions
5.) Technologies
6.) Financial resources
7.) Labor markets
8.) Raw materials suppliers
9.) General culture
ii. Variables
1.) Complexity: the number of significant elements in the environment
2.) Stability: rate of change in the elements and their relationships
iii. Types
1.) Simple, Stable
a.) Low uncertainty
b.) Traditional strategies
2.) Complex, Stable
a.) Medium uncertainty
b.) Traditional strategies
3.) Simple, Unstable
a.) Medium uncertainty
b.) Relational strategies
4.) Complex, Unstable
a.) High uncertainty
b.) Relational strategies
c.) Need special positions to deal with changes
d.) More need for boundary spanners
e.) More need for integrated roles
4. If variables conflict—e.g. non-routine technology and simple, stable environment—two possible solutions:
a. Adopt the most complex solution to be ready for the most difficult challenge.
b. The organization must under-perform because it is faced with contradictions.
C. Technology and Communication
1. Bank
of America
Every operational aspect of business as we have known it is open to review and subject to change given the way in which the Internet and the technologies that make use of it can improve upon current business practices.
2. Business
Week, 9/12/00
There’s a sharp dividing line between companies that cling to the past and those that invent the future. That line, increasingly, is no longer between older, established companies and spanking new ones. It’s between those organizations that are capable of using the Web to spur innovation and those that aren’t. Surprisingly, what distinguishes many of the most Web-savvy companies is not their technical prowess but their imagination. Everyone has access to Net technology. The crucial question is: Who has the brains, guts, and creativity to take full advantage of it?
3. The situation was poignantly described by Gary Craft, head of e-commerce research at Bank of America. He states:
When an industry is fundamentally changing, as is banking in the era of electronic commerce, the risk of being stranded in a dying business is great.
4. Forms
a. Email
b. Electronic Calendars
c. Voice Mail
d. Audio conferencing
e. Computer conferencing
f. Expert Systems
g. Groupware
h. Networks
i. VPN
j. Inexpensive high-bandwidth WANs
k. Middleware
l. Application Integration
m. Internet Technologies
AMR Research indicates that Business-to-Business (B2B) e-commerce will be adopted at a more accelerated rate than many companies realize, reaching $5.7 Trillion by 2004. The firm estimates that industry leaders will move 60 to 100 percent of their transactions to the Internet over the next two years. Furthermore, the Report states that companies that do not take an aggressive approach to B2B e-commerce and prepare for digital marketplaces, will lose customers and ultimately fail.
i. XML
ii. XBRL
XBRL (or Extensible Business Reporting Language) is a freely available Internet-based language for business reporting. It is a framework, that provides the business community a standards based method to prepare, publish, reliably extract and automatically exchange business reports of companies and the information they contain. Whatever new reporting standards are considered appropriate, it is likely to be richer in disclosure than what we have today and will need XBRL to facilitate.
James
Castellano, Chair of the AICPA, 2/14/02 ,
statement to Congress re: the need for accounting oversight changes after the
Enron scandal.
n. Electronic Exchanges
i.
What
is an exchange?
1.) An exchange is an alliance of suppliers and vendors in a specific industry that use software to post RFPs and RFQs often using a reverse auction like Priceline.com to bid on requests.
2.) In effect, an exchange can turn a supply chain into a source of revenue by creating a marketplace and earning a fee
3.) Business
Week, June 5, 2000
Like no other Internet businesses to date, e-marketplaces tap into something primal: When lots of people get together in one place, commerce happens.
Even more fundamental, e-marketplaces will likely alter the whole process by which raw materials are converted into products and delivered to customers. Think of today’s typical supply chain as a narrow, meandering trail at night, from which you dare not stray for fear of stumbling into a ditch. But once day breaks, you can see the whole landscape—so you cut across a field, avoid potholes and dead ends, give a helping shout to friends, maybe even meet new people. As the era of e-marketplaces dawns, the supply chain is morphing into a supply web, spurring faster time to market, access to new suppliers and customers, and quicker entry into new markets. Says Carl Bass, CEO of construction-services marketplace Buzzsaw.com: “It’s a change on the scale of the Industrial Revolution.”
ii.
How
much business will go through an exchange?
1.) The research varies, but all the projections are staggering.
AMR Research indicates that Business-to-Business (B2B) e-commerce will be adopted at a more accelerated rate than many companies realize, reaching $5.7 Trillion by 2004. The firm estimates that industry leaders will move 60 to 100 percent of their transactions to the Internet over the next two years. Furthermore, the Report states that companies that do not take an aggressive approach to B2B e-commerce and prepare for digital marketplaces, will lose customers and ultimately fail.
Jupiter Research has released a study with pulse-quickening projections about the growth of the business-to-business commerce market. Jupiter’s prediction that B-to-B commerce will expand from $336 million this year to $6.3 trillion in 2005 is likely to raise the heart rate of even the most composed IT administrators as they try to figure out how to accommodate such exponential expansion.
While 15% to 20% of business-to-consumer transactions have gone online, 80% of business-to-business transactions will be conducted online in six to eight years, he says.
Jupiter found that the computer and telecommunications markets should become the largest online B-to-B market in terms of sales, topping $1 trillion by 2005. Four other industries—food and beverage, motor vehicle and parts, industrial equipment and supplies, and construction and real estate—are expected to exceed $500 billion within five years.
Bank of
We estimate the
Business-to-business (B2B) will be much larger in total dollar volume, accounting for 92% of total e-commerce by 2003, according to IDC.
Today, B2Bs account for only a small percentage of total
iii. How
quickly are these exchanges growing?
1.) Bank of America analysts project the inflection point could occur within the next 12-18 months.
2.) Bank
of America
Market maturity. Earlier this year,
InformationWeek reported that only 12 of the 100 largest
iv. What
are some examples of exchanges?
1.) Covisint is a major auto industry exchange including, Ford, GM and Chrysler
2.) There
are exchanges planned for almost every industry: lumber, chemicals, steel,
marketing services, energy, oil, food and beverages, even funeral supplies.
SCANA is a South Carolina
D. Strategies for integrating units
1. Liaison roles: linking two units
2. Tasks forces: special, ad hoc, teams assembled to address specific problems
3. Integrating teams: permanent groups drawn from many departments to address recurring or persistent problems
4. Managerial linking roles: a person with authority given the task to achieve an integration solution
5. Dual authority systems: matrix structures
a. e.g. NASA: a materials engineer may work 50% with Nose-cone, 30% with booster, and 20% with Materials engineering lab
b. Keeps focus on outcomes instead of partisan, departmental issues
c. Benefits coordination
d. Requires intensive communication
e. Can create ambiguities—to whom do I report?
f. Extra communication takes extra time and effort
6.
Telecommunications
7.
E-Mail
8.
Workflow
Automation
a. EDI—the old way
b. In the past, could be stymied by incompatible systems—not anymore with XML-based integration tools.
c. GRAPHIC
9.
How to
choose linking strategies
a. cost-benefit analysis
b. geographical dispersion
c. cultural strategy in place
E. New Organizational Forms
Examples from Petzinger:
|
The Old Assumptions |
The New Possibility |
|
Factories with clocklike precision |
. Factories with workers “madly scurrying to
assemble sofas as they saw fit” and “productivity and quality were going
through the roof.” |
|
Products priced according to cost, with a margin
for profit |
Products that used to cost $3 million a copy,
selling for $9,999, then zero, “yet by redefining his market his company was
making more money than ever.” |
|
Only managers can make the hard decisions |
Employees looking for ways to eliminate their own
jobs because those who succeeded were rewarded with new jobs helping the
company to grow. |
|
Going into business requires a ransom of risk capital |
Web-based companies that begin with nothing to make
a significant profit. |
|
Businesses fear regulators and local activists |
A plant manager who “dissolved the boundary between
factory and community while causing profitability to soar.” |
|
Business must track every dollar, asset and action |
A business “which had grown bigger than Boeing,
Intel, or Motorola with no budgets, no central planning, and no job
descriptions” |
|
A business must build an economy of scale to make a
profit. |
A business can develop an economy of locality or an
economy of time and make a profit. |
|
Customizations increase cost |
Customizations benefit the customer and build the
business |
|
Work is a necessary evil—Adam’s folly |
“The workplace is becoming a primary means for
personal fulfillment” as “institutions like churches, communities, even
families, which once provided individuals with identity, affiliation,
meaning, and support, are eroding.” |