This Document Contains Chapters 7 to 8 CHAPTER 7 DESIGNING ADAPTIVE ORGANIZATIONS CHAPTER OUTLINE New Manager Self-Test: What Are Your Leadership Beliefs? I. Organizing the Vertical Structure A. Work Specialization B. Chain of Command New Manager Self-Test: Delegation C. Span of Management D. Centralization and Decentralization II. Departmentalization A. Vertical Functional Approach B. Divisional Approach C. Matrix Approach D. Team Approach E. The Virtual Network Approach III. Organizing for Horizontal Coordination A. The Need for Coordination B. Task Forces, Teams, and Project Management C. Relational Coordination IV. Factors Shaping Structure A. Structure Follows Strategy B. Structure Fits the Technology ANNOTATED LEARNING OUTCOMES After studying this chapter, students should be able to: 1. Discuss the fundamental characteristics of organizing, including such concepts as work specialization, chain of command, span of management, and centralization versus decentralization. Answer: Organizing is the deployment of organizational resources to achieve strategic goals. Organizing is important because it follows the management function of planning. Planning and strategy define what to do; organizing defines how to do it. Organization structure is a tool that managers use to harness resources for getting things accomplished. The deployment of resources is reflected in the organization's division of labor into specific departments and jobs, formal lines of authority, and mechanisms for coordinating diverse organization tasks. Work specialization, sometimes called division of labor, is the degree to which organizational tasks are subdivided into separate jobs. When work specialization is extensive, employees specialize in a single task. Jobs tend to be small, but they can be performed efficiently. The chain of command is an unbroken line of authority that links all employees in an organization and shows who reports to whom. The span of management is the number of employees reporting to a supervisor. Sometimes called the span of control, this characteristic of structure determines how closely a supervisor can monitor subordinates. The average span of control used in an organization determines whether the structure is tall or flat. A tall structure has an overall narrow span and more hierarchical levels. A flat structure has a wide span, is horizontally dispersed, and has fewer hierarchical levels. Centralization and decentralization pertain to the hierarchical level at which decisions are made. Centralization means that decision authority is located near the top of the organization. With decentralization, decision authority is pushed downward to lower organization levels. 2. Describe functional and divisional approaches to structure. Answer: Functional structure is the grouping of positions into departments based on similar skills, expertise, work activities, and resource use. A functional structure can be thought of as departmentalization by organizational resources because each type of functional activity such as accounting, human resources, engineering, and manufacturing, represent specific resources for performing the organization's task. People and facilities representing a common organizational resource are grouped together into a single department. Divisional structure occurs when departments are grouped together based on similar organizational outputs. In the divisional structure, divisions are created as self-contained units for producing a single product. Each functional department resource needed to produce the product is assigned to one division. In a functional structure, all engineers are grouped together and work on all products whereas, in a divisional structure, separate engineering departments are established within each division. Each department is smaller and focuses on a single product line. Departments are duplicated across product lines. 3. Explain the matrix approach to structure and its application to both domestic and international organizations. Answer: The matrix structure uses functional and divisional structures simultaneously in the same part of the organization. The matrix structure has dual lines of authority. The functional hierarchy of authority runs vertically, and the divisional hierarchy of authority runs horizontally. The matrix approach to structure provides a formal chain of command for both the functional and divisional relationships. The matrix structure is typically used when the organization experiences environmental pressure for both a strong functional departmentalization and a divisional departmentalization. Global corporations often use the matrix structure. The problem for global companies is to achieve simultaneous coordination of various products within each country or region and for each product line. The two lines of authority typically are geographic and product, and the matrix provides excellent simultaneous coordination. It is an organizational structure that deliberately violates Fayol’s principle of unity of command. 4. Describe the contemporary team and virtual network structures and why they are being adopted by organizations. Answer: The implementation of team concepts has been a widespread trend in departmentalization. The vertical chain of command is a powerful means of control, but moving decisions through the hierarchy takes much time and keeps responsibility at the top. The trend is to delegate authority, push responsibility to the lowest possible levels, and create participative teams that engage the commitment of workers. This approach enables organizations to be more flexible and responsive in a competitive global environment. The dynamic network organization is another approach to departmentalization. Using the network structure, the organization divides major functions into separate companies that are brokered by a small headquarters organization. The network approach is revolutionary because it is difficult to answer the question, “Where is the organization?” This organizational approach is especially powerful for international operations. 5. Explain why organizations need coordination across departments and hierarchical levels, and describe mechanisms for achieving coordination. Answer: Coordination refers to the quality of collaboration across departments. It is required whether there is a functional, divisional, or team structure. Coordination problems are amplified in the global arena, because units differ not only by goals and work activities but by distance, time, culture, and language. Coordination is the outcome of information and cooperation; managers can design systems and structures to promote horizontal coordination. The vertical structure is flattened, with perhaps only a few senior executives in traditional support functions such as finance or human resources. A task force is a temporary team or committee designed to solve a short-term problem involving several departments. Task force members represent their departments and share information that enables coordination. Companies also set up cross-functional teams for coordination. Companies also use project managers, responsible for coordinating the activities of several departments on a full-time basis for the completion of a specific project. Reengineering is the radical redesign of business processes to achieve dramatic improvements in cost, quality, service, and speed. Because the focus of reengineering is on process rather than function, reengineering generally leads to a shift away from a strong vertical structure. 6. Identify how structure can be used to achieve an organization’s strategic goals. Answer: Structure depends on a variety of contingencies. The right structure is “designed to fit” the contingency factors of strategy, environment, and technology. These three areas are changing for organizations, creating a need for stronger horizontal coordination. Two strategies proposed by Porter are differentiation and cost leadership; these strategies require different structural approaches. The pure functional structure is appropriate for achieving internal efficiency goals. The vertical functional structure uses task specialization and a chain of command. It does not enable the organization to be flexible or innovative. Horizontal teams are appropriate when the primary goal is innovation and flexibility. The firm can differentiate itself and respond quickly to change. Other forms of structure represent intermediate steps on the firm’s path to efficiency or innovation. The functional structure with cross-functional teams and project teams provides greater coordination and flexibility than the pure functional structure. The divisional structure promotes differentiation because each division can focus on specific products and customers. 7. Define production technology and explain how it influences organization structure. Answer: Technology includes the knowledge, tools, techniques, and activities used to transform organizational inputs into outputs. Joan Woodward described three types of manufacturing technology. a. Small-batch and unit production. Small-batch production firms produce goods in batches of one or a few products designed to customer specification. Examples include custom clothing, special-order machine tools, space capsules, satellites, and submarines. b. Large-batch and mass production. Mass production technology is distinguished by standardized production runs in which a large volume of products is produced and all customers receive identical products. This technology makes greater use of machines than does small-batch production. Examples include automobiles, tobacco products, and textiles. c. Continuous process production. In continuous process production, the entire workflow is mechanized in a sophisticated and complex form of production technology. The process runs continuously and therefore has no starting or stopping. Human operators are not part of actual production because machinery does all the work. Examples include chemical plants, distilleries, petroleum refineries, and nuclear power plants. Service organizations include consulting companies, law firms, brokerage houses, airlines, hotels, advertising companies, amusement parks, and educational organizations. Service technology also characterizes departments such as legal, human resources, finance, and market research in large corporations. Service technology involves: • intangible output—services are perishable and, unlike physical products, cannot be stored in inventory; and • direct contact with customers—employees and customers interact directly to provide and purchase the service. Production and consumption are simultaneous. LECTURE OUTLINE NEW MANAGER SELF-TEST: WHAT ARE YOUR LEADERSHIP BELIEFS? The fit between a new manager and the organization is often based on personal beliefs about the role of leaders. Things work best when organization design matches a new manager’s beliefs about his or her leadership role. This exercise helps students identify whether their leadership beliefs are primarily position based or nonhierarchical. I. ORGANIZING THE VERTICAL STRUCTURE Exhibit 7.1 Organizing is the deployment of organizational resources to achieve strategic goals. It is important because it follows from strategy. Strategy defines what to do, and organizing defines how to do it. The organizing process leads to the creation of organization structure, which defines how tasks are divided, resources are deployed, and departments are coordinated. Organization structure refers to: • Formal tasks assigned to individuals and departments; • Formal reporting relationships including lines of authority, decision responsibility, number of hierarchical levels, and span of managers' control; and • Design of systems for coordination of employees across departments. The organization chart is the visual representation of an organization's structure that portrays the characteristics of vertical structure. It delineates the chain of command, indicates departmental tasks and how they fit together, and provides order and logic for the organization. There are several important features of the vertical structure A. Work Specialization 1. A fundamental principle is that work can be performed more efficiently if employees are allowed to specialize. Work specialization, sometimes called division of labor, is the degree to which organizational tasks are subdivided into separate jobs. Production is efficient because employees perform small, well defined tasks. 2. Organizations are moving away from this principle because too much specialization leads to employees being isolated and doing only a single boring job. Many companies are enlarging jobs to provide greater challenges or assigning teams to tasks so employees can rotate among the jobs performed by the team. B. Chain of Command 1. The chain of command is an unbroken line of authority that links all persons in an organization and shows who reports to whom. It is associated with two underlying principles. Unity of command means that each employee is held accountable to only one supervisor. The scalar principle refers to a clearly defined line of authority in the organization that includes all employees. 2. Authority, Responsibility, and Delegation a. The chain of command illustrates the authority structure of the organization. Authority is the formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organizational outcomes. Authority is distinguished by three characteristics. • Authority is vested in organizational positions, not people. People in the same position have the same authority because of the position they hold. • Authority flows down the vertical hierarchy. Positions at the top have more formal authority than those at the bottom. • Authority is accepted by subordinates. The acceptance theory of authority argues that a manager has authority only if subordinates choose to accept the commands. b. Responsibility is the duty to perform the task or activity an employee has been assigned. Managers are assigned the authority commensurate with responsibility. Accountability is the mechanism through which authority and responsibility are brought into alignment. Those with authority and responsibility are subject to justifying task outcomes to those above them in the chain of command. c. Delegation is another concept related to authority; it is the process managers use to transfer authority and responsibility to positions below them in the hierarchy. Organizations encourage managers to delegate authority to the lowest possible level to gain flexibility to meet customer needs and adapt to the environment. Discussion Question #1: Sandra Holt, manager of Electronics Assembly, asked Hector Cruz, her senior technician, to handle things in the department while Sandra worked on the budget. She needed peace and quiet for at least a week to complete her figures. After ten days, Sandra discovered that Hector had hired a senior secretary, not realizing that Sandra had promised interviews to two other people. Evaluate Sandra’s approach to delegation. NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 3. Line and Staff Authority a. Line departments perform tasks that reflect the organization's primary goal and mission. In a software company, line departments make and sell the product. Line authority means that managers have formal authority to direct and control immediate subordinates. b. Staff departments include all those who provide specialized skills in support of line departments. The finance department of software firm has staff authority. Staff authority is narrower than line authority and includes the right to advise, recommend, and counsel in the staff specialists' area of expertise. C. Span of Management 1. The span of management, or span of control, is the number of employees reporting to a supervisor. This characteristic of structure determines how closely a supervisor can monitor subordinates. 2. Factors that determine the span of management include: a. Work performed by subordinates is stable and routine. b. Subordinates perform similar work tasks. c. Subordinates are concentrated in a single location. d. Subordinates are trained and need little direction in performing tasks. e. Rules and procedures defining task activities are available. f. Support systems and personnel are available for the manager. g. Little time is required in nonsupervisory activities such as coordination with other departments or planning. h. Managers' personal preferences favor a large span. 3. The average span of control used in an organization determines whether the structure is tall or flat. A tall structure has an overall narrow span of management and more levels in the hierarchy. A flat structure has a wide span, is horizontally dispersed, and has fewer hierarchical levels. The trend is toward wider spans of control as a way to facilitate delegation. D. Centralization and Decentralization Exhibit 7.2 1. Centralization and decentralization pertain to the hierarchical level at which decisions are made. Centralization means that decision authority is located near the top of the organization. With decentralization, decision authority is pushed down the chain of command to lower organization levels. The trend is toward decentralization, which uses workers' skills, relieves top managers, has well-informed people make decisions, and permit rapid response. Factors that influence centralization versus decentralization include: a. Greater change and uncertainty in the environment are usually associated with decentralization. b. The amount of centralization or decentralization should fit the firm’s strategy. c. In times of crisis or risk of company failure, authority may be centralized at the top. Discussion Question #8: Experts say that organizations are becoming increasingly decentralized, with authority, decision-making responsibility, and accountability being pushed farther down into the organization. How will this trend affect what will be asked of you as a new manager? NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ II. DEPARTMENTALIZATION Exhibit 7.3 Departmentalization is the basis for grouping individuals into departments and departments into the total organization. Managers make choices about how to use the chain of command to group people together to perform their work. Five approaches to structural design reflect different uses of the chain of command in departmentalization. A. Vertical Functional Approach 1. What It Is a. Functional structure is the grouping of positions into departments based on similar skills, expertise, work activities, and resource use. People, facilities, and other resources representing a common organizational resource are grouped together into a single department. 2. How It Works a. The major departments under the president are groupings of similar expertise and resources, such as accounting, human resources, production, and marketing. Each of the functional departments is concerned with the organization as a whole. The functional structure is a strong vertical design. Information flows up and down the vertical hierarchy, and the chain of command converges at the top of the organization. b. People in a department communicate primarily with others in the same department to coordinate work and accomplish tasks or implement decisions. Managers and employees are compatible because of similar training and expertise. Discussion Question #3: An organizational consultant was heard to say, “Some aspect of functional structure appears in every organization.” Do you agree? Explain. NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ B. Divisional Approach Exhibit 7.4 1. What It Is a. The divisional structure occurs when departments are grouped together based on organizational outputs. Diverse departments are brought together to produce a single organizational output. The divisional structure is sometimes called a product structure, program structure, or self-contained unit structure. Most large corporations have separate divisions that perform different tasks, use different technologies or serve different customers. 2. How It Works a. Divisions are created as self-contained units with separate functional departments for each division. For example, separate engineering departments are created within each division, and each department is similar and focuses on a single product. The primary difference between divisional and functional structures is that in divisional structures, the chain of command from each function converges lower in the hierarchy and differences of opinion would be resolved at the divisional level rather than by the president. 3. Geographic- or Customer-Based Divisions Exhibit 7.5 a. Grouping company activities by geographic region or customer group is an alternative for assigning divisional responsibility. In this structure, all functions in a specific country or region report to the same division manager. The structure focuses company activities on local market conditions; competitive advantage comes from the selling a product adapted to a given country. Discussion Question #4: Some people argue that the matrix structure should be adopted only as a last resort because the dual chains of command can create more problems than they solve. Discuss. Do you agree or disagree? Why? NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ C. Matrix Approach Exhibit 7.6, Exhibit 7.7 1. What It Is a. The matrix approach combines aspects of both functional and divisional structures simultaneously in the same part of the organization. The matrix has dual lines of authority. The functional hierarchy of authority runs vertically, providing traditional control within functional departments. The divisional hierarchy runs horizontally, providing coordination across departments. The matrix structure supports a formal chain of command for both the functional (vertical) and divisional (horizontal) relationships. 2. How It Works a. The dual lines of authority make the matrix structure unique. The success of the matrix structure depends on the abilities of people in key matrix roles. • Two-boss employees report to two supervisors simultaneously and must resolve conflicting demands from the matrix bosses. • The matrix boss is the product or functional boss who is responsible for one side of the matrix. • The top leader oversees both the product and functional chains of command and is responsible for the entire matrix. Discussion Question #4: Some people argue that the matrix structure should be adopted only as a last resort because the dual chains of command can create more problems than they solve. Discuss. Do you agree or disagree? Why? NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ D. Team Approach 1. What It Is a. The team approach is probably the most widespread trend in departmentalization. The vertical chain of command is a powerful means of control, but passing all decisions up the hierarchy takes too long and keeps responsibility at the top. Managers can delegate authority, push responsibility to lower levels, and be more flexible and responsive in the competitive global environment. 2. How It Works a. Cross functional teams consist of employees from various functional departments, responsible to meet as a team and resolve mutual problems. Team members report to their functional departments, but also to the team. These teams provide needed horizontal coordination to complement existing functional or divisional structures. b. Permanent teams are groups of employees brought together in a way similar to a formal department. Emphasis is on horizontal communication and information sharing because representatives from all functions coordinate to complete a specific task. Authority is pushed down to lower levels, and front-line employees are given the freedom to make decisions and take action on their own. c. With a team-based structure, the entire organization is made up of horizontal teams that coordinate their work with customers to accomplish the organization’s goals. Discussion Question #2: How does relational coordination differ from teams and task forces? Do you think relational coordination seems more valuable for a service technology or a manufacturing technology? Explain your answer. NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ E. The Virtual Network Approach 1. What It Is a. The most recent approach to departmentalization extends the idea of horizontal coordination beyond the boundaries of the organization. Outsourcing, which means farming out certain activities, has become a significant trend. Partnerships, alliances, and other collaborative forms are now a leading approach to accomplishing strategic goals. b. Some organizations take this networking approach to the extreme to create a new kind of structure. The virtual network structure disaggregates major functions to separate companies that are brokered by a small headquarters organization. 2. How It Works Exhibit 7.8 a. The organization may be viewed as a central hub surrounded by a network of outsider specialists. Services such as accounting are outsourced to separate organizations that are connected electronically to the central office. Networked computer systems, collaborative software, and the Internet enable organizations to exchange data and information rapidly and seamlessly. Networks allow a company to concentrate on what it does best and contract out other activities to companies with distinctive competence in those areas. b. In similar networking approach called the modular approach, a manufacturing firm uses outside suppliers to provide large chunks of a product, which are then assembled into a final product by a few workers. Discussion Question #5: What is the virtual network approach to structure? Is the use of authority and responsibility different compared with other forms of departmentalization? Explain. NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ F. Advantages and Disadvantages of Each Structure Exhibit 7.9 1. Functional Approach a. Grouping employees by common task permits efficient resource use and economies of scale. Departments enhance in depth skill specialization and development, and centralized decision making at the top provides unified direction. b. Disadvantages include barriers that exist across departments resulting in poor communication and coordination and slow response to changes. Innovation and change require involvement of several departments, and decisions pile up at the top of the hierarchy creating delay. 2. Divisional Approach a. The organization is flexible and responsive to change because each unit is small and tuned in to its environment. Concern for customer's needs is high and coordination across functional departments is better because employees are grouped and committed to a product. b. Coordination across divisions is often poor. Duplication of resources and the high cost of running separate divisions is a major disadvantage. The organization loses efficiency and economies of scale, and there may be a lack of technical depth and specialization. 3. Matrix Approach a. The matrix can by highly effective in a complex, rapidly changing environment in which flexibility and adaptability are important. Conflict and frequent meetings allow new issues to be raised and resolved. The matrix makes efficient use of human resources because specialists can be transferred from one division to another. b. Frustration and confusion arising from the dual chain of command can be a significant problem, as can high conflict between the two sides of the matrix, and time lost in meetings. Managers spend a great deal of time coordinating meetings, taking time away from core work activities. 4. Team Approach a. The team approach eliminates barriers across departments, increases cooperation and compromise, and enables the firm to quickly adapt to requests and environmental changes which speeds up decision making. Another advantage is better morale and enthusiasm as a result of increased employee involvement. b. Disadvantages include dual loyalties and conflict, time and resources spent on meetings, and too much decentralization. Team members can often lose sight of the big picture of the organization. 5. Virtual Network Approach a. The biggest advantages are flexibility and competitiveness on a global scale, drawing on resources and expertise worldwide. The virtual network structure is the leanest of all because little supervision is required. There may only be two or three levels of hierarchy, if that many, compared to ten or more in traditional firms. b. Lack of hands-on control is a significant disadvantage. Each partner in the network acts in its own self-interest. Weak and ambiguous boundaries create higher uncertainty and greater demands on managers for defining shared goals, coordinating activities, managing relationships, and keeping people focused. Employee loyalty can weaken and employees may feel concerned that they can be replaced by contract services. III. ORGANIZING FOR HORIZONTAL COORDINATION A. The Need for Coordination Exhibit 7. 10 1. As organizations grow and evolve, new positions and departments are added, and senior managers have to find a way to tie all of these departments together. Coordination refers to the task of collaborating across departments. It is required whether there is a functional, divisional, or team structure. 2. Coordination problems are amplified in the global arena because units differ not only by goals and work activities but by distance, time, culture, and language. Coordination is the outcome of information and cooperation. Managers can design systems and structures to promote horizontal coordination and collaboration. B. Task Forces, Teams, and Project Management Exhibit 7. 11 1. A task force is a temporary team or committee designed to solve a problem involving several departments. Task force members represent their departments and share information that enables coordination. Companies also set up cross-functional teams for coordination which work with continuing rather than temporary problems that might exist for several years. 2. A project manager is responsible for coordinating the activities of several departments for the completion of a specific project. A distinctive feature of a project manager is that the person is not a member of one of the departments being coordinated. Project managers need excellent people skills. They use expertise and persuasion to achieve coordination among various departments. C. Relational Coordination 1. Relational coordination refers to frequent, timely, problem-solving communication carried out through employee relationships of shared goals, knowledge, and mutual respect. It is not based on formal coordination roles or mechanisms. IV. FACTORS SHAPING STRUCTURE A. Structure Follows Strategy Exhibit 7. 12, Exhibit 7. 13 1. Porter’s strategies of differentiation and cost leadership typically require different structural approaches. A simplified continuum illustrates how structural approaches are associated with strategic and environmental goals. The terms mechanistic and organic refer to organizations where efficiency is the goal in a stable environment and organizations where innovation is the goal in a rapidly-changing environment, respectively. 2. The pure functional structure is appropriate for achieving internal efficiency goals, but it does not enable the organization to be flexible or innovative. A horizontal team structure is appropriate when the primary goal is innovation and flexibility. The firm can differentiate itself and respond quickly to change. 3. Other forms of structure represent intermediate steps on the firm’s path to efficiency or innovation. The functional structure with cross-functional teams and project teams provides greater coordination and flexibility than the pure functional structure. The divisional structure promotes differentiation because each division can focus on specific products and customers. B. Structure Fits the Technology Technology includes the knowledge, tools, techniques, and activities used to transform organizational inputs into outputs. 1. Woodward’s Manufacturing Technology Exhibit 7. 14 a. Small-batch and unit production. Small-batch production firms produce goods in batches of one or a few products designed to customer specification. Examples include custom clothing, special-order machine tools, space capsules, satellites, and submarines. b. Large-batch and mass production. Mass production technology is distinguished by standardized production runs in which a large volume of products is produced and all customers receive identical products. Examples include automobiles, tobacco products, and textiles. c. Continuous process production. In continuous process production, the entire work flow is mechanized in a sophisticated and complex form of production technology. The process runs continuously and therefore has no starting or stopping. Examples include chemical plants, distilleries, petroleum refineries, and nuclear power plants. 2. Service Technology a. Service organizations include consulting companies, law firms, brokerage houses, airlines, hotels, advertising companies, amusement parks, and educational organizations. Service technology also characterizes departments such as legal, human resources, finance, and market research in large corporations. Service technology involves: • Intangible output. Services are perishable and, unlike physical products, cannot be stored in inventory. • Direct contact with customers. Employees and customers interact directly to provide and purchase the service. Production and consumption are simultaneous. Service firm employees have direct contact with customers. CHAPTER 8 MANAGING CHANGE AND INNOVATION CHAPTER OUTLINE New Manager Self-Test: Are You Innovative? I. Innovation and the Changing Workplace II. Changing Things: New Products and Technologies A. Exploration New Manager Self-Test: Assess Your Creativity B. Cooperation C. Innovation Roles III. Changing People and Culture A. Training and Development B. Organization Development IV. Implementing Change A. Need for Change B. Resistance to Change C. Force-Field Analysis D. Implementation Tactics ANNOTATED LEARNING OUTCOMES After studying this chapter, students should be able to: 1. Define organizational change and explain the forces driving innovation and change in today’s organizations. Answer: Organizational change is defined as the adoption of a new idea or behavior by an organization. Forces for change exist in both the external environment and within the organization. External forces originate in all environmental sectors including customers, competitors, technology, economic, and international events. Internal forces for change arise from internal activities and decisions. Demands by employees, labor unions, and production inefficiencies can all generate a force to which management must respond with change. Rapidly increasing competition in all areas is driving the need for innovation. One vital area for innovation is introducing new products and technologies. These new products and technologies, in turn, require substantial changes in virtually every aspect of organizations. 2. Identify the three innovation strategies managers implement for changing products and technologies. Answer: The three innovation strategies managers implement for changing products and technologies are exploration, cooperation, and entrepreneurship. Exploration involves designing the organization to encourage creativity and the initiation of new ideas. Cooperation refers to creating conditions and systems to facilitate internal and external coordination and knowledge sharing. Entrepreneurship means that managers put in place processes and structures to ensure that new ideas are carried forward for acceptance and implementation. 3. Explain the value of creativity, a bottom-up approach, internal contests, idea incubators, idea champions, and new-venture teams for innovation. Answer: Creativity is the development of novel solutions to perceived problems. Creative individuals develop ideas that can be adopted by the organization. If creative conditions are successful, new ideas will be generated that must be carried forward for acceptance and implementation. An idea incubator is run entirely in-house but provides a safe harbor where ideas from employees throughout the organization can be developed without interference from company bureaucracy or politics. Employees with good ideas can take them to the idea incubator for consideration and development, rather than having to shop their ideas all over the company and hoping someone pays attention. Horizontal linkages provide a framework for shared development of innovations among several departments. This approach saves both time and money in the development of innovations by increasing coordination among departments. Open innovation means extending the search for and commercialization of new ideas beyond the boundaries of the organization and even beyond the boundaries of the industry. Most companies generate their own ideas in house and then developed, manufactured, marketed, and distributed them, a closed innovation approach. With open innovation, even customers are brought into the innovation loop. This allows the company to get many perspectives and develop products and services that result from a host of diverse ideas. An idea champion is a person who sees the need for and champions productive change within the organization. Personal energy and effort are required to successfully promote a new idea. Champions are passionately committed to a new product or idea despite rejection by others. A recent idea for facilitating corporate innovation is called a new venture team. This team is a unit separate from the rest of the organization that is responsible for developing and initiating a major innovation. Its separate facilities and location free it from organizational rules and procedures. 4. Describe the horizontal linkage model and how it contributes to successful product and service innovations. Answer: One approach to successful innovation is called the horizontal linkage model, which shows that the research, manufacturing, and sales and marketing departments within an organization simultaneously contribute to new products and technologies. People from these departments meet frequently in teams and task forces to share ideas and solve problems. Research people inform marketing of new technical developments to learn whether they will be useful to customers. Marketing people pass customer complaints to research to use in the design of new products and to manufacturing people to develop new ideas for improving production speed and quality. Manufacturing informs other departments whether a product idea can be manufactured within cost limits. Throughout the process, development teams keep in close touch with customers. The horizontal linkage model is increasingly important in a high-pressure business environment that requires rapidly developing and commercializing products and services. 5. Explain open innovation and how it is being used by today’s organizations. Answer: Open innovation is one of the hottest trends today in the product and service development process. Open innovation means extending the search for and commercialization of new ideas beyond the boundaries of the industry, sharing knowledge and resources with other organizations and individuals outside the firm. For example, game maker Rovio extended the commercialization of the Angry Birds brand into books, movies, and toys by letting outsiders license the popular gaming app. Some of the best-selling products from consumer products company P&G were developed in whole or in part by someone outside the firm. Even Apple has found a way to tap into the power of open innovation. The Internet has made it possible for companies to tap into ideas from around the world and let hundreds of thousands of people contribute to the innovation process, which is why some approaches to open innovation are referred to as crowdsourcing. 6. Discuss why changes in people and culture are critical to any change process. Answer: Changes in people and culture pertain to how employees think. These changes involve the adoption of a new mindset. People change pertains to just a few employees, such as sending a handful of middle managers to a training course to improve their leadership skills. Culture change pertains to the organization as a whole, such as shifting the basic organizational mind-set from one focused on rules and policies to one focused on doing whatever is necessary to ensure customer satisfaction. 7. Define organization development (OD) and large group interventions. Answer: Organization development (OD) is a planned, systematic process of change that uses behavioral science knowledge and techniques to improve an organization’s health and effectiveness through its ability to adapt to the environment, improve internal relationships, and increase learning and problem-solving capabilities. It focuses on the human and social aspects of the organization and works to change attitudes and relationships among employees, helping to strengthen the organization’s capacity for adaptation and renewal. The large-group intervention approach brings together participants from all parts of the organization—often including key stakeholders from outside the organization as well—to discuss problems or opportunities and plan for change. 8. Explain the OD stages of unfreezing, changing, and refreezing. Answer: Unfreezing means that people throughout the organization are made aware of problems and the need for change. This stage creates the motivation for people to change their attitudes and behaviors. Changing occurs when individuals experiment with new behavior and learn new skills to be used in the workplace. This process is sometimes known as intervention, during which the change agent implements a specific plan for training managers and employees. Refreezing occurs when individuals acquire new attitudes or values and are rewarded for them by the organization. The impact of new behaviors is evaluated and reinforced, and the change agent supplies new data that show positive changes in performance. 9. Identify sources of resistance to change and describe the implementation tactics that managers can use to overcome resistance. Answer: Employees appear to resist change for several reasons, and understanding them helps managers implement change more effectively. Due to self interest, employees typically resist a change they believe will take away something of value. Because of lack of understanding and trust, employees often do not understand the intended purpose of a change or distrust the intentions behind change. Uncertainty is the lack of information about future events. This fear of the unknown causes employees to resist a change when they do not know how they will be affected. Another reason for resistance to change occurs when people who will be affected by innovation have different assessments and goals than an idea champion or new venture group. These reasons for resistance are legitimate in the eyes of employees affected by the change. Implementation tactics that can be used to overcome resistance include: • Communication and education are used when users and others who may resist implementation need solid information about the change. • Participation involves users and potential resisters in designing the change. This approach is time consuming, but it pays off because users understand and become committed to the change. Negotiation, a more formal means of achieving cooperation, uses formal bargaining to win acceptance and approval of a desired change. • Coercion means managers use formal power to force employees to change. Resisters are told to accept the change or lose rewards or their jobs. In most cases, this approach should not be used because employees feel like victims, are angry at change managers, and may even sabotage the changes. Coercion may be necessary in crisis situations when a rapid response is urgent. • The visible support of top management also helps overcome resistance to change. Top management support symbolizes to all employees that the change is important for the organization. Without top management support the desired change will probably not happen. LECTURE OUTLINE NEW MANAGER SELF-TEST; ARE YOU INNOVATIVE? Personal innovativeness reflects the awareness of the need to innovate and a readiness to try new things. Innovativeness is considered a positive thing for people in many companies where individuals and organizations are faced with a constant need to change. This exercise helps students determine their level of personal innovativeness. I. INNOVATION AND THE CHANGING WORKPLACE Organizational change is defined as the adoption of a new idea or behavior by an organization. In today’s highly complex and rapidly changing world, organizations need to continuously adapt to new situations if they are to survive and prosper. Advances in information technology and the Internet are driving many of the changes in today’s world and today’s organizations. Organizations must embrace many types of change. Disruptive innovation refers to innovations in products, services, or processes that radically change an industry’s rules of the game for producers and consumers. DVDs all but wiped out the videotape industry, and now streaming video is threatening the same fate for DVDs. Digital cameras appear to be eliminating the photographic film industry. Western firms are increasingly using an approach referred to as trickle-up innovation or reverse innovation. Rather than innovating in affluent countries and transferring products to emerging markets, companies are now creating innovative low-cost products for emerging markets and then quickly and inexpensively repackaging them for sale in developed countries. An ambidextrous approach means incorporating structures and processes that are appropriate for both the creative impulse and for the systematic implementation of innovations. With this approach, managers encourage flexibility and freedom to innovate and propose new ideas with creative departments, venture teams, and other mechanisms, but they also use a more rigid, centralized, and standardized approach for implementing innovations. II. CHANGING THINGS: NEW PRODUCTS AND TECHNOLOGIES To thrive in today’s hypercompetitive environment, companies must innovate more, and more quickly, than ever. One vital area for innovation is introducing new products and technologies. A product change is a change in the organization’s product or service outputs. Product and service innovation is the primary way in which organizations adapt to changes in markets, technology, and competition. A technology change is a change in the organization’s production processes—how the organization does its work. Technology changes are designed to make the production of a product or service more efficient. A. Exploration Exhibit 8. 1, Exhibit 8. 2, Exhibit 8. 3 1. Exploration involves designing the organization to encourage creativity and the initiation of new ideas. It is the stage where ideas for new products and technologies are born. Creativity is the generation of novel ideas that might meet perceived needs or respond to opportunities for the organization. 2. Creativity is the essential first step in innovation. Creative people are known for originality, curiosity, open mindedness, a focused approach to problem solving, persistence, a relaxed and playful attitude, and receptiveness to new ideas. Managers are responsible for creating a work environment that allows creativity to flourish. Creative organizations have an internal culture of playfulness, freedom, challenge, and grass-roots participation. 3. Innovative companies use a bottom-up approach, which means encouraging new flow of ideas from lower levels and making sure they get heard and acted upon by top executives. Some companies also use internal innovation contests. 4. The idea incubator is another popular way to encourage new ideas within an organization. An idea incubator provides a safe harbor where ideas from employees throughout the company can be developed without interference from company bureaucracy or politics. NEW MANAGER SELF-TEST: ASSESS YOUR CREATIVITY Facilitating improvements through innovation and change is an important part of a new manager’s job. Not everyone thrives in a position of initiating change, but for new managers, initiating change within the first six months enhances their impact. This exercise helps students their level of previous change initiation and preparation for the new manager role of idea champion. B. Cooperation 1. Internal Coordination Exhibit 8. 4 a. Successful innovation requires expertise from several departments simultaneously. The horizontal linkage model is one approach to successful innovation. In this model, people from several departments meet frequently in teams and task forces to share ideas and solve problems. The horizontal linkage model is increasingly important in today’s high-pressure business environment that requires developing and commercializing products and services incredibly fast. 2. External Coordination a. Organizations also look outside their boundaries to find and develop new ideas. Some organizations build formal strategic partnerships such as alliances and joint ventures to improve innovation success. Today’s most successful companies are including customers, strategic partners, suppliers, and other outsiders directly in the product and service development process. b. Open innovation is one of the hottest trends. Open innovation means extending the search for and commercializing new ideas beyond the boundaries of the organization and even beyond the boundaries of the industry. Smart companies find and use ideas from anywhere within and outside the organization. c. The Internet enables companies to tap into ideas globally and let hundreds of thousands of people contribute to the innovation process, which is why some approaches to open innovation are referred to as crowdsourcing. Crowdsourcing is also being used to gather creative ideas for solving social problems. C. Innovation Roles Exhibit 8. 5 1. Creating mechanisms to make sure new ideas are carried forward, accepted, and implemented is the third aspect of product and technology innovation. The formal definition of an idea champion is a person who sees the need for and champions productive change within the organization. Personal energy and effort are required to successfully promote a new idea. Champions are passionately committed to a new product or idea despite rejection by others. 2. Successful innovation in most companies involves interplay of different people. The inventor comes up with the new idea and understands its technical value. The champion believes in the idea, confronts the organizational realities of costs and benefits, and gains the political and financial support needed to bring it to reality. The sponsor is a high-level manager who approves and protects the idea, and removes organizational barriers to its acceptance. The critic counterbalances the zeal of the champion by challenging the concept, thereby preventing people in the other roles from adopting a bad idea. 3. Entrepreneurship is often facilitated through a new-venture team, which is a unit separate from the rest of the organization that is responsible for developing and initiating a major innovation. A skunkworks is a variation of a new-venture team in which a separate small, informal, highly autonomous, and often secretive group focuses on breakthrough ideas for the business. A new-venture fund provides resources from which individuals and groups can draw to develop new ideas, products, or businesses. III. CHANGING PEOPLE AND CULTURE Changes in culture and people pertain to how employees think. These are changes in mindset rather than technology, structure, or products and services. People change pertains to just a few employees, such as sending a handful of managers to a training course to improve their leadership skills. Culture change pertains to the organization as a whole, such as shifting the basic mind-set from an organizational focus on rules and policies to an organizational focus on doing whatever is necessary to satisfy customers. A. Training and Development 1. Training is one of the most frequently used approaches to changing the organization’s mind-set. A company may offer training programs to large blocks of employees on subjects such as teamwork, diversity, emotional intelligence, quality circles, communication skills, or participative management. 2. Some companies particularly emphasize training and development for managers, with the idea that the behavior and attitudes of managers will influence people throughout the organization and lead to culture change. Leading companies also want to provide training and development opportunities for everyone. B. Organization Development 1. Organization development (OD) is a planned, systematic process of change that uses behavioral science knowledge and techniques to improve an organization’s health and effectiveness through its ability to adapt to the environment, improve internal relationships, and increase learning and problem solving capabilities. OD can help manager’s address at least three types of current problems. a. Mergers/acquisitions. The disappointing financial results of many mergers and acquisitions are caused by the failure of executives to determine whether the administrative style and corporate culture of the two companies fit. They fail to recognize that the firms may have widely different values, beliefs, and practices. These differences create stress and anxiety for employees, and these negative emotions affect future performance. OD experts can help smooth the integration of the firms. b. Organizational decline/revitalization. Organizations undergoing a period of decline and revitalization experience a variety of problems such as low level of trust, lack of innovation, high turnover, and high levels of conflict and stress. The period of transition requires opposite behaviors to include confronting stress, creating open communication, and fostering creative innovation. OD techniques can contribute greatly to cultural revitalization by managing conflicts, fostering commitment, and facilitating communication. c. Conflict management. Conflict can occur at any time and place within a healthy organization. OD efforts can help resolve conflict problems. Discussion Question #9: Do the underlying values of organization development differ from assumptions associated with other types of change? Discuss. NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 2. OD Activities Exhibit 8. 6 a. Team building activities enhance the cohesiveness and success of organizational groups and teams. b. Survey feedback activities begin with an employee questionnaire asking about items such as values, climate, participation, leadership, and group cohesion. An OD consultant provides feedback to the employees regarding their responses and problems identified from the survey or questionnaire. c. Large-group interventions are more attuned to bringing about fundamental organizational change in today’s complex, fast-changing world. Large-group intervention brings together participants from all parts of the organization to discuss problems or opportunities and plan for change. 3. OD Steps a. Unfreezing. Participants must be made aware of problems and be willing to change. This step is often associated with diagnosis. An outside expert called a change agent, an OD specialist, performs a systematic diagnosis of the organization. The diagnosis identifies work related problems. b. Changing. Changing occurs when individuals experiment with new behavior and learn new skills to be used in the workplace. This is sometimes known as intervention, during which the change agent implements a plan for training managers and employees. This may include team building, survey feedback, intergroup coaching, process-consultation, or symbolic leadership. c. Refreezing. Refreezing occurs when individuals acquire new attitudes or values and are rewarded for them by the organization. The impact of new behaviors is evaluated and reinforced; the change agent supplies new data that show positive changes in performance. Changes are institutionalized in the organizational culture, so that employees begin to view the changes as a normal, integral part of the organization. NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ IV. IMPLEMENTING CHANGE A. Need for Change 1. External or internal forces translate into a perceived need for change within the organization. Problems are often subtle, so managers must recognize them and make others aware of the need for change. 2. Managers must be alert to problems and opportunities because the need for change sets the stage for actions that create a new product or technology. A need for change is a disparity between existing and desired performance levels. Discussion Question #1: Times of shared crisis, such as the September 11, 2001, terrorist attack on the World Trade Center or the Deepwater Horizon oil spill in the Gulf of Mexico in 2010, can induce many companies that have been bitter rivals to put their competitive spirit aside and focus on cooperation and courtesy. Do you believe this type of change will be a lasting one? Discuss. NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________ B. Resistance to Change 1. Idea champions and members of new-venture groups often discover that other employees are unenthusiastic about their new ideas. Managers and employees not involved in developing an innovation often prefer the status quo. Employees appear to resist change for the following reasons, and understanding these reasons helps managers implement change more effectively. a. Self interest. Employees typically resist a change they believe will take away something of value. A proposed change in job design, structure or technology may lead to a perceived loss of power, prestige, pay, or company benefits. The fear of personal loss is perhaps the biggest obstacle to organizational change. b. Lack of understanding and trust. Employees often do not understand the intended purpose of a change or distrust management’s intentions for the change. If previous working relationships with an idea champion have been negative, resistance may occur. c. Uncertainty. Uncertainty is the lack information about future events. Uncertainty represents a fear of the unknown, as employees do not know how a change will affect them. Uncertainty is especially threatening for employees who have a low tolerance for change and fear the unusual. d. Different assessments and goals. Employees who will be affected by innovation may assess the proposed change differently than an idea champion or new venture team. Critics voice legitimate disagreements over the proposed benefits of a change. 2. These reasons for resistance are legitimate in the eyes of employees affected by the change. The best procedure for managers is not to ignore resistance, but to diagnose the reasons for resistance to change and design strategies to gain acceptance by users. Strategies for overcoming resistance to change typically involve two approaches: the force field technique and use of selective implementation tactics. C. Force-Field Analysis Exhibit 8. 7 1. Force-field analysis suggests that change is a result of the competition between driving and restraining forces. Driving forces can be thought of as problems or opportunities that provide motivation for change within the organization. Restraining forces are the various barriers to change, which could be things such as a lack of resources, resistance from middle managers, or inadequate employee skills. By selectively removing the barriers that restrain change, the driving forces will be strong enough to enable implementation of the innovation. D. Implementation Tactics Exhibit 8 . 8 1. Communication and education are used when users and others who may resist implementation need solid information about the change. Education is important when the change involves new technical knowledge or the users are unfamiliar with the idea. Managers should speak to people’s hearts and minds. People are more likely to accept changes in their behavior when they both understand the rational reasons for doing so and see a picture of change that influences their feelings. 2. Participation involves users and potential resisters in designing the change. This approach is time consuming, but it pays off because users understand and become committed to the change. Participation also helps managers determine potential problems and understand the differences in perceptions of change among employees. 3. Negotiation, a more formal means of achieving cooperation, uses formal bargaining to win acceptance and approval of a desired change. Companies that have strong unions frequently must formally negotiate change with the unions. The change may then become part of the union contract. 4. Coercion means managers use formal power to force employees to change. Resisters are told to accept the change or lose rewards or their jobs. In most cases, this approach should not be used because employees feel like victims, are angry at change managers, and may even sabotage the changes. Coercion may be necessary in crisis situations when a rapid response is urgent. 5. The visible support of top management also helps overcome resistance to change. Top management support symbolizes to all employees that the change is important for the organization. Without top management support the desired change will probably not happen. Instructor Manual for Understanding Management Dorothy Marcic, Richard L. Daft 9781285421230, 9781305313347
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