This Document Contains Chapters 13 to 14 Chapter Thirteen – Power, Influence, and Politics Chapter Overview The word power often conjures up a variety of thoughts, both good and bad. When used effectively, power and influence are essential to every manager’s performance. When used inappropriately, power can result in unethical behavior and be damaging to employees and organizations. Effectively using power and influence is a skill, and misusing either can quickly derail your career. Conflict in organizations is often about power and influence, and the way power is manifested in the organization and across workgroups. Understanding what power and influence are and how to effectively use them will enhance your success in any organization. Politics is closely related to power and influence. In addition to impacting your own success as a manager, politics is important to understand due to its negative effects on firm performance. In this chapter, we discuss the nature of power, influence, and politics. After reading this chapter, you should have a good idea of how to effectively use them in advancing your career and managing more effectively. Learning Outcomes After studying this chapter, students should be able to: 1. Identify and describe different kinds of position and personal power. 2. Discuss how individuals and groups obtain and use power. 3. Discuss influence and describe which influence tactics are the most and least effective. 4. Describe some of the factors that influence political behavior in organizations and the role of impression management in power and influence. Real World Challenge: Influencing Acceptance of Change at Church & Dwight Summary: Church & Dwight Co., Inc., founded in 1846, is a leading consumer packaged goods. Company leaders realize that without new successful product launches, the company will lack organic growth. One key part of the new strategy is splitting the marketing department into two parallel marketing organizations. Real World Challenge: How can Church and Dwight best influence their key marketing talent to support the new strategy and embrace their responsibilities? Real World Response: The company ensured that its current brand team would be involved in new product development. Leaders applied rational persuasion to show that the new arrangement would provide resources to do more with their own brands. Management used inspirational appeals to link the strategy to company success. The change has been so successful that Church & Dwight is expanding the new structure. Chapter Outline I. POWER IN ORGANIZATIONS Power refers to a person or group’s potential to influence another person or group to do something that would not otherwise have been done. Power is held by individuals as well as by groups. Noted scholar David McClelland found that the real driver of a leader’s performance was the leader’s need for power, or the desire to control and influence others or to be responsible for others. McClelland also identified leadership motive pattern: a high need for power (with high impulse control) and a low need for affiliation. Most experts agree that there are seven types of power. These are summarized in Table 13.1. Legitimate, reward, and coercive powers come from the position one holds in an organization. The levels of these powers are greater for employees in higher organizational levels. Expert, informational, referent, and persuasive powers are types of personal powers. The levels of these powers depend on characteristics unique to each person. A. Position Power Organizational authority gives a manager position power, which is power based on one’s position in the organization. We next discuss the three types of position power: power due to one’s job, power due to control over rewards, and power due to control over punishments. 1. Legitimate Power Legitimate power is a form of position power based on a person’s holding a managerial position rather than anything the manager is or does as a person. Legitimate power is the formal authority the firm gives a manager to hire new employees, assign work, monitor employees’ work, and enforce organizational rules. Subordinates comply because they believe that the managerial position gives the manager the right to make certain requests of them. In using legitimate power effectively, it is important to follow the proper channels of communication and to be responsive to subordinates’ concerns. 2. Reward Power Reward power is position power that involves the use of both tangible and intangible rewards to influence and motivate followers. Rewards are one of the strongest tools used by managers to inspire high performance. Because rewards are such strong motivators, it is important to monitor the positive and negative impacts they have on employee behavior. If rewards are improperly used, they can decrease the motivation of employees who do not expect to receive them. To effectively use your reward power, offer attractive rewards, make reasonable requests, and ensure that the rewards you offer are viewed as ethical and not as bribes. 3. Coercive Power If a manager has the ability to punish subordinates, they can use position power to “coerce” subordinates to comply out of fear or because people want to avoid being punished. This is coercive power. Threatening punishment can have negative side effects on employees, including stress, resentment, decreased morale, and retaliation and can even cost the manager his or her job. Although it can produce behavior change, use coercion only when absolutely necessary—for example, if an employee is engaging in unsafe behaviors. To most effectively use coercive power, it is also important to administer appropriate punishment promptly and consistently, avoid appearing hostile, and give warnings and punishment notifications in private. B. Personal Power A manager’s ability to influence others to give their full effort depends on the power or capability she or he has to influence other people’s behavior or attitudes. Personal influence gives a manager personal power, which is based on the characteristics of that individual and stays with the individual regardless of where that person works. There are four types of personal power that are based on a person’s unique characteristics and that are independent of one’s formal position in an organization: power based on an individual’s expertise, power due to control over information, power based on the respect of others, and power due to the ability to persuade. 1. Expert Power Expert power is based on an individual’s expertise in some area. People respond to expert power because of their belief in the person’s knowledge, skills, or expertise. Because an individuals’ knowledge is the foundation of expert power, it is a personal power and can exist at any level in an organization. To enhance your own expert power, become an expert in your company’s industry, products, services, and systems, maintain credibility, act confident, and stay current in your field. 2. Informational Power Control over information is informational power. These gatekeepers are able to exert power over others by providing or withholding information that others need. Once shared, however, the informational power that information provided is lost. 3. Referent Power Referent power is another type of personal power based on a manager’s charisma or attractiveness to others. Subordinates behave as the manager does and wants because they seek his or her approval. By consistently “walking the walk” and “talking the talk,” managers can use their referent power to promote the attitudes and behaviors they desire in employees. 4. Persuasive Power Persuasive power is due to the ability to use logic and facts to persuade others to adopt one’s ideas or perspectives. Good listening skills and identifying and appealing to the goals and motivations of the other person can enhance your persuasive power. II. USING POWER It is important to adjust your use of power to the situation and person you are trying to influence. Because the effects of referent and expert power rely on the employee’s internal motivation and voluntary compliance, they are always appropriate. However, these types of power are not always effective. Legitimate, reward, and coercive power rely on external motivation and obligatory obedience. Effective leaders tend to rely on expert and referent power more than legitimate, reward, or coercive power. Using legitimate, reward, and coercive powers to influence others is using power rather than leadership. Leadership is more effective to the degree that followers’ behaviors toward the leader’s goals are voluntary and not coerced. Through your speech and actions, you can use your power to motivate subordinates by arousing appropriate motives in them. A. Acquiring and Using Power So how can you increase your power in your organization? 1. Acquiring Power Your power is greater if the things you control are important, rare, and cannot be substituted for by something else. Table 13.2 gives you the opportunity to understand the amount of power you hold in your own organization. Developing your expertise and performing well can increase your power. In addition to technical expertise, becoming an expert on your own company can make you a valuable and powerful employee. Identify emerging trends that will influence your industry or the economy as a whole. Be sure that your work is relevant to important organizational problems and that you and your work are visible to the people who control raises and promotions. Network inside and outside your organization to develop positive relationships with people who can be helpful to you throughout your career 2. Abuse of Power Power in an absolute sense is neither good nor bad—what matters is how the power is used. An important point to make about power is the potential for its abuse. The abuse of power is using any type of power to demean, exploit, or take advantage of another or influencing someone to do something the person later regrets. Disrespecting individual dignity and interference with job performance or deserved rewards are abuses of power. In addition to financial damage, the results of the abuse of power may include decreased employee satisfaction and helping behaviors, increased employee deviance, and increased turnover. It is important to remember that having power does not mean that you must use it. Having power also does not guarantee that using it will be effective in influencing desired behavior. Unchecked authority can result in the abuse of power. Managers should not have free rein to do whatever they want—managers’ power should match their responsibilities. Regularly reviewing managers’ behaviors and performance and holding them accountable for their actions is important. Perhaps the best known types of power abuse are bullying, abusive supervision, and sexual harassment. B. Empowerment The degree to which power is shared and an employee has the authority to make and implement at least some decisions is empowerment. Empowerment can increase the flexibility and responsiveness of organizations. Essentially, empowerment requires two things: (1) that managers allow those beneath them to have more power and control over their work, and (2) that managers provide training, resources, and coaching to give them the skills and confidence to act empowered. Just telling an employee that he or she is empowered is not enough. Employees must have the skills to do what they are empowered to do and believe that they can successfully do it. Being an ethical leader is a source of power because it eliminates hidden agendas and builds trust. Technology can empower employees to solve problems themselves. C. How Subunits Obtain Power A workgroup’s, department’s, or subunit’s power is derived either from its control of resources or through its strategic power. The more desirable and important the resources controlled by a group, the greater the group’s resource power. Groups that occupy a central role in decision making wield greater strategic power by influencing higher-level decisions. 1. Resource Scarcity Power is greater for subunits that control scarce resources that are vital to the organization as a whole. When resources are plentiful, subunit power differences are often reduced. 2. Centrality A subunit’s activities are central to the extent that they influence the work of many other subunits, when their impact is more immediate, and when the subunit has a critical impact on the firm’s key product or service. This is one reason why production and marketing departments tend to have greater power than human resource departments. 3. Substitutability A subunit’s power is reduced to the extent that others inside or outside of the organization can also perform its responsibilities. The labor market has a big influence on substitutability—when a subunit’s skills become scarce in the labor market, the power of that subunit increases. 4. Uncertainty Organizations do not like surprises or uncertainties. The subunits most capable of coping with uncertainty or of guiding the organization through a period of increased uncertainty tend to have greater power. III. INFLUENCE IN ORGANIZATIONS Influential people have power, but not all powerful people have influence. Leadership is in large part an influence process that involves the use of various powers or interpersonal styles to affect the behaviors and attitudes of others. But whether a leader’s use of power to influence someone will be successful depends on whether the other person allows him- or herself to be influenced. How much formal power or authority a manager has is not nearly as important as the amount of influence the manager has over subordinates. A. Influence Tactics People apply their power to influence the behavior of others through influence tactics. Influence tactics should be matched to the situation and to the person being influenced, and can be learned with practice. Responses to influence attempts are not always positive, however. Table 13.3 summarizes some influence tactics along with the possible responses to them. Of the various influence tactics, rational persuasion, inspirational appeals, and consultation have been found to be the most effective, and pressure is the least effective. Using more than one influence tactic at the same time can increase your effectiveness as long as the tactics are compatible. Influence attempts are often unsuccessful on the first try and require the skilled use of a sequence of tactics over time. CASE STUDY: Influencing Decisions Summary: You are a manager responsible for choosing one new project to support. Each project has merit, and you feel that they all have an equal chance of success. As the meeting comes to a close, your team members each make a last-minute appeal to win your support. 1. What influence tactics did each staff member use? Jose is using ingratiation through flattery. Kris is using inspirational appeals, appealing to the manager’s aspirations for the company. John is using rational persuasion, citing market research. 2. Which influence tactic do you think would best persuade you to choose that person’s idea? Why? Answers will vary. I would choose John’s idea because he has put forth a very logical appeal based on facts. 3. Which influence tactic do you think would be least effective in persuading you to choose that person’s idea? Why? Again, answers will vary. Ingratiation would be the least effective because flattery is covering up a lack of ideas and a lack of facts in support of the project. B. Role of National Culture in Influence Effectiveness Understanding diverse cultures, values, and perspectives enhances your sensitivity to what is important to others and how to best influence them. Influence tactics are also most effective when they are consistent with the social values in the national and organizational cultures. Global Issues: Effectiveness of Different Influence Tactics Depends on National Culture Summary: National culture affects the appropriateness of different influence tactics. Managers from Hong Kong and Taiwan believe that exchange and rational persuasion are the most effective influence tactics. However, Taiwanese managers use inspirational appeals and ingratiation more than Hong Kong managers, who use pressure. Direct, task-oriented influence tactics are seen as more effective by Western managers than by Chinese managers, who prefer tactics involving personal relations, avoidance, or an informal approach. Understanding this difference is important to expatriates and those in a multicultural workplace. Matching your influence techniques to the context and to the person is important for upward as well as downward influence. One study found that host-country managers who demonstrate upward influence tactics that are culturally appropriate to the parent company’s national culture will be more promotable. Exchanging benefits and coalitions are associated with promotability in German rather than in domestic Ecuadorian firms. Upward appeal assertiveness is associated with promotability in American rather than in domestic Ecuadorian firms. Being aware of sources of power and receptiveness will improve effectiveness as a manager. C. Persuasion Skills Because persuasion gets people to do things differently because they want to, not because they have been ordered to, it is a more effective way to lead. Because most people are resistant to altering their habits, managers need to use persuasion skills whenever they need to create change. Persuasion is much more than a sales skill. Here are some recommendations for being more persuasive: • Build credibility based on both your skills and your relationships • Do not begin with a hard sell • Search for shared ground and be willing to compromise • Develop compelling positions based on a few convincing arguments • Connect with people emotionally rather than relying solely on logic • Create a continuous feedback loop • Be patient – people are rarely persuaded on the first try D. Upward Influence In addition to using influence to guide the behavior of subordinates, upward influence can also be used to influence superiors. Upward influence is an important aspect of influence and contributes substantially to individual effectiveness in organizations. There are six primary upward influence tactics: 1. Ingratiation: using flattery and acting polite, friendly, or humble to put the supervisor in a good mood 2. Exchange: offering to trade favors or rewards for compliance 3. Rationality: using logic, planning, reason, and compromise 4. Assertiveness: using aggression, nagging, and verbal confrontations or giving orders 5. Coalition formation: seeking the support of other organization members to show a united front 6. Upward appeals: making informal or formal appeals to organizational superiors for intervention Your source(s) of power generally determines which upward influence tactics you tend to use. It is also important to adjust your influence tactic to suit the boss you are trying to influence. The six upward influence tactics can be used alone, but are often used in combination with each other in what are called upward influence styles. The four upward influence styles are: 1. Shotgun: This style uses the most influence and emphasizes assertiveness and bargaining. Shotgun managers use many different tactics. This style is associated with the highest levels of job tension and personal stress. 2. Tactician: This style uses an average amount of influence and emphasizes reason. Tacticians tend to have considerable influence in their organizations over budgets, policy, and personnel and rely heavily on reason and logic to gain compliance. This style is associated with the lowest levels of job tension and personal stress. 3. Bystander: This style uses little influence with superiors. Between 30 and 40 percent of managers are classified as bystanders. 4. Ingratiator: This style primarily uses a friendliness strategy but also uses the other influence strategies to some extent. IV. ORGANIZATIONAL POLITICS Organizational politics are social influence attempts directed at people who can provide rewards that will help promote or protect the self-interests of the actor. Effectively influencing others through persuasion, generating support, and inspiring trust are the core of effective politics. Employees who have been negatively affected by politics tend to perceive politics to be a negative influence in organizations, whereas those whose interests were advanced through political means tend to view it as a useful tool. Organizational politics are the result of both individual employees and the culture of the organization. Eugene McKenna identified these common political tactics in organizations: 1. Controlling information: restricting information to certain people 2. Controlling lines of communication: establishing gatekeepers to restrict access 3. Using outside experts: “do the bidding” of management 4. Controlling the agenda: ensures only certain topics are discussed 5. Game playing: leaking information, etc 6. Image building: “spin doctors” project a desirable image 7. Building coalitions: befriending powerful others and starting small subgroups to promote specific aims 8. Controlling decision parameters: try to influence decisions before they are made 9. Eliminating political rivals: even promotions get them out of the way When politics are constructive rather than destructive, they are unnoticeable. Employees who perceive that others get ahead by acting politically engage in more political behaviors themselves. Organizational culture is thus influenced by the perceived degree of political activity and how the employees in that organization react to these perceptions. Political skill involves having interpersonal influence as well as social astuteness, which involves showing respect for others’ ways of thinking. Developing a strong network and being perceived by others as sincere also reflects high political skill. Political skill has been found to be positively related to job performance. A. Causes of Political Behavior Conflict is at the core of organizational politics. Uncertainty increases political behavior. Scarcity of valued resources (e.g., transfers, raises, office space, budgets) also promotes political behavior. Some individuals desire to avoid conflict, and therefore tend not to resist others’ influence attempts. Because employees who “don’t rock the boat” are not viewed as threatening opponents, they may be welcomed into the “in-group” and receive valued outcomes simply for not interfering with a politically acting individual’s or group’s agenda. Organizational policies sometimes reward and perpetuate political behavior. Individually oriented rewards induce individually oriented behavior, which is often self-interested and political in nature. Rewarding political behavior can induce those who have not acted politically in the past to do so in the future. B. Managing Organizational Politics Politics is pervasive and because political skill has been found to decrease job stress so it is worth developing your skills in this area. Formal rules and procedures can help to reduce the occurrence of political behavior. Clarifying job expectations; opening the communication process; confronting employees acting inefficiently, unethically, or irresponsibly; and serving as a good role model can all decrease political behavior. Keeping the number of employees assigned to each manager at a reasonable level is another way to decrease political behavior. Managing politics is about managing power. If you understand the motivations and aspirations of your subordinates, you can help them to attain what they most want without resorting to politics or the inappropriate use of power. V. IMPRESSION MANAGEMENT Impression management is the process of portraying a desired image or attitude to control the impression others form of us. Impression management is not inherently a bad thing, in fact, most people regularly engage in some form of interpersonal deception. People who are higher in the personality trait of self-monitoring, which reflects having a high concern with others’ perceptions of us and adjusting our behavior to fit the situation, are more likely to engage in impression management behaviors. People who engage in impression management often take great care to be perceived in a positive light. Impression management techniques are commonly used by job applicants in interviews with positive results. Self-promotion may not work as well on the job, however, because the supervisor has a better opportunity to observe what you can really do. In fact, self-promotion is related to lower performance evaluations. Table 13.5 presents some tips for detecting impression management and deception on the part of others. Summary and Application When used properly, power, influence, and politics are essential tools for managerial success. When used improperly, power, influence, and politics can undermine trust, result in unethical behavior, and create a toxic organization. Position power (legitimate, reward, and coercive powers) is derived from the position one holds in an organization. Personal power (expert, informational, referent, and persuasive powers) comes from the unique characteristics of individuals regardless of their position in the organization. Involvement gives subordinates influence in the decision being made; empowerment gives subordinates the ability and authority to make the decision themselves. Rational persuasion, inspirational appeals, and consultation are the most effective influence tactics, and pressure is the least effective. The six primary upward influence tactics are ingratiation, exchange, rationality, assertiveness, coalition formation, and upward appeals. Uncertainty, scarcity of valued resources, and organizational policies can influence political behavior. Impression management involves the communication of a desired image or attitude to influence the image others form of us. DISCUSSION QUESTIONS 1. What power(s) does your instructor have? An instructor has legitimate power, expert power, referent power, coercive power, reward power, and persuasive power. An instructor has been hired by the university (legitimate power), knows the subject matter (expert power), has the respect of the students (referent power), can give students a low grade or remove them from the class if assignments are not submitted (coercive power), can give a student a good recommendation (reward power), and can persuade students about the value of a college education (persuasive power). 2. What influence tactics does your instructor use to motivate you to learn? The most effective influence tactics that an instructor can use to motivate students include: • Rational persuasion—using logic and facts to persuade students to get a college degree. • Inspirational appeals—appealing to students’ aspirations, values, and ideals to gain commitment; increasing confidence to increase motivation. • Consultation—giving advice to solve a problem or mutually setting goals to increase a student’s commitment. 3. Describe a time in the last week that someone influenced you to do something you would not otherwise have done. What influence tactic(s) did she or he use? I was influenced to chair a committee that I wouldn’t have otherwise chaired. The influence tactics used were rational persuasion and personal appeals. 4. Is another person’s ethics important to you in your decision to allow that person to influence you? Why or why not? Yes. A good reputation for ethical behavior decreases my concern that another person might behave inappropriately and increases my willingness to have the person influence me. A reputation for ethical behavior would dispel the thought that this person was advancing a personal agenda. Being an ethical leader is a source of power because it builds trust. 5. How can you ethically use power, influence, and politics to get a promotion? A person can ethically use expert power and personal to influence a decision maker, a manager, to get a promotion. Developing technical expertise and high performance would increase an individual’s power in an organization and help achieve a promotion. Politics would enter in because the promotion might depend on the availability of resources and a positive relationship between the employee and the manager. 6. Have you ever tried to influence your boss to do something? What upward influence tactics did you try? Were you successful? Why or why not? Students can share their experiences. I tried to influence my dean to offer certain courses. I used ingratiation by being friendly and respectful, and I used rationality based on expert power, explaining that I was trying to build a program at our college. I was successful because the courses were offered. 7. Are office politics bad? Why or why not? Office politics are bad because they take time away from performing valuable tasks for the organization. A manager who understands the motivations and aspirations of subordinates can help them get what they want without resorting to politics or the inappropriate use of power. Building trust and openness allows employees to discuss their feelings, fears, and opinions without the need for political behavior. 8. How do you use impression management at work? Students can share their experiences. I’ve used impression management techniques with positive results to encourage the dean to offer certain courses that I wanted to teach according to a schedule that was favorable to me in a location that I chose. GROUP EXERCISE – Influencing Your Instructor Learning Objective: Describe what you can do to increase your power in an organization. Summary: Students form small groups and identify a spokesperson. They develop a strategy to influence the instructor to change the evaluation criteria for this course (although it is likely too late in the semester for any changes to actually be made). They identify the influence tactics as well as the sources of power. They make a brief presentation to the class and instructor. The class will vote on which group is the most persuasive. Task: Questions to guide the discussion: 1. What is the role of impression management in this situation? 2. What is the role of empowerment? VIDEO EXERCISE Numi Organic Tea: Value Chain, IT, and E-Business Summary: 1. Describe the power relationship between Numi and its supply chain partners. Numi relies on international partners to produce, package, and deliver its high-end organic teas. Factories, warehouses, tea farms and other third parties work closely with Numi's marketing teams to deliver great products in a cost-effective manner. In return, partners earn revenues from Numi. However, Numi's use of third party partners involves loss of control. For example, if one of Numi's organic growers fails to grow quality leaves or fails to ship on the dates required, production will halt and Numi's service to restaurants and luxury hotels will suffer. Loss of control also affects Numi's desire for an end-to-end green supply chain. If Numi is to be fully "green," its international partners that grow, package, and deliver Numi teas must also be green. This situation requires Numi to use power and influence tactics to compensate for its lack of direct control over the policies and processes of strategic partners. 2. In the video, what issues with China-based suppliers require Numi’s managers to use influence and persuasion tactics? Numi is dedicated to the concepts of sustainability and social responsibility. However, partners in China have trouble comprehending Numi’s fair-trade, organic, and sustainability ideals, and they typically don't share Numi's policies for waste management, recycled packaging, and treatment of workers. In addition, no international regulation mandates that business adopt such perspectives and policies. This ambiguity and lack of international standards on environmental issues creates problems for Numi, a progressive company that insists on green processes throughout its supply chain. To achieve its sustainability goals, Numi must resort to the use of influence and persuasion. One story about Numi's dealings with a Chinese factory illustrates the ongoing challenge: No matter how many times Numi director Brian Durkee asked a China-based packaging plant to install air conditioning for the workers, the owner couldn’t understand Durkee’s assertion that 120 degree temperatures constitute inhumane conditions. Ultimately, Durkee changed his story and claimed the hot temperatures affected the quality of the tea. Within days, the factory was fully air-conditioned. 3. How does Numi get suppliers to comply with its policies? Numi expects supply chain partners to adhere to its ethical standards, and it refuses to partner with any company that does not comply. Since many companies do not view sustainability and environmentalism as essential to business, Numi managers pressure supply chain partners by exerting reward power. First, Numi managers meet with factory owners in Asia to inspect their facilities and explain sustainability. If these meetings do not persuade partners, financial power is applied (i.e., financial rewards and punishments). Numi Owner Ahmed Rahim summarizes the power of the bottom line as follows: If Chinese companies want Numi's business, they must comply with Numi's sustainability standards—end of discussion. The threat of losing Numi's business is a powerful motivator for compliance. Now What? Imagine learning that your boss is trying unsuccessfully to influence a peer of yours to organize the company picnic again this year. When you are asked to try to influence the stubborn subordinate to agree to plan the picnic, what do you say or do? Go to this chapter’s “Now What?” video, watch the challenge video, and choose a response. Be sure to also view the outcomes of the two responses you didn’t choose. OB Concepts Applied: legitimate power; coercive power; reward power; referent power; rational persuasion; ingratiation; inspirational appeals; coalition tactics; exchange influence tactic; personal appeals; pressure; commitment; compliance; passive resistance; active resistance Discussion Questions 1. Which influence tactics do you think were the most effective and why would they work? The most effective influence tactics were rational persuasion (It would be easier this year.), ingratiation (Every party you organized was awesome.), and inspirational appeals (It’s part of our core culture.) to persuade Allison that it will help her career through project leadership experience. 2. If you were to use power to try to get the subordinate to do the task, which forms of power would work best and why? Which would be ineffective and why? Legitimate power would work but would likely make Allison resentful and mad. Reward power may work but since Allison does not want to organize the party, the rewards would have to be big. Alex and Ryan point out some indirect rewards such as the experience of managing a large project and the recognition from the owner. Ryan and Alex act on Allison’s expert power due to her knowledge and expertise from managing the picnic the previous year. Finally, Alex and Ryan use persuasive power to get Allison to volunteer as picnic organizer. This seems to be the most effective as it makes Allison accept the challenge rather than dread the challenge. 3. Did you detect any organizational politics, and if so, what types? Amy is displaying a bit of office politics by asking Alex and Ryan to convince Allison to organize the picnic. This could be considered a coalition between Amy, Alex, and Ryan. 4. How else might you persuade your coworker to organize the picnic using power and influence? Allison has expert power because she knows how to organize the picnic. The co-workers could persuade her to share her expertise and train others to put on future picnics. If Allison knows that she will not be responsible for every company picnic, she will be more amenable to putting on the picnic this year. Allison could select next year’s organizer and appoint committees. Chapter Fourteen – Organizational Structure and Design Chapter Overview In Part 4 we continued to learn about how managers can enhance the performance behaviors, organizational commitment, and engagement of their employees in order to build organizational effectiveness and competitiveness. In our final part we focus a bit more broadly on how organizational characteristics influence managerial and organizational effectiveness. In Chapter 14 we investigate organizational structure and design. Chapter 15 focuses on organizational culture. We conclude with a discussion of change management in Chapter 16. In many ways change management is a logical concluding topic for discussion in that it can be focused on any of the areas covered in our previous parts—individual behavior, group and team behavior, leadership behavior, and organizational change. Effective organizational structures improve the working efficiency of the organization, motivate employees rather than frustrate them, and facilitate working relationships among employees and across organizational units. An organization’s structure also influences how it operates, how employees communicate, and how they are expected to behave. Effective organizational structures improve efficiency and facilitate positive working relationships. Ineffective organizational structures block communication and cooperation, and drain employee motivation. Organizational structure is related to employee satisfaction, commitment, and turnover. In this chapter we first discuss organizational structure and organizational charts. After discussing factors that influence organizational structure, we identify different types of structures and when they are most appropriate. We also discuss virtual organizations and ways of integrating employees in any organizational structure to enhance collaboration and knowledge transfer. After studying this chapter, you should have a good understanding of how to use organizational design to support a firm’s business strategy and encourage desired employee behaviors. Learning Outcomes After studying this chapter, students should be able to: 1. Identify the elements of organizational structure and describe mechanistic and organic structures. 2. Explain what influences an organization’s structure. 3. Describe the basic types of organizational structures. 4. Identify and discuss four contemporary issues in organizational structure. Real World Challenge: Building a Treehouse Summary: Ryan Carson and Alan Johnson founded Treehouse in 2011 as an online interactive education platform. Treehouse produces courses in web development and programming and business education. Fueled by $12.6 million in venture capital, Treehouse became the largest computer science school in the world within less than three years. It wasn’t long, however, before Carson and Johnson were hearing rumblings of discontent. Putting their joint ears to the ground, the cofounders learned that some front-line employees felt that their input was being ignored. The news was disturbing because Carson and Johnson believed that it was important for employees to be involved in the decision-making process. Maybe they had too many managers, accounting for 10 percent of the workforce. The owners asked: “What if we removed all management and simply empowered everyone to choose what they do every day? We laughed at first and then the conversation turned serious. We had hired talented and motivated people. Did they need managers?” Real World Challenge: Carson and Johnson have asked for your advice. After reading this chapter, you should have some good ideas about what to tell them. Real World Response: Carson and Johnson wrote up a “manifesto” about how the company would work without managers, posted it on an internal forum, and invited everyone to “discuss” the matter. When the proposal was put to a vote, 90 percent of Treehouse employees endorsed a bossless workplace. So, in mid-2013, says Carson, “we removed all managers.… The result? At first, Carson admits, “it was total chaos,” but Carson and Johnson quickly realized that much of a manager’s job involves communication and that subordinates mostly need managers because they need information. Thus, one of the first corrective measures taken by the two (former) top managers was building a new internal-information tool called Canopy, a sort of open-source email account that gives everyone the capability to access and contribute to companywide communications. “There are still going to be managers at Treehouse,” explains Carson. “There just aren’t titles. The only way you can be a leader is if you lead and people want to follow.” The system, of course, has its drawbacks. For one thing, says Carson, “I can’t make people do things.… I’ve even had people tell me they don’t have time or aren’t interested in my ideas. It sucks.” More important, it can often take quite a while to get projects off the ground. Perhaps the biggest problem, however, is still ahead. “We have 70 employees now,” says Carson, “and for a company our size, this model works. However, it’s probably going to start showing serious signs of trouble at around 150 people. “But then again, we’ll figure it out.” Chapter Outline I. ORGANIZATIONAL STRUCTURE Organizational design is the process of selecting and managing aspects of organizational structure and culture to enable the organization to achieve its goals. Designing and redesigning the organization in response to internal and external changes is a key managerial function. One of the most important outcomes of organizational design is organizational structure, or the formal system of task, power, and reporting relationships. When the organizational structure is aligned with organizational needs, it results in greater organizational efficiencies and less conflict. Organizational structures influence employee behavior by enabling or restricting communication, teamwork, and cooperation as well as intergroup relationships. An organizational chart like the one shown in Figure 14.1 illustrates the chain of command and reporting relationships. It is a common mistake to believe that a person’s location in the organizational chart reflects their importance to the company and its performance. What usually matters most is what each person contributes, and people at all levels of an organization can make meaningful contributions. A. Characteristics of Organizational Structure Organizational structures reflect the company’s division of labor, span of control, hierarchy, formalization, and centralization. Different structures have different levels of each of these characteristics. Table 14.1 summarizes these characteristics. 1. Division of Labor In addition to illustrating the chain of command, organizational charts show the division of labor, which reflects the degree to which employees specialize or perform a variety of tasks as generalists. The division of labor is reflected in the number of job titles in an organization, or by the extent to which specialist roles exist within each functional area. Dividing work into specialized jobs increases work efficiency. Division of labor also makes it easier to assess job candidates for the specific talents needed to do each job. On the downside, employees tend to be more isolated when division of labor is high. The increased specialization of employees in each division also decreases organizational flexibility. 2. Span of Control The number of people reporting directly to an individual is that person’s span of control (some experts call this the span of management). Figure 14.2 illustrates a flatter organizational structure with a wider span of control than the structure shown earlier in Figure 14.1. Clearly, narrow spans of control are costlier, but they also provide closer supervision and more coaching. Narrower spans of control are necessary for novel and complex tasks. Wider spans of control give subordinates greater autonomy and responsibility for self-management, and are best for routine, production-type work. Wider spans of control are possible when technology substitutes for close supervision, when subordinates need less direction and control, and when the jobs being supervised are similar. 3. Hierarchy When an organization creates a hierarchy, it outlines supervision relationships by giving some employees authority over others. Hierarchy establishes the “tallness” or “flatness” of an organizational chart. For example, Figure 14.1 shows four hierarchical layers, and Figure 14.2 shows a flatter three-layer firm. The more layers in an organization, the greater its hierarchy. Organizations clearly should not have more hierarchical levels than are necessary. Not having enough levels can also create problems. Hierarchy can give too much power to a few people at the top of the organization, which can increase the risk of unethical behavior. Because hierarchy creates a clear chain of command, it can also restrict the interaction and communication among employees. To better compete in a fast-changing, global marketplace, organizations are increasingly restructuring to reduce their hierarchy and improve speed and efficiency. Grouping employees into self-managed work teams decreases hierarchy because the teams incorporate some of the roles previously held by higher layers of management. 4. Formalization Formalization reflects the extent to which organizational rules, procedures, and communications are written down. Formalization is not necessary for high performance, but because formalization increases job and role clarity, it can increase employee commitment. 5. Centralization Centralized organizations concentrate power and decision-making authority at high levels of the organization. The two subcomponents of centralization are participation in decision making and hierarchy of authority. Centralization creates clear lines of communication and responsibility, and the implementation of decisions tends to be straightforward. Centralization is best in noncomplex, stable environments. Flatter, decentralized organizations give lower levels more authority and autonomy for making decisions. Flatter structures promote innovation and increase the speed of decision making, and can save money as a result of fewer management layers. Decentralization is best when the organization performs nonroutine tasks in complex environments because it empowers the managers closest to the environment to make decisions and quickly implement them. Decentralization increases organizational commitment through greater involvement in the organization and identification with the organization’s mission and values. Organizations do not have to be fully centralized or decentralized. Centralization is best thought of as a continuum, and different functions in a company can have different degrees of centralization. Centralizing authority can lead many managers to feel that they are solely responsible for completing their job tasks and responsibilities. Delegating tasks to others not only frees you to focus on more important tasks, but also develops skills in the recipient, increases trust, and can even lead to a higher-quality product. B. Mechanistic and Organic Structures Organizational structures can be thought of as being either more mechanical and machine-like or more biological and organic. Mechanistic organizations are rigid, traditional bureaucracies with centralized power and hierarchical communications. Job descriptions are uniform, and formal rules and regulations guide decision making. More mechanistic organizations may minimize costs, but fit best with a relatively stable or slow-changing environment. When new opportunities present themselves, mechanistic organizations usually move too slowly to capitalize on them. In contrast, organic organizations are flexible, decentralized organizations with unclear lines of authority; they have decentralized power, open communication channels, and a focus on adaptability in helping employees accomplish their goals. Organic organizations benefit from faster awareness of and response to market and competitive changes, better customer service, and faster decision making. Organic forms like teams and other flatter structures have typically been associated with increased job satisfaction, affective commitment, and learning. Note that mechanistic and organic structures represent ends of a continuum, not a dichotomy. No organization is perfectly organic or completely mechanistic. II. DETERMINANTS OF ORGANIZATIONAL STRUCTURE The most appropriate structure for an organization depends on many things, as summarized in Table 14.2. A. Business Strategy One of the most important factors influencing the appropriateness of different organizational structures is the business strategy. Matching organizational structure to the business strategy leads to higher firm performance. B. External Environment Rapidly changing environments require more flexible structures to deal effectively with the constant changes. Firms facing a highly differentiated environment usually create different business units to best serve each market segment. C. Organizational Talent A third factor influencing organizational structure is the nature of the organization’s talent. For example, a flexible structure is more appropriate for highly skilled workers. Advertising and marketing firms are often organized into teams. D. Organizational Size An organization’s size also influences its structure. Smaller organizations tend to be less bureaucratic than larger firms. Larger organizations tend to have greater specialization and departmentalization, greater hierarchy, and more rules than do smaller firms. It is impossible to identify an optimal organizational size. To capitalize on the flexibility, adaptability, and decision-making speed of smaller sizes and the economies of scale of larger sizes, many firms strive to create smaller units within the larger organization. E. Behavioral Expectations A fourth important factor influencing organizational structure is the organization’s expectations of how employees should behave, and what attitudes it wants to encourage or suppress. This decision is based in part on the company’s values. If employees are to be encouraged to make decisions and work collaboratively, a decentralized and flat structure is appropriate. If employees are expected to follow explicit rules and procedures, a more hierarchical, centralized structure would be called for. F. Production Technology A fifth factor influencing organizational structure is the organization’s technology, or primary production system. When a firm uses unit production, it produces in small batches or makes one-of-a-kind custom products. Employees’ talents are more important than the machines being used, and it is difficult to specify rules and procedures in advance. In this case, a flat structure with a low managerial span of control is most appropriate. When a firm uses mass production, it makes large volumes of identical products, typically using assembly lines and machines. In this case, a tall, bureaucratic structure with a large managerial span of control would be appropriate. When a firm uses continuous production, machines constantly make the product and employees monitor the machines and plan changes. At the bottom of the organization, continuous production requires a mechanistic structure and low levels of supervision because machines do most of the work. The structure of a firm using continuous production is often tall and thin, or even an inverted pyramid. G. Organizational Change As organizations change their strategies and adapt to changing environments, they often modify and change their structures to support the changes. III. TYPES OF ORGANIZATIONAL STRUCTURES In new or young organizations, the entrepreneur or founding group makes the decisions, and most communication is one-on-one because of the small organization size. This type of early organizational structure is called prebureaucratic and is highly centralized and lacking task standardization. Other things being equal, it is the founder’s personality that determines organizational structure and strategy. As small companies grow, they typically adopt greater standardization and taller structures and develop a bureaucratic structure with greater standardization. In a bureaucratic structure, there is a formal division of labor, hierarchy, and standardization of work procedures, and employee behaviors follow written rules. As they grow, organizations must decide how to carve employees into subunits. This usually means grouping people in a way that somehow relates to the tasks they perform. Here are six common bases for grouping employees: 1. Employee knowledge and skills 2. Business function 3. Work process 4. Output 5. Client 6. Location Now let’s discuss some of the structures that arise from these different groupings. A. Functional Structure A functional structure groups people with the same skills, or who use similar tools or work processes, together into departments. For example, a marketing department is staffed solely with marketing professionals. Functional structures tend to work well for organizations in stable environments selling only a few products or services because of the increased economies of scale. The possible disadvantages of a functional structure include poor coordination and communication across functions and a lack of clear responsibility for the delivery of a product or service. There is also an increased risk of conflict if employees develop a narrow perspective relevant to their function and not the organization as a whole. B. Divisional Structure A division is a collection of functions organized around a particular geographic area (geographic structure), product or service (product structure), or market (market structure). Divisional structures are common among organizations with many products or services, geographic areas, and customers. Divisional structures improve coordination across functions and enable flexibility in responding to environmental changes because employees’ expertise is focused on specific products, customers, and/or geographic regions. These structures can also help organizations grow or downsize as needed because divisions can be added or deleted as required. The possible disadvantages of a divisional structure are that rivalries and conflict might emerge across divisions, economies of scale are reduced because resources and skills are duplicated across divisions, and employees may become focused on divisional rather than organizational goals. Global Issues: Multinational Organizational Structures Summary: Multinational organizations have additional challenges in creating an effective structure to support their business strategies. There are four primary organizational structures that support global business: 1. Global product division structure (e.g., McDonald’s): All functional activities are controlled by a product group at headquarters. This structure is appropriate when the benefits of global integration are large and local differences are small. 2. Global area division structure (e.g., Frito Lay): Regional and/or country managers are given substantial autonomy to adapt strategies to fit local situations. This structure is appropriate when local differences are large and the benefits of global integration are small. 3. Global transnational division structure (e.g., Kraft Foods): A balanced, matrixed relationship between local managers and headquarters with a two-way flow of ideas, resources, and employees between the two locations. This structure works best when both global integration and local responsiveness are needed. 4. Regional headquarters structure (e.g., Coca-Cola and Sony): A regional headquarters is established in major geographical areas that works collaboratively with the product divisions to give the local units clearer operational goals and directions than typically happens under the global transnational division matrix structure. This structure is best when a balance of global integration and local responsiveness is needed. C. Matrix Structure When employees report to both a project or product team and to a functional manager, they are working in a matrix structure. An organizational chart for a matrix structure is shown in Figure 14.5. Matrix structures generate complex reporting relationships because a matrixed employee essentially has two bosses. Adjusting to a dual reporting relationship can be challenging, but as long as communication is open and expectations and goals are shared, the problems can be minimized. Matrix organizations are good at providing quality customer service, are very flexible, and can respond quickly to changes because the work units contain all of the needed functional expertise to make decisions. They are best suited to complex activities in uncertain environments, and work well when one affiliation is permanent (typically functional) and the other is temporary, such as a specific project. If project managers share organizational financial and human resources and cooperate, the matrix structure is more effective. D. Team-Based Structure Organizations with a team-based structure create horizontal or vertical teams that can define part or all of the organization. Unlike matrix teams, team members do not report to a second functional manager. Team-based structures are best when collaboration and inputs from several functional areas are required. E. Lattice Structure In organizations with a lattice structure, cross-functional and cross-level subteams are formed and dissolved as necessary to complete specific projects and tasks. This structure is common in consulting organizations. A lattice structure with minimal hierarchy and few rules, allows employees to create roles for themselves that leverage their talents and interests rather than be assigned formal jobs. F. Network Organization A network organization is a collection of autonomous units or firms that act as a single larger entity, using social mechanisms for coordination and control. Because network organizations contract out any function that can be done better or more cheaply by outside firms, managers spend a lot of time coordinating and controlling the network of contractors and strategic alliances. Network organizations are best for functions that do not require frequent exchanges, do not suffer from supply uncertainty, and do not require customization. Because a network organization does not have a system of direct supervision or standardized rules and procedures, it must coordinate and control the participants in some other way. Some of the ways this is done are through joint payoffs and restricted access: •Joint payoffs: Payments are arranged based on the final product. If the product does not make it, no firm makes a profit. This motivates everyone to do their best. •Restricted access: By restricting exchanges to a few long-term partners, networked organizations are more dependent on each other. Long-term relationships decrease the incentive for one organization to take advantage of another. CASE STUDY: The Morning Star’s Lattice Structure Summary: The Morning Star Company is a highly successful and growing $700 million California tomato-processing company. It was founded on the philosophy of self-management as the company envisioned “an organization of self-managing professionals who initiate communication and coordination of their activities with fellow colleagues, customers, suppliers and fellow industry participants.” 1. How would working for Morning Star be different from working at a traditional, bureaucratic company? What would be the most positive and negative aspects of the experience? The main difference between Morning Star and a traditional bureaucracy is that Morning Star has no fixed or assigned authority. Goals are set by the same people who are accountable for making them happen. The most positive aspect of the experience is that employees create rules for themselves that use their talents and interests. The most negative aspect is that tasks are organized through commitments, and if some employees fail to meet their commitments, it negatively affects other employees. 2. Do you think the lattice structure is best for Morning Star? Can you identify another structure that might be more appropriate for the company’s culture of empowerment and self-management? Yes. The lattice structure is appropriate for Morning Star’s culture because employee freedom allows them to be drawn to what they really like and not what they are told. This leads to increased enthusiasm and performance. A functional structure fits some of the requirements as it would group people according to function or skill and the company only makes works with one product, tomatoes. As long as the groups coordinated information, this could work and could meet the founder’s goal of a self-managed, coordinated team of professionals. The bureaucratic structure would not fit the company’s needs as it is too formal. The divisional structure is not necessary as the company does not have many products. The matrix structure could just complicate processes. A team-based structure could also create horizontal and vertical teams but the teams are mostly permanent and the company would lose some of their self-managing concepts they have with the lattice structure. 3. Where do you think this type of lattice structure would be ineffective? What would make this type of structure inappropriate or difficult to implement? This type of lattice structure would be ineffective in a situation that requires direct supervision of unskilled employees (i.e., a fast food restaurant). It would be difficult to implement this structure because unskilled employees want to be told exactly what to do by a manager and not communicate one-to-one with different task force members. IV. CONTEMPORARY ISSUES IN ORGANIZATIONAL STRUCTURE In this final section we will examine four emerging issues that relate to organizational structure. These are virtual organizations, mechanisms for integrating employees, communities of practice, and the effects of restructuring on performance. A. Virtual Organizations A virtual organization is one that contracts out almost all of its functions except for the company name and managing the coordination among the contractors. A virtual organization may not even have a permanent office. Virtual organizations tend to be very complex. Nonetheless, the reduced costs and increased flexibility from being virtual create a competitive advantage for many firms. B. Integrating Employees Segmenting employees into divisions, functional areas, or groups requires additional integrating mechanisms that facilitate coordination and communication among employees and groups. These mechanisms can be as simple as getting managers from different units to communicate and work together to coordinate or to identify and solve shared problems. When done informally, this is simply called direct contact. Alternatively, a manager or team member can be assigned a liaison role and held formally accountable for communicating and coordinating with other groups. When a specific project or problem needs to be addressed, organizations often create a temporary committee called a task force. When integration needs are permanent and more complex, a cross-functional team is created. Cross-functional teams are like permanent task forces created to address specific problems or recurring needs. C. Communities of Practice Communities of practice can also help to integrate employees and create the informal structure that nearly every business needs, regardless of its formal structure. Communities of practice are groups of people whose shared expertise and interest in a joint enterprise informally binds them together. The people involved in a community of practice share their knowledge and experiences in open, creative ways that can create new solutions and approaches to problems. Although these communities rarely show up on organizational charts and may not even be formally recognized by executive leadership, companies recognize their benefits and are increasingly promoting and enabling them. Managers cannot create effective communities of practice, only the conditions necessary for them to exist. Successful managers cultivate communities of practice by identifying and bringing the right people together, building trust, and providing an appropriate infrastructure. The heart of a community of practice is the web of relationships among community members. As a manager, how can you create the conditions that enable communities of practice to flourish? Here are some experts’ tips: 1. Start with a clear area of business need: build communities that help the company work more effectively 2. Start small: test ideas and try several formats to see what employees like and what works best 3. Recruit management involvement: if lower-level employees see their bosses participating, they are more likely to participate 4. Use technology that supports the community’s needs and that community members are able to use and are comfortable using: training may be necessary 5. Respect and build on informal employee initiatives already underway: determine what is already in place and build on it 6. Celebrate contributions and build on small successes: the process takes time and requires new employee behaviors A reason many companies invest in communities of practice is the ability of these communities to transfer knowledge among people. D. Effects of Restructuring on Performance The restructuring process is stressful and can decrease employee motivation if the changes are poorly communicated. Restructuring efforts must focus on positioning the organization for the future. Restructuring also must address the real cause of whatever the organization wants to change. Restructurings should take place as infrequently as possible to create stability, enhance performance, and minimize employee stress and confusion. Summary and Application Organizational design is the process of selecting and managing aspects of organizational structure and culture to enable the organization to achieve its goals. Organizational structure is the formal system of task, power, and reporting relationships in an organization. An organization’s structure is influenced by its business strategy, external environment, talent, size, expectations of how employees should behave, production technology, and organizational change. Network organizations are best for functions that do not require frequent exchanges, do not suffer from supply uncertainty, and do not require customization. Mechanistic organizations are rigid, traditional bureaucracies with centralized power and hierarchical communications. Organic structures are flexible, decentralized structures without clear lines of authority, with decentralized power, open communication channels, and a focus on adaptability in helping employees accomplish goals. Communities of practice are groups of people whose shared expertise and interest in a joint enterprise informally binds them together. DISCUSSION QUESTIONS 1. How do you think your career path might differ in a hierarchical versus a flat organization? In a hierarchical organization with formal authority, chain of command, and rules, an employee’s career path is to move up the hierarchy and attain more power and decision-making authority. In a flat organization, with delegation of authority, an employee’s career path would include decision making, innovation, and a lateral move within the company. It could also include working in a team-based structure. 2. Why do you think companies are moving toward flatter, more organic structures? Do you think this is appropriate? As shown in Figure 14-2, companies are moving toward flatter, more organic structures because wider spans of control give subordinates greater autonomy and responsibility for self-management. This is appropriate because in today’s fast-paced environment, organic structures benefit from faster awareness of and response to market and competitive changes, better customer service, and faster decision making. 3. What areas of an organization (e.g., what functions) do you think are the best to centralize? Which are the best to decentralize? Centralization creates clear lines of communication and responsibility, and the implementation of decisions tends to be straightforward. Centralization is best in noncomplex, stable environments. Administrative functions that follow explicit policies and procedures are best to centralize such as the registrar’s office at a university or the billing department in a hospital. Decentralization is best when the organization performs nonroutine tasks in complex environments because it empowers the managers closest to the environment to make decisions and quickly implement them. The function of customer service should be decentralized, allowing empowered employees to make decisions on a case-by-case basis. 4. What keeps you from delegating more? How can you overcome these obstacles? Students can use the Improve Your Skills Feature: Delegation Skills feature for reference. I do not delegate the authority to complete the task. I could overcome this obstacle by not micromanaging and giving another individual the authority to get the job done. 5. If you started your own company selling iPhone applications, what organizational structure would you create? Why? I would adopt a pre-bureaucratic structure that is characterized by total centralization and one-on-one communication because of the small organization size. This type of structure is best for entrepreneurial organizations as the founder is able to control the organization’s decisions and growth. s 6. If you wanted employees to work collaboratively and minimize conflict, what organizational structures would you consider adopting? Why? Which structures would you avoid? Why? I would consider adopting communities of practice because they can integrate employees and create the informal structure that nearly every business needs, regardless of its formal structure. Successful managers cultivate communities of practice by identifying and bringing the right people together, building trust, and providing an appropriate infrastructure. However, certain conditions must be present to create effective communities of practice. For this reason, I would avoid a “command and control” management style in a hierarchy because it is unlikely to foster successful communities of practice. 7. What type of person would be a good fit with Nordstrom’s extremely organic and informal structure? Why? Employees at Nordstrom’s receive material summarizing specific rules and legal regulations, but Nordstrom also has low formality and high emphasis on customer service. To fit in at Nordstrom’s, a person would have to have good interpersonal skills, a high level of agreeableness, and conscientiousness as outlined in the Big Five personality trait model. 8. What would you do during a corporate restructuring to ensure that your best employees did not leave? I would “overcommunicate” to employees, pointing out that restructuring is an opportunity to position the organization for the future. I would try to assure that restructuring focuses on the real cause of whatever the organization wants to change. For example, if a performance problem is due to low employee motivation, reorganizing the structure will not remedy the problem. GROUP EXERCISE – To Matrix or Not to Matrix, that is the Question Learning Objective: Summary: Platinum Resorts is a chain of all-inclusive luxury resorts, with locations in Playa Del Carmen, Mexico; Negril, Jamaica; Freeport, Bahamas; and Key West, Florida. Some customers return to the same location year after year, and others enjoy trying out different locations in the group. However, recent reports indicate that sales are down and customer complaints are up. Resort managers are pointing fingers and insisting that the middle managers at each location are not upholding company standards. Currently, the company has adopted a divisional structure, with a vice-president for each of the four resorts. Frustrated by inconsistent service and weak sales, Platinum Resorts has enlisted the services of a consultant. After visiting each of the resorts and speaking with employees and guests, the consultant is recommending that the company move from its current divisional structure to a matrix organization. The consultant explains that a matrix organization is used by many innovative organizations, such as NASA, to achieve functional and divisional control. Although some managers think that this is a great idea, others are concerned that their authority and control may be undermined by this new organizational structure. Platinum Resorts knows that something has to change, but you are unsure if this is the right solution. Task: Form a group of four students and assign each group member to one of the following roles: •President of Platinum Resorts •Sales manager for the Playa Del Carmen, Mexico resort •Housekeeper at the Key West, Florida resort •Guest at the Negril, Jamaica resort Have the groups complete the following questions. 1. Without consulting other members of the team, and from the perspective of your assigned role, do you think that Platinum Resorts should adopt a matrix structure? 2. Assemble your group and have each member present the potential pros and cons of organizing as a matrix organization. 3. As a group, develop an organizational chart for the company in its current divisional structure and the proposed matrix structure. 4. Develop a list of alternatives to converting to a matrix structure. 5. Considering all perspectives, what is the best decision of Platinum Resorts? VIDEO EXERCISE Honest Tea: Organizational Structure Summary: Honest Tea (U.S.) is a bottled organic tea company based in Bethesda, Maryland. The company is a wholly owned subsidiary of the Coca-Cola Company. Honest Tea is known for its organic and fair trade products and is one of the fastest growing private companies. Honest Tea started off with a handful of employees bringing out five products, three of which are still in the market. Today the company has over 35 package varieties of not only tea but other beverages as well. Honest Tea caters to a group of customers that prefer organic or low calorie beverages over other types of beverages. Honest Tea finds that it must continually adapt to changing circumstances and environments. Initially organic or low calorie tea was the only product, but the firm has expanded to various other beverages. Honest Tea believes that growth is continuous; the firm should never consider that they have finished achieving what they set out to accomplish. 1. Describe the role of division of labor and hierarchy at Honest Tea. Honest Tea is a very flat structure with a ‘TEO’ and divisions. The co-founder acts as Chairman and serves as mentor. After the sale of interest of the company to Coca-Cola, the roles and hierarchy did not change much within the company, other than the financial backing of the beverage giant. 2. In what ways has business strategy and organizational size impacted Honest Tea? How might this change in the future? When the company started, it was more of a vision than a viable beverage provider. The original business plan was full of vision and goals but there was nothing about distribution, a main ingredient to compete in the beverage industry. The strategy was to fill a niche market of low-calorie beverages and they wanted to produce their beverages in a sustainable manner that did not harm the environment and bettered the lives of the people supplying their raw ingredients. At first, with just one owner and a few employees, the company was barely viable. As the company grew it became shaky and Mr. Goldman found himself wasting much time on things that did not further the company’s mission. With the financial backing of Coca-Cola, the company is able to grow without restraint. Goldman retained control of the culture and practices the same values as when he started the company. In fact, he has been able to change his original mission and goals into reality. 3. Does Honest Tea have more of an organic or mechanistic structure? How can you tell? Honest Tea appears to embody the very definition of organic organizations provided in the text: flexible, decentralized structures with less clear lines of authority, decentralized power, open communication channels, and a focus on adaptability in helping employees accomplish goals. The definition of mechanistic organizations is a rigid, traditional bureaucracy with centralized power and hierarchical communications. This not sound like Honest Tea. Honest Tea is flexible as the company has grown from a pair of founders to what it is today and retained the same values and goals throughout the process. The company appears to be a decentralized structure with decentralized power and open communication channels. Goldman speaks of the transparency of the company and how attract people who enjoy the open structure of the company. The company exhibits a focus on adaptability and realizing products envisioned by employees or owners. Now What? Imagine being part of a group with the boss and another coworker in which you are discussing how you were recently beat to market by a competitor’s new toy line. The boss asks the group what the company could do to prevent something similar from happening again. What do you say or do? Go to this chapter’s “Now What?” video, watch the challenge video, and choose a response. Be sure to also view the outcomes of the two responses you didn’t choose. OB Concepts Applied: organizational structure, the matrix structure, influence of external environment on organizational design Discussion Questions 1. Which organizational structures are illustrated in these videos and how do they influence strategic execution? Explain. Organizational structure is the formal system of task, power, and reporting relationships. Types of organizational structures: •Bureaucratic structure: An organizational structure with formal division of labor, hierarchy, and standardization of work procedures. To become more competitive Alex suggests that the company add layers of management because the project needed closer supervision and more managerial input (incorrect response #1). After instituting this structure for a year, product development was behind schedule, turnover increased, and employees were frustrated at how long it took to get anything done. Amy concludes, “Maybe the extra management layers aren’t what we needed after all….” •Divisional structure: A division is a collection of functions organized around a geographic area (geographic structure), product or service (product structure), or market (market structure). A division of labor focused Happy Time Toys’ employees on specific tasks, but over time this structure proved to be cumbersome (incorrect response #2). Amy says, “It’s taking longer than ever to get products out, which has really decreased our performance.” Ryan says, “Our employees don’t understand our customers as well as they used to.” Alex agrees, “Everyone seems overly focused on their specific function, too. I’m hearing more arguments than I remember hearing before we switched to the new structure.” •Matrix structure: Employees report to both a project or product team and to a functional manager. A matrix structure brings all of the relevant expertise and departments into projects at the same time to speed up the timeline and improve quality (correct response). Alex explains, “It seems like we might be better off using product development teams to increase product development speed. If we set up project teams and matrixed the employees back to their functions for additional support, that might help.” 2. How do these videos illustrate the influence of the external environment on organizational design? Organizational design is the process of selecting and managing aspects of organizational structure and culture to enable the organization to achieve its goals. Happy Time Toys faced a rapidly changing external environment characterized by intense competition from Toy Town and others. As Bill explained, “If Toy Town can develop and manufacture toys in less than a year, we should be able to do it too.” A rapidly changing, uncertain environment requires a more flexible structure than a more stable environment. By changing its organizational design to a matrix structure, the company was able to compete in its environment. Alex favors the matrix structure, “… Matrix structures are great for complex activities like product development, and are well suited to uncertain environments like ours.” After a year with the matrix structure, the company launched the color wars line in record time and had great sales. Ryan said, “And no competitor is likely to launch anything similar for at least six months.” 3. Based on this chapter, what other ideas do you have to help Happy Time Toys to develop and manufacture new toys more rapidly and to be faster in responding to the environment? Happy Time Toys should try virtual teams linked by technology, although employees may still meet face-to-face. Although outsourced functions create many challenges, including communication and working in different time zones, the reduced costs and increased flexibility from being virtual create a competitive advantage Solution Manual for Organizational Behavior: Managing People and Organizations Ricky W. Griffin, Jean M. Phillips, Stanley M. Gully 9781305501393, 9780357042502
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