Chapter 9 Organizational Agility LEARNING OBJECTIVES 1 Discuss why it is critical for organizations to be responsive. 2 Describe the qualities of an organic organization structure. 3 Identify strategies and dynamic organizational concepts that can improve an organization’s responsiveness. 4 Explain how a firm can be both big and small. 5 Summarize how firms organize to meet customer requirements. 6 Identify ways that firms organize around different types of technology. CHAPTER OUTLINE The Responsive Organization Strategy and Organizational Agility Organizing around Core Capabilities Strategic Alliances The Learning Organization The High-Involvement Organization Organizational Size and Agility The Case for Big The Case for Small Being Big and Small Customers and the Responsive Organization Customer Relationship Management Quality Initiatives Reengineering Technology and Organizational Agility Types of Technology Configurations Organizing for Flexible Manufacturing Organizing for Speed: Time-Based Competition Final Thoughts on Organizational Agility CHAPTER RESOURCES Experiential Exercises 9-1. Mechanistic and Organic Structures 9-2. The Woody Manufacturing Company Cases DIY Stories Social Enterprise Increasing Impact: Scaling Social Enterprises Lecturettes 9-1. The Ideal and Future of Bureaucracy 9-2. Organizational Culture KEY STUDENT QUESTIONS The concepts in this chapter can be difficult for students to master. You may find yourself being asked to give examples of many different concepts, especially things like economies of scale/economies of scope, organic and mechanistic companies, large enterprises that are ‘small’ and small companies that are ‘big.’ Many of these examples can be found in the “Class Roadmap” below. Other questions students might ask include: 1. “What are the advantages and disadvantages of working in an organization with an organic structure?” 2. “Are companies more effective if they operate on a centralized or decentralized structure, and how do they determine which one works best?” 3. “What are the differences between organizing for environmental, technological, and strategic responses? Answers to Student Questions 1. In an organic company, people tend to have more autonomy over how they do their work, and they tend to do a variety of tasks on the job. For someone who is highly motivated, and willing to seek out the skills they need to accomplish whatever is asked of them, this can be a stimulating and exciting environment. It is also a favorable environment for people who like change, and who are comfortable with ambiguity. The downside of working in an organic company is that these enterprises are often highly politically charged, and if you are not good at working in teams and/or communicating extensively with others, it is easy to get lost. 2. Large companies tend to cycle between centralized and decentralized structures, depending on their leadership, profitability, and environment. While Burns and Stalker noted that the most effective organizations use a centralized structure in stable environments, and a decentralized structure in turbulent environments, Nickerson and Zenger point out that savvy managers adopt the benefits of different types of structures as they are needed by the organization. For example, Hewlett-Packard vacillated between centralizing and decentralizing core activities six times in sixteen years, and KPMG Peat Marwick changed their organizational structure five times in seven years, switching between geographic, functional, and industry-focused approaches on different occasions. Such fluctuations help firms to operate more efficiently because it allows the firms to respond to a constantly changing environment—one which is rarely totally stable or turbulent. 3. When organizing for an environmental response, the company’s primary concern should be its customers—who are they, what do they want, what other companies compete to service them, and what is the best way to deliver to them. Strategic responses demand that organizations focus on core competencies—what they do best, and what they do differently (better) than any of their competitors. Finally, technological responses have to take work processes into account—how products and services can be created and delivered most effectively and efficiently. Focusing on any one of these responses alone may not deliver the best results for the company—instead, the most effective organizations consider all three. CLASS ROADMAP POWERPOINTS Slide 1 Organizational Agility Slide 2 Chapter Introduction Quote Slide 3 Learning Objectives MANAGEMENT IN ACTION Keeping General Electric Nimble It’s tough to follow a legend, as Jeffrey Immelt has done at General Electric. GE’s legendary former CEO Jack Welch said the company’s core capability was “Evaluating people,” and Welch was ruthless in weeding out the lower-performing managers even as he rewarded the top performers with ever more challenging assignments. Immelt has said that GE’s core capability remains, but high performance across many different industries has been tough, especially in the financial climate of recent years. The financial crisis was especially hard on GE Capital, and the rising cost of health care hurt demand for GE’s imaging equipment. Still, in the energy sector, growth prospects are appealing, and the company intends to be an innovation leader in helping customers operate more efficiently. Immelt describes GE as “…a company in motion…” GE has enormous financial resources; what else will it need to stay competitive in a fast-changing world? Introduction A. With today’s fast-changing business environment, responsiveness is vital to a firm’s survival. 1. Adaptable organizations are prepared to meet the complex and ever-changing challenges that managers and their organizations constantly confront. B. Structuring is not only formal—it also involves dealing with processes, systems, and relationships within the organization. CONNECT Click and Drag: Designing for Organizational Agility (A keyboard navigable alternate version is also available.) SUMMARY In today’s fast-changing business environment, agility, or the ability to adapt quickly, is vital to a firm’s existence. The more organic a firm is, the more responsive it will be to changing competitive demands and market realities. ACTIVITY In this exercise, students will use the click-and-drag tool to align organizational features with the categories of strategies, customers, and technology. CLASS DISCUSSION IDEAS A class discussion could serve as a review by asking students to define the terms of the exercise. Can the students provide the names of organizations that they consider as being organic? I. THE RESPONSIVE ORGANIZATION POWERPOINTS Slide 4 The Responsive Organization Slide 5 Exhibit 9.1 Two Ways to Describe an Organization LO 1: Discuss why it is critical for an organization to be responsive. Example 9.1 Responsiveness Responsiveness involves all functions of the organization, including marketing. Branded entertainment is a new trend that companies are adopting in order to attempt to engage customers. Webisodes are one example of branded entertainment that relies on web series starring popular actors while simultaneously marketing product(s). As one manager states, “The marketplace is shifting, and brands have to think of themselves as media companies.” However, NBC Universal partners with companies to produce webisodes, and Cameron Death, vice president for digital content noted it’s also important to protect the NBC brand by only partnering with companies that appreciate the importance of balancing entertainment and advertisement. A. A mechanistic organization is a form of organization that seeks to maximize internal efficiency. B. An organic structure is an organizational form that emphasizes flexibility. Example 9.2 Mechanistic and organic organizations McDonald’s and the United Parcel Service (UPS) are examples of modern-day mechanistic organizations. CISCO and most high-tech start-ups are examples of modern organic organizations. But you don’t have to be in high-tech to have an organic company. FAVI is a copper foundry in France. Its CEO, Jean-Francois Zobrist, says that he is out to free workers from the chain of command—the chaine de comment, or the “chain of how” in French. By giving his employees responsibility and allowing them to take initiative, he has managed to capture over 50% of the European market. In turn, his employees are freed of meaningless “standards” and the other structures that inhibit their work. C. The organic structure can be described as follows: 1. Jobholders have broader responsibilities that change as the need arises. 2. Communication occurs through advice and information rather than through orders and instructions. 3. Decision making and influence are more decentralized and informal. 4. Expertise is highly valued. 5. Jobholders rely more heavily on judgment than on rules. 6. Commitment to the organization’s goals is more important than obedience to authority 7. Employees depend more on one another and relate more informally and personally. Network diagrams capture the informal structure of the organization—organic organizations show more team networks, fewer boss/subordinate networks. (Exhibit 9.1) II. STRATEGY AND ORGANIZATIONAL AGILITY POWERPOINTS Slide 6 Organizational Capabilities Slide 7 Managing Resources for Competitive Advantage Slide 8 Strategic Alliances Slide 9 How I’s Can Become We’s Slide 10 The Learning Organization Slide 11 Becoming a Learning Organization Slide 12 The High-Involvement Organization LO 2: Describe the qualities of an organic organizational structure. A. Organizing around core capabilities 1. A well-understood, well-developed core capability can enhance a company’s responsiveness and competitiveness. 2. Managers who want to strengthen their firms’ competitiveness via core capabilities need to focus on several related issues a. Identify existing core capabilities. b. Acquire or build core capabilities that will be important for the future. c. Keep investing in capabilities so that the firm remains world-class and better than competitors. d. Extend capabilities to find new applications and opportunities for the markets of tomorrow. LO 3: Identify strategies and dynamic organizational concepts that can be used to improve an organization’s responsiveness. B. Strategic alliances 1. A strategic alliance is a formal relationship created with the purpose of the joint pursuit of mutual goals. 2. In a strategic alliance, individual organizations share administrative authority, form social links, and accept joint ownership. 3. The best alliances are true partnerships that meet these criteria: (Exhibit 9.3) a. Individual excellence — both partners add value. b. Importance — both partners contribute to meeting strategic objectives. c. Interdependence — both partners need each other. d. Investment — partners devote resources to the relationship. e. Information — partners communicate openly. f. Integration — partners develop shared ways of operating. g. Institutionalization — relationship has formal status h. Integrity — both partners are trustworthy. Multiple Generations at Work Millennials and the Flexible Workplace Many managers are expressing concerns over their ability to find Millennial talent and then, once hired, to motivate and retain them. Some estimates suggest that the average length of time these early career employees stay in a professional job, where training is provided, is about three-years. This tendency to job-hop is very different from the way older generations approached jobs. Each generational cohort in the workplace has its own view of how jobs, reporting relationships, co‐worker interactions, and so forth should be structured. A pressing challenge for managers is how to modify internal organizational structures, so they are more Millennial-friendly without alienating older generations. Example 9.3 Strategic alliance Verizon and SoftBank Telecom have entered into a strategic alliance agreement that benefits multinational customers of both companies doing business in Japan. C. The Learning Organization 1. A learning organization is an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights 2. Essential ingredients to becoming a true learning organization are: a. Their people engage in disciplines thinking and attention to details. b. They search constantly for new knowledge and ways to apply it. c. They carefully review both successes and failures. d. Learning organizations benchmark. e. They share ideas throughout the organization. D. High-Involvement Organization 1. A high-involvement organization is one in which top management ensures that there is a consensus about the direction in which the business is heading. 2. Organizational form is a flat, decentralized structure built around a customer, product or service. CONNECT Self-Assessment: Your Preferred Organizational Structure SUMMARY This self-assessment helps students determine what type of organizational structure they may prefer. Broadly speaking, organizations may be defined as mechanistic or organic structures. ACTIVITY Students answer a series of 15 questions which they score their agreement on a 1-5 scale. Totaling their scores, they see their relative preference for a mechanistic versus organic organizational structure. CLASS DISCUSSION IDEAS Do the students agree with the assessment? What would they do if they found themselves in an organizational structure that did not match their preference? Is there anything an organization or individuals can do to make sure there is a fit between employee preference and organizational structure? III. ORGANIZATIONAL SIZE AND AGILITY POWERPOINTS Slide 13 The Case for Big and Small Organizations Slide 14 Social Enterprise Slide 15 Regaining Responsiveness LO 4: Explain how a firm can be both big and small. A. The Case for Big 1. Scale economies – lower costs per unit of production 2. Economies of scope – economies in which materials and processes employed in one product can be used to make other, related products. Example 9.4 Scale vs. scope economies Another way of defining the difference between economies of scale and economies of scope is given by Gary Wolff of the Pacific Institute: A scale economy exists when a bigger facility will be less expensive per unit A scope economy exists when one facility delivers two services at a lower cost than two facilities, each delivering one service. In economies of scope, a single change can have benefits across multiple sectors. For example, rainwater harvesting can both improve the water supply, and reduce the need for runoff management. B. The Case for Small 1. As firms get larger customers begin to view their products as having lower quality. 2. Small companies can a. move fast. b. provide quality goods and services to targeted market niches. c. inspire greater involvement from their people. d. outmaneuver big bureaucracies. C. Being Big and Small 1. To avoid problems of growth and size, companies decentralize decision-making and organize around small, adaptive, team-based work units. Example 9.5 Being big and small Bell Business Solutions of Montreal is clearly a big business—it has 800 people on staff. But because the company developed out of a merger of many smaller telecom ventures, they use an entrepreneurial style of management to stay small. They have four line units and two support units, which serve as resources to the line units. All of the units are individual profit 2. Companies downsize in an attempt to gain the responsiveness of a small company. 3. Downsizing is the planned elimination of positions or jobs. 4. Rightsizing is a successful effort to achieve an appropriate size at which the company performs most effectively. 5. To ease the pain of downsizing, firms engage in a number of positive practices such as: a. Use downsizing only as a last resort, when other methods of improving performance by innovating or changing procedures have been exhausted. b. Give special attention and help to those who have lost their jobs. c. Identify and protect talented people. d. Choose positions to be eliminated by engaging in analysis and strategic thinking. e. Train people to cope with the new situation. f. Communicate constantly with people about the process and invite ideas for alternative ways to operate more efficiently. g. Identify how the organization will operate more effectively in the future and h. emphasize this positive future and the remaining employees’ new roles in attaining it. CONNECT Video Case: Organizational Agility at DHL SUMMARY Today’s successful companies can’t afford to stand still. They cannot rest on their previous accomplishments. Instead, they use their current successes to continue to build a competitive advantage for the future, constantly seeking new ways to remain flexible, innovative, efficient, and responsive to their customers. One of the most important ways they have of doing that is to make sure that their organization’s structures and systems remain adaptable—prepared to meet the complex and ever-changing challenges that managers and their organizations constantly confront. The 13-minute video presents how DHL “invented international shipping.” DHL started out as a shipper of emergency parts. The responsiveness demanded by customers has embedded itself into the structure and culture of DHL. Their success allowed them to expand quickly and also influenced its method of expansion. DHL’s agility is seen in how it has partnered with U.S. customs to expedited shipping. ACTIVITY After viewing the video, students are directed to answer a series of multiple-choice questions dealing with the structure and systems of DHL. CLASS DISCUSSION IDEAS Could DHL’s success could be copied by the USPS? Are there structural issues that prevent the USPS from having the agility of DHL? Management in Action Progress Report GE Has Big Advantages—And Tries to Act Small Being a corporate giant (revenues of more than $147 billion; 305,000 employees in 175 countries), GE has access to capital and talent. This enables the company to jump in wherever it sees opportunity, be it applications for “big data” or development of energy-efficient batteries. However, CEO Jeff Immelt is well aware that people in a giant corporation can get bogged down by policies and procedures. Can the world’s seventh largest company be agile? • How does GE benefit from being large? Being large gives GE enormous capital to invest. It also has tremendous human resources; for example, its 50,000 engineers and scientists generate many patent applications. Its managers have many opportunities to develop their skills by taking on increasingly larger projects and moving among various functions. • How can GE also reap some of the benefits of smallness? Ways for large companies to acquire some of the agility of a small organization include organizing around core capabilities and forming strategic alliances. GE also could adopt more of the qualities of a learning organization by making sure that employees at all levels are engaged in disciplined thinking, searching constantly for new knowledge, valuing and rewarding the expansion of knowledge and skills, reviewing success and failures to learn from them, benchmarking, and sharing ideas throughout the organization. Finally, GE can decentralize decision-making and organize around small, adaptive teams. IV. CUSTOMERS AND THE RESPONSIVE ORGANIZATION POWERPOINTS Slide 16 Customers and the Responsive Organization Slide 17 Customer Relationship Management Slide 18 Exhibit 9.3 Generic Value Chain Slide 19 Quality Initiatives Slide 20 ISO 9001 Slide 21 Reengineering LO 5: Summarize how firms organize to meet customer requirements. A. Customer Relationship Management 1. Customer relationship management is a multifaceted process, mediated by a set of information technologies that focuses on creating two-way exchanges with customers so that firms have an intimate knowledge of their needs, wants, and buying patterns. (Exhibit 9.5) a. Customers today want BOTH low cost and high-quality b. A company attains and retains a competitive advantage through kaizen—continuous improvement. i. A value chain, as defined by Michael Porter, is the sequence of activities that flow from raw materials to the delivery of a product or service, with additional value created at each step. (Exhibit 9.3) Example 9.6 Organizing for customer responsiveness Jim Yee, at the Union Bank of California, knows that his company serves a niche market, and that customer attention is critical to providing the services people have come to expect. He focuses on supporting the bank’s strategy by running a process engineering department that is commissioned to look at foundational processes across the bank from a customer point of view. B. Quality initiatives 1. Total quality management (TQM) is an integrative approach to management that supports the attainment of customer satisfaction through a wide variety of tools and techniques that result in high-quality goods and services. a. Deming’s “14 points” of quality (Exhibit 9.4): i. Create constancy of purpose ii. Adopt the new philosophy iii. Cease dependence on mass inspection iv. End the practice of awarding business based on price tag alone v. Improve constantly the system of production and service vi. Institute training and retraining vii. Institute leadership viii. Drive out fear ix. Break down barriers among departments x. Eliminate slogans, exhortations, and arbitrary targets xi. Eliminate numerical quotas xii. Remove barriers to pride in workmanship xiii. Institute a vigorous program of education and retraining xiv. Take action to accomplish the transformation 2. Commitment to total quality requires a thorough, extensive, integrated approach to organizing. 3. Six Sigma quality is a method of systematically analyzing work processes to identify and eliminate virtually all causes of defects, standardizing the processes to reach the lowest practicable level of any cause of customer dissatisfaction 4. The Malcolm Baldrige National Quality Award encourages companies to achieve quality excellence, and is granted on the basis of seven criteria: a. Leadership b. Information and analysis c. Strategic quality planning d. Human resource development and management e. Management of process quality f. Quality and operational results g. Customer focus and satisfaction 5. ISO 9001 is a series of quality standards developed by a committee working under the International Organization for Standardization to improve total quality in all businesses for the benefit of producers and consumers. C. Reengineering revolutionizes key organizational systems and processes to answer the question, “If you were the customer, how would you like us to operate?” CONNECT Click and Drag: The Value Chain of a Snowboard Company (A keyboard navigable alternate version is also available.) SUMMARY One way to understand how organizations can add customer value to their products has been provided by Michael Porter, who popularized the concept of the value chain. A value chain is the sequence of activities that flow from raw materials to the delivery of a good or service, with additional value created at each step. Managers can add customer value and build competitive advantage by paying close attention to their organization’s value chain—not only each step in it but the way each step interacts with the others. ACTIVITY Students in this click-and-drag exercise identify which of the activities provided is associated with the steps of a value chain. CLASS DISCUSSION IDEAS Ask students to identify activities associated with the value chain steps for another organization, perhaps the university. V. TECHNOLOGY AND ORGANIZATIONAL AGILITY POWERPOINTS Slide 22 Types of Technology Configurations Slide 23 Exhibit 9.5 Key Features in Mass Customization Slide 24 Manufacturing Slide 25 Organizing for Speed—Time-Based Competition (TBC) LO 6: Identify ways that firms organize around different types of technology. A. Technology is the systematic application of scientific knowledge to a new product, process, or service. 1. Types of technology configurations: a. Small batch technologies – when goods or services are provided in very low volume or small batches, a company that does such work is called a job shop. b. Large batch technologies or mass production technologies produce goods and services in high volume. c. Continuous process technologies are a process that is highly automated and has a continuous production flow. B. Organizing for flexible manufacturing. 1. Mass customization is the production of varied, individually customized products at the low cost of standardized, mass-produced products. (See Exhibit 9.5) 2. Computer-integrated manufacturing encompasses the use of computer-aided design and computer-aided manufacturing to sequence and optimize a number of production processes. 3. Flexible factories are manufacturing plants that have short production runs, are organized around products, and use decentralized scheduling. 4. Lean manufacturing is an operation that strives to achieve the highest possible productivity and total quality, cost effectively, by eliminating unnecessary steps in the production process and continually strives for improvement. For the lean approach to result in a more effective operation, the following conditions must be met (Exhibit 9.6): a. People are broadly trained rather than specialized. b. Communication is informal and horizontal among line workers. c. Equipment is general purpose. d. Work is organized in teams, or cells, that produce a group of similar products. e. Supplier relationships are long-term and cooperative. f. Product development is concurrent, not sequential, and is done by cross-functional teams. Example 9.7 Lean manufacturing Buck Knives in Post Falls, Idaho had a problem. They were warehousing large amounts of partially-made knives, and those knives took up floor space and had to be tracked. Lean manufacturing, or looking at production from the perspective of the customer, solved this problem. Now the company uses value stream analysis to determine which actions have the most value for the customer, and Kaizen Events to determine how to do these actions most effectively. The company uses work cells of 12 to 13 people to make products from beginning to end, thereby increasing efficiency. At any given point in time, the company will have knife parts or completed knives, but nothing in-between, thereby avoiding the inventory problems the company had earlier. C. Organizing for speed: Time-based competition (TBC) refers to strategies aimed at reducing the total time it takes to deliver the product or service. Key organizational elements to TBC: 1. Logistics, which is the movement of resources into the organization (inbound) and products from the organizations to its customers (outbound). 2. Just-in-time operations (JIT) is a system that calls for subassemblies and components to be manufactured in very small lots and delivered to the next stage of the production process just as they are needed. 3. Concurrent engineering is a design approach in which all relevant functions cooperate jointly and continually in a maximum effort aimed at producing high-quality production that meets customers’ needs. VI. FINAL THOUGHTS ON ORGANIZATIONAL AGILITY POWERPOINTS Slide 26 Management in Action Slide 27 In Review A. Any approach to organizing has its strengths and limitations. Today’s advantages are tomorrow’s “table stakes” requirements that need to be met if a firm expects to be a major player in an industry. B. Successful organizations do not sit still—they are always aware of changes in their environment, and they are able to respond to those changes quickly, efficiently, and effectively. Management in Action Onward GE’s Pursuit of High Quality and Leanness GE tries to be responsive in a variety of ways. Among these are the use of Six Sigma to continually improve quality and Lean methods to improve efficiency by eliminating waste. These methods make change a constant part of doing business at GE. • How else might GE become more responsive to its customers? Other ways to be responsive to customers include using a customer relationships management (CRM) system. It can expand the drive to satisfy customers to include serving “internal customers”—whatever person in the organization who receives the work done by an employee. Other quality initiatives GE might consider are total quality management and ISO 9001. • Based on the information in the three parts of this case, how would you rate GE’s organizational agility? Summarize your reasons for this rating. Answers will vary. Students should consider GE’s large size; its efforts at continuous improvement in the areas of quality, efficiency, and responsiveness; and its business performance. BOTTOM LINE How can lack of speed kill an organization? Many customers care about when they can obtain a product, once they have decided to make a purchase. If the organization cannot meet customers’ demand for timely delivery, the customers will go elsewhere. Likewise, customers who do not receive timely information or support will take their business elsewhere in the future. Lack of speed also can leave organizations behind the competition when it comes to introducing new products or other innovations. Slowness in support functions can be deadly, too; think of an organization that is too slow in making a job offer to talented individuals, takes its time in collecting debts, doesn’t get around to noticing trends until everyone else is onboard, or misses due dates when paying its bills and its taxes. Does your school have a core competence? If so, what is it? Answers will vary. Students might think about why they decided to attend this particular school. This is a chance to think about the different areas in which an organization might have capabilities—in this case, perhaps a strong curriculum in certain fields, well-respected teachers, reasonable tuition, great location, excellent recruiter, popular sports teams, and so on. How might an alliance increase innovation? Answers will vary. An obvious possibility is that it brings together people—and their ideas and perspectives—from more sources. An alliance also might share data that would suggest areas of innovation. How has General Electric’s large size affected its ability to compete? Basic points about large companies apply: High volume of production leads to economies of scale, as well as greater purchasing power and easier access to capital. Students may also be aware of economies of scope, such as GE’s application of materials and processes to make a wide variety of products, including light bulbs and engines. A salesperson learns about a customer’s new challenge. Why might a small company be able to react to this information faster? In a small company, there are fewer bureaucratic layers and divisional silos for an idea to travel through between the salesperson and the individuals with the skills and authority to act on the idea. If the company is very small, the salesperson might be able to have a personal chat with the key decision makers, and in that case, the salesperson will be better able to convey his or her excitement about the idea as well as the basic facts. (Of course, that doesn’t mean a large company can’t ever react fast; it could put into place a system for submitting and responding to ideas.) How does a rigid bureaucracy make it difficult to meet all these challenges at once? Meeting so many challenges at once requires the ability to make changes rapidly when customer tastes and needs shift, a problem occurs, or new technologies are developed. In a rigid bureaucracy, time passes as employees identify the need or opportunity, explain it to decision makers, and finally plan and implement a change. There might be a tendency to say the issue at hand is not the responsibility of one’s department. What happens when the commitment to quality is weak at the top of an organization? In that situation, the organizational culture probably won’t support high quality, the rewards for performance won’t be related to high quality, and resources won’t be directed to activities or people who ensure high quality. At worst, efforts to improve quality might be criticized as “too expensive” or “taking up too much time.” What other drivers of success can reengineering improve? Reengineering can improve quality, customer service, and sustainability (by reducing waste). It also can increase speed (reduce time to market). Give an example of a product you’d like to have customized for your personal preferences. Have you found a customized version yet? If not, you may someday. Answers will vary. Examples of popularly customized products include personal computers, cars, and blue jeans. Which of the quality improvement approaches is often combined with lean manufacturing? As described earlier in the chapter, lean manufacturing is often combined with Six Sigma into an approach known as Lean Six Sigma. Give an example of a situation in which speed would be important for a book publisher. Answers will vary. Speed would logically be important when it is important to release a book ahead of competitors or on a schedule needed by the book’s target market. Examples would include situations in which the topic of the book is a current event or new discovery where readers will prefer a book released ahead of competing titles. An example of a book released according to buyers’ schedules would be a textbook released in time to be adopted for use in the coming school year. SOCIAL ENTERPRISE Increasing Impact: Scaling Social Enterprises Social enterprises typically begin as small, grassroots efforts whose goal is to create a sustainable organization that helps solve important social problems. What happens when social enterprises want to scale their operations to impact the lives of more people? Here are some issues for the leaders of SEs to consider: 1. Consider alliances with governments. Governments are the largest consumers of social investment. If a social enterprise’s mission aligns with a government’s social investment priorities, a productive alliance could be formed. Currently, the G8 governments view social enterprises as a way of “tackling social problems, driving innovation and helping economic growth.” 2. Partner with big businesses. Big businesses can bring considerable resources to bear on social problems. For this to happen, social enterprises need to develop a viable business model that big businesses are willing to support. Network for Good, an online giving and fund-raising platform was founded with the help of AOL, the Cisco Foundation, and Yahoo!. Since 2001, the social enterprise has processed over $1 billion for more than 100,000 nonprofits. 3. Do not lose sight of what matters. As a social enterprise grows in size and complexity, there is a “risk that it will become detached and unresponsive to the grassroots.” Selco Solar, a provider of sustainable energy solutions, manages this risk of becoming too big by “incubating others who can replicate their model in other geographic areas, rather than scaling themselves.” Like for-profit companies, social enterprises need to strike the right balance between being big and small. 1. As Social Enterprises try to get larger, what unique challenges do they face? Social enterprises may face a lack of resources as they get larger. This is why it is important for them to consider alliances with governments and partnerships with big businesses. However, as they grow, social enterprises may forget what they are really fighting for. As small organizations, their missions were clearer, but now that they have grown, their missions may be more convoluted. 2. What are some of the drawbacks associated with partnering with governments or big businesses? If you ran an SE, which of these options would you pursue? Answers will vary on which option students would choose, but it is important to understand that partnering with governments and big businesses has some drawbacks. First, these entities may not share your social enterprise’s core values and mission. Second, due to their abundant resources, these large units may dictate operations and procedures to the extent that you are not able to run your social enterprise as you want. LECTURETTES LECTURETTE 9.1: The Ideal and Future of Bureaucracy THE IDEAL BUREAUCRACY 1. Max Weber, a German sociologist, made his mark on management theory when he developed his concept of bureaucracy. As large organizations were evolving out of the industrial revolution, they clearly lacked a basis for orderly organization and management. To meet this need, Weber designed his “ideal bureaucracy” to improve the operations of large, complex organizations. 2. Weber coined the term “bureaucracy” based on the German word, “buro,” which meant office. Weber’s ideal bureaucracy was a large organization that operated on a rational basis. 3. Weber understood that the “ideal bureaucracy” did not exist anywhere, but he advocated that managers should work to that end by creating organizations with the following characteristics: Specialization of Labor Tasks should be broken down into routine, well-defined activities so that all employees would know exactly what is expected of them and would become, in a short time, expert in their specific task assignments. Formal Rules and Procedures There should be a documentation of rules and procedures that would clearly: Delineate work behaviors. Facilitate work coordination. Ensure uniformity of work and behavior. Impersonality Once rules, procedures, and sanctions are documented, and they should be uniformly applied to all employees, with no adjustment for personalities or other personal considerations. Well-defined Hierarchy Positions should be placed on multiple levels, with precise reporting relationships among levels. The hierarchy provides for the supervision of lower-level offices by higher-level ones, a method for handling exceptions, and the ability to establish accountability. Career Advancement Based Employee selection, placement, and promotion on Merit should be based on the individual qualifications and performance of the employee. THE OFFICERS IN A BUREAUCRACY 1. According to Weber, one of the critical features of the ideal bureaucracy was the appointment of its officers. It was his contention that all organizational officers (managers) should be appointed and should function according to the following criteria: Officers (managers) are free as individuals and are subject to organizational authority only in terms of their impersonal, official obligations. Officers (managers) are to be organized in a clearly established hierarchy of offices. Each managerial office should have a clearly defined sphere of competence. Each managerial office should be filled in a spirit of a free contractual relationship. Candidates for the managerial offices should be selected on the basis of technical qualifications. Officers (managers) should be compensated through fixed salaries, with salary scales graded primarily on the basis of rank in the organizational hierarchy. The employing institution would not have the right to terminate an officer’s appointment, except under certain circumstances. However, the officer is always free to resign the position. Once appointed to a position, that office should be treated as the sole, or at least the fundamental, occupation of the office holder. Serving as an organizational officer should be perceived as a career with a system of promotion based on achievement or authority, or both. The officer (manager) works apart from the ownership. The officer (manager) should be subject to a system of strict discipline and control with respect to the conduct of the office. THE COMING DEATH OF BUREAUCRACY 1. Contemporary management writers, reflecting the public’s negative attitude toward modern-day bureaucracies with their red tape and complexities, argue that bureaucracies will die unless they are able to adapt to the change in their environments. 2. Weber would agree because he never envisioned the sort of bureaucracy that has evolved and replaced his “ideal bureaucracy.” Over the years, bureaucracies have moved away from Weber’s ideal and have assumed a number of negative characteristics, which will probably cause their demise. Specifically, they: No longer allow for adequate personal growth and development. Foster “groupthink” and stubborn conformity to norms. Fail to consider the informal organization and the people problems therein. Have obsolete control systems. Have no judicial process. Have no mechanism for resolving differences and conflicts that occur between ranks and between functional work groups. Stifle communication and creative ideas. Fail to utilize the full value of their human resources due to employee fear and mistrust. Cannot assimilate the wave of new technology. Modify the personalities of their members who reflect the dull and conditioned “organization man.” 3. Bureaucracies must clean up their acts or die. LECTURETTE 9.2: Organizational Culture ORGANIZATIONAL CULTURE DEFINED 1. The concept of organizational culture has evolved from a number of definitions, such as: The way we do things around here. A belief system that is shared by members of the organization. The collective programming of the mind. Collective understandings. Strong, widely shared core values. A set of shared beliefs communicated through a variety of symbolic media. A set of symbols, ceremonies, and myths that communicate the fundamental values and beliefs of the organization to its employees. 2. Texts define corporate culture as a set of important assumptions about the organization, and its goals, problems, and practices that members of the company share. 3. It seems clear that these definitions of organizational culture agree; that it is a shared system of core values. THE NATURE OF ORGANIZATIONAL CULTURE 1. Those shared organizational values that define organizational culture have the following characteristics: Individual initiative – that degree of responsibility, freedom, and independence that individuals enjoy. Risk tolerance – that degree to which members are encouraged to be innovative and risk-taking. Direction – that degree to which the organization creates clear performance objectives. Integration – that degree to which organizational work units are encouraged to work in a cooperative manner. Management support – that degree to which management provides open communication, assistance, trust, and support to subordinates. Control – a number of rules and regulations and the amount of close supervision that is utilized to control subordinates. Identity – that degree to which members identify with the organization. Reward system – that degree to which rewards are allocated based on employee performance. Conflict tolerance – that degree to which employees are encouraged to air conflicts and criticisms openly. Communication patterns – that degree to which organizational communication is restricted to the formal hierarchy. 2. The shared beliefs and core values that constitute organizational culture are transmitted to employees by way of rites and ceremonies, stories, legends, and myths. Rites and ceremonies are elaborately planned activities at a special event. There are four types of rites used by organizations to transmit culture to their members. The rites of: Passage facilitates the transition of a member into new roles. For instance, all new employees go through new employee indoctrination. Enhancement emphasizes social identity and status. For example, some firms have annual awards dinners. Renewals are developmental activities that increase member status. For example, a member might be selected to attend a special training program. Integration creates common bonds among members and commitment to the organization. For example, a department might hold an annual picnic. Stories are true narratives through which organizational information is shared among members. Legends are organizational history stories that may be, at least, partly fictional. Myths convey consistent values but are not based on fact. 3. An organization’s dominant culture delineates the core values that are shared by most of the members. 4. Subcultures are minicultures that tend to exist within specific departments or workgroups. 5. Core values are the dominant values of an organization that are shared by all its members. MANAGING CULTURAL CHANGE 1. Major organizational change must be preceded by changes in the organization’s culture. Therefore, culture is seen as a phenomenon that management must learn to manage. Organizational culture can be changed by using the following strategies: Conduct a cultural audit to be sure the present culture is well understood. Create a cultural vision, a cultural dream that exemplifies desired core values. Involve organizational members in the change process. Communication is the key tool for the management of culture. Reward systems must be made to reinforce the new culture and its core values. Top management commitment to the change is essential. Establish a socialization process that effectively indoctrinates new employees with respect to the new culture. Be patient with the process, for it takes time to inculcate a new culture. Chapter 9 Organizational Agility LEARNING OBJECTIVES 1 Discuss why it is critical for organizations to be responsive. 2 Describe the qualities of an organic organization structure. 3 Identify strategies and dynamic organizational concepts that can improve an organization’s responsiveness. 4 Explain how a firm can be both big and small. 5 Summarize how firms organize to meet customer requirements. 6 Identify ways that firms organize around different types of technology. CHAPTER OUTLINE The Responsive Organization Strategy and Organizational Agility Organizing around Core Capabilities Strategic Alliances The Learning Organization The High-Involvement Organization Organizational Size and Agility The Case for Big The Case for Small Being Big and Small Customers and the Responsive Organization Customer Relationship Management Quality Initiatives Reengineering Technology and Organizational Agility Types of Technology Configurations Organizing for Flexible Manufacturing Organizing for Speed: Time-Based Competition Final Thoughts on Organizational Agility CHAPTER RESOURCES Experiential Exercises 9-1. Mechanistic and Organic Structures 9-2. The Woody Manufacturing Company Cases DIY Stories Social Enterprise Increasing Impact: Scaling Social Enterprises Lecturettes 9-1. The Ideal and Future of Bureaucracy 9-2. Organizational Culture KEY STUDENT QUESTIONS The concepts in this chapter can be difficult for students to master. You may find yourself being asked to give examples of many different concepts, especially things like economies of scale/economies of scope, organic and mechanistic companies, large enterprises that are ‘small’ and small companies that are ‘big.’ Many of these examples can be found in the “Class Roadmap” below. Other questions students might ask include: 1. “What are the advantages and disadvantages of working in an organization with an organic structure?” 2. “Are companies more effective if they operate on a centralized or decentralized structure, and how do they determine which one works best?” 3. “What are the differences between organizing for environmental, technological, and strategic responses? Answers to Student Questions 1. In an organic company, people tend to have more autonomy over how they do their work, and they tend to do a variety of tasks on the job. For someone who is highly motivated, and willing to seek out the skills they need to accomplish whatever is asked of them, this can be a stimulating and exciting environment. It is also a favorable environment for people who like change, and who are comfortable with ambiguity. The downside of working in an organic company is that these enterprises are often highly politically charged, and if you are not good at working in teams and/or communicating extensively with others, it is easy to get lost. 2. Large companies tend to cycle between centralized and decentralized structures, depending on their leadership, profitability, and environment. While Burns and Stalker noted that the most effective organizations use a centralized structure in stable environments, and a decentralized structure in turbulent environments, Nickerson and Zenger point out that savvy managers adopt the benefits of different types of structures as they are needed by the organization. For example, Hewlett-Packard vacillated between centralizing and decentralizing core activities six times in sixteen years, and KPMG Peat Marwick changed their organizational structure five times in seven years, switching between geographic, functional, and industry-focused approaches on different occasions. Such fluctuations help firms to operate more efficiently because it allows the firms to respond to a constantly changing environment—one which is rarely totally stable or turbulent. 3. When organizing for an environmental response, the company’s primary concern should be its customers—who are they, what do they want, what other companies compete to service them, and what is the best way to deliver to them. Strategic responses demand that organizations focus on core competencies—what they do best, and what they do differently (better) than any of their competitors. Finally, technological responses have to take work processes into account—how products and services can be created and delivered most effectively and efficiently. Focusing on any one of these responses alone may not deliver the best results for the company—instead, the most effective organizations consider all three. CLASS ROADMAP POWERPOINTS Slide 1 Organizational Agility Slide 2 Chapter Introduction Quote Slide 3 Learning Objectives MANAGEMENT IN ACTION Keeping General Electric Nimble It’s tough to follow a legend, as Jeffrey Immelt has done at General Electric. GE’s legendary former CEO Jack Welch said the company’s core capability was “Evaluating people,” and Welch was ruthless in weeding out the lower-performing managers even as he rewarded the top performers with ever more challenging assignments. Immelt has said that GE’s core capability remains, but high performance across many different industries has been tough, especially in the financial climate of recent years. The financial crisis was especially hard on GE Capital, and the rising cost of health care hurt demand for GE’s imaging equipment. Still, in the energy sector, growth prospects are appealing, and the company intends to be an innovation leader in helping customers operate more efficiently. Immelt describes GE as “…a company in motion…” GE has enormous financial resources; what else will it need to stay competitive in a fast-changing world? Introduction A. With today’s fast-changing business environment, responsiveness is vital to a firm’s survival. 1. Adaptable organizations are prepared to meet the complex and ever-changing challenges that managers and their organizations constantly confront. B. Structuring is not only formal—it also involves dealing with processes, systems, and relationships within the organization. CONNECT Click and Drag: Designing for Organizational Agility (A keyboard navigable alternate version is also available.) SUMMARY In today’s fast-changing business environment, agility, or the ability to adapt quickly, is vital to a firm’s existence. The more organic a firm is, the more responsive it will be to changing competitive demands and market realities. ACTIVITY In this exercise, students will use the click-and-drag tool to align organizational features with the categories of strategies, customers, and technology. CLASS DISCUSSION IDEAS A class discussion could serve as a review by asking students to define the terms of the exercise. Can the students provide the names of organizations that they consider as being organic? I. THE RESPONSIVE ORGANIZATION POWERPOINTS Slide 4 The Responsive Organization Slide 5 Exhibit 9.1 Two Ways to Describe an Organization LO 1: Discuss why it is critical for an organization to be responsive. Example 9.1 Responsiveness Responsiveness involves all functions of the organization, including marketing. Branded entertainment is a new trend that companies are adopting in order to attempt to engage customers. Webisodes are one example of branded entertainment that relies on web series starring popular actors while simultaneously marketing product(s). As one manager states, “The marketplace is shifting, and brands have to think of themselves as media companies.” However, NBC Universal partners with companies to produce webisodes, and Cameron Death, vice president for digital content noted it’s also important to protect the NBC brand by only partnering with companies that appreciate the importance of balancing entertainment and advertisement. A. A mechanistic organization is a form of organization that seeks to maximize internal efficiency. B. An organic structure is an organizational form that emphasizes flexibility. Example 9.2 Mechanistic and organic organizations McDonald’s and the United Parcel Service (UPS) are examples of modern-day mechanistic organizations. CISCO and most high-tech start-ups are examples of modern organic organizations. But you don’t have to be in high-tech to have an organic company. FAVI is a copper foundry in France. Its CEO, Jean-Francois Zobrist, says that he is out to free workers from the chain of command—the chaine de comment, or the “chain of how” in French. By giving his employees responsibility and allowing them to take initiative, he has managed to capture over 50% of the European market. In turn, his employees are freed of meaningless “standards” and the other structures that inhibit their work. C. The organic structure can be described as follows: 1. Jobholders have broader responsibilities that change as the need arises. 2. Communication occurs through advice and information rather than through orders and instructions. 3. Decision making and influence are more decentralized and informal. 4. Expertise is highly valued. 5. Jobholders rely more heavily on judgment than on rules. 6. Commitment to the organization’s goals is more important than obedience to authority 7. Employees depend more on one another and relate more informally and personally. Network diagrams capture the informal structure of the organization—organic organizations show more team networks, fewer boss/subordinate networks. (Exhibit 9.1) II. STRATEGY AND ORGANIZATIONAL AGILITY POWERPOINTS Slide 6 Organizational Capabilities Slide 7 Managing Resources for Competitive Advantage Slide 8 Strategic Alliances Slide 9 How I’s Can Become We’s Slide 10 The Learning Organization Slide 11 Becoming a Learning Organization Slide 12 The High-Involvement Organization LO 2: Describe the qualities of an organic organizational structure. A. Organizing around core capabilities 1. A well-understood, well-developed core capability can enhance a company’s responsiveness and competitiveness. 2. Managers who want to strengthen their firms’ competitiveness via core capabilities need to focus on several related issues a. Identify existing core capabilities. b. Acquire or build core capabilities that will be important for the future. c. Keep investing in capabilities so that the firm remains world-class and better than competitors. d. Extend capabilities to find new applications and opportunities for the markets of tomorrow. LO 3: Identify strategies and dynamic organizational concepts that can be used to improve an organization’s responsiveness. B. Strategic alliances 1. A strategic alliance is a formal relationship created with the purpose of the joint pursuit of mutual goals. 2. In a strategic alliance, individual organizations share administrative authority, form social links, and accept joint ownership. 3. The best alliances are true partnerships that meet these criteria: (Exhibit 9.3) a. Individual excellence — both partners add value. b. Importance — both partners contribute to meeting strategic objectives. c. Interdependence — both partners need each other. d. Investment — partners devote resources to the relationship. e. Information — partners communicate openly. f. Integration — partners develop shared ways of operating. g. Institutionalization — relationship has formal status h. Integrity — both partners are trustworthy. Multiple Generations at Work Millennials and the Flexible Workplace Many managers are expressing concerns over their ability to find Millennial talent and then, once hired, to motivate and retain them. Some estimates suggest that the average length of time these early career employees stay in a professional job, where training is provided, is about three-years. This tendency to job-hop is very different from the way older generations approached jobs. Each generational cohort in the workplace has its own view of how jobs, reporting relationships, co‐worker interactions, and so forth should be structured. A pressing challenge for managers is how to modify internal organizational structures, so they are more Millennial-friendly without alienating older generations. Example 9.3 Strategic alliance Verizon and SoftBank Telecom have entered into a strategic alliance agreement that benefits multinational customers of both companies doing business in Japan. C. The Learning Organization 1. A learning organization is an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights 2. Essential ingredients to becoming a true learning organization are: a. Their people engage in disciplines thinking and attention to details. b. They search constantly for new knowledge and ways to apply it. c. They carefully review both successes and failures. d. Learning organizations benchmark. e. They share ideas throughout the organization. D. High-Involvement Organization 1. A high-involvement organization is one in which top management ensures that there is a consensus about the direction in which the business is heading. 2. Organizational form is a flat, decentralized structure built around a customer, product or service. CONNECT Self-Assessment: Your Preferred Organizational Structure SUMMARY This self-assessment helps students determine what type of organizational structure they may prefer. Broadly speaking, organizations may be defined as mechanistic or organic structures. ACTIVITY Students answer a series of 15 questions which they score their agreement on a 1-5 scale. Totaling their scores, they see their relative preference for a mechanistic versus organic organizational structure. CLASS DISCUSSION IDEAS Do the students agree with the assessment? What would they do if they found themselves in an organizational structure that did not match their preference? Is there anything an organization or individuals can do to make sure there is a fit between employee preference and organizational structure? III. ORGANIZATIONAL SIZE AND AGILITY POWERPOINTS Slide 13 The Case for Big and Small Organizations Slide 14 Social Enterprise Slide 15 Regaining Responsiveness LO 4: Explain how a firm can be both big and small. A. The Case for Big 1. Scale economies – lower costs per unit of production 2. Economies of scope – economies in which materials and processes employed in one product can be used to make other, related products. Example 9.4 Scale vs. scope economies Another way of defining the difference between economies of scale and economies of scope is given by Gary Wolff of the Pacific Institute: A scale economy exists when a bigger facility will be less expensive per unit A scope economy exists when one facility delivers two services at a lower cost than two facilities, each delivering one service. In economies of scope, a single change can have benefits across multiple sectors. For example, rainwater harvesting can both improve the water supply, and reduce the need for runoff management. B. The Case for Small 1. As firms get larger customers begin to view their products as having lower quality. 2. Small companies can a. move fast. b. provide quality goods and services to targeted market niches. c. inspire greater involvement from their people. d. outmaneuver big bureaucracies. C. Being Big and Small 1. To avoid problems of growth and size, companies decentralize decision-making and organize around small, adaptive, team-based work units. Example 9.5 Being big and small Bell Business Solutions of Montreal is clearly a big business—it has 800 people on staff. But because the company developed out of a merger of many smaller telecom ventures, they use an entrepreneurial style of management to stay small. They have four line units and two support units, which serve as resources to the line units. All of the units are individual profit 2. Companies downsize in an attempt to gain the responsiveness of a small company. 3. Downsizing is the planned elimination of positions or jobs. 4. Rightsizing is a successful effort to achieve an appropriate size at which the company performs most effectively. 5. To ease the pain of downsizing, firms engage in a number of positive practices such as: a. Use downsizing only as a last resort, when other methods of improving performance by innovating or changing procedures have been exhausted. b. Give special attention and help to those who have lost their jobs. c. Identify and protect talented people. d. Choose positions to be eliminated by engaging in analysis and strategic thinking. e. Train people to cope with the new situation. f. Communicate constantly with people about the process and invite ideas for alternative ways to operate more efficiently. g. Identify how the organization will operate more effectively in the future and h. emphasize this positive future and the remaining employees’ new roles in attaining it. CONNECT Video Case: Organizational Agility at DHL SUMMARY Today’s successful companies can’t afford to stand still. They cannot rest on their previous accomplishments. Instead, they use their current successes to continue to build a competitive advantage for the future, constantly seeking new ways to remain flexible, innovative, efficient, and responsive to their customers. One of the most important ways they have of doing that is to make sure that their organization’s structures and systems remain adaptable—prepared to meet the complex and ever-changing challenges that managers and their organizations constantly confront. The 13-minute video presents how DHL “invented international shipping.” DHL started out as a shipper of emergency parts. The responsiveness demanded by customers has embedded itself into the structure and culture of DHL. Their success allowed them to expand quickly and also influenced its method of expansion. DHL’s agility is seen in how it has partnered with U.S. customs to expedited shipping. ACTIVITY After viewing the video, students are directed to answer a series of multiple-choice questions dealing with the structure and systems of DHL. CLASS DISCUSSION IDEAS Could DHL’s success could be copied by the USPS? Are there structural issues that prevent the USPS from having the agility of DHL? Management in Action Progress Report GE Has Big Advantages—And Tries to Act Small Being a corporate giant (revenues of more than $147 billion; 305,000 employees in 175 countries), GE has access to capital and talent. This enables the company to jump in wherever it sees opportunity, be it applications for “big data” or development of energy-efficient batteries. However, CEO Jeff Immelt is well aware that people in a giant corporation can get bogged down by policies and procedures. Can the world’s seventh largest company be agile? • How does GE benefit from being large? Being large gives GE enormous capital to invest. It also has tremendous human resources; for example, its 50,000 engineers and scientists generate many patent applications. Its managers have many opportunities to develop their skills by taking on increasingly larger projects and moving among various functions. • How can GE also reap some of the benefits of smallness? Ways for large companies to acquire some of the agility of a small organization include organizing around core capabilities and forming strategic alliances. GE also could adopt more of the qualities of a learning organization by making sure that employees at all levels are engaged in disciplined thinking, searching constantly for new knowledge, valuing and rewarding the expansion of knowledge and skills, reviewing success and failures to learn from them, benchmarking, and sharing ideas throughout the organization. Finally, GE can decentralize decision-making and organize around small, adaptive teams. IV. CUSTOMERS AND THE RESPONSIVE ORGANIZATION POWERPOINTS Slide 16 Customers and the Responsive Organization Slide 17 Customer Relationship Management Slide 18 Exhibit 9.3 Generic Value Chain Slide 19 Quality Initiatives Slide 20 ISO 9001 Slide 21 Reengineering LO 5: Summarize how firms organize to meet customer requirements. A. Customer Relationship Management 1. Customer relationship management is a multifaceted process, mediated by a set of information technologies that focuses on creating two-way exchanges with customers so that firms have an intimate knowledge of their needs, wants, and buying patterns. (Exhibit 9.5) a. Customers today want BOTH low cost and high-quality b. A company attains and retains a competitive advantage through kaizen—continuous improvement. i. A value chain, as defined by Michael Porter, is the sequence of activities that flow from raw materials to the delivery of a product or service, with additional value created at each step. (Exhibit 9.3) Example 9.6 Organizing for customer responsiveness Jim Yee, at the Union Bank of California, knows that his company serves a niche market, and that customer attention is critical to providing the services people have come to expect. He focuses on supporting the bank’s strategy by running a process engineering department that is commissioned to look at foundational processes across the bank from a customer point of view. B. Quality initiatives 1. Total quality management (TQM) is an integrative approach to management that supports the attainment of customer satisfaction through a wide variety of tools and techniques that result in high-quality goods and services. a. Deming’s “14 points” of quality (Exhibit 9.4): i. Create constancy of purpose ii. Adopt the new philosophy iii. Cease dependence on mass inspection iv. End the practice of awarding business based on price tag alone v. Improve constantly the system of production and service vi. Institute training and retraining vii. Institute leadership viii. Drive out fear ix. Break down barriers among departments x. Eliminate slogans, exhortations, and arbitrary targets xi. Eliminate numerical quotas xii. Remove barriers to pride in workmanship xiii. Institute a vigorous program of education and retraining xiv. Take action to accomplish the transformation 2. Commitment to total quality requires a thorough, extensive, integrated approach to organizing. 3. Six Sigma quality is a method of systematically analyzing work processes to identify and eliminate virtually all causes of defects, standardizing the processes to reach the lowest practicable level of any cause of customer dissatisfaction 4. The Malcolm Baldrige National Quality Award encourages companies to achieve quality excellence, and is granted on the basis of seven criteria: a. Leadership b. Information and analysis c. Strategic quality planning d. Human resource development and management e. Management of process quality f. Quality and operational results g. Customer focus and satisfaction 5. ISO 9001 is a series of quality standards developed by a committee working under the International Organization for Standardization to improve total quality in all businesses for the benefit of producers and consumers. C. Reengineering revolutionizes key organizational systems and processes to answer the question, “If you were the customer, how would you like us to operate?” CONNECT Click and Drag: The Value Chain of a Snowboard Company (A keyboard navigable alternate version is also available.) SUMMARY One way to understand how organizations can add customer value to their products has been provided by Michael Porter, who popularized the concept of the value chain. A value chain is the sequence of activities that flow from raw materials to the delivery of a good or service, with additional value created at each step. Managers can add customer value and build competitive advantage by paying close attention to their organization’s value chain—not only each step in it but the way each step interacts with the others. ACTIVITY Students in this click-and-drag exercise identify which of the activities provided is associated with the steps of a value chain. CLASS DISCUSSION IDEAS Ask students to identify activities associated with the value chain steps for another organization, perhaps the university. V. TECHNOLOGY AND ORGANIZATIONAL AGILITY POWERPOINTS Slide 22 Types of Technology Configurations Slide 23 Exhibit 9.5 Key Features in Mass Customization Slide 24 Manufacturing Slide 25 Organizing for Speed—Time-Based Competition (TBC) LO 6: Identify ways that firms organize around different types of technology. A. Technology is the systematic application of scientific knowledge to a new product, process, or service. 1. Types of technology configurations: a. Small batch technologies – when goods or services are provided in very low volume or small batches, a company that does such work is called a job shop. b. Large batch technologies or mass production technologies produce goods and services in high volume. c. Continuous process technologies are a process that is highly automated and has a continuous production flow. B. Organizing for flexible manufacturing. 1. Mass customization is the production of varied, individually customized products at the low cost of standardized, mass-produced products. (See Exhibit 9.5) 2. Computer-integrated manufacturing encompasses the use of computer-aided design and computer-aided manufacturing to sequence and optimize a number of production processes. 3. Flexible factories are manufacturing plants that have short production runs, are organized around products, and use decentralized scheduling. 4. Lean manufacturing is an operation that strives to achieve the highest possible productivity and total quality, cost effectively, by eliminating unnecessary steps in the production process and continually strives for improvement. For the lean approach to result in a more effective operation, the following conditions must be met (Exhibit 9.6): a. People are broadly trained rather than specialized. b. Communication is informal and horizontal among line workers. c. Equipment is general purpose. d. Work is organized in teams, or cells, that produce a group of similar products. e. Supplier relationships are long-term and cooperative. f. Product development is concurrent, not sequential, and is done by cross-functional teams. Example 9.7 Lean manufacturing Buck Knives in Post Falls, Idaho had a problem. They were warehousing large amounts of partially-made knives, and those knives took up floor space and had to be tracked. Lean manufacturing, or looking at production from the perspective of the customer, solved this problem. Now the company uses value stream analysis to determine which actions have the most value for the customer, and Kaizen Events to determine how to do these actions most effectively. The company uses work cells of 12 to 13 people to make products from beginning to end, thereby increasing efficiency. At any given point in time, the company will have knife parts or completed knives, but nothing in-between, thereby avoiding the inventory problems the company had earlier. C. Organizing for speed: Time-based competition (TBC) refers to strategies aimed at reducing the total time it takes to deliver the product or service. Key organizational elements to TBC: 1. Logistics, which is the movement of resources into the organization (inbound) and products from the organizations to its customers (outbound). 2. Just-in-time operations (JIT) is a system that calls for subassemblies and components to be manufactured in very small lots and delivered to the next stage of the production process just as they are needed. 3. Concurrent engineering is a design approach in which all relevant functions cooperate jointly and continually in a maximum effort aimed at producing high-quality production that meets customers’ needs. VI. FINAL THOUGHTS ON ORGANIZATIONAL AGILITY POWERPOINTS Slide 26 Management in Action Slide 27 In Review A. Any approach to organizing has its strengths and limitations. Today’s advantages are tomorrow’s “table stakes” requirements that need to be met if a firm expects to be a major player in an industry. B. Successful organizations do not sit still—they are always aware of changes in their environment, and they are able to respond to those changes quickly, efficiently, and effectively. Management in Action Onward GE’s Pursuit of High Quality and Leanness GE tries to be responsive in a variety of ways. Among these are the use of Six Sigma to continually improve quality and Lean methods to improve efficiency by eliminating waste. These methods make change a constant part of doing business at GE. • How else might GE become more responsive to its customers? Other ways to be responsive to customers include using a customer relationships management (CRM) system. It can expand the drive to satisfy customers to include serving “internal customers”—whatever person in the organization who receives the work done by an employee. Other quality initiatives GE might consider are total quality management and ISO 9001. • Based on the information in the three parts of this case, how would you rate GE’s organizational agility? Summarize your reasons for this rating. Answers will vary. Students should consider GE’s large size; its efforts at continuous improvement in the areas of quality, efficiency, and responsiveness; and its business performance. BOTTOM LINE How can lack of speed kill an organization? Many customers care about when they can obtain a product, once they have decided to make a purchase. If the organization cannot meet customers’ demand for timely delivery, the customers will go elsewhere. Likewise, customers who do not receive timely information or support will take their business elsewhere in the future. Lack of speed also can leave organizations behind the competition when it comes to introducing new products or other innovations. Slowness in support functions can be deadly, too; think of an organization that is too slow in making a job offer to talented individuals, takes its time in collecting debts, doesn’t get around to noticing trends until everyone else is onboard, or misses due dates when paying its bills and its taxes. Does your school have a core competence? If so, what is it? Answers will vary. Students might think about why they decided to attend this particular school. This is a chance to think about the different areas in which an organization might have capabilities—in this case, perhaps a strong curriculum in certain fields, well-respected teachers, reasonable tuition, great location, excellent recruiter, popular sports teams, and so on. How might an alliance increase innovation? Answers will vary. An obvious possibility is that it brings together people—and their ideas and perspectives—from more sources. An alliance also might share data that would suggest areas of innovation. How has General Electric’s large size affected its ability to compete? Basic points about large companies apply: High volume of production leads to economies of scale, as well as greater purchasing power and easier access to capital. Students may also be aware of economies of scope, such as GE’s application of materials and processes to make a wide variety of products, including light bulbs and engines. A salesperson learns about a customer’s new challenge. Why might a small company be able to react to this information faster? In a small company, there are fewer bureaucratic layers and divisional silos for an idea to travel through between the salesperson and the individuals with the skills and authority to act on the idea. If the company is very small, the salesperson might be able to have a personal chat with the key decision makers, and in that case, the salesperson will be better able to convey his or her excitement about the idea as well as the basic facts. (Of course, that doesn’t mean a large company can’t ever react fast; it could put into place a system for submitting and responding to ideas.) How does a rigid bureaucracy make it difficult to meet all these challenges at once? Meeting so many challenges at once requires the ability to make changes rapidly when customer tastes and needs shift, a problem occurs, or new technologies are developed. In a rigid bureaucracy, time passes as employees identify the need or opportunity, explain it to decision makers, and finally plan and implement a change. There might be a tendency to say the issue at hand is not the responsibility of one’s department. What happens when the commitment to quality is weak at the top of an organization? In that situation, the organizational culture probably won’t support high quality, the rewards for performance won’t be related to high quality, and resources won’t be directed to activities or people who ensure high quality. At worst, efforts to improve quality might be criticized as “too expensive” or “taking up too much time.” What other drivers of success can reengineering improve? Reengineering can improve quality, customer service, and sustainability (by reducing waste). It also can increase speed (reduce time to market). Give an example of a product you’d like to have customized for your personal preferences. Have you found a customized version yet? If not, you may someday. Answers will vary. Examples of popularly customized products include personal computers, cars, and blue jeans. Which of the quality improvement approaches is often combined with lean manufacturing? As described earlier in the chapter, lean manufacturing is often combined with Six Sigma into an approach known as Lean Six Sigma. Give an example of a situation in which speed would be important for a book publisher. Answers will vary. Speed would logically be important when it is important to release a book ahead of competitors or on a schedule needed by the book’s target market. Examples would include situations in which the topic of the book is a current event or new discovery where readers will prefer a book released ahead of competing titles. An example of a book released according to buyers’ schedules would be a textbook released in time to be adopted for use in the coming school year. SOCIAL ENTERPRISE Increasing Impact: Scaling Social Enterprises Social enterprises typically begin as small, grassroots efforts whose goal is to create a sustainable organization that helps solve important social problems. What happens when social enterprises want to scale their operations to impact the lives of more people? Here are some issues for the leaders of SEs to consider: 1. Consider alliances with governments. Governments are the largest consumers of social investment. If a social enterprise’s mission aligns with a government’s social investment priorities, a productive alliance could be formed. Currently, the G8 governments view social enterprises as a way of “tackling social problems, driving innovation and helping economic growth.” 2. Partner with big businesses. Big businesses can bring considerable resources to bear on social problems. For this to happen, social enterprises need to develop a viable business model that big businesses are willing to support. Network for Good, an online giving and fund-raising platform was founded with the help of AOL, the Cisco Foundation, and Yahoo!. Since 2001, the social enterprise has processed over $1 billion for more than 100,000 nonprofits. 3. Do not lose sight of what matters. As a social enterprise grows in size and complexity, there is a “risk that it will become detached and unresponsive to the grassroots.” Selco Solar, a provider of sustainable energy solutions, manages this risk of becoming too big by “incubating others who can replicate their model in other geographic areas, rather than scaling themselves.” Like for-profit companies, social enterprises need to strike the right balance between being big and small. 1. As Social Enterprises try to get larger, what unique challenges do they face? Social enterprises may face a lack of resources as they get larger. This is why it is important for them to consider alliances with governments and partnerships with big businesses. However, as they grow, social enterprises may forget what they are really fighting for. As small organizations, their missions were clearer, but now that they have grown, their missions may be more convoluted. 2. What are some of the drawbacks associated with partnering with governments or big businesses? If you ran an SE, which of these options would you pursue? Answers will vary on which option students would choose, but it is important to understand that partnering with governments and big businesses has some drawbacks. First, these entities may not share your social enterprise’s core values and mission. Second, due to their abundant resources, these large units may dictate operations and procedures to the extent that you are not able to run your social enterprise as you want. LECTURETTES LECTURETTE 9.1: The Ideal and Future of Bureaucracy THE IDEAL BUREAUCRACY 1. Max Weber, a German sociologist, made his mark on management theory when he developed his concept of bureaucracy. As large organizations were evolving out of the industrial revolution, they clearly lacked a basis for orderly organization and management. To meet this need, Weber designed his “ideal bureaucracy” to improve the operations of large, complex organizations. 2. Weber coined the term “bureaucracy” based on the German word, “buro,” which meant office. Weber’s ideal bureaucracy was a large organization that operated on a rational basis. 3. Weber understood that the “ideal bureaucracy” did not exist anywhere, but he advocated that managers should work to that end by creating organizations with the following characteristics: Specialization of Labor Tasks should be broken down into routine, well-defined activities so that all employees would know exactly what is expected of them and would become, in a short time, expert in their specific task assignments. Formal Rules and Procedures There should be a documentation of rules and procedures that would clearly: Delineate work behaviors. Facilitate work coordination. Ensure uniformity of work and behavior. Impersonality Once rules, procedures, and sanctions are documented, and they should be uniformly applied to all employees, with no adjustment for personalities or other personal considerations. Well-defined Hierarchy Positions should be placed on multiple levels, with precise reporting relationships among levels. The hierarchy provides for the supervision of lower-level offices by higher-level ones, a method for handling exceptions, and the ability to establish accountability. Career Advancement Based Employee selection, placement, and promotion on Merit should be based on the individual qualifications and performance of the employee. THE OFFICERS IN A BUREAUCRACY 1. According to Weber, one of the critical features of the ideal bureaucracy was the appointment of its officers. It was his contention that all organizational officers (managers) should be appointed and should function according to the following criteria: Officers (managers) are free as individuals and are subject to organizational authority only in terms of their impersonal, official obligations. Officers (managers) are to be organized in a clearly established hierarchy of offices. Each managerial office should have a clearly defined sphere of competence. Each managerial office should be filled in a spirit of a free contractual relationship. Candidates for the managerial offices should be selected on the basis of technical qualifications. Officers (managers) should be compensated through fixed salaries, with salary scales graded primarily on the basis of rank in the organizational hierarchy. The employing institution would not have the right to terminate an officer’s appointment, except under certain circumstances. However, the officer is always free to resign the position. Once appointed to a position, that office should be treated as the sole, or at least the fundamental, occupation of the office holder. Serving as an organizational officer should be perceived as a career with a system of promotion based on achievement or authority, or both. The officer (manager) works apart from the ownership. The officer (manager) should be subject to a system of strict discipline and control with respect to the conduct of the office. THE COMING DEATH OF BUREAUCRACY 1. Contemporary management writers, reflecting the public’s negative attitude toward modern-day bureaucracies with their red tape and complexities, argue that bureaucracies will die unless they are able to adapt to the change in their environments. 2. Weber would agree because he never envisioned the sort of bureaucracy that has evolved and replaced his “ideal bureaucracy.” Over the years, bureaucracies have moved away from Weber’s ideal and have assumed a number of negative characteristics, which will probably cause their demise. Specifically, they: No longer allow for adequate personal growth and development. Foster “groupthink” and stubborn conformity to norms. Fail to consider the informal organization and the people problems therein. Have obsolete control systems. Have no judicial process. Have no mechanism for resolving differences and conflicts that occur between ranks and between functional work groups. Stifle communication and creative ideas. Fail to utilize the full value of their human resources due to employee fear and mistrust. Cannot assimilate the wave of new technology. Modify the personalities of their members who reflect the dull and conditioned “organization man.” 3. Bureaucracies must clean up their acts or die. LECTURETTE 9.2: Organizational Culture ORGANIZATIONAL CULTURE DEFINED 1. The concept of organizational culture has evolved from a number of definitions, such as: The way we do things around here. A belief system that is shared by members of the organization. The collective programming of the mind. Collective understandings. Strong, widely shared core values. A set of shared beliefs communicated through a variety of symbolic media. A set of symbols, ceremonies, and myths that communicate the fundamental values and beliefs of the organization to its employees. 2. Texts define corporate culture as a set of important assumptions about the organization, and its goals, problems, and practices that members of the company share. 3. It seems clear that these definitions of organizational culture agree; that it is a shared system of core values. THE NATURE OF ORGANIZATIONAL CULTURE 1. Those shared organizational values that define organizational culture have the following characteristics: Individual initiative – that degree of responsibility, freedom, and independence that individuals enjoy. Risk tolerance – that degree to which members are encouraged to be innovative and risk-taking. Direction – that degree to which the organization creates clear performance objectives. Integration – that degree to which organizational work units are encouraged to work in a cooperative manner. Management support – that degree to which management provides open communication, assistance, trust, and support to subordinates. Control – a number of rules and regulations and the amount of close supervision that is utilized to control subordinates. Identity – that degree to which members identify with the organization. Reward system – that degree to which rewards are allocated based on employee performance. Conflict tolerance – that degree to which employees are encouraged to air conflicts and criticisms openly. Communication patterns – that degree to which organizational communication is restricted to the formal hierarchy. 2. The shared beliefs and core values that constitute organizational culture are transmitted to employees by way of rites and ceremonies, stories, legends, and myths. Rites and ceremonies are elaborately planned activities at a special event. There are four types of rites used by organizations to transmit culture to their members. The rites of: Passage facilitates the transition of a member into new roles. For instance, all new employees go through new employee indoctrination. Enhancement emphasizes social identity and status. For example, some firms have annual awards dinners. Renewals are developmental activities that increase member status. For example, a member might be selected to attend a special training program. Integration creates common bonds among members and commitment to the organization. For example, a department might hold an annual picnic. Stories are true narratives through which organizational information is shared among members. Legends are organizational history stories that may be, at least, partly fictional. Myths convey consistent values but are not based on fact. 3. An organization’s dominant culture delineates the core values that are shared by most of the members. 4. Subcultures are minicultures that tend to exist within specific departments or workgroups. 5. Core values are the dominant values of an organization that are shared by all its members. MANAGING CULTURAL CHANGE 1. Major organizational change must be preceded by changes in the organization’s culture. Therefore, culture is seen as a phenomenon that management must learn to manage. Organizational culture can be changed by using the following strategies: Conduct a cultural audit to be sure the present culture is well understood. Create a cultural vision, a cultural dream that exemplifies desired core values. Involve organizational members in the change process. Communication is the key tool for the management of culture. Reward systems must be made to reinforce the new culture and its core values. Top management commitment to the change is essential. Establish a socialization process that effectively indoctrinates new employees with respect to the new culture. Be patient with the process, for it takes time to inculcate a new culture. Instructor Manual for Management: Leading and Collaborating in a Competitive World Thomas S. Bateman, Scott A. Snell, Robert Konopaske 9781259927645, 9781259546945
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