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This Document Contains Chapters 13 to 15 Instructor’s Manual to Accompany Organizational Behavior 7/e by Steven L. McShane and Mary Ann Von Glinow Chapter 13: Designing Organizational Structures Prepared by: Steven L. McShane, The University of Western Australia Designing Organizational 13 Structures LEARNING OBJECTIVES After reading this chapter, students should be able to: 1. Describe three types of coordination in organizational structures. 2. Discuss the role and effects of span of control, centralization, and formalization, and relate these elements to organic and mechanistic organizational structures. 3. Identify and evaluate six types of departmentalization. 4. Explain how the external environment, organizational size, technology, and strategy are relevant when designing an organizational structure. CHAPTER GLOSSARY centralization -- the degree to which formal decision making authority is held by a small group of people, typically those at the top of the organizational hierarchy. divisional structure – An organizational structure in which employees are organized around geographic areas, outputs (products or services), or clients. formalization -- the degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms. functional structure – an organizational structure in which employees are organized around specific knowledge or other resources. globally integrated enterprise – an organizational structure in which work processes and executive functions are distributed around the world through global centers, rather than developed in a home country and replicated in satellite countries or regions matrix structure -- an organizational structure that overlays two structures (such as a geographic divisional and a functional structure) in order to leverage the benefits of both. mechanistic structure -- an organizational structure with a narrow span of control and a high degree of formalization and centralization. network structure -- An alliance of several organizations for the purpose of creating a product or serving a client. organic structure -- an organizational structure with a wide span of control, little formalization and decentralized decision making. organizational strategy -- the way the organization positions itself in its setting in relation to its stakeholders, given the organization's resources, capabilities, and mission. organizational structure -- the division of labor as well as the patterns of coordination, communication, workflow, and formal power that direct organizational activities. span of control -- the number of people directly reporting to the next level in the hierarchy. team-based organizational structure – an organizational structure built around self-directed teams that complete an entire piece of work CHAPTER SUMMARY BY LEARNING OBJECTIVE 13-1 Describe three types of coordination in organizational structures. Organizational structure is the division of labor, as well as the patterns of coordination, communication, workflow, and formal power, that direct organizational activities. All organizational structures divide labor into distinct tasks and coordinate that labor to accomplish common goals. The primary means of coordination are informal communication, formal hierarchy, and standardization. 13-2 Discuss the role and effects of span of control, centralization, and formalization, and relate these elements to organic and mechanistic organizational structures. The four basic elements of organizational structure are span of control, centralization, formalization, and departmentalization. The optimal span of control—the number of people directly reporting to the next level in the hierarchy—depends on what coordinating mechanisms are present other than formal hierarchy, whether employees perform routine tasks, and how much interdependence there is among employees within the department. Centralization occurs when formal decision authority is held by a small group of people, typically senior executives. Many companies decentralize as they become larger and more complex, but some sections of the company may remain centralized while other sections decentralize. Formalization is the degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms. Companies become more formalized as they get older and larger. Formalization tends to reduce organizational flexibility, organizational learning, creativity, and job satisfaction. Span of control, centralization, and formalization cluster into mechanistic and organic structures. Mechanistic structures are characterized by a narrow span of control and a high degree of formalization and centralization. Companies with an organic structure have the opposite characteristics. 13-3 Identify and evaluate six types of departmentalization. Departmentalization specifies how employees and their activities are grouped together. It establishes the chain of command, focuses people around common mental models, and encourages coordination through informal communication among people and subunits. A simple structure employs few people, has minimal hierarchy, and typically offers one distinct product or service. A functional structure organizes employees around specific knowledge or other resources. This structure fosters greater specialization and improves direct supervision, but it weakens the focus on serving clients or developing products. A divisional structure groups employees around geographic areas, clients, or outputs. This structure accommodates growth and focuses employee attention on products or customers rather than tasks. However, this structure also duplicates resources and creates silos of knowledge. Team-based structures are very flat, with low formalization, and organize self-directed teams around work processes rather than functional specialties. The matrix structure combines two structures to leverage the benefits of both types. However, this approach requires more coordination than functional or pure divisional structures, may dilute ac- countability, and increases conflict. A network structure is an alliance of several organizations for the purpose of creating a product or serving a client. 13-4 Explain the relevance of the external environment, organizational size, technology, and strategy for designing an organizational structure. The best organizational structure depends on whether the environment is dynamic or stable, complex or simple, diverse or integrated, and hostile or munificent. Another contingency is the organization’s size. Larger organizations need to become more decentralized and more formalized. The work unit’s technology—including variability of work and analyzability of problems—influences whether it should adopt an organic or mechanistic structure. These contingencies influence but do not necessarily determine structure. Instead, corporate leaders formulate and implement strategies that shape both the characteristics of these contingencies and the organization’s resulting structure. LECTURE OUTLINE (WITH POWERPOINT® SLIDES) Designing Organizational Structures Slide 1 Valve Corporation’s Organizational Structure Valve Corporation has a flat, organic organizational structure to leverage the creative and entrepreneurial potential of its 300 employees. Valve Corporation’s Organizational Structure Slide 2 Organizational Structure Defined Division of labor and patterns of coordination, communication, workflow, and formal power that direct organizational activities • More than just an organizational chart Organizational Structure Defined • Relates to job design, team dynamics, power relationships, etc. Slide 3 Division of Labor and Coordination Division of labor results in job specialization • Work subdivided into separate jobs, assigned to different people • Improves work efficiency Division of Labor and Coordination Coordination of work Slide 4 • Value of dividing labor is limited to ability to coordinate that work • Coordinating work can be costly, which also limits work division • Every organization uses one or more of three coordinating mechanisms ➡ informal communication ➡ formal hierarchy ➡ standardization Coordination through Informal Communication • All organizations use informal communication to coordinate work • Sharing information, forming common mental models • Vital in nonroutine and ambiguous situations – media rich channels Coordination through Informal Communication • Easiest in small firms, but information technologies extends use of Slide 5 informal communication in large firms • Larger organizations also apply informal communication through: 1. Liaison roles – employees who are expected to communicate and share information with co-workers in other work units 2. Integrator roles – Employees responsible for coordinating a work process by encouraging others to share information 3. Temporary teams – cross-functional project team from various departments Other Coordinating Mechanisms processes and allocate resources Slide 6 • Necessary in larger firms, but has problems: a) reduces firm’s agile in complex/novel situations b) creates costly bureaucracy c) conflicts with employee autonomy and involvement Standardization Creating routine patterns of behavior or output Three forms of standardization 1. Standardized processes -- job descriptions and procedures 2. Standardized outputs -- clear goals and outputs (e.g. sales targets) 3. Standardized skills -- extensive training for precise role behaviors Elements of Organizational Structure Four basic elements of organizational structure 1. Span of control Elements of 2. Centralization Organizational Structure 3. Formalization Slide 7 4. Departmentalization KenGen’s Flatter Structure KenGen, Kenya’s leading electricity generation company, reduced its hierarchy from 15 layers to just 6 layers. “This flatter structure has reduced bureaucracy and it has also improved teamwork,” explains KenGen’s Flatter KenGen executive Simon Ngure Structure Slide 8 Span of Control Slide 9 ➡ e.g. self-directed teams coordinate through informal communication and specialized knowledge (standardization) 2. Tasks are routine ➡ require less direction/advice from supervisors 3. Low employee interdependence ➡ less interpersonal conflict and clearer roles/responsibilities, so less supervisor intervention needed Tall vs. Flat Structures Span of control is interconnected with organizational size (number of employees) and number of layers in the hierarchy Tall vs. Flat Structures As companies grow, they (a) build a taller hierarchy and/or (b) widen Slide 10 span of control Problems with tall hierarchies • Information to execs is filtered, distorted, slowed up hierarchy • Higher overhead costs – more managers per employee • Undermines employee empowerment/engagement -- hierarchies draw power away from front line jobs Centralization/ Decentralization Slide 11 Decentralization • Decision authority/power is dispersed throughout the organization • Firms decentralize as they get larger and older Centralization/decentralization varies in different parts of the organization • e.g. marketing decentralized, IT centralized Centralization/Decentralization Centralization • Formal decision making authority is held by a small group of people, typically at the top of the hierarchy Formalization Standardizing behavior through rules, procedures, formal training, and related mechanisms. • More formalization with firm’s age, size, regulations Formalization Slide 12 Problems with formalization • Less organizational flexibility – employees follow prescribed behaviors even when the situation calls for a customized response • Discourages organizational learning and creativity • Less work efficiency – work rules become convoluted • Increases job dissatisfaction and work stress • Rules/procedures become the focus of attention Mechanistic vs. Organic Structures Mechanistic structure • Narrow span of control – more supervision of staff • High centralization – limited decision making at lower levels Mechanistic vs. Organic Structures • High formalization – many rules and procedures, rigidly defined jobs Slide 13 Organic structure • Wide span of control -- less supervision, more employees per manager • Decentralized decision making -- more employee autonomy • Low formalization – few rules/procedures (i.e. less coordination through standardized processes) • Works better when employees have well-developed roles and expertise (i.e. standardization through skills) Mechanistic structures better in stable environments -- easier to establish routine behaviors Organic structures better in rapidly changing (dynamic) environments -- more flexible and responsive to these changes Departmentalization Specifies how employees and their activities are grouped together – reflected in organizational chart Three functions of departmentalization: 1. Establishes chain of command (supervision structure) 2. Creates common mental models, measures of performance 3. Encourages staff to coordinate through informal communication – members typically work near each other Features of Simple Structures • Employ only a few people and typically offer only one distinct product or service • Minimal hierarchy – employees usually report to the owners • Roles are broadly defined – to maintain flexibility • Informal communication for coordination – minimizes walls between employees • Centralized structure – owners provide direct supervision to coordinate tasks Functional Organizational Structure Organizes employees around specific knowledge or resources (marketing, production) Functional Typically centralized – to coordinate diverse activities Organizational Structure Slide 14 Most firms have functional structure at some level of the hierarchy or at some time in their history Evaluating Functional Structures Benefits • Economies of scale – specialized pools of talent • Supports employee identity with the specialization or profession Evaluating Functional Structures • Direct supervision is easier – employees have common issues Slide 15 Limitations • More emphasis on skills/professional needs than on the company’s product, service, or client needs • Higher dysfunctional conflict across units • Poorer coordination – requires more controls Divisional Structure Slide 17 • Client – organizes employees around specific customer groups Best form depends on main environmental diversity or uncertainty • e.g. product structure if company sells several types of products • e.g. geographic structure if clients needs vary across regions Geographic divisional structures becoming less common because: • Less need for local representation – clients can purchase online and communicate with businesses from anywhere • Reduced geographic variation – consumer preferences are converging around the world • More global clients who demand one global point of purchase Globally Integrated Enterprise Globally integrated enterprise • Work processes and executive functions are distributed around the world through global centers, rather than developed in a home country and replicated in satellite countries or regions • Functional heads are geographically distributed – sensitive to cultural and market differences • Firm’s “home” country is no longer focus of business – divisional Divisional Structure Different forms of divisional structure • Geographic – organizes employees around distinct regions • Product – organizes employees around distinct outputs Evaluating Divisional Structures Benefits • Building block structure – accommodates growth • Focuses employee attention on products/customers, not own skills Evaluating Divisional Structures Limitations Slide 18 • Duplicates resources-- inefficient use of resources, not pooled • Creates silos of knowledge -- expertise isolated across divisions • Executive power affected by shifting divisional structure (e.g., from region to product) -- common due to complex environment Team-Based Structure Built around self-directed work teams, organized around work processes • Typically an organic structure ➡ wide span of control -- teams operate with minimal supervision Team-Based Structure ➡ decentralized -- team makes day-to-day decisions Slide 19 ➡ low formalization -- teams use more communication, less strict procedures • Usually found within divisionalized structure, but some firms are completely team-based structures (e.g., Valve, W.L. Gore) Evaluating Team-Based Structures Benefits • Responsive, flexible in turbulent environments • Lower administrative costs – less formal hierarchy Evaluating Team-Based Structures • Quicker and informed decision making Slide 20 Limitations • Costly interpersonal skill training • Takes longer to coordinate during team development (compared to coordinating work through formal hierarchy) • Role ambiguity increases employee stress • Team leader issues -- less power, ambiguous roles and careers • Duplication of resources across teams, potential competition ABB’s Geographic-Product Matrix Structure Simplified example of example ABB Group’s matrix structure): • Organized around products (power systems, process automation) and regions (North America, Europe) ABB’s Geographic-Product Matrix Structure • One person in each region reports to both country head and product head Slide 21 • Product and region heads might not have equal power • Matrix sometimes created only for some regions due to large size, high potential, and/or low visibility to CEO’s office (e.g., China) Project-based matrix structure (see bonus slide) • Most employees assigned permanently to a functional unit (engineering, design, marketing) but located temporarily in a specific project unit (Game #1, Game #2, etc) Evaluating Matrix Structures Benefits • Uses resources/expertise effectively – good for fluctuating workloads • Potentially better communication, project flexibility, innovation Evaluating Matrix Structures • Focuses employees on serving clients or creating products Slide 22 • Supports knowledge sharing within specialty across groups • Solution when two divisions deserve equal importance Limitations • More conflict among managers who share power -- different priorities • Two bosses dilutes accountability • More dysfunctional conflict and stress Network Structure Alliance of firms creating a product/service • Emphasis on core competencies – outsource to specialists • More common with changing technology, complex work processes Evaluating Network Structures • Benefits • Highly flexible – easy to change alliances • Potentially better use of skills and technology • Not saddled with nonessential facilities and resources • Limitations • Exposed to market forces – risk of higher costs • Less control over subcontractors than in-house External Environment & Structure Preferred structure depends on external environment contingencies 1. Dynamic vs. stable environments • Dynamic environments: (high rate of change, novel situations) – organic External Environment & structures are best e.g. team-based, network Structure Slide 23 • Stable environments: (regular cycles of activity) – mechanistic structures are best (when environment is predictable) 2. Complex vs. simple environments • Complex environment – more elements to consider • Simple environments – few things to monitor • Decentralize -- better decisions for complex environments External Environment & • Align division/matrix with greatest diversity (e.g. product division in firms Structure (con’t) Slide 24 where products vary but clients similar across regions) Hostile vs. munificent environments • Hostile environment – dynamic, so resource scarcity, more competition • Munificent environment – plenty of resources and product demand • Organic structures better for hostile environments • Centralization occurs in extremely hostile environments, but could lead to worse decisions and too slow decentralization later External Environment & Structure (con’t) 3. Diverse vs. integrated environments • Diverse environment – more varied products/services, clients, regions • Integrated environment – only one client, product, and geographic area Effects of Organizational Size As organizations grow, they: 1. Increase division of labor (job specialization) Effects of Organizational 2. Increase coordination through standardization and formal hierarchy Size 3. Increase decentralization – push decision making down hierarchy Slide 25 Technology and Structure Technology refers to mechanisms or processes by which an organization turns out its product or service Technology and Two contingencies: (see job design in Chapter 6) Structure • Variability – the number of exceptions to standard procedure that tend Slide 26 to occur • Analyzability – the predictability or difficulty of the work • Example: when employees perform tasks with high variety and low analyzability an organic structure should be used e.g. research Organizational Strategy Represents the decisions and actions applied to achieve the organization’s goals Organizational Strategy Structure follows strategy Slide 27 • Strategy points to the environments in which the organization will operate • Leaders decide which structure to apply – results from conscious human decisions Compete through innovation • Providing unique products or attracting clients who want customization – more organic structure is preferred Cost leadership strategy (low-cost strategy) • Maximize productivity to offer competitive pricing – mechanistic structure is preferred Designing Organizational Structures Slide 28 [Bonus Slide] Project-based Matrix Structure Most employees assigned permanently to a functional unit (engineering, design, marketing) but located temporarily in a specific project unit (Game #1, Game #2, etc) Project-based Matrix Structure In this example (similar to BioWare’s matrix structure): Slide 29 • Organized around functions (art, audio, programming) and team-based game development projects • Employees are assigned to a cross-functional team responsible for a specific game project, yet also belong to a permanent functional unit from which they are reassigned Instructor’s Manual to Accompany Organizational Behavior 7/e by Steven L. McShane and Mary Ann Von Glinow Chapter 14: Organizational Culture Prepared by: Steven L. McShane, The University of Western Australia Introduction to the Field 14 of Organizational Behavior LEARNING OBJECTIVES After reading this chapter, students should be able to: 1. Describe the elements of organizational culture and discuss the importance of organizational subcultures. 2. List four categories of artifacts through which corporate culture is deciphered. 3. Discuss the importance of organizational culture and the conditions under which organizational culture strength improves organizational performance. 4. Compare and contrast four strategies for merging organizational cultures. 5. Identify five strategies for changing or strengthening an organization’s culture, including the application of attraction- selection-attrition theory. 6. Describe the organizational socialization process and identify strategies to improve that process. CHAPTER GLOSSARY adaptive culture -- an organizational culture in which employees are receptive to change, including the ongoing alignment of the organization to its environment and continuous improvement of internal processes. artifacts -- the observable symbols and signs of an organization’s culture. attraction-selection-attrition (ASA) theory -- A theory which states that organizations have a natural tendency to attract, select, and retain people with values and personality characteristics that are consistent with the organization’s character, resulting in a more homogeneous organization and a stronger culture bicultural audit – a process of diagnosing cultural relations between the companies and determining the extent to which cultural clashes will likely occur. ceremonies -- planned displays of organizational culture, conducted specifically for the benefit of an audience. organizational culture -- the values and assumptions shared within an organization. organizational socialization -- the process by which individuals learn the values, expected behaviors, and social knowledge necessary to assume their roles in the organization. psychological contract -- The individual’s beliefs about the terms and conditions of a reciprocal exchange agreement between that person and another party (typically the employer). realistic job preview (RJP) -- A method of improving organizational socialization in which job applicants are given a balance of positive and negative information about the job and work context. reality shock -- the stress that results when employees perceive discrepancies between their pre-employment expectations and on-the-job reality. rituals -- the programmed routines of daily organizational life that dramatize the organization's culture. CHAPTER SUMMARY BY LEARNING OBJECTIVE 14-1 Describe the elements of organizational culture and discuss the importance of organizational subcultures. Organizational culture consists of the values and assumptions shared within an organization. Shared assumptions are nonconscious, taken-for-granted perceptions or beliefs that have worked so well in the past that they are considered the correct way to think and act toward problems and opportunities. Values are stable, evaluative beliefs that guide our preferences for outcomes or courses of action in a variety of situations. Organizations differ in their cultural content, that is, the relative ordering of values. There are several classifications of organizational culture, but they tend to oversimplify the wide variety of cultures and completely ignore the underlying assumptions of culture. Organizations have subcultures as well as the dominant culture. Subcultures maintain the organization’s standards of performance and ethical behavior. They are also the source of emerging values that replace misaligned core values. 14-2 List four categories of artifacts through which corporate culture is deciphered. Artifacts are the observable symbols and signs of an organization’s culture. Four broad categories of artifacts include organizational stories and legends, rituals and ceremonies, language, and physical structures and symbols. Understanding an organization’s culture requires the assessment of many artifacts, because they are subtle and often ambiguous. 14-3 Discuss the importance of organizational culture and the conditions under which organizational culture strength improves organizational performance. Organizational culture has three main functions: a form of social control, the “social glue” that bonds people together, and a way to help employees make sense of the workplace. Companies with strong cultures generally perform better than those with weak cultures, but only when the cultural content is appropriate for the organization’s environment. Also, the culture should not be so strong that it drives out dissenting values, which may form emerging values for the future. Organizations should have adaptive cultures so that employees support ongoing change in the organization and their own roles. 14-4 Compare and contrast five strategies for merging organizational cultures. Organizational culture clashes are common in mergers and acquisitions. This problem can be minimized by performing a bicultural audit to diagnose the compatibility of the organizational cultures. The four main strategies for merging different corporate cultures are integration, deculturation, assimilation, and separation. 14-5 Describe five strategies for changing and strengthening an organization’s culture, including the application of attraction-selection-attrition theory. An organization’s culture begins with its founders and leaders, because they use personal values to transform the organization. The founder’s activities are later retold as organizational stories. Companies also introduce artifacts as mechanisms to maintain or change the culture. A related strategy is to introduce rewards and recognition practices that are consistent with the desired cultural values. A fourth method to change and strengthen an organization’s culture is to support workforce stability and communication. Stability is necessary because culture exists in employees. Communication activities improve sharing of the culture. Finally, companies strengthen and change their culture by attracting and selecting applicants with personal values that fit the company’s culture, by encouraging those with misaligned values to leave the company, and by engaging in organizational socialization— the process by which individuals learn the values, expected behaviors, and social knowledge necessary to assume their roles in the organization. 14-6 Describe the organizational socialization process and identify strategies to improve that process. Organizational socialization is the process by which individuals learn the values, expected behaviors, and social knowledge necessary to assume their roles in the organization. It is a process of both learning and adjustment. During this process, job applicants and newcomers develop and test their psychological contract—personal beliefs about the terms and conditions of a reciprocal exchange agreement between that person and another party (the employer). Employees typically pass through three socialization stages: pre-employment, encounter, and role management. To manage the socialization process, organizations should introduce realistic job previews (RJPs) and recognize the value of socialization agents in the process. These RJPs give job applicants a realistic balance of positive and negative information about the job and work context. Socialization agents provide information and social support during the socialization process. LECTURE OUTLINE (WITH POWERPOINT® SLIDES) Zappos’ Organizational Culture Slide 2 Organizational Culture Defined The values and assumptions shared within an organization Defines what is important and unimportant and directs everyone in the Organizational Culture organization toward the “right way” of doing things Defined Slide 3 Company’s DNA – invisible to the eye, yet a powerful template that shapes employee behavior in the workplace Elements of Organizational Culture Shared assumptions • Essence of organizational culture – unconscious • Taken-for granted perceptions or ideal prototypes of behavior – only Elements of Organizational Culture discovered by observing employees Slide 4 Shared values • Employees have these in common (shared) and place near top of their values hierarchy • Enacted values -- actually used to guide decisions and behavior • Not espoused values -- values the company wants others to believe guide the its decisions and actions, or hope will eventually guide Artifacts • Observable symbols and signs of an organization’s culture Content of • Oversimplifies the diversity of cultural values Organizational Culture Slide 5 • Ignores shared assumptions because they represent a deeper aspect of culture • Adopts an “integration” perspective – assumes that organizations have a fairly clear, unified culture that is easy to decipher An organization’s culture is blurry/fuzzy: • Consists of diverse subcultures (fragmentation) • Values exist within individuals, not work units Content of Organizational Culture Cultural content – the relative ordering of shared values Problems with measuring organizational culture: Organizational Culture Profile One of many models identifying content of org culture This model identifies 7 corporate cultural dimensions: Innovation, Organizational Culture Stability, Respect for people, Outcome orientation, Attention to Profile Slide 6 detail, Team orientation, Aggressiveness Problems with these org culture content models 1. Oversimplify -- many more values and combinations than are identified in these models 2. Ignore assumptions -- models focus on values, not shared assumptions 3. Assume cultures are “integrated” -- org cultures are actually “fragmented” (blurry, somewhat diverse, have subcultures) Organizational Subcultures Slide 7 Subcultures • Located throughout the organization • May enhance or oppose (countercultures) firm’s dominant culture • Some firms have subcultures without a dominant culture Two functions of countercultures: • Surveillance and critical review of the dominant culture and maintain standards of ethical behavior • Source of emerging values that may eventually become dominant Organizational Subcultures Dominant culture • Values and assumptions shared most consistently and widely by the organization’s members Cultural Artifacts at Goldman Sachs The language of Goldman Sachs employees may be artifacts of underlying cultural values. “Elephant trades” and “muppet” clients suggest that the investment firm values profitability and individual Cultural Artifacts at Goldman Sachs Slide 8 performance more than customer service. Organizational Culture Artifacts • Observable symbols and signs of culture • Maintain and transmit organization’s culture • Four broad categories – organizational stories/legends, rituals/ Organizational Culture ceremonies, organizational language, physical structures/symbols Artifacts Slide 9 • Need many artifacts to accurately decipher a company’s culture Artifacts: Stories and Legends Social prescriptions of desired (or dysfunctional) behavior Realistic human side to expectations and performance standards Artifacts: Stories and Legends Slide 10 Most effective stories and legends: • Describe real people • Assumed to be true • Known by employees throughout the organization • Prescriptive – advise people what to do or not to do Artifacts: Rituals, Ceremonies, Language Slide 11 Ceremonies (more formal than rituals) • Planned activities conducted for an audience -- award ceremonies, celebrating new product launch Language • How employees address each other and outsiders, express emotions, describe stakeholders, etc. • May occur naturally (e.g. “muppets” at Goldman Sachs) or deliberate (e.g. Leaders use language to anchor or change culture) • Language differentiates subcultures (each uses unique language) Artifacts: Rituals, Ceremonies. Language Rituals • Programmed routines of daily organizational life -- how meetings are conducted, how visitors are greeted, time employees take for lunch Artifacts: Physical Structures/Symbols • Building structure – may shape and reflect culture • Office design – conveys cultural meaning e.g. furniture, office size, wall hangings (or lack of them) Artifacts: Physical Structures/Symbols Slide 12 Organizational Culture Strength How widely and deeply employees hold the company’s dominant values and assumptions Organizational Culture Strong cultures exist when: Strength • Most employees understand and embrace dominant values Slide 13 • Values/assumptions are institutionalized through well-established artifacts – makes it difficult to change the culture • Culture is long lasting – often traced back to founder Three functions of strong cultures to improve effectiveness: 1. Control system – influences employee decisions and behavior 2. Social glue – bonds people together (social identity) 3. Sense-making – helps employees understand what is expected of them -increases role clarity Organizational Culture & Effectiveness Modestly positive relationship between culture strength and organizational effectiveness because relationship depends on: 1. Good culture-environment fit Organizational Culture and Effectiveness Slide 14 • Ensuring the organization’s culture content (dominant values and assumptions) fits the external environment 2. Avoid corporate “cult” strength • Strong cultures (i.e. corporate “cults”) are less effective than moderately strong cultures • Cults lock people into mental models which can blind them to new opportunities and suppress dissenting values from subcultures 3. Create an adaptive culture (employees are receptive to change) • External focus; recognize need for continuous change • Support changing internal work processes; flexibility in roles • Strong learning orientation e.g. experiment with new ideas/practices; view mistakes as part of learning Merging Cultures: Bicultural Audit Part of due diligence in merger Minimizes risk of cultural collision by diagnosing companies before Merging Cultures: merger Bicultural Audit Slide 15 Three steps in bicultural audit: 1. Identify cultural differences between the merging companies 2. Analyze bicultural audit data to determine which differences will result in conflict and which cultural values provide common ground 3. Identify strategies and prepare action plans to bridge the two organization’s cultures Merging Organizational Cultures 1. Assimilation (rare) • Acquired company employees willingly embrace acquiring firm’s culture • Occurs when acquired company’s culture is weak or dysfunctional and Merging Organizational acquiring company’s culture is strong and effective Cultures Slide 16 • Culture clash is rare – employees are looking for alternative 2. Deculturation • Acquiring firm imposes its culture and business practices • Necessary when acquired firm’s culture doesn’t work • Employees in acquired firm tend to resist 3. Integration • Combine both/all cultures into a new composite culture that preserves the best features of both cultures • Slow and potentially risky – many forces preserving the existing cultures • Best when firms have relatively weak cultures, cultural values overlap, or employees are motivated to adopt a new set of dominant values 1. Separation • Merged firms keep their own corporate cultures and practices i.e. remain distinct entities • Best when merging firms are in unrelated industries or different countries Changing and Strengthening Organizational Culture Changing an organization’s culture is a considerable challenge Five strategies for changing/strengthening org cultures: Changing/Strengthening • Actions of founders and leaders Organizational Culture • Aligning artifacts with desired culture Slide 17 • Introducing culturally consistent rewards • Support workforce stability and communication • Attracting, selecting, and socializing employees Changing/Strengthening Organizational Culture 1. Actions of founders and leaders • Often based on founder’s personal values/personality ➡ authentic and transformational leadership Changing/Strengthening Organizational Culture Slide 18 ➡ also in later stories about the founder • Transformational leaders can reshape culture using organizational change practices 2. Aligning artifacts • Artifacts keep the culture in place or help shift the culture to a new set of shared values/assumptions Changing/Strengthening Organizational Culture (con’t) 3. Introducing culturally-consistent rewards • Powerful artifacts that strengthen or reshape an organization’s culture Changing/Strengthening 4. Support workforce stability and communication Organizational Culture • High turnover weakens org culture because: Slide 19 ➡ culture exists mostly in employee minds, not documented ➡ it takes time for culture to be understood • Strong culture depends on frequent, open communication -- share language, stories, rituals, other artifacts 5. Attracting, selecting and socialization of employees • ASA theory -- firms attract (A) and select (S) people who already embrace the cultural values, and attrition (A) occurs with people who don’t fit the culture • Organizational socialization practices further develop strong cultures Attraction-Selection-Attrition Theory Organizations become more homogeneous and create a stronger culture through: • Attraction – applicants self-select -- don’t apply to firms with incompatible Attraction-Selection-Attrition Theory values Slide 20 • Selection – firms choose applicants whose values fit the company’s culture • Attrition – employees quit or are forced out when their values oppose company values Organizational Socialization The process by which individuals learn the values, expected behaviors, and social knowledge necessary to assume their roles in the organization Organizational Socialization Learning Process Slide 21 • Newcomers form a cognitive map of the social, strategic, and cultural dynamics of the organization • Learn about performance expectations, power dynamics, corporate culture, company history, and jargon • Also need to form successful and satisfying relationships with other people in order to “learn the ropes” Adjustment Process • Newcomers need to adapt to their new work environment • Develop new work roles – reconfigure their social identity • Adopt new team norms and practice new behaviors • Newcomers with diverse work experience adjust better Psychological contract Individual’s beliefs about the terms and conditions of a reciprocal exchange agreement between that person and another party (typically the employer) • Transactional contracts – primarily short-term economic exchanges; well-defined responsibilities • Relational contracts – long-term attachments that include a broad range of mutual obligations Stages of Socialization Stage 1: Pre-employment Socialization • All learning and adjustment before first day of work • Involves collecting information Stages of Socialization Slide 22 • Forming psychological contract Stage 2: Encounter • Begins first day in new work environment • Newcomers test how pre-employment expectations fit reality • Reality shock – stress from perceived discrepancies between preemployment expectations and on-the-job reality Stage 3: Role Management • Most active as employees transition from newcomers to insiders • Strengthen relationships with co-workers and supervisors • Practice new role behaviors and adopt attitudes and values consistent with their new positions and organization • Resolve conflicts between work-nonwork activities Improving Organizational Socialization Realistic job preview (RJP) • Balance of positive/negative information about job and work context • Helps applicants estimate their fit with the job and organization Improving Organizational Socialization • Scare away some applicants; reduce turnover and increase job Slide 23 performance; minimizes reality shock Socialization agents • Socialization occurs mainly through socialization agents • Supervisors – provide technical information, performance feedback, buffering them from excessive demands, help them form social ties with co-workers • Co-workers – easily accessible, answer questions, serve as role models, being flexible and tolerant with new hires Instructor’s Manual to Accompany Organizational Behavior 7/e by Steven L. McShane and Mary Ann Von Glinow Chapter 15: Organizational Change Prepared by: Steven L. McShane, The University of Western Australia Organizational 15 Change LEARNING OBJECTIVES After reading this chapter, students should be able to: 1. Describe the elements of Lewin’s force field analysis model. 2. Discuss the reasons why people resist organizational change and how change agents should view this resistance. 3. Outline six strategies for minimizing resistance to change and debate ways to effectively create an urgency to change. 4. Discuss how leadership, coalitions, social networks, and pilot projects influence organizational change. 5. Describe and compare action research, appreciative inquiry, large group interventions, and parallel learning structures as formal approaches to organizational change. 6. Discuss two cross-cultural and three ethical issues in organizational change. CHAPTER GLOSSARY action research -- a problem-focused change process that combines action orientation (changing attitudes and behavior) and research orientation (testing theory through data collection and analysis). appreciative inquiry -- an organizational change strategy that directs the group’s attention away from its own problems and focuses participants on the group’s potential and positive elements. force field analysis -- Kurt Lewin’s model of systemwide change that helps change agents diagnose the forces that drive and restrain proposed organizational change large group interventions -- highly participative events that view organizations as open systems (i.e., involve as many employees and other stakeholders as possible) and adopt a future and positive focus of change. parallel learning structure -- highly participative arrangements, composed of people from most levels of the organization who follow the action research model to produce meaningful organizational change. refreezing -- the latter part of the change process in which systems and conditions are introduced that reinforce and maintain the desired behaviors. unfreezing -- the first part of the change process whereby the change agent produces disequilibrium between the driving and restraining forces. CHAPTER SUMMARY BY LEARNING OBJECTIVE 15-1 Describe the elements of Lewin’s force field analysis model. Lewin’s force field analysis model states that all systems have driving and restraining forces. Change occurs through the process of unfreezing, changing, and refreezing. Unfreezing produces disequilibrium between the driving and restraining forces. Refreezing realigns the organization’s systems and structures with the desired behaviors. 15-2 Discuss the reasons people resist organizational change and how change agents should view this resistance. Restraining forces are manifested as employee resistance to change. The main reasons people resist change are the negative valence of change, fear of the unknown, not-invented-here syndrome, breaking routines, incongruent team dynamics, and incongruent organizational systems. Resistance to change should be viewed as a resource, not an inherent obstacle to change. Change agents need to view resistance as task conflict rather than relationship conflict. Resistance is a signal that the change agent has not sufficiently strengthened employee readiness for change. It is also a form of voice, so discussion potentially improves procedural justice. 15-3 Outline six strategies for minimizing resistance to change and debate ways to effectively create an urgency to change. Organizational change requires employees to have an urgency for change. This typically occurs by informing them about driving forces in the external environment. Urgency to change also develops by putting employees in direct contact with customers. Leaders often need to create an urgency to change before the external pressures are felt, and this can occur through a vision of a more appealing future. Resistance to change may be minimized by keeping employees informed about what to expect from the change effort (communicating); teaching employees valuable skills for the desired future (learning); involving them in the change process; helping employees cope with the stress of change; negotiating trade-offs with those who will clearly lose from the change effort; and us- ing coercion (sparingly and as a last resort). 15-4 Discuss how leadership, coalitions, social networks, and pilot projects assist organizational change. Every successful change also requires transformational leaders with a clear, well-articulated vision of the desired future state. They also need the assistance of several people (a guiding coalition) who are located throughout the organization. Change also occurs more informally through social networks. Viral change operates through social networks using influencers. Many organizational change initiatives begin with a pilot project. The success of the pilot project is then diffused to other parts of the organization. This occurs by applying the MARS model, including motivating employees to adopt the pilot project’s methods, training people to know how to adopt these practices, helping clarify how the pilot can be applied to different areas, and providing time and resources to support this diffusion. 15-5 Describe and compare action research, appreciative inquiry, large group interventions, and parallel learning structures as formal approaches to organizational change. Action research is a highly participative, open-systems approach to change management that combines an action orientation (changing attitudes and behavior) with research orientation (testing theory). It is a data-based, problem-oriented process that diagnoses the need for change, introduces the intervention, and then evaluates and stabilizes the desired changes. Appreciative inquiry embraces the positive organizational behavior philosophy by focusing participants on the positive and possible. Along with this positive principle, this approach to change applies the constructionist, simultaneity, poetic, and anticipatory principles. The four stages of appreciative inquiry include discovery, dreaming, designing, and delivering. Large group interventions are highly participative events that view organizations as open systems (i.e., involve as many employees and other stakeholders as possible) and adopt a future and positive focus of change. Parallel learning structures rely on social structures developed alongside the formal hierarchy with the purpose of increasing the organization’s learning. They are highly participative arrangements, composed of people from most levels of the organization who follow the action research model to produce meaningful organizational change. 15-6 Discuss two cross-cultural and three ethical issues in organizational change. One significant concern is that organizational change theories developed with a Western cultural orientation potentially conflict with cultural values in some other countries. Also, organizational change practices can raise one or more ethical concerns, including increasing management’s power over employees, threatening individual privacy rights, and undermining individual self-esteem. LECTURE OUTLINE (WITH POWERPOINT® SLIDES) Kurt Lewin Force Field Analysis Driving forces Model • Push organizations toward change Slide 3 • Includes external forces e.g. new competitors, technologies • Leader’s vision inspires employees to strive for higher standards Restraining forces • Resistance to change – block the change process • Try to maintain the status quo Force Field Analysis Model Slide 4 Unfreezing • Producing disequilibrium between the driving and restraining forces Stability • When driving and restraining forces are roughly in equilibrium i.e. approximately equal strength in opposite directions Refreezing • Introducing systems and conditions that reinforce and maintain the desired behaviors • Support and reinforce the new role patterns and prevent the organization from slipping back into the old ways Force Field Analysis Model Effective change occurs by unfreezing the current situation, moving to a desired condition, and then refreezing the system so it remains in the desired state Restraining Forces (Resistance to change) Many forms of resistance – complaints, overt work stoppages, passive noncompliance Restraining Forces Subtle resistance is much more common than overt resistance – more (Resistance to Change) difficult to address because not as obvious Slide 5 View resistance as a resource (vs. impediment to change) 1. Symptoms of deeper problems in the change process 2. A form of task-oriented conflict – may improve decision making in the change process 3. Form of voice – may improve procedural justice and serve as a motivational force Why Employees Resist Change 1. Negative valence of change • Negative cost-benefit analysis (expectancy theory/subjective expected utility) Why People Resist ➡ more negative than positive outcomes Change ➡ negative outcomes have a high probability of occurring Slide 6 • Usually considers perceived organizational outcomes, not just personal outcomes 2. Fear of the unknown • Uncertainty has two negative effects on change perceptions ➡ people assume the worst (negative valence of outcomes) ➡ people perceive lack of control, which is also undesirable 3. Not-invented-here-syndrome • Staff oppose the change to prove their ideas were better • Occurs among those who are normally responsible for these ideas -- successful change threatens their self-esteem Why Employees Resist Change (con’t) 4. Breaking routines • Cost of moving away from our “comfort zones” • Requires time/effort to learn new routines and role patterns Why People Resist Change 5. Incongruent team dynamics Slide 7 • Existing team norms contrary to the desired change 6. Incongruent organizational systems • Old systems/structures reinforce status quo -- pull people back into past attitudes and behavior • Include rewards, information systems, patterns of authority, career paths, selection criteria Unfreezing, Changing, and Refreezing Increase driving forces (e.g. describe external forces, mgt issues threats) • Strategy rarely works alone because employees respond with increase in restraining forces Weaken/remove restraining forces • Strategy rarely works alone -- facilitates but doesn’t motivate change Preferred option -- increase the driving forces and reduce/remove restraining forces Creating an Urgency for Change Inform employees about driving forces -- competitors, changing consumer trends, changing government regulations – most difficult to change when organization is doing well Creating an Urgency for Change Customer-driven change Slide 8 • Human element energizes employees to change behaviors • Reveals problems and consequences of inaction -- dissatisfied customers describe why company’s products are inferior Create urgency for change without external drivers • Requires persuasive influence – employees visualize future competitive threats and environmental shifts • Use positive vision of future (makes current situation less appealing) • Highest priority and first strategy for change • Generates an urgency to change Reducing the • Reduces uncertainty (fear of unknown) Restraining Forces Slide 9 • Problems – time-consuming and potentially costly 2. Learning • Provides new knowledge and skills to fit evolving needs • Includes coaching and other forms of learning • Helps break old routines and adopt new roles • Problems – time-consuming and potentially costly Reducing the • Includes task forces, future search events Restraining Forces (con’t) Slide 10 • Problems – time-consuming, potential conflict Stress Management • When communication, learning, and involvement are not enough to minimize stress – to help employees cope with change • Potential benefits – more motivation to support the change; less fear of unknown; fewer direct costs • Problems – time-consuming, expensive, doesn’t help everyone Reducing the Restraining Forces (con’t) 3. Involvement • Employees participate in change process – often essential • Helps saving face/reducing fear of unknown – through ownership Reducing the Restraining Forces (con’t) 5. Negotiation • Influence tactic for change by negotiating benefits or resources in exchange for compliance with request (e.g. supporting change) Reducing the • May be necessary when people clearly lose something and won’t Restraining Forces (con’t) otherwise support change Slide 11 • Problems – expensive; gains compliance, not commitment 6. Coercion • Necessary when all other strategies fail • Assertive influence tactics -- persistently reminders, frequent monitoring • Radical form of organizational “unlearning” – dismissals • Problems – reduces trust, may create subtle resistance, more politics to protect their own job security Refreezing the Desired Conditions We tend to revert to previous behaviors and practices, unless systems and structures hold (refreeze) the desired changes Refreezing realigns organizational systems and team dynamics so they support the desired change • Alter rewards to reinforce new behaviors • Change career paths • Revise information systems e.g. feedback mechanisms help employees learn how well they are moving toward the desired objectives – “what gets measured, gets done” Alan Mulally: Change Agent Alan Mulally’s “One Ford” vision and his transformational leadership were key factors in the successful turnaround of Ford Motor Company Alan Mulally: Change Agent Slide 12 Change Agents Change agent – anyone who possesses enough knowledge and power to guide and facilitate the change effort Change Agents Transformational leaders are the primary agents of change Slide 13 Strategic visions and change • Provides a sense of direction • Identifies critical success factors to valuate change • Links employee values to the change -- emotional foundation • Minimizes employee fear of the unknown -- sense of direction • Clarifies role perceptions – clarifies what behaviors to learn Coalitions, Social Networks and Viral Change Change agents need a guiding coalition • Representative across the firm Coalitions, Social Networks, and Viral Change Slide 14 Viral change • Information seeded to a few people is transmitted to others based on • Influence leaders – respected (referent power) social networks • Social networks influence others due to: ➡ high trust ➡ referent power ➡ behavior observation Diffusion of Change Successful change initiatives usually begin as pilot projects – pilot projects offer greater flexibility, less risk Diffusion of Change Effective diffusion of pilot project considers MARS model Slide 15 1. Motivation • Employees see that pilot project is successful • Reward people in the pilot project for changing their previous work practices 2. Ability • Give employees the opportunity to interact with and learn from those in the pilot project • Disperse employees in the original pilot to other work units as role models and knowledge sources 3. Clear role perceptions • Help employees understand how the practices in a pilot project apply to them (even in completely different areas) 4. Supportive situational factors • Provide resources and time necessary to adopt the practices demonstrated in the pilot project Action Research Approach Meaningful change combines action orientation (changing attitudes/ behavior) and research orientation (testing theory) • Action orientation Action Research ➡ diagnose current problems Approach ➡ apply interventions that resolve those problems Slide 16 • Research orientation ➡ research study approach ➡ collect data to diagnose problems ➡ systematically evaluate how well the theory works in practice Action Research Principles 1. Open systems perspective • Change agents need to anticipate intended and unintended consequences of interventions 2. Highly participative process • Requires employee knowledge and commitment • Employees are co-researchers and participants 3. Data-driven, problem-oriented process • Problem analysis through data collection/analysis Action Research Process 1. Form client-consultant relationship • Assumes change agent originates outside the system • Client readiness – client’s motivation, open to meaningful change, possess Action Research abilities to complete change process Process Slide 17 2. Diagnose need for change • Organizational diagnosis – gathering and analyzing data about an ongoing system e.g. interviews and surveys • Includes employee involvement – agree on change methods, schedule, expected standards of successful change 3. Introduce intervention • Applies one or more actions e.g. managing conflict, team building, changing corporate culture • Incremental change vs. quantum change – small steps or massive overhaul 4. Evaluate and stabilize change • Evaluating effectiveness of the intervention against the standards established in the diagnostic stage • Problems – outcomes aren’t apparent for a long time, or might be difficult to separate effects from other factors • Refreeze conditions to stabilize change Appreciative Inquiry Approach Frames change around positive and possible future, rather than traditional problem-focus 1. Positive principle – focus on positive events and potential Appreciative Inquiry Approach 2. Constructionist principle – conversations don’t describe reality, they Slide 18 shape reality 3. Simultaneity principle – inquiry and change are simultaneous, not sequential 4. Poetic principle – organizations are open books so we can choose how to perceive, frame, and describe them 5. Anticipatory principle – people are motivated by desirable visions of the future i.e. use inspiring and engaging images Four-D Model of Appreciative Inquiry 1. Discovery • Discovering positive elements of the observed event/organization e.g. documenting positive customer experience Four-D Model of 2. Dreaming Appreciative Inquiry Slide 19 • Envisioning what might be possible in an ideal organization • Participants feel safer revealing their hopes and aspirations then discussing their own organization or predicament 3. Designing • Dialogue in which participants listen with receptivity to each other’s models and assumptions – create a common image of what should be 4. Delivering • Participants establish specific objectives and direction for their own organization based on their “should be” model Evaluating Appreciative Inquiry Several successful change stories from this approach, but not always successful • Participants need to avoid problem-oriented mindset (blame game) • Not yet clear what conditions are best for appreciative inquiry (i.e. contingencies not yet known) Large Group Interventions Slide 20 Large Group Interventions Future search, open space, and other interventions that “put the entire system in the room” – involve as many employees and stakeholders as possible • Large group sessions • May last a few days • High involvement with minimal structure – search for emerging trends or issues; may also develop solutions Limitations of large group interventions • Limited opportunity to contribute • Risk that a few people will dominate • Focus on common ground may hide differences • Generates high expectations about ideal future Parallel Learning Structure Approach Slide 21 Parallel Learning Structure Approach • Highly participative social structures • Members from across the formal hierarchy who follow the action research model to produce meaningful change • Sufficiently free from firm’s constraints – social structures developed alongside the formal hierarchy • Develop solutions for organizational change which are then applied back into the larger organization Concerns with Managing Change Slide 22 Cross-Cultural & Ethical Concerns with Managing Change Cross-Cultural Concerns • Linear and open conflict assumptions • Change viewed as a linear sequence in North America, often viewed as cyclical in some other cultures • Task-oriented conflict built in to some change practices, but overt conflict isn’t consistent with some cultures Ethical Concerns • Privacy rights of individuals – may not want to share personal information and emotions required by action research • Management power – required (vs. voluntary) employee participation • Individuals’ self-esteem may be undermined – unfreezing requires employees to disconfirm beliefs, task competence Organizations are About People “Take away my people, but leave my factories, and soon grass will grow on the factory floors. Take away my factories, but leave my people, and soon we will have a new and better factory.” Organizations are About People Andrew Carnegie (1835-1919) Discussion of Team Exercise: Strategic Change Incidents Slide 25 Scenario #1: “Greener Telco” Refers to Bell Canada’s Zero Waste program, which successfully changed wasteful employee behaviors by altering the causes of those behaviors Scenario #1: “Greener Telco” Slide 26 Pilot project in Toronto – 12 floor building of 1000 staff reduced waste from 1800 lb. per day to just 75 lb. per day within 3 years Bell Canada’s Change Strategy Relied on the MARS model to alter behavior: • Motivation – employee involvement, respected steering committee • Ability – taught paper reduction, email, food disposal Bell Canada’s Change Strategy Slide 27 • • Role perceptions – communicated importance of reducing waste Situation – created barriers to wasteful behavior, e.g. removed garbage bins Scenario #2: “Go Forward Airline” Refers to Continental Airline’s “Go Forward” change strategy, which catapulted the company “from worst to first” within a couple of years. Scenario #2: “Go Forward Airline” Slide 28 Continental Airlines’ Change Strategy • Communicate, communicate, communicate • Introduced 15 performance measures • Established stretch goals (repainting planes in 6 months) Continental Airlines’ Change Strategy Slide 29 • • Replaced 50 of 61 executives Rewarded new goals (on-time arrival, stock price) • Customers as drivers of change Instructor Manual for Organizational Behavior: Emerging Knowledge, Global Reality Steven McShane, Mary Von Glinow 9780077862589, 9781259280634, 9781259562792, 9780071077989
