Organization
Santosh_2102
Kinicki_Fugate_OB_1e_Ch15.pptxPart 3: Organizational Processes
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Chapter 15 | Slide 2
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ORGANIZATIONAL DESIGN, EFFECTIVENESS, AND INNOVATION
How Can Understanding These Key Processes and Outcomes Help Me Succeed?
15.1 The Foundation of an Organization
15.2 Organizational Design
15.3 The Contingency Approach to Designing Organizations
15.4 Striving for Organizational Effectiveness
15.5 Organizational Innovation
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The Foundation of an Organization
What is an Organization?
A system of consciously coordinated activities or forces of two or more persons
Common denominators of all organizations:
Coordination of effort
Aligned goals
Division of labor
Hierarchy of authority
Chapter 15 | Slide 3
From a design perspective, an organization is “a system of consciously coordinated activities or forces of two or more persons.”
Embodied in the conscious coordination aspect of this definition are four common denominators of all organizations:
Coordination of effort is achieved through formulation and enforcement of policies, rules, and regulations.
Aligned goals start from the development of a companywide strategic plan. These strategic goals are then cascaded down through the organization so the employees are aligned in their pursuit of common goals.
Division of labor occurs when the common goal is pursued by individuals performing separate but related tasks.
Hierarchy of authority, also called the chain of command, is a control mechanism dedicated to making sure the right people do the right things at the right time. Historically, managers have maintained the integrity of the hierarchy of authority by adhering to the unity of command principle. The unity of command principle specifies that each employee should report to only one manager.
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The Foundation of an Organization
Organization Charts
Reveal basic dimensions of organizational structure
Chapter 15 | Slide 4
An organization chart is a graphic representation of formal authority and division of labor relationships. To organization theorists, however, organization charts reveal much more. Four basic dimensions of organizational structure:
Hierarchy of Authority. A formal hierarchy of authority also delineates the official communication network and speaks volumes about compensation. Research shows that there is an increasing wage gap between layers over time. That is, the difference in pay between successive layers tends to increase over time.
Division of Labor. At each successively lower level in the organization, jobs become more specialized.
Spans of Control. Span of control refers to the number of people reporting directly to a given manager. Spans of control can range from narrow to wide. Narrow spans of control tend to create “taller” organizations or those that are more hierarchical. In contrast, a wide span of control leads to a “flat” organization. Historically, spans of 7 to 10 people were considered best. More recently, however, corporate restructuring and improved communication technologies have increased the typical span of control.
Although there is no consensus regarding the optimal span of control, managers should consider four factors when determining spans of control: organizational size, skill level, organizational culture, and managerial responsibilities.
1. Organizational size. Larger organizations tend to have narrower spans of control and more organizational layers, whereas smaller ones have a wider span of control. Costs tend to be higher in organizations with narrow spans due to the increased expense of having more managers. Communication also tends to be slower in narrow spans because it must travel throughout multiple organizational layers.
2. Skill level. Complex tasks require more managerial input, thereby suggesting a narrow span of control. Conversely, routine tasks do not require much supervision, leading to the use of a wider span of control.
3. Organizational culture. Narrow spans of control are more likely in companies with a hierarchical culture because they focus on internal integration and stability and control—recall Figure 14.3. In contrast, wider spans of control are more likely to be found in companies that desire flexibility and discretion, cultures characterized as clan or adhocracy. Wider spans also complement cultures that desire greater worker autonomy and participation.
4. Managerial responsibilities. The most senior-level executives tend to have narrower spans of control than middle managers because their responsibilities are broader in scope and more complex. It’s important to consider the breadth of a person’s responsibilities when deciding his/her span of control.
Line and Staff Positions. Line positions generally are connected by solid lines on organization charts. Dotted lines indicate staff relationships. Staff personnel do background research and provide technical advice and recommendations to their line managers. Line managers generally have the authority to make decisions for their units.
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Hierarchy of Authority
Division of Labor
Spans of Control
Line and Staff Positions
The Foundation of an Organization
Organizational Systems
Reveal basic dimensions of organizational structure
Chapter 15 | Slide 5
A self-sufficient entity – closed to the surrounding environment
Depends on constant interaction with the environment for survival
A closed system is said to be a self-sufficient entity. It is “closed” to the surrounding environment.
In contrast, an open system depends on constant interaction with the environment for survival.
The distinction between closed and open systems is a matter of degree. Because every worldly system is partly closed and partly open, the key question is: How great a role does the environment play in the functioning of the system?
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Closed System
Open System
The Foundation of an Organization
The Organization as an Open System
Chapter 15 | Slide 6
Historically, management theorists downplayed the environment as they used closed-system thinking to characterize organizations as either well-oiled machines or highly disciplined military units. They believed rigorous planning and control would eliminate environmental uncertainty. But that approach proved unrealistic.
Drawing on the field of general systems theory that emerged during the 1950s, organization theorists suggested a more dynamic model for organizations.
The model in Figure 15.2 reveals the organization to be a living organism that transforms inputs into various outputs. The outer boundary of the organization is permeable. People, information, capital, and goods and services move back and forth across this boundary.
Moreover, each of the five organizational subsystems—goals and values, technical, psychosocial, structural, and managerial—is dependent on the others. Feedback about such things as sales and customer satisfaction or dissatisfaction enables the organization to self-adjust and survive despite uncertainty and change. In effect, the organization is alive.
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The Foundation of an Organization
What is a Learning Organization?
Chapter 15 | Slide 7
One that proactively creates, acquires, and transfers knowledge
Changes its behavior on the basis of new knowledge and insights
A learning organization is one that proactively creates, acquires, and transfers knowledge and that changes its behavior on the basis of new knowledge and insights.
It is important to understand how organizations learn because learning is essential to an organization’s continuous improvement and renewal over time. As such, it is no surprise that organizational learning is positively associated with organizational performance and innovation.
Researchers have shown that organizations learn by using five independent subprocesses (see Figure 15.3): information acquisition, information distribution, information interpretation, knowledge integration, and organizational memory.
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The Foundation of an Organization
Five Subprocesses of Organizational Learning
Chapter 15 | Slide 8
Information acquisition, also known as scanning, “refers to the process through which an organization obtains information from internal and external sources.” Because this is the first step of learning, it is advantageous for organizations to include breadth in their acquisition of information.
Information distribution pertains to the processes or systems that people, groups, or organizational units use to share information among themselves
Information Interpretation. This step is all about making sense of the information that organizations have acquired and distributed. It is important to remember that this step is affected by the perceptual biases discussed in Chapter 4 and the decision making biases reviewed in Chapter 11.
Knowledge Integration. Knowledge integration occurs when information is integrated across different sources. Integration leads to shared understanding among individuals and groups.
Organizational Memory. Learning will not last unless the organization finds a method to save it. Knowledge needs to put into some type of repository or organizational memory if it is to be used in the future. Organizational memory is not an object. Rather, it represents the combined process of “encoding, storing, and retrieving the lessons learned from an organization’s history, despite the turnover of personnel.
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Information Acquisition
Information Distribution
Information Interpretation
Knowledge Integration
Organizational Memory
The Foundation of an Organization
What Can Be Done to Improve Organizational Learning?
Chapter 15 | Slide 9
Improve on the five steps for organizational learning
Realize leader behavior and organizational culture drive organizational learning
We have two recommendations. The first is to improve on the five steps just discussed. This might begin by using a survey to assess the extent to which an organization is following these steps.
Second, realize that leader behavior and organizational culture drive organizational learning. If leaders do not support a vision and culture that promote the value of learning, it won’t happen.
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Test Your OB Knowledge
Large organizations tend to have the following characteristic:
Narrower spans of control
No staff positions, only line positions
An insignificant division of labor
A violation of the unity of command
Wide span of control
Chapter 15 | Slide ‹#›
The correct answer is (A).
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Organizational Design
What is Organizational Design?
The structures of accountability and responsibility used to develop and implement strategies, and the human resource practices and information and business processes that activate those structures
Chapter 15 | Slide 11
Organizational design is defined as “the structures of accountability and responsibility used to develop and implement strategies, and the human resource practices and information and business processes that activate those structures.”
The general idea behind the study of organizational design is that organizations are more effective or successful when their structure supports the execution of corporate strategies.
Many managers underestimate the complexity of this task.
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Organizational Design
Categories of Organizational Design
Chapter 15 | Slide 12
Horizontal
Open
Traditional
Traditional Designs. Organizations defined by a traditional approach tend to have functional, divisional, and/or matrix structures. Each of these structures relies on a vertical hierarchy and attempts to define clear departmental boundaries and reporting relationships.
Horizontal Design. Organizations defined by a horizontal approach work hard to flatten hierarchy and organize people around specific segments of the workflow. A horizontal structure, sometimes called a team or process structure, relies on a horizontal workflow and attempts to dissolve departmental boundaries and reporting relationships as much as possible.
Open Designs. Organizations defined by an open approach tend to have hollow, modular, or virtual structures. Each of these structures relies on leveraging technology and structural flexibility to maximize potential value through outsourcing and external collaboration.
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Organizational Design
Types of Organizational Structure – Functional
Groups people according to the business functions they perform, for example, manufacturing, marketing, and finance
Chapter 15 | Slide 13
A functional structure groups people according to the business functions they perform, for example, manufacturing, marketing, and finance.
A manager is responsible for the performance of each of these functions, and employees tend to identify strongly with their particular function, such as sales or engineering.
Some organizations have concluded that using a functional structure divides people too much, ultimately creating silos within the organization. This in turn detracts from the extent to which employees collaborate and share best practices across functions.
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Organizational Design
Types of Organizational Structure – Divisional
Employees are segregated into organization groups based on similar products or services, customers or clients, or geographic regions
Chapter 15 | Slide 14
In a divisional structure, employees are segregated into organization groups based on similar products or services, customers or clients, or geographic regions.
The divisional structure is sometimes called a product structure or profit center approach.
As with functional structures, some organizations have concluded that using a divisional structure can also create silos within the organization.
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Organizational Design
Types of Organizational Structure – Matrix
Chapter 15 | Slide 15
Combines a vertical structure with an equally strong horizontal overlay
Generally combines functional and divisional chains of command to form a grid with two command structures
Organizations use matrix structures when they need stronger horizontal alignment or cooperation in order to meet their goals.
A matrix structure combines a vertical structure with an equally strong horizontal overlay. This generally combines functional and divisional chains of command to form a grid with two command structures, one shown vertically by function, and the other shown horizontally, by product line, brand, customer group, or geographic region.
Such a structure can provide a reasonable counterbalance among important stakeholders.
Application of a matrix structure is not easy. Matrix organizations have a bad reputation for being too complex and confusing. The reality is that it takes much more collaboration and integration to effectively implement this structure.
This type of structure increasingly is being used by companies expanding into international markets.
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Organizational Design
Types of Organizational Structure – Horizontal
Chapter 15 | Slide 16
Teams or workgroups, either temporary or permanent, are created to improve collaboration and work on common projects
In a horizontal structure, teams or workgroups, either temporary or permanent, are created to improve collaboration and work on common projects.
This horizontal approach to organizational design tends to focus on work processes. A process consists of every task and responsibility needed to meet a customer need, such as developing a new product or filling a customer order. Completing a process requires input from people in different functions, typically organized into a cross-functional team.
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Organizational Design
Types of Organizational Structure – Hollow
Chapter 15 | Slide 17
An example of an open organization
Also known as a network structure
Designed around a central core of key functions and outsources other functions to other companies or individuals who can do them cheaper or faster
A hollow structure, also known as a network structure, is designed around a central core of key functions and outsources other functions to other companies or individuals who can do them cheaper or faster.
The more processes that are outsourced, the more the resulting organization is “hollow”—and focused on what it does best.
A hollow structure is useful when an organization is faced with strong price competition and there are enough companies to perform the required outsourced processes.
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Organizational Design
Types of Organizational Structure – Modular
Chapter 15 | Slide 18
An example of an open organization
Uses outsourcing
The company assembles product parts, components, or modules provided by external contractors
A modular organization, like a hollow organization, uses outsourcing. But instead of outsourcing processes, it outsources parts of a product, such as components of a jet or subroutines of a software program.
In a modular structure, the company assembles product parts, components, or modules provided by external contractors. The modular organization also is responsible for ensuring that the parts meet quality requirements, that the parts arrive in a timely fashion, and that the organization is capable of efficiently combining the parts into the final whole.
This design is useful when a company can identify product modules and create design interfaces that allow it to assemble parts into a working order.
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Organizational Design
Types of Organizational Structure – Virtual
Chapter 15 | Slide 19
An example of an open organization
Members are geographically apart, usually working with e-mail and other forms of information technology
Generally appears to customers as a single, unified organization with a real physical location
A virtual structure is one whose members are geographically apart, usually working with e-mail and other forms of information technology, yet which generally appears to customers as a single, unified organization with a real physical location.
The primary benefits of virtual structures are the ability for organizations to tap into a wider talent pool, to increase the speed in getting things done, and to reduce costs because there is less need for physical facilities and travel budgets.
The nature of virtual organizations has expanded since their inception. Today, virtual structures are classified into two different types: internal and networked.
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Organizational Design
Types of Organizational Structure – Types of Virtual Structures
Chapter 15 | Slide 20
Internal Virtual Structure
Networked Virtual Structure
Internal virtual structures. Internal virtual structures pertain to work arrangements that are used to coordinate the work of geographically dispersed employees working for one organization. This structure primarily relies on the use of information technology, but also requires managers to consider three key issues.
• Do I have the right people? Not everyone is suited to work virtually. This implies that it is essential for managers to consider the personal characteristics, needs, and values of people who might work virtually.
• How often should people get together? There is no clear answer to this question. Our recommendation is to use a contingency approach. More frequent contact is needed at the start of a project, and we suggest that regular milestone meetings should be held online.
• What type of technology should be used to coordinate activities? Of course remote workers can stay connected with a host of technology. The choice depends on the skills and resources at hand.
Networked virtual structures. This structure is used to establish a collaborative inter-organizational network of independent firms or individuals in order to create a virtual entity. The networked individuals or companies join forces because they each possess core competencies needed for a project or product. Once again, a variety of information technology is used to coordinate the efforts of the different members within the network.
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Test Your OB Knowledge
Grid X (GXC) Corporation has a need for rapid communication and a resulting need for creating new products with a reduced cycle time. Which organizational design would likely be best for GXC?
Virtual
Functional
Modular
Hollow
Horizontal
Chapter 15 | Slide ‹#›
The correct answer is (E).
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The Contingency Approach to Designing Organizations
What is the Contingency Approach to Organizational Design?
Organizations tend to be more effective when they are structured to fit the demands of the situation
Chapter 15 | Slide 22
According to the contingency approach to organization design, organizations tend to be more effective when they are structured to fit the demands of the situation.
One of the first design considerations is whether the organization would flourish with centralized or decentralized decision making. This distinction underscores the difference between mechanistic and organic organizations.
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The Contingency Approach to Designing Organizations
Mechanistic Vs. Organic Organizations
Mechanistic:
Rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication
Organic:
Flexible networks of multitalented individuals who perform a variety of tasks
Chapter 15 | Slide 23
Mechanistic organizations are rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication. A mechanistic organization generally would have one of the traditional organization designs described earlier in this chapter and a hierarchical culture. The “orderliness” of this structure is expected to produce reliability and consistency in internal processes, thereby resulting in higher efficiency, quality, and timeliness. It is important to note that being mechanistic does not mean that an organization should not be responsive to employee and customer feedback.
Organic organizations are flexible networks of multitalented individuals who perform a variety of tasks. Organic organizations are more likely to use horizontal designs or those that open boundaries between organizations.
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The Contingency Approach to Designing Organizations
Approaches to Decision Making
Centralized:
Decision making occurs when key decisions are made by top management
Used in mechanistic organizations
Decentralized:
Decision making occurs when important decisions are made by middle and lower-level managers
Used in organic organizations
Chapter 15 | Slide 24
The challenge is to a achieve a workable balance
Decision making tends to be centralized in mechanistic organizations and decentralized in organic organizations.
Centralized decision making occurs when key decisions are made by top management.
Decentralized decision making occurs when important decisions are made by middle- and lower-level managers.
Generally, centralized organizations are more tightly controlled while decentralized organizations are more adaptive to changing situations.
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The Contingency Approach to Designing Organizations
Practical Research Insights
No one type (mechanistic or organic) is superior to the other - depends on the environment
Chapter 15 | Slide 25
When they classified a sample of actual companies as either mechanistic or organic, Burns and Stalker discovered one type was not superior to the other. Each type had its appropriate place, depending on the environment.
When the environment was relatively stable and certain, the successful organizations tended to be mechanistic.
The successful ones tended to be organic organizations when the environment was unstable and uncertain.
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Mechanistic
Works when environment is stable and certain
Organic
Works when environment is unstable and uncertain
The Contingency Approach to Designing Organizations
Key Issues When Making Organizational Design Decisions
Chapter 15 | Slide 26
Strategy and Goals
Technology
Size
Human Resources
All of the organization structures described in this chapter are used today because each structure has advantages and disadvantages that make it appropriate in some cases.
Experts suggest that managers should consider four key issues when making decisions about how best to design an organization.
1. Strategy and goals. An organization’s strategy is the cornerstone of determining the most appropriate design. Because corporate strategy requires an organization to decide how it will compete given both internal and external considerations, it is essential that organizational design be developed in tandem with establishing strategy.
2. Technology. Technology represents the information technology, equipment, tools, and processes needed to transform inputs to outputs. Technology enables products and serviced to be created and distributed. This implies that the technology being used by a company is a key consideration in deciding the best way to organize in pursuit of strategic goals.
3. Size. Size is indicated by things such as the number of employees, volume of sales, amount of assets, and geographical locations. Greater size generally requires more complex organizational designs.
4. Human resources. Human resources refers to the level of employees’ human capital. Highly skilled employees typically prefer designs that allow freedom, autonomy, and empowerment. Flexible structures that allow for decentralized decision making are more likely to be a good design choice for organizations employing a large segment of highly skilled and professional employees.
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The Contingency Approach to Designing Organizations
Contingency Design
Chapter 15 | Slide 27
| Structure | Pros | Cons |
| Functional | Saves money Easy to apply quality standards | Works best in a stable environment, not applicable today |
| Divisional | Increased focus on customers and products Flexibility in decision making | Divisions may focus on their own customer groups or products and exclude rest of organization |
| Matrix | Combines advantages of functional and divisional | Violates unity of command Decision making can be slow Political behavior can occur Requires extensive communication |
| Horizontal | Improves communication and coordination Teams can come up creative solutions Develop new products faster Knowledge sharing | Lines of authority less clear Works when specialization is not important Requires employees to rise to the challenges of empowerment |
| Open Boundary (Hollow, Modular, Virtual) | Generate superior returns Focus on what they do best Taps into people’s specialties | Give up expertise and control when outsourced Have to get results from people without having direct authority Need partners that can be trusted |
Functional Structures. A functional structure can save money by grouping together people who need similar materials and equipment. Quality standards can be maintained because supervisors understand what department members do and because people in the same function develop pride in their specialty. Workers can devote more of their time to what they do best. These benefits are easiest to realize in a stable environment, where the organization doesn’t depend on employees to coordinate their efforts to solve varied problems. Today fewer organizations see their environment as stable, so more are moving away from strictly functional structures.
Divisional Structures. Divisional structures increase employees’ focus on customers and products. Managers have the flexibility to make decisions that affect several functions in order to serve customer needs. This enables the organization to move faster if a new customer need arises or if a competitor introduces an important product. However, duplicating functions in each division can add to costs, so this structure may be too expensive for some organizations. Also, divisions sometimes focus on their own customer groups or products to the exclusion of the company’s overall mission.
Matrix Structures. A matrix structure tries to combine the advantages of functional and divisional structures. This advantage is also the structure’s main drawback: it violates the unity of command principle, described previously in the chapter. Employees have to balance the demands of a functional manager and a product or project manager. When they struggle with this balance, decision making can slow to a crawl, and political behavior can overpower progress. The success of a matrix organization therefore requires superior managers who communicate extensively, foster commitment and collaboration, manage conflict, and negotiate effectively to establish goals and priorities consistent with the organization’s strategy.
Horizontal Structures. Horizontal designs generally improve coordination and communication in organizations. Cross-functional teams can arrive at creative solutions to problems that arise in a fast-changing environment. Teams can develop new products faster and more efficiently than can functions working independently in a traditional structure. Horizontal designs also encourage knowledge sharing. However, because lines of authority are less clear, managers must be able to share responsibility for the organization’s overall performance, build commitment to a shared vision, and influence others even when they lack direct authority. This type of structure is a good fit when specialization is less important than the ability to respond to varied or changing customer needs. It requires employees who can rise to the challenges of empowerment.
Open Boundary Structures (Hollow, Modular, Virtual). Organizations that open their boundaries to become hollow, modular, or virtual can generate superior returns by focusing on what they do best. Like functional organizations, they tap people in particular specialties, who may be more expert than the generalists of a divisional or horizontal organization. The downside of these structures is that organizations give up expertise and control in the functions or operations that are outsourced. Still, like divisional and horizontal organizations, they can focus on customers or products, leaving their partners to focus on their own specialty area. The success of organizations that work across boundaries depends on managers’ ability to get results from people over whom they do not have direct formal authority by virtue of their position in the organization. Also, individuals in these organizations may not have the same degree of commitment as employees of a traditional organization, so motivation and leadership may be more difficult. Therefore, these designs are the best fit when organizations have suitable partners they trust; efficiency is very important; the organization can identify functions, processes, or product components to outsource profitably; and in the case of a virtual organization, when the need to be met is temporary.
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Test Your OB Knowledge
Using the contingency approach to organizational design, which one of these would be the best structure for an organization that has a small staff and does not have the technical expertise needed to be successful?
Mechanistic
Open Boundary Structure
Functional
Divisional
Horizontal
Chapter 15 | Slide ‹#›
The correct answer is (B).
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Striving for Organizational Effectiveness
Generic Effectiveness Criteria
Goal accomplishment
Internal processes
Strategic constituency satisfaction
Resource acquisition
Chapter 15 | Slide 29
Goal Accomplishment. Goal accomplishment is the oldest and most widely used effectiveness criterion for organizations. Key organizational results or outputs are compared with previously stated goals or objectives. Deviations, either plus or minus, require corrective action.
Internal Processes. This dimension of effectiveness focuses on “what the organization must excel at” to effectively meet its financial objectives and customers’ expectations. A team of researchers have identified four critical high-level internal processes that managers are encouraged to measure and manage. These processes influence productivity, efficiency, quality, safety, and a host of other internal metrics. The processes include organizational activities associated with:
1. Innovation.
2. Customer service and satisfaction.
3. Operational excellence.
4. Being a good corporate citizen.
Strategic Constituencies Satisfaction. A strategic constituency is any group of individuals who have some stake in the organization for example, resource providers, users of the organization’s products or services, producers of the organization’s output, groups whose cooperation is essential for the organization’s survival, or those whose lives are significantly affected by the organization.
Resource Acquisition. The final criterion, resource acquisition, relates to inputs rather than outputs. An organization is deemed effective in this regard if it acquires necessary factors of production such as raw materials, labor, capital, and managerial and technical expertise.
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Striving for Organizational Effectiveness
Mixing Effectiveness Criteria: Practical Guidelines
Chapter 15 | Slide 30
Experts on the subject recommend a multidimensional approach to assessing the effectiveness of modern organizations. This means no single criterion is appropriate for all stages of the organization’s life cycle. Nor will a single criterion satisfy competing stakeholders. Well-managed organizations mix and match effectiveness criteria to fit the unique requirements of the situation.
Managers need to identify and seek input from strategic constituencies. This information, when merged with the organization’s stated mission and philosophy, enables management to derive an appropriate combination of effectiveness criteria. The following guidelines are helpful in this regard:
• The goal accomplishment approach is appropriate when “goals are clear, consensual, time-bounded, measurable.”
• The internal processes approach is appropriate when organizational performance is strongly influenced by specific processes (e.g., cross-functional teamwork).
• The strategic constituencies approach is appropriate when powerful stakeholders can significantly benefit or harm the organization.
• The resource acquisition approach is appropriate when inputs have a traceable effect on results or output.
Unforeseen events or accidents represent another set of factors that should be considered when evaluating organizational effectiveness.
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Goal Accomplishment Approach
Appropriate when goals are clear, consensual, time-bound, and measurable
Internal Process Approach
Appropriate when organizational performance is strongly influenced by specific processes
Strategic Constituencies Approach
Appropriate when powerful stakeholders can significantly benefit or harm the organization
Resource Acquisitions Approach
Appropriate when inputs have a traceable effect on results or output
Organizational Innovation
What is Innovation?
Chapter 15 | Slide 31
The creation of something new that makes money
It finds a pathway to the consumer
More likely to occur when organizations have the proper supporting forces
Innovation “is the creation of something new that makes money; it finds a pathway to the consumer.”
Innovation is more likely to occur when organizations have the proper supporting forces.
Innovation is different from invention, which entails the creation of something new, and creativity, which was defined in Chapter 11 as a process of developing something new or unique.
Innovation also is different from integration, which involves actions associated with getting multiple people, units, departments, functions, or sites to work together in pursuit of a goal, idea, or project.
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Organizational Innovation
Types of Innovation – Product vs. Process
Chapter 15 | Slide 32
Product innovation:
A change in the appearance or the performance of a product or service or the creation of a new one
Process innovation:
A change in the way a product or service is conceived, manufactured or distributed
Managers often need to improve a product or service they offer in response to competition or customer feedback. This often amounts to a technological innovation. Alternatively, managers may need to improve the process by which a product is made or a service is offered. This typically amounts to a process improvement.
More specifically, a product innovation is a change in the appearance or the performance of a product or a service or the creation of a new one.
A process innovation is a change in the way a product or a service is conceived, manufactured or distributed.
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Organizational Innovation
Types of Innovation – Core vs. Transformational
Chapter 15 | Slide 33
Core innovations:
Targeted at existing customers and they rely on optimizing existing products/services for existing customers
Transformational innovations:
Targeted at creating new markets and customers and they rely on developing breakthroughs and inventing things that don’t currently exist
This continuum of innovation pertains where and how a company intends to innovate.
Core innovations are targeted at existing customers and they rely on optimizing existing products/services for existing customers. These types of innovations are more incremental and are less likely to generate significant amounts of new revenue.
Transformational innovations are targeted at creating new markets and customers and they rely on developing breakthroughs and inventing things that don’t currently exist.
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Organizational Innovation
The Seeds of Innovation
Chapter 15 | Slide 34
The starting points for organizational innovation
Hard work in a specific direction
Hard work with direction change
Curiosity and experimentation
Wealth and money
Necessity
Combination of seeds
The process of growing a tree is a useful metaphor for understanding how organizations can become more innovative.
Seeds of innovation represent the starting points for organizational innovation. After studying hundreds of innovations, an expert identified six seeds of innovation.
1. Hard Work in a Specific Direction. Most innovations come from dedicated people diligently working to solve a well-defined problem. This hard work can span many years.
2. Hard Work with Direction Change. Innovations frequently occur when people change their approach toward solving a problem. In other words, hard work closes some doors and opens others.
3. Curiosity and Experimentation. Innovations can begin when people are curious about something of interest, and experimentation is used to test for the viability of curious ideas. This seed of innovation requires an organizational culture that supports experimentation.
4. Wealth and Money. Innovations frequently occur because an organization or an individual simply wants to make money.
5. Necessity. Many innovations grow from the desire to achieve something or to complete a task that is needed to accomplish a broader goal.
6. Combination of Seeds. Many innovations occur as a result of multiple factors.
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Organizational Innovation
Learning from Failure
Chapter 15 | Slide 35
Failure occurs when an activity fails to deliver its expected results or outcomes
Mistakes are generally feared and penalized, which creates an environment of risk aversion and reduces innovation
Organizations learn from both success and failure, but learning is stronger and longer lasting when it is based on failure
Failure occurs when an activity fails to deliver its expected results or outcomes.
Unfortunately, failure or mistakes are generally feared and penalized, which creates an environment of risk aversion. This in turn reduces innovation.
Note results from a recent study on organizational learning. The researchers wanted to know if organizations learn more from success or failure. Results indicated that organizations learned from both success and failure, but learning was stronger and longer lasting when it was based on failure.
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Organizational Innovation
Supporting Forces for Innovation
Chapter 15 | Slide 36
Does the Company Have the Necessary Human Capital? We defined human capital in Chapter 1 as the productive potential of an individual’s knowledge and actions: a person factor in the Integrative Framework of OB. Research has identified several employee characteristics that can help organizations innovate. For example, innovation was positively associated with the individual characteristics associated with creativity, the level of skills and abilities possessed by people, employees’ self-efficacy for innovation, and the quality of the relationship between managers and employees.
Does the Company Have the Right Organizational Culture and Climate? Organizational culture—composed of core values and beliefs held by employees, and organizational climate, which consists of employees’ perceptions of formal and informal organizational policies, practices, procedures, and routines—impacts innovation.
Does the Company Devote Enough Resources to Innovation? Organizations need to put their money where their mouths are. If managers want innovation, they must dedicate resources to its development. Resources come in multiple forms. They can include dollars, time, energy, and focus.
Does the Company Have the Required Structure and Processes? Organizational structure is a prime contributor to innovation.
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Does the Company Have the Necessary Human Capital?
Does the Company Devote Enough Resources to Innovation?
Does the Company Have the Required Structure and Processes?
Does the Company Have the Right Organizational Culture and Climate?
Test Your OB Knowledge
All of the following are generic approaches to assessing an organization’s effectiveness EXCEPT:
Internal processes
Resource acquisition
Goal accomplishment
Transformative impact
Strategic constituencies satisfaction
Chapter 15 | Slide ‹#›
The correct answer is (D).
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Chapter 15 | Slide 38
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Integrative Framework for Understanding and Applying OB
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Part 3: Organizational Processes
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