Oshawa industry case

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Implementing Organizational Change: Theory into Practice

Bert Spector

Chapter 6

Reinforcing New Behaviors

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Learning Objectives

 Identify the major structural choices faced by organizational leaders and the behavioral implications of those choices.

 Consider the requirement of aligning financial measures with the strategic goals of the firm.

 Analyze the role of information technology in impacting employee behaviors.

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In all organizations, the activities of employees need to be focused on two separate issues:

1. The functional or technical activities required to achieve the desired outcomes of the organization.

2. Responsiveness to the external marketplace (customers, suppliers, competitors, regulators, etc.)

 Organization structure is a mechanism for helping to achieve the desired focus.

Organizational Focus

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Building a Vocabulary  Organizational structure: the manner in which

employees are subdivided into units and divisions as a way of focusing effort on the required tasks of the company

“Organization structure is more than just boxes and lines; it is a way to focus the activities of employees.”

“As organizations move beyond the small, start-up stage, they are likely to adopt a simple functional

structure: people with similar skills performing related activities are placed in functional

departments.”

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Functional Organizational Structure

“Use functional structures to shape the development of technical skills and expert knowledge on the part of employees.”

But:

“Organizations seeking to create seamless coordination across functions may find that the silos erected through functional

structures get in the way.”

CEO/ President

CFO Engineering SurfingSalesBusinessDevelopment Production Brand

Marketing

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Divisional Organizational Structure

“Divisional structures enhance coordinated focus on the marketplace but make integration across highly autonomous

divisional units difficult to achieve.”

CEO/ President

CFO PublishingCommerceProducts Enterprise Products

Financial Services Retail

Divisional structure: an organizational design choice that groups people together in units based on common products, services, or

customer

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Matrix Organizational Structure

“Organizations move to a matrix structure help support dual focus— on technical expertise and marketplace responsiveness”

Matrix structure:

an organizational design choice that groups people by both function and

product or product and geographical

region

Marketing

R & D

Production

Procurement

Finance

CEO

Product Line A

Product Line B

Product Line C

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Horizontally Linked Structure

“Organizations can use cross-functional teams to achieve linkages across the various and interdependent activities of

their value chain.”

CEO

Warehousing PackagingCutting& SewingDesigning Horizontally linked

structure: an organizational design choice that

groups people along the value chain activities and processes that

produce, market, deliver, and service the firm’s offerings

Value-Chain Teams

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The Role of Structural Intervention in Implementing Change

 “Think of structural change in terms of Lewin’s refreezing, not in terms of unfreezing.”

 Compensation is one of the strongest, perhaps most immediate tools that impact patterns of employee behavior.

“When structural change occurs early in a change process, employees can be confused by its purpose, unsure of what new

competencies are being required, and unwilling—or unable—to make appropriate alterations in behavioral patterns.”

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Building a Vocabulary

 Pay for performance: pay that is tied to the performance in the form of either a merit raise to base pay or an incentive bonus that does not increase base pay

“Individual incentives will be most effective in shaping behavior when the individual controls the outcomes being measured and rewarded, when the outcomes are tied to improved performance, when the evaluation of an

employee’s contribution are perceived as being valid, and when the difference between rewards for high and low performance is significant.”

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Pay-for-Performance Plans

Plan How It Works

Piece rate Employee earns all or part of a wage based on number of units produced.

Commission Sales person earns all or part of a wage based on number of units sold.

Merit pay Employee earns raise to base wage based on performance evaluation.

Bonus Employee earns extra payment based on performance evaluation.

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Factors That May Undermine Pay-for-Performance Plans

 Performance appraisals are subjective.  Individual rather than group goals are emphasized.  Encourage short-term orientation at the expense of

long-term goals.  Merit pay raises become an expected annuity.  Lengthy time lag between performance and reward.  Many jobs cannot be isolated and precisely

measured.  Pay differentials among performance levels are

small.  Payout factors determined by organizational

performance not by individual performance.

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Team-Based Bonus Plans

• Team-based bonuses: o Enhances team performance o Hurts collaboration among and between

teams “Organizations call upon team-based performance bonuses

to enhance the effectiveness of teams, but the bonus may undermine collaboration between teams.”

“Bonuses based on the overall performance of the organization make a symbolic statement recognizing the shared purpose and responsibility of

all employees and organizational units.”

“Bonuses based on the overall performance of the organization make a symbolic statement recognizing the shared purpose and responsibility of

all employees and organizational units.”

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Building a Vocabulary  Extrinsic rewards: rewards (pay, promotion, praise, and so

forth) provided by the organization to employees  Intrinsic rewards: (feelings of pride, satisfaction, and self-

esteem) that accrue to the individual based on the performance of a task

 Pay equity: a perception by employees that their pay is fair and equitable in relationship to others: peers inside the organization and out as well as subordinates and superiors in the hierarchy

“By relying heavily on extrinsic rewards to shape employee behavior, organizations risk driving out the intrinsic rewards that might be associated with the work; as a result curiosity,

creativity, and problem‐solving behaviors may be lessened.” “

“Introducing new incentives early in a change implementation process risks negative consequences.”

“Organizations will not be able to call on intrinsic motivation unless employees feel that they are being paid equitably.”

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Building a Vocabulary

 Technology: the processes, mechanics, and interactions of human behavior required to convert raw material into finished offerings

“When introducing new technology, organizational leaders face a choice: to use that technology to automate existing processes or to use new technology to

support transformed behaviors.” “New technologies can be introduced as a way to support desired behavioral

changes.”

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