Applying Systems Thinking

15: Organizational Culture and Innovation: living and working together

Social Media and Corporations: Don’t Cross the Line When You Go Online

When you think of “shameless self-promotion on Twitter”, what industry do you think of first? Whatever your choice, there’s a good chance it’s not Wall Street.

But it’s not for lack of wanting. Though investment banking has been slower than most industries to dive headfirst into self-promotion via Twitter and Facebook, many young professionals are eager to reach out to existing and potential customers using social media tools. But firms are cautious about how bankers represent themselves to a public wary of corporate hijinks and poor decision-making. Add to this a very complex regulatory environment surrounding how businesses in banking industry must monitor and store official communications, and you start to understand why Wall Street has been more tentative than most industries to get with the times.

“Who could blame any firm operating in a regulated industry for taking a cautious approach in the face of all that?” asks social media expert Kip Gregory, principal of The Gregory Group. “Especially in financial services, which is at its core an industry built around the management of risk. The question is: How do you, as a competitor in this business, choose to respond to a clearly shifting landscape?”a

Some firms ban all social media use by employees. Others are taking a predictably cautious approach to exploring social media. For example, Morgan Stanley’s position—“There are substantial restrictions on its use right now, but we are continuing to review the issue.”—is itself shorter than a single tweet. But many investment professionals are eager to learn how they can make positive use of social media’s persuasive powers.

“We’re trying to rally the troops and recognize that you just can’t have a policy in place that prohibits this,” says John N. Travagline, vice president of compliance for the trade group Insurance Marketplace Standards Association. “People realize this is something that’s here to stay. We’ve just got to figure out leading solutions–the right way to do this.”b How can executives manage this emerging aspect of the corporate culture?

“It would be nice to say, ‘OK, we have a social media strategy and here it is.’ But that’s not the way this story is being played out.”—Todd Estabrook, chief marketing officer for Commonwealth Financial. c

Quick Summary

• Communications by Wall Street firms and employees are restricted by intensely detailed regulatory guidelines, which present a challenge for individual employees who wish to promote themselves using social media tools.

• Especially cautious about maintaining a positive image, some firms forbid employees from using social media to promote themselves or their firms.

FYI: According to a 2010 study by asset management advisory company kasina, 48% of financial advisors visit LinkedIn; 43% visit Facebook.d

the key point

Since people spend much of their adult lives in and around organizations, they are often absorbed into the organization culture. While the organizational culture provides meaning and stability, most organizations also contain a number of subcultures and countercultures. To operate as an effective manager you will need to understand the various layers of culture and the important role of stories, rites, and rituals. While culture provides stability, organizations also need innovation to survive. Balancing the need for innovation and stability can be a managerial challenge of the first order as illustrated in the case of Wall Street firms and social media.

chapter at a glance

What Is Organizational Culture?

How Do You Understand an Organizational Culture?

What Is Innovation and Why Is It Important?

How Can We Manage Organizational Culture and Innovation?

what’s inside?

ETHICS IN OB

AGE BECOMES AN ISSUE IN JOB LAYOFFS

FINDING THE LEADER IN YOU

CHRISTINE SPECHT PUTS A NEW FACE ON COUSINS SUBS

OB IN POPULAR CULTURE

CORPORATE CULTURE AND THE FIRM

RESEARCH INSIGHT

TEAM FACTORS AND INNOVATION

Can you imagine eliminating all of your Facebook friends or passing up the opportunity to Twitter the most recent news? It is also like getting disconnected from the world. Although Wall Street executives want to control the use of social media, they also clearly recognize that being interconnected is a part of the larger U.S. culture and rapidly becoming a global standard. This is just one of the newer issues executives are confronting as they attempt to manage organizational culture.

Organizational Culture

LEARNING ROADMAP

Functions of Organizational Culture / Subcultures and Countercultures / National Culture and Corporate Culture

Organizational or corporate culture is the system of shared actions, values, and beliefs that develops within an organization and guides the behavior of its members.1 In the business setting, this system is often referred to as the corporate culture. Each organization has its own unique culture. Just as no two individual personalities are the same, no two organizational cultures are identical. Yet, there are some common cultural elements that yield stability and meaning for organizations. Management scholars and consultants believe that some cultural elements can have a major impact on the performance of organizations and the quality of work life experienced by their members.2 In this chapter we will examine the functions of organizational culture and various levels of cultural analysis to understand the powerful force of organizational culture.

Organizational or corporate culture is the system of shared actions, values, and beliefs that develops within an organization and guides the behavior of its members.

Functions of Organizational Culture

Through their collective experience, members of an organization can solve two extremely important survival issues.3 The first issue is one of external adaptation: What precisely needs to be accomplished, and how can it be done? The second is known as internal integration: How do members resolve the daily problems associated with living and working together?

External Adaptation

Issues of external adaptation deal with ways of reaching goals, tasks to be accomplished, methods used to achieve the goals, and methods of coping with success and failure. Through their shared experiences, members may develop common views that help guide their day-to-day activities. Organizational members need to know the real mission of the organization, not just the pronouncements to key constituencies, such as stockholders. By talking to one another, members will naturally develop an understanding of how they contribute to the mission. This view may emphasize the importance of human resources. On the other hand, employees may see themselves as cogs in a machine, or a cost to be reduced.

External adaptation deals with reaching goals, the tasks to be accomplished, the methods used to achieve the goals, and the methods of coping with success and failure.

Each group of individuals in an organization tends to (1) separate more important from less important external forces, (2) develop ways to measure their accomplishments, and (3) create explanations for why goals are not always met. At Dell, the retailer of computers and consumer electronics, managers, for example, have moved away from judging their progress against specific targets to estimating the degree to which they are moving a development process forward. They work on improving participation and commitment. They don’t blame a poor economy or upper-level managers for the firm’s failure to reach a profit target. In difficult times they stress the progress all have made in their collective effort.4

Winning Culture at Sherwin-Williams

Christopher Connor, chairman and CEO of Sherwin-Williams, describes his firm’s “winning culture” in terms of providing “a place where individuals get promoted based on performance to build wealth–real wealth.” Sherwin-Williams managers believe in providing training and developmental experiences for all its employees.

The final issues in external adaptation deal with two important, but often neglected, aspects of coping with external reality. First, individuals need to develop acceptable ways of telling outsiders just how good they really are. At 3M, for example, employees talk about the quality of their products and the many new, useful products they have brought to the market. Second, individuals must collectively know when and how to admit defeat. At 3M, the answer is easy for new projects: At the beginning of the development process, members establish “drop” points at which to quit the development effort and redirect it. When they quit, project managers are careful not to suggest that the group has failed but stress that what they have learned increases the chances that the next project will succeed to market.5

In sum, external adaptation involves answering important instrumental or goal-related questions concerning coping with reality: What is the real mission? How do we contribute? What are our goals? How do we reach our goals? What external forces are important? How do we measure results? What do we do if we do not meet specific targets? How do we tell others how good we are? When do we quit? Chris Connor of Sherwin-Williams expressed his firm’s approach to external adaptation in terms of winning.6

The process of internal integration often begins with the establishment of a unique identity. Through dialogue and interaction, members begin to characterize their world. They may see it as malleable or fixed, filled with opportunities or threats. Real progress toward innovation can only begin when group members believe that they can change important parts of the world around them and that what appears to be a threat is actually an opportunity for change.

Internal Integration deals with the creation of a collective identify and with ways of working and living together.

Three important aspects of working together are (1) deciding who is a member of the group and who is not, (2) developing an informal understanding of acceptable and unacceptable behavior, and (3) separating friends from enemies. These are important issues for managers as well. A key to effective total quality management, for instance, is that subgroups in the organization need to view their immediate supervisors as members of the group. The immediate supervisor is expected to represent the group to friendly higher managers. Of course, should management not be seen as friendly, the process of improving quality could quickly break down.7 For example, Aetna, one of the nation’s leading diversified health care benefits companies, describes its corporate culture as one where employees “work together openly, share information freely and build on each other’s ideas to continually create the next better way. Nothing is impossible to our Aetna team. We are eager, ambitious learners and continuous innovators. And we are succeeding. Every day”8

To work together effectively, individuals need to decide collectively how to allocate power, status, and authority. They need to establish a shared understanding of who will get rewards and sanctions for specific types of actions. Too often, managers fail to recognize these important aspects of internal integration. A manager may fail to explain the basis for a promotion and to show why this reward, the status associated with it, and the power given to the newly promoted individual are consistent with commonly shared beliefs.

Collections of individuals also need to work out acceptable ways to communicate and develop guidelines for friendships. Although these aspects of internal integration may appear esoteric, they are vital. For example, to function effectively as a team, all must recognize that some members will be closer than others; friendships are inevitable.9

Resolving the issues of internal integration helps individuals develop a shared identity and a collective commitment. It may well lead to longer-term stability and provide a lens for members to make sense of their part of the world. In sum, internal integration involves answers to important questions associated with living together. What is our unique identity? How do we view the world? Who is a member? How do we allocate power, status, and authority? How do we communicate? What is the basis for friendship? Answering these questions is important to organizational members because the organization is more than just a place to work.

Subcultures and Countercultures

Whereas smaller firms often have a single dominant culture with a universal set of shared actions, values, and beliefs, most larger organizations contain several subcultures as well as one or more countercultures.10

Subcultures

Subcultures are groups of individuals who exhibit a unique pattern of values and a philosophy that is consistent with the organization’s dominant values and philosophy11 While subcultures are unique, their members’ values do not clash with those of the larger organization. Interestingly, strong subcultures are often found in task forces, teams, and special project groups in organizations. The subculture emerges to bind individuals working intensely together to accomplish a specific task. For example, there are strong subcultures of stress engineers and liaison engineers in the Boeing Renton plant. These highly specialized groups must solve knotty technical issues to ensure that Boeing planes are safe. Though distinct, these groups of engineers also share in the dominant values of Boeing.

Subcultures are groups who exhibit unique patterns of values and philosophies not consistent with the dominant culture of the larger organization or system.

Countercultures

In contrast, countercultures are groups whose patterns of values and philosophies outwardly reject those of the larger organization or social system.12 When Stephen Jobs reentered Apple Computer as its CEO, he quickly formed a counterculture within Apple. Over the next 18 months, numerous clashes occurred as the followers of the former CEO Gil Amelio fought to maintain their place and the old culture. Jobs won and so did Apple. His counterculture became dominant and the company thrived.13

Countercultures are groups where the patterns of values and philosophies outwardly reject those of the organization or social system.

Every large organization imports potentially important subcultural groupings when it hires employees from the larger society. In North America, for instance, subcultures and countercultures may naturally form based on ethnic, racial, gender, generational, or locational similarities. In Japanese organizations, subcultures often form based on the date of graduation from a university, gender, or geographic location. In European firms, ethnicity and language play an important part in developing subcultures, as does gender. In many less developed nations, language, education, religion, or family social status are often grounds for forming popular subcultures and countercultures.

Within an organization, mergers and acquisitions may produce adjustment problems. Employers and managers of an acquired firm may hold values and assumptions that are inconsistent with those of the acquiring firm. This is known as the “clash of corporate cultures.”14 One example is the difficulty Bank of America faced when it gave huge bonuses to traders after acquiring Merrill Lynch.15

National Culture and Corporate Culture

Most organizations originate in one national culture and incorporate many features from this host national culture even when they expand internationally. The difference between Sony’s corporate emphasis on group achievements and Zenith’s emphasis on individual engineering excellence, for example, can be traced to the Japanese emphasis on collective action versus the U.S. emphasis on individualism. National cultural values may also become embedded in the expectations of important organizational constituencies and in generally accepted solutions to problems.

When moving across national cultures, managers need to be sensitive to national cultural differences so that their actions do not violate common assumptions in the underlying national culture. To improve morale at General Electric’s French subsidiary, Chi. Generale de Radiologie, American managers invited all of the European managers to a “get-acquainted” meeting near Paris. The Americans gave out colorful t-shirts with the GE slogan, “Go for One,” a typical maneuver in many American training programs. The French resented the t-shirts. One outspoken individual said, “It was like Hitler was back, forcing us to wear uniforms. It was humiliating.” Firms often face problems in developing strong ethical standards, particularly when they import societal subgroups.

Importing Societal Subgroups

Beyond becoming culturally sensitive, difficulties often arise with importing groupings from the larger society. Some of these groupings are relevant to the organization whereas others may be quite destructive. At the one extreme, senior managers can merely accept societal divisions and work within the confines of the larger culture. This approach presents three primary difficulties. First, subordinated groups, such as members of a specific religion or ethnic group, are likely to form into a counterculture and to work more diligently to change their status than to better the firm. Second, the firm may find it extremely difficult to cope with broader cultural changes. For instance, in the United States the expected treatment of women, ethnic minorities, and the disabled has changed dramatically over the last 20 years. Firms that merely accept old customs and prejudices have experienced a greater loss of key personnel and increased communication difficulties, as well as greater interpersonal conflict, than have their more progressive counterparts. Third, firms that accept and build on natural divisions from the larger culture may find it extremely difficult to develop sound international operations. For example, many Japanese firms have experienced substantial difficulties adjusting to the equal treatment of women in their U.S. operations.16

ETHICS IN OB: AGE BECOMES AN ISSUE IN JOB LAYOFFS

Job cuts need to be made in a bad economy. Who gets laid off? Sarah is young, single, and years out of college; she is hard working, topped the performance ratings this year, and always steps forward when volunteers are needed for evening work or travel. Mary is in her mid-40s, has two children, and her husband is a pediatrician; her performance is good, always at or above average during performance reviews, but she has limited time available for evening work and out-of-town travel.

Who gets picked for the layoff, Sarah or Mary? Chances are it’s going to be Sarah. The Wall Street Journal reports that younger workers are at greater risk of layoffs because many employers use a “last in/first out” rule when cutting back staff. This is true even though the younger workers tend to earn less than their older counterparts and may even be outperforming them. One reason is conflict avoidance; who wants to face an age discrimination lawsuit? Another is the emotional toll that making layoff decisions places on managers; it just seems easier to let go the younger person who probably has fewer complicating personal and family situations.

David Schauer, a school superintendent in Phoenix, says he sent layoff notices to 68 teachers all in their first year of employment. He says, “My worst fear is that really good people will leave teaching.” Nicole Ryan, a teacher in New York, received just such a notice. She says: “I knew it was coming because, based on seniority, I was lower on the totem pole.” But, she adds: “It didn’t make it any easier.”

What’s Right?

Are managers doing the right things when they lay off younger workers first, even when they are high performers? Is it correct to take “personal and family” factors into account when making decisions on who gets to keep their jobs and who doesn’t? Is it fair that younger workers have more to fear about keeping their jobs because some managers are unwilling to face possible age discrimination claims from older workers?

Building on National Cultural Diversity

At the other extreme, managers can work to eradicate all naturally occurring national subcultures and countercultures. Firms are struggling to develop what Taylor Cox calls the multicultural organization. The multicultural organization is a firm that values diversity but systematically works to block the transfer of societally based subcultures into the fabric of the organization.17 Because Cox focuses on some problems unique to the United States, his prescription for change may not apply to organizations located in other countries with much more homogeneous populations.

Multicultural organization is a firm that values diversity but systematically works to block the transfer of societally based subcultures into the fabric of the organization.

Cox suggests a five-step program for developing the multicultural organization. First, the organization should develop pluralism with the objective of multi-based socialization. To accomplish this objective, members of different naturally occurring groups need to school one another to increase knowledge and information and to eliminate stereotyping. Second, the firm should fully integrate its structure so that there is no direct relationship between a naturally occurring group and any particular job—for instance, there are no distinct male or female jobs. Third, the firm must integrate the informal networks by eliminating barriers and increasing participation. That is, it must break down existing societally based informal groups. Fourth, the organization should break the linkage between naturally occurring group identity and the identity of the firm. Fifth, the organization must actively work to eliminate interpersonal conflict based on either the group identity or the natural backlash of the largest societally based grouping.

Understanding Organizational Cultures

LEARNING ROADMAP

Layers of Cultural Analysis / Stories, Rites, Rituals, and Symbols / Cultural Rules and Roles / Shared Values, Meanings, and Organizational Myths

Some aspects of organizational culture are easy to see. Yet, not all aspects of organizational culture are readily apparent because they are buried deep in the shared experience of organizational members. It may take years to understand some deeper aspects of the culture. This complexity has led some to examine different layers of analysis ranging from easily observable to deeply hidden aspects of corporate culture.

Layers of Cultural Analysis

Figure 15.1 illustrates the observable aspects of culture, shared values, and underlying assumptions as three layers.18 The deeper one digs, the more difficult it is to discover the culture but the more important an aspect becomes.

The first layer concerns observable culture , or “the way we do things around here.” Important parts of an organization’s culture emerge from the collective experience of its members. These emergent aspects of the culture help make it unique and may well provide a competitive advantage for the organization. Some of these aspects may be observed directly in day-to-day practices. Others may have to be discovered—for example, by asking members to tell stories of important incidents in the history of the organization. We often learn about the unique aspects of the organizational culture through descriptions of specific events.19 By observing employee actions, listening to stories, and asking members to interpret what is going on, one can begin to understand the organization’s culture. The observable culture includes the unique stories, ceremonies, and corporate rituals that make up the history of the firm or a group within the firm.

Observable culture is the way things are done in an organization

The second layer recognizes that shared values can play a critical part in linking people together and can provide a powerful motivational mechanism for members of the culture. Many consultants suggest that organizations should develop a “dominant and coherent set of shared values.”20 The term shared in cultural analysis implies that the group is a whole. Not every member may agree with the shared values, but they have all been exposed to them and have often been told they are important. At Microsoft a shared culture value is a passion for technology.

Figure 15.1: Three levels of analysis in studying organizational culture.

Shared Passions at Microsoft

At Microsoft, employees profess to “share a passion for technology and what it can do for people. It’s a shared passion for innovation, exploration, and creativity, and a belief in the value of software and the difference it can make in people’s lives.” This shared passion supports the mission and values to “help people and businesses throughout the world realize their full potential.”

At the deepest layer of cultural analysis are common cultural assumptions; these are the taken-for-granted truths that collections of corporate members share as a result of their joint experience. It is often extremely difficult to isolate these patterns, but doing so helps explain why culture invades every aspect of organizational life.

Stories, Rites, Rituals, and Symbols

To begin understanding a corporate culture, it is often easiest to start with stories. Organizations are rich with stories of winners and losers, successes and failures. Perhaps one of the most important stories concerns the founding of the organization. The founding story often contains the lessons learned from the heroic efforts of an embattled entrepreneur, whose vision may still guide the firm. The story of the founding may be so embellished that it becomes a saga —a heroic account of accomplishments.21 Sagas are important because they are used to tell new members the real mission of the organization, how the organization operates, and how individuals can fit into the company. Rarely is the founding story totally accurate, and it often glosses over some of the more negative aspects of the founders. Such is the case with Monterey Pasta.22

Saga is an embellished heroic account of accomplishments.

On its Web site, the organization says of its history, “The Monterey Pasta Company was launched from a 400-square-foot storefront on Lighthouse Avenue in Monterey, California in 1989…. The founders started their small fresh pasta company in response to the public’s growing interest in healthy gourmet foods. Customers were increasingly excited about fresh pasta given its superior quality and nutritional value, as well as ease of preparation…. The company soon accepted its first major grocery account…. In 1993, the company completed its first public offering.” The Web site fails to mention another interesting aspect of the firm. An unsuccessful venture into the restaurant business in the mid-1990s provided a significant distraction, and substantial losses were incurred before the company refocused on its successful retail business. But why ruin a good founding story?

If you have job experience, you may well have heard stories concerning the following questions: How will the boss react to a mistake? Can someone move from the bottom to the top of the company? What will get me fired? These are common story topics in many organizations.23 Often, the stories provide valuable but hidden information about who is more equal than others, whether jobs are secure, and how things are really controlled. In essence, the stories begin to suggest how organizational members view the world and live together.

Some of the most obvious aspects of organizational culture are rites and rituals.24 Rites are standardized and recurring activities that are used at special times to influence the behaviors and understanding of organizational members; rituals are systems of rites. It is common, for example, for Japanese workers and managers to start their workdays together with group exercises and singing of the “company song.” Separately, the exercises and song are rites. Together, they form part of a ritual. In other settings, such as Mary Kay Cosmetics, scheduled ceremonies reminiscent of the Miss America pageant (a ritual) are used regularly to spotlight positive work achievements and reinforce high-performance expectations with awards, including gold and diamond pins and fur stoles.

Rites are standardized and recurring activities used at special times to influence the behaviors and understanding of organizational members.

Rituals are systems of rites.

Rituals and rites may be unique to particular groups within the organization. Subcultures often arise from the type of technology deployed by the unit, the specific function being performed, and the specific collection of specialists in the unit. A unique language may well maintain the boundaries of the subculture. Often, the language of a subculture, and its rituals and rites, emerge from the group as a form of jargon. In some cases, the special language starts to move outside the firm and begins to enter the larger society. For instance, look at Microsoft Word’s specialized language, with such words as hyperlink, frames, and quick parts. It’s a good thing they also provide a Help button defining each.

Another observable aspect of corporate culture centers on the symbols found in organizations. A cultural symbol is any object, act, or event that serves to transmit cultural meaning. Good examples are the corporate uniforms worn by UPS and Federal Express delivery personnel.

A cultural symbol is any object, act, or event that serves to transmit cultural meaning.

Cultural Rules and Roles

Organizational culture often specifies when various types of actions are appropriate and where individual members stand in the social system. These cultural rules and roles are part of the normative controls of the organization and emerge from its daily routines.25 For instance, the timing, presentation, and methods of communicating authoritative directives are often quite specific to each organization. In one firm, meetings may follow a set rigid agenda. The manager could go into meetings to tell subordinates what to do and how to accomplish tasks. Private conversations prior to the meeting might be the place for any new ideas or critical examination. In other firms, meetings might be forums for dialogue and discussion, where managers set agendas and then let others offer new ideas, critically examine alternatives, and fully participate. Take a look at how R&R Partners uses what it calls a SWARM.26

The Swarm at R&R Partners

R&R Partners is a midsized advertising and lobbying firm headquartered in Las Vegas. It has a creative culture where everyone is expected to constantly be providing new ideas. When creativity is needed, all members are invited into the “war room” to brainstorm. These brainstorming sessions are called a SWARM.

Finding the Leader in You: CHRISTINE SPECHT PUTS A NEW FACE ON COUSINS SUBS

As the second generation to head Cousins Subs, Christine Specht stresses the importance of culture. She makes it perfectly clear that her focus is on the key attributes of the organization founded by her father and his cousin.

Specht notes, “Our food is better; our sandwiches are bigger. More importantly, they are made by people who really care about serving the guests …we have a great organizational culture of people who really care about the company and the guest.”

For Christine Specht, it is imperative to continue the cultural traditions of Cousins while at the same time making sure the firm is new, vital, and viable. When Specht unveiled a new logo and restaurant design for Cousins Subs, she explained that it was a great time to evolve their look with a logo that while fresh and modern, incorporated the “pride of our family heritage” and shared the story of Cousins Subs with their loyal patrons.

While Specht emphasizes tradition at Cousins, she also looks to the future. When she first became president of the organization she visited all of the franchise operations. Based on this experience, she reorganized the central office operations. The visits helped build trust, and as the economy entered the recession the new central office operations were instrumental in reducing costs for all the franchise holders. These changes also led to a revamped training program for those who own, and want to own, a Cousins’ franchise.

Since becoming president, Specht continues to focus on the cornerstone of the brand—“Better Bread. Better Subs.” And it is as true today as it was 30 years ago when cousins Bill Specht and Jim Sheppard started the company. The cousins worked with a local baker to create a unique recipe for their bread that is still baked fresh several times a day in every Cousins store.

What’s the Lesson Here?

How comfortable are you with managing change? How can you use stories, rituals, and symbols to reinforce aspects of the culture you want to keep? How much innovation would you introduce and how quickly?

Shared Values, Meanings, and Organizational Myths

To describe an organization’s culture more fully, it is necessary to go deeper than the observable aspects. To many researchers and managers, shared common values lie at the very heart of organizational culture.

Shared Values

Shared values help turn routine activities into valuable and important actions, tie the corporation to the important values of society, and possibly provide a very distinctive source of competitive advantage. In organizations, what works for one person is often taught to new members as the correct way to think and feel. Important values are then attributed to these solutions to everyday problems. By linking values and actions, the organization taps into some of the strongest and deepest realms of the individual. The tasks a person performs are given not only meaning but also value: What one does is not only workable but correct, right, and important.

Some successful organizations share some common cultural characteristics.27 Organizations with “strong cultures” possess a broadly and deeply shared value system. Unique, shared values can provide a strong corporate identity, enhance collective commitment, provide a stable social system, and reduce the need for formal and bureaucratic controls. For firms in a very stable domestic environment, several consultants suggest that firms develop a “strong culture.”28 By this, they basically mean:

• A widely shared real understanding of what the firm stands for, often embodied in slogans

• A concern for individuals over rules, policies, procedures, and adherence to job duties

• A recognition of heroes whose actions illustrate the company’s shared philosophy and concerns

• A belief in ritual and ceremony as important to members and to building a common identity

• A well-understood sense of the informal rules and expectations so that employees and managers understand what is expected of them

• A belief that what employees and managers do is important and that it is important to share information and ideas

When it is established over a long period of time, a strong culture can be a double-edged sword. A strong culture and value system can reinforce a singular and sometimes outdated view of the organization and its environment. If dramatic changes are needed, it may be very difficult to change the organization. For years General Motors had a “strong” culture. But as the global auto industry changed, GM could not. It took bankruptcy to shake it to its foundations and provide the impetus for radical change.

Shared Meanings

When you are observing the actions within a firm, it is important to keep in mind the three levels of analysis we mentioned earlier. What you see as an outside observer may not be what organizational members experience because members may link actions to values and unstated assumptions. For instance, in the aftermath of 9/11 many casual observers saw crane operators moving wreckage from an 18-acre pile of rubble that was once the Twin Towers at the World Trade Center complex into waiting trucks.

If you probe the values and assumptions about what these individuals are doing, however, you get an entirely different picture from those actually doing the work. They were not just hauling away the remnants of the Twin Towers at the World Trade Center complex. They were rebuilding America. These workers had infused a larger shared meaning—or sense of broader purpose—into their tasks. Through interaction with one another, and as reinforced by the rest of their organizations and the larger society, their work had deeper meaning. In this deeper sense, organizational culture is a “shared” set of meanings and perceptions.

In most corporations, these shared meanings and perceptions may not be as dramatic as those shared at Ground Zero, yet in most firms employees create and learn a deeper aspect of their culture.29 Often one finds a series of common assumptions known to most everyone in the corporation: “We are different.” “We are better at….” “We have unrecognized talents.” Cisco Systems provides an excellent example. Senior managers often share common assumptions, such as “We are good stewards” and “We are competent managers” and “We are practical innovators.” Like values, such assumptions become reflected in the organizational culture.

How the Mighty Fall

In his new book, How the Mighty Fall, consultant and author Jim Collins asks what can be learned from the failures of previously great companies. He likens corporate decline to a “disease”–the firm looks good on the outside but is sick on the inside. The first stage of decline is “hubris born of success,” a point at which arrogance in leadership leads to strategic neglect.

As with a “strong culture,” shared meanings and perceptions can be a double-edged sword. While a deeper shared perception can provide managers with a common base for decision making to develop an effective organization, Jim Collins notes in his book How Do the Mighty Fall, that firms may begin to decline if managers share an unrealistic positive perception of their firm.30

Organizational Myths

In many firms, a key aspect of the shared common assumptions involves organizational myths. Organizational myths are unproven and frequently unstated beliefs that are accepted uncritically. Often corporate mythology focuses on cause–effect relationships and assertions by senior management that cannot be empirically supported.31 Although some may scoff at organizational myths and want to see rational, hard-nosed analysis replace mythology, each firm needs a series of managerial myths.32 Myths allow executives to redefine impossible problems into more manageable components. Myths can facilitate experimentation and creativity, and they allow managers to govern. Of course, there is also a potential downside to the power of myths.

Organizational myth is a commonly held cause-effect relationship or assertion that cannot be supported empirically.

Three common myths may combine to present major risk problems.33 The first common myth is the presumption that at least senior management has no risk bias. This myth is often expressed as, “Although others may be biased, I am able to define problems and develop solutions objectively.” We are all subject to bias in varying degrees and in varying ways. As an issue becomes more complex, it is much more likely there are several biased viable interpretations.

A second common myth is the presumption of administrative competence. Managers at all levels are subject to believing that their part of the firm is okay and just needs minor improvements in implementation. As we have documented throughout this book, such is rarely the case. In almost all firms, there is often considerable room for improvement. One particularly damaging manifestation of this myth is that new process and product innovations can be managed in the same way as older ones.

A third common myth is the denial of trade-offs; their group, unit, or firm can avoid making undesirable trade-offs and simultaneously please nearly every constituency. Whereas the denial of trade-offs is common, it can be a dangerous myth in some firms. An emphasis on a single goal often means that other goals are neglected. For example, throughout this book we have emphasized ethics to remind the reader that ethics does not stem from the search for higher efficiency. It is a worthy goal among several.

OB IN POPULAR CULTURE: CORPORATE CULTURE AND THE FIRM

All organizations have cultures, some stronger than others, and these are reinforced in a variety of ways. Corporate culture is reflected in the shared values and beliefs and the actions of employees that reflect them. Culture is important and can be a competitive advantage. Consider the cultures of the United States Marine Corps or most fraternities and sororities. Membership in any one of those organizations creates an identify that defines a person for life.

In The Firm, hotshot lawyer Mitch McDeere (Tom Cruise) accepts a position at the Memphis law firm of Bendini, Lambert, & Locke. After graduating first in his Harvard Law School class, he knows what it means to work hard. He shows up early on the first day and finds himself alone in the firm’s law library. Sometime later, Lamar Quin (Terry Kinney) arrives to show him around. When Mitch says he “thought he would jump start the bar exam,” Lamar quickly responds, “Good because no associate of the firm ever failed the bar exam.” Throughout the day, McDeere is greeted by a series of lawyers bringing binders and offering help. Each leaves the office with the same admonishment–“No associate of the firm has ever failed the bar exam.”

Corporate culture is reinforced through stories, rites, rituals, and symbols. Rites are special activities that hold important meaning throughout the organization. Like rites of passage, these activities may represent tests that employees are expected to pass. At Bendini, Lambert, & Locke, the bar exam was the measure of success. If you wanted to stay with the firm, you had better pass.

Get to Know Yourself Better

Do you think much about organizational culture? Take a look at Assessment 22, Which Culture Fits You? in the OB Skills Workbook. What does it reveal about your preference? While person–organization fit is important, you may not have the luxury of choosing the “right” organization upon graduating. Could you work in an organization that had any one of the other three cultures? What challenges might this present for you?

As illustrated in Figure 15.2, these myths may combine to yield purposeful unintended consequences.

Purposeful unintended consequences arise from the collective application of these three myths. Purposeful unintended consequences are dramatic, unanticipated benefits or costs arising from the implementation of a way of doing business. Often these unintended consequences are dire. They are purposeful because they stem from unexamined myths—myths managers think apply to others and not themselves.

The recent financial meltdown in mortgage-backed securities is an example.34 Over the last decade, banks and financial institutions bought and sold mortgage-backed derivatives (complex financial instruments) under the myths that they could (1) accurately judge the risk themselves and value them accurately (they were not risk biased), (2) administer these complex instruments in a manner similar to traditional mortgages (the presumption of administrative competence), and (3) gain great short-term returns without risking long-term profitability (denial of trade-offs). These combined myths allowed the managers to dismiss collectively the potential of a systematic meltdown of the entire financial system (the dire unintended consequence). Yet, by the end of 2008 and the beginning of 2009 the global financial system almost collapsed from these and related problems. Was the unintended consequence pursued on purpose? Yes and no. No one manager sought a meltdown. Yet, collectively, millions of mortgages were granted to individuals with questionable credit and used to develop new types of financial instruments. It took unprecedented actions by many central banks and governments to avert a collapse.

Figure 15.2: Purposeful unintended consequences arising from organizational myths.

And yet, mortgage-backed securities and derivatives were one of the financial system’s major innovations toward the turn of the century. They were an important way to broaden the financial support for housing. Initially they appeared quite successful and provided financial institutions with a way to grow and prosper. So, we turn to the topic of innovation to delve more deeply into this important factor for growth and prosperity.

Innovation in Organizations

LEARNING ROADMAP

The Process of Innovation / Product and Process Innovations / Balancing Exploration and Exploitation

When analysis stresses commonly shared actions, values, and common assumptions across the entire organization, it can appear that firms are static, unchanging entities. It is quite clear that much of the organization’s culture and its structure emphasize stability and control. Yet, we all know that the world is changing and that firms must change with it. The best organizations don’t stagnate; they consistently innovate to the extent that innovation becomes a part of everyday operations.

Innovation is the process of creating new ideas and putting them into practice.35 It is the means by which creative ideas find their way into everyday practices—ideally practices that contribute to improved customer service or organizational productivity. There are a variety of ways to look at innovation. Here, we will examine it as a process, separate product from process innovation, and note the tensions between the early development of ideas and the task of implementation.

Innovation is the process of creating new ideas and putting them into practice.

Figure 15.3: The innovation process: a case of new product development.

The Process of Innovation

One easy way to look at the complex process of innovation is to break it down into four steps (see Figure 15.3).

1. Idea creation—to create an idea through spontaneous creativity, ingenuity, and information processing

2. Initial experimentation—to establish the idea’s potential value and application

3. Feasibility determination—to identify anticipated costs and benefits

4. Final application—to produce and market a new product or service, or to implement a new approach to operations

It takes many creative ideas to establish a base for initial experimentation. Moreover, many successful initial experiments are just not feasible. Even among the few feasible ideas, only the rare idea actually makes it into application. Finally, innovative entities benefit from and require top-management support. Senior managers can and must provide good examples for others, eliminate obstacles to innovation, and try to get things done that make innovation easier.

By emphasizing the innovation process, innovative entities often adapt a different culture from the ones typically found where more routine operations are paramount. Innovative entities look to the future, are willing to cannibalize existing products in their development of new ones, have a high tolerance for risk, have a high tolerance for mistakes, respect well-intentioned ideas that just do not work, prize creativity, and reward and give special attention to idea generators, information keepers, product champions, and project leaders. They also prize empowerment and emphasize communication up, down, and across all individuals in the unit.36

Although it is convenient to depict the process as a sequential four-step affair, you should be aware that in practice the process of innovation is often quite messy. Take a look at Figure 15.3. With initial experimentation, for instance, the very act of sharing ideas with others can, and often does, yield a completely new set of ideas. Even in final application, the process does not stop, as astute innovators carefully listen to customers and clients to make further improvements. Also note that organizational support for innovation is needed in each step in this ongoing process.

Although the desire to improve financial performance is often important in stimulating innovation, it is also important to note that innovation can arise from the firm’s desire to be more legitimate in the eyes of key stakeholders, such as government regulators. For example, one recent study suggested that pressures from regulators and a prior record of poor environmental performance yielded more innovative environmental responses from firms. There was an exception, however, in that firms with greater slack resources did not respond as positively to regulatory pressures even if they had a record of poorer prior environmental performance.37

Research also shows the results of the team factors associated with greater innovation. It is clear from this work that a number of important team processes are consistently linked to greater innovation in addition to the organizational factors noted above.

Product and Process Innovations

Product innovations result in the introduction of new or improved goods or services to better meet customer needs. A number of studies suggest that the key difficulty associated with product development is the integration across all of the units needed to move from the idea stage to final implementation.38 Culturally, new product development often challenges existing practice, existing value structures, and common understandings. For instance, by its very definition, product innovation means that the definition of the business will change. Many firms find it difficult to cannibalize their existing product lineup in the hope that new products will be even more successful. Yet, this is what often needs to be done.39

Product innovations introduce new goods or services to better meet customer needs.

Product innovation is so important that a number of government-based initiatives have been launched to help spur the development of new products. Individuals proposing initiatives point to the revolution resulting from development of the Internet, the hope for new green technologies, and the promise of medical breakthroughs to change the human condition. One important new study suggests that corporate culture, rather than national policy, makes the biggest difference with radical product innovation.40

A number of interrelated firms may share the product innovation process.41 Generally speaking, large complex products are often combinations of individual components from a variety of corporations. At the extreme, there is open innovation where each firm knows what the others are doing. Control is exercised by a common design, often under the direction of a single integrator who maintains the dominant design. This is often the model in computer software, for instance. It is important to note that the development and control of the dominant design can be linked to extremely high profitability42 Furthermore, the dominant design is often not the best technical solution—it is the solution most often adopted by a large number of users.

Where the product innovation process is less open, firms often find that coordination with lead users can help provide design insights.43 Yet, firms typically confront waning commitment to product innovation. Although no solution is perfect, several studies suggest that the development of multidisciplinary teams can help maintain broader commitment. Of course, just the inclusion of individuals with diverse skills, interests, and perspectives calls for astute management. As we said earlier, the innovation process is far from easy.

RESEARCH INSIGHT: Team Factors and Innovation

What characteristics of innovation teams are linked to success? Because so much innovation depends on teams of individuals, a large volume of work has been done on the linkage between team characteristics and innovation. Here, the authors systematically reviewed all the published statistical studies over the last 30 years and conducted a statistical analysis of some 100 studies with a technique called a meta-analysis.

As you might expect, they started with a very large list of factors and found that a handful were particularly important. First, they identified a series of input variables, such as team size and longevity, and found one major factor they called goal interdependence. Goal interdependence is essentially the degree to which individuals can reach their goals only if other team members also reach theirs. The higher the goal interdependence, the greater the innovation. Second, they identified a host of team processes in which a higher quality process was linked to more innovation.

The authors found that six team processes were particularly important for innovative success: (1) vision—the degree of clarity and commitment to goals, (2) support for innovation—support both within and from outside, (3) task orientation—a climate for excellence, (4) cohesion—a commitment to the team and maintenance of group membership, (5) internal communications—quality interactions within the group, and (6) external communications—quality interactions with outsiders. For instance, if there was greater support for innovation, there was greater success. These six factors are in the schematic.

Do the Research

Were you surprised that some composition factors such as size were not consistently important? Of the six important team factors, which ones do you think would be most important for idea generation? Which factors might be particularly critical for successful implementation?

Source: U. Hulsher, N. Anderson, and J. Salgado, “Team-Level Predictors of Innovation at Work: A Comprehensive Meta-Analysis Spanning Three Decades of Research, Journal of Applied Psychology 94.5 (2009), pp. 1128–1145.

Process innovations result in the introduction of new and better work methods and operations. Perhaps one of the most interesting and difficult types of process improvement is that of management innovation.44 Obviously, much management innovation comes from the vast industry known as management consulting, Unfortunately, many of the new management practices emanating from these outside units are more fashions and fads than workable solutions to the problems faced by individual firms. The key to successful managerial innovation often involves extensive interaction with peers, subordinates, and superiors. As astute managers try new practices, they compare initial implementation with the reactions of peers and subordinates to refine and modify the practice. Often this process of trial and error takes several iterations before the practice becomes accepted well enough to provide the intended benefits.

Process innovations introduce into operations new and better ways of doing things.

Balancing Exploration and Exploitation

As suggested by Figure 15.3, the innovation continuum runs from exploration to exploitation.45 In the early stages of innovation, time, energy, and effort to explore potentials are necessary. These early phases are the result of the research and development units found in so many companies. Yet, too much emphasis on exploration will yield a whole list of potential ideas for new products and processes to new clients and customers in new markets, but little payoff. It is also important to stress exploitation to capture the economic value stemming from exploration.46 Exploitation often focuses on refinement and reuse of existing products and processes. Refining an existing product to make it more saleable in a new market is an example of exploitation. Of course, too much emphasis on exploitation and the firm loses its competitive edge because its products become obsolete and its processes less effective and efficient than those of competitors.

Exploitation focuses on refinement and reuse of existing products and processes.

The admonition to balance exploration and exploitation sounds very simple, but it comes with a major problem. Exploration calls for the organization and its managers to stress freedom and radical thinking and therefore opens the firm to big changes—or what some call radical innovations.47 Although some radical departures are built on existing competencies, often the adoption of a radically new product or process means that the existing knowledge within a firm is invalidated.48 Conversely, an emphasis on exploitation stresses control and evolutionary development. Such exploitation can be planned with tight budgets, careful forecasts, and steady implementation. It is often much easier to stress exploitation because most organizations have a structure and culture that emphasize stability and control.49

Exploration calls for the organization and its managers to stress freedom and radical thinking and therefore opens the firm to big changes–or what some call radical innovations.

Managers may attempt to solve this tension between exploration and exploitation in a variety of ways. One partial solution is to have separate units for the two types of activities. For example, some firms rely heavily on cooperative R&D arrangements with other firms for exploration and keep a tight rein on exploitation within the firm.50 Others rely on middle managers to reconcile the tensions stemming from attempts to link explorative and exploitative groups. However, the desired mix of explorative and exploitative may well depend on the industry setting.

Recent research suggests a more culturally oriented solution based on the notion of an ambidextrous organization. There appear to be four critical factors in building an ambidextrous organization:

1. Managers must recognize the tension between exploration and exploitation.

2. Managers should realize that one form of thinking based on a single perspective is inappropriate.

3. Managers need to discuss with their subordinates the paradoxes arising from simultaneously thinking about big ideas and sound incremental improvements.

4. Managers must encourage subordinates to embrace these paradoxes and use them as motivations to provide creative solutions.51

Managing Organizational Culture and Innovation

LEARNING ROADMAP

Management Philosophy and Strategy / Building, Reinforcing, and Changing Culture / Tensions Between Cultural Stability and Innovation

Good managers are able to reinforce and support an existing strong culture. They are also able to help build resilient cultures in situations where they are absent. The best managers also recognize that effectively managing an organization culture involves incorporation of the innovation process as well.

Management Philosophy and Strategy

The process of managing organizational culture calls for a clear understanding of the organizational subculture at the top and a firm recognition of what can and cannot be changed. The first step in managing an organizational culture is for management to recognize its own subculture. Key aspects of the top-management subculture are often referred to in the OB literature by the term management philosophy. A management philosophy links important goals with key collaboration issues and comes up with a series of general ways by which the firm will manage its affairs.52 Specifically, it (1) establishes generally understood boundaries for all members of the firm, (2) provides a consistent way of approaching new and novel situations, and (3) helps hold individuals together by assuring them of a known path toward success. In other words, it is the way in which top management addresses the questions of external adaptation.

A management philosophy links key goal-related issues with key collaboration issues to come up with general ways by which the firm will manage its affairs.

How to Become a Better Culture Manager

To develop a strong management culture, managers need to:

• Emphasize a shared understanding of what the unit stands for.

• Stress a concern for members over rules and procedures.

• Talk about heroes of the past and their contributions.

• Develop rituals and ceremonies for the members.

• Reinforce informal rules and expectations consistent with shared values.

• Promote the sharing of ideas and information.

• Provide employees with emotional support.

• Make a commitment to understand all members.

• Support progressive thinking by all members.

When the management philosophy stresses security and stability, management reinforces such values as benevolence. Such firms tend to be less innovative than when the management philosophy is more self-directive and reinforces risk taking. When the management philosophy stresses reaching out to others, embracing novel situations, and collectively developing a new path toward new visions of success, there is greater innovation.53

For instance, the management philosophy at Cisco Systems links the strategic concerns of growth, profitability, and customer service with observable aspects of culture and desired underlying values. While elements of a management philosophy may be formally documented in a corporate plan or statement of business philosophy, it is the understood fundamentals these documents signify that form the heart of a successfully developed management philosophy.53A

Building, Reinforcing, and Changing Culture

Managers can modify the visible aspects of culture, such as the language, stories, rites, rituals, and sagas. They can change the lessons drawn from common stories and even encourage individuals to see the reality they see. Because of their positions, senior managers can interpret situations in new ways and can adjust the meanings attached to important corporate events. They can create new rites and rituals. Executives can back these initiatives with both their words and their actions. This takes time and an enormous amount of energy, but the long-run benefits can be great. This is the approach found at Cisco Systems.54

One of the key ways management influences the organizational culture is through the reward systems it establishes. In many larger U.S.-based firms, the reward system matches the overall strategy of the firm and reinforces the culture emerging from day-to-day activities. Two patterns of reward systems, strategies, and corporate cultures are common. The first is a steady-state strategy matched with hierarchical rewards and consistent with what can be labeled a clan culture. Specifically, rewards emphasize and reinforce a culture characterized by long-term commitment, fraternal relationships, mutual interests, and collegiality with heavy pressures to conform from peers and with superiors acting as mentors. Firms with this pattern were in such industries as power generation, chemicals, mining, and pharmaceuticals.

In contrast was a second pattern in which the strategy stressed evolution and change. Here the rewards emphasized and reinforced a more market culture. That is, rewards emphasized a contractual link between employee and employer, focused on short-term performance, and stressed individual initiative with very little pressure from peers to conform and with supervisors acting as resource allocators. Firms with this pattern were often in such industries as restaurants, consumer products, and industrial services.55

Beyond reward systems, top managers can set the tone for a culture and for cultural change. Managers at Aetna Life and Casualty Insurance built on its humanistic traditions to provide basic skills to highly motivated but underqualified individuals. Even in the highly cost-competitive steel industry, Nucor executives built on basic entrepreneurial values in U.S. society to reduce the number of management levels by half.

Each of these examples illustrates how managers can help foster a culture that provides answers to important questions concerning external adaptation and internal integration. Recent work on the linkages between corporate culture and financial performance reaffirms the importance of an emphasis on helping employees adjust to the environment. It also suggests that this emphasis alone is not sufficient. Neither is an emphasis solely on stockholders or customers associated with long-term economic performance. Instead, managers must work to emphasize all three issues simultaneously.

The need to provide a balanced emphasis can be seen when executives violate ethical and legal standards as in the case of misleading earning statements. One key study found that while the fines levied for “cooking the books” may appear small, other costs were far more substantial. The real costs to these firms came from a loss of their reputation in the business community. Customers lost confidence, suppliers demanded greater assurances, and, of course, the entire financial community undervalued the firm so that loan costs were higher, stock prices were lower, and scrutiny was more extensive. How big is big? The fines averaged about $23 million a firm. The estimated financial cost from the loss of reputation was estimated at 7.5 times the average fine. That yielded a loss of some $196 million.56

Early research on culture and cultural change often emphasized direct attempts by senior management to alter the values and assumptions of individuals by resocializing them—that is, trying to change their hearts so that their minds and actions would follow.57 The goal was to establish a clear, consistent organizationwide consensus. More recent work suggests that this unified approach of working through values may not be either possible or desirable.58

Trying to change people’s values from the top down without also changing how the organization operates and recognizes the importance of individuals does not work very well. Look again at the example of Cisco Systems. Here managers realized that maintaining a dynamic, change-oriented culture is a mix of managerial actions, decisions about technology, and initiatives from all employees. The values are not set and imposed from someone on high. The shared values emerge, and they are not identical across all of Cisco’s operating sites. For instance, subtle but important differences emerge across their operations in Silicon Valley, the North Carolina operation, and the Australian setting.

Tensions Between Cultural Stability and Innovation

Although organizational cultures help individuals cope with external adaptation and internal integration, the enduring pattern of observable actions, shared values, and common assumptions often does not evolve as quickly as required by innovations. Organizational cultural lag is a condition in which dominant cultural patterns are inconsistent with new emerging innovations.59 As we suggested earlier, observable aspects of organizational culture such as rites, rituals, and cultural symbols often have powerful underlying meaning for organizational members. In a way they are symbols of prior successful ways to cope with external adaptation and internal integration. Individuals are often wary of abandoning the successful for an unproven new approach. One scholar notes that there can be a major “cultural drag on innovation from cultural legacies.”60 These legacy effects come from an overreliance on rule following and reinforcement of old existing patterns of action.

Organizational cultural lag is a condition where dominant cultural patterns are inconsistent with new emerging innovations.

Thus, one of the key challenges to management in promoting innovation where there are widely held and strong attached-to shared values and common assumptions is to show how they apply to the new innovations. When managers see an opportunity to develop new visions, create new strategies, and move the organization in new directions, they need to balance rule changing and rule following.61 If left uncontrolled, rule changing can yield runaway industry change that can quickly lead to chaos. While rule following can lead to a more stable industry structure and/or controlled industry change, there is also a danger of reinforcing cultural lag.

15: study guide

Key Questions and Answers

What is organizational culture?

Organizational or corporate culture is the system of shared actions, values, and beliefs that develops within an organization and guides the behavior of its members.

The functions of the corporate culture include responding to both external adaptation and internal integration issues.

Most organizations contain a variety of subcultures, and a few have countercultures that can sometimes become the source of potentially harmful conflicts.

The corporate culture also reflects the values and implicit assumptions of the larger national culture.

How do you understand an organizational culture?

Organizational cultures may be analyzed in terms of observable actions, shared values, and common assumptions (the taken-for-granted truths).

Observable aspects of culture include the stories, rites, rituals, and symbols that are shared by organization members.

Cultural rules and roles specify when various types of actions are appropriate and where individual members stand in the social system.

Shared meanings and understandings help everyone know how to act and expect others to act in various circumstances.

Common assumptions are the taken-for-granted truths that are shared by collections of corporate members.

What is innovation and why is it important?

Innovation is the process of creating new ideas and then implementing them in practical applications.

Steps in the innovation process normally include idea generation, initial experimentation, feasibility determination, and final application.

Common features of highly innovative organizations include supportive strategies, cultures, structures, staffing, and senior leadership.

Product innovations result in improved goods or services; process innovations result in improved work methods and operations.

Process innovations introduce into operations new and better ways of doing things.

While it is necessary to balance exploration and exploitation, it is difficult to accomplish.

How can we manage organizational culture and innovation?

Executives may manage many aspects of the observable culture directly.

Nurturing shared values among the membership is a major challenge for executives.

Adjusting actions to common understandings limits the decision scope of even the CEO.

There are tensions between the tendency for cultural stability in most firms and the need to innovate.

Terms to Know

Countercultures (p. 350)

Cultural symbol (p. 355)

Exploitation (p. 364)

Exploration (p. 364)

External adaptation (p. 348)

Innovation (p. 360)

Internal integration (p. 349)

Management philosophy (p. 365)

Multicultural organization (p. 352)

Observable culture (p. 353)

Organizational cultural lag (p. 367)

Organizational or corporate culture (p. 348)

Organizational myth (p. 358)

Process innovations (p. 363)

Product innovations (p. 362)

Rites (p. 355)

Rituals (p. 355)

Saga (p. 354)

Subcultures (p. 350)

Self-Test 15

Multiple Choice

1. Culture concerns all of the following except __________.

(a) the collective concepts shared by members of a firm

(b) acquired capabilities

(c) the personality of the leader

(d) the beliefs of members

2. The three levels of cultural analysis highlighted in the text concern __________.

(a) observable culture, shared values, and common assumptions

(b) stories, rites, and rituals

(c) symbols, myths, and stories

(d) manifest culture, latent culture, and observable artifacts

3. External adaptation concerns __________.

(a) the unproven beliefs of senior executives

(b) the process of coping with outside forces

(c) the vision of the founder

(d) the processes working together

4. Internal integration concerns __________.

(a) the process of deciding the collective identity and how members will live together

(b) the totality of the daily life of members as they see and describe it

(c) expressed unproven beliefs that are accepted uncritically and used to justify current actions

(d) groups of individuals with a pattern of values that rejects those of the larger society

5. When Japanese workers start each day with the company song, this is an example of a(n) __________.

(a) symbol

(b) myth

(c) underlying assumption

(d) ritual

6. __________ is a sense of broader purpose that workers infuse into their tasks as a result of interaction with one another.

(a) A rite

(b) A cultural symbol

(c) A foundation myth

(d) A shared meaning

7. The story of a corporate turnaround attributed to the efforts of a visionary manager is an example of __________.

(a) a saga

(b) a foundation myth

(c) internal integration

(d) a latent cultural artifact

8. The process of creating new ideas and putting them into practice is __________.

(a) innovation

(b) creative destruction

(c) product innovation

(d) process innovation

9. Any object, act, or event that serves to transmit cultural meaning is called __________.

(a) a saga

(b) a cultural symbol

(c) a cultural lag

(d) a cultural myth

10. Groups where the patterns of values outwardly reject those of the larger organization are __________.

(a) external adaptation rejectionist

(b) cultural lag

(c) countercultures

(d) organizational myths

11. Groups with unique patterns of values and philosophies that are consistent with the dominant organizational culture are called __________.

(a) countercultures

(b) subcultures

(c) sagas

(d) rituals

12. A __________ links key goal-related issues with key collaboration issues to come up with general ways by which the firm will manage its affairs.

(a) managerial philosophy

(b) cultural symbol

(c) ritual

(d) saga

13. Commonly held cause–effect relationships that cannot be empirically supported are referred to as __________.

(a) cultural lags

(b) rituals

(c) management philosophy

(d) organizational myths

14. The patterns of values and philosophies that outwardly reject those of the larger organization or social system are called __________.

(a) sagas

(b) organizational development

(c) rituals

(d) countercultures

15. __________ is a condition in which dominant cultural patterns are inconsistent with new emerging innovations.

(a) Organizational cultural lag

(b) Management philosophy

(c) Internal integration

(d) External adaptation

Short Response

16. Describe the five steps Taylor Cox suggests need to be developed to help generate a multicultural organization or pluralistic company culture.

17. List the three aspects that help individuals and groups work together effectively and illustrate them through practical examples.

18. Give an example of how cultural rules and roles affect the atmosphere in a college classroom. Provide specific examples from your own perspective.

19. What are the major elements of a strong corporate culture?

Applications Essay

20. Discuss why managers should balance exploration and exploitation when seeking greater innovation.

Next Steps: Top Choices from The OB Skills Workbook

Case for Critical Thinking

Team and Experiential Exercises

Self-Assessment Portfolio

• Never on a Sunday

• How We View Differences

• Workgroup Culture

• Fast-Food Technology

• Alien Invasion

• Are You Cosmopolitan?

• Team Effectiveness

• Which Culture Fits You?

(Schermerhorn 348)

Schermerhorn, John R. Organizational Behavior, 12th Edition. Wiley, 11/2011. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

16: Organizational Goals and Structures: the key is to match goals and structures

Employee Autonomy: A Little Freedom Goes a Long Way

Turn them loose. Get the management layers off their backs, the bureaucratic shackles off their feet, and the functional barriers out of their way. a

Jack Welch Jr., the former CEO and chairman of General Electric, knew how to get the most out of his employees; he was an ardent believer in giving them clear goals and the freedom to excel according to their own rules.

He’s not alone. There’s a growing consensus that organizations benefit when they give employees more autonomy in their jobs. Consider these methods:

• Side projects: Google understands that employees are more productive and engaged when projects stir their passions, so Googlers can spend some of their time on projects of their own invention. The results include Gmail, Google News, and dozens of Labs features.b

• Hackfests: Pizza + beer + programmers = inspired coding. From startups to Facebook, companies find that sponsoring all-night programming sessions is a cheap way to develop new products (and camaraderie) in a flash.

• Flex time and telecommuting: Employees who can come in late, leave early, or work from home are more likely to stay with a company that helps them balance their work and home lives.

• Predictability: Ironically, freedom even comes from structure. When job roles are clearly defined, employees can succeed without concern for overstepping boundaries. For example, at American Express, it’s company practice that junior managers bear individual leadership, middle managers execute policy, and vice presidents lead strategic initiatives.c

“If leaders create the right environment and engage in the right behaviors, employees will give their best to the organization,” says author David Witt. “This leads to a greater sense of excitement and passion at work that leads to better customer service.”d Clear goals need to be matched to a structure that facilitates goal attainment.

“So long as it fits in with managing the workload, flexibility is okay. It’s not that old-school thought of, ‘You have to be at your work (place) to be at work.’”

–Edweana Wenkart, Tsuki Communications, on telecommuting. e

Quick Summary

• Companies are increasingly exploring alternatives to rigid rules and bureaucratic structures in order to keep valued employees and increase their productivity.

• These measures often align with harnessing employees’ passions, giving them flexible work schedules, or more clearly defining their roles.

FYI: Google employees are expected to spend up to 20% of their time on self-led projects that combine their skills and passions.

the key point

Organizations are collections of people working together to achieve common goals. While employees value autonomy, executives need to make the organization’s goals clear and structure the organization to reach those goals. To effectively manage you will need to know how to organize a hierarchy and control it. You will also need to know how to organize the work to be done and effectively coordinate with others.

chapter at a glance

What Are the Different Types of Organizational Goals?

What Are the Hierarchical Aspects of Organizations?

How Is Work Organized and Coordinated?

What Are Bureaucracies and What Are the Common Forms?

what’s inside?

ETHICS IN OB

FLATTENED INTO EXHAUSTION

FINDING THE LEADER IN YOU

KAREN BRYANT WINS BY STAYING FOCUSED ON GOALS

OB IN POPULAR CULTURE

HIERARCHY AND RATATOUILLE

RESEARCH INSIGHT

COORDINATION IN TEMPORARY ORGANIZATIONS

Ever think about working for a large firm and all of that bureaucracy? Rigid rules, elaborate procedures, multiple layers, and narrow jobs were once the hallmarks of large firms. Google and GE are but two examples of large firms that have stressed new ways of organizing to boost autonomy and give all employees much more say in both what goals to pursue and how to reach these goals. Although it is a challenge to develop goals that serve both employees and the organization and to match these goals to effective structures, this challenge must be met to be successful.

Organizational Goals

LEARNING ROADMAP

Societal Goals / Output Goals / Systems Goals

The notion that organizations have goals is very familiar simply because our world is one comprised of organizations.1 Most of us are born, go to school, work, and retire in organizations. Without organizations and their limited, goal-directed behavior, modern societies would simply cease to exist. We would need to revert to older forms of social organization based on royalty, clans, and tribes. Organizational goals are so pervasive we rarely give them more than passing notice.

No firm can be all things to all people. By selecting goals, firms also define who they are and what they will try to become. The choice of goals involves the type of contribution the firm makes to the larger society and the types of outputs it seeks.2 Managers decide how to link conditions considered desirable for enhanced survival prospects with its societal and output desires.3 From these basic choices, executives can work with subordinates to develop ways of accomplishing the chosen targets. The goals of the firm should be consistent and compatible with the way in which it is organized.

Societal Goals

Organizations do not operate in a social vacuum, but rather they reflect the needs and desires of the societies in which they operate. Societal goals reflect an organization’s intended contributions to the broader society.4 Organizations normally serve a specific societal function or an enduring need of the society. Astute top-level managers build on the professed societal contribution of the organization by relating specific organizational tasks and activities to higher purposes. By contributing to the larger society, organizations gain legitimacy, a social right to operate, and more discretion for their nonsocietal goals and operating practices. By claiming to provide specific types of societal contributions, an organization can also make legitimate claims over resources, individuals, markets, and products.

Societal goals reflect the intended contributions of an organization to the broader society.

Often, the social contribution of the firm is part of its mission statement. Mission statements are written statements of organizational purpose. Weaving a mission statement together with an emphasis on implementation to provide direction and motivation is an executive order of the first magnitude. A good mission statement states whom the firm will serve and how it will go about accomplishing its societal purpose.5 Hope Labs is a good example of a firm building on a clearly stated social purpose.

Mission statements are written statements of organizational purpose.

We would expect to see the mission statement of a political party linked to generating and allocating power for the betterment of citizens. Mission statements for universities often profess to both develop and disseminate knowledge. Courts are expected to integrate the interests and activities of citizens. Finally, business firms are expected to provide economic sustenance and material well-being.6

Video Games Bring Hope and Health

Pam Omidyar, an immunology researcher and gaming enthusiast, founded the nonprofit Hope Labs to “improve the health and quality of life of young people with chronic illness.” It produced the video game Re-Mission where players move the nanorobot Roxxi through the body of a cancer patient to destroy cancer cells. The game helps young patients stick to their medication schedules.

Organizations that can more effectively translate the positive character of their societal contribution into a favorable image have an advantage over firms that neglect this sense of purpose. Executives who link their firm to a desirable mission can lay claim to important motivational tools that are based on a shared sense of noble purpose. Some executives and consultants talk of a “strategic vision” that links highly desirable and socially appealing goals to the contributions a firm intends to make. The first step is a clear and compelling mission statement.

When it introduced its new all electric zero-turning riding lawnmower, the Hustler Zeon, Paul Mullet, president of Hustler Turf Equipment, restated his firm’s mission “to provide innovative and durable outdoor power equipment, maximizing customer noble purpose.”7 The mission statement of Hustler Turf Equipment is a good example.

Output Goals

Organizations need to refine their societal contributions in order to target their efforts toward a particular group.8 In the United States, for example, it is generally expected that the primary beneficiary of business firms is the stockholder. Interestingly, in Japan employees are much more important, and stockholders are considered as important as banks and other financial institutions. Although each organization may have a primary beneficiary, its mission statement may also recognize the interests of many other parties. Thus, business mission statements often include service to customers, the organization’s obligations to employees, and its intention to support the community.

As managers consider how they will accomplish their firm’s mission, many begin with a very clear statement of which business they are in.9 This statement can form the basis for long-term planning and may help prevent huge organizations from diverting too many resources to peripheral areas. For some corporations, answering the question of which business they are in may yield a more detailed statement concerning their products and services. These product and service goals provide an important basis for judging the firm. Output goals define the type of business an organization is in and provide some substance to the more general aspects of mission statements.

Output goals are the goals that define the type of business an organization is in.

Systems Goals

Historically, fewer than 10 percent of the privately owned businesses founded in a typical year can be expected to survive to their twentieth birthday.10 The survival rate for public organizations is not much better. Even in organizations for which survival is not an immediate problem, managers seek specific types of conditions within their firms that minimize the risk of demise and promote survival. These conditions are positively stated as systems goals.

Hustler Turf Equipment Maximizes Profitability, Satisfaction, and Value

When it introduced its new all-electric zero-turning riding lawnmower, the Hustler Zeon, President Paul Mullet of Hustler Turf Equipment stated his firm’s mission “To provide innovative and durable outdoor power equipment, maximizing customer profitability and employee satisfaction, while creating value for shareholders.”

Systems goals are concerned with the conditions within the organization that are expected to increase the organization’s survival potential. The list of systems goals is almost endless, since each manager and researcher links today’s conditions to tomorrow’s existence in a different way. For many organizations, however, the list includes growth, productivity, stability, harmony, flexibility, prestige, and human-resource maintenance. In some businesses, analysts consider market share and current profitability important systems goals, while many suggest that innovation and quality are also considered important.11

Systems goals are concerned with the conditions within the organization that are expected to increase its survival potential.

In a very practical sense, systems goals represent short-term organizational characteristics that higher-level managers wish to promote. Systems goals often must be balanced against one another. For instance, a productivity and efficiency drive, if taken too far, may reduce the flexibility of an organization even in a downturn. For example, PepsiCo’s CEO Indra Nooyi, eliminated plants and over 3,000 jobs, yet she also knows she must expand PepsiCo’s operations in China.12

Often different parts of the organization are asked to pursue different types of systems goals. For example, higher-level managers may expect to see their production operations strive for efficiency while pressing for innovation from their R&D lab and promoting stability in their financial affairs. The relative importance of different systems goals can vary substantially across various types of organizations. Although we may expect the University of British Columbia or the University of New South Wales to emphasize prestige and innovation (in the form of research), few expect such businesses as Pepsi or Coke to subordinate growth and profitability to prestige. We expect to see some societal expectations and output desires used to justify the incorporation of some systems goals.

Systems goals are important to firms because they provide a roadmap that helps them link together various units of their organization to assure survival. Well-defined systems goals are practical and easy to understand; they focus the manager’s attention on what needs to be done. Accurately stated systems goals also offer managers flexibility in devising ways to meet important targets. They can be used to balance the demands, constraints, and opportunities facing the firm. Recent research suggests incorporating integrity and ethics into the desired system goals characteristics.

The choices managers make regarding systems goals should naturally form a basis for dividing the work of the firm—a basis for developing a formal structure. In other words, to ensure success, management needs to match decisions regarding what to accomplish with choices concerning an appropriate way to organize in reaching these goals. Since the formal structure is so important, we will detail the types of choices managers can make in organizing, controlling, and coordinating the tasks needed to reach goals.

Hierarchy and Control

LEARNING ROADMAP

Organizations as Hierarchies / Controls Are a Basic Feature / Centralization and Decentralization

The formal structure of an organization outlines the jobs to be done, the persons who are to perform specific activities, and the ways the total tasks of the organization are to be accomplished. In other words, the formal structure is the skeleton of the firm.13 The formal structure shows the planned pattern of positions, job duties, and the lines of authority among different parts of the enterprise. The pattern selected provides the organization with specific strengths to reach toward some goals more than others. Traditionally, the formal structure of the firm has also been called the division of labor. Some still use this terminology to isolate decisions concerning formal structure from choices regarding the division of markets and/or technology. We will deal with environmental and technology issues after we discuss the structure as a foundation for managerial action.

Organizations as Hierarchies

In larger organizations, there is a clear separation of authority and duties by rank. How authority is specialized is known as vertical specialization. Vertical specialization is an organization’s hierarchical division of labor that distributes formal authority and establishes where and how critical decisions are to be made. This division creates a hierarchy of authority—an arrangement of work positions in order of increasing authority.14

Vertical specialization is a hierarchical division of labor that distributes formal authority.

The Organization Chart

Diagrams that depict the formal structures of organizations are known as organizational charts . A typical chart shows the various positions, the position holders, and the lines of authority that link them to one another. Figure 16.1 presents a partial organization chart for a large university. The total chart allows university employees to locate their positions in the structure and to identify the lines of authority linking them with others in the organization. For instance, in this figure, the treasurer reports to the vice president of administration, who, in turn, reports to the president of the university.

Organizational charts are diagrams that depict the formal structures of organizations.

Figure 16.1: A partial organization chart for a state university.

ETHICS IN OB: FLATTENED INTO EXHAUSTION

Dear Stress Doctor:

My boss has come up with this great idea of cutting some supervisor positions, assigning more workers to those of us who remain, and calling us “coaches” instead of supervisors. She says this is all part of a new management approach to operate with a flatter structure and more empowerment.

For me this means a lot more work coordinating the activities of 17 operators instead of the 6 that I previously supervised. I can’t get everything cleaned up on my desk most days, and I end up taking a lot of paperwork home.

As my organization “restructures” and cuts back staff, it puts a greater burden on those of us that remain. We get exhausted, and our families get short-changed and even angry. I even feel guilty now taking time to watch my daughter play soccer on Saturday mornings. Sure, there’s some decent pay involved, but that doesn’t make up for the heavy price I’m paying in terms of lost family times.

But you know what? My boss doesn’t get it. I never hear her ask: “Henry, are you working too much; don’t you think it’s time to get back on a reasonable schedule?” No! What I often hear instead is “Look at Andy; he handles our new management model really well, and he’s a real go-getter. I don’t think he’s been out of here one night this week before 8 pm.”

What am I to do, just keep it up until everything falls apart one day? Is a flatter structure with fewer managers always best? Am I missing something in regard to this “new management?”

Sincerely,

Overworked in Cincinnati

Get the Ethics Straight

Is it ethical to restructure, cut management levels, and expect the remaining managers to do more work? Or is it simply the case that managers used to the “old” ways of doing things need extra training and care while learning “new” management approaches? And what about this person’s boss—is she on track with her management skills? Aren’t managers supposed to help people understand their jobs, set priorities, and fulfill them, while still maintaining a reasonable work–life balance?

Although an organization chart may clearly indicate who reports to whom, it is also important to recognize that it does not show how work is completed, who exercises the most power over specific issues, or how the firm will respond to its environment. An organization chart is just the beginning to understanding how a firm organizes its work. In firms facing constant change, the formal chart may be quickly out of date. However, organization charts can be important to the extent that they accurately represent the “chain of command.”

The chain of command is a listing of who reports to whom up and down the firm and shows how executives, managers, and supervisors are hierarchically connected. Traditional management theory suggests that each individual should have one boss and each unit one leader. Under these circumstances, there is a “unity of command.” Unity of command is considered necessary to avoid confusion, to assign accountability to specific individuals, and to provide clear channels of communication up and down the organization.

Span of Control

The number of individuals reporting to a supervisor is called the span of control . Narrower spans of control are expected when tasks are complex, when subordinates are inexperienced or poorly trained, or when tasks call for team effort. Unfortunately, narrow spans of control yield many organizational levels. The excessive number of levels is not only expensive, but it also makes the organization unresponsive to necessary change. Communications in such firms often become less effective because they are successively screened and modified so that subtle but important changes are ignored. Furthermore, with many levels, managers are removed from the action and become isolated.

Span of control refers to the number of individuals reporting to a supervisor.

New information technologies now allow organizations to broaden the span of control, flatten their formal structures, and still maintain control of complex operations. At Nucor, for instance, senior managers pioneered the development of “minimills” for making steel and developed what they call “lean” management. At the same time, management has expanded the span of control with extensive employee education and training backed by sophisticated information systems. The result: Nucor has only four levels of management from the bottom to the top.15

Line and Staff Units

A very useful way to examine the vertical division of labor is to separate line and staff units. Line units and personnel conduct the major business of the organization. The production and marketing functions are two examples. In contrast, staff units and personnel assist the line units by providing specialized expertise and services, such as accounting and public relations. For example, the vice president of administration in a university as depicted in Figure 16.1 heads a staff unit, as does the vice president of student affairs.

Line units are workgroups that conduct the major business of the organization.

Staff units assist the line units by performing specialized services to the organization.

Firms often make two additional useful distinctions regarding line and staff. One distinction is the nature of the relationship of a unit in the chain of command. A staff department, such as the office of the VP for External Affairs shown in Figure 16.1, may be divided into subordinate units, such as Legislative Liaison and Development. Although all units reporting to a higher-level staff unit are considered staff from an organizational perspective, some subordinate staff units are charged with conducting the major business of the higher unit—they have a line relationship up the chain of command. In Figure 16.1 both Legislative Liaison and Development are staff units with a line relationship to the unit immediately above them in the chain of command—the VP for External Affairs. Why the apparent confusion? It is a matter of history, with the notion of line and staff originally coming from the military with its emphasis on command. In a military sense, the VP for External Affairs is the commander of this staff effort—the individual responsible for this activity and the one held accountable.

A second useful distinction for both line and staff units concerns the amount and types of contacts each maintains with outsiders to the organization. Some units are mainly internal in orientation; others are more external in focus. In general, internal line units (e.g., production) focus on transforming raw materials and information into products and services, whereas external line units (e.g., marketing) focus on maintaining linkages to suppliers, distributors, and customers. Internal staff units (e.g., accounting) assist the line units in performing their function. Normally, they specialize in specific technical or financial areas. External staff units (e.g., public relations) also assist the line units, but the focus of their actions is on linking the firm to its environment and buffering internal operations. To recap: the Legislative Liaison unit is external staff with a line relationship to the office of the VP for External Affairs.

Staff units can be assigned predominantly to senior-, middle-, or lower-level managers. When staff is assigned predominantly to senior management, the capability of senior management to develop alternatives and make decisions is expanded. When staff is at the top, senior executives can directly develop information and alternatives and check on the implementation of their decisions. Here, the degree of vertical specialization in the firm is comparatively lower because senior managers plan, decide, and control via their centralized staff. With new information technologies, fewer firms are placing most staff at the top. They are replacing internal staff with information systems and placing talented individuals farther down the hierarchy. For instance, executives at giant international glass bottle maker O-I have shifted staff from top management to middle management. When staff are moved to the middle of the organization, middle managers now have the specialized help necessary to expand their role.

Many firms are also beginning to ask whether certain staff should be a permanent part of the organization at all, and some are outsourcing many of their staff functions while others are using new technologies to replace staff.16 Outsourcing by large firms has been a boon for smaller corporations as they perform staff functions for larger corporations. For some time, firms have used information technology to streamline operations and reduce staff to lower costs and raise productivity.17 One way to facilitate these actions is to provide line managers and employees with information and managerial techniques designed to expand on their analytical and decision-making capabilities—that is, to replace internal staff.18

Controls Are a Basic Feature

Distributing formal authority calls for control. Control is the set of mechanisms used to keep action or outputs within predetermined limits. Control deals with setting standards, measuring results versus standards, and instituting corrective action. We should stress that effective control occurs before action actually begins. For instance, in setting standards, managers must decide what will be measured and how accomplishment will be determined. While there are a wide variety of organizational controls, they are roughly divided into output, process, and social controls.

Control is the set of mechanisms used to keep actions and outputs within predetermined limits.

Output Controls

Earlier in this chapter, we suggested that systems goals are a roadmap that ties together the various units of the organization to achieve a practical objective. Developing targets or standards, measuring results against these targets, and taking corrective action are all steps involved in developing output controls.19 Output controls focus on desired targets and allow managers to use their own methods to reach defined targets. Most modern organizations use output controls as part of an overall method of managing by exception.

Output controls are controls that focus on desired targets and allow managers to use their own methods for reaching defined targets.

Output controls are popular because they promote flexibility and creativity and they facilitate dialogue concerning corrective actions. Reliance on outcome controls separates what is to be accomplished from how it is to be accomplished. Thus, the discussion of goals is separated from the dialogue concerning methods. This separation can facilitate the movement of power down the organization, as senior managers are reassured that individuals at all levels will be working toward the goals senior management believes are important, even as lower-level managers innovate and introduce new ways to accomplish these goals.

Finding the Leader in You: KAREN BRYANT WINS BY STAYING FOCUSED ON GOALS

In March 2008 when the new owners of the WNBA’s Seattle Storm announced Karen Bryant as the new Storm CEO, success was far from clear. Known as KB, Bryant was a local high school basketball superstar with a modest record as a collegian. As a high school coach she had a three-year record of only 24 and 44 before leaving. Even her initial stint as a basketball executive looked like a failure when the local professional team and league folded. But Bryant did not quit, and she rebounded with a top position with the Seattle Storm team.

As the new CEO of the Storm in 2008 the prospects looked dire. The matched men’s team, the Seattle Supersonics, had been sold and moved to Oklahoma. Even rabid basketball fans were furious over the “loss of professional basketball” in Seattle. The Storm remained only because four local businesswomen and community leaders bought the women’s team. Yet, KB saw opportunity. “Sometimes there were other priorities. Now, there’s no lack of clarity. There’s no confusion about what our resources are, nor are there any surprises.” Bryant set clear compatible goals: (1) world-class basketball, (2) fan accessibility and affordability, (3) a sense of community, and (4) a successful business model.

She delivered. In 2009, even without the deep pockets so typical of professional sports teams, the Storm fielded a competitive team, set ticket prices that allowed the whole family to attend a game, and stressed extensive community involvement. In 2010 the Storm organization reached the goals initially set by KB—the WNBA championship! The championship is not the end of the story but a milestone. Now the challenge is to maintain success. For a once marginal collegiate player and failed coach, this most recent success must be vindication for her hard work, executive skills, and dedication.

What’s the Lesson Here?

How well do you deal with failure? Are you able to persist in the face of difficult challenges? Can you keep a focus and drive toward results when times get tough or situations feel overwhelming?

Process Controls

Few organizations run on outcome controls alone. Once a solution to a problem is found and successfully implemented, managers do not want the problem to recur, so they institute process controls. Process controls attempt to specify the manner in which tasks are accomplished. There are many types of process controls, but three groups have received considerable attention: (1) policies, procedures, and rules; (2) formalization and standardization; and (3) total quality management controls.

Process controls are controls that attempt to specify the manner in which tasks are to be accomplished.

Policies, Procedures, and Rules

Most organizations implement a variety of policies, procedures, and rules to help specify how goals are to be accomplished. Usually, we think of a policy as a guideline for action that outlines important objectives and broadly indicates how an activity is to be performed. A policy allows for individual discretion and minor adjustments without direct clearance by a higher-level manager. Procedures indicate the best method for performing a task, show which aspects of a task are the most important, or outline how an individual is to be rewarded.

Many firms link rules and procedures. Rules are more specific, rigid, and impersonal than policies. They typically describe in detail how a task or a series of tasks is to be performed, or they indicate what cannot be done. They are designed to apply to all individuals, under specified conditions. For example, most car dealers have detailed instruction manuals for repairing a new car under warranty, and they must follow very strict procedures to obtain reimbursement from the manufacturer for warranty work.

Rules, procedures, and policies are often employed as substitutes for direct managerial supervision. Under the guidance of written rules and procedures, the organization can specifically direct the activities of many individuals. It can ensure virtually identical treatment across even distant work locations. For example, a McDonald’s hamburger and fries taste much the same whether they are purchased in Chicago, Indianapolis, Los Angeles, or Toronto simply because the ingredients and the cooking methods follow written rules and procedures.

Formalization and Standardization

Formalization refers to the written documentation of rules, policies, and procedures to guide behavior and decision making. Beyond substituting for direct management supervision, formalization is often used to simplify jobs. Written instructions allow individuals with less training to perform comparatively sophisticated tasks. Written procedures may also be available to ensure that a proper sequence of tasks is executed, even if this sequence is performed only occasionally.

Formalization is written documentation of work rules, policies, and procedures.

Most organizations have developed additional methods for dealing with recurring problems or situations. Standardization is the degree to which the range of allowable actions in a job or series of jobs is limited so that actions are performed in a uniform manner. It involves the creation of guidelines so that similar work activities are repeatedly performed in a similar fashion. Such standardized methods may come from years of experience in dealing with typical situations, or they may come from outside training. For instance, if you are late in paying your credit card, the bank will automatically send you a notification and start an internal process of monitoring your account.

Standardization is the degree to which the range of actions in a job or series of jobs is limited.

Total Quality Management

The process controls discussed so far—policies, procedures, rules, formalization, and standardization—represent the lessons of experience within an organization. That is, managers institute these process controls based on experience typically one at a time. Often there is no overall philosophy for using control to improve the general operations of the company. Another way to institute process controls is to establish a total quality management process within the firm.

W. Edwards Deming is the modern-day founder of the total quality management movement.20 When Deming’s ideas were not generally accepted in the United States, he found an audience in Japan. Thus, to some managers, Deming’s ideas appear in the form of the best Japanese business practices.

Figure 16.2: Deming’s 14 Points of Quality Management

1. Create a consistency of purpose in the company to (a) innovate, (b) put resources into research and education, and (c) put resources into maintaining equipment and new production aids.

2. Learn a new philosophy of quality to improve every system.

3. Require statistical evidence of process control and eliminate financial controls on production.

4. Require statistical evidence of control in purchasing parts; this will mean dealing with fewer suppliers.

5. Use statistical methods to isolate the sources of trouble.

6. Institute modern on-the-job training.

7. Improve supervision to develop inspired leaders.

8. Drive out fear and instill learning.

9. Break down barriers between departments.

10. Eliminate numerical goals and slogans.

11. Constantly revamp work methods.

12. Institute massive training programs for employees in statistical methods.

13. Retrain people in new skills.

14. Create a structure that will push, every day, on the above 13 points.

The heart of Deming’s approach was to institute a process approach to continual improvement based on statistical analyses of the firm’s operations. Around this core idea, Deming built a series of 14 points for managers to implement. As shown in Figure 16.2, the points emphasize everyone working together using statistical controls to improve continually. All levels of management are to be involved in the quality program. Managers are to improve supervision, train employees, retrain employees in new skills, and create a structure that supports the quality program. Where the properties of the firm’s outcomes are well defined, as in most manufacturing operations, Deming’s system and emphasis on quality work well. This is especially true when implemented in conjunction with empowerment and participative management.

The Illusion of Control

One of the myths in management is the illusion of control. There are many variations of this myth, but one centers on the formal controls themselves. Many managers want to believe they can specify all of the relevant goals for subordinates as well as how they are to be accomplished. With too many output and process goals, subordinates appear to have very little flexibility. However, as the number of output and process controls escalates, so do the conflicts between the output and process controls. The result is that subordinates begin to pick and choose which controls they follow and managers only have the illusion that subordinates are reaching toward the specified goals.21

Centralization and Decentralization

Different firms use very different mixes of vertical specialization, output controls, process controls, and managerial techniques to allocate the authority or discretion to act.22 The farther up the hierarchy of authority the discretion to spend money, to hire people, and to make similar decisions is moved, the greater the degree of centralization . The more such decisions are delegated, or moved down the hierarchy of authority, the greater the degree of decentralization . Greater centralization is often adopted when the firm faces a single major threat to its survival. Thus, it is little wonder that armies tend to be centralized and that firms facing bankruptcy increase centralization. Recent research even suggests that governmental agencies may improve their performance through centralization when in a defensive mode.23

Centralization is the degree to which the authority to make decisions is restricted to higher levels of management.

Decentralization is the degree to which the authority to make decisions is given to lower levels in an organization’s hierarchy.

“My Macy’s” Successfully Personalizes Local Stores

Macy’s decentralized its marketing operations by breaking the company into 69 districts that average 10 stores and asked local managers to decide what products to stock and how to market them. The effort, called “My Macy’s,” has been a big success as more stores had the merchandise local customers wanted.

Greater decentralization generally provides higher subordinate satisfaction and a quicker response to a diverse series of unrelated problems. Decentralization also assists in the on-the-job training of subordinates for higher-level positions. Decentralization is now a popular approach in many industries. For instance, Union Carbide is pushing responsibility down the chain of command, as are SYSCO and Hewlett-Packard. In each case, the senior managers hope to improve both performance quality and organizational responsiveness. Closely related to decentralization is the notion of participation. Many people want to be involved in making decisions that affect their work. Participation results when a manager delegates some authority for such decision making to subordinates in order to include them in the choice process. Employees may want a say both in what the unit objectives should be and in how they may be achieved.24

Governmental agencies find that increasing decentralization helps them effectively explore innovations.25 For instance, Macy’s has successfully experimented with moving decisions down the chain of command and increasing participation.

Organizing and Coordinating Work

LEARNING ROADMAP

Traditional Types of Departments / Coordination

Managers must divide the total task into separate duties and group similar people and resources together.26 Organizing work is formally known as horizontal specialization , a division of labor that establishes specific work units or groups within an organization. This aspect of the organization is also called departmentation. Whatever is divided up horizontally in two or more departments must also be integrated.27 Coordination is the set of mechanisms that an organization uses to link the actions of their units into a consistent pattern. This linkage includes mechanisms to link managers and staff units, operating units with each other, and divisions with each other. Managers use a mix of personal and impersonal methods of coordination to tie the efforts of departments together.

Horizontal specialization is a division of labor through the formation of work units or groups within an organization.

Coordination is the set of mechanisms used in an organization to link the actions of its subunits into a consistent pattern.

OB IN POPULAR CULTURE: HIERARCHY AND RATATOUILLE

Unfortunately, bureaucracy tends to a get a “bad rap” most of the time. Yet organizations must have rules and structure to operate effectively. Large companies organize into departments and distribute responsibilities and authority in hierarchical fashion. This is known as vertical specialization , the division of labor that shows authority relationships, decision making, and the chain of command. This is usually spelled out in an organization chart.

Pixar’s Ratatouille is the story about a rat named Remy that aspires to be a great cook like his hero, Chef Auguste Gusteau. Following an accident that separates Remy from the rest of his family, he finds himself in Paris. In a short time, he is peering down through a skylight into the restaurant made famous by the now departed Gusteau. He observes the cooking activity taking place in the kitchen and can name all the roles and relationships that exist between the staff. Guided by an apparition of Gusteau himself, he learns that all positions in the kitchen are critical—even that of the garbage boy.

What we learn from Ratatouille is that hierarchy and authority are necessary to keep the work flowing smoothly. While some positions have more power and responsibility than others, each individual has a contribution to make and must be willing to do so if the organization is to be successful.

Get to Know Yourself Better

By now, you are probably quite used to participating in organizations with a lot of structure. Take a look at Assessment 21 , Organizational Design Preference, in the OB Skills Workbook to determine your comfort level with this environment. If you score high, you will probably function effectively in an organization with a high degree of vertical specialization. On the other hand, if your score is low, you may like working for a smaller, newer company where the structure is a little more flexible.

Traditional Types of Departments

Since the pattern of departmentation is so visible and important in a firm, managers often refer to their pattern as the departmental structure. While most firms use a mix of various types of departments, it is important to look at the traditional types and what they do and do not provide the firm.28

Functional Departments

Grouping individuals by skill, knowledge, and action yields a pattern of functional departmentation . Recall that Figure 16.1 shows the partial organization chart for a large university in which each department has a technical specialty. Marketing, finance, production, and personnel are important functions in business. In many small firms, this functional pattern dominates. Even large firms use this pattern in technically demanding areas. Figure 16.3 summarizes the advantages and disadvantages of the functional pattern. With all of these advantages, it is not surprising that the functional form is extremely popular. It is used in most organizations, particularly toward the bottom of the hierarchy. The extensive use of functional departments also has some disadvantages. Organizations that rely heavily on functional specialization may expect the following tendencies to emerge over time: an emphasis on quality from a technical standpoint, rigidity to change, and difficulty in coordinating the actions of different functional areas.

Functional departmentation is grouping individuals by skill, knowledge, and action.

Figure 16.3: Major advantages and disadvantages of functional specialization.

Major Advantages and Disadvantages of Functional Specialization

Advantages

Disadvantages

1. Yields very clear task assignments, consistent with an individual’s training.

2. Individuals within a department can easily build on one another’s knowledge, training, and experience.

3. Provides an excellent training ground for new managers.

4. It is easy to explain.

5. Takes advantage of employee technical quality.

1. May reinforce the narrow training of individuals.

2. May yield narrow, boring, and routine jobs.

3. Communication across technical area is complex and difficult.

4. “Top-management overload” with too much attention to cross-functional problems.

5. Individuals may look up the organizational hierarchy for direction and reinforcement rather than focus attention on products, services, or clients.

Divisional Departments

In divisional departments individuals and resources are grouped by products, territories, services, clients, or legal entities. For example, Land O’ Lakes organizes around divisions for its various types of products.

Divisional departmentation groups individuals and resources by products, territories, services, clients, or legal entities.

A divisional pattern is often used to meet diverse external threats and opportunities. As shown in Figure 16.4, the major advantages of the divisional pattern are its flexibility in meeting external demands, spotting external changes, integrating specialized individuals deep within the organization, and focusing on the delivery of specific products to specific customers. Among its disadvantages are duplication of effort by function, the tendency for divisional goals to be placed above corporate interests, and conflict among divisions. It is also not the most desirable structure for training individuals in technical areas; firms that rely on this pattern may fall behind technically to competitors with a functional pattern.

Many larger, geographically dispersed organizations that sell to national and international markets may rely on departmentation by geography. The savings in time, effort, and travel can be substantial, and each territory can adjust to regional differences. Organizations that rely on a few major customers may organize their people and resources by client. Here, the idea is to focus attention on the needs of the individual customer. To the extent that customer needs are unique, departmentation by customer can also reduce confusion and increase synergy.

Organizations expanding internationally may also form divisions to meet the demands of complex host-country ownership requirements. For example, NEC, Sony, Nissan, and many other Japanese corporations have developed U.S. divisional subsidiaries to service their customers in the U.S. market. Some huge European-based corporations such as Philips and Nestlé have also adopted a divisional structure in their expansion to the United States. Similarly, most of the internationalized U.S.-based firms, such as IBM, GE, and DuPont, have incorporated the divisional structure as part of their internalization programs.

Cooperative Land O’ Lakes

Land O’ Lakes is more than just a brand of butter; it is a cooperative that sells dairy products and helps farmer members buy supplies. The cooperative is organized into divisions for (1) dairy operations, (2) feed, (3) seed, and (4) crop nutrients and crop protection products.

Figure 16.4: A divisional pattern of departmentation.

Major Advantages and Disadvantages of Divisional Specialization

Advantages

Disadvantages

1. Promotes adaptability and flexibility in meeting the demands of important external groups.

2. Allows for spotting external changes as they emerge.

3. Provides for the integration of specialized personnel.

4. Focuses on the success or failure of particular products, services, clients, or territories.

1. Does not provide a pool of highly trained individuals with similar expertise to solve problems and train others.

2. Allows duplication of effort, since each division attempts to solve similar problems.

3. May give priority to divisional goods over the health and welfare of the overall organization.

4. Creates conflict between divisions over shared resources.

Matrix Structures

Originally from the aerospace industry, a third unique form of departmentation called the matrix structure was developed and is now becoming more popular.29 In aerospace efforts, projects are technically very complex, involving hundreds of subcontractors located throughout the world. Precise integration and control are needed across many sophisticated functional specialties and corporations. This is often more than a functional or divisional structure can provide, for many firms do not want to trade the responsiveness of the divisional form for the technical emphasis provided by the functional form. Thus, matrix departmentation uses both the functional and divisional forms simultaneously. Figure 16.5 shows the basic matrix arrangement for an aerospace program. Note the functional departments on one side and the project efforts on the other. Workers and supervisors in the middle of the matrix have two bosses—one functional and one project.

Matrix departmentation is a combination of functional and divisional patterns wherein an individual is assigned to more than one type of unit.

Figure 16.5 summarizes the major advantages and disadvantages of the matrix form of departmentation. The key disadvantage of the matrix method is the loss of unity of command. Individuals can be unsure as to what their jobs are, whom they report to for specific activities, and how various managers are to administer the effort. It can also be a very expensive method because it relies on individual managers to coordinate efforts deep within the firm. Despite these limitations, the matrix structure provides a balance between functional and divisional concerns. Many problems can be resolved at the working level, where the balance among technical, cost, customer, and organizational concerns can be dealt with.

Figure 16.5: A matrix pattern of departmentation in an aerospace division.

Advantages

Disadvantages

1. It combines the strengths of both functional and divisional departmentation.

2. It helps to provide a blending of technical and market emphasis in organizations operating in exceedingly complex environments.

3. It provides a series of managers able to converse with both technical and marketing personnel.

1. It is very expensive.

2. Unity of command is lost (individuals have more than one supervisor).

3. Authority and responsibilities may overlap, causing conflicts and gap in effort across units and inconsistencies in priorities.

4. It is difficult to explain to employees.

NBBJ, the world’s third largest architectural practice, uses a matrix structure to draw specialists from its global offices to complete major design projects. NBBJ executives use senior contact staff in a local design studio to identify and focus on a client’s specific needs. They coordinate across the global locations to supplement a local studio’s staff.30 Many organizations also use elements of the matrix structure without officially using the term matrix. For example, special project teams, coordinating committees, and task forces can be the beginnings of a matrix. These temporary structures can be used within a predominantly functional or divisional form and without upsetting the unity of command or hiring additional managers.

Which form of departmentation should be used? As the matrix concept suggests, it is possible to departmentalize by two different methods at the same time. Actually, organizations often use a mixture of departmentation forms. It is often desirable to divide the effort (group people and resources) by two methods at the same time in order to balance the advantages and disadvantages of each. These mixed forms help firms use their division of labor to capitalize on environmental opportunities, capture the benefits of larger size, and realize the potential of new technologies in pursuit of its strategy.

Coordination

As noted earlier, whatever is divided up horizontally in two departments must also be integrated.31 Coordination is the set of mechanisms that an organization uses to link the actions of their units into a consistent pattern. Coordination is needed at all levels of management, not just across a few scattered units. Much of the coordination within a unit is handled by its manager. Smaller organizations may rely on their management hierarchy to provide the necessary consistency and integration. As the organization grows, however, managers become overloaded. For example, when Johnson and Johnson moved to become more decentralized, CEO William Weldon immediately noted the difficulties of coordination.

The Challenge of Decentralization

CEO William Weldon of Johnson and Johnson (the pharmaceutical, medical device, and consumer packaged goods manufacturer) noted, “I think that the downside to decentralization … is actually the coordination. It is trying to get people together … sometimes there is enough to do in their own group and now we are asking them to cross boundaries and work together …, that is the challenge—the coordination.”

Personal Methods of Coordination

Personal methods of coordination produce synergy by promoting dialogue and discussion, innovation, creativity, and learning, both within and across organizational units. Personal methods allow the organization to address the particular needs of distinct units and individuals simultaneously. There is a wide variety of personal methods of coordination.32 Perhaps the most popular is direct contact between and among organizational members. As new information technologies have moved into practice, the potential for developing and maintaining effective contact networks has expanded. For example, many executives use e-mail and text messaging to supplement direct personal communication. Direct personal contact is also associated with the ever-present “grapevine.” Although the grapevine is notoriously inaccurate in its role as the corporate rumor mill, it is often both accurate enough and quick enough that managers cannot ignore it. Instead, managers need to work with and supplement the rumor mill with accurate information.

Managers are often assigned to numerous committees to improve coordination across departments. Even though committees are generally expensive and have a very poor reputation as time wasters, they can become an effective personal mechanism for mutual adjustment across unit heads. Committees can be effective in communicating complex qualitative information and in helping managers whose units must work together to adjust schedules, workloads, and work assignments to increase productivity. As more organizations develop flatter structures with greater delegation, they are finding that task forces can be quite useful. Whereas committees tend to be long lasting, task forces are typically formed with a more limited agenda. Individuals from different parts of the organization are assembled into a task force to identify and solve problems that cut across different departments.

The appropriate mix of personal coordination methods and tailoring them to the individual skills, abilities, and experience of subordinates also vary with the type of task. As the Research Insights feature suggests, a variety of methods can be tailored to match different individuals and the settings in which they operate. Personal methods are only one important part of coordination. The manager may also establish a series of impersonal mechanisms.

RESEARCH INSIGHT: Coordination in Temporary Organizations

Many individuals have jobs that take them to a number of temporary settings such as a corporate task force, an alliance, or a special project. Coordinating the actions of the members in these temporary arrangements is often a challenge. However, research by Beth Bechky offers some insight. She studied the workers on a movie set—not the actors or producer—but the crew who set up and ran the equipment, shot the movie, and made sure the sound was perfect. These individuals are generally “independent” contractors whose work must mesh quickly even though they have only been together a few hours.

How do they do it in the short-lived organization of a movie set? According to Bechky, they negotiate their roles with each other. Each has his or her own specialization and assignment, but they must be coordinated with all others. While all recognize each other’s career progression (some have more experience and they are looked to for guidance), they recognize that the current assignment is one of many they may want to work on in the future. All are on their best behavior so that they will be hired for the next movie.

To successfully coordinate, Bechky found that the more experienced crew members may provide enthusiastic thanks and may politely admonish the other less-experienced crew members. To enforce an emerging order and maintain coordination, they use humor, polite ribbing, sarcastic comments, and teasing. Public display of anger is rare and frowned upon. With these mechanisms in place, it only takes a few hours for the crew to emerge as an integrated unit.

To transfer the findings to a student group, try and build a simplified model of the factors mentioned in the description. It might look somewhat like this:

Pick a student group to perform a team case study with majors in different areas (such as accounting, finance, management). See if the members self-assign to specialized areas based on their major. Look for variations in experience and check if there is a common desire for high performance. As the group starts to work on the project, observe whether they negotiate distinct roles. Do they use humor, teasing, or sarcastic comments to coalesce? Do they form an integrated group with an identified order and coordinated action, or do just a few actually run the show?

Do the Research

Would you expect a student group to form-up much the way the professionals do? If the student group does not use humor or teasing, what do they use to gain coordinated action?

Source: Beth A. Bechky, “Gaffers, Gofers, and Grips: Role-based Coordination in Temporary Organizations” Organization Science 17.1 (2006), pp. 3–23.

Shiseido Consolidation Increases Sales and Profits

With all the talk of decentralizing, sometimes consolidation makes sense. At Shiseido, Japan’s largest cosmetic company with a global reach, President and CEO Shinzo Maeda announced the results of a three-year effort to reorganize North American operations by consolidating three large separate divisions into one integrated unit. The goal was to increase coordination. The results were a dramatic increase in sales and profits as the once separate divisions were able to focus as one unit.

Impersonal Methods of Coordination

Impersonal methods of coordination produce synergy by stressing consistency and standardization so that individual pieces fit together. Impersonal coordination methods are often refinements and extensions of process controls with an emphasis on formalization and standardization. Larger organizations often have written policies and procedures, such as schedules, budgets, and plans that are designed to mesh the operations of several units into a whole by providing predictability and consistency.

Historically, firms used specialized departments to coordinate across units. However, this method is very expensive and often results in considerable rigidity. The most highly developed form of impersonal coordination comes with the adoption of a matrix structure. As noted earlier, this form of departmentation is designed to coordinate the efforts of diverse functional units. Many firms are using cross-functional task forces instead of maintaining specialized departments or implementing a matrix.

The final example of impersonal coordination mechanisms is undergoing radical change in many modern organizations. Originally, management information systems were developed and designed so that senior managers could coordinate and control the operations of diverse subordinate units. These systems were intended to be computerized substitutes for schedules, budgets, and the like. In the hands of astute managers, however, the management information system becomes an electronic network, linking individuals throughout the organization. Using decentralized communication systems that connect all members allows once centralized systems to evolve into a supplement to personal coordination.

In the United States there is an aversion to controls, as the culture prizes individuality, democracy, and individual free will. Managers often institute controls under the title of coordination. Since some of the techniques are used for both, many managers suggest that all efforts at control are for coordination. It is extremely important to separate these two functions simply because the reactions to controls and coordination are quite different. The underlying logic of control involves setting targets, measuring performance, and taking corrective action to meet goals normally assigned by higher management. Thus, many employees see an increase in controls as a threat based on a presumption that they have been doing something wrong. The logic of coordination is to get unit actions and interactions meshed together into a unified whole. While control involves the vertical exercise of formal authority involving targets, measures, and corrective action, coordination stresses cooperative problem solving. Experienced employees recognize the difference between controls and coordination regardless of what the boss calls it.33 Increasing controls rarely solves problems of coordination, and emphasizing coordination to solve control issues rarely works.

Bureaucracy and Beyond

LEARNING ROADMAP

Mechanistic Structures and the Machine Bureaucracy / Organic Structures and the Professional Bureaucracy / Hybrid Structures

In the developed world, most firms are bureaucracies. In OB this term has a very special meaning, beyond its negative connotation. The famous German sociologist Max Weber suggested that organizations would thrive if they became bureaucracies by emphasizing legal authority, logic, and order.34 Ideally, bureaucracies rely on a division of labor, hierarchical control, promotion by merit with career opportunities for employees, and administration by rule.

Bureaucracy is an ideal form of organizations, the characteristics of which were defined by the German sociologist Max Weber.

Weber argued that the rational and logical idea of bureaucracy was superior to building the firm based on charisma or cultural tradition. The “charismatic” ideal-type organization was overly reliant on the talents of one individual and could fail when the leader leaves. Too much reliance on cultural traditions blocked innovation, stifled efficiency, and was often unfair. Since the bureaucracy prizes efficiency, order, and logic, Weber hoped that it could also be fair to employees and provide more freedom for individual expression than is allowed when tradition dominates or dictators rule. Many interpreted Weber as suggesting that bureaucracy or some variation of this ideal form, though far from perfect, would dominate modern society.35 For large organizations the bureaucratic form is predominant. Yet, the bureaucracy poses an interesting series of challenges for managers as illustrated in the sidebar.

Just as interpretations of Weber have evolved over time, so has the notion of a bureaucracy.36 We will discuss two popular basic types of bureaucracies: the mechanistic structure and machine bureaucracy and the organic structure and professional bureaucracy as well as some hybrid approaches. Each type is a different mix of the basic elements discussed in this chapter, and each mix yields firms with a slightly different blend of capabilities and natural tendencies. That is, each type of bureaucracy allows the firm to pursue some goals more easily than others. Although charismatic leadership and cultural traditions are still important in each of these, it is the rational, legal, and efficiency aspects of the firm that characterize modern corporations.

Managerial Challenges in a Bureaucracy

• Overspecialization with conflicts between highly specialized units

• Overreliance on the chain of command rather than bottom-up problem solving

• Objectification of senior executives as rulers rather than problem solvers for others

• Overemphasis on conformity

• Rules as ends in and of themselves

Mechanistic Structures and the Machine Bureaucracy

The mechanistic type of bureaucracy emphasizes vertical specialization and control.37 Organizations of this type stress rules, policies, and procedures; specify techniques for decision making; and emphasize developing well-documented control systems backed by a strong middle management and supported by a centralized staff. There is often extensive use of the functional pattern of departmentation throughout the firm. Henry Mintzberg uses the term machine bureaucracy to describe an organization structured in this manner.38

Mechanistic type or machine bureaucracy emphasizes vertical specialization with impersonal coordination and a heavy reliance on standardization, formalization, rules, policies, and procedures.

The mechanistic design results in a management emphasis on routine for efficiency. Firms often used this design in pursuing a strategy of becoming a low-cost leader. Until the implementation of new information systems, most large-scale firms in basic industries were machine bureaucracies. Included in this long list were all of the auto firms, banks, insurance companies, steel mills, large retail establishments, and government offices. Efficiency was achieved through extensive vertical and horizontal specialization tied together with elaborate controls and impersonal coordination mechanisms.

There are, however, limits to the benefits of specialization backed by rigid controls. Employees do not like rigid designs, so motivation becomes a problem. Unions further solidify narrow job descriptions by demanding fixed work rules and regulations to protect employees from the extensive vertical controls. Key employees may leave. In short, using a machine bureaucracy can hinder an organization’s capacity to adjust to subtle external changes or new technologies.

Organic Structures and the Professional Bureaucracy

The organic type or professional bureaucracy is much less vertically oriented than its mechanistic counterpart is; it emphasizes horizontal specialization. Procedures are minimal, and those that do exist are not as formalized. The organization relies on the judgments of experts and personal means of coordination. When controls are used, they tend to back up professional socialization, training, and individual reinforcement. Staff units are placed toward the middle of the organization. Because this is a popular design in professional firms, Mintzberg calls it a professional bureaucracy.39

Organic type or professional bureaucracy emphasizes horizontal specialization, extensive use of personal coordination, and loose rules, policies, and procedures.

Your university is probably a professional bureaucracy that looks like a broad, flat pyramid with a large bulge in the center for the professional staff. Power in this ideal type rests with knowledge. Other examples of organic types of bureaucracy include most hospitals and social service agencies.

Compared to the machine bureaucracy, the professional bureaucracy is usually better for problem solving and for serving individual customer needs. Since lateral relations and coordination are emphasized, centralized direction by senior management is less intense. Thus, this type is good at detecting external changes and adjusting to new technologies, but at the sacrifice of responding to central management direction.40 Firms using this pattern found it easier to pursue product quality, to quickly respond to customers, and to use innovation as strategies.

Hybrid Structures

Many very large firms found that neither the mechanistic nor the organic approach was suitable for all of their operations. Adopting a machine bureaucracy would overload senior management and yield too many levels of management. Yet, adopting an organic type would mean losing control and becoming too inefficient. Senior managers may instead opt for one of a number of hybrid types of bureaucracies.

We have briefly introduced two of the more common hybrid types earlier in the chapter. One is an extension of the divisional pattern of departmentation and sometimes called a divisional firm. Here, the firm is composed of quasi-independent divisions so that different divisions can be more or less organic or mechanistic. Although the divisions may be treated as separate businesses, they often share a similar mission and systems goals.41 When adopting this hybrid type, each division can pursue a different strategy.

A second hybrid is the true conglomerate. A conglomerate is a single corporation that contains a number of unrelated businesses. On the surface these firms look like divisionalized firms, but when the various businesses of the divisions are unrelated, the term conglomerate is applied.42 For instance, General Electric is a conglomerate that has divisions in unrelated businesses and industries, ranging from producing light bulbs to designing and servicing nuclear reactors to building jet engines. Most state and federal entities are also, by necessity, conglomerates. For instance, a state governor is the chief executive officer of those units concerned with higher education, welfare, prisons, highway construction and maintenance, police, and the like.

Conglomerates are firms that own several different unrelated business.

The conglomerate type also simultaneously illustrates three important points: (1) All structures are combinations of the basic elements; (2) there is no one best structure—it all depends on a number of factors such as the size of the firm, its environment, its technology, and, of course, its strategy; and (3) the firm does not stand alone but is part of a larger network of firms that competes against other networks.

16: study guide

Key Questions and Answers

What are the different types of organizational goals?

Societal goals: Organizations make specific contributions to society and gain legitimacy from these contributions.

A societal contribution focused on a primary beneficiary may be represented in the firm’s mission statement.

Output goals: As managers consider how they will accomplish their firm’s mission, many begin with a very clear statement of which business they are in.

Firms often specify output goals by detailing the types of specific products and services they offer.

Systems goals: Corporations have systems goals to show the conditions managers believe will yield survival and success.

Growth, productivity, stability, harmony, flexibility, prestige, and human-resource maintenance are examples of systems goals.

What are the hierarchical aspects of organizations?

The formal structure is also known as the firm’s division of labor.

The formal structure defines the intended configuration of positions, job duties, and lines of authority among different parts of the enterprise.

Vertical specialization is used to allocate formal authority within the organization and may be seen on an organization chart.

Vertical specialization is the hierarchical division of labor that specifies where formal authority is located.

Typically, a chain of command exists to link lower-level workers with senior managers.

The distinction between line and staff units also indicates how authority is distributed, with line units conducting the major business of the firm and staff providing support.

Managerial techniques, such as decision support and expert computer systems, are used to expand the analytical reach and decision-making capacity of managers to minimize staff.

Control is the set of mechanisms the organization uses to keep action or outputs within predetermined levels.

Output controls focus on desired targets and allow managers to use their own methods for reaching these targets.

Process controls specify the manner in which tasks are to be accomplished through (1) policies, rules, and procedures; (2) formalization and standardization; and (3) total quality management processes.

Firms are learning that decentralization often provides substantial benefits.

How is work organized and coordinated?

Horizontal specialization is the division of labor that results in various work units and departments in the organization.

Three main types or patterns of departmentation are observed: functional, divisional, and matrix. Each pattern has a mix of advantages and disadvantages.

Organizations may successfully use any type, or a mixture, as long as the strengths of the structure match the needs of the organization.

Coordination is the set of mechanisms an organization uses to link the actions of separate units into a consistent pattern.

Personal methods of coordination produce synergy by promoting dialogue, discussion, innovation, creativity, and learning.

Impersonal methods of control produce synergy by stressing consistency and standardization so that individual pieces fit together.

What are bureaucracies and what are the common forms?

The bureaucracy is an ideal form based on legal authority, logic, and order that provides superior efficiency and effectiveness.

Mechanistic, organic, and hybrid are common types of bureaucracies.

Hybrid types include the divisionalized firm and the conglomerate. No one type is always superior to the others.

Terms to Know

Bureaucracy (p. 392)

Centralization (p. 383)

Conglomerates (p. 394)

Control (p. 380)

Coordination (p. 384)

Decentralization (p. 383)

Divisional departmentation (p. 386)

Formalization (p. 382)

Functional departmentation (p. 385)

Horizontal specialization (p. 384)

Line units (p. 379)

Matrix departmentation (p. 387)

Mechanistic type or machine bureaucracy (p. 392)

Mission statements (p. 374)

Organic type or professional bureaucracy (p. 393)

Organizational charts (p. 377)

Output controls (p. 380)

Output goals (p. 375)

Process controls (p. 381)

Societal goals (p. 374)

Span of control (p. 379)

Staff units (p. 379)

Standardization (p. 382)

Systems goals (p. 376)

Vertical specialization (p. 377)

Self-Test 16

Multiple Choice

1. The major types of goals for most organizations are ____________.

(a) societal, personal, and output

(b) societal, output, and systems

(c) personal and impersonal

(d) profits, corporate responsibility, and personal

(e) none of the above

2. The formal structures of organizations may be shown in a(n) ____________.

(a) environmental diagram

(b) organization chart

(c) horizontal diagram

(d) matrix depiction

(e) labor assignment chart

3. A major distinction between line and staff units concerns ____________.

(a) the amount of resources each is allowed to utilize

(b) linkage of their jobs to the goals of the firm

(c) the amount of education or training they possess

(d) their use of computer information systems (e) their linkage to the outside world

4. The division of labor by grouping people and material resources into regional groups deals with ____________.

(a) specialization

(b) coordination

(c) divisionalization

(d) vertical specialization

(e) goal setting

5. Control involves all but ____________.

(a) measuring results

(b) establishing goals

(c) taking corrective action

(d) comparing results with goals

(e) selecting manpower

6. Grouping individuals and resources in the organization around products, services, clients, territories, or legal entities is an example of ____________ specialization.

(a) divisional

(b) functional

(c) matrix

(d) mixed form

(e) hybrid

7. Grouping resources into departments by skill, knowledge, and action is the ____________ pattern.

(a) functional

(b) divisional

(c) vertical

(d) means–end chains

(e) matrix

8. A matrix structure ____________.

(a) reinforces unity of command

(b) is inexpensive

(c) is easy to explain to employees

(d) gives some employees two bosses

(e) yields a minimum of organizational politics

9. ____________ is the concern for proper communication enabling the units to understand one another’s activities.

(a) Control

(b) Coordination

(c) Specialization

(d) Departmentation

(e) Division of Labor

10. Compared to the machine bureaucracy (mechanistic type), the professional bureaucracy (organic type) ____________.

(a) is more efficient for routine operations

(b) has more vertical specialization and control

(c) is larger

(d) has more horizontal specialization and coordination mechanism

(e) is smaller

11. Written statements of organizational purpose are called ____________.

(a) mission statements

(b) formalization

(c) mean–ends chains

(d) formal organization charts

12. ____________ is grouping individuals by skill, knowledge, and action yields.

(a) Divisional departmentation

(b) Functional departmentation

(c) Hybrid structuration

(d) Matrix departmentation

13. The division of labor through the formation of work units or groups within an organization is called ____________.

(a) control

(b) vertical specialization

(c) horizontal specialization

(d) coordination

14. ____________ is the set of mechanisms used in an organization to link the actions of its subunits into a consistent pattern.

(a) Departmentation

(b) Coordination

(c) Control

(d) Formal authority

15. The set of mechanisms used to keep actions and outputs within predetermined limits is called ____________.

(a) coordination

(b) vertical specialization

(c) control

(d) formalization

16. ____________ describes how formal authority is distributed and establishes where and how critical decisions are to be made.

(a) Vertical/horizontal specialization

(b) Centralization/decentralization

(c) Control/coordination

(d) Bureaucratic/charismatic

17. Grouping people together by skill, knowledge, and action yields a ____________ pattern of departmentation.

(a) functional

(b) divisional

(c) matrix

(d) dispersed

18. ____________ in an organization provide specialized expertise and services.

(a) Staff units and personnel

(b) Line units and personnel

(c) Cross-functional teams

(d) Auditing units

19. One of the advantages of a ____________ is that it helps provide a blending of technical and market emphases in organizations operating in exceedingly complex environments.

(a) functional structure

(b) matrix structure

(c) divisional structure

(d) conglomerate structure

20. ____________ goals are the goals that define the type of business an organization is in.

(a) Divisional

(b) Systems

(c) Societal

(d) Output

Short Response

21. Compare and contrast output goals with systems goals.

22. Describe the types of controls used in organizations.

23. What are the major advantages and disadvantages of functional departmentation?

24. What are the major advantages and disadvantages of matrix departmentation?

Applications Essay

25. Describe some of the side effects of organizational controls in a large mechanistically structured organization such as the United States Postal Service.

Next Steps: Top Choices from The OB Skills Workbook

Case for Critical Thinking

Team and Experiential Exercises

Self-Assessment Portfolio

• First Community Financial

• Tinker Toys

• Organizations Alive

• Fast-Food Technology

• Alien Invasion

• Twenty-First-Century Manager

• Organizational Design Preference

(Schermerhorn 373)

Schermerhorn, John R. Organizational Behavior, 12th Edition. Wiley, 11/2011. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.