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Designing Adaptive Organisations
Three weeks ago, the Chinese government announced a further 'cut off' of rare earth mineral export quotas for 2011. After a rare earth mineral export cut of 40% by the Chinese this year, this is an unexpected blow to organizations in the computers and electronics industry. (Bloomberg News, 2010)
Most organizations today, operate in similarly unpredictable, unstable and dynamic external environments that are mainly consequences of "rapid globalization", "accelerating innovation" and "intense competition". (Murray, 2010)
(Daft, 2010)The diagram (right) explicates that environments with a large number of external factors, that change rapidly, are highly uncertain. It therefore concludes, that organizations operating in highly-uncertain environments need to 'adapt' to the environment. (Daft, 2010)
The term 'adapt' in this context refers to an organisations' ability to 'actively cope' with the changes in its external environment. (Harwood, 1991)
As discussed before, we live in an era of uncertainty where age-old institutions like Lehman Brothers and Bear Stearns vanish overnight and brand new ventures like Google and Twitter appear from out of the blue (Murray, 2010). Therefore, this essay takes on a postmodernist approach and exemplifies effective ways to adapt to uncertainties in the environment.
Strategy, Structure and Environment
Porter described two generic strategies to cope with external environments. His strategy of cost leadership (attempting internal efficiency) relates more to stable environments while the strategy of differentiation (attempting innovation) relate to unpredictable environments. (Daft, 2010)
(Daft, 2010)The diagram (right) matches organisational structure to Porter's strategic goals. Here, organic structures are pertinent to organisations that adopt strategic goals of differentiation while a mechanistic structure fits well with organisations that attempt cost leadership (Daft, 2010).
That being said, in a post-modernist society characterized by constant instability, it is important that organisations striving for efficiency are also able to adapt to the changes in the external environment. Consider for example McDonalds, a highly bureaucratic fast-food chain in the last decade that led to the concept of McDonaldization - an extension of Weber's theory of rationalization (Ritzer, 1996). McDonalds strives for efficiency in their operations and their strategic goal is to provide their customers with the quickest restaurant experience. More recently however, with increasing competition in the external environment, the fast food-chain incorporated decentralization to their business model. Consequently, now, at the corporate level, a global framework of common goals, policies and guidelines are outlined, while individual geographic business units are expected to develop programs in compliance with local market conditions. (Hatch, 2006)
Contrary to popular belief, Weber's model of bureaucratic control implies decentralized decision-making (Walton, 2005). Although McDonalds has adopted decentralization, it can still be considered a bureaucratic organisation (assembly-line to serve customers) except, now; a decentralized decision-making approach has made the organisation capable of adapting to market conditions.
Albeit, bureaucracies (incorporating decentralization) are able adapt to the environment, organizational designs (new organisational forms) stressing flatter structures, multi-skilled capabilities and a lower degree of informality (Clegg et al, 2008) are more efficient in dealing with changes in the environment. (Walton, 2005)
For instance, United Technologies Corporation in the US has adapted a divisional structural approach allowing it to create divisions with separate functional departments for its different products - Carriers (air-conditioning and heating), Otis (elevators and escalators) and Sikorsky (helicopters) (Daft, 2010). Decision-making is decentralized in such structures and divisions can be based on product-lines, customer segments or geographic locations. (Hatch, 2006)
SEI, an investment services company, operates in a team based structure where work is distributed amongst 140 teams approximately. Teams that focus on specific markets or serve major customers are permanent while most teams are designed to work on short-term assignments or problems. SEI functions in an open office environment where most desks are on wheels. Employees constantly change assignments and move from one team to the other. Organisations operating in team based structure readily adapt to the environment since it pushes responsibility to lower levels and allows managers to delegate authority. (Daft, 2010)
Network structures are also flexible and easily adapt to market conditions. Strida, a company selling thousands of high-tech folding bicycles to people all over the world, is run by duo -Bass and Bennet. All processes including design, manufacturing, logistics, customer services, accounting are outsourced to other organisations while the duo only manage and ensure the smooth functioning of the partnerships in this network. (Daft, 2010)
Virtual networks are increasing in popularity. The best example of a virtual-network organisation is eBay - a market that allows buys and sellers to negotiate and make transactions over the Internet, not requiring any physical contact. (Hatch, 2006)
Danny Miller, in an empirical evaluation to explore the relationships of business strategies to the structures and environments of undiversified firms, concluded that although the right strategy can help organisations adapt to the changing environment, it alone cannot influence organisational performance. Furthermore, the study also indicated that the structure of an organisation alone does not have a direct impact on the environment unless aligned with the best strategy. (Miller, 1988)
For instance, Apple Computers in 1985 faced deterioration in revenue due the company's inadequate attention to the needs of customers. In response to company losses, 20% of the staff was laid off. This made no difference to company performance. However, in a further attempt to gain momentum, the company turned its strategic focus towards creating cooperative alliances with customers. With a limited amount of staff at hand, the company amalgamated the different segments at Apple - each performing individual functions - into a team. Apple's crisis in 1985 and its combative strategy and restructuring is what laid the foundation for a company that is known to take calculated risks and speedily adapt to new market situations. (Harwood, 1991)
Corporate Culture and the External Environment
A research conducted at Harvard found that a strong corporate culture alone does not ensure business success unless "the culture encouraged healthy adaptation to the external environment" (Daft, 2010, p80)
(Daft, 2010) As per the diagram (left), it is important that organizations attempting to adapt to the external environment adopt either:
A culture allowing organisations to adapt (adaptability culture) to the external environment. (Daft, 2010). Dow Chemical rebuilt its corporate culture to that of which would personify a better appreciation to economic elements. In its attempt to do so, excessive hierarchies were removed from its structure to speed decision-making and a concept of "opportunity teams" was created to encourage innovation. The company also appointed a manager solely for the process of "de-bureaucratizing". Dow's culture now tolerates 'unconventional behaviour' and values 'venturesomeness'. (Harwood, 1991)
A culture encouraging employee participation (involvement culture) in adapting to the needs of the external environment. (Daft, 2010). IBM, in its attempts to adapt to the changes in the external environment empowers its workforce with responsibility and decision making power. Employees at IBM are encouraged to take risks and are quite often reminded that it is their business. IBM is characterized by a flat organisation structure entailing a broad span of control. (Harwood, 1991)
Alternatives to bureaucracies - flattening of organisational hierarchies through delayering, temporary structures (task forces, adhocracies, project teams) and permanent structures (quality circles, matrix forms) (Walton, 2005) - have emerged to adapt to the uncertainties of the environment. These alternatives combined with the best strategy and corporate culture help organisations adapt to postmodernist society.
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