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Over time, corporate organizations grew to accommodate their success. For instance, automobile manufacturers increased production volume and added models and features. Additional machines were required to produce the increased volume and diversity of products. More machines required more people to run them, which, in turn, required more people to manage the people who were running them.
Next are the policies and procedures required and control the additional size of the work force and the complexity of the tasks. And in a never ending upward spiral, more people were needed to develop and manage the new policies and procedures. As such, success drove vertical corporate organizations into bureaucratic organizations
The business needs which created the bureaucratic organizations was just an extension of the vertical organizations model. For the vertical organizations, jobs were created to take responsibility for specific aspects of the work process.IN the bureaucratic organizations, jobs and additional layers of management were created to take responsibility for coordination of specific business processes and policies bureaucratic organizations, characterized by multiple layers of management, and broad-reaching policies and procedures were usually unable to effectively respond to rapid changes in the marketplace. Therefore, as the need to be more responsive to the market became evident, organizations too restructuring again. (Conrad, Charles.1994)
Clear policies and procedures
Stable organization systems and processes
Consistent service and quality levels
Clear performance expectations
Clear roles and responsibilities
Effective strategy deployment
Optimization at a micro level
Policies and procedures create inflexibility
Potential for long cycle times when process crosses many responsibility areas
Glacial responsiveness to change
No individual judgment or empowerment
Performance expectations tend to be internally focused
Cooperation across role and responsibility areas is difficult
Difficult to dramatically change
Potential for suboptimal performance at an enterprise level
This time, corporations came to the realization that as size and complexity of the organization is increased, so did the costs of maintaining a centralized bureaucracy to support this organization. The next logical move was simply to break big organizations into smaller ones
As a result, organizations began to break themselves up into smaller decentralized units with each unit a profit center reporting directly to an operations manager. Generally, each unit had complete authority, within "corporate guidance" to create whatever policies and procedures were needed to maintain profitability and generate adequate returns to shareholders. In automobile industry, for example, they divided their organization into units, each responsible for different make of car
Decentralization provides several advantages shown in table below. Smaller business units tend to be more flexible and are therefore more responsive to market demands. Additionally, smaller business units usually require less managerial overhead. However, the coordination is less effective between these independent units as compared to divisions within more centralized organization responsiveness is gained at the costs of coordination
As such, decentralized organizations often face a problem of coordinating with customers. A common scenario is multiple salespeople attempting to service the same account, with none of them able to provide full line of solutions in a seamless manner. Two divisions of leading automobile parts supplier were not only competing with each other for the same customers, but were unknowingly being played off against each other to lower their prices
Strong customer focus
Business units responsive to changes in customer needs and market demands
Business units are focused on the needs of their segments
Self-sufficiency at the business unit level
Accumulation of customer-related knowledge is enhanced
Business units empowered to focus competency development efforts in areas which support their own success
Business units empowered to develop own standards within corporate guidelines
Accountability and control at business unit level
Reduced enterprise focus
Enterprise-wide ability to act in concert is difficult
Business units are hard to coordinate when a customer is in multiple segments
Duplication of resources and inefficiency at an enterprise level;
Knowledge transfer across business units is difficult
Difficult to maintain consistent functional competency levels across the enterprise
High potential for inconsistent processes, technologies applications and competence levels
Internal tension and competition for resources based on measurement system
(Khandwalla, Pradip N.1977)
My organization of choice
One of the most prominent advantages of non-bureaucratic organization is that it enhances the development of management talent within the organizations. Managers in a decentralized environment are forced to develop skills as decision makers and problem solvers. This allows the organization to have a better sense of who has the necessary abilities and talent to be promoted in the organization and allows those basic abilities and talents to be cultivated through experience. Lower level manager often have better morale if they are in positions of greater authority, and their performance levels are likely to be higher than if all decisions are made for them
Another key reason for having high degrees of decentralization is that it puts the power for decision making at the level where the best information is available. As information about individual units and departments moves up through the organization, it tends to become distorted and dated. The manager on the scene is the most likely to be able to make a timely and informed decision
A final significant advantage of non-bureaucratic organization is that it allows the health care organization to manage by exception rather than by rule. General rules are adequate in most cases. However, when exceptions arise in which rules are not likely to lead to the best outcomes, there is a need to be able to have an exception to the rule. Centralized organizations tend to fear any exceptions, and rules are almost always enforced. Decentralized organizations have the flexibility to relax the rules when appropriate. (Gottlieb, Marvin.1999)
It is very important for every organization to have an appropriate organization structure. Some companies do not have an organization structure, which creates problems. Some organization structures are meaningless, for the managers and supervisors do not delegate properly. Many companies take the organization structure too seriously however, thinking that having the correct organization structure will solve their problems. They think that where people are in the organization structure determines their importance to the company, rather than their importance being determined by what they know and contribute. Although it is very important for a company to have an appropriate organization structure, it is more important for a company to have strong teamwork.
When Corning was having problems in the 1960s and 1970s getting its country managers to cooperate with its product managers in the United States to introduce new products in their local markets, the top management assumed that the problem was due to Corning's having an inappropriate organization structure. During the 1970s, therefore, Corning changed its structure a few times until it had an excellent matrix structure. The problem persisted, however. The problem was finally solved when the top management of Corning realized in the early 1980s that the problem was not due to its organization structure but was due to the lack of a teamwork culture. Therefore, in 1982, James Houghton, CEO of Corning, introduced a teamwork culture. Thereafter, cooperation between Corning's country managers and product managers improved.
The Built - to - Change Organization
For decades, the predominant logic of organizational effectiveness has been that an organization's ï¬ t with its environment, its execution, and its predictability are the keys to its success. However, as the rate of change continues to increase, we need to look at organizational effectiveness very differently. More and more executives are correctly calling for greater agility, flexibility, and innovation from their companies. Indeed, one would think that the ability of organizations to adapt and change, not to mention the number of successful change efforts, should be high. But they are not.
Like many others, we have been intrigued by why organizational change efforts so often fail. Our analysis has led us to some interesting conclusions, the most salient of which is the importance given to stability. Largely ignored in the calls for more agility is the fact that organizations still are designed to seek sustainable competitive advantages through stability and execution. Apparently, buried deep in the managerial psyche (and bolstered by decades of theory and practice) is the assumption that stability is not only desirable but attainable.
However, we believe that the only way to ensure that organizations will be able to change is to build them to change, to create organizations that love changing.
Therefore, after we briefly explore the stability assumption, we propose a set of principles to guide the design of an organization that changes all the time.
The Stability Assumption
We believe that some (maybe even most) large scale strategic change projects are doomed to failure from the beginning. The type and amount of change that is being attempted is beyond the ability of most organizations to implement successfully.
Admittedly, some organizations have made amazing transformations. For example, Nokia has become a successful global electronics company, even though its roots were in a different technology and a local market. Similarly, Intel completely shifted its technical core from memory to microprocessors.
Stability and Design
Most organization design and management models were born in an age when environments were stable or at least predictable. They created organizations that were characterized by rules, regulations, and systems that limited experimentation, controlled variation, and rewarded consistent performance. When the environment was changing slowly or predictably, these were ï¬ne models.
But the pace and uncertainty of change, brought on by globalization, technological innovation, and political change, strongly argue for a new model. What is needed is a model of organizing that is built on a different assumption, one which assumes that organizations need to change all the time and that change is the normal state of affairs.
Stability and Effectiveness
Stability is a strong driver in organization design because of its expected link to effectiveness. Stability and its progeny, "sustainable competitive advantage" and "alignment," are believed to be key drivers of performance. Leveraging a competitive advantage requires commitments that focus attention, resources, and investment to the exclusion of alternatives. In other words, effectiveness results when organizations ï¬ nely hone their operations to perform in a particular way. This leads to large investments in operating technologies, structures, and ways of doing things. If such commitments are successful, they lead to a period of high performance and a considerable amount of positive reinforcement. Financial markets reward stable competitive advantages and predictable streams of earnings.
Typically, a commitment to alignment is a commitment to stability. To get the high performance they want, organizations put in place practices they see as a good fit, without considering whether they can be changed and whether they will support change. That is the great irony: by aligning themselves to achieve high performance today, organizations often make it difficult to change so that they can have high performance tomorrow.
Stability and Change Management
In another irony, the traditional approaches to change management reinforce the assumption of stability. The overwhelming change logic for decades has been a model of unfreezing, changing, and refreezing.
"Unfreezing" implies that some form of equilibrium exists that needs to be disrupted. Once organizations implement changes that move them to a new and desired future state, they are supposed to "refreeze" which involves institutionalizing the change and returning to a period of stability. The idea of unfreezing and refreezing is widely accepted because it supports traditional views of how organizations can be effective that is, by being stable and predictable and by executing effectively. The fallacy in this approach is that it suggests that change will end or at least be episodic, when in fact in today ' s world, it is continuous.
The Built - to - Change Approach
So what does an organization that is built to change look like? The atomic image in Exhibit 16.1 captures our thinking, and suggests that three core processes strategizing, creating value, and designing are in constant motion, spinning around a core nucleus of identity. Thus, almost everything in a built - to - change organization (b2change for short) is changing. Understanding and coordinating what is changing and what is not is the key to effectiveness
Fig.1 Built to change model
Strategizing: Crafting a Series of Momentary Advantages
Bringing an organization into proximity with environmental demands and defining a series of momentary advantages involve the relationship among the environment, strategic intent, and organizational performance. To achieve and maintain proximity, b2change organizations first must develop a sense of the future.
Rather than scheduling static annual reviews of the environment, organization member's not just senior managers need to observe and report on trends and to identify competitive opportunities. They need to think constantly about potential alternative futures and create a variety of short and long term scenarios. This is just what the U.S. Secret Service does to protect the president. As we will see in the designing process, b2change organizations are capable of developing scenarios when their members are in close contact with the external environment and, as a result, are able to identify key trends.
To achieve and maintain proximity, b2change organizations must define strategy in a new way. Success within a range of possible futures requires b2change organizations to seek a robust strategy that will succeed under a variety of conditions and yet be å‘flexible enough to adjust to those conditions. A robust strategy is created by tinkering with the tension between strategic intent and identity.
Designing: Implementing Strategic Intent
Designing is concerned with how the organization ' s features (for example, structure, processes, people, rewards) are orchestrated over time to support each other and the organization' s strategic intent, identity, and capabilities. To support a dynamic alignment among these features, each one needs to be changeable, ï¬‚exible, and agile because they will be changing all the time. The designing process must support the idea that the implementation and reimplementation of a strategy is a continuous process.
When hiring people, b2change organizations seek individuals who are quick learners and like change. That ' s why companies like Southwest Airlines, Nike, and W.L. Gore and Associates specifically look for people with initiative and the right attitude, including the desire for professional growth. B2change companies need to have an employment contract which states that change is to be expected and that support for change is a condition of long - term employment.
Of course, people should be made aware of the b2change employment deal before they ' re hired, so that they can make an informed decision about whether they want to work in such an environment. Once they join, training should be a normal, ongoing process, focused on the skills and knowledge necessary to support change and other organizational capabilities, and aimed at the competencies that will help the company add value both now and in the future.
Pay and other rewards that are based on seniority stifle change.
They do little but reward people for surviving. but contrast, b2change organizations utilize a variety of reward practices, including bonuses, stock, and " person - based pay, " that encourage both current performance and change.
Bonus systems can be particularly effective motivators during periods of change; they establish a clear line of sight between results and rewards. For example: Individual plans that offer relatively large bonuses can provide powerful incentives for employees and alter their individual behaviors when a new element of strategic intent calls for it. Group and business unit bonuses can be very helpful in focusing team performance and creating a shared need for change.
One - time bonuses can be awarded for the completion of a strategic change effort. For example, members of a new product development team can be given bonuses when the product ships or reaches a sales goal.
B2change organizations must be in close touch with the market and other environmental demands in order to continually define and redefine a series of short term competitive advantages.
To achieve that high level of external awareness, all employees' not just senior managers must observe and report on market trends and identify competitive opportunities. They need to think constantly about potential alternative futures, creating a variety of short - and long term scenarios. Thus, instead of scheduling static annual reviews of the environment, b2change companies must adopt a strategy development process that continuously monitors the environment.
The key design principle here is to maximize the "surface area" of the organization by connecting as many employees as possible with the external environment.
Structures that accomplish
This sharpens the external focus of its members; bring in critical information about trends, opportunities, and issues; and prevent people from becoming ossified in their roles. Thus as many employees as possible should have contact with regulators, suppliers, the local community, watchdog groups, and, most important, customers. B2change firms are anxious about being caught off guard, so they place everyone close to customers and the environment. That way, when the time comes to alter the direction of the organization, everyone moves together based on a common understanding and felt need for the change.
A variety of companies, including IBM, Nokia, the proactive disease management company Healthways, and diversified technology manufacturer Lord Corporation, have increased their surface area by adopting front - back, process - based, or network structures that increase the centrality of customer and other external demands.
These multidimensional structures continually ask employees to consider the interests of customers and other outsiders in the decision making process. For example, at Heathway's, each core process understanding the market, developing new businesses, building solutions, or delivering value must balance current demands for efficiency with future market needs. Although each process within the organization might have
a slightly different focus, successful execution requires the application and coordination of each function in service of customer requirements and corporate objectives.
Opportunity networks, such as those deployed by Li and Fung Ltd. (a Hong Kong based consumer products trading company) are particularly effective for enabling an organization to think global but act local. As the integrator, Li and Fung has an overall perspective that is decidedly global, constantly monitoring trends in fashion accessories, toys, sporting equipment, and other goods, while each entity in the company ' s network concentrates on what it does best (for example, developing a local marketing campaign for a particular product line). In general, a network structure leads to organizations with large surface areas because of all the alliance relationships that managers and employees must address.
Other companies have maximized their surface area by deploy ing multiple independent business units, outsourcing, and matrix relationships. For instance, Berkshire Hathaway, with its wide range of autonomous business units, faces multiple markets and can adjust its corporate portfolio relatively easily without the angst and grief associated with traditional downsizings and resizing of integrated divisions. Similarly, W.L. Gore's small, interrelated divisions
Information and Decision Processes
Instead of relying on annual budgets to control costs, b2change companies deploy profit centers and activity based costing. Whenever possible, a P & L should govern each business unit. To ensure good decision making, information needs to be transparent and up - to - date, indicating the current condition of the organization ' s capabilities and providing a clear view of how the company is performing relative to its competitors and its strategy.
Performance based information systems are a particularly effective way to motivate and empower employees in a b2change organization because such systems facilitate moving decision making to wherever decisions can best be made and implemented.
A good example is mySiebel, a personalized information system created by Siebel Systems before its acquisition by Oracle. Each employee could log on to mySiebel and gain access to corporate, market, and competitor information; data on current projects; and quarterly objectives for any individual in the organization (including Tom Siebel, the CEO). This widely available information allowed everyone throughout the organization to make customer related decisions with the most up to the minute data available, and it helped people align their individual behaviors with corporate objectives. The system thus facilitated the goal setting, performance review, and reward processes.
The Built - to - Change Organization
Table below compares and summarizes the characteristics of traditional firms with the features of a b2change organization. They are different in many ways. B2change organizations
Built - to - Change Firms
â€¢ Environmental scans and
â€¢ Sustainable competitive
â€¢ Culture as a constraint
Competence and Capability
â€¢ What can we do well?
Structures with jobs and hierarchy
Rational decision making
Leaders as heroes
â€¢ Rewards for jobs, seniority
â€¢ Possible alternative future scenarios
â€¢ A series of temporary advantages
â€¢ Identity as an enabler of change
Creating and Adding Value
â€¢ What do we need to learn?
â€¢ Structures with maximum externalsurface area
â€¢ Information transparency
â€¢ Leadership as a team sport
â€¢ Rewarding skill, performance
Challenge the assumption of stability that drives traditional models of organization design, effectiveness, and change. Anchored by the organization ' s identity, the processes of strategizing, creating value, and designing constantly adjust to maintain proximity with a changing environment and drive a series of temporary advantages. The b2change organization may not always outperform traditional firms in the short term or in all situations. But there are many reasons to believe that over the long term, under conditions of rapid change, b2change organizations will outperform all others. ( E. Lawler and C. Worley.2006)