Organizational Change

Organizational Change

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Organizational Change and Learning

Learning Goals 1. Describe four types of organizational change 2. Explain the planning process for organizational change 3. Identify four methods of organizational change 4. Describe how innovation relates to organizational change 5. Discuss how learning organizations foster change

Organizational Change • Organizational change refers to any transformation in the design or functioning of an organization.

(adapted from Figure 12.1)

 Radical change: organizations make major innovations in the ways they do business

 Stages of Radical Change*

Unfreezing

Transitioning

Refreezing

 Incremental change: ongoing process of evolution over time, during which many small adjustments occur routinely

 Tempered radicals: people who strive to create radical change but do so by prodding an organization to make many small incremental changes

 Total quality management: relies heavily on continuous incremental change

1. Earn credibility first, and then leverage it 2. Gather and accept support from others along the way 3. Develop grass roots initiatives and be willing to share the stage with supporters 4. Chip away at standard operating procedures little by little over time until you achieve real success 5. Accept small changes as making progress 6. Develop your ability to compromise as well as persuade 7. Be persistent

 Reactive change: occurs when an organization is forced to adapt or innovate in response to some event in the external or internal environment  Anticipatory change: occurs when managers make organizational modifications based on forecasts of upcoming events or early in the cycle of a new trend

Types of Organizational Change Small Adjustments

Major Transformation

Degree of Change

(adapted from Figure 12.2)

Incremental Anticipatory Change

Incremental Reactive Change

Radical Anticipatory Change

Radical Reactive Change

Timing of Change Before Major Shifts in the Environment

After Major Shifts in the Environment

The Process of Organizational Change (adapted from Figure 12.3) Start 2. Determine the Performance Gap

1. Assess the Environment

3. Diagnose Organizational Problems

7. Monitor the Changes

6. Anticipate Resistance and Take Action to Reduce

5. Develop and Implement an Action Plan

4. Articulate and Communicate a Vision for the Future

Fear

Misunderstandings

Vested interests

Cynicism

Technological Change

Job Redesign

Organizational Redesign

Organizational Development

Technological Change  Involves incremental adjustments or radical innovations that affect workflows, production methods, materials, and information systems  Many new forms of information technology (IT)  IT is enabling real time and any time links between suppliers, producers, distributors, and customers

 Involves incremental adjustments or radical innovations focused on realigning departments, changing who makes decisions, and merging or reorganizing departments that sell the organization’s products  Two basic approaches Change organization’s structure, such as from functional to product departmentalization Change organization’s processes, such as how customer complaints are handled

 Restructuring: reconfiguring the distribution of authority, responsibility, and control in an organization

 Reengineering: radical redesigning of an organization’s functions and business processes

Job Redesign  Modifying specific employee job responsibilities and tasks

 Job simplification: the scientific analysis of tasks  Focus on efficient workflow process for employees in a particular job  Frequent use of time and motion studies

 Job enrichment: changing job specifications to broaden and add challenge to the tasks required and to increase productivity  Increases interesting and challenging work  Increases autonomy and personal freedom

 A planned, long-range behavioral science strategy for understanding, changing, and developing an organization’s workforce in order to improve its effectiveness  Focus group discussion: a carefully planned discussion among several employees about a specific topic or issue of interest, which is led by a trained facilitator  Facilitator explains the topic to be discussed, the role of the scribe, and how the organization will use the results of the focus group discussion  Participants come prepared to discuss a specific topic. If confidentiality is a concern, participants are chosen from different units of the organization, not the same work group  Scribe: the person who takes notes about what is said, but not who says it

How to Set Up a Focus Group Discussion (adapted from Figure 12.5) The facilitator explains the topic to be discussed, the role of the scribe, and how the organization will use the results of the focus group discussion.

The participants come prepared to discuss a specific topic. If confidentiality is a concern, participants are chosen from different units of the organization, not the same work group. The scribe takes notes about what is said, but not who says it.

Organization Development (OD) (cont’d)  Survey feedback: a process that allows managers and employees to report their thoughts and feelings about the organization and to learn about how others think and feel about their own behaviors  Feedback obtained by means of a questionnaire developed and distributed to employees, who complete it and turn it in anonymously  Content of questionnaire depends on areas of most concern Questionnaire

Organization Development (OD) (cont’d)  Team building: process that develops the ability of team members to collaborate effectively so they can perform the tasks assigned to them  Often emphasizes developing a group climate that is safe  Openness can be risky, but promotes creativity and effective problem solving

 Major organizational change is a complex process  Typically involves a combination of methods  Example: purchasing and installing enterprise resource planning [ERP] software

Role of Innovation in Organizational Change  Innovation: the discovery, identification and diagnosis of unusual and ambiguous problems and/or the development of unique or creative solutions  Strategic importance of innovation Critical in dynamic, changing environments Organizations can rest on prior success Complacency is deadly

 Technical innovation: creation of new goods and services  Process innovation: creating a new way of producing, selling, and/or distributing an existing good or service  Administrative innovation: creating a new organization design that better supports the creation, production, and delivery of goods and services

Foster Workforce Resilience Provide a Support System for Innovation Develop a Learning Environment and Learning Orientation among Employees

 Learning organization: has both the drive and the capabilities to modify or transform itself and improve its performance continuously  Learns from past experiences  Learns from customers  Learns from various parts of the organization  Learns from other organizations

Shared Leadership

Culture of Innovation

Organic Organization Design

The Learning Organization

Customer-Focused Strategy

Intensive Use of Information

Characteristics of a Learning Organization: Snapshot “We all make mistakes. It’s not as though at any time, Dell doesn’t have some part of its business that’s not working for us as it should. But we have a culture of continuous improvement. We train employees to constantly ask themselves, ‘How do we grow faster? How do we lower our cost structure? How do we improve service for customers?’”

Michael Dell, Chairman and Cofounder, Dell Computer

CHAPTER 11

STRATEGIC ACTIONS: STRATEGY IMPLEMENT ATION PowerPoint Presentation by Charlie Cook The University of West Alabama © 2007 Thomson/South-Western. All rights reserved.

Organizational Structure and Controls

Strategic Management

Seventh edition

Competitiveness and Globalization: Concepts Cases Michael A. Hitt and • R. Duane Ireland • Robert E. Hoskisson

Organizational Structure and Controls

• Organizational structure specifies:

– The firm’s formal reporting relationships, procedures, controls, and authority and decision-making processes – The work to be done and how to do it, given the firm’s strategy or strategies

• It is critical to match organizational structure to the firm’s strategy. 11–28

Organizational Structure • Effective structures provide: – Stability – Flexibility

• Structural stability provides: – The capacity required to consistently and predictably manage daily work routines

• Structural flexibility provides for: – The opportunity to explore competitive possibilities – The allocation of resources to activities that shape needed competitive advantages

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Organizational Controls • Purposes of Organizational Controls: – Guide the use of strategy. – Indicate how to compare actual results with expected results. – Suggest corrective actions to take when the difference between actual and expected results is unacceptable.

• Two Types of Organizational Controls – Strategic controls – Financial controls

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Organizational Controls Strategic Controls

Organizational Controls

Financial Controls

• Strategic Controls: Subjective criteria – Are concerned with examining the fit between: • What the firm might do (opportunities in its external environment). • What the firm can do (competitive advantages).

– Evaluate the degree to which the firm focuses on the requirements to implement its strategy.

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Organizational Controls Strategic Controls

Organizational Controls

Financial Controls

• Financial Controls: Objective criteria – Accounting-based measures include: • Return on investment • Return on assets

– Market-based measures include: • Economic Value Added (EVA)

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Matching Control to Strategy

• Relative use of controls varies by type of strategy: – Large diversified firms using a cost leadership strategy emphasize financial controls. – Companies and business units using a differentiation strategy emphasize strategic controls.

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Relationships between Strategy and Structure

• Strategy and structure have a reciprocal relationship: – Structure flows from or follows the selection of the firm’s strategy but … – Once in place, structure can influence current strategic actions as well as choices about future strategies.

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Evolutionary Patterns of Structure and Organizational Structure • Firms grow in predictable patterns: – First by volume – Then by geography – Then integration (vertical, horizontal) – And finally through product/business diversification

• A firm’s growth patterns determine its structural form. 11–35

Evolutionary Patterns of Structure and Organizational Structure (cont’d) • All organizations require some form of organizational structure to implement and manage their strategies • Firms frequently alter their structure as they grow in size and complexity • Three basic structure types: – Simple structure – Functional structure – Multidivisional structure (M-form) 11–36

Strategy and Structure Growth Pattern

Simple Structure Efficient implementation of formulated strategy

Sales Growth Coordination and Control Problems

Functional Structure Efficient implementation of formulated strategy

Sales Growth Coordination and Control Problems

Multidivisional Structure

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FIGURE 11.1

Strategy and Structure Growth Pattern

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Strategy and Structure: Simple Structure

• Owner-manager

– Makes all major decisions directly. – Monitors all activities.

• Staff – Serves as an extension of the manager’s supervisor authority.

• Matched with focus strategies and businesslevel strategies – Commonly complete by offering a single product line in a single geographic market.

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Simple Structure (cont’d) • Growth creates: – Complexity – Managerial and structural challenges

• Owner-managers – Commonly lack organizational skills and experience. – Become ineffective in managing the specialized and complex tasks involved with multiple organizational functions. 11–40

Strategy and Structure: Functional Structure

• Chief Executive Officer (CEO) – Limited corporate staff

• Functional line managers in dominant organizational areas of: – Production

Marketing Engineering

– Accounting

R&DHuman resources

• Supports use of business-level strategies and some corporate-level strategies – Single or dominant business with low levels of diversification

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Functional Structure (cont’d)

• Differences in orientation among organizational functions can:

– Impede communication and coordination. – Increase the need for CEO to integrate decisions and actions of business functions. – Facilitate career paths and professional development in specialized functional areas. – Cause functional-area managers to focus on local versus overall company strategic issues. 11–42

Strategy and Structure: Multidivisional Structure • Strategic Control – Operating divisions function as separate businesses or profit centers

• Top corporate officer delegates responsibilities to division managers – For day-to-day operations – For business-unit strategy

• Appropriate as firm grows through diversification 11–43

Multidivisional Structure (cont’d)

• Three Major Benefits

– Corporate officers are able to more accurately monitor the performance of each business, which simplifies the problem of control. – Facilitates comparisons between divisions, which improves the resource allocation process. – Stimulates managers of poorly performing divisions to look for ways of improving performance.

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Matching Strategy and Functional Structure

• Different forms of the functional organizational structure are matched to: – Cost leadership strategy – Differentiation strategy – Integrated cost leadership/differentiation strategy

• Differences in these forms are seen in three important structural characteristics: – Specialization (number and types of jobs) – Centralization (decision-making authority) – Formalization (formal rules and work procedures)

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FIGURE 11.2

Functional Structure for Implementation of a Cost Leadership Strategy Notes: • Operations is the main function • Process engineering is emphasized rather than new product R&D • Relatively large centralized staff coordinates functions • Formalized procedures allow for emergence of a low-cost culture • Overall structure is mechanical; job roles are highly structured

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Using the Functional Structure to Implement a Cost Leadership Strategy

• Operations is the main function. – Process engineering is emphasized over research and development. – Large centralized staff oversees activities. – Formalized procedures guide actions. – Structure is mechanical. – Job roles are highly structured.

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FIGURE

11.3

Functional Structure for Implementation of a Differentiation Strategy

Notes: • Marketing is the main function for keeping track of new product ideas • New product R&D is emphasized • Most functions are decentralized, but R&D and marketing may have centralized staffs that work closely with each other • Formalization is limited so that new product ideas can emerge easily and change is more readily accomplished • Overall structure is organic; job roles are less structured

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Using the Functional Structure to Implement a Differentiation Strategy • Marketing is the main function for tracking new product ideas. – New product R&D is emphasized. – Most functions are decentralized. – Formalization is limited to foster change and promote new ideas. – Overall structure is organic. – Job roles are less structured. 11–49

Using the Functional Structure to Implement the Integrated Cost Leadership/ Differentiation Strategy

• Selling products that create customer value due to: – Their relatively low product cost through an emphasis on production and process engineering, with infrequent product changes. – Reasonable sources of differentiation based on new-product R&D are emphasized while production and process engineering are not.

• Used frequently in global economy 11–50

Implementing an Integrated Cost Leadership/Differentiation • The integrated form of the functional structure Strategy must have: (cont’d) – Decision-making patterns that are partially centralized and partially decentralized. – Semi-specialized jobs. – Rules and procedures that allow both formal and informal job behaviors.

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Corporate-Level Strategies and the Multidivisional Structure • A firm’s continuing success that leads to: – Product diversification, or – Market diversification, or – Both product and market diversification.

• Increasing diversification creates control problems that the functional structure can’t handle. – Information processing, coordination – Control 11–52

Corporate-Level Strategies and the Multidivisional Structure • Diversification strategy requires firm to change from functional structure to a multidivisional structure.

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