Adaptive Model of Organization Design: Enhancing Organizational Effectiveness

1. Chapter Thirteen Technology, Environment, And Organization Design Thomson South-Western Wagner & Hollenbeck 5e

2. Chapter Overview • This chapter examines the following topics: • An Adaptive Model of Organization Design • Organizational Effectiveness • Structural Alternatives • Structural Contingencies • Lifecycle Contingencies: Age and Stage of Development • Inception Contingencies • Formalization and Elaboration Contingencies • Core Technology • The External Environment • Transformation Contingencies • Environmental Turbulence • Transaction Costs • Final Considerations

3. Introduction • Organization design, the process of managing organization structure, has important implications for the competitiveness and continual survival of business organizations • Contemporary managers need to know about the different kinds of structures as well as the key strengths and weaknesses of each structural type

4. An Adaptive Model of Organization Design • The fact that many different kinds of structures exist implies that no one type will be suitable for all organizations • Structuring an organization involves making well-considered choices among the various alternatives available • Organization design is the process of making these choices • The process of organization design is consciously adaptive and is guided by the principle that the degree to which a particular type of structure will contribute to the effectiveness of an organization depends on the contingency factors that impinge on the organization and shape its business

5. Organizational effectiveness is a measure of an organization’s success in achieving goals and objectives An effective organization must satisfy the demands of the various constituency groups that provide it with the resources necessary for its survival Effectiveness differs from organizational productivity in that productive measures do not take into account whether a firm is producing the right goods or services Organizational efficiency means minimizing the raw materials and energy consumed by the production of goods and services Efficiency means doing the job right whereas effectiveness means doing the right job Effectiveness is a measure of whether a company is producing what it should in light of the goals, objectives, and constituency demands that influence its performance and justify its existence Organizational Effectiveness

6. Structural Alternatives • The structure of an organization strongly influences its effectiveness • To clarify the fundamental differences among the various types of structures, alternatives are classified along a dimension ranging from mechanistic to organic • Purely mechanistic structures are: • Machine-like • Lacking in flexibility • Centralized with tall hierarchies of vertical authority • Purely organic structures are: • Analogous to living organisms • Flexible and able to adapt • Decentralized with flat hierarchies

7. Structural Contingencies • It is critically important that managers identify key structural contingency factors that can help determine whether a particular type of structure will function successfully in the organization • These factors constitute the situation that managers must perceive and diagnose correctly to determine how to conduct business most effectively

8. Lifecycle Contingencies:Age and Stage of Development • Company age and stage of development are lifecycle contingencies associated with organizational growth • Developmental stages include: • Inception • The organization is created and its purpose is identified • Formalization • Work becomes divided into different functional areas and organizational direction is determined through formal planning and goal setting • Elaboration • Firm seeks out new product, location, or client opportunities • Transformation • Firm is confronted by extremes of both change and complexity in its business situation

9. Inception Contingencies • Organizations at the inception stage are typically new, small, and fairly simple in form • They are most likely to have prebureaucratic structures • The type of structure is influenced by the organization size, which is considered to be the number of members within the organization

10. Formalization and Elaboration Contingencies • Organizations that have progressed beyond the inception stage and outgrown prebureaucratic structures must consider the adoption of more bureaucratic forms of structure • The most influential contingency factors at the formalization and elaboration stages of development consist of core technologies and the environment that surrounds the firm

11. Core Technology • An organization’s technology includes the knowledge, procedures, and equipment used to transform unprocessed resources into finished goods or services • Core technology is a more specific term that encompasses the dominant technology used in performing work in the operational center of the organization • Two contingency models that delineate basic differences in core technology are: • The Woodward manufacturing model • The Thompson service model

12. Woodward’s Manufacturing Technologies • Joan Woodward began studying organizations in the early 1950s • Woodward discovered that not all companies with the same type of structure were equally effective • Woodward devised a classification scheme to describe the three basic types of manufacturing technology • Small-batch production • Mass production • Continuous process production • In the years since Woodward’s studies, flexible-cell production technology has evolved

13. Thompson’s Service Technologies • James D. Thompson’s model examines the technologies often employed in service organizations • His study included the following technologies: • Mediating technology • Long-linked technology • Intensive technology

14. Technological Contingencies: Integration • Both the Woodward and Thompson technology models help identify which general form of organization structure is most likely to enhance the effectiveness of a firm whose primary operations incorporate a specific type of core technology • Standardization and mechanistic structuring generally enhance the effectiveness of firms using core technologies that are suited to more routine work – mass production, mediating, and long-linked technologies • Mutual adjustment and organic structuring promote effectiveness in firms that use core technologies suited to unpredictable, often rapidly changing requirements – small-batch, continuous process, flexible-cell, and intensive technologies

15. The External Environment • An organization’s environment encompasses everything outside the organization • The environment influences structural effectiveness by placing certain coordination and information-processing restrictions on the firm • Five specific environmental characteristics influence structural effectiveness: • Environmental change concerns the extent to which conditions in an organization’s environment change unpredictably • Environmental complexity comprises the degree to which an organization’s environment is complicated and therefore difficult to understand • Environmental uncertainty reflects a lack of information about environmental factors, activities, and events • Boundary spanner • Environmental receptivity is the degree to which an organization’s environment supports its progress toward fulfilling its purpose • Environmental diversity refers to the number of distinct environmental sectors or domains served by an organization

16. Environmental Contingencies: Integration • Diagnosing the nature of a firm’s environment during the process of organization design requires that managers perform five environmental analyses more or less simultaneously – (no separate analysis or question is needed regarding uncertainty because this property is a combination of change and complexity and is assessed by questions 1 & 2 below) • Is the environment stable or dynamic? • Is the environment simple or complex? • Is the environment munificent or hostile? • Is the environment uniform or diverse?

17. Transformation Contingencies • Transition beyond bureaucratic structuring occurs because the standardization intended to stimulate efficient performance can actually reduce efficiency and production • This reduction can happen for several reasons: • The very existence of bureaucratic rules and procedures can encourage the practice of following them to the letter • Rigid adherence to rules and regulations can discourage workers from taking the initiative and being creative • Standardization can narrow the scope of workplace activities

18. Environmental turbulence describes the speed and scope of change that occurs in the environment surrounding an organization Conditions of high turbulence are sometimes referred to as hypercompetitive conditions By determining the degree of flexibility and adaptability an organization must have to perform effectively, the level of environmental turbulence can also act as a contingency factor that influences choices between the two postbureaucratic alternatives Environmental Turbulence

19. Transaction Costs • Transaction costs associated with preserving a single company or maintaining contractual relationships are affected by two considerations: • Information processing that proves to be overwhelming • Threat of opportunism

20. Final Considerations • If successful, transitions that occur during an organization’s stages of development can have a vast impact on the structure of an organization