Organization Theory: Strategy Implementation Process

1. Organization Theory: Strategy Implementation Process Steven E. Phelan October, 2008

2. Overview • Simulation Results • Organizations as machines • Strengths and limitations, implications for strategy • Organizations as organisms • Open systems • Contingency theory • Organizational ecology • Brains and Cultures • Paths of Glory

3. Organization Theory • Developed out of sociology • Sociologists tend to believe in institutions and forces greater than the individual (that may even constrain the individual) • Management theory has tended to see managers as free agents • See Democrats on an Elevator video • Give some left and right wing interpretations

4. Fundamental Tensions • Individual vs. Society • Choice vs Constraint • Free agency vs. Determinism • Freedom vs. Inevitability • Pre-ordained, Destiny • We will explore these boundaries in the next two classes • Why, what is the relevance to future CEOs?

5. Morgan on Metaphor • Morgan justifies his book as teaching metaphors • “Is there value in teaching people to see their organizations in different ways? • What, then, is truth if different people learn to see the same thing in different ways?” • Do you see an old or young woman to the right?

6. Organizations as Machines

7. Organization as machine • Pre-determined goals and objectives • A rational structure of jobs and activities • Its blueprint becomes an organizational chart • People are hired to operate the machine and behave in a predetermined way • When an organization is seen as a machine it is expected to operate in a routinized, efficient, reliable, and predictable way

8. My life as a machine • “Whoever uses a machine does all his work like a machine. He who does his work like a machine grows a heart like a machine” He loses his soul! • The industrial age left its mark on the imagination, thoughts, and feelings of humans • Organizational life is often routinized with the precision demanded of clockwork • People arrive at work at a given time, perform a predetermined set of activities, rest at appointed hours, and then resume their tasks until work is over. • Employees are expected to behave as if they were parts of a machine • Do you agree?

9. Max Weber • The bureaucratic form routinizes the process of administration exactly as the machine routinizes production. • Bureaucracies provide: • Precision, speed, clarity, regularity, reliability, and efficiency • Through: • A fixed division of tasks, hierarchical supervision, and detailed rules and regulations

10. Purging Particularism • According to Perrow, one of the major benefits of bureaucracy is purging particularism (incl. nepotism and favoritism) • Loyalty to the king was once everything, incompetence counted for little • Tenure was an early invention that provided freedom from unjust authority • separating the office from the person further controlled it.

11. Nepotism • Nepotism is still a big problem in a lot of countries – e.g. Italy, Mexico, China • Why is it so bad? • Because there is often little relationship between the social criteria for hiring or promoting people and the characteristics that affect performance in an organization • It may even hurt performance (lower morale, motivation etc.)

12. Perrow on corruption • Corruption (or enlightened self-interest) is also likely to accompany favoritism • Perrow argues corruption is good for the individual and sometimes even good for the organization • “one of the best ways to seize or retain control [of an organization] is to surround oneself with loyal people” • It doesn’t hurt to have a sympathetic friend in government • See http://www.youtube.com/user/fiercefreeleancer

13. Bureaucracy and Corruption • Bureaucracy limits corruption: • “since official goals are proclaimed, unofficial, unpublicized, and unlegitimated uses can be held up to scrutiny when they are found, and action can be taken.” • “The hidden uses of organizations, always present, can be exposed and addressed”

14. Hierarchy • Downside to hierarchy: • Lack of motivation - ‘not my problem’ • Fear of passing bad news or suggesting changes • Buck passing • Delays and sluggishness • Dictatorial/ignorant decisions by superiors • Stifling of independence and creativity

15. The Upside • Perrow argues that: • A lack of coordination between departments • The failure to exercise authority or be decisive, and • A lack of accountability or even corruption • are, in fact, much worse problems than the problems identified on the previous slide • Do you agree?

16. Strengths of the machine metaphor • For Morgan, mechanistic approaches work well when: • There is a straightforward task to perform • The environment is stable and predictable (to enable efficient division of labor) • When one produces the same product time and again • When efficiency and precision are at a premium • When the human parts are compliant and behave as they have been designed • For Perrow: • Bureaucracies limit particularism and self-interest, and promote coordination

17. Limitations of the machine metaphor • Bureaucracies have difficulty adapting to change • They are designed to achieve predetermined goals not innovation • It takes time to get an efficient division of labor through detailed job analysis

18. Moreover… • Mechanistic approaches result in mindless and unquestioning bureaucracy • Problems can be ignored • Communication can be ineffective • Paralysis and inaction can lead to backlogs • Senior managers can become remote • Specialization creates myopia and NIH syndrome • Employees know what is expected of them but also what is not expected of them • Initiative is discouraged

19. Using the machine metaphor • What is the alternative to bureaucracy when coordinating a large group of people? • To what degree is organizing as a bureaucracy a choice? • To what degree are people in a bureaucracy forced or constrained to act in certain ways? • Do bureaucracies alter what it means to be human? • What seems natural and normal and taken for granted in our work life that really isn’t?

20. Organizations as Organisms

21. Organizations as organisms • This metaphor has its roots in biology and natural selection • Perhaps certain organizations are more “adapted” to specific environmental conditions than others • Led to the development of concepts such as: • Open systems • Organizational life cycles • Fit and the process of adaptation to environment • Organizational ecology and different species of organizations

22. Organizational Needs • The Hawthorne studies of the 1920s and 1930s shifted the focus from organization as a technical problem to the human side of organization, especially motivation • Productivity wasn’t just a function of workflow design but also of motivation • Maslow’s hierarchy of needs • Physiological, security, social, ego, self-actualizing needs

23. Implications • The idea of integrating the needs of individuals and organizations became a powerful force • Job enrichment, autonomy, responsibility, recognition, democracy, focus on turnover and absenteeism, HRM • Socio-technical systems (STS) • “The design of a technical system always has human consequences and vice versa” • Optimization involves reconciling human needs and technical efficiency • Isn’t this obvious? Why was it so controversial at theat the time (1950s)?

24. Open systems • Variants of the open systems philosophy became popular with managers in the 1960s with Forrester’s system dynamics and in the 1990s with Senge’s “Fifth discipline” • Defined as a system with input OR an entity that changes its behavior in response to conditions outside its boundaries. • Systems are rarely ever either open or closed but open to some and closed to other influences • Animals are open to food, plants to sunlight • Computers and people are open to information • Organizations and societies are open to structure • Whether or not a system has outputs does not enter the distinction between open and closed systems. • Systems with inputs are controllable. Why?

25. Practical implications • Open systems theory emphasizes the importance of the environment (not seen in machine metaphor) • Organizations are seen as sets of interrelated subsystems • Molecules, cells, organs, lifeforms, social systems, world, solar system, galaxy, universe • The approach encourages congruencies or alignments between different sub-systems (‘fit’) • This led to the development of contingency theory

26. Contingency theory • There is no best way of organizing. The appropriate form depends on the kind of task or environment – many species of organizations • Management’s job is achieving alignment or fit • Fit applies not only to the org-env but also between sub-systems in an organization

27. First distinction • Mechanistic vs organic (Burns and Stalker) • Changing technology or market conditions pose new problems and challenges that require open and flexible styles of organization and management • Lawrence and Lorsch showed that styles of organization might need to vary between organizational subunits • e.g. R&D departments need to be organized differently from production departments) • How is this different from an ideal bureaucracy?

28. Typologies • This research also led to the development of typologies of organizations: • Miles and Snow • Prospectors, analyzers, defenders • Mintzberg • Machine bureaucracy, divisionalized form, professional bureaucracy, simple structure, adhocracy • BCG • Cash cows, dogs, stars, question marks • Porter • Cost leadership, differentiation, focus

29. Other developments • Organization development • The belief that we can diagnose the environment and thus improve internal and external fit • Expert Systems • Burton and Obel even developed an expert system to choose the right structure for an organization • Conflicts are resolved using fuzzy logic • Why am I suspicious of both OD and ES?

30. Organizational Ecology • Researchers have tracked the births and deaths of companies over time • Liability of newness, smallness, oldness • Faced with new types of competition or environmental circumstances, whole industries or types of organizations may come and go • Legitimacy and inertia prevent one type of organization (or species) from changing into another • why are all banks, hospitals, hotels or universities so similar? Is this anti-contingency theory? • Debate: How ‘inert’ are companies in the face of competitive or environmental threats?

31. Thoughts • The organismic metaphor argues that organizations must be “in fit” with their environment or die • Contingency theory believes managers can adapt to remain ‘in fit’ over time • Org ecology believes that there are limits to how much influence managers have on an organization’s fitness • In either case, how much freedom do managers have?

32. Strengths of the Organismic Metaphor • Organizations must always pay close attention to their external environments • Survival and evolution become central concerns • Achieving congruence with the environment becomes a key managerial task

33. Limitations of the Organismic Metaphor • Organizations are not organisms • Environments are not concrete • Actual vs perceived vs enacted • Metaphor overstates degree of functional unity and cohesion in most organizations and top management’s ability to choose subsystem settings • Can lead to social Darwinism and other ideological traps • i.e. the best performing organizations are the fittest and thus the ‘best’ • No guarantee the best today will be the best tomorrow

34. Organizations as Brains

35. Organizations as brains • The brain has both specialized functions (speech) and distributed functions (memory) • Is it possible [and desirable] to design “learning organizations” that have the capacity to be as flexible, resilient, and inventive as the functioning of the brain? • Is it possible [and desirable] to distribute capacities for intelligence and control throughout an enterprise so that the system as a whole can self-organize and evolve along with emerging challenges (holographic organizations)?

36. Applications of this metaphor in strategy • Learning organizations • Knowledge management • E-Commerce, CRM, Data mining, SCM • Virtual Organizations • Self Directed Teams

37. Why is information so important? • Information is needed to coordinate the firm’s resources • faster innovation of new products, • reduced duplication of efforts, • savings in research and development costs, • learning from expensive mistakes • transmission of best practice • enhanced employee satisfaction.

38. Knowledge management • Where should this information come from? • From top management? • Centralization versus decentralization issue • From information systems? • Explicit versus tacit knowledge issue • From people? • Coordination versus cooperation issue • How should this knowledge be collected, stored, used? Who should have access? • How should people be motivated to share information?

39. Garvin • In most discussions of organizational learning, 3 critical issues are left out • a plausible definition of learning organizations • clear guidelines for practice • tools for assessing the rate and level of learning • Definition • an organization skilled at creating, acquiring and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights (Garvin, 1994)

40. Garvin: Distinctive Policies • systematic problem solving • experimentation with new approaches • learning from your own experiences and history • learning from the experiences and best practices of others • transferring knowledge quickly and efficiently throughout the organization

41. Garvin: Distinctive Practices • insisting on data rather than assumptions (PDCA) • an incentive system that favors risk-taking • demonstration projects that start with a clean slate • widely disseminated case studies and post-project reviews of successes and failures - concept of learning from mistakes • training in best practice • transferring and rotating staff - learning by doing

42. Why is effective learning so hard? Argyris and Schon start with 2 theories of action • Theory in use (Model I) • what we actually do in practice • Espoused Theory (Model II) • what we would like others to think we do • Learning occurs when we explore the fit between model 1 and model 2 and correct errors • But we hate doing this! Why?

43. Because… • Exposing inconsistency is threatening and psychologically painful • People want to avoid embarrassment and blame • They want to be seen as ‘winners’ not ‘losers’ • However, this also prevents them from discovering the causes of their errors • Redirecting blame causes defensiveness, misunderstanding, and mistrust in organizations • Executives are so skilled at this behavior that they see no other way of behaving - it is a tacit and automatic way of behaving

44. Organizational defensive routines • Design and manage situations unilaterally • Advocate our views without encouraging inquiry • Evaluate the thoughts and actions of others in ways that do not encourage testing the validity of the evaluation; • Attribute causes for whatever we are trying to understand--without necessarily validating those attributions;

45. More defensive routines • Unilaterally save face by withholding information or making certain things "undiscussable" in order to minimize upsetting others or making them defensive. • Engage in defensive actions such as blaming, stereotyping, intellectualizing • Keep premises and inferences tacit, lest we lose control. • Remain ‘logical’ by suppressing emotions and conflict

46. Loops • Single Loop Learning • learning within existing premises of the organization (e.g. how do I make a better widget) • Double Loop Learning • Double loop learning involves surfacing and challenging deeply rooted assumptions and norms of an organization that have previously been inaccessible, either because they were unknown, or known but undiscussable. (e.g. Should we be making widgets at all.) • Triple loop learning • Requires double loop learning in a sensitive way • TLL requires trust, listening skills, sharing of power, tolerance of diverse views, and ability to resist saving face

47. Thoughts • If people are programmed to act defensively and ‘save face’ then are they really in control of their behavior? • Can we really overcome defensive tendencies and engage in tolerance, listening, and power sharing? • How much of this is learned behavior?

48. Strengths of the brain metaphor • Clear guidelines for creating a learning organization • We learn how information technology can support organizations • We gain a new theory of management based on knowledge • Decentralized decision making is powerful

49. Limitations of the brain metaphor • There may be conflict between the requirements of learning and the realities of power and control • Information is not knowledge • Assumes defenses can be overcome (easily)

50. Organizations as Cultures