Organization Theory Summary - PDF

**[Organization Theory]** 1. ***Introduction to Organization*** Chapter 1 & 2 **Organization Theory** - **macro perspective**: analyzes the organization itself, or its primary subunits (e.g., departments) - mainly concerns with the **overall** organization's ability to achieve its g...

**[Organization Theory]** 1. ***Introduction to Organization*** Chapter 1 & 2 **Organization Theory** - **macro perspective**: analyzes the organization itself, or its primary subunits (e.g., departments) - mainly concerns with the **overall** organization's ability to achieve its goals and **apart to its environment** **vs. Organizational Behavior** - studies the behavior of individuals and teams in the workplace -\> focuses employee performance and attitude variables (e.g., employee productivity) - emphasizes on **individual level** (e.g., values, learning, motivation and the personality-task interface) and team level (roles, status, leadership, power, communication and conflict) - **possible overlap of micro- and macro-issues** **Organizations** = **social entities** that are **goal-directed**, are designed as **deliberately structure and coordinated activity systems**, and linked to the **external environment**. Types: - family-owned businesses - start-ups - non-profit organizations - government-owned organizations -... New/alternative forms of organizing: - **Online communities**: open collectives with members who are not necessarily known or identifiable and who share common interests - **Crowd-based organizations:** rely mainly on crowds for accessing and exploiting globally distributed extra-organizational resources (on a scale and a variety that would be impossible to enclose within traditional boundaries) - **Crowd-open organizations:** traditional organizations involving crowd in practice like innovation challenges (e.g., Reebok, Lego,...) **Why do organizations exist?** - Create **value for owners, customers and employees** - Bring together **resources** to achieve desired goals - Produce goods and **services** - Facilitate **innovations** - Use modern manufacturing and information **technologies** - Adapt to and influence a rapidly **changing environment** - **Accommodate challenges** of diversity, ethics and coordination **Challenges** Organizations face... - **Globalization** Increasing interconnectedness of markets, technologies and organizations -\> outsourcing, strategic partnering - **Intense competition** Pressure to drive down costs and provide low prices -\> global drive for innovations - **Ethnics & sustainability** Call for higher ethical standards -\> "sustainability" as a new business imperative - **Speed & responsiveness** Globalization and technological advance force organizations to respond quickly to environmental changes, organizational crisis or shifting customer expectation **Organization Design:** - Emphasizes the **management side** of organization theory -\> Concerned with constructing and changing an organization according to goals (strategies) - Organization structure is a part and one important result of the overarching organization design **Vs. Structure of the Organization:** - Refers to the ways in which an organization **divides its labor into distinct tasks** and then coordinates among them -\> depicted through its organizational chart and recognizes the key concepts of differentiation and integration - Important structural factors are formalization, specialization, centralization and hierarchy of authority **Dimensions of Organization Design** (are interacting with each other) 1. **Contextual Dimension** - **Size** (number of employees or total sales/assets) - **Organizational Theory** (tools, techniques to transform inputs into outputs) - **Environment** (elements outside the boundary of the organization e.g., costumers) - **Strategy & strategic goals** (purpose and competitive techniques define goals, strategy describes resources allocation and activities for goal achievement) - **Culture** (values and norms shared by employees) 2. **Structural Dimension** - **Formalization** (number of written documents) - **Specialization** (degree of subdividing tasks, division of labor) - **Hierarchy of authority** (span of control) - **Centralization** (refers to the hierarchical level that has authority to make decisions) - **Further dimensions** (often: professionalism) **When is an Organization Successful?** **Efficiency** refers to the [amount of resources] used to achieve the organization´s goals. (doing things right) **Effectiveness** refers to the [degree] to which an organization achieves its goals. (doing the right thing) **Stakeholder approach** -- balancing the needs of groups in and outside of the organization that has stake in the organization´s performance. A **stakeholder** is any group within or outside of the organization that has a stake in the organization´s performance. **Major stakeholder groups:** - Employees (satisfaction, pay, supervision) - Customers (high-quality goods, services, value) - Creditors (creditworthiness, fiscal responsibility) - Management (efficiency, effectiveness) - Government (obedience to laws, fair competition) - Union (employee pay, benefits) - Community (good corporate citizen, contribution to community affairs) - Suppliers (satisfactory transactions, revenue from purchases) - Owners and shareholders (financial return) **Two Organization Design Approaches:**  2. ***Strategy and Effectiveness*** Chapter 3 **The role of strategy and its effect on organizational design** - Highlighting how strategy and organization go together **Strategy =** plan for interacting with the competitive environment to achieve goals **Goals =** define where the organization wants to go and strategies define how it will get there Vision and mission neither strategy nor goals! **[Vision:]** **aspirational description** of what an organization foresees in the mid-term or long-term future (image of desirable future wo which it contributes -- as defined in the mission) **[Mission: ]** describes the organization´s **reason for being**, stated definition of the **business scope, communicates** to current and prospective employees, customers,... and **legitimizes** the business **[Value Statements/Culture:]** statements about values intended to set out the **guiding principles** **[Operating Goals (goals for action):]** help to **motivate** employees toward goal accomplishment, act as **guidelines** for behavior and decision making (attention what is important) and provide a **standard for assessment** of outcomes e.g., profits Example: Siemens Goal Types ----------------------------- -------------------------------------------------------- Resource goals For acquisition of material and financial resources Market goals Relate to market share of market standing Employee development goals Training, promotion, safety and growth of workers Productivity goals Amount of output achieved from available resources Innovation and change goals Internal flexibility and readiness to adapt to changes **A framework for Selecting Strategy and Design** **[Porter´s Competitive Strategies]** 1. **Differentiation Strategy:** distinguish products or services from others in the industry 2. **Low-Cost Leadership:** increase market share by keeping costs low compared to competitors Organizations may focus on **broad** (differentiations and low-cost leadership) or **narrow** (focus strategy: focus differentiation and focus low-cost leadership) **market segments** **[Miles and Snow´s Strategy Typology]**... is based on the idea that managers should seek to formulate strategy that matches the demands of the external environment   **Assessing Organizational Effectiveness** How do organizations assess the achievement of their goals? **Efficiency** = amount of resources used to produce a unit of output (do things right) **Effectiveness** = degree to which an organization realizes its goals (do the right things) Approaches to Measure Effectiveness Integrating Measures of Effectiveness -- Competing Values Model Contingency Factors Call for Fit: There is Single Best Way to Organize!  The keys are **alignment** and **consistency**! 3. ***Fundamentals of Organization Structure*** Chapter 4 How can structure help organizations achieve their goals? The pros and cons of some basic structural designs. How can structure enable information flow and coordination? Both vertical and horizontal flows. Which structural form is best suited for the organization's particular situation? **[The three elements of organization structure:]** **Formal Reporting Relationships** - Number of levels in the hierarchy - Span of control of managers and supervisors Structural framework / vertical hierarchy **Grouping of Individuals** - Creation of departments **Design of Systems and Processes** - Effective communication, coordination and integration of efforts across department pattern of interactions among employees **Organization chart** = visual representation of a whole set of underlying activities and processes in organizations  **Reorganization from Functional** **to Divisional** **[Information Sharing:]** - Vertical and horizontal information flow Traditional organization designed for efficiency Learning organization which emphasizes communication and collaboration --------------------------------------------------------------------------- --------------------------------------------------------------------------------------- Centralized authority focused on top level decision-making **Decentralized authority** focused on **shared tasks** and decisions Mechanistic design, more vertical information flow **Organic** design, more **horizontal** information flow Specialized tasks, formal reporting systems, few inter-departmental terms **Shared** tasks, few rules, face-to-face communication, many interdepartmental terms How can we make sure that the organization **consistently executes its strategy**? 1. **Vertical linkages** (coordinate between top and bottom) - **Hierarchical referral** are vertical lines which identify the chain of command - **Rules and plans** create vertical links - **vertical information systems** are Reports/computer systems/written information are to increase information capacity 2. **Horizontal linkages** (coordinate across organizational departments, traditionally not drawn on chart) - Information systems - Liaison roles - Task forces - Full-time integrator - Teams Horizontal Coordination is resource-intensive e.g., Relational Coordination Frequent, timely, problem-solving communication BUT: have to avoid communication overload Relationships of shared goals, shared knowledge and mutual respect Example for "Structural Innovator": **Apple** Apple under Steve Jobs as a collaborative company with "no committees" -\> start-up-like organized & high autonomy of teams **Functional, Divisional & Geographical Grouping** Basic questions of structural design: - **Required work activities** (What needs to get done?) -\> Departments perform important tasks - **Reporting relationships** (Who reports to who?) -\> chain of command, an unbroken line of authority (vertical lines on chart) - **Departmental grouping options** (Who works together?) -\> functional, divisional, horizontal or modular/virtual grouping Principle options of structural design **Functional Structure** - Activities **grouped by common function** - All specific skills and knowledge are consolidated - Promotes economies of scale \> **Slow response** to environmental changes - Prevalent approach but few companies can **respond in today´s environment without horizontal linkages** - Decisions pile up on top - Coordination across functions difficult - **Departments** line in **different thought worlds** **Divisional Structure** / product structure / strategic business units - Divisions **organized according to products, services, product groups** - Good for achieving coordination across functional departments - Suited for **fast change** - Diminishes economies of scale - Diminishes technical specialization - Makes integration and standardization across divisions difficult (little sharing and learning across units) Example: Siemens **Geographic Structure** - Organizing to meet needs of users/customers by geography - Many multinational corporations are **organized by country** - **Focuses** managers and employees **on specific geographic regions** - Strengths and weaknesses *similar to divisional organization*  **From Matrix to Hybrid Structures** **Matrix Structure** - Multi-focused with **strong horizontal linkage** Conditions for Matrix: - Share resources across the organization - Two or more critical outputs required: products and technical knowledge - Environment is complex and uncertain - Allows organization to **meet dual demands** Largest Weaknesses: employees have **two bosses** and (potentially) **conflicting demands** Requires high level interpersonal skills throughout the organization, high-quality information sharing, collegial attitude and trust & great effort to maintain the right **power balance**. **Horizontal Structure** - Organization **around core processes** (processes refers to tasks and activities) - **Eliminates vertical hierarchy** and **departmental boundaries** - Self-directed teams, not individuals, are dominant players - **Process owners** are **responsible for entire process** - People on the team are given authority for decisions - Can increase organization's **flexibility** - Culture is one of **openness, trust, and collaboration** BUT: All this requires **high quality leadership** and a continuous investment in developing the organization and the people! Example 2 for a "Structural Innovator": **W.L. Gore & Associates** W.L. Gore's Innovation was to organize work so that good things happen whether managers are „in control" or not - Employees have high autonomy - No management layers, few titles, and no organization chart - Small teams as core operating units **Viral Networks and Outsourcing** (most common strategy) - **Extend horizontal** coordination **beyond** the boundaries of **the organization** (contract out certain tasks/functions) - Virtual or modular structures subcontract most of its major functions to **separate companies** - the virtual network organization serves as a **central hub** with contracted experts BUT: - **dependence** on the partner to deliver - **Conflict** resolution through **legal processes** is largely unpredictable - Danger of losing critical capabilities in one's core business **Hybrid Structure** - Combination of various structure approaches, tailored to specific needs - Often used in rapidly changing environments - Greater flexibility BUT: greater complexity and hence more challenging in making this organization wok effectively and efficiently Examples: **Divisional + functional structure:** some functions are centralized at headquarters, while divisions exist with decentralized functions e.g., SONY Europe **Divisional + functional structure:** some businesses units are regionally organized to cater a local demand while other business units are organized as divisions that serve the Group or global customers e.g., Deutsche Telekom There is **no "one size fits all" (best) structure**!! -\> each structure meets different needs and is a tool that can help managers be more effective Symptoms of **Structural Deficiency**: - **Decision making** is delayed or lacking quality - Organization cannot meet **changing needs** - Employee **engagement and performance declines** - Too much **conflict** - **Alignment and consistency is key!** 4. ***External Environment*** **Organizaiton´s Envirnoment** = elements that **outside the boundary of the organization** **Potential to affect** all or part of the organization **Domain** = chosen environment field of action **Sectors / subdivisions** = contain similar elements **Task Environment** = includes sectors with which the **organization interacts directly** and that have **direct impact** on the organization's **ability to achieve its goals** (typically includes: industry, ram materials sector, market sector, human resources sector, international sector) **General Environment** = includes sectors that might not have a direct impact on daily operations of a firm but will (more or less) indirectly influence it (typically includes: government sector, economic conditions, technology sector, financial resources) **International Context** All organizations face **domestic and global uncertainty**. The increasing interconnections represent both **opportunities** **and threats** for organizations. Organizations are becoming **extremely complex** and **competitive.** **Organizational departments differentiate to meet needs of sub-environments** Differentiated **departments operate in their ´own worlds´** - yet their contributions to the organization´s overall objectives **require adequate integration** after all.  **Adapting to Uncertainty in the Environment** The environment is changing in two dimensions.... B**asic organizational design options** (in response to environmental demands): **Mechanistic Forms** 1. Tasks are broken down into specialized, separate parts 2. Tasks are rigidly defined 3. strict hierarchy of authority and control + many rules 4. knowledge and control of tasks are centralized at top pf organization 5. vertical communication **Organic Forms** 1. Employees contribute to common task of department 2. Tasks are adjusted and redefined through employee teamwork 3. Less hierarchy of authority and control + few rules 4. Knowledge and control of tasks are located anywhere on organization 5. Horizontal communication **How uncertain** is company´s environment and how do **organizations respond**? 6 **How do companies adapt to a changing environment?** Organizations need the **right fit** between **internal structure and the external environment** - Adding Positions and Departments - Buffering and Building Relationships (Boundary spanning roles) - Differentiation and Integration - Organic vs. Mechanistic Organizational Designs Examples of organizations that failed to adapt: BlackBerry, Polaroid, Nokia, Kodak,... Example: Backberry and its changing environment (Questions of slides) **Controlling Environmental Resources** What can organizations do to ´control´ their environment? **Establishing interorganizational linkages** 1. Ownership 2. Contracts, joint ventures 3. Co-operation, interlocking directorates 4. Executive recruitment 5. Adverse, public relations **Controlling Environmental Domain** 1. Change of domain 2. Political activity, regulation 3. Trade associations 4. Illegitimate activates Summary 5. ***Interorganizational Relationships*** **Framework for interorganizational Relationships** **Organizational ecosystem** = system formed by interactions of community of organizations and their environment **Interorganizational relationships =** resource transactions, flows and linkages that occur among two (or more) organizations As organizations are involves in complex networks (ecosystems) the number of corporate alliances are increasing. - In ecosystems, managers move beyond traditional responsibilities (**outside of hierarchical** command structures) - While organizational and operational boundaries are more fluid, managers must think (even more) about **horizontal processes** ad **shorter timelines** (because long term strategies and organizational arrangements become large obsolete in extremely dynamic environments  **Resource Dependence** Resource Dependence Theory states that companies rely on resources from their environment, which contains other organizations. - Resource dependency exists between them - Organizations are vulnerable if resources are controlled by other organizations - Strive to acquire control over resources to minimize dependence Responses: 1. locking in resources through long-term supplier relationships (common respond) 2. Having multiple sources for critical resources -\> supply chain management (managing sequence of suppliers and purchasers) - Lager (independent) companies can have power over small suppliers **Collaborative Network** Companies join together to become more competitive and to share scarce resources (emerging alternative to resource dependency). Alliances require managers who are good at building networks. Companies can share risk and cooperation, which is a prerequisite for greater innovation, problem solving and performance. Changing Characteristics of Intergenerational Relationships  **Population Ecology** Focuses on **organizational diversity and adaption** within a population of organizations (a set of organizations engage in similar activities). The theory notes that **large, establishes organizations** often become **dinosaurs: (e.g. Karstadt)** - Difficulty adapting - Changing environment determines survival or failure - Heavy investments can limit organizations adaption Model is developed from **theories of natural selection in biology** -\> terms evolution and selection are used to refer to underlying behavioral processes. Elements in Populations-Ecology Model of Organizations: What are the principle options in companies´ struggle for survival? - **Generalist strategies** = wide niche or domain, broad range of products to a broad market - **Specialist strategies** = narrow range of goods that serve a narrow market, typically more competitive than generalists, but also more vulnerable **Institutionalism** Perspective: manage **survival through congruence with environment**, balance expectations of environment **Environment** = norms and values of stakeholders, adopt structures and processes to please outsiders Legitimacy: organization´s **actions are desirable, proper and appropriate**, consumers may not purchase vehicles from car manufactures unless it adheres to environmental and ethical standards **Institutional Similarity** = institutional isomorphism = emergence of common structure and approach among organizations in same field, causing one unit in a population to resemble other units in same set of environmental conditions Three forces behind the change toward institutional similarity:  6. ***International Organization Design*** **Why Companies Enter the Global Arena** Primary motivators for expanding internationally: 1. **Economies of Scale** (large-volume production enables lowest possible cost per unit) 2. **Economies of Scope** (increase number and variety of products and services offers, build synergies with suppliers, market power through country-specific knowledge) 3. **Low cost production factors** (esp. lower-cost labor and capital, sources of cheap energy, reduced government regulations) Primary enablers for expanding internationally: 1. **Technology** (better process management to coordinate global processes) 2. **Regulatory framework** (lowering of trade barriers, e.g. international trade agreements) More and more companies are doing business globally: Brazil, India and **China** and other emerging economies re growing rapidly as: - Providers for both products and services to foreign countries - Major markets for products and services of foreign companies **Advancements in technology** have **changed the competitive landscape**, e.g.: - **Work flow software** -- better process management to coordinate global processes - **Supply chaining** -- better horizontal coordination across supply chain - **Wireless revolution** -- information exchange possible independent of location How do companies shift from domestic to global? LUDWIG, LMU MAXIMILIANS uNlVERSlTÅT L MU MUNICH SCHOOL OF INSTITUTE OF STRATEGIC MANAGEMENT MANAGEMENT How do companies shift from domestic to global? Strategic Orientation Stage of development Structure Market potential l: Domestic Domestically oriented Initial foreign involvement Domestic structure, plus export department Moderate, mostly domestic BuRAUN Il: International Export-oriented Multi-domestic Competitive positioning Domestic structure, plus international division Large, multi-domestic SONY Ill: Multinational Multinational Explosion Worldwide geographical, product Very large, multinational IV: Global Global Global Matrix, transnational Whole world @ univ.-Prot. Dr. Anja Tuschke, Institute Strategic Management (ISM) Global expansion through **international strategic alliances** **Licensing** - Allowing another firm to market your brands - Limitation of risk **Joint Ventures** (e.g. Starbucks: A Tata Alliance) - Separate entity of two or more active firms as sponsors - Sharing development and production costs in penetrating new markets, share complementary technological strengths or knowledge of local markets **Consortia** (e.g. Star Alliance (Lufthansa, United, etc.)) - Groups of independent companies (e.g. suppliers, customers) - Sharing skills, resources, costs and access to one another´s markets **Designing Structure to Fit Global Strategy** Which strategies are used for global versus local opportunities? Global standardization vs. local responsiveness **Globalization Strategy** - Product design, manufacturing and marketing strategy are standardized throughout the world - Advantage: unified global marketplace **Multi-domestic Strategy** - Product design, assembly and marketing tailored to specific needs of each country - Advantage: differentiation and customization **Fitting organization structure to international ´forces´**  Local responsiveness = Reaktionsfähigkeit -\> Grad in dem das Unternehemn Produkte an die Länder anpasst Global Integration = Grad genau dieselben Produkte in andere Länder einzusetzen **Global *Product* Division Structure** LUDWIG, LMU MAXIMILIANS uNlVERSlTÅT L MU MUNICH SCHOOL OF MANAGEMENT INSTITUTE OF STRATEGIC MANAGEMENT Global Product Division Structure Corporate Auto\" 06 ve Compon«lts Group ü UniCredit Engineering Global Group Chairman Global In ÄnuneIts Grow Finance & Ad Ministration H Midli\'\" Regional C«rdinators Truck Compo nerts Source: Based cm New Dire:tions in Mukimtional Cormrate (New York: Business Internatbnal Corp., 1981). @ univ.-Prot. Dr. Anja Tuschke, Institute Strategic Management (ISM) 17 **Global *Geographic* Division Structure**  **Matrix of country units + global product division -- aiming for the best of both worlds** LUDWIG, LMU MAXIMILIANS uNlVERSlTÅT L MU MUNICH SCHOOL OF MANAGEMENT INSTITUTE OF STRATEGIC MANAGEMENT Aiming for the best of both worlds: Matrix of country units + global product divisions EXHIBIT 7.6 Global Matrix Structure International Executive Committee orway Local Divisions Or Subsidiary Companies Country Managers Argentina/Brazil Business Areas r Tra @ univ.-Prot. Dr. Anja Tuschke, Institute Strategic Management (ISM) ermany **Coordination and Control** **Global design challenges:** 1. **Complexity and Differentiation** Countries differ in economic development, culture, political systems, government regulations... -\> need for specialized departments dealing with e.g. legal and accounting regulations in various countries 2. **Need for Integration** Achieve integration and coordination to reap benefits of scale and scope economies and production cost efficiencies -\> finding ways to share information, ideas, new products and technologies across the organization 3. **Transfer of Knowledge and Innovation** Learning from international experience by sharing knowledge and innovations across the enterprise -\> increasing "tickle-up" and "reverse" innovation approaches  Which **coordination mechanisms** do companies use **internationally**? 1. **Headquarters Planning** Active role in planning, scheduling and control of headquarters. 2. **Expanded Coordination Roles** Top functional managers are also responsible for coordination across countries, identifying and linking the organization´s expertise and resources worldwide. Country managers coordinate across functions, meeting problems, opportunities, need and trends in the local market. 3. **Transnational Teams** Cross-border work groups with multi-skilled and multinational members whose activities span multiple countries. -\> Intercultural or virtual global teams. **Examples of National Approaches to Coordination and Control** LUDWIG, LMU MAXIMILIANS uNlVERSlTÅT L MU MUNICH SCHOOL OF INSTITUTE OF STRATEGIC MANAGEMENT MANAGEMENT Examples of National Approaches to Coordination and Control Centralized coordination in Japanese companies Decentralized approach in European companies Coordination and control through formalization in US companies Distinct hierarchy of authority, strong centralization TOYOTA Strong structural linkages of top managers to involve managers at headquarters in all strategic decisions High level of independence and decision-making autonomy Each international unit focuses on its local markets Microsoft Formal systems, policies, standards of performance between divisions and headquarters (management control system) Decision-making based on objective data, policies, and procedures @ univ.-Prot. Dr. Anja Tuschke, Institute Strategic Management (ISM) 24 **Transnational model of organization** - Typical for global companies (ultimate stage) **Worldwide dispersion of assets and resources** - Highly specialized operations linked through interdependent relationships - Promotes collaborative information sharing **Ever-changing and flexible structure** - Flexible centralization - Multiple headquarters **Initiation of strategy and innovation by subsidiary managers** - Bottom-up usage of capabilities and knowledge to develop strategies - Better adaption to environmental demands **Organizational guidance through corporate culture, shared vision and management styles as opposed to (solely\ influences organizational structure, understanding technology helps design organizations for efficiency **Core Technology** = relates to transformation process to provide goods/service **Non-Core Technology** = not directly related to primary mission of organization Core Transformation process **Core Organization Manufacturing Technology** **Manufacturing Firms** -- technical complexity defines the extent to which the manufacturing process is mechanized. **Woodward´s classification** based on systems of production (**basic technology groups**):  **From flexible Manufacturing to Mass Customization** Lean manufacturing paved the way for may customization: - Using **mass-production technology** to **quickly and cost-effectively** assemble individual goods for customers - Growing number of companies offer **customized versions** of their existing products How the digital factory revolutionizes manufacturing: **Core Organization Service Technology** **Service technologies are different from manufacturing** technologies and require different organizational designs. Education, health care, transportations and banking have all unique dimensions. Services have **intangible (=immateriell) output**. There is often **direct interaction between customer and employee** as many services are produced, delivered and consumed at the same time. Human element is (even more) important. Every organization can be **classified along a continuum ranging** from **service to manufacturing** technology: **Trend toward lean services:** Customer expectations are rising and firms tend to provide customized outputs. The expectations have required that service firms must become lean: - **Cut waste** (e.g. overproduction, time, unutilized talent...) - Improve **customer service** They have to adopt **continuous improvement approaches**. The next industrial revolution will enable manufacturing firms to harness the power of data to offer additional services and as-a-service products: **(Digital) Industry 4.0** Structural and personnel characteristics: Service and manufacturing organizations significantly differ in terms of: - Their structure - Their personnel needs  **Non-Core Departmental Technology** Framework for departmental technologies How does technology matter to structural design?  How does technology matter to (horizontal) progress design?  **The socio-technical system** Transforming organizational inputs to outputs involves both individual, teams and larger groupings (´socio´) as well as materials, machines and processes (´technical´). **Joint optimization** = organizations function best when the social and technical systems are designed to fit the needs of one another 8. ***Organizational Culture and Ethical Values*** **Organizational Culture** **Culture** = Values, norms, guiding beliefs and understandings that are shared by members of an organization **Levels of Corporate Culture**  **Culture Strength** = determined by 2 factors: - Sharedness: degree of agreement among members of an organizations about specific values - Intensity: degree of commitment of the cultural values Subcultures = reflect common problems, goals and experiences of a team or department, include basic values of dominant organizational culture + additional values unique to members of subculture Different departments may have their own norms **Culture and Organization Design** What is the role of corporate culture in organizational design? Competing Values Model  4 prototypical culture types: **What is organizational culture good for**? - Provides sense of **organizational identity and purpose** **Collective identity** (Who we are as a firm) **Legitimization within society** (How we matter to others) - Provides **behavioral guidance** to members of organizations **(clan control)** So they know how to relate to one another So they know "how things are generally done around here" - **Attractive** to outsiders (customers, potential employees) and **energizing** to employees - **Sharing a clear identity & purpose** Example for successful corporate culture: Southwest airlines **Alignment & Consistency between Culture, Strategy and Organizational Design** **How do managers influence Organizational Culture?** Organizational culture can **only be influenced indirectly**. (Organizational culture = shared values in organization) Influencing org. culture requires **concerted and consistent managerial effort**, including: - Top managers formulating lead values and continuously communication them - Org. design elements such as control systems, structural dimensions (formalization, centralization...) - Top and middle managers as role models, living these values - Rewarding people that live these values e.g. award ceremonies - Recruiting and selecting people that fit the culture - Assimilating people into the culture e.g. 4 week socialization program **Ethical Values** **Characteristics of Values-Based Leaders**  **Formal Structure and Systems** (to complement values-based leadership) 1. **Structure** Ethics committee, chief ethics officer, ethics hotline 2. **Disclosure mechanisms** Whistle-blowing 3. **Code of ethics** Formal statement of company´s values concerning ethics and social responsibility 4. **Training programs** - These formal structures and systems alone are not sufficient to build and sustain an ethical company (ethics should be integrated into organizational culture 9. ***Organizational Innovations and Change*** **Strategic Role of Change** Forces (global changes, competition and markets) driving the need for organizational change. What is change? Organizational change = process in which an organization transfers from a current state to a preferred future state new strategy, re-organization, downsizing, cultural change, new technology  **Proactive vs reactive** organizational change **Innovation as Driver of Change** **What is innovation?** -\> common elements: - New ´means-end-combinations\` - New to orga, not necessarily new to the world (innovations not equal to invention) - Can be product, service, process or system - Varies in degree from incremental to radical and disruptive **Organization Structures for Innovation and Exploraion** Being good at innovating is not enough for organizations to succeed -\> need to both explore new ideas and exploit them The **organic approach** embraces flexible organizations with empowered employees -\> gives people the freedom to be creative and encourages to introduce new ideas **Mechanistic structure** stifle innovation and focus on rules and regulations -\> best structed for efficiently producing routine products **Solving dilemma of innovation and exploitation** Managers implement an ambidextrous approach to be both organic and mechanistic -\> division of labor in the ambidextrous organizations  Which techniques help to encourage an ambidextrous approach? 1. **Switching structure**: create an (temporary) organic structure for the initiation of new ideas 2. **Creative departments**: departments for innovation (e.g. R&D) and idea incubators 3. **Venture teams**: small company within the organization (separate location), skunkworks as one type of venture team 4. **Corporate entrepreneurship**: promote entrepreneurial spirit, innovation as everyday way of thinking **Horizontal coordination for innovation** **Achieving competitive advantage: need for speed and organizational change** Time-based competition means delivering products and services **faster than competitors** -\> **rapid development** of new products and services in becoming a strategic weapon in changing marketplace. Organizations **need to change** strategies, structures, processes and procedures **more often to adapt** to or even lead a change. (Think of population ecology and institutionalism!) Many organizations are **preparing for more change by**: - Cutting out layers, decentralizing decision making - Shift toward horizontal structures - Empowered teams and workers - Virtual network strategies - Digitalization - Agile work methods **Implementing Change** **Why do we resist to change?** 1. Human Nature 2. Economic factors 3. Social factors 4. Clash of values 5. Bad change management **Leadership for Change** Implementing complex changes requires strong and persistent leadership in terms of a compelling vision/strategy and in terms of organization design and championing change. Transformational leadership is particularly suited -- enhance organizational innovation both directly and indirectly. Three stages of the change commitment process: 1. Preparation 2. Acceptance 3. Commitment **Problems of Change and Implications for Change Management**