Chapter 3: Organizational Context: Design and Culture PDF

CHAPTER 3 Organizational Context:...

CHAPTER 3 Organizational Context: Design and Culture LEARNING OBJECTIVES S All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. Explain the organizational theory foundation for design and culture. F Present contemporary horizontal, hollow, modular, network, and virtual designs of organizations. O Define organizational culture and its characteristics. Relate how an organizational culture is created. O Describe how an organizational culture is maintained. Explain some ways of changing organizational culture. 4 P R 1 This chapter moves from the external environments to the organizational context for orga- 0 nizational behavior. Specifically, this chapter is concerned with organization design and culture. Organization structure represents the skeletal framework for organizational behav- P 2 ior. As the discussion of the conceptual framework in Chapter 1 points out, the organization design and culture are dominant environmental factors that interact with the personal cog- IA © nitions and the behavior. The first part of the chapter presents the organization from the viewpoint of theory and design. As Chapter 2 points out, globalization has had a dramatic impact on organization structures. Theories, designs, and networks have emerged to meet the contemporary situation. For example, well-known companies, such as General Electric, have eliminated vertical structures and adopted horizontal designs. The new environment has forever changed organization design and interorganizational relationships. The modern approach to organization theory and design consists of very flexible networks and recog- nizes the interaction of technology and people. For example, one organization theorist has noted: “Organization structure is more than boxes on a chart; it is a pattern of interactions and coordination that links the technology, tasks, and human components of the organiza- tion to ensure that the organization accomplishes its purposes.”1 There is also a renewed recognition for the role that structure (or lack of structure) plays in innovation, change, and learning in today’s and future organizations. The remainder of the chapter is concerned with the cultural context that the organization provides for organizational behavior. After first defining what is meant by organizational cul- ture, the discussion turns to the different types, how they are changing, and how they can be Copyright 2015. Information Age Publishing. changed to meet the challenges of the new external environment and organization designs. THE ORGANIZATIONAL THEORY FOUNDATION Some organization theorists argue that the classical hierarchical, bureaucratic theory of organizations was mistranslated and really was not meant to be an ideal type of structure. EBSCO Publishing : eBook Collection (EBSCOhost) - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT AN: 999823 ; Fred Luthans.; Organizational Behavior: An Evidence-Based Approach, 13th Ed. Account: s3563253.main.ehost  CHAPTER 3 ORGANIZATIONAL CONTEXT: DESIGN AND CULTURE 45 Instead, the hierarchical bureaucracy from the beginning emphasized the need to adapt to environmental change. However, until modern times organizations were largely self-con- tained and a vertical chain of command with high degrees of control (i.e., a bureaucratic structure) sufficed. After a brief overview of the historical roots, the more recent theories that expand upon and are more sophisticated than the classic bureaucratic theory are sum- marized. These serve as a point of departure and foundation for the contemporary organi- zation designs. Historical Roots The real break with classical thinking on organizational structure is generally recog- nized to be the work of Chester Barnard. In his significant book The Functions of the Exec- S utive, he defined a formal organization as a system of consciously coordinated activities of two or more persons.2 It is interesting to note that in this often-cited definition, the words F system and persons are given major emphasis. People, not boxes on an organization chart, make up a formal organization. Barnard was critical of the existing classical organization O theory because it was too descriptive and superficial. He was especially dissatisfied with the classical bureaucratic view that authority should come from the top down. Barnard, O using a more analytical approach, took an opposite viewpoint. He maintained that authority 4 really should come from the bottom up, rather than the top-down bureaucratic approach. R Besides authority, Barnard stressed the cooperative aspects of organizations. This con- P 1 cern reflects the importance that he attached to the human element in organization structure 0 and analysis. It was Barnard’s contention that the existence of a cooperative system is con- tingent on the human participants’ ability to communicate and their willingness to serve P 2 and strive toward a common purpose. Under such a premise, the human being plays the IA © most important role in the creation and perpetuation of formal organizations. Modern Theoretical Foundation From this auspicious historical beginning from Barnard, modern organization theory has evolved in several directions. The first major development in organization theory was to view the organization as a system made up of interacting parts. The open-systems con- cept especially, which stresses the input of the external environment, has had a tremendous impact on modern organization theory. This development was followed by an analysis of organizations in terms of their ability to process information in order to reduce the uncer- tainty in managerial decision making. The next development in organization theory is the contingency approach. The premise of the contingency approach is that there is no single best way to organize. The organizational design must be fitted to the existing environmen- tal conditions. One of the modern theoretical approaches is a natural selection—or ecological—view of organizations. This organizational ecology theory challenges the contingency approach. Whereas the contingency approach suggests that organizations change through internal transformation and adaptation, the ecological approach says that it is more a process of the “survival of the fittest”; there is a process of organizational selection and replacement. Finally are information processing and organizational learning. These more recent approaches to organization theory are based largely on systems theory and emphasize the importance of generative over adaptive learning in fast-changing external environments such as is covered in Chapter 2 on globalization. All these organization theories serve as a EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  46 PART 1 ENVIRONMENTAL AND ORGANIZATIONAL CONTEXT foundation for the remaining discussion of the organizational context for organizational behavior. The learning organization represents contemporary organization theory and is compatible with and is relevant to the new paradigm environment facing today’s organiza- tions. What Is Meant by a Learning Organization? The organization portrayed as a learning system is certainly not new.3 In fact, at the turn of the last century Frederick W. Taylor’s learnings on scientific management were said to be transferable to workers to make the organization more efficient. However, the beginning of today’s use of the term learning organization is usually attributed to the sem- inal work of Chris Argyris and his colleagues, who made the distinction between first- order, or “single-loop,” and second-order, or dentero or “double-loop,” learning.4 The dif- S ferences between these two types of learning applied to organizations can be summarized F as follows: O 1. Single-loop learning involves improving the organization’s capacity to achieve known objectives. It is associated with routine and behavioral learning. Under single- O loop, the organization is learning without significant change in its basic assumptions. 4 2. Double-loop learning reevaluates the nature of the organization’s objectives and the R values and beliefs surrounding them. This type of learning involves changing the P 1 organization’s culture. Importantly, double-loop consists of the organization’s learn- 0 ing how to learn.5 P 2 The other theorist most closely associated with learning organizations, Peter Senge IA © and his colleagues, then proceeded to portray this type of organization from a systems the- ory perspective and made the important distinction between adaptive and generative learn- ing.6 The simpler adaptive learning is only the first stage of the learning organization, adapting to environmental changes. In recent years, many banks, insurance firms, and old- line manufacturing companies made many adaptive changes such as implementing total quality management (or TQM), benchmarking (comparing with best practices), Lean Six Sigma (a goal of virtually no defects in any process) programs, and customer service, and B2B (business to business) initiatives. However, despite the popularity and general success of these efforts to adapt to changing customer expectations for quality and service, organi- zations have still struggled with their basic assumptions, cultural values, and structure. They have not gone beyond mere adaptive learning.7 The more important generative learn- ing was needed. Generative learning involves creativity and innovation, going beyond just adapting to change to being ahead of and anticipating change.8 The generative process leads to a total reframing of an organization’s experiences and learning from that process. For example, the largest car dealer, AutoNation, totally reframed and showed generative learning from the nightmare customers typically experience in trying to buy a used auto. This firm antic- ipated customer needs by proactively addressing key issues such as a no-haggling sales process, providing a warranty on used cars, and being able to buy from any one of hundreds of car lots. With the theoretical foundation largely provided by Argyris (double-loop learning) and Senge (generative learning), we conducted a comprehensive review to identify the major characteristics of learning organizations.9 Figure 3.1 shows the three major dimen- sions or characteristics of learning organizations that emerged out of the considerable liter- EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  CHAPTER 3 ORGANIZATIONAL CONTEXT: DESIGN AND CULTURE 47 FIGURE 3.1. Characteristics of Learning Organizations Presence of Tension Gap between vision and reality Questioning/inquiry Challenging status quo Critical reflection LEARNING ORGANIZATION S Culture Facilitating F Systems Thinking Learning Shared vision Suggestions Holistic thinking O Teamwork Openness Empowerment Empathy R O 4 P 0 1 ature. The presence of tension—Senge calls it “creative tension”—serves as a catalyst or P 2 motivational need to learn. As shown in Figure 3.1, this tension stems from the gap between the organization’s vision (which is hopefully always being adjusted upward) and IA © reality and suggests the learning organization’s continually questioning and challenging the status quo. The systems characteristic of learning organizations recognizes the shared vision of employees throughout the whole organization and the openness to new ideas and the external environment (e.g., open source innovation through the Internet). The third major characteristic shown in Figure 3.1 is an organizational culture conducive to learning. The culture of the organization places a high value on the process of learning and goes beyond mere lip service by setting mechanisms in place for suggestions, teams, empower- ment, and, most subtly but importantly, empathy. This empathy is reflected by the genuine concern for and interest in employee suggestions and innovations that can be operational- ized through reward systems. Organizational Behavior in the Learning Organization Taken to a more individual employee, organizational behavior level, the adaptive learning organization would be associated with employees’ reacting to environmental changes with routine, standard responses that often result in only short-run solutions. In contrast, generative learning, with its emphasis on continuous experimentation and feed- back, would directly affect the way personnel go about defining and solving problems. Employees in generative learning organizations are taught how to examine the effect of their decisions and to change their behaviors as needed. A good example occurred at Chil- dren’s Hospital and Clinic of Minnesota. They learned to institute a new policy of “blame- less reporting” that replaced threatening terms such as “errors” and “investigations” with less emotional terms such as “accidents” and “analysis.” As described by Garvin, Edmond- EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  48 PART 1 ENVIRONMENTAL AND ORGANIZATIONAL CONTEXT son, and Gino, “The result was that people started to collaborate throughout the organiza- tion to talk about and change behaviors, policies, and systems that put patients at risk. Over time, these learning activities yielded measurable reductions in preventable deaths and ill- nesses at the institution.”10 Learning organizations are also characterized by human-oriented cultural values such as these: (1) everyone can be a source of useful ideas, so personnel should be given access to any information that can be of value to them; (2) the people closest to the problem usu- ally have the best ideas regarding how to solve it, so empowerment should be promoted throughout the structure; (3) learning flows up and down, so managers as well as employ- ees can benefit from it; (4) new ideas are important and should be encouraged and rewarded; and (5) mistakes should be viewed as learning opportunities.11 The last point of learning from failures is an especially important cultural value for people in the learning organization. Learning Organizations in Action FS O There are a number of ways that the learning organization can be operationalized into the actual practice of management. For example, managers must be receptive to new ideas O and overcome the desire to closely control operations. Many organizations tend to do 4 things the way they have done them in the past. Learning organizations break this mold and R teach their people to look at things differently. For example, the move toward a learning P 1 organization entails breaking out of the highly controlled, layered hierarchy that is charac- 0 teristic of bureaucratic structures. Real-world managers must recognize the problems with bureaucracies and how to think outside the box and bust out of them.12 In other words, the P 2 beginning point in establishing a learning organization is to recognize that bureaucracies IA © have too often become an end to themselves instead of supporting the vision and goals that require adapting to the changing environment and learning how to do that. Besides breaking out of bureaucracies, another way to operationalize the learning pro- cess in organizations is to develop systemic thinking among managers. This involves the ability to see connections among issues, events, and data as a whole rather than a series of unconnected parts. Learning organizations teach their people to identify the source of con- flict they may have with other personnel, units, and departments and to negotiate and make astute trade-offs both skillfully and quickly. Managers must also learn, especially, how to encourage their people to redirect their energies toward the substance of disagreements rather than toward personality clashes or political infighting. For example, in most success- ful firms today, interfunctional teams, increasingly at a distance (virtually), work on proj- ects, thus removing the artificial barriers between functional areas and between line and staff. For example, at Mars Drinks, the top management team is structured globally, with both regional general managers and functional heads. Even the president is not only on this team, but also multiple other teams depending on, in his words, “what the issue of the day is and whether I have particular expertise in those areas.”13 A research study confirms the important impact that team learning can have on organizational learning.14 Another practice of learning organizations is to develop creativity among personnel. Creativity is the ability to formulate unique approaches to problem solving and decision making. In generative learning organizations, creativity is most widely acknowledged as a requisite skill and ability. Two critical dimensions of creativity, which promote and help unleash creativity, are personal flexibility and a willingness to take risks. As a result, many learning organizations now teach their people how to review their current work habits and change behaviors that limit their thinking. Whereas typical organizations focus on new EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  CHAPTER 3 ORGANIZATIONAL CONTEXT: DESIGN AND CULTURE 49 TABLE 3.1. Senge’s Summary of Traditional Versus Learning Organizations Function Traditional Organizations Determination of Vision is provided by top management. There is a shared vision that can emerge form many overall direction places, but top management is responsible for ensuring that this vision exists and is nurtured. Formulation and Top management decides what is to be done, and the rest Formulation and implementation of ideas take place at all implementation of of the organization acts on these ideas. levels of the organization. ideas Nature of Each person is responsible for his or her own job Personnel understand their own jobs as well as the way in organizational responsibilities, and the focus is on developing individual which their own work interrelates with and influences that thinking competence. of other personnel. Conflict resolution Conflicts are resolved through the use of power and Conflicts are resolved through the use of collaborative hierarchical influence. learning and the integration of diverse viewpoints of S personnel throughout the organization F Leadership and The role of the leader is to establish the organization’s The role of the leader is to build a shared vision, empower motivation vision, provide rewards and punishments as appropriate, the personnel, inspire commitment, and encourage and maintain overall control of employee activities. effective decision making throughout the enterprise O through the use of empowerment and charismatic leadership. O Source: Adapted from Peter M. Senge, “Transforming the Practice of Management,” Human Resource Development Quarterly, Spring 1993, p. 9. P R 14 0 ways to use old thinking, learning organizations focus on getting employees to break their P 2 operating habits and think “outside the box.” Creativity also includes the willingness to accept failure. A well-known story at IBM tells of the worried manager going to a meeting IA © with his boss after his project had failed. Getting right to the point, the trembling manager blurted out, “I suppose you’re going to have to fire me.” But his boss quickly replied, “Why would I do that, we’ve just invested $6 million in your education.” In other words, learning organizations such as IBM treat failure as a learning opportunity, and also the way it is treated creates a climate for future creativity. Managers encourage risk-taking, creative behavior by providing a supportive environment. A cultural value or slogan such as “ready, fire, aim” depicts such an environment. Well-known learning organization theorist and consultant Peter Senge summarizes the differences between learning organizations and traditional organizations in Table 3.1. These differences help illustrate why learning organizations are gaining in importance and why an increasing number of enterprises are now working to develop a generative learning environment. They realize the benefits that can result. There is also empirical research evi- dence suggesting a positive association between the learning organization concept and firms’ financial performance.15 The classical organization theories are still depended upon in today’s organizations, but organizational learning goes a necessary step further to the understanding of effective organizations in the new paradigm environment. MODERN ORGANIZATION DESIGNS Along with organization theorists, many practicing managers are becoming disenchanted with traditional ways of designing their organizations. Up until a couple of decades ago, most managers attempted only timid modifications of classical bureaucratic structures16 EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  50 PART 1 ENVIRONMENTAL AND ORGANIZATIONAL CONTEXT and balked at daring experimentation and innovation. However, with changing environ- mental demands, managers overcame this resistance to making drastic organizational changes. They realized that the simple solutions offered by the classical theories were no longer adequate in the new paradigm environment.17 In particular, the needs for flexibility, adaptability to change, creativity, innovation, knowledge, as well as the ability to over- come environmental uncertainty, are among the biggest challenges facing a growing num- ber of organizations. The response was first to move away from the self-contained, control- oriented, vertical hierarchical bureaucratic structures to horizontal designs (and thinking). Horizontal Organizations Horizontal designs are at the other end of the continuum from the traditional vertical, hierarchical structures. In a comprehensive analysis of the evolution of organizational S design, Anand and Daft noted that “the horizontal organization advocates the dispensing of F internal boundaries that are an impediment to effective business performance. If the tradi- tional structure can be likened to a pyramid, the metaphor that best applies to the horizontal O organization is a pizza—flat, but packed with all the necessary ingredients.”18 The modern environment covered in the last chapter has stimulated the change to horizontal designs O that better facilitate cooperation, teamwork, and a customer rather than a functional orien- tation. Frank Ostroff, a McKinsey & Company consultant, along with colleague Douglas R 4 Smith, is given credit for developing some of the following guiding principles that define 1 horizontal organization design.19 1. P 0 Organization revolves around the process, not the task. Instead of creating a structure P 2 around the traditional functions, the organization is built around its three to five core IA © processes. Each process has an “owner” and specific performance goals. 2. The hierarchy is flattened. To reduce levels of supervision, fragmented tasks are com- bined, work that fails to add value is eliminated, and activities within each process are cut to the minimum. 3. Teams are used to manage everything. Self-managed teams are the building blocks of the organization. The teams have a common purpose and are held accountable for measuring performance goals. 4. Customers drive performance. Customer satisfaction, not profits or stock apprecia- tion, is the primary driver and measure of performance. 5. Team performance is rewarded. The reward systems are geared toward team results, not just individual performance. Employees are rewarded for multiple skill develop- ment rather than just specialized expertise. 6. Supplier and customer contact is maximized. Employees are brought into direct, regu- lar contact with suppliers and customers. Where relevant, supplier and customer rep- resentatives may be brought in as full working members of in-house teams. 7. All employees need to be fully informed and trained. Employees should be provided all data, not just sanitized information on a “need to know” basis. However, they also need to be trained how to analyze and use the data to make effective decisions. Today, this horizontal structure is used by a number of organizations. For example, most large firms today (e.g., Ford, Oracle, Facebook, Apple, Google) use it for new prod- uct development. Another example would be AT&T units doing budgets based not on functions but on processes, such as the maintenance of a worldwide telecommunications network. Importantly, AT&T is also rewarding its people based on customer evaluations of EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  CHAPTER 3 ORGANIZATIONAL CONTEXT: DESIGN AND CULTURE 51 the teams performing these processes. General Electric has also scrapped the vertical struc- ture that was in place in its lighting business and replaced the design with a horizontal structure characterized by over 100 different processes and programs. In particular, to cut out bureaucracy and solve organizational problems that cut across functions and levels, GE implemented its famous “Work Out” (as in get the work out and work out any problems to get it done) described as follows: Large groups of employees and managers—from different organizational levels and functions—come together to address issues that they identify or that senior manage- ment has raised as concerns. In small teams, people challenge prevailing assumptions about “the way we have always done things” and come up with recommendations for dramatic improvements in organizational processes.20 The Government Electronics group at Motorola has redesigned its supply-chain man- S agement organization so that it is now a process structure geared toward serving external F customers. These horizontal designs are more relevant to today’s environmental needs for flexibility, speed, and cooperation. However, there may also be potential problems such as O feelings of neglect and “turf battles” for those individuals and departments not included in the horizontal process flow and the advantages of technical expertise gained under the O functional specializations may be diluted or sacrificed. A book on The Horizontal Organi- zation suggests guiding principles such as the following to make horizontal designs as R 4 effective as possible. P 0 1 1. Make teams, not individuals, the cornerstone of the organizational design and perfor- mance. P 2 2. Decrease hierarchy by eliminating non-value-added work and by giving team mem- IA © bers the authority to make decisions directly related to their activities within the pro- cess flow. 3. Emphasize multiple competencies and train people to handle issues and work in cross-functional areas. 4. Measure for end-of-process performance objectives, as well as customer satisfaction, employee satisfaction, and financial contribution. 5. Build a corporate culture of openness, cooperation, and collaboration, a culture that focuses on continuous performance improvement and values employee empower- ment, responsibility, and well-being.21 Contemporary Designs: Hollow and Modular Around the turn of the new century, especially with the advent of advanced informa- tion technology (i.e., the Internet and mobile/cell phones) and globalization (especially the emerging economies of China and India with their low-cost, skilled workforce), new orga- nization designs emerged. Whereas the horizontal designs broke down the former bureau- cratic hierarchical and functional specialization boundaries within an organization, the twenty-first century designs have extended and broken the boundaries of the organization itself. Specifically, in order to compete in the global economy, far-thinking management recognized and then embraced the fact that they needed to outsource selected tasks, func- tions, and processes. For example, much of manufacturing on all levels and industries was outsourced to China and other developing countries, while information processing and cus- tomer service was outsourced to India and a few other countries. This movement of entire EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  52 PART 1 ENVIRONMENTAL AND ORGANIZATIONAL CONTEXT processes outside the organization left what has been termed the “Hollow Organization” design22 and when just parts of the product or service are outsourced, it’s called the “Mod- ular Organization” design.23 Initially, organizations involved in labor intensive manufacturing of toys, apparel, shoes (e.g., Nike and Reebok) moved to hollow designs that outsourced the entire process of making of their products and left them to focus on product design and marketing. Then manufacturing of all kinds has moved outside the United States and also financial, account- ing, and even medical service processes have left hollow organizations. Anand and Daft summarized the advantages of this design in terms of cost savings, tapping into best sources of specialization and technology, supplier competition and technology, and flexi- bility, but also the disadvantages of loss of in-house skills and innovation, reduced control over supply and quality, and even the threat of being entirely supplanted by suppliers.24 With an economic downturn such as the United States has experienced in recent times and S rising wages abroad, there is a movement toward what is called “on-shoring,” bringing out- sourced jobs back to the United States. For example, DESA Heating Products had out- F sourced hundreds of jobs to China but is now bringing those jobs back to its Kentucky factory based on quality and transportation costs and service.25 O As indicated, the modular designs are also based on outsourcing, but instead of the O entire process being taken offshore, as in hollow designs (e.g., manufacturing, logistics, or customer service), the modular design consists of “decomposable product chunks provided R 4 by internal and external subcontractors.”26 For example, Bombardier’s business jet design consists of a dozen chunks provided by both internal (cockpit, center, and fuselage) and P 1 external subcontractors from around the world (e.g., Australia, Taiwan, Japan, Austria, and 0 Canada) as well as the United States (e.g., General Electric for the engine and the avionics P 2 from Rockwell Collins). Industries that commonly use modular designs include auto, bicy- cle, consumer electronics, appliances, power tools, and computing products and software. IA © Anand and Daft summarize the advantages of modular designs in terms of cost, speed of response to market changes, and innovation through recombination of modules in differ- ent ways.27 This flexibility advantage, however, is counterbalanced by problems with interfacing the modules and laggards in the supply chain affecting the whole system. An example of these advantages and disadvantages would be the auto firms Nissan and DaimlerChrysler. Nissan’s modular design is known for being very efficient because parts such as the frame, dashboard, and seats are made by subcontractors and then shipped to the Nissan plant for assembly. DaimlerChrysler, also using a modular design in producing its two-seater Smart Car, had trouble because the various subcontracted parts failed to prop- erly snap into place. The resulting extensive debugging was very costly to DaimlerChrysler and embarrassingly delayed the launch of its hyped-up innovative car. Network Designs The commonality found in the horizontal, hollow, and modular organization designs is that they all provide an alternative to the traditional bureaucratic model in terms of both perspective and actual structure. All three of these contemporary designs are sometimes subsumed under the single term “Network Designs” because of the boundaryless condi- tions created by advanced information technology and globalization. As Rosalie Tung observed: The advent of the Internet (one of the world’s biggest networks), quantum advances in other means and modes of telecommunications, and continued globalization of the EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  CHAPTER 3 ORGANIZATIONAL CONTEXT: DESIGN AND CULTURE 53 world economy have changed all that—it is now possible to form networks that link phenomenal numbers of people, organizations, and systems in disparate corners of the world at an alarming rate and speed. For example, some popular Web sites receive as many as 5 million hits a day, thus making instantaneous access to information and exchange of ideas among peoples from different geographic locations possible. In a similar vein, people from far corners of the world now regularly work together in virtual teams on various types of projects.28 Network organizations have been discussed in the academic literature for a number of years. For example, organization theorists Miles and Snow identified what they call the dynamic network.29 This involves a unique combination of strategy, structure, and man- agement processes. They more recently have described the network organization as fol- lows: “Delayered, highly flexible, and controlled by market mechanisms rather than administrative procedures, firms with this new structure arrayed themselves on an industry S value chain according to their core competencies, obtaining complementary resources F through strategic alliances and outsourcing.”30 There is also research showing the impact that structure and information technology can have on network behavior and outcomes.31 O With the advent of teams, outsourcing and, especially, alliances (two or more firms building a close collaborative relationship), network designs are being increasingly used by O practicing organizations. Tapscott and Caston note that such networked organizations are “based on cooperative, multidisciplinary teams and businesses networked together across R 4 the enterprise. Rather than a rigid structure, it is a modular organizational architecture in 1 which business teams operate as a network of what we call client and server functions.”32 P Although the network design cannot readily be drawn, as can the classical hierarchical and 0 horizontal structures, Figure 3.2 is an attempt to at least show the concept. P 2 Miles and colleagues identified three types of radical redesign of organizations:33 IA © 1. Greenfield redesign. As the term implies, this means starting from just a piece of green field or from a clean slate, breaking completely from the classical structure and establishing a totally different design. Examples include such highly successful firms as Google and Southwest Airlines. For example, when Southwest Airlines started under the unique leadership of Herb Kelleher, the firm made a complete break from the traditional airline industry. The now retired Kelleher was described as having enormous intellectual capabilities, a love for people, a playful spirit, and a command- ing personality; he once arm-wrestled an opponent in an advertising slogan dispute rather than going to court.34 Southwest created an organization that “flies in the face of bureaucracy: it stays lean, thinks small, keeps it simple—and more.”35 The succes- sor to Kelleher, Jim Parker, noted the cross-functional nature of jobs at Southwest is more perceptual than real: “People should not be doing other people’s job but they need to understand all of those other jobs; they need to understand how their job fits into the overall performance of the vision and how the other jobs do as well.”36 2. Rediscovery redesign. This is a more usual type of redesign, whereby established companies such as General Electric return to a previously successful design by elimi- nating unproductive structural additions and modifications. For example, several U.S. electronics firms such as Texas Instruments have reverted to some highly formalized, bureaucratic procedures in their product development process.37 3. Network design. Firms such as Harley-Davidson are not just redesigning in the “Greenfield” sense or rediscovering and extending their past. Instead, they are under- going efforts to disaggregate and partner. In the network approach, the firm concen- trates on where it can add the greatest value in the supply chain, and it outsources to EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  54 PART 1 ENVIRONMENTAL AND ORGANIZATIONAL CONTEXT FIGURE 3.2. Miles and Snow Summary of Hierarchical Versus Network Organizations FS Rather than the old inflexible hierarchical pyramid, network organizations demand a flexible, spherical structure that can rotate competent, self-managing teams and other resources around O a common knowledge base. Such teams, capable of quick action on the firm’s behalf both externally and internally, provide a distinct competitive advantage. O Source: Raymond E. Miles and Charles C. Snow, “The New Network Firm: A Spherical Structure Built on a Human R 4 Investment Philosophy,” Organizational Dynamics, Spring 1995, p. 6. Used with permission of the publisher © 1995, American Management Association, New York. All rights reserved. P 0 1 upstream and/or downstream partners who can do a better job. This network of the P 2 firm and its upstream and downstream partners can be optimally effective and flexi- IA © ble. Another network approach is to require internal units of the firm to interact at market prices—buy and sell to each other at prices equal to those that can be obtained by outsourcing partners. This “insourcing” approach to the internal network organiza- tion can be found in global firms such as the well-known Swiss conglomerate Asea Brown Boveri (ABB). In addition, globalization challenges these multinational cor- porations to make sure they account for cultural differences. The Virtual Organization Besides the more specific horizontal, hollow, and modular contemporary designs, another more all-encompassing design besides the network organization is the so-called virtual organization. This term virtual organization has emerged not so much because it describes something distinct from network organizations but because the term itself rep- resents the new environment and the partnering, alliances, and outsourcing arrangements found in an increasing number of global companies. Anand and Daft note that “collabora- tion or joint ventures with competitors usually takes the form of a virtual organization—a company outside a company created to specifically respond to an exceptional market opportunity that is often temporary.”38 Interestingly, the word virtual as used here comes not from the popular virtual reality but from virtual memory, which has been used to describe a way of making a computer’s memory capacity appear to be greater than it really is but does require a strong information technology platform. Different from traditional mergers and acquisitions, the partners in the virtual organi- zation share costs, skills, and access to international markets. Each partner contributes to EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  CHAPTER 3 ORGANIZATIONAL CONTEXT: DESIGN AND CULTURE 55 the virtual organization what it is best at—its core capabilities. Briefly summarized, here are some of the key attributes of the virtual organization: 1. Technology. Informational networks will help far-flung companies and entrepreneurs link up and work together from start to finish. The partnerships will be based on elec- tronic contracts to keep the lawyers away and speed the linkups. 2. Opportunism. Partnerships will be less permanent, less formal, and more opportunis- tic. Companies will band together to meet all specific market opportunities and, more often than not, fall apart once the need evaporates. 3. No borders. This new organizational model redefines the traditional boundaries of the company. More cooperation among competitors, suppliers, and customers makes it harder to determine where one company ends and another begins. 4. Trust. These relationships make companies far more reliant on each other and require S far more trust than ever before. They share a sense of “codestiny,” meaning that the F fate of each partner is dependent on the other. 5. Excellence. Because each partner brings its “core competence” to the effort, it may be O possible to create a “best-of-everything” organization. Every function and process could be world class—something that no single company could achieve.39 O Importantly, virtual organizations can help competitiveness in the global economy. R 4 The alliances and partnerships with other organizations can extend worldwide, the spatial 1 and temporal interdependence easily transcend boundaries, and the flexibility allows easy P reassignment and reallocation to take quick advantage of shifting opportunities in global 0 markets.40 To avoid disintegration and attain effective needed focus, the lead virtual orga- P 2 nization must have a shared vision, a strong brand, and, most important, a high-trust cul- ture.41 For instance, competitors P&G and Clorox collaborated in forming a new IA © generation of plastic wrap called GLAD Press’n Seal in order to effectively compete with market leader Saran. Other examples of firms that have formed virtual collaborations include Harley- Davidson and ABB—and also, on a smaller scale, firms such as Clark Equipment, a man- ufacturer of forklifts and other industrial equipment; Semco, a Brazilian firm producing pumps, valves, and other industrial products; Sweden’s Skandia Insurance Group (with 91,000 partners worldwide); and the Australian firm Technical and Computer Graphics (TCG). In the information technology industry, Sun Microsystems views itself as an intel- lectual holding company that designs computers and does all other functions (product ordering, manufacturing, distribution, marketing, and customer service) through contrac- tual arrangements with partners located throughout the world, and Intel uses virtual teams with members from Ireland, Israel, England, France, and Asia working on a wide variety of projects. As with the network organization, it is not really possible to show a virtual organization, but Figure 3.3 depicts graphically how TCG would look as a virtual organi- zation. Because networks and virtual organizations both represent such radically different ways to structure firms, there are many challenges ahead, especially on the human side of these contemporary structural forms. THE ORGANIZATIONAL CULTURE CONTEXT Going from Chapter 2’s discussion of the globalization context to more of a micro cultural impact on organizational behavior is organizational culture. The remainder of the chapter EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  56 PART 1 ENVIRONMENTAL AND ORGANIZATIONAL CONTEXT FIGURE 3.3. Miles and Snow’s Example of a Virtual Organization: Technical and Computer Graphics (TCG), an Australian-Based Multinational Firm    A typical TCG firm of 5– 10 professionals  A TCG Project Leader   Principal  Customer S  (e.g., An Telecom F Internal An Australia) Alliance External O Alliance  O Joint Venture 4 Partner R (e.g., Toshiba) P 0 1 P 2 Source: Raymond E. Milesand Charles C. Snow, “The New Network Firm: A Spherical Structure Built on a Human Investment Philosophy,” Organizational Dynamics, Spring 1995, p. 8. Used with permission of the publisher IA © ©1995, American Management Association, New York. All rights reserved. defines organizational culture and examines the types and ways to change and manage organizational culture. Definition and Characteristics When people join an organization, they bring with them the values and beliefs they have been taught. Quite often, however, these values and beliefs are insufficient for helping the individual succeed in the organization. The person needs to learn how the particular enterprise does things. A good example is the U.S. Marine Corps. During boot camp, drill instructors teach recruits the “Marine way.” The training attempts to psychologically strip down the new recruits and then restructure their way of thinking and their values. They are taught to think and act like Marines. Anyone who has been in the Marines or knows some- one who has will verify that the Corps generally accomplishes its objective. In a less-dra- matic way, today’s organizations do the same thing. For example, UPS is known for having a military like corporate culture. However, as an outside observer who embedded himself (i.e., riding “shotgun” next to drivers and aiding with deliveries during the Christmas rush) noted: “Although the job is highly regimented, it includes enough independence for work- ers to be energized by the daily challenge of getting all the packages out and importantly, when there were problems, drivers, not technology, were the best at solving them.”42 The same is true in more complex organizations where a key challenge is to instill and sustain EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  CHAPTER 3 ORGANIZATIONAL CONTEXT: DESIGN AND CULTURE 57 a corporate wide culture that encourages knowledge sharing. As the partner in charge of Ernst & Young’s knowledge-based business solution practice notes, “If you’re going to have a rich knowledge-sharing culture, that can’t just be a veneer on top of the business operation. You have to have people who can make sense out of it and apply it.”43 Edgar Schein, who is probably most closely associated with the study of organiza- tional culture, defines it as a pattern of basic assumptions—invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration—that has worked well enough to be considered valuable and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.44 More recently, Joanne Martin emphasizes the differing perspectives of cultures in organi- zations. She notes: FS As individuals come into contact with organizations, they come into contact with dress norms, stories people tell about what goes on, the organization’s formal rules and pro- O cedures, its formal codes of behavior, rituals, tasks, pay systems, jargon, and jokes only understood by insiders, and so on. These elements are some of the manifestations of organizational culture.45 R O 4 However, she adds that there is another perspective of culture as well: P 1 When cultural members interpret the meanings of these manifestations, their percep- 0 tions, memories, beliefs, experiences, and values will vary, so interpretations will differ—even of the same phenomenon. The patterns or configurations of these interpre- P 2 tations, and the ways they are enacted, constitute culture.46 IA © In other words, organizational culture is quite complex. Although there are a number of problems and disagreements associated with the conceptualization of organizational cul- ture, most definitions, including the preceding, recognize the importance of shared norms and values that guide organizational participants’ behavior. In fact, there is research evi- dence that not only are these cultural values taught to newcomers, but newcomers seek out and want to learn about their organization’s culture.47 Organizational culture has a number of important characteristics. Some of the most readily agreed upon are the following: 1. Observed behavioral regularities. When organizational participants interact with one another, they use common language, terminology, and rituals related to deference and demeanor. 2. Norms. Standards of behavior exist, including guidelines on how much work to do, which in many organizations come down to “Do not do too much; do not do too lit- tle.” 3. Dominant values. There are major values that the organization advocates and expects the participants to share. Typical examples are high product quality, low absenteeism, and high efficiency. 4. Philosophy. There are policies that set forth the organization’s beliefs about how employees and/or customers are to be treated. 5. Rules. There are strict guidelines related to getting along in the organization. New- comers must learn those “ropes” in order to be accepted as full-fledged members of the group. EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  58 PART 1 ENVIRONMENTAL AND ORGANIZATIONAL CONTEXT 6. Organizational climate. This is an overall “feeling” that is conveyed by the physical layout, the way participants interact, and the way members of the organization con- duct themselves with customers or other outsiders. Each of these characteristics has controversies surrounding it and varying degrees of research support. For example, there is controversy in the academic literature over the sim- ilarities and differences between organizational culture and organizational climate.48 How- ever, there is empirical support for some of the characteristics, such as the important role that physical layout plays in organizational culture. Here is a real-world illustration: Nike Inc. serves as an excellent example of a company that successfully revealed its corporate culture through corporate design. Set on 74 sprawling acres amid the pine groves of Beaverton, Oregon, the Nike World campus exudes the energy, youth and S vitality that have become synonymous with Nike’s products. The campus is almost a monument to Nike’s corporate values: the production of quality goods and, of course, F fitness. Included in the seven-building campus is an athletic club with a track, weight rooms, aerobic studios, tennis, racquetball and squash courts, and a basketball court.49 O The six characteristics of culture are not intended to be all-inclusive. For example, a O study examined why companies were rated as most and least admired. Statistical analysis was conducted that compared the findings from a subjective opinion survey of reputation R 4 with what one might expect perceptions to be if they are based solely on financial perfor- P 1 mance. The financial measures that correlated most closely with the opinion of a firm’s 0 “reputation” over a decade ago were, in order, 10-year annual return to shareholders, prof- its as a percent of assets, total profits, and stock market value.50 As the head of Coca-Cola, P 2 one of the most admired companies for many years, declared at that time: “I get paid to IA © make the owners of Coca-Cola Co. increasingly wealthy with each passing day. Everything else is just fluff.”51 Obviously, bottom-line financial performance remains important, but a more recent analysis of Fortune’s admired companies found the most highly correlated attribute of those that scored in the top three of their industry was the “attraction and retention of top talent,” and a major way these top firms do this is to take their culture and values seriously.52 For example, currently admired firms such as the soft- ware firm SAS, Southwest Airlines, and Google attract and retain their best people because they give a lot of attention and care to their legendary cultures and values. As an analysis of how Toyota’s culture led it to become the top automaker concluded, the curiosity and spirit of Toyota people, as much as anything, has determined its success.53 In his final days, the former CEO of KPMG recognized the importance of a compassionate culture and urged his staff to “get the most out of each moment and day—for the firm’s benefit and the individual’s.”54 These cultures and values also drive business results and make them suc- cessful.55 Uniformity of Culture A common misconception is that an organization has a uniform culture. However, at least as anthropology uses the concept, it is probably more accurate to treat organizations “as if” they had a uniform culture. “All organizations ‘have’ culture in the sense that they are embedded in specific societal cultures and are part of them.”56 According to this view, an organizational culture is a common perception held by the organization’s members. Everyone in the organization would have to share this perception. However, all may not do EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  CHAPTER 3 ORGANIZATIONAL CONTEXT: DESIGN AND CULTURE 59 so to the same degree. As a result, there can be a dominant culture as well as subcultures throughout a typical organization. A dominant culture is a set of core values shared by a majority of the organization’s members. For example, most employees at Southwest Airlines seem to subscribe to such values as hard work, company loyalty, and the need for customer service. Southwest employees take to heart cultural values such as: irreverence is okay; it’s okay to be your- self; have fun at work; take the competition seriously, but not yourself; and do whatever it takes for the customer.57 Table 3.2 summarizes the FUNdamentals that are the core of the Southwest cultural values that are taught to the 25,000 associates who go through its cor- porate University for People every year. Those who work for Disney are: in the show, not on the job; wearing costumes, not uniforms; on stage or backstage, not at positions or work-stations; cast members, not employees. When Disney cast members are presented with the riddle: “Ford makes cars, Sony makes TVs, Microsoft makes software, what does S Disney make?”—all respond, “Disney makes people happy!”58 These values create a dom- inant culture in these organizations that helps guide the day-to-day behavior of employees. F There is also evidence that these dominant cultures can have a positive impact on desirable outcomes such as successfully conducting mergers and acquisitions (e.g., when Dow Agro- O Sciences purchased Cargil Hybris Seeds),59 supporting product-innovation processes,60 and helping firms cope with rapid economic and technological change.61 O Important, but often overlooked, are the subcultures in an organization. A subculture R 4 is a set of values shared by a minority, usually a small minority, of the organization’s mem- bers. Subcultures typically are a result of problems or experiences that are shared by mem- P 1 bers of a department or unit. For example, even though GE has one of the most dominant 0 overall corporate cultures of being boundaryless between the highly diversified divisions P 2 (e.g., ranging from power generation to media, plastics, financial services, aircraft engines, IA © TABLE 3.2. Southwest Airlines’ Core Cultural Values Hire for attitudes, Train for skill. The company deliberately looks for applicants with a positive attitude who will promote fun in the workplace and have the desire to “color outside the lines.” Do it Better, Faster, Cheaper. Cost control is a personal responsibility for employees at Southwest and is incorporated into all train- ing programs. Deliver positively outrageous The Southwest philosophy? Put your employees first and they will take care of the customers. customer service (POS) to both internal and external customers! Walk a mile in someone else’s For example, a pilot works with ramp agents for a full day; a reservationist works in the University for shoes. People; a customer service agent helps the skycaps. And President Herb Kelleher frequently passes out peanuts and serves drinks on flights. He even helps the baggage handlers load and unload on holidays. Take accountability and A great value is placed on taking initiative, thinking for yourself, even if that means going against ownership. something in the policy manual. For instance, employees have been known to take stranded passen- gers back to their own homes in emergencies. Celebrate and let your hair down. Chili cook-offs, lavish Halloween productions, and Christmas parties in July are all tools for motivat- ing people. When people have fun on the job, their productivity and performance improve. Celebrate your mistakes as well Turning failures into personal growth is part of celebrating mistakes, a philosophy that encourages as your triumphs. trying new ideas without the fear of repercussions. Keep the corporate culture alive Members of the culture committee visit regularly at stations all across the country, infusing the cor- and well. porate culture, reiterating the company’s history, and motivating employees to maintain the spirit that made the airline great. Source: Adapted from Anne Bruce, “Southwest: Back to the FUNdamentals,” HR Focus, March 1997, p. 11. EBSCOhost - printed on 3/20/2023 2:03 AM via LOUISIANA STATE UNIVERSITY AT SHREVEPORT. All use subject to https://www.ebsco.com/terms-of-use  60 PART 1 ENVIRONMENTAL AND ORGANIZATIONAL CONTEXT locomotives, medical equipment, and lighting and appliances), each also has a distinctive subculture. GE Capital has a distinctive culture compared to the high-tech manufacturing cultures of aircraft engines and gas turbines.62 Subcultures can weaken and undermine an organization if they are in conflict with the dominant culture and/or the overall objectives. Successful firms, however, find that this is not always the case.63 Most subcultures are formed to help the members of a particular group deal