[ORGB3201] Exam 2: Org. Structure, Culture & Change

Why do firms exist?

• To minimize transaction costs (the expenses incurred when buying/selling)

  • Reduced through in-house activities and economies of scale

  • Allow for coordination

  • Maximize collective knowledge and skill development (prevent process loss)

• Firms tend to appear (minimize cost) when:

  • Activities are complex and thus transactional savings can be achieved

  • Risks can be minimized 

    • Sustaining activities and goals through norms and rules

  • Prices can be reduced (i.e. technology, labor, purchase volume)

Organizational structure

• How job tasks are formally divided, grouped, and coordinated

• Six dimensions:

  • Work specialization

  • Departmentalization

  • Chain of command

  • Span of control

  • Centralization/decentralization

  • Formalization

• Examples of structure: simple (low departmentalization), bureaucracy, matrix (functional + product departmentalization)

Work specialization

• The degree to which activities in the organization are divided into separate jobs

• Division of labor

• Can increase productivity, but there is an optimal work specialization level

  • If past that, it can decrease productivity (when the work is too specialized)

  • Can lead to boredom

Benefits of work specialization

• Efficiency

• Expertise development (grouping different type of work together)

• Reduced training time

Drawbacks of work specialization

• Monotony

• Reduced motivation (if you’re working on the same things together)

• Lower satisfaction

Departmentalization

• The basis by which jobs are grouped together so that common tasks can be coordinated

• Common basis: function, product, geography, process, customer

• Matrix structure combines multiple forms of departmentalization (i.e. function and product)

  • Maximizes output without having to worry about other functions

• Creates efficiency and increased accountability for performance

Chain of command

• Unbroken line of authority that extends from the top of the organization to the lowest echelon

• Clarifies who reports to whom

• Important if you want:

  • Authority (right to give orders)

  • Unity of command (one boss)

Span of control

• The number of employees a manager is expected to effectively and efficiently direct

• Ex: span of 4 → each level of employees increases by 4x

• Span of control is bigger when the number is larger (i.e. span of 8)

• Hierarchy (organization level) becomes taller if span is smaller (i.e. span of 4)

• Determines the number of levels and managers an organization has

  • Narrow (tall): more levels, closer supervision, higher costs

  • Wide (flat): fewer levels, less oversight, lower costs

Drawbacks to narrow span of control

• Expensive → adds levels to management

• Makes vertical communication in the organization more complex

  • Added levels of hierarchy slow down decision making and isolate upper management

• Overly tight supervision → discourages employee autonomy

Benefits of wider span of control

• Reduces costs → cuts overhead

• Speeds up decision making

• Increases flexibility

• Get closer to customers

• Empower employees

Centralization/Decentralization

• The degree to which decision making is concentrating at a single point in the organization

• Highly centralized when top managers make most decisions

• Highly decentralized when frontline employees make most decisions

Centralized organization (tall)

• Decision-making concentrated at the top

• Clear hierarchy, top-down authority

• Ex: US Federal Government, Military

• Use when: clear goals, efficiency priority, routine tasks, coordination essential

Decentralized organization (flat)

• Decision-making distributed throughout

• Empowered lower levels, distributed authority

• Ex: universities, startups, Valve Corporation

• Use when: unclear goals, dynamic environments, innovation needed, expertise distributed

Formalization

• The degree to which jobs within the organization are standardized

• Think of like an employee handbook

• Low formalization: freedom to act as necessary

  • Professional judgment emphasized 

  • Usually professional judgment emphasized since employees have to make recommendations

  • Ex: research positions, creative roles

High formalization

• High formalization: detailed rules and regulations (explicit job description)

• Minimal discretion over what/when/how

• Ex: fast food operations, call centers

• Usually detailed rules for safety reasons

Low formalization

• Low formalization: freedom to act as necessary

• Professional judgment emphasized 

• Usually professional judgment emphasized since employees have to make recommendations

• Ex: research positions, creative roles

Bureaucracy

• A hierarchical organization characterized by rules and regulations

• Theoretically good to have (meets people’s needs)

• Ex: large corporations, government agencies, or universities

Weber’s Argument: Rationality

• Human action is driven by different kinds of rationality

• Substantive: based on feelings/emotions (values-driven)

• Practical: efficient means to address needs

• Formal: traditional/conventional

• Theoretical: abstract concepts or beliefs guide actions (reaction to Marx on economic gain)

Result: Iron Cage

• As bureaucracies spread, individuals become trapped in systems built around efficiency, calculation, and control

• Trapped in this cage to meet their goals

Rationalization trends

Scientific Management → McDonaldization of Society → Emotional Labor

Taylor’s Scientific Management

• In response to Weber’s bureaucracy (not literally, but related)

• Replace informal, "rule of thumb" work methods with scientifically studied, standardized procedures to maximize efficiency

• Analysis and redesign of workflows for maximum efficiency

• Standardization of tasks and procedures

• Transfer of knowledge into documentation

• Separation of planning (management) and execution (workers)

• Impact:

  • Improved work productivity

  • Increased standardized, predictable output

  • Decreased monotony and repetitive work

  • Decreased skill variety, task autonomy, and worker feedback

McDonaldization of Society (Ritzer)

An organization characterized by McDonaldization emphasizes:

• Efficiency

  • Minimization of costs/energy to achieve outcomes

• Predictability

  • Products and experiences conform to expectations

• Calculability

  • Emphasis on quantifiable measures 

  • Quantity > quality (more focus on output rather than the work environment you create)

• Technology replacing humans

  • Substitution and deskilling of work

  • Think about AI now

• Control over certainty

  • Minimize risk and the unknown

Emotional Labor

• Tasks requiring workers to produce/manage emotional states in themselves or others

  • ~60% of US workforce in customer-facing roles

  • More prominent in service work (i.e. hotel management, retail work)

• Concern: emotional burnout from routinized emotional performances

  • Surface acting

  • Deep acting

• Ex: Disney, Southwest Airlines, retail workers

  • Usually deep acting at Disney

  • Southwest Airlines employees report higher job satisfaction because the company knows the importance of emotional labor

Surface acting

Where an individual’s underlying emotions or feelings run counter to how they’re behaving at work

Deep acting

Where an individual aligns required and true feelings (can also be detrimental to your wellbeing)

Organizational structure

• Formal architecture (visible, documented, explicit)

• Org charts, job descriptions, reporting relationships

Modern Take on Organizational Structure

• Virtual organization

• Boundaryless organization

• Matrix structure

Virtual organization

• A small, core organization that outsources its major business functions (sometimes called a network or modular organization)

  • Small group of executives

• Highly centralized with little to no departmentalization

• Minimizes bureaucratic overhead → no lasting organization to maintain

• Lessens long-term risks and their costs because there is no long term

Advantages of the virtual organization

• Flexibility → allows individuals with an innovative idea and little money to successfully compete against larger, more established organizations

• Saves a lot of money (eliminates permanent offices and hierarchical roles)

Drawbacks of the virtual organization

• Roles, goals, and responsibilities are unclear → sets the stage for political behavior

• Cultural alignment and shared goals can be lost → low degree of interaction among members

• Information and knowledge can be hard to share if members are geographically dispersed and communicate infrequently → limits innovation and slows response time

• Sometimes less adaptable and innovative than organizations with well-established communication and collaboration networks

Boundaryless organization

• An organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams

• Removes vertical boundaries → flattens the hierarchy and minimizes status and rank

  • Cross-hierarchical teams (includes top executives, middle managers, supervisors, and operative employees)

  • Participative decision-making practices

  • 360-degree performance appraisals (peers above and below the employee evaluate performance)

• Reduce horizontal boundaries (which stifle interaction among functions, product lines, and units) by replacing functional departments with cross-functional teams and organize activities around processes

  • Can also rotate people through different functional areas using lateral transfers → turns specialists into generalists (think of job rotation from the job redesign strategies)

• Breaks down cultural barriers → considers geography as a tactical, logistical issue than a structural one

  • Most large US companies see themselves as global corporations

  • Can be done through strategic alliances (joint partnerships with other companies to work on joint projects) and telecommuting

Matrix structure

• Combines 2 forms of departmentalization: functional and product

• Breaks the unity-of-command concept

  • Employees have 2 bosses: their functional department managers and their product managers

Strengths of the matrix structure

• Putting like specialists together while allowing the pooling and sharing of specialized resources across products

• Facilitates coordination when the organization has a number of complex and interdependent activities

• Allows information to quickly permeate the organization → more quickly reaches the people who need it

• Achieves economies of scale

Weaknesses of the matrix structure

• Difficulty coordinating the tasks of diverse functional specialists on time and within budget

• Can create confusion, power struggles, and stress on employees

• Ambiguity about who reports to whom

Organizational culture

• Informal meaning system (invisible, felt, implicit)

• Shared values, beliefs, assumptions, norms

• 7 characteristics of the essence of organizational culture:

  • Innovation and risk taking 

  • Attention to detail

  • Outcome orientation

  • People orientation

  • Team orientation

  • Aggressiveness (aggressive and competitive or more easygoing?)

  • Stability (maintain status quo or growth?)

How do organizational structure and organizational culture work together?

• Both together shape:

  • How work actually gets done

  • Who succeeds and why

  • What behaviors are valued and punished

  • How organization responds to challenges

Organizational Culture Components

• A system of shared meaning held by members that distinguishes one organization from another

• Components:

  • Key values (what’s important)

  • Beliefs (what’s true about the world)

  • Norms (expected behaviors)

  • Assumptions (taken-for-granted truths)

• Cultural strength: varies from strong (intensely held, widely shared), to weak (inconsistent, fragmented)

Core Function of Organizational Culture

• Social control in conditions of uncertainty

• When formal rules don’t exist or don’t apply, culture guides behavior

• Tells employees “how we do things here” without explicit instructions

• More powerful than rulebooks in many situations

Schein’s Model of Organizational Culture

• Artifacts

• Espoused values

• Basic underlying assumptions

Artifacts

• High visibility and awareness

• Visible organizational structures and process (hard to decipher)

• What you observe (see, feel, hear)

• Physical environment, dress codes, architecture

• Ex: language, stories, rituals, ceremonies

Espoused Values

• Lower visibility and awareness

• Strategies, goals, philosophies (espoused justifications)

• What you are told

• What organization SAYS it values (mission statement)

• Often aspirational → what organization wants to believe about itself

• Not visible

• Reinforces artifacts

• Ex: “We’re in business to save our home planet.”

Basic Underlying Assumptions

• Lowest visibility and awareness

• Unconscious

• Taken-for-granted beliefs

• What organization ACTUALLY values → revealed through consistent patterns

• Perceptions, thoughts, and feelings

• Hardest to change because it’s unconscious (often not communicated)

• Ultimate source of values and action

The Process of Creating and Sustaining Culture

• Philosophy of organization’s founders 

  • Initial vision and values set cultural DNA

  • Founders embed their beliefs into the organization

• Selection criteria

  • Hire for cultural fit, not just skills

  • Self-selection: candidates choose organizations matching their values

• Philosophy of founders flows to top management and socialization

  • Socialization: teaching culture to newcomers through formal and informal processes (i.e. stories, rituals, material symbols, language)

  • Transmit assumptions and norms to next generation (effective during employee training)

• All these things combined create the organizational culture

  • Leaders model desired behaviors

  • What gets rewarded and punished signals values

  • Culture becomes a self-reinforcing cycle

Strong culture

• Core values intensely held and widely shared

• Consistently embodied across organization

• Clear, unambiguous behavioral expectations

• High agreement on what’s important

• Effects (increases):

  • Greater influence on member behavior

  • Strong coordination without formal controls

  • Employee commitment and identity

• Ex: IDEO, Theranos

Weak culture

• Values vary significantly across subgroups

• Inconsistent interpretations of what matters

• Ambiguous or conflicting behavioral norms

• Low agreement on priorities

• Effects (decreases):

  • Less influence on member behavior

  • More reliance informal rules and controls

  • Weaker employee identification

Key Takeaways from IDEO vs. Theranos (Org. Culture)

• Strong culture doesn’t equal good culture

• Schein’s Model can show disconnect

• Say doesn’t equal do

• Structure reinforces culture

• Leadership creates culture

• Culture resists change

• Strong culture can be the organization’s greatest asset (IDEO) or most dangerous liability (Theranos)

Organizational change efforts

• Mergers and acquisitions

• Implementing new enterprise software

• Switching to “better” HR practices

• Layoffs

• New products

• New organizations

The Harsh Reality of Organizational Change

• 70% of organizational change efforts fail

  • Coordination challenges → don’t know how to implement changes

    • Limited vision/buy-in

    • Poor communication

    • Stakeholder misalignment

  • Overcoming obstacles (resistance to change)

    • Resistance ignored

    • Barriers not addressed

    • Problems buried

  • Incomplete implementation → slowly reverse to old ways

    • Incomplete change efforts

    • Not institutionalized

• The Change Paradox: despite high failure rates and enormous costs, reducing to change isn’t the answer either

• Organizations face a tough decision 

  • Change and risk failure OR don’t change

Factors that influence organizational change

• Markets evolve → customer expectations shift constantly

• Technology advances → AI, automation, digital transformation

• Competitors innovate → fall behind or become irrelevant

Individual sources of resistance to change

• Self-interest (may lose something of value like status)

• Habit and security

• Economic factors (i.e. concerns about pay cuts and job loss)

• Fear of unknown

• Misunderstanding

• Lack of trust

• Selective processing (hear only information confirming current beliefs and ignore disconfirming data)

Organizational sources of resistance to change

• Structural inertia (i.e. established systems and procedures)

• Embedded routines

• Limited focus (partial changes don’t address root causes)

• Threat to expertise

• Threat to power

• Threat to resources

• Group inertia (team norms and peer pressure reinforce status quo)

Managing Different Types of People During Change

• Early adopters (15%)

  • Mavens

  • Enthusiastically support from the beginning

  • Leverage these people as champions

• Observers (70%)

  • Buys the idea from the mavens

  • The majority (wait to see what happens and will follow once change is real)

  • Primary target

  • Leads into the Conservatists

• Resisters (15%)

  • The skeptics

  • Openly and publicly criticize

  • Refuse to adopt

  • Play politics → sabotage

  • Increased absenteeism

Lewin’s Model for Managing Change

• Change only occurs when driving forces > restraining forces

• Start change by:

  • Increasing driving forces (push strategy but might face backlash)

  • Decreasing restraining forces (remove obstacles before moving forward gradually)

• Examples of driving forces: competition, technology change, leadership pressures

• Examples of restraining forces: fear of unknown, habit and scrutiny, power threats

Lewin’s Three-Step Model

• Unfreezing: prepare and motivate people to change

  • Communicate why status quo isn’t working and change is necessary

  • Get employees participating

  • Address doubts and concerns

• Movement: implement change

  • Employees begin to adapt

  • Requires communication and time

• Refreezing: change becomes permanent

  • Change is reflected in external communication and internalized by employees

  • Hard work involved in change is celebrated

Kotter’s Eight-Step Plan for Implementing Change

Unfreezing:

1. Establish a sense of urgency

2. Form a powerful coalition

3. Create a new vision

4. Communicate the vision

Movement:

5. Remove barriers to change

6. Reward short-term wins

7. Reassess changes and make adjustments

Refreezing:

8. Reinforce changes by demonstrating success