Reflecting on the evolution of organizational design, which theorist/theory has had the most significant impact on contemporary organizational design? Why?
There is extensive research on the evolution of organizational design. Dugan (2014) suggested the following steps to creating a strong structure would include:
Establishing rules on how informal or formal groups operate
Evolve the organizational structure over time.
What has your experience been? Is this all there is to it or is the more?
Dugan, T. (2014). How to Develop an Organization Structure. Houston Chronicle. Retrieved from http://smallbusiness.chron.com/develop-organization-structure-4902.html
Of the four effectiveness approaches discussed in the textbook, what is the best approach to evaluate an organization’s effectiveness? Why?
Debate whether an organizations strategic intent reflects managers’ systematic analysis of organizational and environmental factors or vice versa.
The Influence of Structure on Organizational Effectiveness
An organization is effective to the extent that it is able to achieve its goals and efficiencies to the extent that is able to achieve its desired production levels with limited resources. One of the most important decisions that leaders of an organization make is how to best balance the vertical and horizontal structure needed to achieve organizational goals. Vertical structures align with goals related to stability and efficiency. Horizontal structures align with goals related to innovation and flexibility. Large, stable organizations, such as IBM, have formal, hierarchical structures with formal policies, procedures, and controls; whereas small, young organizations, such as Quirky, which brings innovative products to market, have flatter, more informal, flexible structures. An alignment between the structure of the organization and its strategic purpose and goals, is important to position the organization for effectiveness and success.
An example of how strategic purpose influences an organization’s structure would be Wal-Mart. With the strategy of maintaining its low-cost market share position in a stable industry, Wal-Mart focuses on efficiency and benefits from a mechanistic structure characterized by centralized decision making, policies and procedures, and tight controls. Apple represents a more organic structure with a strategy of bringing new, differentiated products to market and focuses on creativity and innovation, collaboration, and open communication. An organic structure is characterized by shared decision-making, collaboration, and flexibility. Walmart would not function well with an organic structure and Apple would not function well with a mechanistic structure. Alignment between an organization’s strategic purpose and structure is essential to the organization’s effectiveness and success.
Beginning in the 1980s, with new competition, increased customer and employee demands, and emphasis on the quality movements, even large, mechanistic organizations sought increased flexibility. Louis Gerstner, Jr., Chairman and CEO of IBM from 1993-2002 wrote of teaching the “elephant to dance,” which became a focus of many CEOs. In “The Future of Management,” Hamel and Breen (2007) stated that the organizations of the past might no longer be effective with the ever-increasing rate of environmental change. With an increased focus on social responsibility and sustainability, organizations such as Whole Foods are innovating beyond traditional structures.
Whole Food’s cofounder and co-CE0, John Mackey, opened the first Whole Foods Market in 1980 in Austin, Texas, aspiring to offer a natural full service alternative to traditional groceries. Mackey believed that customers would pay a premium for healthy food that tastes good and is good for the environment. Whole Foods has adopted a team approach in which individual work groups are responsible and accountable for store departments, such as seafood, produce, and check-out. As one of its values, Whole Foods’ website espouses, “Our success in fulfilling our vision is measured by customer satisfaction, Team Member excellence and happiness, return on capital investment, improvement in the state of the environment and local and larger community support.” Whole Foods has adopted a Declaration of Interdependence among its stakeholders to measure its success.
Organizations are responsible to meet the needs of stakeholders, inside and outside of the organization, who are invested in some way in the success of the organization. These include employees, customers, owners, suppliers, creditors, the community, and governmental agencies. Organizations also need to embrace environmental stewardship and care for the communities in which they do business.
In addition to aligning an organization’s structure with its strategic purpose, leaders need to consider the environment and other contingency factors that affect the organization’s success. These include the size and life cycle of the organization, technology, human resources, diversity, organizational culture, and economic factors.
Organizations operate within environments that vary in complexity and in levels of certainty or uncertainty. A beer distributor, for example, operates in a predominantly simple and stable environment. Demand for beer changes slowly and the distributor has a customer base that changes slowly. A simple and stable environment aligns successfully with a simple organizational structure. A complex unstable environment creates uncertainty for an organization and requires a more complex structure to respond to its environment. In a stable environment, organizations can perform well using a traditional vertical, more mechanistic structure whereas organizations operating in a dynamic, changing environment require more organic, flexible structures to allow them to respond to changes in the environment.
As an organization increases in size, it also increases in complexity. Large organizations tend to use more formal, traditional structures, and small organizations tend to use more informal, horizontal, and organic structures. Structures of organizations change over time. Organizations progress through life cycles, which include birth, growth, decline, and death. Organizations go through these cycles at differing paces and some organizations do not go through all of these stages. The life-cycle of an organization will affect the structure that it needs to adopt to be effective. The original Whole Foods Market, for example, opened with four co-founders and a staff of 19 people in 1980. In 2012 the organization has over 200 Whole Foods Markets. To support this growth the company has expanded its leadership team and added US National Offices and regional offices. As organizations grow, they increase their division of labor and degree of specialization. An organization in decline will need to simplify its structure to accommodate fewer customers and less revenue, and at death, the organization will dissolve.
Technology is a contingency factor that has changed and continues to change the way in which organizations are structured and how they operate. Technology has internal benefits to organizations by enhancing communication, customer service, and control. Technology enables organizations to function with virtual workgroups across the globe, benefitting from the best talent, regardless of location. Many entrepreneurs have used technology to form small virtual organizations that can compete with larger organizations across the globe.
Organizations require human resources to achieve their goals. Many organizations recognize human resources as their most important asset. The most successful organizations hire the best possible talent. Organizations need to position their physical locations in areas with talent that is aligned with their organizational strategy or find ways to reach this talent virtually. The need for the alignment between organizations and the human resources they need to succeed explains the number of nanotechnology, biotech, mobile web organizations, and other technical organizations clustered together in Silicon Valley and other rising technology centers.
The US population and organizations are becoming more diverse. CNN’s Fareed Zakaria has said that the US is building an International Nation within itself. Diversity affects an organization’s culture and effectiveness. Diversity provides many benefits. As an example, the quality of an organization’s decision-making is related to diversity and diverse human resources will have an enhanced understanding of the organization’s diverse customers. Although diversity has benefits, it also has challenges. Organizations need to understand how to maintain a strong corporate culture with a diverse population, how to balance work and family concerns, and resolve conflicts related to cultural, and lifestyle diversity.
Organizational culture is shaped by people, ethics, and organizational structure. A vertical, bureaucratic structure supports a culture of maintaining the status quo and conformity to organizational policies. A horizontal structure supports a culture of learning, collaboration, and innovation. Culture, as shared values, determines the motivation within the organization and the way that people interact and communicate with each other.
Economic factors influence the structure of organizations. As an example, during the 2008 recession, many organizations downsized, became leaner, and adopted structures that are more horizontal.
Gerstner, L. V.(2002). Who says elephants can’t dance? Leading a great enterprise through dramatic change. New York, NY: HarperCollins.
Hamel G. & Breen, B. (2007). The future of management. Boston, MA: Harvard Business School.
John, S., & Gupta, S. (2012). Organizational Theory and Design, Kindle Book.
Jones, G. R. (2013). Organizational Theory, Design and Change (7th ed.). Upper Saddle River, NJ: Prentice Hall.