Organizational Theory, Design, and Change

Organizational Theory, Design, and Change SEVENTH EDITION

Gareth R. Jones Texas A&M University

PEARSON Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

Contents Preface xvii

Part 1

The Organization and Its Environment

1

Chapter 1 Organizations and Organizational Effectiveness What Is an Organization?

1

1

How Does an Organization Create Value? 3 Why Do Organizations Exist?

5

To Increase Specialization and the Division of Labor 5 To Use Large-Scale Technology 6 To Manage the Organizational Environment 6 To Economize on Transaction Costs 6 To Exert Power and Control

7

Organizational Theory, Design, and Change

8

Organizational Structure 8 Organizational Culture 9 Organizational Design and Change 9 The Importance of Organizational Design and Change 11 Dealing with Contingencies 11 Gaining Competitive Advantage 12 Managing Diversity 14 The Consequences of Poor Organizational Design

14

How Do Managers Measure Organizational Effectiveness?

16

The External Resource Approach: Control 17 The Internal Systems Approach: Innovation 17 The Technical Approach: Efficiency 18 Measuring Effectiveness: Organizational Goals

19

The Plan of This Book 20 Organizational Design 22 Organizational Change 22 Summary

23

•

Discussion Questions

23

Organizational Theory in Action: Practicing Organizational Theory Open Systems Dynamics 24 The Ethical Dimension #1 24 Making the Connection #7 24 Analyzing the Organization: Design Module H Assignment 25

Chapter 2

Stakeholders, Managers, and Ethics Organizational Stakeholders Inside Stakeholders 28 Outside Stakeholders 30

24

24

28

28

Organizational Effectiveness: Satisfying Stakeholders' Goals and Interests

34

Competing Goals 35 Allocating Rewards 36

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viii

CONTENTS Top Managers and Organizational Authority The Chief Executive Officer 39 The Top-Management Team 40

37

Other Managers 41 An Agency Theory Perspective The Moral Hazard Problem 41

41

Solving the Agency Problem 42 Top Managers and Organizational Ethics

43

Ethics and the Law 44 Ethics and Organizational Stakeholders 45 Sources of Organizational Ethics 47 Why Do Ethical Rules Develop? 49 Why Does Unethical Behavior Occur? 51 Creating an Ethical Organization 52 Designing an Ethical Structure and Control System 53 Creating an Ethical Culture 53 Supporting the Interests of Stakeholder Groups 53 Summary 54 • Discussion Questions 55 • Organizational Theory in Action: Practicing Organizational Theory 55 Creating a Code of Ethics 55 The Ethical Dimension #2 55 Making the Connection #2 55 Analyzing the Organization: Design Module #2 55 Assignment 55

Chapter 3

Organizing in a Changing Global Environment What Is the Organizational Environment? The Specific Environment 61 The General Environment 63

59

59

Sources of Uncertainty in the Organizational Environment 65 Resource Dependence Theory

69

Interorganizational Strategies for Managing Resource Dependencies Strategies for Managing Symbiotic Resource Interdependencies Developing a Good Reputation Cooptation 72 Strategic Alliances 72 Jointventure 75 Merger and Takeover

71

76

Strategies for Managing Competitive Resource Interdependencies Collusion and Cartels 77 Third-Party Linkage Mechanisms Strategic Alliances 78 Merger and Takeover

70

71

78

78

Transaction Cost Theory

79

Sources of Transaction Costs 80 Transaction Costs and Linkage Mechanisms Bureaucratic Costs 82

81

Using Transaction Cost Theory to Choose an Interorganizational Strategy 82 Summary 86 • Discussion Questions 87 • Organizational Theory in Action: Practicing Organizational Theory 87 Protecting Your Domain 87 The Ethical Dimension #3 87 Making the Connection #3 88 Analyzing the Organization: Design Module #3 88 Assignment 88

76

CONTENTS

Part 2

Organizational Design

Chapter 4

92

Basic Challenges of Organizational Design

92

Differentiation 92 Organizational Roles 94 Subunits: Functions and Divisions 95 Differentiation at the BAR. and Grille 96 Vertical and Horizontal Differentiation 97 Organizational Design Challenges 97 Balancing Differentiation and Integration Integration and Integrating Mechanisms 99 Differentiation versus Integration

99

102

Balancing Centralization and Decentralization Centralization versus Decentralization of Authority

103 103

Balancing Standardization and Mutual Adjustment Formalization: Written Rules 106 Socialization: Understood Norms 107 Standardization versus Mutual Adjustment

106

108

Mechanistic and Organic Organizational Structures

109

Mechanistic Structures 110 Organic Structures 110 The Contingency Approach to Organizational Design 112 Lawrence and Lorsch on Differentiation, Integration, and the Environment 112 Burns and Stalker on Organic versus Mechanistic Structures and the Environment 115 Summary 116 • Discussion Questions 117 • Organizational Theory in Action: Practicing Organizational Theory 117 Growing Pains 117 Making the Connection #4 117 The Ethical Dimension #4 117 Analyzing the Organization: Design Module #4 117 Assignment 118

Chapter 5

Designing Organizational Structure: Authority and Control 121 Authority: How and Why Vertical Differentiation Occurs The Emergence of the Hierarchy

121

121

Size and Height Limitations 122 Problems with Tall Hierarchies 124 The Parkinson's Law Problem 127 The Ideal Number of Hierarchical Levels: The Minimum Chain of Command Span of Control

127

128

Control: Factors Affecting the Shape of the Hierarchy Horizontal Differentiation 130 Centralization 132 Standardization

130

133

The Principles of Bureaucracy 134 The Advantages of Bureaucracy 137 Management by Objectives 139 The Influence of the Informal Organization

140

IT, Empowerment, and Self-Managed Teams Summary

143

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in Action: Practicing Organizational Theory How to Design a Hierarchy 144 The Ethical Dimension #5 / 44

143 144

141 •

Organizational Theory

ix

CONTENTS Making the Connection #5 144 Analyzing the Organization: Design Module #5 144 Assignment 144

Chapter 6

Designing Organizational Structure: Specialization and Coordination 148 Functional Structure 148 Advantages of a Functional Structure

150

Control Problems in a Functional Structure

150

Solving Control Problems in a Functional Structure

151

From Functional Structure to Divisional Structure Moving to a Divisional Structure

152

154

Divisional Structure I: Three Kinds of Product Structure Product Division Structure 154 Multidivisional Structure 156 Product Team Structure

161

Divisional Structure II: Geographic Structure Divisional Structure III: Market Structure Matrix Structure

154

163

164

166

Advantages of a Matrix Structure 167 Disadvantages of a Matrix Structure 167 The Multidivisional Matrix Structure 168 Hybrid Structure

170

Network Structure and the Boundaryless Organization

171

Advantages of Network Structures 171 Disadvantages of Network Structures 172 The Boundaryless Organization 172 E-Commerce 173 Summary 174 • Discussion Questions 175 • Organizational Theory in Action: Practicing Organizational Theory 175 Which New Organizational Structure? 175 The Ethical Dimension #6 175 Making the Connection #6 175 Analyzing the Organization: Design Module #6 175 Assignment 175

Chapter 7

Creating and Managing Organizational Culture What Is Organizational Culture?

179

Differences in Global Values and Norms

182

How Is an Organization's Culture Transmitted to Its Members? Socialization and Socialization Tactics 184 Stories, Ceremonies, and Organizational Language Characteristics of People within the Organization Organizational Ethics 191 Property Rights 193

189

189

196

Can Organizational Culture Be Managed? Social Responsibility

184

187

Where Does Organizational Culture Come From?

Organizational Structure

179

197

199

Approaches to Social Responsibility 199 Why Be Socially Responsible? 200 Summary 202 • Discussion Questions 203 in Action: Practicing Organizational Theory 203 Developing a Service Culture 203 The Ethical Dimension #7 203

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CONTENTS Making the Connection #7

204

Analyzing the Organization: Design Module #7 204 Assignment

Chapter 8

204

Organizational Design and Strategy in a Changing Global Environment 207 Strategy and the Environment Sources of Core Competences

207

208

Global Expansion and Core Competences Four Levels of Strategy

210

211

Functional-Level Strategy 213 Strategies to Lower Costs or Differentiate Products Functional-Level Strategy and Structure Functional-Level Strategy and Culture Business-Level Strategy

213

215 216

217

Strategies to Lower Costs or Differentiate Products Focus Strategy

Business-Level Strategy and Structure Business-Level Strategy and Culture Corporate-Level Strategy Vertical Integration

219 222

224

225

Related Diversification

226

Unrelated Diversification

226

Corporate-Level Strategy and Structure

227

Corporate-Level Strategy and Culture

229

Implementing Strategy across Countries Implementing a Multidomestic Strategy Implementing International Strategy Implementing Global Strategy

235

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232

234


in Action: Practicing Organizational Theory What Kind of Supermarket? The Ethical Dimension #8

230

232

233

Implementing Transnational Strategy Summary

218

219

236

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236

236 236

Making the Connection #8 236 Analyzing the Organization: Design Module #8 237 Assignment

Chapter 9

237

Organizational Design, Competences, and Technology 240 What Is Technology?

240

Technology and Organizational Effectiveness

242

Technical Complexity: The Theory of Joan Woodward Small-Batch and Unit Technology

Large-Batch and Mass Production Technology Continuous-Process Technology

247

248

Technical Complexity and Organizational Structure The Technological Imperative

244

244

248

250

Routine Tasks and Complex Tasks: The Theory of Charles Perrow Task Variability and Task Analyzability Four Types of Technology

251

252

Routine Technology and Organizational Structure

253

Nonroutine Technology and Organizational Structure

255

Task Interdependence: The Theory of James D. Thompson Mediating Technology and Pooled Interdependence

256

Long-Linked Technology and Sequential Interdependence Intensive Technology and Reciprocal Interdependence

258

259

255

250

xi

From Mass Production to Advanced Manufacturing Technology 261 Advanced Manufacturing Technology: Innovations in Materials Technology 263 Computer-Aided Design 264 Computer-Aided Materials Management 264 Just-in-Time Inventory Systems 265 Flexible Manufacturing Technology and Computer-Integrated Manufacturing 266 Summary 267 • Discussion Questions 268 • Organizational Theory in Action: Practicing Organizational Theory 268 Choosing a Technology 268 The Ethical Dimension #9 269 Making the Connection #9 269 Analyzing the Organization: Design Module #9 269 Assignment 269

Part 3

Organizational Change 273

Chapter 10 Types and Forms of Organizational Change 273 What Is Organizational Change? 273 Targets of Change 274 Forces for and Resistance to Organizational Change Forces for Change 275 Resistances to Change 278 Organization-Level Resistance to Change 278 Group-Level Resistance to Change 279 Individual-Level Resistance to Change 280

275

Lewin's Force-Field Theory of Change 280 Evolutionary and Revolutionary Change in Organizations

281

Developments in Evolutionary Change: Sociotechnical Systems Theory 281 Total Quality Management 282 Flexible Workers and Flexible Work Teams 285 Developments in Revolutionary Change: Reengineering 285 E-Engineering 290 Restructuring 290 Innovation 291

Managing Change: Action Research 291 Diagnosing the Organization 292 Determining the Desired Future State 292 Implementing Action 293 Evaluating the Action 294 Institutionalizing Action Research 294 Organizational Development

295

OD Techniques to Deal with Resistance to Change 295 OD Techniques to Promote Change 297 Summary 299 • Discussion Questions 300 • Organizational Theory in Action: Practicing Organizational Theory 300 Managing Change 300 Making the Connection #10 301 The Ethical Dimension #10 301 Analyzing the Organization: Design Module #10 301

Chapter 11

Organizational Transformations: Birth, Growth, Decline, and Death 305 The Organizational Life Cycle 305 Organizational Birth 306 Developing a Plan for a New Business 307

CONTENTS

A Population Ecology Model of Organizational Birth Number of Births Survival Strategies

311

The Process of Natural Selection

312

The Institutional Theory of Organizational Growth Organizational Isomorphism

Disadvantages of Isomorphism

316

Stage 1: Growth through Creativity

317

Stage 2: Growth through Direction

318

Stage 3: Growth through Delegation

319

Stage 5: Growth through Collaboration

320

Organizational Decline and Death Effectiveness and Profitability

316

318

Stage 4: Growth through Coordination

Organizational Inertia

321

321

323

Changes in the Environment

324

Weitzel and Jonsson's Model of Organizational Decline 328

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329

in Action: Practicing Organizational Theory Growing Pains

The Ethical Dimension #11

325 Organizational Theory

329

329 329

Analyzing the Organization: Design Module #11

Chapter 12

•

329

Making the Connection #11

Assignment

314

315

Greiner's Model of Organizational Growth

Summary

309

310

330

330

Decision Making, Learning, Knowledge Management, and Information Technology 334 Organizational Decision Making

334

Models of Organizational Decision Making The Rational Model

335

The Carnegie Model

337

The Incrementalist Model

335

339

The Unstructured Model

339

The Garbage-Can Model

340

The Nature of Organizational Learning

342

Types of Organizational Learning

342

Levels of Organizational Learning

343

Knowledge Management and Information Technology Factors Affecting Organizational Learning Organizational Learning and Cognitive Structures Types of Cognitive Biases Cognitive Dissonance Illusion of Control

350

351

Frequency and Representativeness

351 352

Escalation of Commitment

352

Improving Decision Making and Learning Strategies for Organizational Learning

356

Devil's Advocacy and Dialectical Inquiry Collateral Organizational Structure 359

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353

353

354

Nature of the Top-Management Team

Summary

350

350

Projection and Ego-Defensiveness

Using Game Theory

347

349

357

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in Action: Practicing Organizational Theory

360 360

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XÜi

Xiv

CONTENTS Store Learning 360 Making the Connection #12 360 The Ethical Dimension #12 360 Analyzing the Organization: Design Module #12 360 Assignment 361

Chapter 13

Innovation, Intrapreneurship, and Creativity Innovation and Technological Change Two Types of Innovation

366

366

366

Protecting Innovation through Property Rights 368 Innovation, Intrapreneurship, and Creativity Entrepreneurship as "Creative Destruction" 371

370

Innovation and the Product Life Cycle 372 Managing the Innovation Process

374

Project Management 374 Stage-Gate Development Funnel 376 Using Cross-Functional Teams and a Product Team Structure 377 Team Leadership 379 Skunk Works and New Venture Divisions 380 Jointventures 381 Creating a Culture for Innovation

381

Innovation and Information Technology Innovation and Information Synergies

383 384

IT and Organizational Structure and Culture 385 Summary 386 • Discussion Questions 387 • Organizational Theory in Action: Practicing Organizational Theory 387 Managing Innovation 387 The Ethical Dimension #13 387 Making the Connection #13 388 Analyzing the Organization: Design Module #13 388

Chapter 14

Managing Conflict, Power, and Politics What Is Organizational Conflict?

391

391

Pondy's Model of Organizational Conflict

394

Stage 1: Latent Conflict 394 Stage 2: Perceived Conflict 396 Stage 3: Felt Conflict 397 Stage 4: Manifest Conflict 397 Stage 5: Conflict Aftermath 398 Managing Conflict: Conflict Resolution Strategies Acting at the Level of Structure

Acting at the Level of Attitudes and Individuals What Is Organizational Power? Sources of Organizational Power Authority

399

399 400

401 402

402

Control over Resources 403 Control over Information Nonsubstitutability Centrality

404

404

405

Control over Uncertainty

406

Unobtrusive Power: Controlling the Premises of Decision Making 406 Using Power: Organizational Politics

407

Tactics for Playing Politics 407 The Costs and Benefits of Organizational Politics 409

Summary 412 • Discussion Questions 412 in Action: Practicing Organizational Theory 413

•


Managing Conflict 413 The Ethical Dimension #14 413 Making the Connection #14 413 Analyzing the Organization: Design Module #14 413 Assignment 413

Case Studies 417 Supplemental Case Map

417

Case 1 United Products, Inc.

419

Jeffrey C. Shuman Case 2 The Paradoxical Twins: Acme and Omega Electronics

428

John F. Veiga Case 3 How SAP's Business Model and Strategies Made It the Global Business Software Leader 431 Gareth R. Jones Case 4 The Scaffold Plank Incident

439

Stewart C. Malone and Brad Brown Case 5 Beer and Wine Industries: Bartles & Jaymes

441

Per V. Jenster Case 6 Bennett's Machine Shop, Inc.

447

Arthur Sharplin Case 7 Southwest Airlines

459

Case 8 The Rise and Fall of Eastman Kodak: How Long Will It Survive Beyond 2011? 463 Gareth R. Jones Case 9 Philips NV

474

Charles W. L. Hill Case 10 "Ramrod" Stockwell Charles Perrow

Company Index 480 Name Index 483 Subject Index 485

476