Organizational Theory, Design, and Change

Organizational Theory, Design, and Change

SEVENTH EDIT ION

Gareth R. Jones Texas A&M University

PEARSON

Boston Columbus Indianapolis New York San Francisco Upper Saddle River

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Contents

Preface xvii

Part 1 The Organization and Its Environment 1

Chapter 1 Organizations and Organizational Effectiveness 1 What Is an Organization? 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 24

Open Systems Dynamics 24

The Ethical Dimension #1 24

Making the Connection #7 24

Analyzing the Organization: Design Module H 24

Assignment 25

Chapter 2 Stakeholders, Managers, and Ethics 28 Organizational Stakeholders 28

Inside Stakeholders 28

Outside Stakeholders 30

Organizational Effectiveness: Satisfying Stakeholders' Goals

and Interests 34

Competing Goals 35

Allocating Rewards 36

vii

vii i CONTENTS

Top Managers and Organizational Authority 37

The Chief Executive Officer 39

The Top-Management Team 40

Other Managers 41

An Agency Theory Perspective 41 The Moral Hazard Problem 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



Analyzing the Organization: Design Module #2 55

Assignment 55

Chapter 3 Organizing in a Changing Global Environment 59 What Is the Organizational Environment? 59

The Specific Environment 61

The General Environment 63

Sources of Uncertainty in the Organizational Environment 65

Resource Dependence Theory 69

Interorganizational Strategies for Managing Resource Dependencies 70

Strategies for Managing Symbiotic Resource Interdependencies 71

Developing a Good Reputation 71

Cooptation 72

Strategic Alliances 72

Jointventure 75

Merger and Takeover 76

Strategies for Managing Competitive Resource Interdependencies 76

Collusion and Cartels 77

Third-Party Linkage Mechanisms 78

Strategic Alliances 78

Merger and Takeover 78

Transaction Cost Theory 79

Sources of Transaction Costs 80

Transaction Costs and Linkage Mechanisms 81

Bureaucratic Costs 82

Using Transaction Cost Theory to Choose an Interorganizational Strategy 82



Protecting Your Domain 87




Assignment 88

CONTENTS ix

Part 2 Organizational Design 92

Chapter 4 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 99

Integration and Integrating Mechanisms 99

Differentiation versus Integration 102

Balancing Centralization and Decentralization 103

Centralization versus Decentralization of Authority 103

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

Standardization versus Mutual Adjustment 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




Assignment 118

Chapter 5 Designing Organizational Structure: Authority and Control 121 Authority: How and Why Vertical Differentiation Occurs 121

The Emergence of the Hierarchy 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 127

Span of Control 128

Control: Factors Affecting the Shape of the Hierarchy 130 Horizontal Differentiation 130

Centralization 132

Standardization 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 141



How to Design a Hierarchy 144

The Ethical Dimension #5 / 44

CONTENTS



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 152

Moving to a Divisional Structure 154

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

Product Team Structure 161

Divisional Structure II: Geographic Structure 163

Divisional Structure III: Market Structure 164

Matrix Structure 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



Which New Organizational Structure? 175




Assignment 175

Chapter 7 Creating and Managing Organizational Culture 179 What Is Organizational Culture? 179

Differences in Global Values and Norms 182

How Is an Organization's Culture Transmitted to Its Members? 184 Socialization and Socialization Tactics 184

Stories, Ceremonies, and Organizational Language 187

Where Does Organizational Culture Come From? 189

Characteristics of People within the Organization 189

Organizational Ethics 191

Property Rights 193

Organizational Structure 196

Can Organizational Culture Be Managed? 197

Social Responsibility 199

Approaches to Social Responsibility 199

Why Be Socially Responsible? 200



Developing a Service Culture 203


CONTENTS xi



Assignment 204

Chapter 8 Organizational Design and Strategy in a Changing Global Environment 207 Strategy and the Environment 207

Sources of Core Competences 208

Global Expansion and Core Competences 210

Four Levels of Strategy 211

Functional-Level Strategy 213 Strategies to Lower Costs or Differentiate Products 213

Functional-Level Strategy and Structure 215

Functional-Level Strategy and Culture 216

Business-Level Strategy 217

Strategies to Lower Costs or Differentiate Products 218

Focus Strategy 219

Business-Level Strategy and Structure 219

Business-Level Strategy and Culture 222

Corporate-Level Strategy 224

Vertical Integration 225

Related Diversification 226

Unrelated Diversification 226

Corporate-Level Strategy and Structure 227

Corporate-Level Strategy and Culture 229

Implementing Strategy across Countries 230

Implementing a Multidomestic Strategy 232

Implementing International Strategy 232

Implementing Global Strategy 233

Implementing Transnational Strategy 234



What Kind of Supermarket? 236




Assignment 237

Chapter 9 Organizational Design, Competences, and Technology 240 What Is Technology? 240

Technology and Organizational Effectiveness 242

Technical Complexity: The Theory of Joan Woodward 244

Small-Batch and Unit Technology 244

Large-Batch and Mass Production Technology 247

Continuous-Process Technology 248

Technical Complexity and Organizational Structure 248

The Technological Imperative 250

Routine Tasks and Complex Tasks: The Theory of Charles Perrow 250

Task Variability and Task Analyzability 251

Four Types of Technology 252

Routine Technology and Organizational Structure 253

Nonroutine Technology and Organizational Structure 255

Task Interdependence: The Theory of James D. Thompson 255

Mediating Technology and Pooled Interdependence 256

Long-Linked Technology and Sequential Interdependence 258

Intensive Technology and Reciprocal Interdependence 259

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



Choosing a Technology 268




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 275

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

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



Managing Change 300




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 XÜi

A Population Ecology Model of Organizational Birth 309

Number of Births 310

Survival Strategies 311

The Process of Natural Selection 312

The Institutional Theory of Organizational Growth 314

Organizational Isomorphism 315

Disadvantages of Isomorphism 316

Greiner's Model of Organizational Growth 316

Stage 1: Growth through Creativity 317

Stage 2: Growth through Direction 318

Stage 3: Growth through Delegation 318

Stage 4: Growth through Coordination 319

Stage 5: Growth through Collaboration 320

Organizational Decline and Death 321

Effectiveness and Profitability 321

Organizational Inertia 323

Changes in the Environment 324

Weitzel and Jonsson's Model of Organizational Decline 325



Growing Pains 329




Assignment 330

Chapter 12 Decision Making, Learning, Knowledge Management, and Information Technology 334 Organizational Decision Making 334

Models of Organizational Decision Making 335

The Rational Model 335

The Carnegie Model 337

The Incrementalist Model 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 347

Factors Affecting Organizational Learning 349

Organizational Learning and Cognitive Structures 350

Types of Cognitive Biases 350

Cognitive Dissonance 350

Illusion of Control 351

Frequency and Representativeness 351

Projection and Ego-Defensiveness 352

Escalation of Commitment 352

Improving Decision Making and Learning 353

Strategies for Organizational Learning 353

Using Game Theory 354

Nature of the Top-Management Team 356

Devil's Advocacy and Dialectical Inquiry 357

Collateral Organizational Structure 358



Xiv CONTENTS

Store Learning 360




Assignment 361

Chapter 13 Innovation, Intrapreneurship, and Creativity 366 Innovation and Technological Change 366

Two Types of Innovation 366

Protecting Innovation through Property Rights 368

Innovation, Intrapreneurship, and Creativity 370 Entrepreneurship as "Creative Destruction" 371

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 383

Innovation and Information Synergies 384

IT and Organizational Structure and Culture 385



Managing Innovation 387




Chapter 14 Managing Conflict, Power, and Politics 391 What Is Organizational Conflict? 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 399

Acting at the Level of Structure 399

Acting at the Level of Attitudes and Individuals 400

What Is Organizational Power? 401

Sources of Organizational Power 402

Authority 402

Control over Resources 403

Control over Information 404

Nonsubstitutability 404

Centrality 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 • Organizational Theory in Action: Practicing Organizational Theory 413

Managing Conflict 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 476

Charles Perrow

Company Index 480 Name Index 483 Subject Index 485

Documents

Organizational Theory, Design, and Change