84 Part One Environmental and Organizational Context
Ending with Meta-Analytic Research Findings
OB PRINCIPLE FOR EVIDENCE-BASED PRACTICE
Organizational configurations affect organizational performance.
Meta-Analysis Results:
[33 studies; 40 organizations; d = .55] On average, there is a 65 percent probability that an identified organizational configuration will better predict performance of included organi-zations than if no configuration is identified and utilized. Moderator analyses revealed that organizations’ configurations contributed more to the explanation of performance to the extent that studies used broad definitions of configuration, single-industry samples, and longitudinal designs.
Conclusion:
Organizational configurations are groups of firms sharing a common profile of organi-zational structural characteristics. The Miles and Snow typology describes four such configurations—defender, prospector, analyzer, and reactor. Each of these examines the relationship between strategy and structure. At the heart of configuration research is the relationship that firms have with their environments. Specifically, organizations that exist in environments where goals are attainable, resources are acquirable, internal processes are growing and thriving, and stakeholders are satisfied will be more effective than those that do not have such a configuration.
Source: Adapted from David J. Ketchen Jr., James G. Combs, Craig J. Russell, Chris Shook, Michelle A. Dean, Janet Runge, Franz T. Lohrke, Stefanie E. Naumann, Dawn Ebe Haptonstahl, Robert Baker, Brenden A. Beckstein, Charles Handler, Heather Honig, and Stephen Lamoureux, “Organizational Configuration and Performance: A Meta-Analysis,” Academy of Management Journal, Vol. 40, No. 1, 1997, pp. 223–240.
1. What was Chester Barnard’s contribution to organization theory?
2. How does a learning organization differ from a traditional organization?
3. Briefly define the horizontal, hollow, modular, network, and virtual organization designs.
How do these differ from the classical design? How do they better meet the challenges of the new environment?
4. What is meant by the term organizational culture? Define it and give some examples of its characteristics.
5. How does a dominant culture differ from a subculture? In your answer be sure to define both terms.
6. How do organizational cultures develop? What four steps commonly occur?
7. How do organizations go about maintaining their cultures? What steps are involved?
Describe them.
Questions for
Chapter 3 Organizational Context: Design and Culture 85
As this chapter has discussed, there are dramatic differences in both the design and culture of organizations. In part, the culture of an organization is determined by the structure.
Some organizations tend to be hierarchical and rigid, whereas others are horizontal and flexible. Visit some corporate Web sites that describe various structural design components and corporate values. To get an idea of corporate culture preferences, go to http://www.mhhe.com/business/management/management_tutor_series/corp CulturePrefScale/index.html. Then going from there, choose a specific firm such as Toyota or Google or search under “organization design” and/or “organization culture” to see where it leads you. Try to determine what the company’s structure and culture may be.
1. Compare structure and culture of two or more firms in the same industry. Which would you prefer to work for?
2. What other issues do the structure and culture have for other topics of organizational behavior (motivation, reward systems, etc.)?
Internet Exercise: The Structure and Culture of Organizations
Real Case: Web-Based Organizations
There is hope, and the promise of at least partial libera-tion from the tyranny of time constraints. Why? Because the long-term interests of individuals and smart compa-nies are aligned. To compete, successful corporations will have to make it easier and less time-consuming for their employees to collaborate. They will learn how to live with fewer time-sapping meetings and unnecessary feedback loops—or find themselves outrun by more nimble competitors. The eventual result: less frustration for knowledge workers.
Moves in this direction are already under way as savvy companies analyze their internal social networks and identify bottlenecks. Intel Corp., for example, sees an opportunity in creating technology that lowers the time cost of teamwork. And others, such as Eli Lilly &
Co., are providing more corporate support for both inter-nal and exterinter-nal networks. “It’s a new mental model for how you run a company,” says McKinsey’s Bryan. “The winners will be those who can handle more complexity.”
At the same time we may see a rise in new forms of Web-based organizations where people can contribute without having their time eaten up by existing hierarchy.
Blogs, collaborative online databases (called wikis) and open-source software development all use the Net to handle much of the coordination among people rather than relying on top-down command and control. Such a shift to a digital spine could eventually lessen bureau-cratic time burdens on over-worked professionals, espe-cially those in such high-cost industries as health care.
Even high pay can’t compensate for unrelenting time pressure. Top managers have to realize that encouraging
networks and collaboration demands as much attention and resources as supervising and measuring performance in traditional ways. Most companies have built up large human-resources departments, but few have a depart-ment of collaboration. “Most managers don’t manage social networks effectively,” says Babson’s Davenport.
At Intel, the drive to reduce the time spent sharing knowledge and collaborating is an outgrowth of efforts to better coordinate far-flung operations that stretch from Israel to India. One idea being pursued by Luke Koons, director for information and knowledge management, is
“dynamic profiling”—technologies that automatically summarize areas on which a researcher or a manager is focusing, based on the subjects of their e-mails and Web searches. Such a regularly updated profile could make it less time-consuming to locate potential collaborators and resources, an especially daunting prospect in a large, innovation-minded company such as Intel. Equally important, dynamic profiling doesn’t force individuals to spend hours manually updating their profiles as their focus changes.
1. How can the organization structure facilitate speed, col-laboration, and teamwork? Contrast traditional bureau-cratic organizations with the examples in this case.
2. What is meant by a Web-based organization? How does this fit into the various organization theories discussed in the first part of the chapter?
3. Are there any downside risks inherent in the way the firms are organized in this case? What do you think the future will be for organization designs?
86 Part One Environmental and Organizational Context
Organizational Behavior Case: The Outdated Structure
Jake Harvey has a position on the corporate planning staff of a large company in a high-technology indus-try. Although he has spent most of his time on long-range, strategic planning for the company, he has been appointed to a task force to reorganize the company.
The president and board of directors are concerned that they are losing their competitive position in the industry because of an outdated organization struc-ture. Being a planning expert, Jake convinced the task force that they should proceed by first determining exactly what type of structure they have now, then determining what type of environment the company faces now and in the future, and then designing the organization structure accordingly. In the first phase
they discovered that the organization is currently structured along classic bureaucratic lines. In the sec-ond phase they found that they are competing in a highly dynamic, rapidly growing, and uncertain envi-ronment that requires a great deal of flexibility and response to change.
1. What type or types of organization design do you feel this task force should recommend in the third and final phase of the approach to their assignment?
2. Do you think Jake was correct in his suggestion of how the task force should proceed? What types of problems might develop as by-products of the rec-ommendation you made in question 1?
Metropolitan Hospital was built two years ago and cur-rently has a workforce of 235 people. The hospital is small, but because it is new, it is extremely efficient. The board has voted to increase its capacity from 60 to 190 beds. By this time next year, the hospital will be over three times as large as it is now in terms of both beds and personnel.
The administrator, Clara Hawkins, feels that the major problem with this proposed increase is that the hospital will lose its efficiency. “I want to hire people who are just like our current team of personnel—hard-working, dedicated, talented, and able to interact well with patients. If we triple the number of employees, I don’t see how it will be possible to maintain our quality patient care. We are going to lose our family atmo-sphere. We will be inundated with mediocrity, and we’ll end up being like every other institution in the local area—large and uncaring!”
The chairman of the board is also concerned about the effect of hiring such a large number of employees.
However, he believes that Clara is overreacting. “It can’t be that hard to find people who are like our current staff.
There must be a lot of people out there who are just as good. What you need to do is develop a plan of action that will allow you to carefully screen those who will fit
into your current organizational culture and those who will not. It’s not going to be as difficult as you believe.
Trust me. Everything will work out just fine.”
As a result of the chairman’s comments, Clara has decided that the most effective way of dealing with the situation is to develop a plan of action. She intends to meet with her administrative group and determine the best way of screening incoming candidates and then helping those who are hired to become socialized in terms of the hospital’s culture. Clara has called a meet-ing for the day after tomorrow. At that time she intends to discuss her ideas, get suggestions from her people, and then formulate a plan of action. “We’ve come too far to lose it all now,” she told her administrative staff assistant. “If we keep our wits about us, I think we can continue to keep Metropolitan as the showcase hospital in this region.”
1. What can Clara and her staff do to select the type of entry-level candidates they want? Explain.
2. How can Clara ensure that those who are hired come to accept the core cultural values of the hospital?
What steps would you recommend?
3. Could Clara use this same approach if another 200 people were hired a few years from now?
Organizational Behavior Case: Keeping Things the Same
Chapter 3 Organizational Context: Design and Culture 87
Organizational Behavior Case: Out with the Old, In with the New
The Anderson Corporation was started in 1962 as a small consumer products company. During the first 20 years the company’s R&D staff developed a series of new products that proved to be very popular in the mar-ketplace. Things went so well that the company had to add a second production shift just to keep up with the demand. During this time period the firm expanded its plant on three separate occasions. During an interview with a national magazine, the firm’s founder, Paul Anderson, said, “We don’t sell our products. We allocate them.” This comment was in reference to the fact that the firm had only 24 salespeople and was able to garner annual revenues in excess of $62 million.
Three years ago Anderson suffered its first financial setback. The company had a net operating loss of $1.2 million. Two years ago the loss was $2.8 million, and last year it was $4.7 million. The accountant estimates that this year the firm will lose approximately $10 million.
Alarmed by this information, Citizen’s Bank, the company’s largest creditor, insisted that the firm make some changes and start turning things around. In response to this request, Paul Anderson agreed to step aside. The board of directors replaced him with Mary Hartmann, head of the marketing division of one of the country’s largest consumer products firms.
After making an analysis of the situation, Mary has come to the conclusion that there are a number of changes that must be made if the firm is to be turned around. The three most important are as follows:
1. More attention must be given to the marketing side of the business. The most vital factor for success in the sale of the consumer goods produced by Anderson is an effective sales force.
2. There must be an improvement in product quality.
Currently, 2 percent of Anderson’s output is defec-tive, as against 0.5 percent for the average firm in the industry. In the past the demand for Anderson’s out-put was so great that quality control was not an important factor. Now it is proving to be a very costly area.
3. There must be a reduction in the number of people in the operation. Anderson can get by with two-thirds of its current production personnel and only half of its administrative staff.
Mary has not shared these ideas with the board of directors, but she intends to do so. For the moment she is considering the steps that will have to be taken in making these changes and the effect that all of this might have on the employees and the overall operation.
1. What is wrong with the old organizational culture?
What needs to be done to change it?
2. Why might it be difficult for Mary to change the existing culture?
3. What specific steps does Mary need to take in chang-ing the culture? Identify and describe at least two.
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Chapter Four
Organizational Context:
Reward Systems
Learning Objectives
• Discuss the theoretical background on money as a reward.
• Present research evidence on the effectiveness of pay.
• Describe some of the traditional methods of administering pay.
• Relate some forms of “new” pay and their value in helping attract and retain talented employees.
• Explain how recognition is used as an organizational reward.
• Discuss the role of benefits as organizational rewards.
Although reward systems are not necessarily found in the first part of organizational behav-ior textbooks, it is placed here for two very important reasons. First, in the social cognitive theory presented in Chapter 1 as the conceptual framework for this text, the environment variable in the triadic reciprocal interaction model (along with the personal/cognitive and organizational behavior itself) consists of both the external and organizational contexts.
The last chapter covered the structural design and culture of the organization, and espe-cially in a social cognitive approach, the reward system covers the remaining major con-textual variable for organizational behavior. Specifically, in social cognitive theory, reward consequences or contingencies play an important role in organizational behavior. For example, Bandura has noted that human behavior cannot be fully understood without con-sidering the regulatory influence of rewards,1and basic research has found that reward sys-tems have a significant impact on employees’ perception of organizational support and leadership.2Although behavioral management is not covered until the last part of the book (Chapter 12), it can be said now that the organization may have the latest technology, well-designed structures, and a visionary strategic plan, but unless the people at all levels are rewarded, all these other things may become hollow and not be carried out for performance improvement. One way to put this importance of organizational rewards as simply as pos-sible is to remember: you get what you reward!3
The second major reason for putting organizational reward systems up front is to empha-size the emerging importance of human capital introduced in Chapter 1. Because intellectual/
human capital is now recognized as being central to competitive advantage in the new para-digm environment, attention must be given to rewarding this capital to sustain/retain it and leverage it.4Since humans represent such a significant cost to organizations, as the accom-panying OB in Action: Now It’s Getting Personal indicates, more attention is being given to analyzing the return on this human capital. The importance of reward systems is now recog-nized as being a vital dimension of the organizational environment, and that is why it is
OB in Action: Now It’s Getting Personal
Imagine that your company’s human resources depart-ment does away with standard salaries, one-size-fits-all benefits, and the usual raft of yawn-inducing seminars.
Instead, HR execs huddle over computer programs that slice and dice data on you and your cube-mates—controlling for age, tenure, educational background, commute time, residential Zip Code, even the age and condition of the office you work in. The aim is to predict your behavior, ascertaining exactly how to cut costs without sabotaging morale—as well as which incentives would spike your pro-ductivity the most. Could they pay you 20% less but give you a three-month sabbatical every two years, cementing your allegiance and jolting your output? If they dumped your 401(k) match, would you bolt from your job or barely notice? Does your boss’s managerial touch inspire you or undermine your ability to produce? And what if, instead of parking you in a lecture in some stuffy hotel ballroom, you got a customized seminar that unleashed your ability to lock in 20% more in annual sales?
This may seem the stuff of corporate sci-fi—but it’s actually here. A growing vanguard of HR heads are quickly embracing a new discipline, human capital man-agement, that attempts to capture new gains from workers just as Six Sigma squeezed new efficiencies from factories. Some of the most groundbreaking work is coming from Mercer Human Resource Consulting, which is pioneering its new statistical modeling technology with clients including Quest Diagnostics, FleetBoston Financial, and First Tennessee. These kinds of analyses are helping a lengthening list of blue chips figure out exactly what kind of a return on investment they are getting from the millions of dollars they spend on their workforces. “This is the new thinking in new HR,” says Kurt Fischer, vice-president of HR at Corning Inc. “Here’s what we’re spending. What are we getting for it?”
Caught in the profits crunch, companies crippled by anemic growth are desperate to energize earnings. Labor costs, which account for an average 60% of sales, repre-sent a huge opportunity. Instead of placing precise bets on what compensation mix or management approach would work best, companies have usually thrown “everything at the wall, ratcheting things up slowly every year and hop-ing some of it works,” says Dave Kieffer, head of Mercer’s human capital group. When companies make cuts, just as much guesswork—and potential for backlash—comes into play. With the new technologies, companies can now accurately measure the ROI on their people.
The growing interest in the new human capital metrics stems from a rejection in some quarters of benchmark-ing—the practice, promoted by many big consulting firms and management gurus, of aping the best-performing companies such as General Electric Co. and Microsoft
Corp. The result has been a cascade of CEOs copying everything Jack Welch and Bill Gates did—with many of them failing. Some developed a mania for rank-and-yank performance reviews, without ascertaining if tenure actu-ally enhanced productivity. Others adopted flexible, just-in-time workforces that they could switch off and on like a spigot, without assessing the drag on productivity part-timers could cause.
The perils of this kind of blind benchmarking were evident at one major hospital chain, where the CFO bragged that his aggressive use of part-timers was sav-ing the company $5 million a year. Each time the CFO found a rival with a lower ratio of full-timers, he would ax more at his own hospitals—to the point where one facility was being run by a staff of 80% part-timers. Not surprisingly, those employees were often clueless about local hospital practices and wound up wasting the time of the full-time staff. What Mercer’s analysis showed was that the use of so many part-timers was actually costing the company $25 million in reduced productivity—3% of annual revenues. By hiking the ratio of full-timers back up to 63%, the chain regained 18% in overall productiv-ity within two months.
This points to one big difference between the new human capital management and old-era HR: Instead of looking outside to others for cookie-cutter answers, the new thinking argues that it’s better to look at the com-pany’s internal labor market. One blue-chip beverage maker assumed its longest-tenured drivers were the most productive. After a time-series analysis—controlling for factors such as older drivers getting their pick of the best routes—the company realized that once its drivers hit the nine-year mark, productivity plummeted even as their pay rose. In this case the company reassigned the drivers to less physically taxing jobs. The new human capital initiatives can provide valuable insights. After studying its ranks, First Tennessee realized that bank customers reacted far more favorably to experienced employees than it did to new hires. That meant that no matter how many college grads the bank hired nor how many experienced pros it brought in, it could not beat the tens of millions more in annual sales it could reap merely by increasing retention of cur-rent workers by at least one year.
In another such analysis, a blue-chip technology com-pany learned that its pay structure was penalizing the highest performers and rewarding the weakest; lacklus-ter employees were cluslacklus-tered in a cash-cow unit, while superstars were toiling in a still-profitless upstart divi-sion. “Most companies are just cutting without this kind of analysis,” says Kieffer. That’s not likely to last, as more and more businesses realize how much they’re spending on something about which they know so little.
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