Chapter 1 B 200 Reader 4 Organizational Aspects

Chapter 1 B 200 - Reader 4 Organizational Aspects of Business David Needle 1

I - Organizational Goals are stated to give direction to the activities within the organization. Goals may comprise an overall statement of intent called “mission statement”. Goals also include more detailed objectives to guide strategic planning. Management-by-Objectives (MBO): When each manager and each employee has goals to achieve, and his/her performance is judged according to how well the goals were completed. Some jobs are complex, and performance is difficult to measure in this case. 2

The nature of goals Goals are unbounded and generalized statements of intent. Closed-ended goals are to be achieved within a specified time frame. Open-ended goals are known as “mission” which is a broad statement (like the pursuit of excellence). Objectives are intentions that can be measured within a certain time frame Strategies are the processes by which goals are determined through the adoption of certain courses of action and the allocation of resources. A mission is a master strategy with a visionary content. There are 4 levels of goals: mission, strategic, tactical, operational. 3

How goals are developed Interest groups can form coalitions in the company to influence the development of goals. They set procedures for staff selection, promotion, as well as writing the rules of operation. The ability of groups to pursue their goals depends upon the power they have in the company. Some conflicts might occur. The external environment can have an influence on goals and can necessitate changes in the goals. 4

II - Organizational Structure One of the factors which may facilitate or inhibit the ways groups pursue their goals is the structure of the organization. A structure is concerned with the grouping of activities in the most suitable manner to achieve the goals of the dominant coalition. It is concerned with the organization of work around roles, the grouping of these roles to form teams or departments, and the allocation of differential amounts of power and authority to the various roles. Structure is associated with job descriptions, mechanisms for coordination and control, decentralization, management of information systems. 5

Factors influencing structure 1. Technology: mass production, proportion of 2. 3. 4. 5. 6. direct to indirect labor, etc. . Company Size: increase in size necessitates structural change. Customer service, administration, operations control, bureaucratization, and delegation are all affected. Changes in the Environment Strategy: like pursuing new markets. Structure does not change easily unless there is a crisis. Culture: country culture or company culture. Interest Groups 6

Types of structure 1. Functional Structure According to functional specialization. Single product firms follow this structure the most. 2. Divisional Structure Multidivisional companies follow this structure. Divisions can be grouped around products or markets. 3. The Holding Company Acquisitions and product diversification necessitate this form. The holding company includes a group of independent companies controlled by a coordinating group made up of the presidents of the companies. 7

4. The Project Team These are temporary structures created in highly unstable environments (high technology firms, advertising agencies, R&D). An expert or any employee can be a member of several teams. 5. The Matrix The matrix is an attempt to combine the advantages of different forms of structure: the customer orientation of the project team, the economies of scale and the specialist orientation of the functional company, and the product or market focus of the divisional company. An employee might have two supervisors in the matrix structure. The matrix might not be appropriate for some companies or even for some cultures. Figure 1. 5 in Reader 4 (page 22) shows a summary of advantages and problems of the different types of structure. 8

Alternative forms of organizational structure Networking (where computer systems can interact) has been popular. Employees are able to do their jobs from home using this system. This has been used with success in some countries like Japan. Franchising: the parent company assists in the start-up of new branches (like Mc. Donald’s). This is expanding to financial services, where the franchisee gets access to the franchisor’s database instead of buying goods from franchisor. 9

The flexible firm Flexibilities are needed in response to things like technological change or market uncertainty. There are 3 types of flexibility: 1. Functional flexibility: when employees can perform a variety of jobs and can move between them. 2. Numerical flexibility: when management can change the number of employees (through parttime or contracts). 3. Financial flexibility: pay and incentives for workers to acquire additional skills. 10

Groups of employees in flexible firms are classified as core groups and peripheral groups: CORE GROUPS Those on a permanent or long-term contracts and who hold the key skills in the organization. PERIPHERAL GROUPS Comprise two groups: (a) FULL-TIME WORKERS Generally will be less skilled and not enjoy the security of the core employee (b) PART-TIME WORKERS part-time and contract workers hired in direct proportion to the demand or to deal with non-core business. 11

Structure and performance Frequent structural changes can be damaging. It is not sure that structure alone can lead to better performance. Financial performance can be improved by congruence between strategy, structure, processes, rewards and people. The major difficulties in establishing a correlation between structure and performance would appear to be: first, identifying appropriate measures of performance, and second, providing causality. These are still under study until now. 12

III - Ownership and control: Issues like how much freedom managers have in developing business strategies, as well as shareholders and owners issues, are all important under this topic. Joint stock companies and share ownership started a separation of ownership and control. Specialization and separation of the company into functions was also necessary. Bureaucratic rules and procedures were developed to coordinate and control activities. “Managerial revolution”: management control being professional and socially responsible. 13

Management and Control in the Public Sector Major issues include: extent of state control over management decisions, levels of government spending and conflict over goals. We have 3 major types of public organizations: (a) the nationalized industries which are owned and controlled by the state, like the post office, (b) companies that are controlled by the state, and (c) public services funded by taxation, like health and education services. 14

Privatization Belief in the free market, inefficiencies in the public sector, along with other reasons, made privatization of businesses or of certain services a viable and necessary choice. Private companies are more efficient and more effective in the way they do business. There is competition in the private sector and more responsiveness to customers’ needs. 15

IV - Size With the increasing size of the company comes increasing formalization and bureaucratization. Employment of large number of people: recruitment, training, evaluation of performance, payment systems. Size is also related to dominance in the marketplace. The multinational corporation is able to dominate its environment, overriding the policies of nation states and attracting government support. Many employees seek large firms because of the career opportunities they offer. It is unsure whether large firms make best use of their resources and are best performers. 16

V – Small Businesses When individuals choose to work for themselves rather than for a big company, they start a small business. A survey of small firms across the world from 1980 to 1990 revealed that on average 50 to 60% of startups fail within the first 5 years (risk is somewhat high). 17

The value of small businesses There are benefits to the owners, good impact on economic growth, the jobs they provide, and the service to the consumer. A lot of people are attracted to the idea of opening their small business because of the desire to “be your own boss”. However, there is a real risk of failure and financial loss. Small firms are more flexible and innovative than large ones. The 1980 s saw great success of small firms in the computer industry. Unemployment and lay-offs have promoted the idea of self-employment, especially in computer software and consulting (and the service sector in general). 18

VI – Organizational Culture The firm’s culture is a product of its history, management, operating environment, technology, goals and other factors. Goals, structure, ownership patterns and size are all reflected in the culture of the company. Culture sets the scene for the determination of strategy and the operational aspects of the organizational life. Hewlett-Packard company has what’s called the HP Way, and it consists of the following: love of the product, love of the customer, innovation, quality, open communication, commitment to people, trust, confidence, informality, teamwork, sharing, openness, autonomy, responsibility. 19 19

The nature of organizational culture Corporate culture includes all the beliefs, ideology, language, ritual and myth developed within the corporation (Pettigrew, 1979). A culture change to quality improvement happened with Total Quality Management (TQM). Organizational culture is a set of universal principles guiding best practice. A culture is “a pattern of shared and stable beliefs and values that are developed within a company across time”. (Gordan and Ditomaso, 1992) 20

VII – Types of Corporate Culture 1. Power Culture: (person-oriented, hierarchical) Absence of bureaucracy. Control is exercised from a central power through key leader. Found in small entrepreneurial firms. Trompenaars calls it “Family”. Mostly popular in Japan and Italy where loyalty can’t be divided. 2. Role Culture: (task-oriented, hierarchical) Classic bureaucracy through division of functions and specialties. Rules and procedures are followed. Trompenaars calls it “Eiffel Tower”. 21

3. Task Culture: (task-oriented, egalitarian) Mostly present in matrix organizations. The focus is on getting the job done. There is flexibility and responsiveness. This is mostly found in advertising agencies and research groups. Employees favor it. Trompenaars calls it “Guided Missile”. 4. Person Culture: (person-oriented, egalitarian) The focus is on the individual. The main purpose of the organization is to satisfy the needs of individuals. Trompenaars calls it “Incubator”. 22

The concept of strong cultures In strong cultures, the guiding values of top management are clear and consistent, and are widely shared by employees. Appropriate behavior is rewarded. Communication from top management is used to spread the values. Ray Kroc of Mc. Donald’s is an example. Culture is also strengthened by formal procedures and training. Group identity and loyalty are strong. Bureaucracy is usually avoided. 23

The notion of the excellent company Tom Peters, in his book “In Search of Excellence”, identified 8 attributes found in excellent companies: “bias for action”: typified by clear objectives. “closeness to the customer”: identifying and serving customers’ needs. “autonomy and entrepreneurship”: through creation of small cohesive teams. “productivity through people”: involving the workforce at all times. 24

“hands on, value driven”: strong corporate culture by top management, who are in touch with all employees. “stick to the knitting”: do what the company does best and avoid diversification in to unknown sectors. “simple form, lean staff”: avoid complex hierarchies. “simultaneous loose-tight properties”: strong central direction with work-group autonomy. 25