Which is more effective and beneficial to the success of a business, a Democratic or

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1 Which is more effective and beneficial to the success of a business, a Democratic or Hierarchical organisation? Introduction What is the right and the best way to manage people to maximize their productivity and the organization s profitability? This has been a matter of debate for several decades now with several theories recommending one approach or another. However, while there may be some disagreement on the style of management, everyone seems to agree on the importance of managing people. For example, if an organization is undergoing financial difficulty and requires cost cutting and layoffs, the way management addresses and communicates the problem might impact the morale of its employees which may have a long term implication to the overall performance and profitability of the company. Management style and culture in an organization are determined by the senior management. If senior management influence is negative it can adversely impact the organization s working environment. On the other hand, a positive and upbeat management style like in Southwest Airlines can boost employee morale and the bottom line. In this report two of the most common approaches to management are discussed and their potential impacts on the staff analyzed. Objective The purpose of this report is to identify two of the most common organizational structures and evaluate their advantages and disadvantages. From an organizational behavior and management perspective, the biggest challenge for any organization is

2 implementing and managing a change. It could either be a change in the existing business process or the introduction of a new technology. This report analyzes how a change is managed and implemented in the two organizational structures and provides a recommendation regarding the preferred organizational structure. Research Hypothesis The following key concepts and ideas are discussed in this report: 1. Which is more effective and beneficial to the success of a business - a Democratic or a Hierarchical organisation? 2. How do the democratic and hierarchical organizations manage and implement change and what is the relationship between the employees and the managers in these organizations? Democratic Organization In a democratic organization every individual communicates with every one else to provide information that needs to be shared with others. Once this information is shared, all members join in a making a decision about what to do in response to this data. The decision is taken by consensus and the participants feel a part of the decision creating a sense of ownership and commitment to the decision. Some of the key characteristics of a democratic organization include: Manager s Job: Work (responsibility) is delegated with the manager coordinating her own group's work with that of the group in which she is a subordinate. A key responsibility of the manager is to clear any difficulty or resolve any issue that is

3 hampering the progress of the work performed by her staff. In such organizations depending on the manager and the management, the work is usually self-motivating and is voluntarily performed without any fear of punishment. Decision making: All employees regardless of their level are encouraged to provide input and be a part of the decision making process. Management approach: Management believes that individuals are driven by a desire to excel and are usually self-motivated with a lot of pride in their work. They also believe that people learn not only to accept, but to seek greater responsibility. Management believes that every individual needs opportunities to achieve their potential and takes it upon themselves to train and grow their employees professionally. Motivation: Management creates motivation by offering reward for exceeding their goals Hierarchical Organization In a completely hierarchical organization, the individuals are organized into a tree structure in which new information is reported by subordinates to their bosses and new directives flow downward in the reverse direction. This not only results in inefficiencies with regards to the time spent in exchanging information to and fro, it also makes the decision process less transparent to the affected individuals. Some of the key characteristics of a hierarchical organization are: Manager's Job: Managers do as they are told and act more like a conduit for transmitting orders between the senior management and he line staff. Decision Making: Decisions are made at the top of the organization with little to no input from the line staff. The decision process is more like in a military type of organization

4 with a 'line and staff' and 'chain of command'. Management approach: Management assumes that that people hate work, have to be forced to do it, and need to be constantly monitored for them to be productive and achieve company's objectives. Motivation: Management motivates their employees by creating fear. Literature Review Braham and Steffen (2003) suggest that the power wielded by an employee depends upon their status in the organizational hierarchy, the structure of the decision making committee and the number of people within the committee that need to support a decision. This leads to their conclusion that empowerment of an employee in an organization fails not because managers fail to let go or those who are empowered grab control and meddle, but because employees are not properly empowered rather they are only given more responsibility to make routine decisions rather than the power to push their initiatives through a committee process. Braham and Steffen (2003) recommend that in order to effectively empower the employee, they should be embedded in the body politic of an organization by reforming the underlying power structure. Jacqueline Mancall (2000) suggest that with the developments in technology, advances in communication systems, and shifts in the economy (including the global trend from products to services) the age old management techniques need to be overhauled and suggests that the current environment of rapid growth and perpetual change requires more educated employees to perform in realms of greater and more interactive complexity. She recommends that management styles should be directed towards granting employees self-

5 reliance and is a proponent of the democratic organizational structure. Training employees on a new technology is extremely crucial for a successful implementation of the technology. However, there also is a need for readiness, knowledge and awareness in the organization to successfully manage organizational development and the change process (Bolwijn et.al. 1986) as a result of which the managers need to have a wider perspective and integrate technological, organizational and change management issues in their day to day activities (Warner et.al. 1990, Busk Kofoed et.al. 1997). Methodology The method used to analyze the effectiveness of democratic and hierarchical organizations is to study the two approaches via a case study. A change process was conducted in two different divisions of an organization one of which had a democratic structure and the other a hierarchical structure and a survey conducted after the completion of the change process. The survey included key questions relating to the efficacy of the change management process, working relationships with the managers and the employee s perception of the management of the change process. The results of the survey were analyzed against the theoretical frameworks and recommendation made based on the findings. Case Study A large European processing company wanted to improve its competitiveness and

6 optimize production. Apart from technical and logistical changes, the company planned a total work force reduction of approximately 20%. These changes were to be implemented in the two divisions dairy processing (democratic organizational structure) and frozen food processing (hierarchical organizational structure) simultaneously with a 20% reduction in manpower in both divisions. The company had been well insulated from changes in the external environment and except minor technical changes the company had not changed much in the past two decades. Thus, there was a significant potential in an organizational change to improve the company s ability to handle existing and new technology and improve its competitiveness. While the dairy processing division wanted to run the change process with open doors and encouraged the employees to participate as much as possible the frozen food processing division conducted change related meetings behind closed doors and did not communicate with the employees till the day before the change was to be implemented. This created widespread confusion amidst the employees resulting in spreading of false information and rumors. On the other hand, the employees in the dairy processing division were excited and motivated to make the change process extremely smooth and successful as they felt a part of the process. Before the project began, a bench-marking project came up with some possible goals supplementing the company s strategic effort to fulfill stakeholders demand for profit

7 and return on investment. The management of the frozen food processing division recognized the size and complexity of the change project, and although they formally expressed the goal of total restructuring, their actions still showed and maintained the previous mode of action. On the other hand the management of the dairy processing division viewed the process as something new and took extra measures to train employees. The senior management of the dairy processing division undertook an interesting activity that involved the employees and the managers. They introduced a poster workshop wherein the participants were encouraged to chart the current process in a poster and brainstorm ideas on the pros and cons of different steps in the current process. When making a poster the participants also could tell what was good and what was problematic with a specific task. In the beginning, the posters were fairly basic and stimulated some interesting ideas. A key observation was the energy, commitment and the working relationship between the employees and the managers. The employees seemed to own the change process and reacted positively to comments and suggestions proposed by the managers. There seemed to be complete trust amongst the employees with no concerns whatsoever of the potential layoffs as every one wanted to change the process for their own betterment. On the other hand, the frozen food processing division was fraught with distrust and frustration and to make matters worse there were many rumors circulating among the

8 employees. There were frequent breakouts in which the employees grouped together and much time and energy was spent speculating about the next management action and trying to figure out the management agenda rather than being a part of the change process. Unfortunately, the discussions were highly influenced by uncertainties and frustrations connected to the change situation with little to none input to the process. After four weeks of implementation of the change process, a status check was made in the two divisions. In the dairy processing division it was found that the process had been 45% successfully implemented and was on track to completion. There were come areas where the division was struggling to implement the process as there were opposing views on changing an existing quality control process. Of the 8 people entrusted with the task of reorganizing the quality control process, four were not in favor of changing the process and the group had come to a gridlock. This is a classic problem in democratic organizations where a lot of time and resources can be wasted if there is a contention on the modus operandi. In the absence of an executive decision making authority, the discussion gets stalled and if not managed effectively, the individuals can get personal resulting in antagonistic feelings. On the other hand, the frozen food processing division had made around 40% progress and was also on track with its implementation schedule. However, the morale and spirit of the employees was very low with the senior management making decisions without involving the affected employees. In one instance, an employee disagreed with the management decision and tried to explain her reason but she was not listened to and was

9 warned by her colleagues to not ruffle the management. It was noticed that with the frozen food processing division, limited understanding of the technological system was a barrier to rethink new organizational benefits. The employees had no visions about their future work situation and the overall objective of the change process and as such rejected discussing changes that could have resulted in possible working environmental improvements. The employees needed a much deeper discussion of possibilities and concerns regarding the actual change process. They also needed a perspective around which they could assess their own possibilities and future work. They also needed somebody they could run their ideas and concerns by and to facilitate a constructive discussion to make it proactive instead of reactive. The dairy processing division also faced a similar problem associated with the limited understanding of the technological system. However, through constant dialogue with the management team, they were able to resolve much of the problems. At the end, another study was conducted to assess the progress of the implementation of the change in the two divisions. The results were in sharp contrast to the ones seen in the earlier study. The change had been successfully implemented at the dairy processing division with two of the four processes improving productivity by more than 16%. On the other hand, frozen foods division could complete only 85% of the changes and had extremely low employee morale with three employees quitting in the process. There was minimal improvement in productivity with one system reverted back to the original process three weeks after the new process was implemented.

10 Conclusion Implementing any change process creates anxiety amongst those who are directly or indirectly impacted. Management of the change process within the organization s overall goals and the culture can be a challenging task and needs to be executed with extreme care and precaution. As can be seen from the case study discussed above, the change implemented in the democratic organization was received with a lot of enthusiasm, energy and participation by the employees and the management. A key driver was constant communication and encouragement to be a part of the change process. On the other hand the change was not successful in the hierarchical organization as the employees did not feel a part of the process and resisted the process. Though the management was able to implement the change, the low employee morale indicates that the change may not be successful in the long run. The findings of the study show that direct participation is important for motivation and commitment in defining the means and goals. In addition, it is extremely important that the change process follows the approach and strategy that is in line with the organizations culture as any deviation from a culture that the employees are used to can result in confusion and anxiety.

11 Based on the study, the democratic organization seems to be more adept and flexible in undergoing a change activity compared to a hierarchical organization. The employee management relationships seem to strengthen if the change process is implemented with a participative approach. In real world, it is extremely difficult to find an organization that is completely democratic or hierarchical and a good mix of the two structures is what the organizations should strive for. Bibliography Braham, Matthew: Hierarchies, Empowerment and Lean Management, September, 2003 Mancall, Jacqueline: Against Management, Winter 2003

12 Kofoed, Lise: Equipping A Company For Technological And Organizational Change Wieland, Michael: Change in Organizations, May 2001

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