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 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

viii 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 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 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 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

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 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 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 Summary 143 Discussion Questions 143 Organizational Theory in Action: Practicing Organizational Theory 144 How to Design a Hierarchy 144 The Ethical Dimension #5 / 44

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 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 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 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 Summary 202 Discussion Questions 203 Organizational Theory in Action: Practicing Organizational Theory 203 Developing a Service Culture 203 The Ethical Dimension #7 203

CONTENTS xi Making the Connection #7 204 Analyzing the Organization: Design Module #7 204 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 Summary 235 Discussion Questions 236 Organizational Theory in Action: Practicing Organizational Theory 236 What Kind of Supermarket? 236 The Ethical Dimension #8 236 Making the Connection #8 236 Analyzing the Organization: Design Module #8 237 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 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 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 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 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 Summary 328 Discussion Questions 329 Organizational Theory in Action: Practicing Organizational Theory 329 Growing Pains 329 Making the Connection #11 329 The Ethical Dimension #11 329 Analyzing the Organization: Design Module #11 330 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 Summary 359 Discussion Questions 360 Organizational Theory in Action: Practicing Organizational Theory 360

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 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 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 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

Case Studies 417 Company Index 480 Name Index 483 Subject Index 485 Summary 412 Discussion Questions 412 Organizational Theory 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 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