How organisational design factors are likely to enhance innovation capabilities for an organisation operating in the growing organic market worldwide

Major Report on Organisation Innovation

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MGT 70005- Organizational Design: Agility and Sustainability Introduction Introduction IntroductionIntroduction How and why might we study Organisation Design?
A major objective of this unit is to help students understand, critique and contribute to the design of organisational structures, processes, behaviours and cultures that facilitate information flows, human interactions and decision making appropriate to the development of more sustainable business practices relevant to a dynamic and complex environment.
This unit will help you understand why and how organisational capacities to engage, collaborate, adapt and innovate have become critical success factors for business decision-making, challenging mechanistic models of organisation and favouring more responsive and flexible organic models. In a global and dynamic business environment, the design of an organisation can be a key component in creating competitive advantage. Factors such as decision making in ambiguous environments, capacity for co-innovation with stakeholders, capacity for cross-sectoral and inter-disciplinary collaboration and social capital building, ongoing stakeholder engagement, effective supply chains, etc., all can contribute to the ongoing sustainability of business in a dynamically changing business environment. With changes besetting business in relation to resource use, alternative energy sources and mounting pressure to contribute to sustainable development agendas at a global level, the unit also explores a number of complexity-based models to gain a deeper understanding of how creativity and innovation might be facilitated.
The theme of this unit is embodied in the title, i.e. ‘organisation design for agility and sustainability’, and thus includes an examination of decision-making, inter-organisational collaboration, complexity, learning, creativity, innovation, culture, power, the impact of technology, and challenges posed by sustainability objectives. An overarching concern is the tension between organisation design that serves a traditional, top-down hierarchical response to the commercial, environmental and social responsibilities of business in today’s environment, and organisation design that facilitates adaptive, flexible and viable responses to a constantly changing, competitive, regulatory and globally focussed business environment. Across manufacturing and service industries there has been an increasing focus on customer feedback. However, many are now emphasising the need for stakeholder involvement in key decision making.
Students enrolling in this degree will have come from a wide range of disciplinary backgrounds, and with more or less experience in the business discipline. This unit is designed to meet the needs of those new to the business discipline, whilst allowing those with broader business experience an opportunity to deepen their knowledge and understanding of sustainable business practices, where sustainable business is perceived as the simultaneous achievement of long-term and integrated economic, environmental and social business goals.
Key competencies in sustainability
“The emerging academic field focused on sustainability has been engaged in a rich and converging debate to define what key competencies are considered critical for graduating students to possess” (Wiek, Withycombe and Redman; 2011, p. 203). This unit is concerned with sustainable business practice that takes into account the increasingly significant global sustainability agendas that are impacting commercial, environmental, social, governance and political orientations and accountabilities. Wiek et al (2011) suggest that in such environments made more complex by the sustainability agenda, key competencies associated with dealing with holistic and trans-disciplinary approaches “are a critical reference point for developing the ambitious knowledge and skill profile of students expected to be future “problem solvers”, “change agents”, and “transition managers””. They suggest that the following competencies are critical for higher order thinking in complexity:
? Systems thinking competence – the ability to collectively analyse complex systems across different domains (society, environment, economy, etc.) across different scales (local to global) to enhance problem solving
? Anticipatory competence – the ability to collectively analyse, evaluate, and craft rich “pictures” of the future, i.e. look forward as well as backward
? Normative competence – the ability to collectively map, specify, apply, reconcile and negotiate values, principles, goals and targets of business and business management in complexity and context
? Strategic competence – (depending on the sector in which you are operating) the ability to collectively design and implement interventions, transitions and transformative actions toward achieving organisational goals. This outcome requires understanding strategic concepts such as intentionality, barriers, alliances, viability, feasibility, effectiveness, efficiency of interventions and unintended consequences
? Interpersonal competence – the ability to motivate, enable and facilitate business research and problem solving, including skills in communicating, negotiating, collaborating, leadership, pluralistic and trans-cultural thinking, empathy and building social capital to meet business objectives.
These competencies are represented in the diagram below:
Source: Wiek, A, Withycombe, L & Redman, CL 2011, ‘Key competencies in sustainability: A reference framework for academic development’, Sustainability Science, vol. 6, pp. 203-218
This unit is designed in recognition of the value of this approach and the insights it provides for capability and culture development. This model indicates that in today’s organisational and business environment there is need for capability to share, contribute and value-add to teams and groups through collective action. In other words, not only are you expected to be able to deal with complex and shifting agendas as an individual, you also need to be able to share your skills and understanding with other colleagues, take on board their perspectives, and, in achieving solutions and ways forward, deal with different personalities and communication styles, different cultural values and different agendas, priorities and levels of engagement. This skill is often known as “building social capital” within and across organisations and institutions.
The unit and assessments are designed to allow you the opportunity to practice and develop these skills. You are advised to consider these competencies, associated learning goals and their value to your professional development and organisational objectives.
The full article by Wiek et al (2011) is available via the link above for those students who would like to read more about the rationale and research underpinning this approach. Pedagogy underpinning this unit of study
The approach to learning in units of Master programs assumes a diversity of learning activities and materials that extend beyond those offered in textbooks or that can be achieved through private study alone. Knowledge created
through action and interaction is regarded as important as knowledge gained through analysis and critique of written or visual materials. Also, application of knowledge in appropriate context is a critical skill in both the developmental and operational domains of management action. Therefore, in this unit you are provided with many opportunities to interact with others, thereby increasing your knowledge and understanding of the potential for application of your learning in appropriate context. Some assessments will require you to engage with others over unit content, either in targeted discussions online or through group based assignments.
In studying this unit, you will need to develop your critical thinking capabilities, objectively discuss issues and rigorously support your analysis of issues and situations with appropriate reference to literature and other relevant sources. As you become more familiar with the subject matter, you will appreciate how these critical mindsets and approaches will help you contribute to a rounded appreciation of the issues and your effectiveness in contributing as a leader, manager and stakeholder to business sustainability in a changing business environment.
The learning materials for this unit are contained in the Lessons and associated Learning Objects provided online through the unit website. Links to prescribed and recommended readings are also provided on the unit website. The Schedule located on the unit website provides details, by week, of which Lessons and Learning Objects should be covered.
The unit website also details the requirements for assessable activities. Ensure you check the website often and especially for messages, discussion activities, the dates of scheduled requirements, and assessment requirements. Given the dynamic nature of the subject and the amount of public debates occurring at this time, critical developments may be posted on the discussion board. Keeping a Reflective Journal
It is strongly advised that you keep a reflective journal throughout the course, in which you consider the learning gained from the lessons and their relevance and application for business sustainability in your designated organisation. Your assignments will benefit from the insights you will gain throughout the course.
Explanation of Readings and Activities
Readings – Prescribed minimum vs. Recommended additional
Learning Object content together with the ‘Prescribed Readings’ nominated represent the minimum reading you will need to undertake in order engage with the unit and to subsequently demonstrate a satisfactory standard (as outlined in the Unit Outline). All the prescribed readings will be available to you for downloading or viewing in electronic form via links to these resources located towards the end of each Learning Object within the unit website. Where some readings are considered to provide greater depth or a significant insight, they will be highlighted as ‘recommended additional readings’ and links to these readings will also be provided. The ‘References’ section in each Learning Object lists all the literature used in the development of the unit. Many of these readings will also be accessible through the Library, although direct links are not provided. As discussed in the General Assessment criteria listed in the Unit Outline, a Distinction and a High Distinction require effective use of additional references to those prescribed, so your ability to research additional materials using the Library’s databases is an important skill to master. The Library staff are available to assist you with this. A tutorial on Library facilities is provided through the unit website.
Activities – Assessable vs. Exploring and Reinforcing
To help you further explore the content of the unit and to help reinforce your learning, some questions are posed and exercises suggested throughout the material. In addition to these questions and exercises there may be additional suggestions included in a section at the end of each Learning Object entitled ‘Activities and Exercises – Exploring and Reinforcing’. These ‘Exploring and Reinforcing’ exercises are designed for your benefit and will not be assessed.
Your progress throughout the unit will be formally assessed via participation in discussion forums. These activities are described in the section entitled ‘Assessable Activity’ and will be assessed. The details of the ‘assessable activity’ will be located at the end of the last Learning Object to be covered in any given week (i.e. where two or more Learning Objects are covered in one week, the ‘Assessable Activity’ will be detailed in the last Learning Object).
Discussions will occur on the main discussion board or in groups. Included on the unit website under ‘Extra Resources’ is a short PPT presentation on group work, and a resource concerned with working with an online group on a group assignment. These are important resources to understand effective learning in this environment as well as to successfully complete future assignments.
Discussion and Written assignment expectations
This unit has been designed to facilitate your learning through discussion of the material with students and the unit facilitator on an ongoing basis. By doing your preparatory reading at the beginning of the week, interactive discussions can occur with others during the course of the week. For each week of the unit, your individual response to the discussion topic is to be posted by the deadline nominated at the end of the week at the latest. However, you should regard the deadline as only the final point at which your participation will be recognised (unless you have sought an extension). It is the minimum requirement, and experience strongly suggests that your learning will be enhanced by entering discussions early in each week. This approach will also allow the unit facilitator to interact, rather than merely provide comments after the event. To give effect to this, it is strongly advised that you undertake the reading at the beginning of the week (preferably as early as the weekend) and begin discussions with others around mid-week.
You are also expected to write to a professional standard and produce rigorously argued and appropriately referenced reports, both in the group assignment and in individual assignments. Discussion board contributions can be more discursive than your assignments. However, in all your discussions and reports, you are expected to critique and analyse situations, behaviours, published materials, organisation policies, procedures, etc., and be cognisant of the rules of plagiarism. The learning materials provide frameworks, models and concepts to assist you in your analysis and evaluation. To do well in this unit you should expect to supplement these with additional relevant material discovered through your further research. Note that simply describing events, behaviours and situations is not sufficient. You are to analyse them, utilising (where appropriate) relevant concepts and theories from the literature, thus demonstrating your understanding of relevant theory and how that may apply or not apply to the situations you are evaluating and analysing. In this way you are developing alternative perspectives and (where applicable) a range of potential solutions. You are also demonstrating higher levels of understanding if you appropriately utilise relevant frameworks, models or concepts to assist in your analysis of particular contexts.
Exercise: Take time to examine a few of the resources provided to assist you with critical thinking and analysis. The ‘Extra Resources’ button on the unit website contains specific resources targeted at helping develop a critically analytical approach to your studies. They are: a comprehensive PPT presentation on critical thinking, a file containing aspects of presentation related to theories, models and concepts, a file on the appropriateness and credibility of sources of information; and (at the bottom of the page) a Library tutorial and website with tips and other library-related information.
Where an assessment task requires you to discuss or write about an organisation’s situation and issues, keep in mind that there are three possible stakeholders in the outcomes of your work: the unit convenor, who has expectations as outlined in the assessment itself and in the marking criteria; the organisation you are writing about may also have requirements in that they may wish to consider the recommendations (it is always a good idea to evaluate your report assuming you may need to convince the organisation to take your analysis and recommendations seriously); and yourself. Consider your own learning needs as you ask yourself: what do you want to say about this subject and the consequences of what you have learned for organisations and business in general? Sometimes this may be a difficult balance, but the reality of the commercial environment is such that learning to balance stakeholder requirements is a necessary skill.
Also, at postgraduate level you are expected to be able to write reports of a professional standard. It is expected, for instance, that you know how to set up a Table of Contents, include appendices, write an ‘Executive Summary’, and
include recommendations that flow from the arguments made within the body of the report. There are numerous ‘style guides’ available to assist you (refer to the Library), and presentation is a part of your assessment.
It is also expected that you know the importance of referencing your sources of data and argument, and of attributing other people’s ideas and materials appropriately. In all cases please reference according to the Harvard business referencing system ( available from the library.
Learning Object 1 Learning Object 1 Learning Object 1Learning Object 1Learning Object 1 Learning Object 1 -1: The Key Challenges for The Key Challenges for The Key Challenges for The Key Challenges for The Key Challenges for The Key Challenges for The Key Challenges for The Key Challenges for Organisations Organisations Organisations Organisations Organisations Aims and Objectives
In this first week you will be given the opportunity to familiarise yourself with the unit and gain a broad appreciation of the potential contribution of ‘organisation design’ to the key challenges facing organisations in today’s business environment. For those who have completed other units involving interactive discussions and group work, some of the first week’s exercises will be familiar. To those of you who haven’t, they are critical in developing an online presence and becoming familiar with online learning.
In this unit you will be asked to demonstrate your understanding of the unit materials by considering their application to your own (or a known) organisation where possible and appropriate. There will also be case studies used throughout the unit, and you are encouraged to utilise other published and web-based resources about these companies, to augment the supplied materials.
A major objective of this learning object is to provide you with an understanding of some of the key challenges that affect business organisation in the current business environment. In the next learning object we will look more closely at the concept of organisation and the development of organisation theory and design.
Note that we will be referring to Daft (2013) frequently. This textbook provides a summary of a broad range of the vast literature on organisational theory and design – therefore you are encouraged to go beyond the text. To assist in this task, the unit will supplement the literature summarised in the text and contrast it with other sources. Students are encouraged to explore as well as critique the materials presented both here and by Daft and others, and to undertake their own literature searches to facilitate effective critique of the topics and issues. In your assignments, you will need to demonstrate understanding of unit content. Therefore, you will benefit from demonstrating that you understand the theories, arguments and issues arising out of the learning materials presented here, and perhaps also considering them as a springboard for your further research. Key Concepts, Constructs and Debates
1. Organisation design in context
Daft (2013, pp. 34-35) remarks that the level of analysis one chooses to study organisations can be one of four possible levels. Human beings are the basic building block of organisations, and therefore the first level of analysis is the micro-level study of individuals (often termed ‘Organisational Behaviour’). In this Master of Commerce program, the unit ‘Leading and managing people in chaos and complexity’ deals mostly with this level of analysis of organisations, and the approach adopted here is complementary to those materials.
The next three levels of analysis utilise varying macro perspectives and comprise what Daft terms ‘organisation theory’. They are: group or department; organization; and, inter-organisation sets and community.
Organisation theory “might be considered the sociology of organizations, while organization behaviour is the psychology of organizations” (2013, p. 35). Organisation theory and design, however, does consider the behaviour of individuals but generally in the aggregate, at a group and organisational level.
The value of this distinction is being challenged as the complexity of the business environment increases. As an example, Dunphy (2008) suggests that dealing with the scope and speed of change and building (within the organisation) human capabilities that are aligned with the challenges of sustainable development and sustainable
business represent high priority challenges to business-as-usual. Separating human factors from organisational factors seems to make such alignments more difficult.
Daft (2013) also recognises that a changing role for management combines human factors (such a new leadership skills) with organisational factors (such as inter-organisational collaboration). He suggests:
If a top manager looks down to enforce order and uniformity, the company is missing opportunities for new and evolving external relationships. [Such] horizontal relationships now include linkages with suppliers and customers, who become part of the team. Business leaders can learn to lead economic co-evolution … [and to] appreciate … co-operative relationships with other contributors to the ecosystem … [to] collaborate and communicate effectively across organizational boundaries … (p. 188)
Also, with an increasing concern of business being the satisfaction of a wider range of legitimate stakeholder concerns, some of which are on a global scale, the design of organisational information flows and interactions among stakeholders is considered important for addressing risks to business from shifting agendas in economic, social and ecological domains. Multi-faceted and complex relationships, diverse cultural norms, tension and paradox, compromise and trade-off, etc., potentially characterise such an environment. Hence, separating organisational factors from human factors may be both challenging and unhelpful.
Nevertheless, Daft (2013) suggests that it is necessary for managers and employees to undertake multiple levels of analysis (micro and macro) and understand interrelationships between factors simultaneously when considering organisation design matters. It is important to understand how the more traditional forms of organisation, i.e. groups, departments, functions, organisations and inter-organisation collaborations, work effectively in these circumstances to fulfil the integrated economic, environmental and social objectives of business.
However, it is equally important to recognise that many of these interrelationships may be characterised by forms of dynamic co- or inter-dependency consistent with the complexity of a multi-stakeholder business environment and the pressure to address economic, environmental and social objectives of business simultaneously. Daft’s (2013) chapter 6 discusses complex organisation design for the international environment, where “multiple, interrelated, complex issues requires a complex form of organization and structure” (p. 247). He recognises that this ” … integrated network of individual operations … [is] linked together to achieve the multidimensional goals of the overall organization … [through] interdependence … [but] more than just an organization chart … it is [also] a managerial state of mind” (p. 247)”
In recognition of the value that can be obtained from fostering multi-disciplinary perspectives, we will also be exploring and critiquing approaches to decision making and innovation that are grounded in ‘design’ disciplines. These can facilitate the exploration of issues and potential solutions through collaborative and iterative interactions with affected parties, achieving emergent outcomes relevant to broad stakeholder agendas.
2. Key challenges for organisations
Many commentators have identified that the challenges facing organisations today are different from those they faced in the past, because the world is changing at an increasingly fast pace. There are many sources in the literature that suggest this possibility, and it is fast becoming accepted that business-as-usual conditions involve the ability to deal with relatively continuous and fast-paced change.
Daft (2013) identifies the current challenges faced by business under the headings of globalisation, intense competition, ethics and social responsibility, speed of responsiveness, the digital workplace, and diversity.
Exercise: Read about these key challenges in the text on pages 8-11 before continuing.
Daft (2013) further adds that pursuit of effectiveness over efficiency will focus an organisation’s managers on “the interests of various stakeholders in setting goals and striving for effectiveness” (p. 23, emphasis in the original).
The concern for a broad range of stakeholder influences is also reflected by Graetz, Rimmer, Lawrence and Smith (2006) in their book entitled “Managing Organisational Change”, where they suggest we are “experiencing a major paradigm shift in the nature and composition of organisations, not only in terms of the systems and structures that
served so well in more benign and certain times, but also in intra- and inter-organisational stakeholder relationships” (2006, p.147, emphasis added).
Reflecting on the challenges of complexity, Daft (2013) suggests that “[t]he world is full of uncertainty, characterized by surprise, rapid change, and confusion. Managers can’t measure, predict, or control in traditional ways the unfolding drama inside or outside the organization” (p. 34), thus perhaps challenging a wide range of traditional perspectives on identification, collection and dissemination of appropriate data and information, retention of organisational knowledge, the gaining and accommodation of multiple perspectives, etc. However, these perspectives and conditions also challenge decision-making effectiveness.
For many years, business commentators have argued that ‘… when the organizational environments are hostile, complex, and turbulent … organizations should be designed primarily to facilitate the making of organizational decisions’ (Huber & McDaniel, 1986 p. 572). Given the complexity and dynamism of the contemporary business environment, organisational capacity for decision-making should be an overarching concern in designing organisational interactions – both internal and external.
Influences such as globalisation and technological innovation exert pressure on business decision-making in areas such as: the basis of competitive advantage in a global market place; the lifecycle of products and services; a highly mobile, diverse and demanding labour force; the digital revolution; and the effect on people and processes of the increasing volume and pace of overlapping paradigmatic change. These require decision-making capabilities that leverage multiple perspectives, as well as intra- and inter-organisational connectedness, to facilitate ever quickening adaptive responses at organisation and business unit levels.
Graetz et al (2006) recognise these challenges and suggest:
“the new business environment requires an ‘inside-out’, wide-angled view of the world, coupled with go-to-market speed, flexibility and adaptability … [that has] … necessitated a shift from the traditional hard, rational, quantitative approach to managing organisations to a softer, more qualitative, intuitive, people-focussed approach, and an appreciation of the importance of considering both social and technical components in workplace design …” (2006 p. 147).
At a micro level, there are also practical challenges such as regulatory and legal frameworks, power bases, established traditions, self-reinforcing networks, and the massive task of culture change that accompanies shifts disturbing the status quo.
In addition, the ‘sustainable development’ agenda ushers in a significant set of new pressures and challenges for traditional organisation design concerns.
3. The impact of ‘sustainable development’ on organisational ‘design’ challenges
When concerns about ‘sustainable development’ are added to the mix of change drivers, additional matters such as:
? ethical and social responsibility
? resource stewardship of non-renewable resources
? the negative spill-over effects (or negative externalities) of business
? innovation capacity
? cradle-to-grave technologies and recycling
? new business models
? multi-sectoral, cross-industry and multi-national collaborative alliances and associated social capital
? more sophisticated models of decision-making in uncertainty
… add to the list of important issues for business and organisations to consider and manage.
We will discuss many of these throughout the unit. For those new to this topic, some further background to the ‘sustainability agenda’ is provided towards the conclusion of this learning object. However, at this point it may be useful to consider the most contemporary influences from a ‘sustainable development’ agenda.
An example of the possible future impacts of ‘sustainability’ agendas on business is provided by the World Business Council for Sustainable Development’s (WBCSD) “Vision 2050” report ( This scenario envisions a future for business that involves business collaborating with governments and communities to resolve the challenges of achieving a stable population of 9 billion by the year 2050, where people are “living well and within the limits of the planet” (WBCSD 2010). They suggest that meeting this challenge invites a radical rethinking of the roles and behaviours of business in achieving and maintaining sustainable human activity on earth. Significant challenges for business would appear to include redefining business success and associated measures, and fundamental changes to the way decisions are made and resources are utilised.
In a further example of the challenges raised by ‘sustainability’ for organisation design, Nidumolu, Prahalad and Rangaswami (2009) conclude, from their examination of a number of organisations embracing a sustainability agenda, that “[i]n the future, only companies that make sustainability a goal will achieve competitive advantage. That means rethinking business models as well as products, technologies and processes” (p. 58). They also note that some companies not only develop new sustainable products and services and new business models, but also build ‘next-practice platforms’ that “change existing paradigms … question the implicit assumptions behind current practices … [and] … synthesize business models, technologies, and regulations in different industries” (p. 64).
Mohrman and Worley (2010, p. 291) suggest that “some redesign is likely required to build the capacity to achieve the more complex set of sustainability outcomes”. Companies addressing the sustainability challenge (such as Gap Inc, Nike, GE, etc) have “created new structures, stakeholder linkages and roles; changed their work processes; created new goals and metrics; and changed the criteria for decision-making; built sustainability performance into their reward structures; and brought new competencies into the organization”. They also recognise the challenges of effective implementation, highlighting that, beyond the challenges of technical process change, “[p]eople have to learn to think and make decisions differently”, otherwise necessary changes will be short lived. Their research findings reveal ‘recurring themes’ around ‘deep and pervasive’ organisational design challenges associated with enhancing sustainability, which include:
? the need to align purposes (between shareholders and stakeholders, or between business operated for wealth creation and between business contributing to societal goals);
? the cross-functional nature of the transition (from functional silos to more collaborative integrated approaches);
? the building of cross-boundary connections and networks of value creation; and
? the capability development challenge – which might include “new cognitive maps – ways of understanding the inputs and processes of the organization and beyond – and ways of working with stakeholders to yield sustainably effective performance” (p. 292).
The Boston Consulting Group (BCG), in conjunction with MIT Sloan School of Management, undertook research that indicated there were significant advantages for organisations that embrace ‘sustainability’, and noted that the challenges for organisations are about developing new capabilities in the areas of: long-term systemic thinking, collaboration across internal and external organisational boundaries, process redesign, financial modelling and reporting, and stakeholder engagement (2009, p. 6). BCG also partnered with the World Economic Forum to examine successful innovation in dealing with sustainability challenges in emerging markets worldwide, noting that some companies ‘are in the vanguard of businesses working to solve fundamental environmental and social challenges and to reshape their business landscapes. Collectively and individually, these companies are becoming inspirational models not only for their emerging-market peers but also for businesses worldwide’ (
The elevation of sustainability agendas to a priority focus for business, either through innovation as noted above, or through regulation (e.g. renewable energy targets, potential carbon emission constraints), through pressure for sustainable supply chains, or through legitimate stakeholder concerns and associated risks, present challenges to a number of traditional views on the roles, functions and activities of business. These include, among other things, the primacy of shareholder value creation as the main objective of business, the value of a short term focus, humans as resources or factors of production, and the role of hierarchies in a constantly changing business environment.
All these matters can be of concern to effective organisational design, as they involve determining the relevant information, how it is accessed and processed, and how effective decisions are made utilising that information.
3.1. From shareholder value to stakeholder value?
Graetz et al’s (2006) comments (above) about a paradigm shift in organisations fuelled in part by changes in relevant stakeholder concerns. The increasing challenge for organisations is to move from a narrowly defined purpose of business (i.e. about maximising the value created for one group of stakeholders, i.e. the shareholders), to creating value that is seen as appropriately satisfying the legitimate interests of a wide range of stakeholders.
At the broadest level, society can be perceived as a business stakeholder group – and, increasingly, society seems concerned about unnecessary or inappropriate depletion or harm to resources. This has been amply demonstrated in the ongoing global financial crisis and associated debates about risks and rewards in the financial sector impacting negatively on quality of life for many around the globe. It has also been highlighted in climate change debates which target carbon emissions from energy generation and transport in particular. The debates around ‘peak oil’ also reflect concerns about high levels of dependence on fossil fuels and security concerns where these become increasingly expensive as a result of short supply. However, while these are significant global issues affecting many business organisations both now and in the future, they are not the only influences on how business is conducted within the society in which it operates.
Some issues capture the headlines (e.g. pollution, global warming, recession, financial stimulus by government). However, in the everyday challenges of running a business organisation there are a wide range of legitimate stakeholders potentially affected by the design and conduct of organisations. A simple illustration of an everyday situation demonstrates how stakeholders (in this case customers, citizens and community members) can be interested in organisation outcomes and, as such, how these concerns may be an issue for organisation design.
Imagine the following scenario: As a customer of a mobile phone company you may have experienced feelings of frustration, annoyance, powerlessness, etc., at the lack of responsibility given to customer interface staff when you are trying to resolve a problem with your phone or your account. It can sometimes appear as though the organisation is deliberately structured to place sales ahead of service, because it can be very difficult to get information other than the details of an upgrade ‘plan’ or a new phone deal. While you may appreciate being provided instant information about such things as unexplained charges, the appropriateness of your plan to your needs, or the connection between phones and plans, you may also be concerned about the potential harm to your health from the technology, the toxic materials used in the manufacture of phones, or the consequences of someone stealing your phone and using it to broadcast illicit or illegal material. Having the organisation designed to satisfy customer needs (that probably also align with organisation needs for improved sales and with shareholder needs for improved financial returns and wealth creation), prioritises one set of stakeholder requirements (financially related) over other sets. Such a focus in organisation design would potentially make it more difficult to find someone who could help resolve your health and ethically related concerns, as such concerns might be perceived as lower priority concerns for the business.
In a situation like the above, the implications for organisation design might include: the ease of communication between customers / clients and relevant employees in the organisation (including technical experts), delegation of decision-making capacity, the capture and analysis of relevant information for service improvement, the nature and composition of teams (virtual or physical, technical or general, product based or department based, etc.), the degree of self-management and supervision, outsourced versus in-house service, self-contained profit centres (business units) or organisation cost centres (departments or functions), matrix or linear reporting structures, ongoing stakeholder engagement strategies, etc. Therefore, organisational decisions around meeting the needs of a wider range of legitimate stakeholders can be expected to have significant implications for organisation design, and some of the implications may not accord with existing operating structures, cultures, skill sets or attitudes.
As noted above, there is broad community interest in the outcomes and consequences of organisation activity, most recently fuelled by ‘sustainable development’ concerns. Consequently, the broader view of stakeholder value creation will vie with the traditional view of shareholder value creation for priority attention by business organisations in the future – as government, business and community organisations collaborate to resolve sustainability issues.
Question: How does your organisation identify and prioritise legitimate stakeholder influences? Do their concerns create resource intensive add-ons for management? Does the organisation discover ways of operating that are
beneficial to both stakeholders and the organisation? Are these ‘designed’ or ‘planned / tested’ – or do they emerge to fit the need at the time?
3.2. From short term to long term analytical timeframes
Nidumolu et al (2009) indicate that some organisations will regard developments associated with ‘sustainability’ from a narrow perspective, and will likely respond to pressing issues with minimum effort, perhaps by complying with legislation or by seeking short term market opportunities. They also provide examples of companies that have taken a broader and longer term perspective on sustainable development and business practices. Organisations such as these may seek to develop effective responses to both short and long term issues, seeking innovative responses for both creating competitive advantage (a necessity in market based economies) and better resource usage (a necessity in a finite global environment), investing in long term developments, and engaging a wide range of stakeholders both within and external to the organisation.
The climate change phenomenon provides a clear illustration of the fact that negative spillover effects of business and human activity may not be perceived or felt for generations after the practices that cause the deleterious results began. Climate scientists suggest that the build-up of carbon in the atmosphere results from human activity that occurred generations prior, exceeding the rate of absorption such that if a total ban were possible on carbon emissions (and it is certain that it would not be without catastrophic economic and social consequences), it would take generations to stabilise the amount of carbon in the atmosphere. This suggests there are cases where a sole reliance on immediate feedback loops (i.e. complaints, injuries, and even subsequent regulatory constraints) can be regarded as short sighted and irresponsible.
It could therefore be concluded that traditional methods for assessing the benefits and disadvantages of investment / development proposals (required for acceptance by both business and the community such proposals) might now need multi-generational and global perspectives to be incorporated. This would appear to challenge much traditional, rationally-based analysis, including many of the tools and frameworks that rely on a forecast-able future in terms of risk, interest rates, inflation rates, cost structures, community attitudes, and the availability of trained and experienced people over long periods. Where organisations are designed assuming these are the only reliable information sets and decision making structures, then significant risks to organisational survival may be overlooked.
Question: With the life cycle of many organisations often measured in single digits, how do long term goals and activities survive changes in senior management, changes in direction and short duration organisation ‘lives’? What are the impacts on organisation design? What sort of organisation structures may be needed to ensure ongoing attention to long term projects?
3.3. From human resources to human resilience
In the Master program of which this unit is part, human resource utilisation is also considered from a sustainability perspective. It could be argued that just as the environment is showing signs of stress resulting from inappropriate resource usage built up over many years, human capability and functioning is also revealing signs of accumulated stress. The challenges for business of an aging population, increasing skill shortages, fast-paced change (often paradigmatic in nature), and an increasingly complex business environment, suggest that changes may be urgently needed in workplace design to combat growing workplace stress (note that stress constitutes the second highest source of workplace injury claims in Australia –, and build processes and cultures that support diversity, flexibility, adaptability and coping strategies to deal with inevitable transitions to new structures, processes and behavioural paradigms that enable change challenges to be met with resilience, vigour, rigour and innovation.
Champoux (2006, p. 412) notes that the design of an organisation “is much more than the lines and boxes on an organization chart” in that it represents a pattern of interactions linking “technology, tasks and human components” of the organisation. As we progress through the unit we will further examine human responses to complexity to gain a deeper understanding of potentially appropriate and effective links between organisation design and sustainable operations.
Question: Is it conceivable that organisation design can play a role in supporting effective response to change and fostering individual well-being within heavy change and stress conditions? Can organisational arrangements for stakeholder engagement, identification and prioritisation of issues, decision-making, power sharing, resource access and usage, accountability and performance be implemented so as to generate confidence, improve learning, and build resilience at all levels in the face of constant change? What might need to change in organisations for these objectives to become reality? Can you think of examples from your experience?
3.4. From hierarchical organisations to an inter-organisational collaboration paradigm?
An illustration of attitudes to hierarchical control and its impact on individuals and the community is illustrated in a 2007 current affairs television program (ABC Four Corners ‘Tough Calls” 18 June 2007). It explored the call-centre culture of Australia’s largest telecommunications provider (Telstra) as well as the processes employed in attempting to change culture. A senior manager at the time gave a rare insight into the potential for hierarchical, control-based management to be a cause of distress in the workplace. He stated;
… we are not running a democracy, we don’t manage by consensus (we are criticised for it), but the fact of the matter is we run an absolute dictatorship … it’s a cultural issue … if you can’t get the people to go there, and you try once, and you try twice, which is sometimes hard for me but I do believe in a second chance, then you just shoot them and get ’em out of the way … (Greg Winn audio, 30 May 2007, in ABC Four Corners “Tough Calls” 18 June 2007)
The program provided many examples of employee responses to the culture adopted by the then senior management to facilitate change, including mild to extreme distress. The program suggested there were strong connections between management approaches and the distress of individuals, with consequent effects for families and the wider community.
This example illustrated how highly controlled, top-down, imposed change, seemingly regardless of context (including the challenges of changing individual and cultural perceptions of identity and success), created difficult tensions for people sensitive to customer concerns, apparently resulting in severe anxiety and depression in some employees. The justification appeared to be that the market required structural and cultural adjustments, and strict hierarchical control was necessary to achieve required changes in an appropriate time-frame. Many would agree with some of the rationales given, e.g. that ‘one-stop shops’, and instantly accessible 24 hour – 7 day services, were the minimum for being competitive in the industry and, coupled with the context of privatising a large public institution, such approaches were necessary to survive. However, the assumed inevitability of trade-offs between organisational financial health and individual employee health and well-being, may well have been challenged and alternative models adopted (and we shall explore some of these alternatives as we progress).
Subsequently in February 2008, Telstra’s then CEO claimed that the structural adjustments were having the desired effect as manifest in improved profitability and share price (that was occurring at that time). Events since, including the global recession, the departure of the management team, and the debates about wholesaling/retailing and broadband infrastructure development prevent any further analysis of claims to profitability improvement as a result of culture changes. However, the cost of such control-based hierarchically-imposed change on human resources appears to raise questions about the relationship between hierarchical control and human well-being under fast changing business conditions. There is also a large body of literature concerned with the positive and negative impacts of participation in decision making by those affected by the decisions which we will consider later in the unit.
Question: What does the Telstra case tell us about the way analysts evaluate an organisation?
At an inter-organisational level, there are growing calls for and evidence of collaboration to achieve relevant and sustainable outcomes in today’s changing business environment. We have already noted some of Daft’s (2013) many references to this in Chapter 5, and in global business think tanks, such as the World Business Council for Sustainable Development (WBCSD) and the World Economic Forum (WEF), and global institutions, such as the UN and the World Bank, multi-sectoral collaboration is seen as fundamental to a sustainable future. For instance, outcomes of the 2008 WEF annual meeting suggested “business, government and civil society leaders called for a new brand of collaborative and innovative leadership to address the challenges of globalization, particularly the pressing problems of conflict in the Middle East, terrorism, climate change and water conservation”
( These challenges have not diminished. The WBCSD (2010) in their ‘Vision 2050’ report purport “A radical new landscape for business” in which “Business, consumers and policy-makers will experiment, and, through multi-stakeholder collaboration, systemic thinking and co-innovation, find solutions to make a sustainable world achievable and desirable” (Executive Summary p. 2).
Such collaborations would appear to involve public – private partnerships (including government, the private sector and the not-for-profit sector) and increasingly involve competitor collaboration. These collaborative arrangements may also be a means of satisfying a wider range of stakeholder interests.
However, these collaborative efforts do not suit all organisations and may present a significant challenge. It is not a matter of structural design issues, there being significant implications of organisation culture, including values, attitudes and behaviours around the purposes and means of development and innovation, the value of competition, resource usage, perceptions of the nature and legitimacy of stakeholder interests, the pre-eminence of short term shareholder wealth creation, political process, etc.
Question: What do you think might be the major organisation design considerations related to inter-organisational collaboration compared to hierarchically-based competitive stances?
In relation to hierarchies, they do however appear to have generated some advantages over time. Leavitt (2003) provides a review of the advantages and disadvantages of hierarchical organisation structures noting they remain the basic structure of most large ongoing human organisations despite their capacity to “be cruel and stupid” and “terribly flawed” (2003, p98). Apart from their “impressive adaptability … hierarchies deliver real practical and psychological value … fulfil[ing] our deep needs for order and security. And they get big jobs done” (2003, p.98).
Max Weber (1864-1920) advanced a set of principles supporting bureaucratic organisation as an effective means of organising large groups of people efficiently and rationally (see Daft 2013 pp 362-363). He advocated principles governing an ideal bureaucracy which are reflected in Daft’s (2013) summary of Weber’s ‘dimensions’ of bureaucracy as follows:
? Hierarchy of authority
? Rules and procedures
? Written communications and records
? Separate position from position holder
? Technically qualified personnel
? Specialisation and division of labour.
This form of organisation “provided many advantages over organization forms based on favouritism, social status, family connections or graft” (p. 363).
Question: What issues might arise in the emerging cross-sectoral, cross-industry forms of collaborative enterprise that bureaucratic hierarchies have addressed effectively in the past? What role might transparency play in ensuring these issues do not arise?
Criticisms have been made of bureaucracies, especially their capacity to treat humans as impersonal, but including a range of other flaws including the potential for conflict, corruption, accountability avoidance, group-think, rigidity, overspecialisation, lack of transparency, self-perpetuation and stifling of common sense. However, given their persistence, it might appear that the perceived benefits of impersonality, rationality, efficiency and managing large complex tasks have outweighed the perceived disadvantages of bureaucratic hierarchies over time.
Nevertheless, the pace and frequency of change and the complexity of the environment now pose major challenges to bureaucratic hierarchies. Daft (2013, p. 367) suggests “today’s world is in constant flux … and the machine-like bureaucratic system of the industrial age no longer works so well as organizations face new challenges and need to respond quickly”.
4. Further background to ‘sustainability’ challenges
The impact of the sustainable development agenda (including environmental stress, poverty alleviation, addressing social exclusion, etc.) has been discussed globally since the early 1960’s (1961 witnessed the foundation of the World Wide Fund for Nature and Amnesty International) and around 26 years later the Brundtland Commission delivered its report highlighting the need for inter-generational consideration of a sustainable development agenda to the UN (The World Commission on Environment and Development, 1987). At the World Economic Forum in 2000 (a further 23 years) ‘sustainable development’ (and Corporate Social Responsibility) was recognised on the agenda of international business.
In Australia, after a promising response to sustainable development concerns in the late 80s, from the mid-90s there was a general failure to progress in these areas where they involved the threat of economic disadvantage to resource exports or international trade-exposed industry. However, at around the time the UK Treasury released the Stern Review on the economic impact of climate change in October 2006, there seemed to be a resurgence of interest in both political and business environments related to more sustainable business practices, including such developments as:
? Australia’s greenhouse gas reporting legislation,
? the IPCC’s report ‘Climate Change 2007’, expressing very high confidence that global warming was caused by human activity and outlining the implications and potential mitigation strategies, and
? Australia’s ratification of the Kyoto Protocol of the UN Framework Convention on Climate Change (UNFCCC).
However, the global financial crisis (GFC) that began in 2007/8, while highlighting the challenges of myopic perceptions of risk in the financial system, as well as the extensive implications this has for a range of ‘innocent’ stakeholders, refocused attention on economic concerns. Also, the challenges of gaining global agreements over appropriate action to take on climate change that became apparent after the failure of a much vaunted possibility at the Copenhagen meeting of the parties to the Kyoto Protocol in 2009, slowed progression on the climate change agenda. However, there is now universal agreement about attempting to hold global warming to 2 degrees Celsius over preindustrial levels, and a new enforceable agreement under development that would recognise differences in various countries’ ability to make changes. Also, in September 2014, the IPCC will release its 5th consolidated assessment of the science of climate change, potentially raising interest again in action needing to be taken.
Also, there continues to be progress towards both the opportunities and challenges of the sustainability agenda, with business think tanks such as the WBCSD and the WEF seeking new pathways and means to create value in a carbon constrained future, as well engaging in significant questioning of business-as-usual paradigms. For instance, integrated reporting against economic, social and environmental outcomes is an area that has developed rapidly in this period due to consequent changes in community and investor expectations, and this has implications for the way information is captured, disseminated and fed into decision making, a topic of specific concern to the study of organisational design.
5. Multiple and increasing challenges as context for organisational design
The GFC has highlighted both positive and negative aspects of hierarchy and the implications for an increasingly interconnected economy of the decisions of a few in highly influential and powerful economic positions. It also highlights the speed with which business conditions can shift and the increasingly global nature of our economic and social interactions, with climate change exemplifying the interconnectedness of our environmental actions.
Business has traditionally relied on developing and leveraging from its economic capital (including physical and financial) and its human capital (though investment in human resource development functions). It is realising increasingly its responsibilities for utilising natural or environmental capital in sustainable ways through changing community attitudes. However, the calls for multi-sectoral collaboration are only beginning to reflect the challenges associated with building the sort of social capital, i.e. bonding, bridging and linking between individuals, organisations and institutions (Woolcock 2001) that will enable business to meet the challenges articulated, for instance, by the WBCSD (2010) or Nidumolu et al (2009) discussed above, and reinforced by such institutions as the WEF (, the World Bank (, the OECD (, the UN (, and so on.
Exercise: To reinforce the extent of the challenges of managing the various ‘capitals’ relevant to a business, explore the ‘integrated reporting’ framework and its ‘business model’ foundation at You will need to download the IR framework and then access the ‘business model’ diagram located there.
Question: What is suggested in relation to these capitals that represents challenges to business-as-usual decision-making processes? Hint: How does a business make decisions about capitals it does not own but utilises in its business model?
The business environment is changing rapidly, and it is suggested here that concepts describing sustainable development and associated business sustainability add significantly to the key challenges for business outlined by Daft (2013), especially resource usage (environmental, human and financial), the wide range of legitimate stakeholder concerns to be addressed by organisations in the future, and the drive for collaborative approaches to decision making and innovation.
Add these issues to the following major challenges that already exist, i.e.
? the influence of technology enabled global collaboration in such areas as;
o outsourcing innovation to business partners working together in networks
o using consumers as innovators
o shifting work to freelance specialists regardless of location
o sharing of IT, logistics, and distribution infrastructure between competitors (see for instance Daft (2013) chapter 8)
? the observable trends in global outsourcing of low skilled, semi skilled and high skilled work, and
? the influence of the volume and pace of change on predictable organisation trajectories and the maintenance of equilibrium states so often assumed in change management approaches,
? and there are significant questions raised over the effectiveness of, and long-term viability of, traditional top-down hierarchies and their associated ‘command-and-control’ leadership and processes that assume the people at the top know how to respond to complexity and need to instruct the people at the bottom what to do.
Albert Einstein is quoted in the New York Times Magazine (23 June 1946) as follows:
“Many persons have inquired concerning a recent message of mine that “a new type of thinking is essential if mankind is to survive and move to higher levels.” Often in evolutionary processes a species must adapt to new conditions in order to survive. Today the atomic bomb has altered profoundly the nature of the world as we know it, and the human race consequently finds itself in a new habitat to which it must adapt its thinking. In light of new knowledge…an eventual world state is not just desirable in the name of brotherhood, it is necessary for survival… Today we must abandon competition and secure cooperation. This must be the central fact in all our considerations of international affairs; otherwise we face certain disaster. Past thinking and methods did not prevent world wars. Future thinking must prevent wars.”
He is also credited with saying something similar in the following unsourced quote:
“The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” (Source Wikiquote
If we were to replace the words ‘atomic bomb’ with ‘discovery of human induced climate change’ (or perhaps ‘terrorism’ or ‘population increase’ ) and the words ‘wars ‘ with ‘unsustainable development’ the comment might apply equally well today. It appears that new levels of thinking are required to design organisations that will facilitate human cooperation, creativity, synergy and innovation within the context of a global knowledge economy.
Question: Are we in an era in which new organisational and inter-organisational paradigms are needed to help facilitate effective human endeavour in an increasingly complex and fast changing globally oriented business environment? What evidence do you have to support your answer?
Australian Broadcasting Commission 2007, ‘Tough Calls’ in Four Corners broadcast 18 June 2007
Boston Consulting Group, 2009, The Business of Sustainability: Imperative, Advantages and Actions, viewed 1 June 2015 <>
Champoux, JE 2006, Organizational Behavior: Integrating Individuals, Groups and Organizations , 3rd Edn, Thomson South Western.
Daft, RL 2013, Organization Theory and Design, 11th Ed, South Western, Cengage Learning, OH, USA
Dunphy, D 2008, ‘Sustainable Organizations’, in Cummings, T.G. (ed) Handbook of Organizational Development , Sage, CA
Graetz, F, Rimmer, M, Lawrence, A & Smith, A 2006, Managing Organisational Change , 2nd Australasian Edition, John Wiley & Sons Australia Ltd, Milton, Qld.
Hogan, J 2007, ‘Telstra won’t hot-tail it with Optus, Moptus and Floptus’, The Age , 7 December 2007
Huber GP & McDaniel, RR 1986, ‘The Decision-Making Paradigm of Organizational Design’, Management Science, vol. 32, no. 5, pp. 572-589
Leavitt, H 2003, ‘Why Hierarchies Thrive’, Harvard Business Review , vol. 81, no. 3, pp 96-102
Manyika, JM, Roberts, RP, & Sprague, KL 2007, ‘Eight business technology trends to watch’, The McKinsey Quarterly , December
Morhman SA & Worley CJ 2010, The organizational sustainability journey: Introduction to the special issue’, Organizational Dynamics, vol 39, no. 4, pp 325-334
Nidumolu, R Prahalad, CK & Rangaswami, MR 2009 ‘Why sustainability is now the key driver of innovation, Harvard Business Review, September
World Business Council for Sustainable Development 2010. Vision 2050: The new agenda for business, viewed 1 June 2015 <>
The World Commission on Environment and Development 1987, Report of The World Commission on Environment and Development: Our Common Future,viewed 1 June 2015 <>
Prescribed Readings
Daft, RL 2013, Chapter One pages 3-11 of ‘Organizations and Organization Theory’, in Organization Theory and Design, 11th Edition, South Western, Cengage Learning, OH, USA
Dunphy, D 2008, ‘Sustainable Organizations’, in Cummings, T.G. (Ed) Handbook of Organizational Development , Sage, CA
Morhman SA & Worley CJ 2010, The organizational sustainability journey: Introduction to the special issue’, Organizational Dynamics, vol 39, no. 4, pp 325-334
Recommended Additional Readings
Leavitt, H 2003. ‘Why Hierarchies Thrive’, Harvard Business Review , vol. 81, no. 3, pp 96-102
Nidumolu, R Prahalad, CK & Rangaswami, MR 2009 ‘Why sustainability is now the key driver of innovation, Harvard Business Review, September
Learning Outcomes
On completion of this learning object you should be able to:
? Appreciate some of the key contemporary challenges for organisations
? Appreciate the potential impact of sustainable development on traditional business organisation
? Be able to discuss some of the major issues and challenges facing organisations as a result of changes in the business environment.
Exploring and Reinforcing
Read the prescribed readings and to test your own understanding consider the questions highlighted throughout the learning object and ask yourself:
? What is organisation design?
? How can organisation design help achieve more sustainable business practices?
Begin to explore the unit website, including features such as discussion board, groups, assessments, schedule, and communication facilities. Please ensure you have read the ‘Welcome’ file that is attached to the welcome announcement and also included under ‘Extra Resources’ on the unit website. Please also read the ‘introduction’ located under the ‘Learning Materials’ button and linked through the ‘Schedule’.
Make sure you are familiar with the Library facilities and can access search facilities. To test these you may want to try finding literature on some of the challenges, e.g. try typing in ‘organisation theory’ in the article search and retrieving the abstract of relevant articles. Ensure you understand the Harvard referencing system in use at Swinburne University and if you are unfamiliar with business report writing, it is suggested you find appropriate resources in the Library to help you.
Finally, note the ‘Schedule’, the expectations for discussion participation, and the timing of your assignments
Assessable Activity – Week One
For Week one you are required to locate the ‘Welcome and Introductions’ forum in the ‘Discussion Board’ on the unit website located within Blackboard. Introduce yourself to other participants providing some relevant personal details and your aspirations for this unit.
Also, in the main ‘Discussion Board’ forum entitled ‘Week One Discussion’, (i.e. not on the ‘group discussion board’ located under ‘Groups’) respond to the following
Which of the key challenges for organisations affecting organisational design have had an impact on your organisation?
Give examples where possible. You should attempt to keep your response short and structured in such a way as to invite comment. See the resource located under ‘extra resources’ on the unit website called ‘discussions and extensions in this unit’ for hints on making effective contributions.
Learning Object 1 Learning Object 1 Learning Object 1Learning Object 1Learning Object 1 Learning Object 1 -2: The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and The Evolution of Organisation Theory and Design Design Aims and Objectives
This Learning Object aims to provide an overview of the development of organisation design theory and introduce some contemporary theories that are influencing the development of organisation design.
The objective is for you to have the opportunity to develop an understanding of the concept of organisation, including elaborations derived from systems and complexity theories. There is also the opportunity to understand the philosophies underpinning organisation design and perspectives on the purposes organisations serve. Key Concepts, Constructs and Debates
Read Daft (2013) Chapter One, pp. 7-47. The following notes summarise and add to the content included there.
1. What is an organisation?
Daft (2013) defines organisations “as (1) social entities that (2) are goal directed, (3) are designed as deliberately structured and coordinated activity systems, and (4) are linked to the external environment” (p. 12). Champoux (2006) defines organisation more broadly as “a system of two or more persons, engaged in cooperative action, trying to reach a purpose” – drawing on Chester Barnard’s (1938) ‘The Functions of the Executive’. He goes on to suggest that organisations are “bounded systems of structured social interaction featuring authority relations, communication systems, and the use of incentives. They usually have hierarchical form, whether steep or shallow. Organizations have formal legal status … ” (2006, p.7).
Daft (2013) recognises that the “an organization is not a building or a set of policies and procedures; organizations are made up of people and their relationships with one another” and that the “[b]oundaries between departments, as well as those between organizations, are becoming more flexible and diffuse as companies face the need to respond to changes in the external environment more rapidly. An organization cannot exist without interacting with customers, suppliers, competitors and other elements of the external environment” (p.11).
1.1 What are the conceptual boundaries of an organisation?
A number of questions have been raised in the literature regarding the way we perceive organisations and the relationship between ‘organisation’ and ‘change’. Some commentators suggest that change is not an event that happens to an organisation, rather, organising (and hence organisation) is a response to omnipresent, constant change (Orlikowski 1996, Tsoukas & Chia 2002, Weick 1993, Weick & Quinn 1999).
From this perspective, organisation actors network with the external environment, accommodate new experiences (through reflection, adaptation and adjustment) and improvise. This suggests a reality in which there is constant adjustment by individuals between their internal and external environments, based on perceptions. Tsoukas and Chia (2002) add that managers have the unique positional power to ‘declare’ a new state of affairs and thereby introduce dialogue that makes it “possible for organisational members to notice new things, make fresh distinctions, see new connections, and have novel experiences, which they will seek to accommodate by reweaving their webs of beliefs and desires”(p.579).
Therefore, a capacity exists for organisation boundaries to shift in response to perceptions of organisation actors about what is and what is not an important stimulus in the external environment. While this may be a more accurate perception, there is still a question about who has the capacity to determine what is important and hence influence the organisation’s responses and trajectory?
Exercise: Think about internal and external pressures for change. Think about examples where management has unilaterally altered the organisation purpose in response to changes in the business environment. What did this mean in terms of staffing, formal and informal structure and process?
1.2. Organisations as systems
Writers on the implications of complexity and systems theories also offer perspectives on the nature of organisation. Daft (2013, p. 33) has discussed organisations from a systems perspective, noting that many early organisation studies assumed an organisation could be made more effective by focussing on internal systems alone. He suggested a more appropriate view of organisations, namely that they were open systems interacting with the environment to survive. Consequently, they are exceedingly complex. In this instance, efficiency of internal systems is only one small element of organisation effectiveness, and understanding how the organisation operates requires understanding it as a system with subsystems interacting with the environment. This view is increasingly supported by scholars who envisage a significant role for business in achieving societal sustainability goals.
In relation to the capacity of an individual to exert influence over systems, two major theories (Cybernetics – Beer (1959) and General Systems Theory – von Bertalanffy (1968)) suggest that an individual can exert influence over a system’s movement towards an equilibrium condition (in the form of a goal or other manifestation of order and stability). In a third form of systems thinking called Systems Dynamics, the system can be influenced but may not move to the desired equilibrium, and in that case it ceases to be self-regulating and may become either self-sustaining or self-destructive. However, in all three theories the system can be influenced by actions of an individual, and it is up to the individual to understand how to intervene and appropriately influence the system’s behaviour.
This issue of control, influence and the determination of order is central in understanding the implications of various theories in organisation design.
1.3. Complex environments and order (or organisation)
Complexity theories have had a significant impact on perceptions of business leadership theory and management practices. A critical effect for our purposes has been its use as a model to critique systems theory. Complexity theories are
“concerned with the emergence of order in dynamic non-linear systems operating at the edge of chaos: in other words, systems which are constantly changing and where the laws of cause and effect appear not to apply… Order in such systems is seen as manifesting itself in a largely unpredictable fashion, in which patterns of behaviour emerge in irregular but similar forms through a process of self organisation, which is governed by a small number of simple order-generating rules.” (Burnes 2005, p.77).
The dynamic, non-linear nature of interaction within natural systems means that, while the outcomes of the actions of these systems are unpredictable, order is created and can be observed at an appropriate level of abstraction. According to some complexity theories, this can be at the ‘edge of chaos’ or ‘far from equilibrium’ and is achieved through the operation of a set of simple order-generating rules.
An often quoted example is the mathematical simulation by Reynolds (1987) of the flocking behaviour of birds (also called the ‘Boids’ model), by applying three simple rules to what would otherwise be chaotic behaviour, i.e.
? separation: steer to avoid crowding local flockmates;
? alignment: steer towards the average heading of local flockmates; and
? cohesion: steer to move toward the average position of local flockmates.
Complexity theories therefore differ from systems theories most significantly in their assumptions about how order is created. In systems theories, order can be created by action from outside the system aimed at moving the system to a stable state. An example might be through the use of goal setting by management. According to complexity theories, however, order self-generates or emerges from unpredictable inter-activity within the system, But such “randomness and disorder occur within certain larger patterns of order” (Daft, 2013, p. 34).These perspectives challenge the purpose of a number of organisation practices including goal setting and strategic planning, suggesting they might well influence the direction of systems but may not successfully exert control over them.
1.4. Practical relevance of systems and complexity theories?
One practical consequence of viewing an organisation as comprising open systems is illustrated by the increasing pressure for business and government organisations to internalise more of the previously ignored environmental and social consequences of their actions. The impacts of organisational and institutional systems on environmental and social systems are now regularly subject to scrutiny and debate from a broader base of shared interests and on an increasingly global scale. It is less and less likely that it will be acceptable to treat organisations as closed systems in future, especially as we have come to accept that the interaction between human and environmental systems e.g. climate change, organisational well-being, OH&S, etc., have deleterious consequences well beyond the timeframes we usually consider in business decision-making.
Porter and Kramer (2006), for instance, advocate for the need for business organisations to integrate their social and environmental objectives within their core value contributions to society. They note that “the mutual dependence of corporations and society implies that both business decisions and social policies must follow the principle of shared value …” (2006, p.84, emphasis in the original). In a more recent contribution, Porter and Kramer (2011) emphasise that the creation of shared value for both business and society is fundamental to future business success.
Questions: What do you think ‘shared value’ means in this context? What does this say about the boundaries of an organisation and organisations as open systems? What are the implications of ‘shared value’ creation for organisation design?
A practical outcome of viewing ‘organisation’ as an attempt to create order in a complex and ever changing environment is that it can result in attempts to impose order via the will of the few (more often than not at the ‘top’). This approach suggests belief in linear processes with predictable consequences that culminate in stability and desired outcomes. It assumes it is possible to control the organisation’s complex interactions with the continuously changing environment, often denying the capacity for a complex system to generate appropriate and needed creativity, innovation and localised responses. However, given there is a significant difference between natural and human systems, i.e. in human systems consideration needs to be given to the impact of human intentionality, free will, choice, power relations, time constraints and ideologies in influencing the behaviour of systems, it is somewhat understandable why control-based behaviour persists despite the failure of many strategic plans to achieve their intentions.
Questions: What does a control-based approach say about the boundaries of an organisation? What are the implications of trying to control all its interactions with a complex and ever changing environment?
We will further discuss the influences and practical outcomes of systems and complexity theories later. For now it is sufficient to grasp that these views seem to have growing relevance in an increasingly complex and fast changing business environment.
2. Types of organisations and their importance
Following the more traditional approach to organisation theory and design, Daft (2013) outlines the dimensions and properties of a number of types of organisations (multinationals to non-profits) that will not be repeated here but to which you should refer (page 13). He concludes that “… organisation design concepts … such as dealing with issues of power and conflict, setting goals and measuring effectiveness, coping with environmental uncertainty, implementing effective control mechanisms, and satisfying multiple stakeholders” apply to all organisations, including for-profit and not-for-profit, large and small.
Daft (2013, p. 14) also refers to a wide range of activities and influences on organisation purpose, which he lists as follows:
? Bring together resources to achieve goals;
? Create value for owners, customers, employees;
? Accommodate challenges of diversity, ethics and coordination;
? Adapt to and influence a rapidly changing environment;
? Use modern manufacturing and information technologies;
? Facilitate innovation; and
? Produce goods and service efficiently.
In a world sensitive to sustainable development issues, the value creation aspect seems of critical importance. When one considers the range of stakeholders who are influenced by the value creation (and destruction) activities of the ‘organisation’, it also seems a significant challenge (although Daft appears to regard stakeholders narrowly). Daft’s contention that “[o]rganizations shape our lives, and well-informed managers can shape organizations” (p.14) also carries the possibility of managers shaping ineffective as well as effective organisations.
Questions: Which of these purposes of organisations can be influenced by you in your organisation? Do things get done in your organisation because that’s the way it has always been done? Is this effective? How would you begin to influence the design of your organisation to help it function more effectively?
3. Organisation configuration: the influence of mechanistic versus organic approaches
Mintzberg (1981) described five basic parts of an organisation as follows:
Exercise: Read the Article “Organisation Design, Fashion or Fit” by Mintzberg (1981) and Daft’s (2013, pp.28-30) summary of the elements, configurations and contemporary configuration ideas.
Question: Are these five basic parts evident and essential in every organisation? Are there effective organisations that exist without these parts?
Daft (2013, p. 30) suggests mechanistic designs are characterised by formalised, centralised, machine-like rules and procedures with a clear hierarchy of authority. On the other hand, organic designs are decentralised, much looser, more adaptive – and with flexible approaches to rules and procedures being less clearcut.
Exercise: Look at the diagram on page 31 and identify explanations of the common and differentiated contingency factors affecting mechanistic and organic designs.
Question: Can you conceive of organisations that incorporate features of both?
4. Contemporary organisation design
As stated earlier, today’s organisations and managers are operating in increasingly ambiguous and uncertain environments. Daft (2013) suggests that “organizations are still imprinted with the hierarchical, formalized, mechanical approach, yet current challenges require greater flexibility for most organizations” (p, 32).
He further suggests that managers are redesigning their organisations toward more organic designs that facilitate greater “innovation, adaptability and a fast response to customers or clients” (p. 33). We will be discussing the implications of the stakeholder environment and organic designs for decision making and innovation as we progress. However, it would appear that:
? Promoting communication and collaboration across stakeholders,
? Engaging everyone in identifying and solving problems, and
? Continuously experimenting, improving and increasing organisational capability
? … are increasing trends in organisational design.
However, these are not the only options that have been exercised in response to fast paced change, complexity and uncertainty. For example, some organisational structures have supported a focus on competitive advantage and improved customer value through highly coordinated and controlled efficiency-based systems aimed at eliminating waste, as exemplified for instance by ‘lean’ or ‘just-in-time’ manufacturing (see Daft 2013, pp. 272-274).
Smart, Tranfield, Deasley, Levene, Rowe and Corley (2003) suggest however that excessive use of “the efficiency mindset results in resources becoming increasingly scarce and risks operational deficiency, catastrophe and mission failure”(p. 735). They further suggest integrating high reliability organisation (HRO) design features “where performance reliability and safety are critical and `failure is simply not an option’.” (p. 735). In HROs organisational leadership prioritises ‘extreme reliability’ over efficiency, and a task-based approach promotes standard operating procedures and a clear hierarchy. In HROs, organisational learning is regarded as critical and continuous. Nevertheless, is practised by facilitating ‘trials without major errors’, i.e. in controlled environments. Later on we will examine ‘design’ discipline-based methodologies for developing prototypes of products and services that work for all affected stakeholders. This will provide an interesting comparison to HRO principles discussed above.
Other commentators have recognised the longer term nature of creating ongoing value to society through sustainable organisations, and have promoted various approaches to organisational design to assist their development. For example, Parrish (2007) considers that
To understand the contribution an enterprise can make to sustainable development, attention must be directed to the interaction between the enterprise and other components of the social–ecological system, at the same hierarchical level as well as at higher and lower levels. This is because, as an open system (such as an enterprise) seeks resources from its environment to ensure its own survival, it runs the risk of destabilizing the larger system of which it is part … A design science of sustainable enterprise is concerned with the organizing principles that allow [a] ‘healthy balance’ [in the system hierarchy] to persist throughout the dynamic process of enterprise design and redesign. (2007, p. 849)
To understand what achieving such a ‘healthy balance’ might entail, Parrish (2007) suggests there are three levels of ‘system hierarchy’ to be considered in developing a sustainable enterprise, i.e. stakeholders (or the individual level), the enterprise (the organisation level), and the social-ecological environment (or the wider community level). Parrish (2007) also considers that appropriate value is to be provided at each level, consistent with both the immediate survival needs and the future purpose needs associated with individual, organisational and societal levels of the system hierarchy.
After discussing what might constitute immediate survival needs and future purpose needs relative to stakeholders, the enterprise and society, Parrish suggests the model below. It represents a model of ‘sustainable enterprise design’ in which the purposes and survival needs of each element of the overall system hierarchy might be aligned. As a result, it is suggested that the enterprise may have an improved capacity to be sustainable.
Figure 1-2-2: Sustainable enterprise design (Parrish 2007)
Note that stakeholder survival and purpose needs are developed by Parrish (2007) based on needs-based theories of motivation which, it could be argued, are one of a number of possibilities for assessing stakeholder survival and purpose needs in relation to an enterprise. Also, the approach to identifying enterprise and social-ecological system needs reduces to a single category in both purpose and survival needs. However, Parrish (2007) explains that these aspects are in fact dynamic, requiring investigation and research to determine survival and purpose needs for each of the system levels, i.e. stakeholders, the enterprise and the wider community, in particular contexts.
While such theoretical models may appear limited and simplistic, they perhaps provide an opportunity to perceive what might otherwise be hidden aspects of concern to organisational designers. They also provide the opportunity to explore such matters more fully using principles related to organisational design that may or may not be applicable in a number of contexts. They may also assist in identifying alternatives through the processes of enquiry and debate.
In this vein, Parrish (2007) offers a valuable insight into the role that organisation design plays in linking the organisation with its stakeholders, both as individuals and in the community at large, suggesting that
It is an enterprise’s design that links stakeholders to the enterprise, and the enterprise to its environment. This entails both the enterprise’s structure and function, though structure is employed in a broader sense than is common in the literature on organizations, and is both formal and informal in nature. The formal structure includes the enterprise’s ownership structure, governance mechanisms, role hierarchy, decision-making systems, and legal status. The informal structure is now usually described in terms of the shared meanings of organizational culture. Perhaps most fundamentally, the enterprise design also includes the enterprise’s domain consensus and business model. A business model is the method by which an enterprise solicits and distributes flows of valued resources from and to its operating environment. It is the business model that provides an operational strategy for how the enterprise will meet its survival and purposive needs as a going concern. (2007 p. 851, emphasis added)
The study of organisational design has tended to focus on the matters described by Parrish (2007) as ‘formal structure’, and has perhaps given less attention to the impact of organisation culture. Parrish (2007) considers that organisation culture represents the informal structure of an organisation. However, culture may also have an impact on decisions taken about more formal or tangible organisational design concerns.
For instance, Jones, Felps and Bigley (2007) suggest that the way an organisation identifies, manages and makes decisions associated with its stakeholder relationships (both within and external to the organisation) will be influenced by its beliefs, values and accumulated practices in relation to stakeholders, i.e. its stakeholder culture. Their definition of stakeholder may be broader than that assumed by Parrish (2007), given that, in today’s global business world, business is under pressure to consider a broader range of stakeholder interests than those previously regarded as of primary concern, i.e. shareholders and customers.
The influence of stakeholders other than shareholders and customers on major business decisions is apparent in some areas, e.g. government interventions to overcome market failures or protect the interests of affected parties,
and has been growing in other areas, particularly as a result of the focus on sustainability. Stakeholder influence on business activity is increasingly apparent in recent concerns about fossil fuel usage and associated atmospheric changes, as much of this has been driven initially by stakeholders concerned about the natural environment. Jones et al (2007) suggest that the way a business might respond to stakeholder influence and associated pressures for change will depend in part on their stakeholder culture, which they perceive as dependent on its level of its ‘concern for others’. They propose a continuum of ethically based ‘other-regarding’ approaches that range from a purely self-interest focus (nominated as managerial or corporate egoism) through ‘instrumentalist’ (strategic morality) and ‘moralist’ (moral pragmatism) to ‘altruist’ (moral purism). This is diagrammatically represented as follows:
Figure 1-2-3: Stakeholder Culture (Jones, Felps & Bigley 2007)
They suggest that an organisation’s stakeholder culture “is a potent organizational factor, profoundly influencing the way in which managers understand, prioritize and respond to stakeholder issues …” (p 140) .
Question: From the discussion above on mechanistic, organic and contemporary organisation design concerns, which of the issues discussed (e.g. horizontal decentralised structures, facilitating organisational adaptation, efficiency versus innovation, hierarchy versus collaboration, achieving high reliability, alignment of ‘survival and purpose needs’ of stakeholders, enterprise and community, development of stakeholder culture) resonate with you as you consider your organisation and how it is structured and designed to achieve its outcomes? Identify examples of each of these contemporary developments in your organisation. How important are some of these to achieving more sustainable outcomes?
Beer, S 1959, Cybernetics and Management , English Universities , London ; Wiley, NY
Daft, RL 2013, Organization Theory and Design, 11th Ed, South Western, Cengage, OH, USA
Jones, TM, Felps, W & Bigley, GA 2007, ‘Ethical theory and stakeholder related decisions: the role of stakeholder culture’, Academy of Management Review, vol. 32, no. 1, pp. 137–155
Mintzberg, H 1981, ‘Organization Design, Fashion or Fit?’, Harvard Business Review , Vol. 59, Jan – Feb, pp. 103-116
Orlikowski, WJ 1996, ‘Improvising Organizational Transformation Over Time: A Situated Change Perspective’, Information Systems Research, vol. 7, no. 1, pp. 63-92
Parrish, BD 2007, ‘Designing the sustainable enterprise’, Futures , vol. 39, no. 7, pp. 836-860
Porter, ME & Kramer MR 2006, ‘Strategy and Society: the Link between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review, September
Porter, ME & Kramer, MR 2011, ‘Creating Shared Value’, Harvard Business Review, vol. 89, no. 1-2 pp. 72-77
Reynolds, C 1987, ‘ Flocks, herds and schools: A distributed behavioral model’ , SIGGRAPH ’87: Proceedings of the 14th annual conference on Computer graphics and interactive techniques ( Association_for_Computing_Machinery ) , pp. 25-34
Smart, PK, Tranfield, D, Deasley, P, Levene, R, Rowe, A & Corley J 2003, ‘Integrating ‘lean’ and ‘high reliability’ thinking’, Proceedings of the Institution of Mechanical Engineers — Part B — Engineering Manufacture, vol. 217, iss, 5, pp. 733-739
Tsoukas, H & Chia, R 2002, ‘On Organisation Becoming: Rethinking Organizational Change’, Organization Science , vol. 13, no. 5, pp. 567-582
von Bertalanffy, L 1968, General Systems Theory: Foundations, Development, and Applications , revd. ed., George Braziller Publishers, New York , NY
Weick, K 1993, ‘Organisational Redesign as Improvisation’, in Huber, GP & Glick, WH (Eds.), Organisational Change and Redesign , Oxford University Press, New York, pp. 346-379
Weick, K & Quinn, RE 1999, ‘Organizational Change and Development’, Annual Review of Psychology , vol. 50, pp. 361-386
Prescribed Readings
When reading the prescribed texts below, take note of case examples and any similarities and features that may have application in your organisation:
Daft, RL 2013, Chapter One ‘Organizations and Organization Theory’, in Organization Theory and Design, 11th Ed, South Western, Cengage Learning, OH, USA
Mintzberg, H 1981, ‘Organization Design, Fashion or Fit?’, Harvard Business Review , Vol. 59, Jan – Feb, pp. 103-116,
Recommended Additional Readings
Jones, TM, Felps, W & Bigley, GA 2007, ‘Ethical theory and stakeholder related decisions: the role of stakeholder culture’, Academy of Management Review, vol. 32, no. 1, pp. 137–15 Available through the Swinburne Library at:
Parrish, BD 2007, ‘Designing the sustainable enterprise’, Futures , vol. 39, no. 7, pp. 836-860 Available through the Swinburne Library at:
Learning Outcomes
On completion of this learning object you should be able to:
? Discuss the concept of organisation from a number of theoretical perspectives;
? Appreciate the evolution of organisation theory and design; and
? Appreciate the differences between design for efficient performance and design for learning.
Exploring and Reinforcing
Please take the time to consider the ‘questions’ and ‘exercises’ posed within this Learning Object. They provide the opportunity to test and consolidate your understanding of the concepts presented, and facilitate your appreciation of how they may or may not be applicable in your workplace.
Assessable Activity – Week Two
Construct a 300-500 word response to the following question (task), appropriately referenced using the Harvard Business Referencing System. The details of the Harvard referencing system are available through the Library (note the Library ‘tab’ on the unit web page) or by selecting the following link:
Identify and explain one organisation design issue associated with facilitating more adaptive, responsive and sustainable organisations in today’s complex and dynamic business environment.
Attach the completed paper (in MS Word format) to an email and send it to your unit facilitator using your Swinburne email account. There is no need to post this on the discussion board. By undertaking the task in this way, it will provide you the opportunity to practice important skills that will be utilised as you move through the unit – such as report/essay writing, referencing. and use of library and email facilities. This task will form a part of the overall assessment of your participation (see Assessment Task One).
Learning Object 1 Learning Object 1 Learning Object 1Learning Object 1Learning Object 1 Learning Object 1 -3: Organisation Design Factors Organisation Design Factors Organisation Design Factors Organisation Design FactorsOrganisation Design Factors Organisation Design Factors Organisation Design Factors Organisation Design Factors Aims and Objectives
In the previous Learning Object you were introduced to Daft’s (2013) five contingency factors (size, organisational technology, environment, goals and strategy, culture) which influence four structural dimensions (formalisation, specialisation, hierarchy of authority, centralisation). He suggests these are interdependent, with certain contingency factors influencing the appropriate degree structure. In this Learning Object we will examine a number of perspectives on these and other factors that influence organisation design.
The objective is for you to have the opportunity to appreciate the factors and their relative influences in the design of organisations. Some theories, models and frameworks around strategy and around culture are explored further in order to more fully evaluate their relationship to organisational design. These frameworks and models should be regarded as exploratory tools to examine organisational dynamics and potential responses. For instance, the PPT contains a reference to ‘dynamic capabilities’ (Harreld, O’Reilly & Tushman 2007) and a model used by IBM to explain their approach to strategy development and execution. You are provided the opportunity to utilise these frameworks to explore interdependencies and alignment between organisational design factors, in this case between elements of ‘strategic insight’ and ‘strategic execution’ that may be relevant to organisation design, e.g. innovation focus, business design, climate and culture, formal organisation, and so on.
You will have the opportunity to develop your understanding of the ‘contingency perspective’ on organisation design in relation to the impact of strategy, environment, organisation size and lifecycle, technology and organisation culture. You will also explore the influences emanating from the contemporary business environment including the pace of change and its paradigmatic nature. Key Concepts, Constructs and Debates
Before proceeding, examine the power point presentation Organisational Design Factors. Also read the 2 chapters of Daft (2013) located in the prescribed readings,
The following briefly highlights a few of the important issues raised in those learning resources and extends your thinking about recent changes in emphasis on multi-sector collaboration.
Given its perceived importance to ‘sustainability’ there is also material presented on the interrelationships between culture, social capital, socialisation and organisational design.
1. Major factors affecting organisation design:
As noted above, Daft (2013) broadly identifies five major categories of factors affecting organisational design, viz:
? Goals and strategy
? Environment
? Size and life cycle
? Organisational technology, and
? Organisational culture.
Daft (2013) commences Chapter 2 with a discussion on strategic direction, organisational purpose, goals and strategy. He identifies that strategy “is one important factor” affecting organisational design, suggesting “numerous contingencies” will also have an impact, it being important to recognise that the emphasis given to ‘efficiency and
control’ (mechanistic) versus ‘learning and flexibility’ (organic) will be determined by the above 5 contingencies. He suggests “the organization is designed to “fit” the contingencies” (p. 70).
He then presents five approaches to assessing ‘effectiveness’:
? the goal approach (i.e. attainment of goals determines effectiveness)
? the resource-based approach (i.e. harnessing and configuring resources determines effectiveness)
? the internal process approach (i.e. internal organisational health and efficiency determines effectiveness)
? the strategic constituents approach (i.e. the satisfaction of key stakeholders critical to organisational survival and growth determines effectiveness)
? the integrated effectiveness model (where several indicators of effectiveness are combined into one framework, i.e. a combination of internal / external focus and structure based on flexibility or control yields one of four emphases – open systems, rational goal, internal process and human relations).
The power point presentation referred to above offers an extended exploration of strategy that incorporates some contemporary views on strategy influences and adaptive strategy responses and what this might mean for organisational design. Ensure you examine the PPT and after completing the reading ask yourself the following:
Questions: In addition to these ‘contingency factors’ what influences on organisation design arise from the nature and pace of change experienced in today’s business environment? What features of organisation design seem relevant to enabling a pro-active response to major and increasingly frequent changes in the conditions for success in business?
2. Organisation Design, Culture and Socialisation
It is also important to understand the very significant impact that organisational culture has on organisational design in an increasingly complex and changing business environment. Daft’s (2013) exploration of organisational culture in Chapter 10 covers the basic definitions, features and influences of organisational culture on organisational design. When reading this keep in mind however the impact of ‘sustainable development’ agendas, and also reflect back on ‘stakeholder culture’ discussed earlier.
Champoux (2006) identifies organisational socialisation as a powerful process that is critical to the way people learn about and maintain the culture of the organisation, organisational socialisation being defined as the “process by which a new member learns the value system, the norms, the required behaviour patterns of the … organization or group … [the person] is entering” (Schein, 1968 quoted in Champoux 2006 p. 126).
Champoux (2006) provides a summary of the literature on organisational socialisation as follows:
“Organizations ask employees to take on specific roles that have behavioral requirements. The three types of role behavior are pivotal (required), relevant (desired), and peripheral (tolerated). Those role behaviors are learned in a series of role episodes that unfold during socialization. The socialization process is continuous throughout a person’s association with an organization, but it is most intense before and after boundary transitions. Boundary transitions have three dimensions: functional (job), hierarchical (promotion), and inclusionary (inward movement). The anticipatory stage of socialization creates expectations about life in the organization before a person enters the organization. The person compares those expectations to the reality experienced in the entry/encounter stage. The entry/encounter stage happens after the person crosses the organization’s boundary and begins the first day of employment. After successful adaptation to socialization demands, the employee passes through a metamorphosis stage. In this stage, the employee experiences the final adaptation to the organization’s demands. Organizations operating in an international context face special socialization issues. People moving to other countries (expatriates) experience the same stages of socialization as they do in domestic job changes. On return to their home country, repatriates can experience culture shock while readapting to their home culture. // Several ethical issues center on whether there is a need for informed consent about an organization’s goal of shaping a person’s values and behavior by its socialization processes. The broad ethical question is: “Should the organization tell potential and existing employees about the goals of its socialization process?” (Champoux 2006 p. 141). There is also a question of whether an organisation should stress the goal of creating social capital and what it means for cultural and individual attributes.
3. Organisation Design, Culture and Social Capital
Woolcock (2001:8-9) suggests “social capital refers to the norms and networks that facilitate collective action”. Social capital has been claimed to be of benefit in a range of business situations based on its three major sources, viz:
? Bonding social capital – the horizontal connections within and between people, groups and communities,
? Bridging social capital – the links between communities or groups, also horizontal.
? Linking social capital – vertical connections with influential, powerful and concerned individuals and institutions providing information, ideas and resources.
These latter types of social capital, i.e. linking, are created through binding and leveraging from communities and capabilities in different sectors, at different scales, and in a manner that is transient and outcome-oriented. This is perhaps of significant value when contemplating collaborative initiatives around innovation projects in response to shifting and growing ‘sustainability agendas’. Such capability might be described as individual and group capacity to engage productively (i.e. communicate, influence and collaborate) in cross-boundary multi-sector interactions between disparate economic, environmental and social actors, communities, groups and institutions.
Developing such capability would appear to be an organisation design issue, supported significantly by organisation culture and associated socialisation processes. Note also that flexibility and responsiveness both within, across and external to the organisation and its various stakeholders and institutional influences would appear to be an increasingly important feature of sustainable business practice.
Question: Does your organisation recognise its social capital? How is it developed and applied? How does it ensure its maintenance (by design and not just by accident)?
4. Further considerations?
The recent debates about appropriate interventions in the economy to deal with the aftermath of global financial crisis and to reduce long term carbon emissions highlight some of the tensions and trade offs for various stakeholders of business. Many debates seem to be framed as win-lose battles between stakeholder interests, raising questions about the sustainability of such approaches. The debates also highlight the interconnectedness of stakeholder interests. Some of the more obvious implications of resource usage limits and a carbon constrained future suggest a premium on innovation and adaptive capacities as well asefficiency. Organisation design may therefore need to consider both adaptation and efficiency goals and facilitate broad-based stakeholder engagement in addressing concerns
Questions: Looking at just one set of the increasing ‘stakeholder interests’, i.e. employees, one might question the role of organisation design in facilitating different approaches. For instance: Are there limits on people’s ability to cognitively process under conditions of ambiguity, stress and continuous change? Does this have implications for employee productivity, especially in relation to innovation and creativity? Might organisation designs need to facilitate reduction of ambiguity and stress as well as speed up decision processes? Is this feasible?
The recent emphasis on collaborative alliances between business, government and community appears to be redefining the role of business (e.g. as noted in a number of recent WBCSD publications (, and pronouncements of the World Economic Forum ( and the basis of competitive advantage. Organisational design may also need to facilitate unique competencies, social capital creation and multi-sector collaborative alliances that support both competition and collaboration. Are there examples of this happening already?
Further and frequent paradigmatic change in the business environment is highly likely given the challenges and opportunities of globalisation, technological innovation and the sustainable development agenda. In particular, the increasing influence of stakeholder interests on the operations of organisations and the need for improved information flows and interconnections between the various elements of the value creation process, i.e. the value chain, suggest a range of contingency factors can affect the design of organisations.
Brown, Sl & Eisenhardt, KM 1997, ‘The art of continuous change: linking complexity theory and time paced evolution to relentlessly shifting organizations’, Team Performance Management: an International Journal , vol. 8, nos. 1&2, pp 21-38
Champoux, JE 2006, Organizational Behavior: Integrating Individuals, Groups and Organizations , 3rd Ed, Thomson South Western
Daft, RL 2013, Organization Theory and Design, 11th Edition, South Western, OH, USA
Burgelman, RA 2002, Strategy is destiny: how strategy-making shapes a company’s future , The Free Press, New York
De Wit, B & Meyer, R 2005, Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive Advantage (Text and Readings ), Thomson Learning, London
Harreld, JB, O’Reilly, CA & Tushman, ML 2007 ‘Dynamic Capabilities at IBM: Driving Strategy into Action’, California Management Review, vol 49, no 4, pp. 21-43
Hellriegel, D & Slocum, JW 2007, Organizational Behavior , 11e, Thomson South Western
Mintzberg, H & Waters, JA 1985, ‘Of Strategies Deliberate and Emergent’, Strategic Management Journal , vol. 6, no. 3, pp. 257-272
Miles, RE & Snow, CC 1978, Organizational Strategy, Structure and Process , McGraw-Hill , New York
Porter, ME 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, NY
Stern, N (HM Treasury) 2006, Stern Review on the economics of climate change, Cambridge University Press, viewed 1 June 2015
Tushman, ML & O’Reilly, CA 1996, ‘Ambidextrous Organisations: Managing Evolutionary and Revolutionary Change’, California Management Review , vol. 38, no. 4, pp. 8-30
Woolcock, M 2001, The Place of Social Capital in Understanding Social and Economic Outcomes. Development Research Group, The World Bank and Kennedy School of Government, Harvard University
World Business Council for Sustainable Develeopment, 2010 Vision 2050: The new agenda for business, viewed 1 June 2015 <>
Other Resources
Landells, T 2013. ‘Organisational Design Factors’, Power Point Presentation, Swinburne University of Technology (see file in this section).
Prescribed Readings
When reading the prescribed readings, take note of case examples and any similarities and features that may have application in your organisation.
Daft, RL 2013, Chapter Two pages 53-83, Organization Theory and Design, 11th Ed, South Western, Cengage Learning, OH, USA
Daft, RL 2013, Chapter Ten pages 391-419, Organization Theory and Design, 11th Ed, South Western, Cengage Learning, OH, USA
Landells, T 2013. ‘Organisational Design Factors’, Power Point Presentation, Swinburne University of Technology
Recommended Additional Readings
Brown, Sl & Eisenhardt, KM 1997, ‘The art of continuous change: linking complexity theory and time paced evolution to relentlessly shifting organizations’, Administrative Science Quarterly, vol. 42, pp 1-34
Learning Outcomes
On completion of this learning object you should be able to:
? Appreciate the factors to be considered in the design of organisations and their relative influences
? Appreciate a range of ‘contingencies’ that impact on organisation design from the perspectives of ‘efficiency and control’ versus ‘learning’
? Appreciate the impact of ‘strategy’ on organisational design
? Appreciate the influences on organisation design resulting from the changes in business conditions currently being experienced in the environment.
Exploring and Reinforcing
The range of issues and contingency factors to be taken into account when designing organisations is increasing. Recent changes in the business environment resulting from the elevation of the sustainability agenda (and particularly the increase in stakeholder interests, the usage of resources and the need to reduce fossil fuel usage), are influential in this increase.
To self-test your understanding of the materials presented here you might benefit from asking yourself “What contemporary changes in the business environment might add to the list of 5 ‘contingency factors’ discussed in the learning object? What influence might they have on organisational design?”
If you are having a mental block, here a few changes that come to mind as a result of ‘sustainability agendas’:
? the growing use of cross-sectoral, cross-discipline, cross-cultural collaborative alliances
? the need for increased innovation focused on opening new markets for goods and services related to sustainable resource use
? the associated need for adaptability at all levels of the organisation and for ‘change readiness’, i.e. willing engagement of employees in meeting the challenges facing the organisation
? the need for ongoing and interactive stakeholder engagement at many levels and
? the value of social capital
? You are not required to share these perspectives with your group, but you might benefit from doing so regardless of whether or not this is an assessable activity. Your assessable activity this week is listed in the section below.
Assessable Activity – Week Three
Read the prelude to the group assignment and the suggestions around developing a set of shared understandings with group members.
Within your assigned group, by the end of the week you are to have developed a clear set of shared understandings with your group on:
? The purpose of the group assignment and associated question set
? The group’s initial (shared) understandings of the major issues to be addressed and analysed, i.e. develop a ‘rationale’ that will help everyone understand the direction the group report will take in responding to the question set.
? The approach the group will take in responding to the question set (taking note that the question set is not a set of discrete questions), including the means to add to the initial understanding developed above as group members undertake their research and analysis, and
? The group’s shared understandings about processes, such as communication norms, timeframes, contingency plans, etc.
This is a practical exercise with outcomes that will be very valuable to your group. However, you should utilise your learning both to question your assumptions from previous experiences and to inform your approaches here. There is material provided under the ‘Extra Resources’ button on the left-hand-side of the unit website, as well as the prelude to the group assignment, regarding effective virtual groups. In other units of this Master program you may have also examined conditions supporting effective collaboration in virtual environments where group members are likely to have differing and diverse histories, disciplinary perspectives, sectoral priorities, industry perspectives, goals and cultural constraints. Please consider these learning materials and experiences if you have access to them.
Also note that in later learning objects we will be looking at various ways in which organisations may be ‘designed’ to enable the sorts of collaboration with diverse cohorts you are expected to practice here, so reflecting on your practice both initially and as you proceed will likely increase your understanding of the issues and challenges associated with designing organisational interactions to generate effective information flows and decision making relevant to a dynamic and diverse organisational environment.
Learning Object 1 Learning Object 1 Learning Object 1Learning Object 1Learning Object 1 Learning Object 1 -4: Organisation Structure and Forms Organisation Structure and Forms Organisation Structure and Forms Organisation Structure and FormsOrganisation Structure and Forms Organisation Structure and Forms Organisation Structure and FormsOrganisation Structure and Forms Organisation Structure and Forms Organisation Structure and Forms Organisation Structure and Forms Aims and Objectives
This Learning Object aims to provide an overview of the characteristics of various types organisational structures and forms.
The objective is for you to review these various approaches to organisational structure, comparing a range of commentator views about their value in achieving organisational goals against the backdrop of today’s fast changing, uncertain and highly competitive business environment. Key Concepts, Constructs and Debates
The key resource this week is Daft (2013) Chapter 3 ‘Fundamentals of Organization Structure’. An additional insight will be provided into evolving forms of organisational activity such as self-managed teams and virtual teams and organisations.
1. Perspectives on the purpose of organisation structure
1.1. Information flow and coordination
Daft (2013) maintains that organisation structure must provide
? a framework of responsibilities, reporting relationships, and groupings, and
? mechanisms for linking and coordinating organisational elements into a coherent whole (2013, p. 133)
The organisation chart sets out the structure, however linking the elements into a coherent whole requires systems “to ensure effective communication, coordination and integration efforts across departments … [or groupings] …” (2013, p. 94). As such Daft suggests
The organization should be designed to provide both vertical and horizontal information flow as necessary to accomplish the organization’s overall goals. If the structure doesn’t fit the information requirements of the organisation, people will either have too little information or will spend time processing information that is not vital to their tasks, thus reducing effectiveness. (p. 96)
Champoux (2006) suggests “Organizational design goals are (1) get information to the right places for effective decision-making and (2) help coordinate the organization’s independent parts” (pp. 412-413).
Both commentators appear to be focussed on achievement of goals and effective outcomes through informed and coordinated information processing and decision-making.
Tushman and Nadler (1978) also indicate the pre-eminence of information processing in organisational design, suggesting that “organizational roles with the highest need for information processing would be grouped together in subunits … [which] … would be structured along organismic or mechanistic lines according to the degree of uncertainty that each faces” (p.623). They also concluded that “the task of organizational design is never fully accomplished. As information processing requirements change, so too must the organization’s structure” (1978, p.623).
Question: Given the need for improved information flows to (and the growing interconnectedness between) the various elements of an organisation and its suppliers, competitors, employees and affected communities, how might ‘information flow and co-ordination’ have a growing impact on organisation design? Identify examples.
1.2. Power distribution
Pierce and Gardner (2002) suggest that the organisation structure shapes the behaviour that takes place within the organisation as it moves towards attaining its goals and is therefore concerned with people-to-people and people-to-task relationships (p. 462). Importantly, they believe:
Much of this structure centers around the distribution and use of organizational power and authority. Deciding where to place power, deciding who shall decide, and deciding how to empower the work force are central to the exercise of organizational control. Deciding what type of authority system will work best is a major challenge. (pp. 462-463, emphasis added)
Pierce and Gardner (2002) highlight what they consider to be the
“most important components of an organization’s structure includ[ing] the following:
? Decentralization of authority – the degree to which decision-making authority is spread throughout the organization or concentrated (centralized) at the top
? Formalization – the degree to which rules, policies, procedures, instructions, and communications are set forth in written records, documents and procedure manuals
? Standardization – the extent to which work activities are described in detail and performed uniformly throughout the organization
? Task specialization – the degree to which organizational work is divided into narrow tasks, with extensive division of labor
? Person specialization (professionalism) – the level of formal education, training and experience needed by the occupants of various organizational roles
? Complexity – the degree of formal structural differentiation within an organization, characterized by the number of specialized jobs, subunits (divisions and departments), levels of authority and operating sites
? Stratification – the degree of status differences among individuals and groups in the organization
? Configuration – shape of the organization’s structure, including the number of hierarchical levels; the spans of control – the number of people and/or activities under each manager’s direction responsibility / supervision; and the ratios of managers to technical employees, support to operating personnel, and the like” (2002, pp. 463-464
Note that consideration of power and authority underpins many of these “most important components”.
These particular power and authority related design considerations may appear more relevant to a mechanistic, bureaucratic control-based, vertically-oriented hierarchy and may not appear to be as relevant to an organic, horizontally-oriented, non-hierarchy (such as a professional partnership). However, with a growing need for organisations to consider increasingly legitimate stakeholder interests in their multiple activities and levels of interaction with the community, perhaps effective organisational responses in these increasingly complex contexts requires consideration of both ‘power and authority’ and ‘information flow and control’ concerns, as both impact on effective decision-making in complex and turbulent environments.
Exercise: Compare Pierce and Gardner’s (2002) perspectives in the purpose of organisational design with that of Daft (2013), Champoux (2006) and Tushman and Nadler (1978). What are the major differences in assumption? Do any of these take into account the increasingly dynamic environment that characterises business today?
1.3. Stakeholder relationship management
With business increasingly being held accountable for its commercial outcomes and the impact of associated resource usage (including greenhouse gas emissions, excessive water usage, pollution, etc.) as well as its societal impact, there is a growing need for organisational design to consider two way and multiple information flows between increasingly interdependent sets of stakeholders.
Griffiths and Petrick (2001) identify a number of impediments in organisation architectures that work to limit achievement of sustainability objectives, and “limit[ing] or deny[ing] access to a range of stakeholders whose participation is vital for the pursuit of sustainability agendas” (2001 p. 1574) is considered by them as one of three major problems with current organisation design. By way of interest they consider the other two aspects of ‘corporate architecture’ that impede sustainability are; corporate systems being insulated from a broad range of environmental information, and established routines and system seeking to preserve the status quo.
Griffiths and Petrick (2001) suggest three ‘architectures’ for further research into their capacity to overcome these limitations. They are the virtual organisation, the network organisation and communities of practice, the latter being a form of fluid structure around “areas of interest, expertise and or project orientation” (p. 1580). We will consider these towards the end of the ensuing examination of organisational forms.
We will now explore a number of organisational forms and their strengths and weaknesses as outlined in scholarly texts. As you explore these, also consider the various organisational forms and their capacity to facilitate information flows and manage power relations between and across a broad range of stakeholders. We will also specifically examine supply chain arrangements as a means of illustrating the appropriateness of certain organisational configurations from the perspective of increasing complexities in the business environment.
2. Generic Mechanistic and Organic forms
Champoux (2006) suggests the external environment can be characterised as a continuum with certainty at one end and uncertainty at the other. He further suggests that mechanistic organisations fit a highly certain external environment, and organic organisations are appropriate in uncertain external environments.
The following table contrasts the characteristics of each type
Figure 1-4-1 Mechanistic versus Organic forms (based on Champoux 2006)
Champoux (2011, p. 436) suggests: “Organic organizations process information better than mechanistic organizations. Less defined roles and continually redefining tasks give people flexibility to respond to changing
events. Decentralized decision making helps people deal with the different situations presented by a changing external environment. A speedy decision process helps managers keep up with fast environmental shifts.”
Exercise: Compare the above with Daft’s (2013) discussion on mechanistic versus organic designs on pp. 30-31 of the text. What do both suggest about organisational design supporting current challenges facing organisations in a fast changing environment – in which multi-sector collaboration is increasingly seen as a fundamental condition of business success?
3. Generic Vertical and Horizontal Forms
Summarising his views on mechanistic versus organic forms of organisation, Daft (2013) discusses vertically oriented and horizontally oriented organisational forms from the perspective of efficiency (mechanistic) versus learning or adaptability (organic) outcomes respectively, suggesting that the choice of form is a dynamic process and is situation specific. Daft summarises the differences diagrammatically as follows
Figure 1-4-2 Vertical (mechanistic) and Horizontal (organic) Forms (based on Daft 2013)
Daft (2013) highlights the major difference being the degree of centralisation of decision-making, suggesting that organisations may have to “experiment to find the correct degree of centralization or decentralization to meet their needs (p. 97) … always searching for the best combination of vertical control and horizontal collaboration, … for their own situations” (p. 99).
4. 4. Vertical / Horizontal information sharing & Relational coordination
Daft (2013 p.93) defines information linkage as the extent of communication and coordination among organisational elements. Vertical linkages are used to coordinate activities between the top and the bottom of the organisation and are control based. Horizontal linkages are used to overcome barriers between departments and provide opportunities for coordination and collaboration. Daft nominates the following vertical and horizontal linkage devices:
Figure 1-4-3 Information Linkages (based on Daft 2013)
Note the similarities and differences between this conceptualisation of ‘linking’ within and across the organisation and that discussed earlier embracing linking with external and important organisations and institutions under the heading of ‘social capital’. We will further discuss network linkages towards the end of this learning object.
Daft (2013) identifies ‘relational coordinating’ as the highest form of information linkage, quoting Gittell (2003) in defining it as “frequent, timely, problem-solving communication carried out through relationships of shared goals, shared knowledge, and mutual respect”, noting it is a cultural attribute rather than a device.
Exercise: Compare the vertical and horizontal information linking features discussed on pages 99-105 with the relational coordination features on pages 105-107. What does this suggest in relation to organisational values and the building of trust and credibility across stakeholders?
4. Generic Grouping Options
The generic grouping options listed below (see Daft 2013 pages 108 – 109) inform the following specific organisation forms:
? Functional: Organises people in groupings that reflect similar work processes, functions, disciplines, and/or skills and expertise
? Divisional: Organises people according to outcomes or what is produced
? Multi-focused: Combines two grouping alternatives, such as function and product, or product and geography. Usually called Matrix or Hybrid
? Horizontal: Organises people around core work processes from beginning to end, incorporating all information and physical resources utilised to deliver value to customers
? Virtual Network: People are loosely connected in clusters or separate components connected by electronic means and organised based on the sharing of information and completion of tasks. Collaboration and coordination activities are achieved using electronic means.
5. Specific Organisational Forms
Daft (2013) summarises his exploration of organisation design alternatives outlined in Chapter 3 pages 101-125 by suggesting that ‘ultimately, the most important decision that managers make about structural design is to find the right balance between vertical control and horizontal coordination, depending on the needs of the organization. Vertical control is associated with goals of efficiency and stability, while horizontal coordination is associated with learning, innovation and flexibility’. (2013, p. 131)
Question: What are the strengths and weakness of vertical and horizontal forms of organisation in relation to managing influential stakeholders? If the stakeholders are suppliers in a ‘supply chain’ network where product delivery is coordinated to arrive ‘just-in-time’ to fulfil production needs or customer orders, which organisational form would you consider more suitable? What are the consequences of vertical control versus horizontal coordination in the example of a ‘supply chain’?
He places six specific organisation forms along a simplified continuum between vertical control and horizontal coordination as shown below.
Figure 1-4-4 Relationship between structure and need for effectiveness and learning (based on Daft 2013)
A brief explanation of these forms and the hybrid form as outlined in Daft (2013) follows.
6.1. Functional Structure
Activities grouped together by common function throughout the organisation. It is represented as follows:
Figure 1-4-5 Functional Organisation Structure (Adapted from Daft 2013)
Daft (2013) lists the strengths and weaknesses as follows:
Functional Structure
Figure 1-4-6 Functional Structure Strengths and Weaknesses (Adapted from Daft 2013 and Duncan 1979)
Champoux (2006) confirms this structure’s strengths by suggesting that “the strategy of a functional organization focuses on a few products or services in well-defined markets with few competitors” (p. 418). He also suggests the external environment is stable, simple and is mostly certain. Products and services are standardised allowing technical processes to be repeated according to well defined procedures.
6.2. Divisional Structure
Daft suggests a divisional (or ‘product’ or ‘strategic business unit’) structure may be used in a large organisation with multiple product lines when an organisation wishes to give priority to product goals and coordination across functions. It is illustrated as follows:
Figure 1-4-7 Divisional Organisation Structure (Adapted from Daft 2013)
Daft (2013) gives some examples and discusses their strengths and weaknesses. These are summarised as follows:
Figure 1-4-8 Divisional Structure Strengths and Weaknesses (Adapted from Daft 2013 and Duncan 1979)
Champoux (2006) states that a divisional organisation design ‘uses decentralization as its basic approach … [being] … especially useful for a strategy focused on different products and services … [and] … high customer or client satisfaction with the organization’s products or services” (p. 419).
6.3. Geographical Structure
The geographical structure concentrates resources around the location of an organisation’s users or customers. Each geographic unit includes all the functions required to produce and market products in that geographic location. Daft (2013) suggests that the strengths and weaknesses of this design are similar to the divisional structure, because the organisation adapts to the needs of its own region and horizontal coordination within a region is emphasised over linkages to head office.
Multinational companies employ geographic structures, often comprising a CEO and Board of Directors in the home country and divisions based on regions or countries. A full organisation structure for a complex global entity may comprise many facets of the generic groupings discussed here.
6.4. Matrix Structure
The matrix structure provides for vertical and horizontal groupings simultaneously, e.g. product and function, where technical expertise and product innovation and change are of equal importance. It is represented as follows:
Figure 1-4-9 Matrix Structure (based on Daft 2013)
The matrix structure attempts to give equal balance to traditional vertical hierarchy and horizontal structures such as product teams. However, often one side of the matrix dominates. In a functional matrix, the primary authority rests with the functional heads, and the product managers fulfil a coordinating role. In a product matrix, project or product managers have primary authority, with functional areas allocating personnel and providing advisory services.
Daft (2013, p. 117) nominates three conditions supporting the adoption of a matrix organisation structure:
1. the need to share scarce resources across product lines
2. environmental pressure exists to produce critical outputs for customers/clients in the functional expertise and product/service areas
3. the business environment is both complex and uncertain.
Champoux (2006) describes these conditions as
1. Where there are pressures from the external environment for a dual focus, i.e. technological or technical expertise and customer needs (where functional design fosters technical expertise and divisional (or product or strategic business unit) design fosters customer focus.
2. Where there is high uncertainty within multiple external environment sectors – creating a strong need for more information.
3. Where there are constraints on human and physical resources – necessitating resource sharing and flexible deployment.
Daft (2013) nominates the strengths and weaknesses as follows:
Figure 1-4-10 Matrix Structure strengths and weaknesses (based on Daft 2013 and Duncan 1979)
6.5. Horizontal (Process) Structure
The horizontal or process structure arranges employees in order to facilitate collaboration and cooperation around core business processes and virtually eliminates vertical hierarchy and departmental boundaries. Champoux (2006) notes that such organisations try to gain strategic advantage from the intense customer focus that is possible from the “flexible groupings of intertwined work and information flows that cut horizontally across [the organization], ending at points of contact with customers” (p. 425 quoting Friedlander, F & Brown, LD 1974, ‘Organization Development’ in Rosenzweig, MR & Porter, LW (eds), Annual Review of Psychology, Vol 25, pp. 313-341).
Daft (2013) suggests these structures often are the object of business process reengineering (BPR) efforts in traditional functional hierarchies, where organisation wide functional processes are ‘re-engineered’ or ‘restructured’ to be able to directly focus their services on core business processes. Cross-functional, self-directed teams are one such example of horizontal structures being implemented within organisations. Daft (2013) provides a graphic representation as follows:
Figure 1-4-11 A Horizontal Structure (based on Daft 2013)
The discussion on characteristics on page 122 of Daft (2013) covers issues such as the pre-eminence of cross-functional core processes rather than tasks, functions or geography, the use of self-directed teams, the role of process owners, facilitation of teams, customer focus, and the organisational culture necessary to support such a structure. We briefly revisit self-directed teams at the end of this section. Daft (2013) summarises the strengths and weaknesses of the horizontal structure as follows:
Figure 1-4-12 Horizontal structure strengths and weaknesses (based on Daft 2013)
Exercise: Read Daft (2013) pp. 121-125 to ascertain his views on the relevance of this type of structure to today’s increasingly uncertain, changing and highly competitive business environment.
6.6. Outsourcing and Virtual Network Structures
Outsourcing generally refers to the contracting out of whole functions, such as manufacture, finance, marketing (e.g. call centres), ICT services, etc. Outsourcing can be developed to the extent that a virtual network structure is achieved, where cooperation and collaboration amongst functions, expertise, and other physical and intellectual resources extends beyond the boundaries of the traditional organisation in order to achieve organisational goals. Organisations can also outsource research and development, prototype testing, intellectual property development, business development, tendering processes and executive support. This is also referred to as a ‘modular’ structure by some commentators (see below).
A central hub maintains control over its unique capabilities and over the processes for maintaining and developing the network. It transfers all other functions and processes involved in meeting organisation goals (including decision-making and control) to alliance partners. The partners are experts in their field and organise and utilise their own resources and expertise to meet the requirements of their role in the alliance, partnership, or collaboration. Champoux (2006) highlights that “members of a virtual organization network have little direct control over the functions done by other network members … [and thus] … requires new behaviours from managers … [with] high trust [being] a central feature of a virtual organization” (p. 425). Conceptually a virtual network can be represented viz:
Figure 1-4-13 A sample Virtual Network Structure
Daft (2013) lists the strengths and weaknesses of such a structure as:
Figure 1-4-14 Virtual Network Structure strengths and weaknesses (based on Daft 2013)
Another perspective on networks and their value is provided by Cross, Borgatti and Parker (2002) who recognise that “in today’s fast-paced knowledge-intensive economy, work of importance is increasingly accomplished collaboratively through informal networks. As a result, assessing and supporting strategically important informal networks in organizations can yield substantial performance benefits” (p. 41). They further suggest ways of formalising the reality of informal networks that do not involve a fully structured ‘virtual network’ organisation but can leverage from their existence and support them within existing structures.
Exercise: Read the article by Cross, Borgatti and Parker (2002) – reference at the end of the learning object -and compare the earlier discussion on social capital and organisation culture with their views.
Question: How does social network analysis help facilitate the development of appropriate social capital development and supportive culture? Is this useful for helping respond to contemporary challenges for collaborative, flexible and innovative responses to environmental and community pressures?
Griffiths and Petrick (2001) also provide a brief outline of ‘network organisations’ noting the multiple interconnectedness between dispersed and relatively autonomous independent units, also referred to as ‘spider web’
organisations. These organisations tend to have flatter hierarchies, minimise the use of formal rules and can attain economies of scale and scope through their interconnectedness.
6.7. Hybrid Structure
Few organisations have one pure form. Often, hybrids are developed combining characteristics of various approaches tailored to strategic needs. Daft (2013) suggests that hybrid structures tend to be used in rapidly changing environments due to their opportunity for greater flexibility. He cites two examples of commonly used hybrid structures. Both are schematically represented below.
Figure 1-4-15 Hybrid – Sun Petrochemical Products (adapted from Daft 2013)
Figure 1-4-16 Hybrid Structure – Ford Customer Service Division (adapted from Daft 2013)
The Sun Petrochemical Products structure combines characteristics of functional and divisional structures. The Ford Customer Service Division example combines characteristics of functional and horizontal structures. The latter are sometimes referred to as ‘high performance systems’ where teams are self-managing and people are given “the skills, understanding, processes and authority they need to make their own decisions on behalf of quality and business success, instead of having all the commands flow from the top” (Sink 2007, p.1).
6.8. Self-Directed or Self-Managing Teams
Champoux (2011) suggests self-managing teams usually have decision-making authority about product design, process design and customer service. The use of self-managing teams is often a response to multiple changes in the environment that highlights the need for flexibility and responsiveness to diverse local requirements. Self-managing teams can also incorporate people from different functions in the organisation; helping achieve more creative solutions by leveraging from differences in thinking.
Self-managing teams help the process of decentralisation and ‘flattening’ the organisation structure by removal of one or more management layers, and they ‘can directly interact with suppliers and customers inside and outside the organization … [such interaction providing teams with] … quick, accurate feedback … [thus] sustaining member motivation” (Champoux 2006, p. 235).
6.9. Communities of practice
Griffiths and Petrick (2001) noted the impediments of current organisational structure and forms in achieving sustainable outcomes and suggested three types of organisation were relevant to overcome these impediments, and particularly access to a wide range of stakeholders. They were; the virtual organisation, the networked organisation and communities of practice.
In their discussion of communities of practice they note that they are difficult to design and they are more likely to emerge, being continually formed and reformed. They note the following characteristics:
? They accommodate new members,
? They acquire new information,
? They bind people to each other through common interests, desire for learning and enhanced ability to achieve collective and individual goals
? They rely on both formal and informal skills development and learning processes
? They establish a core or nucleus of people responsible for creating and sustaining the communities collective memory
Griffiths and Petrick (2001) note that “their contribution to the attainment of sustainability outcomes for [host] organisations lies in their ability to collect, process and diffuse knowledge of a technical and specialised nature and translate this knowledge into innovative and rapid solutions” (p. 1580).
6.10. Project-based organisations (PBO)
A project is defined as any activity with a defined set of resources, goals and time limit (e.g. constructing a toll road). In a PBO the knowledge, skills, capabilities and resources of the firm are built up through the execution of projects (Hobday 2000). Unlike most other forms, production coordination, innovation and competition are organised around the project. The PBO is an alternative to the matrix, with core business processes organised within projects rather than functional departments.
In its ‘pure’ form (i.e. no other organisation form present), the project is the primary business mechanism for coordinating and integrating all the main business functions of the firm (including production, R&D, engineering, marketing, finance, personnel). A project may be contained in a single organisation or may be made up of a consortium of companies (Hobday 2000).
PBO are not considered to be “suited to the mass production of consumer goods, where specialisation along functional lines confers learning, scale and marketing advantages” (Hobday 2000, p. 875). There are also limitations on the development of specialist functions and increased responsibilities for line management (Bredin & Söderland 2007).
Hobday (2000) suggests a range of existing PBO applications (e.g. construction, ship building, major capital projects), noting that PBO forms can also be used within large manufacturing organisations to organise specific complex, unique tasks or one-off activities such as R&D, advertising campaigns, new product development areas.
Lindkvist (2008) suggests that ‘firms investing in project organization often do so to become more flexible, adaptable and customer oriented … establishing capabilities, which are not only operational but which also promote a certain dynamic.” (p. 13).
Hobday (2000) found that the PBO has the potential to foster innovation and is best suited to “large, risk intensive projects, where resources have to be combined and shared with other firms in the project. Because of its flexibility and focus the PBO form is able to cope well with the emerging properties of CoPS … [i.e. complex high value products, systems, networks, capital goods, and constructs] … by responding to client needs in real time” (p. 892).
Szymczak and Walker (2003) suggest that projects can form part of a wider, interconnected and interdependent stream of activities sharing resources and linked into the organisations strategic direction towards a common goal. These may be managed in clusters of projects. They also suggest that PBO can fully leverage knowledge outcomes from their projects to assist organisational adaptation and contribute to the process of reinvention they consider necessary for long term survival in a fast changing business environment.
Hamel and Valikangas (2003) in examining what they termed ‘resilience’ suggest some processes for developing continuous adaptive capability that may exemplify the multiple project basis of organisation detailed by Szymczak and Walker (2003). Hamel and Valikangas (2003) suggest undertaking a plethora of low risk projects, providing the opportunity for employees to work on a constantly changing range of projects, and recognise that their capacity to live with both losses and ‘runs on the board’ (an outcome of constant and frantic activity) helps build organisation capacity “to dynamically reinvent business models and strategies as circumstances change” (p.53)
Lindkvist (2008) expresses similar views when he talks about using project-based organisation, models and tools to forestall habituation and increase ‘cognitive effort’ seen as critical to continuous adaptation. He also suggests using a set of ‘rules-of-the-game’ (explicit statements of expectations, including prime responsibility for information seeking, cooperation, individual responsibility for creating demand for their service, etc) instead of bureaucratic ‘instructional rules’ as a means of promoting responsiveness and reflection in individuals as well as enabling local creativity in dealing with unforseen events. Also, treating projects as experiments or trials “allows for letting local-level close-to-the-customer experience inform or inspire firm-level strategic learning” (p.19). Lindkvist also suggests these initiatives complement rather than replace existing routine based, tacit and team adaptation capabilities. We will be examining experiments and trials more fully when discussing stakeholder engagement in problem determination and resolution though ‘design’ approaches to collaborative decision making.
6.11. Critiquing forms of organisation structure: Supply chain management
In another unit of this Master program, supply chains are discussed by noting the increasing complexity of supply chain arrangements in the search for improved value for customers and competitive advantage. While traditional organisational structure suggests the organisation is determined at the boundary of the authority of management to control activity, organisational boundaries can become very blurred in networked forms of organisation. In the case of outsourced logistics functions for instance, it is not uncommon for the logistics supplier to have a requirement to report directly to the company that outsourced the function for all functional and technical matters.
Bozarth and Handfield (2008) suggest there is a strong connection between an organisation’s business strategy and its ‘operations and supply chain management’ functions. Note that ‘operations management’ traditionally focuses more on internal organisational matters of “planning, scheduling and control of activities that transform inputs into finished goods and services” (2008, p. 7) and that ‘supply chain management’ refers more broadly to the “active management of supply chain activities and relationships in order to maximize customer value and achieve sustainable competitive advantage” (2008, p. 8). They suggest the functional strategy developed for operations and supply chain management should support the organisation’s business strategy and consider the highest levels of support and alignment are achieved when the structural and infrastructural elements of the supply chain and its management represent core competencies of the organisation that can be exploited in achieving competitive advantage.
For example, Walmart are considered to have built their success around effective regional distribution capabilities and are now seen as the benchmark for a range of supply chain management strategies. Their supply chain practices such as ‘cross-docking’ (where large shipments are received, stored and sorted in regional distribution centres for immediate shipping to local stores) and bar coding are now considered industry norms. More recently, Walmart
introduced radio frequency identification (RFID) tagging for goods brought into their warehouses, thus requiring suppliers to invest in this technology and support its maintenance within their own organisations.
Toyota’s ‘lean manufacturing’ (or just-in-time manufacturing) is another example of supply chain management practices that were once a source of competitive advantage and are now considered to be the industry standard, but require supplying organisations to alter their own organisational design features.
In both these examples, efficiency and elimination of waste (including time) appear to have been drivers of improvements aimed at achieving competitive advantage and improved customer value. Both Walmart and Toyota appear to be considered by many as setting benchmarks in certain aspects of supply chain management. However, in relation to organisational design considerations, what of other stakeholders and what are appropriate boundaries when considering their interests?
Question: Are efficiency goals sufficient to drive sustainable supply chain operations? For example, Walmart have been on the receiving end of criticism about poor working conditions for employees. Is it feasible for Walmart to insist that their suppliers not only meet certain performance standards but also bear the cost of technological improvements that would make many of these organisations unviable? Would such a strategy open up opportunities for other forms of competition from more collaborative supply chain arrangements?
To more fully understand what might be considered legitimate concerns (and boundaries) of ‘operations and supply chain management’ the following table by Bozarth and Handfield (2008) lists the major activities and affected parties:
Figure 1-4-17: Major Operations and Supply Chain Management Activities (Bozarth & Handfield 2008)
It can be assumed from this table that Bozarth and Handfield (2008) might regard the internal departments listed, customers and suppliers as stakeholders in the process. Daft (2013, p. 331) suggests an ‘integrated enterprise’ might use advanced IT to enable close coordination both within the organisation and with its suppliers, customers and partners as a means of achieving the efficiency, high quality and reliability goals normally associated with effective supply chain management. However, would organisational structure have a role to play when one takes into consideration broader stakeholder interests/influences and associated ‘power and authority’ and ‘information flow and control’ issues?
Exercise: At a conceptual level, examine the organisational forms listed earlier and evaluate which would appear to contribute to an effective ‘operations and supply chain management’ function from the perspectives of information flow and power relations. You might want to consider the ‘interfunctional’ and ‘interorganisational’ participants in effective supply chain management listed in the table above as well as the potentially legitimate and influential interests of other stakeholders in an organisation and its suppliers.
For instance, if meeting increased local demand for a product required the normal delivery arrangements from an overseas supplier to change from a combination of sea/road freight to air freight, would cost issues be the only issues to be taken into account? Who else in the organisation and outside the organisation might be affected by (and potentially have some influence on) such a decision? While IT systems may be a critical feature of ensuring the changes are communicated and carried out effectively, in this case, how could organisational structure contribute to ensuring appropriate decision making is made at every appropriate interface with the business environment?
Bozarth, CC & Handfield, RB 2008, Introduction to Operations and Supply Chain Management, Pearson International Edition, 2e, Pearson Education
Bredin, K & Söderland, J 2007, ‘Reconceptualising line management in project-based organisations’, Personnel Review , vol.36, no. 5, pp. 815-833
Champoux, JE 2011, Organizational behaviour; Integrating individuals, groups and organizations, 4th Ed, Routledge, UK
Cross, R, Borgatti, S & Parker, A 2002 ‘Making Invisible Work Visible: Using Social Network Analysis tto Support Strategic Collaboration’, California Management Review, vol 42, no 2, pp. 25-46
Daft, RL 2013, Organization Theory and Design, 11th Ed, South Western, Cengage Learning, OH, USA
Duncan, R 1979, ‘What is the Right Organization Structure? Decision Tree Analysis Provides the Answer’, Organizational Dynamics , Winter
Griffiths, A & Petrick, JA 2001, ‘Corporate architectures for sustainability’, International Journal of Operations and Production Management , vol. 21, no. 12, pp. 1573-1585
Hobday, M 2000, ‘The project-based organisation: an ideal form for managing complex products and systems?’ Research Policy , vol. 29, pp 871-893
Lindkvist, L 2008, ‘Project organization: Exploring its adaptation properties’, International Journal of Project Management , vol. 26, pp. 13-20
Pierce, JL & Gardner, DG 2002, Management and Organizational Behavior: An integrated Perspective , South Western, OH
Sink, R 2007, ‘My Unfashionable Legacy’, Strategy + Business, viewed 1 June 2015 <>
Szymczak, CC & Walker, DHT 2003, ‘Boeing – a case study example of enterprise project management from a learning organisation perspective’, The Learning Organization ‘, vol. 10, no. 3, pp. 125-137
Tushman, ML & Nadler, DA 1978, ‘Information Processing as an Integrating Concept in Organizational Design’, Academy of Management Review , July
Prescribed Readings
When reading the prescribed readings, take note of case examples and any similarities and features that may have application in your organization:
Daft, RL 2013, Chapter Three ‘Fundamentals of Organization Structure’, in Organization Theory and Design, 11th Ed, South Western, Cengage Learning, OH, USA
Cross, R, Borgatti, S & Parker, A 2002 ‘Making Invisible Work Visible: Using Social Network Analysis tto Support Strategic Collaboration’, California Management Review, vol 42, no 2, pp. 25-46
Hobday, M 2000, ‘The project-based organisation: an ideal form for managing complex products and systems?’ Research Policy, vol. 29, pp 871-893
Lindkvist, L 2008, ‘Project organization: Exploring its adaptation properties’, International Journal of Project Management , vol. 26, pp. 13-20
Recommended Additional Readings
Griffiths, A & Petrick, JA 2001, ‘Corporate architectures for sustainability’, International Journal of Operations and Production Management , vol. 21, no. 12, pp. 1573-1585 Published/EmeraldFullTextArticle/Articles/0240211206.html
Tushman, ML & Nadler, DA 1978, ‘Information Processing as an Integrating Concept in Organizational Design’, Academy of Management Review , July
Hamel, G & Välikangas, L 2003, ‘The Quest for Resilience’, Harvard Business Review, September, pp. 52-63
Learning Outcomes
On completion of this learning object you should be able to:
? Appreciate a number of current perspectives on the purpose of organisation structure
? Appreciate the range of organisational forms in use and some of their applications
? Evaluate the potential impact of organisational structures on the effective flow of information for decision making relevant to an organisation’s contextually specific challenges.
Exploring and Reinforcing
Consider the ‘questions’ posed within the Learning Object. Please take the time to answer these and consolidate your understanding of the concepts raised as well as facilitate your appreciation of how they may or may not be applicable in your workplace.
Especially consider the capacity of certain organisational forms to help achieve effective communication with ‘supply chain’ partners in complex business environments where multiple stakeholder interests are increasingly relevant, including the challenges of networked organisational forms and the challenges of gaining efficiencies versus building trustworthy relationships.
Assessable Activity – Week Four
For this week’s activity you can choose to do either of the following:
1. Your organisation’s structural design: Identify your organisation’s structure and explain it in terms of the models described above, discussing the relevance of the design to facilitating effective decision-making around the challenges you perceive in the business environment in which your organisation operates.
2. Structural considerations for supply chain management in a multi-stakeholder and complex environment: Consider the capacity of certain organisational forms to help achieve effective communication with ‘supply chain’ partners in complex business environments where multiple stakeholder interests are increasingly relevant, including the challenges of networked organisational forms and the challenges of gaining efficiencies versus building trustworthy relationships. Share your responses with your group.
Learning Object 2 Learning Object 2 Learning Object 2Learning Object 2Learning Object 2 Learning Object 2 -1: Decision Decision Decision DecisionDecision-making in dynamism and making in dynamism and making in dynamism and making in dynamism and making in dynamism and making in dynamism and making in dynamism and making in dynamism and making in dynamism and complexity complexity complexity Aims and Objectives
With one of the primary purposes of organisation design being the flow of information to support decision making, exploring the characteristic, challenges and processes associated business decision making in a complex and dynamic global environment seems fundamental to understanding, in turn, the structures, processes, and cultures that might appropriately prioritise and support effective decision making.
The objective is to provide you the opportunity to understand how and why business decisions are made, who makes them, what constitutes ‘good’ and ‘bad’ decisions, characteristics of decision making in complexity, and collaborative decision making processes that engage a broad range of stakeholders in problem identification and solution generation. Key Concepts, Constructs and Debates
Exercise: Read Chapter 12 of Daft (2013) before proceeding with the Learning Object.
The following outline offers the opportunity to frame various sections of the Chapter, and also offers alternative and extended perspectives, together with supporting resources.
1. Who makes decisions and why
1.1 The manager and decision making in the contemporary business environment
Ireland and Miller (2004) suggest “management is decision making” and as such, management’s
… key function [is] deciding how to manage organizational knowledge bases to overcome obstacles and exploit opportunities that are the products of accelerating industry dynamics, increasing technological complexity, the merging of complex technologies and other environmental changes. In light of significant transitions such as these, managers must be able to make as well as learn from both routine and non-routine decisions (2004, p. 8. emphasis added)
They noted the importance of the simple steps of classical decision-making (discussed later), but also noted the dangers of relying on simple frameworks in an environment characterised by complexity and ambiguity in which many situations cannot be reduced to simple probabilities and in which future preferences can change on a daily basis.
Robbins et al (2012, p. 262) have suggested that “managers are judged on the outcomes of their decisions. In fact, the success or survival of many firms and organisations is influenced in a major way by the quality of the decisions their managers make”. Daft (2013, p. 477) reinforces this, noting that “Managers are often referred to as decision makers, and every organization grows, prospers or fails as a result of the choices managers make.”
Managers do not always operate in isolation however, and while individual capability appears critical, in today’s complex and changing business environment effective team and organisational level decision making is also important. In addition, organisations and business managers are increasingly confronted with paradoxical issues, incomplete and ambiguous information and uncertain decision choices.
Such situations call for alternative approaches to decision making and challenge hierarchical systems that employ ‘command and control’ decision making, especially as society demands that business exhibits more socially and environmentally responsible behaviours requiring attention to the legitimate and diverse claims of a broad range of stakeholders in the outcomes of business decisions.
1.2 Hierarchies and hierarchical decision-making
As noted in the first learning object of this unit, hierarchical systems were developed during the Industrial Revolution around organising large groups of people efficiently and rationally. They offered a viable alternative to the organising ‘principles’ of favouritism, social status, family connections or graft that existed at the time.
In earlier discussions, it has also been recognised that hierarchies are increasingly challenged for a range of reasons. In relation to decision making errors for instance, Weick and Sutcliffe (2007, p. 16 emphasis added) note that “rigid hierarchies have their own special vulnerability to error. Errors at higher levels tend to pick up and combine with errors at lower levels, thereby making the resulting problem bigger, harder to comprehend, and more prone to escalation”.
Weick and Sutcliffe (2007) suggest that managing organisations to achieve reliable performance and outcomes in an age of uncertainty requires the development of “mindful infrastructure that continually does all of the following:
? Tracks small failures
? Resists oversimplification
? Remains sensitive to operations
? Maintains capabilities for resilience
? Takes advantage of shifting locations of expertise” (2007, p. 2).
They term such organisations “high reliability organisations”.
However, the devolution of decision-making closer (both in space and time) to a decision event brings associated risks and pressures on organisational systems and processes in order to provide the necessary support for effective localised decision-making. This has significant implications for the design of organisational interactions for information flow and distribution of appropriate authority.
Question: How do you perceive decisions being made in your business at a central level and at a local level? To what extent does the information on hierarchical decision making hold true? Are changes occurring that require a different approach to business decision-making?
2. How decisions are made
2.1 The decision-making process
A basic rational decision-making process oriented towards problem solving is often portrayed as involving several steps around
? defining the decision problem,
? creating alternative courses of action, and
? choosing among the alternatives using specified criteria.
Robbins et al (2012), for instance, incorporate additional intermediary steps and an evaluative step as follows:
1. Identifying the problem
2. Identifying the decision criteria
3. Allocating ‘weights’ to the criteria
4. Developing alternatives
5. Analysing alternatives
6. Selecting an alternative
7. Implementing the alternative
8. Evaluating decision effectiveness.
Daft (2013, pp. 481-483) describes this ‘rational approach’ as comprising the following steps:
1. Monitor the decision environment
2. Define the decision problem
3. Specify decision objectives
4. Diagnose the problem
5. Develop alternative solutions
6. Evaluate alternatives
7. Choose the best alternative
8. Implement the chosen alternative (noting that monitoring / evaluative activity begins as soon as the solution is implemented).
However, Ireland and Miller (2004) suggest that “decision making requires constant refinement of knowledge gained from executing decision making processes. Formal analysis techniques, behaviors, personal characteristics, and power politics are all important parts of decision making processes that influence the making of each decision (2004, p. 8, emphasis added). This means that a rational process of defining a problem, evaluating alternatives and selecting a course of action is more complex than the sequential linear process indicated above. Robbins et al (2012, p. 281) also note that, “today’s business world revolves around making decisions, often risky ones, usually with incomplete and inadequate information, and under intense time pressure”, making the following of a rational and staged procedure difficult.
As we have also noted a number of times earlier in the unit, collaboration to achieve agreed outcomes with diverse stakeholder groups involving a range of valid perspectives as well as ambiguous and changing information can characterise the decision making environment for many managers in today’s multi-sector, cross-disciplinary business environments. We will examine some of the implications of this increasingly complex decision making environment later in this Learning Object.
2.2 Bounded rationality, constraints and ‘satisficing’
Under the rational model, the application of a systematic approach is assumed to result in appropriate decisions. This assumption may be relevant when dealing with issues that are commonly understood and there is appropriate information available.
However, attempts at rationality are considered to be ‘bounded’ or limited by incomplete or inadequate information, time constraints, and the complexity and multi-dimensional nature of issues (‘bounded rationality’ being a concept originally proposed by Nobel Laureate Herbert Simon in 1957).
Other constraints other than the limits on information, resources and time that challenge the rational decision making process, are considered to include personal motivations, biases and organisational dynamics. This might be illustrated as follows:
Figure 2-1-1: Constraints on rational decision making (adapted from Daft (2013 – citing Janis (1989) & George (1980))
Bazerman and Moore (2009) note that Simon’s ‘bounded rationality’, in addition to recognising the limits on resources such as time, cost, relevant information, relevant criteria, etc., also recognises that decision makers only
retain a relatively small amount of information, have intelligence limitations, can experience cognitive dissonance from conflicting information, and suffer perceptual errors, resulting in them overlooking the full range of possible consequences and opting to “forgo the best solution in favour of the one that is acceptable and reasonable. That is we satisfice: rather than examining all possible alternatives, we simply search until we find a satisfactory solution that will suffice because it achieves an acceptable level of performance” (2009, p. 5).
Other commentators suggest Simon’s concept of ‘bounded rationality’, while relevant to perceptions of choice, was only one aspect of his concerns around effective decision making, he having argued that there were three intertwined aspects of decision-making: intelligence, design, and choice (see Boland et al 2008 for an exploration of this argument). However, it is argued that the focus in the professions was quickly moved to the ‘choice’ aspect of decision making alone.
We will explore possibilities for more expansive approaches to decision making that leverage from the ‘design’ aspect later.
2.3 Intuition
The bounded rationality perspective also brings into focus the subject of intuitive decision making. Daft (2013) suggests they are related, indicating that “experience and judgement rather than sequential logic or explicit reasoning are used to make decision” (p. 486).
Robbins et al (2012, p. 271) define intuitive decision making as “… making decisions on the basis of experience, feelings and accumulated judgement”. They present a schematic on page 225 showing 5 aspects to intuition which is repeated below. This is based on Burke and Miller’s (1999) research in which they asked 60 experienced professionals to describe their experiences with intuitive decision making.
Figure 2-1-2: What is Intuition? (Based on Burke & Miller 1999)
As a consequence of these descriptions they conceptualised intuition as “a cognitive conclusion based on a decision maker’s previous experiences and emotional inputs” (1999, p. 92).
Sinclair and Ashkanasy (2005) extend this insight, defining intuition as “a non-sequential information processing mode, which comprises both cognitive and affective elements and results in direct knowing without any use of conscious reasoning” (2005, p. 357). However, they propose that managers use both rational and intuitive processes simultaneously, the decision about which process dominates being influenced by ‘affect’, ‘gender’, ‘problem characteristics’, ‘decision characteristics’, ‘personal disposition’ and ‘decision making context’. Daft (2013)
suggests one decision making context that has been found by a range of researchers to invoke the use of both rational analysis and intuitive processes is that of ‘complex decisions under time pressure’.
Sinclair and Ashkanasy’s (2005) more nuanced model is represented in the following diagram:
Figure 2-1-3: Decision making model (Source: Sinclair and Ashkanasy 2005)
Exercise / Question: Read the article by Sinclair and Ashkanasy (2005). What do they suggest is the role of emotion / mood in decision making?
Miller and Ireland (2005, p. 21) discuss intuition as “holistic hunch [where] judgement or choice [is] made through a subconscious synthesis of information drawn from diverse experiences” and “automated expertise [involving the] recognition of a familiar situation and the straightforward but partially subconscious application of previous learning related to that situation”. They note that while the holistic hunch type of intuition can be beneficial when exploring alternatives, intuition conceptualised as automated expertise brings risks and problems that can at times outweigh benefits.
Gladwell (2005) promotes intuitive decision making and suggests that our ‘adaptive unconscious’ is at work even in rational processes giving rise to ‘rapid cognition’. To avoid the risks and problems with intuition, he advises us to:
? Remember that more is not better – focus on the meaningfulness rather than the amount of available information
? Practice ‘thin-slicing’ – this process is claimed to harness the power of the adaptive unconscious by focusing on a ‘thin slice’ of pertinent data or information and allowing intuition to do the work
? Know your limits – when a person has in-depth knowledge and experience in an area, more trust can be placed on intuition. However, decision makers need to be aware of common biases.
Question: Think of a recent decision making process in which you have been involved. Can you recognise the influence of rational and intuitive decision making?
2.4 Deductive, Inductive and Abductive reasoning
The concept of ‘reason’ and its relationship to our daily lives is a significant philosophical subject beyond the scope of this unit. However, it is generally agreed that, as humans, we use the processes of ‘reasoning’ to make sense of what we experience through, for example, examining situations, seeking and providing explanations and drawing and justifying conclusions. Understanding the differences between the following common forms of reasoning may help in understanding why some forms of conclusion can be justifiably more certain than others, and how decision-
making legitimately utilises both rational and intuitive processes to form conclusions. You can find many sources to verify the following summary by typing in “deductive, inductive and abductive reasoning” in your internet browser.
When we employ ‘deductive’ reasoning, we apply a general rule to a situation, reasoning that if the general rule is true and the situation fits within this rule, then a conclusion based on the rule must also be true. Deductive reasoning results in an outcome that is ‘certain’. For instance, if the rule is that night follows day after sunset, and the sun is setting, then night will follow.
When we employ ‘inductive’ reasoning we infer that, on the basis of a number of specific and perhaps limited observations, a more general conclusion is likely, but not assured. Conclusions reached in this way are not ‘logical necessities’ as in the above, as it is highly unlikely that all relevant situations or contexts could be observed in arriving at the conclusion. Inductive reasoning moves from the specific to the general, and most rigorous research and associated ‘theorising’ occurs this way, i.e. through gathering data, seeking patterns in the data, and conceptualising the situation in more generic terms through hypothesis or theory in order to explain more clearly what is observed. Inductive reasoning may employ rational and intuitive approaches.
When we employ ‘abductive’ reasoning, we are often seeking to arrive at the best possible explanation given the incompleteness of the information we have available. Abductive reasoning may require us to ‘fill in’ gaps or take ‘leaps’ in our thinking and analysis, and thus rely more on intuition, accumulated experiences, and the perspectives and insights of others in order to form appropriate conclusions. Abductive reasoning is perhaps the reasoning process we employ most often in our everyday decision making, especially given the pace of change in the increasingly complex business environment. However, it is the incompleteness of information that characterises the need for abductive reasoning and it is not only complex situations that invoke it, but traditionally stable decision making situations also depend on it. For instance, in trial by jury, jurors will be required to draw conclusions based on often contradictory claims from a range of witnesses and experts as well as evidence and data that is necessarily incomplete.
2.5 Decision making errors and biases
Daft (2013) recognises the inevitability of errors in decision making, suggesting that “only by making mistakes can managers and organisations go through the process of decision learning and acquire sufficient expertise and knowledge to perform more effectively in the future” (pp. 508-509). However, some decision making errors occur through employing ‘rules of thumb’ or heuristics to simplify the process without understanding how these rules of thumb can lead to errors and bias in processing and evaluating information. Robbins et al (2012) suggest 12 common decision errors and biases influencing decision making:
? Overconfidence
? Immediate gratification
? Anchoring effect
? Selective perception
? Confirmation
? Framing
? Availability
? Representation
? Randomness
? Sunk costs (also called ‘escalation of commitment’)
? Self-serving
? Hindsight.
Daft (2013), on the other hand discusses what he considers are the three most common source of cognitive bias, i.e. escalating commitment, loss aversion and groupthink. He suggests strategies for overcoming these biases, including the use of evidence-based management and encouraging dissent and diversity (particularly employing ‘devil’s advocate’ strategies).
Note that an interesting variant of group think is the Abilene complex, in which each member of the group thinks their own views are different from the group’s and therefore fails to raise an objection, resulting in a decision being made on a proposal that no group member fully supports.
Exercise: Review Daft (2013) pages 509-511 and identify one example of the three types of cognitive bias in recent decision making forums in which you have been involved. Now identify them in decisions you have made. Which was easier to identify? Why is this? Which of these heuristics apply more often in your decision making than others?
2.6 Carnegie Decision-making model
Research undertaken in an organisational setting, and informed by the ‘bounded rationality’ model discussed above, revealed that managers were generally unable to follow an ‘ideal’ decision making procedure. Time pressure and competing perspectives often motivated the manager to select the first decision that solved a problem and allowed progression to the next stage.
The Carnegie decision-making model assumes that:
? ambiguity and inconsistency often characterise organisational decision-making contexts,
? in such contexts managers disagree about priorities and will negotiate around problem identification and solution, and
? managers have cognitive limitations and other constraints such as time, resources and mental capacity to identify, gather and process all the information necessary to make a decision.
These conditions lead to coalition-building behaviour in order to interpret goals, exchange points of view, gather information, reduce ambiguity, make sense of the situation, establish priorities and gain social support. The model is represented as follows:
Figure 2-1-4: Choice process in Carnegie Model (Daft 2013, p. 493)
Two major implications of the model are:
? Decisions are made to ‘satisfice’ rather than optimize problem solutions
? Managers are concerned with immediate problems and short run solutions and therefore engage in ‘problemistic search’. This means they search the immediate environment for a solution, not expecting ‘a perfect solution when the situation is ill-defined and conflict-laden’.
The Carnegie model “says that search behaviour is just sufficient to produce a satisfactory solution and that managers typically adopt the first satisfactory solution that emerges” (Daft 2013, p.493), given that search and negotiation are time consuming.
Question: Reflect on your decision making in your organisation – when have you used the Carnegie model? What skills and attitudes did you need in order to achieve an effective outcome?
The Carnegie model has been suggested as being effective for problem identification, but to improve decision outcomes, Daft has suggested combining it with an incremental ‘trial and error’ process subsequent to decisions being made about the nature of the problem. We will further examine aspects of this latter suggestion, i.e. iterative trial and error progression towards an agreed outcome, when we explore later how decisions are being made using ‘design discipline’ methodologies in the delivery of services, especially in relation to collaboration with diverse stakeholders in an open but bounded environment to identify and clarify a problem setting and discover responses that are satisfactory for these stakeholders – progress being achieved through iterative exchanges around the whole process (planning through to action) until collective agreement is achieved.
2.7 What makes decisions ‘good’ or ‘bad’?
Clearly, a decision can be both good and bad depending on context. Quite apart from business environment changes already discussed, broader societal contexts relevant to decision making are also changing. For instance, community attitudes to the negative spill over impacts or ‘externalities’ of business operations (see, such as air and water pollution, worker injuries, natural environment changes, social inequities, etc., have often been willingly accepted because the positive externalities, such as community well-being, infrastructure development, etc., were seen as outweighing the negatives.
However, community perceptions toward business outcomes have been changing both locally and globally such that decisions made by business deemed appropriate as little as a decade or so ago, might not be regarded as appropriate today. Also, note that not all of a community’s expectations are explicit in the law and regulatory frameworks of national, regional or local governments. Many are contained in community norms and values, which are also location and time dependent. An examination of business ethics would suggest that alternative ethical stances would also categorise the same decision as both good and bad. Thus context and culture are significant influences on whether a decision will be regarded as good or bad.
Also, when considering this question, the manager should take account of the fact that inadequate or ambiguous information and time restrictions increasingly characterise the decision making environment, especially where multiple stakeholders present competing claims. As a result, tensions can often arise.
De Wit and Meyer (2010) suggest that is such situations, treating tensions as paradoxes can improve decision making because it will avoid the tendency to seek immediate solution. They argue that: “most people are not used to, or inclined to, think of a problem as a paradox. A paradox has no answer or set of answers – it can only be coped with as best as possible … Paradoxes will always remain surrounded by uncertainty and disagreements on how best to cope” (p. 18). They suggest that treating tensions as paradoxes can encourage creativity in finding ways of benefiting from both sides of the tensions at the same time.
However, in so doing there remains the issue of clarifying the information and decision making criteria sufficiently to enable decisions to be made. While managers may increasingly rely on intuition, of equal importance is being able to develop critical thinking capability (and perhaps this reflects some of what Herbert Simon was referring to when suggesting ‘intelligence’ is an inseparable facet of decision making).
2.8 Critical thinking and decision-making
Gerras (2006) discusses the urgency of developing critical thinking in strategic leaders in a military setting. He provides a very relevant critique of a critical thinking model proposed for use in conditions where decision making under pressure has significant consequences. Key features of the model include:
? Clarify concern
? Point of view
? Assumptions
? Inferences
? Evaluation of information
? Implications.
This is diagrammatically represented as:
Figure 2-1-5: Critical Thinking Model (Gerras 2006)
Critical thinking appears to be an essential element of effective decision-making that utilises uncertain information, and this model may provide you with a framework for reflecting on your own decision making as well as the organisation’s culture and interactions that support the development of critical thinking capability.
Exercise: Access and download the article using the following link Read the article carefully. Also view QualiaSoup’s perspective on critical thinking ( Identify a key decision-making process in which you have been involved that required critical thinking skills. Use these models to reflect on the critical thinking processes that were used to a greater or lesser extent and successfully or less successfully.
On pages 23 and 24 of the article, Gerras (2006) discusses aspects of organisational design and culture in the army that facilitate and impeded critical thinking. He emphasises as a critical impediment, the hierarchical nature of organisational design and culture in the army which impedes the development of critical thinking skills through its resistance to dialogue as a form of interaction.
Exercise: Make a list of the features of organisational culture in an organisation with which you are familiar that support and impede critical thinking, drawing from Gerras’s detailed paper as appropriate. Reflect particularly on the significance of ‘dialogue as a form of interaction’, as this insight appears relevant to managing in range of complex, diverse and dynamic environments. Also consider what structures, processes and cultures might support interactive dialogue.
2.9 Collaborative decision making in complex and ambiguous situations seeking emergent outcomes – a ‘design’ perspective
As we have noted earlier, there is increasing pressure on business to make decisions in collaboration with actors in other sectors, industries and disciplines to help resolve the multi-faceted challenges society is facing.
Employing ‘design thinking’ in decision making focuses on “doing things” as a basis for generating understanding and developing new interfaces between people and technologies; where “… planning, doing, reason and action are not separate” (Koskinen et al 2011, p. 2). Methodologies based on ‘design’ principles appear to offer managers alternatives for achieving agreed responses to challenges affecting a diverse range of stakeholders in complex situations.
The International Council of Societies of Industrial Design (ICSID) suggest that designers “speak for” people in industry, defining ‘design’ as “a creative activity whose aim is to establish the multi-faceted qualities of objects, processes, services and their systems in whole life cycles. Therefore, design is the central factor of innovative humanization of technologies and the crucial factor of cultural and economic exchange” (cited in Koskinen et al, 2011, p. 18).
Koskinen et al (2011) describe a design research methodology called Constructive Design Research which involves all stakeholders affected by a problem, situation or set of challenges in generating an outcome acceptable to all by creating, testing and refining alternatives using artefacts and prototypes, i.e. the stakeholders ‘construct’ objects, scenarios, prototypes and/or service system alternatives in order to fully understand the problem setting and learn about the set of challenges and responses that will be effective.
Bason (2010) discusses the use of such design methodologies in the context of public sector innovation; the latter being defined as “new ideas that create value for society” (2010, p. 4). He cites a range of examples from across the world, noting the use of ‘learning laboratories’ or ‘learning labs’ in relation to service innovation for “reshaping social services through creative working methods, ethnographic research, service design and empowerment of citizens to take part in service delivery” (p. 4).
In an example of ‘service design’, the Commonwealth Department of Human Services (DHS) are seeking to achieve integrated and effective service offers to citizens whether seeking employment, medical benefits or rehabilitation services (see – ). They state that “the department aims to achieve a more citizen-centred approach in the design of service delivery. This approach is known as co-design and is intended to extend the role of the public by inviting customers to collaborate on the design of services (Service Delivery Reform: Transforming Government Service Delivery, p. 15).
The processes used in service design often involve a wide range of affected stakeholders in identifying the issues and creating appropriate service offers. In the DHS case, “mapping customers’ experiences of services and how these relate to their daily lives” is expected to create “deeper insight into how customers understand services, potential gaps in services, and to identify and design opportunities for improvement” (Service Delivery Reform: Transforming Government Service Delivery p.15)
As with many of these design methodologies, service design appears to emphasise action as an important form of learning, often through ‘co-creating’ working prototypes that are subsequently tested and refined until the outcome is satisfactory.
Jahnke (2011) suggests that such approaches reflect Schon’s (1983) concept of the ‘reflective practitioner’ whereby the manager proceeds towards outcomes “by way of dialogic exchange with the design situation” (2011, p. 30 emphasis added), and in so doing focuses on the problem setting more than the problem solution. Jahnke further suggests that in social ‘design’ situations “the designer has to deal with complex “assemblages” of more or less articulated meanings, material artifacts, embodied experiences, and more …, [and that] … these collections [of meanings] are often paradoxical and may have the quality of dilemma…” (p. 36). This observation appears similar to De Wit & Meyer’s (2010) suggestion regarding holding paradox as tension and not attempting to force premature solutions.
Jahnke (2011) proposes that because “design practice … is engaged in an active interpretation of situations to manifest new meaning in designed objects (and services)” (p. 36, emphasis added) working with these methodologies might require:
? acknowledging the need for reflection and critique of the interpretations and perspectives being generated
? acknowledging prejudices in order to open our horizons i.e. “a willingness to expand our own understanding and be open to the possibility of the “fusing of horizons” – to the understanding of something else or of the other” (p. 37)
? acknowledging that by being involved in such processes “the self evolves [i.e.] designing is as much a process of [emergent] learning as of generating a design outcome” (p. 37)
? emphasising the use of questioning that arises from ‘wondering’, i.e. seeking a genuine understanding
? utilising metaphors to improve an understanding of the problem setting
? acknowledging that problem solving need not be explicit but can occur within the processes of clarifying meaning through questioning and providing new and unexpected experiences.
Secomandi and Snelders (2011) note that in ‘service design’, there is tension between a focus on service infrastructure and the service interface, but it is the “client-provider interface [that] is crucial to service design because, ultimately, it brings new services into being” (2011, p. 33).
From a decision-making perspective this can both complement and challenge decision making approaches, especially those that may seek to be deterministic around outcomes such as ‘strategic’ intentions or performance improvements. Also, by involving affected stakeholders in problem definition and resolution, the potential for the consequences of decisions to be taken into account for an appropriate range of stakeholders are improved, Carroll (2006), in discussing some of Herbert Simon’s (1967, 1996) contributions to decision making and design principles, highlights that Simon has emphasised that decision makers should be concerned with the consequences of their decision making beyond the immediate. Carroll quotes Simon in his 1996 edition of The Sciences of the Artificial: “the traditional definition of the professional’s role is highly compatible with bounded rationality, which is most comfortable with problems having clear-cut and limited goals. But as knowledge grows, the role of the professional comes under questioning. Developments in technology give professionals the power to produce larger and broader effects at the same time that they become clearly aware of the remote consequences of their prescriptions (1996, p. 150).
Question: If ‘design’ thinking facilitates decision makers to more effectively consider the broader consequences of their decisions (through embracing affected stakeholders in the determination of ‘problem sets’ and potential ‘solutions) , what might be some implications for organisational design and thus more sustainable business practices?
3. Additional tools to assist decision making
3.1 The contingency model of decision-making in complex environments
Daft (2013) proposes a model that brings together two significant dimensions to decision making in complex environments. These are the degree of consensus about the nature of a problem and which goals and outcomes to pursue (problem consensus), and the amount of understanding and agreement about how to solve problems and reach organisational goals (solution or technical knowledge). Daft’s ‘contingency framework’ suggests four generic approaches to decision making for individuals and organisations, depending on the degree of certainty/uncertainty around the ‘problem consensus’ and ‘solution knowledge’ as follows:
Figure 2-1-6: Contingency framework for Decision approaches (Daft 2013)
Interestingly, Daft (2013) suggests increasing participation may be an effective strategy in conditions typified under quadrant 2 where solutions could be agreed once problems are clearly identified. However, where the problem is clear but ‘solution knowledge’ is not likely to be agreed (quadrant 3), judgment, intuition and trial and error may be
more viable strategies. Further, he suggests that in increasing uncertainty and high change “managers should encourage widespread discussion of problems and idea proposals to facilitate the opportunity to make choices” (p. 507).
Therefore, in conditions involving high uncertainty, individual judgment may be increasingly called upon, either as an individual decision maker or as a contributor to broad coalitions. This raises issues about the flow and materiality of information, individual capacity to critique and analyse information (including conditions that support the questioning of assumptions), credibility of information sources, and the ability to learn appropriately and provide relevant responses. These would appear to be aspects of critical thinking capability and you may want to revisit the earlier work on this subject and on ‘design’ methodologies.
Note there are also organisational culture issues to consider as they may play an equally significant role in decision making quality, e.g. the degree of empowerment and the extent of trust in decisions and support for developing critical thinking skills, as opposed to power-based cultures in which there may be overt mistrust of others and penalties for ‘errors’.
3.2 A decision-making framework for dealing with degrees of complexity?
Snowden and Boone (2007) also suggest a model for decision making that recognises the complexity of the decision making environment. They purport decision making styles relevant to five major contexts as follows:
? Simple – This is the environment of the ‘known knowns’ in which there are clear causes and effects, requiring decision-makers to sense, categorize, and respond. ‘Best practice’ may be a good guide to decisions in such circumstances
? Complicated – The environment is characterised as ‘known unknowns’ in which cause and effect are discoverable but not apparent, requiring decision-makers to sense, analyse, and respond. ‘Expert advice’ may be needed to guide decisions in these circumstances
? Complex – The environment is characterised by flux, unpredictability, ‘unknown unknowns’, and emergent instructive patterns. There are often many competing ideas, requiring creative innovative approaches. The decision making framework here is characterised as probe, sense and respond. Analysis gives way to facilitating interaction, diversity, and experimentation that allows patterns to emerge.
? Chaotic – This is a highly turbulent environment of ‘unknowables’ coupled with reduced time to think and high tension. In this environment, decision-makers act, sense and respond. They look for what works and seek to re-establish order using command and control methods.
? Disorder – Difficult to recognise this environment as “multiple perspectives jostle for prominence, factional leaders argue with one another, and cacophony rules. The way out of this realm is to break down the situation into constituent parts and assign each to one of the other four realms” (Snowden and Boone 2007, p. 72), thus facilitating subsequent contextually based responses.
They suggest that the chaotic environment is not sustainable and while there may be opportunities to learn, the leader should be aiming to shift the context to ‘complex’. They also suggest that while the unordered contexts of the chaotic and complex environments may require decision making skills that utilise intuition, intellect and charisma, “a deep understanding of context, the ability to embrace complexity and paradox, and a willingness to flexibly change leadership style will be required for leaders who want to make things happen in a time of increasing uncertainty” (Snowden and Boone 2007, p. 78).
The following table details the contextual decision making framework they propose:
Figure 2-1-7: Contextual Decision Making Framework for complex environments (Snowden & Boone 2007)
Exercise: Compare the ‘contingency framework’ and ‘complexity framework’ tools, which are designed to assist decision making in complexity, with tools commonly promoted to assist the stepped decision making process discussed earlier (refer to for an outline of common ‘tools’ that form the basis of many ‘training’ programs). What assumptions underpin the ‘complexity’ and ‘stepped’ approaches?
Questions: First, is either of the two ‘complexity’ tools, i.e. the ‘contingency framework’ (Daft 2013) or the ‘contextual framework’ (Snowden and Boone 2007), a useful tool to assist your own decision making in today’s environment? If so, when, if not, why not? What do these ‘tools’ presuppose about management decision making. Second, are ‘tools’ designed around a stepped process useful in today’s environment? If so, when, if not, why not? What do these tools presuppose about management decision making and a manager’s ability to reflect on various approaches in context?
3.3 A perspective on decision-making capacity in crisis
Moss (2008) offers an insight into our capacities as human beings for decision making under stressful conditions generated by increasing complexity and chaos. He suggests that “the mechanisms in the brain that provide insight and broader perspective simply shut off. This can lead to executives making decisions that are driven by survival in the short term, not the company’s strategic direction. The solution is for executives to trust their intuition and make decisions on what is meaningful and important for their operations over a long time-frame of several years”.
Moss (2008) nominates a number of specific errors in decision making in times of hardship, including persistence with big strategic changes that are no longer viable, becoming overly pessimistic, disregarding perspectives of innovative experts, or failing to recognise consumer shifts towards safety, security, plausibility and predictability in marketing campaigns (you can access these comments by Dr Simon Moss of Monash University at
Question: What are the implications of Moss’ observations about human biology on the ‘frameworks’ discussed above that aim to aid decision making in complexity and chaos? What do these frameworks assume that is challenged by these insights?
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Moss, S 2008, ‘Business under threat from own leaders during crisis’ viewed 1 June 2015 Robbins, SP, Bergman, Stagg & Coulter 2012, Management, 6th Edn, Pearson Education, Australia Schon, DA 1983, The Reflective Practitioner: How Professionals Think in Action, Basic Books, London Secomandi, F & Snelders, D 2011, ‘The Object of Service Design’, Design Issues, vol. 27, No. 3, pp. 20-34 Sinclair, M & Ashkanasy NM 2005, ‘Intuition: Myth or a Decision-making Tool?’, Management Learning, Vol. 36, no. 3, pp. 353-370 Simon, HA 1996, The Sciences of the Artificial, MIT Press Cambridge, MA Simon, HA 1976, Administrative Behavior, 3rd Ed, Free Press, NY. Snowden, DJ & Boone, ME 2007, ‘A Leader’s Framework for Decision Making’, Harvard Business Review, vol. 85, no. 11 Teece DJ & Pisano, G 1994, ‘The dynamic capabilities of firms: an introduction, Industrial and Corporate Change, vol. 3, pp. 537–556. Weick, KE & Sutcliffe, KM 2007, Managing The Unexpected: Resilient Performance in an Age of Uncertainty, 2nd Ed, Jossey-Bass, John Wiley & Sons, CA World Business Council for Sustainable Development 2010, Vision 2050: The new agenda for business, viewed 1June 2015
Prescribed Readings
Daft, RL 2013, Chapter 12, Organization Theory and Design, 11th Ed. South Western, Cengage Learning, OH, USA Carroll, JM 2006, ‘Dimensions of Participation in Simon’s Design’, Design Issues, vol. 22, no. 2, pp. 3-18 Koskinen, I, Zimmerman, J, Binder, T, Redstrom, J & Wensveen, S 2011, Chapter 1, Design Research Through Practice: From the Lab, Field, and Showroom, Elsevier, USA (this is an e-book)
Recommended Additional Readings
Gerras, SJ 2006, ‘Thinking Critically About Critical Thinking: A Fundamental Guide For Strategic Leaders’,
Learning Outcomes
On completion of this learning object you should be able to:
? Understand how and why business decisions are made, who makes them, and what might constitute ‘good’ and ‘bad’ decisions,
? Apply a range of approaches to aid decision making in complexity, and
? Identify and evaluate organisational design issues that need to be addressed to facilitate effective decision making in context.
Exploring and Reinforcing
Consider the questions raised throughout the learning object.
Assessable Activity – Week Five
Identify instances of decision making in your organisation (or an organisation known to you) that exemplify rational stepped processes, the Carnegie model, and approaches that emulate ‘design thinking’ (either fully or partly in that they involve affected stakeholders in interactively exploring problem definition and resolution through iterative testing of solutions). Discuss with your group key organisational design issues raised in these examples.
Learning Object 2Learning Object 2 Learning Object 2 Learning Object 2 Learning Object 2 -2: Complex Systems Perspectives Complex Systems Perspectives Complex Systems Perspectives Complex Systems Perspectives Complex Systems Perspectives Complex Systems Perspectives Complex Systems Perspectives Complex Systems Perspectives Aims and Objectives
This Learning Object aims to briefly outline the main features of the major complexity theories and highlight the implications of these theories for organisational design. The main objective is to provide you with the opportunity to understand complexity theories, their assumptions, and their implications for organisational design in a complex business environment. If you are undertaking or have completed the unit ‘Leading and Managing People in Complexity’, there are certain aspects repeated her, and you may benefit from revision and focusing on the latter part of this learning object. Key Concepts, Constructs and Debates
Daft (2013) recognises the instability of the environment for today’s businesses and the implications for order and predictability. He acknowledges theory that suggests “that relationships in complex, open systems – including organizations – are nonlinear and made up of numerous interconnections and divergent choices that create unintended effects and render the whole unpredictable” (p. 34).
The theory referred to above by Daft (2013) as chaos theory might also collectively labelled ‘complexity theories’ (thereby including chaos theory, dissipative structures, complex adaptive systems, complex responsive processes). These have derived from the study of natural systems. They propose that the ‘order generating mechanisms’ that exist in natural systems provide important lessons for the way human social systems (including business organisations) are organised and operated. As Daft notes “chaos theory also recognizes that [the] randomness and disorder [that characterises contemporary organisational existence] occurs within larger patterns of order” (p. 34), and we shall examine here the implications these ‘order patterning’ mechanisms might have for effective organisational design.
However, note that some enthusiastic supporters of certain theories have translated these into practical models (e.g. Olson & Eoyang 2001) while others (e.g. Stacey 2003; Burnes 2005) have suggested human intentionality (agency), choice or free will, and time constraints are important distinguishing factors that separate natural systems from human systems and either discount or at least modify the relevance of these theories. So you should explore these theories critically and reflect on the possibilities they embody, rather than see them as prescriptions or models for determining practices. As with all theory, organisational contexts (including culture and issues recognised as salient) will significantly influence what might or might not be appropriate practice.
1. Notes on completing this learning object
There are two power point presentations, readings and some notes on extended reading for those who may already be familiar with complexity theories.
The first presentation is entitled “Complexity and Systems Theories: Implications for Organisation Design” (Landells 2010) and provides you with a brief overview of the main aspects of complexity theories and some important systems based views. It provides you with the opportunity to assess the implications of complexity theories for organisation design, which is the focus of this learning object.
The second presentation entitled “Complex Adaptive Systems: implications for effective teams, team leadership and change: Lessons from complexity science” (Bolton 2010) provides a more detailed introduction to the theory of ‘complex adaptive systems’ and its potential application to team effectiveness and team leadership in organisations.
This presentation is associated with the unit ‘Leading and Managing People in Complexity’, in which complexity theories are explored from the perspective of organisational behaviour and group/team interactions.
For those of you who are new to complex adaptive systems, Olson & Eoyang 2001, Facilitating Organisation Change: Lessons from Complexity Science, Chapter 9 ‘Making Self Organization a Reality’ provides detailed insights into alternative team and group organisation.
If you are already familiar with complexity theories, you can extend your exploration and develop additional perspectives by examining an article by Espinosa, Harnden and Walker (2007) on the implications of a person’s autonomic self-organising systems for management of complex interactions under conditions of constant change.
However, the discussion topic for this learning object relates only to the implications of complexity theories as covered in the power point presentations and will not assume familiarity with the Espinosa et al (2007) article. The unit facilitator will seek to extend discussions individually in relation to the ‘viable system’ model and the ‘meta-systemic management’ model proposed by Espinosa et al (2007) where appropriate.
Work through the power point presentation(s) and, for those who have not completed the unit ‘Leading and Managing People in Complexity’, read Burnes (2005), Stacey (2003) and Olson and Eoyang (2001). For those familiar with complexity theories, complete the reading below prior to entering into discussions in your group.
2. A brief outline of complexity theories
Complexity theories arose from the study and attempted simulation of natural living systems, and embrace Chaos Theory, Dissipative structures, Complex Adaptive Systems (CAS) and to a degree, Stacey’s (2003) complex responsive processes.
Complexity theories (chaos, dissipative structures, CAS) have the following common assumptions:
? Systems are regarded as non-linear and self-organising
? Order emerges from the operation of systems and is self-generating,
? The future state of these systems is unknowable from the present interactions
? These dynamic non-linear systems are unstable and yet contain their own sense of order or “orderly disorder” (Burnes, 2005).
Burnes (2005) defines complexity theories as those “concerned with the emergence of order in dynamic non-linear systems operating at the edge of chaos: in other words, systems which are constantly changing and where the laws of cause and effect appear not to apply … Order in such systems is seen as manifesting itself in a largely unpredictable fashion, in which patterns of behaviour emerge in irregular but similar forms through a process of self organisation, which is governed by a small number of simple order-generating rules” (2005, p.77).
The dynamic, non-linear nature of interaction within natural systems means the outcomes of their actions are unpredictable, but order is created at the ‘edge of chaos’ or ‘far from equilibrium’ through the operation of a set of simple order-generating rules.
These ‘systems can provide insights into human attempts to create order in complexity including through organisational design, however, it is advisable to consider the impact of human ‘free will’ and ‘choice’ on the generalisability of these theories.
3. Potential implications of complexity theory for organisational design
The following potential implications of complexity-based approaches to organisational design issues have been extracted from various literature sources (see the presentation for references). They reflect the different perspectives of researchers in the field and as such some might appear to be repeated. Some will have been developed from very restricted sets of observations and all these perspectives need to be considered as relevant to a particular context and culture, thus restricting their generalizability to some extent:
? A fundamental shift from traditional cause and effect, top-down, command and control systems to more democratic principles that allow employees to have freedom to act, including self-organisation
? Greater democracy and power equalisation across the broad ambit of organisational life; not just participation in change initiatives – seen as necessary to promote conditions for self-organisation
? Fostering democratic principles and a balanced distribution of power, strong customer focus, strategy of continuous learning and an orientation towards community service
? A need to encourage experimentation, divergent views, allow rule-breaking, and give people the freedom to ‘own their own power, think innovatively and operate in new patterns’
? Organising into flexible basic units that permit new organisational structures to emerge, including ‘semistructures’ that are rigid enough to organise change but flexible enough that change can occur
? Development of approaches to continuous change based on ‘self-organised teams’ instead of small scale incremental change and large scale radical transformational change
? Fostering continuous change emanating from self-organisation at the team or group level – neither small-scale incremental change nor radical transformational change works, and self-organising teams can manage continuous change
? Continuously innovate and improvise supported by intensive real time communication and a few very specific rules
? Authority delegated to those with broadest access to information related to relevant issues or problems
? Substituting order generating rules in place of rational, linear, top-down, strategy driven approaches to change – organisations are complex systems where directive changes can have massive unpredictable effects and cannot deliver continuous innovative or adaptive change. Change occurs at the edge of chaos and this can be achieved through self-organisation which in turn can be maintained through order generating rules (including an iterative process of development where order generating rules cease to be appropriate, then self-organisation will produce new more appropriate order generating rules).
3.1 Critical thinking around complexity theory and organisational design
? What do complexity theories have to say about organising to achieve desired goals?
? What do complexity theories say about resource allocation decisions and the conception that there are gaps between current and desired situations?
? Does the idea of ‘fit’ with the environment correlate with the pressure on business organisations to achieve outcomes in particular time frames in order to survive in a competitive market based economy?
? Can issues of power and control be ignored in competitive environments?
? Complexity theories are based on observations of order generating activity of natural systems excluding human systems. Human systems are distinguishable from natural systems by the operation of human intentionality or ‘free will’ and choice. Some commentators suggest that theories that exclude a role for human intentionality and choice also eliminate a role for morality or ethics (Ghoshal 2005). What are the implications of complexity theories for corporate social responsibility?
? Giddens (1987) maintains that ‘social systems’ involving human interaction are influenced by the articulation of ‘findings’ into their operations, i.e. “unlike theories in the physical sciences, theories in the social sciences tend to be self-fulfilling” (Ghoshal (2005), relying on Gergen’s (1973) observation that knowledge of one’s behaviours “modifies the patterns of behaviour upon which the knowledge was based”). Complexity theories appear to ignore this aspect of human behaviour and systems. This raises the question about the way we theorise and articulate the organisation and associated behaviours as it appears it may have an influence on the organisation’s evolution. What would be the implications for organisation survival if a complexity theory based approach was adopted without consideration for human intentionality and choice?
? Systems and processes involving human action are frequently time bound. From a complexity perspective however, it is not possible to direct the activity of systems from the outside (all system actors are part of the system – not outside it). This would appear to include setting a time frame in which outcomes from system operations should transpire.
Once time frames in which outcomes must occur are imposed, system operations are constrained or pressurised, bringing in consideration such matters as objectives, co-ordinated action, targeted communication, restricted sets of behaviours, cognitive limits, clarity, etc. Do complexity theories have a way of dealing with these features of organisation life? Do complexity theories offer alternatives to the potential negative consequences (such as ambiguity, uncertainty, stress, anxiety) that result from pressurising systems of activity by time constraints?
4. Further reading on complexity and self-organisation
At the conclusion of the power point presentation “Complexity and System theories: Implications for Organisation Design” (Landells 2010), there is a question posed that reads: What did you discover in relation to organisation culture and the deep assumptions you have about organisation success?
Through examining an article by Espinosa, Harnden and Walker (2007) on complexity management from a human systems point of view, we will further explore the notion that people can be ‘trusted’ to respond to changing environmental conditions appropriately given effective resources, information, direction, decision-making authority and enabling culture that supports change readiness and fosters resilience.
The article is quite dense, using many terms that will likely be unfamiliar. Without repeating the argument put forward, the following is an attempt at summarising the model proposed and its suggested application to management.
6. Meta-systemic management of complex networked organisations
6.1. Definitions
First, some clarity of terms that may help when reading the article.
‘Meta’ means ‘beyond’ and used often to mean ‘one level up’ such as meta-system means a system of systems, or meta-theory means a theory of the theories, etc. Meta-systemic management therefore suggests systemic management (or systems based management) of systemic management (in this case, of complex networked organisations). Espinosa et al (2007) describe the term’s application on pages 338 and 339
A ‘viable system’ is a “system whose identity and organisation persist over multiple interactions with an ever-changing environment, despite continuous structural changes. The way viability emerges is a result of the development of the embedded system as an autonomic living network” (Espinosa et al 2007, p.338).
‘Heterarchy’ means an organisation of different or varied levels (of independence) as opposed to hierarchy which has defined successive levels or grades.
6.2. The need to overcome hierarchical control mindsets
Espinosa et al (2007) outline a case for organisations to be “flexible … adaptive, innovative and knowledge-sharing institutions” based on many of the ‘complexity’ based insights we have examined. However, they were concerned that “understanding of complexity and [re-defined] management does not overcome the traditional hierarchical mindset … based upon the deeply ingrained idea that managers are the “knowledgeable” ones while the elements of the network know less and require a cognitive structure taking all important decisions on their behalf” (2007, p. 336).
They explain that Beer’s (1985) work on a ‘viable systems model’ was based on the realisation that the human brain does not ‘drive’ the human body but rather coordinates the autonomic nervous system by transmitting neuro-physiological information ‘across and from the rest of the human body’ whose organs react autonomously to external events (2007, p. 337).
Using this base and other insights they suggest that “in a “viable system” the embedded viable system – those responsible for the production of the main tasks related to organization purpose – interact with each other and “self-control” themselves. Their own local management has autonomy to take local decisions on most issues – those not requesting higher-level involvement. Higher level management operates on a “management by default” scheme: it only intervenes on those issues that local agents could not decide on their own. Management becomes this way,
meta-systemic management: a holistic service provided to the networked operational systems developing the primary tasks of the organisation …” (2007, p. 338).
6.3. Meta-systemic management features
Espinosa et al (2007) then outline the features of the meta-systemic management system which are summarised as
? Management is an emergent property of the dynamics of interacting autonomous agents, and deeply dependent upon characteristics of those dynamics
? In a viable system of organisation, the individual elements are considered operational, autonomous and viable in their own right (i.e. there are no support elements)
? These ‘self-organized agents’ of operations and service providers “interact as a cognitive network … gathered into a highly cohesive whole, and developing collaborative actions, based on trust and reciprocity” (p. 339)
? Operational elements are provided with the ‘best quality’ services through service provider elements (also autonomous self organized agents in areas such as organisational policy, strategic development, financial management, ICT, knowledge management, etc)
? Regulatory restrictions still operate externally to restrict the amount of variety exhibited at operational levels
? Management overviews the interacting organisation, clarifies and enforces organisational rules for interaction, ensures negotiation of centrally allocated resources, ensures operations and individuals fulfil their basic commitments, co-ordinates when necessary, and develops its understanding and communication of the ‘rich complexity and variety of the interacting and contributing elements’ of the organisation and its environment.
Espinosa et al (2007) also discuss the role of management in relation to monitoring performance, resource allocation, strategy and identity issues noting that “control from above is only permitted in certain circumstances and is the exception rather than the rule”.
6.4. Management of complex networks
There is a discussion of heterarchies that is important to understand and on page 341 they reiterate: “The role of meta-systemic management is to establish conditions for devolved decision-making, and to allocate resources required by the operational units to do their tasks. Transparent and open mechanisms to make strategic information available need to be in place and this laying down of a coherent and open framework is a key task of meta-systemic management” and “it is explicitly to promote learning at all levels and guarantee access to public knowledge to all operational and service agents, and facilitate emerging knowledge that is properly structured and codified to be available to all.”
They provide examples of the application of this model and in their conclusions claim that “development of meta-systemic management instead of traditional autocratic management is a structural solution to manage complexity in complex adaptive systems” (p. 343) noting that “power would be devolved as far as possible” and that “this paradigmatic change presents a major challenge to our current ideas and practice of management and hierarchical structures”. Resources
Bolton , D 2007, ‘Complex Adaptive Systems: implications for effective teams, team leadership and change: Lessons from complexity science’, Power Point Presentation, Swinburne University of Technology
Brown, Sl & Eisenhardt, KM 1997, ‘The art of continuous change: linking complexity theory and time paced evolution to relentlessly shifting organizations’, Team Performance Management: an International Journal , vol. 8, nos. 1&2, pp 21-38
Burnes. B 2005, ‘Complexity theories and organizational change’, International Journal of Management Reviews , vol. 7, no. 2, pp 73-90
Checkland, PB 1981, Systems Thinking, Systems Practice , Wiley, Chichester .
Churchman, CW 1979, The Systems Approach and its Enemies , Basic Books, NY
Dooley, K 1996, A nominal definition of complex adaptive systems’, The Chaos Network , vol. 8, no. 1, pp 2-3
Espinosa, A, Harnden, R & Walker, J 2007, Beyond hierarchy: a complexity management perspective’, Kybernetes , vol. 36, no. ¾, pp. 333-347
Flood, RL 2000, Rethinking The Fifth Discipline: Learning within the unknowable , Routledge, London
Frederick, WC 1998, ‘Creatures, corporations, communities, chaos, complexity: a naturological view of the corporate social role’, Business and Society , vol. 376, no. 4, pp 358-376
Gergen, KJ 1973, ‘Social Psychology as History’, Journal of Personality and Social Psychology , vol. 26, no. 2, pp. 309-320
Ghoshal, S 2005, ‘Bad Management Theories are Destroying Good Management Practices’, Academy of Management Learning and Education , vol. 4, no. 1, pp. 75-91
Giddens, A 1987, Social Theory and Modern Sociology . Cambridge , Polity Press.
Landells, T 2008, ‘Complexity and Systems Theories: Implications for Organisation Design’, Power Point Presentation, Swinburne University of Technology Lorenz, E 1993, ‘The Essence of Chaos’ UCL Press, London
Olson, EE & Eoyang, GH 2001, Facilitating Organization Change: Lessons from Complexity Science , Jossey-Bass Pfeiffer, San Francisco , CA
Prigogine, I 1980, From Being to Becoming , W.H. Freeman, San Francisco , CA , .
Prigogine, I & Stengers, I 1984, Order out of Chaos: Man’s New Dialogue with Nature , Bantam Books, New York .
Ray, TS 1991 ‘Evolution and optimization of digital organisms’, in Billingsley KR et al (eds), Scientific Excellence in Supercomputing: The IBM 1990 Contest Prize Papers , Athens , GA , 30602 : The Baldwin Press, The University of Georgia. December, pp. 489-531. Simulation available at
Reynolds, CW 1987, Flocks, herds and schools: a distributed behaviour model. Proceedings of the SIG-GRAPH ‘87′ , Computer Graphics, vol. 21, no. 4, pp 25-34
Stacey, RD 2003, Strategic Management and organisational dynamics: the challenge of complexity . 4th ed. Pearson Education, Harlow
Stacey, RD 2007, Strategic Management and organisational dynamics: the challenge of complexity . 5th ed. Pearson , UK
Prescribed Readings
When reading the prescribed readings, take note of case examples and any similarities and features that may have application in your organization.
Bolton, D 2010, ‘Complex Adaptive Systems: implications for effective teams, team leadership and change: Lessons from complexity science’, Power Point Presentation, Swinburne University of Technology
Landells, T 2010, ‘Complexity and Systems Theories: Implications for Organisation Design’, Power Point Presentation, Swinburne University of Technology
Burnes. B 2005, ‘Complexity theories and organizational change’, International Journal of Management Reviews , vol. 7, no. 2, pp 73-90
Stacey, RD 2003, Chapter Two “The Origins of Systems Thinking” in Strategic Management and organisational dynamics: the challenge of complexity . 4th ed. Pearson Education, Harlow
Recommended Additional Readings
Olson, EE & Eoyang, GH 2001, Chapter Nine, ‘Making Self Organization a Reality’, in Facilitating Organization Change: Lessons from Complexity Science , Jossey-Bass Pfeiffer, San Francisco, CA .
Learning Outcomes
On completion of this learning object you should be able to:
? Appreciate the main features of the major complexity theories and the implications of these theories for organisational design.
? Appreciate the tension between complexity based views of effective organisation and hierarchical control based views in the context of sustainable business practices.
Exploring and Reinforcing
You may wish to identify the issues relevant to organisation design that result from your analysis of the implications of complexity and systems theories. Determine which of these may apply to your organisation (or an organisation known to you). Consider how these issues can be progressed effectively. What did you discover in relation to organisation culture and the deep assumptions you have about organisation success?
You might also compare the various implications noted here with the ‘design thinking’ decision making structures noted in the previous learning object. In order to test your understanding of the Espinosa et al (2007) article you could alo consider the following question: “Is the model proposed by Espinosa et al (2007) a viable and workable model to manage complex adaptive organisations? If so, why? If not, why not?” Assessable Activity – Week Six With your group, discuss the similarities and differences between complexity theory perspectives on effective organisational interactions and those suggested some of the ‘design thinking’ models discussed in the previous learning object. Also include reference to issues raised for effective organisational design.
Learning Object 2 Learning Object 2 Learning Object 2Learning Object 2Learning Object 2 Learning Object 2 -3: Inter Inter-Organisational Relationships Organisational RelationshipsOrganisational Relationships Organisational RelationshipsOrganisational Relationships Organisational Relationships Organisational RelationshipsOrganisational Relationships Organisational Relationships Organisational Relationships Organisational Relationships Organisational Relationships
Aims and Objectives
This Learning Object explores the issues and challenges of the “dense web” (Daft 2013, p. 184) of inter-organisational relationships that increasingly characterises the contemporary business environment.
The objective is for you to have the opportunity to consider the role of leadership and management in developing and maintaining horizontal relationships across organisations, including examination of such issues as resource dependence, collaborative networks, population ecology, institutionalism, and social capital building. Key Concepts, Constructs and Debates
The material covered relies heavily on Daft (2013) Chapter 5. This will be briefly summarised below, and the literature on the concept of social capital building is then introduced to provide alternative perspectives on the issues and challenges of developing effective inter-organisational relationships.
1. Overview of Daft (2013) on Inter-organisational relationships
Daft (2013) identifies it is no longer appropriate for managers consider their task in terms of the management of a single organisation. The complex set of inter-organisational relationships needed to be developed and managed contribute to the uncertainty of the contemporary business environment and present challenges for engagement of a range of salient stakeholders in identifying and resolving business problems.
Daft (2013) defines ‘inter-organisational relationships’ as the “relatively enduring resource transactions, flows and linkages that occur among two or more organizations” (p. 184, citing Oliver; 1990). Whilst in the past, transacting across organisational boundaries might have been a necessity driven by need and circumstance, today organisations are considered an integral part of an organisational ecosystem, i.e. “a system formed by the interaction of a community of organizations and their environment … cut[ting] across industry lines … in which businesses, governments, and non-profit organizations join together across sectors and industries to tackle huge, compelling problems of mutual interest, such as energy development, world hunger, or cybercrime” (p. 185).
Daft (2013) suggests traditional notions of competition between standalone businesses “no longer exists because each organization both supports and depends on others for success, and perhaps survival … [but] a new form of competition is in fact intensifying … [i.e.] co-evolve with others in the eco-system so that everyone gets stronger” (p. 185), thus mutual dependencies and collaborative partnerships characterise the business environment, the latter becoming important for business success.
2. Inter-organisational framework
The inter-organisational framework utilised by Daft to discuss and analyse the types of relationships among organisations depends on whether organisations are similar or dissimilar and whether they are cooperative or competitive. This yields the following two dimensional framework:
Figure 2-3-1: Framework of organisational relationships (adapted from Daft 2013)
? Resource dependence – Based on independence and autonomy, each tries to minimise dependence on the other for the supply of important resources and seeks to influence the environment to make resources available to it. This is the traditional competitive relationship involving manipulating, strategising and manoeuvring to gain, lock in and otherwise control resources. Power over resources and suppliers is sought.
? Collaborative networks – Based on partnership, these cooperative relationships share risks, costs, problem solving and innovation. These alliances require critical management skills in strategic relationship building across organisational boundaries.
? Population ecology – Based on organisational diversity and adaptation within a population of organisations, this perspective suggests organisational forms are relatively stable, hard to shift, and the “good of a whole society” is served by the development of new forms of organization through entrepreneurial activities. In this view, adaptation is hindered through such matters as prior investment in established plant, structure and people, past successes and associated decision making viewpoints, and corporate culture influences. Change is therefore effected by Darwinian style evolution, i.e. variation, selection and retention of variations considered more appropriately fit-for-purpose.
? Institutionalism – Based on congruence between an organisation and the expectations of those in its environment, this perspective suggests organisations adopt structures and processes to please outsiders, generally reflecting what society perceives as appropriate ways of operating, i.e. legitimacy is within the prevailing system of norms, values and beliefs.
3. The importance of ‘linking’ social capital to collaborative networks
Macke and Dilly (2010) perceive collaborative networks require relationships based on cooperation, reciprocity and shared values and facilitate cooperation among small, medium and large enterprises. However, key to managing such inter-organisational collaborative networks are the social mechanisms which act to replace hierarchical systems of control and leverage the cooperative process. They point out that while social mechanisms are important for managing networks, networks promote the expansion of social mechanisms, e.g. trust promotes cooperation, and cooperation promotes trust (citing Putnam, 1993).
Macke and Dilly (2010) note that a similar dynamic occurs with the social capital concept in that it increases network competitiveness (citing Macke, Vallejos & Sarate, 2009) and increased network effectiveness is facilitated by certain forms of social capital. They define social capital broadly as “the set of characteristics of a human organization that encompasses the relations between individuals or groups, the standards of social behaviour [and] mutual reciprocity and make actions possible because they are based on a collaborative process” (2010, p. 123).
Social capital is both a public benefit and an individual benefit that can be accumulated by a person, thus having dimensions of collective capital, as well as individual gain. Macke and Dilly (2010) discuss features of social capital common with other commentators (see learning object 1-3), such as bonding, bridging and linking social capital, and were concerned to understand the mechanisms that generated linking social capital as it was seen as important ‘capital’ for working with the unequal power relations that characterised inter-organisational networks.
They suggest that ‘linking social capital’ is an important social process for effective collaborative networks involving four dimensions:
? A cognitive dimension: identity building – actors identify with the collaborative network to gain a collective view of its activities and its criteria for action
? A relational dimension: power relations – organisational actors are immersed in a dynamic of preservation and change, so power relations are in a state of flux
? An evaluative dimension: the evaluation process – in which actors reflect on the effectiveness of actions in the inter-organizational context.
? A structural dimension: network performance – using indicators such as collective performance and the sustainability of each partner. It is important to understand different business processes and levels of trust, and to ensure the systemic use of trust for maximising potential of opportunities.
Their model of the relationship between linking social capital and effectiveness of collaborative networks is represented as a spiral, because it represents a “continuous and dynamic interaction, and [in] parallel with the theory of Social Capital, which grows with its use – it involves the expansion of the capital for each interaction between the [collaborative network] members”.
Exercise: Read the article by Macke and Dilly (2010) to gain an overview of social capital literature and a deeper understanding of its value in helping build collaborative networks.
Question: What are the implications of this model for managing unequal power relations across organisations?
Daft, RL 2013, Organization Theory and Design, 11th Ed. South Western, Cengage Learning, OH, USA
Macke, J & Dilly, E 2010, ‘Social Capital Dimensions in Collaborative Networks: The Role Of Linking Social Capital’, International Journal of Social Inquiry, Vol. 3, No.2, pp. 121-136.
Prescribed Readings
Daft, RL 2013, Chapter 5, Organization Theory and Design, 11th Ed. South Western, Cengage Learning, OH, USA Macke, J & Dilly, E 2010, ‘Social Capital Dimensions in Collaborative Networks: The Role Of Linking Social Capital’, International Journal of Social Inquiry, Vol. 3, No.2, pp. 121-136.
Recommended Additional Readings: nil
Learning Outcomes
On completion of this learning object you should be able to:
? Discuss different types on inter-organisational relationships and their characteristics
? Identify and evaluate the management challenges associated with managing inter-organisational relationships
? Analyse the conditions and behaviours supporting linking social capital as a basis for assessing collaborative networks.
Exploring and Reinforcing
To test your own understanding of this week’s learning materials, you might benefit from identifying the key management challenges associated with each form of inter-organisational relationship, especially noting the challenges of developing effective linking social capital where power relations are unequal.
Assessable Activity – Week Seven
There are no online discussions required for this week.
Learning Object 2 Learning Object 2 Learning Object 2Learning Object 2Learning Object 2 Learning Object 2 -4: Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global Organisations in a dynamic global economy economy Aims and Objectives
This Learning Object explores a range of issues and challenges associated with managing organisations in a dynamic and diverse global environment.
The objective is for you to be able to explore aspects of organisational effectiveness in complex, dynamic and diverse contexts using the frameworks introduced in this learning object. Key Concepts, Constructs and Debates
1. Overview
Daft’s (2013) approach in chapter 6 is to:
? Outline the motivations and pressures for companies to ‘go global’ in an economy in which power is shifting from the US, Japan and Europe to China, Latin America and South East Asia. Economies of scope and scale, and low cost production drive this shift.
? Outline the stages of international development, i.e. domestic, international, multinational, global
? Outline structures that fit certain global strategies, driven by the extent to which global integration and local responsiveness are important factors and resulting in structures of international division, a global product structure, a global geographic structure and a matrix structure combining both.
? Outline the challenges for global organisations in the areas of complexity and differentiation, the need for coordination and the transfer of knowledge and innovation
? Outline coordination mechanisms (including central planning and stronger collaboration and cooperation, noting country differences depending on cultural values)
? Outline the transnational model of organization.
Exercise: Read Chapter 6, noting the challenges identified for global organisations particularly and reflecting on how many of these also reflect the challenges of operating effectively in an environment in which a broad range of stakeholders influence perceptions of value offered by the organisation.
Daft’s (2013) perspectives on the transnational model are summarised below.
2.The transnational model of organisation: the importance of social structures
Daft (2013) relies mainly on Bartlett and Ghoshal’s (1998) work Managing across borders: the Transnational solution when outlining the transnational model and suggesting it seeks to achieve global efficiency, local responsiveness and global learning or adaptability simultaneously through a culture of interdependence between the many diverse individual units that comprise the organisation.
There are four main characteristics of such organisations, which together “facilitate strong coordination, organisational learning and knowledge sharing on a broad global scale” (p. 250). These are:
? Dispersed and highly specialised operations are linked together through interdependent relationships
? Structures are flexible and ever changing, incorporating flexible centralisation depending on circumstances
? Various centres and subsidiaries shape the company’s overall strategy through their own strategy and innovations
? Coordination and unification are achieved through social rather than formal structures and include organisational culture, shared visions and values, and a management style that emphasises flexibility and open-mindedness.
The importance of social structures to organisational effectiveness is reinforced by Tregaskis et al (2010) (who also review some of the original work by Bartlett and Ghoshal noted above) in their discussion of the transnational social learning structures that facilitate global innovation. Their research findings suggest that where a multinational corporation’s subsidiaries have formal structures to facilitate “social interaction that enables knowledge associated with global policy and know-how to be debated and discussed … knowledge transfer cross national borders is helped, as is policy adaptation and sharing of international best practice [However, using social person-to-person based mechanisms provides] more opportunity for negotiation and the multi-directional flow of knowledge than traditional integration tools that have included standardized technologies, operating procedures, management procedures and policies” (p. 489).
Also, in relation to innovation their research found institutional structures and national cultures influenced how, when and where knowledge transferred across borders, with many critical R&D efforts located in the organisation’s home country.
They also suggest their findings support the work of others in relation to
? The use of network structures being increasingly significant in meeting globalisation objectives (citing Sparrow, 2004)
? Integration being achieved via common organising frameworks, shared assumptions and values, and a management architecture for developing international social capital in multinationals (citing Taylor, 2006)
? Social capital providing organisations with a supportive environment conducive to learning through social exchange and relational networks (citing Nahapiet & Ghoshal, 1998).
Exercise: Read the first few pages and the discussion of findings and conclusions for the Tregaskis et al (2010) article and note the various theories embraced in developing their research.
Question: What does this research suggest about the changing role of hierarchical power relations in general, especially in an environment in which multiple, diverse and complex relationships exist? How might effective social structures be developed and supported to ensure organisational objectives are met, and what does this research suggest in relation to how these objectives are set?
3.The use of ‘boundary objects’ to facilitate shared perspectives
Akkerman and Bakker (2011) provide background to the concept of boundary objects, noting how artifacts can help bridge diverse and intersecting practices and citing Star and Griesmer’s (1989, p. 393) definition, i.e. boundary objects are those objects that
both inhabit several intersecting worlds and satisfy the informational requirements of each of them … [They are] both plastic enough to adapt to local needs and the constraints of the several parties employing them, yet robust enough to maintain a common identity across sites. They are weakly structured in common use, and become strongly structured in individual site use.
They suggest that boundaries between diverse, different and intersecting practices are becoming more defined due to increasing specialisation and that people are motivated to search for ways to connect across diverse social and cultural practices to avoid fragmentation. They further suggest that shared meaning across these boundaries is developed through a ‘dialogue’ between the parties. Their review of the literature nominates four potential learning mechanisms that can take place at boundaries: identification, coordination, reflection, and transformation, noting the challenge “is to create possibilities for participation and collaboration across a diversity of sites, both within and across institutions” (pp. 132-133)
Question: How is this challenge characterised in the transnational model of organisation above?
Hong & Snell (2013) provide a specific example of the use of boundary objects in a China-based subsidiary of a Japanese multinational corporation to manage a cooperative, competitive, diverse supplier ecosystem. This incorporated the development of collaborative capability through common engagement with boundary objects, through common possession of generic background knowledge disseminated by the focal firm, and through shared assumptions about mutual benefit and continuous development.
In this case the subsidiary utilised its power bases, i.e. buyer and expert power, in relation to its supplier network to drive capability development through three core phases, i.e. capability gap articulation, evolution and institutionalization. Each of these phases required crossing either cognitive, social or governance boundaries relevant to context. They cite an example of crossing cognitive boundaries in relation to a capability gap suggesting there was “need to invest considerable effort into arriving at shared assumptions and expectations about component specifications through inter-firm sensemaking dialogue”, thus potentially reinforcing Akkerman and Bakker’s (2011) perspectives on the role of dialogue and sense-making thus also highlighting the social structural emphasis.
4. Dynamism, complexity, problems and solutions
The emphasis on dialogue and sensemaking noted above also raises questions that were potentially of concern to Mintzberg, Ahlstrand, & Lampel (1998) when they discussed the viability of a range of strategy making ‘schools’ to successfully address organisational ‘problems’. They challenged assumptions such as “long term futures are knowable”, and that “the environment is a given to which the successful business adapts” and that there are “clear cause and effect relationships”, suggesting emergence characterises the lived experience of organisations in a dynamic, complex and interactive business environment.
Question: If long term futures are not knowable, if one cannot fully adapt to a changing environment before it changes again, if one cannot know the full effects of one’s actions, what does this say about ‘problems’ (their identification and solving), ‘decision-making’, ‘strategy’ and ‘control’. What are the implications for ‘information’, ‘dialogue’ and the social processes that seem to be required to generate meaning across boundaries?
Akkerman, SF & Bakker, A 2011, ‘Boundary Crossing and Boundary Objects’, Review of Educational Research, vol. 81, no. 2, pp. 132-169 Daft, RL 2013, Organization Theory and Design, 11th Ed. South Western, Cengage Learning, OH, USA Hong, JFL & Snell RS 2013, ‘Developing New Capabilities across a Supplier Network through Boundary Crossing: A Case Study of a China-Based MNC Subsidiary and its Local Suppliers’, Organization Studies, vol.34, no.3, pp.377-406 Tregaskis, O, Edwards, T, Edwards, P, Ferner A & Marginson, P 2010, ‘Transnational learning structures in multinational firms: Organizational context and national embeddedness’, Human Relations, vol. 63, no. 4, pp. 471-499.
Prescribed Readings
Daft, RL 2013, Chapter 6, Organization Theory and Design, 11th Ed. South Western, Cengage Learning, OH, USA Tregaskis, O, Edwards, T, Edwards, P, Ferner A & Marginson, P 2010, ‘Transnational learning structures in multinational firms: Organizational context and national embeddedness’, Human Relations, vol. 63, no. 4, pp. 471-499,
Recommended Additional Readings
Akkerman, SF & Bakker, A 2011, ‘Boundary Crossing and Boundary Objects’, Review of Educational Research, vol. 81, no. 2, pp. 132-169 Hong, JFL & Snell RS 2013, ‘Developing New Capabilities across a Supplier Network through Boundary Crossing: A Case Study of a China-Based MNC Subsidiary and its Local Suppliers’, Organization Studies, vol.34, no.3, pp.377-406
Learning Outcomes
On completion of this learning object you should be able to:
? Appreciate the nature of and managerial challenges associated with the transnational model of organisation
? Appreciate the importance of certain social structures to facilitate coordination of complex, diverse and dynamic organisations
? Explore organisational effectiveness in complex, dynamic and diverse contexts using frameworks introduced in this learning object.
Exploring and Reinforcing
Consider the questions raised throughout the learning object.
Assessable Activity – Week Eight
In your group, discuss the organisational design implications of facilitating “interfirm sense making dialogue” (Hong & Snell, 2013), particularly the implications for social structures.
Learning Object 3 Learning Object 3 Learning Object 3Learning Object 3Learning Object 3 Learning Object 3 -1: Innovation Models Innovation Models Innovation Models Innovation Models Innovation Models Aims and Objectives
A major aim of this Learning Object is to provide the opportunity to consider debates about facilitating innovation in organisational settings and especially in the context of the constant change that characterises the dynamic business environment.
Innovation is increasingly regarded as necessary for organisational survival in today’s dynamic and globally competitive environment. However, it adopts a critical importance when one considers the significant changes confronting many businesses as a result of the need to develop alternatives to depleting and polluting resource usage in their supply and value chains whilst also developing new opportunities for value creation and economic development.
The need for continued commercial viability in an environment of sustainable resource usage and potentially more expensive alternatives to existing fossil fuel based energy sources, would appear to place a premium on innovation that results in new markets and in viable and sustainable business. Key Concepts, Constructs and Debates
To complete this learning object, you will need to read Chapter 11 of Daft (2013). There are also further readings around innovation models and the need for and development of innovation capacity under prescribed readings.
1. Relationship between Innovation and Change
Daft (2013, p. 436) discusses the link between change and innovation by suggesting that organisational change relates to the adoption of new ideas or behaviours by an organisation, whereas organisational innovation relates to the adoption of an idea or behaviour that is new to the organisation’s industry, market or general environment. Consequently, the first organisation to introduce a new idea in the industry, market or general business environment is considered an innovator, and the subsequent adoption by other organisations is the subject of organisational change. Thus change in environmental conditions can drive innovation and innovation can drive change in organisational behaviours.
2. Pervasive impact of changing business conditions
Throughout this Master program, differing theories of change are discussed. An overarching concern however is with the pace of change and the paradigm shifting nature of change in business. This is a broader conceptualisation of change than that arising as a result of adoption of a few new ideas or behaviours, and includes the rate at which these new ideas or behaviours are expected to be assimilated and the challenge they pose to existing perceptions, conceptualisations, norms, traditions, etc.
Daft (2013) reinforces and summarises many of the arguments about the pervasiveness of change with his statement that “For most companies, change, rather than stability, is the norm today, whereas change once occurred incrementally and infrequently, today it is dramatic and constant” (p. 433).
3. The impact of incremental, discontinuous and / or continuous change on innovation
O’Reilly and Tushman (1996, 2004) have suggested organisations must be able to simultaneously operate in incremental or evolutionary and radical or revolutionary change environments. Tushman and O’Reilly (1996) suggest: “this requires organizational and management skills to compete in a mature market (where cost efficiency and incremental innovation are key) and to develop new products and services (where radical innovation, speed and flexibility are critical) … managers need to be able to both at the same time, that is, they need to be ambidextrous” (1996, p. 11 emphasis added).
O’Reilly and Tushman (2004), in their analysis of successful organisational innovation, found that organisations undertake three types of innovation:
? Incremental – small improvements to improve efficiency and value to customers
? Architectural – applying technology or process advances to achieve fundamental shifts
? Discontinuous – radical advances to alter the basis of competition.
A similar framework is discussed in Daft (2013, p. 432) when citing the nature of change to which innovation may be a response or for which innovation may be a driver, i.e. change is
? Episodic – change punctuates what is otherwise periods of stability
? Continuous – change is relatively constant with few short periods of stability
? Disruptive – change is sudden and radically changes the nature of the industry.
4. Facilitating innovation in a complex environment
4.1. O’Reilly and Tushman (2004) on ambidextrous structures to facilitate innovation (with additional insights from Van Looy et al (2005)
O’Reilly and Tushman (2004) also found that organisations utilise four structures to facilitate their ‘breakthrough projects’ viz:
? Existing functional designs – where projects are fully integrated into existing organisation structures
? Cross-functional teams – groups are located within the organisation but operate outside existing management hierarchy
? Unsupported teams – independent units operate outside the organisation
? Ambidextrous organisations – structurally independent units, each having their own processes, structures and cultures but integrated into the existing senior management hierarchy.
They concluded that those using ambidextrous structures were most successful.
Ambidextrous organisations incorporate structure to support existing core business (e.g. functional hierarchy) as well as an independent structure to support innovation. The independent unit has its own processes, structures and culture but reports into general management of the organisation. They provide a structural representation of each of the organisational forms which you can access by downloading their article. The ‘ambidextrous organisation’ structure is as follows:
Figure 3-1-1 Ambidextrous organisations (source O’Reilly and Tushman 2004)
Van Looy, Martens and Debackere (2005), in testing the ability of ambidextrous organisations to operate sustainably (which they defined as “provide value equal or superior to focused mature firms” – not to be confused with long term survival in a complex and multi stakeholder environment) found that sustainable operations were achieved where
? Longer time frames were adopted
? Capability existed to shift resources across different parts of the portfolio of activities pursued, and
? Synergies were pursued in terms of flexibility of resource allocation (e.g. redeployment), cross fertilisation of skills and experience with the objective of facilitating growth potential, and capability to influence the size of the market.
All of these perspectives on organising for innovation need to be considered within context as suggested by O’Reilly and Tushman’s (2004) research.
4.2. Burgelman (2002) on facilitating innovation through autonomous processes and internal corporate venturing
Burgelman (2002) has written extensively on the subject of strategy development relevant to innovation. Of particular interest is his analysis of the interplay between induced or planned top-down processes for setting direction and the support for bottom up autonomous processes that arise in response to locally and immediately relevant environmental pressures. The relevance to innovation is in the perceived need to facilitate ‘internal corporate venturing’ (an innovation process) within normal organisational processes. Internal corporate venturing is the process describing the development and championing of new initiatives that potentially compete with established business within an organisation. The internal corporate venturing model is illustrated as follows with the darker shaded areas highlighting the critical processes to be undertaken to promote or ‘champion’ locally developed innovation up the hierarchy and allow senior management to integrate the new ventures into the corporate strategic context:
Figure 3-1-2 Burgelman’s (2002) process model of Internal Corporate Venturing
Burgelman’s (2002) model describes a process that was observed as operating to change the strategic direction of the organisation under scrutiny (Intel), but does not prescribe what ought to happen to facilitate locally autonomous innovation. His model suggests that the forces associated with impetus and strategic context help integrate the top down and bottom up forces competing for attention in determining future development. Impetus is gained if the operational level ‘champions’ who promote the locally developed new product or service are able to draw resources to their initiative and establish a ‘beach head’ in the market with their product or service. Middle and senior level champions are then left to convince top management to incorporate the new business into established corporate strategy and get support of the wider company behind it. One could argue that it shouldn’t be that difficult to promote innovation that has market support, but the model is instructive in relation to the corporate ‘inertia’ or ‘myopia’ that can result from previous success and established processes.
4.3. Brown and Eisenhardt (1997) on facilitating continuous innovation in high change environments
Brown and Eisenhardt’s (1997) research found that the experience of high tech firms was that of continuous innovation. Success in high change environments was linked to:
? Limited structure (responsibilities, priorities) coupled with extensive interaction and freedom to improvise current products, also termed ‘semi structures’ that enable a balance between order and disorder to be maintained
? Experimentation with a wide variety of ‘low cost probes’
? Time-paced transitions between products managed to produce relentless change.
4.4. Hamel and Välikangas (2003) facilitating innovation through continuous reinvention of the business model
Hamel and Välikangas (2003) observe that “getting different is the essence” of ongoing success in business and suggest organisations need to develop “the capacity to change before the case for change becomes desperately obvious” (p. 54). They nominate some approaches to organisation design that enable continuous reinvention of the organisation’s business model as an appropriate response to turbulent environments, including:
? Overcoming denial of the need for change
? Fostering new ideas
? Liberating resources to develop new strategies, and
? Embracing paradox.
Their approach to innovation revolves around numbers. They suggest avoiding large scale (billions of dollars) ‘bets’ in favour of ‘a swarm’ of broadly based, small scale, low risk investments on the assumption that “it takes thousands of ideas to produce dozens of promising [possibilities] to yield a few outsize successes” (2003, p. 59).
In their discussion on resourcing these many experiments, there is a useful distinction between newness and risk, suggesting that organisations often confuse the two or fail to appreciate the difference and thus over invest in the past.
However, when it comes to human resources they suggest the risk of failed projects should rest with employees, noting that “executives shouldn’t be too worried about protecting employees from the downside of a failed project. Over time, the most highly sought after employees will have the chance to work on multiple projects, spreading their personal risk”.
4.5. Prahalad (2006) on facilitating innovation in low cost business models
Prahalad (2006) discusses the conditions under which innovation can produce breakthroughs that support very low cost business models and thus open up markets in low income countries as well as bring much needed services within the reach of greater numbers of the world’s poorer inhabitants.
He maintains that for innovation aimed at the world’s lowest income earners to be valuable it must operate in consideration of four conditions generally. It must:
? result in a product or service of world quality
? achieve a significant price reduction – at least 90 percent off the cost of a comparable product or service in the West
? be scalable: it must be able to be produced , marketed and used in many locales and circumstances
? be affordable at the bottom of the economic pyramid, reaching people with the lowest levels of income in any given society.
Some industries may have additional ‘core constraints’ to the above but once determined he suggests there are a number of factors that can be considered within these constraints in the search for breakthroughs, viz:
? a focus on specialisation – to make the most of resources (people, training, work process, designs, equipment, unique brand) and expertise
? a ceiling on pricing – determined by customer needs
? reduced capital intensity
? leverage from talent – the more involved organisations are in building the skills of their people, the more effective they can be at providing world class service while holding down costs
? effective workflow – process design is critical
? volume customer acquisition – very high volumes are needed
? deeply held values supporting self organisation – goals are clear, motivating and easy to share with a wide range of people, although the means are open to innovation
Prahalad (2006) recognises that resulting innovations may be easily copied but the capacity to continually innovate within these constraints may pose greater difficulties.
He suggests the adoption of this ‘sandbox’ approach (constrained on the sides but the mix of elements is flexible) has the following implications for organisation design and development
? Organisations meeting complex needs with a specialisation approach need to collaborate with interrelated organisations
? Managers must radically rethink the business model – not fine-tune an existing one
? The lives of target customers and associated challenges in relation to access, awareness, affordability and availability determine priorities for development, not market research
? Companies must do a few things well, not do all things
? Innovation should occur in clusters involving many collaborators and partners
? There should be a clear and unflagging commitment to strategic intent. He gives the example of Indian health care that purports the intent of ‘serving all people with world class quality at prices they can afford’ – this accords with the ‘new manifesto’ for business promulgated by the World Business Council on Sustainable Development (WBCSD) who suggest “the fundamental purpose of business is to provide continually improving goods and services for increasing numbers of people at prices that they can afford … (
5. Five generations of innovation models
Hobday (2005) discusses five generations of innovation models, summarised in the following table:
Figure 3-1-3 Five generations of innovation models (Hobday 2011, Rothwell 1991, 1992, 1993)
Hobday notes that there are few exemplars of the 5th generation model that represents innovation as a distributed networking process, this model being a reflection of “the increase in corporate alliances, partnerships, R&D consortia and joint ventures of various kinds” (p. 125) that were evident past 1990. He also indicates that research has shown some evidence that IT by itself is not generally helpful without accompanying organisational changes such as strong internal capabilities. However, the time pressures experienced by companies suggested continuous interaction to increase the speed and efficiency on innovation.
The 3rd generation model involved both push and pull drivers and while sequential it involved non-linear feedback loops, i.e. progression via iterative interaction between stakeholders. The 4th generation models were an attempt to overcome sequentialism and represent parallel processes of iterative development occurring simultaneously.
Exercise: Read the article by Hobday (2005) and compare the five models with the models implicit in the five articles reviewed in section 4 above.
6. Innovation and ‘sustainability’
In the beginning of this unit we discussed the implications of ‘sustainability’ agendas on organisational design and you were directed to the WBCSD’s (2010) report ‘Vision 2050’ and also Nidumolu, Prahalad, & Rangaswami’s (2009) article on ‘Why sustainability is now the key driver of innovation’. The ‘Vision 2050’ report envisions a radical change in business role and collaborative approaches to the perceived innovation needed to achieve a sustainable population “living well and within the limits of the planet”. Nidumolu et al (2009) are also quite explicit about innovation driving sustainability, albeit from the perspective of markets, i.e. “smart companies now treat sustainability as innovation’s new frontier” (p. 58). They nominate a number of areas that will demand innovation,
including products, services, business models, and ‘next-practice platforms’, giving some indications of how their reference organisations may have achieved these outcomes.
Exercise: Reread the Vision 2050 (WBCSD 2010) executive summary. If you have not done so previously, read the Nidumolu et al (2009) article, noting the author’s claims regarding a 5 staged approach to innovation around sustainability agendas. Draw out implications for organisational design and compare them, where appropriate to the implications you found from completing the exercise above.
Bernstein, A 2008, ‘Making Innovation Strategy Succeed’, Strategy + Business, viewed 1 June 2015 <>
Brown, SL & Eisenhardt, KM 1997, ‘The Art of Continuous Change: Linking Complexity Theory and Time-paced Evolution in Relentlessly Shifting Organizations’, Administrative Science Quarterly , vol. 42, pp.1-34
Burgelman, RA 2002, Strategy is Destiny; how strategy making shapes a company’s future , The Free Press, NY
Daft, R.L. 2009. Organization Theory and Design , 10th Edition, Thomson South Western , OH , USA
Hamel, G & Välikangas, L 2003, ‘The Quest for Resilience’, Harvard Business Review, September, pp. 52-63
Hobday, M 2005, ‘Firm-level Innovation models: Perspectives on Research in Developed and Developing Countries’, Technology Analysis & Strategic Management, Vol. 17, no. 2, pp. 121-146
Nadler, DA & Tushman, ML 1989, ‘Organizational Frame Bending: Principles for Managing Reorientation’, Academy of Management Executive , vol. 3, pp. 194-204
Nidumolu, R Prahalad, CK & Rangaswami, MR 2009 ‘Why sustainability is now the key driver of innovation, Harvard Business Review, September
O’Reilly, CA & Tushman, ML 2004, ‘The Ambidextrous Organization’, Harvard Business Review, April, pp. 74-81
Prahalad, CK 2006, ‘The Innovation Sandbox’, Strategy + Business, viewed 1 June 2015 <>
Van Looy, B, Martens, T & Debackere, K 2005, ‘Organizing for Continuous Innovation: On the Sustainability of Ambidextrous Organizations’, Creativity And Innovation Management , vol. 14, no. 3, pp. 208-221
World Business Council for Sustainable Development, Tomorrow’s Leaders Group 2006, From Challenge to Opportunity : The role of business in tomorrow’s society , WBSCD.
World Business Council for Sustainable Development 2010. Vision 2050: The new agenda for business, WBCSD.
Prescribed Readings
Brown, SL & Eisenhardt, KM 1997, ‘The Art of Continuous Change: Linking Complexity Theory and Time-paced Evolution in Relentlessly Shifting Organizations’, Administrative Science Quarterly , vol. 42, pp.1-34
Hobday, M 2005, ‘Firm-level Innovation models: Perspectives on Research in Developed and Developing Countries’, Technology Analysis & Strategic Management, Vol. 17, no. 2, pp. 121-146
Nidumolu, R Prahalad, CK & Rangaswami, MR 2009 ‘Why sustainability is now the key driver of innovation, Harvard Business Review, September
Van Looy, B, Martens, T & Debackere, K 2005, ‘Organizing for Continuous Innovation: On the Sustainability of Ambidextrous Organizations’, Creativity And Innovation Management , vol. 14, no. 3, pp. 208-221
Recommended Additional Readings
Burgelman, RA 2002, Chapter One, Strategy is Destiny; how strategy making shapes a company’s future , The Free Press, NY
Hamel, G & Välikangas, L 2003, ‘The Quest for Resilience’, Harvard Business Review, September, pp. 52-63
Nadler, DA & Tushman, ML 1989, ‘Organizational Frame Bending: Principles for Managing Reorientation’, Academy of Management Executive , vol. 3, pp. 194-204
O’Reilly, CA & Tushman, ML 2004, ‘The Ambidextrous Organization’, Harvard Business Review, April, pp. 74-81
Prahalad, CK 2006, ‘The Innovation Sandbox’,
World Business Council for Sustainable Development 2010. Vision 2050: The new agenda for business, WBCSD.
Learning Outcomes
On completion of this learning object you should be able to:
? Conceptualise the difference between innovation and change in the context of organisation design
? Appreciate the theoretical and practical perspectives on facilitating innovation in various organisational settings.
Exploring and Reinforcing: nil
Assessable Activity – Week Nine
Make sure you complete the exercise at 5 above. Also reflect on the assertions made by Nidumolu et al. (2009), and in the constructive design process outlined by Koskinen et al (2011) in Learning Object 2-1.
Share with your group a few of your major insights around the innovation model or models that would seem more likely to facilitate innovation towards the achievement of sustainability agendas, and the challenges thus posed for organisational design.
Learning Object 3 Learning Object 3 Learning Object 3Learning Object 3Learning Object 3 Learning Object 3 -2: Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational Innovation and Organisational CultureCulture Aims and Objectives Continuing the exploration of the facilitation of organisational innovation and change, this Learning Object aims to provide you the opportunity to evaluate Daft’s (2013) interdependent change framework involving technology, new products and services, strategy and structure, and culture. His model of successful innovation and change implementation is also examined with a focus on the culture impact of various organisation design initiatives. Key Concepts, Constructs and Debates
You will need to read Chapter 11 of Daft (2013) to get further detail of some of the basic concepts and to explore some illustrative examples.
1. Daft’s (2013) interdependent change framework to facilitate strategic advantage
Daft (2013, pp. 434-436) suggests managers can focus on four areas of innovation and change that can create strategic advantage within the overall context of leadership, organisational vision and corporate culture. He recognises that these are interdependent (each is affected by changes in the others):
1. Technology – changes in production processes, knowledge and skill bases that enable distinctive competence
2. Product and service – new and improved products and services to increase market share
3. Strategy and structure – changes in the supervision and management of the organisation including changes in organisation structure, strategic management, policies, reward systems, labour relations, coordination and accountability devices, information and control systems, etc.
4. Culture – changes in the values, attitudes, expectations, beliefs, abilities and behaviours of employees.
Exercise: Consider how your organisation has innovated in these four areas to create strategic advantage. Identify one area of strategic advantage in relation to service / product innovation.
Daft’s discussions on the above four areas are summarised later.
1.1. Daft’s (2013) model of successful innovation and change implementation
Daft (2013) also articulates a sequence of elements to achieve successful innovation and change (pp. 436-438). The model is based on aligning ‘ideas’ with a ‘need for change’ and Daft suggests that if one of the elements shown in the model is missing then the change (or innovation) process “will fail”.
Figure 3-2-1 Sequence of Elements for Successful Change (adapted from Daft 2013)
Question: Daft (2013) suggests that the perceived ‘gap’ between actual and desired performance when aligned with ideas and customer needs generates innovation. How does this align with the proactive innovation that would appear to be needed as a result of ‘sustainability’ concerns? Think of some examples to test your understanding. Share them with your group.
1.2. Technology
Daft (2013) suggests that the organisational environment that promotes new ideas often does not contain the conditions that best support implementation of innovative ideas into routine production. He claims that innovation is best supported by flexibility and empowerment of employees and thus an organic organisation design is considered the best organisational form for adapting to rapidly changing business conditions. A mechanistic structure is considered to stifle innovation but is efficient at producing routine products. Creating both organic and mechanistic conditions in appropriate context typifies the challenge for managers in achieving innovation and efficiency (pp. 430-440). We have previously examined Tushman and O’Reilly’s (1996) suggested ambidextrous approach to this issue, and Daft reiterates this thinking in his suggestion of the need for organisation design elements to ensure the exploration of new ideas as well as the exploitation of current capabilities.
Some of the techniques that might support such an ‘ambidextrous’ approach are:
? Switching structures – creating organic structures to support the initiation of new ideas within the midst of more mechanistic structures
? Creative departments or idea incubators – creating separate departments or informal structures charged with responsibility for innovation
? Venture teams – separate teams given free rein to explore creatively. ‘Skunkworks’ is a version of this technique where a small, autonomous and sometimes secretive group focuses on breakthrough ideas. A variation of venture teams is the new venture fund, providing financial resources to develop ideas
? Corporate Entrepreneurship – may encompass some of the above but also attempts to release the creative energy of all employees by creating systems and structures that encourage entrepreneurship. An example is the facilitation of idea champions (also known as advocates, intrapreneurs, change agents) who may be either technical (e.g. a product champion) or in management.
? Bottom-up approach – extends the above through mechanisms to capture “the many useful ideas [that] come from the people who are daily doing the work, serving the customers, fighting off the competition, and figuring
out how best to get their jobs done” (p. 444). Some suggestions include, innovation contests on a company’s intranet, innovation communities, and, as in the case of Google, allowing people to explore areas of interest to them for set periods.
Question: Compare these suggestions to Burgelman’s (2002) internal corporate venturing model. Identify examples where innovation has occurred in your organisation by use of any of the techniques listed above or in Burgelman’s model. Is there a structure that has proven to suit your business unit’s purpose, context and culture? Or is each situation different and thus context is a major determinant of how technological innovation is progressed?
1.3. New products and services
In addition to the above, Daft (2013) discusses other factors relevant to turning innovation in products and services into successful business. New product success rates are predictably low (see pages 445-446) and understanding the reasons for success and how they impact on the design of organisation processes would seem vital. The following reasons are purported as accounting for successful innovation:
? Collaboration between technical and marketing departments
? New products and services being technologically sound and also carefully tailored to customer needs
? Well developed understanding of customer needs and attention to marketing
? Effective use of outside technology and outside advice, even though development work is conducted in-house
? Top management support from the most senior ranks.
Question: How would you incorporate these features in your business unit? Can these be developed in your work culture without a major structural change? How would this occur? Alternatively, what structural changes would be necessary?
Daft suggests these factors indicate that the effective design for innovation is the ‘horizontal coordination model’.
2. Horizontal coordination model
The model relies on departmental specialisation, boundary spanning and horizontal coordination to achieve product innovation. It is represented as follows:
Figure 3-2-2 Horizontal coordination model (source Daft 2013)
In this model:
? Specialisation – requires that personnel in each of the R&D, Marketing and Production departments are highly competent and that each department operates according to the dictates of their specialisation
? Boundary spanning – requires that each department has excellent links with relevant sectors in the external environment
? Horizontal coordination – requires the sharing of ideas and information. Decision to launch new products is a joint decision of all three departments.
Illustrative examples are provided that suggest innovation failures usually violate the horizontal coordination principle.
Question: To what extent does this model operate in your organisation? Can you perceive impediments to the effective operation of this structure in your organisation? How would you address these issues? What other concepts might be relevant to this model, e.g. social capital? Would this model provide a sufficient framework to develop the innovation perceived as necessary to achieve ‘Vision 2050’ for instance?
Daft (2013) also discusses open innovation, whereby “customers, strategic partners, suppliers, and other outsiders [are included] directly in the product and service development process.
Question: What are the similarities and differences between ‘open innovation’ and ‘design-based’ decision making for innovation discussed earlier in the unit?
3. Competitive advantage and Speed
Daft (2013) notes that the rapid development of new products “can be a major strategic weapon in an ever-shifting global marketplace” (p. 450). Multi-national and multi-functional ‘fast cycle teams’ are being used by some companies to ensure products will be delivered faster than competitors in meeting diverse needs of consumers around the globe.
4. Strategy and structure change
Daft (2013, p. 451) suggests that in the last couple of decades organisations have had to “make radical changes to strategy, structure and management processes to adapt to new competitive demands”. This has included removing layers of management and decentralising decision-making, with a strong shift to horizontal structures including front line teams empowered to solve problems and make decisions autonomously. He also notes the use of virtual network structures and e-business strategies and a greater use of strategy – structure realignments over the next decade.
4.1. Dual core approach
A dual-core approach to implementing organisational change involves different approaches to the management and technical ‘cores’ of an organisation, viz:
? Management core – includes structure, control and coordination of the organisation. Changes made to the management core are top down and use a mechanistic approach
? Technical core – includes the transformation of raw materials into products and services. Changes made to the technical core use a bottom up approach and an organic design approach.
By understanding the different operating conditions and effective cultures in each core, different approaches to change in each core can coexist in the one organisation.
Daft (2013) suggests that in government and not-for-profit organisations there are frequent adjustments to the management core and these need to be structured differently to organisations that rely on frequent product and service changes to achieve competitive advantage
4.2 Organisation design for implementing management change
Research findings suggest mechanistic structures best handle frequent management changes, e.g. in goals, strategy, structure, control systems, etc. Daft suggests that in organic structures, “lower-level employees have more freedom
and autonomy and hence, may resist top-down initiatives” (p. 453). On the other hand technical change, e.g. in production techniques, is best handled through organic structures.
Question: Do you think mechanistic or organic structures will best facilitate the sort of radical changes in business role, goals, definitions of success, behaviours, processes envisaged by Vision 2050? What about the environment envisaged by Nidumolu, et al (2009)? Is it either, or, both or something else? Also is it feasible that that ‘resistance’ to top-down changes may provide important insight into problems or risks involved with top-down changes that are not fully informed or cognisant of their consequences?
5. Culture
We have previously examined culture and its effect on organisational design choices. In relation to innovation and change in strategy, structure, technology and products/services, such changes involve new ways of thinking and doing, challenging existing underlying corporate values and norms.
A number of culture change ‘forces’, including reengineering toward horizontal organisational forms, greater customer and employee diversity, and learning and adaptation are suggested and you can read of some examples on pages 455-457.
5.1 Cultural influences on perceptions of ‘bounded rationality’ for decision making versus ‘expanded rationality’ for innovation
Hatchuel (2002) suggests Simon’s concept of ‘bounded rationality’ (discussed in the learning object on decision making) offers a limiting perspective on people’s cognitive and practical abilities to deal with complex issues, by presenting a picture of diminished “computational abilities of economic agents … deal[ing] with uncertainties and complexities with the limited help of rules of thumb principles … [and] us[ing] a short list of actions instead of rich areas of possibilities.” (p. 270). He offers a concept of ‘expandable rationality’ in which people are not limited by their perceptions of rigidly definable concepts, but seek to explore beyond the perceived boundaries to manipulate concepts and generate new possibilities. In other words, he suggests people’s perceptions of their role and their cognitive task, i.e. decision makers trying to develop a ‘solution’, may limit their capacities for creative tasks (such as innovation).
Hatchuel suggests humans may be limited decision-makers in certain circumstances but contends they are effective designers naturally, including designing effective social interactions (which a number of commentators consider is an integral facet of effective organisational design for innovation). Hatchuel claims that “human agents have a surprising and infinitely expandable ability to create stories, forms, and concepts … [and design] problem solving procedures … [that] can compensate for the weaknesses” (p. 270)
Hatchuel (2002) nominates three ‘crucial’ processes to improve human capacity for design and innovation i.e.
? Improving concept ‘expandability’: learning to recognise our perceptual constraints and to manipulate concepts
? Designing new learning-devices: New prototyping, virtual mock-ups, video aided rehearsals, cooperation-aiding software
? Looking for new forms of social interaction in design: for example, involving users or other stakeholders in the design process.
Question: What do the three ‘crucial’ processes suggest for the nature of organisational culture? How might an organisational culture be ‘designed’ to develop for instance, a perspective throughout the organisation that stakeholders are important to ‘problem’ definitions, or that ‘prototyping’ of options is not a waste of time and resources, or that the social network (or broadly-based social capital) is as important to successful innovation as the ‘breakthrough’ idea?
6. Decision attitude versus design attitude
Hobday, Boddington and Grantham (2011) explore the development of ‘design’ as an innovation framework and cover a number of features of the ‘design thinking’ school of innovation.
They also refer to arguments of other researchers around decision attitude versus design attitude, noting that a decision attitude of management focused on ‘optimisation’ is effective only in stable and clearly analysed situations, and if replaced by a design attitude focused on generating and developing alternative solutions from which to choose, this would help avoid ‘wrong’ decisions by expanding the range of viable options available.
Question: What does a ‘design attitude of management’ suggest for organisational culture and for organisational design in relation to information flows, generation of options and power to make decisions? Does your organisation focus on decisions or generating viable options from which to choose?
They also cite a range of theorists around ‘human-centred approaches to management’, suggesting ‘design thinking’ is one approach among many in this field. For instance, they nominate Mintzberg as interpreting strategy as an iterative, emergent human-centred craft, and Checkland’s soft systems approach. However, all the instances cited by Hobday, Boddington and Grantham (2011) appear to question a rational approach to problems, and the authors specifically suggest “the critical challenge is to develop the learning capability of the organization, so that knowledge can be gradually gained from the environment and taken into account during the policy making process or in any other wicked problem area” (p. 26). They also note
Products, systems, and artifacts, the normal domains of design [for innovation], are clearly quite different from groups of people and organizations. Nevertheless, the intentional application of cross-disciplinary design thinking in a creative, non-linear way may well bring new and interesting elements to wicked problems (2011, p. 27). Resources
Burgelman, RA 2002, Chapter One, Strategy is Destiny; how strategy making shapes a company’s future, The Free Press, NY
Daft, RL 2013, Organization Theory and Design, 11th Edition, South Western Cengage Learning, OH, USA
Hatchuel, A 2002, ‘Towards Design Theory and Expandable Rationality: The unfinished program of Herbert Simon’, Journal of Management and Governance, vol. 5, no. 3-4, pp. 260-273
Hobday, M, Boddington, A & Grantham, A 2012, ‘An innovation Perspective on Design: Part 2’, Design Issues, vol. 28, no. 1, pp. 18-29
Nidumolu, R Prahalad, CK & Rangaswami, MR 2009 ‘Why sustainability is now the key driver of innovation, Harvard Business Review, September
Tushman ML & O’Reilly, CA 1996, ‘Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change’, California Management Review, vol. 38, no. 4, pp. 8-30
World Business Council for Sustainable Development 2010. Vision 2050: The new agenda for business, WBCSD
Prescribed Readings
Hobday, M, Boddington, A & Grantham, A 2012, ‘An innovation Perspective on Design: Part 2’, Design Issues, vol. 28, no. 1, pp. 18-29
Daft, RL 2013, Chapter 11 ’Innovation and change’, Organization Theory and Design, 11th Edition, South Western Cengage Learning, OH, USA
Recommended Additional Readings
Learning Outcomes
On completion of this learning object you should be able to:
? Understand the interdependent change framework involving four areas of innovation and change, ie technology, new products and services, strategy and structure, and organisational culture
? Appreciate and critique the culture implications for organisation design of forms of innovation.
Exploring and Reinforcing
Assessable Activity – Week Ten
Discuss with your group:
What organisational culture influences help or hinder innovation? How might negative cultural influences on innovation capacity be changed?
Learning Object 4 Learning Object 4 Learning Object 4Learning Object 4Learning Object 4 Learning Object 4 -1: Creating the Future with People Creating the Future with People Creating the Future with People Creating the Future with People Creating the Future with People Creating the Future with PeopleCreating the Future with People Creating the Future with People Aims and Objectives
Puccio (1999) noted an increasing interest in the study of ‘creativity’ as a consequence of growing competition in business and industry. He identified creativity as being central to corporate survival, organisations needing to incorporate creativity and innovation into all business functions. He noted that “to tackle world-wide challenges such as pollution, starvation, terrorism and the threat of nuclear war, more energy must be devoted to training in creative thinking and problem solving skills”.
A key question for business in this environment must therefore be to what extent does organisational creativity and innovation depend on human abilities in the quest for creative solutions? In this learning object we will examine the views of cognitive psychology on how we humans create and discover. In this context, we shall also examine human response to new stimuli (neotic behaviour) and how people might be facilitated to collaborate with others. The implications for organisational culture and design will also be discussed. Key Concepts, Constructs and Debates
1. Cognitive Psychology informing creativity and discovery
Haberlandt (1997) maintains that, contrary to popular belief, creative insights rarely occur as sudden events; rather they result from long periods of focused attention to particular problems. Psychologists have described the creative process as involving
? the restructuring of cues (i.e. the rearrangement of existing information and perceptions to create new frameworks for analysis),
? going beyond the information given, and
? the breaking of bounds of entrenched habits and beliefs.
Haberlandt suggests that creativity generates a new representation from existing components, or in other words, an innovator finds new ways of doing things. He argues that in all instances, discovery of the way things work requires a search for rules and a search for data. Rules process and order the data and data provide instances to test rules. Expertise is needed in the search for appropriate data although expertise may not be as important in working out the patterns or trends that result in determining rules. Computers can be effective in this latter task.
Through various experiments it has therefore been concluded that there is a strong link between expertise and creativity, such that creativity is grounded in expertise but not every expert is creative.
According the Hayes (1978) and Perkins (1988) other qualities supporting creativity are
? independence of mind
? tolerance of uncertainty
? a willingness to experiment and to try again after failure
? a combination of diverse cognitive skills acquired through practice and personal values
Haberlandt (1997) concludes that “a creative act presupposes much prior work, even if a creator experiences it as a sudden occurrence” and discovery results from extrapolating a rule from data. However, expertise is needed to know where to find data and what data to select. Creative people “exhibit such qualities as tolerance for ambiguity and they are willing to think what others consider impossible” (1997, p. 396).
As an example of the effort that can be involved in ‘discovering’ something new, Einstein worked on problems of relativity for 10 years before he published his influential paper on the subject (Haberlandt 1997, p. 391).
Question: What do these insights into human creativity and discovery suggest about the need for expertise (refer to Daft’s (2013) ‘horizontal co-ordination model)? What do these insights say about culture? How do these insights influence organisation design choices?
2.Neotic behaviour and creativity
Some of you will have been introduced to the concept of neotic behaviour in another unit in this Master program. In this unit you are required to consider this topic from the perspective of how an individual responds to new stimuli in order to provide insights into the process of innovative thinking and decision-making.
Fast paced and constantly changing organisational environments suggest cultures that support and foster creativity. However, Carlsson (2002) has noted that “new ventures are often exciting and exhilarating but they are understandably also sometimes associated with worry or even fear. Having the courage to deal with ambiguity, uncertainty and threats of disappointment is an integral part of being creative” (Barron 1963; Maslow 1959).
Research on creativity has often explored its relationship to anxiety. Research has suggested that the activity of creativity is anxiety arousing. In addition it has been noted that creative people are equipped with a higher level of basal arousal (Eysenck 1973; Martindale, Anderson, Moore & West 1996).
It has also been noted by Smith and Carlsson (1990) that an “excess of anxiety, or a rigid system of defenses, would … prevent the engagement of new and unusual thoughts and ideas.”
Consequently, this topic introduces you to a perspective on the way an individual responds to new ideas and the relationship between fear and anxiety in this situation. The focus is on the implications of ‘fear of the new’ (neophobia) for creating organisational cultures and managerial practices that optimise creativity in an organisational environment.
Exercise: Examine the PPT presentation attached to this section and consider the following questions:
? Why is a working knowledge about fear of new things, anxiety and creativity valuable to managers?
? How do you optimise eustress and prevent excesses of distress in a heavy change environment that demands creativity?
? What are the implications for organisational design?
3.Facilitating social interaction
In earlier parts of the unit exploring, for instance, the purposes of organisational design and the basis of effective decision making, adaptation and innovation, it has often been noted that effective social interaction is a critical feature of the development and maintenance of these organisational capabilities. We noted, for instance, the pressure to respond to a broad range of stakeholder agendas, the need for cross-boundary collaborations of many varieties, the need for inter-organisational relationships to be developed and maintained, the need to consider the social environment in which decision making and innovation occur, and so on.
While organisational design might be seen by some as primarily concerned with information flows and power distribution for decision making, there is a clear need for organisational design to facilitate interaction between the organisation’s stakeholders, both internal and external, the gather, filter and process a broad range of information to establish and foster credible and trustworthy information sources and to build social capital. Increasingly, interaction between organisational stakeholders occurs not only in formal meetings, conferences, stakeholder forums, focus
groups, etc., but in informal, intra- and inter-organisational settings and on a more continuous basis, especially amongst employees seeking to manage the dynamism, ambiguity and complexity that characterises their day-to-day working environment.
To help facilitate the transparent sharing of information, insights and tacit knowledge (see Daft, 2013, p. 326) some organisations are utilising technologies such as corporate intranets, blogs and wikis.
Social networking extends these technologies by providing transparent peer-to-peer communication of both a professional and personal nature, allowing people to connect across organisational and geographical boundaries based on shared interests.
Exercise: Read Daft (2013) pages 328-329.
Question: What conditions might foster and prevent effective peer-to-peer communication through social networking? What organisational design considerations does social networking raise?
3. Social network analysis
With the understanding that creativity is a social activity and the potential for social networks to facilitate innovation, there has been increasing interest in social network analysis to understand the value of social networks in achieving a range of organisational outcomes.
Kastelle and Steen (2010) provide a summary of a number of journal articles on network analysis in a special edition of the journal Innovation: Management, Policy and Practice. They highlight a “long-held tradition of using networks to understand processes of idea generation, opportunity recognition and the diffusion of knowledge … [dating back] to Schumpeter (1912/1983)” (p. 2) and they indicate that increases in computing power have made it more feasible to conduct complex network analysis in order to “understand the importance of network structures and the relationship between agents and these structures in the process of innovation” (p. 2).
Some examples they cite of the benefits of such analysis are identifying “networks with a ‘small world’ structure (short average distance through the network combined with high levels of clustering) … and the link[s between] structural characteristics of networks [and] innovation performance”(p.2).
Exercise: Read the article by Kastelle and Steen (2010). From the reference list, select one or two articles that seem relevant to the innovation challenges at your organisation or the case study for the final assignment. Locate and download these through the Library links.
Question: Compare your earlier reading on design-based processes of innovation (or participatory decision making around innovation) with the findings is some of the network analysis research. What do these insights raise in for organisational design structures and processes?
Barron, F 1963, ‘The needs for order and for disorder as motives in creative activity’, in Barron, F. & Taylor C.W. (eds) Scientific Creativity: Its recognition and development , Wiley, NY
Bolton , D 2010, Neotic Behaviour and Innovation , PPT Presentation, Swinburne University of Technology
Carlsson, I 2002, ‘Anxiety and Flexibility of Defense Related to High or Low Creativity’, Creativity Research Journal , vol. 14, no. 3&4, pp. 341-349
Champoux, JE 2006, Organizational Behavior: Integrating Individuals, Groups and Organizations , 3rd Ed, Thomson South Western.
Daft, RL 2013, Organization Theory and Design, 11th Edition, South Western Cengage Learning, OH, USA
Eysenck, HJ 1973, ‘Personality, learning and “anxiety”’, in Eysenck, H.J. (ed.) Handbook of Abnormal Psychology , 2nd Edn., Pitman, London .
Field, RHG & Andrews, JP 1998, ‘Testing the Incremental Validity of the Vroom-Jago Versus Vroom-Yetton Models of Participation in Decision Making’, Journal of Behavioral Decision Making, vol. 1, no. 4 pp. 251-261
Haberlandt, J 1997, Cognitive Psychology , Allyn and Bacon, Sydney
Hayes, JR 1978, Cognitive Psychology: Thinking and Creating , Dorsey Press, Homewood , IL
Kastelle, T & Steen, J 2010, ‘Introduction: Using network analysis to understand innovation’, Innovation: Management, Policy & Practice, vol.12, no. 1, pp. 2-4
Martindale, C, Anderson, K, Moore, K & West, AN 1996, ‘Creativity, oversensitivity, and rate of habituation’, Personality and Individual Differences , vol. 20, pp. 423-427
Maslow, AH 1959, Creativity in self-actualizing people, in Anderson, HH (ed), Creativity and its cultivation , Harper, NY
Perkins, DN 1988, ‘Creativity and the quest for mechanism’, in Sternberg, RJ & Smith EE (eds) The psychology of human thought , Cambridge University Press, Cambridge
Puccio, GJ 1995, ‘Why study creativity?’, In Joyce,M, Isaksen, SG, Puccio, GJ, Davidson, F& Coppage, C (eds.), Introduction to creativity: An anthology for college courses on creativity which provides historical and current thinking from interdisciplinary perspectives, Copley Publishers, Acton, MA:.
Rappoport, L & Summers, D 1973, Human Judgement and Social Interaction , Holt, Rinehart & Winston , NY .
Smith. GJW & Carlsson, I 1990, ‘The creative process. A functional model based on empirical studies from early childhood to middle age’, Psychological Issues Monograph 57 , International Universities Press. Madison , CT.
Prescribed Readings
Bolton, D 2010, Neotic Behaviour and Innovation , PPT Presentation, Swinburne University of Technology (see file in this section)
Daft, RL 2013, Selected readings, Organization Theory and Design, 11th Edition, South Western, OH, USA
Kastelle, T & Steen, J 2010, ‘Introduction: Using network analysis to understand innovation’, Innovation: Management, Policy & Practice, vol.12, no. 1, pp. 2-4 Learning Outcomes
On completion of this learning object you should be able to:
? Appreciate and apply the psychological foundations for behaviours such as creativity, discovery and neotic behaviour
? Appreciate and critique the importance of understanding human behavioural and social aspects associated with innovation when considering organisation design.
Exploring and Reinforcing
Assessable Activity – Week Eleven
Undertake the exercises and questions throughout the learning object. Share your insights in relation to human behavioural and social aspects of creativity and innovation with your group.
Learning Object 4 Learning Object 4 Learning Object 4Learning Object 4Learning Object 4 Learning Object 4 -2: Conflict, Power and Politics Conflict, Power and Politics Conflict, Power and Politics Conflict, Power and Politics Conflict, Power and Politics Conflict, Power and Politics Conflict, Power and PoliticsConflict, Power and Politics Conflict, Power and Politics Conflict, Power and Politics Aims and Objectives
The Carnegie model and ‘design thinking’ models of decision making and innovation challenge rational, unilateral, top-down models of decision-making. Rather they assume coalitions of interests form to enable decision-making in ambiguous, uncertain and complex environments. These insights provide a starting point for investigating the role of conflict, power and politics in decision-making, and also provide another lens through which we may consider the impact of organisational design on the critical function of decision-making. This topic also helps contextualise organisational design from the perspective of the nature of conflict, how it is resolved in relation to power and authority, the political impact of structure and processes, and individual tactics associated with the use of power and enhancement of collaboration.
The design of your organisation will elicit different forms of conflict. When brokering consensus or coalition activity it is critical to understand the nature of conflict and the structure of power and authority. The objective of this learning object is to provide you the opportunity to gain an understanding of the structure and functions of conflict, power and politics and how these can be managed to improve organisational outcomes. Key Concepts, Constructs and Debates
Chapter 13 of Daft (2009) provides some insight into the structure of power in an organisation and tactics to manage conflicting interests to achieve collaboration and to achieve organisational goals.
Exercise: Read Chapter 13 ‘Conflict, Power and Politics’ before proceeding
1. Conflict, power and politics: implications for collaboration
In seeking collaboration for problem identification and resolution, it is useful to reflect on the nature and influence of power relations. In the context of the learning organisation, Coopey (1994) questions whether the “greater employee empowerment promised by the learning organisation … [can be other than] … very modest compared to that of managers … especially those at the apex of the organisation enjoying preferential access to the extra knowledge and understanding generated” (p. 42).
He also notes that in an organisation adapting to change, conflict is settled by constant dialogue within trusting relationships, thus making control a less overt political process. However, this contrasts with views of organisational life in which political activity is inherent due to perceptions of organisational actors and the nature of organisational culture in relation to problem solving, decision-making and resource allocation processes and their associated power relationships.
When examining the following materials, also recall and reflect on Herbert Simon’s observations that decision making involves three highly intertwined features; intelligence, design and choice. Having considered more deeply what ‘design’ might entail, especially in relation to expansive and creative thinking and ongoing engagement with affected stakeholders, and having earlier looked at the impact of ‘bounded rationality’ and restricted perceptions and biases on ‘choice’, also consider how access to the power to decide might be attractive to some and not others, and how a potentially uninformed exercise of power might represent significant risks to an organisation.
1.1. Conflict
1.1.1. Intergroup conflict
Daft (2013) identifies intergroup conflict as occurring when group participants perceive other groups may inhibit their achievements or expectations. He suggests there are three conditions needed for intergroup conflict:
? Group identification – employees have to perceive themselves as part of a group
? Observable group differences – differences can be location, composition, departmental, social, educational, etc., and
? Frustration – arises where it is anticipated that one group’s achievement or activity denies another’s
? 1.1.2. Sources of conflict
? Daft outlines the characteristics of organisational relationships that are sources of conflict noting that these will be context dependent
? Goal incompatibility – perhaps the greatest cause of conflict
? Differentiation – the differences in cognitive and emotional orientations, or ways of perceiving and dealing with the world
? Task interdependence – the dependence of unit on another for materials
? Limited Resources – Perhaps the other most common source of conflict as control over resources represents power and influence.
Exercise: Give an example of a situation in which you have been involved when inter-group conflict was largely generated by goal incompatibility.
1.1.2. Rational (low conflict) vs political (high conflict) model
Daft (2013) suggests there are two approaches to goal achievement, rational or political, depending on the degree of goal incompatibility, differentiation, interdependence and control over limited resources. This is represented diagrammatically as follows:
Figure 4-2-1 Sources of Conflict and use of Rational vs Political model (Daft 2013)
1.1.3. How do you handle conflict?
On page 553-554 of Daft (2013) there is a ‘Workbook” diagnostic and related questions concerning strategies for handling conflict.
Exercise: Complete the diagnostic and answer questions 1 and 3.
1.2. Power
Daft (2013) discusses a few definitions of power and suggests the following definition: “Power is the ability of one person or department in an organization to influence other people to bring about desired outcomes” (p. 531). He notes that the source of power often relates to ability to control limited or otherwise valuable resources. Dependency confers power to the person with the resources.
Personal power can derive from a number of sources:
? Legitimate power – conferred formal authority
? Reward power – ability to bestow rewards
? Coercive power – authority to punish or recommend punishment
? Expert power – greater skill or knowledge
? Referent power – admired or respected personal characteristics.
Organisational power however, is often structurally determined with some positions providing more vital contributions or controlling more valuable resources.
1.2.1. Power vs Authority
Power (where it exists) can be exercised by anyone but authority is prescribed by the organisational reporting relationships. Authority is vested in organisational positions, flows down the hierarchy and is accepted by subordinates because they believe position holders have legitimate right to exercise authority.
1.2.2. Vertical Sources of Power
These are listed as:
? Formal position – rights, responsibilities and prerogatives that accrue to certain critical organisational positions, also called ‘legitimate power’.
? Resources – control over resources is normally distributed from the top down
? Control of Information – The control of information may be a source of power. Sharing information distributes this power. Withholding information can increase individual power. Adaptable organisations may require information to be shared and may therefore be working against certain power structures.
? Network centrality – being centrally located and able to access information and resources
? People – positive, supporting and loyal relationships with subordinates and supervisors may each confer power in certain circumstances. The following exercise refers to the power of leaders to exert their power to inhibit or engender conflict in groups.
Exercise: A form of power in organisations is the personal characteristics of the Leader. The power of leaders cannot be discounted as a factor in organisational design. Leader behaviour can inhibit or engender conflict in groups or teams. Read the article by Kotlyar and Karakowsky (2006) and consider the relationship between organisational power, personal power and conflict. Reflect on how a Leader can influence conflict and the implications for culture building to support sustainable business practices?
1.2.3 Empowerment
Empowerment is power sharing, and Daft (2013) considers there are three elements of empowerment that enable employees to act “more freely” to accomplish their tasks:
? Information – transparent access to important information
? Knowledge – employees have and are assisted to gain knowledge and skills to contribute to organisational outcomes
? Power – employees have authority to directly influence procedures and organisational performance.
1.2.4. Horizontal Sources of Power
These refer to the different sources and quantum of power existing across the organisation as a result of differences in contribution by departments and business units to organisation achievement. Strategic contingencies are events and activities both within and external to the organisation that are critical to the achievement of its goals. Departments or units involved in these strategic contingencies tend to have greater power which derives from five sources:
? Interdepartmental dependency – having something that someone else wants
? Financial resources – control over financial resources is an important source of power. Sales departments can be very influential due to their influence on the inflow of financial resources
? Centrality – a department with a primary role in the organisations activity will tend to have greater power
? Nonsubstitutability – or unique function. If the role cannot be performed by a substitute (c.f. outsourcing) a department or unit can exert power
? Coping with uncertainty – departments that reduce uncertainty will increase their power, e.g. market research departments who accurately predict changes in the market.
Departments can reduce uncertainty (and increase power) by
o Obtaining prior information – e.g. forecasting an event
o Prevention – forestalling negative events
o Absorption – takes action to reduce negative consequences.
Exercise: Identify a situation in which you have been involved for 3 of the dot points listed above.
1.4. Political processes in organisations
Politics is the use of power to influence decisions in order to achieve desired outcomes. It can be regarded as self- serving behaviour (a negative view) or natural organisational processes for resolving conflict or differences among organisational groups.
Daft (2013, p. 543) promotes a definition of organisational politics that embraces “activities to acquire, develop and use power and other resources to influence others and obtain the preferred outcome when there is uncertainty or disagreement about choices”. Organisational politics can also be a factor to consider when particular agendas are promoted that are in conflict with or competition with existing plans.
In either case, understanding organisational politics enables individuals to formulate effective communication and operating strategies to ensure potentially valuable contributions to organisation strategies, operations, and other forms of organisational decision-making are given appropriate consideration.
1.3.1. When is political activity used?
Politics is a mechanism for arriving at consensus when uncertainty is high and there is disagreement over goals or problem priorities. Daft (2013) suggests that politics provides the discussion and clash of interests needed to crystallise points of view and to reach a decision. The 3 domains of political activity are:
? Structural change – these often involve major power redistributions and cause political activity
? Management succession – the composition of teams, alliances and coalitions affects power relations and thus is also subject to political activity
? Resource allocation – resources are so vital that disagreement about priorities often exists, giving rise to political processes seeking resolution.
1.4.Using power, politics and collaboration
One needs to look at both structural components and individual behaviour to understand the use of power in organisations.
1.4.1.Tactics for increasing power, using power and enhancing collaboration
The following table summarises the discussion in Chapter 13 Daft (2013) on these points and includes some points raised in a previous edition of Daft in relation to tactics for enhancing collaboration that are not incorporated in the 2013 version due to the more extensive treatment of collaboration throughout the text. It is however, shown here to indicate the relationship between political activity and collaborative activity. Follow the discussion on pages 545-551.
Figure 4-2-2 Power and Political Tactics in Organisations (Daft 2013)
Question: Consider a major initiative in which you have been involved. On reflection what was the critical learning concerning conflict, power and politics in this situation? How might a considered and alternative approach have influenced the outcomes? Share your reflections with your team.
Daft, RL 2013, Organization Theory and Design, 11th Edition, South Western Cengage Learning, OH, USA
Coopey, J 1994, ‘Power, Politics and Ideology’, in Burgoyne, J, Pedler, M, Boydell, T (eds), Towards a Learning Company: Concepts and Practices , McGraw-Hill, London
Kotlyar I & Karakowsky, L 2006, ‘Leading Conflict? Linkages Between Leader Behaviors and Group Conflict’, Small Group Research vol. 37, p. 377
Prescribed Readings
Daft, RL 2013, Chapter 13 ‘Conflict, Power and Politics’ in Organization Theory and Design, 11th Edition, South Western Cengage Learning, OH, USA
Kotlyar I & Karakowsky, L 2006, ‘Leading Conflict? Linkages Between Leader Behaviors and Group Conflict’, Small Group Research vol. 37, p. 377 Available at
Recommended Additional Readings:
Learning Outcomes
On completion of this learning object you should be able to:
? Appreciate and critique the characteristics, structure and functions of conflict, power and politics and how politics can be managed to improve organisational outcomes.
Exploring and Reinforcing
Undertake the questions and exercises within the learning object.
Assessable Activity – Week Twelve
There is no formal discussion for this week.
Conclusion Conclusion Conclusion
The aim of this unit has been to help you understand organisational design options in context as a set of tools towards achieving sustainable business outcomes in a dynamic and complex environment.
We have studied the evolution of organisation theory and design from the perspective of organisational, technical and administrative efficiency and the sustainable development of human resource capability. We have considered organisational design from the imperative of organisational adaptation, noting the increasing importance of organic structures to foster more collaborative processes and decision making, including design-based thinking around innovation At the micro level we explored concepts such as neotic behaviour, creativity and various aspects of social interaction.
Finally the unit explored influences on culture such as conflict, power and politics. This level of understanding is particularly significant when building the social capital deemed necessary to broker consensus or coalition activity, the latter being integral to internal and external networks of stakeholders that increasingly influence organisational purpose and outcomes, the interests of which should be accommodated in organisational design.
From a pedagogical perspective the unit has provided you with the opportunity to conceptualise organisational design challenges as a key component of competitive practice and to recognise and reflect on organisational design issues within your organisations. Comparative insights in relation to case studies and the experiences of other participants were also shared.
Hopefully you are now more aware of how these insights can develop your appreciation of organisational design and learning capability to allow you to make an effective contribution as a leader, manager and stakeholder towards the end of optimising organisational design, organisational learning, and effective decision-making.

Report needs to demonstrate (REQUIRED)
1. Develop organisational design recommendations for a future global operation in the organic market as envisaged over the next 10-20 year.
Demonstrated by models or diagrams from referenced sources – see Major Reference source as provided.
2. Focusing on the development of innovation capability within the organisation, in order to attain economic, social and environmental sustainability.
Focus areas – innovation capability, economic, social and environmental stability
Must link to case study.
Report (suggested outline)
1. Executive Summary
2. Introduction
Introduce the document in an interesting manner to the reader. Introduction is all about what a reader can expect in the document, in a concise manner. However, the introduction contains all the major points that are actually covered in the document. Introduction has to be presented in such a manner so that it lures the reader into reading the entire document.
3. Background
Written with the intention of clarifying the importance and the necessity of the paper in the first place. Why the study and what the basic purpose behind the study are the major questions that are answered through background that is presented with a research paper.
4. Objectives
5. Body (of analysis) – use Major Reference source as provided to link with case study and related organic markets worldwide.
a. How organisational design factors are likely to enhance innovation capabilities for an organisation operating in the growing organic market worldwide?
b. Aspects of organisational design you might consider include:
i. decision-making processes
ii. development of collaborative capability and practice within the organisation
iii. the fostering of an organisational culture that supports innovation and creativity
iv. the formal and informal role of power and politics within the organisation
c. Describe, analyse and evaluate key features of the innovation strategy and culture you are recommending
d. How important is stakeholder collaboration as a feature of organisational design for innovation
6. Recommendation (3-5 key points)
7. Conclusion

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