Difference Between Formal and Informal

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Difference between formal and informal organisation?

June 24, 2008 bykmmhasan

Within any company, there are two types of organization Formal Structure and Informal Structure. Both effect the

organization and relationships between staffs.

1. The formal Organization refers to the formal relationships of authority and subordinates withing a company.

While theinformal organization refers to the network of personal and social relations that is developed

spontaneously between people associated with each other.

2. The primary focus of the formal organization is the position of the employee/manager holds. While the

primary focus of theinformal organization is the employee as an individual person.

3. Power is delegated from the top levels of the management down to the organization. In an informal

organization power is derived from the membership of the informal groups within the organization.

4. In formal Organization, each position has rules governing what can be done or what cannot be done. There

are rewards and penalties for complying with these rules and performing duties as well. While in an informal

organization, the conduct of individuals within organization is governed by norms that is social rules of

behavior.

Formal organizationFrom Wikipedia, the free encyclopedia

Formal organization is a fixed set of rules of intra-organizationprocedures and structures. As such, it is

usually set out in writing, with a language ofrulesthat ostensibly leave little discretion forinterpretation. In

some societies and in some organization, such rules may be strictly followed; in others, they may be little more

than an empty formalism.

To facilitate the accomplishment of the goals of the organization: In a formal organization the work is

delegated to each individual of the organization. He/She works towards the attainment of definite goals,

which are in compliance with the goals of the organization.

To facilitate the co-ordination of various activities: The authority, responsibility and accountability of

individuals in the organization is very well defined. Hence, facilitating the co-ordination of various activities

of the organisation very effectively.

To aid the establishment of logical authority relationship: The responsibilities of the individuals in the

organisation are well defined. They have a definite place in the organisation due to a well defined

hierarchical structure which is inherent in any formal organisation.

Permit the application of the concept of specialization and division of Labour, division of work amongst

individuals according to their capabilities helps in greater specializations and division of work.
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Create more group cohesiveness

Contents

[hide]

1 Characteristics of a formal organization

2 Distinction from informal organization

3 The Hawthorne Experiments

4 Reasons for informal organization

5 References

6 External links

[edit]Characteristics of a formal organization

Well defined rules and regulation

Arbitrary structure

Determined objectives and policies

Status symbol

Limitation on the activities of the individual

Strict observance of the principle of co-ordination

Messages are communicated through scalar chain

[edit]Distinction frominformal organization

Formal rules are often adapted to subjective interests social structures within anenterpriseand the personal

goals, desires, sympathies and behaviors of the individual workers so that the practical everyday life of an

organization becomes informal. Practical experience shows no organization is ever completely rule-bound:

instead, all real organizations represent some mix of formal and informal. Consequently, when attempting to

legislate for an organization and to create a formal structure, it is necessary to recognize informal organization

in order to create workable structures. However, informal organization can fail, or, if already set in order, can

work against mismanagement.

Formal organizations are typically understood to be systems of coordinated and controlled activities that arise

when work is embedded in complex networks of technical relations and boundary-spanning exchanges. But in

modern societies, formal organizational structures arise in highly institutional contexts. Organizations are driven

to incorporate the practices and procedures defined by prevailing rationalized concepts of organizational work

and institutionalized in society. Organizations that do so increase their legitimacy and their survival prospects,

independent of the immediate efficacy of the acquired practices and procedures. There can develop a tension

between on the one hand, the institutionalized products, services, techniques, policies, and programs that
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function as myths (and may be ceremonially adopted), and efficiency criteria on the other hand. To maintain

ceremonial conformity, organizations that reflect institutional rules tend to buffer their formal structures from the

uncertainties of the technical activities by developing aloose couplingbetween their formal structures and

actual work activities. - (John Meyer and Brian Rowan, 1976)

[edit]The Hawthorne Experiments

The deviation from rulemaking on a higher level was documented for the first time in theHawthorne

studies(1924-1932) and called informal organization. At first this discovery was ignored and dismissed as the

product of avoidable errors, until it finally had to be recognized that these unwritten laws of work of everyday

life often had more influence on the fate of the enterprise than those conceived onorganizational chartsof

theexecutive level. Numerous empirical studies insociologicalorganization researchfollowed, ever more

clearly proving this, particularly during theHuman Relations Movement. It is important to analyze informal

structures within an enterprise to make use of positive innovations, but also to be able to do away with bad

habits that have developed over time.

[edit]Reasons for informal organization

There are many different reasons forinformal organization:

Informal standards: personal goals and interests of workers differ from official organizational goals.

Informal communication: changes ofcommunicationroutes within an enterprise due to personal relations

between coworkers.

Informal group: certain groups of coworkers have the same interests, or (for example) the same origin.

Informal leaders: due tocharismaand general popularity, certain members of the organization win more

influence than originally intended.

Different interests andpreferencesof coworkers.

Different status of coworkers.

Difficult work requirements.

Unpleasant conditions of work.

Managerialorganization theoryoften still regards informal organization as rather disturbing, but sometimes

helpful. In the opinion ofsystems theoryandcybernetics, however, formal organization fades into the

background and only serves, if necessary, to supplement or to correct. Changes in structure always redevelop

because of the conduct and differences among coworkers, and the ability of self-organization is recognized as

a natural characteristic of a social system.

[edit]References
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nformal organizationFrom Wikipedia, the free encyclopedia

The informal organization is the interlockingsocial structurethat governs how people work together in

practice. It is the aggregate of behaviors, interactions, norms, personal and professional connections through

which work gets done and relationships are built among people who share a commonorganizationalaffiliation

or cluster of affiliations. It consists of a dynamic set of personal relationships,social networks, communities of

common interest, and emotional sources of motivation. The informal organization evolves organically and

spontaneously in response to changes in the work environment, the flux of people through its porous

boundaries, and the complexsocial dynamicsof its members.

Tended effectively, the informal organization complements the more explicit structures, plans, and processes of

theformal organization: it can accelerate and enhance responses to unanticipated events, foster innovation,

enable people to solve problems that require collaboration across boundaries, and create footpaths showing

where the formal organization may someday need to pave a way.

Contents

[hide]

1 The informal organization and the formal organization

2 Functions of informal organizations

o 2.1 Perpetuate the cultural and social values

o 2.2 Provide social status and satisfaction

o 2.3 Promote communication among members

o 2.4 Provide social control

3 Disadvantages of informal groups

o 3.1 Resistance to change.

o 3.2 Role conflict.

o 3.3 Rumor

o 3.4 Conformity

4 Benefits of the informal organization

o 4.1 Blend with formal system

o 4.2 Lighten management workload
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o 4.3 Fill gaps in management abilities

o 4.4 Encourage improved management practice

o 4.5 Understanding and Dealing with the Environmental Crisis

5 Business Approaches

6 Related concepts

7 Further reading

8 References

[edit]The informal organization and theformal organization

The nature of the informal organization becomes more distinct when its key characteristics are juxtaposed with

those of theformal organization.

Key characteristics of the informal organization:

evolving constantly

grass roots

dynamic and responsive

excellent at motivation

requires insider knowledge to be seen

treats people as individuals

flatand fluid

cohered by trust and reciprocity

difficult to pin down

essential for situations that change quickly or are not yet fully understood

Key characteristics of the formal organization:

enduring, unless deliberately altered

top-down

missionary

static

excellent at alignment

plain to see

equates person with role

hierarchical

bound together by codified rules and order
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easily understood and explained

critical for dealing with situations that are known and consistent

Historically, some have regarded the informal organization as the byproduct of insufficient formal

organizationarguing, for example, that it can hardly be questioned that the ideal situation in the business

organization would be one where no informal organization existed.[1]

However, the contemporary approach

one suggested as early as 1925 byMary Parker Follett, the pioneer of community centers and author of

influential works on management philosophyis to integrate the informal organization and the formal

organization, recognizing the strengths and limitations of each. Integration, as Follett defined it, means

breaking down apparent sources of conflict into their basic elements and then building new solutions that

neither allow domination nor require compromise.[2]

In other words, integrating the informal organization with

the formal organization replaces competition with coherence.

At a societal level, the importance of the relationship between formal and informal structures can be seen in the

relationship betweencivil societyand state authority. The power of integrating the formal organization and the

informal organization can also be seen in many successful businesses.

[edit]Functions of informal organizations

Keith Davis suggests that informal groups serve at least four major functions within the formal organizational

structure.

[edit]Perpetuate the cultural and social values

They perpetuate the cultural and social values that the group holds dear. Certain values are usually already

held in common among informal group members. Day-to-day interaction reinforces these values that

perpetuate a particular lifestyle and preserve group unity and integrity. For example, a college management

class of 50 students may contain several informal groups that constitute the informal organization within the

formal structure of the class. These groups may develop out of fraternity or sorority relationships, dorm

residency, project work teams, or seating arrangements. Dress codes, hairstyles, and political party

involvement are reinforced among the group members.

[edit]Provide social status and satisfaction

They provide social status and satisfaction that may not be obtained from the formal organization. In a large

organization (or classroom), a worker (or student) may feel like an anonymous number rather than a unique

individual. Members of informal groups, however, share jokes and gripes, eat together, play and work together,

and are friends-which contributes to personal esteem, satisfaction, and a feeling of worth.
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[edit]Promote communication among members

The informal group develops a communication channel or system (i.e., grapevine) to keep its members

informed about what management actions will affect them in various ways. Many astute managers use the

grapevine to "informally" convey certain information about company actions and rumors.

[edit]Provide social control

They provide social control by influencing and regulating behavior inside and outside the group. Internal control

persuades members of the group to conform to its lifestyle. For example, if a student starts to wear a coat and

tie to class, informal group members may razz and convince the student that such attire is not acceptable and

therefore to return to sandals, jeans, and T-shirts. External control is directed to such groups as management,

union leadership, and other informal groups.

[edit]Disadvantages of informal groups

Informal organizations also possess the following potential disadvantages and problems that require astute and

careful management attention.

[edit]Resistance to change.

Perpetuation of values and lifestyle causes informal groups to become overly protective of their "culture" and

therefore resist change. For example, if restriction of output was the norm in an autocratic management group,

it must continue to be so, even though management changes have brought about a more participative

administration.

[edit]Role conflict.

The quest for informal group satisfaction may lead members away from formal organizational objectives. What

is good for and desired by informal group members is not always good for the organization. Doubling the

number of coffee breaks and the length of the lunch period may be desirable for group members but costly and

unprofitable for the firm. Employees' desire to fulfill the requirements and services of both the informal group

and management results in role conflict. Role conflict can be reduced by carefully attempting to integrate

interests, goals, methods, and evaluation systems of both the informal and formal organizations, resulting in

greater productivity and satisfaction on everyone's behalf.

[edit]Rumor

The grapevine dispenses truth and rumor with equal vengeance. Ill -informed employees communicate

unverified and untrue information that can create a devastating effect on employees. This can undermine

morale, establish bad attitudes, and often result in deviant or, even violent behavior. For example, a student

who flunks an exam can start a rumor that a professor is making sexually harassing advances toward one of
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the students in class. This can create all sorts of ill feelings toward the professor and even result in vengeful

acts like "egging" the residence or knocking over the mail box.

[edit]Conformity

Social control promotes and encourages conformity among informal group members, thereby making themreluctant to act too aggressively or perform at too high a level. This can harm the formal organization by stifling

initiative, creativity, and diversity of performance. In some British factories, if a group member gets "out of line,

tools may be hidden, air may be let out of tires, and other group members may refuse to talk to the deviant for

days or weeks. Obviously, these types of actions can force a good worker to leave the organization.

[edit]Benefits of the informal organization

Although informal organizations create unique challenges and potential problems for management, they also

provide a number of benefits for the formal organization.

[edit]Blend with formal system

Formal plans. policies, procedures, and standards cannot solve every problem in a dynamic organization; therefore, informal

systems must blend with formal ones to get work done. As early as 1951, Robert Dubin recognized that "informal relations in the

organization serve to preserve the organization from the self-destruction that would result from literal obedience to the formal

policies, rules, regulations, and procedures." No college or university could function merely by everyone following the "letter of the

law" with respect to written policies and procedures. Faculty, staff, and student informal groups must cooperate in fulfilling the spirit

of the law" to effectuate an organized, sensibly run enterprise.

[edit]Lighten management workload

Managers are less inclined to check up on workers when they know the informal organization is cooperating with them. This

encourages delegation, decentralization, and greater worker support of the manager, which suggests a probable improvement in

performance and overall productivity. When a professor perceives that students are conscientiously working on their term papers

and group projects, there are likely to be fewer "pap tests" or impromptu progress reports. This eases the professors load and thatof the students and promotes a better relationship between both parties.

[edit]Fill gaps in management abilities

For instance, if a manager is weak in financial planning and analysis, a subordinate may informally assist in preparing reports

through either suggestions or direct involvement. ' Act as a safety valve. Employees experience frustration, tension, and emotional

problems with management and other employees. The informal group provides a means for relieving these emotional and

psychological pressures by allowing a person to discuss them among friends openly and candidly. In faculty lounge conversations,

frustrations with the dean, department head, or students are "blown off" among empathetic colleagues.

[edit]Encourage improved management practice

Perhaps a subtle benefit of informal groups is that they encourage managers to prepare, plan, organize, and control in a more

professional fashion. Managers who comprehend the power of the informal organization recognize that it is a "check and balance"

on their use of authority. Changes and projects are introduced with more careful thought and consideration, knowing that theinformal organization can easily kill a poorly planned project.

[edit]Understanding and Dealing with the Environmental Crisis

TheThe IRG Solution - hierarchical incompetence and how to overcome it1984, argued, thatCentral mediaand government

typehierarchical organizations. could not adequately understand the environmental crisis we were manufacturing, or how to initiate

adequate solutions. It argued that what was required, was the widespread introduction of informal networks orInformation Routing

Groupswhich were essentially a description of social networking services prior to the internet.

[edit]Business Approaches
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1. Rapid growth.Starbucks, which grew from 100 employees to over 100,000 in just over a decade, provides structures to

support improvisation. In a July 1998 Fast Company article on rapid growth,[3]

Starbucks chairmanHoward Schultzsaid,

You cant grow if youre driven only by process, or only by the creative spirit. Youve got to achieve a fragile balance

between the two sides of the corporate brain.[4]

2. Learning organization. Following a four-year study of theToyotaProduction System, Steven J. Spear and H. Kent

Bowen concluded in Harvard Business Review that the legendary flexibility of Toyotas operations is due to the way the

scientific method is ingrained in its workers not through formal training or manuals (the production system has neverbeen written down) but through unwritten principles that govern how workers work, interact, construct, and learn.

[5]

3. Idea generation.Texas Instrumentscredits its Lunatic Fringean informal and amorphous group of TI engineers (and

their peers and contacts outside the company), according to Fortune Magazinefor its recent successes. "There's this

continuum between total chaos and total order," Gene Frantz, the hub of this informal network, explained to Fortune.

About 95% of the people in TI are total order, and I thank God for them every day, because they create the products that

allow me to spend money. I'm down here in total chaos, that total chaos of innovation. As a company we recognize the

difference between those two and encourage both to occur."[6]

[edit]Related concepts

Organizational behavior;organizational structure;organizational communication

Community;community of practice;knowledge management

Formal network;social network;value network;social Web

Network analysis;social network analysis;social network

[edit]Further reading

Reingold, Jennifer and Yang, Jia Lynn. "Hidden Workplace" Fortune, July 23, 2007

Creating an Informal Learning Organization. Harvard Management Update, (July 1, 2000).

Cross, Rob,Nitin Nohriaand Andrew Parker, Myths About Informal Networksand How to Overcome Them. SMR (MITSloan Management Review), April 1, 2002

Cross, Rob and Laurence Prusak, The People Who Make Organizations Goor Stop. Harvard Business Review, June 1,2002.

Goldsmith, Marshall and Jon Katzenbach, Navigating the Informal Organization. BusinessWeek, February 14, 2007

Krackhardt, David and Jeffry R. Hanson, Informal Networks: The Company Behind the Chart. Harvard Business Review, July1, 1993.

Follett, Mary Parker, The Psychological Foundations of Business Administration. Paper presented before a Bureau ofPersonnel Administration conference group, January 1925. Reprinted in Dynamic Administration: The Collected Papers of

Mary Parker Follett, edited by Henry C. Metcalf and L. Urwick, in The Early Sociology of Management and Organizations,

Volume III. Kenneth Thompson, series editor. Routledge, 2003.

The Office Chart That Really Counts. BusinessWeek, February 27, 2006

Murray, Sarah, Putting the House In Order. The Financial Times, November 8, 2006]

Shaw, Helen, Not So Small, Still Beautiful. CFO.com, March 3, 2006

[edit]References

The role of industrial relations in the structural change of

organisations

In the current rapidly changing economic environment, there has been an increasing tendencysince the 1990s for US employers, trade unions and workers to come together to create non-

traditional structures aimed at meeting their various interests at work. More progressive

companies and unions have used the collective bargaining process as a means to tackle the
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al_organization&action=edit&section=21http://en.wikipedia.org/w/index.php?title=Informal_organization&action=edit&section=21http://en.wikipedia.org/w/index.php?title=Informal_organization&action=edit&section=21http://www.cfo.com/article.cfm/5572875/c_3666324http://www.ft.com/cms/s/699f502c-6f29-11db-ab7b-0000779e2340.htmlhttp://www.businessweek.com/magazine/content/06_09/b3973083.htmhttp://www.businessweek.com/careers/content/feb2007/ca20070214_709560.htmhttp://sloanreview.mit.edu/smr/issue/2002/spring/7/Sixhttp://en.wikipedia.org/wiki/Nitin_Nohriahttp://money.cnn.com/magazines/fortune/fortune_archive/2007/07/23/100135706/index.htm?postversion=2007071811Thehttp://en.wikipedia.org/w/index.php?title=Informal_organization&action=edit&section=20http://en.wikipedia.org/wiki/Social_networkhttp://en.wikipedia.org/wiki/Social_network_analysishttp://en.wikipedia.org/wiki/Network_analysishttp://en.wikipedia.org/wiki/Social_Webhttp://en.wikipedia.org/wiki/Value_networkhttp://en.wikipedia.org/wiki/Social_networkhttp://en.wikipedia.org/w/index.php?title=Formal_network&action=edit&redlink=1http://en.wikipedia.org/wiki/Knowledge_managementhttp://en.wikipedia.org/wiki/Community_of_practicehttp://en.wikipedia.org/wiki/Communityhttp://en.wikipedia.org/wiki/Organizational_communicationhttp://en.wikipedia.org/wiki/Organizational_structurehttp://en.wikipedia.org/wiki/Organizational_behaviorhttp://en.wikipedia.org/w/index.php?title=Informal_organization&action=edit&section=19http://en.wikipedia.org/wiki/Informal_organization#cite_note-5http://en.wikipedia.org/wiki/Texas_Instrumentshttp://en.wikipedia.org/wiki/Informal_organization#cite_note-4http://en.wikipedia.org/wiki/Toyotahttp://en.wikipedia.org/wiki/Informal_organization#cite_note-3http://en.wikipedia.org/wiki/Howard_Schultzhttp://en.wikipedia.org/wiki/Informal_organization#cite_note-2http://en.wikipedia.org/wiki/Starbucks


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competitive pressures resulting from globalisation. Some have created partnerships based on

new methods of communication and conflict resolution, joint decision-making in many areas,new work processes involving greater creative freedom for workers, and continuous training

In a specially commissioned article for EIRO, David Thaler of the US Federal Mediation and

Conciliation Service, presents a personal view of the role of industrial relations in the structural

change of organisations in the USA.

Why change is occurring

Given the declining level of unionisation in the USA (with a rate of 13.5% in 2001 -

US0211101F), coupled with a decline in legal protections for trade unions, one can conclude that

the momentous change in both organisational structure and work processes - involving greatly

increased labour-management cooperation - in the last 25 years has been driven not by union

pressure tactics or favorable legal forces. It also has not been driven by a sudden spirit of

cooperation among labour and management interests. Instead, increased labour-managementcooperation in the last 25 years has been driven by economic necessity.

For those familiar with the jargon of the 'interest-based problem-solving' model (summarised in

the appendix to this article), structural change in corporate America has been more of

an interest-basedprocess than a rights-basedprocess. As in any capitalist system, labour

relations have also reflected apower-baseddynamic, but power has served only to drive thepace at which change has occurred, and has not been the underlying cause of change. The

explanation for this focus on interests lies not in the altruism of employers (which in the USA

generally enjoy a power advantage), but rather in the symbiotic, mutually dependent

relationship between labour and management that has arisen by necessity in this highly

competitive, global, skills-driven, increasingly fragmented, and information- and services-oriented economy.

Changing environment

Before looking at the respective interests of labour and management, we will take a brief look atthe economic environment in which they now have to relate. As has been well documented, the

developed world has undergone a dramatic shift from manufacturing to services and information

as the basis of economic development over the last 35 years. As a result, businesses are under

ever-increasing pressure to make goods 'better, faster and cheaper'. With the disappearance of

manufacturing jobs and the importance of information processing and customer service, the

need for 'brawn' has given way to the need for 'brains'. This phenomenon has been referred to

as 'skill-biased technological change', referring to the increasing demand for skilled workers inthe post-industrial economy.

The ever-increasing importance of information in today's workplace and the myriad ways of

receiving, processing and communicating that information have challenged managers and

workers alike to develop new ways of structuring their relationship to maximise their

productivity. Traditional 'top-down', 'command and control' labour-management relationshipsmight have been appropriate in an era of routinised, assembly-line work processes focused on

repetitive activity. However, this new era of rapid technological change and voluminous,

increasingly sophisticated information flow has made it necessary for workers to have the

freedom to be creative in developing effective work processes. This is true simply because thereis too much information for managers to keep control of, and the simultaneous tasks that arise in

today's workplace are multifaceted and increasingly demand new learning and understanding.

Today's workers require an environment of both constant, formal upgrading of skills as well as

an environment that encourages the manager-to-worker and worker-to-worker interactions that

are conducive to informal learning. In addition, the ongoing (if unsteady and uneven) reduction
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in trade-based protection for industries necessitates that governments, businesses and workers

alike constantly adapt to embrace constantly evolving economic opportunities as well as threats.

Changing management and labour interests

In this environment, what are labour and management's interests? From management's point of

view, it needs a highly skilled, flexible workforce that fills in the gaps that middle managers usedto fill in terms of spotting problems and generating solutions at the working level. Management

needs a workforce that is willing and able to learn new tasks and perform new functions. It needs

workers who have well developed 'soft' skills such as the ability to communicate clearly and

respectfully, to listen actively, to empathise and to react to situations non-defensively. In terms

of workflow, management needs workers who are just as comfortable (or almost as comfortable)

with exceptions to the norm as they are with the norm itself. Why? There often is no normanymore! The world and the workplace are simply changing too fast.

What are labour's interests? Workers need a good basic education system to develop the

analytical skills required to be productive in an information-driven workplace where there are no

'norms'. While for the most part basic education is beyond the sphere of labour relations (though

numerous private sector companies, such asBell Southhave found it advantageous directly to

support basic education in their communities, thereby creating direct links to the company toensure a competent pool of labour in the future - see Teaching the new basic skills: Principles for

educating children to thrive in a changing economy, Richard Murnane and Frank Levy, Free Press

1996), other aspects of worker training are appropriate for joint labour-management treatment.

For example, in light of the continuing failure of many American schools to deliver a good-quality

basic education, workers need employers to step up and provide not only initial job training but

also continuing opportunities for skills development. Hence the need for the now overused butstill very important concept of 'lifelong learning'.

Beyond learning opportunities, workers need opportunities to utilise their skills to 'create' in

accordance with their values, talents and abilities and, as a consequence, enjoy the value of their

creations. Abraham Maslow recognised this human need to 'create' long ago when he identified

'self-actualisation' at the summit of his famous hierarchy of needs (see Toward a psychology of

being, Abraham Maslow Wiley, John & Sons, 3rd ed 1998. [orig 1962]). This ability to createstands in contract to the strict 'Taylorist' production methods so prevalent in the industrialisedworld in the first three-quarters of the 20th century.

While one can credibly argue that workers have always had this need for greater control over

their work processes, one can argue that it is more pronounced now. An increasingly insecureeconomic environment (even in the best of times) characterised by a low degree of mutual

loyalty between employers and employees, coupled with the declining influence of the family

structure and authority in general in the post-modern USA, have given rise to a class of workers

that does not see the value of following top-down orders. 'Generation X' workers (the cohort

born between, roughly, 1963-79) were often 'latch-key kids' who arrived home to an empty

house where both parents were working. Many of them grew up in single-parent homes, in many

cases with diminished authority figures (the rate of divorce in the USA skyrocketed starting in

the late 1970s with the advent of the 'no-fault' divorce, while over the past 30 years thepersistent social and economic marginalisation of vulnerable populations - eg people at or nearpoverty, racial and ethnic minorities - combined with an ongoing breakdown of traditional family

values, has swelled the numbers of women bearing children outside marriage). Unlike 'Baby

Boomers' (the cohort born in the massive population bulge from 1946-62), who 'dared' to

challenge authority, a scepticism toward authority is ingrained in 'Gen Xers' by virtue of thecircumstances in which they were raised.
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Above and beyond training and independence, workers still need the same protections they

always did, such as safe and desirable working conditions, secure employment, and fair

opportunities for employment and promotion. While the underlying needs may not have

changed, the nature of those needs in many cases has changed. For example, whereas 'job

security' is no longer realistic in an environment where employers' need to fill specific 'jobs' is

constantly changing, workers need 'employment security'. That is, they need their employer to

provide them with resources and opportunities to keep them useful and productive and, hence,

employed - hopefully (for them) with the same company. In addition, whereas safe working

conditions used to be more about goggles, air filters and ear muffs, it now involves ergonomicsand reducing violence in the workplace.

In the same vein, whereas equal employment opportunity used to be about protecting seniority

and/or a formal merit-based system, or prohibiting discrimination on the basis of carefullydefined categories such as race, ethnicity, religion, disability and gender, nowadays the

challenge is subtler. With respect to the issue of seniority and/or a formal merit-based system,

'fairness' now means candour in terms of possible career growth, since there are no longer

guaranteed opportunities in most organisations. Possible career growth often reflects the

prospective health of the company, which in turn reflects information that companies have

historically withheld from their workers. The process of information-sharing that is such an

important part of the interest-based bargaining model (see the appendix to this article) is anattempt to address this need.

Regarding discrimination, whereas workers still need protection from discrimination on the basis

of defined categories - race, ethnicity, religion, disability and gender - in an environment of

reduced legal protections over the last 15 years, workers also need more fairness of the type

that cannot be legislated. Specifically, they need fairness that is rooted in increased integrity,

empathy and communication on the part of management. This need for fairness is reflected in

the increasingly voluminous backlog of Equal Employment Opportunity (EEO) complaints brought

by people who have used the EEO process as their only possible forum to complain of injustices

that do not fall into the formal spheres of protection of the Equal Employment Opportunity

Commission(EEOC). The EEOC was created under the Civil Rights Act of 1964 to provide a

means of redress for workers suffering discrimination under defined categories such as race,

gender, religion and ethnicity. Each year, workers file tens of thousands of complaints pursuant

to the EEOC's legal framework (US0112156F). Many of these complaints are settled prior to thehearing stage.

The need for fairness is also reflected in the increasing alienation on the part of those who may

not file formal EEO complaints but nonetheless feel not only excluded, but also harmed, by 'the

system'. While these aggrieved individuals may not have legal recourse (a rights-based remedy),

they have a pronounced interest in fairness, integrity, empathy and communication, as indicated

by the decreasing levels of job satisfaction among the American labour force (see The effects ofworkplace practices on job satisfaction in the United States steel industry Peter Berg, Economic

Policy Institute, Washington DC, September 1997, rev. November 1997). In a 2002 survey,

based on a representative sample of 5,000 US households, the Conference Board of the United

States, a not-for-profit business group, found that growing numbers of Americans are less

satisfied with their jobs, compared with seven years previously (Special consumer survey report:

Job satisfaction on the decline, Conference Board, July 2002). Only about half of those surveyed

said that they were happy in their jobs, down from 59% in 1995. The decline in job satisfaction

was found among workers of all ages and across all income brackets.

Labour and management working together to meet changing

interests
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With the ever-changing economic environment, coupled with declining unionisation and longer

collective agreement (or 'contract') periods, in this day and age the collective agreement cannot

possibly be flexible enough to meet managers' and workers' interests, as described above.

Instead, it is 'administration' of the agreement that counts. In the absence of a union, meeting

both sides' interests depends on setting up structures and work processes to meet both sides'

interests (such efforts, of course, should be constrained by the requirements of the Taft-HartleyAct, which prohibits employers attempts to organise workers).

Given this need, in recent years, employers, workers and unions have come together to create

non-traditional structures to draw upon both sides' resources at the plant level, the company

level, and the sectoral level. Their efforts have been augmented, and in many cases jump-

started, by the US government through the Federal Mediation and Conciliation Service. In

addition, there are a growing number of private sector human resources and labour relationsconsultants working with organisations to provide flexible, 'just-in time' responses to the latters'labour relations challenges.

More progressive companies and their unions have used the collective bargaining process as a

means to tackle the competitive pressures resulting from globalisation, as opposed to using the

process to resist such pressures. This broad issue of globalisation has played out in collective

bargaining under the cover of various 'partnership challenges', such as:

1. the need for training in new methods of communication and conflictresolution in order not only to reach quicker collective agreements but, moreimportantly, to administer the whole process of organisational change on anongoing basis;

2. the need for changes in the structure of the organisation - from top tobottom - to provide for shared decision-making to maximise the quantity andquality of input into the new work processes, and to manage the politicalaspects of such monumental change;

3. the need to devise new work processes to give workers greater freedom to'create' and to benefit the company by providing ideas for improvement; and

4. the need to provide continuous training to workers to enable them to learnnew technology to keep up with the competition and, relatedly, change jobswithin the same employer's operations.

In order to facilitate the discussion of the broad topic of the role of industrial relations in the

structural change of organisations, below we divide the discussion according to the four

partnership challenges identified above, but combining challenge 2 (structural issues) andchallenge 3 (process issues).

Communicating about how to communicate: Training in interest-based

problems-solving and conflict resolution and prevention

In every organisation that is attempting a cultural change to enable it to embrace collaborative

work processes, labour and management partners must lose old habits and break with the past.

Often, labour and management have a contentious history, characterised by hostility and

disappointment. Bargaining is usually characterised by each side staking out extreme positions in

the hope that such demands will enable it to settle above its 'bottom line'. The problem with suchbargaining is that parties are often left disappointed if they are not powerful enough to impose

their will on the other side. This dynamic was alluded to above, through the reference to power-

based conflict resolution. Even in its most benign form, power-based dispute resolution results in

the overbearing of the will of the weaker party, if that party does not have a better alternative to


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a negotiated agreement. Sometimes, if one or both of the parties perceive that they have a

better alternative to a negotiated agreement, the result is a lock-out or a strike. Almost always,

in a power-based negotiation the parties' relationship suffers. Given the amount of time that

most of us spend at work, the relationship is a significant one in our lives, and damage to it hasvery serious consequences.

Before an organisation can get out of that pattern, it is almost always necessary to train thelabour-management partners in interest-based problem-solving (IBPS) techniques (see the

appendix). In a nutshell, the IBPS process involves the parties learning how to communicate by

expressing their needs, concerns and feelings - in the form of 'I' statements as opposed to 'you'

statements - and engaging in a joint problem-solving to satisfy those needs, concerns and

feelings, which in the IBPS process are called interests. In order for this process to take place

and be successful, it is necessary to engage in joint training with labour and managementpartners in skills such as communication, active listening, brainstorming and consensus decision-making.

Contrast the IBPS process and traditional negotiations. In the IBPS process, the parties openly

exchange information concerning the interests that they need to satisfy (eg 'we need to keep

production costs low enough to compete in the market') and then engage in joint problem-

solving to develop several means of satisfying those interests. In contrast, in traditionalnegotiations parties demand inflexible, absolute positions (eg 'we must keep production costs

low by cutting wages 30%') and then use power-based or rights-based arguments to satisfy

those demands. (eg 'we will cut 30% of the workforce if you do not agree to take a pay cut, and

the law permits us to do that after the collective bargaining agreement expires at midnight

Tuesday', or 'if you keep pressing your demand we will go out on strike, and the labour lawstatute protects our right to do so').

While traditional negotiations may seem to reflect the reality of workplace negotiations and are

still in wide use in many workplaces, they often hurt organisations because the parties overlook

options that can satisfy both parties' interests and help the organisation move forward and

improve. Unless organisations become better at communicating to articulate common goals, and

exchanging information on the interests that workers and managers must satisfy in order to

accomplish those goals, tremendous inefficiency and loss of productivity will result. This type ofcommunication is simple to explain in theory but hard to achieve in practice. Many organisations

struggle with power-based threats and demands to satisfy positions. Often, workers and

managers do not stop and think about working together to satisfy everybody's interests to the

benefit of the organisation. For these reasons, training in what is, for many, a counter-intuitive

way to communicate is essential component in achieving a more productive and efficientworkforce.

How have winning organisations incorporated interest-based negotiations

and principles into their work processes?

In the USA, the Miller Dwan Medical Center (MDMC) in Duluth, Minnesota, stands as an example

of an organisation that has made significant improvements upon years of contentious labourrelations through the use of IBPS. A facilitator from the US Federal Mediation and Conciliation

Service (FMCS), Commissioner Darlene Voltin, conducted IBPS training for union and

management bargaining committees for four different collective agreements with four different

unions. In each case the parties, with much hard work and great effort toward attitudinal

change, overcame years of acrimonious relations and set the course for the future using interest-based negotiations (IBN). Commenting on the fourth and final contract, the mediator writes:

Finally, it was time for the real test of interest-based bargaining. Was it possible to use such a process when the chiefspokespersons for MDMC and the United Food and Commercial Workers (UFCW) local union had such a contentious history


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with each other that involved deep-seeded personality conflict? Since the FMCS mediators who did the [IBPS] training werewell aware of the history of the relationship between MDMC and UFCW, the training was geared towards listening,understanding and team building. At the outset, ground rules were created based on [IBPS], and they prepared a plan forhow the parties would move to traditional bargaining if the [IBPS] approach did not succeed. In addition, the FederalMediator who facilitated the bargaining obtained an agreement from the parties to follow the process and not take shortcuts. Not only did the parties arrive at an agreement based on consensus, but they also dramatically improved theirrelationship. As they began to resolve issues through the [IBPS] process, their trust increased and their relationship witheach other greatly improved ... [The IBPS process allowed] two parties who were blindsided by previous history and

personality conflict among party members to refocus their interests back towards their respective goals and the needs oftheir members, a process that resulted in a successful, voluntary agreement.

(Excerpt from the APECBest practices toolkitfrom the 2001 project, Responding to change in

the workplace: Innovations in labor-management-government cooperation, funded by theAPEC

Human Resources Development Working Group, David Thaler, David Glines and Jennifer Ortiz.)

Miller Dwan Medical Center is but one of thousands of organisations that have worked with the

FMCS to incorporate IBPS into their labour relations work. Other notable success stories include

the Kaiser-Permanente labour management partnership (see below), the Levi-Strauss &

Company-UNITE labour-management partnership, and Iron Mountain Records. More informationon these and other successes is available from the FMCSwebsite.

Finally, it should be noted that in the last three decades the FMCS and a growing number ofprivate practitioners have applied the interest-based model to not only the resolution of labour

conflict but also the prevention of conflict. Whereas 25 years ago an FMCS mediators workload

consisted 90% of dispute cases and only 10% of preventive cases, nowadays the averagemediators caseload consists of only 65% dispute cases and 35% preventive cases.

What do preventive programmes look like? They range from simple IBPS training prior to

contract negotiations, to the creation of permanent mechanisms to resolve conflict on an ongoing

basis (such as a committee consisting of labour and management representatives), to intense

programmes designed for organisations with a tumultuous history of labour-management

relations, perhaps after a long and bitter strike. An important 'golden rule' of FMCSs

programmes is that preventive programmes - and permanent labour-management committees in

particular - are in no way a substitute for collective bargaining and do not supplant the parties

vigorous representation of their constituents interests. Rather they are a mechanism to dealwith ongoing workplace challenges that have been intensified by a changing and increasingly

competitive marketplace, as well as the gradual lengthening of the terms of collective

agreements. The duration of the average collective agreement is now over three years (15 years

ago it was two years) and, as such, many more issues need to be dealt with mid-term. The

labour-management committee and the accompanying training in IBPS, communication, active

listening, brainstorming and consensus decision-making, provide a crucial added edge forcompanies in this brave, new global world.

FMCS preventive programmes have one or a combination of the following elements:

1. an initial assessment to determine the propriety of the various programmesthat FMCS offers;

2. training in relationship-building skills such as IBPS, communication, activelistening, brainstorming and consensus decision-making in order to increasethe likelihood of success of a particular programme;

3. in many cases, consulting services to establish a permanent institutionalmechanism such as a labour-management committee, grievance mediationor a company-wide full-scale partnership; and
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4. delivery of the programme itself, which may involve training only,institutional consulting only (see point 3 above), facilitation, or a combinationof the all of these services.

An example of a programme in this fourth group is called a 'relationship-by-objectives'

programme, whereby the parties receive training, exchange and discuss interests in a facilitated

session, jointly develop objectives to improve their relationship, and set up (eventually) self-facilitated committees to help the parties reach their objectives. Commonly, an FMCS mediator

will facilitate the first few meetings of a committee, after which the parties are on their own. The

mediator will always train the parties in the habits, procedures and attitudes successfully to

sustain a labour-management committee. FMCS mediators often build an evaluation and follow-up component into their preventive programmes, and are always available should the parties

somehow get off track.

Structural and process change at the plant level: The Harley-Davidson

labour-management partnership

In the early 1990s, faced with increasingly stiff competition from Japan and Europe, a

demoralised workforce, archaic work practices, and extremely high expectations from its loyalcustomer base, the motorcycle manufacturer Harley-Davidson Corporation and its trade unions

knew that if they were to survive they would have to reinvent the companys work processes. For

this reason, the parties agreed to create a new 'greenfield' factory in Kansas City, Missouri that

would be free from the shackles of the past. However, the parties also wanted to be careful to

preserve and actually improve upon the 'storied' and unique relationship that Harley-Davidsonenjoyed with its customers.

At plant level, the partnership between the Harley-Davidson Corporation and its unions,

theInternational Association of Machinists and Aerospace Workers (IAMAW) and thePaper, Allied

Industrial, Chemical and Energy Workers Union (PACE) is an excellent example of an

organisation utilising the labour relations process to embrace the structural change necessary for

survival in a rapidly changing world. The partnership is embodied as the very core of the

collective agreement, from which virtually all other provisions of the agreement flow. The Harley-Davidson case stands as an example of a carefully planned and purposeful extension of bothpartnership and devolution of decision-making, from the top layers of the organisation rightdown to the rank and file.

As early as three years prior to the signing of the col lective agreement, Harleys chief executive

officer and chief financial officer met with the top officers from IAMAW and PACE to discuss a

course of action in choosing a new greenfield plant site that would embody Harleys reinvention

of itself as a company that is administered in partnership. From these initial top-level meetings,

the parties formed a joint partnership implementation committee (JPIC), consisting of high-level

officials from all three organisations, to begin broad-based discussions around workplace change.

The JPIC soon developed a procedure for devolving decision-making within the organisation,

called 'elements of shared decision-making'. Beginning by tackling the least contentious issues,

the parties identified 23 vital 'elements' such as training and education and outsourcing. TheHarley-Davidson labour-management partners then assigned a 'level' that they hoped to attainwith each element of shared decision-making. There were three levels:

1. D1: unilateral management or labour retain sole discretion to makedecisions;

2. D2: unilateral, but with prior input from the other party(ies); and3. D3: joint consensus each side has veto power over the decision.


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The JPIC developed a table that assessed where the parties stood at the time with respect to

each type of decision, as well as their eventual goal. In all cases, the desire was to go from more

unilateral to more consensus-based decision-making. The following is an excerpt from their table

(provided courtesy of IAMAW's Office of High Performance Work Organizations)

Harley-Davidson labour-management partnership decision-making goals*

Type of decision-making Now Goal

Education/Training Focus: Education and training will be primarily

work-related.

Joint needs assessment Targeting audience Curriculum design Priorities/sequencing Instructors/materials/methods Implementation plans Train the Trainer Use ALL resources

Some 1s

and 3s;

mostly 2s

3s

Production Scheduling Focus: Scheduling of new model

introductions, motorcycles and power train production, and current

and noncurrent parts production impacts our daily work lives and

decisions regarding these effects will be shared. As an example:

Annual build schedule [move towards type 2 decision] Sub-annual period schedules [move towards type 2 decision] Effects of the above [3]

o Hours of worko Overtimeo Crew sizeo Shiftso Support staff by shifts

Mostly 1s

2s

and

3s

Subcontracting Focus: partners will jointly determine all

subcontracting decisions that involve in or our sourcing of work

directly related to hourly employees

1s and 2s 3s/2s

Technology Integration Focus: Continuously improve the

companys competitive capability through the application of

appropriate technology, such as:

Systems Processes Process of Technology Selection Implementation, which ...

o Enhances people, processes, and organisational effectivenesso While addressing the possibility of worker displacement

Some 1s;

mostly 2s3s


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Note: 1 = unilateral decision-making; 2 = unilateral decision-making, but with prior input from

the other party(ies); 3 = joint consensus, with each side having veto power over the decision.

As one can see, the devolution of decision-making does not occur for its own sake. Rather it is

part and parcel of a comprehensive programme to draw upon the knowledge and talent of all

workers and managers to reach clearly defined objectives.

Having developed a mutual understanding of just what 'shared decision-making' meant in the

Harley-Davidson context, the JPIC then went on to create the permanent governing structure of

the partnership. For this task, the JPIC recruited 20 hourly representatives, called productiontechnicians (PTs), who were to work toward 're-engineering current processes' to reflect the

values of the partnership and better serve the new factory. The JPIC also recruited a seasoned

new plant manager, who had an understanding of and sensitivity to the evolving collaborative

process. He was to work with a handful of his own support personnel as well as the PTs to design

the new processes. The system that the developed became known as the 'Kansas City OperatingSystem'.

The following excerpt from a case study of the Partnership prepared by IAMAW describes the

Kansas City Operating System. It should be noted how the various jointly managed layers

progressively integrate the work done at the floor level, which reflects such a high degree ofemployee empowerment that the work is described as 'self-directed'.

The first layer of decision-making falls within four Process Work Groups (PWGs) [which are organised according to skill andfunction: Fabrication; Paint; Assembly; and Future]. Groups

Documents

Difference Between Formal and Informal