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Chapter 8

ORGANIZATION STRUCTURE, CULTURE, AND CHANGEChapter 8 describes a variety of approaches to subdividing work at the organizational and unit

levels. To further an understanding of organizations, we also describe organizational culture andchange At the risk of oversimplification, structure is the hard side of organizations, and culture

and change are the soft side. The chapter begins with a discussion of bureaucracy anddepartmentalization, followed by a description of modifications of the bureaucratic structure: thematrix structure, flat structure, downsizing and outsourcing, and the horizontal structure. Other

key concepts related to structure described here are delegation, empowerment, and

decentralization. The chapter concludes with a discussion of organizational culture, followed byorganization change including a shift to Six Sigma quality.

Learning Objectives

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1. Describe the bureaucratic form of organization and discuss its advantages and

disadvantages.2. Explain the major ways in which organizations are divided into departments.3. Describe three modifications of the bureaucratic structure: matrix structure; flat

structures; downsizing and outsourcing; and the horizontal structure.

4. Identify key factors that influence the selection of organization structure.5. Specify how delegation, empowerment, and decentralization spread authority in an

organization.

6. Identify major aspects of organizational culture, including its determinants, how it islearned, and its management and sustaining.

7. Describe key aspects of managing change including gaining support for change, and the

DICE framework for successful change management.

Chapter Outline and Lecture Notes

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Work can be divided into jobs for individuals and groups. Work is also subdivided through an

organization structurethe arrangement of people and tasks to accomplish organizational

goals.

I. BUREAUCRACY AS A FORM OF ORGANIZATIONA bureaucracy is a rational, systematic, and precise form of organization in which rules,

regulations, and techniques of control are precisely defined. Most other forms of

organization derive from bureaucracy.

A. Principles of Organization in a Bureaucracy

The essence of bureaucracy can be understood by identifying its major characteristicsand principles.

1. Hierarchy of authority. The dominant characteristic of a bureaucracy is that eachorganizational unit is controlled and supervised by a higher one.

2. Unity of command. A classic management principle, unity of command, states that

each subordinate receives assigned duties from one superior only and is accountable

to that superior.


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3. Task specialization. Each unit of the organization and each employee concentrateson one function.

4. Responsibilities and job descriptions. In a highly bureaucratic organization, each

employee has a precise job description, and policy and procedure manuals are kept

current and accessible.5. Line and staff functions. Bureaucracies differentiate line from3 staff functions. Line

functions are involved with the primary outputs of the firm, and staff functionsadvise line functions.

B. Advantages and Disadvantages of BureaucracyThe primary advantage of bureaucracy is that it allows for high levels of accomplishment.

Many large bureaucratic organizations, such as Wal-Mart and General Electric, aresuccessful and continue to grow at an impressive pace. An argument in favor of

bureaucracies is that when too many policies, rules, and regulations are eliminated

workers lack direction.

On the negative side, bureaucracies can be rigid in handling people and problems. Rulesand regulations can lead to inefficiency, such as getting approvals. High frustration

caused by red tape and slow decision making are other key problems in a bureaucracy.

II. DEPARTMENTALIZATIONWork is divided into departments to minimize confusion and to increase efficiency.

Departmentalization is the process of subdividing work into departments.

A. Functional Departmentalization

Functional departmentalization is an arrangement in which departments are definedby the function each one performs, such as accounting or purchasing. The advantages

and disadvantages of the functional organization follow those of bureaucracy.

Departmentalization by function is well suited for large batch processing and for

specialization. The disadvantages of functional organization are partially due to its sizeand complexity. As with any form of departmentalization, a major problem is that the

people within a unit may not communicate sufficiently with workers in other units.

B. Geographic Departmentalization

Geographic departmentalization is an arrangement of departments according to the

geographic area or territory served. All the firms activities in one geographic region

report to one manager. A key advantage of geographic departmentalization is that itallows for decision making at the local level. Disadvantages include high costs,

because of the duplication of effort and the fact that management may have difficulty

controlling the performance of field units.

C. Product-Service DepartmentalizationProduct-service departmentalization is the arrangement of departments according to

the products or services they provide. This arrangement makes the most sense when the

product or service has its own unique demands. Organizing by product or service gives

major attention to the product or service, allowing it the maximum opportunity to growand prosper. Yet this structure can be expensive because of duplication of effort, and

control of the separate units may be difficult.


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Outsourcing may save money, yet what about building a loyal workforce that hascompany pride?

C. The Horizontal Structure (Organization by Team and Process)Instead of assigning people to specific tasks, a group of people can be concerned

with a process such as filling an order or developing a new product. Instead offocusing on a specialized task, all team members focus on the purpose of the

activity. A horizontal structure is the arrangement of work by teams that are

responsible for accomplishing a process. The employees take collectiveresponsibility for customers.

Switching the emphasis from task to process can be done through reengineering,the radical redesign of work to achieve substantial improvements in performance.Reengineering searches for the most efficient way to perform a large task. As a

result of reengineering, work is organized horizontally rather than vertically. A

major challenge in creating a horizontal structure is changing from a functional to a

process mindset.

D. Informal Structures and Communication NetworksAn organization chart does not tell the whole story. The informal organizationstructure is a set of unofficial relationships that emerge to take care of events andtransactions not covered by the formal structure. The informal structure

supplements the formal structure by adding a degree of flexibility and speed.

Informal structures are also referred to as informal networks because of the focus

on how people use personal contacts to obtain information in a hurry and get workdone. A network map is useful in spotting talented people whom others consult.

Also as part of informal networks, information technology influences all the

organization structures described in this chapter because people can solve problems

by working together without worrying about who reports to whom.

E. Key Factors that Influence the Selection of an Organization StructureChoosing the best structure is contingent upon certain factors including:

1. Strategy and goalsstructure follows strategy.2. Technologyhigh technology firms rely more on flexible structures.

3. Sizelarge size leads to centralized controls and some formalization.

4. Financial condition of the firmflat structures cost less than tall ones.5. Environment stabilitya flexible structure is better for an unstable

environment.

IV. DELEGATION, EMPOWERMENT, AND DECENTRALIZATION

Work is subdivided through the chain of command via delegation, empowerment, anddecentralization.

A. Delegation of Responsibility and Empowerment

Delegation refers to assigning another person the formal authority and responsibilityfor accomplishing a specific task. Delegation is closely tied in with empowerment,

the process by which managers share power with group members, thereby enhancing

the employees feeling of personal effectiveness. Delegation and empowerment lie atthe heart of effective management. To delegate and empower effectively, the manager


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should: (a) assign duties to the right people, (b) delegate the whole task and step backfrom the details, (c) give as much instruction as needed, (d) retain some important

tasks, and (e) obtain feedback on the delegated task.

B. Decentralization

Decentralization is the extent to which authority is passed down to lower levels in an

organization. Centralization is the extent to which authority is retained at the top.Certain conditions usually foster decentralization, such as when important decisionsare made low in the management hierarchy. A centralized firm exercises more control

over organizational units than does a decentralized firm. Some firms can be

centralized and decentralized simultaneously, such as fast-foot franchise operations.

An advanced technique of juggling the forces of centralization and decentralization

simultaneously is for decentralized units to remain somewhat autonomous, yet

cooperate with each other for the common good. Johnson and Johnson is a first-rate

example.

V. ORGANIZATIONAL CULTUREOrganizational (or corporate) culture is the system of shared values and beliefs thatactively influence the behavior of members of the organization.

A. Determinants of Organizational CultureMany forces shape a firms culture. Often its origin likes in the values, administrative

practices, and personality of the founder. Culture responds to and mirrors the

conscious and unconscious choices, behavioral patterns, and prejudices of top-levelmanagers. The society helps form the organizational culture, as does the industry in

which the firm operates.

B. Dimensions of Organizational CultureOrganizational culture is complex, yet six dimensions capture its essence. Key

dimensions include (a) values, (b) relative diversity, (c) resource allocation and

rewards, (d) degree of change, (e) a sense of ownership, and (f) strength of theculture.

C. How Workers Learn the Culture

Employees learn the culture primarily through socialization, the process of comingto understand the values, norms, and customs essential for adapting to the

organization. The teachings of leaders are also important.

D. Consequences and Implications of Organizational CultureCulture has a pervasive impact on organizational effectiveness. The consequences

and implications of organizational culture include (a) competitive advantage and

financial success, (b) productivity, quality, and morale, (c) innovation, (d)compatibility of mergers and acquisitions, (e) person-organization fit, and (f)

direction of leadership activity.


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E. Managing and Sustaining the CultureA major responsibility of top management is to shape, manage, and control the

organizational culture. Effective leadership helps change the culture. Managers can

bring about culture change by (a) being a role model for change, (b) impose a new

approach through executive edict, (c) rewarding behavior that supports the culture,(d) selecting people with values matching the culture, and (e) sponsoring training that

supports the culture, and (f) conduct conference calls to discuss progress towardbuilding the new culture.

VI. MANAGING CHANGE

To meet their objectives, managers must manage change effectively almost daily.Change in the workplace can relate to any factor with an impact on people, including

changes in technology, organization structure, competition, human resources, and

budgets.

A. Creating Change at the Individual versus the Organizational LevelMany useful changes take place at the individual and small group level, rather than

the organizational level. A study of "movers and shakers" suggested that these peopleare more concerned about achieving results than avoiding offending anyone orblending into the group. Change at the organizational level can be regarded as change

in the fundamental way in which the company operates. For total organizational

change to take place, every employee must be eager to rise to the challenge ofchange.

B. The Unfreezing-Changing-Refreezing Model of ChangeUnfreezing involves reducing or eliminating resistance to change. Changing or

moving to a new level usually involves considerable two-way communication,

including group discussion.Refreezing includes rewarding people for implementing

the change.

C. Resistance to Change

People resist change for many reasons, including the following: (a) fear of anunfavorable outcome, (b) not wanting to break old habits, (c) concern about upsetting

the balance of an activity such as in-person contact, (d) personality factors that resist

change, such as rigidity, (e) a desire to cling to the old, however flawed, and (f)

awareness of the weaknesses of a proposed change.

D. Gaining Support for Change

Seven techniques for gaining support for change are as follows:

1. Allow for discussion and negotiation.

2. Allow for participation.

3. Point out the financial benefits.4. Avoid change overload.

5. Allow for first-hand observation of successful change.

6. Get the best people behind the program.


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The techniques for overcoming resistance to change work better when the managerhas a good working relationship with group members, including being trusted.

E. Six Sigma and Planned Change

The shift to a quality-conscious firm can be classified as a total systems approach toorganization change. One quality standard is six sigma, or 3.4 errors in one million

opportunities. This quality standard has taken the form of company-wide programsfor attaining high quality. Six Sigma refers to a philosophy of driving out waste,improving quality, and the cost and time performance of a company.

Six Sigma is a data-driven method for achieving near-perfect quality, with anemphasis on preventing problems. Six Sigma also contains a strong behavioral aspect,

with a focus on motivating people to work together to achieve higher levels of

productivity. Top management commitment is vital. For Six Sigma to work well, it

must fit into the company culture.

F. The DICE Framework for Successful Change Management

An example of a new approach to change management is the DICE framework.Change initiatives are likely to be more successful when four factors are in place.D. Duration should be relatively short, or frequent reviews take place for projects of

long duration.

I. Integrity of performance (capable project teams help).C. Commitment of senior executives and staffis essential.

E. Effortis required by employees directly involved in the change.

The DICE Score = D + (2 x I) + (2 x C 1) + C2 + E. (Commitment is divided into

top-management commitment (C1) and local-level commitment (C2). Factors are

scored from 1 to 4, with total scores from 7 to 28. A possible discussion here is

whether the DICE Score is valuable or nonsense.

Comments on End-of-Chapter Questions

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1. Over the years, large business organizations have steadily reduced the number oflayers in the organization structure. What purposes has this profound change in

structure served?

Large organizations that have de-layered have often developed a less bureaucratic

culture in such ways as being more democratic and decisions being made more quickly.

Many of these firms would most likely be less competitive today if they had notreduced their management structures. Yet despite their slimmed-down management

structure, large American firms are not so successful that increases have taken place in

employment, job security, pensions, and health benefits. An extreme example is thatEastman Kodak Company has shrunk from 140,000 employees in the 1950s to about

20,000 in 2008.

2. Small and medium-size companies are often eager to hire people with about five years

experience working in a large, bureaucratic firm like IBM or Ford Motor Company.


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What might be the reason for the demand for these workers with experience in a

bureaucracy?

Managers at smaller firms recognize that workers with big company experience are

likely to have knowledge of systems and procedures that can be valuable to the smallerfirm. In general, the larger firms are more disciplined in hundreds of ways.

3. What is the basis for departmentalization in the last hospital you visited, read about, or

saw on television?

Almost all hospitals use functional departmentalization for the major reason thatspecialization is needed. The obstetrics department, for example, requires different

expertise than does the neurosurgery department. Team structures may exist within the

functional departments, but dominant form of departmentalization is still functional.

4. Describe the culture of highly visible organization such as Wal-Mart or Starbucks.

Perhaps make first-hand observations should you be visiting either one of these

establishments. Use the dimensions of organizational culture to help you build your

description.

The key here is for the student to make use of cultural dimensions, rather than

making evaluative statements such as the culture is bad, good, or wonderful.For the example Starbucks might welcome diversity, be relatively stable, have a

sense of ownership and a strong culture.

5. What can first- and second-level managers, as well as team leaders, do about shaping

the culture of a firm?

The managers just mentioned can make a large contribution to culture by serving asrole models of the desired values, and rewarding people for expressing certain values.

For example, a team leader might heavily praise work that supported the corporate

value of quality.

6. Many career counselors believe that you are more likely to succeed in an organizationin which you fit the culture. How could you determine before joining an organization

whether you fit its culture?

Understanding the culture of a prospective employer is part of sizing up the company.

The job candidate should make careful observations during the interview visits, such as

observing how well rank is respected in the firm, which organizational functions are

mentioned the most, and how much the firm dominates an employees life. Equallyimportant, the job candidate should speak to a present employee, past employee, and

customers about the firm. Ask questions such as, What is it like working here? How

does the company treat people? Evaluate whether all the information you receivewould fit your personality and style.

7. How can a manager tell if an employee is resisting change?


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An employee who is resisting change will give such telltale signs as procrastinatingabout implementing the needed change and perhaps conveniently forgetting to do tasks

related to the change. Excuse making is another potential indicator of resistance.

Comment on Self-Assessment and Skill-Building Exercises

Understanding Your Bureaucratic Orientation

In Chapter

The Bureaucratic Orientation Scale gives the student something valuable to think about in terms

of his or her potential comfort working in a bureaucracy. Many people want more freedom than a

bureaucracy offers, yet many people prefer more structure in their work lives.

Comparing Organization StructuresEnd of Chapter

Examining organization structures, and then diagnosing the type of structure, allows for some

critical thinking. The students are likely to find that most structures are hybrid, such ascontaining both a functional and a geographic structure.

The Art of DelegationEnd of Chapter

The serious students who practice delegation might find the experience illuminating. Delegation

can be a joy or a nightmare, somewhat depending on to whom the task is delegated.

Analyzing an Organizational CultureInternet

Sometimes an organization will mention aspects of its culture in its Web site, such as being a

company with a strong innovative spirit. Articles about the company may be more indicative of

the culture, but such a search might take some digging. A Web search phrase that will most

likely work would be, for example, The organization culture at IBM.

Answers to Case Questions

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Reshaping MicrosoftA potential contribution of this case is that it illustrates the importance of organization structure

in the welfare and destiny of a firm.

1. What do you see as the advantages and disadvantages of breaking up Microsoft?

The advantages of breaking up Microsoft follow most of the comments made by theauthors of the article. Spinning off parts of the company could lead to more attention being

paid to the components, and also smaller, more nimble companies. Yet a true break up of

the company would mean that the units no longer benefit from the expertise of workers in

the other units, such as research and development findings being shared across units. Also

Microsoft remains a great brand name with enormous equity. If Microsoft were separate

companiesand no longer carried the name Microsofta lot of this equity would be lost.


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with any organization chart, the arrangement of people and the names of units are subject to

frequent change.

Sparking Change at Coke

A key point about this case is that even one of the worlds best-known companies can face theneed for substantial change. At the same time the case illustrates that achieving substantialchange is an agonizing process.

1. Why does this story belong in a chapter that deals with organization change? Shouldnt theCoke story be placed in a chapter exclusively about marketing?

This case belongs in a chapter about organization change because it is people and their

attitudes that bring about organization change. Also, Coca-Cola has faced the problem of

overcoming resistance to change. The culture has to change to bring about marketingchanges.

2. In what ways does the Coca-Cola Co. transformation require changes in the attitudes of

employees and in the organizational culture?

As just implied, based on past successes long-time Coca Cola employees might be toosmug and complacent. They know that the company keeps generating billions of dollars in

sales every year, along with good profits, so why be so concerned about change? The

culture has to be moved toward a greater sense of urgency for change.

3. What advice can you offer Isdell and the successor to Minnick to make Coca Cola even

more successful?

Coca Cola should certainly continue their present course of acquiring niche beverages

including energy drinks and tea drinks, such as the acquisition of Fuze Beverage LLC in

2007. Yet the company might have to think as broadly as PepsiCo has done by entering thesnack business. Or perhaps Coca Cola might acquire a major food company. Naysayers

will point out that some of these diversions do not work, like Coca Colas foray into a lineof childrens clothing many years ago. The data are clear that the consumption of

carbonated beverages is on the decline worldwide, so growth in new product categories isessential.

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