Organizaing for innovation

Organizing for Innovation

A Theoretical Approach

Moatasem Chehaiber

Course in project leadership,

Niels Brock institute in

Copenhagen -Denmark

Supervised By: Tomas Nordlund

08-12-2009

Project management has to deal with the continuous development of general trends in worldwide

economics. In the past decade, project management was confronted with the globalization trend, and

the complexity it introduces to the macro environment of projects. By the start of this decade, project

management was greatly concerned with velocity, and towards the end of the decade, facing an

economic recession, eyes are attracted to projects that can return the world economy to speed. In

Denmark there is an immediate need for projects in this category, as a means to achieve the objective

set by the prime minister to restore the country to its position between the ten richest countries in the

world by the year 2020. An objective proving hard to reach in light of the latest prognosis recently

published by the EU commission. The prognosis sends Denmark back to a 27th

place with an annual

growth rate (BNP) of only 1.6 % throughout the next decade. Technology advance projects help

speeding up economics and hence they are increasingly gaining attention. However these projects and

their organizations are generally surrounded by a highly dynamic and volatile business environment

to which they need to adapt in continuous struggle to survive and succeed.

Contents SYNOPSIS .................................................................................................................................................................................... 3

THE INNOVATING ORGANIZATION........................................................................................................................................... 4

ORGANIZATION DESIGN STRATEGIES ...................................................................................................................................... 4

SELECTION OF STRATEGIC CONFIGURATIONS .................................................................................................................... 5

STRUCTURAL AND ENVIRONMENTAL CO-REQUISITES ................................................................................................. 7

CONFIGURATION OF STRATEGY AND STRUCTURE ..................................................................................................... 10

LEADING THE INNOVATING ADHOCRACY ............................................................................................................................ 11

ANNEX A; THE MINTZBERG FRAMEWORK ........................................................................................................................... 16

THE ADHOCRACY CONFIGURATION (ORGANIC STRUCTURE) .................................................................................. 17

ANNEX B COOPING WITH TASK UNCERTAINTY ................................................................................................................... 18

LITERATURE LIST ................................................................................................................................................................. 20

Organizing For Innovation; Moatasem Chehaiber

page 3

Synopsis

Technology advance projects are viewed as vehicles for creating better business value for

their companies and stakeholders. Hence they bear significance to the strategic

positioning of companies. They are often used to create product platforms upon which

companies build product lines and variations of products for a long time. Technology

advance projects are also most often treated as foundations for startup companies that

usually have plans to survive, succeed and grow up.

Mainly due to increased uncertainty in market response to the products of such projects,

and uncertainty in the technology, technology advance project organizations face a

higher level of complexity in their business environments than established organizations

in terms of markets and technology. This added complexity presents a higher challenge

to the managers of these projects in their effort to make sense of an uncertain world and

build viable project organizations to carry out the work to develop and implement the

project idea in the business world.

Project management and organization theory text books; prescribe a number of different

organization types, ranging from organized anarchy and simple organizations to highly

bureaucratic ones. Theorists argue the suitability and effectiveness of the different

organizational configurations to specific business environmental situations.

This paper seeks to shed light on the management complexity of technology advance

projects from an organizational point of view. It focuses on innovating organizations that

develop products based on disruptive new technologies. The paper examines different

organizational configurations, for the purpose of finding an optimal organization which

fits to its business environment. It identifies factors of the business environment that

particularly influence the organizational variables of structure, culture, processes and

resources of such an organization. The paper selects an organizational configuration that

is considered optimal for the innovating organization as described. The paper also looks

into the management style and key competencies of the successful leader of such an

organization and emphasizes the significance of these.

Organizing for innovation

Page 4

The Innovating organization

Jay R. Galbraith, an internationally recognized expert on organization design, defines

innovation as the process of applying and developing a new idea to create a new product,

process or business. It is not simply having an idea. It is the work to develop and

implement that idea in the business world (Galbraith 1994). Galbraith finds that, there

are different degrees of “newness” and therefore different kinds of innovations, and he

states that different kinds of innovations will need different kinds of organizations. fig. 1

shows the different types of innovations as seen by Galbraith. The types of innovations at

the left side of the figure are radical innovations and require correspondingly “radical

innovating” organizations. Technology advance project organizations are per definition

innovating organizations, and the innovating organizations working with radical

innovations are defined as radical innovating ones in this paper.

fig. 1 TYPES OF INNOVATION -Galbraith (1994)

Organization Design strategies

A considerable amount of research in the subject of determining the best organizational

configuration, led to the contingency theory on the organization. The theory holds the

following suggestions:

1. There is no universal way or one best way to manage an organization

2. The design of an organization and its subsystems must fit with the environment.

3. Effective organizations not only have a proper fit with the environment, but also

between its subsystems

4. The needs of an organization are better satisfied when it is properly designed and

the management style is appropriate both to the tasks undertaken and the nature

of the working group.

The Contingency theory is guided by the general orienting hypothesis that organizations

whose internal features best match the demands of their environments, will achieve the

best adaptation (Scott p. 89). Lawrence and Lorsch in 1967 argued that the amount of


page 5

uncertainty and rate of change in an environment, impacts the development of internal

features in organizations.

Radical organizations tend to develop towards relatively stable rational ones in an

incremental and adaptive manner, the innovating organization needs on a rough scale, to

adapt to changing business environments, following the life cycle of its innovation from

radical childhood in disruptive new technology, to complete maturity in becoming a style,

through incremental phases of developing new business models, new products, next

generations, line extensions and product improvements. These are the different types of

innovations identified by Galbraith (1994) and depicted in fig. 1 as a continuum. On a

finer scale, a technology advance organization wants to adapt to business environmental

changes at each individual phase or level of radicalism and/or incremental level of

innovation. In other words, an innovating organization which sees its innovation as a

continuum, needs to adopt both long term and short term organizational adaptation

strategies, that lead to an optimal organization at all times. These strategies assume that

organizations are open systems that are affected by business environments and influence

them. The strategies therefore take into account the current and anticipated business

environment of the organization. The business environment includes micro environmental

factors which have direct impact on the organization strategy such as customers,

employees, suppliers, shareholders, media and competitors as indicated in fig. 2. The

adaptation strategies need naturally also to take into account, the macro environmental

factors that in turn, have impact on the organization’s micro environment and the

organization itself. These factors are socio-cultural, technological, economical, legal

and political as shown in fig. 2. These Macro environmental factors were identified by the

PESTEL framework as environmental influences on organizations.

Selection of strategic configurations

In a manner to achieve internal harmony among the elements of strategy, structure

and context of the organization, theorists have been trying to make science out of how

to design and configure an organization according to the environmental variables in fig. 2.

Henry Mintzberg is a situational theorist in the sense that he concentrates on how environmental

variables influence the configuration of an organization. He defines a number of six organizational

configurations depending on external and internal situational factors. In his research, Mintzberg finds

four main variables of significant impact on the organization form. The first variable is stability as

function of other variables such as change in customer preferences, swift technology development and

political interference. The second main variable is complexity, which is concerned with the

requirements put on the organizations expertise and technology. Referring to the PESTEL framework

and fig. 2, the complexity factor belongs to the macro environment layer. The third main variable is

Market Heterogeneity, with respect to customers, products and geographical regions. The fourth

main variable is Hostility, measured in presence of competition and other types of conflicts. Hostility

is a variable found in the industry/sector layer of the business environment as in fig. 2. Mintzberg

concludes for example that hostility creates uncertainty for organizations and puts requirements to the

“speed of response” design variable of an organization.


Page 6

fig. 2 Layers of the business environment

In table 1, a summary of Mintzbeg’s six standard configurations and the situational environmental

factors that justify them and their design parameters. Mintzberg combines his main variables to

characterize different types of business environments and recommends organizational to specific

environment types as shown in an example in fig. 3

Using Mintzbeg’s six standard configurations, and by assuming that there are only a rather limited

number of possible strategies and structures feasible in any type of environment, it then should be

straightforward to select an organizational configuration at a given moment of an organizations life

cycle that best fits the business environment of the organization at that moment. An analytical

approach is used where the business environment at the given moment can be determined by analysis

of Mintzberg’s four variables. When this is done the basic dimensions of the selected configuration can

be determined using table 1 which shows these dimensions for each of the six configurations. So by

finding the environmental and structural co-requisites of the innovating organization we would be

able to select one of Mintzberg’s organizational configurations as an optimal match. Tables

summarizing structures, environments and strategies of the different organizational configurations are

provided in Annex A. The annex also includes summary tables of matching strategy and structures for

five of the organizational configurations. These tables are used to aid selection of the optimal

configuration.

The Organization

Markets, Competitors, customers,

shareholders, employees, media, suppliers

Industry or sector

The Macro-environmet:

Socio-cultural, Technological, Economical, Political


page 7

Situational factors Design parameters

Configuration Environment Complexity

Hostility

internal Typical structure

Key processes

Typical relations

Simple Simple/dynamic Hostile

Small. Young.

Simple tasks

CEO control Direct supervision

Centralized

Machine bureaucracy

Simple/static Old. Large.

Regulated tasks.

Technocrat control.

Functional Planning systems

Centralized strategic planning

Professional bureaucracy

Complex/static Simple systems.

Professional control.

Functional Cultural processes.

Self control.

Devolved

Division

organization

Simple/static

Diversity

Old.

Very large. Divisible tasks.

Middle-line

control. Often young

Multidivisional Performance.

Targets. Markets.

Devolved.

Financial or strategic control

Adhocracy (innovative

organization)

Complex/Dynamic Complex tasks.

Expert control

Projects Cultural processes.

Self-control

Networks and alliances.

Devolved

table 1 Mintzberg’s six configurations

Structural and environmental co-requisites

Some of the important contingency theories of organizational structure involve the three

contingencies of the environment, organizational size and strategy to determine the

optimal organization. We could adapt and extend Mintzberg’s frame work to make it easy to relate

it to these three contingencies in order to determine the optimal organizational

configuration for a radical innovating organization. An adapted and extended frame work

is presented in Annex A. In the annex the professional Bureaucracy configuration is discarded as

it is usually not suitable for business firms.

Complex

Environment

Static Environment Dynamic Environment

Professional

bureaucracy

Adhocracy

Simple

Environment

Machine bureaucracy Simple

fig. 3 Organizational configurations and environments by Mintzberg (Example)


Page 8

table 2 Basic dimensions of mintzberg's six configurations

Simple

Structure

Machine

Bureaucracy

Professional

Bureaucracy

Divisionalize

Form

Adhocracy Missionary

Key

Coordinating

Mechanism

Direct

Supervision

Standardization

of work

Standardization of

skills

Standardization

of outputs

Mutual

adjustment

Standardizatio

n of norms

Key part of

organization

Strategic Apex Techno structure Operating Core Middle Line Support Staff Ideology

Design Parameters

Specialization

of jobs

Little

specialization

Much Horizontal

and vertical specialization

Much Horizontal

specialization

Some horizontal

and Vertical Specialization

(between

divisions and

HQ)

Much

Horizontal specialization

Little

specialization

Training Little Little Much Little much Little

Indoctrination Little Little Much Some of

divisional

managers

Some much

Formalization

of behavior

Little Much

formalization

formalization Formalization

Little

Formalization

Little formal

Bureaucratic

/Organic

Organic Bureaucratic Bureaucratic Bureaucratic

(within

divisions)

Organic Bureaucratic

Grouping Usually

functional

Usually

functional

Functional and

Market

Market Functional and

Market

Market

Unit Size wide Wide at bottom

Narrow

elsewhere

Wide at bottom

Narrow elsewhere

Wide at top Narrow

Throughout

Wide in

enclaves of

limited size

Planning and

control

systems

Little planning

and control

Action planning Little planning and

control

Much perf.

control

Limited action

planning

Little Planning

and Control

Strategy contingency

Galbraith states that organizations have always been created in order to execute

business strategies. Different strategies, he says, have lead to different organizations. He

stated a model for linking different strategies to different organizations. This model is

known as the starr model and is shown in fig. 4. The figure depicts an organization as

consisting of four dimensions that must be consistent with the strategy. The first of these

dimensions is the Structural dimension which determines the location of the decision-

making power. The strategy contingency affects the divisional structure; undiversified

strategy is best served by a functional structure, because all activities are focused on a

single product. In contrast, divisional structure fits diversified strategies. The second

dimension is the Information and decision making process which in turn is formed

following the organization structure, whether functional or divisional. The third dimension

is the reward system that influences the motivation of people to perform and address

organizational goals. Reward systems in innovating organizations gain an added

significance. Innovation is viewed as requiring extra effort and extra risk and therefore

merits extra rewards. The last but not least of the four dimensions is the people dimension

which focuses on the human resources policies. These influence the employees’ mindsets

and skill sets. A product centric organization for example, requires different competencies

in people than a solution-centric organization.


page 9

fig. 4 The Starr model (Galbraith 1995)

Competitive strategy

Analyzing the competitive strategy of Innovating organizations we find that they adopt a

focus strategy. Focus has been used by Porter (1980) to designate a niche strategy

that concentrates the firm’s attention on a specific type of customer, product or

geographic location. They use a differentiation strategy and build their competitive

advantage on innovating differentiators. They differentiate by coming out with new

products and new technologies. In innovating organizations there is a strong emphasis

on R&D and pioneering. Therefore a Cost leadership strategy is not relevant, because

innovative organizations lead their competitors in innovation and can charge fairly high

prices. Innovating organizations adopt asset parsimony strategy because they want to

keep the organization flexible.

Environment stability

The environmental stability contingency affects mechanistic structure. The rate of

technological and market change affects whether its structure is mechanistic (i.e.

hierarchal) or organic (i.e. participatory). Refer to Burns and Stalker (1966) for

differences between organic and mechanistic organization structures. The mechanistic

structure fits a stable environment. The organic structure fits an unstable environment

because the participatory approach is required for innovation. An organic organization

appears to be more suitable for radical innovating organizations such as technology

advance organizations, as knowledge and information required for innovation are

distributed among lower hierarchical levels and so decentralized decision making fosters

innovation. Besides, the organic structures also accord better with humanistic values.

The organic theory sees the trend as being for task uncertainty to increase, because of

increase in scientific knowledge and innovation rates. The organic theory foresees

decreasing specialization and formalization which is needed for radical innovating

organizations when new knowledge have to be acquired and new methods have to be

developed. Increasing task uncertainty renders the innovating organizations’ business

environment highly dynamic. A main contributor to the volatility of the business


Page 10

environment is the uncertainty about market acceptance and degree of penetration of

innovative products. However, of particular interest in studying macro environmental

factors that affect a technology advance project organization from an environmental

stability point of view is the technology. Joan Woodward (1958), argued that

technologies directly determine differences in organizational attributes such as span of

control, centralization of authority and the formalization of rules and authority. These

attributes constitute an essential part of the organization design strategy as suggested

by Galbraith. See annex B for more on this. Innovating organizations depend greatly on

new ideas and disruptive new technologies in innovation. Such organizations are

designed to do some activity for the first time. They are designed to test a new product

idea with a customer or a proof of principle for a new technology. Technological decisions

have to be made on the basis of incomplete market and technical information. Hence the

innovating organization is structured to cope with a high level of task uncertainty. The

organization allows for variations in the organizational forms and variations in the

strategy in order to either increase ability to preplan, increase flexibility to adapt to

inability to preplan, decrease the level of performance required for continued viability or

increase information processing capabilities of the organization. Annex B illustrates

organization design strategies proposed by Galbraith for the purpose of mitigating task

uncertainty.

Size contingency

The size contingency affects the degree to which its structure is bureaucratic. The

bureaucratic structure fits a large organization, while an un-bureaucratic structure fits

small organizations. The size contingency directly affects the resources variable of the

organization. Human Resources, in small organic organizations have to be highly

qualified, as the central issue is high experience and knowledge of subject matter. Again

as organizations grow in size they increase specialization-formailization, structural

differentiation and decentralization and a more bureaucratic organization will fit. The size

contingency also affects the organizations culture variable as well as processes variable.

The culture in small organizations is based on democratic and non-bureaucratic work as

well as effectiveness and participation.

Configuration of strategy and structure

In innovative organizations, knowledge and information required for innovation are

distributed among lower hierarchical levels, and so decentralized decision making fosters

innovation. Scientists and technocrats are allowed to make vital decisions and they are

usually highly qualified and motivated to a degree where they can work autonomously

and adjust mutually. Authority is thus situational and based on expertise (Burns and

Stalker, 1961). There are few bureaucratic rules or standard procedures since they are

too confining and would rapidly become obsolete. Sensitive information gathering

systems are developed for analyzing the environment, and vertical and horizontal

communication are open and frequent. Effective innovating project organizations are

small in terms of number of employees. These organizations build their competitive

advantage strategies on focus, asset parsimony, innovating differentiators and non-cost


page 11

leadership. Moreover, innovating organizations live in a highly complex, dynamic and

volatile business environment mainly because of increase in scientific knowledge and

innovation rates as well as market and technology uncertainty. Production technology

varies in both degree of automation and complexity. The main barrier to entry for these

organizations is knowledge; As a result, competitive rivalry is less sensitive for these

organizations. The business environment can therefore be defined as complex, uncertain

and moderately competitive.

As a result of the preceding analysis, an organic organization appears to be more suitable

for radical innovating organizations such as technology advance project organizations.

Taking all of these characteristics into consideration, and studying matches and conflicts

between these characteristics and the characteristics of the different Mintzberg’s

organizational configurations as illustrated in Annex A, we tend to conclude that the

Adhocracy configuration provides the best structural match to the strategies of the

innovative organization.

Leading The Innovating Adhocracy

It was previously concluded that the optimal organizational match for the innovating

organization is the adhocracy. Taking the main traits of the adhocracy organization and

culture into consideration, a leader of such an organization has the challenge to manage

in the situation where there is a little formalization of behavior, Job specialization is

based on formal training, there is a reliance on liaison devices to encourage mutual

adjustment, there is Low standardization of procedures, because they stifle innovation. It

is a situation, where Roles are not clearly defined and power-shifts to specialized teams,

where culture is based on democratic and non-bureaucratic work. It is a situation where

ultimately all members of the organization have the authority to make decisions and to

take actions affecting the future of the organization, and there is an absence of

hierarchy. Mangers in these organizations are functional members of project teams with

special responsibility to effect coordination between them. To the extent that direct

supervision and formal authority diminish in importance. Obviously, leading such an

organization is not as easy as leading in a bureaucracy where hierarchies, roles, process

and -not the least- authorities are well defined. However, In short terms, managing an

innovating adhocracy, requires flexibility and discretion in management style, as much

as it requires external focus and differentiation in business strategy as suggested

by Quinn (1999). Managing adhocracy is in fact managing innovation, and continuous

improvement. It is about managing the future.

In Quinn’s competing value frame work (1999) diagram shown in fig. 5, each quadrant

represents basic assumptions, orientations, and values. These are the same elements

that comprise an organizational culture. The leadership type, effectiveness criteria and

management theory underpinning each of these cultural types provide an understanding

of the organizational behavior expected in each cultural type.

The leadership type in the clan culture is one of a facilitator, mentor or parent role.

Managers assess their effectiveness in terms of staff cohesion, the level of morale and


Page 12

the focus is on the development of people in the organization. The managerial

assumptions are that participation and involvement fosters commitment.

In the hierarchy culture the leadership type is coordinator, monitor and organizer.

Effectiveness criteria are efficiency, timeliness and smooth functioning of the

organization. The managerial assumptions are that control fosters efficiency in the

organization.

fig. 5 The competing values Framework (Cameron and Quinn 1999, p. 32)

In the market culture the leadership type is that of the hard-driving, competitive and

productive manager. They judge their effectiveness on market share, goal achievement

and beating their competitors. The managerial assumptions they hold are that

competition fosters productivity. (Cameron & Quinn 1999, p. 41)

Leadership type in the adhocracy culture is that of the innovator, entrepreneur and the

visionary. Managers in this culture base their effectiveness on the organization’s cutting-

edge output. It is about new products, creative solutions, cutting-edge ideas and growth

in new markets. They value adaptability, innovation, responsiveness to external threats

and opportunities. They value resource acquisition and external support. The managerial

assumptions are based on the belief that innovativeness fosters new resources. So

besides mastering situational leadership, Leaders of innovating adhocracies need

visionary leadership characteristics to be able to motivate and inspire people. In his book


page 13

primal leadership (2002), Daniel Goleman prescribes situations where different

leadership styles can be efficient as summarized in table 3. He however, states that

Effective leaders create resonance, “they are attuned to other people’s feelings and move

them in a positive emotional direction”, he says.

Daniel Goleman introduces six leadership styles as stated in table 3. In the table,

Goleman finds the visionary leadership style as having the most positive impact on

business climate. A visionary leader is not just a manager; he or she is a

transformational leader who does the right thing in contrast with a transactional leader

who does things right as illustrated in fig. 6. The visionary leader is future oriented in

thinking, focuses on where the organization is going and emphasizes possibilities and

probabilities. Strategic direction and continuous improvement of current activities is the

hallmark of the visionary leadership style.

fig. 6 Managers and Leaders

A visionary leader affects the group performance by his psychological orientation and

positive attitude. Fred Fielder one of the leading theorists in industrial and organizational

psychology, who helped his field move from the research of traits and personal characteristics of

leaders to leadership styles and behaviors. He asserts that group performance is contingent on

the leader’s psychological orientation and on three contextual variables: Group

atmosphere, task structure, and leaders power position. The theory explains that

group performance is a result of interaction of 2 factors. These factors are known as

•Transactional Leadership•Administer

•Maintain

•Focus on system and controls

•Ask how and when

•Keep an eye on the bottom line

Managers:

Do things right

•Transformational Leadership

•Innovate

•Develop

•Focus on people

•Inspire

•Create trust

•Ask why and what

•Long term view and eye on horizon

Leaders:

Do right things


Page 14

leadership style and situational favorableness. A recent study conducted at the Capella

university in Minneapolis in the united states, concludes that transformational leadership

is significantly and positively related with subordinates’ self-reported perception of their

leaders’ effectiveness. The study confirms that transformational leadership traits

increased subordinates’ job satisfaction with their leader, more than both transactional

and laissez-fare leadership traits in the project management environment. The study also

concludes that, Subordinates’ Willingness to exert extra effort is significantly and

positively correlated with transformational leadership and transactional (active) traits,

while negatively and significantly associated with transactive (passive) and laissez-faire.

table 3The six leadership style From Daniel Goleman, Richard Boyatziz, Annie McKee; Promal leadership (2002)

In order to improve the leadership effectiveness, Fiedler suggests the leader may

increase or decrease task structure and position power. He or she may also enhance

leader-member relations through training and group development. fig. 7, exhibits a set of

managerial skills that can be gained by education to provide success factors that can help

a leader improving her or his leadership effectiveness.

Visionary leadership

Coaching style

Affiliative Leadership

Democratic Leadership

Pacesetting Leadership

Commanding Leadership

Leader

Characteristics

Inspires.

Believes in

own vision.

Empathic.

Explains how

and why

peoples

efforts

contribute to

the “dream”

Listens. Helps

people

identifying

their own

strengths and

weaknesses.

Counselor.

Encourages.

Delegates

Promotes

harmony.

Friendly.

Empathic.

Boosts moral.

Solves

conflicts

Superb

listener, team

worker,

Collaborator,

influencer

Strong urge to

achieve. High

own standards,

initiative, low

on empathy

and

collaboration.,

Impatience,

numbers driven

Commanding

Threatening

Tight control

Create

dissonance,

contaminates

everyones

mood

Drives away

talent

How Style

Builds

Resonance

Moves people

towards

shared

dreams

Connects

what a

person wants

with the

organization’s

goals

Create

harmony by

connecting

people to

each other

Appreciate

peoples input

and gets

commitment

through

participation

Realizes

challenges and

exciting goals

Decreases fear

by giving clear

direction in an

emergency

Impact of style

on (business)

climate

+++ ++ + + Often --

when used too

exclusively or

poorly

Often - -

When style is

appropriate

When

changes

require a new

vision or

when a clear

direction is

needed.

Radical

change

To help

competent,

motivated

employees to

improve

performance

by building

long term

capabilities

To heal rifts in

a team and

motivate

during

stressful times

or to

strengthen

connections

To build

support or

consensus or

to get valuable

input from

employees

To get high

quality results

from motivated

and competent

team. Sales

In a grave crisis

or with problem

employees. To

start an urgent

organizational

turnaround.

Traditional

military


page 15

fig. 7 Managerial Education success factors

Leadership

Project planning

Customerrelations

Performance measurement

Communicating

Organizationaleffectiveness

Team buildingStaff

development

Perspective

Negotiating

Riskmanagement

Problem solving

Decision making


Page 16

Annex A; The Mintzberg framework

Simple Structure

Machine Bureaucracy

Adhocracy (organic)

Divisionalized

Power Centralization Top

management

CEO and designers

of workflow

Scientists,

technocrats and

middle managers

Divisional executives

Bureaucratization Low-informal Many formal rules,

policies and

procedures

organic Bureaucratic

Specialization Low Extensive Extensive Extensive

Differentiation Minimal Moderate Very High High

Integration and co-

ordination of effort

By CEO via

direct

supervision

By technocrats via

formal procedures

By integrating

personnel, task

forces via mutual adjustment

By formal committees via plan

and budgets

Information systems Crude, informal Cost controls and

budgets

Informal scanning,

open

communications

Management information

systems and profit centers

Environmental Dimensions

Technology Simple, custom Mass production,

large batch/Line

Sophisticated

product,

Automated or custom

Varies

Competition Extreme High Moderate Varies

Dynamism/

Uncertainty

Moderate Very low Very High Varies

Growth Varies Slow Rapid Varies

Concentration ratio Very Low High Varies Varies

Barriers to Entry None Scales barriers

Business level

strategies

Knowledge

Barriers

Varies

Corporate-level strategy

Favored strategy Niche

differentiation

Cost leadership Innovative

differentiation

Conglomeration

Marketing emphasis Quality

services,

convenience

Low price New products

High quality

image

Production emphasis Economy Efficiency Flexibility Vertical integration

Asset management Parsimony Intensity Parsimony Varies

Innovation and R&D Little Almost none Very High Low to moderate

Product-market scope Very narrow Average Average Very Broad

Table A. 1 Structures, environments and strategies


page 17

Rationale Match/ Conflict

Strategy

Can offer quality, convenience , and better service M Marketing differentiation

Avoids some competition in hostile environments; reduces liability of being small

M Niche differentiation

Complex Innovation impossible in centralized monolithic structure

C Innovative differentiation

Insufficient scale; Overly primitive structure C Conglomeration

Insufficient scale C Cost leadership Table A. 2 Matching strategy and structure in the Simple configuration


Strategy

Substantial scale economies possible; emphasis on efficiency good in stable setting

M Cost leadership

Suitable only if differentiation does not upset production regularity and efficiency (e.g. advertising, good services)

M Marketing differentiation

Structure too inflexible C Innovative differentiation

Functional- departmental structure inappropriate C Conglomeration Inflexibility, capital intensity C Niche differentiation Table A. 3 Matching strategy and structure in the Machine Bureaucracy configuration


Strategy

Flexible, innovative structure M Innovative differentiation

May be suitable if niche wide enough to make use of innovation potential; need for caution

M Niche differentiation

Should not squander resources on selling since state-of-the art is already highly desirable to customers

C Marketing differentiation

Structure is too inefficient C Cost leadership Would spread innovative efforts too thinly; also structure is not divisionalized

C Conglomeration

Table A. 4 Matching strategy and structure in the Adhocracy (organic) configuration


Strategy

Divisions, profit centers, formal plans; head office control etc. suitable for diversification

M Cost leadership

Consistent with bureaucratic tendency; scale economies and vertical integration if divisions use related inputs

M Cost leadership

Where cost leadership contraindicated marketing differentiation may be suitable for intermediate level of bureaucracy

M Marketing differentiation

Generally, divisions are forced by head office to be too bureaucratic to be innovative

C Innovative differentiation

Table A. 5 Matching strategy and structure in the Divisionalized structure configuration

The Adhocracy configuration (Organic structure)

Adhocracy provides a good fit to radical innovating organizations. It has a highly organic structure,

with little formalization of behavior. Job specialization in adhocracy is based on formal training. There

is a tendency to group the specialists in functional units for housekeeping purposes but to deploy

them in small, market based project teams to do their work.


Page 18

There is a reliance on liaison devices to encourage mutual adjustment. This is the key coordinating

mechanism between these teams. To innovate, we must break away from established patterns.

Therefore the innovative organization cannot rely on any form of standardization for coordination.

Of all the configurations, the adhocracy shows the least respect for classical principles of management,

especially unity of command. The adhocracy must hire experts and give them power. The adhocracy

treats existing knowledge and skills merely as bases on which to build new ones, which can be hardly

needed when dealing with disruptive new technologies. In adhocracies the different specialists must

join their forces in multi-disciplinary teams, each formed around a specific project of innovation which

is the main trait of radical innovating organizations. Project teams must be small to encourage mutual

adjustment among their members. Mangers are functional members of project teams with special

responsibility to effect coordination between them. To the extent that direct supervision and formal

authority diminish in importance.

The adhocracy can take two forms, the operating and the administrative adhocracy. The operating

adhocracy serves its clients and solves problems on their behalf in project teams, while the

administrative adhocracy undertakes projects to serve itself. Te operating adhocracy is suitable for

consultancy firms and outsourcing partners. While the administrative adhocracy is suitable for

organizations that want to develop their own products.

Annex B Cooping with Task uncertainty

Of particular interest in studying macro environmental factors that affect a technology

advance project organization from an environmental stability point of view is the

technology. The behavioral contingency theory associated formal organization structures

with the best fit to technology. This was originally started by Joan Woodward (1958),

who argued that technologies directly determine differences in organizational attributes

such as span of control, centralization of authority and the formalization of rules and

authority. Referring to Fig. B. 1, these attributes constitute an essential part of the

organization design strategy as suggested by JAY R. GALBRAITH. Innovating

organizations depend greatly on new ideas and disruptive new technologies in innovation.

Such organizations are designed to do some activity for the first time. They are designed

to test a new product idea with a customer or a proof of principle for a new technology.

Technological decisions have to be made on the basis of incomplete market and technical

information. Hence the innovating organization is designed for trial and error in a manner

to cope with a high level of task uncertainty. The organization allows for variations in the

organizational forms and variations in the strategy in order to either increase ability to

preplan, increase flexibility to adapt to inability to preplan, Decrease the level of

performance required for continued viability or increase information processing

capabilities of the organization.


page 19

Fig. B. 1 Organization design Strategies

Fig. B. 1 shows organization design strategies proposed by Galbraith for the purpose of

mitigating task uncertainty. The three strategies to the left of the figure are adopted to

reduce the need for information processing while the remaining two strategies are

adopted to increase the organization’s capacity to process information. A short

description of some of these strategies is presented here.

Creation of slack resources

In this strategy, planning targets are increased so that fewer exceptions occur. For example,

completion dates can be extended until the number of exceptions that occur are within the

information processing capacity of the organization. The strategy clearly has it costs in the form of

relaxing budget targets and increasing time to market and thus reducing competitive advantage.

Creation of self-contained Tasks

This strategy aims at changing the subtask groupings from resource (input) based to output based

categories (product groups) and give each group the resources it needs to supply the output.

(Galbraith 1974). The cost of the self-contained task strategy is the loss of resource specialization.

Investment in vertical information systems

This strategy is about finding mechanisms of formalized data vertically through the organization. It is

usually operationalized by creating redundant communication channels which transmit data from the

originating point upwards in the hierarchy to the decision makers.

Creating Lateral Relationships

This strategy is about moving the level of decision down in the organization to where the information

exist.


Page 20

Literature list

1. Gerry Johnson; Kevin Scholes; Richard Whittington; Exploring Corporate strategy 7th edition;

prentice Hall

2. Olaf Passenheim; Project Management; BOOK BOON..

3. 2008 NEIL RITSON . & Ventus Publishing ApS; Strategic Management;

2008 Benson V., Tribe K. & Ventus Publishi

4. JAY R. GalBRAITH; ORGANIZATION DESIGN: AN INFORMATION PROCESSING

View; INETERFASE; Vol. 4, No.3, May 1974.

5. Daniel Goleman et al.; Primal leadership; Realizing the power of emotional

intelligence.

Documents

Organizaing for innovation