Organizational Theory Final Exam, March 2013 International Business and Politics

3/13/2013 STU Count: 22631

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Contents Introduction........................................................................................................................................ 2

Analyzing the external environment ..................................................................................................... 3

The processes behind organizational change and the influences of knowledge management ..................... 5

Communities of practice, or a strategic modernist tool in disguise? ........................................................ 8

Conclusion ......................................................................................................................................... 9

Bibliography ......................................................................................................................................11

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Introduction

After many highly successful decades, the American technology and consulting corporation, IBM,

went from being the second-most profitable company in the world in 1990, to experiencing

substantial losses in the first quarter of 1991.   The   new   market   for   PC’s   and   client/server   solutions  

completely revolutionized core aspects of the technology industry, and IBM, finding themselves

unable to fully cope with the changes, experienced a crisis in the early 90s. The issue, however, was

not that IBM was technically inferior to their competitors. Instead, their difficulties were due to the

fact that they faced vast organizational inefficiencies, which in turn made them unable to properly

react to market and customer demands, while making their operations very costly.

Recognizing the need for organizational change, Louis V. Gerstner Jr. was brought in in 1993 as the

first   external   CEO   in   the   company’s   history. What followed was a significant transformation of the

organizational structure, which coincided with a gradual implementation of a number of knowledge

management initiatives.   In   spite   of   initial   doubts   from   employees   and   managers,   Gerstner’s   ideas  

and implementations eventually led to IBM’s recovery from its crisis, which opens up to the main

research question of this paper: How can the implementation of knowledge management initiatives

from 1994 and onwards help to explain IBM’s recovery from its crisis in the early 90s?

In order to understand how IBM recovered from its crisis, this paper argues that it is necessary to

first understand why   IBM’s   organizational   form became incompatible with its external

environment. This is due to the idea that the purpose of implementing knowledge management

initiatives was to counteract the conflicting aspects between IBM’s   organizational   form and its

surroundings. By first using the modernist theory of environmental contingency by Burns and

Stalker, along with Lawrence and Lorch’s   discussions   on   the   concepts   of   requisite   variety   and

isomorphism, the paper will present an explanation as to why   IBM’s   organizational form

progressively became incompatible with its external environment. Second, the paper will use

Lewin’s   normative   model   of   planned   organizational   change,   and   examine   how this incompatibility

created pressures toward an organizational transformation, in which the adoption of knowledge

management   initiatives   created   balance   between   IBM’s   organizational   form   and   its   external  

environment. Last, the paper will take a symbolic   approach   in   form   of  Wenger   and   Lave’s   concept  

of communities of practice, in order to present an alternative analysis of and, using multiple

perspectives, to discuss IBM’s   use   of   knowledge   management initiatives as strategic modernist

tools.

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Analyzing the external environment

The main idea behind contingency theories is to maximize performance. This is done by first

identifying key contingencies in particular situations, and then organizing your organization

accordingly1. In the case of environmental contingency theory, developed by Burns and Stalker, the

key contingency is environmental uncertainty2. In other words, the way one should choose to

structure an organization depends on the amount of uncertainty in the external environment, which

is a result of both the number of diversity of elements (complexity), and the rate at which the

environment and its elements are changing (rate of change). In actuality, everyone does not perceive

the environment in the same way due to perceptual uncertainty. Consequently, a manager’s

perception of environment uncertainty determines whether he or she should strive towards an

organic form of organization (in case of high uncertainty), or mechanic form of organization (in

case of low uncertainty). This theory is complemented by the concepts of requisite variety and

isomorphism, as discussed by Lawrence and Lorch. The law of requisite variety states that for one

system to deal effectively with another, it must be at least of the same complexity. This leads to the

logical conclusion of isomorphism, stating that simple and complex environments respectively

favor simple and complex organizations3.

In the case of IBM, the level of environmental uncertainty had not remained constant during the 20th

century. Their groundbreaking innovations within the field of mainframe computers during the 60s,

along with other inventions such as the floppy disk during the 70s, had firmly established them as a

dominant player on the market4. Given that they had been behind the major revolutions of the

industry, there had not been too much of a requirement of adapting to changes caused by external

forces. Furthermore,   given   that   IBM’s   core   business   was   within   the   field   of   mainframe   computers,   a  

sizeable part of their revenue was generated from long-term contracts with businesses, thus making

them less volatile toward changes in demand. However, during the 80s and early 90s, the industry

went through a rapid transformation with the PC- and client/server revolution, as well as movement

away from integrated solutions, and towards piece-part technology5.

1 Hatch and Cunliffe, 2013, p. 32

2 Hatch and Cunliffe, 2013, p. 68

3 Hatch and Cunliffe, 2013, p. 69

4 IBM company website

5 IBM company website

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In terms of Burns and Stalker, IBM had perceived a relatively low degree of environmental

uncertainty during the 60s and 70s6. But given the first gradual and eventually rapid increase in

perception of both rate of change and complexity, IBM found it necessary to make the

organizational form more adaptive to its increasingly unstable environment, and thereby approach a

more organic and differentiated form. Similarly, this tendency can be examined by applying the

concepts of requisite variety and isomorphism: IBM was forced to gradually move towards a more

complex form of organization, in order to deal with the increasing complexity of the external

environment. As discussed by Lawrence and Lorch, organizations may face conditions and

elements in the environment, adding pressure towards differentiation inside the organization7.

Because the new era of the IT industry was characterized by a move towards piece-part technology,

IBM decided to decentralize into specialized business units, in an attempt to tackle the increasing

complexity of the environment through a complex organizational structure. As predicted by the

theoretical discussion of Lawrence and Lorch, this led to a high degree of structural complexity, and

thereby inefficiencies   due   to   lack   of   integration   and   coordination:   “The company had 125 separate

data centers worldwide and 128 CIOs. There were 31 private and separate networks and literally

hundreds of different configurations of PC installations. Data processing costs were a dramatic

three times the industry average”8. While IBM was not technologically inferior to its competitors,

they were hurt by deep levels of hierarchy, a focus on teaming rather than collaboration, heavy

reliance on corporate staff, and knowledge management inefficiencies9,10. Correspondingly, while

their   competitors   were   capturing   the   benefits   of   the   PC   revolution,   IBM’s inefficiencies led to

massive fixed costs, combined with an inability to properly satisfy customer demands, which

presented itself in form of an annual net loss of $8 billion in 199311.

As Lawrence and Lorsch would have predicted, the increase in environmental complexity had led to

an increase in structural complexity, which coincided with an increasing pressure to integrate across

the differentiated tasks. Even though the integration had not yet occurred, the annual losses of the

corporation had continually added more and more pressure on its happening. In order to explain the

6 This paper is not arguing that IBM faced a low degree of uncertainty during the 60s and 70s, but merely that the

environment became even more uncertain during the 80s and early 90s. 7 Hatch and Cunliffe, 2013, p.69

8 Applegate, Austin and Collins, 2009, p. 4

9 Powers, 2006, p 1

10 Applegate, Austin and Collins, 2009, p. 4

11 IBM company website

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integration process, this study will now present Lewin’s   normative   model   of   planned organizational

change.

The processes behind organizational change and the influences of knowledge management

The normative model of planned organizational change presented by Lewin is an equilibrium

model, which assumes that stability within an organization is merely a stalemate maintained by

oppressing forces for and against change12. In order for change to occur within an organization,

unbalance of the equilibrium has to be created through some kind of destabilization. If either the

forces encouraging change become stronger, or if the forces resisting change are weakened, the

organization will destabilize to the point where change can occur. This is known as unfreezing the

organization, which then allows for movement towards a new state of balance. Once a new

equilibrium has been found between the forces for and against change, the organization will

refreeze with its new behavioral patterns institutionalized.

As examined in the previous section, IBM was facing an increasing complexity with regard to their

external environment and customers, and the corporation had consequently been divided into

specialized units. Due to a lack of integration and collaboration, this development eventually

resulted in annual losses, causing IBM to bring in Gerstner as an external CEO in 1993. Using the

terms   of   Lewin’s   normative   model,   the   increasing   pressure   to   integrate   across   the   differentiated  

tasks of the organization had created a disequilibrium between the forces for and against change,

with the force for chance prevailing. As Gerstner said it himself during a talk at Harvard Business

School:  “Transformation  of  an  enterprise  begins  with  a  sense  of  crisis  or  urgency[…]No  institution  

will go through fundamental change unless it believes it is in deep trouble and needs to do

something different to survive”13 In conclusion, IBM was operating in an unfrozen stage, and the

decision to bring in Gerstner as CEO was thus a decisive move by the shareholders, in an attempt to

determine which direction of change the destabilized system should move in.

Before analyzing which initiatives Gerstner implemented during the next stage of the model, the

paper   will   briefly   explain   the   rationale   underlying   Gerstner’s   decisions.   Although the development

of increasing complexity for IBM was fueled by specific industry developments, the increase in

complexity is something we generally expect to face globalized corporations in the globalized

world. Likewise, the pressure towards a higher degree of integration across the differentiated tasks

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Hatch and Cunliffe 2013, p. 290 13

Lagace, 2002

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is   in   no   way   unique   for   IBM.   There   has   been   and   still   is   a   gradual   shift   away   from   “old-fashioned”  

resources such as materials, capital and labor, and a much higher emphasis on knowledge resources

within the firm14. Given its relative importance, corporations somehow need to manage their

knowledge, in order to stay competitive in the globalized world. In 1990, IBM had almost 375.000

employees working in different teams and on different projects15, and yet there was no efficient way

for them to reuse the knowledge created. Instead of benefiting from the vast amount of knowledge

existing within various part of the corporation through collective teamwork, autonomous divisions

found themselves engaging in turf battles, and seeking solutions consisting of compromise rather

than collaboration16. These inefficiencies emphasize the lack of proper knowledge management

within IBM during the 90s, and it is these exact inefficiencies that Gerstner sought to eradicate as

CEO of the company.

Blackwell defines knowledge management as “[…]the   systematic,   explicit,   and   deliberate   process  

of creating, identifying, and organizing important information and expertise within the

organization, disseminating and applying it to wherever it is needed to enhance organizational

effectiveness   and   achieve   organizational   objectives”17, which serves as a great way of explaining

what Gerstner sought to accomplish within IBM. As previously mentioned, IBM did not suffer from

technical inferiority to their competitors, but simply failed to collaboratively reuse the massive

amounts of knowledge already existing within the corporation. Thus the challenge was to identify

and organize information and expertise, and then to make it available to other parts of the

organization. By doing this, Gerstner would be enhancing organizational effectiveness and

achieving organizational objectives, that is, he would bring down costs, and reestablish customer

satisfaction. In spite of being directed towards another company, the popularized quote “If   only   HP  

knew   what   HP   knows,   we’d   be   three   times   as   effective”   by Leo Platt, former CEO of HP, is quite

fitting   for   IBM’s   situation   during   the  early   90s.

Having explained the general tendencies within organizational management for globalized

corporations, as well as the benefits of implementing knowledge management initiatives, this paper

will   now   return   to   Lewin’s   model.   As   newly   chosen   CEO   of   the   recently unfrozen corporation of

IBM, Gerstner was able to heavily influence the direction of organizational change. The

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14

Tatiana, Athanassiou and Berdrow, 2004 15

IBM company website 16

Applegate, Austin and Collins, 2009, p. 4 17

Tatiana, Athanassiou and Berdrow, 2004

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organizational structure underwent significant reorganization, with the intention of driving common

processes across all the businesses, and bringing IBM together as a single collaborative

organization. To name a few examples, divisions were split up and divided into large groups, the

previously regional sales organization was organized in global sales teams, and a Corporate

Executive Community, consisting of a dozen senior managers, were to meet every other week to

discuss strategy.18 This approach is closely related to theory regarding knowledge management in

global organizations: “Coordination, control and communication under conditions of dynamic

complexity cannot be structured and formalized, but instead have to be guided in a more much fluid

and evolving way”19. The goal was to break down the individualistic and competitive organizational

silos, and instead foster an environment and culture that enabled innovation and team work. These

initiatives, along with many others, were implemented as an attempt to move away from traditional

mechanisms,   and   instead   encourage   both   employees   and   managers   to   draw   on   each   other’s  

expertise. In order for these initiatives to take effect, an appropriate mindset, culture, and

organizational environment was required20. Likewise, in   terms   of   Lewin’s   normative model, in

order to have an organization refreeze, the new behavioral patterns need to be institutionalized21.

In order to support this institutionalization, IBM implemented a number of asset management

solutions,   such   as   KnowledgeView   directed   at   IBM’s   Business   Consulting   Services,   which  

contained intellectual capital, key resources, and discussion forums22. During the 90s and 00s, IBM

generally introduced a variety of different portals, which all more or less had the same purpose: To

set the stage for improving knowledge sharing and thereby productivity, collaboration and

employee skills. By providing an integrated framework which is linking people, processes, and

knowledge, corporations can successfully simplify the managerial complexity of their organization,

and thus increase operational productivity, while making sure that information is transferred in a

timely manner.23 Not only has the measurable economic effects of these tools been tremendous, but

after some initial reluctance or suspicion, the technological advancements have made (at least some)

employees   more   comfortable   with   the   knowledge   management   in   general:   “When you have these

virtual   tools   and   capabilities,   they’ve  helped  make   IBM   feel  smaller[…]It’s  a  place  that  feels  like  

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Applegate, Austin and Collins, 2009 p. 5-8 19

Tatiana, Athanassiou and Berdrow, 2004 20

Tatiana, Athanassiou and Berdrow, 2004 21

Hatch and Cunliffe 2013, 291 22

Powers, 2006, p. 1 23

Awad and Ghaziri, 2004, p. 356

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you’re   dealing   with   colleagues  on  a  more  personal   level”24. Naturally, in terms of Lewin, it is hard

to determine exactly when the behavioral patterns are fully institutionalized, and one might even

consider if corporations such as IBM ever truly stabilize, as a result of the high rate of change in the

global environment25. Nonetheless, by using   Lewin’s   model,   this employee reaction can be

interpreted as an institutionalization of new behavioral patterns, which shows how the

implementation of technological knowledge management initiatives may be able to push the

mindset and culture of the employees in the direction envisioned by management.

From this section, the paper concludes that knowledge management initiatives played a significant

role   in   IBM’s   recovery   from   the   crisis,   by   counteracting the   conflicting   aspects   between   IBM’s  

organizational form and its external environment. Likewise, it shows that the implementation of

technological knowledge management initiatives may have been able to impact the culture of the

employees, in a direction chosen by management. However, not   all   scholars   would   agree   on   IBM’s  

management decision in trying to shape the corporate culture to their advantage. In the following

section, the paper will analyze how the symbolic concept of communities of practice can be used to

interpret and discuss IBM’s  knowledge management initiatives as strategic modernist tools.

Communities of practice, or a strategic modernist tool in disguise?

Wenger   and   Lave’s   symbolic   concept   of   a   community   of   practice   is   defined   as:   “[…]a   group   of  

people, informally bound together by common interests in learning and the development of

knowledge,   who   share   repertoires[…]These   self-designing and self-managing communities form

when a group of people collectively develop ideas, knowledge, and practices as they learn

together.”26 There are striking similarities between this definition and the organizational culture

which Gerstner tried to establish through knowledge management initiatives. One of his eight

operating principles was that outstanding, dedicated people make it all happen, especially when

they work together in a team27. He also acknowledged the fact that the employees of IBM were very

smart and highly capable individuals, and that his job as a manager was to kick-start the

transformation process28. From a symbolic perspective, the idea of management setting expectations

for the formation of communities of practice goes against the idea of the communities being self-

designing and self-managing. Instead, communities of practice are supposed to emerge from the 24

Powers, 2006, p. 2 25

Hatch and Cunliffe 2013, p. 289 26

Hatch and Cunliffe 2013, p. 116 27

Applegate, Austin and Collins, 2009 p.22 28

Lagace, 2002

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problems and interests that employees recognize and take responsibility for29. In the case of IBM, it

was definitely not the case that all employers supported the newly created teams from the

beginning: “At  the  top  of  the  organization  was  a  leadership  team  that  really  wanted  to  speed  up  the  

pace  of  change[…]But  there  was  a  group  of  people  who just wanted it to go away. They wanted it

to be the way it used to always be.”30. Scholars of the symbolic perspective would argue that this

sort of resistance is both to be expected and highly understandable. It exemplifies what can happen

if one attempts to apply a symbolic concept in a modernist way of managing, and this arguably

undermines the effectiveness of the communities.

On   the   other   hand,   one   can   argue   that   from   management’s   perspective,   it   does not matter that the

first communities are established in an unnatural way, because the alternative to having these,

supposedly inefficient, communities of practice would be to have none at all. Moreover, while it

may be that the first communities of practice were inefficient due to the influences of management,

it is important to note that IBM continually developed a number of different platforms, which

employees actively use for online collaboration31. One can imagine that by establishing a culture

that encourages the creation of communities of practice, employees could have become inspired and

motivated to explore the platforms on their own initiative, and thus ensuring the communities of

practice their natural efficiency.

Still, scholars of symbolic perspective, with some inspiration from postmodernists, could argue that

management, by attempting to institutionalize communities of practice in the first place, could

influence   how   employees   perceive   and   handle   the   creation   of   “voluntary”   communities   of   practice  

in the future. As a result, all communities of practice created within IBM could arguably be seen as

involuntary, and as disguised modernist tools in attempting to make profits32, thus “reducing” the

knowledge management initiatives of IBM to a modernist strategy by management. As can be seen

by this discussion, the interpretation of knowledge management initiatives used by IBM depends on

which theoretical school of thought is used as a foundation for understanding.

Conclusion

This paper has analyzed how the implementation of knowledge management initiatives from 1994

and onwards helped IBM to recover from its crisis in the early 90s. First, the paper analyzed why 29

Hatch and Cunliffe 2013, p.116 30

Applegate, Austin and Collins, 2009 p. 7 31

Powers, 2006, p. 2 32

Hatch and Cunliffe 2013, p. 119

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IBM’s   organizational   form   gradually   became   incompatible   with   its   environment.   It   was   found   that  

the environmental rate of change which IBM had experienced during the century had been

continually increasing. Likewise, their external environment had gradually become more complex,

thus forcing IBM to undertake a more complex form of organization. This had been done by

splitting up the corporation into separated specialized units, which had created pressures toward a

need for integration.

Next,   the   paper   used   Lewin’s   normative   model   of   planned   organization   change,   combined   with  

theoretical aspects of knowledge sharing systems, to determine how these pressures toward a need

for integration had initiated a transformation of the corporation by the use of knowledge

management initiatives. Here, the paper concluded that knowledge management initiatives played a

significant   role   in   IBM’s   recovery   from the crisis, by counteracting the conflicting aspects between

IBM’s   organizational   form and its external environment. Moreover, the paper suggested that

technological management initiatives might be able to impact the corporate culture in a direction

envisioned by management.

Last, the paper used the symbolic concept of communities of practices, to present an alternative

interpretation   and   to   discuss   IBM’s   use   of   knowledge   management   initiatives   as   from multiple

theoretical perspectives. The paper concluded that, depending on which school of perspective it

took  into   account,   there  were  several   conflicting   interpretations   of   IBM’s  use  of  the   initiatives.

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