Chapter 15 Price Levels and the Exchange Rate in the Long Run

Chapter 10: The Challenge of Finding An Appropriate StructureBy Muhammet Said DinContentsExplain what is required of the organization's structureIdentify how environmental changes have led to the demand for new structuresDiscuss whether bureaucracy is deadDiscuss how traditional approaches to organizational structure are evolvingDescribe emerging organizational forms.

Functions of Structure

Functions of Structure (cont.)Implementation of strategyStrategy comprises: an organization's goals and the courses of action the allocation of resources necessary for the organization to achieve them. The structure must support the achievement of these plans; if it doesn't, then it indicates that the structure needs to change.

4Functions of Structure (cont.)Defining areas of responsibilityPerformance is evaluated and rewards allocated based on the areas of responsibility. This acts to powerfully direct the behavior of managers. Functions of Structure (cont.)Providing control mechanismsWithout control mechanisms: organizations would soon become directionless, important tasks would be neglected, decision making would slow and the quality of decisions deteriorate, and self-interest would be elevated over the organization's interest.

Functions of Structure (cont.)Facilitating the flow of productionProductions must be produced at a cost and quality acceptable to the consumer and competitive with others doing the same thing. By creating organizational forms, promoting efficiency and using the latest technologies, Organizational competitiveness will be facilitated.

Functions of Structure (cont.)Promoting coordination and information flows. In organizations, most authority structures are vertical, running from the top to the bottom of the organization. But as production tends to flow from one department to the other, it is important that the structure facilitate the necessary information flows which support the flow of production.

Functions of Structure (cont.)Monitoring and responding to environmental changeAll organizations need to build within their structure the capacity to monitor environmental changes andto respond appropriately to them. Without this capacity, there will be dissonance between the organization and its environment

Functions of Structure (cont.) Maintenance of organizational knowledge and learningIndividuals are the repository of knowledge but their knowledge is specialized. Organizational knowledge occurs when the design and production of a product or service is too complex for one person to understand.the manufacture of motor cars and aircraft The Origins of Organizational ChangeBusinesses, and organizations, have changed very rapidly over the past 25 years.Many changes created new management challenges and altered the world of work. In order to identify the way in which these changes are reconstructing organizations, we need to be aware of what they are and how they have changed organizational environments. The Origins of Organizational Change (cont.)

The Origins of Organizational Change (cont.)Changes in government policyPrior to 1980s, government Was a major owner of companies, such as the Commonwealth Bank and Qantas. A number of industries, such as banking, transport, telecommunications and energy, were highly regulated: that is, the government determined who could enter the industry, what was to be charged and what the levels of competition were to be. The Origins of Organizational Change (cont.)During the 1980s these policies were progressively abandoned. Governments in most Western countries sold their trading enterprisesderegulated industries by allowing market forces to operate and they moved to progressively lower tariff barriersAs a result of this, globalization started to acceleratestarted to question the way they managed their own operations, such as schools, universities

The Origins of Organizational Change (cont.)Enhanced levels of competitionThe result of government policies is that most organizations now experience high levels of competition. No longer do businesses have a guaranteed share of markets or the comfort of government protection. The Origins of Organizational Change (cont.)Manufacturers faced increased competition from imported goods, leading to significant changes in practices in the sector. These included the merger or exit of many companies,the sourcing of all or part of their product overseas. The Origins of Organizational Change (cont.)GlobalizationGlobalization created many opportunities for companies to expand overseas as other countries lowered barriers to goods. But expansiondemanded management skills and knowledge that companies in many cases did not possess. exposed companies to new risks, such as differing cultural standards, currency variations and unfamiliar legal systems.The Origins of Organizational Change (cont.)Technological innovationsMany innovations are obvious: mobile phones, the Internete-commerceThese innovations collectively mean that we can communicate faster and cheaper andprocess and transmit far more information than we could previously.The Origins of Organizational Change (cont.)Demands for profitabilityInvestors place heavy demands on performance; they are seeking increasing profitability and growth. As a result, management is under pressure to use resources productively and show an adequate return on assets. The Origins of Organizational Change (cont.)Commodification of marketsAs a large number of product categories reach the mature phase of their life cycle, it is becoming increasingly difficult to differentiate products.In such markets, advantage goes to the producers with the lowest costs. Firms have to try to move down the cost curve.The Origins of Organizational Change (cont.)End of the public service mentalityGovernment services, such as those of administration, health and education, have seen the environment they operate in radically change.Governments have cut budgets for education and told universities to become more entrepreneurial in raising funds. Outsource or privatizeThe Origins of Organizational Change (cont.)Social changes and expectationsThe social contract based on the male breadwinner being given a job for life in return for loyalty has ended, and new employment practices are emerging.Downsizing, redundancies and plant and office closures, even bankruptcies, are now common. The Origins of Organizational Change (cont.)Organizations have also had to alter established practices in order to accommodate legislative changes in relation to women and the disabled.Society also expects high ethical standards, socially responsible attitudes and sustainable production methods, and managers must be prepared to provide these.

Is bureaucracy dead?

Bureau means office in French, so bureaucracy roughly translates as rule by office.Weber's bureaucracyThe term, bureaucracy, was introduced by Max WeberOne of Weber's interests was in how to manage large industrial organizations.He proposed seven principles which, when applied, would lead to rational and efficient operations.A number of his proposals are structural, others are behavioural.

Is bureaucracy dead?(cont.)He taught both before and during the first world war at the universities of Freiburg, Heidelberg and Munich.He wrote on a wide range of topics, extending from religion and capitalism through to Chinese social organization.The Protestant Ethic and the Spirit of Capitalism and The Theory of Social and Economic Organization

Max Weber (1864-1920) was a German sociologistIs bureaucracy dead?(cont.)1.Division of labor: division of job into simple, routine and well-defined tasks. job specialization2.Well-defined authority hierarchy: each lower position is under the supervision and control of a higher one.3.High formalization. There is dependence on formal rules and procedures to ensure uniformity and to regulate the behavior of job holders.

Is bureaucracy dead?(cont.)4. Impersonal nature: Sanctions are applied uniformly and impersonally to avoid personal preferences of members.5. Employment decisions based on merit: Selection and promotion decisions are based on technical qualifications, competence and performance of the candidates.6. Career tracks for employees: Members are expected to pursue a career in the organization.

Is bureaucracy dead?(cont.)

Distinct separation of members' organizational and personal lives. The demands and interests of personal affairs and kinship ties are kept completely separate from work-related activities.Positive qualities in Weber's 'ideal type'the focus on merit when selecting employees; security of employment to protect employees against the exercise of arbitrary authority and changes in skill demands; rules and regulations to promote impartiality(neutrality) in decision making; the establishment of clear lines of authority and responsibility.

Is bureaucracy dead?(cont.)

Weber's bureaucracy had its structural elements. These include: division of labor, rules and regulations to cover all eventualities, a management hierarchy with clearly defined areas of responsibility.

Is bureaucracy dead?(cont.)

Summarizing Weber's contributionThe central theme in Weber's bureaucratic model is standardization.In this we can see that many of its features are present in the machine bureaucracy. The behavior of people in bureaucracies is predetermined by standardized structures and processes.

Is bureaucracy dead?(cont.)

The model itself can be divided into three groups of characteristics: those that relate to the structure and function of the organization, those that deal with means of rewarding effort, those that deal with protection for individual members.The Downside of Bureaucracy

The Downside of Bureaucracy (cont.)Goal displacement: Bureaucracy is attacked most often for encouraging goal displacementthat is, the displacement of organizational goals by subunit or personal goals.The rules and procedures become more important than the ends they were designed to serve, the result being goal displacement and loss of organizational effectiveness.The Downside of Bureaucracy (cont.)Another criticism of bureaucracy proposes that high formalization bureaucracy creates insecurities in those in authority that lead to what has been called bureaupathic behavior.Decision makers use adherence to rules to protect themselves from making errors. The Downside of Bureaucracy (cont.)Inappropriate application of rules and regulations: Related closely to the problem of goal displacement is the undesirable effect of members' applying formalized rules and procedures in inappropriate situations.Employee alienation: Members perceive the impersonality of the organization as creating distance between them and their work.

The Downside of Bureaucracy (cont.)High specialization further reinforces one's feeling of being irrelevant: routine activities can easily be learned by others, making employees feel interchangeable and powerless. In professional bureaucracies formalization must be lessened, otherwise the risk of employee alienation is very high.Concentration of power:It is a fact that bureaucracy generates an enormous degree of power in the hands of a very few.

The Downside of Bureaucracy (cont.)Inability to adapt to change:Bureaucracies have a well-deserved reputation for being slow to change.Environments can change around them, but bureaucracies tend to be always lagging in introducing new ways of doing things.Overstaffing:Because of the reluctance to reduce workforces, at least in former years, many bureaucracies suffer from a reputation for being overstaffed and for those employed by them being underworked.

The Downside of Bureaucracy (cont.)Tendency towards large size and low productivity:Until the waves of downsizing in the 1980s and 90s bureaucracies, in both business and government, had a reputation for being too big and costing too much to run. Too many people were doing too many unnecessary things and there was enormous resistance to do anything about it.Non-member frustration:The last negative consequence that we address relates to those outside the organization who must deal with the bureaucracy.

Freshening Up Old Approaches-Bureaucracy revisedThe significant changes in environment and technology to which organizations have had to adapt have led to modifications to traditional bureaucracies. The structural elements of Weber's bureaucracy and the machine bureaucracy are very similar. These include job specialization, high formalization and a clear management hierarchy.Freshening Up Old Approaches-Bureaucracy revised (cont.)Emergent trends in organizational design

Freshening Up Old Approaches-Bureaucracy revised (cont.)Focusing management effort on key responsibilities:Structural changes are emerging with the creation of new divisions and units which are oriented around specialized segments. For instance, a company producing a range of building products. It would now have divisions, each with its own manager, responsible for bricks, cement and plasterboard. Each of the divisional managers would then be responsible, and accountable, for product management and satisfying the customers of their particular division. Their success in doing this would be reflected in the profitability of their division. Freshening Up Old Approaches-Bureaucracy revised (cont.)Rethinking the centralization-decentralization balance:Accompanying the change identified in the previous section, has been a rethinking of the centralization-decentralization balance. There is little point in holding managers accountable for a certain task if they have insufficient authority to operate in their role. There has thus been a move to decentralize decision making. Freshening Up Old Approaches-Bureaucracy revised (cont.)Moving focus from internal processes to external adaptation:One of the dysfunctions of many organizations in fast-changing environments is that their focus is far too firmly set on adhering to the rules rather than responding to the needs for change. In other words, management has an inward rather than an outward focus.If we structure management responsibilities in such a way that their performance is assessed against customer or market-focused criteria, we are likely to find that the nature of formalization changes in order to better achieve the organization's goals.Freshening Up Old Approaches-Bureaucracy revised (cont.)Greater use of market controls:For a machine bureaucracy, we aggregate the cost of all activities and deduct it from revenue to arrive at profit. Structural changes over the past 20 years have moved towards dividing the business into mini-businesses, each with its own financial and performance goals. Managers are then made responsible for these. Where costs cannot be offset against revenue, such as for a specialized department, then budgets are set in place and managers are expected to achieve them.

Freshening Up Old Approaches-Bureaucracy revised (cont.)Improving communication flows:An emergent need is to improve communication flows and promote adaptability without compromising the benefits that bureaucracy can provide. Most organizations have invested heavily in information technology to increase their ability to process information. Managers can be specifically allocated to the task of coordination. Their role may be broadly described as crossing functional boundaries and integrating the work of specialists. a brand manager, IT coordinators open-plan offices, communication around water coolersFreshening Up Old Approaches-Bureaucracy revised (cont.)Working back from the customer:While organizations cannot actually be built around customers, responding to customer needs can become one of the design focuses of the organization. This involves monitoring customer needs and product perceptions, then designing the organization to respond to these.This is in contrast to placing the main emphasis on production. Freshening Up Old Approaches-Bureaucracy revised (cont.)Concentrating effort on core competencies:A core competency is something that competitors have difficulty in replicating.As the level of competition increases, most businesses are finding that they can best maximize their returns by concentrating on just a few products where they have a comparative advantage.

Freshening Up Old Approaches-Bureaucracy revised (cont.)Improving availability of information:The expanding use of IT permits information to be more widely spread throughout the organization. This facilitates the flow of goods and materials and assists in serving customers.

Emerging Organizational InnovationsTable shows what is likely to become less important in the future and what is likely to become more common.