Organisational Design
Organisational Design
Organisational Design
Gary Connor, Michael McFadden and Ian McLean
chapter contents
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Introduction What are organisations? The evolution of organisation design theory Common forms of organisation structure Factors influencing organisation design Organisational culture Other internal organisational factors Organisation design models and tools The role of HR in organisation design Summary
Understand the historical and theoretical basis of organisation design and the relationship between organisational elements and the business strategy. Understand the key factors to be considered in the design of organisations and the implications for the management and development of people and resources.
introduction
Organisation design is not simply about mapping out an organisational structure, but also about how the organisation is aligned with all other aspects, functions, processes and strategies within the business. When looking at organisation design, the context within which the business exists must be taken into consideration.
The chapter begins by discussing what an organisation actually is before looking at how organisation designs have evolved over time. The chapter then considers various forms of design, factors that influence design, and a range of tools and models you can use to understand how organisation design fits together. The chapter concludes by investigating what role HRM plays within organisation design. Throughout the chapter there are questions and case studies. We strongly urge you to take time out to try to answer the questions. Only by doing so can you fully understand the complexity and relevance of organisation design.
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reflective activity
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Is the family unit an organisation? If so, what objective does it have, and how does it engage with the environment? Identify two organisations to which you have belonged. Do they have all four features identified by Daft above?
Can you think of two organisations which have not been deliberately structured or which do not have co-ordinated activities systems?
effective design for an organisation is one where its structure is bureaucratic. It is this structure that allows greater control of the organisation and in turn leads to greater efficiencies.
Taylor provides an illustration of good shovelling from the Bethlehem Steel Corporation plant. Shovelling is, according to Taylor, a simple task. From this he concludes that the individual performing this task is of limited intellectual capability. This person would not be a position to work out the most effective way of shovelling. Taylor, however, points out that by methodically studying this task and then selecting able and capable individuals to do it, he will be able to improve the net output. He first selects a few individual workers to extract their knowledge. He then has managers conduct several experiments in which they modified several factors such as the shape and size of the shovel. Next, he demonstrates that by varying the amount of coal on the shovel one could maximise the workers final output. As much as 38 pounds, for example, would be too great, whereas 16 pounds would be too small; the optimal amount is 21 pounds.
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Taylors work had a profound influence on work organisation in the early years of the twentieth century, his ideas being most notably adopted by the Ford Motor Company. The most obvious manifestation of these ideas comes in the form of the assembly line, where each worker is given a designated task to perform repeatedly and to maximum efficiency all day long (hence Fordism). To this day there are organisations which have been described as operating on Fordist principles, notably fast-food restaurants and call centres.
complexity of technologies emerging and, increasingly, the external environmental impacting on organisations, it cannot meet all organisation designs. In moving forward, then, we can see that earlier accounts of organisation design were perhaps adequate in explaining early industrial organisations. Today we need better explanations of organisation design which embrace the increasing complexity of markets, customers and technologies.
functional organisations
This type of structure reflects the different functions present within organisations. Thus the marketing, finance, sales, production, research and HR specialties each have their own sub organisation which is (usually) represented at board level. This is shown diagrammatically in Figure 1.1.
Figure 1.1 A typical functional organisational structure
The size of each department varies according to business needs. For example, most manufacturing organisations have a large production department compared to the size of other functions. Some organisations merge sales and marketing. The general point is that such a structure allows employees with specialist skills to deploy these to their best abilities. Functional organisational structures work best when the organisation or business unit is self-contained, such as a small company or an autonomous unit, such as a subsidiary company. The downside of this type of structure is the easy
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development of a silo mentality, by which issues escalate rather than enabling lateral communication to be brought to bear in order to solve problems.
geographical organisations
As organisations expand particularly when they develop their operations across national boundaries it is common to observe an organisational structure which reflects this. There is thus a distinct variant on the functional organisation, as shown diagrammatically in Figure 1.2. Geographical organisational structures work best when local decision-making is required to tailor the product or service to a regional market. For example, a brewery company expanding into an overseas market would have to take local tastes into account.
Figure 1.2 A typical geographical organisational structure
For an organisation which has a strong brand identity where consistency of offer is at a premium, however, geographical organisation requires considerable control. This can depress local initiative, or at the very least, create tensions between the head office and the branches.
organisation by product
There are many examples of structures which reflect the product line(s) or services which the organisation offers. For example, a passenger transport company may be organised into bus services, coach tours and package holiday products, each with their own dedicated operations. This is shown diagrammatically in Figure 1.3.
Note that some aspects of the functional organisation still remain in this example, but the dominant model is by product line.
Figure 1.3 A typical product-based organisational structure
Product-based organisations work best when there is a need to promote entrepreneurial behaviour. Each of the business areas pursues the development of its products around the organisations core competencies. One disadvantage of such a structure is that rivalry can develop and a distinct pecking order can be discerned for example, between coach and bus drivers (Blake 2010). This rivalry can spill over into competition for resources between product groups.
organisation by customer/market
Examples exist of organisations in which the structure most closely reflects the markets in which they operate. For example, some organisations rely heavily on a small number of important customers who account for most or all of their business. Automotive component manufacturers often organise themselves in this way, with perhaps a dedicated production area, or even a separate plant which produces only for Toyota, another for BMW, another for Tata etc, as shown in Figure 1.4.
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Customer-facing organisations have attracted considerable approval in recent decades, partly spurred by such influential works as In Search of Excellence (Peters and Waterman 1982). Being close to the customer and able to respond quickly to their changing demands requires an organisation to uphold the primacy of the customer relationship and give autonomy to local staff to make deals and decisions. Customer-facing structures work less well in organisations where a consistent service delivery against tight contractual requirements is paramount, such as a university.
matrix structure
A matrix structure is one which sets out to reconcile the competing demands of customers and the need for a strong bureaucratic and efficient functional presence. This type of structure is commonly observed in organisations which are highly project-based for example, civil engineering companies. Obviously, there are greater tensions between the requirements of different projects and functions, but the idea is to enable employees to locate themselves within a strongly multi-project environment. This is shown diagrammatically in Figure 1.5.
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Matrix structures work best in project-based environments, such as engineering and construction, where each project runs for a long period. Each team involved can concentrate their energies upon their designated project, drawing across the range of central services as needed. The major drawback of the matrix design is that everyone appears to have two bosses, which can (and frequently does) lead to role conflict and tensions. It is important to stress that the common types of organisational structure described above can co-exist within one corporation at one time. For example, a multinational may operate different organisational structures in different markets, or a manufacturer may have one dedicated customer-oriented plant while running the rest of the business on functional lines.
reflective activity
Consider the following organisations and state which type of organisational structure you believe to be the most appropriate:
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Virgin Trains
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Strategy and structure are jointly determined by more fundamental variables like the firms technology (economies of scale and scope), the availability of efficient projects, and the profitability of successful projects (Berkovitch et al 2010).
business strategy
Organisational strategy is the articulation of the vision, mission and competitive position of a business. The concept also applies to not-for-profit organisations. The whole organisation has a strategy but, in a number of organisations, parts of it will also have a strategy. It therefore follows that the design of an organisation should serve the overall strategic purpose. For example, if a retail organisation wishes to develop a new product line, people and resources must be deployed to achieve this, and an impact will be felt on the organisational structure. The steps to realising a strategy is summarised in Figure 1.6.
Figure 1.6 An iterative approach to organisational strategy
Mission and vision The mission of any organisation is an articulation of the common purpose which informs the organisations members and binds them together in the enterprise. Many organisations express this in the form of a mission statement, as a way of communicating to both employees and other stakeholders the purpose of the organisation. In some cases, the mission remains in the head of a few people and, if not shared, can lead to confusion and conflict later on. The vision differs from the mission in that it is future-oriented, setting out a description of where the organisation will be in a defined number of years. The vision statement will probably also address the look and feel of the organisation. If a chief executive does not have a sense of mission and vision, the organisation will probably remain mired in the past without a sense of forward movement.
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George H. W. Bush (US President 198993) was quoted as saying that he had trouble with the vision thing, and was one of the few incumbent presidents in US history to fail to gain re-election to the White House. In simple terms, the mission should answer the question What do we do? and the vision should answer Where do we want to get to in n years time? Develop strategy If the vision is about where an organisation wants to get to, then business strategy is all about how it gets there. Strategy is not simply long-term planning it represents the means by which the aspirations of the organisation are realised. Bloisi (2007, pp912) summarises this as follows: Strategies pertain to those destiny-shaping decisions concerning:
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the choice of technologies on which products and services are based the development and release of new products and services the processes for producing products and services the way products are marketed, distributed and priced the ways in which organisations respond to rivals.
The decisions listed above drive the sub strategies of the organisation i.e. the marketing strategy, the customer-service strategy, the product-development strategy, the financing strategy and the people-resourcing and development strategy. Organising and resourcing This stage is all about the realisation of the strategy. One key output is the design of an organisational structure in order to fulfil its strategic plans. A series of example structures is shown below, but at this stage it is important to remember that strategy should drive organisational structure. Execution Self-evidently, execution of strategy is about action and making things happen at all levels of the organisation. It is also the time when the first effects of the strategic plan are seen and therefore feedback loops and management information systems should form an essential part of the execution of strategy. Review and evaluation The vision, mission and strategy should be subject to periodic review. This should be done firstly to review organisational performance against the goals which the organisation has set; secondly, to ensure that there is still consistency between vision, mission and strategies; and thirdly, to ensure that the organisational structures and systems are still fit for purpose. Such reviews can also lead to a reorganisation in order to maintain the momentum of the organisation.
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external environment
Strategy, as described above, cannot exist within a vacuum. Continuous scanning and review of the environment within which the organisation operates is an essential contributor to organisation design. A key tool for scanning the environment is known as PESTLE analysis. PESTLE is an acronym for:
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The analysis, which can be done by an individual but is better done by a group, consists of reviewing each of these factors in so far as it affects the organisation. PESTLE is also used to generate ideas of opportunities and threats which face the organisation. For example, a solar power manufacturer may find that its sales are affected by government policy on electricity feed-in tariffs. Alongside environmental scanning, organisations should regularly carry out stakeholder analysis, both when discussing strategy and also when a major project is being developed. Stakeholders can be defined as any individual, group or body who has an interest in the organisations success. Stakeholders are not confined to owners or shareholders but include employees, suppliers, customers, unions, government (both local and central and agencies) and partner organisations. Stakeholder analysis is a matter of:
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listing each stakeholder identifying what the stakeholders needs are in relation to the organisation identifying the extent to which the stakeholders needs are currently met making decisions about how to close the gap (including whether it is viable to do so) considering the organisation design and resourcing implications of closing the gap(s) taking action.
reflective activity
Consider the university or institution in which you study. Carry out a stakeholder analysis as described above. What changes in the organisation design of this institution would you recommend?
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considerable sharing of ideas and internal mobility, although it can be difficult for someone coming from a role culture to adjust to one in which they report to multiple leaders. Person cultures can be likened to a cluster, where reporting lines are muted compared to the importance of key individuals. Although rare, this culture occurs when individual (non-management) employees of the organisation are of particular value for their professional skills. Person cultures tend, therefore, to arise in professional practices such as law or architecture.
case study
Harry Welsh had worked in the buying function of a major retailer for some years before seeing an opportunity to acquire one of its struggling suppliers. Harry was a great deal-maker who was outstanding in his ability to negotiate contracts, both with his former employer and other retailers. The business grew and Harry took on more staff to service the contracts he had negotiated. However, as the owner-manager of the business, he always kept things close to his chest, even from other directors of the company. Despite repeated requests from his staff for more autonomy and trust, Harry continued to pull all the strings. Whenever there was a need for training or staff performance
management, Harrys attention would always be distracted by any communication from a customer, with which he always insisted on dealing personally. In effect, Harry had made himself indispensable. Eventually, Harry and his business partner sold out to a larger group, having never made the step to growing the company and its people to their full potential.
Consider which type of culture was at work here, and what culture might have been more appropriate in order to grow the business.
Tuckman group dynamics Organisational culture is rarely static. The very nature of organisations, especially in the twenty-first century, means that the inflow and outflow of individuals constantly causes the organisations culture to change, sometimes imperceptibly, sometimes dramatically. Tuckman (1965) postulated a series of stages of group development. Tuckmans original concept was that groups go through four key stages in their development: forming, storming, norming and performing, to which he later added a final stage known as adjourning. During the forming stage, group members tend to be very sociable and appear willing to work well together. This, however, can be a false consensus and as soon as the pressures begin, the group finds that the team spirit breaks down.
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Arguments develop and conflict arises: hence the storming name for that part of the process. The outcomes of the conflict produce a real consensus about how the group should proceed i.e. the norms are articulated and agreed. Finally, the group is now in a position to perform. The cultural web Developed by Johnson and Scholes (1992), the cultural web is a diagnostic management tool for identifying the state of an organisation through six perspectives. Each perspective influences what Johnson and Scholes refer to as the organisational paradigm of the work environment. The proposition is that by analysing each of these perspectives, it is possible to take the cultural temperature of an organisation as a prelude to cultural change. The six factors in the cultural web are:
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Stories Every organisation has its folk tales, often referring to past events, such as how the business was set up. Marks & Spencer, for example, has always told stories of how the business started in Leeds market as the Penny Bazaar. Rituals and routines The day-to-day ways in which people go about their business in the organisation. Of particular importance here are the behaviours which management reward, and those which they prohibit. Symbols Rather like Scheins cultural artefacts above, these are the visible manifestations of the organisations culture, such as dress codes, quality of office furniture, and who gets what comforts in the office, such as coffee machines, etc. Organisational structure Johnson and Scholes mean more here than simply the overt reporting lines in accordance with the organisational chart. This heading also refers to the unwritten lines of power and influence within the organisation. Control systems This refers not only to financial controls but also to the systems for rewarding behaviour, and who decides how rewards are apportioned. Power structures This category refers to the hidden and informal power structures within the organisation who really wields the power?
International cultures As organisations become more global in their reach, some significant work has been done on international business cultures. One key area of debate in this regard is that over convergence v divergence. Convergence theorists argue that with the impact of information technology most notably the Internet business cultures are converging and the differences between national cultures pale into insignificance. They cite the case of the IBM executive in his blue suit who, like the Jesuit priest, is at home in any country. Ranged against this theory are those who argue that national and regional business cultures are pervasive and influence those who enter them. In this respect, the work of Hofstede (1980) is seminal.
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Geert Hofstede is a Dutch social psychologist who set out to identify and measure those factors which distinguish one national business culture from another. His research led him to create five indices of cultural norms, which are:
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Power distance This refers to the degree of social distance between senior management and workforce. If there are many levels of management within the organisation, and little contact between those at the top and the bottom of the organisation, power distance can be said to be high. Uncertainty avoidance This refers to the appetite for risk which is prevalent in any organisation. A high uncertainty avoidance culture is characterised by low risk-taking, and vice versa. Individualism/collectivism This refers to the propensity of the culture to reward individual effort, as distinct from a collectivist approach. This has a clear bearing upon, for instance, reward systems in an organisation. Masculinity/femininity This is probably the most controversial of Hofstedes indices: a masculine culture is seen as macho, whereas a feminine culture is seen as nurturing. Long-term orientation This was added later to the other four indices, and probably the term needing least explanation. It refers to the distinction between those cultures (such as Japan) which place a premium on long-term investment, and others, such as the USA, where judgements are made on short-term results.
Hofstede took each of these indices and measured them using a survey of managers in one multinational organisation. From these results he discovered that there are regional clusters of business culture which make it easier for those from countries with similar cultures to do business with each other. For example, he identified a Scandinavian cluster which included Sweden, Norway, Denmark, Finland and, interestingly, his own native Holland. The similarities in this cluster set them apart from other clusters. Critics of Hofstede point out that this represents a limitation in the research, and that it is dangerous to extrapolate these findings without further research. It is certain that there are some researchers who have assumed the veracity of Hoftsedes work to the point of stereotyping for example, the article by Head et al (2010) on Global organisation structural design, which exhibits a high dependency on Hofstede and therefore implies a danger of stereotyping.
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Midshires Galvanisers
case study
Galvanising is a process first discovered in the eighteenth century by which zinc is bonded on to steel in order to increase the longevity of the artefact from which the steel is made. For example, every motorway has crash barriers which are galvanised, thus accounting for their dull pale grey colour. At Midshires Galvanisers, every plant supports a number of processes: goods reception, stripping impurities, cleaning, pre-flux, immersion in molten zinc at 450C, fettling, and despatch. Each of these processes can be undertaken in one of two ways: either a group of workers can follow each piece of work from start to end and conduct all the processes; or each process is undertaken by a different group of workers. Because of the hazards associated with each process, a high
level of training and expertise is required, and most galvanising works therefore organise their workforce by process. This is an example of a horizontal process, where each piece of work passes from employee to employee until it is finished. However, to take the case of an interior design practice, each designer is responsible for each project, and may well see each piece of work end to end, from receiving the commission from the client to signing off on the final implementation of the design. This is much more akin to a project management approach and therefore requires a different organisational design from that of the galvanising works.
systems
The systems approach to organisational design has already been described above. However, systems are also a key element in organisation design. Systems influence, and are influenced by, organisation design. For example, the national education system can influence the way in which a school is organised. Year groups, subject groups, the division of labour between teaching, administration and senior management structures do not just occur they are deliberate choices of organisation design by the governors and head teacher. In this way, external systems influence internal organisation.
performance measures
Performance measures are another element in organisation design. After all, the purpose of organisation design is ultimately to improve the performance of the organisation. There are many ways of measuring organisational performance. For many businesses, financial measures are key, although not exclusive to all other outputs. To quote Simons (2005), Organisation design demands the right performance measures. A good measure must be objective, complete, and be responsive to the
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efforts of the individual whose activities are being monitored. In addition, a measure must be clearly linked to economic value creation.
technology
One of the most powerful examples of the impact of technology has been the ease with which senior management can communicate with the workforce, eliminating the need for multiple tiers of management and leading to flattening organisations. In a major piece of research using data from approximately 380 US firms, Brynjolfsson and Hitt (1998) found greater demand for IT in firms with greater decentralisation of decision rights (especially the use of selfmanaging teams), and greater investments in human capital, including training and screening by education. In addition, IT has a greater contribution to output in firms that adopt a more decentralised and human-capital-intensive work system . These findings lend support to the idea that organisational practices are important determinants of IT demand and productivity.
physical aspects
The physical aspects of organisation design ergonomics, health and safety, wellbeing, environment and space should not be overlooked. Depending on the organisations mission and purpose, these factors may have a greater or lesser impact. Ongoing research demonstrates the effect of technological change, which has been an area of interest since the Tavistock Institutes work on the longwall technique of coal mining in the late 1940s. For up-to-date advice on ergonomics and job design, see the International Labour Organizations website in the Further reading section.
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pay. However, a far better educated twenty-first-century workforce seeks intrinsic satisfaction from the nature of the work itself, recognition, and a sense of achievement, not to mention opportunities for development which a job or an organisation can provide. Related to job satisfaction is the psychological contract. This can be described as a set of unwritten rights and responsibilities which underpin the formal employment contract. These rights and responsibilities work both ways. For example, an employee expects to be treated with respect, to be offered reasonable facilities, and to be able to express his or her views without fear of management reprisal. Equally well, the organisation has a right to expect employees to give of their best while at work and to promote the interests of the organisation. It is symptomatic of the psychological contract that it is rarely of much interest to either party until one side believes that it has been broken. When this occurs, a sense of betrayal ensues, which can damage or completely break down levels of trust. Such damage can adversely affect employee performance, and therefore organisational performance, remarkably quickly. The implication for organisation design is that jobs should be designed in such a way that they provide appropriate levels of satisfaction. Attention must also be paid to specialisation or generalisation of skill. Organisation designers should ensure that any changes are carried out, as far as possible, in accordance with the psychological contract as well as with the formal one. Commitment and employee engagement Typically, organisations seek a certain level of commitment from their staff, depending on the organisations strategy. A low-commitment organisation will expect high levels of labour turnover and invest minimally in training. A highcommitment organisation will act in the opposite way. Note, however, that some parts of the organisation may operate a high-commitment strategy while other parts operate a low-commitment strategy. Employee engagement has aroused considerable interest in recent times and is promoted as a desirable state for organisations to attain. However, employee engagement is a contested topic. When the UK Government sponsored the Macleod Report (Macleod and Clarke 2009), the authors found more than 50 different definitions of employee engagement! To take just two examples, Alfes et al (2010) believe that employee engagement consists of a mix of intellectual, affective and social engagement with work. On the other hand, Macey and Schneider (2008) refer to state engagement, behavioural engagement and trait engagement. Many consultancy providers offer to measure levels of employee engagement as a prelude to consultancy intervention designed (usually) to increase employee engagement. Whatever the levels of commitment and employee engagement, organisation designers need to take account of how their work will impact on these factors.
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Working with others, communication, power and politics Organisations are not despite frequent rhetoric to the contrary places where everyone uniformly agrees on the ends or the means. They are spaces in which different individuals and factions compete for their own agendas, and where alliances are formed and reformed in order to promote or defend these interests. Communication plays a key role in helping to resolve some of these tensions, but organisation designers have to be aware of the range of power relationships which exist within the organisation and to develop their negotiation skills in order to achieve their aims and not be blown off course by factional interests. A key skill here is networking. Networking within and between organisations is seen as an essential attribute in organisation design: Without a doubt, collaboration is the most important capability for any organisation to possess today (Shuman and Twombly 2010, p1). However, as Shuman and Twombly go on to point out, Few executives believe their organisations are good at collaborating with other firms, or that they personally have a good understanding of how to create value in networks. By and large they generally understand that they must embrace collaborative networks they just dont know how. Thus, at present there is a disconnect between what is being said and the reality of what is happening in many organisations. There is no doubt, however, that we are in a time of profound transformation in ways of working, creating value, structuring and managing organisations.
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communication methods to ensure that all relevant information is cascaded both down and up through the layers of management. On the other hand, if the organisation is a flat-structured business, it will require communication of a more horizontal nature, coupled with a strong notion of teamwork. HR facets can be split into two separate and quite often distinct categories. Firstly, there are strategies, functions and processes that are performed by HR and can be categorised as tangible. For example, a reward policy could be drafted up whereby employees would know that if they performed to a given standard, they would receive a pre-designated reward. In addition, there are intangible aspects that HR has to take control of. For example, HR would implement its reward strategy, coupled with job design, working hours and flexible working methods, which all relate to the psychological aspect of the employee. These psychological aspects all affect an employees attitude, which then directly affects the performance of the employee. To confirm, employee reward is both a tangible and intangible function. It is tangible in that it is an official policy with formal processes. In addition, it is intangible in that it affects the attitude and motivation of employees working within the organisation. Both tangible and intangible aspects have strong influences on the successful workings of organisation designs. To expand on this point, look at the following examples. The HRM department convinces management to invest in an intranet system. All relevant information, news and current events within the business are detailed on the intranet. In addition, the organisation invests a large sum of money in a new piece of IT software that allows employees to upload and share ideas and information relevant to their job role. However, if employees are feeling demotivated or are not engaged in their jobs, or do not feel committed to the organisation, these investments are a waste of money. Employees will not share their knowledge they will not even bother looking at the intranet, and they will often not even read their emails. So whatever processes or systems the business has in place (tangible), employees need to be motivated to a level where they will utilise properly (intangible) investments made by the organisation. Another simple example would be if a company with a matrix structure had a very important project with tight deadlines. Project management relies heavily on teamwork, communication, knowledge-sharing and leadership (tangible processes). It can be argued that how and to what extent these processes are utilised depends on the attitude of each employee (intangible). An employee with a positive attitude is far more likely to communicate and work with other team members than an employee with a negative attitude. Table 1.1 details the main HR functions and processes that nearly all organisations have to consider. Some functions are quite obviously a formal function or process for example, creating a job description or a formal selection process. One the other hand, a number of HR responsibilities fall under more informal criteria. For example, there is no one single process or system that would commit employees to the organisation. Similarly, there is no one formal function that ensures that an employees psychological contract is in place. These
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employee attitudes are controlled by a combination of other HR functions. For instance, the reward package, the management style and the job design all have an impact on an employees level of commitment. So the column in Table 1.1 headed Formal process indicates whether the HR function involves a tangible process that could be documented and audited to ensure compliance with the process. The column headed Enabling others refers to functions that affect an employees attitude and/or behaviour (intangible). These intangible functions can be present within a tangible relationship. The Outline column identifies a basic description of what the function is intended to do. The Link with OD column indicates which OD components the function is most connected with. This column is subjective and should be viewed as such. It is arguable that most of the functions have a direct or indirect link with all of the components of OD. To help you understand the importance of the some of these functions, think how an organisation would perform if these function were not in place.
reflective activity
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Consider how an organisation with a matrix structure would survive if employees refused to communicate and work with each other in teams. What are the implications for an organisation that does not have clear job descriptions?
What are the implications for an organisation of having employees who are not committed, engaged or satisfied in their work? What are the implications for an organisation that does not train or develop its employees?
Table 1.1 HR functions and processes Facet of HR 1 Communication Formal process X Enabling Outline others X Ensure that employees are aware of organisation goals Correct and suitable information timely must be communicated to wherever it is required within the structure of the business Ensure that employees are willing and able to communicate Link with OD Business strategy and goals The psychological aspects of OD Structure of the organisation Processes Design model Systems
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Facet of HR 2 Teamwork
Formal process X
Enabling Outline others X Ensure that policies are in place allowing employees to participate in teamwork both between and within departments e.g. functional or geographical structures Ensure that employees participate in teamwork allowing all to work towards achieving organisational goals Ensure that policies and processes are in place guaranteeing that the organisation has the right number of employees with the required capabilities and competences Implement policies and practices that allow employees to feel engaged in their jobs
Link with OD Achieving business goals Supporting the structure Psychological aspect of OD Processes Design model Systems
Achieving the goals of the organisation Processes within the OD Processes Systems Achieving the goals of the organisation Psychological aspect of OD Processes Systems Business strategy and goals Processes Design model Systems
4 Engagement
5 Performance management
Ensure that policies and practices are in place enabling line managers to suitably performance manage their employees. Ensure that goals and objectives are aligned with organisational objectives Ensure that all HR functions are aligned with the business strategy and that relevant employees are aware of external influences Depending on the design and structure of the business, HR has to ensure that key employees have the authority they require and ensure that departments are being led in the same direction
Business strategy and goals Design model Systems Business strategy and goals Supporting the structure Processes Design model
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Formal process X
Enabling Outline others X Depending on the nature of the job, ensure that employees are at a minimum compliant. Where necessary, HR must ensure that employees cooperate allowing synergy. This can be a source of competitive advantage The role of HR is to ensure that each employees psychological contract is in place. This is directly linked to the attitude of the employee that then allegedly controls their behaviour HR should ensure that all employees are treated equally, with fairness and justice. This is required legally and ethically. All employees will at some stage require training. HRs role is to determine which employee has what training and who performs the training. This affects the morale, skill and motivation of employees HR can introduce policies and processes to allow employees to work flexibly. This can include part-time work, working from home or job-sharing. Flexible working also involves implementing a strategy of functional, financial or numerical flexibility, depending on the design, nature and structure of the business
9 Psychological contract
Processes Systems
12 Flexible working
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Facet of HR 13 Reward
Formal process X
Enabling Outline others X HRs role is to implement policy and procedures, ensuring that intrinsic and extrinsic rewards are suitably matched to the needs of the organisation and employees. HR would also ensure that the goals and objectives given to employees are directly linked to achieving the organisational goals HR would implement processes and ensure that employees are suitably engaged so that employees would share knowledge with other relevant departments and employees In times of change, HR would ensure that employees are not only able to change their job roles, etc, but that they are willing to change Part of the psychological contract is that employees want to feel they make a difference. HRs function here is to introduce systems that allow employees to identify the contribution they make to the company HR needs to identify the specific requirements for each and every job within the organisation. This is then used as a management and legal document to ensure that employees are clear on what their roles are. Job descriptions are also used in recruitment. They allow possible new recruits to clearly see what their role would be within the organisation
Link with OD Business strategy and goals Supporting the structure Processes Systems
14 Knowledge sharing
15 Change management
Psychological aspect of OD Supporting the structure Processes Design model Systems Psychological aspect of OD
16 Making a difference
Business strategy and goals Supporting the structure Processes Design model Systems
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Formal process X
Enabling Outline others X With many companies now being global, HR need to ensure staff are aware of cultural issues affecting the business in any one location. HR also needs to identify whether the organisation undertake an ethnocentric, polycentric, regiocentric or geocentric staffing policy HR would ensure that processes and rewards are in place which encourage employees to proactively participate in problemsolving. HR would ensure that staff have the correct attitude and ability Similar to problem-solving, HR would ensure that relevant staff have the competences to be innovative in their job. HR would ensure that rewards are linked to innovation, as long as the innovation is linked to achieving organisational goals HR would ensure that training and development policies and processes are in place. HRs role is to recruit and develop staff in such a way that enables them to manage other staff in a suitable and correct manner As and when required, HR would oversee any redundancy process. HR would look at redeployment, assistance in locating other work, the levels of redundancy payments and ensure that the remaining workforce remain motivated and engaged with the business
Link with OD Psychological aspect of OD Supporting the structure Design model Culture
19 Problem-solving
20 Innovation
21 Management
Business strategy and goals Supporting the structure Processes Design model
22 Redundancy
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Facet of HR 23 Outsourcing
Formal process X
Enabling Outline others X The design and structure of the business may make it necessary to outsource particular job roles. HR would oversee this process and ensure that all policies and practices are in line with the needs of the organisation This is a crucial aspect of HR. Health and safety only becomes an issue when something goes wrong. HR needs to ensure that all staff are suitably trained and informed on health and safety issues. HR also need to ensure that the organisation complies with all relevant health and safety regulations Implement policies and practices that allow employees to become committed to the organisation
Link with OD Business strategy and goals Supporting the structure Processes Systems
25 Organisational commitment
reflective activity
l
From the list of functions described in Table 1.1, for a company that you work for or know quite well, identify the five most important and five least important with regard to affecting the performance of the organisation. Now explain why you have chosen these functions.
Does it make a difference which structure or overall design the company has as to what are the most and least important HRM functions?
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reflective activity
As mentioned, many of the functions performed by HR have an intangible affect on organisation design. These effects can be both direct and indirect. For example, a communication process will have a direct effect on the workings of the design of the company. In addition, an employees attitude to using the communication system will have an indirect effect on the success of the organisational design.
l
demotivate for example a faulty flickering light can demotivate you in that it can distract and annoy you. However, a light that does not flicker does not motivate you to work harder. So lights that are in correct working order are hygiene factors.
Reviewing your answers to the two Reflective Activities prior to the one immediately above, can you spot any pattern or similarities within your answers? Are formal functions/processes more important to the workings of the organisation design, or are functions that enable employees the more important ones?
Have a look at the 25 functions listed in Table 1.1 and identify the ones you think are the top five employee motivating functions. Identify five functions in Table 1.1.that Herzberg would classify as hygiene factors. (NB: A hygiene factor is something that does not motivate, but that if it is not there, can
summary
We started this chapter by considering what an organisation is. We then provided some historical background before highlighting more recent models and explanations for organisation design. Perhaps one point to bear in mind, though, is the application of these models to the contemporary business environment. In the UK, for example, 99% of organisations fall with the category of small to medium-sized enterprises, approximately 70% having fewer than 10 employees. Yet most of the research tends to focus on larger organisations. Also, the increase in the number of companies opting to outsource some functions can also impact on the design of organisations. Core functions which are strategic and essential tend to remain in-house whereas routine, non-core functions are outsourced. Thus, an organisation may well have one type of structure for its core business and another for its non-core business. As mentioned above, the international dimension is more significant today and organisations will certainly be more global in the years to come. With the emerging economies of India and China it is likely that the structures and designs
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that emerge in future years will be very different from what we currently see. Our understanding of these new structures will have to take account of cultural differences, and those that do emerge may also have limited application beyond the country of origin. Webers bureaucracies are no longer fully applicable to effective organisations. We have also a richer understanding of what motivates people at work and how group dynamics affect behaviour and performance, which in turn shapes organisation design. It is probably fair to say that the behaviours associated with shovelling coal is not as simple as Taylor proposed.
case study
A major food retailer is losing market share and has spent large sums of money over the past few years attempting to reclaim it. Changes have been made to its reward, advertising and marketing strategies, all to no avail. The company has realised that rather than looking at other particular strategies, it needs to overhaul and redesign the organisational structure to meet the demands of the twenty-first century. The company is structured as follows: Head office 1,000 employees Distribution centres 6 1,500 employees Retail outlets 500 25,000 employees Each subsidiary has its specific type of employees. These include low-skilled and low-paid employees, highly-paid executives, core and periphery workers, part-time and full-time workers and blue- and white-collar workers. In addition, employees fall into a wide demographic continuum. They range from students to more mature workers, male and female, and all form a very diverse workforce. All areas of the globe are represented within the workforce. Some employees are also supplied via agencies and employed on fixed-term contracts. The new business strategy is based on customer service. Head office has announced that all efforts must be
made to provide the best customer service in the food retail industry. Head office has also decided that each distribution centre and each retail outlet must be self-financing and must offer the business a return on its investment. Sales from the outlets are made up as follows: Food and grocery 65% Clothing 20% Electronic goods 15% Retail outlets are fined heavily for goods that are returned unsold or sold at below cost price. They are also fined for running out of stock and for having too much stock. Each retail outlet is required to obtain all its produce from one of the six distribution centres. Questions
1 2 3
What form of organisational structure should the company adopt, and why? What are the key internal and external factors that influenced your decision? What should the key business objectives be for:
a) b) 4
What are the key HR functions/ roles that the business needs to concentrate on to ensure that the new design has a chance of
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succeeding and that each objective is achieved? Think about this from a short- and long-term perspective. Now that you have answered the above questions, consider the following there is no need to write anything down, you just need to think about it.
Of all the organisations you know, how many of them do you think were designed in a strategic and well thought out manner or do you think some organisations evolve into their designs over time?
books
further reading
BHATTACHARYYA, D. K. (2009) Organisational Systems, Design, Structure and Management. Mumbai: Himalaya Publishing House. An excellent overview of organisation design, and available as an e-book. HANDY, C. (1999) Understanding Organisations. Harmondsworth: Penguin. The ultimate classic study of organisations and a staple for many years. Handy writes in a very accessible yet well-informed way. MCNAMARA, C. Basic Definition of Organization http://managementhelp.org/ organizations/definition.htm#anchor424230 [accessed 10 February 2012]. Provides some of the core fundamentals of organisation design. SCHEIN, E. (1990) Organizational culture. American Psychologist, Vol. 45, No. 2, 10919. The classic work on organisational culture. TAYLOR, F. W. (1947) Scientific management, in Scientific Management. New York: Harper & Row. 3973. Taylors work has been so influential that it is worth looking up the original article to see what it is all about.
websites
International Labour Organization website: http://actrav.itcilo.org/actrav-english/ telearn/osh/ergo/ergonomi.htm. Part of the United Nations, the International Labour Organization is a treasure trove of HRM research
references
ALFES, K., TRUSS, C., SOANE, E., REES, C. and GATENBY, M. (2010) Creating an Engaged Workforce. London: Chartered Institute of Personnel and Development. ARGYRIS, C. (1980) Some limitations of the case method: experiences in a management development program. Academy of Management Review. Vol. 5, No. 2. 291310. BERKOVITCH, E., ISRAEL, R. and SPIEGEL, Y. (2010) A double moral hazard model of organization design. Journal of Economics & Management Strategy. Vol. 19, No. 1. 5585.
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BHATTACHARYYA, D.K. (2009). Organisational Systems, Design, Structure and Management. Mumbai: Himalaya Publishing House. (E-book) BLAKE, V. (2010) In Business, Communication Is Everything, unpublished MA Dissertation, Coventry University. BLOISI, W. (2007) Management and Organisational Behaviour. Maidenhead: McGraw-Hill. BRYNJOLFSSON, E. and HITT, L. (1998) Information Technology and Organizational Design: Evidence from micro data. Conference paper: MIT. BURKE, W. and LITWIN, G. A (1992) Causal model of organisational performance and change. Journal of Management. Vol. 18, No. 3. 52345. BURNS,T. (1963) Industry in a New Age. New Society. 31 January. Vol 18, pp17 20, cited in PUGH, D. S. (ed.) (2007) Organisation Theory: Selected classical readings. Harmondsworth: Penguin. DAFT, R. (2007) Understanding the Theory and Design of Organisations. Mason, OH: Thomson South Western. GALBRAITH, J. (1995) Designing Organisations: An executive briefing based on strategy, structure and process. San Francisco, CA: Jossey-Bass. HANDY, C. (1999) Understanding Organisations. Harmondsworth: Penguin. HEAD, T., YAEGER, T. and SORENSEN, P. (2010) Global organisation structural design: speculation and a call for action. Organization Development Journal. Vol. 28, No. 2. 418. HOFSTEDE, G. (1980) Cultures Consequences. London: Sage. HUCZYNSKI, A. and BUCHANAN, D. (2007) Organisational Behaviour. 6th edn. Harlow: Prentice Hall. INTERNATIONAL LABOUR ORGANIZATION website: http:// actrav.itcilo.org/actrav-english/telearn/osh/ergo/ergonomi.htm [accessed 28 February 2012]. JOHNSON, G. and SCHOLES, K. (1992) Managing Strategic Change: Strategy, culture and action. London: Elsevier. KATZ, D. K. (1966) The Social Psychology of Organisations. New York: Wiley. MACEY, W. and SCHNEIDER, B (2008) The meaning of employee engagement. Industrial and Organisational Psychology, Vol. 1, No. 1. 330. MACLEOD, D. and CLARKE, N. (2009) Engaging for Success: Enhancing performance through employee engagement. London: Department for Business, Innovation and Skills.
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MCMILLAN, E. (2000) Considering Organisation Structure and Design from a Complexity Prardigm Perspective. Milton Keynes: Open University. MCNAMARA, C. (2012) Basic definition of organisation http:// managementhelp.org/organizations/definition.htm#anchor424230 [accessed 10 February 2012]. PETERS, T. and WATERMAN, R. (1982) In Search of Excellence. New York: HarperCollins. SCHEIN, E. (1990) Organizational culture. American Psychologist. Vol. 45, No. 2. 10919. SHUMAN, J. and TWOMBLY, J. (2010) Collaborative networks are the organisation: an innovation in organisation design and management. The Journal for Decision Makers. Vol. 35, No. 1. 113. SIMONS, R. (2005) Leverages of Organization Design. Boston: Harvard Business School Press. TAYLOR, F. W. (1947) Testimony before the Special House Committee, in Scientific Management. New York: Harper & Brothers. 5287. TUCKMAN, B. (1965) Developmental sequence in small groups. Psychological Bulletin. Vol. 63, No. 6. 38499. ULIERU, M., BRENNAN, R. and WALKER, S. (2002) The holonic enterprise: a model for Internet-enabled global manufacturing supply chain and workflow management. Integrated Manufacturing Systems. Vol. 13, No. 8. 53850. WATERMAN, R., PETERS, T. and PHILLIPS, J. R. (1980) Structure is not organisation. Business Horizons. Vol. 23, No. 3. 1426. WEBER, M. (1947) The Theory of Social and Economic Organisation. New York: Free Press. WEISBORD, M. (1976) Organisational diagnosis: six places to look for trouble with or without a theory. Group and Organisational Studies. Vol. 1, No. 4. 430 47.
chapter 2
Organisational Development
Sophie Mills, Amanda Lee, Krish Pinto and Kristen Stevens
chapter contents
l l l l l l l l
Introduction What is OD? The historical basis of OD The role of the OD practitioner Understanding the OD process Practices, models and approaches The role and purpose of OD interventions Summary
Analyse the underpinning history, theories and principles of organisation development. Describe and explain the organisation development process. Evaluate various organisation development practices, models and approaches. Discuss the value of organisation development interventions to business performance and productivity.
introduction
This chapter introduces and examines the concept of organisational development (OD) and its role within the management of organisational change. It commences by introducing the concept of OD and includes definitions of its characteristics and those required of OD practitioners. The chapter then moves on to provide a historical insight into the emergence of OD, the role of the OD practitioner in