Johns 10e Irm ch14 PDF

CHAPTER 14
ENVIRONMENT, STRATEGY, AND STRUCTURE
CHAPTER LEARNING OBJECTIVES
After reading Chapter 14, students should be able to:
LO14.1 Discuss the open systems concept of an organization and the components of an
organization’s external environment, and explain how environmental uncertainty and
resource dependence affect what happens in organizations.
LO14.2 Define strategy and describe how organizational structure can serve as a strategic
response to environmental demands.
LO14.3 Define organizational structure and explain how it corresponds to division of
labour.
LO14.4 Discuss the relative merits of various forms of departmentation.
LO14.5 Review the more basic and more elaborate means of achieving organizational
coordination.
LO14.6 Discuss the nature and consequences of traditional structural characteristics and
explain the distinction between organic and mechanistic structures.
LO14.7 Discuss the emergence of ambidextrous, network, virtual, and modular
organizations.
LO14.8 Explain how vertical integration, mergers, acquisitions, strategic alliances, and
the establishment of legitimacy reflect strategic responses.
CHAPTER OUTLINE AND TEACHING NOTES
The External Environment of Organizations
The external environment includes those events and conditions surrounding an

organization that influence its activities. The external environment has a tremendous
influence on organizations and profoundly shapes organizational behaviour. Examples
include the SARS outbreak of 2003, and the recent economic crisis and global recession.
Organizations as Open Systems

Organizations are open systems that take inputs from the external environment, transform
some of these inputs, and send them back into the external environment as outputs. This
concept is important because it sensitizes us to the need for organizations to cope with
environmental demands on both the input and the output side. Some of this coping
involves adaptation to environmental demands and some coping may be oriented toward
changing the environment.
Copyright © 2017 Pearson Canada Inc.

14-2 Johns/Saks, Organizational Behaviour, Tenth Edition
Components of the External Environment

The external environment involves any person, group, event, or condition outside the
direct domain of the organization. The components of the external environment include
the following:
The General Economy. The general economy affects organizations as they profit from an
upturn or suffer from a downturn.
Customers. All organizations have potential customers for their products and services.
Organizations must be sensitive to changes in customer demands. Successful firms are
highly sensitive to customer reactions.
Suppliers. Organizations are dependent on the environment for supplies which include
labour, raw materials, equipment, and component parts. Shortages can cause severe
difficulties.
Competitors. Environmental competitors vie for resources that include both customers
and suppliers. Successful organizations devote considerable energy to monitoring the
activities of competitors.
Social/Political Factors. Organizations cannot ignore the social and political events that
occur around them. Changes in public attitudes toward ethnic diversity, the proper age for
retirement, the environment, corporate social responsibility, or the proper role of big
business will soon affect them. Organizations must cope with a series of legal regulations
that prescribe fair employment practices, proper competitive activities, product safety,
and clients’ rights, and environmental protectionism.
Technology. The environment contains a variety of technologies that are useful for
achieving organizational goals. The ability to adopt the proper technology should
enhance an organization’s effectiveness.
In addition to these basic components of organizational environments, there are a large

number of interest groups that can exist in an organization’s environment. Interest groups
are parties or organizations other than direct competitors that have some vested interest in
how an organization is managed. Often, interest groups make competing and conflicting
demands because they evaluate organizational effectiveness according to different
criteria. Different parts of the organization will often be concerned with different
environmental components. Also, events in various components of the environment
provide both constraints and opportunities for organizations.
Environmental Uncertainty
Environmental uncertainty is a condition that exists when the external environment is
vague, difficult to diagnose, and unpredictable. Uncertainty depends on the
environment’s complexity (simple versus complex) and its rate of change (static versus
dynamic).

Chapter 14 Environment, Strategy, and Structure 14-3
• Simple environment. A simple environment involves relatively few factors, and

these factors are fairly similar to each other.
• Complex environment. A complex environment contains a large number of
dissimilar factors that affect an organization.
• Static environment. The components of a static environment remain fairly stable
over time.
• Dynamic environment. The components of a highly dynamic environment are in a
constant state of change. This change is unpredictable and irregular, not cyclical.
Rate of change and complexity can be arranged in a matrix. A simple/static environment

should provoke the least uncertainty, while a complex/dynamic environment should
provoke the most. A static/complex environment should be somewhat more certain than a
dynamic/simple environment.
Increasing uncertainty has several predictable effects on organizations and their decision
makers including being less clear about cause-and-effect relationships, more difficulty
agreeing on priorities, political jockeying within the organization, and more information
must be processed by the organization to make adequate decisions. Organizations will act
to cope with or reduce uncertainty because uncertainty increases the difficulty of
decision-making and thus threatens organizational effectiveness.
Resource Dependence
Because organizations are open systems that receive inputs from the external
environment and transfer outputs into this environment, they are in a state of resource
dependence with regard to their environments. Resource dependence refers to the
dependency of organizations on environmental inputs, such as capital, raw materials, and
human resources as well as outputs such as customers. Carefully managing and coping
with this resource dependence is a key to survival and success. Although all organizations
are dependent on their environments for resources, some organizations are more
dependent than others. As well, resource dependence can be fairly independent of
environmental uncertainty, and dealing with one issue will not necessarily have an effect
on the other.
Resource dependence does not mean that organizations are totally at the mercy of their
environments. It means that they must develop strategies for managing both resource
dependence and environmental uncertainty.
Strategic Responses to Uncertainty and Resource Dependence
Strategy is the process by which top executives seek to cope with the constraints and
opportunities posed by an organization’s environment. Strategy formulation follows from
executives’ perceptions of the objective organizational environment. These perceptions
are influenced by their experience and personality. Thus, it is the perceived environment
that comprises the basis for strategy formulation. Strategy formulation involves
determining the missions, goals, and objectives of an organization. There is no single
correct strategy. The chosen strategy must correspond to the constraints and opportunities

of the environment. The strategy must be implemented by selecting appropriate managers

for the task and employing appropriate techniques. One of the most common strategic
responses employed by organizations is a change in organizational structure.
What Is Organizational Structure?
Organizational structure is the manner in which an organization divides its labour into
specific tasks and achieves coordination among these tasks. It broadly refers to how the
organization’s individuals and groups are put together or organized to accomplish work.
To achieve its goals, an organization has to divide labour among its members and then
coordinate what has been divided. There are two basic dimensions to the division of
labour: a vertical dimension and a horizontal dimension. Once labour is divided, it must
be coordinated to achieve organizational effectiveness.
Vertical Division of Labour

The vertical division of labour apportions authority for planning and decision making. It
is reflected in the hierarchical levels of organizations. Key themes in the vertical division
of labour include its impact on employees’ autonomy and control and communication.
Increased vertical division reduces autonomy and puts a strain on communications.
Autonomy and Control. The domain of decision making and authority is reduced as the
number of levels in the hierarchy increases. A flatter hierarchy pushes authority lower
and involves people further down the hierarchy in more decisions.
Communication. As labour is progressively divided vertically, timely communication and

coordination can become harder to achieve. As the number of levels in the hierarchy
increases, filtering is more likely to occur.
Horizontal Division of Labour

The horizontal division of labour groups tasks into jobs and jobs into departments so that
the organization can achieve its goals. Required workflow is the main basis for this
decision. Key themes in the horizontal division of labour include its impact on job design
and on differentiation.
Job Design. The horizontal division of labour strongly affects job design and it has
profound implications for the degree of coordination necessary. It also has implications
for the vertical division of labour and where control over work processes should logically
reside.
Differentiation. Differentiation is the tendency for managers in separate units, functions,

or departments to differ in terms of goals, time spans, and interpersonal styles. As
organizations engage in increased horizontal division of labour, they usually become
more and more differentiated. Under high differentiation, various organizational units
tend to operate more autonomously. Differentiation points to the need for coordination.

Departmentation
Departmentation refers to the assignment of jobs into departments and is an important
aspect of the horizontal division of labour. There are several common methods of
departmentation each of which has its strengths and weaknesses.
Functional Departmentation. Under functional departmentation, employees with closely

related skills and responsibilities (functions) are located in the same department. The
most cited advantage is efficiency. Other advantages include enhanced communication
within departments, enhanced career ladders and training opportunities within functions,
and performance of functional specialists should be easier to measure and evaluate. The
disadvantages stem from the specialization within departments that occurs in the
functional department. As a result, a high degree of differentiation can occur between
functional departments which can lead to conflict between departments. Functional
departmentation works best in small to medium-sized firms that offer relatively few
product lines or services.
Product Departmentation. Under product departmentation, departments are formed on

the basis of a particular product, product line, or service. A key advantage is better
coordination among the functional specialists who work on a particular product line.
Also, product-focused departments can be evaluated as profit centres. Another advantage
is flexibility and the ability to serve the customer or client better and the potential to
respond to customers in a timely way. Disadvantages are that professional development
might suffer and economies of scale might be threatened and inefficiency might occur.
Matrix Departmentation. Under matrix departmentation, employees remain members of a

functional department while also reporting to a product or project manager. It is an
attempt to capitalize on the strengths of both functional and product departmentation. It
provides a degree of balance between the abstract demands of the product or project and
the people who actually do the work, resulting in a better outcome. It is also very flexible
and can lead to better communication among the representatives from the various
functional areas. The disadvantages are that project managers might not see eye-to-eye
with various functional managers which can create conflict. As well, employees assigned
to a product and project team in essence report to two managers and can result in role
conflict and stress. Thus, managers need to be well trained under matrix structures.
Other Forms of Departmentation. Several other forms of departmentation also exist.

Under geographic departmentation, relatively self-contained units deliver the
organization’s products or services in a specific geographic territory. It shortens
communication channels, caters to regional tastes, and gives some appearance of local
control to clients and customers. Under customer departmentation, relatively self-
contained units deliver the organization’s products or services to specific customer
groups. The goal is to provide better service to each customer group through
specialization. The advantages and disadvantages of geographic and customer
departmentation parallel those for product departmentation.

A hybrid departmentation is a structure based on some mixture of functional, product,

geographic, or customer departmentation. It is an attempt to capitalize on the strengths of
various structures, while avoiding the weaknesses of others.
The key contrast is between functional and product departmentation, since the other
forms are to some degree variations on product departmentation. Functional
departmentation is efficient because it does not duplicate effort, and it enhances
communication within functions. It provides clear career ladders within functions.
However, it may lead to excessive differentiation between functions. Within product
lines, product departmentation solves this problem, but it is at the expense of potential
duplication of effort. As organizations grow and offer more products or services, product
departmentation is preferable.
Basic Methods of Coordinating Divided Labour

When the tasks that will help the organization achieve its goals have been divided among
individuals and departments, they must be coordinated so that goal accomplishment is
actually realized. Coordination is the process of facilitating timing, communication, and
feedback among work tasks. Five basic methods of coordination are identified.
Direct Supervision. This is a very traditional form of coordination.

Working through the chain of command, designated supervisors or managers coordinate
the work of their subordinates.
Standardization of Work Processes. Some jobs are so routine that the technology itself
provides a means of coordination and little direct supervision is necessary. Work
processes can also be standardized by rules and regulations.
Standardization of Outputs. Coordination is achieved by ensuring that the work meets

certain physical or economic standards. Standardization of outputs if often used to
coordinate the work of separate product or geographic divisions.
Standardization of Skills. Technicians and professionals who work together closely may
be coordinated because of their standard training and through standardization of skills.
They know what to expect of each other due to their standard training.
Mutual Adjustment. Mutual adjustment relies on informal communication to coordinate

tasks. It is useful for coordinating the most simple and the most complicated divisions of
labour.
The five methods of coordinating divided labour can be crudely ordered in terms of the
degree of discretion they permit individual workers in terms of task performance. Direct
supervision permits little discretion. Standardization of processes and outputs permits
successively more discretion. Finally, standardization of skills and mutual adjustment put
even more control into the hands of those who are actually doing the work. Movement
from direct supervision to mutual discretion is associated with greater potential for jobs
to be designed in an enriched manner. An improper coordination strategy can destroy the

intrinsic motivation of a job. The use of the various methods of coordination tends to vary
across different parts of the organization.
Other Methods of Coordination

Sometimes coordination problems require more customized, elaborate mechanisms to
achieve coordination. This is especially the case for lateral coordination across highly
differentiated departments. Integration is the process of attaining coordination across
differentiated departments. It specifies who is accountable for what, enables one
department to predict the activities of another, and creates a shared understanding of
overarching goals. In ascending order of elaboration, three methods of achieving
integration include the use of liaison roles, task forces and teams, and full-time
integrators.
Liaison Roles. Liaison roles are those in which a person is assigned to help achieve
coordination between his or her department and another department. One person serves
as a part-time link between two departments.
Task Forces and Teams. Task forces are temporary groups set up to solve coordination
problems across several departments. Self-managed and cross-functional teams are also
an effective means of achieving coordination. They are especially useful for new-product
development and introduction.
Integrators. Integrators are organizational members who are permanently assigned to

facilitate coordination between departments. They are especially useful for dealing with
conflict between (1) highly interdependent departments, (2) which have very diverse
goals and orientations, (3) in a very ambiguous environment. A special kind of person is
required to do this job since he/she has great responsibility but no direct authority in
either department. The integrator must be unbiased, “speak the language” of both
departments, and rely heavily on expert power. He or she should identify strongly with
the overall organization and its goals.
Traditional Structural Characteristics
Management scholars and practising managers have agreed on a number of

characteristics that summarize the structure of organizations.
Span of Control
The span of control is the number of subordinates supervised by a manager. The larger
the span, the less potential there is for coordination by direct supervision.
As the span increases, the attention that a supervisor can devote to each subordinate
decreases. Spans at upper levels tend to be smaller.
Flat versus Tall

A flat organization has relatively few levels in its hierarchy of authority, while a tall
organization has many levels. Flatness versus tallness is an index of the vertical division
of labour. Flatter structures tend to push decision making powers downward in an

organization because a given number of decisions are apportioned among fewer levels.
Flatter structures generally enhance vertical communication and coordination.
Formalization
Formalization refers to the extent to which work roles are highly defined by an
organization. A more formalized organization tolerates little variability in the way
members perform their tasks. Very complex tasks dictate high formalization.
Centralization
Centralization refers to the extent that decision-making power is localized in a particular
part of the organization. In a more centralized organization, it is concentrated at the top
with a single individual such as the president. In a more decentralized organization,
decision-making power is dispersed down through the hierarchy and across departments.
The proper degree of centralization should put decision-making power where the best
knowledge is located. This often means decentralizing functions with direct customer
contact, while centralizing functions that have a more internal orientation.
Complexity
Complexity is the extent to which an organization divides labour vertically, horizontally,
and geographically. A fairly simple organization will have few management levels and
not many separate job titles. A very complex organization will be tall, will have a large
number of job titles and departments, and might be spread around the world. The
essential characteristic of complexity is variety. As the organization becomes more
complex, it has more kinds of people performing more kinds of tasks in more places,
whether these places are departments or geographic territories.
Size and Structure

In general, large organizations are more complex and less centralized than small
organizations. Larger organizations have greater horizontal specialization and require
more integrators and other coordination functions. Complexity means coordination
problems. Control in large organizations is maintained with formalization. Large
organizations tend to be more formal than small organizations. Rules, regulations, and
standard procedures help to ensure that decentralized decisions fall within accepted
boundaries. Logically, organizations with product departmentation should exhibit more
complexity and more decentralization than those with functional departmentation.
Exhibits 14.6 and 14.7 confirm this logic.
Summarizing Structure – Organic versus Mechanistic
There are two traditional viewpoints on organizational structure. Mechanistic structures

are characterized by tallness, narrow spans of control, specialization, high centralization,
and high formalization. Functional structures tend to be rather mechanistic.
Mechanistic structures can be contrasted with organic structures. Organic

structures are characterized by flatness, low specialization, low formalization, and
decentralization. They have wider spans of control and fewer authority levels. Flexibility

and informal communication are emphasized over rigidity and a strict chain of command.
They are more in line with the human relations movement. The matrix form is organic.
The labels mechanistic and organic represent theoretical extremes, structures can and do
fall between them. There is no “one best way” to organize. Organic structures are not
superior to mechanistic ones — each type has advantages and disadvantages. The one
that allows better performance depends on an organization’s environment and
technology. In general, more mechanistic structures are called for when an organization’s
environment is more stable and its technology is more routine. Organic structures tend to
work better when the environment is uncertain, the technology is less routine, and
innovation is important. Many organizations do not have only a single structure and that
structure can and should change over time.
Contemporary Organic Structures
Recent years have seen the advent of new, more organic organizational structures that
remove unnecessary bureaucracy and decentralize decision making. The result is a more
adaptable organization. Some examples are described below.
The Ambidextrous Organization

An ambidextrous organization is one that can simultaneously exploit current
competencies and explore emerging opportunities. The ideal ambidextrous organization
is partly organic in form and also exhibits more mechanistic characteristics.
There is an essential tension between getting the most out of existing technology and the
bread-and-butter products or services being offered (the firm’s current competencies) and
at the same time searching for new opportunities and innovating. This distinction is
sometimes described as exploiting versus exploring. It is generally believed that proper
structuring is part of the solution to managing the tension. Ambidexterity has been
associated with superior innovation, better financial performance, and longer survival
because it provides a dynamic capability for change.
There is general agreement among experts that exploration and its quest for innovation
require a more organic structure, while exploitation—extracting value from existing
competencies—requires a more mechanistic approach. One study found that the most
successful structure for achieving ambidexterity was one in which an innovative unit
maintained its own culture, structure, and processes, but was integrated with the core of
the firm by existing senior management. This structure provided resources and protection
for the innovative unit and allowed established units to perfect their own business. This
suggests that with proper structure, exploitation and exploration are complimentary rather
than contradictory.
The findings from another study suggest that innovations have life cycles and that
organizational structures have to correspond to these cycles. Autonomy and
differentiation are helpful for introducing innovations, but more integration leads to
efficiency as the innovation becomes familiar.

Network and Virtual Organizations

Network organizations involve liaisons between specialist organizations that rely strongly
on market mechanisms for coordination. In other words, the emphasis is placed on the
structure and individuals who can perform a function most effectively and economically.
Ideally, network members cooperate, share information, and customize their services to
meet the needs of the network. The diffusion of information and innovation are two
important outcomes of network forms.
The most interesting networks are dynamic or virtual organizations. In a virtual

organization, an alliance of independent companies share skills, costs, and access to one
another’s markets. It consists of a network of continually evolving independent
companies. Each partner in a virtual organization contributes only in its area of core
competencies. The key advantage of the network form is its flexibility and adaptability. A
virtual organization is even more flexible than a matrix. Networks also allow
organizations to specialize in what they do best.
Networking and virtual organizations face some special problems. Problems can occur
when stable networks deteriorate and the companies dealing with the core firm devote so
much of their effort to this firm that they are isolated from normal market demands. This
can make them “lazy,” resulting in a loss of their technological edge. Virtual
organizations lose their organic advantage when they become legalistic, secretive, and
too binding of the other partners. Virtual partners sometimes exploit their loose structure
to profit at the expense of the core firm.
The Modular Organization

A modular organization is an organization that performs a few core functions and
outsources other activities to specialists and suppliers. Services that are often
outsourced include the manufacturing of parts, trucking, catering, data processing, and
accounting. Thus, modular organizations are like hubs that are surrounded by networks of
suppliers that can be added or removed as needed. Unlike a virtual organization, modular
organizations maintain complete strategic control.
By outsourcing non-core activities, modular organizations are able to keep unit costs low
and develop new products more rapidly. They work best when they focus on the right
specialty and have good suppliers. However, because they are dependent on so many
outsiders, it is critical that they find suppliers who are reliable and loyal and can be
trusted with trade secrets. As well, they must be careful not to outsource critical
technologies, which could diminish future competitive advantages. The modular
organization is a streamlined structure with great flexibility making it particularly well
suited to organizations in rapidly changing environments.
Other Forms of Strategic Response

Changes in organizational structure are not the only strategic response that
organizations can make. Structural variations often accompany other responses that are
oriented toward coping with environmental uncertainty or resource dependence. Some
more elaborate forms of strategic responses concern relationships between organizations.

Vertical Integration. Vertical integration involves taking control of sources of resource

supply and distribution.
Mergers and Acquisitions. Mergers and acquisitions involve the joining of two
organizations and the acquiring of one organization by another. Attempts to improve
economies of scale, vertical integration, or to reduce uncertainty due to competition are
common motives for mergers and acquisitions.
Strategic Alliances. Strategic alliances consist of actively cooperative relationships

between legally separate organizations. Alliances can reduce risk and uncertainty for all
parties. They can occur with competitors, suppliers, customers, and unions. A research
and development consortium is a common example. Another example of an alliance
between competitors is a joint venture. In a joint venture, two or more organizations form
an alliance in the creation of a new organizational entity. Organizations form joint
ventures to create new products and services and in the case of international joint
ventures (IJV), to enter new and foreign markets.
Establishing Legitimacy. One way for organizations to respond to the dilemma of making
correct organizational responses when it is hard to know which response is correct is to
do things that make the organization appear legitimate to various constituents.
Establishing legitimacy involves taking actions that conform to prevailing norms and
expectations. It will often be strategically correct, but equally important, it will have the
appearance of being strategically correct. In turn, management will appear to be rational,
and providers of resources will feel comfortable with the organization’s actions.
Legitimacy can be achieved by associating with higher status individuals or

organizations, doing good deeds in the community, or making visible responses to social
trends and legal legislation. The most common way of achieving legitimacy is to imitate
management practices that other firms have institutionalized.
MINI-LECTURE: ENVIRONMENTAL INFLUENCE
The first thirteen chapters of text focus primarily (although not exclusively) on the
internal environment of organizations. Your students may appreciate some help in
understanding the role of the external environment. Jeffrey Pfeffer and Gerald R.
Salancik have provided the following fine example of the external environment’s impact
on organizational functioning with which students will be able to identify.
Consider the following case, described by a student at the University of Illinois. The
student had worked in a fast-food restaurant near the campus and was concerned about
how the workers (himself) were treated. Involved in what he was studying the student
read a great deal about self-actualizing, theories of motivation, and the management of
human resources. He observed at the restaurant that workers would steal food, make
obscene statements about the boss behind his back, and complain about the low pay. The

student’s analysis of the situation was a concise report summarizing the typical human
relations palliatives: make the boring, greasy work more challenging and the indifferent
management more democratic. The student was asked why he thought management was
unresponsive to such suggestions. He considered the possibility that management was
cruel and interested only in making a profit (and the operation was quite profitable). He
was then asked why the employees permitted management to treat them in such a fashion
— after all, they could always quit. The student responded that the workers needed the
money and that jobs were hard to obtain.
This fact, that the workers were drawn from an almost limitless labour pool of students
looking for any kind of part-time employment was nowhere to be found in the student’s
discussion of the operation of the restaurant. Yet, it was precisely this characteristic of the
labour market which permitted the operation to disregard the feelings of the workers.
Since there were many who wanted to work, the power of an individual worker was
severely limited. More critical to the organization’s success was its location and its ability
both to keep competition to a minimum and to maintain a steady flow of supplies to serve
a virtually captive market. If the workers were unsatisfied, it was not only because they
did not like the organization’s policies; in the absence of any base of power and with few
alternative jobs, the workers had neither the option of voice nor exit (Hirschman, 1970).
More important to this organization’s success than the motivation of its workers was its
location on a block between the campus and dormitories, the path of thousands of
students. Changes in policies and facilities for housing and transportation of students
would have a far greater effect than some disgruntled employees. Our example illustrates,
first, the importance of attending to contextual variables in understanding organizations,
but also that organizational survival and success are not always achieved by making
internal adjustments. Dealing with and managing the environment is just as important a
component of organizational effectiveness.
Source: Pfeifer, J., & Salancik, G.R. (1978). The external control of organizations: A
resource dependence perspective. New York: Harper & Row, pp. 3-4.

SAMPLE ANSWERS TO DISCUSSION QUESTIONS
1. Construct a diagram of the various interest groups in the external environment of

CBC Television. Discuss how some of these interest groups might make competing or
contradictory demands on the CBC. Now do the same for your organization or the
most recent organization you worked in.
The interest groups might include the following: The general viewing public; commercial
advertisers; public service groups seeking free air time; the CRTC; groups concerned
with too much emphasis on stories about sex and violence; television critics; television
production companies, and so on. A common contradictory demand is reflected in the
divergent views of production companies and groups concerned with the coverage of sex
and violence on television. The production companies decry censorship while the
citizens’ groups demand “clean” programming. The fray is often joined by local stations
who refuse certain programming and commercial sponsors who fear boycotts of their
products. Students should be able to come up with similar examples of organizations they
have worked at noting how some interest groups made competing or contradictory
demands on the organization.
2. Which basic method(s) of coordination is (are) most likely to be found in a pure

research laboratory? On a football team? In a supermarket?
The complex, unique tasks performed in a pure research laboratory would most likely be
coordinated through standardized skills (acquired through common scientific training)
and informal mutual adjustment. The division of labour on a football team would be
coordinated through direct supervision provided by coaches and the quarterback. Also,
playbooks that specify particular plays would lead to standardized work processes that
supplement direct supervision. In a supermarket, coordination would occur through direct
supervision, standardization of work processes, and standardization of outputs.
Standardization of work processes and outputs is inherent in the routine way food
products enter the store, become displayed, and make their way out as purchases.
3. What are the relative merits of mechanistic versus organic structures?

Mechanistic structures may have merits in larger organizations which need a greater
degree of control than smaller organizations. You could also argue that organizations that
can be crippled financially by poor investment decisions need to have mechanistic
structures. Finally, the military, because of the importance of the span of control and the
formal levels of authority, need mechanistic structures to function effectively.
4. As SpinelIi Construction Company grew in size, its founder and president, Joe
SpinelIi, found that he was overloaded with decisions. What two basic structural
changes should SpinelIi make to rectify the situation without losing control of the
company?
Joe Spinelli should delegate some authority to decentralize the company. He may have to
add a layer of management. This will mean that fewer decisions reach his desk. To
maintain control, he may wish to increase formalization by developing specific rules for
bidding contracts, dealing with subcontractors, and so on.

5. Explain why organizations operating in more uncertain environments require more

organic structures.
Organic structures are more adaptable than mechanistic structures and can respond more
efficiently to the complexity and high rate of change that characterize uncertain
environments. Organic structures are adaptable and responsive because they are less
formalized, centralized, and specialized. Decision-making is less constrained and diffused
further down the hierarchy.
ADDITIONAL DISCUSSION QUESTIONS AND ANSWERS
1. Discuss the division of labour in a restaurant. What methods are used to coordinate
this divided labour? Do differences exist between fast-food versus more formal
restaurants?
There is a vertical division of labour and horizontal division of labour in most restaurants.
The vertical division of labour usually consists of the restaurant manager who is
responsible for planning and decision making. Below the manager and the horizontal
division of labour are the cooks, servers, dishwashers, and cashier, and in some
restaurants there are also host(ess), bartenders, and bus boys. Some restaurants might also
have assistant managers who report to the manager. The methods used to coordinate the
labour in a restaurant include direct supervision (the manager is responsible for
coordinating the work of the restaurant’s employees) as well as the standardization of
work processes and skills as follows: Servers take orders from customers and give them
to cooks; cooks prepare the meals; servers take the meals to the customers; servers take
dirty dishes and cutlery to the kitchen; dishwashers wash the dishes and cutlery; the
cashier prepares the bill and completes the transaction. Thus, the task associated with
each job is very clear as is the work process which ensures the coordination of the labour.
Workers in each job know what to expect from those in other job categories. The
standardization of the process and skills are especially likely in fast-food restaurants
which are more mechanistic than formal restaurants which tend to be more organic and
might also allow for some mutual adjustment through informal communication between
workers. Formal restaurants often allow for customer requests and often have special
items added to the menu on a daily basis. This requires some deviation from the kind of
rigid rules and regulations and stringent routine found in fast-food restaurants. Thus,
more discretion is possible and allowed in formal restaurants compared to fast-food
restaurants where the tasks are more routine.
2. Is the departmentation in a small college essentially functional or product-oriented?

Defend your answer. (Hint: In what department will the historians find themselves?
In what department will the groundskeepers find themselves?)
For the most part, labour in a small college is divided by function. Historians are in the
history department, groundskeepers in the groundskeeping department, registration
personnel in the registrar’s office, and so on.
3. Discuss the logic behind the following statement.’ “We don’t want to remove the
differentiation that exists between sales and production. What we want to do is
achieve integration.”

Differentiation exists when members of sales and marketing departments have different
time spans, goals, and interpersonal styles. The speaker is saying that these differences
are natural, appropriate, and helpful for the organization as long as the departments are
coordinated. Integration achieves coordination without removing needed differences in
orientation.
4. Describe a situation in which a narrow span of control might be appropriate and

contrast it with a situation in which a broad span might be appropriate.
Narrow spans are appropriate when subordinates are poorly trained, inexperienced,
represent a number of functional specialties, and when a boss is the best coordinating
mechanism. Broad spans are appropriate when subordinates are well-trained,
experienced, essentially all engaged in similar work, and when other coordinating
mechanisms exist.
5. Give an example of vertical integration. Use the concept of resource dependence to

explain why an organization might choose a strategic response of vertical
integration.
A paper-making company integrated backward by buying a forestry company and
forward by establishing a wholesale paper supply company. Organizations that are highly
resource dependent are at the mercy of environmental shocks on the supply end (in this
case wood) and on the distribution end (in this case paper sales to retailers). A vertical
integration response helps smooth these environmental shocks, although it can bind an
organization into an inflexible situation by virtue of its increased size and dedication to a
single product.
6. Why are mergers and acquisitions a common and popular form of strategic response?
What are the advantages and disadvantages of each?
Mergers and acquisitions are popular forms of strategic responses because they can
reduce environmental uncertainty and resource dependence and they have a number of
advantages. For example, they are often stimulated by simple economies of scale. They
can also be an attempt for greater vertical integration. They can occur within the same
industry or across different industries. When they occur in the same industry they can
help to reduce the uncertainty associated with competition. When they occur across
different industries, they can reduce dependence on a particular segment of the
environment. As a result, if resources become threatened in one part of the environment,
the organization can still survive in another part of the environment. A disadvantage of
mergers and acquisitions is the difficulty and challenge of integrating organizations with
different cultures and the high potential for failure. The greatest threat to the success of a
merger or acquisition is the potential clash of cultures of the two firms. Strong cultures
can mix as badly as oil and water when a merger or acquisition pushes them together
under one corporate banner. Thus, although mergers and acquisitions are an increasingly
common strategic response, they often do not work and many result in failure. The
primary reason for such problems is the inability to merge the cultures of the two
organizations.

EXTRA DISCUSSION QUESTIONS
1. Most of the advocates of the classical approach to organizational structure were

practicing managers or management consultants working in the early part of this
century. Most of the advocates of the human relations approach were academics. How
might these different backgrounds have affected their views about organizational
structure?
2. Review the comparative strengths and weaknesses of product versus functional
departmentation.
3. Describe the relationship between organizational size and centralization, complexity,
and formalization.
4. Describe the concepts of differentiation and integration. Is integration an attempt to
do away with differentiation?
5. Discuss the strengths and weaknesses of bureaucratic organizations.
6. In what ways do formal integrators provide a unique means of organizational
coordination?
7. Using the material in the chapter, describe how an organization might be well
conceived at the individual and small group level (in terms of motivation and so
forth) and still not be effective.
8. Compare and contrast ambidextrous, virtual, AND modular organizations. What are
the advantages and disadvantages of each form of structure?
9. Discuss the relationship between size and structure.
10. Explain why organizations operating in certain environments often employ
mechanistic structures.
11. How is the concept of resource dependence related to the practices of vertical
integration and interlocking directorates?
12. How should organizations be structured to cope with environmental uncertainty?
13. Discuss the connection between environment, structure, and effectiveness.
14. Explain the meaning and implications of organizations as open systems.
15. When should an organization establish legitimacy and what are the ways that an
organization can achieve legitimacy?
SAMPLE ANSWERS TO INTEGRATIVE DISCUSSION QUESTIONS
1. Consider the effect of environmental uncertainty and resource dependence on power

and politics in organizations. To what extent is subunit power and organizational
politics a function of environmental uncertainty and resource dependence? Does
environmental uncertainty and resource dependence predict and explain the
distribution and use of power and politics in organizations?
Environmental uncertainty and resource dependence are important for
understanding power and politics in organizations. Subunit power is the degree of power
held by various organizational subunits. Subunits obtain power through the control of
strategic contingencies - critical factors affecting organizational effectiveness that are
controlled by a key subunit. This means that the work performed by other subunits is
contingent on the activities and performance of a key subunit. The conditions under

which subunits can control strategic contingencies involve scarcity, uncertainty,

centrality, and substitutability.
Environmental uncertainty exists when the external environment is vague, difficult to

diagnose, and unpredictable. Uncertainty obscures cause and effect relationships,
stimulates political jockeying, and increases information processing demands.
Increasing uncertainty has several predictable effects on organizations including being

less clear about cause-and-effect relationships, more difficulty agreeing on priorities, and
more information must be processed by the organization to make adequate decisions.
Organizations will act to cope with or reduce uncertainty because uncertainty increases
the difficulty of decision-making and thus threatens organizational effectiveness.
Since organizations dislike uncertainty, those subunits with the ability to cope with the
unexpected are most likely to obtain power. Those functions that can provide the
organization with greater control over what it finds problematic and can create more
certainty will acquire more power. For example, the intervention of governments into
human resource policies has allowed human resource departments to gain power by
coping with the various uncertainties.
Resource dependence refers to the dependency of organizations on environmental inputs,

such as capital, raw materials, and human resources. Carefully managing and coping with
this resource dependence is a key to survival and success. Although all organizations are
dependent on their environments for resources, some organizations are more dependent
than others.
Subunits tend to acquire power when they are able to secure scarce resources that are
important to the organization as a whole. When resources such as budget dollars become
scarce, subunits that are able to secure additional resources from outside the organization
can obtain power. For example, university departments that have the ability to bring in
external funding through consulting contracts and research grants gain power in this way.
In effect, they reduce the organization’s dependence on the environment.
Thus, environmental uncertainty and resource dependence have implications for subunit
power in organizations because those subunits that can reduce uncertainty and make the
organization less dependent on the environment for scarce resources will have more
power. Furthermore, to the extent that such power is used in the pursuit of self-interest
within an organization, environmental uncertainty and resource dependence also have
implications for organizational politics.
In sum, environmental uncertainty and resource dependence can predict and explain the
distribution and use of power and politics in organizations.

2. How do the structural characteristics of organizations influence leadership,

communication, decision making, and power in organizations? Discuss the
implications of each of the structural characteristics (i.e., span of control,
organization levels, formalization, centralization, and complexity) for leadership
behaviour, communication and decision making processes, and the distribution and
use of power in organizations.
This question is designed to help students understand the connection between the more
macro aspects and the micro and meso aspects of organizational behaviour. Students may
not realize that organizational structure has important implications for things like
leadership, communication, decision making, and power. A good way to organize this
answer and discussion is to first note the relationship between the structural
characteristics and mechanistic and organic structures. Mechanistic structures tend to
have narrow spans of control, high centralization and formalization, many levels of
authority, and tall rather than flat structures. Organic structures tend to favour wider
spans, fewer authority levels, less specialization, less formalization, and decentralization.
In terms of leadership behaviour, communication and decision making processes, and the
distribution and use of power in organizations, it is important to first recognize that
organic structures favour flexibility and informal communication over rigidity and the
strict chain of command along the lines of the human relations movement.
Communication in mechanistic structures is more likely to be formal and probably more
downward than upward. In terms of leadership, you are more likely to find directive and
transactional leadership behaviour in mechanistic structures. Organic structures are more
likely to have participative, transformational, and empowering leaders. Decision making
is more likely to be centralized at the higher levels of the organization in mechanistic
structures. In organic structures, decision making is more likely to be decentralized,
participative, and to employ groups. Finally, power in mechanistic structures is likely to
be based on legitimate authority along with the reward and coercive power that is
associated with it. Expert and referent power are more likely to be found in organic
structures along with the empowering of individuals throughout the organization.
3. Discuss the implications of mergers and acquisitions for organizational culture. In

particular, consider mergers and acquisitions in light of the assets and liabilities of
strong cultures. How will culture influence the success or failure of mergers and
acquisitions, and what can organizations do to increase the chances of success?
Although mergers and acquisitions are an increasingly common strategic response, they
often do not work and many result in failure. The primary reason for such problems is the
inability to merge the cultures of the two organizations. This is especially likely to be a
problem when the two firms involved have strong cultures. While strong cultures tend to
be good at coordination and conflict resolution and are often key to a firm’s financial
success, they have a number of liabilities that can damage the potential success of a
merger or acquisition. Strong cultures tend to be resistant to change which can work
against the dramatic changes that are associated with mergers and acquisitions. Thus, a
strong culture that was appropriate prior to a merger or acquisition might not be
appropriate after a merger or acquisition. A strong culture can make it difficult to change,
and might resist the formation of a new culture and more appropriate culture. Another

problem might arise if one of the cultures is pathological. Pathological cultures threaten
organizational effectiveness and they might also threaten the success of a merger or
acquisition. However, the greatest threat to the success of a merger or acquisition is the
potential clash of cultures of the two firms. Strong cultures can mix as badly as oil and
water when a merger or acquisition pushes them together under one corporate banner.
Thus, a critical factor for the success of mergers and acquisitions is to carefully manage
the integration of the two cultures. This requires careful attention and understanding of
each firm’s culture as well as an understanding of the kind of culture that the newly
formed organization will require to succeed. Task forces and committees might be set up
to work with members of each organization in the development of a new culture.
ADDITIONAL INTEGRATIVE DISCUSSION QUESTIONS AND ANSWERS
1. How do the new forms of organizational structure influence the culture of an

organization? In other words, what is the relationship between these types of
structures and an organization’s culture? What is the relationship between these
structures and the use and effectiveness of teams?
The new forms of organizational structure tend to be more flexible than traditional
structures and they break down external and internal boundaries. They represent
structures that breakdown or modify external organizational boundaries and they are
likely to be associated with particular values and organizational cultures. Such cultures
are likely to be open, informal, and participative. They can also be expected to place a
high value on risk taking, creativity, and innovation. Teams that consist of members from
different partner organizations, various functions and specialties, suppliers, and
customers are also likely to be an important characteristic of these organizational
structures.
SAMPLE ANSWER TO ON-THE-JOB CHALLENGE QUESTION: SPAN OF

CONTROL AT GOOGLE
What does this structural feature tell you about how work is organized at Google? How
does a large span of control promote grassroots innovation?
The large span of control reported at Google is typical of a flat organic structure in which
direct supervision plays little role in day-to-day operations. Work is coordinated by
standardization of skills and mutual adjustment. Under this structure, well trained and
fairly treated individuals will tend to innovate because they are intrinsically motivated
and the boss is not looking over their shoulder. Indeed, as described in Chapters 8 and 15,
Google employees are given free time to devote to innovative products that might help
Google clients. This reinforces the lack of direct supervision provided by the wide span
of control.

TEACHING NOTES FOR ORGANIZATIONAL STRUCTURE PREFERENCE

SCALE EXPERIENTIAL EXERCISE
The purpose of this exercise is for students to get some idea of their preference for a
mechanistic versus an organic organizational structure. In most organizations, there are
differences of opinion and preferences as to how the organization should be structured
and how people should conduct themselves.
This exercise can be used to introduce the topics of traditional structural characteristics
and organic and mechanistic organizational structures. To begin class discussion, the
instructor might ask students to describe the structure of organizations that they have
worked in with respect to the structural characteristics described in the text.
Additional discussion questions might include the following:
1. How effective was the organization?

2. What role did the structural characteristics play in terms of the organization’s
effectiveness?
3. Was the organizational structure mechanistic or organic?
4. Why do you think the structure was mechanistic or organic?
5. Did you like working in a mechanistic or organic organization?
This discussion can then lead into the Organizational Structure Preference Scale. You
might have students work in groups to compare and discuss their scores and determine
the group average. A class discussion might follow in which the instructor calculates the
class average. The following questions can be used for group or class discussion:
1. What is your score on the Organizational Structure Preference Scale and what are
the implications of it?
2. Based on your previous work experiences in mechanistic and/or organic
organizations, how accurate is your score?
3. Describe how you have felt working in a mechanistic or organic organization, and
how does your score on the Organizational Structure Preference Scale help you to
understand your attitudes and behaviour?

ADDITOINAL EXPERIENTIAL EXERCISE: DIAGNOSING AN ORGANIZATION
The purpose of this exercise is to choose an organization and to diagnose it in terms of

the concepts covered in the chapter. Doing such a diagnosis should enable you to see
better how the degree of “fit” among the environment, strategy, and organizational
structure influences the effectiveness of organizations.
This exercise is suitable for an individual, a group project completed outside the class, or
a class discussion guided by the instructor. In the case of the group project, each group
might choose and contact a local organization for information. Alternatively, library
resources might be consulted to diagnose a prominent national or international
organization. Your instructor might suggest one or more organizations for diagnosis.
1. Discuss in detail the external environment of the chosen organization.

a. How has the general economy affected this organization recently? Is the
organization especially sensitive to swings in the economy?
b. Who are the organization’s key customers? What demands do they make on the
organization?
c. Who are the organization’s key suppliers? What impact do they have on the
organization?
d. Who are the organization’s important competitors? What threats or opportunities
do they pose for the organization?
e. What general social and political factors (e.g., the law, social trends, and
environmental concerns) affect the organization in critical ways?
2. Drawing on your answers to question 1, discuss both the degree of environmental
uncertainty and the nature of resource dependence the organization faces. Be sure to
locate the firm or institution in the appropriate cell of Exhibit 14.3 and defend your
answer.
3. What broad strategies (excluding structure) has the organization chosen to cope with
its environment?
4. Describe in as much detail as possible the structure of the organization, and explain
how this structure represents a strategic response to the demands of the environment.
Is this the proper structure for the environment and the broad strategies that you
described in response to the earlier questions?
a. How big is the organization?
b. What form of departmentation is used?
c. How big are the spans of control?
d. How tall is the organization?
e. How much formalization is apparent?
f. To what extent is the organization centralized?
g. How complex is the organization?

h. Where does the organization fall on a continuum from mechanistic to organic?
TEACHING NOTES FOR DIAGNOSING AN ORGANIZATION EXPERIENTIAL

EXERCISE
The purpose of this exercise is for students to learn how the degree of “fit” among the
environment, strategy, and organizational structure influences the effectiveness of
organizations. Students are instructed to choose an organization and to diagnose it in
terms of the concepts covered in the chapter. To conduct the diagnosis, students should
answer the questions in the exercise.
This exercise is suitable for an individual or group project completed outside the class or
a class discussion guided by the instructor. In the case of the group project completed
outside the class, each group might choose and contact a local organization for
information. Alternatively, library resources might be consulted to diagnose a prominent
national or international organization. As the instructor, you might want to suggest one or
more organizations. It might be particularly interesting to suggest an organization that has
received considerable coverage in the press at the time of the course.
When presenting or discussing their diagnosis in class, make sure students understand the
influence of the environment on the organization and the links between strategy and
structure. Make sure they understand why the organization is structured the way it is and
the impact the environment has had on strategy and the organization’s structure. Students
should also explain how the organization has managed uncertainty and resource
dependence and how it has influenced the organization’s structure.
TEACHING NOTES FOR CONWAY MANUFACTURING CASE INCIDENT
1. Describe the structure of Conway Manufacturing. What are some of the problems
that Conway is having? Is organizational structure a factor?
The structure of Conway Manufacturing is a classic functional departmentation. That is,
employees with closely related skills and responsibilities (functions) are located in the
same department. Thus, those with skills in sales and advertising are assigned to the
marketing department, and those with skills in research are assigned to the research and
development department. The main problems that Conway is having stem from the
disadvantages of functional departmentation. These disadvantages include a high degree
of differentiation – differences in terms of goals, time spans, and interpersonal styles -
between functional departments, poor coordination, slow response to organizational
problems, open conflict between departments, and neglect of customers’ needs.
2. What would be the most effective structure to design new, high-quality products in a
short period of time? What are some methods for improving coordination?
Conway needs an organizational structure that will improve coordination between the
functional specialties and increase the response time to develop new products. One

possibility would be a matrix departmentation in which employees remain members of

their functional department while also reporting to a product or project manager. A
project manager might be assigned to each one of Conway’s best selling products.
Members of each of the functional departments (i.e., research and development,
engineering, production, and marketing) would then report to the project manager as well
as the manager of their own function. This would be similar to the use of cross-functional
teams as described in Chapter 7. Being focused on a particular product or project can lead
to better communication among the representatives from the various functional areas.
Another possibility would be an organizational structure without traditional boundaries.

The boundaries that divide employees such as hierarchy, job function, and geography as
well as those that distance companies from suppliers and customers can be broken down
in order to improve coordination, cooperation, and communication among those groups
who have a vested interest in improving the company’s products. As a result, employees
and managers from different functions and specialties, customers, and suppliers can work
together, share ideas, and identify the best ideas for the organization’s products.
In addition, instead of being organized around functions, the organization would be made
up of self-managing and cross-functional work teams that are organized around core
business processes that are critical for satisfying customers’ needs.
Improving coordination requires integration – coordination across differentiated

departments. Each of the three methods of achieving integration discussed in the text can
be considered. Liaison roles can be used so that a person serves as a link between two
departments in order to achieve coordination between the departments. Task forces can
be set up to design new products consisting of representatives from each department
involved. This would probably be the best approach given that task forces are used to
address coordination problems that involve several departments simultaneously, which is
the case at Conway. Finally, integrators can also be used. They are organizational
members who are permanently assigned to facilitate coordination between departments.
They are especially useful for dealing with conflict between (1) highly interdependent
departments, (2) which have very diverse goals and orientations, (3) in a very ambiguous
environment. All conditions appear to hold for Conway.

TEACHING NOTES FOR CHRIS PETERSON AT DSS CONSULTING CASE

STUDY
1. Describe the organizational structure of DSS Consulting in the late 1990s. What
method of departmentation did they use, and why did they choose it?
During the late 1990s, DSS organized itself into four practice departments:
Procurement and Systems, Information Technology, Contract Negotiation, and
Facilities Planning. They chose this structure to deal with different types of
engagements. This is an example of product departmentation. With product
departmentation, departments are formed on the basis of a particular product, product
line, or service. Each department operates fairly autonomously because it has its own
set of functional specialists dedicated to the output of that department. A key
advantage of product departmentation is better coordination among the functional
specialists who work on a particular product line. Since their attentions are focused on
one product and they have fewer functional peers, fewer barriers to communication
should develop. Other advantages include flexibility, since product lines can be added
or deleted without great implications for the rest of the organization. Also, product-
focused departments can be evaluated as profit centres, since they have independent
control over costs and revenues. This is not feasible for most functional departments.
Product departmentation often serves the customer or client better, since the client
can see more easily who produced the product. All in all, product structures have
more potential than functional structures for responding to customers in a timely way.
However, professional development might suffer without a critical mass of
professionals working in the same place at the same time. Also, economies of scale
might be threatened and inefficiency might occur if relatively autonomous product-
oriented departments are not coordinated.
2. Discuss the changes that began to affect DSS in 2005. Use the material in the chapter
on the components of the external environment, interest groups, environmental
uncertainty, and resource dependence to explain how the environment was affecting
DSS.
A number of changes began to affect DSS in 2005. As the founders were cutting back
their involvement in the company, management decisions were being passed on to
new leaders. As well, without the involvement of the founders who had generated
much of DSS’s business, there was a need for new marketing strategies. In addition,
the types of problems for which districts were looking for help was becoming more
diverse and did not fit clearly into one of the practice areas. As a result, this created a
demand for new types of services. In addition, state standards for school districts
were diverging and as a result certain issues were more important in one region than
in another. As a result of these changes, DSS experienced stagnation in revenue
growth. With respect to the issues in the chapter, these changes suggest the following:
Components of the external environment: A number of components of the external

environment are affecting DSS. First, customers are facing new problems and

therefore require new types of services. Second, changes in state standards for school
districts (social/political factors) means that the issues of importance across various
regions will differ.
Interest groups: Interest groups are parties or organizations other than direct
competitors that have some vested interest in how an organization is managed.
Different interest groups evaluate organizational effectiveness according to different
criteria. Interest groups that have a vested interest in DSS include school districts and
state governments.
Environmental uncertainty: Environmental uncertainty exists when an environment is
vague, difficult to diagnose, and unpredictable. Uncertainty depends on the
environment’s complexity (simple versus complex) and its rate of change (static
versus dynamic). For DSS, the environment is becoming more uncertain as it is no
longer clear what services are required by different school districts and state standards
across regions are diverging. Thus, it would seem that the environment is becoming
more complex given that the needs of various school districts and regions are
changing, and more dynamic given the changing needs of clients. The result is a
dynamic/complex environment which provokes the most uncertainty. Thus, the
environment of DSS is increasing in uncertainty.
Resource dependence: Resource dependence refers to the dependency of
organizations on environmental inputs, such as capital, raw materials, and human
resources as well as outputs such as customers. With the founders of DSS reducing
their involvement in the company, there is a greater dependence on finding new
leaders including those hired from other consulting companies (greater dependency
on inputs). In addition, with the changes in school districts and needs and differences
in state standards, there is a greater dependency on finding new customers (outputs).
Thus, DSS is becoming more dependent on inputs and outputs.
3. How did DSS Consulting respond to the changes in the environment? Use Exhibit
14.4 to explain their response. Do you think this was an appropriate response to the
changes in the environment?
In response to the changes in the environment, the founders of DSS decided that a
shift in strategy was necessary for DSS to continue to grow and be successful. It was
determined that to continue to be successful, DSS would need to expand beyond its
traditional customer base of small districts and offer services to larger districts more
so than in the past. To accomplish this, they would need to develop new services and
re-organize into a more cross-functional, customer-focused organization. With respect
to Exhibit 14.4, one can see that the founders perceived the increasing uncertainty and
resource dependence (see answer to question #2), formulated a strategic response (a
change in strategy), that resulted in a change in organizational structure that they
believed will result in continued success and organizational effectiveness.
Given the changes in the environment which will require providing new services to
new customers, a change in strategy seems appropriate and is in fact called for.
Furthermore, a change in structure is also required given that the types of problems
school districts are now facing no longer fit clearly into the current four practice areas

of DSS, and are more diverse meaning that more and varied types of services will
need to be provided to new customers in both small and larger school districts.
In summary, a new strategy and structure is required to provide new and varied
services to new and diverse customers.
4. Discuss the new organizational structure in terms of the division and coordination of
labour and departmentation. What are the pros and cons of the new organizational
structure? What effect did the new organizational structure have on the Southwest
Region Team and its ability to successfully complete its project?
As described in the case, a major part of the strategic change involved reorganizing
DSS from a purely practice-oriented functional structure to a hybrid structure. As a
result, the consultants are to be assigned to new cross-functional teams that will be
responsible for marketing and delivering services to districts within a particular
geographic region. The practice groups were maintained to provide specialized
expertise to support the cross-functional teams in their work but with many fewer
staff members than in the past. The cross-functional teams had two responsibilities.
They were to build relationships with the school districts in their regions and provide
a full range of DSS consulting services to those districts. They were also to develop
new consulting offerings in response to district needs. The intention was that the
cross-functional teams would eliminate the functional “silos” that constrained the
services DSS could provide and would help DSS develop services that could be sold
to larger districts.
Thus, in terms of the various terms used in the chapter, this is primarily geographic
departmentation. Relatively self-contained units deliver an organization’s products or
services in a specific geographic territory. In the case of DSS, the cross-functional
teams are responsible for marketing and delivering services to districts within a
particular geographic region. This form of departmentation shortens communication
channels, allows the organization to cater to regional tastes, and gives some
appearance of local control to clients and customers. In the case, they refer to the new
structure as a hybrid because they are retaining the functional “silos” from the
previous structure. Hybrid departmentation is a structure based on some mixture of
functional, product, geographic, or customer departmentation. Hybrids attempt to
capitalize on the strengths of various structures, while avoiding the weaknesses of
others.
The advantages and disadvantages of a geographic structure parallel those for product
departmentation. Thus, one can expect better coordination and communication among
the members of each cross-functional team, and greater flexibility, since services can
be added or deleted in response to district needs without great implications for the rest
of the organization. In addition, each cross-functional team can be evaluated as profit
centres, since they have independent control over costs and revenues, and they can
serve the customer or client better, since the client can see more easily who provides
the service. Thus, they are more effective for responding to customers in a timely

way. On the down side, economies of scale might be threatened and inefficiency
might occur if cross-functional teams are not coordinated. Thus, two cross-functional
teams might be working on the development of the same new service for months
without being aware of each other’s efforts or might even be working at cross
purposes.
With respect to the division and coordination of labour, the new structure provides
more autonomy and control within each cross-functional team and can facilitate
timely communication and coordination within the team. However, the new structure
also creates greater differentiation which is the tendency for managers in separate
units, functions, or departments to differ in terms of goals, time spans, and
interpersonal styles. In particular, the various cross-functional teams will create high
differentiation in the organization as each cross-functional team operates more
autonomously on its own projects. In terms of coordinating labour, direct supervision
is provided by the leader of each group (Chris Peterson is the leader of the Southwest
Region Team) and mutual adjustment occurs among group members. The main
problem, however, is that there is little communication and coordination between the
various cross-functional teams and with the functional specialists which contributed
to the difficulty that the Southwest Region Team had in its ability to successfully
complete its project.
5. What effect do you think the new organizational structure had on the decision to
cancel the Southwest Region’s project? Explain your answer.
The new organizational structure had a great deal to do with the decision to cancel the
Southwest Region’s project. Part of the problem stems from the fact that the cross-
functional teams were so autonomous and differentiated that they had little interaction
and communication with each other. As noted in the case, members of the Southwest
Region Team spent nearly all their time working with one another and saw little of
the other consultants not on their team. In addition, there was little interest in what
other teams were doing and when someone brought it up it was sometimes seen as a
distraction to the group. Further, one of Chris’ goals was to help the group avoid
distractions and to continue to build cohesion. Even Chris acknowledged to Meg that
she only had a general idea of what other teams had been working on and that her
team had focused on their own project. Thus, the structure had the effect of insulating
the team from the other teams and the rest of the organization which meant that they
did not know what other teams were working on and did not receive very much
feedback from the other teams about their project.
In addition, the new organizational structure also made it very difficult for the
Southwest Region Team to get help and support from others in the organization,
especially the functional specialists. For example, when Chris sent the program
description to the DSS functional specialists who would be needed to provide
technical support in developing the consulting protocols and specifying parts of the
code for managing the data base, most of the functional specialists simply
acknowledged receiving them but did not offer any real comments. Meg responded

by asking a couple of questions and saying that she and Chris would talk more about
it later. The group took all this to mean that all was well. They were pleased with the
response as no one had raised any objections to the program design or identified any
difficulties that would slow the project down.
As the group made changes to the project specifications following comments from the
districts, they began to have problems. There were disagreements, teams members
had concerns about the direction DSS was going, and they questioned whether the
team would be able to accomplish its task. Chris arranged for a Friday barbeque and
meeting which seemed to put the team back on track to complete the project.
However, completing the project required the specialized knowledge of the DSS
specialists in the practice groups. When a question came up that group members
could not answer, a member of the Southwest Region Team would email a question
or have a face-to-face meeting with the specialist. This seemed to work well for
simple issues but not for complex problems. And when team members tried to get
functional specialists to spend time working on the more complex problems, they
were often not given much help and were occasionally rebuffed. Chris would then
have to go to the manager of the practice area to try and get support but that too often
did not help. Further, even when the manager of an area said that one his specialists
will work with the team when they are contacted by a team member, team members
were then told that the project had not been built into the schedule and they would not
be able to help until other things got done. Chris then arranged a meeting with Meg to
discuss the difficulty her team was having in getting support from the specialists.
However, while Meg seemed sympathetic she did take direct action to solve the
problem.
In summary, the organizational structure resulted in a complete lack of support for the
Southwest Region Team project. It seems that nobody in the organization including
other teams, the functional specialists, and even Meg had much knowledge or interest
in the Southwest Region Team project and as a result, it failed to get the support of
others in the organization and was cancelled.
6. Do you think the outcome of the Southwest Region’s project would have been more
positive if a different organizational structure had been adopted? Is there anything
else that might have prevented the cancellation of the project? Consider the potential
effects of the different methods of coordinating divided labour. What might have
saved the project?
At first one gets the impression that the Southwest Region Team has done a great job.
As noted by Chris, the group had done a terrific job of specifying and developing a
new product that was ready for a beta test and it had received positive comments from
the district. In addition, the team itself had been very effective. Team members
worked well together, they were cohesive, and made decisions easily and quickly.
What’s more, the team completed the project even though they did not receive very
much help from the specialists in the practice groups. Further, even though some

members initially had doubts about the new direction of DSS, they were now all
committed to the new direction. However, according to Meg the teams in other
regions had not reported any interest on the part of the districts they had worked with
for this type of product and that it might not be of interest to the large districts.
However, Chris does not understand how other regional teams could say that there
would not be a demand for the product when they did not even know what the
planning and scheduling system could do. Meg also told Chris that the Southwest
Region Team would now focus exclusively on marketing DSS products and not be
involved in product development work and that there would be some change to the
composition of the team.
It is quite possible that this outcome would have been different if a different
organizational structure had been adopted. The problem with the hybrid
departmentation was that the cross-functional teams which were a geographic
departmentation were completely separate from the DSS functional specialists. As a
result, they had little to no interaction and the functional specialists did not believe
they had any responsibility for working with the Southwest Region Team. Thus, the
Southwest Region Team was highly autonomous but completely separated from other
teams and the specialists which made it very difficult to get the help and support it
needed for the project to be a success.
A more effective structure would have been a matrix departmentation which is an

attempt to capitalize simultaneously on the strengths of both functional and product
departmentation. In its most literal form, employees remain tied to a functional
department such as marketing or production, but they also report to a product
manager who draws on their services. For example, in a firm in the chemical industry,
a marketing expert might matrix with the household cleaning products group. There
are many variations on matrix design and most of them boil down to what exactly
gets crossed with functional areas to form the matrix and the degree of stability of the
matrix relationships. For example, besides products, a matrix could be based on
geographical regions or projects. For DDS, the ideal matrix design would cross the
cross-functional teams with the functional specialists. If this had been done then there
would have been a functional specialist from each of the four areas who would have
been available to work with the Southwest Region Team on its project. This not only
would have provided it with the expertise and support it needed to complete the
project, but it also would have resulted in greater buy-in from other members and
parts of the organization. The matrix departmentation provides a degree of balance
between the abstract demands of the product or project and the people who actually
do the work, resulting in a better outcome. Also, it is very flexible. People can be
moved around as project flow dictates, and projects, products, or new regions can be
added without total restructuring. Being focused on a particular product or project can
also lead to better communication among the representatives from the various
functional areas which could have helped save the Southwest Region Team’s project.
Thus, a matrix departmentation might have saved the project.

In addition to a matrix departmentation, various methods of coordination might have

also saved the project given the high degree of differentiation between the groups and
the need for integration. If there was greater integration between the various teams as
well as between the teams and the functional specialists than each team and the
specialists would be more aware of what other teams were working on and more able
and willing to help and provide support. A liaison role is occupied by a person in one
department who is assigned, as part of his or her job, to achieve coordination with
another department. In other words, one person serves as a part-time link between
two departments. In this case, such a person might have helped to coordinate the work
of each cross-functional team with the functional specialists. Integrators are
organizational members who are permanently installed between two departments that
are in clear need of coordination. Integrators are especially useful for dealing with
conflict between departments that (1) are highly interdependent, (2) have very diverse
goals, and (3) operate in a very ambiguous environment. An integrator might have
been able to better coordinate the work of the Southwest Region Team with the
functional specialists.
In summary, the outcome of the Southwest Region Team’s project might have been
more positive if a matrix departmentation structure had been adopted rather than a
hybrid departmentation, and if various methods of coordination had been used such as
a liaison role or an integrator. This might have prevented the cancellation of the
project because it would have provided greater interaction, communication,
involvement, and support of other members of the organization.
ADDITIONAL CASE STUDY: THE RISE AND FALL OF SATURN
In February 1984, a radical new experiment began with the establishment of the Group of
99, which consisted of 99 individuals representing a broad cross-section of members of
the United Auto Workers (UAW), General Motors (GM) managers, and staff from 55
plants and 14 UAW regions. The group’s mission was to study GM divisions as well as
other organizations and to create a new approach to building automobiles. The group
travelled some two million miles and concluded that employees perform best when they
feel part of the decision-making process, which meant that to overcome the traditional
difficulties of automobile manufacturing, auto plants would have to operate under a
different philosophy.
On January 8, 1985, then-GM Chairman and CEO Roger B. Smith held a press
conference in Detroit to make a “historic announcement”: the unveiling of Saturn, GM’s
first new brand in 70 years. Saturn was conceived as a totally new corporation, a wholly
owned General Motors subsidiary that delivered its first cars in the fall of 1990. The
autonomous division, headquartered in Spring Hill, Tennessee, had its own sales and
service operations.

Why did GM decide to separate Saturn so decisively from the existing corporate
structure, rather than just add yet another product line to its Chevrolet, Oldsmobile,
Pontiac, Buick, and Cadillac lines?
General Motors insiders and auto industry analysts cited two primary reasons. First,
GM badly needed to find ways to cut costs to compete in the small-car market, in which
estimates suggested that Japanese manufacturers enjoyed a great cost advantage.
According to Smith, Saturn’s mission was “to develop and produce an American-made
small car that will be fully competitive with the best of the imports…[and] affirm that
American ingenuity, American technology, and American productivity can once again be
the model and the inspiration for the rest of the world.”
Second, top GM executives hoped to use the Saturn venture as a testing ground for
innovations that could be applied throughout the rest of the organization, especially ones
that could get new models to the market more quickly. According to Smith, the
techniques GM learned from Saturn would spread throughout the company, “improving
the efficiency and competitiveness of every plant we operate… Saturn is the key to GM’s
long-term competitiveness, survival and success as a domestic producer.” To accomplish
both these goals, the freedom of a completely “fresh start” and the protection autonomy
offered seemed to be essential.
With the exception of the use of plastic for vertical body parts, Saturn cars did not
represent a radical technical departure for GM. Rather, it was the way in which the cars
were built and marketed that was innovative. A primary goal was to create a culture in
which employees had a sense of ownership over the functions they performed and a
better understanding and bigger picture of the business. Tasks traditionally performed by
management were performed by assembly workers. Extensively trained self-managed
work teams assembled the cars, maintained their own equipment, ordered supplies, set
work schedules, and even selected new team members. In addition, a consensus-based
decision-making process involved employees in decisions that affected them. Each team
had to feel 70 percent comfortable with a decision.
To control quality and reduce transport costs, much subassembly was done by
suppliers located close to the plant or even within the plant itself, thus fostering a close
cooperative arrangement. Parts that did come in from the outside were delivered precisely
when they were needed and directly to the location where they were used in assembly. In
the marketing domain, dealers were given more exclusive territories than is typical of
North American auto manufacturers. As long as they met stiff requirements in several
key areas, they were given substantial autonomy to tailor their operations to local needs.
These changes in manufacturing and marketing were supported by a number of

departures from conventional structure, management style, and labour relations practices.
Saturn had a flatter management structure than the traditional GM divisions. A
computerized, “paperless” operation comprising email and a single, highly integrated
database sped decisions and countered bureaucracy. Finally, GM agreed to a truly
groundbreaking labour contract with the United Auto Workers. The “Memorandum of

Understanding,” as it was called, meant that Saturn would not be bound by the union’s
cumbersome contract, which included 200 job classifications at some GM factories and
rules prohibiting members of one group performing the work of another group. Rather,
Saturn would have only a handful of job classifications. There were no time clocks, and
workers were on salaries, although these salaries averaged less than industry hourly
wages (80 percent). In addition, restrictive work rules were eliminated to support the
team assembly concept. In exchange for these concessions, GM devoted a percentage of
the industry hourly wage to performance incentives tied to quality and productivity and a
profit-sharing plan for Saturn workers. Also, 80 percent of the workforce was granted
what amounted to lifetime employment security. GM agreed that it would not lay off
more than 20 percent of the workforce under any circumstances. Union representatives
sat on planning and organizing committees. Saturn advertisements used the tagline “A
Different Kind of Company. A Different Kind of Car.”
Did Saturn fulfill the promise of its multi-billion-dollar investment? Early cars
suffered from quality glitches that the company attended to quickly, even replacing some
faulty cars for free. As a result of such tactics and extremely cooperative dealers (many of
whom organized customer picnics and car clinics), intense customer loyalty resulted in
Saturn turning a profit three years after the first car rolled off the assembly line.
However, the company operated in the red most years and had not recouped the initial
investment. Many observers noted the failure of other parts of GM to embrace the Saturn
innovations. The United Auto Workers consistently resisted Saturn-type labour
agreements at any other manufacturing sites. Saturn was slow to develop new models,
and competitors were outpacing the company in terms of technical refinement and safety,
even while copying some of its “buyer-friendly” sales techniques. Although Saturn
buyers had good demographics in terms of income and education, the company was slow
to develop larger sedans, minivans, and sport utility vehicles to offer them. Gaining
investment funds for such projects from GM had been difficult because the parent firm
was busy recentralizing much vehicle development and engineering. When Saturn
executives sought funds to develop a Saturn SUV, the response from GM was that
customers should buy Chevy SUVs.
Four years after its start-up, Saturn became part of the GM Small Car Group. This
required Saturn leadership to work even harder to ensure the spirit of the Saturn
partnership remained strong. In 1996, a decision was made to build a new mid-size
Saturn model at an existing GM plant in Delaware. Even though organizational and
market changes challenged Saturn’s unique culture, the original memorandum of
agreement between Saturn and its workers was renewed in late 1999.
Meanwhile, Saturn had been rebuilding its aging product line. In 1999, the new L-
series went on sale, making it the first new Saturn product in nearly a decade. In a long-
awaited move, it finally introduced a sport utility vehicle, marking the first expansion in
the division’s history beyond its coupes, sedans, and station wagons, and sending a signal
that Saturn was now in the truck business.

In December 2001, the new Vue sport utility vehicle was unveiled, followed by a
complete restyling of its mid-sized L-Series. In 2002, Saturn unveiled the Ion to replace
the S-Series, the car that first launched Saturn, and in 2003 it unveiled the Relay minivan.
However, these vehicles were, for the most part, similar to models sold by other GM
divisions.
In 2004, GM absorbed Saturn into its companywide Global Manufacturing System.

Saturn workers voted to return to the GM-UAW master contract giving them the same
contract as the rest of GM’s workforce. The Saturn plant was renamed GM Spring Hill
Manufacturing.
In November 2005, General Motors announced that it would be eliminating 5000 jobs
in addition to 25 000 previously announced cuts and would be closing all or part of a
dozen plants. This time, however, even Saturn was not to be spared. What had once been
the company’s centrepiece of workplace innovation was now slated to lose one of its two
production lines and as many as 1500 jobs. Production of the Ion compact was shifted to
another GM plant, and the Saturn plant would make some non-Saturn vehicles. Why
Saturn? According to a GM spokesperson, “We really consider it to be another GM
facility, just like any other.”
In 2009, GM CEO Rick Wagoner was ousted by the U.S. government as part of a
bailout effort to save the company in the midst of the global automobile crisis. GM was
given 60 days by the government to submit a new restructuring plan. GM subsequently
filed for bankruptcy protection and as part of its restructuring plan decided to sell off
several of its brands, including Saturn. GM had initially planned to discontinue and shut
down Saturn if a buyer could not be found.
During the global auto crisis, Saturn’s sales plunged, leaving dealers with an
inventory of 32 647 vehicles. Customer loyalty to the Saturn brand was also faltering, and
the Astra, a new model, flopped and was discontinued.
In June 2009, GM made a deal to sell the Saturn brand and the service, parts, and
distribution operations to auto-racing magnate Roger Penske and his company, Penske
Automotive Group, who planned to find another manufacturer to build Saturn vehicles. In
a statement, Penske, who operated more than 300 franchised automobile dealerships,
said, “For nearly 20 years Saturn has focused on treating the customer right. We share
that philosophy, and we want to build on those strengths.”
However, a few months later the deal fell apart because Penske was unable to find an
auto maker to manufacture Saturn vehicles.
Roger Smith, who had publicly staked GM’s future on Saturn’s success, passed away
in 2007. While he had hoped to remake GM using Saturn as the model, it now seems that
the opposite happened. The experiment to create a “different kind of company” had come
to an end. GM stopped producing Saturn vehicles shortly after the Penske deal fell
through.

Sources: Austen, I. (1999, March 26). Problem child. Canadian Business, 22–31; Bennet,
J. (1994, March 29). Saturn, GM’s big hope, is taking its first lumps. New York Times,
A1, A12; Fisher, A.B. (1985, November 11). Behind the hype at GM’s Saturn. Fortune,
34–49; Garsten, E. (2002, March 28). Saturn jazzes up small-car offerings. Toronto Star,
C6; Keenan, G. (2002, February 6). GM driven to improve. Globe and Mail, C1; Staff.
(1994, October 17). Will it work this time? Autoweek, 4–5; Taylor, A., III. (1988, August
1). Back to the future at Saturn. Fortune, 63–69; Treece, J.B. (1990, April 9). Here comes
GM’s Saturn. Business Week, 56–62; Vaughn, M. (1999, July 5). Smiling happy people.
Autoweek, 20–21; Woodruff, J. (1992, August 17). Saturn. Business Week, 86–91; Kiger,
P.J. (2005, December 12). Saturn plant’s innovations live on at GM despite cutbacks.
Workforce Management, 84(14), 3–4; Solomon, C.M. (1991, June). Behind the wheel at
Saturn. Personnel Journal, 70(6), 72–74; Ingrassia, P. (2009, April 4). Saturn was
supposed to save GM. Newsweek, 153(15), 20–24; Marr, K. (2009, June 6). Racing
magnate Penske to buy Saturn from GM. The Washington Post (online),
www.washingtonpost.com; Terlep, S., & Stoll, J.D. (2009, June 6). Penske will buy,
remake Saturn—Racing legend/auto magnate will add auto brand and dealers to empire.
Wall Street Journal, B1; Stoll, J.D. (2009, June 29). At Saturn, a split relying on the
Penske name. Wall Street Journal, B1; Keenan, G. and Krashinsky, S. (2009, October 1).
End of the road for Saturn as Penske walks. Globe and Mail, B1.
Questions
1. Discuss the role that environmental constraints and opportunities may have played in
the creation and fall of Saturn. What contributed to its inception and its end?
2. Apply the concepts of environmental uncertainty, resource dependence, and strategy
to the Saturn case. To what extent does the strategy correspond to the constraints and
opportunities of the environment?
3. Consider the relationship between the strategy and structure of the Saturn plant. What
came first and how and why is the structure different from the rest of GM?
4. What strategic responses were used by Saturn to try to cope with environmental
uncertainty? What other strategic responses might have been considered?
5. What does the story of Saturn teach us about the linkages between environment,
strategy, and structure? What lessons can be learned from the Saturn experiment?

TEACHING NOTES FOR THE RISE AND FALL OF SATURN CASE STUDY
This case should help students see how many of the topics discussed in the chapter come
together. Saturn is clearly the result of environmental factors and various constraints and
opportunities. Strategies to manage environmental uncertainty and resource dependence
have been incorporated into the structure and work process. The philosophy and strategy
of Saturn required an organizational structure that differs from the rest of GM and the
more traditional approach to automobile manufacturing. Thus, the Saturn experiment
shows how the environment, strategy, and structure are all linked right to the very end
when the environment once again changed and spelled the end of Saturn.
1. Discuss the role that environmental constraints and opportunities may have played in
the creation and fall of Saturn. What contributed to its inception and its end?
A strong impetus for the Saturn venture was the $2,000 cost advantage per small car that
Japanese competitors held at the time. However, cost reductions mean little unless the
quality of the Saturn automobile is comparable with that of Japanese makes. To enhance
quality, GM exercised particular control over parts suppliers, inducing them to locate
within or near the plant to facilitate communication with Saturn engineering and
manufacturing personnel. During the recessionary early 1980s, the general economy
faltered, and unions lost considerable bargaining power. Union membership fell, and GM
capitalized on changing social attitudes toward unions to forge an innovative contract
with the United Auto Workers. However, an interest group, the National Right to Work
Legal Defence Foundation, challenged the legality of the contract. This group, which
provides legal aid to workers who do not wish to join unions, argued that it was improper
for GM to specify the United Auto Workers as a bargaining agent in advance of any
workers having been hired. The challenge failed.
Several technological advances were exploited at Saturn, although not as many as GM

envisioned at the start of the project. Still, the plastic body parts are innovative, as is a
sophisticated paperless database operation. Finally, GM gambled that it could exploit a
segment of customers that would not normally consider a domestic car—dedicated
import buyers. It did not wish to develop a new car only to divert sales from existing GM
product lines.
Finally, the global automobile crises and recession spelled the end of Saturn as GM had
to restructure itself and become leaner and more efficient. This meant the end of several
of its brands including Saturn. Clearly, the inception and end of Saturn was the result of
environmental constraints and opportunities.
2. Apply the concepts of environmental uncertainty, resource dependence, and strategy

to the Saturn case. To what extent does the strategy correspond to the constraints and
opportunities of the environment?
Environmental uncertainty exists when the environment is vague, difficult to diagnose,
and unpredictable. Resource dependence refers to the dependency of organizations on
environmental inputs such as capital, raw materials, and human resources as well as
outputs such as customers. Strategy is the process by which top executives seek to cope

with the constraints and opportunities that an organization’s environment poses. Saturn
used a number of strategies to manage environmental uncertainty and resource
dependence. To control quality and reduce transport costs, much of the subassembly is
done by suppliers that are located close to the plant or even within the plant itself. Parts
that come from the outside are delivered precisely when they are needed and directly to
the location where they are used in assembly. In terms of labour, GM agreed to a labour
contract with the United Auto Workers in which the workers would be on salaries and
restrictive work rules were eliminated. In exchange, GM provides performance incentives
and profit sharing and 80 percent of the workforce is guaranteed lifetime employment
security. The innovative agreement between GM and the United Auto Workers regarding
Saturn is an attempt to cope with environmental uncertainty. General Motors’ strategy
involved guaranteeing itself a ready supply of flexible labour at somewhat less than the
going wage rate at its other plants.
3. Consider the relationship between the strategy and structure of the Saturn plant.
What came first and how and why is the structure different from the rest of GM?
Part of the GM Saturn organization strategy is to reduce the development time for new
models and to get them to the market more quickly. It was also to be a testing ground for
innovations that could be applied throughout the rest of the organization. To implement
the strategy, the company opted for a flatter, more organic, less bureaucratic structure for
Saturn. The more traditional, hierarchical and bureaucratic structure would not be likely
to result in innovations such as getting new models to the market more quickly. Thus, in
the case of GM Saturn, the strategy came first and determined the structure, rather than
the other way around. This is a reasonable approach given that GM Saturn involved the
formation of a new organization and a new approach to manufacturing automobiles. The
structure differs from the more mechanistic structure found in the rest of GM which was
necessary in order to be able reduce development time. Such a structure was also
necessary in order to overcome the traditional difficulties of automobile manufacturing.
4. What strategic responses were used by Saturn to try to cope with environmental
uncertainty? What other strategic responses might have been considered?
As indicated above, a key strategic response was the organizational structure of Saturn
which was flatter and more organic than the rest of GM. As a result, tasks traditionally
performed by management are now performed by assembly workers and self-managed
teams assemble the cars, maintain their own equipment, order supplies, set work
schedules, and even select new team members. Employees also participate in a
consensus-based decision-making process. In terms of other strategic responses, there is a
form of vertical integration in that much of the subassembly is done by suppliers that are
located close to the plant or even within the plant itself. This is a way of exerting greater
control over sources of organizational supply. Establishing legitimacy was also probably
important as shown by the establishment of the Group of 99 with members of the UAW,
GM managers and staff from 55 plants and 14 UAW regions.
5. What does the story of Saturn teach us about the linkages between environment,
strategy, and structure? What lessons can be learned from the Saturn experiment?

The story of Saturn demonstrates the linkages between environment, strategy, and
structure. The origin of Saturn was the result of the need to compete in the small-car
market where Japanese manufacturers held a cost advantage. This led to the strategy of
separating Saturn from the existing corporate structure in order to overcome the
traditional difficulties of automobile manufacturing. The strategy was to reduce the
development time for new models and to get them to the market more quickly. It was also
to be a testing ground for innovations that could be applied throughout the rest of the
organization. As a result, Saturn opted for a flatter, more organic, less bureaucratic
structure. The more traditional, hierarchical and bureaucratic structure would not be
likely to result in innovations such as getting new models to the market more quickly.
Thus, the strategy came first and determined the structure. This is a reasonable approach
given that GM Saturn involved the formation of a new organization and a new approach
to manufacturing automobiles. The structure differs from the more mechanistic structure
found in the rest of GM which was necessary in order to be able reduce development
time. Such a structure was also necessary in order to overcome the traditional difficulties
of automobile manufacturing.
The new organizational structure also had implications for how the cars were to be built
which involved providing employees with a sense of ownership and better understanding
of the business. Employees performed tasks that were traditionally performed by
management. They were extensively trained and participated in decision making through
a consensus-based process in which they were involved in decisions that affected them.
The shop floor organization, with its work teams and reduced supervision, is more
organic than is typical for the North American auto industry. This is also reflected in the
managerial and professional ranks, in which the technology for designing cars was
modified. Early involvement of all critical departments also points to a more organic
structure backed up by sophisticated electronic aids to facilitate coordination and
communication. The changes in technology also required the enrichment of the assembly
workers jobs. The formation of self-managing teams in which team members maintain
their own equipment, order supplies, set work schedules, and select new team members
represents a major change in job design.
The story of Saturn demonstrates how the environment was responsible for the strategy
that led to the creation of Saturn, and the Saturn strategy had direct implications for
structure. Of course, when the environment changed the Saturn strategy was no longer
viable and this led to its demise. However, some of the practices that were created in the
design of Saturn vehicles as part of the new approach to building automobiles such as
collaborative work practices, teams, and work role flexibility, have in fact spread
throughout the rest of GM.
What can we learn from the Saturn experiment? For starters, it demonstrates the
importance of strategy and structure in responding to the environment. The Saturn story
also shows us how difficult it is to implement a new strategy and innovations in a large
organization. Some say that if the Saturn strategy had been adopted throughout the auto
industry the situation facing North American auto makers during the recent economic
crises would have been very different. Others say that Saturn represents a missed

opportunity for building more competitive fuel-efficient cars and for better labour-
management relations throughout the auto industry. Interestingly, today’s more flexible
plants such as Ford Motor’s Michigan Assembly Plant require specially trained workers
who have more skills, are more flexible, and are more involved in their work. Perhaps the
Saturn experiment has had more of an impact on the auto industry than we think!

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CHAPTER 14

ENVIRONMENT, STRATEGY, AND STRUCTURE

CHAPTER LEARNING OBJECTIVES

After reading Chapter 14, students should be able to:

CHAPTER OUTLINE AND TEACHING NOTES

The External Environment of Organizations

The external environment includes those events and conditions surrounding an

Organizations as Open Systems

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Components of the External Environment

In addition to these basic components of organizational environments, there are a large

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• Simple environment. A simple environment involves relatively few factors, and

Rate of change and complexity can be arranged in a matrix. A simple/static environment

Strategic Responses to Uncertainty and Resource Dependence

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of the environment. The strategy must be implemented by selecting appropriate managers

What Is Organizational Structure?

Vertical Division of Labour

Communication. As labour is progressively divided vertically, timely communication and

Horizontal Division of Labour

Differentiation. Differentiation is the tendency for managers in separate units, functions,

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Functional Departmentation. Under functional departmentation, employees with closely

Product Departmentation. Under product departmentation, departments are formed on

Matrix Departmentation. Under matrix departmentation, employees remain members of a

Other Forms of Departmentation. Several other forms of departmentation also exist.

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A hybrid departmentation is a structure based on some mixture of functional, product,

Basic Methods of Coordinating Divided Labour

Direct Supervision. This is a very traditional form of coordination.

Standardization of Outputs. Coordination is achieved by ensuring that the work meets

Mutual Adjustment. Mutual adjustment relies on informal communication to coordinate

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Other Methods of Coordination

Integrators. Integrators are organizational members who are permanently assigned to

Traditional Structural Characteristics

Management scholars and practising managers have agreed on a number of

Flat versus Tall

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Size and Structure

Summarizing Structure – Organic versus Mechanistic

There are two traditional viewpoints on organizational structure. Mechanistic structures

Mechanistic structures can be contrasted with organic structures. Organic

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Contemporary Organic Structures

The Ambidextrous Organization

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Network and Virtual Organizations

The most interesting networks are dynamic or virtual organizations. In a virtual

The Modular Organization

Other Forms of Strategic Response

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Vertical Integration. Vertical integration involves taking control of sources of resource

Strategic Alliances. Strategic alliances consist of actively cooperative relationships

Legitimacy can be achieved by associating with higher status individuals or

MINI-LECTURE: ENVIRONMENTAL INFLUENCE

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SAMPLE ANSWERS TO DISCUSSION QUESTIONS

1. Construct a diagram of the various interest groups in the external environment of

2. Which basic method(s) of coordination is (are) most likely to be found in a pure

3. What are the relative merits of mechanistic versus organic structures?