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Organization Theory
Winter Term 2023/2024

Session 1: Introduction to Organizations
Univ.-Prof. Dr. Anja Tuschke
© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

INSTITUTE OF STRATEGIC MANAGEMENT
Introduction to the Course

Teaching Team
Lecture Tutorials
Prof. Dr. Anja Tuschke

Head of the Institute
Gabija Baugirdaite Dr. Simone Eulitz Dr. Max Braun Jannik Werner
Course Coordination
For personal inquiries:
Jannik.werner@lmu.de
Claudia Lusch Contact us via the Moodle discussion forum
Secretary

Introduction
Overall Course Objectives
Managers at organizations continually face a number of challenges

For example:
• How can organizations adapt to or control competitors, customers, government, and creditors in a fast-paced
economy?
• What strategic and structural changes are needed to help the organization attain effectiveness?
• How can managers cope with the problems of large size and bureaucracy?
• How much and what type of innovation and change is needed?
Analysis of the organization from a macro perspective

• Examine the principles that underlie the design, operation, change, and redesign of organizations
• Understanding how managers can change these principles to respond to challenges and thereby maintain and
increase the organization’s effectiveness

Introduction
Course Materials
Lecture and tutorial: Slides will be uploaded exclusively on Moodle
• Everyone must be registered to this course on Moodle
• Link to Moodle: https://moodle.lmu.de/course/view.php?id=29499
• Course Name: Organisationstheorie WiSe 23/24
• Enrollment Key: OrgTheory2324
Compulsory reading: Daft, R., Murphy, J. & Willmott, H.: “Organization Theory & Design: An International
Perspective”, 4th ed., Cengage Learning, 2020. ISBN-13: 9781473765900
• How to find the book in the LMU Library (Fachbibliothek WiWi & Statistik: Ludwigstr. 28, front building, first floor):
• Fachbibliothek: 5 books (Signaturen 0500/QP 340 D124(4)…ff)
• Lehrbuchsammlung: 180 books (Signaturen 0599/QP 340 D124(4)…ff)
• You will need a validated LMUcard or a library card to borrow media
(For FAQs on using the Library please see: https://www.en.ub.uni-muenchen.de/news/faqs/index.html)

Introduction
Course Schedule
Date Lecture Date Tutorial

20.10.2023 1. Introduction to Organizations October 23-27 No Tutorial
27.10.2023 2. Strategy and Effectiveness October 30- November 3 No Tutorial
03.11.2023 3. Fundamentals of Organization Structure November 6-10 1. Strategy and Effectiveness
10.11.2023 4. The External Environment November 13-17 2. Structural Design for Organizations
17.11.2023 5. Interorganizational Relationships November 20-24 3. External Environment & Interorganizational Relationships
24.11.2023 6. International Organization Design November 27- December 1 4. International Organization Design
01.12.2023 7. Manufacturing and Service Technologies December 4-8 No Tutorial
08.12.2023 8. Organization Size, Life Cycle and Decline December 11-15 5. Organization Size, Life Cycle and Decline
15.12.2023 9. Organizational Culture and Ethical Values December 18-22 No Tutorial
22.12.2023 No Lecture December 25-29 No Tutorial
29.12.2023 No Lecture January 1-5 No Tutorial
05.01.2024 No Lecture January 8-12 6. Organizational Culture and Ethical Values
12.01.2024 10. Organizational Innovation & Change January 15-19 7. Organizational Innovation & Change
19.01.2024 Exam Preparation and Q&A (TBD) January 22-26 No Tutorial

Introduction
Exam
Please note:
Exam registration via LSF is mandatory! No registration, no exam participation.
Registration Period:
11.12.2023 – 12.01.2024
Deregistration Period:
11.12.2023 – 26.01.2024
Further information can be found on

https://www.isc.uni-muenchen.de/pruef_org/pruefungsanmeldung/index.html

Introduction
Exam
Date:
Thursday, 22.02.2024
15:00-16:00
Room:
TBA
Format:
Single Choice (1 answer of 4 is correct)

Introduction
Tutorials
Day Time (c.t.) Location

Monday 08:00 – 10:00
Tuesday 08:00 – 10:00
10:00 - 12:00
Wednesday 10:00 – 12:00 Geschw.-Scholl-Pl. 1 (A) - A 125
14:00 – 16:00
Thursday 08:00 – 10:00
12:00 – 14:00

Session 1: Introduction to Organizations

Relevant Book Chapters
Daft, R., Murphy, J. & Willmott, H.: “Organization Theory & Design: An International Perspective”, 4th ed.,
Cengage Learning, 2020.
ISBN-13: 9781473765900
Chapter 1:
What are organizations?
Chapter 2:
Perspectives on organizations

Organization Theory vs. Organizational Behavior

The Micro-Macro Distinction
Organization Theory
• Takes a macro perspective
• Analyzes the organization itself, or its primary subunits (departments or divisions)
• Is mainly concerned with the overall organization‘s ability to achieve its goals and adapt to its environment (organizational
effectiveness)
Organizational Behavior
• Studies the behavior of individuals and teams in the workplace
• Focuses employee performance and attitude variables (e.g., employee productivity, absenteeism, turnover, job satisfaction)
• Emphasizes perception, values, learning, motivation, and the personality-task interface (individual level) and roles, status,
leadership, power, communication, and conflict (team level)
Possible overlap of micro- and macro-issues

What is an Organization?
Definition:
Organizations are (1) social entities that (2) are goal-directed, (3) are designed as deliberately structured and
coordinated activity systems, and (4) linked to the external environment.
Types of Organizations:
• Multinational corporations
• Family-owned businesses
• Start-ups
• Non-profit organizations
• Government-owned organizations
• Self-governing organizations
• etc.

Alternative (new) forms of organizing…

… which may not necessarily fit the standard definition of an organisation as provided before
Online communities are open collectives of Crowd-based organizations rely mainly on crowds
dispersed individuals with members who are for accessing and exploiting globally distributed extra-
not necessarily known or identifiable and who organizational resources (physical assets and/or
share common interests, and these human talent), on a scale and a variety that would be
communities attend to both their individual and impossible to enclose within traditional organizational
their collective boundaries.
welfare.
(Sproull & Arriaga, 2007)
Crowd-open organizations are traditional
organizations involving crowds in practices like
innovation challenges (e.g., Intel, Reebok, or Lego).
(Giustiniano, L., Griffith, T. L., & Majchrzak, A. 2019)

Why do organizations exist?

Some Challenges Organizations face…
Increasing interconnectedness of markets, technologies, and organizations

Globalization
 Outsourcing, strategic partnering
Intense Pressure to drive down costs and provide low prices

Competition  Global drive for innovation
Ethics & Call for higher ethical standards, „sustainability“ as a (new) business
Sustainability imperative
Globalization and technological advance force organizations to respond

Speed &
quickly and decisively to environmental changes, organizational crises, or
Responsiveness shifting customer expectations

Distinction between Organization Structure and Organization Design
Organization Design:
• Emphasizes the management side of organization theory
• Is concerned with constructing and changing an organization according to goals (strategies)
• Organization structure is a part and one important result of the overarching organization design
Structure of the Organization:

• Refers to the ways in which an organization divides its labor into distinct tasks and then coordinates
among them
• Is depicted through its organizational chart and recognizes the key concepts of differentiation and
integration
• Important structural factors are formalization, specialization, centralization and hierarchy of authority
Hodge & Anthony, 2003

Interacting (different) Dimensions of Organization Design

Contextual Dimensions
Size
• Number of employees or total sales/assets (magnitude)
Organizational Technology
• Tools, techniques, and actions to transform inputs into outputs (e.g., flexible
manufacturing, advanced information systems, and digitization)
Environment
• Elements outside the boundary of the organization (e.g., customers, industry,
government, suppliers, or the financial community)
Strategy & Strategic Goals

• Purpose and competitive techniques define goals
• Strategy describes resource allocation and activities for goal achievement
Culture
• Values and norms shared by employees
Examples
Employees: 1.177 (2020); founded 1912 Employees: 90 (2018); founded 1880

Sales: 471 million € (2020)
Size Sales: approx.10 – 50 million €
Industrial production Craftsmanship
Chocolate factory
Organizational Technology Chocolate boutique
High level of (price) competition due to large
Medium to low level of competition due to
number of similar suppliers at same price Environment high-priced product with specific target group
level
Handmade chocolates in Berlin, ‘best’
Fairtrade, sustainability Strategy & Strategic Goals ingredients, sustainable packaging
Human rights, social responsibility, fair Traditional craftsmanship and premium
working conditions, sustainability
Culture quality

Interacting (different) Dimensions of Organization Design

Structural Dimensions
Formalization
• Amount of written documentation in the organization, including e.g., procedures,
job descriptions, regulations, or policy manuals
Specialization
• Degree of subdividing organizational tasks into separate jobs, division of labor
Hierarchy of Authority
• Span of control (number of employees reporting to a supervisor), depicted by
vertical lines on an organization chart
Centralization
• Refers to the hierarchical level that has authority to make a decision, like e.g.,
purchasing equipment, establishing goals, or hiring employees
Further Dimensions
• Often: Professionalism and/or Personnel ratios

Examples
High Formalization Low
Medium – high Specialization Low – medium
High Hierarchy of Authority Low – medium
Medium – high Centralization High

When is an Organization Successful?
Efficiency refers to the amount of resources used to achieve the organization’s goals.
Effectiveness refers to the degree to which an organization achieves its goals.
Stakeholder approach – balancing the needs of groups in and outside of the organization that has a stake in
the organization’s performance.
A stakeholder is any group within or outside of the organization that has a stake in the organization’s
performance.

Major
stakeholder
groups and
what they
expect…

Example
Cisco‘s Response to Environmental Changes
Building 10 of the Cisco San Jose Main Campus
ABOUT CISCO
Industry Networking equipment
San Francisco, California, U.S.
Founded
(1984)
Revenue About US$ 51 billion (2022)
Staff 79,500 (2021)
Wikipedia

Example
Cisco‘s
Response to
Environmental
Changes

Two Organization Design Approaches

Outlook
Lecture 2 – Strategy and Effectiveness
Next week we will talk about

• Organizational Design
• Strategic Direction
• Assessment of Effectiveness

Thank you!
Any questions?

References
Giustiniano, L., Griffith, T., & Majchrzak, A. 2019. Crowd-Open and Crowd-Based Collaborations: Facilitating the Emergence
of Organization Design. In J. Sydow, & H. Berends (Eds.), Managing Inter-Organizational Collaborations: Process Views:
271-292, Bingley: Emerald Publishing Limited.
Sproull, L., & Arriaga, M. 2007. Online Communities. In H. Bidgoli (Eds.), Handbook of Computer Networks: Distributed
Networks, Network Planning, Control, Management, and New Trends and Applications: 898-914, New York: Wiley.

Organization Theory
Session 2: Strategy and Effectiveness

Recap of Lecture 1
• Organization theory versus organization behavior as a micro-macro distinction
• Definition and importance of organizations
• Structural and contextual dimensions of organizations
• Organization design approaches: mechanical versus natural system design
© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM) 2

Today we‘ll look at…
1 The role of strategy and its effect on organizational design
2 A framework for Selecting Strategy and Design
3 Assessing Organizational Effectiveness

Agenda

► Highlighting how strategy and organization go together

ISBN-13: 9781473765900
Chapter 3:
Strategy, organization design and effectiveness

Organizational strategy & goals
The organization’s strategy is a plan for interacting with the

competitive environment to achieve organizational goals
Goals define where the organization wants to go and

strategies define how it will get there

Neither strategy nor goals: Vision and missions of organizations
From Tesla‘s Vision Statement:

[…] to ‘create the most compelling car company of the 21st century by driving the world’s
transition to electric vehicles’.
From Tesla‘s Mission Statement:

‘[…] to accelerate the advent of sustainable transport by bringing compelling mass-market
electric cars to market as soon as possible’.

Direction and priorities at the highest level
Vision
 an aspirational description of what an organization foresees in the mid-term or long-term future (i.e., its
image of a desirable future to which it contributes – as defined in the mission)
Mission
 describes the organization’s reason for being
 formally stated definition of the business scope and outcomes the organization is trying to achieve
 communicates to current and prospective employees, customers, investors, suppliers and competitors and
legitimizes the organization’s business
Value Statements/Culture
 distinct statements about corporate values intended to set out the guiding principles of the firm

Example
Siemens Vision 2020+: Highest Level Goals
Vision Mission Value Statement

As a leading global technology Siemens’ mission is to create • Acting responsible, excellent and
company that stands for outstanding and high performing innovative
engineering excellence, technology and products that will • Demonstrating respect, focus,
innovation, quality, reliability and revolutionize the world and initiative and execution
internationality, we provide change the perceptions of its • Leaderships that inspires teams to
answers in the areas of users and customers. give their best
electrification, automation and • Following a people oriented
digitalization (E-A-D). approach based on trust, openness
and collaboration
• Offering our people the opportunity
to directly participate in our success
as an employee shareholder

Example
Siemens Vision 2020+: Highest Level Goals
Vision Mission Value Statement
Operating Goals
Drive continuous Grow company Expand global Strengthen the

optimization value management portfolio
Be an employer Strengthen an Be a partner of

of choice ownership culture choice for customers
https://assets.new.siemens.com/siemens/assets/api/uuid:1a73a5f4-a1ab-499f-90ed-6920b2dab231/2018-q3-praesentation-kaeser.pdf

Goals for Action: Operating Goals
• Operating goals can help to motivate employees toward goal accomplishment

• They act as guidelines for employee behavior and decision making (e.g. they focus attention what is
important)
• They provide a standard for assessment of organizational outcomes in terms of e.g. profits, degree of
employee satisfaction
Goal Type Definition
Resource Goals Pertain to the acquisition of needed material and financial resources.
Market Goals Relate to the market share or market standing.
Employee Development Goals Pertain to the training, promotion, safety, and growth of workers.
Productivity Goals Concern the amount of output achieved from available resources.
Innovation and Change Goals Goals pertain to internal flexibility and readiness to adapt to unexpected changes in the
environment.
strategy
What is the role of formulation
strategic direction in
organizational
design? strategy
implementation

Agenda


Porter’s Competitive Strategies (1/2)
Differentiation Strategy Low-Cost Leadership
Increase market share by keeping costs low compared to

Distinguish products or services from others in the industry
competitors
• Organizations may focus on broad or narrow market segments.

• In the first case, we refer to differentiation and low-cost leadership.
• In the second case, we refer to a focus strategy, i.e., focus differentiation and focus low cost leadership

Porter’s Competitive Strategies (2/2)

Porter’s Strategies and Organization Design
Fits with low-cost Fits with

leadership Differentiation

Miles and Snow’s Strategy Typology (1/2)
• The Miles and Snow typology is based on the idea that managers should seek to formulate strategy that
matches the demands of the external environment
Prospector Defender
• Learning orientation; flexible, fluid, decentralized • Efficiency orientation; centralized authority and tight
structure cost control
• Values creativity, risk-taking, and innovation • Concerned with internal efficiency and control to
produce reliable,
high-quality products for steady customers

Miles and Snow’s Strategy Typology (2/2)
• The Miles and Snow typology is based on the idea that managers should seek to formulate strategy that
matches the demands of the external environment
Analyzer Reactor
• Balances efficiency and learning; tight cost control with • No clear organizational approach; design
flexibility and adaptability characteristics may shift abruptly depending on current
needs
• Mix of prospector & defender strategy
• Maintaining a stable business while valuing innovating

Miles and Snow’s Strategy Typology and Organization Design
Defender Prospector
Analyzer
Reactor

Lessons Learned
Low-cost leadership Differentiator

Defender Analyzer Prospector
Reactor

Agenda


How do organizations assess the achievement of their goals?
Efficiency Do things right

Amount of resources used to produce a unit of output
Effectiveness Do the right things

Degree to which an organization realizes its goals
Different ways how to measure organizational effectiveness:

• The Goal Approach
• The Internal Process Approach
• The Resource-Based Approach

Approaches to Measure Effectiveness of Organizations (1/2)

Approaches to Measure Effectiveness of Organizations (2/2)
Strategic constituents
Goal approach Resource based approach Internal process approach
approach
• Profitability • Corporate culture

• Bargaining position Depending on constituent , e.g.:
• Market share • Trust among employees
• Use of tangible • Financial return for owners
Indicators • Growth • Undistorted communication &
& intangible resources in the day-to-day • Pay for employees
• Social responsibility business
coordination
• Product quality for customers
• Product quality • Operational efficiency
Output goals can be readily • When other indicators hard to obtain When resource efficiency &
Often focuses on inputs, internal
Usefulness measured • When resources human capital are critical to
processes & outputs
are key drivers of competitive advantage success
• Multiple, conflicting goals • Neglects organizational

Changing customer demand
Problems • Absence of objective indicators environment Potentially conflicting goals
• Sometimes hard to quantify
© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM) 24 24

Integrating Measures of Effectiveness – Competing Values Model
Source: Daft, Murphy & Willmott (2020), p. 75; adapted from Quinn, Rohrbaugh (1983) and Quinn, Cameron (1983)

Integrating Measures of Effectiveness – Competing Values Model: Examples

Contingency Factors Call for Fit: There is Single Best Way to Organize!
► The keys are alignment and consistency!

Lessons Learned
Low-cost leadership Differentiator

Defender Analyzer Prospector
Reactor

Outlook
Lecture 3 – Fundamentals of Organization Structure

• Basics of Organization Structure
• Functional, Divisional & Geographical Grouping – a More Detailed
Look
• From Matrix to Hybrid Structures
Please don‘t forget: Tutorials will start next week on November 6th

Thank you!
Any questions?

Organization Theory
Session 3: Fundamentals of Organization Structure

Recap of Lecture 2
• The role of strategy and its effect on organizational design
• Highlighting how strategy and organizations go together in achieving organizational effectiveness
• Alignment and Consistency
• Different approaches to measure effectiveness in organizations

1 Fundamentals of Organization Structure
2 Functional, Divisional & Geographical Grouping – a More Detailed Look
3 From Matrix to Hybrid Structures
We will address the following questions:

• How can structure help organizations achieve their goals? The pros and cons of some basic structural designs.
• How can structure enable information flow and coordination? Both vertical and horizontal flows.
• Which structural form is best suited for the organization’s particular situation?

ISBN-13: 9781473765900
Chapter 4:
Fundamentals of Organization Structure

Agenda

A Video Intro to
The ‘Big Picture’

The Three Elements of Organization Structure
Formal Reporting Relationships

• Number of levels in the hierarchy
• Span of control of managers and supervisors Structural framework
or vertical hierarchy
Grouping of Individuals
• Creation of departments
Design of Systems and Processes

Pattern of interaction
• Effective communication, coordination,
and integration of efforts across departments among employees
Organization chart as visual representation of a whole set of underlying activities and

processes in organizations

Organization Chart

Reorganization from
Functional to Divisional

Information Sharing Perspective on Structure
Vertical and horizontal information flow
Traditional organization designed for efficiency

• Centralized authority focused on top level decision-making
• Mechanistic design, more vertical information flow
• Specialized tasks, formal reporting systems, few inter-departmental teams
Learning organization which emphasizes communication and collaboration

• Decentralized authority focused on shared tasks and decisions
• Organic design, more horizontal information flow
• Shared tasks, few rules, face-to-face communication, many inter-
departmental teams

The Relationship of Organization Design to Efficiency versus Learning Outcomes

How can we make sure that the organization consistently executes its strategy?
Vertical linkages Horizontal linkage

• Coordinate activities between the top and the bottom of • Coordinates activities across organizational
the organization departments which are not traditionally drawn on the
organizational chart
• Hierarchical referral are the vertical lines which

identify the chain of command • Information Systems
• Rules and Plans create vertical links • Liaison Roles
• Reports, computer systems (e.g. SAP), and written • Task Forces
information are vertical information systems to
• Full-Time Integrator
increase vertical information capacity
• Teams

Horizontal Coordination is Resource-intensive: E.g. Relational Coordination
• Frequent, timely, problem-solving

communication
• BUT: Have to avoid communication overload
• Relationships of shared goals, shared

knowledge, and mutual respect

Example for a „Structural Innovator“

Apple
Apple under Steve Jobs as a collaborative company

with “no committees”
Industry Computer hard- and software,
• Start-up-like organized Consumer electronics
• High autonomy of teams Headquarters Apple Park Way, Cupertino,
California, U.S.
Structure > 500 retail stores; Apple, leading
brand in the world (2022)
Revenue (2022) US$ 394 billion
Employees Ca. 164.000

(2022)
Sources:
https://www.statista.com/topics/847/apple/
https://www.statista.com/statistics/273439/number-of-employees-of-apple-since-2005/
https://www.forbes.com/the-worlds-most-valuable-brands/#de0c662119c0

Example for a
„Structural
Innovator“
Apple

Agenda

Basic Questions of Structural Design
Required Work Activities (What needs to get done?)

Departments are created to perform strategically important tasks.
Reporting Relationships (Who reports to who?)

The chain of command, an unbroken line of authority, is represented by vertical lines on an organization chart.
Departmental Grouping Options (Who works together?)

Functional, divisional, horizontal, or modular/virtual grouping

Principle options of structural design

Functional Structure
• Activities grouped by common function

• All specific skills and knowledge are consolidated
• Promotes economies of scale
• Slow response to environmental changes
Prevalent approach but few companies can respond in today’s environment without horizontal
linkages
• Decisions pile up on top
• Coordination across functions difficult
• Departments live in different thought worlds

Divisional Structure
• Product structure or strategic business units
• Divisions organized according to products,

services, product groups
• Good for achieving coordination across
functional departments
• Suited for fast change
• Diminishes economies of scale
• Diminishes technical specialization
• Makes integration and standardization across
divisions difficult (little sharing and learning
across units)

Example Divisional Structure
Siemens
CEO
(Roland Busch)
Digital Smart Financial

Mobility Healthineers
Industries Infrastructure Services
Source: Siemens Annual Report 2021

Geographic Structure
• Organizing to meet needs of users/customers by geography

• Many multinational corporations are organized by country
• Focuses managers and employees on specific geographic regions
• Strengths and weaknesses similar to divisional organization
CEO
(Helen Giza)
Europe,
North America Middle East, Asia Pacific Latin America
Africa
Source: Fresenius Medical Care Annual Report 2022

Agenda

Matrix Structure
• Multi-focused with strong horizontal linkage

• Conditions for Matrix:
• Share resources across the organization
• Two or more critical outputs required: products and technical
knowledge
• Environment is complex and uncertain
• Allows organization to meet dual demands
• Largest weakness is that employees have two bosses
and (potentially) conflicting demands
• Requires high level interpersonal skills throughout the
organization, high-quality information sharing, collegial
attitude and trust!
• Requires great effort to maintain the right power balance
Example Matrix Structure at 3 Dimensions
Procter & Gamble
Divisions:
- Baby - Skin and
Functions: Global - Feminine Care Personal Care
- Infrastructure Support Business - Family - Grooming
Units - Fabric - Oral
- Operations Support
- Systems Support - Home - Personal Health
- Shared Services - Hair Care
Support
- Strategy Regions:
- Portfolio Analysis Selling & - Asia Pacific
- Corporate Accounting Market
Operations - Europe
- Treasury - Greater China
- Tax - India, Middle East
- Governance Global
Business and Africa
- HR Services & - Latin America
- IT Corporate - North America
- Legal Functions
Sources: https://us.pg.com/structure-and-governance/corporate-structure/

Horizontal Structure
• Organization around core processes

• Processes refers to tasks and activities
• Eliminates vertical hierarchy and departmental
boundaries
• Self-directed teams, not individuals, are dominant
players
• Process owners are responsible for entire process
• People on the team are given authority for decisions
• Can increase organization’s flexibility
• Culture is one of openness, trust, and collaboration
• BUT: All this requires high quality leadership and a continuous investment in developing the
organization and the people!
System Design Process at Infosys
Source: https://www.infosys.com/about/knowledge-institute/insights/documents/system-design.pdf

Example II for a „Structural Innovator“

W.L. Gore & Associates
W.L. Gore‘s Innovation was to organize work so that good things happen
whether managers are „in control“ or not
 Employees have high autonomy
 No management layers, few titles, and no organization chart
Industry Manufacturing & Production
 Small teams as core operating units
Headquarters Newark, Delaware, USA
Structure Privately owned, offices in

more than 25 countries
Revenue (2021) US$ 3.8 Billion
Employees approx. 12.000

(2022)
Sources: https://www.gore.com/about/the-gore-story http://reviews.greatplacetowork.com/w-l-gore-associates-inc

Example II for a
„Structural Innovator“
W.L. Gore & Associates

Virtual Networks and Outsourcing
• Extend horizontal coordination beyond the

boundaries of the organization
• Most common strategy is outsourcing

• Contract out certain tasks/functions
• Virtual or modular structures subcontract most of its major functions to separate companies
• The virtual network organization serves as a central hub with contracted experts
• BUT, dependence on the partner to deliver.
• Conflict resolution through legal processes is largely unpredictable.
• Danger of losing critical capabilities in one’s core business.

Hybrid Structure
• Combination of various structure approaches
• Tailored to specific needs
• Often used in rapidly changing environments
• Greater flexibility
• BUT: Also greater complexity and hence more challenging in making this organization work effectively and
efficiently

Examples of Hybrid Structures

(But there are many others!)
Divisional + functional structure

• Some functions are centralized at headquarters while divisions exist with decentralized functions
• E.g. SONY Europe:
Divisional + geographic structure

• Some business units are regionally organized to cater to local demand while other business units are
organized as divisions that serve the Group or global customers
• E.g. Deutsche Telekom:

There is no ‘one size fits all’ (best) structure
Each structure meets different needs and is a tool that can help managers be more effective
Symptoms of Structural Deficiency:

• Decision making is delayed or lacking quality
• Organization cannot meet changing needs
• Employee engagement and performance declines
• Too much conflict
Alignment and consistency is key

 As already discussed in the last lecture on Strategy & Effectiveness

Outlook
Tutorials and Lecture 4 – The External Environment
The next lecture we will talk about
• How the organizational environment differs regarding uncertainty
and resource dependence
• Approaches that can be adopted to manage resources in the
external environment
• How organizations adapt to their environments to control their
effects.
The first tutorials will take place next week!
• We will focus on Strategy and Effectiveness (see Lecture 2)
• Tutorial slides are available on Moodle
• Please read the case before the tutorial!

Thank you!
Any questions?

Organization Theory
Session 4: The External Environment
Dr. Simone Eulitz

Recap of Lecture 3
• Three elements of organization structure: • Virtual networks and outsourcing:

• Formal reporting relationships • Extend horizontal coordination beyond the
• Grouping of individuals boundaries of the organization
• Design of systems • Most common strategy is outsourcing
• Different structural designs: • There is no ‘one size fits all’ (best) structure
• Each structure meets different needs and is a tool
that can help managers be more effective

1 An Organization’s Environment
2 Adapting to Uncertainty in the Environment
3 Controlling Environmental Resources

ISBN-13: 9781473765900
Chapter 5:
The External Environment

Agenda

An Organization’s Environment
• All the elements that exist outside the boundary of

the organization
• Potential to affect all or part of the organization

• Domain is the chosen environmental field of action
• Sectors or subdivisions that contain similar
elements

Task Environment & General Environment
Task Environment General Environment

• It includes sectors with which the organization • It includes sectors that might not have a direct
interacts directly and that have a direct impact on impact on the daily operations of a firm but will
the organization’s ability to achieve its goals. (more or less) indirectly influence it.
• It typically includes: • It typically includes:

• The industry • Government sector
• Raw materials sector • Sociocultural sector
• Market sector • Economic conditions
• Human resources sector • Technology sector
• International sector • Financial resources

International Context
• All organizations face domestic and global

uncertainty.
• The increasing interconnections represent both

opportunities and threats for organizations.
• Organizations are becoming extremely complex

and competitive.
Case example:
Multi-national companies like TOYOTA have many
sub-environments to work with

Organizational departments differentiate to meet needs of sub-environments

Differentiated departments operate in their ‘own worlds’ – yet their contributions to the
organization’s overall objectives requires adequate integration after all
R&D Manufacturing Sales

Characteristic
Department Department Department
New development,
Goals Efficient production Customer satisfaction
quality
Time Horizon Long Short Short
Interpersonal
Mostly task Task Social
orientation
Formality of structure Low High High
Source: Daft, R., Murphy, J. & Willmott, H.: “Organization Theory & Design: An International Perspective”, 4th ed., Cengage Learning, 2020. p. 157; based on Paul R. Lawrence and Jay W. Lorsch, Organization and
Environment (Homewood, IL: Irwin, 1969), 23-29

Agenda

The organization’s environment is changing in two dimensions
Simple OR Complex Stable OR Unstable
Heterogeneity:
the dissimilarity of external elements
Whether elements in the environment are dynamic
• The level of uncertainty is driven by the combination of simplicity/complexity and (un)stability

• Organizations must cope with and manage uncertainty to be effective

The basic organizational design options

(in response to environmental demands)
Mechanistic Forms Organic Forms
1. Tasks are broken down into specialized, separate 1. Employees contribute to the common task of the
parts department
2. Tasks are rigidly defined 2. Tasks are adjusted and redefined through
3. There is a strict hierarchy of authority and control, employee teamwork
and there are many rules 3. There is less hierarchy of authority and control,
4. Knowledge and control of tasks are centralized at and there are few rules
the top of the organization 4. Knowledge and control of tasks are located
5. Communication is vertical anywhere in the organization
5. Communication is horizontal
Source: Daft, R., Murphy, J. & Willmott, H.: “Organization Theory & Design: An International Perspective”, 4th ed., Cengage Learning, 2020., p. 157; Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek,
Innovations and Organizations (New York; Wiley, 1973), 131

How uncertain is a company’s environment and how do organizations respond?

Stable
Low Uncertainty Low-Moderate Uncertainty

1. Mechanistic structure: formal, centralized 1. Mechanistic structure: formal, centralized
2. Few departments 2. Many departments, some boundary spanning
Environmental Change
3. No integrating roles 3. Few integrating roles

4. Current operations orientation; low-speed response 4. Some planning; moderate-speed response
High Uncertainty
High-Moderate Uncertainty
1. Organic structure, teamwork: participative, decentralized
1. Organic structure, teamwork: participative, decentralized
2. Many departments differentiated, extensive boundary
2. Few departments, much boundary spanning
Unstable
spanning
3. Few integrating roles
3. Many integrating roles
4. Planning orientation, fast response
4. Extensive planning, forecasting; high-speed response
Simple Complex
Environmental Complexity
Source: Daft, R., Murphy, J. & Willmott, H.: “Organization Theory & Design: An International Perspective”, 4th ed., Cengage Learning, 2020., p. 161

How do companies adapt to a changing environment?
• Organizations need the right fit between internal structure and the external environment
• Adding Positions and Departments
• Buffering and Building Relationships (Boundary spanning roles)
• Differentiation and Integration
• Organic vs. Mechanistic Organizational Designs
• Examples of organizations that failed to adapt:

Example
Blackberry and its changing environment


Questions 1 & 2
Where is RIM/BlackBerry positioned in

1 early 2007 when (just before) the iPhone
launched?
Where should it have moved to right

2
thereafter?


Question 3
Which environmental sectors showed the

3
most significant changes?

Agenda

What can organizations do to ‘control’ their environments?
Establishing Interorganizational linkages Controlling the Environmental Domain
1. Ownership 1. Change of domain

2. Contracts, joint ventures 2. Political activity, regulation
3. Co-optation, interlocking directorates 3. Trade associations
4. Executive recruitment 4. Illegitimate activities
5. Advertising, public relations

Lessons learned

Outlook
Lecture 5 – Interorganizational Relationships

• A framework for interorganizational relationships
• Changing characteristics of interorganizational relationships
• Principle options in companies’ struggle for survival
There is no tutorial next week.

The next tutorial will start November 20th.

Thank you!
Any questions?

Organization Theory
Session 5: Interorganizational Relationships
Dr. Simone Eulitz

Recap of Lecture 4
• An organization’s environment as all the elements that exist outside the boundary of the organization with
the potential to affect all or part of the organization
• Domain is the chosen environmental field of action
• Sectors or subdivisions that contain similar elements
• The organization’s environment is changing in two dimensions

• The level of uncertainty is driven by the combination of simplicity/complexity and (un)stability
• Organizations must cope with and manage uncertainty to be effective
• In order to adapt to a changing environment, organizations need the right fit between internal structure and
its external environment

1 A Framework for Interorganizational Relationships
2 Changing Characteristics of Interorganizational Relationships
3 Principle Options in Companies’ Struggle for Survival

ISBN-13: 9781473765900
Chapter 6:
Interorganizational Relationships

Organizational Ecosystems
Definitions
Organizational ecosystem
A system formed by the interaction of a community of organizations and their
environment
Interorganizational relationships
Resource transactions, flows, and linkages that occur among two (or more) organizations

“Airbnb controls very little of what happens in its ecosystem.”

Organizational Ecosystems

As organizations are involved in complex networks (ecosystems), the number of corporate

alliances are increasing
• In ecosystems, managers move beyond traditional responsibilities (outside of hierarchical command

structures)
• While organizational and operational boundaries are more fluid, managers must think (even more) about
horizontal processes…
• … and on shorter timelines (because long-term strategies and organizational arrangements become largely
obsolete in extremely dynamic environments)

Dynamic Capabilities

A Framework for Interorganizational Relationships

Competitive
Organizational Relationship
Resource Dependence Population Ecology

Cooperative
Collaborative Network Institutionalism
Dissimilar Similar
Organization Type


Competitive

Cooperative
Dissimilar Similar
Organization Type

Resource Dependence
• The Resource Dependence Theory (Pfeffer and Salancik, 1978) states that companies rely on resources
from their environment, which contains other organizations
• Thus, a resource dependency exist between them
• Organizations are vulnerable if resources are controlled by other organizations
• Strive to acquire control over resources to minimize dependence
• Locking in resources through long-term supplier relationships is a common response based on resource
dependence theory
• Another response is to have multiple sources for critical resources

• Supply chain management refers to managing the sequence of suppliers and purchasers
• Large (independent) companies can have power over small suppliers

A Basic Supply Chain Model

Supply Chain of IKEA
External Supplier
Distribution
Manufacturing Stores
Centers
Internal Supplier
(Sweed Wood)

Supply Chain of Apple


Competitive

Cooperative
Dissimilar Similar
Organization Type

Collaborative Networks
Examples
 Emerging alternative to resource dependency

 Companies join together to become more
competitive and to share scarce resources
 Alliances require managers who are good at
Nike & Apple
building networks Star Wars Characters in
Happy Meal
 Companies can share risk and cooperation, which
is a prerequisite for greater innovation, problem
solving, and performance
Mobile Payment with Airtel Money
in Emerging Economies

Changing Characteristics of Interorganizational Relationships
Traditional Orientation: Adversarial New Orientation: Partnership

• Low dependence • High dependence
• Suspicion, competition, arm’s length • Trust, addition of value to both sides, high commitment
• Detailed performance measures, closely monitored • Loose performance measures, problems discussed
• Price, efficacy, own profits, limited information and • Equity, fair dealing, both profit
feedback • Electronic linkages to share key information, problem
• Legal resolution of conflicts feedback and discussion
• Minimal involvement and up-front investment, separate • Mechanisms for close coordination, people on site
resources • Involvement in partner’s product design and production,
• Short-term contracts shared resources
• Contract limiting the relationship • Long-term contracts
• Business assistance beyond the contract

Example: Technology-enabled Ecosystem Collaboration


Competitive

Cooperative
Dissimilar Similar
Organization Type

Population Ecology Model
• Focuses on organizational diversity and adaptation within a population of organizations

• i.e., a set of organizations engaged in similar activities (e.g., major music labels)
• The theory notes that large, established organizations often become dinosaurs
• They have difficulty adapting
• The changing environment determines survival or failure
• Heavy investments can limit organizational adaptation
• The model is developed from theories of natural selection in biology, and the terms evolution and
selection are used to refer to the underlying behavioral processes.

Elements in the Population-Ecology Model of Organizations
Variation Selection Retention

• Large number of variations • Some organizations find a • A few organizations grow
appear in the population of niche and survive large and become
organizations institutionalized in the
environment

What are the principle options in companies’ struggle for survival?
• Generalist strategies
• wide niche or domain, broad range of products or services to a broad market
• Specialist strategies
• narrow range of goods or services that serve a narrow market
• typically more competitive than generalists, but also more vulnerable
• Examples: Mattel versus Build-A-Bear; Apple versus Samsung?


Competitive

Cooperative
Dissimilar Similar
Organization Type

Institutionalism
• Institutional perspective
• Manage survival through congruence with environment
• Balance expectations of environment
• Institutional Environment
• Norms and values of stakeholders
• Adopt structures and processes to please outsiders
• Legitimacy
• Organization’s actions are desirable, proper, and appropriate
• For instance, consumers may not purchase vehicles from car manufacturers unless it adheres to environmental and
ethical standards

Institutional Similarity
• Institutional similarity, also called institutional isomorphism, is the emergence of a common structure and
approach among organizations in the same field.
• Causing one unit in a population to resemble other units in the same set of environmental conditions.
• Following are three

forces behind the
change toward
institutional similarity,
according to the
institutional perspective.

Outlook
Lecture 6 – International Organization Design & Tutorial 2 – External Environment
• The reasons why companies want to enter the “Global Arena”
• Global expansion through international strategic alliances
Next week’s tutorial on External Environment & Interorganizational

Relationships will...
• Deepen essential aspects from today’s lecture
• Study and discuss the case of Unilever and its interorganizational relationship
with Brandtone
You will find the materials for the tutorial on Moodle. Tutorials take place
between Monday, November 20 and Thursday, November 23.

Thank you!
Any questions?

Organization Theory
Session 6: International Organization Design

Recap of Lecture 5
• How companies manage relationships with other organizations in their eco-system
• A framework for interorganizational relationships

• Resource Dependence
• Collaborative Network
• Population Ecology
• Institutionalism

Today we‘ll look at
• One key factor in many organizations’ context: The international dimension
• Motivations for organizations to expand internationally and the typical stages of international
development
• Global strategic approaches and various structural designs for global advantage
• Challenges for global organizations and mechanisms for addressing them

Relevant book chapters
ISBN-13: 9781473765900
Chapter 7:
Designing Organizations for the International Environment

Agenda
1 Why Companies Enter the Global Arena
2 Designing Structure to Fit Global Strategy
3 Coordination and Control

Business in India

What does ChatGPT say?
Question: Why do companies enter the Global Arena?
Companies enter the global arena for a variety of reasons, and the decision to expand internationally
is often driven by a combination of strategic, economic, and competitive factors.
Here are some common reasons why companies choose to enter the global market:
1. Market Expansion and Growth 9. Strategic Alliances and Partnerships
2. Access to larger Customer Base 10. Regulatory and Trade Opportunities
3. Diversification of Markets 11. Global Supply Chain Optimization
4. Competitive Advantage 12. Government Incentives
5. Cost Reduction
6. Technology and Innovation
7. Brand Building and Recognition Good starting point but some points are redundant
8. Risk Diversification and not all make sense
Source: Chat GPT 3.5, accessed on November 21st, 2023

Entering the Global Arena (1/2)
Primary motivators for expanding internationally Primary enablers for expanding internationally
Economies of Scale Technology
• Large-volume production enables lowest possible cost • Better process management to coordinate global
per unit, e.g., industrial giants, like the Ford Motor processes (e.g., cloud-based data exchange)
Company are forced to become international in order to
the lowest possible cost per unit of production
Regulatory framework
Economies of Scope
• Lowering of trade barriers (e.g. international trade
• Increase number and variety of products and services agreements)
offered, build synergies with suppliers, market power
through country-specific knowledge
Low cost production factors (esp. lower-cost labor)
• Lower-cost labor and capital, sources of cheap energy,
reduced government regulations

Entering the Global Arena (2/2)
More companies are doing business globally

• Brazil, Russia, India, and China, and other emerging economies are growing rapidly as
• Providers for both products and services to foreign countries
• Major markets for products and services of foreign companies
• Advancements in technology have changed the competitive landscape, e.g.,

• Work flow software – better process management to coordinate global processes
• Supply chaining – better horizontal coordination across supply chain
• Wireless revolution – information exchange possible independent of location

The global economy as reflected in the Fortune Global 500

Number of companies on the Fortune Global 500 list, breakdown by country and year
Country 2008 2011 … 2019 2020 2023

United States 153 133 121 121 136
Japan 64 68 52 53 41
China 29 61 119 124 142
France 39 35 31 31 31
Germany 37 34 29 27 27
United Kingdom 34 30 18 22 15
Switzerland 14 15 14 14 11
South Korea 15 14 16 14 18
Canada 14 11 13 13 14
Netherlands 13 12 12 13 10
Source: Wikipedia, CNN Money; based on data from Global 500 list, Fortune magazine’s annual ranking of the world’s largest corporations; data for 2023 as of August

How do companies shift from domestic to global?
I: Domestic II: International III: Multinational IV: Global
Strategic Orientation Domestically oriented Export-oriented Multinational Global

Multi-domestic
Stage of Initial foreign Competitive Explosion Global
development involvement positioning
Structure Domestic structure, Domestic structure, Worldwide Matrix, transnational
plus export plus international geographical, product
department division
Market potential Moderate, mostly Large, multi-domestic Very large, Whole world
domestic multinational

Global expansion through international strategic alliances
Licensing
• Allowing another firm to market your brands
• Limitation of risk
Joint Ventures
• Separate entity of two or more active firms as sponsors
• Sharing development and production costs in penetrating new markets, share complementary technological strengths or
knowledge of local markets
• Example: Tata Consumer Products and Starbucks Corporation created a 50:50 joint venture company, operating
Starbucks outlets in India. The outlets are branded “Starbucks: A Tata Alliance".
Consortia
• Groups of independent companies (e.g., suppliers, customers)
• Sharing skills, resources, costs, and access to one another’s markets
• Example: Star Alliance (Lufthansa, United, etc.)
Agenda

What does ChatGPT say?
Question: How to design the organization to fit global strategy??
Designing an organization to fit a global strategy involves aligning the structure, processes,
and resources with the company's international goals.
Here are key steps and considerations for designing an organization to support a global strategy
[…]
Choose an Appropriate Organizational Structure:
Select an organizational structure that aligns with the global strategy. Common structures for
global organizations include:
• Global Functional Structure: Centralized decision-making with functional divisions
(e.g., marketing, finance) at the headquarters.
• Global Divisional Structure: Divisions organized by geography, product, or customer segment.
• Matrix Structure: A combination of functional and divisional structures to balance global coordination
and local responsiveness.
Again a good starting point but a little too simple
Source: Chat GPT 3.5, accessed on November 21st, 2023

Which strategies are used for global versus local opportunities?

Global standardization versus local responsiveness
Globalization Strategy Multi-domestic Strategy
Product design, manufacturing, and Product design, assembly, and

marketing strategy are standardized marketing tailored to specific needs of
throughout the world each country
Advantage of a unified global Advantage through differentiation and

marketplace customization

Fitting organization structure to international ‘forces’

(i.e. contextual demands)
Globalization Strategy: Both Globalization and Multidomestic Strategy:

High
Global Product Structure Global Matrix Structure
Forces for
Global
Integration Export Strategy: Multidomestic Strategy
International Division Global Geographic Structure
Low
Low High
Forces for Local
Responsiveness

Global Product Division Structure

Global Geographic Division Structure

Aiming for the best of both worlds: Matrix of country units + global product divisions

Agenda

What global design challenges do companies face?
• Countries differ in economic development, culture, political systems, government

Complexity and regulations, infrastructure
Differentiation • Need for specialized departments dealing with e.g., legal and accounting
regulations in various countries
• Achieve integration and coordination to reap benefits of scale and scope

economies, and production cost efficiencies
Need for Integration • Finding ways to share information, ideas, new products, and technologies across
the organization
• Learning from international experience by sharing knowledge and innovations

Transfer of Knowledge and
across the enterprise
Innovation • Increasing “trickle-up” and “reverse” innovation approaches

Examples of “Trickle-up Innovation”
Company Innovation and Application

• Built plants in Bangladesh that managed to operate as efficiently as the largest yogurt factories even though they
produced much less (1/100)
• Danone adapted this concept to other markets
• Created the Maggi brand dried noodles for low-cost meals in rural Pakistan and India
• Nestlé then repositioned it as low budget and healthy option for Australia and New Zealand
• Created an inexpensive and portable electrocardiogram machine for India that could endure the conditions there
(e.g., power fluctuations, lack of funding, lack of space, dust, difficulty to replace spare parts)
• GE then expanded the concept to the USA and other countries
• Team that migrates web-interface applications created for mobile phones in Asia and Africa to developed markets
in the USA and Europe
• Created a high-quality but low-cost tractor for farmers in India

• Expanding the concept to the USA and Russia where demand is high due to the recession

Which coordination mechanisms do companies use internationally?
Headquarters Planning
• Active role in planning, scheduling, and control of the headquarters
Expanded Coordination Roles

• Top functional managers are also responsible for coordinating across countries, identifying and linking the
organization’s expertise and resources worldwide
• Country managers coordinate across functions, meeting problems, opportunities, needs, and trends in the local
market
Transnational Teams
• Transnational teams are cross-border work groups with multi-skilled, and multinational members whose activities
span multiple countries
• Intercultural or virtual global teams

Examples of National Approaches to Coordination and Control
• Distinct hierarchy of authority, strong centralization

Centralized coordination
• Strong structural linkages of top managers to involve managers at headquarters in all
in Japanese companies strategic decisions
Decentralized approach • High level of independence and decision-making autonomy

in European companies • Each international unit focuses on its local markets
Coordination and control • Formal systems, policies, standards of performance between divisions and
through formalization in headquarters (management control system)
US companies • Decision-making based on objective data, policies, and procedures

The transnational model of organization

The transnational model of organization is typical for global

companies (ultimate stage)
Worldwide dispersion of assets and resources
• Highly specialized operations linked through interdependent relationships
• Promotes collaborative information sharing
Ever-changing and flexible structures
• Flexible centralization
• Multiple headquarters
Initiation of strategy and innovation by subsidiary managers
• Bottom-up usage of capabilities and knowledge to develop strategies
• Better adaption to environmental demands
Organizational guidance through corporate culture, shared vision, and
management style, as opposed to (solely) formal structures

Lessons Learned

Outlook
Lecture 7 – Manufacturing and Service Technologies
• How technology influences organizations’ structure and processes
• The difference in technology in manufacturing firms vs. in service firms
• The sociotechnical system of organizations
Next week’s tutorial on International Organization Design will...

• Deepen essential aspects from today’s lecture.
• Study and discuss the case of Walmart trying to expand to the European
market via Germany.
You will find the materials for the tutorial on Moodle.

Thank you!
Any questions?

Organization Theory
Session 7: Manufacturing and Service Technologies

Lecture 7 – Manufacturing and Service Technologies

• The role of technology in organizations
• Differences in manufacturing versus service organizations
• Departmental technology and its influence on structural and process design
• The joint optimization of the social and technical system

ISBN-13: 9781473765900
Chapter 8:
Manufacturing and Service Technologies

Agenda – Lecture 7
1 Introductory Remarks
2 Core Organization Manufacturing Technology
3 Core Organization Service Technology
4 Non-Core Departmental Technology

Definitions
Technology in an organizational sense
• Refers to the work processes, techniques, machines, and actions used to transform inputs into outputs
Technology • Technology influences organizational structure
• Understanding technology helps design organizations for efficiency
Core
• relates to the transformation process to provide goods/service
Technology
Non-Core
• is not directly related to the primary mission of the organization
Technology

The operational side of organizations
Source: https://www.youtube.com/watch?v=IMPbKVb8y8s

Core transformation process

Agenda

Manufacturing Firms
 Technical complexity defines the extent to which the manufacturing process is mechanized
 Three basic technology groups defined by Joan Woodward:
• Small-batch and unit production
• Large-batch and mass production
• Continuous-process production

Woodward’s classification based on systems of production

Manufacturing Classes in
the Textile Industry
Haute Couture
Semi Couture
Cloth Mass Production
Fabric Manufacturing
Industry 4.0 in the Volkswagen Group
Source:https://www.youtube.com/watch?v=BQEVtzcVFkE

From Flexible Manufacturing to Mass Customization
Lean manufacturing paved the way for mass customization

• Using mass-production technology to quickly and cost-effectively assemble individual goods for customers
• A growing number of companies offer customized versions of their existing products
Examples
MINI / BMW AG Nike Inc. mymuesli GmbH Mars Inc.

How the digital factory revolutionizes manufacturing
Industry 4.0

Agenda

How do service firms differ in technology?
• Service technologies are different from manufacturing technologies and require different organizational
designs
• Education, health care, transportation, and banking all have unique dimensions
• Services have intangible output
• There is often direct interaction between customer and employee

as many services are produced, delivered and consumed at the same time
• Human element is (even more) important

Challenges in service companies
Source: https://www.youtube.com/watch?v=zvjwavpOZj4

Every organization can be classified along a continuum ranging from service to

manufacturing technology

Trend toward lean services
• Customer expectations are rising and firms tend to

provide customized output
• Expectations have required that service firms must
become lean
• Cut waste (e.g., defects, overproduction, time,
unutilized talent, transportation and people
motion, inventory, extra-processing)
• Improve customer service
• Adopt continuous improvement approaches
• The next industrial revolution that will enable

manufacturing firms to harness the power of data to offer
additional services and as-a-service products: (Digital)
Industry 4.0
Structural and personnel characteristics
Service and manufacturing organizations significantly differ in terms of:

• Their structure
• Their personnel needs
Structural Characteristics Service Product
1. Separate boundary roles Few Many

2. Geographical dispersion Much Little
3. Decision-Making Decentralized Centralized
4. Formalization Lower Higher
Human resources
1. Employee skill level Higher Lower
2. Skill emphasis Interpersonal Technical

Agenda

Framework for departmental technologies

How does technology matter to structural design?

How does technology matter to (horizontal) process design?

How does technology matter to (horizontal) process design?

(cont.)

The socio-technical system
Transforming organizational inputs to outputs involves both individuals, teams, and larger groupings (‘socio’) as well as
materials, machines, and processes (‘technical’)
Organizations function best when the social and technical systems are designed to fit the needs of one another (joint
optimization)
Outlook
Lecture 8 – Organization Size, Life Cycle and Decline

• Company size and the differences between large and small organizations
• Organizational Lifecycle and Bureaucracy
• Organizational Decline and Downsizing
The next tutorials will start on December 11!

Thank you!
Any questions?

Organization Theory
Session 8: Organizational Culture and Ethical Values

Recap of Lecture 7
• Technology refers to the work processes, techniques, machines, and actions used to transform input into
outputs
• Technology influences organizational structure (alongside environmental and strategic influences)
• Core and non-core technology
• Manufacturing technologies
• Small-batch and unit production
• Large-batch and mass production
• Continuous-process production
• Service technologies are different from manufacturing technologies and require different organizational
design

Today we‘ll look at
• Organizational culture, culture strength and subcultures in organizations
• The role of corporate culture in organizational design and how managers influence organizational culture
• The competing values framework and some thoughts on ethical values

ISBN-13: 9781473765900
Chapter 11:
Organizational Culture and Ethical Values

Agenda
1 Organizational Culture
2 Culture and Organization Design
3 Some Thoughts on Ethical Values

What is Culture?
• Values, norms,
guiding beliefs, and
understandings that
are shared by
members of an
organization
https://www.starbucks.com/careers/working-at-starbucks/culture-and-values/

Corporate Culture
Shared Values at ista

Levels of Corporate Culture

Culture Strength and Organizational Subcultures
Is determined by two factors:

Culture
• Sharedness: degree of agreement among members of an organization about specific values
strength
• Intensity: degree of commitment to the cultural values
• reflect the common problems, goals, and experiences of a team or department

Subcultures • they include basic values of the dominant organizational culture plus additional values unique to
members of the subculture
Different departments may have their own norms…

Agenda

What is the role of corporate strategyformulation

strategy formulation
culture in organizational
design? strategyimplementation
strategy implementation

Competing Values Model

Four prototypical
culture types

So, again, what is organizational culture good for?
• Provides sense of organizational identity and purpose

• Who we are as a firm (collective identity)
• How we matter to others (legitimization within society)
• Provides behavioral guidance to members of the organization (clan control)

• So they know how to relate to one another
• So they know “how things are generally done around here”
• Attractive to outsiders (customers, potential employees) and energizing to employees

• Sharing a clear identity & purpose

Southwest airlines
Example for a successful corporate culture
“Southwest’s success hinges not on how brilliant, unique, or opaque their strategy is, but on the alignment between their
culture and strategy, on how clearly employees understand the culture and how intensely they feel about it.”
(Chatman & Cha 2003, p. 21)

Alignment & Consistency between Culture, Strategy and Organizational Design

How do Managers influence Organizational Culture?
• Organizational culture can only be influenced indirectly.

• Organizational culture = shared values in the organization.
• Influencing (i.e., sustaining or changing) org. culture requires concerted and consistent managerial effort,
including
• top managers formulating lead values and continuously communicating them
• org. design elements such as control systems, structural dimensions (e.g., formalization, centralization)
• top and middle managers as role models; living these values
• rewarding people that live these values; e.g., award ceremonies
• recruiting and selecting people that fit the culture
• assimilating people into the culture; e.g., 4 week socialization programs

Agenda

How are individual ethical

principles and actions
shaped?

Characteristics of Values-Based Leaders

To complement values-based leadership:

Formal Structure and Systems
• Structure
• Ethics committee
• Chief ethics officer
• Ethics hotline
• Disclosure mechanisms
• Whistle-blowing
• Code of ethics
• A formal statement of the company’s values concerning ethics and social responsibility
• Training programs
• These formal structures and systems alone are not sufficient to build and sustain an ethical company
• Ethics should be integrated into the organizational culture

Lessons Learned

Outlook
Lecture 9 – Organizational Innovation and Change
In the next session (January 12) we will talk about
• Forces driving the need for organizational change as well as leadership for
change
• Innovation as a driver for change as well as horizontal coordination for
innovation
In the next tutorial (January 8-12), we will...

• Study and discuss the case of Volkswagen and the emission scandal
“Dieselgate”
As always, you will find the materials for the tutorial on Moodle.
As a final remark and friendly reminder: The exam registration period is now open! Please do not
forget to register for the exam via LSF in time (see ISC webpages for details on registration period)

Thank you!
Any questions?

Organization Theory
Session 9: Organizational Innovation and Change

Recap of Lecture 8
• The nature of corporate culture, its origin and purpose
• The interplay between culture, corporate strategy, and organizational design
• How culture matters for ethical decision making

ISBN-13: 9781473765900
Chapter 12:
Innovation and Change

Agenda
1 Strategic Role of Change
2 Innovation as Driver of Change
3 Implementing Change

Forces driving the need for

organizational change

What is change?
Baseline definition:
Organizational change is the process in

which an organization transfers from a
current state (regarding structure,
strategy, or any number of other qualities)
to a preferred future state
(Cummings & Worley, 2014; Harigopal,
2006; Hayes, 2014), such as…
New strategy New technology
Re-organization Cultural change
Downsizing

Organizational change:
Proactive vs. reactive
Source: Bickhoff, Blatz, Eilenberger, Haghani and Kraus (2004)

Agenda

What is innovation?
• Common elements in definitions of innovation are

• new ‘means-end-combination’
• new to the organization, not necessarily new to the world (hence, innovation is not equal to invention)
• can be product, service, process, or system
• varies in degree from incremental to radical, and disruptive

Why is innovation (strategically) important to organizations?
Source: http://www.youtube.com/watch?v=9hUIxyE2Ns8

Organization Structures for Innovation and Exploitation
• Being good at innovating is not enough for organizations to succeed

• Organizations need to both explore new ideas and exploit them
• The organic approach embraces flexible organizations with empowered employees

• Gives people the freedom to be creative and encourages to introduce new ideas
• Mechanistic structures stifle innovation and focus on rules and regulations

• Best structure for efficiently producing routine products

Solving the dilemma of innovation and exploitation
• Managers implement an ambidextrous approach to be both organic and mechanistic
• Division of labor in the ambidextrous organization.

Which techniques help to encourage an ambidextrous approach?
• Switching structures
• Create an (temporary) organic structure for the initiation of new ideas
• Creative departments
• Departments for innovation, such as R&D, engineering, design, and systems analysis
• Idea Incubators
• Venture teams
• A small company within the organization (separate location)
• Skunkworks as one type of venture team
• Corporate entrepreneurship
• Promote entrepreneurial spirit
• Innovation as everyday way of thinking

Horizontal coordination for innovation

Achieving competitive advantage: The need for speed and organizational change
• Time-based competition means delivering products and services faster than competitors
• Rapid development of new products and services is becoming a strategic weapon in a changing marketplace.
• Organizations need to change strategies, structures, processes, and procedures more often to adapt to or
even lead a change
• Think of population ecology and institutionalism!
• Many organizations are preparing for more change by:

• Cutting out layers, decentralizing decision making
• Shift toward horizontal structures
• Empowered teams and workers
• Virtual network strategies
• Digitization
• Agile work methods

Agenda

Why do we resist to change?
• Human Nature
• Economic factors
• Social factors
• Clash of values
• Bad change management

Leadership for Change
• Implementing complex changes requires strong and persistent leadership

• In terms of a compelling vision/strategy
• …and in terms of organization design and championing change
• Transformational leadership is particularly suited – enhances organizational innovation both directly and
indirectly
• Three stages of the change commitment process:

• Preparation
• Acceptance
• Commitment

Problems of Change and Implications for Change Management

PROBLEM IMPLICATION
Need to
Resistance
Motivate Change
Need to Manage
Control
the Transition
Need to Shape
Power the Political
Dynamics of Change
Source: David A. Nadler. Concepts for the Management of organizational Change; in: Readings in the management of innovations; Tushman, Michael L.; Moor, William L.; Cambridge, MA: Ballinger Publishing Company; p.
469-486

Problems of Change and Implications for Change Management

IMPLICATION GENERAL RECOMMENDATIONS
1. Assure the support of key power groups
Need to Shape
2. Use leader behavior to generate energy in support of change
the Political
3. Use symbols and language
Dynamics of Change
4. Build in stability
5. Surface dissatisfaction with the present state

Need to Motivate 6. Participation in change
Change 7. Rewards for behavior in support of change
8. Time & opportunity to disengage from the present state
9. Develop and communicate a clear image of the future

Need to Manage the 10. Use multiple and consistent leverage points
Transition 11. Develop organizational arrangements for the transition
12. Build in feedback mechanisms
Source: Adapted from Nadler, 1993

Lessons Learned

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Organization Theory

Winter Term 2023/2024

Univ.-Prof. Dr. Anja Tuschke

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Introduction to the Course

Prof. Dr. Anja Tuschke

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Managers at organizations continually face a number of challenges

Analysis of the organization from a macro perspective

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Date Lecture Date Tutorial

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Further information can be found on

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Day Time (c.t.) Location

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Session 1: Introduction to Organizations

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Relevant Book Chapters

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Organization Theory vs. Organizational Behavior

Possible overlap of micro- and macro-issues

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Alternative (new) forms of organizing…

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Why do organizations exist?

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Some Challenges Organizations face…

Increasing interconnectedness of markets, technologies, and organizations

Intense Pressure to drive down costs and provide low prices

Globalization and technological advance force organizations to respond

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Distinction between Organization Structure and Organization Design

Structure of the Organization:

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Interacting (different) Dimensions of Organization Design

Strategy & Strategic Goals

Employees: 1.177 (2020); founded 1912 Employees: 90 (2018); founded 1880

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Interacting (different) Dimensions of Organization Design

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

High Formalization Low

Medium – high Specialization Low – medium

High Hierarchy of Authority Low – medium

Medium – high Centralization High

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

When is an Organization Successful?

Effectiveness refers to the degree to which an organization achieves its goals.

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Building 10 of the Cisco San Jose Main Campus

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Two Organization Design Approaches

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

Next week we will talk about

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)

© Univ.-Prof. Dr. Anja Tuschke, Institute of Strategic Management (ISM)