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Organizational Change
and Learning
Learning Goals

1. Describe four types of organizational change

2. Explain the planning process for organizational
3. Identify four methods of organizational change

4. Describe how innovation relates to organizational


5. Discuss how learning organizations foster change

Organizational Change

• Organizational change refers to any

transformation in the design or functioning
of an organization.
(adapted from Figure 12.1)

 Radical change: organizations make major

innovations in the ways they do business
 Stages of Radical Change*

Unfreezing Transitioning Refreezing

 Incremental change: ongoing process of evolution over
time, during which many small adjustments occur

 Tempered radicals: people who strive to create radical

change but do so by prodding an organization to make
many small incremental changes

 Total quality management: relies heavily on continuous

incremental change
1. Earn credibility first, and then leverage it

2. Gather and accept support from others along the way

3. Develop grass roots initiatives and be willing to share

the stage with supporters

4. Chip away at standard operating procedures little by

little over time until you achieve real success

5. Accept small changes as making progress

6. Develop your ability to compromise as well as persuade

7. Be persistent
 Reactive change: occurs when an organization
is forced to adapt or innovate in response to
some event in the external or internal

 Anticipatory change: occurs when managers

make organizational modifications based on
forecasts of upcoming events or early in the
cycle of a new trend
Types of Organizational Change
(adapted from Figure 12.2)

Adjustments Incremental Incremental
Degree of Change
Anticipatory Reactive
Change Change

Radical Radical
Anticipatory Reactive
Major Change Change
Timing of Change
Before Major Shifts in After Major Shifts in
the Environment the Environment
The Process of Organizational Change
(adapted from Figure 12.3)

2. Determine the
1. Assess the Performance
Environment Gap

3. Diagnose
7. Monitor the Organizational
Changes Problems

6. Anticipate 4. Articulate and

Resistance and Communicate a
Take Action to 5. Develop and Vision for the
Reduce Implement an Future
Action Plan
Fear Vested interests

Misunderstandings Cynicism
Technological Change Organizational Redesign

Job Redesign Organizational

Technological Change
 Involves incremental adjustments or radical
innovations that affect workflows,
production methods, materials, and
information systems
 Many new forms of information
technology (IT)
 IT is enabling real time and any time links
between suppliers, producers, distributors,
and customers
 Involves incremental adjustments or radical innovations
focused on realigning departments, changing who makes
decisions, and merging or reorganizing departments
that sell the organization’s products
 Two basic approaches
Change organization’s structure, such as from functional
to product departmentalization
Change organization’s processes, such as how customer
complaints are handled
 Restructuring: reconfiguring the distribution of
authority, responsibility, and control in an organization
 Reengineering: radical redesigning of an
organization’s functions and business processes
Job Redesign
 Modifying specific employee job responsibilities and tasks

 Job simplification: the scientific analysis of tasks

 Focus on efficient workflow process for employees
in a particular job
 Frequent use of time and motion studies

 Job enrichment: changing job specifications to broaden

and add challenge to the tasks required and to increase
 Increases interesting and challenging work
 Increases autonomy and personal freedom
 A planned, long-range behavioral science strategy for
understanding, changing, and developing an organization’s
workforce in order to improve its effectiveness
 Focus group discussion: a carefully planned discussion
among several employees about a specific topic or
issue of interest, which is led by a trained facilitator
 Facilitator explains the topic to be discussed, the role of the
scribe, and how the organization will use the results of the
focus group discussion
 Participants come prepared to discuss a specific topic. If
confidentiality is a concern, participants are chosen from
different units of the organization, not the same work group
 Scribe: the person who takes notes about what is said, but
not who says it
How to Set Up a Focus Group Discussion
(adapted from Figure 12.5)
The facilitator explains the topic to be discussed,
the role of the scribe, and how the organization
will use the results of the focus group discussion.

The participants come prepared to discuss a specific topic.

If confidentiality is a concern, participants are chosen from
different units of the organization, not the same work
The scribe takes notes about
what is said, but not who says
Organization Development (OD) (cont’d)

 Survey feedback: a process that allows managers

and employees to report their thoughts and feelings
about the organization and to learn about how
others think and feel about their own behaviors

 Feedback obtained by means of a questionnaire

developed and distributed to employees, who
complete it and turn it in anonymously
 Content of questionnaire depends on areas of
most concern Questionnaire
Organization Development (OD) (cont’d)

 Team building: process that develops the ability of

team members to collaborate effectively so they can
perform the tasks assigned to them

 Often emphasizes developing a group

climate that is safe
 Openness can be risky, but promotes
creativity and effective problem solving
 Major organizational change is a complex
 Typically involves a combination of
 Example: purchasing and installing
enterprise resource planning [ERP]
Role of Innovation in Organizational

 Innovation: the discovery, identification and

diagnosis of unusual and ambiguous problems
and/or the development of unique or creative
 Strategic importance of innovation
Critical in dynamic, changing environments
Organizations can rest on prior success
Complacency is deadly
 Technical innovation: creation of new goods
and services
 Process innovation: creating a new way of
producing, selling, and/or distributing an
existing good or service
 Administrative innovation: creating a new
organization design that better supports the
creation, production, and delivery of goods
and services
Workforce Resilience

Provide a
Support System for

Develop a Learning Environment and

Learning Orientation among Employees
 Learning organization: has both the drive and
the capabilities to modify or transform itself and
improve its performance continuously
 Learns from past experiences
 Learns from customers
 Learns from various parts of the
 Learns from other organizations
Shared Leadership

The Customer-Focused
Culture of Innovation Learning Strategy

Organic Intensive
Organization Use of
Design Information
Characteristics of a Learning Organization: Snapshot

“We all make mistakes. It’s not as though at any time,

Dell doesn’t have some part of its business that’s not
working for us as it should. But we have a culture of
continuous improvement. We train employees to
constantly ask themselves, ‘How do we grow faster?
How do we lower our cost structure? How do we
improve service for customers?’”

Michael Dell, Chairman and Cofounder, Dell Computer


Organizational Structure
STRATEGIC and Controls
ATION Strategic
Management Seventh edition
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Competitiveness and Globalization:
Michael A. Hitt and Cases
© 2007 Thomson/South-Western.
All rights reserved. • R. Duane Ireland • Robert E. Hoskisson
Organizational Structure
and Controls
• Organizational structure specifies:
– The firm’s formal reporting relationships,
procedures, controls, and authority and
decision-making processes
– The work to be done and how to do it, given
the firm’s strategy or strategies
• It is critical to match organizational
structure to the firm’s strategy.

Organizational Structure
• Effective structures provide:
– Stability
– Flexibility
• Structural stability provides:
– The capacity required to consistently and predictably
manage daily work routines
• Structural flexibility provides for:
– The opportunity to explore competitive possibilities
– The allocation of resources to activities that shape needed
competitive advantages

Organizational Controls
• Purposes of Organizational Controls:
– Guide the use of strategy.
– Indicate how to compare actual results with expected
– Suggest corrective actions to take when the difference
between actual and expected results is unacceptable.
• Two Types of Organizational Controls
– Strategic controls
– Financial controls

Organizational Controls
Strategic Organizational Financial
Controls Controls Controls

• Strategic Controls: Subjective criteria

– Are concerned with examining the fit between:
• What the firm might do (opportunities in its external
• What the firm can do (competitive advantages).
– Evaluate the degree to which the firm focuses on
the requirements to implement its strategy.

Organizational Controls
Strategic Organizational Financial
Controls Controls Controls

• Financial Controls: Objective criteria

– Accounting-based measures include:
• Return on investment
• Return on assets
– Market-based measures include:
• Economic Value Added (EVA)

Matching Control to
• Relative use of controls varies by type of
– Large diversified firms using a cost leadership
strategy emphasize financial controls.
– Companies and business units using a
differentiation strategy emphasize strategic

Relationships between
Strategy and Structure
• Strategy and structure have a reciprocal
– Structure flows from or follows the selection of
the firm’s strategy but …
– Once in place, structure can influence current
strategic actions as well as choices about
future strategies.

Evolutionary Patterns of Structure and
Organizational Structure
• Firms grow in predictable patterns:
– First by volume
– Then by geography
– Then integration (vertical, horizontal)
– And finally through product/business diversification

• A firm’s growth patterns determine its

structural form.

Evolutionary Patterns of Structure
and Organizational Structure
• All organizations require some form of
organizational structure to implement and
manage their strategies
• Firms frequently alter their structure as they
grow in size and complexity
• Three basic structure types:
– Simple structure
– Functional structure
– Multidivisional structure (M-form)
Strategy Simple Structure
and Efficient implementation of

formulated strategy

Sales Growth
Growth Coordination and Control Problems

Functional Structure

Efficient implementation of
formulated strategy

Sales Growth
Coordination and Control Problems

Multidivisional Structure


Strategy and
Structure Growth

Strategy and Structure:
Simple Structure
• Owner-manager
– Makes all major decisions directly.
– Monitors all activities.
• Staff
– Serves as an extension of the manager’s supervisor
• Matched with focus strategies and business-
level strategies
– Commonly complete by offering a single product line
in a single geographic market.

Simple Structure (cont’d)

• Growth creates:
– Complexity
– Managerial and structural challenges
• Owner-managers
– Commonly lack organizational skills and
– Become ineffective in managing the
specialized and complex tasks involved with
multiple organizational functions.

Strategy and Structure:
Functional Structure
• Chief Executive Officer (CEO)
– Limited corporate staff
• Functional line managers in dominant
organizational areas of:
– Production Marketing Engineering
– Accounting R&DHuman resources
• Supports use of business-level strategies and some
corporate-level strategies
– Single or dominant business with low levels of

Functional Structure
• Differences in orientation among
organizational functions can:
– Impede communication and coordination.
– Increase the need for CEO to integrate decisions
and actions of business functions.
– Facilitate career paths and professional
development in specialized functional areas.
– Cause functional-area managers to focus on
local versus overall company strategic issues.

Strategy and Structure:
Multidivisional Structure
• Strategic Control
– Operating divisions function as separate
businesses or profit centers
• Top corporate officer delegates
responsibilities to division managers
– For day-to-day operations
– For business-unit strategy
• Appropriate as firm grows through

Multidivisional Structure
• Three Major Benefits
– Corporate officers are able to more accurately
monitor the performance of each business,
which simplifies the problem of control.
– Facilitates comparisons between divisions,
which improves the resource allocation process.
– Stimulates managers of poorly performing
divisions to look for ways of improving

Matching Strategy and
Functional Structure
• Different forms of the functional organizational
structure are matched to:
– Cost leadership strategy
– Differentiation strategy
– Integrated cost leadership/differentiation strategy
• Differences in these forms are seen in three
important structural characteristics:
– Specialization (number and types of jobs)
– Centralization (decision-making authority)
– Formalization (formal rules and work procedures)

FIGURE 11.2 Functional Structure for Implementation of a
Cost Leadership Strategy

• Operations is the main function
• Process engineering is emphasized rather
than new product R&D
• Relatively large centralized staff
coordinates functions
• Formalized procedures allow for
emergence of a low-cost culture
• Overall structure is mechanical; job roles
are highly structured

Using the Functional Structure to Implement
a Cost Leadership Strategy

• Operations is the main function.

– Process engineering is emphasized over
research and development.
– Large centralized staff oversees activities.
– Formalized procedures guide actions.
– Structure is mechanical.
– Job roles are highly structured.

FIGURE 11.3 Functional Structure for
Implementation of a
Differentiation Strategy

Notes: • Marketing is the main function for keeping track of new product ideas
• New product R&D is emphasized
• Most functions are decentralized, but R&D and marketing may have centralized staffs that work closely with each other
• Formalization is limited so that new product ideas can emerge easily and change is more readily accomplished
• Overall structure is organic; job roles are less structured

Using the Functional Structure to
Implement a Differentiation
• Marketing is the main function for tracking
new product ideas.
– New product R&D is emphasized.
– Most functions are decentralized.
– Formalization is limited to foster change and
promote new ideas.
– Overall structure is organic.
– Job roles are less structured.

Using the Functional Structure to Implement
the Integrated Cost Leadership/
Differentiation Strategy

• Selling products that create customer value due

– Their relatively low product cost through an
emphasis on production and process engineering,
with infrequent product changes.
– Reasonable sources of differentiation based on
new-product R&D are emphasized while production
and process engineering are not.
• Used frequently in global economy

Implementing an Integrated
Cost Leadership/Differentiation
• The integrated form of the functional
structure Strategy
must have: (cont’d)
– Decision-making patterns that are partially
centralized and partially decentralized.
– Semi-specialized jobs.
– Rules and procedures that allow both formal
and informal job behaviors.

Corporate-Level Strategies and
the Multidivisional Structure
• A firm’s continuing success that leads to:
– Product diversification, or
– Market diversification, or
– Both product and market diversification.
• Increasing diversification creates control
problems that the functional structure can’t
– Information processing, coordination
– Control

Corporate-Level Strategies and
the Multidivisional Structure

• Diversification strategy requires firm to

change from functional structure to a
multidivisional structure.