The MBO style is appropriate when your staff is competent. Chief executives of multinational corporations (MNCs) use MBO for their country managers abroad. Their bosses in the United States often have little knowledge of what is required for success in those international markets. MBO is appropriate in situations where you wish to build employees’ management skills and tap their creativity and initiative. The drawback to MBO is the time needed to adequately negotiate and document the process. Therefore, MBO should be used in appropriate situations.
MBWA, management by walking around, was a theory expounded at Hewlett-Packard, the computer giant. HP executives were encouraged to be out of their offices working on building relationships, motivating, and keeping in direct touch with the activities of the company. MBWA is a simple concept, but it has become part of an MBA’s portfolio of management theories.
ORGANIZATIONAL LEVEL TOPICS
With a psychology lesson and a set of MBA office procedures to work with, the OB courses take a “bigger picture” look at organizations. With a larger scope also come grander theories and the vocabulary to accompany them.
THE BASIC ORGANIZATIONAL MODEL
To understand an organization, you have to consider all of its components. Organizations are networks of related parts. Each element works together to support efficient operations. The new MBA buzzword for it all is organizational architecture.
A noteworthy feature of the diagram is that the individual is at the center. The reason for this is that organizations are made not of brick and mortar but of people. Organizations affect those individuals. The theories in the previous sections focused on the individual. In the following sections the macro-view of the organizations is explored in MBA terms.
As shown in the diagram below, six elements define organizations. Some are self-explanatory, but others have special MBA significance that you should be aware of.
THE BASIC ORGANIZATIONAL MODEL
Strategy. Strategy describes an explicit or implicit plan for success in the marketplace. When an airline decides to lure customers with either lower prices or better service, that is a corporate strategy. (Later in the book, I devote an entire chapter to this truly MBA topic.)
Policies and Procedures. Policies are formal rules that, in all but small companies, are captured in a handbook, while procedures are the observable ways in which a company conducts business. Vacation and benefits are policies that are codified. Routine tasks such as how waste paper should be separated for recycling may not be committed to paper. It’s a procedure that is understood.
Organizational Structures. Structure vocabulary is a lexicon that no MBA can be without. It is a frequent subject of discussion in corporate meetings and is also an important tool for managing organizational behavior. Structures describe the hierarchy of authority and accountability in an organization. These “formal” relationships are frequently diagrammed in organization charts. Most companies use some mix of structures to accomplish their goals. People who are directly involved in producing or marketing the firm’s products or services are called line employees. The others who advise, serve, and support the line are called staff employees. Line and staff employees can be organized along the following lines:
Functional
Product
Customer
Geographic
Divisional
Matrix
Amorphous
Functional. The functional form divides work by tasks, e.g., advertising, accounting, finance, and sales. These departments report to the senior executives.
“Organizational Structure,” written by Professor James Clawson, Case UVA-OB-361, Figures 1–8. Copyright © 1988 by the Darden Graduate Business School Foundation, Charlottesville, Virginia.
Product. The product structure groups all functions necessary to deliver a specific product. Product managers manage individual products as smaller businesses within a company. Black & Decker, for example, is divided into separate units responsible for power tools, small appliances, and accessories.
Customer. The customer structure focuses on—you guessed it—the customer. Activities, such as production and marketing, are grouped with other functions to satisfy specific customer needs. The customer structure is common in service industries. Banks often divide responsibility by customer type. For instance, some loan officers are trained to serve business clients, others to serve individuals. Each has “expert” knowledge to deal with his or her customers’ specific needs.
Geographic. In this arrangement work is divided by location. Geographic structures cut across customers and products. Regional offices are established to manage the business. This is especially true of international businesses, where each country’s office would adopt its own structure.
Divisional. Divisions are independent businesses operating under the umbrella of a parent corporation. Unlike the previous four structures, divisions run somewhat autonomously. They do it all themselves, from marketing to buying raw materials. However, most divisions use the parent company for financing. For example, General Electric has a divisional corporate structure that includes NBC Universal, GE Energy, GE Capital, GE Home & Business Solutions, and GE Technology Infrastructure. These businesses are centrally owned but separately operated. Within each of the divisions there may be other organizational substructures.
Matrix. The matrix structure departs from the principle of unity of command: only one boss for each employee. Here there are two or more lines of authority. The matrix is common in businesses involved in large, complex projects that require highly specialized skills. In this structure, both the product and the functional structures coexist. Employees report to both a project manager in charge of their assigned product and a functional manager who controls specific activities such as manufacturing, finance, and marketing. As you might expect, this organizational form can be confusing. It requires a staff that is flexible and professional. The defense and computer industries often opt for the matrix structure to handle large development projects.
Amorphous. This is my personal favorite. The amorphous structure is no formal structure at all. It’s the free bird. In these companies highly motivated and productive managers create and dissolve reporting relationships as the task at hand requires. In these companies, the structure incrementally grows as events dictate. Facebook started this way.
Hybrid. These entities are composed of a mix of operational structures. Most companies fall into this category. General Electric as described has a divisional structure. But within each division, there are geographic manufacturing organizations, matrix research staffs, and customer-sales-grouped organizations. In the example below, a single business is organized in a functional/product hybrid. The brand managers control their products and marketing, but they do not have complete control over the financing or operations of the business.
The choice of structure dramatically affects the operations of a company. There needs to be a fit between the business activities required and the corporate apparatus set up to produce and deliver the service.
Managers should select a structure that reflects their goals and strategy. The structure that is set up enables individuals to interact in ways that will best achieve goals. Informal reporting relationships form spontaneously, and these fail to be represented in the organizational charts kept by the personnel department. Recognizing both the formal and informal structures is crucial in executing a successful action plan.
An important issue related to reporting relationships is the span of control. The span describes the number of people who report to a manager. During restructuring, downsizing, and recessions this topic becomes popular. Using a decreased span of control, large corporations often fire middle-manager MBAs. The remaining managers have more staff. If a sales organization changes from a policy of one regional manager for every three regions to one for every four, that displaces 25 percent of the regional managers. MBAs call these layoffs a reduction in force (RIF), demassing, or restructuring. It’s a n
ice, antiseptic way for managers to describe the firing of many people. Span-of-control policies are powerful organizational tools.
“YOU’RE FIRED, NEVINS, BUT WE’VE ENJOYED YOUR BEING HERE AND HAVE SOME LOVELY PARTING GIFTS FOR YOU.”
Systems. Each organization develops systems for allocating, controlling, and monitoring money, things, and people. Systems also perform informational activities by gathering information and channeling it to interested users. Systems fall into one of six categories:
Money Allocation, Control, and Monitoring—Accounting, investment, and budgeting systems
Object Allocation, Control, and Monitoring—Inventory and production systems
People Allocation, Control, and Monitoring—Human resource planning, employee data and appraisals
Future Anticipation—Strategic planning, marketing-sales planning, business development functions
People Reward and Incentives—Compensation schemes, bonus plans, profit-sharing plans
Integrative—Mixes of the first five. In well-managed companies, integrated systems forecast sales, which in turn dictates production schedules required to meet that need.
It is crucial to understand the systems of an organization, because they are the tools for change. Systems provide both a means and, at times, a barrier to corporate change.
Climate. This is a nebulous term that refers to the emotional state of an organization’s members. Many companies hire expensive consultants to perform satisfaction studies to determine the “climate” of their organization so that improvements can be made. In service industries where people are the most valuable assets, such as law firms, investment banking houses, and consulting practices, the climate of the firm plays an important role in determining service quality.
Culture. This is another hazy term. Culture is the mix of behaviors, thoughts, beliefs, symbols, and artifacts that are conveyed to peo-ple throughout an organization over time. It may extend to such silly things as an unwritten rule that all men must wear white pinpoint oxford shirts or corporate lapel pins. Culture may include a belief about desired employee conduct. “Senior executives must always work past six o’clock.” “It’s important to look busy at all times.” A main criterion for recruiting is often the perceived “fit” of interviewees with the organization. If a person does not appear to “fit” into the corporate culture, then he or she in many recruiters’ eyes will probably not be an effective employee.
The six elements of an organization (strategy, policies, structure, systems, climate, and culture) dynamically affect one another. Each element interacts with the environment as a business strives toward its goals. The problem definition/action planning process requires that a manager look at all six elements of the organization model to determine which action levers will exist to implement positive change. If the environment changes, the organizational elements must adapt. MBAs like to refer to companies that can change as learning organizations.
Organizations that are stuck in the same old pattern of thinking and acting are said to be trapped by their paradigms or mind-set. High-priced consultants often counsel stagnant companies on how to break their old paradigms so that they can change and succeed. Use the word paradigm several times in a conversation tomorrow, and you’re one step closer to becoming a Ten-Day MBA.
THE HUMAN TALENT FLOW PYRAMID
The structure of a firm dictates not only how employees are grouped but also how they can advance in a firm. At each progressive stage the individual assumes more authority. People either leave, get fired, or are promoted. A handy MBA tool to track this flow of human capital is a pyramid diagram.
By tracking the flows of people in and out of an organization, we can clearly identify turnover problems, skill deficiencies, and entrenched management. The diagram helps to point out graphically the “leakages” and “blockages” of people flows within the organization. Employees enter all levels of the organization as depicted at the left and move up within the pyramid. If there is little movement from one level to another, this blockage may cause many people to become frustrated and leave to the right of the pyramid, a leakage. Discrimination issues such as “glass ceilings” for women and minority promotions can be analyzed using this pictorial technique.
THE HUMAN TALENT FLOW PYRAMID
SYSTEMS THEORY AND ORGANIZATIONAL ANALYSIS
Systems theory is a concept that likens organizations to living organisms. Just as animals have their endocrine, digestive, and nervous systems, academics propose that organizational bodies have similar subsystems that enable them to live. When diagrammed, an organization looks like a paramecium.
SYSTEMS THEORY
“Systems Theory and Organizational Analysis,” by Professor James Clawson, Case UVA-OB-214, Figure 1. Copyright © 1983 by the Darden Graduate Business School Foundation, Charlottesville, Virginia.
The management subsystem is the organ that sets the goals, plans, and controls, similar to the brain. This is the role of executives.
The adaptive subsystem acts as a firm’s eyes to monitor the environment. The system also makes sure that the firm’s products and services are appropriate in a changing environment to ensure survival. Information gathered from market researchers, customer service representatives, and salespeople makes a company adaptive.
The boundary spanning in subsystem is the mouth. It controls the intake of the organization’s food. In a company, this subsystem includes recruiting people, buying raw materials, and raising money.
The bowels of the company are the production subsystem. It converts the inputs into goods and services. In a manufacturing company, these are the factories.
The bowels lead to the boundary spanning out subsystem. The marketing crew helps the company produce its products and services. The personnel department deals with the outplacement of employees who have not met company standards. And finally, the public relations department tries to put a good face on the company’s actions.
Once the animal is breathing and functioning properly, the maintenance subsystem tries to keep the other subsystems working efficiently together. This cerebellum maintains a balance in the organization by coordinating all the movements of the body. Examples of the maintenance subsystems include employee incentives and company newsletters.
Systems theory provides yet another way of analyzing an organization to gauge its health or to make a change in its lifestyle.
EVOLUTION AND REVOLUTION AS ORGANIZATIONS GROW
Larry E. Greiner of the Harvard Business School wrote a classic article with this title in the Harvard Business Review in July 1972, describing the growing pains that organizations go through.
Greiner proposed that organizations exhibit five predictable stages of growth called evolutions and five periods of crises called revolutions. His theory is readily applicable to many organizations. The growth pattern consists of tightening and loosening of management reins in response to changes within the organization and the environment.
Reprinted by permission of Harvard Business Review. An exhibit from “Evolution and Revolution as Organizations Grow” by Larry E. Greiner, Volume 50, Number 4 (July/August 1972). Copyright © 1972 by the President and Fellows of Harvard College; all rights reserved.
The evolution/revolution pattern, as shown by Apple Computer, is an excellent way to put a company’s history into MBA perspective. Apple Computer sprang forth from the creativity of Steven Jobs and Stephen Wozniak. Beginning in 1976, these two entrepreneurs were on a freight train of rapid growth until the company became so unwieldy that it almost jumped the tracks in 1983. Apple was faced with the leadership crisis of a growth company that didn’t have anyone who could efficiently run its day-to-day operations. Jobs was a lofty visionary making speeches, while Wozniak was the magic technician.
The company started to run out of gas as its creative fuel ran low. Apple II sales slumped and the new Lisa computer failed. John Sculley (Wharton MBA ’63) was brought in from Pepsi-Cola to give the company direction. Sculley reo
rganized Apple and cut costs in its bloated headquarters. Steve Jobs and his followers demanded more autonomy to develop a new breakthrough product, and Sculley gave it to them. The delegation resulted in the creation of the Macintosh.
The Mac created another explosive growth period. However, Jobs could not work in a growing corporate bureaucracy, and he started a new company called NeXT. In 1989 the aging Mac faced fierce competition, and as profits declined in 1990, a new Apple crisis of control was brewing. Michael Spindler was appointed as chief operating officer to assist Sculley as chairman to take control and return the company to increasing profitability. By 1992 they had succeeded, but fell into crisis in 1995. Steve Jobs returned and led yet another recovery in 1998 with the iMac and G3 computers, in 2002 with the iPod music player, in 2007 with the iPhone, and in 2010 with the iPad.
CHANGE MANAGEMENT STRATEGIES
In addition to all the theory about the mind and corporate body, MBAs receive practical guidance for taking action in difficult situations. Even if an action plan is “perfect,” there is always resistance to change. Even those well-thought-out plans such as the one the new MBA proposed to his boss at the beginning of this chapter may run up against a wall. Fortunately, John P. Kotter and Leonard A. Schlesinger formulated a tidy model to assist MBAs in their article “Choosing Strategies for Change” in the Harvard Business Review of March 1979. The appropriate course of action all depends on the situation.
The Ten-Day MBA 4th Ed. Page 14