BUS735 WK 5: Case for Analysis – Hermitage Escalator Company Discussion

Read Chapter 8 and 9 – The External Environment from your textbook: Organization Theory & Design 13th edition (2022) by Richard L. Draft.

· Read the Case for Analysis: Hermitage Escalator Company on pages 395-396 and

· Answer the 3 questions (in 800 words totall) at the end of Chapter 9 on page 397 of your textbook.

· You must support your assertions with 5 scholarly peer-reviewed sources within the paper in the current APA 7th edition format.

· The paper must also contain a biblical integration section with bible scriptures cited that relate to the questions.

· All scholarly peer-reviewed sources must have been published within the last five years (2019 -2024) with doi numbers and included in the reference list.

Richard L. Daft
Vanderbilt University
Organization Theory & Design 13e
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
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Organization Theory & Design,
Thirteenth Edition
Richard L. Daft
Senior Vice President, Higher Education:
Erin Joyner
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About the Author
Richard L. Daft, Ph.D., is the Brownlee O. Currey, Jr, Professor of Management and Principal Senior Lecturer
in the Owen Graduate School of Management at Vanderbilt University. Professor Daft specializes in the study
of organization theory and leadership. Professor Daft is a Fellow of the Academy of Management and has
served on the editorial boards of Academy of Management Journal, Administrative Science Quarterly, and
Journal of Management Education. He was the Associate Editor-in-Chief of Organization Science and served
for three years as Associate Editor of Administrative Science Quarterly.
Professor Daft has authored or co-authored 14 books, including The Executive and the Elephant: A
Leader’s Guide to Building Inner Excellence (Jossey-Bass, 2010), Building Management Skills: An ActionFirst Approach (Cengage/South-Western, 2014), Management (Cengage/South-Western, 2018), The
Leadership Experience (Cengage/South-Western, 2018), and What to Study: Generating and Developing
Research Questions (Sage, 1982). He also published Fusion Leadership: Unlocking the Subtle Forces That
Change People and Organizations (Berrett-Koehler, 2000) with Robert Lengel. He has authored dozens of
scholarly articles, papers, and chapters. His work has been published in Administrative Science Quarterly,
Academy of Management Journal, Academy of Management Review, Organizational Dynamics, Strategic
Management Journal, Journal of Management, Accounting Organizations and Society, Management Science,
MIS Quarterly, California Management Review, and Organizational Behavior Teaching Review. Professor
Daft has been awarded several government research grants to pursue studies of organization design,
organizational innovation and change, strategy implementation, and organizational information processing.
Professor Daft is also an active teacher and consultant. He has taught management, leadership, organizational change, organization theory, and organizational behavior. He has been involved in management development and consulting for many companies and government organizations, including the National Academy
of Science, Oak Ridge National Laboratory, American Banking Association, AutoZone, Aegis Technology,
Bridgestone, Bell Canada, Allstate Insurance, the National Transportation Research Board, the Tennessee
Valley Authority (TVA), State Farm Insurance, Tenneco, the U.S. Air Force, the U.S. Army, Eli Lilly, Central
Parking System, Entergy Sales and Service, Bristol-Myers Squibb, First American National Bank, and the
Vanderbilt University Medical Center.
iii
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Brief Contents
PART 1
Introduction to Organizations
001
1. Organizations and Organization Design 002
PART 2
Organization Purpose and Structural Design
047
2. Strategy, Organization Design, and Effectiveness 048
3. Fundamentals of Organization Structure 092
PART 3
4.
5.
6.
7.
Open System Design Elements
145
The External Environment 146
Interorganizational Relationships 184
Designing Organizations for the International Environment 222
Designs for Societal Impact: Dual-Purpose Organizations, Corporate Sustainability,
and Ethics 270
PART 4
Internal Design Elements
313
8. Designs for Manufacturing and Service Technologies 314
9. Designs for Digital Organizations and Big Data Analytics 360
10. Organization Size, Life Cycle, and Decline 402
PART 5
11.
12.
13.
14.
Managing Dynamic Processes
Integrative Cases
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
441
Organizational Culture and Control 442
Innovation and Change 478
Decision-Making Processes 526
Conflict, Power, and Politics 576
621
Disorganization at Semco: Human Resource Practices as a Strategic Advantage 623
Walmart’s Failures in Entering Three Developed Markets 633
IKEA: Scandinavian Style 639
Engro Chemical Pakistan Limited—Restructuring
the Marketing Division 644
The New York Times Versus Amazon 656
Lean Initiatives and Growth at Orlando Metering Company 661
SCG Lampang: Overcoming Community Resistance to a Sustainability Project (A) 670
Costco: Join the Club 675
The Donor Services Department 679
Cisco Systems: Evolution of Structure 683
ToolTopia.com 689
Sometimes a Simple Change Isn’t So Simple 693
Glossary 698
Name Index 709
Corporate Name Index 719
Subject Index 723
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v
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Contents
Prefacexv
PART 1 Introduction to Organizations
Chapter 1: Organizations and
Organization Design
002
A Look Inside General Electric
003
The Jack Welch Era 1981–2001, 003 • The
Jeff Immelt Era 2001–2017, 005 • Events
Since 2017, 006
Organization Design in Action
001
IN PRACTICE: Shizugawa Elementary School Evacuation
Center and BP Transocean Deepwater Horizon Oil Rig
Contingency Factors, 020
IN PRACTICE: Valve Software
007
The Evolution of Organization Design
025
Historical Perspectives, 025
HOW DO YOU FIT THE DESIGN? Evolution of Style
BOOKMARK 1.0: The Vanishing American
Corporation: Navigating the Hazards of a New
Economy010
IN PRACTICE: Foot Locker
013
What Is an Organization?
014
Definition, 014 • From Multinationals
to Nonprofits, 014 • Importance of
Organizations, 016
027
It All Depends: Key Contingencies, 028
029
The Contrast of Organic and Mechanistic Designs
The Emerging Bossless Design Trend
032
IN PRACTICE: Morning Star
033
Framework for the Book
034
Levels of Analysis, 034 • Plan of the Book, 035
• Plan of Each Chapter, 035
IN PRACTICE : Zara SA
017
Dimensions of Organization Design
018
Structural Dimensions, 018
Chapter 1 Workshop: Measuring Dimensions of
Organizations038
Case for Analysis: Craft Originalities, Inc. 
PART 2 Organization Purpose and Structural Design
048
Purpose of This Chapter, 050
The Role of Strategic Direction in Organization
Design050
IN PRACTICE: The Kroger Company
051
Organizational Purpose
054
Strategic Intent, 055
023
Performance and Effectiveness
Outcomes, 023
Topics, 007 • Purpose of This Chapter, 008 •
Current Challenges, 009
Chapter 2: Strategy, Organization Design,
and Effectiveness
020
039
047
BOOKMARK 2.0: Blue Ocean Shift: Beyond
Competing; Proven Steps to Inspire Confidence and
Seize New Growth
057
Operating Goals, 058 • Goal Conflict, 060 •
The Importance of Goals, 060
IN PRACTICE: Wells Fargo
061
Two Frameworks for Selecting Strategy and Design
063
Porter’s Competitive Strategies, 063
vii
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viii
Contents
HOW DO YOU FIT THE DESIGN? Your Strategy/
Performance Strength
065
IN PRACTICE: Allegiant Air
066
Miles and Snow’s Strategy Typology, 067 •
How Strategies Affect Organization
Design, 068 • Other Contingency Factors
Affecting Organization Design, 069
Assessing Organizational Effectiveness
071
Definition of Organizational Effectiveness, 071
• Who Decides?, 072 • Goal Approach, 073
• Resource-Based Approach, 075 • Internal
Process Approach, 076
IN PRACTICE: BNSF Railway
HOW DO YOU FIT THE DESIGN? The Pleasure/Pain of
Working on a Team
IN PRACTICE: Southwest Airlines
107
Organization Design Alternatives
108
Required Work Activities, 109 • Reporting
Relationships, 109 • Departmental Grouping
Options, 109
Functional, Divisional, and Geographic Designs
077
Strategic Constituents Approach, 077
106
Relational Coordination, 106
111
Functional Structure, 111 • Functional
Structure with Horizontal Linkages, 112 •
Divisional Structure, 113
IN PRACTICE: Google and Alphabet
114
Geographic Structure, 116
An Integrated Effectiveness Model
079
IN PRACTICE: Samsung Group
082
Chapter 2 Workshop: Identify Your Goal Preferences
084
Case for Analysis: The Addlington Gallery of Art
084
Case for Analysis: Millier Machine Parts & Services
IN PRACTICE: Englander Steel
121
086
Virtual Network Structure and Outsourcing
123
Chapter 3: Fundamentals of Organization
Structure92
How the Structure Works, 123 • Strengths
and Weaknesses, 124
Purpose of This Chapter, 94
Organization Structure
094
Information-Sharing Perspective
on Structure
097
Centralized Versus Decentralized, 097
BOOKMARK 3.0: The Future of Management
098
IN PRACTICE: Toyota
099
Vertical Information Sharing, 099
Horizontal Information Sharing and
Collaboration, 100
IN PRACTICE: AT&T WarnerMedia
102
Matrix Structure
Holacracy Team Structure 
126
IN PRACTICE: Zappos
128
Characteristics, 128 • Strengths and
Weaknesses, 128
Applications of Structural Design
146
Purpose of This Chapter, 147
The Organization’s Environment
148
Task Environment, 148 • General
Environment, 150 • International
Environment, 151
Chapter 3 Workbook: You and Organization Structure
134
Case for Analysis: Holtzclaw Supermarkets, Inc.
134
Case for Analysis: Aquarius Advertising Agency
137
145
Framework, 156
BOOKMARK 4.0: Confronting Reality: Doing What
Matters to Get Things Right
156
Adapting to Complexity and Dynamism
158
Adding Positions and Departments, 159 •
Building Relationships, 159
IN PRACTICE: Uber and Didi Chuxing
152
The Changing Environment
153
Complexity, 154 • Dynamism, 154
IN PRACTICE: Gap Inc.
130
Mix and Match, 131 • Structural Alignment,
131 • Symptoms of Structural Deficiency, 132
PART 3 Open System Design Elements
Chapter 4: The External Environment
118
Conditions for the Matrix, 119 • Strengths
and Weaknesses, 120
154
IN PRACTICE: Seton Hall University and
Dickinson College
160
Differentiation and Integration, 162 •
Organic Versus Mechanistic Management
Processes, 163
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Contentsix
HOW DO YOU FIT THE DESIGN? Mind and Environment, 164
Planning, Forecasting, and
Responsiveness, 165
Framework for Adapting to Complexity
and Dynamism
166
Dependence on Financial Resources
167
Influencing Financial Resources
168
Establishing Formal Relationships, 168
IN PRACTICE: Publicis and Omnicom
169
Influencing Key Sectors, 171
Chapter 5 Workshop: The Shamatosi
212
Case for Analysis: Technomagia and AUD
214
Case for Analysis: Bradford Chemicals Company
215
Chapter 6: Designing Organizations for
the International Environment
222
Purpose of This Chapter, 224
Entering the Global Arena
Motivations for Global Expansion, 225
IN PRACTICE: Amazon and Walmart
171
BOOKMARK 6.0: The World Is Flat: A Brief History
of the Twenty-First Century
Organization–Environment Integrative Framework
174
IN PRACTICE: Amway
Chapter 4 Workshop: Organizations You Rely On
176
Case for Analysis: CPI Corporation
176
Case for Analysis: Farrington Medical Devices
177
Chapter 5: Interorganizational
Relationships184
Purpose of This Chapter, 186
Organizational Ecosystems
186
Is Competition Dead?, 187
IN PRACTICE: Apple and Samsung
189
The Changing Role of Management, 189
• Interorganizational Framework, 191
Resource Dependence
Types of Resource-Dependence Relationships,
192 • Power Implications, 194
IN PRACTICE: JPMorgan Chase and Amazon
227
HOW DO YOU FIT THE DESIGN? What Is Your Cultural
Intelligence?231
Global Expansion Through International
Alliances and Acquisitions, 232
IN PRACTICE: Walmart and Flipkart
233
The Challenges of Global Design
234
Increased Complexity and Differentiation,
235 • Increased Need for Coordination,
236 • Transfer of Knowledge and Reverse
Innovation, 237
239
Strategies for Global Versus Local
Opportunities, 239
IN PRACTICE: General Electric
195
225
Managing the Stages of International
Development, 229
Designing Structure to Fit Global Strategy
192
224
242
International Division, 243 • Global Product
Division Structure, 243 • Global Geographic
Division Structure, 245
Collaborative Networks
195
HOW DO YOU FIT THE DESIGN? Personal Networking
196
IN PRACTICE: Colgate-Palmolive Company
198
IN PRACTICE: ABB Group
248
Additional Global Coordination Mechanisms
250
Why Collaboration?, 197
IN PRACTICE: Accelerating Medicines Partnership
From Adversaries to Partners, 198
BOOKMARK 5.0: Managing Strategic Relationships:
The Key to Business Success
200
Population Ecology
201
IN PRACTICE: Blockbuster
202
What Hinders Adaptation?, 202
IN PRACTICE: LVMH Moët Hennessy Louis Vuitton
202
Organizational Form and Niche, 203 •
Process of Ecological Change, 204 • Strategies
for Survival, 205
Institutionalism207
The Institutional View and Organization
Design, 207 • Institutional Similarity, 208
246
Global Matrix Structure, 247
Global Teams, 250
IN PRACTICE: L’Oréal
251
Headquarters Planning, 252 • Expanded
Coordination Roles, 252 • Benefits of
Coordination, 253
The Transnational Model of Organization
254
Chapter 6 Workshop: Made in the U.S.A.?
259
Case for Analysis: Halogen Analytics
260
Case for Analysis: Rhinebeck Industrial
261
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x
Contents
Chapter 7: Designs for Societal Impact:
Dual-Purpose Organizations, Corporate
Sustainability, and Ethics
The Consequences for Doing Good
270
Purpose of This Chapter, 272
Designing the Dual-Purpose Organization
272
Facing the Challenge, 274 • Designs for
Achieving Dual Commercial and Social
Welfare Goals, 276
IN PRACTICE: Grameen Veolia Water
278
Corporate Social Responsibility
281
The Green Movement, 282 • The Triple
Bottom Line, 283
IN PRACTICE: Gravity Payments
284
Conscious Capitalism, 285
BOOKMARK 7.0: Conscious Capitalism: Liberating the
Heroic Spirit of Business
285
Serving Organizational Stakeholders, 286 •
Serving the Bottom of the Pyramid, 288
IN PRACTICE: Godrej & Boyce
289
 esigning a Structure for Executing a Sustainability
D
Program291
A Separate Department or Include Everyone?,
292 • Involve External Stakeholders, 293 •
Set Goals, Measure, and Reward, 294
HOW DO YOU FIT THE DESIGN? How Sustainable
are You?
296
Designs to Uphold Ethical Values
297
Sources of Individual Ethical Principles,
297 • Organizational Ethics, 298 • Formal
Structure and Systems, 299
IN PRACTICE: Google
302
Corporate Ethics in a Global Environment
303
Chapter 7 Workshop: What is Your Level of Ethical
Maturity?305
Case for Analysis: Solo: Helping a Million People
See Again
305
Case for Analysis: Fiedler, Philips & Wilson Design
307
PART 4 Internal Design Elements
Chapter 8: Designs for Manufacturing and
Service Technologies
314
318
326
Extreme Technology Complexity, 326
IN PRACTICE: Carnival Cruise Lines
327
BOOKMARK 8.0: Meltdown: Why Our Systems Fail and
What We Can Do About It
327
High Reliability Organizing, 328
Core Service Technology
331
Service Firms, 331
HOW DO YOU FIT THE DESIGN?: Manufacturing
Versus Service
333
IN PRACTICE: Panera Bread Company
335
Workflow Interdependence Among Departments
IN PRACTICE: Southwest Airlines
343
346
IN PRACTICE: Athletic Teams
348
Chapter 8 Workshop: Small Business Workflow Technology
350
Case for Analysis: Acetate Department
351
Case for Analysis: Digitalization in the Manufacturing
Sector: Skills in Transition
354
Chapter 9: Designs for Digital
Organizations and Big Data Analytics
360
Purpose of This Chapter, 362
The Digital Information Explosion
362
Pipes versus Platforms: A New Organization Form
365
Two Types, 367 • Foundational Assumptions, 367
IN PRACTICE: Uber
Designing the Service Organization, 335
IN PRACTICE: Home Depot Inc.
336
Noncore Departmental Technology
337
Variety, 338 • Analyzability, 338 •
Framework, 338 • Department Design, 340
IN PRACTICE: Memorial Sloan-Kettering Cancer Center 341
Structural Priority, 347 • Structural
Implications, 347
Manufacturing Firms, 318 • Strategy,
Technology, and Performance, 320 • The
Smart Factory, 321 • Mass Customization, 323
• Performance and Structural Implications, 324
Surviving Extremely Complex Technologies
313
Types, 343
Purpose of This Chapter, 317
Core Manufacturing Technology
290
369
Platform Design Recommendations, 370
Big Data Analytics
372
IN PRACTICE: Siemens Gamesa
373
Big Data Requirements, 373
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Contentsxi
BOOKMARK 9.0: Astroball: The New Way to Win It All
376
Organizational Life Cycle
IN PRACTICE: Morgan Stanley
378
IN PRACTICE: Airbnb
Artificial Intelligence
380
Big Data and Organization Structure, 376
410
Stages of Life-Cycle Development, 410
Is AI an Objective Decision Maker?, 381 •
Is Nudge Management Going to Be Your
Coach?, 383 • Algorithmic Control May Be
Your New Boss, 383 • AI Implications for
Organization Design, 385
413
Organizational Characteristics During the
Life Cycle, 414
Organizational Size, Bureaucracy, and Control
415
What Is Bureaucracy?, 415
IN PRACTICE: United Parcel Service (UPS)
417
Size and Structural Control, 418
HOW DO YOU FIT THE DESIGN? How Will You Handle
Decentralization and Autonomy?
386
Bureaucracy in a Changing World
420
Other Digital Applications in Organizations
387
BOOKMARK 10.0: The Conversational Firm:
Rethinking Bureaucracy in the Age of Social Media
420
Social Network Analysis, 387
IN PRACTICE: Exploration and Production Division
387
Knowledge Management, 389
IN PRACTICE: BAE Systems
390
Digital Impact on Organization Design
392
Chapter 9 Workshop: Manufacturing and Big Data:
Organize the Project
394
Case for Analysis: Hermitage Escalator Company
395
Chapter 10: Organization Size, Life Cycle,
and Decline
402
404
Pressures for Growth, 404 • Dilemmas of
Large Size, 405
Other Approaches to Busting Bureaucracy,
423
Bureaucracy and Other Forms of Control
407
IN PRACTICE: Dell Inc.
409
IN PRACTICE: East Resources Inc. and Royal Dutch
Shell PLC
442
Purpose of This Chapter, 444
444
What Is Culture?, 445 • Emergence and
Purpose of Culture, 446
IN PRACTICE: Google
446
Interpreting/Shaping Culture, 447
Culture and Organization Design
451
The Adaptability Culture, 453 • The
Achievement Culture, 453
IN PRACTICE: Huawei
426
IN PRACTICE: Valve Corporation and FAVI
428
Organizational Decline
429
Definition and Causes, 430
IN PRACTICE: Eastman Kodak
431
Chapter 10 Workshop: Classroom Control
434
Case for Analysis: Yahoo!: “Get to Work!”
434
Case for Analysis: Bachmeyer Foods, Inc.
435
PART 5 Managing Dynamic Processes
Organizational Culture
424
Bureaucratic Control, 425
A Model of Decline Stages, 431
HOW DO YOU FIT THE DESIGN? What Size
Organization For You?
Chapter 11: Organizational Culture
and Control
422
Market Control, 427 • Clan Control, 427
Purpose of This Chapter, 404
Organization Size: Is Bigger Better?
Organizing Temporary Systems, 421
IN PRACTICE: Salvation Army
453
The Clan Culture, 454 • The Bureaucratic
Culture, 454
441
Culture Strength and Organizational Subcultures
456
IN PRACTICE: Pitney Bowes Credit Corporation
457
BOOKMARK 11.0: Rule Makers, Rule Breakers: How
Tight and Loose Cultures Wire Our World
458
Culture and Performance
459
The Cultural Focus of Control Systems
461
The Changing Philosophy of Control, 461 •
Feedback Control Model, 463 • Organization
Level: The Balanced Scorecard, 465 •
Department Level: Behavior Versus Outcome
Control, 468
Chapter 11 Workshop: Balanced Scorecard Exercise
471
Case for Analysis: Midwest Controls, Inc.
472
Case for Analysis: NASCAR
473
HOW DO YOU FIT THE DESIGN? Corporate Culture
Preference455
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xii
Contents
Chapter 12: Innovation and Change
478
480
HOW DO YOU FIT THE DESIGN? Making Important
Decisions537
481
BOOKMARK 13.0: Blink: The Power of Thinking
Without Thinking
539
Cognitive Biases
540
Innovate or Be Disrupted, 480
IN PRACTICE: Netflix
Strategic Types of Innovation, 482
Elements for Successful Change
484
Technology Innovation
487
HOW DO YOU FIT THE DESIGN? Are You Innovative?
488
New Products and Services
494
IN PRACTICE: Elkay Manufac­turing
494
New Product Success Rate, 495 • Reasons
for New Product Success, 496 • Horizontal
Coordination Model, 497
498
501
The Dual-Core Approach, 502 •
Organization Design for Implementing New
Management Processes, 502
548
Incremental Decision Model, 550
IN PRACTICE: The Los Angeles Rams
550
Organizational Decisions and Change
554
IN PRACTICE: Volkswagen
558
Contingency Decision-Making Framework
560
Problem Consensus, 560 • Technical
Knowledge about Solutions, 561 •
Contingency Framework, 561
Special Decision Circumstances
IN PRACTICE: GlaxoSmith­Kline
504
Culture Change
504
Forces for Culture Change, 505
506
Culture Change Interventions, 507
IN PRACTICE: United­Health Group
508
Tactics for Implementing Change
509
564
High-Velocity Environments, 564 • Decision
Mistakes and Learning, 565
Chapter 13 Workshop: Style of Decision Making
568
Case for Analysis: Government DTS
568
Case for Analysis: Dubois French Eatery
570
Chapter 14: Conflict, Power, and Politics
576
Purpose of This Chapter, 578
Interdepartmental Conflict in Organizations
Leadership for Change, 509 • Techniques
for Implementation, 510 • Techniques for
Overcoming Resistance, 511
578
Sources of Conflict, 580
IN PRACTICE: National Rifle Association (NRA)
Chapter 12 Workshop: Innovation Climate
514
Case for Analysis: Fabulous Footwear
515
Case for Analysis: Lamprey, Inc.
519
Chapter 13: Decision-Making Processes
IN PRACTICE: The New York Times
Combining the Incremental and Carnegie
Models, 554 • Garbage Can Model, 555
Open Innovation and Crowdsourcing, 499 •
The Need for Speed, 500
IN PRACTICE: Taco Bell
545
Management Science Approach, 545 •
Carnegie Model, 547
BOOKMARK 12.0: Creativity, Inc.: Overcoming the
Unseen Forces That Stand in the Way of True Inspiration 492
Strategy and Structure Change
Specific Biases That May Influence Decision
Making, 542 • Overcoming Cognitive Biases,
543
Organizational Decision Making
The Ambidextrous Approach, 488 • The
Bottom-Up Approach, 489 • Techniques for
Encouraging Technology Change, 490
IN PRACTICE: Corning, Inc.
534
Bounded Rationality Perspective, 535
Purpose of This Chapter, 480
The Strategic Role of Innovation
IN PRACTICE: Veracruz Consulting
526
Purpose of This Chapter, 528
Types of Decisions
528
IN PRACTICE: Twitter
529
Individual Decision Making
531
582
Rational Versus Political Model, 582 • Tactics
for Enhancing Collaboration, 584
IN PRACTICE: The Freaky Friday Management Technique 586
Power and Organizations
588
Individual Versus Organizational Power, 588
• Power Versus Authority, 589 • Vertical Sources
of Power, 590
IN PRACTICE: Jay Bower, Crossbow Group
593
The Power of Empowerment, 594 •
Horizontal Sources of Power, 594
Rational Approach, 531
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Contentsxiii
IN PRACTICE: International Alliance of Theatrical Stage
Employees597
Political Processes in Organizations
600
Definition, 601 • When to Use Political
Activity, 602
IN PRACTICE: Nissan and Renault
602
Using Soft Power and Politics
603
HOW DO YOU FIT THE DESIGN? Political Skills
604
Tactics for Increasing Power, 605 • Political
Tactics for Using Power, 606
IN PRACTICE: The Vatican
607
BOOKMARK 14.0: Influence: Science and Practice
608
IN PRACTICE: World Bank
609
Chapter 14 Workshop: How Do You Handle Conflict?
611
Case for Analysis: East Tennessee News
613
Case for Analysis: The Burlington Plant
614
Integrative Cases
621
1.0 Disorganization at Semco: Human Resource
Practices as a Strategic Advantage 623
2.0 Walmart’s Failures in Entering Three Developed
Markets 633
3.0 IKEA: Scandinavian Style 639
4.0 Engro Chemical Pakistan Limited—Restructuring
the Marketing Division 644
5.0 The New York Times Versus Amazon 656
6.0 Lean Initiatives and Growth at Orlando Metering
Company 661
7.0 SCG Lampang: Overcoming Community Resistance to
a Sustainability Project (A) 670
8.0 Costco: Join the Club 675
9.0 The Donor Services Department 679
10.0 Cisco Systems: Evolution of Structure 683
11.0 ToolTopia.com 689
12.0 Sometimes a Simple Change Isn’t So Simple 693
Glossary698
Name Index
709
Corporate Name Index
719
Subject Index
723
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Preface
My vision for the Thirteenth Edition of Organization Theory and Design is to
integrate current organization design problems with significant ideas and theories in
a way that is engaging and enjoyable for students. The biggest changes in the world
of organizations are the emergence of large digital, platform-based organizations
and the increasing focus in corporate America on the issues of social welfare and
sustainability. A new chapter in this edition gives students the chance to learn about
the design of dual-purpose organizations that combine profit-seeking and social
welfare goals to provide self-sustaining social benefits to society. In addition, the
chapter covering information technology has been completely revised to look at
the exciting development of new platform-based digital organizations, including
companies such as Uber, Airbnb, Facebook, and YouTube, and the increasing
digitalization of traditional organizations. An important change to the Thirteenth
Edition is a “Remember This” section at the end of each major section in a chapter
that reviews the key ideas and concepts covered in that section. Other significant
elements of this edition include “Managing by Design Questions” and “How Do
You Fit the Design?” boxes, along with updates to every chapter that incorporate
the most recent ideas, new case examples, new book reviews, and new end-of-book
integrative cases. The research and theories in the field of organization studies
are rich and insightful and will help students and managers understand their
organizational world and solve real-life problems. My mission is to combine the
concepts and models from organization theory with changing events in the real
world to provide the most up-to-date view of organization design available.
Distinguishing Features of the Thirteenth Edition
Many students in a typical organization theory course do not have extensive work
experience, especially at the middle and upper levels, where organization theory is
most applicable. Moreover, word from the field is that many students today often do
not read lengthy chapter opening examples or boxed examples, preferring instead
to focus on chapter content. To engage students in the world of organizations,
the Thirteenth Edition uses “Managing by Design Questions” at the start of each
chapter. These questions immediately engage students in thinking and expressing
their beliefs and opinions about organization design concepts. Another in-chapter
feature, “How Do You Fit the Design?” engages students in how their personal style
and approach will fit into an organization. Other experiential activities that engage
students in applying chapter concepts include new “BookMarks,” new “In Practice”
examples, new end-of-chapter cases, and new integrative cases for student analysis.
The total set of features substantially expands and improves the book’s content
and accessibility. These multiple pedagogical devices are used to enhance student
involvement in text materials.
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xv
xvi
Preface
New Chapters. Two chapters in the Thirteenth Edition contain virtually all new
material. Chapter 7 introduces students to the design of a new organizational form
called a dual-purpose or hybrid organization that combines profit-seeking and
social welfare goals to provide self-sustaining social benefits to society. Chapter 7
also discusses the design issues associated with an increasing corporate focus on
corporate social responsibility and sustainability. In addition, Chapter 9 (Chapter 8
in the previous edition) has been completely revised to explain the emerging
platform-based organization form, including companies such as Facebook, YouTube, Uber, and Airbnb, and the increasing digitalization of traditional industrial
organizations, such as GE and Siemens.
How Do You Fit the Design? The “How Do You Fit the Design?” feature presents a short questionnaire in each chapter about the student’s own style and preferences, to quickly provide feedback about how they fit particular organizations
or situations. For example, questionnaire topics include “What Is Your Cultural
Intelligence?” “Your Strategy Strength,” “How Sustainable Are You?” “Are You
Ready to Fill an International Role?” “How Will You Handle Decentralization and
Autonomy?” “Corporate Culture Preference,” “Making Important Decisions,” and
“Personal Networking.” These short feedback questionnaires connect the student’s
personal preferences to chapter material to heighten interest and show the relevance
of chapter concepts.
Managing by Design Questions. Each chapter opens with three short opinion
questions that engage students in clarifying their thoughts about upcoming material
and concepts. These questions are based on the idea that when students express
their opinions first, they are more open to and interested in receiving material that
is relevant to the questions. Example questions, which ask students to agree or
disagree, include:
A certain amount of conflict is good for an organization.
The best measures of business performance are financial.
Artificial intelligence is objective and bias-free compared to human decision
making in organizations.
Platform-based organizations are a new form of organization, but the fundamental assumptions are the same as for a traditional industrial organization.
A CEO’s top priority is to make sure the organization is designed correctly.
Managers should use the most objective, rational process possible when making
a decision.
As a follow-up to the three “Managing by Design” questions, each chapter contains
three “Assess Your Answer” inserts that allow students to compare their original
opinions with the “correct” or most appropriate answers based on chapter concepts. Students learn whether their mental models and beliefs about organizations
align with the world of organizations.
Opening Examples. Following the Managing by Design questions, each chapter’s
text begins with a brief, interesting example, often involving a problem or a sticky
situation, that gets students thinking about how the chapter topics apply in the
real world of organizations. Chapter 1 begins with a longer opening case about
GE’s successes and difficulties and the relevance of each chapter’s content to GE’s
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Prefacexvii
issues. Nine of the 14 chapters are introduced by new real-life examples, including
Waymo’s self-driving cars, the U.S. Marine Corps Rifle Squads, Patagonia, and the
Coca-Cola Company.
BookMarks. “BookMarks” are short book reviews that reflect current issues
of concern for managers working in real-life organizations. These reviews, which
represent a unique feature of this text, describe the varied ways companies are
dealing with the challenges of today’s changing environment. New “BookMarks”
in the Thirteenth Edition include The Vanishing American Corporation: Navigating
the Hazards of a New Economy, Meltdown: Why Our Systems Fail and What We
Can Do About It, The Conversational Firm: Rethinking Bureaucracy in the Age
of Social Media, Astroball: The New Way to Win It All, Blue Ocean Shift: Beyond
Competing, and Rule Makers, Rule Breakers: How Tight and Loose Cultures Wire
Our World.
In Practice. This edition contains many new “In Practice” examples that illustrate
theoretical concepts in organizational settings. Many examples are international,
and all are based on real organizations. There are 38 new “In Practice” cases used
within chapters, including Uber and Didi Chuxing, Grameen Veolia Water, Warner
Media, LVMH Moët Hennessy Louis Vuitton, the Los Angeles Rams, Google
and Alphabet, Netflix, Panera Bread Company, Inditex S.A.’s Zara, BAE Systems,
Twitter, Volkswagen, Siemens Gamesa, Wells Fargo, Morgan Stanley, Huawei, and
the National Rifle Association. “In Practice” examples that have been retained from
the previous edition with substantial updating include Amazon Versus Walmart,
Carnival Cruise Lines, Omnicom and Publicis, Taco Bell, Allegiant Air, and Apple
and Samsung.
Manager’s Briefcase. Located in the chapter margins, this feature tells students
how to use concepts to analyze cases and manage organizations.
Text Exhibits. Frequent exhibits are used to help students visualize organizational relationships, and the artwork has been designed to clearly communicate
chapter concepts.
Remember This. At the end of each major section of a chapter is a “Remember
This” bullet-point summary of the key ideas and concepts discussed in that section.
The “Remember This” feature gives students a convenient way to review the essential points covered in each major section of the chapter.
Case for Analysis. These cases are tailored to chapter concepts and provide a
vehicle for student analysis and discussion. New cases for analysis include “Solo
Eyewear,” “Craft Originalities Inc.,” “Hermitage Escalator Company,” “Fiedler,
Philips & Wilson Design,” and “Digitalization in the Manufacturing Sector: Skills
in Transition.”
Integrative Cases. The integrative cases at the end of the text have been
expanded and positioned to encourage student discussion and involvement. The
new cases include The New York Times Versus Amazon, Lampang: Overcoming
Community Resistance to a Sustainability Project, Walmart’s Failures in Entering
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xviii
Preface
Three Developed Markets, and ToolTopia.com. Previous cases that have been
substantially revised and updated include Cisco Systems: Evolution of Structure,
Costco: Join the Club, and IKEA: Scandinavian Style.
New Concepts
The Thirteenth Edition contains an exceptional amount of new content. A new
chapter looks at dual-purpose organizations that combine profit-seeking and social
welfare goals, outlining designs for managing mission drift and the inherent goal
conflict in these companies. This chapter also includes a significant consideration
of designs for corporate sustainability and corporate social responsibility, including
CSR, ESG, the triple bottom line, conscious capitalism, and the bottom of the pyramid concept. The chapter dealing with information technology has been completely
revised to include new platform-based digital organization designs, the impact of
artificial intelligence on organization design and management systems, and the
trend toward digitalization of all organizations.
Other concepts that have been added or expanded in the Thirteenth Edition include
the Internet of Things and its impact on big data analytics, a new form of control over
employees called algorithmic control, the use of nudge management for influencing
employees, the trend toward bossless organization designs and a new design called
the holacracy team structure, new material on overly complex technologies and high
reliability organizations, cultural intelligence, reverse innovation, the trend toward
glocalization, decision fallacies and cognitive biases, designing a high-performance
culture, SWOT analysis, scenario planning, and hard versus soft power.
Chapter Organization
Each chapter is highly focused and is organized into a logical framework. Many
organization theory textbooks treat material in sequential fashion, such as “Here’s
View A, Here’s View B, Here’s View C,” and so on. Organization Theory and Design
shows how they apply in organizations. Moreover, each chapter sticks to the essential point. Students are not introduced to extraneous material or confusing methodological squabbles that occur among organizational researchers. The body of
research in most areas points to a major trend, which is reported here. Several chapters develop a framework that organizes major ideas into an overall scheme.
This book has been extensively tested on students. Feedback from students and
faculty members has been used in the revision. The combination of organization
theory concepts, book reviews, examples of leading organizations, self-insight
questionnaires, case illustrations, experiential exercises, and other teaching devices
is designed to meet student learning needs, and students have responded favorably.
Supplements
Instructor Companion Website. Access important teaching resources on the
companion website. For your convenience, you can download electronic versions of
the instructor supplements at the password-protected section of the site, including
the Instructor’s Manual, Test Bank, and PowerPoint presentations.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Prefacexix
To access these additional course materials and companion resources, please
visit www.cengagebrain.com. At the CengageBrain.com home page, search for
the ISBN of your title (from the back cover of your book) using the search box at
the top of the page. This will take you to the product page where free companion
resources can be found.
Instructor’s Manual. The Instructor’s Manual contains chapter overviews,
chapter outlines, lecture enhancements, discussion questions, discussion of activities,
discussion of chapter cases, and case notes for integrative cases.
Cognero Test Bank. The Cognero Test Bank contains easy-to-use test creation
software. Instructors can add or edit questions, instructions, and answers and
can select questions (randomly or numerically) by previewing them on the screen.
Instructors can also create and administer quizzes online.
PowerPoint Lecture Presentation. The PowerPoint Lecture Presentation
enables instructors to customize their own multimedia classroom presentations.
Prepared in conjunction with the text and instructor’s resource guide, the package
contains approximately 150 slides. It includes exhibits from the text as well as
outside materials to supplement chapter concepts. Material is organized by chapter
and can be modified or expanded for individual classroom use.
Acknowledgments
Textbook writing is a team enterprise. The Thirteenth Edition has integrated ideas and
hard work from many people to whom I am grateful. Reviewers and focus group participants made an especially important contribution. They praised many features, were
critical of things that didn’t work well, and offered valuable suggestions.
David Ackerman
University of Alaska, Southeast
Patricia Feltes
Missouri State University
Kristin Backhaus
SUNY New Paltz
Robert Girling
Sonoma State University
Michael Bourke
Houston Baptist University
Yezdi H. Godiwalla
University of Wisconsin-Whitewater
Suzanne Clinton
Cameron University
John A. Gould
University of Maryland
Pat Driscoll
Texas Woman’s University
George Griffin
Spring Arbor University
Jo Anne Duffy
Sam Houston State University
Leda McIntyre Hall
Indiana University, South Bend
Cheryl Duvall
Mercer University
Ralph Hanke
Pennsylvania State University
Allen D. Engle, Sr
Eastern Kentucky University
Bruce J. Hanson
Pepperdine University
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xx
Preface
Thomas Head
Roosevelt University
Richard Saaverda
University of Michigan
Patricia Holahan
Stevens Institute of Technology
W. Robert Sampson
University of Wisconsin, Eau Claire
Jon Kalinowski
Minnesota State University, Mankato
Amy Sevier
University of Southern Mississippi
Guiseppe Labianca
Tulane University
W. Scott Sherman
Texas A&M University
Jane Lemaster
University of Texas–Pan American
Marjorie Smith
Pasadena City College
Kim Lukaszewski
Wright State University
R. Stephen Smith
Virginia Commonwealth University
Steven Maranville
University of Saint Thomas
Filiz Tabak
Towson University
Rick Martinez
Baylor University
Thomas Terrell
Coppin State College
Ann Marie Nagye
Mountain State University
Jack Tucci
Southeastern Louisiana University
Janet Near
Indiana University
Renee Tyre
Wilmington University
Julie Newcomer
Texas Woman’s University
Isaiah Ugboro
North Carolina A&T State University
Frank Nolan
Liberty University
Warren Watson
University of North Texas
Asbjorn Osland
George Fox University
Richard Weiss
University of Delaware
Laynie Pizzolatto
Nicholls State University
Judith White
Santa Clara University
Paula Reardon
State University of New York, Delhi
Jan Zahrly
University of North Dakota
Samantha Rice
Abilene Christian University
Among my professional colleagues, I am grateful to my friends and colleagues at
Vanderbilt’s Owen School—Bruce Barry, Ranga Ramanujam, Bart Victor, and Tim
Vogus—for their intellectual stimulation and feedback. I also owe a special debt to
Dean Eric Johnson and Associate Dean Richard Willis for providing the time and
resources for me to stay current on the organization design literature and develop
the revisions for the text.
I want to extend special thanks to my editorial associate, Pat Lane. She skillfully wrote materials on a variety of topics and special features, found resources,
and did an outstanding job with the copyedited manuscript and page proofs. Pat’s
personal enthusiasm and care for the content of this text enabled the Thirteenth
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Prefacexxi
Edition to continue its high level of excellence. I also thank DeeGee Lester for her
work drafting new end-of-chapter and integrative cases. DeeGee’s creative writing
skills brought to life key organizational issues that students will enjoy discussing
and solving.
The team at Cengage also deserves special mention. Mike Giffen, Senior
Product Manager, gave his administrative support, encouragement, and ideas for
improvement to this new edition. Julia Chase, Senior Content Manager, managed
the production of the new edition superbly and made multiple insightful suggestions
along the way for content improvement. Courtney Wolstoncroft, Learning Designer,
and Carol Moore, Subject Matter Expert, offered expert advice for enhancing
student learning opportunities. Joseph Malcolm, Senior Project Manager, provided
superb project coordination and applied his creativity and management skills to
facilitate the book’s on-time completion. Audrey Wyrick, Marketing Manager, and
Alexis Cortez, Marketing Coordinator, offered additional support, creativity, and
valuable market expertise.
Finally, I want to acknowledge the love and support of my daughters, Danielle,
Amy, Roxanne, Solange, and Elizabeth, and my newest grandchildren, Nelson and
Samantha, Reed and Brielle, Phoenix and Roman, who make my life special during
our precious times together.
Richard L. Daft
Nashville, Tennessee
July 2019
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iStock.com/chinaface
Chapter 1 Organizations and Organization Design
1
PART
Introduction to
Organizations
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iStock.com/chinaface
CHAPTER
1
Organizations and
Organization Design
Learning Objectives
Chapter Outline
After reading this chapter you should be
able to:
A Look Inside General Electric
The Jack Welch Era 1981–2001 • The Jeff
Immelt Era 2001–2017 • Events Since 2017
1. Discuss current challenges that organizations
face.
2. Describe the importance of organizations in
society.
3. Describe how the structural dimensions of
organizations are shaped by contingencies
organizations face.
4. Outline the evolution of organizational design.
5. Compare and contrast organic and mechanistic
organization designs, including the contingency
factors typically associated with each.
6. Explain the current trend toward bossless
organization design.
Organization Design in Action
Topics • Purpose of This Chapter • Current
Challenges
What Is an Organization?
Definition • From Multinationals to Nonprofits
• Importance of Organizations
Dimensions of Organization Design
Structural Dimensions • Contingency Factors
• Performance and Effectiveness Outcomes
The Evolution of Organization Design
Historical Perspectives • It All Depends: Key
Contingencies
The Contrast of Organic and Mechanistic Designs
The Emerging Bossless Design Trend
Framework for the Book
Levels of Analysis • Plan of the Book • Plan of
Each Chapter
2
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1: Organizations and Organization Design3
Before reading this chapter, please check whether you agree or disagree with
each of the following statements:
1
An organization can be understood primarily by understanding the people who
make it up.
I AGREE
2
The primary role of managers in business organizations is to achieve maximum
efficiency.
I AGREE
3
I DISAGREE
I DISAGREE
A CEO’s top priority is to make sure the organization is designed correctly.
I AGREE
I DISAGREE
1.1 A Look Inside General Electric
General Electric (GE) has a glorious heritage. Founded by Thomas Edison in 1878
to generate and distribute electric power, GE became a world leader as a diversified
industrial company. For decades, GE had a reputation for excellent and innovative
management practices that other companies copied. As a model industrial company,
General Electric’s stock had been part of the Dow Jones Industrial Average since 1907.
Since the late 1800s, GE moved in and out of multiple businesses as a key part
of its strategy and success. In 2019, GE was still a diversified worldwide conglomerate. Its industrial businesses included the power segment (gas and steam power
systems), renewable energy (wind turbines), oil and gas (drilling systems), aviation
(jet engines), healthcare (MRI machines), transportation (locomotives), and capital
(loans to buy equipment).
However, by 2019 GE’s value had fallen precipitously from its earlier prosperity,
hitting a low of about 10 percent of its former value. How could a company that
rose to fame as the best managed company in the world fall on such hard times?
The answer to GE’s ups and downs lies partly with how its leaders used organization design.
Reginald Jones was CEO from 1972 to 1981 and helped build GE’s sophisticated
strategic planning system. The GE conglomerate was composed of 43 autonomous
businesses, within which it had 10 groups, 46 divisions, and 190 departments that
participated in strategic planning. To help manage the massive amounts of paperwork
and information required from 43 strategic plans, GE added a management layer to
its structure to oversee sectors or groupings of businesses and reduce the load on top
management. GE was a respected and highly successful company, and paperwork and
bureaucracy seemed to increase along with organization size and complexity.
1.1a The Jack Welch Era 1981–2001
When he was hired as an engineer at GE in the early 1960s, Jack Welch hated the
company’s bureaucracy so much that he submitted his resignation after only six
months on the job. Fortunately for GE, Welch’s boss convinced him to stay and
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4
Part 1: Introduction to Organizations
make a difference. After rising to CEO, Welch was quick to begin busting the
ever-growing GE bureaucracy. Near the end of his two-decade run as CEO, in 2001,
Fortune magazine named Welch “Manager of the Century” to recognize his astonishing record at GE and also named GE the “Most Admired Company in the United
States.” What changes did Welch and GE managers make to achieve these accolades?
Strategy Changes. GE had begun using the advertising slogan “We bring good things
to life” in the late 1970s and it continued in the Welch era, with Welch maintaining
the strategy of being a conglomerate of diverse businesses. But Welch added a new key
objective: each business must become the No. 1 or No. 2 competitor in its industry or
risk being cut. GE’s new strategy was to be a leader in each of its industries.
Changes in Structure. Welch attacked the bureaucratic layers within GE by first
eliminating the sector level of management hierarchy that Reginald Jones created.
He continued to fight the over-managed hierarchy until the number of levels was
reduced from nine to as few as four. In many cases, department managers, subsector managers, unit managers, and sometimes supervisors were eliminated along
with the sector managers. Now the CEO and top managers could deal directly with
each business without going through multiple layers of hierarchy. Moreover, Welch
stretched senior managers’ span of control to 15 or more direct reports to force
more delegation and autonomy downward.
Downsizing. Welch’s assault on the bureaucracy also involved cutting down the number of employees. GE eliminated tens of thousands of managers and employees through
delayering and de-staffing and even more through divestitures. The number of GE
employees declined from about 404,000 in 1982 to 292,000 by 1989. Welch was given
the nickname “Neutron Jack” because a neutron bomb killed people and left buildings
intact. The nickname was reinforced by the CEO’s replacement of 12 of his 14 business
heads. During this period, Welch was named “toughest boss in America.”
A New Culture. Welch wanted a corporate culture based on direct conversations
of openness and candor, eyeball to eyeball, between managers and direct reports
rather than via formal meetings and bureaucratic paperwork. A practice called
Work-Out was one answer. Groups of up to 100 employees from a business unit
would gather in a town meeting-style atmosphere. The business unit boss presented
a challenge and left the room. Employees divided into teams and attacked problems
and bureaucratic inefficiencies in their business unit with new, often dramatic, solutions. On the third day, bosses returned and listened to the teams’ presentations.
Bosses had about one minute to decide whether to accept or reject each proposal.
One boss from an aircraft engine factory accepted 100 of 108 proposals, enabling a
transformation in factory operations. Bosses often lost their jobs if they were unable
to accept the dramatic change proposals from subordinates. Over 10 years, about
200,000 GE members participated in Work-Out.
Going Global. Welch also focused GE on global expansion. The U.S. market was
not big enough. Welch encouraged international expansion by increasing the standard for business unit performance from being the “No. 1 or No. 2” business in
your industry to being the No. 1 or No. 2 business in the world! To support each
company’s global effort, he hired a senior manager of International Operations to
facilitate each business’s overseas expansion. GE managers had to learn to think
and act globally.
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Chapter 1: Organizations and Organization Design5
Performance Management, Stretch Goals, and Control. Welch and his most senior
executives were responsible for the progress of GE’s top 3,000 executives. They visited
each company to review progress toward stated targets, often including “stretch” goals,
another concept Welch introduced. Stretch goals used managers’ “dreams” as targets
that might be impossible to reach but would motivate exceptional accomplishment. In
another move, Welch installed a manager evaluation system on a “vitality curve.” This
annual review process became known as “rank and yank,” because the top 20 percent
received generous rewards, the vital 70 percent were largely left alone, and the bottom
10 percent were encouraged to leave the company.
E-Business. About two years from retirement, Welch saw the potential of the Internet as “the biggest change I have ever seen.” He thought a big, traditional company
like GE might be afraid of the new technology, so he required each business unit
to establish a full-time team charged with including strategic opportunities for the
Internet. Digitizing the company was Welch’s final major initiative.
To summarize, the Jack Welch era at GE was the most phenomenal in company
history. Welch and GE earned prestigious awards, such as Financial Times naming GE
the “Most Admired Company in the World.” Moreover, Jack Welch became an icon for
brilliant management and his name became known in popular culture. GE’s market
value increased an astonishing 27 times from $18 billion to $500 billion under Welch’s
guidance. In the year 2000, GE was the most valuable company in the world.
1.1b The Jeff Immelt Era 2001–2017
Welch personally chose Jeff Immelt to become GE’s new CEO. Immelt had broad
experience at GE, changing jobs often across GE Appliance, GE Plastics, and GE
Healthcare, eventually running the healthcare unit.
The External Environment. Immelt and GE faced major environmental challenges
almost from Day 1—starting with the September 11, 2001 terrorist attacks that stunned
the world. GE also endured the 2002 stock market crash, an oil price collapse, and the
2008 collapse of Wall Street and the long global recession that followed.
Strategy Changes. Immelt shifted GE toward an industrial business focus consistent with GE’s industrial roots while simultaneously learning to thrive in the Internet age. He added software capability to GE and predicted GE would become a
major software company. Immelt also placed special emphasis on globalization and
on more innovations via greater investments in research and development.
Innovation. Under Immelt’s watch, GE developed a new concept called “reverse
innovation.” GE’s innovation strategy for decades had been to develop high-end
products in the United States and then sell the products internationally with modest
adaptations to fit local conditions. Reverse innovation means to develop low-end
products in poor countries and then sell those products in wealthy, well-developed
countries. One example was the development of a cheap, portable ultrasound
machine in China that was also sold successfully in the United States and Europe.
Sustainability. At GE, sustainability means aligning business strategy to meet societal needs, while minimizing environmental impact and advancing social development. Immelt pushed GE to embed sustainability at every level, from high-visibility
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6
Part 1: Introduction to Organizations
initiatives such as Ecomagination (building machines that produce cleaner energy,
reduce greenhouse gas emissions, and reduce clean water use) down to day-to-day
safety management for employees. Sustainability also means promoting diversity,
investing for affordable healthcare, investing in clean energy, and meeting ambitious
environmental goals to reduce emissions.
Big Decisions. Immelt’s biggest decisions were to sell most of GE Capital and to
acquire the French energy business Alstom. GE Capital provided a variety of financial
services—credit cards, car loans, real estate loans, subprime mortgages, and equipment
leasing. GE Capital was a highly profitable business. After the 2008 financial crisis,
however, GE Capital was designated “too big to fail.” Investors feared huge losses, so
large parts of GE Capital were divested. This was a tough decision because in some previous good years GE Capital provided nearly half of GE’s revenue and profits.
The Alstom acquisition decision proved to be something of a disaster. At $13 billion,
it was GE’s largest industrial acquisition. Managers soon realized not only that Alstom
was operating inefficiently, but the demand for its gas-powered generation equipment
was in decline. Immelt ordered Alstom to downsize by 12,000 employees. After paying
$13 billion for Alstom, GE later took a write down of almost $20 billion.
More Globalization. Immelt pushed international business beyond Welch’s earlier
goals. He increased global revenue to 55 percent of total revenue compared to 30
percent when he took over. He explained that 90 percent of aircraft engines, 100
percent of gas turbines, and 50 percent of locomotives that GE manufactures leave
the country. “That is where the customers are,” he said. Immelt championed the
launch of GE’s Global Growth Organization (GGO), designed to work across the
business units to increase sales in markets outside the United States.
Digitalizing for Big Data Analytics. Immelt sponsored a large research effort into
a sophisticated data analytics platform called Predix. This cloud-based operating
system would allow GE to put sensors on industrial equipment sold to customers
(e.g., jet engines, locomotives) that would provide huge volumes of data to analyze machine performance and predict maintenance requirements. These data would
enable GE to offer new and profitable services to customers.
To summarize Immelt’s era at General Electric, most analysts thought GE fell
behind rather than moved ahead. Immelt did all he could over his time as CEO to
increase the value of GE stock, but over those 17 years share price declined by close
to 30 percent while comparable companies (the S&P 500) rose by 124 percent. GE
shed more than $150 billion in value compared to the $480 billion increase during
Jack Welch’s reign. Some analysts argued that the GE conglomerate should be broken up or dramatically slimmed down by selling its pieces and killing all investments in R&D and innovation. They criticized Immelt for being overly optimistic in
his decisions and for not confronting the reality of GE’s problems.
1.1c Events Since 2017
In 2017, GE announced that John Flannery, head of GE Healthcare, would follow
Immelt as CEO. GE’s stock price soon dropped 45 percent. GE hit rock bottom
during late 2018 and early 2019—its market value was about 1/10 of its peak under
Jack Welch. The stock dividend that had supported GE widows and seniors for
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Chapter 1: Organizations and Organization Design7
decades was cut to a single penny. The icing on the not-so-pretty cake was when GE
was cut from its coveted position in the prestigious Dow Jones Industrial Average.
GE’s Board of Directors soon decided that Flannery lacked the experience to handle the flow of crises at GE while he was still learning the company. The new CEO
was 55-year-old Larry Culp, Lead Director on GE’s Board, who had 14 years’ experience as CEO of Danaher Corporation. People are counting on Culp to reinstate
the kind of business culture at GE that inspired other companies to copy it. Culp
thought GE had become too large and complicated to be managed effectively, and
he decided to slim down the company, including selling GE’s biotechnology business
for $21 billion. During Culp’s first few months as CEO in 2019, GE’s stock started
moving in a positive direction. With hope and hard work, managers, employees, and
analysts expect the renewal of GE into an image of its former self will continue.1
1.2 Organization Design in Action
Welcome to the real world of organization design. The shifting fortunes of GE illustrate organization design in action. GE managers were deeply involved in organization design each day of their working lives—but many never realized it. Company
managers didn’t fully understand how the organization related to the environment or
how it should function internally. Organization design gives us the tools to evaluate
and understand how and why some organizations grow and succeed while others
do not. It helps us explain what happened in the past, as well as what might happen
in the future, so that we can manage organizations more effectively. Organization
design concepts can help Larry Culp and other GE managers analyze and diagnose
what is happening and the changes that will help GE keep pace with a fast-changing
world. Organization design gives people the tools to explain the decline of GE and
recognize the steps managers might take to keep the company competitive.
Similar problems have challenged numerous organizations. Toyota Motor
Corporation, for example, had the best manufacturing system in the world and was
the unchallenged auto quality leader for decades. But when top managers started
implementing high-pressure goals for extensive global growth, the famous quality
system was strained to a breaking point. By 2009, Toyota found itself in the middle
of a crisis that culminated in the recall of more than 9 million cars due to quality
problems.2 Sales at Papa John’s pizza chain dropped after a highly-publicized incident of founder John Schnatter using a racial slur led to the exposure of a corporate culture that belittled women and minorities. Schnatter resigned. The Board of
Directors asked an outside firm to oversee an audit of the corporate culture, and
the company began holding workshops on diversity and inclusion to try to fix the
dysfunctional culture.3 Or consider Kodak, the company that once ruled the photographic film business. Kodak invented one of the first digital cameras and spent
hundreds of millions of dollars developing digital technology, but the fear of cannibalizing their lucrative film business paralyzed managers when the time came to go
to market. Kodak filed for bankruptcy in 2012 and is now a shell of the company it
was prior to the digital camera revolution.4
1.2a Topics
Each of the topics to be covered in this book is illustrated in the opening General
Electric case. Indeed, managers at organizations such as General Electric, Toyota,
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8
Part 1: Introduction to Organizations
Kodak, and Papa John’s are continually faced with a number of challenges. For
example:
•
•
•
•
•
•
•
•
•
BRIEFCASE
As an organization
manager, keep these
guidelines in mind:
Do not ignore the
external environment or
protect the organization
from it. Because the
environment is unpredictable, do not expect
to achieve complete
order and rationality
within the organization.
Strive for a balance
between order and
flexibility.
How can the organization adapt to or control such external elements as competitors, customers, government, and creditors in a fast-paced environment?
What strategic and structural changes are needed to help the organization attain
effectiveness?
How can the organization avoid management ethical lapses that could threaten
its viability?
What changes are needed to address the growing demand for organizations to
pay attention to sustainability issues?
How can managers cope with the problems of large size and bureaucracy?
What is the appropriate use of power and politics among managers?
How should internal conflict and coordination between work units be managed?
What kind of corporate culture is needed and how can managers shape that
culture?
How much and what type of innovation and change is needed?
These are the topics with which organization theory and design is concerned.
Organization design concepts apply to all types of organizations in all industries. Managers at Hyundai, for example, turned the Korean auto manufacturer once known
for producing inexpensive no-frills cars with a poor reputation into the world’s third
largest automaker by relentlessly focusing on quality, cost-control, and customer satisfaction. After Google pulled its search engine and Gmail out of China in protest over
censorship and government hacking, managers found a way to keep a foothold in the
lucrative market by building relationships with local partners such as Mobvoi, Tencent Holdings Ltd., and others. Google has been negotiating to provide software and
cloud-hosting services that would run on a data center owned by a Chinese local partner. Managers at the Swedish furniture giant IKEA are undertaking the most dramatic
restructuring in company history to cope with rapid changes in shopping habits.5 All
of these companies are using concepts based in organization design. Organization
design also applies to nonprofit organizations such as United Way, Best Friends Animal Society, local arts organizations, colleges and universities, and the Make-A-Wish
Foundation, which grants wishes to terminally ill children.
Organization design draws lessons from organizations such as GE, Google, and
United Way and makes those lessons available to students and managers. As our
opening example of GE shows, even large, successful organizations are vulnerable,
lessons are not learned automatically, and organizations are only as strong as their
decision makers. Research shows that many new companies don’t survive past their
fifth birthday, yet some organizations thrive for 50 or even 100 years. Organizations are not static; they continuously adapt to shifts in the external environment.
Today, many companies are facing the need to transform themselves into dramatically different organizations because of new challenges in the environment.
1.2b Purpose of This Chapter
The purpose of this chapter is to explore the nature of organizations and organization design today. Organization design has developed from the systematic study
of organizations by scholars. Concepts are obtained from living, ongoing organizations. Organization theory and design has a practical application, as illustrated
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Chapter 1: Organizations and Organization Design9
by the GE case. It helps managers understand, diagnose, and respond to emerging
organizational needs and problems.
We first take a deeper look at the challenges today’s managers and organizations face. The next section begins with a formal definition of the organization as
an open system and then explores introductory concepts for describing and analyzing organizations, including various structural dimensions and contingency factors. We introduce the concepts of efficiency and effectiveness and describe the most
common approach to measuring organizational performance. Succeeding sections
examine the history of organization design, the distinction between mechanistic and
organic designs, and how organization theory can help people manage complex
organizations in a rapidly changing world. The chapter closes with a brief overview
of the themes to be covered in this book.
1.2c Current Challenges
Research into hundreds of organizations provides the knowledge base to make GE
and other organizations more effective. Challenges organizations face today are
different from those of the past, and thus the concept of organizations and organization design is evolving. This chapter’s BookMark describes two recent organizational forms that are altering the organizational landscape. The world is changing
more rapidly than ever before, and managers are responsible for positioning their
organizations to adapt to new needs. Some specific challenges today’s managers and
organizations face are globalization, intense competition, rigorous scrutiny of sustainability and ethical practices, the need for rapid response, and incorporating digital business and big data analytics.
Globalization. The cliché that the world is getting smaller is dramatically true
today. Markets, technologies, and organizations are becoming increasingly interconnected.6 Managers who can help their companies develop a global perspective are in
high demand. For example, consider Ramon Laguarta, a native of Barcelona, Spain,
who took over as CEO of PepsiCo in 2018, Indian American Sundar Pichai, CEO of
Google, or Medtronic CEO Omar Ishrak, a Bangladesh native who was educated in
the United Kingdom and worked in the United States for nearly two decades.
Today’s successful organizations feel “at home” anywhere in the world. Companies can locate different parts of the organization wherever it makes the most
business sense: top leadership in one country and technical brainpower and production in other locales. Related trends are global outsourcing, or contracting out
some functions to organizations in other countries (Nike), and strategic partnering
with foreign firms to gain a global advantage (Google). Cross-border acquisitions
and the development of effective business relationships in other countries are vital
to many organizations’ success. Yet doing business on a global scale is not easy.
After a new European Union privacy law went into effect in mid-2018, the French
data protection authority fined Google 50 million euros (about $57 million) for not
properly disclosing to users how it collected data to provide personalized ads.7 Uber
has pulled out of several global markets, including China, Russia, and Southeast
Asia, after it got into trouble defying government regulations in various countries.8
Another issue concerns outsourcing and contractor relationships. Several garment
factory fires in Bangladesh and the collapse of another apparel plant that killed more
than 1,100 workers put the spotlight on poor working conditions in that country.
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10
Part 1: Introduction to Organizations
BOOKMARK
1.0
HAVE YOU READ THIS BOOK?
The Vanishing American
Corporation: Navigating the
Hazards of a New Economy
•
By Gerald F. Davis
Is the large American corporation dead? No, but in his
book The Vanishing American Corporation, Gerald F. Davis
reminds us just how much the organizational landscape has
changed since companies like General Motors, Xerox, and
AT&T seemed to rule the world. Davis presents the astounding fact that the number of publicly held corporations in the
United States declined by half in less than 20 years, from
a high of 7,322 in 1996 to 3,659 in 2015. Why are huge
companies shrinking, declining, and sometimes disappearing altogether?
NEW FORMS FOR A NEW CENTURY
One important factor is that new organization forms have
emerged that seem a better fit for today’s business environment. The large corporation, Davis says “fit well with the
requirements of doing business in the 20th century, but it is
increasingly bad for 21st century business.” He describes
two recent design approaches enabled by the twin forces of
technology and globalization, labelling them by the companies that clearly exemplify them.
•
Nikefication: The Virtual Network Organization. In a
virtual network form, the company keeps high valueadded tasks in-house (in Nike’s case, sneaker design
and marketing) and outsources other components
(such as manufacturing of sneakers) to outside
contractor companies, often in low-wage countries.
A network form allows a smaller and less complex
company to provide goods and services more rapidly
and at lower cost. In one year, for instance, Vizio (with
200 employees) sold as many televisions in the United
States as Sony (with 150,000 employees). Some
companies operate entirely as network organizations,
but with the Internet and a growing availability of
contractors, “Nikefication is now standard practice
across corporate America” Davis points out.
Uberization: The Platform-Based Organization. A
newer type of organization, best demonstrated by
the ride-hailing service Uber, uses a specific combination of information and communication technologies to connect different groups of people and allow
them to engage in mutually-beneficial exchanges.
“Such organizations provide the digital platform for a
market that matches those who have tasks to do with
self-starters willing to do them,” Davis writes. Uber,
for example, provides the platform that matches customers who need a ride to Uber driver-partners, who
are “not employees (absolutely not!) but independent
micro-entrepreneurs.” This organization form reduces
labor costs, enables a company to be extremely agile,
and maximizes the speed of customer service.
WHAT DOES IT ALL MEAN?
Davis presents both positive and negative consequences
for individuals and societies. With the decline of large
corporations and the emergence of new forms, a lifelong
career with a single company is a thing of the past. Hierarchies are flattened, so people no longer have a clear path for
advancing their careers. They are not employees and have
no physical workplace where they meet with others. However,
these new forms also offer opportunities. Entrepreneurs and
managers can shape businesses that are more local and
community based, that give people greater opportunities
for participation, and that pay more attention to sustainable
business practices. The virtual network and digital platform
organization designs will be discussed in Chapters 3 and 9.
The Vanishing American Corporation, by Gerald F. Davis, is published
by Berrett-Koehler Publishers.
The problem for organizations such as Walmart, H&M, Target, Apple, Amazon and
other big companies that outsource is that similar poor working conditions exist in
other low-wage countries such as Pakistan, Cambodia, Indonesia, and Vietnam that
produce much of the world’s clothing and other products.9
Intense Competition. The growing global interdependence creates new advantages, but it also means that the environment for companies has become extremely
complex and extremely competitive. Customers want low prices for quality goods
and services, and the organizations that can meet that demand will win. Outsourcing firms in low-wage countries can often do work for 50 to 60 percent less than
companies based in the United States, for instance, so U.S. firms that provide similar
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Chapter 1: Organizations and Organization Design11
services have to search for new ways to compete or go into new lines of business.10
One entrepreneur who developed a new type of battery for notebook computers
decided to have it manufactured by a factory in Shenzhen, China. She wanted to
produce the product in the United States, but U.S. contract manufacturers wanted
millions of dollars up front, a demand not made by any of the manufacturers she
met with in China.11
Companies in all industries are feeling pressure to drive down costs, keep prices
low, and meet shifting demands. Retailers provide a stark example. Tesco, the largest supermarket chain in the United Kingdom, implemented a price-cutting campaign and is slashing thousands of jobs to trim costs as it faces growing competition
from discount chains Aldi and Lidl and online shopping sites. Executives at firms
including Macy’s, J. C. Penney, Family Dollar, and Gap announced the closing of
additional stores in early 2019, reflecting a failure to adapt as competition and
shopping habits change. Other traditional retailers, including Walmart, Target, and
Best Buy, on the other hand, have seen sales increase as their managers have found
ways to compete with Amazon online while also finding the right mix of products
and services to bring people into their physical stores.12
Sustainability, the Green Movement, and Ethics. Today’s managers face tremendous pressure to “dial down their single-minded pursuit of financial gain and pay
closer attention to [the organization’s] impact on employees, customers, communities, and the environment.”13 People are demanding a stronger commitment by
organizations to balance profit and public interest. Many companies are embracing
the philosophy of sustainability, which refers to economic development that generates wealth and meets the needs of the current generation while saving the environment so future generations can meet their needs as well.14 Sustainable development
has emerged as a key goal for organizational growth and development.15 As mentioned in the chapter opening case, Jeff Immelt pushed GE to embed sustainability
at every level of the company.
Going green has become a new business imperative, driven by shifting social
attitudes, new government policies, climate change, and the information technology
that quickly spreads news of a corporation’s negative impact on the environment.
At Interface, an Atlanta-based carpet manufacturer, founder and former chairman
Ray C. Anderson implemented “Mission Zero,” a pledge to reduce the use and production of virgin raw materials and eliminate the company’s impact on the environment. Current CEO Jay Gould is following in Anderson’s footsteps, with Interface
becoming in 2018 one of the first flooring manufacturers to announce a goal of
carbon neutrality. “We really talk about four key stakeholders” Gould says about
the company’s commitment to sustainable business practices. “Our customers, our
employees, our shareholders—and the environment.”16
Managers are also feeling pressure from the government and the public to hold
their organizations and employees to high ethical and professional standards. Following
widespread moral lapses and corporate financial scandals, organizations are under scrutiny as never before. Facebook and other tech companies, for instance, have frequently
been targeted in recent years by regulators and others demanding more oversight. In
early 2019, a British parliamentary committee issued a blistering report concluding that
internal Facebook e-mails prove that the company is willing to sacrifice user privacy
for the sake of generating more advertising and increasing its revenue. “Social media
companies cannot hide behind the claim of being merely a ‘platform’ and maintain that
they have no responsibility themselves in regulating the content of their sites,” the report
said, calling for new laws regulating the industry. 17 Non-tech companies aren’t immune
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12
Part 1: Introduction to Organizations
to the scrutiny. Consulting firm McKinsey & Company recently agreed to a $15 million
settlement with the U.S. Justice Department to resolve an investigation into charges that
the company failed to properly disclose its financial connections to other parties while
working on bankruptcy cases.18
Speed and Responsiveness. A fourth significant challenge for organizations is to
respond quickly and decisively to environmental changes, organizational crises, or
shifting customer expectations. For much of the twentieth century, organizations
operated in a relatively stable environment, so managers could focus on designing
structures and systems that kept the organization running smoothly and efficiently.
There was little need to search for new ways to cope with increased competition,
volatile environmental shifts, or changing customer demands. Today, new products,
new companies, and even entirely new industries rise and fall faster than ever.
As previously mentioned, the retail industry is undergoing a rapid and dramatic
transformation. In what has been called the “retail apocalypse,” dozens of retailers,
including Payless, Aeropostale, Mattress Firm, Sears, Radio Shack, Bon Ton, and
Toys “R” Us, have filed for bankruptcy in recent years. Some have gone out of business entirely, while others are closing stores and struggling to survive.19 Online retail
giant Amazon continues to change the game. Amazon is continuously experimenting with new ideas, pulling the plug quickly on those that don’t work out. In early
2019, managers announced that Amazon would shut down all 87 of its U.S. pop-up
stores, small kiosk stores that operated in locations such as malls, Kohl’s stores, and
Whole Foods Market locations. Meanwhile, the company continues to explore a
brick-and-mortar strategy, opening more bookstores and 4-Star Stores (which sell
products rated 4 stars or higher by Amazon.com customers) and planning for a new
line of grocery stores. Founder and CEO Jeff Bezos believes most business decisions
have to be made quickly “with somewhere around 70 percent of the information
you wish you had.”20
Managers in other industries must also think fast and act fast. The large consumer
products firm Procter & Gamble is cutting its divisions from 10 to 6 and giving managers of those divisions more control and decision-making authority. “There is a need for
greater agility,” said CEO David Taylor. “Frankly, the volatility we see in many parts of
the world . . . has increased meaningfully the speed of change.”21 Considering the turmoil and flux inherent in the world, managers and companies need a mindset of continuous reinvention to succeed, which typically means giving people on the frontlines the
power to experiment and make decisions.22
Digital Organizations and Big Data Analytics. Today’s realm of the Internet, social
networking, blogs, online collaboration, web-based communities, podcasting, mobile
devices, Twittering, Facebooking, YouTube-ing, and Skype-ing is radically different from
the world many established managers are familiar and comfortable with.23 The digital
revolution has changed everything—not just how we communicate with one another,
find information, and share ideas, but also how organizations are designed and managed, how businesses operate, and how employees do their jobs.
One significant aspect of the digital revolution is the use of big data analytics, which
refers to technologies, skills, and processes for searching and examining massive sets of
data to uncover hidden patterns and correlations.24 GE attached data sensors to internal moving parts on its massive machines to analyze billions of data bits to assess wear
and predict maintenance needs. Facebook uses the personal data you put on your page
and tracks and monitors your online behavior along with everyone else’s, then searches
through all those data to identify and suggest potential friends. That kind of data
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Chapter 1: Organizations and Organization Design13
FREEDOMPIC/Shutterstock.com
collected by Facebook and Google also explains why ads pop up on your computer
screen when you use an Internet browser. Netflix drills through tons of data it collects
on its subscribers interests to determine which new shows and movies to offer and
how to promote them.25 However, big data is not just for online companies. Walmart
collects more than 2.5 petabytes of data every hour from customer transactions and
uses those data to make better decisions (a petabyte is about a mill…