DBA 5024

MASTER OF
BUSINESS ADMINISTRATION

ORGANISATIONAL THEORY,
DESIGN & DEVELOPMENT

CENTRE FOR DISTANCE EDUCATION

ANNA UNIVERSITY
CHENNAI – 600 025
 ORGANISATIONAL THEORY, DESIGN & DEVELOPMENT
SYLLABUS

UNIT-I
Organisation & Its Environment: Meaning of Organisation – Need for existence – Organisational Effectiveness –
Creation of Value – Measuring Organisational Effectiveness – External Resources Approach, Internal Systems Approach
and Technical – HR Implications.
UNIT-II
Organisational Design: Organisational Design – Determinants – Components – Types – Basic Challenges of Design –
Differentiation, Integration, Centralization, Decentralization, Standardization, Mutual Adjustment – Mechanistic and
Organic Structures – Technological and Environmental Impacts on Design – Importance of Design – Success and Failures
in Design – Implication for Managers.
UNIT-III
Organisational Culture: Understanding Culture – Strong and Weak Cultures – Types of Cultures – Importance of
Culture – Creating and Sustaining Culture – Culture and Strategy – Implications for Practicing Managers.
UNIT-IV
Organisational Change: Meaning – Forces for Change – Resistance to Change – Types and forms of Change –
Evolutionary and Revolutionary Change – Change Process – Organisation Development – HR Functions and Strategic
Change Management – Implications for Practicing Managers.
UNIT-V
Organisation Evolution and Sustenance: Organisational Life Cycle – Models of Transformation – Models of
Organisational Decision Making – Organisational Learning – Innovation, Intrapreneurship and Creativity – HR
Implications.
ORGANISATIONAL THEORY, DESIGN & DEVELOPMENT
SCHEME OF LESSONS

Page No.

UNIT I
Lesson 1 Organisation and Its Environment 7

UNIT II
Lesson 2 Organisational Design - I 33
Lesson 3 Organisational Design - II 55

UNIT III
Lesson 4 Organisational Culture 69

UNIT IV
Lesson 5 Organisational Change 85
Lesson 6 Organisational Development 111

UNIT V
Lesson 7 Organisational Life Cycle 129
Lesson 8 Organisational Learning 150
Model Question Paper 169
 Lesson 1 - Organisation and Its Environment

Notes
UNIT I
LESSON 1 - ORGANISATION AND ITS
ENVIRONMENT

CONTENTS
Learning Objectives
Learning Outcomes
Overview
1.1 Meaning of Organisation
1.2 Need for Existence
1.3 Organisational Theory
1.4 Organisation Effectiveness
1.5 Creation of Value
1.6 Measuring Organisational Effectiveness
1.6.1 External Resource Approach
1.6.2 Internal Systems Approach
1.6.3 Technical Approach
1.7 HR Implications
1.8 Earlier Approaches to Organisation
1.8.1 Taylor’s Scientific Management
1.8.2 Weber’s Bureaucratic Theory
1.8.3 Fayol’s Administrative Theory
Summary
Keywords
Self-Assessment Questions
Further Readings

LEARNING OBJECTIVES
After studying this lesson, you should be able to:
 Understand the meaning and concept of organisation

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Notes  Learn about the need for existence of an organisation

 Know the concept of organisational effectiveness
 Read about creation of value concept
 Understand hot to measure organisational effectiveness

LEARNING OUTCOMES
Upon completion of the lesson, students are able to demonstrate a good
understanding of:
 the “Organisation is a consciously coordinated social entity with a
relatively identifiable boundary that functions on a relatively continuous
basis to achieve a common goal or set of goals”..
 the understand conceptual tools to influence organisational situations in
which you will find yourself so that you could diagnose problems and
make adjustments that help the organisation to achieve its goals
 workers must be scientifically selected and trained so that they can be more
productive on their jobs.

OVERVIEW
Most people have a casual attitude towards organization. Although we
routinely enjoy the goods and services that organisation provide, we rarely
bother to wonder about how these goods and services are produced. The reason
why we do not bother about organisation is that they are intangible and though
people are born, work and die in organisation; nobody has ever seen or touched
an organisation. On the other side, we look for the help of organisations to
meet our day to day requirements such as to food, clothing, education,
entertainment, protecting etc.
In this lesson, we will study the meaning of organisation and the concept of
value creation. Next you will also learn about the organisation effectiveness,
various approaches to measure it.

1.1 MEANING OF ORGANISATION

An organisation is a tool used by people to coordinate their actions to obtain
something they desire or value i.e., to achieve their goals. An organisation
therefore is a response to and a means of satisfying some human need.
According to Stephen P Robbins, “Organisation is a consciously coordinated
social entity with a relatively identifiable boundary that functions on a
relatively continuous basis to achieve a common goal or set of goals”. The
above definition means the following:
1. Consciously coordinated means bringing together things through a
systematic approach which becomes the work of management.

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2. “Social entity” means that groups of people interact with each other in a set Notes
pattern. Organisation is composed of people and groups of people.
3. “Relatively identifiable boundary” means a definable boundary that defines
members from non-members. That is the organisation boundary
differentiates the organisation from the society.
4. All organisations have boundaries that separate them from other
organisation.
5. “Continuing bond” means membership for its members. That is people in
organisation who participate with some degree of regularity.
6. “Something’s” are goals which members strive to achieve. Organisation
exists for a purpose. An organisation and its members are trying to achieve
an end or mission.

An individual or a group of individuals who believe they possess

the necessary skills and knowledge and set up an organisation to produce
goods and services. These individuals are known as entrepreneurs. The
process is known as “entrepreneurship”.

Fundamental Elements of an Organisation

An organisation is the planned coordination of the activities of a number of
people for the achievement of some common explicitly purpose or goal,
through division of labour and function, and through a hierarchy of authority
and responsibility. The fundamental elements of an organisation are as follows:
 Mission and Objectives
 Input
 Process
 Output
 Outcome
 Feedback
 Boundary/Environment
Mission: Mission is the purpose or reason for the organisation’s existence. It
tells what the company is providing to society. The missions are important to
improve the quality of home life by designing, building, marketing, and
servicing the best appliances in the world.
Objectives: The objectives are the end results of planned activity. The
objectives increase the efficiency of the workers. The objectives state what to
be accomplished by when and should be quantified if possible.

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Notes The given below are the key examples of objectives:

 To achieve 10% annual growth in earnings per share
 To achieve 20-25% return on equity
 To achieve 27% return on capital employed
Process: Process includes the transformation of inputs into the desired output.
It includes functions of planning, organising, communicating, interacting,
working, etc. which combine to form organisational strategies.
Output: Output is the goods and services produced by transforming the inputs
in order to meet the objectives of the organisation.
Outcome: Outcome is the final impact that the output has in fulfilling the
objectives of the organisation.
Feedback: The organisation has to obtain feedback to determine how its
strategies have fared in achieving its objectives and goals for purpose of
remedial or corrective actions, if necessary.
Boundary: Each organisation has a boundary which differentiates it from
others and determines the internal and external environments. Every
organisation has certain objectives which differentiate the organisation from
the other organisations in the same industry.
Environment: The environment of an organisation includes both the internal
and external environment. The external environment is anything outside the
boundary of the organisation for example technology, political, social,
demography or the economy. All these factors influence the performance of the
organisation. Internal environment includes the factors within the organisation.

The success of an organization is influenced by its ability to

manage the internal environment which reflects the organizational culture.

1.2 NEED FOR EXISTENCE

Organization is basically a group of people who are working together towards
a common goal and in this process they manage their own performance and
have a boundary which separates them from their environment.
The need for existence of an organization importantly rely on the goals and the
objectives on the basis of which, it came in to being. Organizations can be
either for profit or non-profit and they have their own environments where
people are responsible to achieve the mission of the organization.
Those organizations which exist for profit making, their goal is to make money
so that the shareholders and owners can get benefit from it. Those

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organizations which are non-profit, their aim is to work for the betterment of Notes
the society as a whole. They have no concern with profit making.
Organizations have to change over the period of time for their existence
because those organisations which do not change cannot sustain in the
competitive world of globalization. It is the rule for the going-concern of
organizations to keep updated with the changes and innovations for the
existence. There are various ways through which they can change over time
like through expansion, diversification, innovation and product or brand
extension etc.
Organisations depend on the availability and effectiveness of several kinds of
resources for achieving their different objectives, which include financial,
technological, and human resources, etc. for their existence.

1.3 ORGANISATIONAL THEORY

Organisation theory is the study of how organisation function and how they
affect and are affected by the environment in which they operate. It is the
discipline that studies the structure and design of the organisation. Organisation
theory describes how organisations are actually structured and offers
suggestions on how they can be constructed to improve their effectiveness.
Organisation theory has two aims:
1. Understand how organisation operate so that we can control and change
organisation to help them create wealth and resources.
2. To understand conceptual tools to influence organisational situations in
which you will find yourself so that you could diagnose problems and
make adjustments that help the organisation to achieve its goals.
Organisation theory is a way of thinking about organisation. It sees and analyse
organisation more accurately and deeply than one otherwise could. The way to
see and think about organisations is based upon patterns and regularities in
organisational design and behaviour. Organisation theory refers to both the
descriptive and prescriptive aspects of the discipline. It describes how
organisations are actually structured and offers suggestions on how they can be
constructed to improve their effectiveness.
Stephen P. Robbins has developed a framework for analysing organisation
theory that identifies explicitly the major subparts that make-up organisation
theory.

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Notes

Source: Stephen P Robbins, Organisation Theory – Structure, Design and Applications, (3rd Edition), Prentice Hall of
India Private Ltd., New Delhi (2004), Page 26.

Figure 1.1: Framework for Analysing Organisation Theory

1.4 ORGANISATION EFFECTIVENESS

The study of organisational structure is necessary to understand organisational
effectiveness. In simple terms better the structure of an organisation more
effective would be the organisation and vice versa. You must be aware that
some organisations perform better and grow more rapidly than other. On the
extreme side some organisations perform badly and within a short period of
time go out of business. How can we measure effectiveness? In order to
measure the effectiveness let us analyse following components of
organisational effectiveness.
The different components of organisational effectiveness can be found from
the answer to the following questions.
 Are the employees satisfied with the organisation?
 Are the customers satisfied with the organisation?
 Is the organisation profitable?
 Is the organisation growing in terms of profit, revenue, number of products,
expansion into new locations, line of products etc.?
 Is the organisation productive i.e., creating goods and services of high
value at minimum cost?
 Is the organisation innovative or stale?

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Benefits of Organisational Effectiveness Notes

The given below are the key benefits of organisational effectiveness:
 Structures and behaviours are aligned with business needs.
 Disruption to business is minimised which reduces operational risk.
 Employee morale is sustained which maintains productivity.
 The right employees and talent are retained.
 Employees objectives and rewards are aligned to business goals.

Learning Activity
Make a presentation on the organisational effectiveness.

1.5 CREATION OF VALUE

An organisation creates value through a four stage process. Each of these
stages is affected by the environment in which an organisation operates. The
Figure 1.2 explains these stages.
Stage I: Organisation’s Inputs: Inputs include human resources, information
and knowledge, raw-materials and capital. The way an organisation chooses
and obtains from its environment the inputs it needs to produce goods and
services determines how much value the organisation creates at the input stage.
Stage II: Organisation’s Conversion Process: The way the organisation uses
its human skills and abilities, machinery and computers to transform the inputs
into outputs determine how much value is created at the conversion stage.
Stage III: Organisation’s Outputs: Output of finished goods and services is
released into the environment where they are purchased by customers to satisfy
their needs. Organisation that satisfies the needs of its customers will be able to
obtain more resources over time and create more and more value.
Stage IV: Organisation’s Environment: Sale of output allows organisation to
obtain new supplies of inputs. The organisation uses the sales proceeds to
obtain new supplies of inputs and the cycle begins again. When each such
cycle adds value to an organisation, it makes them grow from strength to
strength resulting in expansion of its operations.

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Notes

Source: Gareth R. Jones, Organisational Theory, Design and Change – Text and Cases, (4th Edition), Pearson
Education (Singapore) Pvt. Ltd., Patparganj, Delhi (2005), Page 29.

Figure 1.2: How an Organisation Creates Value

A value creation model can be used to describe the activities of most kinds of
organisation.

1.6 MEASURING ORGANISATIONAL EFFECTIVENESS

Understanding organisational goals and strategies is the first step towards
understanding organisational effectiveness. Organisational goals represent the
reason for an organisation’s existence and the outcomes it seeks to achieve.
Organisational effectiveness is the degree to which an organisation realises its
goals (desired future state of the organisation).
Effectiveness is a broad concept. It takes into consideration a range of variables
at both the organisational and departmental levels. Effectiveness evaluates the
extent to which multiple goals are attained.
Efficiency is a more limited concept that pertains to the internal working of the
organisation. It can be measured as the ratio of inputs to outputs. If one
organisation can achieve a given production level with fewer resources than
another organisation, it would be described as more efficient. Efficiency means
developing modern production facilities using new information technologies
that can produce and distribute a company’s products in a timely and cost-
effective manner.

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Exhibit 1.1: Perception Blues Notes

Given the present complexities of most Indian organisations, a recurring
problem that haunts most HR (human resource) professionals is
‘perception’. In a layman’s language, perception refers to one’s world
view—that is, the world as he/she sees it.
In organisational issues, this problem presents itself in many ways. For
example, while the HR professional may advocate transparency and
openness to encourage creativity and out-of-the-box thinking, the old-
fashioned managers would put a full stop to these initiatives, by simply
saying that “these cannot work here, because of our culture”.
Perception often causes serious inter-personal conflicts. For instance, the
boundary, or responsibility, disputes that often threaten to get out of hand
between the maintenance department and the production departments. Since
neither side appreciates the role of the other, each lives in its own world,
with no meeting point on anything, causing immense harm to organisational
effectiveness.
In such crucial issues as getting all employees to subscribe to the Vision and
Mission of the organisation, the CEO is the ambassador of the right
perception. The basic idea is to promote extensive and exhaustive
communication in the organisation where the employees’ perception of
reality matches the organisations.
For instance, in the early-1980s, a SAIL was dogged by pent up pessimism;
there was no positive perceptions of he organisation among the employees.
Many a business opportunity was lost. But a new CEO taking over saw
through the problem quickly, and built a performance-oriented culture that
quickly brought dividends. SAIL turned around and faster than what was
thought possible.
A similar rescue happened at BHEL too some years later; even today
communication through various forums remains the bedrock of this
organisation’s functioning. HR practices centered on promoting healthy
perceptions are in pace at most of the major Indian corporates.
Promoting healthy perceptions is a daunting task, and requires a lot of will.
The litmus test is: Does the perception of reality of employees the same as
the reality itself’? If yes, the organisation can proudly claim that its HR
climate is good. It would have reached the take off stage to launch a series
of HR interventions where work is fun, is worship, is meaningful, and value
adding.
If the answer is no, such organisations will join the list of organisations that
lost out due to one vital factor—their inability to harness human potential,
perceive HR as a value-adding partner and, consequently, wasted learning
opportunities. No modern organisation can afford to say no.
Source: http://www.thehindubusinessline.com

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Notes

Efficiency and effectiveness are not related. An organization may

be highly efficient but fail to achieve its goals because it makes a product
for which there is no demand. Likewise, an organization may achieve its
profit goals but be inefficient. However, we must understand that efficiency
sometimes leads to effectiveness.

As managers are responsible for utilising organisational resources in a way that

maximises an organisation’s ability to create value, it is important to
understand how they evaluate organisational performance. To evaluate
effectiveness, managers usually take one of the three approaches. They are:
1. External resource approach
2. Internal systems approach
3. Technical approach
The Table 1.1 explains the three approaches to measuring organisational
effectiveness.
Table 1.1: Approaches to Measuring Organisational Effectiveness
Approach Description Goals to Set to Measure
Effectiveness
External Evaluates the organisation’s ability to secure,  Lower costs of inputs
resource manage, and control scarce and valued skills  Obtain high-quality inputs of raw
approach and resources materials and employees
 Increase market share
 Increase stock price
 Gain support of stakeholders such
as government or
environmentalists
Internal systems Evaluates the organisation’s ability to be  Cut decision-making time
approach innovative and function quickly and  Increases rate of product
responsively innovation
 Increase coordination and
motivation of employees
 Reduce conflict
 Reduce time to market
Technical Evaluates the organisation’s ability to convert  Increase product quality
approach skills and resources into goods and services  Reduce number of defects
efficiently
 Reduce production costs
 Improve customer service
 Reduce delivery time to customer

Source: Gareth R. Jones, Organisational Theory, Design and Change – Text and Cases, (4th edition), Pearson
Education (Singapore) Pvt. Ltd., Patparganj Delhi (2005), page 43.

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1.6.1 External Resource Approach Notes

The external resource or the system resource approach allows managers to
evaluate how effectively an organisation manages and controls its external
environment. It assumes organisation must be successful in obtaining resource
inputs and in maintaining the organisational system to be effective.
Organisation must obtain scarce and valued resources from other organisation.
From this view, organisational effectiveness is the ability of the organisation
(in absolute or relative terms) to exploit its environment in the acquisition of
scarce and valued resources.

Example: The organisation’s ability to influence the stakeholder’s

perceptions in its favour and to receive a positive evaluation is important for
managers and the organisation’s survival.
To measure effectiveness, managers use indicators such as stock price,
profitability and return on investment, which compare the performance of their
organisation with the performance of other organisation.
In a broad sense, indicators of system resource effectiveness encompass the
following dimensions:
1. Bargaining position - the ability of the organisation to exploit its
environment in the acquisition of scarce and valued resources.
2. Ability of the top management to perceive and correctly interpret the real
properties of the external environment.
3. Ability of the organisation to respond to changes in the environment.
The system resource approach is valuable when other indicators of
performance are difficult to obtain. Managers know that the organisation’s
aggressiveness, entrepreneurial nature, and reputation are all criteria by which
stakeholders (especially shareholders) judge how well a company’s
management is controlling its environment. Although the system resource
approach is valuable when other measures of effectiveness are not available, it
does have shortcomings. Often the ability to acquire resources seems less
important than the utilisation of those resources.
1.6.2 Internal Systems Approach
Under this approach, effectiveness is measured as internal organisational health
and efficiency. An effective organisation has a smooth, well-oiled internal
process. Employees are happy and satisfied. Departments cooperate with one
another to ensure high productivity. Thus, in the internal systems approach,
effectiveness is what the organisation does with its resources. The approach
does not consider the external environment.

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Notes According to J Barton Cunningham, indicators of an effective organisation as

seen from an internal process approach are:
1. Strong corporate culture and positive work climate.
2. Team spirit, group loyalty, and teamwork.
3. Confidence, trust and communication between workers and management.
4. Decision-making near sources of information, regardless of where those
sources are on the organisation chart.
5. Undistorted horizontal and vertical communication; sharing of relevant
facts and feelings.
6. Reward to managers for performance, growth, and development of
subordinates and for creating an effective working group.
7. Interaction between the organisation and its parts, with conflict that occurs
over projects resolved in the interest of the organisation.
The internal systems approach allows managers to evaluate how effectively an
organisation functions and operates. To be effective, an organisation needs a
structure and a culture that foster adaptability and quick responses to changing
conditions in the environment. Improvements to internal systems that influence
employee coordination or motivation have a direct impact on an organisation’s
ability to respond to its environment.
The internal process approach is important because the efficient use of
resources and harmonious internal functioning are ways to measure
effectiveness. However, the internal process approach does have shortcomings.
Total output and the organisation’s relationship with the external environment
are not evaluated.

Consider all the factors in measuring organizational effectiveness

as efficiency alone represents a limited view of organisational effectiveness.

1.6.3 Technical Approach

Technical effectiveness is measured in terms of productivity and efficiency.
Productivity measures are objective measures of the effectiveness of an
organisation’s production operations. For most work activities, no matter how
complex, there is a way to measure productivity or performance. In many
settings, the inducements offered to both employees and managers are closely
linked to productivity or performance. In many settings, the inducements
offered to both employees and managers are closely linked to productivity
measures and it is important to select the right measures to evaluate
effectiveness. The technical approach allows managers to evaluate how
efficiently an organisation can convert some fixed amount of organisational
skills and resources into finished goods and services.

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Notes
Example: An increase in the units produced without any additional
inputs results in increased productivity.

1.7 HR IMPLICATIONS
The HR implications for organisational structure and change fall into
categories:
1. Implications come from the effects on people who work within a particular
form of organisational structure and their reactions to these. Clearly, this
will have consequences for the management of those who work within
these organisational structures.
2. Implications arise from these forms of organisational structure in relation to
the scope for and nature of HR strategies.
These categories of implications would somewhat validate Fritz’s assertion that
‘structure is the most important and powerful influence there is within the
organization’ (1994: 9). Although there will be other significant influences that
operate together with organisational structure to affect the management of
change, such as organisational climate and culture, there can be little doubt
about the central role of structure in any change process.
Hence HR implications arising from structure of organisation can be
summarised in two ways:
 Through listing the ways in which various structural forms may affect
organisations and those that work in them.
 Through discussing the way in which different structures may affect the
nature of and scope for human resource strategies in organisations.
Organisational structure can influence:
 The nature and fulfilment of organisational strategy
 Organisational responsiveness to external change and competitiveness
 Scope for innovation
 Organisational capability to cope with uncertainty
 Organisational performance and effectiveness
 the nature and effectiveness of co-ordination
 product and service quality
 organisational quality

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Notes
Learning Activity
Visit any 5 organisations and try to find out the influence of HR on
the structure of an organization and write a report.

1.8 EARLIER APPROACHES TO ORGANISATION

The old theories of organisations are classified as classical theories of
organisation. The origin of classical theories can be traced back to the writings
of F.W. Taylor, Max Weber, James Moorey, E.F.L. Beach and Lois Allen. The
impact of classical theory has been profound. Classical theory was developed
in three streams: Bureaucracy, Administrative Theory, and Scientific
Management. These components of classical theory were developed on similar
assumptions at about the same time (1900-1950 AD). These components
develop the idea of structure within the connotation of organisation.
Accordingly, organisation was defined as a structure of relationships, power,
objectives, roles, activities, communications and other factors that exist when
persons work together. Thus, these streams of classical theory view
organisation as a mechanistic structure. Let us learn these three streams of
classical theory in detail.
1.8.1 Taylor’s Scientific Management
Scientific management arose, in part, from the need to increase productivity. In
the United States, especially, skilled labour was in short-supply at the
beginning of twentieth century. To expand productivity, ways had to be found
to increase the efficiency of workers. Could some portions of the work be
eliminated or some parts of the operations combined? Could the sequence of
these tasks be improved? Was there ‘one best way’ of doing a job? In his
pursuit of answers to such questions, Frederick W. Taylor slowly built the
body of principles that constitute the essence of Scientific Management (1890-
1930). Taylor did most of his work at the Midvale and Bethlehem Steel
Companies in Pennsylvania. His early years at Midvale were particularly
disgusting. He was constantly appalled at the inefficiency of workers.
Employees used vastly different techniques to do the same job. They were
prone to ‘taking it easy’ on the job. Taylor firmly believed that worker did only
about one – third of what was possible. There were no effective work
standards. Workers had no incentive to produce more because they were paid
an hourly rate. Workers were afraid to work fast because they believed their
rate of pay would be lowered or they would be laid off if they completed their
tasks too quickly. Workers were asked to take up jobs unrelated to their
abilities and aptitudes. Management decided things based on hunch and
intuition. Most importantly, management and workers viewed themselves to be
in continual conflict.

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Basics of Scientific Management Notes

The concept of scientific management implies the application of science to
management. It is based on four basic principles:
 Each task must be scientifically designed so that it can replace the old, rule-
of-thumb methods.
 Workers must be scientifically selected and trained so that they can be
more productive on their jobs.
 Bring the scientifically designed jobs and workers together so that there
will be a match between them.
 There must be division of labour and cooperation between management
and workers.
Taylor stressed the importance of employee welfare as well as production
efficiency. To boost up productivity, wage incentives based on performance
(differential piece rate system) were introduced. The emphasis was on
maximum output with minimum effort through elimination of waste and
inefficiency at the shop floor level.
Taylor summed up his approach in these words (principles):
1. Science, not rule of thumb.
2. Harmony, not discord.
3. Cooperation, not individualism.
4. Maximum output in place of restricted output.
5. Development of each man to his greatest efficiency and prosperity.
6. Equitable division of work and responsibility between management and
labour.
Key Concepts
The following are the key concepts of scientific management:
1. Scientific Task Planning: Scientific task is the amount of work which an
average worker can perform during a day under normal working conditions
(called as a fair day’s work). Management should decide in advance as to
what work is to be done, how, when, where and by whom. The ultimate
goal is to see that work is done in a logical sequence promoting maximum
efficiency.
2. Time and Motion Studies: Time and motion studies have been advocated
by Taylor with a view to isolate the wasteful and unproductive motions on
the job. The time study would indicate the minimum time required to do a
given job. The time taken by workers to do a job is being recorded first and
this information is being used to develop a time standard. Time standard is
the period of time that an average worker should take to do a job. Motion

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Notes study is carried out to find out the best sequence of motions to do a job.
The aim is to eliminate unnecessary, ill-directed and wasteful motions and
find out the one best way of doing a job. In this study, finger movements,
hand movements, arm movements and shoulder movements are being
studied, through photographic evidence. In addition, fatigue studies are also
carried out to find out the extent of boredom and monotony caused by a
job. Taylor and his colleagues (Gilbreths, Gantt) advocated fatigue studies
so as to find out the best synchronisation between time, work and rest
pauses needed to do a piece of work. Managers, in the end, are charged
with the task of planning the work through the above studies and workers
are expected to implement the same.
3. Standardisation: Under scientific management, standards have to be set in
advance for the task, materials, work methods, quality, time and cost,
working conditions, etc. This helps in simplifying the process of
production, reducing wasteful use of resources, improving quality of work
etc.
4. Differential Piece Rate System: In order to motivate workers, wage
incentives were developed in most scientific management programmes.
Taylor advocated differential piece rate system based on actual
performance of the worker. In this scheme, a worker who completes the
normal work gets wages at higher rate per piece than a worker who fails to
complete the same within the time limit set by management.

Example: Each worker who produced 10 machine nuts (normal

work) would be paid the standard wage of Rs. 2 per piece, and those below
the normal work may get Rs. 1.5 per piece.
Thus, there is considerable difference in wages between those who
complete the job and those who do not complete. Each worker is pitted
against every other worker in an unhealthy competitive scheme to make
more and earn more. In the long-run, this will have a telling effect on the
health of the worker. More damagingly, this scheme would divide the
working class permanently. Though the differential piece rate system is
opposed by unions and workers alike, the essential merit in Taylor’s
suggestion that wages must have a linkage with performance of employees
should not be discounted altogether.
5. Functional Foremanship: In order to achieve better production control,
Taylor advocated functional foremanship where the factory is divided into
several components, each in charge of a specialist, namely, route clerk,
instruction card clerk, cost and time clerk, gang boss, speed boss, inspector,
repair boss and shop disciplinarian. These functional specialists perform
the planning function and provide expert advice to workers. They plan the
work for employees and help employees in improving results. The workers
are expected to implement the commands of functional specialists. The idea

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of a divorce between planning and doing function, unfortunately, suggests Notes

that workers are incapable of thinking independently. Drucker dubbed this
principle as an undemocratic one because it overshadows the independence
and initiative of workers completely.
1.8.2 Weber’s Bureaucratic Theory
The word bureaucracy implies an organisation characterised by rules,
procedures, impersonal relations, and elaborate and fairly rigid hierarchy of
authority- responsibility relationships. In simple terms, it implies this
proposition: The organisation has a structure. People work within their
boundaries. The work is processed with the help of rules and regulations.
People follow these rules while processing work. Persons with proper
qualifications are selected so that the work is done efficiently.
Elements of Bureaucracy
Weber has provided a number of features of bureaucratic structure. These are
given below:
 Hierarchy: Hierarchy is a way of ranking various positions in descending
order from top to bottom of an organisation. In a bureaucratic structure,
each lower office is under the supervision and control of higher one.
Ultimately, no office is left uncontrolled in the organisation.
 Division of Work: The total work is divided into specialised jobs. Each
person’s job is broken down into simple, routine and well-defined tasks.
Each employee knows his boundaries. By doing the same type of work a
number of times, he becomes an expert in course of time.
 Rules, Regulations and Procedures: The behaviour of employees is
regulated through a set of rules. The emphasis is on consistency.
Employees are expected to follow these rules strictly. They have to be
applied in an impersonal, objective manner.
 Records: Proper records have to be kept for everything. Files have to be
maintained to record the decisions and activities of the organisation on a
day-to-day basis for future use.
 Impersonal Relationships: Everything should proceed according to rules.
There is no room for personal involvement, emotions and sentiments. If an
employee comes late, whether he is a manager or a peon, the rule must be
same for all. The decisions must be governed by rational considerations
rather than personal factors.
 Administrative Class: Bureaucracies generally have administrative class
responsible for coordinating the work. Known as bureaucrats, these
officials are selected on the basis of their competence and skills. They are
selected according to merit, receive special training for their posts, and
enjoy corporate tenure. They are paid salary, with increases according to

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Notes age and experience, and receive a pension when they retire. Promotion is
based on seniority and achievement, decided by judgement of superiors.
1.8.3 Fayol’s Administrative Theory
About the time when F.W. Taylor was developing the principles of scientific
management in the United States, Henry Fayol was revolutionising managerial
thinking in France. Trained as a mining engineer, Fayol made his mark as an
industrialist with the French coal and iron combine of Commentry-
Fourchambault, where he spent his entire working career. He joined the firm as
a junior executive in 1860 and rose quickly through the ranks, retiring as a
director of the company in 1918. When the company had been near bankruptcy
in 1888, he had taken it over and transformed it into a financially strong
organisation. Based on his own experiences as CEO, Fayol developed the
administrative theory, which explained the process of managing an
organisation from the top managerial perspective. Most writers acknowledge
Fayol as founder of the classical management school, not because he was the
first to investigate managerial behaviour but because he was the first to
systematise it. Fayol believed that sound managerial practise falls into certain
patterns that can be identified and analysed. He believed that management can
be taught, once its basic principles were understood and a general theory of
management was formulated.
In setting out to develop a science of management, Fayol began by classifying
business operations into six major activities; technical (production);
commercial (buying and selling); financial (use of capital); security (protection
of property); accounting (keeping financial records); and managerial. Since the
first five activities were commonly understood by many practitioners at that
time, Fayol devoted his attention to the last activity.
Principles of Management
At the operational level, Fayol asserted that managers should apply fourteen
principles. According to him, these principles can be applied in all types,
functions, levels and sizes of organisations. This had earned him the title of
Universalist. These are given below:
1. Division of Work: This is the principle of specialisation which applies to
all kinds of work. The more people specialise, the more efficiently they can
perform their work. Specialisation increases output by making employees
more efficient.
2. Authority and Responsibility: Authority is the right to give orders and the
power to obtain obedience. A manager might use both his official authority
and personal authority while getting things done. Official authority is
derived from the manager’s position and personal authority is derived from
personal qualities such as intelligence, experience, past services, etc.
Responsibility arises out of assignment of an activity. An individual, to

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whom authority is given to exercise power, must also be prepared to bear Notes
responsibility to perform the work in a satisfactory manner.
3. Discipline: Employees must obey and respect the rules that govern the
enterprise. Good discipline is the result of effective leadership, a clear
understanding between management and workers regarding the
organisation’s rules and the judicious use of penalties for violation of the
rules.
4. Unity of Command: An employee should receive commands from only
one superior. Dual command, as advocated by Taylor in his principle of
functional foremanship where a worker receives orders from a number of
functional specialists, undermines authority and puts discipline in jeopardy.
Fayol believed that when an employee reported to more than one superior,
conflict in instructions and confusion of authority would result.
5. Unity of Direction: This principle calls for ‘one manager one plan’ for all
operations having the same objective. For example, the personnel
department in a bank should not have two directions, each with a different
recruitment policy. The unity of direction principle, when applied properly,
ensures unity of action and facilities coordination.
6. Subordination of Individual Interest to the Common Good: In any
organisation, the interests of employees should not take precedence over
the interests of the organisation as a whole. This can be achieved when
managers set an example through their good conduct and behaviour. They
must be honest and fair in dealing with internal groups. They must be
prepared to sacrifice their personal interests whenever such interests are in
conflict with organisational interests.
7. Remuneration of Personnel: Compensation for work done should be fair
to both employees and employers. Fayol did not favour profit-sharing plan
for workers but advocated it for managers.
8. Order: Materials and people should be in the right place at the right time.
People in particular, should be in the jobs most suited for them. The general
principle in this respect should be ‘a place for everything and everything in
its place’ and ‘a place for everyone and everyone in his place.’
9. Centralisation: Decreasing the role of subordinates in decision-making is
cenrtralisation; increasing their role is decentralisation. Whether decision
making is centralised (to management) or decentralised (to subordinates) is
a matter of proper proportion. Fayol felt that managers should retain final
responsibility but also need to give their subordinates enough authority to
do their jobs properly.
10. Scalar Chain: The graded chain of authority from top to bottom through
which all communications flow is termed as ‘scalar chain’. However, if
following the chain creates communication delays, cross- communication

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Notes (gangplank principle) can be permitted, if agreed to by all parties and

superiors are kept informed.
11. Equity: Managers should be fair in dealing with employees. Equity is the
combination of justice and kindness. The application of equity requires
good sense, experience, and good nature for soliciting loyality and devotion
from subordinates.
12. Stability of Tenure: Stability of tenure is essential because time is required
for an employee to get used to new work and succeed in doing it well.
Management must, therefore, implement practises which encourage long-
term commitment of employees. Instability of tenure can significantly
affect the fortunes of a company.
13. Initiative: Employees must be encouraged to think through to implement a
plan of action, even though some mistakes may result. The opportunity to
perform independently is an essential component of employee growth and
development.
14. Esprit De Corps: This principle states that ‘union is strength’. Promoting
team spirit will give the organisation a sense of unity. To Fayol, even small
factors could help to develop this spirit. He suggested, for example, the use
of verbal communication in place of formal, written communication
wherever possible.
Contributions of Fayol
Fayol’s contribution to management is unique and valuable. He provided a
conceptual framework for analysing the management process. He (i) proposed
that all operations in a business can be classified into 6 major heads where
management is the most important one; (ii) listed planning, organising,
commanding, coordinating and controlling as the main elements of
management; and (iii) proposed 14 principles of management which could be
applied universally. A number of current ideas and practices in management
can be directly linked to the contributions of Fayol. Till recently, many
management textbooks were written along the guidelines provided by Fayol.
By emphasising that management skills are universal, Fayol has done a signal
service to the propagation of management concepts. Fayol always believed that
managerial ability could be applied to the home, the church, the military, the
school, and politics as well as to industry. This has ultimately led to the
mushrooming growth of management institutions throughout the globe.
Limitations
Administrative theory (as propagated by Fayol, Mooney and Reiley, Urwick
and Barnard), is criticised on the following grounds:
 Lack of Empirical Evidence: The theory is not supported by empirical
evidence. Some of the terms and concepts have not been properly
explained by Fayol. For example, the principle of specialisation does not

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tell us the way to divide the tasks. The so-called principles of management Notes
have been dubbed by critics (Simon, Stephenson) as ‘proverbs’ comparable
to folklore and folk wisdom.
 Neglect of Human Factor: The theory views human being as passive and
capable of reacting only to organisational rules and economic incentives.
Human attributes such as emotion, attitude, and creativity have been totally
ignored.
 False Assumptions: The theory assumes that all organisations can be
managed by the same set of rules and principles. It does not recognise the
differences in tasks and problems that confront organisations. Formal
authority, again, is not sufficient for managers to control employees. They
must act differently in different situations, assessing their own strengths,
organisational needs, union pressures, and competitive reactions etc. from
time to time. Rules have to be applied carefully looking at the internal and
external dynamics of the organisations.
 Pro-management Bias: It suffers from pro-management bias. It is more
concerned with what mangers should know and do rather than with a more
general understanding of managerial behaviour. It does not offer guidelines
as to when, where and how the principles have to be applied.
 Historical Significance: It has only historical significance. It is more
appropriate for the past (where the environment was stable, predictable)
than for the present (where the environment is turbulent, competitive and
continually changing). As we all know, getting work from subordinates
through the use of commands, instructions and force is not possible in the
modern world.
Neo-classical School (Human Relations Theory)
In the 1920s and 1930s, observers of business management began to feel the
incompleteness and short-sightedness in the scientific as well as administrative
management movements. The scientific management movement analysed the
activities of workers whereas administrative management writers focussed
attention on the activities of managers. The importance of the man behind the
machine, the importance of individual as well as group relationships in the
workplace was never recognised. The social aspects of a worker’s job were
totally ignored; the emphasis was clearly on discipline and control rather than
morale. The human relations theory (also called neo-classical theory) tried to
compensate for the deficiencies in classical theory (scientific management and
administrative management) modifying it with insights from behavioural
sciences like psychology, sociology and anthropology. This theory gained
popularity after the famous studies of human behaviour in work situations
conducted at the Western Electric Company from 1924 to 1933. These studies
eventually became known as the ‘Hawthorne Studies’ because many of them
were conducted at Western Electric’s Hawthorne plant near Chicago.

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Notes The Hawthorne experiments indicated that employees were not only economic
beings, but social and psychological beings as well. The man at work is
motivated by more than the satisfaction of economic needs. The main emphasis
should be on creating a humanistic or informal organisation in place of a
mechanistic or formal organisation. The organisation must be democratised
and people working therein must become part of ‘one big happy family’. In the
words of Keith Davis, “Human relations are motivating people in organisations
in order to develop teamwork which effectively fulfils their needs and achieves
organisational goals.” The whole philosophy of human relations is built around
the following ideas:
 Individual: According to human relationists, each person is unique. Each is
bringing to the job situation certain attitudes, beliefs and ways of life as
well as certain skills – technical, social and logical. Hence, the individual is
not only motivated by economic factors, but is motivated by multifarious
social and psychological factors.
 Work Group: Work is a social experience and most workers find
satisfaction in membership social groups. Unless managers recognise this,
human relations at work will not improve. Good interpersonal and
intergroup relationships among people need to be maintained to obtain
productivity gains.
 Work Environment: Managers have to create positive work environment
where the employee finds it easy to achieve organisational goals as well as
his own personal goals. Positive work environments are those where: (i) the
goals are clearly defined, (ii) incentives are properly used to improve
performance, (iii) decisions are timely and participative, (iv) conflict is
confronted openly and squarely, and (v) the work is interesting and growth-
oriented.
 Leader: The leader must behave in a way that generates respect. He must
be able to adjust to various personalities and situations. He must offer a
pleasant work climate where bossism is totally absent and where members
are allowed to have a say in the decision-making process.

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Notes

Uniformed Madness

V ishal D’Souza was delighted when he was selected at the campus

interview by Lexton (India) Limited. Vishal was happy that
immediately after his MBA, he was to start of as Plant Manager, the
first step in a promising career.
After taking up the job, the first thing that he observed was that the
relationship between the employees and management were strained. He had
learnt from his Professor in OB that building trust at the workplace was the
first step in building healthy relationship. As a part of building trust, Vishal
removed the time clock from the plant. He believed that this symbolic
gesture would strengthen the relationship between management and
employees at the plant. The employees welcomed the move and saw this as
a positive sign and a gesture of goodwill from the new plant manager.
In the beginning, employees were prompt and came to the workplace on
time. They also worked for the full 8 hours and did not come late, leave
early or take extended lunch breaks. Supervisors also did not have any
problems in relation to production schedules. The system worked very
smoothly and Vishal began to think that the time clock was sheer madness
on the part of his predecessor.
When things looked to be shaping very well, the problem slowly began to
surface. Though a majority of the workforce were punctual, superiors did
observe that some workers were abusing their privileges. To set things right,
supervisors began to reprimand workers and this strained the relationship
between the supervisors and the workers. To compound matters the
supervisors felt that the new plant manager has restored to cheap popularity
by appeasing the workers. They (the supervisors) felt that the responsibility
of disciplining the workers now fell on them. To set things right,
supervisors began to reprimand workers and this further strained
relationship between the supervisors and the workers. They supervisors
began to complain that they now had the additional responsibility of
keeping track of attendance and this made it difficult for them to complete
their responsibilities. To compound the problem further, some employees
filed grievances with their union that supervisors victimised their
employees. The employee-management relations had deteriorated further
and became quite acute. Production dropped due to poor attendance and a
lot of friction between the workers and supervisors.
This dismal state-of-affairs prompted Vishal to hold talks with the
supervisors and the union officials. The meeting was very stormy and after
much deliberations, it was resolved that it was better to put the time clocks
back.
Contd...

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Notes When Vishal went back to his college to attend the Verve 2007 management
fest, he narrated the story of the time clock to his professor. His professor
chuckled put his arm around Vishal and said, “I know that the time clock is
sheer madness but I guess that the time clock ensures that there is
uniformity even in madness”.
Questions
1. Explain the reasons why the employees mis-utilized the privilege given
to them. How could a privilege given contribute to the deterioration of
employee-management relations?
2. What changes should take place in employee-management relationship
to minimize the likelihood of the time clock problems from recurring?

1. United Nation Organization started to bring social

reforms in the world and today it is the most
diversified organization in the world.
2. Classical organization, especially as developed by
Taylor, which was essentially seen as a development
of industrial engineering, had by 1930 lost most of its
élan, largely because it lacked any scientific theoretical
base. Max Weber, the German sociologist, tried to fill
this vacuum through his classic work, The Theory of
Social and Economic Organization in 1920.

SUMMARY
 Mission is the purpose or reason for the organisation’s existence. It tells
what the company is providing to society.
 Organization is basically a group of people who are working together
towards a common goal and in this process they manage their own
performance and have a boundary which separates them from their
environment.
 Organisation theory is the study of how organisation function and how they
affect and are affected by the environment in which they operate.
 The study of organisational structure is necessary to understand
organisational effectiveness. In simple terms better the structure of an
organisation more effective would be the organisation and vice versa.
 Organisational goals represent the reason for an organisation’s existence
and the outcomes it seeks to achieve.

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 The external resource or the system resource approach allows managers to Notes
evaluate how effectively an organisation manages and controls its external
environment.
 An effective organisation has a smooth, well-oiled internal process.
Employees are happy and satisfied.
 Technical effectiveness is measured in terms of productivity and efficiency.
Productivity measures are objective measures of the effectiveness of an
organisation’s production operations.
 The concept of scientific management implies the application of science to
management. Frederick W. Taylor slowly built the body of principles that
constitute the essence of Scientific Management.
 The word bureaucracy implies an organisation characterised by rules,
procedures, impersonal relations, and elaborate and fairly rigid hierarchy of
authority- responsibility relationships.
 The human relations theory (also called neo-classical theory) tried to
compensate for the deficiencies in classical theory (scientific management
and administrative management) modifying it with insights from
behavioural sciences like psychology, sociology and anthropology.

KEYWORDS
Organisation: A social unit of people that is structured and managed to meet a
need or to pursue collective goals. All organizations have a management
structure that determines relationships between the different activities and the
members, and subdivides and assigns roles, responsibilities, and authority to
carry out different tasks.
Organisation Theory: It is a way of thinking about organisation. It sees and
analyse organisation more accurately and deeply than one otherwise could.
Organisational Structure: Explicit and implicit institutional rules and policies
designed to provide a structure where various work roles and responsibilities
are delegated, controlled and coordinated.
Organisational Environment: An organization’s environment is defined as all
the elements existing outside the boundary of the organization that have the
potential to affect all or part of the organization
Effectiveness: The degree to which something is successful in producing a
desired result; success.
Organisational Effectiveness: Organizational effectiveness can be defined as
the efficiency with which an association is able to meet its objectives. This
means an organization that produces a desired effect or an organization that is
productive without waste.

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Notes SELF-ASSESSMENT QUESTIONS

Short Answer Questions
1. Explain the meaning of an organisation.
2. Discuss the fundamental elements of an organisation.
3. What do you mean by value creation?
4. Discuss the internal systems approach of measuring organisational
effectiveness.
5. Explain the need for the existence of an organisation.
6. Discuss Weber’s Bureaucratic Theory.
7. What do you mean by organisational effectiveness?
8. Write short note on Fayol’s Administrative Theory.
9. Discuss Human Relations Theory of organisation.
10. What are the HR implications for organisational structure?
Long Answer Questions
1. Discuss the classical theories of organisation.
2. Discuss the Fayol’s principles of management.
3. What are the different stages of measuring effectiveness of an
organisation?
4. Explain the different stages of value creation model with the help of a
diagram.
5. Discuss the framework for analysing organisational theory.

FURTHER READINGS

Mehta Amitabh (2009),”Organisation Development”, Global

India Publications
Therese F. Yaeger, Sorensen Peter F. (2009), “Strategic
Organization Development: Managing Change for Success”, IAP
Cummings Thomas, Worley Christopher (2014),”Organization
Development and Change”, Cengage Learning
Moshal B.S.(2009),” Organisational Theory And Behaviour”, Ane
Books Pvt Ltd

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 Lesson 2 - Organisational Design - I

Notes
UNIT II
LESSON 2 - ORGANISATIONAL DESIGN - I

CONTENTS
Learning Objectives
Learning Outcomes
Overview
2.1 Organisational Design
2.1.1 Factors Influencing Organization Design
2.2 Determinants of Design
2.3 Components of Organisational Design
2.4 Types of Organisational Design
2.4.1 Traditional Designs
2.4.2 Contemporary Designs
2.5 Basic Challenges of Design
2.5.1 Differentiation
2.5.2 Integration
2.5.3 Centralisation and Decentralisation
2.5.4 Standardisation and Mutual Adjustment
2.5.5 Mechanistic and Organic Structure
Summary
Keywords
Self-Assessment Questions
Further Readings

LEARNING OBJECTIVES
After studying this lesson, you should be able to:
 Discuss the organisational design
 Understand the components and determinants of organisational design
 Know the types of organisational design
 Understand the basic challenges of design

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Notes LEARNING OUTCOMES

Upon completion of the lesson, students are able to demonstrate a good
understanding of:
 the organizational structures buffer or protect the technology from
environmental influences or disturbances
 that employees at the same level can have different decision-making
authority
 an organic structure is set up like a network; interactions and
communications are horizontal, knowledge resides wherever it is most
useful to the organisations, and membership requires a commitment to the
organisation’s tasks.

OVERVIEW
In the previous lesson, you have learnt about the organisation and its
environment. You also studied about the organisational effectiveness and how
to measure it.
If an organisation is to remain effective as it changes and grows with its
environment, managers must continuously evaluate the way their organisations
are designed. Organisational design involves difficult choices about how to
control and coordinate organisational task and motivate the employees to
maximise an organisation’s ability to create value. The basic challenges of
organisational design are to take care that the control and co-ordination is not
reduced and at the same time, motivate the people so that the organisation is
able to grow and achieve its objectives.
In this lesson you will study about the concept of organisational design. Next,
the basic organisational design challenges confronting managers is also
discussed in this lesson.

2.1 ORGANISATIONAL DESIGN

Organisational design refers to the process of coordinating the structural
elements of organisations in the most appropriate manner. There are three
distinct schools; the classical, the neoclassical and the contemporary. The
classical school represented by Max Weber, F W Taylor and Henry Fayol; the
proponents of formal hierarchy, clear set of rules and specialisation of labour.
The neo-classical represented by organisational scholar such as McGregor,
Argyris and Likert. They emphasize on employee satisfaction along with
economic effectiveness and call for the designing of flat hierarchical structure
with a high degree of decentralisation. The proponents of contemporary design
emphasize on the environmental factors in which the organisations are
operating.

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2.1.1 Factors Influencing Organization Design Notes

Chandler’s research has helped establish the fact that there is an important
connection between strategy and the type of organization structure that is
needed to reach organizational goals effectively and efficiently. At the same
time, the effectiveness of particular type of organization structure is also
influenced by certain factors like:
1. The dominant type of technology used.
2. The organizations size.
3. Organizational goals etc.
These components and their relationship to organizational structure are shown
in the figure below:

Contingency Factors:
 Technology
 Size
 Environment

Organization
STRATEGY Structure: Organizational
 Functional Goals:
 Divisional (Efficiency and
 Hybrid effectiveness)
 Matrix

Structural Methods for

Promoting Innovation:
 Roles
 Reservation
 Differentiation
 Transfer
Processes

Figure 2.1: Major Components Influencing the Design of Effective Organization

Structure

The Design Response

Henry Mintzberg identifies two dimensions on which effective structure
depends – regulation and sophistication.
1. Regulation: Regulation refers to the extent to which machinery and
equipment control the employee’s work. Mintzberg suggests that a more
regulating technology calls for a more mechanistic structure. The more
routine the technology, the less the need for flexibility since responses to

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Notes technology can be predetermined and non-variant. The less routine the
technology, the greater the need for flexibility.
2. Sophistication: Sophistication describes the complexity or intricacy of the
technology. As the technical system increases in sophistication, the
organization requires an increasingly elaborate administrative structure,
more support staff who have decision-making responsibilities and more
integrating and linking devices. Decreasing sophistication calls for no
specific structural provision.
Effective organizational structures buffer or protect the technology from
environmental influences or disturbances. As organizations become more
automated, they require increasing rules and regulations, centralized control,
and support staff as a way of buffering the technology. Organizational design
must respond to the complexities created by new technologies.

2.2 DETERMINANTS OF DESIGN

Those factors which affect the organization in becoming fit considering all
conditions for the attainment of organizational goal are called determinants of
organization design. These determinants may be identified as:
1. Strategy and Goals
2. Environment
3. Technology
4. Size/life cycle
5. Culture
Strategy and Goals
For achieving organizational goals and missions, managers have to choose
specific strategy and design option that will help organization achieve its
purpose and goals within its competitive environment. A strategy is a plan for
interacting with competitive environment to achieve organizational goals.
Strategy goals are defined where the organisation wants to go.
Environment
Everything that surrounds and affects the organization in which it operates is
the environment of the organization such as consumers, trade unions,
technological breakthroughs, Govt. regulations, international happenings,
climatic conditions, political ups and downs, etc.
Technology
Technology refers to the tools, techniques and actions which are used to
transform environmental inputs into organizational output. The strategy cannot
be translated directly into output. Organisations have to design different

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technologies for different production processes (batch or mass), different Notes

controls, systems have to be created to maintain efficiency and efficacy.
Hence, technology is a determinant for what type of structure is to be designed.
Size and Life Cycle
Generally size of an organization is related to the age of organisation. But it is
not really true as lifecycle theories experience it. An organization may remain
small although it may grow in age. It has been found that organizations are
more structurally differentiated with increase in size. Smaller organization
tends to centralise themselves as compared to large organisations. Age of the
organisation makes it mature and more experienced.
Culture and People
Organization’s culture is the underlying set of key values, beliefs,
understandings and norms shared by employees. These underlying values may
affect to ethical behaviour, commitment to employees, efficiency, or customer
service and they provide glue to hold the organization together. Organization
culture is unwritten but can be observed from the experiences, slogans,
ceremonies, office layout, etc. If the top manager is autocratic by nature then
he/she would prefer an organization arrangement in such a manner that would
allow him or her to have closer control over people and operations.
Organizational culture may or may not allow him to play autocratic role.

2.3 COMPONENTS OF ORGANISATIONAL DESIGN

An effective organization structure would be one which can successfully cope
up with the demand and constraints which the organization experiences. A
manager must be aware of the building blocks of an organizational structure.
What constitute an organization structure is called the components of
organizational design. Identification of the factors which would be relevant to
organizational design is somewhat complicated because many of these
components lack empirical support. Following are the components of
organisational design:
 Complexity: It is the degree of differentiation that exists within an
organisation. Complexity can be of three types: Horizontal, Vertical and
Spatial.
 Formalisation: It is the degree to which jobs in an organisation are
standardized. This of two types: Organisational and Professional.
 Centralisation: It is the degree in which the formal authority for making
discretionary choices is concentrate is an individual, unit or level those
permitting employees minimum in put in their work.

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Notes 2.4 TYPES OF ORGANISATIONAL DESIGN

Organizational designs fall into two broad categories: Traditional and
Contemporary. Traditional designs contain simple structure, functional
structure, and divisional structure whereas Contemporary designs include team
structure, matrix structure, project structure, boundary-less organization, and
the learning organization.
2.4.1 Traditional Designs
This category of organizational designs is further categorized into:
1. Simple Structure: A simple structure is referred as a design with low
departmentalization, wide spans of control, centralized authority, and little
formalization. This type of design is very common in small start-up
businesses.

Example: In a business with few employees the owner tends to be

the manager and controls all of the functions of the business. Often
employees work in all parts of the business and don’t just focus on one job
creating little if any departmentalization.
In such type of design, there are usually no standardized policies and
procedures. When the company begins to expand then the structure tends to
evolve and become more complex structure.
2. Functional Structure: A functional structure is referred as a design that
groups similar or related occupational specialties together. It is the
functional approach to departmentalization applied to the entire
organization.

Example: Revlon, Inc. is organized around the functions of

operations, finance, human resources, and product research and
development. For more information visit www.revlon.com
3. Divisional Structure: A divisional structure consists of separate, semi-
autonomous units or divisions. Within one corporation there may be many
different divisions and each division has its own targets to achieve. A
manager supervises their division and is completely responsible for the
success or failure of his division. This gets managers to focus more on
results knowing that they will be held accountable for them.

Example: Wal-Mart Stores, Inc. is organized by its divisions such

as Wal-Mart Realty, Wal-Mart International, Wal-Mart Specialty Stores,
Sam’s Clubs, and Supercentres. Visit www.walmart.com for further
information.

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2.4.2 Contemporary Designs Notes

The contemporary design categorised into:
1. Team Structure: A team structure is a design in which an organization is
made up of teams, and each team works towards a common goal. Since the
organization is made up of groups to perform the functions of the company,
teams must perform well because they are held accountable for their
performance. In a team structured organization there is no hierarchy or
chain of command. Therefore, teams can work the way they want to, and
figure out the most effective and efficient way to perform their tasks.
Teams are given the power to be as innovative as they want. Some teams
may have a group leader who is in charge of the group.

Example: Whole Foods Market, Inc. is structured entirely on the

basis of teams. Each store composed of approximately 10 self-managed
teams with a designated team leader, and the team leaders in each store are
a team – called store team. Visit www.wholefoodsmarket.com for more
information.
2. Matrix Structure: A matrix structure is one that assigns specialists from
different functional departments to work on one or more projects. In an
organization there may be different projects going on at once. Each specific
project is assigned a project manager and he has the duty of allocating all
the resources needed to accomplish the project. In a matrix structure those
resources include the different functions of the company such as
operations, accounting, sales, marketing, engineering, and human
resources. Basically the project manager has to gather specialists from each
function in order to work on a project, and complete it successfully. In this
structure there are two managers, the project manager and the department
or functional manager.
3. Project Structure: A project structure is an organizational structure in
which employees continuously work on projects. This is like the matrix
structure; however when the project ends the employees don’t go back their
departments. They continuously work on projects in a team like structure.
Each team has the necessary employees to successfully complete the
project. Each employee brings his or her specialized skill to the team. Once
the project is finished then the team moves on to the next project.

Example: Earlier known as Oticon Holding A/S, William Demant

Holding A/S has no organizational departments or employee job titles. All
work activities are project based and these project teams form, disperse and
form again as per the requirement of work. Once the project is completed,
employees move on to the next one. Visit www.demant.com for additional
information.

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Notes 4. Autonomous Internal Units: Some large organizations have adopted this
type of structure. That is, the organization is comprised of many
independent decentralized business units, each with its own products,
clients, competitors, and profit goals. There is no centralized control or
resource allocation.

Example: Asea Brown Boveri (ABB) is a global organization,

actually about 1,000 companies operating in more than 140 countries
around the globe. The whole operation is managed by just eight top
executives at headquarters in Zurich, Switzerland, but each individual
company has its own products, resources, and so on. Visit www.abb.com
for additional information.
5. Boundary-less Organization: A boundary-less organization is one in
which its design is not defined by, or limited to, the horizontal, vertical, or
external boundaries imposed by a predefined structure. In other words it is
an unstructured design. This structure is much more flexible because there
are no boundaries to deal with such as chain of command,
departmentalization, and organizational hierarchy. Instead of having
departments, companies have used the team approach. In order to eliminate
boundaries managers may use virtual, modular, or network organizational
structures. In a virtual organization work is outsourced when necessary.
There are a small number of permanent employees; however specialists are
hired when a situation arises.

Example: Subcontractors or freelancers.

A modular organization is one in which manufacturing is the business. This
type of organization has work done outside of the company from different
suppliers. Each supplier produces a specific piece of the final product.
When all the pieces are done, the organization then assembles the final
product. A network organization is one in which companies outsource their
major business functions in order to focus more on what they are in
business to do.

Example: ChevronTexaco sends most of their accounting to the

Philippines for the purpose of cutting costs. They also send all their
computer programming to India. Visit ChevronTexaco at
www.chevrontexaco.com
6. Learning Organization: A learning organization is defined as an
organization that has developed the capacity to continuously learn, adapt,
and change. In order to have a learning organization a company must have
very knowledgeable employees who are able to share their knowledge with
others and be able to apply it in a work environment. The learning
organization must also have a strong organizational culture where all

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employees have a common goal and are willing to work together through Notes
sharing knowledge and information. A learning organization must have a
team design and great leadership. Learning organizations that are
innovative and knowledgeable create leverage over competitors.

2.5 BASIC CHALLENGES OF DESIGN

If an organization is to remain effective as it changes and grows with its
environment, managers must continuously evaluate the way their organizations
are designed. Organisational design involves difficult choices about how to
control and coordinate organisational task and motivate the employees to
maximise an organisation’s ability to create value. The basic challenges of
organisational design are to take care that the control and co-ordination is not
reduced and at the same time, motivate the people so that the organisation is
able to grow and achieve its objectives. The basic organisational design
challenges confronting managers is discussed in this section.
2.5.1 Differentiation
As organisations grow, managers must decide how to control and coordinate
the activities that are required for the organisation to create value.
Differentiation is the process by which an organisation allocates people and
resources to organisational tasks and establishes the task and authority
relationships that allow the organisation to achieve its goals. Organisational
differentiation is “the differences in cognitive and emotional orientations
among managers in different functional departments, and the difference in
informal structure among these departments”. When the external environment
is complex and rapidly changing, organisational departments become highly
specialised to handle the uncertainty in their external environment. Success in
each sector requires special expertise and behaviour. For example, employees
in an R&D department have unique attitudes, values, goals and education to
differentiate them from employees in the sales or an HR department. These
different people have to be coordinated as one organisation and this high
differentiation makes coordination between departments more difficult.
Differentiation is the process of establishing and controlling the division of
labour, or degree of specialisation, in the organisation.
The Figure 2.2 shows departmental differentiation to meet the needs of sub-
environments in the external environment.
Differentiation is the state of segmentation of the organisational system into
subsystems, each of which tends to develop particular attributes in relation to
the requirements posed by its relevant external environment. This is shown in
Figure 2.2.

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Notes
MANAGING
DIRECTOR

R&D Manufacturing
Department Department Sales
Department
Scientific Sub Manufacturing Sub
environment* environment ** Market Sub
environment ***

* In R&D department, scientific sub-environment the employees in the department will be

associated with research activities, read scientific journals and be members of professional
association dealing with scientific research.

** In the manufacturing department, employees will be concerned with production equipment,

purchase of raw material, labour issues etc.

*** In the sales department, the employees will be concerned with marketing-related issues like
customers, advertising, distribution systems, competitors in the market etc.

Figure 2.2: Organizational Departments Differentiate to Meet the Needs of

Sub-environments

Differentiation refers in part to the idea of specialisation of labour,

specifically to the degree of departmentalisation.

Why does differentiation occur? To answer this question, we have to look at

the organisation and see why the design helps it, to achieve its goal. In a simple
organisation, differentiation is low because the division of labour is low. A few
people perform all the tasks. Therefore, there are no problems associated with
coordination. The same is not the case with complex organisation. In a
complex organisation, there is both the division of labour and high
differentiation. In large organisations, we have to address the problems and
challenges that organisation design must address. Top management must find
new ways of controlling the activities necessary to meet their goals and
providing customers with value added services.
Besides differentiation referring to the idea of specialisation of labour, and the
degree of departmentalisation, in the broader sense, it also includes the
behavioural attributes of the employees of these subsystems (departments).

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These behavioural attributes are given below: Notes

1. Employees of some departments would be more or less task-oriented or
person-oriented than employees in other departments.
2. Employees of some departments would have longer or shorter time
horizons than members of other departments. It is believed that these
differences could be explained by different environmental attributes,
specifically the length of time between action and the feedback of results.
3. It is found that some employees are more concerned with goals of their
department than with goals of the total organisation.
2.5.2 Integration
Integration is the process of achieving unity of effort among the various
subsystems in the accomplishment of the organisation’s task. Integration is
achieved through the creation of rules and procedures to govern subsystem
members’ behaviour. This method is effective only in relatively stable and
predictable situations. Rules and procedure lose their effectiveness as the
environment becomes more unstable. In a highly unstable environment,
integration is achieved by mutual adjustment. Mutual adjustment requires a
great deal of communication through open channels throughout the
organisation. The quality of collaboration that exists among interdependent
units or departments that require achieving unity of efforts is integration.
Integrative devices that organisations typically use include rules and
procedures, formal plans, the authority hierarchy, decision-making committees.
Lawrence and Lorsch postulated that the more turbulent, complex and diverse
the external environment facing an organisation, the greater the degree of
differentiation among its subparts. If the external environment was very diverse
and the internal environment was highly differentiated, they further reasoned
there would be a need for an elaborate internal integration mechanism to avoid
having units going in different directions.

Highly differentiated organizations would tend to use mutual

adjustment as a means of achieving integration.

Integrating Mechanisms
Horizontal differentiation enables people to specialise and thus become more
productive. However, organisations have found that specialisation limits
communication between subunits and prevents them for learning from one
another. To avoid the communication problem that can arise from horizontal
differentiation, organisation tries to find new or better ways to integrate
functions. Integration is the process of coordinating various tasks, functions
and divisions so that workers work together and not at cross purposes. The
table below lists the integrating mechanism that can be used in organisations.

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Notes Table 2.1: Types and Examples of Integrating Mechanisms

Integrating Description Example (e.g., in Johnson & Johnson
Mechanism (in Ltd.)
order of increasing
complexity)
Hierarchy of A ranking of employees integrates Salesperson reports to Diaper Division
authority by specifying who reports to sales manager.
whom
Direct contact Manager meets face-to-face to Diaper Division sales and manufacturing
coordinate activities. managers meet to discuss scheduling.
Liaison role A specific manager is given A person from each of J&J’s production,
responsibility for coordinating marketing and research and development
with managers from other subunits departments is given responsibility for
on behalf of his or her subunit. coordinating with the other departments.
Task force Managers meet in temporary A committee is formed to find new ways
committees to coordinate cross- to recycle diapers.
functional activities.
Team Managers meet regularly in A permanent J&J committee is established
permanent committees to to promote new product development in
coordinate activities. the Diaper Division.
Integrating role A new role is established to One manager takes responsibility for
coordinate the activities of two or coordinating Diaper and Baby Soap
more functions or divisions. divisions to enhance their marketing
activities.
Integrating A new department is created to A team of managers is created to take
department coordinate the activities of responsibility for coordinating J&J’s
functions or divisions. centralization program to allow divisions
to share skills and resources.

Source: Gareth R. Jones, Organisational Theory, Design, and Change – Text and Cases, (4th Edition), Pearson
Education (Singapore) Pvt. Ltd, Indian Branch, New Delhi, Page 130.

The design issue facing managers is to establish a level of integration that

matches the organisation’s level of differentiation. A highly complex
organisation that is highly differentiated needs a high level of integration to
effectively coordinate its activities. Differentiation and integration are both
expensive in terms of the number of managerial personnel, its employees and
the amount of time spent by managerial personnel to coordinate organisational
activities. P.P. Gupta, M.D. Dirsmith, and T.J. Fogarty suggested that
managers facing the challenges of deciding the proportion of differentiation
and integration should look into the following:
1. Carefully guide the process of differentiation so that it develops the core
competencies that give the organisation a competitive advantage and
2. Carefully integrate the organisation by choosing appropriate integrating
mechanisms that allow subunits to cooperate and that build up the
organisation’s core competencies.
One outcome of high differentiation is that coordination between departments
become difficult. More time and resources must be devoted to achieving
coordination when attitudes, goals, and work orientation differ so widely.

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Integration is the quality of collaboration between departments. When the Notes

environment is highly uncertain, frequent changes require more information
processing to achieve coordination, so integrators become a necessary addition
to the organisation structure. Lawrence and Lorsch’s research concluded that
organisations perform better when the levels of differentiation and integration
match the level of uncertainty in the environment. Organisations that perform
well in uncertain environments had high levels of both differentiation and
integration, while those performing well in less uncertain environment had
lower levels of differentiation and integration.
2.5.3 Centralisation and Decentralisation
When we discussed vertical differentiation, it was noted that establishing a
hierarchy of authority is supposed to improve the way an organisation
functions because people can be held accountable for their actions and because
the hierarchy defines the area of each person’s authority within the
organisation.
Centralisation refers to the location of decision-making authority in the
hierarchy of the organisation. Centralisation is the term used to mean: (i)
decision-making and (ii) control. Despite the simplicity of the term, it can be
difficult to apply. The difficulty derives from three sources:
1. Employees at the same level can have different decision-making authority.
2. All decisions are not of equal importance in organisation. Decisions that
are of a routine nature are decentralised, while strategic decisions are
centralised.
3. Individuals may not perceive that they really have authority even though
their job description includes it. In other words, people have authority
objectively, but subjectively, they do not use it.
The relationships between centralisation and the four design decisions are
generally as follows:
1. The higher the specialisation of labour, the greater the centralisation. This
relationship holds because highly specialised jobs do not require the
discretion that authority provides.
2. The lesser authority is delegated, the greater is the centralisation.
3. The greater the use of functional departments, the greater the centralisation,
because functional departments require the activities of several interrelated
departments to be coordinated and therefore authority to coordinate.
4. The wider the spans of control, the greater the centralisation.
Organisations however, complain that when a hierarchy of authority exists,
employees are constantly looking to their superiors for directions. When
something unusual occurs, they prefer to let it pass, or pass it on to their
superior rather than assume responsibility. When nobody is willing to take

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Notes responsibility, decision-making becomes slow and the organisation becomes

inflexible. The solution involved decentralisation of authority so that
employees at low levels in the hierarchy had authority to decide on issues
within their control. The issues of how much to centralise or decentralise the
authority to make decisions offer a basic design challenge for all organisations.
Centralization vs Decentralisation of Authority
Authority gives one person the power to hold other people accountable for
their actions and the right to make decisions about the use of organisational
resources. It is possible to design an organisation in which managers at the top
of the hierarchy have all power to make important orders and have no authority
to initiate new actions or use resources for purposes that they believe are
important. When the authority to make important decisions is retained by
managers at the tip of the hierarchy, authority is said to be highly centralised.
By contrast, when the authority to make important decisions about
organisational resources and to initiate new projects is delegated to managers at
all levels in the hierarchy, authority is highly decentralised.
Centralisation and decentralisation have certain advantages and disadvantages.
Reasons to Centralize Authority
1. Managers must be trained to make the decisions that go with delegated
authority. Formal training programmes can be quite expensive, which can
more than offset the benefits.
2. Many top managers are accustomed to make decisions and resist delegating
authority to their subordinates. Consequently, they may perform at lower
levels of effectiveness because they believe that delegation of authority
involves losing control.
3. Administrative costs are incurred because new or altered accounting and
performance systems must be developed to provide top management with
information about the effects of their subordinates’ decisions. When lower
levels of management have authority, top management must have some
means of reviewing the use of that authority. Consequently, they typically
create reporting systems that inform them of the outcomes of decisions
made at lower levels in the organisation.
4. The most pragmatic reason to centralise is that decentralisation means
duplication of functions. Each autonomous unit must be truly self-
supporting to be independent. But that involves a potentially high cost of
duplication. Some organisations find that the cost of decentralisation
outweighs the benefits.
Reasons to Decentralise
1. Relatively high delegation of authority encourages the development of
professional managers. Organisations that decentralise authority enable

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managers to make significant decisions, to gain skills, and to advance in the Notes
company. By virtue of their right to make decisions on a broad range of
issues, managers develop expertise that enables them to cope with
problems of higher management. Managers with broad decision-making
power often make difficult decisions. Consequently, they are trained for
promotion into positions of even greater authority and responsibility.
2. High delegation of authority can lead to a competitive climate within the
organisation. Managers are motivated to contribute in this competitive
atmosphere since they are compared with their peers on various
performance measures. A competitive environment in which managers
compete on sales, cost reduction and employee development targets can be
a positive factor in overall organisational performance.
3. Managers who have relatively high authority can exercise more autonomy,
and thus satisfy their desires of participating in problem-solving. This
autonomy can lead to managerial creativity and ingenuity which contribute
to the adaptiveness and development of the organisation and managers.
Decentralisation of authority has its benefits, but these benefits are not without
costs. Organisations that are unable or unwilling to bear these costs will find
reasons to centralise authority. Therefore, organisations must choose the
appropriate balance between centralisation and decentralisation. The ideal
situation is a balance between centralisation and decentralisation of authority
so that middle and lower managers who are at the scene of the action are
allowed to make important decisions and top managers’ primary responsibility
becomes managing long-term strategic decisions-making. The result is a good
balance between long-term strategy-making and short-term flexibility and
innovation, as lower level managers respond quickly to problems and changes
in the environment as they occur. Decision about how to distribute decision-
making authority in an organisation change as the organisation changes, i.e. as
it grows and differentiates.

To maintain balancing authority, decisions must be made on an

on-going basis and is one part of the managerial task.

Learning Activity
Try to find out the companies who adopt decentralised systems of
authority.

2.5.4 Standardisation and Mutual Adjustment

Written rules and standard operating procedures (SOPs) and unwritten values
and norms help to control behaviour in organisations. They specify how an

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Notes employee is to perform his or her organisational role and they set forth the
tasks and responsibilities associated with that role.
The challenge facing organisations is to design a structure that achieves the
right balance between standardisation and mutual adjustment. Many
organisations complain that employees tend to follow written and unwritten
guidelines too rigidly instead of adapting them to meet the needs of the
particular situation.
Standardisation: Standardisation is conformity to specific models defined by
sets of rules and norms that are considered proper in a given situation.
Mutual Adjustment: Mutual adjustment is the process through which people
use their judgment rather than standardised rules to address problems, guide
decision-making and promote coordination. The right balance between the two
– standardisation and mutual adjustment – is needed to make some actions
predictable so that the basic organisational tasks and goals are achieved and yet
it gives employees the freedom and flexibility to respond to changing situation
creatively without bothering much of conformity to a defined set of rules and
norms. The design challenge facing managers is to find a way of using rules
and norms to standardise behaviour while at the same time, allowing for
mutual adjustment to provide employees with the opportunity to discover new
and better ways of achieving organisational goals.
The design challenge facing managers is to find a way of using rules and
norms to standardise behaviour while at the same time allowing for mutual
adjustment to provide employees with the opportunity to discover new and
better ways of achieving organisational goals. Mangers facing the challenge of
balancing the need for standardisation against the need for mutual adjustment
need to keep in mind that in general, people at higher levels in the hierarchy
and in functions that perform complex, uncertain tasks rely more on mutual
adjustment than on standardisation to coordinate their actions.
Mintzberg proposed that the purpose of organisational design was to
coordinate activities and suggested a range of coordinating mechanism that are
found in operating organisation. Mintzberg described five major ways in which
tasks are coordinated:
1. By Mutual Adjustment: Coordination by mutual adjustment simply means
that workers use informal communication to coordinate with one another.
2. By Direct Supervision: Coordination by direct supervision means that a
manager or supervisor coordinates the actions of workers.
3. By Standardisation of Worker Skill: We can standardise the worker skills
that are inputs to the work process.
4. Work Processes: The work process can also be standardise and used to
transform inputs into outputs.

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5. Output: We can standardise the outputs, the products or services or the Notes
performance levels expected of workers.

Managers facing the challenge of balancing the need for

standardisation against the need mutual adjustment need to keep in mind
that, in general, people at higher levels in the hierarchy and in functions that
perform complex, uncertain tasks rely more on mutual adjustment than on
standardisation to coordinate their actions.

2.5.5 Mechanistic and Organic Structure

Each design challenge has implications for how an organisation as a whole and
the people in the organisation behave and perform. Useful concepts for
addressing the way in which management’s responses to the challenges
collectively influence how an organisational structure works are the concepts
of mechanistic structure and organic structure.
Most authorities on the subject believe that organisations need to be able to
adapt to changes in the technology. If the rate of change in technology is slow,
the most effective design is “Mechanistic”. The most effective design is
“Organic” if technology is changing rapidly because it allows more flexibility
and faster decision making to react to the change.
Mechanistic Structure
A mechanistic structure is primarily hierarchical in nature, interactions and
communications are mostly vertical, instructions come from the boss,
knowledge is concentrated at the top and continued membership requires
loyalty and obedience. Mechanistic structures are designed to induce people to
behave in predictable, accountable ways. Decision-making authority is
centralised, subordinates are closely supervised, and information flows mainly
in a vertical direction down a clearly defined hierarchy. In a mechanistic
structure, the tasks associated with a role are also clearly defined. There is
usually a one-to-one correspondence between a person and a task. Each person
is individually specialised and knows exactly what he or she is responsible for
and behaviour inappropriate to the role is discouraged or prohibited.
Organic Structure
An organic structure is set up like a network; interactions and communications
are horizontal, knowledge resides wherever it is most useful to the
organisations, and membership requires a commitment to the organisation’s
tasks. Roles are loosely defined – people perform various tasks and continually
develop skills in new activities. Organic structures are at the opposite end of
the organisational design spectrum from mechanistic structures. Organic
structures promote flexibility, so people initiate change and can adapt quickly
to changing conditions.

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Notes The Figure 2.3 shows the task and role relationship in a mechanistic structure
and in an organic structure.

MECHANIC STRUCTURE ORGANIC STRUCTURE

A B C A B C

X Y Z
X Y Z

Roles Roles

Tasks
Tasks

In an organic structure, a person

In a mechanistic structure, a in a role is assigned to a specific
person in a role specialise in task or set of tasks. However, the
a specific task or set of tasks. person is able to learn new tasks
There is individual and develop new skills and
specialisation in a capabilities. Organic structure
mechanistic structure. always has joint specialisation

Source: Gareth R Jones (2005), “Organizational Theory, Design and Change – Text and Cases” (4th Edition), Pearson
Education (Singapore) Pvt. Ltd Indian Branch, New Delhi, Page 142.

Figure 2.3: Task and Role Relationship in a Mechanistic and Organic Structure

Characteristics of Mechanistic and Organic Organization Design

The Table 2.2 shows the characteristics of Mechanistic and Organic
Organisation Design.
Table 2.2: Characteristics of Mechanistic and Organic Organisation Design
Characteristic Mechanistic Organic
Structure Hierarchical Network based on interests
Interactions, communication Primarily vertical Lateral throughout
Work directions, instructions From supervisor Through advice, information
Knowledge, information Concentrated at top Throughout
Membership, relationship with Requires loyalty, Commitment to task, progress,
organisation obedience expansion

Mechanistic structure is designed to induce people to behave in predictable,

accountable ways. There is usually a one-to-one correspondence between a
person and a task. Each person is individually specialised and knows exactly
what he or she is responsible for, and behaviour inappropriate to the role is
discouraged or prohibited. Organic structures are at the opposite end of the

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organisational design spectrum from mechanistic structures. Organic structures Notes

promote flexibility, so people initiate change and can adapt quickly to
changing conditions. The design choices that produce mechanistic and organic
structures are contrasted in the Table 2.3.
Table 2.3: How the design challenges result in Mechanistic or Organic Structures

MECHANISTIC STRUCTURE RESULT ORGANIC STRUCTURES RESULT

WHEN AN ORGANIZATION MAKES WHEN AN ORGANIZATION MAKES
THESE CHOICES THESE CHOICES

 Individual Specialization.  Joint Specialization.

Employees work separately and Employees work together and
specialize in one clearly defined coordinate their actions to find
task. the best way of performing a
 Simple Integrating task.
Mechanisms.  Complex Integrating
Hierarchy of authority is clearly Mechanisms.
defined and is the major Task forces and teams are the
integrating mechanism. major integrating mechanisms
 Centralization.  Decentralization.
Authority to control tasks is kept Authority to control tasks is
at the top of the organization. delegated to people at all levels
Most communication is vertical. in the organization. Most
 Standardization. communication is lateral.
Extensive use is made of rules  Mutual Adjustment
and SOPs to coordinate tasks, Extensive use is made of
and work process is predictable. face-to-face contact to
coordinate tasks, and work
process is relatively
unpredictable.

Source: Gareth R Jones (2005), “Organizational Theory, Design and Change – Text and Cases” (4th Edition), Pearson
Education (Singapore) Pvt. Ltd Indian Branch, New Delhi, Page 141.

Organic and mechanistic structures have very different implications for the
way people behave. Is an organic structure better than a mechanistic structure?
The answer to this question lies on the organisation we are speaking about,
because both the structures have their own advantages as well as limitations. A
mechanic structure is necessary for the armed forces while if the organisation
is a high-tech company where innovation and creativity is necessary, we would
prefer an organic structure.

Learning Activity
Make a presentation on the need for mechanistic structure.

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Notes
1. Microsoft and General Motors have centralized systems
of authority.
2. Organic structures are decentralised, the decision-
making authority is distributed throughout the
hierarchy, and people assume the authority to make
decisions as organisational needs dictate.

SUMMARY
 Organisational design refers to the process of coordinating the structural
elements of organisations in the most appropriate manner.
 There are three distinct schools; the classical, the neoclassical and the
contemporary.
 The classical school represented by Max Weber, F W Taylor and Henry
Fayol; the proponents of formal hierarchy, clear set of rules and
specialisation of labour.
 The neo-classical represented by organisational scholar such as McGregor,
Argyris and Likert. They emphasize on employee satisfaction along with
economic effectiveness and call for the designing of flat hierarchical
structure with a high degree of decentralisation.
 The proponents of contemporary design emphasize on the environmental
factors in which the organisations are operating.
 These determinants of organisational design are Strategy and Goals,
Environment, Technology, Size/life cycle and Culture.
 Organizational designs fall into two broad categories: Traditional and
Contemporary.
 Traditional designs contain simple structure, functional structure, and
divisional structure whereas Contemporary designs include team structure,
matrix structure, project structure, boundary-less organization, and the
learning organization.
 The basic challenges of organisational design are to take care that the
control and co-ordination is not reduced and at the same time, motivate the
people so that the organisation is able to grow and achieve its objectives.

KEYWORDS
Organisational Design: Organisational design refers to the process of
coordinating the structural elements of organisations in the most appropriate
manner.
Centralisation: Centralisation refers to the location of decision-making
authority in the hierarchy of the organisation.

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Integration: Integration is the process of achieving unity of effort among the Notes
various subsystems in the accomplishment of the organisation’s task.
Differentiation: Differentiation is the process by which an organisation
allocates people and resources to organisational tasks and establishes the task
and authority relationships that allow the organisation to achieve its goals
Standardisation: Standardisation is conformity to specific models defined by
sets of rules and norms that are considered proper in a given situation.
Mutual Adjustment: Mutual adjustment is the process through which people
use their judgment rather than standardised rules to address problems, guide
decision-making and promote coordination.

SELF-ASSESSMENT QUESTIONS
Short Answer Questions
1. What do you understand by organisational design?
2. Discuss the factors influencing organisational design?
3. What are the different determinants of design?
4. Discuss the traditional category of organizational designs.
5. What are the components of organisational design?
6. Write short note on integration.
7. Why is it necessary for some organisations to decentralise the authority?
8. What do you mean by standardisation?
9. Why is it necessary to have a right balance between standardisation and
mutual adjustment?
10. Explain differentiation.
Long Answer Questions
1. What are the two broad categories of organisational design? Discuss
categories of contemporary designs.
2. Discuss the basis challenges of organisational design.
3. “The most effective design is “Organic” if technology is changing rapidly”.
Discuss.
4. What are the major components which influence the design of effective
organization structure?
5. Differentiate between centralisation and decentralisation of authority.

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Notes FURTHER READINGS

Zimmerer Christian, Stockert Christoph (2013),”Organisation

Design in International Business”, GRIN Verlag
Myers Paul S (2009),”Knowledge Management and
Organisational Design”, Routledge
Olivier Andrew (2012),”Organisational Design: What Your
University Forgot to Teach You”, Xlibris Corporation
Nel René (2009), “Puppets or People: People and Organisational
Development: an Integrated Approach”, Juta and Company Ltd

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Notes
LESSON 3 - ORGANISATIONAL DESIGN - II

CONTENTS
Learning Objectives
Learning Outcomes
Overview
3.1 Technological and Environmental Impacts on Design
3.1.1 Technological Impact
3.1.2 Environmental Impact
3.2 Importance of Design
3.3 Success and Failures in Design
3.4 Implications for Managers
Summary
Keywords
Self-Assessment Questions
Further Readings

LEARNING OBJECTIVES
After studying this lesson, you should be able to:
 Discuss the environmental and technological impact on organisational
design
 Understand the importance of organisational design
 Recognise success and failures in organisational design
 Discuss the implications of organisational design for managers

LEARNING OUTCOMES
Upon completion of the lesson, students are able to demonstrate a good
understanding of:
 the planning is done in advance, the process of work is predictable and
controllable in a technical sense, but at the same time, there is possibility of
major breakdown of the system.
 organizational design choices made in the early stages of a business can
either help or hinder growth plans.

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Notes  the significant to have a clear map of managerial responsibility and

accountability to keep the company running smoothly.

OVERVIEW
In the last lesson you studied about the organisational design and basic
challenges of organisational design.
Every organisation constitutes of certain basic parts that include people who
perform, supervise, and plan besides those who render support services and
technical advice. Studying the structure or design of an organisation means
analysing how these parts are put together, who reports to whom, the degree of
centralisation or decentralisation, the extent of rules, policies, regulations, and
procedures in the organisation. The building of the early stage structure of an
organisation may be based on the conditions prevailing in the society and the
industry characteristics prevailing at the time and the personality of the founder
(entrepreneur). As the organisations grow in their size from small to large over
a period of time, the various factors such technology, internal and external
environment influence the organisational design.
In this lesson, you will study about how technological and environmental
impacts on organisational design. Also you will know the importance of
design.

3.1 TECHNOLOGICAL AND ENVIRONMENTAL IMPACTS

ON DESIGN
The factors such technology and environment has following impacts on
organisational design:
3.1.1 Technological Impact
In this technological era, the technological factors have a substantial impact on
the organisational design. Basically, there are three types of technology design
include batch production, mass production and continuous production. Each of
these affects types the design decisions.
These types are explained below:
Batch Production
Under this system, careful planning and coordination are required for machines
as well as among workers otherwise workers may be idle while waiting for
whole batch to finish its previous operation. If batches are small then unit cost
will remain relatively high.
In the Batch production process, it requires mutual adjustment and face to face
communication with co-workers and also with customers. The best suited
design to be adopted by small batch technology is an organic structure in which

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workers and managers work together in coordination with each other to meet Notes
the changing work demands.
Such methods require that the work for any task is distributed into parts or
operations and that each operation is completed throughout the whole batch
before the next operation is undertaken. Goods are produced according to the
customer’s specification.
Those organizations which are following batch production system have a
relatively flat structure, probably three levels in the hierarchy, and decision-
making is the decentralized into small teams.

Batch production occurs when many similar items are produced

together. Each batch goes through one stage of the production process
before moving onto next stage like in case of cricket bat manufacturing.

Mass Production
Under this system, products are produced in large quantities. The salient
feature of this type of production is that conversion process, and the operation
sequence is standardised i.e. industrial products are produced on a large scale.
Special purpose automatic machines are used to perform standardised
operations.
Process of decision making becomes centralised and hierarchy becomes taller
(four levels). Vertical communication is undertaken to control the process of
wor. Organisational structure becomes taller and wider. A mechanistic design
becomes essential to control work activities in mass production.
Continuous Production
Another name for the continuous production is flow production. It is defined as
a method of organization such that task is worked on continuously or,
alternatively as a system whereby the processing of material is continuous and
progressive. Fixed path material handling equipment is used because of the
pre-determined sequence of operations.
As the planning is done in advance, the process of work is predictable and
controllable in a technical sense, but at the same time, there is possibility of
major breakdown of the system. There is a requirement of continuous
monitoring of the operations that is why it is associated with tallest, hierarchy
(six levels).
An excellent example of this type of production is seen with the processing of
oil refining. The ongoing cycle of refining oil leads to the creation of various
types of petroleum-based products, including gasoline and various types of
machine and motor oils.

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Notes

Managers at every level constantly supervise their subordinates’

actions. As the employees work together as a team, mutual understanding
and cooperation become the primary requirement of coordination. An
organic design is most suited for managing continuous or flow process
technology.

3.1.2 Environmental Impact

An organization operates in an external environment as well as internal
environment. Some of the external environmental factors include customers,
competitors, vendors, financial institutions, trade organisations and the
government.
The main features of the environment affecting its structure are environmental
complexity, uncertainty, and time horizon, e.g., a research organisation
operates in an environment affected by a longer time horizon, longer feedback
times and higher uncertainty than those of a manufacturing concern.
Environmental factors may vary in terms of complexity and dynamism.
Complexity means whether characteristics are few and similar or varied and
different.

Remember that if the scale of operations is large and scattered in

different regions, it presents a complex structure. Managing the affairs of
giant sized organisations is very difficult and challenging.

Example: Nestle company presents an example of complex

environment. It has 500 factories in 76 countries and selling its products in
almost every country of the world. It makes variety of products owning 8,500
brands.
On the other hand, a brand operating successfully in India in the food sector in
Gujarat is “Co-operative Milk Marketing Federation”, popularly known as
“Amul”. It is comparatively less complex organisation. It has just 40 brands
and its functioning is mainly confined to India. Managing the functioning of
Nestle is more difficult and complex as compared to Amul.
Dynamism
This means whether the environmental factors remain basically the same or
stable or are fluctuating or unstable. Revision in organisational design is
required, if the characteristics are unstable.

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Environmental Richness Notes

It is the factor relating to the resources available for the organisation. If the
resources are plenty and environment is rich, organisations need not to
compete for resources. In the case of scarcity of resources, uncertainty is high
because the organisations have to compete with each other for the scarce
resources.
Strategy Choices
Strategic decisions taken by the top management also affects the organisational
design decisions. For meeting the competition, companies formulate different
strategies in order to build and sustain competitive advantage different
strategies followed at different times affect organisational design.
Low Cost
An organization can adopt low cost strategy to gain competitive advantage.
Such a strategy aims at selling standardized products at a lower cost which can
attract customers to great extent.
The organisation also attains a number of economies of scale in its operations.
The design of the organisation is functional with responsibility and
accountability assigned to various departments at different levels.
Differentiation
In order to produce a distinctive product from its competitors an organization
can produce a unique and altogether a different product. For this purpose, a
different type of product design is adopted by the company.
The customers are ready to pay higher price for such a product which is unique
from others. A differentiation strategy is recommended only after careful
analysis of the customer’s needs and preferences.
The main aim of such strategy is to create permanent customers for the product
by creating interest and loyalty of the customers in the product. Various
features to distinguish one’s product may include superior service, availability
of spare parts, engineering design, longer life and performance of the product
etc.
There are various risks attached with pursuing differentiation strategy, viz., the
distinctive or unique product may not be appreciated by the customers
justifying its higher price. Another risk associated with this strategy is that the
competitors may quickly develop the ways and means to copy the distinctive
features.
The organizations should develop such distinctive features in the product
which cannot be quickly imitated by the competitive firms. A few
organisations have followed differentiation strategy by adopting various
policies, viz., risk insurance offer for shipments, refund on failure to deliver on

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Notes time, door to door pickup and delivery, after sale service, and safe
transportation etc.
Focused
A focused strategy is designed to help an organisation to target a specific niche
with an industry. Such strategies are very effective when the consumers have
distinctive preference or needs and when rival firms are not attempting to
specialize in the same niche market.
The forthcoming risk of such a strategy is that various competitors recognised
the focus strategy and copy the same and market niche may gradually shift
towards a broader market.

3.2 IMPORTANCE OF DESIGN

Proper organizational design is the foundation on which all company
operations are built, including such vital factors as the grouping of employees
within different departments and the formal managerial hierarchies within a
company. Savvy early stage organizational design choices can create a
foundation for success, allowing an organization to develop a strong company
culture, grow in response to increasing demand and adapt to changes in the
marketplace. Following are some importance of organizational design:
Adaptability
Organizational design choices can develop distinct competitive advantages.
Savvy business owners continually monitor changes in their industries and
markets, looking for opportunities to adapt and develop new competitive
advantages. Companies which have taller organizational structures and
complicated bureaucracies can find it tough to adapt changing market
conditions, such as a growing use of lean business models or outsourcing in the
industry. Companies with less complex organizational design can expreience it
easier to shift employees around, rework managerial hierarchies and redesign
job descriptions for existing employees, all of which can increase efficiency or
productivity in response to outside pressures.
Future Growth
Organizational design choices made in the early stages of a business can either
help or hinder growth plans. Organizational designs built to easily
accommodate new managers and employees at different levels of the
organization can add new positions without making significant structural
changes. A company using freelancing telecommuters, for example, can add
large numbers of freelancers with a small increase in the number of managers.
A company that locates all employees in a small office, on the other hand, must
acquire new office space or expand their current office to take on new
employees.

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Company Leadership Notes

Organizational design impacts the leadership structure of a company, setting
forth reporting relationships and lines of authority reaching from the executive
level to the front line. It is significant to have a clear map of managerial
responsibility and accountability to keep the company running smoothly.
Without clear lines of authority, employees in different areas of the company
can become misguided or confused, while others find themselves with an
unreasonably high level of supervision. The ideal leadership structure depends
on the industry a company is in and the personalities of business owners.
Company Culture
The leadership structure in an organization, such design choices can have a
direct and lasting effect on company culture. The grouping of employees in
various departments and the managerial hierarchy impacts the way employees
interact with each other on the job.

Example: An organization designed to make wide use of

telecommuters will result in a company in which workplace relationships are
often formed and strengthened solely through online interactions.

Learning Activity
Make a presentation on the importance of organisational design.

3.3 SUCCESS AND FAILURES IN DESIGN

Following, in the Table 3.1, there are the twenty characteristics of success or
failure in organisation design which can be used as a discussion document with
a leadership teams or with individual leaders. If leaders have answered ‘Yes’ to
most of the first ten questions then an organisation redesign assignment is in a
good position to move forward. On the other hand, if leaders have answered
‘yes’ to most of the questions from 11 to 20, then some preparation work or
changes is required before contemplating a redesign.
Table 3.1: Twenty Characteristics of Success or Failure in Organisational Design
1. There is a pressure from the environment (internal or external) for change.
2. People at the top are demotivated or disruptive.
3. Leadership is provided by a key line executive with a clear goal for change.
4. There is collaborative identification of problems.
5. There is willingness to take risks in new organisational forms
6. There is a realistic long-term perspective.
7. There is willingness to face the situation and work on changing it.
Contd…

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Notes 8. The system rewards people for the effort of changing and improvement, not just for short-tern
results.
9. Changes made show tangible results and quick wins at all levels in the organisation.
10. There is time and resources available to manage the change as well as do the job.
11. There is discrepancy between what managers say and what they do.
12. The organisation has a large number of initiatives going simultaneously.
13. There is confusion between ends and means.
14. There is conflict between what line people need and want and what staff people think the need and
want.
15. There is a lack of co-ordination among a number of different activities aimed at increasing
organisational effectiveness.
16. There is overdependence on experts and specialists (internal and external).
17. A large gap exists between commitment to change at the top of the organisation and the transfer of
this interest to the rest of the organisation.
18. The organisation tries to fit a major organisational change into an old organisational structure.
19. There is a desire for a ‘cook book’ solution (e.g. ‘If we adopt The Balanced Business Scorecard all
our problems will be solved’).
20. The organisation applies an intervention or strategy inappropriately.

Learning Activity
Conduct a survey in at least 5 companies of your choice and try to
find out the success rate of the changes in the organisational
design.

3.4 IMPLICATIONS FOR MANAGERS

Some valuable approaches or implications which the managers should practice
have explained below:
 Agreeing Design Evaluation Criteria: Evaluation criteria explain the
desired capability of a new organisational design, i.e. what the newly
designed organisation must be able to do to be successful. These guide
activities involved in organisational design and are used to objectively
evaluate the relative merits of alternative options. The choice of evaluation
criteria provides a sponsor with explicit control of the outcomes to which
design work should be directed and can help instil wider understanding of
why the change is being sought.
 Identifying an Operating Model: An operating model is an abstract
representation that in which way the organisation operates, or could
operate, which illustrates the interconnections between the essential
functions needed to deliver value. It might also set out where governing
and operating control lies, and key management and work processes.
 A Focus on Governance: Governance is about who has ownership of the
operating model and in what way they control its outcomes and

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effectiveness. An organisation or sub units are rarely successful without Notes

well designed and executed governance. Getting this right provides a sound
foundation for other aspects of the organisational design to be effective and
robust over the long term.

Managers should do governance for all changes even after

implementing them in the organizational design.

Intimate Relationship

D olly D’Souza was an IV semester MBA student from the

Aloysius Institute of Business Management. She was specializing
in marketing and had to do a summer project as part fulfillment of
the MBA degree program. Rohan Vas is Marketing Manager of
Mangalore Chemicals Limited (MCL). Her seniors had told her many
stories of Rohan and the way he was intimately involved with girl
students. The grapevine also indicated that Rohan sought a relationship
with two girls last year and ditched them after sexually abusing them. The
manager of the accounting department who is Dolly’s neighbour, had
warned her to be careful of Rohan.
Dolly was extremely apprehensive about meeting Rohan after hearing all
these rumours about him. But she had to get the project done and therefore
decided that she would go and discuss the project with him. On the first day
she met Rohan, he was extremely warm and kind to her. He explained
things out to her and urged her to come to him any time with questions,
problems or concerns.
It was three months now and Dolly had found that Rohan was an extremely
warm and kind human being. She was going to thank him for all the help he
had extended to her during her summer project. She was pleasantly
surprised when Rohan offered her a job as marketing executive in the
company. Dolly was delighted at the offer as she had not got any offer of
employment and her MBA programme was over and she was awaiting
results. Dolly thanked Rohan as she wanted to be independent and not
depend on her parents for money moreover she could save some thing for
her marriage expenses instead of being a burden on her parents. She was
extremely thankful to Rohan and warmly shook hands with him. Rohan was
extremely warm and told Dolly that he was impressed by her credentials. He
also promised to make her permanent within six months and an unequalled
career progress. Dolly was so excited that she went very close to Rohan and
Contd...

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Notes put her arm around him and hugged him. Rohan then urged her to come to
him at any time with questions, problems and concerns. With that he put his
arm around her waist and they walked towards the door of his office. As she
was leaving, he gave her a peck on her cheek.
Dolly was frightened by the prospect of Rohan developing an intimate
relationship with her. She was afraid of the impact that will have on her
marriage prospects as her parents have already started looking for a suitable
boy for her. Dolly was sure that both personally and professionally, she did
not want a romantic relationship with her boss Rohan. It seemed to her that
any short-term benefits would be more than outweighed by long-term
consequences.
Dolly decided that she would keep her relationship with Rohan strictly
businesslike. She would work very hard at her marketing assignments, but
would keep the relationship cool and impersonal.
After about 4 months at the job, Dolly had become more and more
comfortable with her relationship with Rohan. He had now started asking
her to accompany him for lunch. On several occasions in the past, she had
refused but today, she had reluctantly agreed. As they were having lunch,
Rohan hinted at the prospects of making her a permanent staff of the
company “within two months”. Dolly was delighted but Rohan used this
opportunity to touch her in an inappropriate way. Though Dolly attempted
to deal with that by keeping her physical distance and pushing him mildly
when he came too close, she was afraid of telling him directly as she could
lose her chance of getting conformed on the job.
Rohan had invited her to accompany him on a two-day trip for a
presentation of a marketing plan at the Ooty branch. Though she wanted to
refuse, it was an important assignment and they were others in the
department who would be too willing to go if she dropped out. Though
Dolly had her concerns, she decided to go feeling that if Rohan acted funny,
she would point blank tell him that she was totally uninterested in any kind
of intimate relationship. But things at Ooty were quite different. Though
they had separate hotel rooms in Ooty, Rohan had come over to her
apparently for some discussions. As they were discussing, all of a sudden,
he fondled her breast and kissed her on her lips. Dolly was shocked, but
when she asked him to get out, he told her rather coldly that the whole
company knew why they had gone to Ooty. Dolly realised that there would
be a scandal if she did not agree to Rohan’s misadventure. Rohan lovingly
put his hand around her and told her that he was very interested in her and
that he would speak to her parents begging for her hand.
Dolly now felt that marrying Rohan was after all not that bad. She allowed
him to do as he pleased with her and that night, they had sex for the first
time.
Contd...

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After the Ooty incident, Dolly felt that after all that had happened between Notes
them, marrying Rohan was the only way to get of this situation, as it would
be very difficult for her parents to get a good proposal for her if the Ooty
incident was projected in a wrong way.
After coming back to Mangalore, she satisfied Rohan with sexual favours so
that he would become happy and consent to meet her parents and discuss
with them the future of their relationship. But every time she discussed
marriage, Rohan became very cold and even started avoiding her. When
Dolly confronted him, she was shocked when he told her “Why should I get
married when I can get what I wanted without marriage. Moreover, by
making you permanent, I have repaid you for your sexual favour and I don’t
owe you marriage”. Dolly was shattered as their ‘affair’ was the hot topic in
the company and she was projected as a very cheap girl who would go any
extent to get a permanent job. Marriage would at least get her some
respectability.
Questions
1. Do you approve or disapprove of the way Dolly handled herself? Why?
2. Are cultural factors responsible for putting Dolly in the situation that she
finds herself in today?
3. Why do you suppose Rohan seems so cold to Dolly and not eager to
have lasting relationship with her?
4. What do you predict will happen next? Why?

1. Mass production is also called as repetitive flow

production, series production or serial production as it
the process of creating large numbers of similar
products efficiently.
2. Organizational design can influence the degree to
which front-line employees are supposed to solve
complex problems on their own rather than involving a
manager.

SUMMARY
 Every organisation constitutes of certain basic parts that include people
who perform, supervise, and plan besides those who render support
services and technical advice.
 In this technological era, the technological factors have a substantial impact
on the organisational design

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Notes  In the Batch production process, it requires mutual adjustment and face to
face communication with co-workers and also with customers.
 An organization operates in an external environment as well as internal
environment.
 The main features of the environment affecting its structure are
environmental complexity, uncertainty, and time horizon,
 Strategic decisions taken by the top management also affects the
organisational design decisions.
 In order to produce a distinctive product from its competitors an
organization can produce a unique and altogether a different product.
 Proper organizational design is the foundation on which all company
operations are built, including such vital factors as the grouping of
employees within different departments and the formal managerial
hierarchies within a company.
 Evaluation criteria explain the desired capability of a new organisational
design, i.e. what the newly designed organisation must be able to do to be
successful.

KEYWORDS
Batch Production: In batch production goods are produced according to the
customer’s specification.
Mass Production: Under this system, products are produced in large
quantities. The salient feature of this type of production is that conversion
process, and the operation sequence is standardised
Continuous Production: It is defined as a method of organization such that
task is worked on continuously or, alternatively as a system whereby the
processing of material is continuous and progressive.
Dynamism: This means whether the environmental factors remain basically the
same or stable or are fluctuating or unstable.
Differentiation: Differentiation is a strategy to make a product or brand stands
out as a provider of unique value to customers in comparison with its
competitors.
Adaptability: Adaptability is the ability of an entity or organism to alter itself
or its responses to the changed circumstances or environment.

SELF-ASSESSMENT QUESTIONS
Short Answer Questions
1. Discuss the impact of environment on the organizational design.

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2. Explain batch production. Notes

3. Explain continuous production.
4. Explain the differentiation strategy.
5. What do you mean by focused strategy?
6. Explain how the managers could evaluate the success and failure of
organisational design.
7. Write short note on mass production.
8. What do you understand by success of organisational design?
9. “Organizational design choices can develop distinct competitive
advantages”. Discuss
10. Discuss low cost strategy with the help of examples.
Long Answer Questions
1. Discuss the impact of technology on the organizational design.
2. Differentiate between the three types of technology design.
3. What do you understand by mass production? Discuss the industries for
which mass production is suitable.
4. “Environmental factors may vary in terms of complexity and dynamism”.
Discuss
5. What are the implications of organisational design for managers?

FURTHER READINGS
Moshal B.S (2009), “Organisational Theory and Behaviour”, Ane Books Pvt
Ltd.
Mary Jo Hatch (2012), “Organization Theory: Modern, Symbolic and
Postmodern Perspectives”, Oxford University Press
Shukla Madhukar (2008), “Understanding Organisations: Organisational
Theory and Practice in India”, PHI Learning Pvt. Ltd.
Myers Paul S (2009), “Knowledge Management and Organisational Design”,
Routledge

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 Lesson 4 - Organisational Culture

Notes
UNIT III
LESSON 4 - ORGANISATIONAL CULTURE

CONTENTS
Learning Objectives
Learning Outcomes
Overview
4.1 Understanding Culture
4.2 Strong and Weak Culture
4.3 Types of Culture
4.4 Importance of Culture
4.5 Creating and Sustaining Culture
4.6 Culture and Strategy
4.7 Implications for Practicing Managers
Summary
Keywords
Self-Assessment Questions
Further Readings

LEARNING OBJECTIVES
After studying this lesson, you should be able to:
 Understand the concept of culture.
 Differentiate between strong and weak culture
 Know the types of culture
 Explain the importance of culture
 Explain about the creating and sustaining culture
 Discuss the culture and strategy
 Understand the implications for practicing managers

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Notes LEARNING OUTCOMES

Upon completion of the lesson, students are able to demonstrate a good
understanding of:
 the culture, it involves the earning and transmitting of knowledge, beliefs
and patterns of behaviour over a period of time.
 the culture of an organization decides how the employees behave amongst
themselves as well as the people outside the organization.
 the change management programme in Mergers and Acquisition involves
among other things the change in attitude and behaviour.

OVERVIEW
In the previous lesson was focused on organisational design in which you
studied its importance and technological & environmental impacts on design.
When we talk about culture, we are typically referring to the pattern of
development reflected in a society’s system of knowledge, ideology, values,
laws, social norms and day-to-day rituals. Accordingly, culture varies from one
society to another. The word “culture” has been derived metaphorically from
the idea of “cultivation” the process of tilling and developing land. Thus,
culture can be considered as a constellation of factors that are learned through
our interaction with the environment.
The organizational culture is a system of shared beliefs and attitudes that
develop within an organization and guides the behaviour of its members. There
are clear-cut guidelines as to how employees are to behave generally within
organization. The employees need to learn how the particular enterprise does
things. Organizational Culture is one of the main drivers of employee
commitment and engagement. According to Donna Wilson VP-HR of Vanity
“Employees want to know the organization was truly going to live up to its
values and stay true to its commitments”. Organizational culture is the basic
pattern of shared assumptions, values and beliefs considered to be the correct
way of thinking about and acting on problems and opportunities facing the
organization. In this lesson you will study about the concept of organisational
culture and its type. Further you will also able to understand the strategies for
managing organisation culture.

4.1 UNDERSTANDING CULTURE

A few definitions on the term organizational culture are given below:
According to Larry Senn, “Corporate culture consists of the norms, values and
unwritten rules of conduct of an organization as well as management styles,
priorities, beliefs and inter-personal behaviour that prevail. Together, they
create a climate that influences how well people communicate, plan and make
decisions”.

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 Lesson 4 - Organisational Culture

Joanne Martin defines cultures in organization in the following words, “As Notes
individuals come into contact with organizations, they come into contact with
dress norms … the organization’s formal rules and procedures, its formal codes
of behaviour rituals …. And so on. These elements are some of the
manifestations of organizational culture”.
Edgar Schein defines organizational culture, as “a pattern of basic assumptions
– invented, discovered or developed by a given group as it learns to cope with
its problems of external adaptation and internal integration – that has worked
well enough to be considered valuable and, therefore to be taught to new
members as the correct way to perceive, think and feel in relation to those
problems”.
According to Hersey, Blanchard and Johnson “Organizational culture is itself a
complex phenomenon with many interpretations … organizational culture is
shared basic assumptions, or beliefs, about how to cope with the two
fundamental problems that all groups and organizations face: survival and
adaptation to the external environment and the internal integration and
coordination of organizational functioning”.
From the above definitions, culture may be considered as the general pattern of
behaviour, shared beliefs, and values that organizational members have in
common. Culture involves the earning and transmitting of knowledge, beliefs
and patterns of behaviour over a period of time. Culture can be inferred from
what people say, do, and think within an organizational setting. It often sets the
tone for the organization and establishes implied rules for the way people
should behave.

It is important to recognize that culture is learned and helps

people in their efforts to interact and communicate with others in the
society. When placed in a culture where values and beliefs are different,
some people have a great deal of difficulty in adjusting.

Basic Elements of Culture

From the above definitions, it is clear that culture is how an organization has
learned to deal with its environment. It is a complex mixture of assumptions,
behaviours, myths and other ideas that fit together to define what it means to
work in a particular organization. Edgar H Schein suggests that culture exists
on three levels: artifacts, espoused values and underlying assumptions. The
Figure 4.1 explains the three levels.

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Notes
Visible organizational structures and processes (hard to
ARTEFACTS decipher)

ESPOUSED Strategies, goals, philosophies (espoused justification)

VALUES

Unconscious, taken-for-granted beliefs, perceptions,

BASIC thoughts, and feelings (ultimate source of values
UNDERLYING
ASSUMPTIONS

Source: Edgar H Schein, “Organizational Culture and Leadership” (2nd Edition), Jossey-Bass Publishers, San
Francisco (1992), page 17.

Figure 4.1: Schein’s Levels of Culture

1. Artifacts: According to Schein, Artifacts are the first level of
organizational culture. Artifacts are the things that come together to define
a culture and reveal what the culture is about to those who pay attention to
them. They include products, services, and even behaviour patterns of the
members of an organization. Schein has defined Artifacts as things that
“one sees, hears, and feels when one encounters a new group with an
unfamiliar culture”. Artifacts are observable symbols and signs of an
organization’s culture, such as the way visitors are greeted, the physical
layout, and how employees are rewarded. Understanding an organisation’s
culture requires painstaking assessment of many artifacts because they are
subtle and often ambiguous.
2. Espoused Values: Espoused values are the second level of organizational
culture. Values are things worth doing, or the reasons for doing what we
do. Values are the answers to the “why” questions. For example, why are
you reading this book? To know more about Organization Behaviour. Why
is that important? To be a better HR manager. Why do you need more
money? To fulfil my wife’s desire to own a farm house. Such questions go
on and on, until you reach the point where you no longer want something
for the sake of something else. At this point, we have arrived at a value.
Corporations have values, such as size, profitability, or making a quality
product.

Espoused values are the reasons that we give for doing what
we do. Schein argues that most organizational cultures can trace their
espoused values back to the founders of the culture.

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3. Basic Assumptions: The third level of organizational culture is the beliefs Notes
that organization members take for granted. Culture prescribes “the right
way to do things” at an organization, often through unspoken assumptions.
Assumptions, values and beliefs that represent organizational culture
operate beneath the surface. They are not directly observed, yet their effects
are everywhere. Assumptions represent the deepest part of organizational
culture because they are unconscious and taken for granted. People depend
on them to guide their perceptions and behaviour. A value is more stable,
long-lasting belief and is based on underlying assumptions. Espoused
values guide us define what is right or wrong or good or bad in the world.
Values are socially desirable. So what people say they value are the
espoused values and may differ from what they truly value (enacted value).

Espoused values do not represent an organization’s culture.

They establish the public image that the top leadership in the
organizations want to display. Enacted values are values-in-use that
guide individual behaviour in the workplace.

4.2 STRONG AND WEAK CULTURE

Consider any organization, it has a culture, but you will find that some Has
strong cultures and some has weak cultures.

Example: IBM has a more tightly held culture than a conglomerate of

newly acquired companies or a very young firm such as Google. Harvard
University has a more cohesive culture than many newer universities offering
on-line Internet-based classes. In a strong culture, the behaviour of members is
constrained by mutual accord rather than by command or rule.
It is becoming famous to classify cultures as strong or weak. The evidence
recommends that strong cultures have more impact on employee behaviour and
are more directly related to lower turnover. Research evidence also
recommends that a strong culture helps workers march to the same drummer,
creates high levels of employee loyalty and encouragement and provides the
company with structure and controls without the need for an innovation-stifling
bureaucracy.
A strong organisational culture refers to those organisations in which beliefs
and values are shared relatively consistently throughout an organisation. Strong
organisational cultures have a great impact on the behaviour of organisational
members and hence it can be considered as a powerful tool for guiding
behaviour.

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Notes Brown (1998, p 226) believes that strong organisational culture can enable an
organisation to achieve high performance based on the following reasons:
 A strong organisational culture facilitates goal alignment.
 A strong organisational culture leads to high levels of employee
motivation.
 A strong organisational culture is better able to learn from its past.
On the other hand, a weak culture refers to those organisations which have
organisational members who do not subscribe to the shared beliefs, values and
norms. It is difficult for organisational members in a weak culture to identify
with the organisation’s core values and goals. As a result, different departments
within such an organisation uphold different beliefs that do not necessarily
address the core goals of the organisation. Weak cultures have a negative
influence on employees because they are directly related to increased turnover.
In essence, the fundamental strength of the organisation’s culture is determined
by how weak or strong it is.

Learning Activity
Visit some government and private organisations and compare
their organisational culture. Also identify whether they have strong
or weak culture.

4.3 TYPES OF CULTURE

The practices, principles, policies and values of an organization constitute its
culture. The culture of an organization decides how the employees behave
amongst themselves as well as the people outside the organization. Following
are the various types of organisational culture.
 Normative Culture: In such a culture, the norms and procedures of the
organization are predefined and the rules and regulations are set as per the
existing guidelines. The employees behave in an ideal way and strictly
follow to the policies of the organization. No employee dares to break the
rules and sticks to the already laid policies.
 Pragmatic Culture: In a pragmatic culture, more importance is placed on
the clients and the external parties. Customer satisfaction is the main
purpose of the employees in a pragmatic culture. Such organizations treat
their clients as Gods and do not follow any set of rules. Every employee
strives hard to satisfy his clients to expect maximum business from their
side.
 Academy Culture: Organizations following this culture hire skilled
individuals. The roles and responsibilities are delegated according to the
back ground, educational qualification and work experience of the
employees. Organizations following academy culture are very particular

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about training the existing employees. They confirm that various training Notes
programmes are being conducted at the workplace to hone the skills of the
employees. The management makes sincere efforts to upgrade the
knowledge of the employees to improve their professional competence.

The employees in an academy culture stay to the organization for a

longer duration and also grow within it. Educational institutions,
universities, hospitals practice such a culture.

 Baseball team Culture: A baseball team culture considers the employees as

the most treasured possession of the organization. The employees of such
organisations are the true assets, who have a major role in its successful
functioning. In such a culture, the individuals always have an upper edge
and they do not bother much about their organization.

Example: Advertising agencies, event management companies,

financial institutions follow such a culture.
 Club Culture: In the club culture, organizations are very particular about
the employees they recruit. The individuals are employed as per their
experience, specialization, educational qualification and interests. Each one
does what he is best at. The high potential employees are promoted suitably
and appraisals are a regular feature of such a culture.
 Fortress Culture: The employees of the organizations which are following
such culture are not very sure about their career and longevity. The
employees are terminated if the organization is not performing well.
Individuals suffer the most when the organization is at a loss. Stock
broking industries follow such a culture.
 Tough Guy Culture: Feedbacks are essential in such culture. The
performance of the employees is reviewed regularly and their work is
thoroughly monitored. Team managers are appointed to discuss queries
with the team members and guide them whenever required. The employees
are under constant supervision in such a culture.
 Bet your company Culture: In this culture, organizations take decisions
which involve a huge amount of risk and the consequences are also
unforeseen. The principles and policies of such an organization are
formulated to address sensitive issues and it takes time to get the results.
 Process Culture: In this culture, the employees adhere to the processes and
procedures of the organization. Feedbacks and performance reviews are not
that important in such organizations. The employees stick to the rules and
regulations and work according to the ideologies of the workplace.

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Notes
Example: All government organizations follow such a culture.

4.4 IMPORTANCE OF CULTURE

Every organization has its unique style of working which often contributes to
its culture. Hence organisational culture plays a vital role in organisation’s
achievements. Some of the importance of organisation culture is described
below.
 The culture decides how the employees should interact at their workplace.
A healthy culture inspires the employees to stay motivated and loyal
towards the management.
 The culture of the workplace also goes a long way in encouraging healthy
competition at the workplace. Employees try their level best to perform
better than their fellow workers and receive recognition and appreciation of
the superiors. It is the culture of the workplace which actually encourages
the employees to perform.
 Every organization must have fixed guidelines for the employees to follow
in the organisation. The culture of an organization represents certain
predefined policies which guide the employees and give them a sense of
direction at the workplace. Every individual is clear about his roles and
responsibilities in the organization and know how to finish the tasks before
the deadlines.
 Every organization has unique work culture. It is the organisational culture
which makes organisation distinct from others. The work culture goes a
long way in creating the brand image of the organization. The work culture
contributes to an identity to the organization. In other words, an
organization is known by its culture.
 The organization culture brings all the employees on a common platform.
The employees must be treated equally and no one should feel neglected or
left out at the workplace. It is important for the employees to adjust well in
the organization culture for them to deliver their level best.
 The work culture ties the employees together who are otherwise from
different back grounds, families and have varied attitudes and mentalities.
The culture gives the employees a sense of unity at the workplace and
diminishes diversity.
 Some organizations follow a culture where all the employees irrespective
of their designations have to enter the office on time. Such a culture
encourages the employees to be punctual which eventually benefits them in
the long run. It is the culture of the organization which makes the
individuals a successful professional.

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 Every employee is clear with his roles and responsibilities and strives hard Notes
to accomplish the tasks within the desired time frame as per the set
guidelines. Implementation of policies is never a problem in organizations
where people follow a set culture. The new employees also try their level
best to understand the work culture and make the organization a better
place to work.
 The work culture encourages healthy relationship amongst the employees.
No one treats work as a burden and moulds himself according to the
culture.
 It is the culture of the organization which extracts the best out of each
member of the organisation. In a culture where management is very
particular about the reporting system, the employees however busy they are
would send their reports by end of the day.
 No one has to force or keep an eye continuously on anyone to work. The
culture develops a habit in the individuals which makes them responsible
and successful at the workplace.

Learning Activity
Make a report on how stories, rituals, material symbols, and
language shape an organization’s culture.

4.5 CREATING AND SUSTAINING CULTURE

1. How Does Organizational Culture Begin: An organization’s current
customs, traditions and general way of doing things are largely due to what
it has done before and the degree of success it has had with those
endeavours. The original source of an organization’s culture usually
reflects the vision or mission of the organization’s founders. Because the
founders had the original idea, they also may have biases on how to carry
out the idea. Their focus might be on aggressiveness or it might be on
treating employees as family. The small size of most new organizations
helps the founders instil their vision in all organizational members.
Organizational cultures can develop in a number of different ways, these
steps are explained below:
(i) A single Person (Founder) has an Idea for a New Enterprise: Some
organizational cultures may be the direct, or at least, indirect, result of
actions taken by the founders. The founders of an organization
traditionally have a major impact on that organization’s early culture.
They have a vision of what the organization should be.
(ii) Founders’ Creation of a Core Group: The founder brings in one or
more other key people and creates a core group that shares a common
vision with the founder. The founders only hire and keep employees

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Notes who think and feel the way they do. These employees who form the
core group believe that the idea is a good one, is worth the investment
of time, money and energy.
(iii)Indoctrinate and Socialize: The founding core group begins to act in
concert to create an organization by raising funds, obtaining patents,
incorporating, locating land, building infrastructure and so on. The core
group indoctrinates and socializes employees to their way of thinking
and feeling.
(iv) Build a Common History: The founders’ own behaviour acts as a role
model that encourages employees to identify with them and thereby
internalize their beliefs, values, and assumptions. At this point, others
are brought into the organization, and a common history begins to be
built. When the organization succeeds, the founder’s vision becomes
seen as a primary determinant of that success. At this point, the
founders’ entire personalities become embedded in the culture of the
organization. Most of today’s successful organizations follow the vision
of their founders.
2. Sustaining a Culture: Once a culture is in place, there are practices within
the organization that act to maintain it by giving employees a set of similar
experiences. Sustaining a culture depends on three forces. These forces are
explained below:
(i) Selection: The goal of the selection process is to identify and hire
individuals who could make the organization successful through their
services. Therefore candidates who believe in the values of the
organizational have to be selected. Thus, the selection process attempt
to ensure a proper match in the hiring of people who have values
essentially consistent with those of the organization or at least a good
portion of those values cherished by the organization. In this way, the
selection process sustains an organization’s culture by selecting those
individuals who will fit into the organizations core values.
(ii) Top Management: Top management has an important role to play in
sustaining the organization’s culture. It is the top management who
establish norms that filter down through the organization. It is they
through their conduct both implicit and explicit who show what is
desirable. They do this through pay raises, promotions and other
rewards.
(iii)Socialization: Socialization is the process that adapts employees to the
organization’s culture. Organization wants to help new employees
adapt to its culture. The adaptation is done through the process of
“socialization”. Socialization is made up of three stages:
(a) The Pre-arrival Stage: This stage encompasses all the learning that
occurs before a new member joins the organization. The

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socialization process covers both the work to be done and the Notes
organization. The pre-arrival stage is the period of learning in the
socialization process that occurs before a new employee joins the
organization. For example, when students join a business school to
pursue their MBA degree, they are socialized to have attitudes and
behaviours that business firms want. This is so because the success
depends on the degree to which the student has correctly anticipated
the expectations and desires of those in the business school.
(b) Encounter Stage: In this stage of the socialization process, the new
employee sees what the organization is really like and confronts the
possibility that expectations and reality may diverge. In
expectations prove to have been more or less accurate, the
encounter stage merely provides a reaffirmation of the perceptions
gained during the pre-arrival stage. Those employees who fail to
learn the essential or pivotal role behaviours risk being labelled as
“rebels” and face the risk of expulsion. This further contributes to
sustaining the culture.
(c) Metamorphosis stage: In this stage in the socialization process in
which a new employee changes and adjusts to the job, work group
and organization. In this stage, relatively long-lasting changes take
place. The employee masters the skill required for his or her job,
successfully performs his or her new roles, and makes the
adjustments to his or her work group’s values and norms. The
metamorphosis stage completes the socialization process. The new
employee internalizes the norms of the organization and his work
groups and understands and accepts the norms of the organization
and his work group.

4.6 CULTURE AND STRATEGY

In many ways, culture and strategy perform very similar functions in the
organisation. An organisational strategy can be viewed more as a perspective
than a plan which expresses the core values and personality of the organisation.
Similarly, strategies often evolve through the internal political dynamics, and
also how effective strategic leaders develop viable strategies through
“consensus-building” processes, which reflect, integrate and sometimes change
the dominant cultural values of the organisation. Thus, the strategic orientation
of an organisation is often just another expression of its dominant cultural
values. Burgleman (l983) defined corporate strategy as a theory held by the
organisation which:
“... defines the identity of the firm at any moment of time. It provides a basis
for the maintenance of this identity and for the continuity in the strategic
activity.”

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Notes Such a definition of strategy comes very close to our understanding of

organisational culture. Weick (1985) also compared the concepts of culture and
strategy, and concluded:
“... both may serve a common function. That function is imposing coherence,
order, and meaning. Strategy and culture resemble one another because they
both gather bits and pieces at action and find coherence in them. Both assign
action to well-.adjusted categories, categories that are outgrowths of
interactions.
Many studies (e.g. Walter. 1985: Despande and Parasuraman. 1986; Zammuto
and O’Connor, 1992) have shown that culture has a major influence on the
success of strategic choices. Walter (19851) highlighted that the success of
acquisitions and mergers is critically dependent on the integration of cultural
parameters in the acquisition plans. Similarly, Despande and Parasuraman
(1986) related culture to business portfolio management practices. They found
that the strategic success of the organisation would depend on the manner in
which its culture encourages risk-taking and acceptance of feedback in the
organisation. Zammuto and O’Connor (1992) also proposed that acceptance
and effective implementation of advanced manufacturing technologies in the
organisation is influenced by its cultural characteristics.
Strategies to Merge Different Organizational Cultures
The bicultural audit result helps organizations to merge effectively or to end
merger talks if cultures are so different that reconciliation becomes difficult
because cultural values were incompatible. However, even with substantially
different cultures, the two organizations may form a workable union if they
apply the appropriate merger strategy. K.W Smith discusses four main
strategies for merging different corporate cultures.
1. Assimilation: Assimilation occurs when employees at the acquired
company willingly embrace the cultural values of the acquiring
organization. This tends to occur when the acquired company has a weak
culture that is dysfunctional, whereas the acquiring company’s culture is
strong and focused on clearly defined values. Culture clash is rare with
assimilation because the acquired firm’s culture is weak and employees are
looking for better cultural alternatives.
2. Deculturation: Assimilation is rare. Employees usually resist
organizational change, particularly when they are asked to throw away
personal and cultural values. Under these conditions, some acquiring
companies apply a deculturation strategy by imposing their culture and
business practices on the acquired organization. Deculturation may be
necessary when the acquired firm’s culture does not work but employees
are not convinced of this. The strategy of deculturation rarely works
because it increases the risk of socio-emotional conflict. Deculturation
usually takes place when there is a hostile takeover.

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3. Integration: This strategy involves combining the two or more cultures Notes
into a new composite culture that preserves the best features of the previous
cultures. This strategy should be considered when the companies have
relatively weak cultures or when their cultures include several overlapping
values. Integration is slow and quite risky because there are many forces
preserving existing cultures. However, integration is the best strategy when
people realise that their existing cultures are ineffective and are motivated
to adopt a new set of dominant values.
4. Separation: This strategy is most appropriate when the two merging
companies are in unrelated industries or operate in different countries. A
separation strategy occurs when the merging companies agree to remain
distinct entities with minimal change of culture or organisational practice.

4.7 IMPLICATIONS FOR PRACTICING MANAGERS

Mergers and acquisition are major change events. The change management
programme in Mergers and Acquisition involves among other things the
change in attitude and behaviour. Changing an organisation structure is perhaps
a difficult task as managers and employees psychologically identify themselves
with the existing positions and fear lower positions in the merged organisation.
During mergers and acquisition, the need for strong leadership is a must. Lack
of leadership puts employees in a confused state of mind. Strong leadership is
essential to acquisition, success – perhaps a single most important success
factor. Leaders must be sensitive to the cultural differences and be able to
recognize the relative strength and weaknesses of the merging organisations. In
all mergers and acquisitions, there will be competition for senior executive
position. The right persons should be chosen for the right job. The selection
process should be transparent, otherwise disappointed managers may either
leave the organisation or they may not be dedicated and committed to the
organisation. Corporate leaders need to make employees and managers aware
of the urgency for change. Then they need to “unfreeze” the existing culture by
removing artifacts that represent that culture and “refreeze” the new culture by
introducing artifacts that communicate and reinforce the new values. In other
words, change “sticks” when they become “the way we do things around here”.

1. Sometimes founders create weak cultures, and if the

organization is to survive, a new top manager must be
installed who will sow the seeds for the necessary
strong culture.
2. The success of this stage has a positive impact on the
new employee’s productivity and his commitment to
the organization.

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Notes SUMMARY
 Culture involves the earning and transmitting of knowledge, beliefs and
patterns of behaviour over a period of time.
 Corporate culture consists of the norms, values and unwritten rules of
conduct of an organization as well as management styles, priorities, beliefs
and inter-personal behaviour that prevail. Together, they create a climate
that influences how well people communicate, plan and make decisions”
 A strong culture helps workers march to the same drummer, creates high
levels of employee loyalty and encouragement and provides the company
with structure and controls without the need for an innovation-stifling
bureaucracy.
 It is difficult for organisational members in a weak culture to identify with
the organisation’s core values and goals.
 The practices, principles, policies and values of an organization constitute
its culture.
 The original source of an organization’s culture usually reflects the vision
or mission of the organization’s founders.
 Once a culture is in place, there are practices within the organization that
act to maintain it by giving employees a set of similar experiences.
 An organisational strategy can be viewed more as a perspective than a plan
which expresses the core values and personality of the organisation.
 The strategic orientation of an organisation is often just another expression
of its dominant cultural values.

KEYWORDS
Culture: Culture may be considered as the general pattern of behaviour, shared
beliefs, and values that organizational members have in common.
Organisational Culture: Organizational culture is a pattern of basic
assumptions – invented, discovered or developed by a given group as it learns
to cope with its problems of external adaptation and internal integration – that
has worked well enough to be considered valuable and, therefore to be taught
to new members as the correct way to perceive, think and feel in relation to
those problems.
Strong Culture: A strong organisational culture refers to those organisations in
which beliefs and values are shared relatively consistently throughout an
organisation.
Weak Culture: A weak culture refers to those organisations which have
organisational members who do not subscribe to the shared beliefs, values and
norms.

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Normative Culture: In such a culture, the norms and procedures of the Notes
organization are predefined and the rules and regulations are set as per the
existing guidelines.
Pragmatic Culture: In a pragmatic culture, more importance is placed on the
clients and the external parties.

SELF-ASSESSMENT QUESTIONS
Short Answer Questions
1. Define culture.
2. What do you mean by organisational culture?
3. Define normative culture.
4. Define pragmatic culture.
5. What do you mean by academic culture?
6. What is club culture?
7. Define Tough Guy Culture.
8. Differentiate between fortress and bet your company Culture.
9. Explain about the creating culture.
10. Explain about the sustaining culture.
Long Answer Questions
1. What are the basic elements of organisational culture?
2. Differentiate between the strong and weal culture.
3. Explain the importance of organisational culture.
4. Describe the various strategies to merge different organizational cultures.
5. Discuss the implications for practicing managers.

FURTHER READINGS

Edgar H. Schein (2010), “Organizational Culture and

Leadership”, John Wiley & Sons.
Mats Alvesson (2012), “Understanding Organizational Culture”,
SAGE.
Brown (2000), “An Experiential Approach to Organization
Development”, Pearson Education India.

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Notes V. G. Kondalkar (2009), “Organization Development”, New Age

International.
Julian Gross (2009), “Dimensions of Organisation Development”,
Wordclay.

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Notes
UNIT IV
LESSON 5 - ORGANISATIONAL CHANGE

CONTENTS
Learning Objectives
Learning Outcomes
Overview
5.1 Meaning of Change
5.2 Organisational Change
5.3 Forces of Change
5.3.1 External Forces of Change
5.3.2 Internal Forces of Change
5.4 Resistance to Change
5.5 Types and Forms of Change
5.5.1 Forms of Change
5.6 Evolutionary and Revolutionary Change
5.6.1 Evolutionary Change
5.6.2 Revolutionary Change
5.7 Change Process
Summary
Keywords
Self-Assessment Questions
Further Readings

LEARNING OBJECTIVES
After studying this lesson, you should be able to:
 Understand the meaning and concept of organisational change
 Learn the concept of force of change
 Read what poses resistance to change
 Know types and forms of change
 Study the distinction between evolutionary and revolutionary change
 Read in detail the change process

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Notes LEARNING OUTCOMES

Upon completion of the lesson, students are able to demonstrate a good
understanding of:
 the term of change, it is results from the pressure of both internal and
external forces in the organisation. It disturbs the existing equilibrium or
status quo in the organisation
 the happened change is a change that is rather unpredictable and that takes
place naturally due to external factors.
 the change is a process of shifting from the current state to the required or
desired state (vision) of future.

OVERVIEW
Last lesson focused on the concept of organisation culture which includes
importance of culture, types of culture and strategies for it.
Change is one reality with which individuals, groups and organisations must
constantly cope in order to survive. Change is one of the most critical aspects
of effective management. Change is the coping process of moving from the
present state to a desired state that individuals, groups and organisations
undertake in response to dynamic internal and external factors that alter current
realities.
Change is inevitable in the life of an individual or organisation. In today’s
business world, most of the organisations are facing a dynamic and changing
business environment. They should either change or die, there is no third
alternative. Organisations that learn and cope with change will thrive and
flourish and others who fail to do so will be wiped out. The major forces which
make the changes not only desirable but inevitable are technological,
economic, political, social, legal, international and labour market
environments. Recent surveys of some major organisations around the world
have shown that all successful organisations are continuously interacting with
the environment and making changes in their structural design or philosophy or
policies or strategies as the need be. In this lesson, you will learn about the
meaning of organisational change, types and forms and the process of change.

5.1 MEANING OF CHANGE

Unlike other concepts in organisational behaviour, not many definitions are
available to define the term “change”. In very simple words we can say that
change means the alternation of status quo or making things different.
“The term change refers to any alternation which occurs in the overall work
environment of an organisation.”

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To quote another definition “when an organisational system is disturbed by Notes

some internal or external force, change occurs frequently. Change, as a
process, is simply modification of the structure or process of a system. It may
be good or bad, the concept is descriptive only.”
From the above definitions we can conclude that change has the following
characteristics:
 Change results from the pressure of both internal and external forces in the
organisation. It disturbs the existing equilibrium or status quo in the
organisation.
 The change in any part of the organisation affects the whole of the
organisation.
 Change will affect the various parts of the organisation in varying rates of
speed and degrees of significance. Changes may affect people, structure,
technology and other elements of the organisation.
 Change may be reactive or proactive. When change is brought about due to
the pressure of external forces, it is called reactive change. Proactive
change is initiated by the management on its own to increase organisational
effectiveness.

5.2 ORGANISATIONAL CHANGE

To survive and prosper, a firm must adopt strategies that realistically reflect
their abilities to manage multiple future scenarios. You must recognise that
change occurs continuously, exists because of multiple causes and needs to be
properly addressed.
Lawler (1986) has summed this quite effectively by noting that:
“Overall planned change is not impossible but it is often difficult. The key
point is that change is an on-going process, and it is incorrect to think that a
visionary end state can be reached in a highly programmed way.”
Organisational Change is as a framework aimed at managing the effect of new
business processes, changing organisational structure and systems or due to
cultural changes occurring within the organisation. In simplest term, you can
address it as the people side of change management.
You need to remember that organisational change in most of the cases is
stimulated by external forces. Usually organisations undertake strategically,
technical and structural changes to enter into a different level of their life cycle.
Modification of a highly reactive organisation into a much stable proactive
environment is an instance of such a change. Figure 5.1 illustrates the sum total
of the range of changes involved in organizational change.

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Notes

Source: http://www.results-in-business.com/activities/org_ch.htm

Figure 5.1: Organisational Change

5.3 FORCES OF CHANGE

Organisations are systems that exist in the context of an external environment,
in a dependent relationship, and that interact with it in order to survive and
grow. Any factor in the environment that interferes with the organization’s
ability to attract the human, financial and material resources it needs, or to
produce and market its services/products becomes a force of change. Internal
to itself, a number of forces operate in the organisation that could facilitate or
hinder its functions, processes and actions. An organisation is thus subject to
two sets of forces: those of the external political, social, economic and
competitive environment and those internal to the organisation.
5.3.1 External Forces of Change
Political Forces: The transition of the East-European nations to the democracy
and a market economy, the opening up of the economy of South-East Asia, the
collapse of the erstwhile Soviet Union, the unification of Germany, the Gulf
War, the Iraq war are some examples of the political upholds that have had
widespread repercussions around the world bringing in their wake a plethora of
changes.
Economics Forces: The uncertainty about future trends in the economy is a
major cause of change. For example, fluctuating interest rates, declining
productivity, uncertainties arising from inflation or deflation, low capital
investments, the fluctuating prices of oil (Petrol), recessions, and the lowering
of consumer confidence have a marked impact on different economies, and
therefore, an organisation. The national financial systems of countries are so
interrelated that a change in one produces a ripples effect on the others.

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Notes
Example: The economic crisis in Thailand affecting market across
South-East Asia. Changes in the capital markets arise out of change in the
accessibility of many in the banking systems of different economies.
Technological Forces: The world is presently characterized by dramatic
technological shifts. The technological advancement, particularly in
communication and computer technology has revolutionized the workplace and
has helped to create a whole new range of products/services. For example, a
super communication system is on the anvil in which about 20 Japanese
companies will join a Motorola Inc. led project to set up satellite cellular
telephone system that can be used from anywhere on earth. The companies
include Sony Corporation, Mitsubishi Corporation, Kyocera Corporation and
long distance telephone carriers whose interests include Sony and Kyocera.
They plan to form a fifteen billion Yen (US $ 132 million) joint venture to
coordinate the investment and policy in the US chip and Telecom Company’s
‘Iridium’ project. Iridium facilitates worldwide voice, paging, fax and data
services.
Advances in technology have contributed to the development of economies. A
case in example is Singapore, which, with almost no natural resources, has still
created a powerful economic advantage by exploiting the use of information
technology in its overall planning. It is poised to become the world’s fully
networked society – one in which all homes; school, businesses and
government agencies will be electronically interconnected.
Information technology may, in future, be replaced by biomaterial technologies
(combination of biology and material sciences) which could give rise to a
whole set of commercial dynamics in medicine, agriculture and industry
(Oliver, 2000).
Government Forces: Governmental interventions in the form of regulations
also lead to change. A few examples of government – regulated change are:
 Deregulation: This is the lessening of governmental rules and the
increasing decentralization of economic interventions at the level of the
state. What previously used to be essentially government sector services
and industries are how being handed over to private companies for
operation and maintenance.
 Foreign Exchange: Foreign exchange affects international trade
transactions. In these transactions payments are often made in terms of
country’s own currency, in US dollars, or the currency of the third country.
The exchange rate variations determine the currency payments. Prediction
of exchange rate movements depends upon a number of factors such as a
country’s balance of payments, interest rates, and supply and demand,
making it often difficult to predict. Constraints of foreign exchange prompt
many governments to impose restriction on the import of selected items
along with measures to deregulate their economies to attract foreign

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Notes exchange for investment purposes. Some of the examples of success are
India and China.
 Anti-trust Laws: Most governments follow anti-trust in one form or the
other to restrict unfair trading practices. In India, the government has
restricted the unfair movements of business houses by enacting the
Monopolies and Restrictive Trade Practices (MRTP) in 1971.
 Anti-dumping Duties: Anti-dumping duties are penalties imposed on
nation by its trading partner if it feels that owing to an unfair reduction in
cost, duties, etc., the partner country’s products enjoy a price advantage.
 Suspension Agreements: These are the agreements between governments
to waive anti-dumping duties. The recent suspension agreement reached
between the United States and Japan stipulates that Tokyo must keep price
and volume records of all chip shipments of the United States.
 Protectionism: While most countries profess free trade, the reality is often
otherwise. Intense competition has forced governments to put into places
measures that protect some of their businesses and business firms. United
States, for example, has tried to protect its motorcycle industry from
Japanese competition, and Japan (it’s local markets), Canada, (its lumber
industry), and Mexico, (its cement and oil industries) from foreign
competition. Trade barriers to protect local industries may take various
forms such as tariffs or import duties, quantity quotas, anti-dumping laws
and government subsides.
Increased Global Competition: In order to survive and grow, companies are
increasingly making their presence felt globally. The case of the global
automobile industry highlights this concept. Japanese automakers Toyota,
Nissan, and Mitsubishi have continuously been relocating their manufacturing
and assembling operations to South-East Asia where the cost of labour is much
cheaper compared to that in Japan. They have also established their plants all
over Europe and America to get past import restrictions and in the process have
been able to retain a competitive edge in catering to the world automobile
market. The establishment of strategic alliances is yet another changes being
made in order to compete in the global arena as no single organisation has all
the knowledge and skill to survive in a global market. To counter competition,
Cyrus Freidheim, the vice chairman of Booz, Allen & Hamilton, suggested that
early in the 21st century, Boeing, British Airways, Siemens, TNT (an
Australian Parcel delivery firm) and SNECMA (French aero-engine maker)
might come together to bid for contracts. The other examples of such
‘relationship-enterprises’ are:
 IBM, Toshiba & Siemens AG have come together in the development of a
revolutionary computer memory chip.
 Five aircrafts: United Airlines, Lufthansa, Air Canada, Scandinavian
Airlines (SAS) and Thai International – have formed a ‘Star Alliance’ to

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provide customers with global recognition and wide range of benefits. This Notes
alliance will complement each airlines individual identity and product
offering not only in their home market but around the world.
Apparently, ‘dynamic multi-venturing’ has come of age; now even erstwhile
corporate archrivals come together to work on a common product goal.
Changing Customer Needs and Preferences: Customer needs and preferences
are always changing. Organisations are forced to adopt and constantly innovate
their product offerings to meet these changing needs.
5.3.2 Internal Forces of Change
A variety of forces inside an organisation also cause change that relate to
system dynamics, inadequacy of existing administrative process,
individual/group expectations, technology, structures, profitability issues and
resources constraints.
System Dynamics: An organisation is made up of subsystems similar to that of
the sub-personalities in the human brain. The sub-personalities in the brain are
in constant interaction with each other creating changes in human behavior.
Similarly, subsystems within an organisation are in constant and dynamic
interaction. The factors that influence the alignment and relationships among
the various subsystems in the context of an organisation are, for example
technology, internal politics, dominant groups/cliques, and the formal and
informal relationships within.
Inadequacy of Administrative Process: An organisation functions through a
set of procedures, rules and regulations. With changing times and the revision
of organisational goals and objectives, some of the existing rules, procedures
and regulations could be at a variance with the demands of reality. To continue
with such functionally autonomous
Resource Constraints: Resources refer to money, material, machinery,
personnel, information and technology. Depletion, inadequacy or non-
availability of these can be a powerful change force for any organisation.

5.4 RESISTANCE TO CHANGE

As the manager contemplates and initiates change in the organization, one
phenomenon that is quite likely to emerge anytime in the change process is the
resistance to change. People often resist change in a rational response based on
self-interest. Resistance to change doesn’t necessarily surface in standardized
ways. Resistance can be overt, implicit, immediate, or deferred. It is easiest for
management to deal with resistance when it is overt and immediate. The
greater challenge is managing resistance that is implicit or deferred.

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Notes

Resistance to change is the act of opposing or struggling with

modifications or transformations that alter the status quo in the workplace.

Why Do People Resist Change?

“Resistance” is usually viewed by change agents as something to be overcome
in order for change to be successful. Change agents acquire this notion because
people around them, in general, defend something they consider as important
or valuable, which appears threatened by the change attempted. A manager
must understand why people resist change. The Table 5.1 shows the potential
sources of resistance and the suggested response to overcome the resistance.
Table 5.1: Potential Sources of Resistance to a New Management Practice and
Suggested Change Agent Response
Sources of Resistance Suggested Response
Fear of the unknown Offer information and encouragement
Need for security Clarify intentions and methods
No felt need to change Demonstrate the problem or opportunity
Vested interests threatened Enlist key people in change planning
Contrasting interpretations Disseminate valid information and facilitate group sharing
Poor timing Delay change and await a better time
Lack of resources Provide supporting resources and/or reduce performance expectations

Dealing with Resistance to Change

The Table 5.2 shows that an informed change agent can take steps to
constructively deal with resistance to the change process.
Table 5.2: Methods for Dealing with Resistance to Change
Approach Commonly Used Advantages Drawbacks
Education and Where there is a lack of Once persuaded, people will Can be very time
communication information or indurate often help with the consuming if lots of
information and analysis implementation of the change people are involved
Participation and Where the initiators do not People who participate will be Can be very time
involvement have all the information committed to implementing consuming if
they need to design the change, and any relevant participants design
change, and where others information they have will be an inappropriate
have considerable power to integrated into the change plan change
resist.
Facilitation and Where people are resisting No other approach works as Can be time
support because of adjustment well with adjustment problems consuming,
problems expensive, and still
fail
Negotiation and Where someone or some Sometimes it is a relatively Can be too expensive
agreement group will clearly lose out easy way to avoid major in many cases, if it
in a change, and where that resistance alerts others to
group has considerable negotiate for
power to resist compliance

Contd…

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Notes
Manipulation Where other tactics will not It can be a relatively quick Can lead to future
and co-optation work, or are too expensive and inexpensive solution to problems if people
resistance problems feel manipulated
Explicit and Where speed is essential, It is speedy, and can Can be risky if it
implicit coercion and the change initiators overcome any kind of leaves people mad at
possess considerable power resistance the initiators
Source: John P Kotter and Leonard A Schlesinger (1979), “Choosing Strategies for Change”, Harvard Business
Review, Vol 57, (March – April 1979), Page 111.

The sources of resistance to change can be categorized into two sources:

individual and organizational.
Individual Resistance
One aspect of mankind that has remained more or less constant is his innate
resistance to change. Individuals resist change because they attach great
preference to maintain status quo. Individual sources of resistance to change
reside in basic human characteristics such as perceptions, personalities and
needs. The following are the reasons:
1. Economic Reasons: The economic reasons to fear change usually focus on
one or more of the following:
(i) Fear of technological unemployment.
(ii) Fear of reduced work hours and consequently less pay.
(iii)Fear of demotion and thus reduced wages.
(iv) Fear of speed-up and reduced incentive wages.
Changes in job tasks or established work routines also can arouse economic
fears if people are concerned they won’t be able to perform the new tasks
or routines to their previous standards, especially when pay is closely tied
to productivity.
2. Fear of the Unknown: Change often brings with it substantial uncertainty.
Employees facing a technological change, such as the introduction of a new
computer system, may resist the change simply because it introduces
ambiguity into what was once a comfortable situation for them. This is
especially a problem when there has been a lack of communication about
the change.
3. Fear of Loss: When a change is impending, some employees may fear
losing their jobs, particularly when an advanced technology is introduced.
Employees may also fear losing their status because of a change. Another
common fear is that changes may diminish the positive qualities the
individual enjoys in the job. For example, computerizing the customer
service positions, threaten the autonomy that sales representatives
previously enjoyed.

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Notes 4. Security: People with a high need for security are likely to resist change
because it threatens their feeling of safety.
5. Status Quo: Perhaps the biggest and most sound reason for the resistance
to change is the status quo. As human beings, we are creatures of habit.
Change may pose disturbance to the existing comforts of status quo. When
confronted with change, this tendency to respond in our accustomed ways
becomes a source of resistance. Change means they will have to find new
ways of managing them and their environment – ways that might not be
successful as those currently used.
6. Peer Pressure: Individual employees may be prepared to accept change but
refuse to accept it for the sake of the group. Whenever their peers are
unwilling to accept change, they force the individuals who want to accept
change to resist change.
7. Disruption of Interpersonal Relationships: Employees may resist change
that threatens to limit meaningful interpersonal relationships on the job.
8. Social Displacement: Introduction of change often results in disturbance of
the existing social relationships. Change may also result in breaking up of
work groups. Thus, when social relationships develop, people try to
maintain them and fight social displacement by resisting change.
Organizational Resistance
Organizations, by their very nature are conservative. They actively resist
change. Some organizational resistances are explained below:
1. Resource Constraints: Resources are major constraints for many
organizations. The necessary financial, material and human resources may
not be available to the organization to make the needed changes. Further,
those groups in organization that control sizable resources often see change
as a threat. They tend to be content with the way things are.
2. Structural Inertia: Some organizational structures have in-built
mechanism for resistance to change. For example, in a bureaucratic
structure where jobs are narrowly defined, lines of authority are clearly
spelt out change would be difficult. This is so because formalization
provides job descriptions, rules, and procedures for employees to follow.
The people who are hired into an organization are chosen for fit; they are
then shaped and directed to behave in certain ways. When an organization
is confronted with change, this structural inertia acts as a counterbalance to
sustain stability.
3. Sunk Costs: Some organizations invest a huge amount of capital in fixed
assets. If an organization wishes to introduce change, difficulty arises
because of these sunk costs.
4. Politics: Organizational change may also shift the existing balance of
power in organization. Individuals or groups who hold power under the

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current arrangement may be threatened with losing these political Notes

advantages in the advent of change.
5. Threat to Established Power Relationships: Any redistribution of
decision-making authority can threaten long established power
relationships within the organization. Managers may therefore resist change
that introduces participative decision making because they feel threatened.
6. Threat to Expertise: Change in organizational pattern may threaten the
expertise of specialized groups. Therefore specialist usually resists change.
7. Group Inertia: Even if individuals want to change their behaviour, group
norms may act as a constraint.

Example: If union norms dictate resistance any unilateral change made

by management, an individual member of the union, who may otherwise be
willing to accept the changes, may resist it.

Learning Activity
Collect articles from newspapers in which organisations are
showing their resistance towards any political changes.

5.5 TYPES AND FORMS OF CHANGE

To change is to move from the present to the future, from a known state to a
relatively unknown state.
To be able to adapt or deal with the impact of change forces, organisations may
plan for, experience or undergo change. The possible types of change do not
suggest a watertight compartmentalization in view of the complexity and
dynamics of the change process. Different types of changes that can be
identified include:
Table 5.3: Types of Change
Types of Change Nature
Directional Occurs under conditions of severe competition, regulatory shifts in
government policy, and unsuccessful business strategy.
Fundamental change Redefinition of current purpose or mission.
Operational change Improvement of quality, quantity, timeliness unit cost of operations in
developing products/services
Total Change Developing a new vision, achieving a turnaround. A drastic surgery of the
existing system.
Happened change Unpredictable occurs due to external causes over which one may have no
control. Has profound/traumatic effect on the organization.
Transformational Change Change involving the entire or a greater part of the organization due to a
severe threat to its survival. The threat may occur from industrial
discontinuities, shifts in the products life-cycle or internal changes.

Contd…

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Notes Revolutionary changes Abrupt change in the organizations strategy and design.
Recreation Tearing down the old structure and building a new era. A metamorphosis –
becoming not just better, but different.
Strategic Change Change of all or most of the organization component.
Anticipatory Change Changes carried out in expectation of an event. In anticipation of such
change, the organizations may tune-in (incremental change) or reorient
itself.
Reactive Change Response to an event or series of events. Adaptive changes are limited to a
subsystem or part of the subsystems. Recreation can also be reactive but
involves the whole organization.

Happened Change
This is a change that is rather unpredictable and that takes place naturally due
to external factors. It is profound and traumatic for it is out of direct control
and produces a future state that is largely unknown. This type of change occurs
when an organisation reaches a plateau in its life cycle and falls prey to
unwisely demand from the environment.

Example: Currency devaluation, over which it has no control adversely,

affects the business of a computer that has to import its basic raw material.
Some political and social changes are also unpredictable, as was the case in
India during Indira Gandhi’s years of emergency.
Reactive Change
Changes that are clearly in response to an event or a series of events are termed
reactive. Generally, most companies are engaged in reactive, often incremental
change. These changes are attempted when the demand for a company’s
products/services registers an increase or decrease, or problem/crises occur or
develop. Technological changes, for example, force the organisation to invest
in modern technologies. The incorporation of the latest technology could be in
reaction to the increased demand for the product.
Incremental changes, made in response to external forces and limited to a
subsystem or a part of the subsystem, are adaptive in nature. Recreation is also
a reactive change, but it involves the organisation in its entirety, and occurs
when the organisation is under severe crises.
Anticipatory Change
Change carried out in expectation of an event or a series of events is called
anticipatory change. Organisations, in terms of their anticipation, may tune-in
or reorient themselves to future demands. Tuning-in would involve making
incremental changes (dealing with a subsystem or a part of the system) in
anticipation of external events. Reorientation is moving from ‘here’ to ‘there’
in anticipation of a changing environment. It involves changing the

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organisation from the existing state towards a designed future state, and Notes
managing the transition process.
Planned Changed
Planned change or developmental change is undertaken to improve upon the
current way(s) of operating. It is calculated change, initiated to achieve a
certain desirable output/performance and to make the organisation more
responsive to internal and external demands. Enhancing employees
communication skill and technical expertise, building teams, restructuring
organisation, introducing new technologies, introducing new products and
services, changing the incentive system, improving employee welfare
measures, and the like fall into this category.
This type of change, where the future state is being consciously chosen, is not
as threatening. However, it does require system/subsystem level (techno-
social) support to survive.
Incremental Change
Change directed at the micro level and focused on units/subunits/components
within an organisation are termed as incremental changes. Changes are brought
in gradually and are usually adaptive in nature. It is assumed that those small
changes will set in the large change process and lead the system slowly in a
healthier direction. It also provides the organisation an opportunity to learn
from its own experiences. A failed incremental change will cause less damage
to the total system than an unsuccessful large-scale change.
The benefits that employees all over the world enjoy today could be sighted as
an example of incremental change. It has been a long journey indeed from the
days of Taylor’s Scientific Management when the role of the worker was
perceived to be that of a mere cog in the wheel, to the various perks and
facilities employees currently enjoy. These changes have evolved over a long
period of time and have not happened overnight.
Operational Change
This is necessitated when an organisation needs to improve the quality of its
products or services due to external competition, customers changing
requirements and demands, or internal organisational dynamics. Improvement
of production and service capabilities could center on quantity, quality,
timeliness, cost savings and other such factors. The organisations goals
remaining the same, intended change forces on how to improve existing
operations to perform better. Operational changes include bringing in new
technology, reengineering the work processes, quality management, better
distribution and delivery of products, and enhancing interdepartmental
coordination.

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Notes Strategic Change

Change that is addressed to the organisation as a whole or to most of the
organisations component including strategy may be called strategic change. An
example could be a change in the organisation management style. Toyota has
recently taken steps to change its overall corporate management philosophy in
an attempt to create an organisation, which is less hierarchical, is leaner,
flexible, decentralized, and which allows itself a considerable degree of
autonomy. This move by Toyota will affect the entire organisation and will
influence its performance.
Directional Change
A change in direction may become imperative for an organisation due to severe
competition or regulatory shifts in government policy and control (for example,
on pricing, import/export restriction, etc.) Directional change is also critical
when the organisation is developing a new strategy or incapable of executing
effectively its current strategy. R&D activities, competitive analysis,
information management and adequate management control system could
facilitate the question of ‘quo vadis’ or where the organisation is headed.
Fundamental Change
This entails a redefinition of the current purpose or mission of the organisation.
It may be necessitated by drastic change in the business environment, the
failure of the current corporate leadership, problems with employee morale, or
a low turnover.
Total Change
For total change, the organisation is constrained to develop a new vision, and a
strong link between its strategy, employees and business performance. The
organisation has to achieve a turnaround or perish. Total change is necessary to
extricate the organisation from the rot that has set in due to long-term failure of
business, employee – organisation value incongruence, estrangement of
operators from the reality of the business environment, and power
concentration in the hands of few people who could be furthering their
personal interests at the cost of the organisation. A new vision and drastic
surgery could be the only way out for the organisation
Transformational Change
Such a change involves the entire or a greater part of the organisation. It could
be a change in the shape (size and complexity), structure (systems, ownership
and the like), or nature (basic assumption, culture, technology, etc.) of the
organisation. The conditions that prompt organisational transformation are:
 The experiences or anticipation of a severe threat to survival.

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 The perceived or felt inadequacy in current organisational strategy, design Notes

and function to meet external threat. The threat may arise from industrial
discontinuities (i.e. shifts in technological, economic, political and legal
conditions that alert the basis of competition within the industry), shifts in
product life-cycle (requiring different business strategies), and internal
dynamics (e.g. union politics, high employee turnover, corporate portfolio
strategy).
The type of change that could be labelled as transformational is:
 A change in what drives the organisation.

Example: The organisation could shift from being product driven to

being technology or customer driven.
 A fundamental change in the relationships among organisational
subsystems.

Example: changing to a greater degree of decentralization or

moving to a more democratic management from a bureaucratic
management.
 A major departure in the manufacturing process or the way of working.

Example: Introducing automation, robotics or other advanced

techniques.
 A change in organisational norms and culture.

Transformational change takes time to occur and will not happen

unless people are uncomfortable in the current state and think and feel
change a must.

Recreation
This involves a significant or drastic change in an organization’s strategy and
design, or a radical departure from its current practices to achieve a total
transformation. It is tantamount to tearing down the old structure and
rebuilding a new one. Recreation is metamorphosis – becoming not just better,
but different. Recreation involves the retooling of an organization’s core
competencies, which include its design, structure functions and people skills.
An organisation could transform itself into a self-learning one testing its
explicit and implicit model/s of products, customers or markets.

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Notes 5.5.1 Forms of Change

On the other hand, you can say that ever-changing conditions pose a
formidable challenge to organisations precipitating changes which can be
either planned or quite intentional or unplanned. It must be understood that the
large variety of determinants of organisational change – forces dictating
change – can be organised into 4 major forms. These forms are evolved by
combining two key distinctions:
1. Whether the organisational change is planned or unplanned by the
organisation,
2. Whether it derives from factors internal or external to the organisation.
Table 5.4: Forms of Organisational Change
Forms of Change Planned Unplanned
Internal Internal Planned Change Internal Unplanned Change
 Change in Product or services  Changing Employee demographics
 Change in Organisation size or  Performance gaps
structure
External External Planned Change Internal Planned Change
 introduction of new technology  Government Regulations
 Advanced Information and  External Competition
Communication system

Source: Organisation Change and Development, 2nd-Edition, Kavita Singh, Excel Books

The above Table 5.4 shows you that the result from combining these two
dimensions are planned internal change, planned external choice, unplanned
internal change and unplanned external change.
Let us now look into organisation change with help of VELUX UK Systems as
an example.

Caselet: Velux UK Systems

T he VELUX Group is mainly known for their roof windows and

skylights. The group is one of the strongest brands in the global
building materials sector.
In 2004, Laurence Barrett was the Executive Director of VELUX in the UK.
The company had the highest market share and everyone was happy. But
Barrett wasn’t pleased. He was aware of a continuous stream of customer
dissatisfaction. Then, the situation completely aggravated when an annoyed
customer sent a recorded delivery letter to every director of the company.
Vanguard Scotland was called-in to help. Their first move was to form a
team of frontline VELUX UK staff to analyse the nature of customer
contact demand and study the value created for the customer. It was
discovered that the level of failure demand was around 45% and Barrett
recalls that “It was clear that the customer was getting the run around. Only
Contd...

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52% of our calls were handled in one stop (i.e. by the first person they Notes
spoke to).
Barrett took action immediately. He proposed a new pay structure into place
and started to run experiments to see how many calls could be handled in
one stop if a combination of skills were used to deal with the customer.
Within a few months the call centre was handling nearly all the calls in one
stop. Within three years, Barrett had replaced the fourteen different
functional service desks with one large desk that could handle any demand.
Moreover, in an independent survey, positive customer ratings had
increased by 40%.
The improved system allowed staff to feel they were really able to help
customers, empowering them and making them happier in their work. Staff
turnover dropped to just 22 employees a year saving £148,000.
This new way of working, not only made staff and customers happier, it
also enabled the staff to do more value work. Under the previous system,
VELUX would have required 81 staff; whereas, they now only required 64.
This was due to the increased efficiency and removal of failure demand.
This saved them over £600,000.
Taken together over a 3 year period, the client saved in excess of £1m from
the above, staff morale improved and the reduction in transferring calls
around the organisation and increase in its one stop capability to over 90%
sent their customer satisfaction levels back up to where they should be.
Planned Internal Change
You must know that a great deal of organisational change comes from the
strategic decision to alter the way one does business or the very nature of the
business itself.

Example: Now try to understand two examples of planned internal

organisational change to understand these changes.
(a) Change in Products or Services: Suppose a firm is taking decision to take
on a new direction to the business, to add a new, specialised service. You
can assume the requisite amount of organisational change required in this
change. You will need new equipment and new supplies, new personnel
will have to be hired and trained, new insurance will have to be purchased
and new accounts will have to be secured.
(b) Changes in Organisational Size and Structure: As the name suggests, it
involves adjustment of employees required to work in a newly designed
organisation, also known as rightsizing. In recent years, organisations need
fewer people to operate. Another way in which organisation can restructure
is through complete elimination of parts that focus on the non-core sectors

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Notes of the business, and are hiring outside firms to perform these functions
instead – a practice best known as outsourcing.
Planned External Change
In addition to planning changes in the ways organisations are run, it is often
possible to plan which change variables originating outside the organisation
will be incorporated into it. The underlying example will help you to
understand how planned external changes occur.

Example: One of the best example for planned change is the

implementation of information technology (IT) in the banking sector. All over
the world, banks have started utilizing IT to operate accounts, transfer money
and monitor their own performances. Use of IT has enabled banks to attain
increased productivity and lower down their costs.
Unplanned Internal Change
You must understand that not all the factors of change are the results of
strategic planning. Indeed organisations often are responsive to changes that
are unplanned especially the ones which are derived from factors internal to the
organisation.

Example: Changing employee demographics and performance gaps can

be categorised as some unplanned internal changes. Looking at the present
employee demographics, you can observe that the composition of workforce
has changed. The percentage of women in the workforce is now greater than
ever before. Additionally, the workforce is getting older. Many of the old
retired employees from government and public sector are joining the private
sector. To people concerned with the long-term operation of organisations,
these are not simply sociological trends, but shifting conditions which force
organisations to change.
The second internal change that you can examine is performance gaps. Few
things force change more than sudden unexpected information about poor
performance. You have to understand here that organisations generally follow
a win-stay/lose-change rule. Several studies have also shown that a
performance gap is one of the key factors providing a force for organisational
innovations (Wheeler & Hunger, 1989). Now analyse how those organisations
that are best prepared to mobilise, change in response to unexpected downturns
are expected to be the one that succeed.

Example: Organisational downsizing is a classic example of change.

Management looks at the situation and decides from which departments and
which people to terminate. Since it seems simple enough, management often
just re-assigns the roles and responsibilities of the former employees to the

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remaining employees. In those situations, management remains unaware of the Notes

crucial impact of the terminations on the “surviving” employees.
Without the knowledge of these top executives, many employees experience
major concerns, such as guilt of having survived the downsizing, increased
pressure to perform or be terminated, and ambiguity surrounding their new job
responsibilities. At the same time, the remaining employees are unsure what
steps they need to succeed; they lack clarity about reporting relationships and
power, and are uncertain of budgetary implications in the new arrangement.
Unplanned External Change
It is one of the greatest challenges of an organisation to respond to change from
outside on which it has little or no control. Research has shown that
organisations that can best adapt to changing conditions tend to survive. Two
of the most important unplanned external factors are governmental regulation
and economic competition.

Example: One of the most commonly witnessed unplanned

organisational change that you can observe is the one resulting from
government regulation like liberalisation and introduction of various laws
passed by the government related to de-licensing, fully or partial convertibility
of the rupee, etc. Recent change that you can notice is entry of foreign players
in the competitive market. Indian industries have to find ways and mechanisms
to safely and profitably run their businesses.

5.6 EVOLUTIONARY AND REVOLUTIONARY CHANGE

In this section, you will study about the evolutionary and revolutionary change.
5.6.1 Evolutionary Change
Evolutionary change is a change done by convincing people. One or more
“change agents” see an opportunity for the organization to improve, and they
pursue it by talking with other people and building a proposal/prototype that is
iteratively shopped around.

Example: Project management techniques that spread with use or

changes to an incident management process as teams figure out shortcuts.
5.6.2 Revolutionary Change
Abrupt changes in organisational strategy and design represent revolutionary
change. Such change comprises of 3 E’s.
 Envisioning, which is to articulate a clear and credible vision and a new
strategy to realize the vision.

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Notes  Energizing, which is mobilizing of employees, individually and

collectively, as well as demonstrating and inculcating the excitement for
change.
 Enabling, which is to provide the necessary resources, support structures
and processes for example, the appropriate information system, suitable
changes in the administrative policy and procedures, a fitting
compensation/reward system, a task force, etc.
Types of Revolutionary Change
 Reengineering: Reengineering is a term popularized by Hammer and
Champy, include rethinking business processes, activities that cross
functional boundaries. Processes which are not functioning properly are the
focus of attention. Reengineering involves reorganizing a process like
materials management, to create value. Vertical and horizontal
communication and coordination are difficult because purchasing,
production control, and distribution have their own hierarchies.
 Restructuring: Restructuring is a method which is used to change task and
authority relationships to improve organizational effectiveness. The focus
to decrease bureaucratic costs results from competitive pressures. Mergers
and acquisitions in many industries have led to downsizing because fewer
managers are needed. Other companies have reduced staff to match
competitors as well.
 Innovation: Innovation is the successful use of skills and resources to
create new technologies or new goods and services.

Employees should be informed about any changes that may

happen in the nearby future so that they may prepare themselves to adapt to
those changes.

5.7 CHANGE PROCESS

Change is a process of shifting from the current state to the required or desired
state (vision) of future. Making a change involves: moving the organizations
people and culture in line with the strategies, structure, processes and systems
to achieve desired state (vision).

Figure 5.2: Change Process

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The existing situation is the status, which is prevailing at the moment, what the Notes
organizations looks like now. The desired situation is the status which one
desires to prevail; it is also known as vision. A vision helps in clarifying—
 What do we want to become?
 How much needs to change?
 What the Organization should look like when the change is completed?
The transition state may be referred to ascertaining the activities and processes
necessary to transform the organizations from its current state to the desired
state—a road map—for specifying the activities, crucial interventions and
events during the transition period. For making an organization move from the
existing state to desired state some ‘force’ is to be applied.
Some forces applied by the individual(s) undergoing the change restrict the
force applied for moving to the desired state—this is called resistance. This
also follows Newton’s third law of motion- “Every action/force creates an
opposition (resistance)”.
Successful Change—The Three Stage Model
According to Lewin’s three step model, successful change in organizations
should follow three steps:

Figure 5.3: Change Process Model

Unfreezing
According to Newton’s first law of motion, “Every object remains in state of
rest or uniform motion in a straight line unless and until an external force is
applied to it.” Similarly, in the organizations same situations exist. When a
product, service or profit is at a deteriorating stage but with the fast changes
maintaining a ‘steady state’ is impossible as the situations are bringing many
types of forces, usually inhibiting forces which block the pace.

Example: For a stagnant product, every product will remain stagnant

and non-competitive leading to decay vertically down unless and until an
external, innovative and relevant technology is proposed to cause its growth
vertically upwards.
Hence, for making any change something needs to be done in a planned way to
disturb the status quo; this is known as de freezing (unfreezing). This stage
focuses at disturbing the existing equilibrium and creates motivation to change
using mechanisms like:
(a) Lack of confirmation or disconfirmation

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Notes (b) Sharing one’s concerns and perceptions openly, looking in to feelings,
removal of barriers of communications, induction of guilt and anxiety and
creations of threats by reduction of psychological safety, presentation of
alternative scenarios etc.
In case of any change, the effort is going to face individual resistance and
group conformity. These change efforts for overcoming the pressures of both
individual resistance and group conformity.
Two types of forces emerge and at the status quo, both are in balance:
 Forces prompting the change: Forces which give directions to the
behaviour away from the status quo—“Driving forces”
 Forces obstructing the movement away from the status quo: Restraining
forces.

Figure 5.4: Forces and Change

For affecting the change:

 The Driving forces should be identified, assessed and intensified/added.
 The Restraining forces should be identified, assessed and
weakened/removed.
 Both strategies are followed simultaneously.

The technique for the process of change described is called ‘Force field
analyses. The method includes the following steps:
1. Identify the problem, which you want to work and describe it.
2. Define the problem clearly indicating the present situation.
3. Define the situation desired after the problem is solved.

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4. Identify the forces working for the change i.e. driving force by way of Notes
individual listing, brainstorming or any other means.
5. Identify and list forces likely to work against the desired change
(restraining forces). These forces can be related to human resource, time,
money, technology, customer requirements or any other internal, external
factors.
6. From the list of driving forces and restraining forces, prioritise the forces
and identify 3-4 most significant forces under each of the both categories.
7. Make a force field diagram showing both types of forces after
prioritization. The arrows should be proportional to their priority/strength.
8. Discuss and list possible action steps for reducing or eliminating the effect
of the restraining forces and add or increase the effect of the driving forces.
9. Determine the most effective steps under both the categories of forces and
outside which once to implement.
10. Examine the resources available for carrying out each action steps.
11. Develop a comprehensive action plan, sequence of activities and assign
responsibilities for implementation.
12. Implement the plan.
13. Evaluate.
Moving/Intervening
In this phase, the desired change should be planned considering all aspects—
Tasks, Technology, Structure and Human Resource.
Since any organization is composed of these four inter-related and
interdependent components, the impact of the changes should be anticipated
and evaluated. Since the organizational environment is a resultant of three or
four components—and any organization exists in environment analysis of
internal and external environment is essential.
This step focuses at developing new responses by providing new information.
Cognitive redefinition is a mechanism, which is achieved by identification
(information) through a single source and scanning (information through
multiple sources).
Refreezing
The change interventions start making the desired status in due course. These
are to be stabilised. In this phase, refreezing stabilises a change intervention by
balancing the forces which have created the desired (driving forces) and those,
which are inhibiting the changes to occur (restraining forces).
Also, Newton’s Second Law is quite helpful in understanding—“The rate of
change of momentum is proportional to force applied and change takes place in

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Notes the direction in which the force acts”. Hence, for fast and deep change, forces
applied should be strong, direction should be clear and force applied in the
right direction.
This phase helps stabilising and integrating the changes. This is gained by
integrating new responses into persons and into significant on-going
relationships through reconfirmation.

Learning Activity
Visit any company of your choice and find out how they are
adopting changes in their organizations and make a presentation.

1. Sony Corporation, Japan, known throughout the world

for its technological innovations in tune with changing
customer preferences, has developed a 2.5” hard disk
drive for a ‘laptop computer’ that could hold as much
as 1.5 billion bytes of data but which costs less than
the current disk drive holding 80 megabytes.
2. Pepsi recently announced that it would invest $750
million over the next five years for its operation in
Mexico. Pepsi, which began its operations in Mexico
in 1938, had a 31% market share of Mexican cola sales
and plans to improve this figure.

SUMMARY
 The term change refers to any alternation which occurs in the overall work
environment of an organisation
 Organisational Change is as a framework aimed at managing the effect of
new business processes, changing organisational structure and systems or
due to cultural changes occurring within the organisation.
 An organisation is thus subject to two sets of forces: those of the external
political, social, economic and competitive environment and those internal
to the organisation.
 Resistance to change doesn’t necessarily surface in standardized ways.
Resistance can be overt, implicit, immediate, or deferred. It is easiest for
management to deal with resistance when it is overt and immediate.
 To be able to adapt or deal with the impact of change forces, organisations
may plan for, experience or undergo change.

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 For total change, the organisation is constrained to develop a new vision, Notes
and a strong link between its strategy, employees and business
performance.
 Change is a process of shifting from the current state to the required or
desired state (vision) of future. Making a change involves: moving the
organizations people and culture in line with the strategies, structure,
processes and systems to achieve desired state (vision)

KEYWORDS
Organisational Change: Behaviour which is intended to protect an individual
from the effects of real or imagined change
Deregulation: Deregulation is the process of removing or reducing state
regulations. It is therefore opposite of regulation, which refers to the process of
the government regulating certain activities.
Protectionism: The theory or practice of shielding a country’s domestic
industries from foreign competition by taxing imports.
Resistance: The refusal to accept or comply with something; the attempt to
prevent something by action or argument.
Group Inertia: It is the resistance to change or the endurance of stable
relationships in societies or social groups.

SELF-ASSESSMENT QUESTIONS
Short Answer Questions
1. What do you mean by change?
2. What are the characteristics of change?
3. Explain organizational change.
4. What are the forces of changes?
5. Explain the external forces of changes with the help of examples.
6. Why do people resist change?
7. Discuss the potential sources of resistance.
8. Write short note on strategic change.
9. Discuss the different forms of organizational change.
10. What is planned change?
Long Answer Questions
1. Explain revolutionary change and its type.
2. Discuss the change process.

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Notes 3. Explain the types of change with the help of examples.

4. What are the methods used for dealing with resistance to change?
5. Why some organizations resist change? Give reasons.

FURTHER READINGS

Tsoukas Haridimos, Chia Robert (2011),” Philosophy and

Organization Theory”, Emerald Group Publishing
Hatch Mary Jo (2012), “Organization Theory: Modern, Symbolic
and Postmodern Perspectives”, Oxford University Press
Kondalkar V. G. (2009), “Organization Development”, New Age
International
Gross Julian (2009), “Dimensions of Organisation Development”,
Wordclay

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Notes
LESSON 6 - ORGANISATIONAL
DEVELOPMENT

CONTENTS
Learning Objectives
Learning Outcomes
Overview
6.1 Organisational Development (OD)
6.1.1 Characteristics of OD
6.1.2 The Evolution of Organisation Development
6.1.3 Assumptions of Organisation Development
6.2 HR Functions
6.3 Strategic Change Management
6.4 Implications for Practicing Managers
Summary
Keywords
Self-Assessment Questions
Further Readings

LEARNING OBJECTIVES
After studying this lesson, you should be able to:
 Understand the concept, characteristics, evolution and assumptions of
organisational development
 Learn various HR Functions
 Read about strategic change management
 Know the implications of changing organizations for practicing managers

LEARNING OUTCOMES
Upon completion of the lesson, students are able to demonstrate a good
understanding of:
 the OD, is the strengthening of those human processes in organisations,
which improve the functioning of the organic systems, so as to achieve its
objectives.

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Notes  the facilitation is a process in which a person, acceptable to all members of

the group, substantially neutral, unbiased and having no decision making
authority.
 the change has become a major theme of leadership literature for good
reasons. Leaders set the direction, define the context, and help produce
coherence for their organisations.

OVERVIEW
In the previous lesson, you learnt about the concept of organisational change
and how individual as well as organisation resist for the change.
Change is avalanching down upon our heads, and most people are utterly
unprepared to cope with it. Further shock, the disorientation produced by super
change, has important implication for organisations & managers. And the
manager has to cope with the today’s accelerating rate of change. The modern
manager must not only be flexible and adaptive in a changing environment, but
must also be able to diagnose problems and implement change programs.
Organisations are never completely static. They are in continuous interaction
with external forces. Changing customer attitudes, new legislations, and
technological breakthrough all act on the organisation to cause it to change.
The degree of change may vary from one organisation to other, but all face the
need for adaptation to external forces. Many of these changes are forced upon
organisations, whereas others are generated internally. Because change is
occurring so rapidly, there is a need for new ways to manage. In this lesson,
you will learn about the Organisation Development (OD), which is a discipline
applying behavioural sciences to help organisations adapt to these changes. OD
is aimed not only at improving the organisation effectiveness at also at
enhancing the development of organisational members.

6.1 ORGANISATIONAL DEVELOPMENT (OD)

In its widest sense, OD is a planned approach to improve employee and
organisational effectiveness by conscious interventions in those processes and
structures that have an immediate bearing on the human aspects of the
organisation. The fact that there are almost as many definitions as there are
practitioners of OD only accentuates the emerging, changing and adapting
mode of the profession – not necessarily a drawback considering that constant
adaptation and change are among the key foci of OD.
OD is the act, process, or result of furthering, advancing or promoting the
growth of an organisation. OD is anything done to ‘better’ an organisation. But
this definition is too broad and all-inclusive. The term organisation
development must be given added meaning, must refer to something more
specific, if productive discourse on the subject is desired. Another way of

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defining OD is to examine the following definitions, which have been Notes

suggested in the literature.
OD is an effort: 1) planned 2) organisation wide and 3) managed from the top,
to 4) increase organisation effectiveness and health through 5) planned
interventions in the organisations “processes” using behavioural science
knowledge (Beckhard, 1969).

You must note that OD is a response to change, a complex

educational strategy intended to change the beliefs, attitudes, values, and
structure of organisations so that they can better adapt to new technologies,
markets, and challenges, and the dizzying rate of change itself. (Bennis,
1969)

OD is the strengthening of those human processes in organisations, which

improve the functioning of the organic systems, so as to achieve its objectives.
(Lippitt 1969)
In the behavioural science and perhaps ideal, sense of the term, organisation
development is a long-range effort to improve an organisations problem-
solving and renewal process, particularly through a more effective and
collaborative management of organisation culture - with special emphasis on
the culture of formal work teams – with the assistance of a change agent, or
catalyst, and use of the theory and technologies of applied behavioural science,
including action research. (French & Bell, 1978)
OD is a planned effort, initiated by process specialist to help an organisation
develop its diagnostic skills, coping capabilities, and linkage strategies in the
form of temporary and semi-permanent systems, and a culture of mutuality
(Pareek & Rao, 1988)
Analysis of these definitions suggests that organisation development is not just
“anything done to better an organisation”; it is a particular kind of change
process designed to bring about a particular kind of end result. It can help us
draw the following conclusions. OD is a prescription for process of planned
change in organisation in which the key prescriptive elements relate to
1. The nature of the effort or program
2. The nature of the change activities
3. The target of the change activities
4. The desired outcomes of the changed activities
OD thus represents a unique strategy for system change, a strategy largely
based in the theory and research of behavioural sciences and a strategy having
a substantial prescriptive character.

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Notes In summary, OD is a process of planned system change that attempts to make

organisations better able to attain their short and long – term objectives. This is
achieved by teaching the organisation members to manage their organisation
process and culture more effectively. Facts, concepts and theory from
behavioural sciences are utilised to fashion both the process and the content of
intervention. A basic belief of OD theorists and practitioners is that for
effective, lasting change to take place, the system member must grow in this
competence to master their own fates.
6.1.1 Characteristics of OD
A number of special characteristics together distinguish OD from other
approaches to managing and improving organisational functioning.
1. OD is a planned strategy to bring about organisational change: OD
programmes are planned, not accidental – they represent a deliberate entry
of either an OD consultant or OD activities into the client system.
2. OD always involves a collaborative approach to change: In OD the
consultant seeks and maintains a collaborative relationship of relative
equality with the organisation members. Collaboration means “to labour
together”- essentially it implies that consultant does not do all the work
while the client system passively waits for solutions to its problems; and it
means that the client system does not do all the work while the consultant
is a disinterested observer. In OD, consultant, and clients co- labour.
3. OD programs include an emphasis on ways to improve and enhance
performance: OD programs and efforts are designed to produce
organisational effectiveness and health, better system functioning, greater
ability to achieve objectives and so forth. The basic aims of OD are
(a) Enhancing congruence between organisational structure, processes,
strategy, people, and culture;
(b) Developing new & creative organisations solutions; and
(c) Developing the organisations self-renewing capacity. (Beer M., 1976)
It is these self-renewal outcomes that seem particularly distinctive in
Organisation Development process.
4. OD relies on a set of humanistic values about people and organisations:
OD is a normative process grounded in value-laden assumption of what
constitutes ideal individual or organisational growth. ‘Development’ for the
OD practitioner means the movement of individuals and organisations in
certain directions consistent with democratic and humanistic values and
ideals, such as autonomy, self – actualization and democracy. OD also aims
at gaining more effective organisation by opening up new opportunities for
increased use of human potential.

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5. OD represents a Systems Approach: Although OD practitioners may focus Notes

on one or the other aspect or unit of an organisation, there is an implicit
recognition of the systemic nature of the organisation. As a social system,
an organisation consists of different subsystems such as task, structural,
technological and human (Leavitt 1972), inter-linked by various processes.
The organisation as a whole also interacts with the external environment
including the larger society and its smaller constituents. Any change is one
part or process has implications for other parts or processes relevant to the
system. Recognition of the systemic nature of organisation gives the OD
approach a methodological flexibility even while it maintains same
ideological rigidity in terms of values.
6. OD is based upon scientific approaches to increase organisational
effectiveness: OD is an applied field in which theories, concepts and
practices from sociology, psychology, social psychology; education,
economics psychiatry & management education are brought to deal with
real organisational problems.
As an applied behavioural science approach, OD follows the action research
model. ‘Action research is a data-based, problem-solving model that replicates
the steps involved in the scientific method of inquiry’ (French & Bell 1991).

The action research model involves a systematic process of

diagnosing problems, through data collection and analysis, feeding the data
back to the members of the client group, discussing the findings, planning
collaborative actions and implementing proposed solutions.

6.1.2 The Evolution of Organisation Development

A brief explanation of the evolution of this field may give a better
understanding of its applications today. OD has evolved over past 60 years
from the applications of behavioral science knowledge and techniques to
solving organisational problem. What has become OD today started in 1940’s
at MIT and is deeply rooted in the pioneering work of applied social scientist
such as Kurt Lewin and also strongly influenced by the work of psychologists
like Carl Rogers & Abraham Maslow. The term organisation development is
widely attributed to Robert Blake, Jane Mouton & Herbert Shephard; however,
Richard Beckhard claims this distinction as well. Regardless of who coined the
term first, It emerged is about 1957 and is generally conceded to have evolved
from two basic sources: the application of laboratory method by National
Training Laboratories (NTL), and the Survey Research methods originated by
the Survey Research Center. Kurt Lewin at MIT pioneered both the methods in
about 1945.

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Notes NTL – Laboratory Training Methods

In the late 1940’s and early 1950’s laboratory – training methods were
developed and applied by a groups of behavioral scientists at Bethel, Maine.
Douglas McGregor (Theory X and Theory Y), working with Richard
Beckhard, began applying laboratory – training methods to Industry, at General
Mills in 1956 & at Union Carbide in 1957. At Union Carbide, McGregor &
John Paul Jones (an internal consultant) formed the first internal OD consulting
group.
About the same time, Herbert Shephard & Robert Blake were initiating a series
of applied behavioral science intervention at Esso, mainly laboratory-training
techniques to improve work team processes. These early training sessions
provided the basis for what Blake & Mouton later developed as an
instrumented training system they called the Managerial Grid. The success of
these programmes led to a dissemination of such efforts to other corporations.
Survey Research & Feedback
About the same time, a group at the survey Research Center at the University
of Michigan began to apply to organisation the action research model of Kurt
Lewin. Rensis Likert & Floyd Mann administered an organisation – wide
survey to Detroit Edison Co., involving the systematic feedback of data to
participating departments. They used what is termed as ‘Interlocking series of
conferences; feeding data back to the top management group and then down to
work teams throughout the organisation.
Since that time, many organisations had used the survey feedback approach.
General Motors for example, had reported success in applying Likert’s survey
feedback approach to organisation improvement.
In summary, the major science of current OD practice was the pioneering work
at NTL and Survey Research Center.
6.1.3 Assumptions of Organisation Development
There are sets of assumptions, basic to most organisation development
activities, which relate to people as individuals, to people as group members
and as leaders, and to people as members of the total organisational systems.
These are:
1. Assumption about People as Individuals: OD efforts make two basic
assumptions about people as individuals:
(a) Most Individuals have driven towards personal growth and
development: In an environment that is supportive and challenging
most people want to become most of what they are capable of
becoming.
(b) Most people are capable of making higher level of contribution to
organisational goals: A tremendous amount of constructive energy can

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be tapped if organisations recognize this, for example by asking for and Notes
acting on suggestions to solve problems.
2. Assumption about People in Groups and about Leadership:
(a) The most psychologically relevant reference group for most people is
the work group: It basically implies that what goes on in the work team,
especially at the informal level, has great significance for feelings of
satisfaction and competence.
(b) Most people wish to be accepted with at least one small reference
group: This helps them greatly increase their effectiveness and of
helping their reference group to solve problems.
(c) Group members must assist each other with effective leadership and
member behaviour: For a group optimize its effectiveness, the formal
leader cannot perform all the leadership and maintenance functions in
all circumstances at all times and therefore assistance in leadership is
required.
(d) Suppressed feelings and attitudes adversely affect problem solving,
personal growth and job satisfaction: The culture in most groups and
organisations tends to suppress the expression of feelings and attitudes
that people have about each other and their behaviours – both positive
and negative – and about where their organisations are heading. If
feelings are allowed to be expressed it tends to open up many avenues
for improved goal setting, leadership, communications, conflict
resolutions, problem solving between group, collaboration and morale.
(e) Level of interpersonal trust, support, and cooperation is much lower in
most groups and organisation than is either desirable or necessary:
Typically a number of forces contribute of such situations, including an
absence of viewing feelings as important data, lack of group problem
solving skills, and leadership styles that reinforce dysfunctional
competition.
(f) Solution to most attitudinal and motivational problems in organisations
is transactional: Such problems have the greatest chance of constructive
solution if all the parties in the system or subsystem alter their mutual
relationship.
3. Assumptions about People in Organisational Systems: A number of
assumptions about people in systems also underlie OD efforts. Some of
these are
(a) The interplay of dynamics of work team has powerful effects on the
attitudes and behaviours of people in both groups: In particular
conditions of trust, support, openness and teamwork tend to influence
the style of managers lower on the hierarchy and rub off on to their
subordinates.

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Notes (b) Win-Lose conflict strategies are not optional in the long run to the
solution of most organisational problems: Most organisations problems
can better be approached in terms of “how can we all win?’’
And finally, there are at least two assumptions made that relate to the
complexities and difficulties involved in helping make major shifts in the
culture of the organisation.
1. It takes time and patience, and the key movers in OD efforts need to have a
relatively long-range time perspective.
2. Improved performance from OD efforts need be sustained - It can be done
by bringing appropriate changes in the appraisal, compensation, training,
staffing, task, and communication sub systems - in short, in the total human
resource system.

Learning Activity
Visit any 5 companies of your choice and try to find out the steps
they are taking for the development of their organization.

6.2 HR FUNCTIONS
Organisations over the past decade have been moving towards flatter, leaner
and more responsive structures. This has undoubtedly made many of them
more efficient in terms of their resource utilization and more effective in terms
of their responsiveness to the market demands. Technology has played a major
role in ensuring that a coherent business approach and managerial performance
can be maintained from a reduced resource base. The key to success in such
move has been the mobilization of human resources (Peters and Waterman,
1982; Kanter, 1983; 1989; Pettigrew & Whipp, 1993). The revolution in the
organisation design has been achieved by creating responsive work
environments which emphasize the need to cooperate across and within
functions; focus on service and quality; and search for holistic and integrated
responses to trigger events, while encouraging participation, ownership and
shared accountability (Spector, 1989; Handy; 1990).
IBM, Compaq, Motorola and Steel case (the world’s biggest manufacturer of
office furniture) have, amongst many others, adopted team-based solution to
the management of their manufacturing facilities. Responsibilities increase as
the team matures and gains confidence. Teams are being asked to participate in
the process of innovation and change; employees are seeking, and ensuring that
they get, enhanced performance through greater involvement and
empowerment (Piczak & Hauser 1996; Anderson and West, 1996). Many
organisations – Power Systems, Motorola, NIIT for example – have dropped
the term ‘foreman’ and ‘supervisor’, in favor of title such as ‘team leader’,
which is visible manifestation of workforce empowerment.

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Following are some HR functions: Notes

Communication
Authentic and complete communication on the objective, coverage, timing,
costs, individual and organizational implications and change methods and the
consequences of not going for change and post change benefits is most
essential and should be practiced by HR for managing change.

Example: At the Corporate office of a large organization, as prelude to

making change, it was diagnosed that the executives numbering 15 were not
communicating with each other. The communication climate was aggressive
and top management was perceived as autocratic. Improving Communication
climate emerged as one of the major concerns. As one intervention, the
executives were asked by the HR to sit together for 15 minutes in the
conference hall around the round table. Initially executives disliked it but
gradually they started sharing some of the operational problems they were
facing and others started responding by giving their comments and solutions.
They started opening up and sharing their feelings, concerns, agreements and
disagreements etc. Within a few weeks, this meeting became the most liked
forum of communication and sharing. Often they had to extend the timing.
This forum became the initiating and facilitating platform for the major
changes the function made for next few years.
There is no standard format for communication, but pre-intervention analysis
should be done to understand the communication climate, styles and barriers.

Remember that creation of a supportive communication climate is

highly useful in making change interventions.

Education and Training

All involved employees may not have the desired environmental,
organizational, functional, technical, financial, strategic, behavioural
knowledge and skills. Education and training is very important at every stage
in the organisation.

Example: In the pursuit of designing and commissioning a

comprehensive Performance Management system in a large PSU, almost two
years were spent in educating and training the senior management personnel
and users to make them understand the concept, realize the need, express their
satisfaction and dissatisfaction from the existing system, define their
expectations from the proposed system. Even the design of the proposed
system was prepared in training and developments programmes using
Behavioural Science based interventions. In the phase of implementation, a

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Notes series of training programmes were conducted by the HR for the employees.
All this helped in covering a large section of widely prevalent executives in a
short time and fear of change could be almost eliminated.
Participation and Involvement
The persons likely to be affected easily and hence need to be involved right
since the initial stage. Their active involvement in all stages of the processes
will provide valuable ideas at every stage and also inculcate a sense of
ownership.

Example: In installing an incentive scheme in a medium sized

Engineering company, the line managers and worker representatives were
involved right since beginning i.e. from the stage of feeling the need,
identifying the benefits and problems, collecting and analysis of data and
designing the system and developing the earning table.
Facilitation and Support
The change initiatives are to be facilitated by skilled Facilitators (change
agents) which should be provided by HR. This would help in solving the
issues, proposal—resolution of conflict, team building and development of a
conducive change climate.
Facilitation is a process in which a person, acceptable to all members of the
group, substantially neutral, unbiased and having no decision making authority
intervenes to help a group improve the way it needed and solves issues and
makes decisions in order to enhance the effectiveness of the group.
Negotiation
In dealing the resistance, negotiation is quite useful as the change agent has to
exchange something of value for reducing the resistance. This also is useful
when resistance comes from a powerful person. Three basic types of
Negotiating Styles are: Tough battler, the Supportive Facilitator and Cognitive
Reasoner. A negotiator should understand these 3 styles and should be well
versed in using all the three styles as each style is effective in a particular
situation. There are a few other models also describing different styles of
negotiation. Although Collaboration is the most desirable strategy, other
strategies - avoidance, accommodation, Competition forcing and compromise
also have their limitations and benefits.
Co-opting
An HR should assign a key individual member who should be a desirable role
for managing change quite effectively. The co-opted person becomes a Key
Resource Person in charge of project and by way of his power base, is able to
influence others. His involvement and contribution helps the implementation of
change effectively.

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Manipulation Notes
It is a covert influencing tactics which uses twisting and distortion of facts to
make them appear more attractive and potent. This also includes hiding or
withholding undesirable information, and creating rumours. Co-optation also
sometimes is used as manipulative tactics.
Coercion—Implicit and Explicit
This includes application of direct threats or force on those who are resisting or
are likely to resist. In situation of crisis it is often successful, otherwise not so
effective.

6.3 STRATEGIC CHANGE MANAGEMENT

From the different definitions of OD discussed above it is quite apparent that
OD emphasizes human processes and modes of interaction within the
organisation. There may not be too much of emphasis on other factors like
technology, though it is at times a trigger to implement OD in organisations.
There are different strategies available to bring changes in the human system in
organisations and society (Chin & Benne 1976). These include:
 Normative – Re-educative Strategy: The major emphasis of this strategy is
that behaviour is influenced largely by social and cultural norms of the
group, organisation or the society to which an individual belongs.
Successful change can be brought about by changing the norms as it is
believed that individuals have pronounced commitments to these norms.
 Rational – Empirical Strategy: This strategy assumes that individuals are
basically rational people and change can be brought about by convincing
them that it for their best interest. This strategy involves the use of data and
rational persuasion to establish the relation between willingness to change
and information available with positive results.
 Power – Coercive Strategy: This strategy entails the use of power which is
invested in manager’s position, or power springing from the use of
resources, to coerce individuals into accepting change.
 Action – Oriented Strategy: This strategy basically focuses on use of
action orientation in bringing changes in the organisations. It involves
development of specific steps necessary to achieve a goal or an objective
which is also called as action plan.

6.4 IMPLICATIONS FOR PRACTICING MANAGERS

The most important things managers can bring to a changing organisation are
passion, conviction, and confidence in others. Too often executives announce a
plan, launch a task force, and then simply hope that people find the answers—
instead of offering a dream, stretching their horizons, and encouraging people
to do the same. That is why we say, “Leaders go first.”

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Notes However, given that passion, conviction, and confidence, leaders can use
several techniques to take charge of change rather than simply react to it. The
following implications can be very useful to CEOs, senior executives, or
managers who want to move an idea forward:
1. Tuning in to the Environment: As a leader you can’t possibly know
enough, or be in enough places, to understand everything happening
inside—and more importantly outside—your organisation. But you can
actively collect information that suggests new approaches. You can create a
network of listening posts—a satellite office, a joint venture, a community
service. Rubbermaid operates its own stores, for instance, even though it
sells mostly to Wal-Mart and other big chains. These stores allow the
company to listen to and learn from customers. Likewise, partnerships and
alliances not only help you accomplish particular tasks, they also provide
knowledge about the happening in the world that you wouldn’t see
otherwise.
Look not just at how the pieces of your business model fit together but at
what doesn’t fit. For instance, pay special attention to customer complaints,
which are often your best source of information about an operational
weakness or unmet need. Also search out broader signs of change—a
competitor doing something or a customer using your product or service in
unexpected ways.
2. Challenging the Prevailing Organisational Wisdom: Leaders need to
develop what is called kaleidoscope thinking—a way of constructing
patterns for the fragment of data available, and then manipulating them to
form different patterns. They must question their assumptions about how
pieces of the organisation, the marketplace, or the community fit together.
Change leaders remember that there are many solutions to a problem and
that by looking through a different lens somebody is going to invent, for
instance, a new way to deliver health care.
There are lots of ways to promote kaleidoscopic thinking. Send people
outside the company – not just on field trips, but “far field trips.” Go
outside your industry and return with fresh ideas.

Example: One innovative department of a U.S. oil company

regularly invites people from many different departments to attend large
brainstorming sessions. These allow interested outsiders to ask questions,
make suggestions, and trigger new ideas.
3. Communicating a Compelling Aspiration: You cannot sell change, or
anything else, without genuine conviction, because there are so many
sources of resistance to overcome: “We’ve never done it before.” “We tried
it before and it didn’t work.” “Things are OK now, so why should we
change?” Especially when you are pursuing a true innovation as opposed to
responding to a crisis, you’ve got to make a compelling case. Leaders talk

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about communicating a vision as an instrument of change, but the notion of Notes

communicating an aspiration can also do wonders. ‘It’s not just a picture of
what could be; it is an appeal to our better selves, a call to become
something more. It reminds us that the future does not just descend like a
stage set; we construct the future from our own history, desires, and
decisions.
4. Building Coalitions: Change leaders need the involvement of people who
have the resources, the knowledge, and the political clout to make things
happen. You want the opinion shapers, the experts in the field, the values
leaders. That sounds obvious, but coalition building is probably the most
neglected step in the change process.
In the early stage of planning change, leaders must identify key supports
and sell their dream with the same passion and deliberation as the
entrepreneur. You may have to reach deep into, across, and outside the
organisation to find key influencers, but you first must be willing to reveal
on idea or proposal before it is ready. Secrecy denies you the opportunity to
get feedback, and when things are sprung on people without warning, the
easiest answer is always no. Coalition building requires on understanding
of the politics of change, and in any organisation these politics are
formidable.
When building coalitions, however, it’s a mistake to try to recruit
everybody at once. Think of innovation as a venture. You want the
minimum number of investors necessary to launch a new venture, and to
champion it when you need help later.
5. Transferring Ownership to a Working Team: Once a coalition is in place,
you can enlist others in implementation. You must remain involved—the
leader’s job is to support the team, provide coaching and resources, and
patrol the boundaries within which the team can freely operate. But you
cannot simply ask managers to execute a fully formed change agenda; you
might instead develop a broad outline, informed by your environmental
scans and lots of good questions, from which people can conduct a series of
small experiments. That approach not only confers team ownership, but
allows people to explore new possibilities in ways that don’t bet the
company or your budget.
In addition, leaders can allow teams to forge their own identity, build a
sense of membership, identity, and enjoy the protection they need to
implement changes. One of the temptations leaders must resist is to simply
pile responsibility on team members. While it is fashionable to have people
wear many hats, people must be given the responsibility—and the time—to
focus on the tasks of change.
6. Learning to Persevere: One of the laws of management, if not of life, is
that everything can look like a failure in the middle. One of the mistakes
leaders make in change processes is to launch them and leave them. There

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Notes are many ways a change initiative can get derailed. But stop it too soon and
by definition it will be a failure; stay with it through its initial hurdles and
good things may happen. Of course, if a change process takes long enough
you have to return to the beginning—monitor the environment again,
recheck your assumptions; reconsider whether the proposed change is still
the right one. Abdicating your role undermines the effort because, unlike
bold strokes, long marches need ongoing leadership. Most people get
excited about things in the beginning, and everybody loves endings,
especially happy endings. It’s the hard work in between that demands the
attention and effort of savvy leaders.
7. Making Everyone a Hero: Remembering to recognize, reward, and
celebrate accomplishments is a critical leadership skill. And it is probably
the most underutilized motivational tool in organisations. There is no limit
to how much recognition you can provide, and it is often free. Recognition
brings the change cycle to its logical conclusion, but it also motivates
people to attempt change again. So many people get involved in and
contribute to changing the way an organisation does things that it’s
important to share the credit. Change is an ongoing issue, and you can’t
afford to lose the talents, skills, or energies of those who can help make it
happen.
Today’s organisations have come to expect bold strokes from their leaders.
Sometimes these are appropriate and effective—as when a project or product
that on longer works is put to rest. But bold strokes can also disrupt and
distract organisations. They often happen too quickly to facilitate real learning,
and they can impede the instructive long marches that ultimately carry an
organisation forward. That is why imagination, professionalism, and openness
are essential to leadership, not just to leading change. They give organisations
the tools to absorb and apply the lessons of the moment.
Likewise, techniques that facilitate change within organisations—creating
listening posts, opening lines of communication, articulating a set of explicit,
shared goals, building coalitions, acknowledging others—are key to creating
effective partnerships and sustaining high performance, not just to managing
change. They build the trust and commitment necessary to succeed in good
times or in bad.

Remember that even periods of relative stability (unusual for most

organisations) require such skills.

Change has become a major theme of leadership literature for good reasons.
Leaders set the direction, define the context, and help produce coherence for
their organisations. Leaders manage the culture, or a least the vehicles through
which that culture is expressed. They set the boundaries for collaboration,
autonomy, and the sharing of knowledge and ideas, and give meaning to events

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that otherwise appear random and chaotic. And they inspire voluntary Notes
behaviour the degree of effort, innovation, and entrepreneurship with which
employees serve customers and seek opportunities.

Learning Activity
Make a presentation on the implications of change for leaders.

1. Rotating job assignments and creating interdisciplinary

project teams often gives people fresh ideas and
opportunities to test their assumptions.
2. As psychologist Richard Hackman has found, it is not
just the personalities or the team process that
determine success; it’s whether or not the team is
linked appropriately to the resources they need in the
organisation.

SUMMARY
 OD is a planned approach to improve employee and organisational
effectiveness by conscious interventions in those processes and structures
that have an immediate bearing on the human aspects of the organisation.
 Organisations over the past decade have been moving towards flatter,
leaner and more responsive structures.
 Organisations over the past decade have been moving towards flatter,
leaner and more responsive structures.
 The most important things managers can bring to a changing organisation
are passion, conviction, and confidence in others.
 Change has become a major theme of leadership literature for good
reasons.

KEYWORDS
Organisational Development: It is a specific perspective and area of expertise
which speaks to this challenge. One way of defining organisational
development is as a systematic approach to improving organisational
effectiveness – one that aligns strategy, people and processes.
Communication: It means of connection between people or places, in
particular.

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Notes Training: Organized activity aimed at imparting information and/or

instructions to improve the recipient’s performance or to help him or her attain
a required level of knowledge or skill.
Negotiation: Negotiation is a method by which people settle differences. It is a
process by which compromise or agreement is reached while avoiding
argument and dispute.
Coercion: The practice of persuading someone to do something by using force
or threats.
Systems Approach: The systems thinking approach incorporates several tenets:
Interdependence of objects and their attributes - independent elements can
never constitute a system. Holism - emergent properties not possible to detect
by analysis should be possible to define by a holistic approach.

SELF-ASSESSMENT QUESTIONS
Short Answer Questions
1. Explain organisational development.
2. What are the characteristic of organisational development?
3. Discuss the assumptions of organisation development.
4. Explain the HR functions in the organisation development.
5. What do you mean by strategic change management?
6. How leaders can take charge of change?
7. Discuss laboratory training method.
8. Explain OD as a system approach.
9. Discuss the importance of education and training in organisational
development.
10. Write short on the importance of organisational development.
Long Answer Questions
1. “Negotiation is quite useful as the change agent has to exchange something
of value for reducing the resistance”. Discuss.
2. What are the different strategies to bring changes in the human systems in
organisations?
3. Discuss the applications of organisational development.
4. “OD programs include an emphasis on ways to improve and enhance
performance”. Discuss
5. How did the organisational development evolved?

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FURTHER READINGS Notes

Nel René (2009), “Puppets or People: People and Organisational

Development: An Integrated Approach”, Juta and Company Ltd
Mehta Amitabh (2009), “Organisation Development”, Global
India Publications
Yaeger Therese F., Sorensen Peter F. (2009), “Strategic
Organization Development: Managing Change for Success”, IAP
Cummings Thomas, Worley Christopher (2014), “Organization
Development and Change”, Cengage Learning

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 Lesson 7 - Organisational Life Cycle

Notes
UNIT V
LESSON 7 - ORGANISATIONAL LIFE CYCLE

CONTENTS
Learning Objectives
Learning Outcomes
Overview
7.1 Organisational Life Cycle
7.1.1 Stages of Organisational Life Cycle
7.1.2 Organisation Life Cycle and the Small Business Owner
7.2 Models of Transformation
7.3 Models of Organisational Decision Making
Summary
Keywords
Self-Assessment Questions
Further Readings

LEARNING OBJECTIVES
After studying this lesson, you should be able to:
 Learn in detail about organisational life cycle
 Study various theories associated with modes of transformation
 Understand models of organisational decision making

LEARNING OUTCOMES
Upon completion of the lesson, students are able to demonstrate a good
understanding of:
 the Organisational Life Cycle (OLC) is a model that states that the
organisations progress through a sequence of developmental stages. This
model is linked to the study of organisational growth and development
 the System Model of change describes the organisation as six interacting
variables that could serve as the focus of planned change: people, culture,
task, technology, design, and strategy.

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Notes  the organizational decision making is the process of responding to a

problem by searching for and choosing a solution or course of actions that
will create value for organizational stakeholders.

OVERVIEW
In the last lesson, you learnt about the concept of organisational development.
Also you studied about the HR functions and strategic change management
Every organisation has a lifecycle and undergoes very predictable and
repetitive patterns of behaviour as they grow and develop. At every stage
organisations have to face some challenges. The success and failure of the
organisation depends on the way the organisation is going to manage the
challenges.
Leading an organisation through lifecycle transitions is not easy. The same
methods that produce success in one stage can create failure in the next.
Fundamental changes in leadership and management are all required, with an
approach that delicately balances the amount of control and flexibility needed
for each stage. Leaders who fail to understand what is needed (and not needed)
can inhibit the development of their companies or plunge them into premature
aging. This lesson focuses on the life cycle of organisation, models of
transformation and models of organisational decision making.

7.1 ORGANISATIONAL LIFE CYCLE

Many management scholars have adopted the metaphor of organic growth as a
heuristic device to explain development in an organisational entity from its
initiation to its termination. Witness, for example, often-used references to the
life cycle of organisations, products, and ventures, as well as stages in the
development of individual careers, groups, and organisations: start-up births,
adolescent growth, maturity, and decline or death. The life cycle theories
include developmentalism, biogenesis, ontogenesis and a number of stage
theories of child development, human development, moral development,
organisational development, group decision making, and new venture
development. Next to teleology, life cycle is perhaps the most common
explanation of development in the management literature.
Life cycle theory assumes that change is immanent: that is, the developing
entity has within it an underlying form, logic, program, or code which regulates
the process of change and moves the entity from a given point of departure
toward a subsequent end that is already prefigured in the present state. What
lies latent, premature, or homogeneous in the embryo or primitive state
becomes progressively more realized, mature, and differentiated. External
environmental events and processes can influence how the immanent form
expresses itself, but they are always mediated by the imminent logic, rules, or
programs that govern.

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Life cycle theory parallels the approach of the gross anatomist in biology who Notes
observes a sequence of developing fetuses, concluding that each successive
stage evolved from the previous one. Hence, it is claimed that development is
driven by some genetic code or prefigured program within the developing
entity.
Life cycle theories of organisational entities often explain development in
terms of institutional rules or programs that require developmental activities to
progress in a prescribed sequence.
7.1.1 Stages of Organisational Life Cycle
Organisational Life Cycle (OLC) is a model that states that the organisations
progress through a sequence of developmental stages. This model is linked to
the study of organisational growth and development. It is based on a biological
metaphor of living organisms, which have a regular pattern of development:
birth, growth, maturity, decline, and death. Likewise, the OLC of businesses
has been conceived of as generally having four or five stages of development:
start-up, growth, maturity, and decline, with diversification sometimes
considered being an additional stage coming between maturity and decline.
Start-up Stage: During the start-up stage or infant stage companies accumulate
capital, hire workers, and start developing their products or services.
Organisational structure at this stage is minimal and informal. Programs and
ministries are basic and spontaneous. There are few policies, systems, or
procedures, and limited budgets. Management by crisis can become the
primary method of operation and this hinders growth. The organisation may be
highly centralized. There may be no system for recruiting, developing or
evaluating volunteers. There are few official titles, no organisational chart, or
hierarchy. Toward the end of this stage, companies often experience explosive
growth and begin to hire new employees rapidly, because business
opportunities exceed infrastructure and resources.
Growth Stage: At this stage the organisation’s beliefs, values, goals, structure,
and actions become more formalized. The beliefs provide a doctrinal
agreement for organisational action. The goals extend the organisation’s shared
dream and the structure organizes the action. The expansion continues into the
growth stage where companies increase their resources and workforces
dramatically. The financial position of companies usually improves in this
stage, as company revenues grow and as companies establish strong customer
bases. Despite their expansion, companies may still need additional funds to
exploit all the available growth opportunities, so many go public at this point,
too.
One widely-cited conceptual work, however, was published in the Harvard
Business Review in 1972 by L. Greiner. He used five growth phases: growth
through creativity; growth through direction; growth through delegation;
growth through coordination; and growth through collaboration. Each growth

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Notes stage encompassed an evolutionary phase. The evolutionary phases were

hypothesized to be about four to eight years in length, while the revolutionary
phases were characterized as the crisis phases. At the end of each one of the
five growth stages listed above, Greiner hypothesized that an organisational
crisis will occur, and that the business’s ability to handle these crises will
determine its future:
 Phase 1: Growth through creativity eventually leads to a crisis of
leadership. More sophisticated and more formalized management practices
must be adopted. If the founders can’t or won’t take on this responsibility,
they must hire someone who can, and give this person significant authority.
 Phase 2: Growth through direction eventually leads to a crisis of
autonomy. Lower level managers must be given more authority if the
organisation is to continue to grow. The crisis involves top-level managers’
reluctance to delegate authority.
 Phase 3: Growth through delegation eventually leads to a crisis of control.
This occurs when autonomous employees who prefer to operate without
interference from the rest of the organisation clash with business owners
and managers who perceive that they are losing control of a diversified
company.
 Phase 4: Growth through coordination eventually leads to a crisis of red
tape. Coordination techniques like product groups, formal planning
processes, and corporate staff become, over time, a bureaucratic system
that causes delays in decision making and a reduction in innovation.
 Phase 5: Growth through collaboration is characterized by the use of
teams, a reduction in corporate staff, matrix-type structures, the
simplification of formal systems, an increase in conferences and
educational programs, and more sophisticated information systems. While
Greiner did not formally delineate a crisis for this phase, he guessed that it
might revolve around “the psychological saturation of employees who
grow emotionally and physically exhausted by the intensity of team work
and the heavy pressure for innovative solutions.”
Maturity Stage: At the maturity stage the growth gets lowered. By this stage,
companies have amassed assets and solid profits, by becoming established in
the market. The primary area of business has become a cash cow because it
controls a sizable market share and continues to yield profits, but experiences
slow or stagnant growth. In order to avoid the decline stage, mature companies
often take a variety of actions to renew their growth, such as acquiring other
companies and expanding product lines. Some business theorists consider the
foray into new markets a separate stage, namely, the diversification stage.
Decline Stage: If companies fail to implement measures to improve growth,
they will most likely enter the fourth and final stage of the OLC: decline. In
this stage, not only company hiring drops, but also company sales and profits.

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Furthermore, demand for a company’s products or services decreases. To Notes

compensate for the decline, companies launch downsizing or reengineering
campaigns during this stage. If these efforts do not succeed, however,
companies look for a buyer or shut down.
Diversification: As companies progress through the organisational life cycle
the criteria for their effectiveness change. Companies tend to change their
management styles, reward systems, organisation structures, communication
and decision-making processes, and corporate strategies. As companies mature,
they usually strive to become more innovative or they diversify by making
acquisitions.
Despite the usefulness of this model, business scholars point out that
companies do not always develop linearly as the OLC model suggests. Instead,
companies may experience little growth initially and then experience
decreasing sales, before moving into a stage of growth. Or they may undergo
spurts of growth and decline, which makes it difficult to place them in any
particular stage. Nevertheless, the model represents general patterns companies
experience while developing.

Learning Activity
Analyse the lifecycle of Private Banks and make a presentation.

7.1.2 Organisation Life Cycle and the Small Business Owner

Entrepreneurs who are involved in the early stages of business creation are
unlikely to become preoccupied with life cycle issues of decline and
dissolution. Indeed, their concerns are apt to be in such areas as securing
financing, establishing relationships with vendors and clients, preparing a
physical location for business operations, and other aspects of business start-up
that are integral to establishing and maintaining a viable firm. Basically, these
firms are almost exclusively concerned with the very first stage of the
organisation life cycle. Small business enterprises that are well-established, on
the other hand, may find OLC studies more relevant. Indeed, many recent
examinations of organisation life cycles have analysed ways in which
businesses can prolong desired stages (growth, maturity) and forestall negative
stages (decline, death). Certainly, there exists no timeline that dictates that a
company will begin to falter at a given point in time. “Because every company
develops at its own pace, characteristics, more than age defines the stages of
the cycle,” explained Karen Adler and Paul Swiercz in Training &
Development.
Small business owners and other organisation leaders may explore a variety of
options designed to influence the enterprise’s life cycle – from new products to
new markets to new management philosophies. After all, once a business
begins to enter a decline phase, it is not inevitable that the company will

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Notes continue to plummet into ultimate failure; many companies are able to reverse
such slides (a development that is sometimes referred to as turning the OLC
bell curve into an “S” curve).

Entrepreneurs and managers should recognize that their business

success is often predicated on recognizing where your business is situated
along that measuring stick of the life cycle.

7.2 MODELS OF TRANSFORMATION

Organisations and their managers must recognize that change, in itself, is not
necessarily a problem. The problem often lies in an inability to effectively
manage change. Not only can the adapted process be wrong, but also the
conceptual framework may lack vision and understanding. This happens
because the managers are unable to appropriately develop and reinforce their
role and purpose within the complex, challenging and dynamic organisations.
Change is now a way of life; organisations and more importantly their
managers, must recognize the need to adopt strategic approached when facing
transformation situations. Some of this approaches that have been discussed
below include:
1. Systems model of Change
2. Force Field Analysis
3. Continuous Change Process Model
4. Change and Transition Management
5. Organisational Growth Model
Systems Model of Change
Meeting the challenge posed by the organisation change often means not doing
things piecemeal. To be successful, change usually must be organisation wide
(Armenakis, et. al., 1999). From the perspective of managing change a system
may be defined as being an organized assembly of components, which are
related in such a way that the behaviour of any one individual component will
influence the overall status of the system. It is not possible to think of any
physical mechanism or process that cannot be described in a systematic
manner. All types of systems, physical or ‘soft’, must have a predetermined
objective that the interrelated components strive to achieve. Changes in any
given system will affect both its internal working and very possible those of
related external systems.
The System Model shown in Figure 7.1 provides a useful way to think about
organisational change.

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People Culture Notes

Task Technology

Design Strategy

Figure 7.1: System Model

The System Model of change describes the organisation as six interacting
variables that could serve as the focus of planned change: people, culture, task,
technology, design, and strategy. The people variable applies to individuals
working for the organisation, including their individual differences –
personalities, attitudes, perceptions, attributions, needs and motives. The
culture variable reflects the shared beliefs, values, expectations, and norms of
organisational members. The task variable involves the nature of work itself –
whether job are simple or complex, novel or repetitive, standardized or unique.
The technology variable encompasses the problem solving methods and
techniques used and the application of knowledge to various organisational
processes. It includes such things as the use of information technology, robots,
and other automation, manufacturing process tools and techniques. The design
variable is the formal organisational structure and its system of
communication, control, authority, and responsibility. Finally, the strategy
variable comprises the organisations planning process and includes decisions
about how the organisation chooses to compete. It typically consists of
activities undertaken to identify organisational goals and prepare specific plans
to acquire, allocate, and use resources in order to accomplish those.
As Figure 7.1indicates, these six variables are interdependent. A change in any
one usually results in a change in one or more of the other. For example, a
change in the organisation strategic plan might dictate a change in organisation
design to an adaptive or network form. This change, in turn, could result in the
reassignment of people. At the same time, the redesign may also lead to a
change in the technology used by the organisation, which affects the attitudes
and behaviours of the employees involved, and so on. All these changes would
occur within a particular organisation culture, which might either support or
resist them. Moreover, the change itself may either modify or reinforce the
prevailing culture. The system approach reminds management that it cannot
change part of the organisation, without, in some sense changing the whole.

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Notes

An advantage of the systems approach to organisational change is

that it helps employees and managers understand and think through such
interrelationship.

Lewin’s Force Field Analysis Model

We have earlier discussed that the environment forces push companies to
change the way they operate which is relatively easy to visualise. What is more
difficult to see is the complex interplay of these forces against other
organisational dynamics. Psychologist Kurt Lewin developed the Force Field
Analysis model to help us understand how the change process works. Although
developed over 50 years ago, Lewin’s Force Field Analysis model remains the
prominent way of viewing this process.
One side of the Force Field Model represents the driving forces that push
organisations towards a new state of affairs. There are several driving forces in
the environment like information technology, global and local competition and
demographics. Along with these external forces are driving forces that seem to
originate form within the organisation, such as competition across divisions of
the company and the leaders need to impose his or her image on the
organisation.
The other side of the Lewin’s model represents the restraining forces that
maintain the status quo. There restraining forces are commonly called
“resistance to change” because they appear as employee behaviour that block
the change process. Stability occurs when the driving and restraining forces are
roughly in equilibrium; that is, they are of approximately equal strength in
opposite directions.
The reaction to change (driving or resisting) of employees will depend on the
source of change and their position relative to it. When an individual or a group
has initiated certain actions, which in turn have to be managed, then they are
more likely to display positive attitudes towards the situation and view it as
driving forces. When the feeling of ownership is combined with the knowledge
that one controls, and has influence over the surrounding environment then the
driving forces for the change will be significant. Externally generated change
produces the greatest degree of negative feedback from those affected resulting
in presence of restraining forces. Table 7.1 illustrates the attitudinal responses
and key features that can be attributed to the source of change

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Table 7.1: Reactions to Change Based on Sources of Change Notes

Internally generated change Externally generated change
Proactive stances Reactive response
Positive feelings Negative feelings
Greater driving forces Greater restraining forces
Higher certainty Higher uncertainty
Higher control Lowered control
Less disruption High disruption

Kurt Lewin suggests that efforts to bring about planned change in organisation
should approach change as a multistage process (Lewin, 1951). His model of
planned change is made up of three steps – unfreezing, change, and refreezing
– as shown in Figure 7.2

Unfreeze Change Refreeze

Old state (Awareness (Movement (Assurance New State
of need for from old of
change) state to new permanent
state) change)

Figure 7.2: Lewin’s Process of Organisational Change

Continuous Change Process Model

Perhaps because Lewin’s model is very simple and straightforward, critically
all models of organisation change use this approach. However, it does not deal
with several important issues. A more complex and more helpful approach is
illustrated in Figure 7.3.
1. Forces for 2. Recognise and 3. Problem
change define problem solving

Change Agent

5. Measure, 4. Implement Transition

evaluate, control the change Management

Figure 7.3: Continuous Change Process Model of Organisation Change

This approach treats planned change from the perspective of top management
and indicates that change is continuous. It is also important to note that as
change becomes continuous in organisations different steps are probably
occurring simultaneously throughout the organisation. This model incorporates
Lewin’s concept into implementation phase.

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Notes In this approach, top management perceives that certain forces or trends call
for change, and the issue is subjected to the organisations usual problem
solving and decision-making process. Usually, top management defines its
goals in terms of what the organisation or certain processes or outputs will be
like after the change. Alternatives for change are generated and evaluated, and
an acceptable one is selected.
Early in the process, the organisation may seek the assistance of a change agent
– a person who will be responsible for managing the change effort. The change
agent may also help management recognize and define the problem or the need
for change agent may be involved in generating and evaluating potential plans
of action. The change agent may be a member of the organisation, or an
outsider such as a consultant, or even someone from headquarters whom
employees view as an outsider. An internal change agent is likely to know the
organisations people, task, and political situation, which may be helpful in
interpreting data and understanding the system; but an insider may also be too
close to the situation to view it objectively. (In addition, a regular employee
would have to be removed from his or her regular duties to concentrate on the
transition). All parties because of his or her assumed impartiality, then, often
receive an outsider, better. Under the direction and management of change
agent, the organisation implements the change through Lewin’s unfreeze,
change and refreeze process.
The final step is measurement, evaluation and control. The change agent and
the top management group assess the degree to which the change is having the
desired effect; that is, they measure progress towards the goals of change and
make appropriate changes if necessary. The more closely the change agent is
involved in the change process, the less distinct the step becomes. The change
agent becomes a “collaborator” or “helper” to the organisation as she or he is
immersed in defining and solving the problems with members of the
organisation. When this happens, the change agent may be working with many
individuals, groups, and departments within the organisation on different
phases of the change process. When the change process is moving along from
one stage to another it may not be readily observed because of the total
involvement of the change agent in every phase of the project. Throughout the
process, however, the change agent brings in new ideas and viewpoints that
help members look at old problems in new ways. Change often arises from the
conflict that results when the change agent challenges the organization’s
assumptions and generally accepted patterns of operations.
Through the measurement, evaluation and control phase, top management
determines the effectiveness of the change process by evaluating various
indicators of organisational productivity and effectiveness on employee
morale. It is hoped that organisation will be better after the change than before.
However, the uncertainties and rapid change in all sections of environment
make constant organisation change a certainty for most organisations.

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Transition Management is the process of systematically planning, organizing, Notes

and implementing change from the disassembly of the current state to the
realisation of a fully functional future state within an organisation (Ackerman,
1982). Once change begins, the organisation is in neither the old state nor the
new state. Yet business must go on. Transition management ensures that
business continues while the change in occurring, and thus it must begin before
the change occurs. The members of the regular management team must take on
the role of transition manager and coordinate organisational activities with the
change agent. An interim management structure or interim positions may be
created to ensure continuity and control of the business during the transition.
Communication about the changes to all involved, from employees to
customers and suppliers play a key role in transition management (Tichy and
Ulrich 1984).
Beckhard (1992) suggest ten organisational prerequisites, which must exist
before transformational change can be achieved in an organisation. These are
summarized in Table 7.2
Table 7.2
Priority Prerequisites
1. Ensuring senior management commitment to the imposed changes, which needs to be visible
to all participants throughout the organization.
2. Producing a written statement about the future direction of the organization that makes clear
its new objectives, values and policies.
3. Creating a shared awareness of condition to produce a common perception that change must
be implemented.
4. Assembling a body of key managers and other important opinion-formers to gain their
commitment to the change process so that this may be disseminated more widely.
5. Generating an acceptance that this type of change will require a longtime to implement fully
even though there may be short-term, dramatic changes as part of the overall process of
transformation.
6 Recognising that resistance to change is part of the normal process of adaptation, so that
manager can be effective to be aware of this and equipped to manage this reaction.
7 Educating participants about the need for change and training them with the necessary
competence to be effective to overcome resistance and gain commitment.
8. Preserving with the change process and avoiding blame where an attempt to implement a
facet of this process fails. Such negative action will generate resistance and reduce necessary
risk-taking behaviour.
9. Facilitating the change process with necessary resources.
10 Maintaining open communication about process, mistake and subsequent learning.

Change and Transition Management

If the concept of change can be examined from an internal, external or
proactive set of viewpoints, then the response of managers has to be equally as
widespread. Buchanan & McCalman (1989) suggest that this requires a
framework of ‘perpetual transition management’. Following from Lawler’s
(1986) concept of the lack of a visionary end state, what appears to be required

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Notes is the ability within managers to deal with constant change. This transition
management model, although specifically related to large-scale organisational
change, has some interesting insights into what triggers change in organisation
and how they respond. It suggests that four interlocking management processes
must take place both to implement and sustain major organisational changes.
These processes operate at different levels, and may involve different actors in
the organisational hierarchy. The four layers are:
 Trigger Layer: Concerning the identification of needs and openings for
major change deliberately formulated in the form of opportunities rather
than threats or crises.
 Vision Layer: Establishing the future development of the organisation by
articulating a vision and communicating this effectively in terms of where
the organisation is heading.
 Conversion Longer: Setting out to mobilise support in the organisation for
the new vision as the most appropriate method for dealing with the triggers
of change.
 Maintenance and Renewal Layer: Identifying ways in which changes are
sustained and enhanced through alterations in the attitude, values and
behaviours, and regression back to tradition is avoided.
THEORY PRACTICES
Interlocking Processes

Trigger layer Opportunity, threat, crisis.

Clarify, express, communicate

Vision layer Define the future (including structure)

Challenges, excitement, innovation

Conversion layer Persuade, recruit disciples

Detail the structure

Maintenance and renewal Sustain and enhance belief

layer
Reinforce and justify
Regression avoidance (ritual)

Figure 7.4: Model of Perceptual Transition Management (Buchanan & McCalman, 1989
Transition management suggests that organisations have to plan for, divert
resources to, and implement four sets of interlocking processes. These are
designed to implement, to sustain, and to build on change and its achievement
in an attempt to address the issues associated with change over time. The
argument here is that these layers – trigger, vision, conversion and maintenance

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and renewal – are necessary processes that occur in change management. The Notes
respective emphasis and priority attached to each of them will alter overtime,
but recognition of their existence goes a long way in determining the
management action needed.
The model of perceptual transition management starts out with a number of
questions. How do we explain successful change? How do we explain changes
in organisations that were doomed from the start? How do we explain changes
that are initially successful but wane or fizzle out halfway through? Effective
large-scale changes demand a series of management actions linked to the four
interlocking layers or processes (Figure 7.4).
In terms of trigger layer, it is necessary to understand what is causing a need
for change in the organisation. These triggers need to be expressed in a clear
way and communicated throughout the organisation.

Example: Poor trigger identification and communication processes are

best seen when the first that employees know of the difficulties facing the
organisation is when they are called in to discuss redundancy terms.

People are generally willing and able to deal with change but many
managers do not understand this. They are afraid that change is associated
with some form of failure and feel they need to hide the changes. People
will accept change when they know it is necessary and accept the
explanation for the need for change.

It is necessary for these triggers to be expressed and communicated throughout

the organisation in clear and identifiable terms. For example, the trigger in
many organisations is often a crisis, but it does not necessarily have to be a
threat. People will respond to a challenge of a crisis but may react negatively to
a threat. Expressing any potential crises as an opportunity for change may
assist the process itself. In this sense, the language in which the triggering
mechanism is transmitted to the internal organisation has to be clearly
expressed as opportunity, and communicated widely. The chances of
successfully implementing change are significantly improved when everyone
concerned has a shared understanding of what may happen and why.
If the trigger for change has been clearly recognized and expressed, it is also a
requirement for management within the organisation to define the future. This
does not call for crystal ball gazing but for the establishment of the vision
layer. The requirement here is for definition and expression of where the
organisation intends to go. Just as shared understanding and awareness of the
triggers for change help smooth the process, so do shared awareness and
understanding of the new vision and the desired organisational goals.

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Notes Management must realise the future in terms of three criteria. The first is that
change is seen to provide an effective response to the events triggering change.
Second, there is identification of the desired future condition of the
organisation in terms of its design, its products and its goals. Finally, it must
provide challenge and stimulation. Change is assisted by a climate of
enthusiasm and participation; resistance is the result of fear, prejudice, anxiety
and ignorance.
The third layer of perceptual transition management is related to gaining
recruits for change. By this it is meant that those who have to work through the
change process need to be converted to the ideas and concepts and own them.
Defining a future that no one can ‘buy into’ will slow or hinder the change
itself. Everyone involved in making change work has to feel part of it and
accept the reasoning for the vision and how this is to be realized. It is at this
point that the vision has to be detailed and aspects such as future structure and
patterns of work explained. There is need at this point to recruit disciples to the
vision. This is time-consuming, as it requires detailed explanation. Failure to
do so results in negotiation, renegotiations or decay. Managers at this stage
need to get involved in two activities. First there is the planning team, the main
core change unit. The most appropriate mechanism here will depend upon the
organisation and its consultation systems. Second, it is also necessary to talk to
people about the change at every opportunity, formal or informal. This
establishes a shared understanding the change problem through debate.
The last question that perpetual transition management attempts to resolve is
related to the decay associated with the management of mid-term change.
Maintenance and renewal attempt to address the ‘moving goalpost’ features of
change. There are four main examples of this. First, the events that triggered
change in the first place fade in the memory or lose their relevance over time.
Second, articulation of the vision becomes less expressive when the
organisations move on. Third, replacements feel less committed to the idea and
have to be taken through the reasons for, and responses to, the triggers. Fourth,
the change that took place settles down and becomes the norm in the
organisation. To avoid this sort of decay process there is a requirement for the
organisations to allocate resources to maintaining and renewing the original
visions in an evolutionary framework. In this sense, management takes part in
a process that is described as one of permanent transition. It is this point that
can be regarded as the crucial concept. Getting managers to recognize that
change is a constant feature in modern organisations, and one which they have
to deal with, goes a long way towards addressing some of the factors, which
lead to resistance to change.
Organisational Growth Model
Our discussions in this chapter have focused on changing or working on
problems in organisation that are already established. How different are the
issues in new or emerging organisation? A developmental theory developed by

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Larry E. Greiner (Griener, 1972) is helpful in examining growing Notes

organisations.
Greiner argues that growing organisations move through five relatively calm
periods of evolution, each of which ends with a period of crisis and revolution.
According to Greiner, “each evolutionary period is characterized by the
dominant management style used to achieve growth, while each revolutionary
period is characterized by the dominant managerial problem that must be
solved before growth will continue.”
As illustrated in Figure 7.5, the first stage of organisational growth is called
creativity. The founders of the organisation dominate this stage, and the
emphasis is on creating both a product and a market. These “founder” are
usually technically or entrepreneurially oriented, and they disdain management
activities; their physical and mental energies are absorbed entirely in making
and selling a new product.” But as the organisation grows, management
problems occur that cannot be handled through informal communication and
dedication. “Thus the founders find themselves burdened with unwanted
management responsibilities … and the conflicts between the harried leaders
grow intense.”
It is at this point that the crisis of leadership occurs and the first revolutionary
period begins. “Who is going to lead the organisation out of confusion and
solve the management problems confronting the organisation? The solution is
to locate and install a strong manager, “who is acceptable to the founders and
who can pull the organisation together. “This leads to the next evolutionary
period - growth through direction.
During this phase the new manager and the key staff “take most of the
responsibility for instituting direction, while lower level supervisors are treated
more as functional specialist than autonomous decision-making managers”. As
lower level managers demand more autonomy, this eventually leads to the next
revolutionary period – the crisis of autonomy. The solution to this crisis is
usually delegation.
When an organisation gets to the growth stage of delegation it usually begins to
develop a decentralized organisation structure, which heightens motivation at
the lower levels. Yet, eventually the next issue begins to evolve as top
managers, “sense that they are losing control over a highly diversified field
operation—freedom breeds a parochial attitude.”
A more effective solution tends to initiate the next evolutionary period – the
coordination stage. This period is characterized by the use of formal systems
for achieving greater coordination with top management as the “watch-dog”
Yet most coordination systems eventually get carried away and result in the
next revolutionary period – the crisis of red tape. This crisis often occurs when,
“the organisation has become too large and complex to be managed through
formal programs and rigid systems.”

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Notes It the crisis of red tape is to be overcome, the organisation must move to the
next evolutionary period – to phase of collaboration. While the coordination
phase was managed through formal systems and procedures, the collaboration
phase “emphasizes greater spontaneity in management actions through teams
and skilful confirmation of interpersonal difference. Social control and self-
discipline takes over the formal control.”

Figure 7.5: The Five Stages of Growth

The crisis of control often results in a return to centralization,

which is now inappropriate and creates resentments and hostility among
those who had been given freedom.

7.3 MODELS OF ORGANISATIONAL DECISION MAKING

Decision making involves identifying and selecting alternative solutions that
provide a desired state of affairs.

Example: You may be reading an e-book as part of an online course

that you decided to take because you are working full time. Alternatively, you
may be a full-time student reading a book as part of a course being taken on

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campus. Identifying and sorting out alternatives like when and how to take a Notes
course is the process of decision making.
Organizational decision making is the process of responding to a problem by
searching for and choosing a solution or course of actions that will create value
for organizational stakeholders.
Broadly there are two categories of organizational decision making models.
They are:
 Rational model
 (Various) Non-rational models
Rational Model
The rational model offers that managers use a rational, four-stage sequence
when making decisions, shown in Figure 7.6. According to this model,
managers are completely objective and have complete information to make a
decision. Regardless of criticism for being unrealistic, the rational model is
instructive because it analytically breaks down the decision-making process
and serves as a conceptual anchor for newer models. This model of decision
making process has four steps which are explained as below:

Figure 7.6: Rational Model

Stage 1: Identify the Problem or Opportunity: Determining the Actual versus

the Desirable
A problem occurred when the actual situation is different from the desired
situation. However, managers also need to make decisions regarding
opportunities. An opportunity denotes a situation in which there are
possibilities to do things that lead to exceed goals and expectations as a result.
Whether a manager faces a problem or an opportunity, the objective is always
the same that is to make improvements that change conditions from their
current state to more desirable ones. This requires you to diagnose the causes
of the problem.
Stage 2: Generate Alternative Solutions—Both the Obvious and the Creative
After identifying a problem and its causes, the next logical step is generating
alternative solutions.

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Notes Stage 3: Evaluate Alternatives and Select a Solution—Ethics, Feasibility,

and Effectiveness
In this stage, manager needs to evaluate alternatives in terms of several criteria.
Not only are costs and quality important, but you should consider the following
questions: Is it ethical? (If not, don’t consider it.)
Stage 4: Implement and Evaluate the Solution Chosen
Once a solution is selected, it has to be implemented. After implementing the
selected solution, the evaluation phase assesses its effectiveness. If the solution
is effective, it should reduce the difference between the actual and desired
states that created the problem.
Non-rational Model
On the contrary to the rational model which focuses on how decisions should
be made, non-rational models focus to explain how decisions actually are
made. They are based on the assumption that decision making is uncertain, that
decision makers do not possess complete information, and that it is difficult for
managers to make optimal decisions. There are two non-rational models are
Herbert Simon’s normative model and the garbage can model.
Simon’s Normative Model
Herbert Simon proposed the normative model to explain the process that
managers actually use when making decisions. The process is guided by a
decision maker’s bounded rationality. Bounded rationality represents the
notion that decision makers are “bounded” or restricted by a variety of
constraints when making decisions. These constraints include any personal
characteristics or internal and external resources that reduce rational decision
making.
The Garbage Can Model
In the garbage can model, decisions result from a complex interaction between
four independent streams of events: problems, solutions, participants, and
choice opportunities. This model represents a view of decision making that
takes the unstructured process to the extreme.
 Decision makers are supposed to start decision making from the solution
side as the problem side.
 Create decision-making opportunities that they can solve with ready-
made solutions based on their competencies and skills
 Different coalitions may champion different alternatives
 Decision making becomes a “garbage can” in which problems, solutions,
and people all mix and contend for organizational action

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 Selection of an alternative depends on which person’s or group’s definition Notes

of the current situation holds power

Learning Activity
Make a presentation on organisational decision making.

1. The U.S. Food and Drug Administration regulate a

sequence of steps that all firms must follow to develop
and commercialize a new drug or biomedical product.
2. Greiner is not certain what the next revolution will be,
but he anticipates that it will center around the
‘psychological saturation’ of employees who grow
emotionally and physically exhausted by the intensity
of teamwork and heavy pressure for innovative
solutions.

SUMMARY
 The life cycle theories include developmentalism, biogenesis, ontogenesis
and a number of stage theories of child development, human development,
moral development, organisational development, group decision making,
and new venture development.
 Life cycle theories of organisational entities often explain development in
terms of institutional rules or programs that require developmental
activities to progress in a prescribed sequence.
 Organisational Life Cycle (OLC) is a model that states that the
organisations progress through a sequence of developmental stages. This
model is linked to the study of organisational growth and development.
 Entrepreneurs who are involved in the early stages of business creation are
unlikely to become preoccupied with life cycle issues of decline and
dissolution.
 The System Model of change describes the organisation as six interacting
variables that could serve as the focus of planned change: people, culture,
task, technology, design, and strategy.
 The reaction to change (driving or resisting) of employees will depend on
the source of change and their position relative to it.
 Transition Management is the process of systematically planning,
organizing, and implementing change from the disassembly of the current
state to the realisation of a fully functional future state within an
organisation

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Notes  Decision making involves identifying and selecting alternative solutions

that provide a desired state of affairs.
 Bounded rationality represents the notion that decision makers are
“bounded” or restricted by a variety of constraints when making decisions.

KEYWORDS
Coalitions: An alliance for combined action, especially a temporary alliance of
political parties forming a government or of states.
Opportunity: A set of circumstances that makes it possible to do something.
Organisational Life Cycle: It refers to the expected sequence of advancements
experienced by an organization, as opposed to a randomized occurrence of
events
Transformation: A thorough or dramatic change in form or appearance
Force Field Analysis: Force Field Analysis is a useful decision-making
technique. It helps you make a decision by analyzing the forces for and against
a change, and it helps you communicate the reasoning behind your decision.
Transition Management: Transition management can be defined as the
planning, coordination, implementation and reporting process required to
successfully restructure a portfolio. The objective of this process is to minimise
the costs and market risks associated with the restructure and provide a smooth
and orderly transition.
Bounded Rationality: Bounded rationality is the idea that in decision-making,
rationality of individuals is limited by the information they have, the cognitive
limitations of their minds, and the finite amount of time they have to make a
decision.

SELF-ASSESSMENT QUESTIONS
Short Answer Questions
1. Explain the concept of life cycle.
2. Discuss the stages of organisational life cycle.
3. What do you understand by diversification?
4. Discuss the characteristics of decline stage of organisational life cycle.
5. Describe the different models of transformation.
6. Write short note on system model of change.
7. Explain organisational growth model.
8. Explain Lewin’s force field analysis model.

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9. Discuss the continuous change process model of organisation change. Notes

10. What is change and transition management?
Long Answer Questions
1. Discuss the different layers of transition management model.
2. Explain the models of organisational decision making.
3. Discuss the different stages of rational model.
4. Discuss how does the organisational life cycle impacts the small business.
5. Explain the different phases of growth stage of organisational life cycle.

FURTHER READINGS

Andrew Olivier (2012), “Organisational Design: What Your

University Forgot to Teach You”, Xlibris Corporation
Zimmerer Christian, Stockert Christoph (2013), “Organisation
Design in International Business”, GRIN Verlag
Cummings Thomas, Worley Christopher (2014), “Organization
Development and Change”, Cengage Learning
Myers Paul S (2009), “Knowledge Management and
Organisational Design”, Routledge

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Notes
LESSON 8 - ORGANISATIONAL LEARNING

CONTENTS
Learning Objectives
Learning Outcomes
Overview
8.1 Organisational Learning
8.1.1 Senge’s Approach
8.1.2 Nonaka and Takeuchi’s Approach
8.1.3 Reality Checklist
8.1.4 Seven Steps to Initiating Organisational Learning
8.2 Innovation, Intrapreneurship and Creativity
8.3 HR Implications
Summary
Keywords
Self-Assessment Questions
Further Readings

LEARNING OBJECTIVES
After studying this lesson, you should be able to:
 Understand the concept of organisational learning
 Discuss the intrapreneurship, innovation and creativity
 HR implications for organisational learning.

LEARNING OUTCOMES
Upon completion of the lesson, students are able to demonstrate a good
understanding of:
 the learning organization in which learning processes are analyzed,
monitored, developed, managed, and aligned with improvement and
innovation goals
 innovation is the process by which organisations use their skills,
knowledge, ideas and resources to develop new and unique goods and

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services or to develop new production and operating systems so that they Notes
can better respond to the needs of their customers.
 top management should create a culture that supports innovation and
recognizes and rewards the contributions of organizational members.

OVERVIEW
In the previous lesson, you studied the concept of organisational life cycle.
You also studied the models of transformation as well as decision making.
Organisational learning is an area of knowledge within organisational theory that
studies models and theories about the way an organisation learns and adapts. It
has the capacity to adjust, change, learn and adapt which is increasing day by
day from large multinationals to the small ventures. Our aim in this lesson is to
make you understand the process of initiating organisational learning.
In this lesson, you will be able to examine the concept of learning organisation
with the help of various approaches. Also, you will be able to understand the
different perspectives that are related to the organisational learning.

8.1 ORGANISATIONAL LEARNING

Learning organisation refers to an organisation which aims at transferring,
creating and acquiring knowledge for modifying the behaviour in order to
reflect new insights and knowledge. Thus, it is a place where an individual is
having a chance to expand and enhance his/her skills and knowledge to their
capacity for creating the desirable outcomes which they desire, where the
collective aspirations are set free, where the people continuously have the
choice to learn and where their expensive and new patterns of thinking are
nurtured.
A learning organization is an organization that has enhanced capacity to learn,
adapt and change (Gephart, 1996). It’s an organization in which learning
processes are analyzed, monitored, developed, managed, and aligned with
improvement and innovation goals. The essence of learning organization,
according to Gephart is:
 Continuous Learning at the Systems Level: Individuals share their
learning in ways that enable an organization to learn by transferring
knowledge across it and by integrating learning into organisational routines
and actions.
 Knowledge Generation and Sharing: Emphasis is placed on creating,
capturing, and moving knowledge rapidly and easily so that the people who
need it can access and use it quickly.
 Critical Systemic Thinking: People are encouraged to think in new ways
and use productive reasoning skills, systemically in order to see links and
feedback loops, and critically in order to identify assumptions.

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Notes  A Culture of Learning: Learning and creativity are rewarded, supported,

and promoted through various performance systems from the top down.
 A Spirit of Flexibility and Experimentation: People are free to take risks,
experiment, innovate, explore new ideas, and generate new work processes
and products.
 People Centered: A learning organization provides a caring community
that nurtures, values, and supports the well-being, development and
learning of every individual.
Now you will be able to understand the primary aims of learning organisation
with the help of following Figure 8.1:

Source: http://incsub.org/soulsoup/?p=474

Figure 8.1: Primary Aims of Learning Organisation

From the business context, the major primary aims of the learning organisation
shown in figure, is as follows:
 Making explicit knowledge visible and accessible – on demand
 capturing the tacit knowledge
 disseminating the knowledge effectively
 implementing a culture of knowledge sharing and continuous learning
Characteristics of Learning Organisation
The characteristics of the learning organisation are as follows:
 Strategic Orientation: Before taking any decisions, learning organisations
has to take care of both its customers and employees.
 Openness: There should be openness in the learning organisation for both
the tolerant of debate and criticism as well as enquiry also.
 Innovation: There must be organic culture and structure in the learning
organisation which allows it to evolve rapidly. Also, it must have the deep
skill and the capacity to deal with internal uncertainty and complexity.

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3M’s of Learning Organisation Notes

The main issues related to learning organisation are the three M’s which are as
follows:
 Management: Guidelines are clearly defined for practice which is filled
with operational device rather than high aspirations.
 Measurement: For ensuring gains, better and appropriate tools are made
for evaluating the level of learning.
 Meaning: Definition of the learning organisation must be well grounded
which can be easy applicable.
Types of Learning
There are four types of learning according to the Executive Vice President of
Human Resources at the Canadian Imperial Bank of Commerce (CIBC),
Michele Darling. These are shown in Table 8.1:
Table 8.1: Types of Learning
Team Learning Individual Learning Customer Learning Organisation Learning
It refers to the Here the Here every person and the Here with the help of
employees who are responsibility is firm need to know about various networks of
task oriented and takes placed on the what are the evolving learning the teams
the responsibility of individual for the needs and future shares achievements and
learning. continuous learning. requirements of the success.
customers.

Five Factors of Interaction in Learning

Now with the help of following figure 8.2, you will be able to understand the
five factors of interactions:

Source: http://training.kluwer.be/en/Advies/advies_Lerendeorg/

Figure 8.2: Factors of Interaction

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Notes The five factors of interactions that take place within the organisation play an
important role in learning. To bring learning in the organisation, it is essential
to have the updated technology, and focus on people and knowledge
management.
Problems in Learning
There are certain aspects according to Huseman who points out various
problems in learning which can make it handicap. These are as follows:
 Autonomous Learning: Here actors do not learn from the organisations.
 Filtered Learning: Here actors filter the knowledge which they exchange.
 Egocentric Learning: Here the information is interpreted from its frame of
reference by the organisation.
 Unbalanced Learning: Here from the selected group of actors the
organisation learns.
8.1.1 Senge’s Approach
The intellectual and spiritual champion “Peter Senge” believes that the
organisation should focus on the conditions and circumstances that motivate
people to do great things for their organisation as well as for them. He also
states that by bringing changes in the organisation, the deeply embedded
practices and policies can be changed.
Senge aimed at the “subtler tasks” of enhancing the creative capabilities of the
organisation which is not only about achieving the performance objectives of
the business but also concerned of taking a personal stake in shaping the
character of the company.Now you will be able to understand the five basic
learning disciplines in the learning organisation.

Source: http://www.kmutt.ac.th/iclord2005/downloads/Background%20 paper.htm

Figure 8.3: Five Learning Disciplines

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Five learning disciplines in the learning organisations shown in Figure 8.3 are Notes
explained as follows:
(a) Personal Mastery: It creates the organisational climate that encourages and
motivates the organisational members to develop themselves towards
purposes and objectives which they choose.
(b) Mental Models: It is an enquiry and reflection skills which is focused in
developing awareness of perceptions and attitudes. It, thus, helps in
defining the current reality more clearly and honestly and shapes the
manager’s views of market strategies and conditions.
(c) Shared Vision: It emphasises on the focus of mutual purpose. Thus, by
guiding practices and principles and developing shared images build a
sense of commitment within a group.
(d) Team Learning: It is related with the interactions among the group. Thus,
it is a collective thinking which put focus on achieving the common goals
and involves exposing new ideas through constructive disagreement and
being comfortable not knowing answer to every question as well as
listening to others without confirmation bias.
(e) Systems Thinking: It is about the behaviour of the feedback and is able to
deal more efficiently with the force that shapes the consequence of their
actions. Thus, it is a language for understanding and describing
interrelationships which helps in shaping the behaviour of the systems.
Now with the help of following example you will be able to understand
building up of shared vision:
8.1.2 Nonaka and Takeuchi’s Approach
The Socialisation, Externalisation, Combination and Internalisation (SECI)
model of knowledge was developed by Ikujiro Nonaka and Hirotaka Takeuchi.
This model helps to create a process of understanding and managing the
dynamic nature of the creation of knowledge. This model represents the spiral
of knowledge where the tacit and explicit knowledge interact with each other
in a continuous process and thus, leads to the new knowledge.

The main aim of this model is held by the individuals in order to get
interconnected to a new knowledge.

In a model, when more rounds are done then the amount or spiral of knowledge
grows and develops all the time. Now you will be able to understand this
approach with the help of figure 8.4.

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Notes

Source: http://knowledgeandmanagement.wordpress.com/seci-model-nonaka-takeuchi/

Figure 8.4: The SECI Model

The four modes of knowledge conversion form a continuous process of
dynamic interactions between explicit and tacit knowledge. This interacts in
the spiral of knowledge creation which is explained below:
(a) Socialisation: Here sharing of tacit knowledge is done through shared
experience and face-to-face interactions.
(b) Externalisation: Here conversion of tacit knowledge is done to explicit
knowledge by developing models and concepts to an interpretable and
understandable form so that it can be also used by others. Thus, theoretical
and externalised knowledge is a base for the creation of new knowledge.
(c) Combination: Knowledge is organised and analysed in this phase. Here
when knowledge is explicit, then it can be combined with the knowledge
which has been earlier filed and compiled, externalised explicit knowledge
with the broader concept and entity systems.
(d) Internalisation: It refers to understanding the explicit knowledge as it
happens when explicit knowledge becomes the part of basic information of
the individual and transforms to the tacit. When individual shares his tacit
knowledge, then this cycle continues in the spiral of knowledge and back to
the socialisation.
In “The Knowledge Creating Company”, the authors present five requirements
to promote the knowledge spiral which are as follows:
(a) Organisational Intention: Here the identification of intention is done in a
strategic vision of the firm which should be broad to allow room for
conversation and interpretation.

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(b) Autonomy: Here the views, ideas and opinions that originate with Notes
individual can be shared by the organisation and teams and thus, in order to
act independently all employees must be trusted.
(c) Fluctuating and Creative Chaos: The fluctuation in response to change in
the external environment is similar to the concept of challenging habits or
mental models. Creative chaos is the feeling of urgency that stimulates
effort to generate and bring out breakthrough strategy ideas, products and
process.
(d) Redundancy: Japanese refer to redundancy as the tendency to promote
intentionally the overlapping possibilities of management and information
whereas on the other hand westerners refer it with the superfluous task and
people. Thus, in this approach the duplication accelerates the knowledge
creation process and spreads information more widely.
(e) Requisite Variety: Here the main objective is to create such conditions and
environment which helps the organisation to maximise information sharing,
accessibility and variety.

Evaluate the conditions in the environment carefully as it may not

lead the free flow of information accessibility.

8.1.3 Reality Checklist

Research of an organisation shows that there are neither any models for what a
learning organisation should be nor any company that possesses all the
features. However, now you will study the most commonly accepted
techniques in an organisation:
(a) Leadership: The following points are included in the leadership checklist:
 Vision for top executives for the success of business emphasise on the
profit and personal aspirations.
 Senior executives strengthen the values by behaving in a consistent way
with the stated values of the organisation or talking about them
frequently.
 CEO observes their role as the chief supporter of people and not as the
commander-in-chief.
 Top managers and CEO spent most of their time in meeting with their
employees and spend less time in their offices.
 Delegation of responsibility in decision making is often given to that
person in the organisation who actually does work and make
contribution.

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Notes (b) Culture: The following points are included in the culture checklist:
 Corporate principles and values are regarded as a main source of unity
and inspiration and are expressed formally as it provides framework for
the performance and behaviour which helps the organisation to reduce
bureaucracy.
 Management motivates and encourages their employees to make
considerable contributions by sharing of wisdom and information to the
success of their colleagues.
 For the recruitment of employees, values and culture are considered as
a very strong aspect.
 Employees are free to express their views or opinions about the
criticism of the organisation.
 The successful application of ideas is publicised internally by the
organisation.
 Time is allowed reflection, learning and skill development.
(c) Structures and processes: The following points are included in the
structures and processes checklist:
 Variety of mechanisms is used by the organisations to learn from the
external sources which include competitors, customers and suppliers.
 IT systems are designed in such a way so that it helps in increasing the
precision and speed with which the task is completed.
 Organisation encourages people to capitalise on opportunities for
informal learning.
 Events are conducted frequently by the organisation for sharing of
experiences, ideas and wisdom.
 Business information on best practices, performance and current
activities is shared and accessible.
 There is existence of procedures in order to retain the knowledge of
business which is acquired by the people who leave the organisation.
(d) Managing people as assets: The following points are included in the
checklist of managing people as assets:
 In developing business strategy with the line managers, the HR
professionals play a very important and active role.
 Off-the-job training learning experience both inside and outside is
promoted by the organisation.
 Personal growth and self-knowledge are recognised as the major
elements for the success of the organisation as well as for the
improvement of management skills.

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 For the individual skill development, management consider Notes

expenditures as an investment and not luxury.
 As a motivational factor, all employees need to understand the short
and long term mission of the business.
This concept can be well explained to you with the help of following example:

Example: Hewlett-Packard’s organisation and culture act as both a

facilitator and a barrier to knowledge as it believes in reuse of knowledge
sharing and leverage which has become part of its culture. The company has an
open culture that facilitates knowledge exchange. It has 3 main goals:
 Creating an environment in which people were keen to share knowledge
and experiences with others.
 Delivering additional value to customers without increasing work hours.
 Bringing more intellectual capital to the solutions for an organisation.
8.1.4 Seven Steps to Initiating Organisational Learning
The process of increasing an organisation’s learning capabilities does not start
by having a vision or by selecting the favourite consultant but must start with
an understanding of what represents the organisation’s present capabilities in
both learning systems and the performance. The steps for starting the
organisational learning process are shown below:

Source: Kavita Singh (2010), Organisation Change and Development, Excel Books Pvt. Ltd.

Figure 8.5: Steps for Starting the Organisational Learning Process

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Notes The process of organisational learning which is shown in figure 8.5 is as

follows:
Step 1: Knowledge of theory, research, and practice
In the first step, there are multiple researches and theories which address only
part of the organisational learning system that builds a foundation for valuing
information about organisation actions. All the theories are the explanation of
social phenomena that have been tested within the organisation.
Step 2: Understanding of organisational learning systems model
In the second step, theories, researches and stores of practice are integrated into
a map or quilt which provides a dynamic social basis for assessing the
organisational actions of both performing and learning.
Step 3: Asking questions for enquiry
In the third step, the organisation starts with the generation of new ideas which
is concerned with the learning system. Thus, this analysis is facilitated through
the use of the following analytical questions for each of the subsystems and
their interchange medium.
(a) New information and the environmental interface subsystem which
includes questions like –
 What kind of information does the organisation create?
 How does the organisation define its organisational environment?
 What role does experimentation play in developing new information,
etc.?
 What segments of the environment are scanned?
(b) Structuring and dissemination and diffusion subsystem includes questions
like –
 How well-established technical methods are communicated throughout
the organisation?
 How is the role of leadership defined in the organisation? How are
knowledge and information shared: vertically and horizontally?
 What is the accuracy and relevance of the information that is
communicated formally and informally?
 What extent are performance data available: individual and strategic?
(c) Sense making and memory and meaning subsystem which includes
questions like –
 What are the basic assumptions of the organisation concerning
performance?

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 How is information about technical expertise stored? Notes

 What are the basic assumptions of the organisation concerning
performance?
 What is the relationship between stored knowledge and the meaning of
that knowledge?
(d) Goal referenced knowledge and action/reflection subsystem includes
questions like:
 To what extent are employees involved in the decision-making
processes?
 How does the organisation evaluate the success of technical methods
and approaches, etc.?
 What criteria does the organisation employ to distinguish routine issues
from exceptional issues?
Step 4: Convert the new information into meaningful knowledge
In this step, the questions that are generated in the third step to get information
about organisation, is valued to give the answers. As information is not
regarded as knowledge because if it is got converted into actions the
organisation is not considered as learning but simply, moving information.
Thus, it may create lot of confusion and lack of sense making. Therefore, the
learning process starts with assigning and understanding the meaning to the
information through reflection and hence, identifies the challenges and strength
that the organisation may face in increasing its learning capacity.
Step 5: Analyse inputs and outputs of each subsystem
In this step, the analysis is done for the new information which allows the
organisation to develop knowledge of its challenges and strengths by using the
context of the organisational learning system.
Step 6: Respond to the challenges of each subsystem
In this step, challenges of each subsystem are as follows:
(a) Challenges of the meaning and memory subsystem include:
 Lack of cultural profile
 Lack of alignment in multiple
(b) Challenges of the action/reflection subsystem include:
 Resistance to the dual nature of knowledge
 Lack of readiness
 Lack of organisational reflection

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Notes (c) Challenges of the action/reflection subsystem includes:

 Resistance to the dual nature of knowledge
 Lack of organisational reflection
 Lack of readiness
(d) Challenges of the Environmental Interface Subsystem include:
 Lack of understanding of the role of management cognition and the
environmental interface subsystem
 Inappropriate screening
 Lack of variety of environmental interface actions (Modes)
Step 7: Take action
In this last step, the organisation learning system contains necessary functions.
The guiding function of memory and meaning subsystem is the most influential
which is impenetrable to change. As it contains major links to the culture of the
organisation, therefore, it is difficult to manipulate. Hence, its power lies in its
cybernetic relation to the other subsystems.

The concept of cybernetics refers to two phenomena associated

with the relative control of the subsystems in their consumption of energy
and information and systems theory—the relative source of energy and
information for the subsystem.

Learning Activity
Visit one public sector bank and one private sector bank in your
local area and find out their process of organisational learning and
make a comparison.

8.2 INNOVATION, INTRAPRENEURSHIP AND

CREATIVITY
In this section, you will learn about three terminologies: innovation,
intrapreneurship and creativity.
Innovation
Innovation is the process by which organisations use their skills, knowledge,
ideas and resources to develop new and unique goods and services or to
develop new production and operating systems so that they can better respond
to the needs of their customers.

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Notes
Example: Apple changed the appearance of the Computer industry
when it introduced the first PC, similarly Honda transformed the small
motorcycle market when it introduced small 50cc models, also Mary Kay
changed the way cosmetics are sold when she introduced its at-home cosmetics
parties and personalised style of selling.
While innovation brings about change, it is also associated with a high level of
risk as well because the outcomes of research and development are often
uncertain. It has been estimated that only 12% to 20% of R&D projects result
in complete products that get into the market; the others are failures. Hence,
although innovation can lead to change of the sort that organizations want—the
introduction of profitable new technologies and products—it can also lead to
the kind of change they want to avoid: technologies that are inefficient and
products that customers don’t want.
To encourage entrepreneurs and companies to take risks and invest in new
ventures whose payoff is unknown, laws are enacted to protect the profits that
result from successful efforts to innovate or create new products or services.
Individual inventors and companies are provided with the legal property rights
to own and protect their creations by the granting of patents, copyrights, and
trademarks.
Intrapreneurship
The entrepreneurs inside an organisation who are responsible for the success or
failure of a project are known as Intrapreneurs. The leaders of innovation or
developing of new and unique product in an established organisation are
Intrapreneurs, employees who seek and grab the opportunities for either
quantum or incremental product improvements and are responsible for
managing the product development process to obtain them.

Example: Professors of a University wanting to start a new company as

on the basis of the research that the professors and their students and staff may
have the potential to establish a company.
Creativity
All innovations begin with ideas that lead to inventions or achievements.
Creativity is nothing but ideas that go beyond the current boundaries, whether
those boundaries are based on technology, knowledge, social-norms or beliefs
etc.

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Notes
Example: Deciding that PCs do not have to be beige and can be black,
blue, pink, or even made of clear plastic is a creative idea, just as putting
together the first PC was a creative idea. Although the latter may be more
memorable, and made Steve jobs and Stephen Wozniak, the founders of Apple,
famous, the millions of small creative ideas and actions that have gone into
improving Pcs are nonetheless highly significant and valuable. And Michael
Dell’s creative idea of selling PCs over the phone, although not in the same
league as making the first PC, has nonetheless made him as popular as Jobs
and Wozniak.

Learning Activity
Make a presentation linking intrapreneurship innovation and
creativity.

8.3 HR IMPLICATIONS
1. Research and development activities should be integrated with the activities
of the other functions if the innovation process is to be successful.
2. Employees should be given autonomy and motivated to use organisational
resources to facilitate the continuous development of new products and
processes.
3. Project managers, a stage-gate product development funnel, cross-
functional teams, appropriate team leadership, a skunk works, and new
venture divisions should be created to provide a setting that motivates
entrepreneurship.
4. Top management should create a culture that supports innovation and
recognizes and rewards the contributions of organizational members.

Example: By linking rewards directly to performance.

Management should provide information and communicate

properly with the project managers so that they can think and plan for some
innovative and creative ideas.

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Notes

Apple Computers (Japan)

U ntil 1989, Apple Japan, the Japanese arm of the multinational Apple
Computing Corporation, held only 1 percent of the country’s
personal computer market. The appointment of a new company
president marked the beginning of an era – he started the drive to increase
Apple’s presence in the market and accelerated change. The company was
to achieve annual sales of $1 billion by the end of 1995.
To meet this challenge the corporation approached the management
consultant firm, Arthur D. Little, who have built up a wealth of experience
in information technology and company restructuring. Apple Japan
requested a sweeping plan to penetrate the market and increase efficiency
within the company. In order to do this, they planned to reposition the
brand, expand the range of distributors, improve customer management, and
introduce the concept of the Learning Organisation into the workplace.
Methods
In order to implement Learning Organisation techniques, Apple was advised
to tackle the Five Disciplines which are essential to a learning organisation:
Team Learning, Shared Visions, Mental Models, Personal Mastery and
Systems Thinking.
Although group meetings were a regular part of company practice, more
time was allowed for group discussions and team education. This kept the
work teams well informed and increased every individual’s input to their
project. With the increased emphasis on team learning, a shared vision was
naturally introduced, allowing each member to work towards the same goal
irrespective of their position.
Each employee of the company had their own mental model of how the
organisation, their managers and team colleagues operate. By trying to bring
each person’s mental model into line with the rest of the team, the learning
process was made more efficient and teams acted more coherently. Personal
Mastery was also addressed by encouraging managers to set their staff
challenging but reasonable goals, and introducing training programmes.
The crucial discipline was Systems Thinking, which brought all the other
factors together. This enabled each employee to make decisions, taking the
whole system into account, instead of focusing specifically on their own
problems.
These disciplines were implemented by moderate restructuring and a
program of education that was applied to everyone in the organisation.
Contd...

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Notes Results
The re-organisation resulted in a marked improvement in the company’s
sales, with growth exceeding the most optimistic projections:
Market Share grew to 15% in 1995 from 1% in 1989.
Annual sales soared to $1.3 billion in 1994, with the sale of 520 000
computers
Although not all of the success can be attributed to the introduction of the
Learning Organisation concept, the results indicate an unprecedented
improvement. The learning organisation was a major player in instituting
this growth.
Questions:
1. Analyse the above case.
2. In this changing scenario, the organisation must constantly look out for
new knowledge if it is to stay ahead perform value added activities and
competition in an effective and efficient manner. How will this
challenge be met by the Apple Computers?
Source: http://www.see.ed.ac.uk/~gerard/MENG/MEAB/learning_ organisation/case.html#RTFToC2

1. Senge notes that in the 1970s researchers at Xerox

Palo Alto Research centre had a vision to create a user-
friendly computer years before the transition from
mainframes to the personal computers took place.
Although their experiments failed to produce the unit
they had hoped for, their early vision created many of
the technical stepping stones to today’s PCs.
2. A patent is the most powerful protection instrument in
intellectual property management (IP) which are used
to protect innovations or new creations.

SUMMARY
 A learning organization is an organization that has enhanced capacity to
learn, adapt and change (Gephart, 1996).
 The intellectual and spiritual champion “Peter Senge” believes that the
organisation should focus on the conditions and circumstances that
motivate people to do great things for their organisation as well as for
them.
 The Socialisation, Externalisation, Combination and Internalisation (SECI)
model of knowledge was developed by Ikujiro Nonaka and Hirotaka
Takeuchi.

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 This model helps to create a process of understanding and managing the Notes
dynamic nature of the creation of knowledge.
 The process of increasing an organisation’s learning capabilities does not
start by having a vision or by selecting the favourite consultant but must
start with an understanding of what represents the organisation’s present
capabilities in both learning systems and the performance.
 While innovation brings about change, it is also associated with a high
level of risk as well because the outcomes of research and development are
often uncertain.

KEYWORDS
Learning Organisations: Learning organisation refers to an organisation
which aims at transferring, creating and acquiring knowledge for modifying the
behaviour in order to reflect new insights and knowledge.
Team Learning: It is related with the interactions among the group
Mental Models: It is an enquiry and reflection skills which is focused in
developing awareness of perceptions and attitudes.
Innovation: Innovation is the process by which organisations use their skills,
knowledge, ideas and resources to develop new and unique goods and services
so that they can better respond to the needs of their customers.
Intrapreneurs: The entrepreneurs inside an organisation who are responsible
for the success or failure of a project are known as Intrapreneurs.
Creativity: Creativity is nothing but ideas that go beyond the current
boundaries, whether those boundaries are based on technology, knowledge,
social-norms or beliefs etc.

SELF-ASSESSMENT QUESTIONS
Short Answer Questions
1. What do you mean by learning organisations?
2. Explain the characteristics of learning organisations.
3. Discuss the 3M’s of learning organisation.
4. Discuss the Senge’s Approach.
5. What are the problems faced by the organisations while learning?
6. Write short note on Nonaka and Takeuchi’s organisational learning
approach.
7. Explain the SECI model.
8. Discuss the five requirements to promote the knowledge spiral.

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Notes 9. Explain the accepted techniques in an organisation’s checklist.

10. What points are included in the checklist of managing people as assets?
Long Answer Questions
1. “A learning organization is an organization that has enhanced capacity to
learn, adapt and change”. Discuss.
2. Discuss in detail the seven steps for initiating organisational learning.
3. Explain the primary aims of learning organisations.
4. What is the implications for innovation and creativity for intrapreneurship?
5. What are the different types of learning?

FURTHER READINGS

Tsoukas Haridimos, Chia Robert (2011),”Philosophy and

Organization Theory”, Emerald Group Publishing
Hatch Mary Jo (2012), “Organization Theory: Modern, Symbolic
and Postmodern Perspectives”, Oxford University Press
Kondalkar V. G. (2009),”Organization Development”, New Age
International
Gross Julian (2009),”Dimensions of Organisation Development”,
Wordclay

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Model Question Paper

Reg. No.:

M.B.A. DEGREE EXAMINATION

Fourth Semester – Human Resource Management
DBA 5024 – ORGANISATIONAL THEORY, DESIGN & DEVELOPMENT
(Common to all Branches)
(Regulations 2013)
Time: Three hours Maximum: 100 marks
Answer ALL questions.

PART A – (10 × 2 = 20 marks)

1. Define organization.
2. Why measuring organizational effectiveness is important?
3. List out the components of organizational design.
4. What is centralization of authority?
5. Mention the different types of organizational cultures.
6. What are the individual’s reactions to an organizational change?
7. Differentiate evolutionary and revolutionary changes.
8. Explain the term ‘organizational development’.
9. What is strategic change management?
10. Define creativity.

PART B – (5 × 13 = 65 marks)
11. (a) Discuss the need for the organizational existence and highlight the issues involved in
organizational effectiveness.
Or
(b) How will you measure organizational effectiveness? Explain the various approaches in
measuring the organizational effectiveness.
12. (a) Discuss the role of a manager / leader in shaping organizational culture.
Or
(b) Explain the success and failures in organizational design.
13. (a) Briefly explain the technological and environmental impacts on organizational design.

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Organisational Theory, Design & Development

Or
(b) What are the determinants of organizational design? Explain the basic challenges in designing
the organizational structure.
14. (a) Elucidate the change process in detail and throw light on HR’s role in strategic change
management.
Or
(b) Explain the various types and forms of change. How to manage different resistance to change?
15. (a) Explain in detail about organizational life cycle and its importance.
Or
(b) Explain the concept of intrapreneurship in today’s context and the relevance of innovation and
creativity in organizational learning.

PART C – (1 × 15 = 15 marks)
16. (a) ‘‘Resistance to change is inevitable as it is affected by various factors”. As a change agent, how
will you overcome the same?
Or
(b) ‘‘In any organization, it is very vital to create and sustain the culture” – Substantiate the
statement.

170 ANNA UNIVERSITY