HCM 381- Health Care Management by leader6


									 We’ve been discussing, thus far,
  organizations and organizational theory,
  how strategy impacts organizational design
  and effectiveness, various fundamentals of
  organizational structure, the external
  environment, inter-organizational
  relationships, and various other elements
  (such as organization size) that might
  influence organizational structure.
 The text does not provide a lot of
  information on hospital structure or how
  structure in other health care organizations
  is determined.
 Some detail on that, from other sources,
  would be of interest.

The acute care hospital…
 It would be far less complex if it fit the usual
  organizational pyramid. Its management structure
  differs substantially from the bureaucratic model
  of other types of large organizations.
      These differences are caused by the unusual
       relationships between the formal authority of position
       represented by the managerial hierarchy and the
       authority of knowledge possessed by members of the
       professional staff.

 In the typical community hospital, the professional
  staff members do not fit into the pyramid as do
  staff who work for and are paid by the hospital.
      As a result, the organizational pattern is a dual pyramid
       with the managerial hierarchy and the medical staff
       hierarchy existing side by side.
      Note that some acute care hospitals integrate the
       professional staff into the organization structure, which
       means its members are likely to be salaried; Dept. of
       Veterans Affairs hospitals and military hospitals are
 Thus, a dual pyramid- two lines of
  authority- violates the management
  principle of unity of command, which
  contravenes a postulate of the classicist
  Henri Fayol. One line extends from the
  Governing Board to the CEO and from
  there into the managerial structure and
  hierarchy. The other extends from the
  Governing Board to the professional staff.
 These two intersect in departments such as
  nursing, in which activities are both
  managerial and clinical, forming a matrix
  set of relationships. The complexity of this
  structure is illustrated by the fact that many
  hospital staff often have move than one
  immediate superior. (next slide…)

 For example, the work of nurses in clinical areas is
  directed by a head nurse, who is a first-level
  manager in a functional department (nursing), as
  well as by members of the professional staff,
  usually physicians, in terms of specific orders for
  a patient. These directions may be contradictory
  because each group interprets objectives and the
  means of attaining them in terms of its own value
  systems and requirements.
 A dual hierarchy can exist. The medical
  staff can be shown as separate from the
  hospital, and there may be no clear line or
  reporting relationship between it and the
  CEO. The professional staff, in turn, my be
  accountable to a “medical director”.

Put another way…
 Mintzberg believed that almost all organizations
  or systems could be included in one of five basic
  designs based on configurations of the strategic
  apex, operating core, middle line, the techno-
  structure, and support staff. He labeled these
  design alternatives as the simple structure, the
  machine bureaucracy, the professional
  bureaucracy, the divisionalized form, and the
The simple structure…
 It represents the simplest organization
  design. It has a strategic apex, which may
  be one person, such as the owner and/or a
  physician in private practice, or the director
  of a small ambulatory care center. In
  addition, it has an operating core consisting
  of a group of workers. The middle line,
  techno-structure, and support staff
  components are very small or missing.
The machine bureaucracy
 This design is characterized by a large,
  well-developed techno-structure and
  support staff because there is a great
  emphasis on work standardization and a
  focus on marketing and financial and
  operational control systems.

 Major decisions are made in the strategic
  apex, which features rigid patterns of
  authority. Spans of control are narrow,
  decision making is centralized, and the
  organization is functionally
  departmentalized . This design typifies
  manufacturing organizations, although
  some hospitals also exhibit elements of this
The professional bureaucracy…
 More typical, hospitals and other large
  HSOs, as well as universities and other
  professionally dominated organizations
  such as public accounting firms, are
  organized as professional bureaucracies.
  This form is characterized by an operating
  core that is composed primarily of
  professionals and that forms the heart of the
  organization; authority is decentralized to it.
 The techno-structure is underdeveloped
  because work is done largely by
  professionals who do not need- indeed, do
  not permit- others to do their work.
     In larger professional bureaucracies, such as
      hospitals, support staff may be highly
      developed and diverse. This staff is needed to
      support the professionalized operating core.

The divisionalized form…
 The divisionalized form of organization
  design has independent units that are joined
  by a shared administrative overlay. In
  contrast to other designs this form is
  characterized by a large, well-developed
  middle line because division managers are
  responsible for their divisions and may be
  given considerable decision-making
 Examples of divisionlized forms include
  corporations such as IBM, federal and large
  state governments, and health systems,
  which may evolve from mergers and
  consolidations within the health care

 The adhocracy, the fifth of Mintzberg’s
  organization designs, is the most difficult of the
  five to describe or understand. It is both complex
  and non-standardized. This form contradicts much
  of what the classical design concepts described
  earlier dictate- hierarchical authority and control,
  standardization of work and workers, and strategic
  direction from the top level of the organization.

 Instead, adhocracies have a tremendously fluid
  structure in which power is constantly shifting and
  coordination and control are by mutual adjustment
  through the informal communication and
  interaction of competent experts.
      The adhocracy often takes the form of a matrix
       structure or project teams with emphasis on activities in
       both the operating core and technostructure.

 The power in adhocracies shifts between
  professionals and technical experts. This design
  can be a free-form structure with frequently
  changing job descriptions and a flexible concept
  of authority.
      HSOs might use adhocracy in multi-discplinary
       programs for elderly or chronically ill people or
       women, or in the research-oriented departments (e.g.,
       oncology, genetics) in academic health centers.

Choosing an Organization Design…
 Typical HSOs have many different designs
  embedded in them as various parts try to
  match structure to objectives, management
  philosophies, the preference of their
  workers, and environmental pressures.

 In a large and complex HSO, such as a teaching
  hospital, the dental clinic may have a simple
  structure, the clinical laboratory may be structured
  as a machine bureaucracy, and the medical and
  surgical nursing units may be professional
  bureaucracies. The hospital might be one of
  several hospitals that form a health system, with
  the system using the divisonalized form.

 Simultaneously, the hospital could have a
  project team of administrative experts in
  strategic management, marketing, finance,
  and information systems that, parallel to the
  team members’ regular staff positions and
  structured as an adhocracy, operates as a
  consulting firm selling expertise to clients
  such as smaller hospitals and physician
 Peter Drucker suggested that managers
  selecting an organization design evaluate
  the options against the following criteria:
     Clarity, as opposed to simplicity (A modern
      office building is exceedingly simple in design,
      but it is very easy to get lost in one. A Gothic
      cathedral is not a simple design, but your
      position inside it is clear; you know where to
      stand and where to go.)

More from Drucker…
 Economy of effort to maintain control and
  minimize friction
 Direction of vision toward the product
  rather than the process, the result rather than
  the effort
 Understanding by each individual of his or
  her own task, as well as that of the
  organization as a whole

And still more from Drucker…
 Decision making that focuses on the right issues,
  is action oriented, and is carried out as the lowest
  possible level of management
 Stability, as opposed to rigidity, to survive
  turmoil, and adaptability to learn from it
 Perpetuation and self-renewal, which requires that
  an organization be able to product tomorrow’s
  leaders from within, helping each person develop
  continuously; the structure also must be open to
  new ideas.
Ch. 6 - Designing Organizations for
the International Environment
 Organizations are increasingly reducing
  boundaries and increasing collaboration
  between companies.
 Opportunities have been enhanced because
  of rapid improvements in technology,
  communications, and transportation.
     Also, competitive forces have required many
      companies to move from a domestic to a global
The importance of the global
 Fortune magazine’s list of the Global 500, the
  world’s 500 largest companies, indicates that
  economic clout is being diffused across a broad
  global scale.
      In Exhibit 6.1, each circle represents the total revenues
       of all Global 500 companies in each country. Although
       the U.S. accounts for a majority of the Global 500
       revenues, a number of smaller and less developed
       countries are growing stronger.

3 factors motivate companies to
expand internationally:
 1. Economies of Scale.
 2. Economies of Scope.
 3. Low-Cost Production Factors.

Economies of Scale…
1. Building a global presence expands an
   organization’s scale of operations,
   enabling it to realize economies of scale.

   *Note that economies of scale also enable
   companies to obtain volume discounts
   from suppliers, lowering the
   organization’s cost of production.

Economies of Scope:
 Economies of Scope, where scope refers to the
 number and variety of products and services a
 company offers, as well as the number and variety
 of regions, countries, and markets it serves.
     *Having a presence in multiple countries
     provides marketing power and synergy.
            Consider McDonalds, who does not
            have to deal with individual suppliers
            in each country.

Low-Cost Production Factors:
 One of the earliest, and still one of the most
  powerful, motivations for U.S. companies
  to invest abroad is the opportunity to obtain
  raw materials and other resources (labor) at
  the lowest possible cost.

 No company can become a global giant
  overnight. Managers have to adopt a
  strategy for global development and growth.
     Various stages of development span the move
      from domestic to a global presence.
       •   The domestic stage
       •   The international stage
       •   The multinational stage
       •   The global stage

The domestic stage (stage 1)
 The company is domestically oriented, but
  managers are aware of the global
  environment and may want to consider
  initial foreign involvement to expand
  production volume and realize economies of
  scale. Market potential is limited to
  primarily the home country.

The international stage (stage 2)
 The company takes exports seriously and begins
  to think multi-domestically. Multi-domestic means
  competitive issues in each country are independent
  of other countries; the company deals with each
  country individually.
      Multiple countries are identified as a potential market,
       and the Co. maintains contracts with independent sales
       firms in the various countries.

The multi-national stage (stage 3):
 Now the company has extensive experience
  in a number of international markets and
  has established marketing, manufacturing,
  or research and development facilities in
  several foreign countries. A large
  percentage of revenue comes from sales
  outside the home country.
     Think Sony of Japan or Coca-Cola of the U.S.
The global stage (stage 4):
 Now the country transcends any single
     Global companies truly act in a global fashion,
      and the entire world is their marketplace.
       • Global companies such as Nestle’, Royal
         Dutch/Shell, and Unilever are examples of global

 One of the most popular ways companies
  get involved in international operations is
  through international strategic alliances.
  The average large U.S. corporation, which
  had no alliances in the early 90s, now has
  more than thirty, many of those with
  international firms.
     Typical alliances include licensing, joint
      ventures, and consortia.
Joint ventures…
 A joint venture is a separate entity created
  with two or more active firms as sponsors.
  This is a popular approach to sharing
  development and production costs and
  penetrating new markets.
     Joint ventures may be with either customers or
       • Sprint, Deutsche Telecom, and Telecom France.

 Consortia, or groups of independent
  companies, including suppliers, customers,
  and even competitors, that join together to
  share skills, resources, costs, and access to
  one another’s markets.
     Airbus Industrie, for example, is a consortium
      made up of French, British, and German
      aerospace companies.

Designing Structure to Fit Global
 One dilemma that managers face is choosing
  whether to emphasize global standardization
  versus national responsiveness.
    They must decide whether they want each

     global affiliate to act autonomously or whether
     activities should be standardized across
     countries. (It’s the choice between globalization
     versus a multi-domestic global strategy. See
     next slide.)
 The globalization strategy means that
  product design, manufacturing, and
  marketing strategy are standardized
  throughout the world.
     However, economic and social changes,
      including a backlash against huge global
      corporations, have prompted consumers to be
      less interested in global brands and more in
      favor of products that have a local feel.

 A multi-domestic strategy means that competition
  in each country is handled independently of
  competition in other countries. Thus, a multi-
  domestic strategy would encourage product
  design, assembly, and marketing tailored to the
  specific needs of each country.
      Domino’s Pizza knows that the basics of crust, sauce,
       and cheese work for a pizza everywhere, but beyond
       that , there are no hard and fast rules.

 As indicated in Exhibit 6.3, when forces for
  both global standardization and national
  responsiveness in many countries are low,
  simply using an international division
  within the domestic structure is an
  appropriate way to handle international
     However…
 When technological, social, or economic
  forces may create a situation in which
  selling standardized products worldwide
  provides a basis for competitive advantage,
  a global product structure is appropriate.
     This structure provides product managers with
      authority to handle their product lines on a
      global basis and enables the company to take
      advantage of a unified global marketplace.
 In many instances, companies will need to
  respond to both global and local
  opportunities simultaneously, in which case
  the global matrix structure can be used.
     We won’t get into this, but more detail on this
      structure is discussed beginning on Page 218.

 As companies begin to explore international
  opportunities, they typically start with an
  export department that grows into an
  international division.
     This division is challenged by greater
      complexity and differentiation needs, the need
      for integration (of services and functions), and
      the problem of transferring knowledge and
      innovation across a global firm.

 Regarding increased complexity and
  differentiation, companies have to create a
  structure to operate in numerous countries
  that differ in economic development,
  language, political systems and government
  regulations, cultural norms and values, and
  infrastructure such as transportation and
  communication facilities.
 Regarding need for integration, with
  multiple products, divisions, departments,
  and positions scattered across numerous
  countries, managers face a tremendous
  integration challenge.
     As described in Chapter 4, integration refers to
      the quality of collaboration across
      organizational units.

 With regard to transfer of knowledge and
  innovation, the diversity of the international
  environment offers extraordinary
  opportunities for learning and the
  development of diverse capabilities.
     Most organizations tap only a fraction of the
      potential that is available from the cross-
      boarder transfer of knowledge and innovation.

Global Coordination Mechanisms
 Coordination can be enhanced by the use of
  global teams (cross-border work groups),
  headquarters planning (get headquarters
  involved in planning, scheduling and
  control), and have expanded coordination
  roles (by creating specific organizational
  roles or positions for coordination).

 At the same time, organizations must find
  ways to effectively achieve coordination
  and collaboration among far-flung units and
  facilitate the development and transfer of
  organizational knowledge and innovation
  for global learning.

 Just as social and cultural values differ from
  country to country, the management values
  and organizational norms of international
  companies tend to vary depending on the
  organization’s home country.

 Studies have attempted to determine how
  national value systems influence
  management and organizations.
     Two dimensions in particular have a strong
      impact on how organizations operate.
       • Power distance
       • Uncertainty avoidance

 Power distance or the degree to which
  people accept inequality in power among
  institutions, organizations, and people. Low
  power distance means that people expect
  equality in power; high means people
  accept inequality in power among
  institutions, organizations, and people.

 With regard to uncertainty avoidance, if you
  are high in this, you feel uncomfortable
  with uncertainty and ambiguity and thus
  support beliefs that promise certainty and
  conformity. Low uncertainty avoidance
  means that people have a high tolerance for
  the unstructured, the unclear, and the
 There are three different national approaches to
  coordination and control (the Japanese, American
  and European models).
      Japanese companies have centralized coordination,
       where top managers at headquarters actively direct and
       control overseas operations.
      European Firms have a decentralized approach, where
       international units tend to have a high level of
       independence and decision-making autonomy.

 And the American model of coordination
  through formalization.
     In our approach organizations have delegated
      responsibility to international divisions, yet
      retained overall control of the enterprise
      through the use of sophisticated management
      control systems and the development of
      specialist headquarters staff.

 Lastly, the transnational model of
  organization represents the most advanced
  kind of international organization. The
  transnational model creates an integrated
  network of individual operations that are
  linked together to achieve the multi-
  dimentional goals of the overall
 In this model, structures are flexible and
  ever-changing. Subsidiary managers initiate
  strategy and innovations that might become
  strategy for the corporation as a whole.
  Coordination is achieved through corporate
  culture, shared vision and values, and
  management style, rather than through
  structures and systems.
Ch. 7 Manufacturing And Service
 This chapter explores service and
  manufacturing technologies and how
  technology is related to organizational
     Technology refers to the tools, techniques,
      machines, and actions used to transform
      organizational inputs (materials, information
      and ideas) into outputs (products and services).
       • Technology is an organization’s production process
         and includes work procedures as well as machinery.60
 How should the organizational structure be
  designed to accommodate and facilitate the
  production process is the issue being
     An early study completed by Joan Woodward
      in the 1950s may give us insight.
       • Woodward developed a scale and organized the
         firms in the study according to technical
         complexity of the manufacturing process.
Woodward’s three basic categories
of technical complexity:
 Group I: Small-batch and unit production
     Custom work, i.e. Steinway and Sons
 Group II: Large-batch and mass production
     Production runs of standardized parts, i.e. auto
      assembly lines.
 Group III: Continuous process production
     There is no starting and stopping. This represents
      mechanization and standardization one step beyond
      those in an assembly line, i.e. chemical and nuclear
      power plants, etc.                                     62
In response to technology complexity...

 The number of management levels and the
  manager/total personnel ratio increase as
  technology complexity increases from unit
  production to the continuous process.
     Put another way, greater management intensity is
      needed to manage complex technology.
     Woodward also discovered that successful firms
      tended to be those that had complementary
      structures and technologies.
     Thus, strategy, structure, and technology need to be
      aligned in a changing competitive environment.
Since Woodward and the 70’s...
 New developments have occurred in
  manufacturing technology, to include
  robots, numerically controlled machine
  tools, and computerized software for
  product design, engineering analysis, and
  remote control of machinery.
     The ultimate technology is called computer-
      integrated manufacturing where mass
      customization is possible.
Regarding service firms and tech.
 Whereas manufacturing organizations
  achieve their primary purpose through the
  production of products, service
  organizations accomplish their primary
  purpose through the production and
  provision of services, such as education,
  health care, transportation, etc.
     The characteristics of service technology are
      outlined in Exhibit 7.7 on page 260 and in the
      following slide.                                 65
            Differences Between Manufacturing and
                     Service Technologies
                                                                                                 Manufacturing Technology
                                                                                            1.    Tangible product
                                                                                            2.    Products can be inventoried for later
                                                                                            3.    Capital asset intensive
                  Service Technology                                                        4.    Little direct customer interaction
                                                                                            5.    Human element may be less
     1.        Intangible product
     2.        Production and consumption take
                                                                                            6.    Quality is directly measured
               place simultaneously
                                                                                            7.    Longer response time is acceptable
     3.        Labor and knowledge intensive
                                                                                            8.    Site of facility is moderately
     4.        Customer interaction generally high
     5.        Human element very important
     6.        Quality is perceived and difficult to
     7.        Rapid response time is usually
     8.        Site of facility is extremely important

                       Service:                                   Product and Service:                        Product:
          Airlines, Hotels,Consultants,                          Fast-food outlets, Cosmetics,           Soft drink companies,
              Healthcare, Law firms                               Real estate, Stockbrokers,               Steel companies,
                                                                         Retail stores                    Auto manufacturers,
Sources: Based on F. F. Reichheld and W. E. Sasser, Jr.,                                                Food processing plants
“Zero Defections: Quality Comes to Services,” Harvard Business
Review 68 (September-October 1990): 105-11; and David E.
Bowen, Caren Siehl, and Benjamin Schneider, “A Framework
for Analyzing Customer Service Orientations in Manufacturing,”
Academy of Management Review 14 (1989): 75-95.
Service Technology characteristics:

 intangible output (vs. tangible product)
 production and consumption take place at
  the same time
 labor and knowledge intensive (vs. capital
  asset intensive)
 the human element is very important (vs.
  little direct customer interaction).

More service tech. characteristics:
 quality is perceived and difficult to measure

 rapid response time is usually necessary (vs.
  longer response time being acceptable)

 site of the facility is extremely important.

Re: Departmental Technology...
 Charles Perrow described two dimensions
  of departmental activities that were relevant
  to organizational structure and process.
     The first was the number of exceptions in the
      work, or the variety of the work.
     The second concerned the analyzability of work
      activities. When the work is analyzable, it can
      be reduced to mechanical steps.

More on Perrow...
 His dimensions of variety and analyzability
  form the basis for four major categories of
     routine technology (little task variety)
     craft technology (tasks require extensive training
      and experience)
     engineering technology (complex with substantial
      varieties in the tasks performed)
     non-routine technology (high task variety and the
      conversion process is not analyzable).
 Once the nature of a department’s
  technology has been identified, then the
  appropriate structure can be determined.
     Such things as formalization, decentralization,
      worker skill level, span of control, and
      communication and coordination, will be
      affected by a department’s technology.

 Specifically, for non-routine tasks, the structure can be less
  formal and less standardized.
 In routine technologies, most decision making about task
  activities is centralized to management.
 Work staff in routine technologies typically require little
  education or experience, which is congruent with
  repetitious work activities.
 The span of control is smaller when the work tasks are
  more complex and non-routine.
 Lastly, the communication activity and frequency increase
  as task variety increases.
Thus far we have examined how org. and dept.
technologies influence structural design.

 This chapter also examines how technology
  influences structure in terms of
     Interdependence means the extent to which
      departments depend on each other for resources
      or materials to accomplish their tasks.
       • James Thompson defined three types of
         interdependence that influence organization
         structure: pooled; sequential; and reciprocal
Pooled Interdependence:
 Lowest form of interdependence among
 Work does not flow between units.
 McDonald’s Restaurants or branch banks
  are examples of pooled interdependence.
 Pooled interdependence exists in firms with
  mediating technologies.
     Banks, brokerage firms, and real estate offices all mediate between
      buyers and sellers, but the offices work independently within the org.
Sequential Interdependence:
 This occurs when parts produced in one
  department become inputs to another
 Sequential interdependence occurs in what
  Thompson calls long-linked technology.
 Large orgs. that use assembly line production,
  such as in the auto industry, use long-linked
  technologies and are characterized by
  sequential interdependence.
Reciprocal Interdependence:
 The highest level of interdependence.
 Exists when the output of operation A is the
  input to operation B, and the output of
  operation B is the input back again to
  operation A.
 Occurs in orgs. with what Thompson called
  intensive technologies.
     Hospitals are an example, where a patient may
      move back and forth between different depts. 76
How does technology affect job
 Job design includes the assignment of goals
  and tasks to be accomplished by employees.
     Job rotation (moving workers from job to job to
      give them more variety), job simplification
      (reducing the variety and difficulty of tasks
      performed by a single person), job enrichment
      (greater responsibility, recognition, etc), and/or
      job enlargement (expansion of tasks performed)
      may be ways to improve productivity or
      motivation.                                       77
The sociotechnical systems approach...

 In addition to job design, this approach
  recognizes the importance of human needs.
     The “socio” portion of the approach refers to
      the people and groups who work in
      organizations and how work is organized and
      coordinated. The technical portion refers to the
      materials, tools, machines, and processes used
      to transform organizational inputs into outputs.
       • Joint optimization, then, means that the org. functions best
         when the social and technical systems fit the needs of one
Ch. 8 - Information Technology and
 This chapter reviews the importance of
  information technology and knowledge
 It is estimated that managers spend up to
  80% of their time actively exchanging
     Note that first line supervisors deal with problems
      about operational issues and past events, while top
      mgt. deals with uncertain, ambiguous issues, such as
      strategy and planning.                              79
 Initially computers were used to improve
  efficiency, i.e. reducing labor costs by
  having computers take over some tasks.
     Known as transaction processing systems (TPS)
 Now computers are used in data
  warehousing (use of huge databases that
  allow users to access data directly) and in
  data mining (looking for patterns of data to
  aid in decision making).                     80
Data mining is similar to MIS
 A management information system is a
  computer-based system that provides
  information and support for managerial
  decision making.
     The MIS is supported by the organization’s
      transaction processing systems and by
      organizational databases.
     Related concepts include the EIS (executive
      information system) and the DSS (decision support
 In the past, most organizations relied on
  financial accounting measures as the
  primary basis for measuring performance.
 Today most companies realize that a
  balanced view of both financial and
  operational measures is needed for
  successful organizational control, and as a
  means to evaluate effectiveness. See Ex. 8.5
                   Major Perspectives of the
                     Balanced Scorecard
                                                                 Do actions contribute to improving
                                                                 financial performance?

                                                                 Examples of measures: profits,
                                                                 return on investment

                              Customers                                                                  Internal Business Processes
                                                                                                        Does the chain of internal activities and
  How well do we serve our customers?                                                                   processes add value for customers and
  Examples of measures: customer                                                                        Examples of measures: order-rate
  satisfaction, customer loyalty                                                                        fulfillment, cost-per-order

                                                                       Learning and Growth
                                                                 Are we learning and changing?

                                                                 Examples of measures: continuous
                                                                 process improvement, employee
                                                                 retention, new product introductions
Sources: Based on Robert S. Kaplan and David P. Norton, “Using
The Balanced Scorecard as a Strategic Management System,”
Harvard Business Review, January-February 1996, 71-79;
Chee W. Chow, Kamal M. Haddad, and James E. Williamson,                                                                                 83
“Applying the Balanced Scorecard to Small Companies,”
Management Accounting 79, No. 2 (August 1997), 21-27; and
Cathy Lazere, “All Together Now,” CFO, February 1998, 28-36.
Info. technology as a strategic weapon...

 Using information technology as a strategic
  weapon is the highest level of application.
 Information technology can build and
  enhance strategy by providing better data
  and information within the org. as well as
  help redefine and support external

Examples of internal applications
 Networking- links people and departments.
 Intranets-a network- a private company
  wide information system.
 ERPs (Enterprise Resource Planning)
  systems which collect, process, and provide
  information about a company’s entire
  enterprise, including order processing,
  product design, purchasing, inventory, etc.
External applications...
 Extranets- gives access to key partners,
  suppliers, or customers.
 E-commerce-essentially augments or
  replaces the swapping of products or money
  with the exchange of information between
  computer systems. This is business to
  business purchasing online.

Recall low-cost leadership and
differentiation as competitive strategies...

 Information technology can lower cost
  through operational efficiency gains.
      The use of ERP systems can automatically control
       operations ranging from the procurement of
       supplies to shop floor manufacturing.
 A way to differentiate a company is to lock
  in customers with information technology.
      Things such as improving customer service can
       differentiate a company from competitors.
Info. Technologies impact on Org. design:

 May lead to smaller organizations due to outsourcing of
  many functions and thus less need for in-house
 May lead to decentralized organizations due to reduced
  layers of management and ease of communication.
 May lead to improved internal and external
 May lead to hiring of additional staff to use and
  maintain the system.
 May lead to greater employee participation.
IT may also be used in knowledge
 It may be desirable to systematically find,
  organize, and make available a company’s
  intellectual capital as well as to foster a
  culture of continuous learning and
  knowledge sharing- build on what is already

 Note that knowledge is not the same thing as
  data. Data are simple, absolute facts and
  figures that in and of themselves are not
  necessarily useful.
 Information, though, is data that has been
  linked to other data and converted into a useful
 Knowledge goes a step further; it takes
  information, connects it to other information,
  and from that makes decisions.                 90
Explicit vs. tacit knowledge…
 Explicit knowledge is formal, systematic
  knowledge that can be codified, written down,
  and passed on to others in documents or
  general instructions.
 Tacit knowledge is based on personal
  experience, rules of thumb, intuition, and
  judgement. It includes professional know-how
  and expertise, individual insight and
  experience, and creative solutions that are often
  difficult to communicate and pass on to others.91
 Explicit knowledge may be equated with
  knowing about; whereas tacit knowledge is
  equated with knowing how.
     Data warehousing and data mining, knowledge
      mapping (where knowledge is located in the
      organization), and electronic libraries are ways to
      manage explicit knowledge.
     Dialogue, learning histories (through storytelling),
      and communities of practice are ways to manage
      tacit knowledge.
Ch.9- Org. Size, Life Cycle, and

 This chapter examines large vs. small firms
  and how size is related to structure and
 The chapter also examines a firms life cycle
  and structural characteristics at each stage.
 This chapter also examines bureaucracy.

Large vs. small
 Organizations feel compelled to grow.
 Advantages to a large organization may include
  economies of scale, a global reach, a vertical
  hierarchy and standardization, stabilization of
  a market, and job security.
 Advantages of a small firm include the fact that
  they may be more responsive and flexible, have
  a regional reach, have a flatter structure, be
  simpler, and encourage entrepreneurship.
Note a paradox…
 The advantages of small companies enable
  them to succeed, and hence, grow large.
 As a result a small company may become a
  victim of its own success, shifting to a
  mechanistic structure emphasizing vertical
  hierarchies and spawning “organization
  men” vs. entrepreneurs.

Solutions to becoming too big:
 Big company / small company hybrid, where
  you try to combine a big company’s resources
  and reach with a small company’s simplicity
  and flexibility (the divisional structure).
 Front / back approach, where the company is
  divided into different units with different roles.
  The back part of the org. focuses on creating
  and producing products and services, while the
  front focuses on integrating and delivering
  products and services to customers.              96
Org. life cycle:
 Entrepreneurial Stage- the emphasis is on
  creating a product and surviving in the
     Problems include the need for leadership.
 Collectivity Stage-departments are
  established along with a hierarchy of
  authority, job assignments, and a beginning
  division of labor.
     Problems include the need for delegation.   97
More on life cycle...
 Formalization Stage- involves the
  installation and use of rules, procedures,
  and control systems.
     Problems include too much red tape.
 Elaboration Stage-the solution to the red
  tape crisis is a new sense of collaboration
  and teamwork.
     Problems include the need for revitalization.
 84% of businesses that make it past the first
  year still fail within five years because they
  can’t make the transition from the
  entrepreneurial stage.

   Organization Characteristics During Four
             Stages of Life Cycle
                                                         1.                                              2.                         3.                             4.
                                                   Entrepreneurial                                  Collectivity               Formalization                   Elaboration
Characteristic                                    Nonbureaucratic                                 Prebureaucratic               Bureaucratic               Very Bureaucratic
                                            Informal, one-person show                         Mostly informal, some       Formal procedures,           Teamwork within
                                                                                              procedures                  division of labor,           bureaucracy, small-company
Structure                                                                                                                 specialties added            thinking

Products or services                        Single product or service                         Major product or service    Line of products or          Multiple product or services
                                                                                              with variations             services                     lines

Reward and control                          Personal, paternalistic                           Personal, contribution to   Impersonal, formalized       Extensive, tailored to product
systems                                                                                       success                     systems                      and department

                                            By owner-manager                                  By employees and            By separate innovation       By institutionalized
                                                                                              managers                    group                        R&D
                                            Survival                                          Growth                      Internal stability, market   Reputation, complete
                                                                                                                          expansion                    organization
Top Management                              Individualistic,                                  Charismatic, direction-     Delegation with control      Team approach, attack
Style                                       entrepreneurial                                   giving                                                   bureaucracy

Sources: Adapted from Larry E. Greiner, “Evolution and Revolution as Organizations Grow,”
Harvard Business Review 50 (July-August 1972): 37-46; G. L. Lippitt and W. H. Schmidt,
“Crises in a Developing Organization,” Harvard Business Review 45 (November-December 1967):
102-12; B. R. Scott, “The Industrial State: Old Myths and New Realities,” Harvard Business
Review 51 (March-April 1973): 133-48; Robert E. Quinn and Kim Cameron; “Organizational
Life Cycles and Shifting Criteria of Effectiveness,” Management Science 29 (1983): 33-51.
Org. characteristics during the various
stages of life cycle:

 As the org. moves through the stages of life
  cycle, changes take place in structure,
  control systems, innovation, and goals.
 Entrepreneurial: the org. is small, non-
  bureaucratic, and a one person show.
 Collectivity: the org. is in its youth. Growth is
  rapid; employees are excited. The structure is
  informal though procedures are emerging.

 Formalization: midlife, and bureaucratic
  characteristics emerge. Support staff are
  added, procedures are formalized, and there
  is a clear hierarchy and division of labor.
 Elaboration: the mature organization that is
  large and bureaucratic, with extensive
  control systems, rules, and procedures.

As organizations grow, they become
more bureaucratic.
 Max Weber perceived bureaucracy as a threat to basic
  personal liberties, but also recognized it as the most
  efficient possible system of organizing.
 Rules and standard procedures enable organizational
  activities to be performed in a predictable, routine
 Large orgs. rely on rules, procedures, and paperwork
  to achieve standardization and control of large
  numbers of employees and departments, whereas top
  mgrs. can use personal observation to control a small
 Bureaucracy exists in more centralized
  organizations. In centralized orgs. decisions
  tend to be made at the top, in decentralized
  orgs., decisions are made at lower levels.
 Re: personnel ratios, the ratio of top
  administration to total employees is smaller in
  large organizations. However, the number of
  administrators to clerical and professional
  support staff tends to increase as the firm
  grows. Why?                                   104
Different approaches to control:
 Bureaucratic Control
     Relies on the use of rules, policies, hierarchy of
      authority, written documentation, standardization, etc.
 Market Control
     Occurs when price competition is used to evaluate the
      output and productivity of an organization.
 Clan Control
     The use of social characteristics, such as corporate
      culture, shared values, commitment, traditions, and
      beliefs to control behavior.                            105
Re: bureaucratic control...
 Bases of control in this system include:
     Rational-legal authority, based on employee’s
      belief in the legality of rules and the right of those
      elevated to positions to authority to issue commands.
     Traditional authority is the belief in traditions and
      in the legitimacy of the status of people exercising
     Charismatic authority is based on devotion to the
      exemplary character or to the heroism of an ind. person.

 Organizations may use
  a combination of
  bureaucratic, market,
  and clan control to
  best meet the needs of
  various departments
  and the total

 Lastly, organizational decline and
  downsizing might occur in the absence of
  decisive and appropriate management.
     Organizational atrophy occurs when
      organizations grow older and become
      inefficient and overly bureaucratized.
       • Consider Blockbuster Inc., which was the king of
         the video-store industry in the 80s and 90s, and now
         has had trouble adapting to the new world of video-
         on-demand and upstarts like Netflix.
 These organizations in decline also find
  themselves vulnerable. This can sometimes
  happen to small organizations that are not
  yet fully established, and they are
  vulnerable to shifts in consumer tastes or in
  the economic health of the larger

 Lastly, environmental decline, or reduced
  energy and resources available to support an
  organization can lead to organizational

     A model of decline stages will be discussed
      with the Chapter 13 material.


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