Recap

Organizational Effectiveness

What is OE?Why is it Important?Approaches to Study OE

Goal Attainment ApproachSystems ApproachStrategic Constituencies ApproachCompeting Values Approach

Comparing the Approaches

What is OE?

Indian Oil Corporation/ONGC? Largest Profits?Reliance? Shareholder Value?TATA STEEL? Lowest Cost Steel Producer, 5th Largest Steel Company? Value Based Company?TVS Group? Highest Productivity? Winner of Deming Award? Strong systems and Processes?Bennet Coleman? Profitability with Social Responsibility?L&T? Pioneers in Engineering? BCCI? For producing a world beating team and richest Board? For managing the constituencies?

What is OE?

It is there, but difficult to defineStructure influences OENo universal agreement on what OE means

Early Approaches to OE

Degree to which organization realized its’ Goals

Whose Goals?

Long Term or Short Term Goals?

Actual Goals or Official Goals?

OE Criteria (Goal Based)

Productivity Efficiency Profit Quality

Accidents Growth Absenteeism Turnover

Job Satisfaction Motivation Morale Control

Conflict/Cohesion

Flexibility Planning & Goal Setting

Goal Consensus

Internalization of Ozal Goals

Role and Norm

Congruence

Managerial Skills

Communication

Environment Management

Stability Value of Human

Resources

Participation

Competence Building

Achievement Orientation

So, What is OE?

No operational definition?

True, from Research Perspective

But, used operationally

Some consensus emerging

Multiple Criteria

To evaluate different functions

Means and Ends

Why is it Important?

To an aspiring employee?To an investorTo an employee?To a Customer?To a Creditor?To the Community?

The Goal Attainment Approach

Organizations exist to achieve goalsOE, therefore, must be appraised in terms of accomplishment of ‘Ends’ rather than ‘means’It is the ‘bottom line’ that countsProfit Maximization, Victory in Battle, Winning a Game, Restoring a patient’s good health

The Goal Attainment Approach

Organizations have ‘Ultimate Goals’These ‘Goals’ are identified and well defined to be understoodMust be few enough to be manageableThere must be ‘consensus’ on these goalsProgress towards these Goals must be measurable

Assumptions:

The Goal Attainment Approach

Key Decision Makers set the GoalsMeasurement criteria put in placeMBO – SMART & Participative Goal Setting

Making it Operational:

The Goal Attainment Approach

Whose Goals? Top Management? Where does ‘Top Management’ end? Dominant Coalition?‘Official’ or ‘Actual’ Goals?‘Short Term’ or ‘Long Term’ Goals?Multiple conflicting Goals? Different Interest Groups? Quality vs Cost?How to prioritize? What if the structure/hierarchy changes?Goals around past accomplishments?Are Goals created mainly to placate the dominant stake holder?

Objections:

The Goal Attainment Approach

Problem lies with identification and measurementMore relevant if cross section of organization involved in Goal Identification, and not only top managementIncluding ‘actual goals’ by observing behavior of membersRecognizing that organizations pursue both short term and long term goalsInsisting on SMART goalsViewing Goals as dynamic

Value:

The Systems Approach

Acquire Input

Engage inTransformation

Process

Generate Output

Goal Attainment only a partial measure of effectiveness

Organization should also be judged on its’ ability to acquire inputs, ability to transform, channel the outputs, maintain balance and stability

The Systems Approach

Acquire Input

Engage inTransformation

Process

Generate Output

In the ‘Systems Approach’, end goals are not ignored

End Goals are only one element of a complex set

Systems Approach emphasize criteria that will emphasize long term survival

Focuses on ‘means’ rather than ‘ends’

The Systems Approach

Organizations are made up of inter-related sub parts

Sub-Parts can affect the whole system

Effectiveness requires awareness and successful interaction with environmental constituencies (Suppliers, Customers, Government)

Survival requires steady replenishment of resources (R/M, Men, Product Lines, Customers)

Assumptions:

The Systems Approach

Making it Operative:

Factors

Relations with Environment (for replenishment of resources, favorable receipt of outputs)

Flexibility of Response to Changes

Efficiency of Input-Output transformation

Clarity of Internal Communication

Level of Conflict

Mining Lease, Campus Recruitment, Route Licensing

Design to Market Time, Product Development

ICS Chain

The Systems Approach

Making it Operative:

Critical System Criteria (i.e. Input, Transformation, Output) can be converted into OE Measures e.g.

O/I Output/Input

T/I Transformation/Input

T/O Transformation/Output

dI/I Change in Input/Input

The Systems Approach

Making it Operative:

Michigan Management Audit

Business Volume Economic Function

Production Cost Organization Structure

New Member Productivity

Health of Earnings

Business Mix Service to Stockholders

Workforce Growth R&D

Devotion to Management

Board of Directors

Maintenance Costs Production Efficiencies

Member Productivity Sales Vigor

Market Penetration Executive Evaluation

The Systems Approach

Value to Managers:

• Measurement – Measuring ‘Ends’ is easier

• Do ‘Means’ really matter?

• Focus is on ‘Means’ to OE rather than OE itself

• Less prone to look into immediate future

• Awareness of interdependency in an organization

• Where the ‘Ends’ are vague

Problems:

The Strategic Constituencies Approach

An effective is one that satisfies the demands of constituencies in the environment from whom it requires support for survival

PSU, Private Sector, NGO, Public Utility, Media

The Strategic Constituencies Approach

OE = How successful an Organization has been in satisfying the critical constituencies, upon whom future depends

Assumptions:

• Political Arena

• Vested Interests

• Control of Resources

• Identify Critical Constituencies

• Assess their preference pattern

• Satisfy those demands

The Strategic Constituencies Approach

Making it Operative:

• Dominant Coalition

• Combine and Synthesize the list to arrive at critical constituencies

• Relative Power of Each

• Identify expectations

• Preference Order (Common Interests, Eliminate Incompatible, Assigning Relative Weights to Constituencies)

• Changing Environment

• Strategic and Almost Strategic?

• Dominant Coalition – Different Critical Constituencies

• How to ‘Measure’?

Problems:

Competing Values

• An integrating Approach (1983)• Identify all Key Variables of OE• Determine how the variables related

The criteria you value and use in assessing OE, depends on who you are, and whose interest you represent

No “best criterion” to measure OE

OE is a “subjective concept”

Goals or criterion that an evaluator chooses, depends upon his own values, interests and preferences

The preferences can be diverse

But they can be consolidated and organized

There are common elements underlying comprehensive list of OE Criteria

Elements are combined in such a way as to create basic sets of competing values

Competing Values

• 30 Criteria• Search for common themes

Three sets of competing Values

• Flexibility vs Control

• People (Internal) vs Organization (External)

• Means vs Ends

• Three-D Space

• Three sets of values combine to form 8 Cells

• Combine 8 Cells into distinct models

• 4 Diverse Models or definitions of Organizational Effectiveness

Flexibility

Control

OrganizationPeople

Means

Ends

8 Cells

Cell Description Definition

OFM Flexibility Able to adjust well to shifts in external conditions and demands

OFE Acquisition of Resources

Able to increase external support and expand size of work force

OCM Planning Goals are Clear and Well Understood

OCE Productivity & Efficiency

Volume of Output is high, Ratio of O/I is high

PCM Availability of Information

Channels of communications facilitate people about things that affect their work

PCE Stability Sense of order, continuity and smooth functioning

PFM Cohesive Work Force

Employees trust, respect and work well with each other

PFE Skilled Work Force

Employees have the training, skills and capacity to do their work properly

Flexibility

Open Systems Model

People Organization

Control

Human Relations Model

Internal Processes Model

Rational Goal Model

Ends: Skilled Work Force

Means: Planning

Means: Flexibility

Ends: Stability

Means: Cohesive Work Force

Ends: Efficiency & Productivity

Ends: Acquisition of Resources

Means: Availability of Information

Open Systems ModelHuman Resources Model

Internal Process Model Rational Goal Model

Human Relations Model

Participation,Conflict Resolution &Consensus Building

Open Systems Model

Adaptation & Innovation

Rational Goal Model

Productivity & Profit

Internal Process Model

Flexibility

Control

OrganizationPeople

COMPETING VALUES

Defining Responsibility,Measurement & Documentation

Making it Operational:

Dominant Constituencies delineate the strategic constituencies

Importance of constituencies on 8 set of values

Amoebagrams: help management focus on the set of values where the strategic constituencies agree/disagree

Strategic Constituencies and Organization's Life Cycle Stage

OE:

The degree to which an organization meets its’ goals (short term and long term), the selection of which reflects the strategic constituencies, the self interest of the evaluator and the life stage of the organization

Flexibility

Open Systems Model

People Organization

Control

Human Relations Model

Internal Processes Model

Rational Goal Model

Ends: Skilled Work Force

Means: Planning

Means: Flexibility

Ends: Stability

Means: Cohesive Work Force

Ends: Efficiency & Productivity

Ends: Acquisition of Resources

Means: Availability of Information

Organizational Design Options

Organizational Design Options

Structure

Elements of a Structure

• Complexity

• Formalization

• Centralization

• Autonomy

• Delegation

• Differentiation

• Integration

• Professionalization

• Span

• Specialization

• Standardization

• Vertical Span

Can we configure elements into these patterns?

Does a study of Ozal Structures give a pattern?

Can we have a meaningful number of such patterns?

Is there a relationship amongst elements within each pattern?

If, there exists, such manageable number of such patterns (configuration of elements) then, we have an approach to study

organizational design, and, perhaps, suggest appropriate designs suited to an organization’s situation and circumstances

No universally accepted framework for classification of organizations

Henry Minzberg’s Classification

Five Basic Parts to any Organization

The Operating Core

The Strategic Apex

The Middle Line

The Techno-Structure

The Support Staff

Strategic Apex

MiddleLineTechno

Structure

SupportStaff

Operating Core

Any of these 5 parts can dominate the organization

Depending on which part is in control, a given structural configuration (design) is to be used

Therefore, 5 distinct design configurations

• Simple Structure

• Machine Bureaucracy

• Professional Bureaucracy

• Divisional Structure

• Adhocracy

Each is a preferred design under certain conditions

MiddleLine

Techno

Structure

SupportStaff

Operating Core

Strategic Apex

The Simple Structure

• Small entrepreneurships

• SMEs

• Structure not elaborated

• Low Complexity

• Little Formalization

• Centralized Authority / Power

• Flat with organic core

• Informal decision making

• Wide span of control

The Simple Structure

• Simplicity

• Fast, Flexible, Minimal Maintenance Cost

• Clear Accountability

• Goal Clarity

• Limited Applicability (Die or Expand)

• Vulnerable to abuse of authority• Small Organization

• Simple and dynamic environment

• Hostility or a crisis

• Simple Environment (Easy to Comprehend by One Person)

• Organic Core (Easy adaptation to dynamic environment)

The Simple Structure

MiddleLine

Techno

StructureSupportStaff

Operating Core

Strategic Apex

The Machine Bureaucracy

• Standardization

• Routine Operating Tasks

• Formalized Rules and Regulations

• Tasks grouped in functional departments

• Centralized Authority

• Decision making through a chain of command

• Sharp distinction between line and staff activities

The Machine Bureaucracy

• Standardized activities with high efficiency

• Economies of scale, avoid duplication of personnel

• Low cost middle and low level manpower

• Standardized operations and high formalization result in high centralization

• Sub-Unit Conflicts

• Rule Bound

• Difficult to change

• Large Organizations

• Stable Environment

• Routine Technology

• Mass production firms

• Service oriented organizations

The Machine Bureaucracy

Chairman of BOD & CEO

Director (Finance) Director (HR) Director (Technical)

Director (Projects)

Managing Director Managing Director

GM (Treasury)

GM (Cost)

GM (Accounts)

GM (Investments)

GM(IR)

GM(T&D)

GM (Compensation)

GM(OD)

GM (Finance)

Functional Expertise

MiddleLine

Techno

Structure

SupportStaff

Operating Core

Strategic Apex

The Professional Bureaucracy

The Professional Bureaucracy

Operating Core consists of Professionals

Need for hiring highly trained specialists

Standardization with decentralization

Hospitals, Management Schools, Polyclinics, Consultancies

Social Specialization (possession of individual skills) vs Individual Socialization (division of labor)

Power with operating core

Operating core has critical skills that organization needs, therefore, autonomy, provided thru decentralization

Strengths & Weaknesses

Can perform specialized jobs with efficiency of Machine Bureaucracy

Autonomy

Sub-Unit Conflicts

When Appropriate

Large size

Complex and Stable Environment

Routine Technology, internalized through professionalization

Director

ACP (HRM & OB) ACP (Finance) ACP (Operations) ACP (Marketing)

HRM1

HRM2

OB1

OB2

Gen Finance

Cost

General Fin

MB

LibraryExamMDP CFA

Operating Core

Support Staff

FORE School of Management

The Divisional Structure

Power lies with middle management

A set of autonomous units, each a m/c bureaucracy

Division Managers have greater control (Autonomous Units)

Autonomy within given parameters

The Divisions are organized into functional groups with high division of labor, high formalization and centralized authority in DM

The Divisional Structure: Strengths & Weaknesses

Full responsibility for product/services

More accountability on results and outcomes

Frees up Corporate Staff from day to day operations

Training ground for General Management

Autonomous Unit can be divested or spun off easily

Autonomy along with economies of scale in resource procurement

Duplication

Stimulate conflict (HQRS vs Units, Locating Support Units, Power Struggle)

Co-ordination transfer of staff, customer service, resistance to synergy – NIH Syndrome

When Appropriate

Market or Product diversity

Increased size, divisible technology

Where environment is neither very complex nor very dynamic

Chairman and CEO

President

Tyre Cords

President

Gases

President

Laminated Plastic

President

Synthetic Cords

President

E-Biz

Head (Projects)

Head (TQM)

Head (HRM)

Head (F&A)

Head

(CC)

Head (Finance)

Head (HRM)

Head (Operations)

Hqrs. Support

Shri Ram Fibres Limited

The Adhocracy

High horizontal differentiation

Staffed predominantly by professionals with high level of expertise

Lo vertical differentiation

Facilitates quick adaptation

Lo need for supervision since professionals have internalized the behaviors that management wants

Lo formalization

Professionalization and formalization inversely related. Novel solution needed (as opposed to classifying it as a standardized response programme in a professional bureaucracy)

Decentralization

Speed & Flexibility. Top Management does not have the expertise

Cross Functional Teams, HRT, Navy Seals, A Film Making Unit

Characteristic SS MB PB DS AH

Specialization Lo Hi Functiona

l

Hi-Social HiFunctiona

l

Hi-Social

Formalization Lo Hi Lo Hi within divisions

Lo

Centralization Hi Hi Lo Limited Lo

Environment Simple &

Dynamic

Simple & Stable

Complex & Stable

Simple & Stable

Complex &

Dynamic

Strategy

What causes structure? Strategy? Strategy Alone?What does strategy mean?

Earlier, Strategy AloneResearch identifies the following

Strategy Size Environment Technology Power Control

DruckerStructure is a means of achieving the objectives and goals of an institution. Any work on structure, therefore, must start with objectives and strategy

TosiOnce the goals of the organization have been determined, or specified, then the development of structure, the flow of authority and the other relationships clearly follow in a logical fashion

Strategy

Goals & Strategies……same?

Goals = EndsStrategy = Means + Ends

Goals – Long Term ObjectivesStrategy – LTO + course of action + resource allocation

Strategy = Pre-meditated (Planned) or Emergent (Evolutionary)

Environmental Factors

Organizational Capabilities

Strategy Structure

Even though these affect structure, they are one step removed. These two are chosen by ozal decision makers

Strategy

Organizational Strategy: the specific pattern of decisions and actions that managers take to use core competences to achieve a competitive advantage and outperform competitors

Core competences: the skills and abilities in value creation activities that allow a company to achieve superior efficiency, quality, innovation, or customer responsiveness

HLL = Branding, Distribution; Asian Paints = Supply Chain; Airtel = Retailing; TATA Steel = Primary Steel Making

The Value Creation Cycle

Levels of Strategy and Structure

Functional Strategy•Builds organizational and functional resources as well as coordination abilities with a view to enhance core competencies

Business Level Strategy•a plan to combine functional core competences in order to position the organization so that it has a competitive advantage in its domain.

Corporate Strategy•a plan to use and develop core competences so that the organization not only can protect and enlarge its existing domain but can also expand into new domains

Global Expansion Strategy?

Strategic Dimensions

Innovation: to what extent an organization introduces new products or services? Apple, 3M

Differentiation: to what extent an organization strives to create customer loyalty for it’s products or services? Through advertisement, branding, premium pricing etc? Levi Strauss, Rolex, BMW, Airtel

Breadth: the scope of market to which a business caters. Cutting across segments, regions, geographies? Or limited reach? IBM, Microsoft, SAIL

Cost: a strategy to be the lowest cost producer Deccan Air, TATA Steel

Strategy-Structure Thesis

Strategy

Structure

Alfred ChandlerHarvard100 Large US Corps1909-1959Major influence on strategy-structure relationship

….unless ‘structure’ follows strategy, inefficiency results

Single Product

Simple Structure

Increased Demand

Mass Production

Increased Complexity and Formalization

Machine Bureaucracy

Desire to Grow further

Many Product Lines – Diversified

Business

Divisional Structure

Chandler’s Story

Time T T+1 T+2

Product Diversification Strategy

Structure Simple Functional Divisional

Chandler’s Thesis

Only Growth Strategy? Only Large Corporations?

Defenders

Prospectors

Analyzers

Reactors

Miles & Snow

DefendersLimited Product, Narrow SegmentDefend ‘Turf’, Prevent CompetitionCompetitive Pricing or Hi QualityGrow with market penetrationNot very focused on product developmentMinimal environmental scanningPlanning towards cost and efficiency

ProspectorsOpposite to DefendersFind and exploit new products, marketsInnovation rather than profitabilityCapacity to widely survey environmentFlexibility, multiple technologiesLow routinization and mechanizationLo formalization, hi decentralization

AnalyzersBest of bothMinimize Risk, Maximize OpportunityMove into new product or market only after viability provedAbility to respond quickly to leads of Prospectors yet maintain efficiencySmaller margins than prospectors but greater efficiencyFlexibility and stability

ReactorsInconsistent, unstable patternsReact with either three strategiesMaybe strategy not clear?Structure may not fit strategy?Environment has changed but not the strategy-structure relationship?

Depends on Management’s ‘perception’ of environmental uncertainty

Strategy Goals Environment

Structural Characteristics

Defender Stability & Efficiency

Stable Tight Control; division of labor, formalization, centralization

Analyzer Stability & Flexibility

Changing Moderately centralized, tight control over current operations, looser controls for new undertakings

Prospector

Flexibility Dynamic Loose structure, low division of labor, low formalization, decentralized

Little Change, Hi Certainty

Rapid Change, Hi uncertainty

ProspectorAnalyzerReactorDefender

Porter’s Competitive Strategies

Can’t perform over a long term period without advantageSelect a strategy which gives the firm a competitive advantageBased on firm’s strength, and competitor’s weakness

Cost Leadership: The Cost Leader – efficiency, economies of scale, technological innovation, low cost labor/raw material…..Deccan Air? Maruti 800?

Differentiation: uniqueness through value eg high quality (McDonald’s,TVS, Voltas), extraordinary service (King Fisher Premium), innovative Design (Apple), Brand Image (Airtel)

Focus: Cost advantage or differentiation in a narrow segment (Nano, Tag Heur, Mont Blanc)

Advisable not to overreach one’s competitive advantage (Jet Airways?)

Implications for Structure? Focus is a derivative of other two.

Cost Leadership(Efficiency through controls)High complexityHigh in formalizationCentralized

Differentiation(Development of Unique Products)High flexibilityLow in formalizationLow CentralizationLo complexity

Backward vertical integration has been the cornerstone of the evolution and growth of Reliance. Starting with textiles in the late seventies, Reliance pursued a strategy of backward vertical integration - in polyester, fiber intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and production - to be fully integrated along the materials and energy value chain.

Miller’s Integrative Framework

Strategic Dimension

Challenge Predicted Structure

Innovation To understand and manage more products, customer types, technologies and markets

Scanning the markets to discern requirements, low formalization, decentralization, cross functional teams

Market Differentiation

To understand and cater to consumer preferences

Moderate to high complexity, formalization and centralization; scanning of reactions of customers and competitors;

Breadth-Innovation Select right range of products, services, customers, regions

Hi complexity, lo formalization, decentralization

Cost Control Produce standardized products efficiently

High Formalization, High Centralization,Complexity? Hi or Lo

Breadth - Stability Spread across all segments in a stable environment

Hi F, Co, Ce

Strategy does influence structure, initially Later, tough, not much leeway Vested interests, power – control Labor-Capital Intensity (India? Abroad?) Strategy-Structure, Time Lag? Is competitive pressure a moderator?

Can structure influence strategy?

ComplexityCan it be perceived as a strategic decision by all?Decision must satisfy different differentiating constraints before being acceptedPolitical bargaining?Will the ‘right’ decision be taken? Or, parochial?

FormalizationRespond only to what is being monitored by the formal systemChanges only through incremental improvement

CentralizationDominant few decideCognitive limitations

Industry-Structure

Banking, BPO, Cheap Cars, White Goods, Consultancies, IT, Metals

Capital Requirement

Pro

duct

Inn

ovat

ion

Hi-Hi

Hi-Lo

Lo-Hi

Lo-Lo

Organization

Manpower

Turnover Total Assets

Reliance Industries

48000 139,269 Crore

149,792 Crore

Indian Oil Corporation

34,158 58,675 Crore 52,931 Crore

Petronet LNG 1500 8429 Crore 1,809 Crores

Size

Outsourced?Seasonal?Contract Labour?

Number of employees highly correlated to other measures

Increase in size leads to differentiation, at a decreasing rateIncreasing size associated with greater specialization and formalizationSize negatively related to centralization

Does size cause structure?Or, structure causes size?

Government OrganizationsTechnology-Structure-SizeRelationship valid only in professionally run organizations?

Organizational Size and Number of Hierarchical Levels

Increasing size increases differentiation, but at a decreasing rate

Increasing size increases specialization and formalization

Increasing size inversely related to centralization

Parkinson’s Law

Number of managers and hierarchies are based on twoprinciples:

An official wants to multiply subordinates, not rivalsOfficials make work for one another

Organization Size Vs Managerial Component

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• Organizational culture: the set of shared values and norms that controls organizational members’ interactions with each other and with people outside the organization

• Values: general criteria, standards, or guiding principles that people use to determine which types of behaviors, events, situations, and outcomes are desirable or undesirable

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• Terminal value: a desired end state or outcome that people seek to achieve (Reliability, Quality, People Orientation, Integrity)

Look at Vision Statements• Instrumental value: a desired mode of

behavior SOPs, Policies• Norms: standards or styles of behavior that

are considered acceptable or typical for a group of people

Organizational Culture

• Based on enduring values embodied in organizational norms, rules, standard operating procedures, and goals

• People draw on these cultural values to guide their actions and decisions when faced with uncertainty and ambiguity

• Important influence on members’ behavior and response to situations