Organisational Structure & Innovation

By: Savvakis C. Savvides BSc (Econ) (London), MA (Lancaster) Introduction The organisation forms part of (and exists in) the social system. From the view point of the organisation the social system may be seen as consisting of two levels. The first level includes all bodies, firms or associations that make up the immediate external environment of the organisation while the second level is society in general. The second level encompasses the first which in turn encompasses the organisation. This is shown in diagrammatical form in diagram 1. Diagram 1

I.

International Sector Society in general

Immediate External Environment of the Organisation The Organisation Suppliers

Competitors

Customers

Education Sector

Unions

Technology

Govt, Agencies

Changes in the structure and functioning of either level, but especially in level one constitute social change. (Rogers (1969), defined social change as the process by which alteration occurs in the structure and function of a social system. Social changes may create performance gaps.

Performance gaps are discrepancies between what the organisation could do by virtue of a goal-related opportunity in its environment and what it actually does in terms of exploiting that opportunity. The performance gap may be characterised by new marketing opportunities brought about by changes among consumers, or by loss of market because of new competition, or by any other change in the organisations external environment. A performance gap may also come about by changes within the organisation, such as when a key expert leaves the organisation. It is interesting to note that (an organisational change can both create as well as close or bridge a performance gap. It is mainly for this reason that it is very important that an organisation facing a performance gap should firstly be aware of its existence and be able to locate the change that caused it (which calls for sound judgement and a good information system), and secondly it should be able to determine, formulate and implement the correct strategy for closing, rather than enlarging the gap (which calls for a good understanding of how different organisational changes can meet different organisational needs.) The marketers job starts by assessing the capabilities of the organisation and sets its targets by both an examination of itself and the information derived by looking at its external environment (assessing marketing opportunities). When this is performed the next step is to try and get the organisation to respond to these opportunities. This is likely to demand a great deal of innovative activity on the part of the organisation. This essay examines how different organisational structures may ease or impede different stages of the innovative process. A thorough review of the literature is undertaken and an evaluation of the state of the art is made, the issue at this stage being whether one form of organisational structure is better than another as regards the innovative process. The discussion leads us to the conclusion that there is no one best structure but rather that different organisational structures are best suited to different stages of the innovative process. The issue then becomes, if it is not possible or practical to change the structure of the organisation to accommodate change as situations warrant it at different stages of the innovation process, then what are the alternatives opened to managers and how can it be provided that the conditions for facilitating innovation in the organisation are adequately catered for. II. Innovation and the Innovative process a. What is Innovation The definition of innovation is not of great practical importance. What is more important is the changes that are needed in an organisation to close or minimise its performance gap. It is only because, as it happens, the vast majority of organisational changes needed in such situations involve novel solutions and new approaches that the subject of innovation becomes important.

There are basically three ways that innovation has been defined. First, there is the school of thought that, strictly speaking, avoids defining innovation objectively by leaving it on the subjective judgement or perception of the adopting unit to decide what is new (e.g. Rogers and Shoe-maker 1974). Zaltman, Duncan, Holbek (1973), Bennet (1969). Second, there is the school of thought that does not concern itself with that innovation means and concentrates on specifying different aspects and stages of the innovative process. An example of these is the one offered by V.A. Thompson (1969) which states innovation is the generation, acceptance and implementation of new ideas, processes and products or services.1 Similar definitions are those by Steiner (1965) and National Academic Sciences (1969). Thirdly, there is the school of thought that attempts to emphasise objectively measurable qualitative differences. An example is the one by Barnett (1953) any thought, behaviour or thing that is new because it is qualitatively different from existing forms. The emphasis on different stages of the innovation process in defining innovation shows that there is more disagreement among academics as to where the innovation begins and ends rather than on the substance or essence of the word itself. Perhaps the most practical definition of innovation for our purposes is the one put forward by Zaltman, Duncan and Holbek (1973) which states that innovation is any idea, practice, or material artifact perceived to be new by the relevant unit of adoption. One impli8cation of this definition is the possibility of conflict between those in the organisation who view the object or practice in question as an innovation and tend to resist change, and those who perceive of it as not significantly new and advocate adoption of the product or practice. I would now like to turn my attention to the process of innovation whereby I will look at innovation as an unfolding process consisting of stages in which characteristic factors appear in a certain order of occurrence. In conceptualising innovation as a process of linked stages I hope to be cultivating the area for relating innovation to organisational structures and thereby determining the characteristics of organisations affecting innovation. b. The Innovation Process The innovation process may be divided into four stages, the generation or conception of the new idea, the proposal, the adoption or acceptance and the implementation stage. This is in fact very similar to Wilsons (1966) model which is basically the same but groups the last two stages of adoption and implementation together. Shepard (1967) also has a similar model but leaves out the proposal stage. Table 1 shows some of these models for the innovation process. The model I have chosen is some sort of integration of the Wilson and Shepard models.
1

Note what is new or rather what can be said to be new, which distinguishes an innovation from a mere change remains unexplained.

Shepard (1967) 1. Idea Generation 2. Adoption 3. Implementation

Wilson (1966) 1. Conception 2. Proposing 3. Adoption and Implementation

Model used in this essay 1. Idea Generation 2. Proposing 3. Adoption 4. Implementation

Milo (1971) 1. conceptualisation 2. Tentative Adoption 3. Resource Getting 4. Implementation 5. Institutionalisation

Hage and Aiken Evaluation Initiation Implementation Routinisation

Hage and Aiken specify 4 stages of the innovation process. Evaluation involves the establishing that a performance gap exists and the resetting of the goals of the organisation. Initiation is concerned with problem solving to find required job skills and financial support that are required for the innovation. Implementation is the initial attempt to integrate the innovation into the organisation, and routinisation follows the initial trial that took place in the implementation. In routinisation the decision is made to retain the innovation and fully integrate it into the ongoing activities of the organisation. Milo emphasises the importance of resource getting and introduces a fifth stage of institutionalisation which is the stage whereby an innovation becomes part of the established after being fully integrated into the organisations activities. For the model I have chosen I offer the following definitions. First, the generation of ideal stage is the stage whereby an idea regarding something new (product, production process, service, system, method, policy etc) is conceptualised by some individual or group, of persons in the organisation. The proposing stage is whereby an idea or concept is transformed into a proposable form. This is where information is gathered and processed and the concept undergoes through the early stages of assessment, it reaches the stage where it can be proposed for official acceptance. The third stage of adoption is the stage whereby the proposed innovation is legitimated or becomes officially accepted. This is the stage where the decision for giving the innovation the attention needed in effort, time and money to be fully developed is made. The final stage of implementation concerns the actual utilisation of the innovation by organisational members as they perform their tasks. In the case of new products this might include the trial of a new product before a commitment is made for its full establishment.

The following diagram shows the innovation process as it relates to a dynamic social environment. As it is shown in the diagram innovation could cause social change as well as being a result of it. Diagram 2 The Innovation Process

Generation of Ideas

Proposing

Adoption

Implementation

Search for Alternatives

Need

Performance Gap

Social Change

March and Simon (1958) showed that although organisations might feel the existence of a social change, they might continue on an existing program of activity, and thus not embark onto the innovative process, because the organisation does not search or consider alternative courses of action. However when a social change causes the creation of a performance gap a discrepancy between what the organisation is doing and what its decision makers believe it ought or could be doing (Downs 1966, P.191), this dissatisfaction increases the search for alternative courses of action thereby causing the innovation process to take off. However, the search for alternatives alone is by no means sufficient for the innovation to take place. The organisation should also have the necessary room and structure to accommodate the innovation process. In the remainder of this essay I, therefore, examine the relationship between the innovation process and organisational structure.

III.

Organisational Structure and Innovation a. The relationship between Innovation process and Organisational structure Organisations can be distinguished by different characteristics such as the diffusion of authority, the complexity of the task structure and incentive systems. Wilson (1963), defines task structure as the sum of all rewards given to members, and makes what he calls diversity in an organisation a function of these two; and the probability of innovation activity taking place at any of the stages of the innovative process a function of diversity in an organisation diversity being positively related to the level of complexity in the task structure and incentive system in the organisation. He then postulates three hypotheses: (1) the greater the diversity of the organisation, the greater the probability that members will conceive of major innovations, (2) the greater the diversity of the organisation, the greater the probability that major innovations will be proposed, and (3) the greater the diversity of the organisation, the smaller the proportion of major innovative proposals that will be adopted. Taking the diversity characteristics of organisations as defined by Wilson to correspond or be a near enough approximation to Webers bureaucratic organisation model when diversity is low and to a democratic or freeform organisation when diversity is high, one may derive some useful conclusions regarding structure of organisations and innovation. Firstly, it seems that the free-form organisation where everybody is expected to work and co-operate in a joint effort is best suited for the initiation stage of innovation (i.e. the conception of new ideas and proposal) while the bureaucratic organisation seems vital in the adoption and implementation stages. So, how can management tackle or approach the problem of innovation best in the light of these findings. The issue here becomes, is it best to go for one form of organisational structure or another or is it better to aim towards an interchangeable organisational structure? In the next sub-section I will try to throw some light on this issue by reviewing the literature and evaluating the state of the art. In the last subsection a special consideration of the topic of organisational change will be undertaken. (b) A review of the literature: The State of the Art Burns and Stalker (1961) were the first to indicate that different types of organisational structures might be effective in different situations. They identify two extreme types or organisational structure. The mechanistic structure which is found in organisations operating under stable

conditions, and the organic structure which is found, or rather is best suited, to organisations operating under unstable conditions. They also suggest nine characteristics or factors of organisational form that vary between these two extreme forms of organisational structure. In a somewhat modified form I present these nine factors in what I believe to be a more easily identifiable and workable manner than their original presentation (Burns and Stalker (1961), page 120), in diagram 3 below. The diagram also attempts to relate the innovation process to the two polar forms of organisational structure put forward by Burns and Stalker, by showing what organisational structure facilitates better which particular stage of the innovation process. It will be observed that as the innovation process moves on from the generation of ideas to implementation, the organisational structure should become less organic and more mechanistic. Diagram 3 Mechanistic Organisation Organisational Characteristics Low ----------------------Rigid ---------------------Specific ------------------Strict ---------------------Presumed ----------------Instructive ---------------To Superiors ------------Dependent on Organisational ---------Status Stable Environment Implementation Task Complexity -----Task Definition -------Responsibility --------Control ----------------Expertness ------------Communication ------Loyalty ----------------Prestige ----------------High Flexible General Loose Challenged Informative To Organisation Independent of Organisational Status Unstable Environment Organic Organisation

Adoption Proposal Generation of Ideas The Innovation Process

In explaining why organisations do not change structure form mechanistic to organic when situations warrant it, Burns and Stalker emphasise the role of resistance to change. They indicate that the political and status structures in the organisation might be threatened as the organisation changes and becomes more organic to deal with innovations. In changing from one form of organisation to the other, it can be seen from the characteristics identified, that each one can become a potential source of conflict. For example, as the organisation becomes more organic there is more diffusion in decision making. The people that have to give room for this to happen (through giving up some of their exclusive prerogatives)

are likely to put up resistance to defend their positions, thereby creating conflict. Lawrence and Lorsch (1976) have indicated that different parts of the organisation may be different types of structures. Duncan (1973) goes one step further by showing that the decision unit in the organisation may implement different types of organisational structures at different points in time. Duncan conceptualises and measures structure in terms of five dimensions: hierarchy of authority, degree of impersonality in decision making, degree of participation in decision making, degree of specific rules and procedures, and degree of division of labour. He then links the generalised concept of organisation to that of information and communication. He views the organisation as a communication network held together by the flow of information. When these dimensions are highly structured, channels of communication and amount of information available are restricted. By linking the amount of information needed at each point in time with the level of uncertainty in the environment, Duncan shows that when information demands are low a decision unit within an organisation can respond more quickly to its environment by relying on pre-established rules and procedures, a well specified division of labour and so on. But when new information inputs are required to adapt to the uncertainty of the environment, strict emphasis on rules and procedures and division of labour etc. may prohibit the unit from seeking new sources of information, which may not have been foreseen when the rules and procedures were initially developed. When uncertainty is high the decision unit differentiates, or should be encouraged to differentiate, its decision making procedures to deal with the information gathering and processing requirements that accompany high uncertainty. In diagram 4, Duncans model is related to the innovation process in a similar fashion as in diagram 3 (Burns and Stalker). The two models are in many ways similar although there are several distinct differences in approach. Duncan concentrates on the individual (the decision unit) in the organisation and shows how different structures affect his impact towards organisational effectiveness, while Burns and Stalker look at the notion of differentiation in organisational structure by taking an overall view of the organisation. Furthermore, Duncan, conducts his analysis focusing on the uncertainty-certainty environmental situation, while Burns and Stalker examine the same problem in terms of stable and unstable environmental situations.

Diagram 4 Dimensions of Organisational Structure Degree of Hierarchy of Authority Impersonality in Decision making Participation - LOW Specific Rules and Procedures Division of Labour Uncertain Environment Adoption Proposal Generation of Ideas The Innovation Process

HIGH -

Certain Environment Implementation

Hage and Aiken (1970) specify several characteristics of organisations as they affect program change in organisations. Program change is defined as the addition of new services or products. They identify seven organisational characteristics that affect the rate of innovation in organisations. Complexity (page 33) is defined as the number of occupational specialities in the organisation and the degree of professionalism of each. They then predict that the greater complexity leads to greater program change. The second characteristic centralisation (p.38) is defined as the concentration of power and decision making in the hands of a small proportion of individuals. They argue that the higher the centralisation, the lower the rate of program change. The third characteristic, formalisation (p.43) is defined as the degree of codification of jobs in the organisation, - the greater the formalisation the lower the rate of program change. Fourthly, stratifications is defined as the differential distribution of rewards to the jobs in the organisation (p.45), - the greater the stratification, the lower the rate of program change. Fifthly, production (p.49) is defined as the emphasis on quantity versus quality the higher the volume of production the lower the rate of program change. Sixthly, efficiency (p.50) is defined as the relative emphasis on the cost reduction of the product or service, - the greater the emphasis on efficiency the lower the rate or program change. And finally, job satisfaction (p.52) defined as the degree of morale among the job occupants in the organisation, - the higher the job satisfaction, the greater the rate of program change. Hage and Aiken present their hypotheses concerning the relationships between the different organisational characteristics and the rate of innovation but do not indicate that these relationships might vary, depending on the stage of the innovation process. However, as Wilson (1966) has indicated (see page 11) complexity helps the conception and

proposing of new ideas but can cause problems during the implementation stage. Hage and Aiken do not indicate how the stages of the innovation process might affect the relationships between organisational characteristics and rate of innovation. In diagram 5 an attempt is made to provide for this deficiency by trying to relate the innovation process to the organisational factors of Hage and Aiken in a similar fashion as for Burns and Stalker and the Duncan models. The diagram tries to show how their static analysis would appear in the form of a model when related to the dynamic process of innovation. Taking into consideration the findings of Wilson, Burns and Stalker and Duncan and my definition of the different stages of the innovation process, I show that, Diagram 5 Low High High High High High Low (Low Implementation Complexity Centralisation Formalisation Stratification Production Efficiency Job Satisfaction Program change High Low Low Low Low Low High High)

Adoption Proposal Generation of Ideas The Innovation Process

in terms of what organisational characteristics are relevant to what stages of the innovation process, the organisation must swing its structure from right to left as the innovation process progresses. The Hage and Aiken program change relationship fails as regards the final stages of the process, especially the implementation stage. The state of the art has reached a point where research must be undertaken to generate information concerning how managers could actively facilitate the innovation process by implementing different changes in the organisations structure. The position as it is at the moment is that different forms of organisational structure facilitate the innovation process in its different stages. Specifically in stimulating the initiation of innovations (generation of ideas and proposals) a higher degree of complexity, lower formalisation and lower centralisation facilitate the gathering and processing of information which is crucial at this stage. At the adoption and implementation stage a higher level of formalisation and centralisation and a lower level of complexity are likely to reduce role conflict and ambiguity which could impair implementation. This

conclusion therefore implies that the organisation must shift its structure as it moves through the various stages of innovation. (c) Organisational change It is however true that organisations can not, and do not, change structure overnight and that the subject of organisational change is one of the most unresolved areas in the social sciences. Change in organisational structure implies a change in the pattern of roles and relationships in the organisation, or part of it, and in the policies and procedures that affect them to meet new work requirements and new strategies. The organisation in effect is made up of the work and the relationships of people who comprise it. In order to change the organisation one should aim in altering these relationships in such a way so that the work of the organisation as determined by its new objectives is better accommodated. This can be achieved by either changing people in the organisation or by changing tasks or by changing both. One of the most important issues in organisational change is whether one should change people or whether it should change jobs, although the answer in most situations would involve a careful adjustment and readjustment of both. Organisational change therefore, is not just the definition of a new state of affairs but rather a process which takes time and experimentation and which is thus not easy to direct and control effectively. By appreciating the fact that work and people have different properties, one should allow enough room for compromises and resolution of differences and try to ensure that the possibility of honest communication, participation, discussion and consultation between the people involved in change and their superiors exists. The planning, implementation and control or organisational change is a matter of the utmost importance to marketing because in many respects change lies in the heart of the marketing concept. Marketing people have to face the subject courageously and try to understand its dimensions, its constraints and determinants and most importantly how to deal with it effectively. Unfortunately, the state of the art is only at its infancy stage and a lot more yet remains to be done and learned. Research should be directed towards the study of people and their relationships at work, their aspirations, the incentive systems and job definition of the organisation, training and conditioning of personnel, the study of groups and role conflict, etc. Bennis (1966) points out that the existing theories on change are silent on matters of directing and implementing change. He notes, they are theories suitable for observers of social change, not theories for participants in, or of practitioners of social change. They are

theories of change and not changing. According to R. Chin (1963) a theory of changing must include manipulable variables, which must not violate the client systems2 values. Despite the lack of any concrete indications of how to plan and control change on a continuous basis, theory clearly spells out that a stable organisation, facing the need t change, must shake itself loose, become fluid, in order to allow change to occur, but must then re-stabilise itself in order to be effective. Weick (1969) has indicated that the organisation can solve its stability flexibility dilemma by alternating between flexibility and stability in its structuring of activities and simultaneously expressing these two forms in different parts of the organisation. The implication is that here may be a variety of structural configurations that an organisation might implement contingent on the situation the organisation is facing. BIBLIOGRAPHY 1. Zaltman Duncan Holbek (1973) Innovations and Organisations Wiley Interscience. 2. Victor A. Thompson (1969) Bureaucracy and Innovation University of Alabama Press. 3. G.A. Steiner (1965) The Creative Organisation Chicago Press. 4. Wilson J.Q. (1963) Innovation in Organisation: Notes towards a theory. In Approaches to Organisational Design by J.D. Thompson University of Pittsburgh Press. 5. T. Burns & G. M. Stalker (1966) The Management of Innovation Tavistock Publications. 6. N.P. Mouzelis (1967) Organisation and Bureaucracy Routledge and Kegan Paul Ltd. 7. W.G. Bennis (1966) Changing Organisations McGraw-Hill. 8. Down, Anthony, (1966) Inside Bureaucracy Boston: Little Brown & Company 9. Hage J. and Aiken M. (1970) - Social change in Complex Organisations: New York: Random House. 10. Lawrence P.R. and Lorsch J.W. Organisation and Environment. Division of Research H.B.S.: Boston.

Client-system refers to the target of change