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THE BIG

PICTURE
What is an Organization?
o Social entities
o Goal-directed
o Designed as deliberately structured and coordinated activity systems
o Linked to the external environment

“An organization is a collectivity with a relatively identifiable


boundary; a normative order; ranks of authority;
communications systems, and membership coordinating
systems; this collectivity exists on a relatively continuous basis in
an environment and engages in activities that are usually related
to a set of goals; the activities have outcomes for organizational
members, the organization itself, and for society.”
How an organization creates value?

• Raw Materials
• People
Input •Production
• Finance
•Maintenance
• Information
•Management

Transformation
Process

Output
•Goods
•Services
Closed System
Determinate system • Scientific Management (Taylor, 1911)
• Administrative Management (Gulick
• Variables and relationships
and Urwick, 1937)
few enough to comprehend
• Bureaucracy (Weber, 1947)
and control over

ultimate criterion:
Efficiency
Closed System
CERTAINITY
Maximization

planning and control


Open System
Indeterminate system
• More variables and relationships
than we can comprehend and
subject to influences we cannot
control or predict

UNCERTAINITY Open System SURVIVAL


Bounded Rationality

SATISFICING
UNCERTAINITY Open SURVIVAL
System

Complexity of organization’s
environment

Performance and deliberate


decisions

CERTAINITY Closed GOAL


System ACHIEVEMENT
Institutional Level
Controls

Technology Level Managerial Level


Technology Environment

Uncertainty Open system Survival

Certainty Closed System Goal Achievement


Technology

• The combination of skills, equipments, and relevant technical


knowledge needed to bring about desired transformation in materials,
information, or people.
Technical complexity:
Joan Woodward (1958) The extent of mechanization
of the manufacturing process
Type of core Description Technical High: work is performed by
technology complexity machines
Small batch and Unit Produce one unit at a time/in Least
production small numbers, in response to Low: workers play a large role
specific needs of customers in the production process
Eg. Customized hand-made bags
Large batch and Mass Long production runs of Moderate
production standardized parts
Eg. Assembly lines for automobiles
Continuous process Raw material taken in and Highest
production subjected to continuous
transformation
Eg. Gas-to-liquid plant
Long-linked Technology Thompson (1967)
(Sequential interdependence) Manufacturing
• Mass production assembly line

Mediating Technology
(Pooled Interdependence)
Variations in Technologies Linking clients - interdependent
• Commercial banks
• Post Office

Variety of techniques drawn to


change a specific object
Intensive Technology • Emergency admission
(Reciprocal Interdependence) • Construction industry
Technology Type of Demands on horizontal Type of Priority for
Interdependence communication, coordination locating units
decision-making required close together

Mediating Pooled Low communication Standardization, Low


rules, procedures

Long-linked Sequential Medium Planning and Medium


communication Scheduling

Intensive Reciprocal High communication Mutual High


adjustment
Organizational Environment

• All the elements that exist outside the boundary of the


organization and has the potential to affect all or part of
the organization.

Domain

Domain consensus
Environmental Complexity
• Number and dissimilarity of external agents

• Simple: Organization interacts with and influenced by only a few and


similar external elements
 Family owned hardware store

• Complex: numerous, diverse


 BP – ever changing governmental regulations, international events, complex legal & financial
systems in different countries, changing value systems, numerous suppliers, customers,
contractors….
Environmental Dynamism
• The degree to which forces in the specific and general environment change quickly
over time

• Instability often occurs when: Video game console manufacturers? UNSTABLE


 Consumer interests shift
Public utilities? STABLE
 New technologies introduced
 Competitors react aggressively

• Sometimes, unpredictable events – lead paint in Mattel toys, discovery of heart problems
related to pain drugs…bloggers, guitar incident at United Airlines,
Framework for Assessing
Environmental Uncertainty
Environmental Richness Munificence

• The amount of resources available to support an organization’s


domain.
High quality scientists – Boston vs. Alaska

 Environments may be poor because:


• The organization is located in a poor country or in a poor region of a country
• There is a high level of competition, and organizations are fighting over available
resources
• Created by the process of attention
• Organization responds to only what it
perceives; those things that are not noticed do
not affect the organization’s decisions and
actions

Enacted
Environment

Organizational
Response
Organizational
Domain Defenders
Response U
N
C 1. Top managers perceive change
E Reluctant Reactors and uncertainty in the
R environment
T 2. Organizational adjustments
A
I Anxious Analyzers
N
T
Y
Enthusiastic Prospectors
Managing Resource Dependencies

• Dependency factors:
1. How vital?
2. Extent of control?
• Two basic types of interdependencies
 Symbiotic interdependencies: interdependencies that exist
between an organization and its suppliers and distributors
PC industry –HP & Intel
 Competitive interdependencies: interdependencies that exist
among organizations that compete for scarce inputs and outputs
PC industry –HP & Dell
Choice: most reduction in uncertainty with least loss of control
Managing symbiotic interdependencies

Car repair shop Pharma companies &


DeBeers physicians
Interlocking directorate
Managing competitive interdependencies

Trade Tata-Corus
Sony and
Illegal? associations –
Samsung
CII, FICCI
ACME AND OMEGA
Work specialization or division of labour is the degree to
which activities in the organization are subdivided into separate
jobs.

Departmentalization is the basis by which jobs are grouped


together. Organizations may be departmentalized by function,
product, geography, process, or customer.

Centralization is the degree to which decision making is


concentrated at a single point in the organization.

Formalization refers to the degree to which jobs within the


organization are standardized.
Chain of Command - the continuous line of authority that
extends from upper levels of an organization to the lowest
levels of the organization - clarifies who reports to whom.

Authority - the rights inherent in a managerial position to


tell people what to do and to expect them to do it.

Responsibility - the obligation or expectation to perform.

Unity of Command - the concept that a person should have


one boss and should report only to that person.
• Mechanistic – characterized by machine-like standard
rules and procedures with clear authority

• Organic – design of organization is looser, free-


flowing, and adaptive
Mechanistic Organic

• Tasks are specialized • Employees contribute to the common task


• Tasks are rigidly defined • Tasks are adjusted and redefined through
teamwork
• Strict hierarchy of authority and
control • Less hierarchy of authority and control

• Communication is vertical • Communication is horizontal

• Many rules, formal • Few rules, informal

• Centralized structure • Decentralized structure


Low Uncertainty Low-Moderate Uncertainty
Mechanistic Structure: Mechanistic Structure:
Formal, Centralized Formal, Centralized
Stable
Few departments Many departments, some
D boundary spanning
Y No integrating roles Few integrating roles
N
Some planning
A Current operations orientation
M
I High-Moderate Uncertainty High Uncertainty
S
M Organic design, teamwork: Organic design, teamwork:
participative, decentralized participative, decentralized
Unstable Few departments, much boundary Many departments differentiated,
spanning extensive boundary spanning
Few integrating roles Many integrating roles
Planning Orientation, fast response Extensive Planning, forecasting,
high-speed response
Simple Complex
COMPLEXITY
Many departments and
boundary roles

High complexity Greater differentiation and


more integrators for internal
coordination
High uncertainty

High dynamism Organic structure and systems


with low formalization,
decentralization, and low
standardization to enable a
high-speed response
Environment
Controlling external environment
• Change where you do business
 Changing domains
• Walmart - Express
• Google – expanding its domain through acquisition
• Barnes & Noble - digital

• Get political
 Influence government legislation and regulation
• Facebook Washington office lobbying
• Walmart and Target vs. Amazon.com
• Huawei Technologies, Amerilink and Sprint
• Illegitimate? – payoffs to governments, illegal political contributions, promotional
gifts, wiretapping, bribery….
Many departments and
boundary roles

High complexity Greater differentiation and


more integrators for internal
coordination
High uncertainty

High dynamism Organic structure and systems


with low formalization,
decentralization, and low
standardization to enable a
high-speed response
Environment

Establishment of
favourable relationships

Resource
Munificence
dependence Control of environmental
domain
Aryan and John, the owners, cook and wait tables as needed.
They employ one additional waiter.
(3 individuals in the organization)
Aryan and John work in the kitchen full-time. They hire waiters,
busboys, and kitchen staff.
(22 individuals in the organization)
Unable to manage both the kitchen and the dining room, they divide
tasks into two functions, kitchen and dining room, and specialize.
Aryan runs the kitchen and John runs the dining room. They also add
more staff.
(29 individuals in the organization)
The business continues to prosper. Aryan and John create new
tasks and functions and hire people to manage the functions.
(52 individuals in the organization)
The owners see new opportunities to apply their core competences in new
restaurant ventures. They open new restaurants, put support functions
like purchasing and marketing under their control, and hire shift managers
to manage the kitchen and dining room in each restaurant.
(150 individuals in the organization)
Information-Sharing Perspective
on Structure
Vertical and horizontal information flow
 Traditional organization designed for efficiency?
• Centralized authority focused on top level decision-
making
 Learning organization which emphasizes
communication and collaboration
• Decentralized authority focused on shared tasks and
decisions
Efficiency versus
Learning Outcomes
Series of six structural changes through a period of thirty months
Fall 1988 Circular
February 1989 Functional
May 1989 Product Team
November 1989 Business Team
August 1990 Divisional
October 1990 EDS
Entrepreneurial Structure

• Facilitates fast, innovative responses

• Run by self-driven entrepreneurs

• No formal structure and control


Problems

Prone to two critical failures

• Unreliable quality with which it delivered products and services


• Lack of planning and meeting targets

Poorly defined division of labour, responsibility,


authority & accountability
Entrepreneurial Chaotic

“Project orientation and looseness didn’t work. We needed a


system of accountability. We needed structure and control.”
Innovative circular structure

What went wrong?


Reasons for the failure of Circular Structure

The structure of an organization helps in:

• Division of labor
• Defining the identity within the organization and
• How they relate to each other
Would Ghosh been able to implement
a hierarchical structure without going
through this intermediate stage?
Was the functional structure a good way for Appex to solve
its earlier problems?
CEO

Functional Structure:
Groups people on the basis of
their common skills, expertise, or
resources they use

Engineering Marketing Finance R&D


Ghosh

Software
Sales and Engineering & Finance, HR
Operations Development &
Marketing Technology and Admn
Services

Division of labour
Completing tasks
Defining responsibility
Define their identity and career path
Functional Structure

• Activities grouped by common function


• All specific skills and knowledge are consolidated
• Promotes economies of scale
• Slow response to environmental changes
• Prevalent approach but few companies can respond in today’s
environment without horizontal linkages
Why did Shikhar change functional structure?

• Proliferation of jobs both horizontally and vertically

• Emergence of organizational politics

• Differentiation and integration

• Lot of pressure on CEO

• Dilutes accountability for the financial performance of the organization Exhibit 5

• Can lead to diminished zeal to produce new and innovative products and services
Functional Structure
Product Team Structure
Ghosh

Software
Sales and Engineering & Finance, HR
Functions Operations Development &
Marketing Technology and Admn
Services

Product Teams Product Product Product


Manager Manager Manager

Product Product Product


A B C
Do you think the Product and Business team
structures were useful ways of addressing the
limitations of functional structure?

• Focus on development and performance of various products and services


• Reduced integrative role of Shikhar
• Greater emphasis on product development

• Ambiguity and conflict over who had what decisions right


• Resource allocation
Do you think the Business Team structure served its purpose?

• Closer to division structure


• Added more administrative work
• Further blurred decision rights and accountability Exhibit 6
Divisional Structure

• Emphasis on greater accountability for financial performance and responsibility for


planning and budgeting – lies with Divisional GM
• Frees up the CEO from being involved in day-to-day operational details, but
increases his responsibility for making resource allocations across divisions

• Unwillingness to share resources and loss of scale economies for the firm (eg.
database manager)
Divisional Structure
Basic Dimensions of Organization Structure

• Division of Labor
• Coordination Mechanisms
• Distribution of Decision rights
• Organizational Boundaries
• Informal Organization
• Political Alignments
• Legitimate basis of Authority
Organization Structure Start up, 1984 to May 1988

Division of labour Projects, interest & skills

Coordination mechanism Senior leadership/ face to face

Conflict resolution Persuasion

Distribution of decision rights Informal

Control Commitment

Identity and careers Entrepreneurial

Strength Responsive, innovative, fast


•Short term focus
Weakness •No accountability
•No career path
•Service suffered
Organization Structure Circular May 1988- Feb 1989

Division of labour Expertise

Coordination mechanism Not clear

Distribution of decision rights Not clear

Control Not specified

Identity and careers Experts


All are equal in respective
Strength
circles
Weakness •Difficult to understand
Organization Structure Functional Feb 1989- Mar 1989

Division of labour Functional expertise

Coordination mechanism Ghosh and Functional managers- Vertical

Conflict resolution CEO

Distribution of decision rights Partitioned, Ghosh involved in everything

Control Compliance

Identity and careers Functional experts

Strength Focused people on specific task

Weakness •Inefficient operations


•Built wall around functions
Organization Structure Product/Business Team Mar 1989- Aug 1990

Product & Functional


Division of labour expertise

Coordination mechanism Business team managers

Distribution of decision rights Business team

Control Compliance

Identity and careers Product and management

Improved coordination,
Strength balanced approach

Weakness •Unclear responsibilities between product


and function managers
•no focus on company-wide profitability
Organization Structure Divisional Aug 1990- Jan 1991

Division of labour Products

Coordination mechanism Authority of division head

Conflict resolution Senior management

Distribution of decision rights Division head

Control Profit and loss results

Identity and careers General management

Strength Profit focused, strategic responsiveness

Weakness •Wall between divisions,


•Innovation down
•Duplication
Matrix Structure
CEO

VP VP VP VP VP
Engineering Marketing Finance R&D Purchasing

Manager
Product A

Manager
Product B

Manager
Product C

Manager
Product D

Product
Team
Network Structure

• A cluster of different organizations whose actions are


coordinated by contracts and agreements rather than
through a formal hierarchy of authority

• Very complex as companies form agreements with


many suppliers, manufacturers, and distributors
Relative Advantage and Disadvantage of
Different Structures

Functional Divisional Matrix Network

Resource Efficiency Excellent Poor Moderate Good

Responsiveness Poor Moderate Good Excellent

Adaptability Poor Good Moderate Excellent

Accountability Good Excellent Poor Moderate

Best suited Heteroge


Stable Complex Volatile
environment neous
Organization’s ability to perform its tasks reliably, with quality, and
Resource Efficiency with economy of effort and resources such as labour and capital
Organization’s ability to satisfy the demands of the various
Responsiveness domains of the environment in which it operates
Ability of the organization to innovate and to change dynamically
Adaptability over time
Ability to hold individuals in the organization accountable for the
Accountability performance of certain activities that contribute to the improved
overall performance of the firm
Dimensions Functional Divisional Matrix Network
Division of Labor By Inputs By Outputs By Inputs and By Knowledge
Outputs
Coordination Hierarchies, Division Dual Reporting Cross-functional
Supervision, Plans Manager and Relationships Teams
and Procedures Corporate Staff
Decision Rights Highly Centralized Separation of Shared Highly
Execution and decentralized
Strategy
Boundaries Core/Periphery Internal & Multiple Porous and
External Interfaces Changing
Markets
Importance of Low Modest Considerable High
Informal Structure
Some learnings…
• how structure of an organization can affect its performance
• how each structure affects the behaviour and performance of the members
• it’s a fallacy that there can be one best design that solves all organizational
problems
• how important it is for an organization’s structure to be dynamically aligned with
changing contextual circumstances (here, rapid growth of the firm in terms of its
revenues, number of employees, number of products and services)
• role that structure plays in shaping the identity of organizational members and
political alignments within the firm
So, welcome to the real world.

It may not be the world we want, but it’s the world we have.

You won’t get far, and neither will your strategic plans,
if you can’t build and use

power
Some QUESTIONS…

What can we learn about power from this experience?

Does it remind us of events seen in real organizations?


• How did you think about what power is?

• Were you satisfied with the amount of power you had?

• How did you try to exercise or to gain more power?


“Power changes people. People who rise to the tops of companies
and other organizations tend to prioritize their own goals and desires
above those of others, fail to take other people's perspectives into
account, tend to disregard other people's feelings and are, well, less
polite. They act to preserve their power, sometimes aggressively, when
they feel that it is threatened.”

https://www.gsb.stanford.edu/insights/lindred-greer-how-power-struggles-escalate
Some REFLECTIONS…
In-group, out-group dynamics

• Intergroup attribution, misunderstandings, mistrust


• Differential power positions encourage the development of myths and stories
which are used to interpret behaviour and intentions of others

How difficult it can be under such conditions to


create effective communications and decision-making,
even with the best of intentions!
Some REFLECTIONS…

Structural injustice and the effects it have on individuals

• Experience of being in a bottom group where rage, hopelessness, powerlessness


prevail
 especially when people have been on the top
 individual efforts can be distorted and wasted in the absence of a social system that permits
their expression

How easily frustration and rage can lead to strategies of


coercion and brute force!
Some REFLECTIONS…

Realization about how narrowly one has thought about


Power and authority!

• Conditioned to follow any rules, no matter how senseless!


• Some focus exclusively on power bases that they may not be able to use (money)
and ignore other forms of power (number, control of desired resources) that are
available to them.
Some REFLECTIONS…

Complex interplay between individuals and structure

• Regardless of individual beliefs and make-up, being on top is very


different from being on the bottom - Top groups worry about
preventing chaos and creating a just society; Bottom groups worry
about getting money back
Some REFLECTIONS…

Individual differences within groups

 Bottom members may assume helplessness and drop out psychologically


 Bottom members may work steadily and constructively to accomplish
purposes they have defined for themselves – finding some justification or
merit of being on the bottom or creating a coalition with the middle group
• Power is the potential ability to influence

• Legitimate Power (position power)


• Reward Power
• Coercive Power
• Expert Power
• Referent Power
Where Does Power Come From?

Positional Characteristics Personal Characteristics


 Formal authority  Expertise
 Relevance  Track record
 Centrality
 Autonomy
 Visibility
While there is universal agreement that
(1) it exists, and
(2) that it plays a crucial role in shaping behaviour in organizations,

there is little consensus on


what organizational culture actually is,
never mind how it influences behaviour and
whether it is something leaders can change.
https://hbr.org/2013/05/what-is-organizational-culture?
One office worker to
another, both men
are wearing large
checkerboard hats
with pompoms on
the top.
“What keeps me awake are the intangibles. It's
the intangibles that are the hardest thing for a
competitor to imitate. You can get airplanes, you
can get ticket counter space, you can get tugs,
you can get baggage conveyors. But the spirit of
Southwest is the most difficult thing to emulate.

So my biggest concern is that somehow, through


maladroitness, through inattention, through
misunderstanding, we lose the esprit de corps,
Herb Kelleher the culture, the spirit. If we ever do lose that, we
will have lost our most valuable competitive
asset.”
https://money.cnn.com/magazines/fortune/fortune_archive/1999/01/11/253802/index.htm
Kelleher writes in his “declaration of war” memo,

“Southwest’s essential difference is not


machines and things. Our essential difference
is minds, hearts, spirits, and souls.”
Southwest boasts over 21 consecutive years of profit, a record
unrivalled in the U.S. airline industry.
What makes Southwest so successful?

What is Southwest’s strategy? How does it do business?


• Cost structure: low-cost fares; savings on maintenance by using one type of plane.
• Point-to-point service (no hubs) to underserved markets.
• No frills (e.g., first class, meals, frequent flyer lounges).
• Clear target market.
• High-employee productivity driven by using one type of plane; high investment
in recruitment and training; culture of teamwork; no assigned seating.
• Less congested airports improve turnaround time and aircraft utilization.
• Excellent customer service.
• Simplicity: simple fare structure and frequent flyer program based on number of
trips flown, not miles.
Southwest’s culture
• friendly, fun, egalitarian, and collaborative
• frequent use of the word “family” to communicate the culture
• inculcating new employees with the culture begins with the company’s hiring
practices, which involve current employees and customers
• stories of job applicants
 Bermuda shorts, resume on the icing of cake
• culture committee
• CEO and headquarters staff reinforce culture through their own behaviours
• parties - each region receives a party budget, and senior managers attend rolling
regional parties
• employees pitching in to help one another or a customer
Artifacts
• architecture of its physical environment
• language
• style, as embodied in clothing
• manners of address
• emotional displays
• myths and stories told about the organization
• published lists of values
• observable rituals and ceremonies Easy to observe, but very
difficult to decipher
The headquarters was to be a place that “promoted encounters
and unplanned collaborations.”
It is especially dangerous to try to infer the deeper assumptions
from artifacts alone because one’s interpretation will inevitably be
projections of one’s own feelings and reactions.

• When you see a very informal, loose organization, you may interpret that as
"inefficient" if your own background is based on the assumption that informality
means playing around and not working.

• If you see a very formal organization, you may interpret that to be a sign of "lack
of innovative capacity" if your own experience is based on the assumption that
formality means bureaucracy and standardization.
Espoused and Enacted Values

Starbucks CEO, Howard Schultz, was trying hard to enact the company value
of providing quality products and great service in response to the financial
problems faced by the company in 2009.

“I shut our stores for three and a half hours of retraining”.

People said, ‘How much is that going to cost?’


I had shareholders calling me and saying, ‘Are you out of your mind?’

I said, ‘I’m doing the right thing. We are retraining our people because we have
forgotten what we stand for, and that is the pursuit of an unequivocal, absolute
commitment to quality.’”
Basic assumptions

• Basic assumptions have become so taken for granted that you find
little variation within a social unit. This degree of consensus results
from repeated success in implementing certain beliefs and values.
Schein’s formal definition of organizational culture:

“ A pattern of shared basic assumptions,


learned as it solved its problems of external
adaptation and internal integration, that has
worked well enough to be considered valid
and therefore, to be taught to new members
as the correct way to perceive, think, and feel
in relation to those problems.”
Could one of Southwest’s competitors copy
what they were doing?
The concept of coherence

Southwest’s structures, systems, resources, stakeholder


relationships reinforce the company’s strong culture, and

together these organizational elements enable the execution


of the strategy
Six Components of a Great Corporate Culture

https://hbr.org/2013/05/six-components-of-culture
Emergence
• Begins with the founder
• Tony Hsieh, Brin & Page, Murthy
• Hire and keep employees who match the vision – then socialize individuals
• Founders’ behaviour acts as a role model and the “personality” of the
organization
• Encourages employees to identify with them and thereby internalize
their beliefs, values, and assumptions
• Herb Kelleher of Southwest Airlines
Henry Mintzberg on Culture

“Culture is the soul of the organization -


the beliefs and values, and how they are
manifested. I think of the structure as the
skeleton, and as the flesh and blood. And
culture is the soul that holds the thing
together and gives it life force.”
Enacted
Environment

Identifying
Response
Key Activities

Aligning Linking Grouping


Enacted
Environment

Identifying
Response
Key Activities

Aligning Linking Grouping


• boundaries of subunits around activities within the
Grouping
organization

• building information flows between interdependent


Linking
units within the organization, and with key external
organizations

• ensuring that subunits and people have the resources


Aligning
and motivation to carry out the activities assigned to
them in linking and grouping
Grouping

At its simplest level, it involves


answering the question of how to
cluster tasks and activities.
Grouping

• Should people performing the same kinds of task in similar


ways be clustered together, or should people performing
complementary tasks be grouped together?
• How many subgroups should be created, and in how many
layers?
• Grouping can be seen as "drawing the boxes" of the
organizational design.
Grouping by activity

• Grouping by activity brings together individuals who share


similar functions, skills, or work processes.
• They perform similar tasks and engage in similar activities.
• Grouping by activity gives rise to functional organizations.
• Pharmaceutical companies
– R&D, Manufacturing, Marketing and Distribution
– VP of R&D, VP of Manufacturing, VP of Marketing and so on.
Grouping by output

• Grouping by output organizes on the basis of the service or


product provided.
• The people within the group perform a variety of different
tasks and activities, but they are all contributors to the same
final output.
• Firms with a range of product lines usually find the functional
organization too inflexible and instead adopt a product line or
multi-divisional structure.
Linking

Linking involves designing formal and


informal structures and processes to
connect and coordinate organizational
units whose tasks are interdependent
but that have been separated by
grouping decisions.
Key Linking Mechanisms

• Through guidelines, procedures and policies


• Cross-unit groups: (Permanent vs. Temporary)
• Regular meetings

• Information technology systems (shared data bases)


• Planning processes (e.g. scenario building)
• Co-location (moving marketing into the same building as
R&D)
Designing the linkages is only the
first step; making them work
involves alignment, the third
element of organization design.
Alignment

Ensuring that the units and individuals


assigned certain tasks and activities by
the grouping and linking patterns have
the resources and the motivation to
carry them out effectively.
Key Aligning Mechanisms

• Performance evaluation
• Rewards and incentives
• Resource allocation
• Human Resource Development (recruitment, training, tracking,
planning)
• Informal systems and processes—personal networks
Contingency Approach to Organizational Design

Design of
Environment
Structure

Fit

Effectiveness
O P Bhatt
Former Chairman, State Bank of India

“SBI is India’s biggest bank… is no longer considered the best


bank… Somehow we seem to be losing out on our leadership
position.” (2006)

“This was a great bank, and it was seeing relatively bad days.
They put me in the Chairman’s seat, and it was up to me to
do something. If not me, who would?” (2006)
“We have regained our thought leadership. This
required a positive attitude born out of conviction
and faith in our people. Now we should aim to be
in at least the top twenty, if not the top ten banks
in the world”

O.P. Bhatt (2011)


journey of transformation from an

old, hierarchical, transaction oriented,


government bank to a
modern, customer focussed and technologically
advanced universal bank
• SBI's net profit more than doubled, rose to Rs 11,734 crore in 2011 from Rs
5,530 crore in 2006.

• Market capitalisation more than doubled, stood at Rs 1,17,883 crore as of


2011 against Rs 47,935 crore in 2006.

• Assets of the bank more than doubled to Rs 14,51,220 crore (2010) from
Rs 6,96,992 crore in 2006.

• Loans and deposits grew more than five-fold when other state-run banks had
a sedate growth and private banks were crippled by the credit crisis.

• Undisputed leader in the banking space with a 25 per cent of the market
share.

https://www.businesstoday.in/sectors/banks/o-p-bhatt-steps-down-as-sbi-chief-bank-gifts-rs-11734-crore-profit/story/14435.html
Culture
People

Strategy

Change
“SBI will stop losing market share and start gaining it by
improving customer service and improving its technology.
We will also raise the bank in international rankings.”
The “Whats” of Change

Culture

People

Strategy
The “Whats” and “Hows” of Change
“Whats”
Strategy Competitive positioning, perhaps 10% of required effort
People Human resources, suitable talent correctly deployed, perhaps
30-40% of required effort
Culture Widely shared behavioural norms, perhaps 50-60% of required
effort

“Hows”
Analysis Intelligence, information gathering and
processing, decision-making
Political leadership Building ‘winning coalitions’, dealing with blockers, protecting
‘mavericks’, articulating and reinforcing core cultural values
Management Procedures, processes, and practices to reinforce change

Source: Sebenius & Friedman (2007) Tools and tactics for transformation: Three “Whats” and “Hows”
The “Whats” of Change

Culture

People
The “Hows” of Change

“Hows”
Analysis Intelligence, information gathering and processing, decision-
making
Political Building ‘winning coalitions’, dealing with
leadership blockers, protecting ‘mavericks’, articulating
and reinforcing core cultural values
Management Procedures, processes, and practices to reinforce change

Source: Sebenius & Friedman (2007) Tools and tactics for transformation: Three “Whats” and “Hows”
The “Hows” of Change

“Hows”
Analysis Intelligence, information gathering and processing, decision-
making
Political leadership Building ‘winning coalitions’, dealing with blockers, protecting
‘mavericks’, articulating and reinforcing core cultural values
Management Procedures, processes, and practices to
reinforce change

Source: Sebenius & Friedman (2007) Tools and tactics for transformation: Three “Whats” and “Hows”
The “Whats” of Change

Culture
Strategy People Culture

• Right strategy? • Local anthropologist? • What is the current


• Aligned internal • Praetorian guard? culture? What should it
capabilities? • Formal and informal interviews be?
Analysis • Political map of potential
supporters, opponents and
“influencables”

• How to communicate • How to build supportive winning • How to best articulate,


importance and gain coalition? the few, truly, core
Political acceptance? • Deal with actual and potential values?
leadership blockers?
• Tap and protect vital mavericks?

• Institutionalizing key • How to focus on personnel system, • How to ensure right core
supportive systems including recruitment, promotion, values?
and practices? retention?
Management
Kotter's 8-Step Change Model

Source: Kotter (1995)


Lewin’s Model
Any organization, culture, set of beliefs remains in the
same state unless acted upon by a force.

The more people, organization or systems have invested


in the Past, the more difficult it is for them to Change into
the Future

When we try to change people, they will resist with an


equal and opposite force.
To address level 1 resistance,

• You give the right information in the right manner.

• You communicate why change is needed in


understandable language.

• You use multiple ways to make your case.

• You set up two-way communication and get


people to engage with information and reflect on
what they hear.
To effectively resolve level 2 resistance, you should:

• Be open to those opposing the change and


keen to learn about others' perspective

• In terms of your own perspective, you should be able


to maintain clear focus on your own goals that are
non-negotiable

• In terms of context, you should build strong working


relationships, have informal chats with key
stakeholders, involve and help people discover
what's in it for them
To deal with level-3 resistance,

you should build relationships of trust.

This requires effective listening and


dialogue.
Designing the Change Process

SORT of change
Scope
Origin
Rollout
Timing

four critical elements of


change design and implementation
Scope & Origin of Change
Approach to Implementation
Dimensions of Theory E Theory O Theories E and O
change Combined
Goals Code
Maximizeof Change
Develop organizational Economic value and
shareholder value capabilities organizational capability

Leadership Manage change from Encourage Set direction from the top
the top down participation from the and engage the people
bottom up below
Focus Emphasize structure Build up corporate Focus simultaneously on the
and systems culture; employees’ hard (structures and
behaviour and change systems) and the soft
(corporate culture)
Process Plan and establish Experiment and evolve Plan for spontaneity
programs
Reward System Motivate through Motivate through Use incentives to reinforce
financial incentives commitment – use pay change but not to drive it
as fair exchange
Use of Consultants analyse Consultants support Consultants are expert
consultants problems and shape management in resources who empower
solutions shaping their own employees
solutions