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CHAPTER: 1 What is Organization/Elements of organisation? Synopsis A. Definitions B. What is organization structure C. What is organization design? D. What is organization theory? E. Organizational behavior vs. Organizational theory F. Different ways of looking at an organization. G. A framework for analyzing organization theory Definitions A Consciously coordinated social entity. People or group of peoples interaction. Co-ordinate means Management. Relatively identifiable boundary that differentiates who is and who is not a part of the organization. Boundary not always clear; can change over a period of time. Has both explicit & implicit contracts. Functioning on a continuous basis having some continuing bond regular employee or visit once a while. Achieve a set of common goals achieved either individually or though group effort. What is organization structure? Organization Structure defines the manner in which tasks are allocated; who reports to whom and the formal coordinating mechanisms and interaction pattern that will be followed. The three elements of organization structure are: 1. Complexity :extent of differentiation within the organization

2. Formalization :extent to which an organization relies on rules & regulations 3. Centralization : where the locus of decision making lies
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What is organization design? The term emphasizes the management side of organization theory. Organization is concerned with constructing and changing an organizations structure to achieve the goals of the organization. It is extremely important to know how to design an organization. What is organization theory? A discipline that studies the structure and design of an organization. It describes how organizations are actually structured and offers suggestions on how they can be constructed to improve its effectiveness. Organizational behavior vs. Organizational theory 1. OB Micro view: emphasizes on individuals and groups; focus on narrow set of employee performance and attitude variables employee productivity, absenteeism, turnover and job satisfaction. Also focuses on factors affecting individual behaviors such as perception, values learning, motivation, and

personality; and group aspects such as leadership, power, communication, conflict etc. 2. OT Macro view: the unit of analysis is the organization itself viz., overall organizations ability to adapt and achieve its goals. Structural factors can impact employee behavior OB will consider structure-behavior relationship. For example in OB conflict tends to focus on inter-personal and intra-group that is a result of personality/communication differences. In other words OB sees conflict as people problem, while OT will see it as design problem. To conclude both OB & OT emphasizes on different levels of organizational analysis. Different ways of looking at an organization. 1. Rational entities in pursuit of Goals - Behavior of employees is the rationale to achieve organizational outputs 2. Coalition of powerful constituencies made of groups that seek to satisfy its self interests 3. Open systems Input-output transformation systems that depend on its environment for its survival.

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4. Meaning producing systems Artificially created entities maintained by management, symbolically tied to the purpose. 5. Loosely coupled system made up of relatively independent units that can pursue conflicting goals. 6. Political system Internal constituencies that see control over decision making. 7. Instruments of domination Members are placed into Job Boxes that put constrains on what to do and whom to interact. 8. Information processing units processing information vertically and horizontally to coordinate and interpret their environment. 9. Psychic prisons constraining members by constructing job description 10. Social contracts Composed of sets of unwritten agreements. The systems perspective A system is a set of interrelated and inter-dependent parts arranged in a manner that produces a unified whole. Every system is characterized by two diverse forces; differentiation and integration. In a system, specialized functions are differentiated. Accordingly, organizations have division of labor, departments and units that are separated to perform specialized functions. At the same time, in order to maintain unity among the differentiated parts and to bring a unified whole, every system has a reciprocal process of integration. Every system therefore requires differentiation to identify its subparts and integration to ensure that system does not break into separate elements. Types of system 1. Closed System that which totally ignores the effect of environment on the system; one that receives no energy from an outside source and from which no energy is released to it surroundings. 2. Open System that which recognizes the dynamic interaction of the system with its environment. Organization receives its resources from the environment, and hence it is important to view organizations beyond closed system.

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Characteristics of an open system All systems have inputs, transformation process and outputs. But open systems have additional characteristics:a. Environment awareness: Recognition of interdependency between the system and its environment. Changes in the environment can one or more attributes of the system, and conversely, change in the system affect its environment. b. Feedback: Open systems continuously received information from their environment. This helps the system to adjust and allows correction to rectify deviation from its specific course. c. Cyclical character: Open systems are cycles of events. The systems outputs furnish the means for new inputs that allow for repetition of cycle. d. Negative entropy entropy is the propensity of a system to run down or disintegrate. A closed system, as it does not receive inputs from environments will run down over a period of time. Whereas an Open system can repair, maintain its structure and avoid death. e. Movement towards growth: As the system becomes more complex, it moves to counteract entropy and move towards growth. f. Balance of maintenance & adaptive activities: Maintenance activities ensure that various subsystems are in place; and the total system is in accordance with the environment; while adaptive activities are necessary to adjust over time to variations and internal and external demands. g. Equifinality: This means an organization can achieve its objectives with varied inputs and transformation process. Life cycle perspective Life cycle refers to a pattern of predictable change. There are distinct stages though which organization passes through, and these stages follow a consistent pattern, and that the transitions from one stage to another are predictable rather than random occurrences. The life cycle perspective brings forth the implication to the management that continuous product

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innovation is required if the organization is to survive for long run. Following are the five life cycle stages:1. Entrepreneurial stage the stage is synonymous with the formation stage of a product. The organization is in its infancy. Creativity is high and goals tend to be ambiguous. Progress to the next stage demands both acquiring and maintaining a steady supply of resources. 2. Collectivity stage this stage continues the innovation of the earlier stage, but the organizations mission is clarified. However, structure and communication within the organization remains informal. Members of the organization put in long hours and demonstrate high commitment to the organization. 3. Formalization & control stage the structure of the organization stabilizes in the third stage. Formal rules & procedures are imposed. Innovation is deemphasized, while efficiency and stability becomes the focus. Decisionmaking assumes conservatism. At this stage organization exists beyond one person. Roles are clarified so that one persons departure does not cause inconvenience to the organization. 4. Elaboration of structure stage in this stage, the organization gets into diversification of its products or markets its services. Management makes a conscious effort to get into new opportunities. The organization structure becomes more complex and decision- making becomes de-centralized. 5. Decline stage A result of competition, a shrinking market or similar forces, the organization faces a decline in the demand for its products / services. Management looks for ways to beat the competition and hold its market share, and also looks for new opportunities. Conflict increases within the organization. New leaders emerge and this new leadership tries to arrest the decline. Once again the decision-making is centralized. Do all organizations pass through these stages? Not necessarily. The organizations as far as possible tries to avoid stage five. Some organizations can remain alive for a longer time and outlive any of its members. (E.g. Exxon Mobil).

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Viewing Organization from a life cycle perspective offsets the tendency to look at organizations as static. They evolve and change. Finally, life cycle perspective helps organization to evaluate its effectiveness.

1. How do we know if an organization is successful? 2. What are the components of an organization? 3. What determines the structure of an organization? 4. What options do managers have for designing their organization and when should each used? 5. How do you apply the knowledge of organization theory to the resolution of current management problems? As indicated earlier, the three primary components; complexity, formalization, and centralization; they represent the variables when combined creates organizational designs. OT is based on the questions what determines structure: They are five in numbers:1. Overall strategy 2. Size or the number of employees 3. Degree of routine-ness in the technology to transform inputs into outputs 4. Degree of uncertainty in the environment of the organization 5. Preferences of people who hold power and control. The first four are contingency variable because change in the structure will reflect the changes in these variables. . For e.g. if structure is contingent on size, change in size will result in change in the structure. The power-control, however, is non-contingent. In all instances (i.e. change in any of the four contingents referred above) those in power and control will always prefer structure that will maximize their control. If one wants to manage an organizations design, we must know the structural alternatives available at ones disposal. And given the various structural types, what are their strengths & weaknesses. Under what condition is each preferable. By mixing the structural components, complexity, formalization and centralization, five organizational design options can be arrived at. However, current issues worrying the organizational theorists are managing:

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1. The environment 2. Organizational change 3. Organizational conflict 4. Organization culture; and 5. Evolution You will study concepts in the following chapters that will help you analyze the subunits such as different department, functions as well as the overall organization. Although, many organizations are too large & diverse to be treated as a single unit. So, whenever we say organization is Structured in a singular way, we mean generalization. A framework for analyzing organization theory

Determinants of structure: Strategy Size Environment, Technology, Power-control

Applications: Managing the: Environment Change Conflict Culture Evolution

Organization Structure

Organizational Effectiveness Organization Design options

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CHAPTER: 2 Evolution of organization theory Synopsis A. Introduction B. Early contributions of Type 1 theorists : Frederick Taylor & Principles of Scientific Management C. Henri Fayol & Principles of Organisation D. Max Weber & Bureaucracy E. Ralph Davis & Rational Planning F. Contribution of Type 2 Theorists G. Contribution of Type 3 Theorists H. Contribution of Type 4 Theorists Introduction There appears to be two underlying dimensions in the evolution of organization theory and that each dimension has two different perspectives. The first dimensions reflect that organizations are systems. It was believed that organization was a closed system that was autonomous and sealed off from its environment. However, from early 60 organizations began to develop a belief that organizations indeed are an open system. The earlier aspect of focusing on internal characteristics gave way to focus on events and processes external to it. The second dimension deals with the ends of organization structure. Here again are two opposed perspectives. The rational perspective argues that the structure of an organization is conceptualized as vehicle to effectively achieve specific goals. In contrast, the social perspective emphasizes that structure is the outcome of conflicting forces by organizations elements who seek power & control. The result is four theoretical classifications labeled type 1 to 4. Type 1 Organizations as a mechanical device to achieve goals (as in the case of UPS. Focus is on achieving efficiency in the internal functions of the organization.

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Type 2 Organization as a closed system. More emphasis was laid on informal relations and non-economic motive. Management would design formal rules, relationship etc. but there were informal patterns of communication, status, norms, and friendship created to meet social needs of organization members. Type 3 Organization as a primary medium to achieve goals. Concentration was on size, technology and environment. Uncertainty was the major contingent variable that determined the nature of organization structure. (more rational approach) Type 4 The social perspective has returned but in an open system framework. The viewpoint was structure was not the result of rational effort by managers but outcome of political struggles among coalitions within the organization for control. Early contributions of Type 1 theorists: Frederick Taylor & Principles of Scientific Management According to the Principle of scientific management, which was based on observation of work methods, the employee output was only about one third of what was possible. By applying scientific method to jobs on the shop floor, one best way to do each job was arrived at. Today this concept is called work design. The four principles under the scientific management are: 1. Replacement of thumb-rule method with scientific determination 2. Scientific selection and training of workers. 3. Cooperation of management & workers for achieving organization goals 4. Equal division of responsibility between management & workers (former doing the planning & strategizing and the latter doing the execution) Limitation focus too narrow of organizing work at the lowest level of organization Henri Fayol & Principles of Organisation This is based on Fayols extensive experience as a practicing executive. Under this concept, general principles applicable to all managements at all levels of the organization and to describe the functions a manager should perform. Fourteen principles proposed by Mr. Fayol are:

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1. Division of work specialization increases output by making employees efficient. 2. Authority A managers authority should equal his responsibility 3. Discipline good discipline is a result of effective leadership; judicious use of rules for infraction of rules. 4. Unity of command Every employee should receive order from one superior 5. Unity of direction Each organizational activity having same objective should be directed by one Manager. 6. Subordination of individual interests to general interests 7. Remuneration Fair wages for work done 8. Centralization degree to which subordinates are involved in decision making. Is decision making centralized (to management) or decentralized (to subordinates) 9. Scalar chain line of authority that flows from top management to the lowest rank. Communication to follow this chain only. If following the chain causes delay, a gangplank (cross communication) can be allowed. 10. Order people and material should be at the right place at the right time. 11. Equity managers should be fair to their subordinates 12. Stability of tenure High turnover is inefficient. 13. Initiative Employees who are allowed to originate and carry out plans will exert high level of effort. 14. Espirit de corps promoting team spirit will build harmony within the organization. Max Weber & Bureaucracy This is referred as Ideal type. This aspect supports the argument that the most efficient means by which organization can achieve their ends is through bureaucracy. This was characterized by high division of labour , detailed procedures, rules and regulations and impersonal relationship. Webbers bureaucracy is a prototype for most of the large organizations today.

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Ralph Davis & Rational Planning Rational planning perspective proposed that structure is the logical outcome of organizations objectives. This concept believed that primary objective of any organization is economic service No business can survive if it cannot provide economic value. Economic value is generated by the activities members engage in to create organizations products and services. These activities then link the organizations objectives to its results. It is managements responsibility to group these activities in such a way as to form the structure of the organization. Accordingly, this concept concludes that organization structure is contingent upon the organizations objectives. Contribution of Type 2 Theorists Elton mayo & Hawthorne studies Findings of the study resulted in designing jobs, its duration, and length. Wage-incentive plan, determining factors for a workers output etc. The most significant result of this study was management never considered the issue of organization design without including effects on work groups, employee attitudes and manager-employee relations. Chester Bernard & Cooperative System Merging the idea of Taylor, Fayol, & Weber with the result of Hawthorne studies led to the conclusion that organizations are cooperative system. They are composed of tasks and people that have to be maintained at an equilibrium state. So managers are required to organize their tasks to the needs of the people indulged in the tasks. Also this system challenged the contention that authority flows top-down. It was argued that authority should be defined in terms of response of the subordinates. It was this system that introduced the role of informal organization to organizational theory, and it was proposed here that managers role is to stimulate the subordinates to high level of effort through facilitating communication. Douglas MCGREGOR Theory X & Y Managers perception about employees is based on grouping of assumptions, and employee behavior is moulded based on these assumptions. The implication of this to organization theory is that employees should prefer theory Y assumptions and design the organization accordingly. Employee participation in decision making, creating responsible and challenging jobs etc. can be traced back to this assumption.
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Warren Bennis & Death of Bureaucracy Here the centralized decision-making and impersonal submission to authority and narrow division of labour was being replaced by decentralized and democratic structure organized around flexible groups. Mr.Bennis argued that flexible adhocracies as the ideal organization form, much contradicting Webber who professed bureaucracy. Contributions from Type 3 Theorists Herbert Simon & Principles Backlash Mr. Simon recognized that Type 1 principles have to give way to a contingency approach. He argued that Organization theory need to go beyond superficial principles to a study of conditions under which competing principles were applicable. Katz & Kahns Environmental Perspective This is a major work done towards promoting open-system perspective of organization theory, by providing a convincing description of the advantages of an open system and by proving the need for organizations to adapt to changing environment for its survival. Technology Charles Perrow & James Thompson made an impressive case of Technologys importance. Like Environment, no discussion on Organization theory can be complete without referring to Technology and the need for managers to match structure with technology. The Aston group & Organization Size In addition to the advocates of Environment & Technology, Type 3 theorists included the size of an organization as an important factor influencing the structure. Large organizations have been shown to have many common structural components, and so is the case with smaller organization. This alignment of size to structure has been proved valuable in organization decision-making.

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Contribution of Type 4 Theorists The most recent approach to Organization theory focuses on the Political Arena of an organization. Pfeffers Organisation Jeffrey Pfeffer built a model of theory that encompasses power coalitions, inherent conflict over goals and organization design decisions that favour the self-interest of those in power. According to Pfeffer control in an organization is an end rather than means to achieve rational goals such as efficient production of output. Organizations are coalitions composed of varying groups and individuals with different demands. An organization design represents the power struggle between these coalitions. For an effective study of how and why organizations are designed the way they are, we need to assess the preferences and interests of those in the organization who have influence over the design decisions.

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CHAPTER: 3 Organisational Effectiveness Synopsis A. What is effectiveness? B. Organisational Effectiveness C. Definition D. Organisational Effectiveness Criteria E. Approaches F. Models G. Competing Values Questionnaire What is effectiveness? Look at organizations driving their earnings. On an average, each Toyota employee produces 57.7 vehicles a year. In contrast, Ford gets only 16.1 vehicles from each employee. Similarly, Toyota spends only $630 on labor of each vehicle, whereas Ford spends $2379. Yet Ford earns $555 per vehicle to only $446 for Toyota. Which company would you consider more effective. During the year 1987 Monsantos sales rose 11% over 1986. In contrast, during the same period, Rohm & Hass Chemicals sale rose only 7%. Yet R & Hs profit increased 41% as compared to only 1% of Monsanto. Which is more effective Monsanto or R & H? Warner Lamberts Profits declined in 1987 but its return on invested capital that year was a chopping 30.5%, far more impressive than Monsantos 11.2 and R & Hs 17.8% Now which of these three is more effective? Organisational Effectiveness Organizational effectiveness is the central theme to Organization theory. Every function of an organization contributes in some way to help managers make organizations more effective. For instance, Marketing guides managers in expanding market share and revenues; Finance helps managers in making optimum use of funds invested in the organization. Operations & production help in guiding efficient processes, while Human resources help in making leaders in their fields.

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However, as a part of organization theory, it is important to know how an organization structure can contribute to the Organization effectiveness. It is important that the way people and jobs are aligned, role & relations defined, put together forms an important determinant in whether an organization is successful or not. Accordingly, awareness of different structural options and conditions under which each is preferred would definitely help HR professionals in designing an effective organization. Definition A simple way to define degree to which an organization realizes its goals. Or how does an organization manages to; survive. But survival becomes alive or dead evaluation. Organization doesnt die like humans. E.g. American Motors no longer exists, but its manufacturing plant, people etc. are in Chrysler. Thus organizations are remade. Table of O.E Criteria Productivity Efficiency Profit Quality Accidents Growth Absenteeism Readiness Job satisfaction Motivation Control Flexibility / adaptation Value of human resources Training & development emphasis Goal consensus Internalization of goals Role & Norm congruence Managerial inter-personal skills Managerial task skill Information management & Comm. Turnover Utilization of environment Evaluation by external entities Morale Conflict / cohesion Planning & goal setting Participation & shared influence Achievement emphasis

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The above table indicates that OE requires multiple criteria. Different organization functions have to be evaluated using different characteristics and it must consider both means (process) and ends (outcomes) However, Tom Peters in his work In search of Excellence has come up with eight indicators of an Effective Organization. This is based on his research on excellent firms like Procter & Gamble, 3M. Du pont, McDonalds, who shared some common characteristics. 1. Bias for action & getting things accomplished 2. Staying close to customers to know their needs 3. High degree of autonomy for employees & foster entrepreneurial spirit 4. Increase productivity through employee participation 5. Employees awareness about the Organizations purpose & Managers involvement in problems at all levels 6. Awareness of business 7. Simple organizational structures 8. Blending tight controls to protect companys values with loose controls to encourage risk taking. The achievement of these characteristics defined effectiveness of an organization. The Goal Attainment Approach As an organization is deliberately created to achieve some specific results, appraisal of the goals achieved automatically becomes a widely used criterion of effectiveness. This approach postulates that effectiveness of an organization should be evaluated by accomplishment of ends rather than on means Limitation The exclusive use of goal as measurement criteria is fraught with problems. It is easier to talk about goals in general, but while operational zing these goals; the question arises as to whose goals. Official goals tend to be strongly influenced by standards of social desirability. At times, there are multiple goals of organizations that can create problems, likewise conflicting goals.

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The Systems Approach A systems approach to OE implies that an organization is made up of several subparts. Poor functioning of any one part can impact the overall system. Effectiveness requires awareness and successful interaction with environmental constituencies. Management cannot fail to maintain good relations with trade unions, suppliers, customers etc. that have the power to disrupt the stable operation of organization. Strategic Constituencies Approach A more recent perspective on OE - the strategic constituencies approach - proposes that an effective organization is one that satisfies the demands of those constituencies in its environment from whom it requires support for its continued existence. In other words, it seeks to appease only that aspect of an environment that can threaten the organizations survival. Making SC work The HR need to ask members of the dominant coalition to identify the constituencies they consider to be critical to the organizations survival. This input can be combined and synthesized to arrive at a list of strategic constituencies. However, this approach too has some limitations. Because the environment changes rapidly. What is critical to organizations today may not be so tomorrow. Perceptions of the coalition members / functional people will vary in deciding what is strategic. However, this approach can work greatly if it is the question of survival. One can identify what in the constituent is strategic to survival. The Competing Value Approach In order to having a comprehensive understanding of OE, it would be worthwhile if we now all the key variables in the domain of effectiveness and then determine how the variables are inter-related. The significant aspect of this approach is that the criteria you value and use in assessing OE ROI, Market share, product innovation, job security depend on who you are and what you represent. The stockholders, suppliers, internal specialists etc may look at same organization but evaluate its effectiveness differently. The rating reflects the raters values rather than tell us about the OE. Competing values approach goes beyond diverse preferences. It assumes that these diverse preferences can be consolidated and organized. The competing value approach argues that
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there are common elements underlying any comprehensive list of OE criteria and that these elements can be combined in such a way as to create, basic sets of competing values. Each one of these sets then defines a unique effectiveness model. Three Dimensional Model of Organizational Effectiveness Flexibility

Means

People

Organization

Ends Control Cells OFM OFE OCM OCE PCM Description Flexibility Acquisition of resources Planning Productivity & efficiency Availability of information Definition Adapting to external demands Increase external support & expand Workforce Well understood goals High volume output: Output to input ratio high Channels of communication clear Informing people of things that will affect their work PCE PFM PFE Stability Cohesive workforce Skilled work force Sense of order, continuity & smooth operations High trust between employees High capability employees

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Four Models of Effectiveness Values Human Relations Model FLEXIBILITY Open system Model

Ends: Skilled workforce

Means: Flexibility

Means: Cohesive workforce

Ends: Acquisition of resources

People

Environment

Means:

Ends:

Availability of resources CONTROL Ends: Stability Internal-process-model

Efficiency and productivity Means: Planning Rational-process-model

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COMPETING VALUES QUESTIONNAIRE Somewhat Sr. No. Determinants The organization responds well to changing demands (OFM) The size of the organization is steadily increasing. (OFE) Employees have a clear understanding of the organizations goals. (OCM) The organization generates high volume of output (OCE) Employees are well informed about things that affect their work (PCM) The Organization operates in a smooth & orderly way (PCE) Employees work well with each other. (PFM) Employees are well equipped for their jobs (PFE) Disagree Agree 1 Agree

It is believed that the organizations stage in its life cycle may be an important determinant of which OE model should be emphasized by the management. Also it must be noted that each of the stages in a life cycle will make different demands on the management. It is only logical that the strategic constituencies are likely to change from stage to stage to reflect these difficult demands. From e.g. In the entrepreneurial stage, where innovation and creativity rules, getting external support is necessary. The open-system model emphasizes these criteria.

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When the organization enters collectivity stage the management needs to create a sense of family within the organization and develop high member commitment. This is espoused in the Human Relations model. During formalization and control stage, focus is on the external environment. Strategic constituencies in this stage emphasize organizations flexibility, ability to acquire resources and growth rate. Again, these criteria are best in open system model. Finally in the decline stage, the strategic constituencies tend to be similar to those found when the organization was in its infancy. The concern, therefore is again innovation and creativity, and ability to acquire resources. Once again open system model will be the answer. Comparing the four Approaches Sr. No. (1) Goal attainment An organization is effective Goals to the extent that are clear, time Approach Definition When useful

It bound and measurable

accomplishes its stated goals (2) Systems It acquires the needed A clear connection exists between outputs (3) Strategic Constituencies All the strategic Constituencies have inputs and

resources

constituencies are minimally Powerful influence on the satisfied organization and the organizations ability to meet those demands

(4)

Competing approach

values Emphasis of the organization Organization is not clear in the four major areas about its own emphasis matches preferences constituent and its interest in those areas that change over time.

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Conclusion OE is conceptually very complex, and so its definition. However, from the foregoing, OE can be defined as the degree to which an organization attains its short and long term goals, the selection of which reflects strategic constituencies, the self interest of the evaluator and the life stage of the organization.

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CHAPTER: 4 Dimensions of Structure Synopsis A. Dimensions of Structure B. Complexity C. Formalisation D. Centralisation E. Decentralisation Dimensions of Structure 1. Complexity, Formalization and Centralization is the core dimensions of organization structure. However, we also need to consider following variables that go to define the structural dimensions. 2. Administrative component ratio of line supervisors, managers, staff personnel to total number of employees. 3. Autonomy the extent to which top management has to refer certain typical decision to a higher level of authority. 4. Centralization The proportion of jobs whose occupants participate in decision making and the areas in which they participate or the concentration of power arrangements, degree of information sharing between the levels, degree of participation in long range planning. 5. Complexity number of occupational specialties, the professional activity, the professional training of employees. 6. Delegation of authority ratio of number of specific management decisions, the C.E.O has delegated to number of people. 7. Differentiation The number of specialty functions represented in a firm or the difference in cognitive and emotional orientation between managers in different departments.

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8. Formalization the extent to which an employees role is defined by final documentation 9. Integration the extent of collaboration between departments that are required to achieve the unit of effort or plans or feedback used for coordination between organizational units. 10. Professionalization extent to which employees use a professional organization as a major reference, belief in service to public, self-regulation, dedication to ones field etc. 11. Span of control number of subordinates to manager ratio 12. Specialization number of occupational specialists & length of training required by each as spelt out in formal job description. 13. Standardization range of variance tolerated within a job 14. Vertical span number of levels in the hierarchy from bottom to top Complexity What do we mean by complexity? And why is complexity so important? Definition Complexity refers to the degree of differentiation that exists within an organization. Horizontal differentiation considers the degree of horizontal separation between units. Vertical differentiation refers to the depth of organizational hierarchy. Spatial differentiation encompasses the degree to which the location of an organizations facilities and personnel are dispersed geographically. An increased in any one of these will increase the complexity. Horizontal differentiation refers to degree of differentiation between units based on the orientation of members, nature of the tasks they perform and their education and training. Larger the number of different occupations within the organization that require the specialized knowledge and skills, more complex the organization is. Why more complex, because diverse orientation, that makes communication difficult and coordination of activities strenuous for the management. Diversity will also increase different goal emphasis, time orientation etc. The most visible horizontal differentiation is Specialization (also known as division of labour) and departmentation specialization refers to grouping of particular activities.
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Again, any increase in the specialization increases the complexity. Why? The coordination and control is required to become more sophisticated and expensive. The reason for division of labour is efficiency. The way in which specialists are grouped is called departmentation. Thus, departmentation is the manner in which organization coordinates activities that have been horizontally differentiated. Departments can be created on the basis of simple numbers, function, products or service., client, geography or process. Most large corporations use all these. Vertical Differentiation refers to depth of the structure. As the levels of hierarchy increases, differentiation increases and so also the complexity. More the levels between top management and the operatives, greater the potential of communication distortion and more difficult it is for top management to oversee the actions of operatives. Vertical and Horizontal differentiation is not independent of each other. In fact vertical differentiation is a response to increase in the horizontal differentiation. High horizontal differentiation means members will have diverse training and background; it becomes difficult for the individual unit to fit into the greater whole. (E.g a construction company surveyors, architects, heavy duty equipment operators, designers, asphalt tenders, masons, truck drivers and clerical personnel need for increased coordination which shows in the manifestation of vertical differentiation. A manufacturing company differentiates horizontally when it it separates marketing from production. Yet, if marketing activities are identically carried out from different geographical locations, while all production is done from one place, this organization is more complex Why is complexity important? Having seen various elements of complexity, the next question to be answered why is it important? If an organization has to be effective; the communication, co-ordination and control devices between its subsystems need to be in place. More complex an organization greater is the demand on the management to ensure that differentiated and dispersed activities run smoothly together towards achieving organizational goals. When there are number of employees, each doing a small part of a whole job (most of them having little idea what others are doing) an elaborate arrangement of management positions in different hierarchy level spread over a large geographical area, then it becomes clear that the communication and coordination devices are absolutely necessary. Thus complexity creates different demands on managers time.
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Formalization Formalization refers to the degree to which jobs within the organization are standardized. If a job is highly formalized, the job incumbent has a minimum amount of discretion over what is to be done, when it is to be done and how one should do it. Employees can be expected to handle the same input every time to give a consistent output. There are explicit job description, formal rules and defined operating procedures where formalization is high. Whereas in case of low formalization employees behavior is nonprogrammed. So formalization is a measure of standardization. An individuals discretion on the job is inversely related to amount of behavior that is pre-programmed by the organization. This standardization eliminates employees need to consider alternative behaviors. Formalization Techniques There are number of ways in which employee behavior can be standardized: Selection Organization do not choose people at random. Job applications are processed through a series of hurdle to differentiate individuals likely to be successful performers from those likely to be unsuccessful. The selection system is designed to look at factors like personality; work habits and attitudes align with the organizational goals. The selection process becomes more meaningful if the recruiter understands the personality / culture of the organization. Selection is considered as the most important method of controlling employee behavior. The selection system should be able to predict potential employees ability to meet organizations minimum requirements of an acceptable employee. Role Requirements Individuals in an organization fulfill roles. Every job carries with it expectations on how the role incumbent is supposed to behave. Job analysis defines jobs that need to be done in the organization and outlines what employee behaviors are necessary. The data from the job analysis forms the basis for job description. Role expectations majorly regulate employee behavior. An organization that specifies role expectation is high in formalization. Rules Procedures & Policies Rules are explicit statement that tells an employee what to do and what not do. Procedures are a series of interrelated sequential steps that needs to be followed in accomplishing a job. Procedures are established to ensure standardization of
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work processes. The same input is processed each day and the output is same each day. Policies always need not be written. Employees pick up on an organizations implied policies merely by observing the actions of members around them. Training The different kinds of training provided to employees, both on and off site are meant to indicate the preferred job skills, knowledge and attitude. The intent is instilling preferred work behaviors and attitudes. Particularly, for new employees, who are often required to undergo a brief orientation program in which they are familiarized with the organization? Rituals Rituals are used as a formalization technique with members who will have an enduring impact on the organization. The common threat to rituals is that members need to prove their trust by their loyalty. Another aspect is that top management position is awarded to those who win trust through their abilities and attitudes. There is considerable evidence to support the link between specialization, standardization and formalization. Where employees perform narrow, repetitive and specialized tasks, their outlines tend to be standardized and a large number of rules and regulations govern their behavior. On the other hand a highly trained specialist or a professional does not require a number of rules. High formalization would only impose redundant controls. To conclude, the key to understanding the complexity-formalization- relationship is to focus on degree of horizontal differentiation and the way it is achieved. Centralization Where are the decisions made in the organization up on the top by the management or down low where the decision makers are closer to the action? Here we deal with centralization and its counterpart decentralization. Centralization is the most problematic of the three components. A high concentration of decision making at the top management / a single point indicates high degree of centralization. What exactly is a single point does it mean an individual, a unit or a level in the organization? Does keeping operative managers outside the purview of decision making indicate centralization?

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Does information processing system that closely monitors mean centralized control? Advance information technology allows decentralization, but the same technology allows managers to learn about the consequences of any decision rapidly and take corrective action wherever necessary. If discretion is delegated downward but closely monitored by those above, is it decentralization. Does the control of information at the lower level result in decentralization? Centralization is concerned only with formal structure, not the informal organization. It applies to only formal authority. Centralization looks at decision discretion. Where decisions are delegated downwards but extensive policies that regulate the decision making act as centralization. Thus an information processing system that closely monitors centralized decisions does not maintain centralized control. Decision Making & Centralization Managers regardless of where they are in the organization - make decisions. The typical choices made by managers about goals, budget allocations, the work methods and ways to improve units effectiveness. The degree of control one holds over full decision making process is itself a measure of centralization. Decision making is presented traditionally as the making of choices. The decision maker chooses one over many alternatives. But from an organization, the making of choice is only one step in a larger process. Why is the centralization-decentralization issue important? As we have agreed that organization is an information-processing and decision making mechanism, managers are limited in their ability to give attention to data they receive. Once that limit is reached, further inputs result in information overload. To avoid this, some decisions can be given to others. The concentration of decision making at a single point can be dispersed. This dispersion is decentralization. There are other reasons why organization may choose to decentralize; they need to respond rapidly to the changing conditions at the point at which change is taking place. Decentralization facilitates speedy action, as it eliminates the need to process information through vertical hierarchy. This explains why marketing activities tend to be decentralized, as the function demands quick response to meet customer needs.

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In addition to speed, decentralization provides more detailed input into the decision. If those most familiar with an issue make a decision, specific facts related to that issue will be available. Decentralization is one of the strong motivators. Finally decentralization creates training opportunity for low level managers. However, where comprehensive perspective is needed in a decision or where concentration provides significant economies, centralization becomes advantageous. As we conclude the chapter on structural components, it is important to check the relationship between complexity-formalization and centralization. Centralization & complexity evidence strongly supports an inverse relationship. Decentralization is associated with complexity. For e.g. high degree of occupational specialists means increase in the number of people with expertise and decision making ability. Centralization & formalization High formalization can be seen either with a centralized or decentralized structure. Where employees in an organization are highly unskilled, high formalization is seen. Control is exercised through both formalization and concentration of decision making in the top management. With professional employees, one may predict both low formalization and decentralization. Professionals expect decentralization of decisions that affect their work directly, but this does not apply to personnel issues, or strategic organization decisions. This can result in low formalization and centralization. Centralization is limited to strategic decisions than to operative decisions, the former having little impact on the work activities of the professional.

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CHAPTER: 5 Strategy Synopsis A. What is strategy? B. Types of strategy C. Theories

What is strategy? Strategy is defined as determination of basic long term goals and objectives of an enterprise and the course of action adopted; and allocation of necessary resources for carrying out those goals. Critical features: Integrated organizational response affecting the whole organization Consistent response to environmental demands & opportunities Initiative by organization to change the environment

However, the question yet remains, are strategies pre-mediated or it just emerges. One school of thought describes strategy as a plan or explicit set of guidelines developed in advance. Managers identify where they want to go; then they develop a systematic plan to get there. However, another view is that Strategy emerges as a pattern in a stream of significant decisions. According to Lorsch Strategy means a stream of decisions taken over time by Top Management, reveal the goal they are seeking, and the means used to achieve that goals. Eg. RPG has followed a direction of growth through acquisition; Essar through interlinked diversification in the core sector Reliance through backward integration.

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According to Ansoff, a successful strategic plan must include: Systematic analysis of organizations internal situation & external environment Identification of viable, relevant long range goals Development of control systems, monitor & feedback Action plan

Types of strategy 1. Corporate Level strategy - What set of business should we be? 2. Business Strategy How should we compete in each of our business? For a small Organization with one line of product, generally business strategy would be same as corporate strategy, and the structure will be simple. But for organizations in multiple businesses, each division will have its own strategy, with different structural configuration. Classifying Strategic Dimensions 1. Innovation the extent to which the organization introduces diversity of products (3M, Nokia, Apple) 2. Marketing differentiation The marketing differentiation strategy strives to create customer loyalty by uniquely meeting a particular need. The organization seeks to create a favorable image through advertising. 3. Breadth strategy refers to the scope of market to which business caters variety of customers, their geographic range, and number of products. 4. Cost control extent to which organization tightly controls cost, refrain from incurring unnecessary innovation or marketing expenses. Chandlers Strategy Structure Theory Relationship between strategy and structure was first propounded by Mr. Alfred Chandler. According to his study, organizations that offered limited product lines had more centralized structures. As demand for products grew, the companies expanded. They increased their product lines and had to develop different structure to cope with their changing strategies. As organization seeks to grow, their strategies become more ambitious and elaborate. From a
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single product, the companies expand activities within their same industry. This vertical integration strategy makes for increased interdependence among organizational units and creates a need for a more complex coordinative drive. The complexity is met with redesigning the structure to form specialized units based on functions. Finally if growth proceeds further, into product diversification, again structure must be adjusted for achieving efficiency. A product diversification strategy demands a structural form that allows for efficient allocation of resources, accountability for performance and coordination between units. For example, if any company decides to become a market leader in a highly competitive market, it may choose to compete through offering a standardized product at the least price. To succeed with this strategic choice, the company must strive for tighter cost controls, along with large volume of production to achieve economies of scale. These objectives may affect the internal decisions like reporting structure, production schedules etc. Thus to be effective, the structure must follow the strategy. However, chandlers work suffered from limitations, as in that he looked at large profit making organizations. He focused on growth as a measure of effectiveness rather than profitability. Yet, it is true that strategy does influence structure. And strategy has also to be looked from Market segmentation, financial strength, Leveraging opportunity, competitors activities etc. Contemporary Strategy Raymond Miles & Charles Snow identified three basic problems which the organization must identify, confront and solve, in order to adapt successfully to the environment. These are: 1. Entrepreneurial problem: Specifically defining an organizations domain, product(s) & service(s) it chooses to offer and its target market or market segment. The solution is necessary for orienting organizational energy and resource in proper direction. 2. Engineering problem: involves Operationalization of managements solution to entrepreneurial problem. I.e. selection of appropriate technology and to ensure the proper production and distribution of the chosen products or services.

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3. Administrative problem: involves rationalizing and stabilizing the organizational activities. I.e. designing of appropriate organizational structure & systems for reducing uncertainty and create mechanism that would foster innovation in response to change in environmental demands 4. Further classification of organizations has also been based on the rate at which they change their products or markets, into one of the four types. 5. Defenders seek stability by producing only one / limited type of products directed at a narrow segment of the total potential market. I.e. how to seal off a portion of the total market environment to create a stable domain. Within this domain the defenders aggressively fight any competition from entering their turf. Organization does this through standard economic actions such as competitive pricing or producing high quality products. Their strategy is that of cautious and incremental growth through market penetration. Defenders tend to ignore the developments outside their turf. There is hardly any scanning of environment. The result is a structure of high horizontal differentiation, centralized control and intensive planning towards cost and efficiency issues along with an elaborate hierarchy for communication. (E.g. baby soap, soft soap). Much defender organization tries to achieve technological efficiency through vertical integration. Some of the organizations that followed defenders strategy were TISCO, and Bajaj Auto 6. Prospectors opposite of defenders; their strength is finding and exploiting new product and market opportunities. Innovation is more important than profitability. (Eg. Several magazine publishers coming with new titles every month; 3M has built its long term profitability through product innovation. The prospectors success depends on developing & maintaining the capacity to survey a wide range of environmental conditions, trends and events. They invest heavily on personnel who have this capability. Since flexibility is critical to prospectors, a highly flexible structure. There will be numerous decentralized units. The prospector can respond to the demand of tomorrows world, but if that is similar to that of today, prospector cannot maximize profitability. Prospector type of organizations is more often found in nascent industries which offer a vast growth potential to entrepreneurial companies. For eg. HCL flourished in 1980 when computers was a sunrise industry. Prospectors through their entrepreneurial decision also change markets like Super cassette

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industries created a new market for music by offering products such as cheap cassettes 7. Analyzers have best of both prospectors and defenders. They seek to try and minimize risk (defender stance) and maximize opportunity (prospector stance) for profits. Their move is to get into the new product / market only after prospectors have proved the viability. In other words they limit themselves to taking idea of prospectors and copy them. (Eg. Manufacturers of mass fashion products, rip offs of designer styles such as IBM.) They essentially follow their smaller and more innovative competitors. Analyzers seek both flexibility and stability. The structure in such organization is made up of dual components. While prospectors need to have high profit margin to justify their risk, analyzers are okay with smaller profits. 8. Reactors represent a residual strategy. They describe the inconsistent and unstable pattern that is a result of not following the other three patterns properly. They are not in a position to commit aggressively to specific strategy for future. This is because the top management is not clear about its strategy. The management might not have fully shaped the structure to fit into the chosen strategy. The management must be maintaining its existing strategy-structure, despite changes in the environment. 9. The key to Miles & Snows strategy-structure theory is managements assessment about the environmental uncertainty. However, managements perception of environmental uncertainty may lack objective interpretation. (Egg. Goodyear / Firestones perception about demand for increased demand for replacement tires) ExerciseIdentify the types of strategy in the following illustration Given below are the worlds four largest tobacco companies. Given the dynamic environment, due to reports of hear & lung diseases being linked to consumption of tobacco, firms experienced consistent uncertainty. Phillip Morris first to design products specifically to bring women into smoking market and has been a pioneer in product packaging. RJ Reynolds strategy has been to become an early adopted of the successful innovation of others. It operated in two product market spheres simultaneously one stable and one changing. In its stable sphere, Reynolds has routine operations. In its turbulent sphere top managers watch competitors for new ideas, and quickly adopt those that look promising.

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American Brands focuses on a narrow product range and lost market share badly Ligget & Myers top management consistently perceived the change and uncertainty in its product markets but was unable to respond effectively. There was less internal inconsistency. To conclude, Defenders strategy, where the management perceives negligible

change/uncertainty in the environment; structure should be designed for optimum efficiency, i.e. high division of labor, standardization of operations, high formalization and centralized decision making. In case of Reactors, Management perceiving some change / uncertainty in the environment and are not likely to make any adjustments until pressurized by environment. The structure in this case too is like defenders. Management pursuing an analyzers strategy waits until competitors come up with viable response to change, and quickly adopt. In this case the structure is tight for stable activities while flexible for new activities that face greater uncertainty. Finally, prospector strategy requires great degree of structural flexibility as there is a lot of change and uncertainty. Thus, there is a low degree of complexity, low formalization and decentralized decision making. Porters competitive strategy According to Porter, no organization can perform above average by trying to be all things to all people, viz. Cost Leadership, differentiation and focus. Which one the management chooses depends on organizations strength and competitors weakness. A low cost producer follows a Cost leadership strategy. Typical means include efficiency of operations, economies of scale, technological innovation, low cost labor, preferential access to raw materials. (eg. Hyundai Motors) The firm that seeks a unique status in its industry in a way that it is highly valued by its buyers is going for differentiation strategy. Such firms emphasize on extra-ordinary product / service quality, innovative design, technological capability, unusual and positive brand image. The key is attribute chosen must be different from that offered by rivals to justify price premium (eg. Toyota reliability, IBM super quality of personnel, Ferrari

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performance). Firms that aim at a cost advantage or differentiation advantage in a narrow segment will go for focus strategy. The management will select a segment or group of segments in an industry (such as product variety, type of end buyer, distribution channel, or geographic location of channels) and tailor the strategy to service them to the exclusion of others. The goal is to exploit a narrow segment of a market. (low calorie product affluent NRI, part time for working professionals) Stuck in the middle describes organizations that are unable to gain a competitive advantage by any one of the previous stages. Such organizations find it difficult to succeed in the long run. When they do, it is the result of competing in a highly favorable industry or all rivals stuck in the middle. Millers Integrative Framework Strategic Dimension Innovation Challenge Structural characteristics of markets to know

To understand & manage Scanning more types, products markets

customer customer needs low formalization, and decentralization, coordination forces extensive use & of

Technologies

committees

Task

Market differentiation To understand & cater to Moderate customer preferences

to

high

complexity,

extensive scanning & analysis of customer reaction and competitors strategies. formalization, decentralization. Moderate to high

moderate

Breadth Innovation Breadth stability

To select right range of High complexity, low formalization, products/services, customers decentralization. & territory High complexity,

high formalization , high and high centralization

Cost control

To

make

standardized How

formalization,

and

high

Products efficiently

centralization

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Limitation to Strategy Imperative From the foregoing, it can be seen that strategy can determine structure, however, with some limitations. When the organization is in its infancy, impact of structure will be significant. Once the people are hired, technology in place it is lot tough to change. Also, capital to labor ratio in an organization will affect the impact of strategy on structure. (if the ratio is low i.e. labor intensive) the managers have much more flexibility, and hence discretion, to exercise change. Another factor is the time. When strategy changes, management do not change the structure immediately. Ultimately it depends on the competitive pressure, lesser the pressure, less rapid is the structural response. Industry Structure Relationship: Close to the issue of strategys impact on structure is the role of industry as determinant of structure. Industries differ in terms of growth possibilities, regulatory constrains, barriers to entry and mobility. To know how industry can affect structure, let us look at two variables that tend to differ by industry category capital requirements for entry and product innovation rates.
Capital Requirement High P r o d u t I N n o v a t I o n The above analysis argues that the industry category do influence the organization structure. Low Metals & Mining Appliance Mfrs Retail building materials sales Bicycle Mfrs. (D) High Aerospace Large mainframe computers (A) (B) Computer software Magazine publishers Low

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CHAPTER: 6 Size Synopsis A. Introduction B. Definition C. Limitations Introduction Eastman Kodak has sales in excess of $13 million a year and employs over 1.5 lace people. All these employees perhaps cannot fit into one building or into several departments supervised by a couple of managers. It is hard to imagine these 1.5 l people being organized in any manner other than the one that would be labeled as high in complexity. On the other hand a local one hour photo processing firm that employs six people and generates less than Rs.2.00 lacs sales a year is not likely to need decentralized decision making or extensive formalization. Comparing these two photography related firm suggests than organizations size influences its structure. As an organization hires more operative employees, it will attempt to advantage of the economic benefits from its specialization. The result will be increased horizontal differentiation. Grouping the functions together will facilitate intergroup efficiencies at the cost of intergroup relations, which will suffer as each performs its own activities. Management will, therefore, require increasing the vertical differentiation to coordinate the horizontally differentiated units. This increase in the size could also lead to spatial differentiation. This increase in complexity will reduce the top managements direct hold over its employees. The direct control will be replaced by formal rules and regulations. This will result in top management removed further away from the operative level and it would become difficult for senior executives to make rapid and informative decision. The solution would be decentralization.

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Definition Organization size as a variable defines it as the total number of employees. This is consistent with the assumption that since it is people and their interaction that are structured, the number should be more closely associated with the measure. The Aston Study group concluded that organizational size was positively related to specialization, formalization and vertical span, and negatively to centralization. It was found that larger the organization, greater the number of rules, more documentations, more extended hierarchy, greater decentralization of decision making. Limitations Total number of employees may be an adequate measure, but if the organization has substantial contractual employees, or if the business is seasonal (e.g. a retail chain may increase the number of staff during holiday / festival seasons). Counting employees also does not distinguish between the industries. (Eg. Uttam steel with 1000 employees manufacturing 20,000 MT steel Vs. TISCO with 10000 employees manufacturing 20 Lac MT steel). Therefore, it is concluded that the inherent measure of number mixes size with efficiency. Impact of size on structure is more in a professionally organization rather than owner controlled. Owner-managers are not willing to dilute their personal power over their organization. The size and its structure will be moderated based on the nature of the firm. Size is not the cause, but the result. Impact of size on complexity In organizations where managers have greater discretionary powers, the structure causes size. Larger the organization, more pronounced the division of labor. Impact of size on formalization Greater the number of employees in an organization, greater the formalization. However, larger organization formalizes those activities that have a propensity to recur. Larger the organizations, more that behaviors repeat themselves and hence management is motivated to handle them more efficiently through standardization. With increased size, comes greater confusion. This confusion is reduced by making employee behavior at lower levels more predictable. While understanding the impact of size on formalization, the point to be noted is whether the organization is independent or is it a subsidiary of a large firm. Parent firm often impose rules & regulations to maintain financial & reporting consistencies.

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Size & Centralization It is common sense that it is impossible control a large organization, from top. As increase in size results in formalization; the rules & regulations allow organization to delegate decision, but as per desires of the top management. Does it mean size results in decentralization?. Finally, the issue of administrative component cannot be isolated from the study of sizestructure relationship. As organization increases the ratio of managers to staff also increases.

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CHAPTER: 7 Technology Synopsis A. Introduction B. Theories C. Conclusion D. Theories E. Managing environment F. Recent trends Introduction Technology refers to the information, equipment, techniques, and processes required transforming inputs into outputs in the organization.IE Technology looks at how inputs are converted into outputs, and that technology is applicable to all sorts of organizations. The way an organization transforms its inputs into outputs has some bearing on structure. Either it can be a determinant or a dominant determinant. Woodwords theory Woodword classified organizations into three categories based on the type of technologies; Unit, mass & process production. The classification was based on increasing degree of technological complexity, with Unit being the least and Process being the most. Unit producers would manufacture custom-made products like turbines for aviation. Mass producers would make for mass consumption viz., Refrigerators, washing machines etc. The third category was continuous process products such as oil, chemical refiners etc. There were distinct relationship between the technology classification and the structure. Effectiveness of such organizations depended on the fit between such technology and structure. For eg. Degree of vertical differentiation increased with technical complexity. It was also discovered that the administrative component varied with technology. The mass production technology firms were highly differentiated relied on extensive formalization and hardly delegated authority. Both unit and process technologies was achieved through less vertical differentiation, less division of labor and more group activities, and decentralized decision

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making, more widely defined role & responsibilities.

Thus woodwords investigation

demonstrated a strong link between technology, structure, and effectiveness. In other words, woodword argued that effectiveness was a result of technology-structure fit. Limitation Woodwords technology imperative was more based on findings from manufacturing technology. Knowledge Based Technology Charles Perrow looked at technology not just as production technology. He defined technology as an action performed upon an object with or without the aid of a mechanical device, in order to make some change in that object. Mr Perrow in his findings identified two dimensions of technology:Task Variability (variety routineness continuum) 1. How many of the tasks are same day to day? 2. To what extent would you say the work is routine? 3. People in this unit do the same job in the same way most of the time. 4. Basically people in the unit perform repetitive jobs 5. How repetitious are duties. Thus task variability talks about number of exceptions encountered in ones work. If the job is high in routine, exceptions will be few in number.(E.g. Automobile assembly, McDonalds fry cook). If the job has large number of variety, number of exceptions can be expected e.g. top managements job, consulting jobs. Problem Analyzability:1. To what extent is there a clearly known way to do a particular job? 2. To what extent is there a clear body of knowledge available as a guide to doing a particular job?. 3. To what extent is there an understandable sequence of steps that can be followed in doing a job? 4. To what extent can one rely on established practices and procedures?

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The next dimension(Problem analyzability) assesses the type of search procedures followed to find out successful methods for responding adequately to task exceptions, either well defined (logical and analytical approach- eg a B school student can analyze reason for failure) or ill defined (no formal search technique in architect that works under constraints of standards and norms). Decisions are arrived at based on guess work, trail & error method. Based on these two dimensions; task variability and problem analyzability were used to construct a two by two matrix.
TASK VARIABILITY Few Exceptions P r b l e m A n a l y z a b i l i t y ROUTINE (1) ENGINEERING (2) Well defined & Analyzable CRAFT (3) NON ROUTINE (4) Ill defined & Unanalyzable Many Exceptions

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Routine Technology Few exceptions & easy to analyze problems. (Mass production of steel / automobiles) Engineering Technology have a large number of exceptions, but can be handled in logical and systematic manner (Income tax consultants, construction etc.) Craft Technology relatively difficult problem with a limited set of exceptions (shoe making, furniture restoring, performing artists) Non-Routine technology characterized by many exceptions and difficult to analyze problems, like strategic planning, basic research activities. Problems that can be handled with logic and rationality fall under cell 1 & 2, while problem that can be solved with intuition, guess work or unanalyzed experience fall under cells 3 & 4 Conclusion Perrow argued that control and coordination methods should vary with technology type. The more routine the technology, more highly structured the organization. In contrast, non-routine technology requires higher flexibility. Key aspects of structure that can be modified to the technology:1. Amount of discretion that can be exercised for completing the tasks 2. Power of groups to control the Units goals & strategies 3. Extent of interdependence between the groups 4. Extent to which these groups engage in coordination This would mean that: Most routine technology can be accomplished best through standardized coordination and control. This technology should be aligned with structures that are high in both formalization and centralization. Whereas, non routine technology demand flexibility and therefore, needs to be decentralized that would encourage high interaction among members with minimum degree of formalization. In between craft technology requires people with great experience & knowledge, which mean decentralization. Finally, engineering, though has many exceptions has analyzable search processes, should have centralized decisions with low flexibility for maintaining flexibility.

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Technology

Formalization

Centralization

Span control

of Coordination & Control

Routine Engineering Craft

High Low Moderate

High High Low

Wide Moderate Moderatewide

Planning & Rigid rules Reports & meetings Training & meeting

Nonroutine

Low

Low

Moderatenarrow

Group norms/meetings

Technological uncertainty Thompsons Model According to Thompson, technology determines the selection of a strategy for reducing uncertainty and those specific structural arrangements can facilitate uncertainty reduction. Accordingly, three types that are differentiated by tasks that an organization performs were proposed: Long linked technology Tasks or operations that are sequentially interdependent were referred to as long linked technology. This is characterized by fixed sequence of repetitive steps (e.g mass production assembly lines /B school cafeteria). As Long linked technology requires efficiency & coordination among activities, owing to sequential interdependency, the major uncertainty facing management is on input and output side of the organization (eg. Acquiring raw materials & disposing finished goods). One of the best means is to go in for vertical integration forward, backward or both. This way, the organization manages to control the uncertainty within its boundaries. (E.g. Reynolt metals manufacturing aluminum foil Backward integration by operating aluminum mines and forward integration by marketing Reynolt foils in super-market. Mediating Technology one that links clients both on inputs and outputs of the organization. E.g. Banks bring together depositors and borrowers. They dont know each other. Banks success depends on attracting both. Failures are when borrowers are more and depositors are few. This is the uncertainty and dealing with this requires increase in the populations served or develop a diversified loan portfolio. Intensive Technology (e.g. emergency in hospital combination of diet, x-ray, laboratory, blood bank, operation table/equipment etc.) Intensive technology represents customized

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response to a diverse set of contingencies. The exact response depends on the nature of problem. This technology is present in Hospital, Research cells, management consulting firm etc. uncertainty is handled by ensuring variety of resources to respond to an emergency. Conclusion: Long linked technology is accompanied by sequential interdependence, as in the tasks are done in a specified serial order. Mediating technology is characterized by pooled interdependence two or more units contribute to a larger unit. While Intensive technology creates reciprocal interdependence the output of units influence each other in a reciprocal manner. Each of these interdependencies requires specific coordination. Frame work Technology Long Linked Mediating Intensive Complexity Moderate Low High Formalization Moderate High Low

Influence of industry & size on technology Industry constraints technology options. An organization needs to reach a particular size before it takes advantages of the technology, and capitalize on economy of scale. So size determines technology. Technology can also determine size for eg. Decision to go in for mass productions may lead to a decision to increase/decrease the number. Therefore the common denominator is the routineness of the technology. Technology & Complexity Routine technology is associated with low complexity. Greater the routineness, fewer the number of occupational specialists and less training possessed by people. The reverse also holds true, i.e. greater the non-routine technology, higher complexity. As the work becomes more sophisticated and customized, span of control narrows and vertical differentiation increases. Further, customized response requires greater use of specialists.

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Technology & Formalization Routine technology is positively related with formalization. Routineness is associated with rules and regulations, manuals, presence of job descriptions and other specifications. In routineness, the how the job has to be done has to be understood very well. A repetitive job is justification enough for the company to spend on formalized systems. Technology & Centralization The logical argument is that the routine technology would be associated with a centralized structure, whereas the non-routine technology, that would rely on specialized knowledge, which would be characterized by delegation of decision making authority. Both formal regulations and centralized decision making are control mechanisms, and management can substitute them for one another. Technology should be associated with centralized control if there is a minimum of rules and regulations. However, if formalization is high routine technology can be accompanied by decentralization.

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CHAPTER: 8 Environment Synopsis A. Introduction B. Definition Introduction A common theme in organization theory is that organizations must adapt to their environment, if they are to maintain effectiveness. In the above case, P & G had realized that its environment was changing competitors had become more aggressive which P&G were required to adapt. As we go ahead, we will define what environment is and its relationship to the organization structure. A central point is every organization face different degree of environmental uncertainty. How does the management attempt to minimize this uncertainty? Is structural design a major tool that managers have for controlling environmental uncertainty? Of more relevance to the manager is the operating or task environment Which is composed of those elements that have a specific and direct bearing on organizational goals and directives? Task environment is connected to and potentially relevant to organizations decision making. For example disruption in power supply is a specific environment for manufacturing organizations because it directly affects their operation (though it would not have so much on banking operations). The operative environment of an organization depends on the domain it chooses to operate in. It defines the organizations niche and it identifies those portions in which the organization prefers to interact with the environment. Thus certain change in the environment would affect certain organizations more than others. For example Import restriction would affect those who majorly depend on imported technology/raw material. Similarly floods and droughts would have greater impact on organizations that depend on rural economy (IFFCO, Either Tractors, and Mahindras more than say Oberoi Hotels)

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Definition Environment is everything outside an organizations boundary - general and specific. An organizations environment and general environmental are same viz., the economic, political, social & legal aspect, cultural. The general environment encompasses conditions that may have an impact on the organization, but their relevance is not overtly clear. For e.g. genetic engineering on drug firms is only potentially relevant. It could undoubtedly have a far reaching impact on firms growth and profitability. As a result organization gives its attention to only specific environment. (Customers, distributors, Unions, competition, suppliers, government policies) Specific environment characterizes those aspects which is directly relevant to the organization in achieving its goals, at any given moment. Specific environment is made up of those critical constituents that can positively or negatively influence an organizations effectiveness. It is unique to each organization and it changes with conditions. Competition makes resources scarce & valuable and because greater the competition for resources, more difficult they are to obtain. Changes in the number of customers and customers preference that affects the organization. An organization should have a strategy to attract customers and retain them, and the strategy must change along with change in customers preference. (Kellogg cereals in US different from Europe). In a global context the changing customer need is highly pronounced. Besides customers, organization should also know how to

manage relationship with suppliers & distributors to obtain access to the resources they provide. General environment consists of forces that shape the specific environment and affect the ability of all organizations in a particular way. Economic forces such as interest rates, exchange rates, wage levels affect an organization dramatically. Technological forces such as development of new production techniques, new information processing equipment, influence many aspects of organization operations. Demographic, cultural, and social forces such as lifestyle, norms, and values shape customers, managers and employees of an organization. Environmental domain Range of products & services that an organization serves to customers / stakeholders

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Environmental Complexity refers to the strength, number and inter-connectedness of the specific and general forces that an organization has to manage. Complexity will increase if specific and general forces in the environment become interconnected i.e. forces begin to interact so their effects on the organization become unpredictable. For e.g. a major breakthrough in auto sector makes existing plants obsolete, this will force the stock price of car makers to fluctuate and will send the stock market into turmoil. Car makers will be unsure of how the breakthrough will affect their business, competition between rivals will increase (specific force) and this will have effect jobs and future of the organization. Customers will stop buying cars (another specific force) until the new models emerge. Environmental Dynamism The degree to which forces in the specific and general environments change quickly over time, and thus contribute to uncertainty an organization faces. An environment is stable if forces that affect the supply of resources in a predictable way. The environment is unstable & dynamic if the forces that affect supply of resources is unpredictable as in the computer industry. When the companies compete both at home and abroad, the environment becomes extremely complex; there are greater number of forces to be managed. Environmental richness the amount of resources available to support an organizations domain. In rich environment, uncertainty is low as resources are plenty and organizations need not have to compete. For e.g. labour market filled with highly qualified people for a particular job. The environment is poor in the reverse case. Environment can be poor on account of (a) the location of organization (b) very high level of competition. In an environment that is poor, unstable and complex, resources are especially hard to obtain and organizations face the greatest uncertainty. By contrast in a rich environment, resources are easy to come and therefore, competition is low. E.g. Kingfisher, jet airways, Spice-jet, indigo) the environment is poorer as airlines fight for customers (a resource), and must offer lower prices to attract them. The airline industry environment is complex because competing airlines (part of each airlines specific environment) are much interconnected; if one airline reduces price, others have to follow to protect their domains. Finally high oil prices, increasing competition from airlines

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and changing state of economy are all interconnected in the airlines environment and change over time making it difficult to predict or plan. In contrast, pharmaceutical firms environment is relatively certain, as they invent drugs, receive patents and are the sole providers of respective drugs. Thus organizations in a pharmaceutical sector exist in a stable rich environment. Actual Environment vs. Perceived Environment It is also equally important to distinguish the actual environment as against the perception of the environment. There are times when the gap is very prominent. What you see depends on where you sit. Further it is the perception and not reality that govern the decision that managers make regarding organization design. Environments are not clearly demarcated and readily spotted. The same environment which one organization perceives as unpredictable and complex may be seen as static and easily understood by the other. Differences in background, education and functional area within which individuals work also affects the perception. Thus the structural alterations which a manager makes to align the organizations with the degree of uncertainty in their specific environment depend on the managers perception. Success of an organization depends on its ability to distinguish the two. Managing the environment Resource Dependency Theory A theory that argues that the goal of an organization should be to minimize its dependence on other organization for supply of scarce resources and find ways to influence them to make the resources available. Organizations are dependent on their environment for the resources (raw materials and components) they need to survive and grow. The supply is however dependant on the complexity, dynamism and richness of the environment. The intensity of an organizations dependence on other organization for a particular resource is on account of: How vital are the resources for the survival of the organization To what extent the resources are controlled by other organization

PC industry illustrates the operation of both factors. HP & Dell are dependent on Samsung and Intel for supply of microprocessors and chips. Some like Apple and Sony who do not sell online are dependent on chain of computer stores and retail outlets. When there are few suppliers of chips or few organizations that sell a product, companies become highly

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dependent on those who do not exist. Intel who manufactures advanced micro chips can exert power over the PC makers. To reduce uncertainty organizations should devise inter-organizational strategy to manage resource dependency. Managing these inter-dependencies will reduce the uncertainty. In the specific environment there are two types of interdependencies; Symbiotic where the output of one organization becomes input of other organization an interdependency that exist between an organization and its suppliers & distributors. Competitive interdependency is where firms compete for scarce inputs. HP & Dell are in competition for customers for their computers and for inputs such as Intels latest microchips. How to manage symbiotic interdependency? Domain choice Organizations can and do change their domain of operations to change their operating environment. In doing so, they avoid the uncertainty prevalent in the previous domain. For Eg. Asian paints strategy in earlier years to concentrate primarily to rural segment had the advantage of avoiding competition from multinationals, who were the major players earlier. This is not always possible and hence organizations enlarge their operations to cover many domains. Like ITC consistently enlarged its domain to reduce complete reliance on cigarette market, which was vulnerable to government policies and public group attack. Reputation a state in which an organization is held in high regard and trusted by other parties because of its best business practices. The least formal, least direct way to manage symbiotic interdependencies with suppliers and customers is to develop a reputation. For examples, settling bills on time, providing quality goods and services. Linking trust is definitely a best way to manage the symbiotic interdependency. Co-optation a strategy that manages symbiotic interdependency by neutralizing problematic forces in the specific environment. Cooptation is a strategy to bring opponents over to its sides, gives a stake in their claim on what it does and tries to satisfy their interests. For e.g. Pharma firms co-opt physicians by sponsoring them to medical conferences, giving away free samples, advertising extensively in medical journals. A common way to co-opt customers and suppliers is to make them a stakeholder in the organization. (Other examples school authorities inviting parents to form parent-teachers committee) In this co-opting the organization looses some control but gain much more.

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Interlocking directorate One way of bringing people within the organization is through bribery, which is widely practiced; but a more ethical way is through the use of interlocking directorate, a linkage that results when a director from one company sits on the board of another company. An organization that uses an interlocking directorate as a linkage invites members of powerful and significant stakeholder groups in specific environment to sit on its board of directors. For example, the company may invite a member from financial institute from which it borrows funds to sit on the board of organization. Strategic Alliances increasingly becoming a common mechanism for managing symbiotic (and competitive) interdependency. Strategic alliance is an agreement between two companies committed to share their resources to develop a new product/ business opportunities. Eg. Microsoft & MTV joined hands to offer its Windows media platform to compete against Apples iPod platform. Also Intel & BMW joined hands to integrate Intels technology all BMW vehicles. There are different ways of entering into strategic alliances viz., long term contracts, Networking, Minority ownership (Kiretsu where group of organizations, each of which owns shares in the other organizations in the group, that work together to further the groups interests) joint venture etc. But the most important of all strategic alliances is M & A that results in exchange of resources, so that an organization is not held as a hostage by powerful suppliers. Example Shell, a major producer of chemicals own several oil fields and thus control the prices of oil & petroleum products that are vital inputs in manufacturing of chemicals. Alcoa owns substantial amount of aluminum ore. Collusion & cartels a secret agreement between competitors to share information for a deceitful or illegal purpose, while Cartel is an association of firms that explicitly agree to coordinate their activities. Third Party linkage a mechanism / regulatory body like a trade association that allows organizations to share information and regulate the way they compete. Recruitment recruiting the right kind of people is a contemporary and effective method employed by organizations to counter environmental uncertainty. An organization with competent personnel manning the key functions will have an edge over others. Eg. Essar group in its drive to professionalize itself inducted for its key positions persons who had vast

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experience of managing core sector projects. Similarly Pepsico Food (India) has shown great bias towards ex-Lever group employees. Reason being Levers a well known and professional organization. Hiring employees from competitor also has additional benefit in the form of access to strategic information (which at times can be more important than the competence level of the person hired) Many advertisements for financial and administrative positions call for retired government officials whose networking and contact can result in business opportunity. Vertical integration refers to organization extending its control over the input and / or the output end of the environment by including them within the boundary of the organization. If the company starts manufacturing its own raw materials instead of relying on the inputs of suppliers, it is known as backward integration. (for eg. Company producing jams, sauces, wafers). Likewise , organization trying to control the output end is known as forward integration. A company will have better control over sales, instead of going through dealers and stockists. Similarly, forward integration is also possible by going in for value added finished product from its own produce. Eg. Essar Gujarat making HR steel coils from its own produce Sponge iron. Buffering Vertical integration may not be possible all times and can be expensive as well. An alternative is to create buffers at the input and output ends. Buffers protect basic operating functions. For e.g. Organization has high inventories of raw materials and spares parts, so that market fluctuation does not hamper their production. Similarly, many firms that operate on seasonal market (e.g. fertilizers / text books) maintain an inventory of finished goods to offset seasonal fluctuations. Smoothening Another method adopted by organizations to level out the impact of environmental fluctuations. The example of Business Today, where heavy discount on the annual subscription over the newsstand price, the magazine attracted large number of annual subscribers and thus smoothened the demand Contributions in the field of Organization Environment

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Burns & Stalker made a landmark contribution in determining the influence of environment on the organizations. Through his findings he came upon two aspects, which he described as Mechanistic and Organic structure. Mechanic structure characterized by high complexity, formalization and centralization. They performed routine tasks, relied heavily on programmed behavior and relatively slow in responding to the unfamiliar. Organic structures were relatively flexible and adaptive with emphasis on lateral rather than on vertical communication, influence based on expertise and knowledge rather than on authority of position, loosely defined responsibilities rather than on rigid job description and emphasis on information exchange rather than giving directions. B & S believed that most effective structure is one that adjusts to the requirements of the environment which means using a mechanistic design in a stable and organic form in turbulent environment. However, in reality its a continuum and no organization is purely mechanic or organic. CHARACTERISTIC Task Definition Communication Formalization Influence Control EMERY & TRIST E & T proposed a more sophisticated view by offering a model that identified four kinds of environment that an organization would confront. The placid-randomized environment relatively unchanging, therefore, posing least threat. Demands are distributed randomly and changes take place slowly over time. When changes occur, they are not predictable. (pure competition where there are enough buyers to buy the product.) Nothing the organization does affect the market. E.g. container industry no significant change, no new products, sales kept in a pace. Consulting in a specific area services ready to be absorbed by many organizations. MECHANIC Rigid Vertical High Authority Centralized ORGANIC Flexible Lateral Low Expertise Diverse

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The Placid clustered environment also changes slowly, but threats to organizations are clustered rather than random. That means forces in the environment are linked to one another. For example input suppliers and output distributors may join forces to form a powerful coalition. E.g. such an environment is characterized in public utility services So organizations in a placid-clustered environment are motivated to engage in long range planning, and their structures will tend to be centralized. The disturbed reactive environment is much more complex than previous two. There are many competitors seeking same ends. One or more organization may be large enough to exert influence over their own environment and over other organizations. For e.g. SAIL a large firm dealing in steel can exert price leadership. Organization facing a disturbed- reactive environment develops planned series of tactical initiatives, calculate reactions by others and evolve counteractions. This competition requires flexibility to survive, and structure of such organizations tends towards decentralization. The Turbulent-field environment is the most dynamic and has the highest uncertainty. Change is ever present and elements in the environment are increasingly interrelated. By shifting together elements in the environment create a compounded change effect on the organization. In a turbulent field environment, organizations are required to develop new products or services on a continuing basis to survive. Also, it may have to re-evaluate its relationship to government agencies, customers and suppliers continually. Personal computer manufacturers are the most affected in such an environment. Major Environment Change in recent years Technological Social Concern for physical fitness Resurgence of urban centers Introduction of micro-computers Telecommunication satellites Worldwide direct telephone dialing

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Economic De-regulation of airline industries, Volatility of oil prices Fall & rise in inflation

Political Shift of government powers

Lawrence & Lorsch Differentiation-Integration theory Another significant study to demonstrate the relationship between environmental characteristics and effective organizational structures was conducted by Lawrence & Lorsch was based on differing degree of environmental uncertainty. At one extreme, Plastic industry operated in high environmental uncertainty, high competition, short product life cycle, new product and process development etc. On the other hand, the Container Industry, was characterized by slow and steady growth, more or less assured market, no new products in the last two decades. Food industry fell somewhere in between. According to the study, successful organizations should be able to better match their internal environment with the demands of external environment. The level of environmental uncertainty was assessed by how quickly the environment was changing, how much information the management has about the environment, how quickly and frequently does the management gets the feedback from its environment. To assess the internal environment, L & L postulated two dimensions:Differentiation degree of horizontal complexity, diversity of attitudes, perception and interpersonal orientations among the employees. Thus highly integrated organizations will have will be characterized by more number of functional departments, more specialized skills, high task segmentation etc. This differentiation will encourage employees to hold different values, attitudes, norms of behaving & relating, and even different perception of what constitutes the legitimate goals. For eg. In a differentiated organization, marketing executive may see taking initiative and risks, and working through informal contacts, to increase market share/sales volumes as valued norms of their jobs; while those in production,

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relevant job related values will include efficiency, predictability of performance and a more methodical approach to problems. Integration this dimension explains the degree and the manner in which different organizational units and departments collaborate to achieve a unit of efforts. A well integrated organization would show a high degree of consistency and coordination in the efforts of its various units. A low level of integration will reflect mutually contradictory efforts among the units, interdepartmental conflict and lack of synergy. For eg. Finance department will follow its goal of cost control by striking an important investment decision taken by the production department which would result in increasing operational efficiency. Integrating mechanism would include creating hierarchy, rules and procedures, manual of policies, financial control systems, standard operating procedures, documenting delegation of powers. However, as organizations become more and more differentiated, these simple devices become inadequate and more sophisticated mechanisms emerge. These would include process based methods such as forming interdepartmental committee, liaisoning mechanism, inter-divisional transfer, and strategic planning meeting or multi divisional task force, OD specialist. The task is to build a common organizational identity across different division through training, culture building etc. A model for Right organization structure Following is a comprehensive framework for understanding the design option one has for coping with different types of environment. For e,g, Mr.Duncan viewed organization as a information processing device. Viewed in this manner, an effective organization structure would be one which is able to cope environment. For eg. A static environment, where there is hardly any change calls for information processing in a routinized manner and therefore, prefer to regulate the behavior of the members through formalization and standardization. If the amount of information is large, and of different types, it is possible to deal with such environments with increased complexity of structure Similarly. Organization existing in dynamic and unpredictable environments, to provide employees with enough freedom and information to enable them to deal with unforeseen demands. Also the need to give quick response to customers does not allow the organization with the information processing demands of its

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to structure itself into functional segments (that would increase information processing time). Therefore, organization coping effectively with changing environments is likely to be characterized by a low formalization and low complexity. Environmental complexity refers to number of elements in an organization that can affect the firms operation. Some operate in a relatively homogenous & simple environment with few factors that can affect the operations. For example a single product company, with assured supply of raw materials, has less information processing to do and hence, it is possible for one person to make all decision. Whereas an organization with diverse products / services. Therefore, in such cases, organizational structure must permit decentralization of organizational decision making.

Duncans thesis can be summarized as follows:If the environment is simple (not many factors to be taken for decision making) and stable (no significant change in the environmental components) an organizations need for information and coordination would be low. These can be easily met by specialization of functional expertise, simple standardized decision making and centralization of authority. A functional structure would be appropriate. If the environmental uncertainty increases functional structure becomes inappropriate for meeting the greater demands for information processing & coordination; they need to decentralize or divisionalize themselves around products, projects or geographical regions. Each of the division would be considered a self contained unit to focus on their products or market areas, and therefore, each segment can be treated separately. Even divisional structure become problematic when the very texture of the environment changes i.e. customer psychographics, fluctuation in supply, politico-economic turmoil, breakthroughs in product development and technology etc. Under such circumstances, organization structure needs to increase its information-processing capacity. i.e. the structure should make more information available to more persons, so that the staff is more directly involved in coordinating its activities. This can be accomplished through developing matrix structure. The Environment-Structure Relationship

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Every organization depends on its environment to some degree. The environments effect on an organization, therefore, is a function of its vulnerability which in turn is the function of dependence. Environment & Complexity Environmental uncertainty and complexity are directly related. That is, higher the environmental uncertainty greater the complexity. In order to respond to a dynamic and more complex environment, organizations become more differentiated. An organization is able to monitor its environment by creating differentiated units. A complex environment requires the organization to buffer itself with a greater number of departments and specialists. Environment & Formalization It is normally believed that stable environments should lead to high formalization because stable environments create a minimal need for rapid response, and economies exist for organization that standardizes their activities. Management would prefer to insulate the operating activities from uncertainty. If successful a dynamic environment is likely to lead to a low formalization of boundary activities while maintaining high formalization within other functions. Environment & Centralization The more complex the environment, the more decentralized the structure. A disparity in the environment is responded to through decentralization. When different responses are needed to different sub-environments, the organization creates decentralized sub units to deal with them. This selective decentralization explains why even in a highly centralized organization, marketing activity is decentralized. However, there are also evidence that confirms that extreme hostility in the environment drives organizations, to at-least temporarily, centralize their structures.

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CHAPTER: 9 Organisational Structure Synopsis A. Introduction B. Structural Base C. Types of Structure D. Forms of Structure Introduction Each organization is unique and distinct from the others. They differ from each other in terms of their sizes, aims, and sectors, type of employees, management styles & systems. This ranges from a bureaucratic government department to a small road side restaurant; from a diversified mega firm to a product development teak; from efficient heavy engineering firm to an academic institution, and so on. If it is assumed that organizational structures are made of only six basic components, viz., horizontal, vertical complexity & spatial complexity and formalization professional and organizational and centralization; and each of these can vary in three ways (low, moderate & high), then we have as many as 729 structures (3 x 3 x 3 x 3 x 3 x 3). Such a situation would however make the study difficult. While theoretically a large number of organizational forms are possible, only a few of them would be able to meet the internal and external demands efficiently and competitively. Bases of Structural Configurations Child defined structure as the formal allocation of work roles and the administrative mechanisms to control and integrate work activities. Thus the definition includes both division of work and the mechanism to integrate this differentiation. In rationalizing the structure, Mr. Mintzberg has chosen five basic parts, which are: The Strategic Apex consisting of top level management, in-charge of overall organization. This may be a team or a single individual. The Operating core Consists of employees who are directly connected to production of goods and service.

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The Middle line people who connect the Strategic Apex to the Operating core. These are managers, who transmit, control and help in implementing the decision taken by the strategic Apex. The Techno-structure consisting of staff functionaries & analysts who design systems for regulating and standardizing the formal planning and control of work. I.e. departments such as Finance, Personnel, PPC etc. The support staff- are people who provide indirect support to the work process and these include administrative and welfare personnel. By putting these parts together, one can get the whole organization. Relationship between coordinating mechanism and key parts of the organization Coordinating Mechanism Key parts of Configuration

Organization Direct supervision Standardization of activities Standardization of outputs Standardization of skills Mutual adjustment Simple Structure These structures are loosely formed, but tightly run, where power is centralized in the strategic apex. These are typically flat and organic structure with hardly any specialization or formalization of activities. In these types of companies, there are few middle managers, since the coordination is achieved through direct supervision. Lack of standardization and formalization makes techno-structure redundant. Even the support staff is minimum. Mostly such organizations are an extension of CEOs personality, molded by his vision. The centralized control coupled with informal channels of communication makes it easier for the decision maker. Biggest advantage here is quick strategic decision making (e.g. coo would engage in direct conversation with lowest of the supervisor). These organizations are capable of innovating and rapidly adapting to changing demands which can help them much in outwitting the much established bureaucratic competitors (example Nirma winning over HUL, super cassettes able to overthrow HMV & Music India Limited) Strategic Apex Techno-structure Middle line Operating core Support staff Simple structure Machine bureaucracy Divisional form Professional bureaucracy Adhocracy

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Simple structures are most suited to a simple and dynamic environment. Very often organization remains in this structure by choice. Having to deal with only few elements in the environment, makes it easier for the CEO to understand the environment and take decision and also helps to wield control over the organization. This is a primary reason why organization when confronted by any threat resort to simple structure. Advantages & disadvantages of simple structure Strengths Facilitates control of all business activities. Weakness Very demanding on the owner-manager increasingly inadequate as

Facilitates rapid decision making and the Becomes ability to change with market demands Has the capability to innovate

volume increases Does not facilitate development of future managers

Its informality and flexibility can be Forces CEO to focus on day to day conducive for employee satisfaction. Machine bureaucracy Machine bureaucracy is probably the most popular and yet most criticized organizational structure. The most popular indication of bureaucracy is that of a giant, monolithic, impersonal and inefficient system. Yet without such bureaucracy there would be no railways, or no postal department or large integrated steel plants or public utilities. Machine bureaucracy is characterized by coordination of work through high standardization that results in low skilled and highly specialized jobs. The standardization is achieved through extensive formalized rules for regulating the organizational activities. Since the entire organization depends on standardization of behavior, techno-structure is the key element. The division of labor is sharp and activities & roles are divided into functional groups. To ensure implementation of rules, these organizations develop a large and elaborate layer of middle management cadre. These managers perform two important functions: (a) handling conflict that arise between segmented but sequentially linked units (production maintenance or production marketing) and (b) they draw elaborate action plans following down the hierarchy and pass on feedback to decision makers in the strategic apex. operations and neglect strategy.

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These organizations tend to grow large and their size is an asset as it becomes a resource not to get influenced by minor fluctuations in the environment. As long as environment is simple and predictable machine bureaucracy is the best instrument to do things economically and efficiently. By substituting rules and regulations for decisions, they work on low requirements of operational and managerial skills, thereby saving costs. On the other hand by segmenting the jobs, they can also create monotony, alienation and interfunctional conflicts. Advantages & disadvantages of Machine Bureaucracy Strengths Achieve efficiency through specialization Weakness Promote narrow functional specialization & potential functional rivalry Encourage expertise. development of functional Experience difficulty in inter-functional coordination and decision making.

Low cost of operational and managerial High costs of co-ordination and Support expertise Centralized strategic decision giving a Limit internal development of general focus to organization managers.

Large size and standardization promotes Find difficult to innovate and adequately stability Professional bureaucracy Despite its apparent monotony organizations do require people with specialized skills to carry out certain jobs in a reliable and standard manner (eg..Teachers to teach same subjects year after year, hospitals to perform similar type of operations). These are complex tasks, with specialized skills to be performed on a routine basis on a mass scale. To achieve this, organization has to create a structure, which Mintzberg referred as Professional Bureaucracy. While machine bureaucracy co-ordinates through standardization of work processes, professional bureaucracy coordinates through standardization of skills. Instead of respond to environment changes.

exercising control and coordination through enforcement of rules & regulations, these organizations achieve reliability of performance through trained professionals. It is so because core activities of these organizations require expertise and cannot be broken down to

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low-skilled tasks. Consultancy, research firms, CA firms, Institute of higher learning etc. are examples of professional bureaucracy. The professional formalization of work procedures influences the structure of these organizations. Considerable autonomy is given to professionals, to work without any administrative coordination and control mechanism (eg. Surgeons, anesthetist & nurses perform a complex operation without exchanging a word). Therefore, these organizations have little need for developing tall hierarchy with middle level managers. Advantages & disadvantages of Professional bureaucracy Strengths Can accomplish complex but known task Weakness Find it difficult to innovate.

Provides conducive work environment for Norms of professional supersede internal professionals authority politics and rivalry among

Can successfully tap specialists expertise Internal for organizational purpose

professionals may lead to losing synergy and focus

Divisionalized form When machine bureaucracy grows, they often diversify. They integrate vertically, they put up new units, acquire them or they grow so large that breaking into smaller units becomes easy for administration. The configuration that results from this process is the divisionalized form. This form is best suited when organization starts producing new products/services, enters into new markets, or starts operating from different locations. The companies that have adapted this structural form include ITC, Voltas, Crompton Greaves, Blue Star, Shaw Wallace & HMT. Even RPG, Tatas & UB group follow this pattern. Divisional structures are similar to professional bureaucracy except that the latter entities are individuals, while in the former they are operating in middle line, known as division. Each division is an organization itself which is developed around a particular market/product or location, and enjoys relative autonomy in their functioning. This is so because each deal with different environment, and hence cannot be controlled by uniform policies. But some form of control and coordination by the strategic apex is required. This is achieved by standardizing the outputs, i.e. making each divisional manager accountable for performance of their units.

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This form helps organization efficiently allocate resources and utilization of capital and park its money in the strongest markets. It helps organization to spread out its risk, depending on different markets and products for its survival and growth. However, the biggest disadvantage is the lack of long term initiatives as the accountability is measured for short-term (annual basis). Also, since the focus is only on measurable and quantifiable goals, managers tend to ignore the non-quantifiable and social responsibilities. Decentralization of power between the units brings ambiguity about power-sharing that can become a source of conflict. Advantages & disadvantages of divisionalized form Strengths Weakness

Decentralized coordination & appropriate Fosters potential dysfunctional competition authority for rapid response for corporate resources.

Allows divisions to level and implement Creates ambiguity about the extent of appropriate strategy for their particular sharing power between the division and environment headquarters

Ensures performance by making divisional Can lead to neglect of CSR heads accountable Frees CEO for broader strategic decision Can lead to inconsistent policies and making Adhocracy An organization, by its very definition, is created to achieve outputs that can be planned and foreseen, on the basis of efficiency. But how do organizations achieve innovative outs, as in the form of a recommendation by a consultant, or by the nature of advertisement that is likely to show up by an agent. So how do these entities achieve their goals. Can the simple entrepreneurial structures become an answer to the complexity of innovative goals. This has given rise to what Mintzberg referred as Adhocratic structure. Adhocracy describe the structural configuration of a variety of organizations like film making, task forces, think tanks, consultancy firms, and advertising agencies. These structures violate the very tenet of structure and broadly speaking they are unstructured structures. Adhocracy is characterized by high degree of complexity, non-standardization of outputs and fluidity of process. To manage the complexity of the job and to innovate, experts are required practices across the organization.

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to work together and combine their skills rather than working independently (as it happens in Professional bureaucracy). Thus in these organizations jobs are assigned to multi-disciplinary teams and not to individuals with conventional specialization. There is much reliance on informal communication, and agreement between experts to get the work done. This results in (a) virtually no techno-structure and (b) process of influence is informal and power keeps shifting depending on the nature of problem. Thus power in adhocracy is selectively decentralized. The distribution of power also does not hold much distinction between the strategic Apex and rest of the structure. Unlike conventional structure, strategy is not developed at the top and implemented lower down. It automatically flows out of various numerous decisions taken while on the project. Further Mintzberg also distinguished two types of adhocracies (a) Operative Adhocracy where the firm takes up a project on behalf of the clients. They treat each clients problem as unique that requires a creative solution (unlike professional bureaucracy where there is a standardized solution. In such a case planning, designing and executing are all merged to create an organic whole. Administrative Adhocracy takes up project for self; innovative project is done by experts while the operating component, which executes ideas, is done in a standardized manner. For example, in a publishing house, marketing and editorial may form a project team to come up with a special issue, printing function will continue independently. Inspite of being appropriate for innovative tasks, adhocracies are effective as small and temporary systems to deal with complex & dynamic environments. But for their effectiveness to be long lasting, they need to invest large resources and skills for integrating their activities and liaisoning among various sub units. This can be quite a drain on organizations over a period of time.

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Advantages & disadvantages of Adhocracy Strengths Encourage Innovation & Initiative Weakness Are inefficient in utilization of resources

Are flexible and responsive to changing Increases stress through inherent role ambiguity environments Discourage empire building, thru cutting Encourage people to use political means for across function/role boundaries achieving their ends.

Provide a good training ground for strategic Weak control structure, low personal accountability managers

The aforesaid configurations are useful models to rationally think about the design options.

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CHAPTER: 10 Organisational Power, Conflict & Politics Synopsis A. Introduction B. Importance C. Determinants of Power D. Sources of Conflict E. Managing Conflict Introduction Organizations are self consistent systems. The effective organizational structures somehow follow a logical pattern, in which nature of environment, strategy, technology and structure match the demands & requirements of each other. This consistency in pattern is achieved through coordination and control mechanisms, which appropriately and rationally distribute the power and positions across the organizational roles. Thus the rational approach assumes that people occupying equal hierarchical positions or similar roles will be vested with equal power, while people in subordinate positions will exercise less power than their superiors (except in professional bureaucracy) However, organizations are not all the time a rational factor. There are non-rational factors also that influence what happens in an organization. For example it is quite common to find out that among colleagues who assume similar seniority and functional responsibilities, some exert more influence on organizational affairs than others. For that matter, there is hierarchy even in departments that make some department more powerful than others. These realities only indicates that authority (right to influence) of a position is not equal to power (ability to influence). While authority is rationally delegated, power depends on various factors both personal and situational. These differences in the extraneous factors result in inequities and imbalances in the power structure within the organization.

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Significance of Power & Politics in Organization The hierarchical and authority based nature of the organizations, difference in the need for power , organizations need to optimize, leading to struggle for resources, etc. makes them an ideal ground for exercising legitimate and illegitimate influences. Further, the power relationship among organizational members, further encourage them to adapt political means for achieving personal and organizational goals. In that sense, both power & politics serve similar function. Both have abilities to influence and both can be equally used to achieve legitimate or illegitimate goals. The difference lies in the means of influence power involve use of legitimate means while politics would mean illegitimate means. Power has following utility value:1. The executive has early access to crucial organizational information about major decisions and changes. 2. The executive can favorably intercede on behalf of someone who is in trouble with the authorities 3. The executive can get a desirable placement, promotion or above-average salary for subordinates. 4. The executive can get approval for expenditure which is beyond budget. 5. The executive can influence the agenda for meetings 6. The executive has fast, easy and regular access to top decision-makers. Utility value of Politics:1. Ensures stronger members of the organizations are brought into position of leadership. Allows people with initiative and competence to prove their worth by taking responsibilities commensurate to their potential. 2. In organizational decision making, people of authority will tend to present one sided case on any issue. Politics ensures that all sides of the issue come to surface and can be debated. 3. Most organizational changes are resisted by established systems of authority (vested interest) for who change are threatening. Politics can remove these blocks

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4. Political skills are necessary for easier implementation of decisions Structural determinants of power Power has been often understood as a personal attribute some because of their personality, expertise, skill.etc. have it while others lack. However, if one takes a broader view of ability to influence, then it goes beyond the personal characteristics to a particular structural situation in which a person is placed. Similarly if a person holding a job which is more important to achieving a goal, the occupant will enjoy greater power. Thus, the structural characteristic is based on three three findings:1. Hierarchical position the common base of power is the position which an individual occupies. The position offers formal authority to influence others behavior legitimately demanding compliance, and by sanctioning rewards and punishments. By virtue of ones position demands on colleagues can also be made. Higher the position, greater the power. 2. Non-Routineness the more the job is routine, greater is the standardization. This decreases the degree of freedom which the occupant can exercise. Whereas a nonroutine job offers greater freedom and flexibility in performing the job. Also since there are no standards to decide the legitimacy of his demands, it allows him a variety of demands on the infrastructure. 3. Centrality to workflow importance of job for achieving organization goals. A nonroutine job can hold no power if it does not contribute to the process of achieving of organizational goals. 4. Control over inputs if a job, by virtue of its position in the structure has control over resources which others require for functioning, it will have more power over others (eg.Union Vs.Management) 5. Uniqueness In organization, jobs that require specialized skills carry more power as the jobs are unique and cannot be substituted. 6. Proximity to Power - if the job allows to be in close proximity to a place where crucial decisions are taken, it gives greater opportunity to influence these decisions. But such influence can be informal. This proximity can be both in chain of command or physical in nature. Which are powerful jobs? Those that involve:MMBGIMS
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1. Dealing with environmental uncertainty (marketing in a competitive industry) 2. Innovation & creativity, for which predicting a standard is difficult 3. Newness (new department or function) 4. High inter-personal component, making it difficult to formalize its contents. 5. Becoming central to the strategic intent of the organization. 6. Criticality for organizational performance 7. Control over critical resource 8. Access to important information Power imbalances Sources of organizational conflict According to Adler Power is a basic motive. An ideal situation would be every employee holding similar position has equal power to manage his work. However, it is generally accepted that organizations do not (and probably cannot) distribute power equally across different hierarchical levels. Also power is not rationally distributed in the organization. The structural arrangements end up giving some jobs/departments more power over others. Such imbalances in power forces less powerful to put in efforts to enhance their power, leading to organizational conflicts. Like power, conflict too has its root in the structure. How structure is responsible for conflicts? Horizontal differentiation The very fact that organization groups people on the basis of their functional expertise creates potential for conflicts. According to Lawrence & Lorsch, as organization becomes more differentiated (departments, groups, divisions etc.) significant task based differences crop up. These differences are in terms of (a) degree of structure (b) orientation of employees towards environment (c) their planning time perspectives (d) their interpersonal orientation. Example marketing and manufacturing typically differed in their assessment of problems related to planning, quality assurance, cost control, customer service, product development etc. Of course, mere horizontal differentiation only creates potential for conflict, but the actual conflict arises due to the integrating mechanisms in the organization.

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Interdendency It two Units are mutually independent of each other and have no opportunity to interact, and then there is no scope for any conflict. Conflict occurs only when there is some interaction. Again this interdependency can be in three ways:The Units may be mutually dependent on each other to accomplish their goals. (Eg. Consultants in a team, Task force etc.).The problem arises due to sharing of same resources, task overload, dealing with common clients etc. The Units may be asymmetrically dependent on each other; i.e. the dependence is one way. In such case, the person on whom dependency falls has little incentive to coordinate. If the Units are arranged in a long linked sequence, it becomes easier for a Unit to get away by blaming the preceding Unit for its own failure. (Marketing blaming manufacturing for low quality and hence not being able to sell, manufacturing in turn can blame purchase department for poor quality of RM etc.). The dependence of Units can also be because of their dependence on common resources such as centralized services, physical space, personnel, etc. Where the resources are scarce, if not mediated effectively, it can give rise to a conflict. Performance & Reward criteria As organization grow in complexity, goals of sub units become more and more independent and compartmentalized, to the extent that the goals of one unit may interfere with the other. (For eg. Stores maintaining low inventory and come in the way of production). Organizations, of course, evolve coordinating mechanisms to integrate such separate goals. The fact, however, remains that organizations expect their different wings to perform in manners which may not be very consistent. This results in conflicts among the sub-units. While Organization focuses on team development, the performance of each unit is appraised and rewarded for its own achievement. The inconsistencies in the performance and reward criteria among different sub-units also arise on account of the differences in the nature of their activities. Organizations are generally divided between innovating function (egg. R&D, Value Engineering, product development, HR etc) who are responsible for bringing change and the operating function viz., production finance etc.) whose task efficiency depends on maintaining the status quo.

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Difference in performance and evaluation criteria also arise because of the variety of goal characteristics among the sub-units. Some have more long term goals (R&D, HR) while others have short term goals (Production, Marketing etc) ; certain goals can be measured while some are immeasurable (Industrial harmony); some are based on hard data (eg capacity utilization, inventory levels; while some rely on soft data (customer satisfaction) . Example A construction company handling different projects at one time was expected to share common plant and equipment facilities. In practice, some projects would hoard certain critical equipments (even though not required immediately) which hampered the progress of other projects. Conflict arose as people who violated the norms of sharing, were able to finish the projects without time and cost overruns, and therefore received more recognition, in terms of bonus and rewards. Incongruent Relationship Through their control & coordinating mechanisms, organization aim at structuring and regulating the relationship among their members and sub units. Unfortunately, the intent of such an initiative is very difficult to realize. Certain areas of ambiguities are invariably left unattended. 1. The organizational definition of a relationship contradicts the cultural norms. For instance, many old workers resent complying to young professionals, since culturally age is related to authority. 2. Certain roles and functions, particularly the creative ones, need to be characterized by low formalization that encourages ambiguities in expectations from/by the incumbent. 3. Organization which consist of heterogeneous and specialist groups are more likely to experience conflict, because of diversity of expertise and orientation. In conclusion, the more complex the organization (i.e. differentiated horizontally, vertically and spatially; greater the chances of conflict. Managing Organizational Conflicts Conflict is largely a misunderstood term. Generally, it is interpreted as a hindrance in the teamwork. Accordingly, management of conflict is equated with avoidance or elimination of conflicts. It is believed that responsible managers must ensure that no conflict takes place.

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Conflicts, however, are not always dysfunctional even if they are uncomfortable. It is seen that groups that challenged established order produced better ideas and creative solutions; than the perfectly harmonious group. According to Robbins, conflict is functional when it initiates the search for new and better ways of doing thins and undermines complacency within the organization. The managers job is to create an environment where the conflict is healthy. But if one were to look at conflict in a negative manner, then the best way to resolve it is through collaboration. Practicing managers however believe that in reality it is not feasible to always collaborate. Besides, collaboration there are other useful and effective methods to manage conflicts in organizational situations; bargaining and power-play. Moreover, organizations also use structural and procedural strategies to contain and resolve conflicts. A. Collaboration Collaboration is one of the popularly recommended approaches for managing conflicts. It stands to reason out that if people have problems with each other, it is only rational the parties to the conflict understand each others view point. However, collaboration has following advantages:1. Creates a climate of authentic and open interpersonal relationships among organizational members ad sub-units, which is conducive to long term smooth functioning of the organization. 2. Collaboration is a problem solving approach, and therefore, encourages long term commitment of employees to creative activities. 3. Collaboration facilitates information flow and feedback processes in the organization. In doing so, it lays down self-correcting mechanisms in the organization. Collaborations can be achieved by:Creating super-ordinate goals Intergroup conflicts often develop because people get so involved in the achievement of their compartmentalized objectives that they neglect the common goals. This becomes a major source of conflict. Many researchers suggest that common understanding of shared goals can greatly facilitate a climate of collaboration. The current practice of promoting organizational vision highlights the process of creating super ordinate goals that helps in consolidating the conflicting energies.
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Joint problem solving one of the most frequently used techniques for increasing collaboration. It requires conflicting parties to come together, analyze and define the problem, understand each others view point and arrive at a mutual solution. The aim is to solve the problem and not win or lose against each other. The usefulness of bringing people, face to face, lies in helping them to identify not only the differences, but similarities in perception. Increasing interactions many conflicts are based on misperception and lack of understanding between different units. The more sub units we have, greater the probability of norm development, which makes one sub-unit insensitive to the requirements of the other. Therefore, if the interaction between the sub-units are increased, not only would they develop better understanding of each others way of functioning, but may also discover common interests. Eg.Annual sales conference, besides dealing with substantive issues, also creates a sense of understanding among executives of different territories. In many organizations, the same purpose is achieved through more formalized means; like inter-unit, inter-divisional and inter-functional transfers (HUL). Inspite of popularity of collaboration as a conflict management strategy, though ideal may not be feasible at times. Collaborative effort, to be successful requires following preconditions:1. Conflicting units must be interdependent, i.e. should have long term stakes in solving the problem. There should be potential for mutual benefit, as a result of solving common problem. 2. They must be equal in terms of their power in the organization. 3. There should be organizational support in terms of money, time and energy. B. Power play Power play or power politics is antithesis to collaboration. Whereas collaboration is a win-win strategy, that aims at establishing rules of interaction, power play aims at win/lose situation by circumventing the established rules. Power play is defined as (Derr) a secretive mode that could work in the best interest of those, whose covert objective is autonomy and whose desired impression is that of being committed. This style of conflict management unleashes aggressive and hostile feelings, suppresses valid

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organizational information, expends energy to unproductive purposes, and can even subvert organizational goals. Nonetheless, power-play is organizational reality that fulfils useful aims. There are situations when power-play is appropriate means of dealing with conflict, viz.

1. When people need to work for their rational self-interest (may or may not be contrary to organizational interests). For instance, experts may like to maintain their autonomy, use their specialization for organizational purposes but without wanting to invest in collaborative efforts. 2. When the organization environment is competitive, but collaborative stance may make it more vulnerable. For instance, sharing of critical information with others would make them aware of ones weakness and give other a strategic advantage. 3. When preconditions for collaboration are not met, but co-existence is necessary for achievement of personal goals. Such a situation would result in dynamic equilibrium. For example, relationship between management and union often attempt to maintain a balance between compatible self interests, in spite of their power-play. 4. When the dispute is of ideological nature. I.e. conflicting parties may be unwilling to look at the dispute as a problem to be solved or negotiated. The only option available is to achieve ones ends at the cost of others. What behaviors constitute power-play?. Often political behaviors in organizations have been described as Games Withholding information Information is a source of power. For example, personnel policies are not available with all line managers, making them dependent on HR department. Blocking off incoming information if one can manage to delay the information reaching oneself, it not only allows one to avoid or delay making commitments. Department often make vague procedures, nurture inefficiencies or create internal bottleneck. For instance, stores department can create a complex system for indenting.

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Delaying agreements and decisions longer one can delay the agreement that would make them accountable, greater maneuverability one would have. Often this tactics is used by way of forming a committee. The trick is in making vague commitment, that indicates ones sincerity but the problem still hangs. Emphasizing perfectionism Being perfectionist, quality conscious and committed is a legitimate behavior, but it can also be used a tool to obstruct the work processes of the organization. E.g. Finance will not pass a voucher till all the supporting documents accompany the bill, not matter how trivial. Protecting territory Organizations are horizontally differentiated along functional expertise. The more one maintains the uniqueness of the job, greater is its value. This is not only true in case of highly skilled specialists, but even of the unskilled cleaners vs. helpers) C. Bargaining Bargaining is a mid-way between collaborative and political strategies. It incorporates elements from both the strategies the problem solving stance of collaboration and tactical moves and counter moves of power play. It is the most commonly practiced conflict management strategy. According to Bacharach & Lawler Bargaining is the central element in mixed motive setting. Mixed motive relationships are inherently unstable and involves some distrust. In this case, bargaining is the preferred means for keeping conflict within the acceptable boundary & avoid total bifurcation of relationship. Bargaining may not be an ideal approach, but definitely a practical approach. The win/lose stance can aggravate the interpersonal conflict. This approach involves commitment that are more legal and formal. Inspite of these imperfections bargaining is useful in number of ways. 1. It ensures that conflicting parties openly share their concern for and also arrive at some immediate solution. 2. It provides an opportunity to the conflicting parties to interact with each other, implicitly or explicitly acknowledge the interdependency and hence builds ground for better understanding. 3. It is an efficient way of establishing power parity and can pave way for future collaboration. The two parties can recognize the value of what each of them can offer to the other or withhold.

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4. It is probably the most efficient way in which scarce resources can be distributed. D. Structural & Procedural Strategies Organization conflicts often originate from certain specific conditions. Manipulation of certain organization elements would also help in resolving these conflicts. Some conflict management strategies, therefore, involve rearrangement of organizational elements. 1. Reducing interdependence among units One of the main reasons for conflicts to occur is the interdependence of the sub-units to reduce the conflicts, these sub units could be made more autonomous and independent. For example Unit B depends on the output of Unit A, and hence if autonomy can be given be given to Unit B to obtain inputs from other sources. 2. Top-down interventions If two parties fail to resolve their disagreements, it can be handled at the level of their mutual superior. The superior in this case takes up the role of an arbitrator and integrator. 3. Enlarging Resources since most of the conflicts are rooted to scarcity of resources, expanding the resource base can be a successful strategy for eliminating conflicts. . Manpower, equipments and other resources can often be creatively and flexibly redeployed to overcome scarcity. 4. Combining Conflicting Units This strategy is sometimes used in the organizations by restructuring the conflicting Units in a manner so that one incorporates the other. For example by clubbing quality control as a part of production can help deal with the conflict locally. Implications for Managers A focus on the role of power in organization is important for one to understand and to cope with the reality of organizational life. It is important to note that organizations are not merely rational entities, designed by tangible contingencies, but it also has some human and structural factors. An awareness of these implications is essential for effective functioning.

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CHAPTER; 11 Organizational Culture Synopsis A. Introduction B. Essence of Culture C. Definition D. Functions of Culture E. Expression of Culture F. Types of Culture G. Suggestion Introduction In Reliance group, one of the much talked about and practiced principles is the value of time. There are countless stories about how quick decisions were made to save many crises; how people show concern in doing things in the shortest possible times. Not surprising the Patalganga project was completed in 15 record months. Even their collaborators El du pont found this achievement unparalleled. Sundaram Fasteners Ltd, the first company to get ISO 9000 certification, has a unique distinction of not losing a single day due to labour trouble for over three decades. Insiders attribute this to family approach practiced by the top management. The CEO Mr.Suresh Krishna is emphatic about the need to communicate with employees on a regular basis. Among many things that is done, employees families are invited to the factory to interact with the senior management. Given above are a few examples of how organizational culture operate are sustained and even changed. The culture of an organization has a decisive influence of what happens in its day to day functioning. These cultural influences are critical to the performance of an organization inasmuch as other tangible factors (environment, strategy & technology)

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Usually different organizations are described as innovative, autocratic, paternalistic, stagnating, impersonal, achievement oriented, professional and so on. These are what we perceive to be essence of the culture of these organizations. Essence of Organizational Culture If one takes a look at different organization, each appears to be unique in its own way. In some, the employees go through the whole day without even smiling once while in others, there is an air of bonhomie & friendliness. In some even during free time, people talk only of work while in some case even during busy schedule people gossip. In some cases people are ambitious and active; while in some they are lethargic and lazy. In a way the culture of an organization describes the submerged part of the organizational ice-berg . The organization culture thus describes the personality of the organization its overall orientation, its unwritten codes and norms, implicitly understood ways of relating and interacting among the employees; values that are shared and practiced by employees. Defining Organization Culture One of the major problems in defining organization culture is that it is a concept, i.e. something which is created and which resides in the minds of the people. It is not a thing that can be discovered and verified; rather it has to be inferred, conjured, interpreted and defined. So, instead of looking for a comprehensive definition, an appreciation of the different definitions may contribute much more to our understanding. Organizational culture may be thought as a glue that holds the organization together, through a sharing of pattern of meanings. The culture focuses on the values beliefs and expectation that members come to share. A pattern of basic assumptions - discovered by a group as it learns to cope with 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. Based on the above definition, following meanings have been drawn:1. Observed behavioral irregularities in the interactions, language and rituals of the organizational members. 2. The norms which evolve over a period of time in working groups.

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3. The dominant values what are espoused by the organization (or by prominent members of the organization. 4. The philosophy that guides the decisions and policies of an organization. 5. The rules of the game that people must learn in order to get accepted 6. The feeling & climate that pervades and gets conveyed in the day-day functioning of the organization. Functions of Organization Culture Life in a real world organization is not always stable and predictable and at times not rational. Working in any organization involves coming to terms with uncertain environment, mutually contradictory objectives, complex technology, lack of adequate information, threatening political climate etc. The challenge for any organization is to make sense out of this situation. Thus culture provides a common interpretative and helps the organization members to reduce this ambiguity Thus, functions of Organization culture can be summarized as follows:1. It provides shared pattern of cognitive interpretations, communicating the acceptable employee behaviors. 2. Provides a sense of emotional sense of involvement & commitment to organizational values. 3. Identifies members from non-members 4. Functions as an indirect control system How is the culture expressed in an Organization? Physical Artifacts These are most visible and tangible manifestation of organizational culture. If one moves around different organization, it is easy to notice the uniqueness of each one of them. These uniqueness in the form of physical layout to items of utility symbolically express an underlying meaning. The value of the artifact is not being what they are but what it means to people. The artifacts can be both material and non-material in nature.

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Language, Jargons & metaphors These are an integral part of any organizations culture. While language is a means of universal communication, most organizations tend to develop their own unique terminologies, phrases, acronym etc. Language becomes a means of identifying members from non-members. Stories, Myths & Legends These are an extension of organization language. Like language, stories too reinforce the unwritten values and morals of the organization life and serve to validate unspoken thoughts, intentions and feelings of its members. Further organization myths: 1. Create, maintain & legitimize past, present or future actions/consequences 2. Maintain & conceal political interest and value system 3. They are the means to explain the cause and effect relationship of a situation and allow for predictable action taking. Ceremonies & Celebrations Ceremonies & celebrations are consciously enacted behavioral artifacts that reinforce the organization values. E.g. TISCO celebrating founders day every year. Or INDAL going out on a retreat with its employees. Routines, Rites & Rituals These are the reutilized activities in an organization which are carried out by employees repetitively often without giving them a second thought. The activities are ritualistic in nature as the employees have forgotten its original purpose. In much organization, complex process likes PERT /CPM and other simulations are done, while the work gets done in the same manner. Behavioral Norms Behavioral norms are important aspects of organizational culture and are transmitted to new members through a process of socialization. These norms indicate the expectation of an employees behavior. Norms are strong stabilizers of organizational behaviors (Schmuck). Enforcement of norms also helps in weeding out unwanted members.

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Shared beliefs and values All organizations have a set of basic beliefs and values (often termed as ethical codes or ideologies.) These are consciously held mental pictures of organizational reality and form the basis of defining the right or wrong in the organization. These beliefs and values form the justification for employee behaviors. For e.g. the organization could believe that customer satisfaction will lead to growth in business. Similarly if the shared belief is that to get promoted one has to please the boss, then individual initiative and result oriented behavior will not be encouraged. Thus values and beliefs channelize organizations energy into action. Basic Assumptions While values and beliefs are conscious frameworks for interpreting and evaluating organizational reality, the basic assumptions are unconscious values held by members of the Organization. These assumptions are developed because of recurrence of certain events, situations and behaviors. If one finds that repeatedly senior professionals are leaving, assumption may get built that competent people are not valued. When solution to a problem works repeatedly, it is taken for granted. Culture & Success The strength and influence of any organizations culture depends upon how intensely and universally its core values, beliefs and assumptions are shared and practiced by its employees. It is believed that if organizational culture is strong, coordinated efforts for achieving the goals will also be more. In many ways culture and strategy perform very similar functions in the organization. Strategy, when viewed as a perspective expresses the core values and personality of the organization. Also, as we have seen earlier, strategy can also evolve through internal politics. Thus organization strategy is another express of its dominant cultural values. Further, strategic success of the organization would depend on the manner in which its culture encourages risk taking and acceptance of feedback in the organization. Strong & Weak Culture If the culture is strong, it would act as an effective integrative mechanism. It has the potency to replace many formalized and bureaucratic systems and make the organization more spontaneous in its approach. Mr. Tom Peters in his book In search of excellence highlights how strong cultures play an important role in determining organizational success. (Eg.

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TISCO,HCL-HP, L&T, Lintas etc). However, it is not always ideal for an organization to have a strong culture. The same values which are healthy in one set of circumstances can become inoperative making it a weak culture. E.g. A highly innovative culture may be very useful for dealing demands of a dynamic environment, but when the environment is stable, it could be a reason for unnecessary wastage of resources. Two dimensions of human information-processing The human perceptual processes can be seen as structured around two dimensions, i.e. (a) extent of familiarity/certainty of the cue and (b) extent of urgency for actions communicated by the cues. The degree of certainty deals with the extent of familiarity of the environment and the action perspective focuses on nature action necessitated by the perceived reality; i.e. does the reality perceived calls for immediate action. These two dimensions call for specific information processing strategy which culminates in the development of following specific cultures:Rational Culture When the perceptual cue suggests the need for immediate action and the certainty is high, one tends to relay on and uses already tried and tested strategies. As one knows what is to be done, there is a sense of independence. This systematic and goal oriented strategy becomes the basis of a Rational culture. Rational culture is a task oriented environments, which emphasizes performance, productivity and efficiency. This culture exists in a competitive environment viz. consumer products, banking and financial services Ideological / development culture. When the cues suggest immediate action, but the situation is uncertain, what is required is to act according to ones hunches and intuition. Also to reduce uncertainty, openness to new information and ideas should be high. Ideological cultures are future oriented, innovative environment that give a high priority to growth. The viable leadership that suits this kind of culture comes from a person who exemplifies these values of growth and innovation i.e Dr. Kurien for NDDB. Consensual culture When perceptual cues suggest novelty but there is no urgency to respond, one tends to reduce uncertainty by interacting with and seeking the opinion of others. An example of such a situation would be that of an inter-disciplinary team of researchers engaged in basic research. This type of culture is likely to exist in organizations, where team work is an essential requirement for organizational effectiveness.

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Hierarchical culture when the cues suggest no urgency of action as certainty is high, the appropriate strategy is to maintain and continue with the present modes of behavior. This culture evolves around a shared perception. Strategically, these organizations focus on a low risk product or service. Success is conceived in terms of efficiently operating along the know and established methods. The effective organizational culture The pertinent question is: which of these organizational cultures makes an organization effective. Before we proceed any further, it is important to understand that organizational effectiveness and success are not same. For e.g. an organization could be at the peak of success today, but would disappear after a while, where as an effective organization on the other hand would weather the changes in its internal and external environment. The seeds of organizational effectiveness, therefore, lie in the ability of the organization to deal with and integrate these emergent contradictory values and needs. Implication for managers If culture is a critical determinant of organizational effectiveness, then it is essential for the leaders to understand the critical aspects f managing and changing the organizational culture. Following are the ideal conditions for cultural change 1. When the environment is undergoing fundamental changes and the company has always been highly value driven. 2. When the industry is highly competitive and the environment changes quickly. 3. When the company is mediocre, or worse. 4. When the company is truly at the threshold of becoming a large Corporation. 5. When the company is growing very rapidly Such dramatic changes help in raising questions about the existing culture within the organization, and force people to introspect about the relevance of the same. Finally, it is easier to change the culture of an organization or department, when it is young and small. Since in such organizations, the cultural values and assumptions have still not taken deep roots, and because they are relatively informal, it is easy to communicate new values to the employees.

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Suggestions for changing culture It is important to appreciate that changing the organizational culture is not easy task. As we have seen, while the culture may manifest itself in many obvious ways, its roots lie deep in the unconscious of the organization. Following actions would facilitate cultural change. 1. Managers can act as positive role models for the cultural values. It is not enough to merely describe the sought for cultural values; the message must also get conveyed through the behavior the managers. 2. New Symbols and rituals can replace the earlier one. 3. The reward system must encourage the acceptance of new set of values. Employees espousing and practicing new values must be identified supported and rewarded. 4. The selection, placement and socialization systems must be redesigned to align with the new values. 5. Since the major resistance to cultural damage comes from the sub-cultures, the efforts of the manager must focus on diluting their influence in the organization. 6. Most importantly do not forget that culture is something which is shared and not imposed. Employee acceptance must be solicited through participation around the new values.

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CHAPTER: 12 Mergers& Acquisitions Synopsis A. Introduction B. Definitions C. Motives D. Failure E. Human Resource factors F. Globalisation & Strcture Introduction Companies today need to be fast growing, efficient, profitable, flexible, adaptable, futureready and have a dominant market position. Without these qualities, firms believe that it is virtually impossible to be competitive in today's global economy. Executives have at their disposal a wide range of strategic alternatives for inorganic growth. They may decide to grow incrementally by introducing not only new products but also gain entry into new markets by investing in research and development. However this mode of growth will have a long gestation period i.e. long time to realize the actual growth. Welcome to the world of mergers & acquisitions (M&A), which has become the most important strategic element driving business growth and excellence. They have become the dominant mode of growth for organizations seeking a competitive advantage in an increasingly complex and global business economy. Therefore, in an era of increasing globalization and competitiveness, they are considered as a strategic driver for market dominance, geographical expansion, leverage in resource and capability acquisition, competence, adjusting to competition. Mergers and acquisitions (M&As) often refer to the aspect of corporate strategy, and management dealing with the buying, selling and combining of another company. Mergers and acquisitions are often created to expand a current organization or operation aiming for long term profitability and an increase in market power.

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Buoyant Indian Economy, extra cash with Indian corporates, Government policies and newly found dynamism in Indian businessmen have all contributed to this new merger & acquisition trend in India. Indian companies are now aggressively looking at American, African and European markets to spread their wings and become the global players. The Indian IT and ITES companies already have a strong presence in foreign markets, however, other sectors are also now growing rapidly. The increasing engagement of the Indian companies in the world markets, and particularly in the US, is not only an indication of the maturity reached by Indian Industry but also the extent of their participation in the overall globalization process.. Mergers and Acquisitions "It is clear that you cannot stay in the top league if you only grow internally. You cannot catch up just by internal growth. If you want to stay in the top league, you must combine." Daniel Vasella, Chief Executive Officer, Novartis Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an Acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. A Merger is a combination of two companies into one larger company. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. A merger may be of following types: (i) Horizontal Merger - Two companies that are in direct competition and share similar product lines and markets. (ii) Vertical Merger - Vertical mergers occur between firms in different stages of production operation. In a vertical merger two or more companies which are complementary to each join together.

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(iii) Market-Extension Merger - Two companies that sell the same products in different markets. (iv) Product-Extension Merger - Two companies selling different but related products in the same market. (v) Conglomeration - Two companies that have no common business areas. It means their businesses or services, are neither horizontally nor vertically related to each other. (vi) Concentric Mergers - Two merging firms are in the same general industry, but they have no mutual buyer/customer or supplier relationship. A purchase deal will be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders. Merger & Acquisition: Motives Why do companies merge or acquirer other companies? There seems to be a number of reasons given to merge/acquire a company, many of which involving the market and an extension of the customer base. These are:

Coordinated Strategies - To create a number of new business opportunities and to gain competitive advantage

Scale- Purchasing companies in the same space to gain revenues, streamline cost structures, and diversify sales channels;

Geographic reach- Tapping into previously inaccessible geographic markets; Customers- Acquiring companies with good customer lists that can be sold more products;

Products- Access to new products which in turn can be sold to existing customers or to reach a new customer base;

Segments- Entering new vertical markets; Channels- Finding new ways of delivering the same products and services; Employees- Adding needed engineering, sales, or other talent quickly;

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Technology- Adding key technical capabilities or acquiring a disruptive technology. Shared Know-how - in the form of process knowledge, market knowledge and talent

Failure of Merger & Acquisition Mergers and Acquisitions (M&As) have become the dominant mode of growth for organizations seeking a competitive advantage in an increasingly complex and global business economy. Every merger, acquisition, or strategic alliance promises to create value from some kind of synergy, yet statistics show that the benefits that look so good on paper often do not materialize. Unfortunately, many mergers and acquisitions fail to meet their objectives, which are typically to accelerate growth, cut costs, increase market share or take advantage of other synergies. A global A.T. Kearney study suggests that 58 percent of all mergers, acquisitions, and other forms of corporate restructuring fail to produce results rather than create value. Similarly, a KPMG survey found that "83 percent of mergers were unsuccessful in producing any business benefits regards shareholder value. A major McKinsey & Company study found that "61 percent of acquisition programs were failures because the acquisition strategies did not earn a sufficient return (cost of capital) on the funds invested". Between 55 and 77 percent of all mergers fail to deliver on the financial promise announced when the merger was initiated. Even though most mergers and acquisitions are carefully designed, they still face major challenges. Nearly two-thirds of companies lose market share in the first quarter after a merger; by the third quarter, the figure is 90 percent. In the first four to eight months that follow the deal, productivity may be reduced by up to 50 percent. The failure rate of acquisitions is unacceptable and unnecessary. This motivates us to look for other solutions and identify the real causes for the high failure rate. Each acquisition is a complex process from pre-deal research and planning (selecting the target), due diligence and integration planning, through to post-acquisition integration and value extraction. Priorities have to be set and rational decisions under time pressure have to be made for the proper performance. Human Resource: Key Factor It is reported that one of the main reasons for failure of a merger or acquisition is based on Human Resources neglect. People issues have been the most sensitive but often ignored issues in a merger and acquisition. When a decision is taken to merge or acquire, a company

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analyses the feasibility on the business, financial and legal fronts, but fails to recognize the importance attached to the human resources of the organizations involved. Companies which have failed to recognize the importance of human resources in their organizations and their role in the success of integration have failed to reach success. While it is true that some of these failures can be largely attributed to financial and market factors, many studies are pointing to the neglect of human resources issues as the main reason for M&A failures. PricewaterhouseCoopers global study concluded that lack of attention to people and related organizational aspects contribute significantly to disappointing post-merger results. Organizations must realize that people have the capability to make or break the successful union of the two organizations involved. Cartwright and Cooper (2000) acknowledged that the leading roles of modern human resources functions are to be actively engaged in the organization and perform as a business partner and advisor on business-related issues. Employees do not participate enough in the integration process of a merger. If a merger is to reach its full success potential, they need to be informed and involved more actively throughout all the stages of the merger process. Human resource professionals are key in pre-merger discussions and the strategic planning phase of mergers and acquisitions early as to allow them to assess the corporate cultures of the two organizations (Anderson, 1999). Being involved in the pre-merger stage allows HR to identify areas of divergence which could hinder the integration process. They can play a vital role in addressing any communication issues, employees concerns, compensation policies, skill sets, downsizing issues and company goals that need to be assessed. Strategies for Managing Human Resource in M&A I. Communication During mergers and acquisitions, employees are often kept in the dark about the sale of the corporation. They often hear about the acquisition through the press or through the corporate grapevine. This can lead to a distorted or misrepresented picture of the acquisition's ramifications and to counterproductive activities by employees, who may be anxious about possible job losses. Therefore, Communication is of utmost importance in every stage of a merger or acquisition process, and is the key to its success. It is very important for management to communicate clearly and regularly to all employees the implications of the merger, including the planned changes to working practices and

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organizational processes. Management should share as much information as it can with employees before, during, and after the acquisition. To be effective, the communication process has to be carried out in such a way as to avoid confusion and mixed messages. The communication process should also encourage two-way feedback between management and employees to make employees feel that they are contributing to the solution. By involving people at all levels of the organization, the merging companies are encouraging widespread acceptance of the merger process and reducing feelings of insecurity. II. Retaining Key People The retention of a talented workforce, which is often a major reason behind the decision to merge, should take priority during the merger process, and management needs to adopt measures to improve the retention rate of the best people in the merging companies. Truthful and thorough communication with employees can play a significant part in management's retention strategy. If the communication process is performed effectively, it can reduce employees' sense of insecurity and give them a better picture of what the future holds for them. Pay and reward strategies can also play an important role in management's retention strategy but they need to be addressed early on in the merger process and should not only focus on senior executive pay, but also on the remuneration of employees at all levels of the organization. III. Try to Establish a Common Culture Successfully integrating the two cultures of the merging companies is an essential step towards achieving a successful partnership. Both organizations, the acquiring and the acquired, will have unique and beneficial cultural elements. Rather than imposing one organization's cultural elements on the other, 'the best of both companies can be integrated into a common culture for the new organization' (Hunsaker and Coombs 1988, 62). This can create a win-win situation for both organizations, since it will result in a corporate culture with which both sides can identify. Defining and promoting the new corporate culture will enable employees to work together toward achieving the business goals of the new organization. Conducting a cultural audit is a useful way of obtaining useful information about the two companies' differing cultures and helps to evaluate differences and similarities in work standards and practices. That

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information can raise awareness of potential difficulties and issues in the merging process, and allows the merging company to take steps to minimize culture clashes by building an effective communication structure. IV. Training and Development Training and development should be provided to senior and middle management and should focus on all aspects of the merger process. Training should focus on the implications of the merger for the company, its effects on employees at all levels of the organization and its impact on working practices and organizational structures. Training should also educate managers on what each stage of the merger process entails for them and for the company as a whole. Such interventions will facilitate more effective leadership on the part of managers, who will have a better understanding of the key issues that arise during the course of a merger. V. Try to Eliminate the Them-Us Syndrome Acquiring organizations should try to eradicate any arrogance on the part of their personnel to ensure that acquired employees do not feel inferior and 'conquered.' A post-acquisition atmosphere fostering mutual respect among management groups will facilitate a better understanding of the others' perspective and make a smoother transition. VI. Provide Individual Counseling Individual counseling on personal adjustment and stress coping strategies can assist the employees to 'solve the problems associated with merger stress; recommend, demonstrate and initiate coping with merger stress strategies; or improve the employee's mastery'. In addition, a counselor can unveil new career paths and job opportunities within the newly acquired organization, which can provide incentives for employees to remain with the organization. Conclusion Mergers & Acquisitions (M&A) has become the most important strategic element driving business growth and excellence. Mergers and acquisitions will continue to be an ever-present characteristic of the modern corporate landscape. Merger and acquisition (M&A) bring together different sets of people, processes and technologies with the common objective of creating a larger, unified organization. The organization aims to benefit from the synergies of merging organisations by consolidation, rationalization and integration of the people, processes and technologies of both organizations. Human Resources (HR) has the potential to

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play an important role during all stages of M&A. However, these issues are rarely considered until serious difficulties arise. The Human Resource dimension of M&A should be accorded the same emphasis and attention given financial, legal, operational and strategic concerns. HR no longer plays a dormant role and is emerging as a strategic business partner where key initiatives undertaken such as communication, training, counseling, career planning, support workshops, building trust, coaching and compensation planning, have significant business impact. Globalization & Organizational Structure 1. Why Go Global? 2. Economies of scale 3. Economies of scope 4. Cheaper production costs Entering the Global Market 1. Stages of Development 2. Domestic stage 3. International stage 4. Multinational stage 5. Global stage Entering the Global Market 1. How to Go Global? 2. Licensing 3. Joint venture 4. Consortia 5. Virtual organization 6. International Division 7. Global Product Division Structure 8. Global Geographic Division Structure

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9. Global Matrix Structure Global Challenges a. Complexity and differentiation b. Need for integration c. Knowledge transfer d. Global teams e. Headquarters planning f. Expanded coordination roles

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