Organizational Systems Theory - Case Study Example

Organizational Systems Theory Of AUTOPSY OF ENRON When Enron re-emerged from a pipeline company in 1985 to a trading giant in 2000, it appeared as if it had secured its future in the cutthroat business environment. It was a Wall Street dream owning a stock worth that amplified 1,700 % in that sixteen-year period, generating revenues that augmented from $40 - $100 billion. The Enron tale reflects the traditions that thronged American industry at the ending of the twentieth century. At Enron the idea was to assemble a "knowledge-based business," which required a talent set not accurately prized by Enrons workers from the previous HNG days. Most were purposeful, careful, dependable, somewhat self-protective community.. But now the business wanted bolder natives for its daring new period: that incorporated anyone who required making money for themselves and also for the company. An autopsy of a dead organization such as Enron is extremely valuable for leaders in any era. Before any manager embarks on a change journey for his organization, such an autopsy would help him understand the mistakes that past tycoons had committed and hence enable the manager to keep away from such mistakes. Enron was on the way to generate a position for itself or pass away. The people who had contracted views ultimately were mandatory out, because if they had thin views about additional things, they had slim views about the marketplace. Enron was doomed in the end but it has left valuable lessons for people who follow. We cannot ignore the fact that before its drastic failure, Enron has captured the market and had done extremely well. The plans and policies that were adopted at Enron can help managers today to understand what generates humungous revenues yet be cautious enough not to step over the line, or to put the organization in jeopardy. There was, on the other hand, a new motive Enron did so well in such a small time: the companys hard-nosed strategy toward its clientele. The aged idea of client service was footed on the extended haul--you had to care for and pamper clientele to maintain them. Instead of this age-old idea, Enron brought new ideas to the market that were too tempting for the customers to resist and eventually the clientele increased. This is the most valuable lesson any managers get and implement for success in the long run. While lots of businesses used what was acknowledged in the business as "mark-to-market accounting," for example, Enron used it on an extraordinary level. The business priced their contracts at present market value-but it was for all time Enrons scheme of the marketplace assessment. And whereas old-fashioned groups stretched their profits out like allowances over a epoch of years, Enron took the majority of its income up-front. However a lot of millions would be completed on a agreement that enclosed several years, they went on the books in the existing time. As Enron turned out to be further victorious, the traditions Skilling had fashioned took on a gloomy side: The opposition turned interior. It became a corporation full of band of soldiers. As Enrons power of the energy marketplace raised, nearly everyone of the employing frills chopped away. New acquaintances were taken care for a great deal like the possessions the company operated. Eventually it became too disruptive for people to work. And since the workforce is any company’s most valuable asset, loss of it ultimately lead to a loss of the corporation. All these are practices that were successful but had to be maintained in limits. Enron crossed the limits and was doomed but it has left behind priceless lessons for managers, in present times to learn and implement successfully. CHANGE MANAGEMENT IN AN ORGANIZATION Organizations tend to change primarily because of external pressure rather than an internal desire or need to change. Here are a few all-too-familiar examples of the kinds of environmental factors requiring organizations to change: A new competitor snares a significant portion of a firms market share. An old customer is acquired by a giant conglomerate that dictates new sales arrangements. A new invention offers the possibility of changing the organizations existing production technology. Other examples include (1) new government regulations on certain health-care financing programs and (2) economic and social conditions that create long-term changes in the availability of the labor force. The competent organization will be alert to early-warning signs of such external changes so that it can move promptly to make internal changes designed to keep it viable in the changing external world. Competent organizations are those that continue to change and to survive. Thus, it is practically a cliche to state that change in organizations today is a way of life. And clearly it is not saying anything new to comment that executives and managers today are more finely attuned to change or that they more frequently view their role as that of change agent. But even though we often state the obvious and spout cliches about change, this does not mean that we have an in-depth understanding of what I am talking about. I am only beginning to understand the nature of change and how to manage the process involved, especially with respect to organizations. The purpose of this article is to improve our understanding of organizational change by providing both some conceptual clarification and a case example that illustrates many of the concepts involved. It is possible to conceptualize organizational change in at least three ways--levels of organizational change, strategies of organizational change and, more specifically and not mutually exclusive of strategies, models and methods of organizational change. (First we will present the concepts, second the case example, and finally some implications.) LEVELS OF ORGANIZATIONAL CHANGE A broad distinction can be made between (1) fundamental, large-scale change in the organizations strategy and culture--a transformation, refocus, reorientation, or"bending the frame," as David A. Nadler and Michael L. Tushman have referred to the process-- and (2) fine-tuning, fixing problems, making adjustments, modifying procedures, etc.; that is, implementing modest changes that improve the organizations performance yet do not fundamentally change the organization. By far most organizational changes are designed not to transform the organization but to modify it in order to fix its problems. In this paper I address more directly the large-scale, fundamental type of organizational change. I am concerned with transformation when an organization faces the need to survive and must do things differently to continue to exist. After polio was licked, for example, the March of Dimes had to change its mission in order to survive as an organization. Although its mission changed from one of attacking polio to one of trying to eradicate birth defects, the organizations core technology--fund raising--remained the same. A corporate example of transformation is seen in the transition of International Harvester to Navistar. Facing bankruptcy, the company downsized drastically, completely restructured its financial situation, and overhauled its corporate culture. Although many of the companys technologies were sold off, it too retained its core technology: producing trucks and engines. Once internally focused, its culture is now significantly market-oriented--and the company is operating far more efficiently than it did in the past. Although organizational members experience such transformations as a complete change, they rarely if ever are. Theory would suggest that if fundamental--or even significant--change is to occur with any success, some characteristic(s) of the organization must not change. The theory to which we refer comes from the world of individual change: psychotherapy. For organizational transformation to be achieved--for the organization to survive and eventually prosper from such change -- certain fundamentals need to be retained. Some examples: the organizations ultimate purpose, the previously mentioned core technology, and key people. The principle here is that for people to be able to deal with enormous and complex change-- seeming chaos-- they need to have something to hold on to that is stable. Conceptually, then, we can distinguish between fundamentally changing the organization and fine-tuning it. This distinction-- which is a matter of degree, not necessarily a dichotomy--is useful in determining strategies and methods to be used in the change effort. When fine-tuning, for example, we do not necessarily need to clarify for organizational members what will not change--but in the case of transformation, such clarity is required for its successful achievement. STRATEGIES OF ORGANIZATIONAL CHANGE Organizational change can occur in more than one way. In a 1971 book, Harvey A. Hornstein and colleagues classified six ways: individual change strategies, technostructural strategies, data-based strategies, organization development, violent and coercive strategies, and nonviolent yet direct action strategies. All of these strategies have been used to attempt, if not actually bring about, organizational change. Senior management usually chooses any one or various combinations of the first four and manages them internally. The last two--violent, coercive strategies and nonviolent yet direct-action strategies--are more often than not initiated by actions outside the organization, and the organizations executives typically manage in a reactive mode. In this article I address some combination of the first four strategies. Yet, as 8 previously indicated, I am assuming that the overwhelming majority of organizational changes are motivated by external factors--that executives are responding to the organizations external environment. But even when it is not a reaction to some social movement, organizational change is nevertheless a response--a response to changes or anticipated changes in the marketplace, or changes in the way technology will affect the organizations products/services, or changes in the labor market, etc. This assumption is based on the idea that an organization is a living, open system dependent on its environment for survival. Whether it is merely to survive or eventually to prosper, an organization must monitor its external environment and align itself with changes that occur or will occur in that environment. Practically speaking, the process of alignment requires the organization to change itself. MODELS AND METHODS OF ORGANIZATIONAL CHANGE Models of change and methods of change are quite similar in concept and often overlap--so much so that it is not always clear which one is being discussed. Kurt Lewins three-phase model of change--unfreeze, move (or change), refreeze--also suggests method. Organization development is based on an action-research model that is, at the same time, a method. More on the model side is the relatively simple and straightforward framework provided by Richard Beckhard and Reuben T. Harris. They have suggested that large-scale, complex organizational change can be conceptualized as movement from a present state to a future state. But the most important phase is the in-between one that they label transition state. Organizational change, then, is a matter of (1) assessing the current organizational situation (present state), (2) determining the desired future (future state), and (3) both planning ways to reach that desired future and implementing the plans (transition state). Methods of implementing the change-- for example, a new organizational strategy--include the following: Setting up a comprehensive training program (individual change strategy). Modifying the structure, individuals jobs, and/or work procedures (technostructural strategy). Conducting a companywide survey to assess organizational culture for the purpose of using the data to pinpoint required changes (data-based strategy). Collecting information from organizational members about their views regarding what needs to be changed and acting accordingly (organization development strategy). Combining two, three, or all of these methods. Within the organizational sciences, taking a structural contingency theory approach to optimal organizational performance implies that there are different task environments, different ways in which to structure organizations, and positive implications for performance when the structure of an organization and the dictates of the task environment have a proper fit (Burns & Stalker, 1961; Lawrence & Lorsch, 1967; Miller, 1988; Pennings, 1992). Simply, structural contingency theory advocates an "if this, then that" structure by environment contingency. Support for this proposition can be found in cross-sectional research on both large-scale organizations (Drazin & Van de Ven, 1985) and smaller work teams (Hollenbeck et al., 2002). Many have used the structural contingency theory proposition that no one structure is always best to argue that in the current, fast-paced, technology-driven business environment, organizations need to be designed around flexible, team-based structures (Townsend, DeMarie, & Hendrickson, 1998). Townsend and colleagues viewed newly flexible organizations as demonstrating "a pronounced structural difference from traditional workgroup participation because of their ability to transform quickly according to changing task requirements and responsibilities" (1998: 23). Similarly, Levitt, Thomsen, Christiansen, Kunz, Yan, and Nass (1999) extolled the virtues of virtual team design, in which team structure is adaptively engineered to be aligned with project goals. Allred, Snow, and Miles (1996) characterized this emerging model of organizations as "cellular structures," a term implying both individual units ability to function independently and the ability of multiple units to engage in more complex functions through interdependent action, depending upon environmental demands and constraints. It is hard to argue with the virtues of flexibility, and the concept of infinitely adaptive persons and organizations is certainly alluring. However, the difficulties in maintaining such high levels of adaptation in organizations should not be underestimated. The preponderance of evidence in support of contingency approaches tends to be based on generalizations from static, between-groups re search designs, not within-group designs in which a team or organization actually changes its structure between two data collection times. In fact, little of the empirical research in support of contingency theories in general, or structural contingency theory specifically, has spoken directly to the issue of change and adaptability over time or across environments. Thus, despite the conceptual attractiveness of this type of reconfigurability, structural contingency theory has come under attack by those documenting the conditions that make change difficult (DiMaggio & Powell, 1983). STRUCTUAL CONTINGENCY THEORY The applied behavioral and social sciences are replete with contingency theories (Miner, 1984). The core proposition underlying all contingency theories is that there is no one best way to solve all organizational problems. Instead, the proponents of contingency theories argue that an approach that might be suitable under one specific set of circumstances may be unsuitable under a different set of conditions (Dill, 1958). This new set of conditions may demand an approach that is the exact opposite of what was formerly appropriate. STRUCTURAL CONTINGENCY THEORY: THE TYPES OF DEPARTMENTATION Structural contingency theory, which has the same form as these other contingency theories, grew from early observations of different organizational structures and different external environments. Archival analyses of how well various organizations performed under different conditions led to the conclusion that long-term viability was contingent upon a proper match between an organizations structural design and the particular environment it faced. Subsequent research employing cross-sectional, between-subjects designs has provided some support for these proposed relationships (Drazin & Van de Ven, 1985; Hambrick, 1983; Miller & Friesen, 1983). STRUCTURAL CONTINGENCY THEORY: DEPARTMENTATION AND TASK ENVIRONMENT The structural contingency theory answer to the question, "What task decomposition scheme is best?" is that a groups structure interacts with its task environment to influence performance. In relatively predictable and stable environments, structures that employ functional departmentation tend to perform better than those that employ divisional structures. Functional structures are effective in this type of environment because they promote efficiency. Efficiency is created because redundancy across subunits is minimized and high levels of functional expertise can be developed. PRACTICAL IMPLICATIONS FOR MANAGING CHANGE IN ANY ORGANIZATION IN THE CURRENT TIMES Last I shall discuss some important considerations for those who are either designing team structures or thinking about changing teams from one structure to another. First, in terms of designing an initial structure, since it is apparently easier to adjust a structure in the functional to divisional direction than vice versa, managers may want to establish initial structures that err on the side of being too functional. If subsequent adjustments in a divisional direction are needed, these will be easier to manage than those that go in the opposite direction. Thus, team designers should initially show a bias in favor of functional structures or structures that lean in that direction. Initial errors that require a divisional-functional readjustment will be more difficult to overcome and have to be avoided at all costs. Second, for managers who are considering changing a teams structure to match an environmental change, the criterion for triggering the change may need to be set at different levels depending upon the direction of the change. If a team starts out in a functional structure, even a small amount of evidence that the structure needs to be adjusted (for instance, the team appears to be lacking sufficient flexibility) may be enough to trigger a adaptation toward divisional structure. On the other hand, if a team starts out in a divisional configuration, the burden of evidence needed to initiate change in the functional direction (for instance, the team appears to lack sufficient efficiency) may need to be set much higher. Since executing this latter reconfiguration is more difficult, the value of structural adaptation would need to be higher to offset the higher transition costs associated with this type of restructuring. Third, if the evidence strongly suggests that a team needs to reconfigure from a divisional structure to a functional structure, managers need to supply external supports in order to ease this transition. Supports might include training programs aimed at increasing the amount of communication between team members, reward systems (team-based bonuses) that stress that value of collaborative behavior, or goal setting-feedback systems that explicitly monitor and manage communication and helping behaviors among team members. Leaders of teams making this type of transition may need to assume the role of communication and support officer (or directly assign such a role to a team member) to insure that some individual is responsible for assuring that the types of difficulties that teams encounter when making adjustments in the functional direction are addressed. The change in any organization involves a multifaceted effort that used many leverage points to initiate and support the changes. The change process, which used transition teams with openness to feedback, was intentionally managed with strong support from top management. Resistance to change was actively managed by using unfreezing strategies at all three levels--individual, structural and systems, and interpersonal. Finally, in regards to our moderation findings related to cognitive ability, a "war for talent" is currently being waged among organizations as they pursue the most talented workers. Trank, Rynes, and Bretz (2002) recently found that individuals with high ability prefer organizations that are more challenging and selective. This finding is consistent with Ganzachs (1998) finding that job complexity influenced the link between intelligence and job satisfaction. Our findings regarding cognitive ability establish the converse of the need for challenge among teams of high ability, in that they demonstrated a negative reaction to loss of challenge. Therefore, managers must not only attract top talent by increasing challenge and complexity, but also guard against repulsing top talent with a lack of challenge and complexity. 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