Richard L. Daft - Management. 9th ed., 2010

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PART 4 ORGANIZING270

A Matter of Delegation

Tom Harrington loved his job as an assistant quality-

control of cer for Rockingham Toys. After six months

of unemployment, he was anxious to make a good

impression on his boss, Frank Golopolus. One of his

new responsibilities was ensuring that new product

lines met federal safety guidelines. Rockingham had

made several manufacturing changes over the past

year. Golopolus and the rest of the quality-control

team had been working 60-hour weeks to trouble-

shoot the new production process.

Harrington was aware of numerous changes in

product safety guidelines that he knew would affect

the new Rockingham toys. Golopolus was also aware

of the guidelines, but he was taking no action to

implement them. Harrington wasn’t sure whether

his boss expected him to implement the new proce-

dures. The ultimate responsibility was his boss’s, and

Harrington was concerned about moving ahead on

his own. To cover for his boss, he continued to avoid

the questions he received from the factory  oor, but

he was beginning to wonder whether Rockingham

would have time to make changes with the Christmas

season rapidly approaching.

Harrington felt loyalty to Golopolus for giving

him a job and didn’t want to alienate him by inter-

fering. However, he was beginning to worry what

might happen if he didn’t act. Rockingham had a  ne

product safety reputation and was rarely challenged

on matters of quality. Should he question Golopolus

about implementing the new safety guidelines?

What Would You Do?

1. Prepare a memo to Golopolus, summarizing the

new safety guidelines that affect the Rockingham

product line and requesting his authorization for

implementation.

2. Mind your own business. Golopolus hasn’t said

anything about the new guidelines and you don’t

want to overstep your authority. You’ve been

unemployed and need this job.

3. Send copies of the reports anonymously to the

operations manager, who is Golopolus’s boss.

SOURCE: Based on Doug Wallace, “The Man Who Knew Too Much,”

Business Ethics 2 (March–April 1993): 7–8.

ch9

MANAGEMENT IN PRACTICE: ETHICAL DILEMMA

FMB&T

Marshall Pinkard, president and CEO of FMB&T,

a growing California-based regional commercial

and consumer retail bank, clicked on an e-mail

from Ayishia Coles. Ayishia was the bright, hard-

working, self-con dent woman who’d recently come

onboard as the bank’s executive vice president and

chief information of cer. The fact that the person in

Coles’s position in the company’s traditional vertical

organization now reported directly to him and was

a full- edged member of the executive committee

re ected FMB&T’s recognition of just how impor-

tant information technology was to all aspects of its

increasingly competitive business. The successful,

leading-edge banks were the ones using information

technology not only to operate ef ciently, but also to

help them focus more effectively on customer needs.

Marshall settled back to read what he expected would

be a report on how she was settling in. He was sadly

mistaken.

After a few months on the job, Ayishia Coles was

frustrated. What she needed from him, she wrote, was

a clear statement of her responsibilities and author-

ity. The way Ayishia saw it, the relationship between

information technology and the bank’s other business

units was muddled, often causing considerable con-

fusion, friction, and inef ciency. Typically someone

from retail banking or marketing, for example, came

to her department with a poorly de ned problem,

such as how to link up checking account records with

investment records, and they always expected a solu-

tion the same day. What made the situation even more

vexing was that more often than not, the problem

crossed organizational lines. She found that generally

the more work units the problem affected, the less

likely it was that any single unit took responsibility

for de ning exactly what they wanted IT to do. Who

exactly was supposed to be getting all these units

together and coordinating requests? When she tried to

step into the breach and act as a facilitator, unit man-

agers usually didn’t welcome her efforts.

Despite the vagueness of their requests, the work

units still expected IT to come up with a solution—

and come up with it quickly. All these expectations

seemed almost calculated to drive the methodical IT

folks mad. Before taking on a problem, they wanted

to make sure they thoroughly understood all of its

dimensions so that the solution would  t seamlessly

ch9

CASE FOR CRITICAL ANALYSIS

CHAPTER 9 DESIGNING ADAPTIVE ORGANIZATIONS 271

Organizing

into the existing systems. This coordination took time

that other parts of the bank weren’t willing to give IT.

In addition, Ayishia knew the IT staff was increas-

ingly feeling underused. The staff wanted to identify

opportunities for dazzling new IT developments to

contribute to business strategies, but it found itself

limited to applications work. Ayishia’s greatest con-

cern was the president of a large regional branch who

was actively campaigning to locate decentralized

IT departments in each large branch under branch

authority so that work would be completed faster

to meet branch needs. He said it would be better to

let work units coordinate their own IT departments

rather than run everything through corporate IT.

Under that scenario, Ayishia Coles’s department

could end up one-half its current size.

Marshall leaned back in his high-backed execu-

tive chair and sighed. At the very least, he needed to

clarify Ayishia’s authority and responsibilities as she

had asked him to do. But he recognized that the new

vice president was talking about a much larger can of

worms. Was it time to rethink the bank’s entire orga-

nizational structure?

Questions

1. What are the main organizational causes of the

frustration that Ayishia Coles feels?

2. If you were Marshall Pinkard, how would you

address both Ayishia’s request for clari cation

about her authority and responsibilities and the

underlying problems her e-mail brings to his atten-

tion? Can the problems be addressed with minor

adjustments, or would you need to consider a dras-

tic overhaul of the bank’s organizational structure?

What environmental and technological factors

would in uence your decision?

3. Sketch a general chart for the type of organization

that you think would work best for IT at FMB&T.

SOURCES: Based on Perry Glasser, “In CIOs We Trust,” CIO Enter-

prise (June 15, 1999): 34–44; Stephanie Overby, “What Really Matters:

Staying in the Game,” CIO Magazine (October 1, 2004), www.cio

.com/archive/100104/role.html; and Alenka Grealish, “Banking Trends

in 2005 That Will Make A Difference,” Bank Systems & Technology

(December 14, 2004): www.banktech.com/news/showarticle

.html?articleid=55301770.

ch9

ON THE JOB VIDEO CASE

Evo: Designing Adaptive

Organizations

When Bryce Phillips started selling ski and snow-

board equipment on eBay, he managed everything—

customer care, supply chain, technology, buying, and

 nance—all from his apartment. Eight years later,

Phillips’s company, Evo, runs a hugely successful

eCommerce site, employs more than 60 people, man-

ages its Seattle  agship store, and operates a 40,000

square foot distribution center. Evo has grown at

least 70 percent every year and recently hit $10 mil-

lion in sales. To effectively lead this rapidly expand-

ing venture, Phillips continually looks for ways to

delegate responsibilities to the capable managers

around him.

As a pretty straightforward business, Evo is

well served by its  at, functional structure. A recent

company-wide meeting showcased this ever-

morphing structure. Department heads introduced

themselves and their staffs and explained the func-

tion of their departments so new employees and the

whole company would have a better understanding

of how all the pieces of the company  t together.

Director of eCommerce Nathan Decker explained

how the new creative services team would oper-

ate. Phillips gave the latest details on his current

passion, a new adventure travel offering called

evoTRIP.

Beyond its formal structure, Evo works within a

set of core values called “The Great 8,” which pro-

vides another important operating framework. The

Great 8 includes authenticity, balanced ambition,

credibility, style, leadership, respect, communication,

and evolución. On Evo’s Web site, Phillips explained,

“Even with all of the changes, many things have

remained constant, and we are where we are because

we have stayed true to the Great 8. We established

the Great 8 to guide us through the decisions, big

and small, that we make every day. Decisions from

how we set up a new display in the store, to what

investment we take on, and who we decide to work

with to lead this company are scrutinized using the

Great 8 as the  nal sounding board. We don’t take

this lightly.”

In 2004, when Evo employed only six people,

 exibility was a way of life. Everyone wore mul-

tiple hats and did everything necessary to get the

job done. As the number of employees on payroll

approached 50 and 60, it was time to make sure the

people who dealt directly with customers possessed

the authority and  exibility to deliver excellent

service. This organizational soul-searching yielded

the new customer care policy: “Just Say YES!” Now,

PART 4 ORGANIZING272

Rendition (I)

U.S. government operatives suddenly whisk

Anwar El-Ibrahimi (Omar Metwally) from his  ight

from Cape Town, South Africa, after it arrives in

Washington, D.C. He is a suspected terrorist whom

the government sends to North Africa for torture

and interrogation (extraordinary rendition). Douglas

Freeman (Jake Gyllenhaal), a CIA analyst, becomes

involved. He reacts negatively to the torture tech-

niques and urges El-Ibrahimi’s release. The story

has other complications in the form of El-Ibrahimi’s

pregnant wife at home who desperately works for her

husband’s safe return.

Organizational Structure

This scene opens with a night shot of the Washington

Monument. It follows Kahlid’s (Moa Khouas) discus-

sion with Hamadi (Hassam Ghancy), the leader of

the terrorist bomb group. Congressional aide Alan

Smith’s (Peter Sarsgaard) voice-over says, “She

called you?” The scene ends after Senator Hawkins

(Alan Arkin) tells Alan to back off. The  lm cuts to a

panning shot of a market area and Douglas Freeman

drinking.

Alan Smith’s question, “She called you?” refers to

Corrine Whitman (Meryl Streep), head of U.S. intel-

ligence. She authorized the extraordinary rendition

of El-Ibrahimi. Alan Smith, earlier in the  lm, pressed

her for El-Ibrahimi’s release and his return to the

United States. Whitman lied about El-Ibrahimi’s exis-

tence. This scene does not explicitly discuss organiza-

tional structure, but you can infer several aspects of

structure from the scene.

What to Watch for and Ask Yourself

▪ What formal tasks does this scene imply? What

reporting relationships does it show?

▪ Can you sense the division of labor represented

by Senator Hawkins and Alan Smith? Corrine

Whitman does not appear in this scene but is also

part of a division of labor.

▪ Does the scene show line authority or staff author-

ity? Does it imply a functional or divisional struc-

ture? Give some examples from the scene.

ch9

BIZ FLIX VIDEO CASE

customer service representatives (CSRs) make their

own decisions about how to make customers happy.

Reps no longer use the phrases, “Could you please

hold while I talk to my manager?” or “I’m afraid

we’ll have to get back to you on that.” If free ship-

ping is likely to guarantee a return customer, then

free shipping it is. If throwing in free ski poles means

winning a lifelong customer, CSRs can authorize free

ski poles.

Recently, Evo’s organizational adaptability was put

to the test. Delivering packages to customers on time is

essential to running a successful eCommerce company,

so Evo decided to stop outsourcing its distribution

when the company realized it couldn’t control quality.

Beyond the massive task of building out the physical

plant, setting up the distribution center (DC) involved

hiring a dozen people and creating de ned roles and

responsibilities for these new positions. The DC was

easily incorporated into the supply chain department,

thanks to its broadly de ned function.

Midway through construction of the new DC,

Evo faced the unexpected loss of an employee. Evo’s

head buyer became ill suddenly and died within

two months. Her husband was in charge of launch-

ing the DC, but he had to take a leave of absence

to care for his wife. Down two department heads,

Evo faced an organizational crisis and had to adapt

quickly. Because the responsibilities and authority of

both positions were clearly de ned, two people, one

step down the chain of command, were able to jump

into their former bosses’ shoes with relatively few

glitches.

Phillips was last overheard discussing ways Evo

could adapt to the troubled U.S. economy. Luckily,

tackling monster moguls on the ski slopes had pre-

pared him for almost anything.

Discussion Questions

1. Given Evo’s current structure and pace of growth,

what or

ganizational challenges might arise in the

future?

2. Is Evo a centralized or decentralized company?

Explain.

3. Imagine it is 20 years from now and Evo is orga-

nized into divisions. What are they?

CHAPTER 9 DESIGNING ADAPTIVE ORGANIZATIONS 273

Organizing

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ENDNOTES

PART 4 ORGANIZING274

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CHAPTER 9 DESIGNING ADAPTIVE ORGANIZATIONS 275

Organizing

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John A. Coutright, Gail T. Fairhurst, 68.

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chapter10pt4

Learning Outcomes

Chapter Outline

After studying this chapter, you should be able to:

1. Deﬁ

ne organizational change and explain the forces driving innovation

and change in today’s organizations.

2. Identify the three innovation strategies managers implement for changing

oducts and technologies.

3. Explain the value of creativity, idea incubators, horizontal linkages, open

innovation, idea champions, and new

-venture teams for innovation.

4. Discuss why changes in people and culture are critical to any change

ocess.

5. Deﬁ

ne organization development (OD) and large group interventions.

6. Explain the OD stages of unfreezing, changing, and refreezing.

7. Identify sources of resistance to change.

8. Explain force-ﬁ

eld analysis and other implementation tactics that can be

used to overcome resistance.

Are You Innovative?

Inno

vation and the Changing Workplace

Changing

Things:

New Products

and Technologies

Exploration

Cooper

ation

Entrepreneurship

New Manager Self-Test: Taking Charge

of Change

Changing P

eople and Culture

Training and Development

ganization Development

Implementing Change

Need for Change

Resist

ance to Change

Force-Field Analysis

Implementation Tactics

277

Managing Change and

Innovation

Controlling

Planning

Environment

Organizing

Leading

Introduction

ARE YOU INNOVATIVE?

Think about your current life. Indicate whether each item

below is Mostly True or Mostly False for you.

Mostly

True

Mostly

False

1. I am always seeking new ways to

do things.

2. I consider myself creative and

original in my thinking and

behavior.

3. I rarely trust new gadgets until I

see whether they work for people

around me.

4. In a group or at work, I am often

skeptical of new ideas.

5. I typically buy new foods, gear,

and other innovations before

other people.

6. I like to spend time trying out

new things.

7. My behavior inﬂ uences others to

try new things.

8. Among my co-workers, I will be

among the ﬁ rst to try out a new

idea or method.

SCORING AND INTERPRETATION: Personal Innovative-

ness reﬂ ects the awareness of the need to innovate and a

readiness to try new things. Innovativeness is also thought

of as the degree to which a person adopts innovations

earlier than other people in the peer group. Innovativeness

is considered a positive thing for people in many compa-

nies where individuals and organizations are faced with a

constant need to change.

To compute your score on the Personal Innovativeness

scale, add the number of Mostly True answers to items 1,

2, 5, 6, 7, 8 above and the Mostly False answers to items

3 and 4 for your score. A score of six to eight indicates

that you are very innovative and likely are one of the ﬁ rst

people to adopt changes. A score of four to ﬁ ve would

suggest that you are average or slightly above average in

innovativeness compared to others. A score of zero to

three means that you may prefer the tried and true and

hence are not excited about new ideas or innovations. As

a new manager, a high score suggests you will emphasize

innovation and change. A low score suggests you may

prefer stability and established methods.

Glance through recent back issues of just about any business magazine and you

will see them: Wired magazine’s “Wired 40” list of the most innovative compa-

nies. Fast Company’s “Fast 50 World’s Most Innovative Companies.” Business Week’s

“Twenty Five Most Innovative Companies in the World.” Everyone’s talking about

innovation and extolling the virtues of companies that do it right. Innovation is at

the top of everyone’s priority list today, but managing innovation and change has

always been an important management capability. If organizations don’t success-

fully change and innovate, they die. Consider that just 71 of the companies on For-

tune magazine’s  rst list of America’s 500 largest corporations, compiled in 1955,

survived the next half-century.

Every organization sometimes faces the need to change swiftly and dramatically

to cope with a changing environment. For example, Nokia is still the world’s largest

maker of cell phone handsets, but it lost its leading position in the United States by

failing to match popular products like the Motorola Razr and Apple iPhone.

Sam-

sung Electronics was becoming a brand associated with cheap, low-quality knockoffs

until managers implemented new processes that transformed the company into a

hotbed of innovation. “We cannot live without change,” said Samsung Vice Chair-

man and CEO Jong-Yong Yun. “The race for survival in this world is not to the stron-

gest, but to the most adaptive.”

In this chapter, we look at how organizations can be designed to respond to the envi-

ronment through internal change and development. First we look at two key aspects

PART 4 ORGANIZING278

of change in organizations: introducing new products and technologies, and changing

people and culture. Then we examine how managers implement change, including

overcoming resistance.

INNOVATION AND THE CHANGING WORKPLACE

In today’s topsy-turvy world, managing change and innovation is taking center

stage. Some observers of business trends suggest that the knowledge economy of the

late 1900s and early 2000s is rapidly being transformed into the creativity economy. As

more high-level knowledge work is outsourced to less-developed countries, compa-

nies in the United States, Europe, and Japan are evolving to the next level—generating

economic value from creativity, imagination, and innovation.

Sometimes, change and innovation are spurred by forces outside the organiza-

tion, such as when a powerful retailer such as Wal-Mart demands annual price cuts

or when a key supplier goes out of business. Many U.S. companies had to revise

administrative procedures to comply with provisions of the Sarbanes-Oxley corporate

governance reform law. In China, organizations feel pressure from the government

to increase wages to help workers cope with rising food costs.

These outside forces

compel managers to look for greater ef ciencies in operations and other changes to

keep their organizations pro table. Other times, managers within the company want

to initiate major changes, such as forming employee-participation teams, introduc-

ing new products, or instituting new training systems, but they don’t know how to

make the changes successful. Organizations must embrace many types of change.

Businesses must develop improved production technologies, create new products

and services desired in the marketplace, implement new administrative systems, and

upgrade employees’ skills.

Today’s successful companies are continually innovating. For example, Johnson &

Johnson Pharmaceuticals uses biosimulation software from Entelos that compiles all

known information about a disease such as diabetes or asthma and runs extensive vir-

tual tests of new drug candidates. With a new-drug failure rate of 50 percent even at

the last stage of clinical trials, the process helps scientists cut the time and expense of

early testing and focus their efforts on the most promising prospects. Telephone com-

panies are investing in technology to push deeper into the television and broadband

markets. Automakers are perfecting fuel-cell power sys-

tems that could make today’s internal combustion engine

as obsolete as the steam locomotive.

Computer compa-

nies are developing computers that are smart enough to

con gure themselves, balance huge workloads, and know

how to anticipate and  x problems before they happen.

Organizations that change successfully are both pro t-

able and admired. Innovative companies such as Target

and Procter & Gamble have seen median pro t margin

growth of 3.4 percent a year since 1995, compared to only

0.4 percent for the median among Standard & Poor’s

Global 1200 companies.

Organizational change is de ned as the adoption of

a new idea or behavior by an organization.

Many orga-

nizations struggle with changing successfully. In some

cases, employees don’t have the desire or motivation to

come up with new ideas, or their ideas never get heard

by managers who could put them into practice. In other

cases, managers learn about good ideas but have trouble

getting cooperation from employees for implementation.

Successful change requires that organizations be capable

of both creating and implementing ideas, which means

the organization must learn to be ambidextrous.

Swimmer Michael Phelps, who scored

an historic eight gold medals at the Olympics in Beijing, wears the new

Speedo LZR Racer one-piece suit. Olympic swimmers wearing the LZR

Racer broke 25 world records. Speedo’s “world’s-fastest-swimsuit”

innovation was developed with help from NASA scientists. The seams

of the suit are ultrasonically sealed and wind-tunnel tested for surface

drag. Each athlete gets a 3-D body scan to create a suit with core

support in critical areas to make swimmers more streamlined. The

$550 price was a good deal for Phelps. His sponsor Speedo gave him a

$1 million bonus for his record-breaking eight-medal win.

org

anizationa

The

option o

a new i

ea or

beh

avior

an or

anization.

CHAPTER 10 MANAGING CHANGE AND INNOVATION 279

Organizing

An ambidextrous approach means incorporating structures and processes that

are appropriate for both the creative impulse and for the systematic implementa-

tion of innovations. For example, a loose,  exible structure and greater employee

freedom are excellent for the creation and initiation of ideas; however, these same

conditions often make it dif cult to implement a change because employees are less

likely to comply. Or, as one scholar put it, companies “that are healthy enough to

consider innovation are also hearty enough to resist change.”

With an ambidex-

trous approach, managers encourage  exibility and freedom to innovate and pro-

pose new ideas with creative departments, venture teams, and other mechanisms we

will discuss in this chapter, but they use a more rigid, centralized, and standardized

approach for implementing innovations. In the following section, we discuss tech-

nology and product changes, which typically rely on new ideas that bubble up from

lower levels of the organization.

CHANGING

HINGS

NEW PRODUCTS

AND TECHNOLOGIES

Introducing new products and technologies is a vital area for innovation. A product

change is a change in the organization’s product or service outputs. Product and

service innovation is the primary way in which organizations adapt to changes in mar-

kets, technology, and competition.

Examples of new products include Apple’s iPhone

3G, Glad Force Flex trash bags, and the hydrogen-powered BMW Hydrogen 7. The

introduction of e- le, which allows online  ling of tax returns, by the U.S. Internal

Revenue Service (IRS) is an example of a new service innovation. Product changes

are related to changes in the technology of the organization. A technology change

is a change in the organization’s production process—how the organization does

its work. Technology changes are designed to make the production of a product or

service more ef cient. The adoption of automatic mail sorting machines by the U.S.

Postal Service is one example of a technology change.

Three critical innovation strategies for changing products and technologies are

illustrated in Exhibit 10.1.

The  rst strategy, exploration, involves designing the orga-

nization to encourage creativity and the initiation of new ideas. The strategy of coop-

eration refers to creating conditions and systems to facilitate internal and external

coordination and knowledge sharing. Finally, entrepreneurship means that managers

put in place processes and structures to ensure that new ideas are carried forward for

acceptance and implementation.

Exploration

Exploration is the stage where ideas for new products and technologies are born.

Managers design the organization for exploration by establishing conditions that

encourage creativity and allow new ideas to spring forth. Creativity, which refers to

the generation of novel ideas that might meet perceived needs or respond to oppor-

tunities for the organization, is the essential  rst step in innovation.

People noted

Exploration

• Creativity

• Experimentation

• Idea incubators

Cooperation

• Horizontal coordination

mechanisms

• Customers, partners

• Open innovation

Entrepreneurship

• Idea champions

• New venture teams

• Skunkworks

• New venture fund

EXHIBIT 10.1

Three Innovative

Strategies for New Products

and Technologies

SOURCE: Based on Patrick Reinmoeller and Nicole van Baardwijk, “The Link Between Diversity and Resilience,”

MIT Sloan Management Review (Summer 2005): 61–65.

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anization