CHAPTER 7 – ORGANIZATIONAL STRUCTURE AND CHANGE

∙ Learning Objectives
o Define organizational structure and its basic elements.
o Describe matrix, boundary less, and learning organizations.
o Describe why and how organizations change.
o Understand reasons why people resist change, and strategies for planning and
executing change effectively.
o Build your own organizational design skills.

∙ Organizational Structure
o Organizational structure refers to how
individual and team work within an
organization are coordinated. To
achieve
organizational goals and objectives,
individual
work needs to be coordinated and
managed.
Structure is a valuable tool in achieving
coordination, as it specifies reporting
relationships (who reports to whom), delineates formal communication channels,
and describes how separate actions of individuals are linked together.
Organizations can function within a number of different structures, each
possessing distinct advantages and disadvantages. Although any structure that is
not properly managed will be plagued with issues, some organizational models
are better equipped for particular environments and tasks.
o What exactly do we mean by organizational structure? Which elements of a
company’s structure make a difference in how we behave and how work is
coordinated? We will review four aspects of structure that have been frequently
studied in the literature: centralization, formalization, hierarchical levels, and
departmentalization. We view these four elements as the building blocks, or
elements, making up a company’s structure. Then we will examine how these
building blocks come together to form two different configurations of structures.
o Centralization is the degree to which decision-making authority is concentrated at
higher levels in an organization. In centralized companies, many important
decisions are made at higher levels of the hierarchy, whereas in decentralized
companies, decisions are made and problems are solved at lower levels by
employees who are closer to the problem in question.
o As an employee, where would you feel more comfortable and productive? If your
answer is “decentralized,” you are not alone. Decentralized companies give more
authority to lower-level employees, resulting in a sense of empowerment.
o Decisions can be made more quickly, and employees often believe that
decentralized companies provide greater levels of procedural fairness to
employees. Job candidates are more likely to be attracted to decentralized
organizations. Because centralized organizations assign decision-making
responsibility to higher-level managers, they place greater demands on the
 judgment capabilities of CEOs and other high-level managers.
o Many companies find that the centralization of operations leads to inefficiencies in
decision making. For example, in the 1980s, the industrial equipment
manufacturer Caterpillar suffered the consequences of centralized decision
making. At the time, all pricing decisions were made in the corporate headquarters
in Peoria, Illinois. This meant that when a sales representative working in Africa
wanted to give a discount on a product, they needed to check with headquarters.
Headquarters did
not always have accurate or timely information about the subsidiary markets to
make an effective decision. As a result, Caterpillar was at a disadvantage against
competitors such as the Japanese firm Komatsu. Seeking to overcome this
centralization paralysis, Caterpillar underwent several dramatic rounds of
reorganization in the 1990s and 2000s.
∙ Contemporary Forms of Organizational Structures
o For centuries, technological
advancements that affected
business
came in slow waves. Over 100
years
passed between the invention of the
first
reliable steam engine and the first
practical
internal combustion engine.
o During these early days of advancement,
communication would often go hand in
hand with transportation. Instead of
delivering mail hundreds of miles by horse, messages could be transported more
quickly by train and then later by plane. Beginning in the 1900s, the tides of
change began to rise much more quickly. From the telegraph to the telephone to
the computer to the Internet, each advancement brought about a need for an
organization’s structure to adapt and change.
o Business has become global, moving into new economies and cultures. Previously
nonexistent industries, such as those related to high technology, have demanded
flexibility by organizations in ways never before seen. The diverse and complex
nature of the current business environment has led to the emergence of several
types of organizational structures.
o Beginning in the 1970s, management experts began to propose organizational
designs that they believed were better adapted to the needs of the emerging
business environment. Each structure has unique qualities to help businesses
handle their particular environment.
o Matrix organizations have a design that combines a traditional functional structure
with a product structure. Instead of completely switching from a product-based
structure, a company may use a matrix structure to balance the benefits of product
based and traditional functional structures. Specifically, employees reporting to
department managers are also pooled together to form project or product teams.
o As a result, each person reports to a department manager as well as a project or
 product manager. In a matrix structure, product managers have control and say
over product-related matters, while department managers have authority over
matters related to company policy. Matrix structures are created in response to
uncertainty and dynamism of the environment and the need to give particular
attention to specific products or projects. Using the matrix structure as opposed to
product departments may increase communication and cooperation among
departments because project managers will need to coordinate their actions with
those of department managers. In fact, research shows that matrix structure
increases the frequency of informal and formal communication within the
organization.
o Matrix structures also have the benefit of providing quick responses to technical
problems and customer demands. The existence of a project manager keeps the
focus on the product or service provided.
∙ Organizational Change
o Organizational change is the movement of an organization from one state of affairs
to another. A change in the environment often requires change within the
organization operating within that environment.
o Change in almost any aspect of a company’s operation can be met with
resistance, and different cultures can have different reactions to both the change
and the means to promote the change. To better facilitate necessary changes,
several steps can be taken that have been proved to lower the anxiety of
employees and ease the transformation process.
o Often, the simple act of including employees in the change process can drastically
reduce opposition to new methods. In some organizations, this level of inclusion
is not possible, and instead organizations can recruit a small number of opinion
leaders to promote the benefits of coming changes.
o Organizational change can take many forms. It may involve a change in a
company’s structure, strategy, policies, procedures, technology, or culture. The
change may be planned years in advance or may be forced on an organization
because of a shift in the environment. Organizational change can be radical and
swiftly alter the way an organization operates, or it may be incremental and slow.
In any case, regardless of the type, change involves letting go of the old ways in
which work is done and adjusting to new ways. Therefore, fundamentally, it is a
process that involves effective people management.
o Managers carrying out any of the P-O-L-C functions often find themselves faced
with the need to manage organizational change effectively. Oftentimes, the
planning process reveals the need for a new or improved strategy, which is then
reflected in changes to tactical and operational plans.
o Creating a new organizational design (the organizing function) or altering the
existing design entails changes that may affect from a single employee up to the
entire organization, depending on the scope of the changes. Effective decision
making, a Leadership task, takes into account the change-management
implications of decisions, planning for the need to manage the implementation of
decisions.
o Finally, any updates to controlling systems and processes will potentially involve
changes to employees’ assigned tasks and performance assessments, which will
require astute change management skills to implement. In short, change
 management is an important leadership skill that spans the entire range of P-O- L
C functions.
∙ Planning and Executing Change Effectively
o How do you plan, organize, and execute change effectively? Some types of
change, such as mergers, often come with job losses. In these situations, it is
important to remain fair and ethical while laying off otherwise exceptional
employees. Once change has occurred, it is vital to take any steps necessary to
reinforce the new system. Employees can often require continued support well
after an organizational change.
o One of the most useful frameworks in this area is the three-stage model of planned
change developed in the 1950s by psychologist Kurt Lewin.
o This model assumes that change will encounter resistance. Therefore, executing
change without prior preparation is likely to lead to failure. Instead, organizations
should start with unfreezing, or making sure that organizational members are
ready for and receptive to change. This is followed by change, or executing the
planned changes. Finally, refreezing involves ensuring that change becomes
permanent and the new habits, rules, or procedures become the norm.
o Many change efforts fail because people are insufficiently prepared for change.
When employees are not prepared, they are more likely to resist the change effort
and less likely to function effectively under the new system. What can
organizations do before change to prepare employees? There are a number of
things that are important at this stage.
∙ Building Your Change Management Skills
o You feel that a change is needed. You have a great idea. But people around you
do not seem convinced. They are resisting your great idea. How do you make
change happen?
▪ Listen to naysayers. You may think that your idea is great, but listening to
those who resist may give you valuable ideas about why it may not work
and how to design it more effectively.
▪ Is your change revolutionary? If you are trying to change dramatically the
way things are done, you will find that resistance is greater. If your
proposal involves incrementally making things better, you may have
better luck.
▪ Involve those around you in planning the change. Instead of providing the
solutions, make them part of the solution. If they admit that there is a
problem and participate in planning a way out, you would have to do less
convincing when it is time to implement the change.
▪ Assess your credibility. When trying to persuade people to change their
ways, it helps if you have a history of suggesting implementable changes.
Otherwise, you may be ignored or met with suspicion. This means you
need to establish trust and a history of keeping promises over time before
you propose a major change.
▪ Present data to your audience. Be prepared to defend the technical aspects
of your ideas and provide evidence that your proposal is likely to work. ▪
Appeal to your audience’s ideals. Frame your proposal around the big
picture. Are you going to create happier clients? Is this going to lead to a
better reputation for the company? Identify the long-term goals you are
 hoping to accomplish that people would be proud to be a part of.
▪ Understand the reasons for resistance. Is your audience resisting because
they fear change? Does the change you propose mean more work for
them? Does it affect them in a negative way? Understanding the
consequences of your proposal for the parties involved may help you tailor
your pitch to your audience.
∙ Link for Video
Organizational Structure https://youtu.be/wO_-MtWejRM Contemporary Forms of
Organizational Structures https://youtu.be/gscyaGUjOcw Organizational Change
https://youtu.be/wKKIpeYnLQ4 Planning and Executing Change Effectively
https://youtu.be/qp067_gSMd8 Building Your Change Management Skills
https://youtu.be/EG_W8E2sdnI

∙ References:
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o Walker, R. (2008, November 2). Consumed: Goodwill hunting. New York Times
Magazine, p. 18; Tabafunda, J. (2008, July 26). After 85 years, Seattle Goodwill
continues to improve lives. Northwest Asian Weekly. Retrieved March 1, 2010
o Slack, E. (2009). Selling hope. Retail Merchandiser, 49(1), 89–91

o Castillo, L. (2009, February 24). Goodwill Industries offers employment programs.