Organizational Design & Leadership

Question 1

Functions of Organizational Structures (I)

Answer 1

Functions of Organizational Structures

Organizations exist to enable a group of people to effectively coordinate their activities and transaction efforts and to achieve organizational objectives.
Organizational structures serve the following three functions:

1. Enableorganizationalmembersundertakeseveralactivities
   according to a division of labor that defines

• Specialization ▶️ of tasks and functions
• Standardization ▶️ of tasks and functions
• Departmentalization ▶️ of tasks and functions

2. Enable organizational members to coordinate their activities through integrating mechanisms, e.g.:
   * Hierarchical supervision
   * Formal rules
   * Procedures
3. Define boundaries of the organization and its interactions with the environment.

▶️ Focal question: What drives organizational designs?

We will focus on factors that shape organizational designs:

1. Environment

Society
policy
Customer
Competition

2. Technology
3. Motivation

Question 2

Environment

Environment Dynamics Drive Organizational Design

Answer 2

Environmental factors influence organizational design (and vice versa):

• New modes of working (temporary employment, labor leasing, etc.) * Technological changes
• Changing / advanced education of employees
• Changing traditions and value-systems
• Competition

▶️ How can organizations cope with environmental changes?

Theoretical Background: System Theory Dynamics (I)

• Organizations exist in the form of systems because this enables the reduction of complexity between organizations and environment.
• The boundary between systems and environment is called difference.
• The environment of systems varies (depending on their boundaries).
• Because each system is part of an environment consisting of other dynamic systems (competition, policy, etc.), that collection of systems (= environment) is never static!
• Accordingly, changes in the environment always affect the focal systems (= the organization).
  ▶️ Therefore, as a collection of dynamic systems, environment is considered as a source of uncertainty for organizations.

Question 3

Environment

Classification of Environment

Answer 3

• According to System Theory, everything that‘s not part of a focal system by definition is considered to be part of the environment.
• Environment can be described along two classifications:

1. Formal Environment
2. Content Environment
3. Formal Classification of Environment (I)

Principle: Describe the environment along formal dimensions:

Dimension 1: Complexity
* Captures the degree of complexity of the environment
* Includes the number and variety of elements relevant to the environment

Dimension 2: Dynamics
* Captures changes of the environment over time (evolution)
* Dimensions of environmental dynamics:
Stability of Elements, intensity and predictability of changes

Dimension 3: Illiberality
* Captures pressure for organizations to cope with environmental
changes
* Includes intensity of competition, scarce resources, and regulations.

2. Content Classification of Environment

Principle: Organizations should only focus on particularly relevant environmental forces

How can organizations identify relevant environmental forces that affect organizations directly?

Checklists of particularly relevant environmental forces include:

• Technological * Ecological
• Regulatory * Macroeconomic
• Socio-cultural

Goal: Reduction of complexity

Formal vs. Content Classification of the Environment (I)

• What can organizations learn from these perspectives?
• Research reveals two conflicting perspectives describing the
  relationship between the environment and organizational designs:

Congruence Perspective ↔️ Interactional Perspective

• Congruence Perspective:
  Organizational environment is dominating organizational structures. Organizations have to adapt to changes induced by the environment.
• Interactional Perspective:
  Organizational environment and organizational structures are interacting with each other.

Question 4

Environment

Mechanic vs. Organic Organizational Structures

Model of Differentiation and Integration

Answer 4

Mechanic vs. Organic Organizational Structures (I)

Mechanic structures

1. Strict hierarchy
2. Vertical Interaction
3. Downward trend of
   communication
4. Final Authority is centralized
5. Strong formalization
6. Loyalty and obedience

Organic structures

1. Functional authority
2. Lateral interaction
3. Net structure of
   communication
4. Many decision-making centers
5. Redefining tasks continuously
6. Task dedication

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Model of Differentiation and Integration

• Many approaches build upon „Mechanic vs. Organic Organizational Structures“ model from Bruns and Stalker (1961).

*Lawrence and Lorsch (1967) develop the well-known „Model of Differentiation and Integration“

Model of Differentiation and Integration (II)

• Organizations are regarded as „open systems“.
• With increasing size, organizations differentiate itself into separate
  sub-systems (differentiation).
• The system integrates all these sub-systems and ensures that all sub-
  departments work together seamlessly (integration).
• The system has to absorb organizational changes induced by the environment.

Model of Differentiation and Integration (III)

Organizations have to cope with different environmental forces…
…and organizational sub-systems have to deal with corresponding environmental elements.
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Environment

• Organization
  
  • Market Segment (Customers, Competitors) ( Marketing)
  • Science Segment (Production)
  • Techno- Economical Segment R&D

Model of Differentiation and Integration (IV)

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Environment and Organizational Design (I)

The characteristics of the environmental segments determine organizational structures of the corresponding (sub-) systems:

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Environmental setting:

• Safe and stable
• Complex and dynamic

▶️

Organizational structures of (sub-) systems

• Mechanic
• Formalized
• Centralized
• Flexible
• Organic
• Easy-to-adapt

Question 5

Environment

Imperative Thesis of Organizational Design

Answer 5

Imperative thesis: The success of organizational design depends on the congruence between the organizational design and its (given) environment.

Issues:
* Environment is not necessarily always imperative.
* Organizations have different options to react to environmental conditions and changes.
* Environment may be influenced by organizational activities (e.g. marketing, lobbying) (Interdependency).

▶️This critic leads to the interactional perspective describing the relationship between organizations and their environment.

a. Functional Organization

• Based on the integration of similar functions into departments. * The departments are responsible for all activities of the
  corresponding function.
• Each department has its own
• Internal structure * Management
• Objectives
• Plans
• Budget

Manager
- R&D
- Marketing
- Production
- Finance

a. Functional Organizations: Advantages

Question 6

Environment

a. Functional Organization: Advantages and Disadvantages

Answer 6

a. Functional Organization: Advantages

High levels of interaction within the functions:
* Individual knowledge
* Common functional-specific knowledge

This leads to:
* higher productivity
* feasibility of complex tasks

Peer-supervision and peer-support is feasible for small business units and
employees at the same level

Function-specific norms and values influence commitment and therefore motivation and performance.

a. Functional Organizations: Disadvantages

Functional orientation is suboptimal for (very) big companies

Many reasons may overstress functions:
* Heterogeneous customer needs
* Diversity of the product portfolio
* Geographical diversification

Performance assessment of separate functions is hardly assessable

Managers are highly involved in daily coordination procedures between functions

Therefore, managers may neglect long-term planning (strategy)

Communication and coordination problems between functions Source: Jones/Bouncken (2008)

Question 7

Environment

Divisional Organizations: Overview

Divisional Organizations: Evaluating Divisional Organizations (I)

Answer 7

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Management
⬇️
Product A
R&D
Marketing
Production
Finance

Divisional Organizations: Evaluating Divisional Organizations (I)

Advantages:
* Divisions are closer to the market
* Single divisions can better respond to uncertainty
* Fast reaction to environmental changes
* Accountability is clearly defined

Disadvantages:
* Economies of scale and scope can be lost
* Divisions may end up competing against each other
* Divisions may develop similar products for similar types of customers
* Divisional organization may lead to duplication of internal services
(such as accountin

Customer-Oriented Organization

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Question 8

Technology

Organizational Structure and Production System (I)

Answer 8

• Woodward (1950) investigates the organizational structure of 100
  industrial companies in England.
• His results reveal a large variety of organizational structures of
  exceptionally successful companies (same holds true for less
  successful companies).

➡️ Which factors could explain the broad scope?

• Woodward includes the technological structure of the production
  system into his investigation:
• Single-item and small-batch serial production
• Large-scale and mass production
• Process production

➡️ Production systems determine organizational designs

Organizational Structure and Production System (III)

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Organizational Structure and Production System (IV)

• Organizations with either simple or very complex production systems
  employed organic organizational structures.
• Organizations with medium complex production systems employed
  mechanical organizational structures.

➡️ Production system determines the relationship between
technological settings and organizational / managerial structures.

Question 9

Technology

Technology and Knowledge (I)

Answer 9

This early perspective (Woodward 1950) considers the complexity of the production systems as technology.

Today, this understanding of technology may be obsolete:
* Technology is more than just the production system
* Technology is often considered an intangible asset

Question 10

Technology

Technology and People
Linking Technology and the Market: Transformative Business Models

Answer 10

• Keeping the understanding of technology from Perrow (1967, 1973) in
  mind:
  In the transformation process, not organizations but individual people
  transform input to output.
• Individual people act as intervening factor between technology and
  organizational design.
• Question: How do they intervene?

Example:
Suppose a hospital purchases a new CAT-scanner. For the proper
operation of the new technological device, specialized personnel is
necessary. Because the established staff is not trained in using the CATscanner, the organization may implement job rotation to train their
employees on the job.

Linking Technology and the Market: Transformative Business Models

• Industry‘s transformation is usually associated with the adoption of a
  new technology
• But although new technologies are often major factors, they have
  never transformed an industry on their own

➡️ No new technology can transform an industry unless a business
model can link it to an emerging market need!

Question 11

Technology

Linking Technology and the Market: Six Keys to Success

Answer 11

Linking Technology and the Market: Six Keys to Success (I)

• Research selects 40 new business models that seem to have a
  potential to transform industries
• Looking for recurring features in the models: 6 emerge
• No company displays all of them but a higher number of these
  features usually correlate with a higher chance of success at
  transformation.
• Trends and needs were identified by an analysis of regularly published
  industry reports from think tanks and consulting companies such as
  the McKinsey Global Institute, PwC, and the Economist Intelligence
  Unit.

Linking Technology and the Market: Six Keys to Success (II)

• Personalization: They are better tailored than the dominant models to customers’ individual and immediate needs.
• Closed Loop: Replace a linear consumption process with a closed loop, in which used products are recycled.
• Asset Sharing: Some innovations succeed because they enable the sharing of costly assets. For example, Airbnb allows home owners to share them wit

Linking Technology and the Market: Six Keys to Success (III)

• Usage-based Pricing: Some models charge customers when they use the product or service, rather than requiring them to buy something outright
• Collaborative Ecosystem: Technology improves collaboration with supply chain partners and helps allocate business risks more appropriately
• Agility: Move away from traditional hierarchical models of decision making in order to make decisions that better reflect market needs and allow real-time
  adaptation to changes in those needs.

Linking Technology and the Market: Six Keys to Success (IV)
Linking Technology and the Market: Six Keys to Success (V)
Linking Technology and the Market: Six Keys to Success (VI)

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Linking Technology and the Market: Six Keys to Success (VI)

UBER can claim five of the six key features:

• Personalization: Rating of drivers via mobile device.
• Asset Sharing: Drivers use their own cars.
• Usage-based Pricing: Mobile device directs drivers to locations where the
  probability of finding a fare is high.
• Collaborative Ecosystem: Drivers assume the risk of winning rides, while the
  platform helps minimizing that risk through
  application of big data.
• Agility: Internal decision-making system responds to
  market changes in real time.

Question 12

Technology

Question 13

Technology

Technology and Management Methods: Agile Working

Answer 13

Technology and Management Methods: Agile Working (I)

• Agile Innovation methods have revolutionized information technology
• They are a radical alternative to command-and-control-style
  management
• Agile methods such as scrum, kanban, and lean development are
  spreading beyond IT to other functions

Technology and Management Methods: Agile Working (II)

Compared with traditional management approaches, agile working offers a number of major benefits, all of which have been studied and documented:

• increases team productivity and employee satisfaction
• minimizes the waste inherent in redundant meetings, repetitive planning, excessive documentation
• brings the most valuable products and features to market faster and more predictably, and reduces risk

Technology and Management Methods: Agile Working (II)

• By engaging team members from multiple disciplines as collaborative peers, it broadens organizational experience and builds mutual trust and respect
• By reducing the time squandered on micromanaging, it allows to devote themselves more fully to higher-value work and improves motivation

Question 14

Technology

Technology and Management Methods: Agile Manifest

Answer 14

• People over processes and tools
• Working prototypes over excessive documentation
• Respond to change rather than follow a plan
• Customer collaboration over rigid contracts

Question 15

Technology

Technology and Management Methods: Agile Conditions (I)

Technology and Management Methods: Agile Scrum Framework
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Answer 15

Conditions:
- Market environment

Favorable:
- Customer preferences and solution
options change frequently

Unfavorable:
- Market conditions are stable and
predictable

Conditions:
- Customer involvement

Favorable:
* Close collaboration and rapid
feedback are feasible
* Customers know better what they
want as the process progresses

Unfavorable
- Requirements are clear from the
outset and will remain stable
- Customers are unavailable for
constant collaboration

Conditions
- Modularity of
work

Favorable
* Incremental developments have
value, and customers can use them
* Work can be broken into parts and
conducted in rapid, iterative cycles
* Late changes are manageable

Unfavorable
* Customers cannot start testing
parts of the product until
everything is complete
* Late changes are expensive or
impossible

Conditions
- Innovative type

Favorable
* Problems are complex, solutions are
unknown, and the scope isn‘t
clearly defined
* Product specifications may change
* Creative breakthroughs and time to
market are importan

Unfavorable
* Similar work has been done before,
and innovators believe the solutions
are obvious
* Detailed specifications and work
plans can be forecast with
confidence and should be adhered
to
* Problems can be solved sequentially
in functional silos

Conditions:
- Impact of interim
markets

Favorable
* They provide valuable learning

Unfavorable
* They may be catastrophic

Question 16

Motivation

Defining Motivation

Answer 16

Motivation: The processes that account for an individual’s intensity, direction, and persistence of effort toward attaining a goal.

Three key elements of motivation:

• Intensity describes how hard a person tries
• Direction describes the focusing of effort towards
  (organizational) goals
• Persistence measures how long a person can maintain effort

Question 17

Motivation

Recap From 1st Lecture: Neoclassical Human Relations Approach (I)

Answer 17

Recap From 1st Lecture: Neoclassical Human Relations Approach (I)

Employees act as the fundamental resource of organizations:
* Motivation
* Creativity
* Willingness to cooperate

Employees are therefore crucial to the performance of organizations

Recap From 1st Lecture: Neoclassical Human Relations Approach (II)

• If the organizational design is based on the perspective that
  employees dutiful execute their tasks, the organizational design may
  lead to a waste of capabilities and may be counterproductive.
• Organizational design is more than just a control equipment
  (to ensure efficient workflow):

➡️ Organizational designs have to foster motivation
and employees’ initiative!

Question 18

Overview: Motivational Theories (I)

Answer 18

Employee motivation is one of the most important factors influencing
organizational performance.

Within the last decades, many motivational theories arose

Two broad categories of motivation theories can be classified:

• (Early) content theories emphasize what motivates
  individuals
• (Contemporary) process theories emphasize the actual process
  of motivation

Overview: Motivational Theories (II)

Content Theories
1. Hierarchy of Needs
2. Theory of Needs
3. Theory X vs. Y
4. Two-Factor Theory
5. Self-Determination Theory

Process Theories
6. Goal-Setting Theory
7. Self-Efficiency Theory
8. Equity Theory
9. Theory of Organizational Justice
10. Expectancy Theory

Question 19

2. Theory of Needs
3. Goal-Setting Theory

Answer 19

2. Theory of Needs

According to Mc Clelland (1961), achievement, power, and affiliation
are three important needs that help to explain motivation:

• Need for achievement: The drive to excel, to achieve in relationship
  to a set of standards, and to strive to succeed.
• Need for power: The need to make others behave in a way in
  which they would not have behaved
  otherwise.
• Need for affiliation: The desire for friendly and close interpersonal
  relationships

6. Goal-Setting Theory: Introduction

Intentions to work toward goals are a major source of work motivation.

Goals tell an employee what needs to be done and how much effort is
needed.

Research reveals:
* Specific goals increase performance more than unspecific goals
(“Do your best”).
* Easier goals are more likely to be accepted.
* Difficult goals, when accepted, result in a higher performance than easy
goals.
* Feedback leads to a higher performance than non-feedback.

6. Goal-Setting Theory: Cascading of Objectives

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Summary: What can we Learn from these Theories? (I)

• Note: Many of the presented theories can be regarded as
  complementary.
• All theories highlight different aspects of employee’s motivation: Organizational management has to ensure that all aspects of employee’s motivation are considered in the organizational design.

How can organizations consider all aspects that accelerate employees’
motivation?
* Two modelling approaches try to integrate these organizational
theories into one framework:
* Integration Approach by Robbins and Judge
* Job Characteristics Model

a. Integration Approach by Robbins & Judge (2014)

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Question 20

Job Characteristics Model (I): Five Core Dimensions

Answer 20

1. Skill variety is the degree to which a job requires a variety of
   different activities.
2. Task identity is the degree to which a job requires the
   completion of a whole and identifiable piece of
   work.
3. Task significance is the degree to which a job affects the lives or
   work of other people.
4. Autonomy is the degree to which a job provides the worker
   with freedom in scheduling work and procedures
   of task execution.
5. Feedback is the degree to which carrying out work
   activities generates direct and clear information
   about the own performance.

➡️ If jobs lack on one (or more) core job dimensions,
employees typically have lower levels of motivation

Job Characteristics Model (III)

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Question 21

Leadership

Question 22

Leadership

Leadership

Answer 22

• Organizational Leadership is the ability to influence a group toward
  the achievement of a vision or a set of goals.
• It is important to mention that neither all leaders are managers,
  nor all managers are leaders.
• Organizations need strong management and strong leadership for
  optimal effectiveness.

Question 23

Leadership

Managing vs. Leading (I)

Answer 23

• It is important to appreciate the difference between leadership and
  management in order to fully understand what leadership is about.

➡️ “Leaders manage and managers lead but the two activities are not synonymous”.

• Managers typically perform functions associated with planning,
  investigating, organizing and controlling, while leaders deal with
  interpersonal aspects of a manager’s job.

➡️ Leaders inspire others, provide emotional support, and try to get employees to rally around a common goal.

Managing vs Leading (II)

Managers
1. Wait until it happens
1. Are happy with the status quo
1. Are pursuing objectives
1. Are experts of the past
1. Do the things right
1. Follow their job description
1. Respect budgets
1. Avoid mistakes
1. See information as power
1. Are myopic
1. Are difficult to reach
1. Adore status symbols
1. Use reward and punishment

Leaders
1. Are pro-active
1. Challenge the status quo
1. Have a vision
1. Are experts of the future
1. Do the right things
1. Change their job description
1. Create value
1. Seek learning opportunities
1. Share information
1. Take the broad view
1. Are approachable
1. Want the best for all
1. Inspire and motivate

Question 24

Leadership

Trait Theories

Behavioral Theories

Answer 24

Trait Theories
* Traits are distinctive characteristics that distinguish leaders from
non-leaders.
* Throughout the history, strong leaders have been described by their
traits. Trait theories of leadership focus on personal qualities and
characteristics.
* A research review in the late 1960s identified nearly 80 leadership
traits. A breakthrough came with the Big Five Personality Framework
(most of the dozens of traits fit under one of the Big Five).

Behavioral Theories
* Trait research provides a basis for selecting the right people for leadership. In contrast, behavioral theories of leadership imply one can train people to be leaders.
* The most comprehensive theories resulted from the Ohio State
Studies in the late 1940s, which sought to identify independent
dimensions of leadership behavior.
* The Ohio State Studies identifies behavioral differences between
effective and ineffective leaders.

Behavioral Theories: Four Leadership Styles Derived from the Ohio State Studies
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Question 25

Leadership

Contingency Theories

Answer 25

• Some leaders may have the right traits or display the right behaviors
  and still fail. As important as traits or behaviors are in identifying
  effective or ineffective leaders, they do not guarantee success.
• Context matters, too, which has given rise to the contingency
  theories.

There are 4 relevant contingency theories:
* The Fiedler model
* Situational theory
* Path-goal theory
* Leader-participation model

Question 26

Leadership

The Fiedler Model (I)

Answer 26

The Fiedler contingency model proposes that effective group performance depends on:

• a proper match between a leader’s style or interacting with subordinates
• the degree to which the situation gives control and influence to the leader

The Fiedler Model (II)

The model states that there is no best style of leadership. Instead, a leader’s effectiveness is based on the situation. This is the result of two factors:
* leadership style
* situational favourableness

Question 27

Leadership

Situational Leadership Theory

Answer 27

• This theory focuses on the followers. It says successful leadership
  depends on selecting the right leadership style contingent on the
  followers’ readiness.
• The fundamental underpinning of the situational leadership theory is
  that there is no single “best” style of leadership, because leadership
  depends upon each individual situation.
• Effective leadership therefore varies, not only with the person or
  group that is being influenced, but it also depends on the task, job or
  function that needs to be accomplished.

Question 28

Leadership

Path Goal Theory

Answer 28

• This theory states that it is the leader’s job to assist followers in
  attaining their goals and to provide the necessary direction and/or
  support to ensure that their goals are compatible with the overall
  objectives of the group or organization.
• The theory also states that a leader’s behavior is contingent to the
  satisfaction, motivation and performance of her or his subordinates.

In particular, leaders:
* Clarify the path so subordinates know which way to go.
* Remove obstacles that are stopping them going there.
* Increase the rewards along the route.

Question 29

Leadership

Leader-Participation Model

Answer 29

• This theory provides a set of rules to determine the form and
  amount of participative decision making in different situations.
• The situational theory argues the best style of leadership is
  contingent to the situation.
• The Leader-Participation Model is highly flexible with respect to the
  choices a leader can make. The range is from highly dictatorial to
  democratic.

Question 30

Leadership

Transactional and Transformational Leadership

Answer 30

Transactional leaders
* Are those, who guide their followers toward established goals by
clarifying role and task requirements.
Transformational leaders
* Inspire followers to transcend their self-interests for the good of the
organization. Transformational leaders can have an extraordinary
effect on their followers.

Transactional and transformational leadership complement each other. Transformational leadership builds on transactional leadership.
➡️ The best leaders are transactional and transformational.

Transactional and Transformational Leadership (II)
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Question 31

Leadership

Authentic Leadership

Answer 31

• Authentic leaders know who they are, know what they believe in and
  value, and act based on those values and beliefs.
• Their followers consider them ethical people. Trust is produced by
  authentic leadership.
• Authentic leaders share information, encourage open
  communication, and stick to their ideals.
  The result: People develop faith in them.
• There has been limited research on authentic leadership up to date.
  However, recent research indicates that authentic leadership creates
  a positive energizing effect.

Question 32

Leadership

Ethical Leadership

Answer 32

• Ethical Leadership is leading by knowing and doing what is right. The
  problem with ethical leadership is that it is difficult to define “right”.
• After all, there is no universal standard for ethical behaviour, and
  ethical norms vary by culture, by industry, and even sometimes within
  an organization.