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Organizaing for innovation

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This paper seeks to shed light on the management complexity of technology advance projects from an organizational point of view. It focuses on innovating organizations that develop products based on …

This paper seeks to shed light on the management complexity of technology advance projects from an organizational point of view. It focuses on innovating organizations that develop products based on disruptive new technologies. The paper examines different organizational configurations, for the purpose of finding an optimal organization which fits to its business environment. It identifies factors of the business environment that particularly influence the organizational variables of structure, culture, processes and resources of such an organization. The paper selects an organizational configuration that is considered optimal for the innovating organization as described. The paper also looks into the management style and key competencies of the successful leader of such an organization and emphasizes the significance of these.


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  • 1. Moatasem Chehaiber Organizing for Innovation Course in project leadership, Niels Brock institute in Copenhagen -Denmark A Theoretical Approach Supervised By: Tomas Nordlund 08-12-2009  Project management has to deal with the continuous development of general trends in worldwide economics. In the past decade, project management was confronted with the globalization trend, and the complexity it introduces to the macro environment of projects. By the start of this decade, project management was greatly concerned with velocity, and towards the end of the decade, facing an economic recession, eyes are attracted to projects that can return the world economy to speed. In Denmark there is an immediate need for projects in this category, as a means to achieve the objective set by the prime minister to restore the country to its position between the ten richest countries in the world by the year 2020. An objective proving hard to reach in light of the latest prognosis recently published by the EU commission. The prognosis sends Denmark back to a 27 th place with an annual growth rate (BNP) of only 1.6 % throughout the next decade. Technology advance projects help speeding up economics and hence they are increasingly gaining attention. However these projects and their organizations are generally surrounded by a highly dynamic and volatile business environment to which they need to adapt in continuous struggle to survive and succeed.
  • 2. Contents SYNOPSIS....................................................................................................................................................................................3 THE INNOVATING ORGANIZATION...........................................................................................................................................4 ORGANIZATION DESIGN STRATEGIES ......................................................................................................................................4 SELECTION OF STRATEGIC CONFIGURATIONS ....................................................................................................................5 STRUCTURAL AND ENVIRONMENTAL CO-REQUISITES .................................................................................................7 CONFIGURATION OF STRATEGY AND STRUCTURE ..................................................................................................... 10 LEADING THE INNOVATING ADHOCRACY............................................................................................................................ 11 ANNEX A; THE MINTZBERG FRAMEWORK ........................................................................................................................... 16 THE ADHOCRACY CONFIGURATION (ORGANIC STRUCTURE) .................................................................................. 17 ANNEX B COOPING WITH TASK UNCERTAINTY ................................................................................................................... 18 LITERATURE LIST ................................................................................................................................................................. 20
  • 3.  Organizing For Innovation; Moatasem Chehaiber Synopsis Technology advance projects are viewed as vehicles for creating better business value for their companies and stakeholders. Hence they bear significance to the strategic positioning of companies. They are often used to create product platforms upon which companies build product lines and variations of products for a long time. Technology advance projects are also most often treated as foundations for startup companies that usually have plans to survive, succeed and grow up. Mainly due to increased uncertainty in market response to the products of such projects, and uncertainty in the technology, technology advance project organizations face a higher level of complexity in their business environments than established organizations in terms of markets and technology. This added complexity presents a higher challenge to the managers of these projects in their effort to make sense of an uncertain world and build viable project organizations to carry out the work to develop and implement the project idea in the business world. Project management and organization theory text books; prescribe a number of different organization types, ranging from organized anarchy and simple organizations to highly bureaucratic ones. Theorists argue the suitability and effectiveness of the different organizational configurations to specific business environmental situations. This paper seeks to shed light on the management complexity of technology advance projects from an organizational point of view. It focuses on innovating organizations that develop products based on disruptive new technologies. The paper examines different organizational configurations, for the purpose of finding an optimal organization which fits to its business environment. It identifies factors of the business environment that particularly influence the organizational variables of structure, culture, processes and resources of such an organization. The paper selects an organizational configuration that is considered optimal for the innovating organization as described. The paper also looks into the management style and key competencies of the successful leader of such an organization and emphasizes the significance of these.  page 3
  • 4.  Organizing for innovation The Innovating organization Jay R. Galbraith, an internationally recognized expert on organization design, defines innovation as the process of applying and developing a new idea to create a new product, process or business. It is not simply having an idea. It is the work to develop and implement that idea in the business world (Galbraith 1994). Galbraith finds that, there are different degrees of “newness” and therefore different kinds of innovations, and he states that different kinds of innovations will need different kinds of organizations. fig. 1 shows the different types of innovations as seen by Galbraith. The types of innovations at the left side of the figure are radical innovations and require correspondingly “radical innovating” organizations. Technology advance project organizations are per definition innovating organizations, and the innovating organizations working with radical innovations are defined as radical innovating ones in this paper. fig. 1 TYPES OF INNOVATION -Galbraith (1994) Organization Design strategies A considerable amount of research in the subject of determining the best organizational configuration, led to the contingency theory on the organization. The theory holds the following suggestions: 1. There is no universal way or one best way to manage an organization 2. The design of an organization and its subsystems must fit with the environment. 3. Effective organizations not only have a proper fit with the environment, but also between its subsystems 4. The needs of an organization are better satisfied when it is properly designed and the management style is appropriate both to the tasks undertaken and the nature of the working group. The Contingency theory is guided by the general orienting hypothesis that organizations whose internal features best match the demands of their environments, will achieve the best adaptation (Scott p. 89). Lawrence and Lorsch in 1967 argued that the amount of Page 4
  • 5.  Organizing For Innovation; Moatasem Chehaiber uncertainty and rate of change in an environment, impacts the development of internal features in organizations. Radical organizations tend to develop towards relatively stable rational ones in an incremental and adaptive manner, the innovating organization needs on a rough scale, to adapt to changing business environments, following the life cycle of its innovation from radical childhood in disruptive new technology, to complete maturity in becoming a style, through incremental phases of developing new business models, new products, next generations, line extensions and product improvements. These are the different types of innovations identified by Galbraith (1994) and depicted in fig. 1 as a continuum. On a finer scale, a technology advance organization wants to adapt to business environmental changes at each individual phase or level of radicalism and/or incremental level of innovation. In other words, an innovating organization which sees its innovation as a continuum, needs to adopt both long term and short term organizational adaptation strategies, that lead to an optimal organization at all times. These strategies assume that organizations are open systems that are affected by business environments and influence them. The strategies therefore take into account the current and anticipated business environment of the organization. The business environment includes micro environmental factors which have direct impact on the organization strategy such as customers, employees, suppliers, shareholders, media and competitors as indicated in fig. 2. The adaptation strategies need naturally also to take into account, the macro environmental factors that in turn, have impact on the organization’s micro environment and the organization itself. These factors are socio-cultural, technological, economical, legal and political as shown in fig. 2. These Macro environmental factors were identified by the PESTEL framework as environmental influences on organizations. Selection of strategic configurations In a manner to achieve internal harmony among the elements of strategy, structure and context of the organization, theorists have been trying to make science out of how to design and configure an organization according to the environmental variables in fig. 2. Henry Mintzberg is a situational theorist in the sense that he concentrates on how environmental variables influence the configuration of an organization. He defines a number of six organizational configurations depending on external and internal situational factors. In his research, Mintzberg finds four main variables of significant impact on the organization form. The first variable is stability as function of other variables such as change in customer preferences, swift technology development and political interference. The second main variable is complexity, which is concerned with the requirements put on the organizations expertise and technology. Referring to the PESTEL framework and fig. 2, the complexity factor belongs to the macro environment layer. The third main variable is Market Heterogeneity, with respect to customers, products and geographical regions. The fourth main variable is Hostility, measured in presence of competition and other types of conflicts. Hostility is a variable found in the industry/sector layer of the business environment as in fig. 2. Mintzberg concludes for example that hostility creates uncertainty for organizations and puts requirements to the “speed of response” design variable of an organization.  page 5
  • 6.  Organizing for innovation The Organization Markets, Competitors, customers, shareholders, employees, media, suppliers Industry or sector The Macro-environmet: Socio-cultural, Technological, Economical, Political fig. 2 Layers of the business environment In table 1, a summary of Mintzbeg’s six standard configurations and the situational environmental factors that justify them and their design parameters. Mintzberg combines his main variables to characterize different types of business environments and recommends organizational to specific environment types as shown in an example in fig. 3 Using Mintzbeg’s six standard configurations, and by assuming that there are only a rather limited number of possible strategies and structures feasible in any type of environment, it then should be straightforward to select an organizational configuration at a given moment of an organizations life cycle that best fits the business environment of the organization at that moment. An analytical approach is used where the business environment at the given moment can be determined by analysis of Mintzberg’s four variables. When this is done the basic dimensions of the selected configuration can be determined using table 1 which shows these dimensions for each of the six configurations. So by finding the environmental and structural co-requisites of the innovating organization we would be able to select one of Mintzberg’s organizational configurations as an optimal match. Tables summarizing structures, environments and strategies of the different organizational configurations are provided in Annex A. The annex also includes summary tables of matching strategy and structures for five of the organizational configurations. These tables are used to aid selection of the optimal configuration. Page 6
  • 7.  Organizing For Innovation; Moatasem Chehaiber Situational factors Design parameters Configuration Environment internal Typical Key Typical Complexity structure processes relations Hostility Simple Simple/dynamic Small. CEO control Direct Centralized Hostile Young. supervision Simple tasks Machine Simple/static Old. Functional Planning Centralized bureaucracy Large. systems strategic Regulated planning tasks. Technocrat control. Professional Complex/static Simple Functional Cultural Devolved bureaucracy systems. processes. Professional Self control. control. Division Simple/static Old. Multidivisional Performance. Devolved. organization Diversity Very large. Targets. Financial or Divisible Markets. strategic control tasks. Middle-line control. Often young Adhocracy Complex/Dynamic Complex Projects Cultural Networks and (innovative tasks. processes. alliances. organization) Expert control Self-control Devolved table 1 Mintzberg’s six configurations Complex Static Environment Dynamic Environment Environment Professional Adhocracy bureaucracy Simple Machine bureaucracy Simple Environment fig. 3 Organizational configurations and environments by Mintzberg (Example) Structural and environmental co-requisites Some of the important contingency theories of organizational structure involve the three contingencies of the environment, organizational size and strategy to determine the optimal organization. We could adapt and extend Mintzberg’s frame work to make it easy to relate it to these three contingencies in order to determine the optimal organizational configuration for a radical innovating organization. An adapted and extended frame work is presented in Annex A. In the annex the professional Bureaucracy configuration is discarded as it is usually not suitable for business firms.  page 7
  • 8.  Organizing for innovation table 2 Basic dimensions of mintzberg's six configurations Simple Machine Professional Divisionalize Adhocracy Missionary Structure Bureaucracy Bureaucracy Form Key Direct Standardization Standardization of Standardization Mutual Standardizatio Coordinating Supervision of work skills of outputs adjustment n of norms Mechanism Key part of Strategic Apex Techno structure Operating Core Middle Line Support Staff Ideology organization Design Parameters Specialization Little Much Horizontal Much Horizontal Some horizontal Much Little of jobs specialization and vertical specialization and Vertical Horizontal specialization specialization Specialization specialization (between divisions and HQ) Training Little Little Much Little much Little Indoctrination Little Little Much Some of Some much divisional managers Formalization Little Much formalization Formalization Little Little formal of behavior formalization Formalization Bureaucratic Organic Bureaucratic Bureaucratic Bureaucratic Organic Bureaucratic /Organic (within divisions) Grouping Usually Usually Functional and Market Functional and Market functional functional Market Market Unit Size wide Wide at bottom Wide at bottom Wide at top Narrow Wide in Narrow Narrow elsewhere Throughout enclaves of elsewhere limited size Planning and Little planning Action planning Little planning and Much perf. Limited action Little Planning control and control control control planning and Control systems Strategy contingency Galbraith states that organizations have always been created in order to execute business strategies. Different strategies, he says, have lead to different organizations. He stated a model for linking different strategies to different organizations. This model is known as the starr model and is shown in fig. 4. The figure depicts an organization as consisting of four dimensions that must be consistent with the strategy. The first of these dimensions is the Structural dimension which determines the location of the decision- making power. The strategy contingency affects the divisional structure; undiversified strategy is best served by a functional structure, because all activities are focused on a single product. In contrast, divisional structure fits diversified strategies. The second dimension is the Information and decision making process which in turn is formed following the organization structure, whether functional or divisional. The third dimension is the reward system that influences the motivation of people to perform and address organizational goals. Reward systems in innovating organizations gain an added significance. Innovation is viewed as requiring extra effort and extra risk and therefore merits extra rewards. The last but not least of the four dimensions is the people dimension which focuses on the human resources policies. These influence the employees’ mindsets and skill sets. A product centric organization for example, requires different competencies in people than a solution-centric organization. Page 8
  • 9.  Organizing For Innovation; Moatasem Chehaiber fig. 4 The Starr model (Galbraith 1995) Competitive strategy Analyzing the competitive strategy of Innovating organizations we find that they adopt a focus strategy. Focus has been used by Porter (1980) to designate a niche strategy that concentrates the firm’s attention on a specific type of customer, product or geographic location. They use a differentiation strategy and build their competitive advantage on innovating differentiators. They differentiate by coming out with new products and new technologies. In innovating organizations there is a strong emphasis on R&D and pioneering. Therefore a Cost leadership strategy is not relevant, because innovative organizations lead their competitors in innovation and can charge fairly high prices. Innovating organizations adopt asset parsimony strategy because they want to keep the organization flexible. Environment stability The environmental stability contingency affects mechanistic structure. The rate of technological and market change affects whether its structure is mechanistic (i.e. hierarchal) or organic (i.e. participatory). Refer to Burns and Stalker (1966) for differences between organic and mechanistic organization structures. The mechanistic structure fits a stable environment. The organic structure fits an unstable environment because the participatory approach is required for innovation. An organic organization appears to be more suitable for radical innovating organizations such as technology advance organizations, as knowledge and information required for innovation are distributed among lower hierarchical levels and so decentralized decision making fosters innovation. Besides, the organic structures also accord better with humanistic values. The organic theory sees the trend as being for task uncertainty to increase, because of increase in scientific knowledge and innovation rates. The organic theory foresees decreasing specialization and formalization which is needed for radical innovating organizations when new knowledge have to be acquired and new methods have to be developed. Increasing task uncertainty renders the innovating organizations’ business environment highly dynamic. A main contributor to the volatility of the business  page 9
  • 10.  Organizing for innovation environment is the uncertainty about market acceptance and degree of penetration of innovative products. However, of particular interest in studying macro environmental factors that affect a technology advance project organization from an environmental stability point of view is the technology. Joan Woodward (1958), argued that technologies directly determine differences in organizational attributes such as span of control, centralization of authority and the formalization of rules and authority. These attributes constitute an essential part of the organization design strategy as suggested by Galbraith. See annex B for more on this. Innovating organizations depend greatly on new ideas and disruptive new technologies in innovation. Such organizations are designed to do some activity for the first time. They are designed to test a new product idea with a customer or a proof of principle for a new technology. Technological decisions have to be made on the basis of incomplete market and technical information. Hence the innovating organization is structured to cope with a high level of task uncertainty. The organization allows for variations in the organizational forms and variations in the strategy in order to either increase ability to preplan, increase flexibility to adapt to inability to preplan, decrease the level of performance required for continued viability or increase information processing capabilities of the organization. Annex B illustrates organization design strategies proposed by Galbraith for the purpose of mitigating task uncertainty. Size contingency The size contingency affects the degree to which its structure is bureaucratic. The bureaucratic structure fits a large organization, while an un-bureaucratic structure fits small organizations. The size contingency directly affects the resources variable of the organization. Human Resources, in small organic organizations have to be highly qualified, as the central issue is high experience and knowledge of subject matter. Again as organizations grow in size they increase specialization-formailization, structural differentiation and decentralization and a more bureaucratic organization will fit. The size contingency also affects the organizations culture variable as well as processes variable. The culture in small organizations is based on democratic and non-bureaucratic work as well as effectiveness and participation. Configuration of strategy and structure In innovative organizations, knowledge and information required for innovation are distributed among lower hierarchical levels, and so decentralized decision making fosters innovation. Scientists and technocrats are allowed to make vital decisions and they are usually highly qualified and motivated to a degree where they can work autonomously and adjust mutually. Authority is thus situational and based on expertise (Burns and Stalker, 1961). There are few bureaucratic rules or standard procedures since they are too confining and would rapidly become obsolete. Sensitive information gathering systems are developed for analyzing the environment, and vertical and horizontal communication are open and frequent. Effective innovating project organizations are small in terms of number of employees. These organizations build their competitive advantage strategies on focus, asset parsimony, innovating differentiators and non-cost Page 10
  • 11.  Organizing For Innovation; Moatasem Chehaiber leadership. Moreover, innovating organizations live in a highly complex, dynamic and volatile business environment mainly because of increase in scientific knowledge and innovation rates as well as market and technology uncertainty. Production technology varies in both degree of automation and complexity. The main barrier to entry for these organizations is knowledge; As a result, competitive rivalry is less sensitive for these organizations. The business environment can therefore be defined as complex, uncertain and moderately competitive. As a result of the preceding analysis, an organic organization appears to be more suitable for radical innovating organizations such as technology advance project organizations. Taking all of these characteristics into consideration, and studying matches and conflicts between these characteristics and the characteristics of the different Mintzberg’s organizational configurations as illustrated in Annex A, we tend to conclude that the Adhocracy configuration provides the best structural match to the strategies of the innovative organization. Leading The Innovating Adhocracy It was previously concluded that the optimal organizational match for the innovating organization is the adhocracy. Taking the main traits of the adhocracy organization and culture into consideration, a leader of such an organization has the challenge to manage in the situation where there is a little formalization of behavior, Job specialization is based on formal training, there is a reliance on liaison devices to encourage mutual adjustment, there is Low standardization of procedures, because they stifle innovation. It is a situation, where Roles are not clearly defined and power-shifts to specialized teams, where culture is based on democratic and non-bureaucratic work. It is a situation where ultimately all members of the organization have the authority to make decisions and to take actions affecting the future of the organization, and there is an absence of hierarchy. Mangers in these organizations are functional members of project teams with special responsibility to effect coordination between them. To the extent that direct supervision and formal authority diminish in importance. Obviously, leading such an organization is not as easy as leading in a bureaucracy where hierarchies, roles, process and -not the least- authorities are well defined. However, In short terms, managing an innovating adhocracy, requires flexibility and discretion in management style, as much as it requires external focus and differentiation in business strategy as suggested by Quinn (1999). Managing adhocracy is in fact managing innovation, and continuous improvement. It is about managing the future. In Quinn’s competing value frame work (1999) diagram shown in fig. 5, each quadrant represents basic assumptions, orientations, and values. These are the same elements that comprise an organizational culture. The leadership type, effectiveness criteria and management theory underpinning each of these cultural types provide an understanding of the organizational behavior expected in each cultural type. The leadership type in the clan culture is one of a facilitator, mentor or parent role. Managers assess their effectiveness in terms of staff cohesion, the level of morale and  page 11
  • 12.  Organizing for innovation the focus is on the development of people in the organization. The managerial assumptions are that participation and involvement fosters commitment. In the hierarchy culture the leadership type is coordinator, monitor and organizer. Effectiveness criteria are efficiency, timeliness and smooth functioning of the organization. The managerial assumptions are that control fosters efficiency in the organization. fig. 5 The competing values Framework (Cameron and Quinn 1999, p. 32) In the market culture the leadership type is that of the hard-driving, competitive and productive manager. They judge their effectiveness on market share, goal achievement and beating their competitors. The managerial assumptions they hold are that competition fosters productivity. (Cameron & Quinn 1999, p. 41) Leadership type in the adhocracy culture is that of the innovator, entrepreneur and the visionary. Managers in this culture base their effectiveness on the organization’s cutting- edge output. It is about new products, creative solutions, cutting-edge ideas and growth in new markets. They value adaptability, innovation, responsiveness to external threats and opportunities. They value resource acquisition and external support. The managerial assumptions are based on the belief that innovativeness fosters new resources. So besides mastering situational leadership, Leaders of innovating adhocracies need visionary leadership characteristics to be able to motivate and inspire people. In his book Page 12
  • 13.  Organizing For Innovation; Moatasem Chehaiber primal leadership (2002), Daniel Goleman prescribes situations where different leadership styles can be efficient as summarized in table 3. He however, states that Effective leaders create resonance, “they are attuned to other people’s feelings and move them in a positive emotional direction”, he says. Daniel Goleman introduces six leadership styles as stated in table 3. In the table, Goleman finds the visionary leadership style as having the most positive impact on business climate. A visionary leader is not just a manager; he or she is a transformational leader who does the right thing in contrast with a transactional leader who does things right as illustrated in fig. 6. The visionary leader is future oriented in thinking, focuses on where the organization is going and emphasizes possibilities and probabilities. Strategic direction and continuous improvement of current activities is the hallmark of the visionary leadership style. •Transactional Leadership •Administer Managers: •Maintain •Focus on system and controls Do things right •Ask how and when •Keep an eye on the bottom line •Transformational Leadership •Innovate Leaders: •Develop •Focus on people •Inspire Do right things •Create trust •Ask why and what •Long term view and eye on horizon fig. 6 Managers and Leaders A visionary leader affects the group performance by his psychological orientation and positive attitude. Fred Fielder one of the leading theorists in industrial and organizational psychology, who helped his field move from the research of traits and personal characteristics of leaders to leadership styles and behaviors. He asserts that group performance is contingent on the leader’s psychological orientation and on three contextual variables: Group atmosphere, task structure, and leaders power position. The theory explains that group performance is a result of interaction of 2 factors. These factors are known as  page 13
  • 14.  Organizing for innovation leadership style and situational favorableness. A recent study conducted at the Capella university in Minneapolis in the united states, concludes that transformational leadership is significantly and positively related with subordinates’ self-reported perception of their leaders’ effectiveness. The study confirms that transformational leadership traits increased subordinates’ job satisfaction with their leader, more than both transactional and laissez-fare leadership traits in the project management environment. The study also concludes that, Subordinates’ Willingness to exert extra effort is significantly and positively correlated with transformational leadership and transactional (active) traits, while negatively and significantly associated with transactive (passive) and laissez-faire. table 3The six leadership style From Daniel Goleman, Richard Boyatziz, Annie McKee; Promal leadership (2002) Visionary Coaching Affiliative Democratic Pacesetting Commanding leadership style Leadership Leadership Leadership Leadership Leader Inspires. Listens. Helps Promotes Superb Strong urge to Commanding Characteristics Believes in people harmony. listener, team achieve. High Threatening own vision. identifying Friendly. worker, own standards, Tight control Empathic. their own Empathic. Collaborator, initiative, low Create Explains how strengths and Boosts moral. influencer on empathy dissonance, and why weaknesses. Solves and contaminates peoples Counselor. conflicts collaboration., everyones efforts Encourages. Impatience, mood contribute to Delegates numbers driven Drives away the “dream” talent How Style Moves people Connects Create Appreciate Realizes Decreases fear Builds towards what a harmony by peoples input challenges and by giving clear Resonance shared person wants connecting and gets exciting goals direction in an dreams with the people to commitment emergency organization’s each other through goals participation Impact of style +++ ++ + + Often -- Often - - on (business) when used too climate exclusively or poorly When style is When To help To heal rifts in To build To get high In a grave crisis appropriate changes competent, a team and support or quality results or with problem require a new motivated motivate consensus or from motivated employees. To vision or employees to during to get valuable and competent start an urgent when a clear improve stressful times input from team. Sales organizational direction is performance or to employees turnaround. needed. by building strengthen Traditional Radical long term connections military change capabilities In order to improve the leadership effectiveness, Fiedler suggests the leader may increase or decrease task structure and position power. He or she may also enhance leader-member relations through training and group development. fig. 7, exhibits a set of managerial skills that can be gained by education to provide success factors that can help a leader improving her or his leadership effectiveness. Page 14
  • 15.  Organizing For Innovation; Moatasem Chehaiber Leadership Decision Project making planning Problem Customer solving relations Risk Performance management measurement Negotiating Communicating Organizational Perspective effectiveness Staff Team building development fig. 7 Managerial Education success factors  page 15
  • 16.  Organizing for innovation Annex A; The Mintzberg framework Simple Machine Adhocracy Divisionalized Structure Bureaucracy (organic) Power Centralization Top CEO and designers Scientists, Divisional executives management of workflow technocrats and middle managers Bureaucratization Low-informal Many formal rules, organic Bureaucratic policies and procedures Specialization Low Extensive Extensive Extensive Differentiation Minimal Moderate Very High High Integration and co- By CEO via By technocrats via By integrating By formal committees via plan ordination of effort direct formal procedures personnel, task and budgets supervision forces via mutual adjustment Information systems Crude, informal Cost controls and Informal scanning, Management information budgets open systems and profit centers communications Environmental Dimensions Technology Simple, custom Mass production, Sophisticated Varies large batch/Line product, Automated or custom Competition Extreme High Moderate Varies Dynamism/ Moderate Very low Very High Varies Uncertainty Growth Varies Slow Rapid Varies Concentration ratio Very Low High Varies Varies Barriers to Entry None Scales barriers Knowledge Varies Business level Barriers Corporate-level strategy strategies Favored strategy Niche Cost leadership Innovative Conglomeration differentiation differentiation Marketing emphasis Quality Low price New products image services, High quality convenience Production emphasis Economy Efficiency Flexibility Vertical integration Asset management Parsimony Intensity Parsimony Varies Innovation and R&D Little Almost none Very High Low to moderate Product-market scope Very narrow Average Average Very Broad Table A. 1 Structures, environments and strategies Page 16
  • 17.  Organizing For Innovation; Moatasem Chehaiber Rationale Match/ Strategy Conflict Can offer quality, convenience , and better service M Marketing differentiation Avoids some competition in hostile environments; reduces liability M Niche of being small differentiation Complex Innovation impossible in centralized monolithic C Innovative structure differentiation Insufficient scale; Overly primitive structure C Conglomeration Insufficient scale C Cost leadership Table A. 2 Matching strategy and structure in the Simple configuration Rationale Match/ Strategy Conflict Substantial scale economies possible; emphasis on efficiency good M Cost leadership in stable setting Suitable only if differentiation does not upset production M Marketing regularity and efficiency (e.g. advertising, good services) differentiation Structure too inflexible C Innovative differentiation Functional- departmental structure inappropriate C Conglomeration Inflexibility, capital intensity C Niche differentiation Table A. 3 Matching strategy and structure in the Machine Bureaucracy configuration Rationale Match/ Strategy Conflict Flexible, innovative structure M Innovative differentiation May be suitable if niche wide enough to make use of innovation potential; M Niche differentiation need for caution Should not squander resources on selling since state-of-the art is already C Marketing highly desirable to customers differentiation Structure is too inefficient C Cost leadership Would spread innovative efforts too thinly; also structure is not C Conglomeration divisionalized Table A. 4 Matching strategy and structure in the Adhocracy (organic) configuration Rationale Match/ Strategy Conflict Divisions, profit centers, formal plans; head office control etc. M Cost leadership suitable for diversification Consistent with bureaucratic tendency; scale economies and M Cost leadership vertical integration if divisions use related inputs Where cost leadership contraindicated marketing differentiation M Marketing may be suitable for intermediate level of bureaucracy differentiation Generally, divisions are forced by head office to be too C Innovative bureaucratic to be innovative differentiation Table A. 5 Matching strategy and structure in the Divisionalized structure configuration The Adhocracy configuration (Organic structure) Adhocracy provides a good fit to radical innovating organizations. It has a highly organic structure, with little formalization of behavior. Job specialization in adhocracy is based on formal training. There is a tendency to group the specialists in functional units for housekeeping purposes but to deploy them in small, market based project teams to do their work.  page 17
  • 18.  Organizing for innovation There is a reliance on liaison devices to encourage mutual adjustment. This is the key coordinating mechanism between these teams. To innovate, we must break away from established patterns. Therefore the innovative organization cannot rely on any form of standardization for coordination. Of all the configurations, the adhocracy shows the least respect for classical principles of management, especially unity of command. The adhocracy must hire experts and give them power. The adhocracy treats existing knowledge and skills merely as bases on which to build new ones, which can be hardly needed when dealing with disruptive new technologies. In adhocracies the different specialists must join their forces in multi-disciplinary teams, each formed around a specific project of innovation which is the main trait of radical innovating organizations. Project teams must be small to encourage mutual adjustment among their members. Mangers are functional members of project teams with special responsibility to effect coordination between them. To the extent that direct supervision and formal authority diminish in importance. The adhocracy can take two forms, the operating and the administrative adhocracy. The operating adhocracy serves its clients and solves problems on their behalf in project teams, while the administrative adhocracy undertakes projects to serve itself. Te operating adhocracy is suitable for consultancy firms and outsourcing partners. While the administrative adhocracy is suitable for organizations that want to develop their own products. Annex B Cooping with Task uncertainty Of particular interest in studying macro environmental factors that affect a technology advance project organization from an environmental stability point of view is the technology. The behavioral contingency theory associated formal organization structures with the best fit to technology. This was originally started by Joan Woodward (1958), who argued that technologies directly determine differences in organizational attributes such as span of control, centralization of authority and the formalization of rules and authority. Referring to Fig. B. 1, these attributes constitute an essential part of the organization design strategy as suggested by JAY R. GALBRAITH. Innovating organizations depend greatly on new ideas and disruptive new technologies in innovation. Such organizations are designed to do some activity for the first time. They are designed to test a new product idea with a customer or a proof of principle for a new technology. Technological decisions have to be made on the basis of incomplete market and technical information. Hence the innovating organization is designed for trial and error in a manner to cope with a high level of task uncertainty. The organization allows for variations in the organizational forms and variations in the strategy in order to either increase ability to preplan, increase flexibility to adapt to inability to preplan, Decrease the level of performance required for continued viability or increase information processing capabilities of the organization. Page 18
  • 19.  Organizing For Innovation; Moatasem Chehaiber Fig. B. 1 Organization design Strategies Fig. B. 1 shows organization design strategies proposed by Galbraith for the purpose of mitigating task uncertainty. The three strategies to the left of the figure are adopted to reduce the need for information processing while the remaining two strategies are adopted to increase the organization’s capacity to process information. A short description of some of these strategies is presented here. Creation of slack resources In this strategy, planning targets are increased so that fewer exceptions occur. For example, completion dates can be extended until the number of exceptions that occur are within the information processing capacity of the organization. The strategy clearly has it costs in the form of relaxing budget targets and increasing time to market and thus reducing competitive advantage. Creation of self-contained Tasks This strategy aims at changing the subtask groupings from resource (input) based to output based categories (product groups) and give each group the resources it needs to supply the output. (Galbraith 1974). The cost of the self-contained task strategy is the loss of resource specialization. Investment in vertical information systems This strategy is about finding mechanisms of formalized data vertically through the organization. It is usually operationalized by creating redundant communication channels which transmit data from the originating point upwards in the hierarchy to the decision makers. Creating Lateral Relationships This strategy is about moving the level of decision down in the organization to where the information exist.  page 19
  • 20.  Organizing for innovation Literature list 1. Gerry Johnson; Kevin Scholes; Richard Whittington; Exploring Corporate strategy 7th edition; prentice Hall 2. Olaf Passenheim; Project Management; BOOK BOON.. 3. 2008 NEIL RITSON . & Ventus Publishing ApS; Strategic Management; 2008 Benson V., Tribe K. & Ventus Publishi 4. JAY R. GalBRAITH; ORGANIZATION DESIGN: AN INFORMATION PROCESSING View; INETERFASE; Vol. 4, No.3, May 1974. 5. Daniel Goleman et al.; Primal leadership; Realizing the power of emotional intelligence. Page 20

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