Chapter 9

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Chapter

Chapter

Organizational AgilityOrganizational Agility

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McGraw-Hill/IrwinMcGraw-Hill/IrwinManagement, 7/eManagement, 7/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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Learning Objectives

After Studying Chapter 9, You will know Why it is critical for organizations to be

responsive. The advantages of an organic organization

structure. The strategies and dynamic organizational

concepts that can be used to improve an organization’s responsiveness.

How a firm can be both big and small. How firms organize to meet customer

requirements. How firms organize around different types of

technology.

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Organizational Agility

It is change, continuing change, inevitable change, that is the dominant fact in

society today. No sensible decision can be made any longer without taking into

account not only the world as it is, but the world as it will be.

- Isaac Asimo

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The Responsive Organization

In today’s fast-changing business environment, responsiveness – quickness, agility, the ability to adapt to changing demands – is vital to a firm’s survival

Two broad forms of organizational structure include Mechanistic organization – seeks to maximize

internal efficiency Organic structure – an organizational form

that emphasizes flexibility

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The Responsive Organization

Mechanistic Organization Organic Structure

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Strategy and Organizational Agility

Certain strategies, and the structures, processes, and relationships that accompany them, seem particularly well suited to improving an organization’s ability to respond quickly and effectively to the challenges it faces

These strategies and structures are based on: Core competencies Strategic Alliances The organization’s ability to learn The organization’s ability to engage all its people

in achieving organizational objectives

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Organizing around Core Competencies

Core competence is the capability—knowledge, expertise, skill—that underlies a company’s ability to be a leader in providing a range of specific goods or services

Successfully developing a world-class core competence opens the door to a variety of future opportunities; failure means being foreclosed from many markets

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Using the core competency model effects the organization Strategically it means the organization

should commit to excellence and leadership in competencies before they commit to winning market share

Organizationally this means that the corporation should be viewed as a portfolio of competencies, not just a portfolio of specific businesses

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Managers who want to strengthen their firms’ competitiveness via core competencies need to focus on several related issues: Identify existing core competencies Acquire or build core competencies that will be

important for the future Keep investing in competencies so that the firm

remains world-class and better than competitors Extend competencies to find new applications

and opportunities for the markets of tomorrow.

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Core Competencies

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Strategic Alliances

A strategic alliance is a formal relationship created with the purpose of joint pursuit of mutual goals

In a strategic alliance, individual organizations share administrative authority, form social links, and accept joint ownership

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Strategic Alliances

Companies form strategic alliances to develop new technologies, enter new markets, and reduce manufacturing costs

Alliances are often the fastest, most efficient way to achieve objectives

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Strategic Alliances

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The Learning Organization

Being responsive requires continually changing and learning new ways to act

Learning faster than the competition is the only sustainable advantage according to some experts

A learning organization is an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights

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There are 5 key ingredients to a learning organization Their people engage in disciplined thinking

and attention to details, making decisions based on data and evidence rather than guesswork and assumptions

They search constantly for new knowledge, looking for expanding horizons and opportunities rather than quick fixes to current problems

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5 key ingredients to a learning organization They carefully review both successes and

failures, looking for lessons and deeper understanding

Learning organizations benchmark—they identify and implement the best business practices of other organizations, stealing ideas shamelessly

They share ideas throughout the organization via reports, information systems, informal discussions, site visits, education, and training

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The High-Involvement Organization

Participative management is becoming increasingly popular as a way to create a competitive advantage

High-Involvement Organizations are a type of organization in which top management ensures that there is consensus about the direction in which the business is heading

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The High-Involvement Organization

Task forces, study groups, and other techniques are used to foster participation in decisions that affect the entire organization

Continual feedback to participants regarding how they are doing compared to the competition and how effectively they are meeting the strategic agenda is also fundamental to this type of organization

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Organizational Size and Agility

One of the most important characteristics of an organization—and one of the most important factors influencing its ability to respond effectively to its environment—is its size

Large organizations Are typically more bureaucratic Jobs become more specialized Are more complex, which increases the need

for control

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The Case for Big

Alfred Chandler noted that big companies were the engine of economic growth throughout the 20th century

Size creates Scale economies – lower costs per unit of

production Economies of scope – materials and

processes employed in one product can be used to make other related products

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The Case for Small

Smaller companies can Move fast Provide quality goods and

services to targeted market niches

Inspire greater involvement from their people

Nimble, small firms frequently outmaneuver big bureaucracies; they introduce new and better products, and they steal market share

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Being Big and Small

The challenge is to e both big and small and capitalize on the advantages of each Small is beautiful for unleashing energy and

speed Size offers market power when buying and

selling To regain the responsiveness of a small

company some larger firms have had to downsize/rightsize

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Customers and the Responsive Organization

The point of structuring a responsive, agile organization lies in enabling it to meet and exceed the expectations of its customers

Perhaps no other aspect of the environment has had a more profound impact on organizing than a focus on customers

All business units must take into account three key players The company The competition The customer

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Customers and the Responsive Organization

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Customer Relationship Management

Customer relationship management (CRM) is a multifaceted process, typically mediated by a set of information technologies, that focuses on creating two-way exchanges with customers so that firms have an intimate knowledge of their needs, wants, and buying patterns

CRM helps companies understand and anticipate the needs of current and potential customers

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Customer Relationship Management

Customers want quality goods and service, low cost, innovative products, and speed; they are learning that somewhere an organization exists that will provide it all

World class companies have learned that to provide customers with what they want they will need to continuously improve their process because the competition will catch up

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Value Chain

The word customer now refers to the next process, or wherever the work goes next

The value chain is a deeper way to understand how organizations can add customer value to their products and services A value chain is the sequence of activities that

flow from raw materials to the delivery of a product or service, with additional value created at each step

When the total value created—that is, what customers are willing to pay—exceeds the cost of providing the product or service, the result is the organization’s profit margin

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Value Chain

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Total Quality Management

Total Quality Management (TQM) is an integrative approach to management that supports the attainment of customer satisfaction through a wide variety of tools and techniques that result in high-quality goods and services

TQM has been impacted greatly by The work of W. Edwards Deming Six Sigma

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ISO 9000

ISO 9000 is a series of quality standards developed by a committee working under the International Organization for Standardization to improve total quality in all businesses for the benefit of producers and consumers

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Reengineering Extending from TQM

and a focus on organizing around customer needs, organizations also have embraced the notion of reengineering

Key organizational systems and processes are examined in light of the answer to the following question: If you were the

customer, how would you like us to operate?

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Technology and Organizational Agility

Broadly speaking technology can be viewed as the methods, processes, systems, and skills used to transform resources (inputs) into products (outputs)

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Types of Technology Configurations

There are three basic technologies characterize how work is done Small batch technologies will produce goods

and services in low volumes Large batch technologies produce goods and

services in high volume Continuous process technologies are

processes that are highly automated and have continuous production flow

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Organizing for Flexible Manufacturing

Mass customization is production of varied, individually customized products at the low cost of standardized, mass-produced products

To accomplish mass customization companies organize around a dynamic network of relatively independent operating units Each process or task is called a module

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Computer-integrated manufacturing (CIM) encompasses a host of computerized production efforts linked together to optimize the production process

Flexible factories are manufacturing plants that have short production runs, are organized around products, and use decentralized scheduling

Lean Manufacturing means an operation that is both efficient and effective; it strives to achieve the highest possible productivity and total quality, cost-effectively, by eliminating unnecessary steps in the production process and continually striving for improvement

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Organizing for speed: Time-Based Competition

Time is emerging as the key competitive advantage that can separate market leaders from followers

Time-based competition refers to strategies aimed at reducing the total time needed to deliver the product or service Logistics is the movement of the right goods in the

right amount to the right place at the right time Just in Time is a system that calls for subassemblies

and components to be manufactured in very small lots and delivered to the next stage of the production process just as they are needed

Simultaneous engineering is a design approach in which all relevant functions cooperate jointly and continually in a maximum effort aimed at producing high-quality products that meet customers’ needs

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Final thoughts

Successful organizations—and that includes the successful managers within them—do

not sit still. They do not follow rigid models but maintain structures, systems, organizational designs, and relationships

that are adaptive—always sensitive to changes in their environment and able to

respond quickly, efficiently, and effectively to them. Their managers focus

constantly on exceeding customer expectations and on continuous quality improvement, designing their systems

and structures to help them do just that.

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Looking Ahead

Chapter 10: Human Resource Management How companies use human resources management to gain

competitive advantage. Why companies recruit both internally and externally for

new hires. The various methods available for selecting new employees. Why companies spend so much on training and

development. How to determine who should appraise an employee’s

performance. How to analyze the fundamental aspects of a reward

system. How unions influence human resources management. How the legal system influences human resources

management.

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Organic Structure

Jobholders have broader responsibilities that change as the need arises

Communication occurs through advice and information rather than through orders and instructions

Decision making and influence are more decentralized and informal

Expertise is highly valued Jobholders rely more heavily on judgment than on

rules Obedience to authority is less important than

commitment to the organization’s goals Employees depend more on one another and relate

more informally and personally

Return

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Downsizing and Rightsizing

Downsizing is the planned elimination of positions Rightsizing is a successful effort to achieve an

appropriate size at which the company performs most effectively

How to ease the pain of downsizing Avoid excessive hiring Choose positions to be eliminated by engaging in careful

analysis and strategic thinking Train people to cope with the new situation Identify and protect talented people Give special attention and help to those who have lost their

jobs Communicate constantly with people about the process Emphasize a positive future and people’s new roles in

attaining itReturn

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Deming’s 14 Points

Create constancy of purpose—strive for long-term improvement rather than short-term profit

Adopt the new philosophy—don’t tolerate delays and mistakes

Cease dependence on mass inspection—build quality into the process on the front end

End the practice of awarding business on price tag alone—build long-term relationships

Improve constantly and forever the system of production and service—at each stage

Return

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Institute training and retraining—continual updating of methods and thinking

Institute leadership—provide the resources needed for effectiveness

Drive out fear—people must believe it is safe to report problems or ask for help

Break down barriers among departments—promote teamwork

Eliminate slogans, exhortations, and arbitrary targets—supply methods, not buzzwords

Return

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Eliminate numerical quotas—they are contrary to the idea of continuous improvement

Remove barriers to pride in workmanship—allow autonomy and spontaneity

Institute a vigorous program of education and retraining—people are assets, not commodities

Take action to accomplish the transformation—provide a structure that enables quality

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Six Sigma

An approach to total quality management that utilizes statistical tools to analyze the causes of product defects

At Six Sigma a product or process is defect-free 99.99966 percent of the time This is equivalent to less than 3.4 defects or

mistakes per million

Return

Chapter 9

Business

type of organization

organization skilled

organic organization

existing core competencies

core competencies managers

organizations ability

portfolio of competencies

learning objectives