The Modern Organization - Their differences, their development and their management

Content

(I) Introduction

(II) The Key Constituents of the Modern Organization
(i) the flat organization
(ii) the flexible organization
(iii) the networked organization
(iv) the diverse organization
(v) the global organization

(III) The Traditional vs. the Modern Organization: Differences and Dynamics
(i) the traditional organization
(ii) changing dynamics and forces (iii) the modern organization

(IV) The Role of Management: Leading - Leveraging - Learning

(V) Conclusion

References

“Today’s problems cannot be solved with the mindset that created them in the first place.”

--Albert Einstein (1879-1955)

(I) Introduction

“Transforming a caterpillar into a butterfly” (Ghoshal and Bartlett 1997: 270), this is the process many organizations have to and are undergoing these days. Organizations are converting themselves from the traditional, hierarchical organization into the contemporary¹ organic, learning and individualized corporation (Kimberly and Bouchikhi 1995: 9). But (1) what are the attributes of these modern organizations? (2) What makes them so different from traditional organizations? (3) And how are they managed? Moreover, it comes with a painful impression to realize that the transformation from a caterpillar into butterfly is a struggling process. Therefore, (4) what are the underlying pressures and forces which simultaneously drive but also restrain the transformation into the modern organization (Ghoshal and Bartlett 1997: 270)?

In this matter, Jack Welch is the best example by turning General Electric (GE) into the modern organization par excellence; resulting in GE’s extraordinary performance and an average annual growth of the stock rate of 18.1% since 1981 (industry average: 12.2%) (Lakshman 2005: 435, Kimberly and Bouchikhi 1995: 9, 16-17).

There is no unique recipe to successfully guide this process. Simply reading and trying to copy 1:1 what Jack Welch did at GE will not function in any other organization - each organization is as unique as its people. For these reasons, it is important to understand the underlying principles of the modern organization in order to identify the answers to the questions stated above in order to determine organizational effectiveness (Besanko et al. 2004: 3).

Moreover, this knowledge offers a powerful source in appropriately leading one’s organization to become and to be as agile as a start-up while still being able to rely on the potential resources of a large-scale caterpillar organization (Ghoshal and Bartlett 1997: 264-268).

Thus, the goal of this paper is to create an in-depth understanding of the contemporary - the modern organization.

(II) The Key Constituents of the Modern Organization

In the following, this paper defines the organizational meaning of the five basic constituents of the contemporary organization which are (i) flat, (ii) flexible, (iii) networked, (iv) diverse and (v) global. By pointing out these structural components of the organization, there will also be a special focus on illustrating how these aspects relate to the process of creating the potential for success of the organization.

(i) the flat organization

The term “flat” is to be seen in the organizational context of “span of control” and organizational hierarchy (Stroh et al. 2002: 403). In this matter, the term hierarchy refers to the number of levels of authority within an organization (Buchanan and Huczynski 2001: 453). In consequence, an organization is considered to be flat when there are only a few hierarchical levels (2-3 levels). The consequence of a flat organization is that the “span of control”, the number of employees a manager is responsible for, increases. General research suggests that the flatter the organization and the greater the span of control, the more effective the organization (Stroh et al. 2002: 404). However, in identifying whether a certain level of flatness suits the organization and situation, the routine of the work, the training of the employees, and the capability of the manager, the task formalization and the size of the organization have to be considered. In the end, the appropriate assessment of these factors determines the degree of flatness in maximizing the potential performance of the organization (van Fleet and Bedeian 1977: 364).

(ii) the flexible organization

The term “flexible” refers to an organization’s “ability to respond efficiently and effectively to new demands” (Stroh et al. 2002: 408) especially in hypercompetitive and dynamic markets (Volberda 1996: 359). This capability is also often referred to as an organic organizational structure (Buchanan and Huczynski 2001: 515) in which knowledge, ability and communication are the key variables and not for instance position or status (Stroh et al. 2002: 408). In consequence, this structure refers to the concept of decentralization. Therefore, the future effectiveness of a corporation depends strongly on its ability to establish organic structures in which decision-making is delegated in order to organizationally react quickly to the ever changing environment.

(iii) the networked organization

According to Buchanan and Huczynski, a networked organization “refers to a collection of essentially equal agents” which have semi-formal (informal) relationships with each other (2001: 543). Moreover, there is a distinction between intra- and interfirm networks. The first distinction, intrafirm networks points out the degree to which employees cross-functionally, -divisionally and

- departmentally communicate with each other. This dialogue consequently fosters organizational effectiveness as the internal exchange of ideas results in more creative and innovative solutions to the ever changing needs of the market (Lakshman 2005: 429). The latter distinction, interfirm networks, refers to an alternative to vertical or horizontal integration or one-time market transactions (Besanko et al. 2004: 154). As many organizations these days are focussing on their core competence as this is the source to competitive advantage (Prahalad and Hamel 1990: 89- 91), they are establishing institutional arrangements such as strategic alliances, joint ventures and other forms of semi-formal relationships (Besanko et al. 2004: 153) in order to profit from a reduction in transaction costs by still having independence (flexibility) but being able to rely on reliable partnerships (Sydow and Windeler 1998: 266). Consequently, “working” networks increases the organizational effectiveness.

(iv) the diverse organization

Diversity in an organization points out the “heterogeneity of its members with respect to their personalities, gender, attitudes, background and experience levels” (Stroh et al. 2002: 223). Consequently, diversity increases the potential for new ideas, alternatives (creativity, flexibility and problem-solving skills) as well as especially in the context of a global organization the understanding for employees and customers with a different local backgrounds as well as dynamics caused by political, social, legal and cultural varying environments an organization operates in (Adler 2002: 97). For these reasons, attaining the capability to draw organizational competence from a diverse background results in the achievement of competitive advantage.

(v) the global organization

An organization is considered to be global when it establishes a “worldwide link in such a way that local happenings are shaped by events occurring many mils away and vice versa” (Buchanan and Huczynski 2001: 38). Consequently, distant local happenings (e.g.: production quality in China) will impact the decision-making process, work teams, communication, capital flow and investments at other corporate locations on the globe (e.g.: competition with production in other countries, marketing in the home market etc.). In this context, an organization can facilitate its core competence not only to serve a domestic market but also other national markets (Malnight 1995: 138). This can include country-specific product development (e.g.: Kraft in producing different foods depending on national preferences) as well a standardized worldwide product such as Coca Cola. Therefore, organizational effectiveness in this matter results from the capability of taking advantage of the globalization process (“global village”) and establishing structures (“fast, flat and flexible”) to meet these challenges (Buchanan and Huczynski 2001: 39).

To sum up, all five attributes are key to the modern organization. Moreover, they are not single entities but interrelated in fostering organizational effectiveness. But why? And where do these attributes come from?

(III) The Traditional vs. the Modern Organization: Differences and Dynamics

In order to draw a comparison between the traditional and the modern organization along the key constituents described in the last chapter and to illustrate their importance for organizational effectiveness, this chapter will (1) first of all point out the underlying pressures and dynamics impacting and creating the constituents of the traditional organization. This is of great importance in order to create an understanding for how measuring organizational effectiveness along those key attributes has changed. Following this, (2) this paper alludes then to the arising pressures influencing (changing) the nature of labour and the constituents of the traditional organization by differentiating between internal and external forces (3) The final part depicts briefly the results of the transformation of traditional structures into the modern organization.

illustration not visible in this excerpt

(i) the traditional organization

The traditional organization is characterized by a bureaucratic structure: strict hierarchy (tall), stable divisions and departments, vertical communication, rigid job definitions directed by top management and power based on the status within the hierarchy of the organization (Stroh et al. 2002: 410). In evaluating the underlying dynamics (pressures) which brought up this mechanistic structure next to the historic situation, Adam Smith, Max Weber and Frederick Winslow Taylor are the key players.

When Adam Smith developed the concept of division of labour in 1776, he faced a historic time period when the Western economies literally started sky-rocketing as the demand for industrial mass products rapidly increased. Smith’s solution to this challenge at those times was to divide labour as due to specialization of labour the output could be dramatically increased (Smith 1776: 37-41). Consequently, during the industrialization (starting ~1800) initiated by the technological innovation of the steam engine (~1750), the need for management principles came up in order to align workers and production. In consequence, Max Weber designed such a guide to management: controlling the production process and outcome by developing a rigid control system based on hierarchy, job descriptions, detailed documentation of events and consequently the easy exchangeability of employees like pieces in a machine: “The Bureaucracy” (Weber 1922: 73-78). This went along with the concept by Frederick Winslow Taylor “The Principles of Scientific Management” in which Taylor fine tunes the structure of the organization: organizational effectiveness is increased by separating the mind-work from the body-work of the employee by giving the employee scientifically researched guidelines in processing his job assignment - working like a machine without thinking (Taylor 1916: 48-61).

To sum up, in comparing the key constituents and considering the underlying pressures, the traditional organization was tall as it was hierarchically organized. Moreover, employees had to follow rigid, mechanic guidelines and therefore had no flexibility in making decisions. Intra- organizational networks were also not existent due to the strong separation of labour. As for external networks, the decision was either to make or to buy (Besanko et al. 2004: 12-16, 380).

[...]

¹ Note: in the following „contemporary“ and „modern“ are used exchangeable for the same phenomenon.