Organization Theory Final Exam. Jens Kristian Riis. BSc International Business and Politics Copenhagen Business School Hand-in date: 01/04/16

Transcription

1 Organization Theory Final Exam BSc International Business and Politics Copenhagen Business School 2016 Jens Kristian Riis Hand-in date: 01/04/16 Supervisor: Benedikte Brincker Characters including spacing: Standard pages: 9,74 Exam format: The exam consists of two parts. You must answer both parts 1 and 2. The assessment is based on your overall performance. 1) Describe and explain the concepts of rationality, efficiency, knowledge and organizational change as well as the ways in which these concepts are employed in different organizational models and theories. 2) Spear and Bowen (1999) describe how changes to work processes have been introduced at the Toyota factory. Analyze and assess the ways in which change and knowledge have been managed at the Toyota factory. Your answer should include relevant theories and concepts. 1

2 This paper is split into two parts. The first part consists of explanations of four central concepts in organization theory; rationality, efficiency, knowledge and organizational change. Each of these four concepts will be described separately and then be linked together. The second part of the paper deals with how knowledge and organizational change at the Toyota factory has been managed, in this section relevant theories will be applied to analyse how organizational change and knowledge is managed in the factory. Rationality: In the eyes of Marx Weber bureaucracy and rationality is inseparably bound together. Weber sees bureaucracy as a promoting factor of a rationalist way of life or the development of a rational matter of factness, i.e objective rationality as a condition of human existence (Weber,1911, 240). Rationality as an objective matter of factness is however a quite contested subject. For example, Simon (1997) argues that it is not possible for a human being to obtain a high degree of rationality. The reason being that no human being is capable of obtaining and structuring the incredible amount of information needed to make a rational decision about anything there are simply to many variables that in one way or the other effect the decision you have to make. In short, there is limits to the rationality of the human being. Simon identifies three features to why behaviour cannot be objectively rational; (1) rationality require complete knowledge of consequences, (2) consequences is a matter of the future, why one cannot have complete knowledge of it and (3) rational decision-making require that you take all possible choices into consideration often one only consider a few choices (Simon, 1997). Because human beings are constrained in the decisionmaking process, one can say that they act under imperfect information or bounded rationality, therefore human being is not an economic man but rather an administrator. In this regard Simon also disagree with Taylor, who sees human rationality in accordance with the mind of an economic man (Pedersen,2016). Simon elaborates and integrates Barnard thesis of non-logical decision process, that builds upon the assumption that human beings acts as administrators and that intuition and knowledge play a key role in in the decision-making process. He uses this theory in examining how managers act most efficiently. Good managers make decisions as grand-masters of chess. They base their 2

3 decision on intellectual depth about the variety of options possible in their position, which allow them to make judgments on the basis of their superior knowledge and intuition. Good judgment is therefore based on experience that allows the efficient good manager to make fast responses, because superior knowledge and experience allows the manager to act on the basis of habit and intuition. Further, through integration of behavior, via the process of substantive and procedural planning, Simon (1997) argue that managers, and individuals in general, can attain a high degree of rationality. What the good manager is not master of, is the issue of stress, which is decisionmaking that is not based on careful analysis, but on emotions, for example when faced with a dilemma. When this occur managers do not act logically and rational; instead of dealing with the issue at hand as quick as possible, one often postpone the issue. If humans could act as an economic man and make decisions based on perfect information one would not face these dilemmas since the economic man maximizes his decision on the basis of all the complexity of the world. Efficiency: Frederick Taylor (1916) believed that productivity, or efficiency, could be increased by simplifying job descriptions and giving workers a fair days pay for a fair days work. Therefore, he developed Taylorism, that is build upon his principles of scientific management; (1) use the scientific method to study work and determine the most efficient way to perform specific tasks, (2) match workers to their jobs based on capability and motivation, and train them to increase efficiency, (3) monitor workers, and provide instructions and supervision to ensure that workers keep being productive, (4) divide labor so managers spend their time planning and training, and workers to work (Taylor, 1916). According to Taylor, implementing Taylorism will decrease soldiering and thereby increase efficiency. However, as the Hawthorne studies show, Taylor was incorrect in his conclusion that workers efficiency is driven by the formal organization through economic incentives. Rather, efficiency is determined by informal factors, or as Roethlisberger (1939) would put it: the logic of sentiments plays a more crucial role than the logic of cost. The study showed that workers relation to the group and the general attitude of the workers towards management was the single explanatory factor that explained whether a group engaged in soldiering or not, and whether or not they increased efficiency (Baritz, 1960). Mayo, the scholar who performed the study concludes; The single most important factor which determines productive efficiency is the mental preoccupation of the worker as the works (Baritz, 1960, 109) 3

4 This is a substantial problem for management since it is difficult for them to increase efficiency, because they only control the formal ways of communication and organization. There are however other ways than looking on worker specific methods to increase efficiency. Oliver Williamson determined with his piece Markets and Hierarchies (1972) that a multidivisional structure of the firm could increase efficiency of the whole firm (this however only applies to firm selling more than one product). When firms with a U-structure expands to other business areas they often experience transaction costs, but when re-organizing the firm to having quasi-autonomous operating divisions (an M-structure), this does not happen. Instead, the M- structure allows the general office to monitor the efficiency of each operating division. This means that the managers of the operating divisions has to show that their division is both efficient and profitable, why the general office should invest in their specific division. Knowledge: In general, scholars of organization theory see knowledge as a source of power. For example, Pheffer & Salancik (1978) defines knowledge; the basis for power (..)lies in the access to knowledge and information (Ibid, 48) and Weber also acknowledge the power of knowledge when he writes that advancement in bureaucratic administrations is based on knowledge (Pedersen, 2016). When organizations engage in actions with the external environment knowledge and information is key for survival. Knowledge of interconnectedness in the whole environment makes the given organization less uncertain about developments in the environment. When possessing superior knowledge of the environment the organization can utilize this information to create stronger dependence between its competitors, and in this way enact, create, an environment where their position is secure. It is possible to utilize this knowledge and create an environment to your own advantage because the human creates the environment to which the system then adapts. The human actor does not react to an environment: he enacts it (Weick in Pfeffer & Salancik, 1978, 72). Through this enactment process, based on superior market knowledge, management can secure a stabile organization, that is secured by their ability to engage in positive asymmetrical exchange relationships. An important part of enacting these positive exchange relationships is the organizations ability to find and prioritize the organizations that are most crucial to the survival of the organization without information and knowledge this process is difficult. In short, 4

5 knowledge allows organizations to manage and control the environment in stead of trying to balance external shocks in order to survive (Pfeffer & Salancik, 1978). The enactment process is possible because humans make meaning of experience, it is the process of sense-making (Weick et al., 2005). But how is this knowledge attained? Knowledge is most often attained through education and, as Taylor argues, through experimentation (Pedersen,2016) through which you get experience, on which you make judgments. Granovetter (1985) argues that access to network plays a vital role in the individuals and organizations access to information and knowledge. His argument is that people s economic activities are embedded in their networks and social relations why the information flow from these networks is richer and more reliable than if attained from else where. Burt (1992) expands the argument of embeddedness by arguing that additive information is transferred between two individuals in structural holes. The degree of information flow in the structural hole is determined by the degree of trust between players. A network of primary contacts grants access to information that is not possible to attain trough education, further, the network provides information early which give the player the possibility of acting before competitors. Networks are of great importance when organizations try to enact its external environment since they provide information that is not possible to attain on your own, and because the information flow is timed in a manner that allows the organization to act before competitors. Organizational change: In the literature on organizational change it is discussed whether an organization change because another organizational structure is more efficient in producing goods (there is an internal demand to decrease cost), or if the external environment causes organizational change. As previously noted, Williamson and Taylor see organizational change as a way to decrease costs and to become more competitive. This can either be seen as an internal demand to decrease cost, or the external pressure from the capitalist institutional logic to homogenize organizational practices (Friedland & Alford, 1991). Moreover, Mintzberg (1980) identifies 5 ways organizations can organize it self to be most efficient in relation to both its external and internal environment, the 5 ways is seen as ideal types of organizational structure. Contrary to Mintzberg, and especially Williamson, Dimaggio & Powell (1983/1991) argues that matters of internal efficiency do not play a role at all 5

6 when explaining why organizations change. They argue that organizations change their structure regardless of whether or not they improve their efficiency. Instead, it is the organizational field 1 in which the organization is embedded, that determines if an organization change. Dimaggio & Powell use the term isomorphism to explain why organizations adjust their structure even though they do not become more efficient. Isomorphism is the constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions (Hawley in DiMaggio & Powel, 1983/1991, 66). As mentioned Friedland and Alford argue that institutions and their institutional logics govern the way organizations and individuals think and structure themselves. In fact, they argue there will always be one hegemon institutional logic that will control these changes. Due to all these different theoretical perspectives on how organizations change, it is quite difficult to asses how organizations in reality change, but let s see what we find out when we try to decode the DNA of the Toyota Production system in the next section. But before we go to the next section, we have to examine how the concepts of rationality, knowledge, efficiency and organizational change is linked together. Rationality is limited by lack of knowledge (Simon,1997). Which necessarily mean that without a relatively high degree of rationality an individual cannot become knowledgeable and thereby get the possibility to increase organizational efficiency or undertake successful organizational change in response to either internal or external demands. In short, the degree of rationality present in the organization determines the basis for successful organizational behavior. 1 Definition of organizational field: By organizational field we mean those organiations that in the aggregate constitute an area of institutional life (DiMaggio and Powell, 1983,77) 6

7 Part 2: Analyze and asses they ways in which change and knowledge have been managed at the Toyota factory This part of the paper is split into two sections; the first section deals with knowledge in the Toyota organization, the second section focus on reasons to why Toyota successfully has managed to change their production systems, this is done by examining both internal and external factors. In order to apply knowledge and organizational change to Toyota it is important to define why Spear and Bowen (1999) thinks the Toyota Production System is unique. According to Spear and Bowen, the production systems build on 4 rules; (1) all work shall be highly specified as to content, sequence, timing, and outcome, (2) every customer supplier connection must be direct, and there must be an unambiguous yes-or-no way to send requests and receive responses (3) the pathway for every product and service must be simple and direct, (4) any improvement must be made in accordance with the scientific method, under the guidance of a teacher, at the lowest possible level in the organization (Ibid,98).). This paper will now asses what these rules have to do with knowledge and organizational change. As mentioned earlier, knowledge can be attained through education, experimentation and by getting knowledge from external sources. Toyota successfully exploit all these ways of gaining knowledge. First of all, Toyota see workers as the most important corporate asset why the primary focus is to educate workers. Toyota educate workers by learning them how to improve their work by teaching them how to employ the scientific method, through which management encourage them to improve their job (Ibid). Further, not only workers are educated in the scientific method, also managers learn about the scientific method, in this way Toyota makes sure that problem solving and learning take place at all levels of the organization (Ibid, 105). By simplifying tasks and increasing cooperation between workers and management and employing the scientific method, Toyota uses some of the principles of Taylorism. Moreover, strict specification of tasks and timing as well as encouraging workers to innovate, via hypothesis driven experimentation, increase knowledge of the production process, and enhances effective innovation, and thereby efficiency(ibid). The key to the success of the Toyota Production System is this ability to simplifying and timing the production process. Secondly, Toyota also utilize its external network by bringing in external experts to ensure that the learning process is optimal so the hypothesis 7

8 driven work can be utilized (Ibid). In this way, Toyota recognizes that the knowledge they can attain from their social network is richer and more reliable than the information they can get from else where. Lastly, because of severe substantive and procedural planning of the production line, Toyota has gained insights that organizations normally would not obtain, why they have reached a higher degree of rationality than competitors, which make them more knowledgeable about increasing efficiency of the production line. A lot of competitors have tried to copy the Toyota Production System, they have, however, been unsuccessful, because they have neglected the importance of exploiting all three elements of attaining knowledge. Without possessing extensive technical knowledge of the production system, which is gained through simplification of tasks and experimentation with the production line, on the basis of the scientific method, workers and management will not be able innovate. Toyota has shown that knowledge is the key to advancement. Because Toyota successfully utilize all three ways of attaining knowledge they dominate the organizational field through knowledge. This domination through knowledge is one of the key features of bureaucratic management, why it now will be examined if Toyota fits all the characteristics of a weberian bureaucracy. The characteristics of a bureaucracy is; power is exercised through knowledge, there are fixed jurisdiction, hierarchies, expert training, written rules, and managers are appointed on the basis of knowledge (Weber, 1911). There can be no doubt that power is exercised through knowledge in the Toyota organization when all managers are expected to be able to do the jobs of everyone they supervise and also to teach their workers how to solve problems according to the scientific method (Weber, 1922, 103). Further, as previously noted, workers get expert training, the organization is organized in hierarchies, however, since knowledge is impersonal in the weberian bureaucracy and there are no written rules in the Toyota Production System, one cannot characterize Toyota as a bureaucracy (Spear & Bowen, 1999). As we shall se later, this structure allows for continuous improvement of the production line by the workers. After having analyzed how knowledge is managed in the Toyota Production System, the paper now turns to analyzing how organizational change have been undertaken at the Toyota. This is done by focusing on both internal factors and external factors. 8

9 When analyzing the internal factors for change in the Toyota Production System it is key to observe that the reason it is possible to constantly innovate the production line, without having implications for the overall production, is because of the organizational structure. Toyota has a modularity structure; the production system can be broken down into distinct, functionally different parts (Pedersen, 2016 and Spear & Bowen,1999). The advantages of such a structure is that workers can change elements in the production line in one part of it without unduly affecting other parts of the production line. Without this modular structure Toyota would not be able to utilize the incredible amount of knowledge the workers possess about the production line. The internal demand for organizational change comes from the knowledgeable workers, who require that their innovative ideas gets implemented. Further, workers desire to become better and accomplish the ideal organizational production line, that management has agreed upon (see page 105, Spear and Bowen, 1999). The workers personal desire to strive to better solutions is what makes Toyota unique. Unlike the informal organization in the Hawthone studies, an important feature of the strength of the Toyota Production System is the informal organizations desire to increase productivity and decrease cost. In this way, the modular structure of Toyota becomes a competitive advantage in terms of organizational change with the goal of increasing efficiency. What is interesting to observe is that Toyota with its extreme knowledge of their production line has managed to attain a dominate position in the organizational field. According to Dimaggio & Powell, a dominate position in the organizational field can be the reason to why other firms, because of competitive isomorphisms and external pressure, homogenize their production process so it fits the Toyota Production System. This can either be through coercive, mimetic or normative isomorphisms. The theory of isomorphic change does, however, not account for why successful organizations have changed their organization. Friedland and Alford can help us in this regard. Applying their theory of institutional logics, one could argue that a capitalist institutional logic imposed by institutions explain why Toyota and its employees have made such an effort to decrease cost and increase efficiency. Thereby, Friedland and Alford argue that structure is more important than agency. Contrary, scholars like Mayo would say that agency is more crucial than structure, because it is individuals that demand change. What is more influential in institutional theory, and in social theory, is one of the most contested subjects, why it is difficult asses who in fact influence how and why organizations change. Thornton et. Al (2012), however, argue that actors change institutions in the context of being conditioned by them (Ibid, 18). It is therefore 9

10 difficult to analyze and asses how change has been managed at the Toyota factory, since it is a matter of structure and/or agency. Conclusion This assignment has outlined theory on the concepts of rationality, efficiency, knowledge and organizational change. Firstly, it has been shown, in line with Simons argument, that any single human being is not capable of attaining any high degree of rationality, because human behavior follows the mind of an administrator rather than that of an economic man. However, if one use substantive and procedural planning, it is possible to attain a higher degree of rationality a key reason to why Toyota has been so successful. Secondly, it has been shown, both through the Hawthorne study and through analysis of the Toyota Production System, that the informal organization is central when explaining and analyzing the efficiency of an organization. Thirdly, it has been shown that knowledge, and the power of information it brings, is a key tool when wanting to increase efficiency, and when wanting to secure the organizations position in the external environment. Toyota has been extremely good in utilizing the knowledge of the workers to give the company a competitive edge in productivity. Lastly, it has been shown that organizational change can occur both from internal and external pressure. The theoretical discussion on the subject has also quickly been introduced, with the conclusion that it is difficult to explain the true origin of organizational change since scholars disagree on the importance of structure and agency in organizational change. 10

11 Bibliography: Baritz, Loren, 1960, Servants of Power: A History of the Use of Social Science in American Industry, Wesleyan University Press Burt, Ron, 1992, Structural Holes, Harvard University Press Dimaggio and Powell (1983/1991), The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields Pedersen, Lene, 2016, 2016, Lecture Slides on the Economics of Organization Foverskov, Lea, 2016, Lecture Slides on Professions Friedland, Roger & Alford, Robert, 1991, Bringing Society Back In: Symbols, Practices, and Institutional Contradictions Granovetter, Mark, 1985, Economic action and social structure: The problem of Embeddedness, American Journal of Sociology Mintzberg, Henry, 1980, Stucture in 5 s: Synthesis of the Research on Organization Design, Management Science, Vol.26, No.3 Pedersen, Lene, 2016, Lecture Slides on the Origins of Moderns Organization Pfeffer & Salancik (1978), The External Control of Organizations Schein, E.H, (1996), 'Three Cultures of Management, The Key to Organizational Learning', Sloan Management Review Spear, Steven and Bowen, H. Kent, 1999, Decoding the DNA of the Toyota Production System, Harvard Business Review 11

12 Simon, Herbert, Administrative Behavior, 1997, The Free Press Taylor, Frederick Winslow, 1916, The Principles of Scientific Management Thornton, et.al, 2012, The Institutional Logics Perspective A New Approach to Culture, Structure, and Process, Oxford University Press Weber, Marx, 1911, Bureaucracy Weber, Marx, 1922, The Three Types of Legitimate Domination Weick, Karl et al., 2005, Organizing the Process of Sensemaking, Organization Science Williamson, Oliver E. (1975), Markets and Hierarchies, New York Free Press 12