Chapter 1
Organization and Its Importance

What This Chapter Covers

This book focuses on new trends and options in how we organize collective activity. The present chapter defines the key terms organizing, organization, and organizations. It then introduces the components of organization. Some of these are structural in nature, some are concerned with key processes, while others define boundaries. The components of organization are the parameters along which policy choices have to be made. Although there are limits to what the design of organization can achieve, these policy choices are highly consequential because serious problems can arise from inappropriate organization. The chapter closes with examples of such problems and a checklist to help identify their symptoms.

Purpose and Scope of This Book

In contemporary societies most work, and a good deal of leisure activity too, is carried out in cooperation with other people - it is collective. Often people are working with others in the same location, but increasingly it can involve collaboration across physical distances through Internet and satellite connections. The aim of this book is to provide you with useful insights into how good organization is a foundation for success in collective activity.

Although the book focuses on business companies, much of its content is also applicable to the many public and not-for-profit institutions that are also expected to organize themselves for delivering relevant services in an economic manner. The success of any company depends basically on two fundamental requirements: strategy and organization. The two are closely bound together. Strategy "establishes the criteria for choosing among alternative organizational forms."1 Yet if its strategy is faulty a company's organization, however sound, cannot compensate for this deficiency. The failure of Kodak to recognize the strategic importance of digital photography is a case in point. On the other hand, an unsuitable organization will handicap a company from delivering sufficiently on its strategy, however well conceived this might be. For example, some business schools fail to capitalize on market opportunities because their faculty are organized in traditional supply-side departments rather than in customer-oriented program teams. Additionally, the formulation of a sound strategy in the contemporary business world relies on knowledge and insight being provided from all levels and units within a company. An inability to motivate and coordinate these inputs because of inadequate organization can prevent a good strategy from being formulated in the first place.

Superior organization offers one of the last sustainable sources of competitive advantage. The gains previously to be had from market entry barriers, proprietary technology, and scale economies have become steadily eroded by trade liberalization, technology transfer, and the development of flexible production technologies. Most resources and technologies can either be acquired from the market or imitated. Organization, on the other hand, is an asset that each company has to develop to suit its own needs and situation and it cannot be bought off-the-shelf. The globalization of markets and value chains, competitive pressures, and the ever-shortening cycles of innovation, place an increasing premium on the ability to organize a wide array of resources, especially human resources, so as to make speedy, intelligent, and coordinated moves in the competitive game.

We live in a challenging and dynamic time for organization. It is often said that the conventional ways in which companies and other collective endeavors have been organized in the past are inadequate for 21st century conditions. Also their two foundations - hierarchy and bureaucracy - today attract hostility because in the public mind they are associated respectively with exploitation and inefficiency. There has been a great deal of hype about an organizational revolution in which new forms are emerging that move away from the fundamental tenets of conventional organization. The gurus have had a field day and much of the discourse on the subject has left sober evaluation way behind.2 Actually despite the availability of some surveys and case studies3, it is difficult to gain an overall picture of the organizational innovations that are taking place. They appear to have progressed further in some parts of the world, such as the Nordic countries, than in others.4 It is therefore timely to review new organizational ideas and practices, compare them with conventional wisdom, and on this basis offer guidelines for practice.

Organization aims to present state-of-the-art principles and practice in the organizing of collective activities, primarily with reference to business companies. While there is much to criticize about the wider social costs of the way most organizations are structured and governed today - these are discussed in Chapters 16 and 18 - the main focus of this book is on how people and their work can be organized so as to achieve the objectives of the unit in which they are employed or to which they are contracted. I appreciate that this begs some absolutely fundamental questions as to the appropriateness of such objectives and who has the power to determine them, issues which ultimately determine whether organization is a force for social good or evil. Others have discussed these issues and the way that the failure to resolve them threatens a major crisis in contemporary societies.5 Without naively claiming that the design of organization can be treated as a purely technical matter, divorced from these wider issues, the main focus of this book will nevertheless be on the more practice-oriented question of the behavioral and performance consequences of organizational design. I return to the social evaluation of organization in the final chapter.

Organization consists of five main parts. Part I provides necessary background and looks at the broad picture rather than specifics. The present chapter introduces the nature of organization and the contributions it can make. Chapter 2 then outlines the main developments in organizational design over approximately the past hundred years. Its purpose is to provide an appreciation of what have become "conventional" ways of organizing, which continue to be widely found in practice and are engrained in the thinking of many administrators and managers who make decisions about organization. By contrast, Chapter 3 considers "new" organizational forms in the contexts that have encouraged them to be adopted. The chapter examines the relevance for organization of major developments in the business environment - globalization, new information and communications technologies, the rise of information-intensive and knowledge-based competition, the growing numbers of knowledge workers, and the increasing social expectations being placed on business. The overall message is that new developments in organization can only be appreciated by reference to the changed context in which business now operates.

Parts II and III turn to the specifics of organizational form. The chapters in Part II focus on the internal aspects of organization, while those in Part III examine various networked forms of organization spanning traditional boundaries. Chapter 4 is concerned chiefly with hierarchy, a fundamental structural feature of organization. It considers downsizing and delayering, which are moves toward smaller and slimmer management structures that have fewer hierarchical levels. The attempt to reduce hierarchy is often accompanied by the greater use of teams. Teams are an important means of improving the coordination and integration of activities, which is the subject of Chapter 5. That chapter discusses ways in which integration can be achieved, including the use of cross-functional teams and modern information and communication technologies. The management of projects is a particularly important capability today and the coordination of the specialized contributions required is usually achieved through teams. Control is the subject of Chapter 6, which is another fundamental aspect of organizing where new approaches have been developed to suit modern conditions. The next two chapters turn to reward policies and practices as further aspects of organizational design. Chapter 7 examines reward policies and the contribution they make within the employment relationship to reconciling managerial requirements with employee needs. Chapter 8 recognizes the importance of pay within the spectrum of rewards and it pays particular attention to the choice of alternative payment systems including the contentious issue of executive bonuses.

The four chapters in Part III turn outwards beyond the conventional boundaries of organizations. They discuss various arrangements that involve networking between firms and across national boundaries. Networking is a very general concept and it can take different forms in practice.6 The chapters in Part III consider some of these variations. One of the main features of new organization lies in how it opens up and crosses boundaries through outsourcing, virtual value chains, alliances, and internationalization. These developments have led some commentators to speak of the "boundaryless organization." Chapter 9 examines the outsourcing of activities to external contractors. Chapter 10 looks at the special, but increasingly significant, case of "virtual" organization...