How organizations are transforming from hierarchical to agile structures

Organizational Theory

The theoretical and practical issues that continue to lead the discourse of organizational theories are presented in this analysis, concentrating on how the forces of compliance, offshoring and outsourcing, the pervasive influence of the Internet on transparency and speed of communications, and the lack of trust between managers, subordinates and throughout organizations all are influencing the development and use of organizational theories. Underscoring all these factors is the need for organizations to abandon their hierarchical and by definition, inflexible structures for more agile organizational structures based on solid theory. The intent of this paper is to evaluate and analyze these factors from the perspective of why organizations need to be transformed from their hierarchical, inflexible structures into more agile organizations capable of responding more quickly to market dynamics.

Analyzing the Theoretical and Practical Issues Driving Change

Organizations today live in an era that has greater levels of compliance and transparency required than ever before. The passage of the Sarbanes-Oxley Act in 2002 (Sarbanes-Oxley, 2002) brought a higher level of accountability and transparency to publicly-held corporations than ever before. As a result, there continues to be a significant impact on organizational theories, specifically in the areas of trust, globalization and its impact on financial reporting and compliance across multiple nations a company operates in, and the need for stabilizing organizational structure and practices even to outsourcing partners. The increase in current discourse of organizational theory regarding trust is being driven by the needs of companies to expand globally yet also stay in compliance with a multitude of regulations in their native nations as well.

The influence of the Internet as an operating platform for global organizations is also having a significant impact on organizational theories as well. From the one-way communication of the Internet through the use of websites as the world's new newspapers, through interactive communication using blogs, to advanced technologies used for making distributed order management systems viable and secure over the Internet, all phases of these developments are having a significant effect on organizational theory. The immediate effect is forcing a much higher level of agility and market-driven organizational structures, as change occurs much more rapidly due to the increased speed of information sharing. From research on the influence of the Internet in general and the increased speed of communication and transactions specifically on organization theory, it has been found that over the last seven years organizational structures have in fact significantly changed in structure, scope and ability to respond (Tassabehji, Wallace, Cornelius. (2007). Agility in organizational structures is having a significant impact on organizational theories, with an area of best practices research emerging from work done this year, showing the effectiveness of managers who rely on the most appropriate communication applications and tools on the Internet having the most significant influence on and ability to persuasively lead subordinates for the highest levels of achievement. These leaders who were interviewed and evaluated as part of an empirically-based study on the topic of achieving best practices in leadership and performance by combining organizational theories on the one hand and the advantages of the Internet as a communication medium on the other (Major, Davis, Germano, Fletcher, et al. 2007).

The third major theoretical and practical area that is influencing organizational theory is the trend in many organizations to rely on outsourcing in conjunction with project management to accomplish their product, service and ultimately revenue objectives. Taken together these factors are including an entirely new set of complexities into the field of organization theory, with trust, agility of the organizations' structure, and has been mentioned, transparency, all combining to force an entirely new set of dynamics into organizations. Of these theoretical and practical factors, the most influential on organization theory is trust (Kadefors, 2004; pp. 176-181).

Compliance, transparency, offshoring and outsourcing, the influence of the Internet, increasingly reliance on project-driven business models and the resulting impact on trust are significant forces on organization theory. There are many other factors yet these mentioned have had the most far-reaching global implications concurrently through organization theory and organizational structures. The remainder of this analysis concentrates on how these factors are impacting the areas of organization theory specifically related to individual and managerial performance, how they are changing the concepts of organization power topologies, and lastly, the dynamic influence on trust.

Realigning Power Topologies for Higher Effectiveness

The theoretical and practical factors mentioned in the beginning of this paper are also serving to re-align power topologies in organizations. This is primarily due to the shift in how trust is gained, kept, and shared throughout organizational structures in addition to the exponential increase in the speed of communications and transactions. Power topologies are undergoing a fundamental change in many industries that had once prized stability, lack of change and predictability as their core values. This is especially true in the area of banking and finance. The shift to concentrating more on market agility and customer targeting are re-aligning the power topology in that industry to concentrate on market-based knowledge and technology expertise, which taken together defines expert-level knowledge.

Researchers (French and Raven, 1959; pp. 150-167) in conjunction with insights gain in the course and from readings illustrate the important of understanding the various forms of power topologies present in organizations and their implications on the being able to sustain agility in the face of significant change. French and Raven's conclusions (pp. 166-167) suggest that while superiors or managers have control over legitimate, reward, and coercive power, the workers themselves give power to those managers and co-workers who have referent, expert, informational and connectional power. French and Raven are then defining a complex relationship of power, where the subordinate has a choice at times to accept the power a superior has over them or not.

The topology that has emerged from French and Raven when applied to property and construction management is particularly useful, as the industry's culture relies on traditional and information power. Legitimate power inside the most hierarchical and least accepting of change organizations, where the need for managing departments and divisions for high levels of control is necessary is the last to change even when external market factors force the change. Referent power within many industries is tied closely to titles and positions a manager is hired in for, as the social structure of the company quickly enforces the value of project as both legitimate and expert power. In terms of coercive and reward power, industries have found that these are effective only to an extent, and that expert power is far more effective in leading change. Further, coercive and reward power are often highly distributed through the more agile organizations and as a result must be applied immediately to behavior to be effective.

In the context of Dr. Edgar Schein's (1983) analysis and presentation of results in his working papers referenced in this document, an industry's growth and culture is well defined in the following quote. In the working papers, Schein (1983) writes:

For an organizational culture to exist, there must be a definable organization in the sense of a number of people interacting with each other for the purpose of accomplishing some goal in their defined environment. The founder of an organization simultaneously creates such a group and, by force of his or her personality, begins to shape the culture of that group. But the culture of that new group is not there until the group has had its own history of overcoming various crises of growth and survival, and has worked out solutions for how to cope with its external problems of adaptation and its internal problems of creating a workable set of relationship rules.

Power topologies and their continued use are influenced by organizations; culture and the definition of cultural distance (Hofstede, 2006). These three factors contribute to the organizations' willingness to change over time. This is particularly true in globally-based organizations where cultural differences will vary significantly across each geographic region an organization operates in. From research cited on cultural distances (Geert Hofstede, 2006) and more specifically to the application of power distance as a variable in explaining the performance of organizations in rapidly changing industries, the implications of Power Distance as defined by Hofstede set the foundation for an organization looking to ensure agility and responsiveness to both customers and outside forces over time. In his working papers and books, Hofstede defines Power Distance as follows:

Power distance, that is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more vs. less), but defined from below, not from above. It suggests that a society's level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that 'all societies are unequal, but some are more unequal than others"

Power Distance is defined by intellectual ability to quickly solve problems and turn the non-standard into the standard, to take deviating customer requirements and deliver them in the context of a shrink-wrapped package. This is the essence of growing an agile organization at the employee level. Working to productize non-forming customer requirements and looking to capitalize on them is a major strength industry leaders in manufacturing industries for example are attempting, redefining the concept of the agile organization in the process. This is juxtaposed to hierarchical organizations less willing to change despite obvious messages from the external environment.

Sustaining and Solidifying Trust

The one factor that has been researched in the context of both its theoretical and practical applicability to organization theory is trust. The lack of trust exacerbated by the growth of offshoring, outsourcing and the concentration on transparency and compliance. Often in responding to these factors organizations leave their employees sensing a lack of relative status, uncertainty about their futures, and a tendency to become negative about the changes as the subordinate is not involved in the decision process. Yet just as important as creating an agile organizational structure is the need for anchoring managerial change strategies in trust. The many facets of trust as they relate to manager- subordinate relationships hinges on consistency, transparency, and authenticity of interactions over time leading researchers to draw the conclusion that the catalyst of trust is transparency (Ergeneli, Sag, Ari, Metin, 2006; p. 60) and greatly increases the speed and accuracy of interactions across entire organizations. The ability of managers to create these levels of consistency, transparency, authenticity and genuineness has a direct implication in the ability to effectively lead associates through change. While the concept of change management is often discussed in the context of major strategic shifts internally, change management in essence happens with each new departmental goal or objective is introduced within a department or division of an organization (Ergeneli, Sag, Ari, Metin, 2006; p. 41). The longevity of trust and the ability of organizations' leaders to enable change by living it also is a critical aspect of managing in the 21st century.

Summary

The understanding of people and organizational management principles is essential for navigating an organization through the turbulent times ahead in the 21st century. Not only is more change coming, but the nature of change itself is already forcing organizations to work at create more agile, responsive organizations that can respond more effectively to customers, competitors, suppliers and distribution channels. The essential areas of managing for optimal performance, capitalizing on power taxonomies to enable and sustain change, and the critical need for trust all must be considered as foundational areas of organization theories for meeting the challenges of leading an organization in the 21st century. The focus on infusing ownership and a sense of accountability surrounding results while at the same time alleviating the need for a highly structured, hierarchical and slow-moving organizational structure are critical in the coming years. There must be strategic direction of creating self-sustaining working teams that are managed to optimal performance while relying in the power taxonomy of an organization to define performance norms, values and expectations. Finally, underscoring all of these factors is the need for motivational theories including Herzberg, Vroom, Lawler, Achievement motivation, and McGregor's Theory X/Y models to further act as catalysts for delivering a sustainable and strong foundation over the long-term by creating a climate of trust in the organization. Ultimately for any organization to survive into the 21st century, optimal performance, an appreciation for and managing of power taxonomies, and the continual strengthening and sustaining of trust are all critical.