The student will complete 4 Discussions in this course. The student will post one thread of at least 1,000-1,500 words. ?For each thread, students must support their assertions with s

Chapter 1

1.1 A Look Inside General Electric General Electric (GE) has a glorious heritage. Founded by Thomas Edison in 1878 to generate and distribute electric power, GE became a world leader as a diversified industrial company. For decades, GE had a reputation for excellent and innovative management practices that other companies copied. As a model industrial company, General Electric’s stock had been part of the Dow Jones Industrial Average since 1907. Since the late 1800s, GE moved in and out of multiple businesses as a key part of its strategy and success. In 2019, GE was still a diversified worldwide conglom-erate. Its industrial businesses included the power segment (gas and steam power systems), renewable energy (wind turbines), oil and gas (drilling systems), aviation (jet engines), healthcare (MRI machines), transportation (locomotives), and capital (loans to buy equipment). However, by 2019 GE’s value had fallen precipitously from its earlier prosperity, hitting a low of about 10 percent of its former value. How could a company that rose to fame as the best managed company in the world fall on such hard times? The answer to GE’s ups and downs lies partly with how its leaders used organiza-tion design. Reginald Jones was CEO from 1972 to 1981 and helped build GE’s sophisticated strategic planning system. The GE conglomerate was composed of 43 autonomous businesses, within which it had 10 groups, 46 divisions, and 190 departments that participated in strategic planning. To help manage the massive amounts of paperwork and information required from 43 strategic plans, GE added a management layer to its structure to oversee sectors or groupings of businesses and reduce the load on top management. GE was a respected and highly successful company, and paperwork and bureaucracy seemed to increase along with organization size and complexity. 1.1a The Jack Welch Era 1981–2001 When he was hired as an engineer at GE in the early 1960s, Jack Welch hated the company’s bureaucracy so much that he submitted his resignation after only six months on the job. Fortunately for GE, Welch’s boss convinced him to stay and make a difference. After rising to CEO, Welch was quick to begin busting the ever-growing GE bureaucracy. Near the end of his two-decade run as CEO, in 2001, Fortune magazine named Welch “Manager of the Century” to recognize his aston-ishing record at GE and also named GE the “Most Admired Company in the United States.” What changes did Welch and GE managers make to achieve these accolades? Strategy Changes. GE had begun using the advertising slogan “We bring good things to life” in the late 1970s and it continued in the Welch era, with Welch maintaining the strategy of being a conglomerate of diverse businesses. But Welch added a new key objective: each business must become the No. 1 or No. 2 competitor in its industry or risk being cut. GE’s new strategy was to be a leader in each of its industries. Changes in Structure. Welch attacked the bureaucratic layers within GE by first eliminating the sector level of management hierarchy that Reginald Jones created. He continued to fight the over-managed hierarchy until the number of levels was reduced from nine to as few as four. In many cases, department managers, sub-sector managers, unit managers, and sometimes supervisors were eliminated along with the sector managers. Now the CEO and top managers could deal directly with each business without going through multiple layers of hierarchy. Moreover, Welch stretched senior managers’ span of control to 15 or more direct reports to force more delegation and autonomy downward. Downsizing. Welch’s assault on the bureaucracy also involved cutting down the num-ber of employees. GE eliminated tens of thousands of managers and employees through delayering and de-staffing and even more through divestitures. The number of GE employees declined from about 404,000 in 1982 to 292,000 by 1989. Welch was given the nickname “Neutron Jack” because a neutron bomb killed people and left buildings intact. The nickname was reinforced by the CEO’s replacement of 12 of his 14 business heads. During this period, Welch was named “toughest boss in America.” A New Culture. Welch wanted a corporate culture based on direct conversations of openness and candor, eyeball to eyeball, between managers and direct reports rather than via formal meetings and bureaucratic paperwork. A practice called Work-Out was one answer. Groups of up to 100 employees from a business unit would gather in a town meeting-style atmosphere. The business unit boss presented a challenge and left the room. Employees divided into teams and attacked problems and bureaucratic inefficiencies in their business unit with new, often dramatic, solu-tions. On the third day, bosses returned and listened to the teams’ presentations. Bosses had about one minute to decide whether to accept or reject each proposal. One boss from an aircraft engine factory accepted 100 of 108 proposals, enabling a transformation in factory operations. Bosses often lost their jobs if they were unable to accept the dramatic change proposals from subordinates. Over 10 years, about 200,000 GE members participated in Work-Out. Going Global. Welch also focused GE on global expansion. The U.S. market was not big enough. Welch encouraged international expansion by increasing the stan-dard for business unit performance from being the “No. 1 or No. 2” business in your industry to being the No. 1 or No. 2 business in the world! To support each company’s global effort, he hired a senior manager of International Operations to facilitate each business’s overseas expansion. GE managers had to learn to think and act globally. Performance Management, Stretch Goals, and Control. Welch and his most senior executives were responsible for the progress of GE’s top 3,000 executives. They visited each company to review progress toward stated targets, often including “stretch” goals, another concept Welch introduced. Stretch goals used managers’ “dreams” as targets that might be impossible to reach but would motivate exceptional accomplishment. In another move, Welch installed a manager evaluation system on a “vitality curve.” This annual review process became known as “rank and yank,” because the top 20 percent received generous rewards, the vital 70 percent were largely left alone, and the bottom 10 percent were encouraged to leave the company. E-Business. About two years from retirement, Welch saw the potential of the Inter-net as “the biggest change I have ever seen.” He thought a big, traditional company like GE might be afraid of the new technology, so he required each business unit to establish a full-time team charged with including strategic opportunities for the Internet. Digitizing the company was Welch’s final major initiative. To summarize, the Jack Welch era at GE was the most phenomenal in company history. Welch and GE earned prestigious awards, such as Financial Times naming GE the “Most Admired Company in the World.” Moreover, Jack Welch became an icon for brilliant management and his name became known in popular culture. GE’s market value increased an astonishing 27 times from $18 billion to $500 billion under Welch’s guidance. In the year 2000, GE was the most valuable company in the world. 1.1b The Jeff Immelt Era 2001–2017 Welch personally chose Jeff Immelt to become GE’s new CEO. Immelt had broad experience at GE, changing jobs often across GE Appliance, GE Plastics, and GE Healthcare, eventually running the healthcare unit. The External Environment. Immelt and GE faced major environmental challenges almost from Day 1—starting with the September 11, 2001 terrorist attacks that stunned the world. GE also endured the 2002 stock market crash, an oil price collapse, and the 2008 collapse of Wall Street and the long global recession that followed. Strategy Changes. Immelt shifted GE toward an industrial business focus consis-tent with GE’s industrial roots while simultaneously learning to thrive in the Inter-net age. He added software capability to GE and predicted GE would become a major software company. Immelt also placed special emphasis on globalization and on more innovations via greater investments in research and development. Innovation. Under Immelt’s watch, GE developed a new concept called “reverse innovation.” GE’s innovation strategy for decades had been to develop high-end products in the United States and then sell the products internationally with modest adaptations to fit local conditions. Reverse innovation means to develop low-end products in poor countries and then sell those products in wealthy, well-developed countries. One example was the development of a cheap, portable ultrasound machine in China that was also sold successfully in the United States and Europe. Sustainability. At GE, sustainability means aligning business strategy to meet soci-etal needs, while minimizing environmental impact and advancing social develop-ment. Immelt pushed GE to embed sustainability at every level, from high-visibility initiatives such as Ecomagination (building machines that produce cleaner energy, reduce greenhouse gas emissions, and reduce clean water use) down to day-to-day safety management for employees. Sustainability also means promoting diversity, investing for affordable healthcare, investing in clean energy, and meeting ambitious environmental goals to reduce emissions. Big Decisions. Immelt’s biggest decisions were to sell most of GE Capital and to acquire the French energy business Alstom. GE Capital provided a variety of financial services—credit cards, car loans, real estate loans, subprime mortgages, and equipment leasing. GE Capital was a highly profitable business. After the 2008 financial crisis, however, GE Capital was designated “too big to fail.” Investors feared huge losses, so large parts of GE Capital were divested. This was a tough decision because in some pre-vious good years GE Capital provided nearly half of GE’s revenue and profits. The Alstom acquisition decision proved to be something of a disaster. At $13 billion, it was GE’s largest industrial acquisition. Managers soon realized not only that Alstom was operating inefficiently, but the demand for its gas-powered generation equipment was in decline. Immelt ordered Alstom to downsize by 12,000 employees. After paying $13 billion for Alstom, GE later took a write down of almost $20 billion. More Globalization. Immelt pushed international business beyond Welch’s earlier goals. He increased global revenue to 55 percent of total revenue compared to 30 percent when he took over. He explained that 90 percent of aircraft engines, 100 percent of gas turbines, and 50 percent of locomotives that GE manufactures leave the country. “That is where the customers are,” he said. Immelt championed the launch of GE’s Global Growth Organization (GGO), designed to work across the business units to increase sales in markets outside the United States. Digitalizing for Big Data Analytics. Immelt sponsored a large research effort into a sophisticated data analytics platform called Predix. This cloud-based operating system would allow GE to put sensors on industrial equipment sold to customers (e.g., jet engines, locomotives) that would provide huge volumes of data to ana-lyze machine performance and predict maintenance requirements. These data would enable GE to offer new and profitable services to customers. To summarize Immelt’s era at General Electric, most analysts thought GE fell behind rather than moved ahead. Immelt did all he could over his time as CEO to increase the value of GE stock, but over those 17 years share price declined by close to 30 percent while comparable companies (the S&P 500) rose by 124 percent. GE shed more than $150 billion in value compared to the $480 billion increase during Jack Welch’s reign. Some analysts argued that the GE conglomerate should be bro-ken up or dramatically slimmed down by selling its pieces and killing all invest-ments in R&D and innovation. They criticized Immelt for being overly optimistic in his decisions and for not confronting the reality of GE’s problems. 1.1c Events Since 2017 In 2017, GE announced that John Flannery, head of GE Healthcare, would follow Immelt as CEO. GE’s stock price soon dropped 45 percent. GE hit rock bottom during late 2018 and early 2019—its market value was about 1/10 of its peak under Jack Welch. The stock dividend that had supported GE widows and seniors for decades was cut to a single penny. The icing on the not-so-pretty cake was when GE was cut from its coveted position in the prestigious Dow Jones Industrial Average. GE’s Board of Directors soon decided that Flannery lacked the experience to han-dle the flow of crises at GE while he was still learning the company. The new CEO was 55-year-old Larry Culp, Lead Director on GE’s Board, who had 14 years’ expe-rience as CEO of Danaher Corporation. People are counting on Culp to reinstate the kind of business culture at GE that inspired other companies to copy it. Culp thought GE had become too large and complicated to be managed effectively, and he decided to slim down the company, including selling GE’s biotechnology business for $21 billion. During Culp’s first few months as CEO in 2019, GE’s stock started moving in a positive direction. With hope and hard work, managers, employees, and analysts expect the renewal of GE into an image of its former self will continue.1 1.2 Organization Design in Action Welcome to the real world of organization design. The shifting fortunes of GE illus-trate organization design in action. GE managers were deeply involved in organiza-tion design each day of their working lives—but many never realized it. Company managers didn’t fully understand how the organization related to the environment or how it should function internally. Organization design gives us the tools to evaluate and understand how and why some organizations grow and succeed while others do not. It helps us explain what happened in the past, as well as what might happen in the future, so that we can manage organizations more effectively. Organization design concepts can help Larry Culp and other GE managers analyze and diagnose what is happening and the changes that will help GE keep pace with a fast-changing world. Organization design gives people the tools to explain the decline of GE and recognize the steps managers might take to keep the company competitive. Similar problems have challenged numerous organizations. Toyota Motor Corporation, for example, had the best manufacturing system in the world and was the unchallenged auto quality leader for decades. But when top managers started implementing high-pressure goals for extensive global growth, the famous quality system was strained to a breaking point. By 2009, Toyota found itself in the middle of a crisis that culminated in the recall of more than 9 million cars due to quality problems.2 Sales at Papa John’s pizza chain dropped after a highly-publicized inci-dent of founder John Schnatter using a racial slur led to the exposure of a corpo-rate culture that belittled women and minorities. Schnatter resigned. The Board of Directors asked an outside firm to oversee an audit of the corporate culture, and the company began holding workshops on diversity and inclusion to try to fix the dysfunctional culture.3 Or consider Kodak, the company that once ruled the pho-tographic film business. Kodak invented one of the first digital cameras and spent hundreds of millions of dollars developing digital technology, but the fear of canni-balizing their lucrative film business paralyzed managers when the time came to go to market. Kodak filed for bankruptcy in 2012 and is now a shell of the company it was prior to the digital camera revolution.4 1.2a Topics Each of the topics to be covered in this book is illustrated in the opening General Electric case. Indeed, managers at organizations such as General Electric, Toyota, Kodak, and Papa John’s are continually faced with a number of challenges. For example: • How can the organization adapt to or control such external elements as compet-itors, customers, government, and creditors in a fast-paced environment? • What strategic and structural changes are needed to help the organization attain effectiveness? • How can the organization avoid management ethical lapses that could threaten its viability? • What changes are needed to address the growing demand for organizations to pay attention to sustainability issues? • How can managers cope with the problems of large size and bureaucracy? • What is the appropriate use of power and politics among managers? • How should internal conflict and coordination between work units be managed? • What kind of corporate culture is needed and how can managers shape that culture? • How much and what type of innovation and change is needed? BRIEFCASE As an organization manager, keep these guidelines in mind: Do not ignore the external environment or protect the organization from it. Because the environment is unpre-dictable, do not expect to achieve complete order and rationality within the organization. Strive for a balance between order and flexibility. These are the topics with which organization theory and design is concerned. Organization design concepts apply to all types of organizations in all industries. Man-agers at Hyundai, for example, turned the Korean auto manufacturer once known for producing inexpensive no-frills cars with a poor reputation into the world’s third largest automaker by relentlessly focusing on quality, cost-control, and customer satis-faction. After Google pulled its search engine and Gmail out of China in protest over censorship and government hacking, managers found a way to keep a foothold in the lucrative market by building relationships with local partners such as Mobvoi, Ten-cent Holdings Ltd., and others. Google has been negotiating to provide software and cloud-hosting services that would run on a data center owned by a Chinese local part-ner. Managers at the Swedish furniture giant IKEA are undertaking the most dramatic restructuring in company history to cope with rapid changes in shopping habits.5 All of these companies are using concepts based in organization design. Organization design also applies to nonprofit organizations such as United Way, Best Friends Ani-mal Society, local arts organizations, colleges and universities, and the Make-A-Wish Foundation, which grants wishes to terminally ill children. Organization design draws lessons from organizations such as GE, Google, and United Way and makes those lessons available to students and managers. As our opening example of GE shows, even large, successful organizations are vulnerable, lessons are not learned automatically, and organizations are only as strong as their decision makers. Research shows that many new companies don’t survive past their fifth birthday, yet some organizations thrive for 50 or even 100 years. Organiza-tions are not static; they continuously adapt to shifts in the external environment. Today, many companies are facing the need to transform themselves into dramati-cally different organizations because of new challenges in the environment. 1.2b Purpose of This Chapter The purpose of this chapter is to explore the nature of organizations and organi-zation design today. Organization design has developed from the systematic study of organizations by scholars. Concepts are obtained from living, ongoing organi-zations. Organization theory and design has a practical application, as illustrated by the GE case. It helps managers understand, diagnose, and respond to emerging organizational needs and problems. We first take a deeper look at the challenges today’s managers and organiza-tions face. The next section begins with a formal definition of the organization as an open system and then explores introductory concepts for describing and ana-lyzing organizations, including various structural dimensions and contingency fac-tors. We introduce the concepts of efficiency and effectiveness and describe the most common approach to measuring organizational performance. Succeeding sections examine the history of organization design, the distinction between mechanistic and organic designs, and how organization theory can help people manage complex organizations in a rapidly changing world. The chapter closes with a brief overview of the themes to be covered in this book. 1.2c Current Challenges Research into hundreds of organizations provides the knowledge base to make GE and other organizations more effective. Challenges organizations face today are different from those of the past, and thus the concept of organizations and orga-nization design is evolving. This chapter’s BookMark describes two recent organi-zational forms that are altering the organizational landscape. The world is changing more rapidly than ever before, and managers are responsible for positioning their organizations to adapt to new needs. Some specific challenges today’s managers and organizations face are globalization, intense competition, rigorous scrutiny of sus-tainability and ethical practices, the need for rapid response, and incorporating dig-ital business and big data analytics. Globalization. The cliché that the world is getting smaller is dramatically true today. Markets, technologies, and organizations are becoming increasingly intercon-nected.6 Managers who can help their companies develop a global perspective are in high demand. For example, consider Ramon Laguarta, a native of Barcelona, Spain, who took over as CEO of PepsiCo in 2018, Indian American Sundar Pichai, CEO of Google, or Medtronic CEO Omar Ishrak, a Bangladesh native who was educated in the United Kingdom and worked in the United States for nearly two decades. Today’s successful organizations feel “at home” anywhere in the world. Com-panies can locate different parts of the organization wherever it makes the most business sense: top leadership in one country and technical brainpower and pro-duction in other locales. Related trends are global outsourcing, or contracting out some functions to organizations in other countries (Nike), and strategic partnering with foreign firms to gain a global advantage (Google). Cross-border acquisitions and the development of effective business relationships in other countries are vital to many organizations’ success. Yet doing business on a global scale is not easy. After a new European Union privacy law went into effect in mid-2018, the French data protection authority fined Google 50 million euros (about $57 million) for not properly disclosing to users how it collected data to provide personalized ads.7 Uber has pulled out of several global markets, including China, Russia, and Southeast Asia, after it got into trouble defying government regulations in various countries.8 Another issue concerns outsourcing and contractor relationships. Several garment factory fires in Bangladesh and the collapse of another apparel plant that killed more than 1,100 workers put the spotlight on poor working conditions in that countryThe problem for organizations such as Walmart, H&M, Target, Apple, Amazon and other big companies that outsource is that similar poor working conditions exist in other low-wage countries such as Pakistan, Cambodia, Indonesia, and Vietnam that produce much of the world’s clothing and other products.9 Intense Competition. The growing global interdependence creates new advan-tages, but it also means that the environment for companies has become extremely complex and extremely competitive. Customers want low prices for quality goods and services, and the organizations that can meet that demand will win. Outsourc-ing firms in low-wage countries can often do work for 50 to 60 percent less than companies based in the United States, for instance, so U.S. firms that provide similarservices have to search for new ways to compete or go into new lines of business.10 One entrepreneur who developed a new type of battery for notebook computers decided to have it manufactured by a factory in Shenzhen, China. She wanted to produce the product in the United States, but U.S. contract manufacturers wanted millions of dollars up front, a demand not made by any of the manufacturers she met with in China.11 Companies in all industries are feeling pressure to drive down costs, keep prices low, and meet shifting demands. Retailers provide a stark example. Tesco, the larg-est supermarket chain in the United Kingdom, implemented a price-cutting cam-paign and is slashing thousands of jobs to trim costs as it faces growing competition from discount chains Aldi and Lidl and online shopping sites. Executives at firms including Macy’s, J. C. Penney, Family Dollar, and Gap announced the closing of additional stores in early 2019, reflecting a failure to adapt as competition and shopping habits change. Other traditional retailers, including Walmart, Target, and Best Buy, on the other hand, have seen sales increase as their managers have found ways to compete with Amazon online while also finding the right mix of products and services to bring people into their physical stores.12 Sustainability, the Green Movement, and Ethics. Today’s managers face tremen-dous pressure to “dial down their single-minded pursuit of financial gain and pay closer attention to [the organization’s] impact on employees, customers, commu-nities, and the environment.”13 People are demanding a stronger commitment by organizations to balance profit and public interest. Many companies are embracing the philosophy of sustainability, which refers to economic development that gener-ates wealth and meets the needs of the current generation while saving the environ-ment so future generations can meet their needs as well.14 Sustainable development has emerged as a key goal for organizational growth and development.15 As men-tioned in the chapter opening case, Jeff Immelt pushed GE to embed sustainability at every level of the company. Going green has become a new business imperative, driven by shifting social attitudes, new government policies, climate change, and the information technology that quickly spreads news of a corporation’s negative impact on the environment. At Interface, an Atlanta-based carpet manufacturer, founder and former chairman Ray C. Anderson implemented “Mission Zero,” a pledge to reduce the use and pro-duction of virgin raw materials and eliminate the company’s impact on the environ-ment. Current CEO Jay Gould is following in Anderson’s footsteps, with Interface becoming in 2018 one of the first flooring manufacturers to announce a goal of carbon neutrality. “We really talk about four key stakeholders” Gould says about the company’s commitment to sustainable business practices. “Our customers, our employees, our shareholders—and the environment.”16 Managers are also feeling pressure from the government and the public to hold their organizations and employees to high ethical and professional standards. Following widespread moral lapses and corporate financial scandals, organizations are under scru-tiny as never before. Facebook and other tech companies, for instance, have frequently been targeted in recent years by regulators and others demanding more oversight. In early 2019, a British parliamentary committee issued a blistering report concluding that internal Facebook e-mails prove that the company is willing to sacrifice user privacy for the sake of generating more advertising and increasing its revenue. “Social media companies cannot hide behind the claim of being merely a ‘platform’ and maintain that they have no responsibility themselves in regulating the content of their sites,” the report said, calling for new laws regulating the industry. 17 Non-tech companies aren’t immune to the scrutiny. Consulting firm McKinsey & Company recently agreed to a $15 million settlement with the U.S. Justice Department to resolve an investigation into charges that the company failed to properly disclose its financial connections to other parties while working on bankruptcy cases.18 Speed and Responsiveness. A fourth significant challenge for organizations is to respond quickly and decisively to environmental changes, organizational crises, or shifting customer expectations. For much of the twentieth century, organizations operated in a relatively stable environment, so managers could focus on designing structures and systems that kept the organization running smoothly and efficiently. There was little need to search for new ways to cope with increased competition, volatile environmental shifts, or changing customer demands. Today, new products, new companies, and even entirely new industries rise and fall faster than ever. As previously mentioned, the retail industry is undergoing a rapid and dramatic transformation. In what has been called the “retail apocalypse,” dozens of retailers, including Payless, Aeropostale, Mattress Firm, Sears, Radio Shack, Bon Ton, and Toys “R” Us, have filed for bankruptcy in recent years. Some have gone out of busi-ness entirely, while others are closing stores and struggling to survive.19 Online retail giant Amazon continues to change the game. Amazon is continuously experiment-ing with new ideas, pulling the plug quickly on those that don’t work out. In early 2019, managers announced that Amazon would shut down all 87 of its U.S. pop-up stores, small kiosk stores that operated in locations such as malls, Kohl’s stores, and Whole Foods Market locations. Meanwhile, the company continues to explore a brick-and-mortar strategy, opening more bookstores and 4-Star Stores (which sell products rated 4 stars or higher by Amazon.com customers) and planning for a new line of grocery stores. Founder and CEO Jeff Bezos believes most business decisions have to be made quickly “with somewhere around 70 percent of the information you wish you had.”20 Managers in other industries must also think fast and act fast. The large consumer products firm Procter & Gamble is cutting its divisions from 10 to 6 and giving manag-ers of those divisions more control and decision-making authority. “There is a need for greater agility,” said CEO David Taylor. “Frankly, the volatility we see in many parts of the world . . . has increased meaningfully the speed of change.”21 Considering the tur-moil and flux inherent in the world, managers and companies need a mindset of contin-uous reinvention to succeed, which typically means giving people on the frontlines the power to experiment and make decisions.22 Digital Organizations and Big Data Analytics. Today’s realm of the Internet, social networking, blogs, online collaboration, web-based communities, podcasting, mobile devices, Twittering, Facebooking, YouTube-ing, and Skype-ing is radically different from the world many established managers are familiar and comfortable with.23 The digital revolution has changed everything—not just how we communicate with one another, find information, and share ideas, but also how organizations are designed and man-aged, how businesses operate, and how employees do their jobs. One significant aspect of the digital revolution is the use of big data analytics, which refers to technologies, skills, and processes for searching and examining massive sets of data to uncover hidden patterns and correlations.24 GE attached data sensors to inter-nal moving parts on its massive machines to analyze billions of data bits to assess wear and predict maintenance needs. Facebook uses the personal data you put on your page and tracks and monitors your online behavior alo