Review chapter three of your textbook and the following article that is listed as part of the Module reading assignments. Warren, J. S. (2016). The case for trust

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illustrated in Exhibit 3.1. The thinking and decision making are done by those at the top, and the physical work is performed by employees who are organized into distinct, functional departments. This structure was quite effective and became entrenched in business, nonprofit, and military organizations for most of the twentieth century. However, this type of vertical structure is not always effective, particularly in rapidly changing environments. Over the years organizations have developed other structural designs, many of them aimed at increasing horizontal coordination and communication and encouraging adaptation to external changes. This chapter's BookMark suggests that new approaches to organizing and managing people are crucial for companies to attain durable competitive advantages in the twenty-first century.

A popular form of organizing is to have employees work on what they want in whatever department they choose so that motivation and enthusiasm stay high. ANSWER: Disagree. A small number of firms have tried this approach with some success, but a typical organization needs to structure its work activities, positions, and departments in a way that ensures work is accomplished and coordinated to meet organizational goals. Many managers try to give some consideration to employee choices as a way to keep enthusiasm high.

Information-Sharing Perspective on Structure The organization should be designed to provide both vertical and horizontal information flow as necessary to accomplish the organization's overall goals. If the structure doesn't fit the information requirements of the organization, people either will have too little information or will spend time processing information that is not vital to their tasks, thus reducing effectiveness.12 However, there is an inherent tension between vertical and horizontal mechanisms in an organization. Whereas vertical linkages are designed primarily for control, horizontal linkages are designed for coordination and collaboration, which usually means reducing control.

Centralized Versus Decentralized One question is the level at which decisions are made in the organization, because that determines where information is needed. Centralization and decentralization pertain to the hierarchical level at which decisions are made. Centralization means that decision authority is located near the top of the organization. With decentralization, decision authority is pushed downward to lower organization levels.

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Organizations can choose whether to orient toward a traditional organization designed for efficiency, which emphasizes vertical communication and control (a mechanistic design, as described in Chapter 1), or toward a contemporary flexible learning organization, which emphasizes horizontal communication and coordination (an organic design). Exhibit 3.3 compares organizations designed for efficiency with those designed for learning and adaptation. An emphasis on efficiency and control is associated with specialized tasks, a hierarchy of authority, rules and regulations, formal reporting systems, few teams or task forces, and centralized decision making. Emphasis on learning and adaptation is associated with shared tasks; a relaxed hierarchy; few rules; face-to-face communication; many teams and task forces; and informal, decentralized decision making.

BOOKMARK HAVE YOU READ THIS BOOK?

The Future of Management

By Gary Hamel with Bill Breen

Management breakthroughs such as the principles of scientific management, divisionalized organization structure, and using brand managers for horizontal coordination have created more sustained competitive advantage than any hot new product or service innovation, says Gary Hamel in The Future of Management, written with Bill Breen. Wait a minute—haven't those ideas been around since—well, forever? Exactly the point, says Hamel. In fact, he points out that many of today's managers are running twenty-first-century organizations using ideas, practices, and structural mechanisms invented a century or more ago. At that time, the principles of vertical hierarchy, specialization, bureaucratic control, and strong centralization were radical new approaches developed to solve the problem of inefficiency. They are too static, regimented, and binding today when the pace of change continues to accelerate. Today's organizations, Hamel argues, have to become “as strategically adaptable as they are operationally efficient.”

SOME STRUCTURAL INNOVATORS Hamel suggests that the practice of management must undergo a transformation akin to that which occurred with the Industrial Revolution and the advent of scientific management. Here, from The Future of Management, are a few examples that offer glimpses of what is possible when managers build structure around principles of community, creativity, and information sharing rather than strict hierarchy:

• Whole Foods Market. Teams are the basic organizational unit at Whole Foods, and they have a degree of autonomy nearly unprecedented in the retail industry. Each store is made up of eight or so self-directed teams that oversee departments such as fresh produce, prepared foods, dairy, or checkout. Teams are responsible for all key operating decisions, including pricing, ordering, hiring, and in-store promotions.

• W. L. Gore. W. L. Gore's innovation was to organize work so that good things happen whether managers are “in control” or not. Gore, best known for Gore-Tex fabric, lets employees decide what they want to do. There are no management

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layers, few titles, and no organization charts. As at Whole Foods, the core operating units are small teams, but at Gore people can choose which teams to work on and say no to requests from anyone. Gore also builds in strong accountability—people are reviewed by at least 20 of their peers every year.

• Visa. Everybody's heard of Visa, but few people know anything about the organization behind the brand. Visa is the world's first almost-entirely virtual company. In the early 1970s, a group of banks formed a consortium that today has grown into a global network of 21,000 financial institutions and more than 1.3 billion cardholders. The organization is largely selforganizing, continually evolving as conditions change.

HOW TO BE A MANAGEMENT INNOVATOR Most companies have a system for product innovation, but Hamel notes that few have a well-honed process for management innovation. The Future of Management provides detailed steps managers can take to increase the chances of a breakthrough in management thinking. Hamel considers the rise of modern management and organization design the most important innovation of the twentieth century. It is time now, though, for twenty-first-century ideas.

The Future of Management, by Gary Hamel with Bill Breen, is published by Harvard Business School Press.

Organizations may have to experiment to find the correct degree of centralization or decentralization to meet their needs. For example, a study by William Ouchi found that three large school districts that shifted to a more flexible, decentralized structure, giving school principals more autonomy, responsibility, and control over resources, performed better and more efficiently than large districts that were highly centralized.13 Government leaders in Great Britain hope the same thing will happen when they decentralize the country's National Health Service. The system is undergoing the most radical restructuring since it was founded in 1948, with a key part of the plan to shift control of the multibillion dollar annual healthcare budget to doctors at the local level. Leaders believe decentralization will cut costs, simplify and streamline procedures, and reduce inefficiency by “putting power in the hands of patients and clinicians.”14

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EXHIBIT 3.3 The Relationship of Organization Design to Efficiency Versus Learning Outcomes

Even Japanese companies such as Toyota, which have a strong tradition of centralization, are seeing the power of decentralization for promoting a sense of ownership.

Toyota

“We didn't have to go back to Japan for approval on everything,” said Randy Stephens, the chief engineer at the Toyota Technical Center near Ann Arbor, Michigan, where the new version of the Avalon was designed and engineered. “We might go back to review the status of the project, but there is a feeling of ownership of this car here.”

The new version of the Avalon, designed and engineered in Michigan and built in Kentucky, is being promoted as the company's most American vehicle ever. It is the first prototype not developed in Japan, and it is testing how well Toyota can decentralize decision making to the company's subsidiaries. Following four years of crisis related to safety issues and recalls, Toyota managers have been gradually rebuilding a stronger company, which includes delegating responsibilities more globally.

The company was strongly criticized for its need to coordinate every decision regarding the safety issues and recalls from headquarters. Executives have since overhauled the quality control process and decentralized more decision making to regional managers in charge of safety in North America, Europe, and Asia.15

Although many decisions will still rest with executives at headquarters, Toyota has realized that some decisions need to be made close to the action. Regional

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managers believe the problems Toyota went through have given top executives freedom to take risks they might not have taken otherwise.16

However, not every organization should decentralize all decisions. Within many companies, there is often a “tug of war between centralization and decentralization” as top executives want to centralize some operations to eliminate duplication, while business managers want to maintain decentralized control.17 Managers are always searching for the best combination of vertical control and horizontal collaboration, centralization and decentralization, for their own situations.18

Vertical Information Sharing Organization design should facilitate the communication among employees and departments that is necessary to accomplish the organization's overall task. Managers create information linkages to facilitate communication and coordination among organizational elements. Vertical linkages are used to coordinate activities between the top and bottom of an organization and are designed primarily for control of the organization. Employees at lower levels should carry out activities consistent with top- level goals, and top executives must be informed of activities and accomplishments at the lower levels. Organizations may use any of a variety of structural devices to achieve vertical linkage, including hierarchical referral, rules and plans, and formal management information systems.19

Hierarchical Referral. The first vertical device is the hierarchy, or chain of command, which is illustrated by the vertical lines in Exhibit 3.1. If a problem arises that employees don't know how to solve, it can be referred up to the next level in the hierarchy. When the problem is solved, the answer is passed back down to lower levels. The lines of the organization chart act as communication channels.

Rules and Plans. The next linkage device is the use of rules and plans. To the extent that problems and decisions are repetitious, a rule or procedure can be established so employees know how to respond without communicating directly with their manager. Rules and procedures provide a standard information source enabling employees to be coordinated without actually communicating about every task. At PepsiCo's Gemesa cookie business in Mexico, for example, managers carefully brief production workers on goals, processes, and procedures so that employees themselves do most of the work of keeping the production process running smoothly, enabling the plants to operate with fewer managers.20 Plans also provide standing information for employees. The most widely used plan is the budget. With carefully designed and communicated budget plans, employees at lower levels can be left on their own to perform activities within their resource allotment.

Vertical Information Systems. A vertical information system is another strategy for increasing vertical information capacity. Vertical information systems include the periodic reports, written information, and computer-based communications distributed to managers. Information systems make communication up and down the hierarchy more efficient.

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In today's world of corporate financial scandals and ethical concerns, many top managers are considering strengthening their organization's linkages for vertical information and control. The other major issue in organizing is to provide adequate horizontal linkages for coordination and collaboration.

BRIEFCASE

As an organization manager, keep these guidelines in mind:

Provide vertical and horizontal information linkages to integrate diverse departments into a coherent whole. Achieve vertical linkage through hierarchy referral, rules and plans, and vertical information systems. Achieve horizontal linkage through cross-functional information systems, liaison roles, task forces, fulltime integrators, and teams.

Horizontal Information Sharing and Collaboration Horizontal communication overcomes barriers between departments and provides opportunities for coordination and collaboration among employees to achieve unity of effort and organizational objectives. Collaboration means a joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose and that are typically greater than what any of the individuals or departments could achieve working alone.21 To understand the value of collaboration, consider the 2011 U.S. mission to raid Osama bin Laden's compound in Pakistan. The raid could not have succeeded without close collaboration between the Central Intelligence Agency (CIA) and the U.S. military. There has traditionally been little interaction between the nation's intelligence officers and its military officers, but the war on terrorism has changed that mindset. During planning for the bin Laden mission, military officers spent every day for months working closely with the CIA team in a remote, secure facility on the CIA campus. “This is the kind of thing that, in the past, people who watched movies thought was possible, but no one in the government thought was possible,” one official later said of the collaborative mission.22

Horizontal linkage refers to communication and coordination horizontally across organizational departments. Its importance is articulated by comments made by Lee Iacocca when he took over Chrysler Corporation in the 1980s. The following quote might be three decades old, but it succinctly captures a problem that still occurs in organizations all over the world:

What I found at Chrysler were thirty-five vice presidents, each with his own turf. … I couldn't believe, for example, that the guy running engineering departments wasn't in constant touch with his counterpart in manufacturing. But that's how it was. Everybody worked independently. I took one look at that system and I almost threw up. That's when I knew I was in really deep trouble. … Nobody at Chrysler seemed to understand that interaction among the different functions in a company is absolutely critical. People in engineering and manufacturing almost have to be sleeping together. These guys weren't even flirting!23

During his tenure at Chrysler, Iacocca pushed horizontal coordination to a high level. All the people working on a specific vehicle project—designers, engineers, and manufacturers,

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as well as representatives from marketing, finance, purchasing, and even outside suppliers —worked together on a single floor so they could easily communicate. Horizontal linkage mechanisms often are not drawn on the organization chart, but nevertheless are a vital part of organization structure. Small organizations usually have a high level of interaction among all employees, but in a large organization such as Chrysler, Microsoft, or Toyota, providing mechanisms to ensure horizontal information sharing is critical to effective collaboration, knowledge sharing, and decision making.24 For example, poor coordination and lack of information sharing has been blamed for delaying Toyota's decisions and response time to quality and safety issues related to sticky gas petals, faulty brakes, and other problems.25 The following devices are structural alternatives that can improve horizontal coordination and information flow.26 Each device enables people to exchange information.

Information Systems. A significant method of providing horizontal linkage in today's organizations is the use of cross-functional information systems. Computerized information systems enable managers or frontline workers throughout the organization to routinely exchange information about problems, opportunities, activities, or decisions. For example, at Veterans Administration (VA) hospitals around the country, a sophisticated system called Vista enables people all across the organization to access complete patient information and provide better care. By enabling close coordination and collaboration, technology helped transform the VA into one of the highest-quality, most cost-effective medical providers in the United States.27

Some organizations also encourage employees to use the company's information systems to build relationships all across the organization, aiming to support and enhance ongoing horizontal coordination across projects and geographical boundaries. CARE International, one of the world's largest private international relief organizations, enhanced its personnel database to make it easy for people to find others with congruent interests, concerns, or needs. Each person in the database has listed past and current responsibilities, experience, language abilities, knowledge of foreign countries, emergency experiences, skills and competencies, and outside interests. The database makes it easy for people working across borders to seek each other out, share ideas and information, and build enduring horizontal connections.28

Liaison Roles. A higher level of horizontal linkage is direct contact between managers or employees affected by a problem. One way to promote direct contact is to create a special liaison role. A liaison person is located in one department but has the responsibility for communicating and achieving coordination and collaboration with another department. Liaison roles often exist between engineering and manufacturing departments because engineering has to develop and test products to fit the limitations of manufacturing facilities. An engineer's office might be located in the manufacturing area so the engineer is readily available for discussions with manufacturing supervisors about engineering problems with the manufactured products. A research and development person might sit in on sales meetings to coordinate new product development with what sales people think customers are wanting.

Task Forces. Liaison roles usually link only two departments. When linkage involves several departments, a more complex device such as a task force is required. A task force

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is a temporary committee composed of representatives from each organizational unit affected by a problem.29 Each member represents the interest of a department or division and can carry information from the meeting back to that department.

Task forces are an effective horizontal linkage device for temporary issues. They solve problems by direct horizontal collaboration and reduce the information load on the vertical hierarchy. Typically, they are disbanded after their tasks are accomplished. Organizations have used task forces for everything from organizing the annual company picnic to solving expensive and complex manufacturing problems. One example comes from Georgetown Preparatory School in North Bethesda, Maryland, which used a task force made up of teachers, administrators, coaches, support staff, and outside consultants to develop a flu preparedness plan. When the H1N1 flu threat hit several years ago, Georgetown was much better equipped than most educational institutions to deal with the crisis because they had a plan in place.30

Committees and task forces whose members are from different departments are often worthless for getting things done. ANSWER: Disagree. The point of cross-functional committees and task forces is to share information to coordinate their departmental activities. Meeting, talking, and disagreeing are the work of the committee. These groups should not try to “get things done” in the sense of being efficient.

Full-time Integrator. A stronger horizontal linkage device is to create a full-time position or department solely for the purpose of coordination. A full-time integrator frequently has a title, such as product manager, project manager, program manager, or brand manager. Unlike the liaison person described earlier, the integrator does not report to one of the functional departments being coordinated. He or she is located outside the departments and has the responsibility for coordinating several departments. The brand manager for Planters Peanuts, for example, coordinates the sales, distribution, and advertising for that product.

The integrator can also be responsible for an innovation or change project, such as coordinating the design, financing, and marketing of a new product. An organization chart that illustrates the location of project managers for new product development is shown in Exhibit 3.4. The project managers are drawn to the side to indicate their separation from other departments. The arrows indicate project members assigned to the new product development. New Product A, for example, has a financial accountant assigned to keep track of costs and budgets. The engineering member provides design advice, and purchasing and manufacturing members represent their areas. The project manager is responsible for the entire project. He or she sees that the new product is completed on time, is introduced to the market, and achieves other project goals. The horizontal lines in

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Exhibit 3.4 indicate that project managers do not have formal authority over team members with respect to giving pay raises, hiring, or firing. Formal authority rests with the managers of the functional departments, who have direct authority over subordinates within their departments.

EXHIBIT 3.4 Project Manager Location in the Structure

Integrators need excellent people skills. Integrators in most companies have a lot of responsibility but little authority. The integrator has to use expertise and persuasion to achieve coordination. He or she spans the boundary between departments and must be able to get people together, maintain their trust, confront problems, and resolve conflicts and disputes in the interest of the organization.31

Teams. Project teams tend to be the strongest horizontal linkage mechanism. Teams are permanent task forces and are often used in conjunction with a fulltime integrator. When activities among departments require strong coordination and collaboration over a long period of time, a cross-functional team is often the solution. Special project teams may be used when organizations have a large-scale project, a major innovation, or a new product line. JetBlue Airways put together a special project team made up of crew schedulers, systems operators, dispatchers, reservations agents, and other employees to revise how the airline handles and recovers from “irregular operations,” such as severe weather. How effectively airlines manage and recover from these events dramatically affects performance and customer satisfaction, but effectiveness requires close coordination. At the first team meeting, leaders presented a simulated emergency and asked the team to

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map out how they would respond. As team members went through the process, they began to spot problems. The goal of the team is to work out solutions to help JetBlue improve both regular on-time performance and its recovery time from major events.32

Many of today's companies use virtual cross-functional teams. A virtual team is one that is made up of organizationally or geographically dispersed members who are linked primarily through advanced information and communications technologies. Members frequently use the Internet and collaborat

59

The Case for Trust as a Soft or Behavioral Control for

Organizational Effectiveness (OB)

Jimmie S. Warren

Mississippi Valley State University

ABSTRACT

With the exponential increases in Information Technology (IT), the 21st century

competitive landscape has experienced more dynamic change than ever before.

Because of these dynamic and constantly changing environments, organizational

leaders have been tasked with finding new and more appropriate avenues that

lead to competitive advantages in situations where the traditional tangible

controls for organizational effectiveness (OE) have been challenged. These

challenges to traditional controls for OE are due to intangible, tacit, behavioral

variables that have become hallmarks of 21st century competitive environments.

Research studies have suggested that soft or behavioral controls for OE could be

the appropriate 21st century response in tandem with traditional OE controls.

This paper provides an argument in support of the case for soft or behavioral

controls for organizational effectiveness as a 21st century response to an ever

changing and dynamic 21st century competitive landscape and as means to

producing a 21st century sustainable competitive advantage.

Keywords: soft or behavioral controls, organizational effectiveness, changing dynamic

competitive environments, reciprocity, trust in immediate supervisor, trust in top

management, organizational trust.

Introduction

Increased globalization has challenged the organizational effectiveness (OE) of many firms,

including for-profit, nonprofit, and government agencies. Traditionally, the ideologies of Taylor,

Weber, and Simon, which emphasized a closed, rational, top-down hierarchical bureaucracy,

machine age thinking focused on internal processes, impacted OE in the 19th and 20th centuries

(Baker & Branch, 2002; McCann, 2004). However, the traditional OE pre

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