Thursday, May 14, 2009

Management Transformation

Management has gone through a significant level of fundamental transformation as a result of tremendous changes and increasing uncertainty in the business environment.

In the past, the business conditions were generally stable and predictable. Industry players were few and competition was not as intense or frenzied. Markets were primarily local or located within a limited geographical and cultural sphere and there was not much product heterogeneity. Meanwhile, the workforce was homogeneous and technology was less sophisticated and more mechanical. Thus, organizational values and goals were focussed primarily towards efficiency and stability. Planning was centralized and goals were generally set over a longer time-horizon. Management structures tended to be rigid and vertical and were characterized by top-down, autocratic hierarchies -coordination and decision-making primarily emanated from the top. People were grouped by common function and specialization, and essentially controlled and directed towards the achievement of bottom-line results. Rules and regulations were strictly enforced and operational procedures were generally standardized.

As the business environment increased in complexity and changes happening very rapidly, organization and management have been undergoing significant transformation to cope with these changes and reduce the impact of the uncertainties that these changes have brought along. Among the significant changes that have tremendous impact on the old management paradigm on a macro-perspective are globalization, technological innovation and changing social, political and economic conditions or circumstances. On a micro-level, these changes cover the rapidly shifting and increasingly sophisticated customer tastes and needs as well as the entry of competitors offering substitute products. Internally, these changes would include the transformation of the internal corporate culture as well as enhancements in the management of human resources in response to increasing workplace diversity and evolving needs of the workforce. To cope with these changes, organizations have adapted new approaches to management veering towards a learning organization.

Under the traditional management, strategy and planning have been the domain of the top managers. A central planning department was put in place composed of groups of planning specialists reporting directly to the CEO or the president. Given that the business environment was relatively stable and predictable, organizational goals and plans were usually long-term. However, as the business environment grew more competitive, complicated and fast-paced, the traditional/formal planning has become obsolete or inappropriate. Among the problems being cited are as follows:

a) Planners may not be in touch with the constantly changing market realities faced by the front-liners who are in direct contact with the customers;
b) Inhibition of flexibility whereby managers and workers may be stuck trying to follow a plan that no longer works due to changes in the environment; and,
c) Restrained creativity and learning among managers and workers as a result of the implementation of strict goals and plans set by the top management.

To address these problems, companies are shifting towards decentralized planning wherein planning experts were assigned to major departments or divisions to help them develop their own strategic plans. In some cases, organizations use planning task forces made up of temporary groups of line managers who have the responsibility of developing strategic plans. Others have taken planning a step further by involving workers at every level to develop dynamic plans to meet the organization's needs.

Traditional organizations were characteristically rigid and the structures vertical. Decision-making was centralized from the top with a clear line of command and authority. Work specialization and departmentalization was imposed given the traditional firm's focus on the value of efficiency. The traditional approach, however, resulted to poor coordination and communication among the different departments or divisions. In today's fast-shifting business environment and increasing market uncertainty, this approach has become ineffective.

In response to the changing environment, managers are shifting towards a learning organization approach which is characterized by a horizontal structure, team-based, decentralized decision-making, open information, empowered employees and a strong, adaptive corporate culture. In approaching the process of organizing, however, managers should consider various contingency factors that could influence the organization structure. Among these contingency factors are:

a) Strategic Goals involving either a product differentiation strategy (more horizontal) or a cost leadership strategy (more vertical).
b) The environmental uncertainty such that the higher the level of uncertainty, the more horizontal should be the organization.
c) The level of manufacturing and service technologies.
d) Departmental interdependence.

Leading under the traditional organization was characteristically autocratic. As mentioned earlier, decision-making was centralized from the top with a clear-cut chain of command and authority. Communication channels were formal and generally downward. The traditional manager relies primarily on his legitimate, reward and coercive powers to influence his subordinates.

Learning organizations have adapted a more democratic and participative kind of leadership in response to the highly evolving business environment. The trend towards employee empowerment has given employees more say in the organization; thus making them contribute more to the organizational goals. Leadership in the learning organization relies more on expert and referent power. Among the types of leadership under the new organization include charismatic and transformational leadership. However, the traditional type of leadership may still be appropriate in certain instances such as the case for John McCoy of Banc One. Thus, approaches to leadership in the organization depends on certain situations which may include leader-member relationship, task structure, position power as well as follower readiness.

Under the learning organization, leadership is guided by the principal of "controlling with" others. The leader builds relationship by creating a shared vision and shaping the culture that can help achieve it.

Controlling under the traditional organization is bureaucratic in nature. It involved monitoring and influencing employee behavior through extensive use of rules, policies, centralized control and hierarchy of authority, rewards system and other formal mechanisms. Responsibility for control rests with quality control supervisors and not the employees. Employees rarely participate in the control process. Being a rigid organization, technology is used to control the flow and pace of work to monitor employees. While this approach may enhance organizational efficiency and effectiveness, the absence of systems to clarify what is expected of the employees may reduce motivation level in the organization.

Centralizing control, as mentioned earlier, tends to restrict creativity and flexibility that an organization would need to cope with the changes and uncertainties in the environment. As such, managers have started to implement decentralized control systems with employees participating in a wider range of areas including setting goals, determining standards of performance, governing quality and designing control systems. With decentralized control, employees are expected to pool their areas of expertise to arrive at procedures better than managers working alone.

Among the recent innovation in organizational control that was driven by the rising global competition and increasing customer satisfaction is Total Quality Management (TQM) which involves an organization-wide effort to infuse quality into every activity of a company.

There are other changes in organizational control resulting from the changes in organizational internal and external environments such as globalization, changes in management structures and methods, information sharing and employee participation as well as the increasing quality demands from customers and the need to cut cost to remain competitive. These include International Quality Standard (e.g. ISO 9000), Economic Value Added (EVA), Open-Book Management and Activity Based Costing (ABC).

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