Traditional Manufacturing Firms

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Technical Complexity

Technical complexity represents the extent of mechanization of the manufacturing process.

o    Group I: Small-batch and unit production – Manufacture and assemble small orders to meet specific needs of customers. Custom work is the norm and the company relies heavily on a human operator (not highly mechanized)

o    Group II: Large-batch and mass production – long production runs of standardized parts and customers do not have specific needs. Example: most assembly lines

o    Group III: Continuous-process production – entire process is mechanized and use automated machines to control the continuous process. Ex. chemical plants, oil refineries

•     Advantage of FMS is that products of different sizes, types, and customer requirements freely intermingle on the assembly line. 
• Allows plants to break free from the traditional manufacturing systems (mentioned above)
•     Increases both batch size and product flexibility at the same time. 
• Machine utilization is more efficient, labour productivity increases, scrap rates decrease and product variety and customer service increases.

o    Computer-aided design (CAD) – computers are used to assist in the drafting, design and engineering of new parts

o    Computer-aided manufacturing (CAM) production and assembly greatly increase the speed at which items can be manufactured. This enables the production line to quickly honour customer requests for – computer-controlled machines in materials handling, fabrication, production and assembly greatly increase the speed at which items can be manufactured. This enables the production line to quickly honour customer requests for changes in product design and mix

o    Integrated information network– A computerized system links all aspects of the firm (accounting, purchasing, marketing, etc.) together.

·       Lean manufacturing uses highly trained employees at every stage of the production process who take painstaking approach to details and problem solving to cut waste and improve quality.

·       Produces an intangible output.

·       Is abstract and often consists of knowledge and ideas versus a physical product.

·       Services consist of simultaneous production and consumption.

·       Service firms are labour and knowledge intensive

·       Customer interaction is high

·       Quality is perceived and difficult to measure

·       Rapid response time is usually necessary

·       Finally, site selection is crucial to the success of the business.

·       A service firm’s greatest economies are achieved through disaggregation into small units (versus one large warehouse like a manufacturing firm)

·       Employees are highly skilled and need social and interpersonal skills as well as technical skills. Decision-making tends to be decentralized and formalization is low.

Four Major Categories of Technology

·       Routine technologies are characterized by little task variety and the use of objective, computational procedures. The tasks are formalized and standardized.

·       Craft technologies are characterized by a fairly stable stream of activities. Tasks require extensive training and experience.

·       Engineering technologies tend to be complex because there is substantial variety in the tasks performed. However, various activities are usually handled on the basis of established formulas, procedures and techniques. Ex. accounting

·       Non-routine technologies have high task variety and the conversion process is not analyzable of well understood. Experience and technical knowledge are used to solve problems and perform the work. Ex. basic research, strategic planning

o    Formalization – Routine = standardization and division of labour into small tasks governed by rules and procedures. Non-routine = structure is less formal and standardized

o    Decentralization – Routine = decision making is centralized to management and non-routine = decentralization

o    Worker skill level – Routine = little education or experience. Non-routine = formal education and experience required

o    Span of control – Routine = larger span of control. Non-routine – smaller span of control because supervisors and subordinates must interact frequently

o    Communication and coordination – Routine = vertical communication. Non-routine = horizontal communication

o    Pooled – lowest form of interdependence, work does not flow between units. Managers should use reules and procedures to standardize activities across departments.

o    Sequential – Parts produced in one department becoming inputs to another department. The first department must perform correctly for the second department to perform correctly. Coordination is a must and requires management to effectively plan and schedule.

o    Reciprocal – Output of operation A is the input of operation B and the output of operation B is the input back again to operation A. A horizontal structure may be appropriate, with extensive planning and daily interaction.

•         Job rotation – moving employees from job to job to give them greater variety of tasks
•        Job simplification – mass production technologies tend to reduce the variety and difficulty of tasks. Usually results boring, repetitive jobs that provide little satisfaction.
•        Job enrichment – More advanced technology can provide greater responsibility, recognition, and opportunities for growth. Studies of flexible manufacturing found provide this.
•       Job enlargement – flexible manufacturing may also contribute to the expansion of the number of different tasks performed by an employee. Each employee has to be able to perform a greater number and variety of tasks

·       Transaction processing systems (TPS) automate the organization’s routine, day-to-day business transaction. A TPS collects data from transactions such as sales, purchases, inventory changes, etc. and stores them in a database. 

·       Data warehousing – the use of huge databases that combines all of an organization’s data to allow users to access the data directly, create reports and obtain responses to what-if questions. 

·       Business intelligence – Sometimes referred to as data mining, it means searching out and analyzing data from multiple sources across the enterprise and sometimes from outside sources as well. 

·       A management information system (MIS) is a computer-based system that provides information and support for managerial decision-making. It is supported by the organization’s transaction processing systems and by organizational and external databases. 

·       The information reporting system (most common form of MIS) provides mid-level managers with reports that summarize data and supports day to day decision making.

·       An executive information system (EIS) facilitates decision making at the highest level of management. 

·       A decision support system (DSS) relies on decision models and integrated databases, where users can pose a series of what-if questions to test possible alternatives. 

·       Management control systems include formal routines, reports and procedures that use information to maintain or alter patterns in organization activities. Includes the budget and financial reports, statistical reports, reward systems and quality control systems. 

·       The balanced scorecard is a comprehensive management control system that balances traditional financial measures with operational measures relating to an organization’s critical success factors. It contains four major perspectives:

o    Financial performance – reflects a concern that the organization’s activities contribute to improving short and long term financial performance. Ex. return on investment

o    Customer service – measure things such as customer retention and satisfaction

o    Internal business process – focuses on production and operating statistics, such as cost per order

o    Potential for learning and growth – focuses on how well resources and human capital are being managed.

·       A system that collects, processes and provides information about a company’s entire enterprise, including order processing, product design, purchasing, inventory, forecasting, etc. 

·       Refers to the efforts to systematically find, organize and make available a company’s intellectual capital and to foster a culture of continuous learning ad knowledge sharing so that organizational activities build on what is already known. 

• ·       Explicit knowledge is formal, systematic knowledge that can be codified, written down, and passed onto others in documents or general instructions. 
• Tacit knowledge is based on personal experience, rules of thumb, intuition and judgment. It includes professional know-how and expertise, individual insight and experience. 

o    An in-house division offers tight integration between the Internet operation and the organization’s traditional operation. The organization creates a separate unit within the company that gives the new division several advantages by piggybacking on the established company (such as brand recognition).
o    Spinoff – gives the Internet operation greater organizational autonomy, flexibility and focus by creating a separate spinoff company. Advantages include faster decision making, increasing flexibility and responsiveness  to changing market conditions. Potential disadvantages include a loss of brand recognition and marketing opportunities.
o    Strategic partnership – Offers a middle ground (whether through joint ventures or alliance), enabling organizations to attain some of the advantages and avoid the disadvantages of a spinoff or in house division. A primary disadvantage of partnerships is the time spent managing relationships, potential conflicts between partners, etc. 

o    Smaller organizations – New IT enables the organization to do more work with fewer people.

o    Decentralized Organizational Structures – IT enables organizations to reduce layers of management and decentralize decision making since information is made more readily available.

o    Improved horizontal communication – improved coordination and communication within the firm

o    Improved interorganizational relationships – can also improve horizontal coordination and collaboration with external parties through the use of extranets.

o    Enhanced network structures – Allows for outsourcing!

1.      Entrepreneurial stage – emphasis is on creating a product or service and surviving in the marketplace. As the organization starts to grow, the larger number of employees causes problems with poses management problems (Crisis: Need for leadership). Entrepreneurs must either adjust the structure of the organization to accommodate the growth or bring in new managers.

2.      Collectivity stage – The organization begins to develop clear goals and directions. Departments are established along with a hierarchy of authority, job assignments and a division of labour. If new management has been successful, lower-level employees gradually find themselves restricted by the strong top-down leadership and there is a power struggle from top management (Crisis: Need for delegation with control). The organization needs to find mechanisms to control and coordinate departments without direct supervision from the top.

3.      Formalization stage – Involves the installation and use of rules, procedures and control systems. At this point, the proliferation of systems and programs may begin to strangle middle-level executives (Crisis: Need to deal with too much red tape). Innovation is restricted and the organization seems too large and complex to be managed through formal programs.  

4.      Elaboration stage – Social control and self discipline reduce the need for additional formal controls and managers learn to work within the bureaucracy without adding to it. After the organization reaches maturity, it may enter periods of temporary decline (Crisis: Need for revitalization). A need for renewal may occur every 10 to 20 years. 

·       A way to reduce bureaucracy, The basic idea is that the organization can glide smoothly between a highly formalized, hierarchical structure that is effective during times of stability and a more flexible, loosely structured one needed to respond well to unexpected and demanding environmental conditions. 

Bureaucratic Control
·       Use of rules, policies, hierarchy of authority, written documentation, standardization, etc.
·       To work, managers must have the authority to maintain control over the organization
o    Rational-legal authority – employees belief in the legality of rules and the right of those elevated to positions of authority to issue commands
o    Traditional authority – belief in traditions and in the legitimacy of the status of people exercising authority through those traditions
o    Charismatic authority – based on devotion to the exemplary character or to the heroism of an individual person and the other defined by him or her
 
Market Control
·       Occurs when price competition is used to evaluate the output and productivity of an organization

Clan Control
·       The use of social characteristics such as corporate culture, shared values, commitment, traditions and beliefs to control behavior
·      Important when ambiguity and uncertainty are high
·       Things change so fast that rules and regulations are not able to specify every correct behaviour

o    Organizational atrophy

§  Organizations ability  to adapt to environment deteriorates

§  Warning signals include, excess personnel, cumbersome administrative procedures, lack of effective communication and coordination

o    Vulnerability

§  Some organizations are vulnerable because they are unable to define the correct strategy to fit the environment

§  Need to redefine their environmental domain to enter new industries and markets

o    Environmental decline or competition

§  Refers to reduced energy and resources available to support an organization

·       Blinded stage

o    Internal and external change threatens long term survival and might require the organization to tighten up

§  Solution: alert executives can bring the organization back to top performance

·       Inaction stage

o    Denial occurs despite signs of deteriorating performance

§  Solution: new problem solving techniques, increasing decision making participation and encouraging expression of dissatisfaction to learn what is wrong

·       Faulty action stage

o    Organization facing serious problems and indicators of poor performance cannot be ignored

o    Leaders forced to consider major changes

·       Crisis Stage

o    Organization still has not been able to deal with decline effectively and is facing panic

o    Solution: major reorganization

·       Dissolution Stage

o    Stage of decline is irreversible

1.      Communicate more not less 

2.      Provide assistance to displaced workers 

3.      Help the survivors thrive

Rites and Ceremonies

·       Special occasions that reinforce specific values, create a bond among people for sharing an important understanding and anoint and celebrate heroes and heroines who symbolize important beliefs and activities. There are four types of rites:

o    Passage – Ex. introduction and basic training

o    Enhancement – Ex. annual awards night

o    Renewal – Ex. organizational development activities

o    Integration – Ex. office holiday party

Stories

Stories are narratives based on true events that are frequently shared among organizational employees and told to new employees to inform them about an organization.

Symbols

A symbol is something that represents another thing. Ex. ceremonies, stories, slogans, rites. They symbolize deeper values of an organization.

Language

·       Many companies use a specific saying, slogan, metaphor or other form of language to convey special meaning to employees.

·       The Adaptability Culture

o    Characterized by strategic focus on the external environment through flexibility and change to meet customer needs. 

o    Innovation, creativity and risk taking are valued and rewarded

·       The Mission Culture

o    Characterized by emphasis on a clear vision of the organization’s purpose and on the achievement of goals, such as sales growth, profitability or market share. Mission cultures reflect a high level of competitiveness and profit-making orientation.

·       The Clan Culture

o     This culture focuses on the needs of employees as the route to high performance. Involvement and participation create a sense of responsibility and ownership, and hence, a greater commitment to the organization.

·       The Bureaucratic Culture

o    Has an internal focus and a consistency orientation for a stable environment. This organization succeeds by being highly efficient and integrated. 

o    Personal ethics – includes beliefs and values, moral development and ethical framework

§  Utilitarian theory – argues that ethical decisions should be made to generate the greatest benefits to the largest number of people.

§  Personal liberty – argues that decisions should be made to ensure the greatest possible freedom of choice and liberty for individuals

§  Distributive justice – holds that moral decisions are those that promote equity, fairness, and impartiality with respect to the distribution of rewards and the administration of rules, which are essential for social cooperation.

o    Organizational Culture

o    Organizational Systems – includes the basic architecture of the organization such as structure, policies, rules, code of ethics, reward system, selection and training

o    External Stakeholders 

·       Structure – managers can assign responsibility for ethical values to a specific position, such as an ethics committee. 

·       Disclosure mechanisms – organizations can establish policies and procedures to support and protect whistle-blowers. 

·       Code of Ethics – a formal statement of the company’s values concerning ethics and social responsibility; it clarifies to employees what the company stands for and its expectations for employee conduct. 

·       Training Programs – Companies can supplement written code of ethics with a training program.

·       Incremental change – a series of continual progressions that maintain the organization’s general equilibrium and often affect only one organizational part. Ex. the implementation of sales teams in the marketing department

·       Radical change – breaks the frame of reference for the organization, often transforming the entire organization. Ex. shifting the entire organization from a vertical to a horizontal structure

·       Product and services change 

·       Strategy and structure changes – Involves the supervision and management of the organization and changes can include strategic management, policies, reward systems, labour relations, coordination devices, etc.

·       Culture changes – refers to the changes in values, attitudes, expectation, beliefs, abilities and behaviour of employees and pertains to changes in how employees think

·       Technology changes – changes in an organization’s production process, including its knowledge and skill base that enable distinctive competence.

1.      Ideas 

2.      Needs

3.      Adoption 

4.      Implementation 

5.      Resources 

To incorporate structures and management processes that are appropriate to both the creation and implementation of innovation. 

Techniques for Encouraging Technology Change

·       Switching structures – an organization creates an organic structure when such a structure is needed for the initiation of new ideas.

·       Separate Creative Departments – The initiation of innovation is assigned to separate creative departments. Departments that initiate change are organically structured to facilitate the generation of new ideas and techniques. Another type of creative department is the idea incubator.

·       Venture Teams – Teams are given a separate location and facilities so they are not constrained by organizational procedures. One type of venture is called a skunkworks. A skunkworks is a separate, small, informal, highly autonomous and often secretive group that focuses on breakthrough ideas for the business.

·       Corporate Entrepreneurship – Attempts to develop an internal entrepreneurial spirit, philosophy and structure that will provide a higher-than-average number of innovations. 

·       Specialization – The key departments in new product development are R&D, marketing and production. Personnel in these departments are highly specialized.

·       Boundary Spanning – Each department involved with new products has excellent linkage with relevant sectors in the external environment. Ex. marketers must be closely linked with their customers and needs.

·       Horizontal Coordination – This component means that technical, marketing and production people share ideas and information. Ex. marketing people provide customer complaints and information to R&D to use in the design of new products. 

·       Re-engineering and horizontal organizing

o    Changes the way managers and employees need to think about how work is done and requires greater focus on employee empowerment, collaboration, information sharing and meeting customer needs.

·       Diversity

o    Many organizations are implementing new recruiting, mentoring and promotion methods, policies and procedures, etc. that respond to a more diverse workforce. However if the underlying culture of an organization does not change, all other efforts to support diversity will fail!!!

·       The Learning Organization

o    A learning organization cannot exist without a culture that supports openness, equality, adaptability and employee participation.

o    Large Group Intervention – Brings together participants from all parts of the organization (often including stakeholders outside of the business) in an off-site setting to discuss problems or opportunities and a plan for change.

o    Team Building – Team building activities enhance communication and collaboration and strengthen the cohesiveness of organizational groups and teams.

o    Interdepartmental Activities – representatives from different departments are brought together in a mutual location to expose problems or conflicts, diagnose the causes and plan improvements in communication and coordination. 

1.      Excessive focus on costs 

2.      Failure to perceive benefits – education may be needed to help managers and employees perceive more positive than negative aspects of the change

3.      Lack of coordination and cooperation

4.      Uncertainty avoidance – many employees fear the uncertainty associated with change. Constant communication is a must!

5.      Fear of loss – managers and employees may fear the loss of power and status, or even their jobs. In this case, implementation should be careful and incremental and all employees should be involved.

·       Establish a sense of urgency for change

·       Establish a coalition to guide change – develop a group of people who have enough power and influence to steer the change process

·       Create a vision and strategy for change – a vision of how the future can be better and strategies for how to get there are important motivations for change

·       Find an idea that fits the need

·       Develop plans to overcome resistance to change

·       Create change teams – This team can be responsible for communication, involvement of users, training and other activities needed for change.

·       Foster idea champions – the most effective champion is a volunteer champion who is deeply committed to the new idea. A manager may be needed to accompany this person.

o    Alignment with needs and goals of users 

o    Communication and training 

o    An environment that afford psychological safety

o    Participation and involvement 

o    Forcing and coercion