Organisational Forms Best Suited to Develop Innovations - Essay Example

ORGANISATIONAL FORMS BEST SUITED TO DEVELOP INNOVATIONS Introduction In examining the historical evolution of organisations, we are faced with interesting trends. First, organisational forms emerged in waves, and second, once these forms were established, others remained applicable to the present situation and stay there for a considerable length of time while others evolve and change into some form. The situation in this second trend is that the environment is changing giving advantage to some organisational forms at particular times. These organisations established during a particular period have technologies and structures available during that time. Organisational forms are dependent on the resources and technology available in a given situation. Other factors include the state’s resources and role, the development of the economy, the political development, technological advancement, and similar other forces. Emergence of organisational forms also depends on three factors: 1.) technological advancement with a corresponding social structural support; 2.) power and wealth available in a given situation; and 3.) the development of labour markets. (Aldrich, 2008, p. 177) This essay will discuss aspects and factors of organisational forms that are best suited to innovations. Innovation takes place when there is a “new element or a combination of old elements” (Schumpeter, 1934 cited in Sundbo, 2003, p. 98). Globalisation Globalisation paved the way for new organisational forms. This was further enhanced with the popularity of the internet, information technology and the information revolution. Many organisations have followed the horizontal set-up, freeing some reins of power to their branches and subsidiaries, while some have followed the traditional form or the vertical set up, micro-managing their branches through technology. Organisations have to continuously introduce innovations in this age of intense globalisation. Changes and innovations have to be applied on marketing strategies, product orientation, HRM practices, and many other organisational strategies. Employees have to be prepared, trained and developed. Some strategies are institutionally programmed although change has to be spontaneous. Workers have to study and learn and hold the opportunity of lifelong learning. Companies attain competitive edge through constant innovation. The first periods of the new century marked profound shifts in organisation’s strategies with aims for talents, technologies and customer focus and loyalty (Venkatraman and Henderson, 2008, p. 258). Organisations keep constant contact with customers, looking for ways to satisfy their needs and wants. Good customer relation is an important aspect of business (McColl-Kennedy & Schneider, 2000, p. S884). Meeting the customers’ needs and wants is a business trend in the age of globalisation. Organisations now aim for customer loyalty while keeping cost of production low. This is shooting two birds in one shot but difficult to achieve; difficult because meeting the customers’ needs and wants at the same time minimising cost of production do not ensure quality product or service. Organisational forms that permit individual innovations as part of management provide success in the long run. Individual innovations are also accompanied by corporate social responsibility. Empirical studies conducted in Estonia, Chinese, Japan, Russia and Slovakia, stated that innovative climate in an organisation leads to success in organisational objectives. Employee innovative behaviour is one aspect because this can lead to motivate others in the workplace. (Al-Hakim and Jin, 2010, p. 186) The Role of Knowledge Management In the age of globalisation, knowledge is both a product and resource. Organisations are now focused on knowledge-based economies and are more concerned with the knowledge people possess – this is known as people-embodied knowhow. Firms take care of their workforce because of the knowledge they possess. Knowledge and knowledge management are significant developments in the new globalising environment. There are various kinds of organisational knowledge but the most common forms are tacit and explicit. (Rodriguez and de Pablos, 2000, p. 175) Knowledge management and the creation of knowledge are phases or steps very much present in the study of organisational forms. Knowledge management in the context of the physical place of an organisation draws one’s attention to the philosophy proposed by the Japanese philosopher Kitaro Nishida (Nonaka and Konno, 2008, p. 40). Knowledge can be acquired through experience and when these two are separated, it becomes information. The information revolution has spawned numerous technologies geared towards automating the office. Information Systems have created new paradigm shifts in organisational processes. The trend in organisations is implementing Office Information Systems solutions such as groupware and enterprise applications, for example databases or shared repositories, intranets, workflow, imaging systems, and other customized applications. Change continuously occurs Change is a part of business life and change management has to have a distinct place in the organisation. Burnes (2009, p. 261) states that change management does not have a theoretical framework but it includes a number of social science disciplines and traditions in theory and practice. Technological advancement and continuous innovations have motivated organisations and businesses to react to changes in the global competition. Organisations have to reorganize, re-evaluate and reprogram outdated functional programs and activities, and realign them to the present trends for improvement. Personnel and field people, ordinary employees, including middle-level and top management have to refocus along the line of technological innovations. External and internal environments in organisations are becoming complex; thus they are handled with a globally-oriented brand of management, with the aid of Information Technology. Corporate management is now handling a global-scale brand of management, requiring a different kind of strategy, much distinct from traditional management. Global firms are continuously innovating. Most of these organisations have subsidiaries in many countries. In introducing their products and services to the world, they have to think of effective strategies. Are they to concentrate on adapting to the local culture or standardize their products and services? In 1988, Hite and Fraser made a study on whether firms preferred standardisation or adaptation in international trade and business throughout many countries. The study utilised a sample of 418 Fortune 500 companies which produced varied findings. The respondents comprised of 66 percent international firms that advertised internationally, but of this percentage, only 8 percent patronised standardisation in advertising, with the rest using adaptation in their advertising campaign. The conclusion is that changes and innovation should be applied by global firms in adapting to the local culture of a host country. (Baker, 2000, p. 23) How do firms react to changes? Large incumbent firms are not really keen on adapting innovations because of their organisational structure. Burns and Stalker (1961 cited in Swann and Gill, 1993, p. 15) mentioned two forms of organisations: the organic and the mechanistic organisations. Mechanistic firms have a well-defined organisational structure and could easily adapt to stable and predictable market forces for which they con easily take hold of. The organic form, on the other hand, adapts to rapidly changing conditions specifically when problems and requirements cannot be easily met. Old organisations cannot easily adapt to rapidly changing conditions and thus cannot enforce innovations. Nelson and Winter (1982 cited in Swann and Gill, 1993, p. 15) stated that large complex organisations are not susceptible to innovations and just depend on tried and tested innovations which are routines. The routines here cannot be simply changed because they are costly and risky. Large global firms that can easily adapt and apply innovations are those which have decentralized (example Toyota). Toyota’s brand of management is unique, one that uses innovation as a major function of management. Another example is Apple Inc. which is a leading innovator in the field of technology; its market structure is unique, it uses online and offline marketing strategies. Compared to other retail giants, including high-end luxury goods, Apple has maintained an impressive performance. (Bernstein Research, 2011, p. 91) Firms that commit to change and continuous innovation Firms that commit to change motivate employees to be involved and the method is continual improvement, far different from the traditional way. Workers are formed in teams and function through teamwork and motivation. Each team is allowed to function independently while each member is responsible to the team. Toyota Motors and Southwest Airlines are models in innovation. Toyota has been successful in many ways – it was a struggling small company trying to penetrate the competitive global market of the car industry. Now it is leading and a threat to other automakers especially US companies. Southwest Airlines likewise has a brand of management with innovations here and there – their customer care and service is one of a kind. The Toyota Example Toyota introduces a unique organisational form like the formation of function councils, general councils, including committees which are formal organisations that have important roles in management. Function councils perform management functions and are established according to the functions which are important to the organisation, for example, quality, cost, personnel and human resource, etc. Function councils have objectives which are yearly defined. To summarize it, function councils are organisational bodies which formulate business strategies. On the other hand, general councils are organisational bodies which provide major decisions pertaining to development, production and purchasing. They also decide on new product development, equipment planning, and market strategies. Toyota has TQM’s hoshin kanri which establishes maintenance and control strategies. (Hino, 2006, p. 110) Toyota has competed with large competitors because of an effective organisational form that motivates its employees to be competitive and efficient. Their strategies involve innovations in production, marketing, sales and promotions and branding. In the 1950s, Toyota was a small company, building 18,000 vehicles annually. It introduced the Toyota production system which is a means of achieving mass production efficiencies with small production volumes. This strategy promoted the concept of team working. (Lynch, 2008, p. 772) Toyota expanded to become export-oriented and began to open manufacturing plants in many countries including the United States, operating in the same strategy but giving more leeway to local managers. The chief engineer, Taiichi Ohno, experimented on several production innovations. Along with a determined workforce, he introduced the kaizen and kanban concept of production. Kaizen means continual improvement in Japanese. Toyota’s engineers invented this approach to their operations wherein some stages are cut or shortened to save time and provide flexibility. (Gourlay, 1994, p. 7 cited in Lynch, 2008, p. 773) Toyota used research and development (R&D) in design stages and combined parts to be produce in one process rather than two. The kanban system is used to signal employees when to order or replenish parts or products. The process uses coloured cards specially designed to give notice to employees on the product’s availability. What makes Toyota, as an organisation, unique? It is obvious that Toyota’s ability to introduce innovations in management, production, operations, and sales has made the company effective, competitive and a leader in the car industry. Toyota has set up an organisational structure that is conducive to innovations particularly in product development. The theory that applies to the Toyota system is the capability-based system. Although Toyota’s workforce has unique capabilities, it has to see to it that it adapts to changes because competitive environment changes. Toyota knows how to adapt to a changing environment. Herstatt (2006, p. 232) says: “Firms need to have appropriate capabilities within the firm that can be utilized or supplemented in a new organization that fits a new competitive environment.” Toyota’s strength is in its operational and production strategies and the people behind the system. Its management team and workforce are composed of well-trained managers, engineers and technicians who are moulded inside the company and who maintain their unique way of building cars. The company believes in training their own workforce and not in the university or from outside sources. It also does not believe in firing employees. As much as possible, they retain their employees in times of crises, although there are times that downsizing cannot be totally eradicated. Its history is a colourful story of events that started from a simple shop up to the time it went global. The Toyota leadership model: Never fail to reward merit, but never let a fault go unremarked. (Edward de Bono and Robert Heller’s Thinking Managers, 2006) The Southwest Airlines Story Southwest Airlines is a genuine American success story with a strategy of motivating people to love the company and the customers. Much has been said about the company with respect to its innovative style of marketing or appealing to the customers. Southwest Airlines has a coherent business strategy which includes low costs allowing it to enter markets which others cannot. The structure includes a high degree of decentralized management, permitting high morale of employees and also allowing them to be creative. It has introduced corporate gimmicks like unusually painted airplanes and antics introduced by CEO Herbert Kelleher. Everyone inside the plane including pilots cooperate to make the customers feel at home and happy. Low costs enable the company to be free of other airlines’ price war. Customers feel valued while competitors cannot easily copy their strategy. (McAfee, 2002, p. 49) The employees are well motivated into making their own decisions and doing things which are not the ordinary. They hug, kiss, cry, or do comical things, which make customers laugh and enjoy while they are flying. This is another unique brand of customer service, a kind of company strategy making it on top of all the others. Kevin and Jackie Freiberg (1998) say of Southwest Airlines: “The company has been praised for its leadership and customer service in over a dozen business bestsellers. Management gurus like Tom Peters bring their clients to observe Southwest because they are intrigued with this wacky airline’s way of doing business” (Freiberg and Freiberg, 1998, p. 4). From 1990 to 1994, the airline industry was losing but Southwest was profitable each during the period, and was the only airline to earn a profit every year since 1973. The airline also maintains a considerable amount of debt and uses internally generated funds, making it not to worry too much of outside debts. The Apple Story While Steve Jobs is away, employees are remembering him and his style of management and innovations in products and business. Apple is one of the leading innovators in computer and emerging technologies, and it seems it cannot be beaten by competing giant like Microsoft. The legendary Steve Jobs once said, “The trouble with Apple is it succeeded beyond its wildest dreams. We succeeded so well, we got everyone else to dream the same dream. The rest of the world became just like it.” (International Business Times, 2011) When Apple Computer started its vision, everything then referred to technology; hence the name. But its makers and founders realised that it has to be more than just technology (Robertson, 2011). Apple had to survive as an organisation to meet the needs of its customers and to its many stakeholders. It changed its name to Apple Inc., a more accurate and competing name. It is a leader when it comes to innovations of products and services. Apple marketing is believed the most innovative style of marketing. (Copeland, 2011) Conclusion Our world has always been changing. There is never a time that it has stagnated – from a beautiful paradise to sometimes a fearful monster created by its inhabitants then back to being a lofty place to live. Whatever is its appearance and structure, it is always changing. Humans have to adapt to this changing world, more so with organisations and the people manning these organisations. Organisations have to continuously change their forms and structure in order to adjust with the changing environment. Organisations that survived and succeeded in these rapidly changing times are flexible and innovative. These organisations have marked their place under the sun, some of them are Toyota, Southwest Airlines, Sony, Apple, and many others that have remained behind the spotlight but are working closely with the changing times. Apple Inc. and Sony Corporation are two of the world’s leading organisations in the electronics and technology industries. Both organisations have their own unique brand of management and handling of human resource, but they both adhere to the dictum that meeting customer needs and wants lead to the success of their objectives. Innovations are intangibles but sometimes they can be sold as services (Edquist et al., 2001, p. 16). Innovations are introduced by organisations to adjust to the changing times. Organisations react to changes by changing their structure, management style, strategies, and so forth. As stated in the introduction, big corporations or those that have become so large and complex cannot easily introduce innovations because doing so would be risky and costly. But our case studies like Toyota and Apple know the method of innovative technique: they decentralize. Horizontal management allows branches and subsidiaries to “rule” themselves, to become creative and be competitive and successful. References Aldrich, H., 2008. Organizations and environments. Stanford, California: Stanford University Press. Al-Hakim, L. And Jin, C., 2010. Innovation in business and enterprise: technologies and frameworks. United States of America: Idea Group, Inc. Baker, M., 2000. International marketing communications explained. In S. Monye, (Ed.) The handbook of international marketing communications, pp. 23-24. 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