Individuals Differences - Variables affecting this differences

In the last blog we looked at the challenges that managers face when managing a global organization. All the challenges of the managing the organization, is to understand the source of these challenges. We begin by exploring the concept of individual differences.

From common observation, we realize that all individuals are different from each other - the source of uniqueness could be from the individual's skills, abilities, personalities, attitudes, values and ethics. The way the individuals differ is called individual differences. It is these differences that are the essence of the challenge of management - fundamentally, no two individuals are alike!

Managers always face the challenge of working with a multitude of individual characteristics, so it is quintessential for the manager to understand individual differences. - This would enable them to work better with others.

The diagram is an adaption from the Fig 3.1 ( variables that affect human behavior ) in the standard reference book on Organizational Behavior we detailed out at the begining of this series.

The variables that affect human behavior could be summarized in the above diagram. We would continue this discussion in the next blog.

Manager's challenges in a globalized World

In the last blog we looked at the mindset that would be necessary for one to be a practitioner in OB. In today's blog we begin having a look at some of the challenges a manager would have to face in a globalized work setting.

Let’s begin with understanding the difference between "international" and "globalized" organization. International organization meant that a business would conduct its business across the national borders - a strict sense of organization's nationality could be sensed in the usage of the word. In contrast, a globalized organization implies that the organization is free of national boundaries and it operates in a borderless world.

When organization move beyond their national boundaries some of the host of issues that hit hard for a manager in such a setting could be listed below

1. Globalizing the firm's operations to compete in the global market
2. Leading a diverse work force
3. Encouraging Positive ethics, character and personal integrity
4. Advancing and implementing technological innovation in the workspace

Over the next few blogs we look at some of these challenges that the managers would have to face in a globalized setting.

How to get the maximum benefit from Learning Organizational Behavior

In the last blog we looked at formal and informal organizations. In the current blog, we temporarily take a detour to emphasize one of the critical pieces if one has to have a good grip of the subject of organizational behavior.

OB is a subject based on scientific knowledge and applied practice. Numerous concepts in this subject of study are abstract while some others are concrete and measureable. So one who intends to learn OB well would have to look at it as a 3 staged process.

Stage 1: Mastery of the Objective Knowledge

Stage 2: Skill Development

Stage 3: Application of Knowledge and Skills thus learnt

Objective Knowledge is the distilled finding through research and scientific activities. A mastery of this would help understand the basic foundation of the organizational behavior.

Skills development builds on the knowledge and the understanding of you so that one could practically pick up the subject from real life action. These are important for the successful functioning of the organization.

Application of Knowledge and Skills learnt enable application of the above two stages into real life - it is to be noted that, between the stage 1 and stage 3 there are multiple iterations and careful experimentation based on the learning gathered earlier.

An effective understanding of OB would lead to a very strong practical oriented mindset for the practitioner.

Formal and Informal views of the same organization

In the last blog, we looked at the open system's view of an organization. In today's blog we look at organization in a bit more details and attempt to understand its visible and not so visible aspects.

When we look at an organization, there is the visible part of the organization which includes the goals and objectives, policies, procedures, job descriptions, organizational structures, products and services etc; but when we dive in a bit deeper we find that there exists some underlying beliefs and assumptions, values, perceptions, feelings, norms, informal leadership etc which is not documented nor is easily visible for an outsider is not too acquainted with the business. The first is called the Formal organization and the second is called the informal organization.

Formal Organization indicates the official, legitimate, and most visible part of the organization system. Informal Organization indicates the unofficial and less visible part of the organizational system. We could represent these in the following manner:

The diagram has been adapted from the Fig 1.2 of the reference book used for the discussion

Note: The informal organization began gaining emphasis only after the Hawthorne Studies conducted in the 1920s and 1930s.

The complete systems view of an organization

In the last blog, we looked at four internal components of the open systems framework. In today's blog we build towards completing the various components of the open systems framework and represent it through a diagram.

It is clear that organiations operate in an external eviornment filled with suppliers, customers, regulators etc - these form part of the Task Environment in which the organization attempts to accomplish its "Task". For any organization, there exists a combination of the human capital, material, finance and information that form the Inputs which would be processed using the internal compoents explained in the last blog to obtain the desired output in the form of either a product or a service. We could represent the whole of the discussion since yesterday in the following diagram.

The diagram is an adaption from the Fig 1.1 (Open Systems View of Organization) in the standard reference book on Organizational Behavior we detailed out at the begining of this series.

Organizational Behavior in a System's view - 4 internal compoents

In the last blog, we looked at the interdisciplinary nature of the organization behavior. In today's blog we continue exploring the subject of OB by providing it a systems perspective - and limit ourselves to the four major internal components of an organization. In the next blog we shall attempt to represent these in a pictorial fashion.

To have a strong understanding of OB, it is essential to understand the human behavior as well as the organizational context within which such a behavior takes place. We shall represent these through the systems view in the next blog. Early researchers in the field of OB identified the following 4 internal components of the framework that was developed to understand the human behavior.

1. Task: The task of an organization is the mission, purpose or goal for its existence
2. People: The people are human resources of the organization
3. Technology: The term technology represents the wide range of tools, knowledge, and/or techniques that are used to transform an input into an output.
4. Structure: The terms structure refers to the systems of communication, authority, and workflows.

In the next blog we shall structure these in a larger context of the open-system view of an organization.

Contributing fields to the study of Organizational Behavior

In the last blog, we discussed about the spans of a job and the how to balance the various spans associated with a job. During these discussions we have had a lot of references to human behavior, and hence Organization Behavior would be the next logical step in this journey of Management Blogs. We have already begun the topic of organization behavior for discussion and have left it half way primarily due to the flow of topics. Beginning from this blog we would discuss Organization Behavior (OB) to sufficient depth - Our reference for the purpose of this discussion on OB would be "Organizational Behavior" - Foundations, realities and challenges, 5th edition by Debra Nelson and James Quick - Thomson Publication. In this blog we explore the interdisciplinary nature of OB. 

OB is a blended discipline growing from the contributions to various fields such as:

• Psychology - The science of human behavior
• Sociology - The science of society
• Engineering - The applied science of energy and matter
• Anthropology- The science of the leaded behavior of human beings
• Management- The study of overseeing activities and supervising people in organizations
• Medicine- The applied science of healing or treatment of disease to enhance an individual's health and well-being

These interdisciplinary roots are increasingly being recognized in an independent discipline called OB - where the human nature and behavior is the subject matter of study. It is the understanding of this behavior is gained from the interdisciplinary nature of the study.

Types of Crisis when spans are misaligned

In the last blog, we looked at the need for having equilibrium amongst the various spans. In today's blog we look at what happens when these spans are misaligned.

Spans of job if misaligned could create havoc in the way an organization works. Fundamentally, research has shown 3 possible situations

1. The Crisis of Resources
2. The Crisis of Control
3. The Crisis of Red Tape

Crisis of Resources occurs when executives focus on creating an entrepreneurial gap excessively - they focus too much on thinking about control, influence, and accountability and do not think about support. In pursuit of the entrepreneurial spirit, the essential support to this would be neglected to such an extent that the whole job design would not be able to reach out to anything.

Crisis of Control is the opposite of what could happen in crisis of resources - In this scenario, the resources would exceed the demand for them - leading to suboptimal economic performance. The excessive decentralization leads to a lack of coordinated efforts across units, thus leading to missed opportunities and wastage of resources.

Crisis of Red Tape occurs when spans of accountability and influence are very high but resources are insufficient and misdirected. One of the indications of this issue is the end-less time sent in staff meetings coupled with slow decision making - this put the organization on a slow track in responding to the changing customer demands and finally loose to competition

Equilibrium of spans - designing an effective organization

In the last blog we looked at how high performing organizations could be designed using the concept of entrepreneurial gap. In today's blog we look at the need for a good balance of the various spans and how we could visualize these.

A careful observation of the four spans indicate to us that these could be classified into supply side spans and demand side spans.

Span of control and span of support are related to the supply of resources at the position of responsibility. The span of accountability and span of influence deal about the demand side of the organization resource. So, the balance that is under discussion is the way these 2 classifications of the spans are handled.

Research has shown that for organizations to operate at maximum efficiency the supply of resources must match the demand for these resources - in this context, span of control plus span of support must equal the span of accountability plus span of influence. If we are to plot this using the mechanisms shown earlier, this would mean the 2 lines intersect each other - similar to the supply and demand. This could be pictorially depicted as below.

Source: Fig - Four spans of software company, Desining High-Performance Jobs - by Robert Simons

Entrepreneurial gap - the secret of high performance organizations

In the last blog we looked at the way one could adjust the various spans of control to be wide or narrow. In today's blog we look at a desired state in a lot of large organization - having an entrepreneurial team by the way the job is designed. 

If someone is to create the entrepreneurial job - it has to create a situation where the resources are not sufficient to meet the goals that are set. This is not in alignment with the adage that - authority should match responsibility. In high-performing organization, employees are held responsible for broader goals with very limited resources they possess - this leads to a gap called the "entrepreneurial gap". The employees in such situations would have to use their creativity to succeed without the direct control of the resources they have control over.

The same could be explained with the diagram below.

Source: Fig - Creating the Entrepreneurial Gap, Desining High-Performance Jobs - by Robert Simons

Balancing the four spans of job design

In the last blog we looked at span of influence and span of support and their influence on the job design. In today's blog we look at a summary diagram which could tell us how managers could adjust the spans of job design to create positions that are tuned for optimum performance.

Source: Fig - The four spans, Desining High-Performance Jobs - by Robert Simons

Job design - span of Influence and span of support

In the last blog, we looked at span of control and span of accountability. In today's blog we look at span of influence and span of support, and how they are to be considered while designing a job.

The span of influence refers to the width of connections that the individual would need to generate to collect data, probe new influence and influence others. An employee with a narrow span of influence would not pay much attention to people outside the small area that is aligned with his job alone, on the other hand a person with a wider span of influence would need to interact with many people extensively. 

It is interesting to note that the span of accountability is driven by the nature of manager's gorals and the difficulty level associated with goal drives the sphere of influence. Executives in companies could use accounting and control systems to adjust the span of control. It has to be borne in mind that more complex and interdependent the job is the more import a wide span of influence becomes.

The span of support refers to the amount of help and individual could expect from people in other units of the organization. Positions in organizations that have a commission based in an efficient market do not require wide spans of control; however when the organization is looking at customer loyalty as a strategic focus having a wide span of support is critical. It is the employee's sense of shared responsibility which is important to really!

Over the next few blogs we would look at how these 4 spans interact with each other and what would be the considerations when a job is being designed.

Job design - Span of Control and Span of Accountability considerations

In the last blog, we began looking at how to design a good job and discussed the 4 questions to be answered. In today's blog we look at two of these 4 factors - span of control and span of accountability. 

Span of control refers to the range of resources (people and infrastructure) that are given to the manager to decide upon. Since the manager is responsible for controlling he/she is also responsible for the performance of these resources. Managers would have to adjust the span of control for each position on the basis of how the company delivers value to its customers - it has to align with the company's focus. This span could be "wide" or "narrow".

The Span of Accountability reflects the trade-offs that affect the measures used to evaluate a manager's achievement. The setting for this span allows us to determine the behavior we intend to see. 

The span of control and span of accountability are interrelated, and make the most sense when considered together. Span of Control defines the resources available for the manager, while the span of accountability defines the goals that manager should focus towards. This is in synch with the common knowledge - "Authority should match responsibility"

We shall look at the other two spans of in the next blog.

Designing a good job

In the last blog we concluded with the last of the mechanisms to control the issues of agency costs. In this blog we begin a new discussion on the design of jobs - the discussion that follows over the next few blogs is based on the HBR article - Designing High performance jobs by Robert Simons.

A common situation that an entrepreneur gets into is that after having begun with an exciting vision and building a good strategy and developing a strong product, hired good people to build the necessary networks but then implementation goes bad! A lack luster response is seen from the managers, delays in delivery to customers are common, and there are several coordination issues. The entrepreneur begins to ask - "have I chosen the wrong people in these critical jobs?" A closer look and the problem look to be at all levels and across the organization.

These issues are generally because the balance of what an employee expectation of organization's resource in supply are not balanced by the demand that the individual in that role has for the organizational resources. The balance is essential and requires answers to the four basic questions

1. What resources do I control to accomplish my tasks?
2. What measures will be used to evaluate my performance
3. What do I need to interact with and include achieving my goals?
4. How much support can I expect when I reach out to others for help?

Put other way these are questions about

1. Control
2. Accountability
3. Influence
4. Support

We shall continue discussion on these over the next few blogs

The role of market discipline in agency theory

In the last blog we looked at bonding and incentives as a mechanism to handle agency costs. In today's blog we look at the role markets play in determining the arrangements and outcomes that agency theory predicts.

Agency theory adopts a semi-strong form of capital market efficiency. We mentioned this to be semi-strong since the asset prices do not reflect all the information - irrespective of public or private. We also cannot call it weak since the info of prices doesn’t limit itself to historically available information. 

One of the implications of this semi strong assumption is as follows - if managers (agents) of the firm  take actions that are viewed adversely affecting the value of the firm’s assets, then the price of these (stock price) will drop. If the situation progresses this way, the firm's management could eventually lose control of the firm - the old high agency cost managers will be replaced by low-agency cost managers. This is akin to take over. If by the takeover, significant wealth gains are achieved - in many ways this could be associated with the reduction in the agency cost that is expected after the acquisition is complete.  

In many cases economics is slow to recognize conflicts within firms and between the firms and its numerous stakeholders, the influence of agency theory in organization economics could hardly be neglected.

Bonding as a mechanism to reduce Agency costs

In the last blog we looked at the monitoring mechanisms that are used to reduce the agency costs. In today's blog we look at Bonding and Incentives as a mechanism to reduce the agency costs.

To understand this mechanism of reducing agency costs - it is important to realize that it’s not just the principal who has gains by reducing the agency costs, the agent too would benefit from this. Incentives are the most common of the bonding mechanisms that agents use to bond closer to the principal. Generally, the agent aligns the incentives such that their self-interest is aligned so that they behave consistent with the interest of the principals. 

The most common of these is the agent's compensation package. The Principals would prefer an incentive that fully penalizes agents for shirking and opportunism; however in many cases it is the environmental risks that really define the outcome. Thus the agents wouldn’t be comfortable with this structure. The fixed salary format in fact would free the agent from any of the alignment possible with the principal and might not find the buying in easy from the principals.

Research has found that, managers with significant ownership interest in their firms are less likely to engage in behaving in ways that are not in synch with the principal's interest. Last but not the least it is important to look at incentive structure not just limited to payments as incentive - promotions too are an important factor.

Monitoring to reduce agency costs

In the last blog we looked at the rationale for organizations to delegate. In the current blog we look at the report to monitoring that organizations adopt and the various aspects involved there in.

Monitoring the agents is important given it is extremely important to reduce the agency costs for the principals. Broadly there are 3 varieties of monitoring, which we shall discuss here.

In this direction, the principals would be extremely happy if they could access complete information of the agent’s behavior and if these are in synch with the principal’s choices it would be of the best interest. However this logic would be flawed if we consider the case of a scientist or top management who could immersed in thinking activity staring outside the window! The principal in such a scenario will not in any way be able to assess if this behavior is in the best interest or not thus, any mechanisms of using monitoring costs could only imperfectly reduce agency costs.

An alternate to monitoring the agent behavior is monitoring the outcome of the agent behavior. This approach too is not without issues - it works efficiently when the tasks are not highly programmable, but gets problematic when team production is involved. Interdependence between agents makes it harder to quantify the contribution to the output.

The third mechanism used to monitor is the use of independent directors on corporate boards. The rationale is that the independent director would be able to provide objective assessment of the decisions that board would take and contribute to reducing the agent behavior.

Through all these mechanism the attempt is to align the interests of the principal and the agent, however achieving this 100 % is extremely difficult given that delegation always creates agency costs.