What is Organizational Design and Development?

Organizational Design focuses on how the

organization is structured to operate efficiently. It is more concerned with building the structure
of the organization. Organizational Development focuses on how the organization can grow,
develop, and improve through cultural change, skill enhancement, and continuous learning.

The core of organizational design is made of some issues to solve. One of them is represented
by the UNIVERSAL PROBLEM OF ORGANIZING- (How can an organization divide work among
people and then coordinate everyone so that they work together efficiently toward the same
goal.

1. Division of labour. The process by which an organization allocates people and resources to
organizational tasks, establishing the tasks and authority relationships that allow the organization
to achieve its goals. It represents the degree of specialization in the organization.

• TASK DIVISION – deciding what tasks need to be done

• TASK ALLOCATION – deciding who does which tasks
Differentiation is the process of establishing and controlling the division of labor. [Link]
of efforts (coordination).

• REWARD PROVISION: establishing incentives to workers.

• INFORMATION PROVISION: establishing channels of communication.
These parts are interrelated, following their own logic.

Organizational roles

Authority: the power to hold people accountable for their actions and to make decisions
concerning the use of organizational resources.

Control: the ability to coordinate and motivate people to work in the organization's interests.

KINDS OF DIFFERENTIATION

1. Vertical Differentiation

Vertical differentiation is the way an organization designs its hierarchy of authority and
creates reporting relationships to link organizational roles and subunits. It establishes the
distribution of authority between levels.
Authority: How and Why Vertical Differentiation Occurs- Due to division of labor and
specialization, it becomes difficult to determine how well an individual performs, especially
when employees cooperate, making individual contributions hard to assess.

To address coordination and motivation problems, organizations can:

• Increase the number of hierarchical levels, making the hierarchy taller
• Increase the number of managers to monitor, evaluate, and reward employees
Advantages of Vertical Differentiation-Vertical differentiation helps deal with coordination and
motivation problems because:

• Managers shape and influence subordinate behavior

• Managers can question, probe, and consult with subordinates
• It ensures subordinates perform effectively and do not hide information
• Personal control allows on-the-job learning and development of competencies
• Subordinates’ personal management skills increase
• It increases motivation, not due to being observed, but due to the opportunity to
become the next supervisor
Size and Height Limitations
• Tall organization: many hierarchical levels relative to its size
• Flat organization: few hierarchical levels relative to its size
Problems with Tall Hierarchies
• Communication problems: communication takes longer and may be distorted
• Motivation problems: as hierarchy increases, differences in authority and responsibility
decrease, reducing motivation
• Bureaucratic costs: managers are costly

Problems with Flat Hierarchies

For a flat hierarchy to be efficient:
• The top manager must be more knowledgeable than subordinates
• Since coordination is based on feedback, supervising many people reduces the time
available per worker
• The boss may become overwhelmed
Solution: increase the number of hierarchical levels to improve motivation among workers
Determining the Ideal Number of Hierarchical Levels

The principle of minimum chain of command states that an organization should choose the
minimum number of hierarchical levels consistent with its goals and the environment in
which it operates.

Span of control is the number of subordinates a manager directly manages. As the span of
control increases, the complexity of a manager’s job increases. The most important factor
limiting the span of control is the manager’s inability to supervise adequately an increasing
number of subordinates.
 There is a limit to how wide a manager’s span of
control should be, depending on the complexity
and interrelatedness of subordinates’ tasks:
Complex and dissimilar tasks → small span of
control
Routine and similar tasks (e.g., mass roduction) →
large span of control

[Link] Differentiation

orizontal differentiation is how an organization groups tasks into roles and roles into
subunits (functions and divisions).Subunit orientation means viewing one’s role only from the
time frame, goals, and interpersonal orientations of the subunit.

Roles are differentiated by task responsibilities, enabling specialization and productivity, but
specialization can reduce communication and mutual [Link] structure is effective but
inefficient because structures are replicated. Therefore, integration across divisions is
needed, often through price systems and transfer prices.

Advantages and disadvantages of differentiation

Flat vs Tall Hierarchies: the rise of Teal-inspired organizations

Traffic light: strong hierarchy with central control; managers decide actions; standardized and
rigid rules.
Roundabout: no central control; each actor interprets rules and acts according to ideas and
feelings.
This implies:
• Distributed responsibility and worker critical thinking
• Full transparency of data to enable self-organization
• Simple rules and elegant design, even in complex systems
• More trust, less bureaucracy and control to achieve simplicity
Traffic Light” vs “Roundabout” – Advantages & Choice
Advantages of the “Traffic Light” Model
• Power of clarity: no ambiguity; clear responsibilities, defined reporting lines, transparent
decision-making.
• Scalability and control: coordination of complex organizations through standardization.
• Operational efficiency: structured workflows without duplication of efforts.
• Risk management: order, safety, clear responsibility, defined control processes.
The “traffic light” model is not outdated: innovation means making hierarchies
smarter and more effective, not abolishing them.
Advantages of the “Roundabout” Model
• Self-organization: distributed intelligence, creative and decision-making potential of
every member.
• Continuous adaptability: real-time response to changes, self-regulation.
• Intrinsic resilience: functioning even in suboptimal conditions due to distributed
decision-making.
• Emergent innovation: every actor is an active decision-maker.
• Dynamic efficiency: fewer delays, fewer accidents, elimination of bureaucratic barriers.
Limits:
• Flexibility can cause burnout.
• Excessive centralization can cause loss of control.
Waterfall vs Agile
• Waterfall: long planning cycles → risk of obsolescence in fast-changing markets.
• Agile: short cycles, adaptation to rapid change.
Choice Between Models Depends On-
• Context awareness: market, organization, socio-economical.
• Key decisional factors: decision velocity, context complexity, organizational maturity.
• Future trends: labour market evolution, technological impact, social expectations.
Motivation, Purpose & Teal Organizations

Gallup shows dissatisfaction due to organizational environments. Like birds flying together, self-
organization, deep inter-connection, and common purpose increase motivation and resilience.
Teal organization: a self-organizing system that goes beyond fixed traditional structures.

Types and Examples of Integrating Mechanisms

Balancing Differentiation and Integration

Managers must:
• Guide differentiation carefully so it develops core competences that provide a
competitive advantage
• Integrate the organization carefully by selecting appropriate integrating mechanisms that:
o Allow subunits to cooperate
o Build up the organization’s core competences
Integrating Mechanisms & Types of Interdependence
Factors affecting choice of integrating mechanisms:
• Interdependence between units
• Information needs
Types of Interdependence
1. Pooled Interdependence
o Departments perform completely separate functions
o Minimal direct interaction
o Each contributes to the overall process, so failures in one department can affect
the whole
2. Sequential Interdependence
o One unit’s output is input for the next unit (e.g., assembly line)
o High demand for coordination to prevent slowdowns
o Scheduling and planning are essential
3. Reciprocal Interdependence
o Output of one department becomes input for another cyclically
o Highest interaction intensity
o Most complex and difficult to manage — changes in one unit affect all others
Balancing Centralization and Decentralization
Centralized organization:
• Top managers retain authority for important decisions
• Ensures coordination and focus on organizational goals
Decentralized organization:
• Authority delegated to managers at all levels
• Promotes flexibility and responsiveness
Ideal balance:
• Middle and lower managers can make important decisions on the ground
• Top managers focus on long-term strategy
High Centralization –
Advantages- clear and unified decisions, Focus on organizational goals
Balancing Standardization and Mutual Adjustment
Standardization:
• Conformity to specific models or examples
• Defined by rules and norms
• Formalization uses rules/procedures to standardize operations
Mutual adjustment:
• People use judgment rather than rules
• Guides decision-making and coordination
Managerial challenge:
• Use rules and norms to standardize behavior
• Allow mutual adjustment so managers can discover better ways to achieve goals
Formalization
Advantages- standard quality, efficiency, no ambiguity, predictability
Disadvantages- Routine task, low flexibility, scarce autonomy, innovation

Mechanistic vs Organic Organizational Structures

Mechanistic structures:
• Designed for predictable, accountable behavior
• Emphasis on vertical command
• Narrowly defined roles
• Slow, steady promotion
• Best for stable, unchanging environments
Organic structures:
• Promote flexibility
and initiative
• Less emphasis on
vertical command
• Loosely defined
roles
• Status based on
creative leadership
• Encourages
innovation
• Suited for dynamic
environments

Contingency Approach
-A management approach in which the design of an organization’s structure is tailored to the
sources of uncertainty facing an organization Organization should design its structure to fit its
environment.
• LAWRENCE AND LORSCH -When environment is perceived as more unstable and
uncertain: Effective organizations are less formalized, more decentralized and rely more
on mutual adjustment .When environment is perceived as stable and certain Effective
organizations have a more centralized, standardized, and formalized structure.
• BURNS AND STALKER -Also found that organizations need different kinds of structure to
control their activities based on the environment .Organic structures are more effective
when the environment is unstable and changing . Mechanistic structures are more
effective in stable environments
 ORGANIZATIONAL STRUCTURES

1. FUNCTIONAL STRUCTURE
• Functional with Product or Market Integration Groups people by common skills,
expertise, or resources
• Bedrock of horizontal differentiation
• Groups tasks into functions to improve effectiveness
Advantages:
• Promotes learning and specialization
• Members can supervise and control each other
 • Develops norms and values for effectiveness
Control Problems:
• Communication: functions become distant
• Measurement: hard to assess profitability of groups
• Location: centralized control limits local responsiveness
• Customer: hard to tailor products/services
• Strategic: top managers spend too much time on coordination
Solutions:
• Increase integration between functions via:
o Standardization (staff functions)
o Hierarchy (add supervisors or redesign structure)
o Integration roles (product managers, area managers)

2. Functional with Product or Market Integration

Functional Structure + Integrator/s = Modified-Functional Structure

The introduction of the integrators make a structural modification, changing the structure from a
functional structure to a modified-functional one.

Structural modification: adding of full time and dedicated integrators (role or unit)

2 Possible Integrators:
Integrators Without Authority –PM, BM, Merchandiser, Fashion Coordinator
2 Possible positions of Integrator Without Authority:
• The first line integrator reports directly to the CEO and integrate the first line units;
• The second line integrator reports to a first line unit (e.g.: Marketing) and integrate the
sub- departments in that unit
Integrators With Authority –PjM

[Link] STRUCTURE
Functional structure is appropriate if:
• Produces small number of similar products
• Production occurs in one or few locations
• Serves one general type of customer
Growth and Complexity:
• More products, locations, and customer types require:
o Increased vertical differentiation
o Increased horizontal differentiation
o Increased integration
Organizations most commonly adopt the divisional structure to solve control problems that arise
with too many products, regions, or customers
Divisional structure:
 • Adopted to solve control problems from complexity
• Creates smaller, manageable subunits
• Types:
o Product structure
o Geographic structure
o Market structure
[Link] STRUCTURE

• Groups products (goods or services) into separate divisions based on similarities or

differences
• Must coordinate product activities with support functions
• Leads to three kinds of product structure

1. Product Division Structure:

• Centralized support functions serve multiple product lines
• Support functions divided into product-oriented teams of specialists

2. Multidivisional structure: A structure in which support functions are placed in self-contained

[Link] division has its own set of support functions and controls its own value .
Corporate headquarters staff: responsible for overseeing the activities of the managers heading
each division . Allows a company to operate in many different businesses

Advantages of a Multidivisional Structure

Increased organizational effectiveness
Increased control
Profitable growth
Internal labor market

Disadvantages of a Multidivisional Structure

Managing the corporate-divisional relationship: finding the balance between centralization and
decentralization

Coordination problems between divisions: competing for resources and coordination problems

Transfer pricing

Bureaucratic costs: multidivisional structures are very expensive to operate Communication

problems: tall hierarchies tend to have communication problems, particularly the distortion of
information
[Link] team structure: specialists from the support functions are created that specialize in
the needs of particular kind of product. Focus on the needs of one product (or client) or a few
related products

Divisional Structure II: Geographic Structure

When the control problems that companies experience are a function of geography. structure
aligns its core competences with the needs of customers in different geographic regions

Divisional Structure III : Market Structure

Aligns functional skills and activities with the needs of different customer [Link] customer
group has a different marketing focus, and the job of each group is to develop products to suit
the needs of its specific customers

3. PURPOSE

Purpose is a stable and generalized intention to accomplish something that is at the same time
meaningful to the self and consequential for the world beyond the self

Why is it important to create a purpose-driven organization? (Advantages)

1. Impact on the organizational effectiveness: a purpose driven organization is more
effective in engaging people, then getÝng better results, because it’s more attractive.
It has been proved that there’s a positive correlation

2. Legitimacy from employees, customers, competitors, suppliers, investors and the

local community.

3. Creating share value: addressing societal needs and challenges with a business model
(that was also theorized by Porter).

The effects of purpose

More engaged & productive, more resilient, more likely to stay at a company

The main challenges of creating a purpose-driven organization

• The challenges of defining an effective purpose
- make sure it elicits the emotional commitment of the employees
- finding compatibility among objectives that are not (multi-stakeholder)
• The challenges of communicating an effective purpose
- making sure purpose is embedded in every-day choices at all levels
• Convenient purpose firms: companies limit their pursuit of social value
projects to those where the economic payoffs are also clear.
• Deep purpose firms: committed to transforming capitalism,
- These companies embrace a multi-stakeholder approach, consciously
seeking to go beyond CSR
6 values that potentially help organizations achieve purpose (Hollensbe et al.,
2014):
1. Dignity: viewing each person as a someone, not a something
• demonstrating respect • seeking outcomes that enable people to reach their full potential.

2. Solidarity: Recognizing That Other People Matter

• “We are all in this together.”
• being in touch with the needs of communities, and, looking for ways to help the
underprivileged.

3. Plurality: Valuing Diversity and Building Bridges

• favors curiosity and inclusion over suspicion and the exclusion of those who think and act
differently
• emphasizes relationships among people rather than transactions

4. Subsidiarity: Exercising Freedom with Responsibility

• promoting accountability at all levels by proper delegation of decision making—based on the
ability to make the “right” decision rather than simply on hierarchy

5. Reciprocity: Building Trust and Trusted Relationships

• The expectation that the conduct of business provides mutual benefit

6. Sustainability: Being Stewards of People, Values, and Resources

• Seeking to replace what we use and repair what we damage, striving to leave the planet in a
better condition than that in which we found it

The three dimensions of becoming a purpose-driven organization

Purpose as knowledge
Individuals need to know the purpose of the organization and be able to express it in their own
words.
- The role of explicit knowledge around purpose:
- Purpose clarity: helps both organizations and individuals alike, especially in times of uncertainty
and turbulence, when individual decisions and actions are more easily blown off course.
-The paradox of purpose: purpose is formed over time and through changing circumstances,
and yet, once clarified, it does not change with time or circumstances.
- This is why, when organizations reflect on purpose, they must look toward its essence and the
fundamental meaning that has always been present and has endured the test of time.

Purpose as action
- Action: the purpose becomes dynamic. What matters, is not just the content of the statement
but the degree or extent to which the company is putting into practice what it says in its purpose
statement
- Purpose as action and its influence on meaning can be also seen on how leaders inspire
employees through their actions that redesign work

Purpose as Motivation
-Purpose as motivation draws on the beliefs and motivations of the
Individual. When purpose touches the heart of a person, it becomes a great source of
energy that helps one to transcend their own interest, further fueling the fulfillment of purpose

Purpose development needs a three-dimensional approach, integrating simultaneously

knowledge with motivation (internalization), knowledge with action (implementation), and
motivation with action (integration).

Internalization- Process through which organizational members “buy into” the purpose of the
company,
incorporating it in their beliefs and motivations
Implementation- Purpose implementation translates to practice by guiding the company in
aspects
such as defining strategy, communicating objectives, or making tactical choices.
Integration- allows to transform purpose into a "habit" that is performed on a regular
basis in harmony with the individuals' motivations.

Purpose Layers
Individual Purpose, Team Purpose, Organizational Purpose, Societal Purpose

Degenerative and Divisive concept includes profit driven businesses that designed to maximise
margins and dividends
Regenerative and Distributive concept is businesses redesigned with a purpose to benefit
people and the living world through mission, operations, products, innovations

BCorps is a corporation which is purpose driven and creates benefits for all stakeholders not just
shareholders.

From Purpose to OKR

Purpose, Execution and Strategy
Purpose allows to preserve mission and values over daily decision making
Execution is how do we deal everyday with the accomplishment of the ideas we have. It is how
we deliver our purpose in daily initiatives
Strategy is the connection that create consistency and coherence
(4)MATRIX STRUCTURE
A matrix structure is an organizational design that groups people and resources in two ways
simultaneously: by function and by product.

A matrix is a rectangular grid that shows a vertical flow of functional responsibility and a
horizontal flow of product responsibility nThe members of the team are called two-boss
employees because they report to two superiors: the product team manager and the functional
manager nThe team is the building block and principal coordination and integration mechanism.

Advantages:
- The use of cross-functional teams reduces functional barriers and subunit
orientation.
- The matrix opens communication between functional specialists
- The matrix maximizes the use of skilled professionals, who move from product to
product as needed.
- The dual functional and product focus promotes concern for both cost and quality.

Disadvantages:
- Lack of a control structure that leads employees to develop stable expectations on
one another.
- Lack of a clearly defined hierarchy of authority, which can lead to conflict between
functions and product teams over the use of resources.
- People are likely to experience a vacuum of authority and responsibility. For this
reason, they could create their own informal organization to provide themselves
with some sense of structure and stability.

How to get the matrix organization to work (critical factors):

- Strong purpose: Only choose the matrix structure if there are strong reasons that
involve the organization's goals, strategy, and environment.
- Alignment among contingencies: A matrix can only be successful if key contingencies
are aligned with the matrix's purpose. A successful matrix requires its own
leadership, culture, knowledge sharing, information technology, and incentives.
- Management of junctions: The success of a matrix depends on how well activities at
the junctions of the matrix are managed. At a junction point, the individual
experiences multiple bosses, conflicting goals, and work overload.

Group
A group is a set of two or more people who interact with each other to achieve certain goals or
meet certain needs.
Interaction: what one person does affects everyone else and vice versa
Members of a group believe there is the potential for mutual goal accomplishment—that is,
group members perceive that by belonging to the group, they will be able to accomplish certain
goals or meet certain needs (not al the members’ need should be identical)

Formal groups
o Command group - collection of subordinates who report to the same supervisor (
function, department, division).
o Task force - collection of people who work together to accomplish a specific goal.
Once the goal is accomplished, the group is usually disbanded. For a long-term
problem or issue usually a task group or a standing committee is formed.

o Team - high level of interaction among group members who work intensely together
to achieve a common group goal.
o Self-managed team - team with no manager or team member assigned to lead
the team.

Team - formal group of people who do collective work and are mutually committed to a
common team purpose. It is a small number of people with complementary skills who are
committed to performance goals and have a common approach for which they hold
themselves mutually accountable.

The essence of a team is common commitment. Without it, groups perform as individuals;
with it, they become a powerful unit of collective performance (according to Jon R.
Katzenbach and Douglas K. Smith). Commitment and acting towards a shared goal is what
characterize teams, but too much commitment could be dangerous. Also, if the leader is too
controlling, commitment across team members tends to decrease.
A good thing could be building a bottom up logic in order to build the purpose of the team

informal groups

o Friendship group - collection of individuals who enjoy one another's company and
socialize with one another (often both on and off the job). Social interaction and
social support coul bring positive moods at work. Is it good the idea of a Corporate
social network?
o Interest group - people who have a common goal, concern or objective that they are
trying to achieve by uniting their efforts.

-Stage Model of Group Development

Forming Getting acquainted and understanding leadership and other member roles § Establish a
common understanding § achieving an understanding of the group's purpose § determining how
the team is going to be organized § rough project schedule § outlining general group rules
Individual members might § keep feelings to themselves until they know the situation §
experience confusion and uncertainty about what is expected of them; § try to size up the
personal benefits relative to the personal costs of being involved with the team or group. § First
impression

Storming:Conflicts over work, relative priorities of goals, who is to be responsible for what, and
the directions of the team leader § A few dominant members may begin to force an agenda
without regard for the needs of other team members. § A few team members may challenge the
leader. § Some members may withdraw. Withdrawal may cause the team to fail

Norming:Team members set informal rules by which the team will operate Member behaviors
evolve into a § Sharing of information, § Accepting of different options, § Attempting to make
decisions that may require compromise “we-ness,” harmony, and conformity

Performing;Members usually have come to trust and accept each other. To accomplish tasks,
diversity of viewpoints (rather than we-ness) is supported and encouraged. Leadership within
the team is flexible and may shift among members in terms of who is most capable of solving a
problem.

Adjourning ; Termination of task-related behaviors and disengagement from interpersonal

behaviors This stage isn’t always planned and may be rather abrupt

Work Group Characteristics

[Link] size: small vs large
The larger the group, the higher the risk of social loafing.
Social loafing is the tendency for individuals to extort less effort when they work in a
group. It is important for the team leader to create e a collective meaning for
increasing the commitment and get things done.
Also, the smaller the group, the easier it is to control each other.

[Link] composition: homogeneus vs heterogeneous

Variety (in terms of experience, age, gender, attitudes, …) is potentially positive if
the aim is to create innovation. However it could create disturbance and
coordination issues.

[Link] facilitation: effects of the physical presence of others on individual performance

Audience effects are the effects of passive spectators on individual performance.
Change in behaviour caused by being observed by another person, or the belief that
one is being observed by another person.
- Co-action effects are the effects of the presence of other group members on the
performance of an individual when the other group members are performing
the same task as the individual.
How groups control their members
To accomplish its goals, the group must control,influence and regulate its members'
behavior.
- A role is a set of behaviors or tasks that a person is expected to perform by virtue of
holding a position in a group or organization.
- Rules are written guidelines for behavior. Standard operating procedures (SOP)
ensures that member perform desired behaviors, facilititates control of behavior and
the evaluation of individual performance and provides information for newcomers.
- Norms are informal rules of conduct for behavior that are considered important by
most group members and are not put into writing. They regulate: Expectations about how hard
team members should work andwhat the team should accomplish, Ethics,How to deal with
superiors, colleagues, clients, Internal relationships.

Human Relations Movement (Elton Mayo experiment) – in every social setting, there are groups
with their own norms and roles.
They can be changed through role models, discussions and rewards and punishment.

Why group members conform to norms?

Compliance - assenting to a norm in order to attain rewards or
avoid punishment.
Identification - associating oneself with supporters of a norm
and conforming to the norm because those individuals do.
Internalization - believing that the behavior dictated by the
norm is truly the right and proper way to behave. This makes it
harder to eventually change the norm.

Cohesiveness is the attractiveness of a group to its members. When groups are attractive to
their members, people highly value their membership and become committed to remaining
a team member.
At a certain point, though, cohesiveness could cause a bad pattern, causing groupthink. This
happens when the members want to avoid conflict. Groupthink is a pattern of faulty
decision making that occurs in cohesive groups whose members strive for agreement at the
expense of accurately assessing information relevant to the decision.
This could be avoided creating some turnover in the group composition, adding new group
members, maybe very charismatic. Also, it should be the team leader to assure this can be
avoided. There could always be negative aspects to be aware of, that’s why it should be
good to rethink this decisions.
CHANGE MANAGEMENT
Organizational culture refers to the shared values, beliefs, and norms that shape how
employees think, feel, and behave toward one another and toward external stakeholders. It
influences employees’ attitudes and behaviors, helps control how they perceive and
respond to their environment, and can enhance organizational effectiveness.
Functions of Organizational Culture:
1. External Adaptation – Helps the organization:
o Set and achieve goals
o Define tasks and methods to accomplish those goals
o Cope with success and failure
2. Internal Integration – Promotes:
o A shared or collective identity
o Common ways of working and living together
Subcultures exist within different divisions, geographic areas, or occupational groups and
support the organization’s overall culture.
Countercultures oppose the organization’s core values and may cause conflict and
dissension among employees.
Both subcultures and countercultures are important because they:
• Maintain performance and ethical standards
• Help keep the organization aligned with the needs of customers, suppliers, society,
and other stakeholders
Organizational Culture
1. Organizational rites are regular events intended to teach people
about the culture and maintain a sense of seasonal order.
•Rites of passage: used to mark an individual’s entry, promotion, and
departure from the organization; purpose is to learn and internalize
norms and values.
• Rites of integration: shared announcements of organizational
success, building common norms and values.
• Rites of enhancement: used to motivate commitment to norms and values through public
recognition and reward for employee contributions.
[Link] rituals and ceremonies
• Rituals: programmed routines of daily organizational life that dramatize an organization’s
culture (how visitors are greeted, communication, executive visits, lunch time).
• Ceremonies: more formal artifacts; planned activities conducted for the benefit of an
audience (publicly rewarding or punishing employees, celebrating new products or
contracts).
[Link] stories
• Narratives developed to explain and teach, usually based in reality.
• Reveal what the employee is supposed to do when in doubt, what to do when a high-
status person breaks the rules, and how people advance within the organization.
4. Organizational language
• Acronyms, metaphors, proverbs, technical language, and jargon with specific internal
meaning. Show how employees address co-workers, describe customers, express anger,
and greet stakeholders.
[Link] symbols
• Size, shape, location, and age of buildings suggest organizational [Link] logos,
colors, furniture disposition, aesthetics of the building, and who is pictured in reports,
websites, and brochures.
Creating Organizational Culture
• A single person (founder) has an idea for a new enterprise. The founder brings in one or
more other key people and creates a core group that shares a common vision with the
founder.
What shapes an organizational culture is:
• The property rights system
• The characteristics of people within the organization
• Organizational structure
• Organizational ethics

Organizational Change
• Organizational change is the movement of an organization away from its present state
toward a desired future state to increase its effectiveness.
• John Kotter stated that, in a change process, it is necessary to win over the hearts and
the minds of [Link] change projects work not only on changing how people
think, but also on changing how people feel, which in turn changes their behavior.
Forces for Change
• Competitive
• Economic and political
• Global
• Demographic and social
• Ethical

Kotter’s Change Management Model

1. Establishing a Sense of Urgency
First and essential step in leading change. It means increasing urgency while reducing
anxiety and negative feelings. Without urgency, people do not understand the meaning of
the new strategy, and change fails.
Purpose: make the status quo seem more dangerous than launching into the unknown.
How to create urgency:
• Communicate information broadly and dramatically
• Examine market and demographic realities
• Identify and discuss crises, potential crises, major opportunities
• Create a crisis: highlight weaknesses, allow errors to compound
• Show the need for change with compelling objects people can see, touch, feel
• Force interaction with unsatisfied customers, suppliers, stakeholders
• Bombard people with information on future opportunities, rewards, and lost
opportunities
What does not work:
• Focusing only on a rational business case and ignoring feelings
• Ignoring urgency and jumping directly to vision and strategy
• Believing change is impossible without a crisis
• Thinking you can do little if you are not the head person

2. Build the Guiding Team

Urgency pulls in the first people. The guiding team (3–5 people) must have the right mix of
capabilities:
• Relevant external knowledge (vision)
• Credibility, connections, stature (communication)
• Internal knowledge (remove barriers)
• Formal authority (short-term wins)
• Leadership skills (vision, communication, motivation)
The team evolves into a guiding coalition as change spreads.
What does not work:
• Weak task forces, single individuals, fragmented top teams
• Ignoring entrenched power centers
• Working around the head of the unit because they are “hopeless”
• 3. Developing a Vision & Strategy
A clear vision guides change and strategy enables it.
Effective vision is:
• Imaginable, Desirable, Feasible, Focused, Flexible, Communicable (explainable in 5
minutes)
What does not work:
• Relying only on plans, budgets, and linear logic
• Overly analytic, financially based visions
• Cost-cutting visions that increase anxiety
(Fiat-Chrysler case: “synergies” perceived as job cuts)
4. Communicating the Change Vision
Under communication is a constant risk. Change requires large numbers of people willing to
help.
Key elements:
• Simplicity
• Metaphor, analogy, example
• Multiple forums (MEETINGS, MEMO)
• Repetition
• Leadership by example
• Explanation of inconsistencies
• Give & take (two-way communication)
What does not work:
• Undercommunicating
• Treating communication as information transfer only
• Not walking the talk (creates cynicism)
Example:
“Making fewer Fiats and more Mercedes” is clearer than complex statements.
5. Empowering Broad-Based Action
Enable people to act on the vision by:
• Removing obstacles
• Changing systems and structures
• Using people with change experience
• Aligning recognition and rewards
• Providing feedback
What does not work:
• Ignoring disempowering bosses
• Removing bosses’ power instead of fixing behavior
• Trying to remove all barriers at once
• Giving in to pessimism and fear
6. Generating Short-Term Wins
Transformation takes time, but short-term wins (12–24 months) keep urgency and momentum.
Wins should:
• Come fast, Be visible, Be unambiguous, Be meaningful, Appeal to powerful players,
Be cheap and achievable
What does not work:
• Too many projects
• Wins that come too late
• Stretching the truth
7. Consolidating Gains & Producing More Change
Change is fragile until deeply embedded in culture.
To reinforce change:
• Use credibility to change systems, structures, policies
• Hire, promote, develop people aligned with the vision
• Launch new projects and themes
What does not work:
• Rigid long-term plans
• Thinking the job is done too early
• Avoiding bureaucratic and political behaviors
• Physical and emotional burnout

8. Anchoring and Institutionalizing Change in Culture-Change sticks only when rooted in

culture.
Key actions:
• Show recruits what the organization really cares about
• Promote people who act according to new norms
• Tell vivid stories about success
• Link new behaviors to organizational success
What does not work:
• Relying on bosses, compensation, or structures instead of culture
• Trying to change culture as the first step

Impediments to Change
In groups, different kinds of impediments to change can [Link] the group level,
impediments often involve norms, because change disrupts group norms and the
expectations members have of one another. Impediments can also be related to group
cohesiveness, when group members are slow in recognizing opportunities to change and
adapt and resist attempts made by others to change what the group or its members are
doing. This resistance often occurs to protect group interests at the expense of other
[Link] behaviors can lead to groupthink and escalation of commitment.
• Groupthink occurs when a group reaches consensus without critical reasoning or
evaluation of consequences or alternatives. It is based on a desire not to upset the
balance of the group, which stifles creativity and individuality in order to avoid
conflict.
• Escalation of commitment (commitment bias) is the tendency to remain committed
to past behaviors, especially those exhibited publicly, even when they do not have
desirable outcomes.
Impediments to change can also be organizational, involving:
 • Organizational culture, Power and conflict, Differences in functional orientation
A mechanistic structure can be an impediment to change. It is characterized by:
• Tall hierarchies, Centralized decision making, Standardization of behaviors through
rules and procedures
This contrasts with an organic structure, which is:
• Flat, Decentralized, Based on mutual adjustment

ORGANZING FOR SUSTAINABILITY

Sustainability function and the corresponding executive
•Formal sustainability function overseen by a single designated senior executive.
•Leadership should have requisite credentials and experience.
•Science and engineering backgrounds helpful; internal experience advantageous for
relationships and integration.

Sustainability and the role of the CEO

•CEO must be a visible proponent of sustainability.
•Executive sponsorship accelerates engagement; CEO leadership of programs yields
betterresults.

Guidelines
•Structure driven by board and senior executive sustainability commitments.
•Commitment topics: climate change, waste, resource use, education, human rights,
community engagement, procurement.
•Commitments pursued via corporate policies, sustainability policies, employee
initiatives.
•Board should support via dedicated sustainability committee or director.
•Active initiation of initiatives by board members encouraged.
 •As initiatives expand, consider executive advisory councils, mid-level councils, “green
teams,” and external advisory councils.

Sustainability beyond top management

•Sustainability executive supported by cross-functional advisory team (communications,
operations, legal, sales/marketing, HR, EHS).
•Team provides diverse views, best practice sharing, program coordination aligned with
strategy.
•Dedicated resources for metrics, reporting, social programs,
communications/marketing.
•Staffing levels depend on company size, stage, strategic importance, risk, industry.
•Focus areas: environment, philanthropy, governance, human rights, employee relations.

Sustainability and decision making

•Core responsibilities vested in departments with stakeholder ties and decision-making
power (corporate, legal, public affairs).
•Leader reports to CEO and board for visibility and resource access.
•Structure should maximize employee interaction and business value; may evolve over
time.
•Establish clear decision rights; define decisions, parties involved, and implementing
managers.

Aligning sustainability objectives

•Integrate performance into management, compensation, and reviews.
•Programs to raise awareness and educate employees about sustainability strategy.
•Internal structure should align with external stakeholder engagement for accountability.

Sustainability and Organizational Structure

A. Stand-alone structure
Used by firms new to sustainability.
Characteristics
•Separate sustainability unit
•CSO at top level
Pros
•specialized skills
•clear responsibility
Cons
•weak integration
•low employee buy-in
•risk of being seen only as compliance/cost center
B. Integrated structure
Sustainability coordinated horizontally across functions.
Pros
•better cross-unit collaboration
•stronger employee involvement
•supports efficiency and cost reduction

Cons
•dispersed responsibility and accountability

C. Embedded structure
Sustainability fully integrated into business units.
Pros
•part of core strategy
•drives innovation and revenue
•high employee commitment
•creates business value

Cons
•coordination challenges
•possible duplication of efforts

Four Key Ways to Organize for Sustainability Success

[Link] around specific sustainability topics (not generic programs)
[Link] the central team decision rights
[Link] structure that fits the company (contingency approach)
[Link] on processes and governance, not only reporting lines

The 4I’s Model (Obel)

Framework for designing a sustainable organization:

•Impact → goals and environment
•Innovation → strategy and business model
•Integration → structure, coordination, people
•Incentives → rewards and performance systems

CSO’s Tasks and Accountabilities

The Chief Sustainability Officer (CSO) is the executive responsible for coordinating and
integrating sustainability and ESG initiatives across the organization.

However, when this role is introduced, firms often face:

•fragmentation
•unclear mandate
•overlapping responsibilities
•confusion about reporting lines and accountability

Therefore, clearly defining the CSO’s job description, authority and positioning is essential.
Reporting lines depend on strategic focus

The CSO’s placement varies according to the company’s priorities:

•Efficiency focus → reports to COO
•Investor relations / financial focus → reports to CFO
•PR / reputation focus → reports to Chief Communication Officer
•Compliance focus → reports to General Counsel

Sometimes ESG is split:

•E → COO
•S → HR (CHRO)
•G → Legal

Core Tasks of the CSO (8 responsibilities)

1. Regulatory compliance
•anticipate regulations
•ensure adherence to laws
•manage risks
•define internal policies

2. ESG monitoring and reporting

•collect data and metrics
•benchmark competitors
•prepare sustainability/ESG reports

3. Overseeing sustainability projects

•coordinate initiatives
•plan and track progress
•act as a project management office

4. Stakeholder management
•engage employees, communities, suppliers, regulators, investors
•maintain transparent relationships
5. Building organizational capabilities
•identify skill gaps
•train employees
•develop new competences
•share best practices

6. Fostering cultural change

•communicate purpose
•promote sustainability mindset
•reinforce behaviors and routines
•lead by example (“walk the talk”)

7. Scouting and experimenting

•explore new technologies and solutions
•test innovations
•scale successful practices

8. Embedding sustainability into decisions

•integrate ESG criteria into processes
•revise metrics and tools
•support managers in trade-offs

Goal: make sustainability part of daily decision-making, not an isolated function.

Evolution of the CSO Role

Today the CSO is becoming more strategic, not only operational.

The CSO should:
• participate in strategy and capital allocation
• prioritize material ESG issues
• engage directly with investors
• focus on long-term value creation
• accept trade-offs (not all ESG actions are win-win)

In fact, strategy means choosing what matters most.

Skills required

Beyond technical ESG knowledge, the CSO needs:

 • leadership
• cross-functional coordination
• stakeholder management
• financial understanding
• communication skills

Organizational conditions for success

To be effective:
• CSO must have C-suite status
• direct access to CEO and Board
• strong coordination with governance, risk and compliance
• adequate resources and expert teams
• incentives aligned with sustainability goals

ALLIANCES

Alliances are different from partnerships: they include different forms of partnerships. They are
formed to put together external resources in order to achieve an objective which is more difficult
to achieve alone, allowing to lower uncertainty regarding resources used and time spent.
Relevant aspects are market share, shared benefit, complementarity, compatibility, open
communication and transparency. However, 40–50% of alliances fail because of opportunism,
wrong partner choice or learning asymmetries.

Mergers & Acquisitions combine external resources and information asymmetries disappear
after the agreement. In alliances, firms remain separate and independent, while in M&A they do
not. Alliances can be preliminary to an M&A. If objectives are common with limited contact,
alliances are better; if the entire value chain is involved, M&A is preferable.

Gulati (1998): “Strategic alliances are voluntary arrangements between firms involving
exchange, sharing or codevelopment of products, technologies and services.”

Main forms of alliances (from less to more complex):

• Exchanging: low uncertainty, exchange of owned resources.
• Sharing: tangible elements and knowledge, risk of conflicts, need learning and
transparency.
• Co-developing: high uncertainty, joint growth, higher conflict and IP risks.

Reasons to enter alliances: strengthen competitive position, enter new markets, hedge
uncertainty, access complementary assets, learn capabilities, become more sustainable.
Main theories: Porter’s 5 forces model, transaction cost theory, agency theory. Alliances can be
horizontal, vertical or cross-industry.

Governing mechanisms:
1. Contractual agreements: non-equity, contracts for supply, distribution, franchising
or licensing, sharing explicit knowledge.
2. Equity alliances: partial ownership, stronger commitment, trust, sharing tacit
knowledge and personnel exchange.
3. Joint ventures: stand-alone organization owned by partners, long-term
commitment, exchange of tacit and explicit knowledge, often first step toward full integration or
foreign market entry.

Steps in the alliance formation process

The formation of an alliance follows several sequential steps:
1. Market research
2. Partner research
3. Evaluation of strategic options
4. Negotiation
5. Development of a business plan
6. Conclusion of the agreement
7. Implementation of the new structure

The three phases of alliance formation

1. Start-up phase
This phase concerns the identification, evaluation and selection of potential partners and the
definition of their motives and objectives. Firms assess strategic and organizational compatibility
before starting negotiations and drafting the business plan.

Key prerequisites:
• Transparency of objectives
• Mutual knowledge to avoid opportunistic behavior
• Compatible management styles
• Propensity toward collaboration and co-design

A careful partner selection and clear goal alignment are critical to reduce future conflicts.

2. Execution phase
This phase focuses on the implementation and functioning of the alliance structure.

Main requirements:
• Avoid replicating one partner’s organizational structure
 • Prevent free riding and inertial behaviors
• Promote a long-term orientation
• Limit excessive reliance on contracts, since contracts are incomplete and trust is
essential

Effective coordination and cooperation mechanisms are necessary for operational success.

3. Control phase
The alliance performance is periodically reviewed and adjustments are made if necessary.
Changes may occur due to:
• environmental dynamics
• strategy modifications
• different commitment levels of partners

This highlights the life-cycle nature of alliances, which must evolve over time.

Organizational design of alliances

Alliances should not simply replicate the parent companies. Instead, they should develop:
• Identity, to foster commitment
• Autonomy, to ensure independent decision-making
• Redundancy, to increase flexibility and reliability

Causes of alliance failure

Empirical evidence shows that 40–50% of alliances fail. The main reasons include:
• Changes in partners’ strategies
• Technological or competitive shifts
• Low managerial commitment
• Cultural clashes
• Asymmetries in learning and benefits

Strategic networks
A strategic network is a system of interconnected organizations (nodes) linked by cooperative
relationships (ties) that work together to achieve common goals while maintaining flexibility.

Examples include industrial districts and global airline alliances.

Determinants of network performance

The effectiveness of a network depends on:
• Quality of ties (strong vs weak)
• Firm’s position (centrality, brokerage roles, structural holes)
• Size and geographical scope of the network
Role of the strategic center
Successful networks often require a strategic center, a firm that coordinates relationships
through influence rather than authority.
The strategic center performs three main roles:

1. Creator of value for its partners

[Link] Outsourcing: Outsource and share with more partners than the normal broker and
traditional firm. Require partners to be more than doers, expect them to be problem solvers and
initiators.
2. Capability: Develop the core skills and competencies of partners and force members to share
expertise.
3. Technology: Borrow ideas to create and master new technologies.
4. Competition: Emphasize competition between value chains and networks and encourage
positive rivalry.

2. Leader, rule setter and capability builder

1. Idea: Creating a vision in which partners play a critical role.
2. Investment: Strong brand image and effective systems and support.
3. Climate: Creating trust and reciprocity.
4. Partners: Developing mechanisms for attracting and selecting them.

3. Simultaneously structuring and strategizing

Without such coordination, networks may lose competitiveness.

Mergers & Acquisitions (M&A)

Strategic and Industrial Objectives of M&A

Mergers and acquisitions are undertaken to achieve strategic and competitive advantages such
as:
• Reduction in the number of competitors
• Increase in market share
• Raising entry barriers
• Diversification of product portfolio
• Achieving synergies and economies of scale

Reasons for the High Rate of M&A Failures

(A) Decision Process Problems

• Weak strategic planning
• Contradictory strategic directions
• Ambiguity in expectations and motivations

(B) Integration Process Problems

 • Rigidity of initial expectations
• Negative impact on people (uncertainty, panic, resistance)
• Poor leadership

The Acquisition Process

An acquisition is a resource allocation process characterized by:

• Sporadic nature
• Different from managers’ routine activities
• Opportunistic
• Rapid conclusion required
• Limited information availability

Influenced by:
• Management experience
• Leadership
• Strategic vision
• Organizational culture

Difficulties in the Acquisition Process

• Fragmentation of perspectives
• Multiple competencies involved
• Pressure to conclude quickly
• Ambiguous expectations among stakeholders
• Multiple managerial motivations

Phases of the Acquisition Process

The acquisition process consists of three phases:

1. Strategic evaluation
2. Negotiation & closing
3. Ex-post integration

Phase 1: Strategic Evaluation and Planning

Objective: Identify suitable target firms based on:

• Business characteristics
• Financial requirements
• Organizational compatibility

Strategic Audit includes:

• Industry and competitor analysis
• Identification of critical success factors
• Strengths and weaknesses assessment
• Identification of synergies
• Strategic coherence evaluation
Phase 2: Negotiation and Closing

Target Selection through Direct contact and Through independent intermediary

Direct negotiation
• Faster
• Transparent
• Immediate identification

Independent firm
• Reduces competitive reactions
• Lower commitment
• Greater confidentiality

Letter of Confidentiality

Purpose:
• Protect sensitive information
• Prevent negotiations with competitors (standstill agreement)

Letter of Intent (LOI)

• Announces the operation
• Not legally binding
• Establishes:
• Intent to conclude
• Deadlines
• Exclusivity
• Due diligence criteria
• Confidentiality

Due Diligence

Objectives:
• Reduce information asymmetry
• Verify assumptions
• Evaluate risks
• Determine fair value

Types:
• Commercial
• Financial
• Legal
• Fiscal
• Operational
• Environmental
• Business plan review
Outcomes:
• Stand-alone value of the target
• Walk-away price (maximum price without synergies)

Final Offer Includes:

• Target identification
• Price
• Payment terms
• Contractual clauses
• Earn-out mechanisms
• Warranties
• Validity period

Phase 3: Ex-Post Integration

Importance of Long-Term Orientation

Short-term risks:
• Loss of customers
• Loss of managers

Long-term risks:
• Reduced innovation
• Lower quality
• Lower brand value
• Higher overhead costs

Failures in Integration Process

Causes and Effects:

Cause Effect
Lack of strategic direction Resistance, confusion
Lack of integration plan Improvisation, delays
Leadership vacuum Anxiety, political conflicts
Poor communication Rumors, fear
Arrogance/imposed solutions Staff demotivation

Good Practices for Successful Integration

• Avoid separating corporate and organizational restructuring
• Conduct organizational & people due diligence
• Assess cultural compatibility
• Create urgency and motivation
• Focus on emotional and intangible aspects
Level of Integration Depends On
• Overlaps and complementarities in value chains
• Strategic objectives
• New business model

Three Steps of Integration Process

Step 1: Start
• Create positive atmosphere
• Encourage cooperation
• Facilitate communication
• Build mutual understanding

Step 2: Management
• Transfer capabilities
• Define boundaries
• Balance:
• Strategic interdependence
• Organizational autonomy

Step 3: Consolidation
• Enhance competitive advantage
• Stabilize systems and processes

Value Creation Mechanisms

• Combinational benefits
• Resource sharing
• General management skill transfer
• Functional skill transfer

Need for Organizational Autonomy

Preserve acquired resources by determining:

• How much autonomy
• Where autonomy is needed
• Whether autonomy protects strategic capability

Acquisition Integration Approaches

Preservation-Keep target intact (High need for autonomy, Low strategic interdependence)
Absorption-Fully integrate into acquirer(Low need for autonomy, High strategic interdependence)
Holding-Financial control only, no integration(Low need for autonomy, Low strategic
interdependence)
Symbiosis-Balance integration and autonomy(High need for autonomy, High strategic
interdependence)