Organizational Theory

1. Organizational Theory • This liability of newness—the dangers of • being the first in a new environment—is • due to the following: • Entrepreneurship is a risky process • New organizations lack formal structure • Resources may be scarce because of • established organizations.

6. Organizational Theory A population ecology model of organizational birth Population ecology theory seeks to explain the rate at which new organizations are born (and die) in a population of organizations.

7. “When Being First Doesn’t Make You No. 1” • In Jan. 2000 – almost two years before Apple Computer’s iPod hit market – Singapore-based Creative Technology unveiled similar product • Creative best known for Sound Blaster audio cards, product category it pioneered and still dominates • But Creative is niche player, w/ sales one-tenth of Apple’s • More importantly, because its roots are in commodity world of PC peripherals, Creative had little understanding of branding and marketing tactics Apple uses • Problem for many Asian companies as they enter global consumer markets (Sony and Samsung are exceptions) • Creative’s advertising had only run in computer trade magazines, were designed in-house, pitched specific products rather than overall brand • Creative’s MP3 global market share was 31% in 2001, fell to 17% in 2003 (iPod has 54%) • CEO: “Marketing is important, I know that. But we’ve always had the best technology and we still do. That’s how we’ll fight back: innovation.” • Source: Wall Street Journal, 8/12/04

8. Organizational Theory The r versus K issue addresses timing of entry into the population. R-strategy involves entering a new environment early. K-strategy involves entering an environment late, after other organizations have tested the waters.

9. Organizational Theory The specialist versus generalist issue addresses the set of resources for which an organization competes. Specialists concentrate their skills to pursue a narrow range of resources in a single niche. Generalists spread their skills thinly to compete for resources in many niches.

10. Specialist Strategy Generalist Strategy (operates in one niche) (operates in several niches) r–Strategy r–Specialist r– Generalist (early entry into environment) K–Strategy K–Specialist K– Generalist (late entry into environment) FIGURE 11-3 Strategies for Competing in the Resource Environment

11. Large Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 5. Crisis of ? 4. Crisis of red tape 5. Growth through collaboration 3. Crisis of control 4. Growth through Size of organization coordination 2. Crisis of 3. Growth through autonomy delegation 1. Crisis of 2. Growth through leadership direction 1. Growth through creativity Small Y oung Mature Age of organization FIGURE 11-4 Greiner’s Model of Organizational Growth

12. Stage 1: Stage 2: Stage 3: Stage 4: Stage 5: Blinded Inaction Faulty action Crisis Dissolution Acceptable Good performance information Prompt action Corrective Performance action Effective reorganization Actual performance Decline begins Dissolution and T ime organizational death Acceptable organizational performance Actual organizational performance FIGURE 11-6 Weitzel and Jonsson’s Model of Organizational Decline

13. Organizational Theory • IBM’s Gerstner indicates there are two critical ingredients for managing during crisis: communication and performance • Ees need to be treated like adults and not handed trite memos about costs being too high • Ees also need to understand entire picture of why Co isn’t competitive; message needs to come from CEO, often face to face • Leaders need to provide clear sense of strategy quickly • Eliminating bureaucracy helped IBM refocus on customers • Source: Wall Street Journal, 7/13/04