Strategic Cultures of Transformative Organization_7 ppt

284 TRANSFORMATIVE ORGANIZATIONS Weiner, B. (1990). Human Motivation. New York: Lawrence Erlbaum Assoc. Witt, U. (1998). Imagination and leadership. The neglected dimension of an evolutionary theory of the firm. In Journal of Economic Behaviour and Organization, 35, pp. 161177. Wunderer, R. (ed.) (1999). Mitarbeiter als Mitunternehmer. Grundlagen FörderinstrumentePraxisbeispiele, Neuwied: Luchterhand. Wunderer, R. (2001). Führung und Zusammenarbeit, 4th ed., Neuwied: Luchterhand. Wunderer, R. & P. Dick (2000). PersonalmanangementQuo Vadis? Analysen und Prognosen zu Entwicklungstrends bis 2010, Neuwied: Luchterhand. Wunderer, R. & H. Bruch (2000). Unternehmerische Umsetzungskompetenz. Diagnose und Förderung in Theorie und Praxis, München: Vahlen. FUNCTIONAL FLEXIBILITY IN THE NORWEGIAN CONTEXT 285 Functional Flexibility in the Norwegian Context Strategic Adaptation vs Competence Orientation Paul N. Gooderham l Bente R. Løwendahl l Odd Nordhaug Over the last decade, the concept of the flexible firm has been fully established. An important source of this concept derives from the research conducted in the UK in the 1980s by John Atkinson (1985) that resulted in a flexible firm model, generally referred to as the core-periphery model. In terms of this model, the firm requires core employees to maintain and develop its functional flexibility and peripheral employees to provide it with numerical flexibility. In short, while the core employees secure the firms creativity and innovative capability, peripheral employees are predominantly engaged to perform routine tasks. While the former usually have long-term, full-time employment, the latter are more or less employed on a non-standard basis, particularly on a part-time basis (Clifford, Morley and Gunnigle, 1997). While this broad distinction as a surface phenomenon has received support from Handy (1996) and Burton-Jones (1999), there is fundamental disagreement regarding the transformative dynamics underlying this development. Some explanations rest on a strategic adaptation thesis, while others emphasize a shift from routinized mass-production to customized knowledge-based production. However, neither of these theses has been subjected to empirical testing. The purpose of this paper is to test these two competing theses by focusing on the dynamics of functional flexibility in manufacturing firms. We focus on the factors inducing the drive to develop among core employees those compe- tencies associated with the concept of functional flexibility. First, we present a background including the specific Norwegian context. Next, the concept of functional flexibility is discussed and, thereafter, the two alternative factors in functional flexibility. Finally, we test these different factors empirically, using a sample of firms drawn from a range of manufacturing industries in Norway. 16 286 TRANSFORMATIVE ORGANIZATIONS The Norwegian Context Since World War II, Norwegian manufacturing companies have been exposed to three distinct management paradigms. In the period spanning 1945 to 1970, there was a strong orientation towards both operative and strategic planning. Management was dominated by engineers whose focus was on production processes on the basis of a conviction in the virtues of rational and careful plan- ning (Byrkjeflot and Halvorsen, 1996). This remains the case today for many companies. Comparisons on a European level, for instance through the Cranet surveys, indicate that Norwegian companies to a large degree elaborate visions, policy documents, written strategy, and personnel policies to a much greater extent than their counterparts in most other West European countries (Nordhaug, 1997). However, during the 1970s and 1980s, there were increasing indications of the influence that the socio-technical experiments of the late 1960s were having on management thinking (Thorsrud and Emery, 1970). There were clear signs of a growing interest in softer, more human resource-oriented methods and procedures for managing in the manufacturing industry. Human resource management specialists increased their influence and impact on the top manage- ment during this period, thereby paving the way for more sophisticated ways of managing human resources and the organization at large and an increasing scepticism towards the classical rational planning paradigm. Flexibility in the sense of devolving decision-making and experimentation with work processes to employees had entered the Norwegian management thinking. During the 1990s, the socio-technical approacha product of a relatively technologically stable worldwas supplemented by management thinking that had its basis in a resource-based view of the world. An empirical study of competence development in Norwegian companies revealed that top managers ranked intangible or immaterial assets as the most important resources for the companys degree of economic success (Nordhaug and Gooderham, 1996). Among these assets were not only the companys and the products reputation and good customer relations, but also the competence of the management and other employees. Resources such as capital assets and technology were ranked significantly below these intangible assets. One tangible indication of the impact of this shift in management perspective was that the Norwegian state initiated an array of supportive arrangements designed to stimulate and assist companies in improving their competency bases. Largely due to path dependency, it is reasonable to suppose that contempo- rary Norwegian manufacturing firms provide a spread of management forms ranging from the strategic planning paradigm to the more recent resource-based paradigm. It is precisely this spread of forms that makes Norway a valuable empirical context for studying the driving forces behind the development of functional flexibility. FUNCTIONAL FLEXIBILITY IN THE NORWEGIAN CONTEXT 287 Functional Flexibility Within recent organization and strategy theory, it has become commonplace to argue that as a result of a variety of forces that include technological advances, globalization and information diffusion, firms are facing increasingly less stable and more complex environments (Pfeffer, 1994; Prahalad and Hamel, 1994). As a result, the traditional organizational form characterized by specialization, vertical control and centralized decision-making is increasingly regarded as inadequate in relation to the external demands being made on firms (e.g., Kanter, 1989; Stone and Eddy, 1996; Løwendahl and Revang, 1998). These demands may be summarized in terms of two dimensions, environmental stability and environmental complexity. Environmental stability refers to the rapidity of technological change that has to be dealt with. The greater the pace, the more problematic it is to develop routines and the more critical employee innovative ability becomes. The other dimension, environmental complexity, refers to the degree to which product standardization may be achieved. Mass production and corresponding economies of scale are problematic if the firm has to meet the needs of increasingly heterogeneous customers who demand customized products or services. In short, firms operating in this changed environment need a strong customer focus coupled with a management approach that ensures quality control is conducted not on the basis of routines and vertical control, but on the basis of flexible, decentralized systems. A core challenge involved in dynamic organizations is the development of functional flexibility. Although there are no precise definitions concerning the capabilities underpinning functional flexibility among core employees, those researchers that have employed the term indicate that a psychological contract between a firm and its core employees is a characteristic of functional flexibility (e.g., Atkinson, 1985; Burton-Jones, 1999; Standing, 1997). The main body of this contract is that the latter are expected to continually maintain and enhance their adaptability, creativity and competence levels. Although their job security is superior to that of peripheral employees, failure to do so will ultimately result in their being marginalized. Another aspect of functional flexibility relates to the nature of the part of the organization in which they are employed. It is delayered and non-hierarchical thereby granting core employees considerable individual discretion. However, there is a strong expectation that core employees will have the ability to constructively employ this individual freedom on behalf of the firm. Finally, functional flexibility is predicated on the ability of the core employees to participate in multi-disciplinary teams assembled on a project-by- project basis. Thus, core employees have to develop five capabilities to achieve, functional flexibilty: adaptability, creativity, a learning orientation, independence in job execution, and interactive communication skills. In its broadest sense, functional flexibility is associated with the increase in less stable and more complex environments. However, the question is whether variations in the drive to develop the necessary capabilities for functional 288 TRANSFORMATIVE ORGANIZATIONS flexibility among core employees at the firm level are a function of strategic adaptation to external forces or a product of proactive, competence-oriented responses by firms (cf. Hrebiniak and Joyce, 1985). HYPOTHESES S TRATEGIC ADAPTATION AND FUNCTIONAL FLEXIBILITY At the micro level, Astley and Van de Ven (1983) distinguish deterministic and voluntaristic explanations of firm behavior. The former spans a number of theories that view firm behavior as being shaped by the exigencies that confront it. Change takes the form of adaptation; it occurs as the product of exogenous shifts in the environment. The manager must perceive, process and respond to a changing environment and adapt by rearranging internal organizational structure to ensure survival or effectiveness (Astley and Van de Ven, 1983:248). In terms of Atkinsons core-periphery model, functional flexibility is a function of firm strategic adaptation in which firms are viewed as adopting the model as a strategic response to competitive pressures. The assumption is that firms operate on the basis of explicit strategies. Indeed Atkinson (1985:15) argues that the chosen business strategy of the organization is likely to be the major influence on the choice to develop the model. There is an assumption that firms operate on the basis of explicit strategies that are a product of competitive pressures. Another aspect to Atkinsons model is that in the new hyper- competitive business environment, numerical flexibility will be a prerequisite enabling the firm to channel scarce resources into enhancing its functional flexibility. Thus, it may be surmised that the cost-saving measures associated with numerical flexibility, that is some variant of non-standard employment such as part-time employment, will tend to precede the development of functional flexibility. Finally, since Atkinson (1985:14) views the core-periphery model as one that will persist beyond the current labour climate, it may be assumed that clearly formulated personnel policies will emerge to provide the necessary human resource underpinning. In short, in terms of the strategic adaptation core-periphery model, functional flexibility is perceived as dependent on extensive competition together with explicit business and personnel strategies and the introduction of some variant of numerical flexibility such as part-time employment. From this, the following five hypotheses can be derived: Hypothesis 1: Firms intentions to develop functional flexibility are positively affected by their having a clearly formulated business strategy. Hypothesis 2: Firms intentions to develop functional flexibility are positively affected by their having a clearly formulated personnel strategy. Hypothesis 3: Firms intentions to develop functional flexibility are positively affected by the degree of competition they are currently confronting. Hypothesis 4: Firms intentions to develop functional flexibility are positively affected by the degree of competition they expect to face in the future. FUNCTIONAL FLEXIBILITY IN THE NORWEGIAN CONTEXT 289 Hypothesis 5: Firms intentions to develop functional flexibility are positively affected by the proportion of part-time employees in their workforce. COMPETENCE ORIENTATION AND FUNCTIONAL FLEXIBILITY Astley and Van de Ven (1983) also identify voluntaristic explanations of how firms respond to the challenges of competitiveness. A number of approaches fall within this broad category, of which the more recent competence orientation approach is of particular relevance, given our focus on the concept of functional flexibility (for example, Nordhaug and Grønhaug, 1994). This approach is derived from the resource-based view of value creation in firms and emphasizes competence development as paramount to the creation of new opportunities. In this context, human resource development becomes critical as a means for the firm to generate and take advantage of new opportunities, rather than as a reactive means of coping with rapid environmental change. Prahalad and Hamel assert that the most valuable resource for a firm in terms of ability to generate economic rent is located in its competence and capabilities (Hamel and Prahalad, 1989; Prahalad and Hamel, 1990; Hamel, 1994; Hamel and Prahalad, 1994). As spelled out by Barney in his so-called VRIO-framework (1991, 1997), if a resource is to be a potential source of competitive advantage for a firm, customers must perceive its product or service manifestations as valuable, rare, without equivalent substitutes, and difficult to imitate. Moreover, the firm must be organized in such a way that it is able to reap the potential benefits from these resources. Few such advantages are long lasting, so that an organizations capacity to improve its existing skills and develop new skills may be the most critical competitive advantage of all. Very much in line with this line of reasoning, Prahalad and Hamel (1990) claim that, in essence, competition is about the proactive acquisition and development of unique competences that make a disproportionate contribution to customer-perceived value (Hamel, 1994:13). These resources, referred to as core competences, are applicable across several market segments or business units, can be applied to new products and services, and give the firm a sustainable competitive advantage (Prahalad and Hamel, 1990). In short, integral to the concept of core competence is an assumption that competence development is the bedrock of competitive advantage. In the 1990s, the challenge will be to enfranchise employees to invent the means to accomplish ambitious ends (Hamel and Prahalad, 1989:76) which in turn is dependent on  the inventive capacity of individuals and small teams (Hamel and Prahalad, 1989:66). In these authors view, this capacity is best achieved not through the traditional strategic planning and adaptation mode, but rather through the development of strategic intent based on a strong competence orientation. From this point of view, firms intentions to develop functional flexibility can be seen as a function of a conception that competence development is not an option, nor an employee fringe benefit, but rather a prerequisite for significant competitive advantage. This will involve a consciousness that identifying and building competences is, in general, the key to any attempt at increasing the 290 TRANSFORMATIVE ORGANIZATIONS firms quality focus and customer focus. In addition, one may expect a similar attitude when it comes to the introduction of new production technologies, to organizational change, and to the broadening of job-related tasks. On the basis of the competence orientation approach, we may posit: Hypothesis 6: Firms intentions to develop functional flexibility are positively affected by the degree to which their management in generally assumes that quality improvement requires competence enhancement. Hypothesis 7: Firms intentions to develop functional flexibility are positively affected by the degree to which their management in generally assumes that improvement of customer treatment requires competence enhancement. Hypothesis 8: Firms intentions to develop functional flexibility are positively affected by the degree to which their management in generally assumes that introduction of new production technology requires competence enhancement. Hypothesis 9: Firms intentions to develop functional flexibility are positively affected by the degree to which their management in generally assumes that organizational change requires competence enhancement. Hypothesis 10: Firms intentions to develop functional flexibility are positively affected by the degree to which their management in generally assumes that a broadening of job-related tasks requires competence enhancement. STRUCTURAL CONTROLS AND FUNCTIONAL FLEXIBILITY In addition to testing the above hypotheses, our analysis will include three structural variables that capture important aspects of firms. First, we control for the existence or non-existence of a human resource management department or personnel unit. The reason for this is that such a department may represent a more professional attitude to the development of functional flexibility and may, therefore, positively impact its development. Second, we control for the effect of firm size and, third, for the effect of industry. Research Method In order to test the hypotheses, we will make use of a data set containing Norwegian business firms. The data were collected through a telephone survey. The sample of firms included in the survey (the sampling frame, sampling procedure, and achieved sample), the measurement of variables, and the data collection procedure are described below. SAMPLE The sample of firms was drawn from a survey of privately-owned companies. The total number of such firms in Norway is about 113,000. Many of them are, FUNCTIONAL FLEXIBILITY IN THE NORWEGIAN CONTEXT 291 however, either inactive or too small to be considered relevant for an organiza- tional study. Sampling was therefore limited to companies with more than five employees, and the sampling was further confined to nine major manufacturing industries that were specified in advance. These procedures produced a nation- wide sampling frame of about 20,000 firms from which 4,000 firms were randomly drawn. A detailed analysis of the planned sample showed that the sample was representative both geographically, in relation to the selected industries, and with regard to firm size. Altogether, a good fit between the sampling frame and the sample was obtained. A response rate of 32 per cent was achieved producing a sample of 1,291 firms. Further investigation demonstrated that the overall non-response did not cause any particular geographical or industry-wise bias. Distribution of firms by industry and by geography in the planned sample closely matches that of the achieved sample. For this study, we have excluded firms with fewer than 50 employees. The substantive reason for this is that smaller companies often do not have the managerial staff necessary for full-fledged strategic planning and human resource management routines. We were left then with a sample of 266 firms. Since missing values reduced this by 40 firms, it was decided to replace these with mean estimates. OPERATIONALIZATION AND MEASUREMENT Our study includes both perceptual and factual measures. How accurately people report on factual issues depends on their knowledge, interpretation of questions, and propensity to provide correct answers. If survey questions are unequivocal, the measures normally demonstrate high reliability. Perceptual measures may be further sub-divided into attitudinal measures (questions about the respondents traits or subjective experiences) and judgmental measures (questions about uncertain issues external to the respondent). Only judgmental measures were included in this study. In addition to knowledge and willingness to respond accurately, judgmental measures require judgmental skills on the part of the informant (Campbell, 1955). The informants used for this survey were the most knowledgeable managers (the highest-ranking HRM manager in larger firms and the top leader in small and medium-sized firms), and hence there is every reason to believe that the reliability of the judgmental measures is generally high. Beliefs that a need for competence enhancement is a prerequisite in relation to five critical potential future situationsan increase in quality focus, an increase in customer focus, introduction of new production technology, organizational change and the broadening of job-related tasksare judgmental measures. Each response was scored on a five-point scale ranging from none to very much. The same applies to both the current and the expected intensity of competition. Having a written strategy document or not, and a written personnel policy or not, are both factual, dichotomous variables. The proportion of part-time employees is also a factual variable as is the presence or not of a human resource 292 TRANSFORMATIVE ORGANIZATIONS management department, firm size, which is, operationalized as the log of the total number of employees, and industry. In the analysis we have used the construction industry as the reference category. Finally, it is argued that the dependent variable, intentions to develop func- tional flexibility, is also a factual variable. It is operationalized as an additive index composed of five equally weighted items spanning intentions to develop interaction skills, learning skills, creativity, increased adaptability, and indepen- dence in job execution in the next four to five years. The items pertain to core employees defined as technical and professional staff with higher education. Each was measured on scales ranging from one to five. The operationalization of variables is summarized in Table 16.1. Table 16.1: Operationalization and Measurement Variable Operationalization Intentions to develop functional flexibility Clearly formulated strategy Clearly formulated personnel policy Degree of competition currently operating within Degree of competition expected in the near future Proportion of part-time employees Degree to which it is believed that quality improvement requires competence enhancement Degree to which it is believed that improved customer focus requires competence enhancement Degree to which it is believed that introduction of new production equipment/technology requires competence enhancement Degree to which it is believed that organizational change requires competence enhancement Additive index (5=low, 25=high) comprising: firms intentions to develop the following capabilities in core employees during the next four to five years (five-point scales): Interaction skills Learning capacity Creativity Adaptability Independence in job execution A written strategy document: 1 (yes)-2(no) A written personnel policy: 1 (yes)- 2(no) Perceptual measure: 1 (low)-5 (high) Perceptual measure: 1 (low)-5 (high) Percentage, continuous variable Perceptual measure: 1 (very small)-5 (very large) Perceptual measure: 1 (very small)-5 (very large) Perceptual measure: 1 (very small)-5 (very large) Perceptual measure: 1 (very small)-5 (very large) (Contd.) FUNCTIONAL FLEXIBILITY IN THE NORWEGIAN CONTEXT 293 Degree to which it is believed that a broadening of job-related tasks requires competence enhancement Presence of an HRM department Log of size Industry VALIDITY AND RELIABILITY Research has shown that the respondents tendency to produce socially desirable answers, to display a positive image and to give biased answers to sensitive questions is stronger in relation to telephone interviews than when postal questionnaires are applied (Colombotos, 1965). In the present study, however, none of the issues that were covered can be regarded as being particularly sensitive. Thus, the possibility that there may have been some tendency to give more positive and socially legitimate answers than is objectively the case is regarded as being very modest. Inspection of the distribution of the dependent variable indicated two outlier cases with values that were discontinuous with the other values. These were removed in order to enhance the meeting of the assumption of approximately normal distributions thereby reducing the sample to 264. This resulted in a dependent variable that ranged from 10 to 25, with a mean of 18.8 and a standard deviation of 3.28. Thereafter a test of reliability or consistency of the additive index that constitutes the dependent variable was carried out. Cronbachs alpha which normally should not be lower than .70 was measured to .87. This reflects that we are indeed measuring a coherent, consistent variable. EMPIRICAL RESULTS As an initial step a bivariate Pearson correlation matrix was generated for the variables contained in the hypotheses. This is displayed in Table 16.2 together with means and standard deviations. The overall picture is that the inter-correlations between the independent variables are rather modest, with only one exception: the current degree of competition is strongly correlated with expectations of future competition (.57). This is of course unsurprising as one would expect that the best predictor of the expected severity of future competition would reside in the current level of competition. Another pattern was that the dependent variable is in general very weakly correlated with the variables generated on the basis of the strategic adaptation approach, whereas it is substantially more strongly correlated with the variables stemming from the competence orientation approach. Thereafter we assessed the causal impact of each of the independent variables on the firms intentions, including the control factors, to develop functional Perceptual measure:1 (very small)-5 (very large) Dichotomous variable Number of employees, continuous variable Construction industry as reference category Table 16.1: (Contd.) [...]... the effects of organizational change and the broadening of job tasks are also relatively pronounced and in the predicted positive direction, although neither of them achieve statistical significance at the 05 per cent level The effect of improved customer treatment is minimal We observe that of our control variables only size has any significant impact One possible explanation of the effect of size is... is that it may be construed as an indication of success that in turn is a product of the development of a commitment to competence enhancement Regarding the HRM departments’ lack of impact, one possible explanation may reside in the devolution of responsibility for competence development to line managers The lack of industry effects indicates the generality of our findings across manufacturing firms... for the prosperity of the 1990s Thus, the 1980s could constitute an important era of US economic transformative organization Literature Review Reaganomics, the economics of the Reagan administration, is now increasingly reappraised as a major source of the excellent performance of the US economy during the 1990s It was once criticized for its unorthodox theory and its consequences of huge twin Federal... Several important points follow here First, a new system of labor-management cooperation is necessary for the installation of these new technologies The introduction of FMS or CIM, the 310 TRANSFORMATIVE ORGANIZATIONS major forms of microelectronics automation, directly conflicts with the traditional job control unionism of labor unions Within the logic of the FordTaylor type production system, the management... a new economic structure of Eternal Prosperity, they argued (Webner, 1997; Krugman, 1997) The excellent performance of the US economy was in sharp contrast to that of Japan and the EU in the 1990s Japan went through its serious Heisei Recession, largely, as a direct consequence of the collapse of the Bubble Economy in the late 1980s The EU trailed the US and Japan in terms of competitiveness and has... achieved in reduction of high unemployment levels of more than 10 per cent of the working population In contrast to the economic prosperity in the 1990s, the US faced serious problems of economic decline and de-industrialization in the late 1970s and the early 1980s Unprecedented huge trade deficits, a declining share of the world export market, slackening productivity growth, lower profitability, decreased... 1970s, the Soviet Union’s invasion of Afghanistan and the prolonged hostage crisis in the American embassy in Teheran typified the deterioration of the US military prestige The second oil crisis in 1979 might be traced to the decline in US politico-military power All of these events suggested the end of the postwar politico-economic regime of Pax Americana Some explanation of the postwar Pax Americana perspective... However, it is clear that the vast bulk of its explanatory power originates not from the variables derived from the strategic adaptation approach, but from those deriving from the competence orientation approach As the table indicates, the main finding is that whereas none of the hypotheses derived from the strategic adaptation approach is supported, two of the 296 TRANSFORMATIVE ORGANIZATIONS hypotheses... meltdown of the internet economy and the events 304 TRANSFORMATIVE ORGANIZATIONS of 9/11 suggests that the world economic system is still in flux, and has not yet been fully reorganized into a new stable regime, compared with the 1950s and the 1960s However, it is not appropriate to attribute all the causes of prosperity or instability only to policies Evaluations of policies should be done in terms of their... important aspect of their conclusions, i.e., the limitation of the US corporate system itself, because they articulate the existence of the real problems in the nucleus of the postwar corporate America and thereby clarify the fundamental character of American economic problems in the 1980s However, the MIT studies do not offer a full account of why the thenexisting US corporate system itself faced limitations . degree of competition 3. 87 0.90 .09 .05 .03 V5 Expected degree of competition 3.94 0.80 .19** .05 .04 . 57* * V6 Proportion of part-time employees 1 .73 1. 17 .00 .04 .02 . 17* * . 07 V7 Quality improvement requires. degree of competition is strongly correlated with expectations of future competition (. 57) . This is of course unsurprising as one would expect that the best predictor of the expected severity of. Organizations, London: Arrow Books. Hofstede, G. (1991). Culture and Organizations. Software of the Mind, London: McGraw-Hill. Hrebiniak, L.F. & W.F. Joyce (1985). Organizational adaptation: strategic choice and