Managerial Economics and Organizational Architecture, 5e Managerial Economics and Organizational Architecture, 5e Chapter 20: Leadership: Motivating Change within Organizations McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc All Rights Reserved Managerial Economics and Organizational Architecture, 5e Characteristics of Leadership as “Guidance” • Leaders must help organizations choose the right path through vision • Leaders must motivate – Emotional—charisma, difficult to learn – Rational—standard agency problem 20-2 Managerial Economics and Organizational Architecture, 5e Decision Making in Firms • Organizational politics – Good leadership initiating good proposals, careful analysis – Politics may hinder ratification, implementation – Must understand organizational politics 20-3 Managerial Economics and Organizational Architecture, 5e Attitudes Toward Change • Managers are utility maximizers • For a proposal to be supported, it must increase the manager’s utility • General managers need to assess the effect of their proposal on their manager’s utility • To gain support – Change architecture – Change the proposal – Market the proposal 20-4 Managerial Economics and Organizational Architecture, 5e Framework for Understanding Attitudes Toward Change Expected payoff (in dollars) P Lynn’s current indifference curve Favor proposal Increasin g expected utility Oppose proposal Status quo S Standard deviation (in dollars) 20-5 Managerial Economics and Organizational Architecture, 5e Changing Organizational Architecture • Increase the decision rights of supporters – Could also reduce decision rights of opponents • Changing architecture can be costly 20-6 Managerial Economics and Organizational Architecture, 5e Changing the Architecture to Gain Support for a Proposal Expected payoff (in dollars) P Original indifference curve for status quo (SQ) Increasin g expected utility Indifference curve for status quo (SQ’) after changes in the architecture SQ Chris’s proposal SQ’ S Standard deviation (in dollars) 20-7 Managerial Economics and Organizational Architecture, 5e Proposal Design • Flexibility – If the proposal has lower risk it is more likely to be supported – Pilot testing the program gives information about its possibilities • Credible commitment • Distributional consequences – Some employees gain and others lose – Modify the proposal so that all win 20-8 Managerial Economics and Organizational Architecture, 5e Analyzing the Distributional Consequences of a Proposal Expected payoff (in dollars) P Rob’s view of Chris’s proposal Increasin g expected utility Lynn’s view of Chris’s proposal Status quo for both Lynn and Rob Standard deviation (in dollars) S 20-9 Managerial Economics and Organizational Architecture, 5e Selling a Proposal • Careful analysis and groundwork – Do: communicate and explain to reduce uncertainty – Don’t: spring a proposal for immediate action 20-10 Managerial Economics and Organizational Architecture, 5e Selling a Proposal • Create and rely on reputation – Past success as indicator of likely future success – Reputation as assurance of careful analysis – Select battles wisely • Employees are more likely to favor change when the organization is in crisis 20-11 Managerial Economics and Organizational Architecture, 5e Organizational Power • Employees will respond more to proposal when the sponsor has personal power • Sources of power – Formal authority – Budgetary and/or facility control – Information control – Friends and allies • Tie proposal to popular initiatives – free riding 20-12 Managerial Economics and Organizational Architecture, 5e Coalitions and Logrolling • Give support for a proposal to one sponsor to receive support for your proposal in return – Must have credibility in giving support to future proposals – Identifying those who will logroll may be difficult – The proposal may have to be vague to gain support 20-13 Managerial Economics and Organizational Architecture, 5e Use of Symbols • Communication within a corporate culture • But must be supported by architecture 20-14 Managerial Economics and Organizational Architecture, 5e Strategic Value of Commitment GSA company $0 $85 Tomoka—High leverage Tomoka—High leverage $90 Simon—Not invest $80 Simon—Invest Tomoka—Low leverage Tomoka—Low leverage Simon—Invest $100 $0 $80 $100 Simon—Not invest 20-15 ... 20-13 Managerial Economics and Organizational Architecture, 5e Use of Symbols • Communication within a corporate culture • But must be supported by architecture 20-14 Managerial Economics and Organizational Architecture, 5e. .. both Lynn and Rob Standard deviation (in dollars) S 20-9 Managerial Economics and Organizational Architecture, 5e Selling a Proposal • Careful analysis and groundwork – Do: communicate and explain... utility Oppose proposal Status quo S Standard deviation (in dollars) 20-5 Managerial Economics and Organizational Architecture, 5e Changing Organizational Architecture • Increase the decision rights