Organisation Theory

Transformation &
Decision Making and
Learning
15 December 2022
• Part One: Transformations

• Legstretch!

• Part Two: Decision Making & Learning

• Growth

• Decline
• Organizational life cycle: A sequence
of stages of growth and development
through which organizations may pass
• Organizational growth: The life-
cycle stage in which organizations
develop value-creation skills and
competences that allow them to
acquire additional resources
• Organizational inertia: The forces
inside an organization that make it
resistant to change
• Organizational decline: the life-cycle
stage that an organization enters
when it fails to anticipate, recognize,
avoid, neutralize, or adapt to external
or internal pressures that threaten its
long-term survival
The founding of an Liability of newness:
organization • The dangers
associated with being
the first in a new
A dangerous life cycle environment
stage associated with the
greatest chance of failure • A new organization is
fragile because it
lacks a formal
structure

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 Occurs when entrepreneurs
take advantage of https://arkenea.com/blog/how-successful-
opportunities to use their startups-started/
skills and competences to
create value December 2022: Airbnb market value:
$59.10 Billion.
• This is a story of 3 guys and how they went from renting mattresses to a $10 billion
company. In 2007, designers Brian Chesky and Joe Gebbia, couldn’t afford the rent on
their San Francisco apartment.
• There was a design conference coming to San Francisco and the city’s hotels were fully
booked, so they came up with the idea of renting out three airbeds on their living-room
floor and cooking their guests breakfast.
• They set up a simple blog and got three renters (two guys, one girl) for $80 each.
• After a small success and product market fit, they enlisted a former flatmate and a
computer science graduate, Nathan Blecharczyk, to develop the website and join the
venture.

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First-mover advantages
the benefits of being the first
in a new environment or first
with new competitive
advantage in existing
environment
Liability of newness
Uncertainty
• No guarantee of success
• Early flexibility (Effective)
• Lacks formal structure
(Inefficient)
• Little formalization
• Very basic culture
• Easy target of strong
competition
• Developing a business plan
• SWOT: identifying
• Strengths
• Weaknesses
• Opportunities
• Threats
• Feasibility (external opinions)
• Andrew Carnegie
• Starting out
• Basic skills
• Hard work
• Quick promotion
• Intitiative
• Investing
• Ideas on efficiency
• An eye for innovation Andrew Carnegie: Entrepreneur, Industrialist
• Open to benchmarking in Steel.
• First mover
• Adopted new technology
• All skills were ”in-house”
Had eight employees – Dalarnas Plåtslageri AB is
now going bankrupt in Borlänge

On December 9, Dalarnas Plåtslageri AB, which is

based in Borlänge municipality, initiated
bankruptcy.

Dalarnas Plåtslageri AB, which was founded in 2020,

reported sales of SEK 6.8 million in its latest financial
statements (May 2021) with a profit of SEK 467,000.
The company then employed eight people.
Seeks to explain the factors that affect the rate at
which new organizations are born (and die) in a
population of existing organizations
• Number of births determined by the availability of
resources
• The number of organizations that can compete for the
same resources in a particular environment
• Availability of knowledge and skills to generate similar
new organizations
• New organizations that survive provide role models and
confer legitimacy

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As the environment is populated with a number of
successful organizations, birthrate tapers off because:
• Fewer resources are available for newcomers
• Less first-mover advantages: (benefits of being the first
in a new environment or first with new competitive
advantage in existing environment)
• Difficulty of competing with existing companies

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R-strategy: A strategy of entering a new
environment early (r is the high growth rate
stage)

K-strategy: A strategy of entering an

environment late, after other organizations have
tested the environment: “Late movers” can
avoid early market development costs (k is
the stage when the market is big enough for
all new competitors)

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• Specialists: • Generalists:
Organizations that Organizations that
concentrate their skills spread their skills thin to
to pursue a narrow compete for a broad
range of resources in a range of resources in
single niche many niches
• Customer-oriented

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Organizational growth: The life-cycle stage in which
organizations develop value-creation skills and
competences that allow them to acquire additional
resources
• Organizations can develop competitive advantages by
increasing division of labor
• Creates surplus resources that foster greater growth
• Growth should not be an end-in-itself

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Institutional environment: Values and norms in an
environment that govern the behavior of a population
of organizations

Institutional theory: A theory that studies how

organizations can increase their ability to grow and
survive in a competitive environment by becoming
legitimate in the eyes of their stakeholders

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Organizational isomorphism: the similarity among
organizations in a population
• Normative: what is the right organization design
• Coercive: the design forced upon an organization
• Mimetic: trying to copy other’s design

Disadvantages of isomorphism
• Organizations may learn ways to behave that have become
outdated and no longer lead to organizational effectiveness
• Pressure to imitate may reduce the level of innovation in
the environment

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Organizational inertia: The forces inside an
organization that make it resistant to change
• Risk aversion: Managers become unwilling to bear the
uncertainty of change as organizations grow
• The desire to maximize rewards: Managers may increase
the size of the company to maximize their own rewards
even when this growth reduces organizational
effectiveness
• Overly bureaucratic culture: In large organizations,
property rights can become so strong that managers spend
all their time protecting their specific property rights
instead of working to advance the organization

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Greiner proposes 5 sequential growth stages
• Each stage results in a crisis
• Advancement to the next stage requires successfully resolving
the crisis in the previous stage

• Innovation Management

• Management Hierarchy

• Hierarchy Differentiation

• Differentiation Integration

• Integration (unsuccessful transition to organic structure)

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Competition
• Assessing an organization’s effectiveness involves
comparing its profitability relative to others
• Profitability: Measures how well a company is making use
of its resources by investing them in ways to create goods
and services that generate profit when sold
• Short-term profits say little about how well managers are
using resources to generate future profits
• ‘Natural Selection’: survival of the fittest

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• Changes in the environment
• Affect an organization’s ability to obtain scarce resources,
thereby leading to decline
• Makes it difficult for top management to anticipate the
need for change and to manage the way organizations
change and adapt to the environment
• ‘Natural Selection’: survival of the fittest

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Figure 11.5 - The Relationship Between
Organizational Size and Organizational
Effectiveness
The first consumer
friendly camera & film

High Profits
• Mass production
• Leading technology
• Advertising
• Global market
5 stages of decline • Stage 4: Crisis
• Stage 1: Blinded • Desperate but without a
way forward
• Fujifilm cheaper film
• Polaroid lawsuit • Stage 5: Dissolution
• Paper quality and price • Bankruptcy 2012
• Alternative technologies • Restructure, still exists
• Stage 2: Inaction
• No investment in alternative
tech
• Stage 3: Faulty action
• Increase control by buying
market shares and suppliers

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• What examples can you • What makes a business
think of a business life survive life cycles?
cycle?
• Can a business have many
• Are they slow and gradual? cycles?
• Or just one that never turns
• Are they fast in growth? downwards?
• Are they dramatic in
decline?
• 15 minute break.
• Decision making

• Factors affecting Learning

• Organizational decision making:
The process of responding to a
problem by searching for and
selecting a solution or course of
action that will create value for
organizational stakeholders
• Organizational learning:
The process through which managers
seek to improve organization
members’ desire and ability to
understand and manage the
organization and its environment
• Learning organization:
An organization that purposefully
designs and constructs its structure,
culture, and strategy so as to enhance
and maximize the potential for
organizational learning to take place
Programmed decisions: Decisions that are repetitive
and routine
Nonprogrammed decisions: Decisions that are novel
and unstructured

• The rational model

• Decision makers have all the information they need
• Decision makers can make the best decision
• Decision makers agree about what needs to be done

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Information and uncertainty: Can managers be aware of all alternative courses of action
and their consequences?
Managerial abilities: Do managers have the ability to process the information required to
make decisions?
Preferences and values: Can managers agree about what are the most important goals for
the organization?

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• The Rational-Analytical View
• Intentions and Evaluation
• Plans and Organization
• Hierarchy
• Deliberate Choices and Linearity

• The Emergent Strategy View

• Incremental
• Dynamic
• Non-linear
• In decision making: ”the garbage
can model”
Introduces a new set of more realistic assumptions
about the decision-making process

• Research at the Carnegie

Mellon University in
Pittsburgh. (named after...!)

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• Satisficing: Limited information searches to identify
problems and alternative solutions

• Bounded rationality: A limited capacity to process

information

• Organizational coalitions: Solution chosen is a result

of compromise, bargaining, and accommodation
between coalitions

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• The incrementalist model: Managers select alternative
courses of action that are only slightly, or incrementally,
different from those used in the past (the science of
“muddling through”)
• The unstructured model: Describes how decision
making takes place in environments of high uncertainty
(roadblocks, unprogrammed)
• The garbage-can model: A view of decision making that
takes the unstructured process to the extreme: decision
making becomes a “garbage can” in which problems,
solutions, and people all mix and contend for
organizational action

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8-6
• What structures can help
decision making on a boat?
• On which level(s) is
organizational learning most
important?
• What are the risks to learning
and can result in decline on
board?
• What organizations are very
unlike a boat? And why?
Organizational learning: The process through which
managers seek to improve organization members’
desire and ability to understand and manage the
organization and its environment
• Creates an organizational capacity to respond effectively
to the changing business environment
• Employees at all levels must be able to analyze the way an
organization performs and experiments with change to
increase effectiveness

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Types of organizational learning (James March)
• Exploration: Organizational members search for and
experiment with new kinds or forms of organizational
activities and procedures (effectiveness)
• Exploitation: Organizational members learn ways to refine
and improve existing organizational activities and
procedures (efficiency)

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• Several factors may reduce organizational learning
over time
• Managers may develop rules and standard operating
procedures to facilitate programmed decision making
• Past success with SOPs inhibits learning
• Programmed decision making drives out nonprogrammed
decision making

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 Jusqu'ici, tout va bien

Cognitive structure and biases: System of interrelated

beliefs, preferences, expectations, and values that
predetermine responses to and interpretations of Don’t
situations change a
• These shape the way managers make decisions and winning
perceive environmental opportunities and threats team

Groupthink: The conformity that emerges when like-

minded people reinforce one another’s tendencies to
interpret events and information in similar ways
So far, so good If it’s not broke, don’t fix it

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Tough competition: but what
is the future?

Decision-makers came from

within the company

Decisions made assumptions

of future industrial
developments: hopes of
synergies
Continuously unlearn old Game theory: Tool to
ideas and confront errors help managers improve
in their beliefs and decision making and
perceptions by enhance learning
• Listening to dissenters • Interactions between
• Converting events into organizations are viewed as
learning opportunities a competitive game
• Experimenting • Sequential according to
others moves
• Heterogeneity in top
• Simultaneous without
management knowledge of others moves

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Knowledge Management Decision Trees (if…then)
• Codification approach:
Knowledge is carefully
collected, analyzed, and stored
in databases where it can be
retrieved easily by users who
input organization-specific
commands and keywords
• Personalization approach: IT
designed to identify who in the
organization might possess the
information required for a
custom job

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• Constructing the top-management team
• Wheel configuration decreases org learning because
managers report separately to the CEO; when problems
are simple and require minimal coordination
• Circle configuration works best for team and
organizational learning

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Collateral organizational structure: An informal
organization of managers that is set up parallel to the
formal organization structure to “shadow” the
decision making and actions of managers in the
formal organization
• Allows an organization to maintain its capacity for
change at the same time that it maintains its stability

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Organizational Insight 12.2 Open innovation

”Learning to
learn”

• The ”unfocused group”:

what was not said in focus
groups
• ”Deep dive”:
shadowing/observing how
people do things.
Devil’s advocate: A Dialectical inquiry:
person who is responsible Teams of decision makers
for critiquing ongoing generate and evaluate
organizational learning alternative scenarios and
• A method for overcoming provide recommendations
cognitive biases and
promoting organizational
learning by
institutionalizing dissent

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