BUSI 610 Week 4 Group DB Forum 2: Part 2 Example

Group Discussion Board Forum 2: Part 2, Replies and Group Response

BUSI 610 Organizational Design and Structure, Group Discussion Board Forum 2: Part 2 (2 replies and the group response)

Thread by [Student Name]

The group, its members' threads and the organizations discussed are composites; the research cited is real, and the requirements follow Liberty's public course guide for BUSI 610.

Reply to Rachel

Rachel, you traced carefully how a regional hospital came to depend on a single health insurer for nearly half of its patient revenue, and how that insurer has used its position to hold down reimbursement rates. Your diagnosis, using Daft's discussion of resource dependence, was persuasive: the hospital's financial health is effectively controlled by an organization it cannot easily replace. I want to question your recommendation that the hospital merge with a larger health system as the best way to escape that dependence.

Drees and Heugens (2013) conducted a meta-analysis of research on resource dependence theory and found broad support for its central idea that organizations respond to dependence by forming interorganizational arrangements such as alliances, joint ventures, board interlocks and mergers. More importantly for your case, they found that these arrangements improved performance by increasing the organization's autonomy and its legitimacy, its acceptance by important stakeholders. A merger can certainly increase bargaining power with the insurer, but it also sacrifices the hospital's autonomy to the acquiring system and may reduce its legitimacy in a community that values local control. If autonomy is part of what the hospital is trying to protect, a merger trades one form of dependence for another.

There are alternatives that may achieve more of the hospital's goals. One is to join a network of independent hospitals that negotiate jointly with insurers or share services such as purchasing and information technology, which increases bargaining power while preserving local governance. Another is to diversify revenue by developing services that attract patients covered by other insurers or paying directly, such as specialty clinics or outpatient surgery. A third, more modest step is cooptation: inviting a representative of the business community or major employers in the region onto the hospital's board, giving the hospital allies when it negotiates with the insurer, since employers choose their employees' health plans.

Your thread rightly pointed out that the hospital cannot wait long, since its margins are thin and its equipment is aging. I would suggest pursuing the network option immediately while studying the merger option, so that the hospital negotiates from a stronger position if it does eventually merge. Did your research suggest whether the communities served by merged hospitals in your region have kept the services they valued? That evidence would help the board judge how much autonomy is worth protecting, and it would give the hospital's leaders a factual basis for explaining their choice to physicians, staff and the public, whichever path they take.

Reply to Hector

Hector, your thread recommended that a mid-sized American maker of industrial pumps, now earning about 40% of its sales abroad, reorganize into a global matrix with both product and regional lines of authority. You argued that the matrix would give the company both product expertise and responsiveness to regions such as Europe and Southeast Asia. Daft describes the global matrix as a structure that can achieve both goals but also warns that it is difficult to manage because of dual reporting and frequent conflict.

Egelhoff (1988) offers a way to judge whether the matrix fits. Revising earlier work by Stopford and Wells, he examined multinational firms and found that their structures tended to fit particular combinations of international strategy. Firms with high product diversity abroad tended to use worldwide product divisions; firms with a large share of foreign sales but limited product diversity tended to use area divisions; and firms high on several dimensions at once, such as foreign product diversity and foreign manufacturing, were the ones for which matrix structures made sense. His research suggests that a matrix is a response to strategic complexity, not a default for any firm going global.

Your company's strategy, as you described it, involves a fairly narrow product line, three families of pumps, sold through distributors abroad with all manufacturing in Ohio. That profile resembles the firms for which Egelhoff found area divisions or an international division more appropriate than a matrix. A matrix could impose the costs of dual reporting and slower decisions without the benefits, since the company does not yet face the product and geographic complexity that justify it.

I would suggest a simpler step first: an international division with regional sales managers, supported by a product council that brings together product managers and regional heads quarterly. This adds coordination without dual reporting, and it costs far less to set up. If the company later builds plants abroad or expands its product range, the case for a matrix would grow, and the council would have built the relationships that make a matrix work. Did the company's leaders express a preference for keeping decisions centralized at headquarters? That preference would also weigh against a matrix, which depends on regional managers who are willing and able to share authority with product heads. Building that capacity takes time, and the product council I suggested could be a training ground for the managers who would later run a matrix if the company's strategy grows more complex.

Group Response: Designing Organizations for Uncertain and Dependent Environments

Our group's four threads examined organizations facing different environmental challenges: an auto parts supplier dependent on one automaker, a regional hospital dependent on one insurer, a pump manufacturer expanding abroad and a nonprofit food bank dependent on a few large donors. Although the organizations differ, our threads and replies converged on four principles for designing organizations to cope with uncertain and dependent environments.

The first principle is to diagnose uncertainty before choosing a remedy. Daft (2016) presents environmental uncertainty along two dimensions, complexity and rate of change, building on the finding in Duncan (1972) that perceived uncertainty is greatest when environments are both complex and unstable. Each of our organizations had moved toward that high-uncertainty cell: the supplier through electric vehicle programs and supply shocks, the hospital through shifting reimbursement rules, the pump maker through new foreign markets and the food bank through volatile donations. Our replies showed that the right response depends on the source of uncertainty. Uncertainty from complexity calls for more boundary-spanning roles and specialized units, while uncertainty from change calls for faster information flow and more flexible structures. Diagnosing which kind of uncertainty dominates prevents organizations from adding the wrong kind of structure. The pump manufacturer, for example, faced mainly complexity, new countries with different regulations and customs, rather than rapid change, which is why our replies favored specialized regional roles over a wholesale restructuring. The supplier faced both complexity and rapid change, which justified both new boundary-spanning roles and faster internal decision making.

The second principle is to distinguish between reducing dependence and managing it. As Hillman et al. (2009) summarize resource dependence theory, an organization that needs resources others control will try to lessen the uncertainty and the loss of control that come with that need. Our discussion of the supplier and the hospital led us to the distinction Casciaro and Piskorski (2005) draw between power imbalance and mutual dependence. An organization can reduce dependence by diversifying, as we recommended for the supplier and the food bank, or it can manage dependence by increasing the partner's reliance on it, as in the supplier's proposed engineering partnership with its main customer. Both are legitimate strategies, but they lead to different structures: diversification requires sales and development capabilities, while deeper partnership requires integrating teams across organizational boundaries.

The third principle is that interorganizational arrangements should be chosen for what they do to autonomy and legitimacy, not only for bargaining power. The meta-analysis by Drees and Heugens (2013) found that arrangements such as alliances, joint ventures, interlocks and mergers improve performance mainly by increasing autonomy and legitimacy. This insight changed our group's view of the hospital case. Our first instinct was a merger, the strongest form of absorbing dependence, but a network of independent hospitals or a board that includes major employers could improve the hospital's position while preserving its autonomy and community legitimacy. Gulati (1998) adds that alliances are embedded in networks, so the choice of partners also shapes future opportunities. For the food bank, partnerships with other nonprofits and local businesses could reduce its dependence on a few donors while increasing its standing in the community, which in turn attracts new donors. Our member who studied the food bank noted that its largest donor had begun attaching conditions to gifts, such as requiring particular programs; partnerships with grocery chains and local farms for food donations would give the food bank more control over its own priorities, an example of protecting autonomy rather than simply adding resources.

The fourth principle is that structure must fit strategy, especially in international operations. Our discussion of the pump manufacturer showed the danger of adopting a complex structure before strategy requires it. Egelhoff (1988) found that multinational firms' structures tended to match specific combinations of foreign product diversity, foreign sales and foreign manufacturing, with matrix structures appropriate only when several dimensions were high at once. A firm with a narrow product line and exports from one country is better served by an international division and lateral coordination mechanisms than by a global matrix. This principle connects to Daft's broader argument that structure follows strategy and environment, and it applies beyond international design: each of our organizations needed structural changes matched to its specific situation rather than a fashionable model.

Taken together, these principles suggest a sequence for leaders facing uncertain and dependent environments. First, diagnose the type and source of uncertainty. Second, map the organization's critical dependencies and the power balance in each. Third, choose strategies that reduce or manage dependence, weighing their effects on autonomy and legitimacy as well as bargaining power. Fourth, design structures, from boundary-spanning roles to divisions, that fit the strategy chosen. Our four organizations would apply these steps differently, but each would benefit from treating its environment as something to be analyzed and managed rather than simply endured. The sequence also helps leaders explain their choices. A board that understands why a hospital is joining a network rather than merging, or why a pump maker is adding an international division rather than a matrix, is more likely to support the change and to judge it by the right measures.

Our group also learned from disagreement. In Part 1, two members recommended the most powerful remedy available, a merger in one case and a global matrix in the other. The replies in Part 2 pushed both toward options that solve the immediate problem with less loss of flexibility and autonomy. That pattern suggests a caution for managers: under pressure, the strongest structural remedy can look like the safest, but research on dependence and structure suggests that a measured step, which preserves options and can be expanded later, often serves an organization better.

The common thread in our work is that an organization's environment is not only a set of constraints but a set of relationships that can be designed. The supplier can redesign its relationship with its main customer, the hospital its relationships with insurers and employers, the pump maker its relationships with foreign distributors and the food bank its relationships with donors and partners. Daft's chapters on the environment and interorganizational relationships, and the research our group found, give leaders the tools to make those designs deliberate.

References

Casciaro, T., & Piskorski, M. J. (2005). Power imbalance, mutual dependence, and constraint absorption: A closer look at resource dependence theory. Administrative Science Quarterly, 50(2), 167-199. https://doi.org/10.2189/asqu.2005.50.2.167

Daft, R. L. (2016). Organization theory and design (12th ed.). Cengage Learning.

Drees, J. M., & Heugens, P. P. M. A. R. (2013). Synthesizing and extending resource dependence theory: A meta-analysis. Journal of Management, 39(6), 1666-1698. https://doi.org/10.1177/0149206312471391

Duncan, R. B. (1972). Characteristics of organizational environments and perceived environmental uncertainty. Administrative Science Quarterly, 17(3), 313-327. https://doi.org/10.2307/2392145

Egelhoff, W. G. (1988). Strategy and structure in multinational corporations: A revision of the Stopford and Wells model. Strategic Management Journal, 9(1), 1-14. https://doi.org/10.1002/smj.4250090102

Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19(4), 293-317. https://doi.org/10.1002/(SICI)1097-0266(199804)19:4<293::AID-SMJ982>3.0.CO;2-M

Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of Management, 35(6), 1404-1427. https://doi.org/10.1177/0149206309343469