Company X 1

Company X: An Organizational Analysis William Huckabee OM8010 Principles of Organization Theory and Practice Capella University June 7, 2009

Company X 2 Table of Contents Company X: An Organizational Analysis...................................................................................3 Company X..................................................................................................................................4 Environment.................................................................................................................................6 Table 1..................................................................................................................................6 Environmental Contingency Theory............................................................................................8 Institutional Theory....................................................................................................................11 Discussion and Conclusion........................................................................................................15 References..................................................................................................................................17

Company X 3 Company X: An Organizational Analysis An organization is a medium through which goals and objectives are accomplished (Scott, 1961). Moreover, it is through this organizing that environmental uncertainty is reduced by enhancing the predictability of interactions among organizational actors, which will improve organizational effectiveness (Scott). This suggests that organizations are among the most complex systems imaginable (Daft and Weick, 1984, p. 284). Before continuing, an actor is an individual in an organization; this term and definition can be found in organizational theory (OT) literature, such as in Scott (1961). Much like organizations, OT can be complex; many theories and perspective exist for effective design and evaluation of organizational forms (Tsoukas and Knudsen, 2003). With that said, this study presents two perspectives of OT of interest; the environmental contingency theory and the institutional theory. The first is a subcomponent of the modernist perspective and the second is a subcomponent of the symbolic-interpretive perspective (Hatch and Cunliffe, 2006; Tsoukas and Knudsen, 2003). Each perspective provides practitioners and researchers with a different perspective about organizing. At a higher level, modernists believe in hierarchies of rationality (Gergen and Thatchenkery, 2004, p. 235) within cultures, which are assigned to actors based on education and cultural backgrounds, among other criteria; modernists look at certain individuals as being more worthy of leadership, position, and wealth (p. 235) than others. In contrast, symbolic-interpretists view organizing from two perspectives; institutional and enacted theories (Hatch and Cunliffe, 2006, p. 85), the former is concerned with structure, the concern of this study, and the later being concerned with actions taken by actors based on some environmental event (Hatch and Cunliffe). A more detailed look at each of these theories,

Company X 4 specifically, the environment contingency theory and the institutional theory are provided as they are applied to an Aerospace and Defense company. This qualitative study presents a discussion of the organization-environment relationship of Company X, a company in the Aerospace and Defense industry. More specifically, this study discusses the effectiveness of the firms structure in dealing with environmental uncertainty as well as to what level are the firms goals and objectives affected by uncertainty using the institutional and environment contingency theories. This document is organized as follows. First, the firm and the industry the firm operates in are introduced. Second, a description of the firms environment is provided. Finally, and in depth discussion of the two theories as they are applied to the firm is provided along with a conclusion and recommendation for future research. Company X Company X is a $30 billion global defense and technology company that has its origins in California in 1939. Since its beginning, the firm has a strategy of growth by acquisition. Through this strategy, the firm has acquired the skills and knowledge necessary to compete in this industry and has become diversified. Also, the firm has many related and unrelated channels within its industry. Also, the firm has four operating units. Each operating unit (OU) makes high quality electronic and computer technology aerospace and defense technologies (Datamonitor, 2008, p. 7) products and services for United States Defense Department and other public and private entities.

Company X 5 Industry Company X resides in the $320 billion (Datamonitor, 2008, p. 7) Aerospace and Defense industry. Further, the industry has a high growth rate; for the five-year period of 20032007, the industry has grown at a compound annual growth rate (CAGR) of 6% (p. 7), which provides industry players with an excellent source of revenues as well as a stable industry for growth. Made up of a mixture of civil and military Aerospace and Defense equipment manufacturers, companies in this industry supply equipment, repair parts, and services to national, state, and local governments. The most profitable part of the industry is the defense sector; it accounts for over 80% or 269 billion (p. 7) in total annual sales revenues. However, this industry offers players with some major advantages such as (a) strong bargaining power with buyers and suppliers, (b) strong financial resources, and (c) strong product differentiation methods (Datamonitor, 2008, p. 7). Also, many players in this industry are characterized as large integrated global companies, who expand through acquiring other small companies that have a specialty skill or knowledge the larger companies lack (Datamonitor, 2008). Also, to produce the products and services needed by their customers, these companies are reliant on raw materials, expertise, and knowledge of military and aerospace equipment. This suggests that companies in this industry need a high-level of capital at their disposal as well as a large source of expertise to conduct operations. Finally, it is typical to find that a company in this industry to be a supplier to or a customer of other companies in this industry (Datamonitor, 2008).

Company X 6 Environment The environment of a firm may be thought of as the totality of physical and social factors (Duncan, 1972, p. 314) that a firm must deal with when making day-to-day operational and long-term growth decisions. Also, a firms environment can be internal and external (p. 314) to the firms boundaries; this study looks at both. With that said, the firms internal and external components of interest in this study are listed in Table 1. For instance, the operational level component (Duncan, 1972, p. 315) includes areas such as (a) organizational goals and objectives, (b) the process of integrating actors and contributing to the objectives and goals of the organization, and (c) the nature of the companys products and services (Duncan). These features are internal to the firms boundaries. Table 1.
Company Xs Environmental Components Internal Organizational level component External Customer component Socio-political component
Note. Data in Row 1, 3, and 5 are from Characteristics of organizational Environments and perceived environmental uncertainty, by R. Duncan, 1972, Administrative Science Quarterly, 17(3), p. 315.

Additionally, the external components include the customer component (Duncan, 1972, 315). The characteristics of this component include the distributor and users of the companys products. The socio-political component (p. 315) includes the regulatory component that the firm must follow such as governmental control, regulations, among others. This component also includes attributes such as public political attitudes (p. 315) toward the company as well as the firms dealing with trade unions (p. 315). Consider this example. The Life Cycle Logistics Support Division of Company X must

Company X 7 deal with three components from Table 1; the customer component, the socio-political component, and the organizational level component when making decisions. Consider further that a decision must be made on a product change; the department lead must consider the users of the product, regulatory control, and the integrative processes of integrating the department into attaining the product changes (Duncan, 1972, p. 315) before making the necessary product changes. These components touch both the internal and external components of the firms environment, which complicate the decision-making process, thereby creating higher levels of uncertainty. Other factors related to the environmental components should be introduced to provide a deeper understanding of the level of uncertainty that Company X must contend with. For instance, in the customer component (Duncan, 1972, p. 315) of the environment, customers of the firm can be governmental organizations (Datamonitor, 2008, p. 13) such as the Department of State and Homeland Security. Other customers can be military organizations (Datamonitor, 2008, p. 13) such as the U.S. Army and U.S. Navy, among others. Also, many of the companys customers can be large, for example, the U.S. Government. Also, the supplier component (Duncan, 1972, p. 315) can be affected as well. For example, many of the same organizations as listed above can be suppliers to and customers of Company X. In this same area, the firm is reliant on raw materials to produce its goods and services, which creates significant power for suppliers over the firm. Further, the organizational personnel component (p. 315) is affected; to produce the firms goods and services, the firm needs access to a workforce that has a high-level of expertise and knowledge (Datamonitor, 2008). Although Duncan (1972) did not specifically mention an economic component;

Company X 8 economics affects the firm. For instance, commodity price changes (Datamonitor, 2008, p. 14) affects the ability of the firm to buy cost-effective raw materials such as aluminum, steel and fuel. Also, there is a high-level of competition because the industry is saturated with large multinational Aerospace and Defense companies that are all competing for limited government contracts (p. 14). Additionally, the current economic recession that is further complicated by many government sponsored bailouts because of a global financial crisis further reduces the contracts available to this industry. For example, the recent statement made by the U.S. President that reforming unnecessary contracts will save $40 billion annually (Reuters, 2009, para. 1). This evidence suggests the firms environment is complex and fraught with uncertainty (Duncan, 1972). Tushman and Nadler (1978) agree and suggests the firms environment may also be considered as a dynamic environment (p. 616) and suggest that a dynamic environment is associated with a high-level of uncertainty (p. 616). Environmental Contingency Theory As part of the modernist perspective, the environmental contingency theory suggests there are many ways to organize (Hatch and Cunliffe, 2006, p. 115). Ensign (1998) agrees and adds there is no single best way to design a structure (p. 17). Also, the author suggests that any way of organizing is not equally effective (p. 17). While this theory is more recent, the modernist perspective is much older. Further, this perspectives origins date back to the enlightenment period (Cooper and Burrell, 1988, p. 94). Further, this perspective is rooted in the systems thinking and can be characterized by uncertainty; meaning that the organization-environment relationship is defined by certainty and uncertainty (p. 95) and by constraints and contrasting (p. 95) choices. These

Company X 9 characteristics are important; Shepard and Hougland (1978) suggest that environmental characteristics as well as uncertainty can affect the internal processes (p. 419) of the firm. Also, this perspective views an organization in measurable terms and that organizations can be understood in a logical and rational fashion. As an example, researchers can discover why and organizations structure changes based on some action in the firms environment (Cooper and Burrell, 1988). Additionally, as suggested above, a firms environment can be a source of uncertainty; however, Smircich and Stubbart (1985) suggest that actors within the firm are the source of environmental uncertainty. Downey, Hellriegel, and Slocum (1975) agree and add that uncertainty could be construed as an individual psychological trait (p. 614) rather that environmental attributes (p. 614). With that said, no matter where uncertainty is generated or created, Tushman and Nadler (1978) suggest that the more dynamic a firms environment is, the more uncertainty that a firm must contend with. Again, Downey, et.al. (1975) agrees and suggests that environmental dynamics has a higher impact on uncertainty that does environmental complexity. Duncan (1972) suggests that to survive, a firm must adapt to its environment or it will surely fail. Perrow (1967) suggests that environmental contingency theory facilitates the measure of the organization-environment relationship. Further, Tushman and Nadler (1978) suggest organization structure affects a firms ability to contend with environmental uncertainty; there are two dimensions of structure that affects coping. First, there is the organismic-mechanistic (p. 617) dimension, which enables a firm to better cope with uncertainty because this structure allows for better coping information processing capabilities (p. 617). This is positive for Company X; the firm has all the characteristics of a mechanistic firm

Company X 10 such as high-levels of horizontal and vertical integration, (b) high formalization, and (c) standardization (Hatch and Cunliffe, 2006, p. 111). However, there are some signs of flexibility in its structure, which are associated with an organic structure, such as decentralized decisionmaking and high use of lateral communications (p. 111). As an example, the high-level of formalization and standardization displayed by the firm is associated with the firms environment. Furthermore, Miles, Snow, and Pfeffer (1974) suggest that this form of structure fits Company X as it resides in a stable industry. Furthermore, the Federal Acquisition Regulations (FAR, 2005) mandate that all companies working on government contracts are required to comply with project management principles as defined in the Project Management Book of Knowledge (PMBOK), Capability Maturity Model Integration (CMMI) Level-4 and ISO 9000 standards. Maintaining these standards not only allow the company to comply with mandatory requirements, it also provides the firm with a competitive advantage (Santos and Eisenhardt, 2005, p. 497). Therefore, the firms level of formalization and standardization by using SOPs and standardized processes apply to this type of structure; because of the relative stability in the firms industry, Hatch and Cunliffe (2006) suggest that this type of firm will outperform (p. 111) its organic rivals in this industry. Dalton, Todor, Spendolini, Fielding, and Porter (1980) agree, and suggest that large organizations, such as Company X are more effective (p. 59) with formalized structure. This suggests that Company Xs structure is conducive to effective performance. Second, there are the coordination and control mechanisms (Tushman and Nadler, 1978, p. 618); the more complex these mechanisms are the more costly (p. 618) it can be to control the organization-environment relationship in terms of time, energy, and resources (p.

Company X 11 618). The leaders of the firm must have realized this fact because in the later part of 2008, the firm began a restructuring event aimed at consolidating two SBUs, where expertise is used to build customized information systems for its customers. Again, this is positive for Company X. For example, Santos and Eisenhart (2005) suggest that by realigning its SBUs, the firm increased its abilities to contend with uncertainty. This suggests the firm is better aligned with its environment, which eliminates nonoptimal choices (p. 493) in decision-making and equalizes the organization-environment relationship. This reduces the underlying costs of the governing activities (p. 493) of the firm. Further, this suggests too, that the realignment of the firms SBUs will increase the firms survival rate because it will gain more power over environmental uncertainty by eternalizing some sources of uncertainty (Santos and Eisenhart, 2005, p. 495) by improving its value chain (p. 455). Also, Company X is known for its ability in the Defense Industry for its ability to make unique products and services because of its unique capabilities and resources, in particular, its human capabilities. This suggests that the firm must align or match its resources and capabilities to environmental opportunities (Santos and Eisenhart, 2005, p. 497) to gain a competitive advantage. This restructuring event better aligns the firm with environmental opportunities by eliminating redundancies creating a better organization-environment fit, which promotes higher organizational performance (Santos and Eisenhart). Institutional Theory Institutional theory is concerned with the power base of an organization based on several factors such as (a) cultural resources, (b) social resources, and (c) political-legal resources (Hatch and Cunliffe, 2006, p. 256). Based on these factors, Selznick (as cited in Hatch and

Company X 12 Cunliffe) suggests that organizations strive to adapt to the values of internal groups as well as those of the external society (p. 85). As the evidence above suggests, there are many variations of this theory, therefore, Scott (1987) describes this view as a process of instilling value (p. 493); it is a process by which individuals come accept a shared definition of reality (p. 496). This suggests that actors within a firm will come to have a shared definition of their organizations. Additionally, Hatch and Cunliffe (2006) suggest that this view can be associated with actions or event such as (a) interactions and symbols, (b) symbolically mediated interactions, and (c) relationships; more or less, the identification of symbolic themes (Smircich, 1983, p. 351). Also, Scott (1987) suggests there can be environmental agents that can impose certain characteristics on an organizations structure, which is defined as imposition by means of authority (p. 501). As an example, a division within Company X was constantly under pressure to hire more subject matter experts to fill other positions on the project by their counterparts on the customers team. The appearance was that the division had too many employees focusing on one area of the project versus spreading out the resources to other areas of the project. This misconception originated because the divisions name was Organizational Change Management (OCM) where as the customers departments name is Life Cycle Logistics Division (LCLD), with a subunit named OCM where two resources where performing the activities of the subunit. In contrast, the OCM division had 12 resources performing the activities within the division. This led to a tremendous amount of political shuffling between OCM and LCLD. Smircich and Stubbart (1985) suggest that this inferred there was a poor quality

Company X 13 interaction between the organization and its customer component of the environment. Because of the political shuffling, OCM reorganized and redesignated the division as Life Cycle Logistics Support Division (LLSD) with a subunit of OCM with resources that matched the customers subunit. This is a good example of Scotts imposition by means of authority; the customer held the multimillion dollar contract over the divisions head and imposed the divisions reorganization. Another example of imposition by means of authority is that Company X adopted the PMBOK, CMMI, and ISO-9000 processes and procedures in reaction to governmental directives that all defense contractors will be compliant with these needs to get defense contracts (FAR, 2005). This affects the socio-political component (Duncan, 1972, p. 315) of the firms environment, and failure to comply would significantly affect the firms survival and effectiveness. This also affects the organizational level component (p. 315), which affect the organizational goals of the firm; the company would not be able to make products for or sell to government entities. At the environmental level, institutional theory is concerned with rules that are formed in the state or world system (Zucker, 1987, p. 450). These rules are external to the organization and are not explainable by direct task contingencies (p. 450) within the organization. An example of this is are the requirements imposed on firms in the Aerospace and Defense Industry by the Federal Government through the Federal Acquisition Regulation. According to Zucker the effects of these rules cannot be attributed to the social behaviors and relationships (p. 450) that surround an organization; however, the rules can have a significant impact on the structure of an organization as well as the firms effectiveness and performance. Further, Zucker (1987) legitimization of a firms activities are exemplified through

Company X 14 controlling and shaping of their environment to gain access to important social resources such as raw materials and human resources, which ensures the firms long-term survival. Also, Zucker (1987) points out that organizations that are closely tied to public entities such as the Defense Department typically adopt innovations required or supported (p. 451) by governmental rules voluntarily (p. 451) and reject those that are not approves by the state sponsored agency. However, institutionalization typically impedes effective performance and goal attainment because there are conflicts between the firms task and institutional elements (p. 452) both inside and outside the firms boundaries. Further, engaging activities in and institutional environment such as the Aerospace and Defense Industry, Company X must acquire and manage the types of personnel (Zucker, 1987, p. 452) that are conducive with working in this environment. For example, manufacturers engaged in the Aerospace and Defense Industry needs a mixture of professional ex-military personnel to meet the some of the security needs of working with Department of Defense products. Also, this industry requires specific knowledge and skills for working with military specific systems and components. As such, most of the employees employed by Company X must maintain active secret and top secret security clearances and a knowledge base to work with specific products. Also, Zucker (1987) suggests that organizations working in an institutional environment must adopt an organizational form that mirrors their environment. Further, these organizations must adopt production processes that meet the specifications of the sector (p. 452) in which they are in engaged. The previous example of the Life cycle Logistics Support Division fits here, as the division reorganized to fit its environment.

Company X 15 Discussion and Conclusion Tushman and Nadler (1978) suggest that Company Xs structure is such that is can effectively cope with uncertainty. For instance, the organizations structure can better process the information coming in from the firms environment because of the firms organismicmechanistic nature. Furthermore, the organization has mechanistic characteristics such as a high-level of formalization as shown by the firms use of SOPs, CMMI, and ISO-9000 process. Although it has a formalized structure, the firm has some flexibility built into the structure (Hatch and Cunliffe, 2006). Also, because of the firm resides in a stable industry, this form of structure has a good fit with its environment. This evidence suggests the firm will outperform other firms of the same size and structure. The firm has restructured to take advantage of coordination and control mechanisms, which will increase its abilities to deal with uncertainty and reduce the cost of governing activities. This suggests the firm is well aligned with its environment to the extent to where uncertainty is internalized through efficiencies created in the firms value chain and vertical coordination efforts. It is the authors opinion that the firm is able to hold at bay the institutional environmental issues to the extent that it does not interfere with the attainment of the firms goal; however, there is room for improvement. For instance, rather than allowing issues to fester, such as the case with the OCM naming convention, the firm could have been more proactive in increasing the environmental fit. Perhaps the organization is too rooted in its formalization to compensate for minor changes such as this. Also, by proactively pursuing CMMI, Project Management, and ISO-9000 standards, the

Company X 16 firm not only meets the requirements of its current environment; this provides the firm with the necessary tools to enter into new environments by expanding its boundaries into new territories. Using these standards create a competitive advantage for the firm outside of this environment. Finally, the organization-environment relationship is conducive to dealing with uncertainty while preserving goal attainment, which is an important strategy for long-term survival. Not only can the company compete in the environment it is engaged in, the firm, if it chooses, can deal comfortably in new environmental situations allowing for future growth. With that said, one area of future research could be to measure how the firm copes with the upcoming implementation of product it is developing to over 160,000 users, where a great deal of uncertainty exists.

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Company X 19 Tsoukas, H., & Knudsen, C. (Eds.). (2003). The oxford handbook of organizational theory: Meta-theoretical perspectives. New York: Oxford University Press. Tushman, M. L., & Nadler, D. A., Information processing as an integrating concept in organizational design. Academy of Management, 3(000003), 613-624. Zucker, L. G. (1987). Institutional theories of organization. Annual Review of Sociology, 13(1), 443-464.