Theories E and O and employee performance appraisals: A study of organizational development and transformational change
vii Table of Contents Acknowledgments iv CHAPTER 1.INTRODUCTION 1 Background of Study 4 Statement of the Problem 15 Purpose of the Study 16 Rationale 17 Research Questions 18 Nature of the Study 18 Definitions of Terms 20 Significance of the Study 21 Assumptions and Limitations 22 Theoretical Framework 23 Organization of the Dissertation 30 CHAPTER 2.LITERATURE REVIEW 31 Organizational Change in Perspective 32 Changing the Managerial Subsystem 36 Changing the Technological Subsystem 37 Changing the Human Subsystem 39 Changing the Cultural Subsystem 41
viii Organizational Change Model Theory E 42 Formal Components of Control Systems 50 Control Systems and Effects on Behavior 53 Organizational Plan and Establish Programs 55 Organizational Change Model Theory O 56 Knowledge and Creative Work Force 59 Collaboration in Self Controlling Systems 63 The Open Source Movement 65 Managing Knowledge 66 Psychometric Issues in Performance Measurement 81 Validity 82 Reliability 84 Discriminability 85 Performance Measurement Methods 86 Evaluation of Assumptions 94 Measuring Behaviors 95 Measurement 96 Theory O and Performance Measurements 98 Theory E – Performance Appraisal 100 Theory E and Performance Measurements 102 Theories E and O Performance Measurements 108
ix CHAPTER 3.METHODOLOGY 112 Design of the Research – Mixed Methodologies 114 Population and Sample 116 Validity and Reliability of the Data – Pilot Study 124 Data Collection and Analysis 126 Limitations of the Study 132 CHAPTER 4.PRESENTATION AND ANALYSIS OF DATA 134 Data Assessment 135 Data Anaylsis 135 CHAPTER 5.SUMMARY AND CONCLUSIONS 160 Discussion of Results 161 Contribution of Study 167 Suggestions for Future Research 170 REFERENCES 171 APPENDIX A.MEMORANDUMTO RESEARCH PARTICIPANTS 184 APPENDIX B.ASSESSING PARTICIPANTS ATTRIBUTES 186 APPENDIX C.INTERVIEWQUESTIONNAIRE AQ FORMER EMPLOYEES 194 APPENDIX D.SEMISTRUCTURED INTERVIEWQUESTIONNAIRE 194 APPENDIX E.IINTERVIEWQUESTIONNAIRE - AB 198 APPENDIX F. CRONBACH'S ALPHA 203
x APPENDIX G.SPEARMAN RELIABILITY STATISTIC 204 APPENDIX H.FREQUENCIES &PERCENTAGE DEMOGRAPHIC THEORY E 205 APPENDIX I.FREQUENCIES &PERCENTAGE DEMOGRAPHIC THEORY O 206 APPENDIX J.KENDALL TAUB THEORY E 207 APPENDIX K. KENDALL TAUB THEORY O 208
xi List of Tables Table 1:Frequencies and Percentage for Institutional Categories Theory E 136 Table 2:Frequencies and Percentage for Institutional Categories Theory O 136 Table 3:Theory E's Responses to Questionnaire 145 Table 4:Theory E's Responses to Questionnaire 153 Table 5:Percentile of Respective Archetypes Responses 156 Table 6:Percentile of Respective Archetypes Executive's Responses 158 Table 7:Cronbach's Alpha 203 Table 8:Spearman Browns Split-Half 204 Table 9:Frequencies and Percentage for Demographics Categories Theory E 205 Table 10:Frequencies and Percentage for Demographics Categories Theory O 206 Table 11:Kendall Taub Theory E 207 Table 12:Kendall Taub Theory O 208
1 CHAPTER 1.INTRODUCTION Introduction to the Problem The Bureaucrat’s Prayer Oh Thou,who sees all things below,grant that thy servants may go slow that we may study to comply with regulations till we die; Teach us,O Lord,to reverence committees more than common sense; impress our minds to make no plan and pass the baby when we can. An when the Tempter seems to give us feelings of initiative,or when alone we go too far recall us with a circular. Mid fire and tumult,war and storms,sustain us,blessed Lord,with forms. Thus may thy servants ever be a flock of perfect sheep for thee. --Author unknown. Much like the above referenced poem,Chris Argyris (1972) declares that the traditional design of todays’ organization is responsible for their present malfunctions.Organizations, because of their design,ignore individual potential for competence,responsibility,constructive intent and productivity.Managerial underlying assumptions,principles,and control systems that support the use of employee performance appraisal create conformity and defensiveness that result in a lack of drive,creativity,openness,and risk taking.The need for change has become increasingly prevalent. This study explores the theoretical framework of Nohria and Beer’s (2000) organizational change Theories E and O.Theory E’s dimensions support a stable,bureaucratically controlled environment through the use of rigid rules,policies and procedure,including a single looped
2 learning process such as employee performance appraisals.Theory O’s organizational dimensions of change support a transformational change of the fundamental assumptions and systems thinking that require controlling organizational processes and not people (Nohria and Beer,2000).This theory supports developing knowledgeable organizational capabilities within a dynamic,open systems structure,with a leadership style that supports a double looped self- controlling learning system,a systemthat is flexible and prepared to self organize in response to changes in the external environment. Organizations must change and adapt to change in order to remain viable;to do so requires that they fully utilize all resources at their disposal.Human resources are one of an organizations’ largest assets and one of the least utilized when compared to its potential. Although counterproductive in industry today,conformity is still rewarded (Deming,1986). Regulations,rules,administrative regulations,and forms increase conformity while restricting employee initiative.Employee performance appraisals,an accepted management procedure practiced in 90%of American organizations,are instruments of conformity (Locher and Teel, 1988;Smith,Hornsby,and Shirmeyer,1996).The quality of products and services thus becomes an expression and result of the low quality of life in many organizations.“No wonder we are on a decline.” (Cotter and Seymour,1993,p.31) Toyota’s phenomenal success is attributed to what Japanese called soikufu —creative thinking or inventive ideas —which means capitalizing on worker suggestions.The chairman of Toyota once observed:“One of the features of Japanese workers is that they use their brains as well as their hands.Our workers provide 1.5 million suggestions a year,and 95 percent of them
3 are put to practical use” (Smith,Gregory P.,1997,pp.14-15).Most recently,in December 22, 2006 Toyota announced that it will sale 9.34 million automobiles in the coming year,a figure that analysts say will be large enough to put it ahead of General Motors,the worlds’ largest automobile maker.Toyota has predicted increasing sales for 2007,while General Motors and Ford are closing plants and laying their workers off.Ford in fact posted a 5.8 billion dollar loss January 25,2007. Post industrial organizations exist within an increasing complex environment.Holding the belief that an organization can compete by using strategies and structures designed for traditional manufacturing jobs reflects incompetence on the part of top executives,beginning with the chairman of the board.Their success and undoubtedly their survival require that post industrial organizations adopt a Theory O approach to promote,obtain,and transformnew ideas into solutions that meet the multiplicity of social and economic problems facing them. In conclusion,organization theorists point to the need for organizations to utilize human resources to the maximumextent,especially creative potential,in order to change,innovate and progress.Change,innovation,and creativity are in turn required for survival and long term viability and effectiveness.In Nohria and Beer’s Theories E and O,organizational theorists describe the conditions necessary for optimal utilization of the creative potential and abilities of employees and for proper organizational change,adaptability,and innovation.In combination, these ingredients enhance organizational survival,viability,and effectiveness.Theories E and O provide a more robust and meaningful analysis of the reality of change.
4 Background of Study Organizational Theory Developments The history of complex organizations easily predates the construction of the great pyramids in Egypt.The building of massive temples at Thebes around 3500 BC required formal organization,skillful leadership,and detailed planning.Hundreds of intervening years saw all societies develop organizational and managerial skills,especially at the level of government, military and religious institutions.Norms against formal explication of management doctrine also may have contributed,since strong cultural beliefs often prescribed that organization and discipline were a function of religious codes,social mores,and blind obedience to rulers.The first management text is credited to James Montgomery of Glasgow with his book,The Carding and Spinning Master’s Assistant,also known as The Theory and Practice of Cotton Spinning (1832). The Organization and Management Principles Schools (1900-1945) From1900 to 1945,two main streams of management thought were developed:one body of knowledge called Organization and Management Principles School,and the other the Human Relations School.In the late 1940s Organizational Behavior emerged from these two schools of thought.This school of thought dominated the first half of the twentieth century as a series of scholars and practitioners prescribed a set of truisms or principles to guide more effective management of organizations.Primarily their emphasis was on organization structure, technology,goals,control,rewards,and planning.This school has also been characterized as
5 formalistic,since most of their recommendations constructed formal arrangements,policies and procedures. The founding father of the principles school was Frederick W.Taylor.His The Principles of Scientific Management (1911) emphasized work measurement,standards,and a formula of pay for outputs so that workers and management had a mutual understanding of the relationship between work effort and rewards.Influenced by an engineering background,he developed time studies to analyze a job and break it into elements.His studies determined job standards from an output level reached by the best worker under clear instructions froma competent foreman.He stressed the role of the foreman as a planner of tasks,not as a doer of physical work or as a disciplinarian. Henri Fayol was another scholar of management during the early 1900s.A French mining engineer,he was known as the founder of organization theory and management education.Fayol’s book,Industrial and General Administration (1916 in French and 1930 in English),identified key managerial functions,planning,coordination,and control.It also proposed fourteen principles pertaining to unity of command,division of work,equity,and order for carrying out these functions.Fayol believed that his principles could be taught rather than learned on the job,as was the common method of training at the time. A succession of scholars built on the foundations laid by Taylor and Fayol.For example, Mooney and Riley (1931) proposed three principles for structuring formal organizations based on Mooney’s experience as an executive with General Motors.Gulick and Urwick (1937) developed the principle of homogeneity for grouping similar functions,such as aligning all
6 personnel activities under a similar head.Davis (1934 and 1940) represented a growing emphasis on the administrative functions of top management when he classified planning and control as organic activities that required executive leadership to mediate between business and the community. Chester I.Barnard’s Functions of the Executive (1938) was an intellectual achievement of modern organization theory which emphasized the systemic and cooperative nature of organizations.Barnard referred to effectiveness as an indicator of the level of adaptation between an organization and its environment and efficiency as the manner in which employees are persuaded to cooperate with the system.Communication integrates the processes of effectiveness and efficiency by using the briefest and most direct formal channels for decision making and for reaching employees.By the early 1940s other writers began building on Barnard’s concept of concentrating more on processes of administration rather than on formal structure.Peterson and Plowman (1941) examined policy making and the role of the board of directors,Alvin Brown (1945) viewed planning as a circular process that also monitored results, and Robert Gordon (1945) encouraged the selection and training of professional managers who were separate from,but responsible to,the shareholder owners. The Human Relations School (1900-1945) By the early 1900s a new separate streamof management thought began the Human Relations School and industrial psychology.The emphasis was on developing the theory of motivational needs of employees and on promoting their integration with the organization. Topics under study included testing,counseling,compensation,working conditions,group
7 behavior,and communication.In contrast to the principles school with its focus on formal organization,the Human Relations movement concerned itself more with the informal behavior of people in organizations. The founding father of industrial psychology was Hugo Munsterberg,who wrote Psychology and Industrial Efficiency (1913).Munsterberg examined the demands of a job and its requirements for the mental abilities of the individual.He also became an activist for psychological testing to discover the best possible man.His theory was strikingly similar to Frederick Taylor’s task analysis approach.Numerous companies adopted testing methods in newly formed personnel departments;however,the fad of testing also led to disillusionment as researchers found that tests were not very accurate predictors of job success. Behavioral scientist Whiting Williams (1920) conducted other research searching for sources of worker motivation and satisfaction.His What’s On A Worker’s Mind argued that incentive pay can have a negative effect on workers when it places them at odds with their coworkers.Henri DeMan’s Joy of Work (1929) was based on a study that suggested employees required greater autonomy,variety,and recognition in their work,and that unfair pay schemes and production standards detracted fromtheir satisfaction.Thirty years later Frederick Herzberg introduced motivational theory which was similar to Henri DeMan’s and Snyderman’s theories. Mary Parker Follett (1924) focused on the influence of the work group over individuals. She believed that man achieved his autonomy within a group environment;she was a proponent of group autonomy and discussion in decision-making as a way of achieving greater integration
8 and creativity between the individual employee and the organization.Authority was to be gained through personal knowledge and an attitude of power with rather than power over people. Elton Mayo (1945) and Roethlisberger and Dickson (1939) documented Follett’s theory of the group in their study at the Hawthorne Works of the Western Electric Company.Between 1927 and 1932,a series of experiments on the effects of working conditions found that,in spite of adverse working conditions,workers responded positively to attention and recognition.This finding later became known as the Hawthorne Effect.Their observations led themto describe the work group as a social systemwhich developed an informal structure of relationships and codes of behavior having special meanings for levels of productivity. During the period 1900-1945,the Organization and Management Principles and Human Relations disciplines each evolved towards recognizing the importance of managerial behavior and cooperation in planning and decision making.The human relations movement began to acknowledge the wider organizational context as it shifted fromits original individualistic focus to small group behavior and the style of the supervisor.The two bodies of knowledge were still different,inasmuch the principles discipline continued to stress the formal design of organization structure and its administrative procedures,while the human relations discipline emphasized the informal aspects of dynamic interaction between people. Combining Technology with Small Group Behavior – The Early 1950s World War II began the growth of industries and increased development of new technology,such as the computer.One of the first documented studies on the effects of technology on worker behavior was written by WilliamF.Whyte (1948) in the restaurant
9 industry.The study revealed conflict between social status and the technical requirements of operating a restaurant.Chefs,with higher status than waitresses,presented conflict between the two when the waitress initiated orders to the chefs;installation of the spindle,a technical tool for holding orders,eliminated face to face conflict. In 1951 Newman believed that administrative behavior consisted of guiding,leading,and controlling the efforts of a group of individuals toward some common goal.The focus of the discipline changed to goal setting and formulation of objectives.Terry (1953) believed that management activity consisted of planning,organizing,and controlling to achieve organizational objectives.In 1954 Peter Drucker published The Practice of Management,which advocated that managers be directed and controlled by the objectives of performance,rather than by a boss. Koontz and O’Donnell (1955) were supporters of the human element;they believed that managements purpose was to get things done through others. Man in Bureaucracies the late 1950s By the late 1950s social values were responding to a postwar emphasis on technology and growth.Social critics complained that man was becoming an impersonal object at the mercy of machinery and swollen bureaucracy.Behavioral scientist Daniel Bell (1956) reexamined the earlier human relations discipline,arguing that man was not merely a social being content with seeking harmonious relations at work.This was during the time of the psychologist,the chief among whomwas AbrahamMaslow (1954) whose hierarchy of needs theory became the latest method in management circles.Maslow’s model argued that man possessed higher order needs
10 for recognition and self-actualization,which were activated after lower order needs for safety and social interaction were satisfied. Argyris (1957) emphasized that human beings developed naturally over time froman immature state of dependence to a more mature state of independence.He condemned bureaucratic organizations for preventing this maturation process.According to Argyris,rules of specialization stifled initiative and creativity,while hierarchical authority kept employees from exercising self control.Frederick Herzberg (Herzberg,Mausner,and Snyderman,1959) examined employee attitudes toward work and developed his motivation hygiene theory.His findings suggested that workers were satisfied,but not motivated by,hygiene factors such as pay,supervision,and working conditions. On the other hand,employees were motivated toward self-actualization by motivators such as recognition and enriched jobs with more complexity and variety.Douglas McGregor (1960) became known for Theory X and Theory Y models;Theory X assumed that workers were lazy and uninterested in work,while Theory Y assumed that people were naturally interested in work and capable of self control and creativity.He argued that most bureaucratic organizations adhered to Theory X assumptions with an over emphasis on formal control.Theory Y is one guiding force behind the contemporary move by many businesses toward employee involvement and management (Nisbett and Ross,1991). All of the above theories took a positive point of view and argued that man was inherently capable,with a natural desire to express his abilities at work.They argued in various ways,for more participative organizations with less formal control.One pair of notable theorists
11 at the time was;James March and Herbert Simon (1958),they viewed people at work as value free,yet complex.They postulated that man was a problemsolver with goals,but considered that goals could vary fromseeking higher wages to pursing creative accomplishment.Also March and Simon joined in criticizing classical organization theory for its narrow restrictions on human behavior in reaching goals at work.Another important contribution by March and Simon was to question earlier harmony theories of management,arguing instead that conflict was natural and inevitable because of dissimilarity of goals among employees. Stodghill and Shartle (1955) gave a two dimensional version of leadership;consideration reflected the leaders personal orientation toward subordinates,while initiating structure related to the accomplishment of work goals.Similarly,Rensis Likert and his colleagues at the Institute for Social Research (1961) stressed the need for a leader to express both an employee position and a production position.Each questioned prior theories that good leadership depended upon the possession of traits such as aggressiveness and intelligence. Participation for Organization Development – The Early 1960s Management theory in the late 1950s idealized man in the organizations;the early 1960s idealized the organization itself. Behavioral scientists set out to convert organizations to a new way of life that would be conducive to self-actualizing man.They had previously attacked classical principles of organization and now the burden was on themto provide a replacement.
12 Organizations and society were also ready for experimentation,but for other reasons many businesses had rapidly developed from a manufacturing orientation to an emphasis on high technology and professional services;mergers and acquisitions had given rise to large,widely diversified enterprises that were difficult to control;government services had greatly expanded and grown immensely more complex in their management problems,and social changes through increased education and affluence had produced a new generation quick to question traditional ways of management.Thus,practitioners were searching for alternatives to rigid management principles. The response of management theorists came in the formof organizational development, (OD).It advocated organizational change through the use of educational methods to change managerial behavior toward more participative methods of problemsolving and decision making.OD represented a combination of theories developed in earlier periods:the group as an agent of change;sensitivity training as a method for achieving change;participative leadership as the ideal model for supervision;and Theory Y assumptions about the nature of man. Organizational development was a commercial success,with numerous companies and public agencies attempting it.Perhaps the most prominent of the new OD approaches was The Managerial Grid developed by Robert Blake and Jane Mouton (1964).They proposed five different management styles for coping with the task and human dimensions of work,with one style representing an ideal synthesis of the two dimensions.Additionally,they created a six phase educational programfor training managers in the adoption and use of the ideal style,which represented a blend of participation and teamdecision making at all levels of management.
13 Contingency Theory - The Late 1960s Dunnette and Campbell (1968) in a review of various research studies concluded there was no verification to support assertions that T-Group or laboratory education influenced significant behavior change on the job for any large percentage of trainees.The contingency theory was developed to provide explanations of why OD had achieved mixed results.One prevailing attitude of contingency theory relied heavily upon open systems planning,which drew fromearlier work known as general systems theory developed primarily by Ludwig von Bertalanffy (1951) and Kenneth Boulding (1956),as well as Barnard (1938). The essence of open systems thinking was to view an organization as a complex system of interrelated parts in a constant state of changing equilibriumwith an environment over which management did not have complete control.Seiler (1967) was a proponent of this theory,he maintained that an individual organization should be planned according to its distinctive set of technical,human,and market inputs;consequently,no panacea existed for all organizations. Churchman (1967) focused on multifaceted information systems design as the significant feedback loop for observing and controlling changing procedures. A second major emphasis of contingency thinking came fromscholars interested in the formal design of organizations for different technologies and economic environments.Joan Woodward (1965) found that job order technologies required a more flexible organization than technologies with more continuous processing.Lawrence and Lorsch (1969) revealed that container manufacturing companies used more formal pyramidal organization structures for their relatively simple repetitive processes and predictable markets,while plastics companies tended
14 toward matrix organic structures to cope with complex technologies and uncertain environments. A third method of contingency theory focused on leadership style,and notable here was Fred Fiedler (1967),who proposed a contingency model of leadership effectiveness. Fiedler’s research led himto conclude that leadership styles should vary according to: leader member relationships;degree of task structure;and leader position power.He proposed that a leader should be more task oriented when the three conditions were either highly favorable for the leader:well liked;defined task and high power;or very unfavorable:disliked; unstructured task;and low power.Whenever conditions were intermediate along these three dimensions,the leader should be more relationship oriented.Therefore Fiedler and others seriously questioned whether the earlier one best theories of McGregor’s Theory Y,Blake and Mouton’s ideal style,or Likert’s linking pin participative style were effective under all conditions facing a manager. Motivation Theory – The Early 1970s Models of motivation became the dominant theme,and just as the late 1960s grew in tolerance for different organization structures,so did this period in its recognition of individual differences.Maslow’s need hierarchy and Herzberg’s two factor theory was under examination by Hall and Nougaim(1968) the result of their studies produced findings that Maslow’s and Herzberg’s theories could not predict,proving that man in organizations was more complex and obstinate than predicted. Fritz Heider (1944),a psychologist,developed the attribution theory,which theorized that people act on the basis of what they believed to cause certain results,and that some people saw
15 themselves as the cause,internal controls,while others see their environment as the causal force, external controls.Mitchell,Smyser,and Weed (1975) used this theory to show that internal controls tend to be more satisfied with their job and receptive to participative leadership than do external controls.Another theory frompsychology,B.F.Skinner’s (1953) reinforcement theory, was adapted to industry through the use of behavioral modification techniques.McClelland and colleagues presented a theory that focused on human needs for achievement,affiliation,and power.This theory has been applied in industry for purposes of promoting entrepreneurial action through achievement training (McClelland and Winter,1969),and for identifying motivational characteristics of successful executives. White’s (1959) competency theory,asserts that individuals seek complete control over their work,and that work environments are essential to the extent that they make possible or impede individuals’ control over their work.Morse and Lorsch (1974) revealed that if organization structure and leadership style are appropriate for specific tasks to be performed,people will feel more motivated toward expert knowledge or outstanding skills and in so doing receive greater satisfaction. Statement of the Problem Deming was emphatic in his belief that managerial practices needed a radical overhaul. Old methods of management built on Frederick Taylor’s principles,such as quota driven production,work measurement,and adversarial work relationships will not work in todays’ business environment.They create mistrust,fear,and anxiety and a focus on satisfying rather than optimizing.Organizational success in todays’ dynamic environment depends on the
16 organizations ability to learn and to provide all of its human resources with a creative environment that consists of built-in capacities to change and redesign continuously as the circumstances demand. Only through organizational learning at all levels of design will the firmachieve dynamic,double looped learning and self designing change.Theory O organizations represent a dynamic open systems approach that incorporates a doubled looped feedback systemof measuring processes that makes effective learning,self-control,and organizational development possible.Theory E organizations represent the traditional,mechanistic,closed systems view of organizational development with a highly controlling and manipulative philosophy of managing individual workers by measurement controls,including single looped employee performance appraisals that ensure and reward conformity. What is the nature and role of organizational control systems?How does an organizational design control systeminfluence member behavior in desired ways?It is not known whether organizations with Theories E or O archetype use different performance control measurement instruments;that is,single looped evaluation of performance,performance appraisal,merit rating,annual reviews,management by objective programs;or management by numbers,instruments,or a double looped learning feedback process controlled by individual members. Purpose of the Study The purpose of this qualitative study is to explore the barriers and the nature of conformity,creativity,control systems,and performance appraisals processes between change
17 Theory E and Theory O organizations.The research will accomplish this by focusing on the body of work created by Beer and Nohria,which suggests that Theories E and O archetypes can be compared along several dimensions of corporate change.This study utilized four change dimensions:goals,leadership,focus and process.However,Theory E is a closed systemwhile Theory O is a dynamic open system.The proposed research will performa comparative analysis of two selected organizational leaders,one with an E archetype and the other with an O archetype. This research will attempt to contribute to the findings accomplished by Beer and Nohria’s Theories E and O change models.These models provide organizational leaders with critical insight into the strategic leadership skills,abilities,and control systems necessary to change froma traditional,bureaucratic organizational structure and design of conformity and inertia into a flexible self adaptive structure of autonomy and creativity. Rationale Theory E’s theoretical framework supports maintaining stability and conformity where change is minimized with rigid formal rules and regulations,planned change,and control from the top,and where maximizing shareholder value is the number one purpose and goal.This framework clearly suggests that employee performance appraisal instruments are an extrinsic component of organizational control.Theory O’s theoretical framework suggests controlling the process not the people.However,it is not known if Theory O organizations adopt performance measurement instruments such as evaluations,merit ratings,annual reviews,management by objective programs,or management by numbers instruments.