Economics assignment help on: Globalization
In the modern economy, there is a need for organisations to continuously adapt to suit their changing internal and external environments. Rapidly evolving technology and globalisation are creating endless competition and as a result, organisations that are not in touch with their environmental surroundings are being surpassed by those that are. For this reason, managers are devoting increasing attention to formulating and managing organisational change. Unfortunately, many organisations fail at their attempts to plan and manage change due to inefficient strategies, a lack of organisational change agents or unclear ideas of what it is that needs to be changed. Instead, many companies implement quick fixes or ‘band-aid’ solutions without carefully analysing whether these resolutions are applicable to the issues at hand (Harrison & Shirom, 1999). This initial failure to analyse and diagnose an organisations current state before implementing change leads to costly errors and wasted time. A great deal of literature has been studied and written aboutdiagnosing organisations through diagnostic models. According to Harrison et al., (1999, p 7), diagnosis refers to “investigations that draw on concepts, models and methods from behavioural sciences…to examine an organization’s current state and [to] find ways to enhance organizational effectiveness.”
The company Nestle, most renowned for its confectionary brands, is currently undertaking a long-term plan for change. After being targeted by Greenpeace in 2010 for using palm oil as an ingredient, and consequently contributing to deforestation,Nestlewas forced to review its practices and make significant changes in the ways it did business. For the team of people leading the change, several applicable diagnostic models could have been implemented to investigate the organisations culture and relationship to its environment. This essay is part two of a three part essay, and will begin by briefly reintroducing Nestle and its causes for change, as was previously addressed in part one. Further, it will provide an example on past changes within Nestle, to demonstrate the organisations current organisational structure. It will then examine the open plans system model, before considering Weisbord’s six-box diagnostic model. Further, it will analyse and critically evaluate both models, before applying them in the case of Nestle. Finally, it will explain and justify why the open systemsmodel is the most applicable diagnostic model forNestle.
The Nestle Supplier Code states that Nestle focuses not only on delivering the highest quality of products, but that it does so in a way that, “reflects the Company’s commitment to conduct…business activities in full compliance with applicable laws to be guided by integrity and honesty (“The Nestle Supplier Code,” 2010, p 1). However, during the time that this supplier code was announced, a backlash against Nestles “integrity and honesty” was ensuing. Nestlesenvironmental and sustainability actions were not demonstrating commitment to its core values. As such, in 2010 Greenpeace began a monumental campaign against Nestle, targeting it for its use of palm oil in products. Public criticism against the company evoked the need for radical organisational change within the organisation.
Nestle is familiar with the process of change, and has undergonea myriad of organisational changes over the last few decades. One such change was undertaken by the then CEO, Helmut Maucher in the 1990’s. He believed that corporate managers had lost touch with divisional managers, and thus began a massive restructure from the top down (Hill & Jones, 2009). He relinquished centralised authority from corporate managers by decentralising the power to seven global product groups that had been established to oversee the organisations major product lines.He then proceeded to reduce the number of nationwide sales offices from 115 to 22 and the number of raw packaging supplier materials from 43 to 3. This huge office cut resulted in major cost savings due to divisions sharing information on joint purchasing, sales activities and marketing strategies (Hill et al., 2009 ). Furthermore, the CEO implemented a matrix structure to benefit from grouping employees by function and by product.Maucher focused his efforts on partially transitioning Nestle from a mechanistically designed company to an organically operating organisation.Businesses functioning with a mechanistic design support control and efficiency, and focus their strategies on cost minimisation, while organically designed companies promote innovation and change (Waddell, Cummings & Worley, 2011). However, despite Maucher’s ambitions to operate organically, Nestlescurrent structure focuses on cost reduction as one of its foremost priorities.
In the context of Greenpeace and palm oil, Nestle was initially resistant to changing its suppliers and strategies in part because of its mechanistic viewpoints on cost minimisation. However, the public did not let up on public pressure, thus forcingNestle to examine itself objectively to understand why public observations were disconnecting with what it was trying to represent. Organisational diagnostic models are used to assist companies in analytically assessing their task environments in order to formulate strategic responses to it (Waddell et al., 2011).According to Burke (1994, in Falletta,2005; Lok& Crawford, 2000), organisations can benefit from using diagnostic models as theyenhance our understanding of organisational behaviour, categorize and interpret data about an organisation and provide appropriate change strategies.
Open systems theory is derived from biology, relating the natural concepts of living systems and the environment to traditional organisations (Hendrickson, 1992). Open systems theory is founded on the basis that organisations are open social systems that are reliant on their environment for inputs to survive and develop (Katz & Kahn, 1978 in Falletta, 2005). There are three environments which impact on organisational operations: enacted environment, task environment and the general environment (Waddell et al., 2011). Of these three, only the enacted environment affects organisational decisions about behaviour, however both the task and general environment impact on the consequences of those decisions (Waddell et al., 2011). When diagnosing the relationship between the organisation and its existing environments, the open systems modelhelps to developactions plansto transition the organisation to future environments (Waddell et al., 2011). Open systems planning is done through an input-throughput-output cycle that transforms the received inputs from the environment into outputs, and then exchanges the outputs for new inputs (Hendrickson, 1992). However, in order for the open systems model to operate effectively, organisations need to operate using four general assumptions.The first is that the perception of the organisational members plays a big part in environmental relations. This is important because the perception of different members determine which parts of the environment are focused on or overlooked.Using Nestle as an example, the production managers were likely focused on their unsustainable yet cheap suppliers of palm oil, while neglecting to consider their consumers perceptions as part of the environment. The second assumption is that organisational members share a likeminded outlook on their environment. This requires management and members resolving any differences they may have in their views of their environmentsbefore embarking on an open systems diagnosis. The third assumption specifies that the members of the organisation must accurately perceive environmental conditions. Many organisations fail at correctly interpreting information regarding their environment, thus their responses to environmental situations are ineffective. In the context of Nestle, top management misinterpreted its general environment, believing that consumers wanted affordable, good tasting food, when in actuality; current generations are demanding fair trade products from sustainable companies. The final guideline for an organisation to understand is that organisations should be proactive in creating favourable environments for themselves (Waddell et al., 2011). Had Nestle been a market leader rather than a follower, they could have forecasted the trend for environmentally sustainable products, halted their contributions to deforestation and led the way for environmental change. By applying these four guidelines to the open systems model, organisations can evaluate their current situations and relationships with their environments, and develop action plans to bring about possible future environments.
Debatably the most popular diagnostic model due to its uncomplicated methods, Weisbord’s model is highly recommended for organisations in situations where organisational participants of the diagnosis lack prior knowledge of open-systems theory, or when diagnosis is done under time constraints (Burke, 1982, in Harrison et al., 1999). Weisbord’s organisational diagnostic modelgroups various activities into the following six broad dimensions: purposes, rewards, structures, helpful mechanisms, relationships and leadership (Lok et al., 2000).Weisbordproposes these six categories to provide organisations with six defined areas upon which to search for dissatisfaction (Harrison et al., 1999).The purposes dimension of an organisation refers to the organisations purposes, missions and goals (Lok et al., 2000). Employee satisfaction levels with intrinsic and extrinic rewards, such as incentive systems, promotions, financial compensation and the like is measured bythe rewards dimension. The structures dimension diagnoses if there is a suitable fit between the overall purpose of the organisation and the internal structure that is in place to serve the purpose (Lok et al., 2000). Helpful mechanisms refer to any internal practice or procedure that an organisation must attend to in order to meet organisational goals, including planning, controlling, budgeting and information systems (Lok et al., 2000). The ways in which departments or individuals interact with each other, as well as how people interact with technology is defined in Weisbord’s relationship dimension (Falletta, 2005). Finally, the leadership dimension, fundamental to Weisbord’s model, refers to leadership tasks which help to instil a balance between the five other boxes (Falletta, 2005).
In addition to Weisbord’s six categories, two premises exist in the model which is crucial in understanding the other six boxes. The first premise concerns organisations formal versus informal systems. According to Smith (1975), the policies and procedures that an organisation claims to do are the formal systems, while informal systems are the behaviours and actions which actually transpire. The second premise refers to the correspondence between an organisation and its environment, or in other words, the differences between the way the organisation currently functions and the way it should operate to meet external environmental demands (Falletta, 2005). Weisbord’s diagnostic model involves posing pertinent questions about these six boxes to assess the functionality of the organisation. The answer to these questions are then analysed to identify gaps between, “what exists now and what ought to be; what is actually done and what employees and managers say that they do and gaps among organisational units and layers (Harrison et al., 1999, p 102). Weisbord argues that the bigger the gaps between the current state and the desired state, the bigger the problems of the focal organisation. The inputs and outputs of the organisation are affected by the functionality of the six categories as well as the environment in which it exists. The models six box structure poses critical questions for each category, therefore diagnosing areas of internal weakness or conflict.
Weisbord’s diagnostic model mainly targets an organisations internal environment. Should Nestle have undertaken the questions posed in Weisbord’s diagnostic model, it is likely that areas of internal weakness and conflict would have been unearthed. First,Nestle would cite several different purposes and goals. Their website states the following business principles for which the company claims to be committed: nutrition health and wellness, quality and safety, consumer communication, human rights in business activities, leadership, safety, supplier relationships, agriculture and rural development, environmental sustainability and water (“Nestles’ Corporate Business Policies,” n.d.). Nestlesformal organisational goal and purpose is to produce good product which supports and complies with these business policies. However, during the time that Greenpeace launched their campaign, the members of the Nestle organisation were not supporting these goals and purposes. Certainly they were producing “good products,” yet they were doing so with grave costs to human rights, environmental sustainability, agriculture and rural developments. Moreover, their poor communication with the public during the time of public outcry further demonstrated the discrepancies between what Nestle claimed its purpose and goals are, and what the organisation was actually doing. Their unsustainable actions proved that Nestles formal systems were inconsistent with its informal systems.
Both models have some limitations. Waddell et al., (2011, p 314) claims that in organisational diagnosis, “two key environmental dimensions affect the degree to which organisation are constrained by their environment and need to be responsive to them.” These are information uncertainty and resource dependence. While an organisation controls their enacted environment, the effectiveness of the open systems model depends on having access to accurate information about their task and general environments. Without this information, organisations can misdiagnose its environments, leading it to develop ineffective action plans for future environments. However, though difficult to find certain information, this aspect of the open systems model is beneficial as it considers the entire external and internal environment and its relationship with the organisation.
While Weisbord’s model is favoured by some organisational practitioners for its simplicity to understand and ease to use, it does not evaluate the external environment as in depth as open systems; rather it focuses its attention on the internal elements of an organisation. Weisbord’s diagnostic model is beneficial for organisations that lack theoretical knowledge,or those that need to diagnose problem areas within time constraints. Additionally, because of the leadership box, this model is advantageous for organisations when attempting to determine if management is at fault for organisational weaknesses. However, many scholarsargue the ineffectiveness of Weisbord’s model. While the leadership box enables organisations to pinpoint weaknesses in management, Mintzberg (1984) argues that management alone does not have complete power to plan and bring about changes for organisational longevity and performance (Allio, 2011). Moreover, he holds that the impacts of particular leadership styles are dependent on the organisations life cycle, and therefore, the effectiveness of a leader can not necessarily be summarised into one leadership box (Harrison et al., 1999). According to Lok et al., (2000, p 111), a further criticism of organisational diagnostic questionnaires such as Weisbord’s is,“that the psychometric properties of [the] survey instrument have not been fully established.” This can be seen byhis lack of defining variables for the external environment, as well as the absence of defining guidelines for establishing if a gap exists, and if so which gaps are the highest contributors to ineffectiveness (Harrison et al., 1999). Furthermore, while Weisbord’s model does expose statements of dissatisfaction about the organisation and its products, it fails to provide a means by which to transform these statements into explanations for the root causes of dissatisfaction. Finally, the effectiveness of Weisbord’s model is further limited due to its inability to encourage users to investigate other possible areas for diagnosis. Included in these other potential areas are organisational culture, economic foundations, technology and resource flows (Harrison et al., 1999).
After critically analysing both the open systems model and Weisbord’s six-box model, it is clear that the open systems model is more suited forNestles diagnosis. Weisbord’s model pertains mostly to internal weaknesses and management concerns. However, Nestles issues were not caused by internal problems; rather they were caused by their lack of attention toexternal issues and environmental pressures by Greenpeace and the public. The open systems model considers the external environment as a crucial element in diagnosing an organisations effectiveness, and therefore is superior to the Weisbord model for Nestles diagnosis.
In summary, diagnostic models such as open systems and Weisbord’s six box model can help organisations to evaluate its current environment and formulate strategic responses to it. The open systems model uses an input-throughput-output cycle, which converts the received inputs from the environment into outputs, and then exchanges the outputs for new inputs in a feedback loop. Weisbord’s six box model separates organisational functions into six dimensions, and poses questions on each to diagnose areas of weakness. Weisbord’s model focuses mainly on internal elements of an organisation, while the open systems model takes into account all aspects of the environment. Although both models are proactive in diagnosing change, Weisbord’s model lacks defined variables and guidelines for remedying gaps and finding solutions for weaknesses. In the case of Nestle, open systems planning is recommended because Nestles change stemmed from the changing dynamics of the general environment as well as external pressures from their customers. For effective change, it is essential that organisational practitioners and managers alike apply relevant diagnostic models to their organisations.
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