Managerial economics and organizational architecture 5e ch020

Managerial Economics and Organizational Architecture, 5e Chapter 20: Leadership: Motivating Change within Organizations... Attitudes Toward Change• Managers are utility maximizers • For

Managerial Economics and Organizational Architecture, 5e

Chapter 20: Leadership:

Motivating Change within Organizations

Characteristics of Leadership as

“Guidance”

• Leaders must help organizations choose

the right path through vision

• Leaders must motivate

– Emotional—charisma, difficult to learn

– Rational—standard agency problem

Decision Making in Firms

• Organizational politics

– Good leadership  initiating good proposals,

careful analysis

– Politics may hinder ratification,

implementation

– Must understand organizational politics

Attitudes Toward Change

• Managers are utility maximizers

• For a proposal to be supported, it must

increase the manager’s utility

• General managers need to assess the

effect of their proposal on their manager’s

utility

• To gain support

– Change architecture

– Change the proposal

– Market the proposal

Framework for Understanding

Attitudes Toward Change

Standard deviation (in dollars)

Favor proposal

Oppose proposal

Status quo P

S

Lynn’s current indifference curve Increasin

g expected utility

Changing Organizational

Architecture

• Increase the decision rights of supporters

– Could also reduce decision rights of

opponents

• Changing architecture can be costly

Changing the Architecture to

Gain Support for a Proposal

P

Original indifference curve

for status quo (SQ)

Increasin

g expected utility

Indifference curve for status

quo (SQ’) after changes in

the architecture Chris’s proposal

Standard deviation (in dollars)

S

SQ SQ’

Proposal Design

• Flexibility

– If the proposal has lower risk it is more likely

to be supported

– Pilot testing the program gives information

about its possibilities

• Credible commitment

• Distributional consequences

– Some employees gain and others lose

– Modify the proposal so that all win

Analyzing the Distributional

Consequences of a Proposal

Increasin

g expected utility

Standard deviation (in dollars) S

P Rob’s view of Chris’s

proposal

Lynn’s view of Chris’s proposal

Status quo for both Lynn and Rob

Selling a Proposal

• Careful analysis and groundwork

– Do: communicate and explain to reduce

uncertainty

– Don’t: spring a proposal for immediate

action

Selling a Proposal

• Create and rely on reputation

– Past success as indicator of likely future

success

– Reputation as assurance of careful analysis

– Select battles wisely

• Employees are more likely to favor change when the organization is in crisis

Organizational Power

• Employees will respond more to

proposal when the sponsor has

personal power

• Sources of power

– Formal authority

– Budgetary and/or facility control

– Information control

– Friends and allies

• Tie proposal to popular initiatives

– free riding

Coalitions and Logrolling

• Give support for a proposal to one sponsor

to receive support for your proposal in

return

– Must have credibility in giving support to

future proposals

– Identifying those who will logroll may be

difficult

– The proposal may have to be vague to gain

support

Use of Symbols

• Communication within a corporate culture

• But must be supported by architecture

Strategic Value of Commitment

GSA company

$90

$85

$0

$80

$0

$100

Simon—Invest

Simon—Not invest