Organizational behavior is the systematic study and application of knowledge about how individuals and groups act within an organization where they work. At the turn of the 20th century, management was largely unaware of the significance of this field; it was not until Frederick Taylor’s work on scientific management and the 1924 Hawthorne studies that the significance of organizational behavior was realized. At the turn of the 21st century, the study of organizational behavior is recognized as a key component of successful management. As a result, management practitioners must use their knowledge to develop practical solutions to the challenges of managing in a rapidly changing business environment. Those organizations that rise to meet these challenges will be able to outperform their competitors; for businesses seeking to maintain their innovative and creative edge, the stakes are very high. In this post, I will discuss emerging trends in organizational behavior, and discuss potential issues for management practitioners.
The Flattened World
The core business of many organizations is largely facilitated through an increasingly connected global marketplace. Companies can expand and acquire smaller businesses, but still be subject to competition with rivals located half a world away. This concept was made most prominent by Thomas Friedman’s 2005 book The World is Flat, which explained a few key elements that have led to the flattening of the global marketplace: the increasing accessibility of the internet, standards and technologies that have allowed work to flow, collaborative online projects, outsourcing, supply-chain integration, insourcing, and access to information. (Friedman, 2005a) While technology can be seen as the enabler of many of these advances, the flattening world presents challenges to organizational structure, mainly through the issue of outsourcing. (Friedman, 2005b) For one, outsourcing is only beneficial if the information capability of the outsourcing relationship meets the intended information requirements of the company that is outsourcing tasks. (Mani, Barua, & Whinston, 2010) In many cases, businesses do not verify the information capability before agreeing to outsource work. Also, while employee perception of outsourcing is actually positive, the vast number of factors which influence the decision to outsource requires a careful consideration of whether or not to implement outsourcing. (Sohail, 2012; McIvor, 2010) Not taking these considerations into account, and rashly making the decision to outsource, can lead to lost value for the company. Furthermore, there is no “one size fits all” solution to outsourcing, and each case requires individual consideration. (Wee, Peng, & Wee, 2010) Of course, companies should strive to never outsource core competencies; in fact, one of the key benefits of outsourcing is that the organization can increase focus on core competencies, and in so doing, provide more value to stakeholders. (Holweg & Pil, 2012)
These changes present challenges to management in several ways. For one, international outsourcing introduces cultural perspectives, and ethical considerations at the outsourcer may not align with the values at the main company. (Christie, Kwon, Stoeberl, & Baumhart, 2003; Schein, 1992) Also, outsourcing may require a shift in organizational structure, with a need for increasingly formalized roles, resulting in a more mechanistic structure. If this is a significant change in structure, employees may lose intrinsic motivation, and creativity can suffer. (Sherman & Smith, 1984; Covin & Slevin, 1988) These changes, in addition to all the aforementioned ones, pose significant challenges for management; what can one company do to confront them?
Insourcing and Communications
Many businesses actually stand to gain greatly from the recent trend towards outsourcing: for example, information technology providers, can provide the very services that many companies do not regard as core competencies and are often eager to hand off. This reflects a growing trend in business: insourcing. In some contexts, insourcing is intended as the opposite of outsourcing, that is, bringing jobs that were formerly outsourced back to the core company. However, here we use this term to mean the integration of another companies’ business activities within one’s own (Rao, 2004). In the case of UPS, this means that UPS employees can fulfill orders for Nike or repair computers for Toshiba within UPS locations (Donnelly, 2004). For IT companies, this means providing complicated – and often expensive – IT management functions without the need for another company to hire staff, purchase equipment, and develop IT competencies in its organizational culture. Furthermore, companies can use the technology that enables outsourcing, as mentioned earlier, to expand into new territories without creating a fractured organizational structure. Employees working in newly opened branches can teleconference with employees in the main office, and both branches will be able to integrate the organizational characteristics that the company has thus far worked so hard to establish. Now, let us peer into the future of organizational behavior.
The Future of the Global Marketplace
The global marketplace has been getting increasingly flat, and this is unlikely to change. We know that many companies are working to take advantage of trends towards increased levels of insourcing and using technology to facilitate communications among staff at different locations. It has long been predicted that the rise of outsourcing would lead to “hollow” organizations that perform little work for themselves (Bloomberg, 2006), but time and time again this has failed to come true. At the same time, the boundless enthusiasm business once had for international outsourcing has diminished, as companies have struggled with quality control, finding qualified international partners, and justifying outsourcing to stakeholders (Dixon, 2008). Where then is outsourcing headed?
It is increasingly unlikely that substantial gains can be had by international outsourcing. While it was long believed that the upfront costs of transferring jobs overseas could be made back in the long run, unforeseen costs and issues with quality have shown that there is no such thing as easy money. Like all other business ventures, outsourcing requires constant attention and intelligent planning, with decisions based on real-world data. While many companies still choose to outsource tasks that fall outside of their core competencies, an increasing number are working with companies close to home (Koerner, 2011). This has been made especially prevalent as the increasing wages in China have diminished the once staggering cost savings that could be had by international outsourcing. So, the future of outsourcing is likely to involve companies not far away.
Outsourcing is, of course, made possible largely by recent advances in telecommunications technology which allow instantaneous communications across thousands of miles. Until recently, these communications were limited to phone calls only, with long flights required for face-to-face interactions. However, teleconferencing and telecommuting technologies put the level of communications at the outsourced company on par with a company limited to one physical space. This will produce challenges for management. Recent research has shown that it is possible to effectively lead in a workplace with little physical interaction, so long as management understands the importance of using praise and rewards in motivating people (Hardy, 2012). Looking even further into the future, the promise of cloud computing may mean that companies that once required expensive physical real estate to operate could be operated by a small group using crowdsourced labor (Hardy, 2011). So, future organizations will be distributed and highly virtual, providing unique challenges to management.
The trend towards an ever-flatter competitive environment is unlikely to change. Businesses can choose to capitalize on this by using technology to benefit their position, reinforcing core competencies while forming strategic partnerships with other companies. Outsourcing should not be undertaken lightly, as the costs can quickly exceed the benefits if all possibilities are not planned for. Insourcing provides opportunity for businesses to reduce costs and allow others to achieve results superior to those that could be attained by the core company. As we look to the future, expect businesses to choose outsourcing partners close to home, and use crowdsourcing and cloud computing to deliver new business possibilities.
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Christie, P. J., Kwon, I. W., Stoeberl, P. A., & Baumhart, R. (2003). A cross-cultural comparison of ethical attitudes of business managers. Journal of Business Ethics, 46, 263–287.
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This post was originally submitted as part of a group project in a class on Organizational Behavior.
(Header image credit ecstaticist.)
Organizational Behavior in the Global Marketplace by Steve Richey is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.