The transformation from a bureaucratic to a matrix organization:

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1 The transformation from a bureaucratic to a matrix organization: A case study of the directorate of Development Finance of the Ministry of Finance of Suriname A Research Paper by: Raïssa van Varsseveld (student number: FHRISS ) This paper was submitted in order to fulfill the requirements for the Master of Public Administration in Governance for the FHR Institute, the ISS, the International Institute for Social Studies and the Erasmus University Rotterdam Supervisor: Dr. Paul Breman

2 Acknowledgement This thesis was written as part of the final phase of my Master in Public Administration studies. Through this paper I hope to have created a helpful tool which might contribute to the further developments of the directorate of Development Finance. However this paper would not have been possible without the support of some people: I would therefore like to thank God for giving me the strength and wisdom to achieve yet another goal in my life and my family and friends for their unconditional support. Furthermore I would like to thank Dr. Ricardo van Ravenswaay and Drs.Arti Phoelsingh for giving me the opportunity to attend this program. Mr. Hans Lim A Po for his always fatherly support until the very last moment. My supervisor Dr. Paul Breman for his support and guidance during my ISP research. Dr. Freek Schiphorst and Dr.Marlene Buche for their guidance as well and Mrs. Ollye Chin A Sen of the FHR Institute. "We do not learn by experience, but by our capacity for experience." Buddha 1

3 Table of Contents List of Tables 4 List of abbreviations 5 1 Research and Design Introduction Research Problem Research objective and questions Relevance and Justification Research Methodology Scope and Limitations Structure of the Paper 11 2 Literature Review Introduction Organizational Structures The Line Organization Structure The Pure Organization Structure The Matrix Organization Structure Change Management How to motivate change Overcoming Resistance to Change Conclusion 21 2

4 3 Research Results Research findings of interviews with experts Research findings of surveys with staff of the directorate of Development Finance 31 4 Key Findings Key Findings Implementation of a change and restructuring plan within the directorate of Development Finance 40 5 Conclusions & Recommendations Conclusions Recommendations 44 6 Discussion 46 Reference list and Bibliography 47 List of Respondents 49 Appendixes 50 3

5 List of Tables Table Table Table Table Table

6 List of Abbreviations DF = Development Finance IDB = Inter-American Development Bank OD = Organization Development N/A = Not Applicable PLOS = Ministry of Planning and Development Cooperation Resp = Respondent 5

7 1. Research and Design 1.1 Introduction This paper focuses on the possible implementation of the matrix organization structure within the directorate of Development Finance. The matrix organization structure is a managing tool which has been around for some time, but which has never been applied in Suriname, especially not within government institutions. This paper focuses on how it works. But before describing how the matrix organization structure works, we will first look at the motive of this research. This dates back to the former ministry of Planning and Development Cooperation (PLOS). In the past, PLOS has played a crucial role in monitoring donor funded projects. For many years PLOS has been responsible for cooperation with donors such as the Dutch, the European Commission, the French and the IDB. PLOS was considered to be the focal point in cooperation with international donors. The core tasks and main focus of this ministry was always in the area of project management. However, on the 1 st of September 2010, PLOS was dismantled by decree and it was decided that the majority of the departments of former PLOS would be transferred to the ministry of Finance. This directorate is now responsible for the coordination of donor funded projects, previously the responsibility of the Ministry of PLOS. 1.2 Research problem The directorate of Development Finance is a governmental organization which is now part of the ministry of Finance. Although this organization does practice project management, it is still categorized as a bureaucratic organization. Looking at the directorate of Development Finance the following dimensions of bureaucracy as identified by Weber (Daft, L.2007, p.332) could be recognized: Hierarchy in decision-making, Working activities are performed based on standard rules and procedures Communications are in written form Tasks are divided and each person has a specialization (Daft, L.2007, p.332) 6

8 Decision-making takes place in a hierarchical manner and this sometimes forms an obstacle in reaching project deadlines and affects the effectiveness and efficiency in the working performance. After the transformation process from PLOS to the directorate of Development Finance, this directorate has been left in a situation of uncertainty regarding the new organizational structure. For the directorate a more efficient and effective way to operate is looked for and the matrix organization is considered a possible structure. Through this type of structure it would become easier to manage the donor projects. But why implement a matrix organization and not a different organizational structure? How is it supposed to work? And how will the individuals within the organization react to the restructuring of the organization, especially after the drastic changes which occurred over the past months? 1.3 Research objective and questions The objective of this research is to discover what possible challenges the directorate may be confronted with in restructuring the organization from a bureaucratic to a matrix organization. The opinions of experts in the field and of personnel of the directorate will be taken into account. Main research question What are the constraints for a possible change and restructuring of the directorate of Development Finance from a bureaucratic to a matrix organization? Sub questions What are the opinions of experts in the field with regard to restructuring, change management and matrix organizations? How would the experts implement a restructuring plan? How would the experts deal with a possible resistance to change? 7

9 How does the staff of the directorate feel about change and a possible restructuring of the organization? Is the staff familiar with the matrix organization and what are their thoughts regarding the structure? 1.4 Relevance and Justification The relevance of this research is contribution to enhance efficiency, effectiveness in the functioning of the directorate. By taking into account the feedback of the organization members, researcher also got a clear view of their thoughts and opinions, which are relevant for the planning of such a restructuring process. The feedback of experts in the field can give a broader view of the Do s and Don ts which should be taken into account when implementing a new structure. Through the opinions of the experts it can also be analyzed whether restructuring is indeed an option for the directorate. 1.5 Research Methodology In order to conduct the research the following methods were used: 1. Literature study 2. Data collection from the field through: Interviews with experts in the field from both the public and private sector; The researcher made use of structured interviews (Baarda, D. & M. De Goede, 2001, 184) with the selected experts. The background of each expert played a crucial role in the type of questions asked in the interviews. For this research eight respondents were selected of which all were interviewed. 8

10 The eight respondents were: 1. Six experts from both public and private sector specialized in change management to public sector reform; 2. Two government officials from the ministry of Finance. All interviewees were contacted either by or by phone requesting an interview. The questionnaires were sent in advance to each interviewee for preparation. To maintain transparency, it was agreed that after the interview, all respondents would receive a full report of the interview by to give possible feedback or add possible comments. The first two interviews were not recorded; it was decided later that recording the interviews was a better option, thus the remaining interviews were recorded. Before the start of each interview each interviewee was asked whether he/she objects to recording and all interviewees agreed. Due to ethical justification (Baarda, D. & M. De Goede, 2001, 360) it was promised to all respondents that their identities would be kept anonymous A questionnaire among the personnel of the directorate of Development Finance; In order to prepare the questionnaire the researcher looked up several examples of questionnaires which had been used in previous researches. Based on the advice given by the supervisor, the researcher prepared a questionnaire which consisted of ten questions (see Appendix I). The questions are both open and closed, and beside it the workers also had the opportunity to make their own additional remarks. What has to be mentioned is that this survey is not a validated research however this is not necessary, because this research can be seen as a descriptive research (Baarda, D. & M. De Goede, 2001, 92), in which seeking relations and giving explanations (Baarda, D. & M. De Goede, 2001, 92) was not important. The questions of the survey were all organized in four categories namely: Category A. Personal Information 9

11 Category B. The transformation from the ministry of Planning and Development Cooperation to the directorate of Development Finance Category C: The current organization structure and work situation on the Directorate of Development Finance Category D: Change within the organization/ working environment The survey that was conducted was a selective random test (Baarda, D. & M. De Goede, 2001, 150). Therefore the group of respondents only consisted of staff-members who are either on the mid- or higher level of the department. This was done on purpose, not only to obtain a reliable response, but also because the remaining organization members are usually not involved in the decision-making of the organization. In total twenty four workers were included in the survey. Although there was also the option to interview the workers, it was felt that conducting a survey would be a much more efficient way to get the required answers. All questionnaires were distributed in hard copy to the respondents. Type of research This research is a qualitative research due to the fact that problems, situations, facts and findings were all collected by making use of open interviews and a survey(baarda, D. & M. De Goede, 2001, 364). In The advantage of conducting a qualitative research is that, a lot of information can be collected which can be very useful for the researcher. On the other hand, this research has the disadvantage that the researcher may be left with so much information, that this may cause some confusion in selecting the right information for data processing. 10

12 1.6 Scope and Limitations During the research there were two obstacles that caused a small set-back in planning of the research: Not all respondents were easily available for an interview; Researcher experienced a delay in conducting the survey because at first the supervisors of the directorate were skeptic about the content of the questionnaire. This caused a delay in the research 1.7 Structure of the Paper In chapter two a theoretical review will be given of management areas In chapter three focus is on the results Chapter four gives an overview of the key findings Finally the conclusions, recommendations and a discussion section will be presented 11

13 2. Literature review 2.1 Introduction Just like in every academic research the theory plays an important role. In order to get a better understanding of the problem which the directorate of Development Finance is dealing with, the researcher has reviewed literature on management theories with regard to management structures, the different types of organization structures and subject change management. In this chapter, a brief description of the literature which has been studied is given. One of the books which was reviewed to get a better understanding of the matrix organization and other organization structures was, Organization Theory and Design by Richard L. Daft (2007). Mister Daft who has a specialisation in Organization Theory and Design is mainly focused in the field of management (Daft, L.2007, p.3). Daft s way of describing management theories is very clear and direct, which makes it easy to get a clear understanding of the theory. Thomas Cummings and Christopher Worley (2008), Organization Development and Change was also studied. The researcher felt that the book was in a similar writing style with Daft, however Daft mainly focused on organization theories, and Cummings and Worley, who deal more with organization development (OD) (Cummings, T. & C.Worley, 2008), on Change management. The book by Nick van Dam and Jos Marcus, entitled Organisatie en Management (Organization and Management) was also reviewed. Before describing the several organization structures, it was decided to first give a description of one of the main tools around which every organization is build, namely the organization chart. For describing an organization chart, the definition by Daft was used. Daft sees the organizational chart as the visual combination of underlying processes and work activities of an organization (Daft, L.2007, p.90). This tool facilitates the understanding how an organization works. 12

14 Throughout the years many organization structures have been established and implemented in various organizations. In this chapter, focus is on several organization structures in order to get a better understanding and give a proper answer to the research questions of this paper. Because two of the most relevant topics in this research are restructuring and change management, these topics will also be included in this chapter. According to Sytse Douma (2004) restructuring is a process which is often performed within an organization when drastic changes are implemented within an organization. These changes can consist of change of management, change of strategy, the release of unbeneficial activities, the release of personnel or rationalizing the primary process (Ondernemingsstrategie, p.247). Practice has shown that implementing change within an organization is not an easy step, many persons are often afraid of change. Therefore it is important that the right steps are being taken in order to get cooperation of all organization members. Cummings and Worley (2009) state in their book Organization Development and Change, that in organizations which are constantly transforming, the following elements are key: Awareness among organization members as to what their role is. Involvement through brainstorming, communication and innovation of new ideas; Taking into consideration the future in the planning of the organization through experiments with a wide variety of low-cost probes; There should be a clear link between current projects and the future through predictable intervals and choreographed transition procedures (Organization Development & Change, p ). 2.2 Organizational structures The Line Organization Structure According to Marcus and van Dam (2002), this type of organization structure is one of the eldest structures and seen as a basic tool being used by many organizations. They state that one of the 13

15 most important characteristics of this organization form is that orders are given in a vertical manner and that the levels and decisions within the organization are strictly taken in a top down manner from supervisor to organization members. The main principle of this organization form, that each organization member has one supervisor to take orders from and it is assumed that organization members have the duty to fulfil orders (Organisatie en Management, p.484). The supervisor within such an organization is required to have a broad experience in many areas. In this organization the delegating orders to the lower levels of the organization are characteristics. This is the result of the big work load of the top management (Organisatie en Management, p ). Marcus and van Dam also discussed the advantages and disadvantages of the Line Organization. In their opinion the structure is simple, which they see as an advantage. Other advantages are that this structure has a hierarchy and a clear division of all tasks, responsibilities and authorities. Furthermore it is easy to maintain control, and costs (Organisatie en Management, p.485). However Marcus and van Dam also state that this structure has some disadvantages such as the vertical communication line, causing an over assigned communication line, hence a delay in decision making. There might also be a lack of knowledge on the part of top management, which can result in incorrect decision-making. A line structure can lead to having many organization levels due to the fact that top management is only able to manage a small group of organization members. Finally coordination can only be implemented if this is being lead by a manager who structures all departments (p.484) The Pure Project Organization We speak of a pure project organization when project management consists of all authority required to have ownership of the projects. The functionalities of the project manager are in correspondence with the supervisor of the line organization (van Dam, N. & J. Marcus, 2002, p.492) which was mentioned earlier in paragraph Another element of this organization structure is that it is divided in several departments or pools and the workers may be placed in different projects. (van Dam, N. & J. Marcus, 2002, p.493). 14

16 The advantage of the project organization is that it consists of one team leader and that individuals are able to give an optimal performance within the organization (van Dam, N. & J. Marcus, 2002, p.494). The disadvantage of this structure is that workers need to be flexible and should be able to move from one project to another. Furthermore the workload is dependent on the number of projects in portfolio (van Dam, N. & J. Marcus, 2002, p.494) The Matrix Organization Structure Some organizations demand a multi-focused structure that pays attention to both product and function, or product and geography. The matrix organization structure is the ideal way of achieving this and can be used for both technical knowledge and product innovation. Another important factor is change, in order to meet the organization goals. The matrix organization structure is of a horizontal nature in which both the product and functional activities are performed at once. One of the unique characteristics of this structure is that both functional and product managers have authority, and that organization members report to both parties. (Daft, L.2007, p.108). A distinction can be made between the functional matrix organization structure, in which the functional managers have the main authority and the product matrix organization structure in which the main authority is carried by the product managers (Daft, L.2007, p.110). Matrix organization structures were originally established in the aerospace industry, due to the changing demands of customers. (Cummings, T. & C. Worley, 2008, p.319). Disadvantages and other requirements of the Matrix organization structure Like every organization structure, the matrix organization structure has some disadvantages. These disadvantages are: 1. The dual authorization, which requires reporting to two bosses as a conflicting situation, causing frustration and confusion; 2. This structure also forces managers to spend a great amount of time in meetings. 15

17 Requirements for the matrix organization structure are: 1. Excellent interpersonal and conflict-resolution skills. This may require special training in human resources; 2. Managerial skills to adapt to information - and power sharing; 3. Collaboration instead of relying on vertical decision-making (Daft, L.2007, p.110). The following table gives an overview of both the strengths and weaknesses of the matrix organization structure: Strengths Weaknesses Creates a coordination in order to meet the dual demands of the customer Causes participants to experience dual authority; this can be both frustrating and confusing Creates flexibility in sharing human resources across products This organization structure requires for participants to consist of good interpersonal skills and that expensive training is needed Fits well in complex decision-making and constant changes in an instable environment This structure takes time, requires regular meetings and conflict resolution sessions Creates opportunities for both functional and skill development Will not work unless participants understand it and are willing to cooperate Works best in medium sized organisations with multiple products Requires great effort to maintain power balance Table Strengths and weaknesses of Matrix Organizational structure (Daft, L.2007, p.111). 2.3 Change management In this paragraph, the focus is on the five main activities as to how to manage the changes which are being implemented. Each of the activities is part of change management. 16

18 1. Motivating change: this activity includes the creation of a readiness for change among organization members and supporting them in recognizing resistance to change. Leadership must be created in order for people to accept the need for change and adjust their approach to it. Motivation is often the most challenging issue, because people and organizations often look for ways to maintain status quo of the organization and are only willing to change when these changes will create certain benefits 2. Creating a vision: this is an important tool for providing purpose and reason for change. It also gives a scope of future needs. Together they provide the why and the what of planned change; 3. Developing political support: organizations often consist of powerful individuals and/or groups capable of either blocking or promoting change. Leaders and change agents need to make sure that they gain the support of these individuals or groups in order to implement changes; 4. Managing the transition: this includes taking the organization from its current to its desired state. It involves creating a plan for managing the change activities as well as putting together special management structures for operating the organization during the transition. 5. Sustaining momentum: this to make sure that the change will be kept intact in order to complete the process. It includes providing tools for implementing the changes, setting up methods to stimulate change, creating new capabilities as well as stimulating the new behaviours which are required for the changes (Cummings T. & C. Worley 2008, p ). The first activity,, is linked to motivation, whereas the four remaining activities are connected to resistance to change. Motivating change and resistance to change will be the main focus throughout the paper when we speak of change management and will be further explained in the two next paragraphs. 17

19 2.3.1 How to motivate change? Organizational change is the transformation from a familiar to an unfamiliar situation. Since there is no clear picture of the future and change may influence people s competencies, values and coping abilities, organization members usually do not give their support to changes unless they have an understanding of the advantages of the new situation. However, the main challenge in action planning is how to get support for organizational change. Special attention should be given to two related actions namely: 1. Creating readiness for change: In order to implement organization development it is important to create a situation in which people start to feel the need for change. This includes convincing people that their current working environment is not ideal and that it could be improved by trying new work processes, technologies or by changing their behaviour. In general people within an organization need to be confronted with the sensitive factors before they are convinced that they should take meaningful changes seriously. Three methods which can be supportive in creating sufficient dissatisfaction in order to create change are: Sensitize organization to pressure for change: many changes within an organization result from internal and/ or external pressure. Modern organizations are often confronted with unfamiliar environmental pressures which often force them to external pressures like heavy foreign competition, rapidly changing technology, and the attraction of international markets. Internal factors causing pressure within an organization are, new leadership, high production costs, poor product quality, excessive employee absenteeism and labor turnover; Reveal discrepancies between current and desired states: In order to create the need for change, it is important to provide the members of the organization with information of the organizations current way of functioning compared to the desired state of functioning. Information could include organizational goals and standards, or of the desired organization. It is important to provide members with feedback of the current organizational status in order to compare with the desired situation. This feedback will motivate organization members and convince them to improve the organization; Convey credible positive expectations for the change: organization members have high expectations about the results of organizational changes. These expectations are important in producing motivation for change and are an incentive for leading members 18

20 to invest in change programs which will work. When members assume that there will be success, they are more willing to commit to the change process and to invest more energy in a constructive behaviour which is required to implement change. Research has shown that information of the advantages for the organization and for the workers themselves and of the way in which to fill in the design and implementation of change was very useful. Also understanding the benefits of positive expectations and members and motivating them to set credible positive expectations for change implementation are important factors (Cummings T. & C. Worley 2008, p ). 2.4 Overcoming resistance to change: When implementing change in an organization, organization members can sometimes be very resistant, thus making it difficult or even impossible to implement the improvements in the organization. People may find it hard to let go of the old situation and be very anxious to cross over to an unknown future. For some people it may create uncertainty as to whether their current skills will still be needed in the future. People may doubt whether they will function effectively, and whether the new situation will be beneficial. Within an organization resistance for change could be of 3 types: Technical resistance: procedures are taken into account along with possible costs invested in the status quo (Cummings T. & C. Worley 2008, p ). Political resistance: when influential stakeholders within the organization feel that their position is being endangered, such as staff personnel or top executives; Cultural resistance: systems and procedures that influence the status quo, promotes conformity to existing values, norms and assumptions about how things work (Cummings T. & C. Worley 2008, p ). 19

21 Resistance to change can be dealt with through three major strategies: 1. Strategy based on empathy and support: A strategy based on understanding how people experience change and by this it becomes easier to identify people who are afraid for change, the reason of resistance, and the options to overcome this: However, a good understanding and support is required. Furthermore it is also required to exclude judgement, thus to be able to place once self in the shoes of another person: active listening. If the people who have to undergo the changes feel that they are listened to and understood, resistance will be less and they will be open. An open relationship provides more clarity of the resistance, and could also be a basis for creating joint solutions for the barriers; 2. Communication strategy: People become defensive against change when the impact of change is unclear. Lack of proper communication could result in speculations which can lead to fear for change. By making use of a communication strategy a better understanding and less resistance to change could be achieved. On the other hand communication can also be a complex issue to manage change. The best strategy which can be used to effectively communicate with organization members is, by making use of presentations and meetings, rather than by s or memos; 3. Strategy of participation and involvement: Involving personnel directly in the planning and implementing processes of change. This can lead to the creation of high-quality changes and immediately overcoming resistance for implementing action. Members get the opportunity to help thinking, share ideas and identify possible barriers of implementation. If interests and needs of organization members are being met, a commitment could be developed to support implementation. For persons who feel the need to be involved within the process, the act of participation can be a big stimulation, thus leading to a bigger success in implementing change (Cummings T. & C. Worley 2008, p.167). 20