Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

Organizational Design in Modern Firms and the Role of Corporate Management: Relationships of Organizational Change with
Trust and Creative Capacity
Nobuhiko Yamanaka,

Graduate School of Business Administration, Rikkyo University
Japan Academy of Management E-mail: n_yamanaka@rikkyo.ac.jp
Abstract
This study seeks to determine whether employees’ trust in management and the company
itself has any effects on organizational change. In particular, this seeks to reveal its effects onorganizational design changes undertaken in response to a major strategic challenge facing companies today: how to stimulate innovation and creative capacity.
The results of analysis demonstrate that institutional changes in an organization influences employee trust in management, which in turn acts to mediate the effectiveness of organizational changes. Initiatives that involve what this study identified as “comprehensive change”
can raise trust in management, avoiding morale problems and helping companies to unleash
their creative capacity. On the other hand, so-called “cost-cutting, flattening change” risks damaging employee trust in management and can bring about severe morale problems.
These findings suggest the importance of integration in organizational design and emphasize the essential roles for corporate management in the development of healthy social structures and relationships in the businesses.
Key words: Organizational design, morale, complementarity, trust, creative capacity(1) Study Background and Purpose

to attempts to accomplish strategic tasks

Discontinuous change in the modern

more effectively in the face of environmental

business environment has forced many com-

turbulence. Let us assume that businesses to-panies to reconsider their organizational de-day face the dual challenge of how to innovatesign. Initiatives to review traditional organi-in order to generate added value discernible

zational designs and explore new ones areto customers, and how to unleash their organ-spreading in Japanese firms as well. A busi-

ization’s creative capacity to deliver that inno-

ness organization can be understood as an in-vation. In this light, organizational change instrumental system configured to achieve athe modern era can be interpreted as a tech-

unique objective. From this perspective, we

nical challenge: what kind of organizational

can conclude that the institutional transfor-

design(s) should businesses choose to effec-

mations in Japanese firms today correspondtively encourage employees to innovate and to12

Journal of Japanese Management Vol.2, No.2, May 2018

deploy this creative capacity?

ISSN 2189-9592

be defined as “a psychological state compris-

However, business organizations con-ing the intention to accept vulnerability based

sist of two layers, corresponding to their tech-upon positive expectations of the intentions ornical structure and their social structure.

behavior of another” (Rousseau et al., 1998, p.

Businesses can only improve the effectiveness395). Odaka identified “trust” in work col-and efficiency in technical terms by “genuine

leagues, managers, and supervisors as essen-

fostering in their employees a will to work”

tial components of organizational morale

through ensuring “development of healthy so-(Odaka, 1981, pp. 390-391). Accordingly,

cial structures and relationships in the busi-“trust” in an organization and managementness” (Mohri, 1965, p. 21). Viewing organiza-

should be essential for dealing with moraletional design as a mere technical problem lim-

problems associatedits our understanding to only one side of thechange.

withorganizational

story. While organizational design indeed has

Executing organizational changes istechnical aspects, it must also be recognizedassociated with high risk: while the effects are

as a social issue: i.e., how to ensure “develop-

felt throughout the whole firm, there is noment of healthy social structures and rela-guarantee the efforts will be successful. The

tionships in the business” to instill in employ-mere presence of risk can generate anxiety

ees this “will to work”.

and confusion among employees, which inMany problems are known to occur

turn can easily trigger serious morale prob-

during the organizational change process, in-lems. Accordingly, protecting employee mo-cluding decreased willingness to work, unco-rale by promoting coordination and collabora-

operative attitudes, and low morale due to re-tion within the organization in order to im-

sistance or opposition to the change process,prove cohesion is indispensable to the successor simply confusion, among employees andof organizational changes.

managers alike. This paper refers to these in-This means that organizational change

clusively as “morale problems” associateddemands leadership as well, to “offer direction

with organizational change. Dealing with mo-and then motivate others to believe and to fol-rale problems means addressing “social struc-low” (Roberts, 2004, p. 284). Whether leader-tures and relationships in the business”,

ship can succeed or not would seem to depend

which often determine the success or failureon the level of trust employees and managersof organizational changes. Management isalike have in their company and its manage-tasked with the important responsibility ofment personnel. This is because trust in asolving them in their role as the “designers” ofcompany and its management are necessary

an organization (Roberts, 2004, p. 12).

prerequisites to overcoming the morale prob-

In interpersonal relationships, whenlems associated with organizational changes

ensuring the intentions and behavior of otherand ensuring those changes take root, serving

people are appropriate comes with certain

as a basis for the legitimacy of corporate lead-risks and when the achievement of interests

ership and a foundation for their support.

of an individual may depend on another per-Organizational trust is also essential toson, trust is essential in these case. Trust can
13

Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

enabling innovation and unleashing the crea-

stimulating innovation and unleashing an or-

tive capacity of a company. Bellah et al. write

ganization’s creative capacity, nor how moralethat “the productivity of a high-tech company

problems associated with these changes re-resides in the quality of its workforce, in thelate to their success or failure.

competence and responsibility of individuals,

One study whose findings bear signifi-

but also, critically, in the trust they have incance on this research topic is that of Inoueeach other to nurture creativity and innova-(2004). Inoue analyzed the so-called “selectiontion”, and that companies need “persons whoand concentration” strategies adopted by Jap-

trust each other and genuinely enjoy working

anese electronics and information-related

together” (Bellah et al., 1991, p. 94). This

companies, and how they were complemented

claim implies that individuals within an or-

by organizational changes such as hierar-

ganization need to form trusting relationships

chical flattening, decentralization of authority,with each other in order for a given organiza-

subcontracting, and departmental consolida-tional design to successfully stimulate its em-tion. He found that measures such as cost-cut-ployees to innovate and unleash their creative

ting, subcontracting, and reductions of busi-

capacity.

ness scale were compatible with the pursuit ofThis study is an attempt to address the“efficiency” (typified by cost-cutting). He also

issues defined above. Namely, it seeks to de-found, however, their efforts to externalize

termine whether employees’ trust in manage-

business and reduce scale acted to inhibit

ment and the company itself has any effects

their “effectiveness” (e.g. in creating market

on organizational change. In particular, itvalue).

seeks to reveal its effects on organizational

One of his observations on companies’

design changes undertaken in response to a“selective withdrawal” in particular is very in-

major strategic challenge facing companies

teresting and relevant to the research prob-

today: how to stimulate innovation and crea-

lem at hand: corporate readiness to external-

tive capacity.

ize business operations actually lowered employee morale, reducing their “commitment(2) Preceding Researchand tenacity to work”, and impeded their abil-

1. Organizational Change and Morale Prob-

ity to solve problems creatively to generate in-lems at Japanese Firms

novative products and services (Inoue, 2004,

Since the 1990s, Japanese firms have102). Inoue’s findings reveal that while mod-attempted to transform their organizational

ern Japanese firms have made considerable

structures in various ways to adapt to rapidchanges to their operational structures, thosechanges in business environments. However,same changes have led to their own inextrica-

few studies have endeavored to clarify the ac-ble problems. At the same time, they suggest

tual results of these transformations, northat morale issues due to certain kinds of or-

their impacts or positive effects. Moreover, itganizational change can hinder companies

is rarely obvious how the organizationalfrom exercising their full creative capacity.

changes in Japanese firms in recent years re-

The present study seeks to investigate suchlate to the modern, strategic challenge of14

Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

morale problems from the perspective of or-

be mediated by their trust in management. In

ganizational trust.

his words: “Employees support managerial
behaviors intended to increase shareholder

2. Trust in Japanese Firms

value as their trust in management grows.

Trust has become an interdisciplinary

Conversely, their support for shareholder

topic, with research efforts spanning different

value-centric management falls as their trust

disciplines such as economics, psychology, andin management decreases” (Miyamoto, 2008,

sociology. Japanese organizational research is

pp.99-100). Miyamoto’s

no exception. In one study, Hino focused on

strates that employee attitudes, and particu-

the relationship between “leaders” and “fol-larly their trust in their managers and thelowers” in an organization. Along with deter-

company itself, are important factors to con-mining several factors necessary for the for-sider during management reforms and organ-mation of trust in leaders among followers, heizational changes, as the perspectives of or-revealed that this formation was cruciallyganizational members can crucially impact

necessary for leadership to function (Hino,

their potential for success. Building on this2010). Another study, directly relevant to thisbody of work, the present study hypothesizes

study’s research problem, is that of Tatsu-

that the success and effectiveness of organiza-

michi, who conducted a survey of employees

tional changes intended to facilitate innova-of Japanese firms looking at changes in theirtion and unleash the creative capacity of firms

attitudes towards their company and man-are mediated by trust among members of theagement personnel. Based on the results, heorganization.

researchdemon-

claimed that in the midst of recent reforms inpersonnel systems, that “a ‘chasm’ of some(3) Theoretical Framework and Variable Con-kind seems to have formed between employ-

figuration

ees and their company, and moreover between

The theoretical framework of Whitting-them and management” (Tatsumichi, 2006,

ton and Pettigrew’s “innovative forms of or-

p.285). His findings suggest that the trustingganizing” was adopted to guide this study’s

relationships between employees and theirvariable configuration and analysis. These

companies and managers may have incurredscholars argued that dramatic changes insome damage in Japanese firms as they con-business environments, such as the transition

tinue to evolve and implement organizational

to the globalized economy and the knowledge-changes.

based economy, encouraged modern enter-

The relation between institutional

prises to introduce “innovative forms of or-transformations in Japanese firms and organ-ganizing”. Along with real examples in Euro-izational trust was also analyzed by Miya-pean firms, they showed how different forms

moto: specifically, as the relation between re-

had complementary effects within organiza-

cent corporate governance reforms and em-tions. Their analysis demonstrated how “com-ployee trust. Finding unexpectedly high sup-plementarities” are essential to their success-port among employees for shareholder-ori-

ful introduction, and that companies could

ented governance, Miyamoto attributed it to15

Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

suffer harm by failing to achieve mutual com-

For the latter, they would be asked to what

plementarity between disparate organizing

extent their organization produced real, tan-

forms, calling this phenomenon “the dangers

gible creative results. These were both subjec-

of partial change” (Whittington et al., 1999).

tive measures in the sense that their scores

Whittington and Pettigrew’s research pro-depended on the individual perceptions of re-vides us with a useful framework for concep-

spondents: thus, the variables were termed

tualizing and analyzing structural and process changes in modern business organiza-

Subjective Creative Activities and Subjective
Creative Achievements2.

tions, as well as their effects, in a comprehen-

In addition, this study used scale items

sive way.

adopted by Tatsumichi (2006) and Miyamoto

Variables in the present study were(2008) to measure employees’ trust in man-configured to match the dimensional configu-

agement and their organization. Along withration of related research on innovative forms

directly measuring whether or not “manage-of organizing, so as to capture structural andment is trusted”, Tatsumichi’s scale measuresprocess changes in the same framework. To

factors like whether an employee’s “company

operationalize the variables, new scale items

is completely devoted to its employees, even

were created to capture real organizational

when their performance is bad”, and whether

changes underway in Japanese businesses to-“employees are valued”. The scale allows us-

day. The following were set up as organizing

ers to measure employees’ positive expecta-

forms-related variables: hierarchical flattening, strategic decentralization, operational
decentralization, project-based organizational structures, downsizing, IT investment,
communications and systems integration,
strategic restructuring, and outsourcing1.

tions of the intentions and behavior of their

Two other variables, corresponding to(4) Survey Overview and Data Used in Anal-

corporate management, as well as their company overall. Thus, it was incorporated in thepresent study in the variable Trust in Man-

agement3.

creative activities and creative achievements,

ysis

were set up to examine another important

Two approaches were necessary to de-factor: the relationship of organizational

scribe and understand the actual operations

changes with innovation and creative capacity.

of firms in terms of the underlying organiza-

For the former, employees would be asked totional structures and processes controlling

what extent their organization carried out in-them. First, to learn how different individuals

itiatives and efforts aimed at creative results.
1

There is insufficient space to describe the items
composing each variable. Suffice to say, the variables
had sufficiently high internal consistency for analysis
purposes (the lowest reliability coefficient observed
for any variable was 0.793, for “outsourcing”).
2
Subjective Creative Activities consisted of 5 items
such as “My company develops new products andservices ahead of our competitors”, while Subjective

Creative Achievements consisted of 3 items such as“My company has increased the number of new
products and services offered in the past 2 years”.
Their respective reliability coefficients were 0.934
and 0.831.
3
The reliability coefficient of this variable based on
Tatsumichi’s scale ietms was 0.920.
16

Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

within organizations perceive those struc-dividuals within their organization. In addi-

tures and processes as ‘social realities’ in theirtion, readers should also keep in mind thatworkplace; second, to determine the percep-

since data about organizational structural

tions and expectations of management, as

characteristics, perceptions of management,

well as an organization itself, by its constitu-

and creative activities and achievements

ent members.

were all collected from the same individuals,

To this end, a survey was administered

the potential for common method bias cannot

to general employees and management per-be completely eliminated.

sonnel employed in different departments in

In total, 300 responses were collected;

a variety of organizations. The survey was ad-

186 were analyzed after excluding individuals

ministered through the internet in January

who responded “Unknown” to questions about2014 to general employees and managerial

the capital and sales of their firm. Comparedpersonnel working at private companies inwith national averages, a somewhat greater

Japan4.

proportion of respondents were employed in

Sampling bias, specifically in terms ofthe manufacturing industry, and a greater

respondent attributes, in a problem that has

proportion at large enterprises (althoughbeen identified with internet surveys, andthere was no shortage of employees of small

could not be avoided in this study. However,

and medium enterprises). Further, many re-

problems have also been noted for conven-spondents worked in sales or R&D depart-tional surveys, such as difficulties in re-ments, and many were clerical workers; how-

trieval: the internet survey methodology was

ever, there also many individuals in profes-

adopted based on a decision to prioritize datasional occupations. Other notable characteris-collection. In addition, the survey was admin-tics of the sample included the fact that overistered to individuals, based on the study’s

40% were senior officials (i.e., designation of

motive of understanding organizational reali-“Chief/Head” or higher), and a somewhat highties from the perspective of individual em-

number over 40 years old.

ployees: this meant sample representative-

The effects of industry type, company

ness was another potential issue with thesize, department, and managerial staff

data. Nevertheless, this method was still(yes/no) were controlled for in analysis by in-deemed suitable for the study, given the dual

serting these factors as control variables.

objectives of determining various organizational members’ perspectives about corporate(5) Analysis Results

management and company overall, and un-

1. Derivation of Organizational Change Pat-

derstanding their ‘organizational realities’ as

terns

the real social environment experienced by in-

Two major characteristics of organiza-

4This survey was conducted as part of a 2009 Strategic Research Foundation Grant-aided Project forPrivate Universities from the Ministry of Education,
Culture, Sports, Science and Technology: Practical

Research on Intelligently Designed Enterprises andOrganizations and Personnel Development Techniques Built by Business Creators.
17

Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

tional changes in Japanese firms were appar-

tablishing or closing departments, or reduc-ent based on whether and to what extent eaching the number of management personnel orof the specific organizing forms described

official positions.

above were confirmed by respondents:

However, we know from the work of In-

1) Firms tended to implement changes

oue, Whittington and others that organizing

to a project-based organizational structure,forms are more effective when introduced in a

focusing on company-wide cost reductions

mutually complementary way, rather thanand reviewing their businesses and opera-

separately. Assuming this holds true here, wetions;

can imagine that organizing forms are put2) Firms tended to emphasize rigorous

into practice in certain combinations or ‘units’,review of the responsibilities of operationaland further that these units tend to follow cer-managers, along with information sharing,tain patterns. This study derived these ‘pat-cooperation, and support within the organiza-

terns’ via principal component analysis, in antion. However, they seldom implemented ap-

attempt to determine the major trends under-

proaches such as strategic or operational de-lying institutional transformations in Japan.

centralization, hierarchical flattening, dises-

Two principal components were extrac-

Table 1. PCA Findings for Organizing Forms
Organizing Form Variablehierarchical flattening
strategic decentralization
operational decentralization
project-based organizational structures
downsizing
IT investmentcommunications and systems integration
strategic restructuringoutsourcing

PC1
0.728
0.895
0.848
0.786
0.655
0.796
0.762
0.866
0.596

PC2
0.492
-0.149-0.270-0.2110.599-0.376-0.4770.110
0.578

eigenvalue
percentage of variancecumulative variance5.416
60.17560.1751.456
16.17576.35

ted in the analysis (PC1 and PC2:Table 1).

and outsourcing, but negative loadings for IT

PC1 exhibited high factor loadings andinvestment and communications and systems

positive correlations for all organizing form-

integration. In other words, this change pat-

related variables. Given that all organizing

tern was characterized by the reduction offorms are promoted in a comprehensive man-both business cost and operational scope, with

ner in this change pattern, we can term thisan accompanying increase in external pro-component Comprehensive Change. PC2, on

curement, while failing to maintain invest-

the other hand, showed high factor loadings

ments in IT and efforts at intra-firm integra-

and positive correlations for organizing forms

tion. Accordingly, we can term this component

Cost-cutting, Flattening Change. The above

such as hierarchical flattening, downsizing,18

Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

Creative Achievements (Model 4);

analysis revealed the existence of two patterns in organizational changes: Comprehen-3) Independent variables = Compre-

sive Change and Cost-Cutting, Flatteningchange.

hensive Change, Cost-Reducing, Flattening
Change, and Trust in Management; dependent variable = Subjective Creative Activities(Model 3) or Subjective Creative Achievements (Model 5).

2. Relationship of Creative Capacity with Organizational Change and Trust in Management

Three things needed to be shown for
The study next sought to analyze how

the mediating effects of trust in management

firms’ utilization of their creative capacity re-

to be confirmed: in 1), organizational change

lated to these organizational change patterns,

patterns needed to affect trust in manage-and moreover how trust in management af-

ment; in 2), organizational change patterns

fected this relationship. According to our hy-

needed to affect firms’ creative capacity; andpothetical framework outlined above, institu-

in 3), trust in management needed to affectedtional transformations inevitably generate re-firms’ creative capacity, and the effect of or-sistance, confusion, and opposition within an

ganizational change patterns on firms’ crea-organization. However, the present of trust intive capacity needed to be smaller than in 2)

a firm’s management can avoid the conse-(Baron and Kenny, 1986, p.1177).

quent dysfunction and diminished morale, al-

The results for Model 1 in Table 2

lowing these transformations to take hold anddemonstrate that comprehensive change in-

effect. In short, organizational change is pre-creases trust in management, while cost-cut-

sumed to be mediated by trust in manage-ting, flattening change decreases it.

ment, which influences the consequences ofMoreover, trust in management medi-

any institutional change: its effects should be

ated the effects of both types of change pat-

especially strong on organizational changes

tern on both creative activities (Models 2, 3)

aimed at liberating the creative capacity of aand creative achievements (Models 4, 5). Be-

firm.

sides, the value of adjusted R square is higher
The mediating effects of trust in man-in mediation models (Models 3 and 5) than inagement were analyzed according to the pro-models without mediator (Models 2 and 4).

cedure of Baron and Kenny (1986). Several

This suggests that mediation models explain

models were constructed:

the effect of organizational change on firms’

1) Independent variables = Compre-

creative capacity better than otherwise.

hensive Change and Cost-Cutting, Flattening
Change (i.e., their principal componentscores); dependent variable = Trust in Management (Model 1);
2) Independent variables = Comprehensive Change and Cost-Reducing, Flattening Change; dependent variable = Subjective
Creative Activities (Model 2) or Subjective
19

Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

Table 2. Mediation Analysis Findings for Trust in Management
Subjective
Creative
Activities

Subjective
Creative
Activities

M odel 1

M odel 2

M odel 3

M odel 4

M odel 5

Dependent
Trust in
Variable M anagement

Subjective
Subjective
Creative
Creative
Achievements Achievements

Comprehensive
ChangeCost-cutting,
Flattening
ChangeTrust inM anagement.587**.583**.365**.538**.271**-.452**-.278**-.102-.199**

.016

R^2

.647

.532

.591

.479

.562

Adj. R^2

.563

.418

.486

.354

.451

F value

7.687**

4.693**

5.633**

3.829**

5.055**

1.141-2.403

1.127-2.803

1.126-2.380

1.130-2.834

155

153

156

154

.374**

VIF 1.123-2.419
N

157.457**† p < .1, * p < .05, ** p < .01(6) Conclusions and Future Challenges

if the change embodies certain specific char-

The study findings demonstrate that

acteristics, confidence in management will beinstitutional changes in an organization influ-

strengthened, and the effects of the changeences employee trust in management, which

potentiated. Along with alluding to the im-in turn acts to mediate the effectiveness of

portance of integration in organizational de-these changes. Initiatives that involve whatsign—the big-picture perspective that takes

comprehensive

into account the entire situation of an enter-change—i.e., promoting intra-firm integra-

prise—the findings suggest that the develop-

tion, decentralization, and IT investment
alongside flattening and outsourcing—canment of healthy social structures within businesses serve to complement and effectuate in-raise trust in management, avoiding morale

stitutional changes. Corporate management

problems and helping companies to unleash

shoulder essential roles in the task of design-

their creative capacity. Whereas, so-called

ing an organization: they must not only foster

cost-cutting, flattening change risks damag-

trust in management among company em-

ing employee trust in management and canployees, but also ensure the development ofbring about severe morale problems. Put an-

healthy social structures and relationships

other way, the consequences of an institu-

within the firm, which can serve as a founda-

tional change seem to depend on the contentstion for smooth collaboration. This fact mustof the change itself. Poorly configured change

be acknowledged today anew.

this

study

identified

ascan damage trust in management, and trigger

This study nonetheless has a few limi-

resistance, confusion, and the loss of working

tations. For one, “trust”, “morale”, and othermotivation within an organization. However,constructs fundamental to the study hypothe20

Journal of Japanese Management Vol.2, No.2, May 2018ISSN 2189-9592

sis were not directly measured or analyzed.

Hino, K. (2010). Leadership to Follower Appro-

New theoretical and empirical investigations

ach (Leadership and Follower Approach).

of these constructs are necessary. Second, me-

Bunshindo.

diation analysis does not reveal anything

Inoue, T. (2004). ‘Sentaku to shuchu’ to kigyo

about the cause-effect relationship of a phe-soshiki: saihen pattern 4 ruikei nonomenon. Case studies and other methods

kenshutsu (‘Selection and Concentration’should be adopted to help elucidate the cau-and Corporate Organization - Four Types

sality of the relationships identified here.

of Reorganization Patterns). In: Sentaku

Third, the survey methodology meant thatto shuchu: nihon no denki/ jouhou kanren

sample representativeness could not be en-

kigyou ni okeru jittai bunseki (Selection

sured, and common method bias could not be

and Concentration: An Empirical Analy-

controlled for. Additionally, the priority placed

sis of Electronics and Information Tech-on effective data collection was inextricably

nology Firms in Japan), T. Tsuru, Japa-

associated with limitations on the data avail-nese Electrical Electronic & Information

able for analysis, suggesting the study

Union (Eds.). Yuhikaku. pp. 53-104.

method could use improvement. Readers

Miyamoto, M. (2008). Nihon no jugyoin ha nazeshould proceed with caution to avoid general-kabunushijushi no corporate governanceizing the study findings in an over-simplistic

wo shiji surunoka (Why do Japan’s Em-

way. New investigations should be conductedployees Support Shareholder-oriented

to improve on this study’s weaknesses andCorporatevalidate its findings.

touchi bunseki no Frontier (Frontiers in

Governance?).

Corporate GovernanceAcknowledgments

In:

KigyouAnalysis),H.

Miyajima (Ed.). Nippon Hyoron sha. pp.

I would like to express my gratitude to

84-111.

the anonymous reviewers for careful reading

Mohri, S. (1965). Keieikanri soron (Generaland informative comments. I also would like to

Theory in Business Administration), 2ndshow my gratitude to the president, directors

Ed. Chikura Shobō.
Odaka, K. (1981). Sangyo shakaigaku kougi

and colleagues of Japan Academy of Management for the academic support.

(Lectureson

Industrial

Sociology).

Iwanami Shoten.
Roberts, J. (2004). The Modern Firm: Organiza-

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(Received: December 29, 2018)(Accepted: March 15, 2018)22