"An organisation is a consciously managed and coordinated social entity, with an identifiable boundary, which functions on a relatively continuous basis to achieve a common goal or set of goals."
The above definition implies that:
There is a management hierarchy involved in decision making in the organisation.
The unit is composed of people or groups of people who interact with each other.
Organisations have a boundary that differentiates who is and who is not a part of the organization. Organization’s boundary can be created through explicit or implicit contracts between members and their organisation (e.g. contract of employment).
Organisations exist to achieve something and it is reflected in the organisation’s goals.
Organisation structure defines:
how tasks are to be allocated
what the areas of responsibility and authority of each employee are
what are the reporting relationships
the formal coordinating mechanisms and interaction patterns that will be followed in the organization
Organization’s structure has three components:
It is important to recognise that an organization is not either centralized or decentralized. Organisations tend to be centralized or tend to be decentralized. The same applies to the concepts of complexity and formalisation.
Organization design is concerned with constructing and changing an organization’s structure to achieve the organization’s goals. Organization theory includes the study of the structure and design of organizations. Organizational behaviour is the study of the way in which individuals and teams behave in the workplace.
A system is a set of interrelated and interdependent parts which interact to produce a unified output. A systems perspective offers important insight into how organizations operate.
Organizations can be considered to be systems – inputs go through a transformation process to emerge as outputs that are different in form to the inputs.
Systems are usually classified as either closed or open. A closed-system is a system that is self-contained – it essentially ignores the effect of the environment on the system and does not interact with it. An open system recognizes the interaction of the system with its environment and its dependence upon it.
Characteristics of an open system are:
Environment awareness – open systems acknowledge the interdependence between the system and its environment. In an open system it is recognized that changes in the environment affect one or more of the systems and subsystems and changes in the system affect its environment.
Feedback – open systems receive feedback from their environment. That is, they absorb information which helps the system to understand and adjust to environmental changes by taking corrective action to rectify deviations from its planned course.
Cyclical character – open systems consist of cycles of events; the repetition of the cycle is possible as a system’s outputs furnish the means for new inputs.
Tendency towards growth – open systems import energy from their environments and consequently they are able to repair themselves, maintain the structure, avoid death and even grow (as they can import more energy than they put out).
Steady state – there is generally a balance between inputs from the environment and those spent to counteract the terminating of the system. As a result, the system experiences a relatively steady state with the character of the system remaining almost unchanged over long periods of time.
Movement towards growth and expansion – the many subsystems within the system usually import more energy from the environment than is required for the system’s output. Consequently, the steady state is applicable to simple systems but, at more complex levels, becomes one of preserving the character of the system through growth and expansion.
Balance of maintenance and adaptive activities – open systems seek to achieve the balance between two sets of activities:
Maintenance activities are those activities which ensure that the various subsystems are in balance and that the total system conforms to its environment. This, in effect, prevents rapid changes that may unbalance the system. Examples of the maintenance activities are: the purchase, maintenance, and repair of machinery; the introduction and enforcement of rules and procedures.
Adaptive activities are necessary so that the system can adjust over time to variations in internal and external demands. Examples of adaptive activities are: planning, market research, and recruitment.
Equifinality – the concept of equifinality argues that a system can reach the same final state from differing initial conditions and by a variety of paths. In other words, an organizational system can accomplish its objectives with varied inputs and transformation processes.
The organisational life cycle refers to the pattern of predictable change through which the organization moves from start-up to dissolution. It is important to be aware that:
there are distinct stages through which organizations proceed
the stages follow a consistent pattern
the transition from one stage to another is a predictable rather than a random occurrence
Marketers identify that products move through four stages:
An organization’s life cycle follows a five-stage model:
Entrepreneurial stage – this is when the organization is in its formative years. At this stage:
Goals tend to be fluid or ambiguous.
Creativity and managerial input is high.
In order to progress to the next stage an organization needs to acquire and maintain a steady supply of resources (e.g. capital and labour).
Collectivity stage – at this stage the organization’s mission is clarified and its chances of survival have increased. The innovation from the earlier stage continues. Communication and structure within the organization is still quite informal. The organization is generally quite small, with intensive, hands-on management.
Formalization-and-control stage – at this stage the operation of the organization stabilizes (i.e. its production of goods and services becomes more established). Formal rules and procedures are introduced as predictability increases. Innovation is de-emphasized and efficiency and stability become more and more important. Decision making within the organization is clarified and established management positions emerge. At this stage, the organization exists beyond the presence of any one individual. As the roles within the organization have been clarified and defined the changes in organizational membership do not cause a threat to the organization.
Elaboration-of-structure stage – at this point, the organization has reached a large size with the characteristics of a bureaucracy. Management searches for new products and growth opportunities. The organization structure becomes more complex and elaborated. Decision making is decentralized.
Decline stage – as a result of competition, poor management, etc. the organization at this stage experiences falling demand for its products or services. Employee turnover is high and decision making becomes more centralized. Eventually organization ceases to exist.
Most important approaches to research in the organization theory field are:
Positivism is an assumption that the world may be known and improved by extending knowledge through research. Positivism leads to the development of normative theories. That is, researchers try to develop theories that are applicable across a wide range of situations.
Critical theory is an approach to studying organizations which concentrates on their perceived shortcomings and deficiencies. Critical theorists consider work in a capitalist system as inherently dehumanizing, oppressing and exploitative, particularly of minorities. They also tend to view managers not as an essential part of the organization but as an exploitative group allied with the forces of capital and management as the agent of capital against the worker. Most critical theorists seek to create conditions and organizational structures and practices that promote the emancipation of people.
Postmodernism theorists challenge the claim that science is objective and impartial. They think that it falsely promotes the concept that the world is capable of being known and controlled through reason. They propose that positivist approaches structure knowledge in ways that do not represent what is occurring in organizations. Postmodernists consider knowledge to be socially constructed and interpreted.
In the 18th century the concept of division of labour was developed. Division of labour is the breaking down of tasks into simple components which can be undertaken on a repetitive basis by job specialists. Adam Smith was one of the first to write about the economic advantages of the division of labour and he concluded that the division of labour can bring about significant efficiencies. The introduction of division of labour implied that someone had to:
Decide what to produce.
Decide how to produce it.
Provide the capital equipment and the staff.
Additionally, a far more sophisticated system of exchange was required to trade the outputs of the division of labour. Adam Smith recognized that market forces played this role, and he was the first to describe the role of markets and the price system as mediators in economic exchange (the concept of the ‘invisible hand’).
In the 19th century two major industrial innovations took place: the emergence of mass production and the introduction of railways. These had serious implications on organization theory.
The development of the mass production system became the basis of the modern industrial structure, with workers, lower- and middle management, and general managers. New departments emerged to improve flows of information and assist management control (e.g. accounting and planning) and to promote innovation and the introduction of new techniques and products (e.g. research and development).
The development of railways was also quite influential. Railways were very knowledge and labour intensive and large numbers of people had to be employed with many different job specialisations. The railways were structured along departmental lines, with each department specialising in a particular task - this promoted effective work effort and minimized complexity. Additionally, clear lines of authority were introduced and areas of responsibility spelt out.
The main aim of theorists during the 1900-1930s was to identify universal principles and management techniques that could be applied in a workplace. The output of the various theorists from that period is called the classical school. Although many different approaches were developed at that time, the classical theorists had in common the view that organizations were established, and managed, to achieve rational goals (e.g. profit). They viewed the ideal organization as a closed system created to achieve goals efficiently.
Frederick Winslow Taylor was a mechanical engineer who after years of conducting experiments with workers proposed four principles of scientific management, which, according to him, would result in significant increases in productivity. These principles are:
The replacement of inexact methods for determining each element of a worker’s job with scientific determination.
The scientific selection and training of workers.
The cooperation of management and labour to accomplish work objectives, in accordance with the scientific method.
A more equal division of responsibility between managers and workers (he proposed that the managers should focus on the planning and supervising, while the employees should focus on the execution).
Taylor’s approach was widely criticised by workers for the shift in power from the worker to the manager, which leads to centralization in organizations.
The Frenchman Henri Fayol developed principles of organization. Fayol was more concerned with the problems of management than Taylor, thus he attempted to develop general principles applicable to all managers at all levels of the organization. He proposed 14 principles that, according to him, were universally applicable. These are:
Division of work – specialisation increases output as employees become more efficient.
Authority – it gives managers ability to give orders. To be effective, a manager’s authority must equal his or her responsibility.
Discipline – employees should obey and respect the rules that govern the organization. Effective leadership, a clear understanding between management and workers regarding the rules, and the sensible use of penalties for violation of the rules provide for a good discipline in a workplace.
Unity of command – every employee should receive orders from only one superior.
Unity of direction – each group of organizational activities that have the same objective should be directed by one manager using one plan.
Subordination of individual interests to the general interest – the interests of any one employee or group of employees should not take precedence over the interests of the organization as a whole.
Remuneration – workers must be paid a fair wage for their services.
Centralization – whether decision making is centralized (to management) or decentralized (to subordinates) is a question of proper proportion; thus, the challenge is to find the optimum degree of centralization for each situation.
Scalar chain – the line of authority from top management to the lowest ranks represents the scalar chain and communications should follow this chain. Cross-communication can be allowed if agreed to by all parties and if superiors are kept informed.
Order – people and materials should be in the right place at the right time.
Equity – managers should be kind and fair to their subordinates.
Stability of the tenure of personnel – managers should provide systematic personnel planning and ensure that replacements are available to fill vacancies. They should keep in mind that high employee turnover is inefficient
Initiative – employees who are allowed to originate and carry out plans will exert high levels of effort.
Esprit the corps – promoting team spirit will build harmony and unity within the organization.
The German sociologist, Max Weber proposed the ‘ideal-type’ organization structure. He developed a structural model that, according to him, was the most efficient means by which organizations could achieve their ends.
He called this ideal structure bureaucracy. Such an organization was characterized by:
Division of labour.
A clear authority hierarchy.
Formal selection procedures.
Detailed rules and regulations.
Impersonal relationships.
Yet another contribution of the classical theorists is the rational-planning perspective. Ralph C. Davis proposed that structure was the logical outcome of the organization’s objectives. The rational-planning perspective offered a simple and straightforward model for designing an organization – because management’s formal planning determines the organization’s objectives, these objectives determine the development of structure, the flow of authority and other relationships.
During the 1930s-1960s the main aim of theorists was to accommodate human needs in work practices with the focus on individual and group work. They looked at achievement of social goals with a closed system perspective. It became clear to these researchers that the motivations and actions of the workforce had a major impact on organizational effectiveness. They recognized the social nature of organizations and viewed organizations as made up of both tasks and people. Their movement is called the human relations school.
Elton Mayo was an academic researcher involved in experiments being undertaken between 1924 and 1927 at an electrical manufacturing plant in the United States. His research became known as the Hawthorne studies. These studies emerged from work being undertaken by industrial engineers at the Hawthorne plant. They examined the effect of various lighting levels on worker productivity. Over the years, numerous additional experiments covering the redesign of jobs, changes in the length of the work day and work week, and introduction of rest periods were undertaken. The Hawthorne studies had a dramatic impact on the direction of management and organization theory. The outcome of the experiments caused that managers no longer considered the issue of organization design without including the effects on work groups, employee attitudes, and manager-employee relationships.
The notion that an organization is a cooperative system is generally credited to Chester Barnard. He merged the ideas of Taylor, Fayol, and Weber with the results from the Hawthorne studies. As cooperative systems, organizations should be seen as composed of tasks and people that have to be maintained at an equilibrium state. Attention only to technical jobs or to the needs of people who do the jobs sub-optimizes the system. Consequently, management should organize around the requirements of the tasks to be performed and the needs of the people who will perform them. Barnard challenged the classical view that authority flowed from the top down by arguing that authority should be defined in terms of the response of the subordinate; he introduced to organization theory the role of the informal organization; and he proposed that the manager’s major roles were to facilitate communication and to stimulate subordinates to high levels of effort.
Another important approach from that time was developed by Douglas McGregor. He proposed two distinct views of human beings Theory X and Theory Y.
McGregor concluded that management’s view of the nature of human beings is based on a certain grouping of assumptions and on the fact that managers style their behaviour towards employees based on those assumptions.
Under Theory X, management’s assumptions are quite negative. Managers tend to think that:
Employees dislike their work and, whenever possible, will attempt to avoid it.
As employees dislike work, they must be persuaded, controlled or threatened with punishment to achieve desired goals.
Employees will avoid responsibilities and seek formal direction whenever possible.
Most workers are not very ambitious as they place security above all other factors associated with work.
Under Theory Y, management’s assumptions are rather positive:
Employees can view work as something completely natural.
Employees will exercise self-direction and self-control if they are committed to the objectives.
Employees can learn to accept and even seek responsibility.
Most people can handle responsibility because creativity (the ability to make good decisions) and ingenuity are common in the population.
McGregor argued that Theory Y assumptions were preferable and that they should guide managers in the way they design their organizations and motivate their employees.
In the 1950s-1970s theorists were concerned with improving the manageability and decision-making processes of organizations.
The Peter Principle was proposed by Laurence Peter and Raymond Hull. They suggested that in large, stable, hierarchical bureaucracies which offered lifetime employment, managers would be promoted until they reached a level at which they were incompetent. This meant that in the absence of redundancies and downsizing, many managers were essentially incompetent, limiting the amount of effective work being accomplished in the organization.
Parkinson’s laws – C. Northcote Parkinson proposed a number of laws relating to organizations. The best known of these is that work expands to fill the time available for its completion. Another of Parkinson’s laws noted that in meetings the time spent on any item on an agenda is in inverse proportion to its importance.
Herbert Simon proposed that the assumption of rationality in decision making, as typified by ‘economic man’ is misplaced. He suggested the term ‘administrative man’ to describe decision-making behaviour. According to him, rational decision makers sought to optimise the outcomes of decision making, while ‘administrative man’ was satisfied with adopting a course of action that was barely satisfactory or ‘good enough.’ Simon proposed that decision making could be placed upon a continuum with programmed and non-programmed decision making at either end. He suggested that advances in information technology would lead to a move towards programmed decision making and, hence, greater rationality in decision making.
In the 1960s-1980s theorists focused on determining the most appropriate structural form. They looked at achievement of rational goals with an open systems perspective.
The Contingency Approach views the structure of organizations as contingent. It means that the structure is dependent on pressures that can be identified and analyzed. The researchers noted that organizations do not have an infinite number of forms, thus their structures could be predictable depending on the contingency factors. One of the main aims of their research was to help with improving organizational effectiveness by, given the contingency factors, providing managers with guidance as to the most appropriate structure.
Research in the 1960s by Joan Woodward, Charles Perrow, and the conceptual framework offered by James Thompson, have made an impressive case for the importance of technology in determining the appropriate structure for an organization. Other researchers looked at the importance of environment and organization size as the factors influencing structure.
Raymond Miles and Charles Snow published a book in which they proposed a categorization of strategy. They argued that in order to successfully implement the chosen strategy the organization needs to adopt an appropriate structure.
A paradigm is a model used as a framework of ideas. Paradigm proliferation refers to the emergence of a number of new frameworks with which to view organizations. These have emerged because the study of organizations is multidisciplinary and also because researchers approach their task from varying perspectives.
Symbolic-interpretive perspective views the organization as a social construct. It considers itself more with behavioural than with structural issues. The approach concentrates on how organizational participants interpret language and symbols in organizations and attribute meanings to relationships between people. It then examines how these interpretations and meanings influence the interactions between organizational participants.
Peters and Waterman popularized the idea that organizational culture had a significant impact on effectiveness. Their observations popularized the view of the culture of business organizations and redirected the research attention of management and business researchers.
A number of other approaches to organization theory have been developed and refined over the past 20 years. These approaches have little in common, which has contributed to the paradigm proliferation in the field.
One of the applications of economics to organization theory is that of agency theory. A manages in an organization has a number of subordinates, who are considered to be the manager’s agents. The manager has the natural motivation to obtain as much benefit from his or her agents as possible, and the agents in turn have the incentive to avoid or otherwise cheat on the contract. The resulting behaviour is an outcome of the bargaining process. Another common application of agency theory is where the managers of a company are the agents of the shareholders.
Agency theory examines these relationships, particularly where there is asymmetrical knowledge – that is, where more is known about the transaction by one party than the other.
Institutional theory claims that organizational responses are often repetitive and products of past actions and practices, thus, over time, responses become institutionalized. These institutionalized practices are often the result of social pressures to conform to convention. As a result, many organizational actions and management decisions are imitations of past practices and many management decisions are seen to be cloning the practices of other successful organizations.
In the 18th century the concept of division of labour was developed. Division of labour is the breaking down of tasks into simple components which can be undertaken on a repetitive basis by job specialists. Adam Smith was one of the first to write about the economic advantages of the division of labour and he concluded that the division of labour can bring about significant efficiencies. The introduction of division of labour implied that someone had to:
Decide what to produce.
Decide how to produce it.
Provide the capital equipment and the staff.
Organizational effectiveness is the degree to which an organization attains its short-term (ends) and long-term (means) goals, the selection of which reflect strategic constituencies in the organization’s environment, the self-interest of the evaluator, and the life stage of the organization.
It is important to remember that a company might be efficient but not effective. However, it is difficult to find a company which is effective but not efficient. Efficiency in resource usage is not a substitute for the wider measure of effectiveness.
There are various approaches to the study of organizational effectiveness, namely:
The Goal-attainment approach states that an organization’s effectiveness should be judged by whether it has achieved what it sets out to achieve (its organizational goals). Examples of organizational goals are:
The goal-attainment approach assumes that organizations are:
Consequently, successful goal accomplishment can be considered an appropriate measure of effectiveness. But the use of goals implies additional assumptions that must be valid if goal attainment is to be a viable measure of effectiveness. These assumptions are:
organizations must have goals;
Disadvantages of the goal-attainment approach are:
Many organizational goals are confidential in order not to become known to competitors. Consequently, it may be difficult to assess whether organizational goals are achieved.
In order to increase the validity of the identified goals managers should:
Some argue that defining effectiveness only in terms of goal attainment results in an incomplete measure of effectiveness. Thus, an organization should also be judged on its ability to:
This means that the organization can maintain itself through a repetitive cycle of activities.
Systems approach views end goals as only one element in a more complex set of criteria. Systems models stress additional criteria that will increase the long-term survival of the organization. These are:
In contrast to the goal-attainment approach, the systems approach focuses on the means necessary to ensure the organization’s continued survival. Thus, it can be said that in the systems approach the main focus is not on the goals but on the way in which those goals are achieved.
One of the implications of the systems approach to effectiveness is that organizations are made up of interrelated subparts and, consequently, if any of these subparts performs poorly, it will negatively affect the performance of the whole system. Additionally, the system needs to acknowledge and interact with important environmental constituencies. In order to survive, the system needs a steady replenishment of resources consumed in production.
However, management needs to remember that the resources of the system are not just physical assets - they also include such intangibles as inventions and patents, brand names, etc. Failure to replenish these as they decay will result in the organization’s decline.
The systems view looks at factors such as:
These measures may be benchmarked against other organizations in the same industry. Table 3.2 on page 84 gives some examples of measurement criteria that could be used.
Another systems application of organizational effectiveness is the concept of added value, developed by John Kay. The cycle of absorbing inputs from the environment, turning them into usable products and services and then marketing these should leave a surplus of cash over and above that needed to maintain the system in its repetitive cycle. This surplus is called the value added, and Kay argued that the larger it is the more successful the company will be. He also argued that a commercial organization that does not add value cannot justify its existence in the long run.
Disadvantages of the systems approach are:
Advantages of the systems approach are:
The strategic-constituencies approach proposes that an effective organization is one that satisfies the demands of those important parts of the environment, the constituencies, from which it requires support for its continued existence. Thus, it seeks to satisfy only those in the environment who can threaten the organization’s survival – that is, the strategic constituencies.
Under this approach, organizations are assumed to exist within an environment where demands are placed on the organization by various important groups, or constituencies.
In such a context, organizational effectiveness becomes an assessment of how successful the organization has been in satisfying those strategic constituencies on which the survival of the organization depends. The ‘political arena’ metaphor highlights that the organization has a number of important constituencies, each with different degrees of power and each trying to have its demands satisfied. Additionally, the strategic-constituencies approach assumes that managers pursue a number of goals and that those selected represent a response to those interest groups that control the resources necessary for the organization to survive.
The stakeholder approach recognizes not only the importance of strategic constituencies but also of those who may not have the political power to influence the existence of the organization or even its direction (e.g. families of workers, environmental activists). Such groups, even though they may not be formally organized as a pressure group, are considered to be affected by the organization and should therefore be considered when important decisions are made.
Disadvantages of the strategic constituencies approach are:
The balanced scorecard, developed by Kaplan and Norton, seeks to balance the various demands on the organization with its capabilities. The main aim of this approach is to provide an integrated measure of organizational effectiveness. Kaplan and Norton suggested that there is no one measure that can assess an organization’s performance or that can focus attention on critical areas of the business; thus, the balanced scorecard attempts to view performance in several areas simultaneously and identify not just results but how the results were achieved.
The various components of the balanced scorecard are illustrated in Figures 3.1a-b on pages 92. The components attempt to identify four basic perspectives facing any organization. These are:
Kaplan and Norton stress that it is possible to have too many measures of organizational performance. They suggest that management should identify just a few goals for each of the four perspectives. The measures developed for each goal should be easy to understand and contribute to deciding whether the goal has been achieved or not.
The disadvantages of the balanced scorecard approach are:
The disadvantages of the balanced scorecard approach are:
Organizational effectiveness is the degree to which an organization attains its short-term (ends) and long-term (means) goals, the selection of which reflect strategic constituencies in the organization’s environment, the self-interest of the evaluator, and the life stage of the organization.
It is important to remember that a company might be efficient but not effective. However, it is difficult to find a company which is effective but not efficient. Efficiency in resource usage is not a substitute for the wider measure of effectiveness.
There are various approaches to the study of organizational effectiveness, namely:
Complexity refers to the degree of differentiation that exists within an organization. There are three factors influencing complexity:
An increase in any of these three factors will increase an organization’s complexity.
Horizontal differentiation refers to the degree to which an organization is separated into different units on the basis of the tasks performed by organizational members, their education and training, and their administrative groupings. It considers the number of different occupational, task, and administrative groupings within the organization. The larger the number of different occupations within an organization that require the specialized knowledge and skills, the more complex the organization will be. This is because diverse skills and orientations make it more difficult for organizational members to communicate and more difficult for management to coordinate their activities.
Job specialization (the division of labour) is the separation of organizational activities into distinct tasks and the assignment of different tasks to different people.
The reasons to use the division of labour are:
Division of labour creates groups of specialists which are normally organised into departments. It leads to the organisation defining areas of responsibility. The areas of responsibility reflect the complexity of the organisation. The greater the complexity of the organisation, the more likely it is that the areas of responsibility of a particular position will be more highly defined.
As specialisation increases, so does complexity. This is because an increase in specialisation requires more sophisticated and expensive methods of coordination and control.
Vertical differentiation is often referred to as the number of layers of management from the lowest level workers to the chief executive officer; it is the depth of the structure of an organisation.
The greater the number of layers of management, the more complex an organisation becomes. The more levels that exist between top management and lower level workers, the greater the potential for communication breakdown, the more difficult it is to coordinate the decisions of managerial personnel, and the more likely it is that decision making will become slower.
Organisations with the same number of employees do not necessarily have the same degree of vertical differentiation. The determining factor is the span of control.
Span of control defines the number of subordinates that a manager can supervise effectively. If this span is wide, managers will have a number of subordinates; if it is narrow, managers will have not many of subordinates. All things being equal, the narrower the span of control, the taller the organisation will be. In other words, the narrower the span of control, the more layers of management the organization will have.
The various layers of management may be classified as follows:
Spatial dispersion refers to the degree to which the location of an organization’s offices, plant and personnel is dispersed. Spatial dispersion is high when the operations of an organization are geographically widely spread. This would apply to large multinational organizations whose operations span the globe.
A lower level of spatial dispersion generally presents fewer problems for management:
A high level of spatial dispersion leads to greater amounts of time and effort, hence cost, in managing these issues.
All in all, it can be concluded that the more complex an organization, the greater the need for effective communication, coordination, and control devices will be. Thus, as complexity increases, so do the demands on management to ensure that differentiated and dispersed activities are working smoothly and together towards achieving the organization’s goals.\
Formalization refers to the degree to which jobs and procedures within the organization are standardized. If a job is highly formalized, those doing the job have a minimum amount of discretion over what is to be done, when it is to be done, and how it should be done - there are clear job descriptions, many organizational rules to follow, and clearly defined procedures covering work processes in the organization. Where formalization is low, employees’ behaviour is relatively non-programmed.
Usually, the simpler and the more repetitive a job is, the higher the degree of formalization will be. Conversely, the greater the professionalization of a job, the less formalized it will be. Employees higher in the organization hierarchy are usually involved in problem-solving that is less repetitive, thus they experience lower levels of the formalization. It can be concluded that formalization is inversely related to level in the organization.
Formalization can be either internal or external. External formalization refers to the process of adopting of certain values and standards of behaviour resulting from a membership of a professional body (e.g. association of architects). Thus, employers who hire members of certain associations can expect that certain standards will become part of formalized behaviour patterns of employees
The most common formalization techniques used by organizations are:
Centralization refers to the degree to which decision making is concentrated at a single point in the organization, normally the top few managers. The term decentralization is used when decision making is widely dispersed within the organization (because management has some limitations on the ability to process large amounts of information effectively, some of the decisions must be delegated to others). Centralization, therefore, is the degree to which the formal authority to make discretionary choice is concentrated in an individual, a unit or a level (usually high in the organization), thus permitting employees (usually low in the organization) minimum input into their work.
Reasons why organization might decentralize are as follows:
Centralization is preferred under certain conditions – some decisions need a broad perspective of top management; in certain situations, centralization provides significant economies; financial and legal decisions tend to be more efficiently made at higher level.
Coordination is the process of integrating the objectives and activities of the separate units of an organization in order to achieve organizational goals efficiently. All organizations require coordination between the various individuals and groups. As complexity increases, so does the need to coordinate the activities of the various organizational members. Lack of adequate coordination may result in efficiency loss (e.g. because staff duplicate work or are idle, wondering what is required of them next).
Coordination may be grouped into:
Programmed coordination – examples are:
Individual coordination – project managers and brand managers are examples for this category. Individual coordination involves the appointment of a person whose main task is to coordinate the work of others. Coordination by hierarchy is also part of individual coordination. That is, when lower level employees have to deal with a unique problem, they often usually turn to their manager for help.
Informal coordination – mutual adjustment is the coordination which results from the voluntary action of organizational members. There is a need for employees to coordinate among themselves on a day-to-day basis and this is usually achieved by face-to-face discussion, formal and informal meetings, emails, etc.
Henry Mintzberg’s work is the most widely used framework on classifying organizations. He argued that there are five basic parts to any organization.
Any one of these five parts can dominate an organization and where each dominates a different organizational form emerges. As a result, there are five distinct design configurations and each one is associated with the domination by one of the five basic parts.
These are:
The simple structure is low in complexity, has little formalization, and has authority centralised in a single person. The simple structure is best described as a flat organization, typical for small businesses, with an organic operating core and almost everyone reporting to a one-person strategic apex where the decision-making power is centralized.
Advantages of the simple structure are:
Disadvantages of the simple structure are:
The simple structure is most useful when:
Machine bureaucracy has highly routine operating tasks that are grouped into functional departments, formalized rules and regulations, centralized authority and decision making which follows the chain of command.
Advantages of the machine bureaucracy are:
Disadvantages of the machine bureaucracy are:
The machine bureaucracy is most useful when:
The divisional structure is a set of autonomous self-contained units, each typically configured as a machine bureaucracy. The dominant part of the divisional structure lies with the middle management that reports to, and is overseen by, a head office (usually located close to a central business district).
The divisional managers usually have a great deal of control over their individual businesses. They hold major strategic and operating decision-making authority in relation to their businesses.
A head office usually provides support services to the divisions (e.g. financial and legal) and evaluates the performance of each division (deciding which division receives capital for investment is based on such evaluation).
Organizations are usually divisionalized according to one of the below criteria:
Advantages of the divisional structure are:
Disadvantages of the divisional structure are:
The divisional structure is most useful when:
The professional bureaucracy is a decentralized configuration in which highly trained specialists form the operating core but where the benefits of standardization and decentralization are still achieved. An example of professional bureaucracy is a university, where the majority of key staff has professional expertise.
The power in this design rests with the operating core because they have the critical skills that the organization needs and they have the autonomy – provided through decentralization – to apply their expertise. The only other part of the professional bureaucracy that has a large complement of employees is the support staff, but their activities are focused on serving the operating core.
The advantages of the professional bureaucracy are:
The disadvantages of the professional bureaucracy are:
The professional bureaucracy is the most useful when:
The adhocracy is a decentralized form which is characterized by:
Adhocracies are usually staffed by professionals with a high level of expertise. Vertical differentiation is low because organization needs to be able to adapt to changing circumstances (and the many levels of administration would restrict it). Coordination is quite extensive as it is important for tasks to be carried out in the correct sequence. The formalization is low - there are few rules and regulations (and they are mostly loose and unwritten) and the technostructure is almost non-existent. The adhocracy is far more intensively coordinated than the professional bureaucracy (people are hired whom main task is to coordinate the activities of others). Additionally, the traditional distinctions between supervisor and employee and line and staff in adhocracies are somehow blurred (as all organizational members are specialists in their distinctive field). Power flows to anyone in the adhocracy with expertise, regardless of his or her position.
The advantages of the adhocracy are:
The disadvantages of the adhocracy are:
The adhocracy is most useful when:
Complexity refers to the degree of differentiation that exists within an organization. There are three factors influencing complexity:
An increase in any of these three factors will increase an organization’s complexity.
Strategy was defined by Chandler as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
It is important to recognize the difference between strategy and tactics. Strategic decisions establish the general purpose and direction of the enterprise and the methods by which they will be achieved, while tactical decisions are concerned with the day-to-day decisions associated with implementing plans and operating the enterprise.
Also, it is important that goals and strategy are not the same. Goals refer to ends, that is, what organization wants to achieve by a certain point in time. Strategy refers to both means and ends, that is, where organization wants to be at some point in the future and how it intends to get there.
There are different approaches as to how strategy is determined. These are:
Planning mode which views strategy as a plan or explicit set of guidelines developed in advance. In other words, it views strategy as the outcome of a rational deliberation process.
Evolutionary mode which acknowledges the unpredictable processes involved in strategy formation. It views strategy as a stream of significant decisions evolving over time. In other words, it views strategy as emerging from a string of minor incremental decisions.
Most of the organizations operate in multiple businesses / markets, thus they need to develop different strategies for different levels of activities. Thus, strategy can be classified as either corporate-level strategy or business-level strategy.
A corporate-level strategy (applicable to businesses with e.g. many different divisions) attempts to define the nature of the business in which the firm seeks to operate. It determines the roles that each business in the organization will play, which will receive funds for expansion, and which will be divested.
A business-level strategy refers to those strategies which are adapted by business units of the organization. In organizations with multiple businesses, each division will have its own strategy that defines the products or services it will offer the customers it wants to reach, etc.
Alfred Chandler argued that organizations typically begin as single-product companies, which do only one thing (e.g. manufacture cars). Depending on the size of the company, the appropriate structure for this strategy would be a simple structure or a machine bureaucracy. Thus, the efficient structure for an organization with a single-product strategy is one that is high centralization, low formalization and low complexity.
Chandler suggested that as a firm moves to a multiproduct strategy, it adopts a divisionalised structure.
From the single-product line, companies typically expand activities along the supply and distribution chain (vertical integration), which increases interdependence among organizational units and creates the need for more complex coordinating devices. This desired complexity is achieved by redesigning the structure to form specialized units based on the functions performed.
Chandler suggested that the next step for organizations is movement into product diversification, which means that structure must again be adjusted if efficiency is to be achieved. A product-diversification strategy demands a structural form that permits the efficient allocation of resources, accountability for performance and coordination between units. This can best be achieved through the creation of a multiple set of independent divisions, each responsible for a specific product line.
According to Chandler’s theory, successful organizations that diversify should have a different structure from that of successful firms that follow a single-product strategy.
A number of contemporary theories about structures exist. The most important ones are:
Miles and Snow’s four strategic types
Porter’s competitive strategies
Bartlett and Ghoshal’s theory
Raymond Miles and Charles Snow classified organizations into one of four strategic types based on the rate at which they change their products or markets. They call these types:
Defenders.
Prospectors.
Analysers.
Reactors.
Defenders seek stability by producing only a limited set of products directed at a narrow segment of the total potential market. Within this limited niche (domain), defenders try to prevent competitors from taking market share or customers from them. Organizations do this through standard competitive actions (e.g. aggressive pricing or production of high-quality products). The result is a structure made up of:
High horizontal differentiation with highly specialized tasks.
Centralized control and decision making.
An elaborate formal hierarchy for communications and coordination.
Under the defender strategy, managers do not perceive much change and uncertainty. The successful structure associated with this strategy is designed for optimum efficiency and has:
Prospectors search for and exploit new product and market opportunities. Sometimes, innovation is more important than high profitability. Their success depends on development and maintenance of the capacity to survey a wide range of environmental conditions, trends and events and introduction of new products based on that research. Prospectors invest heavily in research personnel. Flexibility is very important to prospectors, thus the organization will:
The structure of an organization following prospector strategy will have:
Analysers attempt to minimise risk by adopting innovations after they have been proven by others. They seek to minimise risk and maximise opportunity for profit. Their strategy is to move into new products or new markets only after viability has been proven by prospectors. Thus, they do not introduce innovations, but barely copy products of prospectors.
Analysers need both flexibility and stability. Their structure is usually made up of dual components. Parts of these organizations have high levels of standardization, routinisation, and automation to attain efficiencies (e.g. manufacturing and distribution). Nevertheless, they remain flexible enough to introduce new product lines, which usually are mass produced. Certain parts of those organizations need to be adaptive in order to enhance flexibility (e.g. marketing and product development). In this way, analysers seek structures that can accommodate both stable and dynamic areas of operation.
Managers pursuing an analyser strategy perceive a considerable degree of change and uncertainty but wait until competitors develop a viable response, and then quickly adopt it.
Reactors represent a residual strategy. The label is meant to describe the inconsistent and unstable patterns that arise when one of the other three strategies is pursued improperly. In general, reactors respond inappropriately, perform poorly and, as a result, are reluctant to commit themselves aggressively to a specific strategy for the future.
Organizations following a reactor strategy respond to change rather slowly. Management perceives some change and uncertainty but it is not likely to make any substantial adjustments until it can be delayed no longer. Reactors’ structure look very like the one described for defenders.
Michael Porter proposed that management must select a strategy that will give its organization a competitive advantage. Management can choose from among three strategies:
The one management chooses depends on the organization’s strengths and competitors’ weaknesses.
A cost-leadership strategy is adopted when an organization sets out to be the low-cost producer in its industry. Success with this strategy requires that the organization really is the cost leader in the industry and not merely one of the candidates for that position. Moreover, the product or service being offered must be perceived as comparable to that offered by rivals, or at least acceptable to buyers. To be successful, companies using this strategy seek for:
The best structure for the cost-leadership strategy is:
A differentiation strategy is one where a firm seeks to be unique in its industry in ways that are widely valued by buyers. Companies differentiate by putting emphasising that their product is high quality (better than competitors’), they offer extraordinary service to their customers, etc. The key is that the attribute chosen must be different from those offered by rivals and significant enough to justify a price premium that exceeds the cost of differentiation. Companies adopting differentiation strategy rely on the development of unique products. Consequently, their structure must have a high degree of flexibility, which can best be achieved through:
A focus strategy aims at a cost advantage or differentiation advantage in a narrow segment. That is, management will select a segment or group of segments in an industry (e.g. product variety, type of end buyer) and tailor the strategy to serve this segment to the exclusion of others. The goal is to exploit a narrow segment of a market.
Porter uses the term stuck in the middle to describe organizations that are unable to gain a competitive advantage by one of the previous strategies. Such organizations will have great difficulty achieving long-term success.
Two researchers, Bartlett and Ghoshal, proposed a theory linking global strategy and structure. According to them, the strategy adopted when entering overseas markets depends on the interaction of cost pressures found in the market with the pressures for local responsiveness. Responding to cost pressures means that firms must work hard at reducing costs, while local responsiveness implies that products must be altered in some way to suit local tastes.
Bartlett and Ghoshal proposed that companies should use one of the following strategies:
An international strategy when both, the cost pressure and the pressure for local responsiveness, are low.
A multidomestic strategy when the cost pressure is low, but the pressure for local responsiveness is high.
A global strategy when the cost pressure is high and the pressure for local responsiveness is low.
Aa transnational strategy when both, the cost pressure and the pressure for local responsiveness, are high.
An international strategy requires firms to transfer valuable skills and product knowledge to overseas markets. Some customization may take place for local markets. Research and development is centralized in the home market, but manufacturing, distribution and marketing is carried out locally. Generally, the head office maintains tight control over key technologies.
A multidomestic strategy aims to achieve maximum local responsiveness with products customized to meet local conditions. Consequently, firms tend to establish complete value chains in each of the major markets they serve. Achieving economies of scale and spreading experience around the firm is difficult using this strategy.
A global strategy is adopted where a product can be sold in most markets with very little modification. Firms using this strategy work very hard at lowering costs by locating activities where they make the most sense and through extensively engaging in practices that spread knowledge throughout the company. Firms normally locate their key activities in a few important centres, which provide cost and other benefits.
The transnational strategy is very rare in practice. A transnational strategy attempts to achieve maximum local responsiveness while achieving worldwide economies of scale. Experience is spread throughout the organization regardless of its origins, and firms are considered stateless with no obvious country of location.
Bartlett and Ghoshal proposed that each of these strategies required specific organizational structural characteristics to be effective.
Closely related to the issue of strategy’s impact on structure is the role of industry as a determinant of structure. There are distinguishing characteristics of industries that affect strategies they will choose.
As a result, strategy may be merely an intermediate step between the unique characteristics of the industry in which the organization operates and the structure it implements to achieve alignment.
Researchers looked two variables that tend to differ by industry category – capital requirements for entry and product-innovation rates. They recognized four categories of industries:
Type A industries which are characterized by high capital requirements for entry and high product-innovation rates (e.g. telecommunication firms).
Type B industries which are characterized by low capital requirements for entry and high product-innovation rates (e.g. computer software manufacturers).
Type C industries which are characterized by high capital requirements for entry and low product-innovation rates (e.g. appliance manufacturers).
Type D industries which are characterized by low capital requirements for entry and low product-innovation rates (e.g. bicycle manufacturers).
The high capital requirements tend to result in large organizations and a limited number of competitors. Firms in type A and C industries will have high complexity and standardized procedures, with the type As being more decentralized to facilitate rapid response to innovations introduced by competitors. Type B and D industries, because of low capital requirements, tend to be made up of a large number of small firms. Type D, however, is likely to have more task specialization and greater formalization than type B, because low product innovation allows greater standardization. In the same way as capital requirements influence organizational size and number of competitors, it can be expected that high product-innovation rates will result in less formalization and more decentralization of decision making.
Strategy is implemented not only by individual companies, but also by combinations of firms that are so closely connected and mutually dependent that the boundaries between them are difficult to identify, not so much in the legal sense, but in the operational sense (networks of companies).
Researchers indentify a number of different forms of networks and strategic alliances. These are:
Industrial networks – this is when there is a dominant company which clearly leads a group of subcontractors;
Clusters – in those cases there is no leading company or project manager to offer direction or control (e.g. in the personal computer industry) - networks of this type are generally coordinated by market forces.
Strategic alliances – this is when two or more companies cooperate in a venture by each contributing their distinctive skills while maintaining their independence.
Strategy was defined by Chandler as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
It is important to recognize the difference between strategy and tactics. Strategic decisions establish the general purpose and direction of the enterprise and the methods by which they will be achieved, while tactical decisions are concerned with the day-to-day decisions associated with implementing plans and operating the enterprise.
Organization size is generally accepted as referring to the total number of employees.
Size does not dictate all of an organization’s structure but it is important in predicting some dimensions of structure which have widespread applicability.
The strongest case can be made for the effect of size on vertical differentiation, that is, the number of layers of management. A less strong but certainly solid case can be made for the relationship between size and horizontal differentiation. That is, the larger the organization, the more pronounced (at declining rates) the division of labour within it, the same being true of the functional differentiation of the organization into divisions.
There is a logical connection between an increase in size and increased formalization - as the organization grows there are more subordinates to supervise, so that it becomes increasingly efficient to rely more on rules and regulations for exerting control.
These rules and regulations allow top management to delegate decision making while at the same time ensuring that the decisions are made in accordance with the desires of top management. However, the case for size leading to decentralization is not strong.
Researchers found that size’s influence seems to diminish as the number of employees expands. That is, once an organization becomes large in size, it tends to be high in complexity, high in formalization and decentralized, and that further increases in the number of employees have no noticeable further influence on the structure.
There are number of problems associated with managing large organizations. These are:
Growth of bureaucracy – the high formalization of bureaucracy, such as rules and regulations, tends to increase as managers try to maintain control over an increasingly unwieldy organization.
The need to gather and process information and turn it into knowledge – there are significant amounts of data and information in large organizations. The organization must find a way to process data into a useful format that the organization can act on.
The need to adapt to changing technologies and product life cycles – most organizations grow large because they have exploited a given technology. The challenge for companies is to adapt to new technologies as they develop.
Extended time frames for action – in large organization it can take a long time before realizing that change is required. Further, once remedial action has been taken, it can take a number of years to determine whether it is working or not.
Knowing where profits are being made and costs incurred – in large organizations it is often difficult to allocate costs and revenues to individual products.
Difficulty in managing over a wide geographic area – management might face problems related to employing people from different cultures, adapting products and services to suit local conditions, and maintaining control over operations that are located far away from the head office.
Bounded rationality – the scale and scope of operation of large organizations means that it is impossible for one person, or even a group of people, to fully understand all that is going on. Procedures must therefore be introduced to reduce this complexity into bits of information that are capable of being grasped by the senior managers of the company.
The management has a choice of solutions for the above-mentioned problems:
Divisionalisation – that is, dividing the organization into manageable parts. Each division operates largely as a separate business, with its own identifiable goals, management, staff and facilities. It enables a clearer identification of costs and revenues and places decision making close to where business is transacted. It also reduces the amount of communication needed for day-to-day operations.
Physically separate those areas of the organization which undertake different types of work – by doing so, optimum work and management conditions may be applied.
Outsourcing – organizations can reduce many problems arising from size by hiring specialist firms to undertake certain operations (e.g. distribution, logistics or warehousing).
Finding a balance between what decisions to centralize and decentralize – decision making should be made as close as possible to where the problem lies while controlling factors such as risk and access to information.
Structuring to facilitate change – in seeking to reduce the tendency towards bureaucracy, managers should:
aim to reduce power distances
develop means of facilitating communication
support new ways of recognizing and solving problems
Ensuring that important tasks have someone responsible for them – if important tasks have no particular person responsible for them, chances are they will be neglected or overlooked.
Downsizing may be defined as the planned elimination of positions or jobs. Downsizing is often used to describe layoffs arising from technological change. It is not the same as redundancies and retrenchments, which arise from downturns in the trade cycle (and when demand recovers, people are rehired to replace those laid off).
Some of the reasons leading to downsizing are:
Changes in structure.
Increased competition.
Technological obsolescence.
Computerization and automation.
Declining profitability.
Information technology – many of the roles of middle management are being pushed down the organization structure by the increasing use of IT. Thus, many middle management layers, and middle management, no longer have meaningful work.
The realization that size of itself does not bring advantages.
Changes in strategy.
The rise of outsourcing.
A company may benefit from downsizing as follows:
Lowered overheads.
Less bureaucracy.
Faster decision making.
Smoother communications.
Greater entrepreneurship – downsizing should lead to greater decentralization of functions, which should lead to more innovative behaviour on the part of management.
Increased productivity.
Organization size is generally accepted as referring to the total number of employees.
Size does not dictate all of an organization’s structure but it is important in predicting some dimensions of structure which have widespread applicability.
The strongest case can be made for the effect of size on vertical differentiation, that is, the number of layers of management. A less strong but certainly solid case can be made for the relationship between size and horizontal differentiation. That is, the larger the organization, the more pronounced (at declining rates) the division of labour within it, the same being true of the functional differentiation of the organization into divisions.
Technology refers to the information, equipment, techniques and processes required to transform inputs into outputs in an organization. Technology looks at how the inputs are converted to outputs.
The most important research about technology’s impact on structure was performed by:
Joan Woodward (manufacturing companies),
Charles Perrow (knowledge-based technologies), and
James Thomspon (technological uncertainty)
Jay Galbraith (task uncertainty).
Joan Woodward’s research, which focuses on production technology, was the first major attempt to view organization structure from a technological perspective. However, her research applies only to manufacturing industries.
She computed various measures of structure - the number of hierarchical levels and the extent of formalization, among others. She classified the companies as above-average or below-average in terms of success or organizational effectiveness (based on the financial data). The relationship between structure and effectiveness became apparent when she grouped companies according to their typical mode of production technology. She proposed three types:
Unit production defined as technology where units are custom-made and work is non-routine.
Mass production which is large-batch or mass-produced technology.
Process production defined as highly controlled, standardized and continuous processing technology.
She treated those categories as a scale with increasing degrees of technological complexity, unit being the least complex and process the most complex.
Woodward concluded that for each category on the technology scale (unit, mass, process) and for each structural component, there was an optimal range that encompassed the positions of the more effective firms.
The mass-production technology firms:
Both the unit and process technologies, in contrast, were structured more loosely. Flexibility was achieved through:
Woodward’s investigation demonstrated a link between technology, structure and effectiveness. Firms that most nearly approximated the typical structure for their technology were the most effective.
Charles Perrow defined technology as ‘the action that an individual performs upon an object, with or without the aid of tools or mechanical devices, in order to make some change in that object.’ The two underlying dimensions of knowledge technology are:
Task variability which considers the number of exceptions encountered in one’s work. These exceptions will be few in number if the job is high in predictability. At the other end of spectrum, if a job has a great deal of variety a large number of exceptions can be expected.
Problem analysability which assesses the type of search procedures followed to find successful methods for responding adequately to task exceptions. The search may, at one extreme, be described as well defined. The other extreme is ill-defined problems.
These two dimensions can be used to construct a two-by-two matrix. Perrow argued that control and coordination methods should vary with technology type. The four cells in this matrix represent four types of technology:
This is because the production process is repetitive and easily understood and the exceptions may be anticipated and planned for.
The more routine the technology, the more highly structured the organization should be. Conversely, non-routine technologies require greater structural flexibility.
James Thompson demonstrated that technology determines the selection of a strategy for reducing uncertainty and that specific structural arrangements can facilitate uncertainty reduction. Thompson proposed three types of technology, each creating a type of interdependence:
Long-linked technology was associated with tasks or operations which were sequentially interdependent. This technology is characterized by a fixed sequence of connected steps. That is, activity A must be performed before activity B, activity B before activity C and so forth. Examples of long-linked technology include mass-production assembly lines. Long-linked technology is accompanied by sequential interdependence – the procedures that are highly standardized and must be performed in a specified serial order.
Mediating technology can be defined as a technology that links clients on both the input and output side of the organizations. Banks and post offices are examples. Mediators perform an interchange function, linking units that are otherwise independent. Banks, for instance, bring together those who want to save (depositors) with those who want to borrow. Mediating technology has pooled interdependence – two or more units, each contribute separately to a larger unit.
Intensive technology – represents a specialized response to a diverse set of problems. The exact response depends on the nature of the problem which cannot be predicted accurately. This includes technologies dominant in hospitals, universities. Intensive technology creates reciprocal interdependence – the outputs of units influence each other in a reciprocal fashion.
Each of the above-mentioned interdependencies needs a certain type of coordination that will facilitate organizational effectiveness and keep costs low.
The following structural solutions should be applied:
Jay Galbraith defined uncertainty as ‘… the difference between the amount of information required to perform a task and the amount of information already possessed by the organization’. He considered that as task uncertainty increased, so did the amount of information that had to be processed among decision makers in order to achieve the desired level of organizational performance. The amount of information, and how this information was processed, became the major determinant of the structure of the organization.
Galbraith has identified different organization design strategies to accommodate different levels of uncertainty and information processing. In a straightforward routine task, rules and programs that reflect the existing knowledge of the organization may be used. Any exception encountered is referred to a manger further up the hierarchy. Another method used to deal with uncertainty is the use of goals or targets.
Once these systems of handling uncertainty are no longer effective, the organization can either reduce the need for information processing or increase its capacity to handle information.
Reducing the need for information processing can involve the creation of slack resources. These are additional resources over and above the minimum required to complete the task.
It can also be achieved through the creation of self-contained tasks which involves reducing complexity by creating groups which have all the necessary resources to complete their task. This reduces the need for them to coordinate and communicate with other groups.
The final group of design responses leads to an increase in the capacity to process information. This may be by investment in vertical information systems, which occurs primarily through the use of sophisticated computer systems or application of other advanced operations management techniques. Finally, the creation of lateral relations sees greater emphasis being placed on groups and teams being able to communicate and coordinate with each other. This may be by the creation of specific coordinating positions such as project managers.
Galbraith argued that the key determinant of organizational structure was the amount of information that had to be processed in order to turn inputs into outputs. He did not suggest a specific level of information processing that would lead to specific structural outcomes; interpretation was left to the observer or manager.
It is important to recognize that there are differences between manufacturing and service technologies.
Characteristics of the typical service company include:
Simultaneous production and consumption.
The fact that the customer is part of the production process and that the output is customized to the consumer’s needs.
The output of the service industries is often intangible: that is, it cannot be inventoried or stored.
Many services are labour-intensive.
Research shows that characteristics of the service industries have an impact on their structure. For instance, because of the need for customer interaction in service industries, decision making in relation to how the task is carried out tends to be more decentralized than in manufacturing. On the contrary, not all of employees of manufacturing companies interact with their customers directly. Manufacturing companies have what are termed ‘boundary spanners’, whose main task it is to interact with customers. The boundary spanners have the effect of protecting the operating core from intrusions by customers, thus allowing work to proceed without interruptions.
Information technologies (IT) is a general term covering a number of different categories of information processing. These are:
The first is the one most usually associated with computers, that of undertaking tasks associated with the day-to-day operations of the organization. Examples are routine accounting tasks, inventory control. The effect of this application is to improve efficiency, particularly in resource usage.
The second grouping comprises technologies that improve communication. Examples include email, the Internet, intranets. These technologies help bring people together by creating a shared workspace, thus reducing the restraints imposed by geography and time and enabling them to do things they may not otherwise have been able to do. It also promotes coordination between individuals and subunits and permits the wide dispersion of information throughout the organization.
The third group comprises control systems. These monitor and evaluate the performance of the organization. They undertake much of the routine work associated with control. Such tasks as stock management, monitoring bank balances are typical control functions.
The fourth application of IT is that of acting as a decision support system. In this role it supports the intellectual processes of planning and decision making but cannot replace the intuitive insight of the decision maker. Functions such as calculating potential rates of return, generating spreadsheets are examples of this function.
The fifth function of IT is codifying the knowledge base. This facilitates the ability to apply past and current knowledge to organizational problems.
The sixth application of IT is to promote innovation. No longer do those involved in such areas as research, design need to be located close to each other. They may now be dispersed, often across continents, and may communicate with each other using new technologies.
The last grouping is that which supports interorganizational systems. This facilitates the movement of information from the boundary of one organization to another. IT therefore may be seen as providing a boundary-spanning role. The external environment may also be scanned faster using IT.
Influence of IT may be summarized as providing information efficiencies and information synergies. Information efficiencies are the cost and time savings that result when IT permits individual employees to become more productive. Information synergies, on the other hand, emerge when two or more individuals or subunits use IT to collaborate across organizational boundaries.
IT is an enabling technology, that is, it enables organizations to do things which they would not have otherwise been able to do. As a result, it differs from the other contingencies we have discussed in that its impact often generates opposite outcomes.
A specific category of computerization can be broadly called computer-integrated manufacturing (CIM). This category applies computerization to manufacturing tasks. It permits the linking of design, production systems, inventory control, planning, scheduling and distribution into virtually one function.
CIM permits the speeding up of product innovation by parallel design and development of various components, reduced time for product testing, and the simultaneous development of manufacturing processes and tooling as a product is being designed.
Whereas economies of scaled are still applicable, computer-based control of manufacturing has led to companies being able to achieve economies of scope. Economies of scope are derived from the ability to change production quickly to any one set of products. This enables organizations to respond flexibly to changing demands and market conditions.
Research has identified that certain predicable structural changes will occur if computer-aided manufacturing firm are to get the most from their investment. These include:
There will be less job specialization, as there will be a greater use of self-managing teams.
People will be required to learn new skills and undertake a wider variety of work, continuous training will become part of their employment.
While operational decisions have been decentralized to the plant or even lower, major strategic decisions will still continue to be determined more effectively from a centralized location. Implementation of decisions is also likely to be faster, as computerization has eliminated many jobs and delays associated with gathering, processing and dissemination of information.
The following may be concluded about the impact of the technology on the structure:
Routine technology is positively associated with low complexity - the greater the routineness, the fewer the number of occupational groups and the less training possessed by professionals.
Non-routine technology is likely to lead to high complexity - as the work becomes more sophisticated and customised, the span of control narrows and vertical differentiation increases. Teamwork and intensive communication and coordination become more common.
Routine technology is positively related to formalization - routineness was significantly associated with the presence of a rules manual and job descriptions and the degree to which job descriptions were specified.
Non-routine technologies require control systems that permit greater discretion and flexibility.
Routine technologies can be associated with a centralized structure.
The non-routine technology would be characterised by delegated decision authority (decentralization).
The technology-centralization relationship is moderated by the degree of formalization. Routine technologies should be associated with centralized control if there is a minimum of rules and regulations. However, if formalization is high, routine technology can be accompanied by decentralization. We would, therefore, predict routine technology to lead to centralization, but only if formalization is low.
Technology refers to the information, equipment, techniques and processes required to transform inputs into outputs in an organization. Technology looks at how the inputs are converted to outputs.
The most important research about technology’s impact on structure was performed by:
Joan Woodward (manufacturing companies),
Charles Perrow (knowledge-based technologies), and
James Thomspon (technological uncertainty)
Jay Galbraith (task uncertainty).
The environment is usually defined as everything outside an organisation’s boundaries. It can differentiated between organization’s general and specific environments.
The general environment is essentially the same as an organisation’s environment. It includes everything - political conditions, the legal structure, the cultural conditions, etc. It includes conditions that may have an impact on the organisation, but their relevance is not particularly clear.
The specific environment is that part of the environment that is directly relevant to the organisation in achieving its goals. It is unique to each organisation and it changes with conditions. It includes suppliers, competitors, and clients, among others.
An organisation’s specific environment will vary depending on the domain it has chosen. Domain identifies the organisation’s niche. It refers to the claim that the organisation stakes out for itself with respect to the range of products or services offered and markets served.
Not all environments are the same. They differ in what is called environmental uncertainty. Some organisations face relatively stable environments; this means that few forces in their specific environment are changing. Other organisations face very dynamic environments: there are rapidly changing technologies, new competitors.
The process through which the actual and perceived environments interact in relation to environmental uncertainty has been explained in an interpretation called the enacted environment. Proponents of the enacted environment claim that uncertainty and the environment exist simultaneously within the decision maker’s head. There then commences a cycle of searching for information in order to reduce uncertainty, leading to a perception of more uncertainty because of the information gathered. This feeds into a need to gather more information, and so environmental uncertainty becomes enacted within the decision maker’s mind. Uncertainty is not reduced by more information, but rather the amount of information increases uncertainty.
Tom Burns and G.M. Stalker found that the type of structure that existed in rapidly changing and dynamic environments was significantly different from that in organisations with stable environments. Burns and Stalker proposed two structures – mechanistic and organic.
Mechanistic structures are characterised by:
Organic structures are characterized by:
Burns and Stalker believed that the most effective structure is one that adjusts to the requirements of the environment, which means using a mechanistic design in a stable, certain environment and an organic form in a turbulent environment. However, they recognised that the mechanistic and organic forms were types which formed two ends of a continuum. No organisation is purely mechanistic or purely organic but rather tends towards one or the other.
Paul Lawrence and Jay Lorsch sought to align the internal environment of firms with their respective external environments. They hypothesised that the more successful firms within each industry would have better alignments than the less successful firms. Their measure of the external environment sought to tap the degree of uncertainty. This measurement included the rate of change in product innovation over time, the clarity of information that management had about the environment, and the length of time it took for management to get feedback from the environment on actions taken by the organisation. Lawrence and Lorsch looked at two separate dimensions that constituted an organisation’s internal environment: differentiation and integration.
The term differentiation, as used by Lawrence and Lorsch, closely parallels what was defined as horizontal differentiation. However, Lawrence and Lorsch argued that, in addition to job specialisation, managers in various departments can be expected to have different attitudes and behave differently in terms of their goal perspective, time frame and interpersonal orientation. Therefore, the degree of differentiation becomes a measure of complexity and indicates more complications and a need to process information.
They defined integration as the quality of collaboration that exists among interdependent units or departments that are required to achieve unity of effort. Integration devices that organisations typically use include rules and procedures, formal plans.
They perceived both the organisation and the environment as having subsets: that is, that parts of the organisation deal with parts of the environment. They were proposing that an organisation’s internal structure could be expected to differ from department to department, reflecting the characteristics of the subenvironment with which it interacts.
Lawrence and Lorsch proposed that the more turbulent, complex and diverse the external environments facing an organisation, the greater the degree of differentiation among its subparts. If the external environment was very diverse and the internal environment was highly differentiated, they further reasoned, there would be a need for an elaborate internal integration mechanism to avoid having unites going in different directions.
Robert Duncan classified environments along two dimensions – the rate of change of environments and the environmental complexity. The greater the number of elements there are in an environment, the more complex the environment.
The interaction of environmental complexity and stability forms a two by two matrix, where different levels of uncertainty may be identified. Each of these levels of uncertainty leads to the adoption of different structural responses.
The combination of a stable environment and low complexity leads to low uncertainty for organisations. This means that organizations would:
Thus, the structure is mechanistic in operation.
A stable environment combined with a high level of complexity leads to low to moderate uncertainty. In this environment there are many different elements, but each changes only slowly, if at all. This means that organization would be:
An unstable environment combined with low levels of complexity leads to moderate to high uncertainty. In this environment, there are only a few elements, but each element changes in an unpredictable manner. Consequently, the organization would be:
When organisations are both complex and unstable, high uncertainty ensues. This is the most demanding environment for management, and it places great demands on the organisation’s structure. Consequently, the organization would be:
The boundary spanner may be seen to be making a number of contributions to managing environmental uncertainty. First, they have expertise in understanding and interpreting the environmental segment which they are concerned with. Second, they filter and process environmental information into a form which is useful to the organisation and then transmit this information through established channels. Third, they protect the core form undue disruption by removing the need for it to interact directly with the environment. And finally, they represent the organisation to the environment.
Recent research suggests that there are three key dimensions to any organisation’s environment:
The capacity of an environment refers to the degree to which it can support growth. This refers, for instance, to the availability of finance. Rich and bountiful environments are characterised by plentiful resources. These may be drawn upon by organisations to facilitate growth and expansion. They also protect the organisation against shortages in times of scarcity.
The degree of instability in an environment is captured in the stability dimension. It can be defined as the extent to which there is little change in the environment Where there is a high degree of unpredictable change, the environment is dynamic. At the other extreme is a stable environment
The environment needs to be assessed in terms of environmental complexity – that is, the degree to which the environment is concentrated on just a few elements. Simple environment have a few concentrated elements. It is easy in such an organisation for only one person to monitor the environment. In contrast, complex environments have many different elements in them which may not be related to one another and which may vary at different rates.
There are three main subjects on the environment – organization relationship. These are:
The population-ecology view argues that the environment selects certain types of organisations to survive and others to perish on the basis of the fit between their structural characteristics and the characteristics of their environment. Population ecologists argue that organisational forms must either fit their environmental niches or fail.
Population ecology provides an explanation of why organisations in common populations tend to have common structural characteristics and why certain types of organisations survive while others die. Population ecology also shows that survival will be significantly influenced by the capacity and stability of the organisation’s environment.
Institutional theory is an approach which integrates an organisation’s past actions and the social and environmental pressures on it to explain organisational practices. It proposes that organisations are influenced not only by their internal processes but also by the need to adapt to the institutional pressures in the external environment. This need for adaptation then leads to behaviours being repeated and becoming ‘institutionalised’.
We can divide institutional demands into two broad types. These are:
One of the most useful contributions of institutional theory is the explanation of the way in which social, economic and legal pressures influence organisational structures and practices. An organisation’s ability to adapt to these plays a part in favouring organisational survival.
Resource-dependence theory draws on the concept of the open system to promote the ways in which the organisation depends on the environment for its resources. However, resource dependence brings with it the capacity of suppliers to exert power on organisations, and as a result makes them vulnerable to the exercise of this power.
The following may be concluded about the impact of the environment on the structure:
The environment is usually defined as everything outside an organisation’s boundaries. It can differentiated between organization’s general and specific environments.
The general environment is essentially the same as an organisation’s environment. It includes everything - political conditions, the legal structure, the cultural conditions, etc. It includes conditions that may have an impact on the organisation, but their relevance is not particularly clear.
The specific environment is that part of the environment that is directly relevant to the organisation in achieving its goals. It is unique to each organisation and it changes with conditions. It includes suppliers, competitors, and clients, among others.
The power-control view states that an organisation’s structure at any given time reflects the interests of those in power who select a structure that will, to the maximum degree possible, maintain and enhance their influence and control and permit them to implement their policies.
John Child sought to demonstrate that managers have considerable latitude in making strategic choices. Child’s strategic choice argument is that, while there are limitations on managers’ discretion to make decisions, there is still scope for them to make choices favourable to themselves. Environment, technology, strategy and size are constraints on managers’ decision making rather than imperatives that signify certain outcomes. In other words, the contingencies do not oblige managers to implement certain structures. Rather, they limit the choices that managers have.
Child’s argument can be condensed into four basic points:
The contingency perspective – which states that structure will change to reflect changes in strategy, size, technology and environment – is based upon a number of assumptions about organisational decision making. It implies, for instance, that managers have followed a logical decision-making process in arriving at their decision.
Power-control advocates argue that the assumption of rationality in decision making does not reflect reality and thus decision makers rarely follow the traditional decision-making process.They propose that processes are characterised by non-rationality, divergent interests, dominant coalitions and power.
Non-rationality is a process of decision making that does not follow the principles of logical deduction and decision optimisation. Non-rationality does not imply that decisions are random and ill-informed. It infers that there is a range of possible outcomes that are acceptable, and what is actually decided is the outcome of a complex and difficult to predict decision-making process.
The interests of the decision maker and the interests of the organisation rarely entirely coincide. Rational decision making, however, assumes that decision makers focus exclusively on the interests of the organisation. However, organisations are composed of groups and individuals with divergent interests.
That is, for much of the time, the decision maker is likely to let his or her own interests, both personal and strategic, influence decision making.
The individuals who make up the organisation coalesce into groups with similar interests or values. These are called coalitions and they flourish largely because of the differences of opinion surrounding goals, strategy organisational effectiveness and what is considered to be in the best interests of the organisation. The action of these groups reinforces the political nature of organisations, and even plays a part in deciding what is considered rational and what is not.
Although coalitions may form around any number of issues, the dominant coalition is the one that has the power to affect structure. Any coalition that can control the resources on which the organisation depends can become dominant.
It is important to recognize the difference between power and authority. Authority is the right to act, or to command others to act, towards the attainment of organisational goals. This right derives its legitimacy from the authority figure’s position in the organisation. Authority goes with the job. The term power stands for an individual’s capacity to influence decisions.
It can be said that:
The research indicates that there are three ways in which people within the organization can acquire power:
Positions within the organisation whose main function is to coordinate information flows and the work of others may be a source of power. Those individuals or groups in a position of network centrality gain power because their position allows them to integrate other functions or to reduce organisational inefficiencies or uncertainties. It also provides them with privileged access to wide sources of information which may be used selectively to influence decisions.
Structural decisions are often the result of political activity. The way in which an organization is structured can give rise to heightened political activity. There are five areas in which structure creates political arenas in organisations:
The most common ways in which power is exercised in a political arena are:
The choice of a structure is constrained by the organisation’s strategy, size, technology, environment and the required minimal level of effectiveness. These forces combine to establish the set of structural alternatives from which the decision will be made. The decision is generally made by the dominant coalition.
Power-control advocates argue that an organisation’s structure, at any given time, will be one that allows those in power to maintain the control they have. In terms of technology and environment, therefore, the dominant coalition can be expected to seek routine technologies and operate in environments which present little uncertainty to the organisation.
Organisational slack refers to the resources in excess of the minimum required for organisational effectiveness and which provide the capacity for an organisation to respond to environmental change without changing the organisation. The less slack an organisation has, the greater the pressure to optimise organisation structure and the tighter the decision parameters will be. As a result, it is more likely that the structure will be dictated by external forces.
Those in power can be expected to try to maintain their control through choosing stable environments and routine technologies. The power-control view of structure predicts that not only will structures be relatively stable over time, but mechanistic structures will be the most numerous.
Increased differentiation – horizontally, vertically or spatially – leads to difficulties in coordination and control. Management would prefer, therefore, all other things being equal, to have low complexity. Management can be expected to choose the lowest degree of complexity (to maximise control) consistent with the ‘satisficing’ criterion for organisational effectiveness.
Those in power will influence the extent of rules and regulations controlling employees work. Because control is a desired end for those in power, organisations will have a high degree of formalisation.
Centralisation is preferred when those in control want to make the decisions. In fact, power-control advocates claim that decentralisation will occur frequently.
This chapter, and the previous chapters, have examined the contingencies that influence an organisation’s structure. The following can be said about the influence of each contingency discussed:
The power-control view states that an organisation’s structure at any given time reflects the interests of those in power who select a structure that will, to the maximum degree possible, maintain and enhance their influence and control and permit them to implement their policies.
The functions of structure are as follows:
Structure must support the implementation of strategy. In other words, structure must support achievement of an organisation’s goals.
Structure supports defining areas of responsibility, e.g. an organisational chart provides information about who is responsible for what in an organisation.
Structure provides control mechanisms. This maintains the unity of purpose of the organisation.
Structure is responsible for facilitating the flow production. By creating organisational forms, promoting efficiency, and using the latest technologies, companies facilitate their organisational competitiveness.
Structure should promote coordination and information flows. As production tends to flow across the organisation, it is important that the structure facilitates the necessary information flows which support the flow of production.
Structure should help to monitor and respond to environmental change. All organisations need to build the capacity to monitor environmental changes within their structure and to respond appropriately to them.
Structure supports the maintenance of organisational knowledge and learning. Structure determines how the specialised tasks are coordinated and brought together and information and knowledge distributed.
It is important to recognise that many organisations have changed significantly in the last 2-3 decades. Major sources of change over the past 25 years, among others, are:
Bureau means office in French, so bureaucracy roughly translates as rule by office.
The term, bureaucracy, was introduced by Max Weber. He proposed seven principles which, when applied, would lead to rational and efficient operations. These are:
Division of labour (job specialization) – every employee’s job should be broken down into simple, routine and well-defined tasks.
Well-defined authority hierarchy – organisations should have formal structure, with a hierarchy of positions. This helps to ensure that each lower position is under the supervision and control of a higher one.
High formalisation – in order to maintain uniformity and to regulate the behaviour of job holders, there should be formal rules and procedures.
Impersonal nature – as to avoid involvement with individual personalities and personal preferences of members, sanctions should be applied uniformly and impersonally.
Employment decisions based on merit - selection and promotion decisions should be based on technical qualifications, competence, and performance of the candidates.
Career tracks for employees - in return for career commitment, employees have tenure; hence, they will be retained even if they ‘burn out’ or if their skills become obsolete.
Distinct separation of members’ organisational and personal lives - in order to prevent them from interfering with the rational impersonal conduct of the organisation’s activities, personal lives are kept completely separate from work-related activities.
Weber’s model stipulates a hierarchy of offices, with each office under the direction of a higher one. Each of these offices is differentiated horizontally by division of labour. This division of labour creates units of expertise, defines areas of action consistent with the competence of unit members, assigns responsibilities for carrying out those actions and allocates commensurate authority to fulfil these responsibilities. All the while, written rules govern the performance of members’ duties. This imposition of structure and functions provides a high level of specialised expertise, coordination of roles and control of members through standardisation. Other advantages of Weber’s bureaucracy include:
Disadvantages of bureaucracy are:
Goal displacement - that is, the displacement of organisational goals by subunit or personal goals (as specialisation and differentiation create subunits with different goals).
Obedience to the rules and procedures often becomes more important than the ends they were designed to service, resulting in goal displacement and loss of organisational effectiveness.
Rules and regulations not only define unacceptable behaviours but also define the level of acceptable performance, which is rarely exceeded. In other words, people will do just the bare minimum to get by.
Bureaupathic behaviour - high formalisation bureaucracy creates insecurities in those in authority that lead to what has been called bureaupathic behaviour. Decision makers use adherence to rules to protect themselves from making errors. Additionally, as people in hierarchical positions become increasingly dependent on lower-level specialists for achievement of organisational goals, they tend to introduce more and more rules to protect themselves against this dependence. That is, they use rules to maintain centralised decision making.
Inappropriate application of rules and regulations
Employee alienation - members perceive the impersonality of the organisation as creating distance between them and their work. Repetitive jobs with little challenge can easily lead to loss of motivation and dysfunctional employee behaviour.
Concentration of power
Inability to adapt to change
Overstaffing
Tendency towards large size and low productivity
Non-member frustration
The major structural innovations in the recent decades are:
Focusing management effort on key responsibilities - The demands of competitiveness have led to greater management attention being focused on areas of importance in the environment (e.g. customers, providers of inputs). Structural changes are emerging with the creation of new divisions and units which are oriented around specialised segments. Thus, a divisionalised form, with each division concentrating on a product or area, becomes more and more popular.
Rethinking the centralisation-decentralisation balance – decentralized decision making is very popular these days. The combination of greater decentralisation and responsibility for customer satisfaction puts in place one of the structural elements that is important in rapidly changing, competitive environments. It allows for faster, more appropriate decision making. This does not mean that all decisions are made and implemented by lower level managers but that the ideas may be generated lower in the organisation to be approved by more senior managers. In turn, it may be the responsibility of lower level managers to implement them where they relate to matters close to the work flow.
Moving focus from internal processes to external adaptation – in bureaucracies, management has an inward rather than an outward focus. If organisations structure management responsibilities in such a way that their performance is assessed against customer- or market-focused criteria, they are likely to find that the nature of formalisation changes in order to better achieve the organisation’s goals.
Greater use of market controls - in the past, the management hierarchy allocated budgets and overheads mainly on the basis of subjective assessment. These days, organisations are usually divided into mini-businesses, each with its own financial and performance goals. Managers are then made responsible for these. Where costs cannot be offset against revenue, then budgets are set in place and managers are expected to achieve them. This process is called moving from hierarchies to markets. In other words, monetary performance is used as a substitute for subjective assessment by management.
Improving communication flows - the emphasis on a clearly defined management hierarchy and high formalisation presupposes that there is little need for an organisation to change, that once it is set up it can continue for a long time doing much the same as it has been doing. These days it is necessary to improve communication flows and promote adaptability without (e.g. by investing in information technologies in order to increase organisation’s ability to process information).
Working back from the customer - this involves monitoring customer needs and product perceptions, then designing the organisation to respond to these.
Concentrating effort on core competencies - A core competency can be defined as something that competitors have difficulty in replicating. As the level of competition increases, most businesses are finding that they can best maximise their returns by concentrating on just a few products where they have a comparative advantage. As a result, many “focused” organisations emerged in the last decades. The old conglomerates that had a wide range of businesses are much rarer than in the past.
Improving availability of information - the expanding use of IT permits information to be more widely spread throughout the organisation. This facilitates the flow of goods and materials and assists in serving customers.
These days, the organisations tend to specialise in a small number of things, they emphasise teamwork, promote coordination, and exist as part of a network of suppliers and distributors. Some examples of these trends are:
The changing trends in organisational orientation have led to a number of structural innovations. These are:
A virtual organisation has the characteristics of a formal organisation while not being one. It comprises a complex network of smaller organisations which each contribute a part of the production process. Boundaries between organisations are fuzzy; control is generally by market forces, reinforced by the certainty of long-term contracts.
The functions of structure are as follows:
Managers have two general strategies they can adopt in their attempt to lessen environmental uncertainty. These are:
Internal strategies – which are those strategies that adapt and change organisational practices to better fit the environment. The environment does not change, but the fit between the organisation and the environment is improved. As a result, the uncertainty arising from the organisation’s dependence on the environment is reduced.
External strategies – which are those strategies that are designed to change the environment. For instance, if competitive pressures are cutting a company’s profitability, it can merge with another company to gain economies of scale.
Researchers named a number of uncertainty reduction techniques. These can be divided into internal and external strategies.
Domain choice - domain is the part of the environment in which the organisation operates. If management faces an unfavourable environment, it can attempt to change to a domain with less environmental uncertainty (e.g. move into an environmental niche that has the advantage of fewer or less powerful competitors).
Recruitment – organisation may lessen the influence of the environment by recruiting staff with appropriate skills.
Environmental scanning - Environmental scanning involves investigation of the environment to identify actions by competitors, government, etc. that might influence the organisation’s operations. To the extent that scanning can lead to accurate forecasts of environmental fluctuations, it can reduce uncertainty, as it allows management to anticipate changes and make internal adjustments rather than react after the fact. Boundary spanners are staff whose specific jobs require them to act as conduits between the organisation and its environment. In other words, boundary spanners can be defined as exchange agents between the organisation and the environment. Their job involves:
Handling the transactions an organisation makes with its environment.
Filtering inputs and outputs into a form that can be understood.
Searching and collecting information.
Representing the organisation to the environment.
Protecting and buffering the organisation.
Thus, boundary spanners make it possible for organisations to monitor and screen important happenings in the environment.
Buffering - which reduces the possibility that the organisation’s operations will be disturbed by ensuring that inputs are available to the production process and that there is steady demand on the output side; it protects the operating core from environmental influences on the input or output side. On the input side, buffering is evident when, for instance, organisations accumulate and store materials and supplies (thus, reduce reliance on a supplier.
This protects the operations of the organisation from the unexpected. An example of buffering on the output side is the use of inventories.
Smoothing – is a technique used to level out the impact of fluctuations in the environment by offering incentives to environmental units to regularise their interactions with the organisation. This mechanism is commonly used in service industries, where the product cannot be placed into inventory or where the product is perishable. An example of smoothing is offering different tariffs for calls during the day, evening, weekend (telephone companies).
Rationing - when uncertainty is created by way of excess demand, management may consider rationing products or services – that is, allocating output according to some priority system.
Improving organisation processing - one of the main causes of uncertainty is lack of information. Thus, uncertainty will decrease if organisation will improve the flow of information.
Geographic dispersion - organisations can lessen the uncertainty / risk by, for example, operating in multiple locations.
Bridging - is the process by which managers try to regulate their environment through negotiation, cooperation, exchange of information and other forms of mutual benefit. Bridging is essentially a political process, where the use of personal relationships is important for reducing uncertainty.
Advertising - extensive advertising, may be used when management wants to reduce competitive pressures, stabilise demand, and allow itself the opportunity to set prices with less concern for the response of its competitors.
Contracting - protects the organisation from changes in quantity or price on either the input or the output side. For instance, management may agree to a long-term fixed contract to buy materials and supplies or to sell a certain part of the organisation’s output.
Co-opting – stands for absorbing those individuals or organisations in the environment that threaten their stability.
Coalescing - when an organisation combines with one or more other organisations for the purpose of joint action it is called coalescing. Examples of coalescing are mergers, joint ventures, and strategic alliances.
Lobbying – stands for using influence to obtain a favourable outcome. For instance, organisations often hire people whom main task is to lobby governments to pass / not pass certain legislation.
Insuring – organisations can insure against risks arising from accidents, acts of nature, negligence of various types, etc.
Hedging and future markets - Futures exchanges allow commodity producers to lock in a price in advance of production and consumption. Exchange markets allow hedging against currency shifts.
Managers have two general strategies they can adopt in their attempt to lessen environmental uncertainty. These are:
The way in which change is managed depends on the type, origin and magnitude of the drivers of change, as not all organisational change is the same. Some change alters the very nature of the organisation, while other may be minor and influence only a small part of the organisation (e.g. one department). Thus, it is important to differentiate between two types of change – revolutionary and evolutionary change.
When the organisation is faced with a change that alters its very nature, the change of this magnitude is called revolutionary change. Usually, the revolutionary change emerges as a response to significant technological and environmental changes. An example of revolutionary change emerging from technological change is the computerisation of banking. This type of technology, which significantly changes the way in which an organisation operates, is called disruptive technology. Deregulation (of e.g. telecommunication industry) is an example of revolutionary change emerging from environmental change.
Usually the rate of change, in contrast to the magnitude of change, has been such that managers have been able to plan the change program and have had a buffer of time to introduce it.
Revolutionary change is often accompanied by:
Once the organisation settles into its new pattern and people adapt to their new roles, it does not mean that change has stopped. Change then becomes evolutionary.
Evolutionary change describes ongoing minor changes that are incorporated in the existing organisational structure. Most change is evolutionary change; it involves minor adjustments in response to circumstantial and unanticipated events. An example of evolutionary change is upgrading the existing production process.
Change can be also classified as planned or unplanned.
Planned change refers to situations in which organisations have adequate time to anticipate and formulate a response to the drivers of change (e.g. the introduction of new equipment). The objective of planned change is to maintain the viability of the organisation and respond with minimum disruption and cost.
Unplanned change emerges as a response to an unanticipated threat or event (e.g. machinery breakdowns, the collapse of a major supplier).
Through combining the two dimensions of change, it is possible to develop a matrix which categorises the various forms of change. Four forms of change are:
Adaptive change occurs when change can be considered to be evolutionary and planned for. It generally does not affect everyone in the organisation, and presents management with a choice as to how and when it will be implemented. Management also has discretion as to the timing and nature of change and has time to undertake extensive negotiation with affected parties. Plans may be drawn up which allow for the orderly introduction of change.
Systemic change occurs when change can be considered to be revolutionary, but planned for. It is organisation-wide and touches on most areas of the organisation’s operations. It does not emerge from a shock to the system, but as management’s response to changes in the environment or perceived organisational effectiveness. It is often undertaken only as a matter of necessity.
Transitory change occurs when change can be considered to be evolutionary, but unplanned for. For instance, commodity producers are aware that the price of their product is subject to wide swings in price. This, indeed, requires a response that normally involves some type of organisational change. But most change is not far-reaching unless the organisation’s existence is threatened. Typical responses are:
Selective layoffs.
Reallocating responsibility.
Concentrating on reducing costs.
These may be unplanned but manageable in the sense that they are easily grasped and implemented.
The indicators of a need for a new structure are as follows:
Decision making is slow or inappropriate. There may be a number of structural causes for this problem. One of the most common is that adequate information is not reaching the right person or group at the right time; the input of important or knowledgeable people may be excluded, or there may be too many people who must agree on the decision. Further, the organisation’s present structure may accommodate decisions-blocking. Overcoming this problem may involve:
Improving information flows.
Clarifying areas of responsibility.
Hiring people with specific skills.
Removing superfluous people or departments.
Reviewing job responsibilities.
The organisation is not responding innovatively to environmental change. For instance, the organisation’s products may be out of date or technologically inferior to competing products; other companies may be able to bring products to market faster or more cheaply. This indicates that the organisation’s structure is not sufficiently monitoring changes in the environment or that mechanisms do not exist to incorporate environmental changes in the decision-making process. Structural changes may be necessary to align responsibilities with important organisational needs, or to improve communication channels.
All important tasks should have someone responsible for them. Environments change over time, and each important segment of the environment should have someone responsible for dealing with it. In a good organisational design, all important areas will have a person with appropriate levels of authority responsible for them.
Change is usually initiated by forces that originate in the environment; sometimes, however, the forces for change may be internally generated (e.g. when an organisation seeks to commercialize an invention). The forces for change must be identified and interpreted by management, which then decides how the organisation should respond. The party responsible for the change determines the nature and type of the change (i.e. develop a plan of action). The intervention requires that the change group must decide whether the change is a one-off occurrence or whether processes should be put in place to promote self-regeneration and continuous adaptation. Where it is only a one-off change, the process involves unfreezing the status quo, movement to a new state and refreezing the new state to make it permanent. Where continuous adaptation is involved, the change process omits the refreezing and attempts to make change an ongoing process. Implementation also includes the way in which the change agent or group chooses to put the change process into effect. The change itself, if successful, improves organisational effectiveness.
Changes in strategy, size, technology, environment or power can be the source of structural change.
Change agents are those in power who want to implement a change, and those who want either to replace or to constrain those in power. They typically include senior executives, managers of major units within the organisation, etc.
The interpretation of the problem also has a major influence upon how the next stage of the process – the development of the change plan – will evolve
Large-scale change programs require a comprehensive plan. The change plan identifies the intervention strategies, which fall into one of these four categories:
People (not discussed in this book).
Structure - structural changes affect:
the distribution of authority
areas of responsibility
allocation of rewards
alterations in the chain of command
degree of formalisation
addition or elimination of positions, departments and divisions
Technology - the technology changes include:
modifications to the equipment that employees use,
interdependencies of work activities among employees, and
changes that affect the interrelationships between employees and the technical demands of their jobs.
Any change must be supported by appropriate technology.
Organisational processes – the changes include changes in decision-making and communication patterns.
Behaviours can be changed by changing structure, technologies, and processes; one of the aims of changing structure is, in fact, to induce a behavioural change on the part of office holders. But behaviour and attitudes may be the main focus of the change program and attempts may be made to change these in the absence of other changes.
Once forces for initiating change have been identified and those responsible have drawn up a change plan, the next phase in the change program is implementation. The method of implementation depends upon whether it is intended that the change program be a one-off event or part of an ongoing change program. Most change programs are one-off events or part of an ongoing process of change. One-off change programs follow a three-step process of preparing the organisation for change, changing the organisation and then incorporating the changes within the processes of the organisation. This process has in the past been referred to as unfreezing-changing-then refreezing.
Once the change has been implemented, it is necessary to ensure that the organisation does not revert to its former ways. There are a number of key factors that determine the degree to which a change will become permanent. The relevant factors are:
The reward allocation system - if rewards fall short of expectations over time, the change is likely to be short-lived.
The support of a sponsor - if a change is to be sustained an individual, typically high in the management hierarchy, should provide the change with legitimacy and charismatic leadership.
Transmitting information about expectations should reduce the degree of springback to the former ways; on the other hand, failure to do so would have the opposite effect. It is also important that managers be seen to support the change.
Cultural change and group forces - as employees become aware that other in their group accept and sanction the change, they become more comfortable with it.
Commitment to the change should lead to greater acceptance and permanence.
Change is less likely to become permanent if it is implemented in a single unit of the organisation. Therefore, the more diffusion in the change effort, the more units that will be affected and the greater legitimacy the effort will carry.
Appropriate tactics for implementing change are critical to success. Those responsible for the change must make decisions about how the planned change is to be brought about.
Research has identified four basic tactics:
The intervention tactic is characterised by change agents selling their change rationale to those who will be affected. They argue that current performance is inadequate and that new standards and procedures must be established. To assess more fully inefficient or poorly designed procedures, change agents using this tactic often form taskforces made up of those subject to change. The taskforces can work backwards from a desired state, identifying the best means of achieving what is desired. This co-opting technique utilises the expertise of those who know the job best while reducing resistance to change.
The participation tactic is characterized by change agents delegating the implementation decision to those who will be affected. They stipulate the need for change or the opportunities change can provide, create a taskforce to do the job, assign members to the taskforce, and then delegate authority for the change process to the taskforce with a statement of expectations and constraints. Change agents who use this tactic give full responsibility to the taskforce for implementation and exercise no veto power over its decisions.
The persuasion tactic is characterized by change agents handling change by essentially abdicating the decision to experts. Change agents identify the need or opportunity for change but they take a relatively passive role. What they do is to allow interested internal staff – or qualified outside experts – to present their ideas for bringing about change. The internal or external experts then use persuasion to sell their ideas. Change agents become active only after various ideas have been presented. They listen and often ask for supporting documentation. But those who will be affected choose the best ideas for implementing the change.
The edict tactic is characterized by top management making the key decisions and using hierarchical authority to implement them. This tactic is often used when implementing structural change. There is little or no participation and those affected are told what the change will be. When this tactic is used, change agents merely announce changes and use memos, formal presentations or the like to convey their decision.
There is no such thing as the single best way to manage unplanned change. Management often does not have enough time to plan an adequate response or engage in wide consultation and coalition building. Nevertheless, there is a need to bring high levels of expertise to bear on the problem.
The following actions can be considered to be the most appropriate to take in such case:
Centralisation of management - there are two reasons for this. The first is that authority rests with the top of the organisation, so the CEO is normally the only person who can authorise an appropriate response. Second, information needs to be processed rapidly, and this is best undertaken in the mind of one person. Unplanned change by its nature requires a quick response, and there is insufficient time to have proposals passed from committee to committee for evaluation.
Establishment of special taskforces - the taskforce focuses the organisation’s response. It gathers and processes information and issues instructions and edicts for the organisation to follow. It is composed of those managers who are sufficiently senior to commit the organisation to appropriate courses of action and who have expertise in the nature of the problem.
Active management of the environment - in times of unanticipated change, the organisation needs to keep close touch with its critical constituencies. Depending on the nature of the threat, these may include banks, the general public, etc. Neglecting critical constituencies at this time may have fatal consequences.
Management of resources - management needs to develop a coordinated response to resource usage to minimise the impact on the organisation and maximise the chances of survival.
Need for active leadership - unplanned occurrences place a great demand on leadership skills. Critical constituencies require the commitment and face-to-face presence of the chief executive. Substitutes, such as the actions of public relations departments and firms, cannot replace the CEO’s up-front presence. He or she must be seen to be actively involved in managing whatever is the problem.
The way in which change is managed depends on the type, origin and magnitude of the drivers of change, as not all organisational change is the same. Some change alters the very nature of the organisation, while other may be minor and influence only a small part of the organisation (e.g. one department). Thus, it is important to differentiate between two types of change – revolutionary and evolutionary change.
Organisational culture refers to a system of shared meaning. In every organisation there are patterns of beliefs, symbols, rituals, myths, and practices that have evolved over time. These, in turn, promote common understanding among members as to the purpose of the organisation and the way members are expected to behave.
The culture of an organisation is expressed in the values and behavioural norms of organisational members. There are two types of values:
Norms are behavioural and attitudinal standards that are taken as accepted for a given group.
Culture exists at two levels. TThe first level is outward manifestations of the culture, which are observable and capable of some form of interpretation (e.g. the symbols of the organisation, the pattern of communications). The second level of culture is composed of the deeply held values, beliefs, assumptions, attitudes and feelings that underlie behaviour. Beliefs and assumptions at this level are difficult to identify and hence interpret and understand.
The following represent the key characteristics where cultures differ:
Individual initiative – which stands for the degree of responsibility, freedom, and independence that individuals have.
Risk tolerance – which can be defined as the degree to which employees are encouraged to be aggressive, innovative, and risk-seeing.
Direction – this can be defined as the degree to which the organisation creates clear objectives and performance expectations.
Integration – this can be defined as the degree to which units within the organisation are encouraged to operate in a coordinated manner.
Management support – this is the degree to which managers provide clear communication, assistance, and support to their subordinates.
Control – this stands for the number of rules and regulations and the amount of direct supervision that are used to oversee and control employee behaviour.
Identity – this is the degree to which members identify with the organisation as a whole rather than with their particular work group or field of professional expertise.
Reward system – this stands for the degree to which reward allocations (i.e. salary increases and promotions) are based on employee performance criteria in contrast to seniority, favouritism, etc.
Conflict tolerance – this is the degree to which employees are encouraged to air conflicts and criticisms openly.
Communication patterns – this stands for the degree to which organisational communications are restricted to the formal hierarchy of authority.
Most large organisations have a dominant culture and numerous sets of subcultures which differ in varying degrees from dominant culture. A dominant culture expresses the core values that are shared by a majority of the organisation’s members. It is this macro-view of culture that gives an organisation its distinct personality. Subcultures tend to develop in large organisations to reflect common problems, situations, technologies or experiences that members face. These subcultures can form vertically or horizontally. A vertical subculture exists when one product division of a divisionalised form has a culture uniquely different from that of other divisions of the organisation. A horizontal subculture exists when a specific set of functional specialists have a set of common understandings (e.g. accountants).
A strong culture is characterised by the organisation’s core values being intensely held, clearly ordered and widely shared. The more members that accept the core values, agree on their order of importance, are highly committed to them and whose actions are guided by the culture, the stronger the culture will be. Organisations that have constant turnover among their members will have a weak culture because members will not have shared enough experiences to create distinctive common meanings.
A strong culture promotes behavioural consistency. High formalisation, such as the application of rules and regulations, acts to standardise employee behaviour. High formalisation in an organisation creates predictability, uniformity and consistency. A strong culture does the same but without any need for written documentation or obvious exercise of management power.
The successful organisation will achieve a good external fit – its culture will conform to its strategy and environment. Market-driven strategies, for instance, and more appropriate in dynamic environments and will require a culture that emphasises individual initiative, risk-taking, high integration, tolerance of conflicts, and high horizontal communication.
Successful organisations will also seek a good internal fit, with their culture properly matched to their technology. Routine technologies provide stability and work well when linked to a culture that emphasises conformance to process, centralised decision making and limited individual initiative. Non-routine technologies require adaptability and are best matched with culture that encourage individual initiative and free-flowing communication and where control is de-emphasised.
Once a culture is in place, there are forces within the organisation that act to maintain it by giving employees a set of similar experiences. The four forces that play the most important part in sustaining a culture are:
The organisation’s selection practices – organisations usually hire individuals who have the knowledge, skills, and abilities to successfully perform the job within the organisation. Yet, the final decision about who is hired will be significantly influenced by the decision maker’s judgement as to how well the candidate will fit into the organisation.
The actions of top management.
The organisation’s socialisation methods.
The use of appropriate rewards and punishments.
In addition to explicit orientation and training programs, culture is transmitted to employees in a number of other forms, such as:
Stories – which contain a narrative of events about the organisation’s founder, key decisions that affect the organisation’s future course and actions of top management circulate through many organisations. They anchor the present in the past and provide explanations and legitimacy for current practices.
Rituals - activities such as recognition and award ceremonies, weekly Friday afternoon drinks, etc. are rituals that express and reinforce the key values of the organisation, what goals are important, which people are important and any changes in power bases.
Material symbols - office decoration and layout reflects the culture of the organisation (e.g. lively colours, modern art reflect the culture of creativity).
Observation and experience - where there is a conflict between what is observed and experienced and what is written, observation and experience will have the greater impact.
Language - many organisations and units within organisations use jargon and terminology as a way to identify members of a culture or subculture.
Managing culture means changing the culture. The factors influencing cultural change are:
A dramatic crisis - this is the shock that undermines the status quo. It calls into question current practices and opens the door to accepting a different set of values that can respond better to the crisis, and the post-crisis environment. Examples of such a crisis would include an unexpected financial setback.
A long-term slow decline - the origins of long-term loss of performance in many cases lies in the growth of a culture which reinforced existing ways of doing things while losing sight of the importance of the way in which environments were changing. Change in this case may be successfully undertaken only by changing the culture of the organisation to be more adaptive to changes in the environment.
Leadership turnover - as top management has a major influence in transmitting culture, a change in the organisation’s key leadership positions facilitates the imposition of new values.
Life-cycle stage - cultural change is easier when the organisation is in transition from the formation stage to the growth stage and from maturity into decline.
As the organisation moves into growth, major changes will be necessary. These changes are more likely to be accepted because the culture is less entrenched and embodied in rules, regulations and practices. Additionally, a growing organisation is more likely to be hiring new employees, which gives management the opportunity to place those whose values are desired in key positions.
Decline typically requires cutbacks and other retrenchment strategies. Such actions are likely to highlight to employees that the organisation is experiencing a true crisis
Age of the organisation - the younger an organisation, the less entrenched its values will be. Thus, cultural change can be expected to be more acceptable in an organisation that is only 5 years old than in one that is 50 years old. The reason for this includes the fact that young organisations have no long-serving employees and lower levels of formalisation
Size of the organisation - cultural change is easier to implement in a small organisation because, in such organisations, it is easier for management to reach employees. Communication is clearer, and role models are more visible in a small organisation, thus enhancing the opportunity to disseminate new values
Strength of the current culture - the stronger the culture, the more difficult it will be to change. Conversely, weak cultures should be more amenable to change than strong ones.
Absence of subcultures - heterogeneity increases members’ concern with protecting their self-interest and resisting change. It can be expected that the more subcultures there are, the more resistance there will be to changes in the dominant culture
Techniques available to manage organisational culture are:
Applying firm leadership - No successful attempts at cultural change have been made without strong leadership driving the change at the top of the organisation. The role of leadership is so important that rarely, if ever, does cultural change emerge as bottom-up initiative from those lower in the organisation. To be effective it must always be initiated and nurtured from the very top of the organisation.
Seeking political support - Leaders cannot function without some political support in their organisation. Leaders introducing cultural change constantly seek out political support, either from individual mangers or departments, as a base from which influence may spread.
Changing key personnel - It is expected in periods of cultural change that changes in management and other personnel take place. Those associated closely with the old culture are generally moved aside and newer, more sympathetic managers appointed.
Implementing structural changes - Structure influences the ways in which people behave in organisations. The structure of an organisation allocates responsibilities, determines reporting relationships, defines tasks and determines the size of the management hierarchy. Changing organisational culture often requires making supporting structural changes.
Avoiding micro-managing the details - It is not possible for senior managers to micro-manage the details of cultural change. Micro-management is concerned with managing the small details of day-to-day processes and events. Senior management have little alternative but to create the conditions that establish and nurture the new cultural values and to constantly sell the advantages of a new way of doing things.
The need to be patient - All cultures changes take time; the bigger the change and the larger the organisation, the longer it takes. One of the characteristics of successful leaders of cultural change is to have a good appreciation for what can be accomplished in any given period of time. Work too slowly, and momentum and interest in the change is lost. Work too fast, and the old culture is destroyed without replacing it with the new, more appropriate culture.
Applying appropriate management skills - The skills to introduce a major cultural change are not commonly possessed by mangers. As a consequence, many companies face with the need to quickly address the problem of a cultural change specifically appoint a chief executive whose task it is to quickly shake up the old culture and implant the new, and then leave the task of consolidating the new culture to mangers whose skills are more appropriate for this task.
Organisational culture refers to a system of shared meaning. In every organisation there are patterns of beliefs, symbols, rituals, myths, and practices that have evolved over time. These, in turn, promote common understanding among members as to the purpose of the organisation and the way members are expected to behave.
Growth is more likely to be associated with measures that contribute to an organisation’s survival than with numbers of employees. These include financial considerations such as cash flow, turnover and low debt levels; or strategy measures such as market share.
Two models of organizational growth will be discussed:
Larry Greiner studied a number of organisations and from his observations proposed that organisational growth is characterised by periods of steady growth, followed by shorter periods of internal turmoil. The periods of steady growth he called evolution; the periods of internal turmoil he called revolution. Each stage of evolution, or growth, creates its own crisis. The resolution of the crisis, however, initiates a new evolutionary phase – provided that the organisation emerges successfully from the period of revolution.
The phases in this model are:
Creativity – The first stage of an organisation’s evolution is characterised by the creativity of its founders. They usually devote their energies to the development of products and markets. Organizations in this stage usually have the characteristics of the simple structure. Decision making is controlled by the owner-manager or top management. Communication between levels in the organisation is frequent and informal. As the organisation grows, it becomes difficult to manage by relying only on informal communication. The organization experiences a crisis of leadership, as those who run the organisation no longer have the skills or the interest to direct it successfully. Strong professional management is needed to introduce more sophisticated management and organisation techniques. The crisis arises when the founders of the company have to pass the decision making to others in the organisation.
Direction – If the leadership crisis is resolved, new management will have been introduced. Communication will be formalised and different support system will be put in place (e.g. accounting). The organisation’s become more bureaucratic. Specialisation and a functional structure will be introduced. However, as the organisation grows, lower level managers will become frustrated and seek greater influence in decisions that affect them, though the new management will be reluctant to give up authority and will try to maintain centralised decision making. The organization will experience a crisis of autonomy. This is essentially a conflict between centralised and decentralised decision making.
Delegation – If decisions are decentralised, the crisis of phase 2 will have been resolved. A divisionalised structure will evolve and lower level managers will now have more autonomy to run their units. Internal control systems will be developed to monitor the decisions of lower level managers. Top management will focus on long-term strategic planning. Organization will, however, experience a crisis of control.
At some point, top management will attempt to return to centralised decision making as they view centralisation as the means of providing unity of direction. However, as the organisation will continue to grow, they will find that it is not possible to keep decision-making centralized in the long-run. Thus, some other means of coordination will have to be found and implemented.
Coordination – The control crisis is solved by establishing staff units in head office to review, evaluate and control operational management’s activities and product groups to facilitate coordination. The head office starts to grow in size and influence. However, these coordination devices will create new problems. The organization will experience a crisis of red tape. Lower level employees will complain more and more about excessive rules, regulations and controls. The organisation will become inwardly focused. Unless the crisis is resolved it can lead to goal displacement.
Greiner acknowledges that movement between the phases will vary both within and between organisations. It should be remembered that organisations may face other types of crises arising from other causes. The types of crises Greiner identifies are internal ones linked to growth, rather than emerging from environmental or technological changes.
Hanks developed a model of growth for organizations operating in high-technology industries. He defined high-technology industries as those having a higher than average number of technology-oriented workers than for manufacturing industries, and whose research and development spending was at least equal to the average of all industries.
Hanks identified four stages of growth for such organizations. These are:
Organizations at this stage are oriented strongly towards research and development and their focus is on developing new products.
At this stage, more staff are involved in sales and accounting as organizations are actively involved in the commercialisation of their products.
At this stage there is an increase in those personnel concerned with large-scale production (e.g. quality control, purchasing, warehousing, etc.).
Organizations at this stage have an increasing number of personnel involved in such tasks as building maintenance, advertising, inventory control, etc. Early moves towards a divisionalised structure are becoming apparent.
An organisational decline can be seen as a long-lasting and ongoing decrease in the overall activity of the organisation. This can involve loss of customers or market share, a decline in competitiveness, etc. It is not meant to describe temporary slowdowns arising from changes in economic conditions or minor adjustments due to market forces.
Downsizing is a reduction in the size of the organisation through the reduction of the number of employees and organisational positions. Downsizing reduces the staff count, widens the organisation’s average span of control and pushes authority downwards.
The organizational decline may be caused by either environmental or behavioural factors.
Environmental causes are those events which occur in the firm’s environment and over which the firm has little control; it must react to them as it sees fit. Some of the environmental causes are:
Mature markets – this happens when organizations do not have many new buyers for their products left (e.g. everyone who wants a laptop already has one) and the market is limited to replacement sales.
Technological obsolescence - organizations with a single product, or those where a single product dominates sales, are often in danger if a disruptive technology is introduced. For instance, with introduction of mp3 music players, many organizations found it more and more difficult to make profit by selling CD albums only.
Loss of market share – For instance, increasing availability of cheap airlines made travelling by trains and buses over long distances less popular; yet, it does not meant that the total market shrunk – people still need to get from point A to B, but they choose more convenient means of transportation.
Globalisation has had the effect of raising the levels of competition from both domestic and foreign business and of creating new opportunities overseas. The increase in competition has led to many firms realising that they have neither the scale nor the scope to survive.
Mergers and acquisitions have become more popular, they create redundancies in many companies.
Institutional rigidities – refer to the existence in the environment of forces such as laws, agreements, etc. which are not under the control of management but which may be contributing to firms’ decline by making change difficult to enact.
Population ecology – as explained before, this approach seeks to identify characteristics in the environment which contribute to organisational failure. The following contributors to failure have been identified by population ecologists:
Population density - the more organisations there are in a population, the more likely it is that failure will occur. This is associated with carrying capacity of an environment.
The organisational life cycle - this is because it is environmental factors that are the main contributors to the life cycle. The life cycle is seen to be inevitable and not easily amenable to managerial intervention.
Some of the behavioural factors causing the organizational decline are:
A self-fulfilling prophecy - in simple terms, this means that if important groups expect that decline will happen, they will act in a way that promotes it. For instance, the greater the tendency for managers to consider decline inevitable, the less likely they are to invest in equipment and personnel to combat decline. This in turn leads to a reduction in the capacity for organisational renewal.
Groupthink – occurs when a highly cohesive team generates conditions in which high levels of unanimity are required. Under these conditions important information would not be considered by key decision makers. For instance, strong autocratic leaders can generate conditions in which alternative views and opinions are excluded.
Management perceptions - some managers find it difficult to actually understand and interpret the sources and progress of decline. In other words, it is easy to see from financial statements that the organization is less and less profitable, but those reports identify trends and associations between variables and they generally fail to identify what may be causing changes in the organisation.
Selective perception - managers concentrate on certain parts of the environment to the exclusion of others.
The rigidity effect – this proposes that individuals, groups and organisations tend to behave rigidly in threatening situations and seek to maintain the status quo. As a result, managers do not change their focus in response to an external threat and act as if it does not exist.
During decline, size has an impact on structure, but it is not the reverse of the growth pattern. This lag results in the level of structure being greater in the same organisation for a given level or size during decline than for the same level of size during growth. The lag thesis states that at a given size, X, points a and b are not equal. More specifically, at point b in time, the organisation should have a greater degree of structure. For instance, a lag in the degree of formalisation could be expected. Typically, when an organisation goes from 100 employees to 1000, there is an increase in formal rules and regulations. But this is not easily reversible.
It can be said that when an organisation is contracting, it will tend to have a higher degree of formalisation at each size level than it had at the same level in its growth stage. Organisational size is a major factor in determining an organisation’s structure during growth, but not during decline.
The administrative component refers to the number of people in an organisation who engage in support activities. If there is a lag in decline, the administrative component will shrink at a slower rate than the whole organisation. Thus, the relationship between size and the administrative component is different during decline from that during growth.
A model of organisational decline, proposed by Weitzel and Johnsson, views decline as consisting of five stages. At each stage, except the last, it is possible for management to take corrective action to end the decline process. The model, shown in Figure 14.3 on page 455, identifies five stages of decline, with each stage having a corresponding action that the organisation can take to arrest the decline.
One of the reasons for these signs being overlooked is that managers are trained to be attentive to quantitative changes in commonly gathered data, such as accounting measures of performance. Decline may have set in long before it is reflected in performance statistics. Another feature of this stage of decline is that organisations often tend to focus their attention on meeting internal benchmarks and adhering to procedures rather than concentrating on adapting to the environment. However, management can overcome the problems of blinded decline by seeking good information; once this is obtained, overcoming the problems leading to decline is straightforward.
Organisation leaders are forced to consider substantive changes to ensure organisational survival but it is not easy to determine the most appropriate course to return the organisation to health. There is pressure for quick action and decisions, which may be faulty because they concentrate on the indicators rather than the causes of the decline. Nevertheless, an effective action is still possible at this stage, provided that it correctly addresses the causes of decline.
At this stage it may be subject to takeover if it has assets of value to other organisations, but this is not necessarily the case. Products may be old or out of date, technology or capital equipment obsolete, and brand names or market positioning of little worth.
Some of the dysfunctional consequences of organizational decline are:
Growth is more likely to be associated with measures that contribute to an organisation’s survival than with numbers of employees. These include financial considerations such as cash flow, turnover and low debt levels; or strategy measures such as market share.
Two models of organizational growth will be discussed:
Organisational innovation is a process by which a new and significantly improved good, service, product or practice, which is intended to be useful, is introduced. Innovation is more than just invention; innovation is the process by which an invention is moved through the various stages of development until it is applied in practice. Invention is thinking of an idea and taking the first steps towards building a prototype or applying the idea in some way. Innovation is the far more complex process of invention combined with development and commercialisation; that is, turning the idea into a marketable product or organisational practice.
Organisational knowledge can be defined as the collective knowledge of members of an organisation, which is available for others to access and apply. Organisational knowledge has two main components – improving the opportunity for individuals to contribute to the organisation and improving the capabilities or the organisation. Organisational knowledge also includes improvement in the ability to interpret and respond to environmental changes and in decision making.
Organisational learning can be defined as the process of improving organisational action through better knowledge and understanding. It comprises elements of learning to adapt to the environment and individual responses, which are collectivised into organisational action. The concept of organisational learning implies that the actions of the organisation have been changed in response to past experiences.
The following are the main means by which organizational innovation can be promoted:
In order to be effective, complex organisations, need to draw upon and coordinate the knowledge of many persons with specialised knowledge.
Thus, at the core of knowledge management is the idea of drawing upon individual knowledge and turning it into collective knowledge.
Nonaka and Takeuchi proposed that there are two categories of knowledge and that knowledge management draws upon the differences between the two. These are:
An example of tacit knowledge is knowledge of a cook, whom skills of preparing extraordinary dishes are not easy to explain to others. That is, he can provide a recipe for a dish, but it does not warranty preparing as good meal.
For example, all airlines have extensive and detailed procedures for pilots to follow. These standard operating procedures are drawn from experience and are deemed to be best practice. They are clearly codified and must be adhered to by all pilots.
Nonaka and Takeuchi propose that moving knowledge from the implicit to the explicit resides at the core of knowledge management.
Facilitating knowledge management may be divided into three parts:
Establishing a supportive culture involves moving away from a traditional bureaucratic style to a more inclusive system of management. The key elements of such a culture are:
Introducing an appropriate structure to facilitate knowledge mainly involves removing barriers to communication and facilitating information sharing. Many organisations, particularly those providing professional services, have introduced the position of knowledge manager. Main tasks of knowledge managers are:
Information technology can provide useful tools to categorise and make knowledge within an organization available. One of the responsibilities of the role of the knowledge manager is to select and introduce appropriate programs to tap into the existing database of the firm. In doing this, the information must be presented in a format which is of use to the person or group to whom it is directed. This process is called data mining.
Increasing a firm’s capacity to learn from past actions will improve an organisation’s ability to adapt to the changing environment and thus increase its survival prospects.
It is possible to identify four different schools of thought through which to approach organizational learning. These are:
The economic school views organizational learning as a tool to promote the efficiency of the organization. For instance, through application of continuous improvement techniques and technological innovation it is possible to reduce production costs. This is achieved through incremental gains in know-how, which adds to the stock of knowledge of the organizations. Managers often use the phrase ‘moving along the experience curve’ to describe this process.
Agrgyris and Schon labelled this type of learning as single loop learning. Single loop learning is learning that does not alter established practices and procedures of the organization and leaves the basic strategies of the organization unchanged. It is the simplest form of organizational learning. The product of this form of learning may be contained in formal rules, regulations, and established practices and procedures. The challenge for management is to facilitate conditions which contribute to individuals expanding their capacity to learn job-related matters.
The developmental school links learning to the organizational life-cycle. Many organizations pass through a number of predictable stages, ranging from establishment, through growth and maturity, to decline and eventual dissolution. The development school focuses on the significance of each of these stages for organizational learning. As the firm grows and matures, it acquires experience, management depth and more resources for generating new ideas and problem solving. These are termed the firm’s dynamic capabilities.
A further interpretation of the development school is the idea that the organization moves towards a goal or end state. As there are different goals and end states, no two organizations will follow the same learning path. Past behaviour and learning is also seen to influence, and restrict, strategic options available to the organization.
The development school tends to reject the idea that learning is closely linked to managerial intervention. Rather it sees it as emerging from the autonomous activities of organization members as they solve problems associated with life-cycle issues.
Argyris and Schon labelled this type of learning as double loop learning. Higher level learning in organizations originates in a less structured environment in which the possibilities are both greater and more creative than for single loop learning. Such learning leads to changes in assumptions, norms, beliefs and theories that members apply in the organizational setting.
The managerial school considers that learning is dependent upon certain conditions or circumstances; left to their own devices, organizations will revert to lower level incremental learning of the economic type or perhaps fail to learn at all. Managers can overcome this tendency towards entropy (winding down) by creating the conditions necessary for higher level learning.
Argyris and Schon labelled this type of learnig as deutero-learning - it is a process where single loop and double loop learning combine. This is a form of learning which acknowledges the role of management in creating the conditions for organizational learning to take place.
The learning organization is seen to possess:
The process school of organizational learning concentrates upon the centrality of information processing to learning. In this instance, information processing refers to the capacity and capability of the individual to learn, rather than its more common IT association. Individual learning proceeds through the cycle of information acquisition, dissemination, interpretation and memory. If organizational learning is to be enhanced, then the capacity of the individual to learn must be improved.
March and Olsen developed a concept of a cycle of organizational learning which integrates individual and organizational learning. The cycle views organizational learning as a system in which the beliefs of individuals affect their behaviour. This behaviour transforms itself into organizational actions which produce environmental responses. These in turn affect the beliefs of individuals which in turn lead to individual’s actions. The cycle is based upon the individual learning from experience. The cycle can be represented as follows:
Individual beliefs - Individual action - Organizational action - Environmental response - Individual beliefs …..
March and Olsen describe what may happen when this learning cycle is incomplete. They identify:
Role-constrained learning which occurs when the link between an individual’s beliefs and an individual’s actions is broken. This may occur when an individual is constrained by their role or their job description; they may want to act in certain ways but are not able to do so.
Audience learning which occurs when the link between the individual’s actions and organizational actions is broken. The effect is that the individual fails to see a link between their own actions and the organization’s actions. So whilst the individual has accumulated knowledge they are unable to modify organizational actions as a result of this knowledge.
Superstitious learning which occurs when the link between organizational actions and environmental responses in broken. Nevertheless, the individual perceives that the link is still in place and modifies their beliefs accordingly. Interpreting the results of advertising and marketing campaigns often involves superstitious learning.
Learning under ambiguity which occurs when the link between environmental responses and an individual’s beliefs is broken. This happens when an individual fails to grasp the significance of what is happening in the environment and what it means for their job. Environmental change may be dimly perceived or it may not be interpreted as a threat. The individual may feel that the organization may be strong enough for environmental changes not to have any effect. Thus, this break in learning often occurs because of selective perception on the part of individuals or other cognitive limitations.
Organisational innovation is a process by which a new and significantly improved good, service, product or practice, which is intended to be useful, is introduced. Innovation is more than just invention; innovation is the process by which an invention is moved through the various stages of development until it is applied in practice. Invention is thinking of an idea and taking the first steps towards building a prototype or applying the idea in some way. Innovation is the far more complex process of invention combined with development and commercialisation; that is, turning the idea into a marketable product or organisational practice.
Sex is biological concept, which refers to whether a person is a male or female.
Gender is a broader concept which, although including sex, addresses the various actions and roles of men and women in organizations and in society generally. It includes:
Feminism can be defined as an active advocacy of the claims and aspirations of women. Feminists usually promote the rights and interests of women. These rights and interests extend to all aspects of modern life, from political decision making to equal employment opportunity.
The problem-solving characteristics deriving from the biological differences of men and women have been identified as contributing to the gender segmentation of the workforce. Specifically, the issue of right and left brain has been raised as a reason why men and women succeed in different occupations. Left brain fields are those associated with rational, quantifiable, logical and analytical thought processes. Right-brain skills are those linked to intuition, emotional orientation and relationships. While the left-brain/right-brain dichotomy is speculative, it assists us in understanding why men and women may excel in different types of occupation.
Most organizations have transparent management selection and promotion processes, and most senior managers genuinely believe that their organizations are free of discrimination. Although the visible impediments that women face in recruitment and promotion have been removed, they are still greatly underrepresented in the highest levels of management. The term glass ceiling refers to the fact that barriers exist – they are invisible and difficult to identify, but real.
It is important to be acquainted with the research of Rosabeth Moss Kanter. She reported a classic study of organizational gender segmentation which identified many of the arguments as to why male management is self-perpetuating. The organization she studied had a bureaucratic approach to management, with a tall hierarchy of many management layers. Female jobs were concentrated on secretarial and lower grade management layers. She found that the senior management of the company, which was almost exclusively male, tended to reproduce itself because people tended to understand, and trust, people who were most like themselves. As the management team required such trust, the cloning of management from one generation to the next became common, leading to men promoting other men. In other words, managers were reluctant to take a risk in promoting someone who was different from themselves.
There are four different approaches to gender studies. These are:
Those studying and writing on organizations from the liberal feminist position take the structure of industry and the organizations in it as given. They do not seek to change the nature of industry or the economic system of private enterprise and market-based decisions by companies. Rather they seek to improve the access of women to appropriate conditions of employment and to remove barriers to promotion faced by women. Consequently, there has been extensive data-gathering and statistical analysis on the participation of women in various occupational groups and levels in the organization. The liberal feminist view assumes that attainment of high positions in organizations is the aim of most women. It emphasizes access to professional and management positions, and seeks to eliminate barriers to promotion that may act against women’s interests.
Radical feminism considers that society, and the organizations in it, have been defined by men. It considers that men in society have formed a patriarchy which seeks to consistently exclude, subordinate and marginalize the role of women, and that this has become the norm in society. Further, the organizations that men create reflect the designated male values of hierarchy, competition, and obsession with winning and highly defined mechanisms to control behaviour. The designated feminist values of equality, community, participation and integration of form and content are not seen to be practiced in modern corporations, and consequently women will always be marginalized. Radical feminists say women will need to form their own organizations to be able to manage in ways that reflect their values.
Psychoanalytic feminists look more to the social arrangements associated with the upbringing of children as the means by which men and women experience different psychological development. Psychoanalytic feminists would see women as being socialized to be passive and to view themselves as victims rather than as agents in charge of their own destiny. They also lack the drive for mastery that characterizes men, and from this develops a female fear of success and the inconsistency between femininity and achievement.
Social feminism has as its core a belief in the inherently exploitative nature of capitalism. Socialist feminists further link capitalism to patriarchy and male dominance, which conspire to exploit and marginalize women.
Methodology in the behavioural sciences may be classified into the two broad categories – quantitative and qualitative. In the behavioural sciences, quantitative techniques are based on measuring some phenomenon or form of behaviour and using statistics to analyze relationships with a sample. Qualitative techniques rely on an in-depth analysis and description of behaviour. The sample is either very small, or a single person or organization. The results are mostly presented in a descriptive form and often require subjective assessments as to the interpretation.
Guiding scientific principles are the following assumptions:
A feminist may propose that methodologies used to study organizations should have the following research principles:
No researcher should be objective. Researchers should have a ‘conscious partiality’ to their subjects which allows them to empathise with their subjects’ experiences and thus obtain a greater insight into their problems and experiences.
The values implicit in the research should be acknowledged and discussed along with the findings.
It should be acknowledged that there is inequality between the researcher and the subject, leaving the researcher in a position of power.
One should accept that organizational knowledge is socially constructed and that deconstructing this knowledge will permit new insight.
The researcher should proceed on the basis of the view from below in the organization, rather than the view from above.
Research should emphasize more of the social implications of structuring, rather than trying to make hierarchies and structures more effective.
Researchers found that there are differences in male and female management styles. Some of them are:
Females’ operating style tends to be more cooperative, while male’s is usually competitive.
Women’s basic objective is quality output, while for men it is winning.
Problem-solving style is intuitive / rational for women, while it is rational for men.
The original text in chapter 16 in the book by Robbins and Barnwell was written in 1998 and was updated slightly in 2005. Also, the book is written in an Australian context. The text in this chapter should therefore be read in this context.
Interested in other texts about this subject? The following articles also discuss this subject, in other contexts:
An organization is a consciously managed and coordinated social entity, with an identifiable boundary, which functions on a relatively continuous basis to achieve a common goal or a set of goals. This definition has multiple implications. These implactions have to do with hierarchy, interaction between people or groups of people, boundries in an organisation and organization are alive to achieve something.
Organizational structure has three components; complexity, formalization and centralisation. None of these components are either fully attained or not attained at all. These components are defined in in four different ways.
Organizations can be considered to be a system. These systems are a set of interrelated and interdependent parts which interact to produce a unified output. A systems perspective offers important insight into how organizations operate.
Systems can be seen as either closed or open. A closed-system is a system that is self-contained – it essentially ignores the effect of the environment on the system and does not interact with it. An open system recognizes the interaction of the system with its environment and its dependence upon it.
The organizational life cycle contains four different stages: Birth/formation, growth, maturity and decline. It also follows a five-stage model:
Entrepreneurial stage
Collectivity stage
Formalization-and-control stage
Elaboration-of-structure stage
Decline stage.
The most important approaches to research in organization theory are: Positivism, Critical Theory and Postmodernism.
The division of labour is the breaking down of tasks into simple components which can be undertaken on a repetitive basis by job specialists. One of the first economists that paid attention to this was Adam Smith. His theory of division of labour implied that there had to be someone to decide what to produce, and then decide whom and what he needed for this. Smith was the first to describe the role of markets and the price system as mediator in economic exchange.
In the early 20th century, the classical school arose. Here, the universal idea of the theorists was that organizations should be managed to achieve rational goals.
Frederick Winslow Taylor came up with scientific management. This has four principles: Making everything exact, scientific selection of workers, cooperation of management and labour and a more equal division of responsibility.
Henri Fayol developed the principles of organization, which consists of: Division of work, authority, discipline, unity of command, unity of direction, subordination of individual interests to the general interest, remuneration, centralization, scalar chain, order, equity, stability of the tenure of personnel, initiative and esprit the corps.
Max Weber proposed the ideal-type organization and it is called bureaucracy. These organizations were characterized by: division of labour, clear hierarchy, formal selection, detailed rules and regulations and impersonal relationships.
Ralph C. Davis invented the rational-planning perspective. A simple model for designing an organization.
Later on, theorists came up with the human-relations school. Trying to harmonize people and organizations. Elton Mayo was one of them. He became famous for the Hawthorne studies, which changed the design of most of the organizations drastically. Chester Barnard merged the ideas of Fayol, Taylor and Weber.
Douglas McGregor proposed two different views: Theory X and Theory Y.
Theory X has negative assumptions from managers
Under Theory Y, management's assumptions are rather positive.
The contingency approach views the structure of organizations as contingent. Organizations are formed by pressures and there are infinite structures for organizations. James Thompson was one of the people who followed this approach, he said that the type of technology determines an organization's structure. Miles and Snow link strategy to structure.
The symbolic-interpretive perspective views an organization as a social construct. It focuses on symbols and language in an organization. So did Peter and Waterman, who focused on organizational culture.
The agency theory lays it focus on the agent's of managers, which are his 'helpers'. Here, both the subordinates and the manager want to get as much profit as possible from working with each other. This, however, is not profitable, since this can cause tension.
The institutional theory claims that an organization is an institution, which means that it is a product of past actions.
The effectiveness of an organization is defined by how good they attain their short-term and long-term goals. There are multiple approaches to measures organizational effectiveness. We discuss the following: goal-attainment approach, systems approach, strategic-constituencies approach and the balanced scorecard approach.
The goal-attainment approach states that organizations life in order to attain goals. It assumes that organizations are rational, deliberate and goals-seeking entities. There are several assumptions with this approach: organizations must have goals, goals must be explicit, goals must be achievable and measurable.
Disadvantages of this approach are that it is difficult to set proper goals, and organizations have official and unofficial goals. Also, it is difficult to chose whether to use short-term or long-term goals, and rank these goals by importance.
Managers should make sure that people who set the goals receive proper input, recognize that organizations have short- and long term goals and make the goals tangible.
The systems approach views organizations as a system, where goals are just one part of the system. It says that organizations should also be judged on whether they 'acquire, maintain and interact'. The means are more important than the ends.
It looks at factors like: clarity of internal communication and rates of innovation. The concept of added value, developed by John Kay is important for this approach. It claims that organizations should be able to get inputs from its environment and make these inputs add value.
Disadvantages can be: sometimes, measures are vague and it focuses particularly on the means rather than the organization.
The strategic-constituencies approach focuses on the environment of organizations. Here the aim is to satisfy those who can threaten the organization, these are called the strategic constituencies. Along with this, the stakeholder approach also recognizes those who have political power to influence an organization.
It is, however, difficult to identify the strategic constituencies. And the rapid changing environment is difficult to manage to see what is important.
The balanced scorecard approach is developed by Kaplan and Norton. It seeks to balance the various demands of an organization. There are 4 perspectives: Financial, Customer, Internal and Innovation and Learning. These must be balanced in this approach.
It has some disadvantages: again, the ranking of goals is difficult, furthermore, the utility of the scorecard may be limited and quick change makes it harder to manage.
The complexity of a company is defined by: horizontal differentiation, vertical differentiation and spatial dispersion. Horizontal differentiation refers to the degree to which an organization is separated into different units on the basis of the tasks performed by organizational members. Job specialization (the division of labour) is the separation of organizational activities into distinct tasks and the assignment of different tasks to different people. More specialization means more complexity.
Vertical differentiation is often referred to as the number of layers of management from the lowest level workers to the chief executive officer; it is the depth of the structure of an organization. More layers means more complexity. Span of control defines the number of subordinates that a manager can supervise effectively. Various layers of management are: top management, middle management and lower level management.
Spatial dispersion refers to the degree to which the location of an organization’s offices, plant and personnel is dispersed. More spatial dispersion causes more time to communicate.
Formalization refers to the degree to which jobs and procedures within the organization are standardized. Usually, the simpler and the more repetitive a job is, the higher the degree of formalization will be. Most common formalization techniques are: selection, role requirements, rules, procedures and policies, socialization, training and rituals.
Centralization refers to the degree to which decision making is concentrated at a single point in the organization, normally the top few managers. It is the degree to which the formal authority to make discretionary choice is concentrated in an individual, a unit or a level. Some organization might want to decentralize.
Coordination is the process of integrating the objectives and activities of the separate units of an organization in order to achieve organizational goals efficiently. Coordination may be grouped into: programmed coordination, rules and regulations characterizing organizations, planning, goal setting and scheduling. Individual coordination and informal coordination.
Henry Mintzberg’s work is the most widely used framework on classifying organizations. He argued that there are five basic parts to any organization. The operating core, strategic apex, middle line and technostructure and support staff.
Any one of these five parts can dominate an organization and where each dominates a different organizational form emerges. There are 5 different structures:
Simple structure: low complexity, and little formalization.
Machine bureaucracy: has highly routine operating tasks that are grouped into functional departments, formalized rules and regulations, centralized authority and decision making which follows the chain of command.
Divisional structure: is a set of autonomous self-contained units, each typically configured as a machine bureaucracy. The dominant part of the divisional structure lies with the middle management that reports to, and is overseen by, a head office.
Professional bureaucracy: is a decentralized configuration in which highly trained specialists form the operating core but where the benefits of standardization and decentralization are still achieved. An example of professional bureaucracy is a university, where the majority of key staff has professional expertise.
Adhocracy: is decentralized with lo formalization, low vertical differentiation and high horizontal differentiation.
Strategy was defined by Chandler as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Strategy and tactics is not the same. Neither are goals and strategy.
Strategy is determined by Planning mode or Evolutionary mode. It can be classified by corporate-level strategy or business-level strategy.
Chandler issued that organizations with a single-product strategy should have high centralization, low formalization and low complexity. When using a multi-product strategy, divisionalized strategy should be used. A product-diversification strategy could best be done by creating multiple set of independent divisions.
Miles and Snow classified organizations into one of four strategic types:
Defenders
Prospectors
Analysers
Reactors
Porter proposed that management must select a strategy that will give its organization a competitive advantage. Management can choose from among three strategies:
cost-leadership
differentiation
focus.
There is also a stuck in the middle strategy, where an organization does not really choose one.
Bartlett and Ghoshal proposed a theory linking global strategy and structure. Bartlett and Ghoshal proposed that companies should use one of the following strategies: international strategy, multidomestic strategy, global strategy or transnational strategy. Closely related to the issue of strategy’s impact on structure is the role of industry as a determinant of structure.
Researchers looked two variables that tend to differ by industry category – capital requirements for entry and product-innovation rates. They recognized four categories of industries:
Type A industries
Type B industries
Type C industries
Type D industries.
Researchers identify a number of different forms of networks and strategic alliances. These are: industrial networks, clusters and strategic alliances.
Organization size is generally accepted as referring to the total number of employees. Larger size correlates with more vertical differentiation. There are number of problems associated with managing large organizations. These are: growth of bureaucracy, the need to gather and process information and turn it into knowledge, the need to adapt to changing technologies and product life cycles, extended time frames for action, knowing where profits are being made and costs incurred, difficulty in managing over a wide geographic area, bounded rationality, divisionalization, physically separate those areas of the organization which undertake different types of work, outsourcing, finding a balance between what decisions to centralize and decentralize and structuring to facilitate change and ensuring that important tasks have someone responsible for them.
Downsizing may be defined as the planned elimination of positions or jobs. Downsizing is often used to describe layoffs arising from technological change. Reasons might be: changes in structure, declining profitability, increased competition or change in strategy.
Technology refers to the information, equipment, techniques and processes required to transform inputs into outputs in an organization. Joan Woodward's was the first major attempt to view organization structure from a technological perspective. She distinguished 3 types of modes of production technology:
Unit production
Mass production
Process production
Charles Perrow defined technology as ‘the action that an individual performs upon an object, with or without the aid of tools or mechanical devices, in order to make some change in that object. Two dimensions of knowledge technology are task variability and problem analysability.
The four cells in the matrix of Perrow represent:
Routine technologies
Engineering technologies
Craft technologies
Non-routine technologies.
James Thompson proposed three types of technology, each creating a type of interdependence: long-linked technology, mediating technology and intensive technology.
Jay Galbraith considered that as task uncertainty increased, so did the amount of information that had to be processed among decision makers in order to achieve the desired level of organizational performance.
There are differences between manufacturing and service companies. Service companies typically have simultaneous production and consumption and the customer is part of the production process. Manufacturing companies have boundary spanners, whose main task it is to interact with customers.
Information technologies (IT) is a general term covering a number of different categories of information processing. These are:
undertaking tasks associated with the day-to-day operations of the organization;
technologies that improve communication;
control systems;
decision support systems;
codifying the knowledge base;
promoting innovation, and;
supporting interorganizational systems.
Information efficiencies are cost and time savings that result when IT permits individual employees to become more productive. Information synergies, on the other hand, emerge when two or more individuals or subunits use IT to collaborate across organizational boundaries.
Computer-integrated manufacturing (CIM) applies computerization to manufacturing tasks. CIM has helped to achieve economies of scope.
The environment is usually defined as everything outside an organization’s boundaries. The general environment is essentially the same as an organization’s environment. It includes conditions that may have an impact on the organization, but their relevance is not particularly clear. The specific environment is directly relevant to the organization in achieving its goals.
Domain identifies the organization’s niche. Environments differ in what is called environmental uncertainty. The process through which the actual and perceived environments interact in relation to environmental uncertainty has been explained in an interpretation called the enacted environment.
Burns and Stalker proposed two structures, namely the mechanic structure and the organic structure.
Lawrence and Lorsch looked at two separate dimensions that constituted an organization's internal environment: differentiation and integration. Differentiation seems similar to horizontal differentiation and integration is the quality of collaboration among interdependent units or departments.
Duncan classified environments along two dimensions – the rate of change of environments and the environmental complexity. The combination of a stable environment and low complexity leads to low uncertainty for organizations. A stable environment combined with a high level of complexity leads to low to moderate uncertainty. An unstable environment combined with low levels of complexity leads to moderate to high uncertainty. When organizations are both complex and unstable, high uncertainty ensues.
Recent research suggests that there are three key dimensions to any organization’s environment: capacity, volatility and complexity. The capacity of an environment refers to the degree to which it can support growth.
There are three main theories on the environment – organization relationship. These are:
population ecology
institutional theory
resource-dependence theory
The power-control view states that an organization’s structure at any given time reflects the interests of those in power who select a structure that will, to the maximum degree possible, maintain and enhance their influence and control and permit them to implement their policies.
Child made the strategic choice argument, this meant: while there are limitations on managers’ discretion to make decisions, there is still scope for them to make choices favorable to themselves. Managers have 4 constraints on their decision making;
environment,
technology
strategy
size
This argument can be condensed into four basic points.
Non-rationality is a process of decision making that does not follow the principles of logical deduction and decision optimization. Rational decision making, however, assumes that decision makers focus exclusively on the interests of the organization. However, organizations are composed of groups and individuals with divergent interests.
Coalitions are made by individuals who make the organization coalesce into groups with similar interests or values. Although coalitions may form around any number of issues, the dominant coalition is the one that has the power to affect structure.
The term power stands for an individual’s capacity to influence decisions. It can be said that: the higher one moves in an organization, the closer one moves to the power core and it is not necessary to have authority to wield power.
The research indicates that there are three ways in which people within the organization can acquire power: hierarchical authority, control of resources and network centrality.
There are five areas in which structure creates political arenas in organizations:
position in the hierarchy
resource allocation
interdepartmental coordination
responsibility exceeding authority
structural change
The most common ways in which power is exercised in a political arena are:
Building coalitions
Defining the nature of the problem
Enhancing legitimacy and expertise
Making preferences explicit, but keeping power implicit
Expanding network of influence
Organizational slack refers to the resources in excess of the minimum required for organisational effectiveness and which provide the capacity for an organization to respond to environmental change without changing the organization.
The following can be said about the influence of each contingency discussed:
The influence of size is multidimensional
The influence of strategy is mostly felt at the top and the middle of the organization,
Technology was found to have its greatest impact at the individual and work-group level,
Environment has its greatest structural impact upon those in the middle of the organization
Power has its greatest structural impact at the top
The functions of structure are:
supporting the implementation of strategy
supporting the defining of areas of responsibility
providing control mechanism
facilitating the flow production
promoting coordination and information flows
monitoring and responding to environmental change
supporting the maintenance of organizational knowledge and learning
Major sources of change over the past 25 years are mostly due to government decisions and growth of globalization.
Max Weber introduced the term bureaucracy. Seven principles he proposed are:
division of labour;
well-defined authority hierarchy;
high formalization;
impersonal nature;
employment decisions based on merit;
career tracks for employees, and;
distinct separation of members' organizational and personal life.
Some advantages are the focus on merit and rules and regulations that promote impartiality. On the other hand, many disadvantages arise, like goal displacement and bureaupathic behaviour, overstaffing, concentration of power and non-member frustration.
The major structural innovations in the recent decades are:
Focusing management effort on key responsibilities;
Rethinking the centralisation-decentralisation balance;
Moving focus from internal processes to external adaptation;
Greater use of market controls;
Improving communication flows;
Working back from the customer;
Concentrating effort on core competencies, and;
Improving availability of information.
A virtual organization has the characteristics of a formal organization while not being one. It compromises a complex network of smaller organizations.
Managers have two general strategies they can adopt in their attempt to lessen environmental uncertainty; internal strategies and external strategies.
Internal strategies are:
Domain choice: the part of the environment in which the organization operates.
Recruitment
Environmental scanning: involves investigation of the environment to identify actions by competitors, government, etc. that might influence the organization’s operations. Boundary spanners are staff who act as conduits between the organization and its environment.
Buffering: reduces the possibility that the organization’s operations will be disturbed by ensuring that inputs are available to the production process and that there is steady demand on the output side
Smoothing: a technique used to level out the impact of fluctuations in the environment
Rationing: allocating output according to some priority system
Improving organization processing
Geographic dispersion
External strategies are:
Bridging: the process by which managers try to regulate their environment through negotiation, cooperation, exchange of information and other forms of mutual benefit
Advertising
Contracting: reduces risk by agreeing contracts.
Co-opting: absorbing those who threaten the stability of the organization.
Coalescing combining with other organizations.
Lobbying
Insuring
Hedging and future markets: against currency shifts.
The way in which change is managed depends on the type, origin and magnitude of the drivers of change, as not all organizational change is the same. There are two main types of change:
Revolutionary
Evolutionary
When the organisation is faced with a change that alters its very nature, the change of this magnitude is called revolutionary change. Disruptive technology is one of the causes of this. Usually the rate of change, in contrast to the magnitude of change, has been such that managers have been able to plan the change program and have had a buffer of time to introduce it.
Revolutionary change is often accompanied by: redundancies and downsizing, shifts in power, changes in strategy and a new organisational structure.
Evolutionary change describes ongoing minor changes that are incorporated in the existing organisational structure. Most change is evolutionary change.
Change can be also classified as planned or unplanned.
Planned change refers to situations in which organisations have adequate time to anticipate and formulate a response to the drivers of change.
Unplanned change emerges as a response to an unanticipated threat or event.
Through combining the two dimensions of change, it is possible to develop a matrix which categorises the various forms of change. Four forms that emerge are:
adaptive change
systemic change
transitory change
chaotic change
Indicators for a new structure are:
Decision making is slow or inappropriate, overcoming this can be done by:
improving information flows
clarifying ideas
hiring people with specific skills
removing superfluous people or departments
reviewing job responsibilities
The organisation is not responding innovatively to environmental change.
All important tasks should have someone responsible for them, if it this is not the case, change should be implemented.
Change agents are those in power who want to implement a change, and those who want either to replace or to constrain those in power.
Large-scale change programs require a comprehensive plan. The change plan identifies the intervention strategies, which fall into one of these categories:
people
structure
technology
organisational processes
Behaviours can be changed by changing structure, technologies, and processes; one of the aims of changing structure is, in fact, to induce a behavioural change on the part of office holders.
Once forces for initiating change have been identified and those responsible have drawn up a change plan, the next phase in the change program is implementation. Most change programs are one-off events or part of an ongoing process of change.
There are a number of key factors that determine the degree to which a change will become permanent. The relevant factors are:
reward allocation system
support of a sponsor
transmitting information
cultural change
commitment
degree of diffusion
Appropriate tactics for implementing change are critical to success. Research has identified four basic tactics:
intervention
participation
persuasion
edict
The intervention tactic is characterised by change agents selling their change rationale to those who will be affected.
The participation tactic is characterized by change agents delegating the implementation decision to those who will be affected.
The persuasion tactic is characterized by change agents handling change by essentially abdicating the decision to experts.
The edict tactic is characterized by top management making the key decisions and using hierarchical authority to implement them.
The following actions can be considered to be the most appropriate to take when managing unplanned change:
centralisation of management
establishment of special task forces
active management of the environment
management of resources
need for active leadership
Organisational culture refers to a system of shared meaning. The culture of an organisation is expressed in the values and behavioural norms of organisational members. There are two types of values:
Terminal values
Instrumental values
Norms are behavioural and attitudinal standards that are taken as accepted for a given group.
Culture exists at two levels:
outward manifestations of the culture
deeply held values, beliefs, assumptions, attitudes and feelings that underlie behaviour
The following represent the key characteristics where cultures differ:
Individual initiative
Risk tolerance
Direction
Integration
Management support
Control
Identity
Reward system
Conflict tolerance
Communication patterns
A dominant culture expresses the core values that are shared by a majority of the organisation’s members. Subcultures tend to develop in large organisations to reflect common problems, situations, technologies or experiences that members face.
These subcultures can form vertically or horizontally.
A vertical subculture exists when one product division of a divisionalised form has a culture uniquely different from that of other divisions of the organisation.
A horizontal subculture exists when a specific set of functional specialists have a set of common understandings.
A strong culture is characterised by the organisation’s core values being intensely held, clearly ordered and widely shared. A strong culture promotes behavioural consistency.
The successful organisation will achieve a good external fit – its culture will conform to its strategy and environment. Successful organisations will also seek a good internal fit, with their culture properly matched to their technology.
The four forces that play the most important part in sustaining a culture are:
the organisation’s selection practices;
the actions of top management;
the organisation’s socialisation methods, and;
the use of appropriate rewards and punishments.
In addition to explicit orientation and training programs, culture is transmitted to employees in a number of other forms, such as stories, rituals, material symbols, observation and language.
Managing culture means changing the culture. The factors influencing cultural change are:
A dramatic crisis - this is the shock that undermines the status quo.
A long-term slow decline
Leadership turnover
Life-cycle stage- As the organisation moves into growth, major changes will be necessary. Decline typically requires cutbacks and other retrenchment strategies
Age of the organisation
Size of the organisation
Strength of the current culture – the stronger the culture, the more difficult it will be to change.
Absence of subcultures
Techniques available to manage organisational culture are:
Applying firm leadership
Seeking political support
Changing key personnel
Implementing structural changes - Structure influences the ways in which people behave in organisations.
Avoiding micro-managing the details - It is not possible for senior managers to micro-manage the details of cultural change. Micro-management is concerned with managing the small details of day-to-day processes and events.
The need to be patient
Applying appropriate management skills
Growth is more likely to be associated with measures that contribute to an organisation’s survival than with numbers of employees.
Larry Greiner studied a number of organisations and from his observations proposed that organisational growth is characterised by periods of steady growth, followed by shorter periods of internal turmoil. The periods of steady growth he called evolution; the periods of internal turmoil he called revolution.
The phases in this model are:
creativity
direction
delegation
coordination
collaboration
Hanks developed a model of growth for organizations operating in high-technology industries. He defined high-technology industries as those having a higher than average number of technology-oriented workers than for manufacturing industries.
Hanks identified four stages of growth for such organizations. These are:
start-up stage
expansion stage
late expansion/early maturity stage
maturity/diversification stage
An organisational decline can be seen as a long-lasting and ongoing decrease in the overall activity of the organisation.
Downsizing is a reduction in the size of the organisation through the reduction of the number of employees and organisational positions.
Environmental causes are those events which occur in the firm’s environment and over which the firm has little control; it must react to them as it sees fit. Some of the environmental causes are: globalisation, mature markets, loss of market share or technological obsolescence.
Some of the behavioural factors causing the organizational decline are:
self-fulfilling prophecy
groupthink
management perceptions
selective perception
rigidity effect
The administrative component refers to the number of people in an organisation who engage in support activities.
A model of organisational decline, proposed by Weitzel and Johnsson, views decline as consisting of five stages:
blinded decline
inaction
faulty action
crisis
dissolution
Organisational innovation is a process by which a new and significantly improved good, service, product or practice, which is intended to be useful, is introduced.
Invention is thinking of an idea and taking the first steps towards building a prototype or applying the idea in some way. Innovation is the far more complex process of invention combined with development and commercialisation; that is, turning the idea into a marketable product or organisational practice.
Organisational knowledge can be defined as the collective knowledge of members of an organisation, which is available for other to access and apply. Organisational learning can be defined as the process of improving organisational action through better knowledge and understanding.
The following are the main means by which organizational innovation can be promoted:
promotion of a supportive culture
implementation of appropriate reward systems
tolerance of ideas which are not implemented
creation of boundary spanning positions
At the core of knowledge management is the idea of drawing upon individual knowledge and turning it into collective knowledge.
Nonaka and Takeuchi proposed that there are two categories of knowledge and that knowledge management draws upon the differences between the two. These are:
Tacit knowledge
Explicit knowledge
Facilitating knowledge management may be divided into three parts:
establishing a supportive culture,
introducing an appropriate structure, and
making appropriate use of technology.
It is possible to identify four different schools of thought through which to approach organizational learning. These are:
the economic school (single loop learning);
the development school (double loop learning);
the managerial school (deutero learning), and;
process school.
March and Olsen developed a concept of a cycle of organizational learning which integrates individual and organizational learning. The cycle views organizational learning as a system in which the beliefs of individuals affect their behaviour. They identify:
role-constrained learning
audience learning
superstitious learning
learning under ambiguity
Sex is a biological concept, which refers to whether a person is a male or female. Gender is a broader concept which, although including sex, addresses the various actions and roles of men and women in organizations and in society generally.
Feminism can be defined as an active advocacy of the claims and aspirations of women. Feminists usually promote the rights and interests of women.
Most organizations have transparent management selection and promotion processes, and most senior managers genuinely believe that their organizations are free of discrimination. The term glass ceiling refers to the fact that barriers exist – they are invisible and difficult to identify, but real.
Rosabeth Moss Kanter reported a classic study of organizational gender segmentation which identified many of the arguments as to why male management is self-perpetuating.
There are four different approaches to gender studies. These are:
Liberal feminist theory,
Radical feminist theory,
Psychoanalytic feminist theory, and
Anti-capitalist feminist theory.
The liberal feminist position takes the structure of industry and the organizations in it as given.
Radical feminism considers that society, and the organizations in it, have been defined by men.
Psychoanalytic feminists look more to the social arrangements associated with the upbringing of children as the means by which men and women experience different psychological development.
Social feminism/anti-capitalistic feminism has as its core a belief in the inherently exploitative nature of capitalism. Socialist feminists further link capitalism to patriarchy and male dominance, which conspire to exploit and marginalize women.
Methodology in the behavioural sciences may be classified into the two broad categories – quantitative and qualitative.
Quantitative techniques are based on measuring some phenomenon or form of behaviour and using statistics to analyse relationships with a sample
Qualitative techniques rely on an in-depth analysis and description of behaviour.
Summary with Organization Theory: Concepts and Cases by Robbins and Barnwell
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