DSM 501 MANAGEMENT PRACTICE

1 LECTURE 1 INTRODUCTION: Overview of the course What is management What is Management theory What is management practice What do managers do? – the classical, the neo classical and the

contemporary views Management skills –conceptual, human resource and technical skills Levels of management- top level ,middle level and lower level

managers Managerial roles Is management a science an art or a profession Importance of management theory Importance of management

Nissan case===============================================================

1.0 INTRODUCTION

1.1 What is management? The term management can be defined in the following ways:

1. As a group of people whose job is to direct the efforts of others in the organization towards the attainment of the organization’s objective

2. Management as a process refers to the process by which management directs actions in the organization towards the achievement of organization’s goals through the functions of planning, organizing controlling staffing and so on.

3. Economists define management as a resource or as one of the factors of production together with capital, land, labor and entrepreneurship. In this context management is bought and developed so as to increase the firm’s productivity and profitability.

4. Organization theorists view management as a system of authority. Management in this approach is defined in terms of the rank and position it occupies in the hierarchy of an administrative system. Management occupies a certain position in this administrative hierarchy and plays a certain role in the system with regard to decision making, control and other aspects of the organization.

5. Sociologists view management as a class and status in the social system. In a social system management occupies a certain position. Entrance to this position in the social system is based more and more on education and knowledge and ability to analyze organizational issues and make good decision.

1.2 What is management theory?

Management theory means a theory about management. It is a body of knowledge created through scientific (systematic) method. It consists of principles and concepts. These concepts and principles have been determined through observation of events and facts and has established causal relationships and associations of the events and facts. Where these associations and relationships have been established to be true after long periods of observation and association the principles are given and are used to predict what can happen in similar circumstances. Principles could be descriptive prescriptive or normative. Descriptive principles describe relationships between variables. Prescriptive (or normative) principles recommend or propose what should be done to achieve certain results. Management principles are prescriptive because they propose what should be done to achieve organization’s objectives. Therefore management theory is a body of knowledge created or developed through a method of science and consists of principles and concepts that advise management on the things that should be done about organizations so as to achieve desired results.

1.3 Is management a science, an art or a profession?

Management as an art Art is the know how to accomplish desired results. This implies that there exists a body of knowledge which management uses to accomplish the desired results in organization

Management as a profession A profession implies that:

1. It is based on a proven systematic body of knowledge and this requires intellectual training to acquire

2. In a profession emphasis is made on service to others and usually there is a code of ethics to be followed

3. Entrance to the profession is usually restricted by standards established by an association of members , membership of which is restricted to people with common training and attitude

4. A profession maintains an experimental attitude towards information and is constantly in search of new information and knowledge through research and practice

Management as science Science implies a body of knowledge created through the scientific or systematic method or process. To qualify as scientific the process of creating

this body of knowledge must follow a specific process. Management theory has been created through a systematic process. In addition a scientific theory must fulfill the following other conditions

1 It is based on empirical findings2 Its findings are objective3 It uses specific clear and unambiguous concepts4 It consists of principles variables and relationships between those

variables5 The methodology used can be replicated6 Data analysis is relatively rigorous

1.4 Importance of management theory

Management theory is important to a practicing manager because it assists in:

1 Describing work tasks the organization in a clear and unambiguous terms and concepts

2 Predicting outcomes of managerial action3 Prescribing solutions to management action4 Rationalizing management decisions

Management theory also helps managers deal with the following complexities

organization complexity environmental complexity technology globalization workforce diversity size competitive advantage

1.5 What do managers do The Classical Approach Managers perform the functions of planning,

organizing, staffing, controlling, motivating and leading

The neo classical Approach In the neo classical approach managers perform three important roles interpersonal, informational and decisional roles

1. Inter personal roles The figurehead role (performing ceremonial and social duties as

the organization’s representative). The leader role The liaison role

2. Informational role The recipient role (receiving information about the operations of an

enterprise). The dissemination role (passing information to subordinates). The spokesperson role (transmitting information to those outside the

Organization)

3. Decision role The entrepreneurial role The disturbance handler role The resource allocator role The negotiator role (dealing with the various persons and groups of

persons)

1.7 The Modern Approach This approach proposes that managers perform the following functions Communication, Human resource management and Networking

1.8 The Importance of Management

Management is important because Resource allocation Interpersonal role Liaison role Decision role Networking Management is important to both businesses and individual life. In business management is the dynamic life giving element. It is

management that utilizes resources to purchase goods and services. It is management that coordinates, arranges and controls in a

systematic manner, limited resources to satisfy individual, organizational and societies’ needs.

Management helps in:- Effective utilization of resources- Effective interaction with business environment.- Formulation of suitable rules policies and products.

Management is responsible for the achievement of goals and objectives.

Management ensures optimum utilization of resources. Management through leadership, motivation, communication and

supervision ensures efficient running of business organizations. Management through organizing, establishing a pattern of authority-

responsibility relationship that helps create a sound formal structure.

Management ensures smooth (undisruptive) functioning of organization.

Management works to create the company’s good image, reputation and goodwill.

Management helps organizations in adjusting and coping with the changing business environment.

Management helps in maintaining healthy relations with outside parties, like customers, suppliers financiers, government, service providers, owners etc.

In addition management helps deal with the following challenges.- Complexities, competition and uncertainties.- Cultural diversity- Economic, social and cultural challenges of the nation.- Surviving during lean times.

LECTURE TWO

THE EVOLUTION OF MANAGEMENT THEORIES: THE CLASSICAL APPROACH

The Pre classical The Neo Classical

2.1 Pre-classical PeriodDuring this period management theory existed basically as set of concepts and principles used in organizations by managers to achieve efficiency and effectiveness The Roman Empire The extensive bureaucracy of the Roman Empire could not have been maintained in such a form and for such a long time without the application of a management theory that we know today. The Chinese EmpireThe construction of the Great Wall of China could not have been accomplished without the sophisticated administrative and bureaucratic structures we know today.

The Pyramids of Egypt The pyramids of Egypt could not have been completed without sophisticated organization practices and structures of the modern period.

The Catholic Church The Catholic Church has also practiced many elements of classical

theories for almost 2 thousand years.

Summary: The pre classical approach was ad hoc, no order and systematically (scientifically) developed body of Knowledge to be a reference point for managers

2 The Classical Theories (The classical Approach)

The classical theories were developed in three streams/approaches namely: a) The Administrative theory b) The theory of Bureaucracy c) The scientific management Theory

The main elements of each of the three approaches are as follows: 2.1 The Theory of Bureaucracy:

(1) Was developed by sociologists who took a relatively scholarly descriptive point of view

(2) The most famous of those sociologists was Max Weber (1864 – 1920) who was a German Sociologist. He published most of his works towards the end of the 19th Century. Max Weber identified the following as the main characteristics of bureaucracy

Labor is divided so that the authority and responsibility of each member is clearly defined.

Offices or position are organized in a hierarchy of authority resulting in a chain of command.

All organization’s members are to be selected on the basis of technical qualifications through formal examinations or by virtue of training or education.

Officials are appointed not elected. Administrative officials work for salaries and are career people. The officials are separate from owners The officials are subject to strict rules and controls regarding the

conduct of their official duties. Those rules are impersonal and uniformly applied to all people and cases.

The above specifications by Max Weber were necessary because during this period and before, most organizations were managed on a “personal” family like basis. Employees were loyal to an individual rather than to the organization or its mission. The dysfunctional consequences of the practice were that resources were used to realize individual desires and goals rather than organizational goals and needs. Employees in effect owned the organization and used resources for their own rather than to serve customers and organizations.

Max Weber envisages organizations that would be managed on an impersonal basis. He called this form of an organization bureaucracy. Max believed that organizations that exhibited the characteristics that he described would be more efficient and adaptable to change.

2.2 Administrative Theory:This theory was largely developed by Henri Fayol (1841 – 1925) who was a French industrialist. He described a number of management principles that go towards capturing the entire flavor of the administrative theory of management. Some of those principles are:

(i) Division of work (or specialization) One should work at activities in which he/she has comparatively higher skills. This should lead to higher productivity.

(ii) Authority and responsibilityAuthority is right to give orders. Each person should have an appropriate authority to go with the given responsibility. Responsibility is the task to be accomplished.

(ii) Discipline There must be respect and obedience to the rules and objectives of the organization.

(iii) Unity of Command To reduce confusion and conflicts each member should receive orders from and be responsible to only one superior.

(v) Unity of directionAn organization is effective when members work together towards the same objective.

(vi) Subordination of individual interest to general interest The interests of one employee or group of employees should not prevail over that of the organization. Rather, the general interest must be maintained as paramount.

(vii) Remuneration of personnel should be fair – not exploitative, and should reward good performance.

(viii) CentralizationA good balance should be found between centralization and

decentralization.

(ix) Scalar Chain

There is a scalar chain or hierarchy dictated by the unity of command linking members of the organization from the top to the bottom.

(x) EquityKindliness and justice, largely based on predetermined conventions, should prevail in the organization.

(xi) Stability of tenure of personnel Job security should reward good performance.

(xii) Initiative A manager who has initiative, and can get others junior to him to do it, is far superior to the one who does not have this ability.

(xiii) Esprit de corps “Unity is Strength”- superior performance comes from working together; thus, everyone in the organization should be encouraged to work together and have a sense of belonging.

(xiv) Technical ability Technical ability predominates lower down the ladder and management ability higher up.

(xv) Fayol emphasized the importance of planning, organizing commanding and coordination and controlling in organizations.

(xvi) Fayol recommend rational selection of and training of workers together with professional training for managers.

Evaluation of Administrative theory

1. The principles of administration as postulated by Henri Fayol fail to be universal truths.

2. The principles lack scientific derivation and verification.

3. The administrative theory is power centered. It is thus in philosophical conflict with those who desire limited individualism.

4. Administrative theory suffers from the dysfunctions of bureaucracy such as rigidity, impersonality, and excessive categorization.

5. Administrative theory suffers from superficiality, oversimplification and lack of realism. It is satisfied with theoretical rather than actual.

However, as a theory of organization, the Administrative theory is critical because:(i) It recognizes the need for:

Specialization Unity of command Discipline Separation of individual and organization interest.

(ii) It also introduces essential principles that even today lead to organization efficiency.

2.3 Scientific Management Theory

First developed by Fredrick W. Taylor (1856 – 1915) a mechanical engineer in the United States the Scientific Management can be defined as:

The application of scientific method of study, analysis and problem solving to organizational problems.

Or A set of mechanisms or techniques for improving organizational

problems.Scientific Management focuses its unit of analysis on the physical activities of work. Scientific management deals with the relationship of a worker and his or her work. Thus, this is emphasis on man-machine relationships with the objective of improving performance of routine, repetitive productions tasks.Scientific management advocates for an empirical detailed study of each job to determine how it could be done most efficiently.The basic assumptions of scientific management theory are:

Improved results in organizations will come from the application of the scientific methods of analysis to organizational problems. In other words, the scientific management approach holds that scientific solutions to problems of management of organizations are superior to those of other approaches.

Scientific management focuses primarily on work itself and not on the particular person doing the work.

Each worker is assumed to be a classical economic man-interested in maximizing his monetary income. The complications of emotional and social actions and reactions of persons in organizations are not emphasized.

The basis principles of scientific management as expounded by Fredrick W. Taylor are as follows:

Develop a science for each element of man’s work in order to maximize the organizations output.

Scientifically select and then train, teach and develop the worker.

Management should heartily cooperate with the workers so as to ensure all the work is being done in accordance with the principles of science.

There is almost equal division of the work and responsibility between management and the workers. The management should take over all work for which they are better fitted than the workers, and the workers should do the work for which they are better fitted.

Application of the piece rate principle : This is the principle by which workers are paid by piece rates on the basis of standards set by motion and time studies rather than on other basis. Piece rates are effective in motivating workers. Tailor’s piece rate system was called the differential piece rate system. Under this system, workers were paid a low piece rate up to a standard (a standard was based on a first class man performing under average conditions). At higher levels of output the worker was paid a hire rate.

Tailor’s recommendations were designed to reduce the inefficiencies and the wastefulness of the past through practicing scientific rather than rule of thumb methods.

Evaluation of the Scientific Management TheoryThe basic problem with the scientific management theory is that it assumed man to be purely an economic man interested only in the satisfaction of his basic needs. His rationality and motivation were purely financial/ materialistic. These assumptions were not realistic and man was motivated by more than his basic needs as later proved by the neo classists

The Neo Classical (Behavioral or Human relations) TheoriesObjectives of the chapter

1) to introduce the students to the behavioral approach

2) to explain the basic principles of the Hawthorne experiments, Mary Parker Follet and Chester Barnard

3) To discuss the basic principles of Maslow’s hierarchy of needs theory, McGregor theory X and Theory y and Vroom’s equity theory

4) to describe the basic principles of the behavioral approach

5) to discuss the strengths and weaknesses of the behavioral approach

2.1 The Hawthorne Experiments Carried out between 1927 and 1933 at the Chicago Hawthorne plant

of the Western Electric Company. Four studies were done namely: ELTON MAYO

1 The illumination studies

The objective of this experiment was to determine the relationship between the level of illumination and worker productivity. It was expected that worker productivity would increase with increasing levels of illumination. The studies failed to prove any relationship between worker productivity and level of illumination 2 The Relay Assembly Test Room Studies The objective of this study was to determine the relationship between worker productivity and improved benefits and working conditions. The experiment also wanted to find out whether there were other factors that influence productivity and worker behavior. The studies found out that there was no cause – and – effect relationship between working conditions and output. Rather, there were other factors that affected worker’s output such as his/her attitudes and supervisor behavior.

3 The interviewing Program In this Experiment the employees were interviewed to learn more about their opinions with respect to their work, working conditions and supervision. The interviews sought the views of the employees on the factors that could lead to increased productivity. The interviewees suggested that the following other factors could affect their productivity:

Psychological factors help determine whether a worker is satisfied or dissatisfied in any particular work situation

The person’s need for self-actualization determines his/her satisfaction in the work.

A person’s work group and his relationship to it, also determines his/her productivity.

4 The Bank Wiring Room studiesThis experiment sought to study the effect of group influence on workers’ productivity. The researchers found out that an informal grouping and relationship was a critical factor in the workers’ productivity. The informal group determined the group’s productivity, and functioned as a protective mechanism (served both for internal and external purposes). The Hawthorne Experiments concluded that:(i) An industrial organization is a socio technical system. The socio part is

the human aspects that need to be taken care of in order to increase workers’ productivity and the technical system is the physical aspects that also need to be improved.

(ii) Employee attitudes and morale are also important as determinants of productivity.

(iii) Other factors include worker’s personality and supervisor’s behavior. These two also affect worker’s altitude and morale.

(iv) A worker’s social group has a prevailing effect on his or her altitude and productivity.

Criticisms of the Hawthorne studies(1) The philosophical basis

By emphasizing the social needs of human being rather than the economic needs and self-interest, these studies conflict the philosophical basis of economic theory.(2) Methodology

i) The study methodology lacks the basis for generalizations. ii) Findings

The cause – and – effect relationship conclusions lack general support and scientific verifiability.

Contribution The Hawthorne Studies have however made the following contribution to Organization theory

As a basis for organization theory Research, the Experiments were important. They were some of the earliest scientific studies in human behavior.

Their finding on the importance of informal groups is also a key to organization theory.

Their emphasis on employee altitude towards work as an additional to other factors was a breakthrough in organization theory.

2.2 Mary Parker Follet- a philosopher and political scientist

Was also a social worker among the poor in Boston? Emphasized the importance of subordinating individual freedom

to that of the group Stressed the importance of democracy in decision making – by

involving all in order to find a solution. Recommended the use of power with rather than power over.

Observed that Power cannot be delegated but authority can. Power is the capacity to get things done. Authority is the right to give orders. Power should be exercised with rather than over. Power over is dominance or control, based on force. Power with is a jointly developed power. She emphasized that power is a basic to management – especially when used with.

Defined conflict as the difference in opinion or interests. She emphasized that conflict cannot be avoided, and therefore must be used to manage organizations. Noted that there are three ways of managing conflict:

Dominance – one side wins over the other Compromise – each side gains something to settle the

conflict; also each side loses something. In both dominance and comprise, the basic causes of conflict is not settled. Follet recommends a third way.

Integration of desires. In this way a solution that fully meets the goals of each party in a dispute is found. Both parties get what they want. Neither party gives up anything. Integration lets the parties creatively discover alternatives that satisfy both parties in conflict. In integration, conflict is used to creatively discover alternative that satisfy both parties.

Follet also brought a new way of looking a leadership. She defined a leader as

one with a vision of the future and can articulate the common purposes towards which the organization is striving.

The leader focuses the energies of people towards that purpose. A leader not only knows the technical aspects of his job, but also understands the total situation and the relationship among its many parties.

Leaders also train and develop their followers.

2.3 Chester Barnard

Barnard was writing in the 1930s Was the President of New Jersey Bill Telephone Company Contributed to organization theory in three areas:

i) The importance of individual behaviorii) Theory of complianceiii) Theory of organization structure

1. The importance of individual Behavior

- Bernard was the first person after the Hawthorne studies to emphasize the importance and variability of the individual in the work setting.

- He emphasized that an essential element in organizations is the willingness of persons to contribute their individual effort to the organization.

- The individual is always the basic strategic factor in organizations.

- Consequently the individual regardless of his history or his obligations, must be induced to cooperate or there cannot be cooperation.

2. Barnard’s theory of compliance

Barnard’s theory of compliance consisted of four basic elements.(i) The willingness to cooperate is a basic element of the

individual in the organization(ii) In complying, the individual surrenders his personal

preferences i.e. surrender in order to comply in an organization.

(iii) An individual is only willing to comply if he is sufficiently induced.

(iv) The level/quantity of inducements determines his degree of compliance.

Barnard noted that material incentives by themselves are not enough. Other incentives include: Opportunities for distinction Prestige Personal power Coercion (i.e. sometimes force is necessary to obtain compliance).

3. Barnard’s theory of organization structure

- Emphasized that the organization was a structure of decision makers

- Stressed the importance of communication in organizations- Stressed the role and importance of informal organizations in

communication and cohesiveness- He was also one of the first organization theorists to take a

system’s view of organizations.

2.4 McGregor’s Theory X and Theory Y

McGregor proposed two sets of assumptions while motivating a worker; the theory X and theory Y assumptions. A manager’s behavior towards his workers and his management style will differ based on the assumptions guiding his behavior.

Theory X assumptions

i) The average person dislikes work and will avoid it if possible.ii) Because of this dislike for work, the workers must be directed, tightly

controlled and pressured to get them to work towards organizational goals.

iii) The average person wants security, avoids responsibility and has little ambition.

Theory Y assumptions

i) The average person does not dislike workii) If a person is committed towards a set of goals, he will work towards

them without an external control.iii) Goal commitment follows from the satisfaction of a person’s desire to

achieveiv) The average person can learn to accept responsibility. Lack of

ambition is not a basic human characteristic.v) Creativity, ingenuity and imagination are human characteristics that

are unduly dispersed in the populations Modern organizations only partially tap the potential of its workers.

2.4 Maslow’s hierarchy of needs

Maslow’s proposed that within every person is a hierarchy of needs (five). These are;

a) Physiological needs- these are the food, drink, shelter etcb) Safety needs- security and protection from physical and emotional

harmc) Social needs- need for affection, belongingness, acceptance and

friendship.d) Esteem needs- self respect, autonomy and achievement.e) Self actualization- need to achieve ones maximum potential and self

fulfillment.

Maslow argued that; 1. Human beings require needs in a hierarchical order2. Each level of need must be substantially satisfied before the next level

is activated.3. Once a need has been satisfied it ceases to motivate and the next

level becomes more dominant. 4. Therefore if you want to motivate you must first identify the level that

person is on in the hierarchy of needs and focus on satisfying needs at or above that level.

5. Maslow separated the two needs into higher and lower level needs. Physiological and safety needs were considered lower order needs, social esteem and self actualization needs wee considered higher order needs. The difference was that higher order needs are satisfied internally while lower order needs are predominantly satisfied externally.

Management Implications of Maslow’s theory1) Employees have different needs at different times

2) Employees have several interdependent needs not just one dominant need. Managers must therefore understand that employees are motivated by a cluster of needs not just one need

3) At some point most employees want to achieve their full potential. Therefore managers must structure organizations to help people continue and develop this motivation

4) Employees’ needs are influenced by values and norms. In other words higher order needs are shaped to some extent by the norms and values of the team, the organization and society in which the individual lives. Consequently managers can adjust employee motivation and effort by reshaping these norms and values for example by encouraging more performance oriented team norms, managers can strengthen team members self actualization needs.

2.6 McGregor’s Theory x and Theory yMcGregor proposed two sets of assumptions about human nature:

1) Theory X assumes that workers Have little or no ambition Want to avoid responsibility Need to be closely supervised and controlled to work effectively Generally dislike work and only work for salary and security

2) On the other hand theory Y assumes that workers Want and exercise self direction Accept and actually seek out responsibility Want work and consider work to be a normal activity

McGregor believed that theory Y predominates, consequently to motivate the employees there is need to allow for participation in decision making, provide challenging jobs, and good group relations.

2.7 Herzberg’s two factor theory (also called motivation hygiene theory) Herzberg’s theory proposes that there are two sets of conditions or factors that affect workers’ level of satisfaction or motivation at the work place. The hygiene factors describe the employees’ relationship with their job environment, and that affect the level of dissatisfaction at work. These factors include

Company policy and administration Salary Interpersonal relations Working condition

On the other hand, the motivators are factors related to the employees’ desire for growth in their work and which affect the level of satisfaction or motivation at work. The motivators include

Achievement

Recognition The work itself Responsibility Advancement Opportunity for growth

The Herzberg’s two factor theory of motivation proposes a two step process of motivating employees

1. First make the employees not dissatisfied by Having sound non primitive company policies that are

administered fully Having good technical supervisors who permit employees to

work without undue pressure Paying salaries and wages that are adequate and fair Establishing an environment that promotes good interpersonal

relations between employees and supervisors Creating good working conditions, comfortable offices,

reasonable hours etc2. Then make employees motivated by

Permitting employees to achieve challenging goals with minimal interference

Recognizing employees’ good performance and productivity and crediting them for their efforts

Giving employees more responsibility as they show the desire and ability to handle it

Providing a career path of meaningful advancements for productive employees

Designing jobs that are interesting and challenging Providing training and educational opportunities that help

employees grow especially in skills that relate to their careersManagers should note that employees are motivated first if they are not dissatisfied, and second if they are provided with motivators. Both the dissatisfiers and motivators must be provided if employees are to be motivated in their work

2.8 Vroom’s Expectancy Theory This theory proposes that people will be motivated to do things to reach a goal if they believe in the worth of that goal, and if they can see that what they do will help them in achieving it. Vroom’s theory proposes that people will be motivated to do things if they place on the outcome of their efforts a value equal to the value multiplied by the expectancy. Expectancy theory states that an individual tends to act in a certain way based on the expectation that the act will be followed by a given outcome and on the attractions of that outcome to the individual. It includes three variables of relationships:

1. Expectancy or effort performance linkage- is the probability by the individual that exerting a given amount of effort will lead to a certain level of performance.

2. Instrumentality or performance reward linkage is the degree to which the individual believes that performing at a particular level is instrumental in attaining the desired outcome.

3. Value or attractiveness of the reward is the importance that the individual places on the potential outcome or reward that can be achieved on the job.

This analysis can be summarized by the question; how hard do I have to work to achieve a certain level of performance and can I actually achieve that level. What reward will performing at that level of performance get me? How attractive is the reward to me and does it help me achieve my own personal goals. Whether you are motivated to put forth effort, (i.e. work hard) at any given time depends on your goals and your perception of whether a certain level of performance is necessary to attain these goals. Implications for managers The key to expectancy theory is in understanding an individual’s goal and the linkage between effort and performance, between performance and rewards and finally between rewards the individual goal satisfaction. Consequently, managers have to align rewards with what the employee wants. After all we want to reward the employee with those things that they value. Also expectancy theory emphasizes expected behaviors. Do employees know what is expected of them and how they will be evaluated? Finally expectancy theory is concerned with perceptions. An individual’s own perception of performance reward and goal outcome, not the outcomes themselves will determine his/her motivation (level of effort).

2.9 Equity Theories Equity theory proposes that employees compare what they get from a job (outcomes) in relation to what they put into it (inputs) and then compare their input;- output ratio with the input output ratios of relevant others. If an employee perceives her ratio to be equitable (or fair) in comparison to those of relevance others then justice prevails and she will be motivated. However if the ratio is inequitable (unfair) the employee will feel under rewarded or over rewarded. Equity theory proposes that the employee might;

1. Distort either own or others inputs or outcomes2. Behave in some way to induce others to change their own inputs or

outcomes3. Behave in some way to change their own inputs or outcomes4. Choose a different comparison person5. Quit the job

The implication for equity theory is that employees will be influenced significantly by both absolute and relative rewards. Whenever employees perceive inequity, they will act to collect the situationWho are these others the employee will compare with? These includes

1. Individuals with similar jobs in the same organization in the same profession e.t c.

2. The systems including the organization pay policies procedures and systems

3. The self referring to the input outcomes ratios that is unique to the individual. It reflects the past personal experiences and ant acts as influenced by jobs, or family connections

1.2.4 The basic elements of the Neo-Classical theories were:

(i) Individual needs . Recognizes the existence of, and the variability of individual needs, and characteristics e.g. feelings, emotions, and perceptions.

(ii) Work Groups – recognizes the existence and the importance of informal groups in organizations.

(iii) Participatory Management – emphasizes the need of involving employees in decision making especially on things that affect them.

SUMMARY OF THE NEO-CLASSICAL THEORIES 1. Organizations are complex social systems- with both formal and informal

structures. They are not mechanical units with inert objects which need only neat rules and structures (explained by administrative and the theory of bureaucracy) and they are not motivated purely by economic incentives as proposed by Taylor in his scientific management theory.

To control the people you need to take into account Social needs of human beings Their other needs such as participating in decision making, self-

actualization Their diversity e.g. some are x and others are y.

2. Human beings have emotional as well as economic needs. Organization need to be designed in such a way as to enable workers to meet both their material and non material needs. Only in this way will the workers perform efficiently and effectively on the best interests of the organization.

3 Importance of leadership and communication These theories also emphasized the importance of communication in organizations

4 The type and quality of a leader is also a contributor to organization success (Mary Parker Follet). Communication is also key to success- amount of information and the way it is communicated.

Criticism of the Neo-classical theories 1. Economists rejected the argument that non – material incentives have a

potentially stronger motivating influence than material incentives.2. Other writers thought that the neo-classical view that workers needed

non-material things more than material things portrayed workers as irrational beings.

3. Others thought that need for togetherness was contrary to need for individualism.

4. Others thought that emphasis on the importance of leadership portrayed human beings as babies.

5. The other criticism was the one- best way approach That there is one best way to structuring organizations and that it

holds good for all organization. This ignored other factors such as environment, culture and strategy that were important in determining the structural dimensions of organizations.

These concerns were addressed by the contingency theoriesLECTURE 3

THE CONTINGENCY THEORIES

Objectives of the Lecture1) to introduce students to the basic theories of the contingency

approach2) to explain the environment, the technology, the strategy the

size and the culture contingencies3) to discuss the implications of the contingency approach for

management practice

3.1 IntroductionContingency theories basically reject “the one best way” approach to management and organizational structure. The structural and management styles adopted are dependent (contingent) on the situational (contextual) variables facing the organization. The contingency theories relate to how the organizational structure adjusts to fit with both the internal environment such as work technology and the external environment such as economic or political/legal. Contingency means that one thing depends upon another thing or that one characteristic depends upon another characteristic. What works in one setting may not work in another setting. There are no universal principles that apply to every organization. There is no one best way. The most efficient organizational structure may be contingent upon the size, technology or strategy and since organizations are open systems, its

environment. The main contingency variables are: Environment, Technology, Size, Strategy, Culture and Growth. In a summary form the following are the structural and management styles relationship with each of the above contextual variables.

3.2 Technology3.2.1 What is Technology?

Technology refers to the process of transforming inputs into outputs in an organization. It includes the tools the equipment the knowledge and the processes used in the transformation process. Every organization uses technology to transform inputs into outputs. Technology can be classified or differentiated in many ways. Some of those ways are technical complexity of operations, interdependence of operations and knowledge analyzability and variety. Technical complexity refers to the differentiation in the use human labor versus the use of machinery and equipment in the transformation process. The more the proportion of the human input the less complex the technology and the more the proportion of the machine input the more complex the technology. In the case of interdependence of operations, the greater the interdependence the higher the technical complexity. In the case knowledge analyzability and task variety the complexity of technology takes on four dimensions of routine, engineering, non routine and craft technologies. These dimensions of technology typologies are explained here below.

a) Joan Woodward’s Technical ComplexityJoan Woodward was a British Industrial Sociologist. Her studies covered 100 manufacturing firms in South Essex, England. Her study was conducted between September 1954 and September 1955. The study was designed to test whether management principles as applied on organization structure, span of control, chain of command etc led to successful organizations.

Method of studyWoodward and her research team visited each of the firms studied, interviewed managers, examined company records and observed its manufacturing operations. Her data included a wide range of structural characteristics of these organizations such as span of control, levels of management, management and clerical ratios, work skill level, dimensions of management, (i.e. written versus verbal communications, use of sanctions) type of manufacturing processes, data on commercial success of the company (such as profitability, prices of shares in stock exchange) the history and rate of development, reputation of the firm as an employer, level of salaries paid to senior staff, rate of staff wastage and the relationship between the firm and outside organizations.

Data analysisThe initial study of data found that firms varied widely in such things as span of control, number of hierarchical levels, administrative ratio and amount of verbal communications. Thus her data did not show any proof to the “one best way” principle of management.

However a further look and analysis of the data and information showed a relationship between organisation structure and technology. Woodward developed a scale and organized the firms according to technical complexity of the manufacturing processes. Technical complexity represented the mechanization and predictability of the manufacturing process. Her scale had ten categories that were grouped into three production types as summarized in Annex 1 attached and discussed below. Group 1: Small Batch and Unit ProductionThese firms tended to be job shop operations that manufacture and assemble small orders to meet specific needs of customers. Customs work is the norm. This technology relies heavily on the human operator. It is thus not highly mechanized and predictability of outcome is low. Examples included many types of made to order manufactured products, such as specialized construction equipment or custom made electronic equipment.

Group 11: Large Batch and Mass ProductionThis manufacturing process is characterized by long production of standardized parts. Output often goes into inventory from which orders are filled because customers do not have special needs. Examples would include most assembly lines, such as automobiles or trailers homes. The integrated cotton mill is also a mass production technology.

Group III: Continuous Process ProductionIn this technology, the entire process is mechanized. There is no starting and stopping. This represents mechanization and standardization one step beyond an assembly line. The organization has high control over the process and outcomes are highly predictable. Examples would include chemical plants, oil refining, and liquor production.

Her findings were as follows Ratio of management staff to total personnel shows an increase from unit

production, to mass production and then is low in continuous process production.

Supervisor span of control is highest in mass production and low in both unit and process production technologies.

Direct labor to indirect labor ratio is also low in both unit and process technologies but high in mass production technologies.

Other characteristics such as formalization and centralization are high for mass production and low for other technologies i.e unit production and process production.

The number of skilled workers and the use of verbal versus written communication also depend upon manufacturing technology. It is low in unit and process production and high in mass production.

Overall, the management system in both unit and process technology is characterized by organic while mass production is characterized by mechanistic system.

With respect to technology and performance, Woodward studies found that successful firms tended to be those that had complementary structures and technologies i.e firms that most nearly approximated the typical structure for their technology were most effective. Firms that deviated in either direction from their ideal structure were less successful.

Woodward was able to explain the disparity between her findings and the classical prescriptions of management theorists’ – these principles must have been based on these theorists’ experiences with organizations that used mass production technologies. The mass production firms had clear lines of authority, high formalization, a low proportion of skilled workers achieved through a high division of labor, wide span of control at the supervisory

level and centralized decision making.To summarize, Woodward’s study found a curvilinear relationship between technology and structure as follows

b) James ThompsonJames Thompson classified technology in terms of the degree of interdependence of the operations or tasks in the production process. His main focus was on service industries. He identified three categories ranging from least interdependence to the most interdependent;

i) Pooled independence When each part of an organization operates on a relatively autonomous manner but by fulfilling their individual purpose they enable the organization as a whole to function effectively for example the cashier in a bank.

ii) Sequential interdependence Where the outputs from one part of an organization constitutes the inputs for other parts of the system for example in a restaurant.

iii) Reciprocal interdependence Where overall effectiveness requires repeated and direct interaction between an organization’s separate parts, for example in a hospital.

The basic findings of Thompson was that as interdependence increases coordination through standardized procedures will become less effective and

the need for flexibility and more personal attention increases. Therefore as interdependence increases the organization requires less complex structures and more organic management styles to achieve efficiency.

c) Charles Per row’s Knowledge TechnologyCharles Per row tried to look at the limitations of Woodward namely the fact that Woodward studied only manufacturing firms. Since manufacturing firms represent less than half of all organizations, technology needs to be operational zed in a more general way if the concept is to have meaning across all organizations.Per row looked at knowledge technology rather than production knowledge. He 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”. He identified two dimensions of technology viz:

Task variability – this considers the number of exceptions encountered in one’s work. These exceptions will be few in number if the job is high in routines. Jobs that normally have few exceptions in their day-to-day practice include those on an automobile assembly line or as a fry cook at McDonald’s. At the other end of the spectrum if a job has a great deal of variety, a large number of exceptions can be expected. Typically this characterizes top management positions, consulting jobs or the work of those who make a living by putting out fires on off shore oil platforms. So, task variability appraises work by evaluating it along a variety routiness continuum.

Task/Problem Analyzability – the second dimension assesses the type of procedures followed to find successful methods of responding adequately to task exceptions. The search can at one extreme, be described as well defined. An individual can use logical and analytical reasoning in search for a solution. If you are basically a high B-student and you suddenly fail an exam given in a course, you logically analyze the problem and find a solution. In contrast, the other extreme would be ill-defined problems. If you are an architect assigned to design a building to conform to standards and constraints that you never heard about or encountered before, you will not have any formal search technique to use. You will have to rely on your prior experience, judgment and intuition to find a solution. Through guesswork and trial and error, you might find an acceptable choice. Perrow called this second dimension problem analyzability ranging from well defined to ill define. Annex 3 attached represents a ten-item questionnaire that measures these two dimensions.

These two dimensions – task variability and problem analyzability – can be used to contrast a two by two matrix- shown in fig 2 below. The four cells in this matrix represent four types of technology, routine, engineering, craft

and easy to analyze problems. The mass – production processes used to make steel or auto mobiles or refine petroleum belongs in routine category. A bank’s teller’s job is also an example of activities subsumed under routine technology.

Engineering technologies have a large number of exceptions, but they can be handled in a rational and systematic manner. The construction of office buildings would fall in this cell, as would be the activities performed by tax accountants.

Craft technologies (Cell 3): deal with relatively difficult problems with a limited set of exceptions. This would include shoe making, furniture restoring, or the work of performing artists.

Non-routine technologies: are characterized by many exceptions and difficult to analyze problems. Examples of non-routine technologies would be strategic planning and basic research activities.

Routine Technologies these are characterized by repetitions of similar operations.

In summary, Perrow argued that if a problem can be studied systematically using logical and rational analysis cells 1 or 2 would be appropriate. Problems that can be handled only by intuition, guesswork or unanalyzed experience requires the technology of cell 3 or 4. Similarly if new, unusual, or unfamiliar problems appear regularly, they would be in either cell 2 or cell 4. If problem are familiar, then cell 1 or 3 are appropriate.

Perrow also proposed that task variability and problem analyzability were positively correlated. By that he meant that it would be unusual to find instances where tasks had very few exceptions and search was clearly unanalyzable or where tasks had a great many exceptions and search was well defined and easily analyzable. So that the four technologies can be combined into a single routine, non-routine dimension. This is shown in the figure 2 as a diagonal line.

Figure 2. Perrow’s Technology Classifications

Task variability

Few Exceptions Many ExceptionsCraft

3

C 4

non-routine

Routine 1

Routine

2

engineering

Technology and Structure Perrow argued that control and co-ordination methods should vary with technology type. The more routine the technology, the more highly structured the organization should be. Conversely, non-routine technology requires greater structural flexibility. Perrow then identified the following as the key aspects of structure that could be modified to the technology.

The amount of discretion that can be exercised for completing tasks The power of groups to control the unit’s goals and basic strategies. The extent of inter-dependence between these groups. The extent to which these groups engage in co-ordination of their work

using either feedback work or the planning of others.

The above means that The most routine technology (cell 1) can be accomplished best through

standardized co-ordination and control. These technologies should be aligned with structures that are high in both formalization and centralization.

Non-routine technologies (cell 4) demand flexibility. Basically they would be decentralized, have high interaction among all members, and be characterized as having minimum degree of formalization.

Craft technology (cell 3) requires that problem solving be done by those with the greatest knowledge.

Engineering technology because it has many exceptions but analyzable search process, should have decisions centralized but should maintain flexibility through low formalization.

Table 10 Perrow’s: Technology – Structure Predictions

Cell Technology

Formalization

Centralization

Span of control

Co-ordination and control

1 Routine High High Wide Planning and

Well defined

Ill defined

rigid rules2 Non

RoutineLow Low Less rules and

less need for control

3.3 Organizational EnvironmentOrganizational environment refers to all the elements existing outside the boundary of the organization that have the potential to affect all or part of the organization. In a broad sense, the environment is infinite and includes everything outside the organization. It consists of sectors such as:

Raw material - these are individuals and other firms which supply the organization with raw materials

Human resources - these are organizations which supply the organization with human resources

Financial Resources - these are conditions, competitiveness, institutions and instruments which supply the organization with financial resources

Customer or Market - this sector includes the customers who purchase the organization’s goods and services

Economic - this includes the state of the economy, inflation, depression, or unemployment rates, economic policies etc. of the country or region where the organization sells its goods and service

Political/legal - this includes the stability or instability, rules and regulations, and the justice systems of the country

Socio-cultural - consists of values, beliefs, standards of the society in which the organization is situated

Demographic - consists of all the demographic dimensions of the society of the organization

Natural Environment - consists of the climate, weather and other natural conditions of the country or regions of the organization

International environment - consists of the elements, factors and other organizations existing outside the country of the organization which have the potential to affect the organization

Dimensions of Organizational environmentThe external environment of an organization can be differentiated,

measured or categorized in many ways. The main ways in which this differentiation can be done are the following:- a) Aldrich categorizes an organization’s external environments in terms of:-

i) Environmental Capacity: This measures the environment in terms of resources availability

ii) Homogeneity/Heterogeneity: This categorizes the environment in terms of the degree of similarity among the environments elements

iii) Stability/Instability: This categorizes environment in terms of the degree of turnover of the elements

iv) Consensus/Dissensus: This categorizes the environment in terms of the degree to which an organization’s claim to a specific domain is disputed or recognized by other organizations

v) Concentration/ Dispersion: This measures the degree to which resources and other elements are evenly distributed over the range of the organization’s domain

vi) Environmental Turbulence: This measures the extent to which the task environment of an organization is disturbed by an increasing rate of interconnection between elements and trends.

b) Emory and Trist categorized external environments into the following categories:

Placid Randomized. This is a simple environment. It is placid in the sense that elements change slowly. The environment is random because when a change does occur, it is not predicted, and is not coordinated with other environmental elements.

Placid Clustered. This environment is stable. Elements are linked together so that any slight change in one causes simultaneous change in other elements. When threats or opportunities occur they occur in clusters which is more dangerous for the organization

Disturbed reactive. In this environment changes are no longer random. Actions by one organization can disturb the environment and provoke a reaction. This environment is made up of large organizations. A decision by any one organization in this type of environment is significant enough to cause a disturbance, and calls for a reaction from other organizations. In a disturbed reactive environment, management’s task is to carefully plan decisions and strategic moves to allow for counter moves.

Turbulent Field. This is an environment characterized by both complexity and rapid changes. Multiple sectors experience dramatic changes and the changes are connected. The turbulent field usually has overwhelming negative consequences for the organization. The distinguishing feature

of the turbulent field is the inter-dependence and the inter-connectedness of the elements.

c) Lawrence and Lorsch Studies Lawrence and Lorsch of Harvard University examined three departments (Manufacturing, Research & Development and Sales) in ten companies in the United States of America. Their aim was to find out how organizational structure relates to environmental complexity. Their findings were that; The plastic’s industry with high environmental complexity

tended to have higher departmental differentiation than either the food industry, (facing moderate complexity), and the container industry, (facing low environmental complexity). They defined differentiation as the differences in cognitive and emotional orientation among managers in different functional departments.

The plastics industry also had a higher degree of integration than either the foods industry or the container industry. Their findings are as summarized in table 6.1.

Table 3.1 Environmental Uncertainty and Organizational Structures

INDUSTRYPlastics

Food Container

Environmental uncertainty High Moderate

Low

Departmental differentiation

High Moderate

Low

Percentage in integrating roles (integration)

22% 17% 0%

Thus Lawrence and Lorsch found that:

Firms differentiate themselves in accordance with the environmental complexity: the greater the environmental complexity, the greater the differentiation.

Firms integrate themselves more in accordance with environmental complexity. The more the environmental complexity (measured by heterogeneity and stability of environmental elements) the more the level of integration.

d) Burns and Stalker StudiesBurns and Stalker observed 20 industrial firms in England and discovered that when external environment was stable, the

internal structure was characterized by rules, procedures and a clear hierarchy of authority (i.e. high formalization). They were also highly centralized.

However, the studies found out that in rapidly changing environments, the internal organization was much looser, free flowing and adaptive. Rules and regulations often were not written down, or if written down were ignored. The hierarchy of authority was not clear. Decision making was decentralized. Burns and Stalker used the term “organic” to describe the decentralized, low formalized, flexible- structures, and “mechanistic” to describe centralized, highly formalized and inflexible structures.

THE CASE FOR THE ENVIRONMENT=STRUCTURE=PERFORMANCE=FIT (ENVIRONMENTAL IMPERATIVE)

1) Management /Organization theory has established that organizations face different types of environments. Four of these theories include those by Aldrich, Emery and Trist, Lawrence and Lorsch and Burns and Stalker Studies. All these theories emphasize that in order to achieve efficiency and effectiveness organizations align their structures to appropriate environments.

2) There are three key dimensions to any organizations external environment touched on by the four theories. These are capacity, volatility, and complexity. The capacity of an environment refers to the extent to which it can support growth. Rich environments generate excess resources which can buffer the organization in times of relative scarcity. Abundant capacity leaves room for an organization to make mistakes while scarce capacity does not.

3) Volatility refers to the degree of instability in an environment. Where there is a high degree of unpredictable change the environment is dynamic. This makes it difficult for management to predict accurately the probabilities associated with various decision alternatives. At the other end is a stable environment. Stability makes it easy for organizations to predict accurately the probabilities associated with different decision alternative.

4) Complexity measures the environment in terms of the degree of heterogeneity and concentration among environment’s elements. Simple elements are homogeneous and concentrated. In contrast environments characterized by heterogeneity and dispersion are complex

5) Organizations that operate in environments characterized as scarce, dynamic and complex face the greatest degree of uncertainty because they have little room for error, high unpredictability and a diverse set of elements in the environments for the organization to constantly monitor. They would therefore need structures that are

characterized by decentralization and lower formalization to allow for flexibility.

6) Organizations that operate in abundant, stable and simple environments have less uncertainty and would therefore do with mechanistic structures.

THE CASE AGAINST THE ENVIRONMENT IMPERATIVE1) If there is an environment imperative, it is mostly limited to those sub

units at the boundary of the organization – those that interact directly with the environment. For instance the structure of purchasing and marketing functions may be a direct response to their dependency on the environment. The environment may have no impact on production, research and development, accounting and other similarly insulated activities.

2) It may also be, since environments are perceived to reflect the structures from which they are seen, then it is possible that differentiated structures will perceive a heterogeneous environment or that decentralized structures will perceive more environmental uncertainty.

3) A stronger case may also be built around the argument that the environments are relatively impotent on their effects on structure.

4) Some opponents of the environmental imperative argue that today’s organization faces a far more stable environment than the one of the 1700s, 1800s and the 1900s. During these periods the world changed from a rural, agricultural, horse powered society to an urban, industrialized world with railroads, telegraph, steamships, electric lights, automobiles and airplanes. In relative terms therefore today’s managers may be facing a fairly stable external environment whose uncertainty is fairly predictable and certain and hence having very little impact on structure.

5) The final argument against the environmental imperative is that the impact of the external environment is not observed in reality. Not only do organizations that operate in similar environments have different structures they also show no significant difference in effectiveness. Further many organizations have similar structures and very diverse environments. The counter argument here may be that the competition is not high enough to differentiate those organizations who structure their organizations as environment complexity

Implications for management practiceManagers at all levels and in all functions should analyze the organization environment periodically and identify the sources of uncertaintyTo manage transactions with the organization environment effectively, managers should chart the forces in the organization specific and general environments noting

1) The number of forces that will affect the organization

2) The pattern of interconnectedness or linkages between these forces

3) How rapidly these forces change4) The extent and nature of competition which affects

the organization5) How rich or poor the environment is

Taking that analysis, managers should plan how to deal with the complexities. Designing inter organizational strategies to control and secure access to scarce and valuable resources in the environment in which they operate is the first stage in this process

3.4 The Resource Dependence TheoryResource dependence theory was most fully developed by Jeffrey Pfeiffer and Gerald Salancik who published their ideas in 1978. Their book was provocatively entitled “The internal control of organizations’ to emphasize the point that the environment is a powerful constraint on organization actions. Although resource dependence theory is based on the assumption that organizations are controlled by their environments, these theorists also believe that managers can learn to navigate the harsh seas of environmental domination.The basic argument of resource dependence theory is that an analysis of inter organizational relations within the network of the organization can help managers to understand the power/dependence relationships that exist between their organization and other network actors. Such knowledge allows managers to anticipate likely sources of influence from the environment and suggests ways in which the organization can offset some of this influence by creating counter-dependence.An organization’s vulnerability to its environment is the result of its need for resources, such as raw materials, labor, capital, equipment, knowledge, and outlets for its products and services. These resources are controlled by the environment. The dependency these needs produce gives the environment its power. The environment uses this power to make demands on the organization for such things as competitive prices, desirable products and services, and efficient organizational structures and processes. However the dependency the organization has on its environment is not one single, undifferentiated dependency, it is a complex set of dependences that exist between an organization and the specific elements of its environment found on the organizational network.A resource dependency analysis begins by identifying an organization’s needed resources and then tracing them to their sources. This procedure can be visualized with a combination of the open systems and the-inter organizational network models (see Figure below). The open systems model helps you to identify resource inputs and the outputs of the organization. You then use the network model to define where the resources and outputs

are located. For example, firms that provide raw materials and equipment will be found among the network’s suppliers. Tracing the organizations outputs will identify specific customers in the network. Labor, capital and knowledge are also brought into the organization and are supplied through other elements of the network (e.g. labor from employment agencies, capital from financial institutions, and knowledge from universities.)

APPLYING RESOURCE DEPENDENCE THEORYCapital Knowledge andInputs (Investors) Equipment (Technology

Sector)

Raw materials Outputs (Customers)(Suppliers)

Labor Inputs (Employees)

After specifying resources and their sources in the network of organization, the resource dependence perspective moves your attention to those environmental actors who can affect these organization-environment relationships and thereby support or interfere with the organization’s resource exchanges. Competition over raw materials and customers is one source of potential influence, and this is where you should bring the firm’s competitors into your analysis. Another source is regulatory agencies, and the special interests groups who compete with the organization for influence over the regulators.Of course the procedure given above is too ambitious. In practice it will be impossible to consider every source of dependence that an organization has on its environment or every potential competitive or regulatory move. The practical solution is to sort resources according to their criticality and scarcity. Criticality is an estimate of the importance of a particular resource. Critical resources are the resources without which the organization cannot function. For example beef is a critical resource for MacDonald’s, whereas drinking straws are not. Scarcity is an estimate of the availability of

ORGANISATION

the resource within the environment. Gold and platinum are scarce; air and water are not. Resources which are both critical and scarce are given highest priority in organizational efforts to track and manage dependence because these create the greatest power base for other network actors. To the extent that regulatory agencies or competitors affect the organization’s dependence, these will also be drawn into focus.Managing dependence requires the establishment of countervailing power with respect to the particular environmental elements on which the organization’s dependence rests. This means that the first step towards applying the resource dependence perspective is to thoroughly understand the network with respect to criticality and scarcity of resources. The second step is to seek ways to avoid dependency or make other environmental actors dependent on the organization.Organizations have found many different ways to manage their resource dependencies and Pfeffer and Salancik document quite a few. In the area of managing suppliers of raw materials, one common technique is to establish multiple sources of supply. This reduces the power of any one supplier. Where there are benefits of using a limited number of suppliers, such as with IT systems where the costs of changing suppliers are high, contracting is a common strategy for managing dependences. Dependency on suppliers (or customers from the suppliers’ point of view) is sometimes counteracted by acquisitions or mergers strategies (called vertical integration) or joint venturing with suppliers; similar strategies also are useful for managing competitor relations (called horizontal integration). Strategies for managing all kinds of dependencies include: developing personal relationships with members for firms on which yours is dependent, and establishing formal ties such as taking up membership on their board of directors, or inviting one of their officers to sit on your board. In the area of managing regulatory dependence, a common strategy in the U.S. is to send lobbyists to Washington to influence legislators for example to work, for competitive trade agreements or to note government funding of research and development. All aspects of marketing – sales, advertising, and distribution – can be seen as attempts to manage output dependencies via influence on consumer purchases of company products. Counteracting negative public opinion or the negative influence of special interest groups is sometimes achieved with advertising for example issuing corporate image campaigns.Labour and knowledge dependencies are sometimes managed with recruitment strategies for attracting executives and other personnel away from competitors. A strategy that can aid in the management of dependency with respect to competitor organizations and regulations is the formation of trade associations. These associations enable their members to share the costs of monitoring conditions and trends in the environment and to pool their influence, for instance by jointly hiring lobbyists to represent their common interests to the government. Of course trade associations are open to criticism and even legal action if they are not careful to monitor themselves with respect to price fixing and other business practices society

regards as unfair. In societies in which price fixing is not outlawed, price agreements and cartels are common means of managing environmental dependence between competitors. OPEC is a prime example. Finally if all else fails the organization can release itself from unwanted dependencies by changing its environment. For example an organization can enter or leave a line of business or alter its product/services mix through diversification or retrenchment (e.g. joint ventures, spin offs, mergers, acquisitions). Notice, however, that these strategies merely alter the dependence picture they do not eliminate the need to manage resource dependence.Managing resource dependence requires careful definitions and monitoring of the environment. It also calls for imagination with respect to balancing the power of your own organization. As discussed above Pfeiffer and Salancit offer both a model for analyzing dependency in the organizational environment and a set of strategies for managing these dependencies.

3.5 The Population Ecology TheoryThe PET (population ecology theory) was developed by American organization theorists namely Michael Hannan, John Freeman and Howard Aldrich among others. Like resource dependence theory, PET starts from the assumption that organizations depend on their environments for the resources they need to operate. In both views this dependency gives the environment considerable power over the organization. However, whereas the view point of RDT theory is clearly the perspective of the organization, population ecology theory looks at organizations from the perspective of the environment. What interests the population ecologist is not one particular organization seeking its own survival via competition for scarce and critical resources (the resource dependence view) but rather the patterns of success and failure among all the organizations that compete within a given resource pool. The basic objective of the PET is to explain why certain organizations survive and multiply whereas others languish and disappear in the same environment

Explanation of the PET (i) The carrying capacity of the environment is limited. An excess population of organizations leads to congestion and subsequently to the survival of only those organizations successful in creating a niche in the market place.(ii) Like biological elements organizations are doomed to die unless they meet the environmental test of fitness. Environmental forces select out the most appropriate structural forms for survival from among populations of organizations on the basis of fit between structural attributes and environmental characteristics. (iii) The population- ecology theory shifts away from preoccupation with organization at the individual level towards population level. It is not the fitness of any single organization that is of interest. It is the group or groups of organizations and they may be influenced by actions and events with which they have no obvious or direct links

(iv) Management has no effect in deciding whether or not the organization will survive or die. Environmental factors solely determine the survival of any organization.

Criticism of the Population ecology theory (i) The claim that the organizations’ existence and survival is determined by the environments’ carrying capacity means that the theory cannot be used to predict about the future. This is because the concept of environmental carrying capacity is immeasurable and cannot be estimated. It can only be measured on ex post or retrospective basis. Thus the theory cannot be used to make organizations adapt to their environment and therefore ensure survival. Thus as an organization theory it is therefore inappropriate.(ii) The concept of fitness is not clearly defined by the theory. In other words it is insufficient to state that only those organizations that environment determines as fit survive. To do so would be tautological. A more meaningful and causal pattern must be presented for a theory to be acceptable.(iii) To claim that organizations are like biological organisms also ignores the fact that organizations are created by men- a biological organism- to meet its objective. To claim that a biological organism, man, can create a biological organism, an organization, endows man with supernatural powers. (iv)The population ecology theory also ignores the role of managerial decision makers. To assume or argue that managers should be passive, helpless elements completely dependent on environmental forces is to denigrate the importance role managers can play in determining the success or failure of an organization

3.6 . The Size Imperative Size refers to the bigness or smallness of an organization as measured by some variable such as number of people, the value of assets an organization has or the value of turnover. To determine the relationship between size and structure and management styles a group of researchers based at the university of Aston in Birmingham in a study of 87 companies found out that the larger the organization the greater the specialization and the use of procedures and reliance on paper work (formalization), in other words the larger the organization the more likely it was to adopt (and need) mechanistic structures. The study also found that the reverse was also true i.e. the smaller the organization the more likely it was to adopt (and need) an organic (flexible) management style and less complex structures. That is to say small organizations require decentralized and personalized structures but as organizations grow in size, more centralized and impersonal structures are more effective.

Size as a Contingent Factor

300 800 200 2500

Peter Blau’s studies of government agencies, universities and department stores, found that size is the most important condition affecting the structure of organizations. In one of his studies, Blau looked at 53 autonomous state employment –security agencies and found that increasing size promotes structural differentiation but at a decreasing rate. In other words increases in organization size are accompanied by initially rapid and subsequently more gradual increases in structural differentiation (both horizontal, vertical and spatial differentiation). In other words an increase of say five hundred employees when an organization has a labor force of 300 employees, has a significantly larger impact on structural differentiation than a similar additional of 500 employees to an organization that already has 2000 employees. That is, the difference between x’ and y’ in the diagram below is smaller than the difference between and x and y

Diagram 6.4 Increase in organization size affect structural differentiation at a decreasing rate.

Y’ X’

y

x

The Aston study in Great Britain also found size to be a major determinant of structure. The Aston group of researchers at the University of Aston in Great Britain looked at forty six organizations and found that size was associated with greater specialization and formalization. They concluded that an increased scale of operations increases the frequency of recurrent events and repetitive of decisions which makes standardization desirable. Another researcher, John Child, found that size, was positively related to specialization, formalization and vertical differentiation but negatively related to centralization. He concluded that larger organizations are more specialized, have more rules, more documentation, more extended hierarchies, and a greater decentralization of decision making, further down such hierarchies. He also agreed with Blau that the impact of size on these dimensions expanded at a decreasing rate as size increased. That is, as size increased, specialization, formalization and vertical span also increased but at a declining rate. On the other hand centralization decreased but at a declining rate as size increased.

y1

x1

x

y

Criticism of the size imperative 1. Although several studies show some form of relationship between size and some structural variables (e.g. structural differentiation, formalization specialization and centralization) no conclusive evidence is available for other variables such as standardization, professionalism and so on. There is need for more researchers in this area to establish conclusive evidence with regard to the role of size in determining the structure of organization with, regard to all structural variables. 2. Studies on size- structure relationships have generally been done for large and medium sized companies. Small businesses face different problems and have different priorities in terms of structural designs. In addition managers of small businesses have a more limited set of structural options.

3. Many other factors e.g. environment technology, culture and strategy simultaneously face the organization. Thus, even the structural designs associated with size might be as a result of these other factors.

However, we may conclude that despite the above criticisms size is a major determinant of structural designs eg structural complexity (vertical, horizontal and spatial) and formalization and centralization. The impact of size on other structural variable has not been conclusively established

STRATEGY AS A CONTINGENT FACTOR What is Strategy? Strategy can be defined 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. Decisions to expand the volume of activities, to set up distant plants and offices, to move into economic functions or to become diversified along many lines of business involve the defining of new basic goals. New courses of action must be devised and resources allocated and reallocated in order to achieve these goals and to maintain and expand the firms activities in the new areas in response to shifting demands, changing sources of supply, fluctuating economic condition , new technological development and the actions of competitors. (Robbins, S.P., 2000).These are two approaches to defining strategy: the planning view and the evolutionary vie or /mode.

The Planning Mode This view describes strategy as a plan or explicit set of guidelines developed in advance. Managers identify where they want to go, then they develop a systematic and structured plan to get there. Until, the 1990’s this view point dominated literature on strategy.

The Evolutionary Mode This approach looks at strategy as a process which evolves over time as a pattern in a stream of significant decisions. The identification of goals and the different ways to achieve the goals is dependent on environmental changes. Since environment is continuously changing then the goals and the ways to achieve the goals must continuously change, to keep up with the changing environment. As the environment (and their markets) change, strategies become outdated and require alteration. Historically, in the period up to the 1970’s, organizations were able to achieve success via rigid planning and strategy- implementation programs and processes. In the period since the mid 1970s, the process of strategy and strategic management has become more emergent. Organizations may begin with an idea of the manner in which they intend to achieve their goals but are much more flexible about how they will get there. Therefore an important aspect of the process of strategy is the strategic context in which the organization is operating.

Incremental Versus Fundamental Strategy Fundamental changes occur when the organization decides to completely reorganize its activities and internal operations. All its employees are involved and affected. A fundamental change requires a shift in focus, direction and other major aspects for the organization. The effects of a fundamental change are wide ranging and have a great impact. On the other hand, incremental change represents a softer approach to the process and effects of change. Incremental change may be executed over time, or between different departments. It still has an overall aim and goal and will therefore move the organization forwards. The effects may be no less drastic than where fundamental change occurs, only more measured.

Levels of strategyThere are two levels of strategy: Business level and corporate level

In Corporate Level Strategy the organization seeks to answer the question “in what business are we in? It determines the rules that each business unit in the organization will follow. Corporate level strategy is determined by top level managers. It can also be developed by a specific planning group or department. It will then be communicated to the rest of the organization for implementation. In highly hierarchical organizations the method of implementation will also be communicated. The leaders of the organization will dictate to all extents, the corporate strategy, the implementation and measurement.In other organization (less hierarchical) a more interactive approach to strategy formulation and implementation may be employed. In these cases a broad strategic direction will be communicated to the departments who may then be asked for their input as to the manner in which it will be implemented, and success measured.

Business Level Strategy is more concerned with how the business unit will compete. It seeks to answer the questions. How should we compete in each of our businesses? For the small organization in only one line of business or a large organization that has avoided diversification, business level strategy is typically the same as corporate strategy but for organizations in multiple businesses, each business unit will have its own strategy that defines the products or services it will offer, the customer it wants to serve and so on.Most contemporary structure strategy theories focus on business level strategy. To the extent that strategy actually determines structure, strategy level is an important point to keep in mind. Why? For small organizations, in only one line of businesses, or non-diversified large organizations, business and corporate strategy will be the same, and the organization should have a relatively uniform organization structure. But organizations with diverse business strategies should be expected to have a variety of structural configurations; that is management should design structures to fit the different strategies.

Dimensions of Strategies (or classifying strategic dimensions)There are many ways of classifying strategy.1) Chandlers’ strategy- structure thesis One of the earliest studies on strategy-structure relationship was by a Harvard University historian, who in the 1960’s studied close to 100 of America’s largest firms. Tracing the development of these organizations from 1909 to 1959, Chandler concluded that changes in corporate strategy preceded and led to changes in an organizations structure. As Chandler put it “a new strategy required a new or at least a refashioned structure, if the enlarged enterprise was to be operated efficiently or put it differently “unless structure follows strategy, inefficiency results”. Chandler found that the companies he studied began as centralized structures. This reflected the fact that they offered unified product lines. As demand for their products grew, the companies expanded. They increased their product lines, and had to develop different structures to cope with their changing strategies. Chandler essentially argued that organizations typically begin with a single product line. The simplicity of this strategy is compatible with a mechanistic structure. Decisions can be centralized. Because organizations strategy is narrowly focused, the structure to execute it can be low in both complexity and formalization. So, Chandler concluded, the efficient structure for an organization with a simple product strategy is one with high centralization, and low formalization. As organizations seek to grow, their strategies become more ambitious and elaborate. From the single product line, companies typically expand activities within the same industry. This vertical integration strategy makes for increased interdependence among

the units and creates the need for a more complex coordination device. This calls for increased formalization and complexity. If growth proceeds further into product diversification, the structure must further be adjusted if efficiency is to be achieved. A product diversification strategy demands a structural form that allows for efficient allocation of resources, accountability for performance and coordination of units. This can best be achieved through the creation of a multiple set of independent divisions each responsible for a specified product line. Thus, according to Chandler, successful organizations that diversify should have a different structure from that of successful firms that follow a single product strategy.

Evaluation of Chandler’s Strategy Structure Theory Chandlers’ claim that strategy influences structure has been supported by several other studies (Robbins 2000). However his study suffers from a few shortcomings, for example:i). He looked only at large profit making organizationsii). He focused on growth as a measure of effectiveness rather than

profitabilityiii). His definition of strategy as product diversification is incomplete, as

strategy can also include other variables e.g. market segmentations, actions of competitors, and others

However, despite the few shortcomings of methodology and definition, there is over whelming evidence that strategy influences structure.

2) Miles and Snows Strategic Types Raymond Miles and Charles Snow classify organizations strategies into four categories: defenders, prospectors, analyzers and reactors. 1) Defenders In this type, organizations seek stability by producing only a limited set of products directed at a narrow segment of the total potential market. Within this limited niche, defenders strive to aggressively prevent competitors from entering their “turf”. Organizations do this through standard economic actions such as competitive pricing, or production of high-quality products. There is little or no scanning of the environment to find new areas of opportunity, but there is intensive planning oriented towards cost reduction and other efficiency issues. The result is a structure made up of high horizontal differentiation, centralized control and an elaborate formal hierarchy for communications. Over time defenders are able to curve out and maintain small niches within their industries that re more difficult for competitors to penetrate.

2) ProspectorsThese types of strategies are almost the opposite of defenders. Their strength lie in finding and exploiting new product and market opportunities.

Their success depends on developing and maintaining the capacity to survey a wide range of environmental conditions, trends and events. They invest heavily in personnel who scan the environment for potential opportunities and threats. This type of strategy requires flexibility and hence structure will also be flexible. It will rely on multiple technologies that have a low degree of routinization and mechanization. There will be many decentralized units. The structure will be low in formalization; have decentralized control, with lateral as well as vertical communication.

3) AnalyzersThese types of organizations try to capitalize on the best of both prospectors and defenders. They seek to minimize risk and maximize opportunity for profit by moving into new products or new markets after viability has been established by the prospectors. They take the successful ideas of prospectors and copy them. Analyzers live by imitation.Analyzers must have the ability to respond to the lead of key prospectors yet at the same time maintain operating efficiency in their stable product and market areas. Analyzers accept smaller profit margins in the products and services that they sell than will prospectors, but they are more efficient. Prospectors have to have higher profit margins to justify the risks that they take. Analyzers seek both flexibility and stability. They respond to these goals by developing a structure made up of dual components. Parts of these organizations have high levels of standardization, routinisation and, mechanization and efficiency. Other parts are adaptive to enhance flexibility. In this way they seek structures that can accommodate both stable and dynamic areas of operations. But in this compromise, there can be costs. If situations change rapidly, demanding that organizations move fully in either direction, their ability to take such action is severely limited.

4) Reactors These organizations represent a residual strategy. In general reactors respond inappropriately, perform poorly, and as a result they are reluctant to commit themselves aggressively to a specific strategy. What can cause this? Top management may have failed to make the organization strategy clear. Management may not have fully shaped the organization structure to fit the chosen strategy. Whatever the reason the outcome is the same. The organization lacks a set of response mechanisms with which to face a changing environment.

Strategy- Structure Relationship according to Miles and Snow’s Theory. Fig 5.4 describes Miles and Snows four strategic types as falling along a continuum that range from low to high in terms of environmental change and uncertainty. Following the logic of this theory, the more uncertainty and change the management forecasts, it would move to the right along the

Little Change and Uncertainty

Defenders

Reactors

Analyzers

Prospectors

continuum in fig 5-4. Similarly as strategies move to the right along the continuum the organizations structure should be modified or redesigned to be increasingly flexible and adaptive.

Explanation: management perceives little or no change and uncertainty in the environment under defender strategy. The successful structure, under such conditions should be designed for optimum efficiency. This efficiency can best be achieved through high division of labor, high standardization, high formalization and centralized decision making. Organizations following a reactor strategy respond to change reluctantly. Management perceives some change and uncertainty, but they are not likely to make any substantial adjustments until forced to, by environmental pressures. So this structure is likely to be very much like the one discounted for defenders.Managers pursuing analyzer strategy perceive a considerable degree of change and uncertainty but wait until competitors develop a viable response, and then they quickly develop it. Analyzers combine the best of both words by tightly structuring their current and more stable activities, while developing flexible structures for new activities that face general uncertainties. Finally, prospector’s strategies require ‘the greatest degree of structural flexibility. There is a lot of change and uncertainty so structure should be highly adaptive. This would translate into low complexity, low formalization and low centralization.Fig 5-4 Snow and Miles Environment- strategy continuum

3 Porters’ Competitive Strategies Michel Porter, of Harvard Graduate School of Business, proposed that management can follow any of the following strategies. Product differentiations, cost differentiation, focus product differentiation and focus cost differentiation.

i) Product differentiation strategy In this type of strategy firms try to achieve leadership in their market domain by emphasizing high quality, extraordinary service innovative design, technological capability or unusual positive brand, image. The key is

Rapid Change and Uncertainty

that the attribute chosen is different from those offered by rivals and significant enough to justify a price premium that exceeds the cost of differentiation.

ii) Cost differentiation Strategy In this type of strategy firms try to differentiate themselves by being low cost producers. Success with this strategy requires that the firm sell at low prices but also offer a product or service perceived as comparable to that offered by rivals in terms of quality, or at least be perceived as such. Typical means of achieving such a cost advantage include efficiency of operations, economies of scale, technological innovation, low cost labor, or preferential access to raw materials. Examples of firms that have used this include Hyundai Motors.

iii) Focus Product differentiation In this type of strategy the firm identifies a smaller portion of the market which it seeks to dominate and proposes to achieve this by emphasizing on quality of goods and services. That is to say, the firm will select a segment or group of segments in an industry (such as product variety, type of end buyer , distribution channel or geographical location of buyers) and achieve competitive advantage over other sellers through extra high quality. The goal is to exploit a narrow segment of the market.

iv) Focus cost differentiation This is similar to focus differentiation strategy but the firm seeks to achieve competitive advantage by selling the product or services at low price.

v) Stuck in the middle Porter used the term’ stuck in the middle’ to describe organizations that are unable to gain a competitive advantage by any one of the four strategic types discussed above.Such organizations will find it very difficult to achieve long term success. When they do, according to Porter, it is usually as a result of competing in a highly favorable industry, or having all their rivals similarly stuck in the middle. Porter notes that successful organizations frequently get themselves into trouble by reaching beyond their competitive advantage and ending up stuck in the middle. Laker Airways provided such a case. It began in 1977, by offering flights between London and New York at rock-bottom prices. This cost leadership strategy resulted in a resounding success. In 1979, however, the firm began to add new routes and offer up scale services. This blurred the public’s image, and lead to Laker Airways collapse in 1982.

Porters Strategic Type –Structure ImplicationsThe structural implications for Porters strategic types are as follows.i). No structural predictions are made for the stuck in the middle strategy.

ii). Predictions have also excluded the focus strategies for the simple reason that they are derivatives of the product and cost differentiation strategies.

iii). The goal of cost leadership strategy is to achieve efficiency through tight controls, minimization of overhead expenses, and use of economies of scale. The best structure of achieving these would be high formalization and high centralization.

iv). The product differentiation strategy demands a high degree of flexibility that can best be achieved through low complexity, low formalization and decentralization.

4 Danny Millers Strategic Types Danny Miller of the University of Montreal and McGill University developed four strategy dimensions of innovation, marketing differentiation, breadth and cost control. i) Innovation In this type of strategy the firm introduces major new products or services. It does this through scanning of markets to discern customer requirements. This strategy implies major and meaningful innovations. Structural dimensions necessary to achieve these objectives are decentralization and extensive use of coordination committees and task forces.

ii) Marketing differentiation strategy. In this type of strategy the firm strives to create customer loyalty by uniquely meeting a particular need. The firm seeks to create a favorable image for its product through advertising, market segmentation and prestige pricing. This would describe a strategy used by premium beer products and designer label apparel manufacturers. This requires moderate to high structure complexity, moderate to high formulation and moderate decentralization.

iii) Breadth Strategy This type of strategy refers to the scope of the market which the business caters: the variety of customers, their geographic range, and the number of products. Some grocery chains for instance have chosen to operate only in a given community. Others however extend their operations to the regional, national or even international level. This requires high complexity and low formalization.

iv) Control StrategyThis type strategy considers the extent to which the organization tightly controls costs, refrains from incurring unnecessary innovation or marketing expenses, and cuts prices in selling basic products. This strategy needs high formalization and centralization

LIMITATION TO THE STRATEGY –STRUCTURE RELATIONSHIPS Attacks on the strategy imperative lies basically in questioning the degree of discretionary latitude managers actually have. For instance it seems logical that the impact of strategy would be greater in the early development of the organization. When personnel are hired, equipment purchased, and procedures and policies established it becomes a whole lot tougher to change. Another challenge to the strategy imperative deals with the lag factor. When management implements a new strategy, there is often no immediate change in structure. The major factor affecting response is the degree of competitive pressure. The less competition an organization faces, the less rapid its structural response. Without competition the concern for efficiency is reduced. The conclusion is that where an organization faces minimal competition, there is likely to be a significant lag between changes in strategy and modification in structure.

DOES STRUCTURE DETERMINE STRATEGY Structure can influence strategy. Structure can motivate or impede strategic activity as well as simply constrain strategic choices. For example strategic decisions made in a centralized structure are typically going to have less diversity of ideas and are more likely to be consistent over time, than in a decentralized organization where input is likely to be diverse, and hence likely to change as people change. In a study of 110 large manufacturing firms, Keats and Hitt found that strategy follows structure. Another study of 54 firms listed among the top half of fortune 500, Pitts also found out that structure influences and constrains strategy rather than the other way round.

Propositions Regarding the Effects of Structure on the strategic Decision Process.

Complexity As the level of complexity increases so does the probability that i) Members initially exposed to the decision stimulus will not recognize it

as being strategic or will ignore it because of parochial preferences ii) A decision must satisfy a large constraint set, which decreases the

likelihood that decisions will be made to achieve organizational goalsiii) Strategic action will be the result of an internal process of political

bargaining and moves will be incremental.iv) Biases induced by members’ parochial perceptions will be the primary

constraint on the comprehensiveness of the strategic decision process. In general, the integration of decisions will be low.

Formalization: As the level of formalization increases, so does the probability that:

i). The strategic decision process will be initiated only in response to problems or crises that appear in variables monitored by the formal system.

ii). Decision will be made to achieve precise, yet remedial, goals and means will displace ends.

iii). Strategic action will be the result of standardized organizational processes and moves will be incremental

iv). The level of detail achieved in the standardized organizational processes will be the primary constraint on the comprehensiveness of the strategic decision processes. The integration of the decisions will be intermediate.

Centralization: As the level of centralization increases, so does the probability that:

i) The strategic decision process will be initiated only by the dominant few and will be the result of proactive, opportunity seeking behavior.

ii) The decision process will be oriented toward achieving positive goals (i.e. intended future domains) that will persist in spite of significant changes in means.

iii) Strategic action will be the result of intended rational choices, and moves will be major departures from the existing strategy.

iv) Top managements cognitive limitations will be the primary constraint on the comprehensiveness of the strategic process. The integration of decisions will be relatively high

Source: Robbins S.P (2000) Organization Theory P 141 adapted from W. Fredrickson (1986) The Strategic Decision Process and

Organizational Structure Academy of Management Review April 1986 P 28

Industry – Structure Relationship 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 the strategies in terms of growth possibilities, regulating constraints, barriers to entry, degree of competitiveness and other factors. Simply knowing the industry in which an organization operates allows one to know something about product life cycles, required capital investments, long term prospects, and types of production technologies, regulatory requirements and so force. Public utilities for example face little competition, and can have more tightly controlled structures. To illustrate how industry can affect structure, let us take two variables that tend to differ by industry category- capital requirements for entry and product innovation rates.

Figure 5-6 shows four industry categories with examples form each. Type A industries rate high on both variables, while type C industries are high on capital requirements and low on product innovation. The high capital requirements tend to result in large organizations and a limited number of competitors. Firms in type A and C industries will be highly structured and standardized, with type Cs being more decentralized to facilitate rapid responses 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 will likely have more division of labor and formalization than type Bs because low product innovation allows for greater standardization. In the same way that capital requirements influence organizational size and number of competitors, we should expect high product innovation rates to result in less formalization and more decentralization of decision making. Consequently, strategy may merely be an intermediate step between unique characteristics of the industry in which the organization operates and the structure it implements to achieve alignment (see fig 5.5)

Figure 5-5 Industry – Structure Relationship

Source: Robbins Pg 143

Figure 5-6 Two Variable Analysis of IndustriesCapital Requirements

Pro

du

ct

Inn

ovati

on

Rati

o High Low Examples -AerospaceA

Example - Computer SoftwareB

CExampleX metals and mining

DX Retail building materials sales.

Source: Robbins pg 144

==========================================================

Review Question on Strategy, Structure Relationship1. Contrast planning and evolutionary modes. Which dominates the

management theory literature?2. What is Chandler’s thesis on strategy – structure framework? What

evidence does he present to support this thesis?3. What criticisms can you direct at Chandlers thesis?4. Does Chandler’s framework have any application to small business

management?

Industry Strategy Structure

Hig

h

Low

5. If structures are relatively stable over time, does this imply that strategies don’t change?

6. Using Miles and Snows typology, describe the structure that would align with each strategic type.

7. Using Millers integrative framework, attempt to reconcile Chandler , Miles and Snow and Porters Strategy-structure theories

8. “Strategy follows structure rather than vice versa” Build an argument to support this statement. Then build an argument to refute this statement.

9. Do you think there is any relationship between an organizational life cycle stage and organizational strategies? Explain.

10. How are strategy and industry categories related?

Structural complexity (mechanistic)

(organic)

Cost leadership Product differentiation

Structural complexity (high)

Low

Unit batch Mass Continuous Technical high complexity

DIAGRAMMATIC REPRESENTATION OF THE RELATIONSHIP BETWEEN STRUCTURE AND CONTINGENT VARIABLES

a) The strategy imperative The strategy structure relationship

b) The technology imperative i) Technical complexity and structural complexity

Structural complexity

Mediating Low

Sequential Medium Reciprocal High

ii) Interdependence of departmental operations: James Thompson

iii) Task analyzability and task variety: Charles Perrow

Craft Non-routine

Routine Engineering

Few exceptions Many exceptions

Ill defined

Well defined

Small size

Low structural complexity

High

Size

iv) Task analyzability/task variety structure – technology framework

NB: The structure/technology, environment, strategy and size give a general framework for trying to align structure to the contingent variables.

The Size Imperative

===============================================================

3.5 Culture

Culture refers to the particular set of values, beliefs, customs and systems that are unique to an organization. Culture is reflected by language, symbols, standards, values, customs, artifacts and beliefs held by the members of the group and accepted by the members as peculiar to to the group. One way of differentiating/or measuring culture is in terms of

Structural complexity(High)

Routine Engineering Craft

Low

Non Routine

(a)Entrepreneurial culture – this is characterized by creativity and innovation. Members of the group practice and are encouraged to practice and are rewarded when they are creative and innovative.

(b)Clan culture: this is characterized by participatory management styles and a concern for people. The rationale for this type of culture is that it is people who make an organization efficient and therefore taking care of them through recognition and support will lead to organizational efficiency.

(c) Bureaucratic culture In this culture rules and regulations are strictly followed. There is a high degree of control.

(d)Mission culture In this culture emphasis is on the achievement of the organization’s goals

1.4.6 Weaknesses of the contingency theories

The relationship between structure and contextual variables refer to formal structure; yet the informal structure is not only required it might have a significant influence.

Structures and management styles may strongly be influenced by other factor such as regulations e.g. the utility firms, banks etc.

The contingency theory is too mechanistic and ignores the complexity of organizational life. Organizations are social entities with all the varieties and complexities of the human elements. As such no scientific relationship can hold or explain highly complex social relations and power struggles that influence the choice of structure, technology and each environment.

Critical Evaluation of the Contingency Theories Positive 1. The theories were in tune with the times in which they emerged- the 1960’s and 1970s – period of rapid economic and technological changes Larger organizations Intense competition2. The contingency theories offered plausible explanations of not only why these events were causing problems for organizations, but also how to resolve them.3. The theories were simpler to understand and apply than the neo-classical theories. 4. The theories were rational in that they explained known structural options and identifiable contingencies.

Negative/shortcoming1 Difficult to relate contingent factors to performance- many other factors

come into play in an organization setting2 No agreed definitions of the factors 3 Use of the formal organization structure. The contingency theories only

dealt with the formal structures and ignored the informal structures which are also important in an organization.

===========================================================Therefore there is need for other theories to explain the complex natures of organizations e.g. the information processing theory, the population ecology theory and the principles propagated by Peters and Waterman.