7/27/2019 OSTD

1/96

OTSD-HR

MMBGIMS MMS-III

1

CHAPTER: 1

What is Organization/Elements of organisation?

Synopsis

A. Definitions

B. What is organization structure

C. What is organization design?

D. What is organization theory?

E. Organizational behavior vs. Organizational theory

F.

Different ways of looking at an organization.

G. A framework for analyzing organization theory

Definitions

A Consciously coordinated social entity. People or group of peoples interaction.

Co-ordinate means Management.

Relatively identifiable boundarythat differentiates who is and who is not a part of

the organization. Boundary not always clear; can change over a period of time. Hasboth explicit & implicit contracts.

Functioning on a continuous basis having some continuing bond regular

employee or visit once a while.

Achieve a set of common goals achieved either individually or though group

effort.

What is organization structure?

Organization Structure defines the manner in which tasks are allocated; who reports to whom

and the formal coordinating mechanisms and interaction pattern that will be followed. The

three elements of organization structure are:

1. Complexity :extent of differentiation within the organization

2. Formalization :extent to which an organization relies on rules & regulations

3. Centralization : where the locus of decision making lies

7/27/2019 OSTD

2/96

OTSD-HR

MMBGIMS MMS-III

2

What is organization design?

The term emphasizes the management side of organization theory. Organization is concerned

with constructing and changing an organizations structure to achieve the goals of the

organization. It is extremely important to know how to design an organization.

What is organization theory?

A discipline that studies the structure and design of an organization. It describes how

organizations are actually structured and offers suggestions on how they can be constructed

to improve its effectiveness.

Organizational behavior vs. Organizational theory

1. OBMicro view: emphasizes on individuals and groups; focus on narrow set ofemployee performance and attitude variables employee productivity,

absenteeism, turnover and job satisfaction. Also focuses on factors affecting

individual behaviors such as perception, values learning, motivation, and

personality; and group aspects such as leadership, power, communication,

conflict etc.

2. OT Macro view: the unit of analysis is the organization itself viz., overall

organizations ability to adapt and achieve its goals.

Structural factors can impact employee behavior OB will consider structure-behavior

relationship. For example in OB conflict tends to focus on inter-personal and intra-group that

is a result of personality/communication differences. In other words OB sees conflict as

people problem, while OT will see it as design problem.

To conclude both OB & OT emphasizes on different levels of organizational analysis.

Different ways of looking at an organization.

1. Rational entities in pursuit of Goals - Behavior of employees is the rationale to

achieve organizational outputs

2. Coalition of powerful constituenciesmade of groups that seek to satisfy its self

interests

3. Open systems Input-output transformation systems that depend on its

environment for its survival.

7/27/2019 OSTD

3/96

OTSD-HR

MMBGIMS MMS-III

3

4. Meaning producing systems Artificially created entities maintained by

management, symbolically tied to the purpose.

5. Loosely coupled system made up of relatively independent units that can

pursue conflicting goals.

6. Political systemInternal constituencies that see control over decision making.

7. Instruments of domination Members are placed into Job Boxes that put

constrains on what to do and whom to interact.

8. Information processing units processing information vertically and

horizontally to coordinate and interpret their environment.

9. Psychic prisonsconstraining members by constructing job description

10.Social contractsComposed of sets of unwritten agreements.

The systems perspective

A system is a set of interrelated and inter-dependent parts arranged in a manner that

produces a unified whole. Every system is characterized by two diverse forces; differentiation

and integration. In a system, specialized functions are differentiated. Accordingly,

organizations have division of labor, departments and units that are separated to performspecialized functions. At the same time, in order to maintain unity among the differentiated

parts and to bring a unified whole, every system has a reciprocal process of integration. Every

system therefore requires differentiation to identify its subparts and integration to ensure that

system does not break into separate elements.

Types of system

1. Closed Systemthat which totally ignores the effect of environment on the

system; one that receives no energy from an outside source and from which

no energy is released to it surroundings.

2. Open Systemthat which recognizes the dynamic interaction of the system

with its environment. Organization receives its resources from the

environment, and hence it is important to view organizations beyond closed

system.

7/27/2019 OSTD

4/96

OTSD-HR

MMBGIMS MMS-III

4

Characteristics of an open system

All systems have inputs, transformation process and outputs. But open systems have

additional characteristics:-

a. Environment awareness: Recognition of interdependency between the

system and its environment. Changes in the environment can one or more

attributes of the system, and conversely, change in the system affect its

environment.

b. Feedback: Open systems continuously received information from their

environment. This helps the system to adjust and allows correction to rectify

deviation from its specific course.

c. Cyclical character: Open systems are cycles of events. The systems outputs

furnish the means for new inputs that allow for repetition of cycle.

d. Negative entropy entropy is the propensity of a system to run down or

disintegrate. A closed system, as it does not receive inputs from environments

will run down over a period of time. Whereas an Open system can repair,

maintain its structure and avoid death.

e. Movement towards growth: As the system becomes more complex, it moves

to counteract entropy and move towards growth.

f. Balance of maintenance & adaptive activities: Maintenance activities ensure

that various subsystems are in place; and the total system is in accordance with

the environment; while adaptive activities are necessary to adjust over time to

variations and internal and external demands.

g. Equifinality: This means an organization can achieve its objectives with

varied inputs and transformation process.

Life cycle perspective

Life cycle refers to a pattern of predictable change. There are distinct stages though which

organization passes through, and these stages follow a consistent pattern, and that the

transitions from one stage to another are predictable rather than random occurrences. The life

cycle perspective brings forth the implication to the management that continuous product

7/27/2019 OSTD

5/96

OTSD-HR

MMBGIMS MMS-III

5

innovation is required if the organization is to survive for long run. Following are the five life

cycle stages:-

1. Entrepreneurial stage the stage is synonymous with the formation stage

of a product. The organization is in its infancy. Creativity is high and goals

tend to be ambiguous. Progress to the next stage demands both acquiring and

maintaining a steady supply of resources.

2. Collectivity stage this stage continues the innovation of the earlier stage,

but the organizations mission is clarified. However, structure and

communication within the organization remains informal. Members of the

organization put in long hours and demonstrate high commitment to the

organization.

3. Formalization & control stagethe structure of the organization stabilizes

in the third stage. Formal rules & procedures are imposed. Innovation is de-

emphasized, while efficiency and stability becomes the focus. Decision-

making assumes conservatism. At this stage organization exists beyond one

person. Roles are clarified so that one persons departure does not cause

inconvenience to the organization.

4. Elaboration of structure stage in this stage, the organization gets into

diversification of its products or markets its services. Management makes a

conscious effort to get into new opportunities. The organization structure

becomes more complex and decision- making becomes de-centralized.

5. Decline stageA result of competition, a shrinking market or similar forces,

the organization faces a decline in the demand for its products / services.

Management looks for ways to beat the competition and hold its market

share, and also looks for new opportunities. Conflict increases within the

organization. New leaders emerge and this new leadership tries to arrest the

decline. Once again the decision-making is centralized.

Do all organizations pass through these stages? Not necessarily. The organizations as far as

possible tries to avoid stage five. Some organizations can remain alive for a longer time and

outlive any of its members. (E.g. Exxon Mobil).

7/27/2019 OSTD

6/96

OTSD-HR

MMBGIMS MMS-III

6

Viewing Organization from a life cycle perspective offsets the tendency to look at

organizations as static. They evolve and change. Finally, life cycle perspective helps

organization to evaluate its effectiveness.

1. How do we know if an organization is successful?

2. What are the components of an organization?

3. What determines the structure of an organization?

4. What options do managers have for designing their organization and when should

each used?

5. How do you apply the knowledge of organization theory to the resolution of current

management problems?

As indicated earlier, the three primary components; complexity, formalization, and

centralization; they represent the variables when combined creates organizational designs.

OT is based on the questions what determines structure: They are five in numbers:-

1. Overall strategy

2. Size or the number of employees

3. Degree of routine-ness in the technology to transform inputs into outputs

4. Degree of uncertainty in the environment of the organization

5. Preferences of people who hold power and control.

The first four are contingency variable because change in the structure will reflect the

changes in these variables. . For e.g. if structure is contingent on size, change in size will

result in change in the structure. The power-control, however, is non-contingent. In allinstances (i.e. change in any of the four contingents referred above) those in power and

control will always prefer structure that will maximize their control.

If one wants to manage an organizations design, we must know the structural alternatives

available at ones disposal. And given the various structural types, what are their strengths &

weaknesses. Under what condition is each preferable. By mixing the structural components,

complexity, formalization and centralization, five organizational design options can be

arrived at. However, current issues worrying the organizational theorists are managing:

7/27/2019 OSTD

7/96

OTSD-HR

MMBGIMS MMS-III

7

1. The environment

2. Organizational change

3. Organizational conflict

4. Organization culture; and

5. Evolution

You will study concepts in the following chapters that will help you analyze the subunits

such as different department, functions as well as the overall organization. Although, many

organizations are too large & diverse to be treated as a single unit. So, whenever we say

organization is Structured in a singular way, we mean generalization.

A framework for analyzing organization theory

Determinants of

structure:

Strategy

Size

Environment,

Technology,

Power-control

Applications:

Managing the:

Environment

Change

Conflict

Culture

Evolution

Organization

Structure

Organization

Design options

Organizational

Effectiveness

7/27/2019 OSTD

8/96

OTSD-HR

MMBGIMS MMS-III

8

CHAPTER: 2

Evolution of organization theory

Synopsis

A. Introduction

B. Early contributionsof Type 1 theorists : Frederick Taylor & Principles of Scientific

Management

C. Henri Fayol & Principles of Organisation

D. Max Weber & Bureaucracy

E. Ralph Davis & Rational Planning

F. Contribution of Type 2 Theorists

G. Contribution of Type 3 Theorists

H. Contribution of Type 4 Theorists

Introduction

There appears to be two underlying dimensions in the evolution of organization theory and

that each dimension has two different perspectives.

The first dimensions reflect that organizations are systems. It was believed that organization

was a closed system that was autonomous and sealed off from its environment. However,

from early 60 organizations began to develop a belief that organizations indeed are an open

system. The earlier aspect of focusing on internal characteristics gave way to focus on events

and processes external to it.

The second dimension deals with the ends of organization structure. Here again are two

opposed perspectives. The rational perspective argues that the structure of an organization is

conceptualized as vehicle to effectively achieve specific goals. In contrast, the social

perspective emphasizes that structure is the outcome of conflicting forces by organizations

elements who seek power & control. The result is four theoretical classifications labeled type

1 to 4.

Type 1Organizations as a mechanical device to achieve goals (as in the case of UPS. Focus

is on achieving efficiency in the internal functions of the organization.

7/27/2019 OSTD

9/96

OTSD-HR

MMBGIMS MMS-III

9

Type 2Organization as a closed system. More emphasis was laid on informal relations and

non-economic motive. Management would design formal rules, relationship etc. but there

were informal patterns of communication, status, norms, and friendship created to meet social

needs of organization members.

Type 3Organization as a primary medium to achieve goals. Concentration was on size,

technology and environment. Uncertainty was the major contingent variable that determined

the nature of organization structure. (more rational approach)

Type 4 The social perspective has returned but in an open system framework. The

viewpoint was structure was not the result of rational effort by managers but outcome of

political struggles among coalitions within the organization for control.

Early contributions of Type 1 theorists: Frederick Taylor & Principles of Scientific

Management

According to the Principle of scientific management, which was based on observation of

work methods, the employee output was only about one third of what was possible. By

applying scientific method to jobs on the shop floor, one best way to do each job was

arrived at. Today this concept is called work design. The four principles under the

scientific management are:

1. Replacement of thumb-rule method with scientific determination

2. Scientific selection and training of workers.

3. Cooperation of management & workers for achieving organization goals

4. Equal division of responsibility between management & workers (former doing the

planning & strategizing and the latter doing the execution)

Limitationfocus too narrow of organizing work at the lowest level of organization

Henri Fayol & Principles of Organisation

This is based on Fayols extensive experience as a practicing executive. Under this concept,

general principles applicable to all managements at all levels of the organization and to

describe the functions a manager should perform. Fourteen principles proposed by Mr. Fayol

are:

7/27/2019 OSTD

10/96

OTSD-HR

MMBGIMS MMS-III

10

1. Division of workspecialization increases output by making employees efficient.

2. AuthorityA managers authority should equal his responsibility

3. Disciplinegood discipline is a result of effective leadership; judicious use of rules

for infraction of rules.

4. Unity of commandEvery employee should receive order from one superior

5. Unity of direction Each organizational activity having same objective should be

directed by one Manager.

6. Subordination of individual interests to general interests

7. RemunerationFair wages for work done

8. Centralization degree to which subordinates are involved in decision making. Is

decision making centralized (to management) or decentralized (to subordinates)

9. Scalar chain line of authority that flows from top management to the lowest rank.

Communication to follow this chain only. If following the chain causes delay, a

gangplank (cross communication) can be allowed.

10.Orderpeople and material should be at the right place at the right time.

11.Equitymanagers should be fair to their subordinates

12.Stability of tenureHigh turnover is inefficient.

13.InitiativeEmployees who are allowed to originate and carry out plans will exert

high level of effort.

14.Espirit de corpspromoting team spirit will build harmony within the organization.

Max Weber & Bureaucracy

This is referred as Ideal type. This aspect supports the argument that the most efficient

means by which organization can achieve their ends is through bureaucracy. This was

characterized by high division of labour , detailed procedures, rules and regulations and

impersonal relationship. Webbers bureaucracy is a prototype for most of the large

organizations today.

7/27/2019 OSTD

11/96

OTSD-HR

MMBGIMS MMS-III

11

Ralph Davis & Rational Planning

Rational planning perspective proposed that structure is the logical outcome of organizations

objectives. This concept believed that primary objective of any organization is economic

service No business can survive if it cannot provide economic value. Economic value is

generated by the activities members engage in to create organizations products and services.

These activities then link the organizations objectives to its results. It is managements

responsibility to group these activities in such a way as to form the structure of the

organization. Accordingly, this concept concludes that organization structure is contingent

upon the organizations objectives.

Contribution of Type 2 Theorists

Elton mayo & Hawthorne studies

Findings of the study resulted in designing jobs, its duration, and length. Wage-incentive

plan, determining factors for a workers output etc. The most significant result of this study

was management never considered the issue of organization design without including effects

on work groups, employee attitudes and manager-employee relations.

Chester Bernard & Cooperative System

Merging the idea of Taylor, Fayol, & Weber with the result of Hawthorne studies led to the

conclusion that organizations are cooperative system. They are composed of tasks and people

that have to be maintained at an equilibrium state. So managers are required to organize their

tasks to the needs of the people indulged in the tasks. Also this system challenged the

contention that authority flows top-down. It was argued that authority should be defined in

terms of response of the subordinates. It was this system that introduced the role of informal

organization to organizational theory, and it was proposed here that managers role is to

stimulate the subordinates to high level of effort through facilitating communication.

Douglas MCGREGORTheory X & Y

Managers perception about employees is based on grouping of assumptions, and employee

behavior is moulded based on these assumptions. The implication of this to organization

theory is that employees should prefer theory Y assumptions and design the organization

accordingly. Employee participation in decision making, creating responsible and challenging

jobs etc. can be traced back to this assumption.

7/27/2019 OSTD

12/96

OTSD-HR

MMBGIMS MMS-III

12

Warren Bennis & Death of Bureaucracy

Here the centralized decision-making and impersonal submission to authority and narrow

division of labour was being replaced by decentralized and democratic structure organized

around flexible groups. Mr.Bennis argued that flexible adhocracies as the ideal organization

form, much contradicting Webber who professed bureaucracy.

Contributions from Type 3 Theorists

Herbert Simon & Principles Backlash

Mr. Simon recognized that Type 1 principles have to give way to a contingency approach. He

argued that Organization theory need to go beyond superficial principles to a study ofconditions under which competing principles were applicable.

Katz & Kahns Environmental Perspective

This is a major work done towards promoting open-system perspective of organization

theory, by providing a convincing description of the advantages of an open system and by

proving the need for organizations to adapt to changing environment for its survival.

Technology

Charles Perrow & James Thompsonmade an impressive case of Technologys importance.

Like Environment, no discussion on Organization theory can be complete without referring to

Technology and the need for managers to match structure with technology.

The Aston group & Organization Size

In addition to the advocates of Environment & Technology, Type 3 theorists included the size

of an organization as an important factor influencing the structure. Large organizations have

been shown to have many common structural components, and so is the case with smaller

organization. This alignment of size to structure has been proved valuable in organization

decision-making.

7/27/2019 OSTD

13/96

OTSD-HR

MMBGIMS MMS-III

13

Contribution of Type 4 Theorists

The most recent approach to Organization theory focuses on the Political Arena of an

organization.

Pfeffers Organisation

Jeffrey Pfeffer built a model of theory that encompasses power coalitions, inherent conflict

over goals and organization design decisions that favour the self-interest of those in power.

According to Pfeffer control in an organization is an end rather than means to achieve

rational goals such as efficient production of output. Organizations are coalitions composed

of varying groups and individuals with different demands. An organization design represents

the power struggle between these coalitions. For an effective study of how and why

organizations are designed the way they are, we need to assess the preferences and interests

of those in the organization who have influence over the design decisions.

7/27/2019 OSTD

14/96

OTSD-HR

MMBGIMS MMS-III

14

CHAPTER: 3

Organisational Effectiveness

Synopsis

A. What is effectiveness?

B. Organisational Effectiveness

C. Definition

D. Organisational Effectiveness Criteria

E. Approaches

F.

Models

G. Competing Values Questionnaire

What is effectiveness? Look at organizations driving their earnings.

On an average, each Toyota employee produces 57.7 vehicles a year. In contrast, Ford gets

only 16.1 vehicles from each employee. Similarly, Toyota spends only $630 on labor of each

vehicle, whereas Ford spends $2379. Yet Ford earns $555 per vehicle to only $446 for

Toyota. Which company would you consider more effective.

During the year 1987 Monsantos sales rose 11% over 1986. In contrast, during the same

period, Rohm & Hass Chemicals sale rose only 7%. Yet R & Hs profit increased 41% as

compared to only 1% of Monsanto. Which is more effectiveMonsanto or R & H?

Warner Lamberts Profits declined in 1987 but its return on invested capital that year was a

chopping 30.5%, far more impressive than Monsantos 11.2 and R& Hs 17.8%

Now which of these three is more effective?

Organisational Effectiveness

Organizational effectiveness is the central theme to Organization theory. Every function of an

organization contributes in some way to help managers make organizations more effective.

For instance, Marketing guides managers in expanding market share and revenues; Finance

helps managers in making optimum use of funds invested in the organization. Operations &

production help in guiding efficient processes, while Human resources help in making leaders

in their fields.

7/27/2019 OSTD

15/96

OTSD-HR

MMBGIMS MMS-III

15

However, as a part of organization theory, it is important to know how an organization

structure can contribute to the Organization effectiveness. It is important that the way people

and jobs are aligned, role & relations defined, put together forms an important determinant in

whether an organization is successful or not.

Accordingly, awareness of different structural options and conditions under which each is

preferred would definitely help HR professionals in designing an effective organization.

Definition

A simple way to define degree to which an organization realizes its goals. Or how does

an organization manages to; survive. But survival becomes alive or dead evaluation.

Organization doesnt die like humans. E.g. American Motors no longer exists, but its

manufacturing plant, people etc. are in Chrysler. Thus organizations are remade.

Table of O.E Criteria

Productivity Goal consensus

Efficiency Internalization of goals

Profit Role & Norm congruence

Quality Managerial inter-personal skills

Accidents Managerial task skill

Growth Information management & Comm.

Absenteeism Turnover

Readiness Utilization of environment

Job satisfaction Evaluation by external entities

Motivation Morale

Control Conflict / cohesion

Flexibility / adaptation Planning & goal setting

Value of human resources Participation & shared influence

Training & development emphasis Achievement emphasis

7/27/2019 OSTD

16/96

OTSD-HR

MMBGIMS MMS-III

16

The above table indicates that OE requires multiple criteria. Different organization functions

have to be evaluated using different characteristics and it must consider both means (process)

and ends (outcomes)

However, Tom Peters in his work In search of Excellence has come up with eight

indicators of an Effective Organization. This is based on his research on excellent firms like

Procter & Gamble, 3M. Du pont, McDonalds, who shared some common characteristics.

1. Bias for action & getting things accomplished

2. Staying close to customers to know their needs

3. High degree of autonomy for employees & foster entrepreneurial spirit

4. Increase productivity through employee participation

5. Employees awareness about the Organizations purpose & Managers involvement in

problems at all levels

6. Awareness of business

7. Simple organizational structures

8. Blending tight controls to protect companys values with loose controls to encourage

risk taking.

The achievement of these characteristics defined effectiveness of an organization.

The Goal Attainment Approach

As an organization is deliberately created to achieve some specific results, appraisal of the

goals achieved automatically becomes a widely used criterion of effectiveness. This approach

postulates that effectiveness of an organization should be evaluated by accomplishment of

ends rather than on means

LimitationThe exclusive use of goal as measurement criteria is fraught with problems. It

is easier to talk about goals in general, but while operational zing these goals; the question

arises as to whose goals. Official goals tend to be strongly influenced by standards of social

desirability. At times, there are multiple goals of organizations that can create problems,

likewise conflicting goals.

7/27/2019 OSTD

17/96

OTSD-HR

MMBGIMS MMS-III

17

The Systems Approach

A systems approach to OE implies that an organization is made up of several subparts. Poor

functioning of any one part can impact the overall system. Effectiveness requires awareness

and successful interaction with environmental constituencies. Management cannot fail to

maintain good relations with trade unions, suppliers, customers etc. that have the power to

disrupt the stable operation of organization.

Strategic Constituencies Approach

A more recent perspective on OE - the strategic constituencies approach - proposes that an

effective organization is one that satisfies the demands of those constituencies in its

environment from whom it requires support for its continued existence. In other words, it

seeks to appease only that aspect of an environment that can threaten the organizations

survival.

Making SC workThe HR need to ask members of the dominant coalition to identify the

constituencies they consider to be critical to the organizations survival. This input can be

combined and synthesized to arrive at a list of strategic constituencies.

However, this approach too has some limitations. Because the environment changes rapidly.

What is critical to organizations today may not be so tomorrow. Perceptions of the coalitionmembers / functional people will vary in deciding what is strategic. However, this approach

can work greatly if it is the question of survival. One can identify what in the constituent is

strategic to survival.

The Competing Value Approach

In order to having a comprehensive understanding of OE, it would be worthwhile if we now

all the key variables in the domain of effectiveness and then determine how the variables are

inter-related.

The significant aspect of this approach is that the criteria you value and use in assessing OE

ROI, Market share, product innovation, job securitydepend on who you are and what you

represent. The stockholders, suppliers, internal specialists etc may look at same organization

but evaluate its effectiveness differently. The rating reflects the raters values rather than tell

us about the OE.

Competing values approach goes beyond diverse preferences. It assumes that these diverse

preferences can be consolidated and organized. The competing value approach argues that

7/27/2019 OSTD

18/96

OTSD-HR

MMBGIMS MMS-III

18

there are common elements underlying any comprehensive list of OE criteria and that these

elements can be combined in such a way as to create, basic sets of competing values. Each

one of these sets then defines a unique effectiveness model.

Three Dimensional Model of Organizational Effectiveness

Flexibility

Means

People Organization

Ends

Control

Cells Description Definition

OFM Flexibility Adapting to external demands

OFE Acquisition of resources Increase external support & expand Workforce

OCM Planning Well understood goals

OCE Productivity & efficiency High volume output: Output to input ratio high

PCM Availability of information Channels of communication clear Informing people

of things that will affect their work

PCE Stability Sense of order, continuity & smooth operations

PFM Cohesive workforce High trust between employees

PFE Skilled work force High capability employees

7/27/2019 OSTD

19/96

OTSD-HR

MMBGIMS MMS-III

19

Four Models of Effectiveness Values

Human Relations Model Open system Model

Ends: Means:

Skilled workforce Flexibility

Means: Ends:

Cohesive workforce Acquisition of resources

Means: Ends:

Availability of resources Efficiency and

productivity

Ends: Means:

Stability Planning

Internal-process-model Rational-process-model

FLEXIBILITY

People Environment

CONTROL

7/27/2019 OSTD

20/96

OTSD-HR

MMBGIMS MMS-III

20

COMPETING VALUES QUESTIONNAIRE

Sr. No. Determinants DisagreeSomewhat

AgreeAgree

1The organization responds well to

changing demands (OFM)

2The size of the organization is steadily

increasing. (OFE)

3Employees have a clear understanding

of the organizations goals. (OCM)

4The organization generates high volume

of output (OCE)

5Employees are well informed about

things that affect their work(PCM)

6The Organization operates in a smooth

& orderly way (PCE)

7Employees work well with each other.

(PFM)

8Employees are well equipped for their

jobs (PFE)

It is believed that the organizations stage in its life cycle may be an important determinant of

which OE model should be emphasized by the management. Also it must be noted that eachof the stages in a life cycle will make different demands on the management. It is only logical

that the strategic constituencies are likely to change from stage to stage to reflect these

difficult demands.

From e.g. In the entrepreneurial stage, where innovation and creativity rules, getting external

support is necessary. The open-system model emphasizes these criteria.

7/27/2019 OSTD

21/96

OTSD-HR

MMBGIMS MMS-III

21

When the organization enters collectivity stage the management needs to create a sense of

family within the organization and develop high member commitment. This is espoused in

the Human Relations model.

During formalization and control stage, focus is on the external environment. Strategic

constituencies in this stage emphasize organizations flexibility, ability to acquire resources

and growth rate. Again, these criteria are best in open system model.

Finally in the decline stage, the strategic constituencies tend to be similar to those found

when the organization was in its infancy. The concern, therefore is again innovation and

creativity, and ability to acquire resources. Once again open system model will be the answer.

Comparing the four Approaches

Sr.

No.

Approach Definition When useful

(1) Goal attainment An organization is effective

to the extent that It

accomplishes its stated goals

Goals are clear, time

bound and measurable

(2) Systems It acquires the needed

resources

A clear connection exists

between inputs and

outputs

(3) Strategic

Constituencies

All the strategic

constituencies are minimally

satisfied

Constituencies have

Powerful influence on the

organization and the

organizations ability to

meet those demands

(4) Competing values

approach

Emphasis of the organization

in the four major areas

matches constituent

preferences

Organization is not clear

about its own emphasis

and its interest in those

areas that change over

time.

7/27/2019 OSTD

22/96

OTSD-HR

MMBGIMS MMS-III

22

Conclusion

OE is conceptually very complex, and so its definition. However, from the foregoing, OE can

be defined as the degree to which an organization attains its short and long term goals,

the selection of which reflects strategic constituencies, the self interest of the evaluator

and the life stage of the organization.

7/27/2019 OSTD

23/96

OTSD-HR

MMBGIMS MMS-III

23

CHAPTER: 4

Dimensions of Structure

Synopsis

A. Dimensions of Structure

B. Complexity

C. Formalisation

D. Centralisation

E. Decentralisation

Dimensions of Structure

1. Complexity, Formalization and Centralization is the core dimensions of

organization structure. However, we also need to consider following variables that go

to define the structural dimensions.

2. Administrative componentratio of line supervisors, managers, staff personnel to

total number of employees.

3. Autonomythe extent to which top management has to refer certain typical decision

to a higher level of authority.

4. Centralization The proportion of jobs whose occupants participate in decision

making and the areas in which they participate or the concentration of power

arrangements, degree of information sharing between the levels, degree of

participation in long range planning.

5. Complexity number of occupational specialties, the professional activity, the

professional training of employees.

6. Delegation of authority ratio of number of specific management decisions, the

C.E.O has delegated to number of people.

7. Differentiation The number of specialty functions represented in a firm or the

difference in cognitive and emotional orientation between managers in different

departments.

7/27/2019 OSTD

24/96

OTSD-HR

MMBGIMS MMS-III

24

8. Formalization the extent to which an employees role is defined by final

documentation

9. Integration the extent of collaboration between departments that are required to

achieve the unit of effort or plans or feedback used for coordination between

organizational units.

10.Professionalizationextent to which employees use a professional organization as a

major reference, belief in service to public, self-regulation, dedication to ones field

etc.

11.Span of controlnumber of subordinates to manager ratio

12.Specializationnumber of occupational specialists & length of training required by

each as spelt out in formal job description.

13.Standardizationrange of variance tolerated within a job

14.Vertical spannumber of levels in the hierarchy from bottom to top

Complexity

What do we mean by complexity? And why is complexity so important?

Definition

Complexity refers to the degree of differentiation that exists within an organization.

Horizontal differentiation considers the degree of horizontal separation between units.

Vertical differentiation refers to the depth of organizational hierarchy. Spatial differentiation

encompasses the degree to which the location of an organizations facilities and personnel are

dispersed geographically. An increased in any one of these will increase the complexity.

Horizontal differentiation refers to degree of differentiation between units based on the

orientation of members, nature of the tasks they perform and their education and training.

Larger the number of different occupations within the organization that require the

specialized knowledge and skills, more complex the organization is. Why more complex,

because diverse orientation, that makes communication difficult and coordination of activities

strenuous for the management. Diversity will also increase different goal emphasis, time

orientation etc.

The most visible horizontal differentiation is Specialization (also known as division of

labour) and departmentation specialization refers to grouping of particular activities.

7/27/2019 OSTD

25/96

OTSD-HR

MMBGIMS MMS-III

25

Again, any increase in the specialization increases the complexity. Why? The coordination

and control is required to become more sophisticated and expensive. The reason for division

of labour is efficiency. The way in which specialists are grouped is called departmentation.

Thus, departmentation is the manner in which organization coordinates activities that have

been horizontally differentiated. Departments can be created on the basis of simple numbers,

function, products or service., client, geography or process. Most large corporations use all

these.

Vertical Differentiation refers to depth of the structure. As the levels of hierarchy

increases, differentiation increases and so also the complexity. More the levels between top

management and the operatives, greater the potential of communication distortion and more

difficult it is for top management to oversee the actions of operatives. Vertical and Horizontaldifferentiation is not independent of each other. In fact vertical differentiation is a response to

increase in the horizontal differentiation. High horizontal differentiation means members will

have diverse training and background; it becomes difficult for the individual unit to fit into

the greater whole. (E.g a construction companysurveyors, architects, heavy duty equipment

operators, designers, asphalt tenders, masons, truck drivers and clerical personnel need for

increased coordination which shows in the manifestation of vertical differentiation.

A manufacturing company differentiates horizontally when it it separates marketing fromproduction. Yet, if marketing activities are identically carried out from different geographical

locations, while all production is done from one place, this organization is more complex

Why is complexity important?

Having seen various elements of complexity, the next question to be answered why is it

important?

If an organization has to be effective; the communication, co-ordination and control devices

between its subsystems need to be in place. More complex an organization greater is the

demand on the management to ensure that differentiated and dispersed activities run

smoothly together towards achieving organizational goals. When there are number of

employees, each doing a small part of a whole job (most of them having little idea what

others are doing) an elaborate arrangement of management positions in different hierarchy

level spread over a large geographical area, then it becomes clear that the communication and

coordination devices are absolutely necessary. Thus complexity creates different demands on

managers time.

7/27/2019 OSTD

26/96

OTSD-HR

MMBGIMS MMS-III

26

Formalization

Formalization refers to the degree to which jobs within the organization are standardized. If a

job is highly formalized, the job incumbent has a minimum amount of discretion over what is

to be done, when it is to be done and how one should do it. Employees can be expected to

handle the same input every time to give a consistent output. There are explicit job

description, formal rules and defined operating procedures where formalization is high.

Whereas in case of low formalization employees behavior is nonprogrammed. So

formalization is a measure of standardization. An individuals discretion on the job is

inversely related to amount of behavior that is pre-programmed by the organization.

This standardization eliminates employees need to consider alternative behaviors.

Formalization Techniques

There are number of ways in which employee behavior can be standardized:

Selection Organization do not choose people at random. Job applications are processed

through a series of hurdle to differentiate individuals likely to be successful performers from

those likely to be unsuccessful. The selection system is designed to look at factors like

personality; work habits and attitudes align with the organizational goals. The selection

process becomes more meaningful if the recruiter understands the personality / culture of the

organization. Selection is considered as the most important method of controlling employee

behavior. The selection system should be able to predict potential employees ability to meet

organizations minimum requirements of an acceptable employee.

Role Requirements Individuals in an organization fulfill roles. Every job carries with it

expectations on how the role incumbent is supposed to behave. Job analysis defines jobs that

need to be done in the organization and outlines what employee behaviors are necessary. The

data from the job analysis forms the basis for job description. Role expectations majorly

regulate employee behavior. An organization that specifies role expectation is high in

formalization.

Rules Procedures & PoliciesRules are explicit statement that tells an employee what to do

and what not do. Procedures are a series of interrelated sequential steps that needs to be

followed in accomplishing a job. Procedures are established to ensure standardization of

7/27/2019 OSTD

27/96

OTSD-HR

MMBGIMS MMS-III

27

work processes. The same input is processed each day and the output is same each day.

Policies always need not be written. Employees pick up on an organizations implied policies

merely by observing the actions of members around them.

Training The different kinds of training provided to employees, both on and off site are

meant to indicate the preferred job skills, knowledge and attitude. The intent is instilling

preferred work behaviors and attitudes. Particularly, for new employees, who are often

required to undergo a brief orientation program in which they are familiarized with the

organization?

Rituals Rituals are used as a formalization technique with members who will have an

enduring impact on the organization. The common threat to rituals is that members need to

prove their trust by their loyalty. Another aspect is that top management position is awarded

to those who win trust through their abilities and attitudes.

There is considerable evidence to support the link between specialization, standardization and

formalization. Where employees perform narrow, repetitive and specialized tasks, their

outlines tend to be standardized and a large number of rules and regulations govern their

behavior. On the other hand a highly trained specialist or a professional does not require a

number of rules. High formalization would only impose redundant controls.

To conclude, the key to understanding the complexity-formalization- relationship is to focus

on degree of horizontal differentiation and the way it is achieved.

Centralization

Where are the decisions made in the organization up on the top by the management or

down low where the decision makers are closer to the action? Here we deal with

centralization and its counterpart decentralization.

Centralization is the most problematic of the three components. A high concentration of

decision making at the top management / a single point indicates high degree of

centralization.

What exactly is a single point does it mean an individual, a unit or a level in the

organization?

Does keeping operative managers outside the purview of decision making indicate

centralization?

7/27/2019 OSTD

28/96

OTSD-HR

MMBGIMS MMS-III

28

Does information processing system that closely monitors mean centralized control? Advance

information technology allows decentralization, but the same technology allows managers to

learn about the consequences of any decision rapidly and take corrective action wherever

necessary. If discretion is delegated downward but closely monitored by those above, is it

decentralization.

Does the control of information at the lower level result in decentralization?

Centralization is concerned only with formal structure, not the informal organization. It

applies to only formal authority. Centralization looks at decision discretion. Where decisions

are delegated downwards but extensive policies that regulate the decision making act as

centralization. Thus an information processing system that closely monitors centralized

decisions does not maintain centralized control.

Decision Making & Centralization

Managers regardless of where they are in the organization - make decisions. The typical

choices made by managers about goals, budget allocations, the work methods and ways to

improve units effectiveness. The degree of control one holds over full decision making

process is itself a measure of centralization. Decision making is presented traditionally as the

making of choices. The decision maker chooses one over many alternatives. But from an

organization, the making of choice is only one step in a larger process.

Why is the centralization-decentralization issue important?

As we have agreed that organization is an information-processing and decision making

mechanism, managers are limited in their ability to give attention to data they receive. Once

that limit is reached, further inputs result in information overload. To avoid this, some

decisions can be given to others. The concentration of decision making at a single point can

be dispersed. This dispersion is decentralization.

There are other reasons why organization may choose to decentralize; they need to respond

rapidly to the changing conditions at the point at which change is taking place.

Decentralization facilitates speedy action, as it eliminates the need to process information

through vertical hierarchy. This explains why marketing activities tend to be decentralized, as

the function demands quick response to meet customer needs.

7/27/2019 OSTD

29/96

OTSD-HR

MMBGIMS MMS-III

29

In addition to speed, decentralization provides more detailed input into the decision. If those

most familiar with an issue make a decision, specific facts related to that issue will be

available. Decentralization is one of the strong motivators.

Finally decentralization creates training opportunity for low level managers. However, where

comprehensive perspective is needed in a decision or where concentration provides

significant economies, centralization becomes advantageous.

As we conclude the chapter on structural components, it is important to check the relationship

between complexity-formalization and centralization.

Centralization & complexity evidence strongly supports an inverse relationship.

Decentralization is associated with complexity. For e.g. high degree of occupational

specialists means increase in the number of people with expertise and decision making

ability.

Centralization & formalizationHigh formalization can be seen either with a centralized or

decentralized structure. Where employees in an organization are highly unskilled, high

formalization is seen. Control is exercised through both formalization and concentration of

decision making in the top management.

With professional employees, one may predict both low formalization and decentralization.Professionals expect decentralization of decisions that affect their work directly, but this does

not apply to personnel issues, or strategic organization decisions. This can result in low

formalization and centralization. Centralization is limited to strategic decisions than to

operative decisions, the former having little impact on the work activities of the professional.

7/27/2019 OSTD

30/96

OTSD-HR

MMBGIMS MMS-III

30

CHAPTER: 5

Strategy

Synopsis

A. What is strategy?

B. Types of strategy

C. Theories

What is strategy?

Strategy is defined as determination of basic long term goals and objectives of an enterpriseand the course of action adopted; and allocation of necessary resources for carrying out those

goals.

Critical features:

Integrated organizational response affecting the whole organization

Consistent response to environmental demands & opportunities

Initiative by organization to change the environment

However, the question yet remains, are strategies pre-mediated or it just emerges. One

school of thought 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 plan to get

there. However, another view is that Strategy emerges as a pattern in a stream of significant

decisions.

According to Lorsch Strategy means a stream of decisions taken over time by Top

Management, reveal the goal they are seeking, and the means used to achieve that goals.

Eg. RPG has followed a direction of growth through acquisition;

Essar through interlinked diversification in the core sector

Reliance through backward integration.

7/27/2019 OSTD

31/96

OTSD-HR

MMBGIMS MMS-III

31

According to Ansoff, a successful strategic plan must include:-

Systematic analysis of organizations internal situation & external environment

Identification of viable, relevant long range goals

Development of control systems, monitor & feedback

Action plan

Types of strategy

1. Corporate Level strategy - What set of business should we be?

2. Business Strategy How should we compete in each of our business? For a small

Organization with one line of product, generally business strategy would be same as

corporate strategy, and the structure will be simple. But for organizations in multiple

businesses, each division will have its own strategy, with different structural

configuration.

Classifying Strategic Dimensions

1. Innovation the extent to which the organization introduces diversity of products

(3M, Nokia, Apple)

2. Marketing differentiationThe marketing differentiation strategy strives to create

customer loyalty by uniquely meeting a particular need. The organization seeks to

create a favorable image through advertising.

3. Breadth strategyrefers to the scope of market to which business caters variety of

customers, their geographic range, and number of products.

4. Cost control extent to which organization tightly controls cost, refrain from

incurring unnecessary innovation or marketing expenses.

Chandlers Strategy Structure Theory

Relationship between strategy and structure was first propounded by Mr. Alfred Chandler.

According to his study, organizations that offered limited product lines had more centralized

structures. As demand for products grew, the companies expanded. They increased their

product lines and had to develop different structure to cope with their changing strategies. As

organization seeks to grow, their strategies become more ambitious and elaborate. From a

7/27/2019 OSTD

32/96

OTSD-HR

MMBGIMS MMS-III

32

single product, the companies expand activities within their same industry. This vertical

integration strategy makes for increased interdependence among organizational units and

creates a need for a more complex coordinative drive. The complexity is met with

redesigning the structure to form specialized units based on functions.

Finally if growth proceeds further, into product diversification, again structure must be

adjusted for achieving efficiency. A product diversification strategy demands a structural

form that allows for efficient allocation of resources, accountability for performance and

coordination between units.

For example, if any company decides to become a market leader in a highly competitive

market, it may choose to compete through offering a standardized product at the least price.

To succeed with this strategic choice, the company must strive for tighter cost controls, along

with large volume of production to achieve economies of scale. These objectives may affect

the internal decisions like reporting structure, production schedules etc. Thus to be effective,

the structure must follow the strategy.

However, chandlers work suffered from limitations, as in that he looked at large profit

making organizations. He focused on growth as a measure of effectiveness rather than

profitability. Yet, it is true that strategy does influence structure. And strategy has also to be

looked from Market segmentation, financial strength, Leveraging opportunity, competitors

activities etc.

Contemporary Strategy

Raymond Miles & Charles Snowidentified three basic problems which the organization

must identify, confront and solve, in order to adapt successfully to the environment.

These are:

1. Entrepreneurial problem: Specifically defining an organizations domain,

product(s) & service(s) it chooses to offer and its target market or market segment.

The solution is necessary for orienting organizational energy and resource in proper

direction.

2. Engineering problem: involves Operationalization of managements solution to

entrepreneurial problem. I.e. selection of appropriate technology and to ensure the

proper production and distribution of the chosen products or services.

7/27/2019 OSTD

33/96

OTSD-HR

MMBGIMS MMS-III

33

3. Administrative problem: involves rationalizing and stabilizing the organizational

activities. I.e. designing of appropriate organizational structure & systems for

reducing uncertainty and create mechanism that would foster innovation in response

to change in environmental demands

4. Further classification of organizations has also been based on the rate at which they

change their products or markets, into one of the four types.

5. Defendersseek stability by producing only one / limited type of products directed

at a narrow segment of the total potential market. I.e. how to seal off a portion of the

total market environment to create a stable domain. Within this domain the defenders

aggressively fight any competition from entering their turf. Organization does this

through standard economic actions such as competitive pricing or producing high

quality products. Their strategy is that of cautious and incremental growth through

market penetration. Defenders tend to ignore the developments outside their turf.

There is hardly any scanning of environment. The result is a structure of high

horizontal differentiation, centralized control and intensive planning towards cost and

efficiency issues along with an elaborate hierarchy for communication. (E.g. baby

soap, soft soap). Much defender organization tries to achieve technological efficiency

through vertical integration. Some of the organizations that followed defendersstrategy were TISCO, and Bajaj Auto

6. Prospectors opposite of defenders; their strength is finding and exploiting new

product and market opportunities. Innovation is more important than profitability.

(Eg. Several magazine publishers coming with new titles every month; 3M has built

its long term profitability through product innovation. The prospectors success

depends on developing & maintaining the capacity to survey a wide range of

environmental conditions, trends and events. They invest heavily on personnel who

have this capability. Since flexibility is critical to prospectors, a highly flexible

structure. There will be numerous decentralized units. The prospector can respond to

the demand of tomorrows world, but if that is similar to that of today, prospector

cannot maximize profitability. Prospector type of organizations is more often found in

nascent industries which offer a vast growth potential to entrepreneurial companies.

For eg. HCL flourished in 1980 when computers was a sunrise industry. Prospectors

through their entrepreneurial decision also change markets like Super cassette

7/27/2019 OSTD

34/96

OTSD-HR

MMBGIMS MMS-III

34

industries created a new market for music by offering products such as cheap

cassettes

7. Analyzers have best of both prospectors and defenders. They seek to try and

minimize risk (defender stance) and maximize opportunity (prospector stance) for

profits. Their move is to get into the new product / market only after prospectors have

proved the viability. In other words they limit themselves to taking idea of prospectors

and copy them. (Eg. Manufacturers of mass fashion products, rip offs of designer

styles such as IBM.) They essentially follow their smaller and more innovative

competitors. Analyzers seek both flexibility and stability. The structure in such

organization is made up of dual components. While prospectors need to have high

profit margin to justify their risk, analyzers are okay with smaller profits.

8. Reactorsrepresent a residual strategy. They describe the inconsistent and unstable

pattern that is a result of not following the other three patterns properly. They are not

in a position to commit aggressively to specific strategy for future. This is because the

top management is not clear about its strategy. The management might not have fully

shaped the structure to fit into the chosen strategy. The management must be

maintaining its existing strategy-structure, despite changes in the environment.

9. The key to Miles & Snows strategy-structure theory is managements assessment

about the environmental uncertainty. However, managements perception of

environmental uncertainty may lack objective interpretation. (Egg. Goodyear /

Firestones perception about demand for increased demand for replacement tires)

ExerciseIdentify the types of strategy in the following illustration

Given below are the worlds four largest tobacco companies. Given the dynamic

environment, due to reports of hear & lung diseases being linked to consumption of tobacco,

firms experienced consistent uncertainty.

Phillip Morris first to design products specifically to bring women into smoking market

and has been a pioneer in product packaging.

RJ Reynolds strategy has been to become an early adopted of the successful innovation of

others. It operated in two product market spheres simultaneously one stable and one

changing. In its stable sphere, Reynolds has routine operations. In its turbulent sphere top

managers watch competitors for new ideas, and quickly adopt those that look promising.

7/27/2019 OSTD

35/96

OTSD-HR

MMBGIMS MMS-III

35

American Brands focuses on a narrow product range and lost market share badly

Ligget & Myers top management consistently perceived the change and uncertainty in its

product markets but was unable to respond effectively. There was less internal inconsistency.

To conclude, Defenders strategy, where the management perceives negligible

change/uncertainty in the environment; structure should be designed for optimum efficiency,

i.e. high division of labor, standardization of operations, high formalization and centralized

decision making.

In case of Reactors, Management perceiving some change / uncertainty in the environmentand are not likely to make any adjustments until pressurized by environment. The structure in

this case too is like defenders.

Management pursuing an analyzers strategy waits until competitors come up with viable

response to change, and quickly adopt. In this case the structure is tight for stable activities

while flexible for new activities that face greater uncertainty.

Finally, prospector strategy requires great degree of structural flexibility as there is a lot of

change and uncertainty. Thus, there is a low degree of complexity, low formalization and

decentralized decision making.

Porters competitive strategy

According to Porter, no organization can perform above average by trying to be all things to

all people, viz. Cost Leadership, differentiation and focus. Which one the management

chooses depends on organizations strength and competitors weakness.

A low cost producer follows a Cost leadership strategy. Typical meansinclude efficiency of

operations, economies of scale, technological innovation, low cost labor, preferential access

to raw materials. (eg. Hyundai Motors)

The firm that seeks a unique status in its industry in a way that it is highly valued by its

buyers is going fordifferentiation strategy. Such firms emphasize on extra-ordinary product

/ service quality, innovative design, technological capability, unusual and positive brand

image. The key is attribute chosen must be different from that offered by rivals to justify

price premium (eg. Toyota reliability, IBM super quality of personnel, Ferrari

7/27/2019 OSTD

36/96

OTSD-HR

MMBGIMS MMS-III

36

performance). Firms that aim at a cost advantage or differentiation advantage in a narrow

segment will go for focus strategy. The management will select a segment or group of

segments in an industry (such as product variety, type of end buyer, distribution channel, or

geographic location of channels) and tailor the strategy to service them to the exclusion of

others. The goal is to exploit a narrow segment of a market. (low calorie product affluent

NRI, part time for working professionals)

Stuck in the middle describes organizations that are unable to gain a competitive

advantage by any one of the previous stages. Such organizations find it difficult to succeed in

the long run. When they do, it is the result of competing in a highly favorable industry or all

rivals stuck in the middle.

Millers Integrative Framework

Strategic Dimension Challenge Structural characteristics

Innovation To understand & manage

more products customer

types, markets and

Technologies

Scanning of markets to know

customer needs low formalization,

decentralization, extensive use of

coordination committees & Task

forces

Market differentiation To understand & cater to

customer preferences

Moderate to high complexity,

extensive scanning & analysis of

customer reaction and competitors

strategies. Moderate to high

formalization, moderate

decentralization.

Breadth Innovation

Breadth stability

To select right range of

products/services, customers

& territory

High complexity, low formalization,

decentralization. High complexity,

high formalization , high and high

centralization

Cost control To make standardized

Products efficiently

How formalization, and high

centralization

7/27/2019 OSTD

37/96

OTSD-HR

MMBGIMS MMS-III

37

Limitation to Strategy Imperative

From the foregoing, it can be seen that strategy can determine structure, however, with some

limitations. When the organization is in its infancy, impact of structure will be significant.

Once the people are hired, technology in place it is lot tough to change. Also, capital to labor

ratio in an organization will affect the impact of strategy on structure. (if the ratio is low i.e.

labor intensive) the managers have much more flexibility, and hence discretion, to exercise

change. Another factor is the time. When strategy changes, management do not change the

structure immediately. Ultimately it depends on the competitive pressure, lesser the pressure,

less rapid is the structural response. Industry Structure Relationship: Close to the issue of

strategys impact on structure is the role of industry as determinant of structure. Industries

differ in terms of growth possibilities, regulatory constrains, barriers to entry and mobility.To know how industry can affect structure, let us look at two variables that tend to differ by

industry categorycapital requirements for entry and product innovation rates.

Capital Requirement

High Low

P

r

o Aerospace Computer software

d Large mainframe Magazine publishers

u computers

t High (A) (B)

I

N (D)

n

o Metals & Mining Retail building

v Appliance Mfrs materials sales

a Bicycle Mfrs.

t

I Low

o

n The above analysis argues that the industry category do influence the organization structure.

7/27/2019 OSTD

38/96

OTSD-HR

MMBGIMS MMS-III

38

CHAPTER: 6

Size

Synopsis

A. Introduction

B. Definition

C. Limitations

Introduction

Eastman Kodak has sales in excess of $13 million a year and employs over 1.5 lace people.

All these employees perhaps cannot fit into one building or into several departments

supervised by a couple of managers. It is hard to imagine these 1.5 l people being organized

in any manner other than the one that would be labeled as high in complexity. On the other

hand a local one hour photo processing firm that employs six people and generates less than

Rs.2.00 lacs sales a year is not likely to need decentralized decision making or extensive

formalization. Comparing these two photography related firm suggests than organizations

size influences its structure.

As an organization hires more operative employees, it will attempt to advantage of the

economic benefits from its specialization. The result will be increased horizontal

differentiation. Grouping the functions together will facilitate intergroup efficiencies at the

cost of intergroup relations, which will suffer as each performs its own activities.

Management will, therefore, require increasing the vertical differentiation to coordinate the

horizontally differentiated units. This increase in the size could also lead to spatial

differentiation. This increase in complexity will reduce the top managements direct hold

over its employees. The direct control will be replaced by formal rules and regulations. This

will result in top management removed further away from the operative level and it would

become difficult for senior executives to make rapid and informative decision. The solution

would be decentralization.

7/27/2019 OSTD

39/96

OTSD-HR

MMBGIMS MMS-III

39

Definition

Organization size as a variable defines it as the total number of employees. This is consistent

with the assumption that since it is people and their interaction that are structured, the number

should be more closely associated with the measure.

The Aston Study group concluded that organizational size was positively related to

specialization, formalization and vertical span, and negatively to centralization. It was found

that larger the organization, greater the number of rules, more documentations, more

extended hierarchy, greater decentralization of decision making.

Limitations

Total number of employees may be an adequate measure, but if the organization has

substantial contractual employees, or if the business is seasonal (e.g. a retail chain may

increase the number of staff during holiday / festival seasons). Counting employees also does

not distinguish between the industries. (Eg. Uttam steel with 1000 employees manufacturing

20,000 MT steel Vs. TISCO with 10000 employees manufacturing 20 Lac MT steel).

Therefore, it is concluded that the inherent measure of number mixes size with efficiency.

Impact of size on structure is more in a professionally organization rather than owner

controlled. Owner-managers are not willing to dilute their personal power over theirorganization. The size and its structure will be moderated based on the nature of the firm.

Size is not the cause, but the result. Impact of size on complexity In organizations where

managers have greater discretionary powers, the structure causes size. Larger the

organization, more pronounced the division of labor.

Impact of size on formalization Greater the number of employees in an organization,

greater the formalization. However, larger organization formalizes those activities that have a

propensity to recur. Larger the organizations, more that behaviors repeat themselves and

hence management is motivated to handle them more efficiently through standardization.

With increased size, comes greater confusion. This confusion is reduced by making employee

behavior at lower levels more predictable.

While understanding the impact of size on formalization, the point to be noted is whether the

organization is independent or is it a subsidiary of a large firm. Parent firm often impose rules

& regulations to maintain financial & reporting consistencies.

7/27/2019 OSTD

40/96

OTSD-HR

MMBGIMS MMS-III

40

Size & CentralizationIt is common sense that it is impossible control a large organization,

from top. As increase in size results in formalization; the rules & regulations allow

organization to delegate decision, but as per desires of the top management. Does it mean

size results in decentralization?.

Finally, the issue of administrative component cannot be isolated from the study of size-

structure relationship. As organization increases the ratio of managers to staff also increases.

7/27/2019 OSTD

41/96

OTSD-HR

MMBGIMS MMS-III

41

CHAPTER: 7

Technology

Synopsis

A. Introduction

B. Theories

C. Conclusion

D. Theories

E. Managing environment

F.

Recent trends

Introduction

Technology refers to the information, equipment, techniques, and processes required

transforming inputs into outputs in the organization.IE Technology looks at how inputs are

converted into outputs, and that technology is applicable to all sorts of organizations.

The way an organization transforms its inputs into outputs has some bearing on structure.

Either it can be a determinant or a dominant determinant.

Woodwords theory

Woodword classified organizations into three categories based on the type of technologies;

Unit, mass & process production. The classification was based on increasing degree of

technological complexity, with Unit being the least and Process being the most. Unit

producers would manufacture custom-made products like turbines for aviation. Mass

producers would make for mass consumption viz., Refrigerators, washing machines etc. The

third category was continuous process products such as oil, chemical refiners etc. There weredistinct relationship between the technology classification and the structure. Effectiveness of

such organizations depended on the fit between such technology and structure.

For eg. Degree of vertical differentiation increased with technical complexity. It was also

discovered that the administrative component varied with technology. The mass production

technology firms were highly differentiated relied on extensive formalization and hardly

delegated authority. Both unit and process technologies was achieved through less vertical

differentiation, less division of labor and more group activities, and decentralized decision

7/27/2019 OSTD

42/96

OTSD-HR

MMBGIMS MMS-III

42

making, more widely defined role & responsibilities. Thus woodwords investigation

demonstrated a strong link between technology, structure, and effectiveness. In other words,

woodword argued that effectiveness was a result of technology-structure fit.

Limitation Woodwords technology imperative was more based on findings from

manufacturing technology.

Knowledge Based Technology

Charles Perrow looked at technology not just as production technology. He defined

technology as an action performed upon an object with or without the aid of a mechanical

device, in order to make some change in that object.

Mr Perrow in his findings identified two dimensions of technology:-

Task Variability(varietyroutineness continuum)

1. How many of the tasks are same day to day?

2. To what extent would you say the work is routine?

3. People in this unit do the same job in the same way most of the time.

4. Basically people in the unit perform repetitive jobs

5. How repetitious are duties.

Thus task variability talks about number of exceptions encountered in ones work. If the job

is high in routine, exceptions will be few in number.(E.g. Automobile assembly, McDonalds

fry cook). If the job has large number of variety, number of exceptions can be expected e.g.

top managements job, consulting jobs.

Problem Analyzability:-

1. To what extent is there a clearly known way to do a particular job?

2. To what extent is there a clear body of knowledge available as a guide to doing a

particular job?.

3. To what extent is there an understandable sequence of steps that can be followed in

doing a job?

4. To what extent can one rely on established practices and procedures?

7/27/2019 OSTD

43/96

OTSD-HR

MMBGIMS MMS-III

43

The next dimension(Problem analyzability) assesses the type of search procedures followed

to find out successful methods for responding adequately to task exceptions, either well

defined (logical and analytical approach- eg a B school student can analyze reason for failure)

or ill defined (no formal search technique in architect that works under constraints of

standards and norms). Decisions are arrived at based on guess work, trail & error method.

Based on these two dimensions; task variability and problem analyzability were used to

construct a two by two matrix.

TASK VARIABILITY

Few Exceptions Many Exceptions

P

r Ill defined & Unanalyzable

b

l

e

m CRAFT (3) NON ROUTINE (4)

A

n

a

l Well defined &

y Analyzable

z

a

b ROUTINE (1) ENGINEERING (2)

i

l

i

t

y

7/27/2019 OSTD

44/96

OTSD-HR

MMBGIMS MMS-III

44

Routine Technology Few exceptions & easy to analyze problems. (Mass production of

steel / automobiles)

Engineering Technologyhave a large number of exceptions, but can be handled in logical

and systematic manner (Income tax consultants, construction etc.)

Craft Technology relatively difficult problem with a limited set of exceptions (shoe

making, furniture restoring, performing artists)

Non-Routine technology characterized by many exceptions and difficult to analyze

problems, like strategic planning, basic research activities.

Problems that can be handled with logic and rationality fall under cell 1 & 2, while problem

that can be solved with intuition, guess work or unanalyzed experience fall under cells 3 & 4

Conclusion

Perrow argued that control and coordination methods should vary with technology type. The

more routine the technology, more highly structured the organization. In contrast, non-routine

technology requires higher flexibility.

Key aspects of structure that can be modified to the technology:-

1. Amount of discretion that can be exercised for completing the tasks

2. Power of groups to control the Units goals & strategies

3. Extent of interdependence between the groups

4. Extent to which these groups engage in coordination

This would mean that:

Most routine technology can be accomplished best through standardized coordination and

control. This technology should be aligned with structures that are high in both formalizationand centralization.

Whereas, non routine technology demand flexibility and therefore, needs to be decentralized

that would encourage high interaction among members with minimum degree of

formalization. In between craft technology requires people with great experience &

knowledge, which mean decentralization. Finally, engineering, though has many exceptions

has analyzable search processes, should have centralized decisions with low flexibility for

maintaining flexibility.

7/27/2019 OSTD

45/96

OTSD-HR

MMBGIMS MMS-III

45

Technology Formalization Centralization Span of

control

Coordination & Control

Routine High High Wide Planning & Rigid rules

Engineering Low High Moderate Reports & meetings

Craft Moderate Low Moderate-

wide

Training & meeting

Nonroutine Low Low Moderate-

narrow

Group norms/meetings

Technological uncertaintyThompsons Model

According to Thompson, technology determines the selection of a strategy for reducing

uncertainty and those specific structural arrangements can facilitate uncertainty reduction.

Accordingly, three types that are differentiated by tasks that an organization performs were

proposed:

Long linked technology Tasks or operations that are sequentially interdependent were

referred to as long linked technology. This is characterized by fixed sequence of repetitive

steps (e.g mass production assembly lines /B school cafeteria). As Long linked technology

requires efficiency & coordination among activities, owing to sequential interdependency, the

major uncertainty facing management is on input and output side of the organization (eg.

Acquiring raw materials & disposing finished goods). One of the best means is to go in for

vertical integration forward, backward or both. This way, the organization manages to

control the uncertainty within its boundaries. (E.g. Reynolt metals manufacturing aluminum

foil Backward integration by operating aluminum mines and forward integration by

marketing Reynolt foils in super-market.

Mediating Technology one that links clients both on inputs and outputs of the

organization. E.g. Banks bring together depositors and borrowers. They dont know each

other. Banks success depends on attracting both. Failures are when borrowers are more and

depositors are few. This is the uncertainty and dealing with this requires increase in the

populations served or develop a diversified loan portfolio.

Intensive Technology(e.g. emergency in hospitalcombination of diet, x-ray, laboratory,

blood bank, operation table/equipment etc.) Intensive technology represents customized

7/27/2019 OSTD

46/96

OTSD-HR

MMBGIMS MMS-III

46

response to a diverse set of contingencies. The exact response depends on the nature of

problem. This technology is present in Hospital, Research cells, management consulting firm

etc. uncertainty is handled by ensuring variety of resources to respond to an emergency.

Conclusion:

Long linked technology is accompanied by sequential interdependence, as in the tasks are

done in a specified serial order. Mediating technology is characterized by pooled

interdependencetwo or more units contribute to a larger unit. While Intensive technology

creates reciprocal interdependencethe output of units influence each other in a reciprocal

manner. Each of these interdependencies requires specific coordination.

Frame work

Technology Complexity Formalization

Long Linked Moderate Moderate

Mediating Low High

Intensive High Low

Influence of industry & size on technology

Industry constraints technology options. An organization needs to reach a particular size

before it takes advantages of the technology, and capitalize on economy of scale. So size

determines technology. Technology can also determine size for eg. Decision to go in for

mass productions may lead to a decision to increase/decrease the number.

Therefore the common denominator is the routineness of the technology.

Technology & Complexity

Routine technology is associated with low complexity. Greater the routineness, fewer thenumber of occupational specialists and less training possessed by people. The reverse also

holds true, i.e. greater the non-routine technology, higher complexity. As the work becomes

more sophisticated and customized, span of control narrows and vertical differentiation

increases. Further, customized response requires greater use of specialists.

7/27/2019 OSTD

47/96

OTSD-HR

MMBGIMS MMS-III

47

Technology & Formalization

Routine technology is positively related with formalization. Routineness is associated with

rules and regulations, manuals, presence of job descriptions and other specifications. In

routineness, the how the job has to be done has to be understood very well. A repetitive job is

justification enough for the company to spend on formalized systems.

Technology & Centralization

The logical argument is that the routine technology would be associated with a centralized

structure, whereas the non-routine technology, that would rely on specialized knowledge,

which would be characterized by delegation of decision making authority. Both formal

regulations and centralized decision making are control mechanisms, and management can

substitute them for one another. Technology should be associated with centralized control if

there is a minimum of rules and regulations. However, if formalization is high routine

technology can be accompanied by decentral