MBA at UAR an Organizational Theory Supplement

Topics covered here:

1. Why Study Organizations?

Basic Composition Of Organizations.

Organizations Defined.

Why Organizations Form.

Organizations As Systems.

Properties Of Organizations.

2. Introduction To The Environment.

Uncertainty In The Environment.

Adjusting To Uncertainty.

Other Uncertainty Adjustment.

Organizations As Systems.

The Natural Selection Model.

3.Introduction To Goals.

Resolving Conflicting Goals.

Levels Of Goals.

Official And Operative Goals.

Conventional Measures Of Effectiveness.

Advanced Methods For Measuring Effectiveness.

4. Elements Of Bureaucracy.

The Structure Of Organization.

Line And Staff Concepts.

Staff Authority.

Different Kinds Of Staff.

Variations On Bureaucracy.

5. Corporate Strategy.

Decision Making In Organizations.

Creating An Organization Structure.

Activity Specification In Designing Structure.

Span Of Control Considerations.

Influences On The Span Of Control.

6.Functional Organization Design.

Advantages And Shortcomings Of Functional Organizations.

Product Organization Design.

Advantages And Disadvantages Of The Product Structure.

Geographic Area, Customer, And Marketing Channel Organization.

The Matrix Form.

7. Departmental And Vertical Power.

Power At Other Levels.

Horizontal Power Relationships.

Departmental And Vertical Coordination.

Essentials Of Control.

Advanced Control Mechanisms.

1. TOPIC Why Study Organizations?

TEXTWINDOW

You are about to embark on a fascinating area of study--an exploration of organizations and how they are managed.. These associations have a profound effect on our lives and on the economic and social welfare of the public at large. Our main focus will be on business organizations, but we will also bring in various features of nonprofit and governmental units, thus expanding our knowledge of how to make organizations function more constructively.

A word of definition here. When we utilize the term organizations this refers to institutions, such as businesses, governmental units, religious groupings, military units, and charitable enterprises. Frequently, the term organization structure will appear. This refers to the patterns of authority, responsibility, and communication--who reports to whom and who is responsible for certain activities.

A simple organization structure might include only one top level manager and several operative (non-managerial) workers, who accomplish most of the day-to-day labor.. Conversely, large multi-national corporations are more inclined to have very complex structures, with numerous levels of management and many divisions and departments. An example of a simple structure is as follows:

Why should we study organizations? There are six major reasons:

Major Reasons for Studying Organizations

1. This may show us ways to make them operate more productively.

2. This may show us ways to make them operate more efficiently.

3. They have an important impact upon our work situation.

4. They influence family life.

5. They affect our business activities.

6. They influence the world in which we live.

One serious reason for developing an understanding of these units is to look for ways to make them operate more productively. If these units are inadequately designed, they may never realize their primary objectives. Valuable and scarce resources, such as money and equipment, may be squandered. Both the owners and the employees may find that they have suffered both major financial and interpersonal injury. On the other hand, if the organization has been carefully planned, set in motion, and managed, its probability of success will certainly be enhanced and all of the parties associated with it will be more likely to accomplish their personal goals. The owners should collect attractive profits and the employees have secure jobs and desirable wages and salaries.

For an organization to function smoothly, it is imperative that all of the members coordinate their efforts toward the achievement of common goals. If each department and each individual is primarily concerned with attaining its own individual ends, the unit probably will not be very competitive or prosperous.

Consider a situation where the management of a food processing firm is attempting to decide whether or not to purchase new machinery for canning vegetables. A process engineer believes that the most appropriate kind of machinery would be that which allows the company to make long production runs. This would probably keep production costs down and permit rapid production. A design engineer, on the other hand, believes in machinery that does not carry a high purchase price. The logistics manager prefers machinery that finishes the canning operations rapidly, so that the products can be quickly shipped out to customers. All of these parties have different goals. If the organization does not permit them to coordinate their efforts, they may arrive at disjointed decisions that do not match those of the other parties.

Situations like these cry out for common goals. Someone, perhaps higher management or a committee made up of members of different departments, must create company-wide goals and communicate these to all employees. Otherwise, coordinated effort will never materialize.

Another reason for studying organizations is that we may be able to discover ways to make them more efficient.In some foreign countries, organizations lack this quality and all of the citizens suffer, as a consequence.

Distributors in Russia frequently ship meat and other perishables to the wrong destination, where they are not needed and are subsequently thrown away. In Romania and other former Soviet satellite countries, goods are not available in any semblence of variety. There may be only one kind of size 10 brown shoes in a shoe store, for instance. In India, wheat and other grains sometimes rot in substandard warehouses. This is despite the fact that numerous citizens of this country are malnourished. A majority of the shortcomings of these inefficient institutions lie in the area of organization. When organizations are ineptly fashioned, they are not likely to perform in the ways preferred by society. Business firms that suffer from this condition will probably not be very competitive in the world marketplace, and this will be reflected in lower standards of living for citizens. Haphazardly- conceived governmental organizations will be wasteful, inefficient, and not prone to serve the public properly. In short, when organizations are skillfully devised and managed, all elements of society benefit. On the other hand ineptly-designed organizations work to the disadvantage of everyone.

We are well-advised to study organizations because they have a vital bearing upon each of us as individuals. Most of us work in organizations. This is our means of financial sustenance. It is also where we spend much of our life and this time may be devoted to meaningful and interesting activity, on the one hand, or to boring and seemingly pointless labor, on the other. Further, we are likely to be judged by other people by our position in the organization. Top management of a large corporation usually commands a position of respect and prestige in the community, whereas members of the janitorial staff tend to receive much less admiration from others.

The personnel policies of organizations have a powerful bearing upon our material and psychological well-being. Institutions hire, train, promote, motivate, supervise, and discharge employees. These actions affect the well being of everyone. We are more apt to be successful employees in an organization if we understand how these personnel policies and practices operate. This knowledge can be of assistance in uncovering avenues to gain promotions, receive training, and secure other advantages. On the other hand, such knowledge may be equally helpful in avoiding layoffs and discharges when the employer is going through a process of downsizing.

Further, personnel matters have an influence on the family composition and upon family life. Some occupations demand frequent travel and work during evenings and on weekends. Others dictate that employees entertain clients and customers. Child care facilities and maternity leave policies also affect the welfare of the family. Some companies offer job-sharing, where two people can occupy the same position, each one working half time. This can be attractive to those who prefer to have a job and still preserve some time for the spouse and children.

A fair amount of our time is devoted to dealing with organizations in various kinds of business endeavors. This may entail both buying from and selling to these entities. It can be trying to function in either of these two roles if the enterprise with which you are dealing is badly organized. Many buyers and sellers of goods and services find themselves frustrated, angered, and confused, as a result of undertaking business with an inept institution that is neither efficient nor coordinated..

Another reason for learning about organizations is that they have a powerful bearing upon the world in which we live. They may support and indulge various groups in society and neglect others, as in their hiring and promotion practices. Further, they can damage the physical environment, as by polluting the air, and can sway the values of society, as by promoting overly-material ideas.

On the other hand, organizations can exert favorable leverage over the physical and social environments and make contributions that are advantageous to the public at large. An example is where a fast food chain alters its take-out packaging from non-degradable plastic to recyclable cardboard or paper. Large multi-national businesses can propogate major effects on a worldwide scale. Their power is enormous.

The marketing power of organizations can alter at least some of the values of individuals and groups in the community. Advertising and other forms of promotion may instill aspirations to lose weight, improve one's health, pay more for convenience, pay higher prices for prestige goods, or to practice advantageous ecological behavior such as avoiding littering and recycling bottles and cans. Critics of business often allege that promotions feature the wrong values, such as selfishness and materialism, in undertaking to market goods and services. Business managers usually retort that these values already exist in the prevailing cultural norms, and the marketing efforts should feature them, if marketing personnel are to be fruitful in attracting and retaining customers.

Organizations impact upon the values of society in other ways. They may sway the political process by lobbying and by contributing funds and other forms of support to various politicians. They can modify education standards--primary, secondary, and collegiate--by voicing their recruitment needs to educators and boards of education.

Basically, much of what we accomplish and receive in life is a result of interactions through or with organizations. A noteworthy portion of our material and psychic welfare depends upon these institutions. The more we know about how they operate, the better off we and society at large are likely to be.

EXAMPLE

A company which produces welding supplies for professional welders is considered by most of its labor force as a good place to work. Wages and fringe benefits are above the industry average. The managers and supervisors are in close personal contact with most operative employees. They do not have special privileges, such private parking places. Rather, they mix regularly with employees as work and know most by name and are familiar with the families of some. Employees are granted considerable authority to help design jobs and set employment policies. This environment has created a dedicated group of workers, most of whom feel good about their jobs and their employer. Most feel that their lives are enriched by working at this plant.

SOLUTION

One of the reasons why the owners of a golfcart manufacturing firm should be concerned about the organization of the firm is that poor organization can result in waste. If the various members and departments of the company do not coordinate their efforts, the operation may be very inefficient. Company purchasing agents who do not cooperate with production personnel may order too much or too little raw materials and supplies. Or they may order the wrong components. The advertising department may waste money directing its promotions to the wrong target customers. Engineers may spend excess time perfecting products, to the point that the products become over engineered. These mistakes can be alleviated through well-conceived organization.

SOLUTION

If business firms in a country are well-organized, a likely benefit for society is higher standards of living for citizens. Theses companies are likely to be competitive in the world marketplace. They will earn profits and pay wages that advance the material well being of society at large. This will be reflected in higher standards of living for citizens. Those countries with high living standards are all characterized by well-organized companies that are able to stay apace with firms in other developing countries. If they were not effectively organized, they would not be able to compete.

SOLUTION

A financial executive for a manufacturer of exercise equipment will receive various benefits as a result of her employment. One of these benefits is likely to be prestige and respect in the community. Much of our standing in the community is based upon our job title and employer. Since this individual is a top executive and presumably works for a reputable employer, she probably occupies a position of respect in the city and area (and probably beyond) where she lives. Status and prestige tend to follow job titles.

SOLUTION

A personnel policy that may affect the material and psychological well being of an engineer employed by a producer of computer software is what individuals to promote. In order to step upward on the career ladder, the engineer should find out what factors are important to promotion in this company. It may be that he should work part-time for a MBA degree, in order to advance upward. Conversely, entertainment of and socializing with higher executives is important in some firms. In others hard work and job performance are the keys. He should make an effort to discover which of these will be of assistance to him.

SOLUTION

A personnel policy that can greatly influence family life for employees of a chemical producer is travel. Some jobs , such as those in sales, purchasing, and public relations require extensive travel by automobile or air. This can create family disturbances. If employees and their spouses and children are not favorably disposed toward this element, dissatisfaction with the job and conflicts within the family may arise.

SOLUTION

Large multinational organizations can have a significant impact upon society in the countries where they operate by favoring various groups and neglecting others. These companies may,

for instance, discriminate in hiring and employ only members of certain genders, races, social classes, political parties, etc. This can have the effect of enhancing the income and prestige of the favored groups, in comparison to the levels held by the neglected groups. Such policies can lead to divisiveness and conflict between groups in the countries where these policies are pursued. These consequences can work to the disadvantage of the multinational companies that were involved in the preferential treatment, as when they are subject to attack in the foreign press and by foreign governments.

SOLUTION

A large automobile producer may influence higher education standards by voicing recruitment needs to educators. Managers who work for the company can contact college professors and college placement service administrators and explain what abilities they are looking for when they recruit and hire college graduates. They might, for instance, indicate that they are looking for graduates with a basic understanding of business functions, ability to work comfortably with computers, and ability to communicate clearly. Most educators are attentive to the needs of employers and make an attempt to accommodate at least some of the needs which they make evident.

TOPIC Basic Composition Of Organizations

TEXTWINDOW

After going through the last topic, you should have a solid grasp on why we may find it to be advantageous to learn about organizations. Now let's take a look at the procedures that managers follow when they first form and later help these units evolve and take shape.

We will scrutinize the traditional route of fashioning an organization. Subsequent pages will reveal, however, that there are other avenues for accomplishing this same end. An example will serve to illustrate this process. A cabinet maker who has been employed by a furniture manufacturer for several years decides that he is going to construct his own company. He leases a small facility in an industrial park, to utilize for production and warehousing, and moves his tools and equipment into the building.

At this point, he owns and administers a one-man organization. His only organization question is how to allocate his time. He might, for instance, spend ninety per cent of his time on assembling cabinets, five percent handling paper work, and five percent on selling finished cabinets. Entrepreneurs usually dedicate much more effort to operative labor than they do to management activities, such as planning and budgeting.

If sales advance rapidly, this individual may be unable to commit sufficient time to selling, so he hires a sales representative. Later, he is unable to construct enough units to stay apace with demand, so he hires another cabinet-maker. As growth continues, he acquires more production and sales workers and arrives at the point where he does not have enough time in the day to build cabinets himself--others are doing this. He is now acting in the role of a manager, rather than as an operative.

If the business continues to thrive, the manager may have to hire additional individuals. Some of these are called line personnel. These people concentrate on tasks such as producing and selling goods and services and dealing with the financial affairs of the business. Line personnel carry out those functions that are indispensable for the continued operation of the enterprise. Examples are individuals in the production, sales, and finance fields. They are responsible for activities that are imparative if the company is to exis for long.The manager might hire a sales manager and a production manager--both line positions. Staff personnel, on the other hand, assist and advise the line personnel in carrying out their assigned tasks. Examples of staff personnel are engineering, legal, accounting, and personnel employees. These individuals do not have command authority over others.

In very small enterprises, the majority of the employees are assigned line responsibilities. As the institution matures, however, the staff is inclined to multiply. This is because the work tends to be more complex with growth. Specialists are essential in areas such as training, public relations, engineering, accounting, industrial relations, and research and development. In traditional organizations, staff people have no authority over line personnel, however. Their only function is to advise and assist the line. The manager will encounter the challenge of judging how much to centralize the company. This is the degree to which the power to make decisions is consolidated in only one or several high-level executives. If the company is to be centralized, the manager may retain most of the power. Conversely, he may elect to decentralize and delegate decision making authority to subordinates. Should this policy be in effect, they will be authorized to make certain kinds of decisions that affect their work.

Very small companies are frequently centralized. This allows the manager to maintain control over major decisions and to take action quickly, without conferring with others, when rapid maneuvering is called for. Normally, one person can arrive at conclusions faster than can a group, such as a committee.

A common approach is to retain authority over critical matters at the top level of the organization, but to allow subordinates to exercise power over topics and situations that directly affect them. If subordinates are required to reach conclusions quickly, as when a production manager must decide whether to replace a machine that is out of commission but must soon be back in working order, decentralization can be a useful arrangement In this particular situation, the production manager can act without taking the time to clear the decision with top management.

Our manager may be a believer in the unity of command. This means that each subordinate should have only one boss. Those who espouse the merits of this principle commonly assert that a subordinate cannot operate with conflicting orders from different people. What if the sales manager tells a salesman to go after more new customers, while an assistant to the president tells him to emphasize satisfying old customers? What is the salesman to do? Should one boss be ignored? If yes, which one?

In practice, unity of command is a principle that is often not sound, in spite of its apparent logical basis. Certain kinds of organization structures that we will scrutinize later violate this principle for good reason--it grants the company much more flexibility than it might otherwise have. In large companies, for instance, a salesman may take orders from sales manager A when he is promoting the products which this sales manager controls. When the salesman is promoting sales manager B's products, however, he will take orders from this second executive. This allows the salesman to promote a larger variety of products and to call upon more than a single customer category.

Our manager may be concerned with the span of control. This is the number of individuals that one person supervises. If the span of control is too large, the supervisor does not have sufficient time to spend with any one of them. They lose the potential advantage of the direction and control that would be achieved if the span was smaller. Some subordinates may lose their enthusiasm and motivation, because they develop the impression that the supervisor does not care about them.

If the work of the subordinates is relatively routine and unchanging, the span of control can be relatively large, as where up to ten people report to one manager. Conversely, when the work is characterized by variety and the need for adjustment, a smaller span is necessary. Since most cabinet production work is done to order (customized) rather than conducted on a mass production basis, our manager probably would want to keep the span of control over the cabinet makers fairly tight. As the volume of business enjoyed by the company expands, he will find it necessary to hire more production workers. And, to maintain a reasonable span of control, he will have to hire additional supervisors.

Generally, the most desirable span of control becomes more modest as one moves up the organization ladder. It is to be expected that the manager will only be able to work with a small number of subordinates. However, his sales and production managers should be able to supervise a larger number of subordinates.

Actually, there is no scientifically verifiable span of control that is correct for all enterprises. Each company has unique needs and normally will find it most useful to experiment in order to come up with an optimal solution. In a later topic we will introduce some guidelines for the span of control.

The manager of this company must develop mechanisms whereby individuals in different functional areas can coordinate their efforts with each other. If the production department is turning out very high quality cabinets that command a high price, the sales force should be calling on potential customers who are able and willing to pay premium prices. If production needs additional machinery or tools, personnel in finance must find a way to generate the necessary funds. And the personnel department should recruit and hire cabinet makers who have the skills necessary to produce upscale cabinets. Lack of coordination will result in dissatisfied customers, reduced revenues, higher costs, and friction between personnel in different departments.

One useful way of promoting coordination is to allow subordinates in different departments to communicate with each other and mesh their work into a unified flow. It may be possible for individual sales representatives to work with individual cabinet makers in deciding what products to produce for specific customers.

Another way of building coordination is to have members of different departments work together as members of teams or task forces in carrying out activities that require intra departmental coordination. Yet another possible coordination device may be to hire an assistant whose job is to coordinate the subordinates and leave the manager free to deal with larger issues, such as deciding what cabinet styles to make, what kinds of customers to serve, and what major equipment to purchase.

The alternative to the coordination methods mentioned above is for all subordinates to communicate only with their superiors and to rely upon the latter to do the coordination. This process can be time consuming, frustrating, and inefficient. Organizations that are overly centralized may suffer from this condition. The manager of our company is well-advised to avoid this arrangement. Otherwise, he is likely to find that he spends much of his time on details and does not have any left for managing. Our description of the formation and development of an organization depicts a fairly typical metamorphosis from a one-person to a larger unit. Not all enterprises mature in exactly this manner but many follow a process that does not diverge widely from this pattern. In upcoming topics we will expand upon this discussion and bring in alternative ways of accomplishing what the cabinet maker example has presented to this point. Before doing this, however, we will focus on exactly what organizations are and how they can be distinguished from other groups. This is the topic that we will examine next.

EXAMPLE

Two years ago, a young bicycle enthusiast decided to set up a bicycle repair and sales retail outlet. He hired three friends, one to serve as a saleswoman and two others to do repairs in the shop. Business has expanded to the point where he has moved to a larger facility, purchased more inventory, and repair equipment, and has hired three new sales representatives and five new repair people. The span of control is now too large--he simply does not have the time to coordinate the endeavors of all of these people and still carry out his major financial duties.

The manager/owner solved this problem by promoting one of the sales people to an assistant manager position. The assistant is proficient in both repair and sales and is capable of supervising the personnel in both areas and to coordinate their activities. With continued growth, especially if new stores are set up in additional locations, the manager may find it necessary to establish further management slots.

SOLUTION

An employee of a firm that sells home security systems has formed his own company to sell these devices. His major organizational problem is to determine how to allocate his time. There is no span of control, because he does not have subordinates. He does not have to decide how much to centralize the organization because it is now completely centralized--in his hands, since he is the only member of the company. He will not have to decide how many staff personnel to hire because line personnel would be the first to be added, if the operation is expanded. But he must decide how much time to spend on various duties, such as calling on customers, ordering inventory, taking care of bookkeeping and other paperwork duties, and advertising.

SOLUTION

A firm that produces chain saws employs both line and staff personnel. Included in the staff are individuals in research and development. Line personnel are responsible for activities that are essential for the continued operation of the enterprise. They include people in production, sales, and finance. All of these are indispensable for the survival of the company. Research and development employees support other departments, especially production and sales. The business could continue (although perhaps not as well) without the services of this department.

SOLUTION

A company that manufactures copper wire hires accountants. Their job is to provide advice and assistance to line personnel. The reason why a company hires these individuals is primarily to afford a means of furnishing data to upper management and management in the line departments. Accountants do not gather and provide data as an end in itself. Rather, this is done to assist the line. One of the requirements, of course, is to help the line in preparing and disseminating data to outside parties, such as stockholders and the Internal Revenue Service.

SOLUTION

A manufacturer of overhead garage doors utilizes a decentralized form of organization. A primary advantage of this is subordinates can make decisions quickly. In this case, they can exercise power over matters that directly affect them. They can move into action without taking the time to clear their decisions with top management. If the company were highly centralized, the subordinates would have to check with their superiors before they pursued actions, other than those which were strictly routine. This can be both time consuming and wasteful.

SOLUTION

The president of a drug store chain believes in unity of command. Basically this refers to giving each subordinate only one boss. The idea is that subordinates will experience difficulties if they receive conflicting orders from different people. The subordinates will not know which set of instructions or orders to pursue and will be confused and perhaps become unable to take any action at all, because of this confusion.

SOLUTION

A life insurance company management keeps the span of control very small in its home office. The reason probably is that the work is characterized by variety and the need for adjustment. Under these conditions, subordinates will need to contact their superiors frequently for advice and instructions. They cannot simply follow a prescribed routine, because the work is continually changing in nature. Management must provide new directions as conditions in the office change.

SOLUTION

A producer of laminated plastics has a management team that wants to ensure that the various departments in the company coordinate their efforts. A potentially useful way to accomplish this is to allow subordinates in different departments to work closely with each other. In this case, they will not have to confer with their department heads before they attempt to collaborate with other workers. Further, it will not be necessary for the department heads to intervene frequently when their subordinates are trying to cooperate with employees in other departments. This is a good way to bring about interdepartmental coordination with minimal waste of time.

TOPIC Organizations Defined

TEXTWINDOW

Keeping in mind how organizations develop, let's turn to a description of these units. We can define an organization as an assemblage of people, with specific work assignments who are united by one or more objectives. Let's examine the details of this definition.

Makeup of an Organization

People--->Specific Work Assignments--->Objectives

An organization is made up of people. In reality, all that it takes is two and there are numerous small units in existence. Most of these do not undergo major difficulties in developing their organization structure, however. It is the large organizations that must wrestle with numerous difficult issues. Regardless of the size of the unit, people work with other people in an attempt to get work activities accomplished. This is the essence of an organization that distinguishes it from other kinds of entities.

Every organization has one or more major objectives. The members of the unit work together in an attempt to reach these targets. If each individual strived only for his or her own personal objectives, there would be conflict and chaos, rather than an organization. The organization objectives are generally long range (spanning a time period of one year or more) and relatively permanent. Sometimes enterprises do alter their basic objectives, but this is not a common occurrence. Too much of this kind of change would defeat consistency of effort and create unneeded insecurity.

It should be recognized that organizations may have two or more objectives. In fact this is the norm. Sometimes these multiple objects are in conflict. One goal may be to generate large shares of market, for instance. Another may be to manufacture and market very high quality products. But gaining large market share may require offering low-priced stripped-down offerings, rather than the upscale items that management prefers. Goal conflict may result in some process of negotiating, compromise, and politicking among the members of the management team.

The main difference between business and other organizations is that the former have an objective of earning a profit. This is not a characteristic of governmental, charitable, religious, and other non-business institutions. The owners of business are investors who could place their savings somewhere else but have instead decided to direct it to a company . If this investment does not earn satisfactory profits the owners are likely to pull out their funds and place them elsewhere. This situation is unique to business. It should not be assumed that nonprofit organizations are completely uninterested in flows of funds, however. Even nonprofits have budget constraints. They must be concerned with obtaining funding and in not spending more money than they have available.

The fact that organizations have shared objectives does not mean that they are devoid of controversy , of course. There may be disagreement as to what the objectives should be and how agreed-upon objectives can best be attained. One of the tasks of top management is to decide how controversies will be handled and sometimes to step in and manage friction when critical differences between members emerge.

Organizations have specific behavioral assignments. The work of the unit is broken down into segments that are assigned to individual departments. Within the departments, the work is further categorized and assigned to individuals. The personnel department, for example, is assigned tasks having to do with the management of people. Within the department, some employees are responsible for recruiting, others for training, others for developing compensation programs, etc. Since individual employees are specialists, they develop special proficiency in their work. In turn, a well-conceived organization provides ways for coordinating and controlling the actions of these specialists.

When people, work assignments, and objectives are all assembled together, an organization is in place. There are other characteristics that are shared by most organizations. One is that these units have boundaries which signify who are members and who are not. The members receive certain benefits such as financial compensation and status in return for their efforts exerted in behalf of the organization. This distinguishes them from non-members. In turn, Members may be identified as within the boundaries by such trappings as uniforms, company cars, offices in company headquarters, and mentions in company newsletters.

There are cases where boundary lines are not clear and outsiders to the organization are not aware as to which parties are actual members and which are not. An advertising agency, for instance, may work with a company to prepare and place advertisements that feature company products. The advertising people are not part of the organization, however. Rather they only provide services on behalf of this unit. Others that may appear to be in the boundaries, but are not, are transportation carriers that move freight for the firm, attorneys who are on retainer, sales agents that distribute company products, and warehousers who store goods.

We should recognize that many organizations are made up of smaller sub-organizations within themselves. A company may contain divisions that operate in a semi-autonomous manner. They are still a part of the overall unit, but have their own goals, activities, and membership. Large companies, for instance, have divisions that operate like individual firms, in many respects. Despite their autonomy, however, these divisions are still subject to some degree of direction and control by top management.

In addition, organizations are characterized by hierarchies--there are chains of leaders and followers. This means that some members have authority over others. They have been given the formal power to issue directives to subordinates and to expect that these directives will be obeyed. In turn, if the directions are not followed, superiors have the power to discipline subordinates, as by criticism, reduction in pay, demotion, assignment to another post, and termination. The authority is not complete, of course. It is limited by the charter of the organization and by the laws of society.

Another trait of organizations is a coordination mechanism. This is often incorporated in policies and techniques which have been established to ensure that members will work together toward the overall objectives. Without this mechanism, specialists in the various units of the organization would not bring their efforts into balance with other specialists. Instead of a coordinated entity, we would find a disjointed assemblage of individualists each going his or her own way.

In order to achieve coordination, an organization must have some form of a integrated communication system. Such a system establishes who will communicate with whom under a variety of conditions. It also specifies how the communications will be carried out. In some enterprises these systems are highly formalized, and members are required to prepare reports, records, memos, and other documents to convey information to others. Other enterprises rely more on informal methods, such as on the initiative of individual members.

Organizations operate on a continuous basis. This is in contrast to other groups of people, such as crowds and shoppers in retail stores. It is expected that the institution will continue to exist over a period of time, perhaps indefinitely. Some have been in operation for centuries and there is not, at present, any evidence that this will not be the case in the future. Some organizations, of course, do die, when they are unable to reach their objectives within a reasonable time period. But, so long as the objectives are reasonably attained, the inclination is for the unit to continue its existence as an entity.

In addition, organizations have cultures. Each one has a set of expected behaviors, norms, and values which guide the conduct of members. Compliance with cultural expectations is expected from members, and those who deviate from important norms are subject to censure from others and possible expulsion from the organization.

If they are to be successful, newcomers should become aware of the prevailing culture and make an effort to comply. A strategy that is normally effective for new members is to engage mainly in listening rather than talking and in not shaking the boat until one has become familiar with the culture. Newcomers who do not act in accordance with the cultural system are likely to find their ideas rebuffed and their entrance into the unit a very dissatisfying experience.

Each organization has an environment that falls outside of the boundaries of the unit. Thus, there are economic, technical, competitive, social, cultural, and legal environments. If the institution is to prosper it must adjust to and fit into the environment. It may be possible to alter the external scene to some degree, but compliance with outside requirements is generally necessary. In fact, one of the primary requisites of success is compliance with the environment and adjustment in accordance with changes in this element.

There are many historical accounts of organizations that have met their demise because they no longer satisfied the needs of society at large, government, consumers, special interest groups, and employees. Likewise, there is considerable historical documentation of organizations that have prospered by outperforming competitors in complying with the requirements of groups outside the boundaries.

EXAMPLE

A large aerospace company is characterized by a corporate culture that emphasizes creativity. All employees, from the chief executive officer on down, are expected to take steps designed to improve on existing policies, procedures, and techniques in novel and improved ways. Management realizes that constant change is necessary, in order to keep pace with the ever-changing environment. Failure to be creative can only result in an inability to compete with the company's aggressive rivals. Even lower level employees are expected to arrive at means of doing their jobs better and serving customers and other outside publics more fully.

This emphasis on creativity has affected the company organization structure. Operative employees frequently interact with managers in task forces designed to overcome special problems or to take advantage of what may be outstanding opportunities. Rather than just taking orders from management, operative employees are actively involved in making decisions over matters that may have a vital effect on the future of the company.

SOLUTION

If an insurance agency is small it probably will not have severe problems in developing its organization structure. In this case, few individuals are employed by the company. It should not have trouble in determining who has authority over specific functions, who reports to whom, and in resolving questions relating to centralization versus decentralization, span of control, and other issues. As the agency grows, however, weighty problems in these areas can emerge, and will require the attention of management.

SOLUTION

In order that the employees of a retail drug chain might coordinate their efforts with one another, the company should have overall objectives. These are targets that are shared by all members of the organization, such as improving profits, expanding market share, and reducing operating costs. If everyone is striving toward the same overall objectives, they will all be pulling in the same direction, thus promoting coordination.

SOLUTION

When the managers of a chemical manufacturing company make work assignments, one important goal is to assign individuals to departments that specialize in the type of work performed by the employee. The work of the company is categorized into segments that are assigned to individual departments (such as production, engineering, and research and development). Within the departments, the work is further categorized and assigned to individuals. In this way, both department individuals can take advantage of specialization, in order to be productive.

SOLUTION

Employees of an ornamental iron works producer are set apart from the environment by boundaries. In turn, these signify who are members and who are not. Boundaries are important because organizations consist of people ands it should be clear as to what people are members and which are not. Sometimes, however, the organization boundaries are not clear. Many members of the public may assume that an attorney who represents a company from time to time is part of the organization. In fact, the attorney is not a member but is one who contracts services to the company.

SOLUTION

A producer of aluminum containers has a division in Europe that serves customers in that region. This division is subject to direction and control by the headquarters office. It may operate in a semi-autonomous fashion, as by making decisions over production and sales that are unique to Europe. However, it is still a part of the overall organization and must recognize the overall authority of top management.

SOLUTION

An important characteristic of a telephone company organization is there is a hierarchy of authority in the company. Some employees of the company have authority over others. They have the power to issue orders and can expect that these will be followed. In the case of disobedience or failed performance, superiors have the power to discipline subordinates. If a member of an organization lacks authority, some other means of directing the behavior of others, such as persuasion, must be employed.

SOLUTION

New employees in an investment broker company are well-advised to become aware of the prevailing culture and make an effort to comply. If they fail to conform to the cultural norms, they will not be able to achieve the cooperation of others and instead will be treated as outsiders. This is not a good way to achieve a promising career.

TOPIC Why Organizations Form

TEXTWINDOW

If we are to obtain expertise in organizations and their ongoing operations, we should have some idea as to why they are formed in the first place. Is it because people like working with other people? Is it out of economic necessity? Does joining one of these units satisfy important psychological needs, such as the desire to acquire recognition from others? Answers to these and related questions bear exploring. In the process of searching for answers, we will consider several sources of insights from history and from sociology.

We will look at reasons for organizing from the vantage point of a primitive society, one with few or any existing organizations. This framework allows us to most vividly explore the underlying motives for organizing.

It should be mentioned that those who have the appropriate resources are the ones who are most liable to construct organizations. A person with authority--such as the chief of a tribe--tends to be a better candidate for building a collective association than does someone else who lacks this authority. If one has authority, he or she is able to direct others to undertake certain behaviors--such as becoming a member of a grouping of people. This kind of authority is enjoyed by only a few individuals, however.

Likewise, wealthy persons are in a better position to create organizations than are those who are not well-endowed financially. The wealthy often have respect and tend to exercise some degree of power and persuasive ability over others. Further, their wealth may place them in a position to acquire the assets needed to form a unit. In turn, physical assets are a vital requisite for originating numerous kinds of organizations. It is difficult for a landless tenant to galvanize others into the efforts needed to build a collective farm, for example. But a large property owner may be able to accomplish this with ease..

Many researchers and other experts are of the opinion that individuals organize in order to be more productive. This is called the Aefficiency theory A of organization formation. It is possible for one person to produce a wide array of goods, services, ideas, and other valuable assets. In primitive societies, individuals (or sometimes families) are able and often required to provide for their own food, water, shelter, clothing, sanitation, and protection from outside danger. The result, however, is likely to be very basic, and standards of living tend to be very low. Individuals are not in a position to specialize--each one must be a hunter or farmer, a home builder, a clothing constructor, a defender from enemies, a doctor, and many other things. Because of the large number of roles that must be occupied, there is never enough time to become a master of any one of them.

Early in recorded history, humankind discovered that there was immense value in specialization. One person became an expert hunter, another a productive farmer, another a skilled homebuilder, another a proficient soldier, and so on. Because they were able to specialize, each one cultivated proficiency in his or her own role. However, the need for even more specialization became evident. In the home building trade, for instance, one person might show the most promise in constructing roofs, while another could demonstrate advanced proficiency in putting together flooring and walls. By laboring together, the two could be more effective than any one individual who was struggling to complete the project alone..

When two or more people work together and, because of their joint operations, produce more than the sum of the individual efforts of each one, the result is synergy (as where the whole is greater than the sum of the parts, or two plus two equals five). Synergy develops when collective action develops a life of its own and results in superior output. Perhaps the floor builder and a wall builder could do their construction work at the same time, for instance, rather than having one person do both jobs one at a time. Simultaneous work by two people could result in higher quality and/or more rapid construction.

Having the two people concentrate only on specific home building assignments does not insure fast and high quality construction work, however. When people specialize in various tasks there is no guarantee that their collective effort will be coordinated. Instead, they may merely get in each other's way and delay the project. Therefore, there is need for some kind of coordination mechanism, that will ensure that the labors of the various parties reinforces the labors of others and all are in working in unison to accomplish the same goals.

One means of coordination is appointing a leader, with authority to direct the actions of the various specialist followers, so that they can correlate what they do with the actions of other workers. Or, in the absence of a leader, the parties could act as partners, each with coequal authority and engage in frequent communication with each other. One, for instance, might agree to help the other complete a physically-demanding job. Another alternative, assuming that there are too many individuals to act as partners, is some kind of rule-by-committee arrangement. At any rate, some form of coordination must be instilled into the group effort..

Individuals, of course, will become members of an organization only if membership will be of assistance in fulfilling important needs and aspirations. Members are required to work, to adhere to organization values, to give up some freedoms, and to follow some rules that may not be personally rewarding. Most people feel that, before they agree to give up something of value, they should obtain the promise of something equally worthy in return. Hence, they form and join organizations because they are convinced that their needs will be satisfied better than if they acted alone. There are, of course, cases where this is not true. Some former employees of existing companies fashion and operate their own one-person firms. One reason may be that they are convinced that they can be as much or more effective acting alone as they would be as part of a unit made up of multiple parties.

Once an organization is in existence, people may elect to join it because they perceive that the organization is accomplishing things in a manner that is superior to other means of accomplishment, such as working alone or becoming a part of a different organization.. The ineffective hunter may notice that members of a group have discovered new techniques and tools that allow them to become truly superior hunters. Joining the unit may become a means of improving one's own chances for success, by learning about these techniques and tools and how to employ them..

Organizations may be generated because the need for them in the future is evident. If primitive people have reason to believe that a famine is on the way, they may elect to prepare collectively for this disaster, as through organizations dedicate to laying in a good crop in reserve for the calamity or building up a cashe of meat and other edibles. As societies advance in sophistication, and become more forward-looking, this kind of forecasting and reacting to the forecasts is more evident.

Another theory of why organizations are constituted is that humans innately like the idea of associating with other humans. Not surprisingly, this is called the association theory. Specifically, most people prefer aligning themselves with those who are similar to them in important ways. One group, for instance, might share an interest in hunting and would work as a unit because the members like to associate with one another. Close bonds could be formed as a result of their interaction, satisfying important needs for belongingness status, recognition, love, and affection. This is evident in modern times, where people with an interest in furthering particular goals and conducting specific kinds of work are reinforced by interacting on a permanent basis with others who hold the same interests. The interpersonal bonds can be very tight in such cases.

When individuals associate with others holding similar interests, there develops, over a period of time, a desire to excel--to become more proficient than others with whom they are affiliated. Some members of the group incur a desire for a reputation as a good hunter, house builder, tailor, or whatever occupational interest holds the collection of members together. As a result of a good reputation and/or ability, a few individuals are granted more authority and discretion within the group than are others. A hierarchy develops, where superiors exercise power over subordinates.

Finally, some organizations come into being as a means of achieving victory over those persons who are perceived as being rivals. If a near-by hunting group is very skilled and is taking over the prime hunting grounds as a consequence, the only real means of retaliation may be to initiate and to administer a competing organization. Many associations have developed, both in business and in non-profit (including military) matters, as sources of protection from (or domination over) competing groups.

Of course, there is no guarantee that the organization will continue on as a going concern. One important attribute of continued life is flexibility. As the environment undergoes alteration, so must the organization, if it is to avoid becoming outmoded. Should conditions reach the point where the organization is no longer satisfying a set of basic needs, such as efficiently producing needed goods and services or providing an opportunity for rewarding associations with those of similar interests, the unit may have to be disbanded. Further, the organization must abide by the rules that society has instituted if it is to endure. Useless or outlaw organizations will not be allowed by their members or by outsiders to continue their operations. In short, it is a mistake for the organization, once formed, to remain static. Management must realize that change cannot be prevented, so means must be found for accomodation to it.

EXAMPLE

Two recent graduates of a state university who both received degrees in business administration have formed a restaurant. The company specializes in new cuisine fare and has an espresso bar, stocked with a wide array of pastries. Each of the two possesses skills that complement those of the other. One is an expert cook and purchaser of cooking materials. His family owned a similar restaurant and he was engaged as a part time cook during summers, after school, and on weekends. The other partner is skilled in finance, accounting, and marketing. His experience is with a small convenience grocery outlet operated by his parents. Together, the skills of the two partners produce a synergy that has allowed them to generate a very profitable enterprise with what appears to be a bright future.

SOLUTION

A wealthy person is most likely to be successful in starting up a new bank. This individual probably has some degree of respect and exercises some degree of power and persuasive ability over others. Further, the wealthy person has funds which can be invested in the bank--an important prerequisite for forming such a unit. Individual states will not allow bank formations unless there is a minimum level of assets available at the time of the application for a charter.

SOLUTION

In primitive societies, standards of living tend to be low, at least partially because individuals do not specialize in particular activities. Rather, they are involved in a large number of functions necessary for their survival. Because of the large number of roles that must be occupied there is never enough time to become a master of any one of them. The result is inefficiency.

SOLUTION

An electrician who is employed by a manufacturer of small electric motors is engaged in very specialized activities. As a result, he will develop considerable skill in carrying out his job.

By concentrating his efforts in a specialty, he will acquire advanced expertise. It will not be necessary to interrupt his progress by diverting him into other activities. Consequently, he will become proficient in a specialty.

SOLUTION

Two technicians in an appliance repair shop can replace a washing machine transmission in less than half the time required by one technician. This is a result of synergy, which occurs when the whole is greater than the sum of the parts. By combining their efforts, the two can help each other in such a way that each one is more efficient than would be the case by working alone.

SOLUTION

A prospective entrepreneur is attempting to convince two friends to join her as partners in a temporary help agency. The friends are most likely to join her if they think the business will satisfy important needs held by them. If they are highly motivated toward making money and the business appears to be highly profitable, for instance, they may join their friend in a partnership.

SOLUTION

According to the association theory, several people might form a company to sell jewelry products at wholesale because they like the idea of associating with the others. They prefer aligning themselves with others who share the same interests. If all are interested in jewelry and all like the idea of working in wholesale trade, there may be strong motivation to join

SOLUTION

A company makes components for mountain bikes, such as front-suspension forks. If it is to continue in existence it must adjust to the environment. Sustained corporate life requires that the firm does not remain static. Instead, it must be flexible and undergo alteration as the environment changes. If the organization is no longer satisfying basic needs, such as satisfying consumers, it will cease to exist.

TOPIC Organizations As Systems

TEXTWINDOW

If we are to really comprehend what organizations are and what they are about, we should regard them as systems. In turn, a system is an entity consisting of a grouping of interacting parts. It receives inputs from outside, processes these, and releases outputs to the external environment. There are many examples of systems. For instance, the human body has many of these, including the respiratory and circulatory systems. The economy operates in an economic system--in the United States primarily a capitalistic one.

The first major assignment of a system is to receive various inputs from the external environment. Business firms secure money, raw materials, components, parts and accessories, major equipment, energy, and other resources. These are lifelines to the firm and must be maintained. Without them the company would eventually run out of reserves and would have to go out of business. When excess inputs from the environment are obtained, it is necessary to make arrangements to either store or dispose of them. Sometimes it is wise to store them until some future time when they will be needed and replacements cannot be obtained without paying a higher price.

On occasion, an organization runs into major difficulties in acquiring required inputs from the environment. It may be extremely costly, for example, for a metal products processor to procure raw materials, such as steel and aluminum, during times of scarcity. When this occurs, the organization may attempt to seize control of some part of the environment, as by purchasing a steel mill to acquire supplies for processing metal products. Likewise, if it is having trouble finding desirable retail outlets for its products, a food wholesaler may purchase a chain of supermarkets.

The inputs from the environment are not restricted to those which are physical. Another important ingredient is information. When the organization collects relevant information from the environment this allows it to adjust its strategies and tactics so that they are more compatible with the outside changes than they were previously. Management should take steps to insure that needed information is acquired on a timely basis and transmitted to the decision makers who need this information.

The second assignment of a system is to process the inputs that have been received from the environment. The production department takes various physical assets and treats and manipulates these in such a way that they become usable products for buyers. If these inputs are not correctly processed, the organization will not satisfy the wants of the market and the company may not be able to attain its goals.

The third job assignment of a system is to transmit the finished products to potential buyers. In most companies these tasks are carried out by marketing and physical distribution personnel. It is their responsibility to see that the products are delivered to the right people at the right time and the right place. In many cases this will necessitate warehousing and storage services, in between transportation movements. If the system fails to deliver the outputs in a manner preferred by the potential customers who comprise the market, the company will be vulnerable to inroads by competitors.

Virtually all systems have a variety of subsystems. In a business organization, for example, each department is a system and it includes all of the various properties of a system that we have previously discussed. Depending on the size of the firm, there can even be subsystems within subsystems, and even further breakdowns of subsystems, as the company continues to specialize its activities. The marketing department may have advertising and personal selling units, for example. In turn, the personal selling components may be broken down by type of customer, product, or geographically. Even further subdivision is possible.

The parts of a system are interactive--if we alter one portion, this will have an effect on at least some of the others and on the entire system. By analogy, we can conceive of a balloon as a system. If we push our finger into one side, another side will invariably expand. If we pierce one small surface area, the whole unit will deflate. Even very small modifications in one portion will influence others.

We will find it useful to distinguish between closed and open systems. A Aclosed Asystem does not interact with the outside environment. Instead, it operates independently and does not receive inputs from the outside. In fact, the environment has does not have an effect upon it. In addition, it internally possesses all of the energy that it requires for current existence and continued achievement.

In reality, there are no completely closed systems, except in theory. However some are associated with this attribute much more than do others. A battery powered clock, for instance, is closed to a large degree. Its parts operate in a manner that is relatively independent of what is happening in the environment. It does not require a continual flow of inputs in order to operate, and it does not produce tangible outputs. But, the battery does need charging and the operation of the clock can be changed from the outside (as when we drop it). Hence, even the clock is not a completely closed system.

Open systems are those which blend with the environment as a necessary condition for subsistence--they cannot survive for very long without the environment. They accumulate various critical inputs from and emit a number of outputs to the environment. It is not possible to isolate such systems from their surroundings. In fact, they must always be in a flexible state of accommodating the patterns taken by the environment by changing, when necessary, in appropriate directions.

There are a number of different types of systems in existence, and some are much more complicated and sophisticated than others. Fundamental systems are less open than are other types. An example of such a system is a clock. Such systems can function over relatively long periods of time without receiving any form of energy from the environment. A hand-wound clock, for example, can continue on without assistance for a lengthy interval of time without rewinding and, once started, operates on its own. These systems are inclined to behave in a reliable fashion.

Control systems are somewhat more sophisticated than the fundamental variety. They have the capability of monitoring their own ongoing behavior and taking corrective action when this appears to be necessary. An example is a thermostat. It is set to a given desired level and measures the temperature of the surrounding area. If the temperature diverges from the chosen elevation, the thermostat activates a heating or cooling system designed to restore the room to the target level. Still, these systems require considerable adjustment from outside their boundaries--they are not entirely independent..

Biological systems are even more complicated than control systems. These are able to arrange for satisfying their own needs and wants. This gives them a degree of independence that is not shared by the other two previously-mentioned types. Some examples of biological systems are plants and animals. They secure a variety of different resources from the environment, process these resources in a manner so that they are useful, and then dispense various types of output back to the external environment. Plants, for instance, take in carbon dioxide and emit oxygen. Animals do the opposite.

The most complex model that we will subject to examination is the social system. Such entities are made up of human beings. There are economic, political, social, charitable, cultural, religious, and many other types of these systems. The business enterprise is an example. In turn, it is part of an overall economic system, which comprises numerous other individuals and groups.

Social systems are sophisticated and often defy explanation because their behavior depends to a large degree on human needs, values, attitudes, norms, and even moods. These are difficult to measure and to predict and they vary considerably from one person to another. . Further, they are in a continual process of change. Complicating the matter is that it can be very difficult to predict the directions in which change may take place.

Since companies are social systems and these units are open, managers are well advised to moniter the environment on a continual basis. When the environment changes, this may necessitate major alterations in the organization. As consumers desire more and more variety in the products and services which they receive from business, for example, companies are finding it necessary to invest in production machinery that is capable of producing these variations. In turn, this requires the company to hire a higher quality of worker--individuals who can operate robotized equipment--rather than just unskilled labor. And hiring a different class of worker changes other elements in the system, such as methods of motivating and promoting employees. We can see that modifying one part of a system has an impact on many other parts.

EXAMPLE

An organization that publishes six consumer magazines has a management that is very cognizant of the need to adapt to the environment. The circulation and advertising lineage that each magazine receives must be carefully monitored. Further the editorial policy of each magazine must be continually evaluated. Recently, for example, management detected that the circulation of one of their publications--a man's magazine--was declining sharply. A survey of readers revealed that many felt that the publication had become stodgy and old fashioned. This intelligence from the market led management to replace the editor and to instill a new and up-to-date editorial policy.

SOLUTION

For a manufacturer of running shoes, the first job of the system must be to obtain inputs from the environment. Inputs are a source of energy. The manufacturer needs money, raw materials, components, major machinery, and other resources. Without them the company would soon go out of business, because it would have no assets with which to work.

SOLUTION

When a supermarket experiences difficulty obtaining inputs from the environment, it can profitably overcome this problem by acquiring part of the environment. If shortages occur, the supermarket can purchase some of its suppliers, such as when food processing companies buy canneries. This will ensure a reasonable and low cost of supply for the supermarket.

SOLUTION

A useful way for an airline to be in a position to adapt to changes in the environment is to

obtain information from the environment. This company is an open system that must be ready to alter itself, when necessary. Information is needed as to what changes are needed, however. Should the airline enlarge its first class seats? Should it devote more attention to careful baggage handling? Answers to questions such as these cannot realistically be reached without acquiring insights from customers.

SOLUTION

A company that produces heartburn remedies is an open system. This means that it interacts with the environment. This company acquires inputs from and emits outputs to the environment. It must continually adjust as both sources of inputs and outputs experience changes. In recent years this company has been forced to improve its products, in order to remain competitive with rivals.

SOLUTION

Perfume manufacturers, advertising agencies, and banks are open, not closed systems. All are social systems that acquire resources from and transmit resources to the environment. Since they interact with the environment, they cannot be closed.

SOLUTION

A greeting card manufacturer is an example of a social system, since the organization is made up of people. This is an open system that is difficult to measure and predict because of the complexities brought about by changes in human needs, values, attitudes, norms, and moods.

EXERCISE D

A company manufactures software that puts advertisements into digital form, for use on the internet. It should moniter the environment _______.

A. Annually.

B. Quarterly.

C. Monthly.

D. Continually.

SOLUTION

A company manufactures software that puts advertisements into digital form, for use on the internet. It should moniter the environment continually. This is necessary because the environment is in a constant state of flux. In the internet area competitors, customers, internet companies and others are changing their requirements constantly and even radically. In order to remain competitive in this situation, continual monitoring is necessary.

TOPIC Properties Of Organizations

TEXTWINDOW

If we are to comprehend organizations and how they do and should operate, we are well-advised to have some idea of the major properties that they may hold. The properties are various traits that organizations may possess, either to a large or to a moderate degree. If we know the properties of an organization, we are able to describe and measure it, and even to proscribe steps that management can take to improve its performance. Organization theorists usually break down the properties into those that are structural and those that are contextual.

AStructural Aproperties are those that tell us important aspects of the internal traits of an organization. Examples are how complex the organization is and the degree to which its activities are specialized. Conversely, contextual properties tell us something about the entire unit, including its goals and environment. Essentially, these properties provide insights on the conditions that affect the structural properties.

There is a large quantity of structural properties. Those which we will examine are standardization, specialization, formalization, centralization, complexity, hierarchy of authority, and professionalism.

Standardization refers to the degree to which certain jobs are carried out in the same fashion. Assembly line work, for instance, is highly standardized. Each individual (or robot in some cases) performs the same actions in mounting a transmission into a particular car model. Telemarketers dispense the same script to all of their employees who will be calling prospects and attempting to sell them a good or service. Conversely, the actions of partners in a law firm are not standardized. Each attorney approaches cases in the manner than works best for him or her and this approach is likely to differ from that employed by others.

Specialization means the extent to which the work of the organization is generalized for individual employees. In the case of low specialization, individuals are responsible for a large variety of activities. In a small wholesale company that sells heating and cooling equipment, for instance, one person may take inventory, do the bookkeeping, and clean the sales area. Conversely, with highly specialized jobs, individuals are responsible for only one or a few activities. A quality control worker, whose only job is to measure the tensile strength of ball bearings, is very specialized. Generally, specialization is greater in larger than in smaller organizations.

Formalization means the degree to which the work of the organization is prescribed by rules. Small companies tend to be informal and have few rules. However, in some enterprises, virtually every activity is regulated by some stipulated policy or procedure. This is the case in many governmental organizations, where individual employees have virtually no discretion in selecting the proper actions to take when certain jobs must be done. Formalization is, of course, very high in military organizations.

Centralization indicates the level in the organization where decisions are made. Some institutions are highly decentralized. Top management has decided that the people closest to the work should determine what should be done, and so it delegates authority to lower level managers. Normally, authority for some activities, such as determining what products to offer, is not delegated, however. In the case of a centralized organization, top management retains most of the authority and does not delegate to subordinates. Centralization is common in medium and small size firms, where the top managers desire rigid control over the organization.

Complexity is a measure of the number and variety of subsystems in existence. An organization can be vertically, horizontally or spatially complex. A vertically complex organization has a large number of levels, as is illustrated below.

This organization is vertically complex because there are a number of levels (four in this case) below the top manager.

A horizontally complex organization is a wide one. There are a number of different departments in the organization at any given level. An example is provided below:

Finally, spacial complexity refers to the number of sites where organization units are located. Large multinational organizations, such as those in the automobile manufacturing and soft drink industries are characterized by this property.

Hierarchy of authority is a structural property that signifies what subordinates are responsible to each superior. We can identify a number of vertical lines on the organization chart. In each case,

a superior is at the top of the line and one or more subordinates at the bottom. Some vertically complex and highly centralized organizations have long hierarchies, as exemplified by numerous medium-sized firms in the industrial electronics components industry.

Professionalism consists of the degree to which the members of an organization are educated and trained. Some organizations possess very high levels of this property. Examples are consulting

companies, CPA firms, and legal firms. At the other end of the scale, with lower levels of professionalism are construction companies and short-haul truck transit companies.

Thus far we have been examining structural properties--those which provide us with indications of how the organization is arranged. Now let us turn to contextual properties which furnish means of insight on the entire organization, and not just its inner workings. These properties are organization goals, technology, size, and the environment.

Organization goals are an important contextual property. Goals set forth the targets toward which the unit is striving. These furnish direction and a means of coordinating all of the activities undertaken by the various divisions, departments, and other units. Most organizations possess a hierarchy of goals, ranging from the more fundamental and general top level, down to more specific and short run subordinate goals. There are, of course, major differences in goals from one organization to another, even within the same industry.

Technology consists of the methods and materials and body of knowledge where science is applied to achieve organization objectives. Basically, technology is administered to the activities where employees obtain inputs from the environment and process them in such a way that they become valuable outputs to other organizations and individuals. The activities of medical laboratories, production plants, and advertising agencies are all examples of different technologies.

People sometimes assume that only high-tech companies have technology. This is not the case. Every enterprise has technology.

Size is a gauge of the expanse or extent of an organization. It is often reflected in the number of employees, revenues, or value of the unit's assets. Since our focus is on organization theory, we are mainly concerned with people. Hence, our emphasis will be upon the number of employees as an indicator of size. This variable, of course, displays considerable differentiation, as organizations range from one person units to those employing millions.

The environment incorporates of all of the entities that fall outside of the unit's boundaries. Some important ingredients of the environment are government, the media, suppliers, unions,

and banks. One of the keys to survival of an organization is to adapt appropriately to the more important components of the environment.

These structural and contextual properties are all held to some major or minor degree by every organization. They can be employed as tools to study, describe, evaluate, and suggest improvements for particular organizations. Further, we can compare two or more organizations, according to the degree to which they possess the structural properties and gain insights as to which organization structures are optimal for certain kinds of industries and companies.

EXAMPLE

A producer of dairy products is formalized. Virtually every action that managers and operative workers take is prescribed by rules. For example, there are very exacting rules that apply when it comes to making decisions.

If managers want to take a certain course of action, such as changing an advertising theme for a product, the rules require that the managers write a detailed memorandum to their superiors, carefully laying out the suggested change. In addition, the managers are required to notify their subordinates of the plan. Both the superior and subordinates review the proposed action, and write memorandums to the manager, explaining why or why not they agree to the action. If everyone agrees, it is adopted. If they do not, a new round of memorandums is initiated until a decision is finally reached.

Needless to say, this is a slow process that can hinder company efforts to react quickly to environmental change. Top management, however, is very conservative and wants consensus to be reached, rather than individual action, before new ideas are implemented.

SOLUTION

A company produces power amplifiers for cellular phones. The structural properties of this firm include its formalization. Structural properties are those that tell us important aspects of the internal traits of an organization. The extent to which a firm is formalized is such an internal aspect. It can have a major impact upon the profitability of the enterprise.

SOLUTION

The work of all of the tellers in a bank is carried out in about the same fashion. This means that the work is standardized. Each teller performs about the same actions in receiving deposits, cashing checks, selling traveler's checks, and other duties. Training programs provide instruction to the tellers as to exactly how these and other tasks should be undertaken.

SOLUTION

A U.S. company produces and distributes computers in Argentina. For many of the production jobs, employees are responsible for only one or a few activities. The jobs are specialized. This means that organization activities are not highly generalized. They work at only a limited number of tasks. Specialization may allow them to become highly efficient.

SOLUTION

In a chain of pizza restaurants, the work of most employees is prescribed by rules. The organization is highly formalized. Most activities undertaken by employees are regulated by some required policy or procedure. The rules insure conformity and avoidance of individual discretion in deciding how to perform.

SOLUTION

In a consumer finance company, top management has decided that the people closest to the work should determine what should be done. The organization is decentralized. Considerable authority has been delegated to lower level managers. This will allow them to react to the environment and

to make decisions rapidly and appropriately for their individual responsibilities.

SOLUTION

A company produces simulation systems for small-arms training. The staff include a president, three managers, and 25 employees. This company appears to be not vertically complex. There are only three levels of employees in the organization. It is not horizontally complex, because there are few departments ands is not spatially complex because it is situated in only one geographic

location.

SOLUTION

In applying organization theory to an automobile and truck producer, the most appropriate measure of size would be number of employees. The focus of organization theory is on people.

This means that number of employees is a meaningful gauge of size, since it tells us how many of these people there are.

2.

TOPIC Introduction To The Environment

TEXTWINDOW

We are now going to discuss the external environment. In turn, the environment is made up of those entities that are beyond the boundaries of the organization. We will center our attention on those elements which apply the greatest pressure on the organization.

It is critical that we study the environment in depth, given its extreme importance. All organizations are open systems--meaning that they accumulate a stock of resources from the environment, process these resources so that they have more value, and then transmit their outputs back to the environment. In a sense, the organization is a subsystem within a larger system which is the environment. Subsystems both influence and are influenced by the larger system and its components.

The most powerful components in the environment are (not necessarily in any order of priority) are as follows:

Most Important Environmental Components

1. Culture.

2. Government.

3. The economy.

4. Customers.

5. Competitors.

6. Labor.

7. Suppliers.

8. Financial institutions.

9. Technology.

We will address each of these components, in turn.

Culture refers to the values and norms of society at large. Each culture has certain values that are subscribed to by a large proportion of the population. Some central values of the United States culture, for example are set forth below.

Some Central Values of the U.S. Culture

1. Individualism (rather than conformity) is desirable.

2. Hard work will be rewarded.

3. Freedom of expression should be protected.

4. Individuals have the power to determine their own destiny.

5. Individuals and society should assist those who cannot help themselves.

There are a large number of cultural values relating to such areas as leadership, authority, staffing, communications, and control that are germane to the managers of organizations. Executives encounter a variety of issues such as hiring and affirmative action programs directed toward senior citizens, women, minorities, and gays, for instance. Cultural values relating to these issues may change over time, requiring adjustments by managers.

Cultural norms are expected behaviors. These vary from one society to another. In the United States culture, for instance, managers are discouraged (and prohibited by law) from punishing errant employees in certain ways, such as discharging them without just cause. In some Arab cultures, however, managers physically beat employees who do not perform well on the job, and this behavior is not looked down upon by society. Like values, norms are subject to change, and should be monitored closely.

Government is a critical element in the environment. This includes both the political and legal systems at the federal, state, and local level. Some government entities are not favorably disposed toward business organizations and create a climate that is restrictive, through taxes, the passage of unfriendly to business laws, negative interpretations of existing laws, and negative public relations campaigns. Other governmental units can be characterized as pro business and have a history of granting such favors as tax holidays and subsidies.

There are a number of laws that have a bearing upon business organizations. These include anti-trust (monopoly), occupational safety, product safety, libel and slander, product labeling standards, and export requirements.

The trend in recent years has been generally toward deregulation, which removes legal restrictions that existed in the past. Numerous industries, such as public utilities, railroads, motor truck companies, and airlines have received such treatment. While most managers praise attempts at deregulation, the effects have not always been favorable to business. Some executives complain that the impact of the North American Free Trade Agreement (which reduces import and export restrictions with Canada and Mexico) has been to severely reduce their revenues by opening up domestic markets to foreign competition, for instance.

The economy is an environmental force that must be recognized. Generally, the health of the economy is reflected in variables such as gross domestic product, national income, employment, and prices When the economy expands, both nationally and in specific regions, individual organizations also experience growth. This creates pressures for additional hiring and training. Expansions in the labor supply are desirable developments for most organizations. A plentiful stock of trained workers is a potentially powerful asset. When certain regions enjoy economic growth, they are likely to attract new firms. Currently, for example, Florida, Arizona, Nevada, and Washington are prospering and are witnessing the arrival of additional entrants.

Customers are leading components of the environment. Satisfaction of customers is one of the prime goals of every organization. Failure to achieve this is liable to result in downsizing, the sale of divisions and assets, and efforts to make the institution more efficient. On the other hand, those firms that have achieved gains thorough customer satisfaction take the opposite courses of action.

Many organizations today are committed to the idea of generating and maintaining favorable long run relationships with customers. They go to considerable lengths to find out what target customers want, cultivate products and services that are in demand, deliver these at the time and place where they are desired, and finally furnish service after the sale. Positive relationships can be invaluable, as they result in long run customer loyalty and in raising the reputation of the company within the industry..

Competitors are a prominent element that must be appraised in planning and decision making. Some institutions encounter a small number of aggressive rivals, whose every move must be watched and reacted to. This is the case in the tire, toothpaste, and soft drink sectors. Other firms are situated in industries where large numbers of competitors are in conflict with one another, keeping prices at low levels. An example is the intra-city truck delivery grouping. Still other industries are stable and witness only moderate competitive rivalry. An example is the industrial plumbing and heating industry.

Basically, every organization must make a concerted effort to stay apace with competitors, in such fields as product quality, price, service, delivery, guarantees and warranties. Very few are in the enviable position of having little or no competition.

Labor is an essential component of the environment. Every organization needs a staff that is sufficiently trained and qualified. Enterprises in high-tech industries are sometimes faced with labor shortages. In some cases, potential employees do not have needed skills and the organization must set up extensive training programs for new hires. Organizations in other industries, such as construction and tourism (hotel and motel, museum, and the like) are blessed with an ample supply of labor in most sections of the country and abroad..

Unions exercise potent influences on some organizations. It is necessary for management to bargain with and to cooperate with these institutions. Unions normally fight efforts at downsizing. They are active participants in wage and salary negotiations, particularly in the airline, automotive, and transportation sectors.

Suppliers represent a sector of the environment. Organizations acquire machinery and equipment, accessories, raw materials, product components, maintenance supplies, and services from a variety of companies. Many organizations are highly-motivated to developing and maintaining positive relations with suppliers. This can result in favorable treatment in such ways as expedited delivery, lower prices, extra services, and even financial assistance. An organization that has developed good relations with suppliers is especially in an enviable position during periods characterized by shortages of supplies. Good relations may make the difference between getting and not getting needed inputs.

Financial institutions are a special type of supplier--they furnish capital. Investment and commercial bankers, finance companies, insurance companies, and others are avenues for obtaining money. These institutions have the power to maintain, or to cut off needed flows of money. Further, they set the price of money--interest rates and associated charges. Some financial institutions insist on a degree of authority over management before they will provide funds, as where a bank requires that it be allowed to place several members on the board of directors of a borrower.

The ability to obtain funds from financial institutions can be an invaluable competitive asset. Organizations sometimes find themselves short on cash, even when they are profitable. Money may be required for expansion purposes or sometimes for mere survival. When a bank loan request is turned down, this may create a crisis for the unsuccessful borrower.

Finally, technology should be regarded by managers as a critical outside force. It assists the production, distribution, and communications processes, and has been of value in molding customer satisfaction. Technology has enabled institutions in the automobile, television, power, and telephone industries to significantly improve product quality and the capacity of their plants.

Also, technology has assisted a number of organizations in supplying consumers with offerings that meet their needs. The capabilities of personal computers and cellular telephones, for instance, have been improved in directions beneficial to consumers. Innovations such as the internet have improved the ability to communicate with numerous parties--including organization employees, suppliers, and customers.

Technology, of course, can be resisted. Some companies refuse to adopt new processes, techniques, and devices because they fear that this will create undesirable changes, such as the need for substantial investments in plant and equipment. Some employees resist this force, fearing that it will destroy jobs. And, there are consumers who are reluctant to adopt new products, believing that they pose financial, psychological, or even safety risks.

The environment is a very complex and far-reaching system. Our discussion to this point illustrates that it is an entity that must be considered in any organization decision that is of some importance to goal achievement.

EXAMPLE

For many years a department store has stocked a wide product life of perfumes and other kinds of scents, sold primarily to women. Over the past few years, however, sales have fallen off precipitously, as increasing numbers are shopping elsewhere. Working women are finding that they do not have the time and energy to drive to department stores, find a parking place, walk to the perfume section, wait for help, make the purchase, and return home. Rather, they can obtain the same brands of scents in smaller stores that specialize in these products. The department store has failed to stay in step with the changing needs of consumers. As a result it has relinquished sales to other retail outlets.

SOLUTION

The important cultural values in the United States that may affect organization managers include

freedom of expression should be protected. This value finds its place in most organizations, where employees feel that they should be allowed to voice their opinions and feelings. Many organizations have systems, including discussion groups, where employees are able to state their feelings about matters that are of interest to them. This can provide useful insights to management and serve as a morale builder for subordinates.

SOLUTION

An example of the application of a U.S. cultural norm in a factory is where superiors treat subordinates with respect. In this country, most residents believe, more or less, that individuals are created equal. Hence, there is a norm that one should deal with others, even if they have less formal authority or are less financially endowed, on the same plane. Looking down and talking down to others is not acceptable behavior, in the minds of many.

SOLUTION

The trend in federal regulation of business in the United States, over the past 15 years, is toward deregulation. Industries such as public utilities, railroads, and airlines have been subject to this force. Basically this means the abrogation of overly strict rules and their replacement with general guidelines and, in some cases, complete freedom of action on the part of managers.

SOLUTION

Forces in the economy that will impact upon producers of small appliances include employment, prices, and gross domestic product. Employment will have an effect because the behavior of the economy affects the labor supply. Further, sales of small appliances will advance as employment increases. Prices at retail will rise when the economy expands, but so will the cost of raw materials. The opposite conditions will prevail when the economy contracts. When gross domestic product expands, this should lead to more demand for small appliances.

SOLUTION

In order to establish positive associations with the consumer component of the environment, airline companies should build good relationships with customers. They should take steps to find out what services customers desire, develop services that are in line with these desires, and provide services that are superior to those of rivals. This involves taking procedures to avoid such things as flight delays, inappropriate baggage inspection, and lost baggage.

SOLUTION

The soft drink industry is dominated by a few large firms. This means that each company should carefully watch and react to the moves of competitors. A major change in prices, advertising, product quality, or distribution may allow competitors to gain large shares of market in a short period of time. Management must carefully moniter competitors for such strategic and tactical changes and take steps to counteract these in a timely manner.

SOLUTION

One of the major parties that is likely to resist technological change is employees. They and their representatives (often labor unions) often fear undesirable changes such as reductions in the number of jobs and less demand for skilled labor.

TOPIC Uncertainty In The Environment

TEXTWINDOW

How receptive should organizations be to procuring knowledge about the environment? Should this be a priority item? Or should management mainly center its attention on what happens inside the boundaries of the organization? We will appraise this and similar issues at this point of our discussion.

The environment manipulates organizations through two principal avenues. One is that the organization requires a flow of information of various kinds from the elements of the environment. The second is that the organization must have various resources which the environment can furnish. In some cases, one component of the environment can furnish both information and resources. Employees, for example, can contribute a number of productive insights about how to improve the work process and, of course, they furnish resources in the form of labor.

This topic centers upon the first requirement--for information that arrives from the environment. If management does not possess such information, it operates in what is essentially a vacuum. It is unaware of what is happening in the cultural, government, economic, customer, competitor, labor, supplier, financial institution, and technological spheres. It is not taking advantage of the fact that the organization comprises an open system that demands information input to steer decision making.

In making every decision, management encounters some degree of uncertainty. This means that it does not know what will be the outcomes of various actions nor the probabilities of occurrence of these outcomes. If there was certainty, decision making would be uncomplicated and very easy. Managers would know what consequence each alternative course of action would produce and it would simply choose the single alternative with the best anticipated outcome. But such a situation is very rare.

There are two environmental traits that seriously affect the incidence and the amount of uncertainty that relate to a managerial decision. These are the degree to which the environment is simple or complex and the degree to which events are stable or unstable.

Environmental complexity refers to the size and the uniformity of the environmental elements that impact upon the organization. A complex environment is characterized by numerous dissimilar entities that have a consequence upon the organization. Conversely, a simple environment has a small number of like entities that are exercising their influence.

Viewed in this manner, most banks are surrounded with a relatively complex environment. They deal with a multitude of dissimilar environmental components. Consumer values and norms about saving, investing and spending are subject to shifts in direction over time. Banks are strictly monitored by several governmental agencies and are exposed to a myriad of rules and regulations. The economy has a strong influence on banks, generally supporting them in times of economic expansion.

Banks deal with a diverse cast of customers, including those in the consumer, business, farm, and nonprofit categories. Each of these has its own special set of demands and problems. These organizations have numerous competitors, both other banks and other classes of financial institutions. They employ workers of various kinds, ranging from vice-presidents to tellers to janitors. They are subject to the forces of technology in a number of ways, such as those affecting automatic fund transfers.

On the other hand, most neighborhood grocery stores are situated in a relatively simple environment. Customers located in the neighborhood, perhaps several nearby competitors, and a small number of suppliers are probably the only external elements which deserve extensive consideration

.

In addition to environmental complexity, there is a second uncertainty factor which deserves managerial attention. This is environmental stability, which indicates the extent to which the environmental elements are inclined to be stable or not. An element is stable if it does not experience consequential change for a long period of time. Conversely, the element switches around quickly and materially if it is unstable.

Instability can result from a variety of sources. Governmental authorities can impose new anti-pollution or hire-the-handicapped regulations. Customers may demand more product variety or lower prices. Competitors may introduce new technologies that allow them to assemble products at very low cost levels. The economy may take a sudden downturn. The public may insist upon more employment opportunities for senior citizens, teen agers, or the poor. Vendors may find that it is more difficult to make deliveries of supplies on time, due to congested highways. Part of the labor force may go on strike or conduct a slowdown. A bank that has been very accommodating in the past may refuse a current loan request. These are just a few examples of the instabilities that may emerge.

The computer software industry is a very unstable one. It is characterized by abrupt and major changes in technology, customer demand, competition, supply, and labor. Conversely, the retail antique industry is relatively stable.

We can combine the environmental complexity and the environmental stability variables, in order to compose a mechanism for gauging uncertainty in the environment. The combinations are as follows:

Conditions of Uncertainty in the Environment

1. Unstable and complex--- Very high uncertainty.

2. Unstable and simple----- High uncertainty.

3. Stable and complex-------Low uncertainty

4. Stable and simple---------Very low uncertainty.

Uncertainty is at its most advanced plateau in an unstable and complex environment. At this point, major changes are unfolding at a brisk rate and there are numerous dissimilar environmental elements that management must take into account when it is occupied with decision making..

The major television networks find themselves in such a situation. Competition between the networks is very intense and new networks have appeared on the scene. Also, cable producers are becoming increasingly aggressive and capable of delivering audiences. Some consumer groups are rallying for what they see as improved rating systems and less violence and sexual content in the programming. The federal government regulates this industry, chiefly through the Federal Communications Commission, and the restrictions it imposes are volatile and sometimes difficult to predict. The producers of programs generate new proposed series each year. Technological change, both in the production and the distribution of television is constant. And viewer preferences are somewhat hard to anticipate. They may demand more sit-coms one year, and more dramas on another. It is evident why this is a very uncertain domain.

An unstable and simple combination leads to a reduced but still elevated stage of uncertainty. Major and abrupt change characterizes this situation but the number of environmental elements is small and variations between them are also not consequential. The fast food restaurant industry falls into this category. Substantial alterations in menus, prices, decor, advertising, and location are the rule. The major environmental elements, however, are limited to consumers, competitors, and the economy.

When the environment is stable and complex, uncertainty is less than in the conditions described above. . Change is not very substantial and takes place slowly and over a period of time. On the other hand, there are a large number of dissimilar environmental elements in operation. The banking, electric utility, and long-haul trucking industries were in this position for decades. When the federal government moved toward deregulation, these industries were quickly transformed into the unstable and complex status, however. Today, the taxicab industry in most cities is stable and complex.

The last environmental type that we will examine is stable and simple. In today's dynamic business world these organizations are substantially less common than they were in past times. In this condition, change is gradual and minor and there are only a few, relatively similar, environmental elements. Produce wholesalers (who distribute fruits and vegetables to supermarket and other grocery outlets) characterize this condition. They are able to predict the outcomes of their actions and the behavior of their industry much more accurately than any other combination. Even this group is not entirely liberated from uncertainty, however. They just have less of it.

We should realize that industries can switch from one of the categories that we have described to another. The motion picture industry has become much more uncertain than it was in the past, for example. This is also the case in the medical services industries, where doctors, clinics, and insurance companies discover that uncertainty is now a major force that they must recognize and arrive at means of adjustment.

EXAMPLE

A large provider of long distance telephone services is now confronted with much more uncertainty than it encountered in the past. The federal government has passed legislation permitting other firms, such as cable television companies, to compete with the long distance carriers. Technology has advanced, permitting many combinations and potential combinations of telephones, computers, and the Internet. Consumers are demanding increased numbers of services, and at the same time asking for lower rates. This has been spurred by growth in the economy. Further, opportunities for markets in foreign countries are unfolding. Some seasoned managers are astounded at the change which has been and is taking place in this sector.

SOLUTION

A manufacturer of paper products interacts with the environment by receiving information from the environment, obtaining supplies from the environment, and distributing resources to the environment. It receives information from sources such as marketing research, obtains supplies such as timber, and distributes resources such as newsprint and notebook paper.

SOLUTION

A company produces software applications for financial trading and risk management. If the organization is faced with uncertainty, this means that management does not know the outcomes of various actions nor the probabilities of these outcomes. When management decides to reduce the span of control, permitting tighter control over production workers, for example, it does not know what the final impact will be upon productivity.

SOLUTION

A metropolitan newspaper has a complex environment. This means that numerous dissimilar environmental elements have an effect upon the newspaper. Newspapers are heavily influenced by values and norms, technology, consumers, governmental regulation, and the economy. Each of these has different demands which it places on the newspaper.

SOLUTION

A variety store located in a small city has a simple environment. This means that a small number of similar components of the environment influence the store. Essentially the government, technology, and financial institutions will have little impact on the business. Labor, suppliers, customers, the economy, and the culture will not have a major influence on management. The situation is quite different for department stores located in major cities, where these environmental components will all be powerful.

SOLUTION

A company produces tanks and other armed vehicles that are sold to governments around the world. Its environment is unstable, meaning that it changes quickly in a short period of time. The defense industry is very unstable. It experiences extreme spurts and declines, due to changes in politics, the prosperity of nations, cultural values and norms, technology, and competition.

SOLUTION

The greeting card industry is relatively stable, which signifies that it is not subject to rapid change in the environment. Change in this industry tends to be very prolonged. Cultural values and norms, as they relate to greeting cards, change at a sluggish pace. Governmental regulations do not change much at all. Only limited change comes from the economy, technology, customer demand, financial institutions, labor and suppliers.

SOLUTION

A health-maintenance organization (HMO) has an unstable and complex environment. This means that it can be termed as having very high uncertainty. These organizations are heavily impacted upon by politics and cultural norms and values are significant in the industry. The government regulates these entities in many ways. They are influenced by economic conditions, technology, and demands of patients. Skilled labor is often in short supply. Further, competition is strong. Institutions in all of these environmental areas tend to be very different and the way they interact with HMO's changes rapidly. The end result is very high uncertainty.

TOPIC Adjusting To Uncertainty

TEXTWINDOW

In the previous topic we examined environmental complexity and stability and their expected consequences for the creation of uncertainty. But what value is knowledge of these variables to management? After managers have categorized environments in these ways, what do they do next? We will address this and related questions in this topic.

We will see that uncertainty has a strong bearing on how the organization is structured and managed. Environmental complexity and stability are important variables to contemplate upon in making judgments on the decisions listed below:

Environmental Complexity and Stability Help Determine

1. How many departments to have.

2. What will be the responsibilities of these departments.

3. How will coordination between departments be achieved.

4. How cooperation with organizations in the external environment will be brought about.

5. How the chain of command should be patterned.

The first concept that we will examine is complexity. Companies that are confronted by a complex environment (a large number of dissimilar environmental elements) normally find it necessary to create and utilize numerous departments within their own organization. Since there is considerable uncertainty, management forms an independent department to specialize and develop expertise in handling most of the relationships with each of the environmental components.

In a firm that fabricates a variety of windshield wipers for automobile manufacturers, the role of the sales and marketing services departments is to specialize in serving customers and potential customers. The finance department is primarily involved in attempting to secure funds from financial institutions. The personnel department furnishes expertise when it handles contacts with job applicants and employment agencies. The public relations department works closely with the media and with interest groups, such as supporters of the ecology. The purchasing department deals with suppliers. These and other departments are comprised of employees who are professionals in carrying out joint activities with particular designated environmental entities.

In every organization there is a technical core. This is the department (or group of departments, as the case may be) that creates the products or services for which the organization is in business to distribute and sell. For a candy manufacturer, this is the production department. In an over-the-road trucking company, it is the operations department (which includes drivers and their superiors). In a legal firm, the technical core is made up of the attorneys who are associated with the concern.. The specialized departments that interact with environmental components occupy what is normally termed a buffering role. This role requires a series of efforts to arrest environmental uncertainty, so that the technical core does not have to contend with this uncertainty, and can perform its essential operations without interruption from outside parties. The buffering role, then, is designed to increase the probability that the organization will be able to accomplish the vital task of producing goods and services. This could be placed in peril if the technical core has to deal with each party in the environment when that party makes new demands or raises new issues of contention.

The financial department occupies a buffering role by providing the flow of funds that production requires in order to continue its operations smoothly. The personnel department participates by recruiting, selecting, and training production workers that are demanded by the technical core. Purchasing personnel buffer the technical core through the accumulation of supplies that production seeks. Logistics people assist through the accumulation of inventory into large lots and the shipment of finished goods to buyers. The marketing department contributes by locating potential buyers and convincing them to make purchases and by securing additional orders from current customers..

Two specialized methods are engaged in buffering--smoothing and rationing. Smoothing manipulates demand in ways that are beneficial to the organization. In this incidence, management attempts to diminish disruptive and potentially destructive shifts in demands from the environment.

A bicycle shop, for example, stocks skis during winter months, when few bicycles are sold, thereby balancing out the flow of revenues over the year. Movie theaters charge less for early and late afternoon showings than they do for evening showings, in an endeavor to get more viewers into the theater during otherwise slack times. Airlines reduce fees for flight plans that include weekends, since they have more unsold seats then than during week days, when many business travelers are flying. You can see, then, that smoothing allows organizations to use their capacity more efficiently.

Rationing is another buffering technique. Normally its use is restricted to cases where smoothing cannot readily be exercised. Rationing takes place when there is more demand for products and services than the technical core can handle in a reasonable manner. Hence, it may be necessary to ration output to customers. This, of course, will protect the technical core, but may bring about dissatisfaction on the part of the customers who are not served. A fast food chain might advertise that it will give away free toys to children whose parents patronize the restaurants. If one restaurant has 200 toys but 400 children demand one, rationing will be necessitated. One decision rule for rationing is first come first served. Another is to use some kind of a lottery.

In addition to buffering, departments that specialize in interacting with environmental components perform boundary spanning roles. This requires acquiring relevant information about the environment for the use of management, and supplying information to parties in the environment. Essentially, boundary spanners are information brokers--they bring together those who can furnish and those who can use various facts.

Some boundary spanners are engaged in accumulating information for management's use. This is an especially important role for organizations that face extraordinary environmental uncertainty.

Appliance service and repair personnel in a department store, for instance, can supply useful insights to line managers about customer problems with appliances sold by the store. Sales representatives often secure knowledge regarding recent modifications in the strategies of competitors. Engineers and scientists can bring in intelligence about important technological developments. Attorneys can inform management about new laws and legal precedents that may affect the company.

Other boundary spanners convey information to the environment. Public relations personnel attempt to enhance the image of the organization as a good citizen that behaves according to admirable ethical standards. The advertising department is engaged in image building for the organization at large, as well as for generating demand for individual products and services. Company engineers inform vendors about upcoming new equipment needs that may confront them. And lobbyists make legislators aware of legal and political changes that would benefit the organization and other parties.

Boundary spanners are especially important in changing environments. They are quite common and very eminent in industries such as over-the-counter drugs, medical care, and passenger air service.

Differentiation and integration are two additional means of dealing with uncertainty in the environment. Differentiation means the varying thinking and emotional frameworks among members of individual departments. Thus, different departments may subscribe to diverse goals, such as their own departmental goals, goals of the entire organization, or even individual goals of personnel within the department. Further, they may have different time horizons, as where sales executives are more focused on the short run, and engineering managers on the long run. In addition, different departments may vary as to whether they highlight more on productively achieving their mission than they do on satisfying employees.

Generally, differentiation incorporates specialization. Uncertainty in the external environment causes the organization to create very specialized departments to interact with environmental units in their area of specialization. We find then, that marketing personnel have different backgrounds, beliefs, attitudes, values, and goals than those who are in finance. To a large degree, this is beneficial, because specialization is required to deal with the uncertain environment and its demands.

A problem can materialize, however. Because of their varying philosophies and values and the differing segments of the environment that they serve, coordination between the departments may be seriously lacking. This occasions the need for integration, which is collaboration between departments. In turn, collaboration is valuable in preventing levels of conflict that are unacceptable.

Integration involves taking action to reduce the negative effects of differentiation. Integration may be achieved through committees or task forces made up of members of different departments or divisions. Another useful technique is to require that each department inform others about its current activities and problems. Some organizations attempt to achieve integration informally, as by physically situating members of different departments in offices that are near one another or by holding social events attended by different departmental representatives. Some organizations staff positions whose responsibilities are primarily to bring about departmental integration.

The need for differentiation and integration will vary from one organization to another, of course. Those who are faced with substantial environmental uncertainty are especially likely to be receptive to implementing these two processes.

EXAMPLE

A manufacturer of aircraft is faced with a very uncertain environment. This industry, and the fortunes of most of the companies within it, tend to be characterized by feast or famine, where revenues and profits fluctuate considerably from one time period to another. The company must deal with a large number of publics, including governmental agencies--both domestic and foreign, airlines, labor unions, legislators, legal firms, financial institutions, and competitors.

To meet this diversity, management has created a large number of very specialized boundary spanning departments. These include, labor negotiations, legal, research and development, and technical forecasting departments. These departments support the more traditional sales, finance, and personnel departments that are found in most organizations.

SOLUTION

In a consulting firm the technical core consists of those who do the consulting work--the consultants. These personnel create the services that the firm sells--they do the work for which the firm was established to accomplish. If this work was not undertaken, there would be no need for other personnel in the firm.

SOLUTION

A manufacturer sells medical supplies to hospitals, health maintenance organizations, and other

medical service providers. The purchasing, personnel, and logistics departments all might occupy a smoothing role in the organization. They are all involved in acquiring necessary resources so that the technical core does not have to contend with shortages of these resources that would impede production. In this way, these departments can arrest environmental uncertainty.

SOLUTION

A department store is running a sale on winter coats. It has a limited inventory, however, and advertises that it may run out of stock in attempting to serve customers. A first come first served policy is implemented to determine who gets the coats. This is an example of rationing.

It is employed when there is more demand for the coats than the technical core can provide. Of course, this may lead to some hostility among those customers who arrive at the store after all of the coats have been sold.

SOLUTION

The marketing research department of an aluminum producing company is primarily involved in the boundary spanning role of providing information for management. It is the mission of this department to gather, process, and transmit data to managers, so that the latter can make better decisions on such matters as what aluminum products to produce, how to promote these offerings, what transportation media to employ, and what prices to charge.

SOLUTION

The public relations department of an electric utility company is mainly occupied in the boundary spanning role of providing information to the environment. It is the responsibility of these personnel to inform the public at large about the company, its personnel, its services, and other matters that would enhance the image of the enterprise in the eyes of the public. To accomplish this, the department may use such devices as press releases, press conferences, articles in community newspapers, and speeches to various groups.

SOLUTION

The finance and sales department of a book publishing company are often in conflict, on such matters as whether or not a book store customer should obtain credit. This may be caused by differentiation, where members of the two departments have differing goals, time horizons, and philosophies. It is likely that the sales personnel are optimists who believe that credit should be liberally granted to customers. Conversely, finance personnel tend to be more conservative and less inclined to extend credit, at least on the terms favored by the sales force.

SOLUTION

The engineering and purchasing departments of a producer of industrial lathes are often in conflict as to the quality of metal products that the company should buy. This conflict may be overcome by integration. Because of differentiation, the two departments may have quite different views on what metal products to procure. The engineers, for example, may prefer very high quality alloys, whereas purchasing may want lower cost metals. Integration might be accomplished by forming a task force, made up of representatives from both departments, who are charged with the responsibility of arriving at specifications for purchasing.

TOPIC Other Uncertainty Adjustment Measures

TEXTWINDOW

In the previous topic we discussed various means of handling the forces of uncertainty. We mentioned that buffering--smoothing and rationing can have a beneficial role in this process. In addition, boundary spanning was alluded to as a worthwhile mechanism. Finally we brought in the effects of differentiation and integration and went over some of their more far-reaching implications.

There are yet other ways of meeting the challenges imposed by uncertainty and these are covered in this topic. We will look at organization structure, forecasting, planning, and institutional imitation.

The external environment has a strong effect on that organization structure that is deemed to be most appropriate for a particular enterprise Generally, organizations are normally very formalized when the external environment is stable. These are referred to as mechanistic organizations. Conversely, organic organizations are not formalized and are situated in turbulent environments. More specifically, mechanistic organizations have the following properties:

1. Infrequent departure from the chain of command. Communications and orders flow mainly upward to superiors and downwards to subordinates. There is very little direct communication between departments at the same level in the hierarchy.

2. Breakdown of the work into functional departments. Each department, such as finance, handles a group of related activities. Management wants to make the best of specialization by function, in order that employees might be very efficient. Functional departmentation helps operationalize this goal.

3. Extreme specialization of employees. Each manager and operative employee is responsible for only a limited number of tasks. They tend to carry out routine activities in a repetitive manner.

4. Coordination of the work of different departments or employees through a manager who is in charge of these departments or employees. If two departments want to coordinate their work efforts, they do not communicate directly with one another. Rather, they depend upon their superior to handle this responsibility.

5. Detailed job descriptions that specify the exact duties and responsibilities of each employee. Written documents are prepared which set forth the work of every manager and operative worker, in detail.

6. Little communication between employees who are in different departments. Essentially, each department pursues its own interest and is not overly concerned with what is accomplished in others.

7. Close supervision of subordinates by superiors. In these organizations, superiors hold all of the authority and it is their job to make sure that each of their subordinates behaves in strict accordance with the directives of the superior.

8. Numerous rules and regulations. Members of the organization are directed and controlled by a large number of directives, most of which are in writing.

You are already familiar with numerous mechanistic organizations. Good examples are the U.S. army and the U.S. Department of Interior. The bulk of the federal, state, and local governmental units fall into this category.

Organic organizations are quite different from the mechanistic. In fact, they fall at the opposite end of a continuum. They are demarked by:

1. Only moderate pursuit of the chain of command. Orders and communications flow in all directions, not just vertically.

2. Breakdown of the work into larger departments and divisions that may be involved in a variety of functions. Rather than specializing by functions, groupings of workers are assigned to particular products, territories, marketing channels, or other segments.

3. Allowing employees to perform an assortment of activities, rather than a restricted specialty. Workers are able to do numerous things on the job and the work is not highly repetitive.

4. Permitting jobs to be redefined as dictated by the circumstances, rather than specified in detail. The work of individuals may change as the demands imposed by the environment and the goals of the organization are modified.

5. Coordination through interactions by members of different departments, as where marketing and production personnel cooperate in developing new products. These arrangements allow communication between departments, so that coordination at the level where the work is being done is possible.

6. Consultation and cooperation between employees, rather than relying on commands from superiors to subordinates. Managers and operative employees communicate with whatever parties are instrumental to the consummation of their work.

7. Employee motivation to achieve organization goals, rather than personal or departmental goals. In these enterprises, each worker labors for the accomplishment of goals that cross functional lines.

8. Few rules and regulations. These are not greatly needed, as supervision, coordination, and control are achieved through other avenues.

Basically, organic organizations are innovative--they excel at developing new working arrangements, products, services, and ideas. They have an atmosphere of cooperation and shared beliefs and the importance of accomplishing the major institutional goals. This philosophy is very conducive to creativity.

You can see why mechanistic structures might work in stable environments and why organic structures could be more appropriate for turbulent environments. In the latter, employees must react quickly to alterations brought about by outside forces. Further, employees need to work with those in other functional areas, in order to provide a coordinated response to outside pressures. However, in stable environments, these actions are not necessary and the most efficient means of operation is to formalize the actions of every employee. It is possible, then, to fashion the organization in a manner that matches the degree of stability in the environment.

Forecasting is another method for dealing with uncertainty. If the environment is stable, there is less need for this activity, because it can be safely assumed that the future will closely resemble the past. Management can concentrate on making existing operations more effective, rather than worrying about what the future may hold.

In uncertain environments, forecasting may be a necessary activity. If the future demands of the environment can be anticipated, they can be handled in a more competent manner. Realistic forecasting can improve the operation of the organization and assist in protecting the technical core.

Many variables can be forecasted. Sales and marketing personnel are frequently involved in forecasting sales. Engineers and technicians may be able to predict future technological changes. Accountants and engineers can prepare estimates of upcoming costs and cost changes. Financial personnel may work at estimating expected interest rate changes. All of these have a place in reducing uncertainty. As a result of computer modeling and new methods for integrating the judgment of managers and others in forecasts, the accuracy of these techniques has increased considerably.

Plans can be very useful in meeting uncertainty. Essentially, plans are statements of the organization's objectives and means of achieving these objectives. They furnish an avenue for directing and controlling future policies, strategies, and tactics. Planners study the environment and attempt to arrive at decisions that will result in future satisfaction of the demands of the environment. A manufacturer, for instance, may plan to build a new plant, in response to expected advances in sales brought about by an improved sales force. Or, the company may plan a downsizing effort because of cost pressures that are anticipated because of surging raw materials prices. Plans help to reduce uncertainty by bringing the best judgment of management to bear on expected problems and opportunities.

Finally, uncertainty can be abated through a process called institutional imitation. Most of us imitate the behavior of others who are successful. Many how to books are sold because they describe how the author has become wealthy, overcome disease, reduced emotional distress, repaired household appliances, reduced travel expenses, developed a muscular body, or has accomplished some other sought-after feat. Readers of the books often imitate the behavior of the successful author, hoping to achieve the same or at least similar results. In short, imitation of high achievers is a widely-practiced behavior.

Managers who perceive that their organizations are experiencing uncertainty sometimes emulate the behavior of other organizations that seem to be accomplishing their ends, or at least appear to have a high probability of doing so. They are especially likely to imitate others who are in the same industry. They may take on similar strategies, tactics, production techniques, marketing policies, and organization structures.

Copying others is not necessarily a good method to reduce uncertainty. Every organization is different, and what works for one may not work for all. Further, one of the keys to success is standing out from others--being different in important ways. Being different from major competitors is particularly important, as this can furnish a means of attaining competitive advantage. And this is not achieved by imitation. Finally, other organizations do make mistakes in decision making and management certainly will not ameliorate uncertainty by imitating mistakes.

EXAMPLE

A research laboratory which is an arm of a camera and film producer is essentially an organic organization. The employees are engineers, scientists, and technicians, most of whom have Ph.D.'s. The lab is headed by a manager, but he acts more as a coordinator and a colleague to the other employees than as a boss. Each employee is involved in a variety of activities and often interrupts his or her own projects to assist others in pursuing theirs. Sometimes employees work alone on a project and at other times they cooperate in informal groups. There is no formal dress code, and, in fact, jeans and athletic shoes are the norm. Sometimes employees will labor long after work hours, just because they are highly motivated to getting a task accomplished. Morale is high in the lab and its members display remarkable esprit de corps.

SOLUTION

A company develops and produced prepackaged software for supply chain management. Its organization is mechanistic. This means that it has close supervision of subordinates by superiors. This mechanistic unit is very formalized. It is most common in cases where the environment is stable. Superiors will issue orders to subordinates and then moniter their behavior, in an attempt to ensure that the work is carried out in the specified fashion.

SOLUTION

An engineering consulting firm specializes in providing advice to clients on energy-saving production processes. Its organization is organic. It is characterized by only moderate pursuit of the chain of command. Such an organization is not formalized and is found in unstable environments. There is considerable horizontal (between departments) communications, as employees depend on those who are neither their subordinates nor their superiors, in order to get the work done.

SOLUTION

A legal firm has an organic structure. It is likely to be characterized as being creative. The organization is loose, has an atmosphere of shared beliefs, and is committed to achieving major goals of the firm. There are few fixed rules or procedures and cooperation is high. All of these arrangements promote a creative atmosphere, where individuals feel free to experiment and to try novel ideas and techniques.

SOLUTION

A mutual fund company is most likely to find forecasting to be a valuable method of reducing uncertainty if the environment is unstable. This means that we can expect considerable and rapid change in the environment in the future and past decisions made by the mutual fund company may no longer be valid. Realistic forecasting can improve the operation of the company and assist in protecting the technical core.

SOLUTION

A company that makes test equipment for wireless communication uses planning to reduce

uncertainty. Plans can be beneficial when they produce decisions that will result in future satisfaction of the demands of the environment. It can be expected that the demands of the environment will be subject to transition, especially in unstable environments. This will make decision making increasingly complex. By using the judgment of management, it may be possible to arrive at well-conceived means of meeting these changing demands.

SOLUTION

Management of a nursing home employs institutional imitation to reduce uncertainty. It is most likely to imitate others who are in the same industry. They may take on similar strategies, tactics, production techniques, marketing policies, and organization structures. Firms that are in the same industry will arrive at decisions that appear to be uniquely situated to the environment of that industry. Hence they are more likely to be imitated. Further, most companies are more familiar with firms in their own industry than those which are in other industries. This also is likely to result in imitation.

SOLUTION

A water heater wholesaler employs institutional imitation. A possible disadvantage of this is that the company will not stand out from other companies. One of the keys to success can consist of being different from other organizations, especially competitors, in important ways. This is not achieved by imitation. In fact, imitation works in the opposite direction. Institutional imitation may render the organization a me too entity.

TOPIC Dependence and Controlling Resources

TEXTWINDOW

Earlier topics have covered how organizations react to uncertainty. At this point we will peruse a quite different aspect of dealing with the environment. Specifically, we will take a look at the acquisition of resources from the environment. This is a task that every organization must do, it is to be profitable.

Environmental dependence refers to the fact that organizations must rely on the environment for resources. Without labor, funds, supplies, technology, and other resources, the organization will quickly cease to exist. Further, if these resources are inferior or inadequate, the organization may still manage to survive but operate at a reduced plane of achievement. Some high-tech firms, for instance, have discovered that skilled labor is in short supply, particularly in certain regions of the country and in some foreign lands. If these companies take the risk of hiring individuals who lack the necessary education and training required for the job, they endanger their technical core. This is a very high risk to assume.

No organization is free from environmental dependence. Manufacturers, wholesalers, retailers, service firms, advertising agencies, mutual funds, and others must all deal with this force. And dependence is not restricted to business firms. Governmental agencies, charities, environmental groups, consumer associations, and the like are also equally affected.

While some dependence is normal, too much can pose difficulties. Every organization wants as much autonomy as it can achieve. Hence, management sometimes enters into strategies designed to mitigate the influence of dependence.

There are two major ways in which organizations can overcome problems associated with environmental dependence. One is to attempt to alter the environment. Another is to establish relationships with other organizations. We will deal with each of these, in turn.

One route to altering the environment is to engage in public relations, publicity, advertising, and other communications campaigns to modify public attitudes, values, and beliefs. This can have an impact on the cultural, governmental, and consumer segments of the environment. Some of this activity is directed toward convincing the public that government regulation is harmful to citizens, as it restricts their activity and weakens businesses, thereby lowering the standard of living. Communications campaigns can be employed to convince individuals to engage in socially responsible behavior, such as recycling aluminum cans and paper, avoiding litter, not wasting nonrenewable resources, and limiting family size. These campaigns can also be put into place to enhance the image of the organization, as a beneficial contributor to society and some of its more unfortunate segments..

Another method for transforming the environment is through lobbying. Organizations employ lobbyists to present their views on proposed legislation to legislators and members of the executive and administrative arms of the government. When major legislation is forthcoming, top managers may carry the persuasive messages, believing that they have more clout than the lobbyists which they retain. This is not always the case, however, as there are paid lobbyists who are held in high esteem by legislators because of their past achievement in government, business, and other high offices.

Lobbyists may endeavor to prevent the passage of undesired laws. Or they may attempt to convince legislators to fund particular projects, such as construction of a new type of air force

jet fighter that the organization hopes to produce. In other cases, attempts are made to prevent the appointment of persons with views that run counter to organizational interests to influential governmental posts. Or the objective may be to persuade lawmakers to stimulate particular areas of the economy or geographic areas where the organization operates. Large hotels, amusement parks, cities, and other entities that profit from foreign tourism may encourage the promotion of the hospitality industry in other countries.

The environment can also be controlled by switching to a new environment. Each company exists in a particular setting characterized by cultural, government, economic, consumer, competitive, labor, supply, financial institution, and technological components. It may be possible to escape a hostile environment and move into one that is more compatible with the interests of the organization. A new supply of labor, set of target consumers, or source of funds, may be found, for instance, that is more friendly than those encountered in the past.

A company that has relied mainly on debt financing in the past and is heavily leveraged, for instance, may now opt for financing internally, through retained earnings, or by issuing more stock. A firm that was unsuccessful in hiring skilled craftspeople may begin a program of hiring the unskilled and training them. An enterprise that used to manufacture weapons for the government may shift its emphasis to producing consumer goods, as defense expenditures decline. A company that once purchased raw materials from one part of the country may begin acquiring these from other regions, as a result of steep price advances or transportation limitations in the former.

An alternative way to transform the environment is aggression--attack of environmental elements that pose competitive threats, in an attempt to eliminate or at least weaken them. A company can expand its sales force, introduce new products or packaging, sponsor a major advertising campaign, slash prices, in an attempt to eliminate or injure a competitor. It can challenge the legitimacy of a labor union as a representative of the work force, in court. It can stop buying from a supplier or terminate a past practice of borrowing from a bank, and shift to alternative sources of materials and funds. Other alternatives are to abandon an unprofitable group of consumers or move away from a state or municipality that is perceived as presenting an unfriendly business climate.

There are disadvantages to attack as a strategy. Certainly, one is that the organization's moves may receive negative publicity in the media. Further, some aggressive measures are unlawful and, if pursued, will result in prosecution by the government and/or lawsuits by competitors.. The main problem with aggression, of course, is that the aggrieved party may fight back with countermeasures, which may serve to damage the organization. Trying to injure a competitor with lower prices, for instance, can bring about a price war that harms all of the members of the industry.

Sometimes, none of the measures for controlling the environment have promise.. In this case, the organization can assume a different posture, and form relationships with other organizations in order to deal with environmental dependence. These relationships are designed to provide some degree of assurance that resources will flow from the environment to the organization. But, there is a catch. When the organization forms a relationship this reduces its ability to make decisions in an unconstrained manner--the other organization in the relationship now have some power over these decisions. When a bank loans large amounts to a business, for instance, it may demand that it has some authority over who is placed on the board of directors of a company. When a labor union agrees to a no strike clause, it normally will ask for concessions, such as an agreement not to downsize or to move the plant to a foreign location.

How can an organization form relationships with other organizations without giving up too much of its own freedom to make decisions and to change strategies and tactics? This can be a difficult balancing act. One alternative is to enter into negotiated agreements that are favorable to the organization. Management may assent to a legal agreement (called a consent decree) with the government to stop certain practices, provided that the government agrees not to prosecute for possible violations of the law. A manufacturer may furnish an allowance to share its technology with another company, in exchange for valuable assets, such as use of a computerized information system. In these cases, the organization is losing some autonomy, but is gaining resources and other valuable assets, on the other side of the equation.

Another possible course of action is to enter into strategic alliances. These are agreements among two or more organizations to cooperate, on a long run basis, in carrying out a profit seeking objective. Often, each of the organizations specializes in certain activities. One firm may be willing to produce a product, another to supply technological backup, another to produce components, and another to furnish a sales force.

Through cooperation, the firms act in much the same manner as if they were parts of the same company. Together they work as a unit in accomplishing a common goal. Each gives up some authority when they enter the alliance, but also gain resources. When companies form alliances such as these (and sometimes much looser agreements to provide service) with customers such as wholesalers and retailers, they are sometimes called relationship marketing arrangements.

Another way to obtain resources and still retain managerial freedom is to buy another company. A manufacturer may purchase a subassembly plant that originally was an independent supplier. A supermarket chain can acquire a cannery to supply it with an assured supply of high-quality canned fruits and vegetables. A producer of video-cassettes might purchase retail video- cassette rental stores, in order to insure that it will have adequate distribution. In these cases, the organization acquires a source of resources in the most direct manner--by buying the providers of these resources.

Finally, an organization can improve its standing through personnel policies. It can hire retired executives and other personnel who once worked for other organizations in the environment. A retired senior executive of a customer company, for instance, may be hired by a manufacturer. This individual is likely to have important contacts with the former employer and in the industry that can be invaluable. It is possible also, to place currently-employed or retired employees of other organizations on the board of directors. This achieves about the same results as hiring them as employees.

Each firm must decide which (or what combination) of the strategies mentioned above will function best for it in supplying resources without giving up undue amounts of freedom. Environments change over time, of course, and this may require different strategies with the passage of time.

EXAMPLE

A manufacturer of hearing aids and assistive devices recently experienced a devastating strike. Both the union and management were at each other's throat, with neither side willing to compromise. Management wanted to downsize and reduce wages, and proclaimed that this would be necessary if the company was to stay in business. The union, with the concurrence of most of the work force, disputed the claims of management, and a stormy strike followed, complete with picketing and the harassment of some workers who fought their way through the picket lines. This event received wide coverage in the media, where the company was generally postured as the villain. The company feared that its image was being seriously tarnished.

To counteract this negative coverage, the company entered into an image campaign, designed to convince the public that it pursued high ethics, treated its workers fairly, and was an asset to the community. Advertisements were taken out in several newspapers, outlining the company position. Numerous press releases were given to the media, in the hope that these would influence editorial policy. Press conferences were also held with a select group of reporters who had treated the company positively in their writings. The outcome of this effort was a much improved public image. The campaign had succeeded in telling the company side of the story and in influencing a very important environmental group--the public at large.

SOLUTION

A company produces liquid oxygen for sale to medical supply houses. One way in which it might alter the environment is to engage in communications campaigns to alter public attitudes, values, and beliefs. The firm can employ public relations, publicity, advertising, and other communications devices to accomplish this goal. The public is a very critical element of the environment and it exerts abundant influence on other elements, such as government. Realizing this, companies often use communication to the public as a major environmental change tool.

SOLUTION

One of the main reasons why a home nursing association might employ lobbying is to persuade lawmakers to allocate more funds to health insurance. The government is an important environmental element for members of the medical profession. If more funds are available for health insurance this is likely to drive up demand for home nurses and improve their employment status--resulting in more jobs and higher wages.

SOLUTION

A publishing house that specializes in mystery books can switch to a new environment by stopping production of mystery books and inaugurating the publication of religious books. In this case, the publishing house has dropped an older environmental element--readers of mystery books, and has obtained a new one--readers of religious books.

SOLUTION

A company that specializes in analyzing and predicting the course of technological change can transform the environment through aggression. An example is cutting prices below costs. This can severely injure competitors, perhaps driving them out of business, or at least cutting into their profits and market share and leaving them weaker. This can be a very effective way of changing the environment.

SOLUTION

If a linoleum producer forms relationships with its retail customers, a possible disadvantage is it may reduce its ability to make decisions in an unconstrained manner. The company will obtain some control over the environment because of the relationships. But the suppliers will insist upon gaining some power. They may, for instance, insist on the right to have exclusive distributorships, so that the linoleum producer is not allowed to use other retailers in distributing its products.

SOLUTION

A producer of ornamental iron works can form relationships with suppliers without giving up too much of its freedom to make decisions by entering into negotiated agreements that are favorable to the organization. The negotiated agreements may provide favorable terms of sale, low prices, reliable delivery, or other advantages to the iron works distributor. This will allow it to obtain resources and still gain important advantages.

SOLUTION

When a food processing company hires an ex-manager from a retail grocery chain, this may allow it to gain resources and still not unduly damage its freedom. One reason for this is the ex-manager may have important contacts with the former employer. Hence, this may make cooperative efforts with the retailer much easier. The ex-manager may be able to pave the way for or personally negotiate agreements with customers that are favorable to the food processing company, for instance.

TOPIC Properties Of Organizations

TEXTWINDOW

If we are to comprehend organizations and how they do and should operate, we are well-advised to have some idea of the major properties that they may hold. The properties are various traits that organizations may possess, either to a large or to a moderate degree. If we know the properties of an organization, we are able to describe and measure it, and even to proscribe steps that management can take to improve its performance. Organization theorists usually break down the properties into those that are structural and those that are contextual.

AStructural Aproperties are those that tell us important aspects of the internal traits of an organization. Examples are how complex the organization is and the degree to which its activities are specialized. Conversely, contextual properties tell us something about the entire unit, including its goals and environment. Essentially, these properties provide insights on the conditions that affect the structural properties.

There is a large quantity of structural properties. Those which we will examine are standardization, specialization, formalization, centralization, complexity, hierarchy of authority, and professionalism.

Standardization refers to the degree to which certain jobs are carried out in the same fashion. Assembly line work, for instance, is highly standardized. Each individual (or robot in some cases) performs the same actions in mounting a transmission into a particular car model. Telemarketers dispense the same script to all of their employees who will be calling prospects and attempting to sell them a good or service. Conversely, the actions of partners in a law firm are not standardized. Each attorney approaches cases in the manner than works best for him or her and this approach is likely to differ from that employed by others.

Specialization means the extent to which the work of the organization is generalized for individual employees. In the case of low specialization, individuals are responsible for a large variety of activities. In a small wholesale company that sells heating and cooling equipment, for instance, one person may take inventory, do the bookkeeping, and clean the sales area. Conversely, with highly specialized jobs, individuals are responsible for only one or a few activities. A quality control worker, whose only job is to measure the tensile strength of ball bearings, is very specialized. Generally, specialization is greater in larger than in smaller organizations.

Formalization means the degree to which the work of the organization is prescribed by rules. Small companies tend to be informal and have few rules. However, in some enterprises, virtually every activity is regulated by some stipulated policy or procedure. This is the case in many governmental organizations, where individual employees have virtually no discretion in selecting the proper actions to take when certain jobs must be done. Formalization is, of course, very high in military organizations.

Centralization indicates the level in the organization where decisions are made. Some institutions are highly decentralized. Top management has decided that the people closest to the work should determine what should be done, and so it delegates authority to lower level managers. Normally, authority for some activities, such as determining what products to offer, is not delegated, however. In the case of a centralized organization, top management retains most of the authority and does not delegate to subordinates. Centralization is common in medium and small size firms, where the top managers desire rigid control over the organization.

Complexity is a measure of the number and variety of subsystems in existence. An organization can be vertically, horizontally or spatially complex. A vertically complex organization has a large number of levels, as is illustrated below.

This organization is vertically complex because there are a number of levels (four in this case) below the top manager.

A horizontally complex organization is a wide one. There are a number of different departments in the organization at any given level. An example is provided below:

Finally, spacial complexity refers to the number of sites where organization units are located. Large multinational organizations, such as those in the automobile manufacturing and soft drink industries are characterized by this property.

Hierarchy of authority is a structural property that signifies what subordinates are responsible to each superior. We can identify a number of vertical lines on the organization chart. In each case,

a superior is at the top of the line and one or more subordinates at the bottom. Some vertically complex and highly centralized organizations have long hierarchies, as exemplified by numerous medium-sized firms in the industrial electronics components industry.

Professionalism consists of the degree to which the members of an organization are educated and trained. Some organizations possess very high levels of this property. Examples are consulting

companies, CPA firms, and legal firms. At the other end of the scale, with lower levels of professionalism are construction companies and short-haul truck transit companies.

Thus far we have been examining structural properties--those which provide us with indications of how the organization is arranged. Now let us turn to contextual properties which furnish means of insight on the entire organization, and not just its inner workings. These properties are organization goals, technology, size, and the environment.

Organization goals are an important contextual property. Goals set forth the targets toward which the unit is striving. These furnish direction and a means of coordinating all of the activities undertaken by the various divisions, departments, and other units. Most organizations possess a hierarchy of goals, ranging from the more fundamental and general top level, down to more specific and short run subordinate goals. There are, of course, major differences in goals from one organization to another, even within the same industry.

Technology consists of the methods and materials and body of knowledge where science is applied to achieve organization objectives. Basically, technology is administered to the activities where employees obtain inputs from the environment and process them in such a way that they become valuable outputs to other organizations and individuals. The activities of medical laboratories, production plants, and advertising agencies are all examples of different technologies.

People sometimes assume that only high-tech companies have technology. This is not the case. Every enterprise has technology.

Size is a gauge of the expanse or extent of an organization. It is often reflected in the number of employees, revenues, or value of the unit's assets. Since our focus is on organization theory, we are mainly concerned with people. Hence, our emphasis will be upon the number of employees as an indicator of size. This variable, of course, displays considerable differentiation, as organizations range from one person units to those employing millions.

The environment incorporates of all of the entities that fall outside of the unit's boundaries. Some important ingredients of the environment are government, the media, suppliers, unions,

and banks. One of the keys to survival of an organization is to adapt appropriately to the more important components of the environment.

These structural and contextual properties are all held to some major or minor degree by every organization. They can be employed as tools to study, describe, evaluate, and suggest improvements for particular organizations. Further, we can compare two or more organizations, according to the degree to which they possess the structural properties and gain insights as to which organization structures are optimal for certain kinds of industries and companies.

EXAMPLE

A producer of dairy products is formalized. Virtually every action that managers and operative workers take is prescribed by rules. For example, there are very exacting rules that apply when it comes to making decisions.

If managers want to take a certain course of action, such as changing an advertising theme for a product, the rules require that the managers write a detailed memorandum to their superiors, carefully laying out the suggested change. In addition, the managers are required to notify their subordinates of the plan. Both the superior and subordinates review the proposed action, and write memorandums to the manager, explaining why or why not they agree to the action. If everyone agrees, it is adopted. If they do not, a new round of memorandums is initiated until a decision is finally reached.

Needless to say, this is a slow process that can hinder company efforts to react quickly to environmental change. Top management, however, is very conservative and wants consensus to be reached, rather than individual action, before new ideas are implemented.

SOLUTION

A company produces power amplifiers for cellular phones. The structural properties of this firm include its formalization. Structural properties are those that tell us important aspects of the internal traits of an organization. The extent to which a firm is formalized is such an internal aspect. It can have a major impact upon the profitability of the enterprise.

SOLUTION

The work of all of the tellers in a bank is carried out in about the same fashion. This means that the work is standardized. Each teller performs about the same actions in receiving deposits, cashing checks, selling traveler's checks, and other duties. Training programs provide instruction to the tellers as to exactly how these and other tasks should be undertaken.

SOLUTION

A U.S. company produces and distributes computers in Argentina. For many of the production jobs, employees are responsible for only one or a few activities. The jobs are specialized. This means that organization activities are not highly generalized. They work at only a limited number of tasks. Specialization may allow them to become highly efficient.

SOLUTION

In a chain of pizza restaurants, the work of most employees is prescribed by rules. The organization is highly formalized. Most activities undertaken by employees are regulated by some required policy or procedure. The rules insure conformity and avoidance of individual discretion in deciding how to perform.

SOLUTION

In a consumer finance company, top management has decided that the people closest to the work should determine what should be done. The organization is decentralized. Considerable authority has been delegated to lower level managers. This will allow them to react to the environment and

to make decisions rapidly and appropriately for their individual responsibilities.

SOLUTION

A company produces simulation systems for small-arms training. The staff include a president, three managers, and 25 employees. This company appears to be not vertically complex. There are only three levels of employees in the organization. It is not horizontally complex, because there are few departments ands is not spatially complex because it is situated in only one geographic

location.

SOLUTION

In applying organization theory to an automobile and truck producer, the most appropriate measure of size would be number of employees. The focus of organization theory is on people.

This means that number of employees is a meaningful gauge of size, since it tells us how many of these people there are.

TOPIC Introduction To Goals

TEXTWINDOW

Organizations are not created for their own sake, as you are probably aware. Rather, they exist so that one or more goals can be realized. In turn, the starting point for analyzing virtually every aspect of organizations is to examine the major goals which are driving the various departments and personnel. At this point, we will begin our examination of these targets.

Certain activities which every organization must undertake have a major effect on what the goals will be. The activities consist of:

1. Accumulating resources.

2. Processing inputs into outputs at a low cost.

3. Providing outputs that fill the needs of the environment.

4. Administering the organization effectively.

5. Reinvesting earnings.

6. Adapting to cultural norms.

7. Fulfilling needs of various interest groups.

An eminent goal for any enterprise is to accumulate resources. Management should procure the funds, personnel, capital, and other resources that are necessary to form the organization and allow it to continue in existence. One of the major reasons why companies fail is that they lack these assets, particularly funds.

When the resources are in place, they must be processed into outputs without undue expenditures of funds. Otherwise the organization will be inefficient. In other words, means must be found to deploy the resources so that they are productive and are not wasted. Inefficiency means high costs, which can lead to narrow profit margins or necessitate elevated prices that are not competitive with those of rivals.

Not just any outputs are acceptable, but only those that fill the needs of the environment. There is no point in manufacturing goods that customers will not buy or that the government will outlaw because they are unsafe. Management must moniter the environment, to the end of determining that the outputs will result in the satisfaction of environmental members.

Management must administer the organization effectively--plan, organize, control, direct, and staff in such a manner that the unit is coordinated and is productive. This is the unique role of management. It is the central element that unites the various parts of the unit and moves it toward desirable targets. If management is inept, most of the activities listed above and below will be doomed to failure.

Some of the earnings acquired by the enterprise need to be saved and plowed back into the organization to provide for further growth. Enterprises that do not grow lack vitality and are often characterized by low morale and dissatisfaction on the part of employees and other members. But growth does not flow automatically. Provision for this phenomenon must be made by reinvesting funds and other assets in the resource stockpile, so that future needs can be met.

Also, management must direct the unit in such a way that it fulfills the norms of society, including laws and codes of conduct. Sometimes enterprises are able to survive for a period of time by ignoring these. In the long run, however, this is improbable. Society will not long permit companies that neglect its norms to remain in existence.

Finally, it is necessary to take steps designed to furnish satisfaction to important organization members, such as employees, stockholders, and management. These members associate themselves with the organization in order to attain certain rewards. If these are not forthcoming, they will terminate their association, or, if they continue to work for it, will do so in an unmotivated and often ineffective manner.

Since all of these activities are necessary, they should be incorporated into the organization goals. Another important determinant of the primary directions the goals should take is their time orientation.

Goals can be long run, intermediate, and short run. In the long run, survival is the ultimate goal. This, however, is too general to serve as much of a guide for managerial decision making. For this purpose, intermediate and short run goals are of the greatest value.

Among the more important intermediate goals are development and adjusting to the environment. Development means improving the ability of the organization to live on and to grow. In order to develop, the institution can take steps such as assisting managers to get advanced degrees, designing and implementing training programs for employees, conducting basic research, and buying fixed assets. Adjusting to the environment means changing the organization, when necessary, when parts of the environment alter their course. For example, as the baby boom generation matures, makers of over-the-counter drugs are selling fewer headache and more arthritis pain remedies.

Three short run goals are fulfillment of needs, efficiency, and production. Every organization must supply these, as they are basic requirements. The members of the organization and the important environmental elements must have their expectations fulfilled by the organization. Employees want equitable compensation, working conditions, and organization climate. Stockholders look for a suitable return on investment and cash flow. Customers require products that meet their desires and allow them to overcome problems. Each party has specific requirements that they seek to gratify.

Efficiency is another important short run goal. It means attempting to maximize outputs relative to inputs. Machines are efficient if they do not require very large inputs of resources from the environment, but are able to provide high output magnitudes.. Companies are efficient if they are able to sell their products and services at levels where revenues substantially exceed expenses. Some large discount stores excel at this, and are able to out-maneuver other kinds of stores. They buy in large quantities, have efficient distribution systems, motivate their employees to be productive, and are very skilled at merchandising and promotion. As a result, their profit and cash flow positions are very robust.

Production means the capability of the unit to generate the amount of output that is demanded by the environment. For mass-produced goods, such as soft-drinks, the production goals must be quite high if the organization is to be successful. Conversely, for very expensive items, such as luxury cabin-cruisers, production goals may be relatively modest.

Those who are responsible for creating and administering the organization should keep these goals foremost in their minds, while they are going about their work. In this regard, organization structures that do not support the goals should be modified or replaced. The structures do not exist for their own sake, but as a means to an end.

In most organizations there are many, rather than just one goal. This is because there is a multitude of groups (called stakeholders) who have just reasons for expecting satisfactions from the organization. Each group of stakeholders believes that the organization will supply a reasonable measure of satisfaction to them.

The major stakeholders and some of their expected goals are set forth below. Individual organizations, of course, will have unique groupings of these entities. In one organization, certain stakeholders may be much more influential than others. In another organization, a quite different pattern may emerge. Creditors and unions are critical for railroads. The government and the community are extremely important for the producers of cigarettes.

Major Stakeholders and Some of their Expected Goals

1. Customers: Product quality, reasonable price, convenient distribution, product service, warranties and guarantees.

2. Employees: Reasonable financial compensation, acceptable working conditions, treatment as an individual.

3. Stockholders: Return on investment, asset growth, reasonable dividends, voting rights, ability to vote for board of director members.

4. Suppliers: Prompt payment of bills, consistent flow of orders, professional respect.

5. Creditors: Reimbursement of principal and interest, provision of collateral, sometimes participation in managerial decision-making.

6. Unions: Recognition as the representative of the employees. Treatment of representatives in a professional manner.

7. Government: Compliance with laws, payment of taxes.

8. Competitors: Treatment by the organization in a professional and ethical manner.

9. Community: Participation in community activities. Volunteer service in charitable organizations, employment in well-paying jobs, ecologically-responsible treatment of the physical environment.

10. Public at large: Ethical practices on the part of management and other employees, assistance in improving the standard of living of citizens, assistance to charitable causes.

It can be seen that the different stakeholders have unique expectations. It is up to management to furnish a balanced approach and to attempt to reasonably achieve those for each group. This can be a difficult task and necessitate compromise and negotiation. The next topic deals with methods for handling conflicting goals.

EXAMPLE

An entrepreneur has developed a unique duck blind. It is light-weight, collapsible, and can easily be transported in the trunk of a car. When in place, its color and texture provide good camouflage. The blind supplies shelter from wind, rain, snow, and cold. Hunters look out through small holes and, when they see ducks, can press a lever which will release a spring, throwing the blind to one side so that it does not interfere with the gunfire.

The entrepreneur has what looks like a salable product. But sporting goods, hardware, and discount stores will not buy it from him, because they purchase either directly from established manufacturers or from wholesalers. And these manufacturers or wholesalers are not interested in buying directly from the entrepreneur or purchasing his invention. He lacks an important resource--access to the market. He has failed in reaching the goal of making contact with this environmental element. As a result, the business is not getting off the ground.

SOLUTION

In order to continue in existence, a greenhouse equipment and supply wholesaler must acquire personnel, capital, and funds resources. All of these are essential for the operation of the organization. Personnel are required to manage the organization and provide the labor. Capital is needed for production and distribution operations. Funds must be available to obtain other resources.

SOLUTION

Management of a retail lamp shade store has survival as its ultimate goal. This is the goal to which all others relate. It is a long-run target, of course, and normally is too general to serve as a guide for most organization decision making.

SOLUTION

A mailing list service has development as a goal. This means that it is striving for improving the ability of the firm to survive and grow. In developing, the firm will take steps such as assisting managers to get advanced degrees, conducting training programs, and buying fixed assets. It is oriented toward the future.

SOLUTION

An important short run goal for a firm that sells local telecommunications services is fulfillment of needs. The members of the firm and the important environmental elements must have their needs satisfied by the company. Employees want favorable wages and fringe benefits, good working conditions, treatment as an individual, and other benefits. Stockholders want such things as a suitable return on investment and cash flow. Each party has specific needs that they seek to satisfy.

SOLUTION

Efficiency is an important short run goal for a lumber yard. This means that the company attempts to maximize outputs relative to inputs. It attempts to sell company products at levels where revenues substantially exceed expenses. If the lumber yard is cost-conscious and does a good job of marketing, it may be able to achieve substantial levels of efficiency.

SOLUTION

For a producer of liquid oxygen, the short run goal of production means the capacity to create the amount of output that is demanded by the environment. If there is considerable demand for this product, as in an area where many people are bothered by breathing ailments, this may require the creation of a large volume of product.

TOPIC Resolving Conflicting Goals

TEXTWINDOW

The goals of two or more of an organization's stakeholders are very frequently in conflict with one another. Each group feels that its goals are of paramount importance and should be given high priority. Others may disagree and even cast doubt on the legitimacy of goals that contend with their own. Employees, for instance, may believe that the organization is obligated to provide them with high wages and corollary fringe benefits. Stockholders, on the other hand, may hold that efforts to cut costs, as by lowering wages, reducing overtime, or laying off workers are in order. Their goal may be to maximize the market value or the income arising from their stock holdings.

Different functional departments within the organization also are subject to conflicting goal preferences. Production personnel may be committed to maximizing profits over the long run. Conversely, sales personnel may favor the idea of attaining large market shares in the principal industries served by the firm.. But market share usually must be bought in some way, such as by cutting prices or spending more on advertising, and these tactics may not be compatible with profit maximization.

Seldom are major goals formulated by only one individual. In most cases this is the work of at least several executives, often from different functional areas. When there is conflict between two or more goals the group is obligated to arrive at decisions that will cut through the conflict and lead to a reasonable consensus of opinions. This is not an easy task. Frequently it is very time consuming and can generate even more conflict, as each member of the goal development group fights for his or her personal preferences and defends the home turf.

There are a number of ways of resolving conflicting goals. These include problem solving, approach resolution, bargaining, sequential attention, politicking, satisficing, and priority determination. Let's examine each of these and envision what its contribution might be..

Problem solving is a technique that can be of assistance when the goal formulators are unable to agree because they lack knowledge as to the state of the environment. Members of the finance department may have serious doubts regarding the goal of the marketing department of bringing out several novel and untried products while existing products seem to be profitable.. It could be that the finance personnel members are not aware that a major competitor is about to introduce a line of attractive new models. If they were so aware, they probably would accept the marketing department goal of expanding the product line.

This lack of information may cause serious conflict between marketing and finance. In the case of problem solving, the decision makers search for and acquire information that will allow them to set goals that are based upon facts. Often, when all the facts are known, it is not difficult to develop a consensus.

When approach resolution is deployed, the decision makers cannot agree on the approach to which the goals are oriented. Some may favor the comparative approach, where the goals are set as comparisons against something else. Goals such as increase sales by ten percent over last year or earn a larger share of market than company X are examples of these. A different approach is to try to fulfill the goals of the most significant shareholders. Management might attempt to maximize the benefits to employees and customers, for instance, and to pay little heed to the others.

Approach resolution requires that the decision makers exchange points of view and come to agreement as to the approach that would best serve the organization interests. In a very competitive industry, for instance, the comparative approach may be superior, as it will facilitate comparing the achievements of the organization with those of some of the larger and more aggressive competitors. On the other hand, the most significant stakeholder at a given time may be the investment manager of a pension fund, who is considering selling a large volume of the organization's stock, driving its price down. If this is the case, the decision makers may set goals that are likely to placate the pension fund manager, because they feel that it is very important to maintain the price of the company shares.

There are occasions where a member of the organization or a stakeholder is committed to a particular approach and will be able to persuade others to accept his or her view. Some individuals are powerful persuaders and are able to influence others by effectively selling their beliefs.

At times, managers have very different goals in mind and bargaining is the most promising avenue for resolving the conflict. Bargaining is an attempt to satisfy parties with differing desires through give and take interactions. Often the superior course of action is through concessions, as where one party gives up various points in exchange for favorable adjustments on the part of the opposing party. Stockholders may be willing to give up a dividend, for instance, in exchange for a management promise to commit more funds to research and development or to implement a cost-cutting drive.

Another outcome of bargaining is the formation and operation of coalitions These consist of temporary alliances among groups of individuals who have similar goals. Coalitions evolve as individuals and groups attempt to promote their own interests and find that there are others who share these interests.. In turn, coalitions may attempt to advance their own specific objectives and endeavor to exert power over other coalitions. Often they are made up of individuals with similar educational backgrounds, training, experience, communication styles, personal values, age, and other shared traits . The coalition may have sufficient power to propose goals which others will readily accept. Or, it may be necessary for several coalitions to bargain with one another.

Coalitions may be horizontal, as where individuals in the finance, personnel, and accounting departments form an alliance. Or they may be vertical, including stockholders, middle management, and operative employees. There may be a dominant coalition, which has considerable power and is able to impose its will over other organization members and coalitions.

Another possible strategy for bringing about conflict settlement is to engage in sequential attention. In this instance, the decision-making managers concentrate first on the more critical goals and then, once these have been reasonably attained, later turn their attention to those that are different and less urgent. This posture allows management to productively accomplish one pressing goal before moving on to another. This can be far superior to attempting to reach a number of goals at one time and never really making much progress toward any one.

Sometimes a goal is of paramount importance and must be achieved before others are addressed. If there is a danger that the organization may become insolvent without an immediate infusion of cash, for instance, achieving cash may become the paramount goal. Once this is taken care of, management can move on to other targets.

Politicking is a technique that can be utilized for resolving two or more goals that seem to be incompatible. This is most likely to be practical when personalities become involved in addressing goals, as where two or more managers dislike one another and this carries over into the goal resolution process. This interpersonal conflict can make reaching consensus very difficult and time consuming. Normally the best approach to take when politicking surfaces is to point out the overall importance of goal setting and the fact that personalities should not be allowed to interfere with this process. Top management may be the best source of such a proclamation, because it will have considerable weight.

Another technique is termed satisficing. Managers do not always try to maximize sales, share of market, return on invested capital, profits or other variables, but in fact sometimes satisfice these variables. Rather than attempting to maximize, they establish a target level of acceptable results and, once this has been realized, do not aggressively attempt to exceed this level. If the organization is willing to have satisfactory achievement of several goals, it may be possible to avoid conflict resolution, whereas this would be impossible if maximizing was attempted for each goal. It may be possible, for instance, to achieve both a satisfactory market share and a satisfactory profit level.

The last method of resolving conflicting goals is priority determination. When this strategy is activated, top management deliberates, calculates the importance of each goal, and communicates this preference to the decision makers. The goals which have the most priority will be given the first attention and most emphasis. After the top priority goals have been reasonably achieved, management will move on to those which have a lesser evaluation. This method is closely related to sequential attention, except that in priority determination, top management sets the priorities.

Sometimes it is vital that those executives who are in the upper levels of the hierarchy assume this role. The goal resolution function may have been characterized by widely-different opinions, argumentation, personality clashes, and failure to communicate. This can bring the work to a halt and block any semblance of progress. When a breakdown on this magnitude occurs, top management may be the only parties who can successfully intercede and get the group back on track. And a priority determination strategy may be the best way for these executives to bring about acceptable results. If they do not step in and re-orient the group, the process may continue on for a long time period, without any evidence or hope of progress.

EXAMPLE

A manufacturer of toys is engaged in goal conflict with several of its suppliers. This company has inaugurated a program where each supplier is evaluated once a year and a decision is made as to whether or not to continue doing business with it. The toy company management believes that this will induce the suppliers to keep their prices in line, their product quality high, and their services competitive. These are all important goals.

On the other hand, the suppliers have goals that conflict with those of the toy company. They seek long run relationships with customers, where the two parties would work together as partners over a period of years and forge lasting cooperative strategies. By acting as partners they would form strategic alliances that would benefit both parties. But the new supplier evaluation program of the manufacturer is not compatible with such an arrangement. It is up to the managers of the firms involved to find a way of dealing with this conflict.

SOLUTION

A magazine publishing company can use problem solving to resolve a dispute between the production and the legal departments by providing the departments with knowledge about the state of the environment. This technique is appropriate when the goal formulators are unable to agree because they lack knowledge about the environment. Furnishing this knowledge can assist them in setting goals that are based upon facts.

SOLUTION

A candy producer uses the comparative approach for orienting goals. An example of a goal that fits into this category is increase share of market by five percent next year. Here the goal is set against something else--in this case the company's current share of market. The use of this goal will allow management to make comparisons of the firm's progress in achieving goals over time.

SOLUTION

When a producer of electronic transformers bargains with its union over goals it will engage in give and take interactions with the union. Often concessions are made, where one party gives up various points in exchange for favorable adjustments on the part of the other party. The producer may be willing to give up a plan to cut the work force, for instance, if the union will assent to a no-strike agreement.

SOLUTION

Management of a producer of automobile supplies often uses coalitions to form goals. In turn, coalitions are temporary alliances among groups of individuals with similar goals. These develop as individuals and groups in the company try to promote their own interests and find that there are others who share these interests. They may end up competing with other coalitions in the company, each trying to advance their own goals.

SOLUTION

A fast food restaurant chain employs sequential attention to develop goals. This involves focusing first on critical goals and later on less urgent goals. This will assist management in successfully accomplishing one pressing goal before moving on to another. This is likely if one goal is of overall importance and must be achieved before others are addressed.

SOLUTION

In the past, a chain of department stores has set its goals primarily through a process of politicking. Management would like to change this. A good method is to point out the overall importance of goal setting and the fact that personalities should not be allowed to interfere. Basically, the members of the goal formulation group should be told that they should carry out their responsibilities objectively and should not allow personal conflicts with others to affect what they do. It may be necessary for top management to step in and make this announcement to the managers.

SOLUTION

A firm that supplies other companies with information technology staffs uses satisficing in pursuing goals. This means that it attempts to achieve a target level of acceptable results. Once this has been met, management does not aggressively attempt to exceed this level. In this case, maximization of variables such as profits and sales will be avoided.

TOPIC Levels Of Goals

TEXTWINDOW

To this point we have been referring to goals as if they were all more or less of the same importance and were consistently made by employees at the same vertical level in the organization. These conditions are quite frequently not met, however, as it is necessary to examine goals from the standpoint of the position in the organization structure to which they pertain.

The hierarchy of goals is a meaningful framework for understanding how vertical layers of goals relate to one another. Every goal has one or more means of reaching it. In order to realize a goal of survival, for instance, an organization may have to sell a plant, cut back on the product line, lay off a number of middle managers, and entice some members of the work force into early retirement. As a condition of meeting a goal of profit satisficing, management might decide to reduce inventories of processed goods, speed up accounts receivable collection, and spend more on sales promotion.

Each of the means for reaching a goal is a subgoal for various means of attaining it. In the second example, if it is to spend more on sales promotion, the firm may have to transfer funds from advertising to sales promotion and may find it essential to hire a sales promotion manage, if one is not already on the payroll. These subgoals, in turn have their own means, which have their own means, and so on. We can see that there is a hierarchy of goals, where increasingly specific decisions are being made until techniques, procedures, tactics, or personnel can be found to accomplish the desired tasks.

The diagram below illustrates the hierarchy of goals. It appears that the organization's ultimate goal is profit. The intended target might be to maximize or to satisfice this variable at some level. As a means of earning a profit, the unit must achieve adequate levels of sales and must control its costs. In turn, sales are dependent upon advertising and personal selling. Management will have to set goals for these variables, in order to realize the desired level of sales. Costs, on the other hand, are dependent upon labor and materials, so subgoals for these should be formulated.

Setting goals in this manner requires first establishing those at the top and then working down. Cause-effect relationships should be envisioned in this process. Management should ask, for example, What causes profits to be maximized or satisficed? The answer, of course, is the behavior of sales and costs. Then, the question is repeated: What causes sales and costs to lie at certain levels? The questions that are posed become increasingly detailed as one progresses from cause to effect.

This goal formulation process has much to offer, because it assists management in generating strategies and tactics to reach each level of objectives. It points out to top, middle, and operating level managers what they should consummate , if they are to foster the goals that lie one level up. It is readily apparent that the hierarchy of goals concept facilitates coordinating the efforts of different organization units because they are all endeavoring to accomplish identical overall goals.

The manipulation of the hierarchy concept is also worthwhile since it pinpoints what organization goals and objectives are valuable and which are not. If activities are being pursued or if subgoals are being sought that do not contribute to higher level goals, they should be considered as candidates for elimination or modification. The organization in the example may have a research and development department. If that department is not significantly generating outputs that will increase sales or decrease costs, then it should be either changed or dropped from the organization structure. It is not pulling its own weight.

The organization that we have depicted in the example is, of course, a highly simplified one. In reality, most units have large volumes of goals and subgoals arising from a number of levels and a variety of separate horizontal subdivisions that lie within the organization structure. Hence, decision making in practice is abundantly more complicated than it appears in our simplified example.

It is useful to subdivide goals into three groups, based upon their level in the organization, their specificity, and their purpose. Viewed in this light, there are strategic, coordinative, and operational goals.

Strategic goals define how the organization will function within the confines of the external environment. These are very general in nature and there is no attempt to identify specific courses of action that will be required for their attainment. A health insurance company, for instance, might have a strategic goal of assisting members of the public to stay healthy. An airline might have the strategic goal of quickly, comfortably, and safely moving people from one geographic location to another. Note that these goals do not force management to take particular courses of action, such as issuing certain kinds of insurance policies, or flying definite types of planes. Rather, management has considerable discretion in determining how best to achieve strategic goals.

Another class-- coordinative goals specify how parts of the organization should coordinate their efforts in actions designed to further strategic goals. They are more specific than strategic goals and often contain definitive action prescriptions for organization employees. A coordinative goal for a manufacturer might be to be an industry leader in the introduction of new products. This goal would require that production, engineering, finance, marketing, R & D, and other departments work together to develop new offerings and place them on the market. Another coordinative goal to reduce overhead costs could compel positive action from all departments in a company.

Finally, there are operational goals Often these are at the departmental or task force level, further down in the organization hierarchy than are strategic and coordinative goals. Further, those at the operational level are more exacting than are either of the other two. In many situations they cover short time periods. An example of an operational goal is to speed up accounts receivable collection by ten per cent within the next 12 months This will probably be the responsibility of the finance department. Another operational goal would be to hire fifty additional technicians before January.

A weakness that may materialize in the goal development procedure is goal displacement. This ensues when management places the most stress on goals that can be tightly defined and measured and neglects the more intangible and obscure goals. Many companies stress striving for such targets as production, sales, profits, share of market, and costs. These are tangible and capable of measurement. It is possible for managers to justify their existence and their contributions by pointing to numbers that reflect what they have accomplished for the organization, in concrete terms..

Managers are not necessarily to be faulted for this emphasis, however. Stockholders, financial institutions, employees, and other elements of the environment are inclined to gauge managerial progress by their contributions that can be measured through an objective yardstick, rather than those that are intangible. In addition, the board of directors of the organization and top managers frequently evaluate individuals through quantitative meters. If one is to have a successful career, it is advisable to build up a track record that can be assessed objectively. One of the best ways to do this is to point out such things as I cut costs by ten percent and I increased sales by fifteen percent. Boasting that I raised morale in the work force is not likely to earn many points for a manager.

Because of goal displacement, various managers neglect intangible goals, such as helping to preserve the natural environment or assisting individuals in achieving their full potential. Since these intentions are difficult to measure and since other managers and significant environmental parties place their primary stress on alternative classes of goals, these are likely to be relegated to a minor level of priority.

As was noted earlier, strategic goals tend to be the most general and the most intangible. Coordinative goals do not quite reach this extreme. But operational goals are specific and often measurable. This means that goal displacement has the effect of inducing managers to emphasize operational goals, to place less stress on coordinative goals, and to even further neglect strategic goals. This may guide managers to center their attention on the short run and to fail to consider the long run implications of their actions.

EXAMPLE

A department store evaluates each department (examples are furniture, women's wear, toys, and kitchen wares) on the basis of contribution to overhead. If a department is able to cover all of its direct costs and still have revenues left to help cover indirect costs, it receives a high evaluation from top management. This is the sole evaluation which departments receive. This is an example of goal displacement. The departmental managers are not assessed on such variables as customer satisfaction and employee development. Consequently, these activities are not stressed in the store. This is a weakness, as the intangible goals can be just as much or more important as the contribution to overhead target.

SOLUTION

A company produces software that helps customize mass-produced documents. It uses a hierarchy of goals framework where each goal has one or more means of reaching it. In order to reach one goal, a company may have to attain several subgoals. Each means of reaching a goal is, in turn, a subgoal with various means of reaching it.

SOLUTION

A magazine wholesaler uses the hierarchy of goals in its organization. Those goals that are at the bottom of the hierarchy tend to be more specific than those further up in the hierarchy. The goals at the top are very general and relate to the long run. As we move down the hierarchy, they become more specific and more short run.

SOLUTION

The hierarchy of goals concept can be useful to a chain of variety stores in that it helps coordinate the efforts of different organization units, such as retail stores in the chain. This happens because they are all taking part in reaching for targets that will assist in achieving the same overall goal or goals.

SOLUTION

A value of the hierarchy of goals concept for a company that sells financial management software to businesses is it identifies which goals and activities are valuable and which are not. If certain goals and activities do not contribute to higher levels goals, they should be either modified or eliminated.

SOLUTION

A large grain trader has a goal of helping to feed the hungry. This is a strategic goal. It helps define how the organization will function within the confines of the environment. It is general in nature and does not identify specific courses of action that will be required for its attainment.

SOLUTION

A frozen foods manufacturer has a goal of providing consumers with the highest quality frozen foods. This is a coordinative goal. It specifies how parts of the organization should coordinate their efforts in actions designed to further strategic goals. The goal would require joint efforts from the production, R&D, marketing, and traffic departments. All of these units would have to work together to bring about the intended results.

SOLUTION

A company that sells business forms to clients has the goal of increasing the revenues of the sales force by fifteen percent this year. This is an operational goal. It lies at the departmental level and is fairly specific. Further it covers a relatively short time period.

TOPIC Official And Operative Goals.

TEXTWINDOW

Organizations have different kind of goals, each with one or more definitive roles or uses. Two of the distinct types that we will address and probe into here are the official and the operational goals.

Official goals consist of specifically designated targets which management indicates to others that the organization is attempting to accomplish. They are general descriptors about what the organization is aspiring to do and what its philosophies are. They tend to be abstract and to contain many superlatives. In many cases, official goals are part of documents such as annual reports, internal policy statements, and company newsletters and are put out for public consumption..

Official goals are generated and publicized to contribute goodwill, acceptance, and respectability to the organization, on the part of its stakeholders. These statements proclaim to stakeholders what the organization is trying to accomplish and the principles that it holds in high regard. If these goals are instrumental in attaining their intended purpose they can produce favorable results, such as:

. Consumers may believe that the organization deserves their patronage.

. Suppliers may believe that this is a good unit with which to do business.

. Legislators may believe that the organization should not be hampered with restrictive

legislation.

. Investors may buy company stock and bonds.

. Employees may feel that this is a good place to work.

. Unions may feel that they should cooperate, rather than fight with, the company.

. Banks may feel that this is a good potential loan candidate.

Of course, just because the official goals exist and are publicized, this does not mean that the stakeholders will assume the attitudes that management intends. Often the behavior of the organization and its representatives are more important in influencing attitudes than are its official goals. Consumers will not buy inferior goods, insist upon particular brands, or pay artificially inflated prices just because a firm has announced a goal of taking every step possible to satisfy buyers.

Operational goals are those which actually guide organization activities. In other words, these are the real goals of the enterprise. They can be ascertained by observing what actions management actually takes. These are usually short run in nature, more specific than are official goals, and and include some provision for measuring results toward the goals. There are several categories, including institutional, marketing, efficiency, environmental, and personnel development, targets.

Institutional operational goals pertain to the entire organization, and not to just one part. These include variables such as profit growth, profit maximization or satisfaction, return on investment, and maximizing or satisficing stockholders' wealth. Some examples of such goals are:

. To Attain an average profit increase of twelve percent over the next decade.

. To maximize profit over the next year.

. To realize a profit of 20 million dollars this quarter.

. To obtain a return of sixteen percent on invested capital this year.

. To increase stockholder equity by ten percent this year.

Marketing goals are those which pertain directly to the output of the marketing department, although other departments may be instrumental in realizing such goals. These have to do with such variables as sales, share of market, new customers, new sales territories, and new products. Some examples are:

. To increase sales by six percent this year.

. To achieve sales of thirty million this year.

. To increase our share of market by five percent over the next two years.

. To acquire fifty major new customers this year.

. To introduce two major new products this year.

Efficiency goals set forth the volume of production that the company will be able to bring about, relative to the environmental inputs that are expended. Some companies strive for certain productivity ratios. These may be stated as a certain amount of production, relative to a specified capital investment, total costs per employee, or some alternative input measure. Some examples are:

. To produce $100 of output for every dollar of invested capital this year..

. To produce an average of 200 units per employee this year.

. To produce $50 of output for each dollar of cost this quarter.

Environmental input goals are those having to do with obtaining monetary and physical inputs for the organization. They may cover such subjects as acquiring funds for projects, reducing costs of inputs, finding new sources of supply, recruiting very accomplished executives and purchasing new plants or warehouses. Some examples are:

. To raise $100 million through a bond issue to allow us to buy Company X this year..

. To cut the costs of electrical power by ten per cent this year.

. To retain a trucking company that will decrease delivery time by ten per cent this year.

. To hire a top purchasing agent this quarter.

. To hire twenty industrial engineers this year.

. To buy Company Y this year.

Finally, personnel development objectives relate to improvements in the quality of operative employees and managers. These have to do with such functions as training, supervision, control, and motivation of human resources. Examples are:

. To train 200 supervisors on total quality management this year.

. To provide each worker with a mentor this year.

. To improve employee attitudes toward the company by ten percent this year.

Any organization, of course, is likely to have a large number of these operational goals. They can be found in every department, division, and organization level. But exactly why do we use these? There are four reasons. The goals can help:

1. Force management to make specific plans..

2. Influence the actions taken by employees.

3. Tell employees what they should be trying to accomplish.

4. Provide the basis for evaluation.

Operational goals force management to make specific plans. Sometimes managers experience considerable difficulty in making decisions. Multiple parties may be involved, as when production, marketing, finance, and personnel managers are attempting to arrive at a decision as to whether or not to purchase a new plant. The parties may have different viewpoints and the discussion may go on beyond a reasonable time. If the group is required to set operational goals, however, this can force closure. It can bring the parties to the point where they must bring the deliberations to a halt and arrive at a decision through some form of consensus. If they were not required to set goals, this process could consume an excessive amount of time or might never be satisfactorily resolved.

In addition, operational goals influence the actions taken by employees. They point out what courses of behavior are proper and what ones are not. If the goal is to increase sales by five percent next year, for instance, the sales manager may come to realize that he must hire ten new sales representatives. If the manager of research and development has a goal of bringing out four major new product ideas next year, this may signal that she should form several task forces for this purpose.

Another rationale for operational targets is to tell employees what they should be trying to accomplish. These goals indicate just what these individuals should be striving for to achieve acceptable and meaningful outputs.. Without a sense of purpose, employees are liable to be confused and probably will not coordinate their actions with those in other departments and levels of the organization. Their morale may suffer, as they do not see the reasons why they are laboring for the employer.

Operational goals can serve as a springboard for action. They furnish a reason for working hard and for cooperating with others. If the sales force has a goal of increasing sales by five percent, this gives them a target for accomplishment and can stimulate their incentives to be creative and productive.

Finally, these goals can contribute toward the evaluation of individual employees and organization components. Their performance can be appraised by comparing it with the goals. If a manager's goal was to decrease the number of rejects on the production line by ten percent, and if the manager could not accomplish this, higher level management has a signal that something is wrong and the matter should be investigated. Without operational goals, it is very difficult to judge performance.

EXAMPLE

A soft drink bottler has an official goal of Having an active role in making our community a better place to live. This goal appears at the top of company letterhead stationary, in local newspaper advertisements, and in framed documents on the walls of most offices. Management believes that this proclamation informs customers, employees, and the public at large that the firm is very public spirited and devoted to the local environment. When company executives make speeches and other talks to local groups, they usually make reference to this goal. Management believes that it has been useful in helping to build an image that transcends most of the interactions with environmental members in the immediate geographic area.

SOLUTION

A packing and crating service firm has a goal of AMaking our company an outstanding place to work. This is an official goal because it is general and abstract. It indicates, in non-specific terms, what the company is aspiring to do and what its philosophy is, as regards employees. One of its major purposes is to generate goodwill among employees and other stakeholders who identify with employees.

SOLUTION

A wholesaler of pesticides and herbicides has an operational goal of to maximize profits over the next year. This is an institutional goal. It pertains to the entire wholesale organization, and not just to one part, such as finance or personnel. All personnel in the firm should work toward this target.

SOLUTION

A manufacturer of packaged lawn, tree, and shrub fertilizer strives to increase its share of market by five percent next year. This is a marketing goal. It pertains directly to the output of the marketing department. This unit is responsible for advertising, sales promotion, personal selling, and other functions that influence market share.

SOLUTION

A producer of contact lenses has a goal of manufacturing $20 worth of contact lenses for every dollar of invested capital next quarter. This is an efficiency goal. It specifies the volume of production that the company will be able to realize, relative to invested capital. This is an input/ output measure and it directly measures the efficiency of production.

SOLUTION

A plumbing contractor company has a goal of raising a million dollars to purchase a new office and shop building. This is an environmental input goal. It has to do with raising monetary inputs from the environment. A bank or other financial institution might be the target for this goal.

SOLUTION

A sporting goods store chain has a goal of increasing its share of market by ten percent next year. This may force management to make specific plans because having a goal will require managers to decide how to reach it. Management may have difficulty in making decisions, especially when multiple parties are involved. Operational goals, however, will require making a decision. In the absence of the goals, this may not occur.

SOLUTION

A hospital supplies wholesaler uses operational goals to evaluate individual warehouse employees. It can do this by comparing their performance with their goals. If they produce more than the goals specified, they are rewarded. If not, the reason for their shortfall is investigated.

TOPIC Conventional Measures Of Effectiveness

TEXTWINDOW

All managers are concerned with the effectiveness of their organizations. If this quality is lacking, steps should be taken to restore it. But there are differences of opinion as to how effectiveness should be gauged. We will explore the most widely accepted ways of doing this and indicate the strength and weaknesses of each. This topic concentrates on some traditional methods, while the following topic centers on two more advanced systems of evaluation.

Effectiveness means the extent to which the organization is attaining its goals. If a retailer has a goal of increasing sales by ten percent in a year and, in fact, it realizes an eleven percent advance, it has been highly effective. On the other hand efficiency means the extent to which the goals have been reached in an economical fashion. If the retailer had to augment its advertising expenditures by fifty percent, in order to generate an eleven percent expansion in sales, it may be operating inefficiently. Management has spent an excessive amount of funds to buy revenues.

Certainly, the resources that organizations have available to accomplish their goals are limited. Few, if any, have the amounts of funds, personnel, physical assets, and other holdings that they would like to own. The output of an organization relative to its resources governs its efficiency. The degree to which it is able to accomplish its intentions defines its effectiveness. It is possible for an organization to be efficient but not effective. This could happen when a drug manufacturer inexpensively develops a new prescription drug that the government declares as unsafe, and does not allow it to be sold to consumers.

Significantly, there are several different ways of measuring effectiveness, rather than just one. This is because organizations have numerous goals and some of these conflict with one another. To a factory worker, an effective organization may be one that pays high wages and treats its workforce with consideration. To a stockholder, an effective organization may be one that regularly pays high dividends or realizes larger than average capital gains. It is apparent that we should peruse more than one procedure for appraising this variable. We will explore the resource input, internal operation, and goal achievement methods in this topic.

Each one of the three methods deals with one of the following elements of an organization and its environment:

The Organization and its Environment

Inputs from the Environment

:

:

:

Internal Operation of the

Organization

:

:

:

Outputs to the Environment

Taken together, the three elements represent what an organization does, in order to realize its goals. The resource input method highlights inputs from the environment as a measure of enterprise effectiveness. Conversely, the internal operation method concentrates on the inner behavior of the organization. Finally, the goal achievement method targets outputs to the environment.

The resource input method evaluates effectiveness as the ability to accumulate inputs of resources from the environment. These resources are in limited supply and have a cost. Some organizations are much more competent in attaining them than are others.

Some business and nonprofit organizations are able to secure managerial talent much more readily than others. This is a very valuable resource. Managers may be attracted to enterprises that offer large salaries, challenges, an opportunity to grow, status and prestige, a pleasant working climate, a good reputation, and other attributes. Significantly, possession of managerial talent may enable the company to overcome shortages of other resources.

Very proficient managers may enable the firm to be productive in obtaining other resources. These individuals may have a flair for procuring capital, superior employees, raw materials, cash, and other needed supplies.

The reputation of the firm may be a valuable asset in capturing resources. Managers, operative employees, banks, investors, suppliers, and others are often drawn to companies that have an exceptional image in the industry. On the other hand, some companies have an inferior image and find it difficult to attract needed inputs. Those with a track record of staying one step ahead of the law may occupy this status, for instance.

The size of the company may enable it to acquire resources more adroitly than many others. Some suppliers of inputs find it advantageous to deal with larger firms because opportunities for profit are more abundant in these relationships. On the other hand, there are those who prefer the challenge and the informality of being involved with a smaller concern that is flexible in its dealings with outsiders. .

This method is most useful when it is difficult to measure the competence of the organization in producing output or operating efficiently, as in the case of a think tank division of a company, whose goal is to produce ideas, not products or services that will be sold in the marketplace. The division may be judged as effective if it has been able to convince top management to grant it large amounts of funds, however. Another indicator of effectiveness may be that it has succeeded in luring in very bright personnel, such as Ph.D.'s with outstanding reputations in their fields.

This method has an important deficiency. It does not gauge how well the organization utilizes the resources that it has acquired. The think tank may have an outstanding cadre of brilliant people and a large budget, but it may be managed in such a way that few good ideas are forthcoming from the division. In other words, there are serious deficiencies in the internal operation of the unit. This method, then, is normally employed when it is difficult or impossible to assess the internal operation or the output.

A second technique is the internal operation method which concentrates on the activities which take place within the organization. According to this view an effective organization carries out these endeavors in a coordinated manner, with a minimum of friction. The unit is able to overcome difficult-to-surmount obstacles. Employees are able to prevail over difficulties at the workplace and have high morale. In short, this method targets the organization itself and ignores the environment..

A practical way to assess the inner workings of the organization is to apply financial measures of its efficiency--its capacity to transform environmental inputs into useful outputs. Productivity assessments serve this function. Management can calculate the number of products or the value of the products that are produced, on average, by one worker, one machine, one factory, or some other input variable. These calculations tell us something about how well the organization is carrying out its tasks.

Parts of organizations can be evaluated, through this approach. One can obtain figures on the average sales per sales representative, the average number of new products arising from each research and development employee, and the average number of service calls per customer service worker.

Another way to evaluate internal operations is to examine the human element. We can assess employee morale, confidence in management, loyalty to the organization, informal friendships, and attitudes. Here, it is assumed that if these variables are positive, the organization is effective.

This method can be very advantageous, because it supplies us with measures of efficiency. And this is a critical attribute of a successful enterprise. However, there are some major weaknesses that should be recognized. The method ignores the impact of environmental input measures. A company may be very productive, but this may be because it has superior managerial and operative employee talent, a large stockpile of money, superior equipment, or other assets. But this method neglects the assessment of input resources. Also, the technique does not take output into the environment into direct account. One final weakness is that it is difficult to accurately measure the human element. Assessments of such variables as employee morale and confidence in management are necessarily somewhat biased

The goal achievement method compares the performance of the organization with its operational goals. This is a logical way of proceeding. Business enterprises have goals such as satisficing profit, attaining certain sales levels, and capturing specific shares of market. If they are able to reach or to surpass these goals, the organization can be deemed to be effective.

You have probably recognized some problems with this method. Most firms have many goals and these sometimes conflict with one another. Which ones are more important? Should some be maximized while others are neglected? Should all be satisficed? Resolutions on these issues are hard to come by.

It is not always easy to evaluate progress toward goals. In the case of an engineering department, for instance, we might gauge performance by the dollar savings contributed by the department, or the extra revenue generated by new products that they have conceived. These measure their output. On the other hand, we could appraise their input, as by observing how many hours they work, how often they confer with employees in other departments, and how much they support the company and their superiors.

Despite these possible flaws, the goal achievement method has much to recommend it. But there still are obstacles to its full realization. However, there are techniques which allow us to overcome these obstacles. We will examine these in the next topic.

EXAMPLE

There are differences of opinion as to whether or not a large producer of boxed and packaged candies and candy bars is effective. Stockholders apparently feel pleased with its performance. Dividends are generous and have increased at an even pace. The value of the stock has appreciated an average of twelve percent annually over the past ten years. Further, management appears to regard the company as a successful one. Sales and profits have advanced much faster than the industry average, and management salaries and fringe benefits have followed this trend.

On the other hand, some parties are not impressed with the progress of this firm. Employees and the union do not feel that it has supplied them with adequate levels of financial compensation, conditions at work, and sensitivity to individual employee needs. A strike threat is looming. In addition, some suppliers of raw materials sense that management is pitting one potential supplier against another, in an attempt to drive prices of raw materials down, and is depressing their earnings.

Is this an effective organization? It all depends upon who you are listening to.

SOLUTION

A manufacturer of home exercise equipment has been very successful in attracting talented new managers. It would probably be appraised as being effective by the resource input method. This method evaluates effectiveness as the ability to acquire inputs of resources from the environment. Talented managers can be a valued resource and could enable the company to be very profitable.

SOLUTION

The resource input method could be especially useful in measuring the effectiveness of a supplier of industrial heat exchangers when it is difficult to measure the ability of the organization to produce output. If output cannot readily be measured, comparisons of performance against goals are difficult. Hence, it may be best to assess the resources possessed by the company.

SOLUTION

A weakness of the use of the resource input method for a business consulting firm is it does not gauge how well the consulting firm uses the resources. The company may have an outstanding collection of resources but may manage them poorly, so that their capabilities are wasted, and ineffective behavior results.

SOLUTION

The internal operation method used by a rain gutter manufacturer concentrates on the activities that take place within the company. It deems as effective a company that carries out its activities in a coordinated manner, without friction, overcomes obstacles, and has high morale.

SOLUTION

When a wholesaler of sauna equipment and supplies employs the internal operation method, it might be expected to employ financial measures of the company's efficiency. This would measure its ability to transform environmental inputs into useful outputs. Productivity assessments serve this function. Management could calculate the number of deliveries carried out per driver, on average, for example.

SOLUTION

A weakness of the internal operation method employed by a producer of washing machine transmissions is it ignores the impact of environmental input measures. The producer could be very productive, but this could be because it has considerable managerial talent, superior equipment, and substantial funds. Yet it could be very inefficient.

SOLUTION

A veterinary supplies wholesaler uses the goal achievement method to survey its effectiveness. A possible deficiency in this method is the firm may have many conflicting goals. It may not be possible to maximize or even to satisfice on all of these goals. In order to satisfy some of these, others may have to be neglected.

TOPIC Advanced Methods For Measuring Effectiveness

TEXTWINDOW

The previous topic reviewed the resource input, internal operation, and goal achievement methods for appraising the effectiveness of an organization. You will recall that each of these has important advantages, but also incorporates faults. The systems input method, for instance, recognizes the value of input resources, but ignores the efficiency of the system or the value of its outputs. The other two methods also have shortfalls, but in different directions. Thus, it appears that we should attempt to seek out other techniques.

In this topic, we will examine two more advanced methods--the stakeholder and the competing values procedures--that overcome some of the weaknesses of the conventional patterns, in that they are more inclusive--they cover more variables. Both techniques have much to offer to those who seek to comprehend organization theory and apply sophisticated techniques for appraising effectiveness.

The stakeholder method recognizes that there are a large number of stakeholders or publics that have an interest in the success of the organization. The identify of the stakeholders will vary from one organization to another, but often includes employees, unions, stockholders, suppliers, creditors the local community, and the public at large. This method requires learning the extent to which these stakeholders are pleased with what the organization is accomplishing. Since every group of stakeholders has different goals, it is advisable to query each one to find out the direction (positive or negative) and the strength of their evaluation.

It is possible to conduct scientific studies of the degree of content or discontent toward the organization that is held by each influential stakeholder group. A useful way to accomplish this is to question the members of each group and to identify their major goals. Then one is in a position to conduct attitude surveys, where members of each group express their feelings toward the organization in question, as a medium for the satisfaction of the goals that have previously been isolated. For employees, an instrument with questions such as the following might be employed.

Attitude Survey

Indicate on the scales below your feelings about this company as a place to work. Do not puzzle over each scale--Your first impressions are what is wanted.

This company

Pays Fair Wages ___:___:___:___:___Pays Unfair Wages

Provides Good Fringe Benefits ___:___:___:___:___Provides Poor Fringe Benefits

Is Sensitive To My Needs ___:___:___:___:___Is Insensitive To My Needs

Is A Pleasant Place To Work ___:___:___:___:___Is An Unpleasant Place To Work

Allows Freedom of Expression ___:___:___:___:___Does Not Allow Expression

Encourages New Ideas ___:___:___:___:___Does Not Encourage New Ideas

If the survey is carefully constructed and tested for validity and if it is administered in an objective manner, it can furnish a valid measure of employee viewpoints toward the company and how it is fulfilling their goals. A separate kind of questionnaire is necessary for each stakeholder group, of course, since each one is likely to have goals that differ from those of the other groups.

This method has much to recommend it. The stakeholder technique is capable of measuring input, operational, and output variables. As such, it does not share the shortcoming of the three conventional techniques, that of focusing on only one of these three variables. Rather, it is comprehensive and can include various kinds of evaluations from many different groups of stakeholders. Further it considers stakeholders that are within the boundary of the organization, as well as those that lie outside. The latter should not be ignored. If government, the public at large, or some other environmental stakeholder group is displeased with the organization, this may portend considerable problems, even if the internal organization itself is running very smoothly.

Most of the companies in the tobacco industry failed to adequately measure the attitudes and the opinions of federal and state governmental authorities, the media, the public at large, and various interest groups and to act upon these surveys in the late 1990's. Rather, they directed most of their attention to the satisfaction of stakeholders within their boundaries--stockholders, managers, and operative employees. They ignored attitudes on issues such as the impact of smoking on health and increased cigarette usage by children. The companies came under harsh criticisms and eventual large financial and regulatory penalties, as where they were required to pay billions in damages to the states and to adhere to strict requirements on their advertising, sales promotion, and merchandising methods.

Let us now turn to another technique. This is the competing values method, which takes differences between organizations into account. Specifically, this framework subdivides organizations into four categories, each with its own set of values and objectives. Once it has been concluded that an organization falls into one of these categories, it can be evaluated according to the criteria that apply to the appropriate category. In other words, the effectiveness of divergent sorts of organizations is assessed by using yardsticks that are not necessarily the same. The use of different gauges for different phenomena is certainly not a novel idea--it is common in human endeavor. If a watermelon is sweet, most consumers would say that it is tasty. But, the same consumers probably would not savor a sweet tasting steak or potato chip. Disparate criteria are used for the latter two goods.

The competing values approach manipulates several classifications. It utilizes two variables for dividing up firms into groupings. These are focus and structure. Focus refers to the extent to which the organization directs attention to concerns that are within or out of the boundaries of the unit. If the focus is internal, this means that the organization concentrates on the welfare of both top and lower-level managers, operative employees, and stockholders. Conversely, where external focus predominates, attention is primarily directed to stakeholders outside the firm's boundaries.

Structure means the extent to which stability or flexibility rules the organization structure. A stable structure is one with authority flowing from the top to the bottom of the organization. You will recall that a mechanistic unit behaves in this way. Conversely, in the case of a flexible structure, the organization is organic and communications flow in all directions, not just from the top to the bottom. Four designs, or combinations of these two variables are possible, as is illustrated below:

In the rational goal design we find a stable structure and external focus. The organization is mechanistic and is inclined to direct its attention to the external environment. Essentially, management has established a number of goals and evaluates effectiveness according to how well these goals are being met. Such organizations want to operate under a set of strong rules and regulations. It is likely that profit maximization or satisficing is an important objective for these concerns. In attempting to acquire profits, management probably will grant considerable attention to efficiency of operations. Until the 1970's many business firms were characterized by this design.

The internal process design is a combination of stable structure and internal focus. Control and the flow of authority is top down, as top management seeks to carefully moniter and direct all significant organization activities. The internal focus means that attention is directed mainly to the operation of the organization and not to the environment. If management believes that the present status of the organization is comfortable and change is not necessary, this is an appropriate design. A large number of small businesses function in this manner.

The open systems design is characterized by flexibility and external focus. Considerable effort is devoted to acquiring resources and producing output that satisfies the needs of the environment. In fact, such organizations work diligently to build strong relationships with stakeholders. There is substantial effort to study the needs of the environment and the organization attempts to fulfill these needs rapidly through being willing to make required changes. Many high-tech companies, such as those in bio-genetics and agricultural research have embraced this format.

In the human relations design we find extensive internal focus and flexibility. The work force is the central locus of this framework. Management is clearly devoted to acquire and to improve the performance of its personnel. This can be accomplished through such channels as delegating authority downward in the hierarchy, affording freedom of expression, encouraging informal communication, and facilitating horizontal communication between different functional groups. An effort is made to enhance morale and establish positive attitudes toward the organization, on the part of employees.

In assessing effectiveness, it is first necessary to ascertain how the organization is situated, as regards structure and focus. Following this, it is possible to judge which of the four designs best describes the organization. Finally, management can evaluate the organization, according to the criteria associated with the relevant design.

This is a practical method for evaluating effectiveness. It considers stakeholders from within and beyond the boundaries of the organization. Further, it takes environmental inputs, operations, and environmental outputs into consideration. Finally, It dispenses flexibility in evaluating organizations, because there are different criteria for different types. As such, it has much to offer.

EXAMPLE

Sometimes conflicting goals from different stakeholder groups become suddenly acute and create crisis situations. Management of a railroad has decided that one of the most important stakeholders at present is the stockholder group. Management is fighting off an unfriendly takeover attempt from another railroad and is attempting to enlist the help of the stockholders to fend off this attempt by not agreeing to sell or trade their stock. But other stakeholders cannot be ignored by management.

The stockholders would like to see the railroad reduce its workforce and lower wage rates. However, pressures from the union and the employees make this highly undesirable, if not impossible. Meanwhile, some customers are worried about reliable service. Will management be able to provide this in the face of the forces now confronting it?

This company must deal with conflicting goals from several groups of significant stakeholders. Somehow, it will be necessary to arrive at decisions that will at least partially satisfy each of these. Management will need to exercise a high level of judgment in order to find a way out of its plight.

SOLUTION

A distributor of industrial safety supplies and equipment uses the stakeholder method to assess its effectiveness. In doing this it should survey the attitudes of important stakeholders. This measure will enable management to determine the extent to which the stakeholders are pleased with what the distributor is accomplishing.

SOLUTION

An importer of leather clothing uses the stakeholder method for self-evaluation. An important advantage of this method is it considers stakeholders both within and outside of the organization's boundaries. It can be a mistake not to recognize those which are outside, such as government and customers, because these have a major impact on the success of the company.

SOLUTION

A company owns a number of office buildings and rents office space to various tenants. It uses the competing values method for evaluating effectiveness. This method involves subdividing organizations into categories, based upon their values and objectives. One criterion for subdivision is focus--the degree to which the organization directs attention to concerns that are within or out of its boundaries. The other criterion is structure, meaning the extent to which flexibility or stability rules the organization structure.

SOLUTION

A hardware store chain can be grouped into the rational goal design. This means that the organization structure is stable. This means that authority and communications tend to flow from the top to the bottom of the organization. There is limited communication between different functional areas.

SOLUTION

A manufacturer of cook ware falls into the internal process design. In this case control and the flow of authority is top down. Here, top management wants to carefully moniter and direct all organization activities. There is only very moderate opportunity for lower-level managers and operative employees to affect decision making.

SOLUTION

A large three-star hotel is characterized by an open systems design. This signals that management works diligently to satisfy stakeholder needs. This design incorporates an external focus. Considerable effort is devoted to producing output that satisfies the needs of the environment. Management will work diligently to build strong relationships with stakeholders.

SOLUTION

A small private university operates through a human relations design. The institution has a flexible structure. It is organic and communications flow in all directions, not just from the top to the bottom. Individual departments are encouraged to communicate with and to work with one another toward university goals.

4.

TOPIC Elements Of Bureaucracy

TEXTWINDOW

There are several basic structures that organizations can adapt, in order to carry out their missions. Perhaps the most fundamental of these is the bureaucratic arrangement. This is the first basic structure that will be discussed and for good reason--all of the other patterns of organization are departures from the bureaucratic model. This topic, then, establishes a springboard for the discussion in subsequent topics.

In this topic we will examine the central themes of bureaucracy, and develop a feel for what it is, its advantages and disadvantages, and how it operates in a concrete setting. In later topics we will probe some of the more important aspects of this and other forms of organization, in more depth.

There are numerous business, government, charitable, religious, and other organizations in existence today that can be called bureaucracies. These organizations are characterized by a number of traits:

1. They are highly specialized. Both individual employees and departments are responsible for only a limited number of activities. A marketing researcher might be involved only in conducting statistical tests of data emanating from surveys of customers, and a production worker might have only one duty, such as mounting drive shafts on cars in the production line.

2. The tasks are very routine. Each activity to be performed is done over and over in the same fashion, day after day. Some fast food restaurants, for instance, instruct employees as to what hand is used to place the meat on the bread, how to spread the mustard, etc. This pattern is repeated every time a hamburger is put together and is not varied.

3. The technical core is very formalized. There are set ways that are always brought into play to produce goods and services and these are set forth explicitly, often in writing. Exceptions to the plan are not acceptable. In a postal system, there is one and only one way to sort mail and this is what everyone does.

4. There are numerous rules and regulations. These are one of the principal means of directing and coordinating the organization. Rules specify who will do what, who will communicate with whom, and when and how specific actions will be taken. There may be a rule, for example, that when more than three product rejects per hour occur in the production department, it will be temporarily shut down and the cause of the rejects sought out and eliminated.

5. Formalized communications are employed. People communicate with each other through written memorandums and other authorized media. Informal communications, those that are unplanned and outside the chain of command, are not encouraged. If a sales representative wants to request a dispatcher in the traffic department to expedite a shipment to the customer, the sales representative must convey the request to the sales manager, who will carry it to the traffic manager, who will take it to the dispatcher.

6. There are numerous operative employees. Most bureaucracies hire many non-managerial personnel to carry out production, marketing, distribution, and other required duties. Operative employees do not supervise others--they are responsible only for their own actions.

7. Activities are grouped together into departments according to functions. Management decides what functions are required in order to reach the goals and objectives. Then a department is formed to undertake that function. The finance department, for instance, will be responsible for all activities relating to the acquisition of and the use of funds. Those employees who are directly involved in the manufacturing of goods will be assigned to the production department.

8. Authority is centralized at the upper levels of the organization. Top management makes most of the significant decisions and issues orders to lower level and middle management. This means that middle managers and supervisors have limited authority. They must obtain permission from top management before they can act on numerous decisions.

9. The organization structure is complicated. Bureaucracies are characterized by many levels and many departments and divisions in the organization structure. When plotted in graphic form in an organization chart, there are numerous lines of authority and responsibility.

10. There is a clear chain of command. This situation exists when each employee is under the supervision and control of a superior. The employee takes orders only from that superior and no one else. Under this arrangement, the dispatcher is responsible only to the traffic manager, for example..

11. Individuals who are employed by the organization are competent in their jobs. The employees hold their positions because they are able to do the requisite duties adeptly. They are never hired or retained because of friendships, politics, or family relationships.

12. Rules, decisions made, policies, and procedures, are all reduced to writing. This allows the bureaucracy to pursue consistent courses of action from one time period to another. If there is a question as to what action to take, the question can be answered by referring to some policy manual, job description, etc.

In any organization, a key question is, what is the basis of authority. There are three possibilities, one of which is fundamental to the continuing existence of a bureaucracy. The possibilities are:

1. Traditional authority. This is based on an inherited right. Subordinates obey the leader because this is how things have been done in the past. Kings and past church leaders have obtained their authority in this way.

2. Charismatic authority. This is based on belief in a person because of exceptional past performance, personality, or heroism. Some countries' chiefs of state are elected primarily for this reason.

3. Legal authority. This is based on a situation where subordinates believe that their superior has the right to give them orders. Bureaucracies are characterized by this basis of authority. In a true bureaucracy, traditional and charismatic authority do not exist.

The technical core (the production department of a manufacturer, for instance) of a bureaucracy executes activities that are repetitive and simple and that do not demand extensive training or skill. Each employee performs only a few repetitive tasks. The employees have very limited authority over those decisions that affect them--they take orders from above and obey these orders without question. There is little horizontal (between departments) communication, so much of the coordination of employees is accomplished by the direct supervisor of the employees.

Bureaucracies are inclined to hire large numbers of middle managers--those that lie in between top managers and the direct supervisors of operative employees. In turn, middle management is specialized and assigned to functional departments, such as finance, production, marketing, and engineering. They handle communications between top management and the workers and technical specialists and the workers and tend to problems that may develop at the operating level.

Bureaucracies are closely attuned to compelling the organization to operate efficiently and smoothly. Control is emphasized to minimize uncertainty and to diminish conflict between separate departments. To a large extent, these organizations are inward oriented. Management is more concerned with what is happening inside the boundaries of the unit than it is with the outside environment. Since many of the activities are standardized and routine, this lessens the chance that employees will take actions which are not coordinated with those in other departments.

Many bureaucracies employ technical analysts. Examples are cost accountants, quality control engineers, and work analysts. Their function is to study the conduct of other workers and to provide suggestions for making this conduct more productive and increasingly standardized. In other words, these analysts study how to improve the efficiency of the organization, rather than examining the environment and suggesting how management should adjust to it..

Bureaucracy is very common in virtually every country in the world today and is firmly imbedded in many domains--business, government, labor unions, and the like. It is not necessary that an organization have all twelve of the traits listed above to constitute a bureaucracy. If a unit does have some of the more significant characteristics, however, it probably can be classified into this category.

Up until the 1960's, bureaucracy was deemed by many to be the ideal form of organization. However, research has demonstrated that these organizations can be slow to change, costly, and inflexible. Other forms of organization have gained favor in many quarters. However, there are many of these units in existence and this will probably continue to be a common condition. Further, most of the newer forms of organizations use bureaucracy as a point of departure. Hence, we will further examine this structure and compare it to others in upcoming topics.

EXAMPLE

A large bank has most of the traits of a bureaucracy. Every manager and every employee works in a very specialized area and has routine tasks. The bank has numerous rules and regulations and most of these are recorded in writing and provided to employees. Employees are organized according to functions. The president of the bank retains authority for making most major decisions. The company has operated in this way since its founding in 1937, and shows no signs of making changes in the future.

SOLUTION

A greeting card manufacturer is a bureaucracy. This means that both employees and departments are highly specialized. They are responsible for only a limited number of activities and are prohibited from becoming involved in other activities. Specialization may allow them to become very efficient.

SOLUTION

A motorcycle manufacturer is a bureaucracy. This means that the tasks in the production department are routine. Each activity to be performed is done over and over in the same fashion. There is no variation in task performance.

SOLUTION

A toy manufacturer is a bureaucracy. Activities are grouped together into departments according to functions. There are likely to be production, finance, marketing, engineering , research and development, and legal departments, for instance.

SOLUTION

A producer of snow blowers and snowmobiles is a bureaucracy. Authority is centralized at the upper levels in the organization. This means that top management makes most of the significant decisions.

SOLUTION

Authority at a consumer finance company is in the legal authority category. This means that it is based upon a situation where subordinates believe their superior has the right to give orders. This is a bureaucratic trait.

SOLUTION

Middle managers of an electronics manufacturing bureaucracy are likely to be assigned to functional departments. Examples are finance, production, marketing, and engineering. These middle managers specialize in the activities which are assigned to one of these functional areas, so a functional assignment is logical.

SOLUTION

A paper mill is a bureaucracy and this suggests that it is likely to be motivated toward making the organization operate efficiently and smoothly. It will emphasize control to minimize uncertainty and to minimize conflict between departments. It is more concerned with the workings of the organization than with the environment.

TOPIC The Structure Of Organizations

TEXTWINDOW

You are probably very familiar with the meaning of the word structure, which refers to the configuration, make-up, or arrangement of the parts of some entity. It is common to refer to the structure of a house or a building, in this regard. We also may think of how we might structure a speech or an argument. For our purposes, organizations also have structure.

This topic concentrates on the structure--the design and composition of organizations. When most people think of structure, they have organization charts in mind. These demark the placement of various levels and assorted specialized departments at each level. The charts also point out who has authority over and sends formal communications to whom. Below is an organization chart which depicts an organization with three levels of management--a president, two vice presidents, and six managers. This is a very simple structure of course. Large bureaucracies tend to have structures that are much more complex.

The structure of an organization denotes several important properties, including who reports to whom. Manager 1, for instance, is accountable to the first vice president. The chart specifies the number of levels in the organization and the span of control of each superior. In addition it indicates how departments are arranged in the unit. Further, it marks how different departments will coordinate their efforts with one another. The two vice presidents, for instance, will make use of the office of the president to coordinate their efforts, since that office is where their authority originates..

Before we can meaningfully study bureaucracy and other forms of organization, we require insights as to what organization structure is and how it can vary from one entity to another. At this point, we will look at various measures of structure and explain what they signify. Some of the more important measures are organization size, centralization, complexity, formalization, specialization, standardization, and traditionalism. Earlier topics have introduced some of these, but we must scrutinize them here in depth as we analyze what kinds of structures exist and how they can be improved.

Organization size is one measure that is closely related to bureaucracy--most large units have many of the characteristics of this structure. This is evident in dealing with most governmental agencies, such as the post office. Written forms are necessary for most purposes. Individual employees are very specialized and are responsible for only a few highly-repetitive tasks. It is often necessary to undergo considerable red tape to accomplish something like getting a postal box. As we go through some of the other measures of bureaucracy, it will become even more evident to you that large firms and nonprofit associations display many of the trappings of this form of organization.

Centralization is the concentration of authority to make decisions in the organization. In highly centralized businesses, most of the authority is localized at the top of the structure. Conversely, in decentralized units, individual decisions are carried out further down the organization hierarchy. Entrepreneurs who form new businesses are inclined to centralize authority in their own offices. Many continue this pattern, even as the company expands and its needs are subject to modification. It may be very difficult to convince them that they should delegate authority over minor duties, so that they can concentrate on top management concerns that have an impact upon the company as a whole..

Small companies can be centralized and still be constructive in realizing their goals. However, this is seldom true for large enterprises. There are too many departments and individual employees for one or two top executives to make all the judgments on policy, personnel, and procedures. . Large organizations can be very diverse, with a wide assortment of products, produced and sold in many different places, and a number of specialized and complex interactions with the environment. Decentralization of at least some functions is unavoidable. Major manufacturers of processed foods and over-the-counter drugs, for instance, are mainly decentralized.

Another measure of an organization is complexity., which refers to the degree that the structure consists of inter-connected or interwoven parts, and is intricate. One type of complexity is horizontal, where a complex structure has a large number of departments on the same level. Another type is vertical, where a complex structure has many levels, probably including several layers of middle management. . Large organizations can be very complex. They have the funds to hire numerous technical specialists to handle special environmental needs. And, since they have so much contact with the environment, they need a large number of persons with advanced knowledge in fields such as labor law, marketing research, and public relations.

Formalization is a significant and meaningful attribute of an organization. Most large organizations have formal structures, that are planned in minute detail.. There are well developed prescribed relationships between the parts of the organization. Procedures and rules indicate what each employee should do under certain circumstances. The purpose of all this is to coordinate the efforts of the various departments and employees. In very informal organizations, employees interact without regard as to who is responsible for what. A janitor may have a good new product idea and might bring this directly to the attention of the president for consideration.

Another measure is specialization. This consists of making individual employees and departments responsible for only a narrow span of job activities. As was noted above, large organizations are very specialized. This is necessary because they must deal with a variety of specialized problems in the environment. In a law firm, for instance, some lawyers specialize in criminal cases, others in divorce, bankruptcy, taxes, and still other fields. In a hospital, some departments specialize in emergency care, while others concentrate on ambulatory care, cancer treatment, emergency room treatment, intensive care, and numerous other spheres, depending upon the mission and goals of the hospital..

Standardization means that the organization has established pre-planned techniques that are put into effect whenever certain incidents occur. These techniques are often expressed in the form of rules or regulations and are designated in writing, so that they will be thoroughly understood. Large firms are more standardized than are most smaller ones. There are set procedures for most of the recurring situations. There may be a standardized hiring procedure, for instance, which includes analysis of resumes, physical examinations, analysis of references, and interviews. By standardizing operations, managers can render them more efficient. They find out the best way to accomplish something and then use that best method repeatedly, instead of continually reinventing the wheel..

Traditionalism refers to a set of practices that are widely followed in the organization, but are not part of the formal rules and regulations, as are standards. Rather, these conventional practices are passed on vocally from one party to another and become part of the culture of the organization.

Many railroads have a practice of promotion from within. In order to advance upward into management, it is necessary to start at the bottom and work one's way up. Outsiders are very seldom brought into managerial slots. But promotion from within is not a procedure that is prescribed in the railroad policy manuals. It is not a rule nor a regulation. Yet the practice continues over time.

The logistics department of a retail mass merchandiser has a tradition pertaining to shipping mistakes. If a store is running a sale on some items, it is imperative that the logistics department ship a sufficient stock of goods to that store so that it can serve the bargain-hunting customers. The first time that a logistics manager fails to make a needed shipment, a mild reprimand is issued. If this happens a second time, a strong reprimand results. If the mistake is made a third time, the manager is terminated.

Together, the measures that we have examined explain most of the dimensions of the structures of organizations. We can employ the measures to study, explain, and improve upon existing structures and design idealized structures for new organizations.

EXAMPLE

Two high school janitors went into business for themselves ten years ago. They supplied janitorial services for businesses, working on their free time, on a moonlighting basis. Most of their customers were very satisfied with the work and positive word of mouth led to more business, forcing the two partners to hire four assistants. The business continued to grow, until it ultimately employed over three hundred janitors, and had four levels of management, including the partners.

The growth of the firm has forced the partners to delegate authority. This has been difficult for them to accept, however. They became accustomed to making virtually all of the decisions on purchasing, marketing, operations, and finance. Reality has finally caught up with them, however, and they are aware of the necessity for delegation. This has enabled the company to be much more effective in adjusting to the changing needs of the environment.

SOLUTION

A large consumer finance company is a bureaucracy. One reason for this is that it has a complex organization. Its organization structure has numerous levels and there are many departments at the same level. Complexity is a characteristic of bureaucracies and is more likely in a large company such as this than in a small firm.

SOLUTION

The organization structure of a small utility is centralized. Most decisions are made by top management. In a very small company, the president might make most of the main decisions. As the firm grows, it will become increasingly aware that continued decentralization is necessary to meet the increasing demands placed on management.

SOLUTION

A manufacturer of high quality tools for aircraft mechanics has a horizontally complex organization structure. This means that there are many departments on the same level in the organization. Each of these departments is responsible for a specialized group of activities, such as those relating to finance, public relations, and production. Horizontal complexity is especially common in large organizations.

SOLUTION

A coal mining company is very formalized. This indicates that the organization structure is highly planned. There are well developed relationships between the parts of the organization. Rules and procedures indicate what each employee should do under certain circumstances.

SOLUTION

A producer of laminated plastic for industry is highly specialized. This means that individual departments and employees are responsible for only a limited number of activities. As people and departments are specialized, they have the opportunity to be efficient and effective in carrying out their specified responsibilities.

SOLUTION

An aero-space manufacturing company is highly standardized. This suggests that the firm has established techniques that are applied whenever certain incidents occur. These techniques are often expressed in the form of rules or regulations ands are specified in writing, so that they will be thoroughly understood.

SOLUTION

An automobile parts wholesaler likes to rotate newly-hired managers from one department to another, as a training device. This is an example of traditionalism--practices that are widely followed in the organization, but are not part of the formal rules and regulations, as are standards.

TOPIC Line and Staff Concepts

TEXTWINDOW

One of the more fundamental ways in which personnel and departments in an organization can be subdivided is according to whether they are line, on the one hand, or staff, on the other. This distinction can be found in all types of organizations but is perhaps most evident in business firms. There the distinction will have a major bearing on how managers and departments interact with others and carry on their day-to-day duties.

In earlier topics we have discussed line and staff in a preliminary fashion. Now is the time to integrate some more advanced ideas about these into our examination of the design and formulation of organization structure. This will require identifying who staff personnel are and what they do.

The line and staff notion pertains to the configuration of links or connections between various people and departments having different capacities in an organization. Capacities, in this context, refers to the ability to issue commands to others and to expect that these commands will be obeyed.

Some managers and departments are designated as "line". Their authority is over functions that must be performed if the organization is to exist. This means that their activities contribute directly to the fundamental goals of the unit. If these activities were not carried out, the enterprise could not accomplish its mission . In a manufacturing firm, the line functions are production, marketing, and finance. In a retail or wholesale enterprise, they would be buying, marketing, store operations, and finance.

Other managers and departments are termed as "staff". Their function is to advise the line in a variety of ways and to facilitate its operations. Staff personnel are engaged in helping to sustain the line and other staff units as they carry out their assigned responsibilities. In a business, staff activities include those relating to such functions as personnel, corporate planning, legal advice, public relations, engineering, building and grounds maintenance, and accounting. These do not contribute directly to the fundamental goals of the enterprise, although they are of obvious importance.

Line managers possess the decisive command authority to arrive at decisions over the activities that contribute directly to the fundamental goals of the organization. They make their judgments on these areas and do not have to heed or sometimes even listen to the advice which the staff devises and contributes. Further, line managers report to other line managers and never to staff members. In addition, they do not issue directives to staff personnel who are subordinates of other managers.

In organization charts, line and staff are often depicted in a fashion as illustrated below. The

president has two vice presidents, who are line managers. One might head up production and another marketing. There are three staff assistants--in office management, personnel, and accounting. They do not exercise any authority over the other managers. The only authority they may have is over others in their own units. The accounting manager would have authority over other accountants in his department, for example. But this individual could not issue orders to personnel in marketing or production. That would break the chain of command and would make it difficult to hold marketing and production personnel responsible for their decisions.

Line and staff distinctions can be consequential in instances where management is attempting to arrive at judgments regarding how centralized or decentralized the organization structure should ideally be. Effective decision making for organizations that are of medium or large size requires delegation, because top management cannot be aware of all aspects--divisions, departments, products, and the like-- of the company. But, overall planning requires centralization, since someone must coordinate the actions of all the various departments. It is necessary, then, to somehow find a mechanism that can constructively balance the counteracting effects of centralization and decentralization.

In situations where line managers want to allocate authority it can be delegated to either their line subordinates or to one or more staff assistants. If they choose to delegate to line subordinates, decentralization occurs. However, if they take an opposing course of action and delegate to staff assistants, who then advise the line managers, decentralization has not taken place. The line managers still make the decisions themselves. They will be advised and assisted by the staff, however.

If line managers commission authority to line subordinates, those line subordinates have additional duties, in addition to those they normally carry out in their work as line managers. When this happens, the line subordinates may not make competent decisions because of the time pressures under which they now labor. However, they may be more productive than staff managers because they are experienced and practicing executives and not just advisors. A sales manager may be very astute at deciding what new salespersons to hire, because of his past experience as a sales representative who is actually out in the field producing revenues. A personnel manager, who may have no actual sales expertise, may make serious mistakes in this arena, however..

Staff personnel arrive at decisions that are guided by their specialized knowledge, built upon a foundation of education and training. . A personnel manager, for instance, may be very familiar with the law relating to hiring new personnel--areas such as discrimination and affirmative action. Further, staff personnel usually do not have so many of the daily pressures that bear upon line executives.

However, decision making by the staff personnel can have its deficiencies. The individuals who make the decisions are not those who must take the field and implement them in a manner that contributes to the goals of the enterprise. Hence, the suggested courses of action may not be realistic. Further, staff personnel are sometimes so busy with their regular duties that they do not have adequate time to assist the line manager. They come to view line requests as diversions that detract from what is "really important"--the ongoing operation of the staff department and its personnel.

Managers will assign authority to line or to staff subordinates, depending upon how close they wish to retain control over the activity in question. Sometimes a top executive believes that a particular course of action, such as closely adhering to anti-discrimination laws, should be uniformly administered and applied throughout the entire organization. In other cases managers are faced with issues that have forceful implications for the long-run welfare or even the survival of the organization. Finally, line managers may be convinced that only they are in possession of the necessary knowledge to make workable decisions. In these instances, the manager will likely assign such duties to a staff subordinate.

Sometimes, however, decisions must be made near the point of performance, or the manager wants to develop subordinates as managers by giving them responsibilities, or is already overwhelmed with duties. Here, delegation to line subordinates is probable. Activities such as hiring of new executives, changing sources of supply, changing advertising agencies, and personnel matters for operative employees are frequently delegated.

Generally, decentralization depends on the comprehensiveness, significance, complexity, confidential nature, and ease of control of a decision, and the administrative philosophy of top management. The greater the comprehensiveness, significance, and confidential nature of a decision, the less likely that authority over that decision will be delegated. Hence, decisions on such matters as mergers, reorganizations, corporate acquisitions, major new products, hiring top executives, and new channels of distribution are often not delegated.

Passing on authority to subordinates carries certain implications. It increases the likelihood that the subordinate will take the initiative in decision making. In addition, it advances the probability that the subordinate will participate more in the implementation of the decision. Finally, it assists in developing subordinate executives. They often learn and grow rapidly in both capability and in status, when they are assigned important responsibilities and are held accountable for the outcomes of these.

EXAMPLE

A manufacturer of automobile safety belts has enjoyed phenomenal growth in recent years. The firm has gained market share rapidly and has hired a large number of staff specialists to facilitate this growth. Management has found it necessary to make improvements in its basic product line, necessitating the hiring of a number of research and development scientists and technicians. Legal problems with governmental bodies and competitors have forced it to augment the legal department staff. And management has found it necessary to enhance the size of the personnel department to stay apace with hiring demands.

Most organization insiders are convinced that the new staff specialists have made a number of valuable contributions to the company. They have assisted it in adjusting to a variety of demands brought about by the substantial growth that it has witnessed.

SOLUTION

A production manager in a company that produces computer printers is a line manager. This is because production is a function that must be performed if the organization is to exist. Production contributes directly to the fundamental goals of the unit. It is the technical core. If production was not carried out, the company could not accomplish its mission.

SOLUTION

An interior decorator serves in a staff position in a department store. This is a staff position because it involves advising the line and facilitating its operations. The interior decorator provides specialized services in advising the line on such matters as store decor, colors, and arrangement. This is not a function that contributes directly to the fundamental goals of the store.

SOLUTION

In a large insurance company, when a vice president delegates authority to a line subordinate decentralization occurs. In this case, the vice president has granted the subordinate authority to make decisions that would ordinarily be carried out at the vice presidential level. This moves the point of decision making closer to the point where the work will actually be carried out

SOLUTION

The president of an office equipment wholesale house has delegated purchasing authority to a line manager. A possible disadvantage of this is the line manager may not be able to make good decisions because of time pressures. Now this individual has additional duties, in addition to those that were required in the past. This may lead to neglect over purchasing.

SOLUTION

A personnel manager has just been hired by a company that produces industrial belts and tubing. An advantage of having such a manager is this individual will bring specialized knowledge to the job, knowledge on such areas as hiring, promotion, tenure, training, and development.

SOLUTION

A construction company has just hired a personnel manager. A disadvantage of having a staff person do the personnel work is this individual will not implement the decisions made. Hence the decisions may not be realistic. The personnel manager, for instance, may favor hiring certain types of production workers, but these workers may not have the experience desired by the production manager.

SOLUTION

The president of a company that makes personal finance software for consumers believes that decisions on wage and salary administration should be uniformly applied throughout the company. In this case, the president will assign such duties to a staff subordinate to the president. In other words, the authority will be centralized. It will still be necessary for the president to have primary authority over this function, but the staff subordinate will provide advice and service--probably in gathering data for the president.

TOPIC Staff Authority

TEXTWINDOW

In this topic we are going to deal with what may seem to be a paradox. In previous topics we have pointed out that staff personnel do not have authority over line employees. Generally that is true for most staff positions. However, there are some hybrid kinds of staff activity where there is power over command decisions. In the so called real world, then, there are departures from the strict delineations which we have introduced earlier. These departures convert the staff personnel into modes of operation that sometimes resemble line actions.

We will examine four of these departures. These are: standard counseling, mandatory counseling, required assent, and functional authority.

Standard counseling is the norm in most enterprises. Here, the staff personnel apply their technical expertise and merely advise and assist line personnel in accomplishing their work more proficiently. They may furnish data, as do the accounting department and management information systems departments, or may supply various services, as when members of the company legal department assist production personnel in arranging the workplace so that it does not conflict with the federal occupational and safety laws.

As it turns out, standard counseling conforms to our earlier description of staff authority. In this case, the staff has no formal power that they can apply in a command fashion. They can, however advocate specific actions to line personnel in the form of suggestions and can attempt to be persuasive in the process. But line managers can reject the suggestions of the staff, if they so choose. Should the line adopt staff ideas and put them into effect, they are ultimately responsible for the outcome. It does not matter that staff personnel instigated an idea, it is the line that is obligated to stand behind any resolutions that have been made, even if they are in the domain of the staff personnel.

Some companies engage economists to operate as standard counselors. In this instance, the economists have no authority. But they dispense advice to marketing, production, and financial executives. They may produce forecasts of company sales for the use of production managers in making labor and materials budgets and for marketing managers in setting sales goals and advertising budgets. They may inform the finance department as to expected directions of interest rates and projections of the consumer or wholesale or some other price index. Based upon these data, they may advise financial managers to issue bonds or borrow money through the money market. But, the economists cannot exercise even a small degree of command authority in any of these cases.

A second kind of staff authority is Amandatory counseling. Here the staff has a slightly greater amount of formal power than it does under a standard counseling arrangement When mandatory counseling is in effect, line executives are required to contact the staff and hear their recommendations, before they make a decision that falls into the staff's field of professional expertise.

The rationale for this arrangement is that the company employs talented staff people and they should be queried before certain actions are pursued. However, the line still retains the authority to make the decision unilaterally and can ignore all of the recommendations that are forthcoming from the staff, if they so choose. Of course, line managers may be subjected to discipline by their superiors if they overlook the recommendations of the staff and this neglect results in negative consequences.

This type of authority is sometimes exercised by engineering professionals. The production department may believe that it is desirable to make far-reaching alterations in the production process, as by bringing in new kinds of machinery, innovative assembling processes, new kinds of workers, or different raw materials. This department may have the authority to do these things but is required to solicit the advice of particular engineers before the decision is actually implemented. The authority of production is not subverted, but they may benefit from the perspectives of outsiders to the department who have particular competencies that are relevant to the proposed change.

Public relations departments sometimes have this kind of authority. Before line managers implement major decisions that may affect the attitudes of the community toward the company, they are required to listen to the suggestions of certain members of this department. Matters that may require public relations input include the introduction of controversial new products (such as prescription drugs with strong side effects); downsizing which will result in many company workers becoming unemployed; moving a plant to another city, state, or foreign country; introducing a novel advertising campaign; and responding to current criticisms of the company by politicians or the media. These all have the potential of affecting the company image in the eyes of the public.

A third type of unique authority is required assent. This conveys even more power to staff personnel than do the two previously-mentioned systems. Under this arrangement, the line is required to confer with staff and cannot act unless the latter acquiesce. In other words, the line cannot bowl over the staff and impose its will. Top management believes that the staff must go along with any decision before it can be finalized and ultimately carried out. In essence, the staff has veto power when required assent is in effect. In a sense, they have some degree of the command authority normally exercised by the line..

Personnel departments sometimes possess this type of authority. In many companies new recruits must be routed through a series of procedures before they can be hired. These include reviews of application blanks, references, physical examinations, psychological tests, and interviews. Members of the personnel department will conduct some of these procedures and line managers will carry out others. After all of the required programs have been completed, a job offer cannot be tendered unless both the personnel department and the responsible line officer agree that this is advisable.

Another example of required assent takes place between training and line departments. Trainers are staff with narrowly-defined duties who have expertise in passing on knowledge and facts and building attitudes. In short, they know how to train. Line managers, on the other hand, are experts in accomplishing line functions. They know what topics the training should cover and which of these should be emphasized. Logically, the line and staff complement each other and should work together in fashioning training programs. Required assent may be mandatory for the two departments before a new training program is constructed and put into effect. This ensures that the know-how of both line and staff will be brought to bear on the formulation and the implementation of the program..

The last kind of staff authority which we will review is functional authority. This program of influence grants more power to staff personnel than do any of the previously-discussed systems. With functional authority, staff members have the power to impart commands to line executives. The orders can be voided by the line manager who is the superior of the staff member, but if the orders are not so nullified, they carry the same authority as if they were generated by the line manager. Usually, this kind of authority applies to a restricted sphere in which the staff member has unique expertise.

In some companies, functional authority is in the possession of industrial relations managers. Line middle managers and foremen cannot fire, demote, transfer, or otherwise make major changes that affect particular personnel, without first securing the permission of industrial relations. This department has proficiency relating to contracts with company unions and to labor law that should be contemplated when making personnel decisions. Also, this department might write regulations on matters such as job discrimination and sexual harassment that apply to all members of the organization, both line and staff.

Various companies have legal departments which exercise functional authority under prescribed circumstances. If the company is being investigated for violations of particular laws, such as antitrust or consumer protection, the legal department may be allowed to issue directions to line and staff employees to the effect that any suspected illegal actions should be aborted while they are further investigated by the legal department. This allows immediate remedial reaction to what may become a major problem at some time in the future.

To this point, we have been discussing formal authority possessed by the staff. But staff executives can exercise extensive influence over decision making, even when they do not have the formal authority to do so. Some obtain power simply because they are very persuasive. If they develop reputations for intelligence and the possession of valuable insights, line executives may learn to carefully consider and often accept their recommendations. This power may extend to decisions that do not fall within the scope of their duties. It may turn out, for example, that a pension fund coordinator has good ideas as to where to locate new plants or to relocate existing ones,, even though such decisions are not even remotely related to pension fund administration and control.

There are occasions when employees are transferred from staff to line positions, as when a marketing researcher is moved to the sales department, or a dispatcher is assigned to production. This can be beneficial to the line, because it then has specialized expertise that was once only available through recourse to outside departments. Someone who once worked in industrial relations may be a welcome addition to the production department, because this new employee brings in expertise on matters relating to the union contract and labor law.

Staff personnel often welcome transfers to line units. In the typical company, opportunities for promotion in the staff departments are limited, because there is not a large number of staff managers. The best avenue for moving up in the organization is often to get into a line unit. Further, line positions, even if they are not managerial, may be attractive to the staff. Some sales representatives, for example, earn sizable salaries and commissions, so staff people will often attempt to gravitate to sales positions.

EXAMPLE

A law firm had a problem. It had been very successful in winning some very important cases for its clients. The partners in the firm had demonstrated that they were very adept in winning what looked like lost causes. They had expected that their reputation would earn them a large volume of business. Word of mouth publicity can be a tremendous asset in this line of business. On the other hand, some competing firms had been less successful, yet they seemed to get more good clients. It was difficult to understand why outstanding performance had not resulted in more business.

The difference between the law firms turned out to be that those who obtained positive and extensive coverage in the press appealed to clients. Apparently, potential clients are attracted to firms that receive wide publicity in newspapers, television, and magazines. Upon discovering this, the partners in the firm hired a public relations director. His job was to see that the firm's successes were favorably documented in the media. He has been able to achieve this, and the firm has attracted a much larger roster of new clients, as a result.

SOLUTION

A producer of arc welders uses the accounting department in a standard counseling role. This means that the accounting personnel advise and assist line personnel in accomplishing their work. The accounting department will provide data to production, marketing, and other line departments. In addition, it may furnish service, as when these departments request that special studies be conducted.

.

SOLUTION

A producer of neoprene boats employs standard counseling for its staff departments. If a production manager adopts the ideas of a personnel manager in hiring new employees, the production manager is responsible for the outcome of the ideas. By accepting the recommendations of a staff employee and putting these into effect, the production manager is in the same position as if he had generated the ideas in the first place.

SOLUTION

A refrigeration equipment wholesaler uses mandatory counseling. When a marketing manager is working with a member of the legal department, the marketing manager must obtain the recommendations of the legal department, before making a decision. But the marketing manager can ignore the advice of the legal department, if she so chooses. All that is necessary is to listen to what the legal department has to say.

SOLUTION

A large bank employs a required assent kind of staff authority. When a loan officer works with a personnel employee, the loan officer must obtain permission from personnel before a decision can be made. The loan officer cannot act unilaterally and if the personnel employee will not agree with the decision, it cannot be carried out. In this case, the two parties are, in essence, sharing command authority.

SOLUTION

A plant safety manager in a plant that manufactures denim jeans has functional authority. In this case the plant safety manager can give commands to the production manager. Normally, the commands would be restricted to those having to do with the physical welfare of the production workers. The manager might order guard rails to be placed on stairs or the construction of additional fires escapes in the plant, for example. The superior of the plant safety manager can veto these commands, but if there is no veto, they carry the same authority as if they were made by this superior.

SOLUTION

A company nurse who has no formal authority can exercise influence over health standards in an asbestos plant by being very persuasive. She can develop a reputation for producing ideas that will promote the health of workers in the plant and make use of this reputation in attempting to convince line managers to adopt procedures such as requiring workers to wear air filtering devices and safety goggles. Due to her expertise, line managers are likely to listen to her. And if she is persuasive and has good people skills, this will reinforce her expertise and give her substantial power.

SOLUTION

A company that produces drill bits for oil field drilling companies has moved an employee from the forecasting department to the sales department. A likely result is that this can be beneficial to the sales department. Sales now has specialized expertise that was once only available through an outside department. This could be especially useful because sales representatives are often called upon to generate sales forecasts. But in a typical company, the sales people are not trained in forecasting and can use inputs such as those which would be available from someone who used to work in the forecasting department.

TOPIC Different Kinds Of Staff

TEXTWINDOW

Based upon our discussion to this point, you may have the impression that all staff people do about the same things. To a point, this is true, but, the duties in staff positions are not all exactly alike. In fact, they can diverge widely from one organization to another and in the same organization at various points. Basically, there are three major kinds of staff. These are the general staff, technical staff, and coordinating staff. We will review the essential elements of each of these, in turn.

The general staff is made up of those personnel who handle general plans, policies, and procedures. Some of these report directly to top management, but they may also be positioned at the middle management level. General staff people are assigned to a single executive. They assume some of the executive's responsibilities when the need arises. However, they take on only those specific responsibilities that the executive has expressly delegated. In other words, they are not replacements for the executive.

It is instructive to consider general staff as an activity or an endeavor, rather than as a position in the company. A vice president of production (a line function) can operate as general staff if the vice president serves on a task force that is developing the company mission and goals. Officially, the president is a member of the task force. But, because he is occupied with other duties, he might delegate this authority to the vice president of production. Even though the vice president occupies a line position (in production) he is serving in a staff capacity on the task force.

General staff can be either staff subordinates or line subordinates. Staff subordinates help executives in particular parts of the executives' duties. They focus mainly on procedures, dealing with other executives, communicating with stakeholders and other elements of the environment, gathering data, and assisting with the personal needs of the executives they serve. That is, they are assistants to, rather than for, the executives. However, they do not issue orders or possess command authority.

A chief executive of an aerospace company utilizes one staff subordinate to supply him with information about what is happening in the environment. The job of the staff subordinate is to gather facts and news, from newspapers, magazines, trade publications, television, word of mouth, the internet, and any other source that might contain information of interest to the chief executive. The latter is too occupied with other duties to stay apace of the myriad of external developments and relies on the staff subordinate to review them and to write succinct summaries in the form of daily memos.

Line subordinates are another type of general staff. Unlike staff subordinates, they can issue orders and have command authority, when their superiors grant them this authority. Some line subordinates have the responsibility for observing the activities of the department or division headed by their superiors and for reporting significant developments, such as emerging problems and opportunities, to the superior. A staff assistant to the manager of a division that produces laser printer cartridges, for instance, reads daily reports, consults with division personnel, and observes what is happening in the factory. It is her job to be on the outlook for problems or opportunities that should be brought to the attention of the division manager. As long as operations are stable, there may be no reason to contact this executive. When the division manager is out of town, or is otherwise unavailable, the line subordinate can issue orders, in the place of the manager.

A second category which we should examine and acquire some familiarity with is the technical staff. These individuals are specialists in some restricted and fairly narrow field. Examples are chemists, technicians, and company psychologists. They have in-depth education and experience in a particular domain and can furnish advice on topics with which other employees in the organization are not familiar. In turn, they serve various other line and staff units in the organization. Some company psychologists, for instance, assist advertising personnel in developing advertising copy. Others aid a variety of departments in dealing with personnel problems.

Trainers in many companies work as technical staff. They are experts in training and serve multiple line departments. Often they have specialized facilities that have been specifically designed for training purposes, and these facilities are stocked with equipment and supplies that are expressly constructed to pass on knowledge and skills. A large insurance company has a two-acre complex in a southwestern city that is devoted to training the sales force. It is staffed by former sales representatives and sales managers, psychologists, and former marketing professors who have developed special proficiencies in instilling facts, ideas, and attitudes that fit the company sales mission. The company training facility is recognized as one of the best in the industry.

Despite the fact that technical staff do not have command authority, they can assume considerable influence. Research and development personnel, for instance, are critical to the success of producers of prescription and over-the counter drugs, cameras and film, and machine tools. Because of their advanced knowledge and contribution to company achievements, their inputs may assume critical prominence in corporate decisions. A large portion of their power derives from the fact that they are authorities in their respective fields.

Frequently, these individuals have extraordinary skill in persuading others to accept their views and their proposals. This proficiency is bolstered by the considerable status that they command.. These factors can serve to bestow them with a great deal of leverage in the decision making endeavors of management.

The variety of technical staff is sizable. Various companies have specialists in fields such as property management, real estate, warehousing, insurance, product design, computer technology, buildings and maintenance, packaging, transportation, law, employee health and safety, and product design. Each of these has advanced knowledge in a particular restricted professional domain.

A third staff category is the coordinating staff. As the name would imply, their job is to coordinate particular activities throughout the organization. They work in such fields as personnel, corporate planning, management audits, budgeting, control of operations, accounting, and personnel. It is their responsibility to ensure that their specialized areas of expertise are consistently applied in all of the levels, divisions, departments, and other subunits of the enterprise.

The budget officer for a firm that manufactures corrugated cardboard boxes operates as a coordinating staff officer. She is obligated to make sure that all departments prepare budgets, and cast them in the format that top management has prescribed in the budget manual.. This format permits top management to compare the relative performance of each department with that of other departments, as a means of supervision, planning, evaluation and control. Further, this budget officer oversees budgets, and reports significant deviations from target levels to top management. Without her, it is possible that some departments would not prepare budgets or would produce them in a form that was not acceptable to line managers, because their format was incorrect or the budget categories that were included were not similar to those of other departments..

A personnel manager for a chain of variety stores serves in a coordinating staff capacity. His assignment is to moniter the personnel policies of each store in the chain, to ensure that all are observing corporate policy. Top management, working with personnel specialists, has created a set of procedures that must be complied with when any store manager hires, promotes, disciplines, or terminates an employee. These procedures were contrived to promote employee morale, conserve funds, and ensure that labor laws were not violated. When this staff assistant discovers departures from the authorized procedures, he reports them to his superior, who in turn relays the information on to a line manager, where there may be further investigation or remedial action may be taken.

Coordinating staff are engaged as a medium for centralizing decision making. Top management has decided that some activities must be carried out in a consistent fashion in all of the subdivisions of the organization. Line managers have concluded that departures from these standards would not be desirable, as when each store manager judges what steps should be taken in hiring new employees or each department manager has the option of deciding if a budget should be prepared and how it should be constructed. In these cases, failure to observe corporate standards could run counter to important objectives. The line managers frequently do not have the time needed for certain activities and engage coordinating staff in order to get the job done effectively.

Generally, companies add staff personnel as they grow. Typically, very small concerns employ only line personnel. As they become larger and hire more employees, however, and discover the need for special skills and responsibilities, staff people are brought in. This, of course, can be overdone, and management may discover that the administrative and financial burden has become excessive, and cutbacks in jobs are necessary. Staff personnel can be of extreme importance, but it should be kept in mind that the line is what is indispensable to company survival and achievement. It should not be assumed that the types of staff will remain the same with the passage of time. Management may conclude that changes in the environment or in the company necessitate alterations in responsibilities. Thus, a budget officer may serve in a technical staff capacity for a number of years and later be converted to coordinating staff, because management has judged that consistent performance of budgetary activities in all departments has become necessary.

EXAMPLE

A producer of catalytic converters was not one of the larger businesses in the industry until 1992, when company technicians were able to come up with a robotized production process that cut manufacturing costs by over ten percent. The resulting cost savings enabled management to lower prices and gain notable market share. Within two years, the firm became one of the larger players in the trade..

With growth came problems. The enterprise expanded its production and sales work forces and purchased a new plant. The personnel manager was unable to handle the resulting work load, and found it necessary to hire two line subordinates. The sales manager also required staff assistance, and was given a line subordinate. A budget analyst was added to the finance department. Today, the firm employs over one hundred staff specialists, each of whom is involved in a particular specialty. Top management is convinced that these have made a major contribution to the company and that it is now in a position where the staff is indispensable to further corporate prosperity..

SOLUTION

The financial manager of a credit card company has a general staff assistant. This individual takes on only those responsibilities that the financial manager has delegated. The general staff assistant is not a substitute for the financial manager. The assistant does not have the same authority as the manager. Only certain activities will be included in the delegation of authority in this case.

SOLUTION

In a chemical products manufacturer, the vice president of marketing sometimes acts as general staff. When this happens the vice president carries out some duties that the president normally handles. In this case, the president has delegated authority for specific activities to the vice president. But this is temporary and the authority only extends to those particular functions.

SOLUTION

A firm produces coils for electric motors. A plant manager has a staff subordinate, who could be involved in gathering data and assisting with the plant manager's particular needs. Staff subordinates help executives in particular parts of the executives' duties. They focus on procedures, such as gathering data. They do not have command authority.

SOLUTION

The president of a jewelry wholesale house has a line subordinate. It can be expected that this subordinate can issue orders and has command authority. This will take place only when the president delegates this authority, however. Line subordinates have authority over some functions of the president, but not others.

SOLUTION

A chemist is employed by a company that produces dental prosthetics. This individual is probably a technical staff employee. The job requires specialized knowledge and training in the field of chemistry. The employee has in-depth education and experience and can furnish advice on technical matters.

SOLUTION

A computer center director in a toy manufacturing company may have power over production managers that is due to outstanding persuasive abilities. This employee does not have formal authority. But, the ability to persuade line managers may supply consequential power. Technical specialists are often very articulate and are adept at persuasion.

SOLUTION

A personnel manager for a textile mill occupies a coordinating staff role. Her job entails making sure that personnel procedures are consistent throughout the company. This will involve checking individual departments, divisions, and organization levels to see that personnel procedures fit the standards set up by management.

TOPIC Variations on Bureaucracy

TEXTWINDOW

In previous topics we have introduced bureaucracy and then brought up a number of characteristics of organizations, including bureaucracies, that influenced organizational structure. We now have a sufficient amount of background to introduce some variations on the preliminary (often called machine) bureaucracy schematic introduced earlier. Specifically, we will examine the professional bureaucracy, the divisionalized form, and the adhocracy. All three of these have some of the essential features of bureaucracy but differ from other types in important ways. Further, each of the three is more fit for certain kinds of environments than it is for others.

Professional bureaucracies are bureaucratic but are not as centralized as are those that we have discussed thus far. The environment and the nature of the activities undertaken by employees are stable, so that behavior is predictable and standardized. The employees are educated and skilled professionals who control the work that is accomplished. Examples are universities, public accounting firms, law firms, and medical trauma centers. When a group of physicians or dentists unite to form a group medical practice, they often construct an organization that falls into the professional bureaucracy category. As you can imagine, the nature of their work would mitigate severely against use of the machine bureaucracy pattern.

In these organizations, professionals, such as scientists and technicians, make up the technical core. Normally they are given considerable discretion in determining how the work will be performed. The skills of the professionals tend to be standardized, so active control efforts by managers is unnecessary. The partners in a legal firm can assume that the work of their associates will be carried out professionally without close supervision, for example. In these bureaucracies, professionals work closely with and develop relationships with clients. This is one of their major strengths.

The professionals in these organizations are mainly well-educated, as in the case of professors and lawyers. They have also received extensive training from their employer. In some cases, the stock of knowledge that they possess is greater than that commanded by their supervisors. In turn, the supervisors act more as coordinators than as bosses of their employees. Supervisors spend more time on administrative matters, such as preparing budgets, than they do on issuing commands to departmental members.

The training which these organizations supply leads to employee performance that is coordinated with that of other employees and directed toward satisfying important stakeholders. Since this work effort is carefully planned, sometimes in great detail, we are dealing with a bureaucracy. But, it is quite distinct from machine bureaucracy, where the work is planned and culminates in a great number of rules and regulations. These are not common in professional bureaucracies.

The technical core of skilled professionals work closely together in an integrated fashion. Their efforts are supplemented by staff employees who handle tasks that do not require extensive expertise, training, or education. In an advertising agency, for instance, the professionals (writers, art directors, photographers, media planners, and others) are supported by secretaries, computer operators, statisticians, and other staff, so that the technical core is free to concentrate on producing advertisements.

Most professional bureaucracies do not have many levels of management. The members of the technical core control their own activities and coordinate with other employees without directives from superiors--They manage themselves, to a large degree. Authority is highly decentralized in these organizations.

A second departure from machine bureaucracy is the divisionalized form. This is found in many large corporations. Every division in the organization has its own particular organization structure, and operates somewhat autonomously. However, the various divisions are brought together through a top management unit which is usually designated as headquarters.

Each of the divisions in this structural form serves a particular market. The market may be delineated geographically (as in the case of a North American division of an automobile company), a type of customer (such as discount store buyers of work shoes), or a type of product (such as buyers of car radios).

Each division has a complete organization, made up of line and staff units. A manufacturer, for instance, might have production, marketing, finance, accounting, engineering, personnel, R & D, and division planning departments. Each division, then, tends to operate independently of the others, since each has its own personnel and other resources.

These organizations, then, are highly decentralized. But there are certain functions that, because of their importance or the necessity for coordination, need to be centralized. Hence, a company might centralize decisions regarding capital budgeting, legal affairs, and corporate planning. Usually, top management provides each division with goals in terms of profits, sales, share of market, or some other quantitative measure.

Organizations adopt the divisionalized form when they serve different target markets. If a market is sufficiently large, a division is created to specialize in serving it. If there were only one target market, there would be no incentive to implement this form. Since most large companies serve numerous markets, this structure is frequently employed. When a firm is first formed it may serve only one market, but with the passage of time add new products and new groups of customers and find divisionalization to be desirable.

If the firm's technical core cannot be efficiently subdivided, divisionalization may not be a good idea. A container company may be able to produce glass bottles from one large plant at a low cost. If divisions are created, each with its own production unit, costs per unit may be much greater than if production is centralized. It should be recognized that the divisionalized form results in the duplication of personnel and facilities, and this can be expensive, sometimes too expensive to justify the system.

Research in organization behavior has shown that this structure is most effective in simple and stable environments. If the environment is complex and unstable, the adhocracy may be more suitable.

The last departure from machine bureaucracy that we will discuss is the adhocracy, a structure that can change rapidly in a dynamic and unpredictable environment. This is an organic unit that is not formalized. Communications are mainly informal and can be both horizontal and vertical. The employees are experts in certain fields who form activity oriented teams, as the need arises, to satisfy the needs of a market. Basically, the teams coordinate themselves and position their work with other teams. In order to be innovative, the organization does not attempt to achieve coordination through formal planning and control.

Adhocracies employ professionals who are highly motivated to produce new ideas. Professional bureaucracies depend upon standardized skills of professionals for coordination purposes. But the adhocracy does not do this, as this would not be conducive to innovation, change, and progress, which are highly sought-after. The members of the organization use their advanced knowledge to build new insights. The specialized intelligence of the professionals is brought together to develop novel concepts as the need arises, as when opportunities unfold.

In these units there is little reliance on conventional organization principles such as unity of command. Instead, the organization forms around small market oriented project teams. The members of these ventures essentially govern themselves. There is a strong organization culture that favors innovation and a common purpose in the well-being of the company. Employee roles are continually redefined in connection with the project they are currently working on. Titles and responsibilities are continually being redefined. In short, this is a very fluid organization format.

The venture teams that these organizations utilize include individuals with different specialties who are assigned to overcome problems experienced by customers. These small groupings may exist for long time periods or sometimes for only a few weeks. They look for creative answers to customer problems and are highly committed to customer satisfaction. Rather than attempting to be efficient, as would a machine bureaucracy, they endeavor to be innovative.

Line managers of adhocracies do little supervision over the employees which make up the technical core. They are committed to the idea that the employees are the source of success and the employees should be left alone to accomplish their objectives. Firms that utilize such teams include advertising agencies, medium sized medical technology firms, and some research and development laboratories. They are situated in environments that are both complex and turbulent.

Successful adhocracies have common values which all employees internalize. The values include leading the industry in serving customers and in producing superior products. In turn, the values are spread by internalization by employees, rather than by stating them in written corporate statements of purpose which employees are expected to read and memorize. Management sees its role as guiding the formation of these values, rather than closely supervising subordinates. It is willing to accept occasional failures, as a price that must be paid for successful innovations. Basically, experimentation is valued.

This form of organization might seem fit only for small firms. But large companies have taken advantage of it by breaking down groups of employees into small project teams. In this way, large concerns can enjoy some of the advantages normally associated with entrepreneurship, such as the formation of innovations and employee commitment to the organization mission. The firms are engaged in constant assignment of employees to new projects, as the need arises, and reassignment, as changes in the market take place.

EXAMPLE

A large automobile producer has adopted the divisionalized form of organization. It markets its products in the United States, Canada, Mexico, South America, Western Europe, and the Pacific Rim. Following the markets, the firm has North American, South American, European, and Asian divisions. Each of these has its own production, marketing, finance, and staff personnel and facilities. Major corporate decisions, such as new product introduction and those pertaining to the evaluation of divisions, are made at the headquarters level, but the firm is otherwise generally decentralized. This company is one of the most successful enterprises in the industry, primarily because of its ability to produce high quality automobiles at reasonable prices. It is not a leader in new product design, preferring instead to emulate the design innovations of more creative rivals.

SOLUTION

A public accounting firm has assumed the organization form of a professional bureaucracy. It is characterized by a stable environment. This structure works best under such a situation. The inputs from the environment are reasonably predictable, allowing the firm to meet environmental needs by applying a standardized body of knowledge.

SOLUTION

In a law firm that is a professional bureaucracy, the skills of the technical core employees (attorneys) can be described as standardized. Members of the technical core have received extensive education and training in their specialty. They control the work that can be accomplished and act as true professionals, in the process.

SOLUTION

An architectural firm is a professional bureaucracy. We might expect that this firm would not have many levels of management. The members of the technical core control their activities and coordinate with other employees without directives from superiors. In essence they manage themselves. Authority is highly decentralized.

SOLUTION

A producer of electronic computer components follows the divisionalized form. In this organization each division operates somewhat autonomously. In many respects, each one acts like a separate company. There are some functions, however, such as budgeting and the evaluation of divisions, that are centralized.

SOLUTION

A manufacturer of medical instruments is likely to employ the divisionalized form if it serves different target markets. If a market is large enough, the company will install a division to specialize in serving it. If there were only one target market, there would be no reason to employ this form of organization.

SOLUTION

A biogenic engineering company is an adhocracy. One of its characteristics is the employees are professionals who join project teams. The employees tend to be highly educated and are in the forefront of their fields. Teams are formed to satisfy the needs of the market. These teams may be short-lived or may exist for a long period of time, depending upon what customers demand from the organization.

SOLUTION

An advertising agency is an adhocracy. We can expect to find that there is little reliance on conventional organization principles, such as unity of command and span of control. Instead, the structure is constantly changing, according to current needs. The project teams control and coordinate themselves, rather than have these functions performed by superiors.

TOPIC Corporate Strategy

TEXTWINDOW

Beginning with this topic, we will outline the process that organizations can take to develop a structure that fits their needs. Before going to the details of designing a structure, however, it is necessary to examine several aspects of top management and how this group determines strategy and makes decisions. This is needed, because the strategy and decision making style which top management pursues will have a major effect on the structure.

Top management is charged with the responsibility for developing the objectives and strategies of the organization, in order to orient the unit to the demands of the environment. We have discussed objectives and goals in earlier topics and will concentrate on strategies here. Basically, a strategy is an assemblage of plans that management has formed to realize basic organization goals.

In forming strategies, managers analyze the environment, looking for opportunities, problems, and trends. They attempt to study and predict how the environment is changing, where the major changes are taking place, and how this might affect the organization. In addition, they assess the strength and weaknesses of the organization and attempt to relate these to what is happening in the environment.

Defense-related companies in the 1990's learned that military spending cuts were forthcoming, and decided that they should seek a more promising niche. An examination of their technical cores suggested that they should convert their target market from military to industrial and consumer goods where they had a technical superiority. This led to a proliferation of new products, ranging from automobile tracker systems by satellite to surveillance systems for office and industrial sites.

Once strategies have been generated, they must be implemented, or carried out. Implementation requires deploying resources to the parts of the organization where they can best be used to make the strategy effective. A major part of the implementation procedure is achieved through the organization structure.

Strategies are formed at both the corporate and business levels. The first, corporate level strategy applies to all the departments, divisions, and other subsectors of the organization. Top management determines what the values of the organization should be and how social responsibility obligations to society will be fulfilled. In addition, management makes decisions in areas such as how large the firm should be, where should it do business, should other businesses be purchased, and should strategic alliances be formed with other firms. As might be expected, corporate strategies are formed by top management. Middle managers, however, frequently supply information and advice as to the directions these strategies should take.

On the other hand, business level strategies apply to only one product, product line, or division. Plans must be made in such areas as deciding if production facilities will be modernized, what product versions to offer, what prices to charge, and what channels of distribution to employ. These strategies are generated by middle managers.

One important element of corporate level strategy is to formulate the values for the organization. Some enterprises place high priority on innovation and creativity--the cultivation of change and attendant growth. Others value efficiency, in producing and distributing output with a minimal expenditure of resources. Some place high reliance on social responsibility--fulfilling the expectations of significant environmental elements, such as the physical environment and senior citizens. Still others primarily seek monetary value and are oriented toward profit making. Management's emphasis on values will reverberate throughout the entire organization and have a major impact on most decisions.

You probably are aware that each country and each part of a country has a unique culture. This is also true for business and nonprofit associations. The beliefs and values that members of an organization pursue make up the organization culture. The culture is unwritten and is carried from one person to another, often in an informal manner. Newcomers learn the culture from existing employees, through such avenues as word of mouth and observation of the behavior of those who have worked for the firm for an extended period of time.

The culture of an organization dictates what kinds of actions are admired and which ones are frowned upon. Each culture embodies norms, which are standards of acceptable behavior. Those who conduct themselves as the norms prescribe are rewarded and those who violate the norms are punished, either directly or subtly. Further, each culture has symbols which carry meaning. Having a reserved parking space at the headquarters office may symbolize power and status, for instance.

Some organization cultures are very strong. Most members agree that certain ideas and philosophies are important and should be protected. If the culture is powerful, this may strengthen the strategies of a firm. This being the case, top management attempts to direct culture so that it is compatible with organization strategies. This can be accomplished through speeches, statements in the company newsletter, and proclamations, but the best means of communication is to set an example by doing. If the chief executive officer conducts himself strictly along ethical lines, for instance, other members are so advised that this is an important value. If most members of the organization internalize ethical behavior, it will function as a norm.

There are a number of business-level strategies. One set of these relates to how the business relates to the environment. Specifically, businesses can be defenders, analyzers, prospectors or reactors.

The management of defenders believes that demand for the company's product is slowing or falling and the products are in an advanced stage of their life cycles. Management's major motivation is to defend its current market share. Price competition tends to be active in the industry, and management uses cost controls, in order to enable the firm to compete on a price basis. New products are not introduced and the basic attitude is not to lose more ground to competitors. In short, defenders tend to operate in a conservative pattern. Several producers of television sets have found this strategy to be attractive, in light of falling demand and active price competition.

Analyzer management sees the environment as changing slowly. An effort is made to protect market share and also produce a moderate number of innovations. Efficiency is sought in operations and there is also an effort to come up with new products. Bureaucracy may be adequate for traditional products, but a more organic type organization structure is pursued for new product development. These managers are slightly less conservative than are their defender counterparts. The packaged food products industry has a large number of analyzers.

Prospectors are highly motivated to look for new opportunities, such as product additions. They are faced with growing demands for their products. The organization structure is organic--designed for change. Growth is deemed to be an attractive goal. Management is willing to commit money and resources for in an attempt to discover and introduce new products. Basically, these managers are venturesome. Health food manufacturers in the 1990's found it necessary to subscribe to this strategy. The market was growing but very aggressive competition forced most firms to add new products on an almost continuous basis.

Reactors closely moniter the environment and look for signals that they should make changes. They do not have specific strategies, but merely react to shifts in behavior by customers, competitors, and others, when they see fit. Their strategy is basically one of wait and watch. Some small organizations, whose managers do not have the time and other resources needed for strategy creation fall into the reactor category. Their major advantage is that they learn to react quickly to changed environments.

An important element for strategy formulation is organization learning, where insights are acquired by the organization as a whole, rather than by individual managers. . Strategies are much more effective if the organization can learn how to perform better. Hence, organization learning consists of acquiring insights about how to enhance adaptation to the environment. Once learning takes place it becomes part of the organization culture.

There are two kinds of learning. In the case of single loop learning management detects mistakes and attempts to minimize damage by making changes in managerial or operating practices. If an advertising campaign is irritating customers, for example, the campaign is changed. Such learning can put out fires, but is not likely to prevent future problems, because it does not make an effort to get at the underlying causes..

Double loop learning is a different and more sophisticated process. Here, management judges if changes should be made in organization culture, values, and goals, in order to adapt to the environment. It may be that a culture which overemphasized rapid growth led to the formation of advertising campaigns that were not carefully studied, but were quickly implemented, for instance. In double loop learning, management examines some of the more fundamental beliefs of the unit.

If they are to be effective in developing and implementing strategies, organizations should

be prepared for learning, especially the double loop kind. Not only managers, but all employees should be aware that the most successful organizations, in the long run, will be those that are continually examining themselves and the environment and attempting to build up a stock of knowledge that can be incorporated into the organization culture. Learning and passing on knowledge to other organization members should be encouraged and rewarded, whenever possible.

Some organizations, especially those in the machine bureaucracy class, restrict learning. Conformity and observance of the way we have always done things around here inhibit learning and innovation. This is likely to result in strategies that are out of touch with the environment. These units are in special need of structural reform and a change in the corporate culture that emphasizes the value of assimilating knowledge.

EXAMPLE

A producer of personal finance software has a corporate culture that emphasizes service to the customer. It is the belief of management that, if meaningful relationships are established with these individuals, profits will follow. The firm has created software that is very user friendly. It has tested and retested the amount of skill required to use it and has found that even computer phobics should experience little difficulty.

Every employee in the company has been instructed that consumer satisfaction is the central focus. Technicians are available to answer customer questions on the telephone and this service extends indefinitely, over the life of the product. Some competing software firms offer this service for only three months or a year after purchase of their offerings. The company conducts user satisfaction surveys every year, in an attempt to discover ways the product line could be improved. All this is accompanied by a low retail price. The payoff to the company has been an unusually high degree of customer loyalty.

SOLUTION

An appliance retailer is in the process of developing a long run strategy. Basically, the strategy should be a set of plans designed to reach organizational goals. There are different ways that management could attempt to reach the goals, but a strategy is a particular set of ideas that management believes will be especially effective, to this end. Two or more organizations could have the same goals but divergent strategies.

SOLUTION

An example of a top level strategy for a commercial loan company is where the firm should do business. This decision pertains to all of the departments, divisions, and other subsectors of the organization. Further, it is a very important one, and probably deserves the attention of top management. Hence it should be a top level strategy.

SOLUTION

The best way for the president of a motion picture studio to direct the corporate culture is to set an example by doing. It is possible to make some headway by making speeches and preparing written narratives. However, subordinates will be most impressed by action, rather than words.

Action suggests true commitment, and not just lip service to the cultural elements.

SOLUTION

Management of a company that produces hardwood flooring follows a defender strategy. This indicates that management believes that demand for the product is slowing or falling. This leads to an attempt to defend the company's market share. Management is likely to use cost control in order to enable the company to compete on price.

SOLUTION

A sporting goods retailer employs an analyzer strategy. Since this is the case, we probably can assume that an effort is made to produce a moderate number of innovations. Management sees the environment as changing slowly and an organic type of organization structure probably will be used.

SOLUTION

A producer of solenoid switches has adopted a prospector strategy. This signifies that we will probably discover that the organization structure is organic. Such an organization structure will serve the company because it will be highly motivated to look for new opportunities, such as product additions. Growth is an attractive goal for this firm and the organic structure will allow it to move in this direction.

SOLUTION

The president of a retail carpet company believes that the store should engage in double loop learning. This involves deciding if changes should be made in company culture, values, and goals, in order to adapt to the environment. This is a deeper form of learning than single loop, where mistakes are corrected but the reasons for the mistakes are not sought out.

TOPIC Decision Making in Organizations

TEXTWINDOW

In order to devise strategies and establish appropriate organization structures, managers must engage in extensive decision making. This topic probes into the decision making process in organizations. First, we will briefly examine two models of individual (as contrasted to group) decision making, the rational and the intuitive.

Individual executives may use rational processes in arriving at a decision. Basically, this means following the steps of the scientific method. These steps are:

1. Oversee current operations. Managers continually keep track of the performance of the organization in order to judge if it is functioning according to plan. This involves such activities as examining records and reports, surveying customers, hearing reports from managers, and observing workers. If the operations are not functioning properly, further information is sought, in an attempt to isolate causes. The investigation might reveal that the overall problem is that worker productivity is declining.

2. Specify the problem. The managers next attempt to learn the exact nature of the problem.

This requires examining symptoms and tracing these back to their symptoms, until the real cause of the difficulty is located. The exact problem may be defined as workers have inadequate supervision. This could be the reason why worker productivity is declining--which is a symptom, and not a specific problem.

3. Designate the objectives. Here management indicates what favorable outcomes can be expected if the problem is solved. In our example, these outcomes might be increased output and lower production costs.

4. Set forth alternatives. In this step, various alterative courses of action that could be taken to solve the problem are identified and described as precisely as is possible. One alternative for the problem above might be to hire more supervisors. Another could be to subject the current supervisors to more advanced training than they have received in the past..

5. Assess alternatives. Eventually it will be necessary to select the best alternative and to implement it. Thus, management objectively tests what appear to be the best alternatives, in order to compile information on their strengths and weaknesses. It might be discovered that the budget would not permit hiring more supervisors, but that training of the supervisors would be both feasible and productive.

6. Choice. At this stage, the alternative which has the most favorable evaluation is accepted and put into action. Management might conclude that supervisor training is the best avenue. Once it has so resolved, the executives would begin to design a training program.

Rational decision making has much to offer. But, in some instances, executives are dealing with many intangible and complex variables, and it is difficult to employ rational decision making, at least in its entirety. Intuitive decision making may be useful under these circumstances. Here, executives make use of their judgment and experience, rather than taking a series of sequentially ordered steps .In many instances, this is a superior method.

The president of a chain of variety stores employs intuitive decision making in choosing sites for new stores. He simply drives around neighborhoods, looking at prospective lots, and chooses those that seem right to him. His judgment has been quite good, as measured by the sales record of these stores.

Individual executives do not make all the decisions in organizations. In fact, a large proportion are made by two or more. Next we will look at two models of group decision making. Neither one will completely answer all the questions you may have about this process, but together, they convey substantial understanding.

The incremental decision theory breaks down decision making into its separate parts. In this respect, it closely resembles rational decision making. They differ, however, in that incremental decision theory is used by groups, whereas rational decision theory is employed by individual executives. Incremental decision theory sets forth the steps in decision making as: (1) problem recognition, (2) fact finding, (3)search for solution, (4) Choice, and (5) authorization.

The process begins with problem recognition. There is a problem when a difference is evident between a desired situation and an actual situation. If a manufacturer of valves discovers that several new models will not hold up under high pressure, for instance, there is a problem. A problem is recognized when management becomes aware of its existence.

Fact finding is the second step. Management acquires further data to determine if there is, in fact, a genuine problem and the nature of the problem. This can be an extensive investigation, involving the examination of accounting records and data bases and extensive interviewing of company employees.

At the search for solution stage, management seeks courses of action that might solve the problem. It may be that the same problem has arisen in the past and a solution that worked well in the past could be tried now. Past sales declines, for instance, may have been caused by very non-creative advertising. If this is the case, a solution might be to obtain a new advertising agency. If the problem is new, there are no past solutions from which to borrow and it will be necessary to design a new solution

The choice stage requires deciding which course of action to take, as a means of solving the problem. This may be accomplished through the use of statistical analysis and other quantitative tools. Or an experienced executive may arrive at a conclusion based on judgment. Another possibility is that a group of executives are involved in the decision but they cannot agree as to the best course of action. They are likely to engage in bargaining and eventually agree on some compromise decision.

The last step in this model is authorization. Someone who is in authority must legitimize the solution before it can be put into effect. In many cases superiors will rubber stamp solutions that were produced by capable subordinates. It is always possible, however, that the superior will not agree with the solution and will reject it.

In summary, the theory posits that decision makers move through the following steps in sequence:

Incremental Decision Theory Sequence

Problem Recognition->Fact Finding->Search->Choice->Authorization

In practice, decision making does not always flow in a smooth path from recognition to authorization. Sometimes there are interruptions. Difficulties may come up that require jumping back to a prior stage. There are situations where the solution that is chosen is not authorized and the entire process must start again. The decision making activity may be set back by disagreements among managers, politics, changes in the environment, and other unpredictable events. Sometimes it is necessary to go through the entire sequence of events several times before a final decision can be arrived at.

Management of a company that produced pressure controls went through an extensive decision making exercise to determine if they should introduce a line of new models. The management team did the problem recognition, fact finding, search, choice, and authorization very carefully. The process took several months. All of this effort turned out to be wasted, however, when the executive committee of the company announced that the firm was going into the temperature control business. This forced the decision makers to repeat the process they already had completed for the pressure controls.

This is one model that is very useful in explaining decision making. But we should look at another one, because it holds just as much promise. The coalition theory indicates that decisions in organizations are frequently reached by coalitions. These are compacts by two or more executives who are in accord about the goals of the organization and the rank order of its problems.

One reason why coalitions are required for decision making is that executives have bounded rationality. They have limitations on their time and intellectual capabilities and cannot assess every problem in scientific detail. It could take years, for instance, to make a complete scientific study of what organization structure to adapt. But management cannot do this. It must make a reasonably quick decision, and then move on to other problems.

Because of bounded rationality, executives join coalitions. They study the ideas of others and engage in discussions as a means of obtaining insights. This has the effect of reducing the risk of making a bad decision, as different perspectives are brought to bear on the problem. They are likely to arrive at a solution that is satisfactory to the various parties in the coalition--they will seek a satisficing solution.

Another rationale for coalitions arises from the fact that departmental objectives frequently conflict with each other and organization objectives are sometimes vague and unclear. When these conditions exist, executives have opposing views on which problems are the most important and deserve immediate attention. This can be resolved by forming a coalition and bargaining about which problems to emphasize.

This theory points out that executives seek solutions that will easily and rapidly solve a problem. This is preferable to looking for a flawless solution, when the environment and the organization goals are ambiguous. Managers will continue search effort until they find a satisfactory solution and will adopt that solution, rather than looking further.

In this topic, we have examined four theories of decision making--two that pertain to individuals and two that pertain to groups. All four have something to offer. In analyzing the decision making of a particular company, we often find that one of the theories is more applicable than others and should be utilized. In other instances, two or more may offer benefits. Students of organization theory are well-advised to become comfortable with all four, so that they are in a position to apply the one or more that is most appropriate to each company at a given point in time..

EXAMPLE

The executive committee of a chain of child care centers recently experienced a difficult decision making process in attempting to decide if the firm should raise its weekly and monthly rates. Two members of the committee were convinced that rates should not be raised because competition was intense in most of the market areas of the firm, and this would result in lost profits. Another member felt that rates must be raised to cover rising liability insurance costs. The remaining members of the committee were not able to decide what position they favored. Eventually, they were convinced to go along with the rate increase, after hearing a presentation on expected future premium increases. They formed a coalition with the member favoring the rate increases and were successful in implementing this decision.

SOLUTION

The management of a convenience store chain employs rational decision making to form strategies. The steps in this method include specify the problem. This requires attempting to determine the exact nature of the problem. Symptoms are examined and traced back to their symptoms, until the real cause of the difficulty is located.

SOLUTION

A wholesaler of bakery products employs intuitive decision making. This makes use of judgment and experience. When there are many intangibles and complex variables to deal with, this method can be of value.

SOLUTION

A firm that provides transactional and billing solutions for telecommunications services uses incremental decision making. The steps in this activity include problem recognition. There is a problem when there is a difference between a desired situation and an actual situation.

SOLUTION

Management of a property and liability insurance company uses incremental decision theory to solve problems. The choice stage in this theory involves deciding which course of action to take, as a means of solving the problem. This may involve quantitative analysis, judgment, or some kind of compromise decision among several executives.

SOLUTION

A manufacturer of security systems for retail stores employs incremental decision theory. The authorization stage requires that someone who is in authority must legitimize the solution before it can be put into effect.

SOLUTION

One reason why coalitions are used in decision making for a producer of postage meters is that executives have bounded rationality. This means that they have limitations on their time and intellectual abilities and cannot assess every problem in scientific detail.

SOLUTION

In an aluminum manufacturing company departmental objectives frequently conflict with each other and organization objectives are sometimes vague and unclear. According to coalition theory, this results in executives with opposing views on which problems are the most important and deserve immediate attention. This can be resolved by forming a coalition and bargaining about which problems to emphasize.

TOPIC Creating An Organization Structure

TEXTWINDOW

Now that we have discussed strategy formation and decision making, we are in a position to examine how organization structures are formed. In this topic we will highlight a method of devising the overall organization structure. Subsequent topics will cover ways of refining this overall framework into various configurations that fit the specific needs of individual enterprises..

The procedure that we will describe is one that can be used to construct an initial structure, when the organization is just coming into existence. It also can be employed when management is redesigning an outmoded structure.

There are five steps involved in devising an overall organization structure. These are:

1. Define the objectives of the organization.

2. Decide what activities are required to reach the objectives.

3. Select the activities that should be clustered into the same group.

4. Allocate authority and responsibility to each group.

5. Form an organization chart

The first step is to define the objectives of the organization. We have dealt with these extensively in preceding topics. A company might have the objective of profitably producing and selling carpets for the consumer market. This provides some initial general guidelines as to the type of structure that would be appropriate. If management hopes to achieve this objective by being a very efficient and price competitive firm, a mechanistic structure may be most desirable. Conversely, if the strategy is to be very active in bringing out new products, an organic pattern may be chosen.

The second step is to decide what activities are required to reach the objectives. The list of activities may be very extensive, covering hundreds of different components. Some examples of activities which might appear on the list are:

. Acquire supplies from a mill supply house (a type of wholesaler).

. Determine what terms of sales supplier will provide.

. Arrange for the transportation of the supplies to our warehouse.

. Collect and protect the supplies in the warehouse.

. Arrange for movement of the supplies to the receiving dock.

. Move supplies from the receiving dock to production.

. Decide what kinds of stores should sell the carpeting.

. Determine if wholesalers should be used.

. Make contact with wholesalers if they are to be used.

. Make contact with target stores.

. Negotiate with the stores over prices, terms of sale, and other matters.

. Decide what kind of advertising agency to use.

. Contact several advertising agencies that appear to be suited to our firm.

These are only examples of the many activities that could be listed. The next step is to select the activities that should be clustered into the same group. That is, like activities should be brought together into categories. Those that are similar should be gathered together into homogeneous segments. . There are four major types of activities which can be so grouped:

1. Activities that directly produce sales. Examples are production and marketing. These are essential for the ongoing operation of the business.

2. Activities that supplement the direct sales producers. Examples are acquiring funds, managing funds, sales forecasting, information gathering, budgeting and information processing.

3. Activities which relate to maintenance of the physical properties and personnel, such as plant maintenance, medical care of employees, and security.

4. Activities performed by top management, such as setting objectives and strategies, determining corporate policies, determining the desired size of the organization, and establishing the corporate culture.

The activities are grouped into categories and the function of each category then can be established. Our hypothetical firm might decide that the logical categories were production, marketing, finance, personnel, purchasing, corporate research, and maintenance. Each of these categories can be formed into an independent department. This paves the way for permanently assigning activities to each department, which is the next step in the organization design process. Here authority and responsibility are allocated to every department, based upon the activities that have been assigned. For example, the marketing department might be responsible for:

. Advertising.

. Personal selling.

. Sales promotion.

. Publicity.

. Public relations.

. Marketing research.

. Marketing information system.

. Physical distribution.

. Channels of distribution.

. Product line.

. Packaging.

. Branding.

. Labeling.

. Price setting.

. Sales forecasting.

This process can require a substantial amount of time. And the assignments of authority and responsibility are not always clear cut. For example, should sales forecasting be assigned to marketing, to finance, or to some other unit? Should transportation related decisions be in the domain of production, marketing, logistics, traffic, or another department? Perhaps decision making for some of these should be shared between two or more departments. Or, on the other hand, it may be that sales forecasting and transportation should have their own individual departments. This is an area where seasoned managerial judgment and experience can be very useful. Some of the executives who are designing the organization may have experience with this or other companies that is invaluable in carrying out the current project.

The assignments of authority and responsibility should be clear cut. They should include designations of who reports to whom. For instance, it may be determined that the production manager will report to the plant manager and the chief accountant will report to the financial manager. Decisions should be reached as to the type of authority and responsibility that each position will hold. Who will have line authority over what functions? Who will have staff authority over what functions? If it is to be staff, what kind of staff authority? Will unity of command be preserved or will some other arrangement be pursued?

These concepts can be crystallized in the last step of forming the structure--the organization chart. Producing one of these graphic devices enables management to gain perspectives on the thinking that preceded its formation. A preliminary organization chart can be created and studied, and perhaps modified in the light of new thinking. Following is a hypothetical example of an organization chart for a manufacturing company, in simplified form. In the example, all of the managers except the chief engineer and personnel manager are line executives. In actual organization charts of large organizations there tend to be more staff managers and operatives as well as more line positions.

Hypothetical Organization Chart

Manufacturing Company

An examination of this chart may lead to changes. Perhaps buying should be assigned to finance. It may be that the budget officer should be a staff position assigned to the president. Some of the functions assigned to marketing services may be better placed in the sales department. Perhaps the buying department should be part of marketing. These and other issues can be proposed and discussed by senior managers. Careful study of these patterns will lead to a final organization chart which traces the authority and responsibility of each position.

EXAMPLE

A large corn flour mill has been in operation for over three decades and has served a major portion of the United States market. Management has broken the organization down into sales, marketing service, production, procurement, finance, personnel, and auxiliary services departments. This pattern has worked well for the firm. However, top management has decided to expand the firm's operations to Canadian, European, and Asian markets, necessitating several changes in the organization. A vice-president of international operations will report directly to the president. Under him will fall three managers, one for Canada, one for Europe, and one for Asia. Each of these managers will have their own marketing and operations staff. Top management believes that this new structure will be effective and will reflect the importance of the new international operations.

SOLUTION

A company produces video equipment for delivering advertisements, infomercials, and pay-per- view movies. In designing its organization structure the first step should be to define the objectives of the organization. This provides guidelines as to the type of structure that would be appropriate. Every portion of the structure and its overall pattern should contribute meaningfully to the objectives.

SOLUTION

A producer of chassis for buses is developing an organization structure. The activities required to reach the objectives that management considers will be large in number. These are all of the major activities which the firm will carry out, so the list may be extensive, perhaps numbering in the hundreds.

SOLUTION

In developing its structure a furniture wholesaler is grouping activities together into categories. Activities relating to exchanges with stakeholders are not one of the four types of activities which can be so grouped. The four activities are those that directly produce sales, those that supplement the direct sales producers, those which relate to maintenance of the physical properties and personnel, and top management activities.

SOLUTION

A builders' supply store chain is developing its structure. It is grouping organization activities into categories so that the function of each category can be established. One group of activities, for instance, might have to do with transforming inputs into outputs. The function of this category would be production. Organization functions are a product of the activities which contribute to the functions.

SOLUTION

A manufacturer of small electric motors is designing its structure. Assigning authority and responsibility to each group of activities may be time consuming because it is not always clear what activities belong in each group. The similarities may be difficult to determine. Sometimes an activity could easily go into two or more groups.

SOLUTION

In designing the structure for a producer of chewing gum authority and responsibility assignments should be clear cut. They should include designations of who reports to whom ands the type of authority and responsibility that each position will hold.

SOLUTION

The last step in the formation of an organization structure for a producer of fishing rods is to produce an organization chart. This enables management to gain perspective on the thinking that preceded its formation. The preliminary chart can be studied and changed, if this appears to be desirable.

TOPIC Activity Specification In Designing Structure

TEXTWINDOW

The previous topic mentioned that after defining the objectives, those who are designing the structure should decide what activities are required to reach the objectives. This is an important step and all of the following stages of the process are dependent upon it. But how can one determine what these activities are?

For most managers the best tool for isolating activities is practical experience. Seasoned executives who have background and practice in fashioning and managing organizations develop judgment and insights that rational problem solving, analysis of data, and other methods cannot duplicate. A productive approach is to supply seasoned executives with a description of the objectives and ask them to assemble a listing of required activities. They can be productive in accomplishing this because they have seen the activities carried out and may have been involved in executing some of them.

Deduction is a useful method to use in thinking of activities. We can safely assume that any organization must cover the line activities, in order for it to survive. Line activities will vary from one unit to another, but for most manufacturers these are production, marketing, and finance. This being the case, we can scrutinize each of these and decide what activities are essential for each one. An automobile manufacturer, for instance, would have literally hundreds of assembly activities under the heading of production. This would also be true for marketing and finance.

After deducing what activities would be necessary for line functions, management can decide what staff functions would be valuable in order for the line to perform effectively and efficiently. Once these staff functions are determined, their component activities could be deduced. This deductive method is a practical guide for both experienced and novice managers.

Case studies contained in management textbooks, case books, and published by various universities and professional associations present another approach for identifying activities. By reading the cases, management can determine what activities other companies undertake to attain their objectives. This line of analysis should be used with caution, however, because there are different ways to reach the same objectives, and the companies described in the cases may differ significantly from the one in question. However, cases can offer insights that managerial experience did not yield, so they should be considered as a source of inputs.

Once the activities have been identified they must be assembled together into positions, such as welder, auditor, and sales representative. This is accomplished by clustering complementary activities together. The result is specialization, where those who occupy particular positions do only certain kinds of work.

Specialization is very extensive today, especially in large organizations. Some assembly line workers are responsible for doing only one or several tasks, such as making a spot weld. Workers in the traffic department may focus only on auditing freight bills, to make sure that they do not contain over-billings. Truck drivers are not allowed to help unload cargoes. Some computer operators do the same kind of reports day after day. In producing cabinets there are a number of different specialties, including cutters, assemblers, fasteners, finishers, painters, and inspectors. Even managers are highly specialized, with some responsible for functions such as quality control, advertising media selection, and expense control.

There are three major reasons for pursuing specialization. These are the development of proficiency, requirements for two or more workers, and skill requirements. As for the first, employees become more productive when they do only a few activities repeatedly. If a production worker's only job is to place copper clamps on transformers that move through the production line, this worker becomes quite proficient at that job, usually after only a short time. If the worker was responsible for a variety of duties, the learning curve could be much longer. An employee whose only responsibilities are word processing can become a skilled specialist in a relatively moderate time.

Another reason why managers favor specialization is that many activities require the physical efforts of more than one person. It would be difficult or impossible for one person to produce a turbine generator, car, or house. In the same vein, one person could not create and carry out an entire advertising campaign for a large company. The physical demands alone, would be insurmountable.

Yet another reason is that many functions require many specialized skills--One person cannot have all of the requisite competence. Both plumbers and electricians are needed in constructing a new office building, for instance. It would be rare to find employees who are proficient in both of these areas.

There are some distinct advantages of specialization. This strategy assists the firm in finding an appropriate fit between employee and job, recruiting new employees, attaining efficiency, and improving training programs.

Specialization assists management in placing the right person in the right job. The requirements of each job are restricted. A worker may, for example, only be responsible for operating a fork lift truck. In filling the job, management only needs to look for someone who is good at this activity. It does not matter if the employee is creative, intelligent, or skilled in communications. All that is important is operational skill.

When there are job vacancies in a specialized organization, the skills of each job are very limited. This means that it may not be difficult to find a new recruit for the position. In the case of routine jobs, such as sewing pockets on denim pants and testing CD ROM cassettes with a computerized sensor, virtually anyone can do the job, after a brief learning period. This makes recruiting much easier.

Specialization, of course, aids workers in operating more efficiently. They repeat the specialized activities many times and learn how to do them better with the passage of time. Some house painters, bricklayers, and dishwashers (in restaurants) can do their jobs remarkably fast, once they have had an opportunity to develop skill.

It takes more time to learn some skills than it does others, of course. When dentists first graduate from dental school, their work is very slow, hardly fast enough for them to handle enough patients to earn a living. Many go into the armed services for several years. There, they will have the time to develop the efficiency they need to earn a good living in civilian life. They learn how to do things like quickly removing plaque.

Finally, specialization assists training. If each job requires only a few activities, the training program need not be extensive. Training programs for door-to-door salespeople tend to be very short and uncomplicated. This is because these individuals use canned sales talks and are engaged in only a few routine activities.

There are a number of disadvantages of specialization. In reality these are disadvantages of over-specialization, as most organizations require at least a minimum degree of this attribute. Over-specialization simplifies the work and makes it more routine. It eliminates variety. This is one of the reasons why some employees dislike their work. They feel like a small wheel in a big machine that grinds on in a somewhat meaningless fashion. Their work becomes boring and lacks challenge.

Over-specialization can lead to low morale. This is reflected in behaviors such as absenteeism, tardiness, low productivity, conflict with co-workers, and even sabotage of company operations. Some automobile assembly workers, for instance, have been known to place loose bolts in places such as crank cases, where they will cause annoyance to new car buyers and even engine repair needs. Low morale is not associated with company loyalty or acceptance of the cultural values of the organization. Further, people who do not feel good about their work are not likely to be creative. Because of these negative factors, a large number of organizations have moved toward less specialization, as when they engage in job enlargement--adding activities to jobs. The objective here is to make the jobs more interesting and meaningful.

EXAMPLE

A large producer of electronic power supplies recently altered its organization structure. In the past, the firm utilized a machine bureaucracy and most of the work force was highly specialized. It became evident that employee morale was low and most employees were not loyal to the company, believing that it was just a place to work. In an effort to overcome this problem, top management adopted a more organic form where workers were assigned to task forces and were allowed to perform a variety of duties. Further, they had considerable discretion over how the duties would be carried out. This had a strong impact on morale and productivity, and management discovered that the workers had much to offer in terms of good ideas for improving productivity. The change in organization structure and job composition produced very positive results.

SOLUTION

A producer of concentrated apple juice is re-designing its organization structure. The best tool for isolating the activities which will be needed to reach the objectives is experience. Seasoned executives who have background and practice in designing ands managing organizations develop judgment and insights that rational problem solving, analysis of data, and other methods cannot duplicate.

SOLUTION

An asphalt manufacturer is designing its organization structure and wants to use deduction to determine the activities which will be necessary to reach the objectives. Management should first focus its attention on line activities. The firm should cover the line activities, in order for it to survive.

SOLUTION

An iron galvanizing company management plans to examine management case books to determine what activities other firms have used to reach their objectives. A potential problem of using the cases is the companies described in the cases may differ considerably from the iron galvanizing company. Hence, the activities which they employ may bear little resemblance to the ones that are appropriate for the iron galvanizing company.

SOLUTION

An important reason for having specialized jobs in an aircraft assembly line is the learning curve for these employees may be short. Since workers do only a few things and do these repeatedly, they will soon build up a high degree of proficiency. This would take longer if they had a wide number of duties to carry out.

SOLUTION

The management of a mobile home manufacturing company favors job specialization because different employees will have different specialized skills. Ordinarily, single individuals will not have all of the skills that are needed to produce the mobile homes. It will be necessary to hire a variety of specialists, such as carpenters, plumbers, and electricians.

SOLUTION

An advantage of job specialization for a producer of overhead of garage and industrial doors is that recruiting is easier. The skills of each job are very limited. This means that is may not be difficult to find a new recruit for the positions.

SOLUTION

A potential disadvantage of over-specialization in jobs for a janitorial supplies wholesaler is that it can lead to low morale. The workers will have routine work with limited variety. They may find it to be boring and not obviously meaningful. These perceptions are not conducive to high morale.

TOPIC Span Of Control Considerations

TEXTWINDOW

In this topic we will examine the span of control, which is the number of persons formally supervised by another. How many vice presidents should report to the president of the company? Should it be two? six? twenty? We will find that there is no one number that applies to all companies or even all positions in the same company. Further, it is important to note that span of control decisions are sometimes made for other than rational reasons. Some executives, for instance, may want a large span of control just to enlarge their empire. Others may strive for a small one, thinking that this will lead their superiors to believe that they want to spend considerable time with their subordinates.

In some respects, organization structures resemble balloons. Pressing on one side causes the balloon to expand somewhere else. This is also true for organizations. The magnitude of the span of control has a strong effect on the number of levels in the structure. A narrow one will lead to a large number of levels and many managers, since each superior has only a few subordinates. Conversely, a wide span of control produces fewer levels and managers.

A Narrow Span of Control Leads to Many Levels and Many Managers

A Wide Span of Control Produces Fewer Levels and Managers

The span of control also influences the number of executives in an organization. There will be more managers if the span of control is smaller, as in the first diagram above.. In this case, one manager has only a few charges. This condition can be expensive, as managerial salaries mount. The opposite is true for a wide span, as is illustrated in the second diagram..

Sometimes the span of control at the chief executive officer level is too wide. There are pressures within organizations that can lead to this. There may be numerous managers who insist on having direct access to the chief executive. If there are twelve managers who so insist, the chief executive is going to have many people to supervise directly. Also, various stakeholders may want the departments which they believe to be most important to be independent and not part of some larger division or other department. Consumer protection groups, for instance, may believe that a consumer affairs department must be established and be accountable only to the president of the company.

Another force for a wide span of control can come from new departments--those that have just been formed--as when a public relations department has just been added to a company. The head and members of the new unit may prefer an independent department, rather than joining an existing department that has its own agenda. They may want to pursue their own specific objectives and not be forced into the constraints of a larger organization component.

If the span of control is too large there may be an inadequate number of managers to accomplish the responsibilities of the organization. Subordinates may not have a direct avenue of contacting their superior as the need arises. As a result, there will be less vertical communication. If top management wants vertical communication as a means of coordinating the organization, this can be a problem. Sometimes subordinates experience holdups when they need help or authorizations from management. Here, managers are very busy, but their subordinates are not, since they are waiting for managerial action.

Superiors who are too busy to interact with subordinates are not able to exercise close control. They may not be in a position to provide supervision and instruction to their staffs. Subordinates may feel that they are being abandoned and their needs perceived to be unimportant. Further, they may have the perception that they lack an adequate amount of information to do their job correctly, because their superiors are too busy to dispense this information. This can affect both morale and productivity.

Conversely, if the span of control is too small, there will be more managers than are needed. This duplication will raise expenses for salaries, fringe benefits, offices, secretaries, staffs, equipment, and other needs. The costs of maintaining a manager can be larger than expected, when one factors in additional costs, such as correspondence, telephone bills, travel, expense accounts, entertainment expenses, health insurance, and office space.

When the span of control is moderate, there are more levels in the organization structure than would be the case for a wide span. This can make communications sluggish , demanding, and sometimes misconstrued. Communications have to wander through many levels of management before decision making and subsequent performance takes place. For every occasion where information is exchanged, there is opportunity for delay. Sometimes there is mis-communication, where one party does not properly decode what the other wanted to convey.

Some scholars of organization theory deny that a small span of control will weaken vertical communications. It is argued that the span of control pertains only to direct supervision. It does not categorically block access to higher management, because subordinates can always informally contact superiors. It may be difficult for a third tier production manager to approach the president of the company during normal working hours, for instance. But it may be possible to get in a word at the company picnic, bowling league, golf course, tennis court, or country club.

If there are too many managers, at least some of them may have time on their hands. They are not needed part of the time and may resort to make-work activities or simply use excess time for diversions, such as surfing the web or visiting with colleagues.. This is a waste of executive talent and may result in the loss of promising newcomers to the management team who aspire to move up the corporate ladder through superior performance but feel frustrated because they have very little to do. Subordinates and other employees may also be demoralized by the fact that some managers are not working much of the time, and seem to be drawing a large paycheck for relaxing on the job..

An undesirable result of a small span of control may be over-control and over-supervision of employees. There are managers with only a few subordinates who will spend a good portion of their days monitoring their staff and constantly giving them orders, even on minute details of their jobs. This is often resented and can cause tension and loss of morale.

An overly narrow span of control can lead to failure, on the part of subordinates, to learn and grow through decision making, trial, and error. Many successful organizations develop managers by giving large responsibilities to new hires and allowing them to sink or swim on their own. They are not given close supervision, but are allowed to make their own mistakes and to learn in the process.

A large consumer products company hires new college graduates and puts them in the position of Assistant Brand Manager. They work for the brand manager for a year, on a training mission, and then, if they show promise, are promoted to Brand Manager. This position carries substantial responsibility--that of developing a particular marketing program for a particular brand. Supervision of these managers is very loose, as there is a desire to develop them into high achievers in a short period of time.

Some retail chains maintain a wide span of control. One area supervisor may have forty or more subordinate store managers. This means that the store managers will receive little direct supervision. They are free to develop policies and procedures, merchandising plans, and store operations that are in tune with local conditions, rather than those created at corporate headquarters and then passed down through the hierarchy.

The exact size of a suitable span of control is difficult to ascertain. Some research has suggested that the ideal is somewhere between five and ten for large firms. This tends to be smaller as one goes up the organization ladder. At the very top it may be small, but for supervisors it may be much greater.

The discussion of the disadvantages of too wide and too narrow spans of control suggests that management should take great care in determining how many subordinates should report to one supervisor. It is possible to unintentionally compel managers to operate in a manner that is

not in harmony with organization objectives. In the next topic we will look at a number of variables that have an impact upon how wide the span of control should be.

EXAMPLE

A manufacturer of drill bits has a sales manager and six territorial sales managers, who supervise a sales force of 310 sales representatives. Each territorial sales manager has one staff assistant. This arrangement has led to a number of problems. Sales representatives are supposed to be trained by the sales managers, but the latter are too busy to devote much attention to this task. Most have delegated the authority to senior sales representatives, who tend to resent the interruption of their own sales effort. When members of the sales force have a problem, it is difficult to catch their manager on the telephone. Instead they usually rely on each other for advice.

Some sales representatives, especially new ones who do not as yet have a sense of security, resent the fact that their manager does not respond to their efforts to reach them. They feel that they are being ignored and are not perceived as being very important. Their morale is not good. This organization has experienced very large turnover in the sales force for a number of years.

SOLUTION

The span of control of the president of an automobile leasing company is the number of persons formally supervised by the president. The president may communicate with numerous employees of the company on an informal basis, as in the company cafeteria. But only formal communications and supervision are included in the span of control.

SOLUTION

A chain of stores that rent tuxedos to consumers maintains a wide span of control, in that one manager supervises 50 stores. An advantage of this is the store managers can make decisions that are attuned to their local environments. They are free to develop policies and procedures, merchandising plans, and store operations that are in tune with local conditions.

SOLUTION

If the span of control in a large employment agency is narrow, the firm will need many managers. Each manager will supervise only a few employees, so a number of executives must be on the payroll, in order to carry out the managerial tasks.

SOLUTION

A likely source of pressure for a steel manufacturer to have a wide span of control at the chief executive officer level is numerous managers who insist on direct access to the chief executive. If these managers' wishes are to be fulfilled, the chief executive officer may end up working directly with a large number of subordinates.

SOLUTION

An accounts receivable management firm has a very narrow span of control, at the middle management level. This can lead to failure by subordinates to develop their managerial abilities. They will not have the opportunity to learn and grow through decision making, trial, and error. Instead, they will be closely supervised by middle managers.

SOLUTION

If the span of control at a textile firm is unduly large there may be an inadequate number of managers to accomplish the responsibilities of the organization. Subordinates may not have a direct avenue of contacting their superior as the need arises. This may weaken vertical communication.

SOLUTION

Some scholars of organization theory would predict that a small span of control would not weaken vertical communications in a department store because subordinates can communicate informally with superiors. The span of control pertains only to formal communications between superiors and subordinates who are in the same chain of command. However, subordinates can communicate with their managers through a number of informal methods, such as at social gatherings and after work.

TOPIC Influences On The Span Of Control

TEXTWINDOW

What should the span of control be in a given situation? Should the president have the same span as the supervisors? Should a consulting firm use the same span as a hotel for its middle managers? In a given company, should all of the purchasing managers manage the same number of people, even if they buy very dissimilar products? These questions suggest that determining the optimum span of control for a given position is not obvious. Certainly, industry practice does not furnish easy solutions, because we find that equally profitable companies often have unlike spans of control. In order to arrive at solutions, we must look at particular influences that may be relevant.

The influences that we will survey are as follows:

Factors Influencing The Span Of Control

1. Level of management.

2. Complexity of subordinates' functions.

3. Direction and control required by subordinates.

4. Diversions by non-subordinates

5. Required coordination of subordinates.

6. Similarity of subordinates' jobs.

7. Importance and complexity of planning required.

8. Level of subordinates.

9. Interactions among subordinates.

10. Geographic closeness of subordinates.

11. Non-supervisory requirements.

12. Complexity of the environment.

13. Subordinate supervision by others.

14. Personal assistants of the superior.

It is apparent that there is a large number of factors to be considered. It is up to management to consider each of these, weigh its contribution, and arrive at a balanced judgment as to what is optimum for the company.

Certainly, the level of management has a bearing on the sought after span of control. Generally, top managers have smaller numbers reporting to them than middle managers, and middle managers still less than supervisors. At we progress further up the organization ladder, the responsibilities of the personnel become greater and the work more complex and more abstract. It is necessary for the president of a company to spend a great amount of time with each vice president, and this places a constraint on the number that the president can supervise directly. Burdening top management with too many subordinates would make it difficult for them to undertake other major responsibilities, such as dealing with important stakeholders and making strategic decisions. The complexity of subordinates functions significantly affects the span of control. Some positions embody change, variety, diversity, discretion, judgement, and accountability. Examples are research and development technicians and the corporate forecasting staff. It is necessary to keep the span of control fairly small, under these circumstances. Supervision of such employees cannot be reduced to a routine and will have to be altered as new developments materialize and bring on pressures for change. The situation is quite different when a supervisor heads up a group of workers whose only job is to lay pipe for an oil field production company. The nature of the work allows this supervisor to have command authority over a large group.

The amount of direction and control required by subordinates is another factor. It is necessary to closely supervise and moniter some employees, perhaps because their work is very important or because they are likely to commit costly errors. Bridge construction workers normally require a considerable amount of direction and control. The duties that should be carried out at any particular time will change, and supervisors must be ready to issue instructions and maintain a close watch over what is being accomplished. Failure to do this could result in structural imperfections and cost overages. This is also the case in banks and in many small businesses, where the span of control must be restricted.

Diversions by non-subordinates can be a factor. If the supervisor must deal with a large number of non-subordinates, the span may have to be narrow, because there is not sufficient time to coordinate, supervise, and control a large number of employees in the chain of command. This is the case for top management. These individuals will have interactions with the board of directors, labor union leaders, important customers, governmental officials, special interest groups, suppliers, the media, and others. These contacts will take top management away from supervisory actions.

Required coordination of subordinates enters in as a consideration. Some managers must spend extensive periods of time ensuring that subordinates work in close conjunction with others. This constrains the span of control. A marketing manager, for instance, must make sure that advertising, personal selling, sales promotion, physical distribution, brand, packaging, and other managers are all pulling together to carry out the marketing mission. If they are not operating in tandem, the marketing effort may fail.

The similarity of subordinates' jobs may serve to modify the span of control. If most of the subordinates are doing comparable work, the span can be larger than if considerable variety is the rule. It is difficult to supervise a number of individuals who are all doing disparate kinds of labor. Many top managers are faced with this condition, as are managers in machine shops that specialize in custom jobs. It is difficult for them to create efficient routines in supervision and this creates the necessity for a variety of approaches for dealing with subordinates. On the other hand, most production workers in a garment factory are doing the same thing, so the span can be broader..

The importance and complexity of planning associated with the manager's position have a role. Those who must spend extensive effort in planning endeavors have less time available for the supervision of subordinates and the span of control will have to be narrow. Brand managers, for instance, are charged with the responsibility for producing comprehensive plans for the promotion, pricing, and distribution of the brands under their auspices. This limits the time they have remaining for other duties. It should not be assumed that the only positions which carry extensive planning responsibilities are line slots. Some staff jobs that are found in many companies, such as those in legal affairs, industrial relations, and personnel, involve extensive and ongoing planning. Assigning too many subordinates to such positions can result in the neglect of essential planning functions.

The level of the subordinates can assume some influence. If most of the subordinates are middle managers, the span of control will be less than if the subordinates are operative workers. If one's subordinates are higher up in the vertical hierarchy their responsibilities are greater and they require more assistance. Further, their work is highly important to the success of the organization and they must be given supervisory help when they can use it. Neglect of some production workers may be acceptable at times, but this cannot be allowed at the vice presidential level, or very negative consequences may ensue.

Interactions between subordinates is a consideration. If the subordinates work alone over extended periods, as is the case for some sales representatives, each one may need individual attention. It is not possible to contact all of the subordinates at once and to moniter their activity collectively. Rather, each one must be dealt with alone. This can take time and can limit the span of control. If, on the other hand, the subordinates work as a group, as in one restricted part of a plant, the span can be more narrow.

Likewise, the geographic closeness of subordinates can be of interest. If those who report to you are spread over a wide area, it may take time just to contact each one and to provide supervisory assistance. Managers of chain child care centers have this situation. They may have to engage in extensive travel, in order to contact and work with each center and to furnish its manager with the amount of personal interaction that is necessary for coordinated action. . Managing a group of customer service workers can create this same condition. If some degree of close supervision is desired, the span of control must be short. Modern telecommunications developments can mitigate this requirement, however.

Non-supervisory requirements may be a consideration. Small business managers, for instance, are usually involved in a number of operative activities that their large business counterparts do not have to undertake. The owner/manager of a small concern may have to be the chief executive officer, financial officer, salesman, and production manager. Since extensive time is consumed by these duties, there is little left for direct supervision of employees and the span of control must be narrow.

The complexity of the environment can have a role in these deliberations. If there is volatility from sources such as customers, suppliers, labor union leaders, governmental officials, and the public at large, the firm will find that major adaptations to change are in order from time to time. This will require the attention of management and limit the number of subordinates that can be directly supervised. The banking and telecommunications industries once faced very stable environments, but this has changed. Regulation and technology have altered and are continuing to do so, making these industries much less predictable.

Subordinate supervision by others has an impact. If there are other managers who are assisting in the supervision role, a manager may be able to handle a larger group. There may be quality control inspectors, trainers, and other staff available to help supervisors carry out their work, for instance, permitting a wider span. The opposite situation may be in place if the manager must perform numerous staff duties without help.

Finally, personal assistants of the superior can permit a wider span of control. Personal assistants can undertake planning and other non-supervisory responsibilities, leaving a manager free to work directly with subordinates. In some cases, the assistants will assist in the supervisory task itself.

All of these factors can influence the span of control. It is up to management to weigh them and arrive at balanced judgments as to the correct number of subordinates for each position. It should also be kept in mind that these factors can change over time, bringing about modifications in the desired span of control.

EXAMPLE

The president of a firm that produces and sells portable oxygen units has a small span of control. Only the vice presidents in charge of operations and marketing report directly to him. Both vice presidents have very complex jobs and require considerable direction and control. Further, it is essential that they coordinate their activities. The vice presidents are unable to interact much, due to the extensive nature of their duties and a number of non-supervisory activities. The president has a number of non-supervisory activities and spends considerable time with major customers. All of these forces interact to suggest that a small span of control is appropriate.

SOLUTION

The chief executive officer of a commercial bank is likely to have a smaller span of control than does an operations manager in the bank. Top managers have smaller numbers reporting to them than do middle managers. The responsibilities of personnel become greater and the work more complex as we move up the vertical hierarchy of a company.

SOLUTION

A research and development lab manager in a contact lens factory will have a narrow span of control if the work of the subordinates is changeable and diverse. It is necessary to keep the span of control small because supervision of these employees cannot be reduced to a routine and will have to be altered as new developments materialize.

SOLUTION

A sales manager for a dental supplies wholesaler will have a more narrow span of control if the sales manager has several personal assistants. They can handle non-supervisory responsibilities, leaving the sales manager free to work with individual sales representatives. Or, the staff can assist in doing supervisory duties.

SOLUTION

The manager of a book bindery will have a narrow span of control if the amount of direction and control required for subordinates is large. It will be necessary to closely supervise and moniter employees, perhaps because their work is very important or because they are likely to commit costly errors.

SOLUTION

The marketing manager for a jewelry wholesaler will have a limited span of control if he must coordinate the work of his subordinates. This is likely. It is important that all of the marketing executives and operatives work closely together to accomplish the marketing mission. This will demand a narrow chain of control.

SOLUTION

The manager of a mobile homes service center will be able to have a wide span of control if the work of the subordinates is similar. It is easier to supervise a number of individuals who are all doing similar work. They can create efficient routines in supervision and do not have to produce a variety of approaches for dealing with subordinates.

SOLUTION

The president of a firm that provides personnel for business and government will have a small span of control if the job requires considerable complex planning. If this is the case, the manager will have less time available for the supervision of subordinates.

6.

TOPIC Functional Organization Design

TEXTWINDOW

Earlier topics have provided us with the tools to study and design various kinds of organizations. We are now in a position to discuss the formation of business organization structures that suit the requirements of specific companies. This will require surveying several basic types in detail--the functional, product (divisional), and matrix categories. This topic will focus on the functional configuration and will scrutinize its major advantages and shortcomings. Following topics will cover the other arrangements.

This topic is organized around the initial generation of the organization structure for a company. It should be kept in mind, however, that the same steps are followed when management is considering changes in the structure of an existing enterprise.

The organization design that is most effective will be a function of the company mission, goals, strategies, objectives, size, and environment. Because these differ across companies, the configuration that is ideal for one may be entirely unsuitable for another. A patterns that has many levels and numerous departments can be ideal for an automobile manufacturing company. It will obviously not be ideal for a family-owned restaurant, a gasoline station, or a discount jewelry store..

Many companies are organized by function. This requires arranging business activities according to their basic purpose, role, or job, such as marketing, finance, and production. Each department is responsible for those activities that are part of a function. Following is an illustration of a hypothetical functional organization for a manufacturer:

Most new businesses and numerous small and medium-sized concerns are arranged in this fashion. When a company is formed, management decides what functions are essential for survival and growth. In the example, these are finance, production, and marketing. These particular ones are typical for a manufacturing company.

Different types of business will organize around other essential purposes. A retailer might subdivide the work into store operations, merchandising, selling, and finance. Or merchandising and selling might be combined in one unit. A wholesaler could be expected to use divisions such as selling, physical distribution, and administration. Banks, life insurance companies, legal firms, health maintenance organizations, hospitals, construction companies, and other industry classifications might employ still other classes, because they are the ones that are critical to their success.

Each vice president has authority over the actions of personnel in his or her functional area. The vice president of finance, for instance, supervises budgeting and accounting activities throughout the company, even in foreign operations. It is the responsibility of this individual to coordinate all of the personnel in these two areas. In turn, the president has the obligation of coordinating the actions of the various company vice presidents, sometimes with the help of one or more assistants..

In this arrangement, individuals and activities are grouped by resources. Every department furnishes resources to assist in reaching the objectives of the company. The finance department, for instance, uses people who are skilled in acquiring and using funds in order to maintain the profit, return on investment, cash flow, and related goals which management is pursuing. In turn, the production department employs personnel with expertise in developing and manufacturing tangible goods.

There are vertical chains of command for each functional area and each sub-function. Communication flows both upward and downward. Superiors provide commands, advice, suggestions, interpretations, information, and other flows to subordinates. In turn, subordinates inform superiors about what is happening in their respective fields and also frequently supply advice.

If the organization grows, management is likely to see the need for more specialization of personnel and facilities. The buying department, for instance, may be split into several sub-units, each one specializing in the purchase of particular products. The sales unit may be split into a number of subdivisions, where some sales representatives sell product line A and others sell B and C.

As the company continues to specialize, it may adopt subdivision by technological functions. This may be logical because certain technologies are critical to organization survival and fulfillment of goals. In a book publishing company, the production department may be broken into separate sub-departments for editing, printing, binding, warehousing, and transportation. In an oil field, production may be allocated into the sub-departments of truck driving, welding, maintenance, and control. The advertising department may be broken down into art, writing, and media selection.

Yet another way to separate functional departments is according to management functions. Individuals or departments can be placed in charge of these activities. There are corporate planning departments, which normally operate at the vice-presidential level. In addition, some firms have product planners, who often report to a vice president of marketing or sometimes of production. Other individuals and departments concentrate on control activities. An example is production control. Instead of being charged with a business function, they concentrate on a management function.

Growth in the organization may also necessitate the addition of managers because the span of control of existing managers has grown too wide to sustain without losing productivity. The executives will not have the time to work with a large number of employees, so new positions are created to help fill this gap.

Growth may also contribute to the upgrading of some of the sub-units in the enterprise. Management may find that it would be beneficial to move budgeting up one level in the structure and create a position of chief budgeting manager at the vice presidential level. In this case, the importance of budgeting for a larger company has been recognized and accounted for by the top executives. It is realized that the significance of the function is greater for a large than for a lesser enterprise. As the company continues to expand, its organization chart may also evolve and subsequently become very complex. Additional hierarchial layers are added, so the unit becomes taller than it was previously. And further departmentation makes it still wider. A point may be reached where the structure is so intricate that it is difficult to comprehend all the flows of authority and communication.

As the functional organization becomes more complicated, management may realize that the firm has outgrown this type of structure. In some cases the company will reorganize and a different structure--such as the divisional or product variety-- will be introduced. This will require that management go through the entire process of building an organization again. It is apparent that this is a time consuming task, and not one that management would want to become involved in on a frequent basis.

To this point, we have described the evolution of a functional organization. The processes which we have described are fairly typical of those pursued by most businesses. It should be recognized, however, that no two will follow exactly the same path. There will be differences in the steps taken, and the resulting organization structure, from one company to another.

EXAMPLE

Two friends have decided to form an advertising agency. One is a photographer, who also has writing and drawing skills. The other has a degree in business administration and some experience in finance. They feel that their capabilities are complementary and will enable the firm to compete successfully. In this case, the technical core is the creation of advertisements--the job of the first partner.

After only a few weeks in operation, the two find that an important ingredient is lacking in the new company. Specifically, there is a need for someone to call upon potential clients and to solicit their business. But neither of the partners has selling capabilities. This leads them to bring in a third partner, who is a persuasive saleswoman. The firm now has three functional areas--creative, finance, and sales.

If the business grows, new members may be added as responsibilities are shifted around. The partner who does the creative work may need a copywriter or a photographer to assist in preparing advertisements. The partner who handles finance may want to hire a bookkeeper, or even an accountant accountant. And the partner who does the selling may believe that another sales representative should be employed. This company is now in the process of building an organization structure--an endeavor that will become increasingly complicated as the enterprise becomes larger.

SOLUTION

The organization design that is most effective for a dental supplies wholesaler will significantly depend upon the size of the company. If it is small, a relatively simple structure will be the optimum. As it becomes larger, more vertical levels and more horizontal departments will be formed, making it much more complex.

SOLUTION

The functional organization arrangement will probably be most useful for a small firm that produces sunglasses. This design works best for enterprises that are not large. As firms advance in size, the functional grouping becomes very complex and even unworkable, with many layers and many departments.

SOLUTION

A household moving van company is organized by function. As it grows, it may subdivide by technological functions. A possible department under such an arrangement is truck driving. This is a technological area, as compared to finance, marketing, and personnel, all of which are traditional functional areas.

SOLUTION

A firm that produces metal detectors subdivides its structure according to management functions. It is probable that it will have a department that specializes in planning. This is one of the functions of management, unlike engineering, accounting, and customer relations, which are traditional functional fields.

SOLUTION

A company that manufactures agricultural fertilizer has a functional organization. Growth in the company may necessitate the addition of managers because the span of control of existing managers has grown too wide. As more employees are added to the company, the existing managers find that they are less able to supervise and control the work force. Eventually, a point will be reached where more managers are required.

SOLUTION

A company that produces and sells vacuum cleaners to department and discount stores has a functional organization. Management may upgrade some sub-departments into departments when the company grows. In this case, various sub-departments may now be so important to the profitability of the concern that they must be full departments. The firm may find, for instance, that it should upgrade public relations, as it grows.

SOLUTION

A photographic equipment wholesaler is likely to abandon a functional organization arrangement when the organization becomes very complicated. This is most likely when the company has been able to increase its sales and profits and, as a result has hired additional personnel, especially staff people. The functional organization can become so complex that it is no longer very workable.

TOPIC Advantages And Shortcomings Of Functional Organizations

TEXTWINDOW

In this topic, we will scrutinize the benefits and the drawbacks of a functional organization. Basically, this arrangement is most useful for those companies that strive for efficiency, product quality, and specialization. The members of each department acquire parallel goals and values, and this can promote the effectiveness of the department. However, this arrangement does not assist in developing cooperation with other departments. In fact, cooperation may be minimal, as each unit is inclined to be self-contained and inward-looking. .

A functional organization is usually more appropriate when there is not much need for cooperation between departments--each one operates somewhat independently of the others. Another condition which favors this arrangement is a stable environment, where management is able to reasonably predict change. This configuration is not well-suited for turbulent environments. Further, this form is sometimes desired when management wants to control and coordinate the work through vertical communications. Generally, it is most appropriate for small and medium-sized companies. As companies become larger, they outgrow the conditions that favor this format. Finally, a functional structure can be useful when the top managers of the departments want to exercise considerable authority over important decisions.

Specifically, the major advantages of this configuration are that it: (1) supplies one type of coordination and control, (2) does not duplicate resources, and (3) promotes the cultivation of skills. As to the first, one manager is in charge of all of the activities which are undertaken in a department. This permits the manager to coordinate and control these activities, without interference from outsiders.

The employees within each department will have suggestions as to how the department can improve its operations, from time to time. These suggestions can be discussed with co-workers in the department to learn if they meet departmental requirements and, if they are acceptable, they can be relayed to higher management for possible ratification by the department head. This helps insure that the suggestions are carefully examined by the department and receive the attention of top management.

Suggestions by department members flow upward to higher management. Top managers can consider the suggestions and relate them to the requirements of other departments, as well as to the goals and the objectives of the organization at large. This allows upper management to coordinate and control the entire organization through centralized authority and vertical flows of communication up and down the hierarchy.

Another advantage of this structure is that it does not create a condition where resources must be duplicated. All of the employees in a department operate together and can share resources, such as machinery, equipment, tools, and office facilities. If most of the data processing is accomplished in one facility, for instance, the company may be able to obtain very sophisticated hardware and software. On the other hand, if each department has its own data processing unit, there will be considerable duplication and the departmental data processing units may be inferior because they are not state of the art.

Having all of the specialized resources in one department can enable that unit to achieve economies of scale. It will be efficient because it has a large volume of work and the costs of the resources can be spread over this work, rather than allocated only to the activities of each department. One large computer center can handle the needs of multiple departments very efficiently. The operating costs can be spread over a large volume of work, leading to reduced average costs. And, since the employees of the computer center deal with numerous jobs, they are likely to improve their productivity through learning. Contrast this to departmental computer facilities that may be inactive part of the time so that costs cannot be spread and there is less opportunity for learning..

This leads us to the third advantage of a functional structure-- it promotes the cultivation of skills. The members of each department focus all of their attention on one specialized type of activity. They become very effective and efficient in doing this effort. New hires to the department can also be specialists who have in-depth training in the field. In short the department can become very focused.

Advertising departments of some large consumer goods companies are staffed by specialists who are authorities in their fields. Well-educated and trained media planners can utilize sophisticated computer programs to locate the optimum combination of magazines, television, and other media that will deliver the desired audience. Skilled copywriters can write persuasive and timely messages that impel consumers to buy the organization's goods and services. Research personnel can back up the copywriters with findings about who buys company products, where they attain these goods, and what their purchase motives are. Working together, these specialists can deliver results that would be very difficult to achieve through personnel whose work was not highly differentiated.

There are some important disadvantages of a functional structure that limit its usefulness and cause some companies to abandon it. These are (1) inability to adapt to environmental change, (2) inability to handle multiple products, (3) poor horizontal coordination, (4) over-burdening of top management, (5) hampered innovation.

Functional organizations often do not readily adapt to changes in the environment. When alterations do occur in the environment, lower levels in the organization are not authorized to make decisions to meet these changes. They do not have this ability. Rather, the decision making authority is passed upward to higher management, where the authority lies. In turn, higher management can become overwhelmed with matters to consider, and the company is not able to make needed changes quickly. The result is a rigidity that often makes company policies, procedures, and products seriously obsolete. If this continues over a long enough period of time, the company is no longer able to stay apace with competitors and to satisfy the demands of its major stakeholders. This is especially a problem if the environment is becoming increasingly turbulent.

Functional organizations are ill-equipped to handle multiple products. Employees are experts at their individual functions. Production personnel, for instance, are very able at generating a wide variety of products. But they are not experts in creating specific products--they do not specialize in that way. If the company offers multiple items, they must attempt to become productive in manufacturing all of them. But this is very difficult, as different goods may require diverse machinery and equipment, technology, and work processes.

Poor horizontal coordination is another shortcoming of organizations that are subdivided by functions. Each department has its own goals and its own particular culture. Further, it is made up of individuals who have similar educations and backgrounds and share the same specialized interests. What often happens is that members of the department become inward-looking and focus more on the needs and the objectives of the department than on what the organization at large requires. They may come to view other departments as competitors for company resources, rather than as partners in accomplishing organization goals. Interdepartmental conflict can result, as a result of these perspectives.

Coordination between departments in a functional structure is accomplished by the individual who has authority over the departments. A vice president of marketing, for instance, might be the coordinator for the advertising and the sales departments. The two departments do not communicate directly, in a horizontal fashion, but relay their communications upward. In turn, the vice president responds through downward communication. But, this coordinator is likely to become overburdened with efforts to get the two departments to work together, in addition to the other duties assigned to the position. As a result, coordination can suffer.

Top management can easily become over-burdened in a functional structure. Decisions throughout the organization are passed upward, since there is little authority at lower levels. As the organization grows, top management may be confronted with an overwhelming number of matters that subordinates want to be taken care of. A point can be reached where the top managers are not able to deal with this volume of responsibility, which is in addition to other duties, such as planning and working with other stakeholders.

Finally, the functional form may hamper innovation. We have stated that the company will be slow to respond to environmental change and has difficulty operating when many products are offered. Both of these forces restrict innovation, whether it be in the form of new products, new policies, new procedures, or other creations. Further, many employees are not motivated to produce innovations. They operate in a specialized department and often become obsessed with maintaining and improving the status of the department, rather than creating new concepts that will benefit the company.

EXAMPLE

A firm that manufactures and sells small transistors has a functional organization. The production department produces a variety of products of various sizes and with different capabilities. Many of these go into television sets. Others go into computers, automobiles copiers, VCR's , fax, machines, and a variety of other assorted products. In short, the firm makes many different articles.

The production department is in charge of manufacturing all of these items. However, the personnel and the facilities of the department are not geared to any particular one. As a result, production is inefficient. No one or no machine specializes in particular items. Changes in the workplace are common, as a shift is made from producing one type of transformer to producing another. This company is not in a position to compete with several of its rivals, who have production departments specialized by product, and enjoy a large cost advantage. The company has lost considerable market share to these competitors.

SOLUTION

A heating and cooling supplies wholesaler is well advised to employ a functional organization structure when its departments operate somewhat independently. In functional structures departments often do not cooperate with one another, as each has its own goals and value system. If they are able to operate in a somewhat autonomous manner, however, the functional form may work for the firm.

SOLUTION

A national chain of florists utilizes a functional form. An advantage which it may enjoy, as a result is it promotes the cultivation of skills. The members of each department focus all of their attention on one specialized type of activity. They become very effective and efficient in doing this effort.

SOLUTION

A manufacturer of fire extinguishers has worked under a functional structure for many years. A possible advantage is it supplies one type of coordination and control. Employee suggestions are discussed within the department and then passed upward in the organization for review. Hence, they get the attention of top management, which relates them to the needs of other departments.

SOLUTION

A producer of small hand tools for do-it-youselfers has a functional structure. An advantage of this is it does not duplicate resources. All of the employees of a department operate together and can share resources. If other structures are employed, each department may have its own resources, however. This can lead to inefficiencies brought about by the use of inferior resources and inability to achieve economies of scale.

SOLUTION

A chain of restaurants has a functional organization. A shortcoming that it may experience with this structure is it will have difficulty in adapting to environmental change. When changes occur in the environment, lower levels in the organization cannot make decisions and must pass decision making responsibility upward. This can overwhelm higher management.

SOLUTION

A company that manufactures plumbing and heating supplies uses a functional form. A disadvantage is it will experience difficulty in handling multiple products. Employees are experts at their individual functions. But they will not specialize in particular products. As a result, individual products cannot receive the attention they require, so the firm operates most effectively with only a few products.

SOLUTION

A computer producer employs a functional form. A likely disadvantage that it will suffer, as a result is poor horizontal coordination of departments. Each department has its own goals and culture and is made up of those with the same specialized interests. Departments become inward looking and focus on their own departments, rather than the organization at large.

SOLUTION

A hearing aid manufacturer employs a functional form. It has not been able to produce many new products. This may be because it is slow to respond to environmental change. Decisions cannot be made at low levels in the organization, but must be passed upward in the hierarchy. It takes time for this process to be completed. Top executives may be overloaded with work and be slow to get around to handling new product decisions.

TOPIC Product Organization Design

TEXTWINDOW

Now that we have considered the functional type of organization and scrutinized its advantages and disadvantages, a look at an alternative design, one that may minimize some of these damages, is in order. In the case of a product design, department heads are responsible for manufacturing and marketing a product or a line of related products. The following diagram illustrates this form.

In this organization, there are three product groups. If this is a computer manufacturer, Product group A might specialize in mainframes, Product Group B in personal computers, and Product group C in laptops. Each of the product groups has its own manufacturing, marketing, and accounting departments--These are decentralized by product. However, personnel and research and development are not decentralized. They report to the president in a staff capacity, near the top of the hierarchy but do not have line authority over personnel in any of the individual divisions..

With this structure, the company is broken into somewhat independent product groups (also called divisions). Every division has the personnel and facilities to work autonomously. It is not dependent on other divisions. In turn, there is a manager who heads up each of these self contained units. This manager is responsible for the overall operations of the division. In turn, he or she is evaluated according to the sales, profit, return on investment, or some other measure of achievement of that unit. Most corporate accounting systems make it possible to closely track these and other measures of achievement by division.

At the corporate level there are provisions for the assessment of the performance of each division manager. Companies will differ as to what decisions division managers can make and which ones are to be left at the top management level. Decisions that may have organization-wide significance are often retained at this level, or if they are made by divisions, are subject to review by top management. Sometimes this causes friction, as managers of product groups are held responsible for profits, but are not entirely free to take the actions that are necessary to produce these profits. They may have only moderate control over personnel policies and over their budgets, for instance.

Contrast this with a functional organization, where each unit specializes in a function. Here, the members of each department become proficient in carrying out a particular set of related duties, such as production, purchasing, transportation, or marketing. They develop their abilities and form their loyalties along these lines. In a product organization, the specialization is according to individual products, or groups of products. Both types of structures strive for specialization, but along different lines.

Note, however, that in the product form, every division is not absolutely autonomous. The overall organization is still a being--it does not cease to exist. In the eyes of the law, it is an entity, regardless of whether or not individual divisions function in a somewhat independent manner. The organization form has meaning to the employees of the organization and most stakeholders, but is not of significance in legal terms.

The hypothetical illustration above shows two managers who report to the president. An arrangement such as this is common, although the number who are accountable to the chief executive officer will vary from one enterprise to another.. There are some functions that are retained at the top level and are not decentralized into the product groups. Management believes that these are of substantial importance to the organization at large and need to apply their policies and procedures throughout the organization. If each product group has its own personnel and research and development units, there can easily be inconsistencies in their workings from one division to another.

Further, decentralization of these will lead to the duplication of facilities. If each product group has its own research and development unit, for instance, there will be a larger number of personnel and a greater investment in plant and equipment than if these are centralized. Further, there may be diseconomies of scale and the company may not be financially able to hire the brightest research and development personnel and have state of the art facilities, because of financial constraints. Hence, research and development is often centralized, as it is in the example.

If research and development is engaged in basic research--that undertaken to reveal fundamental scientific and engineering truths--it is more likely to be centralized. This is because basic research findings may be applicable to multiple divisions, and therefore should not be restricted to only one. An example of basic research is the study of means of getting more data on one computer chip through applications of physics and chemistry. On the other hand, if research and development works mainly on applied research--that used to solve particular problems or reveal specific opportunities--it is more likely to be decentralized. Research devoted to making laptop keyboards more usable is an example of applied research.

Production and research and development are not the only functions that may be retained at top levels in the organization. Some firms centralize planning and control functions. Others, such as public relations, employee health and safety, labor relations, legal matters, and insurance are left at the top level because they pertain to the organization in its entirety and not to special product groups.

Many large companies employ this type of an organization form. They have numerous product groups and individual products and these may differ significantly from one another. One large firm, for instance, produces both light bulbs and hydroelectric generators. Another produces both oil field tools and helicopters. A division structure is logical for both of these. One could not expect manufacturing and marketing departments to be experts for all of these products, as would be the case in a functional form.

Sometimes individual products are formed into strategic business units. These are profit centers that are based upon groupings of similar products. In turn, the strategic business units are assigned to divisions.

Companies who decide to expand their product lines often move from a functional to a product structure. The functional design is useful, so long as the number of items produced is moderate. With proliferation of product lines, however, this form fails to perform the functions that it was originally set up for. It can no longer handle the complexity that materializes with a wide product line.

Companies in the tobacco, soft drink, magazine, and defense industries have been faced with the reality for change in structure, as a result of major diversification strategies. Tobacco companies, for example, have been confronted with legal constraints, imposing dampers on tobacco product profits. This has led them to add a number of food products to their product mixes, as a means of generating profits that compensate for their losses in tobacco.

Within each division, there is a separate organization structure. In the hypothetical example given above, every product group has the same structure. This will not necessarily be the case for all companies, however. In fact, the divisions may have quite different needs and be organized along quite dissimilar lines. The cigarette division of a tobacco company may need a separate legal affairs department, for instance, because of its frequent and significant problems with governmental agencies. The food products division may not require such a unit.

Recently, companies have displayed considerable devotion to serving the customer. This means discovering customer needs, developing products that will fulfill these needs, delivering the products in a manner that supplies consumer satisfaction, and following up after the sale (as through customer service departments) to make sure that the customer is satisfied. A product organization facilitates a customer satisfaction strategy, because each division can focus on the specific requirements of one product or product group.

Frequently, individual divisions will organize along functional lines, with their own manufacturing, marketing, finance, and other departments. However, the functional subdivision is not always followed because it does not provide for the kind of specialization that the company now must have. Management may believe that further breakdowns along other dimensions, such as by geographic territory or by type of customer, are appropriate. Upcoming topics will explain how these subdivisions of authority and responsibility can be made.

EXAMPLE

For over twenty years a company has manufactured and sold a line of abrasives (sandpaper and related products) to hardware stores, lumber yards, and discount stores, where they are resold to ultimate consumers. Recently, the firm decided to enter the market for industrial abrasives, which called for an entirely new product line. The firm discovered that its functional organization was not adequate for this purpose. The manufacturing, marketing, and research and development jobs were considerably different with the new product line. Accordingly, the firm embraced a new structure with two divisions, one for each product line. This enabled personnel in the divisions to specialize in their particular product needs. Marketing, in particular was quite different for the new products, because they required a large sales force, in order to call upon numerous industrial users of abrasives, both large and small.

SOLUTION

A producer of office furniture has decided that different organization units are needed for its desks, chairs, and book shelves, on the one hand, and metal cabinets, storage units, and safes, on the other, Accordingly it will shift from a functional into a product design. In this structure each division will handle a separate line of products. This will enable it to develop personnel and facilities uniquely designed for each line.

SOLUTION

A producer of large and small electric motors employs the product form of organization structure. With this plan, the firm is broken into somewhat independent divisions. Each division will make many of the decisions that direct its future. However, headquarters will maintain control over some centralized activities.

SOLUTION

A mobile home manufacturer uses a product form of organization. A probable arrangement in this case is top management will assess the performance of each division. It will moniter variables such as return on investment, sales, and profits, to determine if each division is operating in a satisfactory manner.

SOLUTION

A toy producer has changed from a functional to a product organization arrangement. A probable result is that there will be duplication of personnel and facilities. Within each functional area, there will be a larger number of personnel and a greater investment in plant and equipment, because the individual functions are duplicated.

SOLUTION

A clothing manufacturer uses the divisional form of organization. A function that probably will be retained at the top management level is corporate planning. This is a function that pertains to the entire organization, not just to one division. Further, it is a highly important activity, and top management will want to be in a position where it can be administered by senior executives.

SOLUTION

Many large companies in the cosmetics industry use the divisional organization form. A reason for this is they have many products ands product lines that are different from each other. For example, some have recently begun offering cosmetics for males. These are quite different from the traditional female cosmetics and require different divisions.

SOLUTION

A recent trend that has led more companies to develop a product organization is company devotion to serving the customer. This requires discovering customer needs, producing products that will fill the needs, delivering the product in a way that supplies customer satisfaction, and following up after the sale. A product orientation facilitates this because each division can focus on the requirements of a product or product group.

TOPIC Advantages And Disadvantages Of The Product Structure

TEXTWINDOW

In the last topic, we described product organizations in detail. At this point, we will consider the pros and the cons of this arrangement. Also, we will look for conditions that favor the use of this configuration.

The product form of organization has a number of important strengths. One is that this arrangement can bring about coordination among functional personnel from different departments. It will be recalled that this is a weakness of a functional structure. With a product format, however, all of the various functional specialists are working toward a common goal--the success of a product or group of products. There is no reason for them to undergo conflict with one another, since this would only be self-defeating.

If you are a member of a group that contains specialists from functional areas that are different from your own, there is motivation to cooperate and to help one another. You are all trying to achieve the same objective. If your background is production, you would see marketing, finance, personnel, engineering, and other personnel as partners, rather than as competitors. This is an important advantage of this pattern..

This arrangement is very suited for large companies with numerous structures. It would be very difficult, if not impossible, for the managers of large diversified firms to be experts in administering all of the offerings that it puts out. These may range in technical complexity, price, method of manufacture, and many other important areas.

There are companies that make a wide variety of products, including laundry detergents, cosmetics, over-the-counter drugs, prescription drugs, household cleansers, bleach, and a conglomeration of other items. No manager could have much knowledge about such a collection. Even if executives did have such knowledge, they would not have enough time to grant adequate attention to each product.

This arrangement is very useful in a turbulent environment, where change is both rapid and major. Specialists for each product can moniter the environment closely and be on the outlook for developments that would affect the division in a major way. But, they do not have to moniter everything--only those phenomena that might impact upon the fortunes of the product or products to which this division has been assigned. Thus, division personnel can review data bases, examine written reports and records, read trade magazines, conduct research projects, and undertake other efforts that are product specific. This enables them to stay in touch with the most recent developments that are unique to their divisions.

Product divisions can relieve management of some of the decision making burden that they labor under with a functional organization. A product structure has provision for the decentralization of many decisions. Resolutions on methods of production, machinery, purchasing, advertising, sales management, and related fields are made at the division level, rather than passed up to headquarters for review and authorization. This frees top management from administrative detail and enables it to concentrate on matters that affect the entire company.

With a product division one manager and the manager's staff have the responsibility of administering all of the activities required to manufacture and market every product or group of products. Consequently, the divisions are more responsive to the needs of the product. All of the specialists are aligned toward this offering. Such an arrangement furnishes a clear objective for each division, since employees are able to focus their work on a specific accomplishment--the continuing success of the product, and not on a process, as is the case with a functional organization.

Without a division arrangement, there is always a possibility that some products will obtain more attention than they really deserve and that others will be neglected. Managers form attitudes toward products, sometimes based upon emotional grounds. They want some offerings to succeed, perhaps because they were responsible for their initial success, and are not willing to let go of these items, even though they are no longer profitable. Other items may not receive this amount of attention, even though they should have it. If there is a division in charge of each product, however, this disjointed priority allocation will not happen.

If the company has a product organization, it is in effect telling employees that products come first. They develop the attitude that it is their role to do what they can to further the success of the product. This may not happen in a functional unit, where employees favor the well-being of their functions, and not the products.

The division arrangement gives the employees a very specific idea of what they should be doing. They know that they have a definite rational reason for laboring toward the goals of this company. Their objectives are quite practical. With a functional organization, employees may lose sight of their goal, since they have only one link in the chain that is responsible for the success of the products that go out. They can easily lose their sense of purpose if they do not have a tangible target.

It is possible to judge performance more clearly with a product than with a functional organization. If the division is not profitable, it can be readily ascertained who is responsible. The costs and the sales can be rationally assigned to the products the division produces. Every unit is given the personnel and capital needed to carry out its mission. If there is failure, its source can be identified. With a functional structure, it is much easier to blame others for failure, since there are fewer quantitative measures of performance.

There are some significant disadvantages to this configuration. One is that there is duplication of effort. There may be two or more purchasing departments, sales forces, research and development departments, and production plants. This can be expensive and the individual units may not enjoy the degree of excellence possessed by centralized units. If a company has only one research and development department, it may be able to staff it with exceptional scientists and engineers. If it has twelve such departments, it may have to lower its sights and hire less distinguished personnel. With a division type structure, some aspects of coordination may be lacking. In many companies, individual divisions do not bother to coordinate their efforts with other divisions. They are oriented to their own objectives and forge their particular strategies independently. Further, each division may be a rival with other divisions for corporate cash, capital equipment, personnel, and other valued resources. The managers and operative employees may come to see their counterparts as competitors rather than as compatriots. Severe rivalry can result.

One large food processor has two divisions. Two independent companies merged into one and each one became a division. Strong feelings of competition resulted, with the employees of each division doing everything they could to outdo the other. When one division enjoyed sales increases and profitable new product introductions, this was resented by the other. The employees became jealous of their counterparts' success. Such attitudes do not enhance the progress of the company at large.

When divisions operate independently, they may work at cross purposes from other divisions. One may refuse to do business with a potential customer, only to later discover that another division is eagerly soliciting the patronage of that firm. Two or more divisions may call upon the same customers, causing hostility and irritation on the part of the latter.. One producer of factory equipment found that different divisions of the same company were calling on the same customers and were attempt to outbid each other on price, product specifications, post-sale service, and other dimensions.

Firms with divisions decentralize some authority and responsibility. This means that operating managers now have control over policies and strategies that would otherwise be situated at the headquarters level. These policies and strategies may vary among divisions and cause attendant problems. If one division pays higher salaries than another, for instance, this can bring about dissention on the part of the lower-paid employees. One division may offer more attractive credit terms to customers than does another, similarly generating negative feelings by the aggrieved party.

A divisionalized structure can beget obstacles to sought-after executive development. Flexibility can be hindered when there are difficulties in moving managers from one division to another. The job in one division may be quite different from one in another. People who have worked in one may have learned a culture and set of values that is not acceptable in the second. There may be promotion opportunities in another division that managers are not aware of, and this results in outsiders being hired.

Those who are employed by divisions may have their promotion opportunities hindered in another way. They have been trained and indoctrinated in a particular product group only. As a consequence, they do not obtain the career preparation they might have if they had exposure to corporate level decision making. Their horizons are limited and this places restrictions on their ability to move into corporate level jobs. Outsiders who were trained in functional organizations may not face this disadvantage. They had authority over functions that spanned the entire company and obtained a quite different perspective than those who started their careers in the divisions. Corporations that are divisionalized have a tremendous need for managers and acquiring the necessary complement can be costly. They need numerous executives because this resource is a indispensable ingredient for each of the product groups. The divisions may compete with one another for the more promising job candidates. It may turn out that there are not enough promising candidates to go around. This, of course may necessitate costly and time consuming training programs to ensure that there is an adequate supply of management trainees in the pipeline for future hiring quotas.

Sometimes there are conflicts between headquarters and the divisions. The latter may feel that top management makes decisions that are too far from where the work gets done, and therefore are unrealistic. On the other side of the fence, headquarters may have the attitude that some division managers are too parochial and do not have the interests of the organization at large at heart.

Managers at the division level may feel that they have little opportunity for advancement. Headquarters may seem like a self contained unit that hires and trains its own people. Those who work for a division may develop an impression that they cannot advance upward into top management. And sometimes this impression is true.

EXAMPLE

A company manufactures high performance sport boats, fishing boats, and sport cruisers. Recently it switched to a product organization with three divisions. This is a very competitive environment, with new products coming out continually from two major competitors. The firm felt that its functional organization did not permit it to engage in new product introduction at a fast enough pace. This was reflected in the income statement, which showed four years of operating at a loss.

Now division personnel are able to moniter changes in the marketplace, actions by competitors, and new technology that offer important opportunities. Research and development has been decentralized, and this should assist in more rapid new product development. Finally, each division now has its own sales force and these units have been able to convince some very influential distributors and dealers to stock new product offerings produced by the company.

SOLUTION

A producer of rolled steel products uses the product form of organization. An advantage of this is that there is coordination among functional personnel. All of the various functional specialists are working toward a common goal--the success of a product or group of products. There is not reason for them to engage in conflict.

SOLUTION

A producer of ice cream and other dairy products uses a product organization. An advantage of this arrangement is specialists can moniter specific environments. They do not have to keep track of the environment at large, but only on that part that may affect their particular products. In other words, they can make their work very practical.

SOLUTION

A producer of industrial maintenance supplies uses a product organization. A strength of this arrangement is management is relieved from making so many decisions. In a product organization, decision making is highly decentralized. This relieves top management of much of the decision making responsibility it ordinarily would have.

SOLUTION

It is possible to judge the performance of a furniture manufacturer that uses a product organization because costs and sales can readily be assigned to products. There is no question as to where the products were produced and sold. Responsibility can easily be placed.

SOLUTION

A producer of souvenir items employs a product organization. A weakness of this form is individual divisions do not cooperate with one another. Each one is devoted to producing and selling its own products. There is little incentive to cooperate.

SOLUTION

Managers for a mutual fund that is organized by product may feel that their promotion opportunities are hindered because they do not have experience in corporate level decision making. Rather, their work has been concentrated in a particular division, and this is not a broad enough career coverage to allow them to advance. Just working at headquarters provides experiences that are not available in the divisions.

SOLUTION

A magazine publisher is organized by division. It may experience difficulty in executive development because it has a tremendous need for managers. This is because they need this resource in each of the product groups. The divisions may compete with one another for the more promising job candidates.

TOPIC Geographic Area - Customer - And Marketing Channel Organization

TEXTWINDOW

In our discussion of organization arrangements we have moved from the functional to the product configuration. Now we are in a position to discuss three additional formats. These are structures that are subdivided by geographic area, customer, and marketing channel. The advantages and disadvantages of these are somewhat similar to those of a product organization. In fact, like product organizations, the major units are divisions. But the divisions are based upon different criteria.

Some companies are subdivided by geographic area. They have divisions, but these are based upon their location, rather than the products which they produce. Following is an example:

The graphic example shows a company with two divisions, one for the United States and one for Europe. Within each division, there are production, marketing, and finance executives. Each one is in charge of the relevant function within the geographic area. Actual companies, of course, may have a large number of divisions and may have numerous managerial positions within each. The example showed a firm with divisions for two separate groups of countries. Multinational organizations can have divisions covering only one or many countries. Also, firms operating in only one country can use this form. An enterprise that does business only in the United States, for instance, might have divisions in the Pacific Northwest, the Southwest, the plains states, the Southeast, and the Northeast.

Companies that are subdivided in this manner have units that specialize according to territory. If there are major differences in the needs of buyers, competition, governmental regulations, and other environmental characteristics of the territories, this form may be desirable. Some automobile companies have different divisions for North America, Western Europe, the Pacific Rim , and mainland Asia, for instance. Each environment is unique and requires a particular unit to serve its specialized needs. If all major decisions were made at the headquarters level, many of these would not be suitable for the individual regions.

Companies that produce refrigerators and freezers sometimes organize in this manner. They realize that customer demands vary greatly, from country to country. In many parts of the world, for instance, homes and apartments are much smaller than they are in the United States and there is no room for large refrigerators. Local production is preferred. In addition, the marketing of refrigerators diverges across nations. They are sold in different kinds of retail stores, for instance, and the advertising that is appropriate in some countries would not be effective in others.

This format can be useful in providing fast customer service. If factories, offices, warehouses, and personnel are located close to the market, the firm is able to make appropriate product changes, quicker and more reliable deliveries, and other changes as the market demands. Service personnel can be located in offices that are situated in each of the territorial regions. In addition to fast service, having installations and personnel close to the market can enable the company to keep its transportation costs to a minimum.

Where divisions are based upon territories, there is little danger that they will compete with each other. Since each one sells only in a given geographic region, it will not intrude upon the territories of others. In turn, it will be protected from them. Other forms of divisionalization can create competition from units within the same company.

This form of organization often creates strong feelings of ownership of a territory. The employees of a division come to think of their geographic region as their own. This creates strong company loyalty and morale and can unify the division in a way that the others cannot easily do.

Geographic specialization shares most of the disadvantages of product organization. There are problems with duplication of effort, lack of coordination across divisions, competition between divisions, and weakness in executive development. Some managers who are assigned to foreign divisions, for instance, are out of the mainstream of events taking place at headquarters and may have difficulty rising to positions at headquarters. Generally, however, this arrangement is popular for firms doing business across a wide area. As enterprises in the U.S. and other countries continue to expand to other nations, this structure will expand in popularity.

Another form of subdivision is by customer. The structure is like that for geographic area, except that each division serves a particular customer grouping, instead of part of a country, a country, or a group of countries. Following is a hypothetical example of this grouping:

In the example, there are two divisions, one for serving the government (as in the defense industry) and another for serving industry (as for industrial goods). Both divisions have their own marketing, finance, and production departments.

With this arrangement a division is able to respond to the needs of specific customers and groups of customers. It specializes by type of customer. This means that the efforts of the entire division are directed to one target, rather than to trying to satisfy a variety of buyers. If all of the potential customers had the same needs, there would be no need for such an organization, of course. But when they have quite different requirements, this form can be very useful. Selling to the government and to industry can be quite difficult, so this arrangement is logical for companies that once produced primarily for national defense but now are moving into other markets.

Some telephone companies use this method. The telecommunications needs of different types of customers are often varied. Hence, the telephone company may have a division that serves only hotels and motels, another that serves hospitals, and another that targets universities. Each division offers a different system and carries out its marketing activities in a unique way.

The disadvantages of this method are identical to those of the geographic area method. Firms that are considering this structure have the same criteria to consider in evaluating the merits of a customer structure.

Another possibility is to subdivide the organization by marketing channel. A channel is a grouping of intermediaries (retailers and wholesalers) that are used to move products to buyers. Sometimes producers employ different channels. When this happens, it may make sense to have a different division for each one. Following is an example:

In the example, the company sells through two channels--discounters and department stores. This is fairly typical of some shoe manufacturers. They have decided that they can reach separate groups of customers through the two channels. On the other hand, others will employ multiple channels, perhaps using shoe retailers, variety stores, clothing stores, and sporting goods outlets.

This method is appropriate when the characteristics of each channel are different. Discounters frequently seek low prices, reliable delivery, and favorable terms of sale. Department stores, on the other hand, look for assistance in merchandising, guarantees and warranties, and advertising support for the products. The strategy that works well for satisfying one channel would not be useful for the other.

Sometimes different channels are needed for different geographic areas. Certain kinds of store may be very strong in some regions of the country or some foreign countries, but not in others. Hence, there is need to alter channels by regions. Those areas that have very thin populations may have smaller and more widely scattered retail units than those areas that are more densely populated.

Often manufacturers will employ wholesalers in thinly populated areas and sell directly to retailers in those with concentrated populations. In these cases, there is a different channel for each region.

Custom can have a bearing. In Japan and France, retailers commonly purchase from wholesalers. They do not buy directly from manufacturers, in most cases. The reason is simply custom. There are no distinct economic advantages of buying from wholesalers. In fact, this is often an inefficient means of distributing and buying goods.

Sometimes the marketing channels used by a manufacturer do not include wholesalers. Instead, the producer sells directly to retailers. This is especially common if the retailers are large and purchase in large quantities. When they do this, transportation and other costs per unit of product are small, relative to the moderate size orders which commonly emanate from small retailers. These potential savings motivate manufacturers to sell directly to large retailers and to bypass wholesalers.

Manufacturers often find it necessary to use wholesalers when they distribute their offerings in foreign countries. The wholesalers are familiar with the customer base and the economic, social, political, and legal environments. This enables them to capture market share in the face of rival manufacturers that do not have this familiarity.

The disadvantages of this form parallel those of the geographic area and customer arrangements. This is another kind of divisional assignment that differs from the others only in that it concentrates on channels.

EXAMPLE

A home nursing company supplies care to individuals who require medical and related assistance, but do not belong in a hospital. Practical and registered nurses and their assistants visit patients on a regular basis and provide the services that are specified by patients and their doctors. The firm has been in business for over fifteen years and has been profitable throughout its life.

This firm has two divisions. One is staffed mainly by practical nurses and their assistants. They treat patients whose health is not substantially impaired and who require only moderate help. Much of the work here is routine and does not demand extensive nursing skills. The other division deals with patients who are seriously impaired and who require substantial knowledge and experience in nursing. The two divisions serve two quite different groups of customers and perform divergent services. Together, they are able to provide satisfaction to numerous kinds of patients.

SOLUTION

A farm equipment manufacturer subdivides the organization by geographic area. It will place functional specialists in each territory served. There will be marketing, production, and perhaps finance and other functional specialists in each of the areas represented by a territory.

SOLUTION

A hotel chain is a multinational corporation. It probably will have divisions for individual countries. It is also possible that the divisions will handle groups of countries, provided that these are sufficiently similar in their requirements for hotel services.

SOLUTION

If a cereal producer employs different divisions for different countries this means that consumer demands for cereal vary substantially by country. There would be no reason to use this method if consumers in every country wanted the same thing. This is not the case, however. There are unique preferences for sweetness, crispness, price, nutrition, and other elements.

SOLUTION

An over-the-counter drug manufacturer might decide to have different divisions in each country in order to provide fast customer service. If factories, offices, warehouses, and personnel are located close to the market, the company is able to make quicker deliveries and expedite other customer service activities.

SOLUTION

If a family-style restaurant employs geographic area organization, a possible disadvantage is lack of coordination across divisions. Different divisions may have varying menus, customer service, restaurant decor, pricing, and other policies. This may impede progress toward corporate objectives and lead to customer dissatisfaction in some divisions.

SOLUTION

A producer of exercise equipment organizes by marketing channel. This suggests that it might use different divisions for individual types of retailers. These are members of separate marketing channels. The firm, for instance, might sell through sporting goods stores, discount stores, and through catalogs, and have a special division for each of these.

SOLUTION

A manufacturer of frozen pastas subdivides the organization by marketing channel. This is likely to be profitable when the channels differ considerably from one another in their characteristics. If the various channels want different benefits and require dissimilar marketing programs, this method may be preferred.

TOPIC The Matrix Form

TEXTWINDOW

What if neither the functional nor the divisional structure will fulfill the needs of a company? Are there other possibilities? In this topic we will explore one.

Many companies have discovered that a functional or division pattern is superior for their purposes. However, there are cases where neither of these will be completely satisfactory. Management may find that it is best to emphasize both functions and products at the same time. What is required is coordination for each product and specialized skill for each function. But aren't these objectives contradictory? How can a company achieve one without losing the other? This topic discusses one possibility.

In the case of matrix departmentation, various product departments are superimposed on top of a functional arrangement. The following chart plots these relationships:

MATRIX ORGANIZATION

In the diagram, we have three functional departments--production, marketing, and finance. All three of these are line, rather than staff units. These three line departments are arranged in the manner specified by a functional organization. In addition, there are three project teams--A, B, and C. Each of these is governed by a project manager, who reports to a project director. In turn, the project director coordinates and controls the various projects. Note that the employees are subject to both the authority of the functional executives and the project managers. This is unlike any configuration that we have examined, to this point.

In this case, top management has created a structure that violates the principle of unity of command. Employees have more than one manager. A production supervisor, for instance, is a member of the production department and is responsible to the top production official. At the same time, this individual can be appointed to a project, on a temporary basis and be responsible to the manager of that particular project team.. This arrangement is an attempt to achieve the coordination available from project specialization with the specialization attained by a functional ordering. When it is well executed, the firm is able to enjoy the advantages of both methods of coordinating work.

Managers and operative workers are permanent members of their departments, as they would be in a company that is organized along functional lines. . But they are appointed to serve on projects from time to time, as the need arises. They temporarily leave the department to work on the project. After the project has been completed, they may be assigned to another one. If not, they continue their work in the functional department, just as they would in a functional organization.

In some cases, project managers have very little authority. Essentially, they rely on the functional managers to issue orders, and they are able to get what they want mainly by persuasion or other non-authoritative ways of regulating the behavior of others . At the other extreme, project managers are very powerful. They manage much of the operational work that the company does. The company is constantly engaging in one project after another, and the role of the functional manager is mainly to keep a reservoir of skilled personnel who can work on whatever project seems to require their expertise the most. Here, functional managers work in a capacity that is very similar to that of personnel managers in functional organizations. In between these two extremes, there are various gradations of authority held by the project and the functional managers.

There are several conditions where a matrix is appropriate. One is where the environment is subject to considerable change and is complex. The departments are very dependent upon each other and must be closely coordinated. There is a need for both vertical and horizontal flows of information, in this case. In order to relieve top management of this burden, decision making is decentralized to functional and project managers, who are close to the work and can make valid decisions. Large organizations often face these conditions, where there are so many decisions to make that they must be decentralized.

Another condition is where there is a need for both coordination of old and new products and specialized functional expertise. It is necessary to balance the product and the functional resources of the company. Hence, both functional and product managers are employed. If product coordination was vital, the firm would employ a product form of organization. Conversely, if technical expertise was prominent, it would use a functional arrangement. If both are vital, the matix may be called for.

Finally, the matrix form may be the preferred choice if the company needs personnel and/or equipment for a number of products or projects. But it does not have sufficient funds to permanently assign them to individual projects. There is a need to share these resources. So they are shifted from one to another. A smaller firm may not be able to hire enough technicians for every project it is currently undertaking. It can, however, assign them to one project until they have completed their tasks there and then reassign them to another.

Subcontractors in the defense and aerospace industries are often subject to these conditions. New projects arise, are accomplished, and are terminated. In the meantime, other projects lie at various stages of completion. The enterprise juggles personnel and equipment between these, in order to keep each one staffed and maintained. The process of allocating resources to projects requires careful coordination and flexibility, as the priorities of each one are considered. Considerable judgment is needed to determine what project should receive resources and which ones will have to wait.

The matrix structure has some important advantages. It permits the adaptable allocation of personnel across projects, since they can be assigned to one after another, as conditions require. Further, it enables management to coordinate the efforts of personnel from different departments, as they work together on a project.

This structure permits forming project teams that can focus their attention on project goals. At the same time, the company is not permanently structured around temporary projects. On the other hand, the firm is able to enjoy the advantages arising from functional specialization and expertise. This configuration works well in unstable and complex environments where the firm must carefully moniter what is happening outside its boundaries and adapt accordingly. It is especially valuable for medium-sized firms that have numerous projects but do not have the means to hire specialized personnel for each one.

There are disadvantages to this arrangement. Project teamwork often necessitates numerous and lengthy team meetings. The meetings are needed if the members of the teams are to work in a coordinated fashion and make plans so that their efforts mesh with one another, However, these gatherings can be time consuming. Some members become frustrated by spending too much time in meetings and not enough in getting the work done. Morale can decline, as a result. This potential disadvantage can be muted, to some degree, if the team leader is skilled in conducting meetings productively.

Since both project and functional managers are employed in a matrix, the cost of management can be high. Further, there may be power struggles between functional and project managers, as each believes that his or her work is of more importance than that of others. It is necessary that both sets of managers are good at working with others on a cooperative and coordinated basis. This structure can be unnerving to operative employees, since they are getting orders from two sets of bosses.

To this point, we have discussed functional, divisional, and matrix organizations in their pure form. It should be recognized that, in practice, companies often combine these. For instance, management could employ functional departments and then break the production department down along product lines, so that managers and operative employees could acquire expertise in producing particular products. At the same time it could deploy sales representatives geographically, so that they could adjust to the particular requirements of each region. In each case, these combined forms are employed to balance the preferences of top management for coordination, on the one hand, and specialization, on the other.

The organization structure needs of particular companies will change with time, of course. A firm may start out with a functional organization when it is small. The initial configuration may include only line personnel. Later, staff employees may be added. The next phase may involve some form of divisionalized arrangement. Finally, it may be appropriate to implement a matrix or some other combination form. As the company grows very large and has many products, types of customers, marketing channels, and target market countries, the organization may become very complex.

EXAMPLE

A producer of electronic components for industry uses the matrix structure. This company manufactures a wide range of products that are used for electronic control purposes in both large and small machinery and equipment. Frequently, there is a need for a new product to meet the customized needs of a customer. Project teams are formed to meet this requirement in a timely and effective manner.

The project teams request personnel from the functional departments. A project manager, for instance, might ask for the use of four physicists from the research and development department for six months. It is the job of the project coordinator to determine if this request is justified, or if it should be placed on hold or even denied. If the physicists are assigned to the team, they report to the project director. Often, however, they consult with other members of the research and development department, for advice. When their assignment to the team has ended, they go back to the research and development department. This arrangement has been very satisfactory to the firm, and it has been a major competitive force in the industry, as a result.

SOLUTION

A producer of chemicals for the paint industry employs a matrix organization. In this case, various product departments are superimposed on top of a functional arrangement. This is a combination form, then, one that attempts to gain the advantages of both of these formats and still avoid some of their major weaknesses.

SOLUTION

A defense contractor is organized as a matrix. This structure violates the organization principle of unity of command. Employees will have more than one manager. If there are conflicting orders from the two, the employees may be confused or angered. They may wonder who is the boss and which one to obey.

SOLUTION

In a matrix structure utilized by a furniture assembler, managers and operative workers are permanent members of functional departments. They are assigned to work on projects, as the need arises. After the projects have been completed, however, they revert back to their respective functional units.

SOLUTION

A manufacturer of light fixtures employs the matrix form. This may be an appropriate choice, provided that the environment is subject to change and is complex. In this case, the firm will have a need for project teams that can meet the need for new products in a short period of time. These projects will not continue over an extended period, however, and will be terminated when their objectives have been fulfilled.

SOLUTION

A metal fabricator may benefit from a matrix structure if the company needs scarce personnel or equipment for a number of projects. If there are not sufficient funds to permanently assign personnel or equipment to these projects, they can be temporarily allocated. Then, when the projects are terminated, personnel and equipment can be transferred back to functional departments.

SOLUTION

A producer of supplies for lumber mills is organized in a matrix form. It is likely that it will benefit because project managers can coordinate the efforts of personnel from different departments. The managers will form teams that have the completion of the project as their primary goal. This will permit unified effort between personnel from various functional specialties and still not interfere with the efficiency and effectiveness of each of these departments.

SOLUTION

A company manufactures a variety of instruments for both private and commercial airplanes. It employs a matrix organization. A possible disadvantage of this is there may be power struggles between functional and project managers, as each believes that his or her work is of more importance. If the managers lack people skills and desire to build empires they may view the others are competitors for resources.

7.

TOPIC Departmental And Vertical Power

TEXTWINDOW

In this topic, we are going to study a force that is critical in implementing departmentation decisions. That force is power, one of the more influential means of influencing behavior.

Power is an essential topic in the study of organization behavior. Power is used in forming organizations and in taking actions to achieve their goals. Members of organizations get much of their work accomplished through this force. Different forms of organization create and shape the way that power operates. In addition, power is used to promote the continued existence of these entities. Our understanding of organization behavior, then, is incomplete without insights about this source of influence and how it can be used to advantage.

Power is the capacity to induce others to engage in certain behaviors. In other words, it is an ability or a capability. It can be thought of as a potential force that can be brought to bear in order to achieve one's objectives. Influence on the other hand, is what happens when power is successfully applied.

The Impact of Power

Power:::>Influence:::>Others::>Objectives

Of course, there is power only when two or more people associate with each other in some way.

Our focus is when they associate through an organization, where power can be directed at others on the same level (horizontal) or on different levels (vertical). In many cases, power exists because one party must depend upon another for valued resources. Hence, an accountant may exercise power over a production manager because the manager is in need of data which the accountant can supply. This means that when the accountant wants something from the production manager, such as assistance in obtaining production cost figures, this desire is likely to be met.

The Source of Power

First Party:::>Dependence:::>Dependent Party:::>Power

There are five sources of power in organizations. These are reward, coercive, legitimate, referent, and expert. The first, reward is based upon the ability to supply satisfactions or utility to others. A manager can influence behavior, for instance, by persuading subordinates through means such as possible salary increases, promotions, and interesting assignments. If the subordinate believes that the manager can influence these satisfactions, the manager has power. Likewise, power can exist when the manager can reduce negative aspects of the job, such as noise, grease, overheating, and dust. If you believe that your manager can get you out of the old office building and into the new, this may convey power to the manager.

Coercive power is closely related to reward. This arises from the real or believed conception that subordinates will be punished if they do not accommodate the wishes of the superior. Coercive power can be operationalized by demotions, assignment to undesirable work stations and work shifts, and the removal of valued status symbols, such as corner offices. Company clerks in army units often have influence because many soldiers have hear stories where the clerks changed orders and sent disliked personnel to remote posts in the arctic or isolated island sites.

Another type is referent power. This occurs when people identify with others, in that they like and/ or respect them. People will go along with the wishes of others when they consider them to be congenial and admire them. They are likely to defer to the wishes of those who have this kind of influence. Referent power often attaches to those who excel in fields that are highly regarded. Thus, a golf pro may enjoy this influence among a group of golfers. Conversely, the golf pro may not have this influence with non-golfers.

Expert power accrues to those who are technically capable. If some individuals are seen as experts that others must depend upon for advice and assistance, this kind of power is in effect. Sometimes this is based upon a person's ability to acquire coveted information. A senior executive may rely upon a new manager for advice regarding the selection of computers, based upon what is perceived as the superior knowledge of the novice, for instance. Engineers, technicians, production supervisors, and communication specialists frequently have expert power.

Finally, legitimate power exists because of a person occupies a position in the organization. When employees join a company they feel that they are obligated to obey those who hold positions above them. If the head of the accounting department orders one of the staff to audit a particular office, the employee does not resist, because it is believed that the department head is authorized by the company to give such orders. It does not matter if the department head is respected or liked.

Legitimate power transfers into authority in organizations. Authority is the right to exercise legitimate power. The top authority in an organization is with the governing board (a board of directors in a company) and flows to the chief executive officer to middle managers to supervisors and finally to operative employees. The latter submit to authority because they believe that their superiors have the right to exercise it. It is because of this submission that authority exists.

Subordinates can be expected to react differently to power that is derived from particular sources. In most cases, they are very willing to accept referent and expert power, as it is felt that the power holder has earned the right to exercise influence. Legitimate power is normally accepted, except when it appears to be abused, as when a manager exercises his authority to fire an employee who is popular with co-workers. Similarly, reward power is viewed as proper, so long as it appears to be administered fairly. On the other hand, coercive power tends to bring about negative reactions on the part of subordinates and can occasion bitter conflicts. Most people do not like to be threatened with the possibility of punishment. Power can flow across the organization (horizontally), as well as upward and downward (vertically). Every employee has at least some degree of power, based upon one or more of the power sources mentioned previously. Next we will look at how top executives obtain and use this force.

Top executives have considerable legitimate power. The organization has imposed upon these individuals the responsibility for the success of the enterprise. In order to carry out this responsibility, there must be corresponding authority. In addition, this legitimate power is reinforced by budget priorities, goal prescriptions, personnel placement, the use of information, and status symbols.

Senior managers are in control of the budget. This specifies the funds, personnel, supplies, equipment, and other resources that departments and individuals have under their control. The budget is a real source of power. If the president of the company wants to reward a division for outstanding performance, this can be accomplished through a generous budget. On the other hand, punishment can be meted out by budget cuts. Those who operate under top management realize that they are dependent for funds and other inputs. This dependency reinforces their inclination to submit to top management directions, even in cases where they are inclined to do otherwise..

In addition, top managers both obtain and exercise power when they prescribe goals and objectives. These broad directives will influence the strategies and decisions which other managers develop. If top management announces that increasing the company's share of market will be a major goal, for instance, the sales department is put on notice that members of the sales force should solicit new accounts and attempt to get larger orders from existing accounts. In turn, this objective may signal to the finance department that it should not be so selective in determining which customers get credit--credit standards may have to be lowered so that more new accounts can be acquired.

Senior executives have the power to hire subordinates and this can be used as a medium for securing power. Selective personnel placement is a strategy which most high level executives bring into play. They appoint persons who hold views compatible with their own in strategic positions in the organization. This helps insure that the top executives will be able to carry out their own agendas without interference from middle management. If a company president believes that the company should engage in extensive cost-cutting, for example, he may appoint a friend who has a strong track record in cost control in charge of the finance department. This appointee can be expected to comply with the president's objective. So would a production department manager who has a reputation as being relentless when it comes to laying off production employees.

Another means of wielding control by top management is to use information as a tool. In most enterprises, senior managers are in a position to obtain considerably more information that is critical to the organization than are other employees. They can filter this information and shape how it is presented. They also can furnish information to some managers and withhold it from others. In some cases, they may see fit to hide or even destroy information, if it appears to be deleterious to the well-being of the company.

Status symbols are a source of power in organizations. Senior executives can occupy impressive office suites, drive expensive company automobiles, use the company jet, have a large staff of assistants, and employ computer software designed especially for their use. Some affiliate with powerful people, such as politicians and other company top managers. They may develop speaking and body-language styles which convey the fact that they are in charge. All of these trappings have the capability of conveying to others in the company that top management is very powerful.

EXAMPLE

The president of a company that manufactures semiconductors has efficiently bolstered his power in the organization through selective placement of personnel. It is very important to him that the firm develops a continuous flow of product innovations. Accordingly, he has hired a project director with a commendable record for product innovation in a computer software company. The two have long been friends, and the president feels that he is ensured of personal loyalty and many new product innovations from the new hire.

Further, the president has hired six experienced executives, with whom he is personally acquainted, to head up project teams. The organization has been placed on notice, through a series of memos and policy statements by the president, that product innovation is the paramount goal of the company at this time and the new managers are to be granted considerable leeway in accomplishing their innovation goals.

SOLUTION

The president of a car and truck muffler production company has considerable power. In turn, this power is a capacity. It is the ability to induce others to engage in certain behaviors;. It can be thought of as a potential force that can be brought to bear to achieve one's objectives.

SOLUTION

When a supermarket chain store manager promotes a subordinate, this is an example of reward power. It is based upon the ability to provide satisfaction to the subordinate. The subordinate will be beholding to the manager for the reward and this may result in loyalty and support.

SOLUTION

A vice president of a jewelry wholesale house is liked and respected by all of her subordinates in the company. She possesses referent power. This is where one person identifies with another. The vice president may have some combination of a likeable personality, empathy, intelligence, and a sense of humor. These can bring affection and admiration.

SOLUTION

The president of a company that makes precision instruments has power because of his position in the company. This is an example of legitimate power. Employees of the company feel that they are obligated to obey the president, because of his position, even if he has no reward, coercive, referent, or expert power.

SOLUTION

The legitimate power of the president of a health maintenance organization probably will be accepted by subordinates except when it appears to be abused. If this power is employed in a way that seems to be unfair, cruel, or otherwise socially unacceptable, it may be resisted. If the president attempts to fire a long tenured employee just before her pension is about to be vested, for example, this probably will meet resistance.

SOLUTION

The president of a telephone company uses information to gain power in the organization. This can be accomplished by furnishing information to some employees and withholding it from others. Those managers whose views are compatible with the president can be rewarded by channeling important information to them. In the same vein, those who are uncooperative can be left out of the information chain.

SOLUTION

The president of a metal fabricating company enjoys power derived from status symbols, such as an impressive office. Power emanates from status symbols because status symbols convey to others in the company that the president is powerful. They are an outward expression of the ability to control the behavior of organization employees.

TOPIC Power At Other Levels

TEXTWINDOW

When most people think about power they are referring to that which top management wields. The popular conception is that the president and the vice presidents have centralized all of the corporate influence at the top level in the hierarchy. However, this conception is not complete nor is it accurate. Rather, this force flows in both directions--middle managers, supervisors, and even operative employees have some degree of power. Such a distribution is a desirable situation, as all employees require enough power to achieve their objectives without an array of major obstacles.

The structure of the organization and the way that it is administered will have an impact on the power of middle management. Some of the factors that are associated with power at this level are:

1. Association with prevailing goals.

2. Permission not required for decisions involving extraordinary events.

3. Absence of rules and regulations.

4. Involvement in high-level project teams.

5. Interaction with top management.

6. Central location.

7. Involvement in conferences and meetings.

When the work of middle managers is closely related to company goals that are particularly critical at the moment, these people can be expected to have a sizable degree of power. A company attorney who is an expert at anti-monopoly laws may have major influence at a time when the firm is being prosecuted by the justice department for price fixing. A buyer who can obtain supplies at a discount can exercise command authority when the firm is faced with the need for cutting its costs. When the company is facing an unfriendly takeover, a financial artist may be viewed as the individual who is in charge of things.

Managers who are able to make decisions when unexpected happenings take place often enjoy more power. A marketing manager who can replace the advertising agency with a new one has influence. If a buyer is able to cancel the contract of a major vendor because that firm has been slow on deliveries, this is an indicator of power. If the buyer was required to ask for permission to cancel the contract, this would not be the case. Instead, the manager who has the authority to grant the commission would be in charge.

Managers who have power usually do not establish a large number of rules and regulations. These are not necessary, because the power-holder is already able to influence others in different ways. Conversely, those who do not have much influence create a host of edicts, in an attempt to affect the behavior of subordinates. The issuance of rules and regulations can have a counter acting impact, however. Those who are subject to these directions may look for ways of getting around them and still appearing to be in compliance. Beating the system rather than compliance, becomes the norm. Influential managers are often active members of high-level project teams, such as a team created to choose a new chief executive, or to determine where to relocate corporate headquarters. Membership and participation in the team signals that top management believes in the abilities of the manager. Hence, the manager who is in pursuit of more command authority may be well-advised to seek appointments to such teams.

Another mark of power is interaction with top management. Powerful managers may serve on committees or act as advisors to top management. Their strategy may be to make studies and prepare reports on subjects that will keenly-interest top management and lead to interactions with the leadership as they discuss these subjects . They may attend the same social events, belong to the same country clubs, and even entertain and be entertained socially by superiors.

A central location demarks and can help bring about power. Those middle managers whose offices are in corporate headquarters frequently have more of this attribute than are those who are in remote locations. Similarly, having an office in a part of the headquarters building nearby top management can serve the same purpose. A location on the top floor, near the headquarters suite, can be advantageous.

Finally, involvement in conferences and meetings is a factor. When top management provides financial support for executives to attend several elite professional meetings, this indicates to others that top management is behind the executives and recognizes their importance or has affection for them.

Status symbols in general can be related to power. Large offices, offices with several windows, use of a professional secretary, issuance of a luxurious company car, and a key to the corporate country getaway are all useful. Corporate perks are viewed in this manner in virtually every company.

Top and middle managers are not the only ones with power. In a number of organizations, supervisors and operative employees are well-endowed with this attribute. Thus, we find secretaries, receptionists, computer programmers, company pilots, dispatchers, and others, who are endowed with the ability to control others. They may not have formal authority (legitimate power) but may be in possession of other kinds. Their influence may stem from personal characteristics, as in the case of referent or expert power, or their position in the organization, where they can wield reward and coercive power.

In some cases, the power of these employees is a result of conditions where others are dependent upon them. In turn, dependence may be based upon people, information, or technology. The secretary to the president or a vice president can have influence because she determines who is able to communicate with her boss. Only certain people are allowed to cross the barrier of the secretarial desk. There are other possibilities. A marketing research worker who has uncovered valuable insights about how company products are perceived by consumers may become influential because of this information. An inventory clerk who is capable of locating all of the records pertaining to raw materials inventory may have power because of this knowledge, which no one else may possess. A production worker who has invented a cost-saving manufacturing technique may be in the same position.

There are several elements that may enhance the dependence referred to above. Effort and interest is one. Some employees will plunge into new tasks and become absorbed with them, whereas others will be not be so inclined. In fact, many others will attempt to escape increased responsibilities. Those who move forward may acquire data and expertise that is valued by management. A production worker who discovers unsafe conditions in the workplace and has envisioned workable means of making them safe may become very important if the firm embarks on a drive to cut accidents at work. A clerk who voluntarily observes the work of computer operators and foresees ways of making them more efficient can quickly become a valuable asset to a management that is intent on cost cutting.

Personal characteristics can convey power. Some employees are likeable, interesting, charming, have a good sense of humor, are physically attractive, or have other characteristics that others admire. An ex-athlete at the state university may be looked up to by others, as a result of his past athletic prowess. A very successful body-builder may have the same status in the organization, even through he has no formal authority. Employees with a special ability that is admired, such as success in marathon running, may benefit.

Sometimes people are attracted to those who seem to be similar to them, as when they have the same values and interests. People who share characteristics with large numbers of others, especially those that bring about high-involvement, may enjoy influence, as a result. An interest in watching professional football or baseball games, or fishing, or in bowling may bring about this effect.

As with middle management, location can be a factor. Some employees have offices at corporate headquarters or are employed in important corporate research sites. Having a place of work that is central, where many others pass by during the work day, can also have a favorable effect. The receptionist in the central office may occupy such a position. She interacts with many people, some of whom are top managers and important stakeholders. She may be at the center of the gossip ring, and have considerable knowledge about the personal lives of other employees, from top management on down. She also may have information about company strategies that are of considerable interest to others, such as downsizing plans, corporate restructuring, and intentions to build new plants.

Some employees have power because of coalitions with important stakeholders. A buyer may have established relationships with suppliers that enable the firm to obtain expedited deliveries on short notice when supplies decline to unexpected low levels.. A long-tenured production worker may be a local celebrity, because of his contributions to the community through volunteer work and this can contribute to relationships with important local stakeholders. A secretary may be acquainted with another secretary who works for an important customer, and feeds information about the current problems and requirements of the customer to the company employee, who in turn, informs her supervisor.

A recent development in management is a drive to empower employees. Basically, this means decentralization to the bottom layers of an organization. Operative employees are given more formal authority than they normally would have, and are allowed to use alternative sources of power, in order to do their jobs more effectively. Rather than waiting for orders from management, they are encouraged to take the initiative and discover ways of making their work more efficient. True empowerment goes one step further, and allows the employees to actually implement the ideas that they have created. In many organizations this has increased employee morale, loyalty to the firm, trust in management, and productivity.

EXAMPLE

A division vice president for a retail chain that sells automobile and truck supplies was once the pilot of one of the company jets. This individual accumulated considerable power, while he was the pilot, and eventually was promoted into management. The pilot duties involved considerable close interaction with top management on trips to meetings, conferences, and other gatherings.

The president was impressed with the intelligence and the people skills that the pilot presented. On several trips to meetings, he outlined ideas that he had created about improving the logistics systems that served retail stores. He proposed abolishing the current system of local warehouses and moving to a system built around large regional distribution warehouses. Eventually, this proposal was adopted and the pilot was placed in charge of a project to implement the system. From this post, he moved into middle management and finally to a division vice-president position.

SOLUTION

The sales manager for a firm that produces golf carts can obtain power by doing work that is closely related to company goals. If top management is on a drive to cut costs, for instance, the sales manager can produce a plan for routing sales representatives that would require less travel and fewer days on the road.

SOLUTION

A middle management budget officer for a company that produces luggage has considerable power. This is probably because she is able to make a large number of decisions without authorization from her boss. Decisions that refer to unexpected happenings are especially relevant, in this regard. If there are major discrepancies from budgeted figures for a department, and she is allowed to investigate these and arrive at recommendations on future expenditures by that department, for instance, this signals power.

SOLUTION

A middle manager in a firm that makes color ink-jet printers for computers wants to gain more power. He is well-advised to get appointed to high-level project teams. Membership and participation in the team signals that top management believes in his abilities. In addition, he will be able to interact with top management, which should help him attain his goal.

SOLUTION

An office worker in a department store desires to gain power. A good strategy would be to make the store manager dependent upon him for information. If this is successful, the store manager will realize that this employee has a valuable and scarce resource that is not available elsewhere. This dependence should result in more power.

SOLUTION

An engineer who is employed by a company that makes bar code label printers wants to secure more power. A useful strategy for her may be to plunge into new tasks and become absorbed with them. If other engineers do not do this, she will stand out. In turn, she may acquire information and expertise that is valued by management.

SOLUTION

A secretary who works in the finance department of a company that makes lawn mowers has been instrumental in the company getting loans from a local bank. This is an example of power through coalitions with stakeholders. The secretary apparently has relationships with bank personnel that enable her to impose her influence on lending activities.

SOLUTION

A recent development in management that could benefit a manufacturer of water heaters is empowering operative employees. This involves giving them more formal authority to come up with ways to improve their job performance and actually allowing them to implement these ideas. This can have a positive effective on worker morale and productivity.

TOPIC Horizontal Power Relationships

TEXTWINDOW

Power can flow vertically, from one level in the hierarchy to another. It also can flow vertically--from one unit on the same level to another. This topic focuses on this latter flow.

There are two sets of horizontal power relationships. One exists between line and staff personnel in an organization. The second takes place between departments, and is illustrated in the diagram above. . We will address each of these, in turn.

Friction can develop when staff personnel try to induce line employees to implement their ideas. Each of the two parties has a different kind of power. The line has the ability to assist or to impede staff personnel in moving up the corporate ladder and in gaining other personal benefits.. Managers in the marketing department, for instance, will have a say as to promotions, transfers to new assignments, and raises of marketing research personnel. Conversely, the staff obtains power from its capability to find fault with activities of the line and from its specialized knowledge. The marketing research director, for example, can uncover evidence that the marketing department is not adequately satisfying customers and engendering loyalty in the ranks of this group..

When there is conflict, the line will sometimes attempt to intimidate by warning, often implicitly, that it will stand in the way of staff promotions, raises, moves to more desirable locations, and other benefits. On the other hand, the staff may warn, equally implicitly, that they will withhold needed expertise from the line, and this will result in problems for them. Conversely, if there is no conflict, the line may exert its power by making assurances that they will assist the staff in obtaining sought after benefits, if they do not criticize the line. The staff, on the other hand, will indicate that it will continue to supply needed inputs to the line. Whether there is conflict or not, both parties are sending subtle messages to one another.

In these relationships, the staff is likely to have coercive and expert power. It can administer punishments and has specialized skills that are needed by the line. However, the line relies mainly on legitimate and reward power. For corporate health, it is important that the two have some reasonable balance of power. If either party exercises too much of this attribute, the progress of the other will be threatened or impaired.

Another perspective on horizontal power refers to the interactions of departments. Every department on the same level will not have the same degree of influence. Production may be dominant in one firm, but be relatively submissive in another. Marketing is the driving force in some companies, but occupies a minor role in others. What is most critical in forging these forces is the contribution of the department to the goals of the organization. If producing very high quality products is essential for success, production may be on a high plane. If budgeting and stock market performance is critical, finance may have consequential power. If obtaining new and satisfying current customers is essential, marketing may emerge as the front-runner in the company.

Strategic contingencies theory is useful in understanding both line-staff and inter-departmental power relationships. According to this theory, the power of a component of the organization depends upon how many strategic contingencies that component controls. In turn, a strategic contingency is a component's capability of dealing with uncertainty that is very important to the company and that cannot be handled by another component. It is an endeavor that is critical for the achievement of company objectives.

The components that have the most power are those that deal with strategic contingencies. Some departments, for instance have information that is vital to the organization, as where management information department employees have insightful intelligence about the strategies that competitors are contemplating. Other departments are essential in obtaining funds that the company must have for survival. . Sales, for instance, is a department that exercises sizable control over flows of revenues. The legal department may take on substantial importance if the company is locked in a struggle with competitors over who owns a brand name, a copyright, or a patent.

There are several other variables that we should consider in accounting for horizontal power. These are role centrality, replacableness, dependency, funds, and uncertainty control. Role centrality refers to the extent to which the department contributes to the goals of the company. It can be expected that line departments will have more role centrality than their staff counterparts. It would be a mistake to minimize the roles of functions such as production and marketing. This is not always the case, however. In the defense industry, research and development is critical, in order to stay apace with the demands of governmental agency and industrial buyers and ahead of competitors. In the railroad industry, finance tends to be very important, because of the problems of the railroads in staying profitable and solvent. Most of these carriers are locked in struggles to maintain revenues and to contain costs. In the cosmetics industry, advertising occupies a central role, since it has a major impact on the sales of most of the firms.

Another important variable is replacableness. A department or an individual tends to have power if they are not easily replaceable. An engineering department that is in the forefront of technology and is staffed by unusually bright personnel falls into this category, for instance. So is a production department that is more efficient or more innovative than those in most competing firms.

The power of the marketing research department will be diminished if marketing managers find that they can obtain the same quality and quantity of information from consultants or from reviewing government or trade association publications. A budget officer will have less power if he could easily be replaced by a recent college graduate, probably at a lower salary than the officer earns. A production department may be rendered impotent through a discovery by top management that the department's work can be outsourced to a supplier that turns out higher quality products at less cost.

Dependency is another important variable to take into account. If one department has resources which another one needs, the first has a degree of power. In some companies, it is essential that certain departments procure a continuing flow of talented new personnel. In a period of rapid industry sales growth or intensified competition, for instance, the sales department may need many new recruits. In this case, the personnel department can exercise strong influence, since it can concentrate on trying to locate, recruit, and train new salespeople, or it can direct its efforts elsewhere.

The logistics department may be in a position to acquire an inordinate volume of power, relative to production. It is essential that raw materials, supplies, and semifinished goods arrive at production facilities in a timely and predictable manner. This is especially critical if the firm uses a Just in time system where inventories are either eliminated or kept at a minimum and incoming supplies are used immediately in the technical core. If the logistics personnel are late with deliveries or bring in an incorrect mix of supplies, production will not be able to do its job. Hence, there can be an imbalance of power here, with logistics at the helm.

Retailers can be just as dependent on logistics as are manufacturers. Increasing numbers of retail stores are taking delivery of only the amount of merchandise that they think will sell right away and in the near future. They do not keep extensive inventories, as many did in the past. This new strategy requires frequent small shipments of merchandise that must arrive precisely on time and contain the right assortment. The logistics department is in charge of scheduling and actually moving these shipments.

Another source of power is simply funds. Those departments which command money have power. The marketing department, of course, is the major avenue for inflows of funds, and this gives it a high degree of influence. In some industries, money must be obtained from capital or debt markets on a frequent basis, and finance takes on an element of importance. The budgeting office or a line manager with similar responsibilities, of course, is the unit which distributes funds to individual departments. Hence, it has power.

Finally, uncertainty control affects power. Every company lives with some degree of uncertainty. The environment may be turbulent and change suddenly and immoderately. Customers may be lost. Competitors may come up with new strategies. Stockholders may insist that changes in operations be made or that certain company officials be replaced. Bankers may contend that they should have a say in how the company is run. The government may demand that the company change its behavior or be subject to litigation. Any of these can pose major problems to the company.

Those departments that are able to regulate uncertainty have a source of power. The legal department can be instrumental when the firm is faced with a major lawsuit brought by a competitor. Marketing research may be very important when the company is losing market share and does not know why this may be happening. Personnel can be essential if the firm has lost valuable employees to other companies and must replace them. Research and development can be needed when a rival has just introduced a product that makes an offering of the company obsolete.

The control exercised by a department may rest on only one of these sources of power or upon some combination of two or more. Management is well-advised to study these relationships, in order to arrive at a balance of power that will further the interests of the company.

EXAMPLE

The advertising department of a producer of perfumes and other fragrances is very powerful. It is recognized in the industry that one of the major drivers of sales is advertising. And this department is staffed by a group of very talented people. It is widely believed that they could not be replaced. The sales force also has an important influence on sales, but if advertising fails to generate demand on the consumer level, sales representatives will be ineffective in attempting to convince retailers to stock the brand and to merchandise and promote it aggressively. The power of the advertising department is reflected in the fact that it is given a substantial budget and the president of the company came up through the ranks, as the result of an entry-level job in this department.

SOLUTION

In a wholesale hardware house personnel administrators are staff. They can obtain power through their capability to find fault with line activities. This is one of the functions of staff--to evaluate the performance of the line that interfaces with their function.

SOLUTION

A department which gains considerable power through funds is marketing. This department generates revenues for the firm through activities such as advertising, personal selling, and sales promotion. The company is dependent on this function for money.

SOLUTION

When there is conflict between line and staff in a food processing firm, the staff will warn that they will withhold needed expertise from the line. This can reduce the effectiveness of line managers, who rely upon the staff for information and advice.

SOLUTION

When there is conflict between line and staff in a motion picture studio, the staff can exercise coercive and expert power. Coercive power can be imposed by threatening to withdraw the provision of advice and assistance. Expert power can be exercised through the technical capabilities of the staff that makes the line dependent upon it.

SOLUTION

The role centrality of the engineering department in a company that produces jet planes for the military consists of the extent to which the department contributes to the goals of the company. The engineering department can be expected to have considerable role centrality in such a company, given its reliance on high technology.

SOLUTION

If the personnel department in a chain of sporting goods stores has dependency, this means that it has resources that other departments need. If finance needs an influx of new recruits, for example, it will be dependent upon personnel to supply these.

SOLUTION

When the legal department of a computer manufacturer heads off a lawsuit over monopolistic practices, this is gaining power through uncertainty control. The legal department is one that is able to control uncertainty, and hence has a source of power. It has reduced uncertainty in the legal environment.

TOPIC Departmental And Vertical Coordination

TEXTWINDOW

In this topic we will deal with coordination--one of the more important attributes of a productive organization. Coordination means the creation of cooperative relationships between individuals and groups whose work overlaps. This activity is common in everyday activities, as when a crew of workers from a nursery sets a transplanted tree upright in a hole, a husband and wife jointly bathe their infant son, or several ballplayers work together to bring about a double play.

When the work of individuals or departments is interdependent, coordination is essential. Production and sales, for instance are highly dependent upon one another. If production does not construct a sufficient volume of products to honor commitments made to customers by sales, tension can easily unfold and the firm will not achieve one of its more consequential missions. If maintenance does not keep factory equipment in good working order, production can deteriorate, become inefficient and even be forced to close down for repairs. If logistics does not transport orders to customers when they are needed, marketing department efforts will be thwarted.

There are a number of techniques for achieving coordination. We will review the most widely-used and promising ones here. These are:

1. Mutual adjustment. 7. Staff assistants

2. Rules and procedures. 8. Committees.

3. Authority. 9. Task forces.

4. Departmentation. 10.Specific goals.

5. Liaisons. 11.Standardized skills.

6. Integrators.

Mutual adjustment refers to coordination that takes place as a result of spontaneous exchange of information. In this case, the steps which will be applied are not highly preplanned. Rather, each party communicates with the other in order to produce an integrated effort that seems to have a good chance of being productive, given the circumstances that exist at the time. When a football play has been broken up by the opposing team, for instance, a member of the offense might signal to the ball player to lateral the ball to him, so that he can continue progress toward the goal. This action was not planned when the play was called, but can turn out to be a useful way of taking care of unforseen developments.

Mutual adjustment can be a very sophisticated procedure. When members of the industrial relations department are negotiating with union representatives, this strategy may be appropriate, for example. One department member who is leading the discussion could run into personality clashes with the union people, and it might become obvious to all that progress is stalled, perhaps permanently. If this happens, the lead negotiator might signal to another member of the team, through a subtle move such as a nod of the head, to take over as the head of the bargaining unit, so that the discussion can move ahead and progress made. Rules and procedures represent another avenue for realizing coordination. Sometimes the activities of a group are foreseeable and can be mapped out before they occur. The leader of a group can establish routine ways of accomplishing work that will lead to smooth flowing joint effort. This method can be employed where the work does not change substantially over time. Each member of the group knows in advance what to do under various circumstances. A paramedic team, for instance, has an established routine for dealing with persons who are unable to breathe. Each member of the team knows what actions to take and also is aware of what other members of the team will do. As long as all members of the group observe the approved procedures, there will be coordination.

Workers in a restaurant often employ rules and procedures in serving customers. In this case, the members of the team are waiters, waitresses, receptionists, bus-people, cashiers, cooks, and dishwashers. When groups of customers arrive for breakfast, all of the employees know their roles and those of their co-workers. If one should fail to perform that role adequately, it can throw the entire system into dis-coordination, however. If the cashier visits on the telephone with friends, for example, the activities of all of the others may be held up.

Another possibility is to count upon authority. In this case a superior dispenses orders to subordinates, watches their behavior to see if they are complying, and takes remedial action if this is required. It is the job of the superior to bring judgment into play and conclude what must be done at a given time.

Authority may be the only way to bring the group together. Sometimes unusual events arise that are not covered by rules and procedures. When this happens, the formal leader is compelled to step in and take command. If there is an unexpected interruption of the production line, for instance, a supervisor can investigate, decide what remedial action to take, and instruct the workers accordingly. Experienced supervisors can often handle such situations very adroitly. If, however, there are too many of these unanticipated events, the supervisor may become overwhelmed with putting out fires and will neglect other duties.

Departmentation can be another practical method. If the unit is organized along functional lines, there may be only limited coordination between departments. Each one has its own objectives and agenda and is not overly concerned with what happens in other departments. With a divisionalized structure, however, this condition can be circumvented. When divisions are formed, departments are made up of individuals from diverse functional areas, such as production, marketing, finance, engineering, and research and development. The goal of the division entities is to produce and sell profitable products, serve particular customers, attend to a marketing channel, or cover a geographic area. Coordination is instrumental, in order to achieve such objectives.

Another possibility is to employ liaisons. These employees of a department are assigned to work with other departments. Normally, these are brought into play when there is a need for two departments to work closely together, because they are very interdependent. If the personnel department is highly involved in hiring sales people, for instance, the director of personnel might appoint a liaison person to work with sales. This individual will spend time in the sales department, visiting with sales representatives and the sales manager and reviewing reports and records, in order to develop a familiarity with the needs of this group. If the sales department is encountering obstacles in locating and recruiting talented new personnel, the laisison could work in tandem with sales, in an attempt to surmount the problem.

Integrators operate much like liaisons. However, they are not members of any of the departments that are doing the coordinating. It is their assignment to operate independently to see that two or more highly dependent departments keep their operations closely synchronized with each other to accomplish some task. When automobile companies are introducing new models each year, for instance, they design extensive campaigns involving several departments, such as advertising, sales, public relations, and logistics. It is essential that these act closely together in order to bring about a successful introduction. An integrator is often appointed to accomplish this.

Staff assistants can be utilized for coordination. Managers who are burdened with extensive duties can engage these individuals to help them bring independent departments together. The assistants can moniter the ongoing activities of the departments, ascertain if coordination is lacking, propose means of bringing about an orderly flow of work, and make recommendations to the manager. The staff assistants can be shifted from one responsibility to another, depending upon the priorities of the manager at any given time.

Committees are another technique that can be of value. These are made up of representatives of different departments who get together at scheduled intervals or when problems arise. Their assignment is to resolve issues that involve more than one department. Some are permanent standing committees, while others are temporary, designed to achieve a particular short run objective. These tend to be less formal and less enmeshed in bureaucratic procedures than are the standing committees. Appointments to these groups should be made with care, however, because some individuals are very effective in committees and are committed to the goals of the group, whereas others are not. In many cases, the progress of the committee is a function of the power and persuasive abilities of the leader.

Task forces are yet another avenue for accomplishing coordination. These are formed in order to achieve a specific objective, after which they are disbanded. Sometimes these groups are in operation for a very short time, perhaps only a few weeks. In other cases, they operate for years. They differ from temporary committees in that they are made up of representatives of departments whose activities overlap relative to the objective. Further, members usually work full time on the task force, whereas committee activity is part time. In addition, task forces may continue to exist for relatively long time periods, whereas temporary committees normally are expected to accomplish their objectives rapidly.

Very often, members of task forces benefit from high morale. They develop team spirit and become very committed to the realization of their objectives. Their labor is considered to be exciting and driven by specific sought after objectives. Members of the task force do not have to be told to coordinate their efforts because most will do this voluntarily. Another technique which can be productive in realizing coordination is to bring specific goals into play. Managers can set these up and clearly communicate them to the individuals or departments involved. It is not necessary to prescribe rules or procedures, but only to inform everyone what they should accomplish, in detail. The idea is if you know what your expectations are, you will find a way to accomplish them.

Assume that a marketing manager for a cosmetics producer wants to increase sales by fifteen percent next year. He decides that, in order to do this, the sales force will have to add 200 new retail customers, the advertising department must reach 1 million consumers with persuasive messages, and the sales promotion department will have to arrange for 20,000 demonstrations in retail stores. All three of the department heads are informed of their goals. If each of them reaches its goal, the marketing manager will realize his objective.

Finally, coordination can be accomplished by standardized skills. If every individual or department that is working together on a project employs various techniques in a predetermined and prescribed manner, the others will know what to expect. They can simply proceed with their own work, knowing that the other parties will behave in the prescribed manner. On an assembly line, each worker has certain duties that have been established in advance. That worker simply does what he or she has been taught to do, knowing that others will do likewise. The result is a smooth flow of work where the efforts of each person dovetails with that of the others.

EXAMPLE

A producer of firearms uses a liaison person from the sales department to coordinate with production. The two are very interdependent, and it is essential for sales that production creates the correct volume of each type of pistol and rifle. Sales prepares forecasts of the demand for each model. It is the job of the liaison to make sure that these targets are met. Shortages will result in dissatisfaction on the part of retail dealers and consumers. Overages, on the other hand, drive up production and logistics costs and may have to be disposed of through price cutting. The sales liaison spends much of his time working with production to make sure that the forecast goals are met.

SOLUTION

A producer of farm tractors uses mutual adjustment to coordinate production and finance. This will be used when events in the workplace cannot be predicted very accurately. In this case, the coordination will take place as a result of spontaneous exchange of information. The steps that will be employed are not highly preplanned.

SOLUTION

The supervisor of a bricklaying crew uses rules and procedures for coordination. This is possible because the activities of the workers are foreseeable. They can be mapped out before they occur. The supervisor can establish routine ways of accomplishing work that will lead to smooth flowing joint effort.

SOLUTION

The head of an engineering department in a steel company uses his authority to bring about the coordination of the department. This may be appropriate since unusual events may occur that are not covered by rules and regulations. When this happens, the formal leader is required to step in and take command. The rules and regulations will not cover that which is not expected.

SOLUTION

In a factory that makes sulfuric acid, the engineering department employs a liaison person to work with production. This is a good concept, provided that the two departments are interdependent. The liaison employee can moniter the activities of production and make suggestions that would benefit both departments. In addition, this employee can collect information from production and bring it back to the head of the engineering department.

SOLUTION

A book publishing company achieves coordination through inter-departmental task forces. The members of these groups normally work full time on the task forces. They are temporarily assigned to the group and devote their efforts to its objectives. Once the task has been accomplished, they go back to their regular departments.

SOLUTION

The president of a mobile homes manufacturer uses specific goals to achieve coordination. An example of his work would be when he informs the sales department that it should sell 1,000 mobile homes. In this instance he has communicated clearly what the sales department should do. Other goals will be given to other departments, so that coordination will result.

SOLUTION

An assembly line used by a producer of television sets is coordinated by standardized skills. This means that the workers employ techniques in a predetermined and prescribed manner. Other workers on the assembly line will know what to expect from them. It is not necessary for each one to tell the others what he or she will be doing.

TOPIC Advanced Control Mechanisms

TEXTWINDOW

The previous topic focused on market and bureaucratic control mechanisms. Now we will turn to a third major category. This is clan control, which is the use of shared values, customs, and opinions to fashion trust among employees and to control their actions. In an organization where there is little certainty, it is difficult to control bureaucratically because everything is changing so rapidly that rules and regulations cannot cover every expected activity. On the other hand, there is so much unpredictability that the money value of the output is hard to assess.

A small legal firm is subject to these conditions. It is made up of four partners and several associates who specialize in automotive personal injury liability cases. The case load of this company fluctuates dramatically from one week to another, so the demand for the attorneys' services cannot easily be predicted. Each case is unique, with a new set of clients, adversaries, facts, germane legal principles, and a different judge and jury.

When newcomers are recruited into such an organization, they receive considerable indoctrination, in order that they might learn the prevailing values, customs, and opinions. In other words, they learn the organization culture, and this becomes part of their value system. The organization culture provides control, rather than rules and regulations or a market control mechanism. In a sense, once employees have learned and accepted the organization culture, they control themselves.

This method is common in organizations where the work activities are not predictable. The environment tends to be in a state of flux, as the needs of customers, the strategies of competitors, and other elements change rapidly and dramatically. Clan control is often found in small departments or organizations, where the members of the work force come to know each other well. In many cases the organization structure is an organic one.

A small company that manufactures equipment used in making computer disk drives practices this form of control. The firm is largely staffed by engineers and technicians who are highly motivated to come up with new innovations and outdo competitors. Morale in this firm is high. There is little formality, as most employees dress casually, and do not even come to work at the same time in the morning. Management does very little supervision and functions more in a coordinating than in a control capacity. This firm is one of the fastest growing and most profitable in the industry.

Of course, even when clan control exists, there are needs for some rules and regulations. Some certainty is required, at least in areas of necessity, such as those having to do with safety in the workplace and adherence to governmental regulations. But these are at a minimum when clan control predominates.

Another control issue is whether output or behavior is to be controlled. Output control is the traditional method, that which has historically been exercised in many organizations. In this case the production of a department or an individual is gauged over a period of time. This is common in sales jobs, for instance, where the sales manager can evaluate such variables as total sales, sales as a percent of quota, profit, or contributions to overhead expenses. It is also fairly common in service establishments. A beautician in a hair salon, for example, may be appraised by how much money she contributes to the business.

The assumption underlying this method is that if the output is controlled, the input will be adequate. But this is not always the case. Sales representatives may resort to unethical behavior or practices that harm the organization if only their sales are used as a criterion for evaluation. They may sell customers products that they do not need, make untrue product claims, falsely disparage competitors, induce customers to worry unnecessarily, and engage in other activities that management does not want.

Interviewers hired by research companies are often compensated by how many interviews they complete in a week, month, or some other time period. Some of these employees rush through their interviews and ignore the instructions of their supervisors, in an attempt to achieve high productivity and resulting pay. Others even turn in counterfeit interview forms that were fabricated, rather than based upon actual interviews.

This form of control is usable only when the outputs can be measured. It is difficult to assess the work of advertising, research and development, personnel, maintenance, and other departments. Universities are often evaluated by state legislators and other governing bodies by the number of students that they attract. But this gauge tells nothing about the quality of the education that students receive. This might suggest that output control should not be the only criterion for assessing the achievement of these institutions.

Output control has another weakness. By concentrating solely on production, it ignores the input side of the equation. Sales representatives may achieve high sales, but only at great expense. They may waste time and money on activities such as excessive customer entertainment, in their efforts to achieve sales. Likewise, a production department that is assessed only by how many units of product it creates may have many product rejects, use large amounts of raw materials and power, and have a marginal on-the-job safety record, in an attempt to produce as much as is possible.

There is an alternative to output control. Behavior control requires scrutinizing the conduct of employees to determine if they are carrying out the work in the proper manner. A supervisor, for instance, can observe workers on an assembly line to make sure that they are doing their jobs in a way that will result in both high product quality and adequate volumes of output. The assumption is that, if input is controlled, output will be adequate.

This control method is useful in companies that are more concerned with product quality than they are with volume of production. A consulting or legal firm, for instance, is not interested only in just attracting a large volume of clients. These organizations are also oriented to carrying out their crafts in a very effective manner. Members of consulting firms, for instance, will go to considerable lengths to doing their studies and making recommendations in a way that can be defended and that will benefit their clients. Similarly, legal firm representatives want to win cases and assist their clients, but they realize that this will not be accomplished unless they do their research, make thorough investigations of the facts of each case, and conduct themselves professionally.

Some enterprises have adopted behavioral control for sales positions. They believe that it is vital for sales representatives to conduct themselves in a manner whereby solid and positive relationships are formed with customers. It is assumed that such relationships will result in a steady flow of future sales from these customers in the future, as well as other sales that come about because of the positive image the company will develop in the industry. Other potential customers who become aware of this image may be attracted to the company.

Behavior control is often found in situations where it is not possible to assess output in a quantitative manner. The personnel department, for instance, cannot easily be judged by the numbers of people it serves. But it can be evaluated according to the proficiency with which the department members carry out techniques designed to find prospective new employees, attract them to the organization, compensate them, and train them.

Another condition that favors behavioral control is when superiors are very well informed as to what activities subordinates carry out in their jobs. Managers who have worked themselves up to a management position, for instance, know just what is needed in order to be effective producers. It is not easy to be incompetent or inactive and still avoid their detection of these qualities. Rather than just considering how much output is created, they look at how the process was carried out, knowing that output alone is an imperfect measure of accomplishment.

A disadvantage of behavior control is that it can force employees into a standardized mode of behavior that may not be appropriate for their individual capabilities. Under this system, a worker may turn out considerable output, but if this is not done the way the manager wants it done, the worker receives a low evaluation. Further, some employees resent situations where management forces them to do things in a certain way, especially if they favor the use of other types of behavior. A beautician may be an excellent hair cutter, but become hostile when the supervisor instructs her to change the way she gets the work done.

A good case can be made for the use of both kinds of controls, where this is possible. Since each one has advantages and disadvantages, a combination can allow management to avail itself of the advantages of both and minimize the disadvantages. Some sales representatives, for instance are observed by sales managers who accompany them on calls and evaluate their behavior and who also measure their sales levels.

This concludes our examination of organization behavior. At this point, you should have a firm grasp of this very important and fascinating field.

EXAMPLE

A medium-sized advertising agency located in New England practices clan control. This is a very loosely-knit organization. All of the employees know each other well and have frequent social contacts, as when they get together for backyard barbeques at each other's homes. There are few rules and regulations and little formality at work. All of the employees are totally dedicated to the company and anxious for it to be successful. Their specialty is to develop very creative campaigns for their clients and this has been accomplished in an atmosphere that can be described as stimulating, exciting, and driven. This agency has won many awards for its work and is steadily developing an expanding list of major clients.

SOLUTION

A small company develops, markets, and supports database software for business planning. It employs clan control, which features shared values, customs, and opinions. An attempt is made to build trust among employees. Few bureaucratic rules and regulations are in force.

SOLUTION

A company that produces embroidery equipment uses clan control. New employees receive considerable indoctrination, in order that they might learn the prevailing values, customs, and opinions. In other words, they learn the organization culture.

SOLUTION

A company produces and sells models of NASCAR racers. It probably should use clan control if the work activities are not predictable. The organization is in a state of flux, as the needs of important stakeholders change rapidly. Under these conditions, rules and regulations cannot readily be applied, and clan control may be appropriate.

SOLUTION

A company that operates men's apparel superstores employs output control over individual retail outlets. This method is usable only if outputs can be measured. In turn, this technique requires that there be a method of quantitatively gauging how much each retail outlet sells. This should be the case, as top management will have a system in place that reports on sales by store, over a period of time.

SOLUTION

A management consulting company uses behavioral control for its employees. This method is useful because the firm will have a measure of the quality of its services. The firm is apparently more concerned with the quality of its services than with volume of production. The system will indicate if the consultants are doing their work in a manner that will directly benefit the clients of the organization.

SOLUTION

A disadvantage of behavioral control for a firm that produces amino acids for the pharmaceutical industry is it can force employees into a standardized mode of behavior that may not be appropriate for their individual capabilities. Workers may turn out considerable output, but will not be rewarded unless they practice activities favored by management.

SOLUTION

A company manufactures prizes that are sold to amusement park game operators for distribution to game winners. In controlling individual departments it is well-advised to use both output and behavioral controls, where possible. Both of these types of controls have advantages and disadvantages. It may be possible for the company to avail itself of the advantages and avoid at least some of the disadvantages.

MBA at UAR an Organizational Theory Supplement.htm 144 of 1

144 of 1