Organization Theory and Organization Design

Ultimately, executive leaders are vital for influencing the

overall environment within which all innovation and learning
occurs. … Good design will not create commitment and
energy, but poor design will surely thwart them. 1

This lecture series will cover two topic areas: organization

theory and organization design. Organization theory is a specialty
within sociology. Its practitioners note that all organizations are not
the same and seek to explain the reasons for differences among
organizations. Why do some organizations have an extended
hierarchy with limited spans of control at each level while other
organizations have an abbreviated management structure and several
people reporting to each manager? Is there an independent variable
(size of the firm, technology employed, stage of development of the
firm) that can be used to predict organization structure, and if so,
what is it/are they?

Organization design attempts to translate the findings of

organization theory into recommendations for management practice.
If certain types of organization are particularly likely under a given set
of circumstances, then it would behoove managers to design their
organizations appropriately when they face those circumstances.
Organization design is a prescriptive rather than an abstract branch of
the field.

In this lecture we will try to cover both bases, beginning with

organization theory and proceeding to organization design. The text,
no matter what it says it is doing, does not really present organization
theory. The only theorists of organizations mentioned in the
bibliography are Weber and Mintzberg, and Weber is severely

1PM Senge, “Leadership in living organizations, in Hesselbein F Goldsmith M and

Somerville I, Eds, Leading Beyond the Walls (Jossey-Bass Publishers, San Francisco),
1999, p 89

© Probst, 2000 1
misinterpreted. Rather, the text focuses on organization design,
partially by creating a straw man labelled "the classical view."

For why this topic is important, I refer to the quote above from
Senge, best known for his theories regarding learning organizations.
Good design is a necessary underpinning w/o which excellence cannot
be achieved.

Organization Theory

We begin with an interesting epistemological insight.

Organizations, as distinct from the property they may own, are
intangible. A building with an assortment of high-tech goodies in it is
not a hospital. That same building inhabited by humans with a variety
of skills--nurses, physicians, nutritionists, dishwashers--is not a
hospital. The building and the people only become a hospital when
their efforts are rationally structured: when they are organized. This
last principle, organization, is, like the soul, invisible.

The intangibility of organizations leads theorists to take what

one might call a metaphoric view of organizations. The metaphor or
paradigm used in describing organizational structure, and thus both
the descriptions and the recommendations that emerge, varies over
time and across authors. Each metaphor carries with it a distinctive
manner of conceptualizing the structure of the organization. Early
theorists tended toward a mechanistic view of the organization,
spurred, no doubt, by the machine-dominated organizations that filled
the Industrial Age. The logic of technology created wonders--bridges,
railroads, factories, "progress"--surely the same logic applied to
humans would produce similar wonders. The machine image still
dominates our thinking about organizational structure.

In the past 30 or 40 years, other images have emerged:

organizations as open systems, organizations as brains, organizations

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as cultures, organizations as political systems, and so on. Katz and 2

Kahn's open system concept is an organic metaphor; it draws

3

attention to the environment in a way that a machine metaphor does

not. March and Simon visualize the organization as a means for
4

making decisions; the uncertainty in decision making is highlighted

from their work in a way that a machine paradigm would not allow.
Each of these metaphors points to an element necessary for
organizational survival. Each of them is, we must emphasize, a
construct, not a thing.

It is impossible to speak of organizations without using

metaphor. This makes RLD's presentation, and ours, somewhat
schizophrenic: each theorist brings a whole new set of terms. One
approach is to review the history of organization theory, but the field
has been getting broader with time. RLD's distinction between
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"classical" and "modern" theory is inadequate, largely because they

barely scratch the surface of the field and don't always scratch well.
(Maybe they're smart; they don't want to confuse you with too much
"stuff.") Our approach will be eclectic: we will present the work of a
few theorists with whom you should be familiar, as exemplified in their
organizational metaphors. Thus, with the text, we will look at
bureaucracy (a machine image), open systems (an organic metaphor),
and what one might call networks (project organization and matrix
organization).

Organizations as Machines

Organization as Tool: The Classic Writers

2This conceptualization of metaphors comes from Gareth Morgan (1986) Images of Organization (Sage
Publications, Beverly Hills, CA. The relevant theorists are Katz and Kahn (open systems); March and
Simon (brains), Ouchi and others (cultures) and Mintzberg (political systems).
3Katz, D and Kahn, R.L. (1979) The Social Psychology of Organizations (John Wiley & Sons, New
York)
4March, J.G. and Simon, H.B. (1958) Organizations (John Wiley & Sons: New York).
5For a sophisticated but humorous summary of organization theory from an historical perspective, see C.
Perrow, "The Short and Glorious History of Organizational Theory, Organizational Dynamics, Summer,
1973.

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 The "classical" writers referred to in your text--Henri Fayol, F.W.
Taylor, and Chester Barnard--defined the terms that we use in
discussing organizational structure. All the elements that RLD place in
their somewhat exaggerated classical-contemporary dichotomy were
created at the turn of the century. The informing metaphor of the
earliest writers on management is the machine. Workers are not
valued for their intelligence, but for their ability to contribute carefully
defined actions to the machine that management has created. The
object of organization design is to reduce ambiguity (who ever heard
of an ambiguous machine?), so that each and every part has been
carefully integrated into a whole that, when management puts it in
operation, will ceaselessly turn out product. (see chart at top of p.
211)

Work is divided into parts, like the cogs in a machine (division of

work). An assembly line carries the division of work to its logical, or
illogical, maximum: the task at hand has been completely subdivided
into constituent parts and each worker attends only to that part.
Hospitals have an extensive and legally defined division of labor.
Further, not only are the roles of the professions clearly delineated,
the professions themselves are organized by patient type when
actually on the work floor--there is a neonatal ICU and a cardiac ICU,
for example, and a pediatric wing, a medical wing, a psychiatric wing,
and so on.

Since the cogs are closest to the work, they should be

responsible for any routine decisions necessary to accomplish it
(authority and responsibility relationships). The pulleys of the
machine. This concept is ambiguously implemented in medical care,
where the specific decisions that different professionals may make are
usually outlined in law. Routine decisions are not routinely delegated
when they pertain directly to medical care. Generally, nurses can
decide about administering medication only if the physician has
indicated "as needed" on the orders. The centrality of the physician
as the basic source for all orders permeates care decisions. On the
other hand, it is possible for the non-medical functions of care--the
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hotel services of a hospital, for example--to delegate in the manner
envisioned here.

In the classical view, power begins at the top of the organization

and is parceled out downward in a logical fashion. This is
accomplished through delegation, which transfers power from a
supervisor to a subordinate. Ideally, both authority and responsibility
are transferred! Delegation is all linked upward into a single stream
unity of command. Finally, because the writers recognized that
some folks have no apparent function in the machine, a distinction is
drawn between those who are actually part of the production process
and those who only advise (line and staff). Line people are part of the
machine. They are part of the power stream, the sequence of I-tell-
you-you-tell-him, that flows from the top of the organization to the
lowest cog who actually puts hand on product. Staff people make
suggestions; they have no power to order anyone.

One principle for directing the streams of power is

departmentalization. In essence, when one divides work (divison of
labor) one creates the needs to coordinate the divided workers. One
way to group workers for easy coordination is by function. As
elucidated by Mintzberg and reviewed in your text, bases for grouping
workers include

o Knowledge and skills

o Work process and function
o Time
o Output
o Client
o Place

The cogs are linked to cogs that precede and follow them by
coordination mechanisms. Hierarchy is the most common
coordination mechanism: A's efforts are linked to B's efforts by their
mutual boss, C, who can oversee them both. A and B should only take
orders from one person if ambiguity is to be avoided (unity of

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command); this is why hierarchy is an important mechanism of
coordination. Unity of command also implies that all orders flow down
the hierarchy in a single stream. A pyramidal structure is implied.
Other include mutual adjustment and standardization of work, of
workers and of output.

Because a boss has limited abilities, there are natural limits to

the number of persons s/he can supervise; these limits are in part a
function of the tasks s/he must oversee (span of control). All things
being equal, small spans of control will result in a tall organization
(many hierarchical levels), while large spans of control lead to a
relatively flat organization (few levels). When researchers look for
independent variables affecting organization structure, a relationship
between organization size and levels of hierarchy frequently emerges.
This notion has strong logical underpinnings: an organization of 4
persons is most likely to contain one manager and 3 employees (thus,
2 organization levels) rather than 1 CEO, 1 VP, 1 supervisor, and 1
employee (4 levels).

Other terms relevant to organization theory emerged later in the

discipline. The classical writers organized the discipline, and in their
machine approach gave us most of the terms, line and staff, span of
control, and so on, that we still use to describe intra-organizational
function. Their writings fell into disfavor because their reductionist
approach ignored the psychological element within organizations as
well as the influence of external factors on organizational activity. If
you take a further management course, you will probably not be
asked to study the writings of Fayol or Taylor.

Organizations as Power Tool: Weber and Bureaucracy

You will, or should, be required to study the work of Max Weber.

RLD do profound disservice to Weber and his insights. Weber was an
organizational theorist, not an organization designer. When Weber
refers to an "ideal" bureaucracy, he is speaking of a prototypical
specimen, not of a goal to be pursued. When Weber says, "the
© Probst, 2000 6
decisive reason for the advance of bureaucratic organization has
always been its purely technical superiority over any other form of
organization," he is making an accurate observation, not a
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recommendation. RLD quote Robbins to the effect that "the

characteristics of Weber's ideal bureaucracy became 'the design
prototype for almost all of today's large organizations.'" This is not
true; until his works were translated into English in 1947, Weber had
little influence in the development of management theory in the
English-speaking world. Large bureaucracies, however, were
widespread. Bureaucracy is by no means an outdated form of
organization. As noted by Perrow, "nearly all large, complex
organizations in the United States ... are best classified as
bureaucracies." 7

RLD make Weber appear quaint and outdated, naively

recommending some sort of Prussian organization totally foreign to
the modern world. Nothing could be further from the truth. Weber
recognized a fact generally glossed over by most writers on
organizations--that bureaucracy legitimizes the exercise of power. 8

What Weber sought in his exploration of bureaucracy was to identify

those elements which made it "a power instrument of the first order--
for the one who controls the bureaucratic apparatus." The detailed 9

procedures for governance of hospitals outlined by RLD in Chapter 7

represent society's attempt to control the power of those who control
the health care bureaucracy. Weber's definition of bureaucracy,
created in 1906, still has relevance.

6Gerth, H.H. and Mills, C.W., translators. (1958) From Max Weber: Essays in Sociology (A Galaxy
Book: New York); p. 214.
7Perrow, C. (1986) Complex Organizations (Random House: New York) p. 3
8Perrow and Henry Mintzberg--from very differing perspectives--are two writers who do not overlook the
question of power. Perrow notes that bureaucracy enables those who control the organization to
appropriate the work of its members, while Mintzberg attempts to justify the power wielded by
organizations by tracing it to the legitimate wishes of stockholder/owners. Mintzberg, H. (1983) Power In
and Around Organizations. (Prentice Hall, Inc: Englewood Cliffs, NJ).
9Gerth, H.H. and Mills, C.W.,op cit, p. 228

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 Although their emphases are cutesy and condescending, RLD
summarize Weber's description of bureaucracy reasonably well (p.
210). Rational-legal bureaucracy is characterized by:

o A consistent system of abstract rules. This is the heart of

bureaucracy. Quoting Weber: "...management...follows general
rules, which are more or less stable, more or less exhaustive, and
which can be learned. ... This stands in extreme contrast to the
regulation of all relationship through individual privileges and
bestowals of favor ..." For all the hazards of dealing with the Social
10

Security Administration, or Blue Cross/Blue Shield, the situation is a

marked improvement over dancing attendance on Caligula, or George
III, or the feudal powers dominant in most of European history.

o Positions arranged in a hierarchy. Hierarchy allows for a

career within the organization. It also creates further recourse for
those affected by the bureaucracy: "Such a system offers the
governed the possibility of appealing the decision of a lower office to
its higher authority ... (p. 196)."

o Specialization and division of labor "...the principle of fixed

and official jurisdictional areas ..." (p. 196)

o Impersonal relationships. Notes that "the political

official ... is not considered the personal servant of a ruler" (p. 199)
The position may not be exploited for personal gain; organizational
assets are differentiated from those of the individual. This is why
Holderman's name was so much in the papers: he wss held to have
misappropriated the resources of the bureaucracy he headed. It is
also why Ms. Tamposi was recently dumped from the State
Department for allegedly initiating the search of Clinton's passport
files: in so doing, she was acting the the personal interests of the
ruler (President Bush) rather than in the relatively impersonal
interests of the nation.

10Weber, op. cit, p. 198. Rest of quotes are to this book, pages given above.

© Probst, 2000 8
 o Technical competence. Members of a bureaucracy are
given "...thorough and expert training."(p. 198).

Bureaucracy gets a bum rap, principally from our experiences of

"the insolence of office" when we interact with members of poorly run
bureaucracies. We tend to forget, perhaps, what it replaced: the
whim of feudal despots. The genius of bureaucracy is that it binds
both bureaucrat and customer to the rules. Bureaucracy is criticized
for being slow to change and for suppressing its employees. Perrow
notes, however, that the opposite of slow to change might be
considered, "stability, steadfastness, and predictability." He also
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points out that the loss of individuality on the part of bureaucratic

employees has benefits for the rest of us. We don't want the clerk at
the hospital to bill his brother in law half his actual costs, while billing
us twice as much because he doesn't know us. The opposite of
"impersonal" can be "corrupt." A better option to ridding the world of
bureaucracy may be reforming bureaucracy. We should, according to
Perrow, avoid bloated organizations: "huge inflexible firms
dominating markets...[lead to] "outdated rules, improperly invoked
hierarchies, partcularism, and favoritism"(p. 47).

Perrow also suggests that bureacratization, aka rationalization,

of medical services is a function of increased demand for service. We
cannot all afford personalized attention. How many people, for
example, could afford round the clock in-home nursing care if they fell
ill? We tolerate systems that treat patients as input to be slotted to
the right professional in the most efficient possible manner (e.g.,
cataract days or lower GI days at ambulatory care centers) because,
regardless of the effects bureaucracy may have on workers or
patients, it makes some level of care available to all of us. This is
preferable to the alternative, no care except for the extremely
wealthy.

11Perrow, op.cit, Chapter 1, "Why Bureaucracy"p. 5

© Probst, 2000 9
 Most members of this class will work in bureaucracies. The
question you will face, which we will return to in the organization
design section of this lecture, is shaping the elements of your
bureaucracy so as to maximize its strengths (efficiency, equal
treatment of all, and so on) while at the same time avoiding its pitfalls
(stagnation, encrustation with rules, and so on).

Shaping the Machine: Contingency Theory

"Contingency theory" is the most common subset of

organizational theory. (It is generally within a machine metaphor: the
organization as a structure that can be rationally created.)
Contingency theory holds that the elements of organization structure
are dependent (contingent) upon various factors within the
organization. The two biggest contingencies, as researched in the
literature, are size and technology; age of the firm also appears as a
significant contingency.

Size has a certain appeal as a key contingency in organization

structure. It's easy to conceptualize. Pretend you have a 5-person
firm. How are they likely to be organized? Okay, now let's assume
that you have 50 people. How many layers now? Most of us would
say: more layers. That, in a nutshell, is the size argument, as tested
by Blau. Investigating social service agencies (technology is similar
12

here), he found that the more staff they had, the more organizational
layers were present.

Technology is the principal rival to size as an hypothesized

predictor of structure. A technology that can be reduced to routine
repetitive elements, for example, will lead to a different organizational
structure than one which must deal with constantly changing
problems that require original thinking to be overcome. The original 13

12Blau, P.M. (1970) "A formal theory of differentiation," Americal Sociological Review, 35:2, 201 -
218. Also, Blau, PM, Falbe, CM, McKinley, W and Tracy, PR (1976) "Technology and Organization in
Manufacturing," Administrative Sciences Quarterly, 21:20 - 40.
13Perrow, C. (1967) "A Framework for the Comparative Analysis of Organizations," American
Sociological Review, 32: 194 - 208. This is a relatively old but seminal article.

© Probst, 2000 10
exponent of this line of thought was Joan Woodward, who studied
manufacturing firms in Great Britain. Overall, the link between
14

technology and organization structure has been studied most

thoroughly and has the most relevance to organization within the
health care industry.

Investigating the link between technology and span of control,

Bell found that the more complex the tasks, the smaller the number of
people supervised, and vice versa. Leatt and Schenk found that
15 16

Homogeneity in certain technological dimensions was the

apparent criterion used by hospitals to select the method of
grouping nursing subunits. Specifically, instability and
uncertainty in the technology were shown to be of major
importance; variability had little predictive power.(p. 162)

Of course, there is a minority view: One researcher, through case

studies of the introduction of CT scanners at different hospitals,
asserts that structure is not in fact determined by technology, but
emerges as a result of negotiations among the parties who use it.
Barley asserts that ...technological undertainty are complexity are
social constructions that vary from setting to setting even when
identical technologies are deployed." Thus, the influence of
technology, although real, "depends on the specific historical process
in which [it is] embedded." 17

Although the size versus technology battle in the '60's

parallelled the "tastes great--less filling" debate in beer commercials,
most present day researchers use both criteria, rather than either
single issue, For example: Comstock and Scott found that 18

14Woodward, J. (1965) Industrial Organization: Theory and Practice. (London: Oxford University Press)
15Bell,G.D. (1967) Determinatns of Span of Control," American Journal of Sociology, 100 - 109.
16Leatt , P. and Schneck, R. (1984) Criteria for grouping nursing subunits in Hospitals. Academy of
Management Journal, 27:1, 150 - 165.
17Barley, SR (1986) "Technology as an Occasion for Structuring: Evidence from Observations of CT
Scanners and the Social Order of Radiology Departments," Administrative Sciences Quarterly, 31:78-108.

© Probst, 2000 11
 "both [technology and size] were important predictors of RN
ratios, staff differentiation, and centralization of routine
decisions.(p. 196)."

Transaction Cost Theory

There is one additional line of thought regarding organization

theory that I would like to toss out: economic paradigms. If you will
remember, we just said that structure can depend on size. Okay.
Now, what does size depend on? What, if anything, defines the limits
of an organization's growth?

To answer this question, you get into the fascinating world of

transaction costs. The concept was pioneered by Coase, who won 19

the Nobel for economics last year; it was used to explain the size of
firms by Williamson. Traditional economics sees the marketplace as
20

a frictionless place: goods are produced and sold, and the cost of
goods is derived from some production/demand function. In the real
world, however, every transaction has a cost associated with it. There
are costs associated with handling a transaction, and for the buyer,
costs associated with discovering appropriate products.

Transaction processing costs: Williamson sees all transactions

as involving a contract. Williamson begins by analyzing the
contracting situation, exploring two behavioral assumptions, bounded
rationality and opportunism, and one situational variable, asset
specificity. "Bounded rationality" implies that the purchaser cannot
know everything about the intended product. If he/she could, then
planning on the part of both organizations would be sufficient. If both
parties were totally free of self interest, or opportunism, then a
promise and a handshake would be sufficient. If assets are completely

18Comstock, D.E. and Scott, W. R. (1977) "Technology and the structuring of subunits: Distinguishing
individual and work group effects.) Administrative Sciences Quarterly, 22: 177 - 202.
19Coase, RH (1937) "The nature of the firm," Economica, 4:386-405.
20Williamson, O.E. (1975) Markets and Hierarchies, (New York: The Free Press); Williamson, OE.
(1985) The Economic Institutions of Capitalism, (New York: The Free Press.

© Probst, 2000 12
interchangable, not at all specific to a particular use, then the
purchaser can obtain them anywhere; competition will ensure product
quality. But in certain situations, the purchaser and seller cannot
completely forsee everything about the product, each looks after their
own corporate interests, and assets to be purchased are specific: a
particular type of machine made to specifications, for example. In this
situation, "governance" is required, whether the governance of a
contract, or governance through bringing the supplier into the
organization (vertical integration). What determines whether you buy
something or make it yourself? The transaction costs.

The establishment of a contract between two organizations for

the purchase of a specific type of widget that meets one
organization's needs will tie up the time of technicians, accountants,
and ultimately, lawyers. They negotiate terms, set up and enforce
payment schedules, and all that. These processes are a cost of the
transaction itself, pure and simple, which both buyer and seller bear.
A firm will expand till it meets the point where the cost of having a
service within the organization (perhaps because of unused time)
exceeds the cost of obtaining it elsewhere. Thus, for example,
construction firms generally employ their own carpenters, laborers,
masons--crafts that are used throughout much of a building project--
but contract for electrical and plumbing, because those skills are
needed only for a short time on any given unit. Small rural hospitals
typically do not have salaried radiologists.

An interesting point about transaction cost analysis is that is

applies well to service industries, and in particular to health care.
Jones, for example, has used this theory to explore the relationship
between client and provider. Jones explored organization structure in
terms of :
o transaction uncertainty How specific is the product to the
client? How frequently is the purchase made? How long does it take
to complete a transaction (duration)? Highly specific, infrequent, and
high duration transactions all have a high degree of uncertainty, or
better, a high degree of cost if the whole thing blows up. And:
© Probst, 2000 13
 o performance ambiguity . Can the client measure quality?
When uncertaintainty and ambiguity are high, he suggests, vertical
complexity (hierarchy) will be high. Also under these conditions,
supervision will not be able to rely on behavior or output controls,
because the product is to complex to be standardized. In addition,

When performance ambiguity and transaction costs [in this case,

the cost to the patient of finding a new physician] are high, an
organization will need to convince clients that it is acting in their
interest by developing a governance structure that reassures
them it will not act opportunistically towards them . . . hospitals
will respond by controlling who provides services and how they
do so. Specifically, high professional qualifications, intensive
socialization, and the development of medical norms . . . [will
develop] 21

The relationship between cost/ambiguity and structure makes

intuitive sense when applied to health care. Patients experience
relatively low transaction costs when evaluating different ambulatory
care physicians. If the doc fails to diagnose your ear infection, the
continuing pain should eventually lead you to another physician, and
you are only out $30 or $40 for the first visit. And in fact, ambulatory
care practice is relatively unregulated. Physicians are free to practice
alone, in groups, with an office manager, without one--pretty much
however they like. Hospitals, however, deal only with very expensive,
very ambiguous care. And hospitals are highly regulated, and in turn
are very careful about dispensing practice privileges.

Organizations as Organisms

Views of the organization as a machine lead to images of a

closed system: the cogs clink and mesh, turning out whatever in
majestic isolation. Open systems theory perceives the organization
through an organic metaphor. The emphasis is on the organization
21Jones,
G. r. (1987) Organization-client transactions and organizational governance structures"
Academy of Management Review, 30: 197 -

© Probst, 2000 14
solving those problems that a living creature must solve: importation
of energy, transformation of energic input into work, and so on.
Because creatures live in an environment of other creatures, the use
of an organic metaphor calls to the mind the influence that the
environment has on organizations. Given the degree to which hospital
structure, for example, is affected by actions of legislators, payors,
other hospitals and the community at large, the open systems
metaphor brings significant advantages. It emphasizes the degree to
which management must be sensitive to external influence if the
organization is to survive.

Open systems theory is generally attributed to Katz and Kahn. 22

K&K identified 10 characteristics which are possessed by all open

systems. Since we've already covered these in an earlier lecture, I'll
just point to one:

o Homeostasis. Organisms that survive do so in a steady

state: people have skeletons yesterday, today and tomorrow. Their
structure is remarkably constant, although the actions a person
engages in will change from day to day. Mechanisms exist to ensure
this homeostasis, such as hunger when we need food, thirst when
water is required and so on. Organizations, like other organisms, will
resist environmental pressures to change shape. Organizations do
this through continued growth, which allows them to 1) ingest (K&K's
term) or control portions of the environment (think of hospitals
acquiring medical buildings to increase their control over physicians)
and thus 2) increase their power within the environment.

Survival through continued growth is an increasingly common

strategy in the health care industry. RLD discuss the increase in the
number of hospitals participating in multi-institutional arrangements.
Longest, in an earlier article, made an important point: such increases
in size are not undertaken because size leads to efficiency, but
because size influences the power of corporations vis-a-vis the
22Katz and Kahn, op cit, esp Chapter 2, Organizations and the System concept. It is beyond me why RLD
do not cite this work.

© Probst, 2000 15
environment. In fact, as Smith and Kaluzny point out, multi-unit
systems have higher operating costs than single hospitals. However, 23

a large, multi-hospital corporation is in a much more powerful position

relative to a state Medicaid industry than is a single hospital. The
multi-hospital corporation can threaten to close a single hospital; the
single hospital does not have that option. Similarly, Smith and
Kaluzny point out that the first response of an organization to poor
24

performance (declining admissions, few new patients) is to attempt to

change the environment. Hospitals and professionals now advertise,
which is an attempt to change the responsiveness of the environment
to them. Hospitals and professionals lobby, which is an attempt to
manipulate the regulatory environment. The preference of
organizations for homeostasis rather than internal change is clearly
evident.

Refined Machines: Matrix Organization

Classical theories of organization and bureaucracy are not

outdated. General Motors is still with us, though limping along. For
many organizations, working one's way through Fayol's terms--span of
control, line versus staff, and all that--are perfectly applicable. Most
organization charts reflect Fayol. However, there are whole ranges of
situations for which traditional paradigms are not applicable. For
these new modes of theory have arisen to describe a reality at
variance with the traditional metaphors. RLD present two: Mintzberg
and his kidneys, and matrix organization, originally described by
Neuhauser.

"Matrix organization" is an attempt to draw a rational diagram of

the observed reality of multiple lines of power and authority in an

23Smith, D.B. and Kaluzny, A.D. (1986) The White Labyrinth: A Guide to the Health Care System
(Health Administration Press: Ann Arbor, MI), Chapter 9, "Endpoints."
24 Smith and Kaluzny, op cit, Chapter 4, "Organization."

© Probst, 2000 16
organization. Duncan Neuhauser originally characterized hospitals
25 26

as matrix organizations: the vertical lines of authority (down through

nursing, social work, physical therapy, and so on) can be visualized as
intersecting with perpendicular horizontal authority from individual
physicians. The points of intersection are the individual patients.

Neuhauser roots his observations in contingency theory,

specifically in the notion that organization is a function of technology.
The technology of medical care requires a significant degree of lateral
as well as hierarchical coordination. Hospitals have a significant
number of management committees and task forces to provide such
lateral (horizontal) coordination. The greatest degree of coordination,
however, is achieved through the patient care team, using the medical
record as a device for communicating and coordinating action.

The text presents Mintzberg as the culminating word on

organization design. Well, maybe. Mintzberg and his kidneys (see p.
231) are actually fairly close to a traditional organization chart, which
has support staff off to the side, operations at the bottom and so on.
If I had to pick an element of Mintzberg that is really different from
that of other theorists, I would have to pick his naming of the five
units, together with his taxonomy of organizations.

"Operating core" is a fairly conventional name; it clearly reflects

Thompson and the "technical core" which is the heart of the
organization's productive processes. Similarly, "middle line" is a fairly
standard term. Originality emerges in the division of the elements
other writers would call "staff" into two species: the "support staff,"
such as the accountants and the housekeepers and all the other folks
who allow the operating core to work unimpeded, and the
"technostructure," the research minded, high tech, modern evolution
of staff. The technocrats decide how the operating core will work,

25For a brief period the bosses at one of my firms were quite excited about matrix management, deciding
that it proved their anarchy was really a system
26Neuhauser, D. (1972) "The Hospital as a Matrix Organization," Hospital Administration, 17:Fall, p. 8 -
25.

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although they have no direct authority over them: the engineers
designing cars at GM, the time-and-motion guys designing assembly
lines, and all those strategic planning types who say that it's time for
the hospital to move into fitness centers. Also original is Mintzberg's
recognition that real organizations, unlike organization charts, do not
really end neatly at a single point. Rather, there are power coalitions
at the top (an idea not original to Mintzberg, although the depiction of
it is). The power of the president or CEO in an organization,
particularly a publicly held corporation, is limited. If the vice
presidents really do not like what the president is doing, they can
influence the Board and stage a coup. (I observed one such coup in
which the president who founded a corporation and was its largest
single, but not majority, stockholder, was ousted and replaced by a
former vice president.)

Based on observed variance in the relative size of each of the

five organizational components, Mintzberg defines 5 distinct types of
organization (see p. 232): the simple structure, the machine
bureaucracy, the professional bureaucracy, and divisionalized form,
and the adhocracy. Each of these designs has distinct requirements
associated with it (see pp. 236-237). For example, the divisionalized
form, in which subunits of the organization act like little independent
companies, is difficult to coordinate across divisions.

Organization Design

Why do you possibly need to know all this theory about

organization structure? Simply put, because it affects how people do
their jobs, which in health care means that it affects how patients are
cared for. I am not terribly fond of RLD's approach to organization
theory. The practical advice they offer in Chapter 6, on the other
hand, is on the mark. Therefore, I would like to organize the
prescriptive part of this presentation around their chapter sections.

Division of Work: Job Design and Work Group Structure

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 One sociologist suggests that the scientific management of
27

Taylor and the other classical theorists deprived the worker of skills.
The "negative side" (RLD p. 212) of extreme specialization represents
the effects of this theft on motivation. Present responses, as the text
points out, include job enlargement and job enrichment. To help you
implement these concepts within the unit you will supervise, we
present Hackman's Core Dimensions model. 28

Hackman and associates identify five aspects of a job which they

believe lead to employee motivation and satisfaction:

Skill variety, (the range of skills and knowledge used in the job),
task identity (the job as a complete whole) and task significance (the
job is important for the company) are seen to lead to a job that is
experienced as meaningful. Obviously, all three of these elements are
likely to be missing in an assembly line job. Food service workers in a
hospital are unlikely to experience their work as meaningful, for
example: placing a lump of mashed potatoes on each tray on an
assembly line is not innately satisfying. However, there are things
management could do to make even that task more of a whole. For
example, workers could assemble whole trays following dietary
prescription cards that provide some patient and diagnostic
identification (Mrs. Jones, gall bladder surgery; Mr. Smith, diabetic).

Autonomy, or the ability of the worker to make significant

decisions regarding the job, is seen to lead to responsibility.
Continuing the food service example, workers could contribute to
weekly planning sessions at which menu alternatives are sketched
out. They could also decide how responsibilities such as preparing
food items, organizing trays, and so on are apportioned among the
work team.

27Perrow, 1986, Chapter 2, "Managerial Ideologies and the Origins of the Human Relations Movement."
28Thisdiscussion is taken from Randolph, W.A. (1985) Understanding and Managing Organizational
Behavior (Richard D. Irwin, Inc: Homewood, IL), pp. 178 - 182.

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 Finally, feedback is necessary to allow the worker to assess
performance and see the effect his work had on the whole. Returning
to the food service example one more time, if there is more than one
assembly line each could be assigned specific wards. Contact
personnel from the ward would then report back to the food service
line on how each day's menu was received by the patients.

When all of these five elements are present in a job, Hackman

and associates assert, the result will be high motivation, quality
performance, high satisfaction, and low absenteeism and turnover.
How does one create such jobs? Hackman provides useful clues for
this:

"Vertical loading"--letting the employee make important

decisions--is the largest single contributor to improving a job.
Hackman suggests that vertical loading leads to increased skill
variety, task identity, task significance and autonomy.

"Establishing relationships with clients" is the second highest

contributor, affecting skill variety, autonomy and feedback.
Relationships with clients are particularly important in a service
industry, where the client is present through most of the production
process.

The early scientific management theorists operated by breaking

jobs into constituent tasks, which were then assigned to individual
workers. Hackman suggests reversing this process by "combining
tasks" and "establishing natural work units." This process contributes
to skill variety, task identity and task significance.

Hackman's last suggestion, opening feedback channels, refers to

feedback that the individual receives directly, without management
advice. In essence this means ensuring that the worker can see if s/he
is performing correctly on his own. This feedback is fairly easy to
establish in a manufacturing environment, where defects in product
are easy to detect. Error rates for keyboarding or rejection rates for
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sewed garments can easily be tracked. It is a task that requires
somewhat more imagination in health care.

Authority and Responsibility

In this area, RLD note that managers have numerous sources of

power, using the French and Raven paradigm of 5 types of power.
They also note that decisions should be delegated as far down in the
hierarchy as possible. Since we have covered both power and
empowerment previously, we'll just acknowledge the point and move
on.

Departmentalization

RLD place most departmentalization under their "bad" guy, "the

classical view," but go on to point out that it is necessary. Work
groups have advantages: grouping allows for supervision (as opposed
to running all over to supervise), sharing of resources and
communication, and common performance measures. The six criteria
Mintzberg suggests for grouping are offered:

o Knowledge and skills

o Work process and function

o Time (shifts)

o Output

o Client (also, product line: Ca, MI, etc.)

o Place

The tricky part, of course, comes in encouraging communication

and sharing across, rather than within, work groups. The matrix
organization observed in hospitals, and cross-cutting operations such
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as project organization in other firms, serve to provide communication
and coordination across homogenous work groups.

Span of Control

We played with span of control in our "design a hierarchy"

exercise. Most of us, accustomed to working in professional settings,
created relatively small spans of control for each manager: about 6
persons. In a real work setting, determining how many people to
place under a single supervisor is a function of the people, the tasks
they perform, and the abilities of the supervisor.

The text presents five criteria that influence span of control.

Characteristics of subordinates: The more highly trained the

subordinates, the less supervision needed

Uncertainty in the work: Complex work, for which outcomes cannot be

predicted in advance, requires a narrow span of control in order
to exercise close supervision.

Standardization of work: The more standard the processes and

products, the more supervision can take the form of monitoring
of output. In this circumstance, one individual can supervise
many.

Degree of required interaction. If the manager is part of the team,

interacting regularly to create the product, the number of
people who can be supervised is relatively small.

Degree of required integration. Parallels "interaction". The higher the

degree to which outputs must be meshed, other things being
equal, the fewer people one supervisor can handle.

The clever reader will have noticed that these criteria are highly
interactive. An assembly line requires a high degree of integration,
© Probst, 2000 22
but also uses highly standardized work and low levels of education in
the worker. In that case, the final two criteria, standardization and low
education, override the need for integration and permit a wide span of
control. [Thought: maybe the real determinant of span of control is
the relative power of supervisor and staff. The more power
subordinates possess, the fewer of them one supervisor can control.]
Determining the balance across these elements is an art, not a
science.

Planning Organizational Structure for Excellence: Peters

We will conclude this lecture by briefly highlighting the points

made in a Tom Peters article entitled "Restoring American
Competitiveness: Looking for New Models of Organizations." I
disagree with Peters' quote from the Toyota chairman that
"competitiveness is a microeconomic issue." Toyota has vested
interests in portraying American failure in the Japanese market as a
function of quality rather than trade policy. Nonetheless, it is hard to
disagree with the assertion that most organizations could use with a
little shaking up if they are to improve.

Peters presents a spiffy organization chart (p. 104) illustrating

his central thesis: that too many organizations have a structure
composed mainly of walls and barricades. The corporate center is
small and walled off from the bulk of the organization by a "Praetorian
guard" of staff assistants. Narrow minded middle managers act
defensively, blocking ideas that might flow up or down the
organization hierarchy. And finally, the organization itself is
surrounded by a wall that separates it from those it intends to serve
except at specific gates, likely to be labelled "market research."

In contrast, Peters' ideal organization (p. 106) has few walls and
chaotic communications. Harkening back to the organic metaphor,
this one looks like an amoeba. Management is still central to the
organization, but instead of establishing rigid hierarchies it provides
vision and values. Top management is no longer isolated from the
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work place, but "wanders" among all working divisions and out among
the customers. Horizontal communications are encouraged; given a
vision, middle management can solve its own technical problems
without the need for coordination from above. The permeability of
Peters' amoeba to the environment is of extreme importance. People
who don't listen to their customers and suppliers may go the way of
the dinosaurs.

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