Professional Documents
Culture Documents
Introduction
Organization structures allow us to organize and deploy resources. They allow us to define
job activities, responsibilities and accountabilities. They provide for decision making and
information flows. They help to establish the power struc-ture for the organization. They
influence the identity and corporate image of the organization. They establish peoples
attitudes, at least in part.
The weekend before writing this chapter for the first edition of this book I was running a
management development workshop for a large investment bank. The bank had made losses
but to no greater extent than other, competing institu-tions. Yet the financial press had been
critical of it and not of others. Moreover, its parent institution (a large bank which wholly
owned the investment bank) had replaced a number of key senior managers and was engaged
in a review of the investment bank. Meanwhile, the attitudes of staff, middle and senior managers were very problematic, not surprisingly.
Why was that? Well, there had been the stock market fall in autumn 1987. But the banks
competitors had experienced the same fall. Much discussion and debate at the workshop was
concluded with the view that the strategy and structure devel-oped by the investment bank
when it was founded was unclear. Many grand state-ments of objectives had been made but it
was much less clear whether the structure established provided the right balance of
information, power and resources to sup-port the various activities within the organization in
achieving those objectives. Moreover, it was felt that the main deficiency had been in
professional manage-ment. There had been over-reliance on market makers. Such people
may well be able to exploit market opportunities but had they the skill to create and sustain a
large investment bank? Some of their main competitors had been managed more closely by
parent organizations, they argued, giving them the advantages of both professional
management and market makers; a better balance had been struck between control from the
parent and autonomy of the subsidiary.
Was the structure of the investment bank appropriate to the tasks and oppor-tunities it
faced? Was the relationship and structure between it and the parent appropriate? To what
extent had the weaknesses in organizational structure left it vulnerable to the autumn crash?
To what extent had weaknesses of strategy,
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structure and control, the impact of the crash and subsequent losses under-mined the
confidence of employees, including senior management? To what extent had its corporate
image been dented, leaving it open to the attention of the financial press? Well, we cannot
answer all these questions here, much as the managers in the workshop could only debate
them without drawing final con-clusions. However, one thing is clear. Organizational
structures can be an influ-ential element in whether or not an organization can be effective.
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to ignore broader matters and corporate planning or they tend to ignore the oper-ational
matters, creating a managerial vacuum within which coordination may become difficult.
Divisionalization involves breaking the organization down into relatively autonomous units
called divisions. Each division might serve a particular product or a particular market; each
will have its own divisional chief executive and management committee or board; each might
be organized on functional, product or even matrix lines (see below); each may have a
different structure.
This structure creates the following four advantages:
1 Cost and profit performance are matters for the divisional managers. The group chief
executive need not be concerned with these issues ordinarily.
2 The main functions of a group are overall financial planning and manage-ment, strategic
planning, business development and management develop-ment. However, clearly,
divisional managers need to be involved and much care needs to be given to establishing
the involvement of the divisions. Various options are feasible.
3 Each division is free to respond to the demands of its own markets within a framework
created by overall strategic plans and budgets.
4 This structure allows accountability to be pushed down the organization, pro-viding a
balance between corporate development and control and local, mar-ket autonomy.
However, striking the balance can be difficult in practice.
Management in action
In practice, organizations implement variants of the above structures. Many large
organizations in both the public and private sectors operate divisional structures alongside
some element of matrix management. Thus an international oil com-pany and a large hospital
group I know are both organized into divisions; both have a finance function separate from
the divisions (divisional directors and the finance director both being on the executive
committee or board) but both assign finance staff to each division.
At local level, people interpret the demands of the tasks in hand, alongside ideas of good
financial management practice and standing orders, rules and reg-ulations, in ways which
allow them to get on with their work as they see it. In practice, the task of senior management
is to establish priorities and to achieve both control and adaptability. The reality is that, at all
levels of management, there is considerable discretion on a day-to-day basis. Top
management attempts to exert complete control are generally counterproductive. They
discourage ini-tiative and encourage ritual or even ineffective behaviour, and take time and
money to exert.
People have long distinguished the formal from the informal structure of organizations.
The formal structure is that defined by organizational charts, job descriptions and so on. The
informal structure is that which emerges from and around the formal structure.
For centuries observers and leaders have remarked on the distinctions between expected
and unexpected behaviour in organizations. The fact that the dis-tinctions continue to be
made under various names points to an apparently universal condition. From at least the
time of Augustus Caesar, these dissimi-larities were recognized and incorporated in the
terms de jure (by right) and de facto (in fact), which are roughly equivalent to legal or
official, and actual but unofficial. In industry and business today one repeatedly hears the
same
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general meaning phrased as administration versus politics, theory versus practice, red
tape versus working relations.
Dalton (1959) page 219
Dalton defines formal or official as that which is planned and agreed upon and informal or
unofficial as the spontaneous and flexible ties among members, guided by feelings and
personal interests indispensable for the operation of the formal, but too fluid to be entirely
contained by it. Thus the informal system is a system of mutual help and adjustment. For
example, a piecework system may require that a supervisor only issues a new job to an
operator when the previously issued job is finished, exchanging the old job card for the new
card. The opera-tors might wish to accumulate a number of cards because this provides them
with a reserve of time that they may use should problems hinder the comple-tion of a job. In
such a situation the accumulated time may be booked in and average bonus maintained.
Supervisors and operatives must work together and both may ignore the formal requirements
of the system, the supervisor being pre-pared to issue a new job without demanding the
previous job card, the operators accumulating cards to use in the event of problems, and so
on.
Informal communication may arise from work-related or social reasons. Most work just
cannot be done without some informal communication. Many studies show that managers of
all kinds prefer informal and verbal communication to documents and that they spend around
45 per cent of their time communicating outside the formal authority structure. Regular
channels are often slow and unre-liable. The information that a manager obtains from outside
the formal system is often qualitative but it is rich with meaning. A manager walking through
a depart-ment sensing an uneasy or tense atmosphere would be short-sighted to prefer the
formal evidence that this is an efficient department. Will it continue to be effi-cient? Should
changes in work patterns or methods need to be introduced; can this be achieved effectively?
In fact most managers bypass the formal systems of communication (now increasingly
known as the management information sys-tem, MIS) and build their own networks of
informal contacts (Mintzberg, 1973).
The second reason for the existence of informal communication in organiza-tions is social.
People need to relate to each other. Moreover, people may bypass the formal system in order
to advance their own personal ambitions or needs. They leak sensitive information to
outsiders, or they hold information back. It is worth noting that informal communication can
be vital to the success of an organization, particularly where employees work in a hostile or
unsafe environment.
The importance of informal systems has been shown in many studies, notably by Strauss
(1963) in studies of purchasing departments. He found that the most effective and high-status
purchasing officers favoured mutual adjustment over direct supervision and standardization.
To resolve conflict with other departments (e.g. engineering departments) they were reluctant
to appeal to the purchasing manager, to rely on the rules or to require written agreements;
rather, they relied on friendships, the exchange of favours and their own informal political
power. They tended to oil the wheels of the formal system. If we are to understand
behaviour in organizations we must understand both the formal and the informal.
Authority and communication are facilitating processes for the two basic flow processes:
work flow and decision making. Decisions include much else
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besides what we normally understand as objectivity, rationality and purpose. When making
decisions people are constrained by past decisions and by the culture of the organization.
Many individual and group inputs are made in a decision process, and the outcome may be a
decision that nobody particularly supports or feels committed to.
Decisions are often based on inadequate, and even conflicting, information. Moreover,
decisions are sequential rather than once and for all processes. Commitment and support for
the implementation of a decision are crucial fac-tors. Decisions are not complete until the
necessary resources are applied in the appropriate manner. Delay or scaling down of
resources may change a decision subsequent to the meeting where the decision was
apparently taken. These are issues to which we shall be returning in a later chapter.