Chapter 1

ORGANIZATION THEORY:
An Overview
SOURCE: ROBBINS

& BARNWELL, 2002

Points to Ponder

Without organization we couldnt live like

what are today. Any comments?

Points to Ponder

Suppose you, as a group, had a grant of 800

million rupiah as an initiating fund to enhance the
competitive advantage of the alumni. It should
be done within one year. What would you do?

NEW ORGANIZATION FEATURES

DYNAMIC GLOBAL ECONOMY
BE CUSTOMER RESPONSIVE
PROFITABILITY THROUGH COST AND GROWTH
REDEFINITION OF ORGANIZATION CAPABILITIES
AS THE DNA OF COMPETITIVENESS
LEARNING TO CHANGE: ADAPTATION AND
TRANSFORMATION
MANAGERIAL INNOVATION
KEEPING UP TO TECHNOLOGY INNOVATION
ATTRACTING, RETAINING, AND MEASURING
COMPETENCE AND INTELLECTUAL CAPITAL
CHANGING EMPLOYEE DEMOGRAPHICS, E.G.
MORE WOMEN IN THE WORKFORCE

Current Trends
Organizations now function in a global economy.
International expansion can provide a competitive
advantage:
Entering different countries may provide large numbers of
potential customers.
Building production facilities in countries with low-cost labor
may prove cost-efficient.
The rapid increase in telecommunications and information
technology enables work to be done more rapidly, efficiently,
and effectively around the globe.
McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Current Global Changes

European Economic Community
North American Free Trade
Agreement
The Growth of Asia
Japan, China, Singapore, Hong
Kong, and Malaysia are significant
economic forces.

General Agreement on Tariffs

and Trade (GATT)
McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Microsoft Employees Who Have Left the

Company for Other Businesses
Company

What It Does

Defectors from Microsoft

Crossgain

Builds software around

XMl computer language

23 of 60 employees

ViAir

Makes software for

wireless providers

Company declines to
specify

CheckSpace

Builds online payment

service for small businesses

Company says a good

chunk of its 30 employees

digiMine

Sells data mining service

About 15% of 62 employees in

addition to the 3 founders

Avogadro

Builds wireless notification

software

8 of 25 employees

Tellme Networks

Offers information like stock

quotes and scores over the
phone

About 40 of 250 employees;

another 40 from the former
Netscape

Source: Reprinted by permission of the Wall Street Journal, Copyright 2000 Dow Jones & Company, Inc. All
Rights Reserved Worldwide. License number 397221136576.

TRENDS TOWARD INTERNATIONAL AND

GLOBAL ENTERPRISE
GROWTH IN INTERNATIONAL INVESTMENT AND
TRADE
GROWTH OF MULTINATIONAL ENTERPRISES
(MNEs), DIVERSE NATIONAL CONTEXT OF
OPERATIONS
INTERNATIONAL, MULTINATIONAL WORK FORCE
CROSS-NATIONAL TRANSFER OF MANAGEMENT
AND MANAGEMENT PRACTICES

THEMES IN CHANGING AND

DEVELOPING ORGANIZATION
SPEED
FLEXIBILITY
INTEGRATION
INNOVATION
MINDSET: ALLOW IDEAS, COMPETENCIES EMERGE AT ALL
LEVELS THROUGH:
- LEARNING
- SHARING KNOWLEDGE
- GROUPING PHYSICAL AND INTELLECTUAL ASSETS

Ratio of Market Value to Book Value for Selected

Companies
Company
eBay

Annual
Market
Book
Ratio of
Sales
Value
Value
Market to
($ billions) ($ billions) ($ billions) Book Value
1.2

30.8

3.9

7.9

Microsoft

28.4

254.1

58.3

4.4

Intel

26.8

142.1

35.4

4.0

182.1

20.0

9.4

2.1

Nucor (Steel)

4.8

3.9

2.3

1.7

J. C. Penney

32.3

5.0

6.4

General Motors Corp.

.78

Note: The data on market valuations are as of June 16, 2003. All other financial
data is based on the most recently available balance sheets and income
statements.

CEO Remuneration in U.S. Dollars

CEO/MANUFACTURING
CEO TOTAL
EMPLOYEE TOTAL
REMUNERATION REMUNERATION MULTIPLE

COUNTRY
United States $ 1,404,000
597,000
Brazil
540,000
France
861,000
Argentina
422,000
Germany
546,000
Japan
649,000
Mexico

McGraw-Hill/Irwin

31
60
15
48
11
11
46

2006 The McGraw-Hill Companies, Inc. All rights reserved.

What is an organization?
a consciously coordinated social entity
with a relatively identifiable boundary
functions on a relatively continuous
basis
to achieve common goals

Organization Theory
What is organization theory?
The discipline that studies the structure and design of
organization
organization is the unit of analysis
effectiveness used as the parameter to be achieved

Organization Structure
What is organization structure?
How tasks are allocated
Who reports to whom
The formal coordinating mechanisms and interaction patterns that will be
followed
Component:
Complexity:
degree of specialization (extent of differentiations)
number of levels in hierarchy
geographical dispersion

Formalization:
rules and procedure to direct behavior

Centralization:
The focus of decision making authority

Organization Design
What is organization design?
the management side of organization theory
concerns with:
constructing
changing

organizations structure to achieve the organizations

goals

The Framework of This Book

Determinants of
organization
Structure
Strategy
Organization size
Technology
Environment
Power-control

Applications
Managing the environment
Managing organizational
change
Managing organizational
culture
Managing organizational
evolution

Organization
Structure
Organization
Effectiveness
Organizational Designs
Design options
Bureaucracy
Adhocracy

Points to Ponder

1.
2.

3.
4.
5.

How do we know if an organization is successful?

What are the components of an effective
organization?
What determines the structure of an effective
organization?
How is an effective organization designed?
What theory can be used to solve organization
problems, i.e. ineffective organization?

The Metaphors:
Sapu Lidi metaphor
Biological metaphor:
Organization is a biological being
Organization as a system:
System is a set of interrelated and interdependent
parts arranged in manner that produces a unified
whole within the constraint of a larger system or
environment.

Life Cycle Perspective

Pattern of predictable stages through which organization proceeds:

1.

Entrepreneurial stage

2.

Collective stage

3.

Stabilization
Roles are defined

Elaboration-of-structure stage

5.

Clarification of missions
Commitment to goals

Formalization-and-control stage

4.

Formation stage
Infancy

Diversifies its product and service

Growth opportunities are searched
Decentralization

Decline stage

Maturity

1. Entrepreneurial
stage:
Ambiguous
goals
High
creativity

2. Collectivity
Stage:
Informal
communicati
on and
structure
High
commitment

3. Formalizationand-control
stage:

4. Elaboration-ofstructure stage:

Formaliza

More complex
structure

tion of rules

Decentralization

Stable
structure

Diversified
markets

Emphasis of

5. Decline stage:
High
employee
turnover

Increased
conflict
centralization

ENVIRONMENT

System

Inputs

Transformation
Process

Output

Characteristics of an Open System:

1.
2.
3.
4.
5.
6.
7.
8.
9.

Environment awareness:
Interdependency with its environment
Feedback mechanism:
Continually receive information from the environment
Cyclical character
Negative entropy-capability to: repair it self, maintain its structure,
import more energy to live and grow
Steady state
Constancy of the process
Movement toward growth and expansion
Balance of maintenance and adaptive activities
Has a relatively identifiable boundary (that differentiate who is and
who is not part of the organization)
Equifinality:
There are thousand ways to go to Rome

CH. 2: THE EVOLUTION OF

ORGANIZATION THEORY
POINTS OF

1900-1930

1930-1960

1960-1975

1975-

Perspective

Rational

Social

Rational

Social

Theme

Mechanical and
efficiency

People and
human relations

Contingency
designs

Power and politics

Theoretical
Classification

Type 1:
universal
principles

Type 2:
recognition of
social nature and
human relation

Type 3:
contingency
approach

Type 4:
focuses on
political nature of
organization

Theorists

Taylor
Fayol
Weber
Ralph Davis

Mayo
Barnard
McGregor
Bennis

Simon
Katz and Kahn
Woodward et al.
The Aston Group

March and Simon

Pfeffer

Type 1 Theorists

Frederick Taylor and Scientific Management: simple

structure will maximize organization efficiency
Henry Fayol and Principles of Organization: 14
principles of organization management (e.g. Division of
work, unity of command, centralization, etc.)
Max Weber and Bureaucracy: bureaucracy as an ideal
type of efficient structure
Ralf Davis and rational Planning: contingency of
structure to organizations objectives

Type 2 Theorists

Elton Mayo and the Hawthorne Studies: group works,

attitude, and human relationship play significant roles in
structuring an organization
Chester Barnard and Cooperative System: the role of
informal organization, managers as communication
facilitators to stimulate subordinates high level of
efforts
Douglas McGregor and Theory X Theory Y
Warren Bennis and the Death of Bureaucracy: flexible
adhocracies as the ideal organizational form

Type 3 Theorists

Herbert Simon and Principle Backlash: studying of

conditions under which Type 1 and Type 2 principles
were applicable
Katz and Kahns Environmental Perspective:
organization needs to adapt to its changing
environmental demands
Joan Woodward, Charles Perrow, and James Thomson
and The Case of Technology: type of technology
determines appropriate structure
Aston Group and Organization Size: different
organization size will determine the organization design

Type 4 Theorists

March and Simons Cognitive Limits to Rationality: the

presence of conflicting goals will limit the function of
managers rationality in making decisions
Jeffrey Pfeffer and Organizations as political Arenas:
organizations are coalitions composed of varying
groups and individuals with different demands.
Organization design represents the result of power
struggles by these diverse coalitions

CHAPTER 3: ORGANIZATIONAL
EFFECTIVENESS
What is effectiveness? Is it different from
efficiency?
What does it mean effectiveness is a necessary
condition for survival? Can an organization die?
What are the parameters used to explain
organization effectiveness?

FOUR APPROACHES TO ORGANIZATION

EFFECTIVENESS
APPROACH

DEFINITION
An organization is effective to the extent
that it .

WHEN USEFUL
The approach is preferred
when .

GOAL ATTAINMENT

Accomplishes its stated goals

Goals are clear, time bound, and

measurable

SYSTEM

It acquires needed resources

A clear connection exists

between inputs and outputs

STRATEGIC
CONSTITUENCIES

All strategic constituencies are at least

minimally satisfied

Constituencies have powerful

influence on the organization,
and the organization must repond
to their demands

COMPETING
VALUES

The emphasis of the organization in the four

major areas (i.e. return on investment, market
share, new-product innovation, job security)
matches constituent preferences

The organization is unclear about

its own emphases, or changes in
criteria over time are of interest

A THREE-DIMENSIONAL MODEL OF
ORGANIZATIONAL EFFECTIVENESS
FLEXIBILITY
MEANS

PEOPLE

ORGANIZATION
ENDS

CONTROL

A FOUR MODEL OF EFFECTIVENESS VALUES

HUMANRELATIONS
MODEL

Ends: Skilled
Work force

Means:
Cohesive
Work force

OPEN SYSTEM
MODEL

Means:
Flexibility
FLEXIBILITY

PEOPLE

Ends: acquisition
Of resources

ORGANIZATION

Ends: Productivity
and efficiency

Means: Availability
Of information
Ends:
Stability

INTERNALPROCESS MODEL

CONTROL

Means:
Planning

RATIONALGOAL
MODEL

EIGHT CRITERIA OF EFFECTIVENESS

EFFECTIVENESS

DEFINITION

FLEXIBILITY

ABLE TO ADJUST WELL TO SHIFTS IN EXTERNAL CONDITIONS AND

DEMANDS

ACQUISITION OF RESOURCES

ABLE TO INCREASE EXTERNAL SUPPORT AND EXPAND SIZE OF

WORK FORCE

PLANNING

GOALS ARE CLEAR AND WELL UNDERSTOOD

PRODUCTIVITY AND
EFFICIENCY

VOLUME OF OUTPUT IS HIGH; RATIO OF OUTPUT TO INPUT IS HIGH

AVAILABILITY OF
INFORMATION

CHANNELS OF COMMUNICATION FACILITATE INFORMING PEOPLE

ABOUT THINGS THAT AFFECT THEIR WORK

STABILITY

SENSE OF ORDER, CONTINUITY, AND SMOOTH FUNCTIONING OF

OPERATIONS

COHESIVE WORK FORCE

EMPLOYEES TRUST, RESPECT, AND WORK WELL WITH EACH OTHER

SKILLED WORK FORCE

EMPLOYEES HAVE THE TRAINING, SILLS, AND CAPACITY TO DO THEIR

WORK PROPERLY

CRITERIA OF ORGANIZATION EFFECTIVENESS

CRITERIA
FLEXIBILITY
ACQUISITION OF
RESOURCES
PLANNING
PRODUCTIVITY AND
EFFICIENCY
AVAILABILITY OF
INFORMATION
STABILITY
COHESIVE WORK FORCE
SKILLED WORK FORCE

DEFINITION
ABLE TO ADJUST WELL TO SHIFTS IN EXTERNAL CONDITIONS
AND DEMANDS
ABLE TO INCREASE EXTERNAL SUPPORT AND EXPAND SIZE OF
WORK FORCE
GOALS ARE CLEAR AND WELL UNDERSTOOD
VOLUME OF OUTPUT IS HIGH, RATIO OF OUTPUT TO INPUT IS
HIGH
CHANNELS OF COMMUNICATION FACILITATE INFORMING
PEOPLE ABOUT THINGS THAT AFFECT THEIR WORK
SENSE OF ORDER, CONTINUITY, AND SMOOTH FUNCTIONING OF
OPERATIONS
EMPLOYEES TRUST, RESPECT, AND WORK WELL WITH EACH
OTHER
EMPLOYEES HAVE THE TRAINING, SKILLS, AND CAPACITY TO DO
THEIR WORK PROPERLY

Effectiveness Criteria
(Gross; in GIBSON, ET. AL., 1973)
Acquiring resources
Being efficient or cost-effective
Producing outputs
Developing administrative and technical
functions
Investment
Behave according to ethical code of conduct
Satisfying the needs of organization members

Effectiveness Criteria
Expert

Effectiveness Criteria

Gross

Acquiring
resources

Price

Productivity Productiv Producti Adaptati

Institutionali ity
vity
on
zation

-moral
Institu
conformity tionali
adaptation zation
Institutiona
lization

Moral
Adaptation
Institutiona
lization

Mott

Productvity

Adaptation -Adap
tation
-Fleksi
bility

Adaptation

Efficient

Producti Adminis
on
rative &
technical
functions

Productvi Product
ty
vity

Adapta
tion
Fleksibili
ty

Ethical
code

Investment

Satisfying
members
interests

Integrative Concepts in Understanding

Organizational Effectiveness

Strategies
Organizational

Maintenance
-Affirmation of the mission
-Operational adjustment
-Commitment of people

Adaptiveness
-Continuous
experimentation and
learning
-Facilitative leadership
-Movement into new
markets
-Innovative alliance

Parameters
-Efficiency
-Effectiveness

EFFECTIVENESS CRITERIA VS. TIME

Short term

Middle term

Long term

Maintenance:
- Production
- Efficiency
- Satisfaction

Adaptation:
- Investment
- Development

Survival

The Process of Developing Organizational Effectiveness

TIME

SHORT-RUN

INTERMEDIATERUN

LONG-RUN

ADAPTATION PROCESS

Maintenance

Adaptiveness
INVENTING

Organization

THE FUTURE
Maintenance

Adaptiveness

CHANGING SITUATION
PARAMETER OF THE PROCESS
Effectiveness
Efficiency
ENVIRONMENT

CHAPTER 4: DIMENSIONS OF ORGANIZATION

STRUCTURE
COMPLEXITY: the degree of differentiation that exists
within an organization (horizontal, vertical, spatial)
FORMALIZATION: the degree to which jobs within the
organization are standardized (high-low, verbal-written)
CENTRALIZATION: the degree to which decision
making is concentrated at a single point in the
organization or the dispersion of authority to make
decisions within the organization (centralizeddecentralized)

COMPLEXITY
HORIZONTAL DIFFERENTIATION:
the degree of differentiation between units based on the orientation of members, the nature of the
tasks they perform, and their education and training. Include in this definition are:

SPECIALIZATION
FUNCTIONAL OR DIVISION OF LABOR (jobs are
broken down into simple and repetitive tasks)
SOCIAL (hiring professionals who hold skills that
cannot be routinized)
DEPARTEMENTALIZATION (creating groups of specialists
based on: numbers, functions, product or service, client
served, geography, work process)

COMPLEXITY

VERTICAL DIFFERENTIATION: the depth in the

structure, the number of hierarchical levels
(many layers-tall, few levels-flat) in the
organization. Include in this definition:
SPAN OF CONTROL (defines the number

of subordinates that a manager can

direct effectively)

COMPLEXITY

SPATIAL DIFFERENTIATION:
the degree to which the location of an
organizations offices, plants, and personnel
are dispersed geographically

FORMALIZATION

Is the degree to which jobs within the

organization are standardized. High
formalization means the job incumbent has
minimum amount of discretion over what is to be
done
Is directed to ease coordination by creating:
simplicity, uniformity, consistency

FORMALIZATION TECNIQUES
EMPLOYEE SELECTION:

to screen in the right people and screen out the

undesirable
ROLE REQUIREMENTS: define the expectation on how the role incumbent is
supposed to behave
RULES, PROCEDURES, AND POLICIES:
Rules:
explicit statements that tell employee what she
ought or ought not to do
Procedure:
a series of interrelated sequential steps that
employee ought to follow to accomplish her job tasks
Policy:
guidelines that set constraints on decisions that
employee makes
TRAINING:
to instill employees preferred work behavior and attitude
RITUALS:
developed to stigmatized an employee that she is loyal and
can be trusted

CENTRALIZATION

Is the degree to which the formal authority to make

discretionary choices is concentrated in an individual,
unit or level (usually high in the organization hierarchy),
thus permitting employee (usually low in the
organization level) minimum input into her work
It is needed to respond to the need of: speedy actions,
detailed input into decision, motivation to participate,
efficiency and effectiveness of the decision made.
Point to ponder: how do you explain the relationship
among CENTRALIZATION, COMPLEXITY, AND
FORMALIZATION?

DETERMINANTS OF ORGANIZATION STRUCTURE

STRATEGY
ORGANIZATION SIZE
TECHNOLOGY
ENVIRONMENT
POWER-CONTROL

Ch. 5: Organization Strategy

What is organization strategy?
Basically it considers means and ends in structuring organization cycles.
The determination of basic long-term goals and objectives
The adoption of courses of action
The allocation of resources necessary for carrying organization goals
Two strategy modes:
Planning modes:
strategy is a plan or explicit set of guidelines developed in advance
Structured and systematic pre-set ways to achieve goals

Evolutionary mode:
Strategy is not necessarily well-thought-out and systematic
Strategy evolves over time as a pattern in a stream of significant decisions

Strategic Dimensions
Four dimensions and their structural implications:
Innovation: to what degree does an organization introduce
major new products or services?
Market differentiation: to what degree does an organization
strive to create customer loyalty by uniquely meeting a particular
need?
Breadth: to what degree does an organization need to cater
variety of customers, their geographic range, and the number of
products
Cost control: to what degree does an organization tightly control
costs, refrain from unnecessary innovation or marketing
expenses, and cut prices?

Thesis: strategy vs. structure

Four theoretical perspectives:
Chandlers strategy-structure thesis
Miles & Snows contemporary strategy-structure
theory
Porters competitve strategy
Millers integrative framework

The Strategy Imperative:

ENVIRONMENTAL
FACTORS
AND
ORGANIZATIONAL
CAPABILITIES

STRATEGY

STRUCTURE

Chandlers (1960) strategy-structure

thesis :
A Harvard historian: Alfred Chandler
Studied the relationship between organization
strategy and its structure
Structure is a product of time (organization growth
and ambition develop over time) and product
diversification.
Efficient structure for an organization with a single
product strategy is one that is simple: high
centralization, low formalization, and low
complexity

Chandlers thesis (1960) :

TIME
PRODUCT
DIVERSIFICATION
STRATEGY

STRUCTURE

t+1

SINGLE PRODUCT

LOW

SIMPLE

t+2
DIVERSIFIED PRODUCT

HIGH

FUNCTIONAL DIVISIONAL

Miles & Snows (1978) contemporary

strategy-structure theory
Based on the rate of change of products and markets, there are
four types of strategy:
1.

Defender limited products, narrow market segment

2.

Prospectors finding and exploiting new-product and

market opportunities

3.

Analyzers move into new products or new markets

4.

Reactors inconsistent and unstable pattern

Miles & Snows (1978) strategic typology

STRATEGY

GOALS

ENVIRONMENT

STRUCTURAL CHARACTERISTICS

DEFENDER

STABILITY
AND
EFFICIENCY

STABLE

TIGHT CONTROL
EXTENSIVE DIVISION OF LABOR
HIGH DEGREE OF FORMALIZATION
CENTRALIZED

ANALYZER

STABILITY
AND
FLEXIBILITY

CHANGING

MODERATELY CENTRALIZED CONTROL

TIGHT CONTROL OVER CURRENT ACTIVITIES
LOOSER CONTROL FOR NEW UNDERTAKINGS

PROSPECTOR

FLEXIBILITY

DYNAMIC

LOOSE STRUCTURE
LOW DIVISION OF LABOR
LOW DEGREE OF FORMALIZATION
DECENTRALIZED

ENVIRONMENT STRATEGY CONTINUUM

LITTLE CHANGE
AND
UNCERTAINTY
DEFENDER

RAPID CHANGE
AND
HIGH UNCERTAINTY
REACTOR

ANALYZER

PROSPECTOR

PORTERS (1980) COMPETITIVE STRATEGIES

FROM HARVARD GRADUATE SCHOOL OF BUSINESS
NO ORGANIZATION CAN SUCCESSFULLY PERFORM AT AN
ABOVE-AVERAGE LEVEL BY TRYING TO BE ALL THINGS TO
ALL PEOPLE
MANAGEMENT MUST SELECT A STRATEGY THAT WILL GIVE
ITS ORGANIZATION A COMPETITIVE ADVANTAGE
THE CHOSEN STRATEGY SHOULD UNDERLINE
ORGANIZATIONS STRENGTHS AND COMPETITORS
WEAKNESSES
THE ORGANIZATION SHOULD PUT ITS STRENGTH WHERE
THE COMPETITOR ISNT
THREE STRATEGIES: COST LEADERSHIP, DIFFERENTIATION,
AND FOCUS

PORTERS (1980) THREE COMPETITIVE STRATEGIES:

(1) COST-LEADERSHIP STRATEGY
IT IS CHOSEN IF AN ORGANIZATION SETS OUT TO BE THE
LOW-COST PRODUCER:
1.

the organization is a cost leader

2.

The products or services offered must be comparable to

those offered by its competitors

3.

Cost advantage should be achieved by efficiency of its:

operations, labor costs, access to raw materials, etc.

PORTERS (1980) THREE COMPETITIVE STRATEGIES:

(2) DIFFERENTIATION STRATEGY
IT IS CHOSEN IF AN ORGANIZATION SETS OUT TO BE UNIQUE
IN ITS INDUSTRY IN WAYS THAT ARE WIDELY VALUED BY
BUYERS:
1.

the organization should put emphasis on: high quality,

extraordinary service, innovative design, technological unusual
capabilities, or unusual-positive brand image

2.

The key is that the attribute chosen must be different from those
offered by its competitors

3.

Example: Toyota reliability, Haagen Daz quality ingredients

in ice cream, Telkom committed to you

PORTERS (1980) THREE COMPETITIVE STRATEGIES:

(3) FOCUS STRATEGY
IT IS CHOSEN IF AN ORGANIZATION, NARROW SEGMENT,
SETS OUT TO GAIN ADVANTAGE ON:

1.

Cost (COST FOCUS)

2.

Differentiation (DIFFERENTIATION FOCUS)

THE ORGANIZATION WILL SELECT A SPECIFICNARROW MARKET SEGMENTS, TAILOR ITS

STRATEGY TO SERVE THEM, AND TRIES TO EXPLOIT
THEM

MILLERS (1987) INTEGRATIVE FRAMEWORK

STRATEGIC
DIMENSION

CHALLENGE

PREDICTED STRUCTURAL
CHARACTERISTICS

INNOVATION

To understand and manage more

products, customer types,
technologies, and markets

Scanning of markets to discern customer

requirements; low formalization; decentralization;
extensive use of coordinative committees and task
force

MARKET DIFFERENTIATION

To understand and cater to consumer

preferences

Moderate to high complexity; extensive scanning and

analysis of customers reactions and competitor
strategies; moderate to high formalization; moderate
decentralization

BREADTH:

To select the right range of products,

services, customers, and territory

-INNOVATION

High complexity; low formalization; decentralization

-STABILITY

High complexity; high formalization; high centralization

COST CONTROL

To focus on standardized products and

eflficiency

High formalization; high centralization

Ch. 6: Organization Size

What is organization size?
Basically it is the total number of employees.
Peter Blau: size is the most important condition affecting the structure of organization.
As size increases, so do the structural differentiation

The Aston Group (Great Britain):

- increase in size is associated with greater specialization and formalization
- an increased scale of operation increases the frequency of recurrent events
and the repetition of decisions; which makes standardization preferable
Meyer: the effects of size on structure is unidirectional; that is: size caused structure
but not the reverse

Ch. 7: TECHNOLOGY

What is technology?
Basically it refers to:
The information, equipment, techniques, and
processes required to transform inputs into outputs
The use of devices to produce products or services
The way how inputs are converted into outputs

TECHNOLOGY VS. STRUCTURE:

WOODWARD STUDY
There are three types of production technologies:
Unit production: manufacture custom-made
products
Mass production: make large-batche or massproduced products
Process production: heavily automated
continuous-process producers

TECHNOLOGY VS. STRUCTURE:

WOODWARD STUDY
STRUCTURAL
UNIT
CHARACTERISTIC PRODUCTION

MASS
PRODUCTION

PROCESS
PRODUCTION

Number of vertical
levels

Supervisors span of
control

24

48

14

Manager/total employee
ratio

1:23

1:16

1:8

Proportion of skilled
workers

High

Low

High

Overall complexity

Low

High

Low

Formalization

Low

High

Low

Centralization

low

high

low

TECHNOLOGY VS. STRUCTURE:

PERROWS KNOWLEDGE-BASED TECHNOLOGY
STUDY

It is argued that control and coordination methods should vary with

technology type.
The more routine the technology, the more highly structured the
organization should be.
Four types of technology:

Routine technology: well defined and analyzable work problems, with

few variability of tasks
Engineering technology: well defined and analyzable work problems,
with many variability of tasks
Craft technology: ill defined and unanalyzable work problems, with few
variability of tasks
Nonroutine technology: ill defined and unanalyzable work problems,
with many variability of tasks

PERROW S TECHNOLOGY-STRUCTURE
PREDICTION
TECHNOLOGY

FORMALIZATI
ON

CENTRALIZATI
ON

SPAN OF
CONTROL

COORDINATION
AND CONTROL

Routine

High

High

Wide

Planning and rigid

rules

Engineering

Low

High

Moderate

Reports and
meetings

Craft

Moderate

Low

Moderate-wide

Training and
meetings

Nonroutine

Low

Low

Moderate-narrow Group norms and

group meetings

THOMPSONS TECHNOLOGICAL UNCERTAINTY STUDY

TYPE OF
TECHNOLOGY

DEFINITION

CHARACTERISTICS

STRUCTURAL
DESIGN

LONG-LINKED
TECHNOLOGY

TASKS OR OPERATIONS
ARE SEQUENTIALLY
INTERDEPENDENCE.
ACTIVITY A MUST BE
PERFORMED BEFORE
ACTIVITY B, ACTIVITY B
BEFORE C, ETC.

SEQUENTIAL
INTERDEPENDENCE
FIXED SEQUENCE
REPETITIVE STEPS

HIGHLY
STANDARDIZED, AND
MUST BE PERFORMED
IN A SPECIFIED SERIAL
ORDER, MODERATE
COMPLEXITY, HIGH
FORMALIZATION

MEDIATING
TECHNOLOGY

TASKS ARE PERFORMED BY

LINKING CLIENTS.
ORGANIZATION SERVES
HERSELF AS A MEDIATOR
TO CLIENTS NEEDS

POOLED
INTERDEPENDENCE

LOW COMPLEXITY,
HIGH FORMALIZATION

INTENSIVE
TECHNOLOGY

A NUMBER OF MULTIPLE
RESOURCES ARE
AVAILABLE TO THE
ORGANIZATION, BUT ONLY A
LIMITED COMBINATION IS
USED

RECIPROCAL
INTERDEPENDENCE

HIGH COMPLEXITY,
LOW FORMALIZATION

THOMPSONS TECHNOLOGY CLASSIFICATION

INPUT

OUTPUT

LONG-LINKED TECHNOLOGY

TRANSFORMATION
PROCESS

CLIENT A

CLIENT B

MEDIATING TECHNOLOGY
RESOURCES

A
B
C
D

INPUT
TRANSFORMATION
PROCESS

FEEDBACK

OUTPUT

INTENSIVE TECHNOLOGY

SUMMARY: ROUTINE VS. NONROUTINE

TECHNOLOGY
TECHNOLOGY
CONTRIBUTOR

WOODWARD
PERROW
THOMSON

ROUTINE

MASS
PROCESS
ROUTINE
ENGINEERING
LONG-LINKED
MEDIATING

NONROUTINE

UNIT
CRAFT
NONROUTINE
INTENSIVE

SUMMARY: TECHNOLOGY VS. STRUCTURE

TECHNOLOGY

STRUCTURE

ROUTINE

LOW COMPLEXITY
WIDE SPAN OF CONTROL
INCREASED HORIZONTAL DIFFERENTIATION
HIGH FORMALIZATION
CENTRALIZATION OF AUTHORITY

NONROUTINE

HIGH COMPLEXITY
NARROW SPAN OF CONTROL
INCREASED VERTICAL DIFFERENTIATION
LOW FORMALIZATION
DECENTALIZATION OF AUTHORITY

Chapter 8: ENVIRONMENT

HOW ENVIRONMENT CAN AFFECT THE

STRUCTURE OF AN ORGANIZATION?

Key Ideas: System Perspective

Environment is everything outside an organizations
boundary
Organization interacts with its environment
Organization develops monitoring and feedback
mechanisms to identify and follow its environment,
senses changes, and make appropriate adjustment
The capability of the organization to do adjustment will
strongly affect its survivival

ORGANIZATION AND ITS ENVIRONMENT: GENERAL

VS SPECIFIC
LEGAL
SYSTEM

PUBLIC
PRESSURE CUSTOMERS
GROUPS
SUPPLIERS

POLITICS

TRADE
ASSOCIATION

THE
ORGANIZATION

STAKEHOLDERS

SOCIAL
MILIEU

LABOR
UNION

COMPETITOR

GOVERNMENT

ECOLOGY

MAJOR ENVIRONMENT CHANGES

TECHNOLOGY:
GLOBAL TECH
SOCIAL:
ENVIRONMENT MOVEMENT
ECONOMICS:
HIGH OIL PRICE
POLITICAL:
STRATEGIC ALLIANCES

CONTRIBUTORS

BURNS & STALKER: STABLE VS. CHANGING

ENVIRONMENT
EMERY AND TRIST: LOW VS. HIGH
UNCERTAINTY
LAWRENCE & LORSCH: LOW VS. HIGH
COMPETITIVE

BURNS AND STALKER: STABLE VS. CHANGING

ENVIRONMENT
CHARACTERISIC

MECHANISTIC

ORGANIC

TASK DEFINITION

RIGID

FLEXIBLE

COMMUNICATION

VERTICAL

LATERAL

FORMALIZATION

HIGH

LOW

AUTHORITY

EXPERTISE

CENTRALIZED

DIVERSE

INFLUENCE
CONTROL

EMERY & TRIST: LOW VS. HIGH UNCERTAINTY

ENVIRONMENT
PLACID-RANDOMIZED

CHARACTERISTICS
RELATIVELY UNCHANGING ENV.
UNCERTAINTY IS LOW
DEMANDS DISTRIBUTED RANDOMLY

PLACID-CLUSTERED

CHANGE HAPPENS SLOWLY

UNCERTAINTY IS LITTLE BIT HIGHER
DEMANDS ARE CLUSTERED, LINKED TO ONE
ANOTHER - UNIFIED

DISTURBED-REACTIVE

ENVIRONMENT IS MORE COMPLEX

COMPETITION INCREASED AS MANY ORG.
DEVELOP SIMILAR ACTIVITIES

TURBULENT-FIELD

THE MOST DYNAMIC ENVIRONMENT

HIGHEST IN UNCERTAINTY LEVEL
CHANGE IS DRAMATIC, UNPREDICTABLE

LAWRENCE & LORSCH: LOW VS. HIGH COMPETITIVE

ENVIRONMENTS
STUDY: PLASTIC, FOOD, AND CONTAINER INDUSTRIES
PLASTIC INDUSTRIES: HIGHLY COMPETITIVE, LIFE CYCLE OF ITS
PRODUCT IS SHORT, WITH RAPID NEW PRODUCT AND PROCESS
DEVELOPMENT, INNOVATION IS HIGH, LEVEL OF UNCERTAINTY IS
HIGH, CLARITY OF INFORMATION FROM ITS ENVIRONMENT IS LOW
THE MORE THE ENVIRONMENT IS COMPETITIVE, UNCERTAIN, AND
TURBULENTLY CHANGING, THE MORE THE NEEDS OF THE
ORGANIZATION TO DO DIFFERENTITATION AND INTEGRATION

ENVIRONMENT AND RESOURCES AVAILABILITY

STABLE
ABUNDANT

COMPLEX

SIMPLE

SCARCE
DYNAMIC

Chapter 9: Power-Control
THOSE IN POWER SELECTING A
STRUCTURE THAT WILL, TO THE MAXIMUM
DEGREE POSSIBLE, MAINTAIN AND
ENHANCE THEIR CONTROL

John Childs (1972) Strategic Choice Argument: the

significant discretionary latitude of managers for making
choices
Autonomy of decision makers will affect the choice of
organization structure. The size, environment, technology, and
strategy explain only 50% - 60% of the variability in structure.
Organizational effectiveness is not an optimum point of
achievement. It is the managers discretion in selecting the most
satisfactory, and yet achievable, effectiveness.
Organizations have the power, exercised by their managers, to
control their hostile environment.
Perceptions and evaluations of events are important intervening
link between environments and the actions of organizations

Interplay Of Decision Maker And The

Organizations Interest

DECISION MAKERS
INTEREST

ORGANIZATIONS
INTEREST

Factors Affecting The Decisions

Divergent interest
Non-rationality
Dominant coalition
Power sources:
> hierarchy,
> control resources,
> network centrality

Decision Discretion in the Power-control Model:

MECHANISTIC

ORGANIC

DECISION
DISCRETION

Chapter 10
ORGANIZATIONAL DESIGN OPTIONS

Designing Organization
CONSTRUCTING, DEVELOPING,
CONFIGURATING, AND ESTABLISHING AN
ORGANIZATION STRUCTURE IN ORDER TO
ENHANCE ORGANIZATION CAPABILITIES IN
ACHIEVING ITS GOALS.
IT REFERS TO THE CREATION OF MEANS AND
PLANS TO FACILITATE THE ATTAINMENT OF
ORGANIZATION GOALS

FIVE BASIC ELEMENTS IN DESIGNING ORGANIZATION

OPERATING CORE: employees who perform the basic work

related to the production of products and services
STRATEGIC APEX: top-level managers who are charged with the
overall responsibility for the organization
MIDDLE LINE: managers who connect the operating core to
strategic apex
TECHNOSTRUCTURE: analysts who have the responsibility for
affecting certain forms of standardization in organization
SUPPORT STAFF: people who fill the staff units, who provide
indirect support services for the organization

Five Optional Structural Design

SIMPLE STRUCTURE
PROFESSIONAL BUREAUCRACY
MACHINE BUREAUCRACY
DIVISIONAL
ADHOCRACY

Designing the Elements

LOCUS OF DECISION

TYPE OF DECISION

DESIGN

OPERATING CORE

DECENTRALIZED

PROFESSIONAL
BUREAUCRACY

STRATEGIC APEX

CENTRALIZED

SIMPLE STRUCTURE

MIDDLE LINE

AUTONOMOUS

DIVISIONAL STRUCTURE

TECHNOSTRUCTURE

STANDARDIZATION

MACHINE BUREAUCRACY

SUPPORT STAFF

MUTUAL ADJUSTMENT

ADHOCRACY

Structure and Design

CHARACTERIS
TICS OF
STRUCTURE
COMPONENT
SPECIALIZATION

SIMPLE
STRUCTURE

LOW

MACHINE
BUREAUCRACY

PROFESSION
AL
BUREAUCRA
CY

HIGH FUNCTIONAL

HIGH SOCIAL

Specialization based on division

of labor

Specialization based on
individual skills

DIVISIONAL
STRUCTURE

ADHOCRA
CY

HIGH FUNCTIONAL

HIGH SOCIAL

FORMALIZATION

LOW

HIGH

LOW

HIGH WITHIN
DIVISION

LOW

CENTRALIZATION

HIGH

HIGH

LOW

LIMITED
DECENTRALIZATION

LOW

GENERAL
STRUCTURAL
CLASSIFICATION

ORGANIC

MECHANISTIC

MECHANISTIC

MECHANISTIC

ORGANIC

EVIRONMENT

SIMPLE AND
DYNAMIC

SIMPLE AND STABLE

COMPLEX AND
STABLE

SIMPLE AND
STABLE

COMPLEX
AND
DYNAMIC

SIZE OF
ORGANIZATION

SMALL

LARGE

LARGE

LARGE

LARGE

Chapter 11
BUREAUCRACY:ORGANIZATIONAL
DESIGN OPTION

BUREAUCRACY: MAX WEBER

A DESCRIPTION OF AN IDEAL
ORGANIZATION.
A RATIONAL TYPE OF DESIGN THAT
MAXIMIZES THE EFFICIENCY OF
ORGANIZATIONAL OPERATIONS.
ITS UNDERLINED PREDICTABILITY,
RELIABILITY, AND STABILITY IN ORGANIZING
FUNCTIONS WITHIN ORGANIZATION.
ORGANIZATION GOALS ARE CLEAR AND
EXPLICIT.
POSITIONS ARE ARRANGED IN A PYRAMIDAL
HIERARCHY.

BUREAUCRATIC DESIGN: ITS CHARACTERISTICS

DIVISION OF LABOR: job is broken down into simple, routine, and

well defined tasks.
WELL-DEFINED AUTHORITY HIERARCHY: top-level managers
should supervise and control the lower ones.
HIGH FORMALIZATION : formal rules and procedures to ensure
uniformity behaviors
IMPERSONAL NATURE: individual involvement, personalities and
personal preferences cannot interfere the job to be done.
EMPLOYMENT DECISIONS BASED ON MERIT: selection
decision and promotion are based on technical expertise,
competence, and performance.
CAREER TRACKS FOR EMPLOYEES: based on tenure, loyalty,
and high commitment.
DISTINCT SEPARATION OF MEMBERS ORGANIZATIONAL
AND PERSONAL LIVES: rational-impersonal conduct of
organizations activities must be maintained.

POSITIVE QUALITIES OF
BUREAUCRACY
CREATION OF STABILITY OVERTIME
EMPLOYEES WILL BE GUARANTEED TO BE
TREATED FAIRLY AND OBJECTIVELY
FAVORITISM WILL BE DIMINISHED
REDUCE UMBIGUITY, INCREASE UNIFORMITY
OR STANDARDIZATION OF PROCEDURE
HIERARCHY OF AUTHORITY MAKES LINE OF
AUTHORITY CLEAR

NEGATIVE QUALITIES OF
BUREAUCRACY
CONFORMITY, RELIABILTY, AND PREDICTABILITY WILL LEAD TO
INFLEXIBILITY (MERTON)
RULES AND REGULATIONS BECOME ENDS RATHER THAN MEANS
(MERTON, SELZNICK)
RULES AND REGULATIONS DEFINE MINIMUM LEVELS OF PERFORMANCE.
THEY ENCOURAGE APATHY TO PERFORM ABOVE MINIMUM (GOULDNER)
BUREAUPATHIC BEHAVIOR EMERGED. DECISION MAKERS USE RULES
AND REGULATION TO PROTECT THEMSELVES FROM MAKING ERRORS.
THEY HIDE BEHIND RULES. dont blame me. I was just following the rules
(THOMSON).
EMPLOYEE ALIENATION AS A RESULT OF HIGH SPECIALIZATION
CONCENTRATION OF POWER IN HIGH-RANK HIERARCHY

ANOTHER SIDE OF BUREAUCRACY

IT WORKS! And ITS STILL POPULAR!
EFFECTIVE IN MANAGING LARGE SIZE
ORGANIZATION
NATURAL SELECTION IN TERM OF ONLY THE
BEST WILL SURVIVE FAVORS BUREAUCRACY
THE PROFESSIONAL BUREAUCRACY HAS
EMERGED.
IT IS GOOD IN MAINTAINING CONTROL,
ESPECIALLY WITHIN TURBULENT ENVIRONMENT

Chapter 12
ADHOCRACY: AN ORGANIC
ORGANIZATIONAL DESIGN

ADHOCRACY
AN ORGANIC TYPE OF ORGANIZATION DESIGN.
IS A RAPIDLY CHANGING, ADAPTIVE, USUALLY
TEMPORARY SYSTEM ORGANIZED AROUND
PROBLEMS TO BE SOLVED BY GROUPS WITH
DIVERSE PROFESSIONAL SKILLS.
AN EXCELLENT VEHICLE FOR RESPONDING TO
CHANGE, FACILITATING INNOVATION, AND
COORDINATING DIVERSE SPECIALISTS.

ADHOCRATIC DESIGNS
MATRIX
THEORY Z
COLLATERAL FORM
NETWORK
TASK FORCE
COMMITTEE DESIGN
COLLEGIAL FORM

THE MATRIX DESIGN

IS A STRUCTURAL DESIGN THAT ASSIGNS SPECIALISTS FROM SPECIFIC

FUNCTIONAL DEPARTMENTS TO WORK ON ONE OR MORE
INTERDICIPLINARY TEAMS, WHICH ARE LED BY PROJECT LEADERS.
IT HAS A DUAL CHAIN OF COMMAND: (1) NORMAL VERTICAL
HIERARCHY WITHIN FUNCTIONAL DEPARTMENT; (2) THE PROJECT
MANAGER
IT HAS A DUAL FOCUS: FUNCTION AND PRODUCT
THREE CONDITIONS THAT FAVOR MATRIX:
(1) ENVIRONMENTAL PRESSURES FROM TWO OR MORE CRITICAL
SECTORS: (2) INTERDEPENDENCE BETWEEN DEPARTMENTS; (3)
ECONOMIES OF SCALE IN THE USE OF INTERNAL RESOURCES
TWO TYPES OF MATRIX DESIGN: (1) PERMANENT; (2) TEMPORARY

THE MATRIX: ITS ADVANTAGES

ITS ABILITY TO FACILITATE COORDINATION WHEN
THE ORGANIZATION HAS COMPLEX AND
INTERDEPENDENT ACTIVITIES
IT FACILITATES THE EFFICIENT ALLOCATION OF
SPECIALISTS
IT CREATES: (1) INCREASED ABILITY TO DEVELOP
RAPID RESPONSES TO CHANGING ENVIRONMENTS;
(2) INCREASED MOTIVATION BY PROVIDING
DEMOCRATIC WORK CULTURE

THEORY Z (WILLIAM OUCHI)

THEORY A

THEORY J

THEORY Z

SHOR-TERM EMPLOYMENT

LIFE-TIME EMPLOYMENT

LONG-TERM EMPLOYMENT

SPECIALIZEPATHD CAREER

NON SPECIALIZED CAREER

PATH

MODERATELY SPECIALIZED
CAREER PATH

INDIVIDUAL DECISION MAKING

CONSENSUAL DECISION
MAKING

CONSENSUAL DECISION
MAKING

INDIVIDUAL RESPONSIBILITY

COLLECTIVE RESPONSIBILITY

INDIVIDUAL RESPONSIBILITY

FREQUENT APPRAISAL

INFREQUENT APPRAISAL

INFREQUENT APPRAISAL

EXPLICIT, FORMALIZED
APPRAISAL

IMPLICIT, INFORMAL APPRAISAL

IMPLICIT, INFORMAL APPRAISAL

WITH EXPLICIT, FORMALIZED
MEASURES

RAPID PROMOTION

SLOW PROMOTION

SLOW PROMOTION

SEGEMENTED CONCERN FOR

PEOPLE

COMPREHENSIVE CONCERN
FOR PEOPLE

COMPREHENSIVE CONCERN
FOR PEOPLE

COLLATERAL FORM
THE USE OF ENTREPRENEURSHIP WITHIN A
LARGE BUREAUCRACY
(=INTRAPRENEURING)
A LOOSELY STRUCTURED ORGANIC DESIGN
THAT COEXIST WITH A BUREUCRACY
TYPICALLY CONSIST OF SMALL TEAMS THAT
ARE GIVEN THE INDEPENDENCE AND
RESOURCES TO FUNCTION FULLY

THE NETWORK STRUCTURE

A SMALL CENTRAL ORGANIZATION THAT RELIES ON
OTHER ORGANIZATIONS TO PERFORM MANUFACTURING,
DISTRIBUTION, MARKETING, OR OTHER CRUCIAL
BUSINESS FUNCTIONS ON A CONTRACT BASIS
EXAMPLE: AMAZON.COM
COLLATERAL FORM
NETWORK
COMMITTEE DESIGN
COLLEGIAL FORM

THE NETWORK STRUCTURE

A SMALL CENTRAL ORGANIZATION THAT
RELIES ON OTHER ORGANIZATIONS TO
PERFORM MANUFACTURING,
DISTRIBUTION, MARKETING, OR OTHER
CRUCIAL BUSINESS FUNCTIONS ON A
CONTRACT BASIS
EXAMPLE: AMAZON.COM

THE TASK FORCE STRUCTURE

A TEMPORARY STRUCTURE FORMED TO

ACCOMPLISH A SPECIFIC, WELL-DEFINED
AND COMPLEX TASK THAT INVOLVES A
NUMBER OF ORGANIZATIONAL SUBUNITS
EXAMPLE: RIGHTSIZING TASK FORCE OF
AN OIL COMPANY

THE COMMITTEE FORM STRUCTURE

A TEMPORARY STRUCTURE FORMED TO

ACCOMPLISH A SPECIFIC, WELL-DEFINED AND
COMPLEX TASK THAT INVOLVES
REPRESENTATIVES FROM SUBUNITS WITHIN THE
ORGANIZATION
TYPES: (1) TEMPORARY (=TASK FORCE);
(2) PERMANENT

THE COLLEGIAL FORM

CONSIST OF HIGHLY PROFESSIONALS IN

MANY FIELDS
FULL DEMOCRACY IN DECISION MAKING
DECENTRALIZED, WITH VERY MINIMUM
GUIDELINE TO WORK
EXAMPLE: LAB WORKS IN UNIVERSITY

TOMORROW ORGANIZATIONS
(PETER DRUCKER & TOM PETERS)
FLAT, LESS HIERARCHICAL, MORE DECENTRALIZED
FLEXIBLE, LOW IN FORMALIZATION, MORE ADHOCRATIC
WILL WORK ACROSS ORGANIZATION BOUNDARIES
RISKS AND UNCERTAINTIES BECOME PART OF
STRATEGIC ORGANIZATION CHALLENGES
WILL LIKE LARGE SYMPHONY ORCHESTRAS, CONSIST
OF SPECIALISTS AND PROFESSIONAL IN DIFFERENT
FIELDS
BECOME INFORMATION-BASED