Organizational Theory: Determinants of Structure -------------------------------------------------------------------------------- the Objective Here Is to Understand Why Organizations Have the Structure That They

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Organizational Theory:
Determinants of Structure

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The objective here is to understand why organizations have the structure that they do. By "structure" I mean things like degree and type of horizontal differentiation, vertical differentiation, mechanisms of coordination and control, formalization, and centralization of power. See handouts page for more information on organizational structure.

According to Taylor, Fayol, Weber and other classical theorists, there is a single best way for organization to be structured. Yet organizations vary considerably on structural attributes. The objective of much research has been to understand what determines these variations. Is it random or systematic? Are some organizations simply less perfect than others, or are different designs better for different situations?

Contingency Theory
In contrast to the classical scholars, most theorists today believe that there is no one best way to organize. What is important is that there be a fit between the organization's structure, its size, its technology, and the requirements of its environment. This perspective is known as "contingency theory" and contrasts with the perspective of classical theorists like Weber, Taylor, Fayol, etc. who thought that there probably was one way to run organizations that was the best.

Size
This refers to capacity, number of personnel, outputs (customers, sales), resources (wealth).

Blau's studies show that differentiation (# of levels, departments, job titles) increases with size, but at a decreasing rate. In contrast, the % of the organization that is involved in administrative overhead declines with size, leading to economies of scale.

Increasing size is also related to increased structuring of organizations activities but decreased concentration of power.

Managerial practices, such as flexibility in personnel assignments, extent of delegation of authority, and emphasis on results rather than procedures, are related to the size of the unit managed.

Technology/Task
Consider check processing at a bank. This activity is usually performed by a business unit that is highly formalized, has a great deal of specialization and division of labor, and high centralization of decision-making. In contrast, the creative section of an ad agency is usually not formalized at all, the division of labor is often blurry, and it is highly decentralized.

It appears that certain activities naturally "go with" certain structures. Joan Woodward found that by knowing an organization's primary system of production, you could predict their structure:

Unit production/small batch. Companies that make one-of-a-kind custom products, or small quantities of products (e.g., ship building, aircraft manufacture, furniture maker, tailors, printers of engraved wedding invitation, surgical teams).

In these companies, typically, people's skills and knowledge is more important than the the machines used. Relatively expensive to operate: work process is unpredictable, hard to pre-program or automate. Flat organization (few levels of hierarchy).

Ceo has low span of control (direct reports).
Relatively low percentage of managers
Organic structure (see handout)
Mass production/large batch. Companies that sell huge volumes of identical products (e.g., cars, razor blades, aluminum cans, toasters). Make heavy use of automation and assembly lines. Typically,

bigger than small batch
Taller hierarchies
bottom level is huge (supervisor span of control is 48)
Relatively greater number of managers (because hierarchy is so tall) Mechanistic, bureaucratic structure
Relatively cheap to operate
Continuous Production. Primarily companies that refine liquids and powders (e.g., chemical companies, oil refineries, bakeries, dairies, distilleries/breweries, electric power plants). Machines do everything, humans just monitor the...
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