Decision-making and contingencies (7) Flashcards
9 Parameters
2 last: decision-making
- vertical decentralization
9. horizontal decentralization
general definition
Centralization: occurs when decisions are made by members of the strategic apex
Decentralization: occurs when they are made by other members of the organization, including middle managers, staffers, and operators
Reasons to decentralize
- Coordination cannot be achieved by one brain
difficult to receive all info
difficult to process all info - Organizations must adapt to local conditions
info takes time to transfer
decisions take time to be made and implemented
time can be a scarce resource - Autonomy increases motivation
crucial for middle managers in any organization
crucial for operators in professional bureaucracies
Ways to decentralize
- Vertically
power moves from apex to middle line, so that decisions are delegated to lower-level managers - Horizontally
power moves from apex/middle line to staff units and core, so that decisions are delegated to non-managers
geographically: functions dispersed from headquarters to other locations- nothing to do with decision-making
Reminders
- Operating decisions
highly routinized and programmed
generally included in regulated flows - Administrative decisions
- guide operating decisions (coordinative), routinized and partly programmed, also included in regulated flows
- handle special cases of low importante (exceptional), non routinized and partly programmed - Strategic decisions
- handle special cases of high importance
- neither routinized nor programmed
Reminders
Identification
- Recognition
- Diagnosis: understand decision constraints
Development
- Search
- Design: develop custom-made solutions
Selection
- Screening: decide which solutions to consider
- Evaluation-choice: weighing possible solutions
- Authorization
Power over decisions
Informal power (moves horizontally): Collecting information, formulating advice
Formal power (moves vertically): making the decision, authorizing the decision, implementing the decision
Selective decentralization
most common with functional grouping
different decisions are delegated to different managers
decision-makers coordinate by mutual adjustment (using liaison devices)
Parallel decentralization
most common with market-based grouping
different decisions are delegated to same managers
decision-makers coordinate by standardization of outputs and skills, using P/C systems and training
Horizontal decentralization
power to the analysts
- automatic result of standardization
- a form of selective horizontal decentralization
- often goes with vertical centralization
Power to the experts
- usually staff, but also operators if professional
- appropriate when decisions have technical nature
- selective horizontal and vertical decentralization
Power to the members
- democratic (but not meritocratic) organization
- increases motivation but decreases efficiency
- easily reverts to centralized structure
Bavelas’ 1950 study
Decentralized networks
- need more time
- make more mistakes
- develop hierarchies
Centralized networks
- higher morale for brokers
- lower morale for others
5 common combinations
A. Power to apex –> direct supervision
B. Power to analysts –> Standard processes
C. Power to middle line –> Standard outputs
D. Power to staff experts –> Mutual adjustment
E. Power to operators –> Standard skills
Summary of design parameters
Direct supervision is enabled by setting the level of specialization, unit grouping and size, and horizontal/vertical decentralization
Standardization of processes is enabled by formalization; standardization of skills by training and indoctrination; standardization of outputs by planning and control systems
Mutual adjustment is enabled by liaison devices
Contingency theory
there is more than one best way to organize
structures should be tailored to internal and external factors, referred to as contingencies
single parameters do not affect performance (combinations of parameters do, their effects are dependent on context)
Requirements for effective structuring
- congruence: parameters’ fit with contingency factors.
- configuration: internal consistency of parameters
Contingency theory (continued)
Dependent variables
specialization, formalization, indoctrination
unit grouping and size
planning and control system, liasion devices
vertical and horizontal contingencies
Independent variables
organizational age and size
regulation and sophistication of technical system
stability, complexity, diversity, hostility of market
ownership, power needs, norms and fashions
Mediating variables
comprehensibility, predictability, diversity of work
speed of response to environmental change
Effects of age
older means more formalized
- with time, organizations repeat their work
- repetition faciliates learning
- benefits of learning mutilplied by formalization
Structure reflects the age of an industry
- older industries are more professionalized
- industry conditions at founding affect parameters
- some parameters are difficult to change later
Effects of size
Largers means more formalized
- more people repeat the same work
- greater reliance on written communication
Larger means more specialized
- harder communication btw units
- finer division of labor within units
- greater differentiation btw units
Specialization leads to greater unit size
- similarly specialized workers are easier to manage
- their job is easier to standardize
Organizational growth
- Craft-based
- informal grouping
- lack of leadership - Entrepreneurial
- vertical specialization - Bureaucratic
- functional grouping
- horizontal specialization
- some standardization - Divisionalized
- market grouping
- more standardization
Evidence from A/P Studies
the ratio of administrative workers (A) to production workers (P) mainly depends on the technical system
Technical system vs. technology
Technology is knowledge applied to solve a problem, including specialized skills acquired by training
A technical system consists of instruments used by operators to transform inputs into outputs, which do not necessarily require specialized skills
technical systems vary along 2 dimensions:
regulation (degree of control)
sophistication (degree of comprehensibility)
Stages of technical system
Unit production
- low regulation
- low sophistication
Large-batch or mass production
- high regulation
- low to high sophistication
Process production
- high regulation
- high sophistication
ex: chemicals, fuels, energy
Woodward’s 1965 study
linear relationships: span of control of apex and middle line, n. of managers, qualifications
Non-linear relationships: span of control of front supervisors, ratio of skilled workers, formalization
Effects of technical system
Regulation leads to formalized behavior
- operating work is more predictable
- easier to specialize and standardize
Sophistication leads to more administration
- larger and more professionalized support staff
- selective decentralization to support staff
- greater use of liaison devices
Automation leads to organic administration
- no conflicts btw managers and workers
- no analysts and frontline supervisors
- more professional staff and skilled technicians
Organizational environment
includes technology, customer preferences, competitors, political climate
- stable or dynamic, based on rate of change
- simple or complex, based on technology
- integrated or diverse, based on heterogeneity
- munificent or hostile, based on competition
Simple environments make work comprehensible; stable and/or munificent make it predictable; integrated ones make it less diverse
A note on integration
An organization is integrated if its work concerns multiple stages of a supply chain (btw-stage) or the same stage of multiple supply chains (within-stage)
Btw-stage integration:
production of own inputs–> backward integration
distribution of own inputs –> forward integration
Within-stage integration
own outputs as inputs for another supply chain
Organizations can adapt to integrated environments by integrating themselves, but this is not required!
Effects of environment
Dynamic environments favor organic structures
- unpredictability impedes standardization
- primacy of supervision and adjustment
Stable environments may not favor bureaucracy
- bureaucracy depends on other contingencies (age and size, technical system)
Complex environments favor decentralization
- cognitive overload leads to delegation
- harder to supervise and formalize behavior
- if dynamic, then mutual adjustment
- if stable, then standardization of skills
Effects of environment (continued)
Diverse environments favor divisionalization
- cognitive overload leads to delegation
- harder to get scale economies
- harder to separate functions
- each units deals with a market segment
Hostile environments favor centralization
- direct supervision increases speed of response
- if complex, then temporary centralization (if this goes too long, organizations usually fail)
Subenvironments –> selective decentralization
- different structures allow differential responses
- emergence of work constellations
Most common responses
Stable and complex
- decentralized
- bureaucratic
- standard skills
Stable and simple
- centralized
- bureaucratic
- standard processes
dynamic and complex
- decentralized
- organic
- mutual adjustment
Dynamic and simple:
centralized
organic
direct supervision
In integrated environments, these structures are functional; in diverse ones, they are market-based
Power-related contingencies
Internal/external ownership
extent to which outside entities like governments, unions, shareholders control organizational decisions
power needs of members
extent to which parts of the organization wish to gain control over their own work and others’
Norms and fashions
extent to which organizations buy into institutional norms and cultural fads (from consultants)
Effects of power
External control leads to formalization
- top managers held responsible for decisions
- written communication ensures accountability
- standardized procedures for hiring and promotion
Members’ power needs lead to centralization
- middle line pushes for vertical decentralization
- staff units push for horizontal decentralization
- apex responds by defending its own power
Norms and fashions can worsen structures
- often inappropriate to the context at hand (matrix structure in stable environments, participative decision-making in hostile environments)
- attractiveness of the “one best way” to organize
Rise and fall of the M-form
separation of ownership from management
- increasing professionalization of managers
- emphasis on performance measures like ROI
Emergence of divisional (M-form) organizations
- Celler-Kefauver Act of 1950 (limits to vertical integration and related M&A)
- Diversification into new product markets
- formation of market-based units
De-diversification in the mid-1980s
- growing inefficiencies; poor performance
- international competition –> greater hostility
- agency problems of managers vs. shareholder
