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DSM 501 MANAGEMENT PRACTICE

1 LECTURE 1 INTRODUCTION:
Overview of the course
What is management
What is Management theory
What is management practice
What do managers do? the classical, the neo classical and the
contemporary views
Management skills conceptual, human resource and technical skills
Levels of management- top level ,middle level and lower level
managers
Managerial roles
Is management a science an art or a profession
Importance of management theory
Importance of management
Nissan case
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1.0 INTRODUCTION
1.1 What is management?
The term management can be defined in the following ways:
1. As a group of people whose job is to direct the efforts of others in the
organization towards the attainment of the organizations objective
2. Management as a process refers to the process by which
management directs actions in the organization towards the
achievement of organizations goals through the functions of
planning, organizing controlling staffing and so on.
3. Economists define management as a resource or as one of the
factors of production together with capital, land, labor and
entrepreneurship. In this context management is bought and
developed so as to increase the firms productivity and profitability.
4. Organization theorists view management as a system of authority.
Management in this approach is defined in terms of the rank and
position it occupies in the hierarchy of an administrative system.
Management occupies a certain position in this administrative
hierarchy and plays a certain role in the system with regard to
decision making, control and other aspects of the organization.
5. Sociologists view management as a class and status in the social
system. In a social system management occupies a certain position.
Entrance to this position in the social system is based more and more

on education and knowledge and ability to analyze organizational


issues and make good decision.

1.2 What is management theory?


Management theory means a theory about management. It is a body of
knowledge created through scientific (systematic) method. It consists of
principles and concepts. These concepts and principles have been
determined through observation of events and facts and has established
causal relationships and associations of the events and facts. Where these
associations and relationships have been established to be true after long
periods of observation and association the principles are given and are used
to predict what can happen in similar circumstances. Principles could be
descriptive prescriptive or normative. Descriptive principles describe
relationships between variables. Prescriptive (or normative)
principles
recommend or propose what should be done to achieve certain results.
Management principles are prescriptive because they propose what should
be done to achieve organizations objectives. Therefore management theory
is a body of knowledge created or developed through a method of science
and consists of principles and concepts that advise management on the
things that should be done about organizations so as to achieve desired
results.
1.3 Is management a science, an art or a profession?
Management as an art
Art is the know how to accomplish desired results. This implies that there
exists a body of knowledge which management uses to accomplish the
desired results in organization
Management as a profession
A profession implies that:
1. It is based on a proven systematic body of knowledge and this
requires intellectual training to acquire
2. In a profession emphasis is made on service to others and usually
there is a code of ethics to be followed
3. Entrance to the profession is usually restricted by standards
established by an association of members , membership of which
is restricted to people with common training and attitude
4. A profession maintains an experimental attitude towards
information and is constantly in search of new information and
knowledge through research and practice
Management as science

Science implies a body of knowledge created through the scientific or


systematic method or process. To qualify as scientific the process of creating
this body of knowledge must follow a specific process. Management theory
has been created through a systematic process. In addition a scientific
theory must fulfill the following other conditions
1 It is based on empirical findings
2 Its findings are objective
3 It uses specific clear and unambiguous concepts
4 It consists of principles variables and relationships between those
variables
5 The methodology used can be replicated
6 Data analysis is relatively rigorous

1.4 Importance of management theory


Management theory is important to a practicing manager because it assists
in:
1 Describing work tasks the organization in a clear and
unambiguous terms and concepts
2 Predicting outcomes of managerial action
3 Prescribing solutions to management action
4 Rationalizing management decisions
Management theory also helps
complexities
organization complexity
environmental complexity
technology
globalization
workforce diversity
size
competitive advantage

managers

deal

with

the

following

1.5 What do managers do


The Classical Approach Managers perform the functions of planning,
organizing, staffing, controlling, motivating and leading

The neo classical Approach In the neo classical approach managers


perform three important roles interpersonal, informational and
decisional roles

1. Inter personal roles


The figurehead role (performing ceremonial and social duties as
the organizations representative).

The leader role


The liaison role

2. Informational role
The recipient role (receiving information about the operations of an
enterprise).
The dissemination role (passing information to subordinates).
The spokesperson role (transmitting information to those outside the
Organization)
3. Decision role
The entrepreneurial role
The disturbance handler role
The resource allocator role
The negotiator role (dealing with the various persons and groups of persons)

1.7

The Modern Approach

This approach proposes that managers perform the following functions


Communication, Human resource management and Networking

1.8 The Importance of Management


Management is important because
Resource allocation
Interpersonal role
Liaison role
Decision role
Networking
Management is important to both businesses and individual life.
In business management is the dynamic life giving element. It is
management that utilizes resources to purchase goods and services.
It is management that coordinates, arranges and controls in a
systematic manner, limited resources to satisfy individual,
organizational and societies needs.
Management helps in:
- Effective utilization of resources
- Effective interaction with business environment.
- Formulation of suitable rules policies and products.
Management is responsible for the achievement of goals and
objectives.
Management ensures optimum utilization of resources.

Management through leadership, motivation, communication and


supervision ensures efficient running of business organizations.
Management through organizing, establishing a pattern of authorityresponsibility relationship that helps create a sound formal structure.
Management
ensures
smooth
(undisruptive)
functioning
of
organization.
Management works to create the companys good image, reputation
and goodwill.
Management helps organizations in adjusting and coping with the
changing business environment.
Management helps in maintaining healthy relations with outside
parties, like customers, suppliers financiers, government, service
providers, owners etc.
In addition management helps deal with the following challenges.
- Complexities, competition and uncertainties.
- Cultural diversity
- Economic, social and cultural challenges of the nation.
- Surviving during lean times.

LECTURE TWO
THE EVOLUTION OF MANAGEMENT THEORIES: THE
CLASSICAL APPROACH

The Pre classical


The Neo Classical

2.1 Pre-classical Period


During this period management theory existed basically as set of
concepts and principles used in organizations by managers to achieve
efficiency and effectiveness
The Roman Empire
The extensive bureaucracy of the Roman Empire could not have been
maintained in such a form and for such a long time without the
application of a management theory that we know today.
The Chinese Empire
The construction of the Great Wall of China could not have been
accomplished without the sophisticated administrative and bureaucratic
structures we know today.
The Pyramids of Egypt The pyramids of Egypt could not have been
completed
without sophisticated organization practices and structures
of the modern period.

The Catholic Church


The Catholic Church has also practiced many elements of classical
theories for almost 2 thousand years.
Summary: The pre classical approach was ad hoc, no order and
systematically (scientifically) developed body of Knowledge to be a reference
point for managers
2 The Classical Theories (The classical Approach )
The classical theories were developed in three streams/approaches
namely:
a) The Administrative theory
b) The theory of Bureaucracy
c) The scientific management Theory
The main elements of each of the three approaches are as follows:
2.1 The Theory of Bureaucracy:
(1)
Was developed by sociologists who took a relatively scholarly
descriptive point of view
(2)
The most famous of those sociologists was Max Weber (1864
1920) who was a German Sociologist. He published most of his
works towards the end of the 19 th Century. Max Weber identified
the following as the main characteristics of bureaucracy
Labor is divided so that the authority and responsibility of each
member is clearly defined.
Offices or position are organized in a hierarchy of authority resulting
in a chain of command.
All organizations members are to be selected on the basis of
technical qualifications through formal examinations or by virtue of
training or education.
Officials are appointed not elected.
Administrative officials work for salaries and are career people.
The officials are separate from owners
The officials are subject to strict rules and controls regarding the
conduct of their official duties. Those rules are impersonal and
uniformly applied to all people and cases.
The above specifications by Max Weber were necessary because
during this period and before, most organizations were managed on
a personal family like basis.
Employees were loyal to an
individual rather than to the organization or its mission. The
dysfunctional consequences of the practice were that resources

were used to realize individual desires and goals rather than


organizational goals and needs. Employees in effect owned the
organization and used resources for their own rather than to serve
customers and organizations.
Max Weber envisages organizations that would be managed on an
impersonal basis.
He called this form of an organization
bureaucracy. Max believed that organizations that exhibited the
characteristics that he described would be more efficient and
adaptable to change.
2.2 Administrative Theory:
This theory was largely developed by Henri Fayol (1841 1925) who
was a French industrialist. He described a number of management
principles that go towards capturing the entire flavor of the
administrative theory of management. Some of those principles are:
(i)

Division of work (or specialization)


One should work at activities in which he/she has comparatively higher
skills. This should lead to higher productivity.

(ii)

Authority and responsibility


Authority is right to give orders.
Each person should have an
appropriate authority to go with the given responsibility. Responsibility
is the task to be accomplished.

(ii)

Discipline
There must be respect and obedience to the rules and objectives of the
organization.

(iii)

Unity of Command
To reduce confusion and conflicts each member should receive orders
from and be responsible to only one superior.

(v)

Unity of direction
An organization is effective when members work together towards the
same objective.

(vi)

Subordination of individual interest to general interest


The interests of one employee or group of employees should not
prevail over that of the organization. Rather, the general interest must
be maintained as paramount.

(vii)

Remuneration of personnel should be fair not exploitative, and should


reward good performance.

(viii) Centralization
A good balance
decentralization.

should

be

found

between

centralization

and

(ix)

Scalar Chain
There is a scalar chain or hierarchy dictated by the unity of command
linking members of the organization from the top to the bottom.

(x)

Equity
Kindliness and justice, largely based on predetermined conventions,
should prevail in the organization.

(xi)

Stability of tenure of personnel


Job security should reward good performance.

(xii)

Initiative
A manager who has initiative, and can get others junior to him to do it,
is far superior to the one who does not have this ability.

(xiii) Esprit de corps


Unity is Strength- superior performance comes from working
together; thus, everyone in the organization should be encouraged to
work together and have a sense of belonging.
(xiv) Technical ability
Technical ability predominates lower down the ladder and management
ability higher up.
(xv)

Fayol emphasized the importance of planning, organizing commanding


and coordination and controlling in organizations.

(xvi) Fayol recommend rational selection of and training of workers together


with professional training for managers.
Evaluation of Administrative theory
1.

The principles of administration as postulated by Henri Fayol fail to be


universal truths.

2.

The principles lack scientific derivation and verification.

3.

The administrative theory is power centered. It is thus in philosophical


conflict with those who desire limited individualism.

4.

Administrative theory suffers from the dysfunctions of bureaucracy


such as rigidity, impersonality, and excessive categorization.

5.

Administrative theory suffers from superficiality, oversimplification and


lack of realism. It is satisfied with theoretical rather than actual.

However, as a theory of organization, the Administrative theory is critical


because:
(i)
It recognizes the need for:
Specialization
Unity of command
Discipline
Separation of individual and organization interest.
(ii)

It also introduces essential principles that even today lead to


organization efficiency.

2.3 Scientific Management Theory


First developed by Fredrick W. Taylor (1856 1915) a mechanical engineer in
the United States the Scientific Management can be defined as:
The application of scientific method of study, analysis and
problem solving to organizational problems.
Or
A set of mechanisms or techniques for improving organizational
problems.
Scientific Management focuses its unit of analysis on the physical
activities of work. Scientific management deals with the relationship of
a worker and his or her work. Thus, this is emphasis on man-machine
relationships with the objective of improving performance of routine,
repetitive productions tasks.
Scientific management advocates for an empirical detailed study of
each job to determine how it could be done most efficiently.
The basic assumptions of scientific management theory are:
Improved results in organizations will come from the application
of the scientific methods of analysis to organizational problems.
In other words, the scientific management approach holds that
scientific solutions to problems of management of organizations
are superior to those of other approaches.
Scientific management focuses primarily on work itself and not
on the particular person doing the work.
Each worker is assumed to be a classical economic maninterested in maximizing his monetary income.
The
complications of emotional and social actions and reactions of
persons in organizations are not emphasized.

The basis principles of scientific management as expounded by Fredrick W.


Taylor are as follows:
Develop a science for each element of mans work in order to
maximize the organizations output.
Scientifically select and then train, teach and develop the worker.
Management should heartily cooperate with the workers so as to
ensure all the work is being done in accordance with the principles of
science.
There is almost equal division of the work and responsibility between
management and the workers. The management should take over all
work for which they are better fitted than the workers, and the workers
should do the work for which they are better fitted.
Application of the piece rate principle: This is the principle by
which workers are paid by piece rates on the basis of standards set by
motion and time studies rather than on other basis. Piece rates are
effective in motivating workers. Tailors piece rate system was called
the differential piece rate system. Under this system, workers were
paid a low piece rate up to a standard (a standard was based on a first
class man performing under average conditions). At higher levels of
output the worker was paid a hire rate.
Tailors recommendations were designed to reduce the inefficiencies and the
wastefulness of the past through practicing scientific rather than rule of
thumb methods.
Evaluation of the Scientific Management Theory
The basic problem with the scientific management theory is that it assumed
man to be purely an economic man interested only in the satisfaction of his
basic needs. His rationality and motivation were purely financial/
materialistic. These assumptions were not realistic and man was motivated
by more than his basic needs as later proved by the neo classists
The Neo Classical (Behavioral or Human relations) Theories
Objectives of the chapter
1) to introduce the students to the behavioral
approach
2) to explain the basic principles of the Hawthorne
experiments, Mary Parker Follet and Chester
Barnard
3) To discuss the basic principles of Maslows
hierarchy of needs theory, McGregor theory X
and Theory y and Vrooms equity theory
4) to describe the basic principles of the
behavioral approach
5) to discuss the strengths and weaknesses of the
behavioral approach

2.1 The Hawthorne Experiments


Carried out between 1927 and 1933 at the Chicago Hawthorne plant
of the Western Electric Company. Four studies were done namely:
ELTON MAYO
1 The illumination studies
The objective of this experiment was to determine the relationship
between the level of illumination and worker productivity. It was expected
that worker productivity would increase with increasing levels of illumination.
The studies failed to prove any relationship between worker productivity and
level of illumination
2 The Relay Assembly Test Room Studies
The objective of this study was to determine the relationship
between worker productivity and improved benefits and working conditions.
The experiment also wanted to find out whether there were other factors
that influence productivity and worker behavior. The studies found out that
there was no cause and effect relationship between working conditions
and output. Rather, there were other factors that affected workers output
such as his/her attitudes and supervisor behavior.
3 The interviewing Program
In this Experiment the employees were interviewed to learn more
about their opinions with respect to their work, working conditions and
supervision. The interviews sought the views of the employees on the factors
that could lead to increased productivity. The interviewees suggested that
the following other factors could affect their productivity:
Psychological factors help determine whether a worker is
satisfied or dissatisfied in any particular work situation
The persons need for self-actualization determines his/her
satisfaction in the work.
A persons work group and his relationship to it, also determines
his/her productivity.
4 The Bank Wiring Room studies
This experiment sought to study the effect of group influence on workers
productivity. The researchers found out that an informal grouping and
relationship was a critical factor in the workers productivity. The informal
group determined the groups productivity, and functioned as a protective
mechanism (served both for internal and external purposes).
The Hawthorne Experiments concluded that:
i
An industrial organization is a socio technical system. The socio part is
the human aspects that need to be taken care of in order to increase
workers productivity and the technical system is the physical aspects
that also need to be improved.
ii
Employee attitudes and morale are also important as determinants of
productivity.

iii
iv

Other factors include workers personality and supervisors behavior.


These two also affect workers altitude and morale.
A workers social group has a prevailing effect on his or her altitude
and productivity.

Criticisms of the Hawthorne studies


(1)
The philosophical basis
By emphasizing the social needs of human being rather than the
economic needs
and self-interest, these studies conflict the
philosophical basis of economic theory.
(2)
Methodology
i) The study methodology lacks the basis for generalizations.
ii) Findings
The cause and effect relationship conclusions lack general
support and scientific verifiability.
Contribution
The Hawthorne Studies have however made the following
contribution to Organization theory
As a basis for organization theory Research, the Experiments were
important. They were some of the earliest scientific studies in
human behavior.
Their finding on the importance of informal groups is also a key to
organization theory.
Their emphasis on employee altitude towards work as an additional
to other factors was a breakthrough in organization theory.

2.2

Mary Parker Follet- a philosopher and political scientist


Was also a social worker among the poor in Boston?
Emphasized the importance of subordinating individual freedom
to that of the group
Stressed the importance of democracy in decision making by
involving all in order to find a solution. Recommended the use of
power with rather than power over.
Observed that Power cannot be delegated but authority can.
Power is the capacity to get things done. Authority is the right to
give orders. Power should be exercised with rather than over.
Power over is dominance or control, based on force. Power with is

a jointly developed power. She emphasized that power is a basic


to management especially when used with.
Defined conflict as the difference in opinion or interests. She
emphasized that conflict cannot be avoided, and therefore must
be used to manage organizations. Noted that there are three
ways of managing conflict:
Dominance one side wins over the other
Compromise each side gains something to settle the
conflict; also each side loses something. In both dominance
and comprise, the basic causes of conflict is not settled.
Follet recommends a third way.
Integration of desires. In this way a solution that fully
meets the goals of each party in a dispute is found. Both
parties get what they want. Neither party gives up anything.
Integration lets the parties creatively discover alternatives
that satisfy both parties in conflict. In integration, conflict is
used to creatively discover alternative that satisfy both
parties.
Follet also brought a new way of looking a leadership. She defined a
leader as
one with a vision of the future and can articulate the common
purposes towards which the organization is striving.
The leader focuses the energies of people towards that purpose. A
leader not only knows the technical aspects of his job, but also
understands the total situation and the relationship among its many
parties.

2.3

Leaders also train and develop their followers.

Chester Barnard

Barnard was writing in the 1930s


Was the President of New Jersey Bill Telephone Company
Contributed to organization theory in three areas:
i
The importance of individual behavior
ii
Theory of compliance
iii
Theory of organization structure
1. The importance of individual Behavior

Bernard was the first person after the Hawthorne studies to


emphasize the importance and variability of the individual in the
work setting.
He emphasized that an essential element in organizations is the
willingness of persons to contribute their individual effort to the
organization.
The individual is always the basic strategic factor in
organizations.
Consequently the individual regardless of his history or his
obligations, must be induced to cooperate or there cannot be
cooperation.

2. Barnards theory of compliance


Barnards theory of compliance consisted of four basic elements.
i
The willingness to cooperate is a basic element of the
individual in the organization
ii
In complying, the individual surrenders his personal
preferences i.e. surrender in order to comply in an
organization.
iii
An individual is only willing to comply if he is sufficiently
induced.
iv
The level/quantity of inducements determines his degree of
compliance.
Barnard noted that material incentives by themselves are not enough.
Other incentives include:
Opportunities for distinction
Prestige
Personal power
Coercion (i.e. sometimes force is necessary to obtain compliance).
3. Barnards theory of organization structure
-

Emphasized that the organization was a structure of decision


makers
Stressed the importance of communication in organizations
Stressed the role and importance of informal organizations in
communication and cohesiveness
He was also one of the first organization theorists to take a
systems view of organizations.

2.4 McGregors Theory X and Theory Y


McGregor proposed two sets of assumptions while motivating a worker; the
theory X and theory Y assumptions. A managers behavior towards his

workers and his management style will differ based on the assumptions
guiding his behavior.
Theory X assumptions
i)
ii)
iii)

The average person dislikes work and will avoid it if possible.


Because of this dislike for work, the workers must be directed, tightly
controlled and pressured to get them to work towards organizational
goals.
The average person wants security, avoids responsibility and has little
ambition.

Theory Y assumptions
i)
ii)

The average person does not dislike work


If a person is committed towards a set of goals, he will work towards
them without an external control.
iii)
Goal commitment follows from the satisfaction of a persons desire to
achieve
iv)
The average person can learn to accept responsibility.
Lack of
ambition is not a basic human characteristic.
v)
Creativity, ingenuity and imagination are human characteristics that
are unduly dispersed in the populations
Modern organizations only partially tap the potential of its workers.

2.4 Maslows hierarchy of needs


Maslows proposed that within every person is a hierarchy of needs (five).
These are;
a) Physiological needs- these are the food, drink, shelter etc
b) Safety needs- security and protection from physical and emotional
harm
c) Social needs- need for affection, belongingness, acceptance and
friendship.
d) Esteem needs- self respect, autonomy and achievement.
e) Self actualization- need to achieve ones maximum potential and self
fulfillment.
Maslow argued that;
1. Human beings require needs in a hierarchical order
2. Each level of need must be substantially satisfied before the next level
is activated.
3. Once a need has been satisfied it ceases to motivate and the next level
becomes more dominant.

4. Therefore if you want to motivate you must first identify the level that
person is on in the hierarchy of needs and focus on satisfying needs at
or above that level.
5. Maslow separated the two needs into higher and lower level needs.
Physiological and safety needs were considered lower order needs,
social esteem and self actualization needs wee considered higher order
needs. The difference was that higher order needs are satisfied
internally while lower order needs are predominantly satisfied
externally.

Management Implications of Maslows theory


1) Employees have different needs at different times
2) Employees have several interdependent needs not just one
dominant need. Managers must therefore understand that
employees are motivated by a cluster of needs not just one need
3) At some point most employees want to achieve their full potential.
Therefore managers must structure organizations to help people
continue and develop this motivation
4) Employees needs are influenced by values and norms. In other
words higher order needs are shaped to some extent by the norms
and values of the team, the organization and society in which the
individual lives. Consequently managers can adjust employee
motivation and effort by reshaping these norms and values for
example by encouraging more performance oriented team norms,
managers can strengthen team members self actualization needs.
2.6 McGregors Theory x and Theory y
McGregor proposed two sets of assumptions about human nature:
1) Theory X assumes that workers
Have little or no ambition
Want to avoid responsibility
Need to be closely supervised and controlled to work effectively
Generally dislike work and only work for salary and security
2) On the other hand theory Y assumes that workers
Want and exercise self direction
Accept and actually seek out responsibility
Want work and consider work to be a normal activity
McGregor believed that theory Y predominates, consequently to motivate the
employees there is need to allow for participation in decision making,
provide challenging jobs, and good group relations.
2.7 Herzbergs two factor theory (also called motivation

hygiene theory)

Herzbergs theory proposes that there are two sets of conditions or factors
that affect workers level of satisfaction or motivation at the work place. The
hygiene factors describe the employees relationship with their job
environment, and that affect the level of dissatisfaction at work. These
factors include
Company policy and administration
Salary
Interpersonal relations
Working condition
On the other hand, the motivators are factors related to the employees
desire for growth in their work and which affect the level of satisfaction or
motivation at work. The motivators include
Achievement
Recognition
The work itself
Responsibility
Advancement
Opportunity for growth
The Herzbergs two factor theory of motivation proposes a two step
process of motivating employees
1. First make the employees not dissatisfied by
Having sound non primitive company policies that are
administered fully
Having good technical supervisors who permit employees to
work without undue pressure
Paying salaries and wages that are adequate and fair
Establishing an environment that promotes good interpersonal
relations between employees and supervisors
Creating good working conditions, comfortable offices,
reasonable hours etc
2. Then make employees motivated by
Permitting employees to achieve challenging goals with
minimal interference
Recognizing employees good performance and productivity
and crediting them for their efforts
Giving employees more responsibility as they show the desire
and ability to handle it
Providing a career path of meaningful advancements for
productive employees
Designing jobs that are interesting and challenging
Providing training and educational opportunities that help
employees grow especially in skills that relate to their careers

Managers should note that employees are motivated first if they are not
dissatisfied, and second if they are provided with motivators. Both the
dissatisfiers and motivators must be provided if employees are to be
motivated in their work
2.8 Vrooms Expectancy Theory
This theory proposes that people will be motivated to do things to
reach a goal if they believe in the worth of that goal, and if they can see that
what they do will help them in achieving it.
Vrooms theory proposes that people will be motivated to do things if
they place on the outcome of their efforts a value equal to the value
multiplied by the expectancy.
Expectancy theory states that an individual tends to act in a certain
way based on the expectation that the act will be followed by a given
outcome and on the attractions of that outcome to the individual. It includes
three variables of relationships:
1. Expectancy or effort performance linkage- is the probability by the
individual that exerting a given amount of effort will lead to a certain
level of performance.
2. Instrumentality or performance reward linkage is the degree to which
the individual believes that performing at a particular level is
instrumental in attaining the desired outcome.
3. Value or attractiveness of the reward is the importance that the
individual places on the potential outcome or reward that can be
achieved on the job.
This analysis can be summarized by the question; how hard do I have
to work to achieve a certain level of performance and can I actually achieve
that level. What reward will performing at that level of performance get me?
How attractive is the reward to me and does it help me achieve my own
personal goals. Whether you are motivated to put forth effort, (i.e. work
hard) at any given time depends on your goals and your perception of
whether a certain level of performance is necessary to attain these goals.
Implications for managers
The key to expectancy theory is in understanding an individuals goal
and the linkage between effort and performance, between performance and
rewards and finally between rewards the individual goal satisfaction.
Consequently, managers have to align rewards with what the employee
wants. After all we want to reward the employee with those things that they
value. Also expectancy theory emphasizes expected behaviors. Do
employees know what is expected of them and how they will be evaluated?
Finally expectancy theory is concerned with perceptions. An
individuals own perception of performance reward and goal outcome, not
the outcomes themselves will determine his/her motivation (level of effort).

2.9 Equity Theories


Equity theory proposes that employees compare what they get from a
job (outcomes) in relation to what they put into it (inputs) and then compare
their input;- output ratio with the input output ratios of relevant others. If an
employee perceives her ratio to be equitable (or fair) in comparison to those
of relevance others then justice prevails and she will be motivated. However
if the ratio is inequitable (unfair) the employee will feel under rewarded or
over rewarded. Equity theory proposes that the employee might;
1. Distort either own or others inputs or outcomes
2. Behave in some way to induce others to change their own inputs or
outcomes
3. Behave in some way to change their own inputs or outcomes
4. Choose a different comparison person
5. Quit the job
The implication for equity theory is that employees will be influenced
significantly by both absolute and relative rewards. Whenever employees
perceive inequity, they will act to collect the situation
Who are these others the employee will compare with? These includes
1. Individuals with similar jobs in the same organization in the same
profession e.t c.
2. The systems including the organization pay policies procedures and
systems
3. The self referring to the input outcomes ratios that is unique to the
individual. It reflects the past personal experiences and ant acts as
influenced by jobs, or family connections
1.2.4 The basic elements of the Neo-Classical theories

were:
i
ii
iii

Individual needs. Recognizes the existence of, and the variability


of individual needs, and characteristics e.g. feelings, emotions,
and perceptions.
Work Groups recognizes the existence and the importance of
informal groups in organizations.
Participatory Management emphasizes the need of involving
employees in decision making especially on things that affect
them.

SUMMARY OF THE NEO-CLASSICAL THEORIES


1 Organizations are complex social systems- with both formal and informal
structures. They are not mechanical units with inert objects which need
only neat rules and structures (explained by administrative and the theory
of bureaucracy) and they are not motivated purely by economic
incentives as proposed by Taylor in his scientific management theory.

To control the people you need to take into account


Social needs of human beings
Their other needs such as participating in decision making, selfactualization
Their diversity e.g. some are x and others are y.
2 Human beings have emotional as well as economic needs. Organization
need to be designed in such a way as to enable workers to meet both
their material and non material needs. Only in this way will the workers
perform efficiently and effectively on the best interests of the
organization.
3 Importance of leadership and communication These theories also
emphasized the importance of communication in organizations
4 The type and quality of a leader is also a contributor to organization
success (Mary Parker Follet). Communication is also key to successamount of information and the way it is communicated.

Criticism of the Neo-classical theories


1. Economists rejected the argument that non material incentives have a
potentially stronger motivating influence than material incentives.
2. Other writers thought that the neo-classical view that workers needed
non-material things more than material things portrayed workers as
irrational beings.
3. Others thought that need for togetherness was contrary to need for
individualism.
4. Others thought that emphasis on the importance of leadership portrayed
human beings as babies.
5. The other criticism was the one- best way approach
That there is one best way to structuring organizations and that it
holds good for all organization. This ignored other factors such as
environment, culture and strategy that were important in
determining the structural dimensions of organizations.
These concerns were addressed by the contingency theories
LECTURE 3
THE CONTINGENCY THEORIES
Objectives of the Lecture
1) to introduce students to the basic theories of the contingency
approach
2) to explain the environment, the technology, the strategy the
size and the culture contingencies

3) to discuss the implications of the contingency approach for


management practice
3.1 Introduction
Contingency theories basically reject the one best way approach to
management and organizational structure. The structural and management
styles adopted are dependent (contingent) on the situational (contextual)
variables facing the organization. The contingency theories relate to how the
organizational structure adjusts to fit with both the internal environment
such as work technology and the external environment such as economic or
political/legal. Contingency means that one thing depends upon another
thing or that one characteristic depends upon another characteristic. What
works in one setting may not work in another setting. There are no universal
principles that apply to every organization. There is no one best way. The
most efficient organizational structure may be contingent upon the size,
technology or strategy and since organizations are open systems, its
environment. The main contingency variables are: Environment, Technology,
Size, Strategy, Culture and Growth. In a summary form the following are the
structural and management styles relationship with each of the above
contextual variables.
3.2 Technology

3.2.1 What is Technology?


Technology refers to the process of transforming inputs into outputs in an
organization. It includes the tools the equipment the knowledge and the
processes used in the transformation process. Every organization uses
technology to transform inputs into outputs. Technology can be classified or
differentiated in many ways. Some of those ways are technical complexity of
operations, interdependence of operations and knowledge analyzability and
variety. Technical complexity refers to the differentiation in the use human
labor versus the use of machinery and equipment in the transformation
process. The more the proportion of the human input the less complex the
technology and the more the proportion of the machine input the more
complex the technology. In the case of interdependence of operations, the
greater the interdependence the higher the technical complexity. In the case
knowledge analyzability and task variety the complexity of technology takes
on four dimensions of routine, engineering, non routine and craft
technologies. These dimensions of technology typologies are explained here
below.
a) Joan Woodwards Technical Complexity
Joan Woodward was a British Industrial Sociologist. Her studies covered 100
manufacturing firms in South Essex, England. Her study was conducted
between September 1954 and September 1955. The study was designed to

test whether management principles as applied on organization structure,


span of control, chain of command etc led to successful organizations.

Method of study
Woodward and her research team visited each of the firms studied,
interviewed managers, examined company records and observed its
manufacturing operations. Her data included a wide range of structural
characteristics of these organizations such as span of control, levels of
management, management and clerical ratios, work skill level, dimensions of
management, (i.e. written versus verbal communications, use of sanctions)
type of manufacturing processes, data on commercial success of the
company (such as profitability, prices of shares in stock exchange) the
history and rate of development, reputation of the firm as an employer, level
of salaries paid to senior staff, rate of staff wastage and the relationship
between the firm and outside organizations.
Data analysis
The initial study of data found that firms varied widely in such things as span
of control, number of hierarchical levels, administrative ratio and amount of
verbal communications. Thus her data did not show any proof to the one
best way principle of management.
However a further look and analysis of the data and information showed a
relationship between organisation structure and technology. Woodward
developed a scale and organized the firms according to technical complexity
of the manufacturing processes. Technical complexity represented the
mechanization and predictability of the manufacturing process. Her scale
had ten categories that were grouped into three production types as
summarized in Annex 1 attached and discussed below.
Group 1: Small Batch and Unit Production
These firms tended to be job shop operations that manufacture and
assemble small orders to meet specific needs of customers. Customs work is
the norm. This technology relies heavily on the human operator. It is thus not
highly mechanized and predictability of outcome is low. Examples included
many types of made to order manufactured products, such as specialized
construction equipment or custom made electronic equipment.
Group 11: Large Batch and Mass Production
This manufacturing process is characterized by long production of
standardized parts. Output often goes into inventory from which orders are
filled because customers do not have special needs. Examples would include
most assembly lines, such as automobiles or trailers homes. The integrated
cotton mill is also a mass production technology.

Group III: Continuous Process Production


In this technology, the entire process is mechanized. There is no starting and
stopping. This represents mechanization and standardization one step
beyond an assembly line. The organization has high control over the process
and outcomes are highly predictable. Examples would include chemical
plants, oil refining, and liquor production.
Her findings were as follows
Ratio of management staff to total personnel shows an increase from unit
production, to mass production and then is low in continuous process
production.
Supervisor span of control is highest in mass production and low in both
unit and process production technologies.
Direct labor to indirect labor ratio is also low in both unit and process
technologies but high in mass production technologies.
Other characteristics such as formalization and centralization are high for
mass production and low for other technologies i.e unit production and
process production.
The number of skilled workers and the use of verbal versus written
communication also depend upon manufacturing technology. It is low in
unit and process production and high in mass production.
Overall, the management system in both unit and process technology is
characterized by organic while mass production is characterized by
mechanistic system.
With respect to technology and performance, Woodward studies found
that successful firms tended to be those that had complementary
structures and technologies i.e firms that most nearly approximated the
typical structure for their technology were most effective. Firms that
deviated in either direction from their ideal structure were less successful.
Woodward was able to explain the disparity between her findings and the
classical prescriptions of management theorists these principles must
have been based on these theorists experiences with organizations that
used mass production technologies. The mass production firms had clear
lines of authority, high formalization, a low proportion of skilled workers
achieved through a high division of labor, wide span of control at the
supervisory
level and centralized decision making.
To summarize, Woodwards study found a curvilinear relationship between
technology and structure as follows
b) James Thompson
James Thompson classified technology in terms of the degree of
interdependence of the operations or tasks in the production process. His
main focus was on service industries. He identified three categories ranging
from least interdependence to the most interdependent;

i) Pooled independence
When each part of an organization operates on a relatively autonomous
manner but by fulfilling their individual purpose they enable the organization
as a whole to function effectively for example the cashier in a bank.
ii) Sequential interdependence
Where the outputs from one part of an organization constitutes the inputs for
other parts of the system for example in a restaurant.
iii) Reciprocal interdependence
Where overall effectiveness requires repeated and direct interaction between
an organizations separate parts, for example in a hospital.
The basic findings of Thompson was that as interdependence increases
coordination through standardized procedures will become less effective and
the need for flexibility and more personal attention increases. Therefore as
interdependence increases the organization requires less complex structures
and more organic management styles to achieve efficiency.
c) Charles Per rows Knowledge Technology
Charles Per row tried to look at the limitations of Woodward namely the fact
that Woodward studied only manufacturing firms. Since manufacturing firms
represent less than half of all organizations, technology needs to be
operational zed in a more general way if the concept is to have meaning
across all organizations.
Per row looked at knowledge technology rather than production knowledge.
He defined technology as the action that an individual performs upon an
object, with or without the aid of tools or mechanical devices, in order to
make some change in that object. He identified two dimensions of
technology viz:

Task variability this considers the number of exceptions encountered


in ones work. These exceptions will be few in number if the job is high in
routines. Jobs that normally have few exceptions in their day-to-day
practice include those on an automobile assembly line or as a fry cook at
McDonalds. At the other end of the spectrum if a job has a great deal of
variety, a large number of exceptions can be expected. Typically this
characterizes top management positions, consulting jobs or the work of
those who make a living by putting out fires on off shore oil platforms. So,
task variability appraises work by evaluating it along a variety routiness
continuum.

Task/Problem Analyzability the second dimension assesses the type


of procedures followed to find successful methods of responding
adequately to task exceptions. The search can at one extreme, be

described as well defined. An individual can use logical and analytical


reasoning in search for a solution. If you are basically a high B-student
and you suddenly fail an exam given in a course, you logically analyze the
problem and find a solution. In contrast, the other extreme would be illdefined problems. If you are an architect assigned to design a building to
conform to standards and constraints that you never heard about or
encountered before, you will not have any formal search technique to use.
You will have to rely on your prior experience, judgment and intuition to
find a solution. Through guesswork and trial and error, you might find an
acceptable choice. Perrow called this second dimension problem
analyzability ranging from well defined to ill define. Annex 3 attached
represents a ten-item questionnaire that measures these two dimensions.
These two dimensions task variability and problem analyzability can be
used to contrast a two by two matrix- shown in fig 2 below. The four cells in
this matrix represent four types of technology, routine, engineering, craft
and easy to analyze problems. The mass production processes used to
make steel or auto mobiles or refine petroleum belongs in routine category. A
banks tellers job is also an example of activities subsumed under routine
technology.

Engineering technologies have a large number of exceptions, but they


can be handled in a rational and systematic manner. The construction of
office buildings would fall in this cell, as would be the activities performed
by tax accountants.
Craft technologies (Cell 3): deal with relatively difficult problems with a
limited set of exceptions. This would include shoe making, furniture
restoring, or the work of performing artists.
Non-routine technologies: are characterized by many exceptions and
difficult to analyze problems. Examples of non-routine technologies would
be strategic planning and basic research activities.
Routine Technologies these are characterized by repetitions of
similar operations.

In summary, Perrow argued that if a problem can be studied systematically


using logical and rational analysis cells 1 or 2 would be appropriate.
Problems that can be handled only by intuition, guesswork or unanalyzed
experience requires the technology of cell 3 or 4. Similarly if new, unusual, or
unfamiliar problems appear regularly, they would be in either cell 2 or cell 4.
If problem are familiar, then cell 1 or 3 are appropriate.
Perrow also proposed that task variability and problem analyzability were
positively correlated. By that he meant that it would be unusual to find
instances where tasks had very few exceptions and search was clearly
unanalyzable or where tasks had a great many exceptions and search was

well defined and easily analyzable. So that the four technologies can be
combined into a single routine, non-routine dimension. This is shown in the
figure 2 as a diagonal line.
Figure 2. Perrows Technology Classifications
Task variability
Few Exceptions

Many Exceptions
C

Craft
4

Ill defined

non3
Routine 1
Well defined

routine
2

Routi

engineering

ne
Technology and Structure
Perrow argued that control and co-ordination methods should vary with
technology type. The more routine the technology, the more highly
structured the organization should be. Conversely, non-routine technology
requires greater structural flexibility. Perrow then identified the following as
the key aspects of structure that could be modified to the technology.

The amount of discretion that can be exercised for completing tasks


The power of groups to control the units goals and basic strategies.
The extent of inter-dependence between these groups.
The extent to which these groups engage in co-ordination of their work
using either feedback work or the planning of others.

The above means that


The most routine technology (cell 1) can be accomplished best through
standardized co-ordination and control. These technologies should be
aligned with structures that are high in both formalization and
centralization.
Non-routine technologies (cell 4) demand flexibility. Basically they would
be decentralized, have high interaction among all members, and be
characterized as having minimum degree of formalization.

Craft technology (cell 3) requires that problem solving be done by those


with the greatest knowledge.
Engineering technology because it has many exceptions but analyzable
search process, should have decisions centralized but should maintain
flexibility through low formalization.

Table 10 Perrows: Technology Structure Predictions


Cell
1
2

Technolo
gy
Routine

Formalizat
ion
High

Centralizat Span
ion
control
High
Wide

Non
Routine

Low

Low

of Co-ordination
and control
Planning
and
rigid rules
Less rules and
less
need
for
control

3.3 Organizational Environment


Organizational environment refers to all the elements existing outside the
boundary of the organization that have the potential to affect all or part of
the organization. In a broad sense, the environment is infinite and
includes everything outside the organization. It consists of sectors such
as:
Raw material - these are individuals and other firms which
supply the organization with raw materials
Human resources - these are organizations which supply the
organization with human resources
Financial Resources - these are conditions, competitiveness,
institutions and instruments which supply the organization with
financial resources
Customer or Market - this sector includes the customers who
purchase the organizations goods and services
Economic - this includes the state of the economy, inflation,
depression, or unemployment rates, economic policies etc. of
the country or region where the organization sells its goods and
service
Political/legal - this includes the stability or instability, rules
and regulations, and the justice systems of the country
Socio-cultural - consists of values, beliefs, standards of the
society in which the organization is situated
Demographic - consists of all the demographic dimensions of
the society of the organization

Natural Environment - consists of the climate, weather and


other natural conditions of the country or regions of the
organization
International environment - consists of the elements, factors
and other organizations existing outside the country of the
organization which have the potential to affect the organization
Dimensions of Organizational environment
The external environment of an organization can be differentiated,
measured or categorized in many ways. The main ways in which this
differentiation can be done are the following:a) Aldrich categorizes an organizations external environments in
terms of:i)
Environmental
Capacity:
This
measures
the
environment in terms of resources availability
ii)
Homogeneity/Heterogeneity:
This categorizes the
environment in terms of the degree of similarity among the
environments elements
iii)
Stability/Instability: This categorizes environment in
terms of the degree of turnover of the elements
iv)
Consensus/Dissensus: This categorizes the environment
in terms of the degree to which an organizations claim to a
specific domain is disputed or recognized by other
organizations
v)
Concentration/ Dispersion: This measures the degree
to which resources and other elements are evenly
distributed over the range of the organizations domain
vi)
Environmental Turbulence: This measures the extent to
which the task environment of an organization is disturbed
by an increasing rate of interconnection between elements
and trends.
b) Emory and Trist
categorized external environments into the
following categories:
Placid Randomized.
This is a simple environment. It is
placid in the sense that elements change slowly.
The
environment is random because when a change does occur, it
is not predicted, and is not coordinated with other
environmental elements.
Placid Clustered. This environment is stable. Elements are
linked together so that any slight change in one causes
simultaneous change in other elements. When threats or
opportunities occur they occur in clusters which is more
dangerous for the organization

Disturbed reactive. In this environment changes are no


longer random. Actions by one organization can disturb the
environment and provoke a reaction. This environment is
made up of large organizations. A decision by any one
organization in this type of environment is significant enough
to cause a disturbance, and calls for a reaction from other
organizations.
In a disturbed reactive environment,
managements task is to carefully plan decisions and strategic
moves to allow for counter moves.
Turbulent Field. This is an environment characterized by
both complexity and rapid changes. Multiple sectors
experience dramatic changes and the changes are connected.
The turbulent field usually has overwhelming negative
consequences for the organization. The distinguishing feature
of the turbulent field is the inter-dependence and the interconnectedness of the elements.
c)

Lawrence and Lorsch Studies


Lawrence and Lorsch of Harvard University examined three
departments (Manufacturing, Research & Development and
Sales) in ten companies in the United States of America. Their
aim was to find out how organizational structure relates to
environmental complexity. Their findings were that;
The plastics industry with high environmental complexity
tended to have higher departmental differentiation than either
the food industry, (facing moderate complexity), and the
container industry, (facing low environmental complexity).
They defined differentiation as the differences in cognitive
and emotional orientation among managers in different
functional departments.
The plastics industry also had a higher degree of integration
than either the foods industry or the container industry. Their
findings are as summarized in table 6.1.
Table 3.1 Environmental Uncertainty and Organizational
Structures
INDUSTRY
Plast Food
ics
Environmental uncertainty High Mod
erate
Departmental
High Mod
differentiation
erate
Percentage in integrating 22% 17%

Conta
iner
Low
Low
0%

roles (integration)
Thus Lawrence and Lorsch found that:

d)

Firms differentiate themselves in accordance with the


environmental complexity: the greater the environmental
complexity, the greater the differentiation.
Firms integrate themselves more in accordance with
environmental complexity. The more the environmental
complexity (measured by heterogeneity and stability of
environmental elements) the more the level of integration.

Burns and Stalker Studies


Burns and Stalker observed 20 industrial firms in England and
discovered that when external environment was stable, the
internal structure was characterized by rules, procedures and a
clear hierarchy of authority (i.e. high formalization). They were
also highly centralized.
However, the studies found out that in rapidly changing
environments, the internal organization was much looser, free
flowing and adaptive. Rules and regulations often were not
written down, or if written down were ignored. The hierarchy of
authority was not clear. Decision making was decentralized.
Burns and Stalker used the term organic to describe the
decentralized, low formalized, flexible- structures, and
mechanistic to describe centralized, highly formalized and
inflexible structures.

THE CASE FOR THE ENVIRONMENT=STRUCTURE=PERFORMANCE=FIT


(ENVIRONMENTAL IMPERATIVE)
1 Management /Organization theory has established that organizations
face different types of environments. Four of these theories include
those by Aldrich, Emery and Trist, Lawrence and Lorsch and Burns and
Stalker Studies. All these theories emphasize that in order to achieve
efficiency and effectiveness organizations align their structures to
appropriate environments.
2 There are three key dimensions to any organizations external
environment touched on by the four theories. These are capacity,
volatility, and complexity. The capacity of an environment refers to
the extent to which it can support growth. Rich environments generate
excess resources which can buffer the organization in times of relative
scarcity. Abundant capacity leaves room for an organization to make
mistakes while scarce capacity does not.
3 Volatility refers to the degree of instability in an environment. Where
there is a high degree of unpredictable change the environment is

dynamic. This makes it difficult for management to predict accurately


the probabilities associated with various decision alternatives. At the
other end is a stable environment. Stability makes it easy for
organizations to predict accurately the probabilities associated with
different decision alternative.
4 Complexity measures the environment in terms of the degree of
heterogeneity and concentration among environments elements.
Simple elements are homogeneous and concentrated. In contrast
environments characterized by heterogeneity and dispersion are
complex
5 Organizations that operate in environments characterized as scarce,
dynamic and complex face the greatest degree of uncertainty
because they have little room for error, high unpredictability and a
diverse set of elements in the environments for the organization to
constantly monitor. They would therefore need structures that are
characterized by decentralization and lower formalization to allow for
flexibility.
6 Organizations that operate in abundant, stable and simple
environments have less uncertainty and would therefore do with
mechanistic structures.
THE CASE AGAINST THE ENVIRONMENT IMPERATIVE
1 If there is an environment imperative, it is mostly limited to those sub
units at the boundary of the organization those that interact directly
with the environment. For instance the structure of purchasing and
marketing functions may be a direct response to their dependency on
the environment. The environment may have no impact on production,
research and development, accounting and other similarly insulated
activities.
2 It may also be, since environments are perceived to reflect the
structures from which they are seen, then it is possible that
differentiated structures will perceive a heterogeneous environment or
that decentralized structures will perceive more environmental
uncertainty.
3 A stronger case may also be built around the argument that the
environments are relatively impotent on their effects on structure.
4 Some opponents of the environmental imperative argue that todays
organization faces a far more stable environment than the one of the
1700s, 1800s and the 1900s. During these periods the world changed
from a rural, agricultural, horse powered society to an urban,
industrialized world with railroads, telegraph, steamships, electric
lights, automobiles and airplanes. In relative terms therefore todays
managers may be facing a fairly stable external environment whose
uncertainty is fairly predictable and certain and hence having very
little impact on structure.

5 The final argument against the environmental imperative is that the


impact of the external environment is not observed in reality. Not only
do organizations that operate in similar environments have different
structures they also show no significant difference in effectiveness.
Further many organizations have similar structures and very diverse
environments. The counter argument here may be that the competition
is not high enough to differentiate those organizations who structure
their organizations as environment complexity
Implications for management practice
Managers at all levels and in all functions should analyze the organization
environment periodically and identify the sources of uncertainty
To manage transactions with the organization environment effectively,
managers should chart the forces in the organization specific and general
environments noting
1)
The number of forces that will affect the
organization
2) The pattern of interconnectedness or linkages
between these forces
3) How rapidly these forces change
4) The extent and nature of competition which affects
the organization
5) How rich or poor the environment is
Taking that analysis, managers should plan how to deal with the
complexities. Designing inter organizational strategies to control and secure
access to scarce and valuable resources in the environment in which they
operate is the first stage in this process
3.4 The Resource Dependence Theory
Resource dependence theory was most fully developed by Jeffrey Pfeiffer and
Gerald Salancik who published their ideas in 1978.
Their book was
provocatively entitled The internal control of organizations to
emphasize the point that the environment is a powerful constraint on
organization actions. Although resource dependence theory is based on the
assumption that organizations are controlled by their environments, these
theorists also believe that managers can learn to navigate the harsh seas of
environmental domination.
The basic argument of resource dependence theory is that an analysis of
inter organizational relations within the network of the organization can help
managers to understand the power/dependence relationships that exist
between their organization and other network actors. Such knowledge
allows managers to anticipate likely sources of influence from the
environment and suggests ways in which the organization can offset some of
this influence by creating counter-dependence.
An organizations vulnerability to its environment is the result of its need for
resources, such as raw materials, labor, capital, equipment, knowledge, and

outlets for its products and services. These resources are controlled by the
environment. The dependency these needs produce gives the environment
its power. The environment uses this power to make demands on the
organization for such things as competitive prices, desirable products and
services, and efficient organizational structures and processes. However the
dependency the organization has on its environment is not one single,
undifferentiated dependency, it is a complex set of dependences that exist
between an organization and the specific elements of its environment found
on the organizational network.
A resource dependency analysis begins by identifying an organizations
needed resources and then tracing them to their sources. This procedure
can be visualized with a combination of the open systems and the-inter
organizational network models (see Figure below). The open systems model
helps you to identify resource inputs and the outputs of the organization.
You then use the network model to define where the resources and outputs
are located. For example, firms that provide raw materials and equipment
will be found among the networks suppliers. Tracing the organizations
outputs will identify specific customers in the network. Labor, capital and
knowledge are also brought into the organization and are supplied through
other elements of the network (e.g. labor from employment agencies, capital
from financial institutions, and knowledge from universities.)
APPLYING RESOURCE DEPENDENCE THEORY
Capital
Inputs (Investors)

Raw materials
(Customers)
(Suppliers)

ORGANISATION

Knowledge and
Equipment (Technology
Sector)
Outputs

Labor Inputs
(Employees)

After specifying resources and their sources in the network of organization,


the resource dependence perspective moves your attention to those

environmental actors who can affect these organization-environment


relationships and thereby support or interfere with the organizations
resource exchanges. Competition over raw materials and customers is one
source of potential influence, and this is where you should bring the firms
competitors into your analysis. Another source is regulatory agencies, and
the special interests groups who compete with the organization for influence
over the regulators.
Of course the procedure given above is too ambitious. In practice it will be
impossible to consider every source of dependence that an organization has
on its environment or every potential competitive or regulatory move. The
practical solution is to sort resources according to their criticality and
scarcity.
Criticality is an estimate of the importance of a particular
resource. Critical resources are the resources without which the organization
cannot function. For example beef is a critical resource for MacDonalds,
whereas drinking straws are not. Scarcity is an estimate of the availability of
the resource within the environment. Gold and platinum are scarce; air and
water are not. Resources which are both critical and scarce are given
highest priority in organizational efforts to track and manage dependence
because these create the greatest power base for other network actors. To
the extent that regulatory agencies or competitors affect the organizations
dependence, these will also be drawn into focus.
Managing dependence requires the establishment of countervailing power
with respect to the particular environmental elements on which the
organizations dependence rests. This means that the first step towards
applying the resource dependence perspective is to thoroughly understand
the network with respect to criticality and scarcity of resources. The second
step is to seek ways to avoid dependency or make other environmental
actors dependent on the organization.
Organizations have found many different ways to manage their resource
dependencies and Pfeffer and Salancik document quite a few. In the area of
managing suppliers of raw materials, one common technique is to establish
multiple sources of supply. This reduces the power of any one supplier.
Where there are benefits of using a limited number of suppliers, such as with
IT systems where the costs of changing suppliers are high, contracting is a
common strategy for managing dependences. Dependency on suppliers (or
customers from the suppliers point of view) is sometimes counteracted by
acquisitions or mergers strategies (called vertical integration) or joint
venturing with suppliers; similar strategies also are useful for managing
competitor relations (called horizontal integration). Strategies for managing
all kinds of dependencies include: developing personal relationships with
members for firms on which yours is dependent, and establishing formal ties
such as taking up membership on their board of directors, or inviting one of
their officers to sit on your board. In the area of managing regulatory
dependence, a common strategy in the U.S. is to send lobbyists to
Washington to influence legislators for example to work, for competitive
trade agreements or to note government funding of research and

development. All aspects of marketing sales, advertising, and distribution


can be seen as attempts to manage output dependencies via influence on
consumer purchases of company products. Counteracting negative public
opinion or the negative influence of special interest groups is sometimes
achieved with advertising for example issuing corporate image campaigns.
Labour and knowledge dependencies are sometimes managed with
recruitment strategies for attracting executives and other personnel away
from competitors.
A strategy that can aid in the management of
dependency with respect to competitor organizations and regulations is the
formation of trade associations. These associations enable their members to
share the costs of monitoring conditions and trends in the environment and
to pool their influence, for instance by jointly hiring lobbyists to represent
their common interests to the government. Of course trade associations are
open to criticism and even legal action if they are not careful to monitor
themselves with respect to price fixing and other business practices society
regards as unfair. In societies in which price fixing is not outlawed, price
agreements and cartels are common means of managing environmental
dependence between competitors. OPEC is a prime example. Finally if all
else fails the organization can release itself from unwanted dependencies by
changing its environment. For example an organization can enter or leave a
line of business or alter its product/services mix through diversification or
retrenchment (e.g. joint ventures, spin offs, mergers, acquisitions). Notice,
however, that these strategies merely alter the dependence picture they do
not eliminate the need to manage resource dependence.
Managing resource dependence requires careful definitions and monitoring of
the environment. It also calls for imagination with respect to balancing the
power of your own organization. As discussed above Pfeiffer and Salancit
offer both a model for analyzing dependency in the organizational
environment and a set of strategies for managing these dependencies.
3.5 The Population Ecology Theory
The PET (population ecology theory) was developed by American
organization theorists namely Michael Hannan, John Freeman and Howard
Aldrich among others. Like resource dependence theory, PET starts from the
assumption that organizations depend on their environments for the
resources they need to operate. In both views this dependency gives the
environment considerable power over the organization. However, whereas
the view point of RDT theory is clearly the perspective of the organization,
population ecology theory looks at organizations from the perspective of the
environment. What interests the population ecologist is not one particular
organization seeking its own survival via competition for scarce and critical
resources (the resource dependence view) but rather the patterns of success
and failure among all the organizations that compete within a given resource
pool. The basic objective of the PET is to explain why certain organizations
survive and multiply whereas others languish and disappear in the same
environment

Explanation of the PET


(i) The carrying capacity of the environment is limited. An excess population
of organizations leads to congestion and subsequently to the survival of only
those organizations successful in creating a niche in the market place.
(ii) Like biological elements organizations are doomed to die unless they
meet the environmental test of fitness. Environmental forces select out the
most appropriate structural forms for survival from among populations of
organizations on the basis of fit between structural attributes and
environmental characteristics.
(iii) The population- ecology theory shifts away from preoccupation with
organization at the individual level towards population level. It is not the
fitness of any single organization that is of interest. It is the group or groups
of organizations and they may be influenced by actions and events with
which they have no obvious or direct links
(iv) Management has no effect in deciding whether or not the organization
will survive or die. Environmental factors solely determine the survival of any
organization.
Criticism of the Population ecology theory
(i) The claim that the organizations existence and survival is determined by
the environments carrying capacity means that the theory cannot be used
to predict about the future. This is because the concept of environmental
carrying capacity is immeasurable and cannot be estimated. It can only be
measured on ex post or retrospective basis. Thus the theory cannot be used
to make organizations adapt to their environment and therefore ensure
survival. Thus as an organization theory it is therefore inappropriate.
(ii) The concept of fitness is not clearly defined by the theory. In other words
it is insufficient to state that only those organizations that environment
determines as fit survive. To do so would be tautological. A more meaningful
and causal pattern must be presented for a theory to be acceptable.
(iii) To claim that organizations are like biological organisms also ignores the
fact that organizations are created by men- a biological organism- to meet its
objective. To claim that a biological organism, man, can create a biological
organism, an organization, endows man with supernatural powers.
(iv)The population ecology theory also ignores the role of managerial
decision makers. To assume or argue that managers should be passive,
helpless elements completely dependent on environmental forces is to
denigrate the importance role managers can play in determining the success
or failure of an organization
3.6
. The Size Imperative
Size refers to the bigness or smallness of an organization as measured
by some variable such as number of people, the value of assets an

organization has or the value of turnover. To determine the relationship


between size and structure and management styles a group of researchers
based at the university of Aston in Birmingham in a study of 87 companies
found out that the larger the organization the greater the specialization and
the use of procedures and reliance on paper work
(formalization), in other
words the larger the organization the more likely it was to adopt (and need)
mechanistic structures.
The study also found that the reverse was also true i.e. the smaller the
organization the more likely it was to adopt (and need) an organic (flexible)
management style and less complex structures. That is to say small
organizations require decentralized and personalized structures but as
organizations grow in size, more centralized and impersonal structures are
more effective.
Size as a Contingent Factor
Peter Blaus studies of government agencies, universities and department
stores, found that size is the most important condition affecting the structure
of organizations. In one of his studies, Blau looked at 53 autonomous state
employment security agencies and found that increasing size promotes
structural differentiation but at a decreasing rate. In other words increases in
organization size are accompanied by initially rapid and subsequently more
gradual increases in structural differentiation (both horizontal, vertical and
spatial differentiation). In other words an increase of say five hundred
employees when an organization has a labor force of 300 employees, has a
significantly larger impact on structural differentiation than a similar
additional of 500 employees to an organization that already has 2000
employees. That is, the difference between x and y in the diagram below is
smaller than the difference between and x and y
Diagram 6.4 Increase in organization size affect structural
differentiation at a decreasing rate.
Y
X
y

y1
x1

x
y
x
800
300

200

2500

The Aston study in Great Britain also found size to be a major determinant of
structure. The Aston group of researchers at the University of Aston in Great
Britain looked at forty six organizations and found that size was associated
with greater specialization and formalization. They concluded that an
increased scale of operations increases the frequency of recurrent events
and repetitive of decisions which makes standardization desirable. Another
researcher, John Child, found that size, was positively related to
specialization, formalization and vertical differentiation but negatively
related to centralization. He concluded that larger organizations are more
specialized, have more rules, more documentation, more extended
hierarchies, and a greater decentralization of decision making, further down
such hierarchies. He also agreed with Blau that the impact of size on these
dimensions expanded at a decreasing rate as size increased. That is, as size
increased, specialization, formalization and vertical span also increased but
at a declining rate. On the other hand centralization decreased but at a
declining rate as size increased.
Criticism of the size imperative
1. Although several studies show some form of relationship between size
and some structural variables (e.g. structural differentiation, formalization
specialization and centralization) no conclusive evidence is available for
other variables such as standardization, professionalism and so on. There is
need for more researchers in this area to establish conclusive evidence with
regard to the role of size in determining the structure of organization with,
regard to all structural variables.
2. Studies on size- structure relationships have generally been done for
large and medium sized companies. Small businesses face different
problems and have different priorities in terms of structural designs. In
addition managers of small businesses have a more limited set of structural
options.
3. Many other factors e.g. environment technology, culture and strategy
simultaneously face the organization. Thus, even the structural designs
associated with size might be as a result of these other factors.
However, we may conclude that despite the above criticisms size is a major
determinant of structural designs eg structural complexity (vertical,
horizontal and spatial) and formalization and centralization. The impact of
size on other structural variable has not been conclusively established
STRATEGY AS A CONTINGENT FACTOR
What is Strategy?
Strategy can be defined as the determination of the basic long term
goals and objectives of an enterprise and the adoption of courses of action
and the allocation of resources necessary for carrying out these goals.
Decisions to expand the volume of activities, to set up distant plants and

offices, to move into economic functions or to become diversified along


many lines of business involve the defining of new basic goals. New courses
of action must be devised and resources allocated and reallocated in order to
achieve these goals and to maintain and expand the firms activities in the
new areas in response to shifting demands, changing sources of supply,
fluctuating economic condition , new technological development and the
actions of competitors. (Robbins, S.P., 2000).
These are two approaches to defining strategy: the planning view and the
evolutionary vie or /mode.
The Planning Mode
This view describes strategy as a plan or explicit set of guidelines
developed in advance. Managers identify where they want to go, then they
develop a systematic and structured plan to get there. Until, the 1990s this
view point dominated literature on strategy.
The Evolutionary Mode
This approach looks at strategy as a process which evolves over time as
a pattern in a stream of significant decisions. The identification of goals and
the different ways to achieve the goals is dependent on environmental
changes. Since environment is continuously changing then the goals and the
ways to achieve the goals must continuously change, to keep up with the
changing environment. As the environment (and their markets) change,
strategies become outdated and require alteration. Historically, in the period
up to the 1970s, organizations were able to achieve success via rigid
planning and strategy- implementation programs and processes. In the
period since the mid 1970s, the process of strategy and strategic
management has become more emergent. Organizations may begin with an
idea of the manner in which they intend to achieve their goals but are much
more flexible about how they will get there. Therefore an important aspect
of the process of strategy is the strategic context in which the organization is
operating.
Incremental Versus Fundamental Strategy
Fundamental changes occur when the organization decides to completely
reorganize its activities and internal operations. All its employees are
involved and affected. A fundamental change requires a shift in focus,
direction and other major aspects for the organization. The effects of a
fundamental change are wide ranging and have a great impact.
On the other hand, incremental change represents a softer approach to
the process and effects of change. Incremental change may be executed
over time, or between different departments. It still has an overall aim and
goal and will therefore move the organization forwards. The effects may be
no less drastic than where fundamental change occurs, only more measured.

Levels of strategy

There are two levels of strategy: Business level and corporate level
In Corporate Level Strategy the organization seeks to answer the
question in what business are we in? It determines the rules that each
business unit in the organization will follow. Corporate level strategy is
determined by top level managers. It can also be developed by a specific
planning group or department. It will then be communicated to the rest of
the organization for implementation. In highly hierarchical organizations the
method of implementation will also be communicated. The leaders of the
organization will dictate to all extents, the corporate strategy, the
implementation and measurement.
In other organization (less hierarchical) a more interactive approach to
strategy formulation and implementation may be employed. In these cases a
broad strategic direction will be communicated to the departments who may
then be asked for their input as to the manner in which it will be
implemented, and success measured.
Business Level Strategy is more concerned with how the business unit
will compete. It seeks to answer the questions. How should we compete in
each of our businesses? For the small organization in only one line of
business or a large organization that has avoided diversification, business
level strategy is typically the same as corporate strategy but for
organizations in multiple businesses, each business unit will have its own
strategy that defines the products or services it will offer, the customer it
wants to serve and so on.
Most contemporary structure strategy theories focus on business level
strategy. To the extent that strategy actually determines structure, strategy
level is an important point to keep in mind. Why? For small organizations, in
only one line of businesses, or non-diversified large organizations, business
and corporate strategy will be the same, and the organization should have a
relatively uniform organization structure. But organizations with diverse
business strategies should be expected to have a variety of structural
configurations; that is management should design structures to fit the
different strategies.
Dimensions of Strategies (or classifying strategic dimensions)
There are many ways of classifying strategy.
1) Chandlers strategy- structure thesis
One of the earliest studies on strategy-structure relationship was by a
Harvard University historian, who in the 1960s studied close to 100 of
Americas largest firms. Tracing the development of these organizations from
1909 to 1959, Chandler concluded that changes in corporate strategy
preceded and led to changes in an organizations structure. As Chandler put it
a new strategy required a new or at least a refashioned structure, if the
enlarged enterprise was to be operated efficiently or put it differently unless
structure follows strategy, inefficiency results.

Chandler found that the companies he studied began as centralized


structures. This reflected the fact that they offered unified product lines. As
demand for their products grew, the companies expanded. They increased
their product lines, and had to develop different structures to cope with their
changing strategies.
Chandler essentially argued that organizations typically begin with a
single product line. The simplicity of this strategy is compatible with a
mechanistic structure. Decisions can be centralized. Because organizations
strategy is narrowly focused, the structure to execute it can be low in both
complexity and formalization. So, Chandler concluded, the efficient structure
for an organization with a simple product strategy is one with high
centralization, and low formalization. As organizations seek to grow, their
strategies become more ambitious and elaborate. From the single product
line, companies typically expand activities within the same industry. This
vertical integration strategy makes for increased interdependence among
the units and creates the need for a more complex coordination device. This
calls for increased formalization and complexity.
If growth proceeds further into product diversification, the structure must
further be adjusted if efficiency is to be achieved. A product diversification
strategy demands a structural form that allows for efficient allocation of
resources, accountability for performance and coordination of units. This can
best be achieved through the creation of a multiple set of independent
divisions each responsible for a specified product line. Thus, according to
Chandler, successful organizations that diversify should have a different
structure from that of successful firms that follow a single product strategy.

Evaluation of Chandlers Strategy Structure Theory


Chandlers claim that strategy influences structure has been supported by
several other studies (Robbins 2000). However his study suffers from a few
shortcomings, for example:
i). He looked only at large profit making organizations
ii). He focused on growth as a measure of effectiveness rather than
profitability
iii). His definition of strategy as product diversification is incomplete, as
strategy can also include other variables e.g. market segmentations,
actions of competitors, and others
However, despite the few shortcomings of methodology and definition, there
is over whelming evidence that strategy influences structure.
2) Miles and Snows Strategic Types
Raymond Miles and Charles Snow classify organizations strategies into
four categories: defenders, prospectors, analyzers and reactors.
1) Defenders

In this type, organizations seek stability by producing only a limited set of


products directed at a narrow segment of the total potential market. Within
this limited niche, defenders strive to aggressively prevent competitors from
entering their turf. Organizations do this through standard economic
actions such as competitive pricing, or production of high-quality products.
There is little or no scanning of the environment to find new areas of
opportunity, but there is intensive planning oriented towards cost reduction
and other efficiency issues. The result is a structure made up of high
horizontal differentiation, centralized control and an elaborate formal
hierarchy for communications. Over time defenders are able to curve out and
maintain small niches within their industries that re more difficult for
competitors to penetrate.
2) Prospectors
These types of strategies are almost the opposite of defenders. Their
strength lie in finding and exploiting new product and market opportunities.
Their success depends on developing and maintaining the capacity to survey
a wide range of environmental conditions, trends and events. They invest
heavily in personnel who scan the environment for potential opportunities
and threats. This type of strategy requires flexibility and hence structure will
also be flexible. It will rely on multiple technologies that have a low degree of
routinization and mechanization. There will be many decentralized units. The
structure will be low in formalization; have decentralized control, with lateral
as well as vertical communication.
3) Analyzers
These types of organizations try to capitalize on the best of both prospectors
and defenders. They seek to minimize risk and maximize opportunity for
profit by moving into new products or new markets after viability has been
established by the prospectors. They take the successful ideas of prospectors
and copy them. Analyzers live by imitation.
Analyzers must have the ability to respond to the lead of key prospectors yet
at the same time maintain operating efficiency in their stable product and
market areas. Analyzers accept smaller profit margins in the products and
services that they sell than will prospectors, but they are more efficient.
Prospectors have to have higher profit margins to justify the risks that they
take.
Analyzers seek both flexibility and stability. They respond to these goals
by developing a structure made up of dual components. Parts of these
organizations have high levels of standardization, routinisation and,
mechanization and efficiency. Other parts are adaptive to enhance flexibility.
In this way they seek structures that can accommodate both stable and
dynamic areas of operations. But in this compromise, there can be costs. If
situations change rapidly, demanding that organizations move fully in either
direction, their ability to take such action is severely limited.

4) Reactors
These organizations represent a residual strategy. In general reactors
respond inappropriately, perform poorly, and as a result they are reluctant to
commit themselves aggressively to a specific strategy. What can cause this?
Top management may have failed to make the organization strategy clear.
Management may not have fully shaped the organization structure to fit the
chosen strategy. Whatever the reason the outcome is the same. The
organization lacks a set of response mechanisms with which to face a
changing environment.
Strategy- Structure Relationship according to Miles and Snows
Theory.
Fig 5.4 describes Miles and Snows four strategic types as falling along a
continuum that range from low to high in terms of environmental change and
uncertainty. Following the logic of this theory, the more uncertainty and
change the management forecasts, it would move to the right along the
continuum in fig 5-4. Similarly as strategies move to the right along the
continuum the organizations structure should be modified or redesigned to
be increasingly flexible and adaptive.
Explanation: management perceives little or no change and uncertainty in
the environment under defender strategy. The successful structure, under
such conditions should be designed for optimum efficiency. This efficiency
can best be achieved through high division of labor, high standardization,
high formalization and centralized decision making. Organizations following a
reactor strategy respond to change reluctantly. Management perceives some
change and uncertainty, but they are not likely to make any substantial
adjustments until forced to, by environmental pressures. So this structure is
likely to be very much like the one discounted for defenders.
Managers pursuing analyzer strategy perceive a considerable degree of
change and uncertainty but wait until competitors develop a viable response,
and then they quickly develop it. Analyzers combine the best of both words
by tightly structuring their current and more stable activities, while
developing flexible structures for new activities that face general
uncertainties.
Finally, prospectors strategies require the greatest degree of
structural flexibility. There is a lot of change and uncertainty so structure
should be highly adaptive. This would translate into low complexity, low
formalization and low centralization.
Fig 5-4 Snow and Miles Environment- strategy continuum
Little Change and Uncertainty
Rapid Change and
Uncertainty

Prospectors

Analyzers

Reactors

Defenders

3 Porters Competitive Strategies


Michel Porter, of Harvard Graduate School of Business, proposed that
management can follow any of the following strategies. Product
differentiations, cost differentiation, focus product differentiation and focus
cost differentiation.
i) Product differentiation strategy
In this type of strategy firms try to achieve leadership in their market
domain by emphasizing high quality, extraordinary service innovative
design, technological capability or unusual positive brand, image. The key is
that the attribute chosen is different from those offered by rivals and
significant enough to justify a price premium that exceeds the cost of
differentiation.
ii) Cost differentiation Strategy
In this type of strategy firms try to differentiate themselves by being low
cost producers. Success with this strategy requires that the firm sell at low
prices but also offer a product or service perceived as comparable to that
offered by rivals in terms of quality, or at least be perceived as such. Typical
means of achieving such a cost advantage include efficiency of operations,
economies of scale, technological innovation, low cost labor, or preferential
access to raw materials. Examples of firms that have used this include
Hyundai Motors.
iii) Focus Product differentiation
In this type of strategy the firm identifies a smaller portion of the market
which it seeks to dominate and proposes to achieve this by emphasizing on
quality of goods and services. That is to say, the firm will select a segment or
group of segments in an industry (such as product variety, type of end buyer
, distribution channel or geographical location of buyers) and achieve
competitive advantage over other sellers through extra high quality. The goal
is to exploit a narrow segment of the market.
iv) Focus cost differentiation
This is similar to focus differentiation strategy but the firm seeks to
achieve competitive advantage by selling the product or services at low
price.
v) Stuck in the middle

Porter used the term stuck in the middle to describe organizations that
are unable to gain a competitive advantage by any one of the four strategic
types discussed above.
Such organizations will find it very difficult to achieve long term success.
When they do, according to Porter, it is usually as a result of competing in a
highly favorable industry, or having all their rivals similarly stuck in the
middle. Porter notes that successful organizations frequently get themselves
into trouble by reaching beyond their competitive advantage and ending up
stuck in the middle. Laker Airways provided such a case. It began in 1977, by
offering flights between London and New York at rock-bottom prices. This
cost leadership strategy resulted in a resounding success. In 1979, however,
the firm began to add new routes and offer up scale services. This blurred
the publics image, and lead to Laker Airways collapse in 1982.
Porters Strategic Type Structure Implications
The structural implications for Porters strategic types are as follows.
i). No structural predictions are made for the stuck in the middle strategy.
ii). Predictions have also excluded the focus strategies for the simple reason
that they are derivatives of the product and cost differentiation strategies.
iii). The goal of cost leadership strategy is to achieve efficiency through
tight controls, minimization of overhead expenses, and use of economies
of scale. The best structure of achieving these would be high formalization
and high centralization.
iv). The product differentiation strategy demands a high degree of
flexibility that can best be achieved through low complexity, low
formalization and decentralization.
4 Danny Millers Strategic Types
Danny Miller of the University of Montreal and McGill University developed
four strategy dimensions of innovation, marketing differentiation, breadth
and cost control.
i) Innovation
In this type of strategy the firm introduces major new products or
services. It does this through scanning of markets to discern customer
requirements. This strategy implies major and meaningful innovations.
Structural dimensions necessary to achieve these objectives are
decentralization and extensive use of coordination committees and task
forces.
ii) Marketing differentiation strategy.
In this type of strategy the firm strives to create customer loyalty by
uniquely meeting a particular need. The firm seeks to create a favorable
image for its product through advertising, market segmentation and prestige
pricing. This would describe a strategy used by premium beer products and
designer label apparel manufacturers. This requires moderate to high

structure complexity,
decentralization.

moderate

to

high

formulation

and

moderate

iii) Breadth Strategy


This type of strategy refers to the scope of the market which the
business caters: the variety of customers, their geographic range, and the
number of products. Some grocery chains for instance have chosen to
operate only in a given community. Others however extend their operations
to the regional, national or even international level. This requires high
complexity and low formalization.
iv) Control Strategy
This type strategy considers the extent to which the organization tightly
controls costs, refrains from incurring unnecessary innovation or marketing
expenses, and cuts prices in selling basic products. This strategy needs high
formalization and centralization
LIMITATION TO THE STRATEGY STRUCTURE RELATIONSHIPS
Attacks on the strategy imperative lies basically in questioning the
degree of discretionary latitude managers actually have. For instance it
seems logical that the impact of strategy would be greater in the early
development of the organization. When personnel are hired, equipment
purchased, and procedures and policies established it becomes a whole lot
tougher to change.
Another challenge to the strategy imperative deals with the lag factor.
When management implements a new strategy, there is often no immediate
change in structure. The major factor affecting response is the degree of
competitive pressure. The less competition an organization faces, the less
rapid its structural response. Without competition the concern for efficiency
is reduced. The conclusion is that where an organization faces minimal
competition, there is likely to be a significant lag between changes in
strategy and modification in structure.
DOES STRUCTURE DETERMINE STRATEGY
Structure can influence strategy. Structure can motivate or impede
strategic activity as well as simply constrain strategic choices. For example
strategic decisions made in a centralized structure are typically going to
have less diversity of ideas and are more likely to be consistent over time,
than in a decentralized organization where input is likely to be diverse, and
hence likely to change as people change. In a study of 110 large
manufacturing firms, Keats and Hitt found that strategy follows structure.
Another study of 54 firms listed among the top half of fortune 500, Pitts also
found out that structure influences and constrains strategy rather than the
other way round.

Propositions Regarding the Effects of Structure on the strategic


Decision Process.
Complexity As the level of complexity increases so does the probability
that
i)
Members initially exposed to the decision stimulus will not recognize it
as being strategic or will ignore it because of parochial preferences
ii)
A decision must satisfy a large constraint set, which decreases the
likelihood that decisions will be made to achieve organizational goals
iii)
Strategic action will be the result of an internal process of political
bargaining and moves will be incremental.
iv)
Biases induced by members parochial perceptions will be the primary
constraint on the comprehensiveness of the strategic decision process.
In general, the integration of decisions will be low.
Formalization:
As the level of formalization increases, so does the
probability that:
i). The strategic decision process will be initiated only in response to
problems or crises that appear in variables monitored by the formal
system.
ii). Decision will be made to achieve precise, yet remedial, goals and means
will displace ends.
iii). Strategic action will be the result of standardized organizational
processes and moves will be incremental
iv). The level of detail achieved in the standardized organizational
processes will be the primary constraint on the comprehensiveness of the
strategic decision processes. The integration of the decisions will be
intermediate.
Centralization:
As the level of centralization increases, so does the
probability that:
i) The strategic decision process will be initiated only by the dominant
few and will be the result of proactive, opportunity seeking behavior.
ii) The decision process will be oriented toward achieving positive goals
(i.e. intended future domains) that will persist in spite of significant
changes in means.
iii) Strategic action will be the result of intended rational choices, and
moves will be major departures from the existing strategy.
iv) Top managements cognitive limitations will be the primary constraint
on the comprehensiveness of the strategic process. The integration of
decisions will be relatively high
Source: Robbins S.P (2000) Organization Theory P 141 adapted from
W. Fredrickson (1986) The Strategic Decision Process and
Organizational Structure Academy of Management Review April
1986 P 28

Industry Structure Relationship


Closely related to the issue of strategys impact on structure is the role of
industry as a determinant of structure. There are distinguishing
characteristics of industries that affect the strategies in terms of growth
possibilities, regulating constraints, barriers to entry, degree of
competitiveness and other factors. Simply knowing the industry in which an
organization operates allows one to know something about product life
cycles, required capital investments, long term prospects, and types of
production technologies, regulatory requirements and so force. Public utilities
for example face little competition, and can have more tightly controlled
structures.
To illustrate how industry can affect structure, let us take two variables
that tend to differ by industry category- capital requirements for entry and
product innovation rates.
Figure 5-6 shows four industry categories with examples form each. Type A
industries rate high on both variables, while type C industries are high on
capital requirements and low on product innovation. The high capital
requirements tend to result in large organizations and a limited number of
competitors. Firms in type A and C industries will be highly structured and
standardized, with type Cs being more decentralized to facilitate rapid
responses to innovations introduced by competitors.
Type B and D industries because of low capital requirements tend to be
made up of a large number of small firms. Type D, however will likely have
more division of labor and formalization than type Bs because low product
innovation allows for greater standardization. In the same way that capital
requirements influence organizational size and number of competitors, we
should expect high product innovation rates to result in less formalization
and more decentralization of decision making.
Consequently, strategy may merely be an intermediate step between
unique characteristics of the industry in which the organization operates and
the structure it implements to achieve alignment (see fig 5.5)
Figure 5-5 Industry Structure Relationship
Industry

Strategy

Structure

Source: Robbins Pg 143


Figure 5-6 Two Variable Analysis of Industries
Capital Requirements
High
Examples
-Aerospace
A

Low
Example
- Computer Software
B

High
Low

Product Innovation Ratio

C
Example
X metals and mining

D
X Retail building materials
sales.

Source: Robbins pg 144

=======================================================
===

Review Question on Strategy, Structure Relationship


1. Contrast planning and evolutionary modes. Which dominates the
management theory literature?
2. What is Chandlers thesis on strategy structure framework? What
evidence does he present to support this thesis?
3. What criticisms can you direct at Chandlers thesis?
4. Does Chandlers framework have any application to small business
management?
5. If structures are relatively stable over time, does this imply that strategies
dont change?
6. Using Miles and Snows typology, describe the structure that would align
with each strategic type.
7. Using Millers integrative framework, attempt to reconcile Chandler , Miles
and Snow and Porters Strategy-structure theories
8. Strategy follows structure rather than vice versa Build an argument to
support this statement. Then build an argument to refute this statement.
9. Do you think there is any relationship between an organizational life cycle
stage and organizational strategies? Explain.
10. How are strategy and industry categories related?

DIAGRAMMATIC REPRESENTATION OF THE RELATIONSHIP BETWEEN STRUCTURE


AND CONTINGENT VARIABLES

a) The strategy imperative


The strategy structure relationship

Structural complexity (mechanistic)

(organic)
Cost leadership

Product differentiation

b) The technology imperative


i)
Technical complexity and structural complexity
Structural complexity (high)

Low
Unit batch

Mass

Technical high complexity


Continuous

ii)

Interdependence of departmental operations: James Thompson

Structural complexity

Mediating
Sequential MediumReciprocal
Low
High

iii)

Task analyzability and task variety: Charles Perrow

Ill
defined

Craft

Well
defined

Routine

Few exceptions

Non-routine

Engineering

Many exceptions

iv)

Task
analyzability/task
framework

variety

structure

technology

Structural
complexity
(High)

Low
Routine

Engineering

Craft

Non Routine

NB: The structure/technology, environment, strategy and size give a general framework for
trying to align structure to the contingent variables.
The Size Imperative

High

Low structural complexity

==============================================
Small size
Size
=================

3.5 Culture
Culture refers to the particular set of values, beliefs, customs and systems
that are unique to an organization. Culture is reflected by language, symbols,
standards, values, customs, artifacts and beliefs held by the members of the
group and accepted by the members as peculiar to to the group. One way of
differentiating/or measuring culture is in terms of

(a) Entrepreneurial culture this is characterized by creativity and


innovation. Members of the group practice and are encouraged
to practice and are rewarded when they are creative and
innovative.
(b)Clan culture: this is characterized by participatory management
styles and a concern for people. The rationale for this type of
culture is that it is people who make an organization efficient and
therefore taking care of them through recognition and support
will lead to organizational efficiency.
(c) Bureaucratic culture In this culture rules and regulations are
strictly followed. There is a high degree of control.
(d)Mission culture In this culture emphasis is on the achievement of
the organizations goals
1.4.6 Weaknesses of the contingency theories

The relationship between structure and contextual


variables refer to formal structure; yet the informal
structure is not only required it might have a significant
influence.
Structures and management styles may strongly be
influenced by other factor such as regulations e.g. the
utility firms, banks etc.
The contingency theory is too mechanistic and ignores the
complexity of organizational life. Organizations are social
entities with all the varieties and complexities of the
human elements. As such no scientific relationship can
hold or explain highly complex social relations and power
struggles that influence the choice of structure, technology
and each environment.

Critical Evaluation of the Contingency Theories


Positive
1. The theories were in tune with the times in which they emerged- the
1960s and 1970s period of rapid economic and technological changes
Larger organizations
Intense competition
2. The contingency theories offered plausible explanations of not only why
these events were causing problems for organizations, but also how to
resolve them.
3. The theories were simpler to understand and apply than the neo-classical
theories.

4. The theories were rational in that they explained known structural options
and identifiable contingencies.
Negative/shortcoming
1 Difficult to relate contingent factors to performance- many other factors
come into play in an organization setting
2 No agreed definitions of the factors
3 Use of the formal organization structure. The contingency theories only
dealt with the formal structures and ignored the informal structures which
are also important in an organization.
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Therefore there is need for other theories to explain the complex natures of
organizations e.g. the information processing theory, the population ecology
theory and the principles propagated by Peters and Waterman.