Lecture 2,5: Organizational Theory PDF

Basic puzzle: How to design organisations so that they can fulfil a certain task? Traditional form of production: - unity of planning and execution - single individuals possess all necessary skills -> craft Modern technologies (steam engine, electricity, machines) enable large scale production...

Basic puzzle: How to design organisations so that they can fulfil a certain task? Traditional form of production: - unity of planning and execution - single individuals possess all necessary skills -> craft Modern technologies (steam engine, electricity, machines) enable large scale production Large organizations enable specialization (-> increased efficiency) - planning as the management role - execution of plans as the workers’ role Large organizations require coordination efforts Overview “Classical” organization theories; Weber, Taylor, Fayol Influence and criticism of the classical theories Structuring large organizations: U-form, M-form Overcoming the faults of the U-and M-form The evolution of organizational structure: The case of ABB Bureaucracy (1): Weber (1921) Max Weber: German sociologist (1864-1920) Important first theories on organizations Point of departure: Rationalization of society -> Spread of rational principles in society - cost - benefit calculation - rule of law - management of organizations according to bureaucratic principles Individuals follow authority if they regard it as legitimate 3 types of legitimate authority - charismatic authority (non-rational) - traditional authority (non-rational) - legal authority (rational) -> bureaucracy as the purest form (Weber, 1921) Bureaucracy as legal authority Bureaucracy characterized by - Rules - Specified competencies - Hierarchy - Technical training - Neutrality - Written recording of rules and decisions (Weber, 1921) Bureaucracy : Critique and re-assessment Weber’s ambivalent view on bureaucratic organization: On the on hand On the other hand Bureaucracy as the most Propagation of bureaucratic rules might produce - efficient “one - reliable - dimensional” individuals - stable - precise form of organization Bureaucracy oftentimes criticized as the symbol for inefficiency Reasons for the potential inefficiency of bureaucracy -“blind” rule following: Employees lose sight of the organizational goals and instead follow rules in an unreflected manner (rule following becomes the main objective) - limited suitability of rules to cover relevant tasks - inability of (per definition stable) rules to keep pace with dynamics in the organizational environment (see lecture 4) General critique of Weber’s approach: All non-formal factors (individuality, emotions,...) are regarded as interfering with the efficiency of bureaucracy The structuring of work: Taylor’s scientific management (1911) Focus on the optimization of the labour process -> “Scientific management” Basic ideas: - Separation of planning/control and execution of work - Managers concentrate on planning and control - Division of labour enables specialization - Division of labour enables measurability Time studies as a way to measure average time required for specific tasks -> Formulation of expected performance levels Differentiation of organizational structures as a result of specialization (Taylor, 1911) Specialization and efficiency Specialization increases efficiency due to Learning effects (the more often a task is accomplished, the less effort is required) Economies of scale (cost per produced unit decreases with increasing quantity) Synergies (accomplishing similar tasks reduces overall effort) Charlie Chaplin’s “Modern times” as a critique of Scientific Management Critique of Taylor’s scientific management Motivation exclusively through money Increased breakdown of work tasks into smaller sub-tasks leads to - monotony - increased speed of work - alienation (loss of meaning because no worker understands the product to which they contribute; see lecture 9 for details on alienation) - increased surveillance (performance can be measured by the second) - loss of self-determination The structuring of work: Fayol ́ s administrative approach (1918) Practical insights from managerial practice as an instruction for successful organization and management Focus on the management process as a whole Organizing as the design and implementation of an optimal organizational structure 5 ”functions of management” - Planning - Organizing - Command - Coordination - Control Critical appraisal of Fayol ́ s administrative approach Fayol’s perspective: Organizing as engineering (“Organization as a machine”) Management principles as generally valid recipes for designing efficient organizations However: - Fayol’s principles are rather abstract - no empirical proof - can the principles be proven? Basic question: Is it possible to find generally valid principles that govern organizations (parallel to the natural sciences)? Basic assumptions of classical works in organization theory Assumptions about the individual Individuals are potentially unreliable -> control is necessary Individuals are unable to understand the organization and take responsibility -> direction from above essential Individuals need to follow rules Individuals are exclusively motivated materially (money) Assumptions about the organization Coordination needs to come from the top of the organization All that matters in an org is efficiency; no place for irrational elements/emotions The future can be foreseen -> planning is possible Division of labour always increases efficiency Hierarchy as the only way to manage efficiently Assumptions about theory Theory is able to produce generally applicable rules Theory should aim at increasing organizational efficiency Wrap up (1) Classical organization theories as early attempts to understand the properties of increasingly large organizations Classical organization theories highlight important (formal) features of organizations Simultaneously, they have severe shortcomings due to a simplistic focus on formal features and authority The emergence of the large corporation: The unitary structure (U-form) Basic insight from classical organization theory: Division of labour & specialization increase efficiency through: learning effects, economies of scale For increasingly large organization this implies: Functional differentiation (= creation of sub-units with focus on specific tasks) Limits of the unitary structure Major risk of the U-form: Increasing size leads to increasing complexity: Too many interfaces -> inefficient communication Diffusion of responsibility (because many actors contribute to a certain objective) Administrative load becomes overwhelming at the top Low flexibility as a result of high specialization: How to handle unexpected issues? (Chandler, 1966) The multidivisional structure (M-form) Aim of the M-form: Avoiding the challenges of the U-form Potential criteria for divisionalization: - products/product groups - regions - customers Alternative design-choices for the M-form: - Divisions as departments - Divisions as separate firms (->Holding) Major dilemma of the M-form - Decentralization as a means to increase efficiency (see the benefits of specialization discussed above) vs. - Loss of control for the CEO/top management - Independence of functions and units (“centrifugal tendency”) (Lawrence & Lorsch, 1966) Attempts to overcome the downsides of the U-and M-form (1): The Matrix-organization Basic idea: Avoiding the centrifugal tendencies of large U- and M-form organizations Leadership of functions focus on efficiency Leaders of products/projects focus on the integration of production Downsides: - Opacity - Lengthy decisions - High coordination costs - Conflicts (->stress) - High documentation effort The Project-organization Projects as a means to organize under conditions of - uniqueness (e.g. development of a specific product) - novelty (e.g. no standard routines available) 2 ways to organize projects Oranizational structure in practice:The case of ABB (1) Oranizational structure in practice:The case of ABB (2) Most large organizations are frequently subject to re-organization as a result of - mergers & acquisitions - strategic re-orientation - management fashions The dilemma of differentiation vs. integration Specialization & functional differentiation in order to increase efficiency -> Problem: Increasing the number of sub-units increases organizational complexity (more specialized actors and units need to communicate) and a fragmentation of tasks (Lawrence & Lorsch, 1966) -> Solution: Integration (bringing together the different elements of a task to enable consistent processing of a task) required (Daft, 1989) Modes of integration: - Vertical integration (hierarchy, programmes/rules) - Horizontal integration (meetings, coordinators, facilitators) Wrap up (2) The unitary organizational form soon became un-manageable M-form, matrix and project organization as attempts to address the shortcomings of the U-form General problem: Differentiation vs. integration