Managing Organizational Design Textbook Chapter 12 PDF

12 MANAGING ORGANIZATIONAL DESIGN PRINCIPLES, MODELS, DESIGNS LEARNING OBJECTIVES This chapter is designed to introduce you to: early management approaches debates about bureaucracy, contingency and institutional theory McDonaldization as a con...

12 MANAGING ORGANIZATIONAL DESIGN PRINCIPLES, MODELS, DESIGNS LEARNING OBJECTIVES This chapter is designed to introduce you to: early management approaches debates about bureaucracy, contingency and institutional theory McDonaldization as a contemporary approach to management the strong homogenizing role of professionalization, standards, fashion, culture and embeddedness for organizational designs a wide range of contemporary organizational designs, including the M-form, matrix organizations, shamrock organizations, networks, rhizomes, creative clusters, heterarchy and responsible autonomy, design thinking, democratic design and digital organization. INTRODUCTION This chapter covers some influential ideas about management and organizational design. An organizational design is a formal structure of organization as a system of roles, responsibilities and decision-making. Many such ideas have had a long life in management and their legacy is still evident today in the many organizations that seek to model themselves on ‘best practice’. 374 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES FOUNDATIONS FOR MANAGEMENT PRINCIPLES SLAVERY Early ideas of management were, shamefully, to be found in manuals for the control of slaves; other ideas came to be applied in the design of buildings and in the application of engineering to management, before broadening the scope of bureaucracy to include human relations. That the prosperity of many parts of England, Netherlands and the Americas was premised on the slave trade is a shameful part of their history that has been well hidden, as Cooke (2003) observes. The legacy is all too evident in contemporary society as a recent report commissioned by the British National Trust (Huxtable et al., 2020) makes all too clear. The profits from slavery can still be seen in the fabric of landed estates that comprise much of the Trust’s portfolio as well as many other fine estates. The same kind of observations may be made about the many fine mansions of the American antebellum Deep South, whose wealth was founded on a plantation system in which there was a concentration of forced slave labour that was both abundant and cheap, managed by managers using the rudiments of what would later become systematic management (Cooke, 2003). Slavery is not just something that occurred in a less enlightened past; there is now modern slavery, something that, according to the Anti-Slavery (2020) website, encompasses an estimated 40 million people worldwide: Modern slavery is the severe exploitation of other people for personal or commercial gain. Modern slavery is all around us, but often just out of sight. People can become entrapped making our clothes, serving our food, picking our crops, working in factories, or working in houses as cooks, cleaners or nannies. While empires of the past were built on slavery and unequal exchange in plantation agriculture in colonies abroad, in the heartlands of the industrial revolution in the north of England that was slowly emerging in the eighteenth century, people toiled in small workshops, in their homes as recipients of the putting-out system, on farms and in domestic service. Much of the focus of this early enterprise was on textiles, industries that flourished not only in the north of England but also in the Wupper Valley, Ruhr Region and Upper Silesia in Germany, Catalonia in Spain, and New England in the United States. Before the eighteenth century, the manufacture of cloth was performed by individual workers, in the premises in which they lived, and goods were transported around the country by packhorses or by river navigations and contour-following canals that had been constructed in the early eighteenth century. By the mid-eighteenth century, artisans were inventing ways to become more productive, with cotton becoming the most important textile and the abundant imports coming out of the slavery estates in the Americas into British factories centred on Lancashire, which flourished after 1764, when Thorp Mill, the first water-powered cotton mill in the world, was constructed in Royton. Bans on imports of Indian cotton helped the trade gain global ascendancy. Historically, little organization and  MANAGING ORGANIZATIONAL DESIGN 375 management were involved in most of these early textile mills. They operated on simple direct control much as did the wealthy households that the early cap- italists created out of the wealth they produced. SIMPLE, DIRECT CONTROL In small workshops, the master’s control was exercised face to face; in households, the mistress of the house ruled over servants and other staff. The master owned key resources, such as a workplace, materials, and distribution and manufactory networks, ownership that made them small-scale capitalists. On this basis, masters were easily able to enforce rules, to say when work was done correctly or incor- rectly, as they had knowledge that provided the basis for direct management Direct management control. The only thing employees owned and controlled were their bodies and, control combines the ownership and perhaps, those of their immediate family, which they could sell as labour power control of resources to the owners of resources. with practical The owners of capital were known as ‘capitalists’ because they owned knowledge of the capital creating the social relations and resources that made them masters over means of production other men, women and children. to exercise discipline over their employees. In larger workshops, called ‘factories’, managing and organization had to be less personal. Various methods of fusing discipline and surveillance over employ- ees were tried. Early in the development of industrial capitalism, a building that had factory discipline built into it was described by Jeremy Bentham. ARCHITECTURAL CONTROL Jeremy Bentham (1995) planned to reform work by using what he called the panoptical principle, which he had observed in the early days of factory organ- The panoptical ization in place at a factory near Moscow that his brother managed. principle establishes Successful surveillance, according to Bentham, depended on architectural the capacity to be all-seeing of those principles. As Image 12.1 shows, the Panopticon was a complex architectural aware that they design. It consisted of a central observation tower (which you can see clearly are potentially in the cutaway section) from which any supervisor, without being seen, could being watched. see the bodies arranged in the various cells of the building. In each cell, the occupants were backlit (neither electric nor gas lighting had yet been invented) and isolated from one another by walls, yet subject to scrutiny by the observer in the tower. Control was to be maintained by the constant sense that unseen eyes might be watching those under surveillance. You had no way of knowing if you were being watched at any particular time, although you could assume that you were. The Panopticon was not only a means for making work visible but also for making those being seen aware that they may be under scrutiny at any time. The Panopticon was not just a system of surveillance but also a system of records and rules. The authorities would have a complete file on the behaviour of each inmate, with rules governing timetables, the nature of work and the authority to exercise surveillance. The aim was to produce a self-disciplining subject. The asymmetrical nature of seeing but not being seen, of knowing you are possibly being watched but not when or if you are, was designed to produce employees labouring under the threat of constant supervision. 376 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES IMAGE 12.1 Plan of the Panopticon WHAT WOULD YOU DO? T oday, of course, the Panopticon has become electronic. The average person in the cit- ies of the developed world is rarely out of range of closed-circuit television (CCTV) as they move around. Open calendars in office environments show transparently when you are occupied. And you leave a digital trace with every card-based transaction and use of your mobile phone. Question 1. Thinking of the kinds and number of panoptical devices that you are subject to on an average day, what measures might you take to ensure your digital and other forms of privacy? Early modern EARLY INDUSTRIAL ORGANIZATION management For early modern management, those who were managing and being managed was based on the were expected to create more value than would be paid out in wages and sala- principle of the efficient extraction of ries, thus ensuring that there is a return to the capital that can be invested in the value from the labour enterprise. For value to be extracted in this way, the reform of both asset holding that was employed. consequently, of management, was necessary.  MANAGING ORGANIZATIONAL DESIGN 377 The numbers to be supervised were not great. By the early 1850s, a factory of 300 people could still be considered very large in the British cotton industry (Hobsbawm, 1975: 21) and as late as 1871, the average British cotton factory employed only 180 people, whereas engineering works averaged a mere 85. One reason they were small was that finance was in scarce supply, often secured pri- vately or on credit (Hobsbawm, 1975). Money was mostly tied up in aristocratic land holdings, properties and mines. Early entrepreneurs raised capital largely through credit. Merchants combined credit with rented buildings, machinery and cheap sources of labour. The liability of emergent entrepreneurs was thus limited (Tribe, 1975). By keeping personal financial commitments small, fortunes might be better insured. Enterprises were enabled to grow beyond the financial capacities of their owners by the development of limited liability legislation (1855 in the UK). Such legislation Limited liability incorporated a company as a legal entity, limiting the liability of those who invested legislation separated in it, separating personal possessions from assets. Earlier, the 1844 Joint Stock private fortunes from investments Companies Act had defined the fiduciary duty of a director as the necessity of acting in business, making in good faith for the benefit of the company as a whole. The legislation defined a only the latter company in terms of those who invest in its capital: shareholders. Limited liability legally liable. legislation was the key factor in fuelling the formation and growth of accountancy institutes in the UK, leading to the institutionalization of the accounting profession. Being able to risk the savings of investors freed up entrepreneurial energies and did much to prepare the ground for a widespread share market. The scale effects of limited liability were dramatic. For example, the Krupp works at Essen in Germany had only 72 workers in 1848, but by 1873 it employed almost 12,000. Whole regions became dominated by huge commercial ventures. Limited liability legislation was an institutional form that rapidly spread globally. Initially, it brokered a variance rather than a wholesale revision of management principles that remained based on surveillance. INTERNAL CONTRACTING If limited liability legislation solved the problem of how to raise capital and increase scale, it did not resolve the problem of how to manage vastly expanded enterprise. It was the ‘“master” rather than the impersonal authority of the “com- pany” [that held sway in] the enterprise, and even the company was identified with a man rather than a board of directors’ (Hobsbawm, 1975: 214). Often, managing was internally contracted. In internal The system of internal contracting flourished from the late nineteenth through contracting, a to the early twentieth century, with variable lags in different countries, being contractor used materials, plant developed earliest and superseded fastest in the USA. The internal contract was and equipment a fixed sum agreed between the internal contractor and the employers of capital. supplied by owners, The internal contractor stood to gain most by paying the least for the quantity but managed the of labour contracted. Not surprisingly, this fact was well understood by trade labour contracted unionists as they sought to improve the lot of union members by standardizing to deliver a certain quantity of product. highly variable conditions and wages (Clawson, 1980; Littler, 1982). Pressure, from the unions for better conditions for their members and from investors for efficient exploitation of assets, led inexorably to an increased standardization of workplace routines. Added to these standardizing pressures were new models of managerial control drawn from engineering. 378 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES EARLY MODERN APPROACHES ENGINEERING: F. W. TAYLOR It was in steel factories in Pittsburgh in the northeast of the USA that manage- ment’s founding father, F. W. Taylor, first developed the field’s systematic statements from his experience as a practical engineer. According to the new engineering approaches to management, corporations and organizations could be managed on the basis of facts and techniques. Engineers trained in the management of things and the governance of working people, sought to establish principles that aligned functions and responsibilities in an empirically proven manner. Hoskin (2004) details how these principles emerged in musket making by ‘establishing prescribed times required to make each musket part, and then reordering the space across which manufacture proceeded, so that the musket “took shape” following a principle of linear flow’ (Hoskin, 2004: 747). Daily piece-rate targets and rates for each task were developed and a system devised for coordinating them (Hoskin, 2004). Late in the nineteenth and early in the twentieth century, armed with a checklist and a stopwatch, F. W. Taylor (1967) developed and popularized Scientific scientific management around a set of principles for making people’s work more management seeks visible. He observed and timed work and then redesigned it, so that tasks could one best way to be done more efficiently. organize work and organization through Taylor’s four principles of management are as follows: the standardization of time and the 1. Developing a science of work by observing and measuring output norms routinization and using a stopwatch to time human movements. Workstations and tools of motion. could be redesigned to improve effectiveness. Given improvements in effectiveness, pay could be improved. 2. Scientifically selecting and training the employee. Taylor believed in fit- ting the worker to the job and that this was a task of management. When management did this job properly, all human resources would be devel- oped to their utmost potential. 3. Combining the sciences of work and selecting and training of employees so that workers would benefit from higher wages. Managers had to learn new systems of work and to give up privileges that, in Taylor’s view, they had no right to expect. 4. Management and workers must specialize and collaborate closely, with management focusing on mental labour by designing and setting up sys- tems and supervising them. Workers must concentrate on manual labour and leave the higher-order mental labour to the managers, following strictly scientific management designs. From Taylor’s point of view, the working body should be maximally productive and minimally fatigued to become more efficient (Clegg et al., 2006a). The human body was meas- ured as if it functioned like an efficient machine. Important followers, such as the Gilbreths, developed his practice to innovative heights through the use of time-lapsed photography (Mandel, 1989).  MANAGING ORGANIZATIONAL DESIGN 379 Some saw Taylor as a reformer who aimed to eliminate inefficient and exces- sively debilitating practices in industry (see, for example, Amar, 1920); others were more critical, with Taylor’s views being subject to severe criticism from several contemporary interests: 1. Internal contractors stood to lose their livelihoods if scientific manage- ment triumphed and replaced them with systematic managers, so they opposed it. 2. Owners of capital were often opposed, particularly those with small work- shops, fearing that the new knowledge would undermine their power of ownership. 3. Employers adopted his ideas piecemeal; they were keen on the efficien- cies but not as keen on the bonuses proposed in the use of piece rates (Taylor, 1895). 4. Unions, increasingly organizing workers from the last quarter of the nine- teenth century onwards, were opposed to the loss of craft skills through the standardization and systematization of work (Shenhav, 1999). Also, Taylor’s system was identified with lay-offs, due to the available work being completed faster. Taylor had many critics, none as trenchant as the Marxist, Harry Braverman (1974), for whom managers anywhere in the world should be seen in terms of the structural role that they play as delegates of those who own capital. To ensure the efficient extraction of surplus value or profit, they seek to increase productivity through de-skilling jobs by removing judgement and discretion from employees to make them more controllable by managers. Managerial control is not all of a piece. Different controls target different types of employee. Divisions make the task of control much easier because they concentrate employees’ minds on the fact that they slotted into a huge hierarchy of labour, with the long-term unemployed at the bottom, and everyone competing for the minor qualitative differences available. Hence, as Clegg (1981) argues, different types of con- trol, using different principles, would be targeted at different categories of employees. Control can be built into technology. Edwards (1979) extended Braverman’s analysis by highlighting that employees were controlled through machinery and technolog- ical innovations, such as assembly lines, as well as through ‘bureaucratic control’. It is not only blue-collar workers that can be de-skilled but also those managers that employ and rely on cheap labour in the face of innovative, automated competi- tion because the necessary cycles of investment have been lacking. Many managers have seen their industries decline precisely because of the absence of such policies. As Hassard et al.’s (2009) research demonstrates, managers in the UK and the USA see themselves as much as a ‘forgotten people’ as do their blue-collar colleagues. In many ways, they are correct to do so: as innovation occurs in the new centres and not the old, knowledge and skills atrophy in terms of global relevance. The spatial implications are evident: as specific regional and community skill formation atrophies, the lack of incentive to stay for those who can move increases. 380 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES FORDISM AND THE PRODUCTION LINE In 1913, 30 years after Taylor installed his first system, a revolution in manufac- turing occurred when Henry Ford introduced the assembly line as a new way of producing automobiles, modelled on the principles of the Chicago slaughterhouses. Fordism standardized production and machine tools as well as using assembly lines but also paid higher ‘living’ wages to those deemed fit to receive them – sober, steady fellows, with lifestyles Fordism approved of, after they had been inspected (see Clegg et al., 2006a). At the zenith of the Ford organization in the post-war era, it had massive handbooks of routines, rules and standardized role prescriptions written up as job descriptions. These formed the basis for new ‘disciplinary’ forms of power based on a combination of elements of Taylor’s principles adapted to a moving production line rather than a static workstation. The new production lines had a formalized structure with rigid job description and prescription, a high degree Specialization of work specialization and a clear and strict hierarchy of authority, vertical com- occurs when labour munication and a limited information network. is divided and Small spans of managerial control, long chains of command, little participation defined into smaller specific tasks rather in organizational design and decision-making, high degrees of centralization of than being seen as knowledge, decision-making and control, resulted in an extensively hierarchical a general task that organizational structure. The organizational environment was simple, stable and anyone might do. relatively unchanging. Jobs were repetitive, boring and exhausting and employees, unsurprisingly, were often resistant to the discipline associated with working on the production line. Managers were there to control; consequently, conflict tended not to be resolved but repressed. HENRI FAYOL’S MANAGEMENT PRINCIPLES Henri Fayol, the most significant European founder of modern management, published Administration Industrielle et Générale in 1916 (see Fayol, 1949). Fayol stressed that management training focused on planning, organizing, commanding, coordinating and controlling for optimal performance. Fayol’s training programme offered 14 principles to provide a manual for proper management, an efficient organization and happy employees: 1. Specialization of labour: encouraging the development of skills and methods. 2. Authority: establishing the right to give orders and the power to exact obedience. 3. Discipline: there was to be obedience. 4. Unity of command: each employee was to have one and only one boss. 5. Unity of direction: a single mind should generate a single plan. 6. Subordination of individual interests: to the interests of the organization. 7. Remuneration policy: employees should receive fair payment for their services.  MANAGING ORGANIZATIONAL DESIGN 381 8. Centralization: a consolidation of management functions so that decisions will be made from the top. 9. Scalar chain: a clear line of authority and formal chain of command, as in the military. 10. Order: all materials and employees have a prescribed place, where they should be found. 11. Equity: fairness in the way that the organization treats its employees. 12. Personnel tenure: limited turnover of personnel and lifetime employment for good employees. 13. Initiative: this requires designing a plan and doing what it takes to make it happen. 14. Esprit de corps: there should be harmony and cohesion among organiza- tional members. (Fayol, 1949) Fayol’s principles were concerned with what and how managers did what they did. Fayol was not translated into English until the 1940s, so his impact on management outside the Francophone (and Latin) world was delayed. WHAT WOULD YOU DO? H enri Fayol’s legacy is a systematic list of what management should aspire to provide. Look at the list and think about the fact that it is 100 years old. Questions 1. What would you do to update Fayol’s list? 2. What would you delete? 3. What would you want to add that has assumed more importance since Fayol’s day? BUREAUCRACY MAX WEBER AND BUREAUCRACY Bureaucracy consists A military model provided the earliest template for organizational routines. By the of a hierarchy of early twentieth century, the most percipient observer of organizations, Max Weber, differentiated noted that bureaucracy, modelled unambiguously on the military (Weber, 1976), knowledge, expertise was the dominant organizational model. As the economic historian Hobsbawm put and rules. Rational- legal bureaucracies it, ‘Paradoxically, private enterprise in its most unrestricted and anarchic period apply the rules tended to fall back on the only available model of large-scale management, the universally, without military and bureaucratic’ (1975: 216), noting the railway companies, with their favour or prejudice. 382 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES ‘pyramid of uniformed and disciplined workers, possessing job security, often promotion by security and even pensions’, as an extreme example. Weber (1948: 261) put it even more succinctly: ‘No special proof is necessary to show that mil- itary discipline is the ideal model for the modern capitalist factory.’ Rational-legal Weber identified authority based on rational-legal principles as being the principles are where heart of bureaucratic organizations. people obey orders Members of a bureaucratic organization are expected to obey the rules as as rational-legal precepts because general principles that can be applied to particular cases and which apply to the person giving those exercising authority as much as those who must obey the rules. In prin- the order is acting ciple, members of the organization put the personal characteristics of the office in accordance with holder to the side and respond purely to the demands of office. The rules are the a code of legal rules technical basis defining appropriate action, whether in a public or private sector and regulations (Albrow, 1970: 43). organization. Expertise is specialized, partial and fragmented. The notion of a career followed in a specialized area of expertise is essential. There is a differ- entiation of both expertise and careers. Authority was crucial to Weber’s account of modern bureaucratic organizations. While leaders and managers were employed in positions of domination over the employees below them – their subordinates – in practice, dominance was much easier to exercise in everyday organization if it was based on legitimacy, that is, with the consent of those being subordinated. According to Weber, three main principles of legitimacy could deliver authority in organizations: 1. The principle of charismatic authority meant that deference and obedience would be given because of the extraordinary attractiveness and power of the person. Example: Nelson Mandela. 2. The principle of traditional authority occurs where deference and obedi- ence are owed because of longstanding habit. Example: Prince Charles, future king of England, because the line of descent is habitually one of primogeniture – the first-born rules. 3. The principle of rational-legal authority signifies that it is not the officer but the office, which is part of a rational and recognized disposition of relationships in a structure of offices, whose authority is obeyed. Example: Any senior incumbent in a well-managed bureaucracy. Weber saw rational-legal bureaucracy as having unrivalled technical superiority based on 15 principal dimensions: 1. Power belongs to an office and is not a function of the office holder. 2. Power relations have a distinct authority configuration, specified by the rules of the organization. 3. Powers are exercised in terms of the rules of office, impersonally. 4. Disciplinary systems of knowledge, professionally formulated, frame organizational action. 5. Rules tend to be formally codified.  MANAGING ORGANIZATIONAL DESIGN 383 6. Rules are contained in files of written documents, based on precedent and abstract principles. 7. Tasks are specific, distinct and done by different formal, specialized cat- egories of personnel. 8. There is a sharp boundary between bureaucratic and particularistic action defining legitimacy. 9. Organizations’ functionally separates tasks, authority and sanctions com- mensurate with duties. 10. Functional separation and precisely delegated powers create a tendency towards hierarchy. 11. Delegated powers are contacted in terms of duties, rights, obligations and responsibilities. 12. Organizational positions increasingly require the requisite formal credentials. 13. Different positions require different credentials, creating a career structure premised on merit-based promotion. 14. Different positions in the hierarchy are differentially paid and otherwise stratified. 15. Communication, coordination and control are centralized within the organization. (Weber, 1948) Modern bureaucratic organizations were made possible by society-wide pro- cesses of rationalization of law, the economy and the labour market, based on free labour and a property market in which the physical means of production were disposable private property. Capital was available through share rights in the ownership of organizations and property. Increasingly, there was a ‘rationalization’ of various institutional areas, such as the market, technology and education. One outcome of the process of rationalization, Weber suggests, was the production of a new type of person: the specialist or technical expert. CRITIQUES OF BUREAUCRACY Many arguments have been advanced against bureaucracy by governments promising to reduce bureaucracy, by consultants claiming to be able to change bureaucracy and by ordinary citizens who feel trapped by bureaucracy. Some of Weber’s contemporaries thought markets were much better at organizing human affairs than bureaucracies. Early in the twentieth century, Robert Michels (1915: 365) coined what he referred to as the ‘iron law of oligarchy’, which he saw as a corollary of bureau- cratic organization. In the twentieth century, critiques of bureaucratic principles flourished. These relied on anecdote and stereotypes rather than research, including Parkinson’s Law, named after historian C. Northcote Parkinson (1957), whose ‘law’ states that work creates more work, usually to the point of filling the 384 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES time available for its completion. More bureaucracy demands more bureaucrats to service the new rules and routines as well as bigger budgets. The Peter Principle (named after Laurence Peter) states that employees in a bureaucracy are promoted to the level of their incompetence. In other words, competent managers continually receive promotions until they attain a position in which they are incompetent. Merton (1940: 563) discussed the ‘formalism, even ritualism, which ensues with an unchallenged insistence upon punctilious adherence to formalised procedures’. Merton called the primary bureaucratic dysfunction ‘goal displacement’, by which he meant that the members of organizations – officials – inevitably come to value rules and the behaviour required by those rules over the objectives that the rules were intended to achieve. Bureaucracy creates rule followers rather than innova- tors, said Merton. Since the late 1970s, increasing academic attack, led by Peters and Waterman (1982) for the private sector and Osborne and Gaebler (1992) for the public sector, has repeatedly stressed this point. Bauman’s critique of bureaucracy argues that bureaucracy as a legitimate means can serve illegitimate ends because obedience to the rules and authority relations may enable ethically appalling behaviour to go unchecked. The Nazi war criminal Eichmann’s defence, when tried, was that he was just a bureau- crat who had to follow orders. Hannah Arendt (1994) wrote an account of his trial, which she captured in the memorable phrase ‘the banality of evil’. A part of this banality is produced through a vast organizational apparatus of cate- gories applied through rules and routines that eliminate the need and space for reflection. When actions that enact the organizational action in question are routinized, the acts in question become easier to enact. Routine is impor- tant because it facilitates action without reflection (and responsibility), as an automatic response to a stimulus. Individuals become merely a cog in the organizational machinery. Against these criticisms, the following points, drawn in part from the work of Paul du Gay (2000), are often advanced in praise of bureaucracy: 1. Bureaucratic organization means you know exactly what to do and how to do it. 2. It provides predictable careers in which to develop expertise. 3. It limits arbitrary power and privilege. You must follow the rules but so must everyone else. 4. Rules are strictly applied, irrespective of the status and identity of indi- vidual employees or clients. 5. Both employees and clients have rational recourse to the rules of an appeal mechanism in bureaucracies. 6. None are above the law and none can escape rules, such that every office is accountable. 7. Bureaucracy frees people from arbitrary rule by powerful leaders. Weber’s model of bureaucracy was an ideal type – an artificially accentuated model that abstracted features of actually existing bureaucracies to make a ‘pure’  MANAGING ORGANIZATIONAL DESIGN 385 model that condensed the features one would find in reality. In reality, the forms that bureaucracy might take would be hybrid, blending some elements from the general model, and integrating and innovating other elements. Under communism, for instance, state socialist organizations in the USSR grew into massive industrial bureaucracies with a shadow bureaucracy of political control internalized within them to maintain the ‘party line’ of communism. In China, communism and bureau- cracy hybridized in a different and distinct way, powering the global powerhouse that is the contemporary People’s Republic of China. IN PRACTICE Bureaucratic hybrids: contemporary China A ng (2017) has researched local government public administration in China and argues that it has developed a viable non-Weberian model of local government bureaucracy appropriate to a developing country context. These local government public administrations contradict a key principle of Weber’s model of public administration. Public sector organi- zations do not have ownership rights over the income they generate; instead, any revenue should go into consolidated accounts. In China, however, it is openly acknowledged that public agencies act as if they were entrepreneurial companies. They make profits and distribute them according to their own criteria. Given this data, Ang (2017: 283) asks whether we should ‘conclude that China’s bureaucracy is corrupt or dysfunctional’. If we were to apply the principles of bureaucracy that Weber outlines to the Chinese case, we would conclude that such a model of organization was indeed corrupt and certainly not functional in the sense of ensuring a public administration in which the public servant has an ethos of public service, rather than the entrepreneurial pursuit of profit and exhibits a character moulded accordingly. Ang differs from the conventional view. She regards the degree of self-financing and the cultivation of personal relationships in pursuit of such financing that is evident in China, not as a deviation from the Weberian model but as evidence that there are alternative ways of organizing public administration, according to context. In the context of resource scarcity in developing countries, the self-financing of local government bureaucracy through extracting fees for services provided, rather than the services being available to all to the extent that state budgets allow, as she argues is ‘a high-powered incentive scheme, wherein public agents are highly motivated to finance themselves’ (Ang, 2017: 283). In this context, she regards the Chinese model of personalized and revenue-generating bureaucracy to be ‘a regulated and relatively disciplined mutation’ of organization. On the other hand, as Skidmore (2017) analyses, corruption is endemic to China’s governing institutions (Wedeman, 2012). It well documented (Pei, 2016) as the systematic looting of state-owned property of land, natural resources and state-run enterprise assets, for which bribes and official appointments are surreptitiously but routinely traded Pei (2016) terms it a ‘system of crony capitalism’, one that is politically acknowledged by President Xi’s campaign against limiting the costs of corruption. In Skidmore’s view: (Continued) 386 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES Corruption fuels job promotions, the awarding of government contracts and the trans- fer of public assets into private hands at fire sale prices. Corruption in China is rooted in the blurred lines that come with a system combining weak rule of law, considerable autonomy on the part of local officials and an economic model featuring opaque rela- tions between private enterprise and a large state-owned sector. Ang’s (2017) contrary case to Skidmore (2017), Wedeman (2012) and Pei (2016) is that what she refers to as bureau franchising occurs at the agency rather than the individual level. In China, Ang (2017: 295) states: [A]ctivities were carried out at the agency, rather than individual level; these activ- ities became progressively sanctioned and regulated, rather than lawless; and local governments activate [these] high powered but risky incentives … in order to motivate revenue-generation among state agencies, rather than ignore budgetary constraints. The extent to which the principles of bureau franchising that Ang discusses can be kept sepa- rate from those of guanxi – the cultivation of personalized social networks for influence – and the extent to which these can easily become conduits for corruption, are a moot point. Questions 1. In practice, what is the balance in China’s bureaucracy between being corrupt and being dysfunctional? 2. Is the Weberian model the best set of principles for public administration everywhere? Use the resources cited and any others that you can access through a Web search and draw your own conclusions. REDEFINING BUREAUCRACY ELTON MAYO’S HUMAN RELATIONS Mayo developed what became known as Human Relations. The emphasis was on informal work group relations, the importance of these for sustaining the formal system and the necessity of the formal system meshing with the informal system. Most people’s actions were driven by the unconscious, Mayo thought, following Freud (1935). Agitators and radicals were victims of neurotic fantasies that could be traced, invariably, to infantile history. If individuals could be guided by therapy in work, they would be healed of neuroses. When he arrived in the USA from Australia, he brought these ideas with him as a highly successful public speaker on the lecture circuit. He eventually found a congenial home at Harvard, where he was invited in 1926. At Harvard, Mayo became associated with what are known as the Hawthorne Studies. These studies have become a classic of modern management carried out in the Hawthorne Plant of the Western Electric organization in the suburbs  MANAGING ORGANIZATIONAL DESIGN 387 of Chicago between 1924 and 1927. After the data had been collected and the experiments ended, Mayo joined the project in April 1928 (Henderson, with Mayo, 2002 ). In a range of experiments concerning the physical determinants of productivity, illumination and other physical variables were manipulated, with the surprising result that productivity kept rising even when unexpected – when the illumination was lowered rather than increased. Why was this so? Mayo answered the question in terms of what became known as the Hawthorne Effect: when a group realizes that it is valued and forms social relations among its members, productivity rises as a result of the group formation. The Hawthorne Effect is what happens when informal organizational formation occurs. It was this finding for which the study became famous. In this instance, it was presumed that the effect was an unanticipated consequence of the experimental interest taken in workers. The Hawthorne experiments have been widely criticized (see Carey, 2002; Hassard, 2012; Muldoon, 2017; O’Connor, 2002; Warner and Busse, 2017). Mayo (1946) thought the manager had to be a social clinician, fostering the social skills of those with whom the manager worked. Therapeutic interviews were recommended as a management tool, with training in counselling and personnel interviews being seen as an essential management skill (Trahair, 2001). Mayo believed that people had to be shown how to collaborate in complex organizations and that management’s task, par excellence, was to aid this. Managers were to be the new conciliators and arbitrators of an accord with rational workers, based on the rationality of science (Hogan, 1978; Weiss, 1981). Many of Mayo’s (2007) ideas concluded that the real problem encountered in work was the lack of ‘well-knit human groups’. Too little attention was being paid to social relations at work, especially those that enable people to get on well and cooperate with others. More training in social skills was required. Just as individual members should have a cooperative attitude, the organization should have an effective system of communication to foster social skills (see also Chapter 8). Organizations should organize teams and use personnel inter- views to aid members, as Mayo (1985) suggested, to minimize useless emotional complications, encourage association between all ranks, and develop positive work attitudes in employees. Mayo’s star faded fairly fast (Clegg, 1979; Clegg and Dunkerley, 1980), although it remains undoubtedly important for contemporary human resource management. CHESTER BARNARD’S LEADERSHIP The prosperous 1920s had seen modern corporate bureaucracies become legiti- mate. In the depression of the 1930s, however, their legitimacy came into question. The Depression of the 1930s saw many millions of people unemployed, reduced to welfare and soup kitchens. If managers were such great leaders, how come American firms were in such a mess? How could organizations be efficient and legitimate, when they also caused so much unemployment and turmoil? What good were principles of management that could not provide prosperity? For Chester Barnard, the key issue was leadership, of which he had consid- erable experience – he had been the president of New Jersey Bell Telephone and the Rockefeller Foundation. Barnard wrote a book on leadership that had a major impact, The Functions of the Executive (1936). Leadership is required, said 388 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES Barnard, to ensure both managerial authority and employee obedience. Leaders should make followers’ service to authority apparent by establishing moral codes and values which subordinates should obey. Barnard argued that individual behaviour is always variable and can never be easily predicted. All individuals will have a ‘zone of indifference’ within which compliance with orders will be perceived in neutral terms without any questioning of authority. Managers should seek to extend the borders of this zone through material incentives as well as through providing people with status, prestige and personal power. He argued that the lines of communication should be as short and direct as possible; informal groupings should work for the organization, not against it, because authority exists only insofar as people accept it. Barnard saw the manager’s key task as ensuring that organizational systems motivate employees towards organizational goals – because where individuals work with common values rather than common orders, they work much more effectively. The real role of the manager, he wrote, is to manage the values of the organization, which should be set by the chief executive (see also Chapter 8). MARY PARKER FOLLETT’S DYNAMIC ADMINISTRATION Not all of the original thinkers contributing to the foundations of management were men. After graduating from the Women’s College at Harvard, Mary Parker Follett became involved in social work in a diverse Boston neighbourhood. What she learned in making community centres work for people lacking in the obvious resources of a wealthier society was that, with experience in ‘modes of living and acting which shall teach us how to grow the social consciousness’ (Follett, 1918: 363; 1924), many people were far more capable than they or others might have imagined. She founded and developed the community center movement in which community members, mothers, father and children, drawn from newly arrived immigrants met and learned to share power and work democratically, meeting in neighbourhood schools in the evening. Follett was the first woman to have a book on management published, albeit after her death, called Dynamic Administration (1941). In this book, she argued that organizations, much as communities, could be approached as local social systems involving networks of groups. Follett thought Taylor’s ideas were incomplete, lacking democratic potential; Taylor’s lone individuals, in a massive functional structure, under strict control, did not accord with the American idea of democracy. Something had to change in management thinking if this were to be the case. Mary Parker Follett signalled the changes. Follett was concerned to democratize power, distinguishing between power- with (coactive power) and power-over (coercive power). She argued that the former needs developing and the latter diminishing. Co-creation occurs when all members of a group participate in making something happen that otherwise would not, enhancing the individuality and powers of all concerned: democracy begetting further democracy. She saw power as legitimate and inevitable but not necessarily authoritarian. Organizations must be developed democratically as places where people learn to be cooperative in power with others, especially managers and workers (see also pp. 217–222). Follett saw specific task areas within organizations as functions that should be allocated the appropriate  MANAGING ORGANIZATIONAL DESIGN 389 degree of authority and responsibility necessary for task accomplishment. People should manage their task area on the basis of evidence and should integrate this effectively with the functions of others. Individual authority would be based on legitimate authority, given by the rules of office. Being participative was empowering and educative. We should welcome difference because it feeds and enriches society, whereas differences that are ignored feed on society and eventually corrupt it (Follett, 1918). Follett lectured widely, always stressing the message of the positive benefits of power-with rather than power-over. To the extent that she promulgated manage- ment principles they were, according to Barzun (2021), that effective power-with sharing in organizations should lead to three expectations. First, that sharing power-with others should lead you to expect to need others if a difference was to be made. Second, you should expect to be needed and thus should bring your whole self to the task at hand; ask and answer tough questions and by doing so build trust. Third, you should expect to be changed: the point of sharing power-with others was to learn and make a difference to yourself and to others, learning from each other. Follett was a unique management academic, a woman in a world of men, a committed democrat in a world of macho managers. Notions of legitimate author- ity and civic responsibility were important to her thinking. Until her revival with the publication of Graham’s (1995) edited volume Mary Parker Follett: Prophet of Management – A Celebration of Writings from the 1920s, she was largely ignored. Follett’s unique contribution and relevance to current issues are now more widely recognized and her work continues to excite contemporary interest (Boje and Rosile, 2001; Calás and Smircich, 1996; Fox, 1968; O’Connor, 1999, 2002) as Barzun’s (2021) book demonstrates. In many respects, the purposes of management principles and designs have not changed that much. Despite changing terms and fashions, they are often ori- ented to making organizational behaviour predictable. They are normative and prescriptive models and, as Grant et al. (1994) noted, rarely have any explicit theory. Being simple, lacking explicit theory and being intellectually insubstan- tial, these models are widely grasped by hard-pressed managers searching for common-sense solutions to complex problems. The models have travelled the world, seeking to translate local variations into common models. None, perhaps, has been more globally successful than the McDonald’s model. CONTEMPORARY APPROACHES MCDONALDIZATION The American sociologist George Ritzer coined the term McDonaldization. McDonaldization The model of McDonald’s is a metaphor for a highly rationalized and ‘cheap refers to the as chips’ approach to business processes ‘by which the principles of the fast food application of goal-oriented restaurants are coming to dominate more and more sectors of American society rationality to all as well as the rest of the world’ (Ritzer, 1993: 1). McDonaldization does not stop areas of human life. at the fast-food store – it spreads to all areas of everyday life: to recreation, infor- mal and interpersonal relationships. Even those places and activities that used 390 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES to offer some release from a routinized world (such as dating) have now been rationalized through four major mechanisms: 1. Efficiency means utilizing the least output to gain the highest return. One way is to transfer the costs to the consumer. The McDonald’s model dis- penses with waitresses and offers only preformatted menus: it may not make for great food but it creates a very efficient organization. 2. Calculability means cheapening the assembly costs of the product through standardizing choices. 3. Predictability means that a McDonaldized service or product should be the same anywhere in the world, every time, using standardized proce- dures to produce standardized outputs. 4. Control means minimizing variation in every ingredient in the organi- zational assembly of people and things: customers and employees, raw materials, substituting machine processes for people. Where people cannot be substituted, they can be drilled always to perform the same routines. The principles of McDonaldization have been widely criticized. McDonald’s uses enormous quantities of grain to grow cereals to feed to cattle that will be killed in rationalized slaughterhouses (which were the original basis for Ford’s idea of the moving production line). It packs the burgers in sugared bread that is unhealthy. It serves the burgers in containers that add to the planet’s waste. It produces junk foods and junk jobs. IN PRACTICE I n practice, you probably eat fast food occasionally – or maybe more often. Next time that you do so, think about Ritzer’s four characteristics of McDonaldization. Questions 1. What can you see in the fast food store that seem to meet the criteria of McDonaldization? 2. Think about other services you consume in places such as supermarkets, banks, gas stations, or at university. Can you identify some of the elements of McDonaldization? 3. What are some of the negatives and positives of these McDonaldized services? CONTINGENCY THEORY An organizational design is the plan of an organization’s rationally designed struc- ture and mode of operation. We will review a number of different approaches that explain why a particular organizational design might be adopted. As we shall see, each approach suggests a different focus for analysis. We shall begin with contin- gency theory. In management and organization theory, a contingency is something  MANAGING ORGANIZATIONAL DESIGN 391 that managers cannot avoid. Contingencies arise from routines rather than from Contingency theory emergencies, as facts of organizational life that have to be acknowledged and dealt sees all organizations as having to deal with. The contingencies of environment, technology and size have been seen as the with contingencies most important issues to be managed. It is argued in contingency theory that all that will shape the organizations anywhere in the world have to deal with similar contingencies. organization’s design as it adapts to them. TABLE 12.1 Contingency effects Contingency Organizational effect Organization environment The more certain and predictable the environments in which organizations operate, the more probable it is that they will have bureaucratic structures Organization technology As organizations adopt more routinized technologies – technologies with repetition and routines associated with them – they tend to become more bureaucratic Organization size As organizations become bigger, they become more bureaucratic, in the sense of being characterized by higher scores on scales that measure the degree of formalization, standardization and centralization The contingencies literature regards organizations as imperfect designs that can be improved when we know what contingencies they have to deal with. Modern organization and management theory poses a central question: how can a structure be designed specifically suited to the contingencies with which an organization has to deal? Burns and Stalker (1961) were early classic writers identifying different con- tingencies, as we see in Table 12.2. Their chief contribution was to distinguish types of organizational structure that respond to two different sets of organi- zation environment conditions, which they termed mechanistic and organic Mechanistic organizational design. organizations’ keynote is machine- like predictability and TABLE 12.2 Mechanistic and organic design efficiency achieved by tightly prescribing Mechanistic design Organic design job designs that High standardization Low standardization employees have little or no part in creating. High formalization Low formalization Concentrated centralization Decentralization Organic Little employee discretion Extensive delegated discretion organizations are flexible and Many authority levels Few authority levels – flat organization innovative, facing Large administrative component Small administrative component continuous and turbulent changes in Deep specialization Breadth rather than depth of specialization markets, customer Minimal face-to-face communication Extensive face-to-face communication preferences, technologies and regulations. The work of the Aston School (Pugh and Hickson, 1976) was based on an exten- Decision-making processes are sive literature review as well as interviews with practising managers (Hickson, 2002; decentralized and Pugh et al., 1971). On this basis, they designed a questionnaire whose intent was to organizational discover the variance between different organizations in terms of the distribution design flatter. 392 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES of a set of systematic variables. The Aston researchers used factor analysis to search statistically for patterns of variations in the data collected. These common factors were used to refine scales that aligned them more closely with statistically robust data. The scales were seen to represent real features of the empirical world as they are defined in terms of conceptual constructs. They asked the question, what are the determinants of organizational structure? The answer was that structure is determined by situational contingency. Basically, the larger the organization, the more bureaucratic it seemed and this is true all over the world, they suggested, after further comparative research. The variables of organizational specialization, stand- ardization, formalization and centralization could explain most variance in structure. Later, Blau (2002) found that increasing size is associated with increasing differentiation and that the rate of differentiation decreases with increasing size. Administrative overheads are lower in larger organizations and the span of control for supervisors is greater. Administrative overheads are inversely related to size, whereas the span of control is positively related to size. Thus, larger organizations are able to achieve economies of scale if they can distribute the delegation of authority efficiently and effectively in the organization. If they can do so, they can handle the costs of differentiation – an increased necessity for control and coor- dination of the differentiated activities – without piling a weighty administrative overhead on top of the hierarchy to control the complex differentiation. Thus, the larger the organization, given that it is able effectively to delegate authority and line control of workflow, the less necessity there is for centralized control and administrative overheads. Size increases overhead costs but also increases the scope for economies of scale, which can be deepened further by the effective delegation of authority and control. Aldrich (2002 ) reanalysed the Aston data. He argued that technologies and people co-evolve, with the structure adapting accordingly. Aldrich gave external dependence, where top management depends on parent organizations for key resources, a high priority. In brief, the development of an organization proceeds from its initial founding and capitalization in response to perceived market opportunities, through its design, based on copying and modifying other organizations’ structures and finally, to the employment of a workforce to staff the nearly completed organization. Technology is causally prior to the size of the workforce and organizational structure is, at least initially, usually prior to size (Aldrich, 2002: 355). In stressing technology, Aldrich was following in the footsteps of Joan Woodward whose ideas remain influential (Klein, 2006), even though she died in 1971. Aldrich reached the conclusion, with Woodward, that technology, rather than size, might be the crucial contingency variable (Aldrich, 2002; Mindlin and Aldrich, 2002). More highly structured firms – those that seem more bureaucratic – need to employ more people, Aldrich suggests. Size is an effect rather than a cause, a dependent rather than an independent variable and the major cause of the degree of structure, according to Aldrich’s re-analysis, is the technology in use in the organization. Woodward reached these conclusions after studying about 80 industrial firms in the southeast of England with a focus on the technology used (Woodward, 1965). She argued that the more routinized the technology, the more the firm had a structured set of organizational authority relations. Woodward’s types classified technologies into:  MANAGING ORGANIZATIONAL DESIGN 393 1. Small batch and unit production (where the products are for different customers with small runs) 2. Large batch and mass production (where production runs are much larger and customers fewer) 3. Process production (where a continuous flow process is premised on spec- ifications and standards). Firms with similar production systems were organized in a similar manner with their degree of technical complexity related to: (a) the number of levels in the organization; (b) the span of control of front-line supervisors (how many people they supervised); and (c) the ratio of managers and administrative staff to the total workforce. Organizations using the least and the most complex technologies – unit and process production, respectively – showed a number of similarities. These organizations had a low level of specialization compared with the managers in the mass production firms. Small-batch and unit production firms employed fewer specialists because these organizations required more generalist skills for more variable production runs; also, these firms tended to be smaller than mass pro- duction organizations, so staff had to be technically more competent. In process production, staff specialists had a very high status and were sometimes difficult to distinguish from technically expert management. Both process and unit and small-batch production had relatively low levels of bureaucracy compared with mass production. Woodward related differences in organizational structure and technology to the central problems that each category of organization dealt with. Unit and small- batch production focused on product development – meeting specific customer requirements for single or small batches of a specialist product. Process organ- izations’ central issue was marketing – they had to ensure that the continually flowing output from the production process met sufficient immediate demand. In a continuous process, any change to any parameter may affect all others, so decision-making has to be pooled because of the sequential and reciprocal nature of the issues involved. In mass production, efficiency in administering standardized production is central. Because decisions about production have major resource and related implications that tend to be referred up to functional specialists responsible for the arena within which the decision issue falls, the structure is bureaucratic. Later research suggested that technology does not determine organizational behaviour. Orlikowski and Yates (1994) found that both the technologies in use and the organizational structure change interactively as users engage in dialogue with designers and modify technologies in practice; again, the changes in technol- ogy and structure are a result of local politics and negotiations over managerial adaptation that slowly lead to institutionalization. When the components of an organizational design are such that two or more events can interact in unexpected ways, it is interactively complex. Systems that are both technologically complex and tightly coupled are the most difficult to control. A tightly coupled complex system with little buffering or redundancy in design built into it is an accident waiting to happen because of a paradox: a complex system requires thorough diagnosis to identify the critical issues but one that is tightly coupled requires quick action 394 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES to prevent the problem from amplifying through the system. Perrow (1986) argues that in complex organizations, such as large nuclear power reactors, for instance, non-routine technologies and tight coupling, can lead to ‘catastrophic accidents’. SARFIT: STRUCTURAL ADJUSTMENT TO REGAIN FIT Child (2002) argued that managers’ strategic choices preceded any structural fac- tors determining organizational structure. Managers choose work plans, resources and equipment. The technologies and structures that ensue will be the result of managerial decisions linking the available resources with the necessary tasks. The organization’s competitive position and culture will constantly be adjusted. Lex Donaldson argued that, periodically, because any organizational design would become misaligned with the contingencies with which it had to deal, a structural change to regain fit between structure and changed contingencies would be necessary (Donaldson, 2002). Donaldson called his approach the SARFIT model, in which SARFIT stands for Structural Adjustment to Regain Fit. Its basic premise is that as organizations’ contingencies change, such as their size, tech- nologies and environments, the design that they have adopted may become less appropriate than it was initially: hence, they have to adjust their design structurally to regain fit with the changed contingencies. TABLE 12.3 Change management Factors forcing change Factors accommodating change The business cycle of boom and bust Diversification smoothing out market, cyclical and seasonal variations in business, making change less necessary Competition, increasing or diminishing market Divisionalization spreading risks across a portfolio share of products Levels of indebtedness, either fuelling or Divestment where product lines are eliminated, dragging growth down together with the structures supporting them, if they consistently fail Divisional risks, as some divisions fail to meet Risk-management advice from non-executive the performance targets set, and others exceed directors, diminishing performance failures them An organization concentrated on a specific product range for the domestic market will typically have a structure organized around functions such as finance, sales and production. As the firm diversifies into an increased number of products aimed at different markets, such a structure will no longer be well tuned to the changing circumstances. Under such circumstances, firms will likely attempt a structural adjustment to regain fit. Donaldson (2002) argues that organizational design will shift as variables that moderate its performance change, such as its size or the tasks that it is designed to accomplish. For instance, a firm may see its performance suffering because it has ceased to be innovative. In response to this diagnosis, the organization may  MANAGING ORGANIZATIONAL DESIGN 395 hire more creative and design staff; consequently, the size of the organization increases and to justify their existence, the staff come up with new products, processes and related ideas. Donaldson argues that changing contingencies to fit an extant structure, while feasible, is more difficult than changing structure so that it is better aligned with the changing contingencies; this will especially be the case in a competitive busi- ness environment where a firm’s position is always going to be judged in relation to its competitors. Organizations and their dominant coalitions, he suggests, are more likely to readjust their structure than those contingencies that they are obliged – by competitive pressures – to handle. Organizations do not actually have to hire more employees to increase capa- bilities. They can outsource design to a creative agency, shrinking employee size. Shrinkage in size, following Donaldson’s logic, creates a less bureaucratic structure and increases organizational interdependence as the firm comes to rely on the external agency. Size is a variable fixed by contracts, and employing more people is not the only contractual option available: outsourcing is an alternative. Donaldson finds that changes in contingency, such as moving to new markets or products, initially lower performance. Lower performance leads to a structural adjustment to regain fit and a new cycle of matched contingencies. The process is one of trial and error. Periodically, the organization will still require additional changes to its design as contingencies continue to change. Managers have choice but choose to do what the contingencies indicate. Contingency theory of one kind or another has contributed a great deal to the theory of organizational design, linking design with performance in some cases, while in others organizational design is linked with variables such as size and technology. INSTITUTIONAL THEORY Institutional theory was developed in the 1950s and 1960s and early contribu- Institutional theory tions emphasized the role of conflict and of the negotiated order between different focuses on how interest groups. More recently, ‘new institutional theory’ has emerged and shifted organizational design and practice become the emphasis to understanding how organizations appear legitimate in the eyes cultural capital of stakeholders. through a coercive, DiMaggio and Powell (2002) considered how rationalized myths lodged in mimetic or normative institutional settings shape organizational action. These rational myths help isomorphism that secure organizational legitimacy in order to capture resources and mobilize sup- hastens their adoption elsewhere. port. Organizations adopt similar forms and practices because of the strength of these rational myths in a process of isomorphism. The adoption of particular Isomorphism is a forms and practices is a means of gaining legitimacy in the eyes of important similarity in form, stakeholders by projecting an image of rationality. The ensuing symbolic display referring to a situation in which might well be decoupled from, or loosely coupled with, ‘what actually happens’. organizational Institutional isomorphism has become, perhaps, the key concept for much designs and research during the past decade. According to institutional theorists, the three practices in different forms of isomorphism combine to make organizations that are subject to isomor- organizations are phic pressures appear increasingly alike, at least at a surface level. Normative nonetheless similar. isomorphism works as an ideal metric of legitimacy. Institutional theory takes legitimacy as its master concept. It sees the quest for legitimacy as the driving force in making organizations more alike. Meyer and 396 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES Rowan (1977) argued that modern societies consist of many institutionalized rules, providing a framework for the creation and elaboration of formal organizations. Many of these rules are rationalized myths that are widely believed but rarely, if ever, tested. They originate and are sustained through public opinion, the educa- tional system, laws or other institutional forms. Thus, many of the factors shaping management and organization are not based on efficiency or effectiveness but on social and cultural pressures to conform to already legitimate practices. For instance, there is a lot of pressure on organizations to adapt to new tools invented by fashionable management gurus. Institutional theory analyses the impact of this pressure on organizations and management decisions. Failing to achieve success simply becomes further fuel for endorsing the norma- tive model more strongly. Three ideal-type mechanisms of organizational change by institutional isomorphism have been sketched, as we can see in Table 12.4. TABLE 12.4 Types of isomorphism Type of isomorphism Description Definition Normative When professionalization Normative isomorphism occurs when an projects shape entire organization’s members are normatively occupational fields predisposed, perhaps through a long period of professional training and socialization, to favour certain sorts of design and practices. The widespread use of the partnership form by law and other professional firms is a case in point Coercive When external agencies impose Coercive isomorphism occurs when some changes on organizations – most powerful institution obliges organizations in its obviously through practices of domain, on threat of coercion, to comply with state regulation certain practices and designs Mimetic Copying what is constituted as In simple language, mimetic isomorphism means culturally valuable ways of doing the process of copying. Organizational designs or arranging things – cultural and practices that are seen to be successful are capital copied because they are associated with success Institutional entrepreneurs can be thought of as champions of change. Institutional entrepreneurs make strategic choices that have determinate conse- quences for an industry; however, these choices are limited by institutional rules that frame what are legitimate or viable strategies for action. Candace Jones’ (2001) study of the early years of the American film industry, from 1895 to 1920, takes from institutional theory the idea that firms’ practices depend on the stra- tegic choices that key agents make; these choices, in turn, depend on the social construction or enactment that they make of the environment in which they are operating, which frame their mental models of the institutional field. When a particular set of mental models becomes embedded in practice, a trajectory is launched for the development of an institutional field. Thus, initial conditions, especially an entrepreneur’s career history as defined by their choices, help shape the frame through which subsequent choices can be made by privileging certain frames. Organizations erect barriers to imitation based on their control of either property rights or knowledge; where they are successful in terms of consumer  MANAGING ORGANIZATIONAL DESIGN 397 responses to their practices, they entrench non-imitable competitive advantages that will depend on the unique mix of local resources and knowledge that they can continue to corral and control. At the core of all modern organizations of some size and complexity are pro- fessionals. Professions, Scott maintains, define, interpret and apply institutional elements such that they are the most influential contemporary creators of institu- tions. According to Scott (2008), professions as institutions rest on three different pillars: the regulative, normative and cultural-cognitive pillars, familiar from DiMaggio and Powell (2002). Internal professional control is largely embedded in shared sensemaking created through these three pillars. Within professions, there are distinctions between different generic categories of social action, suggests Scott. Creative professionals are lodged in universities, think tanks and research centres. Carrier professionals are those who translate professional messages and spread them to new actors, arenas and agencies: edu- cators, trainers, consultants, and so on. The largest sub-category is comprised of the clinical professionals who deal with specific cases and clients. The world is increasingly professionalized, according to sociologist John Meyer (Krücken and Drori, 2009). Professionals, irrespective of where they are located in the world, have a great deal in common with other members of the same profes- sion. For instance, scientists in a specific disciplinary community abide by similar standards and rules everywhere; the editors of prestigious scientific journals and periodicals apply similar standards, as do the organizers of conferences. Those who employ scientists do so because of the professional competence that they have mastered – they have rules built into them through the disciplines they have mastered, making their actions relatively unproblematic for managerial control because of their discipline – in every sense of the word. Brunsson and Jacobsson (2000) elaborate how standards are a major mecha- nism of institutional isomorphism. Since the late 1980s, starting from a concern with quality, international standards bodies have issued rules on an increasing number of arenas of organizational activity, such as ecological impact. A significant industry of global consultancy, auditing, certification and accreditation accompa- nies these new managerial standards. Higgins and Hallström (2007) focused on the evolution of national standards bodies, the participation in government of some of the pioneers of standardization, and how their relationship with public authorities developed in reference to rationally and consensually arrived-at ‘tech- nically-best’ solutions, based on the growing prestige of independent expertise. Standards and the regulatory routines based on them play a specific instrumen- tal role in organizations. They construct the manager as someone who is seeking to improve constantly. The most important framework (Cole, 1999), without a doubt, is ISO 9001, dating from 1987. This standard, produced by a technical committee of the International Standards Organization (ISO), while only seven pages in length when originally produced, has been adopted globally in all sizes and forms of organizations. It is the rational management plan par excellence, being a standard for all management anywhere. In excess of one million organ- izations have been certified to ISO 9001 in over 170 countries, yet as insiders to the ISO world point out, it is likely that several times that number have applied the standard without seeking certification. Judged on sales of the standard alone, hundreds of millions of employees throughout the world have had contact with, or have been influenced by ISO 9001 or one of its industry-specific derivatives, 398 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES such as ISO/TS 16949:2000 and ISO 22000:2018. The role of the highly abstract (‘generic’) ISO 9000 quality assurance standards and of ISO’s subsequent manage- ment standards is to elaborate practices by which corporate managers can shape their identity. Because these practices are subject to certification and recurring audit, the manager’s and the organization’s sense of legitimacy is enhanced. They must be doing the right things if they are following standards and are certified and audited as doing so! As audit never finds perfection – perfectibility is impos- sible – the manager must constantly manage and live with the need to constantly improve; any error or inadequacy uncovered by audit simply serves as further justification for improvements in the application of the standard. Standards are fashionable. Management academics often look down at man- agers for following fashion. Barbara Czarniawska, at Gothenburg University in Sweden, and Rene ten Bos, at Nijmegen University in the Netherlands, take issue with theorists who treat fashion pejoratively or look down on fashion as trivial (Czarniawska, 2005; ten Bos, 2000). Both point out that following fashion can be a positive and exciting experience for managers and organizations alike. Czarniawska alerts us to the paradoxical nature of fashion in that it is simulta- neously about ‘invention and imitation, variation and uniformity, preserving the status quo’ (2005: 144). Managers seek to make their organizations similar to models that are already institutionalized as positive examples. They do not want to deviate too far from the forms that are already culturally valued. Thus, organizations end up being similar not because it is efficient for them to be so but because it is institutionally rational. Sticking to legitimate forms bestows legitimacy. Hence, organizations in similar fields of activity tend to be similar in their design, functioning and struc- ture. These are the basic insights of institutional approaches to organizational analysis. Newer entrants succeed by creating innovations that make existing models unfashionable. IN PRACTICE 2 020 was the year that the department store seemed to become relatively extinct. A combination of COVID-19, responses to it such as lockdowns and the increased take-up of digital retail by customers saw many famous brands disappear. Using a library subscription to the Financial Times, go online and search for articles by Eric Platt (2020) on ‘Neiman Marcus and the demise of the US department store’, published on 8 May, and Jonathan Ely (2021) on ‘Asos and Boohoo rip up centuries of British retail heritage’, from 7 February. Read the articles carefully and then attempt to answer the following questions: 1. What sense would institutional theory make of the data reported in the articles? 2. What role has fashion played in the role of the department store’s demise? 3. If you do not live in the UK or the USA, have similar trends played out in your country? If so, describe them. 4. What do you see as the gains and losses for you as a consumer from these changes in organizational design?  MANAGING ORGANIZATIONAL DESIGN 399 MODERN DESIGNS M-FORM The M-form organization was one of the earliest alternatives to bureaucracy. M-form organizations According to Alfred Chandler, the M-form facilitates growth through diversifica- have a hub of central services linked to tion across products, industries and markets, and includes the notion of delegation spokes with profit of power and authority to divisional managers. The growth of firms has seen an centres that are evolution from national to multinational corporations (MNCs). These MNCs adopt usually specialized an internal structuring that includes an operational and strategic integration of in terms of either business functions that minimize costs and economize via internal coordination products or regions. and control, and as such achieve governance economies. The M-form represents a combination of a divisional structure with hierarchical control and functional flexibility (see Figure 12.1). The core functions: finance, R&D, etc. FIGURE 12.1 The multi-divisional form (MDF) structure. The many small triangles symbolize profit centres nurtured and controlled by the parental core company in the centre Chandler (1990) argued that the M-form is more efficient due to the cost advantages that ‘scale and scope’ provide. Chandler defined scale as plant size, and scope as the use of many of the same raw materials to produce a variety of products. The M-form of organizing was invented by General Motors to encompass central control and ownership, vertical integration of the production, formal inter- nal coordination through vertical and horizontal linkages between decentralized divisions, and corporate head office function and specialized staff concentrated 400 MANAGING ORGANIZATIONAL PROCESSES AND STRUCTURES in departments and subunits. After the lead of firms such as General Motors and DuPont, it was largely firms that had strong and distinct product lines as their central strategy that made the switch early, setting up a divisional structure based on the product lines. Where the CEO of the firm had a sales, marketing or finance background, the firm was also more likely to have switched to an M-form struc- ture early. Over time, more and more CEOs came from a finance background and such CEOs were most likely to opt for an M-form organization. Typically, established firms were more likely to shift to the M-form than newer firms. However, there is an interesting mimetic effect: as other firms in an industry change to the divisional form, then any remaining firm is more likely to do so (Fligstein, 1985: 387). Overall, Fligstein concluded: those in control of large firms acted to change their organizational structures under three conditions: when they were pursuing a multiproduct strategy; when their competitors shifted structures and when they had a background in the organization such that their interests reflected those of the sales or finance departments. (Fligstein, 1985: 388) Devolved geographical or product-based divisions have to perform according to criteria fixed centrally – for instance, a certain return on investment (ROI). Thus, rules were more oriented to outcomes rather than to processes, unlike the classic bureaucracy. From the 1990s onward, the M-form came under increasing pressure (Pettigrew et al., 2002), especially in the USA, changing towards a multi-subsidiary rather than a multi-divisional form because of tax and anti-trust regimes in the USA and their effects on the ownership and control of corporate capital (Zey, 2008). MATRIX ORGANIZATIONS In matrix Matrix organizations are a mixed organizational form in which traditional verti- organizations, cal hierarchy is overlaid by a horizontal structure consisting of projects, products reporting relationships are and business subsidiaries or geographical areas. Matrix organization has been grid-like rather adopted by multinational firms with varying degrees of success, especially in than traditionally large, project-based organizations. hierarchical. The key characteristic of a matrix organization is a multiple command structure Employees report to in which employees experience dual or multiple lines of authority, responsibility both a functional and a product manager. and accountability. Matrix structures are best for temporary projects with desig- nated cost, time and performance standards. Classical matrix design is specified by the choice among the authority structure, integrating mechanisms such as teams, and by the formal information system (see Table 12.5). Wherever projects are a key component in the way that products or services are delivered, then a matrix organizational design can be considered. It makes, in theory, for a more flexible organization. SHAMROCK ORGANIZATIONS A shamrock organization is an organizational structure in which a core of essen- tial executives and workers are supported by outside contractors and part-time  MANAGING ORGANIZATIONAL DESIGN 401 TABLE 12.5 Advantages and disadvantages of matrix organizations Advantages of a matrix organizational Disadvantages of a matrix organizational structure structure Increased frequency of communication in the Creates ambiguity about resources and personnel organization assignments An increase in the amount of information the Encourages organizational conflict between organization can handle functional and project managers Flexibility in the use of human and capital Produces conflict among individuals who must resources work together but have very different backgrounds Increased motivation, job satisfaction, Leads to insecurity for functional managers commitment and personal development as well as and erosion of their autonomy, making it more heightened ease in achieving technical excellence costly in terms of overheads and staff, more within the organization meetings, delayed decisions and information processing help. We will often find this structure in design-oriented companies such as Nike. The employees in the shamrock do the designing, while the manufacture of the products is contracted out. The shamrock leaf shape is a symbolic representation of an organization with three distinct parts, as defined by Charles Handy (1990). It is illustrated in Figure 12.2. Core Workers (knowledge and