Book 7: Organisational capabilities: structures and systems
_(Originally published on_ _OUBS Blog_ _)_
_In this book structure refers to the boundaries of the organisation and the ways the activities inside are co-ordinated. Systems are about information types and flows. Burns and Stalker (1961) describe two possibly systems: mechanistic and organismic._
_structural components, contingencies and configurations_
_This is based on Henry Mintzberg’s article “_ _The structuring of organisations_ _”._
_Mintzberg’s six ideal structural types:_
_Simple StructureMachine bureaucracyProfessional bureaucracyDivisionalised formAdhocracyMissionary_
_Key partStrategic apexTechnostructureOperating coreMiddle lineSupport staffIdeologyCo-ordinating mechanismDirect supervisionStandardisation of work processesStandardisation of skillsStandardisation of outputsMutual adjustmentStandardisation of normsDominant pull to:CentraliseStandardiseProfessionaliseBalkaniseCollaborateEvangeliseDecentralisationNone (centralised)Limited horizontalHorizontalLimited verticalSelective horizontal and verticalFull decentralisationPlanning and controlLittleAction planningLittleMuch performance controlLimited action planningLittleLiason devicedFewFewIn administrationFewMany throughoutFewTypical examplesSmall owner-manager firms undertaking simple activitiesFast food chains, airlines, telephone bankingHospitals, colleges, law firmsLarge conglomeratesCreative advertising agencies, bespoke software boutiquesKibbutz, Revolutionary movements_
_Mintzberg argues that “organisations can select their situations in accordance with their structural designs just as much as they can select their designs in accordance with their situations.”_
_Strategy and Systems_
_When Daft and Macintosh (1984) studied 86 firms, the same six sub-systems apeared most often for the formulation of strategy:
\- strategic plans
\- long rang plans (5 years +)
\- annual operating budgets
\- periodic statistical reports
\- performance appraisal
\- policies and procedures_
_Band and Sanlan (1995) identified some more:
\- structural devices like audits
\- MIS
\- budget and profit planning processes
\- HR management arrangements
\- R&D programmes
\- work practices and norms
\- explicit organisational values
\- use of external instruments (e.g. benchmarks)_
_Remember that the information requirements are different from a hierarchical company to an adhocracy and telecommunications often made location less important._
_As a control system for middle management, feedback is the most simply, comparing things to a standard and triggering action at variances. Problems are that there is a log between strategy formulation and feedback, feedback is vulnerable to poor specifications, misunderstanding and the feedback mechanism is sometimes designed too simple, e.g. only based on profitability._
_Band and Scanlan (1995) suggest “feedforward” control:
\- premise control (are our premises correct?)
\- implementation control (are things happening as thought?)
\- strategic surveillance (monitor threatening events)
\- special alert control (scan for low-probability events)_
_A more comprehensive approach comes from Simons (1995), using both feedback and feedforward integrating corporate culture.
\- Belief systems provide core values that are guiding for business strategy
\- Boundary systems show risks to be avoided
\- Diagnostic control systems (e.g. budgets) show critical performance variables
\- Interactive control systems (stimulate search and learning) show strategic uncertainties and allow for challenging assumptions_
_Strategy, Structure and Systems_
_You should try to put structure and systems together to form a competitive advantage, a long term one. This will be a changing progression of different strategies, structures and systems, put together by Greiner in 1972._
_(Phase, evolution stages — revolution stages, check Table 4.1)
Phase 1. Growth through creativity leads to crisis of leadership
Phase 2. Growth through direction leads to crisis of autonomy
Phase 3. Growth through delegation leads to crisis of control
Phase 4. Growth through co-ordination leads to crisis of red tape
Phase 5. Growth through collaboration leaders to Crisis of ?_
_Miller (1986) tried to show the close fit between strategy and structure:
The theme we wish to pursue here is that there are ties that unite strategy and structure; that given a particular strategy there are only a limited number of suitable structures and vice versa._
_Structural change brings a process of organisational innovation, which can as of Chandler (1977) either be an adaptive response or a creative innovation going beyond the existing practices. A Competitive advantage also comes from being different though and hence, after the multidivisional structure had become the norm by the 1970s, firms having adopted it stopped to have superior performance by the 1970s._
_Innovation in structures are always emerging. Some reasons are:
\- erosion of advantage through immitation of old ones
\- impact of new IT
\- competitive pressure for flexibility and low prices
\- rapid race for competitive innovation
\- competitive focus on time as a source of competitive advantage
\- growing importance of knowledge based assets_
_Galbraith and Lawler (1993) identified some new functional structures in organizations:
\- modified function unit with fewer levels and less functions for faster response
\- lateral unit with cross function teams
\- superfunctions unit grouped arround core processes e.g. product generation at HP includes R&D, manufacturing and purchasing
\- front-end/back-end hybrid (front around customer, end around products with lateral integration)
\- network organization (seperate companies integrated through a network)
\- function specialist (single function within informal network)_
_A closer look at those follow._
_Transaction cost economics (TCE, Book 4) are used to identify whether to make or buy. An entire organization can be viewed as a system of exchange transactions. Information asymmetry (somebody has different info than somebody else) leads to transaction costs related to incomplete or missing information. This can be:
\- search costs
\- contracting or negotiation costs
\- transaction control, regulation and audit costs
\- maintenance costs to develp the contract or transaction_
_Based on this belief, the hierarchy was established to overcome imperfections in otherwise efficient markets. Changes in information technology has led to more efficient markets enabling:
\- modified function unit uses IT to speed up information flow
\- the superfunction unit re-aligns structures with key processes (based on customer needs)
\- perfect markets can come from better access to information_
_These are just examples where information technology led to different flows of information enabling radical rethinking of structures_
_Network technologies also enable new ways of working with transactions now being conducted through markets, hierarchies and teams._
_A lateral unit is a cross-functionl team-based organization like a team of specialists interacting through e-mail, groupware and open databases. The front-end/back-end hybrid requires effective integration of two different structurs with different integration needs to bring a good product or service._
_Network organizations require a lead partner to integrate the network and function specialists simply rely on their specialist skills which are needed for a number of different informal networks._