Authors:

ANNA GRANDORI & GIUSEPPE SODA

Industry and Innovation,

Vol. 13, No. 2, 151–172, June 2006

A Relational Approach to Organization

PRESENTED BY:MUHAMMAD ISHTIAQ ISHAQ

Criticizes organization forms as ‘‘discrete alternatives’’ and ‘‘coherent’’ set attributes.

Proposes model with coordination mechanisms and rights allocations

Quantitative methods of network analysis as applied to relations among firm’s resources and activities.

Field experiment in a medium size firm

Abstract

Available approaches to organizational design share various limits that a relational approach can contribute to overcome.

Limits are: Design is intended as a process of choice between known

discrete ‘‘forms’ rather than as a process of the search for forms devised ad hoc to solve specific problem.

Start with ‘‘independent variables’’ considered as ‘‘given’’ and typically assumes one-to-one correspondence between the state of independent variables and the superior ‘‘form’’.

based on observed forms rather than on criteria for developing forms

The prevailing criterion for choosing an organization structure is information cost reduction, with little acknowledgment of knowledge as a distinct input to organization design

Introduction

Theoretically, the approach is based on an integration classic contingency theory, Transaction cost economics Resource-based and knowledge-based

organizational analyses complementarity-based design and Relational view of organization forms

Introduction

Initial collection of resources and activities exists (Nodes).

The appropriate unit of analysis in organization design should lie within the following lower and upper bounds:Technical inseparability sets a lower boundNodes should include only similar activities or

resources that generates complementarities and need for coordination.

A heuristic of relative elementarity provides an upper bound: nodes should in any case be more elementary sub-systems with respect to the system of activity that is to be designed

Resources, Activities & Actors

Complementarities among specialized resources give rise to different types of interdependence and only interdependent activities ‘‘need’’ to be coordinated.

Two basic configurations can be distinguished: Complementary resources are pooled to generate

activities; activities are interdependent because they use the same resource pool, that is, they have a common input (resourcebased or ‘‘pooled’’ interdependence);

Complementary activities perform operations that increase the value of resources; they can do so in a sequence, whereas activities are interdependent because they exchange resources (transactional or ‘‘sequential’’ interdependence), or they can do so in parallel.

Complementarity, Interdependence and Coordination:Model of Optimal

Coordination

The two design criteria used are: The likelihood of bringing about any Pareto-improvement in

outcomes, or, rather of producing errors and mis-adaptations.

The speed and cost of the process of adjustment (a coordination cost criterion).

If the supply of resources is ‘‘unlimited’’ with respect to the demand of activities, and the best use of resources in the various activities is known and stable, then no information-based coordination is ‘‘needed’’: no price for signaling the relative economy in the use of resources is to be made, no program to indicate what activity should be performed when, no communication and decision device for adjusting the content of any activity to that of any other

Complementarity, Interdependence and Coordination:Model of Optimal

Coordination

Uses network analysis as a procedure for organization design.

This perspective brings network analysis and organization design closer, classic independent variables of organization design can be seen as networks of tasks and resources, and dependent variables as combinations (networks) of coordination mechanisms.

In addition, the repertory of measures of network structure—centrality, density, structural equivalence, connectivity, structural holes—can be thought of as indicators of some of the traditional dimensions of organizational structure centralization, lateral all to all integration, substitutability, decomposability and linking pin-based integration.

Networks of Interdependence and Networks of Coordination: A Case Study

The general measures of network connectivity are also informative about the overall level of interdependence in the system. We shall consider ‘‘density’’ measures (the number of actual links on the total number of potential links) and ‘‘transitivity’’ measures (the number of sets of three nodes—triples—that are actually connected, on the total number of potentially connected triples).

In particular, transitivity measures allow to asses whether interdependencies are predominantly linear (suggesting that the network is chain shaped); or rich in cycles and re-cycles (suggesting that the network is a web).

Networks of Interdependence and Networks of Coordination: A Case Study

Medium sized Italian company, called Mobil Green S.p.A.

Analysis of Interdependence

Once resource and activity nodes have been identified, interdependences can be assessed.

For each pair of activities one or more values of interdependence have been assigned, measuring the level of interdependence of either transactional or resource-based origin.

In this specific case, we have found four types of interdependence relations, characterized by Q-uncertainty, by resource-constrained Q-uncertainty, by C-uncertainty and by resource-constrained A-uncertainty.

Analysis of Interdependence

The second step of the relational procedure is the assessment of the current coordination mechanisms used in the company.

The method used is a correlation analysis between interdependence matrices and coordination matrices to detect sub-optimal matches.

For each coordination mechanism described in the theory section computed an activity by activity matrix where if Xij is equal to 1 the mechanism is used to coordinate I and j activities; Xij takes value 0 if the mechanism is not used.

To evaluate the degree of match between interdependencies and actual coordination mechanisms researchers computed a QAP analysis among the matrices.

Analysis of Coordination Mechanisms

But let us control it further by comparing these highly interdependent activities for each pair, the actual mechanisms used by Mobil Green and the prescribed superior mechanisms.

After analyses, not only A-uncertain constrained links are ‘‘under-coordinated’’ by slack and queues, procedures or simple communications; but also some of them are ‘‘overcoordinated’’ by all-to-all negotiations.

Analysis of Coordination Mechanisms

The approach to organization design presented here is based on a procedure, not on a repertory of alternative forms which allows solving new design problems, to devise structures in new fields where no repertory exists and to solve complicated organizational problems.

The devised organizational arrangement is a nexus of overlaid multiple coordination mechanisms which is consistent with the proposition that as sources of complexity add up in a relation, the larger and more mixed the superior set of coordination mechanisms should become.

Third, the superior model of specialization and division of labor is also often mixed: some units are and should be ‘‘partitions of tasks’’, while other units are and should be ‘‘partitions of resources’’.

Implications & Further Research

Fourth, to the extent that coordination networks do follow the patterns of complementarity and interdependence among activities and resources, they should not be expected to be necessarily denser within firms.

The boundaries of property rights over assets are sensitive to partially different considerations than the boundaries of ‘‘tightly coupled’’ coordination.

Finally, further steps in developing generative and relational approaches to design can be taken. In the approach presented here, the nodes of networks are resources and activities.

Implications & Further Research

A further step would be to consider mechanisms themselves as nodes and to study the interactions among mechanisms themselves, that is, their relations of complementarity, substitutability, preferential attachments and the like, through relational and network methods.

That would lead to a relational approach to organization and organization design in an even stronger sense than the one advanced here.

Implications & Further Research