The structural frame, part II INF 3270

Pål Sørgaard, Telenor R&I and IfI, September 18, 2007

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Vertical decentralisation

• How much decision-making power should be delegated to the managers down the line of authority?

• We focus on decentralisation of authority (not issues of location)

• Often referred to as delegation

• Coordination mechanism: mutual adjustment (between managers that have the power needed)

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Horizontal decentralisation

• How much decision-making power should pass from the line manager to the staff specialists and operators?

• Coordination mechanisms: standardisation

• Power to the analysts (decentralisation to people in the technostructure that set the standards)

• Power to the experts (in R&D ☺, in the operating core, etc)

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Five models for decentralisation

A. Vertical and horizontal centralisation

B. Limited horizontal decentralisation (selective)

– typically to the technostructure

C. Limited vertical decentralisation (parallel)

– strong divisional leaders

D. Selective vertical and horizontal decentralisation

– ad hoc, as needed, highly organic

E. Vertical and horizontal decentralisation

– professionals in the operating core run the game

• Each of these fit with one of the main configurations

– See table from lecture Sep 11

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The simple structure

• Characteristics

– prime coordinating mechanism: direct supervision

– key part: strategic apex (the boss)

– main design parameters: vertical and horizontal centralisation, organic structure

– situational factors: young, small, nonsophisticated technical system, simple, dynamic environment, possible extreme hostility or strong power needs of top manager, not fashionable

• Typical example: the entrepreneurial firm

– normally a boss and some employees (operating core)

• Under extreme conditions other organisations revert to the simple structure

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Variants and hybrids

• The simplest structure (more mutual adjustment)

• The crisis organisation (temporary)

• The autocratic organisation (dictatorship)

• The charismatic organisation

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Important features

• Flexible and dynamic, no bureaucracy

• Risky (depends on one person)

• Has a sense of mission, many people like them!

• Often a stage in a more mature organisation’s life

– It’s very hard to grow large with a simple structure

• The transition from simple structure to other configurations can be difficult

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The machine bureaucracy

• Characteristics

– prime coordinating mechanism: standardisation of work processes

– key part: technostructure

– main design parameters: behaviour formalisation, vertical and horizontal job specialisation, usually functional grouping, large operating-unit size, vertical centralisation and limited horizontal decentralisation, action planning

– situational factors: old, large, regulating, nonautomated technical system, simple and stable environment, external control, not fashionable

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The organisation as a programmed machine

• The operating core is the processor

• The technostructure does the programming

• Low-level programming where assumptions are hard- coded into the design

– equipment

– job descriptions

• The focus is efficiency and control

• Weber’s ideal

• Some remaining cases

– The Norway Post, Oslo sporveier, SAS, traditional mass production, classical bureaucracies such as the Tax Administration, National Insurance Scheme (NAV?)

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Max Weber 1864–1920

• The decisive reason for the advance of bureaucratic organisation has always been its purely technical superiority over any other form of organization. The fully developed bureaucratic mechanism compares with other organizations exactly as does the machine with the non- mechanical modes of production.

• Precision, speed, unambiguity, knowledge of the files, continuity, discretion, unity, strict subordination, reduction of friction and of material and personal costs — these are raised to the optimum point in the strictly bureaucratic organization (p 176 in Structure in Fives)

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The control issue

• Rules, regulations, formal communication, formal chain of authority: predictability

• Attempts are made to eliminate all uncertainties, so that the organisation can run smoothly, uninterruptedly

• By virtue of its design, the structure is ridden with conflict; the control system is required to contain it

– separation of planning and doing

– jobs with little satisfaction

– difficult to get heard

– vulnerable to disobedience

• Conflicts are not resolved, but bottled up

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Challenges for the machine bureaucracy

• Work of complex environments cannot be rationalised into simple tasks

• The work of dynamic environments cannot be predicted and made repetitive

• Does not cope well with full automation of the operating core

• Behaviour and lack of mutual adjustment

• Human problems

• Split strategy formulation and strategy implementation

– Assumes full information

– Assumes enough stability so that strategies remain relevant during implementation

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Future of the configuration

• Will become less common, especially in rich, developed countries

• Will remain superior in mass production involving manual work

• Loses (has lost?) its role as the main type of organisation, as the source for general principles about organising

• May still thrive in contexts were external control and predictability is given top priority

– this ought to be a dilemma for politicians

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The professional bureaucracy• Characteristics

– prime coordinating mechanism: standardisation of skills

– key part: operating core

– main design parameters: training, horizontal job specialisation, vertical and horizontal decentralisation

– situational factors: complex, stable environment; nonregulating, nonsophisticated technical system; fashionable

• Examples– universities, general hospitals, social-work agencies, craft

production firms, law firms, courts, accounting firms

• Core condition: complex enough to require professionals, stable enough to use standardised skills

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A different kind of bureaucracy

• Bureaucratic in the sense that coordination is achieved by standards, by design

• The standards are set by the professions involved

– e.g. medical faculties and Lægeforeningen

– not by the technostructure

• Classification, pigeonholing as a core process

– clients and cases are put in neat, predetermined categories (diagnosis)

– programs of action for each category are then applied

– schools build and maintain categories

• Pigeonholing creates equivalence between functional and market bases for grouping

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Focus on operating core

• Professional autonomy

– little behaviour formalisation

– little use of planning and control systems

– responsible to whom?

• Support staff developed

– In order to serve the professionals

• IT may be used heavily by the operating core (e.g. X-ray)

• Little or weak use of IT in order to run the business

– not highly regulating, not sophisticated, not automated technical system

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The administrative structure

• The professionals try to control the administrative structure

• Sometimes two hierarchies

– one bottom-up for the professionals

– one top-down for the support staff

– just like the University of Oslo!

• The administrators have limited power

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Some issues

• Relatively weak at coordination

– standardisation of skills is a loose mechanism

– need for more coordination may require other configurations

• Pigeonholing is not perfect

• Hard to deal with incompetent or unconscientious professionals

– some ignore the needs of the clients

• Inflexible structure

– little innovation, hard to change

– sometimes good at learning from its practice, but not always

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Can professional bureaucracies be better managed?

• Direct supervision by managers not in the profession is hard

• Other kinds of standardisation do not apply well

• Measuring performance may result in trouble

• Complex work must be under the control of those who do it

• More control has negative impact on innovation and dialogue with clients

• Change comes mainly with new professionals, through their schools and associations

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The divisionalised form

• Characteristics– prime coordinating mechanism:

standardisation of outputs

– key part: middle line

– main design parameters: market grouping, performance control system, limited vertical decentralisation

– situational factors: diversified markets (particularly products or services); old, large; power needs of middle managers; fashionable

• Examples– common among large corporations: Hydro (prev), Orkla

– other kinds of examples are Helse Øst, Høgskolen i Oslo

• Not a complete structure, an aggregate

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Typically

• The divisions are fairly autonomous

• There is little interdependence between divisions

• Divisions address separate markets

• Divisional leaders are very strong

• Headquarters focus on performance (economic result)

• Divisions are driven towards machine bureaucracy

• Comes as a result of diversification or acquisitions

• Split in separate organisations is a realistic alternative

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Powers of the headquarters

• Decisions on what divisions there should be

• Allocation of overall financial resources

• Definition of the performance control system

• Appointment of divisional managers

• Monitoring of the divisions on a personal basis

• Provision of certain common support services

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Conditions

• First of all: market (esp. product) diversity

– and divisionalisation encourages further diversification

• Divisionalisation based only on client or regional diversification often turns out to be incomplete

– hybrid: carbon-copy bureaucracy

• Technical system split in segments, one per division

• Environment: preferably simple and stable

– other environments often lead to hybrids

• Large and old (except federations)

• Power games and aggregation of power important factors

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Stages of divisionalisation Integrated form (pure functional)

By-product form

Related product form

Conglomerate form (pure divisional)

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Advantages compared to machine bureaucracy, but …

• Allocation of capital

– better done by the capital market?

– corporations priced lower than the sum of their parts

• Helps training managers

– better than a small, independent company?

• Spreads risk across markets

– conceals failures and bankruptcies too long, may cause others to fall?

• Strategically responsive

– focus on short term performance and the impact on structure in the division may be negative?

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Centralisation and synergies

• Tendency to centralise decision at headquarters based on MIS-data (management information system)

• “A cornerstone […] is letting heads of business units determine where and when to collaborate. If corporate managers take the lead, they often do not understand the nuances of the business. They naively see synergies that aren’t there. They tend to overestimate the benefits of collaboration and underestimate its costs.” Eisenhardt and Galunic (2000)

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Problems with divisionalisation

• Centralisation of power

• Bureaucratisation

• Reliance on MIS

• Outside private sector: artificial performance standards

• Pure divisionalisation may be a weaker alternative than full split

– remember: no environment of its own

• Controlled diversity more profitable than conglomerate

– by-product or related-product forms the more interesting

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No environment of its own

stable dynamic

Complex Decentralised

Bureaucratic

(standardisation of skills)

Decentralised

Organic

(mutual adjustment)

Simple Centralised

Bureaucratic

(standardisation of work processes)

Centralised

Organic

(direct supervision)

Professional

bureaucracy

Adhocracy

Simple

structu

reMachine

bureaucracy

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The adhocracy

• Characteristics

– prime coordinating mechanism: mutual adjustment

– key part: support staff (together with the operating core in the operating adhocracy)

– main design parameters: liaison devices, organic structure, selective decentralisation, horizontal job specialisation, training, functional and market grouping concurrently

– situational factors: complex, dynamic (sometimes disparate) environment; young (especially operating adhocracy); sophisticated and often automated technical system (in the administrative adhocracy); fashionable

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Design

• Focus on innovation, cannot rely on standardisation

• Goes away from the principle of unity of command

• Gives power to experts, but cannot rely on their standardised skills to achieve coordination

• Mutual adjustment in and between project teams

– project coordinators, meetings, etc

• Matrix structure common

– experts formally in functional units

– project teams based on (market) needs

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The operating adhocracy

• Solves problems on behalf of its clients

– think-tanks

– applied R&D institutes

– creative advertising companies

– manufacturer of prototypes

– experimenting theatre company

• May easily turn into a professional bureaucracy if more focused and with standardised methods

– e.g. from NR to Accenture

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The administrative adhocracy

• Solves problems, runs projects, on behalf of itself

• Typically a company where the operating core is truncated

– done in a separate organisation

– contracted out (outsourcing)

– by full automation (c.f. discussion of machine bureaucracy)

• Tricky issue of combining efficient production with high degree of innovation

– machine bureaucracy with a venture team is not an adhocracy

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Administration and support

• A lot of coordination needed

• Managers participate in project teams

• Ensuring proper management and anchoring of projects often demanding

• Need to monitor and redirect projects

• Distinction between line and staff becomes unclear

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Strategy in adhocracies

• Hard to split strategy formulation and strategy implementation

• Strategy tends to evolve

– formed implicitly by decisions made

– strategy formation, emergent strategy, strategising

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Conditions

• Dynamic and complex environment

• Interdependencies that need to be handled

• Frequent product changes

• Often young (esp. operating adhocracies)

• Sophisticated and sometimes automated technical system

• An element of fashion

– all the right words: dynamic, expertise, projects, etc.

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Some issues

• Ambiguities

– Unclear, multiple and changing lines of authority

• The most politicised configuration

• Not very efficient

• Danger of inappropriate transition

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An “evolutionary” interpretation

• To a large extent organisations compete (companies)

• As the economy develops, new environmental challenges emerge (e.g. use of IT)

• Some organisation try new structures to cope better with the challenges

• Those that succeed, tend to win in the competition

• Some solutions settle as types/configurations

• Thus, in an evolving economy, it is no surprise that we over time have an increasing set of typical configurations

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Overview of configurations

Structural configuration

Prime coordinating mechanism

Key part of organisation

Type of decentralisation

Simple structure

Direct supervision Strategic apex

Vertical and horizontal centralisation

Machine bureaucracy

Standardisation of work processes

Techno- structure

Limited horizontal decentralisation

Professional bureaucracy

Standardisation of skills

Operating core

Vertical and horizontal decentralisation

Divisionalised form

Standardisation of outputs

Middle line Limited vertical decentralisation

Adhocracy Mutual adjustment Support staff Selective decentralisation