Company Strategy and Organizational Design (RLE: Organizations)

Roger Mansfield

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135947859
• Edition: 1
• Topic: Business
• Subtopic: Comportamento organizzativo
• Index: Business

Getting strategies and structures right for changing market conditions and successfully matching strategies and structures with each other, are crucial. This volume reviews and develops the extensive literature in the areas of business policy and organizational behaviour, taking the subject further by breaking down boundaries between subject areas within management studies; by adopting a dynamic approach to organizational issues; and by synthesizing the disparate, often confusing research findings in this area into a general theoretical approach which can be assimilated by managers faced with the problems of the real world.

1

THE STATE OF THE ART

The twin topics of company strategy and organizational design which are the foci of attention in this book have already been the subject of a very substantial body of literature. This has been aimed both at providing advice and guidance for practising managers, and also at enhancing our theoretical understanding of the phenomena. There can be little doubt that there is a great deal of wisdom incorporated in it. However, it is also clear that our knowledge is still grossly inadequate, and that a great deal remains to be done to improve this state of affairs. One of the factors, which both causes and reflects this inadequacy, is the lack of a cumulative impact in much of the work. This is at least partly a consequence of the failure to develop over-arching theoretical frameworks within which it is possible to synthesize the many and various theoretical ideas and empirical findings. The main purpose of the present work is to attempt to establish one such framework which may provide a useful way of integrating at least part of what we currently know or think we know in this area. The framework suggested will be based on the combination of the general approach used in ecology with a variety of ideas from systems theory. The main thrust of the present work relates to business firms. However, as much of the previous work and many of the arguments to be advanced would seem to be applicable to organizations generally, the discussion wherever possible will relate to all or most employing organizations, although some sections will refer specifically to companies, which in the present context refers largely to privately owned commercial and industrial concerns. However, before embarking on the main exercise it should prove useful to start with a consideration of the present state of the art.

It is clearly not possible to review systematically all the many and varied contributions to the literature and discuss their implications for the purposes of this book in the context of a single introductory chapter. Such an undertaking would almost certainly take many lengthy volumes to complete with any degree of thoroughness. Neither is it particularly obvious that such an approach would, in any case, be a useful exercise. The well-known saying about woods and trees may be an appropriate analogy in the circumstances, and the focus of attention here will be on the woods. All that is actually attempted in this chapter is a brief summary of the way knowledge in these areas has developed and a discussion of a few key ideas and issues. This is coupled with a consideration of some of the problems, apparently associated with the advancement of knowledge in these two related areas concerning company strategy and organizational design, and a mention of some of the points of debate which have still to be resolved.

Different Approaches

There can be little doubt that the study of work organizations in general and business firms in particular has attracted attention from a highly diverse set of researchers, practitioners and commentators. This diversity has possibly helped the advancement of knowledge in some ways by bringing many different perspectives to bear on the problems. However, there can be little doubt that this same diversity has been, at least in part, a cause of some of the current confusion in the field. It has to be acknowledged that many (probably a majority) of the debates or disputes to be found in the literature on organizational structures and strategies are a consequence of the underlying assumptions made by the parties rather than arguments about particular sets of evidence or logical theoretical deductions. A consideration of the variety of investigators who have approached the areas of company strategy and organizational design is sufficient to illustrate this point. In terms of academic disciplines it is clear that economists, psychologists, sociologists and political scientists have come in considerable numbers to study the phenomena in question. At least some engineers and social anthropologists have been prepared to join them. More recently, of course, with the world-wide increase in business education, it is the staff of business schools and kindred institutions who have tended to be most prominent. These business school academicians have themselves segmented their subject matter, and so students of business policy, organizational behaviour, managerial economics, marketing and business finance (to name only the most obviously relevant) have added their own distinctive approaches and assumptions to those from the more traditional academic disciplines.

As we have already noted, the size of the literature relevant to the present purposes is exceedingly large. Unfortunately, the quantity of published work in the area is not equalled either by its clarity or its applicability to the particular situations faced by practising managers. Before attempting to examine this literature in any detail it is perhaps worth sketching the historical development of knowledge in this area, as this will allow us to see the major issues more clearly, and also to understand more deeply the rationales behind the variety of theoretical ideas that have been proffered. It should also assist in the development of an appreciation of the basic theoretical strengths and weaknesses of the different approaches.

A first examination of the relevant literature, as it has developed over the years, suggests that, although there have been some notable attempts to link the study of company strategy with that of organizational design, in the main, the two fields of study have tended to develop separately. This division is most clearly exemplified by textbooks in the two areas which tend to treat their respective topics with only limited reference to the other. Partly this separation reflects the structuring of the curricula of business schools and kindred institutions, but in large measure it is a consequence of the nature of the research that has been carried out, and the divergence in the analytical frameworks that have been employed in the two areas of study. In historical terms, it would seem that the study of organizational design has a longer history than the study of strategy. This may possibly reflect the nature of the assumptions made for many years about the goals and strategies of organizations in general, and business firms in particular. Such assumptions, stemming from classical economics, tended to regard such issues as non-problematic, as it was considered that strategic Decision-making involved merely the rational pursuit of profit maximisation. Given the relative time scales over which the various sets of ideas have been formulated, it seems reasonable to start with a consideration of the development of ideas relevant to organizational design. However, it should be noted that the study of design has largely been based on the analytic study of organizational structures, to which has been added an assumption that the process of design can sensibly be based on such analyses by a process of extension.

The Development of Ideas on Organizational Design

It seems to have been generally accepted for a long time (certainly throughout the twentieth century) that the design of organizational structures has a considerable impact upon the ways in which organizational participants behave, and upon the functioning and effectiveness of whole organizations. However, the nature of such impacts and the mechanisms by which they operate remain problematic, despite a large amount of empirical research, theoretical reasoning, distillation of managerial or consulting experience and assertions based on ideological beliefs.

In the early part of the twentieth century, writing on the subject of formal organizations and administrative systems began to increase markedly and by the Second World War a distinct and substantial body of literature had been created. There were two main sources of such contributions. On the one hand there were academics, mainly in the sociological tradition, pre-eminent amongst whom was the German sociologist and social historian Max Weber. On the other hand, there were a variety of writers with a more managerial or practical orientation such as Fayol, Urwick and Barnard. Although their approaches and objectives were very different, they seemed in the main to share a common assumption that there was a single best way to organize and administer formal organizations irrespective of their different goals or situations. Although it would be unfair to these early writers to overstate this point, they tended to be searching for universal principles. It was assumed that these could, when discovered, be applied in the vast majority of, if not all, circumstances. Generally, few of the suggested principles were empirically tested. Indeed many of them were couched in rather vague terms which would have made rigorous testing impossible. In the main, the empirical research which was done relied on descriptive case studies, or at best, comparisons of small numbers of cases.

However, in the 1950s and 1960s research on organizational structure increased markedly in volume and changed in style. It was in this period that the comparative approach to the study of such phenomena came to dominate the field. The major pioneering studies in this area were carried out by Woodward (1958; 1965) and Burns and Stalker (1966) in Britain, and Lawrence and Lorsch (1967) in the United States. These studies moved the subject away from a reliance on case studies, essays based on managerial experience and armchair theorizing. The underlying logic of this research and a very large amount of subsequent work depended on the measurement of characteristics of organizational structures, the context and environment in which they operated, and aspects of organizational performance. It was assumed that systematic empirical examination of the relationship amongst these different sets of variables would result in the discovery of descriptive laws concerning the ways in which organizations were structured, the factors which determined (or at least influenced) such structures and the performance outcomes. It was also assumed by many writers that the laws (or empirical generalizations), discovered in this way, could then be used as a guide to the design of more effective structural arrangements. These research methods have been heavily criticised but have also been extensively defended. Although these debates continue, it must be stated that this style of approach is probably still the most common research strategy employed in the study of structures, and has undoubtedly provided the basis of much of our knowledge (real or supposed) concerning organizational design.

The comparative research approach very rapidly cast serious doubts upon the assumptions underlying the search for universal principles of administration. Such doubt led equally rapidly to the development of a so-called contingency perspective. This contingency approach suggested that structures should be designed to fit the particular objectives organizations were designed to achieve and the environmental situations in which they operated. It was held to be axiomatic that organizations were open systems, which could only be managed or studied if account were taken of the situation within which they operated. Even though there has been criticism of this approach from a variety of quarters on a number of different counts, contingency theory is now the closest thing there is to a prevailing orthodoxy on issues of organizational structure and design.

The Contingency Approach to Design

There is no single or simple formulation of structural contingency theory. Rather there are very wide variations in the various contributions of both empirical and theoretical types to the general framework. At its simplest, the theory suggests that organizational structures are contingent upon parameters of the organizational environment or context (e.g., Woodward, 1965; Lawrence and Lorsch, 1967; Pugh, et al., 1969). A slightly more complex formulation, more deserving of the title of contingency theory, states that the performance of an organization is contingent upon the fit between its structure and the organizational context and environment (e.g., Woodward, 1965; Burns and Stalker, 1966; Lawrence and Lorsch, 1967). This general proposition is clearly very different from the universalistic approach mentioned above, which preceded it in academic thinking on the subject. The ideas and empirical findings of the first three major comparative studies, carried out by Woodward (1958; 1965) and her colleagues in South Essex, Burns and Stalker (1966), and the Americans Lawrence and Lorsch (1967) contributed more to the formulation of contingency theory than any others. Three aspects of the work of these researchers should be stated at once. First, without being unfairly critical, it should be noted that, by modern standards, their research methodology would not be considered sophisticated, and in some respects the reporting of results was rather casual (this latter point applies particularly to Woodward's work). Secondly, all three studies used global measures of performance, without giving great detail of the measures. Thirdly, although the studies are often held to support a single theory, their results relate to different, albeit kindred, propositions.

In chronological order of publication, the first of these trend-setting studies was the one carried out under the direction of Joan Woodward. As we noted above, her study marks a very major turning point in the study of organizations. In essence, previous empirical research at the system level had been based on individual case studies, or in a few instances the comparison of a limited number of case studies. Woodward showed that large-scale comparative research with organizations as the unit of analysis was a real possibility with enormous potential. Any shortcomings in her methodology can only be assessed with hindsight. At the time her study broke new ground. The conclusions from her study were twofold: first, that technology was the major determinant of organizational structure; and secondly that organizational performance was dependent upon the fit between structure and technology. It should be noted that only a limited number of structural parameters (mainly aspects of configuration or shape) were considered. It is also the case that the reporting of the results, particularly regarding performance, was somewhat haphazard, as has been noted above. This being the case, it is unwise to put too much reliance on her findings. Indeed, generally, more recent studies have not replicated Woodward's findings (e.g., Hickson et al, 1971; Child and Mansfield, 1972) although some support was found in Zwerman's (1970) study of organizations operating in the United States. Overall the evidence that technology is the major determinant of structure is unconvincing. The evidence for the second of Woodward's findings, that it is the fit between technology and structure that determines performance, seems almost non-existent, although it must be stated that there is only very limited evidence tending to disprove this proposition.

Burns and Stalker's (1966) study was the next to make a major contribution to the formulation of the (then) emerging contingency theory. Their methodology essentially involved the comparison of a number of descriptive case studies. The complete lack of quantitative data or detailed descriptions of methodology make it virtually impossible to evaluate their study in these terms, and it is all too easy to suggest that differences between their conclusions and those of subsequent researchers may be due to the limited nature of their sample (confined to a single industry) or to methodological shortcomings. In highly simplified form, their conclusions suggested that organizational structures could be typified as either mechanistic (a somewhat similar, but more complex, conceptualization of a form of structure to Weber's concept of bureaucratic structure) or organismic. This latter type of structure was based (to an undefined extent) on lateral communication, power based upon knowledge and flexible role definitions. Burns and Stalker argued, on the basis of their studies, that mechanistic structures were most likely to lead to high performance under conditions of high environmental stability and relative certainty, whereas organismic structures would be more effective under conditions of high environmental uncertainty and where there was a considerable need to innovate. Although the Burns and Stalker study has been immensely influential, there are no clear-cut replications of it. Indeed the methodology employed and the way the study was written up were such that replication would be difficult.

The Lawrence and Lorsch study examined the relationships between the extent of internal differentiation between functional areas and the extent of structural integrative effort on the one hand, and the degree of uncertainty in the organization's environment on the other. They also showed that high performance was related to the fit between the extent of differentiation and integration and the degree of uncertainty in the organization's environment. Virtually all the measures used by Lawrence and Lorsch were based on the aggregation of managers’ perceptions, and their sample of organizations was, by modern standards, rather small, although the data they obtained were in some respects analyzed relatively rigorously. However, as with the Burns and Stalker study, there has been no directly comparable attempt to replicate the findings, so the generalizability must be regarded as problematic.

Overall, then, it can be seen that the empirical evidence upon which structural contingency theory was first based was rather disparate and inconclusive. Certainly it was suggestive of promising new avenues to follow. At the same time the early work needed to be followed by rigorous hypothesis-testing studies and replications, if a useful theory was to be developed.

Later Studies within the Contingency Framework

Since the three studies reviewed in the previous section there has been a very large number of research projects which to a greater or lesser extent have attempted to contribute to the development of the general contingency framework, built on the conceptualization of organizations as open systems. However, very few of these studies have attempted exact replications of earlier work, or rigorous tests of precisely stated hypotheses. In many cases there would seem to be a substantial element of post hoc theorizing in the proffered explanations of the results in contingency terms. A brief consideration of one series of three studies, which have attempted to examine a relatively precise set of contingency hypotheses with broadly similar methods, may help to illustrate many of the difficulties.

In 1972 Negandhi and Reimann published an article reporting a study of 30 firms investigating aspects of the emerging contingency theory in the context of a developing country (India). Specifically they ‘explored the impact of decentralization on the organizational effectiveness of firms under differing market conditions’. On the basis of earlier studies in the contingency framework, most particularly those of Burns and Stalker and Lawrence and Lorsch, they expected to find that decentralization of Decision-making was positively related to organizational effectiveness under conditions of high market competition, but negatively related to organizational effectiveness under conditions of low market competition. It should be noted that, although these propositions were a not unreasonable inference from the earlier work, they could not be said to follow from it in any rigorously logical way. As it turned out, however, they found that decentralization was positively related to both behavioural and economic indicators of effectiveness under conditions of both high and low market competition. They suggested that the reasons that their results diverged from their predictions were due to the conditions in developing countries differing from those in developed countries, where the earlier research had been carried out. Boseman and Jones (1974) tried to replicate Negandhi and Reimann's study in Mexico. Mexico is also a developing country, but it clearly has a very different cultural history to India. For whatever reasons, the results obtained in the two studies differed in certain respects, whilst corresponding in others. Boseman and Jones in their study of 20 Mexican firms found very similar results with respect to behavioural criteria of organizational effectiveness. That is, amongst the Mexican firms, decentralization of Decision-making was significantly positively related to behavioural measures of eff...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Title Page
• Original Copyright Page
• Table of Contents
• List of Figures and Tables
• Preface
• 1. The State of the Art
• 2. Organizational Goals and Performance
• 3. Open Systems and the Ecological Approach
• 4. Developing a Concept of Strategy
• 5. Organizational Structure and Organizational Design
• 6. The Organizational Environment
• 7. The Decision-making Processes Involved
• 8. Functional Specialization and Internal Differentiation
• 9. The Development of Company Strategies
• 10. Strategy, Design and the Individual
• 11. The Management of Strategy and Structure
• 12. The Role of Company Strategy in the Economy
• Bibliography
• Name Index
• Subject Index