We’ve been discussing, thus far,
organizations and organizational theory,
how strategy impacts organizational design
and effectiveness, various fundamentals of
organizational structure, the external
relationships, and various other elements
(such as organization size) that might
influence organizational structure.
The text does not provide a lot of
information on hospital structure or how
structure in other health care organizations
Some detail on that, from other sources,
would be of interest.
The acute care hospital…
It would be far less complex if it fit the usual
organizational pyramid. Its management structure
differs substantially from the bureaucratic model
of other types of large organizations.
These differences are caused by the unusual
relationships between the formal authority of position
represented by the managerial hierarchy and the
authority of knowledge possessed by members of the
In the typical community hospital, the professional
staff members do not fit into the pyramid as do
staff who work for and are paid by the hospital.
As a result, the organizational pattern is a dual pyramid
with the managerial hierarchy and the medical staff
hierarchy existing side by side.
Note that some acute care hospitals integrate the
professional staff into the organization structure, which
means its members are likely to be salaried; Dept. of
Veterans Affairs hospitals and military hospitals are
Thus, a dual pyramid- two lines of
authority- violates the management
principle of unity of command, which
contravenes a postulate of the classicist
Henri Fayol. One line extends from the
Governing Board to the CEO and from
there into the managerial structure and
hierarchy. The other extends from the
Governing Board to the professional staff.
These two intersect in departments such as
nursing, in which activities are both
managerial and clinical, forming a matrix
set of relationships. The complexity of this
structure is illustrated by the fact that many
hospital staff often have move than one
immediate superior. (next slide…)
For example, the work of nurses in clinical areas is
directed by a head nurse, who is a first-level
manager in a functional department (nursing), as
well as by members of the professional staff,
usually physicians, in terms of specific orders for
a patient. These directions may be contradictory
because each group interprets objectives and the
means of attaining them in terms of its own value
systems and requirements.
A dual hierarchy can exist. The medical
staff can be shown as separate from the
hospital, and there may be no clear line or
reporting relationship between it and the
CEO. The professional staff, in turn, my be
accountable to a “medical director”.
Put another way…
Mintzberg believed that almost all organizations
or systems could be included in one of five basic
designs based on configurations of the strategic
apex, operating core, middle line, the techno-
structure, and support staff. He labeled these
design alternatives as the simple structure, the
machine bureaucracy, the professional
bureaucracy, the divisionalized form, and the
The simple structure…
It represents the simplest organization
design. It has a strategic apex, which may
be one person, such as the owner and/or a
physician in private practice, or the director
of a small ambulatory care center. In
addition, it has an operating core consisting
of a group of workers. The middle line,
techno-structure, and support staff
components are very small or missing.
The machine bureaucracy
This design is characterized by a large,
well-developed techno-structure and
support staff because there is a great
emphasis on work standardization and a
focus on marketing and financial and
operational control systems.
Major decisions are made in the strategic
apex, which features rigid patterns of
authority. Spans of control are narrow,
decision making is centralized, and the
organization is functionally
departmentalized . This design typifies
manufacturing organizations, although
some hospitals also exhibit elements of this
The professional bureaucracy…
More typical, hospitals and other large
HSOs, as well as universities and other
professionally dominated organizations
such as public accounting firms, are
organized as professional bureaucracies.
This form is characterized by an operating
core that is composed primarily of
professionals and that forms the heart of the
organization; authority is decentralized to it.
The techno-structure is underdeveloped
because work is done largely by
professionals who do not need- indeed, do
not permit- others to do their work.
In larger professional bureaucracies, such as
hospitals, support staff may be highly
developed and diverse. This staff is needed to
support the professionalized operating core.
The divisionalized form…
The divisionalized form of organization
design has independent units that are joined
by a shared administrative overlay. In
contrast to other designs this form is
characterized by a large, well-developed
middle line because division managers are
responsible for their divisions and may be
given considerable decision-making
Examples of divisionlized forms include
corporations such as IBM, federal and large
state governments, and health systems,
which may evolve from mergers and
consolidations within the health care
The adhocracy, the fifth of Mintzberg’s
organization designs, is the most difficult of the
five to describe or understand. It is both complex
and non-standardized. This form contradicts much
of what the classical design concepts described
earlier dictate- hierarchical authority and control,
standardization of work and workers, and strategic
direction from the top level of the organization.
Instead, adhocracies have a tremendously fluid
structure in which power is constantly shifting and
coordination and control are by mutual adjustment
through the informal communication and
interaction of competent experts.
The adhocracy often takes the form of a matrix
structure or project teams with emphasis on activities in
both the operating core and technostructure.
The power in adhocracies shifts between
professionals and technical experts. This design
can be a free-form structure with frequently
changing job descriptions and a flexible concept
HSOs might use adhocracy in multi-discplinary
programs for elderly or chronically ill people or
women, or in the research-oriented departments (e.g.,
oncology, genetics) in academic health centers.
Choosing an Organization Design…
Typical HSOs have many different designs
embedded in them as various parts try to
match structure to objectives, management
philosophies, the preference of their
workers, and environmental pressures.
In a large and complex HSO, such as a teaching
hospital, the dental clinic may have a simple
structure, the clinical laboratory may be structured
as a machine bureaucracy, and the medical and
surgical nursing units may be professional
bureaucracies. The hospital might be one of
several hospitals that form a health system, with
the system using the divisonalized form.
Simultaneously, the hospital could have a
project team of administrative experts in
strategic management, marketing, finance,
and information systems that, parallel to the
team members’ regular staff positions and
structured as an adhocracy, operates as a
consulting firm selling expertise to clients
such as smaller hospitals and physician
Peter Drucker suggested that managers
selecting an organization design evaluate
the options against the following criteria:
Clarity, as opposed to simplicity (A modern
office building is exceedingly simple in design,
but it is very easy to get lost in one. A Gothic
cathedral is not a simple design, but your
position inside it is clear; you know where to
stand and where to go.)
More from Drucker…
Economy of effort to maintain control and
Direction of vision toward the product
rather than the process, the result rather than
Understanding by each individual of his or
her own task, as well as that of the
organization as a whole
And still more from Drucker…
Decision making that focuses on the right issues,
is action oriented, and is carried out as the lowest
possible level of management
Stability, as opposed to rigidity, to survive
turmoil, and adaptability to learn from it
Perpetuation and self-renewal, which requires that
an organization be able to product tomorrow’s
leaders from within, helping each person develop
continuously; the structure also must be open to
Ch. 6 - Designing Organizations for
the International Environment
Organizations are increasingly reducing
boundaries and increasing collaboration
Opportunities have been enhanced because
of rapid improvements in technology,
communications, and transportation.
Also, competitive forces have required many
companies to move from a domestic to a global
The importance of the global
Fortune magazine’s list of the Global 500, the
world’s 500 largest companies, indicates that
economic clout is being diffused across a broad
In Exhibit 6.1, each circle represents the total revenues
of all Global 500 companies in each country. Although
the U.S. accounts for a majority of the Global 500
revenues, a number of smaller and less developed
countries are growing stronger.
3 factors motivate companies to
1. Economies of Scale.
2. Economies of Scope.
3. Low-Cost Production Factors.
Economies of Scale…
1. Building a global presence expands an
organization’s scale of operations,
enabling it to realize economies of scale.
*Note that economies of scale also enable
companies to obtain volume discounts
from suppliers, lowering the
organization’s cost of production.
Economies of Scope:
Economies of Scope, where scope refers to the
number and variety of products and services a
company offers, as well as the number and variety
of regions, countries, and markets it serves.
*Having a presence in multiple countries
provides marketing power and synergy.
Consider McDonalds, who does not
have to deal with individual suppliers
in each country.
Low-Cost Production Factors:
One of the earliest, and still one of the most
powerful, motivations for U.S. companies
to invest abroad is the opportunity to obtain
raw materials and other resources (labor) at
the lowest possible cost.
No company can become a global giant
overnight. Managers have to adopt a
strategy for global development and growth.
Various stages of development span the move
from domestic to a global presence.
• The domestic stage
• The international stage
• The multinational stage
• The global stage
The domestic stage (stage 1)
The company is domestically oriented, but
managers are aware of the global
environment and may want to consider
initial foreign involvement to expand
production volume and realize economies of
scale. Market potential is limited to
primarily the home country.
The international stage (stage 2)
The company takes exports seriously and begins
to think multi-domestically. Multi-domestic means
competitive issues in each country are independent
of other countries; the company deals with each
Multiple countries are identified as a potential market,
and the Co. maintains contracts with independent sales
firms in the various countries.
The multi-national stage (stage 3):
Now the company has extensive experience
in a number of international markets and
has established marketing, manufacturing,
or research and development facilities in
several foreign countries. A large
percentage of revenue comes from sales
outside the home country.
Think Sony of Japan or Coca-Cola of the U.S.
The global stage (stage 4):
Now the country transcends any single
Global companies truly act in a global fashion,
and the entire world is their marketplace.
• Global companies such as Nestle’, Royal
Dutch/Shell, and Unilever are examples of global
One of the most popular ways companies
get involved in international operations is
through international strategic alliances.
The average large U.S. corporation, which
had no alliances in the early 90s, now has
more than thirty, many of those with
Typical alliances include licensing, joint
ventures, and consortia.
A joint venture is a separate entity created
with two or more active firms as sponsors.
This is a popular approach to sharing
development and production costs and
penetrating new markets.
Joint ventures may be with either customers or
• Sprint, Deutsche Telecom, and Telecom France.
Consortia, or groups of independent
companies, including suppliers, customers,
and even competitors, that join together to
share skills, resources, costs, and access to
one another’s markets.
Airbus Industrie, for example, is a consortium
made up of French, British, and German
Designing Structure to Fit Global
One dilemma that managers face is choosing
whether to emphasize global standardization
versus national responsiveness.
They must decide whether they want each
global affiliate to act autonomously or whether
activities should be standardized across
countries. (It’s the choice between globalization
versus a multi-domestic global strategy. See
The globalization strategy means that
product design, manufacturing, and
marketing strategy are standardized
throughout the world.
However, economic and social changes,
including a backlash against huge global
corporations, have prompted consumers to be
less interested in global brands and more in
favor of products that have a local feel.
A multi-domestic strategy means that competition
in each country is handled independently of
competition in other countries. Thus, a multi-
domestic strategy would encourage product
design, assembly, and marketing tailored to the
specific needs of each country.
Domino’s Pizza knows that the basics of crust, sauce,
and cheese work for a pizza everywhere, but beyond
that , there are no hard and fast rules.
As indicated in Exhibit 6.3, when forces for
both global standardization and national
responsiveness in many countries are low,
simply using an international division
within the domestic structure is an
appropriate way to handle international
When technological, social, or economic
forces may create a situation in which
selling standardized products worldwide
provides a basis for competitive advantage,
a global product structure is appropriate.
This structure provides product managers with
authority to handle their product lines on a
global basis and enables the company to take
advantage of a unified global marketplace.
In many instances, companies will need to
respond to both global and local
opportunities simultaneously, in which case
the global matrix structure can be used.
We won’t get into this, but more detail on this
structure is discussed beginning on Page 218.
As companies begin to explore international
opportunities, they typically start with an
export department that grows into an
This division is challenged by greater
complexity and differentiation needs, the need
for integration (of services and functions), and
the problem of transferring knowledge and
innovation across a global firm.
Regarding increased complexity and
differentiation, companies have to create a
structure to operate in numerous countries
that differ in economic development,
language, political systems and government
regulations, cultural norms and values, and
infrastructure such as transportation and
Regarding need for integration, with
multiple products, divisions, departments,
and positions scattered across numerous
countries, managers face a tremendous
As described in Chapter 4, integration refers to
the quality of collaboration across
With regard to transfer of knowledge and
innovation, the diversity of the international
environment offers extraordinary
opportunities for learning and the
development of diverse capabilities.
Most organizations tap only a fraction of the
potential that is available from the cross-
boarder transfer of knowledge and innovation.
Global Coordination Mechanisms
Coordination can be enhanced by the use of
global teams (cross-border work groups),
headquarters planning (get headquarters
involved in planning, scheduling and
control), and have expanded coordination
roles (by creating specific organizational
roles or positions for coordination).
At the same time, organizations must find
ways to effectively achieve coordination
and collaboration among far-flung units and
facilitate the development and transfer of
organizational knowledge and innovation
for global learning.
Just as social and cultural values differ from
country to country, the management values
and organizational norms of international
companies tend to vary depending on the
organization’s home country.
Studies have attempted to determine how
national value systems influence
management and organizations.
Two dimensions in particular have a strong
impact on how organizations operate.
• Power distance
• Uncertainty avoidance
Power distance or the degree to which
people accept inequality in power among
institutions, organizations, and people. Low
power distance means that people expect
equality in power; high means people
accept inequality in power among
institutions, organizations, and people.
With regard to uncertainty avoidance, if you
are high in this, you feel uncomfortable
with uncertainty and ambiguity and thus
support beliefs that promise certainty and
conformity. Low uncertainty avoidance
means that people have a high tolerance for
the unstructured, the unclear, and the
There are three different national approaches to
coordination and control (the Japanese, American
and European models).
Japanese companies have centralized coordination,
where top managers at headquarters actively direct and
control overseas operations.
European Firms have a decentralized approach, where
international units tend to have a high level of
independence and decision-making autonomy.
And the American model of coordination
In our approach organizations have delegated
responsibility to international divisions, yet
retained overall control of the enterprise
through the use of sophisticated management
control systems and the development of
specialist headquarters staff.
Lastly, the transnational model of
organization represents the most advanced
kind of international organization. The
transnational model creates an integrated
network of individual operations that are
linked together to achieve the multi-
dimentional goals of the overall
In this model, structures are flexible and
ever-changing. Subsidiary managers initiate
strategy and innovations that might become
strategy for the corporation as a whole.
Coordination is achieved through corporate
culture, shared vision and values, and
management style, rather than through
structures and systems.
Ch. 7 Manufacturing And Service
This chapter explores service and
manufacturing technologies and how
technology is related to organizational
Technology refers to the tools, techniques,
machines, and actions used to transform
organizational inputs (materials, information
and ideas) into outputs (products and services).
• Technology is an organization’s production process
and includes work procedures as well as machinery.60
How should the organizational structure be
designed to accommodate and facilitate the
production process is the issue being
An early study completed by Joan Woodward
in the 1950s may give us insight.
• Woodward developed a scale and organized the
firms in the study according to technical
complexity of the manufacturing process.
Woodward’s three basic categories
of technical complexity:
Group I: Small-batch and unit production
Custom work, i.e. Steinway and Sons
Group II: Large-batch and mass production
Production runs of standardized parts, i.e. auto
Group III: Continuous process production
There is no starting and stopping. This represents
mechanization and standardization one step beyond
those in an assembly line, i.e. chemical and nuclear
power plants, etc. 62
In response to technology complexity...
The number of management levels and the
manager/total personnel ratio increase as
technology complexity increases from unit
production to the continuous process.
Put another way, greater management intensity is
needed to manage complex technology.
Woodward also discovered that successful firms
tended to be those that had complementary
structures and technologies.
Thus, strategy, structure, and technology need to be
aligned in a changing competitive environment.
Since Woodward and the 70’s...
New developments have occurred in
manufacturing technology, to include
robots, numerically controlled machine
tools, and computerized software for
product design, engineering analysis, and
remote control of machinery.
The ultimate technology is called computer-
integrated manufacturing where mass
customization is possible.
Regarding service firms and tech.
Whereas manufacturing organizations
achieve their primary purpose through the
production of products, service
organizations accomplish their primary
purpose through the production and
provision of services, such as education,
health care, transportation, etc.
The characteristics of service technology are
outlined in Exhibit 7.7 on page 260 and in the
following slide. 65
Differences Between Manufacturing and
1. Tangible product
2. Products can be inventoried for later
3. Capital asset intensive
Service Technology 4. Little direct customer interaction
5. Human element may be less
1. Intangible product
2. Production and consumption take
6. Quality is directly measured
7. Longer response time is acceptable
3. Labor and knowledge intensive
8. Site of facility is moderately
4. Customer interaction generally high
5. Human element very important
6. Quality is perceived and difficult to
7. Rapid response time is usually
8. Site of facility is extremely important
Service: Product and Service: Product:
Airlines, Hotels,Consultants, Fast-food outlets, Cosmetics, Soft drink companies,
Healthcare, Law firms Real estate, Stockbrokers, Steel companies,
Retail stores Auto manufacturers,
Sources: Based on F. F. Reichheld and W. E. Sasser, Jr., Food processing plants
“Zero Defections: Quality Comes to Services,” Harvard Business
Review 68 (September-October 1990): 105-11; and David E.
Bowen, Caren Siehl, and Benjamin Schneider, “A Framework
for Analyzing Customer Service Orientations in Manufacturing,”
Academy of Management Review 14 (1989): 75-95.
Service Technology characteristics:
intangible output (vs. tangible product)
production and consumption take place at
the same time
labor and knowledge intensive (vs. capital
the human element is very important (vs.
little direct customer interaction).
More service tech. characteristics:
quality is perceived and difficult to measure
rapid response time is usually necessary (vs.
longer response time being acceptable)
site of the facility is extremely important.
Re: Departmental Technology...
Charles Perrow described two dimensions
of departmental activities that were relevant
to organizational structure and process.
The first was the number of exceptions in the
work, or the variety of the work.
The second concerned the analyzability of work
activities. When the work is analyzable, it can
be reduced to mechanical steps.
More on Perrow...
His dimensions of variety and analyzability
form the basis for four major categories of
routine technology (little task variety)
craft technology (tasks require extensive training
engineering technology (complex with substantial
varieties in the tasks performed)
non-routine technology (high task variety and the
conversion process is not analyzable).
Once the nature of a department’s
technology has been identified, then the
appropriate structure can be determined.
Such things as formalization, decentralization,
worker skill level, span of control, and
communication and coordination, will be
affected by a department’s technology.
Specifically, for non-routine tasks, the structure can be less
formal and less standardized.
In routine technologies, most decision making about task
activities is centralized to management.
Work staff in routine technologies typically require little
education or experience, which is congruent with
repetitious work activities.
The span of control is smaller when the work tasks are
more complex and non-routine.
Lastly, the communication activity and frequency increase
as task variety increases.
Thus far we have examined how org. and dept.
technologies influence structural design.
This chapter also examines how technology
influences structure in terms of
Interdependence means the extent to which
departments depend on each other for resources
or materials to accomplish their tasks.
• James Thompson defined three types of
interdependence that influence organization
structure: pooled; sequential; and reciprocal
Lowest form of interdependence among
Work does not flow between units.
McDonald’s Restaurants or branch banks
are examples of pooled interdependence.
Pooled interdependence exists in firms with
Banks, brokerage firms, and real estate offices all mediate between
buyers and sellers, but the offices work independently within the org.
This occurs when parts produced in one
department become inputs to another
Sequential interdependence occurs in what
Thompson calls long-linked technology.
Large orgs. that use assembly line production,
such as in the auto industry, use long-linked
technologies and are characterized by
The highest level of interdependence.
Exists when the output of operation A is the
input to operation B, and the output of
operation B is the input back again to
Occurs in orgs. with what Thompson called
Hospitals are an example, where a patient may
move back and forth between different depts. 76
How does technology affect job
Job design includes the assignment of goals
and tasks to be accomplished by employees.
Job rotation (moving workers from job to job to
give them more variety), job simplification
(reducing the variety and difficulty of tasks
performed by a single person), job enrichment
(greater responsibility, recognition, etc), and/or
job enlargement (expansion of tasks performed)
may be ways to improve productivity or
The sociotechnical systems approach...
In addition to job design, this approach
recognizes the importance of human needs.
The “socio” portion of the approach refers to
the people and groups who work in
organizations and how work is organized and
coordinated. The technical portion refers to the
materials, tools, machines, and processes used
to transform organizational inputs into outputs.
• Joint optimization, then, means that the org. functions best
when the social and technical systems fit the needs of one
Ch. 8 - Information Technology and
This chapter reviews the importance of
information technology and knowledge
It is estimated that managers spend up to
80% of their time actively exchanging
Note that first line supervisors deal with problems
about operational issues and past events, while top
mgt. deals with uncertain, ambiguous issues, such as
strategy and planning. 79
Initially computers were used to improve
efficiency, i.e. reducing labor costs by
having computers take over some tasks.
Known as transaction processing systems (TPS)
Now computers are used in data
warehousing (use of huge databases that
allow users to access data directly) and in
data mining (looking for patterns of data to
aid in decision making). 80
Data mining is similar to MIS
A management information system is a
computer-based system that provides
information and support for managerial
The MIS is supported by the organization’s
transaction processing systems and by
Related concepts include the EIS (executive
information system) and the DSS (decision support
In the past, most organizations relied on
financial accounting measures as the
primary basis for measuring performance.
Today most companies realize that a
balanced view of both financial and
operational measures is needed for
successful organizational control, and as a
means to evaluate effectiveness. See Ex. 8.5
Major Perspectives of the
Do actions contribute to improving
Examples of measures: profits,
return on investment
Customers Internal Business Processes
Does the chain of internal activities and
How well do we serve our customers? processes add value for customers and
Examples of measures: customer Examples of measures: order-rate
satisfaction, customer loyalty fulfillment, cost-per-order
Learning and Growth
Are we learning and changing?
Examples of measures: continuous
process improvement, employee
retention, new product introductions
Sources: Based on Robert S. Kaplan and David P. Norton, “Using
The Balanced Scorecard as a Strategic Management System,”
Harvard Business Review, January-February 1996, 71-79;
Chee W. Chow, Kamal M. Haddad, and James E. Williamson, 83
“Applying the Balanced Scorecard to Small Companies,”
Management Accounting 79, No. 2 (August 1997), 21-27; and
Cathy Lazere, “All Together Now,” CFO, February 1998, 28-36.
Info. technology as a strategic weapon...
Using information technology as a strategic
weapon is the highest level of application.
Information technology can build and
enhance strategy by providing better data
and information within the org. as well as
help redefine and support external
Examples of internal applications
Networking- links people and departments.
Intranets-a network- a private company
wide information system.
ERPs (Enterprise Resource Planning)
systems which collect, process, and provide
information about a company’s entire
enterprise, including order processing,
product design, purchasing, inventory, etc.
Extranets- gives access to key partners,
suppliers, or customers.
E-commerce-essentially augments or
replaces the swapping of products or money
with the exchange of information between
computer systems. This is business to
business purchasing online.
Recall low-cost leadership and
differentiation as competitive strategies...
Information technology can lower cost
through operational efficiency gains.
The use of ERP systems can automatically control
operations ranging from the procurement of
supplies to shop floor manufacturing.
A way to differentiate a company is to lock
in customers with information technology.
Things such as improving customer service can
differentiate a company from competitors.
Info. Technologies impact on Org. design:
May lead to smaller organizations due to outsourcing of
many functions and thus less need for in-house
May lead to decentralized organizations due to reduced
layers of management and ease of communication.
May lead to improved internal and external
May lead to hiring of additional staff to use and
maintain the system.
May lead to greater employee participation.
IT may also be used in knowledge
It may be desirable to systematically find,
organize, and make available a company’s
intellectual capital as well as to foster a
culture of continuous learning and
knowledge sharing- build on what is already
Note that knowledge is not the same thing as
data. Data are simple, absolute facts and
figures that in and of themselves are not
Information, though, is data that has been
linked to other data and converted into a useful
Knowledge goes a step further; it takes
information, connects it to other information,
and from that makes decisions. 90
Explicit vs. tacit knowledge…
Explicit knowledge is formal, systematic
knowledge that can be codified, written down,
and passed on to others in documents or
Tacit knowledge is based on personal
experience, rules of thumb, intuition, and
judgement. It includes professional know-how
and expertise, individual insight and
experience, and creative solutions that are often
difficult to communicate and pass on to others.91
Explicit knowledge may be equated with
knowing about; whereas tacit knowledge is
equated with knowing how.
Data warehousing and data mining, knowledge
mapping (where knowledge is located in the
organization), and electronic libraries are ways to
manage explicit knowledge.
Dialogue, learning histories (through storytelling),
and communities of practice are ways to manage
Ch.9- Org. Size, Life Cycle, and
This chapter examines large vs. small firms
and how size is related to structure and
The chapter also examines a firms life cycle
and structural characteristics at each stage.
This chapter also examines bureaucracy.
Large vs. small
Organizations feel compelled to grow.
Advantages to a large organization may include
economies of scale, a global reach, a vertical
hierarchy and standardization, stabilization of
a market, and job security.
Advantages of a small firm include the fact that
they may be more responsive and flexible, have
a regional reach, have a flatter structure, be
simpler, and encourage entrepreneurship.
Note a paradox…
The advantages of small companies enable
them to succeed, and hence, grow large.
As a result a small company may become a
victim of its own success, shifting to a
mechanistic structure emphasizing vertical
hierarchies and spawning “organization
men” vs. entrepreneurs.
Solutions to becoming too big:
Big company / small company hybrid, where
you try to combine a big company’s resources
and reach with a small company’s simplicity
and flexibility (the divisional structure).
Front / back approach, where the company is
divided into different units with different roles.
The back part of the org. focuses on creating
and producing products and services, while the
front focuses on integrating and delivering
products and services to customers. 96
Org. life cycle:
Entrepreneurial Stage- the emphasis is on
creating a product and surviving in the
Problems include the need for leadership.
Collectivity Stage-departments are
established along with a hierarchy of
authority, job assignments, and a beginning
division of labor.
Problems include the need for delegation. 97
More on life cycle...
Formalization Stage- involves the
installation and use of rules, procedures,
and control systems.
Problems include too much red tape.
Elaboration Stage-the solution to the red
tape crisis is a new sense of collaboration
Problems include the need for revitalization.
84% of businesses that make it past the first
year still fail within five years because they
can’t make the transition from the
Organization Characteristics During Four
Stages of Life Cycle
1. 2. 3. 4.
Entrepreneurial Collectivity Formalization Elaboration
Characteristic Nonbureaucratic Prebureaucratic Bureaucratic Very Bureaucratic
Informal, one-person show Mostly informal, some Formal procedures, Teamwork within
procedures division of labor, bureaucracy, small-company
Structure specialties added thinking
Products or services Single product or service Major product or service Line of products or Multiple product or services
with variations services lines
Reward and control Personal, paternalistic Personal, contribution to Impersonal, formalized Extensive, tailored to product
systems success systems and department
By owner-manager By employees and By separate innovation By institutionalized
managers group R&D
Survival Growth Internal stability, market Reputation, complete
Top Management Individualistic, Charismatic, direction- Delegation with control Team approach, attack
Style entrepreneurial giving bureaucracy
Sources: Adapted from Larry E. Greiner, “Evolution and Revolution as Organizations Grow,”
Harvard Business Review 50 (July-August 1972): 37-46; G. L. Lippitt and W. H. Schmidt,
“Crises in a Developing Organization,” Harvard Business Review 45 (November-December 1967):
102-12; B. R. Scott, “The Industrial State: Old Myths and New Realities,” Harvard Business
Review 51 (March-April 1973): 133-48; Robert E. Quinn and Kim Cameron; “Organizational
Life Cycles and Shifting Criteria of Effectiveness,” Management Science 29 (1983): 33-51.
Org. characteristics during the various
stages of life cycle:
As the org. moves through the stages of life
cycle, changes take place in structure,
control systems, innovation, and goals.
Entrepreneurial: the org. is small, non-
bureaucratic, and a one person show.
Collectivity: the org. is in its youth. Growth is
rapid; employees are excited. The structure is
informal though procedures are emerging.
Formalization: midlife, and bureaucratic
characteristics emerge. Support staff are
added, procedures are formalized, and there
is a clear hierarchy and division of labor.
Elaboration: the mature organization that is
large and bureaucratic, with extensive
control systems, rules, and procedures.
As organizations grow, they become
Max Weber perceived bureaucracy as a threat to basic
personal liberties, but also recognized it as the most
efficient possible system of organizing.
Rules and standard procedures enable organizational
activities to be performed in a predictable, routine
Large orgs. rely on rules, procedures, and paperwork
to achieve standardization and control of large
numbers of employees and departments, whereas top
mgrs. can use personal observation to control a small
Bureaucracy exists in more centralized
organizations. In centralized orgs. decisions
tend to be made at the top, in decentralized
orgs., decisions are made at lower levels.
Re: personnel ratios, the ratio of top
administration to total employees is smaller in
large organizations. However, the number of
administrators to clerical and professional
support staff tends to increase as the firm
grows. Why? 104
Different approaches to control:
Relies on the use of rules, policies, hierarchy of
authority, written documentation, standardization, etc.
Occurs when price competition is used to evaluate the
output and productivity of an organization.
The use of social characteristics, such as corporate
culture, shared values, commitment, traditions, and
beliefs to control behavior. 105
Re: bureaucratic control...
Bases of control in this system include:
Rational-legal authority, based on employee’s
belief in the legality of rules and the right of those
elevated to positions to authority to issue commands.
Traditional authority is the belief in traditions and
in the legitimacy of the status of people exercising
Charismatic authority is based on devotion to the
exemplary character or to the heroism of an ind. person.
Organizations may use
a combination of
and clan control to
best meet the needs of
and the total
Lastly, organizational decline and
downsizing might occur in the absence of
decisive and appropriate management.
Organizational atrophy occurs when
organizations grow older and become
inefficient and overly bureaucratized.
• Consider Blockbuster Inc., which was the king of
the video-store industry in the 80s and 90s, and now
has had trouble adapting to the new world of video-
on-demand and upstarts like Netflix.
These organizations in decline also find
themselves vulnerable. This can sometimes
happen to small organizations that are not
yet fully established, and they are
vulnerable to shifts in consumer tastes or in
the economic health of the larger
Lastly, environmental decline, or reduced
energy and resources available to support an
organization can lead to organizational
A model of decline stages will be discussed
with the Chapter 13 material.