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A CONCEPTUAL FRAMEWORK FOR THE DESIGN OF

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A CONCEPTUAL FRAMEWORK FOR THE DESIGN OF Powered By Docstoc
					                        William Ouchi
                        UCLA Anderson School of
                             Management




                     A CONCEPTUAL
                      FRAMEWORK
                     FOR THE DESIGN
                           OF
Management Science   ORGANIZATIONAL
      (1979)            CONTROL
                       MECHANISMS
                     Presented by: Sandra Corredor
                                        Motivation
                                    




• Formal limits of authority: given by virtue of individual rank.
• Informal limits of authority: granted to the individual by the
  workers as a result of their trust in and respect.
Problem: rewarding individual cooperation
 towards firm’s objectives


Control: design and improvement of mechanisms
 through which an organization can be managed.


IN SUM: Control mechanism depends on
 The clarity with which performance can be assessed.
 The degree of goal incongruence.
                                  Preferred Mechanisms
Firm’s mechanisms for evaluation & control
   1. Market: measure & reward.
   Price mechanism: solving goal incongruity
   Allow individuals to pursue non-organizational goals
   (at personal loss of reward)

   2. Clans: complete socialization.
   High internal commitment by Informal social system
   (e.g. socializing)
   Eliminate costly forms of auditing and monitoring

   3. Bureaucracies: evaluation with socialized
   acceptance of objectives.
   Rules and formal authority for monitoring, evaluating,
   and directing.
   Partial information (Rules Prices)
Which mechanisms are used
    in purchasing and
warehousing departments?
   Which mechanisms are used
       in purchasing and
   warehousing departments?
Employed by purchasing agents: market mechanism.
Supervisor to purchasing agents: bureaucratic
 mechanism.
Warehousing: bureaucratic mechanism. Process and
 standard (output & quality) rules compared to actual
 performance (can be observed and measured).
Overhead: when no inexpensive way to determine
 performance (friction prices) ⇒ Formulating rules,
 monitoring, measuring (team work), comparing with rules.
 Manager and
 Foreman/Supervisor
Manager selects for promotion only workers with high
 internal commitment to the firm's objectives that can
 maintain such deep commitment.
Lowers explicit surveillance and evaluation.
Value sharing builds a clan mechanism.

                                      Information Requirements
                                  Prices        Rules       Traditions
                      Shared
     Requirements




                      Values
Social




                    Legitimate
                                                                 Clan
                     Authority
                                             Bureaucracy
                     Norm of
                                  Market
                    Reciprocity
                         Internal Prices



Assumptions in this example? ⇒ No internal
               transfer prices.

Internal price does not need a hierarchy of
                  authority…

Barriers to pricing internally: technological
 interdependence, uncertainty, incomplete
      contracts… In sum: market failures.
Costs and Benefits of Control
Search and select ‘clan-type’ people
   Cost of Search and Acquisition: High Wages
   Benefit: Perform tasks without instruction, work hard
Instruct people into the ‘clan’ system
   Cost of training: instruct, monitor, and evaluate unskilled
    workers (who are likely to be indifferent to learn organization
    skills and values). High rates of turnover.
   Costs of monitoring: developing rules, supervising.
   Benefit: heterogeneous system of people that can be
    controlled. Explicit rules (codified knowledge) offset
    turnover costs.
Explicit techniques of control…
democratic power structure to prevent
offensive control

                                    Form of                   Corresponding
   People Treatment
                                  commitment                   control type

     Totally Unselective           Internalization               Market
                                  believes objectives to be
(anyone - no further treatment)
                                    good and desirable

    Selection / Screening
                                    Identification                Clan
             Training              with trainer of dpt.
   (skill and value training)

          Monitoring                 Compliance                Bureaucracy
(monitor behavior and output)
                               “Loose coupling”
Bureaucratic & Market control are
unsuitable for many organizations
                Knowledge of the Transformation Process
                         Perfect              Imperfect


         High        Behavior/Output          Output
                      Measurement           Measurement
Ability to           (Apollo Program)    (Women’s Boutique)
Measure
Outputs
                         Behavior        Ritual and Ceremony,
        Low            Measurement        “Clan Control” (L.T.)
                     (Low uncertainty)   (Research Laboratory)
                                 Connections


     Norm of reciprocity alludes to inability of
     opportunistic behavior: mutual hold-up, with
                repeated interactions.

Search costs for finding ‘clan-type’ individuals also
 assume no opportunism (no costs for revealing true type).

  He mentions Barnard’s “zone of indifference”.

  Clan behavior within individuals is related with
       literature on inter-firm trust (e.g. RBV).
                                   Some notes…
 Evolutionary perspective: Ouchi admits that mechanisms are
   not uniquely applied. Seems also to hold that organizations
 evolve from ‘clan – like’ mechanisms to ‘bureaucracy/market
                        – like’ mechanisms

    Bureaucracy minimize mistakes and might be better at
  adapting new technologies: this could lead to higher survival
                           rates.

 Clan behavior is related to motivation advantage of Vertical
                 Integration [Mahoney (1992)].

  As stated in Mahoney (1992) measurement problems are
 dimensions of agency problems (i.e. bureaucracy vs clan)…
   To decide among market and firms other TCE dimensions
                   should also be studied.

				
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posted:4/27/2014
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