Decision-making and contingencies (7)

Question 1

9 Parameters

2 last: decision-making

Answer 1

8. vertical decentralization

9. horizontal decentralization

Question 2

general definition

Answer 2

Centralization: occurs when decisions are made by members of the strategic apex

Decentralization: occurs when they are made by other members of the organization, including middle managers, staffers, and operators

Question 3

Reasons to decentralize

Answer 3

1. Coordination cannot be achieved by one brain
   difficult to receive all info
   difficult to process all info
2. Organizations must adapt to local conditions
   info takes time to transfer
   decisions take time to be made and implemented
   time can be a scarce resource
3. Autonomy increases motivation
   crucial for middle managers in any organization
   crucial for operators in professional bureaucracies

Question 4

Ways to decentralize

Answer 4

1. Vertically
   power moves from apex to middle line, so that decisions are delegated to lower-level managers
2. Horizontally
   power moves from apex/middle line to staff units and core, so that decisions are delegated to non-managers

geographically: functions dispersed from headquarters to other locations- nothing to do with decision-making

Question 5

Reminders

Answer 5

1. Operating decisions
   highly routinized and programmed
   generally included in regulated flows
2. Administrative decisions
   - guide operating decisions (coordinative), routinized and partly programmed, also included in regulated flows
   - handle special cases of low importante (exceptional), non routinized and partly programmed
3. Strategic decisions
   - handle special cases of high importance
   - neither routinized nor programmed

Question 6

Reminders

Answer 6

Identification

1. Recognition
2. Diagnosis: understand decision constraints

Development

3. Search
4. Design: develop custom-made solutions

Selection

5. Screening: decide which solutions to consider
6. Evaluation-choice: weighing possible solutions
7. Authorization

Question 7

Power over decisions

Answer 7

Informal power (moves horizontally): Collecting information, formulating advice

Formal power (moves vertically):
making the decision, authorizing the decision, implementing the decision

Question 8

Selective decentralization

Answer 8

most common with functional grouping

different decisions are delegated to different managers

decision-makers coordinate by mutual adjustment (using liaison devices)

Question 9

Parallel decentralization

Answer 9

most common with market-based grouping

different decisions are delegated to same managers

decision-makers coordinate by standardization of outputs and skills, using P/C systems and training

Question 10

Horizontal decentralization

Answer 10

power to the analysts

• automatic result of standardization
• a form of selective horizontal decentralization
• often goes with vertical centralization

Power to the experts

• usually staff, but also operators if professional
• appropriate when decisions have technical nature
• selective horizontal and vertical decentralization

Power to the members

• democratic (but not meritocratic) organization
• increases motivation but decreases efficiency
• easily reverts to centralized structure

Question 11

Bavelas’ 1950 study

Answer 11

Decentralized networks

• need more time
• make more mistakes
• develop hierarchies

Centralized networks

• higher morale for brokers
• lower morale for others

Question 12

5 common combinations

Answer 12

A. Power to apex –> direct supervision
B. Power to analysts –> Standard processes
C. Power to middle line –> Standard outputs
D. Power to staff experts –> Mutual adjustment
E. Power to operators –> Standard skills

Question 13

Summary of design parameters

Answer 13

Direct supervision is enabled by setting the level of specialization, unit grouping and size, and horizontal/vertical decentralization

Standardization of processes is enabled by formalization; standardization of skills by training and indoctrination; standardization of outputs by planning and control systems

Mutual adjustment is enabled by liaison devices

Question 14

Contingency theory

Answer 14

there is more than one best way to organize

structures should be tailored to internal and external factors, referred to as contingencies

single parameters do not affect performance (combinations of parameters do, their effects are dependent on context)

Requirements for effective structuring

• congruence: parameters’ fit with contingency factors.
• configuration: internal consistency of parameters

Question 15

Contingency theory (continued)

Answer 15

Dependent variables
specialization, formalization, indoctrination
unit grouping and size
planning and control system, liasion devices
vertical and horizontal contingencies

Independent variables
organizational age and size
regulation and sophistication of technical system
stability, complexity, diversity, hostility of market
ownership, power needs, norms and fashions

Mediating variables
comprehensibility, predictability, diversity of work
speed of response to environmental change

Question 16

Effects of age

Answer 16

older means more formalized

• with time, organizations repeat their work
• repetition faciliates learning
• benefits of learning mutilplied by formalization

Structure reflects the age of an industry

• older industries are more professionalized
• industry conditions at founding affect parameters
• some parameters are difficult to change later

Question 17

Effects of size

Answer 17

Largers means more formalized

• more people repeat the same work
• greater reliance on written communication

Larger means more specialized

• harder communication btw units
• finer division of labor within units
• greater differentiation btw units

Specialization leads to greater unit size

• similarly specialized workers are easier to manage
• their job is easier to standardize

Question 18

Organizational growth

Answer 18

1. Craft-based
   - informal grouping
   - lack of leadership
2. Entrepreneurial
   - vertical specialization
3. Bureaucratic
   - functional grouping
   - horizontal specialization
   - some standardization
4. Divisionalized
   - market grouping
   - more standardization

Question 19

Evidence from A/P Studies

Answer 19

the ratio of administrative workers (A) to production workers (P) mainly depends on the technical system

Question 20

Technical system vs. technology

Answer 20

Technology is knowledge applied to solve a problem, including specialized skills acquired by training

A technical system consists of instruments used by operators to transform inputs into outputs, which do not necessarily require specialized skills

technical systems vary along 2 dimensions:
regulation (degree of control)
sophistication (degree of comprehensibility)

Question 21

Stages of technical system

Answer 21

Unit production

• low regulation
• low sophistication

Large-batch or mass production

• high regulation
• low to high sophistication

Process production

• high regulation
• high sophistication
  ex: chemicals, fuels, energy

Question 22

Woodward’s 1965 study

Answer 22

linear relationships: span of control of apex and middle line, n. of managers, qualifications

Non-linear relationships: span of control of front supervisors, ratio of skilled workers, formalization

Question 23

Effects of technical system

Answer 23

Regulation leads to formalized behavior

• operating work is more predictable
• easier to specialize and standardize

Sophistication leads to more administration

• larger and more professionalized support staff
• selective decentralization to support staff
• greater use of liaison devices

Automation leads to organic administration

• no conflicts btw managers and workers
• no analysts and frontline supervisors
• more professional staff and skilled technicians

Question 24

Organizational environment

Answer 24

includes technology, customer preferences, competitors, political climate

• stable or dynamic, based on rate of change
• simple or complex, based on technology
• integrated or diverse, based on heterogeneity
• munificent or hostile, based on competition

Simple environments make work comprehensible; stable and/or munificent make it predictable; integrated ones make it less diverse

Question 25

A note on integration

Answer 25

An organization is integrated if its work concerns multiple stages of a supply chain (btw-stage) or the same stage of multiple supply chains (within-stage) Btw-stage integration: production of own inputs--> backward integration distribution of own inputs --> forward integration Within-stage integration own outputs as inputs for another supply chain Organizations can adapt to integrated environments by integrating themselves, but this is not required!

Question 26

Effects of environment

Answer 26

Dynamic environments favor organic structures - unpredictability impedes standardization - primacy of supervision and adjustment Stable environments may not favor bureaucracy - bureaucracy depends on other contingencies (age and size, technical system) Complex environments favor decentralization - cognitive overload leads to delegation - harder to supervise and formalize behavior - if dynamic, then mutual adjustment - if stable, then standardization of skills

Question 27

Effects of environment (continued)

Answer 27

Diverse environments favor divisionalization - cognitive overload leads to delegation - harder to get scale economies - harder to separate functions - each units deals with a market segment Hostile environments favor centralization - direct supervision increases speed of response - if complex, then temporary centralization (if this goes too long, organizations usually fail) Subenvironments --> selective decentralization - different structures allow differential responses - emergence of work constellations

Question 28

Most common responses

Answer 28

Stable and complex - decentralized - bureaucratic - standard skills Stable and simple - centralized - bureaucratic - standard processes dynamic and complex - decentralized - organic - mutual adjustment Dynamic and simple: centralized organic direct supervision In integrated environments, these structures are functional; in diverse ones, they are market-based

Question 29

Power-related contingencies

Answer 29

Internal/external ownership extent to which outside entities like governments, unions, shareholders control organizational decisions power needs of members extent to which parts of the organization wish to gain control over their own work and others' Norms and fashions extent to which organizations buy into institutional norms and cultural fads (from consultants)

Question 30

Effects of power

Answer 30

External control leads to formalization - top managers held responsible for decisions - written communication ensures accountability - standardized procedures for hiring and promotion Members' power needs lead to centralization - middle line pushes for vertical decentralization - staff units push for horizontal decentralization - apex responds by defending its own power Norms and fashions can worsen structures - often inappropriate to the context at hand (matrix structure in stable environments, participative decision-making in hostile environments) - attractiveness of the "one best way" to organize

Question 31

Rise and fall of the M-form

Answer 31

separation of ownership from management - increasing professionalization of managers - emphasis on performance measures like ROI Emergence of divisional (M-form) organizations - Celler-Kefauver Act of 1950 (limits to vertical integration and related M&A) - Diversification into new product markets - formation of market-based units De-diversification in the mid-1980s - growing inefficiencies; poor performance - international competition --> greater hostility - agency problems of managers vs. shareholder