Factors that would Determine the Philosophy and Strategy of Central Management!
Since organizations have different characteristics and requirements, it would not be possible to identify an ideal organizational structure that would fulfill all these diversified needs. Accordingly, each organizational structure must suit the situation and be optimally useful in meeting the organizational objectives.
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Good organizational structure is a function of a number of factors including the environment, technology, size of the organization and its life cycle. These four factors would determine the philosophy and strategy of central management which forms the foundation for the organizational structure. This is illustrated as follows:
The above factors are explained in more detail.
a. Environment:
Organizations are open systems which continuously interact with the outside environment. The macro-environment of business today has considerable impact on the internal operations of the organization, especially if the organization is a large one.
These external factors include the customers, socio-cultural and economic conditions as well as international environment (See chapter 3). The organizational structure would depend upon whether such external environment is stable or whether there are dynamic and rapid changes in it.
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Lawrence and Lorsch have found that successful organizational structures vary with the type of environment. A more uncertain environment will have fewer predictable elements requiring the use of more specialized experts who are trained to deal with the problems created by an ever changing situation. A stable environment can go for a more mechanistic structure.
b. Technology:
Technology is a combination of tools, techniques and know-how and has a major influence on organizational structure. It would depend upon whether the technology is simple and routine requiring a few repetitive tasks, in which case a mechanistic structure would be more desirable.
However, when the technology is advanced, intensive and complex requiring high interdependence among members of the work force, then the organic structure would be operationally more effective.
Joan Woodward studied the relationship between technology and organizational structure in the early 1960s among some British manufacturing firms. She observed and calculated that technology is a major influence on organizational structure.
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She concluded that, in general, wherever the items are mass produced and where the work units depend upon each other in sequential manner, and wherever the production system is automated with use of robotics and cybernetics, the organic organizational structure brings out the optimal results. Woodward and her associates identified three forms of technology that seemed to affect organization design. These are described below in the order of their complexity.
i) Unit or small-batch technology:
This involves specialized custom made products which require special equipment and individual craftsmanship. It is not an assembly line production and requires individual attention. Examples would be a tailor shop making customized suits or a company making large stained-glass windows.
ii) Large-batch or mass production:
This is an assembly line type of production in which a standardized item is produced in large numbers with reasonably sophisticated equipment and the work units depend upon each other in a sequential manner. Basically, the component parts are combined to create finished goods. An example would be the manufacture of cars or air conditioners.
iii) Continuous process technology:
This production system is highly sophisticated and automated and requires the use of complex technology as in the case of automated chemical plants. In such situation, the use of robotics and cybernetics is very common with continuous feeding of raw materials and provision for controlling and self-correcting.
These studies concluded that different configurations of organizational design were associated with each technology. In small batch as well as continuous process, the organic structure was considered to bring about better results. In mass production which is procedurally set and routinely operative, a classical structure is more appropriate.
c. Size:
Size is another factor that affects organizational design. Size of the organization, as measured by the number of people working in the organization would determine as to which type of structure would be more effective.
As the organization grows in size, it increases the number of functional departments, the number of managerial levels, extent of specialization, number of employees with diversified responsibilities resulting in increase in the degree of coordination required among members of the organization, and this further results in increase in related problems. These elements require a high degree of discipline and formally structured chain of command so that a mechanistic structure would be more desirable.
d. Life-cycle:
An organization’s life-cycle is related to its size. Some small businesses are formed but soon disappear. Some organizations try to expand too fast without the necessary resources and declare bankruptcy. Others downsize through layoffs or divestiture.
Generally speaking, organizations progress through a four-stage organizational life cycle. The first stage is the stage of “birth” when a company is formed. The second stage, “youth” is characterized by growth and the expansion of all organizational resources.
The third stage, “midlife” is a period of gradual growth evolving eventually into stability. Finally, the fourth stage of “maturity” is a period of stability after which, sometimes, a company evolves into decline.
As the organization goes through these stages, the organizational structure changes with the stage of the organization. Thus the organization size and its life cycle and its design are clearly linked and this link is dynamic because of the organizational life cycle.
These four factors have a considerable impact on managerial philosophy and strategy that form the foundations for organizational structure. Alfred D. Chandler, who is considered to be a pioneer in analyzing the strategy- structure relationships, came up with the conclusion that strategy has a definite influence on structure.
The strategy may be that of stability thus maintaining the status-quo or it may be one of growth. The stability strategy involves a predicted environment with limited dynamics while the growth strategy involves expansion thus introducing the element of uncertainty and complexity. According to Schermerhorn:
“Stability strategies will be more successful when supported by mechanistic structures; growth strategies will be more successful when supported by organic structures.”