08 - Chapter 1

CHAPTER-I
INTRODUCTION
INTRODUCTION
TPSY5
An excerpt from an interview with Charles Handy in Business
Today, 1995. 1
? T?
• “You are, therefore, arguing for project specific alliances and
smaller corporate....".
“It is a mistake for two big pharmaceutical companies like Glaxo and
Wellcome to merge. It creates a huge organization that is de-motivating in
the middle. It's also difficult to manage such a huge company. So, I
believe that alliances give you the economies of scale that you need.
Keep the companies separate. Keep them small and ally for specific
projects with others to get the size you need. Growing big has something
to do with megalomania at the top of organizations. They want to preside
over bigger corporations. We don't need big business empires any more.
The only way we can possibly continue to have a large organization is to

go federal in order to diffuse the tensions. The future of the organization
is a federal structure linked together by a very small center. You should
allow the Balkanization to take place in a Coordinated manner. The
federal structure then becomes an inventive place because all these little
bits try to do their own thing and in a sense, compete with each other.
And do better. That is the way in which you can get the creativity to live
longer in an organization. For any organization to survive, it should try to
1 Handy Charles "You Don't Need to Be Big" The Charles Handy Interview, Business Today,
December 7-21,1995, P 122-127.
INTRODUCTION
grow new bits. Like a plant that lives beyond its death by growing new
leaves at its ends. ”
• "But Indian Companies are going the other way. They'd rather be
mega-conglomerates
“You have to be careful. Size does give you power sometimes, but federal
structures allow you to be big where big matters and small where small
matters. If you make the mistake of thinking that you will be big in
everything, and run every unit the same way, then people are going to
move out, tensions will break out, and it will be bad for the organization.
It is strange that although the idea of federalism has been around for
2,000 years, neither politicians nor EDs still understand it.
What do you foresee will be the centers of the workplace?
I see the future of the office as a hub with a lot of people but they don't
have to be in the office. In these new organizations, people will be
spending a lot of their time outside the office. People would not have to be
in the office to do their work. So, the office becomes a place where you go
to meet other people or to use very special equipment.
The future of the workplace is unfolding at different paces, in different

centers and in different industries. What is common is that people will be
moving out of organizations when they are around 50 years old and
perhaps live a fuller life and discover themselves. I thought that was good
news for organizations because they would have younger people and
companies would think of them as assets and would invest in them.”
INTRODUCTION
Commenting on transition in organization design, Brian Dumaine

2observes, If you were to ask a CEO in the year 2000 to take out his
Montblanc and draw the organization chart of his company, what he'd
sketch would bear little resemblance to even the trendiest flattened
pyramid around today. Yes, the corporation of the future will retain some
vestiges of the old hierarchy and may be a few traditional departments to
take care of the boringly rote. But spinning around the straight lines will
be a vertiginous pattern of constantly changing teams, task forces,
partnerships, and other informal structure. "It seems partly to support
the predictions of Warren Bennis as contained in his comments that
'within the next twenty five to fifty years, we should all be witnessing to
and participate in, the end of bureaucracy.23
Thus an organization design viz. bureaucracy, which could sustain

itself for thousands of years because of its virtues of order,
predictability, stability and rationality seems to crumble and fast
yielding place to what Alvin Toffler calls 'ad hocracy’ and Brian
Dumaine describes as 'new adaptive organizations.'4
"At some unmarked point during the last twenty years we imperceptibly
moved out of the modem age and into a new, as yet nameless era.... The
old view of the world, the old tasks and the old center, calling themselves
'modem' and 'up-to-date' only a few years ago, just make no sense any
more. They still provide our rhetoric, whether of politics or science, at
home or in foreign affairs. Our actions are measured against the stem
2 .Dumaine, Brian, “The Bureaucracy Busters”, Fortune, No. 12, June 17, 1991, p.26.
3 .Bennis, Warren G. “Changing Organizations”, McGraw-Hill, New York, 1966, p.4.

4 Rastogi, J.L. “Organizational Behavior - Contemporary Issues”, Rawat Publications, New Delhi,
1994, p.35-44.
INTRODUCTION
demands of 'today', the 'post modem' world and yet we have no theories,
no concepts, no slogan - no real knowledge-about the new reality".5
There has been a growing concern about some fundamental definitions,

taxonomies and boundaries as applied to the company .As long ago as
1989 Tom Peters was asking :
‘What is an organization ? What is a product? What is a market? What is

a customer? I used to think that I knew the answers. I don’t now. Is an
organization a pyramid, a network, a network of organizations? Where
are its boundaries? Is the idea ofboundari.es even helpful?
---- And what is a customer? An adversary? A partner?
---- Our so recently tried and tme (yet still recent ) management tools
are, arguably worthless ,many down -right dangerous. ’6
Human organizations are as susceptible perhaps more so, as other

social institutions are to changing times, and their rise and fall,
success and failure, all testify to their vulnerability. As John W.
Gardner (1965) suggests,
'What may be most in need of innovation is the corporation itself. Perhaps

what every corporation (and every other organization) needs is a
department of continuous renewal that could view the whole organization
as a system in the need of continuing innovation in values and structure
of organizations so that they can better adapt to new technologies,
markets and challenges and the dizzying rate of change itself.7
5 Drucker, Peter F. “The Practice of Management” Harper and Row, New York, 1954.
6 Peters ,Tom quoted in The Economist ,4th.March, 1989.
7 Gardner, J.W. “ Self Renewal”, Harper and Row, New York, 1965.
INTRODUCTION
Peter F. Drucker listed 41 major responsibilities of the Chief executive

and declared that "90 percent of the trouble we are having with the
Chief executive's job is rooted in our superstition of the one-man chief'.
Many factors make one-man control obsolete, among them : the
broadening product base of industry, the impact of new technology, the
scope of international operation, the separation of management from
ownership, the rise of trade unions, and the dissemination of general
education. The real power of the chief has been eroding in most
organizations even though both he and the organization cling to the
older concept.8
The real coup de grace to bureaucracy has come as much from the
turbulent environment as from its incorrect assumptions about human
behavior. The pyramid structure of bureaucracy, where power was
concentrated at the top-perhaps by one person who had the knowledge
and resources to control the entire enterprise - seemed perfect to run a
railroad. And undoubtedly for tasks like building railroads for the
routinized tasks of the nineteenth and early twentieth centuries,
bureaucracy was and is an eminently suitable social arrangement.
Today, due primarily to the growth of science, technology and research

and development activities, the organizational environment of
organizations is rapidly changing. It is a turbulent environment, not a
placid and predictable one and there is a deepening interdependence
among the economic and other facets of society. This means the
economic organizations are increasingly enmeshed in legislation and
public policy. Put more simply, it means that the government will be
more involved more of the time. It may also mean, and this is radical,
8 Drucker, P. “The Practice of Management”, Harper and Row, New York, 1954.
INTRODUCTION
that maximizing cooperation rather than competition between

organizations - particularly if their fates are correlated (which is most
certainly to be common) - may become a strong possibility.9
The social structure of organizations of the future will have some

unique characteristics. The key word will be "temporary". There will be
adaptive rapidly changing temporary systems. There will be task forces
organized around problems to be solved by groups of relative strangers
with diverse professional skills. Adaptive, problem-solving, temporary
systems of diverse specialists, linked together by coordinating and task-
evaluating executive specialists in an organic flux - this is the
organizational form that will gradually replace bureaucracy, as we
know it. These new style organizations can be called "adaptive
structures".'10
Organizations are once again undergoing a period of fundamental

change, driven by a silicon-based gold rush which is shaping the
decade to be called "the networked 90s".*11
The corporations seen today on the business landscape are changing

rapidly in structure and function and will be, within a few decades,
almost entirely new entities. Virtual enterprises are evolving. Using
integrated computer and communication technologies, corporations
increasingly will be defined not by concrete walls or physical space, but
by collaborative networks linking hundreds, thousands, even tens of
thousands of people together.12
9 Drucker, Peter F. “ The frontiers of Management” Heineman London, 1986.

10 Bennis, Warren G. “Organization Development: its Nature, Origins and Prospects”, Addison-
wesley Publishing Company, Philippines, 1969, p.34.
11 Carroll, Jim "The Networked '90s - Emerging into the mainstream" CMA Magazine, Oct 1993,
p. 12-16.
12 Bleecker, Samuel, E. "The Virtual Organization, Anytime, Anywhere", Span, Oct 1994, p.12-
15.
INTRODUCTION
"If Restructuring, flattening, and Down-sizing were the predominant

themes of management theory across the globe in the first half of the
1990s, it is restructuring, flattening and growth that seem likely to
dominate strategic thinking in the second half of the most revolutionary
decade of the 20th century."13
Many enterprises are in the midst of fundamental change in

organizational design and management practices. Pioneering and
traditional companies alike are experimenting with novel organizational
structures and management processes in order to accommodate the
fast pace of technological change, global competition, and the
emergence of knowledge based economy.14
In the 1950’s,it was widely predicted that the advent of the computer
would significantly change the structure and processes of many
organizations. In general, few really significant changes were observable
as the first phase was largely concerned with the computerization of
administrative paperwork. More recent applications of network
technology have focused on the provision of management information
and are coinciding with rapid organizational change.15
Over the course of business history, four broad forms of organization

have emerged. First, the functional organization. Next, the
divisionalized organization. The third organizational form was the
matrix, which evolved in 1960s. Movement towards the network form
13 Ghoshal, Sumantra, Bauman, Robert P.; Bartlett, Christopher A. "Refining Revitalization”

Business Today, Nov.22 - December 6, 1994. p.126-134
14 Bahrani Homa "The Emerging Flexible Organization: Perspectives from Silicon Valley"
California Management Review, Summer 1992.
15 Bobby, David; Gunson, Nicky, “ Organisations in the Network Age,” Routledge, London,
1996, pp 266.
1 - 7
INTRODUCTION
became apparent in the 1980s. Common network types seen are stable
network, Internal network and the Dynamic network.16
Snow and Miles have conducted extensive studies on the organization

network phenomena since the late 1970s. Such networks are ideally
suited to hold together and enhance the performance of small,
autonomous, closely-knit and dedicated groups of people.17
How might networks lead to changes in structure, control and work

organization ? Despite predictions to the contrary (Leavitt and Whisler,
1958) the early implementation of computer systems led to few changes
in managerial decision-making patterns or organizational hierarchies.
The often-predicted demise of middle management and centralization of
decision-making either did not happen or happened extremely slowly,
although the establishment of centralized IT departments was
widespread. As the technology has become far cheaper, more powerful »
and more reliable, speculation has continued that such structural

changes following implementation would occur (Child, 1984; Rockart
and Short, 1989).
As organizations become more flexible, the boundaries that matter are

in the minds of managers and employees. The traditional organizational
map describes a world that no longer exists.18
Information technology had led to the flattening and downsizing of

today's organization. For example, electronic mail (e-mail) allows
16 Miles, Raymond E.: Snow, Charles C. "Causes of Failure in Network Organizations" California
Management Review, Summer 1992, p. 53-72.
17 Ehin, Charles "A high Performance Team is not a multi-part Machine” Journal for Quality and
Participation, December 1993, p. 38-48.
18 Hirschhorn, Larry; Gilmore, Thomas. The New Boundaries of the "Boundaryless" Company'.
Harvard Business Review, May-June 1992, p.104-105.
INTRODUCTION
everyone to communicate directly with every one else, thus eliminating |

the need for levels of bureaucracy and a long chain of command. In j
other words, the organization becomes flatter. Additional since multiple |

copies of e-mail letters and memos can now be electrically transmitted j
in a matter of seconds to a large number of people the need for |

"information switchers" "number crunches," "and paper pusher" is i
eliminated, e-mail has prompted organizations to replace people, with
technology. In other words the organization is able to downsize.19
In the 1980, the greatest impact of downsizing was on operating-level

employees, great numbers of Quito Steels' and other manufacturing
workers were permanently eliminated. In the 1990s downsizing level,
where information technology has eliminated many jobs that were
traditionally staffed by middle managers. For example at firms such as
IBM, and General Motors many operating and middle management
positions were eliminated. In the five years period 1987-1992,
companies with 500 or more employees recorded a net loss of 2.3
millions jobs. The result of this downsizing has been a flattening of the
structure. 20
ENTERPRISE REDESIGN
Most large enterprises are in need of complete redesign. They are

steadily downsizing, cutting out layers of management, and moving
from hierarchical to more horizontal structures, but this is not enough.
The new-world corporation- cybercorp-employees cross-functional

value stream teams highly focused on delivering results to the
19 Luthans, Fred "Organizational Behavior" seventh edition, Me Graw Hill International edition,
Singapore, 1995, P-27-48
20 John A Byrne 'Enterprise" Business Week, 1993, special Issue.
INTRODUCTION
customer or end user of the value streams backed up by electronics,

automation and a knowledge infrastructure.
New and old world corporations differ in just about every respect of
employment education, appraisal, reward, and motivation unions. A
cybernetic corporation can link together scattered resources with
computerized choreograph where money of the resources are not owned
or wholly owned. There resources can work together closely with just
in time interaction.
Corporation change agents are confronted with the question should re
engineering relate to an existing procedure (procedure redesign) clean-
slate replacement of a value stream (value-stream reinvention) or
holistic redesign of the enterprise (enterprise redesign)?
Redesign of the enterprise if needed can be done by re engineering of

existing organizations, or by building new business factories,
subsidiaries or affiliates. A corporation so entangled in an obsolete,
contributed culture may choose to make the transition to new world by
creating new business. 21
Traditional enterprises have hierarchical management. Data are passed

up the management chain and commands are passed down it.
Hierarchies were necessary in the days before information technology,
but they cause many problems. Corporations around the world have
been lowering their number of hierarchical layers, introducing clusters
and teams, and generally searching for more efficient forms of
organization.
21 Martin, James, "The Great Transition-Using the Seven disciplines of Enterprise Engineering
to Align People, Technology, and strategy" Amacan, 1995, PP 498.
INTRODUCTION
An enterprise consists of its value streams, but most enterprises do not

charge executives with managing the end to end value streams.
Instead, executives manage functions the vertical cylinders each
cylinder has its own hierarchy and politics. Enterprises ought to be
redesigned so as to make some one responsible for each end to end
value stream.
Hammer and Champy popularized the term" business re-engineering"

for their style of value-stream reinvention. They comment, Business re
engineering should be brought in only when a need exists for hearing
blasting Marginal improvement means fine-tuning, dramatic improvement
means blanking up the old and replacing it with something new".22
In industry after industry, multilevel hierarchies have given way to

clusters of business units co-ordinated by market mechanisms rather
than by layers of middle management planners and. schedulers ...Such
delayered companies are not only less costly to operate, they are also
more agile.23
The concept of learning organization has been developed as a way of

responding to the need to learn quicker than competitors as an
organization. Gavin24 described the learning organization as an
‘organization skilled at creating, acquiring and transferring knowledge,
and at modifying its behavior to reflect new knowledge and insights.’
Reengineering efforts are sweeping the country as companies’ shift from
purely functional organizations to those that better accommodate
horizontal work flows. Broad cross cutting processes such as product
22 Martin James. "The Great Transition-Using the seven disciplines of Enterprise Engineering
to Align People, Technology and strategy" Amacan, 1995, P.
23 Miles ,R.E.,Snow,C.C. and Coleman ,H.J. ( 1992) * Managing 21st century organisations’
Organization Dynamics ,Winter.
INTRODUCTION
development and order fulfillment have become the new organizational

building blocks, replacing narrowly focused departments and functions.
Managers, in turn, have begun to develop new ways of working. The
critical questions involve strategy and management practice.
Paul Allaire, Chairman and CEO of Xerox says "The incentive for us to
shift to processes was similar, a fundamental change in customers'
requirements and competitive focus. Our goal shifted from being a
manufacturer of copier, printer and facsimile products to becoming
provider of document tools and services that enhance one customer’s
productivity. We soon realized that the organization had to be
redesigned to reflect our strategy, and that's when we began focusing
on processes,"25
The experts have been telling us for some time that the job for life is a
thing of the past. Some now go even further, predicting that the
increase in task -based teams will lead to the development of working
communities, which people will join without being given any specific job
or title.
In some places this is already happening. Michael Armstrong ,an

executive director of AES ,the American power company, says: “when
we set up a plant ,what usually happens is that we hire 30 people ,and
during training some naturally come out as plant leaders.” AES has no
large centralized establishment and no engineering, human resources
or finance deptt. Each plant is autonomous. The company believes that
if it employees a lot of specialists, there is a risk they will build empires
24 Garvin, D.(1993) “ Building a learning organisation” , Harvard Business Review, 71 (4) : 78-
91, July/August.
25 Garvin, David, A. "Leveraging Processes for Strategic Advantage”, Harvard Business Review,
September-October, 1995, P. 77-90.
INTRODUCTION
and not spread information.26 More companies are seeking workers

who can join small, flexible teams and do any job that needs to be
done.
26 Coles, Margret, “ Jack of all trades makes his mark” The Times of India, Wednesday, July 1,
1998, p-I
CONCEPTUAL AND THEORETICAL BACKGROUND
The corporation as we know it is not dead, but it’s ready for intensive care.
Mark Pastin and Jeffery Harrison, Arizona State University1
ORGANISATION DEFINED
In one of the earliest definitions, Barnard (1938) viewed organizations

as "a system of consciously coordinated activities of two and more
persons".2 In other words, organizations have stated purposes,
communication systems and other coordinating processes, and a group
of people who are willing to cooperate on the tasks necessary for goal
attainment.
Similarly, Etzioni (1964) suggests that organizations are "planned

units, deliberately structured for the purpose of attaining specific
goals".3 Moreover Porter, Lawler and Hackman (1975) suggest that
organizations are generally characterized by five basic factors (i) social
composition (2) goal orientation (3) differentiated functions (4) intended
rational coordination and (5) continuity through time.4
In order to survive and maintain some degree of stability vis-a-vis the

external environment, organizations are faced with a series of
requirements that must be met (Etzioni, 1975;5 Gross 1965;6
1 Pastin, Mark and Jeffery Harrison (1987) ‘ Social Responsibility in the Hollow Corporation,’ Business and Society
Review.
2 Barnard, C. “The functions of the executive” Harvard University Press, Cambridge,
1938.
3 Etzioni, A. “Modern Organizations” Prentice-Hall, Inc. Englewood Cliffs, N.J., 1964.
4 Porter, L.W., Lawler, E.E., Hackman, J.R. “Behaviour in OrganizationsMcGraw-Hill
Book Company, New York, 1975.
5 Etzioni, A. “A Comparative analysis of complex organizations ”, The Free Press, New York, 1975.
6 Gross, B.M. “What are your organization's objectives? A general systems approach to
planning”; Human Relations, 1965, 18, 195-215.
Yuchtman and Seashore, 1967).7 The extent to which an organization

can satisfy there requirements largely determines its ability to continue
the pursuit of its objectives over time. The requirements include
resource acquisition, efficiency, production/output, Rational
coordination, organizational renewal and adaptation, conformity,
constituency satisfaction.
Organizations differ not only in their size and shape (for example, tall
versus flat structure) but also in the technologies they employ, the
environments in which they function, the work climates they create,
and the types of goals they pursue.
According to Gregory Moorhead and Ricky Grriffin, “An organization is

a group of people working together to achieve common goals.
Organizational goals are objectives that management seeks to achieve
in pursuing the firm's purpose. Organizational goals keep the
organization on track by focusing the attention and actions of its
members.”8 9
Organizations are social units (or human groupings) deliberately

constructed and reconstructed to seek specific goals.9 Corporations,
armies, schools, hospitals, churches, and prisons are included; tribes,
classes, ethnic groups, friendship groups, and families are excluded.
Organizations are characterized by : (1) Divisions of Labor, power, and
communication responsibilities, divisions which are not random or
traditionally patterned, but deliberately planned to enhance the
7 Yuchtman, E.; Seashore, S.E. “A system resource approach to organizational

effectiveness”; American Sociological Review, 1967, p.891-903.
8 Moorhead, Gregory, Grriffin, Ricky W. "Organizational Behaviour - Managing People and
Organizations " Taico Publishing House, Bombay, 1994. PP 520-622
9 Talcott Parsons, "Structure and process in Modem Societies" (Glencoe, III; The Free
Press, 1960)
1 - 15
realization of specific goals; (2) The presence of one or more power

center which control the concerted efforts of the organization and direct
them toward its goals; there power centers also must review
continuously the organizations: (a) performance and re-pattern its
structure where necessary, to increase its efficiency (b) Substitution of
personnel i.e. unsatisfactory persons can be removed and others
assigned their tasks. The organizations can also recombine its
personnel through transfer and promotion.
Other Social units are marked by same degree of conscious planning

(e.g. the family budget) by the existence of power centers (e.g. tribal
chiefs), and by replaceable membership (e.g. through divorce), but the
extent to which these other social units are consciously planned,
deliberately structured and restructured, with a membership which is
routinely changed, is much less than in the case of those social units
we are calling organizations. 10
Organizations are defined as social entities that are goal-directed,

deliberately structured activity systems with an identifiable boundary.
(1) There are four key elements in this definition:
1. Social Entities: Organizations are composed of people and

groups of people. People interact in patterned ways and perform
the essential functions in organization.
2. Goal-Directed: Organizations exist for a purpose. An

organization and its members are trying to achieve an end.
10Etzioni, Amitai, "Modem Organizations" Prentice-Hall of India Pvt. Ltd., New Delhi
1986, Sixth Edition, P 1-4.
1 - 16
3. Deliberately Structured Activity System: Activity system

means that organizations have a technology - they use knowledge
to perform work activities. Organizational tasks are deliberately
subdivided into separate departments and sets of activities.
4. Identifiable Boundary: An organization must be able to identify

which elements are inside and which are outside its boundary. 11
t
Richard Daft (1986) gave a definition of formal organizations. The

formal organization is distinguished by these four criteria: It is a
collective entity: it has deliberately conceived expectations for its
participants; these expectations are developed and integrated to foster
accomplishment of recognized goals; and the limits of the organization
are generally clear. The shape of the organization is more or less
defined and more or less stable.12
Naisbitt and Aburdene (1985) (Naisbitt, 1982) argue that rigid

definitions of positions are rapidly giving way to new forms of
organization that allow the individual much greater freedom in
constructing her own role in reference to the goals of the establishment.
Organizations operate in terms of what Howard Becker has called a

hierarchy of credibility. By this he means that in a dispute, society
gives to the higher status person the right to define the way things
really are (Becker, 1967; 240; see also Blumstein et al, 1974)
11 Arthur G. Bedian, “Organisations: Theory and Analysis” (Hinsdale, IL : Dryden,

1980) p.4 ; Aldrich, “Organisations and Environments”, pp 4-6.
12 Ingram ,Larry C. “ The Study of Organizations Positions, Persons And Patterns”,
Praeger Publishers, U.S.A, 1995; ppl65.
ORGANIZATION STRUCTURE DEFINED:
Organizational structure refers to the relatively fixed relationships that

exist in an organization with respect to the arrangement of human
resources. It is the unique way an organization fits its people together
to create organization. As such, the notion of structure includes such
factors as the extent of decentralized control, the amount of task
specialization, the extent to which interpersonal interactions are
formalized, and so forth. Thus, managerial decisions concerning how
people will be grouped for task accomplishment.
Organization structure is a system of task, reporting and authority

relationships within which the organization does its work. Thus,
structure defines the form and function of the organization's activities.
Structure also defines how the parts of an organization fit together, as
in an organization chart.13
Organizational structure is the network of durable and formally

sanctioned organizational arrangements and relationships. Among
other things, it involves the development of mechanism to ensure that
the parts are linked and work together effectively.
There are two different aspects of organization structure; the highly

visible Superstructure or departmentalization (i.e. how people are
grouped in different departments/divisions, sections and how they are
related to each other) and the less visible infrastructure ( i.e. authority
relationship, specialization, communications etc.).14
13 Daft, Richard, "Organization Theory and Design" 2nd Ed. (St. Paul, Minn. West,
1986), P.9.
14 Khandwalla, P.N.1977 "Design of Organizations" Harcourt Brace Jovanovich, New
York, P-482
1 - 18
Organization structure refers to the formal or informal relationship

between people in an organization. 15
An organization Chart outlines organizational structure, showing who

reports to whom.16
On the subject of proper organizational structure, Drucker gives an

example of the effect of the situation.
Decentralization is always the best way to organize functional activities.

But if the system of production contains any elements of automation, it
becomes absolutely essential. For the production organization of any
company using either automatic materials handling or feed-back
controls - two main elements of automation - must be set up as a series
of centers of information and decision at very low levels and with a high
degree of integration.
This shows clearly in the engine plant of the Ford Motor Company in
Cleveland - a mass production plant "old style" producing uniform
products rather than uniform parts, but recently organized with
completely automatic materials handling and materials flow. That fairly
minor technological change required a thorough-going shift of the
organization within the plant from orthodox functional "Chain of
command" to something that might be called a "task force pattern" -
15 Mejia, Luis, R. Gamez; Balkin David B; Cardy, Robert L. "Managing Human

Resources" Prentice Hall International, U. S. A., 1995 P-81
16 Durand, Robert Y "Business - Its Organization, Management and Responsibilities”,

Prentice Hall Inc Englewood Cliffs, N.J., 1958
Many small centers of information and decision weigh down the "Chain
of command" by cutting across functional lines “17.
It is possible to be too well fitted to the situation of the moment. Org.

structure needs to be flexible enough to (1) meet day-to-day and
month-to-month change in situations with only minor shifts in function
and procedure and (2) permit greater range of change with a minimum
of reorganization upheaval. How to build organization structure ?
According to Durand, it is desirable to adapt organizational details to

the purpose and situation, build organizational structure around them.
1. Group activities according to decisions that must be made for

them, when providing for management posts.
2. Seek clarity and simplicity, avoid many layers or levels of

management.
3. Delegate authority and responsibility to as low levels as possible -

general decentralization.
4. Seek to provide for decentralized units where they are suitable.
5. Keep responsibility clear and accompanied by commensurate

authority, do not leave responsibility unassigned or shared by
several persons. 18
17 Drucker, Peter "The Practice of Management’’ PP 219-20
18 Durand, Robert Y "Business - Its Organization, Management and Responsibilities”,

Prentice Hall Inc Englewood Cliffs, N.J., 1958
ORGANIZATIONAL DESIGN DEFINITION
It is an activity in which a behavioural science practitioner advises a

client on the appropriateness of systems of organization. He takes into
account both external and internal factors. As an activity it is
continuous. Consequently, the most suitable solutions at one period
may have to be scrapped because of change in the environment. Since
the shape of the organization is a product of many factors, the design
must be inter disciplinary. The activity involves the generation of
ranges of alternative designs, through creative strategies, and their
evaluation. It requires the selective utilization of knowledge both from
the basic disciplines of the behavioural sciences and from
investigations of the psychological and sociological features of the client
enterprise.
Organization design is concerned with making decisions about the

forms of coordination, control, and motivation that best fit the
enterprise. 19
THE ORIGINS OF ORGANIZATION
One of the earliest accounts of organization design can be found in Bible,

in Exodus. Moses’s, father-in-law, Jethro watched Moses sitting in
judgment from morning to evening while the people of Israel queued
patiently to present their petitions or register their complaints. He told
Moses, ‘The thing that thou does is not good. Thou will surely wear
away, both thou, and this people that is with thee; for this thing is too
19 Clark, Peter A. "Organizational Design: Theory and Practice” Tavistock Publications

Limited, 1972, P 18-25
1 - 21
heavy for thee; then are not able to perform it thyself alone’. If Jethro
then proposed that Moses should select able men to be rulers of
thousands, rulers of hundreds, rulers offifties and rulers of tens. Every
great decision should still be brought to Moses, but otherwise these
leaders should judge and decide the smaller affairs. Moses accepted
Jethro's advice, and from that time his task of leading the tribes of Israel
to the promised land was eased. The principle of the optimum span of
control was now established and the first documented management
hierarchy had been brought into existence.
For thousands of years since then, mankind has designed and

developed organizations in order to make it possible to manage the
activities of large numbers of people in relation to some common task.
Until relatively recently, large complex organizations existed mainly in
three sphere-the state, the armies and haves, and the church. With
Industrialization, however, came a new type of purposeful human
grouping; the industrial organization, with its new types of activity and
with its very foundation resting on a newly articulated principle of
organization design-the division of labor. 20
ORIGINS OF ORGANIZATIONAL DESIGN
Organizational design did not really emerge until the mid 1960. Prior to
this period the work of researchers had been focused either upon
techniques for changing the attitudes of individuals, or upon small-
scale alterations to parts of larger enterprises. The movement away
from a focus upon the individual arose because of the realization that,
however effective the techniques adopted in the training situation,
when the individual returned to his work he returned to his previous
20 Sadler Philip, "Designing Organizations - The foundation for Excellence" Kogan Page
Limited, 1994 Second Edition, P7-8.
1 - 22
role and re-entered surroundings in which his colleagues already had

established expectations of his attitudes and behavior. The chances of
long-term individual change under such conditions is minimal.
Gradually the emphasis moved towards the ideas of training
organizations and of 'organizational development'.
In the conventional approach, the organization design is a systematic

approach. One such approach which was developed to meet this
circumstance is the 'Managerial Grid’ a five-year program involving the
total organization (Blake & Mouton, 1964)
Chappie and Sayler (1961) examined a number of production problems

in factory and clerical settings and suggested that the critical variable,
which was not sufficiently understood, was the 'work flow'. They noted
in one particular case that the nature of the discrepancy between
master schedule devised by the production planner and the actual
requirement for coordination between departments to cope with day-to-
day variation was the major source of conflicts. Following this analysis,
they advised the restructuring of the planning department and the
rerouting of materials.
Eric Miller (1962,1967) was able to observe the way in which the
management of one company actually went about organizational
design, or perhaps more accurately, did not. In the suggested approach
the stages of plant and organizational design start simultaneously and
are linked to one another and to the following stage of 'building the new
plant and organization.' 21
21 Clark, Peter A. "Organizational Design: Theory and Practice" Tavistock Publications

Limited, 1972, P 18-25
ORGANIZATIONS AS SYSTEMS
One of the significant developments in the study of organizations was j

the distinction between closed and open systems. Traditional [
management concepts, including scientific management and industrial j
engineering were closed system approaches. They focused on activities
inside the organization. These approaches took the environment for
granted and assured the organization could be made more efficient
through internal design. The management of a closed system would be
quite easy. The environment would be stable, predictable, and would
not cause problems. The primary management issue would be internal
efficiency. The closed-system approach to organizations is not really
incorrect, but it is not complete.
An open system must interact with the environment to survive; it both

consumes resources and exports resources to the environment. The
organization has to find and obtain needed resources, interpret and act
on environmental disturbances and uncertainty. Even large
corporations are vulnerable to the environment. All systems that must
interact with the environment to survive are open systems.
The organization system is a set of interrelated elements that acquires

inputs, transforms them, and discharges outputs to the external
environment. Inputs and outputs rejects the dependency on the
environment. Inter related element mean that people and departments
depend upon one another and must work together.22
An organization system is composed of several sub-systems. The

specific functions required for organization survival are performed by
22 James, D. Thompson, “Organizations in Action” (New York: Me Graw-Hill, 1967) PP

4-13.
1 - 24
sub-systems Organizational sub-systems perform five essential |

functions : production, boundary spanning, maintenance, adaptation
and management . 23 Kenneth Boulding 24 analyzed many systems and
concluded that they can be arranged in order from simple to complex.
The simplest system is a static framework, such as atom, a map, or a
bridge. Dynamic systems, such as the solar system, are at level 2.
Control systems, such as thermostat, are Self-regulating within
prescribed limits and are at level 3. The simple cell is the beginning of
living, self-maintaining systems, and is at level 4. The plant (Level 5)
and animal (level 6) are more complex living systems. The human being
is the most complex living system because it can think, use languages,
and is aware of itself. The human is at (Level 7). The social organization
has many characteristics of simpler systems, but it also incorporates
new forms of complexity.25 The social organization is the most complex
system of all, and is at (Level 8).
Organization managers must be sensitive to social-system complexity if

they are to understand and cope with organizational systems ,26
THEORIES OF ORGANIZATION
Organization theory is not a body of knowledge. Organization theory is

not a collection of facts. Organization theory is a way of thinking about
organization. Organization theory is a way to see and analyze
23 Daniel Katz and Robert L. Kahn, “The social psychology of organizations'' John
Wiley, New York, 1966, P. 86
24 Kenneth E. Boulding, “General Systems Theory: The skeleton of Science”,
Management Science 2 (1956); 197-207.
25Richard, L. Daft, “The Evolution of Organization Analysis” in ASQ 1959-1979, "
Administrative Science Quarterly 25 (1980) : 623-625.
26 Louis R. Pondy and Ian I. Mitroff, "Beyond open systems Models of Organization",
in Barry M. Stawed. Reserch in Organizations Behaviour (Green Wood, (T : JA) Press,
1978) 13-40; Richard L. and John C. Wiginton, "Language and Organization",
Academy of Management Preview (1978: 179-192.
organizations more accurately see and think about organizations is j

based upon patterns and regularities in organizational design and j
behavior. Organization scholars search for and make them available to j
the rest of us. The facts from the research are not as important as the |
general patterns and insights into organizations.27 Some of the j
organization theories are discussed briefly below :
THE CLASSICAL SCHOOL
The classical or scientific management school, as represented by Fayol

(1916)28, Taylor (1911)29, and Urwick (1947)30 believed in control, order
and formality. Organizations need to minimize the opportunity for
unfortunate and uncontrollable informal relations, leaving room only
for the formal ones. From these overriding principles the following
concepts are derived
• Structure
• Specialization
• Co-ordination
• Authority
• Continuity
27 Daft, Richard L. "Organization Theory and Design" West publishing Company,

Minnesota, 1983, P 20. .PA
28 Fayol ,H (1916) “Administration Industrielle et General”, Translated by C Storrs as

General and Industrial Management, Pitman, London, 1949.
29 Taylor, F. W. (1911) “Principles of Scientific Management,” New York, Harper.
30 Urwick, L.F. (1947) “Dynamic Administration”, Pitman, London.
The classical or scientific management model has been attacked

vigorously because of non-allowance for situational factors such as the
environment or technology. Neither does it take account of change or
human factors, including the informal organization. But the formal
approach, with its emphasis on organization charts and manuals, job
descriptions, clear definitions of responsibility and authority and
limited spans of control, still thrives. As Lupton (1975) pointed out;
The attraction of the classical design from the point of view of top
management is that it seems to offer them control. The classical school
reigned supreme until the late 1930s and still holds sway.
The classical theorists invented a language for talking about

organization structure and identified the design choices, which have to
be made for any organization. They started with the division of labour,
which had been discussed for years by the economists. They noted that
the division of labour had two effects. It increased the amount of
production per worker, but it also increased interdependence
necessitating a need for coordination among the interdependent work
roles. The need for coordination was handled by inventing new roles,
managerial roles, to handle these questions. The design issue was. How
many managerial roles are needed for a given size work force ? The
answer to this question is determined by choices of span of control and
the number of staff experts employed. Currently these issues are
referred to as the shape or configuration of the organization. They are
measured by average spans of control and the ratio of managers and
staff to total personnel. Once a configuration is determined, there are
questions of the distribution of power and authority. The vertical
distribution was the question of centralization but there is also an
issue of lateral influence, which was dealt with in the line-staff
^1111
1 - 27
authority definition. Finally, there is the choice at each level of the

departmental structure. This was the departmentalization problem.31
THE HUMAN RELATIONS SCHOOL
Barnard (1938)32 emphasized the importance of the informal

organization relationships which, for better or worse, strongly
influences the way the formal structure operates. He wrote; 'Formal
organizations come out of and are necessary to informal organization;
but when formal organizations came into operations, they create and
require informal organizations. More recently, Child (1977)33 has
pointed out that it is misleading to talk about a clear distinction
between the formal and the informal organization. Formality and
informality can be designed into structure. Un- official policies do exist
in organizations but they are not to be confused with informality.
Organization designers recognize the relevance of informal relationships
but do not implement unofficial structures.
Roethlisberger and Dickson (1939) reported on the Howthorne studies-

the first large-scale investigation of productivity and industrial
relations, which took place at the How throne plant at Western Electric.
This highlighted the importance of informal groups, work restriction,
norms and decent, human leadership.
It is widely, if unfairly, believed that supporters of the human relations

school approach only wanted organizations to be nice to people. But by
31 Galbraith, Jay R. "Organization Design” Addison-Wesley Publishing Company, 1977 pp 12-23.
32 Barnard, C ( 1938) “The Functions of an Executive”, Harvard University Press,

Boston Mass
33 Child, J ( 1977) “Organization : A Guide to Problems and Practice”, Harper and Row,
London.
appearing to ignore business needs, that is the impression, they often

made. 34
THE BEHAVIORAL SCIENCE SCHOOL
In the 1960s a number of behavioral scientists emerged who would not

like to be described a part of the human relations school. They did,
however, subscribe to some of the fundamental beliefs of that school,
although there beliefs were refined and re-presented on the basis of
further study and research. The most notable contributors to this
postwar development were Me. Gregor, Likert and Argyris.
1) Douglas Me Gregor
The central principle of organizations that Me Gregor (I960)35 desired

from his Theory Y is that of integration- the process of recognizing the
needs of both the organizations and the individual and creating
conditions which will reconcile these needs so that members of the
organizations can work together for its success and share in its
rewards. ' Man will exercise self-direction and self-control in the service
of objectives to which he is committed.'
2) Rensis Likert
Likert (1961)36 desired his concept of organizations based on supportive

relationships from his research at the University of Michigan. The
initial studies distinguished between job-centered and employee-
centered supervisions and established that employee-centered
supervisors were higher producers than the job-centered ones. The
34 Armstrong, Michael. “A Handbook of Management Techniques”, second edition,

Kogan Page Limited, London, 1993, pp 495-595
35 Me Gregor,D (1960) “The Human Side of Enterprise”, Mc-Graw Hill, New York.
36 Likert, R (1961), “New Patterns of Management”, Harper and Row, New York.
1 - 29
studies also distinguished between general and close supervision and

showed that general rather than close supervision is more often
associated with a high rather than a low level of productivity.
From his analysis of high producing managers, Likert found that their
operations were characterized by attitudes of identification with the
organization and its objectives and a high sense of involvement in
achieving them. This situation was created by harnessing effectively all
the major motivational forces which can exercise significant influence
in an organizational setting and which, potentially, can be
accompanied, by cooperative and favorable attitudes..
The integrating principle of supportive relationships was derived from

this analysis and states that:
The leadership and other processes of the organization must be such as

to ensure a maximum probability that in all interactions and all
relationships with the organization each member will, in the light of his
background, values and expectations, view the experience as supportive
and one which builds and maintains his sense of personal worth and
importance.
3) CHRIS ARGYRIS
The research carried out by Argyris (1957)37 into personality

development in organizations suggested to him that’ the formal
organization creates in a healthy individual feelings of failure and
frustration, short time perspective and conflict. He further concluded that
the formal work organization requires many members to act in immature
rather than adult ways. At all levels there is behaviour that is not
37 Argyris ,C (1957) “Personality and Organization”, Harper & Row, New York.
productive in the sense of helping the organization achieve its objectives, j

For example, at the lower levels, we found apathy, indifference and non
involvement. At the upper levels we found conformity, mistrust, inability
to accept new ideas and fear of risk taking
To overcome this problem, Argyris wants individuals to feel that they

have a high degree of control over setting their own goals and over
defining the paths to these goals. The strategy should be ;
“To develop a climate in which the difficulties can be openly discussed,

the employee’s hostility understood and accepted, and a program
defined in which everyone can participate in attempting to develop new
designs. Where ever this is impossible, the attempt will be made to
design new work worlds that can be integrated with the old and that
help the employee obtain more opportunity for psychological success.”
Argyris stresses the need for some structure to provide the ‘firm ground
on which to anchor one’s security.’
4) OTHER CONTRIBUTIONS TO THE BEHAVIOURAL SCIENCE

MOVEMENT
The behaviour science movement pioneered by the writers mentioned

above, by furthered by people such as Herzberg38 (1957) and Blake and
Mouton (1964), continued to emphasize that in organizations the
proper study of mankind is man. The research conducted by Herzberg
et al (1957) suggests that improvements in organization design must
centre on the individual job as the positive source of motivation if
38 Herzberg, F (1968) ‘One more time : how do you motivate employees ?” Harvard
Business Review, Jan-Feb, ppl09-120.
individual feel that the job is stretching them, they will be moved to j
perform it well. j
Blake and Mouten 39(1964) concentrated on management style the way j

in which managers manage, based on their beliefs and values. They j
suggest that there are two factors : 'Concern for people and concern for 5
production'. This is in line with the distinction made by the Ohio state
University researchers Halpin and Winer (1957) between leadership
styles based on 'Consideration' and initiating structure.'
The behavioural science school is criticized on the ground that it is

ideological and ignores the real commercial and technological
constraints of industrial life.
THE BUREAUCRATIC MODEL
Meanwhile, as Perrow 40(1980) expressed it :

%
In another part of the management forest, the mechanistic school was

gathering its forces and preparing to outflank the forces of light. First
came the numbers men - the linear programmers, the. budget experts, the
financial analysts. Armed with emerging systems concepts, they carried
the mechanistic' analogy to its fullest - and it was very productive. Their
'
work still goes on, largely untroubled by organizational theory, the

theory, it seems clear, will have to adjust to them, rather than the other
way around—Then the works of Max Weber, not translated until the
1940—began to find their way into social science thought.
39 Blake, R and Mouton, J ( 1964) “The Managerial Grid”, Gulf publishing, Houston
40 Perrow ,C ( 1980) “ The short and Glorious History of Organization Theory”, R.H.
Miles (ed), Resource Book in Macro- Organizational Behaviour, Goodyear Publishing,
Santa Monica ,CA.
Max Weber (1964)41 coined the term 'bureaucracy' as a label for a type
of formal organization in which impersonality and rationality are
developed to the highest degree. Bureaucracy, as he conceived it, was
the most efficient form of organization because it is coldly logical and
because personalized relationships and non-rational, emotional
considerations do not get in its way. The ideal bureaucracy, according
to Weber, has the following features:
• Maximum specialization
• Close job definition as to duties, privileges and boundaries.
• Vertical authority patterns
• Decisions based on expert judgment, resting on technical knowledge

and on disciplined compliance with the directives of superiors.
• Policy and administration are separate
• Maximum use of rules
• Impersonal administration of staff.
At first, with his celebrations of the efficiency of bureaucracy, Weber

was received with only reluctant respect, even hostility. Many
commentators were against bureaucracy. But it' turned out that
managers are not. The problem with both the human relations and
bureaucratic schools of thought were that they were insufficiently
related to context.
THE MODERN VIEW OF BUREAUCRACIES
41 Weber, M (1946) From Max Weber, H.H. Gerth and C.W. Mills (eds), Oxford
University Press, Oxford.
1 - 33
Parkinson, Peter42 and Bennis43 represent the extreme critics of

Bureaucratic Organization. This discontent is reflected in the
consumerism movement, which is largely a grass roots reaction to the
impersonality of large bureaucracies, and the tremendous appeal of
best selling books such as 'In search of excellence: Lessons from
America's Best Run Companies and Re-engineering the Corporation’44.
whose basic theme is that organizations must be more flexible and less
bureaucratic, and must undergo constant change and pruning. For
example another recent Book, Transforming Organizations 45argues that
"------- Without continuous systematic organizational change, the
competitiveness or even survival of many organizations may be at risk.
Continuous change implies that the organization has a capacity to
learn from its environment, it’s various stakeholders and itself.
Systematic change implies that its major components- strategies
technologies, human resources, and internal structures - require
simultaneous transformation.
In Tom Peter's46 latest Book, he colorfully describes how he would like

managers to engage in bureaucracy bashing :
‘Rant and rave. Tear up papers. Refuse to read them. Don't attend
meetings---- Be outrageous. Get rid of all your file cabinets----- Put big
card board boxes around your desk and throw all the Junk you receive
into them _ unread. Put a big red label on the boxes: "This week's
unread paperwork." ‘
42 Thomas J. Peters and Robert H. Waterman, Jr. “In search of Excellence : Lessons
from America's Best-Run Companies”, Harper 8s Row, New Rork, 1982.
43 Bennis, W and Nanus, B (1985) “Leaders”, Harper & Row, New York.
44 Michael Hammer and James Champy “Reengineering the corporation”, Harper
Business, New York, 1993.
45 Thomas A. Kochan and Michael Useem, “Transforming Organizations”, Oxford
University Press, New York, 1992m 01 vii
He recognizes that such radical behavior may jeopardize one's career

but feels that unless it is done, organizations especially those which
use vertical processing of information — will not be competitive or even,
in the long run, survive.
There has even been a call for Mikhail Gorbachev's concept of

Perestroika (openness) to be applied to restructuring American
Corporations. 47
THE SYSTEM SCHOOL
The systems approach to organization as formulated by Miller and Rice

(1967)48 states that organizations should be treated as open systems
which are continually effected by environments. The basic
characteristic of the enterprise as an open system is that it
transformers inputs into outputs within its environment.
As Katz and Kahn (1964)49 wrote : systems theory is basically

concerned with problems of relationship, of structure and of inter
dependence. As a result there is a considerable emphases on the
concept of transactions across boundaries - between the system and its
environment and between the different parts of the system.
THE SOCIO - TECHNICAL MODEL
The concept of the organization as a system was extended by the

Tavistodk Institute researchers into the socio-technical model of
46 Peters, Tom, "Thriving on Chaos: Hand book for a Management Revolution," Knopf,
New York, 1987, P 459.
47 Hal O' Carroll, "Perestroika in the American Corporation, " Organizational Dynamics,
Spring, 1990, PP 5-21.
48 Miller, E and Rice, A (1967) “Systems of Organization”, Tavistock, London.
49 Katz, D and Kahn, R (1964) “The Social Psychology of Organisations”, John Wiley,
New York.
1 - 35
organization. The basic principle of this model is that in any system of

organization, technical or task aspects are inter-related with the
human or social aspects. The emphasis is on inter-relationships
between, on the one hand, the technical processes of transformation
carried out within the organization and on the other hand, the
organization of work groups and the management structures of the
enterprise.50
THE CONTINGENCY SCHOOL
The contingency school consists of writers, such as Burns and

Stalker51 (1961) Woodward (1965)52, Lawrence and Lorsch53 (1969) and
Perrow 54(1970) who have analyzed a variety of organizations and
concluded that their structures and methods of operation are a
function of the circumstances in which they exist. They do not
subscribe to the view that there is one best way of designing an
organization or that simplistic classifications of organizations as formal
or informal bureaucratic or non-bureaucratic are helpful. They are
against those who see organizations as mutually opposed social
systems (what Burns and Stalker refer to as the Machiavellian world of
the Hawthorne Studies') which set up formal against informal
organizations.
50 Armstrong, Michael, "A handbook of personnel Management Practice” Fifty Edition,

Kongan Page Limited, London 1995.
51 Burns, T and Stalker G (196 lj “The Management Of Innovation”, Tavistock, London.

52 Woodward, J (1965) “Industrial Organization”, Oxford University Press, Oxford.
53 Lawrence, P.R and Lorsch, J.W. (1969) “Developing Organisations”, Addison-Wiley,
Reading, Mass.
54 Perrow, C (1970) “Organizational Analysis”, A Sociological Wave, Tavistock, London.
1) Burns and Stalker
Burns and Stalker (1961)55 based their concept of mechanistic and

organic organizations on research into a number of Scottish firms in
the electronics industry. They emphasized the rate of change in the
environment of the organization as being the key factor determining
how it could operate.
In stable conditions a highly structured or mechanistic Organization

emerges with specialized functions, clearly defined roles, strict
administrative routines and a hierarchical system of exercising
authoritarian control. In effect, this is the bureaucratic system.
However when the environment is volatile, a rigid system of ranks and
routines inhibits the organization's speed and sensitivity of response. In
these circumstances, the structure is, or should be 'organic' in the
sense that it is a function of the situation in which the enterprise finds
itself rather than conforming to any predetermined and rigid view of
how it should operate. Individual responsibilities are less clear cut and
members of the organizations must constantly relate what they are
doing to its general situation and specific problems.
Perhaps the most important contribution made by Burns and Stalker

was the stress they placed on the suitability of each system to its own
specific set of conditions. They concluded their analysis by writing:
We desire to avoid the suggestion that either system is superior under all
circumstances to the other. In particular, nothing in our experience
justifies the assumption that mechanistic systems should be superseded
by organic in conditions of stability. The beginning of administrative
55 Tom Burns and G.M. Stalker, “The Management of Information” Tavistock, London,
1961.
wisdom is the awareness that there is no one optimum type of

management system.
2 ) Woodward
Woodward's 56 (1965) ideas about organization derived from a

research project carried out in Essex designed to discover whether
the principles of organization laid down by the classical theorists
correlate with business success. When put into practice she found
considerable variations in patterns of organization which could not be
related to size of firm, type of industry and business success. After
further analysis, she concluded..............
“When, however, the firms were grouped according to similarity of

objectives and techniques of production, and classified in order of the
technical complexity of their production systems, each production
system was found to be associated with a characteristic pattern of
Organization. It appeared that technical methods were the most
important factor in determining organizational structure and in setting
the tone of human relationships inside the firms. The widely accepted
assumptions that there are principles of management valid for all types
of production systems seemed very doubtful”.
Woodward's main contribution to organization theory is, therefore, her

belief that different technologies demand different structures and
procedures and create different types of relationships.
56Woodward, J (1965) “Industrial Organization", Oxford University Press, Oxford
1 - 38
Table-1.1 Table indicating Woodward’s study
Technological complexity
Structural Characteristics Low-------------------------- High
Unit Mass Continuous

Production Production Production
1. Number of vertical levels in 3 4 6

production Dept.
2. Supervisors span of control 24 48 14
3. Management/ total employee 1:23 1:16 1:8

ratio
4. Supervisors span of control 24 48 14
5. Employment of professional Moderate Low High

workers
6. Chief Executives Span of 4 7 10

Control
7. % of organizations having 12.5 32.3 80.0

mgt. Committees
8. Complexity Low High Low
9. Formalization Low High Low
10. Centralization Low High Low

3) Lawrence and Lorsch
Lawrence and Lorsch57 (1967) developed their contingency model on

the basis of a study of six firms in the plastics industry. Organization
as they define it, is the process of coordinating different activities to
carry out planned transactions with the environment. The three
aspects of environment upon which the design of the organization is
contingent are the market, the technology (i.e. the tasks carried out)
and research and development. These may be differentiated along such
dimensions as rate of change and uncertainty. The process of reacting
to complexity and change by differentiation creates a demand for
effective integration if the organization as a whole is to adapt efficiently
to the environment. The concept of differentiation and integration is, in
fact, the greatest contribution of Lawrence & Lorsch to organization
theoiy. They suggest that : “As organizations deal with their external
environments, they become segmented into units, each of which has as
its major task the problem of dealing with a part of the conditions
outside the firm----These parts of the system need to be linked together
towards the accomplishment of the organization's overall purpose”.
Their research showed that the two organizations with the not
successful records had, infact, achieved the highest degree of
integration and were also among the most highly differentiated. The
differentiated of the various units was more in line, with the demands
of the environment for those two organizations than for the others.
One of the most important implications of the Lawrence and Lorsch

model for organization designers is that, although, differentiation
demands effective integration, this must not be achieved by minimizing
57 Lawrence, P.R. and Lorsch, J.W (1969) “Developing Organisations”, Addison-Wiley,

Reading, Mass
differences and integration should be achieved by allowing each

department to be highly distinctive - but to use mediating devices such
as committees, adhoc project groups and assigned 'integrators' who
stand midway between the functions with which they are concerned
and are not dominated by any of them. Integration can therefore be
achieved by structural means as well as by organizational development
interventions designed to increase trust and understanding between
groups and to confront conflict.
Lawrence and Lorsch argue that there is no one best way to

differentiate or integrate within an organization. Their finding indicate
that effective differentiation and integration is a function of the
environment.58
/
Effective differentiation was found to be a function of the perceived

environmental uncertainty that exists within the sub-environment with
which a sub-unit must interact. Perceived environmental uncertainty
was measured by the time span of feedback, the clarity of information,
and the knowledge of beliefs about cause and effect.
Lawrence and Lorsch found that the high-performing organizations in

each of the industries maintained the proper "fit" between their sub
units and the demands of the sub-units environment
Lawrence and Lorsch also found that high-performing organizations

were more effective at conflict resolution and that three types of conflict
resolution were in use. Compromise, smoothing over, confrontation or
problem-solving.
58 Lawrence, Paul R. and Lorsch, Jay W. "Organization and Environment" Division of

Research, Graduate School of Business Administration, Harvard University, 1967
Boston.
TABLE-1.2
SIGNIFICANT FINDINGS OF LAWRENCE AND LORSCH’S STUDY
(1967)
Plastics Food Container
% New products in last 20 yrs. 35% 15% 0%
Environmental Uncertainty High Moderate Low
Actual Differentiation High Moderate Low
Actual Integration High Moderate Low
Typical integrative devices Integrating dept, Integrating Hierarchy,

and roles, teams, roles, task plans, rules
hierarchy, plans, forces, and
rules & procedures hierarchies, procedures
plans, rules
and
procedures
% Integrating personnel 22% !7% 0%
The Lawrence and Lorsch model therefore, provides a manager with

three guides to organizational design. First, each sub-unit must be
designed in terms of differentiation to "fit" the perceived environmental
uncertainty of its environment. Second, the sub-units, must be
integrated to meet the dominant competitive issue of the industry or
the organization. Finally, conflict must be confronted. These
statements, however, present an over-simplified ideal. In most cases,
trade-offs will have to be made. Lawrence and Lorsch suggest that
when such trade-offs have to be made, they be made in the direction of
the dominant competitive issue.
If the dominant competitive issue is innovation for example, the trade

off would be in the direction of differentiation, since this would have the
highest potential for creativity. If scheduling and delivery of goods on
time were the major issue, however, trade off would be made in the
direction of integration and some sub-units would not "fit" exactly their
environmental criterion.
4) GALBRAITH
Galbraith's59 approach to organizational design is similar to Lawrence

and Lorsch's in that he does not accept a "one best way" to design and
is also concerned with uncertainty. He differs, however, in that he is
concerned with task uncertainty. He defines task uncertainty as "the
difference between the amount of information required to perform the
task and the amount of information already possessed by the
organization. His major concern, however, is information processing
during the actual time the taskg is being performed Greater the task
uncertainty, greater the amount of information to be processed.
Galbraith suggests four organizational design to choose from in dealing

with this problem.
1. Creation of slack resources.
2. Creation of Self-contained tasks.
3. Investment in vertical Information System.
4. Creation of lateral relations.
5) Perrow :
The model developed by Perrow60 (1970) recognizes the importance of

structure and the inevitable tendency towards routinization
59 Bobbitt. Jr., H. Randolph, Breinhelt, Robert H. Doktor, Robert H. "Organizational

Behaviour" Second Edition, Prentice-Hall Englewood Cliffs, New Jersey, 1978 PP 283-
341.
60 Perrow ,C (1970) “Organizational Analysis, A Sociological View", Tavistock, London.

standardization and bureaucracy in organizations. In accordance with

the views of other members of the contingency school, he suggests that
different structures can exist within the same firm and that a
bureaucratic structure is as appropriate for same tasks as a non-
bureaucratic structure is for other tasks.
THE MODERNISTS
The modernists include Mintzberg, Drucker and the management

'gurus' such as Richard Pascale who emerged in the 1980 and who
based their ideas on an analysis of contemporary events, the Japanese
approach to organization, and, in Charles Handy's case, an apocalyptic
view of the future.
1) Mintzberg:
Mintzberg 61 (1983 b) developed the following hypotheses from his

research into the structure of organizations.
♦ The older the organization, the more formalized its behaviour.
♦ Structure reflects the age of founding of the industry.
♦ The larger the organization, the more elaborate its structure-that

is the more specialized its tasks, the more differentiated its units
and the more developed its administrative component.
♦ The larger the organization, the more formalized its behaviour.
Mintzberg analyzed organizations into five broad types or

configurations.
61 Mintzberg, H (1983 b) “Structures in Fives”, Prentice -Hall .Englewood Cliffs, NJ.
1 - 44
1. Simple structure which are dominated by the top of the

organization with centralized decision-making.
2. Machine bureaucracy which is characterized by the

standardization of work processes by the standardization of work
processes and the extensive reliance on systems.
3. Professional bureaucracy where the standardization of skills

provide the prime coordinating mechanism.
4. Divisionalized structure in which authority is drawn down from

the top and activities are grouped together into units which are
then managed according to their standardized outputs.
5. Adhocracies where power is decentralized selectively to

constellations of work that are free to coordinate within and
between themselves by mutual adjustments.
According to Mintzberg62 (1981), many of the problems in organization

design can be attributed to the actions of planners who create
haphazard structural combinations as they seek to incorporate the
latest structural innovations into an existing organization.
2) DRUCKER
In The Coming of The New Organization (1988) Drucker63 has drawn

attention to the impact of new technology.
The typical large business 20 years hence will have fewer than half the
levels of management of its counterpart today, and no more than a
62 Mintzberg, H (1981) ‘Organization Design : Fashion or Fit’ Harvard Business Review,

January-Febuarary, pp 103-116.
63 Drucker,P (1988) The coming of the new organization’, Harvard Business Review,
january-February, pp 45-53.
third the managers. Business, especially large ones, have little choice j
but to become information-based, demographics, for one, demands the j
shift. The centre of gravity in employment is moving just from manual |
and clerical workers to knowledge workers who resist the command- j
and-control model that business took from the military 100 years ago.
Drucker also points out that organizations have established, through

the development of new technology and the extended use of knowledge
workers, that whole layers of management neither make decisions nor
lead. Instead, their main if not their only, function, is to serve as relays
- human boosters for the jaunt, unfocused signals that pass for
communications in the traditional pre-information’s organization.
3) Pascale
Pascale 64(1990) believes that the new organizational paradigm

functions as follows;
From the image of organizations as machines, with the emphasis on

concrete strategy, structure and systems, to the idea of organizations
as organism, with the emphasis on the self dimensions-style, staff and
shared values.
From a hierarchical model, with step-by-step problem solving, to a

network mode, with parallel nodes of intelligence which surround
problems until they are eliminated.
From the status-driven view that managers think and workers do as

they are told to a view of managers as 'facilitators', with workers
empowered to initiate improvements and change.
64 Pascle, R ( 1990) “Managing on the Edge” .Viking, London.

From an emphasis an 'vertical tasks' within functional units to an |

emphasis on horizontal tasks' and collaboration across units.
From a focus on 'content' and the prescribed use of specific tools and |
techniques to a focus on 'process' and a holistic synthesis of j
techniques.
From the military model to a commitment model.
4) Charles Handy
Handy 65(1989) describes two types of organization, The 'shamrock' and

the federal.
The 'shamrock' organization consists of three elements.

• The core workers (the central leaf of the shamrock)—
Professionals, technician and managers.
• The contractual fringe - contract workers
• The flexible labor force consisting of temporary staff.
The federal organization takes the process of decentralization one stage

further by establishing every key operational, manufacturing or service
provision activity as a distinct, federated unit. Each federal entity runs
its own affairs although they are linked together by the overall strategy
of the organization and, if it is a public company, are expected to make
an appropriate contribution to corporate profitability in order to provide
the required return on their share holder's investments and to keep
external predators at bay.
The centre in a federal organization maintains a low profile. The

federated activities are expected to provide the required initiative, drive
and energy. The centre is at the middle of things, but at the top. It is
not just bankers but it does provide resources. Its main role is to
65 Handy, C ( 1989) “The Age of Unreason”, Business Books, London.
1 - 47
coordinate, advise, influence, suggest and help to develop integrated

corporate strategies.
MODERN ORGANIZATION THEORY

The real break with classical thinking on organization structure is
generally recognized to be the work of Chester Barnard66. In his
significant book, 'The functions of the executive', he defined a formal
organization as a system of consciously coordinated activities of two or
more persons.
(1) Combine several structural characteristics, including
formalization, centralization, standardization and specialization.
DETERMINANTS OF ORGANIZATION STRUCTURE
Some of the salient determining factors are discussed below:

a) Environment b) Objective / Mission
c) Strategy d) Technology
e) People and Culture 1) Age
g) Size
66 Barnard, Chester I. "The Junctions of the Executive" Harvard, Cambridge, Mass,

1938, P. 73.
1 - 48
Fig: 1.1
Illustration of Interdependencies among the determinants of
Organizational design
vironment
People and Culture

COMPONENTS OF ORGANIZATION STRUCTURE
Robbins, Stephen P.67 has defined organization structure as having

»
three components -complexity, formalization and centralization.
COMPLEXITY
Complexity considers the extent of differentiation within the

organization.
Horizontal Differentiation: Horizontal differentiation considers the

degree of horizontal separation between units. It refers to the degree of
differentiation between units based on the orientation of members, the
nature of the tasks they perform, and their education and training. The
larger the number of different occupations within an organization that
require specialized knowledge and skills, the more complex that
organization is.
The most visible evidence in organization of horizontal differentiation is

job specialization and departmentation.
Vertical Differentiation
Vertical differentiation refers to the depth in the structure

differentiation increases, and hence complexity, as the number of
hierarchical levels in the organization increases.
Organizations with the same number of employees need not have the
same degrees of vertical differentiation. Organizations can be tall with
many layers of hierarchy or flat with few levels. The determining factor
is the span of control.
67 Robbins, Stephen P.( 1983) " Organization Theory - The Structure and Design of
Organisations” Prentice -Hall, Inc., Englewood Cliffs, New Jersey, p 429.
1 - 50
The span of control defines the number of subordinates that a manager

can direct effectively. The evidence is clouded on whether the tall or flat
organization is more effective.
An early study at Sears, Roebuck lent support for the flat organization
or low vertical differentiation case 68.
A more recent study found no support for the general thesis that flat
organizations are preferable 69.
Spatial Dispersion
An organization can perform the same activities with the same degree
of horizontal differentiation and hierarchical arrangement in multiple
locations. Yet this existence of multiple locations increases complexity.
Therefore, the third element of complexity is spatial dispersion, which
refers to the degree to which the location of an organization's offices,
plants, and personnel are dispersed geographically.
FORMALIZATION
Formalization refers to the degree to which jobs within the organization

are standardized.
Formalization has been defined as "the extent to which rules,

procedures, instructions and communications are written" 70.
An alternative approach argues that formalization applies to both

written and unwritten regulations 71.
68 James C. Worthy "Organization structure and Employee Morale”, American

Sociological Review, April 1950, pp 169-179.
69 Lyman W. Porter and E.E. Lowler III, “Properties of Organization Structure in
Relation to Job Behavior”, Psychological Bulletin, July 1965, pp 23-51.
One argument is that the greater the degree of complexity, the lower
the formalization 72.
Another argument is that, if employees are highly specialized by tasks,

their routines will be standardized and an increased number of rules
and regulations will govern their behaviour 73.
CENTRALIZATION
Centralization refers to the degree to which decision making is

concentrated at a single point in the organization. A high concentration
implies high centralization, whereas a low concentration indicates low
centralization or what may be called decentralization.
Relationship between centralization, complexity and formalization.
1) Centralization And Complexity
The evidence strongly supports an inverse relationship between

centralization and complexity. 74
2) Centralization And Formalization
The centralization-formalization relationship is as ambiguous as the

centralization-complexity relationship is clear. The early work found no
70 D.S.Pugh, D.J. Hickson, C.R. Hinings, and C. Turner, "Dimensions of organization

structure" Administrative Science Quarterly, June, 1968, p. 75.
71 Jerald Hage and Michael Aiken, "Relationship of Centralization to other structural
properties”, Administrative Science Quarterly, June, 1967, p. 79.
72 Jerald Hage," An Axionatic Theory of organizations”, Administrative Science
Quarterly, December 1965, p. 303.
73 Pugh et al, "Dimensions of organization structure:”, pp. 65-105.
74 Jerald Hage and Michael Aiken, "Relationship of centralization to Other Structural
Properties”, Administrative Science Quarterly, June 1967, pp. 72-91 and John Child,
“Organization structure and strategies of control: A replication of the Aston study”,
Administrative Science Quarterly, June 1972, pp 163-172.
1-52
strong relationships between centralization and formalization75 . Later

»
research reported a strong negative relationship between the two

components; that is organizations were both highly formalized and
decentralized 76. One follow-up effort, attempting to reconcile the
controversy, yielded inconclusive results 77.The most recent efforts
support the high formalization - decentralization hypotheses 78.
STRUCTURAL FACTORS AFFECTING ORGANIZATIONAL

EFFECTIVENESS
At least six structural factors have been identified by Steers 79, that
have been found to affect some facet of organizational effectiveness.
These six factors are:-
Degree of Decentralization
Decentralization refers to the extent to which various types of power

and authority are extended (that is, decentralized) down through the
organizational hierarchy. The notion of decentralization is thus strongly
related to the concept of participative decision making. The more
decentralized an organization, the greater the extent to which the rank
and file employees can participate in and accept responsibility for -
decisions concerning their jobs and the future activities of the
organization.
75 D.S. Pugh, D.J. Hickson, C.R. Hinings, and C. Turner, “Dimensions of Organization
Structure”, Administrative Science Quarterly, June 1968, pp 65-105.
76 John Child, “Organization structure and strategies of control: A Replication of the
Aston Study”.
77 Lex Donaldson, John Child, and Howard Aldrich, “The Aston Findings on
Centralization Further Discussion”, Administrative Science Quarterly, September
1975, pp. 453-460.
78 Peter H. Grinyer and Masoud Yasai-Ardekane “Dimensions of Organizational
structure: A Critical Replication”, Academy of Management Journal, Sept 1980, pp.
405-421.
1 - 53
Historically, an increase in organization size typically brought with it a )

concomitant increase in centralization of authority and power in the [
upper echelons of management Chandler (1962)80 has suggested that j
the, trend towards increased centralization plateaued during the 1920s |
when Alfred P. Sloan, Jr., then president of General Motors, introduced |
the concept of central office.
Increased decentralization in organizations often leads to improvements

in several facets of effectiveness. In particular it has been found to be
related to increases in managerial efficiency, open communications and
feedback, job satisfaction, and employee retention. Moreover
decentralization has led to in some cases, to improved performance and
greater innovation and creativity in organizations, although the findings
here are not entirely consistent. The rationale behind these findings
suggests that decentralized organizations allow for greater autonomy
and responsibility among employees at lower levels in the hierarchy,
thereby utilizing more effectively an organization's scarce human
resources. This explanation is consistent with recent findings among
individual employees indicating that increased autonomy and
responsibility often lead to increased job involvement, satisfaction and
performance. These results have been shown by Carlson (1951)81
Weisse (1957), 82 Read (1962),83, Hage and Aiken (1967),84 Sapolsky
(1967)85 Carpenter (1971),86 Negandhi and Reimann (1973).87
79 Steers, Richard M. “Organizational Effectiveness - A Behavioural View” Goodyear

Publishing Company, Inc. Santa Monica, California.
80 Chandler, A. “Strategy and Structure”, The M.I.T. Press, Cambridge, Mass, 1962.
1920s when Alfred P. Sloan, Jr., then president of General Motors, introduced the
concept of central office.
81 Carlson, S. “Executived Behaviour: A study of the Workload and the Working
Methods of Managing Directors”. Stromberg, Stockholum 1951.
82 Weiss, E.C. 'Relation of personnel statistics to organization structure'. Personnel
Psychology, 1957, p.27-42.
This close relationship between decentralization and improved

effectiveness is not always found in organizations e.g. one study
discovered that decentralized control led to improved performance in
research laboratories but caused poorer performance in production
departments (Lawrence and Lorsch, 1967).88 It has been shown that
different personality traits and other individual differences can affect
the amount of participation that employees seek in decision-making
(Steers).89 Differing job technologies, work environments or goals may
call for varying degrees of centralization or decentralization in order to
be successful.
Specialization
The concept of functional specialization traces its origins to the

scientific management movement around the turn of the century.
Taylor (1911)90 and his associates argued that a major determinant of
organizational success was the ability of an organization to divide its
work functions into highly specialized activities.
83 Read, W. 'Upward Communications in Industrial hierarchies'. Human Relations,

1962, p.3-15.
84 Hage, J.; and Aiken, M. 'Program change and organizational properties : A
comparative analysis'. American Journal of Sociology, 1967, p.503-519.
85 Sapolsky, H. 'Organizational structure and innovation' Journal of Business, 1967,
p.487-510.
86 Carpenter, H.H. 'Formal organizational structural factors and perceived job
satisfaction of classroom teachers' Administrative Science Quarterly, 1971, p.460-65.
Carpenter, H.H. 'Formal organizational structural factors and perceived job
satisfaction of classroom teachers' Administrative Science Quarterly, 1971, p.460-65.
87 Negandhi, A.R., Reimann, B.C. 'Task environment, decentralization and
organizational effectiveness'. Human Relations, 1973, p. 203-14.
88 Lawrence, P.R.; and Lorsch, J.W. Organization and Environment Graduate School of
Business Administration, Division of Research, Harvard University, Boston, 1967.
89 Steers, R.M. 'Personality, situation and participation in decision-making’
Proceedings of the Midwest Regional Meeting of the American Institute of Decision
Sciences, Indianapolis, 1975.
90 Taylor, F.W. Principles of scientific management Harper and Row, New York, 1911.
Specialization may be measured in a variety of ways, including the

number of divisions within an organization and the number of
specialties within each division (Hall, 1972),91 the number of different
positions and different sub-units in an organization (Blau and
Schoenherr, 1971),92 and the number of occupations represented in an
organization (Hage and Aiken, 1967).93 The hypothesis in all these
studies remain the same, that is, Specialization will lead to increased
effectiveness because it allows each employee to acquire expertise in
one particular area so as to maximize his or her contribution to goal-
directed activities.
It has been found out that increased specialization may often be

beneficial in terms of employee performance, it may. simultaneously be
detrimental to employees in terms of their job attitudes, mental health,
and propensity to remain with the organization. Studies have been
made by Blau et al (1966),94 Carroll (1967),95 Hage and Aiken (1967),
Child (1973)96 in this field.
Formalization
Formalization refers to the extent to which employee work activities are

specified or regulated by official rules and procedures (Hall, 1972).97
91 Hall, R.H. “Organizations : Structure and process” Prentice - Hall, Inc. Englewood
Cliffs, N.J., 1972.
92 Blau, P.M.; Schoenherr, R.A. “The structure of organizations”, Basic Books Inc. New
York, 1971.
93 Hage and Aiken No.84.
94 Blau et al 'The structure of small bureaucracies’ “American Sociological Review”,
1966, p. 179-91.
95 Carroll, J. 'A note on departmental autonomy and innovation in medical schools'
Journal of Business, 1967, p.531-34.
96 Child, J. Strategies of Control and organizational Behaviour' Administrative Science
Quarterly, 1973. p.1-17.
97 Hall, R.H. “Organizations - Structure and Process” Prentice-Hall Inc. Englewood
Cliffs, N.J.; 1972.
1 - 56
The greater the preponderance of rules, regulations, codified job duties,

and so on, that govern employee behaviour, the greater the degree of
formalization. It has often been argued that increased formalization
represents a hindrance to effectiveness because managers under highly
formalized structures tend to do everything by the book. Thus, creative,
innovative, or adaptive behaviour is severely constrained. Blau (1955).98
Aiken and Hage (1966),99 Hage and Aiken (1967),100 Hofstede (1967),101
Miller (1967)102 have found negative relationship between formalization
and organization effectiveness. In contrast, Radnor and Neil (1971)
have found a positive relationship between the two.103 Less formalized
organization design may be more productive in unstable or unknown
environments, but higher degree of formalization may be preferred in
more stable, task-oriented environments.
Span of control
Span of control refers to the average number of subordinates per

supervisor.
Woodward (1958, 1965) found in a study of British firms that a

curvilinear relationship existed between span of control at the first level
of supervision and company success. Moreover, it was found that this
relationship was affected by the nature of the technology employed by
the firms. That is, of the firms that were rated as successful, those that
98 Blau, No.94.
99 Aiken, M. Hage, J. 'Organizational alienation : A comparative analysis'. American
Sociological Review, 1966, p.497-507.
100 Hage and Aiken, No.84.
101Hofstede, G.H. The game of budget control Van Gorcum, Assen, Netherlands, 1967.
102 Miller, G.A. 'Professionals in bureaucracy : Alienation among industrial scientists
and engineers'. American Sociological Review, 1967, p. 755-68.
103 Radnor, M.; Neil, N. The progress of management science activities in large U.S.
industrial corporations Northwestern University, Program publication, 1971.
1 - 57
employed small batch technology (that is, production of unique units to

customer specifications) and those that employed mass production
technology both had relatively small spans of control (twenty-three and
thirteen per supervisor, respectively).
On the other hand, successful firms using continuous process

technology (that is, chemical processing, oil refining, and so forth) had
an average span of control of forty-nine workers per supervisor. Less
successful firms in all three technological categories employed spans of
control on either side of these ratios.104
Ronan and Prien (1973) found no relationship between span of control

and a series of effectiveness measures.105
An examination of findings by Grusky (1961),106 Kriesberg (1962),107

Blau et al (1966),108 Ingham (1970),109 Boland (1971),110 Child
(1973),*111* Ronan and Prien (1973)112 indicate an important pattern. On
the one hand, increase in organization size appears to be positively
associated with increased efficiency. Such factors as orderly managerial
104 Woodward, J. “Industrial Organization : Theory and practice” Oxford University

Press, London, 1965.
105 Ronan, W.W.; Prien, E.P. 'An analysis of organizational behaviour and
organizational performance'. Organizational Behaviour and Human Performance, p.78-
99.
106 Grusky, O. 'Corporate Size, bureaucratization, and managerial succession'
American Journal of Sociology, 1961, p.261-69.
107 Kriesberg, L. 'Careers, Organization size, and succession’ American Journal of
Sociology, 1962, p.355-59.
108 Blau et al, No. 94.
109 Ingham, G. uSize of Industrial Organization and Worker Behaviour”. Cambridge
University Press, Cambridge, England, 1970.
110 Boland, W.R. aSize, Organization and environmental mediation”. McCutchan
Publishing Corporation, Berkeley, Calif, 1971.
111 Child J., No. 96.
112 Ronan, W.W.; Prien, E.P. An analysis of organizational behaviour and
organizational performance’. Organization Behaviour and Human Performance, P.78-
99.
mrnmmmm.
1 - 58
succession, reduced labour costs, and environmental control may all be

thought of as some aspect of getting job done in an orderly, efficient
manner.
On the other hand, size also appears to be inversely related to employee

attachment to an organization. Over 80 percent of studies using size as
a variable define organization as the total number of employees.113
Work-Unit Size
As with the organization size, the size of a work group appears to have
different effects on employee attitudes and behaviour than on
organizational output. For employee, increases in work-group size are
consistently associated with lower job satisfaction, lower attendance
and retention rates, and more labour disputes [Kerr et al (1951),114
Metzner and Mann (1953),115 Cleland (1955)116 Talacchi (I960)].117 A
possible explanation for this phenomenon may be the increased
affiliative opportunities that are typically associated with smaller work
groups (Cartwright and Zander, 1968).118
TECHNOLOGY, STRUCTURE AND EFFECTIVENESS
One of the earliest detailed examinations of the relationships among

technology, structure, and organizational success was carried out by
113 J.R. Kimberly, "Organizational size and the structuralist perspective: A Review,
Critique, and proposal,"Administrative Science Quarterly ,December ,1976, pp.571-
597.
114 Kerr et al. 'Absenteeism, turnover and morale in a metals fabrication factory'.
Occupational Psychology, 1951, p.50-55
115 Metzner, H.; and Mann F. 'Employee attitudes and absences'. Personnel
Psychology, 1953, p.467-85.
116 Cleland, S. Influence of Plant size on Industrial relations. Princeton, N.J.: Princeton
University Press, 1955.
117 Talacchi, S. 'Organization site, individual attitudes and behaviour’ Administrative
Science Quarterly, 1960, p.95-101.
Joan Woodward and her colleagues (Woodward, 1958, 1965). She

studied 100 British manufacturing firms. The firms were classified into
small batch (unit), mass production, or continuous process according
to production process. They studied the impact of technology on
structural variable (span of control, levels of authority, ratio of
managers to other personnel), effectiveness measure (general level of
organizational performance and success). The findings were -
1) Levels of authority and ratio of managers to personnel increased

with technological complexity
2) Labor costs decreased with technological complexity
3) Span of control was related to technological complexity as an

inverted U-function
4) Successful firms tended to cluster at the midpoints on various

structural continua (e.g. span of control); less successful firms
clustered at the end points on such continua. In short, it is
argued that effective firms employ structures that conform to
their technologies.119
Lawrence and Lorsch (1967) studied the impact of technical rate of

change, information uncertainty and feedback timespan on the amount
of differentiation and integration between departments. Results were
interpreted as supporting a strong relation between technological
variation and increased differentiation between departments.120
118 Cartwright, D.; and Zander, A. Group Dynamics Harper and Row, New York, 1968.
119 Woodward, J. Industrial Organization : Theory and Practice, Oxford University
Press, London, 1965.
120 Lawrence, P.R.; Lorsch, J.W. Organization and Environment, Graduate School of
Business Administration, Harvard University, Boston, 1967.
1 - 60
Meyer (1968) studied the impact of introduction of automated

equipment on the number of levels of hierarchy and span of control. He
found that the introduction of automated equipment led to increased
number of levels and span of control.121
Among other studies by Hage and Aiken (1969), Hickson et al (1969),

Fullan (1970), Zwerman (1970), Mohr (1971), Hrebiriiak (1974) studied
the impact of Jobs classified according to operations and materials
technology (Hickson et al, 1969), task predictability, task inter
dependence and task manageability; on structural variables (job
autonomy, participation, closeness of supervision, formalization, unity
of control) and supervisory behaviour. No clear relation between
technology and structure was found although certain technological
variables were found to be significantly related to some structural
variables when supervisory behaviour was held constant.122
ENVIRONMENT, STRUCTURE AND EFFECTIVENESS
In one of the earliest studies of organization - Burns and Stalker (1961)

surveyed twenty British industrial firms in an effort to identify
relationships between certain environmental characteristics and
resulting managerial practices. Burns and Stalker focused on
environment stability as it related to managerial behaviour.
Burns and Stalker concluded that in highly stable and predictable

environments, where market and technological conditions remain
largely unchanged over time (for example, automotive industry), the
mechanistic system may be the more uproot design. Because the
121 Meyer, M.W. 'Expertness and Span of control' American Sociological Review, 1968,
p.944-51.
environment is highly predictable under such conditions, it is possible j
to routinize tasks and centralize directions in order to maximize j
efficiency and effectiveness of operation.123 |
Where the environment is in a constant state of flux, however, and |

where an organization has to change direction constantly to adapt to its !
environment (such as in the aero space industry), organic systems
appear to be more appropriate because of their added flexibility and
adaptability. Thus, Burns and Stalker really argue for what might be
termed an environmental determinism point of view, where the most
effective organization design is determined as a function of external
factors. The role of management thus becomes one of properly /
understanding environmental conditions and adapting organizational^ %'
structure and practices to meet and exploit such conditions. rj
Taking an historical and evolutionary approach to the study of

organizational effectiveness, Chandler (1962) traced the growth and
development of nearly one hundred major U.S. business concerns.
Based on these case studies, he concluded that each major change in
the design or structure of these organizations resulted from
environmental shifts that necessitated such changes. Chandler sums
up his point by adding that growth or change "without structural
adjustment can lead only to economic inefficiency" (1962). By way of
example, he cites Henry Ford's venture into farm tractors in the late
1930s.124
Following the lead of these earlier studies, Lawrence and Lorsch (1967)
carried out an extensive investigation of environmental influences on
122 Hickson, D.J.: Pugh, D.S.; Pheysey, D.C. 'Operations Technology and
organizational structure : An empirical reappraisal'. Administrative Science Quarterly,
1969, p.378-97.
123 Burns, T.; Stalker, G.M. The Management of Innovation. Tavistock, London, 1961.
124 Chandler, A. Strategy and Structure The M.I.T. Press, Cambridge, Mass, 1962.
1 - 62
Shz 18 2 -
organization design and effectiveness among a sample of American j

firms.
According to Lawrence and Lorsch, if one wants to improve the j

effectiveness of an organization one must ensure that there is the right j
"fit" between organization structure - as indicated by differentiation and !
integration - and the environment. In general, certain and
homogeneous environments require less differentiation and integration,
while uncertain and diverse environments require more differentiation
and integration. The steps to improve organization functioning using
contingency theory are the following: first, measure the key constructs
or variables - environment, differentiation, and integration, second,
assess the fit between the organization structure variables and the
environment; and, third, make the necessary adjustments in the
organization structure variables to improve the goodness of fit with the
environment.
The implications of the theory were translated into the following words.
A business that is cyclical, unpredictable and rapidly changing calls for
an organization characterized by a high degree of integration and the
formation of decisions as close to the point of execution as possible.125
More recently, Osborn and Hunt (1974) carried out a study that
focused specifically on environmental complexity as it relates to
effectiveness in a sample of social service agencies. The results of this
study indicated that the degree of risk present in the external
environment was unrelated to effectiveness.126
125 Lawrence, P.R.; and Lorsch, J.W. Organization and environment Graduate School
of Business Administration, Harvard University, Boston, 1967.
126 Osborn, R.N.; Hunt, J.G. Environment and organizational effectiveness'
Administrative Science Quarterly, 1974; p.231-46.
A Model for “Right” Organization Structure
In 1979, Robert Duncan published an article in Organizational

Dynamics, proposing a comprehensive framework for understanding
the design options one has for coping with different types of
environments.
The framework of Duncan ( 1979) was based on a conceptualization of

environmental uncertainty as consisting of two , more or less
independent ,dimensions; environmental change and environmental
complexity. He proposed that the interaction of these two dimensions
provides a heuristic framework which can be used to assess the state of
the task environment of the organization.
TABLE 1-3
FOUR TASK ENVIRONMENTS AND THEIR ORGANIZATIONAL STRUCTURES t

BASED ON ROBBINS .19871
3.Moderately high perceived 4. High perceived uncertainty

uncertainty
Complexity :Low
DYNAMIC
Complexity: Low
Formalization ;Low
Formalization :Low
Decentralization
Centralization
Examples : Advertising firms, R& D
CHANGE
Example : Small Entrepreneurial units, Task Forces

firms
1. Low perceived uncertainty 2.Moderately low perceived
uncertainty
Complexity :High
Complexity :High
Formalization ; high
Formalization ; high
Decentralization
STABLE
Decentralization
Examples; Mass production
manufacturing companies, Examples : Multiproduct firms,
Bureaucracies Hospitals
Simple Complex
COMPLEXITY
STRATEGY AND STRUCTURE
Strategy can be defined as the determination of the basic long-term

goals and objectives of an enterprise, and the adoption of courses of
action and the allocation of resources necessary for carrying out these
goals. Decisions to expand the volume of activities, to set up distant
plants and offices, to move into new economic functions, or to become
diversified along many lines of business involve the defining of new
basic goals. New courses of action must be devised and resources
allocated and reallocated in order to achieve there goals and to
maintain and expand the firm's activities in the new areas in response
to shifting demands, changing sources of supply, fluctuating economic
conditions new technological developments, and the actions of
competitors 127
CHANDLER S “STRATEGY FOLLOWS STRUCTURE" THESIS
The classic work on the relationship between organizational strategy

and structure was done by Harvard historian Alfred Chandler in his
study of close to a hundred of America's largest industrial firms 128
Chandler summarized - Growth without structural adjustment can lead

only to economic inefficiency. New structures are developed to meet
new administrative needs which result from an expansion of a firms
activities into new areas, functions or product lines, the technological,
financial and personnel economies of growth and size cannot be
realized.
127 Alfred D. Chandler, Jr., "Strategy and Structure: Chapters in the History of the
Industrial Enterprise (Cambridge, Mars: N.I.T. Press 1962). p-13.
128 Chandler, "strategy and structure

CHILD'S STRATEGIC CHOICE
In the early, 1970's the term strategic choice was introduced by John
Child to emphasize that decision-makers have available a range of
options 129
Child argued that, while there are constraints on managerial decision

discretion, managers still have significant latitude for making choices.
Just as they choose objectives, personnel, or control techniques,
managers also choose the structural design. External factors such as
competitors, unions and government agencies are part of the
constraints, but rather than impinging directly on an organizations
structure, there factors are mediated by managerial choice.
STRATEGY-STRUCTURE TYPOLOGY
Organizations can be classified into one of four strategic types:

defenders, prospectors, analyzers and reactors 130
Defenders seek stability by producing only a limited set of products

directed at a narrow segment of the total potential market within this
limited niche or domain, defenders strive aggressively to prevent
competitors from entering their "turf'.
Prospectors are almost the opposite of defenders. Their strength is

finding and exploiting new product and market opportunities.
Innovation may be more important than high profitability.
129 John Child, "Organization structure, Environment, and performance - The Role of
strategic choice,"Sociology, January 1972, pp. 1-22.
130 Raymond E. Miles, Charles C. Show, Alan D. Meyer and Henry J. Coleman, Jr,
"Organizational strategy structure and process,"Academy of Management Review, July
1978, pp. 546-562.
Analyzers try to capitalize on the best of both the previous two types.
They seek to minimize risk and maximize the opportunity for profit.
Their strategy is to more into new products or new markets only after
viability has been proved by prospectors. Analyzers live by initiation.
Reactors represent a residual strategy. The label is meant to describe

the inconsistent and unstable patterns that arise when one of the other
three strategies is pursued improperly.
TYPES OF STRUCTURES
Figure 1.2 A short history of Organizational forms
» r e e a 3
0 © oo £ e
00® d
****** Mode! 2: The Bureaucracy with a senior
Model 1: The Rigid Bureaucracy
management' team
— i.
fC : 3;
0 0 0 0 i
Modei 3: The Bureaucracy won

a a
protect teams and taskforces
Modd The Matrix Organization
.■w •
Modd 5: The Project Organization
i
t
t
t
a
Mcdd 6: Tne Loo>cly-coupled Organic Network
The various types of structures are described briefly below :
THE SIMPLE STRUCTURE131
The simple structure is said to be characterized most by what it is not

rather than what it is. The simple structure is not elaborated . It is low
in complexity , has little formalization, has authority centralized in a
single person. The structure is depicted best as a flat organization, with
an organic operating core and almost everyone’s reporting to the one
individual in whom the decision-making power is centralized.132
THE FUNCTIONAL STRUCTURE
The major distinguishing feature is the grouping together of similar and

related occupational specialties.133 Activities such as marketing,
accounting, manufacturing and personnel are grouped under
functional execution who report to a central headquarters.
THE DIVISIONAL STRUCTURE
The divisional structure pioneered in the 1920s by General Motors and

Du Pont is designed essentially to foster self-contained units. Each unit
or division is generally autonomous, with a division manager
responsible for performance and holding complete strategic and
operating decision-making authority.
131 Henry Mintzberg,” Structure in 5’s : A Synthesis of the Research on Organization

Design Management Science,March 1980 ,p.331.
132 Henry Mintzberg, The Structuring of Organisations ( Englewood Cliffs ,N.J:
Prentice Hall ,1979 ,p.312.
133 Henry Mintzberg,” Structure in 5’s : A Synthesis of the Research on Organization
Design ,” Management Science,March 1980 ,p.332
A closer look at divisional structures reveals typically that their

“innards” contain functional structures .The Divisional framework
creates a set of essentially autonomous “little companies”.
THE SECTOR STRUCTURE
Introduced in 1977 by General Electric, it places an additional layer of

management between the divisional managers and the corporate
executive office 134. Each sector represents a set of common businesses
that have a clearly defined industry identity. As such, each sector is
actually analogous to a “super-division”. For instance, General Electric
has created six sectors, responsible for consumer products and
services, Industrial Products and components, Power systems,
Technical Systems and Materials, International Operations, and Utah
mining International.
THE CONGLOMERATE STRUCTURE
The conglomerate structure is the product of 1960s. The unique

characteristic of the conglomerate structure is that there are no
independence’s among its units or divisions, except for pooling of
resources. The conglomerate therefore is similar to the divisional
structure, only the units are completely independent. Management
purposely seeks a diverse set of divisions so as to smooth out the boom
and bust cycles to which the single - domain organization is
susceptible.
The role of headquarters in the conglomerate depends on whether

management is active or passive. In the former, the headquarters staff
134 “GE ‘s New Billion -Dollar Small Business Business Week,December 1977
,pp.78-79.
1 - 69
would be small ( in contrast to the other structural forms) and would

engage in allocating resources among the divisions and monitoring
each ones performance, total corporate planning , and the financial
analysis necessary to make acquisition and divestiture decisions.
ADHOCRACY
An adhocracy has been described as a “rapidly changing adaptive

temporary system organized around problems to be solved by groups of
relative strangers with diverse professional skills”135.
Adhocracies would be characterized as having moderate to low

complexity .low formalization and decentralized decision-making.
Adhocracies have a high degree of horizontal differentiation based on

formal training. Since Adhocracies are staffed predominately by
professionals with a high level of expertise: horizontal differentiation is
great. But vertical differentiation is low. The many levels of
administration found in a bureaucracy are absent.
MATRIX
The most popular application of adhocracy is the matrix structure . In

simplistic terms, the matrix is a combination of departmentation by
function and by product or project. The matrix is designed to benefit
from the strengths of both the functional and product structures yet
avoid the weaknesses of either.136
The matrix breaks the unit of command concept - a cornerstone of

bureaucracy - that requires every employee to have one and only one
135 Warren G.Bennis , “ Post -Bureaucratic Leadership Transaction ,July- August

1969,p.45.
boss to whom he or she reports. Employees in matrix have two bosses -

their departmental manager and their ‘project manager.
FLAT ORGANISATION
The old organization structures have been turned on their heads,

sweeping away layers of management ,cutting back sprawling HQs.
Vertical ,functional structures no longer work. A recent memo from the
new American CEO of a huge multinational to its outposts in Europe
said: “There will be no hierarchy: the executive committee is
disbanded.” There is crystal clear trend in all major organizations in the
1990s to reduce levels of management, hopefully cutting out
unnecessary cost and improving communication flow up and down and
more particularly across the organization. For example in GLAXO
Pharmaceuticals has cut back a factory hierarchy of eight levels to four,
doing away with the ‘deputy to’, ‘assistant to’, 'foreman’ type
nomenclature to simple operational units with team leaders.
CUSTOMER - CENTERED ORGANISATION
Another clear trend in the shape of the future is to move from

structures with the traditional functional dimensions - for example,
marketing \ manufacturing / sales - towards structures which get you
closer to the customer, and are therefore divided up to reflect different
functions. The managing director of Habitat (now part of the Swedish
Group IKEA), talking about the company s revamped strategy to
recapture its traditional middle- class market ,has insisted that every
manager spends at least two days with customers in the field - the
place where understanding the business starts.
136 Jay Galbraith , “ Matrix Organization Designs : How to Combine Functional and
Project Forms Business Horizons ,February 197l,pp.29-40.
THE EMERGING FUTURE ORGANISATION
Tomorrow’s dominant form of business organization will differ from that

of today at its very foundation -in its structure .As the scope of work
broadens from capital intensive to knowledge -intensive ,IT opens new
structural vistas ,137
‘At some time during the late 1980’s in the West ,we silently and
unobtrusively crossed over a trip -wire and into a new era .To appreciate \
the changing nature of the application of IT to the business world we find

that :IT is afield that has emerged radically in the past five -ten years .It
has moved from a tool of incremental operational improvement to being a
means of achieving fundamental competitive advantage .It is changing
the shape of industry .By the mid-1990’s most industries will be
information intensive. ”
John L. Cecil and Eugene A. Hall138
The Mckinsey Quarterly, 1989.
THE VIRTUAL ORGANISATION
The word virtual has become popular in the field of future work .In
Future Work transforms ,the traditional resources or assets seem to
have vanished ,or at least have become transparent.
‘ Virtual organizations are project focused collaborative networks un

inhibited by time and space. They are without the spatial territory and
the cultural norms so important in traditional Organisations. They offer
the benefits of a high degree of focus on a common purpose, as well as
137 Birchall ,David ; Lyons ,Laurence, “ Creating Tomorrow’s Organization” Pitman

Publishing ,London 1995 ,pp-9-10.
the assembly of the right skills to accomplish that purpose precisely, j

Thus they offer a level of productivity unattainable in traditional j
Organisations.
When is an office not an office ? Answer -when it is a virtual office.
In his visionary book ,The Third Wave ,the futurist Alvin Toffler139
remarks that :
‘----- one change is so potentially revolutionary and so alien to our

experience ft needs far more attention than it has received so far. This,
of course ,is the shift of work out of the office and factory back into the
home. ’
More recently ,in 1993 ,Emma Daly 140reporting in the Independent has
commented:
“Commuter hell---------- has prompted countless office workers to

fantasize about working from home; the developments of computer and
communications technology means such fantasies can now become
reality. ”
THE BOUNDARYLESS COMPANY
In declaring that ‘ the traditional organizational map describes a world

that no longer exists,’ Larry Hirschhorn and Thomas Gilmore
14 Observe: “Managers are right to break down the boundaries that make
138 Cecil ,John L. and Hall , Eugene A., “ When IT really matters to Business Strategy”
The McKinsey Quarterly .Autumn 1989.pp 2-26.
139 Toffler .Alvis , “ The Third Wave Pan Books .London ,1980.
140 Daly .Emma , “ Home is Host to a New Work Era .” The Independent ,12th.May
,1993,p.30
141 Hirschhorn .Larry and Gilmore .Thomas , “ The New Boundaries of the
Boundaiyless Company” Harvard Business Review ,May-June ,1992 ppl04-105.
Organisations rigid and unresponsive. But they are wrong if they think j
that doing so eliminates the need for boundaries altogether. It indeed j
integrates decisions horizontally at the lowest managerial levels and |
with superior speed. In effect, a network identifies the "small company j
inside the large Company" and empowers it to make the four- j
dimensional trade-offs-among functions, business units, geography and
global customers - that determine success in the market place. It enables
the right people in the organization to converge faster and in a more
focused way than the competition on operating priorities determined by
the imperatives of meeting customer needs and building concrete
advantage, once traditional boundaries of hierarchy, function and
geography disappears , a new set of boundaries become important. Yet
knowing how to recognize these boundaries and use them productively is
the essence of management in the flexible organization.”
HORIZONTAL ORGANISATIONS
All the modern designs, whether matrix or network .emphasize the

importance of horizontal over traditional vertical structuring of the
organization.
Frank Ostroff, a Mckinsey & company consultant along with colleague

Douglas Smith, is given credit for developing some of the guiding
»•
principles that define the horizontal organization design.142
1. Organization revolves around the process ,not the task.
2. The hierarchy is flattened .
3. Teams are used to manage everything.
142 Byrne, John A. “ The Horizontal Corporation Business Week,Dec.20 1993 ,pp
78-79.
4. Customers drive performance.
5. Team performance is rewarded.
6. Supplier and customer contact is maximized.
7. All employees need to be fully informed and trained.
NETWORKING : THE FUTURE ORGANIZATION FORM
As Organisations responding to increasing global competition ,strive to

become fast, flat, flexible and open ,the concept of the networked
organization has taken hold. Whether to create new business
opportunities, improve overall effectiveness or just to provide business
intelligence, networking is a concept reborn in the 1990’s.143
The networked organization was described by R. E. Miles and C.C.

Snow144 as a cluster of firms, specialist units or individuals co
ordinated by market mechanisms rather than chains of command.
H.Bahrami145 describes it as ‘more akin to a federation or a
constellation of business units that are typically interdependent
,relying on one another for critical resources.”
The networked organization was depicted by Gareth Morgan146 in his

book Creative Organization Theory.
143 Birchell ,David ; Lyons .Laurence , “ Creating Tomorrow’s Organization ,” Pitman

Publishing .London ,1995 ,p 67.
144 Miles R.E.; Snow.C.C., “ Causes of Failure in Network Organizations,” California

Management Review .summer 1992 ,pp 53-72
145 Bahrami H. “ The Emerging Flexible Organization : Perspectives from Silicon Valley
California Management Review .Summer 1992 ,pp 33-51.
146 Morgan G. “ Creative Organization Theory New bury Park .California .Sage
Publications, 1989.
In some companies, networks imply a set of external relationship - a

global web of alliances and joint entries. In others, networks mean
informalities among managers-floating teams that work across
functions and maneuver through bureaucracy. Still other companies
define networks as new ways for executives to share information, using
management information systems, video conferencing, and other such
tools.
Networks are designed to build the central competitive advantage of the

1990s - superior execution in a volatile environment. No traditional
corporate structure regardless of how de-cluttered or delayered, can
muster the speed, flexibility, and focus that success today demands.
Networks are faster, smarter and more flexible than reorganization or
downsizing-dislocating steps that cause confusion, sap emotional
energy and seldom produce sustainable results.
A network reshapes how and by when essential business decisions get

made.
A network is a recognized group of managers assembled by the CEO

and the senior executive team. The number of managers involved
almost never exceeds 100 and can be fewer than 25 even in global
companies with tens of thousands of employees. The members are
drawn from across, the company's functions, business units and
geography and from different levels of the hierarchy.147
147 Charan Ram, "How Networks Reshape Organizations - For Results" Harvard
Business Review, September-October 1991, P. 104-115
THE HOLONIC NETWORK
In their book Beyond Business Process Re-engineering -Towards the j

Holonic Network ,Patrick McHugh148, and his colleagues describe what |
they call the ‘ Holonic network’. A Holonic network is a set of companies |
that act in an integrated and responsive way to meet each and eveiy ;
customer’s needs .The network is constantly being reconfigured to cater
for each business opportunity offered by a customer. Each company in
the network provides a different process capability, which is referred to
as a ‘holon’. Each new assignment might call for a new Holonic
network. Each configuration of process capabilities within the Holonic
network is described as a Virtual company’.
ORGANISATION RESTRUCTURING
Oxford Dictionary defines the term as ‘ giving a new structure

to/rebuilding /rearranging .’ Restructuring is both a ‘episodic exercise’
(Chandra) as well as a ‘continuous process’ (Ghosal and Mintzberg).
In view of the global competition, there is a continuous re-fixation of

“milestones” in the organization in respect of higher quality of products,
new technology, productivity, delivery, cost digression, cost productivity
and several such parameters. Hence corporate restructuring ! It means
taking a realistic look at one’s company and deciding to reshape the
whole place to remain continuously competitive.
Every organization must choose between organizing by function and

organizing by product. Organization by function ensures that the in
depth specialized knowledge fundamental to long term innovation is
preserved and enhanced. However, it opens the company to developing
the "functional silos" that have bedeviled so much of U.S. industry.

Organization by product, on the other hand, focuses the energies of the
Organization on the customer and encourages rich communication
across functions. But it often does so at the cost of steadily eroding
base of functional knowledge. After a while, the functional specialists
have spent so much time thinking about the whole product that they
lose the functional expertise that was their core strength.
Our study suggests that either approach to organizational design can

be at best, only a temporary solution. A senior research manager at
one of the most successful companies reflected, "We've tried organizing
by scientific discipline (functional). We've tried using project teams.
Nothing works as well as being continually aware of the need to be both
at the leading edge of the science and in total command of the
important developments in other areas."149
Reengineering is based on a fundamental assumption - that a company

is best viewed as a set of horizontal processes for serving customers - is
as powerful a basis for revenue building as it is for cost-cutting. What
is obsolete is the view of reengineering as essentially an expense
reduction methodology. The successful reengineers of today and
tomorrow will be those that use reengineering to enhance their
companies, capability for growth. The secret is to base all reengineering
148 McHugh ,P.,Georgio,m.and Wheeler ,W.A.(1995) Beyond Business Process Re

engineering -Towards the Holonic Network .Chichester : John Wiley and Son.
149 Henderson, Rebecca, "Managing Innovation in the Information Age" Harvard
Business Review, January-February, 1994, P 100-113.
efforts on a clear understanding of the core customers - in other words,

to reengineer from the outside in, rather than the inside out.150
Unless the reengineering is designed to ultimately let the business

better meet the needs of its customers today and tomorrow, the failure
rate will remain high.
The bad news is that about 70 percent of all reengineering efforts are
downed to fail. Why ? Because the real key to successful reengineering
efforts - the human factor - is neither considered nor understood. Most
reengineering attempts focus on the technical side - primarily on
»
process redesign. But they largely ignore or at best, under estimate the
importance of the human element. The technical aspect is critical of
course. But without an effective approach to dealing with the people
involved in a reengineering effort, the implementation is sure to fail.151
In its purest sense, reengineering means starting over. It means wiping

the slate clean and beginning a new. It means starting from scratch in
designing your core business processes, not spending months
analyzing your current ones. It means pretending that no systems or
procedures are in place, and asking, "If we were recreating this
company today, what would it look like ?"152
Reengineering involves massive changes of major magnitude - changes

that really shake things up. Continuous improvement strategies are
fundamentally sound and effective, but they often lack a sense of
150 Duboff, Rob ; Carter, Craig, "Reengineering" Management Review, Nov., 1995, P.
43-47
151 Wellins, Richard S., Murphy, Tulic Schulz, "Reengineering : Plug into the Human
Factor" Training and Development, January 1995 P 33-37.
152 Business Review, September-October 1991, P. 104-115.
1 - 79
urgency and high-impact results. Reengineering, on the other hand,

goes for the "gold ring" relatively quick and substantial gains in
organizational performance.
Joint ventures, traditionally pursued only as a means to expand into

new businesses, offer a way out of this restructuring impasse.
Companies such as Philips, Corning, Dressr, IBM and Honeywell have
used. Joint ventures creatively to exit from non core businesses. In
doing so, these pioneers have departed from convention in the design
and management of their joint ventures. Although some of the rules of
thumb for joint ventures still apply, other ideas must be turned on
their heads.153
Pioneers in the Use of Joint Ventures for Restructuring
Restructures (A) Incoming Partner (B) Business JV Start Partner's

Shares (AB) JV Termination Outcome
Philips Whirlpool Consumer 1989 47-53 1991 Philips received

higher price than
Appliances it would have
through direct
sale. Whirlpool
established a
strong European
Presence.
Corning Ciba-Geigy Medical 1985 50-50 1989 Corning rid itself of a peripheral
diagnostics business without destroying the business value. Ciba-Geigy entered the U.S. Market as a major
player.
Honeywell Bell & NEC Mainframe 1917 42.5-42.5 1991 Honeywell

exited the mainframe Computers computer business and refocused on its electronic control business.
Bell established a substantiated present outside France.
153 Nanda, Ashish, Williamson, Peter J. "Use Joint Ventures to Ease the Pain of
Restructuring" Harvard Business Review, November-December, 1995, p. 119-129.
1 - 80
Dresser Komatsu Construction 1988 50-50 1994 Dresser disposed of its non core
construction equipment business. Kamatsu strengthened its US presence.
IBM Siemens Marketing, 1989 50-50 1992 IBM existed a price-competitive

Distribution, supplementary business and service Simmons strengthened itsof PBX systems presence
in the U.S. Equipment telecommunication market.
Richard L. harder, Vice President, OrganizationPlanning and

Development, BellSouth Telecommunications Inc. says "Reengineering is
only one of several major change efforts going on at Bell South
Telecommunications over the last 18 months of leading the program, I
have spent a great deal of money trying to find a very scientific,
calculated approach to reengineering. I have become absolutely
convinced there is no such thing. Every company has to find its own
way. One primary lesson that has been burned into my brain is that
there is not a trade off between improving customer satisfaction and
attaining optimum efficiency. Not only are they mutually exclusive, they
are mutually supportive”.154
STRATEGIES FOR CORPORATE RESTRUCTURING
SMARTSIZING
It refers to the activity of converting a corporation into an appropriate

size that is viable profitable and flexible to take on the changing
market needs. Smartsizing can be of two types; a) Downswing b)
Upsizing
Downswing refers to reducing the scale of operations by :
i) Selling off loss making divisions /units
154 Vogl, A.J. "Plugging in Change" Across the Board, October 1995, P. 24-31.
i) Selling off divisions not in concurrence with the core

competencies and
iii) Laying off excess people and infrastructure
Upsizing
Upsizing refers to increase in the scale of operations by a magnitude

through mergers, diversifications, acquisitions, strategic alliances and
expansions.
Networking
It refers to the process of breaking companies into smaller independent

business units for significant improvement in productivity and
flexibility.
The Virtual Corporation
This is a futuristic concept wherein companies will be edgeless,

adaptable and perpetually changing .The centerpiece of this business
revolution is a new kind of product called a Virtual Product'. This
product is one that is one that is produced instantaneously and
customized in response to customer demands. Most importantly, it can
be made available any time ,in any place and in any variety.
Verticalisation
It refers to regrouping of management functions for a particular

product range to achieve higher accountability and transparency.
Delayering - Flat Organization
In the post world war period ( 1950s and 1960s) ,the demand for goods
was ever increasing. Main objective is to ‘manage less with quick
decision. It entails removal of the layers of senior and middle
management i.e. making the organization structure flat.
“Reengineering is the fundamental rethinking and radical redesign of

business processes to achieve dramatic improvements in critical
contemporary measures of performance such as cost, quality , service
and speed “says Michael Hammer.
THE RESTRUCTURING SCENARIO
Three quarters of the largest American and European Companies have

reengineered at least one key business process over the past three
years, and nearly 80 per cent of those companies consider their
reengineering efforts to have been successful, reports a recent Mercer
Management Consulting Survey of senior executives.155
The primary yard tick for measuring reengineering effectiveness is cost

reduction. Revenue growth and stock price gains, are at best,
secondary considerations.
True success arrives when reengineering ceases to a discrete "project"

and instead becomes a way of life. The enterprise becomes, in effect, a
highly sensitive mechanism for sensing and anticipating changes in the
make up or preferences of its core customers.
155 Duboff, Rob ; Carter, Craig, "Reengineering" Management Review, Nov., 1995, P.
43-47
In a dramatic bid to reverse to losses Apple Computer said it would cut

4,100 employees nearly a third of its work force and scale back its
Macintosh line of computers and software.
"We have made the right decision to focus our energies and these
decisions I am absolutely convinced will put us on the road back to
health, and we will be looking at a very different situation over the rest
few quarters," Apple Chairman Git Amelio said yesterday.
Apple's chronic losses and shrinking market share have forced it into a
series of retrenchment that have so far failed to stop the slide. It has
posted losses in force of the last five quarters, totaling $ 936 million.
The company also cut 1500 jobs last year as part of the restructuring
implemented by Amelo, who was hired 13 months ago to turn the
company around. Industry analysts said the latest move indicated the
previous steps did not work.15®
They are dismantling wasteful organizational structures to get down to

business, and unnecessary layers are disappearing .Corporations are
also taking a harder look at what employees are actually contributing.
Leaner organizations don’t necessary mean that less people do more
work, "says consultant Om Kaul. "It is just that managerial productivity
is rising.
There is a focus on systems and processes. While that might seem like
an increase in bureaucracy, in reality, it releases managers from day to
day considerations to allow them to concentrate on providing strategies
and business solutions.
156 Ortiz, Catalina, "Apple to retrench 4,100 Workers"

The Economic Times, 16.03.1997, California, A.P.
Management’s are struggling to empower employees across the

corporation.
According to K. Ramachandran, Senior V.P. HRD and Corporate

operational policy, Philips India Ltd. "Hierarchy is not the driver
anymore, it is the role. Each department has internal customers, and
this blurs the distinction between production and marketing or
manager and clerk.
"We want people who are willing to question but constructively, "says
Ramachandran. "We look for managers who are solution-oriented,
flexible, driven by competence, not power Barefoot Managers, who are
willing to go out and get the job done."
The dictatorial, top-down approach is out. An integrative, consultative

approach is in. Nohria says, "Most large world corporations have been
built on autocracy; that style was right for the environment they
functioned in. But today, we need managers who are strong on
customer focus, who are flexible enough to help re-engineer processes
and business, while keeping other employees involved."
The biggest change in the workplace is the new element of insecurity,"

says Sachdev "The new ambitions of companies mean that employees
have to ask, do I know enough ? Can I adjust to computerization, or the
new management vocabulary ?"
Most organizations are creating a new equation that avoids both the
pink slip ruthlessness of the U.S. and the all-encompassing
paternalism of Japan.
At a Bangalore based Company Veri Fone, employees from different

backgrounds have gotten used to working without secretaries very little
paper, and just three organizational levels. Computers, e-mail and

communicating across time zones are central to the company's
operations welcome to the virtual corporation.157
Patterns in Organization Structure: In a study of organization charts of

61 different companies, by National Industrial Conference Board, 1962,
the Board discerned a pattern. According to the report published, it
read 'The observable pattern among the 61 companies has four major
elements to it, some more evident than others' :
1. A more concerted move to divisionalized organization structures

accompanied by greater decentralization.
2. The elaboration and changed role of corporate staff.
3. The emergence of another level of general executives, most often

labeled 'group executives'.
4. The elaboration of the chief executive’s office.158
The study of the excellently managed Indian companies showed that

those large multi-product, multi-technology, multi-location companies
which had introduced decentralization effectively had done so with
considerable managerial understanding of the process and people
variables involved.
In all the cases where structure was a distinctive feature of managerial

excellence, it was also noticed that evolution of the structure has been
a progressive and sequential process. Those companies which currently
157 Abraham, Sarah, "Workplace 1995" Business India, April 24, May 7, 1995, P. 64-
70.
158 Stieglitz, Harold Patterns in Organization structuring - Organization Structuring,

McGraw-Hill, London, 1971, p.299-309.
Up 1 - 86
have a highly decentralized structure, had initially started with a

functional structure when the size of the operations was small, they
expanded into a region-based structure when the marketing grew to all
India proportions and finally, into a product group structure (with a
strong corporate office) when marketing and production operations
became very large, diverse and dispersed. It is seen that the corporate
office in all these cases have seen their role primarily in formulating
strategy and policy, in addition, of course, to certain fundamental
aspects which are critical to continued organizational success. They
have safeguarded their rights in relation to resource allocation,
particularly in terms of capital expenditure allocation, project approval,
resource (long term) raising, management development and formulation
of functional policies, strategies and procedures. Because of the
transfer of the operational decision-making powers to the product
groups, many of these corporate offices are lean, but capably manned.
In contradiction, some of the corporate offices of the organizations

studied were not able to avoid involvement in the operations, and this
was seen by people down the line as running the product group
operation by proxy from the corporate office. Sometimes, the
constitution of the product group structure has led to strong affiliations
with their groups and hence an insensitivity, and inability to relate
their product groups operations to the total corporate objectives or to
the inter-group dealings about transfer pricing, resource sharing,
utilization of common services etc.
ITC has set trailblazing examples in evolving and administering an

appropriate organization structure based on product group operations.
It has not only demarcated its total business into specific product
groups, but also ensured that the structure enables the managers
1 - 87
within the product group structure to function, for all practical

purposes, as if it is a distinct corporate enterprise with clearly
delineated strategy and performance targets. The most striking
innovation of ITC in this regard is the creation of national Boards of
Directors for its various product groups as distinct from the ITC
Corporate Board constituted according to the provisions of the
Company law.
HMT has followed a similar structural mechanism in respect of its

various product groups i.e. watches, lamps, machine tools and tractors
and defined the corporate office's role with considerable insight.
Hindustan Lever has achieved an excellent level of integration between

its regional operations and product groups and functional entities in
the corporate office.
Larsen & Toubro's structure is marked by a clear division of tasks

between the product groups and corporate office. The mechanism by
which individual members of the corporate management also take the
operational responsibility of a cluster of product groups ensures the
best illustration of the concept of boundary roles, whereby the
transmission of trends in production, finance, personnel, technology,
which begin to assume strategy of policy proportions in a product
group's operations are highlighted for corporate management's
attention, analysis and strategic action.159
Burmans hope to convert 113-year-old Delhi based group, Dabur India

from a Rs. 700 Crores group into a Rs. 1,000 core giant by 2000 A.D.
159 Bhattacharyya, S.K. Achieving Managerial Excellence - Insights from Indian

Organizations. MacMillian India Limited, 1989, p.67-77.
In 1993, Burmans hired consultancy firm A.F. Ferguson to chart out

new growth opportunities. A tightly held family concern until then,
Dabur was forced to divest part of the promoters equity to mature its
ambitions. In 1993, Dabur went public for the first time and the
Burman's stake reduced to 78-8 per cent.
Until then, Dabur's mainline businesses were herbal and ayurvedic

health care products and toiletries. From three divisions, the first
phase of restructuring involved carving out six independent profit
centres. Earlier, a general manager along with him team of marketing
and sales professionals looked after the marketing and sales of the
entire Dabur portfolio. Today, there are 10 divisions. The activity chart,
each headed by a general manager with a dedicated team of
professionals. Each profit centre now has its independent marketing
and distribution network to focus on individual product groups.
These structural changes have been accompanied by a tentative shift in

the family's involvement. Earlier, the Burmans were involved in the day
to day functioning of the company. Today each of the general managers
reports to one member of the Burman family. Restructuring has seen a
two fold increase in the number of professionals.160
Raymond Ltd. has dropped the proposed merger of Raymond synthetics

Ltd. (RSL) with itself following opposition from the Industrial Credit and
Investment Corporation (ICICI), Raymond's Principal term lending
institution.161
160 Sachdeva, Sujata Dutta, "Dabur tries a new Prescription"

The Business Standard, 13.3.1997
161 R.Sriram, "Raymond drops Synthetics Unit Merger"

The Business Standard, 27.2.1997.
Mumbai
The ITC board is considering a proposal to replace the committee of

«
Directors (COD) with a management panel which would include more

members than just the executive directors.
The Board may include the heads of the company's various business
units in the proposed committee to broad base it. Even the non
executive director may be asked to attend the committee's meetings as
special invitees.
Headed by company Chairman YC Deveshwar, the COD at the moment

consists of four executive directors after two directors retired recently.
That is why a need has been felt to broad base the COD to include
other executives who play a major role in the running of the company.
This obviates the need to replace the COD with a new committee.
The proposal is part of an attempt to bring about a better corporate

governance and to prevent the kind of alleged scams that have plagued
the company during the last few years.162
“ Six months after Swiss giants Ciba -Giegy and Sandoz announced
their intention of signing on the dotted line ,their Indian subsidiaries
have taken a major step towards matrimony. The boards of the two
companies have just approved a scheme wherein Sandoz (India ) will be
merged into Hindustan Ciba -Giegy (HCG) after the latter divests itself
of its specialty chemicals business”.163
The union industry ministry has finalized a detailed restructuring

package for the 49 PSUs under the Department of Heavy Industries.
The package aims at providing greater autonomy to PSU management’s
162 Gupta, Das, Surajeet, "Management Panel may replace ITC Directors' Group" The
Business Standard, 10.3.1997, New Delhi
1 - 90
and reducing the workforce through a revamped voluntary retirement

scheme.164 A merger of Pond’s India with Hindustan Lever is inevitable,
says a research report prepared by H.G. Asia which focuses on Unilever
companies in India.165
The 400- crore Transport Corporation of India Ltd. is hiving off four of
its six existing divisions as part of its corporate restructuring
exercise.166
For the first half of the current year ,Greaves Limited has posted
healthy results .The complete restructuring of the company into six
independent business units over the past three years has played no
small part in this.167
During 1996, corporate India has been a witness to significant

restructuring exercises. Bangalore based BPL which was beginning to
look an unwieldy conglomerate has carved out its business into six
Strategic Business units.
A continuing cash crunch forced the Arvind Mafatlal group to hive off
its petro chemical initiative from NOCIL to a separate vehicle which
soon seek an international partner with deep pockets.
163 Shankar, Sitaram , “ Merger Brews” The Economic Times ,8th.Nov, 1996.
164 “ Restructuring package for 49 PSUs finalised” Business Standard,7th.Nov, 1996.
165 “ Pond's merger with Levers imminent : HG Asia” Financial Bureau ,The Business
Standard ,4th.Nov, 1996.
166 Roy, Ghosh Sangeeta “ TCI splinning off four divisions in recast” The Economic
Times ,6th. Nov, 1996.
167 "Restructuring paid” The Economic Times , 4th.November, 1996.
Essar also has first de-subsidised Essar Power and now truncated its
long gestation pellet project into a wholly owned subsidiary which will
seek a foreign partner to drive its growth.168
168 Banerji ,Chiranjeet , “ Restructuring was the ball game of 1996” The Economic
Times,29th.December ,1996.

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CHAPTER-I

The only way we can possibly continue to have a large organization is to

What do you foresee will be the centers of the workplace?

The future of the workplace is unfolding at different paces, in different

Commenting on transition in organization design, Brian Dumaine

Thus an organization design viz. bureaucracy, which could sustain

3 .Bennis, Warren G. “Changing Organizations”, McGraw-Hill, New York, 1966, p.4.

There has been a growing concern about some fundamental definitions,

‘What is an organization ? What is a product? What is a market? What is

---- And what is a customer? An adversary? A partner?

Human organizations are as susceptible perhaps more so, as other

'What may be most in need of innovation is the corporation itself. Perhaps

Peter F. Drucker listed 41 major responsibilities of the Chief executive

Today, due primarily to the growth of science, technology and research

that maximizing cooperation rather than competition between

The social structure of organizations of the future will have some

Organizations are once again undergoing a period of fundamental

The corporations seen today on the business landscape are changing

9 Drucker, Peter F. “ The frontiers of Management” Heineman London, 1986.

"If Restructuring, flattening, and Down-sizing were the predominant

Many enterprises are in the midst of fundamental change in

Over the course of business history, four broad forms of organization

13 Ghoshal, Sumantra, Bauman, Robert P.; Bartlett, Christopher A. "Refining Revitalization”

Snow and Miles have conducted extensive studies on the organization

How might networks lead to changes in structure, control and work

and more reliable, speculation has continued that such structural

As organizations become more flexible, the boundaries that matter are

Information technology had led to the flattening and downsizing of

everyone to communicate directly with every one else, thus eliminating |

other words, the organization becomes flatter. Additional since multiple |

in a matter of seconds to a large number of people the need for |

In the 1980, the greatest impact of downsizing was on operating-level

Most large enterprises are in need of complete redesign. They are

The new-world corporation- cybercorp-employees cross-functional

customer or end user of the value streams backed up by electronics,

Redesign of the enterprise if needed can be done by re engineering of

Traditional enterprises have hierarchical management. Data are passed

An enterprise consists of its value streams, but most enterprises do not

Hammer and Champy popularized the term" business re-engineering"

In industry after industry, multilevel hierarchies have given way to

The concept of learning organization has been developed as a way of

development and order fulfillment have become the new organizational

In some places this is already happening. Michael Armstrong ,an

and not spread information.26 More companies are seeking workers

CONCEPTUAL AND THEORETICAL BACKGROUND

Mark Pastin and Jeffery Harrison, Arizona State University1

In one of the earliest definitions, Barnard (1938) viewed organizations

Similarly, Etzioni (1964) suggests that organizations are "planned

In order to survive and maintain some degree of stability vis-a-vis the

Yuchtman and Seashore, 1967).7 The extent to which an organization

According to Gregory Moorhead and Ricky Grriffin, “An organization is

Organizations are social units (or human groupings) deliberately

7 Yuchtman, E.; Seashore, S.E. “A system resource approach to organizational

realization of specific goals; (2) The presence of one or more power

Other Social units are marked by same degree of conscious planning

Organizations are defined as social entities that are goal-directed,

1. Social Entities: Organizations are composed of people and

2. Goal-Directed: Organizations exist for a purpose. An

3. Deliberately Structured Activity System: Activity system