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What are the main factors affecting organizational structures? Are such structures rationally designed?

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Introduction

The aim of this assignment is to examine the case of organizational structures and their formation. According to Clegg, (1990) the factors affecting organizational structures remain internal and external. Internal factors comprise of the flow of decision making and the level of power and decision making that managers and employees have (Davidow and Malone, 1992). External factors comprise of the changing market conditions and how the organization responds to challenges and opportunities (Day, 1999). The first part of the assignment provides an overview of organizational structure as situated from the literature. The second part focuses on the internal and external factors affecting them. The assignment argues that the identity and interpretation of the influence of factor is part of the theory scholars used to explain this process. In particular three theories are identified, namely, (a) the open system theory, (b) contingency theory and (c) institutional t heory.

 

Organizational Structures

In the literature the study of organizational structure is defined as the wider system that organizes relationships between (a) tasks, (b) processes and (c) people (Direll and Miller, 2002). Since the early work by Max Weber on bureaucratization the study of organizational structures gained increased prevalence (Jaffee, 2001). In particular, attention is paid on the study of decision making control and its affects on the experience of organizing (Clegg, 1990; Donaldson and Preston, 1995). The deployment of organizational structures is argued to remain a prerequisite to any form of organizing (Day, 1999). This is because the structure offers a ‘physical’ but also ‘symbolic’ framework of different positions of activity that eventually determine how relationships are created (Scott, 1987). For example, in the military services there is a clear line of authority that defines how the military personnel identify with the overall mission and with the tasks that need to be performed for accomplishing it (Scott, 1992). The structure is based on a defined system of power and decision making procedures based on seniority. According to Oliver (1991) the organizational structure emerges internally from the intentions of the leaders. In this case, leaders can comprise the people with direct decision making authority but also the stakeholders that support and invest in the organization and can exercise power through funding (Kumar, 1995). However, the structure is also argued to remain subjected to  external factors which include fluctuating market conditions, the fast pace of technology development, innovations in communication and transportation (Dibrell and Miller, 2002). For example, in industries where the use of technology remains prominent achieving adaptation to new changes can be crucial for how the organization maintains its competition and access to resources (Lawrence and Lorsch, 1967; Hatch and Cunliffe, 2013). For example, in case of a car manufacturer the structure of the organization is dependent on the various segments of production including the sourcing and the transformation of first order material into the final product (Newell et al., 2002). In contrast, to a car manufacturer within a service environment organizational members need to rely on each other bringing together data and information as well as a wide range of tasks that need to be performed with great coordination (Naslund, 2008; Vargo and Lusch (21016)).  According to Mayer and Scott, (1992) determinants of organizational structure include the level of control organizational members need to have in the delivery of work tasks, but also, the pace with which information is transmitted into the organization and between members. For example, within a university setting where quality is associated with teaching delivery and assignment grades there is need to exert control and to avoid the making of errors (Vargo and Lusch, 2016; Jaffee, 2001). A bureaucratic structure is defined as a structure with multiple levels of control (Jaffee, 2001). Job role carry specific decision making powers that cannot be easily overcome. This can be contrasted to a fast change service environment (e.g. front line customer service) where the employees’ capacity for introducing changes can generate direct positive or negative impact onto the customers’ experiences (Kaprik, 1978; Nonaka and Takeuchi, 1995; Vargo and Lusch, 2016). Hence, the presence of delays can work irreversibly with customers loosing trust in the company and its brand-image.

 

Factors affecting organizational structure

According to Hatch and Cunliffe (2013) the study of internal and external factors remain complex and are subjected to the theory with which the operations of an organization are studied. There are three theories that can help explain the relationship between the factors and the structure, namely, (a) open system theory, (b) contingency theory and (c) institutional theory. The following section discusses each of theories in further detail.

 

 

 

Open system theory

According to open system theory (Hatch and Cunliffe, 2013) the organization is identified as an entity that is part of a wider system-environment. The organization’s structure is dependent on the management of resources and the relationship between ‘inputs’ and ‘outputs’ (Hannah and Freeman, 1989). A Figure 1 shows inputs are transformed into outputs through the distribution of skills and knowledge. This process enables the organization to sustain its presence but also grow over time. However, such process requires the deployment of context specific knowledge and skills a (Tsoukas and Vladimirou, 2001; von Krogh and Roos, 1995). Nonaka and Takeuchi (1995) identify that knowledge remains strictly contingent to the social context in which it is deployed. Newell et. al. (2002) differentiate between the presence of (a) explicit and (b) tacit knowledge. Spender and Grant (1996) argue that explicit or codified knowledge is identified as the one where it can be transferred between parties. In contrast, tacit knowledge remains highly subjected to the individual experience and cannot be shared as an artefact (Nonaka and Takeuchi, 1995; Hage and Aiken, 1969), . However, the scarcity of resources enable some organizations to survive through access to them whilst other organizations that do not have the same access can decline or even diminish.

Source: Hatch and Cunliffe (2013, p.74)

Inputs do not constitute only tangible resources but also intangible resources like (a) information, (b) experience and (c) know-how (Szulanksi, 1996; Tsoukas and Vladimirou, 2001). For example, the case of Google is an exemplar of an organization that was able to develop and growth by having enhancing the users’ internet experience through the deployment of searching algorithms (Mullins, 2013). Access to information about users enabled Google to identify important trends and use them for expanding their products and services. At present, access to information contained by Google is not easily obtainable by other organizations and such privileged information constitutes an important resource that cannot be easily transformed by other firms because of the main power required (Mullins, 2013). According to open system theory the structure of the organization is determined by its situatedness within the changing conditions of the environment and the demands posed by the environmental forces themselves (Scott, 1987, 1992). For example, it is suggested that organizations experience significant uncertainty at present with the upcoming Brexit (BBC, 2018, The Guardian, 2018). It is argued that the possibility of not reaching a specific agreement between the UK and the EU is going to have negative implications for organizations (The Guardian, 2018). This is because regulations will need to be negotiated over time and restrictions might be imposed by both sides (BBC, 2018). Changes in the environment are believed to cause several implications onto organizations depending on the industry that they are operating in (BBC, 2018). For example, organizations that rely on recruiting employees internationally will face more severe challenges with the introduction of policy restrictions. For such organizations access onto employees might affect their design and delivery of services.

 

Contingency theory

In contrast to the open system theory, contingency theory suggests that organizational structure is affected by the degree of alignment with which the operations of an organization correspond to environmental forces (Lawrence and Lorsch, 1967). In a similar light to the systems theory contingency theory is suggesting that the alignment of organizations is important for how products, services and correspond to market conditions. According to Mullins (2013) such forces need to be contextualised in light of the political, economic, social and technological factors. According to Hatch and Cunlifee (2013:103) it is suggested that “contingency theory demonstrates that all organization theories have boundary conditions, each theory only applies to a subset of all organizations. Thus the primary contribution of contingency theory has been to make us aware that there are many different ways to organize successfully. The enumeration of organizing possibilities
and consequences remains the task of the contingency theorist today.” This statement suggests that there are different degrees of structure that cannot be fully exploited. This is because structures are comprised of sub-structures. Habib and Victor, (1991) identify that a key limitation with the contingency perspective is the endless series of propositions for how relationships might be organized. In particular, Ghoshal and Nohria, (1993) identify that contingency can become an elusive concept for identifying it and for managing. However, authors like Hanna and Freeman (1989) argue that contingency theory provides a new scope to the study of alignment. This is because a state of equilibrium can be important for understanding how organizations are using resources in a way that they are successfully receptive to the consumers’ demands. An emphasis on alignment derives from the importance of understanding relationships that can have different levels of analysis (Dibrell and Miller, 2002). For example, an alignment between the technology producer Apple and can be viewed against the development of smart technology (e.g. iPhone, iPad) applications where users perceive to have greater power of technology customisation. Hence, Apple’s success as a corporation can be argued to remain contingent to the optimal use of technology in a way that is successfully aligned to the consumers’ changing technology requirements.

 

Institutional Theory

According to Jary and Jary, (1991) an institution is defined as “an established order comprising rule-bond and standardized behaviour” and institutionalism is the “process as well as the outcome of the process, in which social activities becomes regularized and routinized as stable, social-structural features” (p.65). In contrast to other theories institutional theory suggests that organizational structures are influenced by rules, traditions, habits, and interests that have been accepted over time (Donaldson and Preston, 1995). In contrast, to the open system and contingency theory. an institutional perspective seeks to examine how structures are accepted and reinforced through human behaviours (Kumar, 1995; von Krogh, and Roos, 1995). For example, according to Jaffe (2001)  it is suggested that “calling organizations ‘institutions’ means that they are not simply black boxes that produce goods and services but human organizations driven by emotion and tradition.” This view suggests that structures are less dependent on formal hierarchies and procedures. Instead, the structure is dependent on how members accept and support these  hierarchies through their behaviour (Dibrell and Miller, 2002). However, an important issue that institutional theory underlined is the non-rational aspect of organizing (Jaffee, 2001). In particular, there is a increased sense of value attached onto procedures and methods independently of the members’ ability to advance organizational objectives. This view suggests that norms and rules come to be accepted over time in a way that members associate with them as essential elements to operations (Hage and Aiken, 1969). However, meaning attached onto rules is not necessarily prescribed by the rules themselves. Hence, people identify with a deeper and more personalised dimension of meaning associated with rules, traditions and routines that constitute them as important elements to their organizing. Rules and procedures are not self-produced by the organizations (Karpik, 1978; Miller et al., 1991). Instead, they operate outside the organization and they create a requirement for compliance. For example, conformity to public policies is an indication of whether an organization is perceived to comply with legislation. For this reason Jaffee (2001:228) identifies that

 

“the institutionalized rules and procedures of an organizational field must be incorporated into the formal structure of an organization if it is to be viewed as a legitimate member of that filed.”

 

This view suggests that rules and procedures become symbols that signify specific accounts of meaning the organization identifies with as important and communicates to internal members as well as to other stakeholders. According to institutional theory the forces that mainly operate in influencing structures. These are rule based coupled with the human disposition for interpretation. This process is driven with the intention to accommodate the deeper values contained in them (Scott, 1987, 1992).

 

 

 

Conclusion

The aim of this assignment has been to examine the case of organizational structures and the factors affecting them. The assignment discussed that organizational structures are necessary for situating the deployment of tasks, process and people. However, structures are also embedded with formal lines of authority that enable the exercise of control and decision making power (Dibrell and Miller, 2002). The assignment identified that a study of factors depends on the theories with which relationships are examined. Three theories were discussed, namely, (a) open system theory, (b) contingency theory and (c) institutional theory. The assignment argued that even though structures can be rationally designed they are not rationally interpreted. This is because forces can be imposed onto the structures from the outside. For example, in the case of Brexit (The Guardian, 2018) it was suggested that changes are reinforced through politics and are not in the immediate control of the organizations. Moreover, rules, routines, traditions, and behaviours are subjected to meaning attached by the organizational members. Such process is no necessarily rational but can be non-rational following practices for the sake of sustaining order and stability in the organization. Hence, the structure of the organization is influenced by factors situated in policies and procedures but also in those accounts of meaning and experience that are subjective and based on the social context in which practices are enacted.

 

 

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