11

Chapter EightChapter Eight

Organization Size,Organization Size,

Life Cycle, and ControlLife Cycle, and Control

22

Pressures for GrowthPressures for Growth Discuss factors causing the push for Discuss factors causing the push for

growthgrowth

33

Differences Between Large and Small Differences Between Large and Small OrganizationsOrganizations

LARGELARGE• Economies ofEconomies of

scalescale• Global reachGlobal reach• Vertical hierarchyVertical hierarchy• MechanisticMechanistic• ComplexComplex• Stable marketStable market• ““Organization men”Organization men”

SMALLSMALL• ResponsiveResponsive• FlexibleFlexible• Regional reachRegional reach• Flat structureFlat structure• OrganicOrganic• SimpleSimple• Niche findingNiche finding• EntrepreneursEntrepreneurs

Source: Based on John A. Byrne,“Is Your Company Too Big?”Business Week, 27 March 1989, 84-94.

44

Organizational Organizational Life CycleLife Cycle

ORGANIZATION STAGES OF DEVELOPMENT

1.Entrepreneurial

Stage

2.Collectivity

Stage

3.Formalization

Stage

4.Elaboration

Stage

Crisis:Need to dealwith too much

red tapeCrisis:Need for

delegationwith control

Crisis:Need for

leadership

Creativity

Provision of clear direction

Addition of internal systems

Development of teamwork

Crisis:Need for

revitalization

Decline

Continuedmaturity

Streamlining,small-company

thinking

SIZE

Large

Small

Sources: Adapted from Robert E. Quinn and Kim Cameron, “OrganizationalLife Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence,” Management Science 29 (1983): 33-51; and Larry E. Greiner,“Evolution and Revolution as Organizations Grow,” Harvard BusinessReview 50 (July-August 1972): 37-46.

55

Organization Characteristics During Four Organization Characteristics During Four Stages of Life CycleStages of Life Cycle

1.Entrepreneurial

2.Collectivity

3. Formalization

4.Elaboration

Characteristic Nonbureaucratic Prebureaucratic Bureaucratic Very Bureaucratic

Structure

Informal, one-person show

Mostly informal, some procedures

Formal procedures, division of labor, specialties added

Teamwork within bureaucracy, small-company thinking

Products or services

Single product or service

Major product or service with variations

Line of products or services

Multiple product or services lines

Reward and control systems

Personal, paternalistic Personal, contribution to success

Impersonal, formalized systems

Extensive, tailored to product and department

Innovation

By owner-manager By employees and managers

By separate innovation group

By institutionalizedR&D

Goal

Survival Growth Internal stability, market expansion

Reputation, complete organization

Top Management Style

Individualistic, entrepreneurial

Charismatic, direction-giving

Delegation with control

Team approach, attack bureaucracy

Sources: Adapted from Larry E. Greiner, “Evolution and Revolution as Organizations Grow,” Harvard Business Review 50 (July-August 1972): 37-46; G. L. Lippitt and W. H. Schmidt, “Crises in a Developing Organization,” Harvard Business Review 45 (November-December 1967): 102-12; B. R. Scott, “The Industrial State: Old Myths and New Realities,” Harvard BusinessReview 51 (March-April 1973): 133-48; Robert E. Quinn and Kim Cameron; “OrganizationalLife Cycles and Shifting Criteria of Effectiveness,” Management Science 29 (1983): 33-51.

66

Organizational Bureaucracy & Organizational Bureaucracy & ControlControl

Bureaucracy – threat to basic Bureaucracy – threat to basic personal liberties & recognized as personal liberties & recognized as the most efficient possible system of the most efficient possible system of organizingorganizing

77

Weber’s Dimensions of Bureaucracy and Weber’s Dimensions of Bureaucracy and Bases of Organizational AuthorityBases of Organizational Authority

BUREAUCRACYBUREAUCRACY1.1. 1. Rules and 1. Rules and

proceduresprocedures2.2. Specialization and Specialization and

division of labordivision of labor3.3. Hierarchy of authorityHierarchy of authority4.4. Technically qualified Technically qualified

personnelpersonnel5.5. Separate position and Separate position and

incumbentincumbent6.6. Written Written

communications and communications and recordsrecords

LEGITIMATE BASES LEGITIMATE BASES OF AUTHORITYOF AUTHORITY

1.1. Rational-legalRational-legal

2.2. TraditionalTraditional

3.3. CharismaticCharismatic

88

Three Organizational Control Three Organizational Control StrategiesStrategies

TYPETYPE

BureaucraticBureaucratic

MarketMarket

ClanClan

REQUIREMENTSREQUIREMENTS

Rules, standards, hierarchy, Rules, standards, hierarchy, legitimate authoritylegitimate authority

Prices, competition, exchange Prices, competition, exchange relationshiprelationship

Tradition, shared values and Tradition, shared values and beliefs, trustbeliefs, trust

Source: Based upon William G. Ouchi, “A Conceptual Frameworkfor the Design of Organizational Control Mechanisms,” ManagementScience 25 (1979): 833-48.

99

Management Control Systems Used as Management Control Systems Used as Part of Bureaucratic ControlPart of Bureaucratic Control

SubsystemSubsystem

BudgetBudget

Statistical Statistical reportsreports

Reward systemsReward systems

Operating Operating proceduresprocedures

Content and FrequencyContent and Frequency

Financial, resource expenditures, monthlyFinancial, resource expenditures, monthly

Non-financial outputs, weekly or monthly, Non-financial outputs, weekly or monthly, often computer-basedoften computer-based

Annual evaluation of managers based on Annual evaluation of managers based on department goals and performancedepartment goals and performance

Rules and regulations, policies that Rules and regulations, policies that prescribe correct behavior, continuousprescribe correct behavior, continuous

Source: Based on Richard L. Daft and Norman B. Macintosh, “The Nature and Use of Formal Control Systems for ManagementControl and Strategy Implementation,” Journal of Management10 (1984): 43-66.

1010

The Balanced ScorecardThe Balanced Scorecard A comprehensive management A comprehensive management

control system that balances control system that balances traditional financial resources with traditional financial resources with operational measures relating to a operational measures relating to a company’s critical success factorscompany’s critical success factors

1111

Major Perspectives of the Major Perspectives of the Balanced ScorecardBalanced Scorecard

MissionStrategy

Goals

Internal Business ProcessesDoes the chain of internal activities and processes add value for customers andshareholders?Examples of measures: order-ratefulfillment, cost-per-order

FinancialDo actions contribute to improving financial performance? Examples of measures: profits, return on investment

Learning and GrowthAre we learning and changing?

Examples of measures: continuous process improvement, employee retention, new product introductions

Customers

How well do we serve our customers?

Examples of measures: customer satisfaction, customer loyalty

Sources: Based on Robert S. Kaplan and David P. Norton, “UsingThe Balanced Scorecard as a Strategic Management System,”Harvard Business Review, January-February 1996, 71-79; Chee W. Chow, Kamal M. Haddad, and James E. Williamson, “Applying the Balanced Scorecard to Small Companies,” Management Accounting 79, No. 2 (August 1997), 21-27; andCathy Lazere, “All Together Now,” CFO, February 1998, 28-36.