Company Strategy and Organizational Design (RLE: Organizations) 9781135947781, 9780415824699

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COMPANY STRATEGY AND ORGANIZATIONAL DESIGN Roger Mansfield

ROUTLEDGE LIBRARY EDITIONS: ORGANIZATIONS: THEORY & BEHAVIOUR

ROUTLEDGE LIBRARY EDITIONS: ORGANIZATIONS: THEORY & BEHAVIOUR

COMPANY STRATEGYAND ORGANIZATIONAL DESIGN

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COMPANY STRATEGY AND ORGANIZATIONAL DESIGN

ROGER MANSFIELD

Volume 19

ROUTLEDGE

Routledge

Taylor & Francis Group

LONDON AND NEW YORK

First published in 1986 This edition first published in 2013 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 1986 Roger Mansfield All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-0-415-65793-8 (Set) eISBN: 978-0-203-38369-8 (Set) ISBN: 978-0-415-82469-9 (Volume 19) eISBN: 978-0-203-54280-4 (Volume 19) Publisher’s Note The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original copies may be apparent. Disclaimer The publisher has made every effort to trace copyright holders and would welcome correspondence from those they have been unable to trace.

COMPANY STRATEGY AND ORGANIZATIONAL DESIGN Roger Mansfield

CROOM HELM London & Sydney

© 1986 Roger Mansfield Croom Helm Ltd, Provident House, Burrell Row, Beckenham, Kent BR3 1AT Croom Helm Australia Pty Ltd, Suite 4, 6th Floor, 64–76 Kippax Street, Surry Hills, NSW 2010, Australia British Library Cataloguing in Publication Data Mansfield, Roger, 1942– Company strategy and organizational design. 1. Industrial organization I. Title 658.1 HD31 ISBN 0–7099–3530–7

Printed and bound in Great Britain by Biddies Ltd, Guildford and King's Lynn

CONTENTS

List of Figures and Tables Preface 1. The State of the Art 2. Organizational Goals and Performance 3. Open Systems and the Ecological Approach 4. Developing a Concept of Strategy 5. Organizational Structure and Organizational Design 6. The Organizational Environment 7. The Decision-making Processes Involved 8. Functional Specialization and Internal Differentiation 9. The Development of Company Strategies 10. Strategy, Design and the Individual 11. The Management of Strategy and Structure 12. The Role of Company Strategy in the Economy Bibliography Name Index Subject Index

1 16 32 50 62 78 93 112 126 139 152 164 177 181 183

LIST OF FIGURES AND TABLES

Figures 3.1 A Schematic Representation of Primitive Society 3.2 A Simplified Schematic Representation of Part of the Ecosystem of Modern Industrial Society 6.1 The Main Production and Consumption Cycle in Car Manufacturing 7.1 Simplified Schematic Diagram of a Model of Decision-making Concerning Strategies and Structures

Tables 4.1 4.2 4.3 4.4

The Characteristics of a Competitive Strategy The Characteristics of a Cooperative Strategy The Characteristics of an Innovative Strategy The Characteristics of a Retrenchment Strategy

PREFACE

The problems which are addressed in the present work are well known. I have puzzled over them for many years now, during which time my approach both in terms of theoretical ideas and of methodology has changed and developed. During that time I have been involved in a variety of research studies which, whilst hopefully of some utility, always left me with an uneasy feeling that they were based on very limited assumptions and perhaps missing the main point. Reading the major journals usually left me with the same feeling of disquiet. These misgivings, then, were the origin of the thinking reported here. I have no doubt that the ideas I try to communicate in this book are incomplete and require substantial elaboration and refinement. None the less, it seemed worthwhile to attempt to bring them to a wider audience, some of whom might carry them further. In thinking about these issues I have been influenced by many colleagues and managers and have benefited from discussions with them. Many of the ideas have been taken from a variety of writings in diverse areas, but the responsibility for their present formulation with all its inadequacies is entirely my own. I have a special debt of gratitude to Stevie Burges who struggled with my handwriting and dictation to convert them into a suitable typescript.

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1

THE STATE OF THE ART

The twin topics of company strategy and organizational design which are the foci of attention in this book have already been the subject of a very substantial body of literature. This has been aimed both at providing advice and guidance for practising managers, and also at enhancing our theoretical understanding of the phenomena. There can be little doubt that there is a great deal of wisdom incorporated in it. However, it is also clear that our knowledge is still grossly inadequate, and that a great deal remains to be done to improve this state of affairs. One of the factors, which both causes and reflects this inadequacy, is the lack of a cumulative impact in much of the work. This is at least partly a consequence of the failure to develop over-arching theoretical frameworks within which it is possible to synthesize the many and various theoretical ideas and empirical findings. The main purpose of the present work is to attempt to establish one such framework which may provide a useful way of integrating at least part of what we currently know or think we know in this area. The framework suggested will be based on the combination of the general approach used in ecology with a variety of ideas from systems theory. The main thrust of the present work relates to business firms. However, as much of the previous work and many of the arguments to be advanced would seem to be applicable to organizations generally, the discussion wherever possible will relate to all or most employing organizations, although some sections will refer specifically to companies, which in the present context refers largely to privately owned commercial and industrial concerns. However, before embarking on the main exercise it should prove useful to start with a consideration of the present state of the art. It is clearly not possible to review systematically all the many and varied contributions to the literature and discuss their implications for the purposes of this book in the context of a single introductory chapter. Such an undertaking would almost certainly take many lengthy volumes to complete with any degree of thoroughness. Neither is it particularly obvious that such an approach would, in any case, be a useful exercise. The well-known saying about woods

1

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The State of the Art

and trees may be an appropriate analogy in the circumstances, and the focus of attention here will be on the woods. All that is actually attempted in this chapter is a brief summary of the way knowledge in these areas has developed and a discussion of a few key ideas and issues. This is coupled with a consideration of some of the problems, apparently associated with the advancement of knowledge in these two related areas concerning company strategy and organizational design, and a mention of some of the points of debate which have still to be resolved. Different Approaches There can be little doubt that the study of work organizations in general and businessfirmsin particular has attracted attention from a highly diverse set of researchers, practitioners and commentators. This diversity has possibly helped the advancement of knowledge in some ways by bringing many different perspectives to bear on the problems. However, there can be little doubt that this same diversity has been, at least in part, a cause of some of the current confusion in the field. It has to be acknowledged that many (probably a majority) of the debates or disputes to be found in the literature on organizational structures and strategies are a consequence of the underlying assumptions made by the parties rather than arguments about particular sets of evidence or logical theoretical deductions. A consideration of the variety of investigators who have approached the areas of company strategy and organizational design is sufficient to illustrate this point. In terms of academic disciplines it is clear that economists, psychologists, sociologists and political scientists have come in considerable numbers to study the phenomena in question. At least some engineers and social anthropologists have been prepared to join them. More recently, of course, with the world-wide increase in business education, it is the staff of business schools and kindred institutions who have tended to be most prominent. These business school academicians have themselves segmented their subject matter, and so students of business policy, organizational behaviour, managerial economics, marketing and business finance (to name only the most obviously relevant) have added their own distinctive approaches and assumptions to those from the more traditional academic disciplines. As we have already noted, the size of the literature relevant to the

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present purposes is exceedingly large. Unfortunately, the quantity of published work in the area is not equalled either by its clarity or its applicability to the particular situations faced by practising managers. Before attempting to examine this literature in any detail it is perhaps worth sketching the historical development of knowledge in this area, as this will allow us to see the major issues more clearly, and also to understand more deeply the rationales behind the variety of theoretical ideas that have been proffered. It should also assist in the development of an appreciation of the basic theoretical strengths and weaknesses of the different approaches. A first examination of the relevant literature, as it has developed over the years, suggests that, although there have been some notable attempts to link the study of company strategy with that of organizational design, in the main, the two fields of study have tended to develop separately. This division is most clearly exemplified by textbooks in the two areas which tend to treat their respective topics with only limited reference to the other. Partly this separation reflects the structuring of the curricula of business schools and kindred institutions, but in large measure it is a consequence of the nature of the research that has been carried out, and the divergence in the analytical frameworks that have been employed in the two areas of study. In historical terms, it would seem that the study of organizational design has a longer history than the study of strategy. This may possibly reflect the nature of the assumptions made for many years about the goals and strategies of organizations in general, and business firms in particular. Such assumptions, stemming from classical economics, tended to regard such issues as nonproblematic, as it was considered that strategic decision-making involved merely the rational pursuit of profit maximisation. Given the relative time scales over which the various sets of ideas have been formulated, it seems reasonable to start with a consideration of the development of ideas relevant to organizational design. However, it should be noted that the study of design has largely been based on the analytic study of organizational structures, to which has been added an assumption that the process of design can sensibly be based on such analyses by a process of extension.

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The State of the Art

The Development of Ideas on Organizational Design It seems to have been generally accepted for a long time (certainly throughout the twentieth century) that the design of organizational structures has a considerable impact upon the ways in which organizational participants behave, and upon the functioning and effectiveness of whole organizations. However, the nature of such impacts and the mechanisms by which they operate remain problematic, despite a large amount of empirical research, theoretical reasoning, distillation of managerial or consulting experience and assertions based on ideological beliefs. In the early part of the twentieth century, writing on the subject of formal organizations and administrative systems began to increase markedly and by the Second World War a distinct and substantial body of literature had been created. There were two main sources of such contributions. On the one hand there were academics, mainly in the sociological tradition, pre-eminent amongst whom was the German sociologist and social historian Max Weber. On the other hand, there were a variety of writers with a more managerial or practical orientation such as Fayol, Urwick and Barnard. Although their approaches and objectives were very different, they seemed in the main to share a common assumption that there was a single best way to organize and administer formal organizations irrespective of their different goals or situations. Although it would be unfair to these early writers to overstate this point, they tended to be searching for universal principles. It was assumed that these could, when discovered, be applied in the vast majority of, if not all, circumstances. Generally, few of the suggested principles were empirically tested. Indeed many of them were couched in rather vague terms which would have made rigorous testing impossible. In the main, the empirical research which was done relied on descriptive case studies, or at best, comparisons of small numbers of cases. However, in the 1950s and 1960s research on organizational structure increased markedly in volume and changed in style. It was in this period that the comparative approach to the study of such phenomena came to dominate the field. The major pioneering studies in this area were carried out by Woodward (1958; 1965) and Burns and Stalker (1966) in Britain, and Lawrence and Lorsch (1967) in the United States. These studies moved the subject away from a reliance on case studies, essays based on managerial experience and armchair theorizing. The underlying logic of this research and a very

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large amount of subsequent work depended on the measurement of characteristics of organizational structures, the context and environment in which they operated, and aspects of organizational performance. It was assumed that systematic empirical examination of the relationship amongst these different sets of variables would result in the discovery of descriptive laws concerning the ways in which organizations were structured, the factors which determined (or at least influenced) such structures and the performance outcomes. It was also assumed by many writers that the laws (or empirical generalizations), discovered in this way, could then be used as a guide to the design of more effective structural arrangements. These research methods have been heavily criticised but have also been extensively defended. Although these debates continue, it must be stated that this style of approach is probably still the most common research strategy employed in the study of structures, and has undoubtedly provided the basis of much of our knowledge (real or supposed) concerning organizational design. The comparative research approach very rapidly cast serious doubts upon the assumptions underlying the search for universal principles of administration. Such doubt led equally rapidly to the development of a so-called contingency perspective. This contingency approach suggested that structures should be designed to fit the particular objectives organizations were designed to achieve and the environmental situations in which they operated. It was held to be axiomatic that organizations were open systems, which could only be managed or studied if account were taken of the situation within which they operated. Even though there has been criticism of this approach from a variety of quarters on a number of different counts, contingency theory is now the closest thing there is to a prevailing orthodoxy on issues of organizational structure and design. The Contingency Approach to Design There is no single or simple formulation of structural contingency theory. Rather there are very wide variations in the various contributions of both empirical and theoretical types to the general framework. At its simplest, the theory suggests that organizational structures are contingent upon parameters of the organizational environment or context (e.g., Woodward, 1965; Lawrence and Lorsch, 1967; Pugh, et al., 1969). A slightly more complex formulation, more deserving of the title of contingency theory, states that

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The State of the Art

the performance of an organization is contingent upon the fit between its structure and the organizational context and environment (e.g., Woodward, 1965; Burns and Stalker, 1966; Lawrence and Lorsch, 1967). This general proposition is clearly very different from the universalistic approach mentioned above, which preceded it in academic thinking on the subject. The ideas and empirical findings of the first three major comparative studies, carried out by Woodward (1958; 1965) and her colleagues in South Essex, Burns and Stalker (1966), and the Americans Lawrence and Lorsch (1967) contributed more to the formulation of contingency theory than any others. Three aspects of the work of these researchers should be stated at once. First, without being unfairly critical, it should be noted that, by modern standards, their research methodology would not be considered sophisticated, and in some respects the reporting of results was rather casual (this latter point applies particularly to Woodward's work). Secondly, all three studies used global measures of performance, without giving great detail of the measures. Thirdly, although the studies are often held to support a single theory, their results relate to different, albeit kindred, propositions. In chronological order of publication, the first of these trendsetting studies was the one carried out under the direction of Joan Woodward. As we noted above, her study marks a very major turning point in the study of organizations. In essence, previous empirical research at the system level had been based on individual case studies, or in a few instances the comparison of a limited number of case studies. Woodward showed that large-scale comparative research with organizations as the unit of analysis was a real possibility with enormous potential. Any shortcomings in her methodology can only be assessed with hindsight. At the time her study broke new ground. The conclusions from her study were twofold: first, that technology was the major determinant of organizational structure; and secondly that organizational performance was dependent upon the fit between structure and technology. It should be noted that only a limited number of structural parameters (mainly aspects of configuration or shape) were considered. It is also the case that the reporting of the results, particularly regarding performance, was somewhat haphazard, as has been noted above. This being the case, it is unwise to put too much reliance on her findings. Indeed, generally, more recent studies have not replicated Woodward's findings (e.g., Hickson et al, 1971; Child and Mansfield, 1972) although some support was found in Zwerman's (1970)

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study of organizations operating in the United States. Overall the evidence that technology is the major determinant of structure is unconvincing. The evidence for the second of Woodward's findings, that it is the fit between technology and structure that determines performance, seems almost non-existent, although it must be stated that there is only very limited evidence tending to disprove this proposition. Burns and Stalker's (1966) study was the next to make a major contribution to the formulation of the (then) emerging contingency theory. Their methodology essentially involved the comparison of a number of descriptive case studies. The complete lack of quantitative data or detailed descriptions of methodology make it virtually impossible to evaluate their study in these terms, and it is all too easy to suggest that differences between their conclusions and those of subsequent researchers may be due to the limited nature of their sample (confined to a single industry) or to methodological shortcomings. In highly simplified form, their conclusions suggested that organizational structures could be typified as either mechanistic (a somewhat similar, but more complex, conceptualization of a form of structure to Weber's concept of bureaucratic structure) or organismic. This latter type of structure was based (to an undefined extent) on lateral communication, power based upon knowledge and flexible role definitions. Burns and Stalker argued, on the basis of their studies, that mechanistic structures were most likely to lead to high performance under conditions of high environmental stability and relative certainty, whereas organismic structures would be more effective under conditions of high environmental uncertainty and where there was a considerable need to innovate. Although the Burns and Stalker study has been immensely influential, there are no clear-cut replications of it. Indeed the methodology employed and the way the study was written up were such that replication would be difficult. The Lawrence and Lorsch study examined the relationships between the extent of internal differentiation between functional areas and the extent of structural integrative effort on the one hand, and the degree of uncertainty in the organization's environment on the other. They also showed that high performance was related to the fit between the extent of differentiation and integration and the degree of uncertainty in the organization's environment. Virtually all the measures used by Lawrence and Lorsch were based on the aggregation of managers' perceptions, and their sample of

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The State of the Art

organizations was, by modern standards, rather small, although the data they obtained were in some respects analyzed relatively rigorously. However, as with the Burns and Stalker study, there has been no directly comparable attempt to replicate the findings, so the generalizability must be regarded as problematic. Overall, then, it can be seen that the empirical evidence upon which structural contingency theory was first based was rather disparate and inconclusive. Certainly it was suggestive of promising new avenues to follow. At the same time the early work needed to be followed by rigorous hypothesis-testing studies and replications, if a useful theory was to be developed. Later Studies within the Contingency Framework Since the three studies reviewed in the previous section there has been a very large number of research projects which to a greater or lesser extent have attempted to contribute to the development of the general contingency framework, built on the conceptualization of organizations as open systems. However, very few of these studies have attempted exact replications of earlier work, or rigorous tests of precisely stated hypotheses. In many cases there would seem to be a substantial element of post hoc theorizing in the proffered explanations of the results in contingency terms. A brief consideration of one series of three studies, which have attempted to examine a relatively precise set of contingency hypotheses with broadly similar methods, may help to illustrate many of the difficulties. In 1972 Negandhi and Reimann published an article reporting a study of 30 firms investigating aspects of the emerging contingency theory in the context of a developing country (India). Specifically they 'explored the impact of decentralization on the organizational effectiveness of firms under differing market conditions'. On the basis of earlier studies in the contingency framework, most particularly those of Burns and Stalker and Lawrence and Lorsch, they expected to find that decentralization of decision-making was positively related to organizational effectiveness under conditions of high market competition, but negatively related to organizational effectiveness under conditions of low market competition. It should be noted that, although these propositions were a not unreasonable inference from the earlier work, they could not be said to follow from it in any rigorously logical way. As it turned out, however, they found that decentralization was positively related to both behavioural and economic indicators of effectiveness under con-

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ditions of both high and low market competition. They suggested that the reasons that their results diverged from their predictions were due to the conditions in developing countries differing from those in developed countries, where the earlier research had been carried out. Boseman and Jones (1974) tried to replicate Negandhi and Reimann's study in Mexico. Mexico is also a developing country, but it clearly has a very different cultural history to India. For whatever reasons, the results obtained in the two studies differed in certain respects, whilst corresponding in others. Boseman and Jones in their study of 20 Mexican firms found very similar results with respect to behavioural criteria of organizational effectiveness. That is, amongst the Mexican firms, decentralization of decision-making was significantly positively related to behavioural measures of effectiveness under conditions of both high and low market competition, although the relationship was strongest under conditions of high competition. However, when attention was turned to the relationships found between economic measures of effectiveness and decentralization, then the Mexican results appear somewhat different from the Indian ones. In the Mexican sample, decentralization was relatively strongly positively related to the economic measures of effectiveness under conditions of high market competition, but was slightly negatively related to economic effectiveness under conditions of low market competition. Boseman and Jones attempted to explain the differences between their findings and those of Negandhi and Reimann in terms of different value orientations and predominant motivational characteristics in the two countries. Azma and Mansfield (1981) carried out a further attempted replication, using a relatively similar methodology, on a sample of 52 relatively small companies operating in the South Wales region of the United Kingdom. (Data on economic indicators of effectiveness were only reported for 33 of the companies.) Unlike the other two studies they found that decentralization was negatively related to behavioural measures of effectiveness under conditions of both high and low market competition although the tendency was weaker (and non-significant) in the case of low market competition. When economic measures of effectiveness were considered, the results were closer to those of Negandhi and Reimann, showing a tendency (albeit non-significant) for decentralization to be positively related to economic effectiveness under conditions of both high and low market competition. They acknowledged the possibility that the differences in the findings of the three studies could be due to cultural

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The State of the Art

differences, but suggested that 'structural contingency theory, as presently stated, is somewhat inadequate to explain the empirical evidence now available in the literature'. These three studies have been described in more detail than their individual importance merits, to illustrate a general point. This is that, despite its obvious plausibility and the presence of a certain, rather limited, amount of empirical support, contingency theory does not seem to stand up particularly well to empirical testing. It must also be noted that, whatever problems exist with the idea of contingency as a descriptive theory, these become greatly magnified when one considers the approach as the basis for prescriptions on organizational design. This is the case for two major reasons. First the ceteris paribus assumption which allows researchers to examine only a limited number of contingency variables at once, although useful as an aid to research, is likely to be a recipe for disaster if used in a real-life organizational design exercise. No reasonable manager can assume that everything else is equal when making design decisions. The second reason stems from the very general nature of the concepts and measures employed, referring to global aspects of an organization's structure and environment. As Mansfield et al. (1978: 32) have commented: much of the literature mentioned seems to be based on an implicit assumption that managers make decisions about very broad aspects of structure, depending on their intepretation of the totality of an organization's environment. There may be cases where this assumption is valid, but it would seem likely that many broad parameters of structure are not decided as such but rather arise as the outcome of considerable numbers of decisions about limited aspects of structure made in response to particular internal and external pressures. One could add that structures not only, often are decided in this way, but also that they often should be. Overall then, it can be seen that although the basic underlying idea of contingency is simple, the reality of the theory is not. It is unclear precisely what is supposed to be contingent upon what, in that many different aspects of structure, context and environment are considered in the different writings. It is also notable that whenever propositions are not supported by empirical findings there

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is a tendency to explain the divergence in terms of yet other (usually unmeasured) contingencies. The Present Situation Considerable attention has been given above to the contingency theory of organizations, even though there must be very considerable doubts as to its general validity as a theory explaining the nature of organizational structures, and concerning its utility as a theoretical basis for organizational design. This is because, with all the criticism that has been levelled at it (e.g., Child, 1977; Azma and Mansfield, 1981), it still appears to remain the most commonly cited perspective (for a defence of the theory, see Donaldson, 1985). Although there have been some alternative approaches, particularly from sociologists, these have tended to focus on the position of workers in organizations, and hence have not provided a theoretical basis for design decisions in organizations. In general it seems fair to say that the quantity of empirical research on organizational structure has far outstripped theoretical ideas on the subject. This has led to a situation where journals are full of empirical research findings, but it is difficult to find a theoretical perspective which integrates them, or even explains them in any very satisfactory way. In this situation it is difficult to assess the generalizability of any particular findings. A consequence of this is that there is a major problem for the manager who wishes to decide whether it is sensible to base a particular design decision on any particular set of research findings. As we shall see, the situation with regard to research on strategy is very different as far as concerns the relative effort that has been given to empirical research vis-à-vis theorizing, although the outcome is equally unsatisfactory. The Development of Ideas on Strategy Surprisingly, the systematic study of company strategy is of relatively recent origin. Although the importance of the concept of strategy is now well established in the management literature, it only became prominent after the publication of Chandler's book on Strategy and Structure in 1962. This work, which reported a major study of the history of the largest business enterprises in the United States, demonstrated quite clearly the importance of the concept of strategy in attempts to understand the behaviour, and particularly the

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The State of the Art

growth, of business firms. It also raised the critical issue of the relationship between company strategy and organizational design, which is particularly relevant in the present context even though it has only been pursued intermittently since then. Although Chandler emphasized the importance of the relationship between companies and the market-place, his descriptions of the reality of strategy formulation and implementation in American firms made it completely obvious that these relationships were immensely more complex than many earlier approaches had suggested. Hofer and Schendel (1978) in their book on analytical concepts in the strategy area reviewed the concept's short history since Chandler's work had been published. They suggested that it was only in the mid 1960s, with the publication of books by Andrews (1965) and Ansoff (1965), that the formal study of business strategy could be genuinely said to have started. Since then the topic has been widely studied and even more widely written about. However, much of the writing in this area has been normative and the empirical research that has been conducted has tended either to examine very limited aspects of strategy, such as acquisitions or portfolios of business interests, or has been of a descriptive casestudy sort. This approach to the study of strategy has been reflected in the teaching of business policy. In most business schools and other academic institutions with courses in this area, the teaching is typically based on case studies to a considerable extent, and the content usually has a strongly normative flavour. In both the research literature and in textbooks, it would seem that there is a strong tendency to prescribe what should be done in strategy formulation and implementation based on either armchair theorizing or the description of individual cases. This approach has been adopted, rather than relying on the results of large-scale comparative research as has tended to be done in writings on organizational design. Although there has been some recognition of the political nature of the strategy-making process, writing in the area has tended to concentrate on the rational approach to the subject. Indeed much of the work on strategy might be criticized as being overly rational and failing to take sufficient account of the many factors which in reality limit any given senior management's ability to develop and implement strategy in a wholly rational manner. In particular, there is a strong tendency to underestimate the effects of uncertainty in the environment with which the organization in question is con-

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fronted. This is true despite the fact that nearly all work in the area mentions the problems involved in working in an uncertain situation. All too often, having mentioned the problem, writers then go on to ignore it. These criticisms seem to have considerable validity despite the early work of writers such as Simon (1949) who suggested that, at best, strategic decision-making could achieve only 'bounded rationality', due to the variety of political pressures, incomplete information and general uncertainty. Also Lindblom (1959) in a very well-known article suggested that the reality of such decisionmaking was typically a variety of disjointed incrementalism, which he called 'the science of "muddling through'". It must be noted that Lindblom argued not only that this method is prevalent in practice, but also that it is the one that should be used. More radical and rational approaches of the sort that are commonly suggested by many other writers, he dismissed on the grounds that they are 'of course impossible'. The Variety of Ideas on Strategy There would seem to be a general consensus that strategy formulation is properly the business of top management, and should involve the integration of ideas from all the different sub-disciplines of management studies (e.g., McCarthy et al., 1983). In the introduction to a collection of readings on the subject, Ansoff (1969: 7) suggests that business strategy consists of a set of management guidelines which specify the firm's product-market position, the directions in which the firm seeks to grow and change, the competitive tools it will employ, the means by which it will enter new markets, the manner in which it will configure its resources, the strengths it will seek to exploit, and conversely the weaknesses it will seek to avoid. Strategy is a concept of the firm's business which provides a unifying theme for all its activities. There are, inevitably, many different versions of the stages in the overall strategy formulation and implementation process, but there would seem to be a fair degree of commonality in these. The main stages would seem to involve: (i) an evaluation of the present state of a company, particularly examining its strengths and weaknesses; (ii) scanning the environment, particularly with a view to identifying opportunities and threats; (iii) the development of some set of basic

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The State of the Art

strategic objectives; (iv) the development of a strategic plan; (v) communication of the plan to relevant personnel; (vi) implementation of the strategic plan; (vii) evaluation of progress in the implementation of the plan; and (viii) periodic reassessment of the various stages. Much of the literature in the area, particulary in the case of those books that are designed for a managerial audience, concentrates on providing a series of techniques for actually carrying out the various stages of the process described above. Such techniques are described for different types and sizes of company. In this literature there has frequently been a bias towards the consideration of the problems of large companies, particularly multinationals and conglomerates. However, recently this imbalance has been to some extent redressed with increasing numbers of books and articles being devoted to the problems of small companies and new business start-ups. The elucidation of techniques is particularly pronounced in the area of corporate planning, which is usually seen as a central part of the overall strategy-making and implementation process. This, no doubt, reflects the apparently increased formal role of corporate planning in many companies, and the increasing development of an occupational group of corporate planners. What is perhaps worrying is the apparent lack of a solid theoretical basis or relevant systematic research upon which the various prescriptions of techniques are based. The other principal area of attention in the literature focuses upon the variety of possible strategies or components of strategies which are possible. Thus there are books and articles on growth strategies, turnaround or recovery strategies, diversification, territorial expansion, portfolio analysis, innovation strategies, acquisition strategies, market-entry strategies and so on. What tends to be lacking is a theoretical rationale for deciding which type of strategy or mixture of types should be adopted in particular circumstances. It has also to be noted that there tends to be a bias in much of the literature towards problems relating either to markets, or to capital and ownership, and away from problems relating to production, personnel and labour relations.

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A Final Word Clearly the foregoing has been only a very brief review of the present state of knowledge relating to the topics of company strategy and organizational design, and as such, it no doubt gives an incomplete and probably biased picture. It is probably true that the overall flavour is somewhat negative, and this is to an extent deliberate as it seems essential to try and determine the weaknesses in the present state of the art if one is to try to move forward. However, I would not in any way wish to undervalue the very substantial progress that has been made in research in these areas, particularly since the early 1960s. There can be no doubt that our understanding has improved greatly in recent years. In addition, it is clearly true that the available literature (and indeed courses based on it) provides enormous help to the discerning manager in the search for solutions to his or her real-life problems.

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ORGANIZATIONAL GOALS AND PERFORMANCE

The logic of much of the literature suggests that it would seem essential that any serious consideration of company strategy and organizational design must, at least in part, be based on an understanding of the concepts of organizational goals and organizational performance. After all, it would seem difficult to understand the basis for the formulation of organizational strategies without some concept of the goals or objectives towards which such strategies are directed. Equally, there would not seem to be any obvious basis for the evaluation of such strategies, or of organizational designs, unless they can be examined against some assessment of the level of performance or effectiveness achieved as a consequence. For these reasons consideration of these issues will form the focus of the present chapter, and act as a prelude to further consideration of company strategy and organizational design. It must also be noted that organizations are generally seen, both by managers and social scientists, to be oriented towards the achievement of certain objectives. This being the case, it must clearly be important to consider their purposes or goals, and also their level of performance in pursuit of those goals. Despite the apparent logic of this, the surprising situation, which is actually reflected in the literature, shows that these topics have not always been dealt with thoroughly. Indeed in many instances they are not mentioned at all. Even where the coverage is substantial, there remains significant confusion with regard to these concepts, which often reflects itself more widely in the related literature. Some of the reasons for this neglect and confusion become apparent as soon as one begins to consider the concepts themselves. Although the idea of organizational or company goals may seem simple enough at first sight, further examination suggests that it has an elusive quality about it. Organizational Goals Organizations are conventionally defined as purposive social systems inasmuch as that they are seen to exist in order to achieve certain 16

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objectives. However it must be noted that organizations are not people, nor are they like them in having motives and ambitions. Clearly then, organizational goals cannot be conceptually the same as, or even similar to, individual goals. Perhaps the most convenient and useful way of defining organizational goals is in terms of those objectives that an organization is ostensibly designed to achieve. As such they would not need to be identical with the goals of senior management, or indeed of anyone else in the organization. However, in the majority of cases, the goals of the organization, as defined above, would tend to be exceedingly similar to the goals for the organization of the senior management group. This would be likely, particularly where there was a large measure of agreement amongst such senior managers on what the organization should be designed to achieve. However, it should not be forgotten, as Hall (1972: 80) has argued, that 'even in an organization in which there is high participation in decision-making and strong membership commitment, it is unlikely that there will be a totally unanimous consensus on what the organization should attempt to do'. It should also be noted that the goals that senior managers have for their organization would be different from their personal goals, although it is highly likely that these will influence one another. In particular it is likely that the personal goals of senior managers will greatly effect the ways in which they try to influence decision-making concerning possible changes in organizational objectives. It has been suggested that organizational goals may be subdivided analytically into two broad categories (Perrow, 1961). First there are the official or charter goals, which are usually stated formally in written documents such as the royal charter of a university or the articles of association of a public company. Examination of such documents shows that, in the vast majority of cases, charter goals tend to be stated in exceedingly general and vague terms. The effect of this, in most cases, is that charter goals serve only the limited purpose of defining the broad type of activity which is legitimate in a particular organizational context. What they do not typically provide is any clear indication of what strategies should be developed. Neither do they indicate guidelines for choosing between alternative strategic possibilities. Charter goals, then, are only likely to influence the behaviour of organizational participants in a very limited constraining way. The second type are referred to by Perrow as operational goals. These are in essence the goals the organization, or more accurately

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Organizational Goals and Performance

its members, appear to be attempting to achieve, if a judgement is based on their actual behaviour. As such, the assessment of operational goals may be useful for the observer as a way of understanding the nature of organizational processes. On the other hand, operational goals cannot be used as the basis for strategic decisionmaking, as they can only be inferred from the results of such decision-making. However, over a period of time, those who are closely involved in organizational activities will typically develop an understanding of the operational goals, which may influence their attitudes and behaviour. On the face of it, then, the analytical approach advanced by Perrow suggests that the idea of organizational goals is of somewhat limited utility. This seems to be the case as one type of goal is publicly defined but so vague it hardly influences behaviour, and the other type of goal is so nebulous, it can only be inferred after the event, and then only by assuming the rationality of organizational decision-making and associated behaviour. As has just been exemplified, the questions surrounding the nature of organizational goals routinely prove stumbling blocks for social scientists who are struggling to develop an understanding of organizational processes. However, such issues are regularly regarded as relatively non-problematic by practising managers. Very often, the latter group will claim that they know what they are attempting to achieve, and that their problem lies in knowing how to go about achieving it. Empirical observation of managers in action, however, suggests that such claims, even if fervently believed in, are often false. Many times, disagreements amongst managers are rooted not in a divergence of views about how objectives are to be achieved, but rather in a failure to agree on precisely what those objectives are. The whole matter is greatly complicated by the fact that organizations are commonly designed to achieve multiple goals by a number of managers who each, themselves, have multiple goals. This situation is further complicated by the fact that where more than one goal is set, there will routinely be some measure of conflict between them, even if this is not readily apparent. The implication of this is that one goal can only be achieved partly or wholly at the expense of other goals. Universities provide an excellent example of such conflict. No matter how the goals are stated, universities are usually regarded as being in the twin businesses of teaching and research. Putting this more broadly, their objectives are seen to be to create and disseminate knowledge. There seems to be an underlying

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assumption that the two processes are compatible, and, up to a point, they no doubt are. The problem arises when that point is reached where conflict between these objectives arises. Even at the simple level of how an individual academic should allocate his or her time, there must inevitably be conflicts which occur almost every day if not more frequently, between allocating time for research and time for teaching. However, many would argue that universities, like other nonprofit making organizations, are poor examples, as they are not subject to the discipline of the market-place. Business firms, the argument would suggest, are a more straightforward case. However, the work of Cyert and March (1963) and Galbraith (1966) indicates that business firms, too, have multiple goals. Even in the case of those business firms where there is agreement that the sole corporate objective is maximizing profit (almost certainly a very rare occurence), there will be conflict stemming from different time-scales. Thus, the objective of maximizing profit in the next year is different (and may be dramatically different in its implications) from the objective of maximizing profit in the next five years. The fact that in some cases all parties to a dispute about objectives may be able to agree on the objective of long-term profit maximization should not be allowed to hide the real nature of the potential conflict. Such apparent agreement will only be maintained as long as no attempt is made to define the concept of 'long-term'. It can, therefore, be readily accepted that organizational goals are regularly, indeed normally, problematic. They are generally left vague and hence rarely provide any clear-cut imperatives to dictate the direction that strategy must follow. It follows that in most organizations the processes of strategic decision-making can in no sense be regarded as an exercise in deductive reasoning, in which senior management logically calculates the best way of achieving fixed and precise organizational goals. Indeed in most cases it is only as a consequence of the development of strategies that organizational goals become at all definite, or operational to use Perrow's terminology. As a potential explanation of organizational processes the concept of organizational goals, then, has very limited utility in the typical case. It seems likely, though, that the reality of such goals will depend heavily on the personal goals, values and attitudes of senior managers. It must, however, be noted that most individuals, managers included, do not usually have a clearly articulated set of views

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Organizational Goals and Performance

on these issues, hence it is likely that goals have only a somewhat ephemeral existence which may shift to some extent depending on the circumstances. If our consideration of goals has proved to lead to very limited and somewhat unsatisfactory conclusions, it is even more important to consider carefully the issues surrounding the concept of organizational performance, in order to see if that may provide some more concrete perspective for the critical examination of organizational processes. Company Performance Up to the present, mention has been made, on a number of occasions, of the concept of organizational performance or effectiveness, although no definition has yet been offered. This, in many ways, fairly reflects a large amount of the management and organizational behaviour literature. The performance of organizations in general, and businessfirmsin particular, has very frequently been dealt with implicitly, or in a way which suggests that the meaning of the concept is sufficiently obvious for no discussion or definition to be required. However, even a cursory reading of those books and articles which try to define the concept, leads one rapidly to the conclusion that the notion of organizational effectiveness or performance is, in fact, highly problematic. Although a number of relatively straightforward definitions have been offered by social scientists (some of which will be discussed below), there does not seem to be even the beginnings of a consensus concerning which, if any, of these definitions might be most appropriate or useful. This point is made strongly by Goodman and Pennings (1977) in the introduction to their book on New Perspectives on Organizational Effectiveness. In making this comment they suggest that, despite this very considerable ambiguity, the concept of effectiveness enters nearly every theoretical perspective relating to organizations, either explicitly or implicitly. However, despite this lack of clarity in writings on organizations, the concept of performance has not been treated with the research endeavour that has been applied to other areas of management or organizational behaviour either empirically or analytically. This neglect was reflected by Miles (1980a) in a recent textbook on Macro OrganizationalBehaviour,where he placed his chapter on 'Organizational Effectiveness' in a section headed 'Emerging Perspectives and New Frontiers in Macro Organizational Behav-

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iour'. This positioning, although perhaps surprising to the casual reader, would seem entirely justified by the limited attention which has been accorded the concept by earlier writers. The disarray, indicated above, which is evidenced by social scientists when considering the issue of organizational performance is made more surprising because it would seem that the proverbial 'man in the street' finds the idea simple enough. Indeed, it can also be noted that many journalists appear to experience little difficulty in assessing the standards of performance of a wide variety of types of organization. More than in most areas of social science, it would seem that when questions of organizational performance or effectiveness are considered, what seems clear, or even self-evident, at first sight, turns into a nightmare of ambiguity and contradictions on closer and more detailed examination. Although the meaning of the concept of organizational performance remains unclear and disputed, there would seem to be no argument concerning its importance to all those with an interest in the operation of organizations. This would seem to be true whether that interest is theoretical or practical. For example, there can be no doubt that organizational or company performance is of enormous consequence to both managers and shareholders in business firms. In addition, employees in nearly all types of work organization usually have more than a passing interest in the effectiveness of their employing organizations. Taxpayers and patients alike regard with concern any suggestion of poor performance on the part of hospitals, and worried parents display great interest in the relative performance of schools which their offspring might or do attend. The evidence, then, seems overwhelming that the issue of organizational performance is of great significance to many, if not most, people. Yet paradoxically, as we have already noted, the concept is very obviously not well understood. It could well be argued that one of the problems which has created this confusion involves the wide variety of types of organization which have been considered. If this were the main difficulty, then concentration on a single type of organization such as the business firm should clarify the issues involved to a considerable extent. On examination, there does seem some evidence that this is indeed the case. However, this does not seem to change the situation sufficiently to provide anything other than a superficial or uncritical agreement that the performance of business firms could or should be assessed in terms of profit. Further consideration suggests that such an

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Organizational Goals and Performance

idea is only ultimately tenable if one defines business firms as organizations whose sole goals are the maximization of profit. This approach, however, gives a definition which would exclude many organizations we normally think of as belonging to this category. Without such tautological support it is clear that few will accept the idea that profit is the sole indicator relevant to the assessment of the performance of business firms. Further examination of the problem reveals an additional difficulty. The writings of economists, accountants and others reveal that there is not even a consensus concerning the meaning of the term 'profit', or on how it should be measured. As in so many of the areas of study considered in this book, the literature is complicated by confusion with regard to nomenclature. This seems to be the case irrespective of whether organizations in general are considered or attention is focused on the more limited category of business firms. However, this is only a minor difficulty compared to the many other factors which create problems in attempts to establish a conceptual basis for the assessment of organizational performance, and also of satisfactorily measuring performance within any given definitional framework. The Question of Perspective Perhaps one of the most significant problems relating to the conceptualization of performance surrounds the question of whose perspective should be adopted in attaching meaning to the idea. Clearly different individuals, groups of individuals and outside organizations and agencies may each have different interests in the functioning of a particular organization. The problems this creates are well known, but, nevertheless, are so important that they are worthy of at least limited further consideration here. Hence the nature of the issues involved will be illustrated by taking the case of a business firm involved in manufacturing as an example. In broad terms the following different interest groups may be identified in the case of such a typical manufacturing company: (1) (2) (3)

Owners or shareholders. The person, persons or organization who own the equity capital of the business. Managers. The persons involved in the direction, management and supervision of the business and its employees. Non-managerial employees. All those persons who are employed by the organization in non-managerial positions.

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Trade unions. The occupational interest associations (most importantly trade unions in the typical manufacturing company) which have members amongst the company's employees. (5) Suppliers. The individuals, organizations or agencies who supply the organization with goods or services, such as raw materials, components or equipment. (6) Distributors, wholesalers and retailers. The persons and organizations who take the organization's products and distribute or resell them to their ultimate consumer. (7) Consumers. The persons or organizations who are the ultimate users of the company's products. (8) Creditors. The persons or organizations to whom the organization owes money. (9) Employers' associations. Those organizations representing employers' interests to which the company, its owners or its managers belong. (10) The public at large. All those members of the general public who are influenced or effected by the company's activities. (11) Government. All those governments whose interests, laws, etc., are relevant to the company's activities.

(4)

This list, which might be considered a typical representation of the main interest groups relating to a manufacturing company, is by no means exhaustive. However, it is sufficient to illustrate the complexity of the problem, which must be confronted in order to decide upon the perspective to be adopted, when attempting to examine or define company performance. Clearly there will be many circumstances when what may be regarded as satisfactory performance from the point of view of owners or shareholders may well be seen as unsatisfactory by managers, employees and members of other interest groups. A brief example should be sufficient to demonstrate this point. As is often the case, a change in the situation causes the issues to stand out most clearly, and hence the example will relate to a change situation. Let us consider a company that reduces its labour force by means of compulsory redundancies and, as a consequence, increases the profits it declares and the dividends it pays. It is likely that employees generally will regard this development with mixed feelings. It is almost certain that those made redundant will see this as a deterioration in the company's effectiveness from their point of view. It is also likely that those still employed will have misgivings,

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Organizational Goals and Performance

and any trade union involved will also see such a circumstance as a clear lowering of the company's level of performance. On the other hand, the average shareholder will probably be pleased to see what he will probably regard as an improvement in efficiency leading to better performance. It can be seen then, that the issue is a complex one. However, viewing the question in terms of such broadly categorized interest groups, although complicated, is almost certainly itself an oversimplification: within each of these interest groups there will be considerable variability in terms of what is looked for from the firm. Thus, some shareholders may look for a maximum return on their investment in terms of dividends and be prepared for this to be obtained at some risk to their starting capital. Others may be looking for a reasonable dividend level, which can be maintained over a protracted period with little risk. Others may not be concerned about dividends but be looking for either short- or long-term capital gains. Still other shareholders may be more interested in nonfinancial returns from their investment such as the political power that ownership and control of some companies (e.g., newspapers) might give. Clearly whether the firm is thought to be performing well or badly will depend on which criteria are applied to the assessment. This in turn will depend on the reasons for an individual or group's involvement with the firm. In reality many members of different interest groups do not approach their relationship with an organization with only a single objective in mind for themselves or others. They are therefore likely to be interested in more than one aspect of a company's performance. Thus, for example, a shareholder may be interested in both dividends and capital gains; or a production worker may be looking to the company to provide security of employment and high wages, and judge the performance of the firm according to its ability to meet these different, and possibly conflicting demands. The picture then, that has been built up, is of a variety of different interest groups, the members of which will typically be looking to any particular company for different outcomes from members of other interest groups. This picture is, however, complicated further by the likelihood of considerable diversity of perspectives within interest groups and the fact that many interest-group members will be looking for high performance in more than one direction. There may, of course, be the further complication of certain individuals being members of more than one interest group. For example, managers may own

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shares in the company for which they work, and employees may also be customers, and so on. Clearly then, different persons or even the same person may wish to assess performance in a multidimensional way, rather than in terms of a simple, single, unidimensional parameter. This in itself would make the assessment of company performance more complicated. However, such complications will be dramatically magnified if, as seems certain, improving performance along one dimension leads to the worsening of performance along others. As the financial resources of the firm at any particular point in time are fixed, it must inevitably be the case that distribution of money in the form of dividends will reduce the availability of money for pay increases, price cuts or investment in new equipment. This means that company performance in terms of dividend payments may, at least in some circumstances, be negatively correlated with performance along other dimensions. The only area where all interest groups might share a common view of performance, concerns the question of survival. This would seem to be an objective in which most, if not all, parties are likely to have a vested interest. But even this will not be universally true, as there may be instances where the ownership interest would be best served by closing the company and selling its assets, as in some asset-stripping operations. This brief example raises another problem in the assessment of performance which has already been touched on. This relates to the question of time-scales. Clearly, if profits are distributed as dividends, then the money cannot be used for investment to increase future profits and hence future dividends of the company. The general implication of this particular point is that it is necessary to define not just the criteria by which company performance can be assessed but also the time-scale for meeting those criteria. It also follows from the example given above that there may be occasions when there is a conflict between the achievement of good performance in the short term and good performance in the long term. The discussion above suggests that organizational performance will normally be assessed in different ways by those with different interests in the functioning of an organization. Indeed one possible conclusion is that there are at least as many views concerning the quality of a business firm's performance as there are parties to its activities. In addition, we have noted (1) that it is difficult to compare the performance of different types of organization; (2) that variations in nomenclature complicate discussions of performance; (3) that

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Organizational Goals and Performance

many parties to organizational activities will have multiple criteria by which they assess performance, and that some of these may conflict; and (4) that there may be incompatibilities between shortand long-term performance. Clearly all these problems suggest that there is no obvious basis for agreement on the assessment of performance of a single organization, much less for the comparative assessment of a number of different organizations even where these are of the same type. Given these difficulties it seems necessary to consider whether there may not be some alternative approach to the definition of performance which could be employed by the disinterested outsider, or alternatively a perspective which transcends the interests of particular partcipants. With this in mind it is appropriate to examine some of the theoretical perspectives which might be adopted in order to better conceptualize organizational performance. Goal Attainment as an Indicator of Performance Perhaps the most obvious approach to adopt in the search for a measure of performance is to work from the basic definition of organizations as purposive social systems, and to equate performance with the extent to which such purposes are actually achieved. Clearly, if organizations are designed and managed in order to accomplish particular goals it would seem reasonable to assess performance in terms of the extent to which such goals are actually achieved. Such an approach has been suggested by many writers. For example, Etzioni (1960) defines organizational effectiveness as 'the ability of an organization to achieve its goals'. However, such an apparently simple and straightforward approach is subject to serious difficulties. Firstly, following on from the discussion in the preceeding section, it is clear that different persons have different views of what an organization's goals ought to be. However, more fundamentally, as we noted in the first section of this chapter the concept of organizational goals is not generally precise. This lack of precision is such that it would normally preclude any assessment of performance in terms of the extent to which the official goals were accomplished. If goal accomplishment or something like it is to be utilized as a worthwhile measure of organizational performance then the assessment would have to be in terms not of official or operating goals but of particular strategies or strategic objectives of the organization. This, however, may also be problematic as strategic objectives may

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also be poorly articulated, and in addition may change during the period over which an assessment of performance is attempted. In addition there are two other significant problems involved in the utilization of the accomplishment of strategic objectives as the yardstick for the assessment of organizational performance. First, as has already been noted, there are likely to be multiple strategic objectives and the conceptual difference between such objectives and operating constraints is unclear (this will be amplified in Chapter 4). At a minimum this means that the accomplishment of such objectives would have to be viewed as a complex multidimensional phenomenon. It is more likely, however, that this problem makes the extent to which strategies are carried out almost completely indeterminate. Even if the difficulties already mentioned could be overcome, there is a serious further problem in attempting any comparison across organizations in terms of the accomplishment of strategic objectives. This can best be illustrated by a simplified hypothetical example. Consider the case of two similar companies in competition with each other, where one sets its objectives in terms of annual profit at £1 million and the second at £10 million. If it turned out that the first in fact made a profit of £1 million in a particular year and the second made a profit of £9 million, one might conclude that the former had performed better in that it had completely accomplished its objective, whereas the latter had only achieved 90 per cent of its target. On the other hand, if the companies were similar in other respects, most observers would regard the second company as substantially the more successful of the two. This suggests that, at best, the accomplishment of strategic objectives can only be regarded as an indicator of performance for internal management use within organizations. It would not seem to be a suitable measure either to give any absolute indication of the level of organizational performance, or to allow comparisons of relative levels across groups of organizations. Resource Acquisition as an Indicator of Performance After the goal-accomplishment approach to the assessment of organizational performance, perhaps the most common view promulgated in the literature relates organizational effectiveness or performance to the ability of an organization to acquire resources from its environment. This approach gained both in credibility and popularity following a very influential article written by Yuchtman and

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Seashore (1967). In this, they suggested that the effectiveness of an organization could be assessed 'in terms of its bargaining position, as reflected in the ability of the organization, in either absolute or relative terms, to exploit its environment in the acquisition of scarce and valued resources'. Such an approach has the ostensible advantage that it can be applied to any type of organization, and that it implicitly takes account of the variety of interest groups which are a party to the organization's activities. On the other hand, it seems rather dubious to base an assessment of performance entirely on the input side of the organization's activities. On the face of it, this runs counter to the idea that performance depends on outputs or the efficiency of internal input–output conversion processes. Against this last point, it could, of course, be argued that only by providing a satisfactory quality and level of output in the long term could the ability to continue to acquire resources in the future be safeguarded. It could also, perhaps, be suggested that the same argument applies to the question of the efficiency of the internal conversion processes. However, both of these arguments seem somewhat dubious, and there would not seem to be any real empirical evidence to support them. Steers (1975) has attempted to get round the objection that performance should not be entirely assessed in terms of inputs, by combining the resource-acquisition and goal-accomplishment approaches when he defined effectiveness as 'an organization's capacity to acquire and utilize its scarce and valued resources as expeditiously as possible in pursuit of its operative and operational goals'. Such a definition, however, seems to be subject to all the same difficulties as have already been discussed for the simple goalaccomplishment approach. Quite apart from the conceptual problems associated with the resource acquisition approach, there are significant methodological ones associated with its use. First, the problem of time-scales is at least as serious a difficulty within this perspective as it was in the case of the goal-accomplishment approach. Clearly unless timescales can be defined in a sensible manner, then assessment is impossible. Coupled with this is the problem that successful acquisition of resources in one time period may actually make the acquisition of similar resources in later time periods more difficult. The second methodological problem relates to the difficulty of assessing what resources should be considered as 'valued'. It would seem that

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the only answer to this would have to relate to the utility of the resources in question for the accomplishment of organizational goals. If this is true then the whole approach would seem to run into all the same difficulties as we have already discussed regarding the definition of organizational goals and the application of the goal-accomplishment approach to the assessment of performance. Societal Benefits as an Indicator of Performance An alternative approach to the whole question of the conceptualization and measurement of organizational performance is to move away from a focus on the organization itself, and rather consider it as part of a higher-level social system. If this were done then organizational performance would be defined in terms of the extent to which the organization benefits the society of which it is a part. This perspective is somewhat similar in a general sense to parts of the framework of the structural-functional school of sociology. At first sight, such an approach has much to commend it and appears, at least, to avoid the problem of whose perspective should be adopted in forming an evaluation of organizational outcomes. Further examination of the logic behind such an approach suggests that it is subject to two very significant problems. First, it could be argued that the definition and measurement of what is good for society is even more dependent on value judgements and questions of which perspective should be adopted, than the original question of what constitutes good or high levels of organizational performance. The second problem, which in a sense is a restatement in rather different terms of the first, is that such a perspective, if adopted, merely moves the difficulty up to a higher level of social system. Presumably, whether organizational outcomes are good for the society in which the organization is embedded depends on an assessment of whether the particular performance of an organization assists the overall effectiveness of societal activities. However this latter concept is almost certainly incapable of meaningful assessment. Hence, although the basic ideas underlying the approach seem reasonable, in reality, the general approach seems to present many more problems than it solves.

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An Overview of Goals and Performance The foregoing discussion has made clear that there can be no simple way of defining organizational goals or performance, due mainly to the wide variety of different perspectives which can legitimately be adopted when examining the functioning of any given organization. It would seem clear that both goals and assessments of performance can have no totally general reality within the framework so far discussed, as they only exist in relation to the views and values of individuals or groups of individuals. In terms of the functioning of organizations it will normally be the perspective of those individuals most closely involved with the organizations whose views will be most likely to exert a significant influence over activities. Amongst these individuals it will typically be the more senior managers who will be most consequential in determining organizational strategies and designing their structures. It is, therefore, their view of organizational goals and performance in pursuit of these goals which will typically be the most significant starting point for the organizational processes which are considered in this work. In the business firm some of the senior managers concerned will own the enterprise in question, but commonly in medium- and largescale concerns this will not be the case. Bearing in mind this, at least partial, separation of ownership from control, many recent writers have tried to predict the likely goals of the modern firm or at least those of senior management. Although such goals are often vague, ill-defined and contradictory, for the reasons discussed above, it may still be worth outlining the most likely objectives that modern writers believe will influence the behaviour of the modern business firm. Generally there would seem to be widespread acceptance that the old ideas of profit maximization which were supposed to characterise the old owner-managed enterprise have, at least in part, given way to other objectives. Thus Baumol (1967), Marris (1971), Galbraith (1966), Williamson (1967) and others have suggested a variety of alternative strategic objectives which they argue are commonly pursued in business firms, particularly those managed by professional executives as opposed to owners. The more obvious of these are maximizing net worth, maximizing rate of growth in assets, maximizing sales, maximizing staff emoluments, maximizing discretionary profits, maximizing the autonomy of management,

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technical innovation and survival. It should, however, be noted that many commentators believe that coming within these dimensions, rather than maximizing them, may be a more accurate description of management's objectives. These ideas, then, give relatively little help in forming a framework for understanding and assessing company strategies or organizational designs. This being the case, one must look elsewhere, if a totally arbitrary approach is to be avoided. With this in mind we will now examine a possible theoretical perspective which may go at least a little way towards a solution of these problems.

3

OPEN SYSTEMS AND THE ECOLOGICAL APPROACH

In Chapter 1, the state of the art with regard to our understanding of the twin phenomena of company strategy and organizational design was briefly reviewed. Certain shortcomings and weaknesses were identified, and the consideration in Chapter 2 of the issues relating to the concepts of organizational goals and performance further reinforced a concern about the adequacy of the theoretical base upon which research on these topics has developed. In the present chapter a somewhat different approach will be suggested, which will be developed further in later chapters. It is hoped that this approach may be capable of being developed into a theoretical basis for the understanding of strategy and structural design in the organizational context in general, and the business context in particular. As was suggested in Chapter 1, most modern writers in all areas of organizational behaviour adopt (or at least claim to adopt) an open-systems perspective. The variety of approaches to the understanding of organizational phenomena which have appeared under such a heading is considerable, and the implications of the abundance of ideas put forward under a single conceptual label is rather bewildering. The lowest common denominator which seems to underpin the 'systems' nomenclature is little more than the idea that events in one part of an organization are in some way linked to events elsewhere within the organization. Similarly, the most general reasoning behind the 'open' part of the name is basically that events, relationships and interactions routinely cross organizational boundaries. However, even though in much of the literature the so-called open-systems perspective has done little more than remind both writers and readers of certain key aspects of organizations, the perspective is clearly capable of being developed into a much fuller theory. Writers such as Emery and Trist (1960) and Miller (1965) have already shown the considerable potential of the open-systems theory, first developed by scientists such as Von Bertalanffy (1950), who were looking to the solution of problems in biological science. Despite some significant advances when the approach was first

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Open Systems and the Ecological Approach

33

adopted for the examination of organizational phenomena, progress has been slow since then. Now it is fair to say that there is considerable cynicism concerning the utility of the approach in certain quarters. In the present work no attempt will be made to embrace fully the wider ramifications of open-systems theory. In particular little attention will be given to the formal or mathematical aspects of the theory. However, some of the ideas which stem from that framework for the study of both company strategy and organizational design will be examined, and later in the chapter these ideas will be linked to some of the concepts used in the study of ecology, in order to develop a framework. The Characteristics of Open Systems Katz and Kahn (1966) have suggested that all open systems share certain common general characteristics, although obviously the particular manifestation of these will vary from system to system, and most clearly between different types of system. They suggest that such open systems may be defined in terms of nine characteristics: (i) importation of energy; (ii) throughput; (iii) output; (iv) cyclical patterns of events; (v) negative entropy; (vi) information input, negative feedback and coding processes; (vii) the possibility of steady-state operation; (viii) differentiation; and (ix) equifinality. In the case of business firms the first four of these characteristics are usually obvious so that a series of cycles involving inputs, processing and outputs characterize their day-to-day operation. In the case of a manufacturing company, the inputs are typically raw materials and components which are purchased from suppliers. These are then processed or assembled and the finished products sold to customers using labour 'purchased' from employees. These processes can be, and usually are, repeated many times without significant changes taking place in the structure, technology or administrative arrangements of the organization. In accounting terms, value is added to the inputs at each stage of the internal processes such that the value of outputs is greater than that of the inputs. In order to be profitable the aggregate of these increases in value must be greater than the cost of maintaining and operating the system. The overall pattern in inputs, throughputs and outputs in the typical manufacturing company is, however, rather more complex

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Open Systems and the Ecological Approach

than the foregoing would suggest. The organization is involved in not one, but several cycles, relating to different inputs and outputs. It can be considered as being the nodal point of a number of input–throughput–output cycles, each of which will normally have a different temporal duration. Thus the inputs would be likely to be land, buildings, equipment, raw materials and/or components, labour and money, and the outputs would be the company's products and money. At each interface, transactions take place on an exchange basis. With the modern organization, money is virtually always used as the common medium of exchange. Thus the company pays money in order to obtain needed supplies of the factors of production, and receives money in return for the sale of its products. The foregoing ideas suggest that in open-systems terms, the strategic objectives of a company can be seen in terms of finding and maintaining a niche in the environment such that a relatively stable pattern of interlocking cycles can be achieved. The problem of organizational design can be seen in terms of arranging the methods of dealing with the various factors of production in such a way as to continue to satisfy the various persons or agencies with whom exchanges are carried out. The five remaining characteristics of open systems suggested by Katz and Kahn will influence our later analyses. However it may immediately be noted that at the same time as the cyclical input– processing–output processes are going on, the organization must also receive informational inputs and utilize these in order to control the various processes involved, so as to maintain the system in operation. As we shall consider at greater length in Chapter 5, organizations are characterized by more or less complex divisions of labour or patterns of internal differentiation. This fits with the logic of open-systems theory, which suggests that some part of the energic input is capable of being utilized to achieve an elaboration of patterns of internal differentiation. So far, the ideas and concepts of open-systems theory have been used largely to relabel some of the familiar characteristics of a business involved in manufacturing. The danger involved in adapting theoretical ideas developed in other areas of inquiry is that little is achieved in addition to this process of changing the nomenclature. However, it is hoped that, by elaborating these ideas within a quasiecological perspective, they can be utilized to provide a more integrated framework for the study of company strategy and organizational design. With this intention in mind, our attention will now

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turn to some of the ideas developed in the study of ecology before returning to the issues which have just been introduced and briefly considered above. An Ecological Perspective In order to borrow some of the concepts and ideas developed by ecologists it will be necessary to outline in a cursory manner the ways in which they have usually been employed. This may take the discussion a long way from the central subject-matter of the present work. However, it is hoped that the excursion will prove rewarding by providing additional analytical tools which can be brought to bear on the key problems which form the central issues of our inquiry. One of the significant main features of much of ecological analysis is the examination of cycles of production and consumption. The relationships between food producing or autotrophic organisms and food consuming or heterotrophic organisms is often a central feature of such analyses. Thus organisms or classes of organisms are studied in terms of their place in the food chain or more generally the cycles of production and consumption which characterize a given ecosystem. In the terminology of biological ecology four sets of system elements may be differentiated. First, there are the system raw materials (in biological ecology referred to as abiotic substances). These substances are the material objects from which food and other products can be made. Second, there are the producers (autotrophic organisms or organizations). These producers convert raw materials into useable foods and other goods. Third, there are the macro-consumers (heterotrophic organisms or organizations) that use producers or non-consumable products in order to create production at a different (trophic) level. Fourth, there are the micro-consumers (heterotrophic organisms) that consume complex products and release factors of production. These elements are related in a complex series of cycles of production and consumption. When these ideas are utilized in the study of human behaviour the issues become considerably more complicated due to the fact that the typical human being performs several (possibly many) differentiated roles in different cycles. However, in very crude terms, when we examine what might be described as the organizational ecology of modern industrial society, the equivalents of the four

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levels would be as follows. The 'system raw materials' would quite simply be primary raw materials such as mineral ores, fossil fuels, and so on. The 'producers' would be extractive industries such as mining and such organizations as those involved in farming, fishing and forestry, together with primary production industries such as steel-making, oil refining and construction. The 'macro-consumers' would be manufacturing and processing industries such as the manufacturers of cars, processed foods, etc., together with most service industries. The 'micro-consumers' would be the normal consumers in marketing terminology, who utilize a variety of products and services and supply labour of all sorts in the overall system. Clearly it can be counterproductive to take the analogy between man-made and 'natural' systems too far, although ultimately it could be argued that they are all part of the same general system of nature. However, the overall logic of the mode of analysis would seem to be appropriate to the study of economic affairs and may provide a means for the analysis of the properties and conduct of business firms. It has already been suggested that companies, like other organizations, may be viewed as open systems. In fact, the same logic suggests that all social systems may be seen in the same way, hence society may be conceptualized in terms of a series of nested open systems, with organizations being one level of analysis within larger systems, and having within them smaller open systems such as divisions, departments or work-groups. All of these systems are interlinked by the flow of goods and services, with individuals typically occupying a variety of different roles in different systems at different levels. This suggests that in order to utilize the analogy with the ecological analyses used in the study of biological organisms and species, the focus must be on organizations and roles as well as on individuals as entities. With the provisos just outlined, it would seem that the study of organizations in their environment faces many conceptual problems which are very similar to those dealt with in ecology. Despite this, up to the present, few attempts have been made to make direct use of this body of knowledge in management or organizational research. A notable exception to this is the work of Aldrich (1979) who attempted to create a theory of organizations, based on Campbell's (1969) population ecology model. Although his approach provides valuable insights into factors affecting change in 'organizational forms', it appears to suffer from many of the same difficulties as those encountered in more common forms of structural contingency theories of

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organizations. Aldrich still largely relies on the conceptualization of organizational environments in terms of global dimensions rather than examining systemic relationships with individuals, groups and organizations in that environment. The present approach is somewhat different, being based on a related, but different, branch of ecology (generally referred to by ecologists as synecology). This is based on the analysis of relationships between the individuals in an ecological community, and also relationships between them and their environment. Dynamic synecology particularly focuses on the transfer of materials and energy between the various parts of an ecosystem. The ecological concept of community refers to groups of living organisms bound together by mutual dependence upon one another, and corresponding in composition to a particular set of environmental conditions. Organizations then may be seen to fall within this conceptualization of a community, as do wider social systems such as social communities and societies. Within the suggested framework, attention is focused on the general issue of the transfer and conversion of materials and energy within and between individuals, organizations and societies. As has already been noted, such forces fit closely with the first three defining characteristics of organizations as open systems, as conceptualized by Katz and Kahn. Within this framework organization–environment transactions, as well as intraorganizational ones, can be seen as parts of the cycles of events by which materials and energy are processed and transmitted. Implications for the Study of Strategy and Structure Before moving on to develop further the ideas briefly outlined above, it may be useful to pinpoint some of the more obvious implications of the ideas stemming from the combination of the open systems and ecological perspectives, when these are employed to examine the strategy and structure of business firms. As has already been noted, the strategic objective of the business firm visà-vis profit, stemming from the open-systems perspective, is to create an aggregate value aded to the organization's throughput greater than the cost of maintaining and operating the system. This can only be achieved by satisfying the more general objective of maintaining a niche in the environment such that the various interest groups, involved in exchange processes with the organization, continue their relationships, thus maintaining a relatively stable pattern of interlocking input–throughput–output cycles.

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Although the two sets of objectives outlined are clearly important and relevant, both to the student and the practitioner of management, there cannot be said to be anything very original in their statement, except possibly in the language used. However, these statements can only be seen to encapsulate the very broadest strategic considerations. When such ideas are narrowed down to provide a more specific view of the strategic issues involved, then the differences between the approach to the study of strategy adopted here and other perspectives begins to emerge. The emphasis within the ecological open-systems framework is on theflowsof resources of whatever sort into and out of the organization, and the specific linkages with suppliers and consumers of such resources. The implications of such an aproach are clearly at variance with approaches to the understanding of company strategy which emphasize one particular aspect of a company's operation, such as the very frequent emphasis on markets and market shares which runs through a great deal of the literature, as we noted in Chapter 1. When attention is turned to the issue of the design of organizational structures, then the ecological perspective suggests three main problems which must be confronted. First, there is the problem of ensuring that the appropriate input–transformation–output processes are carried out. This is clearly essential if the particular organization is to continue to occupy its position or niche in the greater ecosystem or community of which it is a part. The second problem is one of control and/or coordination of the various parts of the organizational system to ensure that the input–transformation– output cycles of the various subsystems continue to link in such a way as to ensure the maintenance of the conditions required for the accomplishment of a solution to thefirstproblem. The third problem is one of cost, in that any system must be able to achieve some control of costs such that the balance of inputs and outputs allows for the maintenance of the overall system. With these points in mind, it is now appropriate to expand upon the nature of the analysis suggested. The Nature of the Analysis Earlier the nature of the quasi-ecological analysis, which will be offered here, was briefly mentioned. At this point, it is useful to expand on this, and, at the same time, make clear some of the issues

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which will not be central to our considerations. The overall situation or ecosystem in which men and human organizations exist and carry out their activities is made up of all living and non-living objects on the earth, together with the energy from the sun. Clearly the analysis in full of such a system would go far beyond the bounds of the present work, and, at the same time, much of such an analysis would not assist the purpose of this book. The main focus of attention here will be on a very limited subset of the whole, namely that part of the human domain relevant to the production and consumption of goods and services. Even within this very limited area, most attention will be given to the production and distribution activities, which in modern society are those which tend to be most dominated by business and business organizations. This limiting of the area for consideration to one small part of the whole in no way implies that the analysis of the remainder of the system is unimportant. Neither is it meant to suggest that it has no relevance for the conduct of business organizations. On the contrary, the basis of modern industrial society depends on energy derived from fossil fuels and hence on 'natural processes', just as surely as pre-industrial societies were linked to the land. Although parts of the analysis will touch on these issues, for the most part they will be left to other authors. However, before moving on to consider the main thrust of the argument, it is perhaps necessary to make a number of general points, even though they have been suggested by many previous authors. First, it must be recognised that man, like any other living thing, is a creature of his environment, and is dependent on that environment. It is true that man has learnt to manipulate and use his environment to a much greater extent than other creatures, but none the less, as we noted above, the largest part of the energy which keeps modern industry running, and keeps the modern home going, depends indirectly on the sun. It was the energy from that source in previous eras which led to the creation of the supplies of fossil fuels (most obviously coal and oil) which provide the energy which keeps modern industry going. Even the modern agricultural industry, in many parts of the world, is dependent on such fossil fuels to help in the manufacture and running of equipment, and the processing of fertilizers and other chemicals. As Odum (1971) argues, we live on 'potatoes made partly from coal'. He argues more widely that ultimately social and economic power is derived from physical power as defined by natural scientists. He suggests that 'the true

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powers of individuals, groups, and political bodies lie in the useful potential energies that flow under their control. Power does work, gains and manipulates storages of energy, and directs forces' (Odum, 1971: 206). Clearly these views and arguments may sound somewhat extreme, but after repeated oil and energy crises, they sound a great deal more pursuasive now than they did in 1971, when he first proffered them. Such suggestions, questions and ideas raise many points concerning the extent of available world resources and the rate of their utilization. However, these issues are in the main outside the scope of the present work. In order to illustrate the general logic of the analysis that will be employed, it may be useful to consider briefly some very simple examples from the early development of human society. Whether they are historically accurate is, in the present instance, irrelevant, as the sole purpose is to demonstrate a number of simple points. In the first stage of the development of human society there was little, if any, division of labour, other than that relating to child-rearing. That is to say that all adults, and indeed most children, performed approximately the same tasks. At that time, man obtained food by gathering nuts and berries, or by hunting wild animals. In these various activities, he utilized little in the way of tools, and those he did use he fashioned for himself. In this situation, there would be little, if anything, that could be described as human organization, and the analysis of the relevant cycles of production and consumption would follow lines entirely familiar to the biological ecologist. A much simplified schematic diagram of the processes involved is shown in Figure 3.1. From this it can be seen clearly that man, whilst behaving in this way, is essentially similar to other sizeable animals, living off plants and other animals and supplying via his excreta fertility for the growth of vegetation, and then, in death, providing food for different sorts of scavengers and further fertility for the soil. In this situation it can be readily seen that most of the production processes relevant to man's needs are carried out by 'natural processes', that is, processes in which man plays no direct part. Man's role in this situation is limited to the indentification and gathering (or hunting) of food, the utilization of naturally occuring shelter, and so on. Any sort of strategy or planning in such a situation depends exclusively on an ability to predict natural changes, such as the seasons of the year and the migration of animals. Man's role is virtually entirely reactive. At the same time, the question of the

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Figure 3.1: A Schematic Representation of Primitive Society

SUN AND RAIN

SOIL

Dead Vegetation

Excreta and Carcases

Fertility

VEGETATION (Nuts, berries, shoots, leaves, branches)

Food and Shelter by Gathering

Food

WILD ANIMALS

Excreta and Bodies

Food by Hunting

HUMAN COMMUNITY

design of organization hardly arises. His key problem is a locational one. Where should he go for the best prospects of obtaining food and avoiding the worst climatic conditions? As mankind develops, the simple pattern, referred to above, begins to become more complex. This development is manifested in a variety of ways. The most notable of these are: (i) the beginnings of farming, both in the sense of the sowing of seeds and hence the cultivating of crops, and also the keeping of animals for milk and meat; (ii) the construction of more elaborate shelters of a semipermanent nature; (iii) the shaping and utilization of more elaborate tools; (iv) the development of a division of labour, and an associated

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Open Systems and the Ecological Approach

form of human organization; and (v) the beginnings of planning in a proactive sense. These various developments taken together make man less dependent on his environment, in the sense that he can now do more than merely react to the way it changes both temporally and spatially. The fact that man is now proactive, however, should not be taken to mean that he has achieved independence from his environment. Clearly in this more developed state, man is taking a significant hand in shaping at least parts of his own environment. He is, however, still totally dependent on his natural habitat for sun and rain and many other things, such as trees for wood. As the division of labour proceeds, the individual becomes, also, increasingly dependent on the activities of other men. In many important senses there is now a human and a man-made environment on which he depends. In some senses the situation is beginning to arise where man is partially separated from the rest of nature. Although much of man's strategy and planning must still be based on factors in the environment outside his control, such as the weather and the seasons, there are now many aspects of the situation that he can change, both in the short and long term. Clearly the locational decision is still an important one, but it has changed its nature dramatically from the situation described earlier. Then, the problem of where to go was a routine one, as man continually moved, following his food supply. In the more developed situation, the problem is still of vital consequence, but it is taken only once, or, at most, only once every few years. It has become a strategic decision, rather than a tactical one. As the division of labour increases, and the size and complexity of the organization of human effort also increases, the question of location takes on a double meaning. First, there is the question of where a community is best located, in terms of climate, soil conditions, and proximity to water, forests and wild animals, and so on. Second, there is the question of where particular activities are located within the general geographic area occupied by the community. With these new circumstances, the question of the design of the organization of human effort takes on considerable significance. Before analyzing this further it may be useful to indicate the factors which appear to have been important in bringing about this general development in the human condition. Clearly between the two simplified situations described above, there has been an increase in knowledge, and to some extent developments in technology. These relate to the processes involved in

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primitive agriculture, the building of shelters and the fashioning of tools to assist in these tasks. The other major development relates to the organizational side of the evolving human society. In essence, three basic aspects of organization will have been developed. The first is a form of division of labour which means that different members of the community perform different tasks, to some greater or lesser extent. The second, which must go hand in hand with the first, is the beginnings of a system of control or coordination. Clearly a division of labour of any sort can only be a practical proposition when some mechanism can be created to coordinate the labour so divided. The third aspect of organization is the element of proactive planning, mentioned above. Planning may be seen as the link between some sort of emergent strategy of survival and the working out of a form of organization to carry out the plan stemming from the process. Although the example considered is clearly oversimplified (and arguably hypothetical), it is worth pausing for a moment to consider at greater length the three organizational developments mentioned above, and the preconditions which would seem necessary for their emergence. It may well be that the issues are more readily apparent in such a simplified example than they are in the typical modern industrial scenario, with which we are nowadays surrounded. However, despite the many differences implicit in the different situations, the general principles, upon which organization is based, seem likely to be the same. First, let us consider the issue of planning or, as we have so far characterized it, proactive planning. This, it would seem, whether carried out self-consciously or not, is the essential link between strategic objectives and organized action. The essence of proactive planning is some sort of attempt to work out desirable patterns of action for the future. Without this, it is hard to see a basis on which any but the most rudimentary organizational design decisions could be made. After all, even when account is taken of the non-rational factors which enter into administrative decision-making, there would seem little point in organizing unless for the achievement of some real or imagined, individual or shared, objective. This must surely be true, however vaguely defined is the objective in question. At least, some minimal move towards planning then can be suggested as a prerequisite of organized or organizational activity. However, the reservation must be stated immediately that a planning process is in no sense the same thing as a system by which plans are

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actually carried out. The implications of planning in that sense are problematic, but the important point here is that plans, however vague, provide motivation and guiding principles for the design of organizational effort. Our attention should next be turned to the issue of the division of labour. This may in some senses be regarded as the key factor upon which civilized society stands. The idea is now so deeply rooted in our every-day lives that we tend to take if for granted, yet its development is an essential ingredient in any significant enhancement of the human condition above the most primitive. The essence of the division of labour is exceedingly simple and means that different persons carry out different activities to some greater or lesser extent. None the less, this simple idea, elaborated over millions of years and coupled with modern developments in technology, has led to many aspects of the amazingly complex social and economic world in which we live today. Although the division of labour carries many actual and symbolic advantages, perhaps the most obvious is that it allows, as a consequence of specialization, for the development and utilization of greater levels of skill. In order to attempt to determine the precondition for a viable division of labour, it is worth considering the transition between the two examples, given above, of early human society. Consider the extreme case of a small community whose food consists of berries, nuts and roots and who live in primitive shelters with no division of labour except that relating to child-bearing. If, in this situation, one of the community suggested that he could devise tools which would make the others more efficient in their food-gathering, this would only be a practical possibility subject to certain conditions. First, those still involved in the collection of food would have to give (sell) some proportion of what they collected to the individual devising tools in exchange for those tools, in order that he was able to live. For this to be a worthwhile development for the various parties, it would seem to be essential that certain conditions are met: (i) that the productivity of those still involved in food gathering should be improved by the use of the new or improved tools; (ii) that this improvement in individual productivity should be sufficient to lead to an improvement in overall community food gathering production, so that no one was less well-fed as a consequence, and at least someone gained from the change; (iii) that a system of exchange of tools for food should be devised such that the toolmaker was able to obtain sufficient food to live, and the food gatherers

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were able to obtain the tools they require. Put simply, changes or increases in the division of labour would only seem to be viable in the long term where changes in knowledge or technology, or the act of specialization itself, provide a gain in the overall level of welfare for those in the ecocommunity. It would also be viable only if some integrating mechanism can be found to allow the various parties, carrying out different tasks, to be coordinated functionally. These ideas and analyses obviously seem a long way from mangerial decision-making on issues relating to strategy and structure in the modern business firm. None the less, I shall attempt to show that the basic logic is similar, and the analytic approach it suggests is applicable in the latter context. This is true both in the descriptive analysis of social and economic behaviour and in the development of normative guidelines for managerial action. Before leaving these simple situations, one further possible development is worth consideration. If we reconsider the starting situation as before of a small community of food-gatherers, what would be the situation if some additional individual or group arrived on the scene? On the face of it, a limited number of possible outcomes are possible, depending on the environmental circumstances. First, let us consider the possibilities where the environment is generally benevolent, in other words, where additional food could be gathered with existing techniques without appreciably more effort per unit. The most likely outcome in such a case, would simply be an increase in the size of the community, without any change in the methods of working, or increases in the level of organization. This suggests the general point that, where resources and opportunities seem freely available in the environment, there is little if any pressure for change or innovation. The structure of the cycles of production and consumption can continue in an approximately steady state with only an expansion in volume, provided the inputs are available. If, however, the environment is less benevolent and additional food could be gathered only by the utilization of improved methods of working or by greater hours of work, then the situation will be quite different. Under these circumstances the range of possibilities would seem greater. One is that considerable conflict could occur between the original members of the community and the newcomers, possibly with some individuals being driven away to restore the previous steady state. A second possibility is that all members of the enlarged community work harder in order to obtain the same amount of food per person as before, or that some or all individuals

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get less food than before. The third possibility is that the pressures created lead to some change in the overall systems, leading to an increase in production by means of more effective working. This would have to be based on changes in the technology employed, or some change in the organization of work, or both. This suggests that, in situations where basic raw-material resources are available but at increasing cost, expansion can only occur as a consequence of technological or social change, or more likely, some combination of the two. However, if basic resources are available, even at greater cost, it is clearly possible that the structure of the cycles of production and consumption can be developed to yield a greater total of consumable goods (in this case food). It may now be useful if this logic is reviewed from the point of view of the individual. Such a further consideration suggests that, generally in a competitive situation, three basic strategies are available to individuals or groups (or indeed organizations). The first strategy is wholly competitive, and involves attempting to do the same thing as others but more effectively. In such a situation, if all follow this strategy, some will inevitably gain whilst others lose. Improvements in methods in this case are on an individual or group basis to make them more competitive. The second strategy is cooperative, and involves all parties compromising in terms of their strategic objectives, so that each suffers to some extent, but all survive at a reasonable level. This second strategy is only likely where the level of resources is such that the potential competition is not too intense and none (or few) of the parties believe they would be very likely to gain from severe competition. The modern business equivalent would be a tacit (or explicit) agreement to maintain prices in a situation where demand is constant, because the competing suppliers believe that a price war would be potentially too injurious to all. The third strategy is essentially innovative and involves inventing new methods such that the pattern of cycles of production and consumption could be elaborated, providing some balance of benefits over costs for sufficient of the participants to be prepared or forced to accept the changes. Thus, in the situation described, some group might start manufacturing tools to allow the remainder of the community to gather food more effectively, and at the same time arrange some exchange system for all to benefit from the structural change. Such a development works by elaboration of the division of labour coupled with increased coordination, and must

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ultimately depend on the availability (albeit at a cost) of the required materials or resourses. However, further consideration of the situation created by the third strategy outlined suggests that a fourth strategy may be possible, or even essential, if available resources are reduced or become too expensive. Consider what might happen in the situation where most of the community are gathering food using tools made by a small group who receive some proportion of the food gathered in exchange, if there is a sudden worsening in the available food situation due to bad weather conditions. In these circumstances each of the food gatherers would be tempted to consume all the food gathered himself, even if this meant having to use old tools or making new ones himself. So, it can be seen that where the environment is very lacking in resources, individuals may adopt a strategy of retrenchment, cutting all non-essential costs, in order to attempt survival. In this case the pattern of cycles of consumption and production is curtailed and simplified. Under these circumstances, the survival of the successful will almost certainly be achieved at the cost of the non-survival of others. Thus, in the example quoted, if all food gatherers adopted this retrenchment strategy, then the toolmakers would starve or be forced to become gatherers. In recession in industrial society, similar patterns of events can be observed when many firms adopt a strategy of retrenchment and cut costs by reducing all non-essential activity. Under these circumstancesfirmsthat survive and remain profitable, do so at the expense of other firms going out of business and many individuals becoming unemployed. It should be noted that the unemployed, in this case, will come both from the former employees of surviving companies and of failing firms. Modern Industrial Society Figure 3.2 gives in an extremely simplified form a schematic representation of a small part of modern industrial society, viewed in terms of cycles of production and consumption. Obviously the reality is very much more complex. However, it is hoped that the figure is sufficient to illustrate the general approach, as it can be applied to a more up-to-date situation. The diagram shows theflowsof goods and services between organizations and residential communities. In each case there would typically be aflowin the reverse direction of

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money as that is the medium of exchange in modern society. However, the flows of money are not shown in order to keep the diagram relatively simple. Figure 3.2: A Simplified Schematic Representation of Part of the Ecosystem of Modern Industrial Society Raw materials etc

FACTORIES

Farm implements

Electricity

Machinery

FARMS Labour

Other inputs

POWER STATION

Feedstuffs etc.

Food Labour

SHOPS Coal

Other inputs

Electricity Food Labour Labour

Equipment etc

NATIONAL COAL BOARD

Coal

Coal

Labour

FH AO MM IE LS Y

Other goods and services

If this simple diagram is considered alongside our general appreciation of the way in which modern industrial society has developed from the sort of primitive social situation described above, it is possible to suggest some of the key factors which have led to this. First, there have clearly been vast increases in knowledge, and developments in technology. Second, the extent of the division of labour has increased dramatically. Third, coordination tends now to be carried out (or at least attempted) in much bigger units, such as large organizations, cities and the modern nation states. These three elements would seem to be merely continuations or extensions of the factors which were associated with the change from the

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hunting-gathering situation to the primitive farming situation described above. To these, however, must now be added another ingredient of development. This, although no doubt present in the previous example, was not obvious. This fourth factor might be labelled the division of roles. Thus the typical human in the modern industrial world normally carries out a variety of roles in a single day, such as worker, wife and mother, and club member. Most clearly the division between production and consumption roles has become clear-cut, both temporally and spatially for the large majority of the population. This is true inasmuch as most people have to travel to and from a place of employment, where most (in many cases all) of their work is carried out; production is also divided from consumption in terms of hours of the day or days of the week; and also there is a partial division in terms of the balance of production and consumption in terms of the age of the participants. The fifth element is related to all these and involves an increase in planning at all levels, that is by individuals, organizations and governments. These various changes make the situation to be analyzed greatly more complex than in the examples examined above, but the analysis could still be similar and the principles involved relating to strategy and organizational design should be the same. We will return to this analysis in Chapter 6 after we have given further consideration to the concept of strategy and the problems of organizational design in the light of the light of the foregoing discussion.

4

DEVELOPING A CONCEPT OF STRATEGY

As we noted in Chapter 1 the formal study of business strategy really only dates from the mid-1960s when Andrews (1965) and Ansoff (1965) published major books on the subject. Since then the topic has been widely written about, but the views of these two pioneering authors are still highly influential. Hofer and Schendel (1978), in their book on analytical concepts in the strategy area, examined the perspectives of these two earlier authors and suggested that their ideas concerning the concept of strategy differed markedly on three main points. The first of these involved the breadth of the concept. On this issue Hofer and Schendel (1978: 17) write: 'Here the question was whether the concept included both the ends — goals and objectives — an organization wishes to achieve and the means that will be used to achieve them (Andrew's view) or whether it included only the means (Ansoff's view)'. They go on to conclude from an examination of most of the major subsequent contributions to the field that this issue continues to be debated and is probably the greatest point of disagreement amongst recent writers. This issue relates to and reflects the kinds of issue discussed in Chapter 2, where we suggested that senior managers tend to formulate strategic objectives which are likely to affect the development of strategy. However, it was acknowledged that these might not bear any particularly clear relationship to the official goals of the organization in question, as these were likely to be too vague and general. It was also suggested that such strategic objectives were likely to change, in some cases rapidly and frequently. It would also follow from the logic of the discussion in Chapter 2 that the formulation of strategy, like the selection of strategic objectives, will not routinely be a logical process, where means are deduced scientifically from ends. This suggests that it is most useful to regard strategy largely in terms of means, somewhat along the lines suggested by Ansoff. This may be seen as a rather negative or cynical view of the phenomena in question. However, the balance of evidence suggests that it is realistic. At the same time it must be

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51

recognized that the differentiation between means and ends may itself be somewhat artificial. The second point of disagreement, noted by Hofer and Schendel, is over the issue concerning whether that aspect of strategy referring to the means of achieving organizational ends, can be analytically subdivided into components. Andrews argues against this, but on the other hand Ansoff suggests four main components. The first of these he refers to as 'product/market scope' by which he means the delineation of the variety of products a firm makes and the markets in which it sells. The second component is 'a growth vector' indicating the intended or planned future changes in the scope of activity. Third, there is the idea of 'competitive advantage' referring to those aspects of the product or marketing approach which particularly enhance the firm's competitive position. Finally Ansoff suggests the notion of 'synergy', or the extent to which the firm's activities taken together are stronger than the sum of the parts. Hofer and Schendel themselves are relatively close to Ansoff's position on this issue, also subdividing the concept of strategy into four components. Of these, three, namely scope or domain, competitive advantage and synergy, are the same or similar to those components identified by Ansoff. Their fourth component, resource deployment, is rather different. This question relating to the nature of the components of company strategy will be considered at greater length below when the logic of the previous chapter will be extended. The third point of divergence between the conceptualizations of strategy developed by Andrews and Ansoff, as identified by Hofer and Schendel, might be regarded as the processual equivalent of the first divergence they note This they described as 'the question whether goal setting is part of the strategy formulation process or whether it is a separate process'. (Hofer and Schendel, 1978: 17). As with the first point of difference the issue is probably not of great consequence if the logic of Chapter 2 and the theoretical position suggested above is accepted. From this perspective it can be said that at a formal level the establishment of official goals is clearly separated from the process of strategy formulation. However, as we have noted, these goals only set the broadest constraints on strategy, they do not determine it. On the basis of this preliminary discussion it is possible to move towards a definition of strategy. Basically the strategy of an organization may be regarded as the more or less planned collective predisposition of senior management to make particular decisions

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regarding the task of the organization and its relationships with its environment. In some organizations with a highly formalized procedure for the formulation and implementation of strategy, this will be highly defined, almost certainly clearly documented, and will tend to guide operational decision-making in a close and well defined manner. Of course, in reality there is enormous variation in the ways in which strategies are formulated, disseminated and implemented. Where little or no attention is given to these processes, then individual operational decisions will be taken on an almost completely ad hoc basis with little consistency in overall direction. The Components of Strategy As we have already noted, there is considerable disagreement about whether the concept of strategy can be subdivided into component elements, and if so, what these elements are. To some extent these disagreements reflect different analytical approaches rather than different views of what is being analyzed. Of course, it could be argued that there may be a sense in which the very idea of strategy reflects an overall approach. Nonetheless, it seems reasonable analytically to distinguish different aspects or components of the whole. Before attempting to do this, however, it is worth considering the different levels of strategy that may be found in an organization. Hofer and Schendel suggest three: (i) corporate strategy; (ii) business strategy; and (iii) functional-area strategy. They do, however, suggest that several other levels could be distinguished. Such an approach would appear to be based on two somewhat different principles. In thefirstplace, there is the idea that any organizational system or subsystem may develop its own strategy. Hence one may talk of corporate strategy to refer to that developed by the overall or complete organization, and business or functional-area strategies to refer to those of component parts of the organization, developed within the sub-units themselves. This can occur whether these subunits are differentiated in terms of being separate businesses, functions or locations. However, one may also distinguish different levels of strategy in terms of what they are about although developed on a corporate basis. Under this second principle, business strategies would be developed by the organization as a whole for each business area in which it is involved. The difference between these two may at first sight seem small, but, in fact, is potentially very important.

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This is particularly true in the context of the present work, as it illlustrates significant interconnections between strategy and structure. The reality of strategy formulation and implementation will typically depend on the structure of the organization in question and particularly on the extent to which the component parts are differentiated. These points can perhaps be best illustrated by comparing two hypothetical examples of companies operating in a number of different business areas. In one company each business area might be the responsibility of a separate division which is controlled by a central management solely, or at least very largely, in terms of return on investment. Under this system the strategy for each business is almost exclusively the responsibility of divisional management and corporate strategy relates to the allocation of resources between divisions. In a second company the central administration might develop strategies for the carrying out of each business and the divisions would have the responsibility of implementing the strategy so formulated. In the first company, business strategies are separated to a considerable extent from corporate strategy, whilst in the second they are clearly components of corporate strategy. This suggests that the question of organizational design must be regarded not just as one of the factors which will effect strategy, but as an element of strategy which is itself a consequence of strategic decision-making. It can therefore be argued that organizational design is itself a major component of strategy which will influence all levels and types of decision-making processes in a firm or other sort of organization. However, in the present work this aspect of strategy is treated to some extent separately, and it will be considered further in the next chapter. Clearly any organizational strategy must explicitly or implicitly define the nature of that organization's activities. As we noted earlier, Ansoff sees this in terms of 'product/market scope'. In terms of the perspective adopted in Chapter 3 this can be seen in terms of defining the range of inputs and outputs which are envisaged and the outside parties which will or could be dealt with concerning input and output transactions. Obviously, this is somewhat wider than the idea of product/market scope in that it relates to inputs as well as outputs. This widening of the component of strategy is deliberate as it emphasizes the need for organizations to fit into wider cycles of production and consumption. It also tends to remove

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or reduce the marketing bias evident in many approaches to business strategy. Following on the logic of seeing company strategy in terms of cycles of production and consumption, clearly that part of the process between the input and output stages must also be given attention within any company's strategy. This is clearly linked in part to the issue of organizational design mentioned above, and like that issue seems to be neglected in many writers' views on strategy. Hofer and Schendel's idea of resource deployments or distinctive competences perhaps comes closer to this aspect of strategy than any of the components suggested by other authors. Clearly a company's resource deployments are part of its overall strategy relating to the transformation process but do not obviously include resource choice and utilization which would also seem important. All these ideas might be encompassed within the idea of a transformation-control strategy. The three aspects of strategy so far identified, namely, organizational design, input-output strategy and transformation-control strategy all relate to companies involved in only a single business as well as those with more diverse interests. The idea of synergy, however, would seem to have its greatest and clearest relevance in multi-business companies where the benefits (or otherwise) obtained from the joint operation of different businesses within a single concern are a major element in determining the likely success of a venture. Taken together, these four aspects of strategy should determine the competitive strengths of firms vis-à-vis other organizations engaged in similar activities. There would, however, seem to be a fifth significant component of strategy which should be important. This is the basic orientation of the firm regarding its place in its environment. It is clearly an element of strategy which influences decision-making whether a firm is expansionist or defensive, to dichotomize the possibilities in order to put the matter simply. Obviously thesefivecomponents of strategy interact and can not be examined completely in isolation. However, each can, at least in theory, be developed in different ways. It is clear that different configurations of the five components can be developed which would correspond to different overall strategic positions.

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Types of Strategy There have been numerous attempts to develop typologies of strategies but in general these have tended to be somewhat simplistic or based on a very limited view of strategy, due to the great difficulty of fully encapsulating the diversity of activities of different companies. Particularly when considering the input-output aspect of strategy it is difficult to make general statements about firms which have radically different inputs and outputs. Indeed this is one reason for the prevalent use of the sort of financial information provided by accountants when describing and comparing the activities of business firms and other organizations. Clearly it is difficult to compare luxury shoes with jet engines or take-away meals; it is, however, possible to compare different levels of sales revenue. None the less, even allowing that any attempt to develop a typology of company strategies must, with the present state of knowledge, be an incomplete exercise it may be worth distinguishing broad types. In this section, therefore, the ideas considered in the previous chapter will be extended, taking account of the five components of strategy described above, to suggest a rudimentary typology. This will then be reconsidered at a later point after we have discussed a number of other issues, and in particular we will return to a consideration of the interaction between strategy and functional management. Examination of these issues will first be carried out in terms of business strategies and then we will go on to look briefly at the same questions relating to the case of corporate strategies. The main differences will clearly relate to multi-business firms. It was argued in Chapter 3 that organizations in general and business firms in particular can be described in terms of their place in a number of interlocking cycles of production and consumption. Relationships with outside individuals, organizations and agencies control the input and output transactions of the organization which form parts of these cycles. On the basis of the analysis presented in that chapter, four generic types of strategy were suggested. These four, it was argued, could be described as competitive strategies, cooperative strategies, innovative strategies and retrenchment strategies. Each of these will be considered in turn as a pure type, although, as we will discuss in the last part of the chapter, they can, at least to some extent, be utilized in combination. In each case, the characteristics of the type of strategy will be considered in terms of

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the components outlined above. To be more precise, each business strategy will be considered in terms of three of the five components, that is, input-output strategy, transformation-control strategy and environmental orientation. The question of organizational design will be left to Chapter 5 and the issue of synergy will be left until corporate strategies are discussed later in the present chapter. The Nature of Competitive Strategies The purely competitive business strategy involves an acceptance that there will be other firms carrying on very similar activities. The essence of the successful implementation of such a strategy is dependent upon being able to carry out those activities in some way better than competing enterprises. The logic of this strategic approach is outlined in Table 4.1. From this table it can be seen that the basic input-output strategy is fixed or at least relatively so. The firm involved will be in competition with others in all or most of the markets, whether input or output, in which it deals. The basis of this competition will be largely in terms familiar to market economists. That is, the essence of the competion will depend on price and other terms of trade. The extent of the competition will depend on a large number of factors, such as whether the overall market is expanding, stable or contracting, overlap with other markets and the number and size of both suppliers and buyers involved or potentially involved. The extent of success will be best represented in terms of price and market share in output markets, and price and reliability of supply in input markets. Table 4.1:

The Characteristics of a Competitive Strategy

Variability in approach

Basis for competition

Input-output strategy

Little or none

Price or other terms of trade

Transformation -control strategy

Little or none

Cost and efficiency

Environmental orientation

Considerable

Aggressive or defensive

The typical transformation-control strategic approach, which will

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be a component of an overall competitive strategy, will depend on gaining the maximum internal efficiency, increasing the productivity of labour and cutting costs where possible. At the same time research and development effort will largely be focused on bringing about process improvement. All of this will be designed to complement the input-output strategy in order to increase market share and supplement profit margins where possible. The basic environmental orientation adopted by a firm with a competitive strategy can be either defensive or aggressive. Which orientation is likely in reality will largely depend on management's assessment of the competitors in each market-place in which the firm deals. It will also depend on the firm's ability to finance an aggressive strategy should external considerations suggest that to be desirable to management. The Nature of Cooperative Strategies The essence of the cooperative strategy is an avoidance of extreme forms of competition. In certain circumstances it may involve direct collaboration with particular competitors but more normally it will be based on a general attitude of cooperativeness without any actual collusion. This is particularly likely in countries like Britain and the United States where there are legal constraints on any direct agreements in restraint of trade. This general strategy would seem to be particularly prevalent in oligopolistic market situations. The elements of the cooperative strategy are outlined in terms of the different components in Table 4.2. It can be seen that there is little variability in approach in any of the components of strategy and that prices and terms of trade are maintained in a relatively stable way. It should be noted that the generally cooperative approach will relate not just to possible competitors but also to customers and suppliers, and indeed to all organizations and individuals involved in those cycles of production and consumption in which the organization plays a part. Any significant variability in any component of strategy is likely to break up the essentially cooperative approach of the firms involved unless there is outright collusion, which has already been suggested to be rare. Any changes that do occur in prices or other terms of trade are likely to be little more than a oneto-one reflection of environmental conditions effecting all competitors, such as the passing on of raw-material price increases. The essential environmental orientation of all firms involved in such a situation is defensive. Such an orientation is usually based on the

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belief that any change to an aggressive posture would be likely to lead to damaging competition. The transformation-control strategy is, in some senses, likely to be similar to that adopted as part of a competitive strategy. That is, there will be an emphasis on increasing internal efficiency and cost-cutting. However, the logic behind this component of strategy will be different in the two cases, with the emphasis in the cooperative strategy being on increasing profit margins rather than as an aid to the input strategy. However, even the emphasis on increasing profitability may be limited in order not to encourage other firms to enter the market-place in search of the high levels of profit which might in that case be seen to be made. This is important, as new competitors would tend to disrupt the situation and endanger the basis of the cooperative strategy.

Table 4.2:

The Characteristics of a Cooperative Strategy

Variability in approach

Basis for competition

Input-output strategy

Little or none

Stable prices and terms of trade

Transformation-control strategy

Little or none

Cost-cutting to increase profits

Environmental orientation

Little or none

Defensive

The Nature of Innovative Strategies The innovative strategy involves the invention of new products or methods of working which allow the elaboration of the interlocking patterns of cycles of production and consumption in which the organization is involved. The kinds of innovation involved, whether technological or social, are those that go further than the straight replacement of old products or systems. This sort of strategy, if successfully implemented, is the one that positively adds to the wealth of the parties to the particular cycles of production and consumption. The essential characteristics of the strategy are shown in Table 4.3. As can be seen from that table, innovative strategies are based on a willingness to bring about change both in internal

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methods of working and in input and output relationships. It is based on an aggressive orientation. However, this orientation is not in some senses a directly competitive one, as its most important characteristic is a determination to change existing exchange relationships by the expansion of existing cycles of production and consumption, or the elaboration of the overall pattern by the introduction of new cycles. This routinely will involve increasing differentiation both within the organization and between the organization and outside agencies. Table 4.3: The Characteristics of an Innovative Strategy

Variability in approach

Basis for competition

Input-output strategy

Great

Building new relationships

Transformation -control strategy

Significant

New methods of working

Environmental orientation

Great

Aggressive

The Nature of Retrenchment Strategies The retrenchment strategy also involves the revision of input and output exchange relationships and the modification of the pattern of production-consumption cycles in which the firm is involved. However, in this case, far from elaborating the pattern, the move is towards curtailment and simplification, normally involving a reduction of both internal and external differentiation. Usually such a strategy is based on an attempt to achieve survival by cost cutting and a focusing on core activities. Its main characteristics are set out in Table 4.4. As can be seen, the main environmental orientation is defensive and the competitive basis for the strategy involves cutting out activities and curtailing relationships with outsiders, particularly suppliers of non-essential goods or services. There will obviously be variability in all three components of strategy, but normally not to anything like the same extent as in the case of an innovative strategy, as generally there will be very much less room for manoeuvre in the likely circumstances in which such a strategy would be adopted.

60 Table 4.4:

Developing a Concept of Strategy The Characteristics of a Retrenchment Strategy

Variability in approach

Basis for competition

Input—output strategy

Significant

Curtailing relationships

Transformation-control strategy

Limited

Cutting out activities

Environmental orientation

Significant

Defensive

Corporate Strategy in the Multi-Business Firm Up to the present, the consideration of different types of strategy has related to single businesses. In the case of many firms, particularly small and medium-sized ones, the business strategy is, in essence, the same as the corporate strategy as the firm is only involved in a single business. However, for a substantial category of firms, particularly including large ones, the development of a corporate strategy is more complex as the individual enterprise is involved in a number of different businesses. In these cases, the component of strategy relating to synergy will be a key factor. If there were no synergistic relationships between the different businesses within a single corporate framework, then the firm involved would tend to be at a competitive disadvantage. This disadvantage would stem from the overhead costs of providing some mechanism, however limited, for the coordination of the different business activities which would not have to be carried by single-business firms in the same markets. The logic behind synergistic benefits for multi-business operations can be varied but must ultimately give some countervailing benefits, at least equivalent to the overhead costs mentioned. The most obvious benefits could stem from a variety of sources which could be summarized under a number of heads: (i) economies of scale due to part of the operation being common — thus the same production facilities could be used for products sold in different markets, or the same selling and distribution organization used for a range of products manufactured separately; (ii) reduction in buying or selling costs for different activities which are vertically integrated; (iii) savings on support functions such as accounting or personnel used

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to service multiple businesses; (iv) economies in advertising and public relations due to the common use of a company or brand name; (v) greater power in dealing with relevant outside agencies relevant to all or most of the company's businesses such as suppliers, customers, trade unions or governments; (vi) the creation of an internal financial market for evening out cash flows and allowing the cross-financing of investments. The ways in which corporate strategies can be developed to make use of synergistic relationships are now well developed, and generally are considered under the heading of portfolio planning or analysis. In terms of the four types of business strategy discussed above, combinations of any or all of them are generally possible, although in reality some combinations are unlikely, and others difficult to sustain. Generally speaking, the more diverse are the different businesses in the corporate portfolio, the greater are the possibilities for mixing different business strategies, although this will depend on the extent of structural integration between them. A fuller discussion of the development of corporate strategies will be left till a later chapter after consideration has been given to a number of other issues particularly relating to the analysis of organizational environments and the problems of risk and uncertainty.

5

ORGANIZATIONAL STRUCTURE AND ORGANIZATIONAL DESIGN

As we have noted already, one major set of decisions which confront management, particularly senior management, in any organization has to do with the design of the structure of the organizational system, or the administrative arrangements by which it is run. Of course, in many ongoing organizational situations, it may not always appear this way. Existing arrangements are often, perhaps all too often, seen as fixed, or at least non-problematic. None the less, whether consciously and systematically considered, or merely inherited and amended in the light of particular circumstances, organizational structures and administrative arrangements are largely the product of conscious decision-making, usually by senior management. Of course, such decision-making is constrained in a whole variety of ways, and subject to negotiation with other interested parties. In the present chapter, an attempt is made to examine the literature on organizational structure and design within the context of the ecological approach suggested. This will be done in an effort to understand both the nature of the issues that must be considered in making design decisions, and also to consider the likely implications of particular structural and administrative arrangements, which may ensue as a consequence of such decisions. The Nature of Organizational Structures All organizations, be they industrial companies, schools or civil service departments are structured. That is to say, there are relatively defined relationships between different personnel, and more or less regularized procedures for carrying out the organization's business. Of course, any social system, such as a community or society, will be structured to some extent. However, in these other cases it would not normally be sensible to talk about the design of such structures, as they reflect a complex working through of economic, political and social relationships and processes. In these processes no party can typically think of attempting a total definition of the system in a sense which would justify the application of the concept of design.

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63

In formal organizations, on the other hand, the nature of the relationships involved, and particularly the authority system, make it possible and realistic for those in positions of authority to attempt to design an overall mode of operation. This is not to suggest that all participants will gladly assist in the execution of such designs, as any manager will be quick to realise. However, it is clear that, within limits, senior personnel can and do set out to define the relationships and procedures with and by which the organization is to function. It follows from the arguments developed in the preceding two chapters that both in theory and in practice senior managers are likely to face three particular problems when they approach the question of organizational design. The specific structure or set of administrative arrangements that are chosen, may be regarded as the blueprint designed to provide solutions to these. The first such problem relates to the most basic issue of finding ways to carry out the senior management's organizational strategy or achieve their chosen targets or, put very simply, get things done. For example, in a car-manufacturing company, some system must be devised in order to ensure that cars are actually designed, produced and sold. Such a system should, hopefully, facilitate the functioning of the company in such a way that it is also able to meet senior management's strategic objectives in terms of such matters as market share, sales volume and profits. As we noted in the previous chapter, organizational design is only one factor in the successful accomplishment of management's strategic objectives, but it may often be a vital one. In terms of the ecological perspective adopted, this problem may be conceptualized as ensuring the continuance of the organization's component of the various production–consumption cycles in which it is involved. The second problem that senior managers face when designing structures is that of control. As has already been noted, control in any organization must always ultimately be regarded as problematic. This will be true, even where the operation of the organizational system has remained smooth over protracted periods. It must be remembered that such things do not happen by chance; rather they occur by design. Obviously the first and second problems are typically closely interlocked. This is true as one of the chief reasons for management's desire for control is to ensure task accomplishment. However, as we noted in the second chapter, strategic objectives can and do change. In many cases such changes occur markedly more frequently than changes in senior management. This being the

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case, it follows that control cannot be seen solely in terms of a means to the end of the accomplishment of strategic objectives. Clearly to some senior managers control itself may be the most important goal. This problem of control relates not just to individual cycles of production and consumption but particularly to the intermeshing of all the various cycles with which the organization is involved. The third problem which confronts managers in their decisionmaking with regard to organizational design is that of cost. There can be no doubting that all organizations function in situations of limited resources. This being the case, the question of costs must always be a relevant one, and will certainly be of great consequence in the typical business firm where profit is nearly always, at least in part, a strategic objective. In terms of the theoretical ideas developed in Chapter 3, an organization's position will obviously tend to be better in terms of long-term survival when the aggregate of its overhead and operating costs is less than the aggregate of value added during the processing of the organization's throughput. This will be very clearly true when this is judged in the pure profit and loss terms of the hypothetical simple business firm which is operating in a pure-market situation. However, it has been argued in Chapter 3 that it will also be the case for other types of organization even though the calculations may be dramatically more complex. It must be appreciated that even in the simplest organizations, structural arrangements will have implications for cost. Indeed, as we have already argued, one of the penalties of coordination or organized activity is that the process of organization itself will incur certain costs, if only in the time and effort spent in coordination. In large organizations the cost of administration can, of course, be very substantial. These three problems influence different organizations in different ways and constrain decision-making to different extents, depending on the market forces and political and economic processes to which the organization is subject. These in turn will reflect the nature of the relationship between the organization and the ecosystem of which it is a part. With these three basic problems in mind, attention will now be turned to a consideration of the nature of organizational structure itself. Clearly organizational structure is a complex phenomenon, which can be viewed in a number of different ways. For most purposes it is useful to consider broad dimensions of structure or strategies of

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design first. This can then be followed by moving on to consider the detailed implications of such structures for individual departments and managers at a later stage. Of course, any such broad approach is in danger of hiding as much as it reveals and hence care must be taken to examine the irregularities as well as the regularities in organizational designs. Bearing in mind such potential pitfalls we will start with a consideration of the broad dimensions of structure that have been considered in organizational analysis. No claim can be made that any particular breakdown of the dimensions of structure is necessarily better than alternatives, but it is possible, by examining the literature in the light of the ideas developed so far, to suggest breakdowns which should be useful, both as ways of assembling and analyzing empirical data in a systematic manner and in guiding the practical process of organizational design. In doing this, attention will be focused on the underlying logic rather than on detailed schemes. Division of Labour We have already noted the critical importance for the development of society of the division of labour. It would also seem certain to have a key role within organizations. The nature of the division of labour within organizations, both between individuals and between departments or sections, is clearly of importance for task accomplishment, for the maintenance of organizational control, and for the level of cost involved in organizational functioning. One critical aspect of this is the basic logic by which such a division of labour proceeds. Perhaps the most common basis is in terms of task or function, such that different persons each perform a limited and specified task. A clear exemplification of this is the typical motorcar assembly line. In that instance, the overall task is split up into a large number of sub-tasks, such as putting on wheels, bumpers, etc., each of which is carried out by an individual worker. A second, relatively common, form of division of labour is based on the product being manufactured or service provided. Thus a company might have a cost clerk for one type of car, and another one for a different type. Under such a system, the clerks would essentially be carrying out the same task or function, but on different products. Alternatively, the split in duties may be based on territory, so that an organization might have a salesman for London, and, say,

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another for Birmingham. In this case each would carry out the same task relating to the same product or service but in a different location. The fourth relatively common rationale behind a division of labour is based on the type of customer to be supplied. Thus there might be an accounts clerk for industrial customers, and a different one carrying out the same task, relating to the same product, in the same place, for retail customers. Undoubtedly, most organizations of any size employ more than one basis for subdividing the variety of work to be performed. Indeed, in some of the largest companies, all the methods mentioned are employed simultaneously in a complex mixture. The logic generally implied in the division of labour is quite simply that, by subdividing tasks, those tasks can be carried out more effectively, by being done better, faster or cheaper. Such benefits can occur for a variety of reasons, such as those associated with the ability of individuals to learn one task more effectively than several, save time by not having to change from one activity or place to another, build up closer relationships with particular customers or be able to use machinery full-time rather than part-time. In theory, at least, increased specialization can aid task accomplishment and cut costs. However, in practice, such benefits may not always be achieved due to a variety of factors, particularly where the division of labour results in very limited, boring jobs. Also, of course, the division of labour creates the need for communication and coordination which may cause difficulties, and will certainly occasion some extra cost. These issues will be further analyzed within the ecological perspective being developed here in Chapter 8. The division of labour in organizations is not just between different parts of the basic productive tasks which need to be carried out. There is also a division of labour between the planning of tasks, the carrying out of tasks and the control of those tasks. This further aspect of the division of labour takes two rather different forms. Most obviously, in any organization, there is some division between operatives on the one hand, and supervisors and managers on the other, that is, between those that basically carry out the directly productive work of the organization, and those who are their hierarchical superiors, who plan, coordinate and control those directly productive activities. However in many organizations, and in virtually all large ones, there is also a lateral division of labour between those functions, such as production and sales, which contribute directly to the task accomplishment of the organization, and

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those functions, such as inspection and accounting which, together with management, help to coordinate and control these former activities. This distribution, which has been described frequently in the management literature, is often referred to simply as the division between line and staff (e.g., Allen, 1956). Often, amongst the socalled staff activities, there are also those functions, such as research and corporate planning, which are responsible for innovation and preparing for the future. The various forms of the division of labour in organizations between individuals as well as between sections, departments and divisions has been conceptualized in a number of different ways, and given rise to a wide variety of nomenclature. Amongst the many terms which have been used to describe aspects of the division of labour, or its organizational manifestations, are functional specialization, role specialization, professionalization, differentiation, departmentalization, divisionalization, number of hierarchical levels and vertical span. In most instances, there has been a variety of different ideas associated with each of these terms and a plethora of different measures used to assess them. This proliferation of terminology, concepts and measures is evidence no doubt of a certain amount of confusion, but also of the complexity of the division-of-labour phenomenon, and its importance for organizational functioning. Why managers opt for one form and extent of division of labour rather than another, and what implications such design decisions have on organizational effectiveness and the attitudes of participants will clearly depend on a large number of factors both organizational and environmental. To these issues we will return later. Coordination Up to the present, in the consideration of dimensions of organization structure, attention has been focused on different aspects of the division of labour. This seemed an appropriate starting point, as some elements of this phenomenon, at the very least, are inherent in the very concept of organization. It is also essential if organizations are to be, in any sense, more effective in purposeful social action than collections of independent individuals. However, at this point, it is necessary to switch attention to the structural mechanisms of coordination in organizations. Clearly, some such mechanisms

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must be designed into organizations, if they are, in any real sense, to be organized and hence survive as social systems. Broadly, in social systems generally, three generic types of mechanism of coordination have been identified. The first depends on exchange relationships regulated by some sort of market forces, and the second depends on some kind of authority system (Williamson, 1975). The third depends on the development of common values and ways of doing things (Ouchi, 1980). All three are obviously mechanisms which allow different forms of power to be channelled, in reasonably stable ways, under particular circumstances. In the organizational setting, the first two would seem to be perhaps the most consequential. Clearly both would seem to be employed by all organizations. However, it is often considered that market transactions characterize the dealings of organizations with their environments, whilst authority relationships characterize the internal workings of organizations. Such a division frequently stems from the way the concepts are defined. For example, Williamson (1975: xi), in the preface to his book on the subject, suggests that 'market transactions involve exchanges between autonomous economic entities' (emphasis added) whereas authority relations, which he refers to as 'hierarchical transactions', are ones for which 'a single administrative entity spans both sides of the transaction, some form of subordination prevails, and, typically, consolidated ownership obtains'. Whilst such analytically pure distinctions may serve some theory-building purposes, they fail to reflect the full complexity of reality. With increased state intervention, and a plethora of regulatory agencies, few if any actors can really be said to be autonomous, and few if any transactions are free of some sort of over-arching legal or administrative constraints. On the other hand, probably no administrative systems are so all-encompassing as to render market forces irrelevant to internal transactions. The contention that will be followed here, and will be reiterated later, when transactions with customers, suppliers and other outside agencies are examined, is that both authority relations and market forces are relevant to both internal organizational coordination, and relationships between organizations and their environments. Indeed, as we have already suggested, within the open-system perspective (e.g., Katz and Kahn, 1966), it is not clear that it is possible to make clear-cut distinctions between internal and external transactions. In the present context, it is suggested that the main internal coordination processes of most, if not all, organizations are based

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on an interactive combination of the dual forces of market exchange relationships and authority systems. From the point of view of the typical organizational employee, the decision to join a particular organization may be regarded as a market transaction. However, it involves, as part of the deal, the acceptance of the organizational authority system. In this respect, there is a difference between the employment relationship and most other contractual transactions relating organizations to outside individuals and agencies. Rather than contracting to carry out specific tasks for a particular amount of money, the employee agrees to allow the employer the power to define the task in accordance with organizational needs, as these develop, in return for some regular form of income (Simon, 1957; Williamson, 1975). This is most clearly illustrated in the pure type of bureaucracy, where the individual accepts a clearly defined authority structure according to set rules and procedures, in exchange for a given salary. In a sense, then, one can see the logic of Williamson's contention that authority relations rather than market forces are the coordinating pressures within organizations. However, the distinction does not take full account of the fact that the acceptance of authority is conditional on the rewarding of compliance. Further, it must follow that the system for allocating rewards in the form of salaries, wages, bonuses, and so on, is an important aspect of the structural arrangements for ensuring coordination. Of course, as was mentioned above, if it is wished to consider the full variety of organizational situations, it must be acknowledged that the compliance of participants is not always ensured on the basis of an instrumental exchange relationship, or a rational–legal authority system. Etzioni (1961) pointed out that the compliance of inmates in prisons and other custodial institutions is ensured by coercive means, and that of acolytes in some religious organizations by moral forces. Although, in some individual employment situations, there may be a partial reliance on either coercion or moral pressures, it none the less remains true that financial remuneration is at the heart of the employment relationship as it has evolved in modern society. The authority system, acceptance of which is a condition of the employment relationship, is essentially bureaucratic in form in any organization. (The elements of bureaucracy were first described by Weber (1946).) This authority depends on the rules and procedures of the organization, and is most clearly institutionalized in the

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hierarchical arrangement of organizational positions or offices into levels of subordination or superordination. The characteristics of the system of coordination stemming from bureaucratic authority have been assessed by organizational researchers using a range of concepts and terminology. Unfortunately, as with the consideration of the division of labour, this has not merely led to a proliferation of names and measures of similar concepts, but in some cases the use of the same term to refer to different concepts. Despite this confusion, it would seem that the most critical elements can be subsumed under three broad headings: (i) bureaucratization; (ii) centralization and (iii) integration. In the Weberian description of the ideal bureaucracy, the prime characteristics are impersonal standardized rules and procedures covering most contingencies, and a system of record-keeping and files to act as a sort of collective memory of organizational actions. These two structural dimensions are referred to as standardization and formalization by the Aston group (Pugh et al., 1968). However, as the term 'formalization' has regularly been used in other senses (e.g., Hage and Aiken, 1969), the more every-day term of 'paperwork' (Blau and Schoenherr, 1971) will be used in its place, even though in the modern electronic age, records may be kept on magnetic tape or discs rather than on paper. Virtually all studies which have examined the relationship between standardization and the extent of paperwork have found that they are very strongly linked (e.g., Pugh et al. (1968) and Child (1971) report correlations of greater than 0.80). Indeed this relationship is so stable and so closely linked to the central elements of the conceptualization of bureaucracy, as described by Weber, that it may be more convenient to refer to the two dimensions collectively as the extent of bureaucratization, as suggested by Mansfield (1973). The second broad element that has been considered by social scientists in assessing aspects of the operation of the organizational authority system, has revolved around considerations of the style and locus of decision-making. Once again, a variety of concepts, terms and measures has been employed. However, the commonest concept, and associated terminology, would seem to refer to the extent of centralization of decision-making (although frequently considered in terms of its diametrical opposite or negative, that is, decentralization of decision-making). The extent to which centralization was part of the original Weberian bureaucratic concept is a matter of considerable dispute. Many writers have stated, or clearly

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implied, that the Weberian notion of bureaucracy incorporates the idea of centralized decision-making (e.g. Hage and Aiken, 1967; Blau and Schoenherr, 1971; Pugh et al., 1968). On the other hand Child (1971) interpreted Weber's analysis quite differently and suggested that it implied a negative relationship between centralization of decision-making and the amount of rules, procedures and paperwork. The inevitable third perspective, that the two aspects of organizational structure were not definitionally or hypothetically related by Weber, was put forward by Mansfield (1973). Child (1971) has suggested that bureaucratization and centralization are evidence of different strategies of control in organizations, and as such should be regarded, if not as opposites, at least as negatively related phenomena. Mansfield (1973: 478) to some extent agrees with this when he suggests that 'it can be argued paradoxically, that the only method by which the directorate in large organizations can retain overall control of the organization's functioning is by decentralizing much of the decision-making within the framework of bureaucratic rules'. However, he goes on to suggest that the relationship is highly contingent on size (and possibly, by implication, other variables). This being the case, the issue will be left until a later point. In terms of the three basic problems for administration suggested above (i.e. task accomplishment, control and cost), then, it seems clear that decisions regarding the extent of bureaucratization and centralization in any given organization are likely to be significantly influenced by all three. However, they are probably made, particularly, in order to solve the second problem of control. Obviously, such decisions may routinely start from a consideration of the problems of achieving task accomplishment, but the solutions will involve using greater or different forms of control. The design decisions made with regard to these particular parameters of structure will also have cost implications. Most obviously, bureaucratic mechanisms of control are expensive in an obvious and direct way, due to the cost of paperwork itself, and, usually more significantly, the salary costs of bureaucratic officials and their clerical assistants. Before leaving the examination of structural dimensions related to the issue of coordination in organizations, it is necessary to consider the third element. That is the range of structural integrative devices, available to organizational designers aiming to coordinate the work of different departments. Lawrence and Lorsch (1967), as a consequence of their major study of differentiation and integration,

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suggested that increasing differentiation between functional departments created the need for enhanced integrative effort. They suggested that reliance on bureaucratic procedures was relatively very limited, in and of itself, as a form of integration. In some rudimentary ordering of structural mechanisms, in terms of the integrative effort involved, they suggested ad hoc meetings, formal committees, liaison officers and whole coordinating departments in that sequence. These, they suggested, would all achieve higher levels of integration than a reliance on hierarchy and procedures alone. Integrative mechanisms are, fairly clearly, going to add to the operating costs of the organizations which adopt them. This will be particularly true where the higher-level mechanisms, such as liaison officers and coordinating departments, are utilized. Clearly, then, the use of such design devices must be aimed at assisting in finding solutions to the first two problems. The trade-off, between gains in those two areas, and the inevitably greater costs involved, will be considered in more detail later. The foregoing discussion has introduced the main dimensions of organizational structures as they are portrayed in the relevant literature, albeit in a much abbreviated form. So far, this has been carried out in terms of global dimensions, although we have already noted the dangers inherent in this. In a later chapter a more detailed analysis will be carried out, involving the analysis of different functional areas, in addition to an extension of the ideas introduced above. For the remainder of the present chapter, attention will be turned to two of the other systemic properties of organizations which are usually closely linked to structure, namely, size and technology. Organizational Size The size of an organization can be assessed in a variety of different ways, although it is likely that, in general, different aspects of size will tend to be closely correlated. For example, the Aston group reported a strong positive correlation (0.78) between the number of employees and the net assets employed in their mixed sample of organizations (Pugh et al., 1969). However, this will clearly not always be the case. In the economic literature, the most commonly employed aspects of size used, both conceptually and in empirical research, relate either to the value of the capital employed by

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the organization or to its annual income. However, organization theorists have very much more frequently adopted the number of employees as the best single indicator of size for comparative purposes. The extent to which these three different aspects of size relate to one another will vary, depending on the type of organization concerned, and the extent to which equipment is used to carry out organizational tasks rather than human labour. Amongst business firms, considerable variation occurs on this latter dimension which is most commonly described in terms of the degree of capital intensity as opposed to labour intensity. There are, of course, also considerable variations within organizations in terms of the extent of labour intensity in different functions. Following Weber, many organization theorists have stressed the importance of size as a predictor (some writers use the term determinant) of organization structure. Weber postulated that the structural charateristics of his conceptualization of bureaucracy, such as a reliance on rules and documentation, would be most prominent among 'greater and more complicated organizations'. Since then, the theoretical arguments and empirical data relating size to a number of aspects of organizational structure have multiplied. The evidence is now such that it has to be accepted that organizational size is one of the major factors which management must consider in making decisions regarding organizational design. Indeed the linkage between size and structure is so close that it would not be unreasonable to consider size as an aspect of structure itself, although conventionally it is not so considered. Clearly decisions with regard to organizational growth or contraction are often taken in conjunction with design decisions. None the less, the obvious closeness of size and structure does not immediately indicate what relationships are to be found empirically between these different parameters of organizational systems. However, it is clear that numerically similar increases in size will be likely to have very different effects depending on the initial size of the organization. Thus the addition of 10 extra personnel would be a highly significant event for an organization which previously had 20 employees; on the other hand it would be scarcely noticeable in an organization which employed 1,000 or more people. For this reason most researchers have used the logarithm of the number of employees in most analyses of the relationships between size and dimensions of organizational structure. Examination of the results of the many research studies that

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have studied these relationships reveals a picture of rather greater consistency than that found in many areas of social science, although there is no complete uniformity of findings. Generally, as organizations become larger they seem to have a more elaborated division of labour. This seems to be true, in most cases, irrespective of which aspect of the concept of the division of labour is considered. Clearly, then, the empirical evidence shows that organizational size will normally be strongly positively related to the extent of functional specialization, role specialization, divisionalization, departmental differentiation, number of hierarchical levels as well as other aspects of the division of labour. These findings are not difficult to understand as there would seem to be a variety of reasons for expecting these sorts of relationship. First, it has been argued that one of the economies of scale which can be gained by larger organizations generally, is the ability to have a greater degree of specialization, and indeed to engage experts who could not be economically employed by smaller concerns (Florence, 1953; Starbuck, 1965). At the same time as an organization gets larger, it must obviously contain larger departments or more departments or both. As in many cases it is believed that departments which are too large are difficult to manage and bad for morale, there is likely to be a strong tendency to multiply departments to avoid their average size escalating to too great an extent (Blau, 1971). In the largest companies, the pressure to divisionalize also becomes considerable, as the work of Chandler (1962) and Franko (1974) suggests. However, the processes they describe depend not on size alone but also on pressures stemming from aspects of strategy and the extent of competition in the environment. The studies quoted and many others make it clear that larger organizations will typically be more subdivided in every way than small ones. Taken together, these arguments clearly suggest that advantages accrue from an increased division of labour but that such a development depends on the availability of resources within an organization. The relationships between organizational size and various aspects of the division of labour by no means exhaust the strong relationships consistently found between size and different dimensions of structure. If anything, even stronger relationships are found between the extent of bureaucratization and size (e.g., Pugh et al., 1969; Blau and Schoenherr, 1971; Child, 1973). Without doubt, the strength of this relationship is at least partly attributable to the inevitable breakdown of any system of control based on personal relationships

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as organizations become progressively larger. At the same time there would seem to be a tendency (empirical results suggest that it is a relatively weak one (e.g., Pugh et al., 1969)) for larger organizations to be more decentralized. Such relationships are not surprising when the nature of the problems confronted by management in organizations of different sizes are considered. This is particularly true with regard to the second key problem for senior management of retaining control of organizational operations. In small organizations, personal forms of control are possible and are likely to be cheap and efficient. Thus it is not surprising to find many small organizations characterized by centralized decisionmaking and relatively little bureaucracy. They have what might be described as an entrepreneurial form of management, often relying on a single manager or a small group of managers. In addition, considerations of cost tend to preclude the employment of many specialists, except possibly in production or sales. In large organizations, on the other hand, the number of decisions to be made will typically increase, forcing some measure of decentralization. At the same time, some form of impersonal control, communication and record-keeping becomes essential in order to cope with the various problems associated with increased size. Such considerations led Child (1971) to argue that managers must make a fundamental choice in terms of strategies of control between bureaucratic, decentralized control aided by the employment of staff specialists on the one hand, and personal, centralized, non-bureaucratic control on the other hand. The latter method is likely to have considerable benefits in terms of low costs of administration, but is unlikely to provide effective coordination in large organizations. This general theory is compatible with Chandler's (1962) finding that as firms grow, they tend to move from an initial stage based on a single product or a very limited range of products or services, when administration is generally entrepreneurial in character, to a second stage characterized by increased bureaucracy and more decentralized decision-making. Technology The choice of technology is clearly another of the key areas of decision-making in many organizations. It is also probably the area of organizational life which has shown the greatest change over the

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years. In the main, attention has been focused on the operating technology, that is, the technology employed in the production or operating area of an organization. This was, to a large extent a reflection of the fact that, until recently, most organizational uses of the fruits of technological development occurred in this function. However, with the advent of the computer and, more recently, advances in new information technology this has changed significantly. These advances, most commonly based on the silicon chip, mean that the use and direct implications of technology have pervaded almost all areas of organizational functioning. The influence of technology upon organizational structure has been one of the most contentious areas of discussion in the research literature. Woodward (1965) and Zwerman (1970), among others have reported findings suggesting that technology has a very strong influence upon structure. In their results, this is particularly marked in relation to variables depicting features of the 'shape' of the organization such as span of control and numbers of hierarchical levels. In addition, writers such as Thompson (1967) and Perrow (1970) have argued on theoretical grounds that technology has a significant effect on structure. However, other research (e.g., Hickson et al., 1969; Child and Mansfield, 1972) revealed only limited relationships between technology and structure. These relationships tended to be pronounced only in the case of those aspects of structure closely linked to the production work-flow. However Child and Mansfield's study did show that the effect of technology was greater in small companies. In a later study carried out by Dewar and Hage (1978), a longitudinal approach was adopted and the results tended to confirm both that there are clearly links between technology and structure, but also that the size of this interaction was limited. However, it must be noted that most studies have taken a somewhat limited view of technology, and have tended to consider samples of organizations at roughly the same stage of technological development. These two factors have probably led to the role of technology being underestimated. If this idea is pursued, and a broad view of the evolution of technology and associated organizational processes is considered, it is possible, following the work of Sorge et al. (1983), to suggest a number of general trends which have been widely observed in work organizations. Thus, there has tended to be an increase in: (1)

Mechanization of work leading to the replacement of human

Organizational Structure and Design (2) (3)

(4)

(5)

(6) (7)

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effort by machines and technical systems. Automation of work leading to the replacement of human thinking and control by machines and technical systems. Capital intensity leading to a partial replacement of labour costs by investment in machines and technical systems, and most obviously by a shift in the balance of expenditure, thus decreasing the percentage spent on wages and salaries. Division of labour between different functional activities. This is seen both between different personnel involved directly in the production process, and between production activities and control, support and other staff activities. Polarization of skills leading to a very sharp and significant gap in the skills, experience and qualifications between largely semi-skilled operatives and the frequently highly technically skilled design, control and maintenance personnel. Centralization of decision-making relating to operating decisions as increasingly the discretion of operatives has been removed to higher levels or to specialist support staff. Bureaucratization of production with increasing use of plans and schedules.

These trends can, in large measure, be explained in terms of dealing with the problems of task accomplishment and cost control or reduction in a competitive market situation. In this context, it would seem that the problem of maintaining managerial control is largely a secondary one, the solution to which is instrumental in finding satisfactory solutions to the other two problems. Of course, the general patterns of change suggested above have not occurred uniformly in all organizations, and indeed there are clearly cases where developments have gone against the prevailing trend. In addition to size and technology many other factors have been suggested to influence the design of organizational structures and administrative systems, most particularly strategy and aspects of the organizational environment. With this in mind, it will be convenient if we turn in the next chapter to a consideration of the nature of the environment in which organizations operate and the relationship between this and the way in which they function.

6

THE ORGANIZATIONAL ENVIRONMENT

As has already been made clear, there can be no doubt that the managers of organizations have to take account of the environment in which their organization operates, both when formulating strategy and when designing structures. The nature of the relationships may be less than clear, but there can little doubt that some relationships do exist, although they are almost certainly more complex than those suggested by the simpler versions of contingency theory. In its most general sense, the environment of any organization consists of everything outside its boundaries. However, it is clearly the case that only a relatively few of these externalities can ever be relevant in any direct sense. None the less, even those subsections of the overall environment, which are directly relevant to any organization, create great problems of comprehension due to their sheer complexity. Examination of the relevant literature suggests that there have been three basic types of approach to the problem of describing and analyzing organizational environments. The first, which has largely been utilized by economists, has conceptualized the various environmental sectors, with which the organization relates, in terms of markets. The second approach, which has been most frequently adopted by students of organizational behaviour, has largely relied on the definition and consideration of a limited number of global dimensions of the environment, such as uncertainty or complexity. Some attempts have been made to combine these two approaches (e.g. Pfeffer and Leblici, 1973; Negandhi and Reimann, 1973), but typically in a very limited way. The third approach is based on the analysis of networks of organizations often described as 'organization sets' (Evan, 1966). Environmental Markets There can be no doubt that organizations of all sorts are routinely involved in market transactions. That is to say that organizations, their members or their agents, buy and sell a variety of goods and/ 78

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or services normally on a fairly regular basis. This would seem to be particularly true for business firms for which nearly all input and output relationships involve relatively direct payment in one direction or another. This being the case, it seems a logical development to conceptualize the environment of the business firm in terms of markets. Although the emphasis of such analyses tends to be on the marketplace in which the firm disposes of its goods or services, it is clearly the case that it is also involved in other markets where it purchases equipment, raw materials, etc. It is normally also involved in labour markets and often in capital markets in order to hire employees and acquire finance. Following on from this, there can be little doubt that organizations in general, and business firms in particular, are parties to the supply and demand forces that determine market parameters. Scarcely surprisingly, it is clear that certain elements of the behaviour of business firms can be explained in terms of organization-environment transactions of an exclusively marketplace type, as is suggested by conventional versions of economic theories of the firm (for a discussion of these, see Cohen and Cyert, 1965). There can be no doubting the power of certain forms of economic analysis or their relevance to the subject in question. However, it is clear that there are certain difficulties and shortcomings associated with the economist's approach. Clearly, early analyses of organizational or business firm environments in terms of markets were based on the assumptions of perfect competition, and were mainly carried out in order to reach conclusions at a higher-order level of analysis. In the main, the focus was on developing an understanding of general market behaviour with particular reference to the way in which the forces of supply and demand led to the determination of price levels. Certainly such approaches told us very little about the behaviour of real organizations, as they largely assumed out of existence the problems addressed in the present work. Under perfect competition it is axiomatic that all entrants will attempt to maximize their economic utility function (that is quite simply to say that business firms will attempt to maximize profits). The nature of market forces in such a hypothetical system is such that the concept of strategy has no meaning as firms can do no more than react in ways dictated by such market forces. At the same time, the problem of organizational design virtually disappears in such an analysis, as the firm is assumed to make and implement decisions in a completely unitary way

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(exactly like a single individual). In an effort to understand rather better the workings of real market situations, industries and even individual business firms, economists have made increasingly sophisticated and realistic assumptions about the nature of organizations and the environments in which they operate. As a consequence of these developments, more and more attention has been paid to imperfections in pure competition associated with monopoly, oligopoly, advertising, trade unions and a variety of other forces. At the same time, behavioural and managerial theories of the firm have been suggested (e.g., Cyert and March, 1963; Marris, 1965) in order to approximate the market-oriented behaviour of real business firms. Despite the various advances in economic analysis they still fail to capture the full complexities of organizational environments due to the relatively large number of non-market mechanisms which appear to be operating. It is also the case that, in the main, the more advanced theoretical ideas have not been tested empirically, and that economists have disproportionately tended to take whole industries as units of analysis rather than individual business firms, with the consequence that their findings are more likely to inform policy-making at national rather than company level. Global Environmental Dimensions As was suggested above, students of organizational behaviour have tended to view organizational environments and organization– environment interactions in terms of a limited number of dimensions of the whole environment within which an organization operates. Thus, for example, the environment may be characterized in terms of its overall uncertainty, its overall stability or its overall complexity. Although some theoretical works have considered as many as seven different dimensions simultaneously (e.g., Aldrich, 1972), most have concentrated on two or three (e.g., Thompson, 1967; Child, 1972). This tendency to view the environment in such a limited way is particularly apparent in empirical studies. In many of these the environment is not only conceptualized in terms of one of two dimensions, but the operational measures of these dimensions are exceedingly limited (e.g., Lawrence and Lorsch, 1967; Osborn and Hunt, 1974). Although such approaches when employed in largescale, or relatively large-scale, comparative research may well lead to useful conclusions about the nature of organization – environment

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relationships, it must be admitted that they, at best, give only a very simple, general picture of a very complex phenomenon. There would seem to be three key issues relevant to this general approach which must be considered if its utility or potential utility is to be evaluated. The first of these relates to the question of which are the most appropriate dimensions along which to attempt to represent the varying parameters of different organizational environments. The second issue relates to the question of how many conceptual dimensions are required to provide any meaningful representation of an organization's environment. The third issue is of a rather different sort and involves the problem of the extent to which organizational environments can be viewed in global terms at all. The most obvious alternative would be to represent different environmental sectors along a number of dimensions separately for each sector. Different theorists and empirical researchers have taken rather different views of the answers to these questions. They have tended to use a variety of concepts and differing numbers of concepts of environmental dimensions in different combinations. Amongst these diferent concepts there are clear similarities and linkages as well as a certain variety. Early researchers such as Burns and Stalker (1966) and Lawrence and Lorsch (1967) put particular stress on the level of uncertainty in the environment. Thompson (1967), in his very influential book, characterized organisational environments in terms of the degree of homogeneity and the extent of stability. Child (1972) suggested a three-dimensional approach based on the extent of stability, complexity and liberality. In the same year Aldrich (1972) went so far as to suggest seven dimensions for the representation of organizational environments. He suggested that these varied in terms of stability, concentration, richness of capacity, domain consensus, homogeneity, turbulence and mutability. Since then a variety of different writers have taken a variety of different views without any clear consensus emerging either as to the most appropriate conceptual dimensions, or as to the number of dimensions required to provide any representative view of organizational environments. There is probably some sense in the idea that there are no correct answers to the two questions discussed above. However, within any particular theoretical perspective the issues may become clearer-cut. With this in mind it is worth paying particular attention to the work of Aldrich and Mindlin (1976). They suggested that in theoretical approaches to the understanding of organization-environment inter-

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action two main perspectives have emerged. The first, they argue, largely centres on the organizational requirement to acquire resources from the environment in order for the organization in question to survive and continue to function. The second relates to the organizational need for information and/or knowledge from and about the environment in order to control the nature of the interaction. Within the first perspective the most commonly used concept, according to the Aldrich and Mindlin argument, is that of dependence, whilst within the second, the concept most frequently employed is that of uncertainty. These two theoretical perspectives have certainly been frequently employed in organizational research, and would seem to be highly compatible in their essentials, giving in combination a potentially full picture of organization–environment interaction. Certainly if one views such interaction in terms of crossboundary flows, then it would seem to be true that if one can develop a framework to encompass flows of resources and information (leaving aside for the moment the question of whether information should be regarded as a resource), then it could be reasonably argued that such a framework has a degree of completeness. The combination of the two perspectives identified by Aldrich and Mindlin, therefore, would seem to offer good possibilities for an understanding of organizational environments and their interactions with the organizations they surround. It must be argued, however, that it is a very different thing to accept that the resource–dependency and information-uncertainty perspectives provide a good starting point, than to agree that organizational environments or organization–environment interactions can be understood just in terms of the concepts of dependence and uncertainty. After all, it would seem difficult to argue that environmentally influenced problems relating to the flow of resources into and out of an organization can all be subsumed under the notion of dependence, any more than all issues relating to the input and output of information can be conceptually analyzed under the heading of uncertainty. It would seem clear that considerably more than two dimensions will be required, although it may well be useful to develop these within the joint theoretical perspectives identified by Aldrich and Mindlin. However, before examining further the nature of the conceptual dimensions of organizational environments which would be required for the development of a more comprehensive theory of company strategy and organizational design, it is necessary to return to the third issue raised above.

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This, it will be recollected, related to the extent to which it may be valid to conceptualize organizational environments in terms of global dimensions at all, as opposed to dimensions relating to particular environmental sectors. Before examining this problem in conceptual terms, it is worth making the point that there is no evidence that managers take a global view of their environment. Rather, it would seem clear that managers considering the marketplace in which they sell their products and the nature of their relationships with customers, do not usually try to think of this as part of the same domain as their relationships with trade unions. Indeed in most large organizations it is only at the topmost policymaking level that these things come together. In operational terms, these issues are typically dealt with by different departments under different managers. Thus, for example, the typical industrial relations officer or personnel manager would be likely to be taken aback if asked his opinion on the nature of the selling environment. On the face of it, then, it would seem that the idea of global dimensions is likely to make little sense to managers. Examination of any of the theoretical perspectives focusing on the functioning of organizations and the ways in which they relate to their environments also fails to suggest any obvious theoretical rationale for the global approach to the study of environmental dimensions. In empirical research a relatively large number of researchers have attempted assessments of global dimensions, but the likelihood is that the results obtained as a consequence may have been more confusing than enlightening. Certainly in the area of dependence, Wheeler et al. (1980) found that dependence on owners and dependence on customers related rather differently to a number of structural parameters. Indeed in some cases, the relationships found were significantly in opposite directions. Their results appeared to provide strong support for the view that assessments of the dimensions of organizational environments should be disaggregated and the concepts and measures applied separately to different environmental sectors. This view has also been endorsed strongly by Mindlin and Aldrich (1975), who argued (again with regard to the concept of dependence) that the failure to discriminate between different types of dependence is the root cause of the confused state of the relevant literature.

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Organization Sets The third approach to the study of organizational environments has often been referred to as inter-organizational analysis. Most commonly this has involved the study of networks of organizations. In this context Evan (1966) has developed the concept of the 'organization set'. This concept refers to a focal organization and all the other organizations with which it has relationships. Although many of these relationships are mediated by market mechanisms, the emphasis in his work was on the variety of non-market factors which influence such organizational networks. The work of Evan and others (e.g., Pfeffer, 1976; Miles et al., 1974) drew attention to the way that the organizational environment is affected by such phenomena as the flow of personnel between organizations, interlocking directorships, legal and quasi-legal factors, long-term contracts, mergers and acquisitions and third-party organizations such as trade associations and government agencies. The importance of this approach to the study of organization– environment relationships lies in its emphasis on the fact that there is no clear boundary around the typical organization. Such analyses conceptualize individual organizations as parts of larger social systems, and draw attention to the number and variety of the linkages that hold such larger systems together. It is also clear from the research carried out within this general framework that these linkages occur at a variety of hierarchical levels, and that some might be reasonably said to be a consequence of deliberate organizational strategies initiated by senior managers in the focal organization. Other linkages occur due to the behaviour of lower-level personnel, not always acting in pursuit of organizational strategic objectives. Still others are 'forced' on the organization by the actions of outside organizations with the political or economic power to do so. In many ways this third approach is closest to the ideas developed here but in many cases there has been insufficient emphasis on developing an overall theoretical perspective within which such networks can be analyzed. In the remainder of this chapter an attempt will be made to bring together ideas from the three different approaches to the study of organizational environments within the essentially ecological framework suggested earlier.

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The Environment in Ecological Terms As has already been suggested, the ecological approach emphasizes the way in which any particular system, whether organism or organization, depends on its environment for the input of the resources needed for it to survive and prosper. At the same time the outputs of the system provide the resources for other systems' inputs. An organization's environment can therefore be conceptualized in terms of (i) a series of sources (or suppliers) or potential sources of resources of all sorts; (ii) a series of actual or potential demanders of resources of all sorts; (iii) the flows of resources between sources and demanders; (iv) the systems of costs and constraints on the flow of resources; and (v) information concerning actual or potential resources, flows of resources and mechanisms for transferring and transforming resources. Clearly the environment seen in these terms cannot be said to have a separate existence from that of the organization itself as many aspects of it would almost certainly be different if the organization did not exist. Obviously, under normal conditions, the larger the focal organization the greater will be the influence it has on the environment. For example, in the car industry many component suppliers and car dealerships owe their existence to a particular large car manufacturer. At the same time it must, of course, be the case that the focal organization is only one amongst a very large number of influences on the shape of its environment. It can be seen that this perspective builds on all three of the approaches to the study of organizational environments briefly sketched out above. It most clearly relates to that approach which analyzes the situation in terms of networks in that it clearly relies on the idea that the organization and its environment are part of a larger system. However, as the flow of resources into and out of organizations in modern society is typically based on exchange relationships, it also incorporates aspects of the analysis of organization-environment interactions in terms of markets, although it does not make the sorts of assumption required by some of the more classical economic analyses. At the same time many of the concepts used in the study of global dimensions of environments are clearly relevant to this more integrated approach. In particular, concepts such as those of dependence, uncertainty and stability can be applied to the ecological view of organization–environment interaction.

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The organization–environment interaction can be examined in a number of different ways within the ecological perspective adopted, depending on whether a narrow or wide-ranging approach is adopted and also depending on whether a static or dynamic view is taken. It may be useful to start our consideration by taking a narrow static view of the organization's environment and then widening the perspective and finally concluding the chapter by trying to develop a more dynamic approach. Mapping the Immediate Environment The immediate environment of a businessfirmor indeed any organization can be defined and mapped in terms of the totality of its relationships with individuals, groups and organizations which are wholly or partly external to it. The most obvious relationships with which to start the mapping process are those that involve the flow of money, goods, services or information into or out of the organization. In the case of business firms, the large majority of such relationships can be characterized as exchange relationships, in that they involve flows in both directions. In general terms, the flows in the different directions are balanced in terms of some rate of exchange or price. These various exchange relationships are not, however, all of the same type. They can be considered as ranged on a continuum depending on the extent to which the exchange element of the relationships is supplemented by legal and administrative ties. At one extreme is the pure exchange-based relationship, exemplified by the casual shopper who calls in at an unknown supermarket and buys a small number of items, pays cash for them and leaves. However, many relationships between companies and customers or suppliers are often substantially more complex than this. Many involve contracts covering multiple transactions operating over protracted periods of time. Some, such as certain sorts of franchise arrangement can involve one party gaining considerable administrative control over the other as part of the deal. Generally, however, it is in exchange relationships associated with ownership and employment that the greatest additional elements occur. We have already noted in Chapter 5 that the normal contract of employment is not for specific services, but rather involves a generalized preparedness on the part of the employee to carry out

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a reasonable range of activities and be subject to the employing organization's authority system. This is true to such an extent that employees are routinely regarded as organizational members. Also their behaviour whilst carrying out their organizational employee role is typically seen as internal, even though their behaviour in other roles would not be. The ownership relationship is in many analytical senses unique. Typically in solely financial terms, ownership involves providing sums of money at one point in time (capital) which can be used beneficially by the organization with the owner having a view to receiving financial outputs on a regular future basis (dividends) or alternatively retrieving the capital (hopefully enhanced) at a later date or both. Clearly this description is oversimplified, but it lays out the financial essence of the relationship. However, investing in an organization usually involves not just gaining a legal title to a part of the organization but, in concert with any other owners, obtaining the right to take control of the organization. This is not the place to discuss the extent to which owners in reality control different types of company, but the points made are important and have considerable potential strategic significance, as will be demonstrated later. Organizations also have relationships, where the exchange element is limited or even non-existent with a variety of bodies such as regulatory agencies and licensing authorities. It is perhaps true that if one examines the relationship between a company and the totality of government, government agencies and other public sector bodies, it might be argued that these form a complex exchange relationship but that can only be true if one includes many aspects of the environment substantially distant from the firm. With this in mind it may be useful at this stage to widen our attention by considering the organization's place in the overall ecosystem. The Ecosystem as Environment As was discussed in Chapter 3, the key to the analytic approach adopted here is to examine organizations in terms of the cycles of production and consumption of which their activities are a part. These various cycles will interlock with other such cycles to form an overall complex system, in ecological analysis referred to as an ecosystem. Although in the previous section it was suggested that

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the organization's immediate environment could be mapped entirely in terms of outside individuals, groups and organizations with which it had relationships, such an approach is both very limited and essentially static. In order to move beyond that, it is necessary to extend the mapping process outwards through the various immediate partners with which the organization has relationships, and examine the various production-consumption cycles in which the firm is involved in their entirety. It is only by examining the full cycles of production and consumption that the full nature of the business in which an organization is involved can be appreciated. One very simple example may help to illustrate this point. If the sales of a car manufacturer are considered, the mapping of that sector of the organization's environment would reveal (at least for the most part) a series of exchange relationships with car dealers. If we continue further along that cycle we would find a very substantial number of companies buying cars from the dealers, often in significant numbers. These cars would then be used by a variety of employees of the companies, at least partly in connection with their employment. The dealers would also be selling cars to individual members of the public usually for their own or their family's use. Irrespective of whether they are sold to companies or members of the public, a large majority of those cars will be offered for sale again after having been used for a period. In some cases these will be offered back to dealers in part exchange for new cars of later manufacture. Hopefully it is not necessary to pursue the matter further in order to make it clear that the car manufacturer's strategy must take account of these more distant parts of the production–consumption cycles rather than just the immediate parties (that is, those in direct contact) within its environment. When the environment is examined in these terms then the concepts that may be employed to characterize it, change their referents. In essence, the problem is no longer to describe the focal organization's relationship with particular outside organizations or agencies or the general parameters of some ill-defined and all-pervasive external situation. Rather it becomes a question of attempting to describe (i) the nature of each of the particular cycles of production and consumption in which the organization is involved; (ii) the position of the organization in each of the cycles; and (iii) the nature of the external interconnections between cycles. In order to consider the most appropriate ways in which this can be done, it may be useful to return to the motor manufacturer

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example considered briefly above. In order to consider the key issues within the space available here, it will be necessary to retain a very substantially simplified account. With that important proviso, the main elements of the main production and consumption cycle are laid out in Figure 6.1 here. From that figure it can be seen that the cycle starts with the extraction of iron ore by a mining company. The iron ore is transported to a steel company which first produces molten iron from the iron ore (and other necessary raw materials and energy sources). This molten iron, together with scrap steel, provides the main ingredients for the steel-making furnaces. The output from these furnaces may be cast into ingots and then rolled in a series of rolling mills down to sheet steel. The sheet steel produced by the steel company would then be sold to the car manufacturer who would use it to make pressings for body shells. In the assembly process these body shells, after suitable treatment and painting, would be assembled together with a multitude of other components to form a complete motor car. This, then, brings one to the point in the cycle described earlier, where the cars pass from the manufacturer to dealers and from dealers either to companies for use by employees or to individual members of the public. After use, it was noted above that many will be resold for further use, either direct to a member of the public or through a dealer. Eventually, after use by a number of owners and others, by one means or another the car will reach the end of its useful life and probably be sold for its relatively small scrap value to a scrap merchant. The latter will probably resell the steel bulk of the old car to a steelworks which will feed it into a steel furnace. And so, at least one part of the total pattern of cycles is complete. As an aside, at this point, it may be worth making one or two general points before returning to the question of the appropriate mode of description of the cycle described above. First, it must be clear that, even though the overall reality of the industries in question has been presented in a very oversimplified form in Figure 6.1, none the less the pattern is complex, with a very large number of cycles interlocking at different points, in different ways. Second, it should be noted that the overall cycle is inefficient, in the sense that it is subject to huge losses due to the irreversibility of the processes involved. In other words one could not remotely expect to go on producing cars by a process of recycling. Apart from the heavy human and energy costs involved, it is clear that there will be many other losses of different magnitudes. Hence, it follows that, given

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Figure 6.1: The Main Production and Consumption Cycle in Car Manufacturing

IRON ORE

Labour

MINING COMPANY

Resources Energy

Labour

STEELWORKS

Resources Energy

Sheet

Steel

CAR MANUFACTURER

Labour

Resources Energy

New Cars

Labour

Resources Energy

DEALERS

Old Cars

INDIVIDUAL CUSTOMERS

Old and New Cars

New Cars

Old Cars

Old Cars

ORGANISATIONAL CUSTOMERS

Scrap Cars

Scrap Cars

Labour Scrap

SCRAP DEALERS Resources Energy

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present-day technology, methods of organization and political and economic forces, cars can only continue to be produced at the cost of a substantial net depletion of world (mineral) resources. In other words the various individuals and organizations can only continue to operate in this way whilst resources remain available. Having made these general points, it is appropriate to return to the main issues which we are considering in this chapter. One of the ways in which the production–consumption cycle outlined above can be characterized is by the number of stages involved in a complete cycle, and a second way is by the number of organizations or agencies carrying out these stages in total. The first of these parameters gives some indication of the technical complexity involved, whilst the second indicates the number of parties who have a vested interest in the continuation of such processes. The ratio of these two parameters gives an indication of the extent of vertical integration in the cycle. However, with respect to the second of these characteristics there are differences between various of the parties in that the organizational participants would be involved on a regular basis demanding the production and consumption of many cars, whereas the individual buyers would typically be involved only once in a fairly lengthy period. This brings us to the third characteristic which relates to the extent to which the participants are unique or monopolistic in terms of their contribution to such cycles. In the instance described there are a number of car manufacturers using sheet steel of approximately similar specification to make comparable cars. Similarly there are a number of steel companies manufacturing sheet steel from iron ore and scrap. There are very many car dealers, even more customers for new and secondhand cars, both organizational and individual, and also a substantial number of scrap merchants. In some other cycles of production and consumption this situation could be markedly different with either more or less parties to each stage of a cycle. Given the presence of multiple parties participating at each stage of such cycles it might be thought that conventional economic market analysis would provide a suitable way of understanding the various transactions. However, such an analysis would be very incomplete and potentially misleading. This is the case as many of the transactions involve substantially more than simple financial transactions. This can perhaps be best illustrated by briefly considering the relationships between car manufacturers and dealers. There is some variation, but generally particular dealers are tied, by various

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forms of contract, to particular manufacturers, and the nature of the relationship involves a great deal more than a simple buying and selling contract. If one mapped out all the different cycles in which a particular organization was involved in the terms suggested above then a complete picture of that organization's environment would emerge. This overall view would provide a basis on which to examine the potential for change in the organization's situation, whether initiated from outside or by the organization itself. It allows a better analysis of the organization's resource position than that which would stem from simply examining the direct relationships in which the organization is involved, and widens the basis for the assessment of such concepts as dependence, degree of competition and environmental uncertainty which can more usefully be assessed in terms of the whole production–consumption cycle rather than the immediate environment. These issues will be returned to in Chapters 9 and 11 when they will be considered in terms of the development of total strategies for dealing with the environment.

7

THE DECISION-MAKING PROCESSES INVOLVED

In all considerations of organizational design and strategy formulation it is essential that sight is not lost of the human decisionmaking processes involved. No matter what other factors may be related to the various parameters of strategy and structure, and no matter what constraints may operate, it is clear that the underlying organizational processes involve individual or group decision-making. This being the case, it is useful now to focus attention on these processes by which such strategies and structures are created or designed. Although there is clear evidence, which will be considered later, that the decision-making processes involved are not wholly rational, it may be worth commencing our considerations by outlining a rational model of decision-making. This will be followed by an examination of some of the factors which are likely to operate in a way which limits or bounds the extent of rationality which can apply. The first stage of a rational model of decision-making would typically involve a thorough and precise specification of the problem. The second stage would consist of the process of generating all the various alternative solutions to the problem specified in the first stage. This would be followed by the third stage, involving an assessment of all the implications of the various alternative solutions. This assessment would be based on a consideration of all the undesirable and unintended consequences of the various possibilities, as well as the more obvious examination of the intended and desired results. The fourth stage of the process involves the attachment of values to the various outcomes, that is, the evaluation of the different alternatives. This would be followed by the fifth and final stage which would encompass the actual decision, that is, the choice of a particular alternative. The problem with the rational model of decision-making when applied to the formulation of organizational strategies or the design of organizational structures is, as Lindblom (1959) put it, that it is 'of course impossible'. The reasons for this will be examined below. However, before doing this, it is worth making the point that by arguing that the decision-making proceses involved in the develop-

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ment of strategies and the design of organizational structures are not and cannot be wholly rational, in no way implies that they are wholly irrational. What is suggested is that the ability of decisionmakers to act in a wholly rational manner by entirely logically aligning means and ends will inevitably be limited. The difficulties in following the rational model can best be understood if we retrace it stage by stage. The successful completion of the first stage has been stated to depend on the full and appropriate specification of the problem. In the organizational situation it could be suggested that the basic problem which occasions the development of strategies can be stated in general terms as the need to achieve the organization's goals within a series of constraints. It follows from this that the problem can only be stated with precision if the organization's goals are equally capable of clear definition. However, for all the reasons elucidated in Chapter 2, this will not be possible in the majority of instances. Organizational structures and systems of administration may reasonably be regarded as mechanisms to aid the implementation of organizational strategies. If this is accepted it follows that the basic problem to which organizational design decisions are a response can be stated generally as the need to carry out strategies subject to certain constraints. In many organizations, we have argued, even where goals are vague and ill-defined, strategies are clearly enunciated. Hence, where that is the case there may be some possibility of at least a reasonable definition of the problem. However, it must not be forgotten that there are many organizations where strategies are limited or unclear, and indeed many where no strategies have been consciously developed at all. In these cases again the processes involved in the first stage of the rational model of decision-making will not be capable of execution. As was outlined above, the second stage consists of the enunciation of all the possible solutions to the problem. The size, complexity and sheer impossibility of such a task when considered in the case of strategic decision-making for a large multinational conglomerate company seem obvious. In fact there are very few problems, other than those which are artificially constrained, where it is possible both to list every alternative solution and to be certain one has done so. Normally one can never be sure that fresh thinking, or a different mind applied to the problem, will not lead to new, and possibly better, suggestions. The processes involved in this stage, then, would seem to be difficult to carry out fully in the general

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case. However, they are typically going to be very much more difficult than normal where complex strategic or design decisions are being considered. The problems associated with generating a full set of alternatives and also with analyzing their implications are substantially aggravated by the human inability to treat ideas with a total lack of emotional affect. Put simply, people become emotionally attached to ideas, particularly where they are responsible for putting them forward or have worked on them, and hence become psychologically committed to them. In the third stage of the rational decision-making process model the full implications of each of the suggested alternatives should be examined. In reality, this will rarely, if ever, be fully possible due to lack of knowledge or information. This lack of knowledge creates uncertainty. In this context two types of uncertainty can be distinguished. First, there is the uncertainty which could be eliminated by means which are known or understood. Thus, for example, if decisions regarding the pricing of a new product are involved, information about consumer reactions to different price levels could be ascertained by market research. Alternatively in an engineering problem, experiments could often be carried out in order to determine the answers to particular questions. Of course, the fact that one knows how to obtain additional information that would assist the decision-making process, does not mean one does it. Indeed, in many circumstances it would be little short of foolish to attempt to do so. The reasons for this are that obtaining information virtually always costs money, takes time and uses manpower. There will be many circumstances where it is impossible to obtain information as one or more of these resources is unavailable, or at least not sufficiently available. Even where they are available, it may be that the costs involved are judged to outweigh the foreseeable benefits. The second category of uncertainty, in a sense, poses a more fundamental problem. This second form of uncertainty, or ignorance, stems from a lack of knowledge or information where, given the present state of science or human knowledge generally, there is no known way of collecting the information required to reduce substantially the uncertainty. Perhaps the most obvious and far reaching uncertainty of this latter type relates to the pattern of future events. In this area it is clear that we are currently very bad at forecasting the future. Despite substantial resources, in money and manpower, being devoted every year to economic forecasting

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by governments and large corporations, the forecasts obtained are rarely wholly accurate and often seriously in error. These errors are often noticeable in relatively short-term forecasts, but are even more likely, and will typically be larger, in long-term forecasts. When it is reckoned that, in many industries, the time-scales involved in making strategic investments have to be measured in years or even decades, the extent of the likely uncertainty involved can be realised. After all, the planning and building of a large plant may itself take several years. Added to this, such a plant will typically have to operate at something like full capacity for many years in order to make the initial investment profitable. The fourth stage of the rational decision-making process also involves considerable problems. If values are to be put on the various alternative outcomes in a way which makes their comparative evaluation possible, it is necessary that these should be capable of reduction to a single unidimensional set of figures. Although in the business world there is a tendency to try to make such evaluations in terms of money, this itself only goes part of the way, unless the organization in question has a single unidimensional goal. Where the typical business firm has multiple strategic objectives, many of which are not very precisely defined, then the problem of evaluation and ultimate decision is problematic. After all, how much growth can be judged equivalent to how much profit? Overall then it is clear that the actual decision-making process can rarely be more than a crude approximation to the rational model. Certainly where decisions of the sort encompassed in the ideas of strategy formulation and organizational design are concerned, there must be a very large element of 'judgement' involved at every stage of the process. It has to be acknowledged that in this context the term 'judgement' is little more than a euphemism for individual opinion or even guesswork. The implication of all this is that the correctness or desirability of any particular decision or set of decisions cannot normally be established by logical argument or deduction from empirical data. The processes involved inevitably become political (Pettigrew, 1973), and the power of the parties involved may often be more important than the quality of their judgement, particularly as the latter can only be assessed, if ever, after the decisions are made. We will now consider more specifically the processes involved in decision-making relating to the formulation of company strategies and the design of organizational structures.

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The Strategy Formulation and Design Processes The development of strategies and the design of organizational structures will, as has already been argued, typically be carried out by senior management. In the new or small company this will typically mean a single entrepreneur or a group of two or three senior executives. In large companies a rather larger group of senior managers will usually be involved, often aided by specialized support staff such as those in corporate planning or organization and personnel departments. In addition, in the large company, there may be a large number of inputs from other managers and staff functions. Clearly, any choice of strategies or organizational designs must be made from within the range of what the managers in question consider possible or plausible in the circumstances. It must also be noted that the definition of the circumstances relevant to the decision-making process is itself based on subjective judgements. In other words managers, like anyone else, will take account of the 'reality' in which they believe. In the short term, the objective nature of reality will have little relevance. In practice, the decision-making processes involved will have less of an 'Alice in Wonderland' nature than might be assumed from the above. This is true for two important reasons. First, most managers, most of the time, probably have a realistic view of the circumstances they and their firm are operating within. Second, strategic and design decisions are rarely once-andfor-all exercises, thus the long process may be partly seen as exploring the reality of the overall organizational situation as well as one of planning to deal with it. In addition, over any reasonable length of time serious discrepancies between the managers' perceptions and the objective reality will normally become apparent and force a complete or partial rethinking. The range of strategic and design possibilities that managers see in any situation will depend on their appreciation of their company's existing situation both in terms of internal strengths and weaknesses and also in terms of external opportunities and constraints. It will also depend on their views of the future. A number of influences will bear directly on the choices between alternative strategies and structures which are perceived as ways of achieving strategic objectives, or of maintaining or improving the organization's overall position in terms they regard as meaningful or important. One set of factors which will affect the outcomes will be the economic interests, cultural values and ideological views of the

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decision-makers themselves. In addition their ideas will be affected by the management theories they have been taught or acquired by experience. The critical element of the managers' appreciation of these theories might be described as their strategic or organizational path-goal expectations. That is, their ideas about what actions will be most likely to lead to desired outcomes or the fulfilment of strategic objectives. Thus managers will have ideas about the strategies which are most likely to be successful in some meaningful sense, and also about the organizational structures and administrative systems which will be most helpful in aiding the successful implementation of these strategies. As we have already noted, the managers' views on the circumstances in which the organization is to operate will also be important, and these views will involve an assessment of both internal and external factors. These various factors will obviously interact in a complex way. Figure 7.1 shows in schematic form the processes by which strategic and design decisions may be made. Portraying them Figure 7.1: Simplified Schematic Diagram of a Model of Decision-making Concerning Strategies and Structures Perceived range of possible strategies and structures

Views of external opportunities and constraints

Views of internal stengths and weaknesses Choice of strategy and structure

Economic interests cultural values ideological beliefs of decision-makers

Strategic and organizational path–goal expectations

Perceptions of general environment and resource availability

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in this way tends to make the overall processes seem highly rational and determinate, but for all the reasons discussed above this will not normally be the case. It must be noted that there will be an element of uncertainty in every step. This will be the case for a variety of reasons but most importantly because the present state of the organization and its environment can never be fully detailed and understood by any group of managers due to its sheer complexity, and also because future events must always be partly uncertain. For these reasons it may be useful at this point to focus specifically on the issue of uncertainty. The Problem of Uncertainty We noted earlier in this chapter some of the problems associated with uncertainty, and how its presence inevitably constrains the rationality of decision-making. It was also acknowledged that some sources of uncertainty could, at least in theory, be dealt with by known means, albeit at some cost in terms of time, money and human effort. However, other sources of uncerainty particularly associated with predicting the future could only be reduced to a limited extent. As all decision-making about company strategies and organizational design is very clearly future-oriented this latter source of uncertainty can cause chronic problems for managers. In the extreme situation, where there is a very high level of uncertainty actually or potentially associated with an organization's activities, then proactive planning in any meaningful sense becomes essentially impossible. In a situation of total uncertainty there is little that any individual or organization can do other than react to events as they unfold. This is not merely a problem for organizational managers for the obvious reasons, but creates more fundamental difficulties as it puts organizations as such, and particularly large ones, at a grave disadvantage vis-à-vis individuals. This is because the utility of capital investment, with its attendant costs, will be substantially reduced or nullified. This point was made strongly by Galbraith (1966). However, the problem is considerably more significant than this. The whole logic of organization with the substantial costs of coordination becomes an encumbrance rather than an advantage when the future cannot be planned. Only where uncertainty can be reduced to a level where proactive planning is possible are there any attendant advantages to organization, as individuals can react faster and more easily to unpredictable events.

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As Weick (1969) has argued, the process of organizing depends on the reduction of equivocality or uncertainty. The conclusion to be drawn from the foregoing is that organizations have to find ways of encompassing or reducing uncertainty if they are to survive and prosper (e.g., Galbraith, 1966; Weick, 1969). Despite the acuteness of the problem and its pervasive effects there has been a tendency in the literature to underestimate the implications of uncertainty. Thus, although most writings on company strategy and organizational design have mentioned the general problems associated with uncertainty, few have given sufficient attention to the problem. In real situations there is always a degree of uncertainty, but it is rarely anything like total. Organizations therefore have to deal with differing degrees of uncertainty stemming both from their own internal activities and also, and often more importantly, from the environment in which they operate. Normally this uncertainty is very unevenly distributed with some areas being highly predictable and others scarcely being capable of analysis and prognostication.

Coping with Uncertainty In essence, there would appear to be four main approaches to the problem of dealing with uncertainty. Three might be described as strategic whilst the fourth is structural. The first approach is to develop better ways of comprehending the problem in question. Thus an organization could embark on an enhanced research and information gathering strategy in order to remove or reduce the levels of uncertainty with which it is faced. The second approach is substantially more aggressive in orientation and involves the development of strategies to manipulate or control aspects of the situation, and by that means make it more certain. The third, and usually most radical, strategic alternative is to alter wholly or partly the location of the organization in the general pattern of political, social and economic relationships with which it is involved in order to find a less uncertain location of operation. In terms of the ecological perspective being developed, this would mean changing the pattern of cycles of production and consumption in which the organization is involved. The fourth approach is to accept the level of uncertainty involved in the situation, and to design structural

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and administrative arrangements such that the negative impacts that could stem from uncertainty are minimized or at least reduced. Information-gathering Strategies The first strategy is one which is pursued by all organizations to some extent, and which typically occasions the use of very substantial resources in large organizations. In considering such a strategy it is analytically useful, if somewhat artificial, to differentiate five different parts of the overall process. The first might be described as the creation of new knowledge, and involves some sort of research activity. This is most obvious in the area of the natural sciences, where, for instance, a company might have a research department carrying out research into polymer chemistry to develop new plastics. Although many large companies invest very large sums of money every year in a whole variety of activities of this type, it is probably true that the large majority of companies, particularly small ones, are not involved in this part of the process. This is because it tends to require very highly-qualified personnel, can be very expensive and the pay-off is very uncertain. The second part of the process involves the collection of information rather than its creation. In some cases this involves little more than noting the obvious, in others it involves a very substantial use of resources. Often the information to be obtained is essentially in the public domain, but in some instances it is private. Indeed sometimes such information is regarded, by those that have it, as confidential or secret. In these cases the search for information may raise serious legal and ethical problems. In general, the collection of information is only likely to be useful when those who are doing the collecting know what they are looking for. For example, if a company is thinking of expanding its sales activities into a new country, then it would obviously be necessary to collect information about that country. However, merely to collect all available information would be both unnecessarily time-consuming and not particularly useful. It is usually just as necessary to employ experts to guide this part of the process as it is to employ them for the first part described above. However, the pay-off is usually substantially more predictable. The third part of this sort of strategy involves the coding and transmission of information through the organization from the point where it is created or collected to the personnel who need to use such information for decision-making. In many cases this means

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transmitting the information to the most senior managers in the organization. In general terms, and on most occasions in the organizational setting, it must be accepted that information cannot be transmitted complete, in that this would be too expensive, highly inefficient and not terribly useful. It is therefore necessary to code the information, that is, to make meaningful signals based on the essential elements of the information, whilst ignoring superflous and irrelevant detail. This needs to be done in a way which is both systematic and comprehensible to the recipients. Perhaps this part of the process has been most significantly effected by recent technological progress. There can be no doubt that new information technology has made it possible to transmit very large amounts of information reliably and very quickly from one part of an organization to another, virtually irrespective of distance. The fourth part of the process involves the manipulation of information in order to provide further information at a more abstract level. In some cases this manipulation is such that it almost forces particular decisions. Because of this, it is perhaps easiest to understand this stage if it is considered in conjunction with the fifth and final part of the process, which involves the use of the information created, collected, coded and transmitted and manipulated in the actual decision-making processes of the organization. The typical and highly paradoxical problem involved at this point is that decision-makers nearly always have both too much and too little information. This tends to be true irrespective of the hierarchical level of the decision-makers or the nature of the problem which is being addressed. The reason for this somewhat curious problem is that some information will inevitably be lacking for the reasons already discussed, but on the other hand where information is available, it is all too often presented to managers in excess, so they have great difficulty sorting out the relevant from the irrelevant and then assimilating the relevant in a limited time. For this reason many people have devoted a great deal of intellectual effort to developing decision rules, statistical and mathematical models and various heuristics in order to suggest relevant answers to managerial decision-makers. Although the techniques developed are very powerful in analytical terms, the answers they suggest are often difficult to interpret due to the difficulty of assessing the implications of the assumptions, which inevitably have to be made in order to utilize mathematical and statistical techniques. Clearly, there are many problems involved in carrying out an

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information-gathering strategy, but virtually no organization has any alternative but to pursue one, at least to some extent. The only real policy questions concern the resources that should be committed, the methods to be employed and the faith that should be attached to the answers. Apart from the difficulties already discussed, there are many other problems associated with information acquisition and processing in organizations. First, it is clear from the discussion above that information is in many senses a scarce resource and as such its acquisition, transmission and manipulation are all expensive activities. The fact that information is expensive not only entails a cost for all organizations, it also makes clear that there is always a decision to be made concerning whether any particular information set is worth acquiring or not. Given the cost involved, and the likely benefits to ensue, an informed cost-benefit decision can be made. The second problem relates to the question of error, or misinformation. Clearly any system that creates, collects, codes, transmits and manipulates information must on occasion be prone to error. The utilization of information which includes errors may, obviously, have negative organizational consequences. However, in addition to the obvious adverse possibilities, there is likely to be the additional dysfunctional outcome, that organizational personnel may lose faith in the whole information system. It must be noted that although, in most organizations, the large majority of errors are of accidental origin, there will be cases when personnel at all levels may introduce errors or misinformation deliberately. This may be done purely as an act of sabotage, or in order to try and manipulate the decisionmaking system and its outcomes (Pettigrew, 1973). The third problem associated with the various parts of the information system described above has to do with the issue of differential comprehension. In general, information is created or collected by persons who have considerable expertise relevant to the particular information in question. However this information, after codification, transmission and manipulation will often be used by managers (frequently very senior ones) who have little or no familiarity with the technical issues in question. There is thus, in most organizations, a continual problem of translation from technical to lay language which is embedded in virtually any organizational information system. The fourth problem has to do with nature of the information which can be processed, and the tendency for numerical information

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to push out non-numerical information. Generally, reflecting this, an examination of existing management information systems, particularly in large organizations, shows that they are disproportionately biased towards accounting information in particular and quantitative information in general. The basic reasons for this are that these are the sorts of information which are easiest to codify, transmit and manipulate. Clearly modern computer and microcomputer systems have a considerable facility for handling nonquantitative information, which is rapidly being enhanced. None the less, quantitative data is still substantially easier to utilize in most situations. It must also be acknowledged that accountants have become exceedingly adept at processing and providing financial information. This has now reached such an extent that there is a danger that other sorts of information may sometimes be ignored. It can be readily understood from the foregoing that although there is enormous potential in an information-gathering strategy as a method of reducing the negative effects of uncertainty, it also has great difficulties associated with it. Allowing this, it is hardly surprising that many organizations adopt additional approaches to the general problem of coping with uncertainty. Environment-controlling Strategies It must be noted that the organizational situation, whether internal or external, is not a given fact to which the organization can only react. Rather the organization or its management can affect the environment in important respects. Clearly any or all of an organization's activities can modify parts of the environment, indeed as we noted in Chapter 6 the environment can hardly be defined separately from the organization's activities. However, the modifications an organization can bring about are likely to be relatively small compared to the many and various externally induced changes. Nevertheless, organizations can reasonably adopt strategies for bringing about critical shifts in the functioning of the environment. Some writers such as Child (1972) and Weick (1969), have placed great emphasis on this ability of organizations to negotiate or enact their environments. Indeed Miles and Snow (1978: 5) go so far as to suggest that 'organizations act to create their environments' by means of their strategic decisions. Generally three different types of approach are available to an organization in any attempt to manipulate the environment in order to reduce the level of uncertainty which it faces. These are

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persuasion, power and bargaining. The extent to which any of these techniques is likely to be useable in any particular circumstance will depend on a large number of factors, but particularly on the resources and sanctions the organization can bring to bear. Persuasion is a technique which is routinely used by both individuals and organizations in an attempt to encourage others to act in ways which are advantageous to the persuader. In the present context the persuasion is designed to influence others in ways which will make their future behaviour more predictable as well as more beneficial to the persuader. Clearly, many companies use advertising, public relations and all sorts of promotional devices to try and persuade groups of outsiders, such as customers, suppliers, shareholders and potential employees of the desirability of certain courses of action. In addtion to these relatively public forms of persuasion there are also a number of private ways in which organizational managers and other employees attempt to persuade key external individuals. Thus Members of Parliament are lobbied, potential customers are entertained to lunch and so on. In some cases the process of persuasion may go further than the sorts of method outlined above and include the cooption of influential outsiders to advisory or consultant roles or appointment to non-executive directorships. Three different types of outsider can on occasion be the subject of various methods of persuasion. Firstly, there are groups of individuals who personally or as organizational managers are parties or potential parties to the various cycles of production and consumption in which the focal organization is involved. Most typically these will be most likely to involve those parties with whom the organization has direct exchange relationships. However, there are many examples of organizations attempting to influence parties with no direct relationship to themselves. For example, many concerns involved in the manufacture of consumer goods direct advertising at ultimate consumers even where the goods themselves are sold to wholesalers who in turn sell to retailers. The second group of outsiders who may be subject to persuasion are actual or potential competitors. Although there may be some legal constraints on collusion between competitors under certain conditions, there are many situations in which direct or indirect persuasion is legitimate, and indeed carried out. In this context the concept of competitors covers a much wider range of outside groups and organizations than would normally be considered under this

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heading. It includes any outside groups or organizations who in any way compete in any of the environmental sectors in which the focal organization has exchange relationships, and by so doing threaten to displace it, wholly or partly, in any cycle of production and consumption. In the case of competitors, persuasion may be designed to achieve some reduction of the level of competition, limit it to particular issues or even to terminate it by encouraging the other party to withdraw. In many cases in this arena, communications which are designed to persuade competitors may ostensibly be addressed to some other specific audience or the general public. The third group of outsiders who may be the target for persuasion are individuals or organizations, who can, directly or indirectly, change the circumstances in which the organization operates. The most obvious category here would be governments, government departments and agencies. However there are a wide variety of oganizations and agencies who, one way or another, can influence the conditions within which the cycles of production and consumption, in which the organizations are involved, operate. Such influence will typically occur by one of three mechanisms. The first of these, which is probably the most powerful, is by changing the laws, regulations or guidelines under which particular activities or transactions take place. The second operates by modifying one or more conditions in the market-place in which the various exchange relationships, in which the organization is directly or indirectly involved, take place. The third mechanism involves the modification of the attitudes, values or beliefs of the parties involved in the various relationships with the organization. Clearly there are a large variety of outside individuals or organizations who may, to some greater or lesser extent, be able to exert influence through one of the three mechanisms described and these may be the subject of attempts to persuade. With this category of outsiders, direct approaches will tend to be relatively private and be based on face to face interpersonal transactions, whereas indirect approaches may often by very public and transmitted by the media. The second general approach adopted in environment-controlling strategies relies on the use of power. Such power may be based on the use of social, political or economic sanctions. In many ways, if an organization is able to call into play appropriate sanctions, the use of power may be a relatively quick and easy way of exercising control over aspects of the environment, and hence reducing uncertainty. As with persuasion, power may be used on the same three .

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different categories of outside party, each of whom may be influenced by the use of power. Although overt threats are sometimes made by organizational managers, in many cases the possible use of sanctions is implied in subtle ways. With direct or indirect trading partners the use of power to reduce uncertainty depends on the patterns of dependence between the organization and others. Generally the extent of dependence depends directly on the value to the organization or its trading partner of the resources (or services) transacted and inversely with the ease of establishing alternative parties to the transaction. Hence where, for example, an organization obtains raw materials which are vital to its functioning from a monopoly supplier it is very highly dependent on that supplier. In general, power (or the threat of sanctions) can most easily be applied where the dependence of the parties on each other is asymetrical. Thus where an outside group or organization is highly dependent on the focal organization, but the reverse is not the case, then the focal organization is in a powerful position to obtain compliance and hence reduce the uncertainty associated with future transactions. Where both parties are highly dependent on each other there is a power balance, but in that both have a strong vested interest in a stable continuation of the relationship, uncertainty is likely to be relatively low. However in the case where neither is dependent on the other to a significant extent, although there is again a power balance, the relationship is potentially unstable and hence uncertaintly is likely to be high. Of course, the ability to employ or threaten the use of sanctions will not just depend on the economics of the relationship but also on the whole mixture of social, psychological, administrative and legal aspects. In particular various legal formulae, such as long-term contracts and franchise agreements, are routinely used in order to stabilize relationships and reduce uncertainty by providing additional legal sanctions which could be employed to maintain the pattern of exchanges. With competitors the sanctions most commonly threatened are associated with the possibility of increasing the organization's efforts to compete in particular input or output markets, by such devices as offering higher prices when buying products, or offering faster delivery dates when selling. In most situations any increase in competition in any given market is likely to modify existing patterns of cycles of production and consumption and hence add to the level of uncertainty for all involved. This being the case most

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organizations will only employ this type of sanction where the alternatives are highly negative. With the third type of outside group or organization the threat or use of sanctions is nearly always potentially injurious to the user. This would be likely as they would to some extent distort the pattern of cycles of production as the outsiders would in this case have no direct involvement in these. For example, an organization might threaten to withdraw advertising from a newspaper which published editorial material adverse to the organization's interests. However, if the advertising were useful in the first instance, its removal could be damaging to the organization involved. Even more clearly, an organization threatening to close a plant if a government did not delay the application of certain safety regulations or modify taxation laws would be in danger of damaging itself to too great an extent, even in times of high unemployment when a government might be expected to be alarmed by such a threat. The third general approach utilized strategically in an attempt to exercise control over the environment is bargaining. The essence of bargaining in this context is the trading off of one issue against another. Clearly this is most likely to be a viable strategy when the organization and the outside party attach different levels of importance to the issues involved. Under such circumstances both sides would be able to benefit with regard to the issue to which they attach greatest importance. One of the factors, which applies to all uncertainty-reduction strategies which are based on some measure of control of aspects of the environment but which applies particularly in the bargaining case, is the probability that the outsiders will also wish to reduce any uncertainties involved. As all parties to the various cycles of production and consumption, whether organizations or individuals, will find planning and organizing easier if uncertainty can be reduced, they will generally be prepared to cooperate to some extent in suggestions which generally make future transactions and activities more predictable. Location-changing Strategies As we noted earlier, the third basic strategy that can be employed by organizational managers in order to attempt to reduce the level of uncertainty is to alter or adjust the organization's position in the pattern of cycles of production and consumption with which it is actually or potentially involved in order to move from a more uncertain to a less uncertain environmental situation. Much of the

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classical economic theory of the firm assumes that the carrying out of such a strategy is non-problematic, however much of the more recent work suggests there are significant barriers to entry to new industries or new markets, and costs associated with leaving old ones. Generally, strategies involving relocation of a company's activities, whether geographically or in economic and social terms, are likely to be difficult and involve significant expense. At any given point in time any company will have considerable investment in its present industrial or commercial location, not just in terms of fixed assets but also in terms of skills and contacts with other parties to the cycles of production and consumption in which they are involved. Generally, given the various difficulties mentioned, the problems of an uncertain environment have to have reached a very significant level indeed for any major relocational strategy to be implemented merely to reduce uncertainty. However, these arguments do not necessarily apply with great force to relatively minor locational adjustments such as withdrawal from a highly volatile overseas market, or the closing of a single small plant in an area with very uncertain industrial relations. Uncertainty and Risk We have considered some of the strategic ways in which organizational decision-makers can attempt to reduce the level of uncertainty involved, or attempt to cope with it. In the last analysis, however, it must be recognized that most forms of uncertainty cannot be modified to such an extent that the outcome becomes certain. In many cases the best that can be achieved is to convert uncertainty into risk. Perhaps it is necessary to consider these two concepts together, briefly, in order to make clear the difference between them. Under conditions of uncertainty the outcome is completely indeterminate. However, in a risk situation the range of possible outcomes is predictable, and the probability of each occurring is known, at least approximately. The difference between these two sets of conditions is profound, in that planning and organization are impossible under conditions of total uncertainty, but both are possible in risk situations even where the probabilities can only be estimated in a very crude way. Indeed mathematicians and exponents of operations research have developed a host of very powerful techniques to assist in the process of planning under risk conditions. However, even where strategic approaches cannot remove uncertainty, or even reduce it to ascertainable levels of risk, there may be

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structural solutions which can be designed into the organization which make coping with the situation easier. Designs for Dealing with Uncertainty There have been a substantial number of research studies of the relationship of different parameters of organizational structure to environmental uncertainty starting with the work of Burns and Stalker (1966) and Lawrence and Lorsch (1967) outlined in Chapter 1. The design implications of these various research studies would seem to suggest that organizations may be best able to cope with uncertainty by increasing the extent of internal differentiation and decentralization whilst at the same time reducing the bureaucratic or mechanistic aspects of the administrative arrangements. The logic underlying these shifts would seem to be twofold. First, decentralization, at least regarding decisions relating to the source of uncertainty, coupled with a reduction in the application of rules and procedures, allows a flexible response to uncertainty initiated by those organizational employees who deal directly with the environmental sectors concerned. Second, in order to prevent this flexible response having too great an effect on other parts of the organization, it is necessary to increase the level of internal differentiation. This buffers most of the organization, at least to an extent, from the need to make rapid adjustments. Of course, the extent to which such buffering is possible will vary greatly from organization to organization, depending on the extent to which close interconnections are functionally necessary. However, even in cases where extensive internal differentiation is possible, this will obviously create additional problems of coordination, unless extensive effort is put into providing increased integrative effort. This corresponds with the Lawrence and Lorsch (1967) findings that high-performing companies in industries facing high uncertainty are characterized by high levels of functional differentiation and also apply substantial resources to integrative effort, even to the extent of having whole departments integrating the activities of the main functional areas. Clearly such an approach may assist in task accomplishment and control under conditions of uncertainty, but at the expense of a considerable increase in cost. This should suggest that it may be generally preferable to adopt a strategic response to uncertainty where that is possible, rather than to design structures capable of functioning under such conditions. However,

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it must be acknowledged that it will rarely be possible to rely entirely on such an approach.

8

FUNCTIONAL SPECIALIZATION AND INTERNAL DIFFERENTIATION

In this chapter the issues relating to the development of functional specialization in organizations will be considered as an extension both of the general theoretical framework and of the ideas considered in Chapter 5 regarding the division of labour in organizations. We noted there that the division of labour is a characteristic of organizations in general. It will also be remembered that it was suggested in Chapter 3 that social and economic progress in human society generally would seem to be associated with the development of an increasing division of labour. It follows, then, that the issue of the division of labour within organizations, and also between them and other organizations and agencies in their environment, is of key importance. If our theoretical knowlege of the functioning of organizations is to be enhanced, it is clear that this must, in part, be based on an understanding of the processes by which the division of labour proceeds, and their implications. The main issues considered in the present chapter relate to problems of organizational design and deal with the questions relating to the intra-organizational division of labour. Those relating to the inter-organizational division of labour, which mainly concern strategic issues will be dealt with in Chapter 9. It will then be observed that the analytical principles involved are analogous in the two cases. In Chapter 5, it was suggested that three rather different versions of the division of labour could be observed within organizations. First, there is a division between different jobs directly involved in the accomplishment of the main productive tasks of the organization. Second, there is a division between those directly productive functions and the staff functions which provide support to the former. And third, there is a division between those who carry out the various functional tasks and those who manage, control or coordinate them. The logic behind these three aspects will be considered in turn. However, first it is necessary to consider what bases there are for assessing the utility of each. The problems which are immediately raised when the question of assessing the utility of any aspect of organizational design is discussed, are essentially the same as the issues which were addressed,

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but not completely resolved, in Chapter 2. It could be argued that utility should logically be derived from the goals of the organization, or some clearly articulated notion of organizational performance. However, as we noted in that earlier discussion, neither of these ideas is capable of precise definition or conceptualization in general terms. Further, it was argued then that even in specific terms, applied to particular organizations, it was rare to have either clearly stated goals or performance targets which could be agreed by all senior managers. Indeed, even in the small company run by a single ownermanager such clarity was unlikely. In the present discussion, the overall long-term welfare of the ecosystem of which the organization is a part will, perhaps rather arbitrarily, be used as a criterion for assessing utility. As this is, in essence, the same criterion as the overall maximization of efficiency of resource utilization, within the organizational or industrial ecological community, it may correspond to many popular views of what organizations should be attempting. However, as was made clear in the earlier discussion, no claim can be made that there would be anything approaching unanimity on this or any other general criterion of utility. Basing the assessment on the organization's position within the overall ecosystem, and hence on an assessment of the efficiency of the organization in terms of all the production and consumption cycles in which it is involved, should avoid many of the more obvious biases which may be associated with many views of organizational goals and performance and hence with criteria for assessing the utility of organizational designs. On the other hand it can obviously be argued that an organization's management have typically been largely responsible for the establishment of the organization's position within the industrial or organizational ecosystem in terms of its participation in the overall pattern of cycles of production and consumption. It follows logically from this point that the method of assessing utility to be adopted may in some senses be argued to be biased towards a managerial perspective. However, given the fact that management do normally exercise the greatest share of control over organizational activities, such an apparent bias may do little more than reflect the reality of the power relationships within organizations, and between organizations and the society of which they are a part.

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Specialization within Productive Functions In any organization, the carrying out of certain activities may be described as the mainstream productive functional activities. This is not to argue that other functions are ultimately less important, in terms of the total accomplishment of organizational tasks. Rather it implies that these other activities cannot, in any sense, be justified unless the main productive functions are also carried out. In a typical manufacturing company, production and sales might reasonably be described as the main productive functions. Within these areas, functional specialization might be beneficial for a whole variety of reasons, such as enabling the employment of persons with a specific variety of skills, the utilization of particular forms of hardware, and scheduling logistics. Clearly, the extent to which any specialization is possible depends on the size of the operation. In the limiting case, unless the throughput is sufficient to allow the organization to obtain a level of sales revenue, which in turn enables the employment of multiple personnel, the question of specialization cannot logically arise. As soon as more than one person is employed on the productive activities, then the question of how the work can most beneficially be divided arises naturally. Since the time of Adam Smith (1776), it has generally been assumed that functional specialization in production activities would naturally tend to make them more efficient, and lead to improvements in both quality and quantity. In his classic analysis of pin-making, Smith argued that, if each man performed all the tasks involved, he could only hope to make a few dozen imperfect pins per day. However, if on the other hand, a small group of men were each allocated one aspect of the overall task, which could be performed in a simple repetitive way, then they could produce hundreds of thousands of high quality pins in the same time period. The sort of division of labour described, yields a number of potential advantages. First, it makes possible the use of specialized equipment, as each individual will only need one item, rather than every individual requiring access to sufficient equipment to perform every aspect of the task. It is also generally the case that an extensive division of labour in production will allow the easier utilization of mechanization and other technological improvements, in as much as the individual tasks are that much simpler. None the less, although such specialization may be a partial cause of mechanization, it is also the case that mechanization typically provides further reasons

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for increased specialization. However, such uses of technology also depend on the size of the throughput being sufficient to generate the income required to pay for the attendant costs of design, hardware acquisition, installation and maintenance. It must also be noted that specialization, and the often attendant mechanization, increases the need for the organization involved to be able to predict or control the level of demand and hence throughput. This is the case because if the throughput drops to say 90 per cent of capacity, the costs of the production system do not drop in the same ratio. This is substantially different from the situation which obtains where no specialization or mechanization exists. Under these latter circumstances (redundancy payments apart) cuts in costs can be made virtually pro rata with throughput. This is the case as the system is in no way integrated, and hence the removal of one production worker has no direct knock-on effects on other workers. Further benefits associated with specialization in the production area have to do with the fact that individual tasks are simpler and more sharply defined. This carries two obvious advantages. First it becomes possible to select personnel, and allocate them to tasks for which their aptitudes, skills and character particularly suit them. Second, as the individual tasks are relatively simple and limited in scope, it is possible for them to be carried out by relatively unskilled personnel. This typically makes recruitment easier, and speeds up and reduces the costs associated with training. At the same time, it must be acknowledged that there may be substantial disadvantages associated with excessive specialization. These disadvantages stem from the fact that this can lead to high levels of dissatisfaction, low levels of motivation and high levels of turnover and absenteeism. It should also be noted that where mechanization is also employed, this can add a further problem of machine pacing, which will usually reduce the worker's feelings of autonomy, and typically exacerbate the negative consequences of excessive task subdivision. Taking account of these latter points suggests that there is probably an optimal level of specialization in the main productive functions, where the gains associated with the various advantages mentioned are not outweighed by the disadvantages. It must, however, be reiterated that any such optimum will only apply to a particular average level of throughput. It would also tend to be influenced by the throughput variance, particularly where that is not predictable. However, more serious than these qualifications, for the manager

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who is making design decisions, is the idea that any optimum solution might be applicable only to a particular set of personnel. This might be the case due to significant individual differences in the way employees respond to particular jobs. Of course, other bases for the division of labour in the production area are widely used, and may also be worthy of consideration whenever these sorts of design decision are made. In particular, a division based on the manufacture or processing of different products may have benefits in some cases. Which is the most appropriate form of specialization, or alternatively whether both types of specialization should be employed simultaneously, will depend on the particular overall task to be accomplished, the production processes involved and the particular way in which individual jobs are designed. In some cases, the technology is such that a worker can carry out the same function on different products with little adjustment and the same equipment. On the other hand, in other cases the tasks required to be executed in the processing of different products are so different, or require such different equipment, that some form of specialization by product is essential. It was suggested above that the sales function should also be regarded as part of the main productive activity of a typical manufacturing organization, therefore it is appropriate to consider the division of labour in that area at this point. First, it should be noted that the type of work normally involved in the two main productive functions, namely sales and production, is usually substantially different in a large variety of obvious respects. This being the case, there would seem to be likely to be significant advantages in a clear division between these two functional areas, although there may be certain disadvantages. The advantages relate to the fact that radically different types of skills are likely to be required for carrying out the two functional sets of tasks, and also that different personalities and educational backgrounds may be needed. This being the case, functional specialization between production and sales would seem to be generally desirable, and is in fact observed, in an overwhelming majority of companies. This is generally true, with relatively few exceptions largely in some service sectors, where the concept of production itself can sometimes be unclear. Even if a broader view of general operations is taken, there may be cases, such as retailing, where no clear distinction can be made between the two activities relating to operations and sales. However, it must be accepted that there may be certain disadvantages associated with the normal

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division between production and sales, in that production workers who have direct contact with customers are likely to understand the requirements placed on the products better, and hence be better able to produce totally suitable items. It is also likely that relationships with the users of the products which they produce may increase the job involvement and level of motivation of production workers. Despite these last points, the advantages of this sort of functional division will usually be obvious and overwhelming. When the internal division of labour within the sales function is considered the situation may be somewhat different. Here it must be acknowledged that geographic area, nature of product and type of customer may often be more important bases for the division of labour than function alone. The logic involved must remain the same, however, with the basic criterion being applied relating to the most efficient way in which the function can be executed, whilst processing a particular volume of throughput. However, the ability to adapt to fluctuations in sales volume or product innovations must also be considered here. Overall, then, in the directly productive functions of an organization, functional specialization is likely to increase efficiency when the gains due to job simplification and better selection due to more precise job specification, shorter training times, the scope for mechanization, development of specialized equipment and the concommitant cuts in the requirements for general-purpose equipment are greater than any disadvantages due to worker dissatisfaction and increased costs of coordination. At the same time, it must be recognized, as we noted above, that any such structural design solution must be heavily dependent for its efficiency on the volume of throughput and its predictability. Specialization of Staff Functions Just as certain activities carried out within any organization may be described as the main productive functions, so there are many other functions that may be considered as supporting or control functions. These latter are often described as staff functions. Such staff activities are often vital to the overall success of organizational functioning, even though they are not themselves directly productive. Examples of such functions, in typical industrial companies, include marketing, public relations, accounting, personnel, corporate planning, mainten-

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ance, research and development and administration. To some extent, however limited, these activities have to be carried out in any organization, but the extent to which that is the case will depend to a very high degree on the nature of the business. More importantly, for the present discussion, the extent to which they are carried out by specialist personnel will be both problematic and variable. Even more than in the mainstream productive functions, the extent to which functional specialization is possible in staff areas will depend on the overall size of the organizational operation. This is the case as typically the staff functions involve a wide spread of activities performed by a minority of the organization's total number of employees. Thus, as a typical staff function can usually only sensibly amount to a relatively small percentage of an organization's total activities, it must follow that only organizations of a reasonable size can afford to employ full-time specialists in most such functional areas. As the various staff functions will normally have to be carried out, at least in a rudimentary sense, in any organization, the key question is to what extent, or at what stage of development, is it sensible or profitable to employ specialists to do the job, as opposed to their being combined with other roles. In order to understand the underlying logic, in terms of efficiency, that should dictate the answer to this question, it is useful to refer back to the sorts of discussion considered in Chapter 3. Even though those earlier discussions were in terms of primitive societies, the basic logic applying to the relationship between directly productive and support activities should be the same. In essence, any support function which is to be carried out by specialist personnel has to help create a sufficient increase in productivity of the basic productive functions, in circumstances which allow the sale of the increased production, in order that the increased revenue more than covers the inevitably increased costs associated with employing full-time specialists in support functions. Alternatively the employment of specialist support personnel must lead to such gains in productivity and reductions in cost that the same level of production can be achieved more cheaply overall. In considering the relative costs involved, it is necessary to note that many support activities require the exercise of specialist skills, often of a professional or quasi-professional nature. Even in the very small company, there are a number of these activities that have to be carried out. In a country like Britain or the United States,

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some of these activities have been significantly complicated by various legal requirements, particularly in areas relating to safety, personnel and accounting and finance. It is true that, in some cases, services of these kinds can be bought in on a fee basis, which makes it possible for very small concerns, that cannot afford or justify the employment of full-time employees in particular support areas, to get specialist help. It must also be noted that in the present labourmarket situation, many specialist support personnel are substantially more expensive in terms of salary costs than individual production workers. This means that very often the benefits associated with the employment of support specialists have to be proportionately greater than those associated with the employment of extra production workers, man for man. Obviously different support functions contribute in radically different ways to an organization's activities and therefore the merits of employing specialists in different functional areas have to be evaluated in rather different ways, although the same general criteria should apply. It must also be noted that in many cases the full costs and benefits of employing specialist personnel are exceedingly difficult to evaluate, and depend to a considerable extent on predictions of environmental conditions. In general terms, the different types of contribution of different functional areas can be considered, at least analytically, under different heads. First, there are those support functions which directly improve the level of productivity, and hence increase the productive capacity of the main production functions. Under this heading would be included functions such as maintenance, purchasing, production scheduling and industrial engineering. Provided it is possible to sell increased output their contribution can therefore, at least in part, be directly evaluated in terms of the increased production that results from their activities. In addition such functions may also make a contribution in terms of cost reduction. In circumstances where it is either impossible or very expensive to sell increased output this latter contribution becomes central and critical to their viability. They may also assist in the meeting of delivery dates and quality targets and hence contribute to the sales activities of a company, by making it more possible to improve customer satisfaction. This latter point brings us naturally to the second main type of contribution. This relates to those support functions which provide benefits in terms of facilitating increased sales, such as marketing,

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public relations, advertising and customer services. Provided it is possible to increase production at a reasonable cost, the main contribution of such functions can be evaluated in terms of increased output, but there may also be benefits in terms of cutting the costs of the basic selling operation. They may also provide cost benefits in the production area by maintaining the output level at a high percentage of total capacity. Additionally, they may stabilize the volume of sales, thus making the planning of production processes easier and more cost effective. The third kind of contribution which can be provided by support functions is the provision of innovations or improvements. These can come in the form of new or modified products, or changes in the methods of working in terms of equipment, processes, or human and organizational factors. Of course, innovations or improvements can come from anyone inside or outside an organization. However, in many organizations, particularly large ones, specialized personnel are employed in such activities as research, development and design. In the main the greatest efforts of such functions are directed in the science and engineering areas. Clearly, the extent to which organizations employ specialists in these areas, and indulge in related expenditure, varies enormously. Generally, it tends to be greatest in science-based industries which are characterized by high rates of innovation. Such rates are, of course, in large measure, a consequence of such expenditure. However, they create a situation in which any particular organization's products may be rendered partly or wholly obsolete by the innovations of its competitors, or its production costs may be made excessively high by competitors' process improvements. Clearly, then, in such situations the position of an organization in the cycles of production and consumption is vulnerable to massive and rapid disruption and deterioration due to the innovations of their competitors. The logic underlying the employment of functional specialists in these kinds of activities is future-oriented and is an attempt to maintain or improve the organization's position. In effect, it involves taxing present activities in order to provide for the future. Only organizations that can generate sufficient revenue, over and above the level required to maintain current operations, will be able to invest in this way and employ this form of specialization. It can be seen, therefore, that it depends both on the margins involved in present operations, and on the organization's strategic approach to its situation. This analysis raises the general issue of the relationship

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between present activities and future progress to which we will return in Chapter 9. The fourth type of contribution that can be provided by specialist support functions raises somewhat similar questions. This is the provision of future strategy and planning. This involves such functions as corporate planning and also those functions involved in environmental scanning activities such as market research and economic intelligence which provide vital inputs to planning. Again they are future oriented and depend on taxing present activities. The fifth area in which specialist support functions may aid an organization's overall operation may be described as systemmaintaining activities. Here, one can group such specialisms as personnel work, administration, financial accounting, and so on. The logic for this form of specialization is that having these functions carried out by specialists enables those in the main productive functions to devote themselves more fully to their prime task. It must therefore be based on the ability of those in the productive functions to produce more under these circumstances, such that extra revenue can be obtained, which at least covers the cost of the system-maintaining functions. Alternatively, this cost must be met from savings in the overall costs of the directly productive functions. A somewhat similar analysis can be applied to the sixth sort of contribution which support functions can provide. This is assistance in the control and coordination of other activities. We have already noted the importance of these elements in any organizational design, both in order to maintain the organization as a functioning entity, and also to assist in the achievement of strategic objectives. Although many different support functions assist in the control process in one way or another, perhaps the most pervasive influence stems from the finance and accounting function. In most organizations, and virtually all medium and large ones, there is some system of cost control. Such systems are most commonly based on some form of budgeting, and nearly all are monitored by staff, such as cost clerks, from a finance and accounting function. Although there are many flows of resources in any organization of any size, it is most typically the financial aspect of these flows which is most readily and commonly monitored in an effort to impose overall control on the organization's activities. As with system-maintaining activities, functions involved in assisting control and coordination will be viable only if they enable either sufficient saving to be achieved, or

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sufficient extra revenue to be raised by increased production and sales, at least to cover the costs involved. The Hierarchical Division of Labour In order to understand fully the basis for the division of labour between the directly productive functions and the various types of support functions, it is necessary also to examine the division of labour between those who carry out the various functional activities and those who supervise, manage and control them. As we have already noted, organizations depend for task accomplishment, indeed for their very existence, upon some considerable measure of coordination. In Chapter 5 it was suggested that the most critical and pervasive coordinating mechanism depended on an authority system which relied partly on rules, and partly on a hierarchical system of management. The hierarchy involves a division of labour between subordinates and superordinates. There are many different versions of this, which can be observed in different organizations. Clearly, there is, in all these, an element of specialization in terms of the giving and receiving of orders, and the provision and receiving of supervision. However, beyond this, the issues become very complex as relatively few managers or supervisors do nothing but manage or supervise. Indeed, in many cases, such activities may involve only a small percentage of their total time and effort spent in employment, which otherwise may encompass many activities which would be correctly described as the carrying out of functional work. Thus, this third form of the organizational division of labour may, to some extent at least, cross-cut the other two. In large organizations perhaps the most common example of this involves planning. This activity is normally carried out by many managers, particularly at senior level, whether a specialised corporate planning function exists or not. However, in very small organizations it is frequently the case that the one or two managers carry out a very wide range of functional activities, and indeed in some cases fulfil virtually all the various support functions described above. The employment of managers and supervisors to coordinate and control the work of others is an essential element of organizations, but it clearly has considerable cost implications. It is therefore a prerequisite of the existence of any organization that it can sustain

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a sufficient level of activity to attract enough revenue to cover the cost of at least a minimum hierarchical structure. If this cannot be achieved, then if the activities are to be carried out at all they must be coordinated by some other mechanism such as market transactions or common values. Once again, it is clear that organizations can only exist where the benefits of hierarchically coordinated activities outweigh the costs. As managers and supervisors are typically paid significantly more than their hierarchical subordinates, they are likely to be a potentially expensive element in any organization. This will be particularly true in one which has a tall thin pyramidal hierarchy. As it has already been suggested that some element of management is an essential ingredient of any organizational functioning the real question relates to the number and proportion of managers and supervisors that are needed, or can be justified. Here there are a number of issues over and above the question of cost, which has already been raised. It can be argued that supervisors and managers perform five main roles, in addition to any direct functional activities that they are called upon to execute. First, they have to determine the strategic objectives of the organization. Second, they must design an appropriate organizational structure and administrative system for the conduct of the organization's business. Third, they must ensure the availability of appropriate personnel, equipment and other resources to ensure that the activities of the organization can be carried on in a suitable way. Fourth, they must direct, lead, motivate and supervise lower-level personnel in the pursuit of organizational objectives. Finally, they must examine the performance of the organization and its component parts in terms of any objectives set, so as to instigate appropriate corrective action where necessary, in order to maintain or improve the level of organizational effectiveness. As we have already noted, they may be assisted in any or all of these activities by specialist support staff. However, in a sense, all of these activities are partly carried out by all personnel and hence the need for management, and particularly large numbers of managers, depends in large part on the skills and motivation of all employees. In consideration of this it must be noted that some of the developments described above which lead to a very high degree of task subdivision may be leading to the recruitment of personnel with very limited skills, and involving jobs with very limited motivating potential (see Chapter 10). This may actually lead to increased management costs, although saving on direct operating costs.

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Overall Considerations There can be no doubt that an extensive division of labour can be a very cost-effective means of carrying out many complex tasks, paricularly where there is a substantial use of modern technology. However, it must be accepted that only large organizations can indulge in extreme forms of task subdivision, and even then there may be difficulties associated with the human operators. In the third chapter it was noted that one of the characteristics of open systems was the ability to create internal differentiation. It was argued at that point that internal processes of elaboration and differentiation in any open system require energic and resource inputs. That is, they are only possible where the input–output transactions of the system leave a balance over and above the energy and resource inputs required for system maintenance. These theoretical considerations tally with the analysis proffered above. It is clear that an increasing division of labour within organizations can greatly facilitate the overall capacity of the organization to cope effectively with its environment and successfully process inputs and create desirable outputs. However it can only be done at considerable cost, and hence the organization must be capable either of making a resource profit (or energy gain) on its basic cycles of production, or of attracting the investment of resources from outside, or both. Given the relationship suggested between the ability to create resource surpluses and attract investment on the one hand, and the elaboration of internal differentiation and its costs on the other, it is clear that the issues considered in this chapter are germane not just to questions of organizational design, but are also central to the basic strategic choices made by any organization. Putting the matter very crudely, and oversimplifying the issues involved, it can be suggested that there are two strategic approaches to the issue of the division of labour within organizations. The first is based on a cost-cutting approach to the achievement of organizational effectiveness. This relies on reducing the level of specialization, particularly where it fails to yield short-term gains, and also where it creates vulnerability under conditions of uncertainty. Such a policy involves retrenching around the essential elements within an organization's activities, and cutting all costs which are not essential in the short term. The second strategy involves the elaboration of patterns of internal differentiation, in order to provide a long-term attack on the environment, to create

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more elaborate cycles of production and consumption in which the organization is involved. This latter strategy requires either substantial operating margins, or the ability to attract investment, both of which will be easier in an expansionary economy.

9

THE DEVELOPMENT OF COMPANY STRATEGIES

In Chapter 4 it was suggested that the strategy of an organization may be regarded as the more or less planned collective predisposition of senior management to make particular decisions regarding the task of the organization and its relationship with its environment. These areas, which may ostensibly be regarded as at least partially separable at first sight, are, with the perspective adopted here, merely different aspects of the same phenomenon. This must be the case as the task of any organization must largely be defined in terms of relationships with parts of its environment. It was also suggested in Chapter 4 that four generic types of business strategy could be identified. These, it was argued could be characterized as competitive strategies, cooperative strategies, innovative strategies and retrenchment strategies. Obviously, like any other typology, it is in some senses simplistic. None the less, it should provide a basis for the examination of the development of strategic approaches for particular situations in the present chapter. In essence, following the logic propounded in Chapter 3, the appropriateness of adapting any of these strategies is partly dependent on the resource richness of the environment or ecosystem relative to the extent and nature of the competition for such resources. It will also be partly dependent on the orientation adopted by the senior management concerned. Of course, the situation faced by the modern industrial or commercial organization is substantially more complicated than those analysed earlier; typically the range of different types of resources required for successful operation will be considerable, and the extent of competition for these different types of resource will often be highly variable. In order to analyze the ways in which different types of strategy could, or should, be developed in particular situations, it is necessary first to consider the processes by which organizational managers ascertain the key characteristics of the environment within which their organizations operate as they are likely to effect strategic decision-making, and the desirability of adopting strategies of particular types.

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Scanning the Environment In Chapter 6 the enormous complexity of organizational environments was pointed out, together with the concomitant problem of understanding them. This, of course, is not just a difficulty for the academic commentator, it is also a very significant problem for the organizational manager. Clearly, despite the difficulties involved, any managers attempting to formulate strategies must make some attempt to form an appreciation of the environment in which the organization operates. Some brief consideration of the problems associated with that and of the strategies for reducing the uncertainties involved was given in Chapter 7, and will not be gone over again here. However, it must be reiterated that without some knowledge (real or assumed) of the organizational environment and the ways in which it is likely to change in the future, there exists no possibility of developing strategies or, indeed, plans of any sort. In the absence of any such knowledge, any action is potentially as useful as any other. Therefore in such an extreme situation one could only react to external forces, or adopt some form of trial-and-error experimentation. The arguments developed thus far suggest, following Chapter 6, that the factors which will influence strategy formulation are resource availability, the level of uncertainty concerning relevent issues and an appreciation of the organization itself. This latter is critical for many reasons, but particularly because meaningful strategies must always start in the present. The problem confronting managers involved in strategic decision-making has a fixed, if not completely known or understood, starting point. The starting point relates to the organization's present staff and other resources, their existing relationships and image and all the other characteristics which, taken together, form the base from which any future activities must be developed. The ways in which companies go about obtaining information on their actual or potential environment varies a great deal. Some, particularly large ones, spend a great deal of time, effort and money in the process, having specialized personnel or departments and elaborate procedures in order to obtain high-quality information on many aspects of the environment. Others, particularly small ones, rely on very limited appraisals of environmental parameters, often based on day-to-day experience. Clearly, all levels of personnel in any organization will obtain a certain amount of information

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concerning the environment in which they operate merely by carrying out their normal tasks. However, even information obtained in this way will still require effort in order to code it, transmit it, and manipulate it in order that it may be utilized for decision-making. It follows from this that any attempt to understand the organizational environment will have certain costs attached to it in terms of time, resources (particularly human) and money. Following the logic that was developed in Chapter 7, it must be the case that decisions have to be made concerning the extent to which such effort is sensible and desirable in order to facilitate the strategy formulation process. This will be the case irrespective of whether the decisions in question are consciously taken after some considered analysis or merely implicitly assumed by the decision-makers involved. The cost-benefit analysis that is relevant to decisions concerning the extent to which effort should be expended in scanning the organizational environment follow the same sorts of logic as some of the analyses carried out in Chapter 8. In other words, what has to be assessed is whether the costs involved are outweighed by the benefits which will accrue directly or indirectly to the main production and selling activities of the organization. This indicates that the assessment must be in terms of whether the value added to the organization's throughputs is enhanced by a sufficient amount at least to equal the costs involved. Generally, the uncertainties involved are such that detailed cost-benefit analysis would not be expected, certainly not in smaller organizations. None the less it seems likely that managers could, and should, make some intuitive assessment of the likely gains to be derived from information obtained from environmental scanning activities relative to their costs. Following the logic suggested in Chapter 6 it is clear that the main examination of the organizational environment should be in terms of the various cycles of production and consumption which directly and indirectly involve the organization. This will be most easily carried out for those parts of the cycles which are immediately proximate to the organization's own activities, that is the organization's current suppliers and customers, trade unions with which the organization deals and other such bodies. Those parts of the cycles at a greater distance from the organization will typically be more difficult to assess and more expensive to gain information about. None the less the logic of the ecological perspective developed here suggests that without that sort of knowledge, organizations

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may be dealing with a significantly greater level of uncertainty than will be the case if such knowledge could be obtained. For example, the knowledge that a particular supplier can be relied upon to supply a set of items at a certain cost and subject to other stated conditions will only remain valid as long as that supplier itself can obtain the necessary components and other resources from a more distant part of the cycle. If that is endangered, then the organization purchasing from the supplier is also likely to find itself unable to obtain the resources needed. Obviously, the information required concerning the cycles of production and consumption does not just relate to present circumstances, but also to any likely changes which may occur. This latter type of information is the most difficult to obtain and is likely to be subject to the greatest degrees of uncertainty. Clearly any organization, in the last analysis, will have to make certain assumptions about possible changes in its environment where reliable information cannot be obtained, or would be too expensive. In the absence of any other information it is probably true that the best predictions can be made by extrapolating past trends into the future. Ideally, in order to facilitate decision-making processes which in any way approximate to the rational model discussed earlier, estimates of the likelihood of various assessments of the environment and of predictions of likely future changes should be made. In theory, where this could be done with accuracy and a suitable model of company–environment interaction derived, this would allow the use of mathematical or statistical models for decision-making. In reality, for the reasons exemplified in Chapter 7, this will be unlikely or impossible given the present state of knowledge for any decision-making relevant to issues as complicated as those involved in strategy formulation. Environmental Conditions and the Choice of Strategies An analysis of the various elements of environmental conditions under which a company is operating should make it more or less desirable to choose a particular type of business strategy as opposed to others. In essence, any strategy which is to be minimally satisfactory, in terms of the company's viability, must attempt to find and maintain a niche for it within the ecosystem in which it operates such that it is able to continue in either a stable or improving trading

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position in the long run. In this context, the niche would be defined as an area within which a number of production and consumption cycles intersect such that the company is able to maintain its position in each of these cycles in a beneficial way. It should be noted that each type of input to the organization will stem from a different cycle of production and consumption, and each output will flow out to a further point in a cycle. In essence, the problem of maintaining a niche may be seen in terms of ensuring the continuation of relationships with all the parties involved in each of these cycles, whilst at the same time, those parties themselves and others involved in the same cycles are able to remain viable in their own positions. Such niches relate to a particular division of labour between the organization and others involved in the overall pattern of cycles of production and consumption in the ecosystem of which it is a part. In some senses the strategies adopted can be seen as ways of attempting to define this division of labour in a way which is beneficial to the company. In broad terms competitive and cooperative strategies attempt to maintain the existing division of labour, whilst innovative strategies attempt to increase the extent of it, and retrenchment strategies to reduce it. The advisability of this element of such strategic approaches can therefore be analyzed in the same terms as those used in the previous chapter by changing the unit of analysis from the organization to the ecosystem of which it is a part. It has already been argued that the stability of cycles of production and consumption requires inputs of energy and resources. The elaboration of a more complex pattern of cycles will depend on even greater inputs of energy and resources. The basic viability of any niche in the longer term therefore depends on sufficient resources being available for each of the cycles of production and consumption on which it depends. From the arguments put forward in earlier chapters, and building on these ideas, it is possible to list the main considerations which will influence the choice to be made between the four basic types of strategy outlined in Chapter 4. As we have already emphasized in this chapter and in the earlier discussions, the availability of resources, both in the immediate environment in direct contact with a company and in the more distant environment, is essential to maintain the pattern of cycles of production and consumption on which the company's niche depends. The extent of competition for these resources is also a key factor. Thirdly, the predictability of the extent of availability of resources, of the activities of the competition and of all the relationships involved, is also

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significant in determining what choice of strategy may be desirable. The fourth factor, which will be of key significance, is the ability of strategic decision-makers, or of other persons within the organization, to come up with innovative ideas which may be utilized in order to lead to an elaboration of the pattern of cycles of production and consumption in which the company is involved in order to make the total availability of resources greater. Fifthly, there is the question of the orientation of the individuals, who are likely to be wholly or mainly senior managers, involved in the strategic decisionmaking process. Although there need not be any one-to-one relationship between the individual orientations of the decision-making group and the strategic orientation of the company, it is clearly likely that personal orientations will predispose managers to decide on comparable or complementary orientations for the company which they manage. Where resources are available in sufficient quantity to maintain the existing pattern of cycles of production and consumption, or are in excess of that, it is very unlikely that companies would opt for or indeed gain any benefit from adopting retrenchment strategies. In broad terms, under these resource conditions, the only reason for moving to such a strategy would be as a consequence of disastrous results obtained when previously following other types of strategy; retrenchment strategies are never likely to be popular with management, and will nearly always be very difficult to implement. The problems associated with them have been made considerably more acute in countries like Britain by employment-protection legislation which makes it difficult, and often expensive, to reduce the labour force, particularly on any limited time-scale. In addition, reductions in the labour force, particularly where they are associated with compulsory redundancies, are likely to have a detrimental effect on the morale of employees which may increase the level of uncertainty regarding industrial relations, employee performance and organizational productivity. It is also the case that in many organizations the nature of the technology employed makes it difficult to operate efficiently on reduced capacity. It should also be noted that where retrenchment strategies are pursued it will almost always be necessary to modify certain aspects of the design of the organization in question. Such changes will typically reduce the levels of specialization and internal differentiation. Given all these problems it is likely that retrenchment strategies will normally only

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be adopted at times of reducing resources in the general environment in which the organization is operating. At the other extreme in terms of desirability, it is likely that senior managers would usually be keen to follow innovative strategies where they believe that such strategies are possible without undue risk. Obviously the plausibility of such an approach must depend on an ability to generate new ideas regarding technology, products, methods of working or relationships with other organizations in the ecosystem, or some combination of these. Almost certainly it is in the nature of things that most organizations, most of the time, will not be in a position to move in such directions because of the lack of ideas with a sufficient probability of successful implementation. Where such ideas are available, the adoption of innovative strategies will typically depend largely on the availability of resources, not just to the company in question, but also to other individuals and organizations in the cycles of production and consumption which will be modified or elaborated as a consequence. One of the key difficulties typically associated with such strategies is that, given their innovative nature, they will almost inevitably involve high levels of uncertainty concerning the possible reaction of various individuals and organizations in the environment to the innovations in question. However, such uncertainties may be capable of reduction by some or all of the strategies discussed in Chapter 7. On the face of it, competitive strategies are only likely to be adopted by organizations which see themselves as having some significant form of competitive advantage (a concept which will be further considered below) or under circumstances where other companies involved in similar transactions to the company in question are adopting highly competitive strategies thus increasing the general level of competition. In the latter case, the actions of competitors may remove any real choice from the strategic decisionmakers. To some extent, at least, competitive strategies can be adopted under any environmental conditions, but they are most likely when resources are neither exceedingly plentiful nor exceedingly scarce. In a broad range of intermediate circumstances, the possibility of a competitive strategy must always be considered by senior management, although inevitably it involves potential risks and costs depending on the actions and reactions of competitors. These risks and costs are likely, in reality, to be inversely related to the resource availability in the organizational environment. Cooperative strategies are always more likely, and indeed more

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likely to be successful, when resource availability is stable or improving. Where it is believed that a cooperative strategy will be complemented by similar strategies being adopted by potentially competing companies, they would appear to offer a relatively low-risk approach to the organization's activities. This is particularly likely to be the case where they involve direct collusion with potential competitors as opposed to depending on tacit agreements. However, where resource availability is low or declining, cooperative strategies are likely to be difficult to maintain, in that in such circumstances it is highly likely that competitors who have previously adopted cooperative strategies will change them in order to gain a greater share of the available resources, and hence they are likely to become substantially more competitive. The Nature of Competitive Advantage The resources that organizations require in order to operate will inevitably be limited. Their acquisition will involve some form of cost, and there will always be actual, or at least potential, competition for such resources. It follows therefore that any organization must be able to develop some form of competitive advantage, or at a minimum the avoidance of disadvantage, if it is to survive. Such advantage can stem from any or all of the components of strategy discussed in Chapter 4. As it is likely, in reality, that any organization will be able to develop some advantages but also suffer from some disadvantages, it is necessary that in some sense the balance is favourable with regard to all the relationships in which the organization is involved, which are necessary to its continued functioning. If this were not the case in any particular consequential relationship, it is likely that this would be broken off by the other party with the result that the organization would be unable to function unless some alternative could be developed on a fairly short time-scale. In the market situation in which most companies operate, one of the most significant potential advantages must be in terms of price. Therefore, in disposing of its products, a company that can operate whilst selling at a lower price than competitors clearly has an advantage. Similarly, where a company is able to offer a higher price for needed raw materials or components it will have an advantage. However, price is only one amongst many aspects of the exchange relationships in which organizations are involved even in fairly conventional

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market situations. Other factors which will routinely be relevant include those relating to the quality of service, delivery dates, and the security or reliability the organization is able to offer in terms of continuation of the transactions. With regard to this latter point, it must be remembered that, in the large majority of cases, the individuals and organizations that deal directly with the company in question, as well as all those that have a more distant relationship with it through the same cycles of production and consumption, will have a vested interest, similar to the company itself, in avoiding high degrees of uncertainty with regard to their future relationships. Thus, for example, it is not only a company selling a product that wishes to be ensured of future sales, it will also typically be those buying the product that wish to be ensured of future supplies. Similarly an employing organization will normally wish to establish relationships with its labour force such that they will continue to serve in their various capacities, but equally the employees will typically have a strong interest in the security of their continuing employment. Generally then, both the company in question and those with which it deals directly or indirectly will typically be balancing advantages in terms of resources, prices, and related matters with the level of certainty involved in continued transactions. Obviously where a company can offer advantages on both counts, then it will have the strongest sort of competitive advantage. However, in other circumstances it must try and achieve the best balance between the two, if it is able. With these ideas in mind, an attempt will now be made to integrate the ideas relating to the components of strategy into the analysis proffered earlier in the present chapter. The Nature of Strategies to Fit the Environment Retrenchment Strategies As we noted earlier, retrenchment strategies will typically be employed in circumstances of low resource availability or of diminishing resources. Under these circumstances the organization will attempt to simplify the pattern of cycles of production and consumption to which it is a party both internally and externally. It will also attempt to reduce the level of internal differentiation and division of labour, both within the organization, and between itself and other organizations. Such strategies will be typified not only by reductions

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in cost, and particularly labour costs, but also by a streamlining of the internal organizational design, reducing the number of specialist activities, and particularly cutting out any activities which are believed to be peripheral to the main purpose of such strategies, which will be the continued survival of the organization. Typically the relationships with other parts of the cycles of production and consumption will be simplified, and relationships which have limited impact on the viability of the organization will be cut out. Thus the organization will attempt to utilize to the maximum what resources are available in order to maintain its existence and possibly build a base for future changes in strategy to allow for a more prosperous future. Whilst simplifying the input–output relationships in which the organization is involved it will have a vested interest in attempting to maintain reliability in those relationships in which it wishes to continue. Management will, therefore, have the difficult task of convincing the suppliers and customers with which it wishes to continue to deal that the retrenchment process will be curtailed at a certain point in order to allow for future viable trading. Similarly, internally, it will have a problem in maintaining the morale of its remaining employees where the labour force has been cut back. Such a strategy will clearly, as has already been mentioned, have significant implications for organizational design and will often be coupled, not only with the reduction of differentiation and specialization already mentioned, but with an increase in the centralization of decision-making. This will be likely in order that the strategy-formulating group are able to move closer to the day-today operating decisions. Clearly such a strategy will be difficult to execute and will require senior management to make a major effort to carry employees, and those external groups with which it deals, with the organization if it is to survive. In multi-business companies the problems may be different, if a retrenchment strategy in one business can be complemented by innovative or competitive strategies in other businesses, this may allow some absorption of surplus labour from the retrenchment area to the rest of the overall company, and also facilitate a solution to cash-flow problems. Inevitably where a mixture of strategies of this sort is employed the basis of synergy between different businesses in the same corporation is likely to change. None the less, the basic logic of a multi-business corporation must remain. In other words it must continue to obtain benefits from operating different activities under the same umbrella

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if it is to be able to compete with single-business organizations in the same markets. Innovative Strategies The problems of developing and operating innovative strategies are substantially different to those we have just discussed. They are typically carried out in situations where resources are relatively plentiful, although in theory they could be carried out under any environmental conditions. The essence of innovative strategies depends on developing new ideas, usually based on technological progress, and on the development of new linkages with customers and suppliers in order to elaborate the cycles of production and consumption in which the organization is involved. Its input–output strategy will involve building new relationships, often involving market segmentation, both on the input and output side of its transactions. In its internal transformation-control strategy, the emphasis will be on new methods of working related to technological developments, rather than on cost-cutting or pure issues of efficiency. The implications for organizational design have already been mentioned, and will typically involve the employment of increasing numbers of specialists in order to service the more complex situation the organization is endeavouring to develop. Where such strategies are carried out within a multi-business corporation, the attempt will be to use synergistic relationships in order to facilitate the processes of increasing elaboration. At the same time, both in single- and multi-business companies, innovative strategies require the development of synergy, not only within the organization, but within the ecosystem of which it is part. The essence of the successful implementation of such strategies depends on providing benefits not only for the company itself but for many of the parties who are involved in relationships with it, both directly and indirectly. This will typically lead to additional wealth creation in the overall ecosystem. Competitive Strategies In many ways the competitive strategy would seem closest to the classical economist's view of the way in which companies ought to behave. In probably the majority of circumstances the main thrust of a competitive strategy will be based on the transformation-control strategy coupled with organizational design. The emphasis on both will be to achieve high levels of efficiency by cutting all costs which

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are capable of being limited without curtailing the scale of operation. At the same time the input–output strategy will attempt to gain advantages over the actual or potential competition. Only where the advantage to be obtained relates to the security or reliability of the continuation of relationships is such a strategy likely to lead to the reduction of uncertainty with regard to future states of the pattern of cycles of production and consumption. More normally, such a strategy is likely to be associated with increased levels of uncertainty as the reactions of competitors may be difficult to predict. It is for this reason that only companies that are relatively confident of being able to defeat the opposition in such a way that the level of competition will tend to decrease in the future, are likely to pursue such strategies with any degree of enthusiasm. This of course means that the likelihood of such approaches being adopted under conditions of high resource availability may, in fact, be relatively low. In the multi-business company, synergy will be used wherever possible as a way of curtailing costs, increasing efficiency, and generally improving the competitive position vis-à-visother companies involved in the same sorts of transaction. The evidence for the implications of competition and competitive strategies for organizational design, is somewhat mixed. None the less, it seems likely that there will be a general tendency for organizations to adopt the most cost-effective designs, which in general terms is likely to mean matching the other environmental and contextual conditions more closely than might be the case when other strategies are being followed. Cooperative Strategies As has already been said, if such strategies can be maintained the cooperative approach may in many ways be the most comfortable for management in that it may lead to substantial reductions in uncertainty, particularly where the cooperation extends both to competitors and to other parties to the cycles of production and consumption in which the organization is involved. Under these circumstances virtually all the parties collaborating in the ecosystem will attempt to maintain a status quo which presumably is at least moderately beneficial to the overwhelming majority of the parties involved. Given the very nature of cooperative strategies and the danger that any attempt to take advantage will lead to retaliation from one or many parties involved in the ecosystem, it is likely that when such strategies are being pursued, an attempt will be made to

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maintain the status quo with regard to all the components of the organization's strategy. If there are any modifications they are likely to be small and aimed at marginal increases in profit or managerial benefits. A Final Word In the present chapter an attempt has been made to understand the linkages between organizational environments and the types and components of strategy. Given the overwhelming complexity of all the concepts considered the discussion can have only been relatively superficial. None the less it is hoped that it has laid down the main considerations which apply when such decisions have to be made. Following this we will go on to attempt some assessment of the ways in which strategy and design can be managed. However, before doing that it is necessary to consider as a particular issue the role of individuals, particularly employees, relative to the various issues and analyses that we have considered up to the present in this work.

10

STRATEGY, DESIGN AND THE INDIVIDUAL

Up to the present, we have probably taken insufficient account of the variety of ways that organizational design and company strategies can effect individual employees. Also the general approaches discussed may have tended to take an overly mechanistic view of organizational systems, and hence not fully reflected the importance of the human element. It is therefore appropriate at this stage to try to redress this possible imbalance by focusing specifically on the relationship of employees individually and collectively to their employing organization, and the ways this may be affected by the nature of its design and the strategies its management pursues. The Individual at Work Without wishing to dwell on the obvious it may be worth a very brief return to first principles, in order to examine the general problem in a balanced way. Clearly employees do not bring to the work-place just the limited range of attributes required by their job description. It is, rather, the whole person who enters the factory gate, or office door, each morning. He or she brings to the working situation personality, abilities, aptitudes and skills, intelligence, patterns of motivation, a self concept or sense of identity, values, beliefs, attitudes and opinions. Many of these attributes or characteristics originated in the individual's experience during his or her early life and adolescence in situations well removed, and substantially different in character, from the work-place. Some of the individual characteristics just mentioned tend to be highly stable in adult life and will only change slowly, if at all. Thus, for example, an employee's personality or level of intelligence have to be taken as given. On the other hand an individual's level of skill, pattern of motivation, attitudes and opinions may be relatively easily changeable, at least by comparison with the former set of attributes. It is, therefore, necessary to consider the implications of individual characteristics on organizational functioning and vice versa rather differently for these two different categories of character139

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istics. Where one is considering the more stable characteristics of the individual, it must follow from what has been said above that although these attributes may influence the way the individual reacts to organizational designs and strategies, they will not themselves be significantly influenced by them. On the other hand the less stable characteristics will both influence the way the individual reacts and themselves be modified by organizational factors. The Relationship Between the Individual and the Organization As we noted in Chapter 5 there would seem to be three main mechanisms by which different individual efforts can be coordinated. These mechanisms rely on exchange relationships, authority systems or adherence to common sets of values. As we discussed at that stage, the employment relationship is best characterized in terms of the individual providing his services or labour and accepting the organizational authority in exchange for financial rewards. This is carried on within a contract of employment which carries certain legal implications and safeguards both for the employing organization and for the individual employee. However, although this may, in certain important senses, fairly characterize the relationship, it is in many equally important senses incomplete. It can, perhaps, best be seen as the legal framework within which the fuller relationship is worked out. We noted earlier that, although theoretically and legally the contract of employment requires the individual employee to subject him or herself to the employer's authority, this in reality must always be regarded as problematic. This is the case in the direct and obvious sense that employees on occasion may deliberately flout the rules and procedures or disregard orders from managers whose position is legitimated by the organization's rules. It is also the case in a very much less obvious way, that employees can exert themselves to very different extents in carrying out their duties. Clearly, then, acceptance of authority in the context of the employment relationship cannot be seen in simple black and white terms, but rather as a continuum from total non-compliance, through compliance with different levels of effort, to compliance in a highly motivated way such that the individual's performance approaches the maximum of which he or she is capable. Because of this considerable potential for variability in levels of

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individual compliance, and hence the achievement of different levels of performance, it is necessary to look carefully at all three bases of coordination and also the ways in which the three may interact within the employment relationship. The problem for management is to arrange the functioning of the organization in such a way that the extent of compliance of employees at all levels in the hierarchy, and in all the different functional areas, is such as to provide the maximum benefits to the organization. To achieve this will require considerable attention to the human element, and particularly its variability, in both formulating strategies and designing structures. It must be noted that the objective just stated may not be synonymous with trying to ensure the maximum motivation of all employees. This is because, as we noted in Chapter 8 when considering the desirable extent of specialization in the production area, there may be a need to compromise between the objective of obtaining the maximum level of mechanistic efficiency and that of gaining the highest levels of motivation in order to achieve the greatest overall benefits. The three bases of coordination, outlined above, are not in this context to be seen as alternatives, although in the limiting case that may be true. Rather they should be seen as potentially complementary mechanisms. Thus the maximum benefits are likely to accrue for both individual and organization when all three bases can be made to operate simultaneously, in a way which is mutually reinforcing. It must therefore be one of the key considerations, when strategies are formulated and structures designed, to attempt to achieve this. Strategy and the Individual As we have suggested earlier, company strategies are normally formulated by senior executives, with varying degrees of inputs from others lower in the organizational hierarchy. However, in general, lower-level participants have only a relatively small influence in the strategic decision-making processes. This is probably not in itself a source of problems in most cases as there is considerable evidence that employees have only limited wishes to participate. Rather, the results of research investigations show that employees typically only want to be involved in decision-making where the outcome is likely to have a significant and relatively immediate effect on their own

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working activities, and the immediate situation in which they are carried out (e.g., IDE, 1979). However, when attention switches from strategy formulation to implementation and organizational design decisions, then the situation tends to be rather different, as here the implications are typically going to be more immediate for many, if not all, organizational employees. Despite what has just been said, considerable attention must be given to the beliefs, values, attitudes, opinions and patterns of motivation of employees when strategies are formulated. In addition a careful appraisal must be made of the range of available skills within the organization. This is true for a number of reasons which may be distinguished analytically. First, it must be noted that the strategies adopted can provide a moral rationale for the activities of employees. Clearly where those employees are sympathetic to the strategies in question, then it is substantially more likely that willing compliance will be achieved, and levels of motivation are likely to be high. Ideally there should be a strong complementarity between organizational strategic objectives and the goals of the individual (MacGregor, 1960). Under such conditions, not only is the individual likely to put forward maximum effort, but also require little in the way of supervision. Of course, it is substantially easier to develop strategies to which employees want to be parties, and objectives the accomplishment of which is highly valued by them, in some organizational contexts than in others. Thus, in the health-care and education fields it is generally believed that many employees have a sense of vocation. This is to say, that they put a high personal value on the objectives their employing organizations are designed to achieve. Although it may be less easy in the typical industrial or commercial company to achieve this sort of moral commitment from the majority of employees, some effort in this direction is likely to create benefits. It should also be recognized that this form of commitment is likely to make the individual's experience of work more rewarding. There is indeed considerable evidence to suggest that employees find more satisfaction in situations where they feel they are contributing to some significant and worthwhile endeavour than in other situations (e.g., Hackman and Oldham, 1975). The second reason why the values and attitudes of employees must be considered when strategies are being developed is, in some senses, an extension of the first. It applies particularly to the views of those employees who have to deal with outside individuals or

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organizations, and is most easily illustrated by reference to the salesman's role. Put simply, it is very much easier, and also more rewarding, to sell something you believe in genuinely, than something about which you have doubts. Generalizing this, it will be easier to persuade outsiders to act in ways which are beneficial to the company when the person doing the persuading believes in the strategies which he is helping to carry out. The third reason why attention must be paid to the employees who will have to carry out any strategy which is developed, relates particularly to the skills and motivation which they can bring to the process of strategy implementation. Generally speaking, there is little point in formulating strategies which cannot be carried out successfully. This being the case, it is necessary before formulating strategy to examine the skills and patterns of motivation which exist amongst personnel in different parts of a company, in an effort to ensure that they are both sufficient and appropriate to the task upon which the strategy being formulated suggests that they are about to embark. At an absolute minimum it must be determined that the employees' skill levels are sufficient to give the organization at least some chance of successfully achieving its strategic objectives. In addition, those managers who are formulating the organizational strategies need to convince themselves that the motivation of employees is such that there will be no significant attempt by important groups to block their implementation. In this context it must be appreciated that any strategy, whose implementation would worsen the position of individuals, may be particularly likely to meet opposition, and hence be that much more difficult to implement. Thus, any strategies which have the effect of lowering the benefits accruing to the individual, whether of a financial or non-financial kind, are likely to meet resistance. Even where this can be successfully overcome there is a danger that it may lead to a general lowering of morale, loss of motivation, and hence a fall in the level of performance of individual employees, which may in turn lead to a drop in the effectiveness of the overall organization. Of course, under certain conditions, such as a drop in demand for the organization's output or a general recession in the economy in which the company is functioning, such strategies may be required. However, it is important that sight is not lost of the potentially negative consequences. In all cases it is essential to bear in mind that employment

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relationships are, in essence, temporary arrangements. This means, of course, that where strategies are such that they make the continuance of the relationship less desirable than the perceived alternatives from the individual's perspective, then higher staff turnover is likely to result. Such turnover may disrupt the organization's capability of executing its strategies. Even where this is not significantly true it will lead to increased cost being incurred in the recruitment and training of new personnel. Organizational Design and the Individual Virtually all decisions regarding organizational design will have an effect on at least some of an organization's employees. As we noted earlier, a compromise must often be struck between the achievement of mechanistic efficiency and the encouragement of high levels of motivation amongst organizational personnel. The nature of this compromise will depend very largely on the nature of the task that the organization is designed to achieve, and on the constraints within which it must operate. In Chapter 5 it was suggested that the two broad areas, concerning which design decisions had to be made in the process of organizational design, were the division of labour and the methods of coordination. In each case a number of different dimensions of organizational structure were relevant. It was also noted that different structural solutions might be adopted in different parts of an organization rather than relying on global answers which had to be implemented in every area. As we observed then, management is typically trying to achieve three things in designing structures: task accomplishment, control and the meeting of cost targets. It must be recognized that, in the last analysis, organizational design is about individual jobs, and the relationship between them, and hence must inevitably influence employees, individually and collectively. It may therefore be useful to start our consideration of ways of dealing with the human element in the process of organizational design by considering the closely related issue, at the micro level, of job design. Hackman and Oldham (1975) have suggested five main elements of job characteristics which taken together will dictate the motivating potential of any particular job, and which, therefore, should be carefully considered in job design. These five characteristics, which are the main components examined in their

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job diagnostic survey instrument are skill variety, task identity, task significance, autonomy and feedback. It may be useful to consider each of these five in turn. Skill variety relates to the range of skills that are normally required for an individual employee to carry out his or her particular job. They argue that increased skill variety is associated with enhanced meaningfulness of the task for the individual worker, and hence an increased propensity for the individual to display high levels of internal motivation. Although the evidence seems relatively clear-cut and highly supportive of Hackman and Oldham's contentions, this is an area where great care is required when drawing conclusions about job design. Probably more than in any other area of job design, the pressures for mechanistic efficiency run strongly counter to the logic of providing motivating jobs. As was pointed out in Chapter 8 highly specialized jobs, requiring very little in the way of skill variations, allow selection of personnel with appropriate characteristics, allow the worker to achieve a very high level of proficiency as the range of skills required is very limited, and allow new workers to be trained to acceptable levels of performance very rapidly and cheaply. Such high degrees of specialization may also reap advantages by reducing equipment costs and easing the introduction of very high levels of mechanization. It must, of course, be remembered that in large organizations, with many jobs to which these arguments apply, any costs or benefits may be multiplied many times due to the numbers of workers involved. However, it must also be noted that different people react in significantly different ways and to different degrees to different job characteristics. The implications of such individual differences should not be overlooked in the design process. The notion of task identity relates to the extent to which the job involves a relatively recognizably complete operation, as opposed to a very small part of a much larger whole. Of course, it is in the nature of most organizational jobs that very few personnel are involved in carrying out totally complete tasks, entirely on their own. However, as Hackman and Oldham argue, a degree of completeness makes the job more meaningful for the worker, and hence is likely to increase his level of motivation, as well as the level of satisfaction he derives from work. Again, in many working situations the engineering logic of task design may run counter to the idea of increasing the motivating potential of the job in this way, for very similar reasons to those considered in relation to skill variety. The third characteristic of the job, which is considered by Hack-

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man and Oldham to be of great importance, is the significance of the task. This relates to the way the tasks influences the individual worker's feelings regarding the importance of the outcomes associated with his work, and the extent of its social impact. Again, they argue that the greater the task significance, the greater the meaningfulness of the job to the employee, and hence the greater the motivating potential of the job. The problems of giving or increasing significance to a particular job relate closely to the issues raised in the previous section, concerning the role of strategy in providing a mission with which individual employees could identify. Here, we are considering both the significance of the organization's strategic objectives and their components which are closely related to the task of the individual worker. As was argued above, it is very much easier in some industries than in others to provide task significance for individual workers. These first three apects of work considered by Hackman and Oldham relate almost entirely to the extent to which the individual worker finds the actual work involved in his job meaningful to him as a person. The remaining two aspects on which they focus attention are, at least in certain aspects, rather different. The fourth aspect of work stressed by Hackman and Oldham is the autonomy experienced by the individual in carrying out the particular tasks associated with his work. They argue, in congruence with a substantial body of corroborating evidence (e.g., Blauner, 1964), that increases in autonomy will add to an employee's feelings of independence and freedom whilst carying out his job, thus reducing any potentially alienating feelings of powerlessness. Of course, in organizational employment no individual can be completely autnonomous. This will be true for the reasons discussed above in terms of the nature of the employment relationship. None the less, there is very large scope for variation in the extent to which individual jobs allow them to experience autonomy in the work situation. In general terms, it must be acknowledged that a reliance on authority as a basis for coordination will, all things being equal, tend to reduce the autonomy of subordinates, although in terms of subjective feelings there may be very considerable differences in the extent to which this is experienced, depending on the leadership style adopted by the managers involved. Where greater reliance is placed on exchange relationships or common values as a basis for coordination, then the potential for greater individual autonomy is considerably enhanced. However, for the reasons already discussed,

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moves away from hierarchical authority as a basis for organizational coordination must perforce be somewhat limited if the overall level of control in the organization is not to be undermined. The fifth and last characteristic, which is regarded by Hackman and Oldham as an essential contributor to the motivating potential of a job is the extent of the feedback that an individual receives, concerning his or her performance in carrying out the alloted task. Such feedback is essential if employees are genuinely to appreciate the results of their activities. It may also assist individuals to understand how to improve their task performance. In addition it may help them understand how this may assist in achieving group or departmental targets, and hence contribute to the accomplishment of corporate objectives. Feedback may be obtained by the individual worker from personal inspection of the outcome of his activities, or from the comments of others, particularly superiors and co-workers. The extent to which the individual may obtain reliable feedback purely from his own assessment of the situation obviously varies greatly from job to job. However, the balance of evidence suggests that it is only where quality and quantity measurement is clear-cut and overt, and where performance targets are both agreed and highly visible, that personal assessment alone provides adequate feedback for the individual. In most circumstances, due to the hierarchical nature of the authority system, the most important performance feedback comes from the immediate boss. Although this is often evidently the case in a large number of situations, there is considerable research evidence that a large proportion of managers find giving unambiguous feedback exceedingly difficult. This latter conclusion would seem to be true concerning both day-to-day interaction between bosses and subordinates and also their interrelationship within formal systems of performance appraisal (Sofer and Tuchman, 1970). Inevitably the ideas put forward by Hackman and Oldham are not the only suggested approaches to the understanding of the linkages between job design, motivation and satisfaction. Basing their work on a broadly similar survey approach to diagnosing problems in job design to that adopted by Hackman and Oldham, Sims et al. (1976) did not use the task-significance dimension, but instead suggested two social dimensions relevant to the satisfying and motivating potential of the job. These two social characteristics related firstly to the extent to which employees were functionally required to deal with others as part of their job, and secondly to

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the extent of opportunities in the job situation for the development of close friendships. Of course, since the Hawthorne studies (Roethlisberger and Dickson, 1939) the social or group-relations aspects of work have generally been seen as a source of satisfaction, but not always as a provider of motivation to perform at a high level (e.g., Herzberg, 1966). Generally there is no reason why the scope for social relations in an organization needs to be curtailed, over and above the need to avoid workers being distracted from their tasks, or, in the case of those working with customers, appearing impolite or projecting an unfortunate image. However, in reality, it is often one of the significant side effects of the design of organizational structures, and the use of certain sorts of technology, that the scope for social relations in the work-place is significantly limited. Again this is an area where a compromise will frequently be needed between the requirements of mechanistic efficiency and the needs of individual workers. Overall, however, there is some danger in relying solely on an examination of individual characteristics of jobs in making design decisions as it must be true, at least to an extent, that individual workers will view their jobs as a whole. They will often accept some negative features of the work they do as an inevitable and equitable exchange for the beneficial features of the job. If we now go on to consider the implications of these issues for organizational design itself, a number of dimensions of structure suggest themselves as being particularly likely to create problems in terms of creating situations where individual jobs may not have a high motivating potential associated with them. In particular, under the general heading of division of labour, the following may merit attention: functional and role specialization, number of levels in the organizational hierarchy and supervisory span of control. Under the heading of methods of coordination, centralization and the extent of bureaucracy seem to be areas where problems could arise. In addition to the implications of design decisions regarding these dimensions for the individual jobs of workers, their implications for the climate of the organization may be significant, as this relates to the psychological environment in which individual tasks are carried out. In addition it must be appreciated that where different sorts of design are developed for different parts of an organization, then the question of equity or fairness between different personnel in different parts of the organization could also be a significant issue. The problems associated with specialization have already been

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discussed above, and in Chapter 8. These must be regarded as amongst the most significant faced by organizational designers. It is worth noting that Argyris (1957), in his seminal work on the conflict between organizational requirements and individual needs, put task specialization at the top of his list of organizational characteristics which he argued could impede the healthy psychological growth of the individual employee. Clearly the problems in this area are considerable and are particularly likely to be felt in lower-level production and clerical jobs. The number of levels in the hierarchy, which is an aspect of the division of labour between those controlling organizations and those directly carrying out the work of the organization, taken in conjunction with the supervisory span of control, may also limit the motivating potential of the individual's job, this time in relation to the autonomy involved. Generally where there are many levels in the organizational hierarchy, it is likely that lower-level employees will feel that many decisions which effect their work are taken at a considerable distance from themselves. Although this in itself may be less important than the immediate minute-by-minute control, or lack of it, that the employee has over his or her work, none the less, it will tend to reduce the worker's feeling of autonomy and in the extreme generate a feeling of powerlessness. After all, it may seem bad enough to have others making decisions which effect one's work, but it is likely to feel substantially more frustrating where the decision-makers are at such a hierarchical distance that they cannot normally be questioned about the issues involved. Where supervisory spans of control are small (that is only a few workers report to each supervisor), then the likelihood is that supervision will tend to be close, and hence the workers' autonomy will tend to be limited. If this occurs in conjunction with a large number of levels in the organizational hierarchy, then it seems likely that the autonomy of individual lower-level employees could be severely limited. However, as Porter et al. (1975) point out when reviewing the research evidence relating to this, the issue is not clearcut. This may well be a consequence of the interaction effect with the technology employed by the organization. Certainly the evidence suggests that technology has a quite strong relationship with supervisory span of control (e.g., Woodward, 1958; Child and Mansfield, 1972). In particular, large spans of control seem to be most frequently found in mass-production industries, especially those using assembly-line technology. In these situations, however, it seems

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inevitable that the machine pacing inherent in the method of production will tend to have an adverse effect on the individual worker's autonomy which will outweigh any benefits in this area stemming from the large spans of control. Indeed, it is because of the heavily engineered, greatly subdivided, tasks which are controlled for timing by the movement of the line, that large spans of control (often as large as 50 workers to a foreman) are possible, and indeed effective. Quite apart from any benefits that may stem from giving workers greater autonomy, increases in spans of control, and hence reductions in the numbers of supervisors required, will lead to substantial savings in supervisory labour costs. Equally, additional layers in the hierarchy of organizations will tend to increase the cost of management relative to the cost of direct labour. When attention is turned to those dimensions of structure primarily relevant to coordination in organizations, the implications for individual autonomy remain a key consideration. Quite clearly, where decision-making is more centralized there may be a tendency for lower-level employees to experience a reduction in autonomy. However as Mansfield (1973, 1984) has argued, the issue is substantially more complex than this. He argued that with an effective bureaucratic system of control the way to centralize power in an organization, particularly one of any size, was to decentralize decision-making; but to do so in a way that meant that the decisions of lower-level personnel were highly programmed and the consequences monitored. Thus, if done in a bureaucratic way, decentralization of decision-making may actually decrease the autonomy of lower-level participants. Certainly there is, at least, some evidence to suggest this is the way it is perceived by organizational members (Mansfield, 1984). Clearly, then, the autonomy involved in jobs depends not just on decision-making authority, but also on the extent to which discretion can genuinely be utilized in ways which are not too circumscribed by rules and procedures. Of course, the extent of bureaucracy itself may limit the motivating potential of jobs on a number of different counts. Many writers have commented on the dysfunctional consequences of bureaucractic systems of administration (e.g., Merton, 1940; Gouldner, 1959; Crozier, 1964) and most of these have revolved around the negative implications of bureaucracy for the individual employees, particularly those at lower levels in the organizational hierarchy. Particularly when combined with relatively high levels of specialization, as is normally the case (Mansfield, 1984), the reliance on rules, pro-

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cedures and paperwork which characterize highly bureaucratic organizations is likely significantly to limit skill variety, task identity and task significance by limiting the employees' perspective to a rule following attention to means as opposed to ends. At the same time, as noted above, the autonomy of the individual is usually also substantially circumscribed by these same rules and regulations. As the literature suggests (e.g., Burns and Stalker, 1966) such mechanisms may aid performance under stable conditions, where the advantages that Weber (1946) suggested were endemic in bureaucratic systems of administration outweigh the problems of demotivation noted above. The matter is in reality more complicated than this as bureaucratic logic may not only reduce the motivating potential of jobs, it may also lead to the recruitment and training of employees with bureaucratic personalities (Merton, 1940) which collectively limits the organization's ability to adapt to change and uncertainty. However, there is considerable evidence which shows a very strong link between organizational size and the extent of bureaucratization (e.g. Pugh et al., 1969; Child, 1973), to such an extent that it seems reasonable to suggest that a fairly developed system of bureaucratic administration is essential to maintain any acceptable level of coordination in medium- and large-sized organizations. This suggests, once again, that design decisions relevant to this dimension of structure must involve an element of compromise between ways of achieving mechanistic efficiency on the one hand and administrative methods which allow or encourage greater motivation and commitment from employees on the other. The discussion in this chapter has demonstrated the many ways in which it is necessary to take account of the human element when company strategies are formulated and organization-design decisions taken. However, it is clear that in most areas taking account of the human element involves a difficult balancing act. The way these problems fit into the wider emerging theoretical framework developed here will be examined in the next chapter.

MANAGEMENT OF STRATEGY AND 11 THE STRUCTURE

In this chapter, an attempt will be made to draw together the various threads in order to understand the ways in which the stategy and structure of organizations in general, and of business firms in particular, can be managed. Before doing this it may be useful to recapitulate on some of the points made in the arguments advanced thus far. First, it must be noted that organizations are integral parts of larger social structures or ecosystems and that such larger systems are characterized by flows of resources of all sorts which are manipulated and consumed in cycles of production and consumption. The passage of such resources between individuals, groups or organizations is typically carried on by means of some form of exchange relationship, even though these may not always be direct ones. Although organizations are routinely regarded as purposive social systems, we have noted that the concept of organizational goals is an elusive one, and that few, if any, organizations have goals or even strategic objectives which are defined in a precise and meaningful way. This means that the activities of organizational personnel cannot easily, if at all, be evaluated in terms of their efficiency for goal accomplishment. Neither can managerial decision-making be seen in terms of a logical rational juxtaposition of means and ends. Organizations are loosely-articulated social systems, in which political, economic, social and psychological forces all play a part. This means that management involves the problems of attempting to control these forces, under uncertain circumstances, in order to move towards often vague and ill-defined ends in a situation of limited resources. The task of management hinges around the making and implementation of decisions, some of the most consequential of which relate to the formulation of strategy and the design of organizational structures and administrative arrangements. However, important though these areas of decision-making are, they are by no means the only sets of decisions which are crucial to an organization's prosperity and viability. In addition a very large number of operating decisions will have to be taken and implemented, if organizational tasks are to be carried out. Generally speaking, decisons of this

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latter type will be taken by a very wide variety of personnel at all hierarchical levels and in all functional areas. The importance of the decisions which relate to strategy and structure is that they set the scene within which such operating decisions are taken, and guide the processes involved. In other words, one can see the formulation of strategies as providing the logic behind the operating decisions, and organizational design as providing the mechanisms by which they may be made and implemented. The relationships between these different sorts of decision, and the desired outcomes they suggest, should fundamentally be based on the pattern of resource flows running through the organization. Of course, in reality, the distinction between these different sorts of decisions is likely, in many cases, to be unclear. In addition, it must be noted that the cumulative effect of a succession of operating decisions may on occasion modify strategies or structural arrangements. The extent to which this is likely, however, will itself be a consequence of the strategies and structures themselves, reflecting the extent to which these are articulated in an integrated way. This issue will now be addressed as it has implications for many aspects of the management process. The Comprehensiveness of Strategy One of the key factors which differentiates different approaches to the management of company strategies relates to their comprehensiveness. In these terms, three different managerial approaches can be identified. At one extreme, there are strategies which are formulated in a detailed way to cover all aspects of the various activities in which a company is involved. At the other extreme, there are those strategies which are only formulated in bare outline, leaving substantial room for interpretation or discretion in the execution of the strategy. In between, one can have a hybrid version, where some elements of the strategy are detailed and others merely outlined. There is some evidence (Frederickson, 1984) that, under stable environmental conditions, those companies that develop highly comprehensive strategies are most likely to achieve high levels of performance. On the other hand, under conditions of environmental change and uncertainly, companies with strategies of a non-comprehensive or outline nature seem likely to outperform those who have a more all-encompassing approach to strategy formulation.

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These findings suggest that under conditions of uncertainty and change there may be a need for opportunism as opposed to strategic planning in order to cope with the unpredictability of the environment. This reflects the general point made earlier in this work that planning is only possible in a certain situation, or at least in a situation where assumptions can be made about possible future events and their probability of occurring. Of course, certain sorts of organizational investment, particularly those in large plants, which take substantial periods of time to construct, and even longer periods to operate in such a way as to gain a return on the initial investment, require relatively long-term planning. These are likely to be exceedingly risky where it is fairly likely that assumptions cannot be made about future developments in the organization's environment and its relationships with individuals and organizations in that environment, and plans formulated on the basis of these. The level of comprehensiveness employed in strategy formulation and the subsequent planning process should be reflected in the design of the organization in question. Highly bureaucratic organizations are not only most likely to plan detailed strategies, but are also likely to have little ability to carry out plans which are only formulated in outline. Following the work of Lawrence and Lorsch (1967) and Burns and Stalker (1966) and a number of subsequent writers, it would seem clear, that where only outline strategies are formulated, there will be a need for high levels of differentiation between different functional areas or product groups. Their implementation will also require relatively high levels of decentralization of decision-making in order that personnel in close contact with the various uncertain parts of the environment are able to react to changes in that environment sector and display the opportunism mentioned above, in order to achieve benefits for the organization. Of course, such behaviour can lead to the splintering of organizational effort, and unless substantial efforts are made to provide a high level of integration and coordination, a deterioration in performance can occur. Clearly, then, the logic of the foregoing implies that the contingency approach to organizational design can only be fully meaningful if coupled with a complementary contingency approach to the development of organizational strategies, at least in terms of their comprehensiveness or otherwise. Referring back to the issues discussed in Chapter 10, the nature of both the strategy and organizational design to be employed by an organization has considerable relevance for the way the employees

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within it, at all levels, are managed. Where comprehensive strategic planning is allied to a bureaucratic structure, then there will need to be either an exceedingly powerful and well-accepted authority system, or there will be a strong need to obtain substantial agreement amongst personnel by consultation or participation, in order to gain the acceptance, involvement and committment of all those employees relevant to the carrying out of a plan. Such consultation or participation should largely relate to the means of carrying out the plan. In circumstances where only outline planning and a more flexible differentiated and decentralized structure are employed, then the need is to ensure that, wherever possible, employees at all levels understand the broad objectives of the company strategy, and have the ability and motivation to make appropriate decisions, and to carry out those decisions in a way which allows the organization as a whole to adapt and prosper in an uncertain environmental situation. This, no doubt, will involve consultation but of a rather different sort to that involved in the former case. In that instance it was necesary to develop commitment to methods, as the plans were no longer problematic. In the present case the involvement of personnel should be focused on corporate objectives so that, when they make decisions or take action to supplement the outline plans, they will all be pulling in the same direction. Clearly, the hybrid approach to strategy formulation, where some parts are detailed and others only formulated in outline, may be appropriate where different parts of the company have substantially different levels of environmental uncertainty to deal with. Under these circumstances the organizational design must reflect this and show considerable variability in terms of a variety of structural parameters from one part of the organization to another. Strategy, Design and Personnel As we have already noted, decisions regarding the formulation of strategies and the design of organizational structures are typically taken by senior managers, and in an important sense can be argued to be the main task that such managers perform. However, as we have just noted, and as was discussed at greater length in Chapter 10, in carrying out these funtions management must have considerable regard to the attitudes and motivation of all personnel employed by a company at whatever level, and in whatever function. In the

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decision-making processes involved many personnel may have valuable inputs to make which should be utilized if possible. However, it is perhaps more important that there must be some attempt to gain the commitment of such people if strategies are to be implemented in a successful manner. At all stages management has to balance the requirements for efficiency in terms of a rational mechanistic approach with the need to motivate and guide the behaviour of the people employed in the company. In certain circumstances it may be necessary to strive for a consensus, but more normally only a partial consensus is needed. What is required is a level of agreement, on both means and ends, which is sufficient to ensure sufficient commitment amongst a substantial percentage of personnel in order to carry out the operation of the organization in an effective manner. Clearly in most organizations employees consititute one of the most valued and important resources which can be brought to bear upon the problems that the organization must confront in order to carry out any strategy. The ways in which employees will be utilized is to a considerable extent laid down by the organizational design employed. However, over and above this, the style adopted by senior management may be consequential in ensuring loyalty, motivation and productivity. Given the social and political processes which go on, both within organizations and between organizations and their environment, the human element is different from any other organizational resource in fulfilling a double role both as a participant in decision-making and as a means for getting the task of the organization accomplished. Therefore, the involvement of employees must always be a prime consideration, irrespective of the particular strategies being employed. However, involvement and motivation are by no means the only important elements to consider, as the skills, experience and abilities which different organizational members can bring to bear, are also vital individual attributes which must be employed beneficially if an organizational strategy is to be capable of effective implementation. The Search for Added Value As we have already noted, the profitability, and indeed the survival, of any company ultimately depends on the total value added during the transformation processes being at least equal to the total costs

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of producing and selling the end product or service, added to the overhead costs of coordination involved in the organization. In general terms these latter costs will tend to increase as the extent of coordination increases. This is because a substantial element of the cost is involved in the institutionalization of procedures which provide the effective organization with a competitive advantage over individuals or groups of individuals acting in a less coordinated manner. The benefits, then, that can be achieved by organizations must be derived from synergistic relationships based on coordination, whether within a single-business or in a multi-business company. Management must examine all the various cycles of production and consumption in which it is involved, in terms of the relationship of value added to operating and coordinating costs. On the basis of such an examination, it must attempt to ensure that increases in the costs of coordination must be offset either by increases in the amount of added value which can be achieved in the transformation processes, or by reductions in the costs of carrying out those processes. The ability to manage this will obviously depend on the relationships that the company has with customers and suppliers and other outside agencies. Managing Environmental Relationships Ideally the management of strategy requires not just that relationships with immediate trading partners, but also with all other parties involved in the relevant cycles of production and consumption, should be controlled to the greatest extent possible. This suggests that, far from dependence on outside organizations being a problem for a company, it can actually be a strength where it is matched by the outside organization being dependent on the company. Such patterns of close interdependence will tend to reduce the levels of uncertainty faced by both parties. Of course, in some cases, it may be desirable or necessary to encompass such relationships within the organizational framework by a strategy of vertical integration. Such a strategy can be implemented either by the acquisition of actual or potential trading partners, or by the development of further businesses from within the organization. Such extensions of the activities carried on under a single ownership umbrella may have significant advantages on two counts. First, they are likely to reduce the levels of uncertainty involved in

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transactions between different stages of the particular productionconsumption cycle in question. Second, where hierarchical administration of transactions is more efficient than market forces there may be economic savings. Against these, there is the almost inevitable consquence that the increased size and complexity of operation will lead to increased costs of coordination. This being the case, such vertical integration will only be beneficial where the benefits from the two advantages mentioned outweigh these increased costs. A Company's Life's Blood Up to the present, in most of the discussions and analyses carried out in earlier sections, resources have been talked about in relatively general terms. In many cases, finance, both in the form of liquid assets and in terms of investment capital, has been subsumed within general categories of resource availability. This, although valid in some abstract sense, is a very limited representation of the real circumstances in which companies typically operate. Given the nature of modern industrial society, and particularly of the role of business firms within it, money has a very special significance of much greater generality than that of other resources. The reason for this is that the overwhelming majority of a typical company's transactions with the individuals, groups and organizations in its environment will be exchange relationships with money as the almost universal medium of exchange. Barter as a system of economic trade has perhaps not entirely died out, but it is a money economy in which the typical company must now operate. Under these circumstances, money has a particular importance, not just for an organization's relationships with various agencies in its environment, but also for internal transactions and for the ultimate viability of the typical company. Without doubt the argument just considered is one of the major explanations for the enormous and sometimes excessive stress placed upon financial information and accounting information systems in very large numbers of business firms. It also underlines the key role of financial resources in a company's affairs. In many ways it can be argued that, for the business firm, money is the equivalent of blood in the living organism, without which the organization would shrivel up and perish. Investment capital, whether obtained from a company's owners, borrowed or generated from past profits, is

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critical if an organization is to continue to prosper, or even function, in the future. However, in the short term, it is liquid financial resources in the form of cash or immediately realizable assets which are vital. It is worth noting that companies do not basically go bankrupt because of lack of profitability, although that is often an underlying cause, but rather because of a failure in their ability to meet immediate financial obligations due to lack of liquid resources. Based on these arguments, it must be noted that the pattern of an organization's involvement in the cycles of production and consumption must be manipulated as a consequence of the strategy developed and operating decisions made, in order that a cash-flow situation is maintained which allows, at a minimum, the avoidance of bankruptcy and total business failure. What this means, in reality, is that arrangements must be made in order that the financial inputs stemming from all sources of finance such as revenues from sales to customers, and borrowers from banks, in conjunction with reserves, will always be great enough to meet the requirements of those essential exchange relationships in which the organization pays out money in order to obtain other resources, including labour, raw materials, and equipment. The essence of the problem involved in this is balancing the various non-financial resource flows with the financial ones in such a way that operations can continue in an effective manner. In order to obtain sufficient value added, and also to maintain a cash-flow which allows the organization to continue operation, there are many roles or functions which must be performed, and these functions must be integrated, via the organizational design, into an appropriate configuration in order to carry out the company's strategies. The Role of Functional Management Whether an organization is fundamentally designed along functional lines, or on some other basis for the division of labour, there must always be many functional roles which have to be executed in order that the organization can continue to operate successfully and viably. Whether these functions are carried out by specialists or as part of the activities of personnel involved in a wider range of activities does not effect the logic of the problem. Clearly personnel must be employed to carry out the main tasks of the organization, as has already been noted (these may be specialized as was discussed in

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Chapter 8). In addition, specialist personnel and specialist managers and supervisors will also typically be employed in order that, in combination, they may be able to develop and implement strategies which will lead to the company's short- and long-term survival and success. The ways in which these functional activities are managed and integrated will vary significantly from organization to organization. However, as we have already noted, the logic of the analysis presented here is that if organizations are to grow and prosper then the general tendency must be to increase the extent of internal differentiation and the division of labour. The ecological logic which allows such processes to occur has already been discussed, but it is worth noting here that they must be integrated with all the various components of strategy, particularly including organizational design, in order that the constraints and opportunities provided by the environment can be dealt with effectively. The pattern of functional roles, whether specialized or not, depends on the one hand on the relationships with the company's environment and the particular requirements that it imposes, and on the other hand on the particular problems of managing the organization's internal activities. Put another way, the functional arrangement must relate closely both to the input-output strategy adopted, and to the transformation-control strategy utilized by the company. In the multi-business corporation it is also important that it is utilized in a way which maximises synergistic relationships between the different businesses in the company's portfolio. The balance of effort in different functional areas must also be adjusted to give an appropriate mixture of resources generated to present activities and future planning. Generally it can be argued that the greater is the rate of change in the company's environment, the greater should be the emphasis placed on the future-oriented functions and activities. The Ultimate Problem The analyses carried out hitherto in the present chapter, and elsewhere in this book, might be taken to suggest that the management of strategy and structure in the sorts of environment that companies must routinely face in the modern world can normally be carried out by component managers in an entirely satisfactory manner.

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Noting that these environments are likely to be typified by very rapid change of an ever-increasing momentum, this seems to be, in actuality, unlikely. In the final analysis the sheer complexity of the environment in which companies are forced to operate, coupled with the ultimate unpredictability of future events, means that there must be limits to the extent to which the entirely, or even largely, satisfactory formulation of strategy and design of stuctures is possible. Given these problems, management is forced into a situation where it has to make assumptions about the nature of its own activities, the environment in which it operates, the way these will change, and the relationships involved between all these factors. Weick (1969) and Hall (1984) have argued that managers do, and indeed should, seek to reduce equivocality in the situation in which they are called upon to manage. This being the case, they are likely to invent decision rules to deal with situations which are too complex to analyze on a routine basis. In addition, they will make assumptions about their environment in order to reduce the problems and costs involved with environmental scanning. They will also invent procedures to routinize the uncertain in their internal and external relationships. Generally this may be seen as a secular process by which planning is likely to become more detailed, and bureaucratic mechanisms of organization are likely to become more pervasive. Without doubt, such developments serve significant functions for the senior management involved, but there will be a potential cost in each of these. Inasmuch as they are inevitably based on simplified, and in some cases unrealistic, assumptions, they will effectively limit certain types of managerial assessments and hence remove the possibility for negative feedback loops based on such assessments to operate. Without such loops the correction of imbalances in organizational functioning becomes less likely. These developments are analogous to the often described development of bureaucracy with all its dysfunctions (March and Simon, 1958). However, despite the long-term dysfunctional consequences that can be predicted from such managerial behaviour, there can be no doubt that, without simplifying assumptions, decison rules and administrative procedures, management in the short term is often very difficult and maybe impossible. Given these various factors and processes it seems likely that organizations, as they develop, will invent more and more of such processes to help in the day-to-day process of management. However, over time, in a changing environment, these will typically

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become less and less satisfactory from a strategic perspective. Hence at some point they are likely to precipitate a crisis in the organization's functioning. At this point it is likely that economic, political and social pressures will come to bear on the senior management causing them to review their activities and possibly revise their assumptions. In the extreme, such pressures may lead to a change in the senior management, and the new group will typically establish new assumptions and procedures. Given the ultimate uncertainties involved in assessments of the organization itself and the situation in which it functions, for the reasons discussed in Chapter 7, the values and assumptions of the more powerful people in the organizational situation will be consequential, and with changes in leadership these will tend to be modified, leading to the development of different strategies. Ultimately it must be recognized that the management of any company requires judgement in addition to any scientific approach that may be applicable. The interconnectedness of the systems involved both within the organization itself, and in the cycles of production and consumption in which it is involved, are of such complexity that many aspects of these systems are likely to be counter-intuitive. As it is rarely, if ever, possible to analyze fully the workings of such systems, then inevitably, at some state, actions will be taken which will lead to consequences which are detrimental to the company's well-being. Such consequences can lead to the ultimate failure of a company, to a substantial reduction of its activities in the long term, or, at least in some cases, to substantial internal changes coupled with changes in its relationships within the cycles of production and consumption in which it is involved, leading to a further period of successful operation. Basically what occurs is a reaction to the inherent uncertainties in the organizational situation, particularly associated with the unpredictability of events in the organizational environment. Senior managers, who are confronted with this, develop coping mechanisms, some of which will be dysfunctional in the long term, leading to inappropriate organizational learning. This at some stage will lead to crises which, if they are to be survived, will call for rapid change and a substantial reassessment of the underlying assumptions on which the management of strategy and structure is based. It is likely, therefore, that, even ostensibly successful organizations will move from crisis to crisis, although the time period between such crises may sometimes be measured in decades.

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Overall it is hard to avoid the conclusion that the management of strategy and structure is more an art than a science, and will remain so until such time as it is possible to build complex and allencompassing models of the full complexity of companies and their interactions with their total environment.

ROLE OF COMPANY STRATEGY IN THE ECONOMY 12 THE

In this book an attempt has been made to develop an open-systems ecological framework for the consideration of company strategy and organizational designs. Inasmuch as this framework differs from conventional economic analysis, it must be likely that it will suggest different patterns of association between the conduct of the individual enterprise and national and international economic conditions than those most commonly postulated as a consequence of conventional economic analyses of whatever school. These differences, which in some cases are relatively slight, stem in the main from a move away from an emphasis on the working of markets towards the analysis of overall cycles of production and consumption and the place of business firms within these. Within this framework it can be seen that the economic conditions in which firms operate will effect the kinds of strategies that they are likely to develop. It will also be the case that different types of strategy, if successfully implemented, will have different implications for wealth creation, economic growth, and indeed for human progress. As we have noted, the problems associated with uncertainty will also have significant effects on the strategies developed by companies; it must follow that it will not just be the immediately prevailing economic conditions which are relevant, but also the extent to which it is perceived by decision-makers that these conditions may be subjected to change. For this reason, economic and political factors which create uncertainty about future economic conditions will be particularly likely to influence the strategy formulation process in business firms. In analyzing the interaction between general economic conditions and the types of strategies developed and followed by individual companies, a number of conclusions from earlier sections have important implications which should be considered. First, the analysis in Chapter 3 suggested that three organizational or social developments were necessarily associated with technological development and human progress. These were an increasing division of labour, systems of coordination and proactive planning. This conclusion fitted closely with earlier analyses of open systems (e.g. Katz and 164

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Kahn, 1966), and clearly suggested that the key elements in significant economic growth are increasing differentiation and the elaboration of more complex patterns of cycles of production and consumption. It is also clear that these in turn depend on the availability of energy and other resources and the ability to utilize these, which will typically depend on innovation both in terms of technology and in terms of social or organizational arrangements. Merely increasing the efficiency of particular stages in any given cycle of production and consumption, or indeed of whole cycles, will typically only have a limited effect on economic growth, unless it releases resources which can be utilized to elaborate the overall pattern of cycles of production and consumption within the ecosystem. Thus, for example, a firm operating more efficiently and thus increasing its profits only contributes to economic growth where those profits are utilized for further investment (or reinvestment), or are spent to provide consumption of further products. This is saying little more than that economic growth will not result from the production of extra goods which are not utilized or consumed, and certainly not from the holding of money which is not put to use. The second point, which the same analysis reveals, is that the formulation and implementation of different types of company strategy depend on the availability of useable resources and the ease and cost of actually utilizing these. They also depend on the extent of competition for these particular resources, and a company's ability to cope with the level of competition involved. With these different points in mind we will now turn to the ways in which economic conditions are likely to influence the development of specific types of company strategy. Influences of Economic Conditions on Company Strategies As we have already noted it will be the perceptions of economic conditions and economic prospects held by those senior managers involved in strategy formulation which will be of key importance, rather than the objective reality. However, as we have noted, most such managers are probably fairly realistic in their perceptions most of the time. It is also the case that, where strategies are based on fallacious assumptions about the company's environment, they will typically run into difficulties as a consequence and these will nor-

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mally lead to a reevaluation of the situation and of the strategies involved. None the less, the fact that strategy formulation is dependent on perceptions cannot be stressed too much when the futureoriented nature of the decision-making involved is considered in conjunction with the great difficulties associated with making accurate predictions about future economic conditions. In a highly simplified form general economic conditions can be categorized under three headings. They can be classified as buoyant, that is, characterized by significant growth, stagnation or recession. In the first case, resources will tend to be fairly readily available; in the second case, resource availability will remain fairly stable, and in the third, resources will become less available. Of course, in some senses, the absolute availability of basic resources such as land, energy sources and minerals will not be influenced by short-term changes in economic conditions. What typically is the case is that money is more or less available in order to finance the extraction and utilization of such resources and hence in realistic terms, from the perspective of the typical company, the resources themselves become more or less available. It must also be noted that the economic conditions prevailing in a society will effect the resource availability for different industries and companies differentially. Therefore it would be anticipated that there will always be a wide variety of strategies adopted by firms under any prevailing economic conditions. These would reflect the growth and decline of different industrial sectors and geographic regions. Where resources are plentiful, the incentives for existing companies to adopt innovative strategies would seem rather limited, as a continuation of their previous activities would be likely to be straightforward and profitable. However the opportunities to be innovative under such conditions are likely to be very considerable due to the plentiful supply of resources. This being the case, there is likely to be a great deal of variation in the strategies adopted under these conditions, depending on the general orientations of the senior managers involved in strategic decision-making. This variation will be almost entirely between companies adopting mildy cooperative strategies to take advantage of the plentiful resources with very little risk, and those adopting innovative strategies involving rather greater risk but with the potential for considerably greater pay-offs. Under these general economic conditions, competitive and retrenchment strategies are only likely to be adopted by those

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companies in stagnant or declining industries. In times of rapid economic growth, such companies will inevitably only be operating in a minority of industrial sectors and regional areas. Even with these companies, there is likely to be strong tendency for them to diversify, or at least attempt to to do so, by adopting innovative strategies. Also under these economic conditions there will be considerable opportunities for the establishment of new businesses, due to the plentiful availability of resources. In the main it would seem likely that these would adopt innovative strategies, taking advantage of the situation to elaborate new cycles of production and consumption. However, some may adopt competitive strategies, given the opportunities likely to be available, as relatively few established firms will be adopting such approaches. In relatively stagnant general economic conditions the incentives for established firms to adopt innovative strategies will be rather greater than under conditions of significant economic growth, but there will be very much less opportunity, due to the relatively constant situation with regard to resource availability. On the other hand there will be considerably more incentive for firms to adopt competitive strategies although there will also be a strong temptation to follow cooperative strategies in order to avoid risk in a situation which allows relatively little scope for increased turnover or profit. Of course even in stagnant conditions some industrial sectors will be expanding and others contracting and companies in such local situations will be influenced accordingly in their strategic decisionmaking processes. Under such stagnant economic conditions there will only be limited incentives or opportunities for new business start-ups and hence it is likely that these will tend to be rather limited in number. In conditions of recession, resource availability will typically be substantially curtailed. Under these cirumstances, there is likely to be a large number of companies adopting competitive strategies in an attempt to survive the recession. If it continues for any length of time, there will be increasing pressure in most industrial sectors on those companies who have previously adopted largely cooperative strategies to abandon these in the face of increased competition for the diminishing resources available. Inevitably, under such circumstances, some firms will go out of business, and many others will be forced to adopt retrenchment strategies in order to try and survive. Overall, there is likely to be a very strong emphasis on cost-cutting

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and this will tend to lead to the simplification and curtailment of patterns of cycles of production and consumption. This will be associated with a reduction in differentiation and the extent of the division of labour both within and between organizations. Under such conditions there will clearly be very strong incentives for firms to adopt innovative strategies as a way of resolving their problems. However, due to the widespread diminution of resources, the opportunities for such policies will be exceedingly limited and hence it is unlikely, in the event, that many firms will be able to follow that route, except on the basis of significant technological innovation. Even in those cases, the implementation of such strategies is likely to be difficult due to the overall resource situation. It is also true that under such conditions there will be relatively limited opportunities for starting new businesses. However, as there are likely to be substantial numbers of persons unemployed as a consequence of retrenchment strategies and business failures, it is likely that there would be many persons with the incentive to attempt to establish new enterprises. In a situation like that in Britain in the early 1980s where a significant proportion of those rendered unemployed received fairly substantial redundancy payments, some of these may feel that they have sufficient starting resources to make the risks attached to starting a business, even in prevailing economic conditions, worthwhile. In such cases innovative strategies will tend to be most common, particularly amongst those with any hope of success. This brief analysis of the ways in which economic conditions are likely to influence the strategies of individual companies has been inevitably somewhat simplified due to the shortage of space available. However, it provides a sketch of the main issues involved which will allow a consideration, later in this chapter, of the ways in which company strategies are interrelated with national economic conditions in the round. Before moving to this, however, it is necessary to examine in outline the other side of the picture by considering the influences of company strategies on national economic growth. Influences of Company Strategies on Economic Growth Earlier, four basic types of business strategy were identified. These were competitive strategies, cooperative strategies, innovative strateg-

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ies and retrenchment strategies. It will be useful at this stage to review the implications of these for economic growth at a national or international level. Before doing this it must be pointed out that, under normal economic conditions, considerable variation will be found amongst business firms (and even within multi-business firms) in terms of the basic strategy adopted. Some of these variations will be associated with different orientations amongst the senior managers in the different firms, some will reflect differing conditions in different industries or regions, and others will be influenced by the variation in perceptions of current or future economic conditions held by senior managers. Inasmuch as there is considerable variation amongst enterprises in terms of the type of strategy adopted, implications for the national economies in which these firms operate will depend on overall patterns, rather than on the activities of individual firms. Where firms adopt competitive strategies, in the short term the basic pattern of cycles of production and consumption will not normally be changed. From this it follows that the basic structure of the overall ecosystem (the national economy) will not be significantly effected on any rapid time-scale. The short-term outcomes, when firms adopt such strategies, will be that gains in the volume of business by some enterprises will largely be balanced by losses on the part of others. Thus any expanision of activities by one concern will tend to be compensated by contractions elsewhere, unless outside factors or significant technological progress increase the availability of resources. Where the competition is fierce such changes may lead not only to losses in some quarters with the possibility of some companies ceasing trading, but also to a considerable increase in the level of uncertainty faced by organizations, and hence perceived by senior managers. These factors taken together may cause some firms to modify their strategies. Of course firms attempting to implement competitive strategies are likely to reduce prices or improve other terms of trade, and these changes may have effects both on other organizations and on the ultimate consumers, such that these may gain financial benefits which allow them to spend money in other ways, which may assist the development of other cycles of production and consumption. This will tend to be particularly pronounced when competing firms are able to achieve substantial improvements in efficiency. However, the overall effects on the economy of competitive strategies being widely adopted by firms is not generally likely to be great in the

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short term, as they do not typically lead directly to structural changes in the pattern of cycles of production and consumption in the economy (ecosystem), except as a consequence of a succession of cumulative effects working their way through the system. Even these influences will typically be very small unless they lead to the adoption of innovative strategies by other enterprises, as will be discussed below. The adoption of cooperative strategies by a wide variety of firms tends to provide a major force for the maintenance of the status quo, since such strategies are normally adopted as a way of avoiding competition, which is perceived by strategic decision-makers as potentially injurious. It is also true that, although such strategies may involve attempts to achieve an element of cost-cutting in order to increase profits, these are not generally likely to be pursued too far, as otherwide increased profits might attract new potential competitors. Overall, then, it seems likely that where substantial numbers of firms follow cooperative strategies this will act as a stabilizing influence on the overall pattern of cycles of production and consumption, and lead to economic stagnation. Following the general logic of the ecological approach, which suggests that significant economic growth or progress will be associated with increasing differentiation in the ecosystem and the elaboration of a more complex pattern of cycles of production and consumption, it seems likely that this would only be likely to occur on a significant scale where a substantial number of firms were adopting innovative strategies. Such strategies involve the invention of new products or methods of working which allow such elaborations. Although the successful implementation of such strategies will inevitably involve a certain amount of disruption of existing cycles and hence an increase in the level of uncertainty perceived by senior managers in a variety of organizations, it is likely that the knock-on effects of such strategies will tend to create significant opportunties for other companies to follow in the adoption of innovative strategies. Thus, for example, inventions such as computers and micro-computers which have been a consequence of the innovative strategies adopted by a relatively small number of firms, have led to vast opportunities for very large numbers of companies to follow such strategic initiatives and become interested in the elaboration of complex patterns of production and consumption involving the manufacture of components, designs of software,

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provision of distribution channels and a wide variety of other interrelated avtivities. At the other extreme, where retrenchment strategies are widely adopted, this leads to decreasing differentiation and the simplification of the pattern of cycles of production and consumption in which such firms are involved. It may even lead to the complete elimination of some cycles. This means that the widespread adoption of such strategies will tend to have very significant knock-on effects leading to a marked reduction of economic activity generally, with the almost certain consequence of some companies going out of business. The implications of this will be a curtailment of economic activity and a concomittant increase in unemployment. From these very brief and somewhat simplified analyses it can be seen that company strategies are likely to have a highly significant effect on the level of national economic activity and the possibilities of economic growth. As it has already been suggested that the formulation of such strategies is itself dependent on the level of economic activity and the prospects for economic prosperity and growth, it can be seen that there may be a tendency for economic trends to be self-reinforcing, unless very radical initiatives are taken by many companies or there is significant government intervention. This will be considered in the next section.

The Generation of Economic Trends If the arguments proffered in the two previous sections are valid, it is clear both that the prevailing economic conditions will influence the types of strategies that companies are likely to formulate and also that, where particular types of strategies are generally adopted by companies, these will influence the possibilities for economic growth in a society. In those analyses it was noted that, at times of economic growth, companies are likely to adopt either cooperative or innovative strategies which will tend partly to stabilize existing patterns of production and consumption cycles, and partly to lead to further differentiation and elaboration of such cycles leading to further economic growth and technological development. This latter trend is likely to occur on a significant scale. Overall, then, it seems to be the case that societal conditions of economic prosperity and growth, particularly when allied to generally held perceptions of

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good economic prospects, will lead to companies adopting strategies which will lead to further economic growth. However, under these circumstances, the likelihood that very few companies will be adopting competitive strategies may have eventual consequences which will halt the pattern of economic development and growth. This is because where very few companies are attempting to implement competitive (or retrenchment) strategies, there will be relatively little emphasis on cost-cutting and internal efficiency. Rather the emphasis will be on developing and maintaining input and output relationships, expanding output and developing new products. This being the case, it is likely that transformation costs will rise, insufficient attention will be given to process improvements and there is a danger that both equipment and labour will not be fully utilized. At the same time, the lack of hard competition allied to the pressures for expansion will lead to a preparedness to pay higher prices and wages. The higher costs associated with this are likely to be passed on round the cycles of production and consumption leading to both wage and price inflation. This, if it becomes significant, may begin to reduce resource availability by pushing the utilization of available finance towards consumption, and hence reduce the money available for investment to support the increasingly expensive (because of inflation) innovative strategies. At the same time, the heavy use of resources, allied to inefficiencies in their use, may begin to lead to shortages of particular types of resources, such as skilled labour. The overall conclusion, then, would seem to be that once significant economic growth begins to occur, it will tend to provide the conditions which will lead companies to develop strategies which will add further to economic growth. However this trend may be halted in the long term due to increasing inefficiencies, overmanning, inflation, and a gradual weakening of the basic resource availability position. When economic conditions are relatively stagnant, we have noted that there is a likelehood that there will be considerable diversity in the types of strategies adopted by individual firms. At the same time, the relatively constant situation with regard to resource availability will tend to limit the implementation of innovative strategies which might lead to significant economic growth. The overall impact of the diversity of strategies and the resource position will generally not tend to exert any particular pressures on the overall level of economic growth, or the existing pattern of cycles of production

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and consumption in the overall ecosystem. Thus, although there will be fluctuations, it is likely that the relatively stagnant situation with regard to economic growth will continue. However, inasmuch as a reasonable proportion of firms will be following competitive strategies, it is likely that there will be some gains in operating efficiency which may cause a slight tendency for weak economic growth to happen. However, where many organizations operate cooperative strategies this will be less likely to occur. Also where such strategies exert significant influences on the relationships between organizations at different stages of the cycles of production and consumption, there may be a tendency to accept and pass on wage and price increases and hence some mild inflation may be anticipated. In conditions of recession, we have noted that there is a likelihood that many organizations will adopt competitive strategies, but that a significant proportion will be under such pressures that they will be moved to adopt retrenchment strategies, whilst others may be forced out of business. It was also noted that such a pattern of strategies adopted by companies on a significant scale would lead to a very strong emphasis on cost-cutting, decreased differentiation, a smaller extent of division of labour and a simplification of the pattern of cycles of production and consumption, and hence a general reduction in the level of economic activity. It was noted that some individuals will be inclined to set up new businesses despite the limited resources available generally, but under these conditions the success rate is likely to be limited. In general, then, it seems that recession will push firms towards retrenchment strategies that will tend to deepen the recession. The issue will be complicated by the fact that as a consequence of business firms failing and the retrenchment strategies adopted by others there will be a significant increase in unemployment levels. It has to be noted that, whereas in the brief analysis of early human societies in Chapter 3 the losers in a competitive situation might be driven away to allow the winners to benefit from the limited resources available, such a solution is not normally adopted in modern industrial societies. Generally such societies have some form of social welfare which provides benefits for the unemployed in order to allow them to continue to live at a tolerable level. Such benefits must, of course, be paid for, usually by taxing those still involved in economic activity. As a consequence, resources are taken away from business firms and their remaining employees, further reducing the resource base on which company strategies depend.

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This may force more companies to adopt retrenchment strategies and make those attempting innovative strategies less likely to succeed. Overall then, it would seem that whether a society is enjoying significant economic growth, relative stagnation or recession, there is a tendency for the economic conditions prevailing to influence companies to adopt the sorts of strategies which will tend to perpetuate those economic conditions. If change is to be introduced in the general level of economic activity, at least in the short term, there would seem to be a need for external forces for change, government intervention or, just conceivably, some concerted radical shift in strategies by a substantial number of companies. These possibilities will be considered briefly in the next section. Ways of Altering Economic Trends It must first be reiterated that, in the modern world, national economic systems are ecological communities or ecosystems which are not self-contained. Rather they are parts of the larger international ecosystem and therefore many of the cycles of production and consumption pass through not just a national but rather the international system. This means that the economic conditions within any country are affected by wider international trading and business conditions. Clearly these can, under certain circumstances, produce forces for change within any national economy, but they may also, under other conditions, produce forces which make internal changes difficult or impossible. It should be noted that the relationships between a national economy and the international economy of which it is a part are not just a question of the policies of different governments, relative economic conditions and the distribution of natural resources. Importantly in the context of the present work they are also very much influenced by the strategies of multinational companies based within a particular nation or outside. In addition, the relationship will be affected by the export and import strategies of a multitude of firms based within the country in question, as well as all those outside who have trading relations which impinge on any of the cycles of production and consumption on which its economic activities depend. Such influences are amenable to the same mode of analysis as that suggested here, but space precludes further consideration within the present work. The

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important point to note from the foregoing is that any attempt to modify economic trends within any single country must take account of international forces. In the so-called free enterprise or mixed economies of the Western world, governments do not normally direct business activity in any meaningful sense. Rather, they attempt, by statute and fiscal policies, amongst other means, to create the conditions which will lead to particular kinds of economic changes. This means that they typically will be trying to create the conditions that will lead to particular companies, or companies in general, adopting the sorts of strategies which will, in turn, lead to the desired changes in economic trends. In such a context, an understanding of the factors which influence the strategy formulation (and implementation) process in individual companies is vital. On the assumption that governments generally are seeking to achieve a relatively high level of controlled economic growth, it is to be assumed that they will mainly wish to intervene to bring about change in conditions of economic stagnation and, particularly, in times of economic recession. However, in times of rapid economic growth they should perhaps take any steps they can be maintain competitive pressures, and hence increase the numbers of firms adopting competitive strategies in order to force firms to reduce costs and use resources in an efficient manner, in order to maintain long-term growth. This can probably best be done by reducing the rate of expansion of resources during times of economic growth by limiting the money supply and exercising any constraints they can apply on price and wage increases. During times of economic stagnation and recession the main interest of governments is likely to be to increase the level of economic activity in order to encourage economic growth. In order to do this, they will have to increase resource availability in order to encourage firms to adopt innovative strategies. Clearly the best possibilities of doing this must involve the differential increase of resources to encourage firms in those geographic areas and industrial sectors where innovative strategies are most likely, particularly those based on technological change and innovation. In other words they must provide resource incentives for those firms which are attempting to reverse the trends running through the ecosytem. Particularly they should do this in ways which lead to increased differentiation and elaboration of the cycles of production and consumption within the national ecosystem.

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The possibilities of firms themselves changing the pattern of economic trends is likely to be small, unless those in areas where they are likely to be able to innovate can work in concert to elaborate the cycles of production and consumption. However, without government support this seems unlikely. Overall, then, it would seem that governments should encourage innovative strategies under all economic conditions, and try to lower the rate of resource availability in an expansionary economy and raise it when the economy is stagnant or in recession. At the same time, governments should always try to lower the level of uncertainty to make planning in business firms easier, and particularly should avoid interventions that operate to increase uncertainty.

BIBLIOGRAPHY

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NAME INDEX

Aiken, M. 70, 71, 178 Aldrich, H.E. 36, 37, 80–3, 177, 179 Allen, L.A. 67, 177 Andrews, K. 12, 50, 51, 177 Ansoff, I. 12, 13, 50, 51, 177 Argyris, C.J. 149, 177 Azma, M. 9–11, 177

Hofer, C.W. 12, 50–2, 178 Hunt, J.G. 80, 179 International Democracy in Europe Research Group (IDE) 142, 178 Jones, R.E. 9, 177

Baumol, W.J. 30, 177 Blau, P.M. 70, 71, 74, 177 Blauner, R. 146, 177 Boseman, F.G. 9, 177 Burns, T. 4, 6–8, 81, 110, 151, 154, 177

Kahn, R.L. 33, 34, 37, 68, 165, 178 Katz, D. 33, 34, 37, 68, 164, 178 Keller, R.T. 180 Lawler, E.E. 179 Lawrence, P.R. 4–8, 70, 71, 80, 81, 110, 154, 178 Leblici, H. 78, 179 Lindblom, C.E. 13, 93, 179 Lorsch, J. 4–8, 70, 71, 80, 81, 110, 154, 178

Campbell, D. 36, 177 Chandler, A. 11, 12, 74, 75, 177 Child, J. 6, 11, 70, 71, 74–6, 80, 81, 104, 149, 151, 177 Cohen, K.J. 79, 177 Crozier, M. 150, 178 Curran, J.R. 179 Cyert, R.M. 19, 79, 80, 177, 178

McCarthy, D.J. 13, 179 MacGregor, D. 142, 179 Mansfield, R. 6, 9–11, 70, 71, 76, 149, 150, 177, 179, 180 March, J.G. 19, 80, 161, 178, 179 Marris, R. 30, 80, 179 Merton, R.K. 150, 151, 179 Miles, R.H. 20, 84, 104, 179 Miller, J.G. 32, 179 Mindlin, S. 81–3, 177, 179 Minichiello, R.J. 179

Dewar, R. 76, 178 Dickson, W.J. 148, 180 Donaldson, L. 11, 178 Emery, F.E. 32, 178 Etzioni, A, 26, 69, 178 Evan, W.M. 78, 84, 178 Florence, P.S 74, 178 Franko, L.G. 74, 178 Fredrickson, J.W. 153, 178

Negandhi, A.R. 8, 9, 78, 179 Nicholas, I. 180

Galbraith, J.K. 19, 30, 99, 100, 178 Goodman, P.S. 20, 178 Gouldner, A. 150, 178

Odum, H.T. 39, 40, 179 Oldham, G.R. 142, 144–7, 178 Osborn, R.N. 80, 179 Ouchi, W.G. 68, 179

Hackman, J.R. 142, 144–7, 178, 179 Hage, J. 70, 71, 76, 178 Hall, R. 161, 178 Hall, R.I. 17, 178 Hartmann, G. 180 Herzberg, F. 148, 178 Hickson, D.J. 6, 76, 178, 180 Hinings, C.R. 180

Pennings, J.M. 20, 178 Perrow, C. 17–19, 76, 179 Pettigrew, A. 96, 103, 179 Pfeffer, J. 78, 84, 179 Pheysey, D C . 178 Porter, L.W. 149, 179 Pugh, D.S. 5, 70–2, 151, 178, 180

181

182 Reimann, B. 8, 9, 78, 179 Roethlisberger, F.J. 148, 180 Schendel, D. 12, 50–2, 178 Schoenherr, R.A. 70, 71, 74, 177 Seashore, S.E. 28, 180 Simon, H. 13, 69, 161, 179, 180 Sims, H.P. 147, 180 Smith, Adam 114, 180 Snow, C.C. 104, 179 Sofer, C. 147, 180 Sorge, A. 76, 180 Stalker, G.M. 4, 6–8, 81, 110, 151, 154, 177 Starbuck, W.H. 74, 180 Steers, R.M. 28, 180 Szilagyi, A.D. 180 Thompson, J.D. 76, 80, 81, 180

Name Index Todd, D. 179, 180 Trist, F.E. 32, 178 Tuchman, M. 147, 180 Turner, C. 180 Von Bertalanfly, L. 32, 180 Warner, M. 180 Weber, M. 4, 7, 69–71, 73, 151, 180 Weick, K. 100, 104, 161, 180 Wheeler, J. 83, 179, 180 Williamson, O.E. 30, 68, 69, 180 Woodward, J. 4–7, 76, 149, 180 Yuchtman, E. 27, 180 Zwerman, W.L. 6, 76, 180

SUBJECT INDEX

Academic disciplines 2, 13 Advertising and public relations 61, 80, 105, 120

Individual characteristics 139, 140 Innovation 41, 42, 45, 46, 58–9, 120, 136 Innovative strategy 46, 55, 58, 59, 126, 132, 136, 166–74 Integration 7, 154 Interest groups 22–6, 37

Bureaucracy 69–70, 73, 75, 77, 110, 148, 150, 151,161 Business schools 2, 3, 12

Legal constraints 105, 106 Location 41, 42, 100, 108, 109

Centralization see decentralization Charter goals see official goals Competition 8–10, 46, 74, 77, 79, 107, 126, 133 Competitive strategy 46, 55, 56, 57, 126, 132, 136, 166–74 Consumers 23, 66, 91, 95, 105 Contingency theory 5–11, 154 Control 38, 43, 63, 65, 67–72, 75, 77, 104–8, 112, 121, 141, 144, 147, 150, 154, 164 Cooperative strategy 46, 55, 57, 58, 126, 132, 133, 137, 138, 166–74 Coordination see control Cost reduction or control 38, 60, 64, 65, 71, 77, 115, 118, 124

Mechanistic structures 7 Motivating potential 144–7 Official goals 17 Open systems 32–5, 37 characteristics of 33–5 Operational goals 17, 18 Organismic structure 7 Organization sets 78, 84 Organizations, definition 16 Organizational goals see goals Organizational size 72–5, 94, 99, 118, 121, 150 Owners 22, 24, 86, 87, 157

Decentralization 8–10, 70, 71, 77, 110, 148, 150, 155 Dependence 82, 83, 85, 107 Developing countries 8, 9 Differentiation 7, 33, 110, 112–25, 131 Division of labour 40–2, 44–6, 48, 65– 7, 74, 112, 124, 130, 144, 149, 159, 160, 164

Performance 20–9, 113, 140, 141, 147, 153, 154 perspectives on 22, 23 Preindustrial society 40–7 Proactive planning 42, 43, 49, 121, 154, 164 Profit 23, 27, 30, 37, 46 Resource acquisition 27–9, 40–7, 85, 124, 126, 130 Retrenchment strategy 47, 55, 59, 60, 126, 131, 134–6, 166–74 Role specialization 67

Effectiveness see performance Environmental scanning 127–9 Fossil Fuels 39, 40 Functional specialization 66, 67, 112– 25, 131, 145, 148, 159, 160

Shareholders see owners Size see organizational size Specialization see functional specialization Strategy components 14, 52–4 conceptualization 50–2 types 46, 47, 55–60

Goals 16–20, 26, 27, 113, 152 Goals, of business firms 30, 31 Government 23 Hierarchy 66, 68, 70, 122, 123, 148, 149

183

184

Subject Index

Strategy formulation, stages 13, 14, 93–6 Synecology 37 Technology 42, 48, 75–7, 114–16, 124, 131, 132, 136 Top management 13 Trade unions 23, 24, 80

Trophic levels 35–6 Uncertainty 80–3, 85, 95, 96, 99–111, 129, 132, 153, 154, 161, 162, 176 Value added 33, 37, 128, 156, 157 Vocation 142