STRATEGIC ORGANIZATIONAL DIAGNOSIS AND DESIGN

Developing Theory for Application

STRATEGIC ORGANIZATIONAL DIAGNOSIS AND DESIGN

Developing Theory for Application

Richard M. Burton The Fuqua School of Business

Duke University Durham, North Carolina

Berge Obel Department of Management

Odense University Odense, Denmark

With contributions by Nancy Keeshan

The Fuqua School of Business Duke University

Durham, North Carolina

~.

" KLUWER ACADEMIC PUBLISHERS

BostoniDordrecht/London

WKAP ARCHIEF

Distributors for North America: Kluwer Academic Publishers 101 Philip Drive Assinippi Park Norwell, Massachusetts 02061 USA

Distributors for all other countries: Kluwer Academic Publishers Group Distribution Centre Post Office Box 322 3300 AH Dordrecht, THE NETHERLANDS

Library of Congress Cataloglng-In-Publication- Data

A C.I.P. Catalogue record for this book is available from the Library of Congress.

Copyright 0 1995 by Kluwer Academic Publishers

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo-copying, recording, or otherwise, without the prior written permission of the publisher, Kluwer Academic Publishers, 101 Philip Drive, Assinippi Park, Norwell, Massachusetts 02061.

Printed on acid-free paper.

ISBN-13: 978-1-4684-0025-0 DOl: 10.1007/978-1-4684-0023-6

e-ISBN-13: 978-1-4684-0023-6

To Helmy H. BALIGH Teacher and Friend

R.M.B. B.O.

Table of Contents

Preface .............................................. X1ll

PARr 1 .............................................. 1

1. In~uction ....................................... 3

1.1 Introduction....................................... 3 1.2 The Strategic Organizational Design .................... 4 1.3 The Basic Features ................................. 6

1.3.1 Fit Criteria for Designing the Knowledge Base ...... 9 1.4 Creating a Knowledge Base from the Literature ........... 12

1.4.1 Composing the Knowledge Base .. . . . . . . . . . . . . .. 18 1.5 The Organizational Consultant for Designing an Organization 25 1.6 Validating Theory for Application. . . . . . . . . . . . . . . . . . . . .. 26

1.6.1 The Foundation Expert System ................ 28 1.6.2 Validation and Continued Model Development ..... 29 1.6.3 A Process of Validation ....................... 30

1. 7 Summary........................................ 31

2. Desuibing the Organization for Design Purposes . . .. 37

2.1 Introduction...................................... 37 2.1.1 The Scandinavian Airline System (SAS) .......... 37

2.2 What Is an Organization? ............................ 42 2.3 An Information Processing View of Organizations ......... 45 2.4 Organizational Configurations ........................ 48

2.4.1 Simple Configuration ........................ 49 2.4.2 Functional Configuration ..................... 51 2.4.3 Divisional Configuration . . . . . . . . . . . . . . . . . . . . .. 56 2.4.4 Matrix Configuration ........................ 61 2.4.5 Ad Hoc Configuration . . . . . . . . . . . . . . . . . . . . . . .. 65 2.4.6 Bureaucracies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 66 2.4.7 International Configurations .................. 67

2.5 Organizational Complexity . . . . . . . . . . . . . . . . . . . . . . . . . .. 70 2.5.1 Horizontal Differentiation. . . . . . . . . . . . . . . . . . . .. 70 2.5.2 Vertical Differentiation. . . . . . . . . . . . . . . . . . . . . .. 72 2.5.3 Spatial Differentiation ....................... 73

2.6 Formalization ..................................... 74 2.7 Centralization.................................... 75

viii Table of Contents

2.8 Coordination and Control . . . . . . . . . . . . . . . . . . . . . . . . . . .. 77 2.9 The Organizational Structure of SAS .................. 78 2.10 Summary........................................ 83

3. DI~entS~le ................................ 87

3.1 Introduction...................................... 87 3.2 Literature Review ................................. 90 3.3 Management Style as a Contingency ................... 96

3.3.1 Definition of Management Style: Microinvolvement . 96 3.3.2 Management Style as a Contingency Factor . . . . .. 104

3.4 Managing the Management ......................... 109 3.5 The Management Style of Carlzon .................... 110 3.6 Summary....................................... 114

4. Size ............................................ 119

4.1 Introduction..................................... 119 4.2 A Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 120

4.2.1 Size: A Variety of Perceptions. . . . . . . . . . . . . . . .. 120 4.2.2 The Measurement of Size . . . . . . . . . . . . . . . . . . .. 121 4.2.3 Size as Imperative ......................... 122 4.2.4 An Information Processing Perspective on Size . . .. 122

4.3 The Effects of Size on the Organization Structure ........ 123 4.3.1 Measuring Size for Design Purposes. . . . . . . . . . .. 123 4.3.2 Size as a Contingency. . . . . . . . . . . . . . . . . . . . . .. 126

4.4 Managing Size ................................... 132 4.5 The Size of SAS .................................. 133 4.6 Summary....................................... 137

5. The Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 143

5.1 Introduction..................................... 143 5.2 Background and the Literature ...................... 145

5.2.1 Measures of the Environment. . . . . . . . . . . . . . . .. 145 5.2.2 Environment-Structure Relationship ........... 149

5.3 Describing the Environment: Equivocality, Uncertainty and Complexity . . . . . . . . . . . . . . . . . . . . . . . .. 152

5.4 Environment as a Contingency Factor ................. 156 5.5 Environmental Effects on Configuration, Coordination,

Media Richness and Incentives ...................... 165 5.6 Operationalizations of the Environmental Measures . . . . . .. 174 5.7 Managing the Environment ......................... 175 5.8 SAS Environment ................................ 178 5.9 Summary....................................... 180

Table of Contents ix

6. TeCbnol~...................................... 185

6.1 Introduction..................................... 185 6.2 A Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 186 6.3 Technology as a Contingency ........................ 194

6.3.1 Measuring Technology ...................... 194 6.3.2 Technology as Contingency Factor ............. 198

6.4 Managing Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 206 6.5 The Technology of SAS . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 208 6.6 Summary....................................... 212

7. Strateg)r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 215

7.1 Introduction..................................... 215 7.2 A Literature Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 215 7.3 Strategy as a Contingency .......................... 219

7.3.1 Definition of Strategy. . . . . . . . . . . . . . . . . . . . . .. 219 7.4 The Two Level Model: Description, Strategy, Structure .... 225 7.5 The Propositions for Strategy Description and Misfits ..... 226

7.5.1 Describing a Prospector ..................... 228 7.5.2 Prospector Effects on Structure ............... 230 7.5.3 Prospector Propositions on Misfits ............. 231 7.5.4 Describing an Analyzer without Innovation ...... 232 7.5.5 Analyzer without Innovation Effects on Structure . 234 7.5.6 Analyzer without Innovation Propositions on Misfits 235 7.5.7 Describing Analyzer with Innovation ........... 236 7.5.8 Analyzer with Innovation Effects on Structure .... 238 7.5.9 Analyzer with Innovation Propositions on Misfits .. 239 7.5.10 Describing a Defender ...................... 240 7.5.11 Defender Effects on Structure ................ 241 7.5.12 Defender Propositions on Misfits .............. 243 7.5.13 Reactor Strategy. . . . . . . . . . . . . . . . . . . . . . . . . .. 243

7.6 International Dimensions. . . . . . . . . . . . . . . . . . . . . . . . . .. 244 7.7 Choosing the Right Strategy . . . . . . . . . . . . . . . . . . . . . . . .. 246 7.8 The Strategy of SAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 246

7.8.1 Development of a Complete Scandinavian Traffic System with Route Networks and Airports. . . . . .. 252

7.9 Summary....................................... 254

8. Organizational Design: A Synthesis ............... 259

8.1 Combining the Pieces: Putting It All Together ........... 259 8.2 Contingency Fit .................................. 263

8.2.1 The Simple Configuration .................... 264 8.2.2 The Functional Configuration . . . . . . . . . . . . . . . .. 266 8.2.3 Divisional Configuration . . . . . . . . . . . . . . . . . . . .. 269

x Table of Contents

8.2.4 Matrix Configuration ....................... 271 8.2.5 Ad Hoc Configuration. . . . . . . . . . . . . . . . . . . . . .. 274 8.2.6 Professional Bureaucracy Configuration . . . . . . . .. 276 8.2.7 Machine Bureaucracy Configuration . . . . . . . . . . .. 277 8.2.8 Organizational Complexity . . . . . . . . . . . . . . . . . .. 278 8.2.9 Formalization. . . . . . . . . . . . . . . . . . . . . . . . . . . .. 285 8.2.10 Centralization Propositions. . . . . . . . . . . . . . . . . .. 290 8.2.11 Coordination and Control. . . . . . . . . . . . . . . . . . .. 296 8.2.12 Media Richness and Incentives . . . . . . . . . . . . . . .. 299

8.3 Situation Fit and Misfits ........................... 302 8.4 Design Parameter Fit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 303 8.5 Total Design Fit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 305 8.6 SAS ........................................... 308 8.7 New Forms of Organization .................. . . . . . .. 312 8.8 SAS Revisited ................................... 314 8.9 SAS and the Change Process ........................ 315 8.10 Summary....................................... 315

PART 2 ............................................ 319

9. ~ti~C~tant ....................... 321

9.1 Introduction..................................... 321 9.2 Installation of Organizational Consultant, Ver. 5.1 . . . . . . .. 322 9.3 Guide to the Book ................................ 323 9.4 Learning to use Organizational Consultant ............. 324 9.5 Sample Analysis Input Template ..................... 325 9.6 Looking Ahead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 326

10. How to Use ~ti~ Consultant . . . . . . . . . .. 329

10.1 Introduction..................................... 329 10.2 How to Input Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 333 10.3 Running an Analysis .............................. 338 10.4 Output......................................... 340 10.5 Leaving Organizational Consultant ................... 345 10.6 Summary....................................... 346

11. The Mi<2'Olink Case . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 347

11.1 Introduction..................................... 347 11.2 Microlink International: History and Product . . . . . . . . . . .. 347 11.3 Microlink International: Structure and Markets . . . . . . . . .. 348 11.4 Input to Organizational Consultant ................... 351

11.4.1 Current Configuration ...................... 351

Table of Contents Xl

11.4.2 Current Complexity ........................ 352 11.4.3 Current Formalization ...................... 354 11.4.4 Current Centralization. . . . . . . . . . . . . . . . . . . . .. 356 11.4.5 Current Size .............................. 358 11.4.6 Age/Ownership............................ 359 11.4.7 Diversity................................ 359 11.4.8 Technology............................... 360 11.4.9 Environment............................. 362 11.4.10 Management Style ......................... 363 11.4.11 Strategy Factors. . . . . . . . . . . . . . . . . . . . . . . . . .. 364

11.5 Results from Organizational Consultant . . . . . . . . . . . . . . .. 365 11.6 Performing a Sensitivity (Delta) Analysis. . . . . . . . . . . . . .. 374

11.6.1 Results from the Sensitivity Analysis .. . . . . . . . .. 375 11.7 The Organizational Consultant's Recommendations and

Sensitivity Analysis ............................... 380 11.8 Implications for Microlink International . . . . . . . . . . . . . . .. 382 11.9 What Can We Learn By Doing? ...................... 384

12. Creating Written Reporls and Presentatims ...... 389

12.1 Planning to Report Results. . . . . . . . . . . . . . . . . . . . . . . . .. 389 12.1.1 Analyzing your Audience .................... 389 12.1.2 Defining your Purpose ...................... 390 12.1.3 Adapting to Situational Constraints . . . . . . . . . . .. 391

12.2 Creating Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 392 12.2.1 Message Development ...................... 393 12.2.2 Creating the Body of the Message ............. 393

12.3 Writing a Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . .. 394 12.3.1 Descriptive Analyses ....................... 394 12.3.2 Evaluative Analyses . . . . . . . . . . . . . . . . . . . . . . .. 396

12.4 Presenting a Case Analysis ......................... 399 12.4.1 Planning Your Strategy ..................... 400 12.4.2 Creating the Introduction . . . . . . . . . . . . . . . . . . .. 403 12.4.3 Creating the Conclusion . . . . . . . . . . . . . . . . . . . .. 404 12.4.4 Tying the Message Together . . . . . . . . . . . . . . . . .. 404

12.5 Sample Presentation Outline ........................ 404 12.6 Summary ....................................... 408

18. Sample Cases and Exercises . . . . . . . . . . . . . . . . . . . .. 409

13.1 Introduction ..................................... 409 13.2 ABB Electromechanical Meters ...................... 410

13.2.1 Background .............................. 410 13.2.2 The Electromechanical Meter Organization ...... 411 13.2.3 Manufacturing............................ 411 13.2.4 Design Engineering ........................ 412 13.2.5 Marketing............................... 413

xii Table of Contents

13.2.6 Intergroup Communications . . . . . . . . . . . . . . . . .. 413 13.2.7 Managerial Responsibilities .................. 414 13.2.8 Questions for Consideration .................. 414

13.3 Duke University Press . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 414 13.3.1 Organizational Description . . . . . . . . . . . . . . . . . .. 414 13.3.2 Questions for Consideration .................. 418

13.4 GTE Government Systems Mobile Subscriber Equipment Division ........................................ 419 13.4.1 Background and Issues ...................... 419 13.4.2 Analysis................................. 421 13.4.3 Questions for Consideration .................. 422

13.5 Weck ENDOSCOPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 422 13.5.1 History.................................. 423 13.5.2 The New Focus for Weck: Endoscopy ........... 424 13.5.3 Current Organization . . . . . . . . . . . . . . . . . . . . . .. 424 13.5.4 Questions for Consideration .................. 426

13.6 The U.S. EPA's Air and Energy Engineering Research Laboratory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 426

13.6.1 Background.............................. 427 13.6.2 Structure................................ 427 13.6.3 Formalization............................. 428 13.6.4 Centralization ............................ 429 13.6.5 Size.................................... 430 13.6.6 Age and Ownership ........................ 431 13.6.7 Diversity ................................ 431 13.6.8 Technology............................... 431 13.6.9 Environment............................. 432 13.6.10 Management Profile . . . . . . . . . . . . . . . . . . . . . . .. 432 13.6.11 Industry ................................. 432 13.6.12 Strategy................................. 433 13.6.13 Questions for Consideration .................. 433

13.7 Bluestone Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 434 13.7.1 Background .............................. 435 13.7.2 Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 436 13.7.3 Part II .................................. 439

~DL.~eSh~ ............................ 447

S1lIJject In.d.ex: ...................................... 449

Preface

Organizational design is a normative science with the goal of prescribing how an organization should be structured in order to function effectively and efficiently. Organizational theory is a positive science that states our understanding about how the world operates and contrasts that under­standing with a view of how the world could possibly operate. It provides the theoretical underpinnings for organizational design. In this book, we attempt to construct an approach for diagnosing and designing organiza­tions built on a knowledge base of organizational theory.

Organizational design is a young field that incorporates many concepts and approaches. In organizational design literature to date, there seems to have been only two ways of doing things in this field-either to be so general and so simple that the various interpretations do not yield practical design implications, or to be so detailed and specific that generalization to other situations is almost impossible. We attempt here to strike a balance-and offer an approach that is applicable to a broad range of situations.

In our view, organizational theory exists as a large body of related languages, definitions, hypotheses, analyses, and conclusions. Our know­ledge is vast, diverse, somewhat inconsistent, and generally unconnected. Yet there is an underlying core of knowledge that can be used for analytical purposes. Creating this balanced approach requirs that the knowledge be distilled and augmented to produce a set of clear and consistent design rules that can be used to recommend what the organiza­tion's design should be.

In organizational theory we have attempted to find simplicity. The search for a dominant contingency or imperative has led to a parade of paradigms which examine elements of technology, size, environmental, and strategy paradigms. Moreover, little effort has been made to remove the simplicity of these paradigms and put the various pieces together in a reasonable fashion. Schoonhoven (1981) lists a number of problems with the contingency view of organizational design, including lack of clarity, lack of understanding about interactions, and a lack of acknowledgement of the functional forms of the interactions. Others (Donaldson, 1982, 1987; Schreyogg, 1980; Pennings, 1987) have debated whether a contingency view was appropriate or not. The difficulties come from many sources. In many studies the distinction between description and prescription is not at all clear. In many cases a silent shift is made from the description to

XIV Preface

the prescription. Indeed, we must incorporate knowledge that comes from descriptive studies. But we want to prescribe. We want to recommend what the organizational design should be.

Designing an organization is no simple task. From Mintzberg's five classes of structure, Mintzberg (1979), one can generate over a million design alternatives. How does one search such a design space? To illustrate, let us assume that an organizational structure can be defined as functional, divisional, or matrix and as centralized or not and formal­ized or not. There are then 3x2x2 = 12 possible designs from which to choose. The number of choices grows nonlinearly as the number of organizational dimensions approaches useful realistic proportions. Let us add the choice that the organization could have high specialization or not. The number of choices is now 2x12 = 24. In a contingency theory of organization, these design alternatives would need to be evaluated for all possible conditions. In the simple case of ten contingency dimensions and only two values allowed for each, we would have to evaluate twenty-four classes of structures under 1,024 different conditions. When the dimen­sions and number of variables approaches a useful size for analytical purposes, the choice and evaluation of organizational design alternatives becomes an enormous problem. There is no way students, teachers, consul­tants, and managers can handle such a complex choice situation without some order and systematic approach.

This book is accompanied by Organizational Consultant-a com­puterbased expert system that operationalizes the theoretical propositions developed in this book. Organizational Consultant is a program that applies the underlying theory to deal with millions of design possibilities in a systematic and comprehensive manner to diagnose an organization and offer recommendations for its design, configuration, complexity, formalization, centralization, media richness, committees, meetings, and liaison relations.

The book is divided into two parts. Part 1 consisting of the first 8 chapters is the theory part, where the multiple contingency model is developed. One special feature of Part 1 is its detailed analysis of Scandinavian Airlines Systems (SAS) from 1950 to today. SAS has undergone a number of changes in its situation and design during this period, and we analyze those changes to provide insight into organization­al design. Other business cases are included to illustrate various concepts and to relate the theory to practice.

Part 2 is a manual/case part consisting of chapters 9-13. Part 2 describes how the Organizational Consultant operates and how it can be used to analyze cases. This part also contains seven cases specifically developed to be used with Organizational Consultant. For Part 2, Nancy Keeshan is a coauthor.

Preface xv

Although Part 1, Part 2, and Organizational· Consultant can be con­sidered as a unit, each is self-contained. For instance, Organizational Consultant can also be used with other textbooks in organizational theory such as Robbins (1990), Daft, (1992), and Mintzberg, (1984).

Organizational Consultant is a teaching tool in itself. Explanation and help functions contain many parts of the theory. Extensive use of Organizational Consultant can teach the student many issues of the theory.

The book and software have been developed over some years. We have used both the book and software in many courses both at The Fuqua School of Business and Odense University. We would like to thank our students for valuable comments and critique. Many students developed cases from their own organization as part of the courses and we were allowed to include some of these cases in Part 2 of this book. We would like to thank Steve Hulme, Louis Grilli, David Thomason, Kathy Brodeur, Barbara Johnson, and Kelly Leovic. Ray Levitt at Stanford also used both the book and Organizational Consultant in his course. Ray's many comments helped improve the final version. Additionally, he convinced his students Hyun-Chan Cho, Hajime Kitamura, and Tin-Hsuan Wu to prepare a case for Part 2. We are very grateful for his effort. Many in­dividuals have worked with us as teaching assistants, programmers, and research assistants. We would like to thank Berit Jensen, Claus Bo J0rgensen, Mogens Kjrer Harregaard, Kim Madsen, Mads Haugard, Bo Hegedal and S0ren Hjortkjrer. Our colleagues Caroll Stephens, Arie Lewin, Tom Naylor, Mikael S0ndergaard, Bjame Nielsen, and Henrik Bendix offered comments, critique, and help in various ways. A number of executives allowed us to test Organizational Consultant in their organiza­tion. We are grateful to Don Namm, Glenn Weingarth, Don Melick, Benny Mortensen, Hans J0rgen Hansen, J0m Henrik Petersen, Sven-Erik Petersen, and Arne Fredens. We would also like to thank the reviewers and staff from Kluwer. Their comments and help is highly appreciated. Mona Andersen has worked with us in all these years. She has typed and organized several versions as well as prepared this final one. It has been a pleasure to work with Mona.

We would to thank the Danish Social Science Research Council, Duke University, and Odense University for the support they have provide to make this research possible.

And finally, and most importantly, Helmy H. Baligh has been our fellow traveler on many ventures. He is coauthor on a number of base papers for this book and has been our most supportive and most critical colleague-thus the dedication.

Richard Burton and B0rge Obel