A Conceptual Framework for A Conceptual Framework for the Design of Organizational the Design of Organizational Control MechanismsControl Mechanisms
William G. Ouchi, 1979
Management Science. 25 (9): 833-847
Group 1:
Meredith, Barclay, Woo-Je, and Kumar
Organizational ControlOrganizational Control
Meanings and InterpretationsMeanings and Interpretations
Control equivalent to powerControl as a problem in information flows
Ouchi’s ViewWhat are the mechanisms through which an organization can be managed so that it moves towards its objectives?How can the design of these mechanisms be improved and what are the limits?
Example: Parts Supply DivisionExample: Parts Supply Division
Problem: Purchasing department buys 100,000 different items/year from 3,000 different manufacturers
Accomplishes the work with 22 employees, of whom 3 are at the managerial level
Warehousing stores the product, fills the orders and ships the product using 1,400 employees, of whom 150 are managers
Analysis of Parts Supply DivisionAnalysis of Parts Supply Division
Three Mechanisms involved:
MarketPurchasing division
BureaucraticWarehouse division
Informal Social Concept of The Clan
Market MechanismsMarket Mechanisms
Purchasing AgentSimply puts each part out for competitive bids and permits the competitive price to define the fair price
Managers of Purchasing AgentsOnly needs to check decisions against simple criterion of cost minimization rather than observing all the steps
Market as a Pure ModelMarket as a Pure Model
Efficient Mechanism
Prices convey relevant information for decision makerArbitrary rules such as those found in warehousing unnecessaryProvides a mechanism for solving problem of goal incongruityRewards employees in direct proportion to their level of contribution
But the fact that purchasing takes place in a corporate framework suggests market defects exist
Purchasing: Mixture of Market Purchasing: Mixture of Market and Bureaucratic Mechanismsand Bureaucratic Mechanisms
Work of purchasing agent is controlled through process of bureaucratic surveillance (manager) rather than price mechanisms
Director of Purchasing does not determine market price
Instead, agrees upon an employment contract at some price and resorts to hierarchical order giving and performance evaluation.
Bureaucratic Mechanisms (Warehousing)Bureaucratic Mechanisms (Warehousing)
Fundamental mechanism of control involves close personal surveillance and direction of subordinates by superiors
Task completion governed by RULES: an arbitrary standard against which a comparison is yet to be made
Rules vs. PriceRules are only partial bundles of informationPrice is a complete bundle of information
Why does Warehouse use Why does Warehouse use Bureaucratic Mechanisms?Bureaucratic Mechanisms?
Impossible to set prices for each task in warehouseNo corresponding inexpensive way to determine performanceWill have to establish performance standards and systems of hierarchical superiorsThe Bureaucratic Mechanism!
Original DilemmaOriginal Dilemma
Purchasing participates in a market mechanism which is more efficient
Warehousing uses a bureaucratic mechanism because market is not frictionless
Both Bureaucratic and Market mechanisms are directed towards the same objectives
Which is more efficient depends on the particulars of the transactions
Clan MechanismsClan MechanismsInformal social structures that are properties of a unique organization
Examples of others industries: DoctorsCertified with respect to technical skills but also integrity and purity of values
Once the Manager knows that the Foremen are trying to achieve the “right” objectives he can eliminate many costly forms of auditing and surveillance methodsOnly recently has the Clan mechanism been considered the subject of analysis central to the problem of organization
Social & Informal Prerequisites of ControlSocial & Informal Prerequisites of Control
Type of Control
Social Requirements
Informal Requirements
Market Norm of Reciprocity Price
Bureaucracy Norm of ReciprocityLegitimate Authority
Rules
Clan Norm of ReciprocityLegitimate AuthorityShared Values, Beliefs
Traditions
Informal Prerequisites of ControlInformal Prerequisites of Control
Implicit informationEx. Traditions of the US Senate“grows up” as a natural by product of social interactionThe Clan
Explicit informationMust be created and maintained intentionally at some costEx. Accounting division
Designing Control Mechanisms: Costs and BenefitsDesigning Control Mechanisms: Costs and Benefits
Two methods to achieve effective people Two methods to achieve effective people control:control:
1. Search for and select people who fit your needs exactly
• Cost of Search: High Wages• Benefit: Perform tasks without instruction, work hard
2. Take people who don’t fit your needs exactly and put in a system to instruct, monitor, and evaluate them
• Cost: training unskilled workers, indifferent to learn organization skills and values, developing & running supervisory system.
• Benefit: System can take heterogeneous assortment of people and effectively control them, withstand high rates of turnover
Organizational Control: People TreatmentOrganizational Control: People Treatment
People Treatment Form of Commitment
Corresponding Control Type
Totally Unselective Internalization Market
Selection/Screening Identification Clan
Training Identification Bureaucracy
Monitoring Compliance Bureaucracy
Taken from Kelman, 1958 (20)
Loose Coupling and The ClanLoose Coupling and The Clan
Imperfect
Output Measurement
(Women’s Boutique)
Perfect
Behavior or Output Measurement
(Apollo Program)
Ritual and Ceremony,“Clan Control”(Research Laboratory)
Behavior Measurement(Tin Can Plant)
High
Low
Ability toMeasure Outputs
Knowledge of the Transformation ProcessKnowledge of the Transformation Process
Loose CouplingLoose Coupling
Fashionable ViewsMost hierarchies fail to transmit control from top to bottomMost organizations do not have a single or an integrated set of goals or objectivesSubunits within are only loosely joined to each other
Under conditions of ambiguity or loose coupling, measurement with precision is not possible.A control system based on this will lead to organizational decline.Under these circumstance clan control is preferable
Closing Observations
Organizations vary in the degree to which they are coupledControl mechanisms of Market and/or Bureaucratic can be designed for relatively stable manufacturing industriesOrganizations in public sector, services, and technologies may be better served by clan forms of controlThe problem of organization design is to discover that balance of socialization and measurement which most effectively permits a particular organization to achieve cooperation among its members.
ConclusionsConclusions
Design of organizational control mechanisms must focus on the problems achieving coordination and cooperation among individuals
Problem is to understand how, as society changes, do the control methods of organizations change with it.