Organizational Life-cycle & Decline

An organization undergoes changes in its conceptual and structural dimensions over a period of time, analogous to biological organisms, it is born, and it attains growth, gets matured and eventually dies.  Most research on life-cycle suggest three major growth stages and a decline stage, each has its own conceptual variations and they result in observable change in structure and vision. Entrepreneurial stage It is the conceptual stage where the new product is defined, its market is identified and development plan is executed. Leadership Focus is on successful development of prototype or marketable product, while able to manage the necessary finance. Organization size is small, its reporting structure is flat and non-bureaucratic, and founder bears the responsibility of managing all aspects of the organization. The culture is informal, promotes innovation and risk-taking, the decision making is centralized and mostly lies with the founder, long working hours are expected. The specialization and growth are limited to the core functionalities like R&D, manufacturing or service. The staff is usually highly skilled with relevant experience in the core functions and the supporting staff is minimal. Individual effectiveness is most important at this stage. Expansion The organization emerges from entrepreneurial stage if it succeeds in its initial goal of product creation and had secured finance and perhaps few customers.  It then enters the commercialization stage where it has to build the product in larger quantities, reach wider customers and become a profitable venture. Leadership focus is on making the product work well and to increase the sales and revenue. The organization size needs to grow since it needs more resources for larger production and sales. While a consistent growth in core functionality continues, additional growth occurs in sales and marketing. The culture gets inclined towards market culture since external environment is for the time being stable, the entrepreneurial success provides some buffer time before competition emerges on the horizon. Organization structure starts its initial shift towards being more hierarchical; the founder is incapable for managing everything and starts delegating tasks to his subordinates creating management hierarchies.  Since the expansion is particularly in R&D and sales, the supporting staff is still minimal; the organization adopts a functional structure. The organizational growth brings in more specialist and subordinates through hiring, it inadvertently creates a leadership crisis at the top level since the changed organization demands delegation of responsibility. All the initial founders and the individual technical leads need to part with their autonomous powers that they enjoyed during the entrepreneurial phase and learn to delegate decision making and perform the new task of coordination and team building.  Middle management evolves and is responsible for operations while the top management focuses on business strategies. The management processes began to emerge in the activities related to production and control, though they are still not very well defined and are still flexible. Leadership challenge is to constantly scan the external environment for competition and hostility while it is so much focused on the growth. Consolidation The expansion phase results in an expanded operation related to production like purchasing, inventory control, etc and also diversely deployed sales staff. The organization was geared towards maximizing its production and sales capacity. In consolidation stage, the focus shifts towards cost control, productivity and profit. The leadership focus is on achieving the organizational effectiveness. The organization size is almost stable, the expansion stage might have lead to some redundancies in core functions, but consolidation stage might include additional manpower in supporting functions.  The growth can occur in additional staff related to quality control, customer support, administrative functions and marketing.  Unlike growth stage when the size increases linearly, the consolidation stage involves both downsizing and hiring. There is an increase in number of products, even though they might be still related to the core competencies; as a consequence, the organizational structure becomes divisional with more departments. The organization’s culture becomes bureaucratic due to high degree of formalization and processes that are deemed necessary as a way to better control the operations. The leadership challenge is to establish seamless communication protocol between different departments, look for signs of external environmental changes and make necessary corrective actions. Decline An organization enters the decline phase when it experiences continuous reduction in resources and revenue over a substantial period of time. Ironically, the decline can be recognized with certainty only when it is too late to recover from it, early signs are often mistaken to be temporary. The decline can occur after any growth stage, not necessarily after consolidation stage; also growth does not always lead to decline, there is also possibility of long period of stagnation. Stagnation can be defined as a state with no growth, fewer but dedicated customers, few competitors, a niche market or availability of abundant resources.  Stagnation does not usually result in loss of revenues or downsizing. Reasons for decline There are several causes of decline, some are quantitative and are easier to detect while other are qualitative and are hard to comprehend.  The decline can be due to adverse changes in the external environment or inefficiencies pertaining to internal operations of the organization.     Quantitative reasons of decline The quantitative analysis can be found in the organization’s financial statements, its internal operation reports and by using other mathematically measurable parameters. ·           Reduced workforce: A cutback in size of the organization reflects a reduced total market, reduced need of products; lack of capability to deliver the product, hence the underlying reasons implies a decline. However, there are times when cutback is a temporary measure to realign and revitalize the organization for another phase of growth. Reduced market share:  The reduction in the market share of the company implies several issues, growing competition if the total market is indeed growing or is stable, or contraction of overall market due to obsolete products or technologies. Reduced profit or share price: It provides the investor’s assessment of the companies operating margin and its prospects of growth in future. Qualitative reasons of decline ·           Fierce competition:  During the entrepreneurial stage, the big players might try all tools in their arsenal to counter the threat of a newcomer. It includes practices of aggressive pricing, luring their established client base with bonus deals, acquisition of competitive technologies and developing parallel products etc.  Many times, the hostile takeover by large and established company is for the purpose of quick termination of a competitor. Lack of Customers: It happens due to unexpected decline in the niche market, a change in consumer’s choice for a different product or simply because the organization fails to find proper market for the product.  It can happen at any stage of life-cycle, the quarterly sales and revenue over a period of time are good indicators of change in customer base. Obsolete technology: Older organizations are very much vulnerable to newer technologies that can adversely impact its core business and competencies. Economic downfall: Harsh economic environment reduces the customer spending; multiple vendors compete for the reduced market share. It also gets hard to obtain fresh credit and finances for new ventures or existing operations. Organizational atrophy: It usually occurs in older organizations that have experienced healthy growth & long period of stability; the hierarchical structure & the bureaucratic culture of such large organization cause its slow degeneration. The organization size is large with excessive personnel, middle management is incumbent that tolerates incompetence, management processes are excessive and counterproductive; finally there is a leadership crisis.  Employees loose trust in the leadership and its vision; the employee satisfaction level starts to dip consistently and so does its operational efficiency. A Model of decline stages Decline of an organization occurs in a series of observable and distinct stages, each exhibiting a reduced capability to counteract. The most acknowledged model of decline proposes that the organization goes through five stages of decline, before its final termination. Blinded Stage In this stage, the organization fails to recognize any of the internal or external changes that may threaten its survival.  Usually, causes for the decline are present but are not evident;  the leadership tends be insensitive and simply fails to make a connection between the observed changes and a possible decline. Most organizations lack a unit that performs the task of scanning both internal & external boundaries, partly due to additional cost and uncertain advantage. The mere concept of a stable environment is a myth and exists only as a theoretical concept; environment is stable only for short duration.  Similarly the need for internal surveillance cannot be ignored; it includes regular performance reviews, employee satisfaction surveys, training and skill development, and most importantly an open communication mechanism to aid in vertical flow of information. The initial signs of decline are usually very much visible and known to the bottom of the organizational pyramid, but the information fails to propagate upwards to its leaders. Inaction Stage Unlike in blinded stage, the signs of deteriorating performance are clearly evident in this stage, but the leadership still fails to take any action. Leaders often view them as temporary changes and instead of interpreting them as a threat, they choose to take `wait and see’ approach, perhaps because this approach has worked in the past.  The past successful approaches fail when the current situations are very different, however the leaders always have tendency to follow the planned course and suppress any dissident opinions. Finally, the aging leadership might simply lack the knowledge and insight to comprehend the influence of the changing conditions. Faulty Action Stage In this stage, the organization is clearly on its downfall and pressure to take corrective action is very high.  The vertical and horizontal information from within the organization and the external environment increases manifolds along with its complexity. The overload of conflicting information & suggestive actions, combined with time pressure, compels the leadership to centralized decision making and they tend to create a biased task force.  However, due to high pressure, the decision makers tends to make quick, risky and often fault decisions, that further accelerates the decline.  This further reduces the confidence in leadership and many talented employees might end up leaving the organization in anticipation of its fall. Some of the prescribed cure include introduction of new leadership, diversification of core business either though self development or acquisitions and disinvestment in failing product lines. Crisis Stage The organization reaches a crisis stage when all prior actions have failed and it becomes obvious that without any major change, its survival is questionable. All the stakeholders, including customers, investors, suppliers and employees begin to distance themselves from the organization and have lost faith in it. At this stage, the organization requires a massive structural change, a new strategy to deal with the external environment and a new ideology to revitalize the ailing organization. Dissolution Stage This is the last stage of its demise and is irreversible; it is marked by depletion of its finance, diminished market for its products and exodus of its talented employees. The new leadership and the strategy had failed to revive the business and now their responsibility lies in proper dissolution of the organization and its resources. in the decline stage to keep calm, establish a regular and clear communication towards customers, employees & suppliers. Next step to put your current organizational structure on the table and rework it to your next operational goals. In a declining enviroment you'll can focus on 2 things cutting cost or/and establish a enviroment to create growth. Cost cutting will fuel the decline, as in the process you'll lame the outcome of your workforce, leading to more unsatisfied customers with even more decline. But really comes down to the individual challanges/company what are the appropiate next steps are.

Organizational theory

Organizational theory is the sociological study of formal social organizations, such as businesses and bureaucracies, and their interrelationship with the environment in which they operate. It complements the studies of organizational behavior and human resource studies.

Rise of organizations

Organizations, which are defined as “social units of people that are structured and managed to meet a need or to pursue collective goals (“Organizations”),” are said to have risen in the United States within a variety of social and historical contexts. Several of those factors are credited with making organizations viable and necessary options for citizens, and they built on one another to bring organizations to the level of importance that they are at today.
In 1820, about 20% of the United States population was dependent on a wage income. That number increased to 90% by 1950. Generally, farmers and craftsmen were the only ones by 1950 who were not dependent on working for someone else; prior to that, most people were able to survive by hunting and farming their own food, making their own supplies, and remaining almost fully self-sufficient. As transportation became more efficient and technologies were further developed, self-sufficiency became an economically poor choice. As in the Lowell Textile Mills, various machines and processes were developed for each step of the production process, thus making mass production a cheaper and faster alternative to individual control. In addition, as the population grew and transportation progressed, the pre-organizational system struggled to support the needs of the market. These conditions made for a wage dependent population that sought out jobs in growing organizations, leading to a shift from individual and family production.
In addition to a shift to wage dependence, externalities from industrialization also created a perfect opportunity for the rise of organizations. Various negative effects such as pollution,workplace accidents, crowded cities, and unemployment became rising concerns. Rather than small groups such as families and churches being able to control these problems as they had in the past, new organizations and systems were required in order to keep their heightened effects down. The smaller associations that had contained various social issues in the past were no longer viable, and instead were collapsed into larger formal organizations. These organizations were less personal, more distant, and more centralized; but, what they lacked in locality, they made up for in efficiency. Along with wage dependency and externalities, growth of industry also played a large role in the development of organizations. Markets that were quickly growing and expanding needed employees right away – because of that, a need developed for organizational structures that would help guide and support these new employees. Some of the first New England factories relied on daughters of farmers at their onset; later, as the economy changed, they began to gain work from the farmers, and finally, European immigrants. Many Europeans left their homes for the promises of US industry, and about 60% of those immigrants stayed in the country. They became a permanent class of workers in the economy, which allowed factories to increase production and produce more than they had before. With this large growth came the need for organizations and leadership that was not previously needed in small businesses and firms.
Overall, the historical and social context in which organizations rose in the United States allowed for not only the development of organizations, but also for their spread and growth. Wage dependency, externalities, and growth of industries all played into the change from individual, family, and small-group production and regulation to large organizations and structure.
Even though the decline in small business might not seem to substantiate how the development in organizations leads to increased aggregate economic return, it exemplifies the cut-throat nature of capitalism. As organizations develop, they devour the smaller organizations that cannot keep up, but also allow for the evolution of innovative management and production techniques for other larger companies. The development of organizations demands a higher level of skillset from workers as it continues to grow. It also builds precautionary measures on cutting edge technology. It amplifies the need for specialization and accounts of functionalism in various organizations and their respective societies. Through much advancement in the interaction of capitalistic bureaucracies, the development of organizations is what has driven contemporary firms to thrive in its modern day society.

Competing theories of organization

As organizations are implemented over time, many people experimented as to which one was best. These theories of organizations include Bureaucracy, Rationalization (Scientific Management), and the Division of Labor. Each theory provides distinct advantages and disadvantages when implemented. However, there is no best way to organize labor. For instance, the divi sion of labor may be more effective for a car company, while a bureaucracy is more effective for a government program such as the FDA.

Weber's Ideal of Bureaucracy

• Official Jurisdiction on all areas are ordered by rules or laws already implemented.
• There is an office hierarchy; a system of super- and subordination in which there is supervision of lower office by higher ones.
• The management of the modern office is based upon written rule, which are preserved in original form.
• Office management requires that of training or specialization.
• When the office is developed/established it requires the full working capacity of individuals.
• Rules are stable and can be learned. Knowledge of these rules can be viewed as expertise within the bureaucracy (these allow for the management of society)

When a bureaucracy is implemented, they can provide accountability, responsibility, control, and consistency. The hiring of employees will be an impersonal and equal system.
Although the classical perspective encourages efficiency, it is often criticized as ignoring human needs. Also, it rarely takes into consideration human error or the variability of work performances (each worker is different)
Challenger Tragedy: overlooked the possibility of human error. Three Mile Island Incident

Rational system perspective

In a rational organization system, there are two significant parts: Specificity of Goals and Formalization. Goal specification provides guidelines for specific tasks to be completed along with a regulated way for resources to be allocated. Formalization is a way to standardize organizational behavior. As a result, there will be stable expectations, which create the rational organizational system.

• Scientific Management: Taylor analyzed how to maximize the amount of output with the least amount of input. This was Taylor’s attempt to rationalize the individual worker.

1. Divide work between managers and workers
2. Provide incentive system (based on performance)
3. Scientifically train workers
4. Create a science for each individual’s responsibilities
5. Make sure work is done on time/efficiently

There are problems that arose out of scientific management. One is that the standardization leads workers to rebel against the mundaneness. Another is that workers may reject the incentive system because they are required to constantly work at their optimum level, an expectation that may be unrealistic.

Division of labor

The division of labor is the specialization of individual labor roles. It is often associated with increasing output and trade. According to Adam Smith, the division of labor is efficient due to three reasons: occupational specialization, saving from not changing tasks, and machines taking the place of human labor. Occupational specialization leads to increased productivity and distinct skill. Also, Smith argued that human and physical capital must be similar or matched; if the skill of workers were matched with technological improvements, there would be a major increase in productivity.
Although the division of labor is often viewed as inevitable in a capitalistic society, there are several specific problems that may arise. They include a lack of creativity, monotony, and lack of mobility. Creativity will naturally suffer due the monotonous atmosphere that the division of labor creates. Doing the same routines may not be for everyone. Also, employees aren’t familiar with other parts of the job. They cannot assist employers of different parts of the system.

Modernization theory

Modernization “began when a nation’s rural population started moving from the countryside to cities” (Shah 3). It deals with the cessation of traditional methods in order to pursue more contemporary effective methods of organization. Urbanization is an inevitable characteristic of society because the formation of industries and factories induces profit maximization. It is fair to assume that along with the increase in population, as a result of the subsequent urbanization, is the demand for an intelligent and educated labor force (Shah 3). Following the 1950s, Western culture utilized the effects of mass media coverage to communicate their good fortune attributed to modernization. The coverage promoted “psychic mobility” among the social class and increased the aspirations of many hopefuls in developing economic countries (Shah 4). Under this theory, any country could modernize by using Western civilization as a template.
Although this theory of modernization seemed to pride itself on only the benefits, countries in the Middle East saw this movement in a new light. Middle Eastern countries believed that the media coverage of modernization implied that the more “traditional” societies have not “risen to a higher level of technological development” (Shah 6). Consequently, they believed a movement that benefits those who have the monetary resources to modernize technological development would discriminate against the minorities and poor masses (Shah 6). Thus, they were reluctant to modernize because of the economic gap it would create between the rich and the poor.
The growth of modernization took place beginning in the 1950s. For the ensuing decade, people analyzed the diffusion of technological innovations within Western society and the communication that helped it disperse globally (“Modernization theory”). This first “wave” as it became known had some significant ramifications. First, economic development was enhanced from the spread of new technological techniques. And second, modernization supported a more educated society (as mentioned above), and thus a more qualified labor force (“Modernization Theory”). The second wave took place between the years 1960 and 1970. This period was labeled anti-modernization, because it saw the push of innovations of Western society onto developing countries as an exertion of dominance (“modernization theory”). It refuted the concept of relying heavily on mass media for the betterment of society. The last wave of modernization theory, which took place in the 1990s, depicts impersonality (Perrow 737). As uses of newspapers, TVs, and radios become more prevalent, the need for direct contact, a concept traditional organizations took pride in, diminishes. Thus, organizational interactions become more distant (“Modernization Theory”)^.
According to Frank Dobbin, the modern worldview is the idea that “modern institutions are transparently purposive and that we are in the midst an evolutionary progression towards more efficient forms (138).” This phrase epitomizes the goal of modern firms, bureaucracies, and organizations to maximize efficiency. The key to achieving this goal is through scientific discoveries and innovations (Dobbin 139). Dobbin discusses the outdated role of culture in organizations. “New Institutionalists” explored the significance of culture in the modern organization (Dobbin 117). However, the rationalist worldview counters the use of cultural values in organizations, stating, “transcendental economic laws exist, that existing organizational structures must be functional under the parameters of those laws, [and] that the environment will eliminate organizations that adopt non-efficient solutions” (Dobbin 138). These laws govern the modern organizations and lead them in the direction that will maximize profits efficiently. Thus, the modernity of organizations is to generate maximum profit, through the uses of mass media, technological innovations, and social innovations in order to effectively allocate resources for the betterment of the global economy.

Classical perspective

The classical perspective emerges from the Industrial Revolution and centers on theories of efficiency. There are two subtopics under the classical perspective: the scientific management and bureaucracy theory.

Efficiency and teleological arguments in Weberian bureaucracy

Max Weber believed that an ideal bureaucracy consists of six specific characteristics: hierarchy of authority, impersonality, written rules of conduct, promotion based on achievement, specialized division of labor, and efficiency. This ultimate characteristic of Weberian bureaucracy, which states that bureaucracies are very efficient, is controversial and by no means accepted by all sociologists. There are certainly both positive and negative consequences to bureaucracy, and strong arguments for both the efficiency and inefficiency of bureaucracies.
While Max Weber’s work was published in the late 1800s and early 1900s, before his death in 1920, his work is still referenced today in the field of sociology. Weber’s theory of bureaucracy claims that it is extremely efficient, and even goes as far as to claim that bureaucracy is the most efficient form of organization. Weber claimed that bureaucracies are necessary to ensure the continued functioning of society, which has become drastically more modern and complex in the past century. Furthermore, he claimed that without the structured organization of bureaucracy, our complex society would be much worse off, due to the fact that society would act in an inefficient and wasteful way. He saw bureaucracies as organizations driven towards certain goals, which they could carry out efficiently. In addition, within an organization that operates under bureaucratic standards, the members will be better off due to the heavy regulation and detailed structure. Not only does bureaucracy make it much more difficult for arbitrary and unfair personal favors to be carried out, it also means that promotions and hiring will generally be done completely by merit.
Weber most definitely saw bureaucracies as goal-driven, efficient organizations, but one must not come to the quick and incorrect conclusion that he saw no downfalls to bureaucracy. He recognized that there are constraints within the bureaucratic system. First of all, he realized that bureaucracies were ruled by very few people with very large amounts of unregulated power. This tends to lead to a situation of oligarchy, whereby a limited number of officials become the political and economic power. Furthermore, Weber considered further bureaucratization to be an “inescapable fate,” due to the fact that it is supposedly superior to and more efficient than other forms of organization. Weber’s analysis of bureaucracies led him to believe that they are too inherently limiting to individual human freedom and he feared that people would begin to be too controlled by bureaucracies. His rationale comes from the knowledge that the strict methods of administration and legitimate forms of authority associated with bureaucracy act to eliminate human freedom.
Regardless of whether or not bureaucracies should be considered positively efficient or too efficient to the extent that they become negative, Weberian bureaucracy tends to offer a teleological argument. A theory, in this case bureaucracy, is considered to be teleological if it involves aiming at specific goals. Weber claimed that bureaucracies are goal-oriented organizations, which use their efficiency and rational principles to reach their goals A teleological analysis of businesses leads to the inclusion of all involved stakeholders in decision-making. The teleological view of Weberian bureaucracy postulates that all actors in an organization have various ends or goals, and attempt to find the most efficient way to achieve these goals.

Scientific Management

Main article: Scientific management

The Scientific Management theory was introduced by Frederick Winslow Taylor to encourage production efficiency and productivity. Taylor argues that inefficiencies could be controlled through managing production as a science. Taylor defines scientific management as "concerned with knowing exactly what you want men to do and then see in that they do it in the best and cheapest way." According to Taylor, scientific management affects both workers and employers, and stresses the control of the labour force by management.

Principles of Scientific Management

Main article: The Principles of Scientific Management

Taylor identifies four inherent principles of the scientific management theory.

1. The creation of a scientific method of measurement that replaces the "rule-of-thumb" method
2. Emphasis placed on the training of workers by management
3. Co-operation between manager and workers to ensure the principles are being met
4. Equal Division of labour between managers and workers

Bureaucratic Theory

Main article: bureaucracy

The scholar most closely associated with Bureaucratic theory is Max Weber. In Economy and Society, his seminal book published in 1922, Weber articulates the necessary conditions and descriptive features of bureaucracy. An organization governed under Weber’s conception of bureaucracy is characterized by the presence of impersonal positions that are earned and not inherited, rule-governed decision-making, professionalism, chain of command, defined responsibility, and bounded authority.
Weber begins his discussion of bureaucracy by introducing the concept of ‘jurisdictional areas’: institutions governed by a specific set of rules or laws. In a ‘jurisdictional area’ regular activities are assigned as official duties, the authority to assign these duties is distributed through a set of rules, and duties are fulfilled continuously by qualified individuals. These elements make up a bureaucratic agency in the case of the state and a bureaucratic enterprise in the private economy.
There are several additional features that comprise a Weberian bureaucracy:

• It is possible to find the utilization of hierarchical subordination in all bureaucratic structures. This means that higher-level offices supervise lower level offices.
• In bureaucracies, personal possessions are kept separate from the monies of the agency or the enterprise.
• People who work within a bureaucracy are usually trained in the appropriate field of specialization.
• Bureaucratic officials are expected to contribute their full working capacity to the organization.
• Positions within a bureaucratic organization must follow a specific set of general rules.

Weber argued that in bureaucracy, taking on a position or office signifies an assumption of a specific duty necessary for the organization. This conception is distinct from historical working relationships in which a worker served a specific ruler, not an institution.
The hierarchical nature of bureaucracies allows employees to demonstrate achieved social status When an office holder is elected instead of appointed, that person is no longer a purely bureaucratic figure. He derives his power ‘from below’ instead of ‘from above.’ When a high-ranking officer selects officials, they are more likely to be chosen for reasons related to the benefit of the superior than the competency of the new hire. When high-skilled employees are necessary for the bureaucracy and public opinion shapes decision-making, competent officers are more likely to be selected.
According to Weber, if ‘tenure for life’ is legally guaranteed, an office becomes perceived as less prestigious than a position that can be replaced at any time. If ‘tenure for life’ or a ‘right to the office’ develops, there is a decrease in career opportunities for ambitious new hires and overall technical efficiency becomes less guaranteed
In a bureaucracy, salaries are provided to officials. The amount is determined on the basis of rank and helps to signify the desirability of a position. Bureaucratic positions also exist as part of stable career tracks that reward office-holders for seniority.
Weber argues that the development of a ‘money economy’ is the “normal precondition for the unchanged survival, if not the establishment, of pure bureaucratic administrations”. Since bureaucracy requires sustained revenues from taxation or private profits in order to be maintained, a money economy is the most rational way to ensure its continued existence.
Weber posits that officials in a bureaucracy have a property right to their office and attempts at exploitation by a superior means the abandonment of bureaucratic principles. He articulates that providing a status incentive to inferior officers helps them to maintain self-respect and fully participate in hierarchical frameworks Michel Crozier reexamined Weber’s theory in 1964. He determined that bureaucracy is flawed because hierarchy causes officers to engage in selfish power struggles that damage the efficiency of the organization.

Criticism of the classical perspective

Weber’s theories were purposed to set a stage for other organizations to follow, and the characteristics are so ideal that they may be impossible for any actual organization to succeed. He wanted to come up with a set of guidelines that would favor both efficiency and, most importantly, conditions that would make the workers top priority. It was common for earlier theorists to distort Weber’s views, and today, people still make the same mistakes as they did when Weber’s views first came into play. He has always been critiqued for the branches of his ideas that don’t work in reality, but the point of his theory was not to actually create an organization, but to create an ideal model for other organizations to follow.
One big misconception that people have had in the past is a question of Weber’s morality due to their oversimplification of his characteristics of a pure bureaucracy. “There is dangerous risk of oversimplification in making Weber seem cold and heartless to such a degree that an efficiently-run Nazi death camp might appear admirable” (Bureaucracy Theory). In reality, Weber believed that by using human logic in his system, we could achieve improvement of human condition in various workplaces. Complexity in an organization yields the highest success, therefore simplifying it leads to the illusions of over-authority and intense hierarchical power that are inaccurate of Weber’s beliefs.
Another critique of Weber’s theory is the argument of efficiency. Highest efficiency, in theory, can be attained through pure work with no regard for the workers (for example, long hours with little pay), which is why oversimplification can be dangerous. If we were to take one characteristic focusing on efficiency, it would seem like Weber is promoting unhealthy work conditions, when in fact, he wanted the complete opposite. Put all of them together, and we have the ideal organization, but since a pure bureaucracy is nearly impossible to obtain, efficiency takes the back seat in his beliefs. Though his theories include characteristics of a highly efficient organization, we must remember that these characteristics are only meant to set a model for other organizations to follow, and if all the other conditions are not perfect, the organization is not pure. Is it really a bad thing that Weber’s priorities were for the people rather than the company itself?
With this said, the characteristics of Weber’s theory have to all be perfect for a bureaucracy to function at its highest potential. “Think of the concept as a bureau or desk with drawers in it, which seems to call out to you, demanding that everything must fit in its place” (Bureaucracy Theory). If one object in the drawer does not fit properly, the entire drawer becomes untidy, which is exactly the case in Weber’s theory; if one characteristic is not fulfilled the rest of them are unable to work in unison, leaving the organization performing below its full potential.
One characteristic that was meant to better workplace conditions was his rule that “Organization follows hierarchical principle -- subordinates follow orders or superiors, but have right of appeal (in contrast to more diffuse structure in traditional authority)” (Bureaucracy (Weber)). In other words, everyone in a company or any sort of work environment has the opportunity and right to disagree or to speak up if they are unhappy with something rather than not voice their opinion in fear of losing their job. Open communication is a very important part of Weber’s ideal bureaucracy, and is practiced today. Because of the communication it may not be the most efficient, but Weber would argue that improved human conditions are more important than efficiency.
It is hard to critique Weber’s theories strictly because of the fact that they are theories; they are nearly impossible to perform in real life, therefore how can we know if they work or not? They are merely a set of guidelines that make up bureaucracy, which today many believe is the best way to run organizations in all aspects.
^{[31] [32] [33]}

Neoclassical perspective

The Neoclassical perspective began with the Hawthorne studies in the 1920s. This approach gave emphasis to “affective and socio-psychological aspects of human behaviours in organizations.” The human relations movement was a movement which had the primary concerns of concentrating on topics such as morale, leadership, and mainly factors that aid in the cooperation in Organizational behavior.

Hawthorne study

A number of sociologists and psychologists made major contributions to the study of the neoclassical perspective, which is also known as the human relations school of thought. Elton Mayo and his colleagues were the most important contributors to this study because of their famous Hawthorne study from the “Hawthorne plant of the Western Electric Company between 1927 and 1932.”
The Hawthorne study suggested that employees have social and psychological needs along with economic needs in order to be motivated to complete their assigned tasks. This theory of management was a product of the strong opposition against “the Scientific and universal management process theory of Taylor and Fayol.” This theory was a response to the way employees were treated in companies and how they were deprived of their needs and ambitions.
In November 1924, a team of researcher – professors from the renowned Harvard Business school of USA began investigating into the human aspects of work and working conditions at the Hawthorne plant of Western Electric Company, Chicago. The company was producing bells and other electric equipments for telepohone industry. Prominent Professors included in the research team were Elton Mayo (Psychologist), Roethlisberger and Whilehead (Sociologist), and William Dickson (Company representative). The team conducted four separate experimental and behavioural studies over a seven-year period. These were:

1. 'Illumination Experiments (1924–27) to find out the effect of illumination on worker's productivity.'
2. 'Relay Assembly Test Room experiment (1927–28) to find out the effect of changes in number of work hour and related working condition on worker productivity.'
3. 'Experiment in interviewing Working : In 1928, a number of researchers went directly to workers, kept the variables of previous experiment aside, and talked about what was, in their opinion, important to them. Around 20,000 workers were interviewed over a period of two years. The interviews enabled the researchers to discover a rich and intriguing world that previously remained undiscovered and unexamined within the Hawthorne studies undertaken so far. The discovery of the informal organisation and its relationship to the formal organisation was the landmark of experiments in interviewing workers. These experiment led to a richer understanding of the social, interpersonal dynamics of people at work.'
4. 'Bank wiring Room Experiments (1931–32) to find out social system of an organisation.'

Results from the Hawthorne studies

The Hawthorne studies helped conclude that “a human/social element operated in the workplace and that productivity increases were as much an outgrowth of group dynamics as of managerial demands and physical factors.” The Hawthorne studies also concluded that although financial motives were important, social factors are just as important in defining the worker-productivity.
Hawthorne Effect was the improvement of productivity between the employees, it was characterized by:

• The satisfactory interrelationships between the coworkers
• It classifies personnel as social beings and proposes that sense of belonging in the workplace is important to increase productivity levels in the workforce.
• An effective management understood the way people interacted and behaved within the group.
• The management attempts to improve the interpersonal skills through motivations, leading, communication and counseling.
• This study encourages managers to acquire minimal knowledge of behavioral sciences to be able to understand and improve the interactions between employees

Criticism of the Hawthorne study

Critics believed that Mayo gave a lot of importance to the social side of the study rather than addressing the needs of an organization. Also, they believed that the study takes advantage of employees because it influences their emotions by making it seem as if they are satisfied and content, however it is merely a tool that is being used to further advance the productivity of the organization.

Environmental Perspective

Contingency Theory

Main article: Contingency theory

The Contingency Theory is a class of the behavioral theory that claims that there is no best way to organize a corporation, to lead a company, or to make decisions. An organizational, leadership, or decision making style that is effective in some situations, may not be successful in other situations. The optimal organization, leadership, or decision making style depends upon various internal and external constraints (factors).

Contingency Theory factors

Some examples of such constraints (factors) include:

• The size of the organization
• How the firm adapts itself to its environment
• Differences among resources and operations activities

1. Cy on the Organization

In the Contingency Theory on the Organization, it states that there is no universal or one best way to manage an organization. Secondly, the organizational design and its subsystems must "fit" with the environment and lastly, effective organizations must not only have a proper "fit" with the environment, but also between its subsystems.

2. Contingency Theory of Leadership

In the Contingency Theory of Leadership, the success of the leader is a function of various factors in the form of subordinate, task, and/ or group variables. The following theories stress using different styles of leadership appropriate to the needs created by different organizational situations. Some of these theories are:

• The Contingency theory: The contingency model theory, developed by Fred Fiedler, explains that group performance is a result of interaction between the style of the leader and the characteristics of the environment in which the leader works.
• The Hersey–Blanchard situational theory: This theory is an extension of Blake and Mouton's Managerial Grid and Reddin's 3-D Management style theory. This model expanded the notion of relationship and task dimensions to leadership, and readiness dimension.

3. Contingency Theory of Decision-Making

The effectiveness of a decision procedure depends upon a number of aspects of the situation:

• The importance of the decision quality and acceptance.
• The amount of relevant information possessed by the leader and subordinates.
• The amount of disagreement among subordinates with respect to their alternatives.

Criticism of the Contingency theory

It has been argued that the contingency theory implies that a leader switch is the only method to correct any problems facing leadership styles in certain organizational structures. In addition, the contingency model itself has been questioned in its credibility.

Organizational structure

An organizational structure consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organizational aims. It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment.
Organizations are a variant of clustered entities.^{[citation needed]}
An organization can be structured in many different ways, depending on their objectives. The structure of an organization will determine the modes in which it operates and performs.
Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individual.
Organizational structure affects organizational action in two big ways. First, it provides the foundation on which standard operating procedures and routines rest. Second, it determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the organization’s actions.

Operational organizations and informal organizations

See also: Informal organization and Formal organization

The set organizational structure may not coincide with facts, evolving in operational action. Such divergence decreases performance, when growing. E.g., a wrong organizational structure may hamper cooperation and thus hinder the completion of orders in due time and within limits of resources and budgets. Organizational structures shall be adaptive to process requirements, aiming to optimize the ratio of effort and input to output.

History

See also: Hierarchical organization and Flat organization

Organizational structures developed from the ancient times of hunters and collectors in tribal organizations through highly royal and clerical power structures to industrial structures and today's post-industrial structures.
As pointed out by L. B. Mohr, the early theorists of organizational structure, Taylor, Fayol, and Weber "saw the importance of structure for effectiveness and efficiency and assumed without the slightest question that whatever structure was needed, people could fashion accordingly. Organizational structure was considered a matter of choice... When in the 1930s, the rebellion began that came to be known as human relations theory, there was still not a denial of the idea of structure as an artifact, but rather an advocacy of the creation of a different sort of structure, one in which the needs, knowledge, and opinions of employees might be given greater recognition." However, a different view arose in the 1960s, suggesting that the organizational structure is "an externally caused phenomenon, an outcome rather than an artifact." In the 21st century, organizational theorists such as Lim, Griffiths, and Sambrook (2010) are once again proposing that organizational structure development is very much dependent on the expression of the strategies and behavior of the management and the workers as constrained by the power distribution between them, and influenced by their environment and the outcome.

Organizational structure types

Pre-bureaucratic structures

Pre-bureaucratic (entrepreneurial) structures lack standardization of tasks. This structure is most common in smaller organizations and is best used to solve simple tasks. The structure is totally centralized. The strategic leader makes all key decisions and most communication is done by one on one conversations. It is particularly useful for new (entrepreneurial) business as it enables the founder to control growth and development.
They are usually based on traditional domination or charismatic domination in the sense of Max Weber's tripartite classification of authority

Bureaucratic structures

Weber (1948, p. 214) gives the analogy that “the fully developed bureaucratic mechanism compares with other organizations exactly as does the machine compare with the non-mechanical modes of production. Precision, speed, unambiguity, … strict subordination, reduction of friction and of material and personal costs- these are raised to the optimum point in the strictly bureaucratic administration.”^[5] Bureaucratic structures have a certain degree of standardization. They are better suited for more complex or larger scale organizations, usually adopting a tall structure. The tension between bureaucratic structures and non-bureaucratic is echoed in Burns and Stalker's distinction between mechanistic and organic structures.
The Weberian characteristics of bureaucracy are:

• Clear defined roles and responsibilities
• A hierarchical structure
• Respect for merit.

Post-bureaucratic

The term of post bureaucratic is used in two senses in the organizational literature: one generic and one much more specific. In the generic sense the term post bureaucratic is often used to describe a range of ideas developed since the 1980s that specifically contrast themselves with Weber's ideal type bureaucracy. This may include total quality management, culture management and matrix management, amongst others. None of these however has left behind the core tenets of Bureaucracy. Hierarchies still exist, authority is still Weber's rational, legal type, and the organization is still rule bound. Heckscher, arguing along these lines, describes them as cleaned up bureaucracies, rather than a fundamental shift away from bureaucracy. Gideon Kunda, in his classic study of culture management at 'Tech' argued that 'the essence of bureaucratic control - the formalisation, codification and enforcement of rules and regulations - does not change in principle.....it shifts focus from organizational structure to the organization's culture'.
Another smaller group of theorists have developed the theory of the Post-Bureaucratic Organization., provide a detailed discussion which attempts to describe an organization that is fundamentally not bureaucratic. Charles Heckscher has developed an ideal type, the post-bureaucratic organization, in which decisions are based on dialogue and consensus rather than authority and command, the organization is a network rather than a hierarchy, open at the boundaries (in direct contrast to culture management); there is an emphasis on meta-decision making rules rather than decision making rules. This sort of horizontal decision making by consensus model is often used in housing cooperatives, other cooperatives and when running a non-profit or community organization. It is used in order to encourage participation and help to empower people who normally experience oppression in groups.
Still other theorists are developing a resurgence of interest in complexity theory and organizations, and have focused on how simple structures can be used to engender organizational adaptations. For instance, Miner et al. (2000) studied how simple structures could be used to generate improvisational outcomes in product development. Their study makes links to simple structures and improviser learning. Other scholars such as Jan Rivkin and Sigglekow, and Nelson Repenning  revive an older interest in how structure and strategy relate in dynamic environments.

Functional structure

Employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering department would be staffed only with software engineers. This leads to operational efficiencies within that group. However it could also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.
As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. For instance, a small business could make components used in production of its products instead of buying them.

Divisional structure

Also called a "product structure", the divisional structure groups each organizational function into a division. Each division within a divisional structure contains all the necessary resources and functions within it. Divisions can be categorized from different points of view. One might make distinctions on a geographical basis (a US division and an EU division, for example) or on product/service basis (different products for different customers: households or companies). In another example, an automobile company with a divisional structure might have one division for SUVs, another division for subcompact cars, and another division for sedans.
Each division may have its own sales, engineering and marketing departments.

Matrix structure

The matrix structure groups employees by both function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department. Matrix structure is amongst the purest of organizational structures, a simple lattice emulating order and regularity demonstrated in nature.

• Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project. The functional managers maintain control over their resources and project areas.
• Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing of power is a delicate proposition.
• Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.

Organizational circle: moving back to flat

The flat structure is common in small companies (entrepreneurial start-ups, university spin offs). As companies grow they tend to become more complex and hierarchical, which leads to an expanded structure, with more levels and departments.
However, in rare cases, such as the examples of Valve Corporation, GitHub, Inc. and 37signals, the organization remains very flat as it grows, eschewing middle managers. All of the aforementioned organizations operate in the field of technology, which may be significant, as software developers are highly skilled professionals, much like lawyers. Senior lawyers also enjoy a relatively high degree of autonomy within a typical law firm, which is typically structured as a partnership rather than a hierarchical bureaucracy. Some other types of professional organisations are also commonly structured as partnerships, such as accountancy companies and GP surgeries.
Often, growth would result in bureaucracy, the most prevalent structure in the past. It is still, however, relevant in former Soviet Republics, China, and most governmental organizations all over the world. Shell Group used to represent the typical bureaucracy: top-heavy and hierarchical. It featured multiple levels of command and duplicate service companies existing in different regions. All this made Shell apprehensive to market changes, leading to its incapacity to grow and develop further. The failure of this structure became the main reason for the company restructuring into a matrix.
Starbucks is one of the numerous large organizations that successfully developed the matrix structure supporting their focused strategy. Its design combines functional and product based divisions, with employees reporting to two heads. Creating a team spirit, the company empowers employees to make their own decisions and train them to develop both hard and soft skills.
Some experts also mention the multinational design, common in global companies, such as Procter & Gamble, Toyota and Unilever. This structure can be seen as a complex form of the matrix, as it maintains coordination among products, functions and geographic areas.
In general, over the last decade, it has become increasingly clear that through the forces of globalization, competition and more demanding customers, the structure of many companies has become flatter, less hierarchical, more fluid and even virtual.

Team

One of the newest organizational structures developed in the 20th century is team. In small businesses, the team structure can define the entire organization. Teams can be both horizontal and vertical. While an organization is constituted as a set of people who synergize individual competencies to achieve newer dimensions, the quality of organizational structure revolves around the competencies of teams in totality. For example, every one of the Whole Foods Market stores, the largest natural-foods grocer in the US developing a focused strategy, is an autonomous profit centre composed of an average of 10 self-managed teams, while team leaders in each store and each region are also a team. Larger bureaucratic organizations can benefit from the flexibility of teams as well. Xerox, Motorola, and DaimlerChrysler are all among the companies that actively use teams to perform tasks.

Network

Another modern structure is network. While business giants risk becoming too clumsy to proact (such as), act and react efficiently, the new network organizations contract out any business function, that can be done better or more cheaply. In essence, managers in network structures spend most of their time coordinating and controlling external relations, usually by electronic means. H&M is outsourcing its clothing to a network of 700 suppliers, more than two-thirds of which are based in low-cost Asian countries. Not owning any factories, H&M can be more flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy.The potential management opportunities offered by recent advances in complex networks theory have been demonstrated  including applications to product design and development, and innovation problem in markets and industries.

Virtual

Virtual organization is defined as being closely coupled upstream with its suppliers and downstream with its customers such that where one begins and the other ends means little to those who manage the business processes within the entire organization. A special form of boundaryless organization is virtual. Hedberg, Dahlgren, Hansson, and Olve (1999) consider the virtual organization as not physically existing as such, but enabled by software to exist. The virtual organization exists within a network of alliances, using the Internet. This means while the core of the organization can be small but still the company can operate globally be a market leader in its niche. According to Anderson, because of the unlimited shelf space of the Web, the cost of reaching niche goods is falling dramatically. Although none sell in huge numbers, there are so many niche products that collectively they make a significant profit, and that is what made highly innovative Amazon.com so successful.

Hierarchy-Community Phenotype Model of Organizational Structure

Hierarchy-Community Phenotype Model of Organizational Structure

In the 21st century, even though most, if not all, organizations are not of a pure hierarchical structure, many managers are still blind-sided to the existence of the flat community structure within their organizations.
The business firm is no longer just a place where people come to work. For most of the employees, the firm confers on them that sense of belonging and identity- the firm has become their “village”, their community. The business firm of the 21st century is not just a hierarchy which ensures maximum efficiency and profit; it is also the community where people belong to and grow together- where their affective and innovative needs are met.
Lim, Griffiths, and Sambrook (2010) developed the Hierarchy-Community Phenotype Model of Organizational Structure borrowing from the concept of Phenotype from genetics. "A phenotype refers to the observable characteristics of an organism. It results from the expression of an organism’s genes and the influence of the environment. The expression of an organism’s genes is usually determined by pairs of alleles. Alleles are different forms of a gene. In our model, each employee’s formal, hierarchical participation and informal, community participation within the organization, as influenced by his or her environment, contributes to the overall observable characteristics (phenotype) of the organization. In other words, just as all the pair of alleles within the genetic material of an organism determines the physical characteristics of the organism, the combined expressions of all the employees’ formal hierarchical and informal community participation within an organization give rise to the organizational structure. Due to the vast potentially different combination of the employees’ formal hierarchical and informal community participation, each organization is therefore a unique phenotype along a spectrum between a pure hierarchy and a pure community (flat) organizational structure."