OPERATIONAL ADHOCRACY AS BASIC ORGANIZATIONAL

CONFIGURATION - CASE ~SUMAPRO1EKT¨ SARA1EVO

prof. dr. Aziz Sunje
University oI Delaware - USA and University oI Sarajevo - B&H
Sarajevo Graduate School oI Business
Skenderija 70/2, 71000 Sarajevo, B&H
Phone:¹38733275903 Fax: ¹38733560102 E-mail address: sunjea¸sgsb.edu.ba

prof. dr. Mugdim Pasic
University oI Delaware - USA and University oI Sarajevo - B&H
Sarajevo Graduate School oI Business
Skenderija 70/2, 71000 Sarajevo, B&H
Phone:¹38733275903 Fax: ¹38733560102 E-mail address: pasicm¸sgsb.edu.ba

Ensad Karic, M.Sc.
Lok Micro Sarajevo and
Institute Ior Organization and Economics Ltd.
Skenderija 13, 71000 Sarajevo, B&H
Phone:¹38733444651 Fax: ¹38733444650 E-mail address: ensad.karic¸lok.ba


Key words: organi:ational design, operational adhocracv, organi:ational configuration,
organi:ational context, basic tvpe of organi:ation


1. INTRODUCTION

The goal oI this paper is to present research results in the Iield oI organizational design applied
on company 'Sumaprojekt¨. 'Sumaprojekt¨ is a stock company Ior projecting and engineering in
wood processing industry (Iocus on B&H wood processing industry) Irom Sarajevo, Bosnia and
Herzegovina. As a Iormer state owned company, it has passed through the process oI
privatization as well as many other companies in transition-process in Bosnia and Herzegovina
and in the region.

Changed variables oI organizational context caused problems in business operations. Radically
changed environment required new approach to business. In this paper we have presented a way
in which top-management oI the company recognized changes in organizational context, and a
way in which new organizational context inIluenced changes in company`s organizational
conIiguration and organizational structure. All this changes are treated through Mintzerg`s
approach to organizational design.

Mintzberg`s way oI Iunctioning
1
oI organization shows that the organizations designed Ior
Iunctioning in one organizational context, with certain organizational conIiguration, cannot be
eIIective in completely diIIerent conditions oI environment.

This method oI organizing is based on guidelines oI situational and conIiguration approach to
study oI organizational design. Situational approach includes implicitly diIIerence oI inIluence oI
the organizational context on selection oI the basic organizational conIiguration in a way that
certain organizational conIigurations are eIIective only in organizational situations that are
typical Ior that type oI organizational conIiguration
2
.

Organizational Iunctioning is determined by selection oI the basic organizational conIiguration.
Various organizational conIigurations address shaping oI certain elements oI the organizational
design in a completely diIIerent way, which presents the base in conIiguration approach to
organizing. Each organizational conIiguration promotes one basic coordination mechanism and
one basic organizational Iorce. Depending upon the type oI the basic organizational
conIiguration, we also have diIIerently developed basic organizational parts.

There is a high degree oI dependence among variables that Iorm the organizational context.
Resultants oI action oI greater number oI independent variables create the organizational context,
i.e. organizational situation. In order to approach organizational design properly, the variables oI
the organizational context that immanently determine selection and shaping oI certain
organizational conIiguration must be identiIied. Existence oI diIIerent basic organizational
conIigurations is conditioned by inIluence oI the organizational context on organization.

Mintzberg distinguishes Iive basic organizational conIigurations. He also promotes Iive basic
organizational parts oI the organization, Iive basic coordination mechanisms and Iive basic
organizational Iorces. For each oI these conIigurations one oI Iive basic coordination mechanisms
is characteristic. The coordination mechanism is a way by which communication (and control)
among and within the Iive basic organizational parts is realized. Each type oI the organizational
conIiguration promotes one organizational part as a dominant one. And Ior each organizational
conIiguration there is one dominant organizational Iorce that directs organizational action.

This paper is being Iocused on operational adhocracy, as a sub-type oI innovative organization.
The logic oI Operational Adhocracy was applied on company 'Sumaprojekt¨. Treating business
problems in an innovative way helped company to cope its own business reality successIully. We
had observed the company in the time Irame oI 12 months since the logic oI new organizational
conIiguration was applied. The results oI our observation are presented in this paper.

2. INNOVATIVE ORGANIZATION

2.1 Basic features of innovative organizations

Innovative organization has the organizational conIiguration that breaks well-established rules
and models oI design oI the organization. Intensive development oI this organizational

1
Mintzberg, H. (1979): The structuring of organi:ations, New York, Prentice Hall Inc.
2
Sunje, A. (2002): Top menadíer. vi:ionar i strateg, Sarajevo, Tirada
conIiguration appears with the Iirst signs oI the mankind`s entrance into postindustrial era. It was
Iollowed by revolutionary achievements in inIormatics, explosion oI knowledge and
globalization. On the other side, ecological crisis, increased social diIIerences and inIluence oI
global trends only contributed to complexity oI environment in which organizations operate. The
innovative organization presents a sophisticated organizational design as a reply to complex and
dynamic conditions oI environment.

The innovative organization presents very important modern organizational conIiguration. On the
basis oI ToIIler`s works
3
, in early seventies, Henry Mintzberg developed adhocracy as the
innovative organizational design oI the postindustrial era. It is extraordinary Ilexible
organizational Iorm specialized Ior ad hoc tasks. He saw this organizational conIiguration as the
youngest one oI the Iive basic organizational conIigurations that he promotes. It is characterized
by the Iollowing elements:
 Organization operates in the environment that is both dynamic and complex at the same
time and that requires completely sophisticated innovations.
 Production oI complex, unique products requests Irom the organization engagement oI
highly trained experts, combining their skills in multiIunctional teams.
 These experts are based in specialized units, services oI administrative character, but are
engaged in temporary teams in work on projects, which creates matrix organizational
design.
 Due to complex and unpredictable nature oI work, organizational coordination is based on
mutual adjustment and is stimulated by inIormal structural parameters carried out through
boards and similar Iorms. Coordination through direct control and standardization is
undesirable, as well as Iormalized aspects oI design that stimulate them, Ior example
hierarchical levels, control oI perIormances and diIIerent rules.
 The organization is selectively decentralized, power oI decision-making is divided
unequally, depending on availability oI inIormation and needs oI experts in problems
solving.
4


Environment, business strategy and technical system are key organizational variables oI the
innovative organizations. Extraordinary dynamic and complex environment requires
diIIerentiation oI products or services. The organizations are exposed to constant pressures Ior
delivery oI better services and they try to ensure their survival on the market through the high
degree oI innovativeness. Turbulent environment oI the innovative organizations directs their
action to only one sort oI business, leaving no big space Ior diversiIication. Competitive
advantage is based on diIIerentiation with the high degree oI innovation that is built into product
or service oI the organization. The innovation is the basic organizational Iorce. Technical system
is based on microprocessor as a technological base. Usage oI all kinds oI inIormation and
communication technologies is the base oI work and coordination oI the innovative
organizations.

The innovative organization is a Ilexible organization with very low level oI Iormalization in its
behavior. Basic coordination mechanism is mutual adjustments. This is the only possible way oI

3
ToIIler, A. (1970): Future Shock, Bantam books
4
Mintzberg, H.; McHugh, A. (June 1985): Strategv Formation in an Adhocracv, Administrative science Quarterly;
Vol. 30 Issue 2, p.161.
communication regarding internal organizational relationships. It is used in internal
communication among members oI the project team and among diIIerent project teams too.
Number oI members oI the project team usually is not big and division oI labor and coordination
among members oI the team is based on constant communication. Secret oI Ilexibility oI small
teams is just constant inIorming on activities and intentions oI all other members oI the team.
5

Coordination mechanism based on mutual adjustment requires intensive inIormation exchange.
Ideally, each member oI the project team should communicate to all other members oI the team
and should be inIormed on Iurther intentions and activities oI all other members. This Iorm oI
coordination mechanism demands high Ilexibility oI employees oI such a kind oI organization.

Division oI labor and design oI workplace within the innovative organizational design require
high horizontal and low vertical specialization. Experts, positioned in organizational part oI the
support staII and operating core, are stimulated to do closely specialized works in as innovative
way as possible. Organization oI workplaces is based on the Iunctional principle, which makes
static part oI the organizational design. It includes clear division oI workplaces and
responsibilities. The organizational design is superIicial, with the wide range oI control in the
Iunctional units.

Set oI lateral links is based on the project as a basic connective mechanism within the
organization. It is based on temporarily established project teams with determined goal. Presence
oI great number oI projects requires the need Ior constituting oI the project organization, which,
linked with the existing Iunctional organization, creates the matrix organization as the subtlest
connective mechanism.
6
This makes the dynamic aspect oI the organizational design. Already
mentioned static, Iunctional division oI workplaces is revealed only aIter creation oI the mother,
project-oriented organization, based on the project teams directed towards solving oI speciIic
tasks. Planning is permanent having in mind that turbulent environment does not allow
meaningIul order oI steps or actions oI the organization.

2.2 Operational adhocracy

Adhocracy is creative, project-oriented organization characterized by the complex and dynamic
environment. It is a Iorm oI the dynamic organization, with horizontal organizational design,
Iaced with complex challenges that require higher Iunctional developmental solutions. More and
more organizations are led by this type oI organizing that through temporary and only Ior that
purpose created teams with necessary knowledge and resources achieve the desired goal, i.e.
carry out the necessary task. Adhocracy looks like organizational conIiguration oI industries oI
our era.
7
The base oI adhocracy, unlike, Ior example, mechanical organizations, is to try to
control its environment instead oI supporting oI standardization in mass production. Adhocracy
should Iunction Iaster (than others), Ioreseeing inIluences oI the environment on the organization.
Adhocrative way oI Iunctioning means continuous organizational response to the conditions oI
the environment.


5
Groth, L. (1998): Future Organi:ational Design, British Library Cataloguing in Publication Data, p. 47.
6
Sunje, A. (2002): Top menadíer. vi:ionar i strateg, Sarajevo, Tirada
7
Mintzberg, H. (1979): The structuring of organi:ations, New York, Prentice Hall Inc.
Mintzberg distinguishes two Iorms oI adhocracy organization, depending on Ior which it
produces service.
8
Those are:

(1) administrative adhocracy, that does jobs Ior its own needs, i.e. Ior the needs oI the
organization itselI in which innovative actions are developed, and
(2) operative adhocracy that does jobs Ior the needs oI its clients.

Isolation oI the operating core Irom the administrative component oI the organization presents the
most outstanding characteristic oI the administrative organizational conIiguration. Observing the
way oI Iunctioning oI the administrative adhocracy, the operating core is less important part oI
the organization. The operating core remains separated Irom the administrative part oI the
organization.





Figure 1. Operational adhocracy Figure 2. Administrative adhocracy


The operative adhocracy has all organizational parts developed and presents a very Ilexible
organizational conIiguration without noticeable borders among certain organizational parts. The
basic Ieature oI the operative adhocracy is that administrative and operative works are joined in
mutual eIIort to Iind the creative solution with aim to meet the needs oI clients. Experts based in
the operating core together with the support staII act innovatively in ad hoc project teams.

The operative adhocracy acts upon the client`s request with aim to Iind solution according to
client`s needs. Faced with the client`s request, the operative adhocracy engages experts gathered
in multiIunctional teams aiming to solve the problem in a new way. There is similarity between
the proIessional organization and operative adhocracy in the way oI organizing, but the problem,
i.e. the client`s request is solved in a diIIerent way. While the proIessional organization strives to
classiIy the client`s problem and solve it through standard solution with standardized knowledge,
the operative adhocracy tries to Iind the unique and creative solution. This is achieved by

8
Mintzberg, H. (1979): The structuring of organi:ations, New York, Prentice Hall Inc., pp. 436-440
grouping experts in multiIunctional teams whose coordination is based on mutual adjustments in
order to Iind the unique innovative solution Ior the client.

In ad hoc project work it is hard to determine diIIerence between planning and real doing oI job.
Activity planning oI the operative adhocracy is permanent with respect that the operative
adhocracy does jobs Ior others in the usually demanding market. The operative adhocracy may
never be sure what its next project is.
9
UnIoreseen problems in doing the job do not allow design
oI work in the standard manner, so it is necessary to have adaptable members oI the project team
whom posses multidisciplinary knowledge and skills. Only by this way the operative adhocracy
can survive in the business.

Substance oI the organization`s success designed on the basis oI this model oI organizing is
adaptation to environment through Iinding oI innovative solutions, which enables client`s
satisIaction and possibility oI Iinding oI new tasks and clients.

3. CASE STUDY

The case study is related to 'Sumaprojekt¨ Sarajevo, a stock company Ior projecting and
engineering in wood processing industry. Basic activity oI 'Sumaprojekt¨ is oIIering oI
consultancy services in wider sense oI that word to business subjects Irom the wood processing
industry in Bosnia and Herzegovina and wider region. Consultancy services include also
selection and purchase oI equipment Ior clients` needs, education oI clients on new technologies
and trends in the wood processing industry as well as all other aspects oI business education.

3.1. Organizational context

The market oI the company is the whole wood-processing industry in B&H, i.e. all the companies
Irom this industry. The wood-processing industry is probably the most competitive industry, i.e.
the industry in which B&H could create its own comparative advantage as a state. Based on data
Irom Foreign Chamber oI Commerce the wood-processing industry is the most export-oriented
industry, which participate around 20° in the whole export oI B&H economy. In Table 1 trend
oI export oI this industry Irom 2001 to 2004 was given.


9
Mintzberg, H. (1979): The structuring of organi:ations, New York, Prentice Hall Inc., p. 456.
364
376
425
375
320
340
360
380
400
420
440
2001. 2002. 2003. 2004.
year
m
i
l
i
o
n

B
A
M


Table 1. B&H export oI wood and wood products in last 4 years


'Sumaprojekt¨ presented a typical organization with privatization process just Iinished (2001)
that did not get its organizing in line with situation in the environment. Functional organizational
design was not able to Iind an answer to emerged changes in the environment. The way oI
conducted privatization produced stockholders with no clear vision oI Iurther activities oI the
company. All oI this led to decrease oI activities oI the organization that was Iollowed by
decrease oI perIormances and results oI business. At the same time business environment was
radically changed. The B&H wood processing industry became more sophisticated industry with
more demanding companies Sumaprojekt`s potential customers. Some big B&H wood
processing companies, the most important Sumaprojekt`s customer beIore the war (Sipad,
Sarajevo; Sana, Sanski Most; .), were disappeared. On the other side a lot oI new companies
were born mostly SMEs companies which were Iocused on more sophisticated customer, with
higher degree oI wood processing. Based on data collected Irom relevant sources (Statistical
agencies relevant ministries, Sumaproject`s data base) there are about 800 companies in B&H in
this industry. UnIortunately most oI these companies (more than 50°, see Figure 3) are still in
primary phases oI processing wood. In Iact, Sumaproject`s potential clients are more added-value
companies companies which are in the higher phases oI processing wood (around 44° oI 800
B&H companies as potential clients in B&H, see Figure 3). New born SMEs companies are
mostly interested in exporting more added value products, which means that these companies as
potential Sumaproject`s clients are more demanding clients. Their requirements addressed to
'Sumaprojekt¨ as a consultant company in wood-processing industry are very demanding.
final dergee of wood
procesing
32%
primar degree of
wood procesing
56%
other companies in
wood procesig
industry
12%



Figure 3. Degree oI wood processing in B&H companies

In those circumstances, management started with adaptation oI the organization to the new
conditions oI the environment. Organizational transIormation oI 'Sumaprojekt¨ was a Iull-scale
organizational intervention in which the traditional, Iunctional organizational conIiguration oI
'Sumaprojekt¨ was abandoned and changeover to organizational design oI the operative
adhocracy was achieved. With the management, bearers oI this process were employees oI the
organization who were aware oI the situation they Iound themselves in.

The Iirst step in research was analysis oI the organizational environment oI 'Sumaprojekt¨ where
variables oI the organizational context that dominantly determine selection oI basic
organizational conIiguration oI 'Sumaprojekt¨ were deIined.

Dynamic and complex environment is currently the most outstanding variable oI the
organizational context oI 'Sumaprojekt¨. Completely changed picture oI wood industry in Bosnia
and Herzegovina and the region based on newly Iormed organizations and decreased degree oI
working oI wood caused the need Ior completely new types oI service that these organizations
need. Irregularity oI law regulations and extreme Ioreign competition in the segment oI sale oI
machines and equipment give an additional dose oI dynamism oI the environment. Domestic
competition in the project activities is based on small organizations closely specialized only Ior
one segment oI the consultancy service activities. Inconstancy in activities oI these competitive
organizations that occasionally and by Iits and starts appear as competitors, make impossible
continuity in Iorming oI market price oI the service and quality oI service delivery. Market
competitiveness could have been obtained only through both eIIective and eIIicient service
matching speciIic client`s requirements. It required an innovative approach to client`s needs.

Sumaprojekt`s strategic core capability is capability oI creating multidisciplinary teams capable
oI approaching to speciIic client`s need in an innovative way oIIering the complete service to
client. It is reason why Sumaproject craIted the strategy based on diIIerentiation oI service as
competitive advantage. Variety oI clients and their speciIic requests Iorced solving oI set tasks in
a way so that every project task was observed in order to Iind and unique and new solution.
Sumaproject`s readiness to be Iocused on speciIic client`s needs in an innovative way promoted
project organization as a part oI its own organizational structure, in a way that each project is an
unique one Iocused only on one client. New technologies in wood processing industry enable
possibilities to approach to the same client`s requirement in diIIerent ways. Presence a lot oI
teams inside oI Sumaproject at the same time increased their innovativeness through mutual
dialogue, which created unique Sumaproject`s early mentioned core capability.

Complexity oI the environment is closely linked to the use oI technical system oI the
organization. In past ten years, 'Sumaprojekt¨ carried out the Iull change oI the technical system,
Irom calculator and technical pencil to the automatized technical system based on soItware
solutions that oIIers much Iaster going on oI the project design process. Today Sumaproject`s
technical system is based on CAD system. Change oI the technical system caused downsizing oI
the organization due to decreased number oI employees.

Also, variables oI the organizational context that in smaller degree determine organizational
design oI 'Sumaprojekt¨ and present conditions oI adhocrative organizing were deIined. BeIore
all, it relates to the variable oI trend and marked diversity in organizational environment oI
'Sumaprojekt¨ that require a selective decentralization and division oI labor in the organization
with respect to diIIerent mutual relations oI these jobs. Project teams are Iormed in a diIIerent
way depending on the Iield that client`s request was related to.

3.2. ~Sumaprojekt¨ - operational adhocracy

Following demonstrated inIluence oI the key variables oI the organizational context on selection
oI the basic organizational conIiguration and implementing Mintzberg`s typology oI basic types
oI organization, 'Sumaprojekt¨ presents an organization based on the organizational
conIiguration oI the operative adhocracy. Selection oI the basic type oI organization determines
the basic organizational part, basic coordination mechanism and basic organizational Iorce
toward which the business process is directed.

Operational Adhocracy as a basic organizational conIiguration in very diIIerent way approach to
design oI all aspects oI organizational structure compared to the old Sumaproject`s Iunctional
organizational structure. It is reason why the whole Sumaproject`s organizational structure is
totally re-conIigured.




Figure 4. Functional organizational chart Figure 5. New project oriented structure
(old 'Sumaprojekt¨ structure) (matrix structure)


Figure 4 and Figure 5 present old and new Sumaproject`s organizational structure respectively.
New organizational structure incorporates early mentioned project organization in the existing
Iunctional structure creating so-called matrix structure. In Iact, all Sumaproject`s business
activities are being undertaken through ac-hoc projects. Project is a well-known speciIic type oI
so-called lateral linkage that collects diIIerent resources (human, Iinancial, .) on temporary
basis around unique project aim(s). Project manages is a team leader, an integrating manger, who
is responsible Ior all aspects oI the project to the general manager. The concrete project aim(s),
project scope with desirable project perIormances, determine(s) all aspects oI the project in terms
oI needed resources (including budget), and time Irame.
Project as a lateral linkage is based on mutual adjustment as a basic coordinative-control
mechanism, which means that all team members are deeply involved in decision making process,
being ignited to be as creative as possible. From managerial point oI view each project is treated
as a revenue-cost unit.
Obtaining project aims, i.e. being accepted by client project is Iinished and project team is being
disbanded. Matrix organization is very demanding Irom managerial point oI view because oI
dual, even multiple responsibility oI employee toward managers in their Iunctional units, and
towards their project mangers, with possibility that one employee is team member in more than
one project at the same time.

In the case oI 'Sumaprojekt¨ as an organizational conIiguration oI the operative adhocracy, the
basic organizational part is the operational core together with support personnel in which experts
bearers oI the innovative activities are located and the basic organizational Iorce is
innovativeness (Iigure 1.).

The basic coordination mechanism is mutual adjustment. Within the multiIunctional teams,
experts base their work on intensive mutual communication thus Iorcing innovative solutions in
the process oI solving oI highly diIIerentiated clients` requests. In the operative adhocracy the
project has status oI the central lateral link.

All the business activities oI 'Sumaprojekt¨ are carried out in the Iorm oI the project task Ior
which Project Manager is appointed. Further on, Project Manager appoints members oI the
project team. Board Ior project is lateral link (meeting) that, due to parallel and simultaneous
realization oI numerous projects, manage those projects. At the same time, parallel existence oI
the Iunctional organization (static aspect) and project organization (project managements)
promotes the matrix organization as the basic organizational Iorm. Multidisciplinary ad-hoc
teams are basic element oI Sumaproject`s organizational structure.

4. CONCLUSION

The purpose oI research is proving oI dependence oI the basic organizational conIiguration in
relation to the variables oI the organizational context. Results obtained Irom implementation oI
theoretical knowledge on concrete example in practice were promoted. Radically changed
organizational context caused the change oI the organizational conIiguration oI 'Sumaprojekt¨.
The identiIied variables oI the organizational context resulted in managerial estimate oI selection
and shaping oI the new organizational conIiguration. This research Iocused on dependence oI
selection oI the basic organizational conIiguration in regard to the variables oI the organizational
context and does not get into deeper discussion on ways and elements oI the organizational
transIormation.

By analysis oI the organizational context oI 'Sumaprojekt¨, elements oI the environment
characteristic Ior the basic Iorm oI the organizational conIiguration the operative adhocracy,
were recognized. It is about the operative Iorm oI the adhocrative organizational conIiguration,
because jobs in 'Sumaprojekt¨ are carried out exclusively Ior the client`s needs. The way how
the variables oI the organizational context inIluenced on selection and shaping oI the
organizational conIiguration oI 'Sumaprojekt¨ was observed.

The basic organizational conIiguration oI the operative adhocracy understands completely
diIIerently the logic oI business process and in a diIIerent way approaches shaping oI certain
elements oI the organizational design in relation to the old organizational design based on the
Iunctional organizational units. Structure oI the static and dynamic part oI the organization is
completely changed. Dynamic and complex environment required Ilexible organizational
conIiguration. Technical system is based on microprocessor and the business strategy is based on
diIIerentiation. Organizational parts were changed and they make an entirety without marked
visible diIIerences among the organizational parts. Project, as a lateral link, takes over the central
organizational connective issue. Members oI the project team may be all employees regardless oI
Irom which organizational part they come Irom. Basic organizational Iorce is the Iorce oI
innovativeness and mutual adjustment present the basic coordination mechanism.

4.1. Improvements in business with new organizational configuration

Implementation oI model oI the operative adhocracy in organizing oI 'Sumaprojekt¨ resulted in
multiple improvements. Four segments that point to improvement oI business achieved by
implementation oI the model oI the operative adhocracy as the basic organizational conIiguration
were observed. They are related to increased number oI clients, i.e. number oI projects (Figure 6),
Iinancial result, modernization oI inIormation technology oI business running and
implementation oI new system oI salaries and rewards Ior employees.


Number of clients (project)
0
10
20
30
40
50
60
70
80
90
Number of clients
24 31 36 80
2001. 2002. 2003. 2004.


Figure 6. Comparative number oI clients (projects) in last 4 year (in 2004. operational adhocracy structure have been
used as basic organizational structure)

Increase oI number oI clients Ior 150° within 12 months oI implementation oI this
organizational model and achievement oI the positive Iinancial result (proIit) in the same period
(Ior previous three years the organization was running at a loss) present eIIects achieved by
implementation oI the method oI the operative adhocracy as the basic organizational
conIiguration. At the same time inIormational technology was modernized and the new system oI
rewards was implemented, system oI rewards that is directly related to success oI project(s) as a
basic element oI organizational structure.

Character and sort oI shown improvements oI business running conIirm the Iact that selection
and shaping oI the proper organizational conIiguration is precondition Ior eIIective activities oI
the organization.

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