Designing Organizational Structure:

Authority and Control

5- 1
Efficiency versus
Learning Outcomes
Authority: How and Why
Vertical Differentiation Occurs
 The hierarchy begins to emerge
when the organization experiences
problems in coordinating and
motivating employees
 Division of labor and specialization
make it hard to determine how well
an individual performs
 Almost impossible to assess
individual contributions to
performance when employees
cooperate
5- 3
 Authority: How and Why Vertical
Differentiation Occurs (cont.)
 To deal with coordination and
motivation problems, the
organization can:
 Increase the number of managers
it uses to monitor, evaluate, and
reward employees
 Increase the number of levels in its
managerial hierarchy, thereby
making the hierarchy of authority
taller
5- 4
 Authority: How and Why Vertical
Differentiation Occurs (cont.)
 Size and height limitations
 Tall organization: an organization in
which the hierarchy has many levels
relative to the size of the organization
 Flat organization: an organization that
has few levels in its hierarchy relative to
its size

5- 5
Figure 5.1: Flat and Tall
Organizations

5- 6
Authority: How and Why Vertical
Differentiation Occurs (cont.)
By the time an organization has 1,000
members, it has 4 levels in its
hierarchy
At 3,000 members, it likely has 7 levels
Between 10,000 to 100,000,
organizations have 9 or 10 levels
Increase in size of the managerial
component is less than proportional to
increase in size of the organization
5- 7
Figure 5.2: Relationship Between
Organizational Size and Number of
Hierarchical Levels

5- 8
Figure 5.3: Types of
Managerial Hierarchies

5- 9
Figure 5.4: Relationship Between Organizational
Size and the Size of the Managerial Component

5-
Authority: How and Why Vertical
Differentiation Occurs (cont.)
 Problems with tall hierarchies:
 Communication problems: communication
takes longer and is likely to be distorted
 Information may be manipulated to serve
managers’ own interests
 Motivation problems: as hierarchy
increases, the relative difference in the
authority possessed managers at each level
decreases, as does their area of responsibility
 Less responsibility and authority could
reduce motivation
 Increased bureaucratic costs: managers
cost money

5- 11
 Authority: How and Why Vertical
Differentiation Occurs (cont.)
 Parkinson’s Law Problem
 Argues that the number of managers
and hierarchies are based on two
principles
 A manager wants to multiply subordinates,
not rivals
 Managers make work for one another

5- 12
 Authority: How and Why Vertical
Differentiation Occurs (cont.)
Ideal number of hierarchical levels
determined by:
 Principle of minimum chain of
command: an organization should
choose the minimum number of
hierarchical levels consistent with its goals
and the environment in which it operates
 Span of control: the number of
subordinates a manager directly manages

5- 13
Figure 5.5: Spans of Control

5- 14
 Authority: How and Why Vertical
Differentiation Occurs (cont.)
Factors that determine the appropriate
span of control
 There seems to be a limit to how wide a
manager’s span of control should be
 Dependent on the complexity and
interrelatedness of the subordinates’ tasks
 Complex and dissimilar tasks – small span of
control

Routine and similar tasks (e.g., mass
production) – large span of control

5- 15
Figure 5.6: The Increasing Complexity of a
Manager’s Job as the Span of Control
Increases

5- 16
Figure 5.7: Factors Affecting the
Shape of the Hierarchy

5- 17
 Control: Factors Affecting the
Shape of the Hierarchy
Horizontal differentiation: an
organization that is divided into subunits
has many different hierarchies, not just
one
 Each function or division has its own
hierarchy
Horizontal differentiation is the principal
way an organization retains control over
employees without increasing the
number of hierarchical levels
5- 18
Figure 5.8: Horizontal Differentiation
into Functional Hierarchies

5- 19
Figure 5.9: Horizontal
Differentiation Within the R&D
Functions

5- 20
 Control: Factors Affecting the
Shape of the Hierarchy (cont.)
 Centralization: with decentralization,
less direct managerial supervision is
needed
 Authority is delegated to the lower
levels
 Decentralization does not eliminate the
need for many hierarchical levels in
large, complex organizations
 Assists relatively tall structures to be more
flexible and reduces the amount of direct
supervision needed
5- 21
 Control: Factors Affecting the
Shape of the Hierarchy (cont.)
 Standardization: reduces the need
for levels of management because
rules substitute for direct supervision
 Gain control over employees by making
their behavior and actions more
predictable

5- 22
The Principles of Bureaucracy

 Max Weber designed a hierarchy so

that it effectively allocates decision-
making authority and control over
resources
 Bureaucracy: a form of
organizational structure in which
people can be held accountable for
their actions because they are
required to act in accordance with
rules and standard operating
procedures
5- 23
Max Weber, German Sociologist

“The purely bureaucratic form of

administrative organization, that is the
monocratic variety of bureaucracy, is, as
regards the precision, constancy,
stringency, and reliability of its
operations, superior to all other forms of
administrative organization.”

5-
The Principles of Bureaucracy
(cont.)
Principle one: a bureaucracy is
founded on the concept of rational-
legal authority
 Rational-legal authority: the authority
a person possesses because of his or her
position in an organization
 Hierarchy should be based on the needs
of the task, not on personal needs
 People’s attitudes and beliefs play no part
in how the bureaucracy operates
5- 25
The Principles of Bureaucracy
(cont.)
 Principle two: Organizational roles
are held on the basis of technical
competence, not because of social
status, kinship, or heredity
 Principles one and two establish the
organizational role as the basic
component of organization structure

5- 26
The Principles of Bureaucracy
(cont.)
 Principle three: A role’s task
responsibility and decision-making
authority and its relationship to other
roles in the organization should be clearly
specified
 Role conflict: when two or more people
have different views of what another person
should do, and as a result, make conflicting
demands on that person
 Role ambiguity: the uncertainty that
occurs for a person whose tasks or authority
are not clearly defined

5- 27
The Principles of Bureaucracy
(cont.)
 Principle four: the organization of
roles in a bureaucracy is such that
each lower office in the hierarchy is
under the control and supervision of
a higher office
 Organizations should be arranged
hierarchically so that people can
recognize the chain of command

5- 28
The Principles of Bureaucracy
(cont.)
 Principle five: rules, standard
operating procedures, and norms
should be used to control the behavior
and the relationships among roles in an
organization
 Rules and SOPs are written instructions
that specify a series of actions intended
to achieve a given end
 Norms are unwritten
 Rules, SOPs, and norms clarify people’s
expectations and prevent
misunderstanding
5- 29
The Principles of Bureaucracy
(cont.)
 Principle six: administrative acts,
decisions, and rules should be
formulated and put in writing
 Bureaucratic structure provides an
organization with memory
 Organizational history cannot be altered

5- 30
Uniform Written Rules and Policies

 Set by board and management.

 Rights and duties of employees and
managers; who can give orders to
whom.
 Limit arbitrary behavior. A structure
with an obsession of control.

“At every Holiday Inn, the best surprise is

no surprise.”

5-
“When I was president of this big corporation,
we lived in a small Ohio town, where the main
plant was located. The corporation specified
who you could socialize with, and on what level.
(His wife interjects: “Who were the wives you
could play bridge with.”) The president’s wife
could do what she wants, as long as it’s with
dignity and grace. In a small town they didn’t
have to keep check on you. Everybody knew.
There are certain sets of rules.”

5-
Obsession with control also explains
the frequent proliferation of support
staff. Purchasing staff services (e.g.
law office, factory cafeteria) from
outside suppliers exposes the
bureaucracy to the uncertainties of the
open market. So it “makes” rather
than “buys.”

5-
Standardized Procedures

Govern how employees are to perform

tasks.

“You are not supposed to think. There

are other people paid for thinking around
here.”
Frederick Taylor

5-
Standardized Procedures (cont.)

 When written down and stored as official

documents, they increase the intelligence
expressed in organizations by instituting a
“memory” of lessons learned.

 Standardize actions to be learned where

frequent employee turnover occurs.

5-
The Professional Career

 Lifetime career of advancing to higher

levels in the chain of command.

 Rising in ranks: Increase in power and

status symbols.

 Lure of rising in hierarchy and security of

professional career: Aid success of
bureaucracy.
5-
Impersonal Relations

 Role to role, not person to person.

 Holder of particular role expected to

carry out its responsibilities in a rational
and unemotional manner.

 Prevents feeling of
friendship/family/pity etc. get in the
way of tough decisions and enforcing
rules.
5-
Role of Managers

 Handling the disturbances that arise

among the highly specialized workers
of the operating core.

 By virtue of their design, Machine

Bureaucracies are structures ridden
with conflict; the control systems are
required to contain it.

5-
“You know, nothing happens in this place until we
produce something.”
Production executive
“Wrong, nothing happens until we design something!”
R&D manager
“What are you talking about? Nothing happens here
until we sell something!”
Marketing executive

“It doesn’t matter what you produce, design or sell. No

one knows what happens until we tally up the results!”
Accounting manager
5-
Advantages of Bureaucracy
 It lays out the ground rules for designing an
organizational hierarchy that efficiently controls
interactions between organizational members
 Each person’s role in the organization is clearly
spelled out and they can be held accountable
 Written rules regarding the reward and
punishment of employees reduce the costs of
enforcement and evaluating employee
performance
 It separates the position from the person
 It provides people with the opportunity to
develop their skills and pass them on their
successors
5- 40
The Problems of Bureaucracy
 Managers fail to properly control the
development of the organizational hierarchy
 Organizational members come to rely too
much on rules and standard operating
procedures (SOPs) to make decisions
 Such overreliance makes them unresponsive
to the needs of customers and other
stakeholders
 Slow response to changing customer tastes, foreign
competition, technological innovation, etc.

5- 41
Bureaupathic Pathologies

 Bureaupathic behaviour: Tendency of

employees to become more interested in the rules
and their enforcement than in their purposes and
goals of the organization.
 Bureautic behaviour: Seen in large
bureaucracies. Frustrated employees, bottled up by
high formalization, resort to sabotage, absenteeism,
etc. to express their alienation and powerlessness.

5-
Bureaupathic Pathologies (cont.)

 Groupthink: Tendency of groups or organizations

for people to go along with the suggestions or
directives of a dominant elite, even if they have
doubts about them.

 Lack of personal growth: Large organizations

treat people like children, reducing opportunities for
personal growth and maturity.

5-
Bureaupathic Pathologies (cont.)

 Failure to acknowledge the informal

organization: The bureaucracy disregards the
influence of the informal power system, e.g.
coffee room, gossip mill, grapevine.
 Outdated systems of control and authority:
Formal authority is obsolete in relation to
knowledge workers, who may know more about
how to do a job than their bosses.
 Poor conflict resolution technology: “Win-
lose” strategies in bureaucracies lead to
dysfunction.

5-
Bureaupathic Pathologies (cont.)

 Distorted communications: Upward,

downward, horizontal communications are
distorted to achieve goals important to
senders.
 Mistrust, fear of reprisals: Common
wherever people are preoccupied with self-
safety strategies and staying within their job
descriptions.
E.g. “It’s not my job to worry about that,” “I’m
here to do what I’m told,” “That’s his
responsibility, not mine.”
 Organization man syndrome: Tendency to
marry the organization, getting one’s personal
rewards there and becoming dependent on the
bureaucracy and rewards its dispenses.
5-
Conditions of the Bureaucracy

 Found in environments that are simple

and stable.

 Typically found in the mature

organization, large enough to have the
volume of operating work needed for
repetition and standardization, and old
enough to have been able to settle on the
standards it wishes to use.

5-
The Influence of the
Informal Organization
 Decision making and coordination frequently
take place outside the formally designed
channels as people interact
 Rules and norms sometimes emerge from
the interaction of people and not from the
formal rules blueprint
 Managers need to consider the informal
structure when they make changes as it may
disrupt informal norms that work
 Informal organization can actually enhance
organizational performance
5- 49
Charles Handy, The Age of Unreason

 The Shamrock Organization

 Contingent workers: workers who are

employed temporarily by an organization and
who receive no indirect benefits such as health
insurance or pensions

5-