From the 6 propositions developed, one proposition indicates that the structural dimension for formalization and complexity correlates with size as contextual organization, but the centralization in large organization can be low or high.
The correlation between sizes as contextual dimension of organization with structural dimension is not so significant. Whereas, 5 other propositions indicate that the structural dimensions of the organization including complexity, formalization, and centralization as dependent variable correlates significantly with contextual dimensions of the organization including environments and strategy as independent variables.
The more mechanistic the contextual dimensions of organization is, the more mechanistic the structural dimension of the organization will be; and the more organics the contextual dimension of organization is, the more organics the structural dimension of the organization will be.
Three important factors in the organization theory include management system, structural dimensions, and contextual organizations that will be the area of this study.
Management system from Burns and Stalker (1961) divides organization into two characteristics that are: mechanistic and organic. Burns and Stalker system is the scale to measure the structural dimensions and contextual dimension of the organization.
Daft (1986) states that organizational dimensions fall into two types, namely: structure, and context. Structural dimension pertain to internal characteristics of organization that are formalization, specialization, standardization, hierarchy of authority, centralization, complexity, professionalism, and personal configuration.
However, Robbins (1990) clusters that structural dimension into three factors that are complexity, formalization, and centralization. Structural dimension is the dependent variable because it depends on the contextual dimension of organization as the independent variable.
Contextual dimensions characterize the whole organization; include and limited in this study into size, strategy, and environment. Contextual dimensions are important because they describe the organizational setting and influence the structural dimensions.
II. Management System of Organization
Robbins (1990) defines that organization is a consciously coordinated social entity, with a relatively identifiable boundary, that functions on a relatively continuous basis to achieve a common goal or set of goals. Characteristic of organization can be seen from the structure. Daft (1986) says that structure pertains to internal characteristics of organization and provides labels to describe organizational differences.
Robbins (1960), Hodge and Anthony (1988), and Daft (1986) describe that the structure can be seen from the management system, complexity, formalization, and centralization of the organization.
Management system is the measurement of the structural dimension of organization. Burns and Stalkers, based on a study of 20 British and Scottish industrial organizations, reported that two distinctly different structures could be identified, mechanistic and organic management system.
Mechanistic structures performed routine tasks, relied heavily on programmed behaviors, and relatively slow in responding to the unfamiliar. Organic structures are relatively flexible and adaptive, with emphasis on lateral rather than on vertical communication, influence based on expertise and knowledge rather than on authority of position, loosely defined responsibilities rather than rigid job definitions, and emphasis on exchanging information rather than on giving directions.
Burns and Stalker explain the characteristics of organic and mechanistic management system as follow.
A, Mechanistic Management
A mechanistic management system is appropriate to stable conditions. It is characterized by:
a) The specialized differentiation of functional tasks into which the problems and tasks facing the concern as a whole are broken down;
b) The abstract nature of each individual task, which is pursued with techniques and purposes more or less distinct from those of the concern as a whole; i.e., the functionaries tend to pursue the technical improvement of means, rather than the accomplishment of the ends of the concern;
c) The reconciliation, for each level in the hierarchy, of these distinct performances by the immediate superiors, who are also, in turn, responsible for seeing that each is relevant in his own special part of the main task.
d) The precise definition of rights and obligations and technical methods attached to each functional role;
e) The translation of rights and obligations and methods into the responsibilities of a functional position;
f) Hierarchic structure of control, authority and communication;
g) A reinforcement of the hierarchic structure by the location of knowledge of actualizes exclusively at the top of the hierarchy, where the final reconciliation of distinct tasks and assessment of relevance is made.
h) A tendency for interaction between members of the concern to be vertical, i.e., between superior and subordinate;
i) A tendency for operations and working behavior to be governed by the instructions and decisions issued by superiors;
j) Insistence on loyalty to the concern and obedience to superiors as a condition of membership;
k) A greater importance and prestige attaching to internal (local) than to general (cosmopolitan) knowledge, experience, and skill.
B. Organic Management
The organic form is appropriate to changing conditions, which give rise constantly to fresh problems and unforeseen requirements for action which cannot be broken down or distributed automatically arising from the functional roles defined within a hierarchic structure. It is characterized by:
a) The contributive nature of special knowledge and experience to the common task of the concern;
b) The “realistic” nature of the individual task, which is seen as set by the total situation of the concern;
c) The adjustment and continual redefinition of individual tasks through interaction with others;
d) The shedding of “responsibility” as a limited field of rights, obligations and methods. (Problems may not be posted upwards, downwards or sideways as being someone else’s responsibility);
e) The spread of commitment to the concern beyond any technical definition;
f) A network structure of control, authority, and communication. The sanctions which apply to the individual’s conduct in his working role derive more from presumed community of interest with the rest of the working organization in the survival and growth of the firm, and less from a contractual relationship between himself and a non personal corporation, represented for him by an immediate superior;
g) Omniscience no longer imputed to the head of the concern; knowledge about the technical or commercial nature of the here and now task may be located anywhere in the network; this location becoming the ad hoc centres of control authority a communication;
h) A lateral rather than a vertical direction of communication through the organization, communication between people of different rank, also, resembling consultation rather than command;
i) A content of communication, which consists of information and advice rather than instructions and decisions;
j) Commitment to the concern’s tasks and to the “technological ethos” of material progress and expansion is more highly valued than loyalty and obedience;
k) Importance and prestige attaches to affiliations and expertise valid in the industrial and technical and commercial milieu external to the firm.
III. Dependent Variable: Structural Dimension of Organization
Structural dimensions of organization can be very broad. Robbins (1990), Hodge (1988) and Anthony (1988) classifies into complexity, formalization and centralization.
Complexity refers to the degree of differentiation that exists within an organization. Hall identifies three basic components of complexity, horizontal differentiation, vertical differentiation and spatial dispersion, and they should be considered collectively in order to obtain a true picture of the exact nature of complexity.
Robbins (1990) states that horizontal differentiation refers to the degree of differentiation between units with some characteristics as follow:
- Differentiation between units based on orientation of members, the nature the tasks they perform, and their education and training.
- The larger number of different occupations within organization that require specialized knowledge and skills, the more complex that organizations is.
An increase of specialization, either functional specialization or social specialization, results in increased complexity within organization.
- Functional specialization or division of labor is job, which is broken down into simple and repetitive tasks and also creates high substitutability among employees and facilitates their easy replacement by management. Social specialization is achieved by hiring professionals who hold skills that cannot be readily routinized.
Daft proposes in measuring this differentiation by the number of job titles or departments existing horizontally across the organization.
Vertical differentiation refers to the depth of the organization. Vertical differentiation is measured by counting the number of hierarchical levels separating the chief executive from the employees working on the organizations.
Hodge and Anthony (1988) explain for vertical differentiation that the more levels there are, the more potential there is for coordination and integration problems.
Spatial differentiation encompasses the degree in which jobs are dispersed geographically. It is measured by
- The number of separate locations,
- The average distance of these sites from headquarters and
- The proportion of the organization’s personnel located at these separate units.
Daft (1986) defines that formalization pertains to the amount of written documentation in the organization. Documentation includes procedures, job descriptions, regulations, and policy manuals. Formalization is often measured by simply counting the number of pages of documentation within the organization.
Robbins (1990) says that if a job is highly formalized, the job incumbent has a minimum amount of discretion over what is to be done, when it is to be done, and how he or she should do it. Employees can be expected to always handle the same input in exactly the same way, resulting in a consistent and uniform output.
There are explicit job descriptions, lots of organizational rules and clearly defined procedures covering work processes in organizations where there is high formalization. Where formalization is low, employees’ behavior would be relatively non-programmed. And formalization refers to the degree to which jobs within the organization are standardized.
Daft defines that standardization is the extent to which similar work activities are performed in a uniform manner. In highly standardized organization, work content is described in detail, so similar work is performed the same way across departments or locations
Finally, Daft explains that centralization refers to the hierarchical level that has authority to make a decision. When decisions are delegated to lower organizational levels, the organizational is decentralized. When decision-making is kept at the top level, it is centralized.
Robbins (1990) defines that centralization can be described in this way:
- Centralization is concerned only with the formal structure, not the informal organization. It applies only to formal authority.
- Centralization looks at decision discretion. Where decisions are delegated downward but extensive policies exist to constrain the discretion of lower level members, there is increased centralization. Policies can, therefore, act to override decentralization.
- Concentration at a single point can refer to an individual unit or level, but the single point implies concentration at a high level.
- Information processing can improve top management control, but the decision choice is still with the low level member. Thus, an information processing system that closely monitors decentralized decision does not maintain centralized control
- The transference of all information requires interpretation. The filtering that occurs as information passed through vertical levels is a fact of life. The top managers are free to verify the information they receive and to hold subordinates accountable in their choices of what they filter out, but control of information input is a form of de facto centralization. Management decisions are centralized if concentrated at the top, but the more the information input to those decisions is filtered through others, the less concentrated and controlled the decision is.
Relationship of management system with complexity, formalization, and centralization.
Applying structural organization into Burns and Stalkers’ concept, Robbins concludes that mechanistic structures are characterized by high complexity, formalization and centralization. On the other hand, Organic structures are relatively flexible and adaptive, with emphasis on lateral rather than on vertical communication, influence based on expertise and knowledge rather authority of position, loosely defined responsibilities rather than rigid job definitions and emphasis on exchanging information rather than on giving directions.
Mechanistic management system can be depicted as high complexity, high formalization, and high centralization. And organic management system can be related with low complexity, low formalization, and low centralization.
IV. Independent Variable: Contextual Dimension of The Organization
There is wide agreement by organization theory researchers on how an organization size is defined. Over 80 percent of studies using organization size as a variable define it as the total number of employees. One of the strongest arguments for the importance of size as a determinant of structure has been made by Peter Blau.
Based on the studies of government agencies, universities and department stores, consists of fifty three autonomous state and territorial employment security agencies, over twelve hundred local agency branches and three hundred fifty headquarter divisions he concluded that size is the most important condition affecting the structure of organizations. What Blau found was that increasing size promotes structural differentiation but at a decreasing rate.
Aston Group looked at forty-six organizations and found that increased size was associated with greater specialization and formalization. They concluded that an increased scale of operation increases the frequency of recurrent events and the repetition of decisions, which make standardization preferable.
A recent comprehensive review of twenty-seven studies covering more than one thousand organizations concluded that the relationship between size and formalization was high, positive, and statistically significant.
One researcher’s efforts to replicate the Aston findings resulted in supportive evidence. He found that organizational size was related positively to specialization, formalization, and vertical span and negatively to centralization. He concluded that larger organizations are more specialized, have more rules, more documentation, more extended hierarchies, and greater decentralization of decision making further down such hierarchies.
There is an evidence indicating that size generates differentiation and that increasing differentiation also generates increasing size. The strongest case can be made for the effect of size on vertical differentiation. A less strong but certainly solid case can be made for the size horizontal differentiation relationship. That is the larger the organization, the more pronounced (at declining rates) the division of labor within it, the same being true for the functional differentiation of the organization into divisions.
The size spatial differentiation relationship is problematic. Blau’s high correlations are almost certainly attributable to the kind of organizations he studied. Other efforts to assess this relationship have failed to generate Blau’s strong positive relationship; however, still other investigations support Blau. Further research covering diverse types of organizations is needed before conclusions of any substance can be drawn.
It is only common sense that it is impossible to control large organizations from the top, because much more is happening than individual or set of individuals can comprehend, there are inevitable delegations. But the research is mixed in demonstrating that size leads to decentralization.
Robbins defines a large organization as one having approximately two thousand or more employees. All the structural variables take on lesser importance to the small business manager because the range of variation in small business is typically limited.
Small businesses tend to have a minimal degree of horizontal, vertical, and spatial differentiation and most are characterized by low formalization and high centralization. The larger the organization is, the more formalized behavior will be. In fact, one comprehenship review concluded that the relationship between size and centralization is not significantly different from zero.
The smaller the organization is, the more organic the structural dimension of organization including complexity, formalization, and centralization will be. But the larger the organization is, the structural dimension of the organization can be organic for centralization or mechanistic for complexity formalization. There may no significant correlation between size and structural dimension of the organization for centralization, but there is significant correlation between size with complexity and formalization.
Most popular definition identifies the environment as everything outside an organization’s boundary. Robbins defines two environment general and specific environments. General environment consist of economic factors, political conditions, the social milieu, the legal structure, the ecological situation and cultural conditions.
The general environment encompasses conditions that may have an impact on the organization, but their relevance is not overtly clear. The specific environment is that part of the environment that is directly relevant to the organization in achieving its goals.
At any given moment, it is the part of the environment with which management will be concerned because it is made up those critical constituencies that can positively or negatively influences the organization’s effectiveness. Typically, it will include clients or customers, suppliers of input, competitors, government regulatory agencies, labor union, trade associations, and public pressure groups.
Environmental uncertainty is directly related. That is high environmental uncertainty tends to lead to greater complexity. In order to respond to a dynamic and more complex environment, organization becomes more differentiated. A complex environment requires the organization to buffer it self with greater number of departments and specialist.
Robbins predicts that stable environments should lead to high formalization because stable environments create a minimal need for rapid response and economies exist for organizations that standardize their activities and the dynamic environment lead to low formalization throughout the organization.
The more complex environment, the more decentralized the structure (Mintzberg). Regardless of the stable dynamic dimension, if a large number of dissimilar factors and components exist in the environment, the organization can best meet the uncertainties that causes through decentralization.
Uncertainty, complexity, and instability of environment indicate that contextual dimension of organization is organics and certainty, simple and stability of environment indicate that contextual dimension of organization is mechanistic.
The more uncertainty the environment is, the more organic structural dimension will be. The less uncertain the environment is, the more mechanistic the structural dimension of the organizational will be.
The more complex the environment is, the more organic the structural dimension will be. The less complex the environment is, the more mechanistic the structural dimension of the organizational will be.
The less stable the environment is, the more organic the structural dimension will be. The more stable the environment is, the more mechanistic the structural dimension of the organizational will be.
There is a significant and positive correlation between environment including uncertainty, complexity, and stability with structural dimension of organization including complexity, formalization, and centralization.
Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and adoption of courses of action and the allocation of resources necessary for carrying out these goals. Decision to expand the volume of activities, to set up distant plants and offices, to move into new economic function, or become diversified along many lines of business involve the defining.
Michael Porter argues that no firm can successfully perform at an above average level by trying to be all things to all people. He proposes that management must select a strategy that will give its organization a competitive advantage, cost leadership, differentiation, and focus.
Cost leadership typically means include efficiency of operations, economies of scale, technological innovation, low cost labor, or preferential access to raw material. Differentiation strategy emphasizes high quality.
The goal of cost leadership is to achieve efficiencies through tight controls, minimization of overhead, and economies of scales. The best structure for achieving this end would be one that is high in complexity, high in formalization and centralized.
In contrast, a differentiation strategy relies essentially on the development of unique products. The demands a high degree of flexibility, which can best be achieved through low complexity, low formalization and decentralized decision-making (Robbins).
Differentiated product strategy indicates that contextual dimension of organization is organics and standardize product strategy indicates that contextual dimension of organization is mechanistic.
The more standardize the product is, the more mechanistic the structural dimension including complexity, formalization and centralization will be. The more differentiated the products is, the more organic the structural dimension including complexity, formalization and centralization will be.
Miles and Snow classify organizations based on the rate at which they change their products or markets into one of four strategic types: defenders, prospectors, analyzers, and reactors. Robbins analyzes the Miles and Snow’s strategy into structural dimension of organization as follow:
Defender seeks stability by producing only a limited set of products directed at a narrow segment of the total potential market. There is little or no scanning of the environment to find new areas of opportunity but there is intensive planning oriented toward cost and other efficiency issues.
The result is a structure made up of high horizontal differentiation, centralized control, and an elaborate formal hierarchy for communications. The structural dimension of the defender seem to be mechanistic
Prospectors are almost the opposite of defenders. Their strength is finding and exploiting new product and market opportunities. Innovation may be more important than high profitability. The prospector’s success depends on developing and maintaining the capacity to survey a wide range of environmental conditions, trends and events.
Therefore, prospectors invest heavily in personnel who scan the environment for potential opportunities. Since flexibility is critical to prospectors, the structure will also be flexible. It will rely on multiple technologies that have a low degree of routinization, and mechanization.
There will be numerous decentralized units. The structure will be low in formalization; have decentralized control, with lateral as well as vertical communications. The structural dimension of the prospectors seem to be organic
Analyzers try to capitalize on the best of both the preceding types. They seek to minimize risk and maximize opportunity for profit. Their strategy is to move into new products or new markets only after viability has been proved by prospectors.
Analyzers live by imitation. Analyzers seek both flexibility and stability. They respond to these goals by developing a structure made up of dual components. Parts of these organizations have high levels of standardization, routinization and mechanization for efficiency. Other parts are adaptive, to enhance flexibility. In this way, they seek structures that can accommodate both stable and dynamic areas of operation. The examples are IBM and Caterpillar.
Reactors represent a residual strategy. The label is meant to describe the inconsistent and unstable patterns that arise when one of the other three strategies is pursued improperly. Organizations following a reactor strategy respond to change reluctantly. Management perceives some change and uncertainty, but they are not likely to make any substantial adjustments until forced to by environmental pressures. So this structure is likely to look very much like the one described for defenders.
The more rapid rate of change of product to respond market strategy indicates that contextual dimension of organization is organics and the less rapid rate of change of product to respond market strategy indicates that contextual dimension of organization is mechanistic.
The more rapid the rates of change of product to respond market is, the more organic the structural dimension including complexity, formalization, and centralization will be. The less rapid the rate of change of product to respond market is, the more mechanistic the structural dimension including complexity, formalization, and centralization will be.
From the 6 propotitions developed, one propotition indicates that the structural dimension for formalization and complexity correlates with size as contextual organization, but the centralization in large organization can be low or high.
The correlation between size as contextual dimension of organization with structural dimension is not so significant. Whereas, 5 other propotitions indicate that the structural dimensions of the organization including complexity, formalization, and centralization as dependent variable correlates significantly with contextual dimensions of the organization including environments and strategy as independent variables.
The more mechanistic the contextual dimensions of organization is, the more mechanistic the structural dimension of the organization will be; and the more organics the contextual dimension of organization is, the more organics the structural dimension of the organization will be.
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*Published in Journal of Management and Business Review, Volume 2 Number 2 July 2005, PPM Graduate School of Management, Jakarta, Indonesia.