1 Chapter Eight Organization Size, Life Cycle, and Control

2 Pressures for Growth Discuss factors causing the push for growth Discuss factors causing the push for growth

3 Differences Between Large and Small Organizations LARGE LARGE Economies ofEconomies of scale scale Global reachGlobal reach Vertical hierarchyVertical hierarchy MechanisticMechanistic ComplexComplex Stable marketStable market “Organization men”“Organization men” SMALL SMALL Responsive Flexible Regional reach Flat structure Organic Simple Niche finding Entrepreneurs Source: Based on John A. Byrne, “Is Your Company Too Big?” Business Week, 27 March 1989,

4 Organizational Life Cycle ORGANIZATION STAGES OF DEVELOPMENT 1. Entrepreneurial Stage 2. Collectivity Stage 3. Formalization Stage 4. Elaboration Stage Crisis: Need to deal with too much red tape Crisis: Need for delegation with control Crisis: Need for leadership Creativity Provision of clear direction Addition of internal systems Development of teamwork Crisis: Need for revitalization Decline Continued maturity Streamlining, small-company thinking SIZESIZE Large Small Sources: Adapted from Robert E. Quinn and Kim Cameron, “Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence,” Management Science 29 (1983): 33-51; and Larry E. Greiner, “Evolution and Revolution as Organizations Grow,” Harvard Business Review 50 (July-August 1972):

5 Organization Characteristics During Four Stages of Life Cycle 1. Entrepreneurial 2. Collectivity 3. Formalization 4. Elaboration CharacteristicNonbureaucraticPrebureaucraticBureaucraticVery Bureaucratic Structure Informal, one-person show Mostly informal, some procedures Formal procedures, division of labor, specialties added Teamwork within bureaucracy, small- company thinking Products or services Single product or service Major product or service with variations Line of products or services Multiple product or services lines Reward and control systems Personal, paternalisticPersonal, contribution to success Impersonal, formalized systems Extensive, tailored to product and department Innovation By owner-managerBy employees and managers By separate innovation group By institutionalized R&D Goal SurvivalGrowthInternal stability, market expansion Reputation, complete organization Top Management Style Individualistic, entrepreneurial Charismatic, direction-giving Delegation with control Team approach, attack bureaucracy Sources: Adapted from Larry E. Greiner, “Evolution and Revolution as Organizations Grow,” Harvard Business Review 50 (July-August 1972): 37-46; G. L. Lippitt and W. H. Schmidt, “Crises in a Developing Organization,” Harvard Business Review 45 (November-December 1967): ; B. R. Scott, “The Industrial State: Old Myths and New Realities,” Harvard Business Review 51 (March-April 1973): ; Robert E. Quinn and Kim Cameron; “Organizational Life Cycles and Shifting Criteria of Effectiveness,” Management Science 29 (1983):

6 Organizational Bureaucracy & Control Bureaucracy – threat to basic personal liberties & recognized as the most efficient possible system of organizing Bureaucracy – threat to basic personal liberties & recognized as the most efficient possible system of organizing

7 Weber’s Dimensions of Bureaucracy and Bases of Organizational Authority BUREAUCRACY BUREAUCRACY 1.1. Rules and procedures 2.Specialization and division of labor 3.Hierarchy of authority 4.Technically qualified personnel 5.Separate position and incumbent 6.Written communications and records LEGITIMATE BASES OF AUTHORITY LEGITIMATE BASES OF AUTHORITY 1.Rational-legal 2.Traditional 3.Charismatic

8 Three Organizational Control Strategies TYPEBureaucraticMarketClanREQUIREMENTS Rules, standards, hierarchy, legitimate authority Prices, competition, exchange relationship Tradition, shared values and beliefs, trust Source: Based upon William G. Ouchi, “A Conceptual Framework for the Design of Organizational Control Mechanisms,” Management Science 25 (1979):

9 Management Control Systems Used as Part of Bureaucratic Control SubsystemBudget Statistical reports Reward systems Operating procedures Content and Frequency Financial, resource expenditures, monthly Non-financial outputs, weekly or monthly, often computer-based Annual evaluation of managers based on department goals and performance Rules and regulations, policies that prescribe correct behavior, continuous Source: Based on Richard L. Daft and Norman B. Macintosh, “The Nature and Use of Formal Control Systems for Management Control and Strategy Implementation,” Journal of Management 10 (1984):

10 The Balanced Scorecard A comprehensive management control system that balances traditional financial resources with operational measures relating to a company’s critical success factors A comprehensive management control system that balances traditional financial resources with operational measures relating to a company’s critical success factors

11 Major Perspectives of the Balanced Scorecard Mission Strategy Goals Internal Business Processes Does the chain of internal activities and processes add value for customers and shareholders? Examples of measures: order-rate fulfillment, cost-per-order Financial Do actions contribute to improving financial performance? Examples of measures: profits, return on investment Learning and Growth Are we learning and changing? Examples of measures: continuous process improvement, employee retention, new product introductions Customers How well do we serve our customers? Examples of measures: customer satisfaction, customer loyalty Sources: Based on Robert S. Kaplan and David P. Norton, “Using The Balanced Scorecard as a Strategic Management System,” Harvard Business Review, January-February 1996, 71-79; Chee W. Chow, Kamal M. Haddad, and James E. Williamson, “Applying the Balanced Scorecard to Small Companies,” Management Accounting 79, No. 2 (August 1997), 21-27; and Cathy Lazere, “All Together Now,” CFO, February 1998,