1. A Conceptual Framework for the Design of Organizational Control Mechanisms William G. Ouchi, 1979
Management Science. 25 (9):
Group 1:
Meredith, Barclay, Woo-Je, and Kumar

2. Organizational Control
Meanings and Interpretations
Control equivalent to power
Control as a problem in information flows
Ouchi’s View
What are the mechanisms through which an organization can be managed so that it moves towards its objectives?
How can the design of these mechanisms be improved and what are the limits?

3. Example: Parts Supply Division
Problem: Purchasing department buys 100,000 different items/year from 3,000 different manufacturers
Accomplishes the work with 22 employees, of whom 3 are at the managerial level
Warehousing stores the product, fills the orders and ships the product using 1,400 employees, of whom 150 are managers

4. Analysis of Parts Supply Division
Three Mechanisms involved:
Market
Purchasing division
Bureaucratic
Warehouse division
Informal Social
Concept of The Clan

5. Market Mechanisms Purchasing Agent Managers of Purchasing Agents
Simply puts each part out for competitive bids and permits the competitive price to define the fair price
Managers of Purchasing Agents
Only needs to check decisions against simple criterion of cost minimization rather than observing all the steps

6. Market as a Pure Model Efficient Mechanism
Prices convey relevant information for decision maker
Arbitrary rules such as those found in warehousing unnecessary
Provides a mechanism for solving problem of goal incongruity
Rewards employees in direct proportion to their level of contribution
But the fact that purchasing takes place in a corporate framework suggests market defects exist

7. Purchasing: Mixture of Market and Bureaucratic Mechanisms
Work of purchasing agent is controlled through process of bureaucratic surveillance (manager) rather than price mechanisms
Director of Purchasing does not determine market price
Instead, agrees upon an employment contract at some price and resorts to hierarchical order giving and performance evaluation.

8. Bureaucratic Mechanisms (Warehousing)
Fundamental mechanism of control involves close personal surveillance and direction of subordinates by superiors
Task completion governed by RULES: an arbitrary standard against which a comparison is yet to be made
Rules vs. Price
Rules are only partial bundles of information
Price is a complete bundle of information

9. Why does Warehouse use Bureaucratic Mechanisms?
Impossible to set prices for each task in warehouse
No corresponding inexpensive way to determine performance
Will have to establish performance standards and systems of hierarchical superiors
The Bureaucratic Mechanism!

10. Original Dilemma
Purchasing participates in a market mechanism which is more efficient
Warehousing uses a bureaucratic mechanism because market is not frictionless
Both Bureaucratic and Market mechanisms are directed towards the same objectives
Which is more efficient depends on the particulars of the transactions

11. Clan Mechanisms
Informal social structures that are properties of a unique organization
Examples of others industries: Doctors
Certified with respect to technical skills but also integrity and purity of values
Once the Manager knows that the Foremen are trying to achieve the “right” objectives he can eliminate many costly forms of auditing and surveillance methods
Only recently has the Clan mechanism been considered the subject of analysis central to the problem of organization

12. Social & Informal Prerequisites of Control
Type of Control
Social Requirements
Informal Requirements
Market
Norm of Reciprocity
Price
Bureaucracy
Legitimate Authority
Rules
Clan
Shared Values, Beliefs
Traditions

13. Informal Prerequisites of Control
Implicit information
Ex. Traditions of the US Senate
“grows up” as a natural by product of social interaction
The Clan
Explicit information
Must be created and maintained intentionally at some cost
Ex. Accounting division

14. Designing Control Mechanisms: Costs and Benefits
Two methods to achieve effective people control:
1. Search for and select people who fit your needs exactly
Cost of Search: High Wages
Benefit: Perform tasks without instruction, work hard
2. Take people who don’t fit your needs exactly and put in a system to instruct, monitor, and evaluate them
Cost: training unskilled workers, indifferent to learn organization skills and values, developing & running supervisory system.
Benefit: System can take heterogeneous assortment of people and effectively control them, withstand high rates of turnover

15. Organizational Control: People Treatment
Form of Commitment
Corresponding Control Type
Totally Unselective
Internalization
Market
Selection/Screening
Identification
Clan
Training
Bureaucracy
Monitoring
Compliance
Taken from Kelman, 1958 (20)

16. Loose Coupling and The Clan
Knowledge of the Transformation Process
Imperfect
Output Measurement
(Women’s Boutique)
Perfect
Behavior or Output Measurement
(Apollo Program)
High
Ability to
Measure Outputs
Ritual and Ceremony,
“Clan Control”
(Research Laboratory)
Behavior Measurement
(Tin Can Plant)
Low

17. Loose Coupling Fashionable Views
Most hierarchies fail to transmit control from top to bottom
Most organizations do not have a single or an integrated set of goals or objectives
Subunits within are only loosely joined to each other
Under conditions of ambiguity or loose coupling, measurement with precision is not possible.
A control system based on this will lead to organizational decline.
Under these circumstance clan control is preferable

18. Closing Observations
Organizations vary in the degree to which they are coupled
Control mechanisms of Market and/or Bureaucratic can be designed for relatively stable manufacturing industries
Organizations in public sector, services, and technologies may be better served by clan forms of control
The problem of organization design is to discover that balance of socialization and measurement which most effectively permits a particular organization to achieve cooperation among its members.

19. Conclusions
Design of organizational control mechanisms must focus on the problems achieving coordination and cooperation among individuals
Problem is to understand how, as society changes, do the control methods of organizations change with it.