Vertical Differentiation: Distribution of Authority & Control: Why and How

A basic design challenge….. How much authority to centralize….and where….. Authority = 1. Power to hold people accountable for their actions, and 2. Directly influence what they do…and how they do What determines the shape of an organizational hierarchy i.e. numbers of levels of authority? Important – Determines how effectively decision making and communication systems work

Emergence of an hierarchy Growth – Size – Numbers Problems of Coordination and Motivation Specialization – Job Fragmentation – Difficulty in Measurement and Evaluation – Rewards How to solve these? Increase levels of authority Increase numbers at each level Direct face to face control, direct supervision provides more control (problem solving, monitoring, job progress, competence building) Hierarchy emerges…. But…. A question to you….one man, one supervisor? How many men per supervisor? Why not one to one supervision?

A few findings 3000 employees = 7 levels on an average

A few findings: Size and Number of hierarchical levels

Organizational Size and The Size of the Managerial Component

A few Findings 1000 members = 4 levels (likely) 3000 members = 7 levels (likely) After 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 Consider FEDEX with 5 levels Question: Why this forced limitation on levels? When we say coordination and motivation is facilitated by supervisory level then what is it that limits the number of levels and number of managers at each level?

So, the question is, what are the factors that restrict: More number of levels More number of managers per level A design challenge?

Problems Emergence of hierarchical levels is necessary (coordination, motivation) A simple integration mechanism Challenge is….how much? A few practical problems with ‘tall structures’ Communication: delay, distortion, misleading and motivated Motivation: Reduced Turf, authority and responsibility Costs: Ignored when the going is good, suddenly delayering Parkinson’s Law: Managers multiply subordinates, not rivals….create work for everyone…’work expands so as to fill time’

Principles The Minimum Chain of Command: Choose minimum number of levels consistent with goals and the environment (manufacturing, nuclear power, army….where need for control is very high) Technology, nature of tasks Cost benefit for each layer….value addition Span of Control: fn(task complexity, interrelatedness), n(n- 1)/2……lo span = complex, inter-related tasks, hi span = routine, separate tasks

Spans of Control

Challenge Size of span and number of levels are the major design choices determine the shape of an organization’s hierarchy, but There is a limit to height There is a limit to span Therefore, how to Determine optimum height + Optimum span, to ensure Adequate control over activities, to ensure WHAT??

Factors Affecting the Shape of the Hierarchy

Horizontal Differentiation into Functional Hierarchies

Horizontal Differentiation Within the R&D Functions

The Principles of Bureaucracy Max Weber A hierarchy to – Effectively allocate 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

The Principles of Bureaucracy Rational-legal authority – Authority based on position Roles based on competence, not personal needs, heredity or relationships Task and authority for every position should be clearly defined (role clarity – role conflict and role ambiguity) Organization should be arranged hierarchically so that Chain of command should be recognized Rules, SOPs and Norms should be defined to control behavior and relationships amongst roles Administrative rules, acts and decisions must be reduced to writing…..organizations should have memory and learn from it

Advantages of Bureaucracy Ground rules for designing an organizational hierarchy Written rules regarding the reward and punishment of employees reduce the costs of enforcement and evaluating employee performance Separates the position from the person Provides people with the opportunity to develop their skills and pass them on their successors

The Informal Organization Outside formally designed channels Develop through interactions Enhance organizational performance IT, Empowerment, Self Managed Teams, Cross Functional Teams, Contingent/Contractual Employees