Formal organizations often widen a supervisor's span of control

Signature Assignment: Leveraging Technology In Organizational Design OCONOR ONLY

Illustrate the difference between technical innovation and organizational effectiveness.
Evaluate thedifferent types of technology available, and recommend the most appropriate technology for your organization.
Apply at least three different types of technology to your selected organization and explain why one should be selected over the other two.
Recommend the best technology for improving the organization's efficiencies or competencies while also reducing risk.
Apply a given technology to your organization and explain its impact on your organization's culture as part of its change management process.
Illustrate the rationale for your decision using either graphs or flow charts.

Chapter 9

Organizational Design,

Competences, and Technology

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Learning Objectives

This chapter focuses on technology and examines how organizations use it to build

competences and create value. Then it discusses why certain forms of

organizational structures are suitable for different types of technology, just as earlier

chapters used a similar contingency approach to examine why certain environments

or strategies typically require the use of certain forms of structure.

After studying this chapter you should be able to:

1. Identify what technology is and how it relates to organizational

effectiveness.

2. Differentiate among three different kinds of technology that create different

competences.

3. Understand how each type of technology needs to be matched to a certain

kind of organizational structure if an organization is to be effective.

4. Understand how technology affects organizational culture.

5. Appreciate how advances in technology, and new techniques for managing

technology, are helping increase organizational effectiveness.

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What Is Technology?

When we think of an organization, we are likely to think of it in terms of what it does.

We think of manufacturing organizations like Whirlpool or Ford as places where

people use their skills in combination with machinery and equipment to assemble

inputs into appliances, cars, and other finished products. We view service

organizations like hospitals and banks as places where people apply their skills in

combination with machinery or equipment to make sick people well or to facilitate

customers’ financial transactions. In all manufacturing and service organizations,

activities are performed to create value—that is, inputs are converted into goods

and services that satisfy people’s needs.

Technology is the combination of skills, knowledge, abilities, techniques,

materials, machines, computers, tools, and other equipment that people use to

convert or change raw materials, problems, and new ideas into valuable goods and

services. When people at Ford, the Mayo Clinic, H&R Block, and Google use their

skills, knowledge, materials, machines, and so forth, to produce a finished car, a

cured patient, a completed tax return, or a new online application, they are using

technology to bring about change to something to add value to it.

Technology

The combination of skills, knowledge, abilities,

techniques, materials, machines, computers, tools,

and other equipment that people use to convert or

change raw materials into valuable goods and

services.

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Inside an organization, technology exists at three levels: individual, functional or

departmental, and organizational. At the individual level, technology is the personal

skills, knowledge, and competences that individual women and men possess. At the

functional or departmental level, the procedures and techniques that groups work

out to perform their work create competences that constitute technology. The

interactions of the members of a surgical operating team, the cooperative efforts of

scientists in a research and

development laboratory, and techniques developed by assembly-line workers are

all examples of competences and technology at the functional or departmental

level.

Mass production

The organizational technology that uses conveyor

belts and a standardized, progressive assembly

process to manufacture goods.

The way an organization converts inputs into outputs is often used to characterize

technology at the organizational level. Mass production is the organizational

technology based on competences in using a standardized, progressive assembly

process to manufacture goods. Craftswork is the technology that involves

groups of skilled workers interacting closely and combining their skills to produce

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custom-designed products. The difference between these two forms of technology

is clearly illustrated in Organizational Insight 9.1 .

Craftswork

The technology that involves groups of skilled

workers who interact closely to produce custom-

designed products.

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Organizational Insight

9.1 Progressive Manufacture at Ford

In 1913, Henry Ford opened the Highland Park plant to produce the Model

T car. In doing so, he changed forever the way complex products like cars

are made, and the new technology of “progressive manufacture” (Ford’s

term), or mass production, was born. Before Ford introduced mass

production, most cars were manufactured by craftswork. A team of

workers—a skilled mechanic and a few helpers—performed all the

operations necessary to make the product. Individual craftsworkers in the

automobile and other industries have the skills to deal with unexpected

situations as they arise during the manufacturing process. They can modify

misaligned parts so that they fit together snugly, and they can follow

specifications and create small batches of a range of products. Because

craftswork relies on workers’ skills and expertise, it is a costly and slow

method of manufacturing. In searching for new ways to improve the

efficiency of manufacturing, Ford developed the process of progressive

manufacture.

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Brian Delft © Dorling Kindersley

Ford outlined three principles of progressive manufacture:

1. Work should be delivered to the worker; the worker should not have

to find the work. 1

At the Highland Park plant, a mechanized, moving

conveyor belt brought cars to the workers. Workers did not move

past a stationary line of cars under assembly.

2. Work should proceed in an orderly and specific sequence so each

task builds on the task that precedes it. At Highland Park, the

implementation of this idea fell to managers, who worked out the

most efficient sequence of tasks and coordinated them with the

speed of the conveyor belt.

3. Individual tasks should be broken down into their simplest

components to increase specialization and create an efficient

division of labor. The assembly of a taillight, for example, might be

broken into two separate tasks to be performed all day long by two

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different workers. One person puts lightbulbs into a reflective panel;

the other person screws a red lens onto the reflective panel.

As a result of this new work system, by 1914 Ford plants employed 15,000

workers but only 255 supervisors (not including top management) to

oversee them. The ratio of workers to supervisors was 58 to 1. This very

wide span of control was possible because the sequence and pacing of the

work were not directed by the supervisors but were controlled by work

programming and the speed of the production line. 2

The mass production

system helped Ford control many workers with a relatively small number of

supervisors, but it also created a tall hierarchy. The hierarchy at a typical

Ford plant had six levels, reflecting the fact that management’s major

preoccupation was the vertical communication of information to top

management, which controlled decision making for the whole plant.

The introduction of mass production technology to auto making was only

one of Henry Ford’s technological manufacturing innovations. Another was

the use of interchangeable parts. When parts are interchangeable, the

components from various suppliers fit together; they do not need to be

altered to fit during the assembly process. With the old craftswork method of

production, a high level of worker competence was needed to fit together

the components provided by different manufacturers, which often differed in

size or quality. Ford insisted that component manufacturers follow detailed

specifications so that parts needed no remachining and his relatively

unskilled work force would be able to assemble them easily. Eventually, the

desire to control the quality of inputs led Ford to embark on a massive

program of vertical integration. Ford mined iron ore in its mines in Upper

Michigan and transported the ore in a fleet of Ford-owned barges to Ford’s

steel plants in Detroit, where it was smelted, rolled, and stamped into

standard body parts.

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As a result of these technological innovations in manufacturing, by the early

1920s Henry Ford’s organization was making over two million cars a year.

Because of his efficient manufacturing methods, Ford reduced the price of a

car by two-thirds. This low-price advantage, in turn, created a mass market

for his product. 3

Clearly, as measured by standards of technical efficiency

and the ability to satisfy external stakeholders such as customers, Ford

Motor was a very effective organization. Inside the factories, however, the

picture was not so rosy.

Workers hated their work. Ford managers responded to their discontent with

repressive supervision. Workers were watched constantly. They were not

allowed to talk on the production line, and their behavior both in the plant

and outside was closely monitored. (For example, they were not allowed to

drink alcohol, even when they were not working.) Supervisors could

instantly fire workers who disobeyed any rules. So repressive were

conditions that by 1914 so many workers had been fired or had quit that 500

new workers had to be hired each day to keep the work force at 15,000. 4

Clearly, the new technology of mass production was imposing severe

demands on individual workers.

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Technology and Organizational

Effectiveness

Recall from Chapter 1 that organizations take inputs from the environment and

create value from the inputs by transforming them into outputs through conversion

processes (see Figure 9.1 ). Although we usually think of technology only at the

conversion stage, technology is present in all organizational activities: input,

conversion, and output.5

At the input stage, technology—skills, procedures, techniques, and competences—

allows each organizational function to handle relationships with outside

stakeholders so that the organization can effectively manage its specific

environment. The human resource function, for example, has techniques such as

interviewing procedures and

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Figure 9.1 Input, Conversion, and Output Processes

psychological testing that it uses to recruit and select qualified employees. The

materials management function has developed competences in dealing with input

suppliers, for negotiating favorable contract terms, and for obtaining low-cost, high-

quality component parts. The finance department has techniques for obtaining

capital at a cost favorable to the company.

At the conversion stage, technology—a combination of machines, techniques, and

work procedures—transforms inputs into outputs. The best technology allows an

organization to add the most value to its inputs at the least cost of organizational

resources. Organizations often try to improve the efficiency of their conversion

processes, and they can improve it by training employees in new time-management

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techniques and by allowing employees to devise better ways of performing their

jobs.

At the output stage, technology allows an organization to effectively dispose of

finished goods and services to external stakeholders. To be effective, an

organization must possess competences in testing the quality of the finished

product, in selling and marketing the product, and in managing after-sales service to

customers.

The technology of an organization’s input, conversion, and output processes is an

important source of a company’s competitive advantage. Why is Microsoft the most

successful software company? Why is Toyota the highest-quality carmaker? Why is

McDonald’s the most efficient fast-food company? Why does Walmart consistently

outperform Kmart and Sears? Each of these organizations excels in the

development, management, and use of technology to create competences that lead

to higher value for stakeholders.

Recall from Chapter 1 the three principal approaches to measuring and

increasing organizational effectiveness (see Table 1.1 ). An organization taking

the external resource approach uses technology to increase its ability to manage

and control external stakeholders. Any new technological developments that allow

an organization to improve its service to customers, such as the ability to customize

products or to increase products’ quality and reliability, increases the organization’s

effectiveness.

An organization taking the internal systems approach uses technology to increase

the success of its attempts to innovate; to develop new products, services, and

processes; and to reduce the time needed to bring new products to market. As we

saw earlier, the introduction of mass production at the Highland Park plant allowed

Henry Ford to make a new kind of product—a car for the mass market.

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An organization taking the technical approach uses technology to improve efficiency

and reduce costs while simultaneously enhancing the quality and reliability of its

products. Ford increased his organization’s effectiveness by organizing its

functional resources to create better quality cars at a lower cost for both

manufacturer and consumer.

Organizations use technology to become more efficient, more innovative, and better

able to meet the needs and desires of stakeholders. Each department or function in

an organization is responsible for building competences and developing technology

that allows it to make a positive contribution to organizational performance. When

an organization has technology that enables it to create value, it needs a structure

that maximizes the effectiveness of the technology. Just as environmental

characteristics require organizations to make certain organizational design choices,

so do the characteristics of different technologies affect an organization’s choice of

structure.

In the next three sections we examine three theories of technology that are

attempts to capture the way different departmental and organizational technologies

work and affect organizational design. Note that these three theories are

complementary in that each illuminates some aspects of technology that the others

don’t. All three theories are needed to understand the characteristics of different

kinds of technologies. Managers, at all levels and in all functions, can use these

theories to (1) choose the technology that will most effectively transform inputs into

outputs and (2) design a structure that allows the organization to operate the

technology effectively. Thus it is important for these managers to understand the

concept of technical complexity, the underlying differences between routine and

complex tasks, and the concept of task interdependence.

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Technical Complexity: The

Theory of Joan Woodward

Some kinds of technology are more complex and difficult to control than others

because some are more difficult to program than others. Technology is said to be

programmed when rules and SOPs for converting inputs into outputs can be

specified in advance so that tasks can be standardized and the work process be

made predictable. McDonald’s uses a highly programmed technology to produce

hamburgers and so does Ford to produce its vehicles, and they do so to control the

quality of their outputs—hamburgers or cars. The more difficult it is to specify the

process for converting inputs into outputs, the more difficult it is to control the

production process and make it predictable.

Programmed technology

A technology in which the procedures for converting

inputs into outputs can be specified in advance so

that tasks can be standardized and the work process

can be made predictable.

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According to one researcher, Joan Woodward, the technical complexity of a

production process—that is, the extent to which it can be programmed so it can be

controlled and made predictable—is the important dimension that differentiates

technologies. 6

High technical complexity exists when conversion processes can be

programmed in advance and fully automated. With full automation, work activities

and the outputs that result from them are standardized and can be predicted

accurately. Low technical complexity exists when conversion processes depend

primarily on people and their skills and knowledge and not on machines. With

increased human involvement and less reliance on machines, work activities cannot

be programmed in advance, and results depend on the skills of the people involved.

Technical complexity

A measure of the extent to which a production

process can be programmed so that it can be

controlled and made predictable.

The production of services, for example, typically relies much more on the

knowledge and experience of employees who interact directly with customers to

produce the final output than it relies on machines and other equipment. The labor-

intensive nature of the production of services makes standardizing and

programming work activities and controlling the work process especially difficult.

When conversion processes depend primarily on the performance of people, rather

than on machines, technical complexity is low, and the difficulty of maintaining high

quality and consistency of production is great.

Joan Woodward identified ten levels of tech. i#al complexity, whi#h she associated

with three types of production technology: (1) small-batch and unit technology, (2)

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large-batch and mass production technology, and (3) continuous-process

technology (see Figure 9.2 ). 7

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Small-Batch and Unit Technology

Organizations that employ small-batch and unit technology make one-of-a-kind

customized products or small quantities of products. Examples of such

organizations include a furniture maker that constructs furniture customized to the

needs and tastes of specific clients, a printer that supplies the engraved wedding

invitations that a particular couple desires, and teams of surgeons who work in

specialized hospitals that provide a specific set of services such as eye or knee

surgery. Small-batch and unit technology scores lowest on the dimension of

technical complexity (see Figure 9.2 ) because any machines used during the

conversion process are less important than people’s skills and knowledge. People

decide how and when to use machines, and the production operating process

reflects their decisions about how to apply their knowledge. A custom furniture

maker, for example, uses an array of tools—including lathes, hammers, planes, and

saws—to transform boards into a cabinet. However, which tools are used and the

order in which they are used depends on how the furniture maker chooses to build

the cabinet. With small-batch and unit technology, the conversion process is flexible

because the worker adapts techniques to suit the needs and requirements of

individual customers.

The flexibility of small-batch technology gives an organization the capacity to

produce a wide range of products that can be customized for individual customers.

For example, high-fashion designers and makers of products like fine perfume,

custom-built cars, and specialized furniture use small-batch technology. Small-

batch technology allows a custom furniture maker, for example, to satisfy the

customer’s request for a certain style of table made from a certain kind of wood.

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Figure 9.2 Technical Complexity and Three Types of Technology

Joan Woodward identified ten levels of technical complexity, which she associated

with three types of production.

Source: Adapted from Joan Woodward, “Management and Technology,” London: Her

Majesty’s Stationery Office, 1958, p. 11. Reproduced with permission of the Controller of Her

Britannic Majesty’s Stationery Office on behalf of Parliament.

Small-batch technology is relatively expensive to operate because the work process

is unpredictable and the production of customized made-to-order products makes

advance programming of work activities difficult. However, flexibility and the ability

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to respond to a wide range of customer requests make this technology ideally

suited to producing new or complex products. Google uses small-batch technology

when it assigns a team of software engineers to work together to develop new

software applications; so does a maker of doughnuts.

Founded in 1937 in Newington, Connecticut, Krispy Kreme is a leading specialty

retailer of premium-quality yeast-raised doughnuts. Krispy Kreme’s doughnuts have

a broad customer following and command a premium price because of their unique

taste and quality. The way it uses small-batch production to increase its operating

efficiency and responsiveness to customers is instructive. Krispy Kreme calls its

store production operations “doughnut theater” because its physical layout is

designed so that customers can see and smell the doughnuts being made by its

impressive company-built doughnut-making machines.

What are elements of its small-batch production methods? The story starts with the

65-year-old company’s secret doughnut recipe that it keeps locked up in a vault.

None of its franchisees know the recipe for making its dough, and Krispy Kreme

sells the ready-made dough and other ingredients to its stores. Even the machines

used to make the doughnuts are company designed and produced, so no doughnut

maker can imitate its unique cooking methods and thus create a similar competing

product.

The doughnut-making machines are designed to produce a wide variety of different

kinds of doughnuts in small quantities, and each store makes and sells between

4,000 and 10,000 dozen doughnuts per day.

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Krispy Kreme constantly refines its production system to improve the efficiency of

its small-batch operations. For example, it redesigned its doughnut machine to

include a high-tech extruder that uses air pressure to force doughnut dough into row

after row of rings or shells. Employees used to have to adjust air pressure manually

as the dough load lightened. Now this is all done automatically. A redesigned

doughnut icer tips finished pastries into a puddle of chocolate frosting; employees

had to dunk the doughnuts two at a time by hand before the machine was invented.

Although these innovations may seem small, across hundreds of stores and millions

of doughnuts, they add up to significant gains in productivity—and more satisfied

customers. The way in which Zynga, the social networking game maker, designs its

games using small-batch or craftswork technology shows how adaptable this type

of technology can be for Internet software companies, as discussed in

Organizational Insight 9.2 .

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Organizational Insight

9.2 How Zynga Crafts Its Online Social Games

Zynga Inc., based near Marina del Rey, California, is the most popular

maker of online social games—a rapidly growing and highly competitive

segment of the games industry. Every month, one out of ten users of the

WWW plays one or more of Zynga’s 55 games, which include FarmVille,

Zynga Poker, and Mafia Wars. About four-fifths of the U.S. population—

around 250 million people—play its games each month. In May 2011 Zynga

rolled out its newest online game, Empires & Allies, that took the company

into a new gaming arena, that of “action and strategy” games, which have

been dominated by established global game developers like Electronic Arts

(EA), some of whose blockbuster games include Crysis 2, Star Wars, The

Sims, and Portal 2.

The way in which Zynga develops its games is unique in the gaming

industry because it employs a craftswork technology in which small teams

of game designers and developers work continuously to create, develop,

and then perfect games over time so that the games themselves are

constantly changing. Zynga employs several hundred game developers and

designers in a relaxed, campus-like environment in which they are even

allowed to bring their dogs to work if they choose. Mark Skaggs, Zynga’s

senior vice president of product, summed up the way the company’s design

technology works as “fast, light, and right.” 8

Zynga’s games take only a few

weeks or months to design. Why? Because its teams of developers work in

self-managed groups that have around 30 members. All the activities of

each team member’s performance, and the way they continuously

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iStockphoto.com/luismmolina

make changes to a game, is immediately obvious to other team members

because they are all linked through interactive realtime software that allows

them to evaluate how the changes being made will affect the nature of the

game. Team members can continuously approve, disapprove, or find ways

to improve on the way a game’s objectives and features are developing, to

ensure the game will eventually appeal to Zynga’s hundreds of millions of

online users when it is released.

However, the other aspect of craftswork technology that works so well for

Zynga lies in its competence to continue to customize and change every

game it develops to better appeal to the likes and dislikes of its users—even

after the game has been released online. Unlike more established game

makers like EA, much of the game development that takes place after a

Zynga game is released occurs as its designers work—often round-the-

clock—to add content, correct errors, test new features, and constantly

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adjust the game based upon real-time feedback about how game players

are “interacting” with it, and to find out what users enjoy the most. One of

Zynga’s unique competences is its ability to track the performance of each

feature and design element of a game. By what it calls A/B testing, Zynga

creates two different groups of online players—A and B—who act as guinea

pigs as their responses to a game that has been modified or improved with

new features are monitored. By counting how many players click on the new

feature, Zynga knows if players like it and what they want, so its developers

can continuously change the dynamics of the game to make it more

satisfying to users.

The result is that its online games get better and better over time in the

sense that they become more appealing to users. As Greg Black, Empires

& Allies’ lead game designer, says, “We can mine our users and see in real

time what they like to do.” 9

So, for example, while the first thousands of

players of Empires & Allies were trying to work out how to play the game

and conquer their rivals on their computer screens, the game’s developers

were watching their efforts and using their experiences to continually craft

and improve the way the game is played to make it more exciting.

This amazing interactive approach to online game development is quite

different from the technology used by game developers like EA, which may

use hundreds of developers who take two years or more to finalize a new

game before it is released for sale. EA, of course makes its money from the

revenues earned on the sales of each game, which are often priced at $50

–75, and a successful game can sell 50 million copies. In Zynga’s model,

however, all the online games are provided free of charge to hundreds of

millions of online users. Online social games focus on the number of daily

active users, which in Zynga’s case is 50 million a day (it has an audience

of 240 million players on Facebook alone). So, if only 2–5% of its players

spend money on the extra game features that can be bought

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cheaply—often for nickels or dimes—with 50 million users a day Zynga is

already obtaining revenues of over $200 million a year. And, the more

games that Zynga can encourage users to play, the more money its earns!

Small wonder that when the company announced a public offering of its

shares in 2011, analysts estimated the company would be worth $20 billion!

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Large-Batch and Mass Production

Technology

To increase control over the work process and make it predictable, organizations try

to increase their use of machines and equipment—that is, they try to increase the

level of technical complexity and to increase their efficiency. Organizations that

employ large-batch or mass production technology produce massive volumes of

standardized products, such as cars, razor blades, aluminum cans, and soft drinks.

Examples of such organizations include Ford, Gillette, Crown Cork and Seal, and

Coca-Cola. With large-batch and mass production technology, machines control the

work process. Their use allows tasks to be specified and programmed in advance.

As a result, work activities are standardized, and the production process is highly

controllable. 10

Instead of a team of craftsworkers making custom furniture piece by

piece, for example, high-speed saws and lathes cut and shape boards into

standardized components that are assembled into thousands of identical tables or

chairs by unskilled workers on a production line, such as those produced in the

factories of IKEA’s global suppliers (see Closing Case, Chapter 3 ).

The control provided by large-batch and mass production technology allows an

organization to save money on production and charge a lower price for its products.

As Organizational Insight 9.1 describes, Henry Ford changed manufacturing

history when he replaced small-batch production (the assembly of cars one by one

by skilled workers) with mass production to manufacture the Model T. The use of a

conveyor belt, standardized and interchangeable parts, and specialized progressive

tasks made conversion processes at the Highland Park plant more efficient and

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productive. Production costs plummeted, and Ford was able to lower the cost of a

Model T and create a mass market for his product. In a similar way, IKEA today

also operates its own factories where its engineers specialize in finding ways to

make furniture more efficiently; IKEA then transfers this knowledge to its global

suppliers.11

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Continuous-Process Technology

With continuous-process technology, technical complexity reaches its height (see

Figure 9.2 ). Organizations that employ continuous-process technology include

companies that make oil-based products and chemicals, such as Exxon, DuPont,

and Dow, and brewing companies, such as Anheuser-Busch and Miller Brewing. In

continuous-process production, the conversion process is almost entirely

automated and mechanized; employees generally are not directly involved. Their

role in production is to monitor the plant and its machinery and ensure its efficient

operation. 12

The task of employees engaged in continuous-process production is

primarily to manage exceptions in the work process, such as a machine breakdown

or malfunctioning equipment.

The hallmark of continuous-process technology is the smoothness of its operation.

Production continues with little variation in output and rarely stops. In an oil refinery,

for example, crude oil brought continuously to the refinery by tankers flows through

pipes to cracking towers, where its individual component chemicals are extracted

and sent to other parts of the refinery for further refinement. Final products such as

gasoline, fuel oil, benzene, and tar leave the plant in tankers to be shipped to

customers. Workers in a refinery or in a chemical plant rarely see what they are

producing. Production takes place through pipes and machines. Employees in a

centralized control room monitor gauges and dials to ensure that the process

functions smoothly, safely, and efficiently.

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Continuous-process production tends to be more technically efficient than mass

production because it is more mechanized and automated and thus is more

predictable and easier to control. It is more cost efficient than both unit and mass

production because labor costs are such a small proportion of its overall cost. When

operated at full capacity, continuous-process technology has the lowest production

costs.

Woodward noted that an organization usually seeks to increase its use of machines

(if it is practical to do so) and move from small-batch to mass production to

continuous-process production to reduce costs. There are, however, exceptions to

this progression. For many organizational activities, the move to automate

production is not possible or practical. Prototype development, basic research into

new drugs or novel computer hardware or software applications, and the day-to-day

operation of hospitals and schools, for example, are intrinsically unpredictable and

thus would be impossible to program in advance using an automated machine. A

pharmaceutical company cannot say, “Our research department will invent three

new drugs—one for diabetes and two for high blood pressure—every six months.”

Such inventions are the result of trial and error and depend on the skills and

knowledge of its researchers. Moreover, many customers are willing to pay high

prices for custom-designed products that suit their individual tastes, such as

custom-made suits, jewelry, or high-end gaming computers. Thus there is a market

for the products of small-batch companies even though production costs are high.

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Technical Complexity and Organizational

Structure

One of Woodward’s goals in classifying technologies according to their technical

complexity was to discover whether an organization’s technology affected the

design of its structure. Specifically, she wanted to see whether effective

organizations had structures that matched the needs of their technologies. A

comparison of the structural characteristics of organizations pursuing each of the

three types of technology revealed systematic differences in the technology

–structure relationship.

On the basis of her findings, Woodward argued that each technology is associated

with a different structure because each technology presents different control and

coordination problems. Organizations with small-batch technology typically have

three levels in their hierarchy; organizations with mass production technology, four

levels; and organizations with continuous-process technology, six levels. As

technical complexity increases, organizations become taller, and the span of control

of the CEO widens. The span of control of first-line supervisors first expands and

then narrows. It is relatively small with small-batch technology, widens greatly with

mass production technology,

and contracts dramatically with continuous-process technology. These findings

result in the very differently shaped structures. Why does the nature of an

organization’s technology produce these results?

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The main coordination problem associated with small-batch technology is the

impossibility of programming conversion activities because production depends on

the skills and experience of people working together. An organization that uses small-

batch technology has to give people the freedom to make their own decisions so they

can respond quickly and flexibly to the customer’s requests and produce the exact

product the customer wants. For this reason, such an organization has a relatively flat

structure (three levels in the hierarchy), and decision making is decentralized to small

teams where first-line supervisors have a relatively small span of control (23

employees). With small-batch technology, each supervisor and work group decides

how to manage each decision as it occurs at each step of the input-conversion-output

process. This type of decision making requires mutual adjustment—face-to-face

communication with coworkers and often with customers. The most appropriate

structure for unit and small-batch technology is an organic structure in which

managers and employees work closely to coordinate their activities to meet changing

work demands, which is a relatively flat structure.13

In an organization that uses mass production technology, the ability to program

tasks in advance allows the organization to standardize the manufacturing process

and make it predictable. The first-line supervisor’s span of control increases to 48

because formalization through rules and procedures becomes the principal method

of coordination. Decision making becomes centralized, and the hierarchy of

authority becomes taller (four levels) as managers rely on vertical communication to

control the work process. A mechanistic structure becomes the appropriate

structure to control work activities in a mass production setting, and the

organizational structure becomes taller and wider.

In an organization that uses continuous-process technology, tasks can be

programmed in advance and the work process is predictable and controllable in a

technical sense, but there is still the potential for a major systems breakdown. The

principal control problem facing the organization is monitoring the production

process to control and correct unforeseen events before they lead to disaster. The

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consequences of a faulty pipeline in an oil refinery or chemical plant, for example,

are potentially disastrous. Accidents at a nuclear power plant, another user of

continuous-process technology, can also have catastrophic effects, as accidents at

Three Mile Island, Chernobyl, and most recently the meltdown at the Fukushima

nuclear plant in Japan in 2011 following a disastrous tsunami have shown.

The need to constantly monitor the operating system, and to make sure that each

employee conforms to accepted operating procedures, is the reason why

continuous-process technology is associated with the tallest hierarchy of authority

(six levels). Managers at all levels must closely monitor their subordinates’ actions,

and first-line supervisors have a narrow span of control, which creates a very tall,

diamond-shaped hierarchy. Many supervisors are needed to supervise lower-level

employees and to monitor and control sophisticated equipment. Because

employees also work together as a team and jointly work out procedures for

managing and reacting to unexpected situations, mutual adjustment becomes the

primary means of coordination. Thus an organic structure is the appropriate

structure for managing continuous-process technology because the potential for

unpredictable events requires the capability to provide quick, flexible responses.

One researcher, Charles Perrow, argues that complex continuous-process technology

such as the technology used in nuclear power plants is so complicated that it is

uncontrollable.14 Perrow acknowledges that control systems are designed with backup

systems to handle problems as they arise and that backup systems exist to compensate

for failed backup systems. He believes nevertheless that the number of unexpected

events that can occur when technical complexity is very high (as it is in nuclear power

plants) is so great that managers cannot react quickly enough to solve all the problems

that might arise. Perrow argues that some continuous-process technology is so complex

that no organizational structure can allow managers to safely operate it, no standard

operating procedures can be devised to manage problems in advance, and no integrating

mechanism used to promote mutual adjustments will be able to solve problems as they

arise. One implication of Perrow’s view is that nuclear power stations should be closed

because they are too complex to operate safely. Other researchers, however, disagree,

arguing that when the right balance of centralized and decentralized control is achieved,

the technology can be operated safely. However, in 2011, after the catastrophe in Japan,

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Germany announced it would close all 22 of its nuclear power plants by 2022, and Japan

was evaluating the safety of continuing to operate its other reactors in a country prone to

earthquakes.

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The Technological Imperative

Woodward’s results strongly suggest that technology is a main factor that

determines the design of organizational structure. 15

Her results imply that if a

company operates with a certain technology, then it needs to adopt a certain kind of

structure to be effective. If a company uses mass production technology, for

example, then it should have a mechanistic structure with six levels in the hierarchy,

a span of control of 1 to 48, and so on, to be effective. The argument that

technology determines structure is known as the technological imperative .

Technological imperative

The argument that technology determines structure.

Other researchers also interested in the technology–structure relationship became

concerned that Woodward’s results may have been a consequence of the sample

of companies she studied and may have overstated the importance of

technology. 16

They point out that most of the companies that Woodward studied

were relatively small (82% had fewer than 500 employees) and suggested that her

sample may have biased her results. They acknowledge that technology may have

a major impact on structure in a small manufacturing company because improving

the efficiency of manufacturing may be management’s major priority. But they

suggested the structure of an organization that has 5,000 or 500,000 employees

(such as Exxon or Walmart) is less likely to be determined primarily by the

technology used to manufacture its various products.

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In a series of studies known as the Aston Studies, researchers agreed that

technology has some effect on organizational structure: The more an organization’s

technology is mechanized and automated, the more likely is the organization to

have a highly centralized and standardized mechanistic structure. But, the Aston

Studies concluded, organizational size is more important than technology in

determining an organization’s choice of structure. 17

We have seen in earlier

chapters that as an organization grows and differentiates, control and coordination

problems emerge that changes in the organization’s structure must address. The

Aston researchers argue that although technology may strongly affect the structure

of small organizations, the structure adopted by large organizations may be a

product of other factors that cause an organization to grow and differentiate.

We saw in Chapter 8 that organizational strategy and the decision to produce a

wider range of products and enter new markets can cause an organization to grow

and adopt a more complex structure. Thus the strategic choices that an

organization—especially a large organization—makes about what products to make

for which markets affect the design of an organization’s structure as much as or

more than the technology the organization uses to produce the outputs. For small

organizations or for functions or departments within large organizations, the

importance of technology as a predictor of structure may be more important than it

is for large organizations.18

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Routine Tasks and Complex

Tasks: The Theory of Charles

Perrow

To understand why some technologies are more complex (more unpredictable and

difficult to control) than others, it is necessary to understand why the tasks

associated with some technologies are more complex than the tasks associated

with other technologies. What causes one task to be more difficult than another?

Why, for example,

do we normally think the task of serving hamburgers in a fast-food restaurant is

more routine—that is, more predictable and controllable—than the task of

programming a computer or performing brain surgery? If all the possible tasks that

people perform are considered, what characteristics of these tasks lead us to

believe that some are more complex than others? According to Charles Perrow, two

dimensions underlie the difference between routine and nonroutine or complex

tasks and technologies: task variability and task analyzability.19

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Task Variability and Task Analyzability

Task variability is the number of exceptions—new or unexpected situations—

that a person encounters while performing a task. Exceptions may occur at the

input, conversion, or output stage. Task variability is high when a person can

expect to encounter many new situations or problems when performing his or her

task. In a hospital operating room during the course of surgery, for example, there is

much opportunity for unexpected problems to develop. The patient’s condition may

be more serious than the doctors thought it was, or the surgeon may make a

mistake. No matter what happens, the surgeon and the operating team must have

the capacity to adjust quickly to new situations as they occur. Similarly, great

variability in the quality of the raw materials makes it especially difficult to manage

and maintain consistent quality during the conversion stage.

Task variability

The number of exceptions—new or unexpected

situations—that a person encounters while

performing a task.

Task variability is low when a task is highly standardized or repetitious so a worker

encounters the same situation time and time again. 20

In a fast-food restaurant, for

example, the number of exceptions to a given task is limited. Each customer places

a different order, but all customers must choose from the same limited menu, so

employees rarely confront unexpected situations. In fact, the menu in a fast-food

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restaurant is designed for low task variability, which keeps costs down and

efficiency up.

Task analyzability is the degree to which search and information-gathering

activity is required to solve a problem. The more analyzable a task, the less search

activity is needed; such tasks are routine because the information and procedures

needed to complete it have been discovered, rules have been worked out and

formalized, and the way to perform a task can be programmed in advance. For

example, although a customer may select thousands of combinations of food from a

menu at a fast-food restaurant, the order taker’s task of fulfilling each customer’s

order is relatively easy. The problem of combining foods in a bag is easily

analyzable: The order taker picks up the drink and puts it in the bag, then adds the

fries, burger, and so on, folds down the top of the bag, and hands the bag to the

customer. Little thought or judgment is needed to complete an order.

Task analyzability

The degree to which search activity is needed to

solve a problem.

Tasks are hard to analyze when they cannot be programmed—that is, when

procedures for carrying them out and dealing with exceptions cannot be worked out

in advance. If a person encounters an exception, the information needed to create

the procedures for dealing with the problem must be actively sought. For example,

a scientist trying to develop a new cancer-preventing drug that has no side effects

or a software programmer working on a program to enable computers to

understand the spoken word has to spend considerable time and effort collecting

data and working out the procedures for solving problems. Often, the search for a

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solution ends in failure. People working on tasks with low analyzability have to draw

on their knowledge and judgment to search for new information and procedures to

solve problems. When a great deal of search activity is required to find a solution to

a problem and procedures cannot be programmed in advance, tasks are complex

and nonroutine.

Together, task analyzability and task variability explain why some tasks are more

routine than others. The greater the number of exceptions that workers encounter in

the work process, and the greater the amount of search behavior required to find a

solution to each exception, the more complex and less routine are tasks. For tasks

that are routine, there are, in Perrow’s words, “well-established techniques which

are sure to work and these are applied to essentially similar raw materials. That is,

there is little uncertainty about methods and little variety or change in the task that

must be performed.” 21

For

tasks that are complex, “there are few established techniques; there is little certainty

about methods, or whether or not they will work. But it also means that there may

be a great variety of different tasks to perform.” 22

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Four Types of Technology

Perrow used task variability and task analyzability to differentiate among four types

of technology: routine manufacturing, craftswork, engineering production, and

nonroutine research. 23

Perrow’s model makes it possible to categorize the

technology of an organization and the technology of departments and functions

inside an organization.

Routine Manufacturing

Routine manufacturing is characterized by low task variability and high task

analyzability. Few exceptions are encountered in the work process, and when an

exception does occur, little search behavior is required to deal with it. Mass

production is representative of routine technology.

In mass production settings, tasks are broken down into simple steps to minimize

the possibility that exceptions will occur, and inputs are standardized to minimize

disruptions to the production process. There are standard procedures to follow if an

exception or a problem presents itself. The low-cost advantages of mass production

are obtained by making tasks low in variability and high in analyzability. One reason

why McDonald’s has lower costs than its competitors is that it continually

streamlines its menu choices and standardizes its work activities to reduce task

variability and increase task analyzability.

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Craftswork

With craft technology, task variability is low (only a narrow range of exceptions is

encountered), and task analyzability is also low (a high level of search activity is

needed to find a solution to problems). Employees in an organization using this kind

of technology need to adapt existing procedures to new situations and find new

techniques to handle existing problems more effectively. This technology was used

to build early automobiles, as we saw earlier. Other examples of craftswork are the

manufacture of specialized or customized products like furniture, clothing, and

machinery, and trades such as carpentry and plumbing. The tasks that a plumber,

for example, is called on to perform center on installing or repairing bathroom or

kitchen plumbing. But because every house is different, a plumber needs to adapt

the techniques of the craft to each situation and find a unique solution for each

house.

Engineering Production

With engineering production technology, task variability is high and task

analyzability is high. The number or variety of exceptions that workers may

encounter in the task is high, but finding a solution is relatively easy because well-

understood standard procedures have been established to handle the exceptions.

Because these procedures are often codified in technical formulas, tables, or

manuals, solving a problem is often a matter of identifying and applying the right

technique. Thus, in organizations that use engineering production technology,

existing procedures are used to make many kinds of products. A manufacturing

company may specialize in custom building machines such as drill presses or

electric motors. A firm of architects may specialize in customizing apartment

buildings to the needs of different builders. A civil engineering group may use its

skills in constructing airports, dams, and hydroelectric projects to service the needs

of clients throughout the world. Like craftswork, engineering production is a form of

small-batch technology because people are primarily responsible for developing

techniques to solve particular problems.

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Nonroutine Research

Nonroutine research technology is characterized by high task variability and low

task analyzability and is the most complex and least routine of the four technologies

in Perrow’s classification. Tasks are complex because not only is the number of

unexpected situations large, but search activity is high. Each new situation creates

a need to expend resources to deal with it.

High-tech research and development activities are examples of nonroutine

research. For people working at the forefront of technical knowledge, there are no

prepackaged solutions to problems. There may be a thousand well-defined steps to

follow when building the perfect bridge (engineering production technology), but

there are few well-defined steps to take to discover a vaccine for AIDS, and

hundreds of teams of researchers are continuously experimenting to find the

breakthrough that will lead to such a universal cure.

An organization’s top-management team is another example of a group that uses

research technology. The teams’ responsibility is to chart the future path of the

organization and make the resource decisions that will be needed to ensure its

success five or ten years ahead. Managers make these decisions in a highly

uncertain context; however, they never know how successful their choices will be.

Planning and forecasting by top management, and other nonroutine research

activities, are inherently risky and uncertain because the technology is difficult to

manage.

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Routine Technology and Organizational

Structure

Just as the types of technology identified by Woodward have implications for an

organization’s structure, so do the types of technology in Perrow’s model. Perrow

and others have suggested that an organization should move from a mechanistic to

an organic structure as tasks become more complex and less routine. 24

Table 9.1 summarizes this finding.

When technology is routine, employees perform clearly defined tasks according to

well-established rules and procedures. The work process is programmed in

advance and standardized. Because the work process is standardized in routine

technology, employees need only learn the procedures for performing the task

effectively. For example, McDonald’s uses written rules and procedures to train new

personnel so the behavior of all McDonald’s employees is consistent and

predictable. Each new employee learns the right way to greet customers, the

appropriate way to fulfill customer orders, and the correct way to make Big Macs.

Because employee tasks can be standardized with routine technology, the

organizational hierarchy is relatively tall and decision making is centralized.

Management’s responsibility is to supervise employees and to manage the few

exceptions that may occur, such as a breakdown of the production line. Because

tasks are routine, all important production decisions are made at the top of the

production hierarchy and transmitted down the chain of command as orders to lower-

level managers and workers. It has been suggested that organizations with routine

technology, such as that found in mass production settings, deliberately “de- skill”

tasks, meaning that they simplify jobs by using machines to perform complex tasks

and by designing the work process to minimize the degree to which workers’ initiative

or judgment is required.25

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If an organization makes these design choices, it is using a mechanistic structure to

operate its routine technology. This certainly is the choice of huge global

outsourcing

Table 9.1 Routine and Nonroutine Tasks and Organizational Design

companies such as Foxconn and Flextronics, whose factories in China extend over

thousands of acres. Flextronics’ main plant in China, for example, employs over

40,000 workers who work in three shifts for six days a week to assemble flat-screen

TVs, Blu-ray players, and so on. Control is rigid in these factories; workers are only

motivated by the prospect of earning three times the normal wage for such work,

Structural Characteristic Nature of Technology

Routine Tasks Nonroutine Tasks

Standardization High Low

Mutual adjustment Low High

Specialization Individual Joint

Formalization High Low

Hierarchy of authority Tall Flat

Decision-making authority Centralized Decentralized

Overall structure Mechanistic Organic

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but even this was not enough, as the experience of Foxconn discussed in

Organizational Insight 9.3 describes.

The use of low-cost outsourcing by companies to make products is not the only way

to remain competitive, however, and many companies have reevaluated the way

they manufacture products. In Japan, in particular, the soaring value of the yen

against the dollar put pressure on carmakers and electronics manufacturers to look

for new ways to organize their production operations to lower costs. Innovative

electronics products command high prices, and the need to ensure consistent high

quality and protect their proprietary technology are important concerns of Japanese

electronics makers. So, to keep the assembly of complex new products at home

and reduce operating costs, Japanese companies have scrutinized every aspect of

their operating technology to find ways to improve routine assembly-line production.

Traditionally, Japanese companies have used the straight or linear conveyor belt

system that is often hundreds of feet long to mass produce identical products.

When reexamining this system, Japanese production managers came to realize

that a considerable amount of handling time is wasted as the product being

assembled is passed from worker to worker, and that a line can only move as fast

as the least capable worker. Moreover, this system is only efficient when large

quantities of the same product are being produced. If

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Organizational Insight

9.3 Honda, Apple, and Foxconn Have Mass

Production Problems in China

In 2010, Honda’s Beijing-based Chinese subsidiary announced that strikes

at three different Honda-owned mass production vehicle assembly and

parts production factories had arisen because, “Poor communication led to

a great deal of discontent and eventually developed into a labor dispute.

Our company will reflect deeply on this and strengthen communication with

employees and build mutual trust.” 26

The strikes shut down all of Honda’s

Chinese operations for many days. Honda is just one of many overseas

companies with operations in China that have become used to dealing with

uneducated, compliant Chinese workers willing to work for China’s minimum

wage of around $113 or 900 Yuan a week. Chinese factory workers

employed by overseas companies like Honda, Toyota, and GM have raised

little opposition to these companies’ pay and labor practices—even though

they are represented by government-sanctioned labor unions.

This all began to change during 2010, when rising prices and changing

attitudes in China led Chinese workers to protest their harsh work

conditions—monotonous jobs, long hours, and low pay. However,

companies such as Honda, used to a compliant workforce, had not

bothered to establish formal communication channels with workers that

would allow them to gather information about workers’ changing attitudes.

Honda’s Japanese managers ran the factories, its Chinese supervisors

trained the workers to perform their jobs, and Honda’s Japanese managers

had no feeling for the attitudes of workers in its factories, hence their shock

when Chinese employees went on strike.

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Foxconn, a giant outsourcer owned by the Taiwanese company Hon Hai

Precision Engineering, employs hundreds of thousands of workers in its

Chinese factories and these workers had also been compliant for years.

They performed repetitive assembly line work along fast-moving production

lines often for 80 hours a week, after which they were allowed to eat in the

company’s canteens before returning to their dormitories. This all changed

in 2010, when Foxconn found itself in the spotlight when its biggest factory

in Shenzhen, which assembles Apple’s iPhone, reported that over 11

workers had committed suicide by jumping off buildings in the past year.

Because most workers are young, uneducated, and come from small

farming communities, Foxconn had just taken advantage of workers’

passivity and willingness to work at minimum wage. Indeed, Foxconn had

steadily increased the number of hours workers were forced to work on

assembly lines that moved at a rapid speed—a workweek of 80 hours

performing the same repetitive task for $113 was common. U.S. companies

such as Apple and Dell had sent inspectors to monitor factory conditions

and had found many violations. However, once again, inspectors made no

attempt to communicate directly with workers; they simply studied the

companies’ employment records.27

In any event, Honda, Foxconn, and many other foreign-owned companies

have been forced to rapidly change their labor practices. In 2010, for

example, Foxconn announced it would double the pay of its workers to

make their work more palatable and Honda also agreed to increase the

wages of its workers by over 60% and establish formal channels so

managers can meet with union representatives regularly to find ways to

improve work practices. 28

Problems of operating a mass production

technology are likely to increase in the years ahead as companies in China

find it harder to attract and keep workers who want better pay and working

conditions.

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customized products are what is needed, something increasingly common today,

the production line is typically down while it is being retooled for the next product.

Recognizing these problems, production engineers searched for new ways to

organize and control assembly-line layouts that could solve these problems. They

began to experiment with layouts of various shapes, such as spirals, Ys, 6s, or even

insects. At a Sony camcorder plant in Kohda, Japan, for example, Sony dismantled

its previous assembly-line production system in which 50 workers worked

sequentially to build a camcorder, and replaced it with a spiral arrangement in which

four workers perform all the operations necessary to assemble the camcorder. Sony

found this new way of organizing is 10% more efficient than the old system because

it allows the most efficient assemblers to perform at a higher level. 29

Essentially, a

craftswork-like organizing structure has replaced the mechanistic structure to

achieve the advantages of flexibility at lower cost.

In the United States too, these new production layouts, normally referred to as cell

layouts, have become increasingly common. It has been estimated that 40% of

small companies and 70% of large companies have experimented with the new

designs. Bayside Controls Inc., for example, a small gear-head manufacturer in

Queens, New York, converted its 35-person assembly line into a four-cell design

where seven to nine workers form a cell. The members of each cell perform all the

operations involved in making the gear heads, such as measuring, cutting, and

assembling the new gear heads. Bayside’s managers say that the average

production time necessary to make a gear has dropped to two days from six weeks,

and it now makes 75 gear heads a day—up from 50 before the change—so costs

have decreased significantly. 30

An additional advantage is that cell designs allow

companies to be very responsive to the needs of individual customers, as this

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organizing approach permits the quick manufacture of small quantities of

customized products.

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Nonroutine Technology and Organizational

Structure

Organizations operating a nonroutine technology face a different set of factors that

affect the design of the organization. 31

As tasks become less routine and more

complex, an organization has to develop a structure that allows employees to

respond quickly to and manage an increase in the number and variety of exceptions

and to develop new procedures to handle new problems. 32

As we saw in

Chapter 4 , an organic structure allows an organization to adapt rapidly to

changing conditions. Organic structures are based on mutual adjustment between

employees who work together, face to face, to develop procedures to find solutions

to problems. Mutual adjustment through task forces and teams becomes especially

important in facilitating communication and increasing integration between team

members.