organizational analysis

▪ management science

Introduction

      in management science, the study of the processes that characterize all kinds of organizations, including business firms, government agencies, labour unions, and voluntary associations such as sports clubs, charities, and political parties. Any organization is a social unit with three properties: (1) it is a corporate (or group) actor, (2) it claims a special and limited purpose (such as making profits or providing medical care), and (3) its creators intend it to last beyond the accomplishment of a single action, if not indefinitely.

      Modern cultures are marked by an increase in the importance, influence, and power of organizations. Consequently, contemporary studies in social science and management have emphasized the analysis of organizations. Yet much of the research is narrowly focused on the properties associated with particular types of organizations, such as hospitals, prisons, government agencies, businesses, schools, and churches. While many of its findings are associated with business management, the field of organizational analysis is far more general: it studies the processes that apply to all kinds of organizations. One goal of such inquiry is the identification of more-effective management strategies. See also business organization.

Origins of the discipline

 Contemporary organizational analysis and management science owe much of their early development to the German sociologist Max Weber (Weber, Max) (1864–1920), who originated the scientific study of organizations. In work examining the relationship between bureaucracy and modernization (eventually published as Theory of Social and Economic Organization; 1947), Weber attributed the rise of organizations to the expansion of markets (market), to developments in the law, and especially to changes in the nature of authority.

      The term authority applies to situations in which one person willingly accepts the direction of another. Until modern times, authority was inherited, meaning that princes begat princes and peasants begat peasants. Weber identified the institutional structure of a new “rational-legal” authority, observing that rights of control increasingly derived from expertise rather than lineage. He documented the ways in which this development, which he called rationalization, underlay the rise of the modern state bureaucracy. According to Weber, organizations were able to develop unparalleled calculability and efficiency by combining two structures: (1) a system of explicit rules, upheld by clearly marked jurisdictions between offices and by permanent files documenting the processing of cases, and (2) a unique division of labour (labour, division of). The latter structure gave rise to the modern bureaucrat—a person who was required to be an expert in the relevant rules and who had to be shielded from inappropriate influences to guarantee fairness and objectivity. This shift away from tradition and inheritance permanently changed the nature of organizations. Weber thought that these two structures would cause organizations to follow, invariably and automatically, the objectives set down by political authorities.

      One of Weber's contemporaries, the German-born Italian sociologist Robert Michels (Michels, Robert), vigorously disputed Weber's claim that organizations would pursue official objectives in machinelike fashion. According to Michels's “iron law of oligarchy,” the top leaders of organizations—even those that are member-controlled—tend to develop a strong personal interest in maintaining their powers and privileges. Michels held that self-interest prevents such leaders from doing anything that would risk the survival of the organization—even if this means subverting the organization's original goals and principles. Michels made this claim in an attempt to explain why the leaders of the officially internationalist and antiwar German Social Democratic Party strongly supported Germany's declaration of war in 1914.

      The essential point of the Weber-Michels debate has not been settled; questions persist over the degree to which the pursuit of official goals characterizes organizational action. Does the creation of organizations (such as churches, investment syndicates, or human rights groups) for the achievement of some collective goal subtly shape the agendas that will be pursued? This question—whether official or personal leadership is more influential—has considerable practical significance, because social movements (social movement) (such as pacifism and environmentalism) almost always take shape as organizational structures in contemporary societies. Organizational analysis identifies ways in which the personal goals of these groups inform their respective organizational structures.

      While German scholars were examining the rise of modern organizations within a broad sociological perspective, American engineers and management consultants were initiating the study of the management of work in industrial settings. Close examination of work groups revealed that routine patterns of behaviour (“informal organization”) often did not match the organizational charts or other official depictions of the organization (“formal organization”). These findings led researchers to identify and describe patterns of informal organization. Their investigations, which have become part of the core literature of organizational analysis, demonstrated unequivocally that participation in organizations is influenced strongly by social ties and by unofficial networks of communication. (See collective behaviour.)

Theoretical developments

      As organizational analysis developed into a distinct field of inquiry in the late 1940s, research in the United States progressed in two theoretical directions. One became known as the Carnegie School, because its central figures, the American social scientists Herbert A. Simon (Simon, Herbert A.) and James G. March, taught at the Carnegie Institute of Technology (now Carnegie Mellon University). Their research, published in Organizations (1958), applied general principles of behavioral science to action within organizations, acknowledging that, while humans intend to be rational in their decision making, actual conditions impose a certain amount of subjectivity. Simon and March took the position that decision makers, while “intendedly rational,” face such great uncertainty that their actions cannot be understood by standard models of rational choice (i.e., decision theory). The Carnegie approach defined the central problem of organizations as managing the uncertainties inherent in complex work. For example, the “administrative man” (such as the bureaucratic official depicted by Weber) goes about solving problems by relying on a highly routinized search for satisfactory (but not necessarily optimal) actions. The work of Simon and March set the agenda for subsequent research on organizational learning and, more specifically, on the relationship between learning and the adaptability of organizations.

      The second theoretical approach, known as institutionalism, focused on the organization as a whole. The American sociologist and legal scholar Philip Selznick, like Michels, emphasized the nonrational aspects of organizations. Using the Tennessee Valley Authority (TVA) as an example, he argued that one of the most important features of organizations is the tendency for structures and processes to become “infused with value beyond the technical requirements at hand.” (TVA and the Grass Roots: A Study in the Sociology of Formal Organization [1949].) That is to say, an organization's structures and processes tend to take on new meanings that are unrelated to the reasons they were adopted in the first place. This is the sense in which organizations become institutionalized and structures resist change.

      Selznick also believed, as did institutionalist sociologists such as the American Talcott Parsons (Parsons, Talcott), that all organizations have a crucial need to gain support from key constituencies in the larger social system. The task of constituency building and networking is the basic job responsibility of top managers. Selznick documented a classic example of such efforts in his study of overtures by officials of the TVA to the leaders of local environmental groups. Because they had invited environmentalists to take part in the utility's decision-making process, TVA managers put themselves in a better position to handle public criticism of the TVA's mission.

Special topics

      Contingency theory, an approach that grew out of the Carnegie tradition, gained in popularity during the 1960s and '70s. Contingency theorists disputed the assumption that a single form of organization is best in all circumstances. Instead, they claimed that the most appropriate form is the one that is best suited to the kinds of action the organization undertakes. For instance, Weber's model of bureaucracy is an appropriate design for an organization that processes a high volume of routine transactions—a common characteristic of large government organizations, for example.

      Organizations differ greatly in their modes of production. In Industrial Organization: Theory and Practice (1965), the English management scholar Joan Woodward argued that an organization's methods are determined by the class of “core technologies” that characterize its work: small batch (where the work must be adapted to the peculiarities of the current batch—e.g., emergency medical care and residential construction), large batch (such as automobile manufacturing), or continuous processing (as in petroleum refining). Working within Woodward's definitional framework, American sociologist James D. Thompson showed that, because the characteristic forms of task uncertainty vary by type, so also does optimal organizational design. Representing the high point in the development of contingency theory, Thompson's thesis, published in Organizations in Action (1967), holds that good organizational designs are those that buffer core technologies from disturbances, such as interruptions in scheduling or inventory shortages.

Challenges to contingency theory

      Two subsequent schools of research took issue with the claim of contingency theorists that organizational designs are shaped by internal constraints. The school known as neoinstitutionalism revived the institutionalist view that the key organizational problem is that of gaining and maintaining support from external constituencies. An important current in the institutional revival, represented in the work of the American sociologist John W. Meyer, argued that organizational designs, especially those aspects that are observable to outsiders, play an important “ceremonial” role. By adopting the organizational designs favoured by experts (such as professors of management, management consultants, and professional bodies), an institution signals its conformity to the prevailing norms, thereby gaining approval from influential external groups. The designs favoured by experts, however, often fail to support the details of the work that organizations must accomplish, because the reality of work is invariably more complicated than what can be recognized in simplified organizational designs. According to Meyer, organizations therefore face a choice between using designs that fit internal needs and using those that meet the standards dictated by external groups. This theory thus explains the characteristic discrepancy between “informal” and “formal” organizational structures.

      Much of the research inspired by neoinstitutionalism examines the diffusion of organizational design elements such as quality circles (continuous quality improvement), incentive compensation (e.g., motivational programs or bonuses), affirmative-action policies, deconglomeration (the breakup of large corporations into independent entities), and so forth. This research shows that the adoption of design elements within an organization is influenced less by considerations of internal contingency than by social factors. This is consistent with the ceremonial perspective mentioned above. Organizations tend to adopt design elements from two sources: influential external groups, such as competing firms, and other institutions to which the organization may be tied (e.g., through shared board members).

      The second major environmentalist school, organizational ecology, builds on parallels with bioecology and evolution—especially in its application of notions such as selection and adaptation to organizational change. This approach follows the lead of institutionalists such as Selznick in assuming that the core features of an organization (those that shape its identity and determine its structure) are subject to strong inertial forces.

      In their work Organizational Ecology (1989), the American sociologists Michael T. Hannan and John Freeman argued that reliability and accountability—the very properties that make organizations the favoured social forms in modern society—also discourage, and in some cases even prevent, organizations from changing their core features. The authors suggested that large changes in the world of organizations have come about at least partly through selection—that is, through the rise of organizations that embody new forms and new designs and through the demise of organizations whose forms were ill-suited to a changing environment.

      In emphasizing selection rather than adaptation as the primary process through which organizations thrive or fail, it is nonetheless true that radical changes in an established organization's core features can increase its risk of failure. The inertia that tends to characterize most large organizations can prevent them from adapting to new conditions (such as changes in the nature of the workforce, technological improvements, and challenges from new competitors). By the same token, these traits also provide opportunities for entrepreneurs outside the established organizations. When possible, nimble organizations that meet the challenges of a new environment can establish a strong position in the market before the established, dominant entities are able to enter the scene.

Other influences in organizational development

      The key insights of organizational ecology can be traced to the discovery of a kind of imprinting in the world of organizations. In the behavioral sciences, imprinting refers to the process by which influences experienced during a given developmental period can have lasting—often lifelong—consequences. In Social Structure and Organizations (1965), the American sociologist Arthur L. Stinchcombe compared the American textile industry (one of the oldest industries in the country) with the newer automotive industry to argue that the key features of organizations in any industry are related to the era in which the industry emerges. Stinchcombe called this relation a “correlation of age and social structure.”

      Ecological research finds that the dynamics of the organizational world get shaped by processes of legitimation and competition. In this context, legitimation refers to the extent to which a group or procedure is taken for granted. That is to say, an organizational form is legitimated when there is little or no dispute over the suitability of the form for the accomplishment of certain tasks. Competition refers to the “crowding” that occurs when multiple units (such as businesses and individuals) try to gain the same resources (such as customers and investors). More organizations will be created, and fewer organizations will fail, when the legitimation of the form is high and competition is weak. Extensive research shows that situations of high legitimation and low competition contribute strongly to the profusion and longevity of organizations.

Implications for the future

      As indicated by the preceding discussion, research on management has identified a strong interdependence among environment, organizational design, and strategy. Contemporary management scholars judge the quality of a company by the degree to which its strategy and organizational structure are symbiotic, yet they also consider whether the firm's strategy and structure meet the demands of the external environment. As the speed of technological change accelerates and many firms seek to operate across diverse global environments, it becomes more difficult to achieve these complementary relationships. Organizational analysts document the ways in which firms face these challenges, and the outcomes of their studies ultimately cast light on the management approaches that appear to be the most effective. See also work; social structure; time-and-motion study.

Michael T. Hannan

Additional Reading

Selections from classic works in organizational analysis appear in Jay M. Shafritz, J. Steven Ott, and Jong Suk Jang (eds.), Classics of Organization Theory, 6th ed. (2005). W. Richard Scott, Organizations: Rational, Natural and Open Systems, 5th ed. (2003), presents a comprehensive overview of classical and contemporary approaches.Many important developments in the study of organizational decision making are summarized in James G. March, Decisions and Organizations (1988); while Arthur L. Stinchcombe, Information and Organizations (1990), analyzes the organization of work and its effect on the structure and functioning of organizations.A range of neoinstitutional analyses of organizations can be found in Walter W. Powell and Paul J. Dimaggio (eds.), The New Institutionalism in Organizational Analysis (1991). An overview of research in the ecological perspective can be found in Glenn R. Carroll and Michael T. Hannan, The Demography of Corporations and Industries (2000, reissued 2004).The application of “social network” analysis to the study of organizations is found in Nitin Nohria and Robert G. Eccles (eds.), Networks and Organizations (1992). A classic economic study is Paul Milgrom and John Roberts, Economics, Organization, and Management (1992).

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