Uploaded by Zaheer Abbas


What is organization?
Total number of employees
- But there are some questions on its
viability like:
Full time or part time employee to be
 What if business is seasonal?
 Optimum number e.g. 500 is large no. for a
salon while same 500 is very small no. for
steel manufacturing company.
Advocates of Size
Given by Peter Blau based on studies of govt.
agencies, universities and department stores.
He concluded “size is the most important condition
affecting the structure of organization.”
Increasing size promotes structural differentiation
but at a decreasing rate.
Another research done by Aston group concluded
that “an increased scale of operation increases the
frequency of recurrent events and the repetition of
Meyer’s concluded that “one cannot underestimate
the impact of size on other characteristics of
Critics of the size imperative
Size affects structure only in organizations that have
professional managers not among those that are owner
Argyris concluded that size is related to structure but u
cannot say it causes it.
Mayhew and his associates challenged blau’s finding on
mathematical basis that relationship of size and
complexity is relevant only till they were assigned equal
probabilities to possible structural combinations.
Aldrich reanalyzed the Aston data and proposed several
alternative and equally plausible interpretation.
Hall and his associates concluded from their study that
neither complexity nor formalization can be implied from
organizational size.
Size and Complexity
Impact of size on complexity was at a
decreasing rate (Blau)
Government organizations: where managers
have greater discretion, structure causes size.
Consequently, they may choose to make their
structures more complex as more activities and
personnel are added.
There is also a possibility of circular sizestructure relationship
Size generates differentiation and increasing
differentiation also generates increasing size.
When size increases there is more vertical
differentiation, while larger the organization,
more pronounced is the division of labour within
it which is also true for functional differentiation.
There is no evidence for size-spatial
Size and Formalization
A recent comprehensive review of 27 studies
covering more than 1000 organization
concluded that relationship between size and
formalization was high, positive and
statistically significant.
This can be concluded from given situations:
As size increases direct supervision becomes difficult so efficient
functioning through number of supervisors more of rules and
regulation exerting controls are introduced.
As organization become large the behavior repeat themselves and
hence mgt is motivated to handle them more efficiently through
It also depends on whether organization is independent or is
subsidiary of a larger organisation.
Size and Centralization
It is obvious that it is not possible to
control large organization from top.
 Thus we can say conclude that size
leads to decentralization.
 But the counter argument to this is
relationship between size and
centralization is almost zero this may
happen because in owner based firm
owner are not ready to loose their
How big is big?
Small organization: 1500-2000 employees
When organizations grow more that 2000
employees it becomes increasing difficult
to coordinate without differentiating units,
creating formalized rules and regulations or
delegating decision making downwards.
 Some findings: 1. Adding employees to an
organization once it has approximately
2000 members should have minimal
impact on its structure
 2. A change in size will have its greatest
impact on structure when the organization
is small.
What is Administrative component?
Ratio between managers and employees;
The proportion of line managers and their
support staff to operating or production
Staff v/s line, with staff composing the
administrative component
All the personnel in an organization who
engage in “support” activities.
Using the last parameter – all the diff directly
employees in staff or general administrative
divisions are included
Thus drivers, cafeteria employees, clerical
help are included
The Correlation Argument
organizational size and administrative
component (Parkinson)
As the size increases the administrative
component increases disproportionately.
Negative relationship argument:
The proportion of the supporting personnel
would decline as the size increases
This assumption is based on the
efficiencies from economies of scale.
Moreover, owner-managed organizations
and partnerships were less likely to add
administrators as this would mean loosing
personal power.
The Correlation Argument
The Curvilinear Argument:
The administrative component is greater
for smaller and larger organizations than
for those of moderate size.
 As organizations move out of the small
category, they enjoy the benefits from
economies of scale.
 But as they become large, they lose
these benefits and become so complex
as to require significant increases in the
administrative component to facilitate
coordination and control
Organization Theory and Small
Is OT useful for small businesses?
Issues of reduced importance:
 The range of variation in small
businesses is limited so all the structural
variables are of less importance
 They have minimal degree of horizontal,
vertical, and spatial differentiation.
 Have low formalization and high
 When specialized expertise is needed, it
is purchased from outside. Eg.
Accountant or a lawyer.
Organization Theory and Small
Vertical differentiation is low as the structure
tend to be flat, spatial differentiation is low
business small businesses don’t spread their
activities widely.
 The control is achieved by holding on to the
decision making machinery – centralized
decision making.
 Less conflict as the small size facilitates
communication, allows the members to have a
clear sense of the organization’s mission and
reduced the likelihood of goal incompability.
 Less of cultural problems as the cultures are
young and less entrenched and when it is
required, they can be changed.
Organization Theory and Small
Issues of reduced importance:
Some issues of greater importance for small
businesses include control and accountability,
efficiency and environmental dependence
Control: Small business managers are strong
advocates of “management by walking around”
So they are often willing to settle for lesser monetary
reward in return for personal control and
Resources: Efficiency is more important in small
businesses due to slack resources
Environment: Small business have less control on
environmental factors such as suppliers, competitors
and financial resources. – This increases the
importance of environmental monitoring system
which requires the right structure
Small businesses are different from their
larger counterparts.
 They have different concerns and
 Also they have limited set of structural