a conceptual framework for the design of organizational control


Management Science (1979) William Ouchi UCLA Anderson School of Management




Presented by: Sandra Corredor



 Buys 100,000 different items each year from about 3,000 different manufacturers  19 employees and 3 managers.

 Agent [puts each part for bids] ⇒ Supervisor [help agent & remind ethic behavior]


 Stores purchased items until they are ordered by a customer. Then fills the customer orders.

 1,250 employees and 150 managers.

 Picker ⇒ Packer ⇒


[checking a record of output & work process] • • Formal limits of authority: given by virtue of individual rank.

Informal limits of authority: granted to the individual by the workers as a result of their trust in and respect.

Problem: rewarding individual cooperation towards firm’s objectives  Control: design and improvement of mechanisms through which an organization can be managed.

IN SUM: Control mechanism depends on  The clarity with which performance can be assessed.  The degree of goal incongruence.

Preferred Mechanisms Firm’s mechanisms for evaluation & control 1. Market: measure & reward. Price mechanism: solving goal incongruity Allow individuals to pursue non-organizational goals (at personal loss of reward) 2. Clans: complete socialization .

High internal commitment by Informal social system (e.g. socializing) Eliminate costly forms of auditing and monitoring 3 . Bureaucracies: evaluation with socialized acceptance of objectives.

Rules and formal authority for monitoring, evaluating, and directing.

Partial information (Rules


Which mechanisms are used in purchasing and warehousing departments?

Which mechanisms are used in purchasing and warehousing departments?

 Employed by purchasing agents: market mechanism.

 Supervisor to purchasing agents: bureaucratic mechanism.

 Warehousing: bureaucratic mechanism. Process and standard (output & quality) rules compared to actual performance (can be observed and measured).

 Overhead: when no inexpensive way to determine performance

(friction prices)

⇒ Formulating rules, monitoring, measuring

(team work)

, comparing with rules.

Manager and Foreman/Supervisor

 Manager selects for promotion only workers with high internal commitment to the firm's objectives that can maintain such deep commitment.

 Lowers explicit surveillance and evaluation.

 Value sharing builds a clan mechanism.

Information Requirements Prices Rules Traditions Shared Values Legitimate Authority Norm of Reciprocity Market Bureaucracy Clan

Internal Prices

 Assumptions in this example? ⇒ transfer prices.

No internal  Internal price does not need a hierarchy of authority…  Barriers to pricing internally: technological interdependence, uncertainty, incomplete contracts… In sum: market failures.

Costs and Benefits of Control

 Search and select ‘clan-type’ people  Cost of Search and Acquisition: High Wages  Benefit: Perform tasks without instruction, work hard  Instruct people into the ‘clan’ system  Cost of training: instruct, monitor, and evaluate unskilled workers (who are likely to be indifferent to learn organization skills and values). High rates of turnover.

 Costs of monitoring: developing rules, supervising.

 Benefit: heterogeneous system of people that can be controlled. Explicit rules (codified knowledge) offset turnover costs.

Explicit techniques of control… democratic power structure to prevent offensive control

People Treatment Totally Unselective

(anyone - no further treatment)

Selection / Screening Training

(skill and value training)


(monitor behavior and output)

Form of Corresponding commitment control type Internalization

believes objectives to be good and desirable

Market Identification

with trainer of dpt.

Compliance Clan Bureaucracy

“Loose coupling” Bureaucratic & Market control are unsuitable for many organizations

Knowledge of the Transformation Process

Perfect Imperfect High

Ability to Measure Outputs


Behavior/Output Measurement (Apollo Program) Output Measurement (Women’s Boutique) Behavior Measurement (Low uncertainty) Ritual and Ceremony,

“Clan Control”

(L.T.) (Research Laboratory)


 Norm of reciprocity alludes to inability of opportunistic behavior: mutual hold-up, with repeated interactions.

 Search costs for finding ‘clan-type’ individuals also assume no opportunism (no costs for revealing true type).

 He mentions Barnard’s “zone of indifference”.

 Clan behavior within individuals is related with literature on inter-firm trust (e.g. RBV).

Some notes…

 Evolutionary perspective: Ouchi admits that mechanisms are not uniquely applied. Seems also to hold that organizations evolve from ‘clan – like’ mechanisms to ‘bureaucracy/market – like’ mechanisms  Bureaucracy minimize mistakes and might be better at adapting new technologies: this could lead to higher survival rates.

 Clan behavior is related to motivation advantage of Vertical Integration [Mahoney (1992)].

 As stated in Mahoney (1992) measurement problems are dimensions of agency problems (i.e. bureaucracy vs clan)… To decide among market and firms other TCE dimensions should also be studied.