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
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
⇒ Formulating rules, monitoring, measuring
, comparing with rules.
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
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.
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.
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
with trainer of dpt.
Compliance Clan Bureaucracy
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,
(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).
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.