a conceptual framework for the design of organizational control
Management Science
(1979)
William Ouchi
UCLA Anderson School of
Management
A CONCEPTUAL
FRAMEWORK
FOR THE DESIGN
OF
ORGANIZATIONAL
CONTROL
MECHANISMS
Presented by: Sandra Corredor
Motivation
PURCHASING DEPT.
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]
WAREHOUSING DEPT.
Stores purchased items until they are ordered by a customer. Then fills the customer orders.
1,250 employees and
150 managers.
Picker ⇒ Packer ⇒
Foreman
[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 ≠ Prices)
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? ⇒ No internal transfer prices.
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)
Monitoring
(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
Low
Behavior/Output
Measurement
(Apollo Program)
Output
Measurement
(Women’s Boutique)
Behavior
Measurement
(Low uncertainty)
Ritual and Ceremony,
“Clan Control” (L.T.)
(Research Laboratory)
Connections
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.
