Information flows in a vertical direction down (and up) the clearly defined hierarchy and co-ordination (which organisational success relies on) between the two functions is the responsibility of the General Manager. There are mechanisms in place to ensure communication is standardised and information flow continues in a vertical nature. Tasks are highly formalised resulting in low task variability and low levels of innovation.
Contingencies and Misfit at Brocher Pty. Ltd
How an organisation is designed is dependent on many internal and external factors called contingencies. The degree of uncertainty surrounding these factors dictates how an organisation should be structured. Fit between structure and contingencies will have a positive effect on performance. (Donaldson, 2001.)
The R&D function and the Manufacturing function are affected by very different contingencies and therefore should have different organisational structures.
Firstly, the Manufacturing division faces many different contingencies. Environmentally, manufacturing is relatively predictable. Behaviours of consumers, competitors, stakeholders and the government, rarely differ in that their focus remains on the availability, consistency and cost effective delivery of high quality pharmaceutical products.
Internally, the manufacturing environment is equally predictable and has a low level of task uncertainty. Firstly, manufacturing is dominated by routine and programmed processes that compliment the consistency required by the external environment. The product relies on low differentiation and standardisation such that each element of the production process requires clear definition and formalisation. Staff participation and innovation levels are required to be low as a result. To maintain the integrity of the such low task uncertainty, decisions on processes are made at high levels and are directly communicated to staff for accurate implementation.
It fits that the mechanistic structure employed within the organisation is well suited to the dynamics of the routine non innovative production mechanisms that define this process dominated function.
In contrast, R&D has a high level of uncertainty both internally and externally. Externally the R&D environment is highly unpredictable. The behaviour of customers and competitors is subject to change . This results from the rapid pace of technological and product change. Consumers demand the latest product innovations and thus the environment is difficult to predict and control creating this high level of uncertainty.
Internally, the R&D department is subject to high task uncertainty to accommodate the dynamic enternal environment.
. The R&D function is one that faces many different contingencies.
Firstly,
Task Uncertainty contingencies
- task uncertainty
- Communication
technology, Consequences of Poor Structure:1. Does not support strategy,2.Delays in decision making 3.Employee frustration 4.Morale/motivation 5.Lack of clarity in direction 6. Process duplication 7.Texas instruments moved away from Matrix – HP moved towards matrix
- technological change,
- innovation and
- environmental instability
- Enviro and tech creat uncertaintly for managers and lead to uncertainty in the tasks conducted within the org.
- Task U is reinforced by the need for innovation that is a response to enviro and tech change.
- More advanced tech requires greater predictability of the tasks.
- Defender versus prospector strategy (Miles and Snow 1978) relates to cost reduction through routine operation not innovation and also relates to TU.
-
Communication – multichannel and feeflowing or is direct communication with the workforce prefereable to communication via the heirearcy.
Packagd CEO messages usually fail
People listen more carefully to their direct supervisor (Hilmer and Donaldson)
Oneway communication soesn’t work
So the structure should be set up to allow people in organisations to effectively talk and listen.
Too flat a structure meant overloaded managers cannot cope with all communications and decisions.
Performance management measures
Devise a system which permits the recognition an reward of merit within a given heirarchial sturcutre (Child, 1984)
Tall structures can lead to communication problems and dilution of top management control. – can have a damaging effect on motivation.
As task uncertainty increases, through increased innovation for example, there is a reduction in formalisation and an increase in decentralisation
Contingencies are the Overall both functions in the organisation face different contingencies. ContingBrocher’s organisational performance depends on matching the organisational contingencies to the constraints of the external environment and task uncertainty to the organisational structure.
The design of the organisation depends on the types of contingencies and rgansiation faces. Burns and Stalker In short, the R&D function and the manufactureing function face very different contingencies and thus, the exsiting mechanistic structure implemented across all the organisational functions is inappropriate
Contingencies in Research and Development
Misfit of Existing Structure and Resulting Problems
Contingency theory of structure is dependent on some factors in the organisation and some outside of the organisation.
Internal are task uncertainty and interdependence
External are environmental characteristics but effect internal characteristics such as or structure.
So that structure is caused by fittin gthe intraorganisational contingencies some of which are impacted by the environmental contingencies.
Consequences of Poor Structure:1. Does not support strategy,2.Delays in decision making 3.Employee frustration 4.Morale/motivation 5.Lack of clarity in direction 6. Process duplication 7.Texas instruments moved away from Matrix – HP moved towards matrix
Recommend New Structure and Its Expected benefits (70%)
Recommended New Structure (and reasons for the new model)
Given the vastly different contingencies affecting each function, it is recommended that different structures are required to maximise performance across the R&D function and the manufacturing function (and thus for the organisation). (The overall functional structure of the organisation can be maintained at a corporate level. )
Research and Development
is an appropriate where strategic guidance can be provided from a corporate level.
Functional structure of the organisation should be continued.
Organic structures
Promote flexibility so that people initiate change and can adapt quickly to changing conditions.
Organic structures are decentralised and decision making authority is distribute throughout the heirarch and people assume the authority to make decisions as organisational needs dictate.
Roles are loosly defined were people perform various tasks and continually develop skills in new activities
Thue a high level of integration is needed so that employees can share information and overcome problems of differences in sub unit orientation.
The integration of functions is achieved through mutual adjustment as people and functions work out role definitions and responsibilities as rules and norms emerge from the ongoing interaction of organisational members
Informal norms and values develop that emphasis personal competence, expertise and ability to act in innovative ways.
Creative leadership defines status not any formal herirarch
Each person individually specialises and knows exactly what he or she is responsible for
At a functional level, each function is separate and communication and co-operations between functions are the responsibiltiiy of someone at the top of the hierarchy .
The heirarcy is the principle integrating mechanism between functions.
There are no complex integrating mechanisms
Tasks and roles are highly standardised.
Emphasis on a vertical command structure
Expected benefits
Contingency theory is an outgrowth of systems design. Jay Galbraith (1973) states that in contingency theory:
* there is no one best way to organize
* any way of organizing is not equally effective
These run counter to the optimizing notions of many rational theorists. Scott adds that in contingency theory "the best way to organize depends on the nature of the environment to which the organization relates"
"Contingency theory is guided by the general orienting hypothesis that organizations whose internal features best match the demands of their environments will acheive the best adaptation" (Scott p. 89). The termed was coined by Lawrence and Lorsch in 1967 who argued that the amount of uncertainty and rate of change in an environment impacts the development of internal features in organizations.
Different subunits within an organization may confront different external demands. "To cope with these various environments, organization create specialized subunits with differing structural features" (Scott p. 89) -- for example, differing levels of formalization, centralized vs decentralized, planning time horizon. "The more varied the types of enviroments confronted by an organization, the more differentiated its structure needs to be" (p. 89).
Furthermore, the more differentiated the more difficult it will be to coordinate the activities of the subunits and more resources need to be applied for coordination.
Lawrence and Lorsch's classic 1967 study, especially the six companies in the plastics industry, highlight their argument that in complex environments the organization developed separate departments to confront these differing environmental segments. But these separate departments created coordination problems. Therefore, the extent that the companies could differentiate to the level required by the environment AND at the same time integrate these different departments into collective action determined the organization's success rate.
The inter-departmental conflict inherant in such differentiation is often caused by mutual task dependence, task-related assymmetries, conflicting performance criteria, dependence on common resources, communication obstacles, and ambiguity of goals as well as organizational differentiation (from Scott p. 270). While the rational perspective sees these conflicts as disruptive and best resolved, and natural perspective notes that conflicts are part of the negotiation process between coaliations and their conflicting interests and have an important (and possibly beneficial) effect on the organizational goals of the company.
Galbraith's view is similar to systems design in that it stresses information flows but adds that as uncertainty increases the amount of information required for decision making also increases. "Various structural arrangements, such as rules, hierarchy, and decentralization are mechanisms determining the information-processing capacity of the system" (Scott p. 90). Contingency theory is an outgrowth of systems design. Jay Galbraith (1973) states that in contingency theory:
* there is no one best way to organize
* any way of organizing is not equally effective
These run counter to the optimizing notions of many rational theorists. Scott adds that in contingency theory "the best way to organize depends on the nature of the environment to which the organization relates"
"Contingency theory is guided by the general orienting hypothesis that organizations whose internal features best match the demands of their environments will acheive the best adaptation" (Scott p. 89). The termed was coined by Lawrence and Lorsch in 1967 who argued that the amount of uncertainty and rate of change in an environment impacts the development of internal features in organizations.
Different subunits within an organization may confront different external demands. "To cope with these various environments, organization create specialized subunits with differing structural features" (Scott p. 89) -- for example, differing levels of formalization, centralized vs decentralized, planning time horizon. "The more varied the types of enviroments confronted by an organization, the more differentiated its structure needs to be" (p. 89).
Furthermore, the more differentiated the more difficult it will be to coordinate the activities of the subunits and more resources need to be applied for coordination.
Lawrence and Lorsch's classic 1967 study, especially the six companies in the plastics industry, highlight their argument that in complex environments the organization developed separate departments to confront these differing environmental segments. But these separate departments created coordination problems. Therefore, the extent that the companies could differentiate to the level required by the environment AND at the same time integrate these different departments into collective action determined the organization's success rate.
The inter-departmental conflict inherant in such differentiation is often caused by mutual task dependence, task-related assymmetries, conflicting performance criteria, dependence on common resources, communication obstacles, and ambiguity of goals as well as organizational differentiation (from Scott p. 270). While the rational perspective sees these conflicts as disruptive and best resolved, and natural perspective notes that conflicts are part of the negotiation process between coaliations and their conflicting interests and have an important (and possibly beneficial) effect on the organizational goals of the company.
Galbraith's view is similar to systems design in that it stresses information flows but adds that as uncertainty increases the amount of information required for decision making also increases. "Various structural arrangements, such as rules, hierarchy, and decentralization are mechanisms determining the information-processing capacity of the system" (Scott p. 90).
Expected Benefits
Conclusion
References
The contingency approach to management accounting is based on the premise that there is no universally appropriate accounting system applicable to all organisations in all circumstances. Rather a contingency theory attempts to identify specific aspects of an accounting system that are associated with certain defined circumstances and to demonstrate an appropriate matching.
Integrating Rational and Natural System Perspectives Through Contingency Theory
Lawrence and Lorsch (1967) argue that if the open system perspective is taken, rational and natural perspectives identify different organizational types which vary because they have adapted to different types of environments. Unlike Etzioni's structural view which sees the two perspectives as two sides of the same coin, Lawrence and Lorsch see them as different organizations entirely.
The more homogeneous and stable the environment, the more formalized and hierarchical the form. Their view is ecological -- those organizations that can best adapt to the environment will survive. They see the rational system coming first because environments were initially stable and are becoming increasingly more volatile.