Contrasting Mechanistic and Organic Organizational Structures

Contrasting Mechanistic and Organic Organizational Structures

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Contrasting Mechanistic and Organic Organizational Structures

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Growing an Organic TAXI

With more than 1,200 awards, including recent honors as Canada’s creative agency of the decade, TAXI is a company like no other. The agency dreamed up the cute critters in Telus ads and the smiling man skipping to work in Pfizer’s famous Viagra ad. Other creative agencies either burn out or become rigid hierarchies over time. TAXI, in contrast, has continued to amaze the world with its creative flair over the past two decades while it also expanded to 350 employees in several offices across Canada, the United States, and the Netherlands.

How has TAXI maintained this momentum? Leadership and talent are key factors, but perhaps equally important is the company’s fanatical reliance on an organic organizational structure. This organic structure assigns each client or project to “a nimble, autonomous team that is both empowered and responsible for results,” says TAXI’s website. The company claims the TAXI name reflects this small-team mandate: “We believe a small team of experts should drive every piece of the business—as many as can fit into a cab.”

TAXI’s organic structure also accommodates growth. As the company expanded, it deliberately avoided creating work centers that had more than 150 staff members. “Ancient nomadic tribes observed that a population exceeding 150 people had a tendency to form factions, erode group harmony and render it dysfunctional,” claims TAXI. Consequently, as the company has duplicated itself across several cities, each office has maintained an organic structure that actively collaborates with other offices. Even when the Toronto business outgrew its optimal size, TAXI opened a second location, called TAXI 2, within the same city.

TAXI’s organic organizational structure contrasts with the rigid departmentalization found in many other creative agencies.

TAXI, Canada’s agency of the decade, relies on an organic structure of small flexible teams, as well as limited-size work centers.

“[Other advertising firms] operated on a 19th-century model of many secular departments trying to integrate everything ad hoc. Most cultures were so layered that a great idea was easily crushed,” explains TAXI cofounder Paul Lavoie (right in photo). “We needed a flexible infrastructure, able to move with the pace of change. TAXI started lean and nimble, and remains so today.”37

formalization

The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms.

changing (i.e., dynamic) environments because they are more flexible and responsive to changes. Organic structures are also more compatible with organizational learning, high-performance workplaces, and quality management, because they emphasize information sharing and an empowered workforce rather than hierarchy and status.38 However, organic structures tend to be better than mechanistic structures in dynamic environments only when employees have developed well-established roles and expertise.39 Without these conditions, employees are unable to coordinate effectively with one another, resulting in errors and gross inefficiencies.

Start-up companies often face this problem known as the liability of newness. Newness makes start-up firms more organic—they tend to have few rules and considerable delegation of authority. However, employees in new organizations often lack industry experience, and their teams have not developed sufficiently for peak performance. As a result, the organic structures of new companies cannot compensate for the poorer coordination and significantly lower efficiencies caused by the lack of structure from past experience

mechanistic structure

An organizational structure with a narrow span of control and a high degree of formalization and centralization.

organic structure

An organizational structure with a wide span of control, little formalization, and decentralized decision making.

~ and team mental models. Fortunately, companies can minimize the liability of newness by launching businesses with existing teams of people or with industry veterans guiding the novices.

discover their core competency, they “unbundle” noncritical tasks to other organizations that have a core competency at performing those tasks. For instance, BMW decided long ago that facilities management is not one of its core competencies, so it outsourced this function from its British engine plant to Dalkia, which specializes in facility maintenance and energy management.66

Companies are also more likely to form network structures when technology is changing quickly and production processes are complex or varied.67 Many firms cannot keep up with the hyperfast changes in information technology, so they have outsourced their entire information system departments to IBM, HP Enterprise Business, and other firms that specialize in information system services. Similarly, many high-technology firms form networks with Flextronics, Celestica, and other electronic equipment manufacturers that have expertise in diverse production processes.

Evaluating the Network Structure For several years, organizational behavior theorists have argued that organizational leaders must develop a metaphor of organizations as plasma-like organisms rather than rigid machines.68 Network structures come close to the organism metaphor because they offer the flexibility to realign their structure with changing environmental requirements. If customers demand a new product or service, the core firm forms new alliances with other firms offering the appropriate resources. For example, by working with Magna International, BMW was probably able to develop and launch the X3 vehicle much sooner than would have been the case if it had performed these tasks on its own. When BMW needs a different type of manufacturing, it isn’t saddled with nonessential facilities and resources. Network structures also offer efficiencies because the core firm becomes globally competitive as it shops worldwide for subcontractors with the best people and the best technology at the best price. Indeed, the pressures of global competition have made network structures more vital, and computer-based information technology has made them possible.69

A potential disadvantage of network structures is that they expose the core firm to market forces. Other companies may bid up the price for subcontractors, whereas the short-term cost would be lower if the company hired its own employees to perform the same function. Another problem is that though information technology makes worldwide communication much easier, it will never replace the degree of control organizations have when manufacturing, marketing, and other functions are in-house. The core firm can use arm’s-length incentives and contract provisions to maintain the subcontractor’s quality, but these actions are relatively crude compared with maintaining the quality of work performed by in-house employees.

Contingencies of Organizational Design

Most organizational behavior theories and concepts have contingencies: Ideas that work well in one situation might not work as well in another situation. This contingency approach is certainly relevant when choosing the most appropriate organizational structure.70 In this section, we introduce four contingencies of organizational design: external environment, size, technology, and strategy.

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EXTERNAL ENVIRONMENT

network structure

An alliance of several organizations for the purpose of creating a product or serving a client.

J

The best structure for an organization depends on its external environment. The external environment includes anything outside the organization, including most stakeholders (e.g., clients, suppliers, government), resources (e.g., raw materials, human resources, information, finances), and competitors. Four characteristics of external environments influence the type of organizational structure best suited to a particular situation: dynamism, complexity, diversity, and hostility.71

Dynamic Versus Stable Environments Dynamic environments have a high rate of change, leading to novel situations and a lack of identifiable patterns. Organic structures are better suited to this type of environment so that the organization can adapt more quickly to changes, but only if employees are experienced and coordinate well in teamwork.72 In contrast, stable environments are characterized by regular cycles of activity and steady changes in supply and demand for inputs and outputs. Events are more predictable, enabling the firm to apply rules and procedures. Mechanistic structures are more efficient when the environment is predictable, so they tend to work better than organic structures.

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To assist your learning and test your knowledge about the contingencies ot organizational structure, go to www.mcgrawhiilconnect.com , which has activities and test questions on this topic.

Complex Versus Simple Environments Complex environments have many elements, whereas simple environments have few things to monitor. As an example, a major university library operates in a more complex environment than a small-town public library. The university library’s clients require several types of services—book borrowing, online full-text databases, research centers, course reserve collections, and so on. A small-town public library has fewer of these demands placed on it. The more complex the environment, the more decentralized the organization should become. Decentralization is a logical choice in complex environments because decisions are pushed down to people and subunits with the necessary information to make informed choices.

Diverse Versus Integrated Environments Organizations located in diverse environments have a greater variety of products or services, clients, and regions. In contrast, an integrated environment has only one client, product, and geographic area. The more diversified the environment, the more the firm needs to use a divisional structure aligned with that diversity. If it sells a single product around the world, a geographic divisional structure would align best with the firm’s geographic diversity, for example.

Hostile Versus Munificent Environments Firms located in a hostile environment face resource scarcity and more competition in the marketplace. Hostile environments are typically dynamic ones because they reduce the predictability of access to resources and demand for outputs. Organic structures tend to be best in hostile environments. However, when the environment is extremely hostile—such as one that involves a severe shortage of supplies or lower market share—organizations tend to temporarily centralize so that decisions can be made more quickly and executives feel more comfortable being in control.73 Ironically, centralization may result in lower-quality decisions during organizational crises, because top management has less information, particularly when the environment is complex.

For more than four decades, Nucor Corporation proudly maintained a lean, flat organizational structure with only four management layers: supervisors, functional managers, plant managers, and CEO. The CEO could directly manage more than two dozen plant managers because they operated as independent businesses. Today, Nucor is America’s largest steelmaker, employing 20,000 people at more than four dozen facilities worldwide. Managing so many direct reports would overwhelm most executives, so Nucor CEO Dan DiMicco reluctantly added five executive vice presidents, creating another layer of management. “I needed to be free to make decisions on trade battles,” says DiMicco apologetically.74

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ORGANIZATIONAL SIZE

Larger organizations should have different structures from smaller organizations.75 As the number of employees increases, job specialization increases due to a greater division of labor. The greater division of labor requires more elaborate coordinating mechanisms. Thus, larger firms make greater use of standardization (particularly work processes and outcomes) to coordinate work activities. These coordinating mechanisms create an administrative hierarchy and greater formalization. Historically, larger organizations make less use of informal communication as a coordinating mechanism. However, emerging information technologies and increased emphasis on empowerment have caused informal communication to regain its importance in large firms.76

Larger organizations also tend to be more decentralized. Executives have neither sufficient time nor expertise to process all the decisions that significantly influence the business as it grows. Therefore, decision-making authority is pushed down to lower levels, where incumbents are able to cope with the narrower range of issues under their control.

TECHNOLOGY

Technology is another factor to consider when designing the best organizational structure for the situation.77 Technology refers to the mechanisms or processes by which an organization turns out its product or service. One technological contingency is variability—the number of exceptions to standard procedure that tend to occur. In work processes with low variability, jobs are routine and follow standard operating procedures. Another contingency is analyzability—the predictability or difficulty of the required work. The less analyzable the work, the more it requires experts with sufficient discretion to address the work challenges. An organic, rather than a mechanistic, structure should be introduced where employees perform tasks with high variability and low analyzability, such as in a research setting. The reason is that employees face unique situations with little opportunity for repetition. In contrast, a mechanistic structure is preferred where the technology has low variability and high analyzability, such as an assembly line. The work is routine and highly predictable, an ideal situation for a mechanistic structure to operate efficiently.

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organizational strategy

The way the organization positions itself in its setting in relation to its stakeholders, given the organization’s resources, capabilities, and mission.

ORGANIZATIONAL STRATEGY

Organizational strategy refers to the way the organization positions itself in its setting in relation to its stakeholders, given the organization’s resources, capabilities, and mission.78 In other words, strategy represents the decisions and actions applied to achieve the organization’s goals. Although size, technology, and environment influence the optimal organizational structure, these contingencies do not necessarily determine structure. Instead, corporate leaders formulate and implement strategies that shape the characteristics of these contingencies, as well as the organization’s resulting structure.

This concept is summed up with the simple phrase, “Structure follows strategy.”79 Organizational leaders decide how large to grow and which technologies to use. They take steps to define and manipulate their environments, rather than let the organization’s fate be entirely determined by external influences. Furthermore, organizational structures don’t evolve as a natural response to environmental conditions; they result from conscious human decisions. Thus, organizational strategy influences both the contingencies of structure and the structure itself.

If a company’s strategy is to compete through innovation, a more organic structure would be preferred because it is easier for employees to share knowledge and be creative. If a company chooses a low-cost strategy, a mechanistic structure is preferred because it maximizes production and service efficiency.80 Overall, it is now apparent that organizational structure is influenced by size, technology, and environment., but the organizations strategy may reshape these elements and loosen their connection to organizational structure.

employees in adaptive cultures have a strong sense of ownership. They take responsibility for the organization’s performance and alignment with the external environment.

In an adaptive culture, receptivity to change extends to internal processes and roles. Employees recognize that satisfying stakeholder needs calls for continuous improvement of internal work processes, as well as flexibility in their own work roles. The phrase, “That’s not my job,” is found in nonadaptive cultures. Finally, an adaptive culture has a strong learning orientation because being receptive to change necessarily means that the company also supports action-oriented discovery. With a learning orientation, employees welcome new learning opportunities, actively experiment with new ideas and practices, view reasonable mistakes as a natural part of the learning process, and continuously question past practices.46

Contrasting Mechanistic and Organic Organizational Structures

Contrasting Mechanistic and Organic Organizational Structures

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Contrasting Mechanistic and Organic Organizational Structures

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