Organization Size: Is Bigger Better?
Pressure for Growth
The goal for many companies is to grow fast and to grow large, sometimes even at the expense of the quality of the products that they make. Though the trend was towards smaller nimbler firms a short time ago, the mega-firm is still the way things are. Even to the extent of many firms merging. There are many reasons for growth: economies of scale, economic health, and fear of stagnation are a few.
Dilemmas of Large Size
Large
Huge resources and economies of scale are needed for global competition. Not only can a large firm handle big projects better (pipelines, airplanes, etc.), but large firms can handle economic and social problems from outside the environment of the company better. If a company is large it also has standardization and can reduce complexity.
Small
Small firms can allow for quick response when an environmental factor changes. A main reason is that in a smaller firm, the management is closer to the nuts and bolts way of doing things. Smaller companies can act bigger now thanks to the internet. Because of the shallow level of the organization a smaller one can act in more of an entrepreneurial way.
Big Company/Small Company Hybrid
So now we have a problem. Small companies need to grow big to be successful, but when they become large they loose their flexibility. So a big company/small company hybrid must develop. This means that a large company must restructure itself into smaller elements that will have the dependability of a larger firm to back it up but the flexibility of a smaller firm to respond to changes.
Organizational Life Cycle
To better understand the way that organizations work, it is a good idea to look at the life cycle of an organization.
Stages of Life Cycle Development
- Entrepreneurial stage
- Organization first born, informal and nonbureaucratic, long working hours
- Crisis point is a need for leadership, creative and technical people do not know how to deal with management issues
- Collectivity stage
- Departments are established as well as job assignments and hierarchy, members feel they are part of the organization and work long hours to support it
- Crisis point is a need for delegation, if top management does not learn to delegate authority to lower levels and keeps it all to itself, it will have problem
- Formalization stage
- Rules, procedures and control systems come into play, communications become more formal, linkages may form if firm is effective and needs them, management works on developing strategy
- Crisis stage is when there is too much red tape, management feels restricted as well as innovation being restricted
- Elaboration stage
- Collaboration and teamwork develop, working within the system is created, organization may be split into multiple smaller pieces
- Crisis point is when this point is reached the company may go into decline and need to be ‘rebuilt’ from time to time by going through revitalization
Summary
Since 84% of the firms that start are in a fail state five years later, it is clear that many of the firms never make it out of the entrepreneurial stage.
Organizational Characteristics during the Life Cycle
Entrepreneurial
Entrepreneurial – Small, non-bureaucratic, one person show, manager is structure and control, organizational energy devoted to survival, in infancy
Collectivity
Collectivity – rapid growth and excited employees, structure still informal, charismatic leaders provide management, in youth
Formalization
Formalization – bureaucracy emerges, innovation set up as separate part of the organization, stability is major goal, mid life stage
Elaboration
Elaboration – large and bureaucratic, rules, systems and procedures are established, team orientation needed to be established, management may attempt to streamline bureaucracy
Summary
Summary – stages of life cycle are directly related to the controls, goals and innovation of an organization
Organizational Bureaucracy and Control
Max Weber, a sociologist, studied the characteristics of bureaucracy and how they act within an organization.
What is Bureaucracy?
A bureaucracy is a threat to personal liberties but it is the most efficient way to run an organization. A bureaucracy had six common elements.
- Rules and procedures
- Specialization and division of labor
- Hierarchy of authority
- technically qualified personnel
- Separate position from position holder
- Written communications and records
Though bureaucracy seems to be a problem, it replaces favoritism as a way of doing things and that in itself makes it more efficient.
Size and Structural Control
Formalization and Centralization
Formalization is the rules, procedure, and written documentation that says what an employee has for rights and duties and are prevalent in large organizations. Centralization refers to how much hierarchy exists to get something done. Centralization can be a problem as organizations need it to be efficient but do not need it so that they can be more responsive to changes.
Personnel Ratios
The ratio of top administrators to total employees is smaller in larger companies. Clerical and professional staff increases in proportion as the size of a firm increases. Line employees though decrease in proportion to the company size.
Bureaucracy in a Changing World
In a changing world, a bureaucracy allows for order and stability. On the other hand layers of bureaucracy can create a problem. This is especially true for organizations like a government that need to respond often to emergency situations.
Organizing Temporary Systems for Flexibility and Innovation
One way for an organization to be able to respond to emergency situations and keep the strength of bureaucracy is to form incident command systems when needed. During a time of emergency an organization can be formed to respond to the crisis without any concern for authority and letting all work together and let their ideas be accepted no matter what their level of authority. There is still some level of authority needed in the organization in the form of the incident commander, but decisions can be made where the level of expertise is until the crisis is over.
Other Approaches to Reducing Bureaucracy
Large organizations can fight bureaucracy by decentralizing authority and making a flatter organization. The increase of professionalism also helps in this effort.
Organizational Control Strategies
Even though organizations want to limit bureaucracy, there still is a need for some sort of control structure in the organization.
Bureaucratic Control
Bureaucratic control is the use of the bureaucracy tools to standardize behavior and access performance. As an organization gets larger, it needs to have these types of controls in place. To make these controls work a manager must have the authority to implement them. Along with the bureaucratic control there are three other types of authority in an organization.
- Rational-legal authority – the authority that exist when employees believe in the rules and that someone has risen high enough to be the one to enforce them
- Traditional authority – belief that the organization by its nature has the right to enforce rules
- Charismatic authority – the attraction of a certain type of individual induces people to follow him as an authority
Market Control
Market controls are an offshoot of using profit and losses in deciding how a company is doing. It is most common for use in the whole organization but has been used recently in the divisions of an organization.
Clan Control
Clan control is used as part of social characteristics in an organization. People are generally hired in an organization if they have a strong commitment to an organization. It is used in small informal organizations for the most part. As an organization gets larger, clan control is harder to use as a control.
Organizational Decline and Downsizing
Like people, organizations are born, grow, decline, come back, and eventually die.
Definition and Causes
A substantial absolute decrease in an organization’s resource base over a period of time is an organizational decline. Things that can cause it are:
- Organizational atrophy – this happens when an organizations has grown older with many layers of bureaucracy to it. Often they want to stay with what worked before and not adapt as times change.
- Vulnerability – when an organization cannot respond to changes in the environment, they are vulnerable. This is especially so in smaller organizations
- Environmental decline or competition – reduced energy and resources available to maintain an organization. This will happen when the environment cannot support the levels of competition that exist including when new ones come in.
A Model of Decline Stages
Downsizing Implementation
Often massive downsizing does not bring about the desired financial results that an organization wants. What can be done to improve the situation?
- Communicate more, not less – letting employees know why and what is expected of them helps them handle the confusion
- Provide assistance to displaced workers – not only let them leave with dignity but help them with training, severance pay and benefits.
- Help the survivors thrive – those left behind will feel many emotions including guilt that they are still there or fear that they may be next. Help them know that all will be ok
Summary and Interpretation
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