A Conceptual Framework for the Design of Organizational Control Mechanisms William G. Ouchi, 1979

1. A Conceptual Framework for the Design of Organizational Control MechanismsWilliam G. Ouchi, 1979 Management Science. 25 (9): 833-847 Group 1: Meredith, Barclay, Woo-Je, and Kumar

2. Organizational Control • Meanings and Interpretations • Control equivalent to power • Control as a problem in information flows • Ouchi’s View • What are the mechanisms through which an organization can be managed so that it moves towards its objectives? • How can the design of these mechanisms be improved and what are the limits?

3. Example: Parts Supply Division • Problem: Purchasing department buys 100,000 different items/year from 3,000 different manufacturers • Accomplishes the work with 22 employees, of whom 3 are at the managerial level • Warehousing stores the product, fills the orders and ships the product using 1,400 employees, of whom 150 are managers

4. Analysis of Parts Supply Division • Three Mechanisms involved: • Market • Purchasing division • Bureaucratic • Warehouse division • Informal Social • Concept of The Clan

5. Market Mechanisms • Purchasing Agent • Simply puts each part out for competitive bids and permits the competitive price to define the fair price • Managers of Purchasing Agents • Only needs to check decisions against simple criterion of cost minimization rather than observing all the steps

6. Market as a Pure Model • Efficient Mechanism • Prices convey relevant information for decision maker • Arbitrary rules such as those found in warehousing unnecessary • Provides a mechanism for solving problem of goal incongruity • Rewards employees in direct proportion to their level of contribution • But the fact that purchasing takes place in a corporate framework suggests market defects exist

7. Purchasing: Mixture of Market and Bureaucratic Mechanisms • Work of purchasing agent is controlled through process of bureaucratic surveillance (manager) rather than price mechanisms • Director of Purchasing does not determine market price • Instead, agrees upon an employment contract at some price and resorts to hierarchical order giving and performance evaluation.

8. Bureaucratic Mechanisms (Warehousing) • Fundamental mechanism of control involves close personal surveillance and direction of subordinates by superiors • Task completion governed by RULES: an arbitrary standard against which a comparison is yet to be made • Rules vs. Price • Rules are only partial bundles of information • Price is a complete bundle of information

9. Why does Warehouse use Bureaucratic Mechanisms? • Impossible to set prices for each task in warehouse • No corresponding inexpensive way to determine performance • Will have to establish performance standards and systems of hierarchical superiors • The Bureaucratic Mechanism!

10. Original Dilemma • Purchasing participates in a market mechanism which is more efficient • Warehousing uses a bureaucratic mechanism because market is not frictionless • Both Bureaucratic and Market mechanisms are directed towards the same objectives • Which is more efficient depends on the particulars of the transactions

11. Clan Mechanisms • Informal social structures that are properties of a unique organization • Examples of others industries: Doctors • Certified with respect to technical skills but also integrity and purity of values • Once the Manager knows that the Foremen are trying to achieve the “right” objectives he can eliminate many costly forms of auditing and surveillance methods • Only recently has the Clan mechanism been considered the subject of analysis central to the problem of organization

12. Social & Informal Prerequisites of Control

13. Informal Prerequisites of Control • Implicit information • Ex. Traditions of the US Senate • “grows up” as a natural by product of social interaction • The Clan • Explicit information • Must be created and maintained intentionally at some cost • Ex. Accounting division

14. Designing Control Mechanisms: Costs and Benefits • Two methods to achieve effective people control: • 1. Search for and select people who fit your needs exactly • Cost of Search:High Wages • Benefit:Perform tasks without instruction, work hard • 2. Take people who don’t fit your needs exactly and put in a system to instruct, monitor, and evaluate them • Cost:training unskilled workers, indifferent to learn organization skills and values, developing & running supervisory system. • Benefit: System can take heterogeneous assortment of people and effectively control them, withstand high rates of turnover

15. Organizational Control: People Treatment Taken from Kelman, 1958 (20)

16. Loose Coupling and The Clan Knowledge of the Transformation Process Imperfect Output Measurement (Women’s Boutique) Perfect Behavior or Output Measurement (Apollo Program) High Ability to Measure Outputs Ritual and Ceremony, “Clan Control” (Research Laboratory) Behavior Measurement (Tin Can Plant) Low

17. Loose Coupling • Fashionable Views • Most hierarchies fail to transmit control from top to bottom • Most organizations do not have a single or an integrated set of goals or objectives • Subunits within are only loosely joined to each other • Under conditions of ambiguity or loose coupling, measurement with precision is not possible. • A control system based on this will lead to organizational decline. • Under these circumstance clan control is preferable

18. Closing Observations • Organizations vary in the degree to which they are coupled • Control mechanisms of Market and/or Bureaucratic can be designed for relatively stable manufacturing industries • Organizations in public sector, services, and technologies may be better served by clan forms of control • The problem of organization design is to discover that balance of socialization and measurement which most effectively permits a particular organization to achieve cooperation among its members.

19. Conclusions • Design of organizational control mechanisms must focus on the problems achieving coordination and cooperation among individuals • Problem is to understand how, as society changes, do the control methods of organizations change with it.