OD_C6 (Organizational Design & Technology) (OD_C6 ...
Organizational Design and Technology
Alan S. Gutterman
This chapter provides an introduction to the relationship between organizational design and technology. Technology not only impacts organizational strategy, which is the foundation for decisions regarding organizational design, but also influences working relationships within organizations and the ways that organizational members interact, collaborate and communicate to share information. Most successful organizations have forged a tight and efficient alignment between their technical and social systems and have adopted procedures for identifying technological changes and quickly adapting their structures and processes to those changes. Among the topics covering in this chapter are definitions of technology; the relationship between technology and organizational effectiveness; organization-level technology; department-level technology; technological interdependence among departments, including pooled, sequential and reciprocal interdependence; managerial implications of analyzing organizational technologies; advanced manufacturing technology, including computer-aided design, computer-aided materials management, just-in-time inventory systems and computer-integrated manufacturing; the impact of advances in information technology on job design; service firms and technology.
Definitions of Technology
There are a number of definitions and conceptions of the term “technology”. For example, the traditional and narrow definition of the term has been the science of mechanical and industrial arts, as contrasted with fine arts. More recently technology has been recognized as an important strategic asset that includes “knowledge” and “innovative” processes that are placed into tradable form as intellectual property rights.[1] The focus of this discussion in this chapter is the relationship between the effectiveness of an organization and the technology it develops or otherwise acquires and in that context it is appropriate to think of technology as the specific combination of skills, knowledge, abilities, tools, techniques, actions, materials, machines, computers, tools, and other equipment that an organization’s personnel use to convert or change the inputs received by the organization (i.e., raw materials, capital, information and ideas) into the outputs (i.e., goods and services) that generate value for the organization and its stakeholders. It is important to recognize the technology is more than just machinery and other equipment and also includes intangible elements such as the knowledge and experience of the persons involved in the complex process of converting inputs into outputs and the formal and informal procedures that the organization has created to carry out its work (i.e., conversion) activities. In effect, technology is overall production process of an organization, with the term “production” being used in the broadest sense to include the entire range of value-creation activities of the organization.
Levels of Technology
Within each organization some element of the broader definition of technology can be identified at three different levels: individual, functional/departmental and organizational. At the individual level—the men and woman who provide services to the organization as managers, employees or agents—the term technology refers to their own personal skills and talents, knowledge and experience which they put to use when performing their duties and responsibilities for the organization. At the functional/departmental level the relevant technology includes the various procedures and techniques that members of the department have developed to allow them to effectively communicate, collaborate and perform their work-related activities. For example, the technology that is created and used within an organization’s research and development department includes the formal procedures and cultural norms that the scientists and other personnel within the department have developed for conceiving and collaborating upon specific projects. In the manufacturing department the technology includes the techniques developed and used by the managers and workers on the production line to convert raw materials and components into finished products. Finally, when used at the organizational level the term technology incorporates the methods and processes used by the organization to convert or transform its various inputs into the outputs that can be sold to generate value.
Technology and Organizational Effectiveness
Technology is an important because of the impact it can have on the effectiveness of the decisions an organization makes regarding its strategy and the design of its organizational structure. While the conversion stage is generally the primary focus of any discussion of technology and organizational design it should not be forgotten that technology of some sort is applied at each step along the path of activities of a typical organization—input, conversion and output—and that the chosen and applied technologies should be viewed as important source of the organization’s overall core competencies and potential competitive advantage.[2]
With respect to inputs, various intangible elements of what we have included in the definition of technology—skills, training, education, processes, techniques and experience—must be used by managers and employees in order to initiate and administer the relationships with external stakeholders that are needed in order for the organization to access the resources necessary for it to manage its chosen business environment. For example, the human resources department can use specific techniques and scientific-based testing procedures to evaluate prospective employees so that the organization can make the best choices regarding recruitment of the personnel needed to conduct its business activities. Similarly, specialists in the procurement department should be able to contribute their skills, techniques and experience in order to negotiate the best terms and conditions for purchasing the raw materials needed to manufacture high quality products at the lowest possible cost. Finally, professionals in the finance area can assist the organization in fulfilling its capital requirements at a cost that is commensurate with how the market perceives the risk associated with providing the organization with equity or debt financing.
Conversion is clearly the point in the value-creation process where most of the tangible and intangible elements of technology come into play, particularly in the manufacturing context. Organizations strive to pull together the most effective combination of physical assets (i.e., machines and other equipment), production “know how”, and work processes to turn their raw materials and other inputs into valuable finished products at the lowest possible cost and within the time periods thought necessary in order to exploit market opportunities. Organizations also continuously attempt to improve their conversion technology through innovation, procurement of new equipment and training employees in new production techniques. The success of these strategies requires communication and cooperation among multiple departments and a substantial commitment of capital and other resources with an understanding the projected benefits may not be apparent until well into the future.
At the output stage, when the organization is looking to actually realize the value of the activities carried out during the previous two stages by selling its products and services to interested customers, the relevant technology generally lies within those departments that have the specialist skills necessary for testing the finished product, marketing and selling the product and providing post-sale service and general support to customers in order to build and maintain customer loyalty. The rising importance of the Internet as a sales and marketing tool is one example of how technology can quickly and permanently change the competitive environment and technology has also provided the foundation for innovative ways to establish and manage customer relationships.
There are a number of ways that organizations can use technology as a means for increasing their effectiveness in acquiring resources and becoming and remaining competitive in their chosen business environment. First of all, technology may be viewed as a way to favorably differentiate the organization’s products in the eyes of customers by providing a high level of service. For example, new technology can improve the quality and reliability of the organization’s products or allow the organization to operate product design and manufacturing processes that permit efficient customization of products to suit specific customer requirements. Second, technology is obviously an important engine for innovation including the rapid development of new products and processes that can expand the organization’s product line and enhance the value and competitiveness of existing products. Finally, improvements in work flow technologies make the organization more efficient and allow it to reduce costs and make it easier for employees to perform their job duties and responsibilities. The key issue for management with respect to technology is determining the best way to design the organizational structure so as to accommodate and facilitate the production process—the conversion of inputs into outputs to create value—and deploy the chosen technologies in a way that generates value for the organization and its stakeholders.
Organizational-Level Technology
Organization-level technology refers to the methods and processes selected and supported by senior management of the organization, including choices regarding the design of the organizational structure, to convert or transform its various inputs into the outputs that can be sold to generate value for the organization’s stakeholders. There has been substantial debate regarding the role that technology plays in determining the organizational structure of an organization. Extensive research has shown that technology is likely to have a very strong impact on the organizational structure of smaller organizations and there seems to be a positive correlation between the level of mechanization and automation used in the conversion process and the use of a mechanistic organizational structure that features centralization and standardized processes and procedures. However, studies strongly suggest that the size of the organization may become more important than technology in determining the appropriate organizational structure as an organization grows and begins to engage in an increasingly diverse range of business activities. This is not surprising since growth typically brings new and challenging issues relating to introducing new products and services and/or entering new markets and decisions on these issues ultimately have a great impact on organizational design than the technology used by the organization.[3]
In general, the conversion or transformation process for a manufacturing-focused organization involves the technology used by various departments (i.e., materials handling, engineering, inspection and assembly) to convert or transform specific raw materials and other inputs into the desired outputs—the products and services offered to customers in the marketplace. The ability of management to control the technologies used by the organization in the conversion or transformation process is determined by the complexity of the technology and the corresponding difficulties in programming the technology. It is possible to distinguish between two divergent categories of organizational technology—mass production and craftwork. Mass production is commonly understood as the use of mechanization and assembly-line methods to manufacture large quantities of standardized finished goods. In this situation the technology is generally susceptible to programming since for procedures for converting inputs into outputs can be specified in advance and the tasks and activities included in the relevant work process can be standardized so that the overall process is more predictable. On the other hand, craftwork refers to the process used by organizations that compete by manufacturing customized products. In that case it is difficult to program large elements of the relevant technology in advance since the decision to offer customized products means that the organization is reliant on close interaction and collaboration among groups of highly skilled functional specialists from different departments.
Technical Complexity and Overall Organizational Structure
In the 1950’s Joan Woodward completed a landmark study of the production processes used by a large study group of manufacturing firms.[4] Woodward was interested in evaluating how the level of “technical complexity,” which she defined as the extent of mechanization of the manufacturing process, impacted the performance of these firms and the choices that they made with regard to designing their organizational structure. Woodward developed a measurement scale and then posited that manufacturing firms could be organized and classified into three broad categories corresponding to increasing levels of technology complexity—small-batch and unit production; large-batch and mass production; and continuous production—and that it could be demonstrated that there are clear relationships between the level of technical complexity of the operational activities of a firm and the characteristics of its organizational structure.
The lowest level of technical complexity among Woodward’s categories, small-batch and unit production, involves a substantial amount of customized work. In the manufacturing area this can be illustrated by the work of furniture makers that design and produce customized items to suit the specific tastes and requirements of one customer or a small group of customers. An analogy in the services area would be the activities of physicians and other medical professionals in a hospital setting as they develop and implement a treatment plan for individual patients. In these situations, equipment and machines play a relatively minor role in the conversion process and the key elements are the skills and knowledge of the persons involved in the process—including the decisions about how and when the equipment and machines are used—thus making it almost impossible to program the technology in advance. The intermediate level of technical complexity, large-batch and mass production, features production runs of standardized parts with automobile assembly lines being a commonly cited example. The highest level of technical complexity, continuous process production, takes mechanization and standardization beyond mass production to full-scale automation in order to permit production activities that have no discrete starting or ending points (e.g., chemical and nuclear power plants).
Woodward studied the relationship between each level of technical complexity and various characteristics of organizational structure and concluded that each technology requires its own unique structural design due to the specific communication and coordination issues associated with effectively using that particular technology. Her findings relating to specific structural characteristics included the following:
• As technical complexity increased the number of management levels also increased.
• The supervisor’s span of control increased as firms moved from unit to mass production; however, it decreased dramatically when there was a transition to continuous process production.
• The direct/indirect labor ratio decreased as technical complexity increased.
• The manager/total personnel ratio increased as technical complexity increased.
• The required level of worker skill was high for unit and continuous process production and low for mass production.
• The need for formalized procedures and centralization was low for unit and continuous process production and high for mass production.
• Verbal communication was the most dominant and important form of communication for unit and continuous process production while written communication was most important when using mass production.
• Higher levels of managerial intensity will be needed by organizations as they adopt strategies that call for more technological complexity.
Woodward also evaluated and compared the performance of the organizations in her study group and found that the most successful firms were those that had done the best job of designing and implementing organizational structures that complemented the complexity of their technology. She used her findings to posit ideas as to the organizational structure that organizations should select in order to optimize the advantages of the type of technology they have elected to use in conducting their activities and most effectively manage the key design issues of coordination and control. For organizations using small-batch technology coordination and control can be extremely challenging since it is essentially impossible to program in advance the activities that must be completed during the conversion process. These organizations must depend on the skills and experience of their managers and employees to react quickly to the specific requirements of particular customers and it follows that the organizational structure should support the freedom that must be given to organization personnel by being relatively flat with decentralized decision making authority. This is essential given the need for mutual adjustment to execute small-batch technology since many decisions must be made through face-to-face communications between personnel and often directly with customers. For these reasons, Woodward recommended that these organizations adopt an organic structure since the need for formalized procedures, centralization and written communication is low and the amount of verbal communication and workers’ skill level is high.
Woodward also recommended an organic structure for organizations engaged in continuous process production but made it clear that there would be significant differences between them and organizations using small-batch technology with respect to other structural characteristics. Woodward noted that the work process for a organization dependent upon continuous process technology is relatively predictable and controllable from a strictly technical and engineering perspective; however, she cautioned that managers should not rely too much on the ability to program activities in advance and attempt to direct work flow entirely through standardized processes and procedures. The unresolved control and risk management problem for these types of organizations, such as nuclear power or chemical plants, is the need to create and enforce continuous monitoring and testing procedures that go beyond the standardized rules to provide additional protection against the potentially catastrophic consequences of a system failure. As a result, the organizational structure for a organization using continuous process technology should have more hierarchical levels than the other two types of technology and managers should have a relatively narrow span of control in order to ensure they have the time and resources to closely monitor the activities of the personnel that report to them as well as the performance of the sophisticated equipment that is typically used by these types of organizations. Ironically, even though there is a high degree of standardization underlying the flow of work necessary for use of continuous process technology it is also necessary to anticipate the need for mutual adjustment in the form of spontaneous problem solving among employees in various groups who might be confronted with unforeseen issues that could quickly escalate into major problems if not resolved by those who are most closely involved. Accordingly, an organic structure is recommended for these organizations in order to achieve the flexible response needed when events do not proceed as programmed.
Mass production technology focuses on the production of many units of an identical product. For organizations using this form of technology Woodward recommended a mechanistic structure because of the high need for formalized procedures, centralization and written communication and the fact that the amount of verbal communication during the production process and workers’ skill level was low. The shape of the organizational structure for a organization using mass production technology is relatively tall, with wide span of control since managers could oversee and control the activities of a larger number of workers through the use of rules and regulations.
One of the other important aspects of Woodward’s study is the impact that it had on organizational theory. Until the time that her findings were released many organizational theorists still believed that it was possible to identify certain universal principals of management that could be applied to all organizations regardless of their activities and the business environment in which they operated. Woodward was instrumental in establishing the foundation for what has come to be known as the “contingency approach” to organizational design which is based on the belief that the optimal structure for an organization is based on technology and other factors that are specific to each organization and no one single solution is available from a structural perspective.[5]
Department-Level Technology
While the research carried out by Woodward focused on the overall structure of the entire organization, it has also been shown that technology is an important factor in designing work activities at the departmental level. Each department within the organization (e.g., research and development, procurement, manufacturing, sales, marketing, customer service and accounting/finance) should be responsible for identifying and developing technologies that can strengthen the core competencies that the department contributes to the overall competitive advantage of the organization. It should be understood and accepted that within each organization there is a diverse range of technologies that are in play at various points in the input-conversion-output process and it should be responsibility of each manager to identify his or her relevant department-level technology, assess the degree of uncertainty associated with the technology and design an organizational structure for the department that is appropriate for effective internal control and coordination.
One well-known way for describing and understanding the issues relating to department-level technology is reviewing the work of Charles Perrow, who developed a framework for identifying four different categories of departmental technologies based on the tasks performed within the department’s production processes.[6] Perrow believed that it was possible to identify and quantify both the task variety and the task analyzability and use those concepts as guides for designing the optimal organizational structure for the department. He defined “task variety” as the frequency of unexpected and novel events or situations (“exceptions”) that occur in conversion process and “task analyzability” as the degree to which a task can be reduced to mechanical steps or specified with a computational procedure.
Task Variety
The level of task variety, sometimes referred to as “task variability,” is determined by the number and frequency of exceptions that a person performing a defined task encounters while carrying out his or her job responsibilities. The more exceptions there are the higher the level of task variability. Exceptions may occur at every major stage of the production process—inputs, conversion and outputs. For example, at the input stage the level of task variety may be high due to the fact that there is great variation in the quality of the raw materials used as inputs and this will ultimately lead to more problems in managing the speed of the conversion process and the quality of the outputs from the conversion process. A task is considered to have a low level of variety if it is highly standardized or repetitious such that a person performing the task is confronted with the same situation over and over again with no or very limited exceptions. An obvious example is the ordering and serving process at a fast food restaurant.
Task Analyzability
The level of task analyzability is determined by how much search activity will be required in order for the person performing the task to resolve any problems that may arise during course of carrying out his or her job responsibilities. If a task is highly analyzable, that means that all or most of the problems have already been identified and resolved and the steps necessary to complete the task have been programmed in advance to the point where the task itself has become routine. On the other hand, if it is difficult to analyze a task and program the steps in advance the level of analyzability for the task will be low and the task itself must be considered to be non-routine and complex. For example, if a task involves numerous exceptions that cannot possibly be anticipated through advance programming there must be a much higher degree of reliance on the knowledge and judgment of the person performing the task since that person must invest the time and resources required to find the solutions to new problems.
Categories of Departmental Technologies
Perrow argued that one could put the technology of a department into one of several categories using the dimensions of task variety and analyzability and that each of the categories had had its own preferred form of organizational structure to achieve maximum internal effectiveness. The first category is referred to as “routine” technology, which applies in situations where there is low variety and high analyzability. Perrow explained that for routine tasks there are “well-established techniques which are sure to work and these are applied to essentially similar raw materials. That is, there is little uncertainty about methods and little variety or change in the task that must be performed.”[7] The production process for companies using routine technology is predictable and can be programmed in advance, which means that employees need only learn and follow standardized procedures in order to complete their specified job activities. In many cases these procedures cover almost every aspect of an employee’s actions while in the workplace. For example, at a fast-food restaurant using routine technology employees will be schooled in the specific script that they are expected to follow when greeting new customers and taking and delivering their orders. Other examples of departmental areas and activities that fit within the routine category (i.e., high analyzability and low variety) include sales, clerical, drafting and auditing. A bank clerk is an example of a practitioner of routine technology at the individual level.
At the other end of the spectrum is the second category referred to as “non-routine” technology, which applies in situations where there is high variety and low analyzability (i.e., it is not possible to effectively analyze the conversion process). With respect to non-routine or complex tasks, Perrow noted that “there are few established techniques; there is little certain about methods, or whether or not they will work. But it also means that there may be a great variety of different tasks to perform.”[8] Examples of departmental areas and activities that fit within the non-routine category include strategic planning, social science research and applied research. A general manager is an example of a practitioner of non-routine technology at the individual level.
The two other categories identified by Perrow were craft technology (i.e., low variety and low analyzability), which applies when the tasks called for extensive training and experience; and engineering technology (i.e., high variety and high analyzability), which is complex and features a substantial variety in the tasks that need to be performed. Examples of departmental areas and activities that fit within the craft category include performing arts, trades and fine goods manufacturing. A ballet dancer is an example of a practitioner of craft technology at the individual level. Examples of departmental areas and activities that fit within the engineering category include legal, engineering and accounting. A lawyer is an example of a practitioner of engineering technology at the individual level.[9]
Technology and Departmental Organizational Structure
According to Perrow the technology of a department should be used to determine the appropriate organizational structure for that department including decisions about important issues such as formalization and standardization, decentralization, worker skill level, communication and coordination. Specific guidelines include the following:
• For departments using routine technologies the need for mutual adjustment is low and centralization is the preferred method for efficient decision making. The preferred organizational in this situation is tall and mechanistic and decisions should be transmitted downward to all employees in the form of standardized rules and procedures.
• Since departments using routine technologies are engaged in repetitious work activities it is appropriate for those departments to recruit workers with relatively little education and experience. If possible, use of routine technologies should be supported by mechanization and automation of as many tasks as possible so that the need for individual judgment by employees is further reduced.
• When departments are primarily engaged in complex non-routine tasks there is a great need for mutual adjustment and the organizational structure should be less formal and less standardized. The preferred organizational structure in this situation is flat and organic in order to allow employees to engage in mutual adjustment to confront and resolve unforeseen issues on their own using their skills, experience and ingenuity rather than attempting to rely on static rules and procedures that cannot address all contingencies.
• When the departmental technology is complex (i.e., engineering) or non-routine the span of control within the organizational structure should be reduced.
• As the level of task variety increases within the department technology the need for communication and collaboration procedures also becomes more important. When tasks are more non-routine emphasis should be placed on joint specialization while routine tasks require individual specialization. For example, departments should create and support product teams and other types of work groups to maximize the collaboration necessary for overcoming the complexity of the work process associated with non-routine technologies.
Each business unit or functional department should identify its dominant form of technology and adopt the organizational structure that is best suited to its specific work process. For example, since the activities undertaken by scientists and engineers working in the research and development function are generally complex and unpredictable it is recommended that the department organize itself organically and disperse the authority to make decisions to the members of the work teams involved in specific projects. On the other hand, much of what is done within the manufacturing and sales functions can be characterized as routine and the organizational structure for those departments is more likely to be mechanistic and more hierarchical with a relatively elaborate set of formal rules and procedures to standardize the way in which department members carry out their day-to-day activities. Departmental managers should also understand how aligning departmental technology and organizational structure contributes to their ongoing efforts to create and maintain a core competency for the organization as a whole. For example, companies seeking to achieve and maintain the low-cost advantages associated with mass production will want to ensure that the tasks involved in the production process are low in variability and highly analyzable, which occurs by having the managers overseeing that process continuously emphasize standardization and automation.
Technological Interdependence Among Departments
As organizations grow and establish more and more departments and business units, many of which are created and operated far away from the main headquarters site, managers must address and overcome the real challenges associated with distributing, coordinating and integrating work activities across those departments and units. Guidance on how to address these issues can be taken from the seminal work of James Thomson, who focused on the type and intensity of the task interdependence among departments, which is the degree to which a department depends on other departments for the resources that are needed in order for the department to fully and effectively perform its work activities, and the impact that the level of task interdependence has on the determining the appropriate technology and organizational structure of the company.[10]
Thomson examined the processes used within multi-departmental organizations to combine task inputs in a way that produces a completed output that can be sold to generate capital needed for the organization to acquire more resources. Thompson defined the following categories of departmental task interdependence: pooled, where tasks are performed separately or individually and then the outputs are pooled in an additive way; sequential, where tasks are completed in a specified sequence and the output of one task becomes the input for the next task, as is typically case with assembly line manufacturing processes; and reciprocal, where departments and/or individuals performing various tasks must continuously interact with each other because the outputs and decisions from one task have a direct impact on the completion of the tasks being performed by others. With respect to the intensity of task interdependence, Thomson noted that when the work performed by employees and departments is individually specialized, which means that they typically work independently on their assigned activities in order to pursue and achieve the organization’s overall goals and objectives (e.g., pooled interdependence), the level of task interdependence is low. At the other end of the spectrum, task interdependence is high when the work of employees and departments is jointly specialized, which means that they are all heavily dependent upon one another for inputs and resources that they need in order to complete their assigned activities (e.g., reciprocal interdependence).
Different types of task interdependence require that senior management or the organization select and implement different solutions and procedures for coordination of activities between departments. For example, when there is pooled interdependence the need for communication and collaboration across departments is low and the organization can generally rely on standardization and formal rules and procedures as the primary coordinating mechanism. When there is sequential interdependence the need for communication and collaboration is moderate and management should develop and enforce basic procedures for planning, scheduling and feedback among related departments. Finally, when there is reciprocal interdependence the need for communication and collaboration is quite high and provision must be made for mutual adjustment to allow related departments to deal effectively with unforeseen events and changes. With respect to locating departments in close proximity in order to facilitate communication the need is clearly lowest in the case of pooled interdependence and highest in the case of reciprocal interdependence.
Pooled Interdependence
Pooled interdependence has the least intensive level of task interdependence and describes situations where there is little or no flow of resources between departments or individuals and each department or individual is able to perform a specified input, conversion or output activity independently of any other department or individual. At the departmental level, pooled interdependence is typically found in organizations operating in mediating industries, which are industries that use technology, referred to by Thomson as “mediating technology”, to link clients or customers who would like to develop or maintain an interdependent relationship with each other. Examples include commercial banks, which mediate between borrowers and depositors; real estate brokers, which mediate between buyers and sellers of real property; and telephone companies, which create links between different people and companies that want to communicate with one another. While all of the branches or offices within a banking, real estate or telephone organization perform the same type of mediating services for the specific customers or clients they generally work independently of one another and there is little formal communication or resource sharing within the organization and each branch or office makes its own separate and distinct contribution to the overall performance of the organization.
One of the challenging aspects of operating an organization with pooled interdependence and widely dispersed branches or offices is that while each outlet works independently to solve the same types of problems for different customers or clients the success or failure of the organization as a whole ultimately depends on how effective all the managers and employees in the various outlets are in performing their activities. When the dominant technology is “mediating” the focus of the management and control activities of the organization will be on monitoring and evaluating the activities of each manager or employee and it is relatively easy to formulate measures of performance since managers and employees in each branch or office carry out their activities in relatively similar fashion. Since coordination and collaboration is not essential to the overall performance of an organization using mediating technologies senior management must look to other strategies to continue organizational growth. Common approaches include increasing the number of customers that are served by individual branches or offices, opening new branches or offices or increasing the variety of products and services offered through branches or offices.
Pooled interdependence can also be observed within a particular branch or office of a larger organization in situations where each of the departments within the branch or office perform separate and independent activities that require little or no interaction with other departments. For example, within a commercial bank the activities of the department responsible for establishing and maintaining checking accounts can be readily distinguished from the work of persons in the loan department of the bank and there is generally little need for communication and coordination between the two departments. As is the case at the organizational level managers of the branch or office need to consider strategies to accelerate the growth, and increase the profitability, of their outlet. One method that is being used more often is implementing programs that motivate employees in each department to make cross-referrals to other departments in an effort to interest customers in considering and purchasing additional services from the branch or office. This can be illustrated by the way in which banks offer their checking and savings account customers an opportunity to participate in special loan programs. In fact, the whole concept of “relationship banking” is part of an effort to integrate the activities of departments that would otherwise continue to follow the traditional pooled interdependence model that has prevailed in the industry for many years. Interestingly, technology plays a big role in the execution and success of this strategy as banks have created huge databases of information on their customers that can be used to determine how and when they can be approached with offerings of new financial products and the overall goal is to show customers how they can quickly and efficiently consolidate all aspects of their financial affairs—banking, credit cards, mortgages, car loans and brokerage services.
Finally, pooled interdependence often appears in processes and activities that are carried out within a single department. The most well-known example at the departmental level is the use of a piecework production system in the manufacturing function. The work process in this sort of system calls for each employee to perform his or her specific task (i.e., production or other form of processing of a specified item) independently of other employees performing different tasks. Each employee is evaluated, and presumably compensated, based on the efficiency associated with his or her performance of the specified activities (e.g., the number of items produced or processed within a defined period). The appropriate strategy for reducing uncertainty in that situation is to find ways to increase the efficiency of particular employees, such as creating opportunities for them to produce or process a greater number of items. This can be accomplished by expanding the organization’s business domain by increasing the number of customers and/or markets served by the organization and thus increasing the output requirements for each of the employees.
Not surprisingly, organizations generally prefer pooled interdependence, whenever possible given the applicable work processes, since it is relatively inexpensive to create and manage. Since most of the activities can be standardized the organization need not invest substantial time and resources in coordinating mechanisms and can promulgate formal rules and procedures that each branch or office is expected to follow. In those cases when coordination is required, or senior management wishes to inform all managers and employees throughout the organization of new procedures, it can be done through the use of electronic media such as e-mail or web conferencing. Use of computers also makes it easier to collect and store data that each branch or office might need in order to carry out its activities and the data can be quickly and easily accessed at any time without the need to coordinate with other persons outside of a particular branch or office. Information technology also permits senior management to collect and evaluate information on the activities of each of the branches or offices (and their individual managers and employees) in order to monitor their performance and contributions to the overall success of the organization. Of course, notice must be taken of certain disadvantages of pooled interdependence including the loss of the potential benefits of group collaboration (e.g., information sharing, informal training and joint problem-solving) and the risk that individual employees will feel isolated and dissatisfied with their roles within the larger organization.
Sequential Interdependence
Sequential interdependence is the intermediate form of interdependence (i.e., middle intensity) that describes situations where the work process necessary to perform all of the input, conversion and output activities occurs in a fixed series of events and it is not feasible to allow each participating department or employee to work independently since the desired goals and objectives cannot be completed with cooperation and performance from others. Thomson referred to these types of processes as “long-linked technology” and they are distinguishable by their primary focus the conversion of inputs into products through proper sequencing and coordination of specific activities (e.g., inbound logistics, warehousing, manufacturing, packaging, outbound logistics, sales and marketing and service). In many ways Thomson anticipated “value chain” analysis, which is has since become a popular tool for identifying and pursuing competitive advantage.
Sequential interdependence occurs at the organizational level when parts or products produced in one department are needed as inputs for the activities of another department. For example, the manufacturing department is typically dependent on the purchasing department for delivery of high-quality inputs at the right time and price and the sales and marketing department relies on the manufacturing department to have an adequate inventory of finished products available for immediate sales and delivery to customers. Sequential interdependence occurs at the department level when employees cannot perform their tasks without inputs from other employees performing their work at an earlier stage of the conversion process within the department. The assembly line production system popularized in the automobile industry is a good example of sequential interdependence at the departmental level since the activities of each employee along the assembly line are entirely dependent on the work of the other employees earlier in the production process.
Several strategies are available to organizations using long-linked technology to achieve the proper level of coordination for the sequentially interdependent activities. For example, organizations commonly develop and enforce standardized procedures for every step of the conversion process and implement sophisticated planning and scheduling processes. Another interesting strategy is the creation of slack resources, which are stockpiles of extra or surplus resources needed for the conversion process that the organization collects and sets aside in order to deal with unforeseen problems that might otherwise delay or completely disable the flow of work. One illustration of slack resources is the relatively common practice of establishing and maintaining large inventories of raw materials and other inputs to the conversion process in order to ensure that the process is not interrupted if problems come up in the supply chain. Similarly organizations may stockpile finished products (i.e., the outputs of the conversion process) so that customer requirements can continue to be satisfied for at least some period of time even as current production is restricted due to issues with suppliers or the need to repair or otherwise maintain the equipment used in the production process.[11] Organizations may also attempt to reduce the uncertainties associated with the use of long-linked technology through vertical integration including acquisitions of suppliers and/or distributors to increase control over the availability of inputs for the conversion process and the ultimate distribution of the outputs of the conversion process to customers.
Obviously there are more administrative costs associated with depending on long-linked as opposed to the mediating technology described above since the organization must devote more time and resources to coordinating the interdependent activities of employees and departments; however, these costs will hopefully be more than offset by the advantages of specialization and division of labor along the path of the production process. In addition, managers can make the activities that must be performed during conversion process more “routine” by standardizing the tasks of each employee to reduce task variability and increase task analyzability. Organizations using long-linked technology can also enhance their return on investment by developing and maintaining core competencies within one or more of the sequential links that can be leveraged as a competitive advantage and by growing the target customer base to the point where the benefits of economies of scale reach a significant level.
Reciprocal Interdependence
Reciprocal interdependence is the highest form of interdependence and exists when output of one department is an input to a second department and then the output of the second department becomes an input back into the first department. Thomson noted that organizations that engage in these sorts of activities are relying on “intensive technology” and are typically primarily focused on solving particular customer or client problems as opposed to producing and selling large volumes of generic products. Rather than engaging in a fixed set of activities in a predictable sequence, organizations using intense technology must be able to select, combine and order available resources on a case-by-case basis in line with the requirements of each customer or client. The movement of a patient between departments in a hospital to received necessary treatments and undergo required tests is an example of reciprocal interdependence and the attending physicians in that case are involved with making the correct diagnosis for that specific patient and creating a unique strategy for recovery and long-term wellness. Intensive technology is also used in other professional services areas including law, architecture and engineering and, in fact, product and process development in the industrial area is typically based on intensive technology seeking a solution to a particular technical or market need.
Reciprocal independence is particularly problematic from a management and coordination perspective since it is impossible to engage in advance programming of the activities and processes necessary for completion of a particular work process since “the selection, combination and order of [the tasks’] application are determined by feedback from the object [problem] itself.”[12] Expressed in the paradigm created by Perrow the use of intensive technology brings with it reduced technical complexity and activities that are highly complex and non-routine and calls for organizational structuring solutions that are quite different than those that might be selected to manage the more orderly and sequential work processes associated with mediating or long-linked technologies.
In general, the costs and resources associated with deploying and managing intensive technologies are quite high because the process of acquiring inputs and converting them to outputs with commercial value is extremely unpredictable. At the department level the best example is the research and development function where scientists and engineers often have no clear idea where a particular idea will lead and it is typically impossible to create a reliable development budget and schedule in advance. As a result, the optimal organizational structure for the research and development department from the perspective of the Thompson paradigm is one that permits and accepts mutual adjustment rather than standardization and any other attempts to program the sequence of activities in advance. The optimal structure for an entire organization that relies extensively on deployment of intensive technologies—such as a firm competing in a rapidly changing market where innovation and a continuous stream of new products is essential—would be either product teams or matrix-based in order to maximize opportunities for different departments to communicate and collaborate to quick and efficiently resolve all of the unforeseen problems that will arise in such a dynamic environment.
It is rare that an organization will voluntarily choose to rely on intensive technologies given the costs and risks involved and senior management should continuously work to find ways to convert reciprocal interdependence to sequential interdependence since long-linked technology is much easier to manage and allows for more efficient collaboration among departments. One strategy that can be used is to invest in more sophisticated forecasting tools so as to reduce unpredictability and make better decisions about what resources will actually be needed in the future to satisfy customer requirements. Another strategy is to impose a limited degree of standardization on open-ended activities such as new product development by creating and enforcing rules and procedures for evaluating proposed projects at an early stage so that limited resources can be channeled only to those projects that appear to have the best chance of success and achieving an acceptable risk-adjusted return on investment. Finally, the disadvantages of intensive technology can probably be mitigated to some extent through specialization, which refers to a calculated decision by the senior management of the organization to limit its activities to a finite set of possible outputs that makes it easier to plan on what resources should be pursued and coordinate how those resources should be deployed. For example, a hospital might implement such a strategy from abandoning the notion of being a “general” hospital—which offers all types of medical-related services—and focus only on a specialized area such as diagnosis and treatment of particular types of diseases or conditions (e.g., cancer or mental illness).
Managerial Implications of Analyzing Organizational Technologies
Senior management, often relying on input from technical experts, should continuously analyze the value-creation process for the entire organization and each of the departments and other business units in order to identify the elements of technology—skills, knowledge, tools and machinery—that are most important for the organization to be able to efficiently and effectively produces its products and services. Organizational technology can be evaluated and measured using a number of characteristics including the type of production technology (i.e., small batch, mass production or computer aided manufacturing), the level of interdependence (i.e., pooled, sequential or reciprocal), the complexity of the production process (i.e., variety and analyzability), the physical work setting, the nature of the raw materials and the time pressures under which the production process must be executed (see checklist for identifying and evaluating organizational technology below).
In the course of the evaluation process determinations should be made regarding the levels of technical complexity, task variety and analyzability, and task interdependence. With this information senior management can look for ways to make the value-creation process more predictable and ease the burdens of managing and coordinating the process. For example, a decision might be made to increase the level of technical complexity by improving the techniques used by workers and/or upgrading the computer systems that support production activities. The organization, or a specific department, might also consider reducing task variety and increasing task analyzability by finding new ways to standardize various activities in the work process. In addition, any problems created by complex task interdependence between departments might be addressed by changing the organizational structure in ways that increase inter-departmental coordination and communication. Finally, senior management of the organization and each department must evaluate how the technology used by the organization or department, taking into account changes and improvements flowing from the strategies described above, fits with the overall organizational structure and determine whether structure changes are necessary and feasible in order to improve the way that the technology is being used.
Thomson first developed his theories and conducted his research long before the business environment for organizations transformed into the global landscape that lies before companies of all sizes today. For many organizations the new challenge is not only coordinating the activities between related departments but they must also figure out the best way to distribute tasks and activities across locations around the world and then combine the outputs of those locations in a reciprocal way in order to successfully achieve the broader goals and objectives of the entire global organization. This means that pooled and sequential approaches to task interdependencies have become relatively less important and senior management must learn how to cope with reciprocal interdependencies on the grandest scale and acquire and deploy the resources necessary to execute the extensive interaction and transfer of knowledge that must occur between managers and employees at the various locations around the world. Among other things, senior management must design the appropriate organizational structure, establish and maintain standardized global processes as appropriate, and factor in cultural differences that will further compound communication and coordination problems.
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Checklist for Identifying and Evaluating Organizational Technology
• How many management levels are there in the organizational structure? A higher number is indicative of a continuous process while a lower number is indicative of unit production.
• How high is the supervisor span of control in the organizational structure? A larger span of control is indicative of mass production while a small span of control is indicative of a continuous process. Moderate to narrow span is indicative of non-routine technologies, moderate to wide span is indicative of craft technologies, moderate span is indicative of engineering technologies and wide span is indicative of routine technologies.
• What is the direct/indirect labor ratio within the organizational structure? A higher ratio is indicative of unit production while a lower ratio is indicative of a continuous process.
• What is the manager/total personnel ratio within the organizational structure? A high ratio is indicative of a continuous process while a low ratio is indicative of unit production.
• What is the average skill level of the workers in the organization? High skill levels are indicative of unit production or a continuous process while low skill levels are indicative of mass production. Trained and experienced workers is indicative of non-routine technologies, work experience with little training is indicative of craft technologies, formal training is indicative of engineering technologies and little training or experience is indicative of routine technologies.
• How much of the work activities performed within the organization is routine? High routine is indicative of low variety.
• Do most of the workers in the same group or unit perform the same jobs in the same way most of the time? High routine is indicative of low variety.
• Do workers in the in the same group perform repetitive activities in carrying out their job responsibilities? A high level of repetition is indicative of low variety.
• To what degree is there a clearly known and understood methods to complete the most commonly performed activities within the organization?
• To what extent is there a predictable and acceptable set of steps that workers are expected to follow to perform activities within the organization?
• To what extent does the organization rely on formalized rules and procedures to ensure that primary work activities are completed?
• How formal are the procedures in the organization? Highly formalized procedures are indicative of mass production while a low level of formalization is indicative of unit production or continuous process. Low formalization is indicative of non-routine technologies, moderate formalization is indicative of craft and engineering technologies and high formalization is indicative of routine technologies.
• What is the level of centralization in the organization? High centralization is indicative of mass production while low centralization is indicative of unit production or a continuous process. Low centralization is indicative of non-routine technologies, moderate centralization is indicative of craft and engineering technologies and high centralization is indicative of routine technologies.
• What is the overall level of communication within the organization? Low communication is associated with mediating technologies, medium communication is associated with long-linked technologies and high communication is associated with intensive technologies.
• What is the level of verbal communication within the organization? High verbal communication is indicative of unit production or a continuous process while low verbal communication is indicative of mess production. High levels of verbal communication are indicative of craft and engineering technologies and meetings (another form of verbal communication) are indicative of non-routine technologies.
• What is the level of written communication within the organization? High written communication is indicative of mass production while low written communication is indicative of unit production or a continuous process. High levels of written communication are indicative of routine technologies and a combination of written and verbal communication is indicative of engineering technologies.
• What is the primary direction (horizontal or vertical) of communications within the organization? Horizontal communications are indicative of craft and non-routine technologies while vertical communications are indicative of routine and engineering technologies. Horizontal communications are also indicative of intensive technologies while vertical communications are also indicative of mediating technologies.
• What type of coordination is required for the organization to effectively perform its activities? Standardized rules and procedures are indicative of mediating technologies, planning and scheduling are indicative of long-linked technologies and mutual adjustment is indicative of intensive technologies.
• Is the overall organizational structure organic or mechanistic? An organic structure is indicative of unit production or a continuous process while a mechanistic structure is indicative of mass production. An organic structure is indicative of non-routine technologies, a mostly organic structure is indicative of craft technologies, a mostly mechanistic structure is indicative of engineering technologies and a mechanistic structure is indicative of routine technologies.
• Are the tasks that need to be performed within the organization routine or adaptive? Routine tasks are indicative of mass production while adaptive task requirements are indicative of the need for computer integrated manufacturing (CIM)?
• Are the workers in the organization trained on effective teamwork and collaborative problem-solving techniques? Such training is necessary in order for CIM to be effective.
• Is customer demand stable or constantly changing? Stable customer demand is indicative of mass production while changing customer demand is indicative of the need for CIM.
• How many suppliers are used by the organization and how close are the relations with those suppliers? Mass production uses many suppliers in arm’s length relationships while CIM focuses on building close relationships with a few suppliers.
• What are the most important value creation activities for the organization? A focus on logistics, operations, marketing and sales and service is indicative of long-linked technologies. A focus on identifying problems and possible solutions, selecting the best choice among the possible solutions, executing the solution and continuously evaluating the decision is indicative of intensive technologies. A focus on network promotion, contract management and service provision is indicative of mediating technologies.
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Advanced Manufacturing Technology
Another important issue with respect to organizations and technology is how improvements in manufacturing technology can impact the design decisions that are made by organizations regarding their structure. Traditionally mass production technology, which is based on large scale production, has been viewed as the most effective means for reducing costs by taking advantage of the benefits of economies of scale and division of labor. An organization that relies on mass production generally uses more focused technology and concentrates on offering a limited set of products to a tightly defined market. These “mass producers” use several well-known methods for accomplishing their cost-containment objectives. The first approach is the use of dedicated machines, which include machines and other equipment that are set up and maintained to repeatedly perform one distinct operation at a time within the production process. For example, automakers used dedicated machines in their assembly line process to stamp out just one particular part of each vehicle. While these dedicated machines can only produce a very narrow range of outputs they can do so cheaply and contribute significantly to overall cost savings in the production process. The second approach is the use of fixed workers, which are employees involved in the production process who, much like the dedicated machines, perform the same activity on a continuous basis strictly in accordance with standardized procedures. In addition to dedicated machines and fixed workers mass producers also rely heavily on other strategies described above to maintain the continuity of the conversion process including stockpiling of inputs and outputs as a hedge against supply chain problems and unforeseen disruptions to the regular production schedule.
While mass production technology can obviously be effective it can also be quite expensive to deploy and also makes it more difficult for organizations to shift course quickly to address changes in the preferences and requirements of their customers. As a result, it is not surprising that organizations have shown keen interest in new manufacturing technologies—sometimes referred to as flexible, lean or computer-aided production—that allow them to simultaneously pursue both low-cost and differentiation strategies through their ability to quickly and efficiently introduce new products based on popular design and easily produce customized versions of standardized products to meet the need of special customers at roughly the same cost as continuing to use mass production technology. The popularity of these so-called advanced manufacturing technologies (“AMT”), and the rise of “mass customizers,” has been driven by exciting innovations in materials technology (i.e., machinery, other equipment and computers) including computer-aided design, computer-aided materials management, just-in-time inventory systems and computer-integrated manufacturing. The development and success of each form of AMT has also been supported by advances in knowledge technology that have led to changes in the strategies deployed by organizations in designing and executing their work processes. While each of the forms of AMT is different they share the common goal of eliminating reliance on inventory stockpiles to reduce risk and replacing it with technology-based tools that provide organizations with the ability to quickly adjust its work processes to seamlessly manage unforeseen problems during the input, conversion and output stages.[13]
The distinguishing characteristic of the work flow associated with mass production technology is the need to stockpile inputs and outputs in order to protect the conversion process and guard against the risk of economic loss in the event of unforeseen disruptions to the regular pace of production. At the input stage raw materials and other inputs will be procured from suppliers and stockpiled as inventory until such time as they are needed for use in the conversion process. In order to reduce and manage the costs associated with stockpiling organizations will engage procurement professionals and challenge them to enter into strong and collaborative arrangements with a select group of vendors. In some cases these arrangement lead to formal vertical integration in order to increase control over inputs. During the conversion process itself the inputs will be assembled into subassemblies which will be stockpiled as “work-in-process” for succeeding work stations until the finished products are finally completed. Those finished products will also be stockpiled in warehouses until there is a need to ship them to customers as sales are made by the sales and marketing group. While stockpiling of finished products assures that customer requirements can be satisfied it does carry additional costs including the overhead associated with maintaining the facilities where the products are stored and the real risk of intervening price deterioration in the marketplace which means that the inventory loses value as it sits awaiting sale.
In contrast, the work flow associated with each form of AMT is intended to reduce or even eliminate the need for inventory buffers between work stations and stockpiles at the beginning and end of the conversion process. Raw materials and other inputs are ordered and accepted only as needed to fill actual orders and go directly to the first work station for processing. Once each work station completes its step in the production process the subassembly goes immediately to the next work station for further processing, rather than sitting idle between work stations as work-in-process. After the product has passed through the final work station it will immediately be shipped to the customer to fill the order rather than being sent to a warehouse to await sale. Of course, technology is not the only thing that makes an AMT strategy effective and organizations must be prepared to train the managers and employees involved in the work flow so that they can fully utilize the tools that they have been provided.
The differences between mass production technology and AMT have been described as the contrast between the so-called “push” and “pull” approaches. Organizations that rely on mass production established a pre-determined manufacturing plan to produce a specified number of units during the planning period. While the target number is presumably related to a carefully researched assessment of customer demand it is still just a forecast. The conversion process is set up in a manner that conforms to the plan and inputs will be procured and used as dictated by the production management systems that govern the conversion process. In effect, the inputs are ordered at the beginning of the planning period and “pushed” from station to station according to plan with minimal regard for actual day-to-day market conditions. At the end of the planning period everyone hopes that the forecast has been correct and that there have been no unforeseen problems with respect to conversion. If that is not the case, however, the organization will either be left with excess inventory that has already eaten into capital or with customers who have not been able to have their requirements satisfied.
In contrast, AMT allows organizations to delay commitments on inputs until there is an actual order to fill at which time the inputs will be “pulled” into the conversion process using computerized tools that have been developed and perfected in recent years. AMT removes the inventory buffers between the various stages of the conversion process that exist with mass production technology and demand tighter integration among all the activities needed to convert raw materials and other inputs into finished products that can be shipped immediately to customers. AMT creates high levels of task interdependence and technical complexity and thus requires companies to modify their organizational structure to become more organic and conducive to mutual adjustment and rapid decision making at key points along the manufacturing process. When successfully implemented each form of AMT increases efficiency and flexibility and allows the organization to offer the same sort of responsiveness to unique customer requirements that would be available if it were practicing small-batch production.
Computer-Aided Design
It is recognized that a significant portion of the costs associated with setting up a mass production process for a product can be attributed to the initial design process for the product and one of the reasons that mass production focuses on manufacturing large quantities of a single standardized product is the need to achieve the necessary economies of scale to recover the large investment made at the design stage. Organizations have attempted to radically change the economics associated with development and manufacture of new product by using computer-aided design (“CAD”) tools that substantially simplify and accelerate, and significantly reduce the costs associated with, the new product design process. Using sophisticated computer programs developers can quickly create and share designs that can be easily modified and converted into virtual prototypes that can be tested and redesigned. The end result of this process is not only reduced costs during the design phase but also products that are of better quality and easier to assemble and service. In addition, CAD makes it easier to identify and settle upon a design that permits efficiency customization as needed to meet the requirements of special customers, which means that companies can obtain the differentiation advantages of small-batch production at a much lower cost.
Computer-Aided Materials Management
Materials management refers to the art and science of managing the flow of resources—raw materials, components, equipment and personnel—into and out of the conversion process. In order to gain better control over materials management by increasing efficiency and reducing waste organizations have turned to new computerized tools, referred to as computer-aided materials management (“CAMM”), that support the creation and administration of master production schedules for manufacturing that produce outputs “as needed” and reduce the costs associated with holding inventories of inputs and finished products. In general, CAMM software allows organizations to use actual requests for finished products from customers as the trigger for moving inputs—raw materials and other components—into the production process rather than simply setting up that process to generate a fixed number of finished products during a specific period which may or may not be aligned with actual customer demand.
Just-in-Time Inventory Systems
Based on the legendary Japanese kanban (card) system “just-in-time” (“JIT”) inventory systems are based on the premise that inputs to the conversion process should be delivered to the production line no earlier or later than the point when they are absolutely needed to continue creation of a product that has already been ordered by a customer. As with the other forms of AMT, JIT seeks to make the production process more efficient and less expensive by keeping stockpiles of raw materials and other inputs for the conversion process at a minimum. A simplified version of a JIT inventory system illustrates the dependence on the “pull” approach: first, as customers purchase finished products from retailers order for more products are automatically sent to the manufacture through pre-arranged computerized order triggers; second, as the manufacturer receives the orders it uses its computerized links with suppliers to make and deliver the necessary inputs; and third, the various suppliers work with their sub-contractors in similar ways to obtain any inputs that the suppliers may need in order to fulfill their responsibilities to the manufacturer on time and within budget and quality specifications. The necessary computer linkages among the various parties in the supply chain that are necessary in order for creation and administration of the JIT inventory system are provided through computer-aided materials management tools that facilitate the rapid flow of information among all involved parties—retailers, manufacturers, suppliers and sub-contractors.
The JIT inventory system turns production into one continuous process that requires tight integration between each of the parties responsible for the sequential activities that must be completed in order to get finished products into the hands of customers in order with their specifications. A JIT inventory system increases task interdependence and technical complexity and requires an organic organizational structure. While this creates managerial challenges it also provides organizations with increased manufacturing flexibility since the ability to order inputs only as they are needed allows them to broaden the scope of their product line and offer customized versions of products at competitive prices. Since supplier relations are an essential factor in determining the success or failure of a JIT inventory system it is not surprising to find that organizations adopting this strategy pursue creative ways to forge real business partnerships with their key suppliers including purchasing a minority equity interest in a supplier, entering into long-term contracts and even full vertical integration by acquiring a supplier. At a minimum, organizations must explore collaborative efforts with suppliers that will reduce costs, improve quality and make the relationship profitable and beneficial for both parties.
Computer-Integrated Manufacturing
Each of CAD, CAMM and JIT are used to increase the level of control and coordination during the input and conversion stages of the production process; however, organizations may also use computer-integrated manufacturing (“CIM”) to increase technical complexity during the conversion stage. CIM, which is a combination of CAD, CAMM and integrated information networks, is a breakthrough technology that has allowed manufacturing organizations to combine the benefits of customization and large-batch production to achieve “mass customization”. CIM uses computer generated commands to quickly and easily changeover operations automatically without the need to shut down production and manually retool each machine. Specific examples of some of new technological tools include robotics, remote control of manufacturing equipment, numerically controlled machine tools, and software that can be used for complex product design projects. The machines that are used in connection with CIM are themselves equipped with flexible manufacturing technology that allows the machine to perform a range of different operations. Several of these machines working together form a flexible manufacturing system (“FMS”) in which the machines are arranged in such a way that they can handle any group of inputs for which the system is designed. Changes in the outputs of the flexible manufacturing system (i.e., customized products) are accomplished through CIM. For example, computerized robots can be used to feed components to the machines in an FMS, move products assembled by one machine to another machine and transfer the finished products from the last machine in the FMS to a staging or testing area.
Organizations are deploying flexible manufacturing technology in ways that allow them to quickly and efficiently manufacture products that are completely customized to the unique specification of the customer and to do so in a way that uses the same machines over and over again without the need to stop production to retool their operations. For example, a salesperson can take an order and transmit the specifications directly to a computer that issues instructions to the machines used during the conversion process, including computer-controlled robots that guide the product down the line. Each machine used during the conversion process receives specific commands about which of an array of possible operations it is expected to perform with respect to the particular product. Once the conversion process is completed the finished product can be electronically tested, packaged and shipped directly to the customer with little or no human intervention. Obviously setting up these types of processes is a costly project; however, companies believe that the expenses are outweighed by the flexibility provided to them to offer customers a wide range of differentiated products. However, CIM alone is not the complete solution for competing on the basis of AMT and organizations must also continue to look for other ways to reduce costs and make the manufacturing process more efficient. For example, a production facility using CIM must be built and maintained in a location where the costs of raw materials, labor and other inputs are competitive. Moreover, products must be designed in ways that are compatible with CIM and sales personnel must be carefully and fully trained in how to collect instructions for configuring products. Finally, the organizational structure must reflect the higher level of technical complexity associated with CIM.[14]
Impact of Advances in Technology on Job Design
The process of job design includes the decisions that are made regarding the identification and assignment of the goals and work-related activities that are to be carried out by employees. It is rare that the design of a particular job can be static and various factors, including changes in the business environment and relevant technology, will generally lead to one of the following job design changes from time-to-time in order to increase productivity or provide greater motivation to the worker:
• Job rotation, which involves moving workers to different jobs in order to provide them with more variety and build additional skills and experience;
• Job simplification, which involves reducing the variety and difficulty of the work-related activities that are performed by a person in a particular job role;
• Job enrichment, which involves providing persons performing a particular job role with higher levels of responsibility and/or recognition; and
• Job enlargement, which involves expanding the work-related activities that are performed by a person in a particular job role.
The socio-technical systems approach to job design focuses on the importance of human needs in introducing and using technology in the workplace. From a management perspective the goal should be “joint optimization,” which means that the social systems within the company—the way that work is organized and coordinated—are aligned with the tools, machines and processes that are part of the organization’s technical systems.
One of the most dramatic examples of how technology can impact job design and the overall structure of an organization is the way in which organizations have retooled their structures as advanced information technology (“IT”) tools became available. First of all, the availability of more robust communications and information share networks created more opportunities for both centralization and decentralization. In general, organizations were more likely to flatten their structures due to the enhanced ability to decentralize and delegate authority. Second, coordination among different business units became easier due to the availability of electronic tools for personnel in those units to communicate with one another and for managers at the corporate headquarters level to disseminate instructions downward to each involved unit. Third, organizations began to expand and enhance the roles and responsibilities associated with specific job positions and the number of jobs that were limited to narrowly specialized tasks began to decrease. In fact, more and more jobs now require a much higher level of mental and social skills and organizations have been forced to increase their professional staff ratios due to the need for educated personnel with the training and skills to understand and exploit the powerful resources that are now available through IT. Finally, the need to implement, manage and continuously enhance the organization’s IT network has led to an explosion of demand for more highly trained and skilled IT professionals.
IT that allows companies to create and operate independent business units located almost anywhere in the world has led to the popularity of network organizations and reliance on outsourcing key functional activities to third parties under long-term contracting arrangements. For example, an organization can design a new product at its headquarters office and then contract with third parties to perform all of the functional activities necessary for commercialization of the product—manufacturing, marketing and distribution. These third parties can act independently of one another yet all under watchful eye of the headquarters office which establishes rules and procedures for their activities and monitors their performance through production and sales information collected using global information technology networks.
Service Firms and Technology
A number of important differences have been identified between the technologies used by manufacturing organizations and those deployed by organizations engaged in the provision of services. Some of the key features of so-called “manufacturing technology” include tangible products; products that can be inventoried for later consumption; capital asset intensive; little direct customer interaction; human element may be less important; quality is directly measured; longer response time is acceptable; and the site of the facility is moderately important. On the other hand, “service technology” includes the following important features: an intangible product; production and consumption take place simultaneously; labor and knowledge intensive; customer interaction is generally high; the human element is very important; quality is perceived and difficult to measure; rapid response time is usually required; and the site of facility is extremely important. Examples of firms that are pure service providers include airlines, hotels, schools, consultants, healthcare providers and law firms. Organizations that provide a combination of products and services, and thus must focus on both manufacturing and service technologies, include fast-food outlets, real estate companies, stockbrokers and retail stores.[15]
One of the main differences between manufacturing and service organizations from the perspective of technology is that employees at a service organization perform their work much closer to the actual customers than is the case with a manufacturing organization where the technological activities (i.e., production) can be located and executed far away from the point where the products are sold to customers. There are also significant distinctions between the primary activities of each type of organization. While manufacturing organizations tend to focus on activities included in the traditional “value chain” continuum—inbound logistics, operations, outbound logistics, marketing and sales and service[16]—service organizations are concerned with more complex and intangible activities such as identifying problems, generating solutions, choosing among alternative solutions, executing the activities necessary to implement the chosen solution, and measuring and evaluating the effectiveness of the chosen solution. Further complicating factors for service organizations are that the entire process of problem identification and resolution may need to be completed several times before there is a resolution for a particular customer or client and the fact that activities must continuously be customized for each customer or client. All this means that service organizations must become proficient in dealing with reciprocal interdependencies and this occurs by implementing an appropriate organizational structure and support procedures. For example, while the solutions that are ultimately provided to customers or clients may be relatively standardized the service organization must be organized in a way that can deal effectively with unique situations. Also work flow within the service organization should not only be iterative but also interruptible at all stages if the problem suddenly diminishes or other specialized resources need to be brought to bear on the situation. Finally, perhaps the most important element of technology for service organizations is knowledge and experience of their professionals and it is essential that the structure and culture of the organization be designed in a way that effectively leverages their expertise.[17]
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About the Author
This chapter was written by Alan S. Gutterman, whose prolific output of practical guidance and tools for legal and financial professionals, managers, entrepreneurs and investors has made him one of the best-selling individual authors in the global legal publishing marketplace. His cornerstone work, Business Transactions Solution, is an online-only product available and featured on Thomson Reuters’ Westlaw, the world’s largest legal content platform, which includes almost 200 book-length modules covering the entire lifecycle of a business. Alan has also authored or edited over 90 books on sustainable entrepreneurship, leadership and management, business law and transactions, international law and business and technology management for a number of publishers including Thomson Reuters, Practical Law, Kluwer, Aspatore, Oxford, Quorum, ABA Press, Aspen, Sweet & Maxwell, Euromoney, Business Expert Press, Harvard Business Publishing, CCH and BNA. Alan is currently a partner of GCA Law Partners LLP in Mountain View CA () and has extensive experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company. He has been an adjunct faculty member at several colleges and universities, including Berkeley Law, Golden Gate University, Hastings College of Law, Santa Clara University and the University of San Francisco, teaching classes on corporate finance, venture capital, corporate governance, Japanese business law and law and economic development. He has also launched and oversees projects relating to sustainable entrepreneurship and ageism. He received his A.B., M.B.A., and J.D. from the University of California at Berkeley, a D.B.A. from Golden Gate University, and a Ph. D. from the University of Cambridge. For more information about Alan and his activities, and the services he provides through GCA Law Partners LLP, please contact him directly at alangutterman@, follow him on LinkedIn () and visit his website at .
About the Project
The Sustainable Entrepreneurship Project () was launched by Alan Gutterman to teach and support individuals and companies, both startups and mature firms, seeking to create and build sustainable businesses based on purpose, innovation, shared value and respect for people and planet. The Project is a California nonprofit public benefit corporation with tax exempt status under section 501(c)(3) of the Internal Revenue Code dedicated to furthering and promoting sustainable entrepreneurship through education and awareness and supporting entrepreneurs in their efforts to launch and scale innovative sustainable enterprises that will have a material positive environmental or social impact on society as a whole.
Copyright Matters and Permitted Uses of Work
Copyright © 2020 by Alan S. Gutterman. All the rights of a copyright owner in this Work are reserved and retained by Alan S. Gutterman; however, the copyright owner grants the public the non-exclusive right to copy, distribute, or display the Work under a Creative Commons Attribution-NonCommercial-ShareAlike (CC BY-NC-SA) 4.0 License, as more fully described at .
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[1] For further discussion, see A. Gutterman, Technology Management and Transactions (Eagan, MN: Thomson Reuters, 2019).
[2] D.M. Rousseau, “Assessment of Technology in Organizations: Closed Versus Open Systems Approaches,” Academy of Management Review, 4 (1979), 531-542; W.R. Scott, Organizations: Rational, Natural and Open Systems (Upper Saddle River, NJ: Prentice Hall, 1981).
[3] See J. Child and R. Mansfield, “Technology, Size and Organization Structure,” Sociology, 6 (1972), 369-393; and D.J. Hickson, D.S. Pugh, and D.C. Pheysey, “Operations Technology and Organizational Structure: An Empirical Reappraisal,” Administrative Science Quarterly, 14 (1969), 378-397; D.S. Pugh, “The Aston Program of Research: Retrospect and Prospect,” in A.H. Van de Ven and W.F. Joyce, eds., Perspectives on Organizational Design and Behavior (New York: Wiley, 1981), pp. 135-166).
[4] J. Woodward, Industrial Organization: Theory and Practice (London: Oxford University Press, 1965).
[5] For further discussion, see A. Gutterman, Organizational Studies (Oakland, CA: Sustainable Entrepreneurship Project, 2019), which is available at .
[6] C. Perrow, Organizational Analysis: A Sociological View (Belmont, CA: Wadsworth, 1970); and C. Perrow, “A Framework for the Comparative Analysis of Organizations,” American Sociological Review, 32 (1967), 194-208.
[7] C. Perrow, Organizational Analysis: A Sociological View (Belmont, CA: Wadsworth, 1970), 21.
[8] Id.
[9] R. Daft and N. Macintosh, “A New Approach to Design and Use of Management Information,” California Management Review, 21 (Regents of the University of California, 1978), 82-92.
[10] J.D. Thompson, Organizations in Action (New York: McGraw-Hill, 1967).
[11] C. Edquist and S. Jacobson, Flexible Automation: The Global Diffusion of New Technology in the Engineering Industry (London: Basil Blackwell, 1988).
[12] J.D. Thompson, Organizations in Action (New York: McGraw-Hill, 1967), 17.
[13] C.A. Voss, Managing Advanced Manufacturing Technology (Bedford, England: IFS Publications Ltd., 1986).
[14] P.L. Menetz and L.W. Fry, “Flexible Manufacturing Organizations: Implications for Strategy Formulation and Organizational Design,” Academy of Management Review, 13 (1988), 627-638.
[15] See F.F. Reichheld and W.E. Sasser, Jr., “Zero Defections: Quality Comes to Services,” Harvard Business Review 68 (September-October 1990), 105-11; and D.E. Bowen, C. Siehl and B. Schneider, “A Framework for Analyzing Customer Service Orientations in Manufacturing,” Academy of Management Review 14 (1989), 75-95.
[16] M. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985).
[17] C.B. Stabell and O.D. Fjeldstad, “Configuring Value for Competitive Advantage: On Chains, Shops, and Networks,” Strategic Management Journal 19 (1998), 413-437.
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