Design of Organizational Control Mechanisms Essay

ProblemWhen a team of individuals produce a single output the occupation arises on how to contribute the reward so that every individual is equally rewarded. This article examines three different appliances to deal with this issue1.MarketsMarkets deals with the interpret problem by dint of circumstantial quantityment and reward of individual contributions.2.BureaucratsBureaucrats rely on a mixture of close evaluation with socialized acceptance of common objectives.3.kins kindreds rely on a relatively complete socialization process which effectively eliminates goal incongruence between individuals.IntroductionControls (by Tannenbaum)=sum of inter individual(prenominal) influence relations in an presidential term Controls (Ezioni)= control is equivalent to powerControls (Weber)= a problem in creating and monitoring rules through a hierarchical sanction dodgeMain questions in article1) What argon the mechanisms through which an organization cigaret be managed so that it moves towards its objectives? 2) How can the design of these mechanisms be improved, what are the limits of each design?An example The parts supply component partPurchasing department buys 100.000 items (p.a.) from 3.000 suppliers purchased by 22 employees on 3 management levels. Purchasing officer send out request to 3 manufacturers and adds information on reliability, and the orderSupervisor Consults agents if they need help and reminds workers that they are not allowed to accept presents Warehousing operations 1.400 employees (incl. 150 manager)Pickers and packers (worker)Supervisor (manager) Formal confidence (written rules) Informal authority (personality)Three mechanisms1.Market mechanism purchasing functionAgents and supervisory employ market mechanism to minimize cost for the company by picking the best worth on the markets. In a market prices convey all of the information necessary for efficient decision-making. Friction little market Prices represent exactly the value of st eady-going or service. Therefore reward can be contributed in direct proportion to contribution of employeeAgents and supervisory are subject to bureaucratic mechanisms Their work is controlled by a set of bureaucratic control controls (performance evaluation, hierarchical oder-giving)2.Bureaucratic mechanism warehousing functionWarehousing is subject to routines of monitoring and directing. This is done by close personal surveillance and direction of subordinates by superiors, based on a set of rules.Rules vs. price Rules are arbitrary (beliebige) standards without comparison, based on assigned values of (successful) actions. Prices predicate that a comparison has already taken place. Prices are far more efficient means of controlling transactions than are rules. However, the conditions necessary for frictionless prices can rarely be met, and in such conditions the bureaucratic form, despite its inadequacies, is preferred.3.Informal social / clan mechanismSupervisors can rely on bureaucratic mechanisms but this requires surveillance which is associated with costs. But when the supervisor knows that his workers achieve the right objectives, he can eliminate many of the costly forms of audition and surveillance.Social and informational prerequisites of controlThe three models can be arranged along two dimensions1.Informational requirements=prerequisite to successful operation2.Social underpinnings= Set of agreements between people, as a bare minimum, is basis for controlType of controlSocial requirementsInformational requirements MarketsNorm of reciprocality (Wechselwirkung)PricesBureaucracyNorm of ReciprocityLegitimate authorityRulesClanNorm of ReciprocityLegitimate authorityShared values, beliefsTraditionsThe informational prerequisite of controlWhile a Clan is the most demanding and the Market the least demanding with detect to social underpinnings, the opposite is true when it comes to information. Within large organizations departments tend to develop o wn jargon in which complex information is easily transported. Each carcass carries information on how to behave Explicit system accounting system easily accessible by newcomer (system is created) Implicit system is far less complete in its ability to convey information. e.g. US Senate need years to discover flow of information (systems grow up)Companies attempting to control the organization through a price (=market) mechanism use transfer prices to represent prices of internal performances. The advantage should be obtained by using the best prices within the firm.Organizations can as well as create an explicit set of rules ( look as well as production and output) that will cover every situation and therefore cut the information problem down by using rules that will cover 90% of all events and depending upon hierarchical authority to settle the remaining 10%. Again legitimate authority is critical to bureaucracy.In a Clan the information is contained in the rituals, stories and ceremonies. So to say the information system does not require a information system, its just there. For example Chinese-American Hui conducts business as venture capital lender but they also enter risky businesses and even the repayments are left open. initiation is only when granted by birthright, a practice that guarantees that every member is part in the like social network and therefore behave to the same rules and principles.While the Market and Clan are both specialized approaches it is the Bureaucratic which is the system that is most flexible. Of course, under certain circumstance both the Market and Clan approach will deliver better results but the Bureaucratic can withstand high rank of turnover, a high degree of heterogeneity and it does not have very demanding informational needs.Designing Control Mechanisms Costs and BenefitsTwo ways of effective people control1. Find people that fit needs exactely2. meet people that dont fit exactly but use a managerial system to instruct, monitor and evaluate themBest approach depends on costs. Ad 1. is associated with costs and search and acquisitions but their skills will help to reduce costs in the long-run. Ad 2. includes trainings costs and a the costs for the supervisory system but reduces high turnover. Search and select clan-type peopleCost of Search and Acquisition High WagesBenefit Perform tasks without instruction, work hard instill people into the clan systemCost of training instruct, monitor, and evaluate unskilled workers (who are likely to be indifferent to learn organization skills and values). High rates of turnover. Costs of monitoring developing rules, supervising.Benefit heterogeneous system of people that can be controlled. Explicit rules (codified knowledge) offset turnover costs.Loose coupling and The Clan as a Form of ControlNew view with impact on designing control mechanisms. The ability to measure either output or behavior which is relevant to the desired performance is critical to the rational application of market or bureaucratic forms of control.Knowledge of transformation processTin john plant If we understand the technology (e.g. production process and what it takes for a successful production) perfectly, we can achieve effective control by setting rules that lead to behavior and processes that lead to our desired transformation steps. Thus, we can create an effective bureaucratic control mechanism. Womens boutique On the other hand, if we dont understand what is needed (e.g. control system for womens boutique) to be a successful buyer or merchandiser, we cant create rules. But we can measure output (turnover per buyer, salex volumes,). So we can use the output control mechanism to monitor various indicators and set actions accordingly. Apollo Program Each step of the transformation (assembling) is vitreous silica clear and we have a output measure (it comes back or not).Thus we have the choice and the lower cost alternative will be preferred clearly as the cost of failure would be prohibitive (untragbar) and more elaborate behavior control system will be installed. Reseach research laboratory We have the ability to define the rules of behavior and we can measure the output which will be some 10 years in the future. Certainly a strong output control system will be used but effectively this cannot guarantee success so neither behavior nor output measurement will be sufficient, leaving us with no rational form of control. Therefore such organizations rely on ritualized, ceremonial forms of controls. This approach only works with the recruitment of a selected few individuals, with the same schooling and professionalization process. Another organizations using this form Hospitals, Investement banks, Whereas output and behavior control can be implemented through a market or bureaucracy, ceremonial forms of control can be implemented through a clan.Closing observationsDepending on the organization and its requirements it has to be choosen which control systems works best. E.g. manufacturing behavior and output control vs. service org. cultural or clan controls. Nevertheless every control system is enjoin at achieving cooperation by Market mechanism each persons contribution is evaluated combined with a personal loss of reward Clan mechanism attain cooperation by selecting and sozialising individuals such that their objectives overlap with the organizations objectives Bureaucratic mechanism does a little of each, partly evaluates performance and partly engenders feelings of commitment to the supposition of legitimate authority in hierarchies Two main questions1. Clarity with which the performance can be assessed2. Degree of goal incongruence (either trust each other or control each other)