A Conceptual Framework for the Design of Organizational Control Mechanism

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A Conceptual Framework for the Design of
Organizational Control Mechanism

• William G. Ouchi
• Management Science, 1979, 25 (9) 833-847

BA 545 Foundations of Strategy Research College
of Business University of Illinois at
Urbana-Champaign Marleen Rust
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Overview

• Objective describe three mechanisms through
  which organizations seek to cope with the problem
  of evaluation and control
• Markets
• Bureaucracies
• Clans

Examine each of these mechanisms by looking at
the parts distribution division of a major company
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Organizational Control

• Simple-minded view of organizational control
  stated in the following two questions
• 1. What are the mechanisms through which an
  organization can be managed so that it moves
  towards its objectives?
• 2. How can the design of these mechanisms be
  improved, and what are the limits of each basic
  design?

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Three modes of organizational control

• Precisely evaluate and reward each persons
  contributions with all of the information
  necessary for efficient decision-making
• Provide a price mechanism for solving the problem
  of goal incongruity
• Permit each individual to pursue
  non-organizational goals, but at personal loss of
  reward

Markets
Markets

• Working within a well-defined set of rules and
  formal authority for monitoring, evaluating, and
  directing
• Partial information rather than complete
  information (Rule vs. Price)

Bureaucracies

• High internal commitment to the firms objective
  by Informal social system such as socializing
  process
• Eliminate many costly forms of auditing and
  monitoring

Clans

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The Control Mechanisms

• Markets prices convey all the information
  necessary for efficient decision making
• Bureaucracies close personal surveillance and
  direction of subordinates by superiors
• Info for task completion is contained in rules
• Differ from price because partial information
• Clans informal social system where manager
  knows that all are trying for same right
  objective and can eliminate audit/surveillance

Markets
Bureaucracies
Clans
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Designing Control Mechanisms Costs and Benefits

• Two ways an organization can achieve effective
  people control
• Go to the expense of searching for and selecting
  people who fit its needs exactly or
• Can take people who do not exactly fit its needs
  and go to the expense of putting in place a
  managerial system to instruct, monitor and
  evaluate them
• Which of these approaches is best depends on the
  cost to the organization of each

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Loose Coupling and the Clan

• Present (1979) literature has taken on a new view
  of organizational rationality or loose
  coupling the bureaucratic forms of control are
  unsuitable for many contemporary organizations
• Assumption with bureaucratic or market forms of
  control is we can measure the performance desired
• To set a production standard with effective
  controls, we must be able to measure desired
  output
• To control through rules, the rules that achieve
  the desired performance must be known
• To measure either output or behavior relevant to
  desired performance is critical to the "rational
  application of market/bureaucratic forms of
  control

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Table 3 the contingencies which determine
whether or not measurement is possible
Recent (1979) organization theorist have argued
that few organizations process underlying
rationality for market and bureaucratic forms of
control therefore the forms of control of today
may be inappropriate for the future
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Closing Remarks

• The design of organizational control mechanisms
  control must focus on the problem of achieving
  cooperation from people with partially divergent
  objectives
• Market precisely evaluates persons contributes
  permits each to pursue non-organizational goals,
  but at a personal loss of reward
• Clan Select and socializing people to have
  overlapping objectives
• Bureaucratic does little of each of above but
  evaluates performance to encourage commitment

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More Closing Remarks

• Two underlying issues that are central to
  importance in determining control
• Clarity with which performance can be assessed
• Degree of goal incongruence
• Immediate goal Balance of socialization and
  measurement which most efficiently permits a
  particular organization to achieve cooperation
  among its members