Organizations are essentially structured around tasks. Organizational goals are broken into tasks, from which jobs are designed. Jobs are then grouped into departments, which are linked to form organizational structure. This chapter addresses differentiation and integration, six basic design dimensions, five structural configurations, contextual variables influencing organizational design, five forces shaping organizations today, and cautions for managers with regard to structural weaknesses. As the organization develops, the structure of the organization is likely to change. Organization size affects the centralization of the organization. Technology affects organizations whether structures are categorized as mechanistic or organic.
After reading this chapter, you should be able to do the following:
1. Define differentiation and integration as organizational design processes.
2. Discuss six basic design dimensions of an organization.
3. Briefly describe five structural configurations for organizations.
4. Describe four contextual variables for an organization.
5. Explain the four forces reshaping organizations.
6. Discuss emerging organizational structures.
7. Identify two cautions about the effect of organizational structures on people.
Chapter 15 introduces the following key terms:
organizational design
organizational structure
contextual variables
differentiation
integration
formalization
centralization
specialization
standardization
complexity
hierarchy of authority
simple structure
machine bureaucracy
professional bureaucracy
divisionalized form
adhocracy
technological interdependence
environment
task environment
environmental uncertainty
mechanistic structure
organic structure
organizational life cycle
II. KEY ORGANIZATIONAL DESIGN PROCESSES
Organizational design is the process of constructing and adjusting an organization's structure to achieve its goals. Organizational structure is the linking of departments and jobs within an organization. The contextual variables are a set of characteristics that influence the organization’s design process, and include size, technology, environment, and strategy and goals.
A. Differentiation
Differentiation is the process of deciding how to divide the work in an organization. It ensures that all essential tasks are assigned to jobs and will be accomplished. An earlier study identified four dimensions of differentiation: (1) manager's goal orientation, (2) time orientation, (3) interpersonal orientation, and (4) formality of structure. Differentiation consists of horizontal differentiation (the degree of differentiation between organizational subunits), vertical differentiation (difference in authority and responsibility in the organizational hierarchy), and spatial differentiation (geographic dispersion of an organization’s offices, plants, and personnel).
B. Integration
Integration is the process of coordinating the different parts of an organization. Vertical linkages integrate activities up and down the organizational chain of command. Horizontal linkages provide for communication and coordination across jobs and departments. The flatter the organization, the more necessary horizontal integration linkages become.
III. BASIC DESIGN DIMENSIONS
There are five basic design dimensions. Formalization is the degree to which the organization has official rules, regulations, and procedures. An organization may have a formal structure, but may operate informally. Centralization is the degree to which decisions are made at the top of the organization. The quality movement and programs that stress delegating responsibility and decision making to lower levels result in decentralization. At the same time, reductions in organizations have altered the middle management tier of the organization by eliminating part of the central reporting structure. Typically, the larger and longer the organization has been in existence, the more centralized its structure will be. Specialization is the degree to which jobs are narrowly defined and depend on unique expertise. Standardization is the extent to which work activities are accomplished in a routine fashion. Complexity refers to the number of different types of activities that occur in the organization. The hierarchy of authority is the degree of vertical differentiation across levels of management.
Organizations that are highly specialized, formalized, and centralized, typically have a tall hierarchy of authority, are highly bureaucratic, and have a mechanistic structure. The term bureaucracy has not always had the negative connotation that it carries today. Max Weber coined the term to mean a complex organization based on hierarchy of authority and adherence to rules.
IV. FIVE STRUCTURAL CONFIGURATIONS
Mintzberg proposes five structural configurations for organizations.
A. Simple Structure
The simple structure is a centralized form of organization that emphasizes the upper echelon and direct supervision. Most organizations pass through the simple structure in their formative years. It is the riskiest structure because success is often based on whims.
B. Machine Bureaucracy
The machine bureaucracy is a moderately decentralized form of organization that emphasizes the technical staff and standardization of work processes. Its strength is efficiency of operation in stable, unchanging environments.
C. Professional Bureaucracy
The professional bureaucracy is a decentralized form of organization that emphasizes the operating core and standardization of skills. Hospitals and universities are examples of professional bureaucracies.
D. Divisionalized Form
A loosely coupled, composite configuration, the divisionalized form is a moderately decentralized form of organization that emphasizes the middle level and standardization of outputs.
E. Adhocracy
Highly open and decentralized, the adhocracy is a selectively decentralized form of organization that emphasizes the support staff and mutual adjustment among people.
V. CONTEXTUAL VARIABLES
A. Size
Size determinations are typically based on number of employees. Generally speaking, the larger the organization, the more likely it will be formalized, specialized, standardized, and complex. Additionally, larger organizations typically have a tall structure, with numerous levels in its hierarchy of authority. Large organizations also reap the efficiency advantages of economies of scale.
B. Technology
Joan Woodward classified technologies by their complexity. Perrow focused on task variability and problem analyzability. Technological interdependence is the degree of interrelatedness of the organization’s various technological elements.
C. Environment
The organizational environment is considered anything outside the boundaries of the organization. The task environment includes elements that are specifically related to the attainment of the organization's goals. Environmental uncertainty refers to the amount and rate of change in an organization’s environment. Burns and Stalker compared rates of change and determined that organizations have either mechanistic or organic structures. A mechanistic structure is an organizational design that emphasizes structured activities, specialized tasks, and centralized decision making. An organic structure is an organizational design that emphasizes teamwork, open communication, and decentralized decision making.
D. Strategy and Goals
Strategies and goals provide legitimacy to the organization, as well as employee direction, decision guidelines, and criteria for performance. They also help the organization fit into its environment.
VI. FORCES RESHAPING ORGANIZATIONS
A. Life Cycles in Organizations
The organizational life cycle is comprised of the differing stages of an organization's life from birth to death. During early life cycle stages, organizations typically have organic structures. As organizations progress through the stages, they become more mechanistic.
B. Globalization
As organizations develop globally, they often change their structures to accommodate the decentralization necessary because of geographic dispersion and cultural and value-related differences.
C. Changes in Information-Processing Technologies
Advances in information technology lead to a flattening of hierarchies of authority, decreases in centralization, and less specialization and standardization.
D. Demands on Organizational Processes
Managers must learn to meet both efficiency and quality goals by combining long-term thinking with flexible and quick responses.
E. Emerging Organizational Structures
Emerging structures will increasingly and necessarily be organized around processes. Three emerging organizational structures include network organizations, virtual organizations, and circle organizations.
VII. CAUTIONARY NOTES ABOUT STRUCTURE
Not all structures are advantageous, particularly if they are deficient in some area. If the hierarchy is overloaded with too much information, decision making is cumbersome and delayed. At the highest levels, the personality of the chief executive may affect the organization's structure.
VIII. MANAGERIAL IMPLICATIONS: FITTING PEOPLE AND STRUCTURES TOGETHER
CHAPTER SUMMARY
Three basic types of differentiation occur in organizations: horizontal, vertical, and spatial.
The greater the complexity of an organization because of its degree of differentiation, the greater the need for integration.
Formalization, centralization, specialization, standardization, complexity, and hierarchy of authority are the six basic design dimensions in an organization.
Simple structure, machine bureaucracy, professional bureaucracy, divisionalized form, and adhocracy are five structural configurations of an organization.
The contextual variables important to organizational design are size, technology, environment, and strategy and goals.
Life cycles, globalization, changes in information-processing technologies, and demands on process capabilities are forces reshaping organizations today.
Network organizations, virtual organizations, and the circle organization are emerging organizational structures.
Organizational structures may be inherently weak, or chief executives may create personality-organization constellations that adversely affect employees.
1. Define the processes of differentiation and integration.
Differentiation is the process of deciding how to divide the work in an organization. Integration coordinates the different parts of an organization.
2. Describe the six basic dimensions of organizational design.
Formalization is the degree to which the organization has official rules, regulations, and procedures. Centralization is the degree to which decisions are made at the top of the organization. An organization is specialized if the jobs are narrowly defined and require specific, unique expertise. If tasks are fairly routine, the organization structure is considered standardized. If the organization has multiple types of activities occurring, it is a complex organization. Hierarchy of authority is the degree of vertical differentiation across levels of management.
3. Discuss five structural configurations from the chapter.
The five configurations are from Mintzberg's research. A simple structure is centralized, having direct supervision and the dominant impact from upper management. Most small organizations adopt this structure, or early organizations before their growth phase. The machine bureaucracy has a specialized technical staff with limited decentralization. Professional bureaucracy organizations are highly skilled, and have vertical and horizontal decentralization in the organization. Divisionalized forms key on the middle level, and are standardized in their outputs. Adhocracy organizations emphasize support staff and practice selective decentralization.
4. Discuss the effects of the four contextual variables on the basic design dimensions.
The four variables are size, technology, environment, and strategy and goals. As these elements change, so will the design of the organization. In general, large organizations are more formalized, specialized, standardized, and complex than smaller ones. They also have taller hierarchies and lower centralization. Determining the relationship between technologies and basic dimensions is more complicated. Thompson suggested that greater technological interdependence produces greater complexity and the need for more decentralized decision making. One way of looking at the environment is to use Burns's and Stalker's perspective. If the environment is complex, an organic structure is better. The relationship between strategy and goals and the basic design dimensions is summarized in Table 15.5.
5. Identify four forces that are reshaping organizations today.
Organizational life cycles refer to the differing stages in an organization’s life from birth to death. Advances in technology and product design continue to shorten organizational life cycles, creating pressure for both flexibility and efficiency. Increasing globalization forces changes in differentiation, formalization, specialization, standardization, and centralization. Changes in information-processing technologies require increased integration and coordination. Demands on organizational processes require organizations to develop structures compatible with dynamic stability in order to focus simultaneously on efficiency and quality.
6. Discuss the nature of emerging organizational structures.
One of the key ideas in total quality management is organizing around processes. New structures will be characterized by this type of organizing, along with an emphasis on self-managed teams. Emerging organizational structures include network organizations (weblike structures that contract functions to other organizations), virtual organizations (temporary network organizations), and circle organizations (an open system, organic structure focused on customer responsiveness).
7. List four symptoms of structural weakness and five unhealthy personality—organization combinations.
Symptoms of structural weakness include: (1) delayed decision making because the hierarchy is overloaded; (2) poor quality decisions because information linkages are not effective; (3) lack of innovative responses to changing environments because of poor coordination; and (4) conflict among departments because of a lack of shared strategies and goals.
Five dysfunctional combinations of executive personality and organization are paranoid, depressive, dramatic, compulsive, and schizoid.
1. How would you describe the organization you work for (or your college) on each of the basic design dimensions? For example, is it a very formal organization or an informal organization?
Most students will see their organization as formal, particularly university structures.
2. Do the size, technology, and mission of your organization directly affect you? How?
Students typically relate to the size and technology aspects of this question, rather than the strategy and goals, which are harder to ascertain.
3. Who are your organization’s competitors? What changes do you see in information technology where you work?
Students are likely to identify competitors in the local market, and may need to be reminded of global competition. The geographic range of competition will, of course, vary depending on the type of industry.
Students will readily identify changes such as increased computerization and the use of e-mail and the Internet. Some workplaces, of course, may have more advanced technologies.
4. Does your company show any one or more of the four symptoms of structural deficiency discussed at the end of the chapter?
Students should be prompted to think about why these deficiencies occur, and how they can be altered.
5. Write a memo classifying and describing the structural configuration of your university based on the five choices in Table 15.2. Do you need more information than you have to be comfortable with your classification and description? Where could you get the information?
Students should give specific examples and characteristics of the university to support their choices.
6. Interview an administrator in your college or university about possible changes in size (Will the college or university get bigger? smaller?) and technology (Is the college or university making a significant investment in information technology?). What effects does the administrator anticipate from these changes? Be prepared to present your results orally to the class.
It would be a good idea to coordinate student interviews in class so that a wide variety of administrators are approached. Class discussion can then focus on similarities and differences in the responses and how each administrator’s frame of reference influences his or her perspective on these issues.
1. For what types of individual behavior is it ethical for an organization to have formal rules and regulations? For what types of individual behavior is it unethical for an organization to have formal rules and regulations?
Job related policies are the easiest category. However, there is an increase in the policies that relate to employees off the job. For example, some organizations will not provide insurance coverage for smokers.
2. Should legal limits be set to prevent large companies from engaging in very competitive behavior to drive small companies out of business?
These laws and regulations exist, although students may be opinionated as to the degree in which they should exist.
3. As an organization changes its structure over time, how much commitment should it show to employees who need to be retrained to fit into the new system? Or is it acceptable for the organization to hire new people to fit the new structure?
Both of these approaches are acceptable; however, it is illegal to exchange older employees for newer employees as a direct cost saving benefit.
4. Suppose an employee complains about organizational design problems and suggests a solution. The organization is redesigned accordingly, but that employee's department is eliminated. Is it ethical for the company to terminate the employee? Should the company always make room for a person who has a beneficial idea for the organization?
This issue is closely related to the underlying concept of entitlement. Entitlement is the belief that an organization owes a job to employees who are loyal, committed, and perform well. Entitlement laws are vastly different from country to country.
CHALLENGES
15.1 HOW DECENTRALIZED IS YOUR COMPANY?
This might be a good challenge for students to complete prior to the discussion on decentralization. Students can then share their perceptions of their companies as examples during the discussion.
15.2 MANAGERS OF TODAY AND THE FUTURE
As students complete this challenge, they should also consider how difficult it would be for their organizations to become more oriented toward the future. What specific steps might their organizations need to take to make that transition?
The purpose of this exercise is to understand issues of organizational design. Because the students are given a fairly easy and innocuous assignment, it is not difficult to see how the design issues of the various groups influence the success of the outcome.
It is better to have several groups, so if the class is smaller, then assign groups to have only six members. By having several groups, it is possible to compare later which design worked best for this type of task.
If you can, assign one observer per group so that the debrief will be richer. Using observers to “float” is highly beneficial to learning. They still have their “home” group, but they freely move throughout the various groups. This gives them much more insight and ability to give more meaningful feedback later.
You should give each group the raw material words, preferably on a notecard or a piece of paper, so that each group gets a notecard. Some possibilities include:
organic and mechanic
Lawrence and Lorsch
task and design
Woodward on technology
Using raw materials related to the concepts of this exercise seems to reinforce the learning.
During the debrief, spend a lot of time on what the groups learned from Production Run #1 to Production Run #2. If they reorganized, how so and why? Some groups reorganize, but it is senseless. What information did they get from #1 that led them to the changes in #2? Was the outcome better?
SOURCE: Dorothy Marcic, Organizational Behavior Experiences and Cases, 4th Ed. (St. Paul: West, 1995), 303-305.
Instructor's Notes
This exercise is intended to give students an opportunity to design an organization and produce a product. Students are in groups (of 6-8 members) of one of three product-development teams working within the research and development division of the General Turret and Moat Corporation. Each of the three teams designs a castle for the company to produce and sell. Given limited resources, the company cannot put more than one design on the market. Therefore, the company will have to decide which of the three designs it will use and discard the others. Students are given 45 minutes to complete the project.
Exercise Schedule
Option 2
If there is time, have students actually build the castles. To build the castles, you may give students:
Discussion Questions
CASTLE BUILDING
MEMORANDUM
TO: PROJECT TEAM #1
FROM: Edward Grimsbsy Bullhouse, III
Chief Executive Officer
General Turret and Moat Corporation
SUBJECT: Development of new castle product
In order to perform effectively and to develop a useful product for our firm, I have decided that will serve as manager of product-development team #1. It is responsibility to see that the team develops a useful and feasible product, and I hope that all of you will cooperate with in this effort.
CASTLE BUILDING
MEMORANDUM
TO: PROJECT TEAM #2
FROM: Edward Grimsbsy Bullhouse, III
Chief Executive Officer
General Turret and Moat Corporation
SUBJECT: Development of new castle product
In order to perform effectively and to develop a useful product for our firm, I am asking that you select one of your team to serve as manager of product-development team #2. I trust that you will also determine and select any committees, task forces, subgroups, etc., that are needed in order to perform your job.
CASTLE BUILDING
MEMORANDUM
TO: PROJECT TEAM #3
FROM: Edward Grimsbsy Bullhouse, III
Chief Executive Officer
General Turret and Moat Corporation
SUBJECT: Development of new castle product
In order to perform effectively and to develop a useful product for our firm, I am asking that each of you put forth your maximum effort. I trust that you will provide us with a worthwhile product that can contribute to the profits of the firm.
CASTLE BUILDING
Observer’s Guide
During the course of the building period, observe what is happening within your particular group. Specifically, you should look for the following things.
After the session, be prepared to discuss your observation with the entire group.
Instructor's Notes:
This excerpt is a true story. The episode is followed by legal and human resource experts who briefly suggest how to cope with this colorful character.
Many employees are overlooked and treated as if they don't exist. With little attention and feedback, they become bored and complacent. This management problem may have encouraged Krista to "play dumb and stay lost." Any time a company undergoes reorganization, it should include a personal meeting with every employee to explain or discuss the impact on the employee's job. Despite the fact that the agency did not handle the reorganization appropriately, it has the right to hold Krista responsible for her actions. She should have received discipline for being AWOL.
This story demonstrates an often overlooked point. Employees have no obligation to seek out work. Whether private or public, it is management's obligation and legal right to insist that employees perform assigned duties in a satisfactory manner. This seems obvious, but many employers are reluctant to exercise their basic right to tell employees to go back to work when such situations arise.
Elizabeth N. Fried, Outrageous Acts of Behavior, Intermediaries Press, Dublin Ohio, 1990.
Chase was quite pleased. He was instrumental in redesigning the organization and implementing the communication program. He arranged for small-group meetings so that employees could understand the need for reorganization. The process took him nearly a month of continuous meetings, but the response was favorable. The employees cooperated and helped make the transition very smooth. After six weeks, the first productivity report showed a fifteen percent decrease in expenses, and morale seemed stable. The agency had plans to administer a work-climate study after twelve months. Chase was immersed in the glowing productivity report when his assistant, Suzanne, walked in his office.
"Here they are, fresh off the presses, our first run since the reorganization," Suzanne chirped.
Chase looked up from his desk puzzled, "What?"
"The performance review reminders," Suzanne responded. "You know, every month we get a printout for those employees due for their annual performance review. They have little computer-generated postcards that we send out to the managers."
"Oh, right, right. Go ahead and send them out," Chase said, still preoccupied with his productivity report.
Several days later he got a call from Gordon Fishman, the information officer.
"Say, Chase," Gordon began, "I just got the computer reminder to give Krista Reed, one of my former clerks, her performance review. Since we reorganized, Krista doesn't work for me any more."
Krista was fairly far down in the organization, so her name would not show up on the major charts. Chase remembered hiring her about three years ago for a simple, routine clerk job. She was rather plain, not very bright, but quite pleasant. When her performance reviews had crossed his desk, there was nothing unusual. They were mostly peppered with satisfactories. She had received only one promotion in three years and tended to blend right into the agency.
"Well, what happened to her?" Chase asked.
"I'm not really sure, but I think she's reporting to Bill Acton in Administration. Try him" Gordon responded.
Chase looked up Bill's extension. "Say, Bill, this is Chase Vidmar. We have a performance appraisal due on Krista Reed, and I understand she reports to you now."
"Krista Reed: Nope, not me. I think she was shipped over to Tracy Karras after the reorganization. Give Tracy a call," Bill suggested.
Chase tapped out Tracy's four-digit extension. "Ms. Karras's office, Jane speaking."
"Hi, Jane, this is Chase Vidmar. Is Tracy available?"
"Sorry, Mr. Vidmar, but Tracy is out of the office at a meeting with one of our vendors."
"Oh,” he paused, "well, maybe you can help me. Does Krista Reed report to your section?"
"That name doesn't sound familiar, but I'll check. Can you hold?"
"Sure."
Chase waited while he scanned his own personnel computer runs. There was Krista Reed's name all right. She still retained Gordon Fishman's budget code, but the section reassignment code was blank. That's why the performance appraisal reminder defaulted to Gordon. "Where the hell could she be?" he thought.
Jane returned to the line. "Sorry, Mr. Vidmar, but we don't have her here."
"Thanks, Jane." Chase rang off and sat at his desk bewildered. The agency had over two thousand people and he wasn't about to send out a missing-rewards memo on Krista. She was getting her paycheck. That must be a clue.
"Rats," he thought, after he checked with payroll. "My luck, she has her pay direct-deposited, with the confirmation mailed to her home. "Her home," he thought, "maybe she's at home. I'll try there." For an entire week Chase periodically called Krista's number - no answer or busy. He was getting very frustrated.
Chase usually worked through his lunch, grabbing some junk food from the vending machine. Today he felt especially hungry for some reason, so he ventured into the employee cafeteria. He filled his tray from the deli bar and passed through the register.
Seated a few tables from the register was Krista Reed! Chase couldn't believe his eyes. His surprise almost caused him to set his Coke off balance. He regained control and casually sauntered over to Krista, who was seated with some other women. There was an available seat across from her.
"Mind if I join you?" Chase asked politely.
"Sure, no problem," Krista smiled.
"So, Krista, it's been a long time since we've talked. How have you been?"
"Pretty good."
"So where are you working now that we've reorganized?" he asked.
"I'm glad you asked," she responded sincerely. "When everyone got their printout of where to be reassigned, the section for me was blank. My boss was tied up in meetings that day, so I didn't get to discuss it with him. Even though the move wasn't scheduled for two weeks, I wasn't able to get to him because I left that Friday for my two-week vacation. So, when I returned, everyone was in his or her new offices, and my boss, as you know, was shipped over to Building G across the complex. My section was split three ways, so I didn't even know which group to follow and haven't known what to do. I've felt really lost and kind of upset that the agency has forgotten about me. So I just came to work and visited with friends in the various break rooms, and then I'd sit through all three lunch sessions. That part has been a lot of fun, but to tell the truth, I've been getting kinda bored."
"That's terrible, Krista," Chase feigned sympathetically.
"And not only that," she added, "with all these lunches I've eaten over the past several weeks, I've gained nearly eight pounds!"
Chase was astounded. He knew Krista wasn't a rocket scientist, but how could she spend over a month occupying her day having one long lunch, just hoping someone might notice? Incredibly, no one did notice, and Krista appeared deadly serious and wholly sincere. Rather than embarrass himself and the whole agency for the major snafu, Chase politely suggested to Krista that she return with him to his office. He reviewed the organizational design study and determined where Krista should logically be located. Chase contacted the section manager and notified him that he was sending Krista on up. The he put a change action through to the computer to ensure that the elusive Krista would once again have a home.
Discussion Questions:
1. What type of organizational structure is this most likely to have occurred in?
2. What organizational response should have taken place to prevent this situation?
3. Do you believe this could happen in a restructuring company?
EXTRA EXPERIENTIAL EXERCISES
The following alternative exercise to supplement the material in the textbook can be obtained from:
Marcic, Dorothy, Seltzer, Joseph, & Vaill, Peter. Organizational Behavior: Experiences and Cases, 6th Ed. South Western College Publishing Company, 2001.
The Four Frames Model: Analyzing a Hospital Department Consolidation. p. 195-199.
Time: 40-50 minutes.
Purpose: To introduce and provide an example of the use of Bolman and Deal's Four
Frames Model.
The Honda Case: Designing for Quality. p. 201-206. Time: 40 minutes or more.
Purpose: To explore a Japanese approach to designing an organization for quality.
CASE QUESTIONS: SUGGESTED ANSWERS
for Network Organizations
A network (or virtual) organization performs only certain core functions and outsources the remaining functions to other companies. Consequently, the network organization is able to focus on its core competencies¾doing what it does best. The network organization is able to maintain greater flexibility in responding to environmental demands. A fairly common type of network (or virtual) organization arrangement is for the network company to focus on designing and marketing a product, and to contract with other companies for the manufacturing and/or distribution of the product. Increasingly, network (or virtual) companies are outsourcing more and more elements of operating and managing the entire supply chain in order to concentrate on their core competencies.
The network (or virtual) organization differs from more traditional organizations in the performance of critical organizational functions. In a traditional organization, these critical functions are performed in-house rather than being outsourced to other companies. Thus, companies with more traditional structures design them to accomplish differentiation and integration within the boundaries of the firm itself. In virtual organizations, differentiation and integration transcend the boundaries of the firms in the partnering alliance.
Network organizations have come about for at least three major reasons: advancing technology, environmental uncertainty, and the need to more productively utilize resources.
Advances in information technology have enabled companies to communicate quickly and easily to virtually any location throughout the world. Companies are now able to exchange important information with each other on a real-time basis. Thus, suppliers can work very closely with their customers—almost as though they were actually part of the customer’s organization. Advances in production technology—such as computer-aided manufacturing—have provided opportunities for production efficiency and flexibility that did not exist before. Production flexibility, in particular, has contributed to the rise of network organizations. Companies now outsource a variety of manufacturing operations to contractors that have the flexibility to adapt to differing manufacturing requirements.
Environmental uncertainty reflects both the complexity and dynamism of the business environment. Complex environments produce greater uncertainty for a business than simple environments do. Changing environments generate more uncertainty than static environments. In recent years, environmental uncertainty has increased dramatically, affecting an increasingly broad range of businesses. In part, this increased uncertainty is due to the increasing globalization of business and the resulting competitive pressures. In part, uncertainty has also been fostered by rapid technological advancements in many fields.
In an increasingly uncertain business environment, it is unlikely that a given company can do everything that it needs to do as well (or as excellently) as it needs or wants. Many companies are now focusing their efforts on their core competencies. They devote their energies to those things that they do well, and contract with other companies to do the things that they do not do as well. In forming alliances with other companies, network organizations seek to outsource those functions that are not core competencies for themselves but are for other companies. Thus, each of the partners is pursuing its own core competencies while complementing the core competencies of the others in the business alliance. Consequently, costs, quality, and service—all of which are important aspects of improving productivity—can be addressed effectively. Costs can be decreased while quality and service can be enhanced.
Solectron has contributed to the rise of network (or virtual) organizations by being a contract electronics manufacturer that:
Each of these attributes relates to one or more of the forces that have contributed to the rise of network organizations.
Some of the advantages include:
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