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Foundations Of Senior Management | | |
  Foundations
 Differentiation & Integration
Initially this involves the breaking down of
a single task of an organisation into
separate achievable parts and then
combining these smoothly so that the
whole task is accomplished effectively
and efficiently.
These also apply to people:
Differentiation structures the people of an
organisation into groups with their own
distinct perspectives and concerns (and
sub-cultures).
Integration is not just about tasks and
operations but is also crucially about
sustaining agreement on what the
common task is.
Thus organisations are built upon
political systems and the associated
unavoidable tensions.
Differentiation is essential and obvious,
however it is th integration, ensuring
coherence and consistancy, that is
problematic.
Transaction Costs
We incur what is called 'transaction
cost' over and above the price of goods
and services which we purchase.
Transaction costs are information-gathering and handling costs.
We can argue that organizations exist
because they can arrange transactions
between their constituent parts at a
lower cost than that available in the
market.
It should be cheaper to make or do
something in-house rather than to buy it
in the market place, because you dont
need to incur the hidden costs
associated with the investigation of
suppliers, detailing specifications,
negotiating contracts monitoring
compliance etc.
However as more activities are
incorporated and the size of an
organization grows, it is likely to become
internally inefficient and other cost will
rise to offset any transaction-cost
savings.
The balance struck between the two will
define the range of activities an
organization can integrate efficiently.
The core of the argument:
… is that transactions that involve
uncertainty about their outcome, that
recur frequently and require substantial
transaction specific investments - of
money, time or energy that cannot be
easily transferred - are more likely to
take place within the hierarchically
organized firms. Exchanges that are
straightforward, non-repetitive and require
no transaction specific investments will
take place across a market interface …
(Powell, 1990)
- Bounded rationality
Bounded rationality recognises that people
intending to be rational have their intentions
frustrated by both that lack of information
available and their ability to process large
amounts of it. This limits the ability of
managers to write contracts which cover all
possible contingencies.
When contracts are internalised there is less
need to anticipate all the contingencies,
because the internal management structure
will handle them as and when they arise.
Opportunism
This can be thought of as managers rational
pursuit of their own advantage, some say
with whatever means are available to them,
including guile and deceit (Powell, 1990). In
reality, most opportunism is lees devious
and extreme. Examples of opportunism at the
expense of the organisation include: discrete
empire building and nepotism.
It can be argued that opportunism can be
moderated by the authority structure and
possibly the stronger identity that an
organisation can generate. External
customers and suppliers are not so easily
influenced.
Summary
The theory of transaction costs highlights
the fact that various activities can be
integrated in different ways, more or less
closely and flexibly, involving more or less
time and effort.
Engendering Co-operation
Ouchi (1980)
Ouchi sees the problem of organising as one
of promoting co-operation. A co-operative
action involves the interdependence of
people and a transaction or exchange in
which each party gives something of value
to the other.
It is a fundamental problem that, left to their
own devices, people will pursue what are to
others incongruent objectives. This
opportunism must be controlled if a
collectivity is to function in an
economically efficient manner. Thus the
challenge becomes one of controlling the
reciprocity or equity of the transaction.
One way of controlling this is the market
mechanism and the other is hierarchy or
bureaucracy. However Ouchis analysis
suggests a third way. If the objectives of the
individuals are congruent, then the
conditions for reciprocity and equity can be
met differently. The underlying condition for
this congruence is the socialisation of the
individual members.
For Ouchi then, there are three ways of
managing transactions between
interdependent agents: the market, the
hierarchy, relying on explicit rules and
procedures and the clan, relying on shared
understandings and implicit reciprocity. But
if shared values, reciprocity and long-term
relationships can provide a sound basis for
integration within an organisation, may they
not also provide a basis for collaboration
between organisations along the lines of
networks?
In a network, inter-organisational
transactions are base upon relationships
rather than on contracts. Powell (1990) goes
on to suggest that when the items being
exchanged in arelationship are not easily
measured, and the relationship is long term
and enduring, it becomes difficult to speak
of the parties as separate entities.
Organisations need not, in dealing with each
other, reflect hostility or competition, but
collaboration.
- Controlling reciprocity / equity
- Market mechanism
- Hierachy
- Congruent objectives
Matrix Of Possibilities
These people hold the knowledge to do
the key jobs.
The Contractual Fringe
The purchase of part of someones
output, not the whole job.
Flexible Labour Force
People who come to work full or part
time for money, companionship and a
good working environment.
Please send your comments to webmaster@churcher.com. This document was updated 17/11/98. 
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