Signature Assignment: Leveraging Technology In Organizational Design OCONOR ONLY

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Chapter 9

Organizational Design,

Competences, and Technology

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Learning Objectives

This chapter focuses on technology and examines how organizations use it to build

competences and create value. Then it discusses why certain forms of

organizational structures are suitable for different types of technology, just as earlier

chapters used a similar contingency approach to examine why certain environments

or strategies typically require the use of certain forms of structure.

After studying this chapter you should be able to:

1. Identify what technology is and how it relates to organizational

effectiveness.

2. Differentiate among three different kinds of technology that create different

competences.

3. Understand how each type of technology needs to be matched to a certain

kind of organizational structure if an organization is to be effective.

4. Understand how technology affects organizational culture.

5. Appreciate how advances in technology, and new techniques for managing

technology, are helping increase organizational effectiveness.

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What Is Technology?

When we think of an organization, we are likely to think of it in terms of what it does.

We think of manufacturing organizations like Whirlpool or Ford as places where

people use their skills in combination with machinery and equipment to assemble

inputs into appliances, cars, and other finished products. We view service

organizations like hospitals and banks as places where people apply their skills in

combination with machinery or equipment to make sick people well or to facilitate

customers’ financial transactions. In all manufacturing and service organizations,

activities are performed to create value—that is, inputs are converted into goods

and services that satisfy people’s needs.

Technology is the combination of skills, knowledge, abilities, techniques,

materials, machines, computers, tools, and other equipment that people use to

convert or change raw materials, problems, and new ideas into valuable goods and

services. When people at Ford, the Mayo Clinic, H&R Block, and Google use their

skills, knowledge, materials, machines, and so forth, to produce a finished car, a

cured patient, a completed tax return, or a new online application, they are using

technology to bring about change to something to add value to it.

Technology

The combination of skills, knowledge, abilities,

techniques, materials, machines, computers, tools,

and other equipment that people use to convert or

change raw materials into valuable goods and

services.

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Inside an organization, technology exists at three levels: individual, functional or

departmental, and organizational. At the individual level, technology is the personal

skills, knowledge, and competences that individual women and men possess. At the

functional or departmental level, the procedures and techniques that groups work

out to perform their work create competences that constitute technology. The

interactions of the members of a surgical operating team, the cooperative efforts of

scientists in a research and

development laboratory, and techniques developed by assembly-line workers are

all examples of competences and technology at the functional or departmental

level.

Mass production

The organizational technology that uses conveyor

belts and a standardized, progressive assembly

process to manufacture goods.

The way an organization converts inputs into outputs is often used to characterize

technology at the organizational level. Mass production is the organizational

technology based on competences in using a standardized, progressive assembly

process to manufacture goods. Craftswork is the technology that involves

groups of skilled workers interacting closely and combining their skills to produce

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custom-designed products. The difference between these two forms of technology

is clearly illustrated in Organizational Insight 9.1 .

Craftswork

The technology that involves groups of skilled

workers who interact closely to produce custom-

designed products.

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Organizational Insight

9.1 Progressive Manufacture at Ford

In 1913, Henry Ford opened the Highland Park plant to produce the Model

T car. In doing so, he changed forever the way complex products like cars

are made, and the new technology of “progressive manufacture” (Ford’s

term), or mass production, was born. Before Ford introduced mass

production, most cars were manufactured by craftswork. A team of

workers—a skilled mechanic and a few helpers—performed all the

operations necessary to make the product. Individual craftsworkers in the

automobile and other industries have the skills to deal with unexpected

situations as they arise during the manufacturing process. They can modify

misaligned parts so that they fit together snugly, and they can follow

specifications and create small batches of a range of products. Because

craftswork relies on workers’ skills and expertise, it is a costly and slow

method of manufacturing. In searching for new ways to improve the

efficiency of manufacturing, Ford developed the process of progressive

manufacture.

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Brian Delft © Dorling Kindersley

Ford outlined three principles of progressive manufacture:

1. Work should be delivered to the worker; the worker should not have

to find the work. 1

At the Highland Park plant, a mechanized, moving

conveyor belt brought cars to the workers. Workers did not move

past a stationary line of cars under assembly.

2. Work should proceed in an orderly and specific sequence so each

task builds on the task that precedes it. At Highland Park, the

implementation of this idea fell to managers, who worked out the

most efficient sequence of tasks and coordinated them with the

speed of the conveyor belt.

3. Individual tasks should be broken down into their simplest

components to increase specialization and create an efficient

division of labor. The assembly of a taillight, for example, might be

broken into two separate tasks to be performed all day long by two

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different workers. One person puts lightbulbs into a reflective panel;

the other person screws a red lens onto the reflective panel.

As a result of this new work system, by 1914 Ford plants employed 15,000

workers but only 255 supervisors (not including top management) to

oversee them. The ratio of workers to supervisors was 58 to 1. This very

wide span of control was possible because the sequence and pacing of the

work were not directed by the supervisors but were controlled by work

programming and the speed of the production line. 2

The mass production

system helped Ford control many workers with a relatively small number of

supervisors, but it also created a tall hierarchy. The hierarchy at a typical

Ford plant had six levels, reflecting the fact that management’s major

preoccupation was the vertical communication of information to top

management, which controlled decision making for the whole plant.

The introduction of mass production technology to auto making was only

one of Henry Ford’s technological manufacturing innovations. Another was

the use of interchangeable parts. When parts are interchangeable, the

components from various suppliers fit together; they do not need to be

altered to fit during the assembly process. With the old craftswork method of

production, a high level of worker competence was needed to fit together

the components provided by different manufacturers, which often differed in

size or quality. Ford insisted that component manufacturers follow detailed

specifications so that parts needed no remachining and his relatively

unskilled work force would be able to assemble them easily. Eventually, the

desire to control the quality of inputs led Ford to embark on a massive

program of vertical integration. Ford mined iron ore in its mines in Upper

Michigan and transported the ore in a fleet of Ford-owned barges to Ford’s

steel plants in Detroit, where it was smelted, rolled, and stamped into

standard body parts.

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As a result of these technological innovations in manufacturing, by the early

1920s Henry Ford’s organization was making over two million cars a year.

Because of his efficient manufacturing methods, Ford reduced the price of a

car by two-thirds. This low-price advantage, in turn, created a mass market

for his product. 3

Clearly, as measured by standards of technical efficiency

and the ability to satisfy external stakeholders such as customers, Ford

Motor was a very effective organization. Inside the factories, however, the

picture was not so rosy.

Workers hated their work. Ford managers responded to their discontent with

repressive supervision. Workers were watched constantly. They were not

allowed to talk on the production line, and their behavior both in the plant

and outside was closely monitored. (For example, they were not allowed to

drink alcohol, even when they were not working.) Supervisors could

instantly fire workers who disobeyed any rules. So repressive were

conditions that by 1914 so many workers had been fired or had quit that 500

new workers had to be hired each day to keep the work force at 15,000. 4

Clearly, the new technology of mass production was imposing severe

demands on individual workers.

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Technology and Organizational

Effectiveness

Recall from Chapter 1 that organizations take inputs from the environment and

create value from the inputs by transforming them into outputs through conversion

processes (see Figure 9.1 ). Although we usually think of technology only at the

conversion stage, technology is present in all organizational activities: input,

conversion, and output.5

At the input stage, technology—skills, procedures, techniques, and competences—

allows each organizational function to handle relationships with outside

stakeholders so that the organization can effectively manage its specific

environment. The human resource function, for example, has techniques such as

interviewing procedures and

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Figure 9.1 Input, Conversion, and Output Processes

psychological testing that it uses to recruit and select qualified employees. The

materials management function has developed competences in dealing with input

suppliers, for negotiating favorable contract terms, and for obtaining low-cost, high-

quality component parts. The finance department has techniques for obtaining

capital at a cost favorable to the company.

At the conversion stage, technology—a combination of machines, techniques, and

work procedures—transforms inputs into outputs. The best technology allows an

organization to add the most value to its inputs at the least cost of organizational

resources. Organizations often try to improve the efficiency of their conversion

processes, and they can improve it by training employees in new time-management

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techniques and by allowing employees to devise better ways of performing their

jobs.

At the output stage, technology allows an organization to effectively dispose of

finished goods and services to external stakeholders. To be effective, an

organization must possess competences in testing the quality of the finished

product, in selling and marketing the product, and in managing after-sales service to

customers.

The technology of an organization’s input, conversion, and output processes is an

important source of a company’s competitive advantage. Why is Microsoft the most

successful software company? Why is Toyota the highest-quality carmaker? Why is

McDonald’s the most efficient fast-food company? Why does Walmart consistently

outperform Kmart and Sears? Each of these organizations excels in the

development, management, and use of technology to create competences that lead

to higher value for stakeholders.

Recall from Chapter 1 the three principal approaches to measuring and

increasing organizational effectiveness (see Table 1.1 ). An organization taking

the external resource approach uses technology to increase its ability to manage

and control external stakeholders. Any new technological developments that allow

an organization to improve its service to customers, such as the ability to customize

products or to increase products’ quality and reliability, increases the organization’s

effectiveness.

An organization taking the internal systems approach uses technology to increase

the success of its attempts to innovate; to develop new products, services, and

processes; and to reduce the time needed to bring new products to market. As we

saw earlier, the introduction of mass production at the Highland Park plant allowed

Henry Ford to make a new kind of product—a car for the mass market.

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An organization taking the technical approach uses technology to improve efficiency

and reduce costs while simultaneously enhancing the quality and reliability of its

products. Ford increased his organization’s effectiveness by organizing its

functional resources to create better quality cars at a lower cost for both

manufacturer and consumer.

Organizations use technology to become more efficient, more innovative, and better

able to meet the needs and desires of stakeholders. Each department or function in

an organization is responsible for building competences and developing technology

that allows it to make a positive contribution to organizational performance. When

an organization has technology that enables it to create value, it needs a structure

that maximizes the effectiveness of the technology. Just as environmental

characteristics require organizations to make certain organizational design choices,

so do the characteristics of different technologies affect an organization’s choice of

structure.

In the next three sections we examine three theories of technology that are

attempts to capture the way different departmental and organizational technologies

work and affect organizational design. Note that these three theories are

complementary in that each illuminates some aspects of technology that the others

don’t. All three theories are needed to understand the characteristics of different

kinds of technologies. Managers, at all levels and in all functions, can use these

theories to (1) choose the technology that will most effectively transform inputs into

outputs and (2) design a structure that allows the organization to operate the

technology effectively. Thus it is important for these managers to understand the

concept of technical complexity, the underlying differences between routine and

complex tasks, and the concept of task interdependence.

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Technical Complexity: The

Theory of Joan Woodward

Some kinds of technology are more complex and difficult to control than others

because some are more difficult to program than others. Technology is said to be

programmed when rules and SOPs for converting inputs into outputs can be

specified in advance so that tasks can be standardized and the work process be

made predictable. McDonald’s uses a highly programmed technology to produce

hamburgers and so does Ford to produce its vehicles, and they do so to control the

quality of their outputs—hamburgers or cars. The more difficult it is to specify the

process for converting inputs into outputs, the more difficult it is to control the

production process and make it predictable.

Programmed technology

A technology in which the procedures for converting

inputs into outputs can be specified in advance so

that tasks can be standardized and the work process

can be made predictable.

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According to one researcher, Joan Woodward, the technical complexity of a

production process—that is, the extent to which it can be programmed so it can be

controlled and made predictable—is the important dimension that differentiates

technologies. 6

High technical complexity exists when conversion processes can be

programmed in advance and fully automated. With full automation, work activities

and the outputs that result from them are standardized and can be predicted

accurately. Low technical complexity exists when conversion processes depend

primarily on people and their skills and knowledge and not on machines. With

increased human involvement and less reliance on machines, work activities cannot

be programmed in advance, and results depend on the skills of the people involved.

Technical complexity

A measure of the extent to which a production

process can be programmed so that it can be

controlled and made predictable.

The production of services, for example, typically relies much more on the

knowledge and experience of employees who interact directly with customers to

produce the final output than it relies on machines and other equipment. The labor-

intensive nature of the production of services makes standardizing and

programming work activities and controlling the work process especially difficult.

When conversion processes depend primarily on the performance of people, rather

than on machines, technical complexity is low, and the difficulty of maintaining high

quality and consistency of production is great.

Joan Woodward identified ten levels of tech. i#al complexity, whi#h she associated

with three types of production technology: (1) small-batch and unit technology, (2)

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large-batch and mass production technology, and (3) continuous-process

technology (see Figure 9.2 ). 7

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Small-Batch and Unit Technology

Organizations that employ small-batch and unit technology make one-of-a-kind

customized products or small quantities of products. Examples of such

organizations include a furniture maker that constructs furniture customized to the

needs and tastes of specific clients, a printer that supplies the engraved wedding

invitations that a particular couple desires, and teams of surgeons who work in

specialized hospitals that provide a specific set of services such as eye or knee

surgery. Small-batch and unit technology scores lowest on the dimension of

technical complexity (see Figure 9.2 ) because any machines used during the

conversion process are less important than people’s skills and knowledge. People

decide how and when to use machines, and the production operating process

reflects their decisions about how to apply their knowledge. A custom furniture

maker, for example, uses an array of tools—including lathes, hammers, planes, and

saws—to transform boards into a cabinet. However, which tools are used and the

order in which they are used depends on how the furniture maker chooses to build

the cabinet. With small-batch and unit technology, the conversion process is flexible

because the worker adapts techniques to suit the needs and requirements of

individual customers.

The flexibility of small-batch technology gives an organization the capacity to

produce a wide range of products that can be customized for individual customers.

For example, high-fashion designers and makers of products like fine perfume,

custom-built cars, and specialized furniture use small-batch technology. Small-

batch technology allows a custom furniture maker, for example, to satisfy the

customer’s request for a certain style of table made from a certain kind of wood.

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Figure 9.2 Technical Complexity and Three Types of Technology

Joan Woodward identified ten levels of technical complexity, which she associated

with three types of production.

Source: Adapted from Joan Woodward, “Management and Technology,” London: Her

Majesty’s Stationery Office, 1958, p. 11. Reproduced with permission of the Controller of Her

Britannic Majesty’s Stationery Office on behalf of Parliament.

Small-batch technology is relatively expensive to operate because the work process

is unpredictable and the production of customized made-to-order products makes

advance programming of work activities difficult. However, flexibility and the ability

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to respond to a wide range of customer requests make this technology ideally

suited to producing new or complex products. Google uses small-batch technology

when it assigns a team of software engineers to work together to develop new

software applications; so does a maker of doughnuts.

Founded in 1937 in Newington, Connecticut, Krispy Kreme is a leading specialty

retailer of premium-quality yeast-raised doughnuts. Krispy Kreme’s doughnuts have

a broad customer following and command a premium price because of their unique

taste and quality. The way it uses small-batch production to increase its operating

efficiency and responsiveness to customers is instructive. Krispy Kreme calls its

store production operations “doughnut theater” because its physical layout is

designed so that customers can see and smell the doughnuts being made by its

impressive company-built doughnut-making machines.

What are elements of its small-batch production methods? The story starts with the

65-year-old company’s secret doughnut recipe that it keeps locked up in a vault.

None of its franchisees know the recipe for making its dough, and Krispy Kreme

sells the ready-made dough and other ingredients to its stores. Even the machines

used to make the doughnuts are company designed and produced, so no doughnut

maker can imitate its unique cooking methods and thus create a similar competing

product.

The doughnut-making machines are designed to produce a wide variety of different

kinds of doughnuts in small quantities, and each store makes and sells between

4,000 and 10,000 dozen doughnuts per day.

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Krispy Kreme constantly refines its production system to improve the efficiency of

its small-batch operations. For example, it redesigned its doughnut machine to

include a high-tech extruder that uses air pressure to force doughnut dough into row

after row of rings or shells. Employees used to have to adjust air pressure manually

as the dough load lightened. Now this is all done automatically. A redesigned

doughnut icer tips finished pastries into a puddle of chocolate frosting; employees

had to dunk the doughnuts two at a time by hand before the machine was invented.

Although these innovations may seem small, across hundreds of stores and millions

of doughnuts, they add up to significant gains in productivity—and more satisfied

customers. The way in which Zynga, the social networking game maker, designs its

games using small-batch or craftswork technology shows how adaptable this type

of technology can be for Internet software companies, as discussed in

Organizational Insight 9.2 .

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Organizational Insight

9.2 How Zynga Crafts Its Online Social Games

Zynga Inc., based near Marina del Rey, California, is the most popular

maker of online social games—a rapidly growing and highly competitive

segment of the games industry. Every month, one out of ten users of the

WWW plays one or more of Zynga’s 55 games, which include FarmVille,

Zynga Poker, and Mafia Wars. About four-fifths of the U.S. population—

around 250 million people—play its games each month. In May 2011 Zynga

rolled out its newest online game, Empires & Allies, that took the company

into a new gaming arena, that of “action and strategy” games, which have

been dominated by established global game developers like Electronic Arts

(EA), some of whose blockbuster games include Crysis 2, Star Wars, The

Sims, and Portal 2.

The way in which Zynga develops its games is unique in the gaming

industry because it employs a craftswork technology in which small teams

of game designers and developers work continuously to create, develop,

and then perfect games over time so that the games themselves are

constantly changing. Zynga employs several hundred game developers and

designers in a relaxed, campus-like environment in which they are even

allowed to bring their dogs to work if they choose. Mark Skaggs, Zynga’s

senior vice president of product, summed up the way the company’s design

technology works as “fast, light, and right.” 8

Zynga’s games take only a few

weeks or months to design. Why? Because its teams of developers work in

self-managed groups that have around 30 members. All the activities of

each team member’s performance, and the way they continuously

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iStockphoto.com/luismmolina

make changes to a game, is immediately obvious to other team members

because they are all linked through interactive realtime software that allows

them to evaluate how the changes being made will affect the nature of the

game. Team members can continuously approve, disapprove, or find ways

to improve on the way a game’s objectives and features are developing, to

ensure the game will eventually appeal to Zynga’s hundreds of millions of

online users when it is released.

However, the other aspect of craftswork technology that works so well for

Zynga lies in its competence to continue to customize and change every

game it develops to better appeal to the likes and dislikes of its users—even

after the game has been released online. Unlike more established game

makers like EA, much of the game development that takes place after a

Zynga game is released occurs as its designers work—often round-the-

clock—to add content, correct errors, test new features, and constantly

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adjust the game based upon real-time feedback about how game players

are “interacting” with it, and to find out what users enjoy the most. One of

Zynga’s unique competences is its ability to track the performance of each

feature and design element of a game. By what it calls A/B testing, Zynga

creates two different groups of online players—A and B—who act as guinea

pigs as their responses to a game that has been modified or improved with

new features are monitored. By counting how many players click on the new

feature, Zynga knows if players like it and what they want, so its developers

can continuously change the dynamics of the game to make it more

satisfying to users.

The result is that its online games get better and better over time in the

sense that they become more appealing to users. As Greg Black, Empires

& Allies’ lead game designer, says, “We can mine our users and see in real

time what they like to do.” 9

So, for example, while the first thousands of

players of Empires & Allies were trying to work out how to play the game

and conquer their rivals on their computer screens, the game’s developers

were watching their efforts and using their experiences to continually craft

and improve the way the game is played to make it more exciting.

This amazing interactive approach to online game development is quite

different from the technology used by game developers like EA, which may

use hundreds of developers who take two years or more to finalize a new

game before it is released for sale. EA, of course makes its money from the

revenues earned on the sales of each game, which are often priced at $50

–75, and a successful game can sell 50 million copies. In Zynga’s model,

however, all the online games are provided free of charge to hundreds of

millions of online users. Online social games focus on the number of daily

active users, which in Zynga’s case is 50 million a day (it has an audience

of 240 million players on Facebook alone). So, if only 2–5% of its players

spend money on the extra game features that can be bought

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cheaply—often for nickels or dimes—with 50 million users a day Zynga is

already obtaining revenues of over $200 million a year. And, the more

games that Zynga can encourage users to play, the more money its earns!

Small wonder that when the company announced a public offering of its

shares in 2011, analysts estimated the company would be worth $20 billion!

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Large-Batch and Mass Production

Technology

To increase control over the work process and make it predictable, organizations try

to increase their use of machines and equipment—that is, they try to increase the

level of technical complexity and to increase their efficiency. Organizations that

employ large-batch or mass production technology produce massive volumes of

standardized products, such as cars, razor blades, aluminum cans, and soft drinks.

Examples of such organizations include Ford, Gillette, Crown Cork and Seal, and

Coca-Cola. With large-batch and mass production technology, machines control the

work process. Their use allows tasks to be specified and programmed in advance.

As a result, work activities are standardized, and the production process is highly

controllable. 10

Instead of a team of craftsworkers making custom furniture piece by

piece, for example, high-speed saws and lathes cut and shape boards into

standardized components that are assembled into thousands of identical tables or

chairs by unskilled workers on a production line, such as those produced in the

factories of IKEA’s global suppliers (see Closing Case, Chapter 3 ).

The control provided by large-batch and mass production technology allows an

organization to save money on production and charge a lower price for its products.

As Organizational Insight 9.1 describes, Henry Ford changed manufacturing

history when he replaced small-batch production (the assembly of cars one by one

by skilled workers) with mass production to manufacture the Model T. The use of a

conveyor belt, standardized and interchangeable parts, and specialized progressive

tasks made conversion processes at the Highland Park plant more efficient and

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productive. Production costs plummeted, and Ford was able to lower the cost of a

Model T and create a mass market for his product. In a similar way, IKEA today

also operates its own factories where its engineers specialize in finding ways to

make furniture more efficiently; IKEA then transfers this knowledge to its global

suppliers.11

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Continuous-Process Technology

With continuous-process technology, technical complexity reaches its height (see

Figure 9.2 ). Organizations that employ continuous-process technology include

companies that make oil-based products and chemicals, such as Exxon, DuPont,

and Dow, and brewing companies, such as Anheuser-Busch and Miller Brewing. In

continuous-process production, the conversion process is almost entirely

automated and mechanized; employees generally are not directly involved. Their

role in production is to monitor the plant and its machinery and ensure its efficient

operation. 12

The task of employees engaged in continuous-process production is

primarily to manage exceptions in the work process, such as a machine breakdown

or malfunctioning equipment.

The hallmark of continuous-process technology is the smoothness of its operation.

Production continues with little variation in output and rarely stops. In an oil refinery,

for example, crude oil brought continuously to the refinery by tankers flows through

pipes to cracking towers, where its individual component chemicals are extracted

and sent to other parts of the refinery for further refinement. Final products such as

gasoline, fuel oil, benzene, and tar leave the plant in tankers to be shipped to

customers. Workers in a refinery or in a chemical plant rarely see what they are

producing. Production takes place through pipes and machines. Employees in a

centralized control room monitor gauges and dials to ensure that the process

functions smoothly, safely, and efficiently.

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Continuous-process production tends to be more technically efficient than mass

production because it is more mechanized and automated and thus is more

predictable and easier to control. It is more cost efficient than both unit and mass

production because labor costs are such a small proportion of its overall cost. When

operated at full capacity, continuous-process technology has the lowest production

costs.

Woodward noted that an organization usually seeks to increase its use of machines

(if it is practical to do so) and move from small-batch to mass production to

continuous-process production to reduce costs. There are, however, exceptions to

this progression. For many organizational activities, the move to automate

production is not possible or practical. Prototype development, basic research into

new drugs or novel computer hardware or software applications, and the day-to-day

operation of hospitals and schools, for example, are intrinsically unpredictable and

thus would be impossible to program in advance using an automated machine. A

pharmaceutical company cannot say, “Our research department will invent three

new drugs—one for diabetes and two for high blood pressure—every six months.”

Such inventions are the result of trial and error and depend on the skills and

knowledge of its researchers. Moreover, many customers are willing to pay high

prices for custom-designed products that suit their individual tastes, such as

custom-made suits, jewelry, or high-end gaming computers. Thus there is a market

for the products of small-batch companies even though production costs are high.

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Technical Complexity and Organizational

Structure

One of Woodward’s goals in classifying technologies according to their technical

complexity was to discover whether an organization’s technology affected the

design of its structure. Specifically, she wanted to see whether effective

organizations had structures that matched the needs of their technologies. A

comparison of the structural characteristics of organizations pursuing each of the

three types of technology revealed systematic differences in the technology

–structure relationship.

On the basis of her findings, Woodward argued that each technology is associated

with a different structure because each technology presents different control and

coordination problems. Organizations with small-batch technology typically have

three levels in their hierarchy; organizations with mass production technology, four

levels; and organizations with continuous-process technology, six levels. As

technical complexity increases, organizations become taller, and the span of control

of the CEO widens. The span of control of first-line supervisors first expands and

then narrows. It is relatively small with small-batch technology, widens greatly with

mass production technology,

and contracts dramatically with continuous-process technology. These findings

result in the very differently shaped structures. Why does the nature of an

organization’s technology produce these results?

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The main coordination problem associated with small-batch technology is the

impossibility of programming conversion activities because production depends on

the skills and experience of people working together. An organization that uses small-

batch technology has to give people the freedom to make their own decisions so they

can respond quickly and flexibly to the customer’s requests and produce the exact

product the customer wants. For this reason, such an organization has a relatively flat

structure (three levels in the hierarchy), and decision making is decentralized to small

teams where first-line supervisors have a relatively small span of control (23

employees). With small-batch technology, each supervisor and work group decides

how to manage each decision as it occurs at each step of the input-conversion-output

process. This type of decision making requires mutual adjustment—face-to-face

communication with coworkers and often with customers. The most appropriate

structure for unit and small-batch technology is an organic structure in which

managers and employees work closely to coordinate their activities to meet changing

work demands, which is a relatively flat structure.13

In an organization that uses mass production technology, the ability to program

tasks in advance allows the organization to standardize the manufacturing process

and make it predictable. The first-line supervisor’s span of control increases to 48

because formalization through rules and procedures becomes the principal method

of coordination. Decision making becomes centralized, and the hierarchy of

authority becomes taller (four levels) as managers rely on vertical communication to

control the work process. A mechanistic structure becomes the appropriate

structure to control work activities in a mass production setting, and the

organizational structure becomes taller and wider.

In an organization that uses continuous-process technology, tasks can be

programmed in advance and the work process is predictable and controllable in a

technical sense, but there is still the potential for a major systems breakdown. The

principal control problem facing the organization is monitoring the production

process to control and correct unforeseen events before they lead to disaster. The

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consequences of a faulty pipeline in an oil refinery or chemical plant, for example,

are potentially disastrous. Accidents at a nuclear power plant, another user of

continuous-process technology, can also have catastrophic effects, as accidents at

Three Mile Island, Chernobyl, and most recently the meltdown at the Fukushima

nuclear plant in Japan in 2011 following a disastrous tsunami have shown.

The need to constantly monitor the operating system, and to make sure that each

employee conforms to accepted operating procedures, is the reason why

continuous-process technology is associated with the tallest hierarchy of authority

(six levels). Managers at all levels must closely monitor their subordinates’ actions,

and first-line supervisors have a narrow span of control, which creates a very tall,

diamond-shaped hierarchy. Many supervisors are needed to supervise lower-level

employees and to monitor and control sophisticated equipment. Because

employees also work together as a team and jointly work out procedures for

managing and reacting to unexpected situations, mutual adjustment becomes the

primary means of coordination. Thus an organic structure is the appropriate

structure for managing continuous-process technology because the potential for

unpredictable events requires the capability to provide quick, flexible responses.

One researcher, Charles Perrow, argues that complex continuous-process technology

such as the technology used in nuclear power plants is so complicated that it is

uncontrollable.14 Perrow acknowledges that control systems are designed with backup

systems to handle problems as they arise and that backup systems exist to compensate

for failed backup systems. He believes nevertheless that the number of unexpected

events that can occur when technical complexity is very high (as it is in nuclear power

plants) is so great that managers cannot react quickly enough to solve all the problems

that might arise. Perrow argues that some continuous-process technology is so complex

that no organizational structure can allow managers to safely operate it, no standard

operating procedures can be devised to manage problems in advance, and no integrating

mechanism used to promote mutual adjustments will be able to solve problems as they

arise. One implication of Perrow’s view is that nuclear power stations should be closed

because they are too complex to operate safely. Other researchers, however, disagree,

arguing that when the right balance of centralized and decentralized control is achieved,

the technology can be operated safely. However, in 2011, after the catastrophe in Japan,

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Germany announced it would close all 22 of its nuclear power plants by 2022, and Japan

was evaluating the safety of continuing to operate its other reactors in a country prone to

earthquakes.

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The Technological Imperative

Woodward’s results strongly suggest that technology is a main factor that

determines the design of organizational structure. 15

Her results imply that if a

company operates with a certain technology, then it needs to adopt a certain kind of

structure to be effective. If a company uses mass production technology, for

example, then it should have a mechanistic structure with six levels in the hierarchy,

a span of control of 1 to 48, and so on, to be effective. The argument that

technology determines structure is known as the technological imperative .

Technological imperative

The argument that technology determines structure.

Other researchers also interested in the technology–structure relationship became

concerned that Woodward’s results may have been a consequence of the sample

of companies she studied and may have overstated the importance of

technology. 16

They point out that most of the companies that Woodward studied

were relatively small (82% had fewer than 500 employees) and suggested that her

sample may have biased her results. They acknowledge that technology may have

a major impact on structure in a small manufacturing company because improving

the efficiency of manufacturing may be management’s major priority. But they

suggested the structure of an organization that has 5,000 or 500,000 employees

(such as Exxon or Walmart) is less likely to be determined primarily by the

technology used to manufacture its various products.

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In a series of studies known as the Aston Studies, researchers agreed that

technology has some effect on organizational structure: The more an organization’s

technology is mechanized and automated, the more likely is the organization to

have a highly centralized and standardized mechanistic structure. But, the Aston

Studies concluded, organizational size is more important than technology in

determining an organization’s choice of structure. 17

We have seen in earlier

chapters that as an organization grows and differentiates, control and coordination

problems emerge that changes in the organization’s structure must address. The

Aston researchers argue that although technology may strongly affect the structure

of small organizations, the structure adopted by large organizations may be a

product of other factors that cause an organization to grow and differentiate.

We saw in Chapter 8 that organizational strategy and the decision to produce a

wider range of products and enter new markets can cause an organization to grow

and adopt a more complex structure. Thus the strategic choices that an

organization—especially a large organization—makes about what products to make

for which markets affect the design of an organization’s structure as much as or

more than the technology the organization uses to produce the outputs. For small

organizations or for functions or departments within large organizations, the

importance of technology as a predictor of structure may be more important than it

is for large organizations.18

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Routine Tasks and Complex

Tasks: The Theory of Charles

Perrow

To understand why some technologies are more complex (more unpredictable and

difficult to control) than others, it is necessary to understand why the tasks

associated with some technologies are more complex than the tasks associated

with other technologies. What causes one task to be more difficult than another?

Why, for example,

do we normally think the task of serving hamburgers in a fast-food restaurant is

more routine—that is, more predictable and controllable—than the task of

programming a computer or performing brain surgery? If all the possible tasks that

people perform are considered, what characteristics of these tasks lead us to

believe that some are more complex than others? According to Charles Perrow, two

dimensions underlie the difference between routine and nonroutine or complex

tasks and technologies: task variability and task analyzability.19

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Task Variability and Task Analyzability

Task variability is the number of exceptions—new or unexpected situations—

that a person encounters while performing a task. Exceptions may occur at the

input, conversion, or output stage. Task variability is high when a person can

expect to encounter many new situations or problems when performing his or her

task. In a hospital operating room during the course of surgery, for example, there is

much opportunity for unexpected problems to develop. The patient’s condition may

be more serious than the doctors thought it was, or the surgeon may make a

mistake. No matter what happens, the surgeon and the operating team must have

the capacity to adjust quickly to new situations as they occur. Similarly, great

variability in the quality of the raw materials makes it especially difficult to manage

and maintain consistent quality during the conversion stage.

Task variability

The number of exceptions—new or unexpected

situations—that a person encounters while

performing a task.

Task variability is low when a task is highly standardized or repetitious so a worker

encounters the same situation time and time again. 20

In a fast-food restaurant, for

example, the number of exceptions to a given task is limited. Each customer places

a different order, but all customers must choose from the same limited menu, so

employees rarely confront unexpected situations. In fact, the menu in a fast-food

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restaurant is designed for low task variability, which keeps costs down and

efficiency up.

Task analyzability is the degree to which search and information-gathering

activity is required to solve a problem. The more analyzable a task, the less search

activity is needed; such tasks are routine because the information and procedures

needed to complete it have been discovered, rules have been worked out and

formalized, and the way to perform a task can be programmed in advance. For

example, although a customer may select thousands of combinations of food from a

menu at a fast-food restaurant, the order taker’s task of fulfilling each customer’s

order is relatively easy. The problem of combining foods in a bag is easily

analyzable: The order taker picks up the drink and puts it in the bag, then adds the

fries, burger, and so on, folds down the top of the bag, and hands the bag to the

customer. Little thought or judgment is needed to complete an order.

Task analyzability

The degree to which search activity is needed to

solve a problem.

Tasks are hard to analyze when they cannot be programmed—that is, when

procedures for carrying them out and dealing with exceptions cannot be worked out

in advance. If a person encounters an exception, the information needed to create

the procedures for dealing with the problem must be actively sought. For example,

a scientist trying to develop a new cancer-preventing drug that has no side effects

or a software programmer working on a program to enable computers to

understand the spoken word has to spend considerable time and effort collecting

data and working out the procedures for solving problems. Often, the search for a

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solution ends in failure. People working on tasks with low analyzability have to draw

on their knowledge and judgment to search for new information and procedures to

solve problems. When a great deal of search activity is required to find a solution to

a problem and procedures cannot be programmed in advance, tasks are complex

and nonroutine.

Together, task analyzability and task variability explain why some tasks are more

routine than others. The greater the number of exceptions that workers encounter in

the work process, and the greater the amount of search behavior required to find a

solution to each exception, the more complex and less routine are tasks. For tasks

that are routine, there are, in Perrow’s words, “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.” 21

For

tasks that are complex, “there are few established techniques; there is little certainty

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.” 22

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Four Types of Technology

Perrow used task variability and task analyzability to differentiate among four types

of technology: routine manufacturing, craftswork, engineering production, and

nonroutine research. 23

Perrow’s model makes it possible to categorize the

technology of an organization and the technology of departments and functions

inside an organization.

Routine Manufacturing

Routine manufacturing is characterized by low task variability and high task

analyzability. Few exceptions are encountered in the work process, and when an

exception does occur, little search behavior is required to deal with it. Mass

production is representative of routine technology.

In mass production settings, tasks are broken down into simple steps to minimize

the possibility that exceptions will occur, and inputs are standardized to minimize

disruptions to the production process. There are standard procedures to follow if an

exception or a problem presents itself. The low-cost advantages of mass production

are obtained by making tasks low in variability and high in analyzability. One reason

why McDonald’s has lower costs than its competitors is that it continually

streamlines its menu choices and standardizes its work activities to reduce task

variability and increase task analyzability.

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Craftswork

With craft technology, task variability is low (only a narrow range of exceptions is

encountered), and task analyzability is also low (a high level of search activity is

needed to find a solution to problems). Employees in an organization using this kind

of technology need to adapt existing procedures to new situations and find new

techniques to handle existing problems more effectively. This technology was used

to build early automobiles, as we saw earlier. Other examples of craftswork are the

manufacture of specialized or customized products like furniture, clothing, and

machinery, and trades such as carpentry and plumbing. The tasks that a plumber,

for example, is called on to perform center on installing or repairing bathroom or

kitchen plumbing. But because every house is different, a plumber needs to adapt

the techniques of the craft to each situation and find a unique solution for each

house.

Engineering Production

With engineering production technology, task variability is high and task

analyzability is high. The number or variety of exceptions that workers may

encounter in the task is high, but finding a solution is relatively easy because well-

understood standard procedures have been established to handle the exceptions.

Because these procedures are often codified in technical formulas, tables, or

manuals, solving a problem is often a matter of identifying and applying the right

technique. Thus, in organizations that use engineering production technology,

existing procedures are used to make many kinds of products. A manufacturing

company may specialize in custom building machines such as drill presses or

electric motors. A firm of architects may specialize in customizing apartment

buildings to the needs of different builders. A civil engineering group may use its

skills in constructing airports, dams, and hydroelectric projects to service the needs

of clients throughout the world. Like craftswork, engineering production is a form of

small-batch technology because people are primarily responsible for developing

techniques to solve particular problems.

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Nonroutine Research

Nonroutine research technology is characterized by high task variability and low

task analyzability and is the most complex and least routine of the four technologies

in Perrow’s classification. Tasks are complex because not only is the number of

unexpected situations large, but search activity is high. Each new situation creates

a need to expend resources to deal with it.

High-tech research and development activities are examples of nonroutine

research. For people working at the forefront of technical knowledge, there are no

prepackaged solutions to problems. There may be a thousand well-defined steps to

follow when building the perfect bridge (engineering production technology), but

there are few well-defined steps to take to discover a vaccine for AIDS, and

hundreds of teams of researchers are continuously experimenting to find the

breakthrough that will lead to such a universal cure.

An organization’s top-management team is another example of a group that uses

research technology. The teams’ responsibility is to chart the future path of the

organization and make the resource decisions that will be needed to ensure its

success five or ten years ahead. Managers make these decisions in a highly

uncertain context; however, they never know how successful their choices will be.

Planning and forecasting by top management, and other nonroutine research

activities, are inherently risky and uncertain because the technology is difficult to

manage.

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Routine Technology and Organizational

Structure

Just as the types of technology identified by Woodward have implications for an

organization’s structure, so do the types of technology in Perrow’s model. Perrow

and others have suggested that an organization should move from a mechanistic to

an organic structure as tasks become more complex and less routine. 24

Table 9.1 summarizes this finding.

When technology is routine, employees perform clearly defined tasks according to

well-established rules and procedures. The work process is programmed in

advance and standardized. Because the work process is standardized in routine

technology, employees need only learn the procedures for performing the task

effectively. For example, McDonald’s uses written rules and procedures to train new

personnel so the behavior of all McDonald’s employees is consistent and

predictable. Each new employee learns the right way to greet customers, the

appropriate way to fulfill customer orders, and the correct way to make Big Macs.

Because employee tasks can be standardized with routine technology, the

organizational hierarchy is relatively tall and decision making is centralized.

Management’s responsibility is to supervise employees and to manage the few

exceptions that may occur, such as a breakdown of the production line. Because

tasks are routine, all important production decisions are made at the top of the

production hierarchy and transmitted down the chain of command as orders to lower-

level managers and workers. It has been suggested that organizations with routine

technology, such as that found in mass production settings, deliberately “de- skill”

tasks, meaning that they simplify jobs by using machines to perform complex tasks

and by designing the work process to minimize the degree to which workers’ initiative

or judgment is required.25

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If an organization makes these design choices, it is using a mechanistic structure to

operate its routine technology. This certainly is the choice of huge global

outsourcing

Table 9.1 Routine and Nonroutine Tasks and Organizational Design

companies such as Foxconn and Flextronics, whose factories in China extend over

thousands of acres. Flextronics’ main plant in China, for example, employs over

40,000 workers who work in three shifts for six days a week to assemble flat-screen

TVs, Blu-ray players, and so on. Control is rigid in these factories; workers are only

motivated by the prospect of earning three times the normal wage for such work,

Structural Characteristic Nature of Technology

Routine Tasks Nonroutine Tasks

Standardization High Low

Mutual adjustment Low High

Specialization Individual Joint

Formalization High Low

Hierarchy of authority Tall Flat

Decision-making authority Centralized Decentralized

Overall structure Mechanistic Organic

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but even this was not enough, as the experience of Foxconn discussed in

Organizational Insight 9.3 describes.

The use of low-cost outsourcing by companies to make products is not the only way

to remain competitive, however, and many companies have reevaluated the way

they manufacture products. In Japan, in particular, the soaring value of the yen

against the dollar put pressure on carmakers and electronics manufacturers to look

for new ways to organize their production operations to lower costs. Innovative

electronics products command high prices, and the need to ensure consistent high

quality and protect their proprietary technology are important concerns of Japanese

electronics makers. So, to keep the assembly of complex new products at home

and reduce operating costs, Japanese companies have scrutinized every aspect of

their operating technology to find ways to improve routine assembly-line production.

Traditionally, Japanese companies have used the straight or linear conveyor belt

system that is often hundreds of feet long to mass produce identical products.

When reexamining this system, Japanese production managers came to realize

that a considerable amount of handling time is wasted as the product being

assembled is passed from worker to worker, and that a line can only move as fast

as the least capable worker. Moreover, this system is only efficient when large

quantities of the same product are being produced. If

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Organizational Insight

9.3 Honda, Apple, and Foxconn Have Mass

Production Problems in China

In 2010, Honda’s Beijing-based Chinese subsidiary announced that strikes

at three different Honda-owned mass production vehicle assembly and

parts production factories had arisen because, “Poor communication led to

a great deal of discontent and eventually developed into a labor dispute.

Our company will reflect deeply on this and strengthen communication with

employees and build mutual trust.” 26

The strikes shut down all of Honda’s

Chinese operations for many days. Honda is just one of many overseas

companies with operations in China that have become used to dealing with

uneducated, compliant Chinese workers willing to work for China’s minimum

wage of around $113 or 900 Yuan a week. Chinese factory workers

employed by overseas companies like Honda, Toyota, and GM have raised

little opposition to these companies’ pay and labor practices—even though

they are represented by government-sanctioned labor unions.

This all began to change during 2010, when rising prices and changing

attitudes in China led Chinese workers to protest their harsh work

conditions—monotonous jobs, long hours, and low pay. However,

companies such as Honda, used to a compliant workforce, had not

bothered to establish formal communication channels with workers that

would allow them to gather information about workers’ changing attitudes.

Honda’s Japanese managers ran the factories, its Chinese supervisors

trained the workers to perform their jobs, and Honda’s Japanese managers

had no feeling for the attitudes of workers in its factories, hence their shock

when Chinese employees went on strike.

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Foxconn, a giant outsourcer owned by the Taiwanese company Hon Hai

Precision Engineering, employs hundreds of thousands of workers in its

Chinese factories and these workers had also been compliant for years.

They performed repetitive assembly line work along fast-moving production

lines often for 80 hours a week, after which they were allowed to eat in the

company’s canteens before returning to their dormitories. This all changed

in 2010, when Foxconn found itself in the spotlight when its biggest factory

in Shenzhen, which assembles Apple’s iPhone, reported that over 11

workers had committed suicide by jumping off buildings in the past year.

Because most workers are young, uneducated, and come from small

farming communities, Foxconn had just taken advantage of workers’

passivity and willingness to work at minimum wage. Indeed, Foxconn had

steadily increased the number of hours workers were forced to work on

assembly lines that moved at a rapid speed—a workweek of 80 hours

performing the same repetitive task for $113 was common. U.S. companies

such as Apple and Dell had sent inspectors to monitor factory conditions

and had found many violations. However, once again, inspectors made no

attempt to communicate directly with workers; they simply studied the

companies’ employment records.27

In any event, Honda, Foxconn, and many other foreign-owned companies

have been forced to rapidly change their labor practices. In 2010, for

example, Foxconn announced it would double the pay of its workers to

make their work more palatable and Honda also agreed to increase the

wages of its workers by over 60% and establish formal channels so

managers can meet with union representatives regularly to find ways to

improve work practices. 28

Problems of operating a mass production

technology are likely to increase in the years ahead as companies in China

find it harder to attract and keep workers who want better pay and working

conditions.

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customized products are what is needed, something increasingly common today,

the production line is typically down while it is being retooled for the next product.

Recognizing these problems, production engineers searched for new ways to

organize and control assembly-line layouts that could solve these problems. They

began to experiment with layouts of various shapes, such as spirals, Ys, 6s, or even

insects. At a Sony camcorder plant in Kohda, Japan, for example, Sony dismantled

its previous assembly-line production system in which 50 workers worked

sequentially to build a camcorder, and replaced it with a spiral arrangement in which

four workers perform all the operations necessary to assemble the camcorder. Sony

found this new way of organizing is 10% more efficient than the old system because

it allows the most efficient assemblers to perform at a higher level. 29

Essentially, a

craftswork-like organizing structure has replaced the mechanistic structure to

achieve the advantages of flexibility at lower cost.

In the United States too, these new production layouts, normally referred to as cell

layouts, have become increasingly common. It has been estimated that 40% of

small companies and 70% of large companies have experimented with the new

designs. Bayside Controls Inc., for example, a small gear-head manufacturer in

Queens, New York, converted its 35-person assembly line into a four-cell design

where seven to nine workers form a cell. The members of each cell perform all the

operations involved in making the gear heads, such as measuring, cutting, and

assembling the new gear heads. Bayside’s managers say that the average

production time necessary to make a gear has dropped to two days from six weeks,

and it now makes 75 gear heads a day—up from 50 before the change—so costs

have decreased significantly. 30

An additional advantage is that cell designs allow

companies to be very responsive to the needs of individual customers, as this

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organizing approach permits the quick manufacture of small quantities of

customized products.

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Nonroutine Technology and Organizational

Structure

Organizations operating a nonroutine technology face a different set of factors that

affect the design of the organization. 31

As tasks become less routine and more

complex, an organization has to develop a structure that allows employees to

respond quickly to and manage an increase in the number and variety of exceptions

and to develop new procedures to handle new problems. 32

As we saw in

Chapter 4 , an organic structure allows an organization to adapt rapidly to

changing conditions. Organic structures are based on mutual adjustment between

employees who work together, face to face, to develop procedures to find solutions

to problems. Mutual adjustment through task forces and teams becomes especially

important in facilitating communication and increasing integration between team

members.

The more complex an organization’s work processes, the more likely the

organization is to have a relatively flat and decentralized structure that allows

employees the authority and autonomy to cooperate to make decisions quickly and

effectively. 33

The use of work groups and product teams to facilitate rapid

adjustment and feedback among employees performing complex tasks is a key

feature of such an organization.

The same design considerations are applicable at the departmental or functional

level: To be effective, departments employing different technologies need different

structures. 34

In general, departments performing nonroutine tasks are likely to have

organic structures, and those performing routine tasks are likely to have

mechanistic structures. An R&D department, for example, is typically organic, and

decision making in it is usually decentralized; but the manufacturing and sales

functions are usually mechanistic, and decision making within them tends to be

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centralized. The kind of technology employed at the departmental level determines

the choice of structure. 35

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Task Interdependence: The

Theory of James D. Thompson

Woodward focused on how an organization’s technology affects its choice of

structure. Perrow’s model of technology focuses on the way in which the complexity

of tasks affects organizational structure. Another view of technology, developed by

James D. Thompson,

focuses on the way in which task interdependence , the method used to relate

or sequence different tasks to one another, affects an organization’s technology and

structure. 36

When task interdependence is low, people and departments are

individually specialized—that is, they work separately and independently to achieve

organizational goals. When task interdependence is high, people and departments

are jointly specialized—that is, they depend on one another for supplying the inputs

and resources they need to get the work done. Thompson identified three types of

technology: mediating, long linked, and intensive (see Figure 9.4 ). Each of them

is associated with a different form of task interdependence.

Task interdependence

The manner in which different organizational tasks

are related to one another.

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Mediating Technology and Pooled

Interdependence

Mediating technology

A technology characterized by a work process in

which input, conversion, and output activities can be

performed independently of one another.

Mediating technology is characterized by a work process in which input,

conversion, and output activities can be performed independently of one another.

Mediating technology is based on pooled task interdependence, which means that

each part of the organization—whether a person, team, or department—contributes

separately to the performance of the whole organization. With mediating

technology, task interdependence is low because people do not directly rely on

others to help them perform their tasks. As illustrated in Figure 9.4 , each person

or department—X, Y, and Z—performs a separate task. In a management

consulting firm or hair salon, each consultant or hairdresser works independently to

solve a client’s problems. The success of the organization as a whole, however,

depends on the collective efforts of everyone employed. The activities of a

gymnastic team also illustrate pooled task interdependence. Each team member

performs independently and can win or lose a particular event, but the collective

score of the team members

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Figure 9.4 Task Interdependence and Three Types of Technology

James D. Thompson’s model of technology focuses on how the relationship among

different organizational tasks affects an organization’s technology and structure.

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determines which team wins. Mediating technology has implications for organizational

structure at both the departmental and the organizational level.

At the departmental level, piecework systems best characterize the way this

technology operates. In a piecework system, each employee performs a task

independently from other employees. In a machine shop, for example, every

employee operates a lathe to produce bolts and is evaluated and rewarded on the

basis of how many bolts each of them makes each week. The performance of the

manufacturing department as a whole depends on each employee’s level of

performance, but their actions are not interdependent—one employee’s actions do

not affect the behavior of others. Similarly, the success of a sales department

depends on how well each salesperson performs their activities independently. As a

result, the use of a mediating technology to accomplish departmental or

organizational activities makes it easy to monitor, control, and evaluate the

performance of each individual because the output of each person is observable

and the same standards can be used to evaluate each employee.37

At the organizational level, mediating technology is found in organizations where

the activities of different departments are performed separately and there is little

need for integration between departments to accomplish organizational goals. In a

bank, for example, the activities of the loan department and the checking account

department are independent. The routines involved in lending money have no

relation to the routines involved in receiving money—but the performance of the

bank as a whole depends on how well each department does its job.38

Mediating technology at the organizational level is also found in organizations that

use franchise arrangements to organize their businesses or that operate a chain of

stores. For example, each McDonald’s franchise or Walmart store operates

essentially independently. The performance of one store does not affect another

store, but together all stores determine the performance of the whole organization.

One common strategy for improving organizational performance for an organization

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operating a mediating technology is to obtain more business from existing

customers and attract new customers by increasing the number of products it

offers. A fast-food chain can open a new restaurant or offer a wider menu; a retail

organization can open a new store or expand the brands of clothing it sells; a bank

can increase the number of financial services it offers customers to attract more

business.

Over the past decades the use of mediating technology has been increasing

because it is relatively inexpensive to operate and manage. Costs are low because

organizational activities are controlled by standardization. Bureaucratic rules are

used to specify how the activities of different departments should be coordinated,

and SOPs control the way a department operates to ensure its activities are

compatible with those of other departments. SOPs and advanced IT including

electronic inventory control provide the coordination necessary to manage the

business. Walmart, for example, coordinates its stores through advanced IT that

provides store managers with realtime information about new product introductions,

store deliveries, and changes in marketing and sales procedures.

As IT becomes more important in coordinating the activities of independent

employees or departments, it becomes possible to use a mediating technology to

coordinate more types of production activities. Network organizations, discussed in

Chapter 6 , are becoming more common as IT allows the different departments

of an organization to operate separately and at different locations. Similarly, IT has

spurred global outsourcing and today companies frequently contract with other

companies to perform their value-creation activities (like production or marketing)

for them because it is much easier to use mediating technology.

Recall from Chapter 3 how Nike contracts with manufacturers throughout the

world to produce and distribute products to its customers on a global basis. Nike

designs its shoes but then uses IT to contract its manufacturing, marketing, and

other functional activities out to other organizations around the globe. Nike

constantly monitors production and sales information from its network by means of

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a sophisticated global IT system to ensure its global network follows the rules and

procedures that specify the required

quality of input materials and the way its shoes should be manufactured to ensure

the quality of the finished product.

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Long-Linked Technology and Sequential

Interdependence

Long-linked technology , the second type of technology that Thompson

identified, is based on a work process where input, conversion, and output activities

must be performed in series. Long-linked technology is based on sequential task

interdependence, which means that the actions of one person or department

directly affect the actions of another, so work cannot be successfully completed by

allowing each person or department to operate independently. Figure 9.4

illustrates the dynamics of sequential interdependence. X’s activities directly affect

Y’s ability to perform her task, and in turn the activities of Y directly affect Z’s ability

to perform.

Long-linked technology

A technology characterized by a work process in

which input, conversion, and output activities must be

performed in series.

Mass production technology is based on sequential task interdependence. The

actions of the employee at the beginning of the production line determine how

successfully the next employee can perform his task, and so forth on down the line.

Because sequential interactions have to be carefully coordinated, long-linked

technology requires more direct coordination than mediating technology. One result

of sequential interdependence is that any error that occurs at the beginning of the

production process becomes magnified at later stages. Sports activities like relay

races or football, in which the performance of one person or group determines how

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well the next can perform, are based on sequential interdependence. In football, for

example, the performance of the defensive line determines how well the offense

can perform. If the defense is unable to secure the ball, the offense cannot perform

its task: scoring touchdowns.

An organization with long-linked technology can respond in a variety of ways to the

need to coordinate sequentially interdependent activities. The organization can

program the conversion process to standardize the procedures used to transform

inputs into outputs. The organization can also use planning and scheduling to

manage linkages among input, conversion, and output processes. To reduce the

need to coordinate these stages of production, an organization often creates

slack resources —extra or surplus resources that enhance its organization’s

ability to deal with unexpected situations. For example, a mass production

organization stockpiles inputs and holds inventories of component parts so the

conversion process is not disrupted if there is a problem with suppliers. Similarly, an

organization may stockpile finished products so it can respond quickly to an

increase in customer demand without changing its established conversion

processes. Another strategy to control the supply of inputs or distribution of outputs

is vertical integration, which, as we saw in Chapter 8 , involves a company taking

over its suppliers or distributors to control the supply and quality of inputs.

Slack resources

Extra or surplus resources that enhance an

organization’s ability to deal with unexpected

situations.

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The need to manage the increased level of interdependence increases the

coordination costs associated with long-linked technology. However, this type of

technology can provide an organization with advantages stemming from

specialization and the division of labor associated with sequential interdependence.

Changing the method of production in a pin factory from a system where each

worker produces a whole pin to a system where each worker is responsible for only

one aspect of pin production, such as sharpening the pin, for example, can result in

a major gain in productivity. Essentially, the factory moves from using a mediating

technology, in which each worker performs all production tasks, to a long-linked

technology, in which tasks become sequentially interdependent.

Tasks are routine in long-linked technology because sequential interdependence

allows managers to simplify tasks so the variability of each worker’s task is reduced

and the analyzability of each task is increased. In mass production, for example, the

coordination of tasks is achieved principally by the speed of the assembly line and

by the way specialization and the division of labor are used to program tasks to

increase production efficiency. This system, however, has two major

disadvantages. Employees do not become highly skilled (they learn only a narrow

range of simple tasks), and do not develop the ability to improve their skills because

they must follow the specified procedures necessary to perform their specific task.

At the organizational level, sequential interdependence means that the outputs of

one department become the inputs for another, and one department’s performance

determines how well another department performs. The performance of the

manufacturing department depends on the ability of the materials management

department to obtain adequate amounts of high-quality inputs in a timely manner.

The ability of the sales function to sell finished products depends on the quality of

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the products coming out of the manufacturing department. Failure or poor

performance at one stage has serious consequences for performance at the next

stage and for the organization as a whole. The pressures of global competition are

increasing the need for interdependence between departments and thus are

increasing organizations’ need to coordinate departmental activities. As we saw in

Chapter 6 , many organizations are moving toward the product team structure to

increase interdepartmental coordination. This type of coordination encourages

different departments to develop procedures that lead to greater production

innovation and efficiency.

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Intensive Technology and Reciprocal

Interdependence

Intensive technology , the third type of technology Thompson identifies, is

characterized by a work process where input, conversion, and output activities are

inseparable. Intensive technology is based on reciprocal task interdependence,

which means that the activities of all people and all departments fully depend on

one another. Not only do X’s actions affect what Y and Z can do, but the actions of

Z also affect Y’s and X’s performance. The task relationships of X, Y, and Z are

reciprocally interdependent (see Figure 9.4 ). Reciprocal interdependence makes

it impossible to program in advance a sequence of tasks or procedures to solve a

problem because, in Thompson’s words, “the selection, combination, and order of

[the tasks’] application are determined by feedback from the object [problem]

itself.” 39

Thus the move to reciprocal interdependence and intensive technology has

two effects: Technical complexity declines as the ability of managers to control and

predict the work process lessens, and tasks become more complex and nonroutine.

Intensive technology

A technology characterized by a work process in

which input, conversion, and output activities are

inseparable.

Hospitals are organizations that operate an intensive technology. A hospital’s

greatest source of uncertainty is the impossibility of predicting the types of problems

for which patients (clients) will seek treatment. At any time, a general hospital has to

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have on hand the knowledge, machines, and services of specialist departments

capable of solving a great variety of medical problems. For example, the hospital

requires an emergency room, X-ray facilities, a testing laboratory, an operating

room and staff, skilled nursing staff, doctors, and hospital wards. What is wrong with

each patient determines the selection and combination of activities and technology

to convert a hospital’s inputs (sick people) into outputs (well people). The

uncertainty of the input (patient) means that tasks cannot be programmed in

advance—as they can be when interdependence is sequential.

Basketball, soccer, and rugby are other activities that depend on reciprocal

interdependence. The current state of play determines the sequence of moves from

one player to the next. The fast-moving action of these sports requires players to

make judgments quickly and obtain feedback from the state of play before deciding

what moves to make.

On a departmental level, R&D departments operate with an intensive technology,

the sequence and content of their activities are determined by the problems the

department is trying to solve—for example, a cure for lung cancer. R&D is so

expensive because the unpredictability of the input-conversion-output process

makes it impossible to specify in advance the skills and resources that will be

needed to solve the problem at hand. A pharmaceutical company like Merck, for

example, creates many different research and development teams. Every team is

equipped with whatever functional resources it needs in the hope that at least one

team will stumble onto the wonder drug that will justify the immense resource

expenditures (each new drug costs over $500 million to develop).

The difficulty of specifying the sequencing of tasks that is characteristic of intensive

technology makes necessary a high degree of coordination and makes intensive

technology more expensive to manage than either mediating or long-linked

technology. Mutual adjustment replaces programming and standardization as the

principal method of coordination. Product team and matrix structures are suited to

operating intensive technologies

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because they provide the coordination and the decentralized control that allow

departments to cooperate to solve problems. At Google and Accenture, for

example, each company is organized into product teams so it can quickly move its

specialists to the projects that seem most promising. Also, mutual adjustment and a

flat structure allow an organization to quickly take advantage of new developments

and areas for research that arise during the research process itself. Another way is

to use self-managed teams, as Organizational Insight 9.4 illustrates.

Organizations do not voluntarily use intensive technology to achieve their goals

because it is so expensive to operate. Like IBM and Accenture, they are forced to

use it because of the nature of the products they choose to provide customers.

Whenever possible, organizations attempt to reduce the task interdependence

necessary to coordinate their activities and revert to a long-linked technology, which

is more controllable and predictable. In recent years, for example, hospitals have

attempted to control escalating management costs by using forecasting techniques

to determine how many resources they

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Organizational Insight

9.4 IBM and Accenture Use Technology to

Create Virtual Organizations

Accenture, a global management consulting company, has been one of the

pioneers in using IT to revolutionize its organizational structure. Its

managing partners realized that since only its consultants in the field could

diagnose and solve clients’ problems, the company should design a

structure that facilitates creative, on-the-spot decision making. To

accomplish this, Accenture decided to replace its tall hierarchy of authority

with a sophisticated IT system to create a virtual organization. First, it

flattened the organizational hierarchy, eliminating many managerial levels,

and set up a shared organization-wide IT system that provides each of

Accenture’s consultants with the information they need to solve clients’

problems. If consultants still lack the specific knowledge needed to solve a

problem, they can use the system to request expert help from Accenture’s

thousands of consultants around the globe.40

To implement the change, Accenture equipped all its consultants with state-

of-the-art laptops and smartphones that can connect to its sophisticated

corporate intranet and tap into Accenture’s large information databases that

contain volumes of potentially relevant information. The consultants can

also communicate directly using their smartphones and use

teleconferencing to help speed problem solving. 41

For example, if a project

involves installing a particular kind of IT system, a consultant has quick

access to consultants around the globe who have installed the system.

Accenture has found that its virtual organization has increased the creativity

of its consultants and enhanced their performance. By providing employees

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with more information and enabling them to confer with other people easily,

electronic communication has made consultants more autonomous and

willing to make their own decisions, which has led to high performance and

made Accenture one of the best-known of all global consulting companies.

Similarly, IBM, which has been experiencing tough competition in the

2000s, has been searching for ways to better utilize its talented workforce to

both lower costs and offer customers specialized kinds of services its

competitors cannot. So IBM has also used IT to develop virtual teams of

consultants to accomplish this.42

Steven Newton/Shutterstock.com

IBM has created “competency centers” around the globe that are staffed by

consultants who share the same specific IT skill; its competency centers are

located in the countries in which IBM has the most clients and does the

most business. To use its consultants most effectively, IBM used its own IT

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expertise to develop sophisticated software that allows it to create self-

managed teams composed of IBM consultants who have the optimum mix

of skills to solve a client’s particular problems. To form these teams, IBM’s

software engineers first analyze the skills and experience of its consultants

and input the results into the software program. Then they analyze and

code the nature of a client’s specific problem and, using this information,

IBM’s program then matches each specific client problem to the skills of

IBM’s consultants and identifies a list of “best fit” employees. One of IBM’s

senior managers then narrows down this list and decides on the actual

consultants who will form the self-managed team. Once selected, team

members assemble as quickly as possible in the client’s home country and

go to work to develop the software necessary to solve and manage the

client’s problem. This new IT allows IBM to create an ever-changing set of

global self-managed teams that form to solve the problems of IBM’s global

clients. In addition, because each team inputs knowledge about its activities

into IBM’s intranet, then as at Accenture, consultants and teams can learn

from one another so that their problem-solving skills increase over time.

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Managerial Implications Analyzing

Technology

1. Analyze an organization’s or a department’s input-conversion-

output processes to identify the skills, knowledge, tools, and

machinery that are central to the production of goods and

services.

2. Analyze the level of technical complexity associated with the

production of goods and services. Evaluate whether technical

complexity can be increased to improve efficiency and reduce

costs. For example, is an advanced computer system

available? Are employees using up-to-date techniques and

procedures?

3. Analyze the level of task variety and task analyzability

associated with organizational and departmental tasks. Are

there ways to reduce task variability or increase task

analyzability to increase effectiveness? For example, can

procedures be developed to make the work process more

predictable and controllable?

4. Analyze the form of task interdependence inside a department

and between departments. Evaluate whether the task

interdependence being used results in the most effective way

of producing goods or servicing the needs of customers. For

example, would raising the level of coordination between

departments improve efficiency?

5. After analyzing an organization’s or a department’s

technology, analyze its structure, and evaluate the fit between

technology and structure. Can the fit be improved? What costs

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and benefits are associated with changing the technology

–structure relationship?

need to have on hand to meet customer (patient) demands. If, over a specified

period, a hospital knows on average how many broken bones or cardiac arrests it

can expect, it knows how many operating rooms it will need to have in readiness

and how many doctors, nurses, and technicians to have on call to meet patient

demand. This knowledge allows the hospital to control costs. Similarly, in R&D, an

organization like Microsoft needs to develop decision-making rules that allow it to

decide when to stop investing in a line of research that is showing little promise of

success, and how to best allocate resources among projects to try to maximize

potential returns from the investment—especially when aggressive competitors like

Google and Facebook exist.

Specialism

Producing only a narrow range of outputs.

Another strategy that organizations can pursue to reduce the costs associated with

intensive technology is specialism , producing only a narrow range of outputs. A

hospital that specializes in the treatment of cancer or heart disease narrows the

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range of problems to which it is exposed and can target all its resources to solving

those problems. It is the general hospital that faces the most uncertainty. Similarly,

a pharmaceutical company typically restricts the areas in which it does research. A

company may decide to focus on drugs that combat high blood pressure or

diabetes or depression. This specialist strategy allows the organization to use its

resources efficiently and reduces problems of coordination.43

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From Mass Production to

Advanced Manufacturing

Technology

As discussed earlier, one of the most influential advances in technology in this

century was the introduction of mass production technology by Henry Ford. To

reduce costs, a mass production company must maximize the gains from

economies of scale and from the division of labor associated with large-scale

production. There are two ways to do this. One is by using dedicated machines and

standardized work procedures. The other is by protecting the conversion process

against production slowdowns or stoppages.

Traditional mass production is based on the use of dedicated machines

—machines that can perform only one operation at a time, such as repeatedly

cutting or drilling or stamping out a car body part. 44

To maximize volume and

efficiency, a dedicated machine

produces a narrow range of products but does so cheaply. Thus this method of

production has traditionally resulted in low production costs.

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Dedicated machines

Machines that can perform only one operation at a

time, such as repeatedly cutting or drilling or

stamping out a car body part.

When the component being manufactured needs to be changed, a dedicated

machine must be retooled—that is, fitted with new dies or jigs—before it can handle

the change. When Ford retooled one of his plants to switch from the Model T to the

Model A, he had to close the plant for over six months. Because retooling a

dedicated machine can take days, during which no production is possible, long

production runs are required for maximum efficiency and lowest costs. Thus, for

example, Ford might make 50,000 right-side door panels in a single production run

and stockpile them until they are needed because the money saved by using

dedicated machines outweighs the combined costs of lost production and carrying

the doors in inventory. In a similar way, both the use of a production line to

assemble the final product and the employment of fixed workers —workers who

perform standardized work procedures—increase an organization’s control over the

conversion process.

Fixed workers

Workers who perform standardized work procedures

increase an organization’s control over the

conversion process.

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A mass production organization also attempts to reduce costs by protecting its

conversion processes from the uncertainty that results from disruptions in the

external environment. 45

Threats to the conversion process come from both the

input and the output stages, but an organization can stockpile inputs and outputs to

reduce these threats (see Figure 9.5A ).

Figure 9.5

A. The Work Flow in Mass Production

B. The Work Flow with Advanced Manufacturing Technology

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At the input stage, an organization tries to control its access to inputs by keeping raw

materials and semifinished components on hand to prevent shortages that would lead to a

slowdown or break in production. The role of purchasing, for example, is to negotiate with

suppliers contracts that guarantee the organization an adequate supply of inputs. At the

output stage, an organization tries to control its ability to dispose of its outputs. It does so

by stockpiling finished products so it can respond quickly to customer demands. An

organization can also advertise heavily to maintain customer demand. In that case, the

role of the sales department is to maintain demand for an organization’s products so

production does not need to slow down or stop because no one wants the organization’s

outputs. The high technical complexity, the routine nature of production tasks, and the

sequential task interdependence characteristic of mass production all make an

organization very inflexible. The term fixed automation is sometimes used to describe the

traditional way of organizing production. The combination of dedicated machines (which

perform only a narrow range of operations), fixed workers (who perform a narrow range of

fixed tasks), and large stocks of inventory (which can be used to produce only one product

or a few related products) makes it very expensive and difficult for an organization to

begin to manufacture different kinds of products when customer preferences change.

Suppose an organization had a new technology that allowed it to make a wide

range of products—products that could be customized to the needs of individual

customers. This ability would increase demand for its products. If the new

technology also allowed the organization to rapidly introduce new products that

incorporated new features or the latest design trends, demand would increase even

more. Finally, suppose the cost of producing this wide range of new customized

products with the new technology was the same as, or only slightly more than, the

cost of producing a narrow standardized product line. Clearly, the new technology

would greatly increase organizational effectiveness and allow the organization to

pursue both a low-cost and a differentiation strategy to attract customers by giving

them advanced, high-quality, reliable products at low prices.46

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What changes would an organization need to make to its technology to make it

flexible enough to respond to customers while controlling costs? In the last 20

years, many new technological developments have allowed organizations to

achieve these two goals. The new developments are sometimes called flexible

production, lean production, or computer-aided production. Here we consider them

to be components of advanced manufacturing technology.47

Advanced manufacturing technology (AMT) consists of innovations in

materials technology and in knowledge technology that change the work process of

traditional mass production organizations.

Advanced manufacturing technology

Technology that consists of innovations in materials

technology and in knowledge technology that change

the work process of traditional mass production

organizations.

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Advanced Manufacturing

Technology: Innovations in

Materials Technology

Materials technology comprises machinery, other equipment, and computers.

Innovations in materials technology are based on a new view of the linkages among

input, conversion, and output activities. 48

Traditional mass production tries to

protect the conversion process from disruptions at the input and output stages by

using stockpiles of inventory as buffers to increase control and reduce uncertainty.

With AMT, however, the organization actively seeks ways to increase its ability to

integrate or coordinate the flow of resources among input, conversion, and output

activities. AMT allows an organization to reduce uncertainty not by using inventory

stockpiles but by developing the capacity to adjust and control its procedures

quickly to eliminate the need for inventory at both the input and the output stages

(see Figure 9.5B ). 49

Several innovations in materials technology allow

organizations to reduce the costs and speed the process of producing goods and

services. Computer-aided design, computer-aided materials management, just-in-

time inventory systems, and computer-integrated manufacturing affect one another

and jointly improve organizational effectiveness. The first three are techniques for

coordinating the input and conversion stages of production. The last one increases

the technical complexity of the conversion stage.

Materials technology

Technology that comprises machinery, other

equipment, and computers.

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Computer-Aided Design

Mass production systems are set up to produce a large quantity of a few products.

To some degree, this arrangement reflects the fact that a large part of the cost

associated with mass production is incurred at the design stage. 50

In general, the

more complex a product, the higher the design costs. The costs of designing a new

car, for example, are enormous. Ford’s recent world car, the Focus, cost over $5

billion to develop.

Traditionally, the design of new parts involved the laborious construction of

prototypes and scale models, a process akin to unit or small-batch production.

Computer-aided design (CAD) is an advanced manufacturing technique that

greatly simplifies the design process. CAD makes it possible to design a new

component or microcircuit on a computer screen and then press a button, not to

print out the plans for the part but to physically produce the part itself. Also,

“printers” exist that squirt a stream of liquid metal or plastic droplets to create three-

dimensional objects. Detailed prototypes can be sculpted according to the computer

program and can be redesigned quickly if necessary. Thus, for example, an

engineer at Ford who wants to see how a new gear will work in a transmission

assembly can experiment quickly and cheaply to fine-tune the design of these

inputs.51

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Computer-aided design (CAD)

An advanced manufacturing technique that greatly

simplifies the design process.

Cutting the costs of product design by using CAD can contribute to both a low-cost

and a differentiation advantage. Design advances that CAD makes possible can

improve the efficiency of manufacturing. Well-designed components are easily fitted

together into a subassembly, and well-designed subassemblies are easily fitted to

other subassemblies. Improvements at the input design stage also make selling and

servicing products easier at the output stage. The risk of later failure or of

breakdown is reduced if potential problems have been eliminated at the design

stage. Designing quality into a product up front improves competitive advantage

and reduces costs. Toyota’s core competence in product design, for example,

evidenced by its relatively low recall rates, gives its cars a competitive advantage.

Finally, CAD enhances flexibility because it reduces the difficulty and lowers the

cost of customizing a product to satisfy particular customers. In essence, CAD

brings to large-scale manufacturing one of the benefits of small-batch production-

customized product design—but at far less cost. It also enhances an organization’s

ability to respond quickly to changes in its environment.52

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Computer-Aided Materials Management

Materials management, the management of the flow of resources into and out of the

conversion process, is one of the most complex functional areas of an

organization. 53

Computers are now the principal tool for processing the information

that materials managers use for sound decision making, and computer-aided

materials management is crucial to organizational effectiveness.

Computer-aided materials management (CAMM) is an advanced

manufacturing technique used to manage the flow of raw materials and component

parts into the conversion process, to develop master production schedules for

manufacturing, and to control inventory. 54

The difference between traditional

materials management and the new computer-aided techniques is the difference

between the so-called push and pull approaches to materials management. 55

Computer-aided materials management (CAMM)

An advanced manufacturing technique that is used to

manage the flow of raw materials and component

parts into the conversation process, to develop

master production schedules for manufacturing, and

to control inventory.

Traditional mass production uses the push approach. Materials are released from

the input to the conversion stage when the production control system indicates that

the conversion stage is ready to receive them. The inputs are pushed into the

conversion process in accordance with a previously determined plan.

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Computer-aided materials management makes possible the pull approach. The flow

of input materials is governed by customer requests for supplies of the finished

products, so the inputs are pulled into the conversion process in response to a pull

from the output stage rather than a push from the input stage. Consider how VF

Corporation, the manufacturer of Lee jeans, meets customer demand. As jeans sell

out in stores, the stores issue requests by computer to Lee to manufacture different

styles or sizes. Lee’s manufacturing department then pulls in raw materials, such as

cloth and thread, from suppliers as it needs them. If Lee were using the push

approach, Lee would have a master plan that

might say, “Make 30,000 pairs of style XYZ in May,” and at the end of the summer

25,000 pairs might remain unsold in the warehouse because of lack of demand.

CAMM technology allows an organization to increase integration of its input,

conversion, and output activities. The use of input and output inventories (see

Figure 9.6 ) allows the activities of each stage of the mass production process to

go on relatively independently. CAMM, however, tightly couples these activities.

CAMM increases task interdependence because each stage must be ready to react

quickly to demands from the other stages. CAMM increases technical complexity

because it makes input, conversion, and output activities a continuous process, in

effect creating a pipeline connecting raw materials to the customer. Because the

high levels of task interdependence and technical complexity associated with

CAMM require greater coordination, an organization may need to move toward an

organic structure, which will provide the extra integration that is needed.

CAMM also helps an organization pursue a low-cost or differentiation strategy. The

ability to control the flow of materials in the production process allows an

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organization to avoid the costs of carrying excess inventory and to be flexible

enough to adjust to product or demand changes quickly and easily.

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Just-in-Time Inventory Systems

Another advanced manufacturing technique for managing the flow of inputs into the

organization is the just-in-time inventory system. Developed from the Japanese

kanban system (a kanban is a card), a just-in-time inventory (JIT) system

requires inputs and components needed for production to be delivered to the

conversion process just as they are needed, neither earlier nor later, so input

inventories can be kept to a minimum. 56

Components are kept in bins, and as they

are used up, the empty bins are sent back to the supplier with a request on the bin’s

card (kanban) for more components. Computer-aided materials management is

necessary for a JIT system to work effectively because CAMM provides

computerized linkages with suppliers—linkages that facilitate the rapid transfer of

information and coordination between an organization and its suppliers.

Just-in-time inventory (JIT) system

A system that requires inputs and components

needed for production to be delivered to the

conversion process just as they are needed, neither

earlier nor later, so that input inventories can be kept

to a minimum.

In theory, a JIT system can extend beyond components to raw materials. A

company may supply Ford or Toyota with taillight assemblies. The supplier itself,

however, may assemble the taillights from individual parts (screws, plastic lenses,

bulbs) provided by other manufacturers. Thus the supplier of the taillight assembly

could also operate a JIT system with its suppliers, who in turn could operate JIT

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systems with their suppliers. Figure 9.6 illustrates a just-in-time inventory system

that goes from the customer, to the store, and then back through the manufacturer

to the original suppliers.

A JIT system increases task interdependence between stages in the production

chain. Traditional mass production draws a boundary between the conversion stage

and the input and output stages and sequences conversion activities only. JIT

systems break down these barriers and make the whole value-creation process a

single chain of sequential activities. Because organizational activities become a

continuous process, technical complexity increases, in turn increasing the efficiency

of the system.

At the same time, JIT systems bring flexibility to manufacturing. The ability to order

components as they are needed allows an organization to widen the range of

products it

Figure 9.6 Just-in-Time Inventory System

The system is activated by customers making purchases.

makes and to customize products. 57

JIT systems thus allow a modern mass

production organization because it is not tied to one product by large inventories to

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obtain the benefits of small-batch technology (flexibility and customization) with little

loss of technical efficiency.

Like CAMM, JIT systems require an extra measure of coordination, and an

organization may need to adopt new methods to manage this new technology. One

of these, as we saw in Chapter 3 , is to implement new strategies for managing

relations with suppliers. Toyota, which owns a minority stake in its suppliers,

periodically meets with its suppliers to keep them informed about new product

developments. Toyota also works closely with its suppliers to reduce the costs and

raise the quality of input components, and it shares the cost savings with them.58

Because owning a supplier can increase costs, many organizations try to avoid the

need to integrate vertically. Long-term contracts with suppliers can create

cooperative working relationships that have long-term benefits for both parties.

In sum, just-in-time inventory systems, computer-aided materials management, and

computer-aided design increase technical complexity and task interdependence

and thus increase the degree to which a traditional mass production system

operates like a continuous-process technology; they also increase efficiency and

reduce production costs. The three advanced manufacturing techniques also give

modern mass production the benefits of small-batch production: heightened

flexibility and the ability to respond to customer needs and increased product

quality. Together these techniques confer a low-cost and a differentiation advantage

on an organization.

Now that we have looked at advanced techniques for coordinating the input and

conversion stages, we can look at new developments inside the conversion stage.

At the center of AMT’s innovations of conversion processes is the creation of a

system based on flexible workers and flexible machines.

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Flexible Manufacturing Technology and

Computer-Integrated Manufacturing

Traditional mass manufacturing technology uses dedicated machines, which

perform only one operation at a time. Flexible manufacturing technology , by

contrast, allows the production of many kinds of components at little or no extra cost

on the same machine. Each machine in a flexible manufacturing system is able to

perform a range of different operations, and the machines in sequence are able to

vary their operations so a wide variety of different components can be produced.

Flexible manufacturing technology combines the variety advantages of small-batch

production with the low-cost advantages of continuous-process production. How is

this achieved?

Flexible manufacturing technology

Technology that allows the production of many kinds

of components at little or no extra cost on the same

machine.

In flexible manufacturing systems, the key factor that prevents the cost increases

associated with changing operations is the use of a computer-controlled system to

manage operations. Computer-integrated manufacturing (CIM) is an

advanced manufacturing technique that controls the changeover from one operation

to another by means of the commands given to the machines through computer

software. A CIM system eliminates the need to retool machines physically. Within

the system are a number of computer-controlled machines, each capable of

automatically producing a range of components. They are controlled by a master

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computer, which schedules the movement of parts between machines in order to

assemble different products from the various components that each machine

makes. 59

Computer-integrated manufacturing depends on computers programmed

to (1) feed the machines with components, (2) assemble the product from

components and move it from one machine to another, and (3) unload the final

product from the machine to the shipping area.

Computer-integrated manufacturing (CIM)

An advanced manufacturing technique that controls

the changeover from one operation to another by

means of the commands given to the machines

through computer software.

The use of robots is integral to CIM. A group of robots working in sequence is the

AMT equivalent of a dedicated transfer machine. Each robot can be quickly

programmed by software to perform different operations, and the costs of

reprogramming robots are much lower than the costs associated with retooling

dedicated transfer machines.

In sum, computer-integrated manufacturing, just-in-time inventory systems, computer-

aided materials management, and computer-aided design give organizations the flexibility

to make a variety of products, as well as different models of the same product, rapidly and

cost effectively. They break down the traditional barriers separating the input, conversion,

and output stages of production; as a result, input, conversion, and output activities merge

into one another. These four innovations in materials technology decrease the need for

costly inventory buffers to protect conversion processes from disruptions in the

environment. In addition, they increase product reliability because they increase

automation and technical complexity.

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Summary

Technical complexity, the differences between routine and nonroutine tasks, and

task interdependence jointly explain why some technologies are more complex and

difficult to control than others and why organizations adopt different structures to

operate their technology. In general, input, conversion, and output processes that

depend primarily on people and departments cooperating and trading knowledge

that is difficult to program into standard operating routines require the most

coordination. An organization that needs extensive coordination and control to

operate its technology also needs an organic structure to organize its tasks.

Chapter 9 has made the following main points:

1. Technology is the combination of skills, knowledge, abilities, techniques,

materials, machines, computers, tools, and other equipment that people use

to convert raw materials into valuable goods and services.

2. Technology is involved in an organization’s input, conversion, and output

processes. An effective organization manages its technology to meet the

needs of stakeholders, foster innovation, and increase operating efficiency.

3. Technical complexity is the extent to which a production process is

controllable and predictable. According to Joan Woodward, technical

complexity differentiates small-batch and unit production, large-batch and

mass production, and continuous-process production.

4. Woodward argued that each technology is associated with a different

organizational structure because each technology presents different control

and coordination problems. In general, small-batch and continuous-process

technologies are associated with an organic structure, and mass production

is associated with a mechanistic structure.

5. The argument that technology determines structure is known as the

technological imperative. According to the Aston Studies, however,

organizational size is more important than technology in determining an

organization’s choice of structure.

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6. According to Charles Perrow, two dimensions underlie the difference

between routine and nonroutine tasks and technologies: task variability and

task analyzability. The higher the level of task variability and the lower the

level of task analyzability, the more complex and nonroutine are

organizational tasks.

7. Using task variability and analyzability, Perrow described four types of

technology: craftswork, nonroutine research, engineering production, and

routine manufacturing.

8. The more routine the tasks, the more likely an organization is to use a

mechanistic structure. The more complex the tasks, the more likely an

organization is to use an organic structure.

9. James D. Thompson focused on the way in which task interdependence

affects an organization’s technology and structure. Task interdependence is

the manner in which different organizational tasks are related to one another

and the degree to which the performance of one person or department

depends on and affects the performance of another.

10. Thompson identified three types of technology, which he associated with

three forms of task interdependence: mediating technology and pooled

interdependence; long-linked technology and sequential interdependence;

and intensive technology and reciprocal interdependence.

11.

The higher the level of task interdependence, the more likely an

organization is to use mutual adjustment rather than standardization to

coordinate work activities.

12. Advanced manufacturing technology consists of innovations in materials

technology that change the work process of traditional mass production

organizations. Innovations in materials technology include computer-aided

design, computer-aided materials management, just-in-time inventory

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systems, flexible manufacturing technology, and computer-integrated

manufacturing.

Discussion Questions

1. How can technology increase organizational effectiveness?

2. How does small-batch technology differ from mass production technology?

3. Why is technical complexity greatest with continuous-process technology?

How does technical complexity affect organizational structure?

4. What makes some tasks more complex than others? Give an example of an

organization that uses each of the four types of technology identified by

Perrow.

5. What level of task interdependence is associated with the activities of (a) a

large accounting firm, (b) a fast-food restaurant, and (c) a biotechnology

company? What different kinds of structure are you likely to find in these

organizations? Why?

6. Find an organization in your city, and analyze how its technology works. Use

the concepts discussed in this chapter: technical complexity, nonroutine

tasks, and task interdependence.

7. Discuss how AMT and innovations in materials technology and in

knowledge technology have increased task interdependence and the

technical complexity of the work process. How have these innovations

changed the structure of organizations operating a mass production

technology?

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Organizational Theory in Action

Practicing Organizational Theory Choosing a Technology

Form groups of three to five people and discuss the following scenario:

You are investors who are planning to open a large computer store in a big city on

the West Coast. You plan to offer a complete range of computer hardware, ranging

from UNIX-based workstations, to powerful PCs and laptop computers, to a full

range of printers and scanners. In addition, you propose to offer a full range of

software products, from office management systems to personal financial software

and children’s computer games. Your strategy is to be a one-stop shopping place

where all kind of customers—from large companies to private individuals—can get

everything they want from salespeople who can design a complete system to meet

each customer’s unique needs.

You are meeting to decide which kind of technology—which combination of skills,

knowledge, techniques, and task relationships—will best allow you to achieve your

goal.

1. Analyze the level of (a) technical complexity and (b) task variability and task

analyzability associated with the kinds of tasks needed to achieve your

strategy.

2. Given your answer to item 1, what kind of task interdependence between

employees/departments will best allow you to pursue your strategy?

3. Based on this analysis, what kind of technology will you choose in your

store, and what kind of structure and culture will you create to manage your

technology most effectively?

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The Ethical Dimension #9

The chapter discussed some of Henry Ford’s strict labor practices that caused such

high turnover. Workers were not allowed to talk on the production line, for example,

and he employed detectives to spy on them when they were at home.

1. What limits should be placed on a company’s right to monitor and control its

employees from an ethical perspective?

2. What moral rules would you create to help managers decide when, and

which actions and behaviors, they have a right to influence and control?

Making the Connection #9

Find an example of a company operating with one of the technologies identified in

this chapter. Which technology is the company using? Why is the company using it?

How does this technology affect the organization’s structure?

Analyzing the Organization: Design Module

#9

This module focuses on the technology your company uses to produce goods and

services and the problems and issues associated with the use of this technology.

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Assignment

Using the information at your disposal, and drawing inferences about your

company’s technology from the activities that your organization engages in, answer

the following questions.

1. What kinds of goods or services does your organization produce? Are input,

conversion, or output activities the source of greatest uncertainty for your

organization?

2. What role does technology in the form of knowledge play in the production

of the organization’s goods or services?

3. What role does materials technology play in the production of the

organization’s goods and services?

4. What is the organization’s level of technical complexity? Does the

organization use a small-batch, mass production, or continuous-process

technology?

5. Use the concepts of task variability and task analyzability to describe the

complexity of your organization’s activities. Which of the four types of

technology identified by Perrow does your organization use?

6. What forms of task interdependence between people and between

departments characterize your organization’s work process? Which of the

three types of technology identified by Thompson does your organization

use?

7. The analysis you have done so far might lead you to expect your company

to operate with a particular kind of structure. What kind? To what extent

does your organization’s structure seem to fit with the characteristics of the

organization’s technology? For example, is the structure organic or

mechanistic?

8. Do you think your organization is operating its technology effectively? Do

you see any ways in which it could improve its technical efficiency,

innovativeness, or ability to respond to customers?

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Case for Analysis Microsoft Reorganizes to Speed Innovation

Microsoft, like other software makers, has been shocked by the increasing number

of applications available on the Internet and not on the PC, many of which have

been pioneered by Google and Yahoo! These include better and faster versions of

Internet applications such as email, advanced specialized search engines, Internet

phone services, imaging searching, and mapping such as Google’s Earth. Rapid

innovation is taking place in these and other

areas, and the danger for Microsoft is that these online applications will make its

vital Windows PC platform less useful and perhaps obsolete. If, in the future, people

begin to use new kinds of online word processing and storage applications, then the

only important PC software application will become operating system software. This

would cause Microsoft’s revenues and profits to plummet. So a major push is on at

Microsoft to find ways to make its new software offerings work seamlessly with

developing Internet-based service applications and its Windows platform so

customers will remain loyal to its PC software.

To achieve this, Microsoft announced a major redesign of its organizational

structure to focus on three major software and service products areas: Platform

Products and Services, Business, and Entertainment & Services, each of which will

be managed by its own new top management team. In doing this, Microsoft has

created a new level in its hierarchy and has decentralized major decision-making

responsibility to these managers. Inside each division, IT specialists will continue to

work in small project teams.

Microsoft claims that the new structure will not only speed technological innovation

in each division, but it will also create many synergies between the product divisions

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and foster collaboration and so improve product development across the

organization. In essence, Microsoft is trying to make its structure more organic so it

can better compete with nimble rivals like Google. As Microsoft’s CEO Steve

Ballmer commented, “Our goal in making these changes is to enable Microsoft to

achieve greater agility in managing the incredible growth ahead and executing our

software-based services strategy.” Some analysts wonder, however, if adding a

new level to the hierarchy will only create a new layer of bureaucracy that will

further slow down decision making and allow Google to take an even greater lead in

Internet services in the decade ahead.

Discussion Questions

1. Which of the following technology best characterizes the way Microsoft

operates (a) craftswork, (b) engineering production, or (c) intensive

technology?

2. In what ways does Microsoft hope its new way of organizing will help it to

continually improve its competences and technology?

Page 96 of 98

References

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5 R. Edwards, Contested Terrain: The Transformation of the Workplace in the Twentieth

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3 D. M. Rousseau, “Assessment of Technology in Organizations: Closed Versus Open

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4 H. Ford, “Progressive Manufacturing,” Encyclopedia Britannica, 13th ed. (New York:

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2 Edwards, Contested Terrain, p. 119.

6 J. Woodward, Management and Technology (London: Her Majesty’s Stationery Office,

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7 Woodward, Management and Technology, p. 11.

8 www.zynga.com, 2011.

9 Ibid.

10 J. Woodward, Industrial Organization: Theory and Practice (London: Oxford University

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11 www.Ikea.com, 2011.

12 Woodward, Industrial Organization.

13 Woodward, Management and Technology.

14 C. Perrow, Normal Accidents: Living with High-Risk Technologies (New York: Basic

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18 Hickson et al., “Operations Technology and Organizational Structure.”

Page 97 of 98

19 C. Perrow, Organizational Analysis: A Sociological View (Belmont, CA: Wadsworth,

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20 Ibid.

21 Ibid., p. 21.

22 Ibid.

23 This section draws heavily on C. Perrow, “A Framework for the Comparative Analysis of

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24 Perrow, Organizational Analysis; C. Gresov, “Exploring Fit and Misfit with Multiple

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25 Edwards, Contested Terrain.

26 www.honda,com, 2011.

27 www.apple.com, 2011.

28 www.foxconn.com, 2011.

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30 S. N. Mehta, “Cell Manufacturing Gains Acceptance at Smaller Plants,” Wall Street

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32 L. Argote, “Input Uncertainty and Organizational Coordination of Subunits,”

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33 R. T. Keller, “Technology-Information Processing Fit and the Performance of R&D

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34 C. Perrow, “Hospitals: Technology, Structure, and Goals,” in J. March, ed., The

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35 D. E. Comstock and W. R. Scott, “Technology and the Structure of Subunits,”

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Task Contingent Model of Work Unit Structure,” Administrative Science Quarterly 19 (1974), 183–

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36 J. D. Thompson, Organizations in Action (New York: McGraw-Hill, 1967).

37 W. G. Ouchi, “The Relationship Between Organizational Structure and Organizational

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38 Thompson, Organizations in Action.

39 Ibid., p. 17.

40 T. Davenport and L. Prusak, Information Ecology. (London: Oxford University Press,

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41 www.accenture.com, 2011.

42 www.ibm.com, 2011.

43 Thompson, Organizations in Action; G. R. Jones, “Organization–Client Transactions

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44 C. Edquist and S. Jacobson, Flexible Automation: The Global Diffusion of New

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45 Ibid.

46 M. Jelinek and J. D. Goldhar, “The Strategic Implications of the Factory of the Future,”

Sloan Management Review, 25 (1984), 29–37; G. I. Susman and J. W. Dean, “Strategic Use

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47 C. A. Voss, Managing Advanced Manufacturing Technology (Bedford, England: IFS

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48 Krafcik, “Triumph of the Lean Production System.”

49 Ibid.; M. T. Sweeney, “Flexible Manufacturing Systems—Managing Their Integration,” in

Voss, Managing Advanced Manufacturing Technology, pp. 69–81.

50 D. E. Whitney, “Manufacturing by Design,” Harvard Business Review (July–August

1988): 210–216.

51 “Microtechnology, Dropping Out,” The Economist, January 9, 1993, p. 75.