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A Conceptual Framework for

the Design of Organizational


Control Mechanisms
William G. Ouchi, 1979
833-847

Group 1:

Management Science. 25 (9):

Organizational Control
Meanings and Interpretations
Control equivalent to power
Control as a problem in information flows

Ouchis View
What are the mechanisms through which an
organization can be managed so that it
moves towards its objectives?
How can the design of these mechanisms be
improved and what are the limits?

Example: Parts Supply Division


Problem: Purchasing department buys
100,000 different items/year from 3,000
different manufacturers
Accomplishes the work with 22
employees, of whom 3 are at the
managerial level
Warehousing stores the product, fills the
orders and ships the product using 1,400
employees, of whom 150 are managers

Analysis of Parts Supply Division


Three Mechanisms involved:
Market
Purchasing division

Bureaucratic
Warehouse division

Informal Social
Concept of The Clan

Market Mechanisms
Purchasing Agent
Simply puts each part out for
competitive bids and permits the
competitive price to define the fair
price

Managers of Purchasing Agents


Only needs to check decisions against
simple criterion of cost minimization
rather than observing all the steps

Market as a Pure Model


Efficient Mechanism
Prices convey relevant information for decision
maker
Arbitrary rules such as those found in warehousing
unnecessary
Provides a mechanism for solving problem of goal
incongruity
Rewards employees in direct proportion to their
level of contribution
But the fact that purchasing takes place in a corporate
framework suggests market defects exist

Purchasing: Mixture of Market


and Bureaucratic Mechanisms
Work of purchasing agent is controlled
through process of bureaucratic surveillance
(manager) rather than price mechanisms
Director of Purchasing does not determine
market price
Instead, agrees upon an employment contract at
some price and resorts to hierarchical order
giving and performance evaluation.

Bureaucratic Mechanisms (Warehousing)


Fundamental mechanism of control
involves close personal surveillance and
direction of subordinates by superiors
Task completion governed by RULES: an
arbitrary standard against which a
comparison is yet to be made
Rules vs. Price
Rules are only partial bundles of
information
Price is a complete bundle of information

Why does Warehouse use


Bureaucratic Mechanisms?
Impossible to set prices for each task
in warehouse
No corresponding inexpensive way to
determine performance
Will have to establish performance
standards and systems of hierarchical
superiors
The Bureaucratic Mechanism!

Original Dilemma
Purchasing participates in a market
mechanism which is more efficient
Warehousing uses a bureaucratic
mechanism because market is not
frictionless
Both Bureaucratic and Market mechanisms
are directed towards the same objectives
Which is more efficient depends on the
particulars of the transactions

Clan Mechanisms
Informal social structures that are
properties of a unique organization
Examples of others industries: Doctors
Certified with respect to technical skills but also
integrity and purity of values

Once the Manager knows that the Foremen


are trying to achieve the right objectives
he can eliminate many costly forms of
auditing and surveillance methods
Only recently has the Clan mechanism
been considered the subject of analysis
central to the problem of organization

Social & Informal Prerequisites of Control


Type of Control Social
Requirements

Informal
Requirement
s

Market

Norm of Reciprocity

Price

Bureaucracy

Norm of Reciprocity
Legitimate Authority

Rules

Clan

Norm of Reciprocity
Legitimate Authority
Shared Values,
Beliefs

Traditions

Informal Prerequisites of Control


Implicit information
Ex. Traditions of the US Senate
grows up as a natural by product of
social interaction
The Clan

Explicit information
Must be created and maintained
intentionally at some cost
Ex. Accounting division

Designing Control Mechanisms: Costs and Benefits

Two methods to achieve effective people


control:
1. Search for and select people who fit your needs
exactly
Cost of Search: High Wages
Benefit: Perform tasks without instruction, work hard

2. Take people who dont fit your needs exactly and put
in a system to instruct, monitor, and evaluate them
Cost: training unskilled workers, indifferent to learn

organization skills and values, developing & running


supervisory system.
Benefit: System can take heterogeneous assortment of
people and effectively control them, withstand high rates
of turnover

Organizational Control: People Treatment


People Treatment

Form of
Commitment

Corresponding
Control Type

Totally Unselective

Internalization Market

Selection/Screening Identification

Clan

Training

Identification

Bureaucracy

Monitoring

Compliance

Bureaucracy

Taken from Kelman, 1958 (20)

Loose Coupling and The Clan

Knowledge of the Transformation Proces

High

Ability to
Measure Outputs
Low

Perfect

Imperfect

Behavior or
Output
Measurement

Output Measurement
(Womens Boutique)

(Apollo Program)
Behavior
Measurement
(Tin Can Plant)

Ritual and Ceremony,


Clan Control
(Research Laboratory)

Loose Coupling
Fashionable Views
Most hierarchies fail to transmit control from top to
bottom
Most organizations do not have a single or an
integrated set of goals or objectives
Subunits within are only loosely joined to each other

Under conditions of ambiguity or loose


coupling, measurement with precision is not
possible.
A control system based on this will lead to
organizational decline.
Under these circumstance clan control is
preferable

Closing Observations
Organizations vary in the degree to which
they are coupled
Control mechanisms of Market and/or
Bureaucratic can be designed for relatively
stable manufacturing industries
Organizations in public sector, services, and
technologies may be better served by clan
forms of control
The problem of organization design is to
discover that balance of socialization
and measurement which most
effectively permits a particular
organization to achieve cooperation

Conclusions
Design of organizational control
mechanisms must focus on the
problems achieving coordination
and cooperation among
individuals
Problem is to understand how, as
society changes, do the control
methods of organizations change
with it.