STRUCTURAL CONFIGURATIONS Structural design rarely starts from scratch. Managers search for options among the array of possibilities drawn from their accumulated wisdom and the experiences of others. Tem- plates and frameworks can offer options to stimulate thinking. Henry Mintzberg and Sally Helgesen offer two abstract conceptions of structural possibilities.
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Greatest Hits from Organization Studies Hit Number 7: Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” Journal of Financial Economics 1976, 3, 305–360
This classic article, seventh on our list of works most often cited by scholars, focuses on two central questions:
• What are the implications of the “agency problem”—that is, the con!icts of interest between principals and their agents?
• Given those con!icts, why do corporations even exist?
An agency relationship is a structural arrangement created whenever one party engages another to perform a task. Jensen and Meckling’s particular focus is the relationship between a corporation’s owners (shareholders) and their agents, the managers. Principals and agents both seek to maximize utility, but their interests often diverge. If you are a sole proprietor, a dollar of the “rm’s money is a dollar of yours as well. But if you are an employee with no ownership interest, you’re spending someone else’s money when you pad your expense account or schedule a business meeting at an expensive resort.
One rationale for linking executive compensation to the price of the company’s stock is that it may reduce the agency problem, but the impact is often marginal at best. A notorious example is Tyco’s chief executive, Dennis Kozlowski, who reportedly spent more than $30 million of company money to buy, furnish, and decorate his palatial apartment in New York City (Sorkin, 2002). Nonexecutive shareholders hate this kind of thing, but it is dif”cult for them to stay abreast of everything management does, and they can’t do it without incurring “monitoring costs”—time and money spent on things like supervision and auditing.
One implication the authors draw is that the primary value of stock analysts is the sentinel function they perform. Analysts’ ability to pick stocks is notoriously poor, but their oversight puts more heat on managers to serve shareholder interests. The article also concludes that, despite the agency con!icts, the corporate form still makes economic sense for the parties involved— managers cost more than owners wish, but they still earn their keep.
The authors see the agency problem as a pervasive feature of cooperative activity. The relationship between a team and individual members, or between a boss and a subordinate, is like that between principal and agent. If members of a team share rewards equally, for example, there is an incentive for “free riders” to let someone else do most of the work. Principals face a perennial problem of keeping agents in line and on task.
Mintzberg’s Fives As the two-dimensional lines and boxes of a traditional organization chart have become increasingly archaic, students of organizational design have developed a variety of new structural images. One in!uential example is Mintzberg’s “ve-sector “logo,” depicted in
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Exhibit 4.1. Mintzberg’s Model.
Source:Mintzberg (1979, p. 20). Copyright!1979. Reprinted by permission of Prentice Hall, Upper Saddle River, NJ.
Exhibit 4.1. Mintzberg’s model clusters various functions into groupings and shows their relative size and in!uence in response to different strategies and external challenges.His schema provides a rough atlas of the structural terrain that canhelpmanagers get their bearings. It assists in sizing up the lay of the land before assembling a structure that conforms to the prevailing circumstances.Oneof thedistinctive features ofMintzberg’s image is expanding the typical two- dimensional view of structure into a more comprehensive portrayal. In doing this, he is able to capture more of the complexity and issues in formal dealings.
At the base of Mintzberg’s image is the operating core, consisting of workers who produce or provide products or services to customers or clients: teachers in schools, assembly-line workers in factories, physicians and nurses in hospitals, and !ight crews in airlines.
Directly above the operating core is the administrative component: managers who supervise, coordinate, control, and provide resources for the operators. School principals,
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factory supervisors, and echelons of middle management ful”ll this role. At the top of Mintzberg’s “gure, senior managers in the strategic apex track developments in the environment, determine the strategy, and shape the grand design. In school systems, the strategic apex includes superintendents and school boards. In corporations, the apex houses the board of directors and senior executives.
Two more components sit alongside the administrative component. The technostructure houses specialists, technicians, and analysts who standardize, measure, and inspect outputs and procedures. Accounting and quality control departments in industry, audit depart- ments in government agencies, and !ight standards departments in airlines perform such functions.
The support staff performs tasks that support or facilitate the work of others throughout the organization. In schools, for example, the support staff includes nurses, secretaries, custodians, food service workers, and bus drivers. These people often wield in!uence far greater than their station might suggest.
From this basic blueprint, Mintzberg (1979) derived “ve structural con”gurations: simple structure, machine bureaucracy, professional bureaucracy, divisionalized, and adhocracy. Each creates a unique set of management challenges.
Simple Structure New businesses typically begin as simple structures with only two levels: the strategic apex and an operating level. Coordination is accomplished primarily through direct supervision and oversight, as in a small mom-and-pop operation. Mom or pop constantly monitors what is going on and exercises complete authority over daily operations. William Hewlett and David Packard began their business in a garage, as did Apple Computer’s Steve Jobs and Steve Wozniak. Simple structure has the virtues of !exibility and adaptability. One or two people control the operation and can turn on a dime when needed. But virtues can become vices. Authorities can block as well as initiate change, and they can punish capriciously as well as reward handsomely. A boss too close to day-to-day operations is easily distracted by immediate problems, neglecting long-range strategic issues. A notable exception was Panasonic founder Konosuke Matsushita, who promulgated his 250-year plan for the future of the business when his young company still had less than 200 employees.
Machine Bureaucracy McDonald’s is a classic machine bureaucracy. Members of the strategic apex make the big decisions. Managers and standardized procedures govern day-to-day operations. Like other machine bureaucracies, McDonald’s has large support staffs and a sizable techno-structure
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that sets standards for the cooking time of French fries or the assembly of a Big Mac or Quarter Pounder.
