Organizational analysis

Organizational analysis, in management science, the study of the processes that characterize all
kinds of organizations, including business firms, government agencies, labour unions, and
voluntary associations such as sports clubs, charities, and political parties. Any organization is a
social unit with three properties: (1) it is a corporate (or group) actor, (2) it claims a special and
limited purpose (such as making profits or providing medical care), and (3) its creators intend it
to last beyond the accomplishment of a single action, if not indefinitely.

Modern cultures are marked by an increase in the importance, influence, and power of
organizations. Consequently, contemporary studies in social science and management have
emphasized the analysis of organizations. Yet much of the research is narrowly focused on the
properties associated with particular types of organizations, such as hospitals, prisons,
government agencies, businesses, schools, and churches. While many of its findings are
associated with business management, the field of organizational analysis is far more general: it
studies the processes that apply to all kinds of organizations. One goal of such inquiry is the
identification of more-effective management strategies. See also business organization.

Origins of the discipline

Contemporary organizational analysis and management science owe much of their early
development to the German sociologist Max Weber (1864–1920), who originated the scientific
study of organizations. In work examining the relationship
between bureaucracy and modernization (eventually published as Theory of Social and
Economic Organization; 1947), Weber attributed the rise of organizations to the expansion
of markets, to developments in the law, and especially to changes in the nature of authority.
Max Weber, 1918Leif Geiges
The term authority applies to situations in which one person willingly accepts the direction of
another. Until modern times, authority was inherited, meaning that princes begat princes and
peasants begat peasants. Weber identified the institutional structure of a new “rational-legal”
authority, observing that rights of control increasingly derived from expertise rather than lineage.
He documented the ways in which this development, which he called rationalization, underlay
the rise of the modern state bureaucracy. According to Weber, organizations were able to develop
unparalleled calculability and efficiency by combining two structures: (1) a system of explicit
rules, upheld by clearly marked jurisdictions between offices and by permanent files
documenting the processing of cases, and (2) a unique division of labour. The latter structure
gave rise to the modern bureaucrat—a person who was required to be an expert in the relevant
rules and who had to be shielded from inappropriate influences to guarantee fairness and
objectivity. This shift away from tradition and inheritance permanently changed the nature of
organizations. Weber thought that these two structures would cause organizations to follow,
invariably and automatically, the objectives set down by political authorities.

One of Weber’s contemporaries, the German-born Italian sociologist Robert Michels, vigorously
disputed Weber’s claim that organizations would pursue official objectives in machinelike
fashion. According to Michels’s “iron law of oligarchy,” the top leaders of organizations—even
those that are member-controlled—tend to develop a strong personal interest in maintaining their
powers and privileges. Michels held that self-interest prevents such leaders from doing anything
that would risk the survival of the organization—even if this means subverting the organization’s
original goals and principles. Michels made this claim in an attempt to explain why the leaders of
the officially internationalist and antiwar German Social Democratic Party strongly supported
Germany’s declaration of war in 1914.
The essential point of the Weber-Michels debate has not been settled; questions persist over the
degree to which the pursuit of official goals characterizes organizational action. Does the
creation of organizations (such as churches, investment syndicates, or human rights groups) for
the achievement of some collective goal subtly shape the agendas that will be pursued? This
question—whether official or personal leadership is more influential—has considerable practical
significance, because social movements(such as pacifism and environmentalism) almost always
take shape as organizational structures in contemporary societies. Organizational analysis
identifies ways in which the personal goals of these groups inform their respective organizational
structures.

While German scholars were examining the rise of modern organizations within a broad
sociological perspective, American engineers and management consultants were initiating the
study of the management of work in industrial settings. Close examination of work groups
revealed that routine patterns of behaviour (“informal organization”) often did not match the
organizational charts or other official depictions of the organization (“formal organization”).
These findings led researchers to identify and describe patterns of informal organization. Their
investigations, which have become part of the core literature of organizational analysis,
demonstrated unequivocally that participation in organizations is influenced strongly by social
ties and by unofficial networks of communication. (See collective behaviour.)

Theoretical developments
As organizational analysis developed into a distinct field of inquiry in the late 1940s, research in
the United States progressed in two theoretical directions. One became known as the Carnegie
School, because its central figures, the American social scientists Herbert A. Simon and James G.
March, taught at the Carnegie Institute of Technology (now Carnegie Mellon University). Their
research, published in Organizations (1958), applied general principles of behavioral science to
action within organizations, acknowledging that, while humans intend to be rational in their
decision making, actual conditions impose a certain amount of subjectivity. Simon and March
took the position that decision makers, while “intendedly rational,” face such great uncertainty
that their actions cannot be understood by standard models of rational choice (i.e., decision
theory). The Carnegie approach defined the central problem of organizations as managing the
uncertainties inherent in complex work. For example, the “administrative man” (such as the
bureaucratic official depicted by Weber) goes about solving problems by relying on a highly
routinized search for satisfactory (but not necessarily optimal) actions. The work of Simon and
March set the agenda for subsequent research on organizational learning and, more specifically,
on the relationship between learning and the adaptability of organizations.

The second theoretical approach, known as institutionalism, focused on the organization as a

whole. The American sociologist and legal scholar Philip Selznick, like Michels, emphasized the
nonrational aspects of organizations. Using the Tennessee Valley Authority (TVA) as an example,
he argued that one of the most important features of organizations is the tendency for structures
and processes to become “infused with value beyond the technical requirements at hand.” (TVA
and the Grass Roots: A Study in the Sociology of Formal Organization [1949].) That is to say, an
organization’s structures and processes tend to take on new meanings that are unrelated to the
reasons they were adopted in the first place. This is the sense in which organizations become
institutionalized and structures resist change.

Selznick also believed, as did institutionalist sociologists such as the American Talcott Parsons,
that all organizations have a crucial need to gain support from key constituencies in the larger
social system. The task of constituency building and networking is the basic job responsibility of
top managers. Selznick documented a classic example of such efforts in his study of overtures by
officials of the TVA to the leaders of local environmental groups. Because they had invited
environmentalists to take part in the utility’s decision-making process, TVA managers put
themselves in a better position to handle public criticism of the TVA’s mission.

Special topics
Contingency theory, an approach that grew out of the Carnegie tradition, gained in popularity
during the 1960s and ’70s. Contingency theorists disputed the assumption that a single form of
organization is best in all circumstances. Instead, they claimed that the most appropriate form is
the one that is best suited to the kinds of action the organization undertakes. For instance,
Weber’s model of bureaucracy is an appropriate design for an organization that processes a high
volume of routine transactions—a common characteristic of large government organizations, for
example.

Organizations differ greatly in their modes of production. In Industrial Organization: Theory

and Practice (1965), the English management scholar Joan Woodward argued that an
organization’s methods are determined by the class of “core technologies” that characterize its
work: small batch (where the work must be adapted to the peculiarities of the current batch—
e.g., emergency medical care and residential construction), large batch (such as automobile
manufacturing), or continuous processing (as in petroleum refining). Working within
Woodward’s definitional framework, American sociologist James D. Thompson showed that,
because the characteristic forms of task uncertainty vary by type, so also does optimal
organizational design. Representing the high point in the development of contingency theory,
Thompson’s thesis, published in Organizations in Action (1967), holds that good organizational
designs are those that buffer core technologies from disturbances, such as interruptions in
scheduling or inventory shortages.

Challenges to contingency theory

Two subsequent schools of research took issue with the claim of contingency theorists that
organizational designs are shaped by internal constraints. The school known
as neoinstitutionalism revived the institutionalist view that the key organizational problem is that
of gaining and maintaining support from external constituencies. An important current in the
institutional revival, represented in the work of the American sociologist John W. Meyer, argued
that organizational designs, especially those aspects that are observable to outsiders, play an
important “ceremonial” role. By adopting the organizational designs favoured by experts (such
as professors of management, management consultants, and professional bodies), an institution
signals its conformity to the prevailing norms, thereby gaining approval from influential external
groups. The designs favoured by experts, however, often fail to support the details of the work
that organizations must accomplish, because the reality of work is invariably more complicated
than what can be recognized in simplified organizational designs. According to Meyer,
organizations therefore face a choice between using designs that fit internal needs and using
those that meet the standards dictated by external groups. This theory thus explains the
characteristic discrepancy between “informal” and “formal” organizational structures.

Much of the research inspired by neoinstitutionalism examines the diffusion of organizational

design elements such as quality circles (continuous quality improvement), incentive
compensation (e.g., motivational programs or bonuses), affirmative-action policies,
deconglomeration (the breakup of large corporations into independent entities), and so forth.
This research shows that the adoption of design elements within an organization is influenced
less by considerations of internal contingency than by social factors. This is consistent with the
ceremonial perspective mentioned above. Organizations tend to adopt design elements from two
sources: influential external groups, such as competing firms, and other institutions to which the
organization may be tied (e.g., through shared board members).

The second major environmentalist school, organizational ecology, builds on parallels with
bioecology and evolution—especially in its application of notions such as selection and
adaptation to organizational change. This approach follows the lead of institutionalists such as
Selznick in assuming that the core features of an organization (those that shape its identity and
determine its structure) are subject to strong inertial forces.

In their work Organizational Ecology (1989), the American sociologists Michael T. Hannan
and John Freeman argued that reliability and accountability—the very properties that make
organizations the favoured social forms in modern society—also discourage, and in some cases
even prevent, organizations from changing their core features. The authors suggested that large
changes in the world of organizations have come about at least partly through selection—that is,
through the rise of organizations that embody new forms and new designs and through the
demise of organizations whose forms were ill-suited to a changing environment.

In emphasizing selection rather than adaptation as the primary process through which
organizations thrive or fail, it is nonetheless true that radical changes in an established
organization’s core features can increase its risk of failure. The inertia that tends to characterize
most large organizations can prevent them from adapting to new conditions (such as changes in
the nature of the workforce, technological improvements, and challenges from new competitors).
By the same token, these traits also provide opportunities for entrepreneurs outside the
established organizations. When possible, nimble organizations that meet the challenges of a new
environment can establish a strong position in the market before the established, dominant
entities are able to enter the scene.

Other influences in organizational development

The key insights of organizational ecology can be traced to the discovery of a kind
of imprinting in the world of organizations. In the behavioral sciences, imprinting refers to the
process by which influences experienced during a given developmental period can have lasting
—often lifelong—consequences. In Social Structure and Organizations(1965), the American
sociologist Arthur L. Stinchcombe compared the American textile industry (one of the oldest
industries in the country) with the newer automotive industry to argue that the key features of
organizations in any industry are related to the era in which the industry emerges. Stinchcombe
called this relation a “correlation of age and social structure.”

Ecological research finds that the dynamics of the organizational world get shaped by processes
of legitimation and competition. In this context, legitimation refers to the extent to which a group
or procedure is taken for granted. That is to say, an organizational form is legitimated when there
is little or no dispute over the suitability of the form for the accomplishment of certain tasks.
Competition refers to the “crowding” that occurs when multiple units (such as businesses and
individuals) try to gain the same resources (such as customers and investors). More organizations
will be created, and fewer organizations will fail, when the legitimation of the form is high and
competition is weak. Extensive research shows that situations of high legitimation and low
competition contribute strongly to the profusion and longevity of organizations.

Implications for the future

As indicated by the preceding discussion, research on management has identified a strong
interdependence among environment, organizational design, and strategy. Contemporary
management scholars judge the quality of a company by the degree to which its strategy and
organizational structure are symbiotic, yet they also consider whether the firm’s strategy and
structure meet the demands of the external environment. As the speed of technological change
accelerates and many firms seek to operate across diverse global environments, it becomes more
difficult to achieve these complementary relationships. Organizational analysts document the
ways in which firms face these challenges, and the outcomes of their studies ultimately cast light
on the management approaches that appear to be the most effective. See also work; social
structure; time-and-motion study.