Fighting Uncertainty

J. R. Galbraith, “Organization Design: An Information Processing View” Interfaces, 4 (1974), 28-36

Summary

Galbraith believes that “the greater the uncertainty of the task, the greater the amount of information that must be processed between decision makers during the execution of the task to get a given level of performance”. Firms can reduce uncertainty through better planning and coordination, often by rules, hierarchy, or goals.

Galbraith states that “the critical limiting factor of an organizational form is the ability to handle the non-routine events that cannot be anticipated or planned for”. When the “exceptions” become too prevalent, they overwhelm the hierarchy’s ability to process them. Variations in organization design arise from different strategies to increase planning ability and to reduce the number of exceptional events that management must resolve.

Galbraith defines a continuity of organizational forms that firms utilize to reduce uncertainty:

1. Creation of Slack Resources. These include extending delivery times, adding more money to the budget, and building inventory (all which have inherent costs). If a firm fails to actively create a higher level strategy to address uncertainty, this strategy will occur by default.

2. Creation of Self-Contained Tasks. One strategy at this level is changing from functional to product groups.

3. Investment in Vertical Integration Systems. Condensing the flow of information by building specialized languages and computer systems can help analysis and decision making.

4. Creation of Lateral Relationships. Moving the decision making power down in the firm to  where the information exists can reduce uncertainty at thedecision level. There are various strategies of increasing complexity to achieve this:

A. Direct contact between managers across groups

B. Liaison personnel between groups.

C. Task Forces

D. Teams

E. Cross-group Managers (project managers, program managers, etc.)

F. Linked Managers (with power over some cross-group resources)

G. Matrix Organization

While higher level strategies can reduce more uncertainty, they also require more “organizational investment” and higher administrative costs. Firms must choose the most optimal level for their immediate environment.

Information Processing Model

“The greater the uncertainty of the task, the greater the amount of information that has to be processed between decision makers during the execution of the task to get a given level of performance.”. Uncertainty reduces the ability to preplan an activity. Galbraith believes that

variations in organizations are variations in strategies to increase pre-plan ability and to decrease the level of performance required for continued viability”.

Mechanistic Model

The difficulty is creating mechanisms that” permit coordinated action across large numbers of interdependent roles”.

Some coordinate by rules or programs (if one can predict behaviors inadvance). Another method is hierarchy. In cases of infrequent or unique situations, an appropriate higher level will be called upon. Finally, organizations coordinate by targets or goals. Hierarchy selects goals and targets and then lets lower levels choose the behavior that achieves them. Planning achieves integrated action and reduces the need for continuous communication between interdependent sub-units.

Design Strategies

Coordination is often dependent on the number of “exceptions” to defined tasks. Design strategies can reduce the amount of information processed, or increase the ability to handle more information. All of these strategies help to reduce the number of exceptions that must flow up the hierarchy for resolution. “The assumption is that the critical limiting factor of an

organizational form is the ability to handle the non-routine events that cannot be anticipated or planned for.”.

1. Creation of Slack Resources

This could include extension of completion dates, reducing budget constraints, adding inventory, etc. All of these have inherent costs.

2. Creation of Self-Contained Tasks

For example, changing from functional to product groups (each with their own resources) can simplify management of exceptions. However, this method can result in loss of resource specialization.

3. Investment in Vertical Information Systems

Another method is to develop formal languages (like accounting procedures) that condense the information flow and make it easier to deal with. Computer systems and decision support systems are also tools of improved information processing.

4. Creation of Lateral Relationships

This strategy moves the decision making down in the organization to where the information exists. Often this is informal. These lateral processes can be (in increasing levels of uncertainty):

4.1 Direct Contact between managers who can jointly solve the problem (production manager with design engineer, for example).

4.2 Liaison Rules — Special people who bridge two sub-systems and reduce need for hierarchical decision making.

4.3 Task Forces — Multi-department groups set up to solve a particular problem.

4.4 Teams — Formal groups designed to perform a task. The choice of leadership is critical.

4.5 Integrating Roles — Product managers, program managers, etc., who ideally have some power across departments to affect decision making. They collect information and equalize power differences, which improves joint-decision making processes (known as expert power). The manager must be able to persuade and influence rather than pull rank.

4.6 Managerial Linking Roles — This is a stronger form of 4.5 where the manager has more formal authority over budgets or planning. However people don’t report directly to the Linking Manager. Still, his power is such that he can exercise influence despite no reporting relationship.

4.7 Matrix Organization — A dual-authority relationship

Choice of Strategy

A firm should choose the strategy that has the least cost in its environmental context. If one doesn’t choose one of these higher strategies, the first, lower performance standards happens automatically. Not to decide is to decide to use slack resources to reduce hierarchical overload.

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