Ways of Managing and Making Decisions and the role of MIS

This blog looks at the:

• Styles and Processes of Leadership and Decision Making
• Autocratic
• Democratic
• Organisational Forms
• Bureaucracy
• Adhocracy
• Examples of Organisational Management
• Scott Bader
• GE
• Semco 

Styles and Processes of Management

In this section I look at styles of leadership, in particular autocratic and democratic styles.

Autocratic Leadership and Decision Making

Daft and Pirola-Merlo (2009) describe an autocratic leader (boss-centred) as one who tends to centralise authority and derives power from position, control of rewards and coercion. They argue that an autocratic approach is appropriate where there are time constraints or if sub-ordinates are too low-skilled to participate in the decision making process. They cite fast-food restaurants as an example, however, we believe it is possible that the autocratic approach in these business is more due to the mass production techniques (they refer to it as fast turnover) used in which the environment is so controlled that there is in fact little opportunity for decision making or any other form of creative thought. We will examine how methods of organising work may affect decision making later in this lesson. However, our case is consistent with that of Schumacher (1980) who argues that regardless of the level of democracy in our society's political systems methods of management tend to be autocratic. Although he is not convinced that if workers were given more control over their circumstances (as we will see some of examples later) that most would do things very differently. This is because, he argues, they, like everyone, have been conditioned by our modern industrial society to accept its values and criteria. Despite this he believes that autocratic management is undesirable from a human perspective as it does not allow sufficiently for satisfying work in ways that respect human dignity. In relation to this, Daft and Pirola-Merlo (2009) cite studies in which it was found that subordinates with autocratic leaders performed well as long as the leader was present to supervise them, however, subordinates disliked the autocratic style of leadership and felt hostility towards their managers.

In Buck and Villines (2007), John Buck describes his own feelings of working in a large bureaucratic organisation: "Nothing overtly bad happened. I simply felt powerless, and something deep inside of me shredded" (p 19). He attributes these feelings to the lack of equality (in relation to decision making) - which he refers to as "disenfranchisement" - in the work-place - which he describes as a feudal system in which most people are servants, not that different to medieval serfs. This theme is developed further by Schmidt (2000). In relation to non-professional workers Schmidt (2000) states: "Nonprofessionals often feel that their employers treat them like unthinking machines, and they long for the more human treatment that they see their professional co-workers receiving ... in the professional/nonprofessional division of labour, nonprofessionals play a role analogous to that of a machine." (pg 38). In relation to professionals Schmidt (2000) claims that they are allowed autonomy on the basis that their decisions will support the ideology of their employers: "their work involves judging whether or not the ideas of others are in line with the favoured outlook" (pg 41). Furthermore, he claims "Professionals generally avoid the risk inherent in real critical thinking ... They are simply ideological thinkers ... [who] give the appearance of being critical thinkers as they go around deftly applying the official ideology and confidently reporting their judgments" (pg 41).  According to Schmidt professionals are acutely aware of underlying issues and politics, whereas nonprofessionals "are often oblivious to the forces that are contending beneath the surface of the work, and so their decisions may advance the wrong interests - wrong from their employers' point of view" (pg 42). This, according to Schmidt, is the reason why only trusted professionals are allowed autonomy. For complex and creative work, employers cannot tell people exactly what to do (which is more often feasible with unprofessional work), so when it comes to roles that require decision making they need employees that can be trusted to make decisions that will be in the employer's interest. Since such work cannot be directly and constantly supervised this requires people who can "make decisions that must be made ideologically" (pg 38). Schmidt (2000, pg 37) argues that a lot of professional training is, in fact, indoctrination into this ideology. Such highly trained workers are expensive, according to Schmidt, so this drives employers to try and reduce the discretion of professionals by either standardising the work procedure or introducing "'expert' computer systems" (pg 38) the intention of which is to "transform the employee's decision making into a routine or rote activity and tend to strip the work-result of any imprint of the employee's own thinking" (pg 36). 

Democratic Leadership and Decision Making

Daft and Pirola-Merlo (2009) describe a democratic leader as one who delegates authority to others, encourages participation, relies on subordinates' knowledge for completion of tasks and depends on subordinate respect for influence (authority?). The studies cited indicated that subordinates with democratic leaders performed well even when the leader was absent and that they had positive feelings towards their managers. In these studies participative decision making approaches were used, such as majority rule. Other studies suggest that managers'/leaders' behaviour may range from autocratic to democratic depending on circumstances. Daft and Pirola-Merlo (2009) cite a case-study at ICI (now Orica) where participative decision-making was practiced such that members of a technical project team were involved in many key decisions. The team leader, Lisa Madigan, argued that this approach allowed them to solve problems that might not have been dealt with well by conventional problem-solving techniques. Interestingly she stated that this approach allowed them to get solutions quickly. One of the arguments made by Draft and Pirola-Merlo (2009) for an autocratic style was that it was more appropriate when decisions needed to be made quickly, now we hear that a participative approach can be fast. How can this be explained? One possible answer is that participative/democratic approaches need not be majority-rule (which can be slow) but rather a form of distributed problem solving whereby decisions are delegated to those best able to make them. This may explain the faster, and better quality decisions experienced in Madigan's team at ICI. Such an effect is, according to Galbraith (1985) the basis of the success and efficiency of bureaucracies. We will discuss these ideas of Galbraith in a later lesson.

Organisational Forms

Mintzberg (1979) described various forms of organisational structure. These include a simple structure of direct supervision over an organically arranged operational core through various types of bureaucratic organisation to adhocracies (among others). I will look at bureaucracies, divisions and adhocracies in the next section and other organisational forms in later blogs.

Bureaucracy

Two types of bureaucracy identified by Mintzberg (1975) are the Machine Bureaucracy and the Professional Bureaucracy. The Machine Bureaucracy (MB) may be found in large organisations such as post-offices, airlines and prisons. It is suited to simple and stable environments and is based around standardising work processes. In this structure formal power rests primarily with the managers at the apex of the system, however, informal power also rests with the technical experts who are responsible for standardising everyone else's work.

According to Mintzberg, in a Professional Bureaucracy rather than standardising work, skills are standardised. Note that in both cases, standardisation allows decentralisation as this leads to predetermined and/or predictable behaviour. Standardisation of skills is a coordinating mechanism that allows for both standardisation and decentralisation at the same time. It is found in academic institutions such as schools and universities as well as in hospitals. The Professional Bureaucracy relies on trained and indoctrinated specialists. Due to this preparation these specialists can be left to work autonomously in accordance with their training. For example, teachers are left alone to work with their students in classes, doctors are left alone to work with their patients. Both are largely unsupervised. This independence of colleagues relies on everyone knowing what others are doing and how the system works due to the standard training. One feature of these bureaucracies is that the work processes are often too complex to be standardised directly by analysts as in the Machine Bureaucracy. For example, imagine trying to program a teacher in their work in the classroom. A lot of power rests with the professionals working in these systems. The professional is answerable only to his colleagues who, as a group, trained and indoctrinated him/her and therefore can censure him/her for malpractice. This power also comes from the fact that the work is too specialised and complex to be supervised by managers and also because of this, they have professional mobility due to high demand for their services (Is this true? See the Activities for this lesson). Loyalties lie with professional associations, not organisations. Careers depend on professional progress, not climbing an administrative ladder. Professionals join organisations to share resources, to obtain clients and to allow joint servicing of clients (i.e some diagnose problem, some prescribe remedies). In universities academics join together to offer courses.

The Divisional Form

Whereas the Professional Bureaucracy is an integration of autonomous individuals, the Divisionalised Form (DF) is an integration of autonomous business units with a central administration (the headquarters). It was used in the socialist economy where state enterprises were divisions and the central government agencies were the headquarters. This form is common in large companies and often sits as a superstructure on top of other organisational forms as each division may have its own internal structure. Divisions may be formed according to different markets/products. These divisions can then operate free of the need to co-ordinate with the other divisions. Again it is a structure that allows decentralisation and autonomous leadership with each division delegated the power to make its own decisions regarding its operations. In these structures power often mainly resides with the divisional head. However, the headquarters needs to retain some power over the division or the division becomes an independent organisation. Headquarters typically do this by allocating overall financial resources and monitoring the results of decisions made in the divisions. This monitoring is typically based on quantitative measures of profit, sales growth and return on investment (ROI). Monitoring such results frees the headquarters from monitoring the processes used to achieve them. The coordinating mechanism here is therefore the standardisation of outputs. Because of its dependence on standard performance outputs this form of co-ordination is difficult in dynamic environments, but appropriate to stable environments. Often the divisionalised form is composed of many machine bureaucracies.

One form of power that the headquarters has is the ability to design the performance control system. This involves designing the performance metrics and the reporting periods, establishing formats for plans, budgets and reports then designing a Management Information System (MIS) to feed the performance results to the headquarters in conjunction with setting targets and reviewing the MIS results. If results are not up to expectations the headquarters (HQ) can decide that this is due to factors outside of the divisional manager's control (eg: recession, new competitors, etc) or they can replace the division manager if he/she is perceived as incompetent. Such new appointments are the most direct way HQ can interfere with the operation of the divisions. The MIS may offer little assistance in determining whether problems are due to incompetence or adverse business conditions, also the MIS results may be manipulated by the divisional manager (eg: by cutting spending to gain short term profitability at the expense of long term profits) or may not reveal imminent problems. To overcome such problems of the MIS, headquarters may monitor divisional performance on a personal basis including frequent visits to the division to collect information ("to keep in touch"). Headquarters managers may be tempted to take over divisional powers and centralise decision making (eg: one advertising department instead of many). Often this decision may be based on the abilities of MISs to supply the necessary knowledge. However, Mintzberg (1979) warns that such systems can give the illusion of knowledge but not knowledge itself of which much is soft and speculative and is never quantified or documented. The MIS only provides, typically, abstracted and aggregated generalisations. If the MIS is capable of providing more detailed information, or if central mangers try and use phones to get it verbally, they would lack the time to absorb it all. The time needed to absorb the information was the main reason why organisations were divisionalised in the first place. Headquarters should not try to manage divisions but to set targets and monitor performance using an MIS. The use of a headquarters in a divisional form also overcomes the problem of top management deceiving its directors.

A major criticism of the divisionalised form is that it may drive divisional managers and their divisions to act socially irresponsibly because the metrics used by HQ (measures and performance targets) are typically economic. Furthermore, social outcomes are often intangible and therefore difficult to quantify and manage using an MIS.

Adhocracy

The bureaucratic and divisional forms are best suited for established practices in simple and stable environments. They are not well suited to change, although the divisional form does allow for some degree of incremental change. However, for innovation and rapid change in complex environments a more flexible structure is needed. One name for such a structure is an adhocracy. Adhocracies have organic (adaptive) structures that do not have highly formalised behaviours. These are co-ordinated based on mutual adjustment and decentralisation is selective based on the required mixtures of staff needed at various places and times. Coordination therefore arises not from control but through interaction. Innovative organisations do not rely on any form of standardisation for co-ordination but rather are co-ordinated around projects. This form of organisation may involve vast bureaucracies being repeatedly reformed over short time periods with divisions being created and destroyed with jobs and responsibilities being frequently transformed. They are appropriate to organisations that are not involved in repetitive work such as new space projects and film projects.

Examples of Organisational Management

Schumacher (1980) describes the organisational structure at Scott Bader that Ernest Bader started implementing in 1951 and is still operating now. During this time the company grew substantially. The structure was implemented when Ernest Bader, who owned the large chemical company Scott Bader, which he founded, decided to set up the organisation as a commonwealth for all who worked in it. In doing this he transferred all his equity in the company to the commonwealth, which is owned by all who have worked for the company for a minimum time i.e private ownership has been abolished. Baden then had to address the issues of how to arrange for participation in the commonwealth and how to protect workers during difficult times from being excluded from the commonwealth (i.e losing their jobs). Rather than having a board of directors the company instituted a parliament of workers. This parliament could appoint or dismiss directors and determined their salaries. They also settled on a maximum spread of income between the highest and lowest paid. No one could earn more than 7 times the lowest paid worker in the company (compare this with Telstra where Sol Trujillo earned more than $30 million over 3 years). Employees could also not be sacked except in cases of gross personal misconduct. Information on other employee-owned companies can be obtained from the Employee Ownership Association. At Scott-Bader originally the number of employees was limited to 400, however, it is now 600. Once the company grows too big, sections are split off as separate companies. Only 40% of the profits can be distributed (the rest is reinvested) and of this half must go to charity or social purposes outside the organisation. After the first 30 years of operation the organisation was struggling to find charity organisations that needed help within 50 miles as all other social needs seemed to have been met by prior Scott-Bader contributions (read more about the Scott-Bader organisation here).

Two other interesting example which may be worth exploring are Semco in which much control of the organisation was given to workers and also the experience of GE when it implemented Management By Objectives (MBO) where each manager sets his or her own goals with an emphasis on self control rather than imposed control (Champoux 2006 pp 19-21).

References

Champoux, J.E. 2006. Organisational Behaviour: Integrating Individuals, Groups and Organisations. 3rd Edition. Thomson.

Daft, R.L and Pirola-Merlo, A. 2009. The Leadership Experience, Asia Pacific Edition, Cengage Learning.

Galbraith, J.K. 1985. The New Industrial State, Chapter VI. Houghton Mifflin, Boston.

Mintzberg, H, 1975. The Structure of Organisations. Prentice-Hall.

Schumacher, E.F, 1980, Good Work, Abacus.

Schmidt, J. 2000. Disciplined Minds: A Critical Look at Salaried Professionals and the Soul-Battering System that Shapes their Lives, Rowman and Littlefield.