Lee G. Bolman - Reframing Organizations

This classic article, fifth 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 conflicts of interest between principals and their agents?

Given those conflicts, 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 their own interests (utility in economics‐speak), but their respective interests often diverge. If you are a sole proprietor, a dollar of the firm'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 difficult for them to stay abreast of everything management does, and they can't do it without incurring “monitoring costs”—time and money spent on endeavors like supervision and auditing.

One implication the authors draw is that the primary value of stock analysts is their sentinel function. Their ability to pick stocks is notoriously poor, but their oversight puts heat on managers to serve shareholder interests. The article also concludes that, despite agency conflicts, the corporate form still makes economic sense—managers cost more than owners wish, but they still earn their keep.

The agency problem is a persistent feature of cooperative activity. Relationships 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.

Structural design rarely starts from scratch. Managers search for options and images among the vast array of possibilities drawn from their accumulated wisdom and experiences of others. Templates and frameworks can offer options to stimulate thinking. Henry Mintzberg and Sally Helgesen offer two abstract images of structural possibilities.

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 influential example is Mintzberg's five‐sector “logo,” depicted in Exhibit 4.1. Mintzberg's model clusters various functions into groupings and displays their relative size and influence in response to different strategies and external circumstances. His schema provides a rough atlas of the fundamental terrain that can help managers get their bearings. It assists in sizing up the lay of the land before assembling a structure that conforms to prevailing circumstances. One of the distinctive features of Mintzberg's image is expanding the typical two‐dimensional view of structure into a more expansive rendering that provides a sharper image of the intricacy and issues of organization design.

Exhibit 4.1. Mintzberg's Model.

Source : Mintzberg (1979, p. 20). Copyright ©1979. Reprinted by permission of Prentice Hall, Upper Saddle River, NJ.

At the base of Mintzberg's image is the operating core, consisting of workers (agents) who produce or provide products or services directly to customers or clients: teachers in schools, assembly‐line workers in factories, physicians and nurses in hospitals, and flight 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, factory supervisors, and echelons of middle management fulfill this role. At the top of Mintzberg's figure, 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, nonprofits, and universities, 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 departments in government agencies, and flight 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 influence far greater than their station might suggest.

From this basic blueprint, Mintzberg (1979) derived five structural configurations: simple structure, machine bureaucracy, professional bureaucracy, divisionalized form, and adhocracy. Each creates its unique set of management challenges.

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 monitor what is going on and exercise 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 flexibility 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.

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 support staffs and a sizable technostructure that sets standards for the cooking time of French fries or the assembly of a Big Mac or quarter pounder.

For routine tasks, such as making hamburgers and manufacturing automotive parts, a machine‐like operation is efficient and effective. A key challenge is how to motivate and satisfy workers in the operating core. People quickly tire of repetitive work and standardized procedures. Yet offering too much creativity and personal challenge in, say, a McDonald's outlet could undermine consistency and uniformity—two keys to the company's success.