W Richard Scott (1981) Organizations: Rational, natural and open systems, Englewood Cliffs, NJ: Prentice Hall: Chapters 1 to 5.
Summarized/Critiqued by Ramya T.V
1 Chapter 1: Subject is organizations
Organizations have a ubiquitous presence in modern industrialized societies and a wide reaching impact on society. According to Parson (1960), the development of organizations is the principal mechanism by which, in a highly differentiated society, it is possible to ‘get things done’, to achieve goals beyond the reach of the individual. Organizations also affect society in terms of influencing the psyche and personalities of its participants, even shaping the products and services they produce (“the medium is the message”), behaving as actors in their own right as ‘corporate persons’ and providing the setting for a wide variety of basic social processes.
Organizations as an area of study, while multidisciplinary, emerged within sociology roughly from the time of Max Weber’s seminal work on bureaucracy was translated to English in 1946-47 and became available to American sociologists. Robert Merton, Max Weber, Philip Selznick, Gouldner, Blau, Frederick Winslow Taylor, Richard Scott (author), Chester Barnard, March and Simon, Likert are some of the significant contributors in this field.
Organizations are studied for their common features and at the same time have important bases of specialization among the various disciplines. Levels of analyses vary; a social psychological perspective looks at individual behaviour within the context of organizations, a structural perspective looks at various subunits or analytical components that comprise the organization and an ecological perspective looks at the organization as a collective actor functioning in a larger system of relations. While early research focused on the social psychological view, Lazarsfeld and Menzel (1961) developed an innovative typology of measures defining the concept of “members” and “collectives”, which ushered in a new wave of studies with the structural perspective. The ecological view emerged in the late 1960s and continues to evolve.
Leavitt (1965) proposes a simple model of an organization, with 4 major elements: social structure, participants, goals and technology, which is adapted to include a fifth element of environment, all of which influence the each other in complex ways. Social structure comprises a normative component with values, norms and role expectations (“what ought to be”) and a behavioural component (“what is”) with activities, interactions and sentiments. When the social structure is explicitly specified in terms of positions and relationships, it is formal, else informal. Participants vary in terms of extent and intensiveness of their involvement, level of expertise/skills and consequently in power and demands for autonomy. Goals, which are conception of desired ends, which again are conditions that participants attempt to effect through their performance of task activities, are both important and controversial in the study of organizations. Technology, viewed as a mechanism for transforming inputs to outputs, can also impact structural features of organizations. Environmental complexity also tends to influence structural features, technology and participant involvement.
Finally, three views of an organization are introduced: rational, natural and open system, which are elucidated in further chapters. As per the rational view, an organization is a collectivity oriented to the pursuit of relatively specific goals and exhibiting a relatively high formalized social structure. The natural system view proposes the view that a collectivity whose participants are little affected by the formal structure or official goals but who share a common interest in the survival of the system and who engage in collective activities, informally structured, to secure this end. An open systems view is that of a coalition of shifting interest groups that develop goals by negotiation; the structure of the coalition, its activities and its outcomes are strongly influenced by environmental factors. In reality, one can see various aspects of all three models in today’s organizations.
2 Chapter 2: Varieties of organizations
Certainly there are a wide variety of organizations and an attempt to classify is towards understanding this complex animal. This chapter briefly reviews a number of typologies which analysts have devised to catalog the diversity of organizations. These typologies are classified according to the major element (as per Leavitt’s adapted 5 element model from chapter 1) identified as the basis for the proposed distinction. Eighteen such typologies are identified. In reviewing typologies, the chapter identifies variables which are viewed as significant by the analyst concerned in accounting for the differences between organizations. Table 2-1 in the chapter provides the mapping between the major element, typology and key variable, and a brief review of each is provided.
While typology based on goals, participants, technology and even environment mostly makes for an unsurprising list, the typology emphasizing social structure makes interesting reading. Max Weber’s model of bureaucracy, underscoring normative structure, makes a brilliant elaboration based on three types of authority- traditional, rational-legal and charismatic. Weber is so confident about his theory that he goes far enough to make a prediction on the stability and future of each of these types. A theory in the field of sociology meeting a Popperian falsifiability criterion is an unprecedented feat, and makes it an outstanding contribution.
The chapter later presents an extremely interesting shift from content to method, to evolve a set of principles for defining good typologies. Blau-Scott and Etzioni’s typologies are examined and used as examples to demonstrate certain principles to construct typologies.
a) Select a dimension or set of dimensions that will help account for important aspects of organizational structures or functions.
b) Define clearly the dimension(s) and specify how they are to be operationalized.
c) When two or more dimensions are utilized, they must be independent in the statistical sense.
Two empirically constructed typologies, one by Haas, Hall and Johnson (1966) and the Aston group employing multivariate analysis of variables are described. While an empirical approach heralded a new wave in the history of organizational theory, it has its limitations given that organizations are too complex and loose in their structural interconnections to yield to an empirical approach. How the organizational context can influence the relation between variables is not specified, and erroneous contextual variables can get picked up for analyses, these are two possible pitfalls.
The chapter ends with an alternative to constructing of typologies, with the emergence of the natural selection approach, where environments differentially select organizations for survival on the basis of the their fit, and goes onto discuss the work of McKelvey (1978) and the definition of the blueprint of an organization. When viewed as open systems, analysts also need to be careful in defining the boundaries of the organization, and also be aware of fundamental changes in the definition of the organization with time.
3 Chapter 3: Organizations as rational systems
“Rational” merely denotes a sense of efficiency in organizing and achieving the goals of the organization. The behaviour of organizations is viewed as actions performed by purposeful and coordinated agents. Rational system theorists stress on “goal specificity” and “formalization” to distinguish organizations from other types of collectivities. Goals could be irrational, conflicting and even vague at the highest level, but as long as operational goals are specific, organizations appear to function smoothly. Formalization has objectives of mechanizing the organization, make roles and relationships appear objective and external to the participants, which in turn has many socio-psychological implications.
This chapter briefly describes Taylor’s scientific management; attempts by Fayol and others to formulate administrative principles, Weber’s theory of bureaucracy and Simon’s discussion of administrative behaviour.
Frederick W. Taylor (1911) and others such as Frank and Lillian Gabreth, Henry Gantt et al insisted that it was possible to scientifically analyze tasks performed by individual workers in order to discover those procedures that maximize efficiencies.
Henry Fayol (1949), Mooney and Railey (1939), Gulick and Urwick (1937) formulated broad administrative principles regarding rationalization, and differed from Taylor in that it was a top-down approach rather than a bottom-up approach. Two types of activities: coordination and specialization were emphasized. The root of many of the modern day practices of unity of command, limited span of control, the exception principle can be traced back to this era! Criteria regarding departmentalization or specialization specified based on homogeneity of purpose, process, clientele and place remain valid to this day, just as the broad concept of line and staff. It is amazing to note that these widely accepted principles of today were greatly attacked at that time, for being mere “truisms” or common-sense pronouncements, having questionable assumptions and have no application guidelines! The learning here is that a theory maybe ahead of its time, and that what sounds ridiculous at a particular time maybe the order of the day at a later time!
Weber’s theory of bureaucracy needs to be viewed in its context of trying to make a distinction from the widely prevailing patrimonial form at that time. Weber provided an alternative practical solution to the ills of the patrimonial system and in that sense it was a brilliant and well studied contribution of that time. Weber emphasized on the type of authority relation that relates superiors to subordinates in the administrative structure. Traditional, rational-legal and charismatic forms are espoused in the proposal. Weber is criticized for confusing authority based on incumbency and technical competence (which may not have been distinguishable in the prevailing times) as well as for not demarcating definitions from proposals, both explicit and implicit. Udy (1959) was the first to suggest that Weber’s model was a starting point for empirical exploration following which a new surge of research got initiated. Weber is recognized as a master of organization theory and his research continues to inform.
Simon and March are responsible for many of the modern day concepts and practices about goals. Goals supply value premises, and are combined in decisions with factual premises. The entire idea of goals cascading down to various levels is completely a contribution from this space. March and Simon are also responsible for the concept of “bounded rationality”. Thompson summarises that “structure is a fundamental vehicle by which organizations achieve bounded rationality”.
The criticism about the rational system theorists is that they completely ignored the huge impact of the environment on the organization. The behavioural structure (actual behaviour) as against the normative structure (expected behaviour) was also left without much attention.
4 Chapter 4: Organizations as natural systems
This model was developed specifically in opposition to the rational system model, and was designed to correct the oversimplified rational model with its naïve conception of individual participants. However it also provides a novel and interesting view of organizations.
Natural system theorists disagree on the relevance of goals and the importance of a formal structure in organizations. Often stated goals are different from the real goals in action, goals are not sacrosanct, and meeting goals is only one of the various needs of the organization serving as a social system. The thrust of the natural systems view is that organizations are fundamentally social groups attempting to adapt and survive in their particular circumstances, having a larger, overriding goal of survival. The structure, a vehicle to achieve the goals, is therefore further questionable, with informal structures being observed in rampancy.
The structural-functional analysis model of analysis underlies natural systems and has been the dominant model from the 1930s to the 1960s. Showing that a given structure meets a functional need constitutes a functional explanation for the structure. Consequences are important, origins are not, and final causes are emphasized over efficient causes. The model also emphasizes that structural elements are mutually interdependent.
Three schools are discussed: Mayo and the HR school, Selznick’s institutional approach and Parson’s social system model.
Mayo (1945) discovered the remarkable (at that time) “Hawthorne effect” that proved that individual workers were not mere mechanical economic actors but were complex beings driven by motives and feelings. This spawned off numerous research and reform offshoots including studies on leadership, workgroup behaviour, employee personality attributes, job redefinition et al which are today flourishing fields.
On a sidenote, as an industry practitioner, it is interesting to note that several decades of research have demonstrated no clear relation between worker satisfaction or supervisory behaviour or leadership style or job enlargement or decision-making participation to productivity!
Philip Selznick’s institutional approach is a coherent work where he explains the non-rational dimensions of an organization as individuals who participate as “wholes” and not merely “roles” and that formal structure is only one aspect of the social structure that must adjust to the institutional environment. Selznick insists that the overriding need of all systems is the maintenance of the integrity and continuity of the system itself. He refers to “institutionalization” as the process through which an organization develops a distinctive character, “cooptation” a mechanism by which external elements are incorporated into the decision making structures of the organization. The institutional model seeks to explain changes in the goals of the organization, adapting to a hostile environment for its survival, although most of the literature focuses on deviant examples.
Parson’s AGIL framework is a schema applied to society as a whole with the organization being a subsystem, and opines that functional imperatives generate the fault lines along which a social structure becomes differentiated. He stratifies technical, managerial and institutional layers, and interestingly says that there exists a qualitative break at the two lines in between. Parson’s framework though comprehensive was not particularly popular or practical towards furthering the frontiers of research.
5 Chapter 5: Organizations as open systems
The “general systems” theory founded by Ludwig von Bertalanffy stimulated the birth of the view that organizations are loosely coupled systems, characterized by an assemblage of parts with relations among them that are interdependent and loosely constrained. Boulding identifies a hierarchy of nine system types with increasing complexity, with levels 3 and 4 (cybernetic and open systems) being of particular interest.
Cybernetic systems are capable of self regulation, and the goals of the system are provided by a policy center based on the demands of the environment. The shift in thinking here is that such feedback controlled arrangements are “goal-directed” and not just “goal-oriented”, since it is the deviations from the goal state itself that determines the system behaviour rather than predetermined internally set goals.
Open systems are capable of self maintenance on the basis of a throughput of resources from the environment. Boundaries play an important role in the definition of open systems. General systems theorists elaborate the distinction between open and closed systems wrt negative and positive entropy respectively. Open systems can consume energy from the environment for their maintenance and growth. Open systems are also subject to the law of limited variety, where the systems’ variety is limited by the variety in its environment.
Systems design approach, contingency theory, two environmental approaches and Weick’s model of organizing are dealt with in this chapter.
Systems design, with complex probabilistic systems, employing simulation techniques is discussed. The structure is irrelevant and instead operational workflow and information flow between basic black-box units of the system are studied. The challenge facing system designers is how to create structures that maximize the strengths of each of the participant system components while minimizing the impact of their weaknesses.
Contingency theory is guided by the hypothesis that organizations whose internal features best match the demands of their environments will achieve the best adaptation. Lawrence and Lorsch (1967) propose that this “best match” occurs on two levels, the structure of the subunits suiting the specific environment and the mode of integration suiting the overall organization environment. Galbraith (1973) connects environment uncertainty and information processing, and views structure as an information processing vehicle.
Aldrich and Pfeffer (1976) identify two subtypes of the environmental approach: natural selection and resource dependence model. The former argues that environments differentially select certain types of organizations for survival based on the basis of fit between organizational forms and environmental characteristics. Three processes are emphasized; the creation of variety, selection of some types over others and the retention of some of these forms. The resource dependence model stresses on the adaptation processes, under which managers or dominant coalitions scan the relevant environment, formulate strategic responses and adjust organizational structure accordingly.
Weicks mode of organizing refuses to acknowledge the organization as a noun, but rather as an “organizing” process. Although Weick’s definition is complicated, in short it says that the activities of “organizing” are directed toward the establishment of a workable level of certainty.
Summarily, the organization is a dynamic system. The open systems perspective greatly emphasizes the role of the environment. Unlike the rational system that ignores it, or the natural system that treats it as a hostile constraint to be adjusted to, here the environment is perceived to be the ultimate source of materials, energy and information that are vital to the survival of the system, and even seen to be the source of the order itself! The evolution of organizational theory has certainly arrived at an exciting point with this advanced perspective and throws open many nascent opportunities for greater research.
Thursday, November 6, 2008
Charles Perrow: The short and glorious history of organizational theory (1987)
“Charles Perrow: The short and glorious history of organizational theory”
in Wright and Robbins (1987) Organization Theory, Englewood Cliffs, NJ: Prentice Hall
Summarized/Critiqued by Ramya T.V
Charles Perrow portrays the entire historical evolution of organizational theory as two interacting learning spirals occurring between the two main schools, the mechanical school where the organization is treated as a machine on one end of the spectrum and the human relations (HR) school at the other end where people rather than machines are emphasized. He terms these two schools as the “forces of darkness” and “the forces of light” respectively. The mechanical or scientific school began in the early twentieth century with simple injunctions to keep records and plan ahead, but factors of labour criticality, complexity of markets, environmental changes and changing concepts of leadership made these injunctions less relevant and necessitated change.
Chester Barnard in 1938 proposed the first HR theory of organizations as cooperative systems, stressing natural groups, upward communication, authority from below and the role of leaders as a cohesive force. This was further strengthened by studies at the Hawthorne plan of the Western Electric Company, published by Roethlisberger and William Dickson as Management and the Worker. Post World War II, this spawned an interest in identifying leadership traits, which focused more on the soft-skills and less on the job/technical aspects. The Tavistock Institute also studied that job simplification and specialization did not work under conditions of uncertainty and nonroutine tasks, and was followed by other conclusions, thus serving a blow to the scientific management school.
Max Weber in 1940 made available the theory of bureaucracy, which although received with hostility initially, actually turned out to be a celebration of its efficiency, considering the context in which it was proposed.
The observed aspects of power dynamics, legitimately conflicting goals and decision making processes were not logically explainable by either school. While the first two aspects were “explained” away, the aspect of decision making necessitated the next wave of change. Simon and March proposed the concept of “cognitive limits on rationality” and spoke of “satisficing” rather than “optimizing” approaches when individuals had to make decisions in an organizational context. Indirect ways of controlling decision-making with ‘premises”, along with devices to control the premises altered both schools of thought to accept a portion of each other’s views! While the HR school changed its locus from the individual’s unpredictable personality to responses to changing stimuli, the bureaucratic school began to recognize subtler and more complex elements of control.
Joan Woodward in her survey of 100 firms in South Essex pioneered the study of how the nature of the task (termed “technology”) affects the structure of the organization. While the HR school floundered in its response, the mechanical school took off on this finding with James Thompson spelling out different forms of interdependence among units, and Lawrence and Lorsch looking closely at the nature of integrating mechanisms.
With deeper studies on the nature of goals, and the influence of the environment on the organization, all the varied schools have begun to agree that organizations are systems, where everything seems to be related to everything else, and the psychological, sociological and cultural aspects of units interact. Organizations are extremely complicated and several decades of research has made a few small steps of progress in this fledgling multidisciplinary discipline.
As part of the class discussion, I would like to present my perception of three different organizations that I have worked with, in terms of aspects of these theories that I could relate to from this reading. One is a large sized India-based MNC, the second a large sized US based global MNC and the third a medium sized India based organization. This I hope will assist to some extent in confirming our understanding of the theories as well as in appreciating the realities and greater complexities of today’s organizations and their contexts.
in Wright and Robbins (1987) Organization Theory, Englewood Cliffs, NJ: Prentice Hall
Summarized/Critiqued by Ramya T.V
Charles Perrow portrays the entire historical evolution of organizational theory as two interacting learning spirals occurring between the two main schools, the mechanical school where the organization is treated as a machine on one end of the spectrum and the human relations (HR) school at the other end where people rather than machines are emphasized. He terms these two schools as the “forces of darkness” and “the forces of light” respectively. The mechanical or scientific school began in the early twentieth century with simple injunctions to keep records and plan ahead, but factors of labour criticality, complexity of markets, environmental changes and changing concepts of leadership made these injunctions less relevant and necessitated change.
Chester Barnard in 1938 proposed the first HR theory of organizations as cooperative systems, stressing natural groups, upward communication, authority from below and the role of leaders as a cohesive force. This was further strengthened by studies at the Hawthorne plan of the Western Electric Company, published by Roethlisberger and William Dickson as Management and the Worker. Post World War II, this spawned an interest in identifying leadership traits, which focused more on the soft-skills and less on the job/technical aspects. The Tavistock Institute also studied that job simplification and specialization did not work under conditions of uncertainty and nonroutine tasks, and was followed by other conclusions, thus serving a blow to the scientific management school.
Max Weber in 1940 made available the theory of bureaucracy, which although received with hostility initially, actually turned out to be a celebration of its efficiency, considering the context in which it was proposed.
The observed aspects of power dynamics, legitimately conflicting goals and decision making processes were not logically explainable by either school. While the first two aspects were “explained” away, the aspect of decision making necessitated the next wave of change. Simon and March proposed the concept of “cognitive limits on rationality” and spoke of “satisficing” rather than “optimizing” approaches when individuals had to make decisions in an organizational context. Indirect ways of controlling decision-making with ‘premises”, along with devices to control the premises altered both schools of thought to accept a portion of each other’s views! While the HR school changed its locus from the individual’s unpredictable personality to responses to changing stimuli, the bureaucratic school began to recognize subtler and more complex elements of control.
Joan Woodward in her survey of 100 firms in South Essex pioneered the study of how the nature of the task (termed “technology”) affects the structure of the organization. While the HR school floundered in its response, the mechanical school took off on this finding with James Thompson spelling out different forms of interdependence among units, and Lawrence and Lorsch looking closely at the nature of integrating mechanisms.
With deeper studies on the nature of goals, and the influence of the environment on the organization, all the varied schools have begun to agree that organizations are systems, where everything seems to be related to everything else, and the psychological, sociological and cultural aspects of units interact. Organizations are extremely complicated and several decades of research has made a few small steps of progress in this fledgling multidisciplinary discipline.
As part of the class discussion, I would like to present my perception of three different organizations that I have worked with, in terms of aspects of these theories that I could relate to from this reading. One is a large sized India-based MNC, the second a large sized US based global MNC and the third a medium sized India based organization. This I hope will assist to some extent in confirming our understanding of the theories as well as in appreciating the realities and greater complexities of today’s organizations and their contexts.
Smith, A. (1776). On the Division of Labour.
Smith, A. (1776). Of the Division of Labour.
In J. M. Shafritz, and J. S. Ott, (1987) Classics of Organization Theory (Eds.). Illinois: The Dorsey Press
Summarized/Critiqued by Ramya T.V
Adam Smith attributes the greatest improvement in the productive powers of labour to the concept of “division of labour”. As an illustrative example, in a small organization where ten men struggled to produce a single pin in a day, they could instead produce 4800 pins per person per day, if they were able to organize their work in a superior fashion. The “superior fashion“ essentially was to subdivide the pin-making activity into distinct steps, and for each worker to take care exclusively of one or more distinct steps, and then to coordinate these steps.
The advantage from the division of labour has many ramifications, including even the separation of various trades and employments. This separation is highest in “developed” countries, where there is a high degree of industry and improvement. Smith goes on to compare agriculture and manufacture, and opines that the nature of agriculture is such that it is not greatly amenable to subdivision of labour, owing to the seasonal nature of the tasks and therefore labour needs, and hence does not keep pace with manufacture in its rate of progress. As a result, nations are distinguished more for their superiority in manufacture rather than agricultural produce.
Three different reasons contribute to the increased productivity achieved through the division of labour. Firstly, the increased dexterity of every man resulting from a single minded focus on a simple activity/set of activities, results in a measurably greater efficiency on the job. Secondly, there is a switching-time between tasks which can cumulatively have a significant effect owing both to the lost time as well as inertia of starting on a new task, which division of labour considerably reduces. Thirdly, specialization also facilitates readier automation by those performing the task, which provides superior efficiencies. Automation can also originate from the makers of the machines or from philosophers in general.
Summarily Smith concludes that the opulence in output, as a consequence of the division of labour, spreads prosperity and abundance at all the different levels of a well governed society. This enables comfortable “accommodation” of members at all levels of society and the person at the lowest level of society in a developed nation maybe better off than the person at the highest level of an un-developed nation, where the development can fundamentally be attributed to the concept of division of labour.
In J. M. Shafritz, and J. S. Ott, (1987) Classics of Organization Theory (Eds.). Illinois: The Dorsey Press
Summarized/Critiqued by Ramya T.V
Adam Smith attributes the greatest improvement in the productive powers of labour to the concept of “division of labour”. As an illustrative example, in a small organization where ten men struggled to produce a single pin in a day, they could instead produce 4800 pins per person per day, if they were able to organize their work in a superior fashion. The “superior fashion“ essentially was to subdivide the pin-making activity into distinct steps, and for each worker to take care exclusively of one or more distinct steps, and then to coordinate these steps.
The advantage from the division of labour has many ramifications, including even the separation of various trades and employments. This separation is highest in “developed” countries, where there is a high degree of industry and improvement. Smith goes on to compare agriculture and manufacture, and opines that the nature of agriculture is such that it is not greatly amenable to subdivision of labour, owing to the seasonal nature of the tasks and therefore labour needs, and hence does not keep pace with manufacture in its rate of progress. As a result, nations are distinguished more for their superiority in manufacture rather than agricultural produce.
Three different reasons contribute to the increased productivity achieved through the division of labour. Firstly, the increased dexterity of every man resulting from a single minded focus on a simple activity/set of activities, results in a measurably greater efficiency on the job. Secondly, there is a switching-time between tasks which can cumulatively have a significant effect owing both to the lost time as well as inertia of starting on a new task, which division of labour considerably reduces. Thirdly, specialization also facilitates readier automation by those performing the task, which provides superior efficiencies. Automation can also originate from the makers of the machines or from philosophers in general.
Summarily Smith concludes that the opulence in output, as a consequence of the division of labour, spreads prosperity and abundance at all the different levels of a well governed society. This enables comfortable “accommodation” of members at all levels of society and the person at the lowest level of society in a developed nation maybe better off than the person at the highest level of an un-developed nation, where the development can fundamentally be attributed to the concept of division of labour.
Berle and Means book summary
Berle A.A. & Means G.C (1932). The Modern corporation and private property, Harcourt, Brace & World Inc.
Primary focus
• The focus of the book is to study the phenomenon of the nature of private property ownership and control in the modern corporation.
Key concepts
• Most owners of firms do not manage and most managers do not own, and this trend is increasing in the American corporation.
• The atom of property is split in terms of ownership and control. Ownership is getting increasingly diluted, owners are becoming less active and more passive, and control in the hands of management is getting increasingly concentrated. The former is acting as a centrifugal force and the latter as a centripetal force.
• This trend challenges the fundamental assumption that the owner of the property will put it to the most effective use. However in this case, the owners are becoming absolved of any responsibility.
• Page 41, 45 summarise the main trends in terms of concentration of control and chart 2 on page 61 shows the trend in dilution of ownership towards those with moderate means, with the trend summary on page 65.
• Different types of control – complete ownership, majority, legal device (pyramiding, non-voting stock), minority and management control are described.
• Different types of stock and their legal history is traced. Regrouping of rights is possible through various mechanisms including altering the contracts of rights.
• The legal position of management and control are examined. Security exchanges play the role of appraisers and liquidators. Processes of flotation and disclosure are looked at in detail.
• The traditional logic of ownership of property meant that the owner was taking the risk of investing the capital, and also the responsibility for the management of the enterprise, and hence must receive the advantages accruing from the property. The traditional logic of profits says that profits act as a return for the risk taken by the owner to invest his wealth and as an inducement to effectively manage. Since owners are surrendering control and therefore no longer taking any risk, therefore only a fair return to capital must be given to the owners and the remainder should go to control as an inducement to efficient management.
• At a macro level, this has ramifications for the political (by the state) or economic (by corporations) organization of society, which is expected to dominate?
Learnings
• From the perspective of a researcher, this book is revealing in terms of the level of analyses, and also in making the connections between the levels. (Firm level to aggregates of firm having macro influence on society and the national economy at large)
• One of the fundamental questions that is proposed define the field of strategic management is “How do firms behave?” (Rumelt, Schendel, Teece, 1994). This book by Berle and Means makes a contribution towards answering sub-questions of this fundamental research agenda by looking at the structure of firms in terms of ownership and control, and indicating what could be the driving forces for their behaviour.
• Structure follows strategy as per Chandler (1962), but this book gives us insights as to the existence of control structures through the element of ownership and not necessarily only management rationale.
• The Barnardian view of cooperation or organizing being the reason for the existence of the firm, one needs to look at it in terms of how this concept is organized around both ownership and control.
• When we speak of the “theory of the firm”, the sense seems to be in terms of what are the boundaries of control (Coase, 1937) or administrative influence (Penrose, 1959). Does it make sense to contemplate on the theory of the firm from a perspective of ownership as well?
• If all firms (all modern American corporations) are exhibiting a similar pattern, can we view this from a lens of isomorphism and institutional theory? Can we identify what legitimacy reasons are driving the same?
• If we classify firms with similar ownership structures (Majority, minority, legal device et al) as populations of firms, can we study the macrolevel effects on society and economy at large from a lens of population ecology and explain the phenomenon observed by Berle and Means? The trends in page 41 and 45 seems to show that large American private corporations seem to be more dominant as a population of firms.
Primary focus
• The focus of the book is to study the phenomenon of the nature of private property ownership and control in the modern corporation.
Key concepts
• Most owners of firms do not manage and most managers do not own, and this trend is increasing in the American corporation.
• The atom of property is split in terms of ownership and control. Ownership is getting increasingly diluted, owners are becoming less active and more passive, and control in the hands of management is getting increasingly concentrated. The former is acting as a centrifugal force and the latter as a centripetal force.
• This trend challenges the fundamental assumption that the owner of the property will put it to the most effective use. However in this case, the owners are becoming absolved of any responsibility.
• Page 41, 45 summarise the main trends in terms of concentration of control and chart 2 on page 61 shows the trend in dilution of ownership towards those with moderate means, with the trend summary on page 65.
• Different types of control – complete ownership, majority, legal device (pyramiding, non-voting stock), minority and management control are described.
• Different types of stock and their legal history is traced. Regrouping of rights is possible through various mechanisms including altering the contracts of rights.
• The legal position of management and control are examined. Security exchanges play the role of appraisers and liquidators. Processes of flotation and disclosure are looked at in detail.
• The traditional logic of ownership of property meant that the owner was taking the risk of investing the capital, and also the responsibility for the management of the enterprise, and hence must receive the advantages accruing from the property. The traditional logic of profits says that profits act as a return for the risk taken by the owner to invest his wealth and as an inducement to effectively manage. Since owners are surrendering control and therefore no longer taking any risk, therefore only a fair return to capital must be given to the owners and the remainder should go to control as an inducement to efficient management.
• At a macro level, this has ramifications for the political (by the state) or economic (by corporations) organization of society, which is expected to dominate?
Learnings
• From the perspective of a researcher, this book is revealing in terms of the level of analyses, and also in making the connections between the levels. (Firm level to aggregates of firm having macro influence on society and the national economy at large)
• One of the fundamental questions that is proposed define the field of strategic management is “How do firms behave?” (Rumelt, Schendel, Teece, 1994). This book by Berle and Means makes a contribution towards answering sub-questions of this fundamental research agenda by looking at the structure of firms in terms of ownership and control, and indicating what could be the driving forces for their behaviour.
• Structure follows strategy as per Chandler (1962), but this book gives us insights as to the existence of control structures through the element of ownership and not necessarily only management rationale.
• The Barnardian view of cooperation or organizing being the reason for the existence of the firm, one needs to look at it in terms of how this concept is organized around both ownership and control.
• When we speak of the “theory of the firm”, the sense seems to be in terms of what are the boundaries of control (Coase, 1937) or administrative influence (Penrose, 1959). Does it make sense to contemplate on the theory of the firm from a perspective of ownership as well?
• If all firms (all modern American corporations) are exhibiting a similar pattern, can we view this from a lens of isomorphism and institutional theory? Can we identify what legitimacy reasons are driving the same?
• If we classify firms with similar ownership structures (Majority, minority, legal device et al) as populations of firms, can we study the macrolevel effects on society and economy at large from a lens of population ecology and explain the phenomenon observed by Berle and Means? The trends in page 41 and 45 seems to show that large American private corporations seem to be more dominant as a population of firms.
Sunday, November 11, 2007
Idea: A unique IT corporate
Here's my business idea towards an IT corporate in India which would have an USP for itself.
-A corporate thats actually an institution that integrates into its culture- the fine arts from India.
-Laid out on a nature-filled campus, virtually every other known art form in India must be taught and practised here.
-Talented artists from across the country are contractors/employees who belong to a support function just like HR/finance/admin.
-The regular software employees get to learn arts of their choice. They are recruited after an aptitude test for art as well.
-Both employees and artists stay on campus and function in a gurukul-like system.
-The best of facilities in terms of food, infrastructure, accomodation with family etc. must also be available to all.
-This would also give a great fillip to many greatly talented but underpaid artists all over India.
Firstly, why this idea only for IT?
-Because thats where you have knowledge workers, and you need to keep the brains well oiled to be creative and innovative. Art can greatly propel lateral thinking.
-Stress levels in this industry are high and the quality of life is fairly low, which can also be addressed through art for relaxation and an enriched quality of life.
-Being part of an exclusive institution like this could also arrest attrition and the proposal made attractive even with less pay. Most techies prefer a campus like lifestyle and value belonging to a reputed institution.
Sasken would have been one company who might have readily embraced some such idea. But unfortunately I think the timing of this idea may be wrong, as we are now a growing company having its own drivers.
Further thoughts...(after discussions with Chippu 'n' Dippie, 12-Nov)
-How could both art and business combine into a single company vision? (Remember theory of constraints, there is only one goal and the rest are constraints :-( ) So how would one guarantee that neither art or business gives way to the other at some point of time.
-Why restrict such an idea to a single company, why not expand the idea to an industry wide thing that many companies can benefit from?
-Art is only one aspect of life. Companies like google provide a multidimensional approach to work-life balance. Doesn't that have a greater USP?
-How many people would really be interested this? What if I'm a brilliant programmer and poor at aptitude for art? Can I get employed here?
-What kind of an existing organisation can morph into this? Perhaps not a startup as it requires huge investment and no assurance of returns, perhaps not a Microsoft as they already have their USP.
-Why would art necessarily contribute to better business results?
Any further thoughts to strengthen this idea are welcome.
-A corporate thats actually an institution that integrates into its culture- the fine arts from India.
-Laid out on a nature-filled campus, virtually every other known art form in India must be taught and practised here.
-Talented artists from across the country are contractors/employees who belong to a support function just like HR/finance/admin.
-The regular software employees get to learn arts of their choice. They are recruited after an aptitude test for art as well.
-Both employees and artists stay on campus and function in a gurukul-like system.
-The best of facilities in terms of food, infrastructure, accomodation with family etc. must also be available to all.
-This would also give a great fillip to many greatly talented but underpaid artists all over India.
Firstly, why this idea only for IT?
-Because thats where you have knowledge workers, and you need to keep the brains well oiled to be creative and innovative. Art can greatly propel lateral thinking.
-Stress levels in this industry are high and the quality of life is fairly low, which can also be addressed through art for relaxation and an enriched quality of life.
-Being part of an exclusive institution like this could also arrest attrition and the proposal made attractive even with less pay. Most techies prefer a campus like lifestyle and value belonging to a reputed institution.
Sasken would have been one company who might have readily embraced some such idea. But unfortunately I think the timing of this idea may be wrong, as we are now a growing company having its own drivers.
Further thoughts...(after discussions with Chippu 'n' Dippie, 12-Nov)
-How could both art and business combine into a single company vision? (Remember theory of constraints, there is only one goal and the rest are constraints :-( ) So how would one guarantee that neither art or business gives way to the other at some point of time.
-Why restrict such an idea to a single company, why not expand the idea to an industry wide thing that many companies can benefit from?
-Art is only one aspect of life. Companies like google provide a multidimensional approach to work-life balance. Doesn't that have a greater USP?
-How many people would really be interested this? What if I'm a brilliant programmer and poor at aptitude for art? Can I get employed here?
-What kind of an existing organisation can morph into this? Perhaps not a startup as it requires huge investment and no assurance of returns, perhaps not a Microsoft as they already have their USP.
-Why would art necessarily contribute to better business results?
Any further thoughts to strengthen this idea are welcome.
Dream: India trip
Well this one is my favourite dream and perhaps a lifetime one that I really yearn to do.
A long trip through unconventional and unknown places across the length and breadth of India. Perhaps spanning a year or two. A trip not merely for pleasure but with the intention of unhurriedly savouring the journey, making some kind of contribution (like even knowledge/awareness/technology -yet to be strategised) to every place visited, soaking in various cultures, preferably negotiated by rail and local means of commutation, and eventually at the end of it culminating in a grand vision to do something at the national level.
An incidental outcome of course would be a book (consolidating the everyday journals) :-) Publishers please note, bookings open from Dec 2007 :-)
Great leaders like Sri. Sankaracharya, Swami Vivekananda et al had made these India trips in their lifetimes. Even business leaders like Gurcharan Das have done it before they became cheerleaders for India Inc. In fact, I discovered that Israelis religiously take up year long India trips and know much more about our nation than we do! There's so much to learn from this great country with its vast spiritual heritage and I am certainly inspired to do this.
A long trip through unconventional and unknown places across the length and breadth of India. Perhaps spanning a year or two. A trip not merely for pleasure but with the intention of unhurriedly savouring the journey, making some kind of contribution (like even knowledge/awareness/technology -yet to be strategised) to every place visited, soaking in various cultures, preferably negotiated by rail and local means of commutation, and eventually at the end of it culminating in a grand vision to do something at the national level.
An incidental outcome of course would be a book (consolidating the everyday journals) :-) Publishers please note, bookings open from Dec 2007 :-)
Great leaders like Sri. Sankaracharya, Swami Vivekananda et al had made these India trips in their lifetimes. Even business leaders like Gurcharan Das have done it before they became cheerleaders for India Inc. In fact, I discovered that Israelis religiously take up year long India trips and know much more about our nation than we do! There's so much to learn from this great country with its vast spiritual heritage and I am certainly inspired to do this.
Tuesday, May 8, 2007
Poem: Summer holiday #2
Time was away and somewhere else
When the hot afternoon sun was bright and beating
When the bigger children were at a light siesta resting
The street dog with its tongue salivating
Lying in the shade of the lonely mango tree, waiting
Time was away and somewhere else
When the mangoes were orange, ripe and inviting
An unread comic, lay awaiting
The neighbour's kid never tired of meeting
Unexplored toys and garden paths in waiting
Time was away and somewhere else
When the ice cream vendor with a dry parched call
Said it with a loud writing on the "Wall"
The familiar clamor of his cycle bell
Easily spoke volumes on the favourite icecream to sell
Time was away and somewhere else
No game could match it, be it on IBM or Dell
Those lovely times that we wished for so well
Alas, these days we can only dwell
On those innocent times, and the heart just swells
When the hot afternoon sun was bright and beating
When the bigger children were at a light siesta resting
The street dog with its tongue salivating
Lying in the shade of the lonely mango tree, waiting
Time was away and somewhere else
When the mangoes were orange, ripe and inviting
An unread comic, lay awaiting
The neighbour's kid never tired of meeting
Unexplored toys and garden paths in waiting
Time was away and somewhere else
When the ice cream vendor with a dry parched call
Said it with a loud writing on the "Wall"
The familiar clamor of his cycle bell
Easily spoke volumes on the favourite icecream to sell
Time was away and somewhere else
No game could match it, be it on IBM or Dell
Those lovely times that we wished for so well
Alas, these days we can only dwell
On those innocent times, and the heart just swells
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