“Organizational design often focuses on structural alternatives such as matrix, decentralization, and divisionalization. However, control variables (e. g., reward structures, task characteristics, and information systems) offer a more flexible approach. The purpose of this paper is to explore these control variables for organizational design. This is accomplished by integration and testing of two perspectives, organization theory and economics, notably agency theory. The resulting hypotheses link task characteristics, information systems, and business uncertainty to behavior vs. outcome based control strategy. These hypothesized linkages are examined empirically in a field study of the compensation practices for retail salespeople in 54 stores. The findings are that task programmability is strongly related to the choice of compensation package. The amount of behavioral measurement, the cost of measuring outcomes, and the uncertainty of the business also affect compensation. The findings have management implications for the design of compensation and reward packages, performance evaluation systems, and control systems, in general. Such systems should explicitly consider the task, the information system in place to measure performance, and the riskiness of the business. More programmed tasks require behavior based controls while less programmed tasks require more elaborate information systems or outcome based controls.”

—  Kathleen M. Eisenhardt

Source: "Control: Organizational and economic approaches," 1985, p. 134; Article abstract

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Kathleen M. Eisenhardt 4
American economist

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“A great deal of organizational effort is exerted to control the effects of extra-organizational influence:; upon personnel. Daily, people come contaminated into the organization… Many of the irritating aspects of [[organizational structure] are designed to control these sources of contamination.”

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“Agency theory is an important, yet controversial, theory. This paper reviews agency theory, its contributions to organization theory, and the extant empirical work and develops testable propositions. The conclusions are that agency theory (a) offers unique insight into information systems, outcome uncertainty, incentives, and risk and (b) is an empirically valid perspective, particularly when coupled with complementary perspectives. The principal recommendation is to incorporate an agency perspective in studies of the many problems having a cooperative structure.”

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“Concepts of uncertainty and information processing are used to integrate the diverse organization design/structure literatures. This approach more fully explicates the concept of congruence which lies at the heart of contingency ideas. The review suggests a contingency approach to design which develops a feasible set of structural alternatives from which the organization can choose.”

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“Organizational design is the body of knowledge and techniques that seeks to offer useful advice to organizations about their structures (and other aspects) needed to attain their goals.”

Richard M. Burton (1939)

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Lex Donaldson (1947) British-Australian organizational sociologist

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Rensis Likert photo

“The management system of an organization must have compatible component parts if it is to function effectively. This conclusion has a very important implication; experiments in organizations must involve internally consistent changes. The traditional atomistic research design is not appropriate for experiments involving organizational theory or management systems. Every aspect of a management system is related to every other part and interacts with it.
The results obtained by altering a single variable or procedure while keeping all others the same usually will yield quite different results from those obtained when that variable is changed along with simultaneous and compatible changes in all other aspects of the management system. The true influence of altering one aspect of the system cannot be determined by varying it and it alone… In experiments involving organizational theory and management systems, therefore, a systems approach must be used. The organic integrity of each system must be maintained while experimental variations are being made.”

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The two control strategies are interrelated. An organization can tolerate a work force with highly diverse goals if a precise evaluation system exists. In contrast, a lack of precision in performance evaluation can be tolerated when goal incompatibility is minor (Ouchi 1979). The choice between the two is driven by the ease of performance evaluation”

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Source: "Control: Organizational and economic approaches," 1985, p. 135

Wanda Orlikowski photo

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Andrew H. Van de Ven (1945) American business theorist

Andrew H. Van de Ven and Robert Drazin (1984). The Concept of Fit in Contingency Theory http://www.dtic.mil/cgi-bin/GetTRDoc?AD=ADA152603. No. SMRC-DP-19). Minneapolis: Minnesota University Minneapolis Strategic Management Research Center.

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Charles Perrow (1925–2019) American sociologist

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