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Dimensions of Organization Structure - Formalization

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Lecture - 09

Dimensions of Organization Structure -- II

Welcome to this course on Organization Theory/Structure and Design. Now, we will talk
about module 9. Now, as you can see that this module 9 is included in part 1, that is
Introduction to the Organization Theory and in these modules 8, 9 and 10, we will be
discussing about the Dimensions of Organization Structure. So, now, let us see what are
the things that will be covered in this module. So, it starts with identifying the benefits
that accrue from formalizations.
(Refer Slide Time: 00:55)

Then, we will define socialization and thereafter, listing the most popular formalization
techniques. Now, the first thing that we will talk about in this module is why is
complexity important.
We have identified the key elements in complexity. It would not be inappropriate now to
enquire. So, What does it mean for managers if their organization is high or low or
complexity? Organizations contain sub systems that require communication one,
coordination two and control three, if they are to be effective.

(Refer Slide Time: 01:32)

The more complex an organization, the greater the need for effective communication,
coordination and control devices. In other words, as complexity increases so do the
demands on management to ensure that differentiated and dispersed activities are
working smoothly and together, achieving the organization’s goals. The need for devices
such as committees, computerized information systems and formal policy manuals is
reduced for organizations that are low in complexity.
So, one way of answering the ‘what does complexity mean to managers?’ question is to
say that it creates different demands and requirements on manager’s time. The higher the
complexity, the greater amount of attention they must pay to deal with problems of
communication, coordination and control. This has been described as a paradox in the
analysis of organizations.
Management’s decision to increase differentiation is made typically in the interest of
economy and efficiency; but these decisions create cross pressures to add managerial
personnel to facilitate control, coordination and conflict reduction. So, the economies
that complexity creates may be counterbalanced by the increased burden of keeping the
organization together.

(Refer Slide Time: 03:07)

In fact, there may be a built-in automatic process in organizations that fosters increased
complexity. Placed in a systems perspective, we know that organizations have a natural
propensity to grow to survive.
Overtime, therefore, organizations that survive will tend to become more complex as
their own activities and the environment around them becomes more complex. We can
add, then that an understanding of complexity is important, for it is a characteristic that
managers should look for and expect if their organization is healthy.
The second comes formalization. The second component of organization’s structure is
formalization. Moving forward, we will first define the term; second, we will explain its
importance; third, introduce the two general ways in which management can achieve it;
fourth, we will demonstrate the more popular formalization techniques and the fifth is to
compare formalization with complexity.
Now, let us start with the definition of formalization. Formalization refers to the degree
to which jobs within the organization are standardized.

(Refer Slide Time: 04:46)

If a job is highly formalized, the job incumbent has a minimum amount of discretion
over what is to be done, when it is to be done, and how he or she should do it; because
everything is well described. Employees can be expected to always handle the same
input in exactly the same way, resulting in a consistent and a uniform output.
(Refer Slide Time: 05:02)

There are explicit job descriptions, lots of organizational rules, and clearly defined
procedures covering work processes in organizations where there is high formalization.
When formalization is low, employee’s behavior would be relatively non-programmed.

Such jobs would offer employees a great deal of freedom to exercise discretion in their
work. So, formalization is a measure of standardization.
(Refer Slide Time: 05:38)

Since an individual’s discretion on the job is inversely related to the amount of behavior
that is preprogrammed by the organization, the greater the standardization, the less input
the employee has into how his or her work is to be done. This standardization not only
eliminates employees engaging in alternative behaviors, but also removes the need for
employees to consider alternatives.
(Refer Slide Time: 06:06)

Now, does it have to be in writing? There is some debate as to whether the rules and
procedures of formalization have to be in writing or whether the standardization of
behavior created by tradition and unwritten regulations should also be included in the
definition.
For instance, formalization has been defined as “the extent to which rules, procedures,
instructions, and communications are written”. Following this definition, formalization
should be measured by, 1 - determining if the organization has policies and procedures
manual; 2 - assessing the number and specificity of its regulations.
(Refer Slide Time: 06:44)

3 - reviewing job description to determine the extent of elaborateness and detail and
looking at other similar official documents of the organization. An alternative approach
argues that formalization applies to both written and unwritten regulations. Perceptions,
then, are as important as reality.
For measurement purposes, formalization would be calculated by considering in addition
to official documents of the organization, attitude of the employees as to the degree to
which job procedures were spelled out and rules were enforced. On this debate, you
might ask, who cares? While the differences between these two positions might appear
minor, this is not the case.

(Refer Slide Time: 07:47)

When both approaches have been used, they obtain different results.
(Refer Slide Time: 07:52)

Although originally thought to be merely two separate ways of measuring the same
construct; one measuring hard data and the other hard data and attitudes research
indicates otherwise. So, the issue of whether formalization considers only the
organization’s written documents is critical to its definition.

Our position is to recognize that formalization can be explicit or implicit, the latter
including both written records and employee’s perceptions. But for clarity purposes, we
will use the explicit definition throughout this course.
(Refer Slide Time: 08:34)

That is, unless noted otherwise, when we talk about formalization, we will be referring to
the organization’s written regulations.
(Refer Slide Time: 08:40)

Now, let us look at the range of formalization. It is important to recognize that the degree
of formalization can vary widely among and within organizations. Certain jobs are well

known to have little formalization. College book sales people, the people from various
publishers who call on professors to discuss their company’s new publications, have a
great deal of freedom in their jobs.
They have no standard sales pitch, and the extent of rules and procedures governing their
behavior may be little more than requiring the submission of a weekly sales report and
some suggestions on what to emphasize for the various new titles.
(Refer Slide Time: 09:27)

At the other extreme, on other jobs for example, the clerical and editorial positions
employees are required to “clock in” at their work stations by 8 a.m. in the morning and
are required to follow a set of precise procedures dictated by management. It is generally
true that the narrowest of unskilled jobs, those that are simplest and most repetitive, are
most amenable to high degrees of formalization.

(Refer Slide Time: 10:04)

The greater the professionalization of a job, the less likely it is to be highly formalized.
Yet there are obvious exceptions. Public accountants and consultants, for instance, are
required to keep detailed record of their hour-by-hour activities so that their companies
can bill clients appropriately for their services. In general, however, the relationship
holds.
The job of lawyers, engineers, social workers, librarians, and like professionals tend to
rate low on formalization.
(Refer Slide Time: 10:37)

Formalization differs not only with whether the jobs are unskilled or professional, but
also by level in the organization and by functional departments. Employees higher in the
organization are increasingly involved in activities that are less repetitive and require
unique solutions.
The discretion that managers have increases as they move up the hierarchy. So,
formalization tends to be inversely related to level in the organization. Additionally, the
kind of work in which people are engaged influences the degree of formalization.
(Refer Slide Time: 11:18)

Jobs in production are typically more formalized than are those in sales or research.
Why? Because production tends to be concerned with stable and repetitive activities.
Such jobs lend themselves to standardization. In contrast, the sales department must be
flexible to respond to changing needs of customers, while research must be flexible if it
is to be innovative.

(Refer Slide Time: 11:50)

After having completed the range of formalization, now we will talk about why is
formalization important. Organizations use formalization because of the benefits that
accrue from regulating employees’ behavior. Standardizing behavior reduces variability.
McDonald’s, for example, can be confident that a Big Mac will look and taste the same
whether it is made at an outlet in Delhi, Bangalore, Mumbai or Haridwar. McDonald’s,
in fact, attributes its corporate success to its product consistency and uniformity.
The company’s operating manual has 385 pages describing the minutest activities in
each outlet. No cigarettes, candy or pinball machines are allowed. Strict standards of
employees’ grooming are specified. The manual states clearly how a basic chicken
burger would be made, how much would be fat content and how much would be pure
chicken.

(Refer Slide Time: 12:47)

French fries are to be kept under the warming lights for no more than seven minutes.
(Refer Slide Time: 12:54)

Specifically designed scoops are to be used to ensure that the precise number of fries
goes into each pouch. Even the exact procedure for greeting customers and taking orders
is standardized. Is there any doubt why the food at McDonald, regardless of where in the
world it is purchased, always looks and tastes the same? As the above description
demonstrates, it is not by chance.

(Refer Slide Time: 13:26)

Standardization also promotes coordination. Football coaches spend dozens of hours
introducing a complex set of procedures for their players. When the quarterback calls
“wing-right-44-on-3”, each team member knows exactly what task is to be performed.
Formalization allows automobiles to flow smoothly down the assembly line, as each
worker on the line performs a highly standardized set of repetitive activities.
(Refer Slide Time: 13:57)

It also prevents members of a paramedic unit from a standing around at the scene of the
accident and arguing about who is to do what. If you watch the behaviors of the medical

staff in the operating room, you will observe a highly coordinated group of
organizational members performing a precise set of standardized procedures. The
economies of formalization also should not be overlooked. The greater the formalization,
the less discretion required from a job incumbent.
(Refer Slide Time: 14:30)

This is relevant because discretion costs money. Jobs that are low on formalization
demand greater judgment. Given that sound judgment is a scarce quality, organizations
have to pay more in terms of wages, salaries, and benefits to acquire the services of
individuals who possess this ability.

(Refer Slide Time: 14:54)

To secure the services of a plant purchasing agent who can perform purchasing duties
efficiently and effectively with no formal directives might cost an organization multiple
lacs of rupees a year. However, if the purchasing agent’s job is highly formalized to the
point that, the comprehensive manual is available to resolve nearly any question or
problem that might occur.
This job may be done just as competently as someone with a far less experience and
education - for much lower amount a year. This explains, incidentally, why many large
organizations have accounting manuals, personnel manuals and purchasing manuals,
occasionally running into several thousand pages in length.

(Refer Slide Time: 15:44)

These organizations have chosen to formalize jobs wherever possible so as to get the
most effective performance from employees at the lowest cost.
(Refer Slide Time: 15:56)

Now, we will discuss the make or buy decision. We noted earlier the difference between
unskilled and professional employees and indicated a relationship between each
classification and the propensity to formalize jobs. In this section, we propose that
formalization can take place on the job or off it. When it is done on the job, we use the
term externalized behavior.

This means that the formalization is external to the employee, that is the rules,
procedures, and regulations governing the individual’s work activity are specifically
defined, coded, and enforced through direct management supervision. This characterizes
the formalization of unskilled employees. This is also what is typically meant by the term
formalization. Professionalization is another alternative, it creates internalized behavior
through social specialization.
(Refer Slide Time: 16:55)

Professionals are socialized before entering the organization. So, while formalization can
take place in the organization, we will show how others are hired, preprogrammed, with
their rules already built in. When it comes to formalization, therefore, organizations can
choose to “make or buy” the behavior they desire.

(Refer Slide Time: 17:19)

Socialization refers to an adaptation process by which individuals learn the values,
norms, and expected behavior patterns for the job and the organization of which they will
be a part. All employees will receive at least some molding and shaping on the job, but
for certain members, the socialization process will be substantially accomplished before
they join the organization. This is specifically true of professionals. Professionals
undergo many years of education and training before they practice their craft.
Engineers, for instance, must spend 4 or more years studying before they can be
certified. This education process gives the engineer a common body of knowledge that
can be called upon in performing the job. It is often overlooked; however, this training
also includes molding the person to think and act like an engineer. In a similar way it can
be argued that one of the main tasks of a business school is to socialize the students to
the attitudes and behaviors that business firms want.
If business executives believe that successful employees; one, value the profit and ethic;
two, are loyal; three, they will work hard; fourth, they desire to achieve and fifth,
willingly accept directions from their superiors, they can hire individuals out of business
school, who have been pre molded in this pattern.

(Refer Slide Time: 18:53)

So, management has two decisions. First, what degree of standardization of behavior is
desired? Second, will the standardization desired be “made” in house or “bought” from
outside?
(Refer Slide Time: 19:11)

The in-house variety is emphasized with unskilled employees, although all members will
get some of this if only to fine tune the member to the unique culture of the particular
organization.

For the most part, unskilled jobs are highly differentiated, both horizontally and
vertically and formalization by way of rules, work flow procedures and training is used
to coordinate and control the behavior of people performing these jobs. In contrast, when
management hires professionals, it is “buying” individuals whose prior training has
included internalizing their job descriptions, procedures and rules.
(Refer Slide Time: 19:53)

Direct on-the-job formalization and professionalization are basically substitutes for each
other. “The organization can either control employee behavior directly through its own
procedures and rules, or else it can achieve indirect control by hiring duly trained
professionals.” We can expect to find that as the level of professionalization increases in
an organization, the level of formalization decreases.

(Refer Slide Time: 20:25)

Now, let us look at some more formalization technique. Selection - Managers have at
their disposal a number of techniques by which they can bring about the standardization
of employee behavior.
Organizations do not choose employees at random. Job applicants are processed through
a series of hurdles designed to differentiate individuals likely to be successful job
performers from those likely to be unsuccessful. These hurdles typically include 1,
completion of application blanks; 2, employment tests; 3, interviews and background
investigations.

(Refer Slide Time: 21:05)

Applicants can and do get rejected at each of these steps. An affective selection process
will be designed to determine if job candidates “fit” into the organization. A “good”
employee is defined as one who will perform his or her job in a satisfactory manner and
also whose personality, work habits, and attitudes align with what the organization
desires. If the selection process does anything, it tries to prevent the employment of
misfits; that is, individuals who do not accept the norms of the organization.
(Refer Slide Time: 21:47)

A recruiter for an executive search firm once confided that he believed the secret to the
successful placement of middle and top-level managers was attaining a reading of the
organization’s personality or culture and then screening applicants for compatibility. He
noted that it was really difficult to find candidates with the experience and ability to fill a
vacancy.
The problem was finding the right chemistry between a candidate and the people who
were doing the hiring. The recruiter said he spent considerable time just talking with
executives in the client company. This was done in the belief that certain types of people
were more likely than others to fit into the company.
(Refer Slide Time: 22:34)

Whether the hiring covers unskilled or professional employees, organizations use the
selection process to one, screen in the right people and two, screen out those who think
and act in ways that management considers undesirable.

(Refer Slide Time: 22:51)

The selection of professionals may be done with greater latitude than the selection of
unskilled employees; the former’s prior professionalization reduces the need for the
organization to identify misfits.
Part of this task was assumed by the universities and associations that conferred the
professional’s certification. However, all new members must meet the organization’s
minimum requirement of an acceptable employee, and the selection process provides one
of the most popular mechanism for achieving this end.
So, now, let us look at formalization techniques - role requirements. Individuals in
organization fulfill roles. Each job carries with it expectations on how the role incumbent
is supposed to behave. Job analysis, for instance, defines the job that needs to be done in
the organization and outlines what employee behaviors are necessary to perform the job.

(Refer Slide Time: 23:51)

This analysis develops the information from which job descriptions are created.
(Refer Slide Time: 23:58)

The fact that organizations identify jobs to be done and the desirable role behaviors that
go with those jobs means that role expectations play a major part in regulating employee
behavior. Role expectations may be explicit and defined narrowly. In such cases, the
degree of formalization is high. Of course, the role expectations attributed to a given job
by management and members of a role set can traverse the spectrum from explicit and
narrows to very loose.

(Refer Slide Time: 24:35)

The latter, for instance, allows employees freedom to react to situations in unique ways.
It puts minimum constraints on the role incumbent. So, organizations that develop
exacting and complicated job description go a long way toward defining the expectations
of how a particular role is to be played. By loosening or tightening role expectations,
organizations are actually loosening or tightening the degree of formalization.
(Refer Slide Time: 25:05)

Now, let us look at the various formalization techniques; the rules, procedures and the
policies. So, what are rules? Rules are explicit statements that tell an employee what he

or she ought or ought not to do. What are procedures? Procedures are a series of
interrelated sequential steps that employees follow in the accomplishment of their job
tasks. What are policies? Policies are guidelines that are that set constraints on decisions
that employees make. Each of these represents techniques that organizations use to
regulate the behavior of members.
(Refer Slide Time: 25:55)

The identifying characteristic of rules is that they tell employees explicitly 1, what they
can do; 2, how they are to do it and 3, when they are to do it. Rules leave no room for
employee judgment or discretion. They state a particular and specific required behavior
pattern.

(Refer Slide Time: 26:17)

What are procedures? Procedures are established to ensure standardization of work
processes. The same input is processed in the same way, and the output is the same each
day. If one were to ask an accounts-payable clerk what his or her job involved is, the
answer would probably correspond closely with the procedurized description of his or
her activities.
(Refer Slide Time: 26:38)

Rather than have the clerk, through trial and error, develop an individualized way of
handling the accounts payable which might include some critical deviations from the

pattern that management wants the clerk to follow, the organization has provided a
procedure.
(Refer Slide Time: 26:54)

Policies provide greater leeway than rules do. Rather than specifying a particular and
specific behavior, policies allow employees to use discretions, but within limited
boundaries. The discretion is created by including judgmental terms such as “best”,
“satisfied”, “competitive”, which the employee is left to interpret. The statement from
the personnel manual at a major North Indian hospital that it will “pay competitive
wages” illustrates a policy.
This policy does not tell the wage and salary administrator what should be paid, but it
does provide parameters for wage decisions to be made. Policies need not be written to
control discretion.

(Refer Slide Time: 27:43)

Employees pick up on an organization’s implied policies merely by observing the actions
of members around them.
(Refer Slide Time: 27:52)

Then, comes training as a formalization technique. Many organizations provide training
to employees. This includes the on-the-job variety where understudy assignments,
coaching, and apprenticeship methods are used to teach employees preferred job skills,
knowledge, and attitudes. It also includes off-the-job training such as classroom lectures,
films, demonstrations, simulation exercises, and programmed instructions.

Again, the intent is to instill an employee’s preferred work behavior and attitude. New
employees are often required to undergo a brief orientation program in which they are
familiarized with the organization’s objectives, history, philosophy and rules.
(Refer Slide Time: 28:37)

They also get familiarity with relevant personnel policies, such as hours of work, pay
procedures, overtime requirements, and benefit programs. In many cases, this is followed
by specific job training.
(Refer Slide Time: 29:00)

For instance, new computer programmers at one bank undergo several days of training to
learn the organization’s systems. Counter help at McDonald’s is required to read the
company’s operating manual, after which they undergo several weeks of on-the-job
training, during which their job behaviors receive close scrutiny by the operating
managers.
The recent liberal art graduate who is hired by a New Delhi book publisher to be a
production editor may understudy a seasoned veteran for three to six months before
being set free on his or her own.
(Refer Slide Time: 29:46)

Next list comes rituals, as formalization technique. Rituals are used as a formalization
technique with members who will have a strong and enduring impact on the
organization.
That certainly includes individuals who aspire to senior-level management positions as
well as pledge seeking active status in a fraternity or faculty members vying for tenure.
The common threat underlying rituals is that members must prove that they can be
trusted and are loyal to the organization before they can be “knighted,” the “proving
process” being the ritual.

(Refer Slide Time: 30:25)

Business firms that promote from within do not put new employees into top management
positions. Given the fact that many promotions place employees in situations very unlike
their previous jobs, it is probably correct to conclude that experience is only part of the
explanation. Another part is that top management positions are held out as rewards to
those in the company who prove by their abilities, length of service, and loyalty that they
are committed to the goals and norms of the firm.
(Refer Slide Time: 31:02)

Managers are after all the guardians of the organizations ideology. Senior managers are
the primary gatekeepers. Thus, organization has a heavy stake in ensuring that managers
have proven themselves before they are promoted to influential senior positions.
Even among firms that may fill their senior positions from outside the organization, great
care is taken to ensure that – one, the candidate has paid his or her dues on earlier jobs
and two, based on personality tests and extensive interviews with top executives appears
likely to fit in.
(Refer Slide Time: 31:47)

So, to conclude this module, in this module first we learnt about the importance of
complexity; then, we discussed about the benefits that accrue from formalization. We
then, discussed socialization in detail and then, we learnt about the most popular
formalization techniques.

(Refer Slide Time: 32:08)

And these are the four books from which the material for this module was taken.
Thank you.