Organization Size

 Size: Total number of employees – full

time employees – problems if large part
time workforce, e.g. seasonal business
(retailing: 50% increase in sales staff
during Christmas), industry type: steel
plant – 200 vs. average several thousand
 Size and efficiency: production same –
employees x and 2x
 Total number is highly related to other
measures of size – fairly accurate
measure across organizations
 Peter Blau:
1. Size as determinant of structure
2. Increasing size promotes structural differentiation but
at a decreasing rate
 Ashton Research Group:
1. Increased size is associated with greater specialization
and formalization (standardization preferable)
2. Increase scale of operation increases frequency of
recurrent events and the repetition of decisions
3. Organization size positively related to specialization,
formalization, vertical span and negatively to
centralization
4. Larger organizations: More specialized, more rules,
more documentation, more extended hierarchies,
greater decentralized decision-making down the
hierarchies
 Meyer: Relationship between size and
structural dimensions does not imply causation
– effects of size show everywhere –
relationship unidirectional (size caused
structure, not the reverse)
 Critics of size imperative:
1. Size affects structure only in organizations
having professional managers – not in owner-
controlled firms
2. Chris Argyris: Size related to structure, but it
does not cause structure (e.g. civil-service
organizations, role of managerial discretion,
government bureaus follow traditional
management theories in task specialization,
unity of command, span of control etc – one
finds natural differentiation with increased size)
3. Mayhew: Blau’s findings of relationship
between size and complexity were a
mathematical certainty when equal
probabilities were assigned to all possible
structural combinations
4. Aldrich: Size is the result, not the cause:
technology determines structure, which in turn
determines size – firms high in complexity,
formalization needed to employ larger
workforce
5. Hall and his Associates: Neither complexity nor
formalization can be implied from
organizational size – larger organizations not
necessarily more complex than smaller ones
 Therefore it is felt that size is a consequence
rather than a cause of structure
Size and Complexity
 Size affects complexity, but at a
decreasing rate in government
organizations (less discretion) – in
business organizations structure causes
size (greater discretion)
 Size dominant predictor of vertical
differentiation
 Size-spatial differentiation relationship is
problematic – however more studies
required in diverse type of organizations
Size and Formalization
 Aston findings supported size affects
formalization
 Recent studies (more than one thousand
organizations): relationship between size and
formalization high, positive and statistically
significant
 Two popular methods of control: direct
surveillance and use of formalized regulations –
more rules than direct supervision as size
increases – formalization (standardization of
rules increase predictability)
 Firm independent or subsidiary? – if subsidiary,
than higher formalization
Size and Centralization
 Its impossible to control large organizations from
top – much more is happening for an individual
or set of individuals to comprehend – delegation
becomes inevitable
 Whose rules of decision making being delegated
– relationship between size and centralization is
not significantly different from zero
 Owner-manager: centralized – professional
managers: decentralized as size increases
 How big is big: Size leads to high complexity,
high formalization, decentralization – Further
increase in number of employees no noticeable
impact on structure – at what point additional
employees irrelevant?
 Impact minimum when size>2000; impact on
structure maximum when size small<1500
Special Issues Relating to Size:
1. Administrative Component Debate
 Parkinson’s Law: Number of officials and
quantity of work not related at all – Classic
British Royal Navy Study: Warships declined
by 68%, navy personnel declined by 32%,
admin staff increased by 40%, onshore officer
corps increased by startling 78%
 Admin component: proportion of line
managers and their support staff to operating,
production personnel – number of custodial
workers, drivers, cafeteria employees, clerical
help etc included in admin staff
 The Positive-Correlation Argument: Positive relationship
between size and admin component. Relative size of
admin component increases disproportionately with
increased organization size – admin=coordination –
Coordination becomes increasingly difficult with
increased size – Admin comp increases out of
proportion.
 The Negative-Correlation Argument: Reasonable to
expect admin staff should decline as a proportion as size
increases – logic based on efficiencies from economies
of scale – Studies in hospitals, manufacturing firms
support this – owner-managed firms, partnerships less
likely to add admin staff for fear of dilution of control
 The Curvilinear Argument: Size-admin not linear but
curvilinear – admin component greater for smaller and
larger organizations than moderate size – As they
become large, become complex and need increased
admin comp for coordination control - limitations of
economies of scale
Organization Theory and Small Business
 Right structural design critical for small
business success – problems here different –
Hence different priority to OT issues small for
business manager
 Issues of Reduced Importance:
1. Small businesses have minimal degree of
horizontal, vertical, spatial differentiation, low
formalization, high centralization
2. structure tends to be flat – vertical diff low
3. stimulating innovation, managing conflict,
changing organization culture attract reduced
importance
 Issues of Increased Importance:
1. Control, accountability, efficiency, and
environmental dependence
2. Direct supervision, and observation
3. Strong advocates of “Management by walking
around”
4. High efficiency more important due to lack of
slack resources (shock absorber to reduce
impact of mistakes) as compared to large
organizations
5. Must have right structural design for rapid and
accurate assessment of environment
(suppliers, competitors, financial sources) –
power, control less in this regard vis-à-vis large
organizations