Patterns of business organization

PATTERNS OF
BUSINESS
ORGANIZATION
J. O'Shaughnessy

ROUTLEDGE LIBRARY EDITIONS:
ORGANIZATIONS: THEORY & BEHAVIOUR

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ROUTLEDGE LIBRARY EDITIONS:
ORGANIZATIONS: THEORY & BEHAVIOUR

PATTERNS OF BUSINESS
ORGANIZATION

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PATTERNS OF BUSINESS
ORGANIZATION

J. O’SHAUGHNESSY

Volume 23

Routledge

Taylor &. Francis Group
LONDON AND NEW YORK

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First published in 1976
This edition first published in 2013
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Patterns of
Business Organization
J. O'Shaughnessy

London George Allen & Unwin Ltd
Ruskin House

Museum Street

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First published 1976
This book is copyright under the Berne Convention. All
rights are reserved. Apart from any fair dealing for the
purpose of private study, research, criticism or review, as
permitted under the Copyright Act, 1956, no part of this
publication may be reproduced, stored in a retrieval system,

or transmitted, in any form or by any means, electronic,
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copyright owner. Enquiries should be addressed to the
publishers.
©George Allen & Unwin (Publishers) Ltd 1976
ISBN 0 04 658222 3 hardback
0 04 658223 1 paperback

Acknowledgements
I am indebted to Professor Derek Pugh of the London Graduate
School of Business Studies, and my colleagues at Columbia, Professors William Newman, Margaret Chandler, Kirby Warren, David
Lewin, Noel Tichy and Michael Tushman, for their criticism and
advice on drafts of various parts of this book. My thanks are also
due to former colleagues at Columbia, Professor Larry Cummings for
his detailed comments on an earlier book of mine on organization,
and Professor Karl Magnusen for his discussions with me on the contingency theories of organization.

Printed in Great Britain
in 10 point Times Roman type
by Butler and Tanner Ltd
Frome and London

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Contents

1

INTRODUCTION

Approaches to Organization
Business Objectives and Strategy: A First Step in
Business Organization

PART I

THE CLASSICAL A P P R O A C H

2 THE C L A S S I C A L A P P R O A C H : I N T R O D U C T I O N
3 G R O U P I N G INTO SECTIONS, DEPARTMENTS
AND HIGHER ADMINISTRATIVE UNITS

Span of Control
Grouping to Achieve Economies of Scale
Grouping to Achieve Co-ordination
Grouping by Nature of Activity (Keyness, Goal
Conflict, Function)
Conflict of Factors
Co-ordination and Committees
Case Study
Co-ordination and Divisionalization

4 JOB S T R U C T U R I N G

Delegating Authority
Decentralization and Divisionalization
Specifying Responsibility
Establishing Relationships

Role of Specialist Departments
Criticism of the Principles of Organization
Work Organization

PART II
THE H U M A N R E L A T I O N S
AND THE B E H A V I O U R A L SCIENCE
APPROACHES
5 THE H U M A N R E L A T I O N S A N D THE
BEHAVIOURAL SCIENCE A P P R O A C H E S :
INTRODUCTION

Classical Approach Based on a Mechanical Model

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8 Contents
Bureaucracy
The Human Relations and Behavioural Science
Approaches
6

INDIVIDUAL MOTIVATION AND GROUP
BEHAVIOUR

Maslow's Hierarchy of Needs
McClelland's Need Categories of Power, Achievement, and Affiliation
Herzberg's Two-Factor Theory of Motivation
Expectancy Theory
McGregor's Theory X and Theory Y
An Overview
Behaviour of Work Groups: Hawthorne Studies

The 'Majority' Effect
Problem Solving in Groups
Hawthorne Today
7 SUPERVISORY LEADERSHIP AND INTERGROUP BEHAVIOUR

Supervisory Leadership
Ohio and Michigan Leadership Dimensions
Lewin's Classification
Evidence
Fiedler's Theory
Reddin's Model
Concluding Comment
Inter-Group Behaviour

8 ORGANIZATIONAL GROUPINGS AND
AUTHORITY DISTIRBUTION

Flat v. Tall Structures
Sectional Over-Specialization
Choice of Team Members
The Link-Pin Theory
Participation
Industrial Democracy
Delegating Authority
Work Group Authority

9 ROLE D E L I N E A T I O N A N D

PERFORMANCE

Specifying Responsibility: A Critical Reappraisal
Organizational Rules and Policies
Management by Objectives
Role Relationships

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Contents 9
Work Organization: Job Enlargement and Job
Enrichment
General Comment
PART III

THE SYSTEMS A P P R O A C H

10 SYSTEMS: I N T R O D U C T I O N

Systems Definition
Classification of Systems
Behavioural Theory of the Firm Under Conditions
of Uncertainty
Buffering Core Technical Functions

Systems and Organization

11

DETERMINING

INFORMATION

NEEDS

Specifying Objectives
Listing the Subsystems, or Main Decision Areas
Analysing the Decision Areas and Establishing
Information Needs

12 D E S I G N I N G THE C O M M U N I C A T I O N
C H A N N E L S FOR THE I N F O R M A T I O N F L O W

Communication
Communication Networks
Grouping Decision Areas to Minimize Communications Burden
Communication Channel Overload/Excess
Flat v. Tall Structures
Matrix and Project Management
Systems and Classical Organizational Issues

PART IV C O N T I N G E N C Y
OF O R G A N I Z A T I O N
13

CONTINGENCY

THEORIES

THEORIES

Technology and Organization Structure
Innovation and Organization
Uncertainty and Organization Structure
Action/Information Technology and Organization
Context and Organization Structure
Structure, Technology, Co-ordination and Control
Strategies for Dealing with Upward Communication Overload in Conditions of Task Uncertainty

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10 Contents
PART V O R G A N I Z A T I O N A L
AND CONCLUSION

CHANGE

14 O R G A N I Z A T I O N A L C H A N G E

Conditions Inhibiting and Facilitating Change
The Organization Development Movement

15

CONCLUSION

The Classical Approach
Human Relations/Behavioural Science
The Systems. Approach
Contingency Approaches
A P P E N D I X : Decision Schedule
BOOKS A N D A R T I C L E S R E F E R R E D TO
DISCUSSION QUESTIONS
INDEX

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Chapter 1

Introduction
A P P R O A C H E S TO

ORGANIZATION

When managers refer to 'organization' they are apt to think in terms
of the company organization chart, schedules of responsibility and
other structural factors involved in organization. However, organization as an academic subject tends to take a somewhat wider area
for study than structures though structure remains of central interest. As Pugh says:
'More specifically organization theory can be defined as the study
of the structure, functioning and performance of organizations and
the behaviour of groups and individuals within them'.
A more denotative definition of the subject would list issues such
as the following:
( 1 Grouping tasks to form individual jobs.
2 Grouping jobs into sections, departments and higher administrative units such as divisions.
3 Delegating authority, allocating responsibility and determining
the number of levels in the managerial hierarchy.
4 Providing an organizational climate so that people are motivated
to give of their best in accomplishing organizational objectives.
5 Designing communication systems for effective decision-making,
control and co-ordination.
6 Building an overall organization that is innovative, responsive
and adaptive to relevant environmental changes.)
The first three above focus on the traditional structural issues while
the last three reflect more the current concern with structure, functioning and performance. In any case, these issues become problems
for those seeking to build an effective organization. Where wrong


12 Patterns of Business Organization

choices are made, then deficiencies in organization occur, which in
turn, give rise to a number of inefficiencies:
1 Decisions may be too slow and poor in quality if:
(a) the decision makers are overloaded;
(b) the information required for decision-making is not readily
available;
(c) the decisions are being made at the wrong place or level;
(d) the organizational climate does not encourage high performance.
2 Functions may not be administered on a consistent basis throughout the company, giving rise to anomalies and grievances. For
example, a uniform policy on recruitment and wages may be lacking.
3 There may be a failure to co-ordinate inter-unit activities if there
is:
(a) Lack of Consistency in Goals. Lack of co-ordination may
mean people are working at cross purposes to each other.
Priorities may differ and conflicting action taken. A classical
example is that of the transport manager who lays down that
the cost per mile of making deliveries to any area should never
exceed a particular sum; deliveries being delayed until full
loads can be sent. This policy may make the transport section
appear efficient but the loss, from diminished sales through
poor customer service, may be far higher than any savings on
transport costs.
(b) Non-Synchronized Timing. The actions of individuals may not
be synchronized or properly scheduled so that hold-ups and
delays occur. For example, a computer installed before the
necessary programs are ready is useless. An advertising campaign which is not reinforced in the salesman's sales appeals
might dilute its effectiveness.
(c) Poor Specification of Duties. Necessary activities may not be
carried out because each person in the team believes it is the
responsibility of others. At a simple level, the quality control

section may lay down standards and assume the works
manager will inform production of the revised standards. Similarly, the works manager may assume that quality control has
done the notifying. At a higher level there is often vagueness
as to whose job it is to think about new ventures, product deletions and changes in company direction.
(d) Lack of Economy in Means for Achieving Co-ordination. Co-


Introduction 13
ordination is implemented through personal supervision,
meetings, liaison personnel, memoranda, goals, formal schedules and procedures. All these means are facilitated or made
more difficult and expensive by the organization structure as
this affects the number to be consulted and their accessibility.
Hence, even when co-ordination appears satisfactory, it may
still be possible to re-group activities to reduce the cost of coordination.
4 Destructive Conflict. If members of an organization are in frequent
conflict with each other, unified action becomes more or less impossible. What we seek is an organizational climate where debate
is vigorous and sharp but where polarization and rancour are rare.
5 Sluggishness in response to technological and environmental
changes. An organization to be effective must not only have objectives to give it direction; resources commensurate with the job to
be done; mechanisms for achieving a co-ordinated and unified
focus of resources on objectives, but must also have the ability
to adapt to change if it is to survive. We are all familiar with the
error of applying old solutions to new problems because of the
failure of the organization to recognize that the problem has
changed, or to mobilize the resources and 'will to do' what needs
to be done.
There are many distinct contributions to the study of organizations,
each of which might be regarded as a separate approach in its own
right. However, we will distinguish only the following major categories for extensive discussion while reference will be made in the
text to other approaches as and when appropriate.

1 The classical approach is the first to be considered. With its
emphasis on structural factors and the functions or activities
necessary to achieve objectives, it still dominates much of the
thinking of industrial consultants. Once activities are identified,
they are grouped to form individual jobs, sections and higher administrative units, the aim being to get efficient specialization and
co-ordination without physically overloading supervisors or
managers. Co-ordination is further facilitated by linking people
together in a chain of command and by ensuring that each person
knows where his responsibilities end and another's begins. The
approach attempts to establish rules (the so-called 'principles' of
organization) to act as criteria in developing an organization.
2 The human relations approach as well as the less ideological, more


14 Patterns of Business Organization
scientifically demanding behavioural science approach, studies
motives, supervision, group and inter-group behaviour. From
such studies the behavioural consequences of various organizational arrangements are deduced leading to recommendations
on developing management actions, policies, organizational
climate and structure that stimulate people to co-operate in
achieving the aims of the business. In general, there can be no effective co-ordination of activities unless people are willing to co-operate, and such co-operation is not achieved automatically but may
be evoked by the organization.
3 The systems approach, with its emphasis on interdependencies and
studying the firm as a total system, can be distinguished from the
previous two approaches. Yet there is no one single systems
approach since different writers have taken different sub-systems
for study. Some have taken functions and others activities while still
others have taken the appropriate sub-systems to be the various
roles making up the organization. In this book we have taken the
relevant sub-systems to be the decisions that must be made to

achieve objectives; the organization being thus designed to facilitate decision-making. Decision-making, rather than activities, is
chosen for study because it is through the process of decision-making that policies are laid down and actions taken that are relevant
to the future success of the company. But since decisions require
information and information has to be communicated, the
approach seeks to study not only the decision process itself but
also information needs and communication channels. In general,
without communication of information, there can be neither cooperation nor co-ordination.
This is admittedly a narrow approach since many systems
writers would argue that there is a need to draw extensively from
the other approaches. But it may be defended on the ground that
it facilitates understanding of the role of information and communication channels in achieving organizational effectiveness.
Also a number of those other systems approaches that both consider sub-systems other than decisions and draw on the other
approaches are dealt with separately under the heading of'contingency theories of organization'.
4 These various contingency theories of organization do tend to
have a system orientation but their emphasis on the need to adapt
the organization to the demands of the technology (however variously defined), the need for innovation, or the demands emanating
from environmental and decision-making uncertainty makes these


Introduction 15
approaches sufficiently distinctive and important to be considered
separately.
BUSINESS O B J E C T I V E S A N D S T R A T E G Y :
IN BUSINESS O R G A N I Z A T I O N

A FIRST

STEP

Although setting objectives for a company or each separate business

of that company is not generally considered a problem of organization, a brief discussion on the subject is advisable since management
organizes to achieve objectives. If we were to seek improvement of
an organization without first clarifying objectives we run the risk
of thinking of better ways of organizing unnecessary functions or,
alternatively, of proposing better ways to achieve unsatisfactory endresults.
Importance of Objectives
Objectives are the aims and expectations as to the future state
desired. As far as management is concerned every function or activity
within the company derives its significance from the contribution
made to objectives. Objectives form the criteria for judging the
appropriateness of some proposed course of action; the standard
against which to judge future performance and constitute a common
focus for the business as a whole.
Objectives refer to future expectations; some are designed to cover
the immediate future, say, the next six months. These can usually
be specified clearly in terms of time and degree so that they are often
referred to as 'proximate goals'. Such goals need to be qualified by
the longer term objectives which aim to cover, say, from one to five
years. These, in turn, may be linked to still longer term objectives,
say from five to twenty years. All need to be related to each other
so that conflict between the short term and long term can be resolved.
For example, high profit may be achieved during the short period
by lowering quality, but this may be at the expense of the long-term
profit position.
Objectives are based on assumptions about the future. Hence their
validity depends on the extent to which future conditions can be forecast. The further ahead the period considered, the greater the uncertainty about the future and the more the objectives have to be
stated in general terms.
A company may make no explicit statement of its objectives. They
may be implicit, or people within the company may agree on the
action to be taken without agreeing on the purposes served by the

16 Patterns of Business Organization
action. However, there are advantages in formally setting out objectives.
(i) Where objectives are absent or misunderstood there is a danger
that action will be taken in pursuit of ends which no longer contribute to objectives. Setting them out formally facilitates their
communication within the company and such communication
lessens the risk of misunderstanding.
(ii) If objectives are made explicit, any conflicts among them are
more likely to be discovered, with consequent attempts at reconciliation.
(iii) Explicit criteria for judging overall company performance are
provided, unless the formal statement of objectives is merely for
'propaganda' purposes and conceals the true ones.
Profit: The Primary Objective
The primary objective of a company is to make a steady profit. Social
objectives, such as standards of employee welfare, do not stem
directly from this profit motive but usually have to be accommodated
within some specific range of profit. Similarly, businesses have to be
sensitive to national priorities and society welfare and these may act
as constraints.
Profit is then the primary objective of any company in a free enterprise economy. It is sometimes denied that this is so and that other
goals may be equal or more important. Chamberlain points out that
top company executives have contributed to this belief by claiming
multiple responsibilities-not only to shareholders but to the community, suppliers, employees, customers, and acknowledging that
the interests of all these parties are not equally served by the pursuit
of profit. However, top executives seldom explain a low profit position by acknowledging the priority of other goals except when these
other goals have been forced upon them, as when BOAC (now British
Airways) claimed that its losses arose mainly from being compelled
by the Government to stake millions of pounds 'unseen' on new British
aircraft, and to being required to run services ('carry the flag') along

unprofitable routes.
Directors of a public company do not enjoy an easy life if they
make relatively low profits. They are subject to criticism from
financial commentators since profit is the criterion used in assessing
whether the effort put into producing and selling is worth more than
the expense of doing so. They may also have difficulty in raising capital; additionally they run the risk of a take-over and finding them-


Introduction 17
selves jobless. In any case, profit improvement in many companies
is almost 'institutionalized'.
Units are set up whose sole function is to improve the profit position of the company and budgeting procedures are established which
emphasize cost reduction and profit. Profit may thus become the primary objective even if top management regard profit as merely one
among a number of equally important objectives.
Problems with Objectives
Every business decision is meant to be a solution to a problem and
the correct solution to a problem is that which contributes most to
objectives. Without objectives we have no problems and without
problems we have no need of decisions. The fact that the job of
management is to make decisions and decision-making is management's day-to-day activity means managers always have implicit if
not explicit objectives. Given that this is so why is there all this talk
about management by objectives when there is no other way to
manage than by objectives? The reason is apparent. All too often
there is a failure to clearly think out what we are trying to accomplish.
Yet to set the wrong objectives is to solve the wrong problem and
to make the wrong decision which can be far more wasteful of
resources than solving the right problem in an inefficient manner.
Another way of looking at all this is to argue that decisions are
choices from among alternative solutions and the solution or course
of action chosen should be the one whose consequences are most

congruent with objectives. But there are immediate complications.
1 Objectives themselves serve as intermediary goals serving as
means in achieving still higher level objectives. (If we are justified
in speaking of ultimate objectives, that of a company is to survive.)
Thus they are meant to form a continuous ends/means chain. We
can regard the chain as being broken when objectives at one level
are not congruent with those at the next level as this is equivalent
to one part of the company going off on its own. However, this
possibility can be exaggerated. Everyone in a business is aware
that there is a need to make a profit to survive and this in itself
gives some guidance.
2 If objectives are intermediary goals, then lower level objectives are
never 'sacred' if alternative objectives can be found which are
equally as effective; to regard them otherwise may result from an
inadequate evaluation of the alternative means available for the
pursuit of basic ends.


18 Patterns of Business Organization
3 Each division's objectives may individually be congruent with
overall company objectives but when examined collectively may
be seen to be working at cross purposes to each other. There is
a need for overall co-ordination; e.g. to prevent divisions from
producing brands that simply compete with each other.
4 Objectives are usually multiple and conflicting; in pursuing one
objective, performance on other objectives may have to be sacrificed or diminished either because resources are too few to achieve
all objectives or because some of the objectives are logically inconsistent. Thus in setting the objectives of a distribution system
we would like the cheapest, the speediest, the simplest, the most
extensive etc. But such objectives are conflicting so there is a need
for tradeoffs, for example, between the objectives of speediest service and lowest cost. Ideally those tradeoffs should be carried out

to maximize probable profit. However, it may be impossible to
tie all these factors into a single tradeoff function which can be
maximized. Whenever the consequences of competing ends or
objectives cannot be measured and compared on some common
scale of (say) money, there is no way of knowing which combination of objectives will give greatest return, i.e. which combination
is optimum.
In practice the conflict among objectives is resolved in a number
of ways.
(i) Select just one objective. The selecting of just the one objective
might either lead to the possibility of primitive achievements
elsewhere on other objectives or to the complete sacrifice of
other objectives. If we are obliged to choose between objectives
we might proceed as in Fig. 1. This is possible when the objectives are intermediary goals serving as means to still higher level
objectives so that the weighting system can reflect the relative
likely effectiveness in achieving the higher level objectives. Fig.
1 illustrates the situation where a choice has to be made between
two sets of objectives; either to expand via owned outlets or via
franchising. The factors on which the two objectives differ as
to effects on long-term profit are termed differential consequences and are shown in column (1). The relative importance
of these consequences for long-term profit are estimated and
shown in column (2). In column (3) the two competing objectives
are rated on a scale from 1 to 3 in terms of their likely contribution to the differential consequences with 3 indicating highest


Introduction 19
Fig. 1 Choosing between mutually exclusive Intermediary Objectives
(1)
Differential
Consequences

A. Focus on
competitive
advantage
B Less risk
C. Minimize
financial
commitment
D. Strengthens
market
power
E. Minimizes
recruitment
problem

(2)
Criterion
Weight
(Relative
importance
of differential
consequences)

(3)
Rating of
Alternative Objectives
Expand
Expand
via owned
via
outlets

franchising

(4)
Points Awarded
Expand
Expand
via owned
via
outlets
franchising

3

2

3

6

9

2

2

3

4

6

2

1

3

2

6

2

3

2

6

4

1

1

3

1

3

19

28

10

Column (1) gives differential consequences of the two alternatives.
Column (2) weights the relative importance of the various differential consequences;
the sum of the weights = 10.
Column (3) a rating of the alternatives from 1 to 3 depending on their contribution
to the differential consequences; a rating of 3 is the highest positive contribution.
Column (4) multiplies the weight (column 2) by the rating (column 3) to give the
overall score.

likely contribution. Column (4) gives column (2) multiplied by
column (3) to give the overall score of each of the objectives on
each of the desired consequences. In this particular case the
overall score of the 'franchise' objective is highest with a score
of 28 as opposed to a score of 19 favouring the objective of
'owned outlets'. Of course, such a table contains a number of
questionable assumptions so is more a basis for discussion than
providing a final answer. Thus the weights and the ratings can
be varied to see the effect on the overall scores. Such 'sensitivity

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20 Patterns of Business Organization
analysis' is a useful device in what must remain largely a matter

of judgment.
(ii) Judgment of comparative utility. Such judgments are made by
asking how much of objective 'A' and how much of objective
'B' can be achieved in a given time for a given expenditure of
resources. Asking such a question, while varying the proposed
expenditure, makes it easier to establish preferences. At each
stage in the achievement of one objective, there is the likelihood
of changing direction to pursue other goals in order to approximate a more optimum mix. Judgments can only approximate
the ideal of marginal utility theory in economics which envisions
reaching the combination whereby no reallocation of resources
could increase the total utility generated. In any case, it may
not be possible to so easily divert means from one objective to
another; resources themselves may be neither amenable nor flexible.
(iii) Choose one objective as paramount and treat other objectives
as constraints. Dorfman defines a requirement as a 'constraint'
if it must not be violated at any cost but there is no gain or advantage in overfulfilling it. On the other hand, a requirement is an
'objective' if it can be violated (though at a cost or penalty) or
if there is an advantage in overfulfilment. Some constraints are
implicit, for example, that production targets are not attained
at the expense of safety. Other constraints may be explicit as
when the objective is laid down that costs are to be reduced without affecting quality.
The Process of Setting Objectives
Given that a firm wants to survive and make a profit, we can regard
the process of setting objectives for a business as determining that
state of affairs that is most desirable and yet feasible. The process
necessitates:
1 A historical review of the situation as a basis for drawing up a
'reference projection' or a picture of the likely future in the absence
of planned change. Such a reference projection is a basis for detecting opportunities and possible problems and difficulties. Such a
review might cover:

(a) Trends and factors in the external environment likely to affect
the company, e.g., government regulation, demographic and
social trends.


Introduction 21
(b) Trends in the industry, e.g., demand, capacity, costs and competition.
(c) A company performance review to include market segment
share, rate of return, trends in sales, competition and costs.
2 The laying out of a set of tentative objectives called the 'target
projection'.
3 The description of a strategy to be employed tofillthe gap between
the target and reference projection. Depending on the possibility
of discovering a strategy to meet this gap determines the extent to
which the target projection needs to be modified to turn it into
a feasible set of objectives.
4 A listing of the main assumptions on which the strategy is based.
Where the underlying knowledge of the future is reasonably certain, then firm commitment to a strategy or a plan is appropriate.
On the other hand, if there are a number of likely possibilities,
it is advisable to get out contingency plans, e.g., if the government
passes the anti-pollution legislation we'll do that, but if not, we'll
do this. In other words, if uncertainty can be reduced to a strictly
limited number of possible 'states of nature' then plans can be
worked out for each. Finally, if the future is entirely unknown there
is a need for flexibility. If the unknown future is judged to be temporary, maximum liquidity should be the rule. If the unknown is
to begin at some future date, then the preference should be for
short-term goals that are attainable before the uncertainty begins.
Objectives v. Strategy
We have introduced the word strategy without specifically defining
it. Strategy is the broad conception as to how resources are to be

deployed to maximize achievement of objectives. The deficiency of
a strategy is the extent to which it fails to meet objectives; the extent
to which it is relevant is the extent to which it meets objectives, while
the extent to which it is redundant is the extent to which resources
are wasted. The position is illustrated in the diagram below.
Deficiency
of Strategy
Relevancy
of
Strategy
Redundancy
of
Strategy

Fig. 2

Objectives

Strategy

Objectives v. strategy


22 Patterns of Business Organization
If strategy is thus a means to the attainment of objectives and
objectives at any level are also a means to some higher level objective,
the question arises as to the difference between strategy and objectives. Objectives emphasize the state of being there while strategy
emphasizes the process of getting there. However, strategy is often
defined to embrace both the determination of objectives and also
the means to be used to achieve those objectives. Thus Chandler gives

the following definition:
'Strategy can be defined as the determination of the basic long-term
goals and objectives of an enterprise and the adoption of courses
of action and the allocation of resources necessary for carrying out
these goals.'
Ansoff in his book on corporate strategy confines a firm's objectives to a statement of the threshold (minimum) and the target rate
of return plus some statement of threshold and target sales goal. He
discusses what he describes as the 'concept of the firm's business'
and this embraces both objectives and strategy, e.g. AnsofFs Concept
of Firm's Business:
(a) Objectives: R.O.I.: Threshold 10 per cent, goal 15 per cent, Sales
Growth Rate: Threshold 5 per cent, goal 10 per cent.
(b) Strategy:
(1) Product-market scope: Basic chemicals and pharmaceuticals;
(2) Growth vector: Product development and concentric diversification;
(3) Competitive advantage: Patent protection, superior research
competence;
(4) Synergy: Use of the firm's research capabilities and production technology.
Ansoff is thus arguing that overall company strategy should indicate how resources are to be deployed by giving:
(i) The markets for which resources are to be deployed.
(ii) The growth direction on which resources are to be focused.
(iii) The competitive advantage as the key resource to be exploited,
viz:
(a) financial strength;
(b) raw material reserve;
(c) physical plant capacity;


Introduction 23
(d) patents;

(e) public goodwill;
(f) management expertise;
(g) distribution network.
(iv) Synergy anticipated. Synergy emphasizes any combination
likely to bring about an overall performance that is greater than
the sum of the parts taken separately. Synergy is the additional
cost savings (including economies of scale) and net revenues that
result from the combined effect of bringing certain types of
resources together.
If we define politics as 'the art of articulating and aggregating interests in order to get agreement when people's interests do not entirely
overlap', then setting objectives and strategy is likely to be somewhat
political. A firm during its history has accepted commitments that
cannot now be ignored. Bargains made in the past set precedents,
such as a policy on redundancy, and may limit freedom in setting
objectives and strategy. Also concessions have to be made to various
people connected with the organization to get them to co-operate
and submerge their differences. In fact, objectives may be so firmly
determined by a successive series of such partial commitments and
compromises that the manager has no room for manoeuvre.
The feasibility of objectives themselves in terms of time and cost,
etc., may equally cause problems. Objectives may only be firmly set
when budgets and strategies are developed as only then is it possible
to determine their feasibility. The main financial test occurs during
the budgeting process, which translates objectives and strategies into
financial terms. Whenever an unsatisfactory financial projection is
revealed objectives may need to be modified and strategies revised.
The aim in business organization is an organization that fits in
with the 'concept of a firm's business'. In general terms, management
seeks an organization that is most conducive to achieving objectives
and implementing strategy. A clear understanding of the objectives

and strategy of an organization facilitates the structuring, functioning and performance of the organization. In brief, the specific tasks
and jobs that are to be grouped into sections and higher administrative units are dependent on the objectives and strategies adopted;
they are justified simply to the extent that they contribute towards
the achievement of objectives and strategies. Where objectives of the
firm can be split into distinct sub-objectives delineating distinct
businesses, there is a basis for considering whether the company
should be split into separate divisions, each having its own


24 Patterns of Business Organization
production and selling facilities. The delegating of decision-making
authority also presupposes objectives have been set since we delegate
authority to accomplish objectives while the criteria used to choose
among alternative courses of action stems ultimately from the overall
objectives to be achieved. Similarly in seeking to motivate people
to give of their best, we mean 'give of their best towards achieving
overall strategies and objectives'. In talking about designing communication channels, we are talking about communication channels
to carry information useful for decision-making and this, too, depends on the strategies and objectives being sought. Finally, an
organization responds and adapts to changing environmental conditions through first recognizing the need to change objectives and
strategies which, in turn, guide any organizational changes that are
needed.
In the next chapter we will first consider the classical approach
which traditionally has treated management as a set of processes
such as planning, organizing and controlling. Only the process of
organizing is discussed in this chapter though much of the comment
on planning and control dealt with in the chapter on the 'systems
approach' would be endorsed by classical writers.