Organizational Differentiation

Differentiation and Integration

Another response to environmental uncertaintyOpens in new window is the amount of differentiation and integration among departments.

When the external environment is complex and rapidly changing, organizational departments become highly specialized to handle the uncertainty in that part of the external environment each department works with.

Success in each environmental sector (human resources, technology, government, and so forth) requires special expertise and behavior. Employees in an R&D department thus have unique attitudes, values, goals, and education that distinguish them from employees in manufacturing or sales departments.

A study by Paul Lawrence and Jay Lorsch examined three organizational departments—manufacturing, research, and sales—in 10 corporations. This study found that each department evolved toward a different orientation and structure to deal with specialized parts of the external environment.

Figure X-4 illustrates the market, scientific, and manufacturing subenvironments identified by Lawrence and Lorsch.

Figure X-4 Organizational Departments Differentiate to Meet Needs | Credit — Slideplayer Opens in new window

As shown in the Figure, each department interacted with different external groups. The differences that evolved among departments within the organizations are shown in Figure X-5.

To work effectively with the scientific subenvironment, research and design (R&D) had a goal of quality work, a long time horizon (up to five years), an informal structure, and task-oriented employees.

Sales was at the opposite extreme. It had a goal of customer satisfaction, was oriented toward the short term (two weeks or so), had a very formal structure, and was socially oriented.

One outcome of high differentiation is that coordination and collaboration among departments become difficult. More time and resources must be devoted to achieving coordination when attitudes, goals, and work orientation differ so widely.

When the environment is highly uncertain, frequent changes require more information processing to achieve horizontal coordinationOpens in new window, so integrators become a necessary addition to the organization structure.

Sometimes integrators are called liaison personnel, project managers, brand managers, or coordinators.

Figure X-6 Environmental Uncertainty and Integrators | Credit — Slideplayer Opens in new window

As illustrated in Figure X-6, organizationsOpens in new window with highly uncertain environments and a highly differentiated structure assign about 22 percent of management personnel to integration activities, such as serving on committees, on task forces, or in liaison roles.

In organizations characterized by very simple, stable environments, almost no uncertainty increases, so does differentiation among departments; hence, the organization must assign a larger percentage of managers to coordinating roles.

Lawrence and Lorsch’s research concluded that organizations perform better when the levels of differentiation and integration match the level of uncertainty and complexity in the environment.

Organizations that performed well in uncertain environments had high levels of both differentiation and integration, while those performing well in less uncertain environments had lower levels of differentiation and integration.

A study of 266 modern manufacturing firms in nine countries confirmed that high levels of integration are associated with better performance in complex environments.

Organic Versus Mechanistic Management Processes

Recall our discussion of organic and mechanistic designsOpens in new window. The degree of uncertainty in the external environment is one primary contingency that shapes whether an organization will function best with an organic or a mechanistic design.

Tom Burns and G.M. Stalker observed 20 industrial firms in England and discovered that internal management processes were related to the external environment.

When the external environment was stable, the internal organization was characterized by standard rules, procedures, a clear hierarchy of authority, formalization, and centralization. Burns and Stalker called this a mechanistic organization system.

In rapidly changing environment, the internal organization was much looser, free-flowing, and adaptive, with a loose hierarchy and decentralized decision making. Burns and Stalker used the term organic to characterize this type of organization.

As environmental uncertaintyOpens in new window increases, organizations tend to become more organic, which means:

• decentralizing authority and responsibility to lower levels,
• encouraging employees to take care of problems by working directly with one another,
• encouraging teamwork, and
• taking an informal approach to assigning tasks and responsibility.

Thus, the organization is more fluid and is able to adapt continually to changes in the external environment. Guiltless GourmetOpens in new window, which sells low-fat tortilla chips and other high-quality snack foods, provide an example. When large companies like Frito LayOpens in new window entered the low-fat snack-food marker, Guiltless GourmetOpens in new window shifted to a flexible virtual network structure to remain competitive.

The company redesigned itself to become basically a full-time marketing organization, while production and other activities were outsourcedOpens in new window. An 18,000-square-foot plant in Austin was closed, and the workforce was cut from 125 to about 10 core people who handle marketing and sales promotions. The flexible structure allowed Guiltless Gourmet to adapt quickly to changing market conditions.