1.1 BACKGROUND OF THE STUDY
The term organization has been defined in several ways. Leavitt (1962:55-70) defines it as a specific configuration of structure, people, task and techniques. Structure describes the form of departments, hierarchy and committees. It influences the organization’s efficiency and effectiveness and thus organizational structure refers to the institutional arrangements and mechanisms for mobilizing human, physical, financial and information resources at all levels of the system (Sachdeva, 1990:14).
There is a long standing concern that strategic literature needs a better understanding of how organizational structure and decision-making affect organizational performance. This concern goes back at least to Cyert and March (1963:45), who used the following questions in motivating their theoretical enterprise; “What happens to information as it is processed through the organization? What predictable screening biases are there in an organization?, How do hierarchical groups make decisions?” But with a few exceptions, questions of this sort remain mostly unexplored (Rumelt et al., 1994:78). This lack of knowledge regarding how decision making structure affects organizational performance continually resurfaces in different areas of management, for example, in the context of ambidextrous organizations, Raisch and Birkinshaw (2008:375-409) note that far less research has traditionally been devoted to how organizations achieve organizational ambidexterity. These observations are congruent with the view that organization design is the field that is specifically devoted to studying the linkages between environment, organizational structure, and organizational outcomes, however despite management long history, it is in many respects an emerging field of study (Daft and Lewin, 1993:1-6; Zenger and Hesterly, 1997:209-222; Foss, 2003:331-349).
The modern interest in organizational structure as a pattern of communications among individuals can be traced back to Graicunas’ paper on the use of graphs to understand span of control, published as a chapter on Gulick and Urwick (1937:71). Simon’s (1947/1997:56) more elaborate view of organizations as information-processing devices composed of boundedly rational individuals, led him to make span of control contingent on contextual factors, and later to extend the work of Bavelas (1950:723-730) and Leavitt (1951:55-70) to determine how effective were different information processing structures at completing organization-level goals (Guetzkow and Simon, 1955:233-250). Subsequently, the role of organizational structure took a central place in the Behavioral Theory of the Firm (Cyert and March, 1963:78). However, with one exception (Cohen et al., 1972:1-25), the Carnegie tradition devoted most of its energies to decision-making in the absence of organizational structure concerns. In fact, in a recent article, Gavetti, Levinthal, and Ocasio (2007:523-536) call organizational structure a “forgotten pillar” of this tradition.
Two management theories have tried to explain the role of structure in achieving the goals of the organization; these are the contingency and team theories. Contingency theory (Woodward, 1965:71; Lawrence and Lorsch, 1967:21) shared the Carnegie tradition sensibility on the issue and highlighted the role of information-processing constraints. Contingency theory also extended that sensibility by delving into the linkages between the environment and the organization, and seeks to find the patterns of organizational structure such as formalization and administrative intensity that are typically associated, or have the best ‘fit,’ with contextual factors such as size and technological uncertainty. Most of this literature has not dealt with individuals as the level of analysis nor with establishing the processes that connect context to structure (Meyer et al., 1993:1175-1195).
The Team theory (Marschak and Radner, 1972:192) took a formal and information-theoretic approach to organizations, by mathematically modeling the effects of information decentralization (i.e., not all team members have access to the same information) under perfect alignment of incentives. Interestingly, the role of structure is almost absent in the initial version of the theory. More recently, Radner (1992:1382-1415) and Van Zandt (1999:125-160) extended the theory to account for process decentralization (i.e., different members perform different tasks) in hierarchical organizations (i.e., tree-like graphs). These models, which are almost solely focused on efficiency measures, analyze the number of operations it takes an organization to perform a given task.
Sah and Stiglitz (1988:451-470) contributed to the team-theoretic approach by introducing two new elements into it: modeling communication patterns as sequential or parallel and measuring performance as omission and commission errors. They used this approach to mathematically analyze organizations with two members committees. An appealing characteristic of their approach is that it creates bridges between organization design and vast and distant literatures: parallel and sequential structures have been well studied in fields as disparate as reliability theory (Rausand and Hoyland, 2004:52), circuit design (Moore and Shannon, 1956/1993; Von Neumann, 1956:43-98), and machine learning (Hansen and Salamon, 1990:993-1001); and omission and commission errors have been well studied in statistical decision theory (Berger, 1985:34), diagnostic testing (Hanley and McNeil, 1982:29-36), and signal detection theory (Green and Swets, 1966:76).
Another Literature that has contributed to the understanding of the interplay between structure and performance is the work by Bower (1970:82) on the resource allocation process, which has gained further development and attention with the development efforts of Burgelman, Christensen, Doz, Gilbert and others. This line of research has described the complex and subtle processes whereby projects are identified, proposed, refined, and approved in large corporations (see Bower and Gilbert, 2005:11).
However, one of the most important issues to researchers that concern structure and performance is analyzed by the group decision-making literature, the issue of whether groups take more or less risks than its members, remains an open question (Connolly and Ordonez, 2003:493-517). Although previous literatures have provided many important insights on what is the impact of structure on performance, the field of organizations lacks an empirically validated theory that starting from structure at the level of individuals is able to predict organization-level measures of performance relevant to the organization. Generally, the previously reviewed literatures do not provide such a theory because of at least one of the three following reasons: not describing structure at the individual level of analysis, not predicting measures of performance useful to strategy research, or not having empirical support.
The above is the void that this research intends to fill; therefore, this research will focus on the effect of structure on performance of the organization from the perspective of describing the structure at the individual level of analysis, predicting measures of performance useful to strategy research, and having empirical support among banks in Nigeria.
- STATEMENT OF THE PROBLEM