Organization Design: An Information Processing View

Author(s): Jay R. Galbraith

Source: Interfaces, Vol. 4, No. 3 (May, 1974), pp. 28-36
Published by: INFORMS
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INTERFACES
Vol. 4, No. 3
May 1974

ORGANIZATION DESIGN:
VIEW
PROCESSING
AN INFORMATION

JAY R. GALBRAITH
European Institute for Advanced Studies

is currently as Professor of Organiza

JAY R. GALBRAITH serving
tional Behavior at the European Institute for Advanced Studies in Man
he was affiliated with the Sloan School of Manage
agement. Formerly,
ment, M.I.T. Professor Galbraith is interested in the design of organiza
tion structures and his most recent work is Designing Complex Organiza
tions (Addison-Wesley, 1973).

The Information Processing Model

A basic proposition is that the greater the uncertainty of the task, the
greater the amount of information that has to be between decision
processed
makers during the execution of the task. If the task is well understood prior to
it, much of the activity can be If it is not under
performing preplanned.
stood, then during the actual task execution more knowledge is acquired
which leads to changes in resource allocations, schedules, and priorities. All
these changes require information processing during task performance. There
fore the greater the task uncertainty, the greater the amount of information
that must be processed among decision makers during task execution in
order to achieve a given level of performance. The basic effect of uncertainty
is to limit the ability of the organization to preplan or to make decisions about
activities in advance of their execution. Therefore it is hypothesized that the
observed variations in organizational forms are variations in the strategies
of organizations to 1) increase their ability to preplan, 2) increase their
flexibility to adapt to their inability to preplan, or, 3) to decrease the
level of performance required for continued viability. Which strategy is
chosen depends on the relative costs of the strategies. The function of the
framework is to identify these strategies and their costs.

TheMechanistic Model
This framework is best developed by keeping in mind a hypothetical or
Assume it is and a number of and
ganization. large employs specialist groups
resources in providing the output. After the task has been divided, into
substasks, the problem is to integrate the subtasks around the com
specialist
pletion of the global task. This is the problem of organization design. The be
haviors that occur in one sub task cannot be judged as good or bad per se. The
behaviors are more effective or ineffective upon the behaviors of
depending
the other subtask performers. There is a design problem because the executors
of the behaviors cannot communicate with all the roles with whom they are
interdependent. Therefore the design problem is to create mechanisms that
coordinated action across large numbers of roles. Each
permit interdependent
of these mechanisms, however, has a limited range over which it is effective
at handling the information requirements necessary to coordinate the inter
dependent roles. As the amount of uncertainty increases, and therefore in
Copyright ? 1974, The Institute of Management Sciences

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 formation processing increases, the organization must adopt integrating
mechanisms which increase its information processing capabilities.
1. Coordination by Rules or Programs
For routine predictable tasks March and Simon have identified the use of
rules or to coordinate behavior between subtasks
programs interdependent
[March and Simon, 1958, Chap, 6]. To the extent that job related situations
can be predicted in advance, and behaviors specified for these situations, pro
grams allow an interdependent set of activities to be performed without the
need for inter-unit communication. Each role occupant simply executes the
behavior which is appropriate for the task related situation with which he
is faced.

2. Hierarchy
As the organization faces greater uncertainty its participants face situa
no rules. At this point
tions for which they have the hierarchy is employed
on an exception basis. The recurring job situations are with
programmed
rules while situations are referred to that level in the hierarchy
infrequent
where a global perspective exists for all affected subunits. However, the hier
also has a limited range. As uncertainty increases the number of ex
archy
ceptions increases until the hierarchy becomes overloaded.

3. Coordination by Targets or Goals

As the uncertainty of the organization's task increases, coordination in
takes or targets [March and
creasingly place by specifying outputs, goals
Simon, 1958, p. 145]. Instead of specifying specific behaviors to be enacted, the
organization undertakes processes to set goals to be achieved and the em
ployees select the behaviors which lead to goal accomplishment. Planning
reduces the amount of information processing in the hierarchy by increasing
the amount of discretion exercised at lower levels. Like the use of rules, plan
ning achieves integrated action and also eliminates the need for continuous
communication among interdependent subunits as long as task performance
stays within the planned task specifications, budget limits and within targeted
completion dates. If it does not, the hierarchy is again employed on an ex
ception basis.
The ability of an organization to coordinate interdependent tasks depends
on its to to subunit action. When
ability compute meaningful subgoals guide
because
increases of introducing new new
uncertainty products, entering
markets, or new technologies these subgoals are incorrect. The
employing
result is more exceptions, more information processing, and an overloaded
hierarchy.

Design Strategies
The ability of an organization to successfully utilize coordination by
goal setting, hierarchy, and rules depends on the combination of the frequency
of exceptions and the capacity of the hierarchy to handle them. As the task
uncertainty increases the organization must again take organization design
action. It can proceed in either of two general ways. First, it can act in two
ways to reduce the amount of information that is processed. And second, the
organization can act in two ways to increase its capacity to handle more in
formation. The two methods for reducing the need for information and the
two methods for increasing processing capacity are shown schematically in
Figure 1.The effect of all these actions is to reduce the number of exceptional

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 cases referred upward into the organization through hierarchical channels.
The assumption is that the critical limiting factor of an organizational form is
its ability to handle the non-routine, events that cannot be
consequential
anticipated and planned for in advanced. The non-programmed events place
the greatest communication load on the organization.

1. Rules and Programs

2. Hierarchical Referral
3. Goal Setting

4. Creation of 5. Creation of 6. Investment in 7. Creation of

Slack Resources Self-Contained VerticalLateral

Reduce the Need for Increase the Capacity

Information Processing to Process Information

Figure 1. Organization Design Strategies

1. Creation of Slack Resources

As the number of exceptions begin to overload the hierarchy, one re
sponse is to increase the planning targets so that fewer exceptions occur. For
example, completion dates can be extended until the number of exceptions
that occur are within the existing information processing capacity of the
organization. This has been the practice in solving job shop scheduling prob
lems [Pounds, 1963]. Job shops quote delivery times that are long enough to
keep the scheduling problem within the computational and information pro
limits of the Since has the same
cessing organization. every job shop problem
standard lead times evolve in the industry. Similarly budget targets could be
raised, buffer inventories employed, etc. The greater the uncertainty, the
greater the magnitude of the inventory, lead time or budget needed to reduce
an overload.
All of these examples have a similar effect. They represent the use of
slack resources to reduce the amount of between subunits
interdependence
[March and Simon, 1958, Cyert and March, 1963]. This keeps the required
amount of information within the capacity of the organization to process it.
Information is reduced because an
processing exception is less likely to occur
and reduced interdependence means that fewer factors need to be considered
when an does occur.
simultaneously exception
The strategy of using slack resources has its costs. Relaxing budget targets
has the obvious cost of requiring more budget. Increasing the time to comple
tion date has the effect of delaying the customer. Inventories the
require
investment of capital funds which could be used elsewhere. Reduction of de
sign optimization reduces the performance of the article being
designed.
Whether slack resources are used to reduce information or not
depends on the
relative cost of the other alternatives.
The design choices are: 1) among which factors to change (lead time,
overtime, machine utilization, etc.) to create the slack, and 2) by what amount

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 should the factor be changed. Many operations research models are useful in
choosing factors and amounts. The time-cost trade off problem in project
networks is a good example.

2. Creation of Self-Contained Tasks

The second method of reducing the amount of information processed
is to change the sub task groupings from resource (input) based to output based
the resources to
categories and give each group it needs supply the output.
For example, the functional organization could be changed to product groups.
Each group would have its own product engineers, process engineers, fabri
cating and assembly operations, and marketing activities. In other situations,
groups can be created around product lines, geographical areas, projects,
client groups, markets, etc., each of which would contain the input resources
necessary for creation of the output.
The strategy of self-containment shifts the basis of the authority structure
from one based on input, resource, skill, or occupational categories to one
based on output or shift reduces the amount of
geographical categories. The
information through several mechanisms. First, it reduces the
processing
amount of output diversity faced by a single collection of r?sources. For ex
a organization with multiple skill specialties providing
ample, professional
service to three different client groups must schedule the use of these special
ties across three demands for their services and determine con
priorities when
flicts occur. But, if the organization changed to three groups, one for each
client category, each with its own full compliment of specialties, the schedule
conflicts across client groups disappears and there is no need to process in
formation to determine priorities.
The second source of information reduction occurs through a reduced
division of labor. The functional or resource specialized structure pools the
demand for skills across all output categories. In the example above each
client generates approximately one-third of the demand for each skill. Since
the division of labor is limited by the extent of the market, the division of
labor must decrease as the demand decreases. In the professional organization,
each client group may have generated a need for one-third of a computer
programmer. The functional organization would have hired one programmer
and shared him across the groups. In the self-contained structure there is in
sufficient demand in each group for a programmer so the professionals must
do their own programming. Specialization is reduced but there is no problem
of scheduling the programmer's time across the three possible uses for it.
The cost of the self-containment strategy is the loss of resource specializa
tion. In the example, the organization foregoes the benefit of a specialist in
computer programming. If there is physical equipment, there is a loss of
economies of scale. The professional organization would require three
machines in the self-contained form but only a large time-shared machine in
the functional form. But those resources which have large economies of scale
or for which specialization is necessary may remain centralized. Thus, it is
the degree of self-containment that is the variable. The greater the degree of
uncertainty, other things equal, the greater the degree of self-containment.
The design choices are the basis for the self-contained structure and the
number of resources to be contained in the groups. No groups are
completely
self-contained or they would not be part of the same organization. But one
product divisionalized firm may have eight of fifteen functions in the division
while another may have twelve of fifteen in the divisions.
Usually accounting,

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finance, and legal services are centralized and shared. Those functions which
have economies of scale, or are for control
require specialization necessary
remain centralized and not part of the self-contained group.
The first two strategies reduced the amount of information by lower per
formance standards and creating small autonomous groups to provide the
output. Information is reduced because an exception is less likely to occur and
fewer factors need to be considered when an exception does occur. The next
two strategies accept the performance standards and division of labor as given
and adapt the organization so as to process the new information which is
created during task performance.

3. Investment in Vertical Information Systems

The organization can invest in mechanisms which allow it to process in
formation acquired during task performance without overloading the hierarchi
cal communication channels. The investment occurs according to the following
logic. After the organization has created its plan or set of targets for in
ventories, labor utilization, budgets, and schedules, unanticipated events
occur which generate exceptions requiring adjustments to the original plan.
At some point when the number of exceptions becomes substantial, it is
to generate a new plan rather than make incremental
preferable changes
with each exception. The issue is then how frequently should plans be
revised ? yearly, quarterly, or monthly? The greater the frequency of re
the the resources, such as clerks, time,
planning greater computer input-output
devices, etc., to information about relevant factors.
required process
The cost of information processing resources can be minimized if the
language is formalized. Formalization of a decision-making language simply
means that more information is transmitted with the same number of symbols.
It is assumed that information resources are consumed in
processing pro
portion to the number of symbols transmitted. The accounting system is an
a formalized
example of language.
more information, more often, may the decision
Providing simply overload
maker. Investment may be required to increase the capacity of the decision
maker various man-machine combinations, assis tan ts
by employing computers,
to, etc. The cost of this strategy is the cost of the information processing
resources consumed in and the data.
transmitting processing
The design variables of this strategy are the decision frequency, the degree
of formalization of language, and the type of decision mechanism which will
make the choice. This strategy is usually operationalized by creating redundant
information channels which transmit data from the point of origination up
ward in the hierarchy where the point of decision rests. If data is formalized
and quantifiable, this strategy is effective. If the relevant data are qualitative
and ambiguous, then it may prove easier to bring the decisions down to where
the information exists.

4. Creation of Lateral Relationships

The last strategy is to employ selectively joint decision processes which
cut across lines of authority. This strategy moves the level of decision making
down in the organization to where the information exists but does so without
reorganizing around self-contained groups. There are several types of lateral
decision processes. Some processes are usually referred to as the informal
However, these informal do not arise
organization. processes always spontane
ously out of the needs of the task. This is particularly true in multi-national

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 in which participants are separated
organizations by physical barriers, langu
age differences, and cultural differences. Under these circumstances lateral
processes need to be designed. The lateral processes evolve as follows with
increases in
uncertainty.
4.1. Direct Contact between managers who share a problem. If a prob
lem arises on the shop floor, the foreman can simply call the design engineer,
and they can jointly agree upon a solution. From an information processing
view, the joint decision prevents an upward referral and unloads the hierarchy.
4.2. Liaison Roles ? when the volume of contacts between any two de
partments grows, it becomes economical to set up a specialized role to handle
this communication. Liaison men are typical examples of specialized roles de
signed to facilitate communication between two interdependent departments
and to bypass the long lines of communication involved in upward referral.
Liaison roles arise at lower and middle levels of management.
4.3. Task Forces. Direct contact and liaison roles, like the integration
mechanisms before them, have a limited range of usefulness. They work when
two managers or functions are involved. When arise involving seven
problems
or eight departments, the decision making capacity of direct contacts is ex
ceeded. Then these problems must be referred upward. For uncertain, inter
tasks such situations arise frequently. Task forces are a form of
dependent
horizontal contact which is designed for problems of multiple departments.
The task force is made up of representatives from each of the affected
Some are full-time members, others may be The task
departments. part-time.
force is a temporary group. It exists only as long as the problem remains.
When a solution is reached, each participant returns to his normal tasks.
To the extent that they are successful, task forces remove problems from
levels of the The decisions are made at lower levels in the
higher hierarchy.
In order to guarantee a group
organization. integration, problem solving
is taken. Each affected subunit contributes a member and therefore
approach
the information necessary to judge the impact on all units.
provides
4.4. Teams. The next extension is to incorporate the group decision
into the decision processes. That is, as certain decisions
process permanent
consistently arise, the task forces become permanent. These groups are labeled
teams. There are many design issues concerned in team decision making such
as at what level do they operate, who participates, etc. [Galbraith, 1973,
Chapters 6 and 7]. One design decision is particularly critical. This is the
choice of leadership. Sometimes a problem exists largely in one department
so that the department manager is the leader. Sometimes the leadership passes
from one to another. As a new moves to the market
manager product place,
the leader of the new product team is first the technical manager followed
by the production and then the marketing manager. The result is that if
the team cannot reach a consensus decision and the leader decides, the goals
of the leader are consistent with the goals of the organization for the decision
in question. But quite often obvious leaders cannot be found. Another
mechanism must be introduced.
4.5. Integrating Roles. The leadership issue is solved by creating a new
role ? an integrating role [Lawrence and Lorsch, 1967, Chapter 3]. These
roles carry the labels of product managers, program managers, project man
agers, unit managers (hospitals), materials managers, etc. After the role
is created, the design problem is to create enough power in the role
to influence the decision process. These roles have power even when no one

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reports directly to them. They have some power because they report to the
manager. But if they are selected so as to be unbiased with respect to
general
the groups they integrate and to have technical competence, they have expert
power. They collect information and equalize power differences due to pre
ferential access to knowledge and information. The power equalization
increases trust and the quality of the joint decision process. But power
occurs only if the integrating role is staffed with someone who
equalization
can exercise expert power in the form of persuasion and informal influences
rather than exert the power of rank or authority.
4.6. Managerial Linking Roles. As tasks become more uncertain, it is
more difficult to exercise expert power. The role must get more power of the
formal authority type in order to be effective at coordinating the joint de
cisions which occur at lower levels of the organization. This position power
changes the nature of the role which for lack of a better name is labeled a
managerial linking role. It is not like the integrating role because it possesses
formal position power but is different from line managerial roles in that
participants do not report to the linking manager. The power is added by the
following successive changes:

a) The integrator receives approval power of budgets formulated in the

to be integrated.
departments
b) The planning and budgeting process starts with the integrator mak
ing his initiation in budgeting legitimate.
c) Linking manager receives the budget for the area of responsibility
and buys resources from the specialist groups.

Figure 2. A Pure Matrix Organization

General Manager

Product
Engineering Manufacturing Marketing
Management

Product Product
Electrical Mechanical Fabrication Assembly Promotion Sales
Line #1 Line #2

vs\^g^k^_?I- -T

Subproduct Subproduct Subproduct Subproduct Subproduct Subproduct

#2 #2 #2 #2 #2

-? = Technical
? = Formal authority over the product
authority over the product (in product organization, these relationships may be reversed)

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 These mechanisms permit the manager to exercise influence even though
no one works for him. The role is concerned with but
directly integration
exercises power through the formal power of the position. If this power is
insufficient to integrate the subtasks and creation of self-contained groups
is not feasible, there is one last step.
4.7. Matrix Organization. The last step is to create the dual authority
relationship and the matrix organization [Galbraith, 1971]. At some point in
the organization some roles have two superiors. The issue is to select
design
the locus of these roles. The result is a balance of power between the man
agerial linking roles and the normal line organization roles. Figure 2 depicts
the pure matrix design.
The work of Lawrence and Lorsch is highly consistent with the assertions
concerning lateral relations [Lawrence and Lorsch, 1967, Lorsch and Lawrence,
1968]. They compared the types of lateral relations undertaken by the most
successful firm in three different industries. Their data are summarized in
Table 1. The plastics firm has the greatest rate of new product introduction
(uncertainty) and the greatest utilization of lateral processes. The container
firm was also very successful but utilized only standard practices because its
information processing task is much less formidable. Thus, the greater the
uncertainty the lower the level of decision making and the integration is main
tained by lateral relations.

Table 1

Plastics Food Container

% new products in last 35% 20%

ten years

Integrating Devices Rules Rules Rules

Hierarchy Hierarchy Hierarchy
Planning Planning Planning
Direct Direct Direct
Contact Contact Contact
Teams at 3 Task forces
levels

Integrating Integrators
Dept.
% Integrators/Managers 22% 17% 0%

[Adopted from Lawrence and Lorsch, 1967, pp. 86?138 and Lorsch and Lawrence,
1968].

Table 1 points out the cost of using lateral relations. The

plastics firm has
22% of its managers in integration roles. Thus, the greater the use of lateral
relations the greater the managerial intensity. This cost must be balanced
against the cost of slack resources, self-contained and information
groups
systems.

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Choice of Strategy
Each of the four strategies has been briefly presented. The organization
can follow one or some combination of several if it chooses. It will choose
that strategy which has the least cost in its environmental context. [For an
example, see Galbraith, 1970]. However, what may be lost in all of the ex
planations is that the four strategies are hypothesized to be an exhaustive
set of alternatives. That is, if the organization is faced with greater uncertainty
due to technological change, higher performance standards due to increased
competition, or diversifies its line to reduce the amount
product dependence,
of information processing is increased. The organization must adopt at least
one of the four strategies when faced with greater If it does not
uncertainty.
consciously choose one of the four, then the first, reduced stand
performance
ards, will happen automatically. The task information requirements and
the capacity of the organization to process information are always matched.
If the organization does not consciously match them, reduced performance
through budget overruns, schedule overruns will occur in order to bring about
equality. Thus the organization should be planned and designed simultaneous
ly with the of the strategy and resource allocations. But if the strategy
planning
involves new new markets, etc., then some
introducing products, entering
provision for increased information must be made. Not to decide is to decide,
and it is to decide upon slack resources as the strategy to remove hierarchical
overload.
Thereis probably a fifth strategy which is not articulated here. Instead of
changing the organization in response to task uncertainty, the organization can
operate on its environment to reduce The
uncertainty. organization through
decisions, term contracts, coalitions, etc., can control its environ
strategic long
ment. But these maneuvers have costs also. They should be with
compared
costs of the four design strategies presented above.

Summary
The purpose of this paper has been to
explain why task uncertainty is
related to organizational form. In so doing the cognitive limits theory of
Herbert Simon was the guiding influence. As the consequences of cognitive
limits were traced through the framework various organization design stra
tegies were articulated. The framework provides a basis for integrating organi
zational interventions, such as information systems and group problem solv
ing, which have been treated separately before.

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