et al., 2016, p. 10) to look for work that interested them and needed to be done. The new system turned off some employees, and Zappos lost almost a fifth of its workforce. The transition to holacracy required major investments of time and energy as everyone struggled to figure out how the new system was supposed to work. Things got worse before they got better, as is typical of structural change. Most efforts fail. But, working within the holacracy framework, by 2015, Zappos achieved a 75 percent year‐over‐year increase in profits (Bernstein et al., 2016). The long‐term impact on Zappos' free‐wheeling culture remains to be seen, and Zappos has modified the model to make it more consistent with the company's human values, but this experiment may turn out to be less crazy than critics expected (Groth, 2020).
Zappos and Amazon achieve customer satisfaction through entirely different structural arrangements. What makes the story even more interesting is that Amazon paid over $1 billion to buy Zappos in November 2009. More than a year later, Zappos CEO Tony Hsieh sent a memo to employees saying the culture was still intact, Zappos was still in charge of its own destiny, and business was better than ever (Lashinsky, 2010). That was still true a decade later in 2020.
Exhibit 3.3. Structural Imperatives.
| Dimension | Structural Implications |
|---|---|
| Size and age | Complexity and formality typically increase with size and age |
| Core process | Structure must align with core processes or technologies |
| Environment | Stable environment rewards simpler structure; uncertain, turbulent environment requires a more complex, flexible structure |
| Strategy and goals | Variation in clarity and consistency of strategy requires appropriate structural adaptations |
| Information technology | Information technology permits flatter, more flexible, and more decentralized structures |
| Nature of the workforce | More educated and professional workers need and want greater autonomy and discretion |
Structural Imperatives
Why do McDonald's and Harvard or Zappos and Amazon have such different structures? Is one more effective than the other? Or has each evolved to fit its unique circumstances? In fact, there is no such thing as an ideal structure. Every organization needs to respond to a universal set of internal and external parameters (outlined in Exhibit 3.3). These parameters, or contingencies, include the organization's size, age, core process, environment, strategy and goals, information technology, and workforce characteristics. All these combine to point toward an optimal social architecture.
Size and Age
Size and age affect structural shape and character. Problems crop up if growth (or downsizing) occurs without fine‐tuning roles and relationships. A small, entrepreneurial organization typically has simple, informal architecture. Growth spawns formality and complexity (Greiner, 1972; Quinn and Cameron, 1983). If carried too far, this leads to the suffocating bureaucratic rigidity often seen in large, mature enterprises.
In the beginning, McDonald's was not the tightly controlled company it is today. It began as a single hamburger stand in San Bernardino, California, owned and managed by the McDonald brothers. They virtually invented the concept of fast food, and their stand was phenomenally successful. The two tried to expand by selling franchise rights, with little success. They were making more than enough money, disliked travel, and had no heirs. If they were richer, said one brother, “we'd be leaving it to a church or something, and we didn't go to church” (Love, 1986, p. 23).
The concept took off when Ray Kroc arrived on the scene. At the time, he was selling milk shake machines to restaurants with modest success. When many of his customers began to ask for the McDonald's milk shake mixer, he decided to visit the brothers. Seeing the original stand, Kroc realized the potential: “Unlike the homebound McDonalds, Kroc had traveled extensively, and he could envision hundreds of large and small markets where a McDonald's could be located. He understood the existing food services businesses, and understood how a McDonald's unit could be a formidable competitor” (Love, 1986, pp. 39–40). Kroc persuaded the McDonald brothers to let him take over the franchising effort. The rest is history (or Hollywood, which tells its version of the story—an unflattering portrayal of Ray Kroc—in the 2016 film, The Founder).
Core Process
Structure forms around an organization's basic method of transforming raw materials into finished products. Every organization has at least one core technology that includes raw materials, activities that turn inputs into outputs, and underlying beliefs about the links among inputs, activities, and outcomes (Dornbusch and Scott, 1975).
Core technologies vary in clarity, predictability, and effectiveness. Assembling a Big Mac is relatively routine and programmable. The task is clear, most potential problems are known in advance, and the probability of success is high. Its relatively simple core technology allows McDonald's to rely mostly on vertical coordination.
In contrast, Harvard's two core processes—research and teaching—are far more complex and less predictable. Teaching objectives are knotty and amorphous. Unlike hamburger buns, students are active agents. Which teaching strategies best yield desired results is more a matter of faith than of fact. Even if students could be molded predictably, mystery surrounds the knowledge and skills they will need to succeed in life. This uncertain technology, greatly dependent on the skills and knowledge of highly educated professionals, is a key source of Harvard's loosely coordinated structure.
Core technologies often evolve, and significant technical innovation calls for corresponding structural alterations (Barley, 1990). In recent decades, struggles to integrate new technologies have become a fateful reality for many firms (Christensen, 1997; Henderson and Clark, 1990). Existing arrangements often get in the way. Companies are tempted to shoehorn innovative technologies into a box that fits their existing operations. As we saw with the decline and fall of Kodak, a change from film to digital photography, slide rules to calculators, or “snail mail” to email gives an advantage to new players less committed to the old ways. In his study of the disk drive industry from 1975 to 1994, Christensen (1997) found that innovation in established firms was often blocked less by technical challenges than by marketers who argued, “Our customers don't want it.” By the time the customers did want it, someone else had grabbed the market.
Some organizations are more susceptible than others to outside influences. Public schools, for example, are highly vulnerable to external pressures because they have limited capacity to claim the resources they need or to shape the results they are supposed to produce. In contrast, an institution like Harvard is insulated from such intrusions by its size, elite status, and large endowment. It can afford to offer low teaching loads, generous salaries, and substantial autonomy to its faculty. A Harvard diploma is taken as sufficient evidence that instruction is having its desired effect.
Strategy and Goals
Strategic decisions are future‐oriented, concerned with long‐term direction (Chandler, 1962; Mintzberg, 1994; Roberts, 2004). Across sectors, a major task of organizational leadership is “the determination of long‐range goals and objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for carrying out these goals” (Chandler, 1962, p. 13).
A variety of goals are embedded in strategy. In business firms,