Organization Structure, Behavioral Factors and Performance Management - Literature review Example

Organization Structure, Behavioral Factors and Performance Management Name: Institutional affiliation: Table of Contents Conceptualization of Organizational Structure 9 Impacts of Organizational Structure on Performance Management 11 Conceptual/Analytical Framework for the Study 16 Theories of Variables 17 Theoretical Premise of the Study 17 Variable Prediction Framework 17 Hypotheses 17 References 19 Abstract Performance management is influenced by organizational structure and behaviour of employees, especially behaviours of managers. The study is about the relationship between performance management, dependent variable, and organizational structure and behavioural factors, which are independent variables. Some of the behavioural factors affecting performance management are accountability, managerial styles, communication, attributes of a managers and relationship between managers and staff. Both mechanistic and organic structures also have impact on performance management through their dimensions like centralization, formalization and specialization. The theories that explain the relationship between variables include organization, contingency, systems and goal oriented. The study has six hypotheses, which are formulated from the relationships between variables. Introduction Every organization has one main objective, to maximize its productivity through the use of available resources (Brudan, 2010). The resources include human and physical resources like machine and materials, and financial resources. Apart from human resources, other resources are non-living, which makes non-human resources useless without manpower. Therefore, manpower is the most critical resource for the success of an organization while at the same time it is the most complex to manage (Jones, & Kato, 2008). However, the productivity of human resource can be enhanced through effective performance management. The literature review, therefore, focus on the relationship between organizational structure, behavioural factors and performance management in manufacturing firms. Conceptualization The research is about the relationship between organization structure and performance management. The independent variable in this case is performance management while organizational structure is independent variable. Organization structure influence behavioural factors in an organization, which makes behavioural factors intermediate variable. Basically, performance management refers to the process of setting goals and objectives and assessing the performance of employees to ensure that they meet the set objective. This study takes performance management to mean a process in which managers and employees work together to plan monitor, and review employees’ work objectives and their general contribution in meeting the goals and objectives set by manufacturing firms. Organization structure, on the other hand, refers to how roles, authority, and responsibilities are entrusted, controlled and coordinated, and the nature of communication and decision-making in various levels of managements in manufacturing firms. Organizational structure influence behavioural factors like communication, managerial styles, superior-subordinate relationship, accountability, and managerial attributes, which in turn affect performance management. The study, therefore, determines the relationship between organizational structure, behavioural factors, and performance management. Accountability refers to the obligation of an employee to the account and takes responsibility for the task he is doing, and to disclose output in a transparent manner (Mausethagen, 2013). Complex organization structures especially those that have function and line business departments, and other sub-divisions like head office, field departments, and other teams do negatively affect accountability. Mahri et al. (2013) stated that complex structure makes it hard to nail down accountability, especially when the units have distinct priorities. The inability to hold for managers to be accountable for their work creates laxity and they may not effectively play their performance management roles like mentoring employees, creating training and development programs, and setting attainable objectives. There are two main managerial styles that affect performance management and they include transactional leadership and transformational. Transactional leadership is based on the assumptions that employees are motivated through reward and punishment, and that organization systems work best under clear chain of command. Therefore, transactional managerial style stipulates that it is the responsibility of staff to do exactly what the management wants them to do. Transformational managerial style, on the other hand is characterized by idealized influence, inspiring and motivating employees, and intellectual stimulation. Transformational manager incorporate creative insight and he is sensitive to the needs of employees in an organization. It therefore encourages close and open communication between the management and staff to achieve the set objectives. Therefore, Bourdeau & Barki (2013) argued that effective management styles directly influences employees’ satisfaction, which is important in improving their performance. However, it is the organizational structure of a company that determines whether managers adopt transactional or transformational management styles. According to Vărzaru and Vărzaru (2013), mechanistic organization structures promote transactional managerial style because the relationship between individuals and between management and staff is based on obedience with little initiative, and with increased fear of penalty. Organic structure, on the other hand, promotes transformational managerial style because the relationship is based on interdependence between the management and employees (Vărzaru & Vărzaru, 2013). The ability of a manager to effectively manage employees depends with his ability to establish a collaborative and beneficial relationship with them. Transformational leadership style has the potential of inspiring workers to improve their efficiency, making them to achieve goals and objectives of a firm. It motivates, appreciate, and develop employees by making them believe and internalize the fact that organization goals overpass their individual interest (Yeh, 2008). Further, transformational manager is able to lead a high level of psychological needs and commitment of workers to an organization, which is important in improving performance management (Bohara & Tiwari, 2015). Balke (2012) further stated that managerial style that only focuses on a closed and hierarchical superior-subordinate relationship like transactional negatively affects management performance. Organization structures that encourage open communication between the management and staff always create a conducive working environment, which enhances performance management because managers can freely interact with staff (Meuter et al., 2015). Mechanistic organizations encourage formal and hierarchical communication while organic structure encourages open and flat communication between the management and employees (Zbirenko & Andersson, 2014). Open communication enables management and staff to interact and understand what matters in achieving goals and objectives set by an organization. It also allows all stakeholders to be on the same page and move and move on the same direction, which promotes effective performance management. Open communication between the management and employees also helps workers to easily adapt to changes that are taking place within the organization. According to Spinosa, Nan and Carmel (2015), communication is always the ribbon that connects the management and employee and it directly influences the success and performance management of organizations. A manager should be understanding and sensitive to the things that affect employees that may prevent them from achieving the set target for him to identify areas that need improvement in enhancing performance management (Koech & Namusonge, 2012). However, it is the organizational structure that determines how managers relate with other employees. Open structure encourages personal relationship between management and employees while close structure deters close relationships. A good manager knows when to initiate employee development programs to boost their performance (Obiwuru et al., 2011). Akdol and Arikboga (2015) argued that manager’s attitude is important in creating a favourable environment for other employees to accomplish their tasks. Managers feel motivated in a mechanistic structure where they have the authority to make key decision affecting his junior than in an organic structure where the authority and power is decentralized. In manager with authority is motivated to carry out his responsibility than a manager with less authority, which in turn affects their attitudes. A motivated manager is effective and efficient in discharging his duty, which is crucial in improving performance management. Jordan and Audia (2012) added that a manager should actively be involved and committed to his work to inspire his junior to work hard and smart for the success of a company. However, according to Al-Qatawneh (2014), there is a positive relationship between manager’s commitment to his work and centralization of an organization. Managers are more committed in hierarchical and centralized organizations with written rules and standard procedures of operation than in decentralized systems. A committed manager is active, efficient and effective in carrying out his duties like coaching employees, attending to the social and psychological needs of employees, and setting realistic and attainable goals, which are important in improving performance management. The beneficial relationship between manager-employees is important in ensuring effective performance management. However, organizational structure plays a significant role in determining the type of relationship between management and employees. Mechanistic organizations are bureaucratic and centralized with close communication between managers and employees. Consequently, employees cede all authorities to the management and they are under obligation to only do what managers are saying. It therefore hinders personal and open relationship between the management and staff, which is important in identifying areas that need improvement leading to effective management. Organic structure, on the other hand, is decentralized and it allows close relationship between the management and staff. Therefore, managers can easily identify key areas that should be worked on to improve performance management. Employee involvement has a significant positive impact on performance management of a business (Jones & Kato, 2008). But employee involvement depends on the organizational structure. Organic structure encourages employee involvement in all aspects while mechanistic limit employee involvement in key decisions of the organization. Elsaid, Okasha and Abdelghaly (2013) opined that employees feel valued when they are asked to contribute in key decisions in a firm, which ends up boosting their work satisfaction and the effort and time they dedicate to their assigned task. Managers who have the ability delegate duties to junior staff and involve them in the decision making can easily enhance employee contribution to goal setting, receiving feedback or actively participating in performance appraisal interview than a manager who does everything alone. Employees who feel empowered are dedicated, have less absenteeism cases, concerned about their work and the organization, and show less resistance to organizational changes (Khattaket al., 2013).Shifting powers and responsibility from high to low levels in an organization is important in improving performance management. Conceptualization of Organizational Structure Organizational structure is crucial in the general design of a company. It refers to a system of relationship between goals and objectives of an organization and its various parts (Kanten, Kanten & Gurlek, 2015). The main function of organizational structure is to distribute tasks among members of an organization to direct operations and attain its primary objective. There must be a hierarchical command system in an organization for it to be functional. Organizational structure influences the behaviour and performance of a company because it is the foundation in which an organization operates and functions (Song, Wei, & Wang, 2015).Organizational structure has two main functions that influence behaviour of employees and performance of firms. The first function is to regulate various influences that specific employees have in an organization. Secondly, organization structure is the setting that enables power to be executed in an organization and by various individuals (Mendoza, 2015). Therefore, organizational structure has a lot of effects on the performance of any organizations. There are two broad categories of organizational structure, which include mechanistic and organic structure. Mechanistic refers to a bureaucratic and hierarchical structure that is centralized, formalized, and has specialized function (Dust, Resick& Mawritz, 2014). Organic, on the other hand, is a flat structure with horizontal and interaction between the management and staff. The two structures can be applied in any organization, but mechanistic is common in manufacturing firms while organic is common in service industry. According to Dust, Resick and Mawritz(2014) mechanistic structure is characterized by strict division of labour where every employee works on their assigned roles within the organization because of individual specialization. There is also little interaction between the management and staff due to limited and vertical communication. Mechanistic structures also follow strict company policies and standards. However, in organic structure, employees always work in groups where they share responsibilities due to joint specialization (Dust, Resick and Mawritz, 2014. The structure always has open and lateral communication between employees, management and owners. Open communication and sharing of responsibilities make organic organizations flexible and they can easily adapt to change. Decision-making in a mechanistic organization is top-down due to high centralization while in organic structure the management and executive delegate most tasks to junior employees because of decentralization of systems. The dimensions of organizational structure that affect the performance management include specialization, centralization, and formalization (Mendoza, 2015). Specialization refers to the different job titles or functional activities that a company pursues. Centralization refers to the dimension where decision making is cantered at the top hierarchy of an organization (Mendoza, 2015). Decision-making is easier and faster in centralized structure than in decentralized structure, which may end up boosting performance in a situation where there is a need for a quick decision (Mendoza, 2015). Impacts of Organizational Structure on Performance Management The importance of organizational structure in an organization is always overlooked in performance management. The primary role of a manager is to define and design organizational structure that is geared towards the primary objective of a company and which can enhance performance (Schwepker & Schultz, 2015). The traditional or mechanistic structure has a long and complex administrative structure with strict job specialization under complex rules that hinder performance management due to lack of flexibility. Organic organizations experience higher management performance than mechanistic because it motivates the management and staff to share thought, ideas and problems that may prevent them from achieving the set objectives. According to Latifi and Shooshtarian (2014), a study carried out in 80 British companies showed that small companies experience high performance management with minimal formalization while larger companies achieve higher performance management with formalized structure. Latifi and Shooshtarian (2014) further stated that formalization can also limit job scope, leading to boredom, isolation, increased absenteeism, and job dissatisfaction, which hinder performance management. However, according to Phillips and Gully (2012), formalization enhances decision making because rules, procedures, and communication are formally written down. Formalization is characterized by little flexibility in decision making due to its explicit rules and the management rarely consult with subordinates when it comes to decision making (Phillips & Gully, 2012). There is a significant relationship between organizational structure and the level of trust and job satisfaction among employees (Latifi and Shooshtarian 2014). In knowledge intensive industry, organizational structure affects performance management through innovation and learning within the organization. However, in a labour intensive industry, the organizational structure affects performance management through innovation. Performance management in a highly centralized organization is more resilient than the decentralized and more flexible structure (Latifi and Shooshtarian 2014). A study done in Iran showed that there is negative relationship between complexity and effectiveness of communication. Centralization also hinders effective communication, leading to poor performance of a firm. Vertical and horizontal boundaries in an organization negatively affect performance management because they hinder effective communication between the management and staff. Various studies have shown that there is insignificant relationship between specialization and performance management (Latifi and Shooshtarian, 2014). However, specialization is believed to improve performance management in an organization because it enhances creativity and innovation among employees. The evidence, therefore, shows that formalization, centralization, and specialization affect performance management negatively or positively. Theoretical Framework According to system theory, an organizational structure is a system of relationship among various parts of an organization, especially the pattern of relationship and responsibilities assigned to various departments and individuals (Trauth, 2013). The proponents of the theory argue that firms are always open and they are influenced by the surrounding environment where complex environment leads to greater differentiation. System theory states that organizations are adapting to the changing environments and they are changing from mechanistic structure to organic structure. The theory states that organic structures are advantageous because they are dynamic and flexible, which helps in improving performance management. People are also less satisfied with their jobs in a highly structured organization like mechanistic organizations than in organic organizations. Structural deficiencies lead to low morale and motivation, slow decision making, poor coordination and increased conflict, and inefficient use of limited available resources, leading to wastage (Trauth, 2013). Organizational structure, therefore, influence behavioural factors, which as a result affects performance management. Large organizations also have the tendency of having a more centralized and increased specialization of roles to increase efficiency in carrying out duties and performance management. Lack of variety in an organization can also affect performance management because it develops less motivating environment, which may hinder performance management. Goal setting theory is based on the premise that clear and conscious goals affect actions taken, which in turn affect the performance management of an organization (Trauth, 2013). The theory argues that effective goal setting is only beneficial to an organization if employees empowered and have the authority to control what they are doing. The theory encourages organizations organizational structure that involves all stakeholders in setting goals and makes all stakeholders to internalize the goals to avoid conflicting goals that may hinder performance (Brudan, 2010). Figure 1: Conceptual model of performance management and role of OS and behavioural factors Dependent Variable Primary independent Variable Intermediate variables Conceptual/Analytical Framework for the Study The dependent variable in this case in performance management and it is influenced by both organizational structure as a primary independent variable and behavioural factors as intermediate independent variables. Organizational structure either promotes or hinders performance management through its dimensions like centralization, formalization, and specialization. Behavioural factors are influenced by organizational structure, but they affect performance management. Some of the behavioural factors include accountability, managerial styles, decision-making, and employment involvement. The main objective of performance management is to improve performance. Theories of Variables There are three main variables in this case and they include organizational structure, performance management, and behavioural factors. The theories of the three variables are discussed under theoretical framework section of this research. They include organizational theory, contingency theory, systems theory, and goal setting theories. Theoretical Premise of the Study The study is based on the theoretical concepts that advocates for effective organizational structure and favourable behaviours in enhancing performance. Mechanistic structure is believed be classical organizational structure and it hinders performance due to centralization and closeness of organizations. Organic structure is better in improving performance because of openness, flexibility, and personal relationship between management and staff (Brudan, 2010). Variable Prediction Framework There are many variables in this study that can be predicted. First, there is a positive relationship between formalization and performance management because of flexibility, employee involvement and open communication. Secondly, there is a negative relationship between centralization and performance. Thirdly, specialization has no significant effect on performance management. Favourable behaviours like accountability, effective communication and beneficial relationship between the management and employees improve performance. Hypotheses H1: The higher the decision-making flexibility afforded by the organic structure, the higher the performance measurement/information used by managers. H2: Manufacturing firms with organic structures promote performance management through innovation and creativity among managers. H3: Mechanistic organizations with complex and bureaucratic organization structures reduce accountability leading to poor performance management. H4: There is high performance management in manufacturing firms with organic structure than those with mechanistic structure. H5: Increased specialization in both mechanistic and organic organizations has no significant effect on the performance management. H6: Formalization in a mechanistic structure encourages quick decision-making in manufacturing firms leading to effective performance management implementation. Flexible decision-making is very important in improving performance management in manufacturing firms because they can easily adapt to both internal and external changes and pressure. Organic structure allows sharing of thoughts and ideas among employees involved in performance management, which in turn leads to creativity and innovations. It is only through sharing that the management is able to come up with new ways of solving issues hindering effective performance management. Some mechanistic organizations have many departments and units that make it hard to monitor accountability, especially in bureaucratic systems. Lack of accountability among employees hinders performance management. Manufacturing firms with organic structure experience high performance management compared to mechanistic firms because of the flexibility in decision making, open communication, and increased accountability. However, specialization has no major effect on performance management. Formalization set standard behaviours and procedures in the organization, which must be followed by all employees. It is majorly the management that that is involved in decision making and they do not have to consult with the subordinates, thereby leading to quick decision making. Quick and timely decisions enhance performance management. References Akdol, B., & Arikboga, F. S. (2015). The Effects of Leader Behavior on Job Satisfaction: A Research on Technology Fast50 Turkey Companies. 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Effect of organizational structure, leadership and communication on efficiency and productivity: A qualitative study of a public health-care organization. Read More