17.
A Formal Theory of
Differentiation in Organizations
T h e o b jectiv e of th is p ap e r is to develop a d eductiv e th eo ry of th e formal
s tru c tu re o f w ork o rg an izatio n s, th a t is, o rganizations d elib erately established
fo r ex p licit purposes a n d com posed of em ployees. T h e d ifferentiation of a
fo rm a l o rg a n iz a tio n in to com ponents in term s of several dim ensions—spatial,
o c c u p a tio n a l, h ie ra rc h ic a l, fu n c tio n a l— is considered to co n stitu te the core
o f its stru c tu re . T h e theory is lim ited to m a jo r anteced en ts an d consequences
o f stru c tu ra l d iffe ren tia tio n . I t has been derived from th e em pirical results
o f a q u a n tita tiv e stu d y of g o v ern m en t bureaus. T h e extensive analysis of
these e m p iric a l d a ta on the in te rre latio n s betw een o rg an izatio n al charac­
teristics, too le n g th y for p resen tatio n in an article, is rep o rted elsewhere.1
T h e to p ic o f this p a p e r is n o t the analysis of th e research findings but the
O riginally published in 1970.
1 Peter M . Blau and Richard A. Schoenherr, The Structure oj Organizations (New York.
Basic Books, 1971). T h e asistance of Sheila R. K latzky with this research is gratefully
acknowledged, and so is grant CS-553 of the National Science Foundation, the source of
support of the Comparative Organization Research Program at the University of Chicago,
of which this is report No. 11.
297
I/i* t i n » n i l S l i m l i n n « / ( > i | n n l i i i l i i i i i i
«Irilut d v r tlirm y lliiil <tin l>r I n lr n r il fio m liirlit a n d th a t th fre io re explains
llirm mill llir |titiiillrl r i n p itn .il i r ^ iilm in n ih iil th e th e o ry p red icts to exist
In n iliri wuiL tM «i«iii/iilliiiii AltIioiiffh th e fin d in g s a re n o t fully presented,
1 1i p irlrv itiii r 111| ill it it 1 ir U llo iu h ip s observed a r c c ite d , since they are the
li.nna ill th r ilirm rlii nl k <-i i c i alizatio n s a d v a n c e d , a n d since th ey m ust logii i*lly follow fn iiii th e ir g e n e ra liz a tio n s to satisfy th e re q u ire m e n ts o f d ed u c­
tive tlieo iy ,
.
D e d u c tiv e T h e o r y
T h e c o n c ep tio n o f sy ste m a tic th eo ry a d o p te d is e x p lic a te d by B ra ith w a ite .1
A n e m p iric a l p ro p o sitio n c o n c c rn in g th e re la tio n s h ip b etw een tw o or m ore
v a ria b le s is ex p la in e d b y su b su m in g it u n d e r a m o re g en e ral proposition
fro m w h ich it ca n be lo g ic ally d eriv ed . A sy ste m a tic th e o ry is a set of such
logically in te rre la te d p ro p o sitio n s, all o f w h ic h p e r ta in to conn ectio n s be­
tw een a t le ast tw o v a ria b le s , a n d th e least g e n e ra l o f w h ich , b u t o nly those,
m u st b e em p irica lly d e m o n s tra b le . “ A scientific th e o ry is a d e d u c tiv e system
in w h ich o b serv ab le co n seq u e n ces logically follow fro m th e co n ju n ctio n of
ob serv ed facts w ith th e set o f fu n d a m e n ta l h y p o th e se s in th e system .” ’ T h e
th e o re tic a l g e n e ra liz a tio n s th a t ex p lain th e e m p iric a l fin d in g s a re in tu rn
ex p la in e d by su b su m in g th e m u n d e r still m o re g e n e ra l h ypotheses, so that
th e th e o re tic a l system m a y h a v e p ropositions o n se v eral levels o f ab stractio n .
T h e se prin cip les a p p ly n o t o n ly to u n iversal h y p o th e se s— if A, th en B— but
also to th e sta tistica l o nes c h a ra c te ristic o f th e so cial sciences'—the m ore A,
th e m o re likely is B.
T h e e x p la n a to ry th r u s t o f a fo rm a l th e o ry o f th is k in d resides com pletely
in th e g e n e ra lity o f th e th e o re tic a l p ro p o sitio n s a n d in th e fac t th a t th e em ­
p iric a l findings ca n be d e d u c e d fro m th e m in s tric t logic. T h e o riz in g in the
social sciences u su a lly assu m es n o t this fo rm o f a d e d u c tiv e m odel b u t w hat
K a p la n calls the p a tte r n m o d e l, ac co rd in g to w h ic h “ so m e th in g is explained
w h en it is so re la te d to a set o f o th e r elem e n ts th a t to g e th e r they co n stitu te
a unified system .” 4 T h e p sychological ex p e rie n c e o f g a in in g u n d ersta n d in g
b y th e su d d e n in sig h t th e th e o ry brings o f how p a r ts fit n e a tly in to a whole
is larg ely m issing in d e d u c tiv e th eo rizin g . I n s te a d , th e th e o rist’s aim is to
d isco v er a few th e o re tic a l g e n e ra liz a tio n s fro m w h ic h m a n y d iffe ren t em ­
* Richard B. Braithwaite, Scientific Explanation (Cambridge: University Press, 1953); see
al»o C arl G . Hempel and Paul Oppenheim, “ T he Logic of Explanation,” Philosophy oj
Sc it nee 15 (1948), 135-175; and K a r l R . Popper, T ht Logic of Scientific Discovery (New York.
Basic Book*, 1959).
* Braithwaite, op tit., p. 22.
* Abraham K aplan, T h t Conduct o j Inquiry (San Francisco: Chandler, 1964), p. 333.
I h c o r y o j Hi//«*« a<n I in lu m in i Ji ¿n nian ( in#m
pirical p ropositions c a n be d e riv e d . S tra n g e ua ¡1 m;iy »cem, the higher-level
hypotheses th a t ex p lain th e low er-level proposition» ¡»re accepted as valid
p u rely on the basis th a t they d o e x p la in them , in ilic «|xcifu: sense th a t they
logically im p ly th em , a n d w ith o u t in d e p e n d e n t em pirical evidence; whereas
ac c e p ta n c e o f th e low er-level p ro p o sitio n s th a t need to be explained is con­
tin g e n t on em p irica l e v id e n c e .5 In d e e d , th e reason for developing a deduc­
tive system is to e m p o w e r e m p iric a l findings, confirm ing low-level hypoth­
eses, in d ire ctly to estab lish a n a b s tra c t body o f ex planato ry theory, and em ­
p irical ev idence fo r a n y low er-level p ro p o sitio n strengthens confidence in all
p ro p o sitio ns.
I n B ra ith w a ite ’s w ords:
O n e o f the m ain purposes in organizing scientific hypotheses into
a deductive system is in o rd er th a t the direct evidence for each
low er-level hypothesis m ay become indirect evidence for all the
o th er lowest-level hypotheses; although no amount of empirical
evidence suffices to prove a n y o f the hypotheses in the system, yet
an y piece o f evidence for a n y p a rt o f the system helps toward
establishing the whole o f the system .'
In an a tte m p t to s ta rt b u ild in g a d e d u c tiv e theory of the form al structure
o f o rg an iz atio n s, th e o re tic al g e n e ra liz a tio n s ab o u t differentiation in the
stru c tu re a re inferred fro m a la rg e n u m b e r o f em pirical findings of a study
o f g o v ern m e n t bu reau s. S ev eral m idd le-lev el propositions are deduced from
tw o basic g en e raliz atio n s, a n d e m p iric a l findings supporting the derived
g en e raliz atio n s are cited . In a s m u c h as th e generalizations subsum e m any
em p irica lly d e m o n stra te d p ro p o sitio n s, th a t is, logically im ply them , they
e x p lain th ese em p irical reg u la ritie s. T h e r e are several crosswise connections
th a t stre n g th e n the in te rd e p e n d e n c e in th e theoretical system.
T h e aim , in sh o rt, is to d ev e lo p a sm all n u m b e r of interrelated general
p ro p o sitio ns th a t a c c o u n t for a c o n sid e ra b le v ariety of em pirical regularities
a b o u t d iffe ren tia tio n in o rg a n iz a tio n s. T h e co n trib u tio n the paper seeks to
m ak e rests n o t on the o rig in a lity o f th e p a rtic u la r propositions, several of
w h ich have been noted in th e lite r a tu r e , b u t on th e attem p t to derive lowerlevel p ro positions system atically fro m higher-level ones and thus to construct
a lim ited body o f c o h e re n t th e o ry th a t is su p p o rted by num erous em pirical
findings. T h e theory is ex p licitly co n fin ed to inferences from the most trust­
w o rth y an d p ro n o u n ce d e m p iric a l rela tio n sh ip s betw een organizational ch ar­
acteristics observed in 1,500 c o m p o n e n t o rganizations and th e 53 larger
g o v ern m e n t agencies to w h ich th e y b elong, in the hope th a t these strong
* Braichwaite, op cit., p. 303.
• Ibid., pp. 17-18.
iii I n in« III in i v n l i l r mu la i n Viii Irly ill <oi ii |ii ¡on) I pllc( I titiiln lyinu Torres
llm i w m iliI iil*i> lie in.m ill >1 in n llin lyjicN <>■ o i^ .iin atio n s th a n th e ones
ultiillril A <i'm< ul m oil pioponhioiiii li.ia b rcn co n d u c te d in an o th er stu d y of
......... ni Inn m u * of it d il l r m i l kind, hut only fu tu re research can
4 Hi
trll w lirth e i m id to w hich ex ten t the g en e raliz atio n s ad v a n c e d a re also
n|>|>lintl>lr to «till o th e r types o f o rg an izatio n s. Since th e th e o ry is restricted
lo I lie in te i d e p e n d e n c e am o n g relatively few factors, it ignores o th e r c o n d i­
tio n s o n w h ic h these fac to rs u n d o u b te d ly are d e p e n d e n t as w ell. T h u s , the
th e o ry p a y s n o a tte n tio n to th e influences o f the tech n o lo g y em p lo y ed , n o r
to th o se o f th e o rg a n iz a tio n ’s e n v iro n m en t. T h e assu m p tio n h ere is th a t such
o th e r in flu e n c e s m a y co m p le m e n t b u t d o n o t suppress those o f th e facto rs
in c o rp o r a te d in th e th e o ry , because these factors a re o f g re a t g en eral im ­
p o r ta n c e , a n d th e e m p iric a l d a ta a v a ila b le su p p o rt th is assu m p tio n .7
Itkaax
F o rm a l S tr u c tu r e
T h e f o rm a l s tr u c tu r e o f o rg a n iz a tio n s is con cep tu alized h ere m o re n arro w ly
th a n is u su a lly th e case.- T h e te rm social structure is often used b ro ad ly , an d
so m e tim e s loosely, to refer to th e co m m o n v alu e o rie n ta tio n s o f p eople, the
tr a d itio n a l in s titu tio n s in a society, c u ltu ra l no rm s a n d ro le ex p ectatio n s,
a n d n e a rly e v e ry th in g th a t p e rta in s to life in groups. B u t it h as a m o re spe­
cific m e a n in g . T h e gist o f a social stru c tu re is th a t people d iffer in sta tu s an d
so c ial a ffilia tio n , th a t th e y o ccu p y d iffe ren t positions a n d ran k s, an d th a t
th e y b e lo n g to d iffe re n t g ro u p s a n d su b u n its of v arious sorts. T h e fact th a t
th e m e m b e rs o f a collectiv ity a re d iffe ren tia te d on th e basis o f several in d e­
p e n d e n t d im e n sio n s is th e fo u n d a tio n o f the co llectiv ity ’s social stru c tu re .
T h is d iffe re n tia tio n in to c o m p o n en ts alo n g v arious lines in o rg an iz atio n s is
th e o b je c t o f th e p re se n t analysis. T h e theory cen ters a tte n tio n on th e social
forces t h a t g o v ern th e in te rre la tio n s am o n g d iffe ren tia te d elem en ts in a for­
m a l s tr u c tu re a n d ignores th e psychological forces th a t g o v ern in d iv id u al
b e h a v io r. F o rm a l stru c tu re s ex h ib it reg u larities th a t c a n be stu d ied in th eir
o w n r ig h t w ith o u t in v estig atin g th e m otives of the in d iv id u als in o rg a ­
n iz a tio n s.
F o rm a l o rg a n iz a tio n s ro p e w ith th e diflicult p roblem s large-scale o p e ra ­
tio n s c r e a te by su b d iv id in g responsibilities in n u m e ro u s w ays an d th ereb y
f a c ilita tin g th e w ork o f an y o p e ra tin g em ployee, m a n a g e r, an d su b u n it in
th e o rg a n iz a tio n . T h e division o f la b o r typifies the im p ro v e m e n t in p e rfo rm ­
a n c e a tta in a b le th ro u g h subdivision. T h e m ore com p letely sim ple tasks are
* T h e research o f Blau and SchoenherT (op. cit.) presents data that show that the empirical
relationship» implied by the theory persist when important differences in technology and
numerous variation* in environmental conditions are controlled.
1 h r i t r y o j I h f j r t m t liiii iitu i n Drjfufiisalioru
301
sc[>arated fro m various kinds o f com plex otic*, tlic easier it is for unskilled
em ployees to perform th e rou tin e duties an d fo r skilled em ployees to acquire
ih c specialized train in g an d experience to p rifo rin the different com plex
ones. F u rth e r subdivision of responsibilities occu rs am ong fu n ctio n al divi­
sions, e n a b lin g each one to co n c en tra te o r c e rta in kinds of work. Local
b ran c h es m ay be established in d ifferen t places to facilitate serving clients
in v ario u s are as, an d these bran ch es m ay becom e functionally specialized.
T h e m a n a g e m e n t of such a d iffe ren tia te d s tru c tu re requires th a t m anagerial
responsibilities too becom e su bdivided am ong m a n ag e rs an d supervisors on
d iffe ren t h ie ra rc h ic al levels.
W e b er recognized th e v ita l im p o rta n c e the subdivision of responsibilities
h a s for ad m in istra tiv e o rg an iz atio n s a n d placed it first in his fam ous enu­
m e ra tio n o f th e ch aracteristics o f m odern b u re a u c ra c y .8 H is focus on a struc­
tu r e of d iffe ren tia te d responsibilities is also ev id en t in his em phasis on the
d iv isio n o f la b o r, specialized com petence, a n d p articu la rly the hierarchy of
a u th o r ity .9 A n a p p a re n t im p licatio n of this stress on stru ctu ral differences
is th a t th e analysis of d iffe ren tia tio n in th e fo rm al structu re constitutes the
c o re of th e system atic study of form al o rganizations, but W eber himself
d o es n o t p u rsu e this line of inqu iry . I t is the p rim a ry concern here.
T h e c e n tra l concept of d ifferen tiatio n in org an izatio n s m ust be clearly
d efin ed in term s th a t p erm it tran slatio n into o p e ra tio n a l m easures. A dim en­
sion of d iffe ren tia tio n is a n y criterion on the basis o f which the m em bers of
a n o rg a n iz a tio n are form ally d ivided into positions, as illustrated by the
d iv isio n of la b o r; or into ranks, n o ta b ly m a n a g e ria l levels; o r into subunits,
su ch as local branches, h e a d q u a rte rs divisions, o r sections w ithin branches
o r divisions. A stru c tu ra l co m p o n en t is e ith e r a distin ct official status (for
ex a m p le , em p lo y m en t interview er o r first-line supervisor) or a su b u n it in the
o rg a n iz a tio n (for exam ple, one b ran c h o r one division). T h e term differenti­
ation refers specifically to the n u m b e r of s tru c tu ra l com ponents th a t are
fo rm a lly d istinguished in term s of any one criterio n . T h e em pirical measures
used are n u m b e r of b ranches, n u m b e r o f o c c u p atio n al positions (division of
la b o r), n u m b e r o f h ie rarch ical levels, n u m b e r o f divisions, an d n u m b e r of
sections w ith in bran ch es o r divisions.
T h e research from w hich the theory of stru c tu ra l differentiation has been
d e riv e d is a stu d y of th e fifty-three em p lo y m en t security agencies in the
U n ite d S tate s, w hich a re responsible for ad m in isterin g unem ploym ent in­
* “ I. There is the principle o f fixed and official jurisdictional areas . . . 1. The regular
activities required for the purposes of the bureaucratically governed structure are dis­
tributed in fi fixed way as official duties” [M a x Weber, Essays in Sociology (New York.
O xford University Press, 1946), p. 196],
* lbid.t pp. 196-197; The Theory oj Social and Economic Organization (New York: Oxford
University Press, 1947), pp. 330-331.
302
T h e F o r m a l S t r u c t u r e o j O r g a n is a tio n s
s u ra n c e a n d p ro v id in g p u b lic e m p lo y m e n t services in th e fifty sta te s, the
D is tric t o f C o lu m b ia , P u e r to R ic o , a n d th e V irg in Islan d s.10 T h ese a re a u ­
to n o m o u s s ta te ag e n cies, a lth o u g h th ey o p e r a te u n d e r fe d e ra l law s a n d are
s u b je c t to so m e fe d e ra l su p e rv isio n . T h e e m p iric a l d a ta w ere co llected by a
te a m o f th re e re se a rc h a s sista n ts w h o visited ev ery agency in the c o u n try to
in te rv ie w key in fo rm a n ts a n d o b ta in d a ta fro m records. M o st of th e in fo rm a­
tio n a b o u t th e fo rm a l s tr u c tu r e com es fro m p erso n n e l lists a n d from e la b o ra te
o rg a n iz a tio n a l c h a rts sp e c ia lly p re p a re d fo r th e research , all of w h ich w ere
m u c h m o re d e ta ile d th a n th e c h a rts k e p t by th e agencies. In a d d itio n to
an a ly z in g th e fo rm a l s tr u c tu r e o f th e 53 to ta l agencies o r th e ir e n tire h e a d ­
q u a r te rs , th e s tr u c tu re o f th e 1,201 local b ra n c h e s an d th a t o f the 354 h e a d ­
q u a r te rs d iv isio n s w e re also a n a ly z e d ; th ese in c lu d e all local b ran c h es an d
h e a d q u a r te rs divisions in th e c o u n try m e e tin g m in im u m crite ria of size (five
em p lo y ees) a n d s tr u c tu re ( th re e h ie ra rc h ic a l levels). H e a d q u a rte rs divisions
w ere, m o re o v e r, d iv id e d o n th e basis o f th e ir fu n c tio n in to six types, m ak in g
it p o ssib le to a n a ly z e s tr u c tu r e w hile c o n tro llin g fu n ctio n . (T h e six types are
th e tw o b asic lin e f u n c tio n s — e m p lo y m e n t services an d u n e m p lo y m e n t in ­
s u ra n c e — a n d fo u r s ta ff fu n c tio n s — a d m in istra tiv e services, personnel and
te c h n ic a l, d a t a p ro cessin g , a n d legal services.)
F ir s t G e n e r a lis a tio n : S iz e a n d D iffe r e n tia tio n
Increasing size generates structural differentiation in organizations along various dimen­
sions at decelerating rates ( / ) . T h is is th e first fu n d a m e n ta l g en e raliz atio n in ­
fe rre d fro m th e e m p iric a l fin d in g s. F ro m it c a n be d ed u ced several m iddlera n g e p ro p o sitio n s, w h ic h su b su m e a d d itio n a l em p irica l findings. O n e can
co n s id e r th is th e o re tic a l g e n e ra liz a tio n a b o u t th e s tru c tu re of o rg an izatio n s
to c o m p rise th re e p a r ts , in w h ich case th e m iddle-level an d low er-level
p ro p o sitio n s a re d eriv e d fro m th e c o n ju n c tio n of th e th ree highest-level ones.
I n th is a lte r n a tiv e fo rm u la tio n , th e th re e highest-level propositions com posing
th e first b asic g e n e ra liz a tio n a b o u t th e fo rm a l s tru c tu re o f o rg an iz atio n s are:
(1A ) la rg e size p ro m o te s s tr u c tu ra l d iffe re n tia tio n ; (IB ) la rg e size prom otes
d iffe re n tia tio n alo n g se v eral d iffe re n t lines; a n d (1C ) th e ra te of d ifferen tia­
tio n d ec lin e s w ith e x p a n d in g size. T h e a s su m p tio n is th a t these g en eraliza­
tio n s a p p ly to th e su b u n its w ith in o rg a n iz a tio n s as well as to total org an iza’ • T h e -only agency excluded is the smallest one, on G uam , which has iesi than a dozen
employees, compared to 1,200 for the mean of the other agencies. In the four jurisdictions
in which unemploym ent insurance and employment services are carried out by s e p a r a t e
bureaus, they were combined for the purpose of the analysis, since it became evident that
theie two functions are hardly more separate there than in some other jurisdictions where
they are legally in the same bureau.
T h e o r y o f D i ffe r e n tia tio n in O r g a n is a tio n s
303
tio n s, w h ic h c a n b e m a d e explicit in a fo u rth proposition: (ID ) the subunits
in to w h ic h a n o rg a n iz a tio n is d iffe ren tia te d becom e intern ally differentiated
in p a ra lle l m a n n e r.
A c o n sid e ra b le n u m b e r of em p irica l findings on em ploym ent security
ag e n cies c a n be ac c o u n te d for by th e gen eralizatio n th a t differentiation in
o rg a n iz a tio n s in creases at decreasing rates w ith increasing size, and none of
th e r e le v a n t ev id en ce conflicts w ith this generalization. T h e operational defi­
n itio n o f size is n u m b e r of em ployees. W h e n to tal sta te agencies a re com ­
p a r e d , in creases in size a re accom panied by initially ra p id an d subsequently
m o re g r a d u a l increases in the n u m b e r of local branches in to w hich the agency
is s p a tia lly d iffe re n tia te d ; the n u m b e r of official occupatio n al positions ex­
p ressin g th e d ivision o f la b o r; the n u m b e r o f levels in th e hierarchy; the n u m ­
b e r o f fu n c tio n a l divisions a t th e h e a d q u a rte rs; an d th e n u m b er of sections
p e r d iv isio n . T h e p ro fo u n d im pact th a t'a g e n c y size has upon differentiation
is in d ic a te d by its correlatio n s o f .94 w ith n u m b e r of local offices; .78 with
o c c u p a tio n a l positions; .60 w ith h ie ra rc h ic al levels; and .38 w ith functional
d iv isio n s. L o g a rith m ic tran sfo rm atio n of size fu rth e r raises these correlations
(e x c e p t th e o n e w ith local offices); fo r ex am p le, th a t w ith num ber of divi­
sions b eco m es .54; a n d th a t w ith sections p er division, w hich was before an
in sig n ific a n t .16, is a fte r tran sfo rm atio n .43. T h e im provem ents in th e cor­
re la tio n s lo g a rith m ic tran sfo rm atio n of size achieves reflect the logarithm ic
sh a p e o f th e regression lines of the n u m b e rs of stru ctu ra l com ponents on size,
a n d th u s th e d ec lin in g ra te of d iffe ren tia tio n w ith expanding size. F or an
illu s tra tio n o f this p a tte rn , the sc a tte r d ia g ra m for agency size and n u m b er
o f h ie ra rc h ic a l levels is presented in F ig u re 17.1.
T h e in te rn a l d iffe re n tia tio n w ithin th e su b u n its th a t have become differ­
e n tia te d in th e agencies assum es th e sam e form . T h e la rg e r a local branch,
th e g r e a te r th e d iffe re n tia tio n in to o c c u p atio n al positions (r = .51), hier­
a rc h ic a l levels (.6 8 ), a n d functional sections (.61). T his differentiation occurs
a t d e c lin in g ra te s w ith increasing size (an d the correlations are somewhat
ra ise d w h e n size is lo g a rith m ically tra n sfo rm e d ). T h e scatter diagram of office
size a n d d ivision o f la b o r (occupational positions) in F igure 17.2 illustrates
th e lo g a rith m ic c u rv e expressing this p a tte r n .11 Sim ilar logarithm ic curves
c h a ra c te riz e th e d iffe ren tia tio n w ith in th e fun ctio n al divisions at the agency
h e a d q u a r te rs . T h e la rg e r a division, th e la rg e r is the n u m b e r of its occupa­
tio n a l p o sitions, h ie ra rc h ic a l levels, an d fu n ctio n al sections; an d differences
b etw e en v ery sm a ll a n d m edium -sized divisions have ag ain m ore im pact on
v a ria tio n s in these th re e aspects of d iffe ren tia tio n th an differences between
11 T h e curves shown arc rough estimates. They were drawn by dividing size into three
categories for Figure 17.1 and seven categories for Figure 17.2; determining the means for
both tize and the y-variable (ordinate) in each category; and making a smooth curve
between those points. T h e tame procedure is used for the other figures below.
.1414
lit* h u m a l S l i m liirr
( ) r |u i i l m l l w n
S iz e
F ig u r e 17.1.
Size o f agency and number o f hierarchical levels at headquarters.
m e d iu m -siz e d a n d v ery la rg e divisions. M o re o v e r, this te n d en c y fo r d iffer­
e n tia tio n a t d e c e le ra tin g ra te s to o cc u r w ith in c re asin g size is o b serv ab le in
six s e p a ra te types o f divisions w ith b asica lly d iffe re n t fu n ctio n s, w h ich sug­
g ests {h at it is in d e p e n d e n t of fu n c tio n a n d th u s provid es som e s u p p o rt for
th e c la im th a t th e sa m e te n d e n c y will be fo u n d in o th e r o rg a n iz a tio n s th a t
h a v e d iffe re n t fu n c tio n s fro m those o f e m p lo y m e n t secu rity ag e n cies.15
P r o p o s itio n 1.1: M a r g in a l I n flu e n c e o f S iz e
T h e first p ro p o sitio n th a t c a n be d e riv e d fro m th e first fu n d a m e n ta l g en e ral­
iz a tio n is th e fo llow ing: as th e size o f o rg a n iz a tio n s increases, its m a rg in al
11 T his pattern i i reflected in the finding that the logarithm ic transformation of size im­
proves its zero-order correlations, for all types of divisions combined, w ith division of labor
(from .64 to .76), hierarchical levels (from .71 to .85), and functional sections (from .38 to
.6 8 ). I f the six functional types are analyzed separately, logarithmic transformation of
size raises the corresponding correlations in fifteen of eighteen cases.
7 lie itr y o f D i f fe r e n t ia t i o n i n O r g a n iz a tio n s
S ize
F ig u re 17.2.
Size of local office and division of labor.
influence on d iffe re n tia tio n decreases (1.1). As a m a tte r of fact, this is hardly
a d eriv ed p ro p o sitio n , sin ce it is m erely a re sta te m e n t of one p a rt of the origi­
n al p ro p o sitio n (1 C ). B u t by tra n sla tin g th e in itial proposition into different
co n cep ts, th e n ew p ro p o sitio n directs a tte n tio n to a distinctive implication
a n d an im p o rta n t p a ra lle l w ith th e econom ic p rin cip le of diminishing re­
tu rn s o r, in te c h n ic a l te rm s, o f th e e v e n tu a lly d im in ish in g m arginal physical
p ro d u ctiv ity . I n th e w o rd s o f B oulding: “ As w e increase thè q u an tity of any
o n e in p u t w h ich is c o m b in e d w ith a fixed q u a n tity of the o th e r inputs, the
m a rg in a l physical p ro d u c tiv ity of th e v a ria b le in p u t m ust eventually de­
c lin e .» 15
11 Kenneth E. Boulding, Economic Analysis, 3d ed. (N rw York: Harper, 1955), p 589
p ersons fro m d ifferen t specialties a r e r a r e r th e re th a n in sm all ones, d esp ite
th e fac t th a t o p p o rtu n itie s fo r o u tg r o u p c o n ta c ts a re b e tte r in la rg e offices
too.
P r o p o s itio n 1.3: A d m i n i s tr a t iv e O v e r h e a d
A th ird d e riv e d pro p o sitio n is th a t th e p ro p o rtio n a te size o f th e a v e rag e
s tr u c tu ra l c o m p o n e n t, as d istin g u ish e d fro m its ab so lu te size, d ecreases w ith
increases in o rg a n iz a tio n a l size (1-3). T h is follow s d ire c tly fro m (1 A ): if the
n u m b e r o f s tru c tu ra l c o m p o n e n ts, th e c rite rio n o f d iffe re n tia tio n , increases
as o rg a n iz a tio n a l size does, th e p r o p o rtio n o f all em ployees w h o a re in the
av e ra g e c o m p o n e n t m u st d ec rease. H e n c e , m ost g ro u p s o r ca te g o rie s of
em p lo y ees in big o rg a n iz a tio n s a re la rg e r in ab so lu te n u m b e rs b u t co n stitu te
a sm aller p ro p o rtio n o f th e to ta l p e rso n n e l th a n in sm all o rg a n iz a tio n s. A
co n seq u e n ce is th a t th e a v e ra g e {mean) re la tiv e size o f em p lo y ee c o m p le ­
m e n ts on a giv en d im ension d ecreases w ith in c re asin g o rg a n iz a tio n a l size,
th o u g h n o t necessarily th e p ro p o rtio n o f an y p a r tic u la r c o m p le m e n t.
P u t w e m ay re fo rm u la te th is p ro p o sitio n (1.3) in to a p ro b a b ility sta te m e n t
a b o u t g ro u p in g s o f em ployees: ceteris paribus, c h a n c e e x p e c ta tio n s a re th a t
th e p r o p o rtio n a te size of an y p e rso n n e l c o m p le m e n t d ecreases w ith in c re a s­
in g o rg a n iz a tio n a l size. T h e e m p iric a l d a t a show th a t this p ro p o sitio n a p ­
plies to v ario u s kinds of a d m in is tra tiv e o v e rh e a d o r su p p o rtiv e services for the
m a jo rity w ork force. T h e size o f an a g e n c y is inversely re la te d to th e p ro ­
p o rtio n a te size o f its a d m in istra tiv e s ta ff (r = —.60) a n d o f its c o m p le m e n t
o f m a n a g e ria l personnel ( — .45). (T h e te rm s manager a n d supervisor, unless
q u alified , a re used in te rc h a n g e a b ly to re fe r to all levels.) T h e p ro p o rtio n of
m a n a g e rs is also inversely re la te d to size in local offices ( — .64) a n d in h e a d ­
q u a rte rs divisions regardless o f f u n c tio n .14
W h e n a c e rta in personnel c o m p le m e n t is singled o u t for a tte n tio n — the
sta ff o r th e m a n a g e ria l c o m p o n e n t— a n d ex h ib its th e ex p ected d ec rease in
p ro p o rtio n a te size w ith in creasin g o r g a n iz a tio n a l size, the re m a in d e r o f the
to ta l p e rso n n e l— th e line o r the n o n su p e rv iso ry em p lo y ees— m u st n a tu ra lly
rev eal a c o m p le m e n ta ry in c re ase in p r o p o rtio n a te size. T h is is m a th e m a ti­
ca lly in e v ita b le , a n d it in d ic ates th a t th e re fo rm u la te d p ro p o sitio n (1.3)
c a n n o t possibly ap p ly to b o th p a rts o f a d ic h o to m y . T h e p la u sib le a s su m p ­
tio n is th a t th e residual m a jo rity a c tu a lly consists o f n u m e ro u s p erso n n el
ca te g o rie s w h ile the specialized p erso n n e l c o m p le m e n t focused u p o n c a n be
tre a te d as a single one, w hich im p lies th a t th e p ro p o rtio n o f th e m in o rity
l * T h e zcro-ordcrcorrelations for the six types of divisions are: —.49 (employment services);
— .51 (unemployment insurance); —.30 (adm inistrative services); —.12 (personnel and
technical); —.18 (data processing); and —.36 (legal services). Size in all cases (agencies
and local offices as well as divisions) has been logarithm ically transformed.
T h e o r y o j D iffe ren tia tio n in O r j a n i s a l i o n a
co m p lem en t is th e o n e th a t should d ec rease w ith increasing organizational
size. T h e d a ta s u p p o rt this assum ption. I f em ployees in various organizational
u n its a re d iv id e d in to clerical an d professional personnel, the proportion of
w h ich ev er o f the tw o is in the m in o rity te n d s to decrease as unit size does.
T h e conclusion th a t m a y be d ra w n , w h ich e x ten d s beyond w hat can be
d eriv ed in strict logic fro m the prem ise, is th a t th e p ro p o rtio n ate size of any
su p p o rtiv e service p ro v id ed by a d istin ctiv e m in o rity to the m ajority work
force is likely to d eclin e w ith increasing o rg a n iz a tio n a l size.
P r o p o s itio n 1.4: S p a n o f C o n tro l
A n o th e r proposition c a n be derived e ith e r fro m th e last one (1.3) or from
th e one p rec ed in g (1.2): th e larg er th e o rg a n iz a tio n is, the w ider the super­
visory sp a n of co n tro l (1 .4 ). If chances a re th a t th e p ro p o rtio n ate size of any
o rg a n iz a tio n a l c o m p o n e n t declines w ith in c re asin g size (1.3), and if this
applies to the p ro p o rtio n o f m anagers, it follow s th a t th e n u m b er of subordi­
n ates per m a n ag e r, o r th e span of c o n tro l, m u st e x p a n d with increasing size
(1.4). Besides, if ch a n c e expectatio n s a re th a t th e absolute average size of
an y stru c tu ra l co m p o n en t o r g rouping of em ployees increases w ith increasing
(1.2), an d if this ap p lies to the v ario u s w ork g ro u p s assigned to super­
visors, it follow s th a t th e size of the g ro u p u n d e r ea c h supervisor, or his span
o f co n tro l, tends to e x p a n d w ith increasing size (1 .4 ). H ere again the logical
im plications specifying th e mean absolute a n d p ro p o rtio n a te size for all com­
p o n en ts have been tra n sla te d into probabilities o r statistical expectations re­
ferrin g to any co m p o n en t. W h e th e r these d e riv e d propositions apply to a
particular type o f p ersonnel com p o n en t, like th e m a n ag e ria l staff, must be
em p irically asce rta in e d . I f th e evidence is n e g a tiv e , it w ould n o t falsify the
theo ry , th o u g h it w ould w eaken it. I f th e ev id en c e is positive, it strengthens
the th eo ry , a n d m akes it possible to ex ten d it b ey o n d th e lim its of its purely
logical im p licatio n s by ta k in g into a c c o u n t th e em p irica l d a ta confirming
this p a rtic u la r a p p lic a tio n of the m erely sta tistic a l deduction from the
th e o ry .16
T h e em p irica l d a ta on em p lo y m en t se cu rity agencies confirm the proposi­
tion th a t the sp an of c o n tro l of supervisors e x p a n d s w'ith increasing organi­
** Tw o kinds of statistical or probability statements must be distinguished, empirical and
theoretical ones. O n the one hand, it ii only probable that any given large agency hai n
lower ratio of supervisors than any given small agency, since the correlation is less than
1.00; this empirical probability is not what is referred to in the text. O n the other hand, and
this is what is discussed above, it is only probable that the ratio of superviiory (lfrwinnel
is inversety related to agency size, since the theory only predicts that the pro|>ortuinalr nzr
of most components of the agency is inversely related to its own size and that it ii prubablf
that such an inverse relationship will be observed with respect to any particular ty|>f o!
component, such as the supervisory ratio.
mu
I'll« f 'u r n t a l .Struclur« « / O rfu iila a lio m
z a tio n a l size. T h is is th e case fo r all levels of m a n a g e rs an d su p erv iso rs ex ­
a m in e d in th ese agen cies a n d th e ir su b u n its. T h e la rg e r an ag e n cy , th e w id e r
is th e s p a n o f c o n tro l o f its d ire c to r a n d th e av e ra g e sp an of c o n tro l o f its
d iv isio n h e a d s. T h e la rg e r a h e a d q u a r te rs division, w h ate v er its fu n c tio n ,
th e w id e r is th e sp a n o f c o n tro l o f its division h ea d s, th e a v e ra g e sp a n o f
c o n tro l o f its m id d le m a n a g e rs, a n d th e a v e rag e sp a n o f co n tro l o f its first-lin e
su p erv iso rs. T h e la rg e r a lo cal office is, th e w ider is th e sp a n of c o n tro l o f th e
office m a n a g e r a n d th a t o f th e a v e ra g e first-line su p e rv iso r.,T M o re o v e r, th e
size o f th e to ta l o rg a n iz a tio n h as a n in d e p e n d e n t effect w id en in g th e s u p e r­
v iso ry s p a n o f c o n tro l in lo cal offices w h en th e ir ow n size is c o n tro lle d .18
Big o rg a n iz a tio n s a n d th e ir la rg e r h e a d q u a rte rs divisions a n d lo cal b ra n c h e s
te n d to h a v e m o re em ployees in a n y given position w ith sim ila r d u tie s th a n
sm a ll o rg a n iz a tio n s w ith th e ir sm a lle r su b u n its, as w e h av e seen, th u s m ak in g
it possible to use sup erv iso rs m o re efficiently in la rg e u n its by assig n in g m o re
su b o rd in a te s w ith sim ila r d u tie s to e a c h su pervisor.
T h e a d d itio n a l influ en ce o f th e size o f th e to ta l o rg a n iz a tio n , in d e p e n d e n t
o f th a t o f th e size o f th e office, on th e n u m b e r o f su b o rd in a te s p e r su p erv iso r,
m a y rev e al a s tru c tu ra l effect.11 T h e p rev a len c e o f a w ide sp an o f su p erv iso ry
c o n tro l in la rg e o rg a n iz a tio n s, ow ing to th e la rg e size o f m ost o f th e ir b ra n c h
offices, cre ate s a n o rm a tiv e s ta n d a r d th a t exerts a n influence in its o w n rig h t,
in c re asin g th e n u m b e r o f su b o rd in a te s assigned to supervisors; a n d th e sam e
is th e case, mutatis mutandis, fo r th e p rev a len c e o f a n a rro w su p erv iso ry sp an
o f c o n tro l in sm all o rg a n iz a tio n s w ith th e ir sm a lle r b ran ch es. T o d ire c t
a tte n tio n to th e s u b s ta n tia l influence o f o rg a n iz a tio n a l size on th e su p erv iso ry
sp a n o f c o n tro l Is, o f course, n o t to d e n y th a t this s p a n is also in flu e n ced by
o th e r c o n d itio n s, su ch as th e n a tu re o f th e duties.
P r o p o s itio n s l .S a n d 1.6: E c o n o m y o f S ca le
i
O rg a n iz a tio n s e x h ib it an econom y o f scale in m a n a g e m e n t. T h is p ro p o sitio n
(1.5) is im p lic it in th e tw o foregoing ones. F o r if th e p ro p o rtio n o f m a n a g e ria l
*’ T h e zero-order correlation! of lize (log) o f the respective organizational units and mean
•pan of control o f varioui m anagen are: agency director, .39; head of division, from .22
to .44 for the lix functional ty p o ; middle managers in divisions, with one exception (.05)
from .17 to .78; first-line supervisors in divisions, from .39 to .69 in the six types; managers
of local offices, .40; and first-line supervisors in local offices, .66.
, ( In the m ultiple regression problem w ith the average span of control of the first-line
supervisors in each of the 1,201 local offices as dependent variable, and w ith office size
■ •4 a num ber o f other conditions controlled, the standardized regression coefficient of the
size o f the agency to which the local office belongs is .27 (the simple correlation :s .52).
• • See Peter M . Blau, “ Structural Effects,” American Sociological Rivicw 25 (1960), 178-193,
which is included bare ss Chapter 4.
T h e o r y o / D i f j c r m n l i a l l t t n in O r g a n i a a t h m a
an
p erso n n el d eclines w ith size (1.3) a n d th e ir sp a n o f con tro l ex p an d s w itli ti/.e
(1 .4 ), th is m eans th a t large-scale o p era tio n s red u c e the p ro p o rtio n ate size
o f th e a d m in istra tiv e ov erh ead , specifically, of the com plem en t o f m anagers
a n d supervisors. In fac t, th e relative size of a d m in istra tiv e overh ead of other
k in d s, su ch as sta ff a n d su p p o rtiv e perso n n el, also declines w ith increasing
size,- as h as been noted. T h e question arises w h eth e r this econom y of scale
in a d m in is tra tiv e o v erh e ad p roduces overall personnel econom ies with an
in c reasin g scale o f operatio n s. T h e d a t a on em p lo y m en t security agencies
a re eq u iv o c a l on this p o in t. T h e only index o f p erso n n el econom y available,
th e ra tio o f all em ployees engaged in u n e m p lo y m e n t benefit operations to the
n u m b e r o f clien ts served b y them , is inversely c o rre la te d w ith size, b u t with
a case b ase o f on ly 53 agencies the co rrela tio n is to o sm all ( —.14) to place
a n y co n fid ence in it. L o g arith m ic tran sfo rm atio n o f size raises th e correlation
to — .24, w h ich suggests th a t large size m ig h t red u c e the m an -h o u r costs of
b en efit o p e ra tio n s slightly.
W h e reas this finding is inconclusive, n o t inconclusive are th e num erous
findings th a t in d ic ate th a t the relative size of a d m in istra tiv e overhead de­
clines w ith increasin g o rg an iz atio n al size. L arge-scale o p eratio n s m ake it
possible to realize econom ies in m a n ag erial m anpow er. T h is can be explained
in term s o f th e g en e raliz atio n th a t th e n u m b e r o f s tru c tu ra l com ponents in­
creases a t a d ec lin in g r a te w ith increasing size (1), w hich im plies th a t the
size o f w ork g ro u p s u n d e r a supervisor, ju s t as th a t o f m ost personnel com­
p o n en ts, increases w ith increasing size, a n d th a t th e proportion of supervisors,
ju s t as th a t o f m ost personnel com ponents, decreases w ith increasing size,
a n d these rela tio n sh ip s a c c o u n t fo r th e econom y o f scale in m anagem ent.
A fin al d eriv e d proposition in this set is th a t th e econom y of scale in ad ­
m in istra tiv e o v erh e ad itself declines w ith increasing o rg an iz atio n al size (1.6).
T h is p ro p o sitio n follows fro m two p a rts o f th e basic gen eralizatio n (1A and
1C) in c o n ju n c tio n w ith one derived p ro p o sitio n (1.3). I f th e n u m b er of
s tru c tu ra l c o m p o n en ts increases w ith increasin g o rg an iz atio n al size (1 A),
the sta tistica l ex p e ctatio n is th a t the p ro p o rtio n a te size of a n y p articular
personnel co m p o n e n t decreases w ith size (1.3). T h e em p irical d a ta showed
th a t th e p ro p o rtio n o f m a n ag e ria l personnel an d th a t of sta ff personnel do
in fac t d ecrease as size increases, in ac c o rd a n c e w ith these expectations. But
since th e increase in th e n u m b e r of co m p o n en ts w ith e x p a n d in g size occurs
a t a d eclin in g r a te (1C ), th e decrease in th e p ro p o rtio n a te size of th e average
c o m p o n e n t, im p licit in this increase in n u m b e r, m u st also o ccu r a t a declin­
ing rate- w ith ex p a n d in g o rg an iz atio n al size. R e fo rm u la tio n in term s of
statistical p ro b a b ility yields th e proposition th a t ch a n ce expectations are
th a t th e p ro p o rtio n a te size o f any p a rtic u la r personnel com plem ent de­
creases a t a d ec eleratin g ra te as org an izatio n s becom e larger.
W h e th e r th is sta tistica l p ro p o sitio n a b o u t m o st p erso n n e l co m ponents
h o ld s tr u e fo r th e m a n a g e ria l a n d th e s ta ff co m p o n e n t is a n em p irica l q u es­
tio n , a n d th e a n sw e r is th a t it does. T h e p ro p o rtio n o f s ta ff p erso n n el d e ­
creases a t a d ec lin in g r a te as o rg a n iz a tio n a l size in creases (see F ig u re 17.3),
a n d so d o es th e p ro p o rtio n of m a n a g e ria l p erso n n el a t th e ag en cy h e a d ­
q u a r te r s as w ell a s in local offices (see F ig u re 17.4). T h e m a rg in a l pow er of
o rg a n iz a tio n a l size to p ro d u c e eco n o m ies in a d m in istra tiv e o v erh e ad d im in ­
ishes w ith g ro w in g size, ju s t as its m a rg in a l p o w er to g e n e r a te stru c tu ra l
d iffe re n tia tio n docs. B oth o f these p a tte r n s a re im p lied by th e g en e raliz atio n
th a t th e n u m b e r o f s tru c tu ra l c o m p o n e n ts in a n o rg a n iz a tio n increases a t a
d e c lin in g r a te w ith e x p a n d in g size.
T r a n s itio n
T h e s tr u c tu re o f fo rm a l o rg a n iz a tio n s seem s to u n d e rg o re p e a te d social
fission w ith g ro w th . I n a la rg e o rg a n iz a tio n , its b ro a d resp o n sib ilities tend
to b e su b d iv id e d to fa c ilita te th e ir p e rfo rm a n c e , a n d it th e re b y becom es
d iffe re n tia te d in to a n u m b e r o f s tr u c tu ra l co m p o n e n ts o f d iv e rse sorts. T h e
la rg e r a n o rg a n iz a tio n , how ever, th e la rg e r is ty p ic ally n o t o n ly th e n u m b e r
b u t also th e a v e ra g e size o f the c o m p o n e n ts in to w hich it is d iffe ren tia te d .
T h e s e la rg e r segm ents o f la rg e r o rg a n iz a tio n s, in tu rn , te n d to becom e in ­
te rn a lly d iffe re n tia te d alo n g vario u s lines. T h u s , th e process o f social fission
re c u rs w ith in th e d iffe re n tia te d u n its t h a t process has p ro d u c e d . D ifferenti-
36
30
I
c
0
0
1.000
3.000
3.000
4.000
6.000
6.000
Size
F ig u r e 17 J .
Size of agency and percent ita ff personnel.
7,000
8.000
9.000
T h e o r y o j D i f fe r e n t ia t i o n i n O r g a n iz a tio n s
313
Size
F ig u re 17.4.
Size of local office and percent supervisory personnel.
a tio n lessens th e difficulties th e p erfo rm an ce of duties entails by reducing
th e scope of th e responsibilities assigned to an y in d iv id u al or unit, but it
sim u ltan eously en h a n ce s th e co m p lex ity o f the stru c tu re . Social fission makes
m ost d u ties less co m p lex a t th e expense o f g rea ter stru c tu ra l complexity.
W h e n responsibilities becom e extensively subdivided , m any employees
w ill h av e the sam e d u tie s a n d en tire u n its will have sim ila r ones, which may
p ro d u c e savings in su pervisory m a n p o w e r. A t th e sam e tim e, however, the
g re a te r stru c tu ra l co m p lex ity im p licit in the p ro n o u n ce d subdivision o flarg e
o rg an iz atio n s intensifies p ro b lem s of co m m u n ic atio n an d coordination, which
m a k e new d em an d s on th e tim e of m a n ag e rs an d supervisors a t all levels.
I n sh o rt, the very d iffe re n tia tio n o f responsibilities th ro u g h which large
o rg an iz atio n s fa c ilita te th e p erfo rm an ce o f duties a n d reduce the need for
supervision creates fresh a d m in istra tiv e problem s fo r supervisory personnel.
T h e th eo ry presen ted so f a r acco u n ts fo r th e effect o f size on savings in
su p erv iso ry m a n p o w e r (1.4, 1.5) as w ell as for its effect on differentiation
(1A ), b u t it does n o t y et in c lu d e a n ex p licit proposition concerning the effect
o f d ifferen tiatio n o n su pervision a n d ad m in istra tio n .
T o be sure, th e analysis o f the pro p o sitio n th a t th e m arg in al influence of
an o rg a n iz a tio n ’s size on d iffe re n tia tio n declines w ith increasing size (1.1,)
h a s a lre ad y led to the inferen ce th a t d iffe ren tia tio n intensifies adm inistrative
p ro b lem s. T h e assu m p tio n is th a t th e problem s o f coo rd in atio n and com-
•inillli atliiii In illlli n itlM li il • i t i n l i m a li>m I • t •I) >•<<U i II* i I• lli>il i n n h
u t l i i t t i i i t m I ii i ilir i 111ll< i <
....... w I i k I i 1« • lie r r m i n i wliy i l i r liun>;iiutl
Influence ol iizc on d iffe re n tia tio n d ec lin e s w ith increasing size. T h e e x p a n d ­
ing size o f a n o rg a n iz a tio n is a so cial fo rce th a t prod u ces d iffe ren tia tio n .
T h e m o re d iffe re n tia te d a n o rg a n iz a tio n is, ac co rd in g to th is in te rp re ta tio n ,
th e m o re resistan ce a force m u s t o v e rc o m e to p ro d u c e still m o re d iffe re n tia ­
tio n , a n d th e m o re o f a n e x p a n sio n in size it th erefo re tak es to effect a given
in c re m e n t in d iffe re n tia tio n .
T h is in te rp re ta tio n seeks to e x p la in th e d ec eleratin g r a te a t w h ich in ­
creasin g size g e n e ra te s d iffe re n tia tio n in o rg an iz atio n s, b u t it c a n n o t be
logically d e d u c e d fro m th e p ro p o sitio n s re fe rrin g to this d e c e le ra tin g rate .
I t is im p o r ta n t in this c o n n e c tio n to k e e p in m in d the d istin ctio n betw een
in ferrin g a h ig h e r-o rd e r g e n e ra liz a tio n fro m a lo w er-o rd er p ro p o sitio n , in
an in d u c tiv e a rg u m e n t, a n d lo g ic ally d e riv in g a lo w er-o rd er fro m a h ig h e r­
o rd e r p ro p o sitio n , in d e d u c tiv e re a so n in g . W h a t is logically im p lied by the
g e n e ra liz a tio n th a t th e ra te o f d iffe re n tia tio n declines w ith ex p a n d in g size
(1 C ), as w ell as by th e d e riv e d p ro p o sitio n th a t th e m a rg in a l influence of
in creasin g size o n d iffe re n tia tio n d im in ish e s (1 .1 ), is th a t d iffe ren tia tio n
gives rise to some p ro b lem s a n d n ee d s th a t stifle th e fu rth e r d ev e lo p m e n t of
d iffe re n tia tio n , as in d ic ated by th e d e c re a sin g pow er of size to effect dif­
fe re n tia tio n . I t does n o t follow , th o u g h it is a p lau sib le in feren ce, th a t these
a r e p ro b lem s o f c o o rd in a tio n a n d c o m m u n ic a tio n calling for a d m in istra tiv e
so lu tio n s. H e n c e , a n o th e r basic g e n e ra liz a tio n is p o stu lated in c o rp o ratin g
these ideas, w h ich explains som e o f th e p ro p o sitio n s in th e first set, a n d w hich
in c o n ju n c tio n w ith e a rlie r p ro p o sitio n s yields th re e m ore d eriv e d p ro p o ­
sitions.
S e c o n d G e n e r a liz a tio n : D if f e r e n tia tio n a n d A d m in is tr a tio n
\
\
Structural differentiation in organizations enlarges the administrative component (2),
b ecau se th e intensified p ro b lem s o f c o o rd in a tio n a n d co m m u n ic a tio n in dif­
fe re n tia te d s tru c tu re s d e m a n d a d m in is tra tiv e a tte n tio n . In th is second fu n ­
d a m e n ta l g e n e ra liz a tio n o f th e d e d u c tiv e th e o ry , th e first p a r t subsum es
m a n y e m p iric a l findings, w h e re a s th e second p a r t in tro d u c es th eo retical
te rm s n o t in d e p e n d e n d y m e a su re d in th e rese arch b u t in ferred . T h e as­
su m p tio n s a re th a t d iffe re n tia tio n m a k es an o rg an iz atio n m o re com plex;
th a t a co m p lex s tru c tu re e n g e n d e rs p ro b le m s o f c o m m u n ic atio n a n d co o rd i­
n a tio n ; th a t these p roblem s c r e a te re sista n c e to f u rth e r d iffe re n tia tio n ; th a t
m a n ag e rs, th e staff, a n d ev e n first-lin e sup erv iso rs spend tim e d e a lin g with
these p ro b lem s; a n d th a t c o n s e q u e n tly m o re supervisory a n d ad m in istra tiv e
■“
'll'lli
N ' l l a l i m i III N i g i n l i < i t l i i i « i
|H
ii i »i111m ivvi i I t in -ill il I n 111^ 111y 11If 11 11 1111111> 11 M i i i i lim n limn I n It«* 11111f
n rtfiilril all u< h u m . A llliou^li llirnr i i h m i i ni|>(ituis uf tlir intciveiling cotincctions are n o t em p iric a lly tested, th e im p licatio n s of the conclusion are. If
in ac co rd an c e w ith th e inferred assu m p tio n s, m uch of the tim e of super­
visors on all levels in th e m ost d iffe re n tia te d structu res is occupied with
p ro b lem s o f c o m m u n ic a tio n a n d co o rd in a tio n , it follows th a t these super­
visors h ave less tim e le ft for guiding a n d review ing the work of subordinates.
H en ce, th e m o re d iffe ren tia te d th e fo rm a l stru c tu re , the m ore adminis­
tra tiv e personnel o f all k in d s should be fo u n d in an organization of a given
size, an d the n a rro w e r th e span o f co n tro l of first-line supervisors as v.ell as
h ig h e r m a n ag e rs. T h is is precisely th e p a tte rn th e em pirical findings reveal.
V e rtic a l d iffe re n tia tio n in to levels a n d h o rizo n tal differentiation into divi­
sions o r sections a re b o th positively re la te d to th e proportion of supervisors
a m o n g th e to ta l p erso n n e l, con tro llin g size, in th e whole organization, in
local b ran ch es, a n d in th e six fu n ctio n al types of head q u arters divisions.
T h e y a re also positively re la te d to th e p ro p o rtio n a te size of the staff in
ag en cies o f a given size.
M o reover, bo th v e rtic a l an d h o rizo n tal differen tiatio n , w ith size held con­
s ta n t, a re n egatively re la te d to the sp an of c o n tro l of m anagers and super­
visors on d iffe ren t levels in local offices a n d in h ead q u arters divisions,
reg ard less o f f u n c tio n .50 T h e finding th a t th e second generalization and its
d e riv a tio n s discussed below are su p p o rted w hen the span of control of super­
visors on a given level is su b stitu te d for the ra tio of all supervisors is of special
im p o rta n c e . T h e m ore levels o rg an izatio n s o f a given size have (other con­
d itio n s being e q u a l), th e la rg e r is necessarily th e proportion of their super­
visors, th a t is, of th e ir personnel above the lowest level. T h e positive relation­
sh ip of n u m b e r o f levels w ith p ro p o rtio n of supervisors does not merely
reflect this m a th e m a tic a l nexus, w hich w ould m ake it trivial, as dem on­
s tra te d by its positive rela tio n sh ip w ith supervisory span of control, which
is n o t affected by this nexus. H ence, th e em p irica l d a ta support the principle
th a t h ie ra rc h ic al as w ell as h orizontal d iffe ren tia tio n , presum ably by en­
g e n d e rin g p roblem s o f co o rd in a tio n , enlarges requirem en ts for managerial
m a n p o w e r.
30 T h is s ta te m e n t a n d th o se in th e p re c e d in g p a r a g r a p h a re based on several m ultiple
re g re ssio n an aly ses w ith size (lo g ) a n d a n u m b e r o f o th e r co n d itio n s controlled; two or
th r e e m easu res o f d if fe r e n tia tio n as th e in d e p e n d e n t v a ria b le s (levels, divisions, and sec­
tio n s p e r d iv isio n in ag e n c ie s; levels a n d se ctio n s in local offices a n d in divisions); and the
fo llo w in g d e p e n d e n t v a ria b le s ; for agcncies, m a n a g e ria l r a tio a n d staff ratio ; for local
o ffic e s, m a n a g e ria l ra tio , i p a n o f c o n tro l o f office m a n a g e r, an d m ean span of control of
first-lin e s u p c rv is o n ; for th e six types o f d iv isions, m a n a g e ria l ratio , span of control of
d iv isio n h e a d , m e a n sp a n o f c o n tro l o f m id d le m a n a g e rs, a n d m ean span of control of
first-lin e su p erv iso rs.
316
T h e f o r m a l S tru ctu re o f O r g a n iz a tio n s
P r o p o s itio n s 2.1 a n d 2 .2 : I n d ir e c t a n d D ire c t E f fe c ts o f S ize
O n e d e riv e d p ro p o sitio n is th a t th e la rg e size of a n o rg a n iz a tio n in d ire ctly
raises th e ra tio o f a d m in istra tiv e p erso n n e l th ro u g h th e s tru c tu ra l d iffe ren ­
tia tio n it g e n e ra te s (2 .1 ). I f in c re a sin g o rg a n iz a tio n a l size g en e rate s d iffer­
e n tia tio n ( I A ) , a n d if d iffe re n tia tio n increases th e a d m in is tra tiv e c o m p o n e n t
(2 ), it follow s th a t th e in d ire c t effect o f size m ust be to in crease th e a d m in is­
tr a tiv e c o m p o n e n t. D ec o m p o sitio n o f th e zero-order co rre la tio n s o f size w ith
v a rio u s ra tio s o f m a n a g e ria l a n d sta ff personnel in m u ltip le regression a n a ly ­
sis m a k es it possible to isolate th e in d ire c t effects o f size m e d iated by d iffer­
e n tia tio n fro m its d ire c t effects. In ev e ry problem an a ly z e d , th e em p irica l
fin d in g s c o n firm th e p re d ic tio n th a t th e indirect effects o f size m e d iated by
b o th v e rtic a l d iffe re n tia tio n in to levels a n d h o riz o n ta l d iffe ren tia tio n in to
d iv isio n s o r sections raise th e ra tio o f ad m in istra tiv e to to ta l personnel.
T h is is th e case w h e th e r th e d e p e n d e n t variable u n d e r co n sid eratio n is the
s ta ff r a tio o r th e m a n a g e ria l ra tio a t th e agency h e a d q u a rte rs ; th e ra tio of
su p e rv iso rs o n all levels; o r th e sp a n o f control o f first-lin e supervisors in
a n y o f th e six types o f fu n c tio n a l divisions or in lo cal b ran c h es. I n all these
in stan c es, th e in d ire c t effects o f size m e d iated by th e d iffe re n tia tio n it g en ­
e r a te s a n d its d ire c t effects a re in o p p o site directions. T h e savings in a d m in is­
tr a tiv e o v e rh e a d larg e -scale o p e ra tio n s m ake possible a re c o u n te ra c te d by
th e e x p a n sio n in a d m in istra tiv e o v e rh e a d the s tru c tu ra l co m p lex ity o f la rg e
o rg a n iz a tio n s necessitates.
A n o th e r d e riv e d p ro p o sitio n is th a t th e d irect effects o f la rg e o rg a n iz a ­
tio n a l size lo w erin g th e a d m in istra tiv e r a tio exceed its in d ire c t effects raisin g
it o w in g to th e s tr u c tu ra l d iffe re n tia tio n it generates (2 .2 ). T h is is a logical
c o n se q u e n c e o f p ro p o sitio n s (1.5) a n d (2 .1 ). I f th e o v era ll efTect o f larg e size
re d u c e s m a n a g e m e n t o v e rh e a d (1.5), a n d if large size, by fo sterin g d iffe ren ­
tia tio n , in d ire c tly increases m a n a g e m e n t overhead (2 .1 ), it follow s th a t its
effect o f re d u c in g o v e rh e a d m u st o u tw eig h this in d ire c t effect. A ll th e d e ­
co m p o sitio n s o f th e z e ro -o rd e r c o rre la tio n s of size w ith v ario u s m easures o f
m a n a g e m e n t reflect th is, as they in e v ita b ly m ust. F o r ex a m p le , th e d ire c t
e ffe c t o f a g e n cy size o n th e m a n a g e ria l ra tio at th e ag e n cy h e a d q u a rte rs,
w h ic h is re p re se n te d by th e s ta n d a rd iz e d regression coefficient w hen th ree
m e a su re s o f d iffe re n tia tio n a re c o n tro lle d , is — 1.13, w h ereas its o v erall
e ffe c t, in d ic a te d by th e z e ro -o rd e r c o rre la tio n , is — .45, th e d ifferen ce being
d u e to th e s tro n g c o u n te ra c tin g effect m e d iated by d iffe re n tia tio n .11 F o r the
« ta ff r a tio a t th e a g e n cy , w ith th e sa m e conditions c o n tro lle d , th e d ire c t
e ffe c t o f size is — 1.04, a n d its ov erall effect is —.60, re v e a lin g a g a in a su b ­
* T h e three aspects o f differentiation controlled in thi> problem, as well as in the one
mentioned in the next lentence, are number of (1) levels, (2 ) divisions, and (3) sections
per division
T h e o r y o f D i f fe r e n t ia t i o n in O r g a n iz a tio n s
317
sta n tia l in d ire c t c o u n te ra c tin g effect d u e to s tru c tu ra l differentiation. T h e
d ire c t a n d in d ire c t effect of th e size o f a division on its m a n ag e ria l ratio and
o f th e size o f a local office o n its m a n ag e ria l ra tio reveal p ara llel differences., ,
Ceteris paribus, a large scale o f o p era tio n s w ould effect trem endous savings
in a d m in istra tiv e o verhead, b u t these savings a re m u c h red u ced by the struc­
tu r a l d iffe ren tia tio n of la rg e o rg an izatio n s. C onsistently, how ever, the econo­
m ies o f scale exceed the costs o f d iffe ren tia tio n , so th a t large organizations,
d esp ite th e ir g re a te r stru c tu ra l com plexity, re q u ire p ro p o rtio n ately less ad ­
m in istra tiv e m a n p o w er th a n sm all ones.
P r o p o s itio n 2.3 : E x te n t a n d R a te o f E c o n o m y o f S cale
T h e last pro p o sitio n to be derived is th a t th e d ifferen tiatio n of large organiza­
tions in to su b u n its stems th e declin e in the econom y o f scale in m anagem ent
w ith in creasin g size, that is, the d eclin e in th e decrease in the proportion of
m a n a g e ria l personnel w ith in creasing size (2.3). T h e d eriv atio n of this propo­
sitio n is r a th e r com plicated a n d m ust be a p p ro a ch ed in several steps. T h e
new p ro p o sitio n is n o t as w ell k n it in to the system as the others and should
be re g a rd e d as a m ere conjectu re.
T h e c o n c e p t o f economy, of scale in ad m in istra tio n refers to the fact th at
th e p ro p o rtio n o f various kinds of ad m in istra tiv e personnel decreases with
th e in c reasin g size of the o rg an iz atio n o r its subunits. T h e o perational indi­
c a tio n is a n eg a tiv e correlatio n betw een any o f these p ro portions and size,
w h ich is rep rese n ted on a g ra p h by a negative slope of the regression line of
th e p ro p o rtio n on size. T hese n eg a tiv e co rrelations an d slopes a re evident in
all em p iric a l d a ta on em ploym ent security agencies: size of local branch an d
e ith e r p ro p o rtio n o f all m a n ag e ria l personnel o r ra tio of first-line supervisors
to o p e ra tin g em ployees (th e reverse o f span o f co n tro l); size of functional
d ivision a n d e ith e r ratio of all m a n ag e ria l personnel or ratio of supervisors
to su b o rd in a te s on three levels; size o f to ta l agen cy an d eith er proportion of
s ta ff p erso n n el, o r proportion of m a n a g e ria l personnel a t the headquarters,
o r p ro p o rtio n of m a n ag erial personnel in th e to ta l organization.
” In the multiple regression analyais for all divisions combined (with sections, levels,
clerical ratio, division of labor, agency size, and agency managerial ratio controlled), the
standardized regression coefficient indicating the direct effect of a division's size (log) o d
its managerial ratio is —1.32, and the zero-order correlation indicative of the overall
effect is only —.23, with differentiation into levels (.65) and sections (.35) being responsible
for most of the difference. The separate regression analyses for the six types yield parallel
results. In the analysis of local offices (w ith levels, sections, specialization, manager s span
of control, and division of labor controlled), the standardized regression coefficient of
office size (log) on the managerial ratio is —1.43, but this incredibly strong direct effect
is reduced to a still substantial overall effect, represented by the zero-order correlation of
—.64, most of the reduction being due to differentiation into levels (.41) and sections (.40).
A i li i lliii In <11la 11 lum m y ill in
,i|i
miiiiiii llii'l (lit m b «/ i l t i t r m t in i h r
iiiiii|> 1 1 1ii I | ri i ai tmif I ll nr 11 iltt i tin* i w 1111 hit i (Muiiifj; t i / r . I liii in
■>lli i ii il mi ii m1x | ilt liy ■» i hi v r In ilir n r ^ i i l i v r ulopr o f tlic i r ” i t anion line o f
t i n i .Min mi u * r • Ii n I iliuwii l l m t I lie rw io o f o v erh e ad perso n n el d ro p s first
ill ii 11 il y m nl I In i i i m i i i i fit lu.illy will) in creasing size. T h e p e r ce n t of su p erv liin i In Iim .il o l l i i r x llltm ii.tin h decrease a t such a d ec reasin g ra te (F ig u re
I / 4 ), nm l *i> il(K-n llir ra tio o f s ta ir p erso n n el in th e ag en cy (F ig u re 1 7 .3 )
nm l lli.tl o f the »ii|K-rvisors a t th e agency h e a d q u a rte rs (n o t sh o w n ), a n d th e
■•■me p a tte r n is o b se rv a b le in m ost o th e r rela tio n sh ip s m e n tio n e d in the
b 1k> vc p a r a g ra p h . T h e m a jo r ex ception is th a t th e p ro p o rtio n o f m a n ag e ria l
p e rso n n e l in th e to ta l agency does n o t rev eal such a d eclin in g r a te o f d ecrease
b u t a fa irly lin e a r d ecrease w ith in creasing ag e n cy size, as F ig u re 1 7 . 5 shows.
A lth o u g h th is a p p e a rs to b e a d e v ia n t case, th e p rin cip le it expresses c a n be
d e d u c e d fro m th e p ro p o sitio n s in th e th e o ry .
I n lo cal offices, th e sm allest o rg a n iz a tio n a l u n it ex a m in e d , th e p ro p o rtio n
o f a ll su p e rv iso ry p erso n n el d ro p s ra p id ly as size increases fro m ten , o r few er,
to a b o u t fifty em ployees, b u t it d ro p s m u c h m o re slow ly w ith f u rth e r increases
to o n e a n d tw o h u n d re d em ployees (see F ig u re 17.4). F ro m a p ro jectio n o f
th is tr e n d , o n e w o u ld ex p e ct th a t f u rth e r increases in size to several th o u san d
e m p lo y ee s a r e h a rd ly a c c o m p a n ie d by an y d ec lin e in th e p ro p o rtio n of
s u p e rv iso ry p erso n n el. As th e size o f th e e n tire o rg a n iz a tio n increases from
a b o u t o n e h u n d re d to several th o u sa n d em ployees, how ever, th e to ta l p ro ­
p o r tio n o f su p e rv iso ry p erso n n e l decreases on th e a v e rag e a t a c o n s ta n t ra th e r
th a n d e c lin in g ra te , as F ig u re 17.5 reveals, th o u g h th e re is m u ch scatter.
r n l l n nl
h i
Sue
F i g u r e 1 7 -5 .
S i m o f a g e n c y a n d p e r c e n t iu p e r v is o r y p e r s o n n e l in t o ta l a g e n c y .
A lth o u g h 111¡ n dci jfiir in m u
the zero-order correlation is
. .1, ¡1 fc liy mi
...... ........
.H'l, w l i i d i <i *111| i .i ■ i- h wllli u m i i h |,, u ,
.
— .46 betw een size o f oflice and its p ro p o rtio n of «upci vinoin, (I low rvci llir
la tte r c o rre la tio n is raised to —.64 if size is logarithm ically transform ed. In
co n tra st, th e fo rm e r co rrela tio n is red u c ed to —.23 b y such a transform ation
w h ich is a n o th e r in d ic a tio n th a t th e regression Jine does n o t exhibit a loga­
rith m ic c u rv e .) W h y does th e decrease in th e pro p o rtio n of m anagerial
personnel w ith in c reasin g size, w hich is alre ad y very sm all as office size ex­
p an d s b ey o n d fifty em ployees, n o t becom e virtu ally zero b u t is ag ain con­
sid erab le as ag e n cy size expands fro m several h u n d re d to several thousand?
T h e an sw er suggested by th e th eo ry is th a t th e d ifferen tiatio n of large or­
g an izatio n s in to m a n y b ran c h offices (a n d divisions), w hile raising th e p ro ­
p o rtio n of m a n a g e rs need ed , sim ultaneously restores the econom y of scale
in th e m a n a g e ria l c o m p o n en t, th a t is, it recreates th e decline in th e p ropor­
tio n of m a n a g e ria l personnel w ith increasing size observed am ong very small
o rg a n iz a tio n a l units.
T h e grow ing n eed fo r m a n ag e ria l m an p o w er resulting fro m th e stru ctu ral
d iffe ren tia tio n e n g e n d ered by ex p a n d in g size (2.1) increasingly impinges
up o n th e savings in m a n ag e ria l m a n p o w er th a t a larg e scale o f operations
realizes (1 .5 ), w hich helps to ex p lain w hy the econom y o f scale in m an ag e­
m e n t d eclines as size a n d d iffe ren tia tio n increase (1 .6 ).13 In oth er words,
th e rate of savings in m a n ag e m en t ov erh ead w ith increasing size is higher
am o n g c o m p a ra tiv e ly sm all than am o n g com paratively larg e organizational
u n its, a lth o u g h , o r p erh a p s because, the m anagem ent overhead is bigger in
sm all th a n in larg e o rg an izatio n al units. D ifferentiation in a large o rganiza­
tio n (1A) m e an s th a t it consists of relatively m any sm aller ra th e r th an rela­
tively few la rg e r o rg an iz atio n al su b u n its, such as local offices. In asm u ch as
th e rate of savings in m a n ag em en t o verhead is higher in sm aller th an in
la rg e r o rg a n iz a tio n a l units, the re d u c tio n in th e size o f u n its created by
d iffe re n tia tio n raises this ra te of savings a n d stem s the decline in the economy
o f scale w ith resp ect to m a n ag e m en t o verhead th a t w ould be otherw ise ex­
p ected once o rg a n iz a tio n s have g row n beyond a ce rtain size (2.3).
C o n c lu s io n s
A form al th e o ry o f the form al s tru c tu re of form al organ izatio n s has been
p resented. Its su b je c t is form ally established organizatio n s w ith paid em51 T h i s a l t e r n a t i v e d e r iv a tio n o f p ro p o s itio n ( 1 6 ) illu s tra te s th e ty p e o f c ro ssw ise c o n n e c ­
tio n s t h a t c r e a t e s a m o re c lo s e ly k ni t th e o r e tic a l sy ste m . O t h e r a h e r n a t iv e c o n n e c tio n s a re
p r e s e n te d in th e c o n c lu s io n !
I ' l<<r ' ♦«. m i l f i t i t iM’ iil i i h I il l y m r n u in v i i l t m l n i y MimiHftliiiiiK of p r o p l r . It
I* i «ii 1(1i n 11 i n ill« .in. 11y ■i ■ ill l l i r li ii 11in I Hi in Iiii r
l I n1 1<in
u l t i i ^i i i i l f Ml l mi a, i f
*| iri ifii ■«11y , it a i l i f l r i r n -
l l i r i i i l ni i i i . i l r r l i i t i o i i i n n t l b e h a v i o r o f
Ii i i 11v Ii Ii i it 1« wit lim i l i n r i i i if.m lr ul i m i i A n d th e e n d e a v o r has been to dev rlu ji u Im i m i I th r o iy liy •nfriTiiig fro m m a n y em p irica l findings a m in im u m
ii iiiii I m-i ol g rn e i iili/n tio n s llm t c a n lo g ically a c c o u n t fo r these findings.
T h ru - lim ling* co m e fro m a q u a n tita tiv e s tu d y o f all em p lo y m en t secu rity
a g rn t i n a n d th e ir s u b u n its in th e U n ite d S tate s. T h e tw o basic g e n e ra liz a ­
tio n s, fro m w h ic h n in e o th e r p ro p o sitio n s w ere d ed u c ed , a re : ( I) th e in c re as­
ing size o f o rg a n iz a tio n s g e n e ra te s s tr u c tu ra l d iffe re n tia tio n along v ario u s
d im e n sio n s a t d e c e le ra tin g ra te s; a n d (2) s tru c tu ra l d iffe ren tia tio n en larg es
th e a d m in is tra tiv e c o m p o n e n t in o rg a n iz a tio n s.
T h e c o n c lu d in g review o f th e th e o ry re a rra n g e s th e o rd e r o f p re se n ta tio n
o f p ro p o sitio n s to c a ll a tte n tio n to a lte rn a tiv e co n n e ctio n s betw een th e m a n d
to so m e o f th e u n m e a su re d te rm s assu m ed to u n d e rlie these co n n ectio n s.
O rg a n iz in g th e w o rk o f m e n m e an s su b d iv id in g it in to c o m p o n en t elem en ts.
I n a fo rm a l o rg a n iz a tio n , e x p lic it p ro c e d u re s exist fo r system atically su b ­
d iv id in g th e w o rk necessary to ac h ie v e its objectives. D ifferen t tasks are
assig n ed to d iffe re n t positions; specialized fu n ctio n s a re allo cated to v ario u s
d iv isio n s a n d sectio n s; b ra n c h e s m a y be c re a te d in d isp ersed lo catio n s; a d ­
m in is tra tiv e respo n sib ilities a r e su b d iv id e d am o n g sta ff personnel a n d m a n ­
ag e rs o n v a rio u s h ie ra rc h ic a l levels. T h e la rg e r a n o rg a n iz a tio n a n d th e scope
o f its resp o n sib ilities, th e m o re p ro n o u n c e d is its d iffe re n tia tio n alo n g these
lines (1 A , IB ), a n d th e sa m e is th e case fo r its su b u n its (ID ) . B ut larg e-scale
o p e r a tio n s — d e s p ite th e g re a te r su b d iv isio n o f tasks th a n th a t in sm all-scale
o p e ra tio n s — inv o lv e a la rg e r v o lu m e o f m o st o rg a n iz a tio n a l tasks. H en c e,
la rg e o rg a n iz a tio n s te n d to h a v e la rg e r as w ell as m ore s tru c tu ra l c o m p o n en ts
o f v a rio u s so rts th a n sm all o rg a n iz a tio n s (1 .2 ).
T h e p ro n o u n c e d d iffe re n tia tio n o f respo n sib ilities in la rg e o rg a n iz a tio n s
e n h a n c e s sim u lta n e o u sly in tr a u n it h o m o g e n eity a n d in te ru n it h etero g en eity .
I n a s m u c h as d u tie s a r e m o re d iffe re n tia te d a n d the a m o u n t of w ork re q u ire d
in m o st sp e cia ltie s is g re a te r in la rg e o rg a n iz a tio n s th a n in sm all ones, th e re
a r e c o m p a ra tiv e ly m a n y em ployees p e rfo rm in g h om ogen eo u s tasks in la rg e
o r g a n iz a tio n s . T h e la rg e h o m o g en eo u s p e rso n n e l co m p o n e n ts in la rg e o r ­
g a n iz a tio n s sim p lify su pervision a n d a d m in is tra tio n , w h ich is reflected in a
w id e r s p a n o f c o n tro l of sup erv iso rs (1.4) a n d a low er a d m in istra tiv e ra tio
(1 .3 ) in la rg e th a n in sm all o rg a n iz a tio n s. C o n se q u e n tly , o rg an iz atio n s ex ­
h ib it a n e c o n o m y o f scale in a d m in is tra tiv e m a n p o w e r (1.5). A t th e sa m e
tim e , h o w e v e r, th e h e te ro g e n e ity a m o n g o rg a n iz a tio n a l co m p o n en ts p ro ­
d u c e d b y d iffe re n tia tio n cre ate s p ro b le m s o f c o o rd in a tio n a n d p ressu res to
e x p a n d th e a d m in is tra tiv e p erso n n e l to m e e t these p ro b lem s (2). I n this
io r m u la tio n , th e u n m e a su re d co n c ep ts o f in tr a u n it h o m o g en eity a n d in te r ­
u n it h f tr r n g r n r ity Imvp h e rn intro d u ced to e x p la in w h y large size has two
o p p o site effect» o n m im in iitriitiv c o v rrlira d , red u cin g it owing to the in­
te rn a l h o m ogeneity o f part», n nd riiiiing it ow ing to the heterogeneity among
p arts.
By g e n e ra tin g d iffe re n tia tio n , then, large lizc indirectly raises adm inis­
tra tiv e o v erh e ad (2 .1 ), a n d if its influence on d ifferen tiatio n w ere unre­
stra in e d , larg e o rg an iz atio n s m ight w ell h av e d isp ro p o rtio n ately large ad­
m in istrativ e m a ch in e ries, in accord an ce w ith th e b u rea u cratic stereotype.
H o w ev er, th e a d m in istra tiv e ra tio decreases w ith ex p an d in g organizational
size, n o tw ith s ta n d in g th e increased a d m in istra tiv e ra tio resulting from the
d iffe re n tia tio n in la rg e o rganizations (2.2). T w o feedback effects of the ad­
m in istrativ e costs o f d iffe ren tia tio n m ay be in ferred , w h ich counteract the
influences o f size on ad m in istra tio n an d d iffe ren tia tio n , respectively. T h e
first of these a p p a r e n tly reduces th e savings in adm in istrativ e m anpow er
resu ltin g fro m a la rg e scale o f operations, as im p lied by the decline in the
ra te of d ecrease o f ad m in istra tiv e ov erh ead w ith increasin g organizational
size (1.6). (A lth o u g h d iffe ren tia tio n in to local b ran c h es m ay keep the rate
o f o v erh e ad savings w ith increasing size c o n s ta n t [2.3], it also raises the
a m o u n t o f o v e rh e a d .) T h e second feedback process, p ro b ab ly attrib u tab le
to th e a d m in istra tiv e prob lem s engendered b y differen tiatio n , creates re­
sistan ce to f u rth e r d iffe ren tia tio n , w hich is reflected in th e dim inishing m ar­
g in al influence o f ex p a n d in g size on d iffe re n tia tio n (1.1) an d the declining
r a te a t w h ich size prom o tes differen tiatio n (1C ).
In sh o rt, feed b ack processes seem to k eep th e a m o u n t of differentiation
p ro d u ce d by increasin g o rg an iz atio n al size below the level a t w hich the
a d d itio n a l a d m in istra tiv e costs of c o o rd in a tio n w ould eq u al the adm inis­
tra tiv e savings realized by the larger scale o f o p eration s. H ence, organiza­
tions ex h ib it a n econom y o f scale in ad m in istra tio n , despite the extra ad­
m in istrativ e o v erh e ad re q u ire d by th e p ro n o u n ce d differentiation in large
o rg an iz atio n s, b u t this econom y of scale declines w ith increasing size, on
a c c o u n t o f this e x tra o v erh ead due to d iffe re n tia tio n . T h e feedback effects
in ferred , th o u g h n o t d irectly observable, c a n e x p la in w hy th e influence of size
on d iffe re n tia tio n , as w ell as its influence o n ad m in istra tiv e econom y, de­
clines w ith in c reasin g size. F igure 17.6 presents these connections graphically.
A final q u estio n to be raised is how w idely ap p licab le th e theory is to
o rg a n iz a tio n s o f d iffe ren t types. Since th e th e o ry w as co n stru cted by trying
to fo rm u la te g en e ralizatio n s from w hich th e em p irica l findings on employ­
m e n t secu rity agencies can be derived, th e f a c t th a t these d a ta conform to
th e p ro p o sitio n s ad v a n c e d does n o t co n stitu te a test of th e theory. But it
sh o u ld .b e n o te d th a t several o f the specific propositions included in the theory
a re su p p o rte d by findings fro m previous em p iric a l studies of o th e r kinds of
o rg an iz atio n s, fo r exam ple, th a t a d m in istra tiv e o verhead in organizations
T t »• F o r m a l S t r u c t u r e o j O r g a n ita tio n o
112
tC. 1.1
-------- j— PotltíV* iHsCt
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t*«l)ifMUls»
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influanc* of é n
.
I
Intarred thaorttlcsl concapts
F ig u re 1 7 4 .
i/
! „*
Chart of connections.
i
‘
d ec rease« w ith size a n d in creases w ith com plexity o r d if fe re n tia tio n ,14 a n d
t h a t its d e c re a s e w ith size o ccu rs a t a d ec lin in g rate . ** M o re o v e r, a n e m ­
p ir ic a l te st o f th e e n tire b o d y o f th e o ry h a s been c o n d u c te d in a stu d y o f
a n o th e r ty p e o f g o v e rn m e n t b u re a u , th e 4 16 m a jo r fin an c e d e p a r tm e n ts o f
- A m e r ic a n sta te s, la rg e citie s, a n d la rg e counties. T h is in d e p e n d e n t test c o n ­
firm s th e p ro p o sitio n s im p lie d by th e th e o ry .1' W h e th e r th e th e o re tic a l g e n ­
e ra liz a tio n s a r e also v a lid fo r p riv a te a n d o th e r p u b lic o rg a n iz a tio n s, a n d
h o w th e y m u st b e m odified o r refined to m a k e th e m w id ely a p p lic a b le , o n ly
f u r th e r re se a rc h c a n tell.
’* See T heodore R . Anderson and Seymour W arkov, “ Organizational Size and Functional
C om plexity,” American Sociological Revino 26 (1961), 23-28; and Louii R. Pondy, “ Effect!
of Size, Com plexity, and O w n en h ip on A dm iniitrative Inteniity,” Administrative Science
Quarterly 14 (1969), 47-60, and references therein.
11 B ernard F. Indik, " T h e Relationship Between Organizational Size and Supervision
R atio ,” Administrative Science Quarterly 9 (1964), 301-312.
11 T h e num ber o f occupational positions, th at of hierarchical levels, and th at of functional
divisions in these finance departm ents increases at decelerating rates with increasing size,
as indicated by regression lines with positive slopes and logarithmic curves (1, 1.1, 1.2, 1.3).
T h e span of control of first-iine supervisors is positively correlated with size (1.4), which
im plies th a t the supervisory ratio decreases with size (1.5), and this relationship reveals
a logarithm ic curve, indicating th a t the economy of scale in supervisory m anpow er declines
w ith size (1.6). T h e num bers of levels and th at of divisions both raise the ratio of super­
visors to nonsupervisory personnel (2), and large size indirectly does so through its in ­
fluences on levels and divisions (2.1), but these indirect effects of size are exceeded by its
d irect effect reducing the ratio of supervisors by widening their span of control (2.2).
T h e a b r n c e of local branches in finance departm ents makes it impossible to test proposi­
tion (2.3).