Summary of Configuration Theory

The main idea of configuration theory is that organizations’ performances are determined by the constellation of organizational elements. The configuration theory started from Max Weber's (1947) idea that bureaucracy emerges to provide merit-based legitimacy and rules-based continuity required by democracies and economics. For example, Alfred, P Sloan's (1963) design GM's structure as divisional structure, which improve GM's performance and create new role of division general managers. From 1950s to 1960s, scholars develop theories that link organizations with their environments. Chandler’s (1962) detailed history of evolution of modern firm such as GM, Sears and other firms clearly shows that firms response to marketplace. The designs of organizations evolve into open system. During 1970s to 1980s, scholars started to integrate strategy, structure and process variables. The general idea is that high performance configurations are those with internal and external congruence, alignment and fit.

Basic Assumptions of the theory

The theory has three core assumptions. First, organizational performance is affected by formal organizational arrangements used to coordinate activities and exercise control over employee effort. Organizational arrangements are sometimes referred to as organizational design or organizational form. Second, there is no “one best way” of organizing. This assumption, shared with structural-contingency theory, demarcates configuration/archetype theory from much previous work on organizations. Third, the appropriateness of organizational design is partly dependent upon contingencies, such as an organization's size, its technology, and the rate and predictability of environmental change (the same assumption as in structuralcontingency theory), but is also dependent upon social (institutional) processes of approval (Greenwood, 2007).

The evolution of organizational forms

From 1980-1990, spread of multi-firm network organizations have changed the landscape. Firms base their strategies and operations on their core capabilities, outsource non-core activities to specialized provider firms and develop management processes that span all of the firms in the network.

Functional form: it appears in late 19th century and flourishes in early 20th century. Andrew Carnegie applied functional specialization from railroad to steel production. He designed a tight schedule to control row material supply and distribution. Wal-Mart, Inc. uses an online computerized sales data from different stores to decide the inventory and distribution. It uses specialized planners, logistics specialists and store personnel and outsource its supplies. The logic is that special-purpose machine designed to produce a limited line of goods or services in large volume at low cost. The inefficient part of it is that it is rigid and has limit scope.

Divisional form: 1940-1950. Alfred Sloan design one for General Motors. Product divisions operate as autonomous companies, producing and marketing products to their respective targeted customers. Managers serve as investment bankers for growth and redirection. Rubbermaid’s ten operating divisions have 200 new products per year. Each division focuses on one market.

Matrix form: in 1960s and 1970s, it is created at TRW, make efficient use of technologists and specialized engineers. They move between different teams and products. Matsushita, combines global product divisions with geographically based marketing groups. lack of overall flexibility
 
Network form: Miles and Snow, 1992. In 1980, established firms downsize to their core competence and outsource a wide-range of products. Firms start to form alliances and inside the firms, managers buy and sell across divisions. There are three main features of network form organizations, which are different from previous organizational forms. First, collective assets of several firms located at various points along the value chain. Second, expect voluntary behaviors to improve the products rather than simple obligation fulfillment. For example, Japanese keiretsu- organizational collective based on cooperation and shareholding among manufacturers, suppliers and trading finance companies
 
There are mainly three types of network form:
 
First, stable network form: the logic of stable network form is to serve predictable market by linking independently owned specialized assets along a given value chain. The set of firms maintain their competitiveness. However, the problem of stable network form organizations are two folded. First, if one partners’ asset become overspecialized, it will be held-up by their partners. Second, domination of the core firms can limit the creativity of the partners. For example, Nike working closely but not dominating suppliers in Korea, Taiwan, Thailand, and PRC.
 
Second, Internal network form: the logic is to create a market inside a firm. Organizational units buy and sell goods and services among themselves at prices established in the open market. It can gain competitive advantage through shared utilization of scarce assets and the continuing development and exchange of managerial and technological knowhow. However, the internal network suffers the problem of overload and corporate intervention in determining the resource flow and price. For example, ABB Asea Brown Bovari grow by merge and acquisition in electrical systems and equipment market. They specified the market domain of its components and exchange with market mechanisms. IBM, Blue Cross-Blue Shield, Alcoa, Clark Equipment
 
Third, dynamic network form: the logic is that independent firms are linked together for a short time to produce a particular good. Two conditions are required: 1) Numerous firms operating at each of the points along the value chain. 2) Reappraise their technological competence and scope of their activities. There are two problems: 1) over specialized, they run the risk to become trivial on the production line. 2) excessive mechanisms to prevent partners’ opportunism and have limited partners (competence based position). For example, US corporations allow foreign suppliers to produce the radio, television, which help foreign suppliers to develop their own capabilities to design and sell their own products

Main empirical examples

1) Galbraith (1977) propose configuration of strategy, structure, human resources, rewards and management processes 2) Peters and Waterman (1982) offer 7-S model : strategy, skills, structure, systems, staff, shared value and style. 3) Miles and Snow (1987): configurations of prospector, defender and analyzer (structure, strategy and process) 4) Mintzberg (1979) has the most comprehensive approach: professional adhocracy and hierarchy 5) Doty et al., (1993) measure the Weberian ideal-type construct and develops models to evaluate alternatives. They argue that ideal types can be empirically tested and falsified. 6) Baker and Cullen (1993) examine how configurations of organizational age, size, and growth or decline affect structural change. They include both configuration of structure and context. 7) Ketchen et al (1993) argue that theoretical based approaches are apt to generate more consistent configurations with stronger relationship to subsequent performances. 8)Keck and Tushman (1993) argue that configuration of environmental jolts, technological discontinuities, organizational reorientation, chief executive officer successions influence executive team demographics. 9) Configuration theory can be applied to human resources, organizational behavior (team configuration, social capital configuration), leadership, CSR configuration (financial performances)

Contributions: 1) holistic analysis of organizational performances, taking into account of nonlinear relationships. 2) include both structural and contextual information together

Critiques: 1) theoretical-based typology is more efficient, but the typology is hard to get. 2) QCA solves part of nonlinear problem in testing.

By Kate Jue Wang

References:

Clegg, Stewart R., et al., eds. The Sage handbook of organization studies. Sage, 2006.

 

Schulze-Bentrop, Conrad. Qualitative Comparative Analysis (QCA) and Configurational Thinking in Management Studies. Peter Lang GmbH, Internationaler Verlag der Wissenschaften, 2013.

Burton, Richard M., et al. Organization design: the evolving state-of-the-art. Vol. 6. Springer Science & Business Media, 2006.