Organization size and Environment

There is considerable evidence to support that an organization’s size significantly affects its structure. For instance, large organizations those that typically employ 2,000 or more people tend to have more specialization more departmentalization, more vertical levels, and more rules and regulations than do small organizations. However, the relationship is not linear. Rather, size affects structure at a decreasing rate. The impact of size becomes less important as an organization expands.

Essentially, once an organization has around 2,000 employees, it is already fairly mechanistic. An additional 500 employees will not have much impact. On the other hand, adding 500 employees to an organization that has only 300 members is likely to result in a significant shift toward a more mechanistic structure.


The term technology refers to how an organization transfers its inputs into outputs. Every organization has at least one technology for converting financial, human and physical resources into products or services. The Ford Motor Co., for instance, predominantly uses an assembly-line process to make its products. On the other hand, colleges may use a number of instruction technologies the ever popular formal lecture method, the case-analysis method, the experiential exercise method, the programmed learning method, and so forth.

Numerous studies have been carried out on the technology structure relationship. The details of those studies are quite complex, so we will go straight to “the bottom line” and attempt to summarize what we know.

The common theme that differentiates technologies is their degree of routine- ness. By this we mean that technologies tend toward either routine or non-routine activities. The former are characterized by automated and standardized operations. Non-routine is customized. They include varied operations such as furniture restoring, custom shoe making and genetic research.

What relationships have been found between technology and structure? Although the relationship is not overwhelmingly strong, we find that routine tasks are associated with taller and more departmentalized structures. The relationship between technology and formalization however is stronger. Studies consistently show routine activity to be associated with the presence of rule manuals, job descriptions, and other formalized documentation. Finally, an interesting relationship has been found between technology and centralization. It seems logical that routine technologies would be associated with a centralized structure, while non-routine technologies, which rely more heavily on the knowledge of specialists, would be characterized by delegated decision authority. This position has met with some support. However, a more general conclusion is that the technology centralization relationship is moderated by the degree of formalization.

Formal regulations and centralized decision making are both control mechanisms and management can substitute one for the other. Routine technologies should be associated with centralized control if there is a minimum of rules and regulations. However, if formalization is high, routine technology can be accompanied by decentralization. We would predict that routine technology would lead to centralization, but only if formalization is low.


An organization’s environment is composed of institutions or forces outside the organization that potentially affect the organization’s performance. These typically include suppliers, customers, competitors, government regulatory agencies, public pressure groups, and the like.

An organization’s structure is affected by its environment because of environmental uncertainty. Some organizations face relatively static environments few forces in their environment are changing. There are, for example, no new competitors, no new technological breakthrough by current competitors, or little activity by public pressure groups to influence the organization.

Other organizations face very dynamic environments rapidly changing government regulations affecting their business, new competitors, difficulties in acquiring raw materials, continually changing product preferences by customers, and so on.

Static environments create significantly less uncertainty for managers than do dynamic ones. And because uncertainty is a threat to an organization’s effectiveness, management will try to minimize it. One way to reduce environmental uncertainty is through adjustments in the organization’s structure.

Recent research has helped clarify what is meant by environmental uncertainty environment. It’s been found that there are three key dimensions to any organization’s environment: capacity, volatility, and complexity.

The capacity of an environment refers to the degree to which it can support growth. Rich and growing environments generate excess resources, which can buffer the organization in times of relative scarcity. Abundant capacity, for example, leaves room for an organization to make mistakes, while scare capacity does not. In 2004, firms operating in the multimedia software business had relatively abundant environments, whereas those in the full-service brokerage business faced relative scarcity.

Finally, the environment needs to be assessed in terms of complexity that is, the degree of heterogeneity and concentration among environmental elements.

Simple environments are homogeneous and concentrated. This might describe the tobacco industry, since there are relatively few players. It’s easy for firms in this industry to keep a close eye on the competition. In contrast, environments characterized by heterogeneity and dispersion are called complex. This is essentially the current environment for firms competing in the Internet-connection business.

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