The behavior of employees can have a direct impact on the successful completion of the objectives and goals of the organization. One common way that the organization can control and influence this behavior is through its organizational architecture. Organizational architecture is defined as the structure and form by which any business operates. This structure or form consists of a three systems. These systems assign decision rights, measure performance, and reward and punish performance.
These three systems that make up the organizational architecture are commonly referred to as a “three-legged stool”. These “legs” must remain balanced and individually, they must be coordinated with the two others. An employee should only have decision rights that can be measured and rewarded or punished. The system measuring performance must be able to measure the area with which the employee has decision rights. And the reward and punishment system must be equivalent to the employees measured performance.
The system that assigns decision rights must be designed specifically for the organization. It typically includes a hierarchical structure. This hierarchical structure is used to separate managers from employees and also the decision management from the decision control aspect of the decision process. Decision management includes the initiation and implementations while decision control includes the ratifications and monitor of the decision.
The system that measures performance should measure both objectively and subjectively. Objective measures are explicit and verifiable while subjective measures are implicit and hard to measure. Accounting systems are widely used by organizations for this system. Along with monitoring the accounting figures, the accounting system can provide internal reports and provide a form of control. Each of these can be used as a measure of performance.
The system that is used to reward or punish performance can be performed through monetary or nonmonetary methods. Monetary rewards typically come in the form of an annual bonus that is included in an employees compensation contract. Many times these bonuses are based on the achievement of goals or objectives and are set by a bound. Accounting based goals many times have a lower bound and may have an upper bound. The lower bound is the minimum requirement that must be met in order to receive a bonus. The bonus then increases as you get higher above the lower bound. It is then capped at the upper bound.
Organizational architecture has a major impact within my organization. Our decision rights system is broken into a three tier system. At the highest level of the system are the Presidents and Vice Presidents. They oversee the middle level which consists of Directors and Managers. The middle level manages and supervises the remaining lower level employees. Our decision control is mainly handled by the highest level employees. Decision management is then controlled by the middle level employees.
For most of our employees, their performance is based on meeting quarterly and yearly sales goals. Because of this, their performance is tracked and measured within our accounting program known as MAS90. It is used to track each and every financial transaction that occurs within our organization. From those transactions, MAS90 then generates reports that are used by all levels of employees. For non-sales employees, their performance is measured on strictly subjective measures.
For the final system, rewarding or punishing performance, MAS90 also plays a major role. The bulk of employee performances are based on the amount of sales a salesperson is able to generate. Sales commissions are then paid on a flat percentage rate against the gross revenue of each project. MAS90 generates all of these reports. Rewards are also given to the salesperson based on the total amount of yearly sales they generate. There formula or rate used to determine this bonus amount is different for each salesperson. Each of them has a different agreed upon formula calculation based on their employee contract.
These systems are currently working adequately within my organization. The only recent change that has been made was due to the downturn in the economy. Our company, like most, lost a significant amount of business and because of this, commission rates for everyone in sales were renegotiated. I believe that there is always room for improvement within any structure.
I believe that there are two items we should consider to improve our organizational architecture. The first is by upgrading our accounting system. MAS90 is an older version of software that does have significant upgrades available. MAS200 is a newer Sage accounting system product that includes great features we could take advantage of. Secondly, I think that we should consider implementing more subjective measures for the salespeople and more objective measures for all other staff.