First, examine the two dimensions in Figure 8.2: formalization and decentralization.

Rate your organization in terms of reliance on formalization and decentralization as mechanisms for coordination and control of work. Next, you can categorize the organization’s governance approach as: family, machine, market, or clan/mosaic. To begin, answer LO5 the diagnostic questions below.2

Decentralization To what extent does your organization govern work tasks, people, and processes using a decentralized approach: very little (1) or to a great extent (5)? To answer this question, you may think about the following:

a. To what extent are sub-unit decisions and actions directed by corporate headquarters or another sole authority (1) versus managed independently by the sub-units (5)?

b. To what degree does the top management leave control of operational decisions to managers or others in charge of those operations? Scale 1 to 5

c. How much discretion do sub-unit managers have in establishing their budgets? Scale 1 to 5

d. How much discretion do sub-unit managers have in determining how their units will be evaluated? Scale 1 to 5

e. How much discretion do sub-unit managers have over how work exceptions are to be handled? Scale 1 to 5 How do you obtain data on formalization? While you are investigating the centralization/
decentralization issues above, ask about formalization, beginning with top management and then on to middle management. Again, the accounting department for budgeting rules and expenditure oversight, the HR department for job descriptions and hiring policies, and the finance department for spending constraints will have these data on formalization. Many of the operating rules will be embedded in the IT system. Are the IT systems flexible or quite rigid? How easy is it to override the system, and how frequently is it possible to do so? Further, is the organization ISO-certified? This would suggest high formalization. With these data, you should be able to answer the questions below.

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Formalization High Clan 5 Machine 4 Mosaic Decentralization High Low 2 2 Family Market 1 Low Figure 8.2 Locate your organization in the coordination and control space