BUS603: Managing People

Information processing is work in modern organizations: "Who talks to whom about what, who makes which decisions based upon what information". Simon is more succinct: Organizational design "is to investigate the information flows that are essential for accomplishing the organization's objectives, then examine what these information patterns imply for organization structure". A basic theory of organization design is balancing the information-processing capacity of the organization with the information-processing demand. Underlying the theory is the assumption that "the greater the task uncertainty, the greater information-processing demands by decision makers". Further, the more interdependency between the sub-tasks, the more information-processing capacity is needed. Uncertainty and interdependency create the need for information processing in an organization.

Uncertainty has been defined as an incomplete description of the world, unpredictability, or perhaps more precisely as Knightian uncertainty where the probability distribution is not well defined. Further, uncertainty has included complexity or the number of variables in the environmental space. Both the organization's environment and its tasks can be uncertain. The management of environmental and organizational uncertainty requires the coordination of the organization's tasks.

Interdependency can be defined as the correlation among the variables in the environmental space or task space. Simon examines interdependencies as the degree of divisibility or decomposability using a matrix representation of the connections. The more connected or dense the matrix, the more interdependent the tasks; and the sparser the matrix entries, the less connected and the more divisible the tasks. The tasks' interdependence may arise out of the problem to be solved. It may however also be due to the particular task design, e.g., due to availability of different types of individuals to solve the task. Further, the decomposability of the matrix may be due to the basic organizational setup. Burton and Obel show how different matrices with different degrees of decomposability arise out of different organizational structures. The interdependency determines whom in the organization talks to whom about what and when.

To balance the information-processing demand and capacity, Galbraith offers two different organizational design strategies: reduce the need for information by creating semi-independent units (structure), or increase the information capacity with greater communications, either hierarchical or lateral (coordination). The information-processing perspective has to be seen in the particular context, e.g. digitalization, which changes both the information-processing demand and the ability to create capacity.

Tushman and Nadler and Burton and Obel argue that the concepts of uncertainty and information processing can be used to integrate the diverse organization design and structure literatures. They suggest a contingency approach based on the information-processing paradigm to design a feasible set of structural alternatives from which the organization can choose. Further, the information-processing paradigm is a general theory and rather robust to changes in circumstances, and it will allow us to say something about what might be designed from knowledge about what is. The information-processing paradigm also provides a basis on which generalizable experimentation and observation can be done. Information-processing thinking can capture many theoretical issues, such as bounded rationality, learning, and cognition.