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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
by Raul Espejo and Alfonso Reyes, forthcoming, 2008
1Syncho Research
IX. Distribution of discretion
The last chapter showed how the unfolding of complexity is a useful tool to describe (Mode
I) or design (Mode II) the way an organization groups (or should structure) its primary
activities. This is done by taking into account four perspectives from which it is possible todescribe the operation of the organization-in-focus. The tools used are called structural
models: technological, geographical, market segmentation and time (see chapter VII).
The unfolding of complexity is a diagram that enables the discussion between relevant
viewpoints regarding the distribution of resources to carry out the organizations
transformation. In this sense it is also a tool that helps to realize the connection between thestrategy of the organization as stated in its mission and its structure in terms of the
definition of primary activities at different structural levels.
But, in order to define with more precision the structure of an organization, it is necessary
to determine the distribution of roles and resources needed to produce its primary activities.
This is the problem examined in this chapter and it is related to the common discussionbetween organizational centralization and decentralization.
It is usual to approach this discussion assuming that these terms constitute a dualism, that
is, two opposite poles difficult to reconcile. As a consequence, the organization fluctuatesbetween one pole and the other depending on which is the majority position at the time. It
could be said that, in some sense, this issue is posed either as an ideological problem or as a
management fad.
This chapter shows an alternative position in which the issue is approached as an
organizational design problem. But, what is, exactly, the problem that is underexamination?
It is clear that an inadequate centralization generates several problems like bottlenecksand bureaucracy in the sense of roles that do not add value to the organization. Excessive
centralization is also responsible for people making decisions without having the
appropriate context. This is, of course, a poor decision making process.
But, on the other hand, an inadequate decentralization can produce serious problems as
well. Most of them are derived from a lack of coordination among people who have theresponsibility of taking local (decentralised) decisions.
In order to approach the apparent dichotomy between centralization and decentralization,we will introduce the concept of discretionality.
Discretion is defined, in this context, as delegation plus action capacity. In other words, aperson has discretion to carry out a function, if and only if, both this function has been
delegated to him/her and, simultaneously, he/she has the capacity to carry it out. This
capacity refers to the availability of resources as well as to the adequate training for the
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
by Raul Espejo and Alfonso Reyes, forthcoming, 2008
2Syncho Research
fulfilment of the function. Therefore, the simple act of delegating is not enough to grant
discretionality.
Notice that in an organisational context, it is quite possible to grant discretionality in somefunctions but not in others or even to grant discretion to carry out only a part of a particular
function. For example, it is possible that a regional manager having discretion to select thepeople who are going to work under his/her supervision, at the same time do not have the
discretion to carry out the necessary induction. This will probably be a function assigned to
the organizations human resources department at the central level.
In these terms, the problem of choosing between functional centralization and
decentralization can be restated as a problem of distributing discretion over the entirefunctions of the organisation. This is precisely the organizational design problem that we
would like to address.
The distribution of discretion is a method to establish the degree ofcentralization/decentralization of functions in an organization. In order to do so, it is
necessary to remember the difference between primary activities and regulatory functions
that was established in the previous chapter. While the former are the activities developingthe products or services of the organization, the latter are the activities necessary to create
and regulate the primary activities. In chapter V we related primary activities with business
processes and regulatory functions with organizational processes.
It is clear that we require resources of some kind (people, technology, raw materials, etc.)
to carry out a regulatory function. This, in turn, puts a natural question: Where should these
resources be allocated? Two alternatives are possible: 1) the resources needed to fulfil theregulatory function are shared by several primary activities. This corresponds to a
centralized framework (for instance, when the regional branches of a bank must requesthelp from the Technology Support Office - that is located in the headquarters of the bank -
every time their information systems fail); and 2) the resources needed to fulfil the
regulatory function are part ofthe primary activities that they support. This corresponds toa decentralized framework (for example, when the regional branches of the bank have their
own technicians that support their information systems).
But, given a regulatory function needed to support one or more primary activities, which
criteria can we used as a guide to select the first or the second alternative? The main point
is to understand the specific relation between the regulatory function under considerationand the primary activities that it supports. This relation can be characterized according to
the following criteria:
1. The regulatory function is a critical success factor for the primary activity;2. The application of the regulatory function has characteristics that are particular to
the primary activity that it supports (this aspect will be illustrated with an examplelater on);
3. The demand for the regulatory function by the primary activity it supports is quitehigh (according to a predefined criterion).
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
by Raul Espejo and Alfonso Reyes, forthcoming, 2008
3Syncho Research
If these three conditions are met for a given relation between a regulatory function and a
primary activity, then it is highly probable that the second alternative (that is, a
decentralized framework) were the best choice. In other words, discretionality will begranted to the responsible of the primary activity in order to carry out the regulatory
function. Conversely, if at least one of these conditions is not fulfilled, it is quite possiblethat a centralized framework were the best option. In this case, the resources of the
regulatory function would probably be shared by other primary activities.
The following example illustrates the use of these criteria. Let us consider two primary
activities of a national institution that regulates higher education in a country. The first
activity is the national testing service (NTS) that is in charge of running national tests ineducation. The second activity is concerned with monitoring the quality of services(MQS)
provided by universities. Let us assume that the regulatory function that is being analyzed
is the maintenance service of information systems. With this information we have fouralternatives regarding the centralization or decentralization of this function (see figure 9.1):
Figure 9.1. Distribution of discretion of a regulatory function (four alternatives)
1. The regulatory function is completely centralized, that is, the Information System
Office of the institution is responsible for providing the maintenance service to bothprimary activities;
2. The regulatory function is completely decentralized, that is, both primary activitieshave the necessary resources to carry out the maintenance of their informationsystems by themselves;
3. The regulatory function is centralized for MQS but it is decentralized for the NTS.In other words, while the NTS has the resources for carrying out the maintenance oftheir information systems, the other primary activity depends on the services
provided by the Information System Office;
4. The regulatory function is centralized for the NTS and decentralized for MQS.
Institution
.
Regulatory activity
Primary activity
Information System Office
Data base technician
Systems technician
Alternative 1 Alternative 2 Alternative 3 Alternative 4
MQS ofuniversitiesNTS
Maintenance of
Information systems
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
by Raul Espejo and Alfonso Reyes, forthcoming, 2008
4Syncho Research
Let us assume that a detailed analysis of the data gathered from the institution provided the
following points:
1. The activities carried out in the NTS depend fundamentally on its informationsystems (recording, processing, analyzing and publishing data from national tests);
2. The people in charge of the MQS of universities use basic technology (personalcomputers, text editors and spread sheets);
3. The technological problems of the NTS are mainly related to their informationsystems;
4. The technological problems of the MQS are usually related to a partial damage of apersonal computer or a misconfiguration of the word processor or the spreadsheet;
5. If a failure in the information systems of the NTS is not taken care of on time, thenegative impact on the effectiveness of the process is too high, due to the time
commitment to deliver the results of the national tests;6. The Information System Office gives support to every department of the institution
and not only to the two departments carrying out the primary activities mentioned in
the example;
7. In the previous six months there had been many technological problems in the MQSactivity (once per week);
8. In the previous six months there had been many technological problems in the NTSactivity (once per week).
It is easy to see that points 1) and 5) are closely related to the first criterion mentioned
above. Similarly, point 3) is related to the second criterion and point 8) to the third
criterion. Therefore, it makes sense to decentralize the maintenance of information systemsfor the NTS. In other words, the department responsible for carrying out the NTS should
have enough resources, like a specialised technician, to take care of the problems arising intheir information systems.
On the other hand, and regarding the relation between the regulatory function and the MQS,we have that the point 7) relates to the third criterion above. This would suggest that, in this
case, is more convenient to centralize this function. In other words, each time a problem
occurs in the MQS primary activity, the Information System Office will directly assign oneof its technicians to take care of the problem. Be aware that, in this case, delays in this
service provided by this office do not generate a significant negative impact on the
effectiveness of this primary activity (see figure 9.2).
Mantenimiento de
sistemas de informacin
Regulatory activity
Maintenance ofInformation Systems
Icfes
SNPVig ctrol .
de Inst. de
Educ. Sup.
Primary activity
Institution
NTSMQS of
universities
Information System Office
Information systems technician
Shared support
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
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5Syncho Research
Figure 9.2. Distribution of discretion of a regulatory function (a proposal)
It is important to highlight that having their own resources to deal with its own technicalproblems not only allows NST to recover faster from unexpected breakdowns but also
facilitates the chances of a learning process. Indeed, technicians may become specialized in
solving the particular failures of these information systems and, therefore, being able todevelop preventive practices.
Notice, as well, that giving discretion to carry out a regulatory function to a primaryactivity does not necessarily imply increasing the staff of the primary activity. It is quite
possible, for instance, that a single person be in charge of performing several regulatoryfunctions in a primary activity. We will go back to this point later on.
The function/recursion table is an appropriate tool to do an analysis of discretion as the one
described in the previous example. The table crosses an organisations primary activitieswith its regulatory functions. The former are grouped in several recursion levels according
to the organisation unfolding of complexity as seen in the previous chapter. Figure 9.3
illustrates the unfolding of complexity for a small Colombian airline company calledSATENA.
Figure 9.3. Satenas unfolding of complexity
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
by Raul Espejo and Alfonso Reyes, forthcoming, 2008
6Syncho Research
The regulatory functions, on the other hand, can be identified from the organisations
process map or be inferred from its organization chart. The primary activities are written inthe first column of the function/recursion table preserving their structure in the unfolding of
complexity. We will go back to this point later on. The regulatory functions, in turn, arewritten in the columns of the table (see figure 9.4).
Figure 9.4. Basic structure of the function/recursion table
A mark (i.e. a dot) in the cell where a regulatory function (a column) crosses with a primaryactivity (a row) indicates that this primary activity has discretion to carry out this regulatory
function. For example, in figure 9.5 the black dot in the cell where thepersonnelfunctioncrosses with the row called entity(that represents the first recursion level of the company),
indicates that this regulatory function takes place at the organizations highest structural
level. In other words, personnel management is completely centralized in this company.
On the other hand, the dots in the trainingcolumn indicate that the resources for carrying
out this function are spread throughout the different structural levels of the company. Inother words, each one of the three primary activities of this organisation has their own
resources for training the people working in this level (figure 9.5).
Company
Primary activity 1
Primary activity 2
Primary activity 3
RegulatoryRegulatory funct ions funct ions
Company
Prim. Act2
Prim. Act1
Prim. Act3
Company
Prim. Act2
Prim. Act1
Prim. Act3
Primary Pr imary act iv i t ies act iv i t ies
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
by Raul Espejo and Alfonso Reyes, forthcoming, 2008
7Syncho Research
Figure 9.5. An example of a recursion/function table
Regarding the distribution of discretion, an overview of this table indicates the following:
1. The functions of personnel management, production planning, process developmentand logistics are centralized. This fact can be expressed in three other equivalentways:
a) Every one of these regulatory functions is carried out at the companys higheststructural level.
b) There is no discretion in any of the three primary activities to perform theseregulatory functions.
c) The resources required for performing these regulatory functions are shared bythe three primary activities.
1
2. Training, production management, quality control and maintenance are alldecentralized functions in this organisation. This can also be expressed in the
following equivalent statements:
a) These regulatory functions are carried out in all structural levels of theorganisation.
b) The three primary activities have discretion to carry out these regulatoryfunctions.
c) The resources required for performing these regulatory functions aredistributed among the three primary activities.
In order to show how to use the function/recursion table as a tool to describe anorganisations distribution of discretion, we will take as an example the case of Satena.
Figure 9.6 is the organization chart of this company and figure 9.3, as mentioned, shows its
unfolding of complexity.
1There is an exception to this interpretation that will be explained later on.
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
by Raul Espejo and Alfonso Reyes, forthcoming, 2008
8Syncho Research
Figure 9.6. Satenas organization chart
Figure 9.7 shows the function/recursion table for Satena. The following points come fromanalysing this table:
Human resources management, training, fees setting, bookings, acquisitions and
planning & systems are all centralized functions. The company branches in Bogot and Medelln have discretion to manage their own
budget. On the other hand, the budget is consolidated and distributed in the centrallevel of the company.
Different levels in the company have discretion regarding the sales function. Theprimary activities with this discretionality are: Satena itself; branches in Bogot and
Medelln; passengers, packages and mail transport; charter flights; and renting
planes.
The marketing and advertising function is executed, discretionally, in all of thecompanys structural levels with the exception of the following primary activities:
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
by Raul Espejo and Alfonso Reyes, forthcoming, 2008
9Syncho Research
commercial and social routes, mail and packages transport, renting flights and
maintenance services.
The marketing and advertising of the commercial and social routes is carried out bythe level in charge of the passenger transportation.
The level in charge of the air transport is responsible for doing the marketing andadvertising of the packages and mail transport services and of the renting planes
services as well.
Marketing and advertising of the maintenance service is carried out directly fromBogot.
General services, operation control and security are functions that are distributedamong the central level and the branches in Bogot and Medelln.
All structural levels in the company have discretion to carry out their own internalcontrol function.
Figure 9.7. Function/ Recursion table for Satena
Notice that the points mentioned above come from a lecture of the table focused in its
columns. If the same table is analyzed using the rows as the reference axis, it is possible to
describe the functional capabili ty of each structural level of the company. The followingpoints are inferred from such analysis of the figure 9.7.
Bogot and Medelln2 branches have the capacity and the resources necessary tomanage the budget, sales, marketing and advertising, general services, operationscontrol, internal control and the security of their own jurisdictions.
The level in charge of the air transport service has the competence (discretionality)to handle marketing, advertising, and the internal control of its activities.
2Note that everything said for Bogot and Medelln is equally applicable for all the companys brancheswhich appear in its unfolding of complexity (see figure 9.3).
Humanresourcemanagt
Budget
Training
Feessetting
Bookings
Sales
Marke
tingan
da
dvert
ising
Generalservices
Acquisitions
Operationscontrol
Internalcontrol
Planning&systems
Security
Satena
Bogot
Air transport
Passengers transport
Commercial routes
Social routes
Packages and letters
Charters
Renting planes
Maintenance
Medelln
Regulatory functions
Primary activities
Humanresourcemanagt
Budget
Training
Feessetting
Bookings
Sales
Marke
tingan
da
dvert
ising
Generalservices
Acquisitions
Operationscontrol
Internalcontrol
Planning&systems
Security
Satena
Bogot
Air transport
Passengers transport
Commercial routes
Social routes
Packages and letters
Charters
Renting planes
Maintenance
Medelln
Regulatory functions
Primary activities
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
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10Syncho Research
The primary activities regarding passenger transport and charter flights includeresources to carry out the functions of sales, marketing, advertising and internal
control.
Packages and mail transport along with the renting of planes include their ownactivities related to sales and internal control.
It is very important to clarify that when a regulatory function is distributed in several
structural levels of an organization, it does not mean that the same activity is being done ineach one of these levels. Figure 9.8 illustrates this point using the sales function in Satenaas an example.
Figure 9.8. Scope of the sales function at each recursion level that has discretion
Notice that the scope of the sales function differs in each of the structural levels where it is
performed. Indeed, while the central level consolidates the national sales, the companybranches coordinatesales at the regional level. On the other hand, the passenger transport
process in Bogot includes the ticket sales. Similarly, sales are also part of the activities of
the packages and mail transport, the charter flights and the renting of planes on eachbranch. Later on, we will make a special emphasis on the proper use of verbs to delimit
with precision the scope of the regulatory functions when these are distributed among
several structural levels in an organisation.
Humanresourcema
nagt
Budget
Training
Feessetting
Bookings
Sales
Marketingandadvert
ising
Generalservices
Acquisitions
Operationscontrol
Internalcontrol
Planning&system
s
Security
Satena
Bogot
Air transport
Passengers transport
Commercial routes
Social routes
Packages and letters
Charters
Renting planes
Maintenance
Medelln
Regulatory functions
Primary activities
Humanresourcema
nagt
Budget
Training
Feessetting
Bookings
Sales
Marketingandadvert
ising
Generalservices
Acquisitions
Operationscontrol
Internalcontrol
Planning&system
s
Security
Satena
Bogot
Air transport
Passengers transport
Commercial routes
Social routes
Packages and letters
Charters
Renting planes
Maintenance
Medelln
Regulatory functions
Primary activities
Sales tickets in Bogot
Sales of packaging and mail services in Bogot
Sales charter services in Bogot
Sales renting plane services in Bogot
Coordinates sales in Bogot
Coordinates sales in Medelln
Consolidates national sales
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
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On the other hand, notice that it is possible to unfold the regulatory functions in a similar
way that it is done with the primary activities. The human resource management function,
for example, could be broken down into selection, hiring, training and evaluation. In asimilar way, the information systems management function could be broken down into
design, development, maintenance and training. Figure 9.9 illustrates the decomposition ofregulatory functions taking as an example a small regional university.
Recreation
Sports
Culture
Health
Hiring
Evaluation
Educationsuuport(master,doct
oral)
Training(pedagogy)
Workloadmanagement
Professoraltrack
Hiring
Evaluatioon
Training
Administrativecareer
Administration
Maintenance
Distribution
Administration
Distribution
Maintenance
TICsmanagement
Hardwaremanagement
Library
Copntracts
Funding
Accounting
Budget
Audit
Treasure
Financeportfolio
Class
support
e ui ment
Technology
Human resources management Management of physical, technological
and library resources Financial resources
managementWelfare Teachers
Administ.
PersonnelRooms Labs
Admissionsandregistry
Registrationmanagement
Certific
ates
Gradin
gmanagement
Credits
andscholarships
Grades
Quality
certification
Programadministration
Curricu
larupdating
Institutionalaccreditation
Marketing
Strateg
ucplanning
Monito
ring
Evaluation
Communicationmanagement
Proces
sdevelopment
Legala
dvice
Resourcessupport
Groupsqualification
Publications
Relatio
nswithotherinstitutions
Externalscholarships
Gradua
teunion
Interch
angemanagement
Relatio
nswithcompanies
Congre
ssparticipation
Congre
ssorganization
Administrative and legal supportResearch
managementPlanning OperationStudents Programs
Academic managementExternal relations
management
Figure 9.9. An example of the unfolding of regulatory functions in a small regional university
Of course, each sub-function, depending on its complexity, could be unfolded even more.
When do we have to stop? The unfolding of a regulatory function must stop when the new
sub-functions become identical in their distribution of discretion with respect to the primaryactivities they serve. In this case, these sub-functions could be grouped by under a single
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
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name (or function). Visually, in the function/recursion table this is evident when the
distribution of dots in the columns corresponding to these sub-functions is identical.
Before explaining a method to build the function/ recursion table, it is important to mention
that nowadays it is possible to centralize highly specialized resources and, simultaneously,to decentralize the support given through them. Modern ICTs (Information and
Communication Technology) allow the development of these mechanisms. Call centers are
a concrete example when they are used as an internal support of the companys primaryactivities. For example, specialized maintenance of software packages could be done via
on-line communication through the companys intranet. In this case, the specialized
resources (i.e. engineers) could be centralized while their function, from the primaryactivities point of view, would be decentralized. The response speed and the capacity of the
communication channel make this possible.
There are four steps to do an analysis of discretion: 1) build up the function/recursion table;2) analyze the centralized regulatory functions; 3) estimate the functional capacity of the
primary activities and 4) design the cohesion mechanism of the decentralized regulatory
functions. The result of this analysis will be a diagnostic of the degree of functionalcentralization/decentralization and a proposal to improve it. Let us explain with more detail
these four steps.
Bui lding the function/recursion table:As we mentioned before, the first column of thetable is filled up from the companys unfolding of complexity. Based on theorganization chart and the process map (if it exists) the names of the remaining columns
are filled. These names correspond to the unfolding of regulatory processes.
The intersection of rows and columns in the table, which indicates the level of
discretion of each regulatory function, is obtained from interviewing the people
responsible for the corresponding primary activities and regulatory functions. In figure9.10, for instance, this distribution of discretion is shown for the case of a university.
Regulatory functions were grouped together according to figure 9.93.
In the same example, primary activities are grouped together into faculties,
undergraduate programs, research, postgraduate courses and master programs.
This table shows that this university, at the moment of the analysis, had anorganizational structure with a noticeable tendency towards the centralization of its
regulatory functions. This can be inferred observing that most of the regulatoryfunctions are carried out by the central administrative units in the university (i.e. the
Xs in the table are distributed mainly on the rows above the level of faculties). On the
other hand, there is little discretion on the faculty and programs levels (that is, there arefew Xs at the bottom of the table).
3 For the sake of simplicity we show the discretion of three regulatory functions: human resourcemanagement, financial resources management and academic management.
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
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Recrea
tion
Sports
Cu
lture
Hea
lth
Hiring
Eva
lua
tion
Educa
tionsuuport
(mas
ter,
doc
tora
l)
Tra
ining
(pe
dagogy
)
Work
loa
dmanagemen
t
Pro
fessora
ltrac
k
Hiring
Eva
lua
tioon
Tra
ining
Adm
inistra
tivecareer
Con
trac
ts
Fun
ding
Accoun
ting
Bu
dge
t
Au
dit
Treasure
Financeport
folio
Adm
iss
ionsan
dreg
istry
Reg
istra
tionmanagemen
t
Cert
ifica
tes
Gra
dingmanagemen
t
Cre
ditsan
dsc
ho
lars
hips
Gra
des
Qua
litycert
ifica
tion
Program
adm
inistra
tion
Curr
icu
larup
da
ting
Ins
titutiona
laccre
dita
tion
UNIVERSITY X X X X X X X X X X X X X X X X X X X X X X X X X X X X X
FACULTIES X X X X X X X X X
Programs
Research
Postgraduate courses
Master programs
Human resources management
Financial resourcesmanagement
Academic management
ProgramsWelfare Teachers Administ.
Personnel Students
Figure 9.10. Distribution of discretion of a university
Analyzing centr ali zed functions:the next step consists of identifying all the centralizedregulatory functions and checking out if they show bottlenecks or similar problems
(see figure 9.11). This perception arises from the interviews previously done. For eachof these functions it is necessary to study if it is feasible to delegate them, keeping in
mind the three criteria mentioned above.
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
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Figure 9.11. Identifying centralized regulatory functions (Satena s case study).
In order to specify the appropriate level of discretion for a particular regulatory function
it is important to involve in the discussion, in one or several workshops, the viewpointsrelevant to this function. The purpose of these workshops is to agree upon the level of
responsibility that each primary activity will have in performing the regulatory function
under consideration. For instance, table in figure 9.12 shows the distribution ofresponsibility for hiring teachers in a university. Notice that there are four
administrative units at the central level and four other units that will perform parts of
this function in other levels of recursion. The grade of discretion at each level is
described with the precise use of verbs. It is important that each verb delimits preciselythe responsibility of carrying out the function at each level. We should avoid using any
devious verb such as to accompany, to help, to support, to stimulateor similar. It isrecommended to use verbs which allow recognising when the function has beenaccomplished.
Figure 9.12. A proposal for distributing discretionality in the teachers hiring function
By running these workshops it is possible to define the level of discretion of those
functions that must be decentralized. Let us notice that on the left side of each verb infigure 9.12 there is a dot. These dots are used in a visual synthesis of the outcome of all
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Chapter 9 of Managing Complexity: Towards Self-constructed Organisations
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workshops by building up a new function/recursion table. This table shows the new
distribution of discretion that is desired for the organisation. Figure 9.13 illustrates the
outcome of this exercise to adjust the centralised structure of the small regionaluniversity that we have been using as an example.
In this particular case we can see a new communication structure in which faculties and
programs have a greater responsibility in performing different functions than before. It
will be in those levels that the execution of most of these regulatory functions will beaccomplished. Remember that each dot in this table is associated with one or several
verbs specifying the scope in the execution of the corresponding regulatory function.
Recreation
Sports
Culture
Health
Hiring
Evaluation
Educationsuuport(master,doctoral)
Training(pedagogy)
Workloadmanagement
Professoraltrack
Hiring
Evaluatioon
Training
Administrativecareer
Contracts
Funding
Accounting
Budget
Audit
Treasure
Financeportfolio
Admissionsandregistry
Registrationmanagement
Certificates
Gradingmanagement
Creditsandscholarships
Grades
Qualitycertification
Programadministration
Curricularupdating
Institutionalaccreditation
UNIVERSITY
FACULTIES
Programs
Research
Postgraduate courses
Master programs
Students Programs
Human resources managementFinancial resources
management
Academic management
Welfare TeachersAdminist.
Personnel
Figure 9.13. Design of a new distribution of discretion for a small regional university
A row-by-row analysis in this table allows the recognition of the functional capacity
necessary on each structural level. This analysis is the following step of the method.
Estimating the functional capacity of primary activi ties:rows in the function/recursion
table show the organisations structural levels in which primary activities are carriedout. Each row, as it was mentioned at the beginning of the chapter, corresponds to one
of the circles of the unfolding of complexity. If we look at one of these rows, forinstance, the one corresponding to the faculties in a university (figure 9.13), it is
possible to identify the regulatory functions in which there will be discretion in this
level. Indeed, by observing each of the dots from this row it can be concluded thatfaculties will have discretion in performing the following functions: hiring, evaluation,
education and training of the facultys teachers; workload administration; teaching
career administration; hiring, evaluation, education and training of the facultysadministrative staff; budget elaboration; part of the admission and registry process; the
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reception of new students; graduation; scholarships and loans administration;
management and updating the curricula; and accreditation of facultys programs.
Remember that the scope of each of these functions has been defined in a precise way
with the verbs used to delimit its responsibility (e.g., figure 9.12). Comparing thisproposed design with the current situation, as reflected by the function/recursion table
in figure 9.10, it is possible to determine the profile of the roles required to assume
these new responsibilities. The manuals describing these functions could be updated toobased on the information derived from this table.
Finally, the number of people required for each structural level, for instance the staffsupporting the faculty in the example of the university, could be calculated in terms of
the complexity of each regulatory function that has to be carried out. This complexity is
related to the demand for each function and the resources required to respond to thisdemand. Notice, therefore, that each dot in the table, as mentioned before, does notcorrespond to a single person but to a functional capacity within a process. A single
person, for instance, could be in charge of performing more than one function. The
outcome of this detailed analysis will be an estimation of the functional capacityrequired for the adjustment in the distribution of discretion in the organisation.
Designing the cohesion mechanism for the decentr ali zed regulatory functions: whena regulatory function is decentralized among various primary activities there is a risk of
loosing control. In other words, granting discretionality (or empowering, to use acommon catch-word in the organizational field) requires establishing a mechanism that
guarantees the cohesion between the different primary activities when performing thisregulatory function. The following story exemplifies this problem.
In the mid 80s a nationwide organization in a South American country decided to
systematize all its processes. For this purpose its strategy was to decentralize thesystems office that, up to that moment, had been concentrated in a big office in the
nations capital. The general manager decided to create a systems office in each one of
the 32 regional divisions of the organisation. Therefore, he delegated to the regionaldirectors this task. In other words, and using the terminology presented in this chapter,
the regional branches had discretion to systematize the processes that concerned them.
Each office received a budget with a goal of implementing the information systems they
require within the following two years.
Two years later, every regional branch had implemented an information system.However, when the national head office requested consolidated reports, these were
almost impossible to produce, due to the incompatibility of the different systems. Each
branch, through a bidding mechanism, had hired the most optimal systematization oftheir processes. Even though each regional director behaved in an honest and diligent
manner, the lack of a cohesion mechanism generated the described mishap.
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This cohesion mechanism has four components: (see figure 9.14): a mechanism to
formulate centralized policies; a resource bargaining mechanism; a coordination
mechanism; and a monitoring mechanism. Each one of these will be examined next:
Figure 9.14. General description of the cohesion mechanism for a decentralized function
The mechanism for formulating centralized policies allows the definition and
divulgation of policies, guidelines and general conditions or restrictions thatfacilitate the regulation of the corresponding function. These policies are a reflection
of the ethos, principles and values of the organization and, therefore, they are non-
negotiable. Examples of these are: internal quality standards; principles regardinggender equality when hiring new personnel; policies on environmental protection;
industrial security regulations; restrictions on the use of illegal software; policies
regarding the use of communication platforms, etc.
Discretionality means delegation plus action capability. This implies that when an
organisation goes for a decentralization of functions, it has to allocate the necessaryresources for the functions to be properly executed. Now, because resources in an
organisation are always limited, a communication channel to facilitate resource
bargaining and allocation becomes fundamental. But, at the same time, whoeverundertakes the responsibility to perform a decentralised function commit himself or
herself to comply with a set of targets or goals. This is part of this negotiation
process.
The coordination mechanism, on the other hand, has the purpose of avoiding (or
anticipating) any performance problems during the execution of the decentralised
function. The creation of committees that gather periodically to deal with atypical
Centralized policies Resources barganing
mechanism
A decentralized
regulatory function
Coordination mechanismMonitoring mechanism
Generalrestrictions that
regulate the
function
Generalrestrictions that
regulate the
function
Allows
assigment of
resources to
execute the
function
Allows
assigment of
resources to
execute the
function
Avoid communication
breakdowns by doing
auditing
Avoid communication
breakdowns by doing
auditing
Avoid performance
problems by using
manuals, establising
commitees, etc.
Avoid performance
problems by using
manuals, establising
commitees, etc.
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cases; producing and distributing manuals, standards and formats; designing and
using information systems and doing training courses are all examples of
mechanisms that help in the coordination of delegated regulatory functions.
But even with the use of mechanisms to coordinate activities, it is relativelycommon the occurrence of breakdowns in a daily execution of functions. These may
happen, most of the time, because of failures in the communication processes or
because of a poor alignment of interest and meanings. Another possibility is, ofcourse, the outcome of deceitful acts. No matter the case, it is important to have a
monitoring mechanism that ensures the stability of the commitments and
agreements established at the moment of granting discretion in the regulatoryfunction under consideration. Auditing is a particular instance of this monitoring
mechanism.
All four mentioned mechanisms must be designed and implemented in eachregulatory function in which discretionality has been granted. Figure 9.15 shows an
example of these mechanisms for the systematization process of the story of the
public organization mentioned above.
Figure 9.15. A particular example of the cohesion mechanism
The generic mechanism can be seen on figure 9.16 for all regulatory functions that
had been decentralized. By now the reader should be aware that we mentioned thismechanism in chapter V when we presented the viable system model.
Centralized
policies
Centralized
policies Resource
bargaining
Resource
bargaining
Coordination
mechanism
Coordination
mechanism
Monitoring
mechanism
Monitoring
mechanism Developing
information systems
Norms regarding the use of
technological platformsAssignment of budget for
developing ICTs
Programing standards,
codificaction manuals, standardforms to register processes, etc.
Information systems auditing
Regulatory function 1
Regulatory function 2
Regulatory function 3
Regulatory function 4
Regulatory function 5
Policies function 1
Policies function 5
Policies function 1
Policies function 5
Monitoring mec. 1
Monitoring mec. 5
Monitoring mec. 1
Monitoring mec. 5
Coordination mec. 1
Coordination mec. 5
Coordination mec. 1
Coordination mec. 5
Resource bargaining 1
Resource bargaining 5
Resource bargaining 1
Resource bargaining 5
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Figure 9.16. A generic cohesion mechanism
Indeed, it is possible to build up the VSM for a given organisation by using as a
guide the function/recursion table. Showing this, however, goes beyond the scope of
this book4.
The outcomes of the method described in this chapter are two: first a diagnostic of the level
of centralization/decentralization of functions in an organisation, and second a proposal foran adequate distribution of discretion of regulatory functions. This may eliminatebottlenecks, speeds up the primary activities and promotes a balance between
organizational autonomy and cohesion.
But the function/recursion table is also useful to make a connection between strategy,
structure and communication flows in an organisation. In order to show this connection is
important to do an additional distinction in processes. So far we have distinguished betweenbusiness and organisational processes. Now we need to bring forth the concept of
informational processes. Notice that having discretion to perform a regulatory function
implies the need to have appropriate information about its performance and adequate
communication channels to manage it. Showing this connection and its implications in thedesign of information system is the purpose of the following chapter.
4The interested reader could visit the page www.syncho.orgto get the viplan software where a step-by-stepconstruction is shown.