Employee behavior can have a direct impact on the successful fulfillment of the organization’s objectives and goals. A 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 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 known as a “three-legged stool.” These “legs” must remain balanced and individually, they must be coordinated with the other two. An employee should only have decision rights that can be measured and rewarded or punished. The system that measures performance must be able to measure the area with which the employee has decision rights. And the reward and punishment system should be equivalent to the measured performance of the employees.
The system that assigns decision rights must be designed specifically for the organization. It generally includes a hierarchical structure. This hierarchical structure is used to separate managers from employees and also decision management from the decision control aspect of the decision process. Decision management includes initiation and implementations, while decision control includes ratifications and follow-up of the decision.
The system that measures performance must measure both objectively and subjectively. Objective measures are explicit and verifiable, while subjective measures are implicit and difficult to measure. Accounting systems are widely used by organizations for this system. Along with tracking 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 used to reward or punish performance can be done through monetary or non-monetary methods. Monetary rewards generally come in the form of an annual bonus that is included in an employee compensation contract. Many times these bonuses are based on the achievement of goals or objectives and are set by a limit. Accounting-based goals often have a lower bound and may have an upper bound. The lower limit is the minimum requirement that must be set to receive a bonus. The bonus then increases as you climb above the lower limit. Then it is finished off at the upper limit.
Organizational architecture has a great impact within my organization. Our decision rights system is divided into a three-tier system. At the highest level of the system are the presidents and vice presidents. They supervise the middle level consisting of directors and managers. The middle level manages and supervises the rest of the lower level employees. Our decision control is handled primarily by top-level employees. Decision management is then controlled by mid-level employees.
For most of our employees, their performance is based on meeting quarterly and annual sales targets. Because of this, their performance is monitored 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 these transactions, MAS90 generates reports that are used by all levels of employees. For non-sales employees, their performance is measured by strictly subjective measures.
For the final system, which rewards or punishes performance, MAS90 also plays an important role. Most of employee performance is based on the amount of sales a salesperson can generate. The sales commissions are then paid at a fixed percentage rate against the gross income of each project. MAS90 generates all these reports. Rewards are also awarded to the seller based on the total amount of annual sales they generate. The formula or rate used to determine the amount of this bonus is different for each seller. Each of them has a different formula calculation agreed upon based on their employee contract.
These systems are currently working well within my organization. The only recent change that has been made is due to the recession in the economy. Our company, like most, lost a significant amount of business and because of this, commission rates for everyone on sales were renegotiated. I think there is always room for improvement within any structure.
I think there are two elements that we must consider to improve our organizational architecture. The first is to update our accounting system. MAS90 is an older version of software that has important updates available. MAS200 is a newer Sage accounting system product that includes some great features that we could take advantage of. Second, I think we should consider implementing more subjective measures for the salespeople and more objective measures for the rest of the staff.