Organizational Architecture and My Company

Employee behavior can have a direct impact on the successful realization of the organization’s objectives and goals. 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 the way in 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, must be coordinated with the other two. An employee should only have decision rights that can be measured and rewarded or punished. The performance measurement system must be able to measure the area with which the employee has decision rights. And the system of rewards and punishments must be equivalent to the measured performance of the employees.

The system that assigns decision rights must be designed specifically for the organization. It usually includes a hierarchical structure. This hierarchical structure is used to separate managers from employees and also to separate decision management from the decision control aspect of the decision process. Decision management includes initiation and implementation, while decision control includes ratifications and decision follow-up.

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 accounting figures, the accounting system can provide internal reporting and provide a form of control. Each of these can be used as a performance measure.

The system used to reward or punish performance can be done through monetary or non-monetary methods. Monetary rewards typically 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 established by a limit. Ledger based targets many times have a lower bound and may have an upper bound. The lower limit is the minimum requirement that must be met to receive a bonus. The bonus then increases as you go over the lower limit. Then it is limited at the upper limit.

Organizational architecture has a huge 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 oversee the middle level consisting of Directors and Managers. The middle level manages and supervises the other lower level employees. Our control of decisions is carried out mainly by employees of the highest level. Decision management is then controlled by mid-level employees.

For most of our employees, their performance is based on meeting quarterly and annual sales goals. Because of this, your performance is tracked and measured within our accounting program known as MAS90. It is used to keep track of any and all financial transactions that occur within our organization. From those 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, rewarding or punishing performance, MAS90 also plays an important role. Most employee performance is based on the amount of sales a salesperson can generate. Sales commissions are then paid at a fixed percentage rate against the gross revenue of each project. MAS90 generates all these reports. Rewards are also given 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 agreed calculation formula based on their employee contract.

These systems currently function adequately within my organization. The only recent change that has been made was due to the slowdown 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 think there are two elements that we need to consider to improve our organizational architecture. The first is by updating our accounting system. MAS90 is an older version of the software with major updates available. MAS200 is a newer Sage accounting system product that includes great features that we can take advantage of. Second, I think we should consider implementing more subjective measures for vendors and more objective measures for other staff.