Contingency Factors

The key contingent factors of organizations include:

  1. Organizational size,
  2. Organizational technology
  3. Environment
  4. Organization’s goals and strategy, and
  5. Organization’s culture.
  1. Organization’s Size

Organization’s size is typically measured by the number of employees.

Other measures such as total sales or total assets also reflect magnitude, but they do not indicate the size of the human part of the system. GEOpens in new window was very large, with hundreds of thousands of employees.

  1. Organization’s Technology

Organizational technology refers to the tools, techniques, and actions used to transform inputs into outputs.

It concerns how the organization actually produces the products and services it provides for customers and includes such things as flexible manufacturing, digital information systems, and the Internet.

An automobile assembly line, a social media platform, a college classroom, a ride-hailing app, and an overnight package delivery system are technologies, although they differ from one another.

  1. Environment

The environmentOpens in new window includes all elements outside the boundary of the organization.

Key elements include the industry, government, customers, suppliers, and the financial community. The environmental elements that affect an organization the most are often other organizations.

  1. Organization’s Goals and Strategy

The organization’s goals and strategy define the purposeOpens in new window and competitive techniques that set it apart from other organizations.

  • Goals are often written down as an enduring statement of company intent.
  • A strategy is the plan of action that describes resource allocation and activities for dealing with the environment and for reaching the organization’s goals.

Goals and strategies define the scope of operations and the relationship with employees, customers and competitiors.

  1. Organization’s culture

An organization’s cultureOpens in new window is the underlying set of key values, beliefs, understandings, and norms shared by employees.

These underlying values and norms may pertain to ethical behavior, commitment to employees, efficiency, or customer service, and they provide the glue to hold organization members together.

At General Electric (GE)Opens in new window, for example, Jack Welch implemented Work-Out sessions to create a culture of open and direct conversation among employees and managers.

The five structural dimensionsOpens in new window and five contingency factors discussed here are interdependent. Certain contingency factors will influence the appropriate degree of specialization, formalization, and so forth for the organization.

For example, large organization size, a routine technology, and a stable environment all tend to create an organization that has greater formalization, specialization, and centralization.

The organizational features illustrated in Figure X-3Opens in new window provide a basis for measuring and analyzing characteristics that cannot be seen by the casual observer, and they reveal significant information about an organization.

Consider, for example, the dimensions of Valve SoftwareOpens in new window compared with those of Walmart. Valve is a small organization that ranks very low with respect to formalization and centralization and has a medium degree of specialization. Horizontal collaborationOpens in new window to serve customers with innovative product is emphasized over the vertical hierarchyOpens in new window.

WalmartOpens in new window is much more formalized, specialized, and centralized, with a strong vertical hierarchy. Efficiency is more important than new products and services, so most activities are guided by standard regulations. Rules are dictated from the top and communication flows down a strong vertical chain of command.

Structural dimensions and contingency factors can thus tell a lot about an organization and about differences among organizations.

IN PRACTICE | Valve Software
Valve Software Corporation, the maker of classic games such as Counter-Strike, Half-Life, Left 4 Dead, Portal, and the popular digital distribution platform Steam, has been “boss free since 1996,” as its website proclaims. Valve’s unique organization structure caused a minor media blitz after someone posted the employee handbook online a few years ago, but Valve has been functioning smoothly without bosses since it was founded. Co-founders Gabe Newell and Mike Harrington, former Microsoft employees, wanted to create a flat, fast organization that allowed employees maximum flexibility. It sounds like a dream for employees, but many people don’t adapt to the “no-structure structure” and leave for more traditional jobs. At Valve, everyone has a voice in making important decisions. Any employee can participate in hiring decisions, which are usually made by teams. There are no promotions, only new projects, with someone emerging as the de facto leader. Firings are rare, but teams decide together if someone isn’t working out. Team meetings are highly informal and people are invited to share feelings as well as business ideas.

Compare Valve’s approach to that of Walmart, which achieves its competitive edge through internal cost efficiency. A standard formula is used to build each store, with uniform displays and merchandise. Walmart’s administrative expenses are the lowest of any chain. The distribution system is a marvel of efficiency. Goods can be delivered to any store in less than two days after an order is placed. Stores are controlled from the top, although store managers have some freedom to adapt to local conditions. Employees follow standard procedures set by management and have little say in decision making. However, performance is typically high, and most employees consider that the company treats them fairly.
Remember This
  • Structural dimensions and contingency factors provide labels for measuring and analyzing an organization. These characteristics may vary widely from organization to organization.
  • Structural dimensions include formalization, specialization, hierarchy of authority, complexity, and centralization.
  • Contingency factors include size, organizational technology, environment, goals and strategy, and culture.
    Research data for this work have been adapted from the manual:
  1. Managerial Accounting: Tools for Business Decision Making By Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso