Economic Size of Organizations

For a general discussion of this and other points relating to organizational size and a review of the literature, see Caplan Theodore , “Organizational Size,” Administrative Science Quarterly, I (March 1957), 484–505.

It has also been argued that: (a) since coordination must be the act of a single center, division of labor cannot apply to this task; (b) thus, supply of coordinating ability cannot be expanded with increase in the supply of other factors; (c) since the supreme coordinating authority must have knowledge of details of problems, expansion requires greater knowledge by the coordinator. For a discussion of these fallacies, see Ross N. S. , “Management and the Size of the Firm,” Review of Economic Studies, XIX:3 (1952–1953), 148–154.

Koontz H. O'Donnell C. , Principles of Management (3rd ed.; New York: McGraw-Hill Book Company, 1964), pp. 216 ff. Many of the concepts in this section were derived from this reference and applied specifically to the question of organization size.

Miller George A. , “The Magical Number Seven, Plus or Minus Two: Some Limits on our Capacity for Processing Information,” Psychological Review, LXIII:2 (March 1956).

Graicunas V. A. , Relationship in Organization, Bulletin, International Management Institute (Geneva: International Labor Office, 1933). Also published in Papers on the Science of Administration, eds. Gulick L. Urwick L. (New York: Columbia University Press, 1947).

Urwick L. , “The Manager's Span of Control,” Harvard Business Review, XXXIV:3 (May 1956), 41. A number of writers, including Urwick, speak of “span of control” rather than “span of management.” The latter term is used here because the limitations imposed by the principle apply not only to the managerial function of control, but also to other management functions.

Koontz O'Donnell , op. cit., p. 222.

“In an exhaustive theory of organization, communication would occupy a central place, because the structure, extensiveness, and scope of organization are almost entirely determined by communication techniques,” Barnard Chester I. , The Functions of the Executive (Cambridge: Harvard University Press, 1958), p. 91. Also, “communication is the limiting factor in the size of simple organizations and therefore, a dominant factor in the structure of complex organizations,” ibid., p. 106.

Simon Herbert A. , Administrative Behavior (New York: The Macmillan Company, 1959), pp. 26–28.

There are, of course, other considerations than span of management or number of levels used in arriving at a desirable organization structure. See, for example, the principles of departmentation and assignment of activitv, Koontz O'Donnell , op. cit., pp. 231–261.

For example, Likert Rensis , New Patterns in Management (New York: McGraw-Hill Book Company, 1961). See also Newman William H. , Administrative Action (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1965), pp. 262–263.

Simon , op. cit., p. 28.

For a different treatment that arrives at substantially the same conclusions, i.e., that the marginal cost per worker remains below a definite bound no matter how large the organization, see Beckman Martin J. , “Some Aspects of Returns to Scale in Business Administration,” Quarterly Journal of Economics, LXXIV (1960), 464–471.

See, for example, Koontz O'Donnell , op. cit., p. 222.

Simon , op. cit., p. 15.

Koontz O'Donnell , op. cit., p. 223.

Fayol Henri , General and Industrial Management (London: Pitman & Sons, 1963).

For a list of principles that serve as guides to effective authority delegation, see Koontz O'Donnell , op. cit., pp. 63–66.

For a discussion of some of the advantages and disadvantages of decentralization, see White K. K. , Understanding the Company Organization Chart, AMA Research Study 56 (New York: American Management Association, 1963), pp. 44–49.

Fayol , op. cit., pp. 34–46.

W. Waino Suojanen refers to the formation of “primary groups” through which the supreme coordinating authority “becomes indefinitely extensible with no limit to the size of any one formal organization,” not only invalidating span of management limitations, but unity of command as well (“The Span of Control—Fact or Fable?” Advanced Management, XX:11 [Nov. 1955], 11). This is an extreme position.

First formally stated by Taylor (see Shop Management [New York: Harper and Brothers, 1919], pp. 126–217) and frequently mentioned in management literature.

Urwick , op. cit., p. 46.

Watson Thomas J. Jr. , A Business and Its Beliefs (New York: McGraw-Hill Book Company, 1963), pp. 19–21.

See, for examples: Koontz , “Top Management Takes a Second Look at EDP,” Harvard Business Review, Nov.-Dec. 1961, pp. 74–84; Burlingame J. F. , “Information Technology and Decentralization,” ibid., pp. 121–126; Stein Charles , “Some Organizational Effects of Integrated Management Information Systems,” Changing Dimensions in Office Management, AMA Report No. 41 (1959), pp. 82–89; Ream Norman J. , “Organizational Relationships of Operations Research, Systems Planning, and Data Processing,” ibid., pp. 90–102.

The actual maximum executive span of this company was 8, and depth about 6, as of June 1963.

Holran Virginia T. , “Employment in the Insurance Business, 1962” Journal of the American Society of Chartered Life Underwriters, XVII:2, p. 158.

Fayol , op. cit., p. 55.

Suojanen , op. cit., p. 6.

For a point-by-point rebuttal to Suojanen's contention, see Urwick , “The Span of Control—Some Facts About the Fables,” Advanced Management, XXI (Nov. 1956), 5–15.

Suojanen , op. cit., p. 6.