“The most important decisions managers make is finding the right balance between vertical control and horizontal coordination depending on the needs of the organization”.
Introduction
Focusing solely on vertical or horizontal control as alternatives is not the only option for business firms seeking to develop competitiveness because of the possible limitations in selecting one over the other. On one hand, implementing solely vertical control could sacrifice flexibility, communication, and front line learning that many business firms require in adjusting to changing market environment and demand. On the other hand, depending solely on horizontal control could give up efficiency and standardization generally achieved through a certain degree of control via a vertical organizational structure. As such, many successful business firms opt to find the right fit between vertical and horizontal control in order to achieve the benefits of both dynamism and efficiency. The paper seeks to provide arguments in support of the integration of both forms of management by citing the case of Flight Centre, a travel agency.
Arguments
Successful business firms are those able to establish well-designed organisations. A good organisational design supports differentiation by designating various tasks as well as fostering specialisation (, 2006). Another benefit of a good organisational design is the integration of the contributions of different working teams or units (2006). For many modern business firms, the contingency perspectives provided the means of achieving a good organisational design by finding the right balance between vertical and horizontal control that fits with the particular context of business firms (, 2003). Three arguments support this statement.
First argument in favour of balancing both modes of control instead of just sticking to one is the need to achieve coordination of work and standardisation. Coordination assumes that there are various individual members of the organisation or working units focusing on different tasks. Coordination is necessary to integrate the contributions of individuals or teams comprising aggregate output of the organisation. ( 2006; 2006) Horizontal or flat organisational design supports coordination. However, standardisation is an equally important factor for business firms to ensure that different business units or working teams operate towards the achievement of the common business goals of the organisation (, 2006; 2006). Vertical mode of control ensures standardisation. Flight Centre is a large travel agency with business units servicing six countries through 800 shops. It maintains standardisation by maintaining three tiers of hierarchical structures—family, tribe and country levels—and achieves coordination by keeping a flat structure at the business unit level. Direct communication constituted both a means in achieving both coordination and standardisation by creating direct links between front line employees and top managers and an outcome of balancing both vertical and horizontal control, especially by maintaining a flat structure at the business unit level with only a small number of employees running the shops. Flight Centre heavily invests in the ensuring communication within the business units and across the organisation to develop good working relations and customer service.
Another argument in favour of balancing vertical and horizontal control is the achievement of a flexible organisational culture. The culture of business organisations pertain to the “pattern of shared basic assumptions” that emerge from the learning derived from the manner that groups address, adjust and adapt to challenges emerging from within or outside of the group (1992). As the outcome of learning, organisational culture becomes the best way of doing things ( 1992) expressed through the practices and norms of the organisation. However, organisational culture has to be flexible to endure internal and external pressures adaptable to change. Flat structures ensure a flexible organisational structure with front line employees of different business units identifying the areas requiring change based on their direct contact with customers and experience of market changes. However, a certain degree of vertical control ensures the alignment of practices and change towards the common goals of the business organisation. At Flight Centre, the organisational culture revolves around the fostering of belongingness by considering managers and employees as co-owners of the shops. By nurturing small business units, the founder Graham Turner was able to fashion the business units into family type structures comprising tribes and countries as the levels of the organisational design. As members of the family, managers and employees benefit from contributing to the continuous growth in the profitability of the shops. The firm was able to achieve this by establishing a maintaining three tiers of vertical control but keeping the business units small even with its international operations. The result is small business units that are profitable and able to adjust to the changes occurring at intervals of two years with continuous increases in the number of shops in the different countries.
Still another argument favouring the determination of the balance between vertical and horizontal control is the support for knowledge building and innovation, which could be intangible and/or tangible output from work. Transforming knowledge into innovation requires effective management. The management of knowledge pertains to the aggregate processes of ensuring that learning translates into means of ensuring the short-term and long-term benefits for business firms ( 2005). There are a number of benefits to the proper management of knowledge including the development of an environment of collaboration, the creation of opportunities for the generation of knowledge, and the provision of the means for the application of knowledge to meet strategic goals such as innovation (2003). Effective knowledge management involves elements of both vertical and horizontal control. At Flight Centre, knowledge building comes from the maintenance of a flat structure so that learning experienced by front line employees become subject to easy communication or sharing within the business units and up to management in a speedy manner to support sound and timely decision-making. Top management could also share knowledge by collating information from the business units and transforming these into responsive policies. In addition, top management also ensures that innovation at the business unit level align with organisational goals.
The counter-argument for the balancing of vertical and horizontal control lies in the classical thinking that explains organisational design of business firms as revolving around either vertical or horizontal control. The two modes of control support different outcomes because vertical control offers the benefit of efficiency and horizontal control revolves around the benefit of flexibility. This means that business firms should select the mode of control depending on its desired outcome. However, relying on one mode of control or the other means the preference of one benefit and neglecting the other. Business firms could benefit from both efficiency and flexibility, as shown in the three arguments presented, by finding the balance between vertical and horizontal control appropriate to its context according to the contingency perspective. In the case of Flight Centre, a travel agency with operations in six countries, keeping three tiers of vertical control and small business units constituted the balance in organisational design that ushered its business success.
Conclusion
Business firms no longer have to choose from the implementation of either vertical or horizontal mode of control. The contingency theory provides the selection of one or the other or the appropriate combination of both depending on its needs and objectives or internal and external context. In selecting integration, the key is finding the balance between the vertical and horizontal modes of control that fits the particular of the firm. Flight Centre adopted the integrative perspective and achieved the right balance by establishing three tiers of vertical structure and maintaining small business units.
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Credit:ivythesis.typepad.com
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