Augustana College (IL)

Ouchi seeks to develop a theoretical framework that predicts what sort of form organizations will take on under certain external conditions.  Under this framework, two main criterion, what he calls transaction costs, affect the form of an organization: goal incongruence and performance ambiguity.  He identifies three types of forms that organizations can take depending on their levels of these transaction costs: Markets, bureaucracies, and clans.  Ouchi ultimately argues for a framework that can evaluate the nature and efficiency criterion of organizations, and how those organizations operate within an economic landscape of transactions. 

Markets, Bureaucracies, and Clans

William G. Ouchi. “Markets, Bureaucracies, and Clans.” Administrative science quarterly 25.1 (1980): 129–141. Web.

Markets, Bureaucracies,
and Clans, William G. Ouchi

Nature of Organizations

While cooperation is of singular importance to the success of an organization, it is often difficult to achieve.  This is because the goals of an organization are not always shared by the individuals who are the members of that organization.  Bridging any gap between the organizations goals and the individuals is the primary challenge of any enterprise, and transaction costs solve the problem of cooperation.  Transaction costs are simply any activity in which two parties engage in to exchange anything of value that is needed by the other side.  Satisfying the need for an equitable exchange where both parties feel that have gained something of equitable values ensures the continued interdependence of an organization which leads to cooperation among its members, and hence a more unified adherence to a common goal.  

Transaction Costs and Cooperation

Bureaucratic relationships have several advantages over market ones.  Firstly, it utilizes the employment relationship where actors accept wages in exchange for services that can be monitored and managed by superiors within that organization.  This minimizes the trust and opiumism problems that markets suffer from.  Members in a bureaucratic organization typically have closer, longer term interactions with each other and have metrics to reward or punish work performance, which reduces goal incongruence.  Bureaucratic organizations also have an advantage of determining value of labor, products, and services because the environment in which those things are exchanged in are on a smaller scale and more tightly controlled as it operates according to a system of hierarchical surveillance, evaluation, and direction.

Bureaucracies 

Clans operate at the smallest scale of an organization but are ideal for situations where transaction costs and goal orientation are highly unique, ambiguous or in flux. Bucerotid organizations only work if all members trust and perceive that superiors are distributing resources in a fair and equitable way, but clans function more effectively when performance evaluation ambiguity is high and goal incongruence is low, meaning that members of a clan have high rates of cooperating towards the same goals, and a high rate of interpersonal trust and immersion/integration.

Clans

This node is a duplicate of the primary 'Markets' node (ID: i2nsqBCEDm9QMoi6xlMF) and is slated for merging and removal. Its content and connections are being transferred to the primary node.

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