LEADERSHIP:ORGANIZATIONAL DEMOCRACY

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Human Resource Development (HRM-627)

Lesson 14

LEADERSHIP

Organizational Democracy and Organization Structure Link: Role of Strategic Leadership &

Environmental Uncertainty

Abstract

This theoretical paper focuses on the issue of implementing democratic principles in modern day organizations

facing turbulent and changing environments around them. The paper captures the notion of participatory style

of management through the construct; organizational democracy. It traces the origin of this construct from

theories and philosophies of political democracy. The paper also briefly describes the notion of economic

democracy and why it failed to succeed in the face of partial success of political democracy. The underlying

question which the paper raises is the role of organization structure and strategic leadership style in the

successful implementation of democratic principles in organizations in the face of a turbulent and dynamic

environment. The paper also attempts to raise some thought provoking questions for future research.

INTRODUCTION

People who grew up feeling comfortable and secure working for a manufacturing firm appreciate just how

elusive stability and security are in these days when the companies across the globe are feeling the enormous

impact of globalization on their style of work, leadership, communication, reporting mechanisms, and other

structural and contextual dimensions of present-day companies. There are a number of ways in which

organizations are coping with the reality of globalization and the need for `organizational excellence' focus is

realized to be more than any other time in industrial history. Recent research has identified four threads of

corporate excellence (Daft, 2000, pp. 483). These include, strategic orientation (customer-driven, fast in

responding, ability to establish interorganizational links), top management leadership style (leadership vision, bias

towards action & change), organization design (horizontal structure, empowerment of employees, use of

electronic technology & e-commerce) and, corporate culture (creating a climate of trust, sharing information,

encouraging productivity through people).

The impact of globalization is no doubt different for different industries. The high-velocity industries like

electronics and information technology are probably more exposed to the impact of globalization as compared

to typical manufacturing industries, but in general, the focus on `productivity through people' (Hitt & Ireland,

1999) has largely meant a participatory style of management and decision-making. This paper presents the

notion of organizational democracy to capture the participatory management style within a company and also

examines the relationship between this participatory style and other dimensions of the company like strategic

leadership style and turbulent environment.

HISTORY AND BACKGROUND OF ORGANIZATIONAL DEMOCRACY

The term democracy originated from Greek word demokratia where demo means people, and kratia referring to

power or rule, so democracy means rule of the people (Powley et al. 2004). The Greeks were no doubt the first

to try to build political philosophy theories and Plato equated the three elements of human soul with the three

elements of an ideal or just state (Moore & Bruder, 2001, pp. 266). His notion of democracy is however a

degenerated form of plutocracy which results because, "a society cannot hold wealth in honor and ......

establish self-control in its citizens" (Republic). Aristotle too regarded state as an organism and defined

democracy as an improper rule by many.

Later on, during the period of renaissance, Nicolo Machiavelli's The Prince (1532) was labeled as, "one of the

most famous political treatise of all times" (Moore & Bruder, 2001, pp. 272). In fact Machiavelli established his

reputation as the first one to advocate the notion of power politics. Lock, Rousseau, John Stuart Mill, all

mentioned "liberty" and "happiness" as essential ingredients of good governance.

By 19th Century, Karl Marx (1818 1883) brought in the issue of "class struggle" in the governance of a

society. He also attacked the foundations of capitalist theories by pointing out that workers produce the

product but don't own it!

Be it in the West or in the "form of varna and jati in Hindu society" (Presby, Struhl & Olsen, 2000, pp. 591) in

East, most of the philosophers who wrote on politics and its philosophy mention the classes in society and the

need for a fair and transparent governance system to bring these classes and factions together in the

formulation of a solid and whole system of political governance.

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The 20th Century is therefore labeled as the "century of democracy" as the older versions of democracy

improved in quality and further experience was gained in governance through democracy and one can witness

that from 1985 to 2000, the number of most democratic countries in the world increased from 44 to 82 and the

number of authoritarian regimes declined from 67 to 26 (Ringen, 2004).

Economic democracy, on the other hand has not witnessed such successful proliferation as its political

counterpart. Though it seems logical that economic democracy follows from the democratic principles and that

economic power should also be under the democratic control but in contrast to political democracy, economic

democracy, "does not appear to be something people are ready to take to the streets and fight for" (Ringen,

2004). In the same article on distributional theory of economic democracy, Ringen (2004) captures the failure

of economic democracy in the following way:

"Various attempts can be identified through the last century of subordinating economic resources and activities

to political control, all failures. The extreme case is that of Soviet-style command economy......British style

nationalization of heavy industry......French socialists' move under President Mitterrand to nationalize major

banks......Swedish idea of bringing capital under democratic control".

All of these above mentioned endeavors enjoyed brief success but none lasted long.

The advocates of the concept of Inclusive Democracy recognize this failure and are of the view that, "the

world is in a multidimensional crisis, caused by concentration of power in the hands of various elites, as a result

of the establishment of the economic system of market/growth economy, its political complement in the from

of representative democracy" (Gezerlis, 2003). The principle of political democratic equality understood as

"one man one vote" does not probably apply to economic democracy and a recent case study of political

decision-making in Skanderburg, a small town in Denmark only confirms this (Sorensen & Torfing, 2003).

Even the modern political democracy is seem to be under attack from factors like, "commercialization of

education, media consolidation, news uniformity......extension of application of psychology from the

cultivation of consumer tastes to the cultivation of political ideology and voter perception......and a consumer

culture that has elevated material wealth to be all, end all" (Swaney, 2003).

It would now be interesting to pose the question: Why various efforts and experiments to launch economic

democracy failed? Why the theory that political control over the economy would be conducive to economic

efficiency did not work?

The answers to these questions seem to lie in the "big tradeoff" of the economist Arthur Okum, according to

which citizens in democratic societies value both prosperity and equality, they want equality but not at the cost

of prosperity (Ringen, 2004). Slowly and gradually issues like poverty, income inequality have been absorbed in

the society with little or no political resistance. Political equality has been somewhat achieved in equal rights

and the universal vote (at least in the developed countries) while economic equality has been given up, even in

these advanced societies, as it not possible without incurring prohibitive costs. Can we imagine a society where

everyone has the same economic power? The answer to this question seems to be no as it's understood that

real economies are comprised of different classes of people with uneven economic power, in contrast to

political power, which is more or less equal as one man has only one vote, whatever his/her economic

resources may be. Society has an upper, middle and lower class in terms of income and prosperity, though each

person within these classes has the same political power of one vote. Laclau noted earlier that, "power which is

equally distributed among all members of the community is no power at all" (Marchart, 2003), one can infer

that the control and acquisition of economic resources is power as it is not equally distributed across any

society in the world.

The political democracy, on the other hand, has seen some success and is probably one of the reasons of

successful integration of the `melting pot' culture of America as it has forged a single nation from people of

remarkably diverse racial, religious, and ethnic origins through democratic principles and participatory

democracy (Braceras, 2005). Political democracy has to its credit the adoption of Civil Rights Act of 1964 to

redress and to eliminate inequality in the treatment of Black Americans. Samuel Loescher while examining the

merits of a corporate progressive value added-tax to induce spin-offs by corporate giants to enlarge pluralism,

notes the same merits of political democracy in including people to rise, but voices the above mentioned `big

tradeoff' question when he asks, "would adoption of any of these alternatives (tax incentives) be as

economically efficient a use of citizens' `love' for our democratic environment as a massive citizens' campaign

for tax incentives to limit corporate power?" (Loescher, 1979).

The next natural question to rise is: If economic democracy has failed due to non homogenous society in terms

of income inequality and class struggle, can organizational democracy succeed in organizations?

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ORGANIZATIONAL DEMOCRACY

The idea of political democracy, as we have already seen, is deeply ingrained in Western culture. It is not

surprising therefore if the organizations based in the Western economies are viewed as natural setting in which

to extend democratic values and practices (Kerr, 2004). Organizational democracy means that members of an

organization participate in the processes of organizing and governance (Harrison et al. 2004). There is no doubt

that the idea of applying democratic principles to organizations is appealing. It is argued that increase `voice'

(Fenwick, 2005) of the employees ( as a result of democratic principles) would lead to higher level of

organizational commitment which would further improve implementation rates of the decisions made, reduce

dysfunctional behavior in employees and upgrade their skills and abilities due to more participation which

would ultimately lead to improved organizational performance and productivity.

But the literature also points out that organizational democracy practices do not reach out the lowest

employees as they are not in a position to capture the `big picture' of organizational governance and hence the

quality of their decisions will be compromised and not up to the mark of organizational requirements

(Harrison, et al. 2004). It is also mentioned that organizational democracy is a time consuming process which

demands sweeping changes, and fierce resistance from various worker groups and clash of interest of different

corporate players would make it even more time consuming and difficult to implement in the organizations.

Organizations are after all much like societies in the sense that they are not homogenous and parallel the rich,

middle and poor classes of society as top, middle and lower management hierarchies in organizations. In real

economies there is a surplus and no equality (Ringen, 2004) and similarly in organizations there is profit with

minimum equality among organizational members. If economic democracy has failed in society, in the face of

success of political democracy, can we not assume that democracy in organizations, which are structured more

or less like societies, is doomed for failure as well? Is it not the nature of an organizational person to grasp

power rather than sharing it or giving it up?

These questions at least caution us to the fact that trying to blindly duplicate political democracy in

organizations will end up in failure and trouble. The recent researchers define corporate democracy as,

"referring to a system of democratic governance embedded in a supportive organizational structure that includes

shared residual claims by all members in combination with democratic decision-making rules" (Harrison, et al.

2004).

We can see that this definition of organizational democracy is subject to `supporting organizational structures'

as a main moderating variable which will decide the fate of the application of democratic principles in

organizations. The conceptual and structural differences among different organizations are explained aptly in

the following paragraph:

"Some (organizations) are truly command-and-control organizations where attempts by employees or managers

to be more democratic are disparaged by owners and senior executives......A few organizations are built not

just on democratic principles but are in fact `democratically designed communities' where ownership,

employment and business processes are all aligned to create viable entities that achieve a high level of

results......While larger organizations have difficulty transitioning to a full democracy, many smaller companies

have embraced a systemic approach called `open book management'" (Caimano, 2004).

In the nutshell, the organizational democracy principles can be summarized as follows:

· Participative management practices

· Increased `voice' of employees

· Focus on change

The basic theory underlying my proposed model of organizational democracy implementation in organizations

is based on the interaction between its structural and contextual dimensions. Organizational dimensions fall into

two categories: structural and contextual. Structural dimensions provide labels to describe the internal

characteristics of an organization and include degree of formalization, specialization, centralization in decision-

making, breadth of the span of control and, length and width of the hierarchy, while the contextual dimensions

characterize the whole organization, including its size, technology, environment, and goals (Daft, 2000, pp. 16,

17 & 18). These dimensions of organizations design interact with one another as shown in Figure 1.

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Size

Environment

Goals

Structure

Culture

Technology

1. Formalization

2. Specialization

3. Hierarchy

4. Centralization

Figure 1: Interacting Contextual and Structural Dimensions of Organization Design

Adapted from Daft, 2000, pp. 17: Organization Theory & Design

The above shown interaction of the contextual and structural dimensions of the organization determine the

unique design of that organization and research has proved that these dimensions or variables are

interdependent, e.g., large organization size, a routine technology, and a stable environment all tend to create an

organization that has greater formalization, specialization, and centralization (Daft, 2000, pp. 20) or mechanistic

structure (Daft, 2000, pp. 144; Sharfritz & Ott, 2001, pp. 201). Similarly, a medium size, a non-routine

technology, and a turbulent and dynamic environment tend to create an organization that has lesser

formalization, specialization, and centralization or in other words, an organic structure.

Figure

Theoretical

Organic

Framework

Structure

Linking

Successful

Organizational

Implement

Democracy to

ation of

Organization

organizations'

Organizati

al Democracy

Structure,

onal

Principles

Strategic

Democracy

Leadership

Empowering

Style

and

Strategic

Turbulent

Leadership

Environment.

Double-arrows

indicate

interdependencies

Turbulent

Environment

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The underlying theory of my proposed model for successful implementation of organizational democracy is

therefore, embedded in the current literature on organizational theory. Since organizational democracy requires

participative style of management, the best suited structure to achieve this would be a free flowing organic

structure and not the rigid mechanistic structure. In the sections to follow, I will address how successful

implementation of organizational democracy depends on the presence of supportive organizational structure

and two additional variables; strategic leadership style and change (captured by the environmental uncertainty).

My proposed model is shown in Figure 2. This figure is not meant to be a full-blown theoretical model, but it

does summarize and integrate some of the findings of the previous research, along with my structure-based

predictions. For example, my contention on the connection between successful implementation of

organizational democracy and organization structure is that the relationship between the two would be

augmented in the presence of two additional variables; a dynamic strategic leadership on top of an organic

structure and with a turbulent environment around the organization.

The link of organizational democracy with supportive organizational structure, strategic leadership and

turbulent environment is now described in some detail.

Supportive Organization Structures and Organizational Democracy

Most organizational theorists like Taylor and Perrow have determined two definitions of organization structure

and have evolved the concept of mechanistic versus organic structures (Kennedy, 1983; Ambrose & Schminke,

2003).

Organizations have a mechanistic or organic structure not because they like to have one, it is because of a

particular type of product/service which the organizations is offering and to the degree of environmental

stability or the lack of it, around that organization which defines and imposes the structural requirements on

the organizations. Burns and Stalker observed that external environment was related to the internal

management structure to the extent that when external environment was stable, the internal organization was

characterized by rules, procedures and a clear hierarchy of authority. The opposite was observed to be true

when the external environment confronting an organization was complex and dynamic. These organizations

tended to have loose, free-flowing and adaptive organic structure (Daft, 2000, pp. 144). Various authors and

researchers in the field of organization theory have developed sets of characteristics which are intrinsic to

mechanistic and organic structure. The following table summarizes some of these characteristics:

Table 1

Mechanistic Structure

Organic Structure

1. Tasks are broken down into specialized

1. Employee contribute to the common tasks of

separate parts

the department

2. Tasks are rigidly defined

2. Tasks are adjusted and redefined through

teamwork

3. There is a strict hierarchy of authority and 3. There's less hierarchy of control and authority,

control, rules are many

there are few rules

4. Knowledge and control of tasks are 4. Knowledge and control are located anywhere

centralized

in the organization

5. Communication is vertical

5. Communication is horizontal

Source: Adapted from Richard L. Daft, 7th edition, 2001

These two above mentioned structures are in reality the two formally contrasted forms of management

systems, a mechanistic management system which is appropriate in stable conditions and the organic form

which is appropriate to changing conditions (Shafritz & Ott, 2001, pp. 201- 201).

Michael Porter's framework of competitive strategies of either low cost leadership or differentiation also

captures the same structural differences among organizations as a result of their interaction with the

environment. His low cost leadership strategy where the organization aggressively seeks efficient facilities,

pursue cost reduction, and uses tight controls to produce the product more efficiently (Daft, 2001, pp. 60) is

clearly more suitable for mechanistic organizations rather than organic forms where the strategy of

differentiation, characterized by organizational attempts to distinguish their products or services from others,

would be more suitable.

Broadly speaking, one can conclude that organizations with an efficiency focus would be more prone to have a

mechanistic form and organizations which focus on effectiveness (or are less concerned with efficiency) would

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do better with an organic structure. In a business context, increased efficiency can result from providing greater

output for a fixed set of inputs, by marinating output at reduced levels of input or combining the two

approaches, the inputs are generally seen as costs which are usually minimized in order to achieve efficiency

(Bronn et al. 2005). Other researchers have also defined organizational efficiency as cost-effectiveness or value

for money (Smith & Street, 2005; Lear & Fowler, 1997) and as fostering, "intra firm compromises

economically" (Gellner, Frick & Sadowski, 1997). It is also mentioned in the literature that corporate efficiency

is measured in terms of productivity because increased productivity leads to more competitive cost structure

and the ability to offer more competitive products and services (Chowdhury, 2005).

The discussion so far has yielded that organizational democracy cannot be blindly applied across all

organizations. There seem to be some prerequisites or some, "internal conditions that facilitate......democratic

organizations" (Rothschild & Whitt, 1986, pp. 172). I now enlist some of these prerequisites of organizational

democracy:

1. a more provisional sense of temporality towards organizations than that of bureaucracy

2. a climate (culture) in which constructive mutual and self-criticism can flourish

3. small size

4. homogenous membership in terms of backgrounds and values

5. a turbulent and dynamic environment around the organization so that the organization's main focus in

innovation and idea generation (differentiation) rather than efficiency (cost leadership)

6. a team culture

7. an internal environment where employees trust each other and this trust is emanating from the

leadership of the organization

8. a horizontal and flat organization as opposed to a tall and vertical one

A comparison of the above mentioned prerequisites with the structural characteristics mentioned in Table 1

clearly demonstrates that organic organizations with horizontal communication, employee participation, less

vertical hierarchies and decentralization would be much more suited for the practice of democratic principles

than a large and tall bureaucratic organization.

Even in organic organizations the assumption that organizational democracy would work like political

democracy is a far fetched idea. The top management of organizations is not elected representatives like

members of a politically elected government and employees, specially the lower cadre employees, cannot be

expected to understand the longer-term repercussions of their decisions and hence the quality of these

decisions can be challenged. But organizational democracy in large and bureaucratic organizations seems just

out of question. In mechanistic organizations it's not the people but rules and procedures and their meticulous

implementation which makes possible the successful realization of a cost leadership strategy in their intensely

competitive but relatively stable environments. There is little scope for `participatory' management systems in

mechanistic organizations and hence little scope for the practice of democratic principles in these

organizations.

On the basis of the discussion so far, following is the first proposition of this paper:

Proposition 1: Organizational democracy would be implemented more successfully in organizations with an organic structure.

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