Forms of Self-organized Units in Modern Management

In addition to the above-stated forms, today's Chinese firms also learn a lot from the similar

practices of their Western counterparts. The concepts of ―management by objectives‖ (MBO) and ―cost center‖ were developed by Peter Drucker in the 1960s and 1970s when the so-called

―knowledge workers‖ emerged. They were then valued and popularized by the business world. In a strict sense, they don't count as self-organization, because the MBO may target an individual rather than a team, and the units of a cost center are not necessarily formed by employees on a voluntary basis. Notwithstanding, these institutions recognize relevant organizations' rights for defining rules and processes and managing for themselves, and they base assessment only on the ultimate performance.

Internal startups or self-directed teams are the forms of self-organization that developed from modern organizational management. Internal startup ―companies‖ or self-directed teams are entitled to define rules and processes and manage for themselves. Moreover, they have team members recruited on a voluntary basis, that is, the majority of the personnel-relevant power. But I still differentiate them from the Chinese-style internal contracting, because internal contracting sometime can be so structurally loose that it is hard to call it an institution. A group of employees, for example, can solicit business in the name of the company as long as they have paid the required deposit. Such a governance mechanism, which is built upon not formal regulations but relationships and trust, demonstrates one of China's qualities – it is ―guanxi society‖ or

―favor-exchange society.‖

Likewise, the phenomenon of operating in the name of another in China sometimes demonstrates the aforementioned quality, so it is somewhat different from franchises and chain stores in modern management institutions. The same phenomenon – what used to be an external independent organization is now operating in the name of another – is accompanied by more guanxi-based governance mechanism in China. This issue deserves in-depth research by management scholars in China.

The last and ultimate form of self-organization is outsourcing, that is, making the internal contractor an independent company and, during long-term transactions with it, regulating relationships with it through guanxi management and the transaction governance mechanisms.

Outsourcing may also cause problems, of course, especially when there are excessive levels of outsourcing plus ineffective control. Both the cave-in at a site of the Hangzhou subway construction project and the toppling of a building in the city of Shanghai resulted from blurred responsibility and utter ineffectiveness of regulation caused by excessive levels of outsourcing. Work outsourcing is omnipresent in China's construction industry. This suggests that China's construction industry is energetic and efficient. On the other hand, however, a lack of governance mechanisms, excessive levels of outsourcing and bad control often sometime result in quality problems. How to design a mechanism that allows outsourcing to serve as an incentive, on the one hand, and realize the scenario of ―loosening control without causing chaos‖? This question requires contemplation by managers.

Closed Cliques

A guanxi circle, if enfeoffed, can turn into a self-organized unit that relies on a group of people to develop in a particular field. If it is not well managed, however, the guanxi circle may evolve into a closed clique in the organization – particular persons form a small group where all the individual interests are tied with its success – and bring about mistrust and disagreement between its members and people outside it. The phenomenon of closed cliques marks a point at which the effects of relationships turn to negative from positive.

Cliques exist in almost all organizations, but strangely enough, management scholars have made little research on them. One of my students researched knowledge management and found out that acquiring tacit knowledge is an important reason for Chinese to join guanxi circles. This conclusion resembled that of research made by Granovetter, who found out that when exploring racial problems at work, it was difficult for African Americans to become competent for jobs that required higher skills, not because they had no sufficient professional capabilities, but because they were unable to enter small circles within the company and, hence, to acquire tacit knowledge. ―It is the mentor who guides you into a field,‖ as a Chinese saying goes, but the problem often is: No mentor is available. When it comes to a job, it is easier to master its technical part, but the most important part is tacit, such as: How to survive in an organization? What are the relationships between people in the organization? Who are the key members? What are the styles and preferences of the leader? What are the preferences of various customers/clients? What are the skills critical for the job? It is very difficult to write down these contents, which, then, can only be imparted by the mentor. In western societies, whites represent the majority of internal circles of persons who do higher-level jobs, but few of them are willing to mentor African Americans. Consequently, African Americans are unable to acquire important tacit knowledge and, hence, to obtain clues about their tasks, despite that they are excellent also. This tends to result in poor performance at work. In China, therefore, new employees typically hope to find and join the right guanxi circles rapidly so as to receive help, especially tacit knowledge, from circle members.

Closed cliques (or ―Pai-Xi‖ in Chinese) in China are very distinctive and differ in many aspects from the ones in the West, despite that they are conceptually close to each other. As one of its characteristics, a clique in China generally is not only a congregation of a small number of people in an organization, but is also accompanied by the appearance of rules for self-management (i.e., tacit rules). Moreover, these rules will be used to negate the formal ones. It was for this reason that I sometime translated ―Pai-Xi‖ into ―gang‖. Another similar concept is ―faction‖ in politics, but factions usually appear because of policy-orientation or ideological differences, as opposed to cliques that are strongly relationship-oriented.

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