Potential Capability And Organizational Transition:
An Application Of Elliott Jaques' Stratified Systems Theory
In A Family-Owned Business
Sandra W. King, Ph.D.
Director of Marketing and Development
Center for Family Enterprise
The George Washington University
Department of Management Science
Monroe Hall Room 403, 2115 G Street NW
Washington, DC 20052
Tel: 202 994-9150
Fax: 202 994-4930
George T. Solomon, D.B.A.
Adjunct Professor,
Entrepreneurship and Small Business Management
The George Washington University
Department of Management Science
Monroe Hall Room 403, 2115 G Street NW
Washington, DC 20052
Tel: 202 994-9150
Fax: 202 994-4930
Kathryn Cason, President
Cason Hall & Co. Ltd.
51 Monroe Street, Suite 608
Rockville MD 20850
Abstract
The ability for a family-owned business to transition from one
organizational stage to another can be extremely difficult. It
requires the owner and their managers to develop new skills as
the business grows. Unfortunately, many family-owned businesses
do not survive the transformation. The problem may stem from the
owners' and their managers' potential capability. An exploratory
study was conducted using Elliott Jaques' Stratified System
Theory to understand the difficulties facing a family-owned
business in the transformation process.
Introduction
The passage from one organizational phase to another is often
difficult in an entrepreneurial and family-owned business.
The empirical literature in entrepreneurship 'and family-owned
business indicate that one of the major problems is the inability
of the founder(s) and his or her managers to navigate the change
from an entrepreneurial business to a professionally managed
business (Gupta and Chin 1994; Dyer, Jr., 1988; Hofer and Charan 1988).
The successful passage requires the founder/leader(s) and their
managers to grow and acquire new skills as the business expands.
Their ability to assimilate new skills and knowledge may be based
on their potential capabilities, as outlined in Elliott Jaques'
Stratified Systems Theory (1989). The study examines the
validity of using Jaques' theoretical framework in helping a
family-owned business ease the transition from one organizational
stage to another. Therefore, the purpose of the study was to
explore the relationships among key managers, their potential
capabilities and their changing roles and responsibilities in a
family-owned business.
Literature Review
Researchers have argued that organizations evolve through various
stages of development in a consistent and predictable manner
(Adizes 1989; Churchill and Lewis 1983). Each stage is
characterized by the organization's size or complexity, the
business task, and the managerial leadership role requirements
(Hanks et. al, 1993). According to a study conducted by Eggers
and Leahy (1993), different managerial leadership capabilities
are required at each organizational stage. Therefore, management
builds the foundation for the organizational structure by making
choices based on the task associated with each stage (Greiner
1972). As a result of these choices, the organization's
structure emerges (1972). Consequently, managerial leadership
behaviors and/or capabilities of an organization will determine
the organization's outcome (Eggers and Leahy 1993; Greiner 1972).
Managerial Capability
Jaques and his co-author, Clement, explain that a managerial
leadership role requires an individual to organize, solve
problems and provide meaning for his/her subordinates (1991).
Therefore, managers must have the capability to see further than
the individuals they are leading. Otherwise, managers will not
add value to their employees. The problem stems from finding
conditions where the manager's capability will contribute to the
organization's performance, and finding an accurate measure for
an individual's capability (1991).
In a study conducted by Jaques and Cason (1994), they found that
an individual's potential capability (PC) can be measured by
determining the mental process used by a person when solving a
problem. The following section is the background theory of
Jaques' theoretical framework and its application to a family-
owned business.
Background Theory
Jaques proposes that an organization should be requisitely
structured so that managerial roles, task complexity of each
level. and an individual's PC are aligned. In summarizing his
Stratified Systems Theory, Jaques points to "four major sets of
factors [that are] in relation to each other:
"...(1) the capability [PC] of the individual, in terms of
modes, mature throughout life at a series of higher and
higher levels of capability ... (2) a series of higher and
higher levels of inherent complexity in work which
corresponds to the levels of capability [PC)in individuals
... (3) a series of higher and higher levels of
organizational structure which reflects both levels of work
complexity and of individual capability ... (4) wide range
of processes, including managerial leadership practices, to
be applied with accountability and consistency"(1996: 12).
Managerial Accountability Hierarchy (MAH)
Jaques Stratified Systems Theory is based on a "managerial
organizational system" with a structure of a "hierarchical system
of managerial layers"(Jaques 1996: 2). According to Jaques.
"the MAH is an organizational system in which to employ people
and to deploy their talents to get work done"(1996: 35). He
defines "a manager specifically as a person who is held
accountable for the output of others, for sustaining a team
capable of producing those outputs and for giving effective
leadership to that team" (1996: 35). Therefore, "a manager must
be able to add value to the work of immediate subordinates" (1996: 35).
Jaques found a universal underlying pattern of stratification in
managerial hierarchies. The number of accountable managerial
layers required for an organization is based on role complexity
and the number of business functions that must be delegated
(Jaques 1996). For example, when a business is small, an owner-
manager may be able to handle all but a few functions of the
business. As the business grows and becomes more complex, the
owner-manager needs to delegate more of the functions.
Consequently, when the role complexity of the owner-manager
increases as the organization grows in size, the number of
required managerial layers also grows.
Role Complexity
According to Jaques, role complexity is defined as the level of
difficulty of the required tasks. He states that "the true source
of difficulty in any problem lies in its complexity" (1996: 64).
Jaques explains that "the complexity in a task lies not in the
goal but in what you have to do in order to get there" (1996: 64).
Therefore, he argues that "complexity may be defined in
terms of the number of variables that have to be dealt with in a
given time in a situation, the clarity and precision with which
they can be identified, and their rate of change... As complexity
is reduced, tasks can be delegated to lower strata" (1996:64).
Jaques found the manager's time-span of discretion (TSD), which
is further explained in the next section, is the key measurable
attribute of role complexity.
Time-span of Discretion
Jaques defines time-span of discretion as "the targeted
completion time of the longest task or task sequence in a role"
(1996: 132). Jaques found that "time-span measurements reveal a
universal basic structure of organizational strata for all MAH
[managerial accountability hierarchy] everywhere" (1996: 38).
Using a manager's time-span of discretion as a measure of role
complexity, Jaques developed a system for measuring executive
roles. He postulates that the boundaries in a managerial
hierarchy increase logarithmically from 1 day to 3 months (Level
1), 3 months to 1 year (Level 2), 1 year to 2 years (Level 3), 2
years to 5 years (Level 4), 5 years to 10 years (Level 5), 10
years to 20 years (Level 6), 20 years to 50 years (Level 7) and
50 years + (Level 8) (Jaques 1996).
In addition to time-span of discretion, Jaques observed that at
each managerial level there is a "progression of complexity from
one level to the next higher. This progression is marked [not
only] by increasing time-span [but also] by increased complexity
of the cognitive process required of the incumbent" (Lewis and
Jacobs 1992: 19). Jaques also asserts that he has found "a series
of higher and higher levels of inherent complexity in work
[at different managerial layers] which corresponds to the levels
of capability in individuals" (Jaques 1996: 12). Therefore, he
suggests that "people carry out tasks of different levels of
complexity" based on the type of mental processing and order of
information complexity that an individual is capable of using
(1996: 12). Mental processing and complexity of mental processing
are explained in the next two sections.
Mental Processing
Jaques states that mental processing is the individual's "mental
working processes by which you [an individual] take information,
pick it over, play with it, analyze it, put it together,
reorganize it, judge and reason it, make conclusions, plans and
decisions, and take action" (Jaques 1996: 18) According to a
study conducted by Jaques and Cason, an individual will use one
of four types of mental processing, each of which has distinctive
phrases or processes, when solving problems (1994). The four
processes are declarative, cumulative, serial, and parallel
(1994). In addition, they found the "four methods of mental
processing can be observed in each of two different orders of
information, symbolic and abstract, used by adult subjects; they
are recursive and maintain their hierarchy of complexity" (Jaques
and Cason 1994: 61). (See Table 1)
Complexity of Mental Processing
Jaques points out that an individual's PC to perform work is
determined by his or her level of complexity of mental processing
(1996). He defines complexity of mental processing as the type
of mental process together with the level of information
complexity that an individual uses when solving problems.
Therefore, the process of identifying an individual's complexity
of mental process is a two-part procedure. First, the researcher
observes the type of mental process used and second, the order of
information complexity.
According to Jaques and Cason, the range for most adults is from
declarative/symbolic, level 1 to parallel/abstract conceptual,
level 8 (1994). They suggest "there is one category [of
complexity] of mental processing that matches the span of level
of work for each specific organizational stratum in the
managerial hierarchy" (1994: 61). Table 1 provides a summary of
the complexity of mental processing associated with each
managerial role. The table includes the logic used, pattern of
mental process, order of information, and the managerial level
associated with each organizational role in Jaques' MAH.
Table 1: Level of Managerial Role Associated with Complexity of
Mental Processing in Jaques' Managerial Accountability Hierarch
Logic or-or and-and if-then- if-and-
then only-if
Pattern of declarative cubulative serial parallel
Mental
Process
Explanation * unconnected * linked * cause/ * cause/
of Mental arguments arguments effect effect
Process sequences sequences
linked &
interwoven
Order of Symbolic Symbolic Symbolic Symbolic
Information verbal verbal verbal verbal
Complexity
Explanation * thoughts * thoughts * thoughts * thoughts
of Information used as used as used as used as
Complexity symbols symbols symbols symbols
Level I II III IV
Logic or-or and-and if-then- if-and-
then only-if
Patern of declarative cumulative serial parallel
Mental
Process
Explanation of * unconnected * linked * two or * two or
Mental Process arguments arguments more cause/ more cause/
effect effect sequences linked &
sequences sequences
interwoven
Order of Abstract Abstract Abstract Abstract
Information conceptual conceptual conceptual conceptual
Complexity
Expanation of * thoughts * thoughts * thoughts * thoughts
Information refer to refer to refer to refer to
Complexity other other other other
thoughts thoughts thoughts thoughts
Level V VI VII VIII
Potential Capability (PC)
According to Jaques, PC refers to "a person's highest current
level of mental complexity. It is the maximum level at which
someone could work at the present time, given the opportunity to
do so and provided that the work is of value to him/her, and
given the opportunity to acquire the necessary skilled knowledge.
This level of work is the level that people aspire to have and
feel satisfied if they can get. When people have work at their
current PC, they feel [believe] they have an opportunity for the
fall expression of their capability" (Jaques 1996: 134). Jaques
also points out that an individual's PC increases as his or her
complexity of mental processing increases (1996). An increase
(or maturation) in an individual's PC is associated with a change
in level and enables an individual to work at higher levels of
role complexity.
Method of Measuring PC
Jaques and Cason conducted interviews with individuals from
various managerial levels in two different organizations to
explore the reliability of using an interview method to observe a
subject's mental processing (1994). They believed that when an
individual was fully engrossed in discussing a problem that he or
she values, his or her mental processing could be observed. In
addition, they wanted to test the relationship between "a
person's category of complexity of mental processing when fully
engrossed in a discussion (dependent variable) and the highest
level work role that person was judged to have the PC to carry at
that time (independent variable)" (1994: 41). Jaques' and
Cason's hypothesis was that individuals will be effective
managerial leaders when their complexity of mental processing
matches the role complexity of the task required.
The correlation between Jaques' and Cason's assessments of
complexity of mental process was high (.95) and significant
(1994). In addition, the correlation between the average of the
researchers' assessments of the subjects' complexity of mental
process and the average of the managers' and subjects' judgments
of the subjects' PC was high (.97) and significant (1994).
Therefore, Jaques and Cason contend that an individual's category
of complexity of mental processing is a valid and reliable method
of measuring an individual's PC to perform managerial work at a
specific organizational level (1994).
Study's Objective
The purpose of the study was to explore whether Jaques' Stratfied
Systems Theory could be used in a family-owned business to
understand the difficulties and the changes required to
transition the business from one organizational stage to another.
Therefore, the objective of the study was to identify, explore
and describe the relationships among key managers, their
potential capabilities and their changing roles and
responsibilities.
Method
The method section includes a description of the organization
selected for the study; a description of the sample used,
procedures used for the present study; and the methods employed
to perform the study.
Description of the Organization
A successful second generation family-owned business was chosen
for the present study. The fifty year old business is
experiencing significant external and internal changes. In the
last few years, several competitors have entered the market. For
the most part, the competition is highly motivated, and has the
competitive advantage of size. If the family-owned business is
going to compete with the large publicly-owned companies, it must
keep pace with the sophisticated competition. Since the family-
owned business cannot compete on size alone, it must become more
professional. The CEO's concern is whether his long-term
employees are capable of handling the managerial difficulties
present in the changing environment. If the business is to
survive, then new learning must occur. Transitional periods are
uncomfortable for all concerned, and the family-owned business
used in the present study is no exception.
The subject's and company's names were changed to provide
anonymity for the participants and the business. Uniform, Inc.
was formed with one plant in 1947 to lease and service uniforms
for industrial businesses. For fifteen years, George, the
founder's son was the president. In 1981, George became the CEO
and a new president was hired. The new president, Jim, became a
close friend of the family and continued to manage the business
using the same managerial philosophy as the founder and his son.
In 1992, Jim was ready to retire, but as had been the case in
1981, none of the family members were interested in running the
business. A new president, Geoffrey, was selected based on his
previous experience in managing other large corporations.
Currently, George is the chairman of the board and CEO, Jim is
the vice-chairman and Geoffrey is the president.
There are seven plants and three branch operations. Each plant
is run by a general manager (GM) who is responsible for running
his plant's operation including sales, service and production.
Each plant has a similar managerial structure and each position
in the various plants has similar tasks. The five vice
presidents act as consultants with various specialized functions
(marketing, engineering, finance and human resources) to the GMs.
However, the senior managers do not have managerial
responsibility for the GMs. Therefore, the seven GMs and the
five vice-presidents report directly to the president. The CEO
is actively involved in assuring that the president continues to
personify the values that both he and the founder have espoused.
The CEO is the builder and gatekeeper between the family and the
business systems. He acts as a sounding board and shares
information with the president regarding the changes in strategy
and structure. The president is accountable for strategic
planning, managing and running the business. The vice chairman,
Jim, works four hours a day and is responsible, as needed, for
mentoring and advising the new president.
During the early 1990's, the company experienced marginal increases
in gross receipts and the profit percentage has declined.
The reduction in profits is a result of competition's sophisticated
technology and financial resources that has constrained industry
prices and reduced Uniform Inc.'s sales growth and profit margins.
The new president, Geoffrey, is aware of the changes that are
required for the business to remain competitive. Consequently,
Uniform, Inc. is starting to grow and professionalize its
operations with the active use of formal systems and procedures.
In addition, the president has developed a strategic plan which
includes modernizing the existing plants and adding plants in new
markets. The company will need additional financial and human
resources to implement the plan. Since the company has substantial
assets and no debt, leverage is an option. However, the company has
never used debt to finance their growth.
The president and CEO are concerned that the business lacks the
human resources to implement the strategic plan. Specifically,
they are concerned that some of the existing general and senior
middle managers, who have grown up, with the company, may not be
capable of managing their existing plants in the new highly
competitive market. In addition, the company has not made a
concerted effort to hire employees that will have the
capabilities to move up into more complex jobs as the business
expands. Previously, when a management position was available,
the person next in line was usually given the position.
Therefore, very few middle managers have been hired from the
outside. Since several general and middle managers are nearing
retirement, there is an increased demand for capable individuals
to fill those roles. The president is concerned that the company
does not have enough capable people to fill these required
positions and has gone outside of the organization. The decision
represents a philosophical change for the company.
During the 1980's, the general managers were somewhat autonomous.
Managers were rarely fired and there was little enforcement of
accountability for a plant's performance. In interviews with the
researchers, many of the long term employees stated that the
change to a more professional organization has been difficult for
them. The new president, supported by the CEO, is trying to
implement a formalized structure that is fair to all the
employees. They believe that Jaques' model may provide a method
to measure the capabilities of the existing managers and to
assess the level of PC of the new managers needed to implement
their strategic plan.
Description of the Sample
Four plants in North Carolina, which have been in operation for
at least 3 years, were chosen for the present study. All the
general managers, functional managers and a random selection of
the first line managers were interviewed from the four plants,
along with all of the vice-presidents and president. There were
a total of 30 subjects chosen. Each plant can be studied as a
small business, with approximately the same number of managerial
levels and services.
Procedure
To assess PC, each subject was asked, "What is the single most
exasperating business problem you are aware of, and what kind of
solutions should be considered?" In addition, a second question
was used in two of the plants to determine whether in future
research a second question was needed to assure sufficient data
for the ratings. The question was, "What should be done to solve
the welfare problem in the United States?" This question was
broad enough to give the subject ample opportunity to become
engrossed in the conversation and to employ his or her highest
level of PC. Furthermore, a non-business related question was
chosen because it was thought to be less threatening to
individuals who might be apprehensive about discussing disturbing
business issues. The subjects were assured that their
discussions were to be used for research and would be kept
confidential. The interviews were taped and transcribed.
The researchers analyzed the interview transcripts to determine
each subject's highest level of PC. The researchers' ratings
were based on the criteria shown in Table 2. Each rater marked
the sections of transcript that corresponded with a specific
category of mental process (declarative, cumulative, serial or
parallel) and level of information complexity (symbolic or
abstract). In order to quantify the mental processing levels,
they were converted to a series of numbers taking values from 1
to 21. Individuals who were on the boundary, between levels,
were fisted halfway between whole numbers. The next section
displays the analysis of the data, followed by a discussion of
the results.
Data Analysis
The correlation between the researchers' assessments of the subjects'
PC was high (.98) and significant. The finding constituted sufficient
evidence that the researchers' ratings were reliable. Figure 1 (omitted)
represents the distribution of the sample subjects' PC based on their
displayed level of mental process (PC).
Table 2 presents the managerial role and their intended level of
complexity based on the president's assessment of time-span and
tasks requirements.
Table 2
Summary of the Managerial Role within the Organization
Role Jaques' Levels Time-Spam
President V 5-10 years
Vice President IV 2-5 years
General Manager IV 2-5 years
Sales/Service Manager III 1-2 years
Production Manager III 1-2 years
Office Manager II 3 months - 1 year
Sales Supervisor II 3 months - 1 year
Service Supervisor II 3 months - 1 year
Production Supervisor II 3 months - 1 year
Production Workers I 1 day - 3 months
Figure 2(omitted) represents the number of managers at each level of
PC that are necessary to operate the four plants.
After completing the subjects' ratings and the level of PC
required at each organizational level, the researchers were
interested in validating their assessment of the subjects' PC.
Therefore, the president was asked to assess the subjects' level
of potential capability (PC) based on their performance. There
was a .92 correlation between the president's assessment of the
subjects' PC to work at a specific level and the researchers'
observation of the subjects' level of mental process.
Finally, the researchers determined the number of subjects whose
PC were not in alignment with the level of complexity of their
assigned roles. In Figure 3(omitted), the integrated model shows that
50% (including those on the borderline between levels) of the
managerial roles are being occupied by individuals who did not
exhibit the PC for fulfilling their role requirements.
Discussion
There were a number of interesting observations that occurred as
a result of the study. As shown in Figure 3, there are a number
of subjects are on the borderline between levels, thus making it
difficult for them to function at the higher level. The problem
appears to be that the PC (including those on the borderline
between levels) of half of the general managers and vice-
presidents are not at the level necessary to perform in the roles
they have been assigned. In addition, five functional managers,
representing approximately 50% (including those on the borderline
between levels) of the subjects interviewed, have PCS that are
not at the level necessary to perform in their assigned roles.
However, most of the first line managers displayed the mental
processing necessary for their cur-rent role. Therefore, the
issue facing the president is to determine whether it is possible
for the managers to help those individuals who are placed in
roles beyond their current PC until they mature to the next level
of PC, or whether he is going to reassign those individuals to
different roles.
The researchers also found that when the PC of the general managers
was close to their senior middle managers, the GMs reported having
difficulty in their managerial roles. In one case, for example,
the general manager believed the problem with his subordinates was
"psychological distance." Another explanation for the problem,
which was brought to light by the present study, is that the PC of
the subordinates and the managers might be too close. Therefore, the
general manager could not add value to his subordinates.
In addition, the researchers were interested in determining the
usefulness of a control question in analyzing the subject's PC.
In several circumstances, the control question was necessary in
assessing a subject's PC. For example when the president of
Uniform, Inc. was interviewed, the researchers found that using a
control question resulted in a higher assessment of his PC. In
the first interview, the president's display of mental processing
was limited. The interviewer decided to re-interview the
president for two reasons: 1) no control question was used; and
2) the topic of discussion in the first interview related to a
personal issue that the researcher speculated may have caused him
to hold back on complete engrossment in his discussion. When the
second interview was conducted using the control question, the
president became engrossed and used a higher level of mental
processing. In another interview with a general manager, in
which the control question was not used, the researchers were
concerned that the general manager may have had a similar
experience with the interview process.
The present study provides support for future research using an
individual's PC to assess managerial capability in a family owned
businesses. The next section includes several recommendation for
future research.
Future Research
* Control question should be used in future research
* Duplication of the present study to support the reliability
and validity of the initial study
* Longitudinal study, using the existing business, to observe
the long-range ramifications of Jaques' theoretical
framework on the performance of the business
* Explore whether differences between predecessors' and
successors' PC are related to differences in the
performance of a family-owned business following a
succession
Conclusion
Jaques' model appears useful to family-owned businesses that are
attempting to transform their business to a more professionally
managed organization. by assessing the PC of the managers and the
requirements of the managerial roles. In addition, the study
supports Jaques' proposition that an individual's displayed level
of mental process does appear to correspond to an individual's
ability to successfully perform in a managerial role. The close
correlation (92) between the president's assessment of the
subject's PC with the evaluation obtained from mental processing
supports the conclusion that evaluating complexity of mental
processing is a valid measure of PC. The study suggest that it
is not necessary to assess the PC of employees as long as the
president is aware of his or her employee's current PC. However,
Jaques' method of measuring an individual's PC can be helpful in
the selection of new employees, in understanding the level of PC
required by the employees required for the future of the business
and in determining when their current employees will have the PC
to handle the complexity of their role.
The study explores how Jaques' theoretical framework can be
useful for family-owned businesses to support the transition from
one organizational stage to the next. However, structural
changes are often difficult in these businesses, especially when
the business culture has been one in which the employees have
been treated as family members. Therefore, implementation of the
strategies and long-range ramifications need to be studied before
moving ahead.
In summary, the study demonstrates how Jaques' theoretical
framework can be used as a framework for long-term solutions,
rather than as a quick-fix instrument. Jaques' Stratified
Systems Theory may provide a helpful guide for business owners
during the transition from an entrepreneurial venture to a more
professionally managed business entity. In addition, Jaques'
theoretical framework can provide an objective measure for hiring
individuals for roles that match their capabilities to ensure
adequate human resources for the present and the future.
Anticipating the problems in advance will help the business
owners in planning the future growth of their business.
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