Three Implementations of a Decentralized Organization Design

The Implementation of A Decentralized Organization Design in Three Large Public School Districts: Edmonton, Seattle, and Houston By William G. Ouchi Anderson School of Management UCLA 110 Westwood Plaza, Suite B523 Los Angeles, California 90095-1481 July 30, 2004 This research was funded through grants from the National Science Foundation (Grant # 0115559), Dr. Peter Bing, the John M. Olin Foundation, the Frank and Kathy Baxter Family Foundation, and the Thomas B. Fordham Foundation. The author wishes to acknowledge the work done on this project by Bruce S. Cooper, Lydia G. Segal, Carolyn Brown, Timothy DeRoche, Elizabeth Galvin, John Gabree, Bernice Tsai, James Mirocha, Stephanie Kagimoto, Kristina Tipton, and Jennifer Riss. I also received helpful suggestions on early drafts from Fred Ali, Christine Beckman, Tom Boysen, Gloria Chalmers, Beverly Donohue, Harry Handler, Tom Hofstedt, Sanford Jacoby, Dan Katzir, Barbara Lawrence, Paul Lawrence, David Lewin, Allan Odden, Janice Riddell, Randy Ross, Morton Schapiro, Dorothy Siegel, Olav Sorenson, Deborah Stipek, Kaye Stripling, Joseph Viteritti, and Oliver Williamson, for which I am grateful. Abstract Although the study of organization design can be traced to the study of public school districts beginning in 1955, school districts themselves have been immune to organizational re-design until very recently. Three large school districts have recently undertaken structural redesign along the lines of the multidivisional form that is well established in large businesses. These three are compared to three large districts that are in the traditional centralized form and to large Catholic school systems. Measures of performance indicate that decentralization has yielded large improvements in student achievement and in organizational efficiency. Several other large school districts have been studying the successful redesign of these three and are now undertaking organizational redesigns of their own. 1 Organization Design in School Districts The contemporary empirical study of complex organizations can be traced to the research by Terrien and Mills (1955) on the structure of public school districts. Their conclusion, that the administrative ratio increases as size increases, was counter-intuitive in an age that took it for granted that larger organizations would enjoy economies of scale. One great irony is that school districts have been almost entirely immune to organizational re-design during the past fifty years, though the research that has underpinned the redesign of corporate structures stemmed largely from that original study of school districts. The nearly complete rejection of new organizational designs in school districts might be the cause that has left them disconnected from their social and political environments. As a result, Cohen, March and Olsen (1972), March and Olsen (1976) and Weick (1976) described schools as “loosely coupled systems” in which the policies adopted by school boards seemed almost entirely disconnected from the activities in schools (e.g. Swanson and Stevenson, 2002:2). In a similar vein, Meyer and Rowan (1977) and Meyer, Scott, Cole, and Intili (1978) characterized school districts as “institutionalized organizations”, because they appeared to be so immune to external influence as to be immutable, or “institutionalized” forms. Recently, in a dramatic departure from this history of resistance to change, a few large public school districts have undertaken the purposive redesign of their structures in order to decentralize decisions away from the central office and to the individual schools. This paper evaluates the only three such organizational designs that were in existence as of the time of the research, during 1999-2002. The purpose of each of these redesigns was to achieve decentralization, in the belief that decentralization would permit local neighborhood variation in curriculum, staffing, staff development, selection of books and teaching materials and teaching 2 methods, and that these local adaptations would, in turn, result in improved student achievement (Ouchi and Segal, 2003). Size, Centralization, and Performance in Public School Districts Public school districts have undergone tremendous growth in enrollments and in number of employees over the past seventy-five years, but without any corresponding change in their organizational structure or pattern of centralization. They remain today every bit as centralized in planning, budget control, and decision-making as they were in the 1930’s (Chubb and Moe, 1990; Chubb, 2001). Because the positive effects of decentralization are strongly related to size of the organization (Blau and Schoenherr, 1971), it is arguable that large school districts should benefit greatly if they were to undertake decentralization. During the period from 1930 until 2001, the number of students enrolled in U.S. public schools increased by 1.85 times, from 25.7 million students to 47.5 million. Meanwhile, from 1932 until 2001, the number of public school districts declined from 127,531 to 16,850 (Tyack and Cuban, 1995; Young, 2002:1-2). With 1.85 times as many students attending 0.13 as many school districts, the typical school district now has 14 times as many students as did the average district of 1930. In the U.S., there are now 226 school districts which each enroll more than 25,000 students (31% of all public school students), and of these, 25 enroll more than 100,000 students each. It seems unlikely that any type of organization could experience that much growth and still prosper in a competitive setting without basic redesign. Blau and Schoenherr found in their sample of government organizations that the development of the bureaucratic apparatus that provides coordination and control is completely developed at about 3,000 employees (1971:64). Beyond that size, one could argue that the problems of large size will overtake the coordinative 3 and control capacity of a unitary structure and that other, decentralizing organizational adaptations should become necessary. The performance of public school districts is typically measured through standardized tests of student achievement, graduation rates, and scores on the SAT. On these measures, districts have been flat or down for at least the past fifty years (Hanushek, 1994, Tyack and Cuban, 1995, Ravitch, 2000). Real spending per student has increased dramatically over this period, but none of the many reforms of teacher training, classroom practice, or curriculum has had a measurable impact on student achievement (Hanushek, 1986, 1994). Another measure of performance is public satisfaction with public schools. On these measures, school performance has declined over the past several decades. A 1940 Gallup Poll found that 85% of U.S. parents were satisfied with the public schools (Tyack and Cuban, 1995:13), while Education Week reported that the percentage of the public that rates public schools as either “excellent” or “good” has declined steadily, from 63.7% in 1996 to 53.7% in 2002 (May 21, 2003). In Los Angeles, a 2001 poll found that half of the parents surveyed gave a grade of “C” or worse to their public schools (Los Angeles County Alliance for Student Achievement, 2001). School districts uniformly inflate their graduation rates (Ouchi and Segal, 2003:42). The typical district in our study reports a high school graduation rate of about 85%, but our estimates of the true rates ranged from 41% in Chicago and 45% in Houston to 66% in Seattle and 70% in Edmonton (Edmonton rate is for 2003). The analysis of graduation rates was dropped from the study because the data provided by the school districts proved to be unreliable. However, I do not feel that this systematic misreporting invalidates the other decentralization gains in some of these districts. 4 Into this setting came a remarkable organizational redesign in the public school system of Edmonton, Canada, beginning in 1975 (Ouchi and Segal, 2003). That change, which came about through a process of organizational experimentation and trial-and-error, was then intentionally and successfully replicated in the school districts of Seattle and of Houston beginning in the late 1990’s. Today, that Edmonton model of decentralization is being implemented in several additional school districts, including those of Cleveland, Oakland, San Diego, and San Francisco. At least twenty-five other large school districts in California, Colorado, Hawaii, Massachusetts, Minnesota, and Washington, D.C. are preparing to implement the Edmonton structural and managerial redesign. The Approach to Decentralization in this paper Decentralization has various meanings in many fields of study, and several meanings within the organization design of schools (Hannaway and Carnoy, 1993). In this study, the concept of decentralization is limited to the structural form described by Williamson (1970, 1975), Chandler (1977), and Williamson and Ouchi (1981). This basic framework, which predicts that large, complex organizations (e.g. more than 3,000 employees, see Blau and Schoenherr, 1971:64) with decentralized structures of particular design will outperform other structures on the basis of superior “fit” (Williamson, 1970:133), has been replicated in academic research and has been widely adopted by large businesses. This approach has come to be known as the “M-Form”, or multidivisional form of organizational structure, as compared to the centralized “U- Form” and the extremely decentralized “H-Form”. The critical feature of this structure is

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