Why Do We Need Formal Organization?
The Empire Club of Canada Addresses (Toronto, Canada), 2 Nov 1967, p. 144-155
Urwick, Lt. Col. L.F., Speaker
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What the words "formal organization" mean. Semantic ambiguity. The distinction between "formal" and "informal" organization. Examples of each. The tendency in the United States to be critical and apprehensive of formal organization. Factors that make this so: a detailed discussion of the factors in American national attitudes which militate against formal organization. Public and private-owned enterprises: different organizations? A discussion of how men can co-operate effectively. Will this work in a large organization? The theory of organization. Arranging the mechanics of a system vs. ensuring that the individuals involved are able and willing to behave in a certain way. The factors of human motivation and human behaviour. Designing human system of organization. Structure and the way you man that structure are two separate problems. Eliminating double-talk in the use of the word organization.
Date of Original
2 Nov 1967
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Full Text
Why Do We Need Formal Organization?
CHAIRMAN, The President, Graham M. Gore


In a book entitled Management of Tomorrow -which was published back in the year 1933--we find the following statement:

"Alongside the 'economic man' of the 19th centry must be placed an 'administration man' of the 20th. There seems no reason to suppose that he will prove a less useful intellectual conception than his predecessor."

In the same book the writer predicted that every aspect of business management would become specialized and professionalized before many decades had passed. As you might guess the book was written by our speaker.

Looking out upon the business community today, we are struck by the accuracy of his observations made nearly 35 years ago. In the careers and opportunities pages of our newspapers, for example, we find advertisements for advertising managers, administrative executives, and public relations directors. Professionalization of all aspects of management has indeed come to pass as he predicted. Our speaker's remarkable abilities in his chosen field did not come into being suddenly or magically. They are the result of extensive study and experience.

He was born at Malvern, England, and educated at Repton School and at New College, Oxford, where he obtained an M.A. degree in modern history. Serving as an officer throughout World War, he was awarded the O.B.E. and M.C. and was three times mentioned in Dispatches.. Following the war he worked in the family business and with Rowntree and Co. Ltd. He was Director of the International Management Institute, Geneva, from 1928 until it closed in 1933. He then returned to London and founded Urwick, Orr & Partners Ltd., a highly successful management consultancy business.

During World War II he served with His Majesty's Treasury and with the Petroleum Warfare Department, attaining the rank of Lt.-Col. He retired from the chief executive position in Urwick, Orr & Partners Ltd. in 1951 but remained Chairman of the Board until 1961. He is a Life Director of the Company and is now its (Honorary) President.

In 1951 he was Chairman of the Anglo-American Productivity Team which visited the U.S. to investigate "Education for Management". In 1955 he helped found Urwick, Currie Limited of Canada and was Chairman until 1964. In 1956 he visited India as Colombo Plan adviser to the Indian Government, and in 1961 left England to live in Sydney, Australia.

In addition to the early book already mentioned, Colonel Urwick is the author and editor of many subsequent books and papers on leadership, management, and organization.

He has received many honours and awards, including . the Gold Medal of the International Committee for Scientific Management and the Wallace Clark International Management Award. He is an Honorary Life Member of the American Management Association. Our speaker has travelled to numerous universities throughout the world to give special lectures-and currently he is visiting distinguished professor at the School of Business, York University, here in Toronto.

Gentlemen, it is a privilege to present a distinguished businessman. soldier, lecturer, and author, who will talk about "Why de we need formal organization?" -Lt.-Col. Lyndall F. Urwick.


In thinking over what I should say to you today, it occurred to me to offer a few thoughts on the subject of formal organization.

In the first place, what do the words "formal organization" mean? In my opinion they refer to the official structure of positions or posts into which are divided the total of the activities necessary to realize any purpose calling for the combined action of a number of persons. It is necessary to be meticulous about this because some of our American friends have a popular practice of using "the" or "an organization" as a synonym for an undertaking as a whole. This had led to a great deal of confusion. Indeed, my old friend Professor Harold Koontz of U.C.L.A. in an article referring to "the confused and destructive jungle warfare" which seems to have overtaken management theory in recent years added, "the greatest single source of confusion appears to center round the word organization".'

Of course it does, if we use the word in two incompatible meanings. If I talk about the General Motors Corporation as "the organization" or "an organization", what is the meaning of the phrase "the organization of the General Motors Corporation"? Obviously in the latter use the phrase refers to some special part or aspect of the

1. Harold Koontz, Professor of Business Administration, U.C.L.A., "Making Sense of Management Theory", Harvard Business Review, V. 40, No. 4, July-August, 1962. total operation of the General Motors Corporation. But if I also use the word organization of the corporation as a whole, how can I distinguish which special aspect or function is the organization of the General Motors Corporation?

American writing on the subject needs watching for this semantic ambiguity. It was Chester Barnard who first pointed out that human institutions have a double set of working arrangements. There is the official arrangement of positions or posts prescribed by management which he described as the "formal organization". And there are all the groupings and sentiments and customs which derive spontaneously from the facts that human beings are associated in work and that man is a social animal. These he described as "informal organization".2

By drawing this distinction he threw light into many dark places and resolved a wilderness of controversies. Indeed so useful was it that the terms "formal" and "in formal organization" passed immediately into the literature of management. It was the quickest popularization of a piece of scientific analysis which I have witnessed in my lifetime. But this valuable piece of analysis of Barnard's was very shortly denied and confusion reintroduced, by two well-known professors who wrote "The United States Steel Corporation", "The Red Cross", etc., are "formal organizations". 3 One only need inquire "If the United States Steel Corporation as a whole is "a formal organization", what becomes of its "informal organization"? to see how this single piece of semantic carelessness makes nonsense of Barnard's famous distinction.

There is, in the United States, a built-in tendency to be apprehensive of and unduly critical of formal organization. This is largely a matter of historic roots, a peculiarity

2. Chester I. Barnard, The Functions of the Executive, Cambridge, Mass., Harvard University Press, 1938, p. 73.

3. James G. March & Herbert A. Simon, Organizations, New York, John Wiley & Sons Inc., 1958, p. 1. of the American culture. The United States, regarded as a unique society, a people with customs and attitudes of their own, is a comparative newcomer in the community of peoples.

When, a couple of centuries ago, the 13 states--as I think very rightly--threw off the incompetent, over-riding authority of the British Crown, they were very largely communities of subsistence farmers living precariously, on a frontier. Such communities do not, in their initial stages, use very much government. The subsistence farmer is, by definition, sufficient unto himself. Of common affairs and their regulation he has little need or experience. A town meeting once a month, where everyone had an equal voice, was sufficient machinery of government.

Of course, it didn't always work. As movie after movie remind us, there were "bad men" who terrorized isolated individuals and communities. But, again, the remedy was direct and simple, at least in theory. The "town meeting" found some citizen who was "quicker on the draw" and prepared to risk his life for the sake of the rest. There was a gun fight and the "bad man" was carried out feet first. When the under-sheriff was carried out "feet first" they either submitted to terrorization or found someone else who fancied his gun-play.

For these frontier communities the United States have, in the last couple of centuries, substituted the most complex industrial civilization the world has yet seen--single enterprises under unified control employing thousands, scores of thousands and in some cases a quarter of a million or more people. But the traditions of individual independence and of violence as a reply to it, still linger.

Scholars have noted this ambivalence. J. K. Galbraith has written "the role of power in American life is a curious one. The privilege of controlling the actions or of affect ing the income and property of other persons is something that no one of us can profess to seek or admit to possessing . . . Despite this convention, which outlaws ostensible pursuit of power and leads to a constant searching for euphemism's to disguise its possession, there is no evidence that, as a people, we are averse to power."}

A second factor in American national attitudes which militates against formal organization is that they identify it with "bureaucracy". And "bureaucracy" is, of course, an extremely "dirty" word, especially among American businessmen. Some of this prejudice against bureaucracy is reasonable enough. The tendency of "Jacks-in-Office" to try to swipe the Jackpot is a human weakness which we all recognize.

But the term "bureaucracy" has become identified in the American mind with public ownership. Now it is true that public undertakings are particularly liable to the occupational eccentricities which we associate with the term "bureaucracy". But that is not because they are publicly owned. It is usually because

1. They are very large.
2. They are politically controlled and,
3. They are over-centralized.

David Lilienthal, formerly Chairman of the Tennessee Valley Authority, has some wise words on these points:

"Centralization at the national capital or within a business undertaking always glorifies the importance of pieces of paper. This dims the sense of reality. The reason why there is and always has been so much bureaucratic spirit, such organizational intrigue, so much pathologic personal ambition, so many burning jealousies and vendettas in a capital city (any capital city, not only Washington), is no mystery. The facts with which a highly centralized institution deals, tend to be the men and women of that institution itself,

4. J. K. Galbraith, American Capitalism--The Concept of Countervailing Power, 1952. Sentry Ed., Houghton Mifflin Co., Boston, Mass., 1962, p. 25. and their ideas and inhibitions. To maintain perspective and understanding in the atmosphere of centralization is a task that many able and conscientious people have found well-nigh impossible. Making decisions from papers has a dehumanizing effect. Much of man's inhumanity to man is explained by it".°

Given, however, an understanding of the conditions essential to good management and the determination to apply them, there is absolutely no reason in the world why

a publicly owned enterprise should not be conducted as effectively as a privately owned enterprise.

Don't misunderstand me. I believe whole-heartedly in a free economy. At the present stage of economic development I believe it is the best way to adjust the innumerable and varied desires of men as consumers to the changing technology of production. But there are some jobs which are too big and too long-term to attract the private investor, jobs which urgently need to be done. And, provided the principles of good management can be applied to them, they should be done by the nation. There is no "sacred cow" about private capitalism or about public ownership. It all depends on the nature of the job which is the more convenient arrangement.

It is these three prejudices:

a. The feeling that men should still be as "free" individually as they were as subsistence farmers on the frontier;

b. The dislike of power in any form and particularly of "discipline";

c. The association of organization with bureaucracy and bureaucracy with public ownership, which make our American friends so dubious about formal organization in any shape.

5. David E. Lilienthal--TVA--Democracy on the March, London, Penguin Books, 1944, p. 128. And yet, by one of those ironies of fate which so often illumine human affairs, they have built up the most elaborate structure of big business undertakings that the world has ever seen.

The question we all have to face is whether it is possible to conduct any sizeable enterprise successfully without formal organization? In my opinion it is not. Almost every great business in the U.S.A. today has its organization chart. Many of them have organization departments. If they don't believe in formal organization why do they find themselves forced to spend time and money and thought on problems of organization?

For a very simple reason. If men are to co-operate effectively they must be able to answer, each one of them, the six questions posed in the late Rudyard Kipling's well-known rhyme:

"I keep six honest serving men; They taught me all I knew. Their names are What? and Where? and When? And Why? and How? and Who?"

Men cannot co-operate together effectively unless each member of any institution can, at all times and places, answer those six questions. He must know what he is intended to do to take his place in the combined effort. He must know where that place is. He must know when he should start his individual effort. He must know why his effort is needed in the whole. He must know how to exert the effort required, and he must know who can and should tell him those things. Unless he knows the answers to those six questions he cannot be "an honest serving man" to that institution.

Now all this is easy enough in a small business--a dozen men, say, all working together in the same shop. Each has his skill, his allotted task. They are all within

6. Rudyard Kipling-from "The Elephant's Child", Just So Stories. sight and sound of each other. Probably there is someone who founded the business whose leadership they accept. Cohesion is maintained by the commonsense requirements of the job to be done, the leadership of the founder and the customs of the shop.

But translate that situation into a dozen thousand men, not working in the same shop. They are in different shops, on different floors, in different buildings, in differ ent plants, in different towns, in different countries, perhaps a world apart. Still, theoretically, each man should be able to answer those six questions. And the corollary of this need that each man should know what is expected of him, is that there must be a comprehensive and accurate system of official communication. That is what formal organization is about. An organization chart is not a blueprint for living. It is a wiring diagram. It is a design which tells each individual who tells who about what, how, when, where and why.

It is the great, the unique, contribution of the late Chester Barnard to the theory of organization that he made this point quite central to his ideas. In his famous book, The Functions of the Executive he returns to it ten or more times. "The essential executive functions are . . . first to provide the system of communication."' Or, again, "The need for a definite system of communication creates the first task of the organizer and is the origin of executive organization."$ I won't trouble you with the others. There are some six or eight more.

If, however, we accept this view of Barnard's--and in my opinion it is unanswerable, it is ridiculous to adopt the posture assumed in recent years by many students of the so-called "behavioural sciences", namely, that we can know nothing that is exact about organization until we have a complete science of human group behaviour. That,

7. Op. cit. N[2), p. 217.

8. Op. cit. N(2), p. 217, vide also pp. 82, 91, 94-5, 106, 113, 175. as we all know, is a remote contingency. Our knowledge of techniques for studying human behaviour, is, at present, like a bad photograph, under-developed and overexposed. I can remember 30 or 40 years ago, hearing one of the leading psychologists in Great Britain say to the British Association for the Advancement of Science, "The psychiatrist demands six months of weekly sittings from his startled patient to resolve a single complex". Shakespeare thought that an even longer period was necessary, "It is not a year or two shows us a man", while Dr. Johnson felt that the intimacy of a lifetime was scarcely sufficient, "God Almighty, Himself, sir, does not propose to judge man until the end of his days".9 The sciences of individual psychology, of psychiatry, of social psychology, of sociology have not developed all that much in the interval which has elapsed since.

The problem we all have to face is that, while we may believe that those sciences have made great advances, if we are going to use them to "push people about", in making decisions which affect the lives and fortunes of our fellow human beings, the people have to believe in these sciences, too. A group of psychiatrists employed by the British War Office did some very interesting and constructive work in the Second World War. But right up to the close of hostilities the British private soldier referred to these eminent scientists as the "trick cyclists". And in the government of Great Britain, as in the government of Canada, as in the government of any business in those countries, it is the rank and file who decide ultimately, what goes and what does not. We live--and personally I thank God for it--in democracies. And that is what living in a democracy means: ultimately the man in the ranks, Joe, Jack, call him what you will, decides.

But to argue that, because we don't know everything

9. Sir Charles Bartlett -Presidential Address to the Psychological Section of the British Association for the Advancement of Science, 1924. v. Report. about human motivation and human behaviour, we can know nothing about how to arrange a system of communication between positions or posts so that it works effectively, is nonsense. After all, I can pick up a telephone here in Toronto and call a subscriber in New York or San Francisco or London in about three minutes. To be sure the man at the other end may not want to take my call or may be out: there may be 101 reasons why the call is not successful. But the actual mechanics of the operation are relatively simple.

It is the same with organization. To arrange the mechanics of the system is one problem and by no means too difficult a problem. To ensure that the individuals manning the different posts on such a system are able and willing to act on the communications they receive through the system, is another and different problem. But until we learn to deal with the two problems separately we shall make no progress with either of them. In particular, if, the minute someone mentions the word organization we indulge in a lot of twaddle about "people", we shall get nowhere.

If an engineer is asked to design a telephone exchange, he starts by asking who wants to talk to who? He doesn't begin with prolonged enquiries about the "vital statistics" of female operators or whether they speak French or German. He assumes an average female operator and gets on with the job of designing a system of communication that will work, assuming that none of the operators is deliberately trying to sabotage it.

It is the same with designing human systems of organization. To design a system of communication which can and will work successfully, provided the people manning the various posts want to make it work, is quite a separate issue from the question of whether those manning the system are in good or bad shape, enthusiastic to make it work effectively, or unconcerned whether it works or not. The first is a problem of design or structure; the second is a problem of morale. It is proverbial that the bad workman always complains of his tools. But that should not prevent us from distinguishing between good and bad tool design.

Possibly I am biased in the matter. My first practical experience of organization on any scale was in the British Army in the First World War. There men died much too fast for anyone to dare to try to build the organization of a battalion or of a division round individuals and their behaviour. We had to build it up round positions or posts which were filled, as required, by different people. When I left my battalion on Christmas Day, 1915, I happened to be the only officer of the original thirty then serving with it. So I looked at my serial number on the roll of officers; it was 241. We had turned over our original thirty officers eight times, or once every two months since the War started.

Fortunately in business our casualties are less severe. But I do not believe that that makes any difference to the principle that the structure of a department or business is one problem and that the way you man that structure with appropriate persons is another and separate problem. And we shall be the more successful in solving both problems, the more we keep them apart. If I am designing a telephone system, I don't start with the idiot who wants to use the receiver to pick his teeth or who can't dial 5 without dialling 1 and 4 first. The double-talk in using the word organization to which I referred in my opening remarks is a handicap to us in keeping the two subjects apart. It is therefore a nuisance. It should be eliminated as quickly as possible from the vocabulary of management.

by B. J. Legge,

Thanks of the meeting were expressed

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Why Do We Need Formal Organization?

What the words "formal organization" mean. Semantic ambiguity. The distinction between "formal" and "informal" organization. Examples of each. The tendency in the United States to be critical and apprehensive of formal organization. Factors that make this so: a detailed discussion of the factors in American national attitudes which militate against formal organization. Public and private-owned enterprises: different organizations? A discussion of how men can co-operate effectively. Will this work in a large organization? The theory of organization. Arranging the mechanics of a system vs. ensuring that the individuals involved are able and willing to behave in a certain way. The factors of human motivation and human behaviour. Designing human system of organization. Structure and the way you man that structure are two separate problems. Eliminating double-talk in the use of the word organization.