**5. Organizational failures framework in university**

### **5.1 Organizational failures framework in profit organization**

The purpose of this section is to present an analytical framework for clarifying the inherent mechanisms related to 'the organizational failures' in universities. In order to proceed with this discussion, we first identify the analytical framework of 'the organizational failures' presented by Williamson [14], on which the above-mentioned author's analytical framework relies.

Five factors were identified by Williamson [14] as contributing to the failure to construct the world of *frictionless ideal* [14] in organizations. Among them, the combination of the thick arrows shown in **Figure 1**—Bounded rationality and uncertainty/complexity, as well as opportunism and the exchange relationship between small numbers—are the main factors in the organizational failures. On the other hand, information impactedness is a derivative factor, primarily arising from uncertainty and opportunism, which themselves produce small numbers. And these transactions take place inside the *atmosphere*. Similar to the above, bounded rationality based on value and opportunism based on value differences can arise in university, but these mechanisms cannot be explained in the diagram below and require a specific framework.

#### **5.2 Transaction cost theory as a constructive 'stakeholder theory'**

In creating an analytical framework for the organizational failures in universities, we next draw on Casson [47], who examined leader–follower relationships in the

*Organizational Culture as an Analytical Perspective on 'Organizational Failure' DOI: http://dx.doi.org/10.5772/intechopen.113154*

#### **Figure 1.**

*The organizational failures framework. Source: [14] p. 40, Figure 3.*

intellectual professions from the perspective of transaction cost theory. Casson [47] states that leader–follower relationships can be seen as *transactions* in which *the follower agrees (informally) to work hard in return for some benefit – emotional or material – conferred by the leader* (p. 48)*.*

This perspective is even more valid in universities where hybridisation around value is occurring, and it is possible to view the relationship between university administrators and faculty as such a *transaction*. The introduction of a perspective simultaneously brings attention to the invisible costs of transaction in resolving intergroup conflict within organizations. Casson [47] defined the costs required for leaders to exert influence over their followers as the manipulation costs. Furthermore, Casson [47] divided the manipulation costs into the fixed costs that depend on the number of followers and the variable costs that depend on leader's intensity and not on the number of followers. The above costs were defined as the direct costs, in addition to which lost profits due to follower negligence were defined as the indirect costs. And through comparing the transaction costs of *manipulating these followers* with the costs of monitoring, he argues that in intellectual work such as research and professional services (except in cases where intellectual negligence can cause serious harm, such as clinical medical safety), it is more important to make leadership work than to increase monitoring costs.

It should be noted that *transaction costs have the limitation that the cost of transacting are real; they are not always easily separated from other kind of cost*s (p. 34) [10], but the interest of this paper is not the quantitative measurement of transaction costs for the purpose of comparing costs and benefits. As Montgomery and Snyder [48], who measured library administrative costs, pointed out that the most important factor for minimising costs is not detailed cost measurement, but increasing the number of users using existing resources. A detailed cost–benefit analysis focusing on transaction costs for a university would not only be of little research significance from a practical perspective but also, as Milgrom and Roberts [10] point out, itself be almost impossible to attempt.

However, this does not diminish the value of applying transaction cost theory to a university. Although the phenomenon that transaction cost theory initially intended to address was the problem of vertical integration, sometimes referred to as 'the canonical TCE case' [49]. Ketokivi and Mahoney [49] notes that transaction cost

theory is beneficial in providing 'a useful contrast and counterpoint' perspective to other organizational theories that focus on 'competence- and power-based theories of the firm'. Casson [47] could be said to have offered a new perspective on leader– follower relationships, not of power or competence, but of *transaction*.

While the leader–follower mentioned above can be positioned as a 'stakeholder' within the university, a theoretical system that focuses on the relationships between different stakeholders, such as customers, suppliers, communities, employees and financial institutions, and tries to understand capitalism through these overall relationships is called as *stakeholder theory*; this theory focuses on issues of value creation and transactions, the ethics of capitalism and management mindset [50]. This theory is considered a useful theory in a university where moving towards a 'holistic model' and simultaneously generating 'hyblidisation' based on the differences of values among members. But a few studies in university governance research have focused on stakeholder theory [51]. Ketokivi and Mahoney [52], on the other hand, point out that the principles of stakeholder theory—cooperation, involvement and responsibility—are underpinned by problematic concerns such as opportunism, trust and pre-regulation of potential conflicts and that these problematic concerns in the basic principles of stakeholder theory are consistent with transaction costs theory. And Ketokivi and Mahoney [52] conclude that *transaction cost theory can indeed be applied as a constructive stakeholder theory*. The significance of applying transaction cost theory to a university with intergroup conflict within organization under heterogeneous values is not in the vertical integration or the comparison of costs and benefits, but in clarifying the mechanisms of construction and failure of 'cooperation, involvement and responsibility' among stakeholders as a *constructive stakeholder theory*.

**Figure 2** shows the organizational failures framework in university. The outermost dotted line represents the organizational culture as a whole in a university. However, there are university administrators (leaders) and faculty members (followers) with heterogeneous organizational paradigms underneath. These stakeholders have an organizational culture that is a subculture, and underlying this culture is a metaphor that they believe in about the nature of the university, the relationship between the university and its members and society. This metaphor then forms a bounded rationality.

On the other hand, the executive and administrative staff of the university (leaders) try to exert influence through governance (organizational structures and procedures) or leadership and elicit 'cooperation, involvement and responsibility' from the faculty (followers). However, opportunism can easily occur in intellectual work where 'monitoring' does not function effectively. This mechanism shows 'the organizational failures' in university that this paper assumes.

At the lowest part, in 'organizational outcomes', efficiency will be a stronger indicator of the consequences of 'the organizational failures' than effectiveness. On the other hand, what is even more important for organizational research, and what researchers truly want to know, is *why organizations fail*. In determining this cause, the organizational culture and the value perceptions of its members will provide useful information. The metaphor of the constituency is different when the dominant organizational culture of the faculty is adhocracy, which emphasises creativity and innovation, and when it is market, which emphasises gaining competitive advantage. Therefore, when similar governance and leadership is applied to these universities in eliciting faculty collaboration and engagement, the responses may be quite different. Similar results may be observed across different establishers (national, local and private). Furthermore, different academic disciplines will have different metaphors, and the occurrence of

*Organizational Culture as an Analytical Perspective on 'Organizational Failure' DOI: http://dx.doi.org/10.5772/intechopen.113154*

**Figure 2.** *The organizational failures framework in university. Source: Author.*

opportunism will differ depending on whether tenure is granted or not. By using 'the organizational paradigm analytical framework' presented in this paper together with 'the organizational failures framework in university', organizational culture can be an analytical perspective for fact-finding on the organizational failures in universities.
