Performance of a Regulatory Agency as a Function of its Structure and Client Environment: A Simulation Study

This paper examines some of the interrelationships between the formal organization of a regulatory agency and its task environment. Central to the analysis is the development of a simulation model of a regulatory agency. The model depicts the agency as an hierarchical assemblage of decision units whose overall goal is to satisfy clients without antagonizing competitive interests. The model of the agency incorporates the formal structure of authority, the communication network and the process of exchange of informal obligations between agency decision units. The agency's task environment is composed of clients, each of whom communicates his problems to be solved to a different decision unit. As we posit a number of competitive and complementary relationships between clients, the resolution of a problem for one client will impose positive and negative externalities on other clients. While the goals of different decision units may come into conflict, decision units in the model cannot act independently; a coalition is required to resolve a problem. Simulation experiments were conducted to investigate the proposition that formal organizational structure will affect agency performance. In particular we hypothesized: (I) that alignment of agency structure (formal lines of authority) with environmental structure (relationships between clients) will significantly affect organizational performance; and (II) that organizational performance will be highest when all clients with mutual interests (competitive and complementary) are served by a single division of the agency. Organizational performance was measured by: input effectiveness---number of internal messages required to solve a problem; processing capacity---average waiting time per message; and agency responsiveness---a client satisfaction index combining waiting time for solution and agency response. Results of the simulation experiments confirmed hypothesis I and rejected hypothesis II. In task environments which favored prompt resolution of problems, inter-divisional communication was facillitated by separating complementary interests into different divisions while concentrating competitive interests within divisions. In environments which favored inaction, the reverse organization had best performance.