Introduction to Organization Theory

1
Introduction toOrganization Theory
2
What is Theory?

• Theory is a plan or scheme existing in the mind
  only, but based on principles verifiable by
  experiment or observation (Funk Wagnalls page
  1302
• ).

3
What is an Organization?

• Organizations are social entities that are
  goal-oriented are designed as deliberately
  structured and coordinated activity systems, and
  are linked to the external environment (Daft,
  2004).

4
Definition of Organization Theory

• Organization theory is the set of propositions
  (body of knowledge) stemming from a definable
  field of study which can be termed organizations
  science (KastRosenzweig1970).
• The study of organizations is an applied science
  because the resulting knowledge is relevent to
  problem solving or decision making in ongoing
  enterprises or institutions (KastRosenzweig1970).

5
Definition of Organization Theory Cont..

• Two things
• Knowledge
• Knowledge generated by practical experience and
  scientific research
• Solving problems managing resources
  (KastRosenzweig1970).

6
Definition of Organization Theory Cont..

• It is the application of scientific knowledge in
  engineering and other forms of technology that
  has brought such spectacular changes in the
  material context of our lives over the past
  century (KastRosenzweig1970).

7
Organization theory and Management

• Management technology stems from organization
  theory and even more applied in the sense that it
  focuses on the practice of management in ongoing
  organizations (KastRosenzweig1970).

8
Micro Perspective of Organizations

• Simplifying Assumptions
• Firms viewed as an individual entrepreneur
• Profit maximization
• Rationality in achieving firm goals
• Firms function is to transform inputs into
  outputs
• Staple environment in which firm operates
• Concerned only with changes in prices and
  quantities of inputs and outputs

9
Organization Theory from a Historical
Perspective

• Throughout history most managers operated
  strictly on a trial-and-error basis
• The management profession as we know it today is
  relatively new
• wide swings in management approaches over the
  last 100 years
• parts of each approach have survived and been
  incorporated into modern perspectives on
  management

10
Evolution Of Management Thought
Classical Approaches
Contemporary Approaches
11
Early Management Concepts And Influences

• Industrial revolution
• minor improvements in management tactics produced
  impressive increases in production quantity and
  quality
• economies of scale - reductions in the average
  cost of a unit of production as the total volume
  produced increases
• opportunities for mass production created by the
  industrial revolution spawned intense and
  systematic thought about management problems and
  issues
• efficiency
• production processes
• cost savings

12
Systematic Management

• Systematized manufacturing operations
• Coordination of procedures and processes built
  into internal operations
• Emphasis on economical operations, inventory
  management, and cost control
• Beginning of formal management in the United
  States
• Promotion of efficient, uninterrupted production
• Ignored relationship between an organization and
  it environment
• Ignored differences in managers and workers
  views

Key concepts
Contributions
Limitations
13
Scientific Management (The Classical Organization
Theory)

• Advocated the application of scientific methods
  to analyze work and to determine how to complete
  production tasks efficiently
• Four principles
• develop a scientific approach for each element of
  ones work
• scientifically select, train, teach and develop
  each worker
• cooperate with workers to ensure that jobs match
  plans and principles
• ensure appropriate division of labor
• Personalities
• Frederick W. Taylor
• Frank and Lillian Gilbreth
• Henry Gantt

14
Scientific Management (cont.)

• Used scientific methods to determine the one
  best way
• Emphasized study of tasks, selection and training
  of workers, and cooperation between workers and
  management
• Improved factory productivity and efficiency
• Introduced scientific analysis to the workplace
• Piecerate system equated worker rewards and
  performance
• Simplistic motivational assumptions
• Workers viewed as parts of a machine
• Potential for exploitation of labor
• Excluded senior management tasks

Key concepts
Contributions
Limitations
15
Administrative Management

• Emphasized the perspective of senior managers
• Five management functions
• planning
• organizing
• commanding
• coordinating
• controlling
• Fourteen principles of management
• Personalities
• Henri Fayol
• Chester Barnard
• Mary Parker Follet

16
Administrative Management (cont.)

• Fayols five functions and 14 principles of
  management
• Executives formulate the organizations purpose,
  secure employees, and maintain communications
• Managers must respond to changing developments
• Viewed management as a profession that can be
  trained and developed
• Emphasized the broad policy aspects of top-level
  managers
• Offered universal managerial prescriptions
• Universal prescriptions need
  qualifications for environmental,
  technological, and personnel factors

Key concepts
Contributions
Limitations
17
Human Relations

• Aimed to understand how psychological and social
  processes interact with the work situation to
  influence performance
• Hawthorne Studies
• Hawthorne Effect - workers perform and react
  differently when researchers observe them
• Argued that managers should stress primarily
  employee welfare, motivation, and communication
• Personalities
• Abraham Maslow

18
Human Relations (cont.)

• Productivity and employee behavior are influenced
  by the informal work group
• Cohesion, status, and group norms determine
  output
• Social needs have precedence over economic needs
• Psychological and social processes influence
  performance
• Maslows hierarchy of need
• Ignored workers rational side and the formal
  organizations contributions to productivity
• Research overturned the simplistic belief that
  happy workers are more productive

Key concepts
Contributions
Limitations
19
Bureaucracy

• Bureaucratic structures can eliminate the
  variability that results when managers in the
  same organization have different skills,
  experiences, and goals
• Allows large organizations to perform the many
  routine activities necessary for their survival
• People should be treated in unbiased manner
• Personalities
• Max Weber

20
Bureaucracy (cont.)
Key concepts

• Structured network of relationships among
  specialized positions
• Rules and regulations standardize behavior
• Jobs staffed by trained specialists who follow
  rules
• Hierarchy defines the relationship among jobs
• Promotes efficient performance of routine
  operations
• Eliminates subjective judgment by employees and
  management
• Emphasizes position rather than the person
• Limited organizational flexibility and slowed
  decision making
• Ignores the importance of people and
  interpersonal relationships
• Rules may become ends in themselves

Contributions
Limitations
21
Quantitative Management

• Teams of quantitative experts tackle complex
  issues facing large organizations
• Helps management make a decision by developing
  formal mathematical models of the problem
• Personalities
• military planners in World War II

22
Quantitative Management (cont.)

• Application of quantitative analysis to
  management decisions
• Developed specific mathematical methods of
  problem analysis
• Helped managers select the best alternative among
  a set
• Models neglect nonquantifiable factors
• Managers not trained in these techniques may not
  trust or understand the techniques outcomes
• Not suited for nonroutine or unpredictable
  management decisions

Key concepts
Contributions
Limitations
23
Organizational Behavior

• Studies management activities that promote
  employee effectiveness
• investigates the complex nature of individual,
  group, and organizational processes
• Theory X
• managers assume that workers are lazy,
  irresponsible, and require constant supervision
• Theory Y
• managers assume employees want to work and
  control themselves
• Personalities
• Douglas McGregor

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Organizational Behavior (cont.)

• Promotes employee effectiveness through
  understanding of individual, group, and
  organizational processes
• Stresses relationships among employees, managers,
  and work performed
• Assumes employees want to work and can control
  themselves
• Increased participation, greater autonomy,
  individual challenge and initiative, and enriched
  jobs may increase participation
• Recognized the importance of developing human
  resources
• Some approaches ignored situational factors, such
  as the environment and technology

Key concepts
Contributions
Limitations
25
Systems Theory

• Organization is viewed as a managed system
• Management must interact with the environment
• Organizational goals must address effectiveness
  and efficiency
• Organizations contain a series of subsystems
• There are many avenues to the same outcome
• Synergies enable the whole to be more than the
  sum of the parts
• Recognized the importance of the relationship
  between the organization and the environment
• Does not provide specific guidance on the
  functions of managers

Key concepts
Contributions
Limitations
26
Contingency Perspective

• Situational contingencies influence the
  strategies, structures, and processes that result
  in high performance
• There is more than one way to reach a goal
• Managers may adapt their organizations to the
  situation
• Identified major contingencies
• Argued against universal principles of management
• Not all important contingencies have been
  identified
• Theory may not be applicable to all managerial
  issues

Key concepts
Contributions
Limitations
27
Organizing For Environmental Response (cont.)

• Organizing for customer responsiveness (cont.)
• Total Quality Management (TQM) - comprehensive
  approach to improving quality and customer
  satisfaction
• characterized by a strong orientation toward
  internal and external customers
• involves people across departments in improving
  all aspects of the business
• requires integrative mechanisms that facilitate
  group problem solving, information sharing, and
  cooperation across business functions
• Baldrige award - given to U.S. companies that
  achieve quality excellence

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W. Edwards Demings 14 Points Of Quality

• Create constancy of purpose
• Dont tolerate delays or mistakes
• Cease dependencies on mass inspection
• Dont award business on price tag alone
• Constantly and forever improve the system of
  production or service
• Institute training and retraining
• Institute leadership
• Drive out fear
• Breakdown barriers among departments
• Eliminate slogans, exhortations, and arbitrary
  targets
• Eliminate numerical quotas
• Remove barriers to pride in workmanship
• Educate your people who should be viewed as
  assets, not commodities
• Provide a structure that enables quality

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Organizing For Environmental Response (cont.)

• Organizing for customer responsiveness (cont.)
• ISO 9000 - a series of quality standards
  developed by a committee working under the
  International Organization for Standardization
• intended to improve total quality in all
  businesses
• companies that comply with standards entitled to
  certification
• reengineering - revolutionizes key organizational
  systems and processes
• based on a vision for how the organization should
  run
• completely overhauls the operation in
  revolutionary ways

30
A Dynamic Network
Producers
Designers
Brokers
Distributors
Suppliers
31
Macro Perspective of Organizations

• Organizations are open systems
• affected by, and in turn affect, their external
  environments
• External environment
• all relevant forces outside a firms boundaries
• relevant - factors to which managers must pay
  attention
• two elements comprise the external environment
• competitive environment - immediate environment
  surrounding a firm
• macroenvironment - fundamental factors that
  generally affect all organizations

32
The External Environment
Organization
Competitive Environment
Macroenvironment
33
The Macroenvironment

• The macroenvironment
• most general elements in the external environment
  that can potentially influence strategic
  decisions
• all organizations are affected by the general
  components of the macroenvironment
• Laws and regulations
• impose strategic constraints and provide
  opportunities
• regulators - specific government organizations in
  a firms more immediate task environment
• have the power to investigate company practices
  and take legal action to ensure compliance with
  the laws

34
The Macroenvironment (cont.)

• The economy
• created by complex interconnections among
  economies of different countries
• important elements include interest rates,
  inflation rates, unemployment rates, and the
  stock market
• economic conditions change and are difficult to
  predict
• Technology
• creates new products, advanced production
  techniques, and improved methods of managing and
  communicating
• strategies that ignore or lag behind competitors
  in considering technology lead to obsolescence
  and extinction

35
The Macroenvironment (cont.)

• Demographics
• measures of various characteristics of the people
  comprising groups or other social units
• age, gender, family size, income, education,
  occupation
• workforce demographics must be considered in
  formulating human resources strategies
• population growth influences the size and
  composition of the labor force
• immigration also is a significant factor
• increasing diversity of the labor force has both
  advantages and disadvantages
• must assure equal employment opportunity

36
The Macroenvironment (cont.)

• Social issues and the natural environment
• management must be aware of how people think and
  behave
• the role of women in the workplace
• providing benefits for domestic partners of
  employees
• protection of the natural environment

37
Competitive Environment

• Competitive environment
• comprises the specific organizations with which
  the organization interacts
• Michael Porter - defined the competitive
  environment
• successful managers
• react to the competitive environment and
• act in ways that actually shape or change the
  competitive environment

38
Competitive Environment
39
Competitive Environment (cont.)

• Competitors
• competitors within an industry must deal with one
  another
• organizations must
• identify their competitors
• analyze how competitors compete
• react to and anticipate competitors actions
• competition is most intense
• where there are many competitors
• when industry growth is slow
• when the product or service cannot be
  differentiated

40
Competitive Environment (cont.)

• Threat of new entrants
• barriers to entry - influence the degree of
  threat
• conditions that prevent new companies from
  entering an industry
• include government policy, capital requirements,
  and brand identification, cost disadvantages, and
  distribution channels
• Threat of substitutes
• technological advances and economic efficiencies
  may result in substitutes for existing products
• substitutes can limit another industrys revenue
  potential
• companies need to think about potentially viable
  substitutes

41
Competitive Environment (cont.)

• Suppliers
• provide the resources needed for production
• powerful suppliers can reduce an organizations
  profits
• international labor unions are noteworthy
  suppliers
• dependence on powerful suppliers is a competitive
  disadvantage
• power of supplier determined by
• availability of other suppliers from whom to buy
• the number of customers for the suppliers
  products
• switching costs - fixed costs buyers face if they
  change suppliers
• close supplier relationship is the new model for
  organizations

42
Competitive Environment (cont.)

• Customers
• purchase the products or services the
  organization offers
• final consumers - purchase products in their
  final form
• intermediate consumers - buy raw materials or
  wholesale products before selling them to final
  consumers
• customer service - giving customers what they
  want, the way they want it, the first time
• disadvantageous to depend too heavily on powerful
  customers
• powerful customers make large purchases and/or
  have other suppliers