Key Challenges Faced by Organizations Today

• Managing in a global environment• Designing and restructuring organizations• TQM – improving quality, empowerment,

and competitiveness• Reducing complexity, increasing speed, and

reacting to environmental changes• Ethical and moral management of

organizational members

OT Concepts• Theory – an explanation of some phenomenon in real life

that consists of principles that state relationships observed in association with that phenomenon

• Descriptive Theory – describes why and how something happens

• Prescriptive (Normative) Theory – suggests how things should be or what can be done about conditions identified by a descriptive theory

• Organization Theory (OT) – a set of related concepts, principles, and hypotheses about organizations that is used to explain components of organizations and how they relate to each other

OT Concepts

• Systems Theory – a way to model organizations by focusing on the structure and relationships or interdependence among parts of the organization

• Holism – a system should be considered as a function whole (changes in any one part of the system are likely to have an impact throughout the system)

• Synergism – the interactive effects of the parts of a system working together ( the sum is greater than the individual parts)

Closed System vs. Open System

• Closed System – self-perpetuating and receives no outside energy or resources– Entropy – when a closed system runs out of

energy; a state of collapse

• Open System – interacts with its external environment; can experience negative entropy by importing energy through physical, human, and financial resources

OT Concepts• Strategic Systems Approach to organization theory

states that managers should consider contextual or contingency factors when they determine the strategies for managing the organization.

• Some contingency factors are organizational goals, environment, technology, size, and cultural effects of managerial choices

• Contingency – one thing depends on something else

• Contingency Approach – no one best way for all organizations to structure and organize

• The best fitting structure depends on the context that the organization faces.

Managing the Environment

• Managers should formulate strategies so as to maximize the organization’s fit with the environment.

• Three Associated Tasks:– Knowing the Environment– Adapting or Responding to the Environment– Changing the Environment

Boundary Permeability, Resilience, & Maintenance

• Permeability: the extent to which the organization facilitates the inward and outward flow of information

• Resilience: the degree to which boundary-spanning units respond to changes in the mission and goals of the organization, as well as changes in the environment

• Maintenance: keeping the boundary-spanning units focused on the organization’s mission and goals

Uncertainty can come from 3 aspects of the Environment

• Complexity: involves the number of sectors or elements of the environment relevant to the organization

• Change: an organization has limited capacity to monitor the environment. Increasing levels of change and complexity cause uncertainty. Turbulence refers to fluctuations in environmental conditions

• Munificence: abundant resources in the environment. When resources become more scarce, they create uncertainty for an organization

The Environment is the Source of Opportunities and Threats

• Organizations learn about these through:– Boundary Spanning: activities and/or functions that

require members of the organization to spend time interacting with individuals and organizations outside the boundaries of their own organizations

– Environmental Scanning: a type of boundary spanning, which includes the collecting and processing of information, and assessing and projecting change in various environmental sectors.

OT Concepts• Organization Structure – an organization’s framework as

expressed by its degree of complexity, formalization, and centralization

• Complexity – the amount of differentiation in an organization

• Formalization – the degree to which an organization relies on rules and procedures to direct the behaviors of employees

• Centralization – the concentration of decision-making authority to lower levels in upper management

• Decentralization – the handing down of decision-making authority to lower levels in an organization

• Organization Design – the development or changing of an organization’s structure

The Organization & Its Environment

• General Environment– Global, Political, Social, Technological, &

Economic

• Specific Environment– The Organization, Suppliers, Customers,

Competitors, Government, Public Pressure Groups

OT Concepts• Unity of command – the principle that a subordinate should have one

and only one superior to whom he/she is directly responsible• Authority – the rights inherent in a managerial position to give orders

and expect them to be obeyed• Responsibility – an obligation to perform assigned activities• Chain of command – the flow of authority from the top to the bottom

of an organization• Line Authority – the authority that entitles a manager to direct the

work of subordinates• Staff Authority – authority given to individuals who support, assist,

and advise others who have line authority• Acceptance theory of authority – the theory that authority comes from

the willingness of subordinates to accept it• Power – the capacity to influence decisions• Span of control – the number of subordinates a manager can supervise

effectively and efficiently• Empowerment – a managerial approach in which employees are given

substantial authority and say to make decisions on their own

Differentiation & Integration:Key Elements of Structure

• All organizations must split their works into tasks—the division of labor into tasks is called differentiation.

• Organizations must split up work but they then must integrate or coordinate it. Integration involves the various means to pull together highly differentiated tasks into cohesive output.

Three Types of Differentiation

• Horizontal differentiation: Division of work into tasks and sub-tasks at the same organizational level.

• Vertical differentiation: Division of work by level of authority, hierarchy, or chain of command.

• Spatial differentiation: Geographical location of different organizational activities.

• The level of complexity is largely determined by the amount of the three types of differentiation that exists.

Integration

• Integration or coordination is the prime responsibility of managers.

• Several integrating structures are available:– Formalization: rules, policies, and procedures– Centralization: decision making can be vested in top

management or decentralized with decision making authority vested in the lower level employees

– Spans of control: number of immediate subordinate positions that a supervisor position controls or coordinates

– Standardization: integration by setting consistent input, process, and output requirements.

Non-Structural Means for Integration

Other mechanisms that are important in integration– Liaison roles: Horizontal linking positions that link two

units or departments at the same level of the organization

– Teams: Organizing employees and managers into work and inter-unit groups in order to enhance, communications, coordination, and control

– Culture: Informal and unwritten rules, norms, and values that are commonly shared by organizational members

– Information Systems: Aid integration by how they structure the system that gathers, processes, analyzes, and distributes information

Characteristics of Effective Structures

• Efficiency

• Innovation

• Flexibility and Adaptiveness

• Facilitation of Individual Performance & Development

• Facilitate Coordination and Communication

• Facilitate Strategy Formulation and Implementation

Types of Organizational Designs

• Simple structure – an organizational design that is low in complexity and formalization but high in centralization

• Functional structure – an organizational design that groups similar or related occupational specialties together

• Divisional structure – an organization structure made up of autonomous self-contained units

• Team-based structure – an organization structure made up of work groups or teams that perform that organization’s work

Functional Designs• People are grouped on the basis of functions they perform or

equipment they use.• Strengths

– Like-skilled or knowledged workers can develop refined expertise and skills leading to economies of scale.

– Communication is facilitated because workers are likely to have a similar language or jargon.

– Employees gain functional expertise and have a clear career path.

• Difficulties– Difficulty in coordinating across functional lines– May produce a functional view of the organization.– Coordination may be pushed up the hierarchy, wasting top managerial

resources.– Likely to inhibit innovations that require an integrative, cross-

functional view.

Output GroupsProducts, Markets, & Geography

• Strengths– Focus attention and effort on the specific requirements– Good match for non-routine, high interdependence

technologies.– Relieve the need for centralized coordination.– Well-suited for uncertain environments.– Easier to identify and track responsibility.

• Weaknesses– Can create product, market, or geographical biases.– May reduce economies of scale.– May reduce the company’s ability to share information

and resources across divisions.

Matrix Structures:Combining Function & Output

• Description– Joint existence of functional groups and output groups that overlap.

– Functional resources are allocated among the products, projects, or programs on the basis of need.

• Advantage– Allows the proper technical advice, expertise, and other functional

resources to be present at the proper location and at the desired time.

• Problems– A portion of the workforce has two different bosses.

– Because of the competing functional and product, project, or program dimensions of the matrix, potential conflict is inherent in the design.

– The matrix design may have difficulty in responding to a fast-changing environment.

Hybrid Organization: Two or more structures in one company

• Strengths– Can achieve adaptability and coordination product divisions

& efficiency in centralized functional departments– Better alignment between corporate and division-level

goals.– Achieves coordination both within and between product

lines.

• Weaknesses– Potential for excessive administrative overhead.– Potential for conflict between division and corporate

departments.

Organizations for the 21st Century: Evolving Designs

• Three related sets of changes are driving the interest in new forms:– Inexpensive, fast, and pervasive computer and

communication technologies.– Task technology has been changed.– The move towards a more global marketplace

especially based on technology.

Contemporary Perspectives

• Organizational Economics – Based on Transaction Cost Economics and Agency Theory.– Transaction Cost Economics - Organization is viewed as a series of

transactions internally & externally. Uncertainty brings about transaction costs (fees). Transaction costs indicate the inefficiency in a transaction. Organization seeks lowest possible transaction costs.

– Agency Theory – The primary interests of owners (principals) & workers (agents) are different. Principals seek to maximize investments by most efficient use of organization. Agents seek to minimize their efforts and maximize their pay rate.

• Institutional Theory – Emphasizes the similarities among organizations. Managers tend to imitate past practices of other successful organizations.

• Population Ecology – Organizations are ineffective in their effort to control environmental uncertainty. The environment selects those organizations that will survive in the long run.

3 Approaches to Examining Organizations

• Rational System – Organizations are collectivities oriented to the pursuit of relatively specific goals & exhibiting relatively highly formalized social structures

• Natural System – Organizations are collectivities whose participants are pursuing multiple interests, both disparate and common, but recognize the value of perpetuating the organization as an important resource. The informal structure of relations that develops among participants provides a more informative and accurate guide to understanding organizational behavior than the formal.

• Open System – Organizations are systems of interdependent activities linking shifting coalitions of participants; the systems are embedded in – dependent on continuing exchanges with and constituted by – the environments in which they operate.