Organizational Theory, Design, and Change

Text and CasesFourth EditionGareth R. Jones

Learning ObjectivesTo understand why organizations exist and the purposes they serveDescribe the relationship between organizational theory and organizational design and change, and differentiate between organizational structure and culture

Learning ObjectivesUnderstand how managers can utilize the principles of organizational theory to design and change their organizations to increase organizational effectivenessIdentify the three principal ways in which managers assess and measure organizational effectivenessAppreciate the way in which several contingency factors influence the design of organizations

What is an Organization?Organization: a tool used by people to coordinate their actions to obtain something they desire or valueEntrepreneurship: the process by which people recognize opportunities to satisfy needs, and then gather and use resources to meet those needs

How Does an Organization Create Value?Value creation takes place at three stages: input, conversion and output.Inputs include human resources, information and knowledge, raw materials, money and capitalConversion the way the organization uses human resources and technology to transform inputs into outputsOutput finished products and services

Figure 1 1: How Does an Organization Create Value?

Why Do Organizations Exist?To increase specialization and the division of laborTo use large-scale technology Economies of scale: cost savings that result when goods and services are produced in large volumeEconomies of scope: cost savings that result when an organization is able to use underutilized resources more effectively

Why Do Organizations Exist?To manage the external environmentTo economize on transaction costsTransaction costs: the costs associated with negotiating, monitoring, and governing exchanges between peopleTo exert power and control

Figure 1-3: Why organizations exist

Organizational Theory, Design, and Change: Some DefinitionsOrganizational theory: the study of how organizations function and how they affect and are affected by the environment in which they operateOrganizational structure: the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals

DefinitionsOrganizational culture: the set of shared values and norms that controls organizational members interactions with each other and with suppliers, customers, and other people outside the organizationOrganizational design: the process by which managers select and manage aspects of structure and culture so that an organization can control the activities necessary to achieve its goals

Organizational ChangeOrganizational change: the process by which organizations redesign their structures and cultures to move from their presents state to some desired future state to increase their effectiveness

Figure 1-4: Relationships Among Organizational Theory, Structure, Culture, Design and Change

Importance of Organizational Design and ChangeTo deal with contingenciesContingencies are events that might occur and must be planned for.Gaining competitive advantageAbility to outperform other companies because of the ability to create more value from resourcesManaging diversityPromoting efficiency, speed, and innovation

Consequences of Poor DesignDecline of the organizationTalented employees leave to take positions in growing organizations.Resources become harder to acquire.

How Do Managers Measure Organizational Effectiveness?The external resource approach: ControlMethod managers use to evaluate how effectively an organization manages and controls its external environment.Use of indicators such as stock price, profitability and return on investment

Measuring Organizational EffectivenessThe internal systems approach: InnovationMethod that allows managers to evaluate how effectively an organization functions and operates.Organization needs to be flexible to rapidly create products and services.Indicators such as amount of time to get new products to market or time spent on decision making can be used.

Measuring Organizational EffectivenessThe technical approach: EfficiencyMethod managers use to evaluate how efficiently an organization can convert some fixed amount of organizational resources into finished goods and services.Use of indicators such as increase in the number of units produced without additional labor

Table 1-1: Approaches to Measuring Effectiveness

Measuring Effectiveness: Organizational GoalsOfficial goals: guiding principles that the organization formally states in its annual report and in other public documents.Mission: goals that explain why the organization exists and what it should be doingOperative goals: specific long- and short-term goals that guide managers and employees as they perform the work of the organization

Figure 1-5: Plan of the Book

Part 2: Organizational Design

Part 3: Organizational Change