Introduction to Organization Theory

1. Introduction toOrganization Theory

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 (Kast&Rosenzweig1970). 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 (Kast&Rosenzweig1970).

5. Definition of Organization Theory Cont.. Two things: Knowledge Knowledge generated by practical experience and scientific research Solving problems & managing resources (Kast&Rosenzweig1970).

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� (Kast&Rosenzweig1970).

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� (Kast&Rosenzweig1970).

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

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

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 one�s 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

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.) Fayol�s five functions and 14 principles of management Executives formulate the organization�s 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

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 Maslow�s hierarchy of need Ignored workers� rational side and the formal organization�s contributions to productivity Research overturned the simplistic belief that happy workers are more productive

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.) 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

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

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

24. 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

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

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

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

28. W. Edwards Deming�s �14 Points� Of Quality

29. 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

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 firm�s 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

33. The Macroenvironment

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 industry�s 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 organization�s 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 supplier�s 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