Introduction to Organization Theory

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).

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

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

Evolution Of Management Thought Systematic management Administrative management Quantitative management Systems theory Current and future revolutions Scientific management Human relations Organizational behavior Bureaucracy Classical ApproachesContemporary Approaches Contingency theory

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

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 its environment Ignored differences in managers’ and workers’ views Key concepts Limitations Contributions

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 Limitations Contributions

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 Key concepts Limitations Contributions

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

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 Key concepts Limitations Contributions

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

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 Key concepts Limitations Contributions

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 Limitations Contributions

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 Limitations Contributions

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

Laws and politics Economy Technology Demographics Social values Macroenvironment Competitive Environment Organization Suppliers New Entrants Substitutes Rivals Buyers The External Environment

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 firm’s more immediate task environment have the power to investigate company practices and take legal action to ensure compliance with the laws

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

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

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

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

Rival firms New entrants SuppliersCustomers Substitutes Competitive Environment

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

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

Competitive Environment (cont.) Suppliers –provide the resources needed for production –powerful suppliers can reduce an organization’s profits –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

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