Office: BA1015 Office Phone: (806) Managing Innovation and Change Major Theoretical Perspectives (2) Dr. Tyge Payne (with Dr. Keith Brigham)

Our Approach to Organization Design  Organization design as an ongoing activity  Short term and routine  Long term and intermittent  Top down perspective (strategic approach)  Fit/Misfit perspective (multi-contingency)  Supported by other major theories  Organizational level of analysis T. Payne2 By studying organizations we can be better equipped to lead and manage them.

T. Payne3 Organization Design’s Role

T. Payne4 Our Perspective of Organizations  Open Systems  Stresses the complexity and variability of the individual organizational components and their loose connections.  Views system boundaries as somewhat amorphous and transitory.  Highlights the interdependence of the organization and its environment.  A pragmatic and applied orientation – supports ways to change and improve organizations rather than simply describing and understanding them.  (Multi-)Contingency Theory (i.e., fit/misfit). –Misfits are misalignments within organizational design components that can lead to deterioration in efficiency or effectiveness.

T. Payne5 Major Theories of Organizations  Contingency  Transaction Cost Economics  Agency  Configurations  Institutional  Population Ecology  Resource-Dependence  Social Capital We will be referring back to these throughout the course.

T. Payne6 Contingency Theory  Contingency Theory: Developed from the recognition that firms participating in the same industries or markets had different performance records. CT asks why?  Can be summarized as:  “The best way to organize depends on the nature of the environment to which the organization must relate” (Scott, 1981: 114)  “There is no one best or most appropriate way for all organizations to structure or organize. The best-fitting structure depends on the context that the organization faces” (e.g., environment, technology, goals/objectives, size, or culture).  Just as there is no one best way to organize, there may also be more than one equally good way to organize. (equifinality)

T. Payne7 Configurations  Contingency theory led the way to classification schemes, although concern was expressed about oversimplification. –Mintzberg (1979) – Simple Structure, Machine Bureaucracy, Professional Bureaucracy, Divisionalized, Adhocracy  However, classification schemes continue to be utilized but more so in a “fit” scenario and often utilizing multiple constructs in a configurations approach.  Constructions of reality through classification: –Typologies are constructed through theoretical means, –Taxonomies are empirically driven. –Most scholars use these terms interchangeably.

T. Payne8 Transaction Cost  Transaction Cost Economics (TCE): Seeks to explain the existence and operation of organizations. It is mainly concerned with the governance of contractual relations.  Primary TCE (and Agency Theory) Assumptions:  Self-interest Seeking Individuals – Opportunism with Guile (Williamson, 1975)  Bounded Rationality – refers to the behavior that is intendedly rational but only limitedly so; a condition of limited cognitive competence to receive, store, retrieve and process information. All complex contracts are unavoidably incomplete because of bounds on rationality.  Information Asymmetry – Information isn’t evenly distributed among organizational participants.

T. Payne9 Agency Theory  Agency: Agency theory examines the appropriate types of contracts and monitoring to ensure that owners can control the behavior of employees and reduce agency costs.  Agency theory regards the organization as a series of contractual relationships between owners and workers.  Owners (or principals) contract with managers and employees (or agents) to produce goods and services.  Agency costs are any counterproductive activities or behaviors due to shirking or moral hazard. Contracts are used to safeguard their interests.  The goal here is to reduce the amount of agency costs. In other words, find the most efficient arrangement of agent- principal relationships.

T. Payne10 Institutional Theory  Institutional Theory: Emphasizes that organizations are open systems—strongly influenced by their environments—but that it is not only competitive and efficiency-based forces that are at work. Socially constructed belief and rule systems exercise enormous control over organizations—both how they are structured and how they carry out their work (Meyer & Rowan, 1977; Meyer & Scott, 1983).  Institutional Isomorphism is used to explain why organizations take the forms they do (DiMaggio & Powell, 1983):  Coercive forces (regulation & culture)  Mimetic forces (copy “successful” forms)  Normative forces (professionalization)

T. Payne11 Example: Accounting standards, consultant training Pollution controls, school regulations Reengineering, benchmarking MoralLegal Culturally supported Social basis: Professionalism— certification, accreditation Political law, rules, sanctions Innovation visibility Events: Duty, obligation DependenceUncertainty Reasons to become similar: NormativeCoerciveMimetic Isomorphism Mechanisms

T. Payne12 Pop Ecology  Natural Selection: Population Ecology posits that environmental factors select those organizational characteristics that best fit the environment (Aldrich & Pfeffer, 1976; Hannan & Freeman, 1977; McKelvey, 1982)  Population ecology does not assume that changes are necessarily in the direction of more complex or better organizations…just toward a better fit with the environment.  Pop ecology is concerned with populations of organizations and the forms that specific organizations have that “fit” the environment. There are three stages to this model:  This theory tends to focus on birth or death of organizations. Variation => Selection => Retention

T. Payne13 Resource Dependence  R-D: Begins with the assumption that no organization is able to generate all the various resources that it needs to operate. (Pfeffer & Salancik, 1978). Thus, organizational decisions and actions are attempts to adapt to the environment.  Administrators manage their environments as well as their organizations, and the former activity may be as important or more important that the latter.  Implies Strategic Choice! R-D describes tactics employed by organizations to adapt to and modify their environments:  Bargaining, contracting, co-optation, hierarchical contracts, joint ventures, strategic alliances, mergers, associations, etc.

T. Payne14 Networks / Social Capital  Social Capital: Refers to the goodwill gained from social relationships between people or collectives (i.e., groups, organizations, communities).  Social relationships can deliver such resources as:  Trust  Respect  Information  Knowledge  The structure of a network of relationships can lead to greater development of social capital.  Density, # of ties, structural holes…  Internal or External Ties