1 Chapter Two Organizations Organization Theory and Approach

2 Evolution of Organization Theory Period 1 : Pre Scientific Management (1880) Period 2 : Classical Management ( ) Scientific Classical Management Theory Organizational Theory Period 3 : Behavioral Management ( ) Management Science System Aproach Contingency Management (1950 to present)

3 Pre Scientific Management –The model for organization Roman Empire –The Feudal System

4 Evolution of Organization Theory Scientific Management Theory –Frederick W. Tailor ( ) All job can be observed and analyzed The best person for the job can be trained. One best way is followed by training people and paying them on an incentive basis Put manager in charge of planning, preparing and inspecting work. The worker simply carries out the manager direction.

5 Evolution of Organization Theory Classical Organizational Theory –Henry Fayol ( ) Proposed fourteen principles of management such as : –Each subordinate receives orders from only one superior (unity command) –Similar activities in organization should be grouped together under one manager (unity direction) –These principles formed the foundation for modern management practice and organization design.

6 Evolution of Organization Theory Behavioural Management Theory –Elton Mayo ( ) His research showed that when special attention is given to workers by management, productivity is likely to increase or The positive treatment of employees improved their motivation and productivity (Hawthorne effect)

7 Evolution of Organization Theory Behavioural Management Theory –Douglas McGregor ( ) Theory X –Most people must be controlled, directed and threatened with punishment to get them to do an adequate job. Theory Y –People are motivated best by satisfying their higher order needs for achievement.

8 Evolution of Organization Theory Management Science –Management science or operation research –It is an approach often used for problem solving –Mathematical models and computers are frequently used in the analysis of the problem

9 Evolution of Organization Theory Systems approach –Is a set of interralated and interdependent parts arranged in a manner that produces a unified whole. –Two basic types of systems : Closed systems : are influenced by and do not interact with their environment Open systems : are influenced by and do interact with their environment

10 Transformation Process An Open System Environment Raw Materials People Information resources Financial resources Input Boundary Spanning Boundary Spanning Products and Services Output

11 Evolution of Organization Theory Contingency Management Theory –Attempts to integrate various existing management theories in order to find the best approach for a particular situation Manager Sub ordinate TaskSituation OrganizationEnvironmentTiming

12 Evolution of Organization Theory Contingency Management Theory –Contingency approach says that organizations are different, face different situations, and require different ways of managing –Organization should design its structure to fit its environment.

13 Fit Between the Organization and Its Environment

14 (a) Competitors, industry size and competitiveness, related issues (b) Suppliers, manufacturers, real estate, services (c) Labor market, employment agencies, universities, training schools, employees in other companies, unionization (d) Stock markets, banks, savings and loans, private investors (e) Customers, clients, potential users of products and services (f) Techniques of production, science, computers, information technology (g) Recession, unemployment rate, inflation rate, rate of investment, economics, growth (h) City, state, federal laws and regulations, taxes, services, court system, political processes (i) Age, values, beliefs, education, religion, work ethic, consumer and green movements (j) Competition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rates An Organization’s Environment (j) International Sector (d) Financial Resources Sector (e) Market Sector (f) Technology Sector (g) Economic Conditions Sector (a) Industry Sector (h) Government Sector (c) Human Resources Sector (b) Raw Materials Sector (i) Sociocultural Sector ORGANIZATION DOMAIN

15 The Competitive Environment Information on Competitors Competitive Barriers Competitive Rivals Competitor Analysis Kinds of Markets Key Concepts in the Competitive Environment 4-6

16 The Economic Environment Interest Rates Global Economy Rapid Change Key Economic Forces 4-7

17 The Cultural and Social Environment 4-11 Cultural Trend: The Changing Roles of Women Cultural Trend: The Changing Roles of Women Time Poverty Economic Power Career Opportunity

18 Simple + Stable = Low Uncertainty 1.Small number of external elements and elements are similar 2.Elements remain the same of change slowly Examples: soft drink bottlers, beer distributors, container manufacturers, food processors Simple + Unstable = High-Moderate Uncertainty 1.Small number of external elements and elements are similar 2.Elements change frequently and unpredictably Examples: E-commerce, fashion clothing, music industry, toy manufacturers Complex + Unstable = High Uncertainty 1.Large number of external elements and elements are dissimilar 2.Elements change frequently and unpredictably Examples: Computer firms, aerospace firms, telecommunications, airlines Complex + Stable = Low-Moderate Uncertainty 1.Large number of external elements and elements are dissimilar 2.Elements remain the same or change slowly Examples: Universities and insurance Framework for Assessing Environmental Uncertainty Uncertainty ENVIRONMENTAL CHANGE STABLE ENVIRONMENTAL COMPLEXITY UNSTABLE SIMPLECOMPLEX

19 Mechanistic and Organic Organizational Structures Mechanistic structures: structures which are designed to induce (bring on) people to behave in predictable, accountable ways Organic structures: structures which promote flexibility, so people initiate change and can adapt quickly to changing conditions

20 Figure : Mechanistic and Organic Structures

21 Figure Task and Role Relationships

22 Lawrence & Lorsch: Differentiation, Integration, and the Environment Investigated how companies in different industries differentiate and integrate their structures to fit the environment –Three industries that experienced different levels of uncertainty: 1.The plastics industry 2.The food-processing industry 3.The container or can-manufacturing industry

23 Findings: Lawrence and Lorsch When environment is perceived as more unstable and uncertain: –Effective organizations are less formalized, more decentralized and rely more on mutual adjustment. When environment is perceived as stable and certain: –Effective organizations have a more centralized, standardized, and formalized structure:

24 Uncertainty, Differentiation and Integration

25 Burns and Stalker Also found that organizations need different kinds of structure to control their activities based on the environment –Unstable and changing environment: Organic structures are more effective –Stable environment: Centralized, formalized and standardized characteristic of mechanistic structures are more effective

26 Figure Environmental Uncertainty and Structure