Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-1 Organizational Theory, Design, and Change Sixth Edition Gareth R. Jones Chapter 1 Organizations and Organizational Effectiveness

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 22 Learning Objectives 1.Explain why organizations exist and the purposes they serve 2.Describe the relationship between organizational theory and organizational design and change, and differentiate between organizational structure and culture

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 333 Learning Objectives (cont.) 3.Understand how managers can utilize organizational theory to design and change their organizations to increase organizational effectiveness 4.Identify how managers assess and measure organizational effectiveness 5.Appreciate the way contingency factors influence the design of organizations

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 44 What is an Organization? Organizations provide goods & services Organizations employ people Organizations bring together people and resources to produce products and services 4

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 555 What is an Organization? (cont.) Organization: a tool used by people to coordinate their actions to obtain something they desire or value Entrepreneurship: identify opportunities to satisfy needs, and then gather and use resources (conversion process) to meet those needs.

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 666 What is an Organization? (cont.) A set of interrelated integrated elements together, as a system, they form a whole, to achieve a common goal, through the process of converting acquired inputs from the environment to produce product and services in the form of outputs back into the environment.

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 777 How Does an Organization Create Value? “The perfect harmony between structure & culture”

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 888 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 capital Conversion: the way the organization uses human resources and technology to transform inputs into outputs Output: finished products and services that the organization releases to its environment

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 999 Figure 1.1: How an Organization Creates Value

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 10 Why Do Organizations Exist? 1. To increase specialization and the division of labor Division of labor allows specialization Specialization allows individuals to become experts at their job

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 11 Why Do Organizations Exist? (cont.) 2. To use large-scale technology Economies of scale: cost savings that result when goods and services are produced in large volume Economies of scope: cost savings that result when an organization is able to use underutilized resources more effectively because they can be shared across several different products or tasks 11

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 12 Why Do Organizations Exist? (cont.) 3. To manage the external environment External environment consists of the political, social, economic, and technological factors that affect organizations Organizations regularly exchange products and services for needed resources Organizations need to manage their external environment? Limited control

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 13 Why Do Organizations Exist? (cont.) 4. To exert power and control Organizations structure their members to efficiently produce products and services 5. To economize on transaction costs Transaction costs: the costs associated with negotiating, monitoring, and governing exchanges between people who must cooperate 13

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 14 Figure 1.3: Why Organizations Exist

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 15 Organizational Theory, Design, and Change: important Definitions Organizational theory: the study of how organizations function and how they affect and are affected by the environment in which they operate Organizational structure: the formal system of task and authority relationships that control how people to coordinate their actions and use resources to achieve organizational goals

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 16 More Important Definitions Organizational culture: is the set of key values, beliefs, and attitudes shared by organizational members and helps shape the behavior within the organization Organizational 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

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 17 Definitions (cont.) Organizational change: the process by which organizations move from their present state to some desired future state to increase their effectiveness Organizational redesign and transformation

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 18 Figure 1.4: The Relationship Among Organizational Theory, Structure, Culture, Design, and Change

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 19 Importance of Organizational Design & Change 1.Dealing with contingencies. 2. Gaining competitive advantage. 3. Managing diversity. 4. Promoting efficiency, speed, innovation

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 20 Importance of Organizational Design and Change 1. Dealing with contingencies Contingencies are events that might occur and must be planned for Organizations must be designed to be able to respond to changes in the complex and increasingly difficult environment many organizations face Globalization and changing IT technologies are just two challenges organizations must be ready to face

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 21 Importance of Organizational Design and Change (cont.) 2. Gaining competitive advantage The ability to outperform other companies because of the capacity to create more value from resources Core competences: skills and abilities in value creation embedded in the organization’s people or structures Strategy: pattern of decisions and actions involving core competences that produces a competitive advantage to outperform competitors 21

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 22 Importance of Organizational Design and Change (cont.) 3. Managing diversity Differences in the race, gender, and national origin of organizational members have important implications for organizational culture and effectiveness Learning how to effectively utilize a diverse workforce can result in better decision making and more effective workforce

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 23 Importance of Organizational Design and Change (cont.) 4. Promoting efficiency, speed, and innovation The better organizations function, the more value they create The correct organizational design can lead to faster innovation and quickly get new products to market 23

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 24 Consequences of Poor Organizational Design Decline of the organization’s sales and profits Layoffs occur and talented employees leave to take positions in growing organizations. Resources become harder to acquire Resulting crisis may result in organizational failure

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 25 How Do Managers Measure Organizational Effectiveness? Control: external resource approach Monitors how effectively an organization manages and controls its external environment Innovation: internal system approach Develops an organization’s skills and capabilities to change, adapt, and improve the way it functions Efficiency: technical approach Measures how efficiently an organization converts a fixed amount of resources into finished goods and services

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 26 Table 1.1: Approaches to Measuring Effectiveness

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 27 Measuring Effectiveness: Organizational Goals Official goals: guiding principles that the organization formally states in its annual report and in other public documents Mission: a mission statement explains why the organization exists and what it should be doing Operative goals: specific long- and short-term goals that guide managers and employees as they perform the work of the organization

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 28 Figure 1.5: Plan of the Book

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 29 Figure 1.5: Plan of the Book (cont.)

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 30 Figure 1.5: Plan of the Book (cont.)

1- Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 31 Summary Organizations are a tool people use to achieve their goals Organizational theory is the study of how organizations function and how they affect and are affected by their environment Organizational effectiveness must be monitored by managers 31