1. Office: BA1015 Office Phone: (806) 742-1514 Email: tyge.payne@ttu.edu Managing Innovation and Change Major Theoretical Perspectives (2) Dr. Tyge Payne (with Dr. Keith Brigham)

2. 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.

3. T. Payne3 Organization Design’s Role

4. 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.

5. 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.

6. 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)

7. 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.

8. 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.

9. 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.

10. 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)

11. 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

12. 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

13. 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.

14. 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