1. Introduction to Organization Theory

2. What is Theory?
Theory is: “a plan or scheme existing in the mind only, but based on principles verifiable by experiment or observation” (Funk & Wagnalls page 1302 ).

3. 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).

4. Definition of Organization Theory
Organization theory: is the set of propositions (body of knowledge) stemming from a definable field of study which can be termed organizations science (Kast&Rosenzweig1970).
The study of organizations: is an applied science because the resulting knowledge is relevent to problem solving or decision making in ongoing enterprises or institutions (Kast&Rosenzweig1970).

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

6. Definition of Organization Theory Cont..
“It is the application of scientific knowledge in engineering and other forms of technology that has brought such spectacular changes in the material context of our lives over the past century” (Kast&Rosenzweig1970).

7. Organization theory and Management
“Management technology stems from organization theory and even more applied in the sense that it focuses on the practice of management in ongoing organizations” (Kast&Rosenzweig1970).

8. Micro Perspective of Organizations
Simplifying Assumptions:
Firms viewed as an individual entrepreneur
Profit maximization
Rationality in achieving firm goals
Firms function is to transform inputs into outputs
Staple environment in which firm operates
Concerned only with changes in prices and quantities of inputs and outputs

9. 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

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

11. 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

12. 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 it environment
Ignored differences in managers’ and workers’ views
Key concepts
Contributions
Limitations

13. Scientific Management (The Classical Organization Theory)
Advocated the application of scientific methods to analyze work and to determine how to complete production tasks efficiently
Four principles
develop a scientific approach for each element of one’s work
scientifically select, train, teach and develop each worker
cooperate with workers to ensure that jobs match plans and principles
ensure appropriate division of labor
Personalities
Frederick W. Taylor
Frank and Lillian Gilbreth
Henry Gantt

14. 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
Contributions
Limitations

15. 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

16. 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
Contributions
Limitations

17. 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

18. 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
Contributions
Limitations

19. Bureaucracy
Bureaucratic structures can eliminate the variability that results when managers in the same organization have different skills, experiences, and goals
Allows large organizations to perform the many routine activities necessary for their survival
People should be treated in unbiased manner
Personalities
Max Weber

20. Bureaucracy (cont.) Key concepts Contributions Limitations
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
Contributions
Limitations

21. Quantitative Management
Teams of quantitative experts tackle complex issues facing large organizations
Helps management make a decision by developing formal mathematical models of the problem
Personalities
military planners in World War II

22. Quantitative Management (cont.)
Application of quantitative analysis to management decisions
Developed specific mathematical methods of problem analysis
Helped managers select the best alternative among a set
Models neglect nonquantifiable factors
Managers not trained in these techniques may not trust or understand the techniques’ outcomes
Not suited for nonroutine or unpredictable management decisions
Key concepts
Contributions
Limitations

23. Organizational Behavior
Studies management activities that promote employee effectiveness
investigates the complex nature of individual, group, and organizational processes
Theory X
managers assume that workers are lazy, irresponsible, and require constant supervision
Theory Y
managers assume employees want to work and control themselves
Personalities
Douglas McGregor

24. Organizational Behavior (cont.)
Promotes employee effectiveness through understanding of individual, group, and organizational processes
Stresses relationships among employees, managers, and work performed
Assumes employees want to work and can control themselves
Increased participation, greater autonomy, individual challenge and initiative, and enriched jobs may increase participation
Recognized the importance of developing human resources
Some approaches ignored situational factors, such as the environment and technology
Key concepts
Contributions
Limitations

25. Systems Theory Key concepts Contributions Limitations
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
Contributions
Limitations

26. 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
Contributions
Limitations

27. Organizing For Environmental Response (cont.)
Organizing for customer responsiveness (cont.)
Total Quality Management (TQM) - comprehensive approach to improving quality and customer satisfaction
characterized by a strong orientation toward internal and external customers
involves people across departments in improving all aspects of the business
requires integrative mechanisms that facilitate group problem solving, information sharing, and cooperation across business functions
Baldrige award - given to U.S. companies that achieve quality excellence

28. W. Edwards Deming’s “14 Points” Of Quality
Create constancy of purpose
Don’t tolerate delays or mistakes
Cease dependencies on mass inspection
Don’t award business on price tag alone
Constantly and forever improve the system of production or service
Institute training and retraining
Institute leadership
Drive out fear
Breakdown barriers among departments
Eliminate slogans, exhortations, and arbitrary targets
Eliminate numerical quotas
Remove barriers to pride in workmanship
Educate your people who should be viewed as assets, not commodities
Provide a structure that enables quality

29. Organizing For Environmental Response (cont.)
Organizing for customer responsiveness (cont.)
ISO a series of quality standards developed by a committee working under the International Organization for Standardization
intended to improve total quality in all businesses
companies that comply with standards entitled to certification
reengineering - revolutionizes key organizational systems and processes
based on a vision for how the organization should run
completely overhauls the operation in revolutionary ways

30. A Dynamic Network
Designers
Producers
Brokers
Distributors
Suppliers

31. 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

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

33. The Macroenvironment The macroenvironment Laws and regulations
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

34. 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

35. 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

36. 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

37. 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

38. Competitive Environment
New
entrants
Suppliers
Customers
Substitutes
Rival firms

39. 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

40. 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

41. Competitive Environment (cont.)
Suppliers
provide the resources needed for production
powerful suppliers can reduce an organization’s profits
international labor unions are noteworthy suppliers
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

42. 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