1. UNIT I Introduction to Organization Theory 1Dr. S.M Tariq Zafar ORGANIZATION THEORY 10/25/15

2. 1. What is Theory? Theory is a plan based on principles verifiable by experiment or observation. 2Dr. S.M Tariq Zafar10/25/15

3. 1.2. What is an Organization? An organization is a social entity that is goal- oriented; is designed as deliberately structured and coordinated activity systems, and is linked to the external environment. 3Dr. S.M Tariq Zafar10/25/15

4. 1.3. Definition of Organization Theory Organization theory is an applied science, the resulting knowledge of which is relevant to problem solving or decision making in enterprises. 4Dr. S.M Tariq Zafar10/25/15

5. 2. Evolution Of Management Thought 1890 1900 1910 1920 1930 1940 1950 1960 1970 Systematic management Administrative management Quantitative management Systems theory Current and future revolutions Scientific management Human relations Organizational behavior Bureaucracy Classical ApproachesContemporary Approaches Contingency theory 5 Dr. S.M Tariq Zafar 10/25/15

6. 2.1. Principles of Scientific Management 1.Separation of planning and doing 2.Functional foremanship 3.Job analysis 4.Standardization 5.Scientific selection and training of workers 6.Financial incentives 7.Economy 8.Mental revolution 1–6Dr. S.M Tariq Zafar Frederick Winslow Taylor (1911) -Known to be the Father of Scientific Management- Scientific management is the systematic study of relationships between people and tasks for the purpose of redesigning the work process to increase efficiency. 10/25/15

7. 1. Separation of planning and doing The responsibility of workers and management should be properly divided and communicated so that they can perform them in an effective way and should be reward for the same. Dr. S.M Tariq Zafar1–7 2. Functional foremanship PLANNING ADVISOR 1.Route clerk 2.Instruction card clerk 3.Time and cost clerk 4.Shop disciplinarian PRODUCTION ADVISOR 1.Gang boss 2.Speed boss 3.Repair boss 4.Inspector 10/25/15

8. 3. Job analysis  Job Analysis is undertaken to find out the one best way of doing a job i.e. the way one which requires the least movements, consequently less time and cost. Dr. S.M Tariq Zafar1–8 4. Standardization  Codify the new methods of performing tasks into written rules and standard operating procedures. 5. Scientific selection and training of workers  Carefully select workers who possess skills and abilities that match the needs of the task, and train them to perform the task according to the established rules and procedures. 10/25/15

9. 6. Financial incentives Establish a fair or acceptable level of performance for a task, and then develop a pay system that provides a reward for performance above the acceptable level. BABY THOMAS 20151–9 7. Economy  Careful use of resources saves cost of production. It brings in economy in operations. It results in high efficiency. 8. Mental revolution  Mental revolution denotes harmonious relationship between employees and employer. Cooperation of employees should be ensured by the managers to carry out the work in accordance with standards.  Workers should be considered as a part of organization.  Employer shouldn’t treat workers as mere wage earners. Dr. S.M Tariq Zafar

10. 2.2. Henry Fayol’s 14 Principles of Management 1.Division of work 2.Authority and responsibility 3.Discipline 4.Unity of command 5.Unity of direction 6.Scalar chain 7.Subordination of individual interest to general interest 8.Remuneration 9.Centralization 10.Order 11.Equity 12.Stability of tenure of personnel 13.Initiative 14.Esprit de corps (Team Spirit) BABY THOMAS 20151010/25/15

11. 1. Division of Work Specialization allows the individual to build up experience, and to continuously improve his skills. Thereby he/she can be more productive. 1–11BABY THOMAS 2015 2. Authority and Responsibility Authority is the right to give order and the power to extract obedience. Responsibility is the obligation to perform the task desired and directed by the superior authorities. 3. Discipline Employees must obey, but this is two-sided: employees will only obey orders if management play their part by providing good leadership Discipline is systematic instruction intended to train a person, sometimes literally called a disciple to follow a particular code of conduct or order. 10/25/15

12. 4. Unity Of Command Each worker should have only one boss with no other conflicting lines of command. 1–12BABY THOMAS 2015 People engaged in the same kind of activities must have the same objectives in a single plan to ensure unity and coordination in the enterprise. 5. Unity of Direction 6. Subordination of individual interest to general interest Individual interest should always be subordinate to general interest. 7. Remuneration Employee satisfaction depends on fair remuneration for everyone. This includes financial and non-financial compensation. 10/25/15

13. 8. Centralization This principle refers to how close employees are to the decision- Making process. It is important to aim for an appropriate balance. 1–13BABY THOMAS 2015 9. Scalar chain A hierarchy is necessary for unity of direction. Scalar chain refers to the number of levels in the hierarchy from the ultimate authority to the lowest level in the organization. Employees should be aware of where they stand in the organization's hierarchy, or chain of command 10. Order Both material order and social order are necessary. The former minimizes lost time and useless handling of materials. The latter is achieved through organization and selection. The workplace facilities must be clean, tidy and safe for employees. Everything should have its place. 10/25/15

14. 11. Equity Equity is a ‘combination of kindliness and justice’. Treating employees equally is important to achieve the goal. 1–14BABY THOMAS 2015 12. Stability of Tenure of Personnel Employees work better if job security and career progress are assured to them. An insecure tenure and a high rate of employee turnover will affect the organization adversely. 13. Initiative Allowing all personnel to show their initiative in some way is a source of strength for the organization. Employees should be given the necessary level of freedom to create and carry out plans. 14. Esprit de Corps Organizations should strive to promote team spirit and unity. 10/25/15

15. 2.3. Max Weber’s Theory of Bureaucracy  Bureaucratic Theory was developed by a German Sociologist and political economist Max Weber (1864-1920). According to him, bureaucracy is the most efficient form of organisation. The organisation has a well-defined line of authority. It has clear rules and regulations which are strictly followed.  Max Weber developed the principles of bureaucracy as a formal system of organization and administration designed to ensure efficiency and effectiveness.  Bureaucracy is a body of non-elective government officials who constitute administrative policy-making group.  Bureaucracy referred to government administration managed by departments staffed with non-elected officials.  Bureaucracy is a system of government in which most of the important decisions are made by state officials rather than by elected representatives BABY THOMAS 20151–1510/25/15

16. Principles of Bureaucratic Management 1.System of written rules and standard operating procedures that specify how employees should behave 1.Clearly specified hierarchy of authority 1.Selection and evaluation system that rewards employees fairly and equitably 1.Clearly specified system of tasks and role relationships BABY THOMAS 20151–16 Rule is a statement that tells you what is or is not allowed in a particular situation. Procedure is a series of actions that are done in a certain order. Role is a part performed especially in a particular operation 10/25/15

17. 2-17 Weber’s Principles of Bureaucracy 1)A manager’s formal authority derives from the position he holds in the organization. 1)People should occupy positions because of their performance, not because of their social standing or personal contacts. 1)The extent of each position’s formal authority and task responsibilities and it’s relationship to other positions should be clearly specified. 1)Authority can be exercised effectively when positions are arranged hierarchically, so employees know whom to report to and who reports to them. 1)Managers must create a well-defined system of rules, standard operating procedures, and norms so they can effectively control behavior. 10/25/15BABY THOMAS 2015

18. 2-18 Rules, SOPs and Norms Rules – formal written instructions that specify actions to be taken under different circumstances to achieve specific goals Standard Operating Procedures (SOPs) – specific sets of written instructions about how to perform a certain aspect of a task Norms – unwritten, informal codes of conduct that prescribe how people should act in particular situations 10/25/15BABY THOMAS 2015

19. 19 A continuum of organizational design alternatives: from bureaucratic to adaptive organizations. 10/25/15

20. 3. Organization Design Organization design is the structure of accountability and responsibility used to develop and implement strategies, human resource practices and information and business processes that activate those structures. 20BABY THOMAS 201510/25/15

21. Functional structure – groups people according to the business functions they perform, for example, manufacturing, marketing, and finance Divisional structure – groups together activities related to outputs, such as type of product or customer Matrix structure – combines functional and divisional chains of command to form a grid with two command structures 21BABY THOMAS 201510/25/15

22. Matrix Structure 22BABY THOMAS 201510/25/15

23. 4. Organizational effectiveness ORGANIZATIONAL EFFECTIVENESS IS A FUNCTION OF CLEAR AUTHORITY AND DISCIPLINE WITHIN AN ORGANIZATION. -HENRY FAYOL ORGANIZATIONAL EFFECTIVENESS IS A FUNCTION OF PRODUCTIVITY RESULTING FROM EMPLOYEE SATISFACTION -ELTON MAYO 23BABY THOMAS 2015 Efficiency focuses on activities Effectiveness focuses on results 10/25/15

24. 4.1. Benefits of Organizational Effectiveness 1.Improved profitability 2.Increased customer retention 3.Reduced customer complaints and warranty claims 4.Reduced costs through less waste, rework 5.Greater market share 6.Increased employee involvement and satisfaction, lower turnover 7.Increased ability to attract new customers 8.Improved competitiveness 9.Improved customer satisfaction 10.Improved management-employee relations 11.Improved focus on key goals 12.Improved communication 13.Improved teamwork 24BABY THOMAS 201510/25/15

25. 5. Determinants of organizational structure Determinants of Organizational Structure are: 1. Contextual Determinants (a) Internal (i) Organizational size (ii) Technology (iii) organizational culture (b) External (i) Environment (ii) National culture 1. Organizational Design (a) Strategic Choice (b) Institutional Isomorphism 25BABY THOMAS 2015 Contextual determinants are internal and external. Internal contextual determinants are: Organizational Size Organizational size like the number of people in an organization, the physical capacity of an organization, organizational inputs and out-put and financial resources determines organizational structure. Technology Technology that involves acting on and/or changing an object from one state to another is an internal determinant of organizational structure. 10/25/15

26. Determinants of organizational structure Organizational culture Organizational culture also determines the structure of an organization. Organizational culture is the behavior of humans who are part of an organization and the meanings that the people attach to their actions. External contextual determinants are: Environment Environment is an external contextual determinant of organizational structure. Environment includes concepts such as demography, economy, natural forces, technology, politics, and culture. National culture The set of norms, behaviors, beliefs and customs that exist within the population of a sovereign nation. International companies develop management and other practices in accordance with the national culture they are operating in. 26BABY THOMAS 201510/25/15

27. Determinants of organizational structure Organizational design determinants are: Strategic choice Strategic choice is an organizational design determinant of organizational structure. The choice of the structure is with the organization itself depending on the nature of the business. Institutional isomorphism Institutional isomorphism is also an organizational design determinant of organizational structure. It makes use of already existing organizational forms. 27BABY THOMAS 201510/25/15