Organizational Theory, Design, and Change

Sixth Edition Gareth R. Jones

Chapter 1 Organizations and Organizational Effectiveness

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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

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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

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What is an Organization?
Organizations provide goods and services Organizations employ people Organizations bring together people and resources to produce products and services

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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 to meet those needs

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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
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Figure 1.1: How an Organization Creates Value

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Why Do Organizations Exist?

To increase specialization and the division of labor


Division of labor allows specialization Specialization allows individuals to become experts at their job

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Why Do Organizations Exist?

(cont.)
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

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Why Do Organizations Exist?

(cont.)
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
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Why Do Organizations Exist?

(cont.)
To exert power and control


Organizations structure their members to efficiently produce products and services

To economize on transaction costs



Transaction costs: the costs associated with negotiating, monitoring, and governing exchanges between people who must cooperate

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Figure 1.3: Why Organizations Exist

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Organizational Theory, Design, and Change: Some 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
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Some Definitions (cont.)

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
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Some 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

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Figure 1.4: The Relationship Among Organizational Theory, Structure, Culture, Design, and Change

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Importance of Organizational Design and Change

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

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Importance of Organizational Design and Change (cont.)

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
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Importance of Organizational Design and Change (cont.)

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

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Importance of Organizational Design and Change (cont.)

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

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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
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How Do Managers Measure Organizational Effectiveness?

 Control: external resource approach


Monitors how effectively an organization manages and controls its external environment Develops an organization s skills and capabilities to change, adapt, and improve the way it functions Measures how efficiently an organization converts a fixed amount of resources into finished goods and services
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 Innovation: internal system approach



 Efficiency: technical approach



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Table 1.1: Approaches to Measuring Effectiveness

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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
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Figure 1.5: Plan of the Book

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Figure 1.5: Plan of the Book

(cont.)

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Figure 1.5: Plan of the Book

(cont.)

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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
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