Organizational Theory,

Design, and Change

Sixth Edition
Gareth R. Jones

Chapter 1
Organizations and
Organizational
Effectiveness
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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

What is an Organization?
Organization: a tool used by people to
coordinate their actions to obtain
something they desire or value
Organizations provide goods and services
Organizations employ people
Organizations bring together people and
resources to produce products and
services
Basically, organizations exist to create
value
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How Does an Organization

Create Value?

Value creation takes place at three

stages: input, conversion, and output
Each stage is affected by the
environment in which the organization
operates
Environment the set of forces and
conditions that operate beyond an
organizations boundaries but affect its
ability to acquire and use resources to
create value

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Figure 1.1: How an Organization

Creates Value

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Why Do Organizations
Exist?
People working together to produce goods
and services create more value than
people working alone
5 major reasons why organizations exist:
To increase specialization and the division of
labor

Division of labor allows specialization

Specialization allows individuals to become experts at
their job

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

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
Organizational culture: is the set of key
values, beliefs, and attitudes shared by
organizational members and helps shape the
behavior within the organization
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Some Definitions (cont.)

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
Organizational change: the process by
which organizations move from their present
state to some desired future state to increase
their effectiveness

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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
Effective design is required for
Change
high organizational
performance

4 Major Reasons why Organizational Design and

Change are Important
Dealing with contingencies

Contingencies are events that might occur and must

be planned for most come from environment
Organizations must be designed to be able to
effectively respond to environmental changes

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

Gaining competitive
Change
(cont.)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 organizations people or
structures
Strategy: pattern of decisions and actions involving
core competences that produces a competitive
advantage to outperform competitors

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
Lower performance
Talented employees leave to take
positions in other organizations
Resources become harder to
acquire
Resulting crisis may result in
organizational failure
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Why is Organizational
Effectiveness Important?

What is the point is you are not

going to perform well?
Maximizing value creation =
organizational effectiveness
There are multiple ways to create
value and perform well
3 primary ways discussed in
chapter:

Control: external resource approach

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

Managers also measure

effectiveness by creating and
measuring performance 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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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
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

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