Organizational Theory,

Design, and Change

Sixth Edition
Gareth R. Jones

Chapter 1

Organizations and
Organizational
Effectiveness
1-1
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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 Change
Effective design is required for 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 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 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

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