2. Learning Objectives
1.
2.
To understand why organizations
exist and the purposes they serve
Describe the relationship between
organizational theory and
organizational design and change,
and differentiate between
organizational structure and culture
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3. Learning Objectives
3.
4.
5.
Understand how managers can utilize the
principles of organizational theory to
design and change their organizations to
increase organizational effectiveness
Identify the three principal ways in which
managers assess and measure
organizational effectiveness
Appreciate the way in which several
contingency factors influence the design of
organizations
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4. What is an Organization?
Organization: a tool used by people
to coordinate their actions to obtain
something they desire or value
Entrepreneurship: the process by
which people recognize opportunities
to satisfy needs, and then gather and
use resources to meet those needs
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5. 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
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6. Figure 1 – 1: How Does an
Organization Create Value?
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7. Why Do Organizations Exist?
To increase specialization and the
division of labor
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
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8. Why Do Organizations Exist?
To manage the external environment
To economize on transaction costs
Transaction costs: the costs
associated with negotiating, monitoring,
and governing exchanges between
people
To exert power and control
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10. 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 coordinate their
actions and use resources to achieve
organizational goals
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11. Definitions
Organizational culture : the set of shared
values and norms that controls
organizational members’ interactions with
each other and with suppliers, customers,
and other people outside 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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12. Organizational Change
Organizational change : the
process by which organizations
redesign their structures and cultures
to move from their presents state to
some desired future state to increase
their effectiveness
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13. Figure 1-4: Relationships Among
Organizational Theory, Structure, Culture,
Design and Change
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14. Importance of Organizational
Design and Change
To deal with contingencies
Gaining competitive advantage
Contingencies are events that might occur
and must be planned for.
Ability to outperform other companies
because of the ability to create more
value from resources
Managing diversity
Promoting efficiency, speed, and
innovation
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15. Consequences of Poor
Design
Decline of the organization
Talented employees leave to take
positions in growing organizations.
Resources become harder to acquire.
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16. How Do Managers Measure
Organizational Effectiveness?
The external resource approach:
Control
Method managers use to evaluate how
effectively an organization manages and
controls its external environment.
Use of indicators such as stock price,
profitability and return on investment
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17. Measuring Organizational
Effectiveness
The internal systems approach:
Innovation
Method that allows managers to evaluate
how effectively an organization functions
and operates.
Organization needs to be flexible to
rapidly create products and services.
Indicators such as amount of time to get
new products to market or time spent on
decision making can be used.
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18. Measuring Organizational
Effectiveness
The technical approach:
Efficiency
Method managers use to evaluate how
efficiently an organization can convert
some fixed amount of organizational
resources into finished goods and
services.
Use of indicators such as increase in the
number of units produced without
additional labor
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20. Measuring Effectiveness:
Organizational Goals
Official goals: guiding principles that the
organization formally states in its annual
report and in other public documents.
Mission: goals that explain why the
organization exists and what it should be
doing
Operative goals: specific long- and shortterm goals that guide managers and
employees as they perform the work of the
organization
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