Organizational Theory,

Design, and Change

Sixth Edition
Gareth R. Jones

Chapter 1

Organizations and
Organizational
Effectiveness
1-1
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
 Chapter 1
Organizations
and
Organizational Effectiveness
Dr. Anwar F. Chishti
Question 1.1 Relationship between Organizational
Theory, Structure, Culture, Design, and Change?
Question 1.2 Organizational theory?
Organizational structure?
Organizational culture?
Organizational design?
Organizational change?
Question 1.3 Importance of Organizational Design
and Change?
1-2
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
 Chapter 1

Organizations
and
Organizational Effectiveness
Dr. Anwar F. Chishti
……………….………………..Continue

Question 1.4 Consequences of Poor Organizational

Design?

Question 1.5 How Can One Measure Organizational

Effectiveness?
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 3
What is an Organization?
 Organizations provide goods and
services
 Organizations employ people
 Organizations bring together people
and resources to produce products and
services

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 4

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 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
that the organization releases to its
environment
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 6
Figure 1.1: How an Organization
Creates Value

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 7

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 8

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 9

9
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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-10

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-11

Figure 1.3: Why
Organizations Exist

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-12

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-13

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-14

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-15

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-16

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-17

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-18

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-19

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-20

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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-21

How Do Managers Measure
Organizational Effectiveness?
 Control: external resource approach
 Monitors how effectively an organization
manages and controls its external environment
 Innovation: internal system approach
 Develops an organization’s skills and capabilities
to change, adapt, and improve the way it
functions
 Efficiency: technical approach
 Measures how efficiently an organization
converts a fixed amount of resources into
finished goods and services

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-22

Table 1.1: Approaches to
Measuring Effectiveness

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-23

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
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-24
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 1-25

 Assignment – 1
Case for Analysis
………………Due in next class
Case
“Change and More Change at AOL-Time
Warner”
Go through the case study and answer
the discussion questions given at the
end.
ALSO
(ANSWER TO THE ‘DISCUSSION QUESTIONS’
ON NEXT SLIDE)
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-26
 ALSO
ANSWER TO THE FOLLOWING
DISCUSSION QUESTIONS
1. How do organizations create value? What is the
role of entrepreneurship in this process?
2. What is the relationship among organizational
theory, organizational design and change, and
organizational structure and culture?
3. What is organizational effectiveness? Discuss three
approaches to evaluating effectiveness and the
problems of each approach.
4. Draw up a list of effectiveness goals that you
would use to measure the performance of (a) a
fast-food restaurant and (b) a school of business.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-27