Introduction to Organization Theory

What is Theory?
Theory is: a plan or scheme existing in the mind only, but based on principles verifiable by experiment or observation (Funk & Wagnalls page 1302 ).

What is an Organization?
Organizations are social entities that are goal-oriented; are designed as deliberately structured and coordinated activity systems, and are linked to the external environment (Daft, 2004).

Definition of Organization Theory

Organization theory: is the set of propositions (body of knowledge) stemming from a definable field of study which can be termed organizations science (Kast&Rosenzweig1970). The study of organizations: is an applied science because the resulting knowledge is relevent to problem solving or decision making in ongoing enterprises or institutions (Kast&Rosenzweig1970).

Definition of Organization Theory Cont..

Two things:
Knowledge
Knowledge generated by practical experience and scientific research

Solving problems & managing resources (Kast&Rosenzweig1970).

Definition of Organization Theory Cont..

It is the application of scientific knowledge in engineering and other forms of technology that has brought such spectacular changes in the material context of our lives over the past century (Kast&Rosenzweig1970).

Organization theory and Management

Management technology stems from organization theory and even more applied in the sense that it focuses on the practice of management in ongoing organizations (Kast&Rosenzweig1970).

Micro Perspective of Organizations

Simplifying Assumptions:
Firms viewed as an individual entrepreneur Profit maximization Rationality in achieving firm goals Firms function is to transform inputs into outputs Staple environment in which firm operates Concerned only with changes in prices and quantities of inputs and outputs

Organization Theory from a Historical Perspective

Throughout history most managers operated strictly on a trial-and-error basis The management profession as we know it today is relatively new
wide swings in management approaches over the last 100 years parts of each approach have survived and been incorporated into modern perspectives on management

Evolution Of Management Thought

Classical Approaches
1890 1900 1910 1920 1930

Contemporary Approaches
1940 1950 1960 1970

Systematic management
Scientific management

Administrative management

Quantitative management

Systems theory

Contingency theory

Current and future revolutions

Human relations

Organizational behavior

Bureaucracy

Early Management Concepts And Influences

Industrial revolution
minor improvements in management tactics produced impressive increases in production quantity and quality economies of scale - reductions in the average cost of a unit of production as the total volume produced increases opportunities for mass production created by the industrial revolution spawned intense and systematic thought about management

Systematic Management
Key concepts
Systematized manufacturing operations Coordination of procedures and processes built into internal operations Emphasis on economical operations, inventory management, and cost control

Contributions
Beginning of formal management in the United States Promotion of efficient, uninterrupted production

Limitations
Ignored relationship between an organization and it environment Ignored differences in managers and workers views

Scientific Management (The Classical Organization Theory)

Advocated the application of scientific methods to analyze work and to determine how to complete production tasks efficiently Four principles
develop a scientific approach for each element of ones work scientifically select, train, teach and develop each worker cooperate with workers to ensure that jobs match plans and principles ensure appropriate division of labor

Scientific Management (cont.)

Key concepts
Used scientific methods to determine the one best way Emphasized study of tasks, selection and training of workers, and cooperation between workers and management

Contributions
Improved factory productivity and efficiency Introduced scientific analysis to the workplace Piecerate system equated worker rewards and performance

Limitations
Simplistic motivational assumptions Workers viewed as parts of a machine Potential for exploitation of labor Excluded senior management tasks

Administrative Management
Emphasized the perspective of senior managers Five management functions
planning organizing commanding coordinating controlling

Fourteen principles of management Personalities

Henri Fayol Chester Barnard

Administrative Management (cont.)

Key concepts
Fayols five functions and 14 principles of management Executives formulate the organizations purpose, secure employees, and maintain communications Managers must respond to changing developments

Contributions
Viewed management as a profession that can be trained and developed Emphasized the broad policy aspects of top-level managers Offered universal managerial prescriptions

Limitations
Universal prescriptions need qualifications for environmental, technological, and personnel factors

Human Relations
Aimed to understand how psychological and social processes interact with the work situation to influence performance Hawthorne Studies
Hawthorne Effect - workers perform and react differently when researchers observe them

Argued that managers should stress primarily employee welfare, motivation, and communication Personalities
Abraham Maslow

Human Relations (cont.)

Key concepts
Productivity and employee behavior are influenced by the informal work group Cohesion, status, and group norms determine output Social needs have precedence over economic needs

Contributions
Psychological and social processes influence performance Maslows hierarchy of need

Limitations
Ignored workers rational side and the formal organizations contributions to productivity Research overturned the simplistic belief that happy workers are more productive

Bureaucracy
Bureaucratic structures can eliminate the variability that results when managers in the same organization have different skills, experiences, and goals Allows large organizations to perform the many routine activities necessary for their survival People should be treated in unbiased manner Personalities
Max Weber

Bureaucracy (cont.)
Key concepts
Structured network of relationships among specialized positions Rules and regulations standardize behavior Jobs staffed by trained specialists who follow rules Hierarchy defines the relationship among jobs

Contributions
Promotes efficient performance of routine operations Eliminates subjective judgment by employees and management Emphasizes position rather than the person

Limitations
Limited organizational flexibility and slowed decision making Ignores the importance of people and interpersonal relationships Rules may become ends in themselves

Quantitative Management
Teams of quantitative experts tackle complex issues facing large organizations Helps management make a decision by developing formal mathematical models of the problem Personalities
military planners in World War II

Quantitative Management (cont.)

Key concepts
Application of quantitative analysis to management decisions

Contributions
Developed specific mathematical methods of problem analysis Helped managers select the best alternative among a set

Limitations
Models neglect nonquantifiable factors Managers not trained in these techniques may not trust or understand the techniques outcomes Not suited for nonroutine or unpredictable management decisions

Organizational Behavior
Studies management activities that promote employee effectiveness
investigates the complex nature of individual, group, and organizational processes Theory X
managers assume that workers are lazy, irresponsible, and require constant supervision

Theory Y
managers assume employees want to work and control themselves

Personalities

Organizational Behavior (cont.)

Key concepts
Promotes employee effectiveness through understanding of individual, group, and organizational processes Stresses relationships among employees, managers, and work performed Assumes employees want to work and can control themselves

Contributions

Limitations

Increased participation, greater autonomy, individual challenge and initiative, and enriched jobs may increase participation Recognized the importance of developing human resources

Some approaches ignored situational factors, such as the environment and technology

Systems Theory
Key concepts
Organization is viewed as a managed system Management must interact with the environment Organizational goals must address effectiveness and efficiency Organizations contain a series of subsystems There are many avenues to the same outcome Synergies enable the whole to be more than the sum of the parts

Contributions
Recognized the importance of the relationship between the organization and the environment

Limitations
Does not provide specific guidance on the functions of managers

Contingency Perspective
Key concepts
Situational contingencies influence the strategies, structures, and processes that result in high performance There is more than one way to reach a goal Managers may adapt their organizations to the situation

Contributions
Identified major contingencies Argued against universal principles of management

Limitations
Not all important contingencies have been identified Theory may not be applicable to all managerial issues

Organizing For Environmental Response (cont.)

Organizing for customer responsiveness (cont.)
Total Quality Management (TQM) - comprehensive approach to improving quality and customer satisfaction
characterized by a strong orientation toward internal and external customers involves people across departments in improving all aspects of the business requires integrative mechanisms that facilitate group problem solving, information sharing, and cooperation across business functions

Baldrige award - given to U.S. companies that

W. Edwards Demings 14 Points Of Quality

Create constancy of purpose Dont tolerate delays or mistakes Cease dependencies on mass inspection Dont award business on price tag alone Constantly and forever improve the system of prod Institute training and retraining Institute leadership Drive out fear Breakdown barriers among departments Eliminate slogans, exhortations, and arbitrary targe Eliminate numerical quotas

Organizing For Environmental Response (cont.)

Organizing for customer responsiveness (cont.)
ISO 9000 - a series of quality standards developed by a committee working under the International Organization for Standardization
intended to improve total quality in all businesses companies that comply with standards entitled to certification

reengineering - revolutionizes key organizational systems and processes

A Dynamic Network

Designers

Producers

Brokers

Suppliers

Distributors

Macro Perspective of Organizations

Organizations are open systems
affected by, and in turn affect, their external environments

External environment
all relevant forces outside a firms boundaries
relevant - factors to which managers must pay attention

two elements comprise the external environment

competitive environment - immediate environment surrounding a firm macroenvironment - fundamental factors that generally affect all organizations

The External Environment

Laws and politics New Entrants Buyers Economy

Suppliers

Organization

Technology Competitive Macroenvironment Environment

Rivals

Substitutes

Social values

Demographics

The Macroenvironment
The macroenvironment
most general elements in the external environment that can potentially influence strategic decisions all organizations are affected by the general components of the macroenvironment

Laws and regulations

impose strategic constraints and provide opportunities regulators - specific government

The Macroenvironment (cont.)

The economy
created by complex interconnections among economies of different countries important elements include interest rates, inflation rates, unemployment rates, and the stock market economic conditions change and are difficult to predict

Technology
creates new products, advanced production techniques, and improved methods of managing and communicating

The Macroenvironment (cont.)

Demographics
measures of various characteristics of the people comprising groups or other social units
age, gender, family size, income, education, occupation

workforce demographics must be considered in formulating human resources strategies

population growth influences the size and composition of the labor force

immigration also is a significant factor

The Macroenvironment (cont.)

Social issues and the natural environment
management must be aware of how people think and behave
the role of women in the workplace providing benefits for domestic partners of employees protection of the natural environment

Competitive Environment
Competitive environment
comprises the specific organizations with which the organization interacts
Michael Porter - defined the competitive environment

successful managers:
react to the competitive environment; and act in ways that actually shape or change the competitive environment

Competitive Environment
New entrants

Suppliers

Rival firms

Customers

Substitutes

Competitive Environment (cont.)

Competitors
competitors within an industry must deal with one another organizations must:
identify their competitors analyze how competitors compete react to and anticipate competitors actions

competition is most intense:

where there are many competitors when industry growth is slow

Competitive Environment (cont.)

Threat of new entrants
barriers to entry - influence the degree of threat
conditions that prevent new companies from entering an industry include government policy, capital requirements, and brand identification, cost disadvantages, and distribution channels

Threat of substitutes
technological advances and economic

Competitive Environment (cont.)

Suppliers
provide the resources needed for production powerful suppliers can reduce an organizations profits
international labor unions are noteworthy suppliers

dependence on powerful suppliers is a competitive disadvantage

power of supplier determined by:
availability of other suppliers from whom to buy the number of customers for the suppliers products

Competitive Environment (cont.)

Customers
purchase the products or services the organization offers
final consumers - purchase products in their final form intermediate consumers - buy raw materials or wholesale products before selling them to final consumers

customer service - giving customers what they want, the way they want it, the first time disadvantageous to depend too heavily on powerful customers
powerful customers make large purchases and/or have