In the next lectures we will discuss the two main ethical issues raised by this more recent “political” analysis of the firm: employee rights and organizational politics then we will discuss a very new view of the organization: the organization as a network of personal relations focused on caring.

Rational Organization
The more traditional “rational” model of a business organization defines the organization as a structure of formal (explicitly defined and openly employed) relationships designed to achieve some technical or economic goal with max-imum efficiency. E. H. Schein provides a compact definition of an organiza-tion from this perspective: An organization is the rational coordination of the activities of a number of peo-ple for the achievement of some common explicit purpose or goal, through di-vision of labor and function and through a hierarchy of authority and responsibility. If the organization is looked at in this way, then the most fundamental re-alities of the organization are the formal hierarchies of authority identified in the “organizational chart” that represents the various official positions and lines of authority in the organization. At the bottom of the organization is the “operating layer”: those em-ployees and their immediate supervisors who directly produce the goods and services that constitute the essential outputs of the organization. Above the operating layer of laborers are ascending levels of “middle managers” who direct the units below them and who are in turn directed by those above them in ascending formal lines of authority. The plant manager quoted above worked within these middle levels of the organization. At the apex of the pyramid is “top management”: the board of directors, the chief ex-ecutive officer, and his or her staff. The pictorial description of the hierarchy of an organization is given below:
Board of Directors

The topic for today’s discussion is Rational Organization.
Points to be covered in this lesson:

• • •

Traditional model of the organization: the organization as a “rational” structure Employee’s duties towards the firm Employer’s duties towards the employee

What are the main problems faced by the employees in the organization or what are the problematic characteristics of Business Organizations? Can you list down some of these problems on a piece of paper and then start analyzing what type of organization are we talking about. The most problematic characteristics of organizations:

• • • • • • • • •

The alienation experienced by workers doing repetitive work. The feelings of oppression created by the exercise of authority. The responsibilities heaped on the shoulders of managers. The power tactics employed by managers anxious to advance their career ambitions. The pressure felt by the subordinates and superiors as they both try to get the jobs done. Health problems created by unsafe working conditions. Conflicts of interest created by an employee’s allegiance to other causes. The absence of due process for non-unionized employees. Invasion of privacy by a management’s legitimate concern to know its workers.


V.P. Research

V.P. Manufacturing


This list could go on and on………………………………….. In this lecture I am going to explain the above-mentioned problems and other problems raised by life within business organizations.

Plant Manager

Operating layer that is the workers


The rational model of an organization supposes that most information is collected from the operating layers of the organization, rises through the vari-ous formal management levels, each of which aggregates the information, until it reaches top management levels. On the basis of this information the top managers make general policy decisions and issue general commands, which are then passed downward through the formal hierarchy where they are am-plified at each managerial level until they reach the operating layer as detailed work instructions. These decisions of the top managers are assumed to be de-signed to achieve some known and common economic goal such as efficiency, productivity, profits, maximum return on investment, and so on. The goal is defined by those at the top of the hierarchy of authority who are assumed to have a legitimate right to make this decision. What is the glue that holds together the organization’s many layers of employees and managers and that fixes these people onto the organization’s goals and formal hierarchy? Contracts. The model conceives of the employee as an agent who freely and knowingly agreed to accept the organization’s for-mal authority and to pursue its goals in exchange for support in the form of a wage and fair working conditions. These contractual agreements cement each employee into the organization by formally defining each employee’s duties and scope of authority. By virtue of this contractual agreement, the employee has a moral responsibility to obey the employer in the course of pursuing the organization’s goals, and the organization in turn has a moral responsibility to provide the employee with the economic supports it has promised. For, as we have already discussed at some length, when two persons knowingly and freely agree to exchange goods or services with each other, each party to the agreement acquires a moral obligation to fulfill the terms of the contract. Utilitarian theory provides additional support for the view that the employee has an obligation to loyally pursue the goals of the firm: Businesses could not function efficiently and produc- tively if their employees were not single--mindedly devoted to pursuing their firm’s goals. If each employee were free to use the resources of the firm to pursue his or her own ends, chaos would ensue and everyone’s utility would decline.
The basic ethical responsibilities that emerge from these “rational” aspects of the organization focus on two reciprocal moral obligations:

means collecting information from the workers or the operating level of the organization and it goes up the ladder, all the different levels add information expected from their department and finally it reaches the top level for the decision making process. Top down approach means the Top level takes a decision based on the above-received information and then this decision goes down the hierarchy. In Rational Organization hierarchy plays a major role.


Concept of Rational Organization - an organization is the rational coordination of the activities of a number of people for the achievement of some common explicit purpose or goal, through di-vision of labor and function and through a hierarchy of authority and responsibility.

What is a Rational Organization? Discuss the role of hierarchy in a Rational Organization?

1. The obligation of the employee to obey organizational superiors, to pursue the or-ganization’s goals, and to avoid any activities that might threaten that goal, and 2. The obligation of the employer to provide the employee with a fair wage and fair working conditions. These duties in turn are presumed to be defined through the organization’s formal lines of authority and through the contracts that specify the employee’s duties and working conditions. We will examine these two reciprocal duties in the next lectures. Hope the concept of this type of organization is clear to all of you. Rational Organization means following both the approaches: Top down and bottom up. Bottom up approach



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