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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
organization’s 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 organization’s 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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