Chapter 1: An Overview

What is an Organization?
An Organization is a consciously coordinated social entity, with a relatively identifiable boundary, that
functions on a relatively continuous basis to achieve a common goal or a set of goals.
It merely means a group of people in a defined boundary, working continuously to achieve a set of goals.
What is Organization Structure?
Organization structure defines how tasks are allocated, who reports to whom, and the formal coordinating
mechanisms and interaction patterns that will be followed.
Organization structure has three components:
1. Complexity: The extent of differentiation within the organization. It includes the degree of
specialization, a division of labor, number of levels in the organization hierarchy, and the level to
which organization’s units are dispersed geographically.
2. Formalization: The degree to which an organization relies on procedures to direct the behavior
of employees.
3. Centralization: It tells where the locus of decision-making authority lies. In a highly centralized
organization, the top management has high authority to make decisions.
What is Organization Design?
It is concerned with constructing and changing an organization’s structure to achieve the organization’s
goals.
What is Organization Theory?
It is the discipline that studies the structure and design of organizations. It describes how organizations
are structured and offer suggestions on how they can be constructed to improve their effectiveness.

Organization Behavior Organization Theory

It takes a micro view- emphasizing individuals and It takes a macro perspective. Its unit of analysis is
small groups. It focuses on behavior in the organization itself. It focuses on the behavior
organizations and a narrow set of employee of organizations and uses a broader definition of
performance and attitude variables (such as organization effectiveness. It is not only
productivity, absenteeism, turnover, job concerned with the employee performance and
satisfaction). attitudes but with the overall organization’s ability
to adapt and achieve its goals.

Why study Organization Theory?

There is no single reason to study organization theory. It may be merely to understand organization
structure. It may be to develop systematic theories of organizations. For many, OT is studied because they
expect to be making choices how organizations will be designed.
Biological Metaphor
Organizations are compared to a living being such as an animal. This is because organizations too are born,
grow, and require continual nourishment for survival. The organizations can, however, can continue to
live on forever unlike the living beings.
The Systems Perspective
System: A set of interrelated and interdependent parts arranged in a manner that produces a unified
whole. They take inputs, transform them and produce some output. Societies, Cars, Human Beings are
some examples of systems. Organizations are also systems, consisting of many sub-systems.
Types of Systems:
1. Closed System: It is the system in which there is no energy (input) from outside source, and there
is no release of energy (output) to the outside source. This has little applicability to organizations.
2. Open System: It recognizes the dynamic interaction of the system with its environment. For
organizations to survive, they must be open systems.
Characteristics of Open Systems:
1. Environment awareness: Interdependency between the system and its environment.
2. Feedback: Systems receive continuous information, due to which the system can adapt itself
accordingly to enhance the efficiency.
3. Cyclical Character: Open systems are a cycle of events.
4. Negative Entropy: Entropy means to run down or disintegrate. Open systems can repair itself,
maintain its structure, avoid death and grow because of its ability to adapt to its environment.
5. Steady State: Open system tries to maintain a stable state with respect to its environment.
6. The movement towards growth and Expansion: When systems become complex and are on the
verge of entropy, open systems move towards growth & expansion
7. The balance of Maintenance and Adaptive activities: Maintenance seeks stability; Adaptive seeks
continuous change. Open systems create a balance between the two though they are opposite in
nature.
8. Equifinality: It states that a system can reach the same output state with different initial
conditions and different paths.
The Life-Cycle Perspective
Life Cycle: It refers to a pattern of predictable change. It is proposed that organizations have life cycles,
whereby they evolve through a standardized sequence of transitions as they develop over time. By
applying the life-cycle metaphor to organizations, we are saying that there are distinct stages through
which organizations proceed, that stages follow a consistent pattern, and that transitions from one stage
to another are predictable rather than random occurrences.
Life-Cycle Stages:
1. Entrepreneurial Stage: This stage is synonymous with the formation stage in the product lifecycle.
The Organization is in its infancy and goals tend to be ambiguous. Creativity is high and in need of
resources.
2. Collectivity Stage: The Organization’s mission is clarified. Structure is informal. There is high
commitment from the employees.
3. Formalization and Control Stage: Structure of the organization stabilizes. Formal rules and
procedures are imposed. Efficiency and stability are emphasized.
 4. Elaboration of Structure Stage: Organization diversifies its product or service markets. Looks for
new products & growth opportunities. Organization structure is more complex and elaborated.
Decision making is decentralized.
5. Decline Stage: The demand for the products starts declining. This is as a result of competition,
shrinking markets. Employee turnover increases. Conflicts increase. New leaders are brought in;
decision making is centralized.

Chapter 4: Dimensions of Organization Structure

Components of restructuring
1. Complexity
2. Formalization
3. Centralization
Variables of structural dimensions
1. Administrative components: numbers of line supervisors, managers, and staff personnel relative
to the total number of employees.
2. Autonomy
3. Centralization
4. Complexity
5. Delegation of authority
6. Formalization
7. Integration
8. Standardization
9. Specialization

Complexity refers to the degree of differentiation that exists within an organization.

Horizontal differentiation refers to the degree of differentiation between units based on the orientation
of members, the nature of the tasks they perform and their education and training.
The evidence of horizontal differentiation in organization is specialization and departmentation
Specialization refers to the grouping of activities performed by an individual

• functional specialization: jobs are broken down into simple and repetitive tasks
• social specialization: hiring professionals who hold skills that cannot be readily routinized

Grouping of specialists is called departmentation. It can be created on the basis of numbers, function,
product or service, client, geography, or process.
Vertical differentiation refers to the depth in the structure.
Spatial differentiation refers to the degree to which the location of an organization’s offices, plants, and
personnel are dispersed geographically. This separation includes by both number and distance.
FORMALIZATION:
Refers to the degree to which jobs within the organization are standardized. Employees can be
expected to always handle the same input in exactly the same way, resulting in consistent and uniform
output. There are explicit job descriptions, lots of organization rules, and clearly defined procedures
covering work process in organizations where there is high formalization.
Formalization has been defined as the extent to which rules, procedures, instructions, and
communications are written. Formalization measured by determining the policies and procedures
manual, assessing the number and specificity of its regulations. Formalizations apply to both written and
unwritten regulations.
IMPORTANCE OF FORMALIZATION
1. Standardizing behavior reduces variability
2. Standardization promotes coordination
3. Less discretion required from a job incumbent

FORMALIZATION TECHNIQUES
1. SELECTION: job applicants are processed through a series of process to differentiate individuals
likely to be successful job performers from those likely to be unsuccessful. These processes
include completion of application blanks, employment tests, interviews, and background
investigations. Applicants can and do rejected at each of these steps.
2. ROLE REQUIREMENT: Job analysis, defines the job that needs to be done in the organization and
outlines what employees behaviors are necessary to perform the jobs.
a. Job description, JD is a document that describes the general tasks, or other related
duties, and responsibilities of a position. It may specify the functionary to whom the
position reports, specifications such as the qualifications or skills needed by the person
in the job, and a salary range.
3. RULES PROCEDURES AND POLICIES: Rules are explicit statements that tell an employee what he
or she ought or ought to do.
a. Procedures are series of interrelated sequential steps that employees follow in the
accomplishment of their job tasks.
b. Policies are guidelines that set constraints on decisions that employees make. Each of
them represents techniques that organization use to regulate the behavior of members.
4. TRAINING: This includes on the variety where understudy assignments, coaching, and
apprenticeship methods are used to teach employees preferred job skills, knowledge, and
attitudes. It also includes off the job training such as classroom lectures, film, demonstrations,
simulation exercises, and programmed instruction.
5. RITUALS: Rituals are used as a formalization technique with members who will have a strong
and enduring impact on the organization.

CENTRALIZATION
Centralization refers to the process in which activities involving planning and decision-making within
an organization are concentrated to a specific leader or location. In a centralized organization, the
decision-making powers are retained in the head office, and all other offices receive commands from
the main office. The executives and specialists who make critical decisions are based in the head office.

ADVANTAGES OF CENTRALIZATION
1. A clear chain of command
2. Focused vision
3. Reduced costs
 4. Quick implementation of decisions
5. Improved quality of work

DISADVANTAGES OF CENTRALIZATION
1. Bureaucratic leadership
2. Remote control
3. Delays in work
4. Lack of employee loyalty

ORGANISATION DECISION-MAKING PROCESS

RELATIONSHIP BETWEEN CENTRALIZATION, COMPLEXITY AND FORMALIZATION

1. Inverse relationship between centralization and complexity
2. The centralization and formalization relationship is ambiguous
3. The centralization and complexity relationship is directly related to each other

Chapter 5: Strategy
What is Strategy?
It can be defined as the determination of the basic long-term goals and objectives of an enterprise, and
the adoption of courses of action and the allocation of resources necessary for carrying out these goals.

Two views on Strategy

• Planning mode: It describes strategy as a plan or explicit set of guidelines developed in advance.
• Evolutionary Mode: It emphasizes the evolution of strategy throughout its execution as a
pattern of decisions.
Types of strategy
Corporate level strategy determines the roles that each business in the organization will play. It answers
to the question, in what set of business we should be?
Business level strategy seeks to answer the question, how should we compete in each of our business. It
sets a blueprint for the company to achieve it’s both long-term and short-term goals.
Strategic Dimensions
Innovation Strategy does not mean a strategy merely for simple or cosmetic changes from previous
offerings but rather one for meaningful and unique innovations.
The marketing differentiation strategy strives to create customer loyalty by uniquely meeting a
particular need. IT doesn’t necessarily mean the organization is producing a higher quality or more up-
to-date product.
Breadth Strategy refers to the scope of the market to which the business caters: the variety of products,
the geographic range and the number of products.
The Cost-Control strategy considers the extent to which the organization tightly controls the costs,
refrains from incurring unnecessary innovation or marketing expenses, and cuts prices in selling a basic
product.
Chandler’s Strategy-structure thesis
As per Chandler “A new strategy required a new or refashioned structure if he enlarged enterprise was
to be operated efficiently…. Unless structure follows strategy, inefficiency results.”
The efficient structure for an organization with a single product strategy is one that is simple – highly
centralization, low formalization, and low complexity. As the organization grows the structure changes
from simple to divisional over the time.

TIME T T+1 T+2

Product - Low High

Diversification
strategy
Structure Simple Functional Divisional

Miles and Snow’s Strategy typology

Based on idea that managers seek to formulate strategies that will be congruent with the external
environment. Four strategies- Prospector (Innovate, take risk, seek out new opportunity and grow,
suited to dynamic and growing environment), Defender (Concerned with stability or even
retrenchment), Analyzer (Maintain a stable biz. While innovating on the periphery), reactor (Not a real
strategy, responds to environmental threats and opportunities in an ad hoc fashion).Porter’s
Competitive Strategy
According to him, managers can make the Organization more profitable and less vulnerable by adopting
either a differentiation strategy (focus on uniqueness) or low-cost leadership strategy (Focus on
efficiency, low cost).
 Chapter 9: Power-Control

A Major Attack- Strategic Choice

The strategy, size, technology, and environment are independent determinants of the structure of the
organization. But neither of these four contingency variables was THE determinant of the structure.
Each only contributed by explaining a part. They explain only 50-60% of variability.
John Child’s work, in early 1970s, is the expansion of the strategic structure thesis (Chandler, Ch-5). It
demonstrates that managers have considerable latitude in making strategic choices.
The Logic of Strategic Choice
Child’s argument states that even though there are constraints on managerial-decision discretion,
managers still have significant latitude for making choices. Managers choose the organization’s
structural design and the other environmental and technological factors (competitors, unions & govt.
agencies) are constraints mediated by managerial choice.
Child’s argument can be summarized into 4 points-
1. Decision makers have more autonomy than that inferred by those arguing for the dominance
of environmental, technological or other forces
Organizations are not constrained to do what they have done in the past. There may be a variety
of organizational forms that are viable, rather than a single one. The point is that technology,
environment & other forces do not dictate the structure and not vice versa.
2. Organizational effectiveness should be construed as a range instead of a point
Organizational effectiveness is not a point but a range. Rather than seeking a structure that
would result in high effectiveness, managers select one that merely satisfies the minimal
requirements of effectiveness. This range between maximizing and ‘good enough’ creates an
area between which the managers can utilize their discretion.
3. Organizations occasionally have the power to manipulate and control their environments
Organizations are not always pawns being acted upon by their environments. Managers of large
can control their competitive environments. For eg- mergers, joint ventures, vertical integration
or lobbying for govt. Regulating all help in limiting the severity, scope, and danger posed by
competition.
4. Perceptions and evaluations of events are an important intervening link between
environments and the actions of organizations
There is a difference between objective characteristics of the environment and the perception
and evaluation of them by the organization members. They are not always accurate. The
decision makers evaluate the organization’s environment, make interpretations based on their
experience, and use this information to influence the design of internal structure.

The Case Against Strategic Choice

Two factors restrict the generalizability of the strategic-choice argument
1) Commitments often lock an organization into a limited domain
2) There are barriers to entry in many markets
Both these factors constrain the managers from doing much with their discretionary latitude.
Challenges to the Contingency Perspective
Contingency perspective states that structure will change to reflect changes in strategy, size, technology,
and environment. There are many implicit assumptions made about organizational decision making, viz-
1) The decision makers follow the traditional decision-making process as proposed in
management theory
2) Rationality, that the top management is the dominant coalition in the organization
3) Goal consensus exists
These assumptions are not accurate as explained below-
Nonrationality
Decision makers are humans with human frailties. They seldom have a consistent ordering of goals, they
don’t always pursue systematically the goals they hold, they make choices with incomplete information
& they seldom conduct exhaustive search for alternatives. They recognize only a limited number of
decision criteria and propose only a limited number of alternatives.
The Competing-Values Approach – The evaluation of the organization’s effectiveness depends on who is
doing the evaluating. Different criteria are emphasized by different constituencies. Inherent in this
approach is the acknowledgment that organizations have multiple goals. Since organizations have
multiple goals that are almost always diverse, rationality doesn’t apply.
Divergent Interests
The interests of the decision maker and the organization are rarely one and the same.

Decision
Maker’s Organization’s
Interests Interests

Dominant Coalitions
Coalitions in the organization flourish largely because of the ambiguity surrounding goals, organizational
effectiveness, and what is thought to be rational. The Dominant Coalition is the one that has the power
to affect structure. In small organizations, the owners are typically the power coalition but in large
organizations it is not always the case. Any coalition that can control the resources on which the
organization depends can become dominant.
Power
The existence of divergent interests and dominant coalitions leads naturally to the role of power in the
organizations. Coalitions wrestle in a power struggle because there is dissension concerning preferences
or in the definition of the situation.
Authority- the right to act or command others to act, towards the attainment of the organization’s
goals. It is legitimate. Authority goes with the job, i.e., when you leave your managerial job, the
authority goes with that position.
Power- It is conceptualized best as a three-dimensional cone. The power of individuals within the
organization depends on the vertical position in the cone and the distance from the center of it. The
closer one is to the power core; the more influence one has to affect decisions.

Power
Authority
Power

Each wedge of the cone, as shown in the figure below, represents a functional area. The cone analogy
considers two facts-
1) The higher one moves in the organization; the closer one moves towards the power cone.
2) It is not necessary to have authority to wield power because one can move horizontally inward
toward the power core without moving up.

Marketing

production Bird’s-eye view of the organization conceptualized as a cone

Administration

The Roads to Power

1) Hierarchical Authority- Formal authority is the source of power.
2) Control of Resources – The scarcity of the resource becomes the source of power.
3) Network Centrality – This position, i.e., being in the right place in the organization, of
individuals allows them to gain power & reduce organization dependencies.

Structural Decisions as Political Process

Politics determines the criteria and preferences of the decision makers. Politics, therefore, is essentially
the exercise of power
The Power-Control Model

Implication Based on the Power-Control View

1) Technology & Environment

Technology does not cause structure. It is chosen. The choice of domain tends to constrain the
organization’s technology, but the domain is also chosen.
The organization will seek to manage its environment to reduce uncertainty. When
opportunities in the organization are scarce or limited, and when there is a minimal degree of
organizational slack, then the environment is likely to be an overpowering constraint in the
structural decisions.
Organizational Slack is that cushion of actual or potential resources that enables an organization
to adjust to environmental change.
2) Stability and Mechanistic Structures
Because organizations seek routinization and management of uncertainty, power-control
advocates purpose that structural change should be minimal. The argument made by power-
control advocates that significant changes represent, in effect, quasi-revolutions.

3) Complexity
Increased differentiation- horizontally, vertically or spatially- leads to difficulties in coordination
and control. Management would prefer. Therefore, all things being equal, to have low
complexity.
4) Formalization
Those in power will influence the degree of rules and regulations under which employees work.
Because control is the desired end for those in power, organizations should have a high degree
of formalization.
5) Centralization
Mistakes in organizations can be very costly, when temporary external threats exist, or when it
is important that decisions reflect an understanding of the ‘big picture’. Power-control
advocates claim that decentralization should occur infrequently. Even when it does, it may be
pseudo-decentralization. That is, the top management will create the appearance of delegating
 decisions downward but use information technology for feedback. This feedback allows them to
monitor lower-level decisions closely and to intercede and correct any decisions they don’t like.
Also, it can be argued that those in power maintain control in decentralized situations by
defining the parameters of decisions.

Chapter 16: Managing Organizational Culture

Organizational culture: Organizational culture is defined as the underlying beliefs, assumptions, values
and ways of interacting that contribute to the unique social and psychological environment of an
organization. There are ten characteristics that when mixed and matched tap the essence of an
organization’s culture.
1. Individual initiative
2. Risk Tolerance
3. Direction
4. Integration
5. Management support
6. Control
7. Identity
8. Reward system
9. Conflict tolerance
10. Communication patterns

Do organizations have uniform cultures?

Most large organizations have a dominant culture and numerous sets of subcultures. A dominant
culture expresses the core values that are shared by a majority of the organization’s members. It is this
macro view of culture that gives an organization its distinct personality. Subcultures tend to develop in
an organization to reflect common problems, situations, or experiences that members face. The
purchasing department, for example can have a subculture that is uniquely shared by members of that
department.
Culture and organizational effectiveness
Organizational effectiveness requires that an organization’s culture, strategy, environment and
technology are aligned. The successful organization will achieve a good external fit-its culture will be
shaped to its strategy and environment. Successful organizations will also seek a good internal fit, with
their culture properly matched to their technology.
Culture: A substitute for formalization?
Given that strong cultures increase behavioral consistency, it’s only logical to conclude that they can be
a powerful means of implicit control and can act as a substitute for formalization. The stronger an
organization’s culture the less management need be concerned with developing formal rules and
regulations to guide employee behavior.
Keeping a culture alive
The three factors that play the most important role in sustaining a culture are:
 1. Selection: When an employer comes across more than one candidate who meets any given job’s
requirements, the final decision as to who is hired is significantly influenced by the decision
maker’s judgment of how well the candidates will fit into the organization. Selection is a two-
way street, allowing either employer or applicant to abrogate a marriage if there appears to be a
mismatch.
2. Top Management: Employees observe management’s behavior. Their behavior establishes
norms that filter down through the organization.
3. Socialization: Every organization wants to help new employees adapt to its culture. This
adaptation process is called socialization. An organization will be socializing every employee
throughout his or her career in the organization. However, socialization is most explicit when an
employee enters an organization.

How do employees learn culture?

In addition to explicit orientation and training programs, culture is transmitted in some other forms.
Some of them are:
Stories: They anchor the present in the past and provide explanations and legitimacy for current
practices.
Rituals: Activities such as recognition and award ceremonies, year-end parties, annual company picnics
etc. are rituals that express and reinforce the key values of the organization, what goals are important,
which people are important and which are expendable.
Material Symbols: The design and physical layout of spaces and buildings, furniture, executive perks and
dress attire are material symbols that convey to employees who are important, the degree of
egalitarianism desired by top management, and the kind of behavior that is appropriate.
Language: many organizations and units within organizations use language as a way to identify
members of a culture or subculture. By learning this language, members attest to their acceptance of
the culture and, in doing so, help to preserve it.
When cultures collide: Mergers and Acquisitions: In a merger or acquisition if one or both of the
organizations have weak cultures, the marriage is more likely to work, because weak cultures are more
malleable. They can adapt better to new situations. The merging of two strong cultures, however, need
not present problems if the cultures are highly similar.
The Key debate: Are Cultures Manageable?
The Case For: We know that the selection process, top management’s actions, and the methods chosen
for socializing employees sustain a culture. Similarly, stories, rituals, material symbols, and language are
means by which employees learn who and what are is important. By changing these factors we should
be able to change culture.
The Case Against: For employees to unlearn years of experiences and memories is a difficult task. That
too takes a very long time. So, while culture may be theoretically amenable to change, the time frame
necessary to unlearn a given set of values and replace them with a new set may be so long as to make
an effort realistically impractical.
Conditions under which culture can be managed:
A Dramatic Crisis: It calls into question current practices and opens the door toward accepting a
different set of values that can respond better to the crisis.
Leadership Turnover: Since top management is a major factor in transmitting culture, a change in
organization’s key leadership positions facilitates the imposition of new values.
Life-Cycle Stage: Cultural change is easier when the organization is in transition from the formation
stage to the growth stage, and from maturity into decline.
Age of the organization: Cultural change is more likely to be accepted in an organization that is
relatively young.
Size of the organization: Cultural change is easier to implement in a small organization since in such
organizations it’s easier for management to reach employees.
Strength of the Current Culture: The stronger the culture, the more difficult it is to change the same.
Absence of Subcultures: The more subcultures there are, the more resistance there will be to changes in
the dominant culture.
How does management go about enacting the cultural change?
Cultural Analysis: This would include a cultural audit to assess the current culture, a comparison of the
present culture against that which is desired, and a gap evolution to identify what cultural elements
need changing.
Specific Suggestions:
• The appointment of a new top executive is likely to dramatize that “major changes are going
to take place.”
• Initiate a reorganization by creation of new units.
• Create new stories, symbols, and rituals to replace those currently in place.
• Change the selection and socialization processes and the evaluation and reward systems to
support employees who espouse the new values.