Chapter One

Organizations and Organization

Theory

CHAPTER OVERVIEW
This chapter explores the nature of organizations and
organization theory as it has developed from the
systematic study of organizations by scholars and
researchers.

The chapter introduces students to characteristics of

organizations and organizations as systems.

Definitions and examples are given to provide students

an understanding of organization theory and its value in
becoming better managers in a rapidly changing world.
 What is an Organization?
Organizations are: Social entities that are goal
directed, with deliberately structured activity
systems, and with a link to the external
environment.

Types of Organizations
We will study both large and small organizations.
We will also look at manufacturing and service
organizations, for- profit and nonprofit
organizations

Importance of Organizations
 Bring together resources to achieve desired goals and
outcomes
 Produce goods and services efficiently
 Facilitate innovation
 Use modern manufacturing and information technologies
 Adapt to and influence a changing environment
 Create value for owners, customers and employees
 Accommodate ongoing challenges of diversity, ethics and
social responsibility, as well as find effective ways to
motivate employees to work together to accomplish
organizational goals.
 Perspectives on Organizations

Organizations as machines
Organizations as organisms
Organizations as brains
Organizations as theaters
Organizations as systems

Open Systems
 A system, in general, is a set of interrelated elements
that acquires inputs from the environment, transforms
them, and discharges outputs to the external
environment.
 A closed system does not depend on its
environment, but focuses on running things efficiently.
 Open systems must interact with the environment to
survive, and managers realize they must pay close
attention to what is going on with their customers,
suppliers, and competitors
 An Open System and Its Subsystems
Environment

Raw Materials Transformation

People
Products
Information Input Output
resources and
Financial Services
resources
Process

Production,
Boundary Boundary
Subsystems Spanning
Maintenance,
Spanning
Adaptation,
Management

Five Basic Parts of an Organization

Top
Management

Technical Middle Administrative

Support Management Support

Technical Core
 Five Basic Parts of an Organization
Technical core consists of people who do the basic work of the
organization; This part actually produces the product and service
outputs of the organization. This is where the primary
transformation from inputs to outputs takes place.
Technical support. The technical support function helps the
organization adapt to the environment. Technical support
employees such as engineers, researchers, and information
technology professionals scan the environment for problems,
opportunities, and technological developments. Technical support
is responsible for creating innovations in the technical core,
helping the organization change and adapt.

Administrative support The administrative support function is

responsible for the smooth operation and upkeep of the organization,
including its physical and human elements.
Top management is responsible for directing and coordinating
other parts of the organization. Top management provides direction,
planning, strategy, goals, and policies for the entire organization or
major divisions.
Middle management Middle management is responsible for
implementation and coordination at the departmental level. In
traditional organizations, middle managers are responsible for
mediating between top management and the technical core, such as
implementing rules and passing information up and down the
hierarchy.
 Dimensions of Organization Design
 Structural Dimensions:
Structural dimensions provide labels to describe an organization’s
internal characteristics:
Formalization pertains to the amount of written documentation in the
organization;
Specialization is the degree to which organizational tasks are
subdivided into separate jobs;
Hierarchy of authority describes who reports to whom and the span
of control;
Centralization refers to the hierarchical level that has authority to
make a decision;
Professionalism is the level of formal education and training of
employees;
Personnel ratios refer to the deployment of people to various
functions and departments.

Dimensions of Organization Design

 Contextual Dimensions:
Contextual dimensions characterize the whole organization and
describe the organizational setting:
Size is the organization's magnitude as reflected in the number
of people in the organization;
Organizational technology refers to the tools, techniques, and
actions used to produce the organization’s products or services;
Environment includes all elements outside the boundary of the
organization;
Goals and strategy define the purpose and competitive
techniques that set it apart from other organizations;
Culture is the underlying set of key values, beliefs,
understandings, and norms shared by employees.
 Goals and
Strategy
Environment Size

Culture Technology
Structure
1. Formalization
2. Specialization
3. Hierarchy of Authority
4. Centralization
5. Professionalism
6. Personnel Ratios

Characteristics of Three Organizations

100
Formalization

Specialization
50
Centralization

Configuration
0
(%nonworkflow
W.L. Gore & Wal-Mart State Arts
personnel)
Associates Agency

TECHNOLOGY Manufacturing Retailing Government

Service
SIZE (#employees) 6,000 250,000 35
 Performance and Effectiveness Outcomes

The organization must learn to be efficient—using the

least amount of resources to achieve its goals, as well as
effective—the degree to which an organization actually
achieves its goals. In doing this, the company must
consider its stakeholder who are any group within or
outside the organization that has a stake in the
organization’s performance. Typical stakeholders include
employees, customers, creditors, management,
government, unions, the community, suppliers, and owners
and stockholders

The Evolution of Organization

Theory and Design
 Historical Perspectives

Organization design has varied over time in response to

societal changes. The classical perspective remains the
basis of management theory today. One classical subfield,
pioneered by Frederick Taylor, was the closed system
approaches of scientific management. Through
scientific procedures in 1898, Taylor identified correct
movements and tools for loading four times as much iron
or steel for the Bethlehem Steel plant. Administrative
principles focused on the total organization based on
insights of practitioners such as Fayol.
 The Evolution of Organization
Theory and Design
 Bureaucracy was an effective approach for the needs of
the Industrial Age, calling for clearly defined authority and
responsibility, formal recordkeeping, and uniform
application of standard rules. It remained the primary
approach to organization design through the 1980s.
 The Hawthorne Studies led to a revolution in worker
treatment from findings that positive treatment improved
motivation and productivity.
 Contingency theory means that one thing depends upon
other things, and for organizations to be effective, there
must be a fit between the structure and the conditions in
the external environment. There is not one best way to
manage, and instead, the correct management approach
varies for an Internet firm versus a large processing plant.

Contemporary Organization Design

 Before the Industrial Revolution, when most organizations
were involved in agriculture or craft work, communication
was primarily face-to-face, and structures were simple.
 In the industrial age, however, a different paradigm
emerged, focusing on stable environment, routine
technology, large organization size, growth and efficiency
goals, and a culture in which employees were taken for
granted.
 Challenges presented by today’s environment including
global competitiveness, diversity, rise of e-commerce, a shift
to knowledge and information as organizations’ most
important form of capital, and worker expectations for
meaningful work and opportunities for personal and
professional growth.
 Efficient Performance versus the
Learning Organization
 The learning organization promotes collaboration so
everyone is engaged in identifying and solving problems,
enabling the organization to continuously experiment,
improve, and increase capability.
 A comparison of the five elements of design in the
organization designed for efficient performance versus one
designed for continuous learning shows contrast: structure
moves from vertical to horizontal; tasks move from routine
to empowered roles; systems move from being formal and
controlled to sharing of information; culture changes from
rigid to adaptive; and strategy moves from competitive to
collaborative.

Two Organization Design Approaches

Mechanical System Design Natural System Design

Vertical Horizontal
Structure Structure

Routine Rigid Organizational Change Empowered Adaptive

Tasks Culture in the Service of Roles Culture
Performance

Formal Competitive Shared

Collaborative
Systems Strategy Information Strategy

Stable Environment Turbulent Environment

Efficient Performance Learning Organization
 Framework for the Book
 Levels of Analysis:
 The concept of levels of analysis explains the difference between a
course in organizational behavior and a course in organization
theory. Organizational theory emphasizes the whole organization
as a unit, but also focuses on groups or departments and the
environment. Contrast organization theory which is a macro
examination of organizations analyzing the whole organization as a
unit with organization behavior which is a micro approach focusing
on individuals within organizations. Meso theory, or the
integration of both micro and macro levels of analysis, is a new
approach to organization studies. This is based on the idea that to
thrive in organizations, managers must understand how structure
and context (organization theory) are related to employee
interactions (organization behavior).

Plan of the Book

 Chapters unfold major ideas in a logical sequence,
beginning with the basic idea of organizations as
social systems, and then moving to the role of top
management in goal-setting, effectiveness, and
responding to the external environment. The next
major part of the book describes how to design
organization structure, as related to factors such
as organizational technology and size. The final
two parts of the book look at processes inside the
organization, including how structure can be
designed to influence internal systems, and how
behavioral processes such as conflict, decision
making, power and politics, leadership, and
culture, exist between departments.
 Workbook
Activity

Organizational Dimensions
High Formalization 1-4 5-6 7 - 10 Low Formalization
High Specialization 1-4 5-6 7 - 10 Low Specialization
Tall Hierarchy 1-4 5-6 7 - 10 Flat Hierarchy
Product Technology 1-4 5-6 7 - 10 Service Technology
Stable Environment 1-4 5-6 7 - 10 Unstable Environment
Strong Culture 1-4 5-6 7 - 10 Weak Culture
High Professionalism 1-4 5-6 7 - 10 Low Professionalism
Well-Defined Goals 1-4 5-6 7 - 10 Poorly-Defined Goals
Small Size 1-4 5-6 7 - 10 Large Size
Modern 1-4 5-6 7 - 10 Postmodern

How Do You Fit the Design?

This questionnaire asks you to describe yourself.

For each item, give the number “4” to the phrase
that best describes you, “3” to the item that is next
best, and on down to “1” for the item that is least like
you.
1. My strongest skills are:
___a. Analytical skills
___b. Interpersonal skills
___c. Political skills
___d. Flair for drama

2. The best way to describe me is:

___a. Technical expert
___b. Good listener
___c. Skilled negotiator
___d. Inspirational leader

3. What has helped me the most to be successful is my ability to:

___a. Make good decisions
___b. Coach and develop people
___c. Build strong alliances and a power base
___d. Inspire and excite others

4. What people are most likely to notice about me is my:

___a. Attention to detail
___b. Concern for people
___c. Ability to succeed in the face of conflict and opposition
___d. Charisma
 5. My most important leadership trait is:
___a. Clear, logical thinking
___b. Caring and support for others
___c. Toughness and aggressiveness
___d. Imagination and creativity

6. I am best described as:

___a. An analyst
___b. A humanist
___c. A politician
___d. A visionary

Scoring: Compute your scores according to the following

rater. The higher score represents your way of viewing the
organization and will influence your management style.

Structure = 1a + 2a + 3a + 4a + 5a + 6a =
Human Resource = 1b + 2b + 3b + 4b + 5b + 6b =
Political = 1c + 2c + 3c + 4c + 5c + 6c =
Symbolic = 1d + 2d + 3d + 4d + 5d + 6d =