Organizational Theory,

Design, and Change

Fifth Edition
Gareth R. Jones

Chapter 1

Organizations and
Organizational
Effectiveness
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Learning Objectives
1. Explain why organizations exist and
the purposes they serve
2. Describe the relationship between
organizational theory and
organizational design and change,
and differentiate between
organizational structure and culture

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Learning Objectives (cont.)
3. Understand how managers can utilize the
principles of organizational theory to design
and change their organizations to increase
organizational effectiveness
4. Identify the three principal ways in which
managers assess and measure
organizational effectiveness
5. Appreciate the way in which several
contingency factors influence the design of
organizations

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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
 Entrepreneurship: the process by
which people recognize opportunities
to satisfy needs, and then gather and
use resources to meet those needs

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How Does an Organization
Create Value?
 Value creation takes place at three
stages: input, conversion and output
 Inputs: include human resources,
information and knowledge, raw
materials, money and capital
 Conversion: the way the organization
uses human resources and technology to
transform inputs into outputs
 Output: finished products and services
that the organization releases to its
environment
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Figure 1 – 1: How An Organization
Creates Value

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Why Do Organizations Exist?
 To increase specialization and the
division of labor
 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
 Pressures from the external environment
make organizations the favored mode for
organizing productive resources
 To economize on transaction costs
 Transaction costs: the costs associated
with negotiating, monitoring, and
governing exchanges between people
who must cooperate
 To exert power and control

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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 coordinate their
actions and use resources to achieve
organizational goals

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Some Definitions (cont.)
 Organizational culture: the set of
shared values and norms that control
organizational members’ interactions
with each other and with suppliers,
customers, and other people outside the
organization
 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
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Some Definitions (cont.)
 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: Relationships Among
Organizational Theory, Structure, Culture,
Design and Change

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Importance of Organizational
Design and Change
 Dealing with contingencies
 Contingencies are events that might occur
and must be planned for
 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
 Strategy: pattern of decisions and
actions involving core competences that
produces a competitive advantage
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Importance of Organizational
Design and Change (cont.)
 Managing diversity
 Differences in the race, gender, and
national origin of organizational members
have important implications for
organizational culture and effectiveness
 Promoting efficiency, speed, and
innovation
 The better organizations function, the
more value they create

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Consequences of Poor
Organizational Design
 Decline of the organization
 Talented employees leave to take
positions in growing organizations
 Resources become harder to acquire
 Resulting crisis impels managers to
change organizational structure and
culture

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How Do Managers Measure
Organizational Effectiveness?
 Control: external resource approach
 Method evaluates how effectively an
organization manages and controls its external
environment
 Innovation: internal system approach
 Method allows managers to evaluate how
effectively an organization functions and
operates
 Efficiency: technical approach
 Method evaluates how efficiently an
organization converts a fixed amount of
resources into finished goods and services
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Table 1-1: Approaches to
Measuring Effectiveness

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Measuring Effectiveness:
Organizational Goals
 Official goals: guiding principles that
the organization formally states in its
annual report and in other public
documents
 Mission: goals that explain 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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Figure 1-5: Plan of the Book

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Figure 1-5: Plan of the Book
(cont.)

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Figure 1-5: Plan of the Book
(cont.)

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