1-1 Organizational Theory

CHAPTER 1

Organizations and
Organization Theory

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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-
ORGANIZATION THEORY

A. Organization

It came from the Greek word Organon: meaning

A tool,

An instrument or an organ.

•Organizations are tools or instruments to meet goals, objectives and

to carry out tasks.

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WHAT IS AN ORGANIZATION?
(CONT’D)
• Organization: a tool used by people to coordinate
their actions to obtain something they desire or value.
1.Organizations provide goods and services
2.Organizations employ people
3.Organizations bring together people and resources to
produce products and services
4.Basically, organizations exist to create value

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CONT…

• An Organization Defined
• A deliberate arrangement of people to accomplish some specific
purpose (that individuals independently could not accomplish alone).

• Common Characteristics of Organizations

• Have a distinct purpose (goal)
• Composed of people
• Have a deliberate structure

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The term organization refers to the

group of individuals who come together
to perform a set of tasks with the intent
to accomplish the common objectives.
Thus, the relationships between the
individuals working together and their
overall effect on the performance of
the organization is well explained
through the organizational theories.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-

 ORGANIZATIONAL THEORY

B. Theory
It is an idea or set of ideas that is intended to
explain facts or events
An ideal or hypothetical set of facts, principles,
or circumstances
A proposition or set of propositions that
attempts to explain or predict how groups and
individuals behave in differing organizational
arrangements.
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Organization theory Defined:

Organization theory is not a collection of
facts; it is a way of thinking about
organizations.
Organization theory is a way to see and
analyze organizations more accurately and
deeply than one otherwise could.
The way to see and think about
organizations is based on patterns and
regularities in organizational design and
behavior

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-

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 Organization theory is a set of concepts, and

principles that provide framework for
systematic study of structure, functioning and
performance of organization and of the
behavior of individuals and groups working in
them.
 Organization theory explains how organization
structures are built. It also suggests how
organization can be designed to improve their
effectiveness.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-

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WHAT CONTRIBUTION DO
ORGANIZATIONS
Organizations:
MAKE(IMPORTANCE)
1) Bring together resources (labour, materials) to achieve desired goals and
outcomes;
2) Produce goods and services efficiently (competitive prices, benefits);
3) Facilitate innovation (e-business, computers, redesigning organizational
structures etc);
4) Use modern manufacturing and information technologies (e-business,
computers);
5) Adapt to and influence a changing environment (globalization);
6) Create value for owners, customers and employees;
7) Accommodate ongoing challenges of diversity, ethics and the motivation
and coordination of employees (cope with growing concerns about ethics
and social responsibility).

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 HOW DOES AN ORGANIZATION
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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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 HOW AN ORGANIZATION CREATES
11 VALUE

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WHY DO ORGANIZATIONS
EXIST?
5 major reasons why organizations exist:

• To increase specialization and the division of labor

• People working together to produce goods and services create
more value than people working alone
• 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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 WHY ORGANIZATIONS EXIST
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TYPES OF ORGANIZATIONS

Profit organizations: managers direct their

activities toward earning money for the company.
Non-profit Organizations: Managers direct their
effort toward generating some kind of social
impact.
 Problems: securing a steady income, difficult to
measure the effect, marketing as well for the
clients but also for volunteers and donors.

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 PERSPECTIVES ON
16 ORGANIZATIONS
1) Open system: must interact with the environment to
survive. It consumes resources and exports resources to the
environment. It cannot seal itself off. Every system that must
interact with the environment to survive is an open system.
2) Organizational configuration: Mintzberg said that every
organization has five parts: the technical core (people who do
the basic work), top management (provides direction,
strategy, goals and policies for the entire organization),
middle management (responsible for implementation and
coordination on department level), technical support (R&D,
Marketing research) and administrative support (responsible
for the smooth operation and upkeep of the organization).

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DIMENSIONS OF ORGANIZATION
DESIGN
Organizations shape our lives, and well-informed
managers can shape organizations.
Two types of interacting features of organizations:
structural dimensions and contextual factors.
Structural dimensions provide labels to describe the
internal characteristics of an organization. They create a
basis for measuring and comparing organizations.
Contextual factors encompass larger elements that
influence structural dimensions, including the
organization’s size, technology, environment, culture and
goals.
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CONT’D
Organizational dimensions fall into two types:
1) Structural dimensions: provide labels to describe the internal
characteristics of an organization. They create a basis for
measuring and comparing organizations.
A.Specialization: the degree in which organizational tasks are
subdivided.
B.Departmentalization: The degree to which will jobs be grouped
C.Hierarchy of authority: who reports to whom and the span of
control for managers.
D.Centralization: refers to the hierarchical level that has authority
to make a decision
E.Formalization: amount of written documentation/rules etc.

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DIMENSIONS OF ORGANIZATION
DESIGN(CONT’D)
2) Contextual dimensions: characterize the whole organization.
They represent both the organization and the environment.
A.Size: Organizations are social systems, thus size is measured by
the number of people in the organization.
B.Organizational technology: Tools, techniques and actions used to
transform inputs to outputs.
C.Environment: all elements outside the boundary of the
organization.
D.Goals and strategy: define the purpose and competitive
techniques.
E.Culture: the underlying set of values, beliefs, understandings and
norms shared by employees.

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STRUCTURAL DIMENSIONS

.Organizational Design

Is the process of developing

an organization structure. It Key
Keystructural
structural
involves decisions about six Elements
Elements: :
key elements that result in • • Work
Workspecialization
specialization
organizational structure
• • Departmentalization
Departmentalization
Organizational Structure • • Chain
Chainof
ofcommand
command
An organizational structure is • • Span
Spanof
ofcontrol
control
the formal framework by which • • Centralization
job tasks are divided, grouped, Centralizationand
and
decentralization
decentralization
and coordinated.
• • Formalization
Formalization

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GROUP ASSIGNMENT ON
THE EVOLUTION OF ORGANIZATION THEORY.
PREPARE YOUR OWN NOTES ON THE FOLLOWING
POINTS
1. CLASSICAL ORGANIZATION THEORY
I. SCIENTIFIC MANAGEMENT THEORY
II. WEBER'S BUREAUCRATIC THEORY
III. ADMINISTRATIVE THEORY 1-
ORGANIZATIONAL STAKEHOLDERS

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MAJOR STAKEHOLDER GROUPS OF
ORGANIZATIONS
 ANDcompany
Managers strive, in their WHATpolicy,THEYto at least
EXPECT
minimally satisfy the interests of all stakeholders :
 owners and stockholders (financial return),
 employees (satisfaction, pay, supervision),
 customers (high-quality goods, service, value),
 suppliers (satisfactory transactions, revenue from purchases),
 community (good corporate citizen, contribution to community
affairs),
 union (workers pay, benefits),
 government (obedience to laws and regulations, fair competition),
 creditors (creditworthiness, fiscal responsibility),
 management (efficiency, effectiveness)
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THANK
YOU!!!

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