Organizational Theory Overview

Basic Puzzle

• Organization design is crucial for task completion
• Traditional production relied on single individuals with all skills, limiting scale
• Modern technologies led to large-scale production, necessitating specialization and coordination
• Planning and execution roles evolved in larger organizations

Overview

• Early organizational theories (Weber, Taylor, Fayol) influenced organizational structuring
• Different organizational structures evolved (U-form, M-form)
• Classical theories have limitations, leading to new structures
• ABB's organizational evolution illustrates this
• Evolution and structure are context-dependent

Bureaucracy (1): Weber (1921)

• Max Weber, a German sociologist, developed important theories on organizations
• His work stemmed from society's rationalization, leading to bureaucratic principles
• Bureaucracy is a form of legal authority with rules, specified competencies, hierarchy and accountability for organizational efficiency.

Critique and Re-assessment of Bureaucracy

• Bureaucracy is efficient, but can also be rigid and inflexible
• Propagation of rules might create 'one-dimensional' individuals
• Rules and procedures may not always respond to changing situations and needs

Taylor's Scientific Management (1911)

• Taylor focused on optimizing labor processes, viewing organizations as machines requiring careful control
• Scientific management involved separating planning from execution, establishing measurable tasks, and focusing on worker efficiency using time-and-motion studies
• Specialization increases efficiency due to learning effects, and economies of scale

Fayol's Administrative Approach (1918)

• Fayol focused on the managerial processes, rather than the overall design
• Organizing is the core function and involves establishing structured organization structures
• Five Functions of Management (planning, organizing, commanding, coordinating, controlling) for efficient organizational procedures

Basic Assumptions of Classical Works in Organization Theory

• Individuals are inherently unreliable, requiring control
• Individuals lack organizational understanding and require direction from above.
• Individuals are primarily motivated by material rewards (money).
• Organizations are viewed as machines, and formal structure is a central element of operation

Emergence of the Large Corporation

• The unitary (U-form) structure emerged due to economies of scale and labor specialization
• Growing companies needed new structures (like functional differentiation) to manage complexity
• U-form structure can become complex with increasing size

Limits of the Unitary Structure

• U-form structure faces limitations due to complex systems and management's need for control.
• Interface issues (e.g., communication, responsibility) arise
• Administrative burden becomes overwhelming in large organizations, affecting efficiency

Multidivisional Structure (M-form)

• The M-form structure evolved to overcome U-form issues by creating semi-autonomous divisions
• Divisions allowed increased organizational flexibility
• Centralizing management allowed for greater control.

Alternative Design Choices for the M-form

• Different organizational alternatives include decentralized departments or the structure for independent firms
• The centralization of control in the CEO can reduce efficiency and produce problems within the organization
• Efforts to overcome M-form downsides led to alternative solutions such as matrix organizations and project-based structures

Organizational Structure in Practice: The Case of ABB

• ABB, a multinational company, demonstrates real-world adaptation to organizational structures.
• Acquisitions, mergers, and strategic reorganizations create an evolving organizational structure
• A change in structures often mirrors the changes in company strategy, goals, and markets

Solution: Integration

• Integration is crucial for successful processing tasks and enabling consistent functioning in an organization.
• Two forms of integration (vertical and horizontal) are required
• Successful integration balances differentiation and coordination.

Explore the evolution of organizational design from traditional individual skills to modern specialized roles. This quiz covers key theories by Weber, Taylor, and Fayol, along with different structures like U-form and M-form. Understand the importance of bureaucracy and its impact on modern organizations.