Organization PDF

> Why do we need them ? Size oftasthan individually Organization → Efficiency/ size of tasks Institutional perspective Institution = enforceable expectation about the behavior of one or...

> Why do we need them ? Size oftasthan individually Organization → Efficiency/ size of tasks Institutional perspective Institution = enforceable expectation about the behavior of one or more economic agents - Several persons (members) - Cooperating to achieve (common or individual) goals S - Setting up rules → influence behavior of members → to achieve goals Functional perspective on organization - Task allocation (who performs which task) - allocation of decision rights - coordination of decisions - Performance > - do measurement, output allocation, Sanktionen? If members not perform as expected S 4 functions of a organization Division of labor - Specialization + learning (Adam Smith's pin factory) Is hierarchie the only to - Eliminates switching time between tasks a way - Allows use: more efficient (large scale) technology coordinate (economic) activities? > - No. e g. a market does not have a hierarchy Vertical: separation of decision making + execution , ⑭ Horizontal: separation of processing steps S Interdependencies d "IIII * & "IIII"III 'IIII i Coordination problems - Assignment problems: Matching of tasks to units - Synchronization: Coordinate activities of multiple units - Resource allocation: allocate scare resource among multiple possible uses AS(M)R Coordination - which output the agent should provide - which time - which resources will be avbl to agent ➟ division of labor →implies that agents have to exchange something = we can only exchange things we "own" Property rights * - Use object S - Modify object & - Receive output from object S - Transfer rights → Transaction: transfer (exchange) of property rights this ? Costly activities in a transaction Why do need all we > Causes of transaction costs, Economic actors... - Obtain info about potential transaction partners ≠ perfectly rational, have bounded rationality - Negotiate + conclude contracts - incomplete information - Monitor actual performance of a contract Partner - behave opportunistically - Enforce compliance of partner with contract → thus: perform costly activities to obtain information Transaction costs depend on → safeguard themselves against opportunistic behavior 1.Properties of the good(s) being exchanged goods 2. Il actors involved & setting 3. institutional setting, transaction takes place Transaktionskosten entstehen, wenn spezifische Güter gehandelt werden, da diese oft mit Abhängigkeiten und 7 Risiken verbunden sind. Je spezifischer die Güter, desto größer die Wahrscheinlichkeit von höheren Kosten 1. Properties of the goods being exchanged für Verhandlungen, Absicherungen oder Anpassungen, um den Tausch erfolgreich durchzuführen. Strategic relevance Bedeutung Güter für Ziele/Wettbewerbsposition > - der die Specificity: diff betw value in transaction and second best use (of the good itself or investments needed to provide the good) Reasons: - Physical: Resources, physical characteristics, only use for a specific purpos - Location: R. that are available only at a certain place - Human capital: Knowledge, only useful in specific context - Time: specific point in time - Reputation: Objects = associated with specific use, other uses are not (less) accepted 2. Properties of the actors: Bounded rationality | Limited information | Opportunism Opportunistic behavior "self interest seeking with guile" (List) (e.g. misrepresenting information, breaking contracts....) 1) Pre-contractual phase 2) Postcontractual phase eg.used cars, insurance > - Search and negotiation > Execution - Information manipulation Deviant behavior : one fulfill terms/ party fails tocontract acts against asymmetry > - mispresenting info to gain advantage Adverse selection problem has better Moral hazard, Holdup problems > one - party info V onpartakerishyself-senT  Rahmenbedingung 3. institutional setting, transactions take place: Market vs Hierarchy Market: "Arm's length" transaction Hierarchy: Membership in organization - Typically short term - Long term - Identity irrelevant - Identity important - Complete contract (specisely defines all actions in any circums.) - Relational contract (relationship = defined, thus their actions) - Verifiable - Not verifiable = coordination "outside" the organization = coordination "inside" the organization Transaction costs in markets and hierarchies transaction costs theory standardized Forschung & goods Entwicklung add notes von ipad! < rules & structure & leadership Stakeholder 7 Perspectives on the inner working of organizations - contribute input - Contracts between self-interested, incompletely informed agents - expect / demand some share from organization - Devices for coordinating and motivating actors incentives money , < - transaction is beneficial =value of output > value of input - Information processing systems decrease insecurity increase intern decisions > - ,. - organization needs to create value to satisfy all stakeholders - Self-organizing and evolving systems flexibility feedback > - , f(c) utility gained from compensation = v(a) = disutility of effort / cost Preferences for input-output combinations utility function - agents utility depends on input (effort a) & output (compensations c): u (a,c) - additive function: u (a,c) = f (c) - v(a) - or express utility in terms of compensation: u(a, c) = c – v(a) - disutility of effort: v(a) absence of wealth effects = indifference curves are parallel and shifted along compensation axis second actor gains utilith er Ideal Both actors : remains the same better off are & only 1 actor gains als utilitywhile theoh same utility at all points Dominance helps identify Pareto improvements— situations where reallocations can make one or more actors better off without making others worse off.  Pareto efficiency ensuring used optimally while respecting trade-offs resources are among individuals - An allocation X is efficient, if no other allocation Y exists which dominates X - if all agents want to maximize their utilities, they will never choose an inefficient allocation Value maximization -if all actors' preferences fulfill absence of wealth effects → allocation= only efficient, if it → maximizes total value creation (sum of outputs – sum of inputs) Organizations should have: value creation is maximized Structure that maximizes value creation → not necessarily: optimal for each agent Organization needs to utilize part of the created value to incentivize agents to provide the contribution that maximizes value Compensation increasing in effort (output) Maximizing value creation > is - maximized if marginal output equals marginal Higher costs of effort indifference curve = higher utility for the agent adden bei foto Links sieheFoto 09.01handy Agents select effort level where marginal increase in maximized value creation, if L compensation = slope of indifference curve marginal output= marginal costs of effort (= marginal disutility of effort) Agents optimal level of effort of agent's marginal compensation agents self-interested pick effort = , = marginal output of add effort - agent receives full benefit of add effort other - problem if marginal effect of agent's effort cannot be determined also depends agents on Economic perspective Organization needs to - Allocate tasks to agents (determine agent's inputs) → value creation is maximized - Create incentives so that self-interested agents will provide required level of effort + Agent selects effort level (marginal increase in compensation = slope of indifference curve (= marginal disutility of effort)) But: Output = effort of: agent + of other members - Decision of each agent depends on decisions of other agents - Need for coordination Tasks of an organization Provide coordination: ensure that members can make good decisions 7 →costly, but lack of coordination/motivation motivation: ensure that members want to make good decisions → opportunity costs (of bad decisions) → optimum balance= betw providing (costly) coordination+motivation mechanisms accepting opportunity costs Criteria of effectiveness Coordination Motivation - Utilization of synergies Incentives - Avoiding interdependencies Enabling intrinsic motivation - Integrating knowledge Information processing view of organizations goal ≠maximize the capacity for information processing / decision making, = provide optimal fit betw information processing requirements (of the environment) capacity for information processing (provided by the organization) Information processing – classical model general view drives the need for info processing L tools Processing view Different environments → different requirements - no "one best" structure for all organizations in all environments - in different settings we find different (optimally adapted) organizations - if the environment changes, organizational structures must change too An even more radical view: Can organization be rationally planned at all? eg. Are managers up to the task of continuously changing their organizations) Randomness of change - If change is more or less random, will organizations still adapt to their environment? change in environment → Design actions → change process → actual change (random) handy foto Evolutionary perspective: Implications - Forget about management? - Or can evolutionary processes by influenced by management (3) Elements of organization design - Allocation of tasks (specialization, criteria= grouoing) - Allocation of decision rights - Coordination mechanisms - Incentives advantage disadvantage Division of labour + efficient - coordination Optimal degree of specialization - high: focus on efficiency: Importance : strategy (cost leadership) potential for gains (repetition of tasks) → lower specialization structures - low: cost of coordination: complexity: structure handle repetitive tasks to diverse , requires less uncertainty of the environment need for adjustment: variability → In dyn environments. with variability , lower specialization facilitates flexibility and adaption Degree of specialization is influenced by : Criteria of specialization (grouping) Strategy: Focus on efficiency → higher specialization By tasks (Functional structure, U-form) Environment: Uncertainty → less specialization objects (products) (Multidivisional structure, M-form) Size: Larger organizations →higher degree of specialization processes several dimensions (Matrix) Functional structure Divisional structure Development of functional expertise Adaptable Economies of scale Use of local/market specific information Career patterns Coordination across functions easier Inter-unit coordination Enables decentralized decisions Lack of flexibility Clear contact point for customers Opportunity costs of top management attention Competition between divisions Inconsistent goals Economies of scale lost Loss of synergies Functional vs. divisional – Information processing Functional structure requires operative coordination by HQ - Absorbs information processing capacity - Conflict with other requirements - Less efficient in uncertain environment ➠ Choice betw structures is driven by environment (industry) factors ➠ But: industry in which a firm operates is not externally given, but is the result of strategic decisions Horizontal (process oriented) structure (Bild Folie) Process oriented structures & Indiv (or small teams) perform entire process ➠ lower degree of specialization ➠ less coordination needed Matrix structure - Provides both: functional + market- related expertise - Flexible allocation of resources - Increased capacity for problem solving - Interesting work environment - Additional positions 7 - Conflict, need for coordination - Compromise not necessarily optimal - Dual authority structure Multidimensional organizations Performance= measured on several dimensions at multiple levels of the organization Different managers =simulty responsible for contribution of their dimension to overall performance Resources = distributed so that managers responsible for different dimensions depend on each other Markets are seen as multidimensional Customer as profit center Elimination of information asymmetries and transfer prices via central accounting system Elements of organization design: Allocation of decision rights Input→ Decision process→ decision Information, Knowledge, Information processing capacity Relevant knowledge and decision rights should be co-located, taking into account limited capacity of decision makers Decision rights in organizations Transfer knowledge to those who have decision rights: Transferability of knowledge Transfer decision rights to those who have knowledge: Incentive problems Types of knowledge: Specific knowledge: Difficult to transfer between individuals General knowledge: Easy to transfer Costs of centralization Relevant local knowledge not used Opportunity costs of central management time Unused problem solving capacity Cost of decentralization Incentive problems Coordination problems Inefficient use of central information Intermediate forms - Upper level decides after obtaining information - Upper level decides after consultation - Joint decision - Lower level decides after consultation - Lower level reports after decision Example: Measuring decentralization Internal decentralization - there can be little action taken until a supervisor approves a decision; - people who want to make their own decisions would be quickly discouraged; - even small matters must be referred to someone higher up for approval; - employees must ask their supervisors before doing almost anything; - any decisions employees make must have their bosses’ approval Decision rights of subunits: - raising capital for new investments; - allocating excess revenue; - determining the unit’s operating budget - setting compensation policies - developing, marketing, and pricing products/services; - opening/closing satellite facilities; - hiring, firing, and disciplining senior personnel; Decision rights: Empirical results Decentralization increases with: environmental uncertainty, size of the organization, divisional structure (3b) Elements of organization design: Coordination mechanisms Summary: Price mechanism can achieve the optimal allocation of resources Price must be equal to marginal output of resource In market: Supply and demand will determine price In organization: Price has to be set: Headquarter must know output functions of subunit and determine the optimal allocation Decision rights and coordination Vertical vs. horizontal coordination Vert: Coordination by upper level Horiz: Coordination by subunits within the same level Vertical coordination: - Hierarchical referral: Single decisions transferred back to upper level - Rules and plans - Rules: Standard decisions applied to many cases - Plans: Framework that restricts lower level's decisions - Budget: Ressources allocated by upper level, decisions about actual usage made by lower level - Vertical information systems: Direct control of decisions by upper level Horizontal coordination - Horizontal information systems - Direct contact between members of different units - Specific liasion roles - Temporary inter-unit task forces - Permanent inter-unit teams - Specific integrating positions (“coordinator”) - Coordinator with decision rights - Matrix organization Elements of organization design: Incentives (4) People in organizations - Personnel selection - Motivation and incentives Opportunistic behavior: "self interest seeking with guile" (e.g. misrepresenting information, breaking contracts....) Asymmetric information in personnel selection applicant: Qualifications, Other job opportunities, Long-term goals firm: Job characteristics, Stability of firm, Intended contract duration → Hidden characteristics problem: One side of a contract lacks information about relevant characteristics of the other side Solutions for hidden characteristics: - Screening: Less informed party obtains info before making decision - Signalling: Better informed party provides info, less informed party makes decision - Self selection: Better informed party makes decision Screening: Information requests (e.g. application forms) Tests, job interviews Probationary period → Problem: Information acquisition is costly Choice depends on: Cost of screening, Difference qualified – unqualified, Probability of qualified Signalling Certificates Past achievements → Problem: Information must be credible Grades Providing information about characteristics= costly Rational actors provide signal if: gain from providing signal > costs of providing signal If recipient cannot determine whether signal is genuine, gain cannot depend on whether signal is truthful Signaling works if costs depend on characteristics of sender Self selection Concluding contract provides gain for individuals having desired properties ➟ Results from contract must be different between types loss for individuals not having desired properties Self selection: Piece rate wage | Low paid probation time | Image Ergänzen People in organizations: Motivation and incentives Factors influencing behavior: ind. Characteristics, social factor (culture), incentives, job character Theories of motivation ERG (Alderfer) Existence: needs related to physical existence Relatedness: Needs referring to relationship with others ➟ Different needs can be active at same time Growth: Needs related to personal development ➟ Frustration of higher-level needs can increase desire to satisfy lower level needs  Theory of needs (McClelland) Achievement & used to motivation assess Power & performance ➟ Individual differences in strength of these dimensions increase s needs and job satisfaction Affiliation job characteristics model Skill variety: To which extent does task require different skills? Task identity: Does task lead to identifiable outcome? Task significance: Does task have an impact on others? Autonomy: Does task provide freedom to make own decisions? Feedback: How fast and clearly are results be observed by employee Culture = System of shared values and beliefs held by members of an organization Typology of cultures (Deal & Kennedy) : → Two factor theory (Herzberg) 1. Motivators: The key takeaway is that eliminating dissatisfaction (through hygiene factors) is pos characteristics → satisfaction with job not enough; organizations must also actively neg characteristics → no satisfaction enhance motivators to create meaningful and fulfilling work experiences. (eg. Recognition, responsibility) 2. Hygiene factors: → dissatisfaction ≠ absence of satisfaction (and vice versa) neg characteristics → dissatisfaction with job pos characteristics → no dissatisfaction (eg. relation to supervisors, salary) Job redesign: - Job enlargement: Horizontal extension of jobs (increase task variety) - Job enrichment: Verical extension of jobs (more decision rights) - Job rotation: Periodic transfer to different job within organization - Time and location: Flextime, telecommuting, mobile work Intrinsic vs extrinsic motivation intrinsic: Motivation resulting from task itself Extrinsic: Incenives provided by organzation for fulfilling task Expectancy theory (Vroom) Equity theory (Adams) emphasizes the importance of fairness and balance in motivating employees explains how individuals their Employees compare own make decision sie Salary , benefits ,... situation to a reference situation behaviour based Expectancy Effort time ontheexpeces ist , skills , ,... their actions zuvie Inputgegeben deeine instrumentality Value of Cutcome Types of compensation 1. Time based 2. Performance based: Piece rate: Payment per unit of output Profit sharing: Employees participate in profit Gainsharing: Employees participate in performance improvements over past levels Stocks, stock options Limits Institutional/legal constraints Inefficient risk allocation Measurement problems “Hidden” performance based pay via promotions 3. Skill based: Payment increases for additional skill employees acquire