Organizational Theory, Design, and Change PDF

# Organizational Theory, Design, and Change ## Sixth Edition Gareth R. Jones ### Chapter 1 ### Organizations and Organizational Effectiveness The text describes organizations as tools used by people to coordinate actions to obtain something they desire or value. Organizations provide goods and...

# Organizational Theory, Design, and Change ## Sixth Edition Gareth R. Jones ### Chapter 1 ### Organizations and Organizational Effectiveness The text describes organizations as tools used by people to coordinate actions to obtain something they desire or value. Organizations provide goods and services and employ people, using resources to produce products and services. Ultimately, organizations exist to create **value** and **value creation** occurs at three stages: **input, conversion, and output**. Each stage is impacted by the **environment**. ### What is an Organization? - A tool used by people to coordinate their actions to obtain something they desire or value - Provide goods and services - Employ people - Bring together people and resources to produce products and services - Exist to create value ### How Does an Organization Create Value? - Value creation occurs at three stages: - Input - Conversion - Output - Each stage is affected by the **environment**, defined as the set of forces and conditions that exist beyond the organization's boundaries but that affect its ability to acquire and use resources to create value. ### Figure 1.1: How an Organization Creates Value - The organization obtains **inputs** from its environment - Raw materials - Money and capital - Human resources - Information and knowledge - Customers of service organizations - These inputs are then **converted** through the organization's conversion process - Machinery - Computers - Human skills and abilities - The organization releases **outputs** back into its environment, which enable it to gain new inputs - Finished goods - Services - Dividends - Salaries - Value for stakeholders ### Why Do Organizations Exist? - People working together to produce goods and services create more value than people working alone. - There are five major reasons why organizations exist: - **To increase specialization and the division of labor:** - 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 volumes - **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 - **To manage the external environment:** - The external environment consists of the political, social, economic, and technological factors that affect organizations - Organizations regularly exchange products and services for needed resources and must 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 ### Figure 1.3: Why Organizations Exist - Organizations allow people to: - Increase specialization and the division of labor - Use large-scale technology - Manage the external environment - Economize on transaction costs - Exert power and control - The use of an organization increases the value an organization can create ### 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 controls how people coordinate their actions and use resources to achieve the organization's goals. - Controls coordination and motivation - Shapes the behavior of people and the organization. - Is a response to contingencies involving the environment, technology, and human resources. - Evolves as the organization grows and differentiates. - Can be managed and changed through the process of organizational design - **Organizational Culture:** is the set of key values, beliefs, and attitudes shared by organizational members that helps shape the behavior within the organization. - Controls coordination and motivation. - Shapes the behavior of people and the organization. - Is a response to contingencies involving ethics and the organizational structure. - Evolves as the organization grows and differentiates. - Can be managed and changed through the process of organizational design ### Some Definitions (cont.) - **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. - Balances the organization's need to manage external and internal pressures to survive in the long run - Allows the organization to continuously redesign and transform its structure and culture to respond to a changing global environment. - **Organizational Change:** Is the process by which organizations move from their present state to some desired future state in order to increase their effectiveness. ### Figure 1.4: The Relationship Among Organizational Theory, Structure, Culture, Design, and Change - **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 controls how people coordinate their actions and use resources to achieve the organization's goals. - Controls coordination and motivation - Shapes the behavior of people and the organization. - Is a response to contingencies involving the environment, technology, and human resources. - Evolves as the organization grows and differentiates. - Can be managed and changed through the process of organizational design - Organizational Design and Change: The process by which managers select and manage aspects of organization structure and culture so that an organization can control the activities necessary to achieve its goals. - Balances the need of the organization to manage external and internal pressures so that it can survive in the long run. - Allows the organization to continually redesign and transform its structure and culture to respond to a changing global environment. - Organizational Culture: The set of shared values and norms that controls organizational members' interactions with each other and with people outside the organization. - Controls coordination and motivation - Shape the behavior of people and the organization - Is a response to contingencies involving ethics and organization structure - Evolves as the organization grows and differentiates - Can be managed and changed through the process of organizational design. ### Importance of Organization Design and Change - Effective design is required for high organizational performance. - Four major reasons why organizational design and change are important: - Dealing with contingencies: - Contingencies are events that might occur and must be planned for. Most contingencies come from the environment. - Organizations must be designed to be able to effectively respond to environmental changes - Managing diversity: - Differences in race, gender, and national origin have important implications for organizational culture and effectiveness. - Organizations need to learn how to utilize a diverse work force effectively in order to increase decision making and have a more effective workforce. - Gaining competitive advantage: - The ability to outperform other companies because of the capacity to create more value from resources. - Core competencies: skills and abilities in value creation embedded in the organization's people or structures. - Strategy: pattern of decisions and actions involving core competencies that produces a competitive advantage to outperform competitors. - Promoting efficiency, speed, and innovation: - The better organizations function, the more value they create. - The correct organizational design can lead to faster innovation and quickly get new products to market. ### Consequences of Poor Organizational Design - Decline of the organization - Lower performance - Talented employees leave to take positions in other organizations - Resources become harder to acquire - Resulting crisis may result in organizational failure ### Why is Organizational Effectiveness Important? - What is the point if you are not going to perform well? - Maximizing value creation = organizational effectiveness. - There are multiple ways to create value and perform well. - Three primary ways discussed in this chapter: - Control: external resource approach - Innovation: internal system approach - Efficiency: technical approach ### Table 1.1: Approaches to Measuring Effectiveness | Approach | Description | Goals to set to measure effectiveness | | :-------------------------- | :----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | External resource approach | Evaluates the organization's ability to secure, manage, and control scarce and valued skills and resources. | - Lower costs of inputs - Obtain high-quality inputs of raw materials and employees - Increase market share - Increase stock price - Gain support of stakeholders such as government or environmentalists | | Internal systems approach | Evaluates the organizations' abilities to be innovative and function quickly and responsively | - Cut decision making time - Increase the rate of product innovation - Increase coordination and motivation of employees - Reduce conflict - Reduce time to market | | Technical approach | Evaluates the organization's ability to convert skills and resources into goods and services efficiently | - Increase product quality - Reduce the number of defects - Reduce production costs - Improve customer service - Reduce delivery time to the customer | ### Measuring Effectiveness: Organizational Goals - Managers also measures effectiveness by creating and measuring performance goals. - **Official goals:** guiding principles that the organization formally states in its annual report and other public documents. - **Mission:** a mission statement explains 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. ### Summary - Organizations are a tool people use to achieve their goals - Organizational theory is the study of how organizations function and how they affect and are affected by their environment. - Organizational effectiveness must be monitored by managers.