Ch. 1 Organizational Theory, Design and Change PDF

Summary Organiza onal theory, Design and Change §1 Organiza ons and Organiza onal Eec veness 1.1 What is an organiza on? An organiza on is a tool people use to coordinate their acons to obtain something they desire or value – that is, to achieve their goals. An organizaon is a response to and a...

Summary Organiza onal theory, Design and Change §1 Organiza ons and Organiza onal Eec veness 1.1 What is an organiza on? An organiza on is a tool people use to coordinate their acons to obtain something they desire or value – that is, to achieve their goals. An organizaon is a response to and a means of sasfying some human need. New organizaons are spawned when new technologies become available and new needs are discovered. Organizaons die or are transformed when the needs they sased are no longer important. Entrepreneurship → the term used to describe the process by which people recognize opportunies to sasfy needs and then gather and use resources to meet those needs. The way an organizaon creates value is depicted in gure 1.1 (page 25). Value creaon takes place at three stages: input, conversion and output. Each stage is a*ected by the environment in which the organizaon operates. Organiza onal environment → the set of forces and condions that operate beyond an organizaon’s boundaries but a*ect its ability to acquire and use resources to create value. Input includes resources such as raw materials, machinery, informaon and knowledge, human resources, and money and capital. They way an organizaon chooses and obtains from its environment the inputs it needs to produce goods and services determines how much value the organizaon creates at the input stage. The way the organizaon uses human resources and technology to transform inputs into outputs determines how much value is created at the conversion stage. The result of the conversion process is an output of nished goods and services that the organizaon releases to its environment, where they are purchased and used by customer to sasfy their needs. Hungry people who go to MacDonald are the input, in the conversion stage, MacDonalds apply their skills to yield an output: sased hunger (see gure 1.2, page 27, to see MacDonalds value model). 1.2 Why do organiza ons exist? the producon of goods and services o2en takes place in an organizaonal se3ng because people working together usually creates more value than people working separately. Figure 1.3 (page 28) summarizes ve reasons for the existence of organizaons. We’re discuss those now. 1 1. To increase specializa on and the division of labour: For many kinds of producve work the use of an organizaon allows the development of specializaon and a division of labour. 2. To use Large-Scale Technology: Organizaons are able to take advantage of the economies of scale and scope. Economies of scale → cost savings that result when goods and services are produced in large volume on automated producon lines. Economies of scope → cost savings that result when an organizaon is able to use underulized resources more e*ecvely because they can be shared across several di*erent products or tasks. 3. To manage the organiza onal environment Managing complex environments is a task beyond the abilies of individuals. An organizaon has the resources to develop specialists to ancipate or a9empt to in:uence many pressures from the environment. 4. To economize on transac on costs Transac on costs → the costs associated with negoang, monitoring and governing exchanges between people. This is hard to do for individuals alone. 5. To exert power and control Organizaons can exert great pressure on individuals to conform to task and producon requirements in order to increase producon e;ciency. Individuals who work for themselves address their own needs, in a company, they address the needs of just the company. 1.3 Organiza onal theory, design and change Organiza onal theory → the study of how organizaons funcon and how they a*ect and are a*ected by the environment in which they operate. Organiza onal structure → the formal system of task and authority relaonships that control how people coordinate their acons and use resources to achieve organizaonal goals. Can be managed and changed through the process of organizaonal design. Organiza onal culture → The set of shared values and norms that controls organizaonal members’ interacons with each other and with suppliers, customers, and other people outside the organizaon. Is shaped by people, ethics and organizaonal structure. Organiza onal design → the process by which managers select and manage aspects of structure and culture so that an organizaon can control the acvies necessary to achieve its goals. Organiza onal change → The process by which organizaons redesign their structures and cultures to move from their present state to some desired future state to increase their e*ecveness. Con ngency → An event that might occur and must be planned for (e.g. changing gas prices). 2 Organizaons are discovering that organizaonal design, change and redesign are a source of sustained compeve advantage. Compe ve advantage → the ability of one company to outperform another because its managers are able to create more value from the resources at their disposal. Compeve advantage springs from core competences. Core competences → Managers’ skills and abilies in value-creang acvies. Core competences allow a company to develop a strategy. Strategy → the specic pa9ern of decisions and acons that managers take to use core competences to achieve a compeve advantage and outperform competors. Diversity is important. The quality of organizaonal decision making is a funcon of the diversity in viewpoints that get considered and of the kind of analysis that takes place. An organizaon needs to design a structure and control system to make opmal use of the talents of a diverse workforce and to develop an organizaonal culture encourages employees to work together. An organizaon’s structure and culture determine how e*ecvely managers are able to coordinate and movate workers. 1.4 How do managers measure organiza onal eec veness? The external resource approach (control) allows managers to evaluate how e*ecvely an organizaon manages and controls its external environment (e.g. to in:uence the external stakeholders). To measure the e*ecveness of their control over the environment, managers use indicators such as stock price, ROI, protability, etc. The internal system approach (innova on) allows managers to evaluate how e*ecvely an organizaon funcons and operates. To be e*ecve, an organizaon needs a structure and a culture that foster adaptability and quick responses to changing condions in the environment. This can o2en be measured objecvely, for example by the ability to redesign and improve its products much more quickly than its rivals (Indicators: e.g. me for making decisions). The technical approach (e2ciency) allows managers the evaluate how e;ciently an organizaon can convert some xed amount of organizaonal skills and resources into nished goods and services (indicators: producvity (like faulty products or waste material) and rao between output and input. For measuring e*ecveness, there are organizaonal goals. Managers create goals that they use to access how well the organizaon is performing. There are two types of goals: 3 - O2cial goals: guiding principles that the organizaon formally states in its annual report and in other public documents; Mission: goals that explain why the organizaon exists and what it should be doing. There are also operave goals. Opera ve goals are specic long- and short-term goals that guide managers and employees as they perform the work of the organizaon. Managers can use operave goals to measure how well they are managing the environment (is market share increasing or decreasing? Is the cost of the input rising of falling?) 4