You are on page 1of 17

Organizational Theory,

Design, and Change


Sixth Edition
Gareth R. Jones

Chapter 1

Organizations and
Organizational
Effectiveness
1-1
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
What is an Organization?
 Organization: a tool used by people to
coordinate their actions to obtain something
they desire or value
 Organizations provide goods and services
 Organizations employ people
 Organizations bring together people and
resources to produce products and services
 Basically, organizations exist to create value

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 2


How Does an Organization
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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 3


Figure 1.1: How an Organization
Creates Value

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 4


Why Do Organizations Exist?
People working together to produce goods and
services create more value than people
working alone

5 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 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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 5


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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 6


Figure 1.3: Why
Organizations Exist

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 7


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 control how people to
coordinate their actions and use resources to achieve
organizational goals
 Organizational culture: is the set of key values,
beliefs, and attitudes shared by organizational
members and helps shape the behavior within the
organization

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 8


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
 Organizational change: the process by which
organizations move from their present state to some
desired future state to increase their effectiveness

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1- 9


Figure 1.4: The Relationship Among
Organizational Theory, Structure, Culture,
Design, and Change

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-10


Importance of Organizational
Design and Change
Effective design is required for high
organizational performance
4 Major Reasons why Organizational Design and
Change are Important
 Dealing with contingencies
 Contingencies are events that might occur and must be
planned for – most come from environment
 Organizations must be designed to be able to effectively
respond to environmental changes
 Managing diversity
 Differences in the race, gender, and national origin of
organizational members have important implications for
organizational culture and effectiveness
 Learning how to effectively utilize a diverse workforce can
result in better decision making and more effective
workforce
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-11
Importance of Organizational
Design and Change (cont.)
 Gaining competitive advantage
 The ability to outperform other companies because of the
capacity to create more value from resources
 Core competences: skills and abilities in value creation
embedded in the organization’s people or structures
 Strategy: pattern of decisions and actions involving core
competences 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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-12


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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-13


Why is Organizational
Effectiveness Important?
 What is the point is you are not going
to perform well?
 Maximizing value creation =
organizational effectiveness
 There are multiple ways to create
value and perform well
 3 primary ways discussed in chapter:
 Control: external resource approach
 Innovation: internal system approach
 Efficiency: technical approach
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-14
Table 1.1: Approaches to
Measuring Effectiveness

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-15


Measuring Effectiveness:
Organizational Goals
Managers also measure effectiveness by
creating and measuring performance
goals
 Official goals: guiding principles that the
organization formally states in its annual
report and in 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
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-16
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

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1-17

You might also like