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INTRODUCTION TYPES OF ORGANIZATIONS: ETZIONI CLASSICAL THEORIES CONFLICT AND POWER THEORIES HUMAN RELATION THEORIES ORGANIZATIONAL ANALYSIS COMPLEXITY.

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Presentation on theme: "INTRODUCTION TYPES OF ORGANIZATIONS: ETZIONI CLASSICAL THEORIES CONFLICT AND POWER THEORIES HUMAN RELATION THEORIES ORGANIZATIONAL ANALYSIS COMPLEXITY."— Presentation transcript:

1 INTRODUCTION TYPES OF ORGANIZATIONS: ETZIONI CLASSICAL THEORIES CONFLICT AND POWER THEORIES HUMAN RELATION THEORIES ORGANIZATIONAL ANALYSIS COMPLEXITY FORMALIZATION CENTRALIZATION ORGANIZATIONAL GOALS AND EFFECTIVENESS ORGANIZATIONAL SIZE ORGANIZATIONAL TECHNOLOGY THE ENVIRONMENT ORGANIZATIONAL CULTURE LEADERSHIP AND GOVERNANCE INTRODUCTION TO THE THEORY OF ORGANIZATIONS Alberto Veira Ramos alberto.veira@uc3m.es

2 INTRODUCTION Modernization and development of secondary groups (organizations) Different types of Organizations Typology according to Amitai Etzioni  Type of control  Type of conduct

3 CLASSICAL THEORIES Frederick Taylor  Scientific Management Henri Fayol  Administrative Theory Max Weber  Theory of Bureaucracy: Luther Gulick & Lindall Urwick  “Papers on the Science of Administration” Others

4 HENRI FAYOL French mine engineer (1841-1925)  “L´administration industrielle et générale” (1916) Focused on the administrative aspects of the organizational structure Identified two basic managerial functions:  Coordination  Specialization Need of “Formalization” and “Rationalization” His ideas inspired the creation of an academic journal devoted to study the functioning of organizations: “Papers on the Science of Administration”, edited by Gulick and Urwik in 1937 His ideas were applied in 1949 by Mooney and Reyley, two top executives from GM

5 HENRI FAYOL Coordination  The division of labor & specialization  Organize departments (according to specialization principles)  Chain of command  Never more than one supervisor per subordinate  Hierarchical structure  Pyramidal  Authority & Responsibility  Never more subordinates than those that can be supervised efficiently  It determines the number of levels of hierarchy an organization should have (according to Fayol the limit is somewhat between 5 and 10)  Delegation of authority is a necessity  Exceptionality:  Routine tasks to the less skilled  Complex tasks to the more skilled

6 HENRI FAYOL Specialization  Individuals performing similar tasks must be grouped into one “Department”  Identifies two main functions:  Executive functions: directly oriented to accomplish the main goals of the organization  Support or Staff functions: oriented to provide support to the former (e.g.: legal counseling)

7 HENRI FAYOL Executive functions:  Forecast & Plan: set the strategic goals  Organize: assemble the necessary means to accomplish the goals and assign specific tasks to personnel: design the “Organigramme”  Command & direct: lead the personnel, it requires extraordinary interpersonal skills  Coordinate: harmonize activities of different departments (avoid “animosity” that may derive from written communication)  Control: monitoring, measuring performance, set corrective actions

8 HENRI FAYOL Formalization and Rationalization  Must be designed and promoted from the top of the organizational pyramid (not at workshop level as in Taylor)  Distinguish clearly between “positions” within the hierarchy and the individuals (persons) who occupy those positions  Provide managers with clear procedures and protocols to avoid the “Human Factor”  Common interest must be place above individual interest  Fayol perceived the need for involving and motivating the worker by  Creating an adequate atmosphere at the workplace  Treatment based on equity (job guarantee)  “Esprit de corps” (team spirit)

9 HENRI FAYOL Fayol established 7 qualities a leader should have:  Good health and physical “vigeur”  Intelligence  Moral qualities  Perseverance  Courage (to accept responsibilities)  Committed to duty and to the general interest  Educated and cultivated  Expertise on the professional domain  Knowledge on management  “Art de manier les hommes” Art on the way to handle men

10 HENRI FAYOL Tasks attributed to top managers  Set the strategic plan (along with owners of the firma)  Design the organizational structure (Organigramme)  Hire competent advisors and collaborators,  defining their salaries and career prospects according to their competence  Define the rules regulating the way personnel must behave  Define the communication channels  Meet regularly with advisors and collaborators (and listen to their suggestions)  Read the reports and react in consequence  Monitor the budgets  Report to the owners the state of the business

11 HENRI FAYOL Tasks attributed to intermediate (middle-rank) managers  Set the plan to accomplish the strategic goals established by the top managers in the shortest possible period of time  Attend the meetings organized by the top managers  Coordinate with other colleagues (meetings)  Define the structure of the department (identifying the different functions)  Manage the personnel of the department (recruitment, salaries, lay-offs)  Have initiatives and keep the top managers well informed  Increase their expertise by education and training  Control the costs

12 HENRI FAYOL Tasks attributed to operators  Execution of orders received  Identifying and signaling any difficulty for the correct execution of the order  Report how orders have been executed  Coordinate with other operators

13 MAX WEBER German Lawyer, Economist and Sociologist (1864-1920) Broader perspective than merely Administrative Theory Considered the founding father of the sociology of organizations due to his studies on bureaucracy and the importance of rationalization in industrial societies Interested on the analysis of the administrative systems generated historically by different cultures or societies Believed that historically cultural factors (values & beliefs) and not only economic factors had influenced the configuration of administrative (bureaucratic systems), particularly under the capitalist regime

14 MAX WEBER Interested on identifying the distinctive features of administrative organization under capitalism  Not the result of class struggle (something constant over history and not a peculiarity of Capitalist societies) Focused on the study of the growing rationalization process taking place in all domains and at all levels of social life in industrial societies (in capitalist as well as in socialist ones) Typology of systems of authority and domination:  Charismatic  Traditional  Legal & Rational

15 MAX WEBER Charismatic authority  Source of authority is a charismatic leader  Followers attribute the leader superior moral qualities (usually in exceptional critical times)  Administrative system is unstable: depends on the wishes and appetites of the leader. Once the leader dies or disappears transition problems may arise Traditional authority  Source of authority is the tradition  Administrative positions are patrimonial (inherited)  Loyalty is assured by personal allegiance  Administration is more stable than the charismatic Legal & Rational authority  Source of authority is the Law  Bureaucratic Administration

16 MAX WEBER In the real world these systems seldom exist in their purest expression In one given society (or organization) may very well coexist different elements of each type of domination Modern societies may keep elements derived from traditions like the Monarchy Modern democracies may produce charismatic leaders One company funded by one entrepreneur may function to a great extent led by his or her charisma, as well as by established rational and legal procedures and protocols in written documents  Let´s Remember Fayol’s description of a good manager!!!

17 MAX WEBER Rational & legal systems are superior because they are more efficient on accomplishing tasks and all Western societies had evolved into this direction  (idea inspired by the development of the Prussian army and bureaucracy) Bureaucratic Administrations are technically superior to any other form of Administration Charismatic leaders are useful only in times of crisis and do not create stable administrative systems because the replacement of the leader often entails problems

18 MAX WEBER Main features of a Bureaucratic Administration:  Set of rules and procedures in written documents  All personnel and its decisions are subject to those written rules and procedures. Their relations are impersonal and their decisions devoid of personal interests  Division of labor and technical competence: members are employed on the basis of their expertise and are given extensive education  Hierarchical structure of office is well defined: every position is accountable to and supervised by a higher office  Individual performance is rewarded thanks to strict mechanisms of control that apply to all personnel. Salaries paid in money  Existence of a professional career within the administration and a personal commitment to it among its members whom must work full time  Clear separation between property and control: equipment and materials belong to the organization, not to those making use of it

19 MAX WEBER Advantages of Bureaucratic Administrations  Promotes technical efficiency  Protects personnel from discrimination  Fits well into the cultural features (values) of Western societies  Powerful on solving conflicts between members of the personnel thanks to mere application of rules Disadvantages of Bureaucratic Administrations  Mechanicism  Insensible to human needs  Promotes rigid conducts  May hinder individual motivation

20 ROBERT K. MERTON Scholars started to ask themselves why by the late 1940’s bureaucracy had started to show some worrying signs of persistent inefficiency (slowness, excessive paperwork, etc.) From a functionalist perspective, Merton established by, under certain circumstances bureaucratic administrations may result inefficient Social structures (as well as organizational structures) influence the individual who must adapt to them. One type of “dysfunctional” adaptation is the Ritualism  Dysfunctional for the interests of the organization  Rational from the point of view of the individual

21 ROBERT K. MERTON “Bureaucratic Structure and Personality” (1957)  Strict set of rules and procedures and disciplinary codes have an influence on the person who must abide to them on a daily basis  It hinders risk-aversion making the primary target of the employee to avoid being sanctioned  Goal displacement: the means turn into ends  Bureaucratic ritualism: officials stick primarily to the strict compliance with the regulations (instrumental value) prioritizing this even above the accomplishment of the strategic goals of the organization (final value)

22 ROBERT K. MERTON Merton (1968)  Defined cultural goals  Structurally defined means to achieve the goals  Depending on the acceptance/rejection of the goals and the access or lack of access to the means, individuals may develop different types of adaptation to society (or the organization)

23 ROBERT K. MERTON Five types of adaptation:  Conformity occurs when individuals accept the culturally defined goals and the socially legitimate means of achieving them. Merton suggest that most individuals, even those who do not have easy access to the means and goals, remain conformists  Innovation occurs when an individual accepts the goals of society, but rejects or lacks the socially legitimate means of achieving them. Innovation, the mode of adaptation most associated with criminal behavior, explains the high rate of crime committed by uneducated and poor individuals who do not have access to legitimate means of achieving the social goals of wealth and power  The ritualist accepts a lifestyle of hard work, but rejects the cultural goal of monetary rewards. This individual goes through the motions of getting an education and working hard, yet is not committed to the goal of accumulating wealth or power  Retreatism involves rejecting both the cultural goal of success and the socially legitimate means of achieving it. The retreatist withdraws or retreats from society and may become an alcoholic, drug addict, or vagrant  Rebellion occurs when an individual rejects both culturally defined goals and means and substitutes new goals and means. For example, rebels may use social or political activism to replace the goal of personal wealth with the goal of social justice and equality

24 MAIN SOCIOLOGICAL THEORIES FUNCTIONALISM Durkheim Merton FUNCTIONALISM Durkheim Merton CONFLICT Marx CONFLICT Marx ACTIONALISM Weber ACTIONALISM Weber

25 THEORIES OF CONFLICT AND POWER Karl Marx Lenin Bruno Rizzi James Burnham Harry Braverman Robert Michels

26 THEORIES OF CONFLICT AND POWER Conflict oriented theories have their roots on Karl Marx’s vision of society  Society is the historical result of interest conflicts that at any given period are solved by the domination of one class by another Functionalisits focused on the nature and origin of order and social equilibria, paying little attention to social problems and social change Conflictivists, on the contrary, focus on processes of social change derived from conflict, which is a permanent feature on any society

27 KARL MARX Karl Marx signaled that the typical conflict of the capitalist society is the class struggle  Workers (proletarians)  Capitalists (property owners, bourgeoisie)  Their interests are divergent and conflict results in domination  Private ownership of means of production allows capitalists to exercise political domination over the working class Marx associates political power with economic domination and considers the State as a mere instrument in the hands of the bourgeoisie. Bureaucracy is the executive arm of the State, thus, a mere instrument for class domination and plays an important role on the alienation process

28 KARL MARX Such perspective on bureaucracy led Marx to assume that in a classless society bureaucracy should come to and end As a result, Marx did not paid very much attention to the bureaucratic phenomenon, its importance and its decisive impact on the diffusion of rationalization and on the future development of modern societies

29 KARL MARX Marx did, however, leave some writings about the functioning of the bureaucracy from an organizational point of view:  Incompetent  Dominated by the principle of Careerism  Main concern of bureaucrats is to keep status and prestige  “Infantile” attachment to symbols of status and power (to have a big office, several assistants, secretaries, etc.)  The goal of serving citizens and the people becomes secondary

30 LENIN Lenin, once established in power, decided to follow Marx´s ideas and implemented a 3 point plan to undermine the Tsarist bureaucracy  Eligibility and revocability of functionaries  Salary reduction to the level of an unskilled worker  Simplification of tasks to make bureaucrats easily replaceable and interchangeable Such plan did not work as expected and soon Lenin realized that the new Soviet bureaucracy increased in size and power Lenin admitted the need for a bureaucracy given the rural (feudal) features of Russian population

31 LENIN The expansion of the Soviet bureaucracy was seen as a temporary necessity in a time when a strong central government was needed to transform the predominately rural (feudal) Russian society into an industrial one On the end, Soviet bureaucratic apparatus expanded itself to levels not yet seen in Western societies Trosky criticized that the rapid expansion of Soviet bureaucracy was caused by Stalin policies aimed to merge Party and State institutions

32 THEORIES OF CONFLICT AND POWER Weber perspective suggesting that the expansion of bureaucracy is to be associated with the need for “rationalization” characteristic of any modernization process and independent from the ideological nature of the State or the government was proved correct

33 THEORIES OF CONFLICT AND POWER Bruno Rizzi and the “Bureaucratic Collectivism”  “La Bureaucratisation du Monde” (1939)  Systems based on individual property change into ones based on collective property (Soviet Union and fascist Italy)  Soviet bureaucracy (“nomenklatura”) turned into the new ruling class after having taken control over the means of production

34 THEORIES OF CONFLICT AND POWER James Burnham and the “Technocratic Regime”  “The Managerial Revolution” (1941)  The growing complexity of organizations transforms managers into the new ruling elite because of their technical knowledge  Technocratic power is the new “post-capitalist” form of domination  Ownership, weather private or collective, is not the main cleavage separating the dominating from the dominated.  Instead, it is the control of the means of production which divides societies into  Managers or Bureaucrats vs. the mass society  Conservative Machiavellian perspective (not Marxist)

35 THEORIES OF CONFLICT AND POWER Marxist theorists see current sociology as locked into the capitalist paradigm and unable to envision something other than a rational view for future organizations For Marxists, Human relations theories don't challenge the exploitive nature of organizations and merely give managers new psychological tools to control workers Hierarchy develops not as a rational means of coordination but as an instrument of control and a means of accumulating capital through the appropriation of surplus value Rationality is an ideology itself

36 THEORIES OF CONFLICT AND POWER Harry Braverman  “Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century” (1974)  Taylorism:  Separation of conception from execution  Monopoly over knowledge allows to control each step of the labor process and its mode of execution  The main goal of taylorist “rationalization” is the disassociation of the skills of workers from the labor process

37 THEORIES OF CONFLICT AND POWER Harry Braverman (1974)  “…organizational structures are not rational systems for performing work in the most efficient manner; rather, they are power systems designed to maximize control and profits. Work is divided and subdivided not to improve efficiency but to "deskill" workers, to displace discretion from workers to managers, and to create artificial divisions among the work force…”  Workers become deskilled and "part of the machine"  Modern organizations  deskill and segment workers  reduce job security  make work repetitive, mindless and boring

38 THEORIES OF CONFLICT AND POWER Machiavellism develops in Italy during the 1930’s coinciding with the rise of fascism  Wilfredo Pareto  Gaetano Mosca  Robert Michels (pupil of Max Weber) Its main concern is the role of power as a fundamental element on shaping social relations Social organization is very dependent on how power is distributed and used in the society (or the organization) Robert Michels’ “Iron Law of Oligarchies” is one of the few widely accepted and undisputed principles in modern sociology

39 ROBERT MICHELS The “Iron Law of Oligarchies”  “Zur Soziologie des Parteiwesens in der modernen Demokratie” (1911)  “On the Sociology of Political Parties” (1915)  Increasing size and complexity makes very difficult (nearly impossible) to govern (large) organizations on a purely democratic way  Modern organizations can only be of oligarchic nature: Bureaucracy (organization) = Oligarchy  This principle applies even to organizations committed to the very idea of democracy, like socialist political parties and trade unions

40 ROBERT MICHELS Five principles of the “Iron Law of Oligarchies”  1) The participation of all members of a large organization on the decision making process is technically inviable. Thus it is imperative to establish mechanisms for delegation or cooptation  2) Once a reduced number of “elected officials” are appointed in charge of the governance of the organization they begin concentrating the relevant information concerning the functioning of the organization close to themselves  3) The leader (or leaders) begin to be seen as “irreplaceable” due to their accumulation of specific knowledge and expertise  4) Once in a position of power, the leader will seek as a primary objective to remain in power, identifying the survival of the organization with his/her own  metamorphosis of the leader’s personality  5) Oligarchies eventually develop the “ideology of power” aimed at emphasizing the need for internal harmony as the best way to face the menaces coming from of external enemies

41 ROBERT MICHELS Why the “Iron Law of Oligarchies” always works?  All organizations that increase in size and complexity require the participation of dilligent full-time experts on the decision- making process. Such individuals tend to become “irreplaceable”  The dichotomy between “internal democracy” and “organizational efficiency” becomes more evident. Often efficiency requires a strong and professional leadership which can only come to the detriment of internal democracy  The very psychology of the masses makes strong leadership unavoidable, even desirable  Apathy and incompetence make the majority of people unsuitable for leadership roles  Masses tend to be thankful to those who decide to exercise leadership and often some “cult of personality” arises  The only function of the masses is to chose a new leader from time to time

42 ROBERT MICHELS Parliamentary regimes reinforce this dynamic  Routine commissions  Elected representatives are more visible than other members  Leaders of different factions may eventually unite to face new leaders arising from the masses Fundamental contradiction on the functioning of democratic regimes  Parties are an indispensable requisite  Parties, to be successful need to be organized bureaucratically  Masses are not interested on taking active part on politics  Only egoism may motivate some individuals to take part in political activity

43 ROBERT MICHELS Nonetheless, a democracy though undermined to some degree by the oligarchic functioning of its political parties is still an improvement with respect to one of aristocratic nature because  Positions within the ruling elite are not transferred by inheritance  Leaders need to have some abilities and acquire some merits  Elites (the “Political class”) are not a “closed” group  “Circulation of elites” (old elites vs. new elites)

44 ROBERT MICHELS Nonetheless, a democracy though undermined to some degree by the oligarchic functioning of its political parties is still an improvement with respect to one of aristocratic nature because  Problem: the oligarchic nature of elites persists because all new elites soon acquire the traits of oligarchic behavior (Iron Law)  “Bureaucracy happens (unavoidably because either centralization or delegation leads to specialization and enhances information control). If bureaucracy happens, power rises. Power corrupts…”  “Large organizations give their officers a near monopoly of power”  “The masses are incapable of taking part in the decision-making process and desire strong leadership”  Class struggle over history simply generates new elites  Solution?: a direct relation between a charismatic leader and the people its interests represent (Mussolini)

45 ROBERT MICHELS Critics to the “Iron Law of Oligarchies”  Utterly deterministic  Pessimistic Recent history has shown that democracies may indeed evolve improving their “modus operandi” It has been observed that alternance on power do limits the power of oligarchies

46 THEORIES OF CONFLICT AND POWER Jerry Pournelle and the “Iron Law of Bureaucracy”  In any bureaucracy,  The people devoted to the benefit of the bureaucracy itself always get in control  Those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely  In any bureaucratic organization there will be two kinds of people:  1) Those who work to further the actual goals of the organization, and  2) Those who work for the organization itself  The Iron Law states that in all cases, the second type of person will always gain control of the organization, and will always write the rules under which the organization functions

47 HUMAN RELATIONS Elton Mayo  The Hawthorne Studies Chester Barnard  “The Functions of the Executive” Douglas McGregor  Theory “X” and Theory “Y” Abraham Maslow  Hierarchy of needs Frederick Hertzberg  Two factor theory William Ouchi  Theory “Z” Japanese Management William Reddin  3D Theory on “Managerial effectiveness”: There is no one “universal” best way

48 HUMAN RELATIONS Reaction against extreme rationalism of the classical theories  1) Exploring the role of groups within organizations (“Human Relations” school)  2) Considering organization as an “Open System” within a “Context” (the “Contingency Theory” school) Informal relations taking place at the workplace constitute a psychological need for the individual Informal relations (primary groups) help to improve working performance

49 HUMAN RELATIONS Motivation has a tremendous impact on our performance Some studies have suggested that most persons make use of about 20% to 30% of our real capacities at the workplace The remaining capacity to increase our effort and our commitment depends on our motivations Informal (primary) groups inside the organization may play an important role on motivation

50 HUMAN RELATIONS Theories of motivation  Theories of Factors: focus on identifying the “factors” that determine motivation:  Theories of Processes: focus on the mechanisms (“processes”) through which motivation develops  Theories of Reinforcement: derive from Skinner´s “Psychological Conductism” and focus on the relationship between stimulus and response (S  R)

51 HUMAN RELATIONS Motivation and Culture  The sociological perspective contemplates motivation as one factor strongly attached to Culture  Attitudes towards work determine to a great extent the motivation and the incentives  Modern management is oriented to take into account individual and corporate values

52 HUMAN RELATIONS Classic works related to the “Human Relations” school  Roethlisberger, Dickson and Elton Mayo  Hawthorne Studies:  Barnard  “Functions of the Executive”  McGregor  “The human side of the enterprise”

53 ELTON MAYO Australian psychologist (1880-1949) “The human problems of an Industrialized Civilization” (1933) Research on industrial and organizational psychology (Hawthorne Studies) Created the foundation for “Human Relations Movement” Criticized Taylor’s “Scientific Management” approach Opened the field for studying the nature of motivation from both sociological and psychological perspective

54 ELTON MAYO The Hawthorne Study:  Late 1920’searly 1930’s  Western Electric Plant at Hawthorne, Illinois (USA)  Experiments to improve productivity  Length of rest and lunch breaks  Illumination  Payment plans  Monitoring procedures  Interviews (set the pattern for modern qualitative interview)

55 ELTON MAYO The Hawthorne Study: Illumination Study (November 1924) Illumination Study (November 1924)  Designed to test the effect of lighting intensity on worker productivity  Heuristic value: influence of human relations on work behavior Relay Assembly Test Room Study (1927-1932) Relay Assembly Test Room Study (1927-1932)  Assembly of telephone relays (35 parts - 4 machine screws)  Production and satisfaction increased regardless of IV manipulation  Workers’ increased production and satisfaction related to supervisory practices  Human interrelationships are important contributing factors to worker productivity  Bottom Line: Supervisory practices increase employee morale AND productivity Interviewing Program (1928-1930) Interviewing Program (1928-1930)  Investigate connection between supervisory practices and employee morale  Employees expressed their ideas and feelings (e.g., likes and dislikes)  Process more important than actual results Bank Wiring Room Observation Study (November 1931 - May 1932) Bank Wiring Room Observation Study (November 1931 - May 1932)  Social groups can influence production and individual work behavior  RQ: How is social control manifested on the shop floor?  Informal organization constrains employee behavior within formal organizational structure

56 ELTON MAYO The Hawthorne Study: Illumination Study (November 1924) Illumination Study (November 1924)  The mere practice of observing people’s behavior tends to alter their behavior (Hawthorne Effect) Relay Assembly Test Room Study (1927-1932) Relay Assembly Test Room Study (1927-1932)  Relationships between workers and their supervisors are powerful  Human interrelationships increase the amount and quality of worker participation in decision making Interviewing Program (1928-1930) Interviewing Program (1928-1930)  Demonstrated powerful influence of upward communication  Workers were asked for opinions, told they mattered, and positive attitudes toward company increased Bank Wiring Room Observation Study (November 1931 - May 1932) Bank Wiring Room Observation Study (November 1931 - May 1932)  Led future theorists to account for the existence of informal communication Taken together, these studies helped to document the powerful nature of social relations in the workplace and moved managers more toward the interpersonal aspects of organizing. Taken together, these studies helped to document the powerful nature of social relations in the workplace and moved managers more toward the interpersonal aspects of organizing.

57 ELTON MAYO The Hawthorne Study:  Workers should not be taken into consideration as individuals isolated from the group  Informal primary groups have a decisive influence on the workers’ behavior  Productivity may increase depending on the social patterns of informal interaction  The feeling of belonging to a group is more important than monetary incentives and good working conditions  Managers should bear in mind those “social needs” and balance two potentially conflicting elements:  The “logic of cost and efficiency”  The “logic of worker’s sentiments”  The “scientific management “in an inadequate approach to organizing work

58 CHESTER BARNARD American businessman (1886-1961) “The Functions of the Executive” (1938) Most organizations do not live for very long (except for one in particular) This is because they miss to comply with two basic goals:  Effectiveness: Attaining explicit goals  Efficiency : The extent to which an organization satisfies the motives of individuals

59 CHESTER BARNARD “The Functions of the Executive” (1938) Setting goals Establish and maintain a system of communication  An adequate system of communication (which involves treating subordinates with respect) reinforces manager’s authority Securing members will do their part  An adequate system of incentives will assure that employees will be motivated to do their work properly

60 CHESTER BARNARD “The Functions of the Executive” (1938) An adequate system of communication  Channels of communication should be clear  Should be accessible to everybody at any time  Should be as direct as possible  Communication centers must be managed by competent employees  Communications should be authenticated

61 CHESTER BARNARD “The Functions of the Executive” (1938) Adequate structure of incentives  Salary  Non-material distinctions  Work conditions  Symbolic gratification (pride for a well done work)  Persuasion

62 DOUGLAS McGREGOR American professor at MIT school of Management (1906-1964) “The Human Side of the Enterprise” (1960) Contribution to management and motivational theories Considered for some the most influential book on management of the 20 th century Proposed the so called Theory “X” and Theory “Y” Managers can be divided into two groups, depending on which of those theories they believe to be true Importance of values and beliefs (and Culture!)

63 DOUGLAS McGREGOR Theory X:  Assumes employees are inherently lazy and dislike working  Employees have little ambition unless a very generous incentive is promised  Employees will avoid taking responsibilities  Employees must be closely supervised by comprehensive control systems  A hierarchical structure is needed  Narrow spans of control at each hierarchical level  Need to rely on threat and coercion  When something is wrong it is usually someone else’s fault (not the system)  It is the manager’s job to monitor closely employees’ work

64 DOUGLAS McGREGOR Theory Y:  Employees may be ambitious and self-motivated  Employees can be relied on to abide to some sort of self-control  Employees may enjoy doing their work and may find satisfaction in doing so (source of motivation)  Employees may be responsible and have abilities for creative problem solving  Organization may underuse employees’ talents  It is the duty of the manager to  promote and enhance self-control and  self-responsibility among employees by  creating a climate of trust and  by communicating openly with subordinates and reducing hierarchical distances and  favoring the sharing of the decision-making process

65 ABRAHAM MASLOW American Psychologist (1908-1970) Hierarchy of needs  Physiological  Safety  Love and belonging  Esteem  Self-actualization Maslow’s hammer

66 FREDERICK HERTZBERG The two-factor Theory Some factors cause job satisfaction and others cause dissatisfaction To great extent based on Maslow’s principles but! Satisfaction and dissatisfaction is NOT a continuum Interviewed more than 200 engineers and accountants about their jobs and what made them happy being at it

67 FREDERICK HERTZBERG The two-factor Theory  Hygiene factors: need to avoid dissatisfaction  Status  Job security  Salary and benefits  Work conditions  Motivators: elements that cause satisfaction  Interesting tasks  Responsibility  Recognition  Difference between “Movements” and “Motivation”

68 FREDERICK HERTZBERG The two-factor Theory  Importance of “job enrichment”  Promote employees to take part in planning and self-evaluation processes  Remove some elements of control to enhance self-accountability  Create work units led entirely by employees  Provide regular feed-back to employees initiatives and report to them results on productivity (not only to top managers)  Encourage employees to take on new challenging tasks  Encourage employees to become experts

69 THEORY “Z” William Ouchi “Japanese Management”  “Theory Z: How American Business Can Meet the Japanese Challenge” (1981)  Promote strong corporate culture and employee loyalty to the firm by providing employment for life  Employment stability leads to high productivity and high morale and satisfaction  Workers have sense of order, discipline, a moral obligation to work hard, and a sense of cohesion with their fellow workers  Workers will be participating in the decisions of the company to a great degree  Avoid making workers specialists into just a few simple tasks, instead aim to increase their knowledge of the company and its processes through job rotations and constant training (Quality Circles)  Slow paces of promotion: long term commitment with the firma is required  Based on Edward Demings’ “14 points”

70 EDWARD DEMING’S POINTS Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs. The responsibility of supervisors must be changed from sheer numbers to quality Cease dependence on inspection to achieve quality Institute leadership: The aim of supervision should be to help people and machines do a better job. Institute training on the job Drive out fear, so that everyone may work effectively for the company Remove barriers that rob the hourly worker of his right to pride of workmanship. Break down barriers between departments Move towards a single supplier for any one item, on a long-term relationship of loyalty and trust Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.  Eliminate work standards (quotas) on the factory floor. Substitute with leadership.  Eliminate management by objective. Eliminate management by numbers and numerical goals. Instead substitute with leadership. Put everybody in the company to work to accomplish the transformation. The transformation is everybody's job

71 THEORY “Z” Abraham Maslow  Managers must understand employees’ needs William Reddin  “Managerial Effectiveness” (1984)  3D Theory  There is no one best way for managing  There are different types of managing which, depending on the contest can be effective or not Task oriented manager (autocrat) Relationships oriented manager (developer) Task and relationship oriented (executive) Not strongly committed to task or relations (bureaucrat)  Effectiveness ought to be measured by looking at the output  The main an only way to evaluate the performance of a manager is not evaluating what he/she does but what he/she accomplished

72 ORGANIZATIONAL ANALYSIS Three structural dimensions of organizations (B. Hodge):  Complexity  Vertical differentiation  Horizontal differentiation  Spatial differentiation  Formalization  Routine activities  Highly specialized and educated professionals  Centralization  Power distribution  Participation and Empowerment  Standardization  Achieve integration by setting consistent input processes or output requirements

73 ORGANIZATIONAL ANALYSIS Complexity  Vertical differentiation  determined by the number of hierarchical positions between plant workers and the “Prezes i dyrektor generalny” (CEO/PDG/DG).  Hall suggests measuring it by taking the number of positions in each department and divide it by the total number of departments  Horizontal differentiation  determined by the number of different tasks required to the functioning of the organization  Counting the number of specialists and educational levels  Blau and Schoennher : Counting the number of departments and sub-departments on the Organizational chart (“organigramme”)  Spatial differentiation  determined by the concentration or dispersion of the different units of the organization

74 LOW HORIZONTAL COMPLEXITY CEO Marketing ProductionHHRRFinances (Zasoby Ludzkie) (Produkcja) (Finanse)

75 HIGH HORIZONTAL COMPLEXITY Director General Ventas Investigación de Mercados y publicidad Compras Producción del Producto B Finanzas Producción del Producto A ContabilidadRRHH

76 LOW VERTICAL COMPLEXITY Presidente Vicepresidente Marketing Vicepresidente Operaciones Vicepresidente RRHH Vicepresidente Financiero Adjuntos De Marketing Adjuntos de Producción Adjuntos de RRHH Adjuntos de Dirección Financiera Asystent wykonawczy Występek

77 HIGH VERTICAL COMPLEXITY Director general Presidente Vice. Ejec. MarketingVice. Ejec. OperacionesVice. Ejec. RRHHVice. Finanzas Adj. Vice Ayudantes

78 ORGANIZATIONAL ANALYSIS Increasing differentiation may lead to dehumanization of work. A key issue facing many managers today is how much tasks should be differentiated Many organizations are delayering hierarchies to facilitate communication, gain other efficiencies, and reduce costs A typical worker stationed in a home-based mobile office would travel to customers or clients and log in sales or service calls on a lap top computer  Some companies claim that mobile office workers increased by 15 to 20 percent the amount of time employees spend with customers or clients  Some concerns regarding home-based mobile office workers include overwork and safety The level of complexity is determined largely by the amount of the three types of differentiation that exists. Complexity is often related to size, but not always so. Small companies can be complex (a medical clinic)

79 ORGANIZATIONAL ANALYSIS Integration involves the various means that the organization uses to pull together the highly differentiated tasks into cohesive output Integration, or coordination, is the prime responsibility of managers. The functions of management—decision-making and influence—imply coordinating and integrating.  Formalization  Routine activities  Highly specialized and educated professionals  Centralization  Power distribution  Participation and Empowerment  Standardization  Achieve integration by setting consistent input processes or output requirements

80 ORGANIZATIONAL ANALYSIS Formalization:  All organizations need to make sure that  Goals are accomplished  Individuals behave accordingly (cooperation) to expectations  Rules, norms and procedures are established to ensure members of the organization will behave in a proper “predictable” manner  How to approve a line of credit for a new client  How to accept a patient and direct him/her to the proper specialist  The higher the level of formalization (bureaucratization) the lower the level of autonomy of workers  Organizations using technology based on routine activities tend to be more formalized than those requiring highly educated specialists

81 ORGANIZATIONAL ANALYSIS Freedom of action Formalization High Low High Low Routines Self-control

82 ORGANIZATIONAL ANALYSIS Alienation Formalization Professionalization Alienation + _ + + _ +

83 ORGANIZATIONAL ANALYSIS Formalization:  Some organizations (hospitals) require both  highly routinized activities (Admission department)  highly standardized procedures  highly specialized activities (Surgery department)  self-control of highly educated professionals  All organizations need a minimum level of formalization  Even those whose members are subjected to a great deal of uncertainty regarding their daily tasks  The police: dealing with unexpected emergencies but still it may be formally established when and how to make use of the gun  ESeC: European Socioeconomic Classification of Occupations  Routine-ization of occupations

84 ORGANIZATIONAL ANALYSIS Centralization:  Refers to the distribution of power within the organization; the levels at which strategic decision-making is adopted  Pyramidal distribution vs. Cone distribution (Robbins)  Decision-making at the top level of the cone  Execution at the base of the cone  Information channel (line stretching from the vortex of the cone to its base) At each level it is important how close or far a person is from the information line Importance of position within the organizational chart (“organigramme”) but also the access to strategic information maintenance workers mass media

85 ORGANIZATIONAL ANALYSIS Top level of power Information Adapted from S. Robbin Position of an individual or a group POWER DISTRIBUTION

86 ORGANIZATIONAL ANALYSIS Centralization:  An organization is highly centralized  If all decisions are made at the top levels of the hierarchical pyramid  An organization is decentralized  If employees of middle and lower levels can make decisions regarding their tasks  According to Max Weber, those highly competent bureaucrats situated at the lower levels of the structure should be able to make decisions regarding tasks falling within their field of expertise  Empowerment: when employees possess both information and autonomy to organize their own work.  Highly decentralized organizations rely on this practice to increase motivation and job satisfaction (thus, job performance) among their employees

87 ORGANIZATIONAL ANALYSIS Influence, power and participation High None CEO’s Plant Managers Dept. chiefs Employees

88 ORGANIZATIONAL ANALYSIS Centralization:  Spans of Control refers to the number of immediate subordinates’ positions that a superior position controls or coordinates  In the past, a suggested span of control was from five to seven  The thinking on spans of control now has shifted to looking at a number of factors including:  the ability and experience of the manager,  the ability and experience of subordinates,  the nature of the task being performed,  the spatial differentiation, and  the amount and type of interaction needed by the supervisor.  Another way to think about spans of control is whether an organization employs a tall or flat structure

89 ORGANIZATIONAL ANALYSIS Organizations must differentiate work in order to accomplish the job. Managers must then integrate the various tasks into a coordinated whole The span of control can be wider…  the more competent the manager and subordinates are  the less geographical dispersion exists  the more routine the tasks of the subordinates are The span of control will be narrower  the more differentiated the work is  the more complex is the job of integration Not one best way  the work of the manager can hardly be routinized by formalization

90 ORGANIZATIONAL ANALYSIS Standardization:  It can help achieve integration by reducing the uncertainty or unpredictability of tasks  Setting consistent input  Dealing with only one supplier of raw materials  Organizations may standardize human resources by hiring only graduates of certain MBA programs or requiring training or certification  Setting consistent processes  How to do something, such as preparation of fast food or manufacturing certain fabric  Setting consistent output requirements  Textile industry in developing countries

91 ORGANIZATIONAL ANALYSIS Other instruments for achieving integration (B.J. Hodge)  Liaison roles  horizontal linking positions between two units or departments at the same level of the organization  production and shipping depts. need to coordinate their activities  Teams  organizing employees and managers into work and inter-unit groups in order to enhance communications, coordination, and control  Culture  informal and unwritten rules, norms, and values that are commonly shared by organizational members  Information Systems  how the system gathers, processes, analyzes, and distributes information.  E-mail, networks, video, conference calling, and LAN networks  Informal organization

92 ORGANIZATIONAL ANALYSIS (B.J. HODGE) The organization chart shows  the formal organization that is the officially sanctioned structure  delineates the authority, or reporting relationships, that exist in the organization. The informal organization  represents the de facto relationships that are not necessarily sanctioned by the organization, even though they may be perceived as actually existing  personal characteristics and patterns of social relationships that may not be captured in the formal structure are ever- present and important to the formal structure

93 ORGANIZATIONAL ANALYSIS (B.J. HODGE) The informal organization (B.J. Hodge)  It is impossible to separate the roles and the relationships from people.  Evolves from people working in organizations that are political.  Is often the result of flaws, vagueness, incompleteness, or inefficiencies in the formal design, or because of changes in organization faces.  In theory, in a perfect organization, the informal organization would either not exist or would be of little importance.  Virtually all organizations have an informal organization.  Skilled managers understand and utilize both the formal and informal organization to accomplish their objectives.

94 DIFFERENTIATION (B.J. HODGE) Organizations today must accomplish complex work It is virtually impossible for an individual to accomplish all of the tasks that are required to deliver products and services To carry out its mission more efficiently, organizations:  Must divide its work into many tasks  Must allocate tasks to different workers  Workers apply their skills to a limited part of the total product or service (part of their talent may be underused which may lead to alienation and demotivation) Organizations tend to differentiate in three different ways:  horizontally  vertically  spatially

95 INTEGRATION (B.J. HODGE) Organizations must divide up work (differentiation) Integration is the necessary coordination among the various tasks to ensure that the overall goals of the organization are achieved In smaller organizations, integration can often be achieved by direct contact and supervision of one or two key people In large organizations that are highly differentiated often turn to both formal and informal integrating means  Formal structures include:  formalization (through rules, policies, and procedures)  centralization  spans of control  standardization  Informal or non-structural integrating means include:  liaison roles, teams, culture, and information systems

96 MECHANISTIC AND ORGANIC (HODGE) The mechanistic and organic structures are prototypes and represent extremes  Mechanistic organizations have  high vertical and horizontal complexity,  high formalization,  high centralization,  narrow spans of control, and  high standardization.  Organic organizations have  low vertical and horizontal complexity,  low formalization,  high decentralization,  broad spans of control and  low standardization. Rarely one of the pure forms is the most appropriate

97 STRUCTURAL DESIGN (B.J HODGE) According to contingency theory, five contextual factors must be considered in selecting the proper balance in the structural design:  Goals  Size  Technology  Environment  Culture  Leadership and governance

98 ORGANIZATIONAL GOALS Organizational Goals (definition):  Mission statements, official goals, or, strategic objectives  set forth the officially chartered purpose of organizations (before operative goals are established)  Operative goals  derived from official goals, are more specific statements about what the organization, division, department or business unit intends to do  Operational goals  very specific and narrowly stated goals of the organization Organizations have short-term and long-term goals.  Short-term goals  those that an organization hopes to accomplish within a year or specific accounting cycle. (Amazon.com, 1 st  to build traffic, 2 nd  visitors would become shoppers and revenues would follow)  Long-term goals  those that cannot be accomplished in the short run  these goals may be for as long as ten to twenty years  In practice it is difficult to plan much beyond three to five years.

99 ORGANIZATIONAL GOALS Organizational Goals (definition):  Strategic goals  These statements are broad, but they state the direction the organization is taking and often the philosophy of the organization  Operative goals  Stated in measurable outcomes  They set standards and guide what people in the organization should be doing Market Financial Performance Resource Innovation Productivity Management Development Employee Performance and Attitudes Social Responsibility and Ethical Behavior

100 ORGANIZATIONAL GOALS Organizational Goals (importance):  It is important to have a united set of goals  The overall mission of the organization needs to be set before operative goals can be developed to support the mission  Organizations that are divided into many units and departments need some unifying purpose.  If left on their own, they end up working at cross-purposes and detract from the organization’s larger purpose  Highly centralized organizations  will pass down specific and detailed goals  De-centralized organizations  may give lower-level managers more discretion in setting direction at the operative and operational levels.  Even though there is a natural sequencing of goal setting, many effective organizations build an elaborate feedback system that allows ideas to flow up and down the chain of command, as well as across units There is no one best way to implement them; it depends on the organization in question

101 ORGANIZATIONAL GOALS (ETHICS) Organizational Goals (ethics):  Much of what organizational members do on a day-to-day basis involves ethics  Ethical dilemmas have five characteristics:  1) Actions have extended consequences.  2) Managers have alternatives and can make choices.  3) Outcomes are mixed—not all of the consequences are totally positive or negative.  4) Consequences are uncertain.  5) Decisions that managers make have personal implications—they affect people.

102 ORGANIZATIONAL GOALS (ETHICS) Brady suggests an approach that balances two quite different views on ethics: ethical utilitarianism and ethical formalism  Ethical utilitarianism is based on the works of Jeremy Bentham  Ethical correctness is judged by consequences, and is guided by the “greatest happiness principles.”  Actions that produce good outcomes are ethical.  Actions that produce pain or suffering are unethical.  Ethical judgment is essentially that of cost/benefit analysis.  If the positive outcomes outweigh the negative consequences, then the action is deemed ethical.  Ethical formalism is based on the works of Emanuel Kant  Kant believed that we could know what is ethical before we know the consequences.  Ethics are based on laws, principles, or widely held beliefs or values.  Actions that violate these are considered unethical.  Formalism emphasizes universality and consistency in the application of rules.

103 ORGANIZATIONAL GOALS (ETHICS) Organizational Goals (ethics):  Ethics play a major role in setting and measuring goals  Ethics will determine what are the core values of the organization.  Ethics will provide a strong impetus for certain types of goals and eliminate others from consideration  Organizations often use a form of ethical formalism, whereby they use a common set of beliefs, rules, and principles to guide the action of their organizations  The achievement of goals should be done in such a way as to be consistent with the accepted principles  An organization might also apply utilitarian ethics, whereby they judge their actions, after the fact, by whether the consequences are positive or negative  www.bradyservices.com www.bradyservices.com

104 ORGANIZATIONAL GOALS Other factors to bear in mind related to goals include:  Who are the beneficiaries of the organization  What is the relevant time frame for specific goals  What is the relative importance of specific goals Organizations have multiple constituents or beneficiaries  Primary  Secondary  Examples:  Justice system (judges, criminals, victims)  Private corporation (shareholders, clients, workers) Because an organization has multiple constituencies, they will have multiple goals, some of which may be in conflict.  Employees  Owners and Shareholders  Suppliers,  Members of the communities served by the firma  Patients, students, transport commuters, etc.

105 ORGANIZATIONAL GOALS Managing Goals and Objectives (conflict):  In a perfectly rational world, managing diverse goals would not be a significant problem  Goal setting is often a political process.  Coalitions form within the organization.  Stakeholders might have goals that are different from internal goals.  What seems rational to one member or group may appear to be misguided, wrong, or irrational to another.  Individuals or groups operate with hidden goals or agendas.

106 ORGANIZATIONAL GOALS Managing Goals and Objectives (conflict):  Because of the previously cited problems, organizations have explicit ways of establishing goals. But to fully understand how goals are set, we need to examine  the formal process  the political process  Managing goals is frequently a process of  managing conflict  pursuing negotiations  bargaining  Compromises may result in  some winners and some losers—a win-lose scenario  all parties are better off and a win-win situation develops  Classic problem: employees prefer to have a very high rate of pay, but this may frustrate the organization’s ability to remain competitive, or it may compromise stockholders’ targeted return rates

107 ORGANIZATIONAL GOALS Managing Goals and Objectives (conflict):  Conflict is a fact of organizational life, so it can never be eliminated entirely  The organization needs to recognize conflict  In the formal level by establishing procedures and mechanisms for goal negotiation and bargaining  In the informal level (greatly influenced by culture) Goal conflict at informal level can reveal what is really going on Should provide feedback to managers on whether established goals are realistic and workable This information needs to be taken into account in the formal goal-setting process

108 ORGANIZATIONAL GOALS Managing Goals and Objectives (conflict):  Satisficing  Goals are not always fully met  Managers may be satisfied with less than perfect or complete goal achievement  Two additional techniques are available for managing multiple and potentially conflicting goals.  Setting priorities means that some goals will take priority over others  Sequencing of goals assumes that all goals will eventfully be met, but some will be met before others

109 ORGANIZATIONAL GOALS “The concept of goals is among the most important and most controversial concepts to be confronted in the study of organizations.” Hodge’s key points regarding organizational goals:  1) Without goals, organizations wander aimlessly and cannot survive long.  2) Goals provide a road map or direction. The very definition of an organization delineates the importance of goals. Goals establish a future direction, provide legitimacy, and provide standards.  3) The goals an organization selects will determine the markets it serves, how it will service those markets, where it will operate, the structure it will use, and so forth.  4) Goals also provide a basis for measurement and a way to judge effectiveness. Change and adjustment needs to be based on feedback regarding the accomplishment of goals.

110 EXAMPLES OF GOAL DEFINITION http://www.procterundgamble.de/ (Germany) http://www.procterundgamble.de/ http://jp.pg.com/ (Japan) http://jp.pg.com/ http://www.pg.com/pl_PL/(Poland) http://www.pg.com/pl_PL/ http://www.pg.com.ua/(Ukraine) http://www.pg.com.ua/

111 ORGANIZATIONAL EFFECTIVENESS Goals and effectiveness are related but the term effectiveness is unclear Whether an organization is effective or not may depend on who is asking the question Internal effectiveness  Efficiency: it maximizes outputs with respect to the costs of inputs and the costs of the transformation of those inputs into outputs  Emotional or affective health is the concern of the Human Relations School: workers are happy and satisfied The goal approach  Defines effectiveness in terms of “if,” and “how well,” an organization accomplishes its goals.  For this to work, goals must be measurable. There are at least 3 problems:  If the goals are ill defined, complex or inappropriate, the mere attainment of these goals does not guarantee effectiveness.  If the goals do not represent the diverse interests of important stakeholders, the organization may find itself in trouble.  Many times the meeting of one goal means that a conflicting goal cannot be achieved. Resource acquisition  Focus on the organization’s ability to acquire adequate resources from the external environment to meet its objectives (the basis of the systems resources model).  While acquiring resources is necessary, this alone does not give us a comprehensive picture of organizational effectiveness Performance from the stakeholders’ perspective  According to this perspective, organizations are effective to the extent that key groups are least minimally satisfied  Because stakeholders have conflicts, this approach forces the difficult issue of whose claims are the most important

112 ORGANIZATIONAL EFFECTIVENESS Contradictions Model  This model argues that the idea of trying to characterize a whole organization as totally effective is problematic.  Four central assumptions drive the model.  1) Organizations face complex environments that place multiple and conflicting demands and constraints on them. It may not be possible to meet all of these conditions.  2) Organizations have multiple conflicting goals. It is impossible to maximize achievement of all goals.  3) Organizations face multiple internal and external stakeholders, and it may be impossible to meet all of their conflicting demands.  4) Organizations must manage multiple and conflicting time demands. There may be a tradeoff between satisfying short-term and long-term demands.  This model does not suggest one best way of assessing effectiveness; rather, it makes us cognizant of these potential contradictions.

113 ORGANIZATIONAL EFFECTIVENESS Competing Values Model  No single measure of effectiveness is, by itself, satisfactory.  This approach relies on a two dimensional approach depending on the main focus of the organization is placed  internal vs. external  control vs. flexibility  The combination of these two-dimensions yields four distinct approaches.  Human Relations Model Internally focused and desire flexibility (Team culture  collaboration  “do it together”) Cohesion, morale, mutual support, human resource development  Open Systems Model Externally oriented and flexible (Entrepreneurial culture  innovation  “do it first”) Flexibility and creativity, control of resources, responsive to environmental changes  Internal Process Model Internally focused and control-oriented (Hierarchical culture  control  “do it right”) Clear lines of authority, stability, predictability  Rational Goal Model Externally focused and flexible (Rational culture  competition  “do it fast”) Clarity of tasks, efficiency, measurable outcomes, predictability

114 ORGANIZATIONAL EFFECTIVENESS There is not one best approach to effectiveness; we must determine  why we want to measure effectiveness  the appropriate time frame  apply the proper model to the type of organization in question

115 ORGANIZATIONAL EFFECTIVENESS Balance Scorecard  In the 1990’s, a variety of approaches to effectiveness have emerged that recognize the multidimensional nature of performance  Many of these approaches are direct products of the TQM movement  Robert Kaplan and David Norton have developed a balanced scorecard approach.  To be successful, a firm must succeed in  financial performance  internal operational performance  customer performance  innovation and learning performance  A good balanced scorecard approach must contain both leading and lagging measures

116 ORGANIZATIONAL ANALYSIS Factors conditioning organizational structure  Size  Peter Blau  Richard Schoennher  Technology  Joanne Woodward  Charles Perrow  James Thompson  Environment  Systems Theories  Culture  Geert Hofstede  Schein  Leadership and governance  Hersey and Blanchard  Strategic design  Chandler

117 ORGANIZATIONAL SIZE Service and manufacturing companies often use different measures and definitions of size:  1) Financial and market measures, such as asset value, revenues, or market share.  2) Concentration levels, such as the percent of business for the top three to five businesses.  automakers vs pizzerias  3) Number of markets that an organization serves, or the number of products they offer. Markets can include both domestic and foreign locations.  4) The number of employees working for the organization.  largely the result of the technology and industry

118 ORGANIZATIONAL SIZE Definitions of size (examples): How to measure the size of a University?  1) The total number of students.  2) The percent of total students in the country/region/state who attend a particular University.  3) If it is a private university—the percent of the target market who attend.  4) For a research university, the number of dollars received in contracts and grants, and the number of articles published. A private company?  Nº of workers? Nº of clients? A hospital?  Nº of beds? Nº of doctors? An NGO?  Nº of volunteers? Hired professionals? People served?

119 ORGANIZATIONAL SIZE Organizational growth: Auto repair workshop: the effects of growth (and success) can be seen on  task differentiation:  Hiring mechanics specialized on different areas  increasing support functions:  Hiring bookkeepers, marketing experts, accountants

120 ORGANIZATIONAL SIZE Organizations that grow in size  Become more formalized and complex  Formalization and complexity are the direct result of the need  to divide the increased work in the organization  the desire to achieve greater specialization  Growth in rules and regulations  More job specialization  More administrative layers

121 SIZE AND COMPLEXITY Complexity Size (nº members) Y´ X´ YXYX High Low 30080023002800 “Complexity increases along with size but at a decreasing rate” (P. Blau)

122 ORGANIZATIONAL SIZE Differences between large and small organizations:  Number of employees, size of sales and revenues, market share, and other measures related to size will be larger in the larger organization.  Large organizations will tend to be more formalized than small organizations; they will have more layers of management, more rules and procedures.  More complex organizational charts in the larger organization.  Larger companies will tend to have broader product and service lines, perhaps organized into divisions, whereas, smaller organizations will not.  Larger organizations will tend to have power over suppliers, and maybe even buyers. Smaller organizations will not.

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124 HUMOR http://www.glasbergen.com/business-computer- cartoons/ http://www.glasbergen.com/business-computer- cartoons/

125 ORGANIZATIONAL SIZE Organizational Birth:  Primary activity is to invent a new product or service, create a new technology, or improve an existing product or service.  The organization is not necessarily officially created (might be an adhocracy).  It is organic, and the entrepreneur is firmly in control.  The critical task in this first stage is survival; between 60 and 75 percent fail in the first six years because of the liability of newness.  At some point, outside talent needs to be brought in to create some structure and permanence  Often the transition between the entrepreneur and professional managers is very difficult and rocky

126 ORGANIZATIONAL SIZE Many small businesses are started by entrepreneurs who understand a craft, a process, technology, or a market niche from a technical viewpoint. The entrepreneur may be a great cook, mechanic, computer programmer, salesperson, and so forth. As the business grows, he or she needs help in administrative support areas where he or she either has little interest and/or significantly fewer skills. Even though the entrepreneur may not have these skills, it is still difficult to give up control of these areas, and that often becomes a major stumbling block for new firms as they start to move through the life cycle

127 ORGANIZATIONAL SIZE Emergent structure:  If the new venture solves the financial, market, and managerial problems of its birth, it must then  provide leadership,  establish clear goals,  differentiate departments,  divide labor,  delegate responsibilities,  develop a hierarchy.  This stage is referred to as a collectivity stage  The critical task, at this point, is to balance  the need for a formal structure with  the need to continue to grow and adapt to external conditions

128 ORGANIZATIONAL SIZE The formal organization:  Over time, but at a slower pace, the organization moves towards more formalized structure and bureaucracy.  There is now a time of greater stability and predictability.  The formalization stage is marked by greater reliance on traditional bureaucratic mechanisms of control.  The organization may expand into more markets and geographical areas.  It may need more complex structures, such as divisions.  Organizations must balance  the need for control and structure with  the need to remain flexible and innovative.

129 ORGANIZATIONAL SIZE Dinosaurs and Turnarounds:  Once-successful organizations sometimes reach the point at which bureaucratic controls no longer work.  To deal with increasing complexity, managers write more and more complex rules that inhibit control and communication rather than enhancing it.  This stage is called the elaboration stage because of the need to elaborate on bureaucratic mechanisms.  Often, organizations will utilize teamwork and self-management of shared values and norms to replace bureaucratic rules and procedures.  These changes are labeled in a variety of ways, including re-inventing, downsizing, restructuring, re-engineering.  1) Restructuring refers to re-configuring organizational units or departs.  2) Re-engineering refers to re-configuring the work process.  3) Rethinking refers to reevaluation of the organization—its identity, its purpose, and its methods and capabilities.

130 ORGANIZATIONAL SIZE Organizational decline  The organization’s inability or reduced capacity to cope with this environment.  Organizations generally do not decline rapidly; rather, it happens in a slow, agonizing retreat described as a “downward spiral.”  Decline is hard to reverse because, in many cases, the decline exacerbates the difficulty of obtaining resources.  Decline has five distinct stages:  1) Blinded—failure to detect environmental pressure.  2) Inaction—failure to decide on corrective action, misinterpretation of information, noticeable decline.  3) Faulty action—faulty decision and/or faulty implementation of solutions.  4) Crisis—last chance for reversal, given a favorable environment and a slow decline.  5) Dissolution—given a hostile environment—quick demise; given a favorable environment—slow decline.

131 ORGANIZATIONAL SIZE Should organizations grow? Growth may be pursued  to gain power over suppliers, buyers, regulators  to profit from economies of scale It may have, however, dysfunctional consequences  Diminishing returns  Need for adaptation  Cultural change In recent years, because of technological and environmental changes, smaller organizations are beginning to be able to achieve economies of scale that were formerly reserved for large organizations

132 ORGANIZATIONAL SIZE The advantages of small size: 1) Downsizing. As organizations grow, they tend to increase administrative structures and develop more specialization. Downsizing often involves eliminating some layers and, perhaps, broadening job descriptions and responsibilities. 2) Redesign: redesigning a formerly bureaucratic structure into a flatter, more organic organization with fewer layers of hierarchy. It may also mean elimination of certain divisions. This could result in selling off or spinning off divisions 3) Virtual organizations: subcontracting out much of their work in order to achieve the advantages of smaller size and flexibility. They sometimes do this to such an extent that they become a shell or an umbrella organization. www.nike.comwww.nike.com 4) Coordination and control: changing the culture. To make a large organization behave like a smaller organization, managers often have to change the underlying corporate culture. Large companies can emphasize small firm values, such as entrepreneurship, risk-taking, closeness to customers, decentralized authority, individual responsibility, innovativeness, responsiveness, etc.

133 ORGANIZATIONAL SIZE Is growth good? It depends on how do we define it!!!  Advantages of size  Need for downsizing

134 ORGANIZATIONAL TECHNOLOGY Technology is a major factor in the contingency model of organizations Technology refers to the knowledge, tools, machines, information, skills, and materials used to complete tasks within organizations, as well as to the nature of the outputs of the organization Popular meanings related to “high tech” or “low tech” are too limiting. Two questions must be answered to guide our thinking:  1)How does the organization get its work done?  2)How can management control that technology?

135 ORGANIZATIONAL TECHNOLOGY Technology:  The technology used in an organization causes an organization to structure or organize a certain way and also affects individual conduct of members  Efficiencies are gained, there are also costs in training, human resource dislocations  Three levels of technology:  1) Core Technology—used to characterize the entire organization;  2) Work unit or department technology;  3) Interdependent relationships that result from the flow of work between work units.

136 ORGANIZATIONAL TECHNOLOGY Technology Joan Woodward’s 1950's study of British manufacturing companies. She developed a three-category scheme for classifying organization-level technology:  1) Unit or Small Batch  (Hull & Collins: traditional  Skilled craftsmen or technological  skilled programmers and automatization)  2) Mass or Large Batch  3) Continuous Process or Flow. Woodward’s work also identified a contingency relationship between technology and structure.  1) The unit or small batch needed an organic structure.  2) The mass or large batch needed a mechanistic/bureaucratic structure.  3) The continuous process or flow needed an organic structure.

137 ORGANIZATIONAL TECHNOLOGY Technology:  Special attention needs to be focused on service as a core technology.  Services tend to be intangible.  Examples include teaching, medical services, legal services, banking, etc.  Differences between services and manufacturing can be seen by examining the extreme or prototypical cases on five dimensions:  1) Tangibility—which refers to the concreteness or abstractness of output. Services tend to be more intangible.  2) Standardization—services tend to be less standardized and more tailored to customer needs.  3) Customer participation—services directly involve the customer in the process.  4) Timing—services require simultaneous production and consumption.  5) Labor intensity—services, in general, tend to be more labor intensive.

138 ORGANIZATIONAL TECHNOLOGY Managing Service Technology:  Managing service technology is somewhat different from managing manufacturing technology.  The Ashton Group developed a scale for classifying technology based on three factors:  automation of equipment;  workflow rigidity; and  specificity of evaluation.  These are combined into a workflow integration scale.  High levels of automation, greater rigidity of work, and more precise measures of operations characterize organizations with technologies that scored high on work integration.  Low scores indicate the opposite.  Services tend to score low on workflow integration,  thus service organizations should be managed with organic organizational structures that include low formalization, low specialization, and decentralization.

139 ORGANIZATIONAL TECHNOLOGY Technology  This framework was developed by Perrow,  Technology is defined on the dimensions of  exceptions/variety  analyzability  High-task variety jobs have many exceptions to standard operating procedures.  Low variety technologies permit little flexibility,  High variety permits greater flexibility.  Examples:  jobs at pizza carryout are low variety;  at a marketing department, high variety.

140 ORGANIZATIONAL TECHNOLOGY Technology  The second dimension is analyzability.  Tasks characterized by readily available information, that is easily obtained, are high analyzability tasks.  Those characterized by unavailable information or information difficult to obtain are designated as low-analyzability tasks.  High-analyzability tasks can usually be standardized or programmed (even the resolution of problems).  Low-analyzability tasks are uncertain, ambiguous, and complex.  Problem solvers must rely on judgment, instincts, intuition, and experience.

141 ORGANIZATIONAL TECHNOLOGY Technology Based on these two dimensions, Perrow developed four categories:  1)Routine—low variety/high analyzability;  2)Engineering—high variety/high analyzability;  3)Craft—low variety/low analyzability;  4)Non-routine—high variety/low analyzability. ESeC

142 CHARLES PERROW’S MODEL Analyzability Problem solving protocols Undefined Well-defined Craft (Artisanship: glass) Routine (Steel) Non-routine (aerospace) Engineering (Heavy machinery) Routine Non-routine Few exceptionsMany exceptions Variability/diversity of tasks Adapted from Perrow

143 ORGANIZATIONAL TECHNOLOGY Technology James Thompson developed a technology framework (which has been elaborated on by others) that focuses on the nature of interdependence and coordination among departments. There are three essentials questions about interdependence that must be asked:  1)How much does one unit or department depend on another to complete work?  2)What is the nature of that interdependence?  3)How can we achieve the necessary coordination? Mediating Technology (pooled interdependence) Long-linked technologies Intensive technology (reciprocal interdependence)

144 ORGANIZATIONAL TECHNOLOGY Task Design and Technology: Fitting People to Jobs: The Traditional Industrial Ethic.  Jobs are regarded as nearly inflexible, as determined by the technology, and people are seen as being flexible enough to fit the job.  People can be selected and trained.  This approach is conducive to job specialization and for assembly-line operations.  In many cases, human beings are not infinitely malleable.  People may not be able to adapt, and this can cause disruption

145 ORGANIZATIONAL TECHNOLOGY Task Design and Technology: Fitting Jobs to People: The Task of the Postindustrial Society.  Here the capabilities of the available labor force take precedence over the technology.  The skills, abilities, and aspirations of the labor force are analyzed, and a technology is adopted that results in jobs that are consistent with the available skills and abilities.  This view has led to job redesign and job enrichment efforts.  The idea is to create more challenging and motivating jobs.  However, some workers may prefer highly structured jobs with little responsibility.  Thus, these approaches have not solved all of the problems, and the sociotechnical approach suggests that the set of relationships between individuals, organizations, tasks, and technology may be more complex

146 ORGANIZATIONAL TECHNOLOGY Task Design and Technology: Sociotechnical Systems: A Middle Ground.  Here we combine both approaches outlined above.  This approach explicitly considers both people and technology.  The whole person is considered, and the range of factors that impinge on the human-machine interface is explicitly considered.  This approach assumes that technology cannot be fully understood apart from the relationship to people.  The design of tools, equipment, and process must consider human aspects, including strength, durability, range of motion, and the ability to socially interact in the conduct of one’s job.  Also, the design must take into account the degree to which humans can adapt through learning, conditioning, and experience

147 THE ENVIRONMENT The Environment Managers should formulate strategies and conduct the organization in such a way so as to maximize the organization’s fit with the environment. Three associated tasks are:  1. Knowing the environment  2. Adapting or responding to the environment  3. Changing the environment

148 THE ENVIRONMENT The Environment Uncertainty can come from three aspects of the environment  1. Complexity  number of sectors or elements of the environment relevant to the organization.  2. Change  Since an organization has limited capacity to monitor the environment, increasing levels of change and complexity cause uncertainty.  3. Munificence (means there are abundant resources)  When resources become scarce, they create uncertainty for an organization because it becomes more dependent on others for the vital resources it needs.  This dependence can also occur when there are large power differences between organizations, such as between Wal-Mart and its suppliers.

149 THE ENVIRONMENT Stable Dynamic ComplexSimple Abundance Scarcity Adapted from S. Robbins

150 ORGANIZATIONAL CULTURE Organizational Culture: Organization culture vs general societal culture Two levels of organizational culture:  1) observable traces or indicators, such as architecture, artwork, dress, language, stories, myths, behavior, formal rules, rituals, ceremonies, and appearances; and  2) unobservable forces present in the organization, such as norms, assumptions, ideology, values, and shared perceptions. Culture is the pattern or configuration of these two levels of characteristics that orients or directs organizational members to manage problems and their surroundings Weber’s Trains (self-interest) and Railroads (values)

151 ORGANIZATIONAL CULTURE Five Elements of Corporative Culture:  Values  Desirable  Desired  Rites (formal and informal)  Protocol  Company parties / CEO public speech  Symbols  Company logos  Heroes  Founding father’s of the organization  Norms  Dressing codes  Schedules (time at office)

152 ORGANIZATIONAL CULTURE Six Dimensions of Corporative Culture  Employee oriented vs task oriented  Taylorism vs Human Relations School  Process oriented vs goal (result) oriented  Flexibility/autonomy vs protocols and rules  Corporatism vs professionalism  Level of education  Self-identification with corporate values  Open system vs closed system  Acceptance of new members  Loose control vs strict control  Regarding expenditures and use of means  Normativism vs pragmatism  Client oriented vs norm oriented (Public/Bureaucratic)

153 ORGANIZATIONAL CULTURE Geert Hofstede and William Ouchi Organizational cultures are influenced greatly by the national culture Hofstede has proposed five dimensions  1)Individualism-Collectivism  2)Uncertainty Avoidance  3)Power Distance  Importance of hierarchy  4)Masculinity-Femininity  Assertiveness  Salary vs working environment  5)Time Orientation (Confusion Dynamism)  Short term vs long term goals

154 ORGANIZATIONAL CULTURE Organizational Culture Four Views Based on Four-Leading Scholars  Schein’s  Stages of Culture Formation  Scholz’s  Topology of Culture Formation  Fombrun  Levels of Culture  Louis  Multiple Cultures

155 ORGANIZATIONAL CULTURE Schein’s Stages of Culture Formation  Leader characteristics, such as age, training, background, gender, and experience, are important in the formation of culture  Confrontation of  intimacy,  role differentiation  peer relationship issues  Creativity and stability issues must be confronted.  Much of the early success, based on innovation and creativity, comes into conflict  Needs for more predictability and stability  The organization matures and has to confront growth and survival issues

156 ORGANIZATIONAL CULTURE Scholz’s Topology of Culture Formation  Culture develops along three dimensions  1) Evolutionary dimension.  Not all organizations follow a sequence, nor is any one stage better than another.  The stages are: the stable stage, the reactive stage, the anticipating stage, the exploring stage, and the creative stage.  2)Internal dimension.  The internal conditions within the organization affect the culture.  For example, an organization that uses standardized production processes would create conditions for a culture that is constant and process oriented. The result is a consistency culture that places a high value on standard procedures and consistency outputs, as illustrated by McDonald’s.  On the other hand, a professional organization with employees possessing varied skills and high levels of professional expertise is likely to foster development of a culture that emphasizes individualism and professionalism. This type of culture is referred to as a clan or involvement culture.  3) External dimension.  The external environment will impact the development of culture.  A complex and dynamic environment is likely to develop a culture that values flexibility, innovativeness, and risk taking. The external focus can be manifested in two different ways: as an adaptability culture based on innovations and/or attempts to change in response to the environment, or as a mission culture with a focus on meeting customer needs.  Conversely, an organization facing a simple and stable environment is likely to adopt a culture that features conservatism, risk aversion, and bureaucracy.

157 ORGANIZATIONAL CULTURE Fombrun—Levels of Culture  1)Societal level.  Culture represents the values, attitudes, and meanings that members bring to the organization.  The educational system, political system, economic conditions, and social structure of the larger society may influence this.  The organization operates within this general cultural atmosphere and is influenced by it.  2)Industrial level.  There are some similarities and differences of culture between industries.  The majority of organizations within an industry may espouse certain dominant values. (the banking industry vs Silicon Valley).  3)Organizational level.  The organizational level must be understood in terms of both the individual organization and as a function of the larger society and industry in which the organization finds itself.

158 ORGANIZATIONAL CULTURE Louis—Multiple Cultures  Louis suggests that organizations are not simply a single monolithic culture. Large organizations often develop different cultures at different sites or loci within the organization. Subcultures can develop among different levels in the organization or within different divisions or departments

159 LEADERSHIP AND GOVERNANCE Hersey, P. and Blanchard, K. H. “Management of Organizational Behavior” (1972) There is no single "best" style of leadership Effective leadership depends on  the person or group that is being influenced,  the task, job or function to be accomplished A good leader develops “the competence and commitment of their people so they’re self-motivated rather than dependent on others for direction and guidance”  Four combinations of competence and commitment make up the development level  Four types of leadership styles

160 HERSEY & BLANCHARD MODEL

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163 LEADERSHIP AND GOVERNANCE Governance and control Theoretical background  Methodological approaches (Ficha 7)  Holistic: individual behavior is result of structures; focus on Explain structures and their change  Individualistic methodology: structures are created by individuals acting rationally; focus on explaining individual behavior Rational choice theories Agency theories (Jensen & Meckling 1976) Transaction cost theories (Williamson 1981)

164 LEADERSHIP AND GOVERNANCE Governance and control Agency theory is concerned about the relationship between principals (owners) and agents (employees).  Agency theory assumes that agents will act in opportunistic ways; therefore, appropriate contracts and monitoring is necessary to reduce agency costs.  Organizations are seen as a series of contractual relationships between principals and agents.  Agency costs are the costs associated with monitoring agent behavior and enforcing contracts. Transaction cost economics focuses on how to maximize efficiency of transactions by determining the proper boundaries of the organization. That is, what should be done internally vs. what should be contracted for on the outside.  A transaction is defined as the exchange of goods and services among groups within the organization or across organizational boundaries.  A transaction cost is an explicit fee or cost associated with a transaction, or an implicit cost of monitoring and controlling a transaction.  Develop professionalism and/or externalize services which are not at the core activity of the organization to reduce costs

165 LEADERSHIP AND GOVERNANCE Organizational economists use the term “cost” to refer to a wide range of problems that owners must remedy in order to create an organization that allows for wealth maximization.  1) Bounded rationality.  Owners and managers are unable to process all of the available information, and face uncertainty in transactions or contract relationships. Because of this, employees, suppliers, and contractors may be in a position to take advantage of the owner. Therefore, costs are incurred by the owner in gathering and processing information in order to reduce these costs.  2) Opportunism.  Principals and agents often have different goals and will seek their own self-interest. The theory states that agents will not always fulfill their obligations because they prefer leisure to work and are subject to shirking. This problem is referred to as moral hazard—workers will not put forth the agreed-upon effort.  3) Information Asymmetry.  Information related to exchanges or transactions is not evenly distributed. One participant is likely to have more than another. Agency theory has used this concept to explain opportunism and moral hazard. It assumes that agents have certain information about their own behavior and shortcomings that is not available to the principal, or a contractor may have information that is not available to the principal. In order to reduce this asymmetry in information, costs are incurred in gathering additional information and using various governance mechanisms. Information asymmetry, in part, is what motivates key decisions as to which tasks should be conducted within or outside the organization.  4) Asset specificity.  Assets that are very specific and fixed can reduce the flexibility of an organization. That is, it may be hard to transfer them to another purpose or to sell them at a reasonable level. The decision to invest or not to invest in specific assets has implications on how the organization governs its relationship with employees and other firms.  5) Small Numbers.  An organization may incur a transaction problem when it is faced with only a small number of potential trading partners (an oligopoly). The major problem with this situation is that an organization can more easily be exploited by a trading partner.

166 LEADERSHIP AND GOVERNANCE Mechanisms for control: Owners try to protect their interests by Creating either behavioral contracts or outcome-based contracts Pay-for-performance at the CEO level Markets as disciplinary forces  The stock market, labor market, and debt market, can provide feedback about the company’s performance.  The price of the company’s stock can result in managerial rewards or punishments Bureaucratic control  1) Comprehensive job descriptions and performance appraisal systems.  2) Statistical or numerical control systems.  3) Budgeting and accounting systems.  4) Work rules or procedural guidelines. Clan control  Bureaucracies can become inefficient  Clan control utilizes the shared norms, values, and beliefs of organizational members to ensure that people pursue common goals and objectives.  It doesn’t eliminate all transaction costs but it does reduce problems of opportunism


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