PURPOSE of CHAPTER 1 Introduce you to Organization Theory and its role in the job of a manager. Three critical questions are addressed: (1) What is an organization theory, how does it relate to management, and how did the field develop? (2) What is an organization, why is it important, and how can it be studied? (3) What is a strategic systems approach to organizations?

Organizations: A Revised Definition Organizations are human systems of cooperation and coordination assembled within identifiable boundaries, to pursue shared goals or objectives.

How an Organization Creates Value Organization’s Inputs Organization's Conversion Process • Organization obtains inputs from its environment • Raw materials • Money and capital • Human resources • Information and knowledge • Customers of service organizations • Organization transforms inputs and adds value to them • Machinery • Computers • Human skills and abilities Organization’s Environment Organization’s Outputs • Sales of outputs allow organization to obtain new supplies of inputs • Customers • Shareholders • Suppliers • Distributors • Government • Competitors • Organization releases outputs to its environment • Finished goods • Services • Dividends • Salaries • Value for stakeholders

Organizational Structure & Design Structure refers to the sum of the total ways in which an organization divides its labor into distinct tasks and then coordinates them. Design can have two meanings: (1) The appearance (view,outlook) of the organization (2) The process of setting up (adjustment,regulation) or changing the organization

Differentiation and Integration: Key Elements of Structure All organizations must split their works into tasks-- the division of labor into tasks is called differentiation. Organizations must split up work but then they must integrate or coordinate it. Integration involves the various means to pull together highly differentiated tasks into cohesive output.

Simple vs. Complex Organizations In a simple organization, differentiation is low because the division of labor is low. That is, individuals typically perform all the organizational tasks. In a complex organization, differentiation is high because the division of labor is high.

Subunits The main subunits that develop in organizations are: functions (or departments) divisions

Functions vs. Divisions A function is a subunit composed of a group of people who possess similar skills and knowledge to perform their jobs. marketing dept. maintenance dept. A division is a subunit that consists of a collection of functions that are related to a particular good or service. Motorola’s semiconductor division

Specialization As the division of labor increases, managers specialize in some roles and hire people to specialize in others. Specialization allows people to develop their individual abilities and knowledge within their specific role.

Three Types of Differentiation Horizontal differentiation: Division of work into tasks and sub-tasks at the same organizational level. Vertical differentiation: Division of work by level of authority, hierarchy, or chain of command. Spatial differentiation: Geographical location of different organizational activities.

Centralization vs. Decentralization When managers at the top of the hierarchy retain the authority to make important decisions, the organization is viewed as highly centralized. When managers at all levels are allowed to make decisions regarding resources and new projects, the organization is viewed as highly decentralized.

Standardization vs. Mutual Adjustment Standardization is conformity to specific models or examples (rules and norms). Mutual adjustment is the process of allowing people to use their judgment rather than standardized rules to address a problem.

Reasons to Centralize Control: Cost: Economies of scale. Company has to meet legal requirements Decisions made at the local level will affect the whole company Cost: Economies of scale.

Reasons to Decentralize Responsiveness to local conditions Independence at lower levels helps build a pool of candidates for higher level positions Make sure decisions are made by people who are as close as possible to the source of information and the field of action.

Mechanistic and Organic Organizations Two prototypical organizational types have emerged:

Organizations Have Short-Term and Long-Term Goals Short-term goals are those that an organization hopes to accomplish within a year or specific accounting cycle.  Long-term goals may be for as long as ten to twenty years, although, as a practical matter, it is difficult to plan much beyond three to five years.

Types of Organizational Goals Two types of goals used to evaluate organizational effectiveness: Official goals are guiding principles that the organization formally states, often in public documents. Operative goals are specific long-term and short-term goals that guide managers and employees.

Goals for Action: Operative Goals Operative goals set standards and guide what people in the organization should be doing. Included are the following: Market Financial Performance Resource Innovation Productivity Management Development Employee Performance and Attitudes

Demographic / Cultural Forces The Organizational Environment International Forces Demographic / Cultural Forces Political Forces Customers Distributors Suppliers Organization Unions Government Competitors Environmental Forces Technological Forces Economic Forces General Forces Specific Forces 6 -

Managing the Environment (cont.) is the source of Opportunities  and Threats  Organizations learn about these through: Boundary Spanning Environmental Scanning

Boundary Spanning Involves organizational members interacting with outside people and organizations Units set up to monitor the environment Two purposes: They gather information and provide feedback about the environment They represent the organization to the outside world Provided by a wide variety of people in an organization, including figureheads like CEO’s Units not in the organization such as a law firm or an advertising agency, may conduct boundary spanning

Environmental Scanning Concerned with collecting and processing information and assessing or projecting change in various sectors of the environment Helps reduce the amount of environmental uncertainty it faces Scanning data is the input for product development, advertising, personnel planning, production scheduling The most important sectors to monitor include market, economic, and socio-cultural Can even include comparison-shopping, reverse engineering, and industrial espionage

Environmental Uncertainty High The Relationship Between Environmental Uncertainty and Organizational Structure Low Environmental Uncertainty High Mechanistic Structure Low differentiation Low integration Centralized decision making Standardization Organic Structure Complex structure High differentiation High integration Decentralized decision making Mutual adjustment 6 -

Resource Dependence Theory Resource dependence theory argues that the goal of an organization is to: Minimize its dependence on other organizations for the supply of scarce resources AND To find ways of influencing these organizations to make resources available 6 -

Interorganizational Strategies for Managing Symbiotic Interdependencies Informal Formal Reputation Co-optation Strategic alliances Merger and takeover 6 -

Strategies for Competitive Interdependencies (in order of increasing formality) Collusion and Cartels: Collusion is a secret agreement to share information. Cartel is an association of firms that explicitly agree to coordinate activities. 6 -

Third-party linkage mechanisms Interorganizational Strategies for Managing Competitive Interdependencies Informal Formal Collusion and cartels Third-party linkage mechanisms Strategic alliances Merger and takeover 6 -

What is an Organizational Chart? Boxes show how work and responsibilities are clustered into units such as divisions, departments, sections, and teams. Lines show the management structure: Who reports to whom, how the boxes relate to each other in the hierarchy.

Why Organizational Structure Matters? Structure affects: What employees pay attention to Ease of coordinating activities Speed of producing goods/services Cost of running the business Nature and extent of supervision required Whom employees interact and build relationships with

Functional Structure A functional structure is the bedrock of horizontal differentiation. It is the first “structure” that organizations adapt as they grow. Functional Structure Research and Development Sales and Marketing Manufacturing Materials Management Finance CEO

Product Division Structure CEO Vice President Sales and Marketing Vice President Research and Development Vice President Materials Management Vice President Finance PDM PDM PDM PDM Canned Soups Division Frozen Vegetable Division Frozen Entrees Division Baked Goods Division Centralized support functions Divisions

Multidivisional Structure

Product Team Structure. CEO Functions V ice President V ice President V ice President V ice President V ice President Research and Sales and Manufacturing Materials Finance Development Marketing Management Product Development Teams PTM PTM PTM Product Product Product Division Division Division Functional specialist PTM Product Team Manager

Geographic Structure Regional Operations CEO Regional Regional Central Support Functions Individual stores Regional Operations

Central Support Functions Market Structure CEO Central Support Functions Commercial Division Consumer Division Government Division Corporate Division

Tall vs. Flat Organizations An organization with many management levels relative to its size is a tall organization. An organization with few levels relative to its size is a flat organization. 3 -

Flat Hierarchies In a flat organization: Communication is generally faster Decisions can be made faster. Employees at lower levels are more in touch with top management. Fewer opportunities for promotion.

Tall Hierarchies In a tall organization: More opportunities for promotion. Decisions take longer to take. Communication is slower Motivation problems Bureaucratic costs

Principle of Minimum Chain of Command In other words, keep the organization as flat as possible while maintaining control over activities. 3 -

Span of Control In general, a manager’s span of control is Span of control is the number of people who report to one manager. If there are very few people: narrow span of control. If there are many people: broad span of control. In general, a manager’s span of control is limited by two factors: the complexity and interrelatedness of tasks.

End of the Term Results:

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Organization Theory II

Course Criteria

Maslow’s Need Hiearchy Frederick Herzberg – hygiene theory Progressing Need Satisfaction Self- Actualization Regressing Need Satisfaction Satisfiers Al Ghazzali Theory of Self-Esteem / Ego Dissatisfiers Social Approval Safety / Security Physiological