1 Organizations and their Management

2 Understand Topic’s Terminology Understand Organizational Processes  Purpose and Form  Management’s Role  Decision-Making Designing Effective Organizations

3 Organizations and their Management The Language: Key Terms  Management  Governance  Leadership  Organization

4 Organizations and their Management Management: Set of Processes Designed to Keep a Complicated System of People and Technology running Smoothly Activities: Planning, Budgeting, Staffing, Controlling and Problem-Solving Tactical Role: Initiate Proposals and Implement Ratified Decisions

5 Governance: Set of Processes for Assigning Decision Control Rights Duty to Control Organization by Invoking/Revoking Power to make Decisions Vested in Owners (Stockholders) Vested in Owners (Stockholders) Transferable to Elected Directors and Delegable to Appointed Officers Transferable to Elected Directors and Delegable to Appointed Officers Strategic Role: Concerned with Deciding Proposals and Monitoring Prior Decisions Organizations and their Management

6 Leadership: A Set of Processes that  Creates organizations in the First Place or…  Adapts Them to Significantly Changing Circumstances Leadership: Defines what Future should look like, Aligns People with Vision and Inspires Them to Make it Happen Despite Obstacles Leadership necessary in both… Governance and Management

7 Organizations and their Management “Leadership is the ability to get people to do things they did not want to do, and make them happy they did them.” - Winston Churchill

8 Organizations and Their Management What are Organizations?  Joint Activities ranging from Society as a Whole to Picnic Planning Group  Legal Entity that Serves as a Nexus for Complex Set of Arrangements between Individuals

9 Organizations and Their Management Organizational Functions PURPOSE: Seek and Sustain Equilibrium (“Organizing”) that Reconciles Conflicting Interests of Input Suppliers and Output Consumers PROCESS: Politically-Supported and Appropriately- Informed Decision-making ESSENTIAL RESOURCES: Financial Capital Financial Capital Human Capital Human Capital

10 Organizations and Their Management Sustaining Equilibrium requires Continuously Changing an Organization's Behaviors by choosing either:  A Different Form of Equilibrium or  A Different Way to Get to Equilibrium  Governance is responsible for Defining “What” is Equilibrium  Management is Responsible for Deciding “How” the Desired Equilibrium is Achieved

11 Organizations and Their Management Effectively Managing Organizations Requires Understanding and Using Political Systems Concepts influencing these Political Functions include:  Power and Knowledge  Social Networks  Dominant Coalitions

12 Organizations and their Management Political Processes used in Organizations (Managing) include: ConflictNegotiation Relationships: Form/Dissolve

13 “Dancing is a Contact Sport… Politics is a Collision Sport” - Johnson’s Corollary to Vince Lombardi’s Famous Quip Organizations and their Management

14 Why do Organizations Look and Act the Way They Do? Two Identifying Characteristics…  Hierarchical or “Flat” Form of Organizational Reporting and Authority Relationships  Decentralized or Centralized Location of Decision Rights (Power) within Organization Organizations and Their Management

15 Organizations and Their Management Organizational Hierarchy measured by  Number of Levels and Ranks of Authority-delegating and Reporting Relationships  Extent of Integration of Functions and Outputs: Is Organization’s Form characterized by:  Functional “Silos” : Finance, Marketing, Production, etc., or by…  Product Lines: Groceries, Clothing, etc.

16 Organizations and their Management Centralized or Decentralized? Relative Number, Length and Complexity of Paths between Where Decisions are Made and Where Decisions are Implemented May be unrelated to Hierarchical Form Decentralized decision-making may be more democratic, but is it more efficient?

17 Hierarchical versus Flat Organizations Chief Executive Chief Executive Chief Executive Chief Executive Tall hierarchy Flat hierarchy Relatively wide span of control Relatively narrow span of control Tall Organization Flat Organization

18 Organizations and their Management Management’s “Tool” for Performing its Responsibilities: “Decision-Making” Making Choices from Set of Alternatives (Choice Problems) about which: Policy to Make or Policy to Make or Action to Take Action to Take

19 Caveats about Decision-Making  Identify Problem : What is the Question? Is a Decision Needed? Best Decision may be Not Making a Decision – Do Nothing  Consider whether Problem’s Outcomes are either… (1) Risky (Knowable Probabilities): then Examine all Alternatives before Acting or… (2) Uncertain (Unknowable Probabilities): then Buy Information and Proceed Incrementally Organizations and their Management

20 Organizations and their Management "I've become much more decisive thanks to the rock, paper, scissors technique." Cartoon by Dave Carpenter Copyright 2005, Harvard Business Review

21 Organizations and Their Management A Decision Process A Decision Process… MONITORING Measure Performance; Give Rewards INITIATION Generate Proposals, Utilize Resources or Structure Contracts IMPLEMENTATIO N Execute Ratified Decisions RATIFICATION Choose Initiatives to be Implemented

22 Organizations and their Management DECISION HIERARCHY  Higher-level Managers Ratify and Monitor Proposals Initiated and Implemented by Lower- level Managers  Formality of Process varies with Organizational Complexity  Eliminating or Bypassing any Procedural Step produces Ineffective Decisions

23 Organizations and Their Management MONITORING STEP  Likely to be Weakest Link  Must be Comprehensive: Include Operational Results with Strategic Objectives  Assessments of Results include Rewards and Punishments

24 Organizations and their Management Effective Decision-making consists of POWER and… KNOWLEDGE

25 Organizations and their Management POWER is Appropriate Combination of… Authority: Ability to Compel Action Obtained from Legal Grant or Delegation Influence: Ability to Remove Impediments to Action Obtained from Experience and Trust

26 Organizations and their Management KNOWLEDGE - Two Types GENERAL : Tactical; Describes How to do Something; Inexpensive to Obtain and Transfer Examples: Operating Instructions or Product Prices SPECIFIC: Strategic; Describes What to Do; Expensive to Obtain and Transfer Examples: Relationships with Investors or Information about Products or Processes

27 Organizations and their Management Type of Knowledge is Function of Asset Type  Tangible Assets (Plant and Equipment) use General Knowledge Easy to Obtain and Inexpensive to Transfer through Multiple Hierarchical Levels and/or Disperse to Decision-makers  Intangible Assets (R&D or Brands) use Specific Knowledge Hard to Obtain and Expensive to Transfer through Multiple Hierarchical Levels and/or Disperse to Decision-makers

28 Organizations and their Management The Best Organizational Design happens when…  Knowledge (General or Specific) that is Essential and Relevant is efficiently…  Co-located with (in same place as) Decision- Maker who is Familiar with Decision’s Circumstances and has Necessary Power (Authority and Influence)

29 Organizations and their Management HOW TO DO THIS?  Either Move Knowledge to Decision-Makers (Flatten the Organization’s Hierarchy) or…  Move the Decision-making Power to Source of the Knowledge and People familiar with the Decision’s Particular Circumstances (Centralize or De-centralize) and…  Be Constantly Evaluating the Best Organizational Place (Balance of Power and Knowledge) for Each Type of Decision

30 Organizations and their Management Key is Understanding Interdependencies of  Functionality of Organization’s Assets  Obtaining the Necessary Knowledge and Minimizing the Cost of Moving it to the Decision-maker  Empowering Decision-makers who are most familiar with and must adapt most quickly to a Decision’s Particular Circumstances