Copyright 2004 Prentice Hall 1 Organizational Theory, Design, and Change Text and Cases Fourth Edition Gareth R. Jones

Copyright 2004 Prentice Hall 2 Learning Objectives 1.To understand why organizations exist and the purposes they serve 2.Describe the relationship between organizational theory and organizational design and change, and differentiate between organizational structure and culture

Copyright 2004 Prentice Hall 3 Learning Objectives 3.Understand how managers can utilize the principles of organizational theory to design and change their organizations to increase organizational effectiveness 4.Identify the three principal ways in which managers assess and measure organizational effectiveness 5.Appreciate the way in which several contingency factors influence the design of organizations

Copyright 2004 Prentice Hall 4 What is an Organization? Organization: a tool used by people to coordinate their actions to obtain something they desire or value Entrepreneurship: the process by which people recognize opportunities to satisfy needs, and then gather and use resources to meet those needs

Copyright 2004 Prentice Hall 5 How Does an Organization Create Value? Value creation takes place at three stages: input, conversion and output. Inputs – include human resources, information and knowledge, raw materials, money and capital Conversion – the way the organization uses human resources and technology to transform inputs into outputs Output – finished products and services

Copyright 2004 Prentice Hall 6 Figure 1 – 1: How Does an Organization Create Value?

Copyright 2004 Prentice Hall 7 Why Do Organizations Exist? To increase specialization and the division of labor To use large-scale technology Economies of scale: cost savings that result when goods and services are produced in large volume Economies of scope: cost savings that result when an organization is able to use underutilized resources more effectively

Copyright 2004 Prentice Hall 8 Why Do Organizations Exist? To manage the external environment To economize on transaction costs Transaction costs: the costs associated with negotiating, monitoring, and governing exchanges between people To exert power and control

Copyright 2004 Prentice Hall 9 Figure 1-3: Why organizations exist

Copyright 2004 Prentice Hall 10 Organizational Theory, Design, and Change: Some Definitions Organizational theory: the study of how organizations function and how they affect and are affected by the environment in which they operate Organizational structure: the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals

Copyright 2004 Prentice Hall 11 Definitions Organizational culture: the set of shared values and norms that controls organizational members’ interactions with each other and with suppliers, customers, and other people outside the organization Organizational design: the process by which managers select and manage aspects of structure and culture so that an organization can control the activities necessary to achieve its goals

Copyright 2004 Prentice Hall 12 Organizational Change Organizational change: the process by which organizations redesign their structures and cultures to move from their presents state to some desired future state to increase their effectiveness

Copyright 2004 Prentice Hall 13 Figure 1-4: Relationships Among Organizational Theory, Structure, Culture, Design and Change

Copyright 2004 Prentice Hall 14 Importance of Organizational Design and Change To deal with contingencies Contingencies are events that might occur and must be planned for. Gaining competitive advantage Ability to outperform other companies because of the ability to create more value from resources Managing diversity Promoting efficiency, speed, and innovation

Copyright 2004 Prentice Hall 15 Consequences of Poor Design Decline of the organization Talented employees leave to take positions in growing organizations. Resources become harder to acquire.

Copyright 2004 Prentice Hall 16 How Do Managers Measure Organizational Effectiveness? The external resource approach: Control Method managers use to evaluate how effectively an organization manages and controls its external environment. Use of indicators such as stock price, profitability and return on investment

Copyright 2004 Prentice Hall 17 Measuring Organizational Effectiveness The internal systems approach: Innovation Method that allows managers to evaluate how effectively an organization functions and operates. Organization needs to be flexible to rapidly create products and services. Indicators such as amount of time to get new products to market or time spent on decision making can be used.

Copyright 2004 Prentice Hall 18 Measuring Organizational Effectiveness The technical approach: Efficiency Method managers use to evaluate how efficiently an organization can convert some fixed amount of organizational resources into finished goods and services. Use of indicators such as increase in the number of units produced without additional labor

Copyright 2004 Prentice Hall 19 Table 1-1: Approaches to Measuring Effectiveness

Copyright 2004 Prentice Hall 20 Measuring Effectiveness: Organizational Goals Official goals: guiding principles that the organization formally states in its annual report and in other public documents. Mission: goals that explain why the organization exists and what it should be doing Operative goals: specific long- and short- term goals that guide managers and employees as they perform the work of the organization

Copyright 2004 Prentice Hall 21 Figure 1-5: Plan of the Book

Copyright 2004 Prentice Hall 22 Part 2: Organizational Design

Copyright 2004 Prentice Hall 23 Part 3: Organizational Change