1. 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?

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

3. 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

4. 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

5. 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.

6. 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.

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

8. 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

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. Mechanistic and Organic Organizations
Two prototypical organizational types have emerged:

16. 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.

17. 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.

18. 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

19. 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 -

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

21. 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

22. 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

23. 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 -

24. 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 -

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

26. 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 -

27. 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 -

28. 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.

30. 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

31. 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

32. 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

33. Multidivisional Structure

34. 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

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

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

37. 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 -

38. 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.

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

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

41. 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.

42. End of the Term Results:

43. How was your Mamosta ?

44. Organization Theory II

45. Course Criteria

46. 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