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Summary Organization Theory and Design for Pre-msc
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Summary Organization Theory & Design for pre-msc Ch.1-14Chapter 1: Organizations and Organizational Effectiveness
Organization = a tool people use to coordinate their actions to obtain something they desire or value.
New organizations are spawned when new technologies become available and new needs are
discovered, organizations die or are transformed when the need they satisfied are no longer
important.
Entrepreneurship = the process by which people recognize opportunities to satisfy needs and then
gather and use resources to meet those needs
Value creation takes place at three stages:
1. Input: raw materials, money and capital, human resources, information and knowledge and
customers of service organizations
2. Conversion: transform input and add value to them, like machinery, computer and human
skills and abilities
3. Output: finished goods, services, dividends, salaries and value for stakeholders
Each stage is affected by the environment of the organization.
Organizational environment = the set of forces and conditions that operate beyond and
organization’s boundaries but affect its ability to acquire and use resources to create value
(customers, shareholders, suppliers, distributors, government and competitors)
The way the organization uses human resources and technology to transform inputs into outputs
determines how much value is created at the conversion stage. Thereby, an organization that
continues to satisfy people’s needs will be able to obtain increasing amounts of resources over time
and will be able to create more and more value as it adds to its stock of skills and capabilities/
Why do organizations exist?
1. To increase specialization and the division of labour: people who work in organizations are
more productive and efficient than people who work alone. Thereby, an organization allows
individuals to focus on a narrow area of expertise which allows them to become more skilled
and specialized at what they do.
2. Use large-scale technology: organizations are able to take advantage of the economies of
scale and scope that result from the use of modern automated and computerized technology
- Economies of scale: cost savings that result when goods and services are produced in
large volume on automated production lines.
- Economies of scope: cost savings that result when an organization is able to use
underutilized resources more effectively because they can be shared across different
products or tasks.
- Example: design an automated production line to produce several different types of
product simultaneously
3. To manage the organizational environment: managing complex environments is a task
beyond the abilities of individuals, but an organization has the resources to develop
specialists to influence the environment.
4. To economize on transaction costs
- Transaction costs: the costs associated with negotiating, monitoring and governing
exchanges between people to solve transaction difficulties like the division of labour.
- Organization’s ability to control the exchanges between people reduces the transaction
costs associated with these exchanges
, 5. To exert power and control
- Organizations can exert great pressure on individuals to conform to task and production
requirements in order to increase production efficiency.
- Organizations can discipline or fire workers who fail to conform and can reward good
performance with promotion and increased rewards.
Organizational theory, design and change
Organizational theory
Organizational design and
Organizational structure Organizational culture
change
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. An appropriate
structure is one that facilitates effective responses to problems of coordination and motivation. It can
be manages through the process of organizational design and change
Organizational design = the process by which managers select and manage aspects of structure and
culture so an organization can control the activities necessary to achieve its goals. It balances the
need of the organization so that it can survive in the long run
Organization change = the process by which organizations redesign their structures and cultures to
move from present state to some desired future state to increase their effectiveness. The goal of
organization change is to find new or improved ways of using resources and capabilities to increase
an organization’s ability to create value and hence its performance
Organizational culture = the set of shared values and norms that controls organizational members’
interactions with each other and with suppliers, customers and other outside the organization.
Organizational culture is shaped by the people, the ethics and the organization structure.
The importance of organizational design and change:
1. Dealing with contingencies
- Contingency: an event that might occur and must be planned for.
- The design of an organization determines how effectively an organization is able to
respond to various pressures in its environment and so obtain scare resources
- Such as a changing environment pressure like a new competitor and changing technology
2. Gaining competitive advantage:
- Competitive advantage: the ability of a company to outperform another because its
managers are able to create more value from the resources at their disposal
- Core competences: managers’ skills and abilities in value-creating activities. Core
competences allow a company to develop a strategy to outperform competitors and
produce better products or produce the same products but at a lower cost
- Strategy: the specific pattern of decisions and actions that managers take to use core
competences to achieve a competitive advantage and outperform competitors
, 3. Managing diversity: differences in race, gender and national origin of organizational
members have important implications for the values of an organization’s culture and for
organizational effectiveness an organization needs to design a structure and control system
to make optimal use of the talents of a diverse workforce and to develop a culture that
encourages employees to work together.
Promoting efficiency, speed and innovation:
The way an organization’s structure links people in different specializations, such as research and
marketing, determines how fast the organization can introduce new products.
A culture based on entrepreneurial norms and values is more likely to encourage innovation than
a culture that is conservative and bureaucratic because entrepreneurial values encourage people
to learn how to respond and adapt to a changing situation.
The consequence of poor organizational design or lack of attention to organizational design is the
decline of the organization.
How do managers measure organizational effectiveness?
Control, innovation and efficiency are the most important processes managers use to assess and
measure how effective they and their organizations are at creating value.
1) Control
Control = having control over the external environment and having the ability to attract resources
and customers
External resource approach: a method managers use to evaluate how effectively an organization
manages and controls its external environment
Goal to set to measure effectiveness:
- Lower costs of inputs
- Obtain high-quality inputs of raw materials and employees
- Increase market share
- Increase stock price
- Gain support of stakeholders such as government or environmentalists
2) Innovation
Innovation = developing an organization’s skills and capabilities so the organization can discover
new products/processes and design and create new organizational structures and cultures that
enhance a company’s ability to change, adapt and improve the way it functions
Internal systems approach: a method that allows managers to evaluate how effectively an
organization functions and resources operate
Goal to set to measure effectiveness:
- Cut decision-making time
- Increase rate of product innovation
- Increase coordination and motivation of employees
- Reduce conflict
- Reduce time to market
3) Efficiency
Effiency = developing modern production facilities using new information technologies that can
produce and distribute a company’s products in a timely and cost-effective manner and
introducing techniques to improve productivity
Technical approach: a method managers use to evaluate how efficiently an organization can
convert some fixed amount of organizational resources into finished goods and services
, Goal to set measure effectiveness
- Increase product quality
- Reduce number of defects
- Reduce production costs
- Improve customer service
- Reduce delivery time to customer
Organizational goals
Official goals = guiding principles that the organization formally states in its annual report and in
other public documents. Usually these goals lay out the mission of the organization
Mission = goals that explain why the organization exists and what it should be doing.
Operative goals = specific long-term and short-term goals that guide managers and employees as
they perform the work of the organization
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