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Summary of Organizational Theory, Design, and Change (Jones, G.R.), 7th edition
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Chapter 1: Organizations and Organizational EffectivenessWhat is an Organization?
An organization is a tool people use to coordinate their actions to obtain something they
desire or value – that is, to achieve their goals. People who value security create an
organization called a police force, an army, or a bank etc. An organization is a response to
and a means of satisfying some human need.
In general, entrepreneurship is the term used to describe the process by which people
recognize opportunities to satisfy needs and then gather and use resources to meet those
needs.
How Does an
Organization
Create Value?
The way in which an
organization creates
value is depicted in
Figure 1.1 (below and
page 25).
Value creation takes
place at three stages:
input, conversion, and
output. Each stage is
affected by the
environment in which
the organization operates. The organization environment is the set of forces and conditions
that operate beyond an organization’s boundaries but affect its ability to acquire and use
resources to create value.
Inputs include resources such as raw materials, machinery, information and knowledge,
human resources, and money and capital. The way an organization chooses and obtains
from its environment the inputs it needs to produce goods and services determines how
much value the organization creates at the input stage.
The way the organization uses human resources and technology to transform inputs
into outputs determines how much value is created at the conversion stage. The amount of
value the organization creates is a function of the quality of its skills, including its ability to
learn from and respond to the environment.
The result of the conversion process is an output of finished goods and services that
the organization releases to its environment, where they are purchased and used by
customers to satisfy their needs – such as delivered books.
,Why Do Organizations Exist?
Figure 1.3 (page 28) summarizes five reasons for the existence of organizations.
To 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 are
cost savings that result when goods and services are produced in large volume on
automated production lines.
Economies of scope are cost savings that result when an organization is able to use
underutilized resources more effectively because they can be shared across several
different products or tasks. Economies of scope (as well as of scale) can be achieved, for
example, when it is possible to design an automated production line to produce several
different types of products simultaneously.
To Economize on Transaction Costs
When people cooperate to produce goods and services, certain problems arise. As they
learn what to do and how to work with others to perform a task effectively, people jointly
have to decide who will do which tasks (the division of labour), who will get paid what
amounts and how to decide if each co-worker is doing his or her share of the work. The
costs associated with negotiating, monitoring, and governing exchanges between people to
solve these kinds of transaction difficulties are called transaction costs. Organizations’
ability to control the exchanges between people reduces the transaction costs associated
with these exchanges.
Organizational
Theory, Design,
and Change
Organizational theory is
the study of how
organizations function
and how they affect and
are affected by the
environment in which
they operate. Figure 1.4
(page 30 and below)
outlines the relationship
among organizational
theory, structure,
culture, design, and
change.
Organizational Structure
,Once a group of people has established an organization to accomplish collective goals,
organizational structure evolves to increase the effectiveness of the organization’s control
of the activities necessary to achieve its goals. Organizational structure is the formal system
of task and authority relationships that control how people coordinate their actions and use
recourses to achieve organizational goals. The principal purpose of organizational structure
is one of control: to control the way people coordinate their actions to achieve
organizational goals and to control the means used to motivate people to achieve these
goals.
Organizational Culture
At the same time that organizational structure is evolving, so is organizational culture.
Organizational culture is 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. An organization’s culture is shaped by the people inside the
organization, by the ethics of the organization, by the employment tights given to
employees, and by the type of structure used by the organization.
Organizational Design and Change
Organizational design is 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. Organizational structure and culture are the means the organization uses to achieve
its goals; organizational design is about how and why various means are chosen. An
organization’s behaviour is the result of its design and the principles behind its operation.
Organizational change is the process by which organizations move from their
present state to some desired future state to increase their effectiveness. The goal of
organizational 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.
Dealing with Contingencies
A contingency is an event that might occur and must be planned for, such as a changing
environment pressure like rising gas prices or the emergence of a new competitor like
Amazon.com that decides to use new technology in an innovative way. The design of an
organization determines how effectively an organization is able to respond to various
pressures in its environment and so obtain scarce resources.
Gaining Competitive Advantage
Increasingly, organizations are discovering that organizational design, change, and redesign
are a source of sustained competitive advantage. Competitive advantage is the ability of
one company to outperform another because its managers are able to create more value
from the resources at their disposal. Competitive advantages springs from core
competences, managers’ skills and abilities in value-creation activities such as
manufacturing, R&D, managing new technology, or organizational design and change.
Strategy is the specific pattern of decisions and actions that managers take to use core
competences to achieve a competitive advantage and outperform competitors.
How Do Managers Measure Organizational Effectiveness?
, In this context, control means having control over the external environment and having the
ability to attract resources and customers. Innovation means developing an organization’s
skills and capabilities, so the organization can discover new products and processes. It also
means designing and creating new organizational structures and cultures that enhance a
company’s ability to change, adapt, and improve the way it functions. Efficiency means
developing modern production facilities using new information technologies that can
produce and distribute a company’s products in a timely and cost-effective manner.
To evaluate the
effectiveness with
which an organization
confronts each of
these three
challenges, managers
can take one of three
approaches (see Table
1.1, page 38 and
below).
The External Resource Approach: Control
The external resource approach allows managers to evaluate how effectively an
organization manages and controls its external environment. For example, the
organization’s ability to influence stakeholders’ perceptions in its favor and to receive a
positive evaluation by external stakeholders is very important to managers and the
organization’s survival.
The Internal Systems Approach: Innovation
The internal systems approach allows managers to evaluate how effectively an organization
functions and operates. To be effective, an organization needs a structure and a culture that
foster adaptability and quick response to changing conditions in the environment.
The Technical Approach: Efficiency
The technical approach allows managers to evaluate how efficiently an organization can
convert some fixed amount of organizational skills and resources into finished goods and
services. Technical effectiveness is measured in terms of productivity and efficiency (the
ratio of outputs to inputs).
Measuring Effectiveness: Organizational Goals
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