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Summary - Organizational Theory and Dynamics (BT2111)
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Summary of the Organisation theory and dynamics course
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Week 1Chapter 1: a brief history of organization theory
Executives and consultants raised normative questions about how best to design and manage
organizations to enhance their productivity, while the economists and sociologists to whom they
turned for insights wanted to know how industrialization was changing society and what new types
of organization would appear in its wake. These normative and academic interests would combine
to form the new field of organization theory.
Adam Smith was the first to publish a formal theory of organization. He explained how the division
of labor creates economic efficiency -> included the concepts of task differentiation and
specialization, which are central to many explanations of social structure. However, at the same
time as Smith saw reasons to be optimistic about the increases of the productive powers of labor
made possible by industrialization, Karl Marx saw reasons to be concerned about others of its
effects.
Karl Marx’s theory of capitalism begins with the human need to survive and the will to thrive once
survival needs are met. According to him, survival needs create economic order when, in trying to
cope with danger and to feed, clothe and house themselves, people discover the economic
efficiencies of collective labor and the social structures that support it. Economic efficiency creates
resource surpluses of raw material and of time. These can be invested in cultural enhancement to
fulfill desires for human self-expression and advancement.
In his theory, the economic base on which people build their cultures is subject to power relations
worked out between the interests of capital and those of labor. The relations of power pit
capitalists, who own the means of production, against laborers, who produce the output of the
production process using the means the capitalists provide. Antagonism between the interests of
capital and labor lies at the heart of capitalism.
,The story of labor under capitalism becomes gloomier when, in the drive for efficiency, capitalists
define labor as a cost of production. Such thinking equates labor with any other commodity bought
and sold on a market and gives humans an instrumental relationship with one another based on the
economic value of their potential to do work. Once this commodification of labor becomes
acceptable, labor can be treated like any other raw material that is exploited for its economic value.
Labor commodification leads to the exploitation of labor by capitalists and to the alienation of
laborers. Alienation, a state of estrangement from their own work, occurs when workers accept the
commodification of their labor and willingly sell it in terms of employment favoring the powerful
interests of capital, which amounts to self-exploitation.
Marx predicted that the dynamics of capitalist economies would sustain a society only until a
culture willing to overthrow capitalism builds on its economic base.
Emile Durkheim’s theory echoed Adam Smith’s, adding hierarchy and task interdependence to the
division of labor as concepts related to social structure, one of the core concepts that would form
the modern perspective of organization theory. He also proposed the concept of informal
organization to address the sociability of workers. This also introduces a major conflict in
organizational theory, in the distinction between hard economic and soft humanistic theory (theory
versus practice).
Max Weber was interested in the authority structure. According to him, pre-industrial societies
organized themselves using either traditional or charismatic authority, but industrialization brought
a new order, namely the rational-legal authority. Traditional authority rests upon inherited status. In
societies ruled by charismatic authority, an exceptional individual gains influence based on the
devotion of followers who sanctify that individual as heroic or exemplary. Rational-legal authority
would replace the nepotism of traditional authority and the personality cults of charismatic
authority with merit-based selection driven by rationally formulated rules and laws. He believed
that reliance on rational-legal authority ensures the appropriate behavior of those in charge by
binding them to the same laws and rules that define their right to lead. The talent pool available to
firms governed by this is larger because, by following the established rules, anyone can lead.
Weber also proposed the theory of bureaucracy. He saw ways in which technology rationalizes the
economic order of business firms as analogous to how bureaucracy improves the efficiency and
effectiveness of social firms. However, he did see the danger of treating humans as machines ->
imprison them in an iron cage. To help societies avoid the iron cage of bureaucracy, he distinguished
between formal and substantive rationality. Formal rationality involves techniques of calculation
and it is built into the technologies we use. Substantive rationality involves taking the desired ends
of action into account when assessing the effectiveness of an organization. Formal rationality
encourages following rules without questioning whether they achieve desirable ends, while
substantive rationality involves questioning the goals and values driving our actions. Substantive
rationality keeps the exercise of formal rationality from creating an iron cage.
Frederick Taylor is the founder of scientific management: the use of work standards, a target rate for
performance set higher than the average rate at which laborers work, and uniform work methods to
guarantee that workers could achieve the targets set for them -> the technical aspects of the work
,and the motivation of the workers affect the quality of the work. He believed that applying
standards and principles based on scientific research and experimentation would allow managers
to pay high wages while lowering production costs. By following his principles, the benefits of
factories would be maximized and high levels of cooperation between management and labor
achieved. By paying workers fairly, management could avoid the social conflict Marx predicted.
Mary Follett believed that the principles that make social communities strong can be applied to
creating successful governments and other organizations. She introduced a management theory
based on the principle of self-government, which she claimed would facilitate the growth of
individuals and of the groups to which they belonged. By directly interacting with one another to
achieve their common goals, the members of a group fulfilled themselves through the process of
the group’s development. Follet promoted the view that firms within a democratic society should
embrace democratic ideals and that power should be power with, not power over, people -> source
of creative energy. She saw the process of creating joint power over a conflict situation as an
alternative to viewing power as a competitive force based on the domination of one individual or
group over others.
Follett considered domination to be only one of three possible approaches to conflict resolution.
Compromise, the second, is similar in that none of the parties’ interests are served completely. Of
the three, only integration incorporates everyone’s interests through a creative redefinition of the
problem.
Henri Fayol passed on administrative principles. Among these, span of control defined the optimal
number of subordinates to be overseen by one manager, while the unity of command principle
states that each subordinate should report to only one boss. That subordinates should handle
routine matters using standard operating procedures (SOPs) was part of his principle of delegation.
Delegation involves assigning responsibility for routine tasks to subordinates, who can be trusted to
carry them out when they follow designated SOPs. The principle of departmentalization involves
grouping similar activities within units, each unit taking responsibility for a portion of the overall
activity of the firm. The scalar principle ties the whole firm together by dictating that subordinates
at every level follow the chain of command, communicating only with their immediate boss, who
reports to their boss. The esprit de corps is the unity of sentiment and harmony existing among
employees in smoothly functioning organizations -> strong culture.
Chester Barnard presented normative advice for developing firms into social systems based on
cooperation, focusing on integrating work efforts through the communication of goals, and attention
to worker motivation.
The general systems theory (GST) was designed to integrate all scientific knowledge, including
that produced by the physical, biological, behavioral and social sciences. GST was based on the
observation that all phenomena are related in a vast hierarchy -> hierarchy of systems. It treats all
phenomena generically as systems, regardless of their level in the hierarchy of systems by
Boulding. Bertalanffy defined a system as a set of subsystems (parts) that interact within a
, supersystem (environment/context), thus placing emphasis on their relationships to surrounding
hierarchical levels.
Boulding’s hierarchy of systems:
1. Framework: labels and terminology, classification systems
2. Clockwork: cyclical events, simple with regular (or regulated) motions, equilibria or states of
balance
3. Control: self-control, feedback, transmission of information
4. Open (living): self-maintenance, throughput of material, energy input, reproduction
5. Genetic: division of labor (cells), differentiated and mutually dependent parts, growth
follows blueprint
6. Animal: mobility, self-awareness, specialized sensory receptors, highly developed nervous
system
7. Human: self-consciousness, capacity to produce, absorb and interpret symbols, sense of
passing time
8. Social organization: value system, meaning
9. Transcendental: inescapable unknowables
In organization theory, GST defines social organization as a system composed of interacting
departmental subsystems inhabiting a supersystem in which it interacts with other socially
organized systems. General systems theory proposes laws and principles that are valid for all
systems in general.
An important proposition of GST is that you cannot define a system solely by explaining its
subsystems -> a system is greater than its parts (holistic understanding).
Shifting your focus between levels in the systems hierarchy introduces the problem of levels of
analysis: choosing what you will define as the system of interest, thereby differentiating it from its
subsystems and supersystem.
According to the law of requisite variety, lower-level systems are not complex enough to map onto
higher-order systems. An implication is that any explanation of an organization will be partial at
best, due to the disparity between the organizational phenomena addressed by organization
theorists and the limitations of any human system to know them fully.
The two primary organizational subsystems (social structure and technology) led to the
development of socio-technical systems theory by Tavistock: any change in technology affects
social relationships, which in turn affects the way in which the now-changed technology is used.
This work focused attention on a number of issues, and it suggests that autonomous work groups
should be the building blocks of organizational design -> reduce need for hierarchy. The theory
mainly showcases the importance of working in a group while maintaining division of labor.
In contingency theory, organizations are made effective by aligning their multiple subsystems in
ways that maximize performance for their particular situation. It is preferred because of its ability to
have clear output goals and formalized statements, but it leads to complex formulations as more
contingencies are discovered. Another drawback comes from the overreliance on criteria of
technical rationality, efficiency and profitability.
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