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Organization Theory summary
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Organization Theory summarizedWhat is Organization Theory – HC1
Goal interdependence = the extent into which the achievement of a goal is hindered or
facilitated by other goals.
Positive goal interdependence = the achievement of goal A facilitates the realization of goal
B.
Negative goal interdependence = the achievement of goal A hinders the realization of goal B.
Integrative view = add up humans, division of power, teams, departments, business unites,
projects, management, etc. you have a full organization + synergetic effects.
Focused view = understand, in detail humans, division of power, teams, departments,
business unites, projects, management, etc. you can better understand the full organization.
Organization and Theory – HC2
Organizations:
1. Are social entities that
2. Are goal-directed
3. Are designed as deliberately structured and coordinated activity systems, and
4. Are linked to distinct external environments.
Theory = set of interrelated concepts, definitions and propositions that explain or predict
events or situations by specifying relations among variables.
Whetten
A theory consists of a set of concepts (what) and the relationships that tie them together
(how) into an explanation of the phenomenon of interest (why)
Builds on a set of assumptions that form the foundation for a series of logically
interrelated claims.
Sutton & Staw – what theory is not
A theory is a combination of hypotheses, concepts, data, diagrams and references. On their
own it’s not theory.
General about theories
How can organizations organize their interaction with their environment? Inter-organization
theories (TCT, RDT, BTF)
- TCT: how to manage transactions?
- RDT: how to manage resource dependence?
- BTF: how do individuals/groups within an organization make decisions and behave?
Question 2: how do organizations set goals?
Goal setting Theory
Question 3: how do institutions, both formal and informal, influence organizational behavior
and structure?
Neo Institutional Theory
,Question 4: how do environmental pressures select in or out populations of organizations?
Organizational Ecology Theory
Question 5: when do (departments/teams in) organizations compete, and when do
organizations collaborate?
Social Interdependence Theory (SIT), Inter-Organizational Theories (IOT)
Transaction Cost Theory (TCT) – HC3 & 4
Transactions = economic exchange.
Organizations attempt to maximize the gains of interdependence by assigning transactions to
governance structures in a discriminating way. Based on three key attributes: asset
specificity, uncertainty, and frequency.
Appropriability = the degree to which an economic actor can protect its knowledge from
leakage to other parties.
Background: free market, but is it transparent and is all information available?
Why do organizations exist? Because the use of the market (mechanism) is not for free. In
many cases: costs of using markets > costs of using organizations. Therefore, there are
transaction costs.
Kind of transaction costs:
- Search costs: to identify potential partners;
- Contracting costs: negotiations;
- Monitoring costs: fulfillment of agreed terms;
- Enforcement costs: sanctioning.
Through legal contracts
Basic assertion of TCT: markets and hierarchies are alternative ways to organize transactions
= governance structures.
Unit of analysis of TCT: economic transactions (= a cost incurred in making an economic
exchange).
Dependent variable (what): organization of transactions, i.e. choice of governance structure.
How?
Uncertainty, frequency, asset specificity choice of governance structure. Each have a
positive relationship on choice of governance structure.
Assumptions
- Bounded rationality: decision-making is limited by cognitive constraints time,
information and cognitive capacity
- Opportunism: self-interest seeking with guile. Selfish, unprincipled and inconsiderate
behavior. The more specific the assets, the more likely opportunistic behavior will
occur.
, these are a problem when there is uncertainty and when asset-specific
investments are required in a transactions.
What: governance structure an institutional arrangement that coordinates and controls
economic transactions between actors. Governance mechanisms are combined:
- Allocation of decision-making (who gets ownership, right to change goods).
- Pricing schemes (lump sum, input or output-pricing).
- Coordination, monitoring and control (planning, budgets, personal monitoring).
combination is a governance structure
Basic governance structures
- Market: exchanges between parties are governed by prices in supply-demand
equilibrium
- Hybrid: long-term contractual relations that preserve autonomy, but provide added
transaction-specific safeguards as compared with the market.
- Hierarchy: transactions among parties occur under a unified owner, who settles
disputes by administrative fiat (in a formal organization).
Asset specificity = transaction specific investments. The possibilities of alternative use of
investments:
- High = low asset specificity. A truck is an investment which can be used multiple times
and therefore the asset specificity is low.
- Low = high asset specificity. Specific investments that bring a power position and
might trigger opportunism. To make sure that doesn’t happen costs goes up and to
make this less hierarchy is introduced.
An asset is specific to a particular transaction if its value in its next-best use is lower than in
the present transaction. The greater the difference between the value of an asset in its first-
best and next-best use, the greater the degree of asset specificity.
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