Summary Organisational Theory
and Design
Lesson 1: Introduction to Organization Theory
“Your beliefs are cause maps that you impose on the world, after which you ‘see’ what you have
already imposed”
(Karl E. Weick)
There is not just one reality!
Everyone has a different perspective, based on accumulated experience, knowledge, …
different interpretations.
Shared experience shared knowledge
Organization theory as a field has many diverse concerns:
How to ensure that managers act in the best interests of a firm’s owners?
How to achieve goals by managing environmental demands & maximizing core
competencies?
When should certain operations of a firm be outsourced?
How to move an organization from its present condition to a desired state as it struggles to
create value and survive (Endgame)?
Answers can be found in different kinds of theories!
Organizational theory can help you with these matters!
Organization theory as a field of study
There are concerns about theories and models:
How does the environment influence organization strategy, structure and design?
How does the organization influence the environment?
(example: UN: helped in war between Israel & Palestine organizations should influence
their environment in a positive way!)
How can the actions of individual members of society be linked with the broader social
structures of society?
Organizational theory looks beyond the organization itself!
,Also ‘abstract’ concerns
Ethical dimensions: the organization exists to make money, but there are many other perspectives
that need to be taken into account as well.
Why do people in contemporary society feel so separated from themselves, their actions and
their surroundings?
What are the power relations behind theories about organizations?
How do organizational scholars might become more reflective within their empirical or
theoretical writings?
On the one hand, we need regulations, but you also need your business to be continued! If rules are
too strict, you also run into a problem. For example: farmer protests.
What is OT and why study it?
= Range of theories and models that aim to explain how organizations function and relate to the
environment.
The driving force behind OT is the idea that we can design organizations they operate:
1. Efficiently – utilizing their resources in a cost-effective way
2. Effectively – achieving their goals (Making money is most of the times a very important goal)
3. Responsibly – in a way that respects the community, society and the environment (also
depends on where you are: rules and regulation depend on the country you are in: in
developed countries, regulations are usually more strict)
Look at all 3 factors! (You can’t make a successful merger by only looking at efficiency for example)
The term organization goes beyond a company
The term ‘organization’ implies that there is some sort of structure and order to the way
things are done
Definitions center around the idea that organizations are entities in which individuals
coordinate their actions to achieve specific goals
Definitions of organizations:
Organizations can be:
Small family-owned businesses
Multinational corporations,
For-profit or non-profit
Private or public
Service or product oriented
, Government agencies (like the UN: governmental driven and controlled)
Etc.
Organizations all around
We experience organizations on a daily basis as we go to college, buy a house, travel on
holiday, eat in a restaurant, or visit a hospital.
Even though we experience different parts of an organization (customer service,
administration, accounting, etc.),
We probably don’t think about how these parts work together, unless we have a problem:
If we don’t receive the expected service, or the product we’ve purchased is faulty – which
means something in the organization isn’t functioning the way it should be.
Organization theory is fun and very useful! helps us think about different topics.
OT is NOT a theoretical and abstract discipline – it’s fun!
Many of the theories are based on studies of what happens in organizations
Managers use organization theory every day as they think about ways of organizing the work
in their department (division of labour)
OT helps us to think about how the work needs to be coordinated with work in other
departments (integration)
& how to create a work environment that encourages organizational members to work
together towards goals (culture) different organizations can have an entirely different
culture.
Organization theory as a managerial guide
To study OT will sharpen your explicit and systematic knowledge to steer a company
OT gives managers a range of theories, concepts, models and tools that they can use to
diagnose problems and help their department and organization function more effectively
Effective/ineffective organization structure
Ineffective organization structure reduces productivity and competitiveness
It can lead to low morale as employees struggle to achieve their goals
Effective organization structure and design allows organizational members to do the
following:
Deal with contingencies such as changing technology, markets and competition (for
example: globalization localization)
, Gain a CA by developing the core competencies and strategies to enable them to
outperform other companies
Work in an effective, supportive and responsive environment
Increase efficiency and innovation
For example: producing in German or Belgium is very expensive: how to deal with that? You could go
for an international division of labor, but for example Marx would not tolerate this!
Example: Theory meets practice
You own and manage a restaurant in your local town, which can seat up to 80 people, and is
open for lunch and dinner
You serve an international cuisine, the price range of an entrée is moderate to high, and you
offer elegant décor and a romantic atmosphere
You employ a staff of 30 people, which includes an Assistant Manager, chef and cooks, bar
staff, waitpersons, cleaner and a cashier
There is currently no real competition, with only a McDonald’s and a Chinese restaurant in
the town, but you hear rumours that there may be a new chain restaurant opening soon…
You are already using organization theory in considering:
1. What’s going on in terms of legal requirements, the national and local economy,
competition, the availability of a skilled labour pool, etc., that might affect your restaurant
(i.e., the environment)
2. How to best organize the work and coordinate the activities of your employees to make sure
your customers enjoy their dining experience and return again and again (structure and
design) maybe you don’t need 30 people to work for you?
3. What equipment you need, and how to design your restaurant layout so that you are using
the space you have most efficiently and aesthetically. In other words, waitstaff have easy
access to customers and the kitchen, and customers find the dining atmosphere and
experience a pleasant one (technology)
4. How you want staff to interact with each other and the customers (culture)
5. How you are going to manage the organization (power, control, decision making, making
changes)
Studying OT
3 issues that might be helpful:
1. We are studying individual topics, but everything is interrelated
, 2. No theory is complete, no one theory applies in every situation, nor is it an accurate
description of the way organizations really are – theory is a lens or framework for viewing the
world. (For example: Marx didn’t give any clue to deal with the environment)
o Different theories have different focuses.
3. When reading about the theories, think about how they might apply to organizations with
which you are familiar – either as an employee, a customer, a student or a volunteer
Theories as a lens
While many of the theories are based on actual studies of organizations, they offer a lens, or
way of thinking about organizations, rather than describing the way organizations really
function. It is never a 100% reflection of what is going on: it is just a lens.
Theories are a researcher’s (or a group of researchers’) way of analyzing what they see
You will find that different theories will offer different ways of thinking about the same
issue, some are contradictory, and some might be more helpful than others when trying to
understand an organization you are studying or are working in
Each organization operates under its own unique set of circumstances. Theories are most
useful if you use different ones to give you different perspectives on what might be
happening in your organization
This is the value of OT – by using different lenses you will broaden your understanding about
how organizations can be designed and managed in more effective ways
Overview of OT aspects
Certain aspects might be more elaborate/focused
upon in certain theories.
, Agency theory
= How to ensure that agents (executives, managers) act in the best interests of the principals
(owners, shareholders) of an organisation.
This happens because of the separation of ownership and control, when the owner of the
company or the board of directors (the ‘principals’) have to employ managers (‘agents’) to
run the business and need to monitor their performance to ensure they act in the owner’s
interest.
Monitoring the performance of individual work effort is always a cost of any firm and that
organizational inefficiencies are created (for example: managers can’t think and act freely)
when the flow of information on individual performance is decreased or blocked
Based on the idea that employees (at any level) will have diverse goals, two main agency
problems are identified:
o How to align the conflicting goals of principals and agents,
o How to ensure agents perform in the way principals expect them to?
For example: Principals want to maximise profit at every cost. However, in reality, different projects
may be running with employees assigned to each project. You can’t just dismiss these employees…
Examples:
Agency problems can also occur when executives or managers have a different attitude
toward risk from that of the owners or shareholders
Sales versus development (for example: personalized products: sales manager (principal)
accepts the request, but the IT manager (agent) has to customize and develop the product
and make very difficult adjustments, work loads of hours, …)
Research versus sales
Party versus government (example China)
Solution to agency problems:
The solution to either of these agency problems is to ensure that executives or managers act in the
best interests of the owners
But how?
By increasing the amount and quality of information available to principals and making senior
executives part owners of the firm through their compensation packages
This contract between the principal and agent is the UoA for agency theory from which
scholars will attempt to determine:
The most efficient contract governing the principal-agent relationship given
assumptions about:
People (e.g. self-interest, bounded rationality, risk aversion)
Organizations (e.g. goal conflict among members)
