ORGANIZATIONS AND ORGANIZATIONAL EFFECTIVENESS (CHAPTER 1)
An organization is a tool people use to coordinate their actions to obtain something they
desire or value. It is a response to and a means of satisfying some human need.
Entrepreneurship = the process by which people recognize opportunities to satisfy needs
and then gather and use resources to meet those needs.
Value creation at organizations takes place at three stages: input, conversion, and output. The
organizational 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.
A value-creation model can be used to describe the activities of most kinds of organizations.
People working together in organizations they become more productive and efficient
development of specialization and a division of labor.
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.
An organization’s environment is the source of valuable input resources and is the
marketplace into which it releases output. It is also the source of economic, social, and
political pressures that affect an organization’s ability to obtain these resources.
When people cooperate to produce goods and services, people must make a lot of decisions,
which can cause problems (who will do which tasks etc). Transaction costs are the costs
associated with negotiating, monitoring, and governing exchanges between people.
Organizations’ ability to control the exchanges between people reduces the transaction costs
associated with these exchanges.
Organizations can exert great pressure on individuals to conform to task and production
requirements in order to increase production efficiency. However, working for an
organization puts a burden on individuals (they also need to pay attention to the
organization’s needs, instead of only their own).
Organizational theory is the study of how organizations function and how they affect and
are affected by the environment in which they operate.
Organizational structure is the formal system of task and authority relationships that control
how people coordinate their actions and use resources to achieve organizational goals. For
any organization, an appropriate structure is one that facilitates effective responses to
problems of coordination and motivation – problems that can arise for any number of
environmental, technological, or human reasons.
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. The cultures of organizations that provide essentially the same goods and
services can be very different. (For example, coca cola & pepsi).
Organizational design is the process by which managers select and manage aspects of
structure and culture so that an organization can control the activities necessary to achieve its
goals.
,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.
Organizational design has become one of management’s top priorities, due to the increasing
use of advanced IT.
A contingency is an event that might occur and must be planned for, such as a changing
environment pressure or the emergence of a new competitor.
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
advantage springs from core competences, managers’ skills and abilities in value0creation
activities.
Strategy is the specific pattern of decisions and actions that managers take to use core
competences to achieve a competitive advantage and outperform competitors.
An organization needs to design a structure and control system to make optimal use of the
talents of a diverse workforce and to develop an organizational culture that encourages
employees to work together.
Researches analyzing what CEOs and managers do have pointed to control, innovation, and
efficiency as the three most important processes managers use to asses and measure how
effective they, and their organizations are at creating value.
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.
External resource approach is a method managers use to evaluate how effectively an
organization manages and controls its external environment.
Internal systems approach is a method that allows managers to evaluate how effectively an
organization functions and resources operate.
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. It is measured in terms of productivity and efficiency.
Managers create goals that they use to asses how well the organization is performing:
- official goals are guiding principles that the organization formally states in its annual report
and in other public documents. Usually, these lay out the mission of the organization: goals
that explain why the organization exists and what it should be doing.
- operative goals are specific long and short-term goals that guide managers and employees
as they perform the work of the organization.
, Stakeholders, Managers and Ethics (Chapter 2)
Stakeholders = people who have an interest, claim, or stake in an organization, in what it
does, and how well it performs.
In general, stakeholders are motivated to participate in an organization if they receive
inducements that exceed the value of the contributions they are required to make.
Inducements = rewards such as money, power, and organizational status.
Contributions = the skills, knowledge, and expertise that organizations require of their
members during task performance.
Inside stakeholders
Instant stakeholders are people who are closest to an organization and have the strongest or
most direct claim on organization resources:
Shareholders: they are the owners of the organization and their claim on
organizational resources is often considered superior to the claims of other inside
stakeholders. The shareholders’ contribution to the organization is to invest money in
it by buying the organization’s shares or stock.
Managers: the employees responsible for coordinating organization resources and
ensuring that an organization’s goals are met successfully. Managers’ contributions
are the skills and knowledge they use to plan and direct the organization’s response to
pressures from the organizational environment and to design its structure and culture.
The workforce: consists of all nonmanagerial employees. Their contribution is to use
their skills and knowledge to perform required duties and responsibilities at a high
level.
Outside stakeholders
Outside stakeholders are people who do not own the organization and are not employees, but
do have some claim on or interest in it:
Customers: usually an organization’s largest outside stakeholder group. The money
they pay for the product is their contribution to the organization and reflects the value
they believe they receive from the organization. As long as the organization produces
a product whose price is equal to or less than the value customers feel they are getting,
they will continue to buy the product and support the organization.
Suppliers: they contribute to the organization by providing reliable raw materials and
component parts that allow the organization to reduce uncertainty in its technical or
production operations and thus reduce production costs. They have a direct effect on
the organization’s efficiency and indirect effect on its ability to attract customers.
The government: has several claims on an organization: wants companies to compete
in a fair manner and obey the rules of free competition. It also wants companies to
obey agreed-on rules and laws. The government makes a contribution to the
organization by standardizing regulations so they apply to all companies and no
company can obtain an unfair competitive advantage.
Trade unions: relationship between organization and trade union can be conflict or
cooperation. Nature of this relationship has a direct effect on the productivity and
effectiveness of organization and union.
Local communities: have a stake in the performance of organizations because
employment, housing and the general economic well-being of a community are
strongly affected by the success or failure of local businesses.
The general public: happy when organizations compete effectively against overseas
rivals.
, Organizational effectiveness: Satisfying Stakeholders’ Goals and Interests
Each stakeholder group is motivated to contribute to the organization by its own set of goals,
and each group evaluates the effectiveness of the organization by judging how well it meets
the group’s specific goals.
Competing goals
When shareholders delegate to managers the right to coordinate and use organizational skills
and resources, a divorce of ownership and control occurs.
Managers have real control over the organization even though shareholders own it
managers may follow goals that promote their own interest and not the interests of
shareholders.
Top managers and organizational authority
Authority is the power to hold people accountable for their actions and to influence directly
what they do and how they do it.
There are two kinds of directors: inside and outside. Inside are directors who also hold offices
in a company’s formal hierarchy. Outside are not employees of the company.
Chain of command = the system of hierarchical reporting relationships in an organization.
Hierarchy = a classification of people according to authority and rank.
The chief executive officer
The CEO is the person ultimately responsible for setting organizational strategy and policy.
A CEO can influence organizational effectiveness and decision making in five principal ways:
1. The CEO is responsible for setting the organization’s goals and designing its
structure.
2. The CEO selects key executives to occupy the topmost levels of the managerial
hierarchy.
3. The CEO determines top management’s rewards and incentives.
4. The CEO controls the allocation of scarce resources such as money and decision-
making power among the organization’s functional areas or business divisions.
5. The CEO’s actions and reputation have a major impact on inside and outside
stakeholders’ views of the organization and affect the organization’s ability to attract
resources from its environment.
The Top-Management Team
After the chair and CEO, the Chief Operating Officer (COO) is the next most important
executive. RTHE COO has primary responsibility for managing the organization’s internal
operations to make sure they conform to the organization’s strategic objectives.
Line role = managers who have direct responsibility for the production of goods and services.
Staff role = managers who are in charge of a specific organizational function such as sales or
R&D.
Top-management team = a group of managers who report to the CEO and COO and help the
CEO set the company’s strategy and its long-term goals and objectives.
Corporate managers = the members of the top-management team whose responsibility to set
strategy for the corporation as a whole.
Other managers
At the next level of management are a company’s senior vice presidents and vice presidents,
senior corporate-level managers in both line and staff functions.
Divisional manager = managers who set policy only for the division they lead.
