Summary Organizational Theory, Design, and Change - Gareth R. Jones
Chapter 1: Organizations and Organizational Effectiveness
What is an organization?
In today's world organizations are taken for granted, nobody bothers to wonder how certain
goods and services are being produced. We almost only think of organizations when they fail
us. This attitude arises because organizations are intangible (=ongrijpbaar).
- An organization = a tool people use to coordinate their actions to obtain something they
desire or value (people who value security create an organization called the police force). An
organization is a response to and a means of satisfying some human needs.
Who creates the organizations?
- Sometimes an individual or a group of people believe believe they possess a necessary
skill and knowledge ans set up an organisation (google) → entrepreneurship
-Today many organizations being founded are producings goods and services related to new
information technology (IT)
How does an organisation create value?
- Value creation takes place at three stages: Input,
Conversion, Output. Each stage is affected by the
environment (= the set of focus and conditions that
operate beyond an organization's boundaries but
affect its ability to acquire and use resources to
create value).
- The way the organization uses human resources
and technology to transform inputs to outputs
determines how much value is created → this is a
quality of skills.
- An organization that continues to satisfy people's
needs will be able to obtain an increasing amount of
resources and will be able to create more and more
value
Why do organizations exist?
Production most often takes place in an organization
because people working together creates products
and services of more value than people working
individually.
1) To increase specialization and the division of labor
(the degree of specialization in a small organization is lower, people have more
tasks)
2) To use large scale 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 share across several
different products or tasks.
3) To manage organizational environment
- Managing complex environments is a task beyond the abilities of most individuals,
an organization can develop specialists.
4) To economize on transaction costs.
- Transaction costs = the costs associated with negotiating, monitoring and
governing exchanges between people to solve transaction difficulties.
- Organizationions can control the exchanges between people which reduces the
transaction costs.
5) To exert power and control
- Organizations can exert great pressure on individuals to conform to task and
production requirements in order to increase production efficiency
- Requirements of the organization make production less costly and more efficient.
- Over time, the stability by an organization provides a setting in which the organization and
its members can increase their skills and capabilities, and the ability of the organization to
create value increases by leaps and bounds.
Organizational theory, design and change
- Organizational theory: the study of how
organizations function and how they
affect/are affected by the environment in
which people operate.
Organizational structure
Organizational structure evolves to
increase the effectiveness of the
organization's control of the activities
necessary to achieve its goals. It is the
formal system of task and authority
relationships that control how people
coordinate their actions and use resources
to achieve organizational goals.
Purpose = 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
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. It is shaped by people inside the organization, by ethics of the
organization, by employment rights given to the employers, and by the type of structure used
by the organisation. It shapes and controls behaviour within 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/ 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. It is a task that requires a strict balance
between external pressures (environment) and internal pressures (technology).
Organizational change is the process by which organizations move from their present state
to some desired future state to increase their effectiveness. The goal 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.
- The importance of organizational design and change: because of increased global
competitive pressures and the increasing use of advanced IT, organizational design has
become one of the managers top priorities. They are searching for new and better ways to
coordinate and motivate their employees to increase the value of their organizations.
- Dealing with contingencies (voorzieningen): a contingency is an event that might occur
and must be planned for (change in pressure of environment). 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.
Examples are: pressures from competitors, consumers, and the government. Global
environment (expanding global presence), changing technology.
- Gaining 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 advantage springs from core competences, managers skills
and abilities in value-creation activities. This allows a company to develop a strategy to
outperform competitors. Strategy is the specific pattern of decisions and actions that
managers take to use core competencies to achieve a competitive advantage. An
organization's strategy is always changing in response to changes in the environment.
- Managing diversity: differences in the race, gender and national origin of organizational
members have important implications for the value of an organization's culture and for the
organization's effectiveness. An organization needs to design a structure and control a
system to make optimal use of the talents of a diverse workforce and to develop an
organizational culture that encourages employees to work together.
- The ability of companies to compete successfully in today's competitive environment is
increasingly a function of how well they innovate and how quickly they can introduce new
technology. Organizational design plays an important role in innovation, it involves a
constant search for new or better ways of coordinating and motivating employees.
- The consequences of poor organizational design or lack of attention to organizational
design is the decline of the organization. Talented employees leave to take positions in
strong growing companies. Resources become harder to acquire and the whole process of
value creation slows down.
How do managers measure organizational effectiveness?
Managers have pointed to control, innovation, and efficiency as most important to assess
and measure how effective they, and their organization, are in creating value.
Control = having control over the external environment and having the ability to attract
resources and customers. Innovation = developing an organization's skills and capabilities
so the organization can discover new products and processes. Also creating new
organizational structures and cultures that enhance a company's ability to change, adapt,
, and improve the ways it functions. Efficiency = developing modern production facilities using
new information technologies that can produce and distribute a company's products in a
timely and cost effective manner.
- Approaches to measuring organizational effectiveness:
1. The external resource approach: control
Evaluates the organization's ability to secure, manage, and control scarce and valued skills
and resources. Managers can evaluate how effectively an organization manages and
controls its external environment. To measure this control managers use indicators such as
stock price, profitability, and return on investment. The managers ability to perceive and
respond to changes in the environment or to initiate change and be the first to take
advantage of a new opportunity is another indicator of an organization's ability to influence
and control its environment.
2. The internal systems approach: innovation
Evaluates the organization's ability to be innovative and function quickly and responsively.
An organization needs a structure and a culture that fosters adaptability and quick responses
to changing conditions in the environment. Also, they need to be flexible so it can speed up
decision making and create products and services rapidly. Measures of an organization's
capacity for innovation include the length time needed to make a decision, the amount of
time needed to get new products to market and the amount of time spent on coordinating the
activities of different departments. These factors can often be measured objectively.
Improvements to internal systems that influence employee coordination or mativation have a
direct impact on an organization's ability to respond to its environment.
3. The technical approach: efficiency
Evaluates the organization's ability to convert skills and resources into goods and services
efficiently. Technical effectiveness is measured in terms of productivity and efficiency (the
ratio of outputs to inputs). Productivity measures are objective indicators of the effectiveness
of an organization's production operations. Indicators can be used such as defective
products of wasted material.
- Measuring effectiveness: Organizational goals. Managers create goals that they can use to
assess how well the organization is performing. Two types of goals used to evaluate
organizational effectiveness are:
- Official goals: are guiding principles that the organization formally states in its
annual report and in other public reports. Usually these goals lay out a mission:
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. Managers can use
operative goals to evaluate the organizational effectiveness in how well they are
managing the environment.
Chapter 3: Organizing in a changing global environment
What is the organizational environment?
- Environment is the set of pressures and forces surrounding an organization that have the
potential to affect the way it operates and its ability to acquire scarce sources. Scarce
sources include raw material and skilled employees an organization needs to produce goods
and services, information needed to improve its technology or decide on competitive
