Organizational Theory & Design – summary of the textbook and
lecture slides.
Brenda Giethoorn
24-10-2020
WEEK 1
Chapter 1: Organizations and Organizational Effectiveness
People have a casual attitude toward organizations because organizations are intangible. An
organization is a tool people use to coordinate their actions to obtain something they desire or value.
Entrepreneurship is the process by which people recognize opportunities to satisfy needs and then
gather and use resources to meet those needs. Today, many organizations being founded, and
particularly those experiencing the fastest growth, are producing goods and services related in some
way to new information technology (IT).
The way an organization creates value is depicted in the figure below.
Value creation takes place at three stages: input, conversion and output. Each stage is affected by
the environment in which the organization operates. 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.
The way the organization uses human resources and technology to transform inputs into outputs
determines how much value is created at the conversion stage. An organization that continues to
satisfy people’s needs will be able to create more and more value as it adds to its stock of skills and
capabilities.
1
,The reasons for the existence of organizations is shown in the figure below.
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 unterutilized resources more effectively because they can be shared across several
different products or tasks. The costs associated with negotation, monitoring, and governing
exchanges between people, to solve these kinds of transaction difficulties are called transaction costs.
Organizational theory is the study of how organizations function and how they affect and are
affected by the environment in which they operate. Underlying principles are:
- Organiational Structure: the formal system of tasks and authority relationships that control how
people coordinate their actions and use resources to achieve organizational goals.
- Organizational Design and Change: 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. Change is the process by which organizations redesign their structures and cultures to move
from their present state to some desired future state to increase their effectiveness.
- Organizational Culture: 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.
Organizational design and change have important implications for a company’s ability to deal with
contingencies, achieve a competitive advantage, manage diversity effectively, and increase its
efficiency and ability to innovate. A contingency is an event that might occur and must be planned
for, such as a changing environment pressure. An organization can design its structure in many ways
to increase control over its environment.
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 advantages springs from
core competences, managers’ skills and abilities in value-creation 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.
Organizational design involves a constant search for new or better ways of coordinating an
motivating employees. A major reason for bad performance in companies is the loose of control of
their organizational structures and cultures. The consequence of poor organizational design or lack of
attention to organizational design is the decline of the organization. In the last decade, one major
development at large companies has been the appointment of chief operating officers (COOs), who
are made responsible for overseeing organizational structure and culture.
To evaluate the effectiveness, managers can take one of three approaches:
2
,1. External resource approach, control: a method managers use to evaluate how effectively an
organization manages and controls its external environment.
2. Internal systems approach, innovation: a method that allows managers to evaluate how
effectively an organization functions and resources operate.
3. Technical approach, efficiency: a method managers use to evaluate how efficiently an
organization can convert some fixed amout of organizational resources into finished goods and
services.
Two types op goals used to evaluate organizational effectiveness are official goals and operative goals.
Official goals are guiding principles that the organization formally states in its annual report, usually
their mission. Operative goals are specific long- and short-term goals that guide managers and
employees as they perform the work of the organization.
Chapter 3: Organizing in a Changing Global Environment
The environment is the set of pressures and forces surrounding an organization that have the potential
to affect the way it operates and its access to scarce resources. The term organizational domain refers
to the particular range of goods and services that the organization produces and the customers and
other stakeholders it serves. An organization established its domain by deciding how to manage the
forces in its environment to maximize its ability to secure important resources. The figure below
shows the environments the organization has to deal with.
The specific environment consists of forces from outside stakeholder groups that directely affect an
organization’s ability to secure resources. Global supply chain management is the process of
planning and controlling supply/distribution activities such as acquiring and storing raw materials and
semifinisched products, controlling work-in-progress inventorym, and moving finished goods from
point of manufacture to point of sale as efficiently as possible.
The general environment consists of forces that shape the specific environment and affect the ability
of all organizations in a particular environment to obtain resources.
As the enviroment becomes more complex, less stable, and poorer, the level of uncertainty increases.
The effect is shown in the figure below. These three levels cause uncertainty.
3
, - Environmental complexity is a function of the strength, number, and interconnectedness of the
specific and general forces that an organization has to manage.
- Environmental dynamism is a function of how much and how quickly forces in the specific and
general environments change over time and thus increase the uncertainty an organization faces.
- Environmental richness is a function of the amount of resources available to support an
organization’s domain. Environments may be poor for two reasons: 1) an organiation is located in
a poor country or poor region of a country; and 2) there is a high level of competition and
organisations are fighting over available resources.
According the resource dependence theory, the goal of an organization is to minimize its
dependence on other organizations fot the supply of scarce resources in its environment and to find
ways to influence them to secure needed resources. Thus an organization must simultaneously
manage two aspects of its dependence:
1. It as to exert influence over other organizations so it can obtain resources;
2. It must respond to the needs and demands of the other organizations in its environment.
The strength of one organization’s dependence on another for a particular resource is a function of two
factors. How vital is the resource to the organization’s survival and which other organizations control
the resource. To manage their resource dependence and control their acces to scarce resources,
organizations develop various strategies.
In the specific environment, two basic types of interdependencies cause uncertainly:
- Symbolic interdependencies, interdependencies that exist between an organization and its
suppliers and distributors.
- Competitive interdependencies, interdependencies that exist among organizations that complete
for scarce inputs and outputs.
In general, an organization aims to choose the interorganizational strategy that offers the most
reduction in uncertainly for the least loss of control. To manage symbolic interdependencies,
organizations have a range of strategies from which to choose. Those are represented in the figure
below.
Reputation is a state in which an organization is held in high regard and trusted by other parties
because of its fair and honest business practise. Cooptation is a strategy that manages symbolic
interdependencies by neutralizing problematic forces in the specific environment. Cooptation is an
important political tool. This can be done by interlocking directorate, which is a linkage that results
when a director from one company sits on the board of another company. A strategic alliance is an
4
