Organizational Theory,

Design, and Change

7th Edition, 2013
Gareth R. Jones

Chapter 1

Organizations and
Organizational
Effectiveness
1-1
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
Learning Objectives
1. Explain why organizations exist and
the purposes they serve
2. Describe the relationship between
organizational theory and
organizational design and change,
and differentiate between
organizational structure and culture

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Learning Objectives (cont.)
3. Understand how managers can utilize
organizational theory to design and
change their organizations to increase
organizational effectiveness
4. Identify how managers assess and
measure organizational effectiveness
5. Appreciate the way contingency factors
influence the design of organizations

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What is an Organization?
Organizations provide goods and
services
Organizations employ people
Organizations bring together people
and resources to produce products and
services

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What is an Organization?
People have a casual attitude toward
organizations because organizations
are intangible.

Most people in the world are born,

learn, work and die in organizations.

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What is an Organization? (cont.)
Organization: a tool used by people
to coordinate their actions to obtain
something they desire or value that
is to achieve their different goals.
Security organizations (police force,
army, bank)
Entertainment organizations (Walt
Disney, local club)

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What is an Organization? (cont.)
Spiritual organizations (churches,
social service)
An organization is a response to and a
means of satisfying some human
needs.
New organizations are established
when new technologies become
available and new needs are
discovered (Facebook, twitter)
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What is an Organization? (cont.)
Organizations die when the needs they
satisfied are no longer important, like
(video rental stores Blockbuster).
The need to handle increasing
amounts of information and emerging
new computer technologies led to the
rise of Apple, IBM, Google.

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What is an Organization? (cont.)
Sometimes individual or few people
they believe they possess necessary
skills and knowledge set up an
organization to produce goods and
services.
Sometimes several people from groups
respond to a perceived need by
creating an organization.

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What is an Organization? (cont.)
Entrepreneurship: the process by
which people identify opportunities to
satisfy needs, and then gather and use
resources to meet those needs.

The increasing use of mobile

computing devices such as (laptops,
smart-phones, tablets) linked to the
World Wide Web (WWW).
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How Does an Organization
Create Value?
Value creation takes place at three
stages: input, conversion, and output.

The way a given organization uses

human resources and technology to
transform inputs into outputs
determines how much value is created
at the conversion stage.

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How Does an Organization
Create Value?
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 organizations
boundaries but affect its ability to
acquire and use resources to create
value. (Refer to Figure 1.1)
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How Does an Organization
Create Value?
Inputs: include human resources,
information and knowledge, machinery,
raw materials, money and capital.

Conversion: the way the organization

uses human resources and technology to
transform inputs into outputs.

Output: finished products and services

that the organization releases to its
environment.

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Figure 1.1: How an Organization
Creates Value

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Why Do Organizations Exist?
The production of goods and services
most often takes place in an
organizational setting because people
working together to produce goods
and services usually can create more
value than people working separately.

There are five reasons for the

existence of organizations. (Refer to
Figure 1.3)
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Why Do Organizations Exist?
To increase specialization and the
division of labor

Division of labor allows specialization

Specialization allows individuals to

become experts at their job

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Why Do Organizations Exist?
(cont.)
To use large-scale technology
Economies of scale: cost savings that
result when goods and services are
produced in large volume
Economies of scope: cost savings that
result when an organization is able to use
underutilized resources more effectively
because they can be shared across
several different products or tasks

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Why Do Organizations Exist?
(cont.)
To manage the external environment
External environment consists of the
political, social, economic, and
technological factors that affect
organizations
Organizations regularly exchange
products and services for needed
resources
Organizations need to manage their
external environment

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Why Do Organizations Exist?
(cont.)
To exert power and control
To get a job done efficiently.
Organizations structure their members to
efficiently produce products and services

To economize on transaction costs

Transaction costs: The costs associated
with negotiating, monitoring, and
governing exchanges between people to
solve the numerous transaction difficulties
are called transaction costs.
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Figure 1.3: Why
Organizations Exist

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Organizational Theory, Design, and
Change: Some Definitions
Organizational theory: the study of
how organizations function and how
they affect and are affected by the
environment in which they operate
Organizational structure: the formal
system of task and authority
relationships that control how people to
coordinate their actions and use
resources to achieve organizational goals
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Some Definitions (cont.)
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.

An organizations culture is shaped by the

people inside the organization, by the
ethics of the organization, by the
employment rights given to employees.

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Some Definitions (cont.)
Organizational design: 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 design helps organizational

members to view and respond to the
outside environment in different ways and
puts pressure on work groups and
individuals to behave in certain ways.
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Some Definitions (cont.)
Organizational change: 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 organizations
ability to create value.

Organizational change can be understood as

organizational redesign and transformation.
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Figure 1.4: The Relationship Among
Organizational Theory, Structure, Culture,
Design, and Change

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Importance of Organizational
Design and Change
Dealing with contingencies
Contingencies are events that might occur
and must be planned for
Organizations must be designed to be
able to respond to changes in the
complex and increasingly difficult
environment many organizations face
Globalization and changing IT
technologies are just two challenges
organizations must be ready to face

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Importance of Organizational
Design and Change (cont.)
Gaining competitive advantage
The ability to outperform other companies
because of the capacity to create more
value from resources
Core competences: skills and abilities in
value creation embedded in the
organizations people or structures
Strategy: pattern of decisions and
actions involving core competences that
produces a competitive advantage to
outperform competitors
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Importance of Organizational
Design and Change (cont.)
Managing diversity
Differences in the race, gender, and
national origin of organizational members
have important implications for
organizational culture and effectiveness
Learning how to effectively utilize a

diverse workforce can result in better

decision making and more effective
workforce

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Importance of Organizational
Design and Change (cont.)
Promoting efficiency, speed, and
innovation
The better organizations function, the
more value they create
The correct organizational design can lead
to faster innovation and quickly get new
products to market

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Consequences of Poor
Organizational Design
Decline of the organizations sales and
profits
Layoffs occur and talented employees
leave to take positions in growing
organizations
Resources become harder to acquire
Resulting crisis may result in
organizational failure

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How Do Managers Measure
Organizational Effectiveness?
Control: external resource approach
Monitors how effectively an organization
manages and controls its external environment
Innovation: internal system approach
Develops an organizations skills and capabilities
to change, adapt, and improve the way it
functions
Efficiency: technical approach
Measures how efficiently an organization
converts a fixed amount of resources into
finished goods and services

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Table 1.1: Approaches to
Measuring Effectiveness

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Measuring Effectiveness:
Organizational Goals
Official goals: guiding principles that
the organization formally states in its
annual report and in other public
documents
Mission: a mission statement explains
why the organization exists and what it
should be doing
Operative goals: specific long- and
short-term goals that guide managers
and employees as they perform the
work of the organization
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Figure 1.5: Plan of the Book

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Figure 1.5: Plan of the Book
(cont.)

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Figure 1.5: Plan of the Book
(cont.)

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Summary
Organizations are a tool people use to
achieve their goals
Organizational theory is the study of
how organizations function and how
they affect and are affected by their
environment
Organizational effectiveness must be
monitored by managers

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