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Copyright 2004 Prentice Hall 1
Organizational Theory, Design, and Change
Text and CasesFourth EditionGareth R. Jones
Copyright 2004 Prentice Hall 2
Learning Objectives
1. To understand 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
3. Understand how managers can utilize the principles of organizational theory to design and change their organizations to increase organizational effectiveness
4. Identify the three principal ways in which managers assess and measure organizational effectiveness
5. Appreciate the way in which several contingency factors influence the design of organizations
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What is an Organization?
Organization: a tool used by people to coordinate their actions to obtain something they desire or value
Entrepreneurship: the process by which people recognize opportunities to satisfy needs, and then gather and use resources to meet those needs
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How Does an Organization Create Value?
Value creation takes place at three stages: input, conversion and output.
Inputs – include human resources, information and knowledge, 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
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Figure 1 – 1: How Does an Organization Create Value?
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Why Do Organizations Exist? To increase specialization and the
division of labor 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
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Why Do Organizations Exist?
To manage the external environment
To economize on transaction costs Transaction costs: the costs
associated with negotiating, monitoring, and governing exchanges between people
To exert power and control
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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 coordinate their actions and use resources to achieve organizational goals
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Definitions 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: 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
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Organizational Change
Organizational change: the process by which organizations redesign their structures and cultures to move from their presents state to some desired future state to increase their effectiveness
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Figure 1-4: Relationships Among Organizational Theory, Structure, Culture, Design and Change
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Importance of Organizational Design and Change
To deal with contingencies Contingencies are events that might
occur and must be planned for. Gaining competitive advantage
Ability to outperform other companies because of the ability to create more value from resources
Managing diversity Promoting efficiency, speed, and
innovation
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Consequences of Poor Design
Decline of the organization Talented employees leave to take
positions in growing organizations.
Resources become harder to acquire.
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How Do Managers Measure Organizational Effectiveness?
The external resource approach: Control Method managers use to evaluate
how effectively an organization manages and controls its external environment.
Use of indicators such as stock price, profitability and return on investment
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Measuring Organizational Effectiveness
The internal systems approach: Innovation Method that allows managers to
evaluate how effectively an organization functions and operates.
Organization needs to be flexible to rapidly create products and services.
Indicators such as amount of time to get new products to market or time spent on decision making can be used.
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Measuring Organizational Effectiveness
The technical approach: Efficiency Method managers use to evaluate
how efficiently an organization can convert some fixed amount of organizational resources into finished goods and services.
Use of indicators such as increase in the number of units produced without additional labor
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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: goals that explain 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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Part 2: Organizational Design
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Part 3: Organizational Change