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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall1-11-1
Organizational Theory, Design, and Change
Sixth EditionGareth R. Jones
Chapter 1
Organizations and Organizational Effectiveness
1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 22
What is an Organization? Organization: a tool used by people to
coordinate their actions to obtain something they desire or value
Organizations provide goods and services Organizations employ people Organizations bring together people and
resources to produce products and services
Basically, organizations exist to create value
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How Does an Organization Create Value?
Value creation takes place at three stages: input, conversion, and output
Each stage is affected by the environment in which the organization operates
Environment – 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
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Figure 1.1: How an Organization Creates Value
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Why Do Organizations Exist?People working together to produce goods
and services create more value than people working alone
5 major reasons why organizations exist: To increase specialization and the division of
labor Division of labor allows specialization Specialization allows individuals to become experts at
their job 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
To exert power and control 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 who must cooperate
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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
Organizational culture: is the set of key values, beliefs, and attitudes shared by organizational members and helps shape the behavior within the organization
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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 change: the process by which organizations move from their present state to some desired future state to increase their effectiveness
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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 ChangeEffective design is required for
high organizational performance
4 Major Reasons why Organizational Design and Change are Important
Dealing with contingencies Contingencies are events that might occur and
must be planned for – most come from environment Organizations must be designed to be able to
effectively respond to environmental changes 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.)
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 organization’s people or structures
Strategy: pattern of decisions and actions involving core competences that produces a competitive advantage to outperform competitors
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 DesignDecline of the organizationLower performanceTalented employees leave to take
positions in other organizationsResources become harder to
acquireResulting crisis may result in
organizational failure
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Why is Organizational Effectiveness Important?What is the point is you are not
going to perform well?Maximizing value creation =
organizational effectivenessThere are multiple ways to create
value and perform well3 primary ways discussed in
chapter: Control: external resource approach Innovation: internal system approach Efficiency: technical approach
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Table 1.1: Approaches to Measuring Effectiveness
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Measuring Effectiveness: Organizational GoalsManagers also measure
effectiveness by creating and measuring performance 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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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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