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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

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Organizational Theory,Design, and Change

Sixth Edition

Gareth R. Jones

Chapter 1

Organizations andOrganizational

Effectiveness


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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 22

What is an Organization?

Organizations provide goods and services

Organizations employ people

Organizations bring together people andresources to produce products and services

Organizations are (1) social entities thatare (2) goal directed, (3) are designed as

deliberately structured and coordinatedactivity systems, and (4) are linked to theexternal environment

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What is an Organization? (cont.)

Organization: a tool used by peopleto coordinate their actions to obtain

something they desire or valueEntrepreneurship: identify

opportunities to satisfy needs, andthen gather and use resources to meet

those needs


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How Does an OrganizationCreate Value?

Value creation takes place at threestages: input, conversion, and output Inputs: include human resources,

information and knowledge, rawmaterials, money and capital

Conversion: the way the organizationuses human resources and technology to

transform inputs into outputs Output: finished products and services

that the organization releases to itsenvironment


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Figure 1.1: How an OrganizationCreates Value


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Importance of Organizations

Organizations exist to do the following:

1. Bring together resources to achieve desired goalsand outcomes

2. Produce goods and services efficiently3. Facilitate innovation

4. Use modern manufacturing and informationtechnologies

5. Adapt to and influence a changing environment

6. Create value for owners, customers, andemployees

7. Accommodate ongoing challenges of diversity,ethics, and the motivation and coordination ofemployees


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Why Do Organizations Exist?

To increase specialization and thedivision 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 useunderutilized resources more effectively

because they can be shared acrossseveral different products or tasks

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To manage the external environment External environment consists of the

political, social, economic, and

technological factors that affectorganizations

Organizations regularly exchangeproducts and services for needed

resources Organizations need to manage their

external environment


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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, andgoverning exchanges between peoplewho must cooperate

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Figure 1.3: WhyOrganizations Exist


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Organizational Theory, Design, andChange: Some Definitions

Organizational theory: the study ofhow organizations function and howthey affect and are affected by theenvironment in which they operate

Organizational structure: the formalsystem of task and authority

relationships that control how people tocoordinate their actions and useresources to achieve organizational goals


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Some Definitions (cont.)Organizational culture: is the set of

key values, beliefs, and attitudes sharedby organizational members and helps

shape the behavior within theorganization

Organizational design: the processby which managers select and manage

aspects of structure and culture so thatan organization can control the activitiesnecessary to achieve its goals


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Some Definitions (cont.)

Organizational change:

the process by which organizations

move from their present state tosome desired future state toincrease their effectiveness

Organizational redesign andtransformation


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Figure 1.4: The Relationship AmongOrganizational Theory, Structure, Culture,Design, and Change


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Importance of OrganizationalDesign and ChangeDealing with contingencies

Contingencies are events that might occurand must be planned for

Organizations must be designed to beable to respond to changes in thecomplex and increasingly difficultenvironment many organizations face

Globalization and changing ITtechnologies are just two challengesorganizations must be ready to face


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Importance of OrganizationalDesign 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 theorganizations people or structures

Strategy: pattern of decisions andactions involving core competences thatproduces a competitive advantage tooutperform competitors

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Managing diversity

Differences in the race, gender, andnational origin of organizational membershave important implications fororganizational culture and effectiveness

Learning how to effectively utilize a

diverse workforce can result in betterdecision making and more effectiveworkforce


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Promoting efficiency, speed, andinnovation

The better organizations function, themore value they create

The correct organizational design can leadto faster innovation and quickly get new

products to market

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Consequences of PoorOrganizational Design

Decline of the organizations sales andprofits

Layoffs occur and talented employeesleave to take positions in growingorganizations

Resources become harder to acquire

Resulting crisis may result inorganizational failure


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How Do Managers MeasureOrganizational Effectiveness? Control: external resource approach

Monitors how effectively an organizationmanages and controls its external environment

Innovation: internal system approach Develops an organizations skills and capabilities

to change, adapt, and improve the way itfunctions

Efficiency: technical approach Measures how efficiently an organization

converts a fixed amount of resources intofinished goods and services


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Table 1.1: Approaches toMeasuring Effectiveness


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Measuring Effectiveness:Organizational GoalsOfficial goals: guiding principles that

the organization formally states in itsannual report and in other public

documentsMission: a mission statement explains

why the organization exists and what itshould be doing

Operative goals: specific long- andshort-term goals that guide managersand employees as they perform thework 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 toachieve their goals

Organizational theory is the study ofhow organizations function and howthey affect and are affected by theirenvironment

Organizational effectiveness must bemonitored by managers

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