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Organization Design and Development 08MBAHR341

Module 1 Organization: Nature and scope, definitions Overview of various components and structure Evolution of organization theory Organizational theories, Images of organization ORGANIZATIONAL EFFECTIVENESS- defn, importance & approaches, the goal attainment appraoch, the system approach, the strategic approach.

What is Organization? In simple terms: “Organization implies a formalized intentional structure of roles or positions” Broad definition: “An Organization is a consciously coordinated social entity, with a relatively identifiable boundary, that functions on a relatively continuous basis to achieve a common goal or set of goals”.

Nature & Scope /Features of Organization • • • • • • • • • •

Large size Complexity Mutually agreed purpose Pattern of behavior Continuing systems Differentiation Coordinating Conscious rationality Import – conversion – Expert Interaction with other systems

Types of organizations • Mutual benefit agreement • Business concern • Service organization –Commonweal organization

Overview of various components • What is an organization? An Organization is a consciously coordinated social entity, with a relatively identifiable boundary, that functions on a relatively continuous basis to achieve a common goal or set of goals”.

What is Organization Structure? Organization Structure defines how task are to be allocated, who reports to whom, and the formal coordinating mechanisms and interaction patterns that will be followed.

It is having three components.

Three components of Organization structure 1. Complexity 2. Formalization 3. Centralization

What is Organization Design? • Organization Design emphasizes the management side of organization theory. It is concerned with constructing and changing an organization’s structure to achieve the organization’s goals.

What is Organization theory? • Organization theory is the discipline that studies the structure and design of organizations. It refers to both the descriptive and prescriptive aspects of the discipline. • It describes how organizations are actually structured and offers suggestions on how they can be constructed to improve their effectiveness.

Organization theory Vs. Organizational Behavior • Organizational Behavior takes a micro view – emphasizing individuals and small groups. It focuses on behavior in organizations and a narrow set of employee performance and attitude variables. Employee productivity, absenteeism, turnover and job satisfaction etc. • Organizational Theory take a macro prospective. As it is not only concern with employees performance but with the overall orgn’s ability to adapt and achieve its goals.

Why study Organization Theory ? • Organizations are dominant form of institutions in our society. • It pervade all aspects of contemporary life. • To develop new theories • Pursuing a career • To get a particular degree or certificate

The Biological Metaphor • A metaphor is a popular device for making comparisons. • Here we will compare organization with living organisms like plants, animals, or human beings. We call this comparison the biological metaphor.

The System perspective • It offers better insight into the workings of an organization. • A system is a set of interrelated and interdependent parts arranged in a manner that produces a unified whole. • They take inputs, transform them and produce some output.

Types of Systems • Closed system: A perfect closed system would be one that receives no energy from an outside source and from which no energy is released to its surroundings. • Open system recognizes the dynamic interaction of the system with its environment.

Basic Open System Environment Systems Inputs

Environment

Transformation Process

Outputs

Characteristics of an Open system • • • • • • •

Environment awareness Feedback Cyclical character Negative entropy Steady state Movement towards growth and expansion Balance of maintenance and adaptive activities • Equifinality

The Life-cycle Perspective • Organizations are born, grow, and eventually die (though it may take hundred years or more). • Here we will build on the biological metaphor of organizations proceedings through life-cycle stages.

Definition of a Life Cycle “A life cycle refers to a pattern of predictable change. We propose that organizations have life cycles whereby they evolve through a standardized sequence of transitions as they develop over time” Here we are saying that there are distinct stages through which organizations proceed, transition from one stage to another are predictable rathe than random occurrences.

Life Cycle Stages It is five stage model: 3. 4. 5. 6. 7.

Entrepreneurial stage Collectivity stage Formalization and control stage Elaboration of structure stage Decline stage

Organization Life cycle Maturity

Growth

Formation

Decline

Do Life cycle stages correlates with an organization’s chronological age?

THE EVOLUTION OF ORGANIZATION THEORY  The current state of organization theory is the result of an evolutionary process  Over a period of many decades, academics and practitioners from diverse background and with diverse perspectives have studied and analyzed organizations.  Theories have been introduced, evaluated and refined over time ; new insights tend to reflect the limitations of earlier theories.

Evolution of contemporary organization theory: Approximate 1900 Time 1930 Frame

1930- 1960

1960-1975

1975- ?

System perspective Ends perspective

Closed

Closed

Open

Open

Rational

Social

Rational

Social

Mechanical efficiency

People and human relations

Contingency design

Power and politics

Type 2

Type 3

Type 4

Central theme

Theoretical Type 1 classification

DEVELOPING A FRAMEWORK: • There are two underlying dimensions in the evolution of organization theory. • The first dimension reflects that organizations are system. • Prior to about 1960, organization theory tended to be dominated by a closed system perspective. Organizations were seen as essentially autonomous and sealed off from their environment. • Beginning around 1960, organization began to take on a distinctly open – system perspective.

• The second dimension deals with the ends of organization theory. Here again two opposed positions. • The rational perspective argues that the structure of an organization is conceived as a vehicle to effectively achieve specified objectives. • The social perspective emphasizes that structure is primarily the result of the conflicting forces by the organization’s constituents who seek power and control.

• The early approaches to organization theory in this century conceived of organization as mechanical device to achieve goals.  TYPE 1: To describe theorists in this era.  TYPE 2: Theorists operated under closed- system assumption but emphasized the informal relations and non economic motives operating in organizations. Management could design formal relationships, rules, but there were informal pattern of communication , status, norms, and friendship created to meet the social needs of organization members.  TYPE 3: Theorists during the 1960s and early 1970s saw organizations as the vehicle for achieving goals. They concentrated on size, technology, and environmental uncertainty as the major contingency variables that determined what the right structure for an organization should be.

• TYPE 4:

The social perspective has made a comeback but in an open- system framework. The result is the viewpoint that structure is not the rational effort by managers to create the most effective structure but rather the outcome of the political struggles among coalitions within the organization for control.

TYPE 1 THEORISTS: •

• 

The type 1 theorists , also known as the classical school, developed universal principles or models that would apply in all situations. The essentially perceived organization as closed systems created to achieve goals efficiently. The important contribution here are:

Fredrick Taylor and Scientific Management: Fredrick Winslow Taylor’s “principles of scientific management” marked the beginning of serious building in the field of management and organization.  He proposed four principles of scientific management.  He argued that significant increase in productivity is due to; vii. The replacement of rule -of – thumb method for determining each element of a worker’s job with scientific determination. viii. The scientific selection and training of workers. ix. The co-operation of management and labor to accomplish work objectives; in accordance with the scientific method. x. A more equal division of responsibility between managers and workers , with the former doing the planning and supervising, and the latter doing the execution.

2.

Henry Fayol and Principles of Organization:

Fayol sought to develop general principles applicable to all managers at all levels of the organization and to describe the functions a manager should perform. Fayol proposed fourteen principles of management, viz ; • Division of work. • Authority. • Discipline . • Unity of command. • Unity of Direction. • Subordination to the individual interests to the general interests. • Remuneration. • Centralization. • Scalar chain. • Order. • Equity. • Stability of tenure of personnel. • •

Initiative. Espirt de corps.

3. Max Weber and Bureaucracy: b) c) d) 5. 6. 7. 8. 9. b)

The third major contribution made by Type 1 theorists was the “ideal- type” organization structure proposed by the German sociologist , Max Weber. He called this ideal structure as Bureaucracy. It was characterized by: Division of labor. A clear authority hierarchy. Formal selection procedures. Detailed rules and regulations. Impersonal relationship. Weber’s description of bureaucracy became the design prototype for the structure of most of today’s large organization.

4. •

• • • • • • • •

Ralph Davis and Rational planning: The final contribution of the Type 1 theorist that we will introduce is the rational- planning perspective, which proposed that structure was the logical outcome of the organization’s objective. Davis stated that the primary objective of the business firm is economic service. No business can survive if it doesn’t provide economic values. The economic value is generated by the activities members engage in to create the organization’s products or services. These activities then link the organization’s objectives to its results. It is management job is to group these activities together in such a way as to form the structure of the organization. Davis concluded, therefore, that the structure of the organization is contingent upon the organization’s objective. The rational- planning perspective offered a simple and straight forward model for designing an organization’s objectives . Management’s formal planning determines the organizations objectives.

• 1.

• •

• •

• •

TYPE 2 THEORISTS:

The common theme among Type 2 theorist is recognition of the social nature of the organizations. Hawthorne studies, devised by Western electric industrial engineers to examine the effect of various illumination levels on worker productivity. Control and experimental groups were established. The experimental group was presented with varying intensity of illumination, while the controlled unit worked under a constant illumination intensity . The engineers had expected individual output to be directly related to the intensity of light. As the light level was increased in the experimental unit,

output rose for each group. As the light level was dropped in the experimental group, productivity continued to increase in both. The productivity decrease was observed in the experimental group only when the light intensity has been reduced to that of moonlight.5

Contd., 2. Chester Barnard and Cooperative system:  Merging the ideas of Taylor, Fayol, and Weber with the results from the Hawthorne studies led to the conclusion that organizations are cooperative systems.  They are composed of tasks and people that have to be maintained at an equilibrium state. Attention only to technical or the needs of people who do the jobs sub optimizes the system.  He presented his idea in the “The Functions of the Executive”.  He challenged the classical view that authority flowed from the top down by arguing that authority should be defined in terms of the response of the subordinate ; he introduced the role of the

Contd., 3. Douglas Mc Gregor and Theory X – Theory Y:



 4. 5.

6. 7.

Douglas Mc Gregor thesis that there are two distinct views of human beings: one basically negative- Theory X and other basically negative Theory Y. Under Theory X , four assumptions are held by managers: Employees inherently dislike work and, whenever possible, will attempt to avoid it. Since employees dislike work, they must be coerced, controlled, or threatened with punishment to achieve desired goals. Employees will shirk responsibilities and seek formal direction whenever possible. Most workers place security above all other factors

Contd., •

2. 3. 4. 5.

In contrast to these negative views of human beings’ Mc Gregor listed four other assumptions that he called Theory Y: Employees can view work as natural as rest or play. Human beings will exercise self- direction and self – control if they are committed to the objectives. The average person can learn to accept, even seen, responsibility. Creativity – that is , the ability to make good decisions.

Contd., 4. Warren Bennis and the Death of Bureaucracy:  Warren Bennis, claimed that bureaucracy’s centralized decision making, impersonal submission to authority, and narrow division of labor was being replaced by decentralized and democratic structures organized around flexible groups.  Weber argued that bureaucracy was the ideal organization , Warren Bennis argued the other extreme- conditions now pointed to flexible adhocracies as the ideal organizational form.

TYPE 3 THEORISTS: The conflicts between the thesis and antithesis led to a synthesis that provided better guidance to managers. That synthesis was a contingency approach.

2.  

 



Herbert Simon and Principles Backlash: The contingency movement gained its momentum in the 1960s. Herbert Simon recognized in the 1940s that Type 1 principles would have to give way to a contingency approach. Simon noted that most classical principles were nothing more than proverbs, and many contradicted each other. He argued that organization theory needed to go beyond superficial and oversimplified principle to a study of the conditions under which competing principles were applicable. Still, the 1950s and 1960s tended to be dominated by

Contd., 2. Katz and Kahn’s Environmental Perspective:  Daniel Kantz and Robert Khan’s book The Social Psychology of Organizations, was a major impetus toward promoting the Type 3 open- system perspective to organization theory.  Their book provided a convincing description of the advantages of an open- system perspective for examining the important relations of an organization with its environment and the need for organization to adapt to a changing environment if they are to survive.

 Since Katz and Kahn’s work, numerous theorists have investigated the environment- structure relationship.  No current discussion of organization theory would be complete without a thorough assessment of environment as a major

CONTD., 3. The Case for Technology:  Research in the 1960s by Joan Woodward and Charles Perrow, as well as the conceptual frame work offered by James Thompson, have made an impressive case for the importance of technology in determining the appropriate structure for an organization.  As with environment, no contemporary discussion of organization theory would be complete without consideration of technology and the need for managers to match structure with technology.

CONTD., 4. The Aston Group and Organization size:  In addition to advocates of environment and technology, the Type 3 theorists include those who advice organization size as an important factor influencing structure.  Large organization have been shown to have many common structural components.

TYPE 4 THEORISTS: 1. March and Simon’s Cognitive Limits to Rationality:   



March and Simon challenged the classical notion of rational or optimum decisions. They argued that most decision maker selected satisfactory alternatives. March and Simon called for a revised model of organization theory- one different from the rational co-operative systems view. This revised model would recognize the limits of a decision’s maker rationality and acknowledge the presence of conflicting goals.

Contd., 2. Pfeffer’s Organizations as political Arenas:  Jeffrey Pfeffer has built on March and Simon’s work to create a model of organization theory till encompasses power coalitions, Inherent conflicts over goals, and organizationaldesign decisions that favor the self- interest of those in power.  Pfeffer proposes that control in organizations becomes an end rather than merely a means to rational goals such as efficient production of output.  Organizations are coalitions composed of varying groups and individuals with different demands.

Organizational Theories

Images of Organization

ORGANIZATIONAL EFFECTIVENESS: • Organizational effectiveness is central theme in organization theory. • In fact it is difficult to conceive of a theory of organizations that does not include the concept of effectiveness.

IMPORTANCE OF ORGANIZATIONAL EFFECTIVENESS • Every discipline in the administrative science contributes in some way to helping managers make organization more effective. • What makes an organization effective? That answer is, the proper organization structure. • Organization theory, as a discipline, clarifies which organization structure will lead to, or improve, organizational effectiveness.

In search of a definition: • The early approach to OE- which probably lasted through the 1950s- was innocently simple. Effectiveness was defined as the degree to which an organization realized its goals. • The 1960s and early 1970s saw a proliferation of OE studies. A review of these studies identified thirty different criteria- all purporting to measure “organizational effectiveness”. They are listed in table,

Organizational effectiveness criteria: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Overall effectiveness. Productivity. Efficiency. Profit. Quality. Accidents. Growth. Absenteeism. Turnover. Job satisfaction. Motivation. Morale. Control.

14. Conflict/ cohesion

15. flexibility/ adaptation. 16. planning and goal setting. 17. goal consensus. 18. internalization of organizational goals. 19. stability. 20. Role and norm congruence. 21. Managerial interpersonal skill. 22. Managerial task skills. 23. Information management and Communication. 24. Readiness. 25. utilization of environment. 26. Evaluation by external entities.

Contd., • It is occasionally lost on researchers that regardless of whether they can define and label a phenomenon, that phenomenon is still real and continues to function.

Approaches to OE: 1. THE GOAL- ATTAINMENT APPROACH. 2. THE SYSTEMS APPROACH. 3. THE STRATEGIC – CONSTITUENCIES APPROACH. 4. THE COMPETING- VALUES APPROACH.

1.THE GOAL- ATTAINMENT APPROACH: (GAA) • An organization is, by definition, created deliberately to achieve one or more specified goals. It should come as no surprise then to find that goal attainment is probably the most widely used criterion of effectiveness. • The goal- attainment approach states that an organization’s effectiveness must be appraised in terms of the accomplishment of ends rather than means. It is the bottom line that counts. • Popular goal- attainment criteria include profit maximization.

Assumptions of GAA: • It includes 5 assumptions, viz; 2. Organization must have ultimate goals. 3. These goals must be identified well enough to be understood. 4. These goals must be few enough to be manageable. 5. There must be general consensus or agreement on these goals. 6. Finally , progress toward these goals must be measurable.

Making goals operative: • How would managers operationalize the goal- attainment approach? • The key decision maker would be the group from which the goals would be obtained. • This group would be asked to state the organizations specific goals. • Once identified, it would be necessary to develop some measurable device to see how well the goals are being met. • The goal- attainment approach is probably most explicit in management by objective (MBO). • MBO is a well – known philosophy of management that assesses an organization and its members by how well they achieve specific goals that supervisors and sub- ordinates have jointly established. • MBO represents the ultimate in a goal- oriented approach to effectiveness.

PROBLEMS: • It is one thing to talk about goal is general. • When an organization states officially as its goals does not always reflect the organization’s actual goals. • An organization short- term goals are frequently different from its long- term goal. • The fact that organizations have multiple goals also creates difficulties. • Organization goals do not direct behavior.

Value to managers: •

2. 3. 4. 5. 6.

Organizations exist to achieve goals- the problem lie in their identification and measurement. The validity of these goals identified can probably be increased significantly by; Ensuring that input is received from all those having a major influence on formulating the goals, even if they are not part of senior management. Including actual goals obtained by observing the behavior of organization members. Recognizing that organization’s pursue both short and long term goals. Insisting on tangible, verifiable, and measurable goals rather than relying on vague statement that merely mirror societal expectations. Viewing goals as dynamic entities that change over time rather than as rigid or fixed statements of purpose.

Contd., • If manager are willing to confront the complexities inherent in the goalattainment approach, they can obtain reasonably valid information for assessing an organization’s effectiveness. But there is more to OE than identifying and measuring specific ends.

2. THE SYSTEM APPROACH: • Organizations acquire inputs, engage in transforming processes, and generate outputs. • Goals focus on outputs. But an organization should also be judged on its ability to acquire inputs, process these inputs, channel the outputs, and maintain stability and balance. Another way to look at OE, therefore , is through a system approach. • In the system approach, end goals are not ignored; but they are only one element in a more complex set of criteria. • System model emphasize criteria that will increase the long- term survival of the organization- such as the organization’s ability to acquire resources, maintain itself internally as a social organism, and interact successfully with its external environment. So the systems approach focuses not so much on specific ends as on the means needed for the achievement of those ends.

ASSUMPTIONS: 1. A system approach to OE implies that organizations are made up of interrelated subparts. 2. Effectiveness requires awareness and successful interactions with environmental constituencies. 3. Survival requires a steady replenishment of those resources consumed.

Making systems operative: • Let us now to the issue of how managers can apply the systems approach. • First, we look at sampling of criteria that system advocates consider relevant; then we consider the various ways in which managers measure these criteria. • The system view looks at factors such as relations with the environment to assure continued receipt of input and favorable acceptance of outputs, flexibility of response to environmental changes, the efficiency with which the organization transforms inputs to outputs, the clarity of internal communications, the level of conflict among groups, and the degree of employee job satisfaction. • It has been suggested that the critical system interrelationships can be converted into OE variables or ratios. These could include output/input (o/p), transformations/inputs (T/I), and so on.

Examples of effectiveness measure of system for different types of organization:

System variables O/I

Business firm

Hospital

College

Return on investment

No. of faculty publications

T/I

Inventory turnover

Total no. of patients treated.

T/O

Sales volume

Total no. of No. of student patients treated graduated

Change in working capital

Change in no. of patients treated

Capital invested Cost of in medical information technology systems

Change in student enrollment

Problems: • The two most telling shortcomings of the systems approach relate to measurement and the issue of whether means really matter. • Measuring specific end goals may be easy compared with trying to measure process variables such as “clarity of internal communications”. • In sports, it is frequently said that “it is whether you win or lose that counts, not how you play the game!” It can be argued that the same holds true for organizations. If ends are achieved, are means important?

Value to managers: • Managers who use a systems approach to OE are less prone to look for immediate results. They are less likely to make decisions that trade off the organization’s long- term health and survival for ones that will make them look good in the near term. • The systems approach increases the manager’s awareness of the interdependency of organizational activities. • A final plus for the systems approach is its applicability where end goals either are very vague or defy measurement.

3. The strategic- constituencies approach: • A more recent perspective on OE- the Strategicconstituencies approach- proposes that an effective organization is one that satisfies the demand of those constituencies in its environment from whom it requires support for its continued existence. • This approach is similar to the system view, yet it has a different emphasis. • The strategic- constituencies view is not concerned with all of the organizations environment. • It seeks to appease only those in the environment who can threaten the organization’s survival.

Assumptions: • The strategic- consistency approach views organization’s very differently. They are assumed to be political arenas where vested interest compete for control over resources. In such a context, organizational effectiveness becomes an assessment of how successful the organization has been at satisfying those critical constituencies, upon whom the future survival of the organization depends. • The “political arenas” metaphor further assumes the organization has a number of constituencies. • No goal or set of goals that management selects is value free.

Making strategic constituencies operative: • The manager wishing to apply this perspective might begin by asking of the dominant coalition to identify the constituencies they consider to be critical to the organization’s survival. • This list could then be evaluated to determine the relative power of each. • The third step requires identifying the expectations that these constituencies hold for the organization. • The strategic- constituencies approach would conclude by comparing the various expectations, determining common expectations and those that are incompatible, assigning relative weights to the various constituencies, and formulating a preference ordering of these various goals for the organization as a whole.

Typical OE criteria of selected strategic constituencies: constituencies owners Employees customers suppliers creditors

Typical OE criteria Return on investment; growth in earnings Compensation; fringe benefits; satisfaction with working conditions Satisfaction with price, quality, service. Satisfaction with payments; future sales potential Ability to pay indebtedness.

Competitive wages and benefits; satisfactory working conditions; willingness to bargain fairly Local community officials Involvement of organization’s members in local affairs; lack of damage to the community’s environment Government agencies Compliance with laws; avoidance of penalties and unions

Problems: • The task of separating the strategic constituencies from the larger environment is easy to say but difficult to do in practice. • Identifying the expectations that the strategic constituencies hold for the organization presents a problem. How do you tap that information accurately?

Value to managers: • If survival is important for an organization, then it is incumbent upon managers to understand just who it is (in terms of constituencies) that survival is contingent upon. • Decrease the chance that they might ignore or severely upset a group whose power could significantly hinder the organization’s operations.

4. The competing- values approach: • If we are to have a comprehensive understanding of OE, it would seem worthwhile to identify all of the key variables in the domain of effectiveness and then determine how the variables are related. The competing- values approach offers just such an integrative framework. • The main theme underlying the competingvalues approach is that the criteria you value and use in assessing an organization’s effectivenessreturn on investment, market share, newproduct innovation, job security- depends on who you are and the interests you represent.

Comparing the four OE approaches: APPROACH

DEFINITION

WHEN USEFUL

Goal attainment

An organization is effective to the extent that… it accomplishes its stated goal. It acquires needed resources.

The approach is preferred when… goals are clear, time bound & measurable.

All strategic constituencies are at least minimally satisfied

Constituencies have powerful influence on the organization, and respond to demands.

systems Strategic constituencies Competing values

The emphasis of the organization in the 4 major areas matches constituent

A clear connection exist between inputs & outputs.

The organization is unclear about its own emphases, or changes in criteria over time are

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